Mohammed Meeran Shahul Hameed, CHENNAI V. ACIT, CHENNAI

CO 144/CHNY/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8327 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-02-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 24-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Cost of acquisition; Non-deduction of tax; Reasonable cause
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 1451/MDS/2012 (ASSESSMENT YEAR : 2008-09) THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XV, CHENNAI - 600 034. (APPELLANT) V. SHRI MOHAMED MEERAN SHAHULHAMEED, NO.06, UNNAMALAI AMMAN ST., FLAT NO.2, KAILASH APARTMENTS, T. NAGAR, CHENNAI - 600 017. PAN : ABHPS 2454 C (RESPONDENT) C.O. NO. 144/MDS/2012 (IN I.T.A. NO. 1451/MDS/2012) (ASSESSMENT YEAR : 2008-09) SHRI MOHAMED MEERAN SHAHULHAMEED, M/S CNGSN & ASSOCIATES, FLAT C&D, NO.22, VIJAYARAGHAVA ROAD, T. NAGAR, CHENNAI - 600 017. (CROSS-OBJECTOR) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XV, CHENNAI - 600 034. (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB, ADDL. CIT ASSESSEE BY : SHRI B. RAMAKRISHNAN, CA DATE OF HEARING : 19.02.2013 DATE OF PRONOUNCEMENT : 19.02.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEAL AND CROSS-OBJECTION FILED BY REV ENUE AND ASSESSEE RESPECTIVELY, DIRECTED AGAINST AN ORDER DA TED 30.3.2012 OF COMMISSIONER OF INCOME TAX (APPEALS)-XII, CHENNAI, FOR THE IMPUGNED ASSESSMENT YEAR. 2 I.T.A. NO. 1451/MDS/12 C.O. NO. 144/MDS/12 2. APPEAL OF THE REVENUE IS FILED LATE BY THREE DAY S. CONDONATION PETITION HAS BEEN FILED. REASONABLE CAUSE HAS BEEN SHOWN. DELAY IS CONDONED AND APPEAL IS ADMITTED. 3. GRIEVANCE RAISED BY THE REVENUE IS THAT CIT(APPE ALS) DELETED DISALLOWANCE OF ` 1,03,200/- ON MACHINERY HIRE CHARGES, ` 1,77,830/- ON CONSULTANCY CHARGES, ` 15,93,635/- ON ARCHITECT FEES AND ` 7,34,474/- ON SECURITY CHARGES. ASSESSING OFFICER HAD EFFECTED S UCH DISALLOWANCES FOR NON-DEDUCTION OF TAX AT SOURCE. AS AGAINST THIS, A SSESSEE IN HIS CROSS- OBJECTION IS AGGRIEVED BY THE CONFIRMATION OF DISAL LOWANCE OF RENT OF ` 11,50,558/-, AGAIN FOR NON-DEDUCTION OF TAX AT SOUR CE. ASSESSEE IS ALSO AGGRIEVED ON A PARTIAL CONFIRMATION OF LABOUR CHARG E DISALLOWANCE. 4. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN CONS TRUCTION BUSINESS, FILED HIS RETURN FOR IMPUGNED ASSESSMENT YEAR DECLARING INCOME OF ` 9,92,560/-. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HA D DEBITED MACHINERY HIRE CHARGES OF ` 1,02,300/-, CONSULTANCY CHARGES OF ` 1,77,830/-, ARCHITECT FEES OF ` 15,93,635/-, RENT OF ` 8,42,676/-, SALARY OF ` 19,94,940/- AND SECURITY CHARGES OF ` 7,34,474/- AND SUCH PAYMENTS WERE EFFECTED WITHOUT DEDUCTING TAX AT SOURCE. A.O . ALSO NOTED THAT PURCHASE OF MATERIALS WORTH ` 29,24,612/-, ASSESSEE COULD ONLY PRODUCE SELF-VOUCHERS. AGAINST LABOUR CHARGES OF ` 1,40,41,755/-, AS PER THE 3 I.T.A. NO. 1451/MDS/12 C.O. NO. 144/MDS/12 A.O., ASSESSEE COULD NOT PRODUCE EVIDENCE FOR ` 9,39,037/-. HE DISALLOWED 20% OF PURCHASE COST WHICH WORKED OUT TO ` 5,84,922/- AND LABOUR CHARGES ` 9,39,037/- FOR WANT OF PROPER VOUCHERS, IN ADDITIO N TO THE DISALLOWANCES INVOKING SECTION 40(A)(IA) OF THE ACT. 5. ASSESSEE MOVED IN APPEAL BEFORE CIT(APPEALS). G ROUNDS TAKEN WERE THAT SECTION 40(A)(IA) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), WHICH WAS INVOKED, WAS APPLICABLE ONLY WHERE ANY AM OUNTS WERE PAYABLE AS AT THE END OF PREVIOUS YEAR. ACCORDING TO ASSESSEE, ALL THE AMOUNTS WERE PAID DURING RELEVANT PREVIOUS YEAR. A NOTHER CONTENTION OF THE ASSESSEE WAS THAT THE SAID SECTION 40(A)(IA) DI D NOT APPLY TO DIRECT COST BUT ONLY TO THOSE EXPENSES FALLING WITHIN SECT IONS 30 TO 38 OF THE ACT. AS PER ASSESSEE, MACHINERY HIRE CHARGES, CONS ULTANCY CHARGES, ARCHITECT FEES, SECURITY CHARGES, RENT AND SALARIES WERE DIRECT COSTS NOT FALLING UNDER SECTIONS 30 TO 38 AND THEREFORE, NON- DEDUCTION OF TAX AT SOURCE ON PAYMENTS UNDER THESE HEADS DID NOT WARRAN T ANY DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT. F URTHER, AS PER THE ASSESSEE, SECTION 40(A)(IA) DID NOT COVER SALARY PA YMENTS AND FOR THIS REASON ALSO SUCH DISALLOWANCE DID NOT HOLD GOOD. V IS--VIS DISALLOWANCE ON LABOUR CHARGES, ARGUMENT OF THE ASSESSEE WAS THA T THERE WERE PROPER VOUCHERS AND ASSESSING OFFICER DID NOT APPRE CIATE IT. FOR 4 I.T.A. NO. 1451/MDS/12 C.O. NO. 144/MDS/12 PURCHASES, ASSESSEE ARGUED THAT IN THE NATURE OF HI S TRADE, ONLY SELF- VOUCHERS COULD BE MAINTAINED. 6. LD. CIT(APPEALS) DELETED THE DISALLOWANCE MADE O N PURCHASES. ACCORDING TO HIM, PERCENTAGE OF SUCH PURCHASES VIS- -VIS THE TURNOVER WAS MORE OR LESS CONSTANT WHEN COMPARED WITH THE EA RLIER YEARS. INSOFAR AS DISALLOWANCE MADE ON SALARIES, FOR NON-D EDUCTION OF TAX AT SOURCE, LD. CIT(APPEALS) WAS OF THE OPINION THAT SE CTION 40(A)(IA) DID NOT APPLY SINCE THE TYPE OF EXPENSES COVERED UNDER THE SAID SECTION DID NOT INCLUDE SALARIES. WITH REGARD TO CLAIM OF LABOUR C HARGES, CIT(APPEALS) WAS OF THE OPINION THAT IF AT ALL A.O. CONSIDERED ` 9,39,037/- OUT OF THE TOTAL OUTGO AS NOT PROPERLY VOUCHED, THEN CONCESSIO N OUGHT HAVE BEEN GIVEN FOR THAT PART OF LABOUR CHARGES INCLUDED IN W ORK-IN-PROGRESS OF THE ASSESSEE. HE, THEREFORE, DELETED THE DISALLOWANCE OF ` 7,27,415/- OUT OF ` 9,39,037/- CONSIDERING IT TO BE PART OF WORK-IN-PR OGRESS. IN OTHER WORDS, HE UPHELD THE DISALLOWANCE OF ` 2,11,622/- ONLY. INSOFAR AS DISALLOWANCE FOR NON-DEDUCTION OF TAX AT SOURCE ON MACHINERY HIRE CHARGES, CONSULTANCY CHARGES, ARCHITECT FEES AND SE CURITY CHARGES WERE CONCERNED, LD. CIT(APPEALS) WAS OF THE OPINION THAT THESE WERE DIRECT COSTS AND RELYING ON THE DECISION OF HYDERABAD BENC H OF THIS TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS V. ACIT (2010) 36 DT R 220, HE HELD THAT THE SAID SECTION 40(A)(IA) COULD BE APPLIED ONLY TO THOSE EXPENSES COVER 5 I.T.A. NO. 1451/MDS/12 C.O. NO. 144/MDS/12 UNDER SECTIONS 30 TO 38 AND NOT ON DIRECT COSTS. H OWEVER, CONTENTION OF THE ASSESSEE THAT SECTION 40(A)(IA) DID NOT APPLY O N PAID AMOUNTS, WAS NOT ACCEPTED BY THE LD. CIT(APPEALS). DISALLOWANCE MADE ON PAYMENT OF RENT WITHOUT DEDUCTING TAX AT SOURCE, WAS CONFIR MED BY THE CIT(APPEALS). 7. NOW BEFORE US, REVENUE IN ITS APPEAL IS AGGRIEVE D THAT CIT(APPEALS) HELD SECTION 40(A)(IA) TO BE NOT APPLI CABLE ON DIRECT COSTS. AS AGAINST THIS, ASSESSEE IS AGGRIEVED ON DISALLOWA NCE OF RENT FOR NON- DEDUCTION OF TAX AT SOURCE AND CONFIRMATION OF DISA LLOWANCE OF LABOUR CHARGES TO THE EXTENT ` 2,11,622/-. 8. LEARNED D.R., ASSAILING THE ORDER OF CIT(APPEALS ), SUBMITTED THAT SECTION 40(A)(IA) WAS VERY MUCH APPLICABLE FOR DIRE CT COSTS AND THE SAID SECTION COULD NOT BE RESTRICTED TO EXPENSES FALLING WITHIN SECTIONS 30 TO 38 OF THE ACT. RELIANCE WAS PLACED ON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT V. MACRO MARVE L PROJECTS LTD. IN I.T.A. NO.116/MDS/2011 AND I.T.A. NO. 1685/MDS/2010 DATED 27 TH NOVEMBER, 2012. ACCORDING TO HIM, IN THE CASE OF T EJA CONSTRUCTIONS DECIDED BY HYDERABAD BENCH (SUPRA), ASSESSMENT WAS DONE ON ESTIMATE BASIS TAKING A PERCENTAGE OF TURNOVER AND NOT BASED ON THE BOOKS OF ACCOUNTS. HERE, IN THE CASE OF THE ASSESS EE, THE ASSESSMENT 6 I.T.A. NO. 1451/MDS/12 C.O. NO. 144/MDS/12 WAS COMPLETED MAKING THE DISALLOWANCE ON CLAIMS BAS ED ON THE BOOKS OF ACCOUNTS AND NOT ON ESTIMATES. 9. PER CONTRA, LEARNED A.R. PLACED RELIANCE ON THE DECISION CITED BY CIT(APPEALS) IN SUPPORT OF HIS CROSS-OBJECTION. LE ARNED A.R. SUBMITTED THAT IN VIEW OF THE DECISION OF SPECIAL BENCH OF TH IS TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT V. ACIT (2012) 16 ITR (TRIB.) 1 (SB), SECTION 40(A)(IA) COULD NOT BE APPLIED TO RENT AMOU NTS WHICH WERE PAID DURING THE RELEVANT PREVIOUS YEAR. FURTHER, ACCORD ING TO HIM, LABOUR CHARGES OF THE ASSESSEE CAME TO ` 1,40,41,755/- AND MAJORITY OF THEM WERE SUPPORTED BY VOUCHERS. IN SUCH CIRCUMSTANCES, DISALLOWANCE WAS NOT AT ALL WARRANTED. 10. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE ISSUE WITH REGARD TO APPLICABILITY OF SECTION 4 0(A)(IA) TO DIRECT COSTS FALLING UNDER SECTION 28 OF THE ACT, HAS ALREADY BE EN CONSIDERED BY CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF MACR O MARVEL PROJECTS LTD. (SUPRA). THE CO-ORDINATE BENCH OF THIS TRIBUNAL, A FTER CONSIDERING THE DECISION OF HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS (SUPRA), HELD AT PARA 22 OF ITS ORDER , AS UNDER:- 22. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL S UBMISSIONS. THERE IS NO DISPUTE THAT ASSESSEE EFFECTED THE PAYM ENTS TO ONE M/S MACRO MARVEL INFRASTRUCTURE CORPORATION LTD. THOUG H IT IS STATED THAT THE AMOUNTS WERE CONTRACT PAYMENTS, THE NATURE OF EXPENDITURE INVOLVED IS NOT CLEAR FROM THE ASSESSMENT ORDER, NO R FROM THE ORDER 7 I.T.A. NO. 1451/MDS/12 C.O. NO. 144/MDS/12 OF CIT(APPEALS). NO DOUBT, HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS (SUPRA) HAS MADE AN OBSE RVATION AT PARA 13 OF ITS ORDER THAT PROVISIONS OF SECTION 40(A)(IA) W ERE APPLICABLE ONLY TO ITEMS COVERED UNDER SECTIONS 30 TO 38 AND NOT F OR EXPENDITURE IN THE NATURE OF DIRECT COST COVERED BY SECTION 28 OF THE ACT. HOWEVER, IN THE SAID CASE, BOOKS OF ACCOU NTS OF THE ASSESSEE WERE REJECTED AND PROFITS WERE ESTIMATED. DISALLOWANCE UNDER SECTION 40(A)(IA) WAS MAINLY HELD TO BE NOT WAR RANTED FOR THE REASON THAT ESTIMATION OF INCOME TOOK INTO ACCOUNT ALL IRREGULARITIES COMMITTED BY THE ASSESSEE, AND A FURTHER DISALLOWAN CE UNDER SECTION 40(A)(IA) WOULD AMOUNT TO PUNISHING THE ASSESSEE TWIC E FOR THE SAME OFFENCE. THUS, OBSERVATION OF HYDERABAD BENCH OF TH IS TRIBUNAL WAS IN A CASE WHERE BOOKS OF ACCOUNTS WERE REJECTED AND ESTIMATION OF INCOME WAS MADE BASED ON BEST OF JUDGMENT. ON SUCH A FACTUAL SITUATION, IT WAS OBSERVED BY THE BENCH THAT SECTION 40(A)(IA) COVERED ONLY THOSE ITEMS FALLING WITHIN SECTIONS 30 T O 38 OF THE ACT. HERE, ON THE OTHER HAND, BOOKS WERE NOT REJECTED BY THE ASSESSING OFFICER AT ALL. HENCE, IN OUR OPINION, THE SAID DE CISION WILL NOT HELP THE ASSESSEES CASE. HOWEVER, WHETHER THE AMOUNTS WERE FULLY PAID OR PAYABLE AT THE END OF THE RELEVANT PREVIOUS YEAR , IS NOT CLEAR FROM THE RECORD. SPECIAL BENCH OF THIS TRIBUNAL IN THE C ASE OF MERILYN SHIPPING AND TRANSPORT V. ACIT (2012) 16 ITR (TRIB.) 1 (SB) HAS HELD THAT SECTION 40(A)(IA) WOULD BE APPLICABLE ONLY TO AM OUNTS STANDING PAYABLE AT THE END OF THE RELEVANT PREVIOUS YEAR. WE ARE, THEREFORE, OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOO K BY THE ASSESSING OFFICER. WE SET ASIDE THE ORDERS OF AUTHORITIES BE LOW AND REMIT THE ISSUE OF DISALLOWANCE UNDER SECTION 40(A)(IA) TO THE FILE OF THE A.O. FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 11. HERE ALSO, ASSESSEE WAS MAINTAINING BOOKS AND A SSESSMENT WAS NOT DONE ON ESTIMATE OR PERCENTAGE BASIS. THEREFOR E, WE CANNOT AGREE WITH THE VIEW TAKEN BY THE LD. CIT(APPEALS) THAT SE CTION 40(A)(IA) COULD NOT HAVE BEEN APPLIED TO DIRECT COSTS. 12. AS FOR THE CLAIM OF THE ASSESSEE THAT THE RENT AMOUNT WAS PAID AND SECTION 40(A)(IA) COULD NOT BE APPLIED, NO DOUBT, T HE DECISION OF SPECIAL 8 I.T.A. NO. 1451/MDS/12 C.O. NO. 144/MDS/12 BENCH IN THE CASE OF MERILYN SHIPPING AND TRANSPORT (SUPRA) APPARENTLY IS IN HIS FAVOUR. BUT, OPERATION OF THE SAID DECIS ION HAS BEEN STAYED BY HIGH COURT. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE ISSUE OF RENT DISALLOWANCE NEEDS TO HAVE A FRESH LOOK BY THE ASSE SSING OFFICER. WE REMIT BACK THIS ISSUED TO THE FILE OF A.O. FOR CONS IDERATION AFRESH, IN ACCORDANCE WITH LAW. 13. CONTENTION OF THE ASSESSEE THAT NO PART OF LABO UR CHARGES OUGHT HAVE BEEN DISALLOWED, CANNOT BE ACCEPTED FOR THE RE ASON THAT ASSESSEE ADMITTEDLY COULD NOT PRODUCE ANY EVIDENCE FOR AN AM OUNT OF ` 9,39,037/- THERE IS NO NEED TO INTERFERE WITH THE ORDER OF CIT (APPEALS). 14. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED , WHEREAS, CROSS- OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE COURT ON TUESDAY, THE 1 9 TH OF FEBRUARY, 2013, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 19 TH FEBRUARY, 2013. KRI. COPY TO: ASSESSEE/ASSESSING OFFICER/CIT(A)-XII, CH ENNAI-34/ CIT-X, CHENNAI/D.R./GUARD FILE