M/s. Sri Navodaya Granite Industries, Visakhapatnam V. The ACIT, Kakinada

CO 11/VIZ/2017

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3383 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 30-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V APPALA RAJU
• Keywords: Retrospective amendment; Non-deduction of tax
• Section: 143(3); 201(1); 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER . / I . T .A.NO . 486 / VIZ / 201 6 ( / ASSESSMENT YEAR: 20 1 2 - 1 3 ) THE ACIT, CIRCLE - 1, KAKINADA VS. M/S SR I NA VODAYA GRANITE INDUSTRIES ANAKAPALLE VISAKHAPATNAM [PAN :AASFS0693R] ( / APPELLANT) ( / RESPONDENT) CROSS OBJECTION NO.11/VIZ/2017 ARISING OUT OF ITA NO.486/VIZ/2016 M/S SR I NA VODAYA GRANITE INDUSTRIES ANAKAPALLE VISAKHAPATNAM [PAN :AASFS0693R ] VS. THE ACIT, CIRCLE - 1, KAKINADA ( / APPELLANT) ( / RESPONDENT) / REVENUE BY : SHRI V.APPALA RAJU, DR / ASSESSEE BY : SHRI G.V.N.HARI, AR / DATE OF HEARING : 20 . 12 .2017 / DATE OF PRONOUNCEMENT : 22 . 12 .2017 2 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : 1 . TH IS APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) [CIT(A)] - 2 , VI SAKHAPATNAM VIDE ITA NO.1 86 /201 5 - 1 6/CIT(A) - 2/VSP/C - 1,KKD/2016 - 17 DATED 23 .0 9 .201 6 FOR THE A.Y. 20 1 2 - 1 3 . 2 . THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 2,03,750/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) ON TOTAL INCOME OF RS.58,15,640/ - . DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER(AO) MADE THE FOLLOWING ADDITIONS : (I) DISALLOWANCE OF PARTNERS REMUNERATION RS. 4,94,000 (II) DISALLOWANCE OF FINANCE CHARGES U/S 40(A)(IA) RS.50,46,643 (III) DISALLOWANCE OF PAYMENTS U/S 40A(2)(B) RS.71,250 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) CONFIRMED THE ADDITION IN RESPECT OF PARTNERS REMUNERATION OF RS.4,94,000/ - AND THE FINANCE CHARGES OF RS. 13,23.025/ - 3 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE AND DELETED THE SUM OF RS.71,250/ - WITH RESPECT TO THE DISALLOWANCE OF PAYMENTS MADE U/S 40A(2)(B) OF I.T.ACT. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REVENUE HAS FILED APPEAL CHALLENGING THE DELETION MADE BY THE LD.CIT(A) WITH RESPECT TO THE DISA LLOWANCE OF EXPENDITURE U/S 40A(A)(IA ) OF I.T.ACT AMOUNTING TO RS.37,23,628/ - (50,56,643 13,23,025) AND THE ASSESSEE FILED CROSS OBJECTIONS CHALLENGING THE ORDER OF THE LD. CIT (A) WITH RESPECT TO DISALLOWANCE OF PARTNERS REMUNERATION AND DISALLOWANCE O F FIN ANCE CHARGES U/S 40(A)(IA) AMOUNTING TO RS.13,23.025/ - REVENUES APPEAL - ITA 486/VIZ/2016 5. ALL THE GROUNDS OF APPEAL OF THE REVENUE ARE RELATED TO DELETION OF THE ADDITION MADE BY THE AO W.R.T. FINANCE CHARGES PAID TO M/S SUNDARAM FINANCE LTD., M/S SHRIRAM TRA N SPORT FINANCE COMPANY AGGREGATING TO RS. 37 , 23 ,6 28 / - . FORM 26AS SHOWS THAT M/S SUNDARAM FINANCE LTD. AND SHRIRAM TRANSPORT FINANCE COMPANY HAVE ADMITTED THE INCOME OF RS.38,86,822/ - AS PER THE DETAILS GIVEN BELOW NAME OF THE DEDUCTEE AS PER BOOKS AS PER FORM 26A A) SUNDARAM FINANCE LTD. 5,21,695/ - 6,84,889/ - B) SHRIRAM TRANSPORT FINANCE CO.LTD. 45,2 4 , 958 / - 32,01,933/ - 50,46,653/ - 38,83,822/ - 4 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE 5.1. THE LD.CIT(A) VERIFIED THE FORM 26AS AND FOUND THAT M/S SUNDARAM FINANCE LTD. H AS ADMITTED THE INCOME OF RS. 5 , 21 , 6 9 5 / - AND M/S SHRI RAM TRANSPORT FINANCE CO. LTD. H AS ADMITTED A SUM OF RS.32,01,933/ - IN THEIR RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER C ONSIDERATION. FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LANDMARK TOWNSHIP P. LTD. (377 ITR 635 DEL.), THE CIT(A) HAS DELETED THE ADDITION OF RS.37,23,628/ - A ND CONFIRMED THE BALANCE AMOUNT OF RS.13,23,025/ - . 6. AGGR IEVED BY THE ORDER OF THE LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2012 - 13, THE ASSESSEE HAS MADE THE PAYMENTS OF RS.5 0,46,653/ - TOWARDS THE INTEREST AS PER DETAILS GIVEN ABOVE TO M/S SUNDARAM FINANCE LTD. AND M/S SHRIRAM TRANSPORT FINANCE CO.LTD. WITHOUT DEDUCTION OF TAX AT SOURCE . T HE ABOVE PAYMENTS ATTRA CTS THE TDS U/S 194A OF I.T.ACT, AND NON DEDUCTION OF TAX AT SOURCE ATTRACTS THE DISALLOWANCE U/S 40(A)(IA) OF I.T.ACT. ACCORDINGLY, THE AO MADE THE DISALLOWANCE U/S 40(A)(IA) AMOUNTING TO RS.50,46,653/ - . DURING THE APPEAL HEARING, THE LD.CIT(A) HAS VERIFIED THE FORM 26AS AND 5 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE FOUND THAT THE BENEF ICIARIES HA VE ADMITTED THE INCOME OF RS.37,23,628/ - AS UNDER : (I) M/S SUNDARAM FINANCE LTD. RS.5,21,695/ - (II) M/S SHRIRAM TRANSPORT FINANCE CO.LTD. RS.32,01,933/ - 6.1 SECTION 40(A), SUB SECTION (I A) WAS AMENDED W.E.F. 01.04.2013 BY INSERT ING A NEW ( SECOND ) PROVISO WHICH IS AS UNDER : IN VIEW OF THE SECOND PROVISO TO SECTION 40(A)(IA) READ WITH PROVISO TO SECTION 201(1) OF THE INCOME TAX ACT NO DISALLOWANCE OF EXPENSE U/S 40(A)(IA) CAN BE MADE UNLESS THE ASSESSEE HAS BEEN TREATED AS ASSESS EE IN DEFAULT UNDER S.201(1) OF THE ACT FOR ITS FAILURE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT MADE ON ACCOUNT OF INTEREST. IN SIMPLE WORDS, IF THE AMOUNT PAID BY PAYER HAVE BEEN INCLUDED BY THE PAYEE IN HIS RETURN OF INCOME FOR RELEVANT ASST. YEAR, FILE D THE RETURN OF INCOME U/S 139 AND HAS PAID THE TAX DUE ON THE INCOME DECLARED IN SUCH RETURN, TO THE EXTENT THE RECIPIENT (I.E. PAYEE) FROM THE ASSESSEE HAVE SO INCLUDED THE SUM IN HIS RETURN OF INCOME AND FILED THE SAME, NO DISALLOWANCE U/S.40(A)(IA) OF THE ACT CAN BE MADE BY THE AO IN VIEW OF THE SECOND PROVISO TO SECTION 40(A)(IA) READ WITH FIRST PROVISO TO SECTION 201(1) OF THE ACT. THIS HAS BEEN PROVIDED IN THE SECOND PROVISO TO SECTION 40(A)(IA) INSERTED IN THE STATUTE BY THE FINANCE ACT, 2012 WITH E FFECT FROM 1.4.2013. THEREFORE, ON FURNISHING OF CERTIFICATE IN FORM 26A AS PRESCRIBED UNDER PROVISO TO SECTION 201(1) READ WITH RULE 31ACB OF THE I.T. RULES NO DISA L LOWANCE U/S 40(A)(IA) CAN BE MADE. 6.2 . AS PER THE PROVISO, IF THE DEDUCTEE ADMITS THE INCOME AND PAYS TAXES ON SUCH IN COME, THE ASSESSEE IS NOT DEEMED TO BE ASSESSEE IN DEFAULT AND THE DISALLOWANCE U/S 40(A)(IA) DOES NOT ATTRACT. THOUGH THE AMENDMENT HAS COME INTO EFFECT W.E.F. 01.04.2013, THE HON B LE DELHI HIGH COURT IN THE CASE OF CIT VS . ANSAL LANDMARK (SUPRA) HELD THAT THE SECOND PROVISO TO 6 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND HAS RETROSPECTIVE EFFECT FROM 01.04.2005. THE LD.CIT(A) HAS ALLOWED THE ASSESSEES APPEAL FOLLOWING THE ORDER OF THE HONBLE DELHI HIGH C OURT. DURING THE APPEAL HEARING, THE LD.DR DID NOT PLACE ANY OTHER DECISION TO CONTROVERT THE RELIANCE PLACED BY THE LD.CIT(A). SINCE THE CIT(A) ALLOWED THE ASSESSEES APPEAL FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. APPEAL OF THE REVENUE IS DISMISSED. CROSS OBJECTION NO.11/VIZ/2017 7. GROUND NO.1 OF CROSS OBJECTION IS WITH REGARD TO THE ADDITION SUSTAINED BY THE LD.CIT(A) U/S 40(A)(IA) OF I.T.ACT. THE AO MADE THE DISALLOWANCE OF PAYMENT OF INTEREST TO M/S SUNDARAM FINANCE LTD. AND M/S SHRIRAM TRANSPORT FINANCE CO. LTD. AGGREGATING TO R S.50,46,653/ - AFTER VERIFICATION OF FORM 26AS, T HE CIT(A) FOUND THAT M/S SUNDARAM FINANCE LTD. AND M/S SHRIRAM TRANSPORT FINANCE CO.LTD. HAVE ADMITTED RS.37,23,628/ - AND CONFIRMED THE BALANCE AMOUNT OF RS.13,23,025/ - THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) FOR DELETING THE ADDITION OF RS.13,23,025/ - RELATING TO THE BALANCE AMOUNT. DURING THE APPEAL HEARING 7 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE THE LD.AR DID NOT PRESS THIS GROUND. THEREFORE, GROUND NO.1 IS DISMISSED AS NOT PRESSED. 8. GROUND NO.2 IS RELATED TO THE ADDITION OF R S.4,94,000/ - TOWARDS PARTNERS REMUNERATION. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS.5,30,000/ - TOWARDS PARTNERS REMUNERATION. THE AO FOUND FROM THE PARTNERSHIP DEED THAT THE PARTNERSHIP DEED PERMITS RE MUNERATION TO THE EXTENT OF RS.36,000/ - ONLY AND ACCORDINGLY MADE THE ADDITION OF RS.4,94,000/ - , RELATING TO THE DIFFERENCE BETWEEN THE REMUNERATION CLAIMED AND PERMITTED UNDER PARTNERSHIP DEED. 9. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) CONFIRMED THE ADDITION HOLDING THAT THE ASSESSEE FAILED TO FURNISH ANY WRITTEN AGREEMENT FOR INCREASING THE REMUNERATION. IN THE ABSENCE OF WRITTEN DOCUMENT , THE CIT(A) WAS OF THE VIEW THAT IT IS NOT JUSTIFIED TO MAKE SUCH CLAIM AND ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE AO. 8 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE 10. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE HA S FILED THE CROSS OBJECTIONS BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.AR ARGUED THAT THE PARTNERSHIP DEED PE RMITS THE PAYMENT OF REMUNERATION OF RS.3,000/ - WHICH IS SUBJECT TO INCREASE OR DECREASE BY MUTUAL AGREEMENT FROM TIME TO TIME AND SUBJECT TO THE LIMITATION OF SECTION 40 (B) OF I.T.ACT, HENCE, LD.AR ARGUED THAT THERE ARE ONLY TWO PARTNERS IN THE PARTNERSH IP FIRM, BOTH OF THEM ARE CLOSELY RELATED AND THE MANAGING PARTNER IS HAVING 94% OF SHARE IN THE PARTNERSHIP FIRM. SINCE THE PARTNERSHIP DEED PERMITS REMUNERATI ON TO THE MAXIMUM EXTENT OF 40(B ) OF I.T.ACT, THE SAME REQUIRED TO BE ALLOWED. LD.AR FURTHER A RGU ED THAT INDIAN PARTNERSHIP ACT DOES NOT MANDATE WRITTEN AGREEMENT. THE ACCOUNTS OF THE PARTNERS ARE VERIFIED BY BOTH THE PARTNERS AND AS PER THE MUTUALLY AGREED TERMS, THE WORKING PARTNER WAS PAID REMUNERATION OF RS.5,30,000/ - AND FOR WHICH NO SEPERATE DOCUMENT IS NECESSARY AS PER THE PARTNERSHIP DEED , SINCE THE C L AUSE FOR INCREASE/DECREASE OF REMUNERATION IS SUBJECT TO THE LIMITATION OF SECTION 40(B) IS EMBEDDED IN THE PARTNERSHIP DEED. THE PARTNERSHIP DEED CLEARLY PROVIDES FOR THE INCREASE /DECREASE O F PARTNERS REMUNERATION AND THE PAYMENT IS MADE WITHIN THE LIMITAT ION OF SECTION 40(B) OF I.T.ACT. H ENCE, THE LD.AR CONTENDED THAT THE REMUNERATION PAID TO THE MANAGING PARTNER IS PROVIDED AND PERMITTED IN THE PARTNERSHIP DEED, HENCE, REQUESTED TO ALLOW 9 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE TH E DEDUCTION. FURTHER, THE LD.AR SUBMITTED THAT THE ENTIRE REMUNERATION PAID TO THE MANAGING PARTNER AMOUNTING TO RS.5,30,000/ - WAS ADMITTED AS INCOME IN HIS HANDS AND PAID THE TAXES AND FILED THE RETURN OF INCOME, THUS , FURTHER DISALLOWANCE IN THE HANDS OF THE PARTNERSHIP FIRM AMOUNTS TO DOUBLE TAXATION OF THE SAME AMOUNT. 11. PER CONTRA, LD.DR SUPPORTED THE ORDERS OF THE CIT(A). 12. WE HAVE HEARD BOTH THE PARTIES AND MATERIAL PLACED ON RECORD. THE ASSESSEE FIRM HAS PAID A SUM OF RS.5,30,000/ - TO MAN AGING PARTNER AS REMUNERATION. ACCORDING TO THE AO, THE PARTNERSHIP DEED PERMITS THE PAYMENT OF REMUNERATION OF RS.36,000/ - ONLY . THOUGH THE LD.CIT(A) AGREED THAT PARTNERSHIP DEED PERMITS FOR PAYMENT OF REMUNERATION , THERE WAS NO SEPARATE DOCUMENT IN W RITING FOR INCREASE IN REMUNERATION. SINCE THERE IS NO DOCUMENT PLACED BEFORE THE CIT(A), THE LD.CIT(A) CONFIRMED THE ADDITION. HOWEVER, WE HAVE GONE THROUGH THE PARTNERSHIP DEED AND IN THE PARTNERSHIP DEED WITH RE GARD TO PAYMENT OF REMUNERATION,THERE W AS A CLAUSE F OR INCREASE/DECREASE OF REMUNERATION AS PER MUTUAL CONSENT BEFORE THE END OF THE FINANCIAL YEAR. IN THE INSTANT CASE, THERE WERE ONLY TWO PARTNERS. THE P&L ACCOUNT AND THE FINANCIAL STATEMENT WERE EXAMINED 10 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE BY BOTH THE PARTNERS AND AGREED FOR PAYMENT OF REMUNERATION OF RS.5,30,000/ . THE PARTNERSHIP DEED ALSO LIMITS THE REMUNERATION AS PERMISSIBLE U/S 40(B) OF I.T.ACT. SINCE THERE ARE ONLY TWO PARTNERS IN THE PARTNERSHIP FIRM, AND THE REMUNERATION PAID IS PER MISSIBLE AS PER PARTNERSHIP DEED AND THE BOOKS OF ACCOUNTS ARE BEING VERIFIED AND CERTIFIED BY BOTH THE PARTNERS AS STATED BY THE LD.AR, WE ARE IN AGREEMENT WITH THE SUBMISSION MADE BY THE LD.AR THAT THE PAYMENT OF REMUNERATION IS IN ACCORDANCE WITH THE PA RTNERSHIP DEED. THE LD.AR FURTHER SUBMI TTED THAT THE MANAGING PARTNER HAS ADMITTED THE INCOME IN HIS HANDS AND PAID TAXES. THEREFORE, WE HOLD THAT THE REMUNERATION OF RS.5,30,000/ - IS AUTHORIZED BY THE PARTNERSHIP DEED WHICH REQUIRED TO BE ALLOWED. THIS VIEW IS SUPPORTED BY THE DECISION OF HONBLE HIGH COURT OF RAJASTHAN IN THE CASE OF CIT VS. ASIAN MARKETING [254 CTR 0453]. THEREFORE, WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND ALLOW THE REMUNERATION PAID TO THE PARTNERS. THE CROSS OBJECTION O F THE ASSESSEE ARE PARTLY ALLOWED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED AND CROSS OBJECTIONS OF THE ASSESSEE ARE PARTLY ALLOWED. 11 ITA NO . 486 /V IZ /201 6 AND CO NO.11/VIZ/2017 M/S SRI NAVODAYA GRANITE INDUSTRIES, ANAKAPALLE THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND D EC 2017. SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 22 .12.2017 L. RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1. THE A SSESSEE M/S SRI NAVODAYA GRANITE INDUSTRIES, 5 - 91, ALLIKHANUDUPALEM, MAMIDIPALEM JUNCTION, ANAKAPALLE, VISAKHAPATNAM 2 . THE REVENUE THE ACIT, CIRCLE - 1, KAKINDADA 3. THE COMMISSIONER OF INCOME TAX - 2, VISAKHAPATNAM 4 . THE COMMISSIONER OF INCOME TAX (APPEALS) - 2, VISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM