M/s. S. Mobility Ltd., Noida V. ACIT, Meerut

CO 245/DEL/2013

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0161 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 23-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 23-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR SENIOR
• Assessee Lawyers: RUPESH J AIN
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3898/DEL./2013 (ASSESSMENT YEAR : 2009-10) ACIT, CIRCLE 2, VS. M/S. S. MOBILITY LIMITED, MEERUT. S. GLOBAL KNOWLEDGE PARK, 19-A & 19-B, SECTOR 125, NOIDA 201 301. (PAN : AABCM5619D) CO NO.245/DEL/2013 (IN ITA NO.3898/DEL./2013) (ASSESSMENT YEAR : 2009-10) M/S. S. MOBILITY LIMITED, VS. ACIT, CIRCLE 2, S. GLOBAL KNOWLEDGE PARK, MEERUT. 19-A & 19-B, SECTOR 125, NOIDA 201 301. (PAN : AABCM5619D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RUPESH JAIN, ADVOCATE REVENUE BY : SHRI B.R.R. KUMAR, SENIOR DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJE CTION FILED BY THE ASSESSEE EMANATE FROM THE ORDER OF THE CIT (APPEALS ), MEERUT DATED 28.03.2013 FOR THE ASSESSMENT YEAR 2009-10. ITA NO.3898/DEL./2013 CO NO.245/DEL/2013 2 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF MOBILE HANDSETS AND RELATED ACCESSOR IES. THE RETURN OF INCOME WAS FILED ON 30.09.2009 DECLARING INCOME AT RS.1,09,64,130/-UNDER THE NORMAL PROVISIONS OF INCOME-TAX ACT, 1961. THE ASSESSING OFFICER FINALIZED ASSESSMENT AT RS.6,86,81,034/- ON 29.12.2 011. THE ADDITION OF RS.5,77,16,904/- WAS MADE BY INVOKING THE PROVISION S OF SECTION 40(A)(IA) OF THE ACT. THE CIT (A) HAS DEALT THIS ISSUE IN HI S ORDER AT PARA 3.7 WHICH READ AS UNDER :- 3.7 THE APPLICABILITY OF THE PROVISIONS OF SECTIO N 194C IN THE CASE OF ADVERTISING HAS BEEN EXTENSIVELY DEALT WITH IN C IRCULAR NO.715 DATED 08.08.1995. IN RESPONSE TO QUESTION NUMBER 1, IT HA S BEEN STATED THAT THE FINANCE MINISTER HAD CLARIFIED THAT THE AMENDED PRO VISIONS OF TAX DEDUCTION AT SOURCE WOULD APPLY WHEN A CLIENT MAKES A PAYMENT TO AN ADVERTISING AGENCY. QUESTION NO.30 WAS THAT WHETHER THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C AND 194J HAS TO BE MAD E 'OUT OF THE GROSS AMOUNT OF THE BILL INCLUDING REIMBURSEMENTS OR EXCL UDING REIMBURSEMENTS FOR ACTUAL EXPENSES'. OBVIOUSLY, THE QUESTION REFERS TO A CASE WHERE A COMPOSITE PAYMENT HAS BEEN MADE FOR SE RVICES RENDERED AND REIMBURSEMENT OF EXPENSES INCURRED, BY THE PAYE E. IT WILL NOT BE APPLICABLE IN A CASE WHERE THE PAYMENT IS EXCLUSIVE LY FOR REIMBURSEMENT OF EXPENSES INCURRED. THIS VIEW WILL ALSO BE IN CON SONANCE WITH THE WIDER POSITION OF LAW THAT TDS IN TERMS OF SECTION 194C IS APPLICABLE ONLY WHERE THE SUM REPRESENTS AN INCOME IN THE HAND S OF THE PAYEE. THE PROVISION SPEAKS OF PAYMENT OF SOME TO ANY RESIDENT 'FOR CARRYING OUT ANY WORK' AND IN A CASE OF REIMBURSEMENT, THE PAYEE IS NOT CARRYING OUT ANY WORK. REFERENCES ALSO MADE SUBSECTION 3 OF SECT ION 194C WHICH IS STATES THAT WHERE ANY SUM IS PAID OR CREDITED FOR C ARRYING OUT ANY WORK, TDS SHALL BE DEDUCTED AT SOURCE ON THE INVOICE VALU E EXCLUDING THE VALUE OF MATERIAL IF SUCH VALUE IS MENTIONED SEPARATELY I N THE INVOICE OR ON THE WHOLE OF THE INVOICE VALUE IS THE VALUE OF MATERIAL IS NOT MENTIONED SEPARATELY IN THE INVOICE. BY THE SAME ANALOGY, WHE RE THE REIMBURSEMENT AMOUNT IS ASCERTAINABLE IN A COMPOSITE BILL, NO TDS WILL BE DEDUCTIBLE ON THE REIMBURSED AMOUNT. THIS IS FOR THE REASON THAT SUCH REIMBURSED AMOUNT DOES NOT CONSTITUTE INCOME IN THE HANDS OF T HE RECIPIENT. IT IS FOR THE PERSON WHO IS ACTUALLY MAKING PAYMENT TO THE PE RSON WHO HAS EXECUTED THE WORK TO DEDUCT TDS. NEVER THE LESS, IT IS NOTED THAT THIS POSITION OF LAW CANNOT BE ALLOWED TO BE TAKEN AS AN EXCUSE TO STRUCTURE ARRANGEMENTS WHEREBY PAYMENT ARE ROUTED THROUGH THI RD PARTIES ONLY TO CIRCUMVENT THE LIABILITY FOR MAKING TDS. THE ASSESS EE CANNOT ABSOLVE ITA NO.3898/DEL./2013 CO NO.245/DEL/2013 3 ITSELF FROM THE VICARIOUS LIABILITY OF ENSURING TDS FROM SUCH PAYMENTS AS THESE HAVE BEEN MADE WHOLLY AND INCLUSIVELY ON ITS BEHALF. THEREFORE, IN THE CASE UNDER CONSIDERATION, THE ASSESSEE IS DIREC TED TO PRODUCE BEFORE THE AO PROOF/EVIDENCE TO THE EFFECT THAT THE PARTIE S TO WHOM REIMBURSEMENT HAD BEEN MADE HAD ACTUALLY DEDUCTED T DS WHILE MAKING PAYMENTS TO THE FINAL RECIPIENTS. TO THE EXTENT SU CH VERIFICATION IS POSITIVE, THE LIABILITY OF DEDUCTING TDS CANNOT BE FASTENED ON THE ASSESSEE. CONSEQUENTLY, THE DISALLOWANCE MADE INVO KING SECTION 40(A)(IA) WILL STAND ALLOWED. HOWEVER, TO THE EXTE NT SUCH VERIFICATION IS NEGATIVE, IT IS HELD THAT ASSESSEE WAS LIABLE FOR M AKING TDS AND THEREFORE THE PROVISION OF SECTION 40(A)(IA) WILL BE TRIGGERE D AND CONSEQUENTLY SUCH EXPENSES WILL STAND DISALLOWED. AGAINST THIS, THE REVENUE AS WELL AS THE ASSESSEE A RE IN APPEAL AND CROSS OBJECTION RESPECTIVELY BEFORE US. 3. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER :- 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN L AW IN DELETING THE ADDITION OF RS.5,77,16,904/- MADE U/S 40(A)(IA) OF THE IT ACT, 1961 ON SALE OF NON-DEDUCTION OF TDS BY THE ASSESSEE ON SO- CALLED REIMBURSEMENT OF ADVERTISEMENT EXPENSES TO ITS DEAL ERS, SUBJECT TO CONFIRMATION OF TDS DEDUCTION BY SUCH DEALERS ON TH E PAYMENT MADE BY THEM TO THE ADVERTISING AGENCIES WHICH IS IN CON TRADICTION OF HIS OWN FINDING OF NOT ABSOLVING THE ASSESSEE FROM ITS LIAB ILITY TO DEDUCT TDS ON SUCH PAYMENTS. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT (APPEALS) HAS ERRED IN LAW IN HOLDING THAT THE ASSE SSEE WAS NOT LIABLE TO DEDUCT THE TDS U/S 194 C OF THE I.T. ACT, 1961 AT T HE TIME OF PAYMENT MADE TO DEALERS IF TDS WAS DEDUCTED BY THE RECIPIEN T DEALERS ON THE PAYMENT BY THEM TO THE ADVERTISING AGENCIES IGNORIN G THE CLARIFICATION MADE IN THE CBDT'S CIRCULAR NO. 715 DATED 08.08.199 5. MOREOVER, ANY CONDUCT OF RECIPIENTS CAN NOT ABSOLVE THE PAYER ASS ESSEE FROM ITS LIABILITY TO DEDUCT TDS IF ONCE IT IS HELD LIABLE T O DEDUCT TDS ON PAYMENT MADE BY IT. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, MODIFY AND/OR DELETE ANY ROUND(S) OF APPEAL. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) MAY BE SET ASI DE AND THAT OF THE A.O. RESTORED. THE GROUNDS OF CROSS OBJECTION READ AS UNDER :- ITA NO.3898/DEL./2013 CO NO.245/DEL/2013 4 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T HOLDING THAT THE ASSESSEE WAS NOT REQUIRED TO WITHHOLD TAX UNDER SEC TION 194C OF THE INCOME TAX ACT, 1961 ('THE ACT') FROM THE AMOUNT RE IMBURSED TOWARDS ADVERTISEMENT EXPENDITURE INCURRED BY THE DISTRIBUT ORS AND DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT WAS NOT SUS TAINABLE IN LAW. 2. THAT WITHOUT PREJUDICE, THE CIT(A) ERRED ON FACT S AND IN LAW IN NOT DELETING THE DISALLOWANCE OF EXPENSES MADE BY T HE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT, EVEN WHILE OBSE RVING THAT TDS PROVISIONS WOULD NOT APPLY TO REIMBURSEMENT OF EXPE NSES. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN HOL DING THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECTION 194C OF THE ACT IN CASE THE PAYEE DID NOT DEDUCT TAX AT SOURCE FROM PAYMENTS MADE TO THE FINAL RECIPIENT(S). 4. BEFORE US, IT WAS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF MOBILE HAN DSETS AND RELATED ACCESSORIES. DURING THE YEAR, ASSESSEE HAS SOLD IT S PRODUCTS TO VARIOUS REGIONAL DISTRIBUTORS AND THEY FURTHER SOLD THE SAM E TO CUSTOMERS ON THEIR OWN ACCOUNT. IT WAS ALSO PLEADED THAT THE REGIONAL DISTRIBUTORS IN ORDER TO SELL THE PRODUCT ON THEIR OWN ACCOUNT INCURRED EXPE NSES ON ADVERTISEMENTS ON SUCH PRODUCTS AND CLAIMED REIMBURSEMENT FOR SUCH EXPENSES FROM THE ASSESSEE ON THE SUBMISSIONS OF THE THIRD PARTY BILL S AND OTHER PROOFS/ EVIDENCES. IT WAS ALSO SUBMITTED BEFORE US THAT TH ESE REIMBURSEMENTS OF ADVERTISEMENT EXPENSES ARE MADE BY THE ASSESSEE TO THE REGIONAL DISTRIBUTORS WITHOUT DEDUCTION OF TDS AS NO TAX WAS REQUIRED TO BE DEDUCTED ON THE REIMBURSEMENT OF EXPENSES. IT WAS ALSO CLAIMED BEFORE US THAT IN CERTAIN CASES, THE UNDERTAKING FORM THE REG IONAL DISTRIBUTORS ON SAMPLE BASIS HAD BEEN SUBMITTED BY STATING THAT THE REGIONAL DISTRIBUTORS ITA NO.3898/DEL./2013 CO NO.245/DEL/2013 5 HAS DULY COMPLIED THE PROVISIONS OF CHAPTER XVII-B OF THE ACT WHILE MAKING THE PAYMENTS TO THE ADVERTISEMENT AGENCIES / ADVERTISERS. BEFORE US, IT WAS CANVASSED THAT SINCE THE ASSESSEE REIMBU RSED ADVERTISEMENT EXPENSES TO THE REGIONAL DISTRIBUTORS, THEREFORE , IT WAS NOT LIABLE TO DEDUCT TDS AS PER THE PROVISIONS OF SECTION 194C OF THE AC T. IT WAS PLEADED THAT SECTION 194C IS APPLICABLE ON PAYMENTS MADE FOR CAR RYING OUT ANY WORK IN PURSUANCE OF CONTRACT BETWEEN THE CONTRACTOR AND SP ECIFIED PERSON. SINCE THERE WAS NO CONTRACT BETWEEN THE ASSESSEE AND THE REGIONAL DISTRIBUTORS FOR CARRYING OUT WORK FOR ADVERTISEMENT, NO TDS WAS DED UCTIBLE. THE REGIONAL DISTRIBUTORS WERE NOT CONTACTED BY THE ASSESSEE TO CARRY OUT THE ADVERTISEMENT WORK FOR THE ASSESSEE. THE REGIONAL DISTRIBUTORS DID NOT ACT AS ADVERTISEMENT AGENCIES FOR PROVIDING ADVERTISING AND SERVICES TO THE ASSESSEE. IN VIEW OF THESE FACTS, THE PROVISIONS O F SECTION 40A(IA) OF THE ACT WAS NOT ATTRACTED AT ALL AND THE CIT (A)S FIND ING THAT BY WAY OF STRUCTURE ARRANGEMENTS WHEREBY PAYMENTS ARE ROUTED THROUGH THIRD PARTIES ONLY TO CIRCUMVENT THE LIABILITY FOR MAKING TDS, TH EREFORE, THE CIT (A) DIRECTED TO PRODUCE BEFORE THE ASSESSING OFFICER PR OOFS/EVIDENCES TO THE EFFECT THAT THE PARTIES TO WHOM REIMBURSEMENT HAS B EEN MADE ACTUALLY DEDUCTED TDS WHILE MAKING SUCH PAYMENTS. LD. AR AL SO RELIED ON THE FOLLOWING DECISIONS :- (I) CIT VS. TEJAJI FARASRAM KHARAWALLA LTD. 67 IT R 95 (SC.) (II) CIT VS. DR. WILLMAR SCHWABE INDIA P. LTD. IT A NO.160 OF 2006 (DEL.) ITA NO.3898/DEL./2013 CO NO.245/DEL/2013 6 (III) CIT VS. INDUSTRIAL ENGIENERING PROJECTS PVT. LTD. 202 ITR 1014 (DEL.) (IV) CIT VS. FORTIS HEALTHCARE LTD. 181 TAXMAN 2 57 (DEL.) (V) CIT VS. DUNLOP RUBBER CO. LTD. 142 ITR 493 (VI) CIT VS. S.G. PGNATALE 124 ITR 391 (GUJ.) (VII) CIT VS. TATA ENGINEERING AND LOCOMOTIVE CO. LTD. 245 ITR 823 (BOM.) (VIII) ITO VS. DR. WILLMAR SCHWABE INDIA P. LTD. 95 TTJ 53 (DEL.) (ITAT) (IX) ITO VS. DEEPAK BHARGAWA ITA NO.343/DEL/2012 (DEL.) (ITAT) (X) CIT VS. VECTOR SHIPPING SERVICES (P) LTD. SL P CC NOS.8068 OF 2014 (XI) CIT VS. VECTOR SHIPPING SERVICES (P) LTD. 3 57 ITR 642 (ALL.) (XII) HINDUSTAN COCA COLA BEVERAGES (P) LTD. VS. C IT 293 IT 226 (SC) 5. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ADVERTISEMENT WAS NO T MADE FOR THE SHOPS OF THE DISTRIBUTORS, HOWEVER, IT WAS MADE FOR THE BRAN D OF ASSESSEE. THE PAYMENT LIABILITY WAS OF THE ASSESSEE AS THE BILLS WERE ALSO RAISED IN THE NAME OF ASSESSEE ITSELF WHICH IS EVIDENT FROM PAGE 16 OF THE PAPER BOOK. THE BILL HAS BEEN RAISED IN THE NAME OF SPICE COMMU NICATION LIMITED AND THE CLIENT NAME IS ALSO SPICE COMMUNICATION LTD., N EW DELHI. THE SPG DISTRIBUTORS, ONE OF ASSESSEES DISTRIBUTORS HAS ST ATED THAT IT HAS PAID THE WHOLE AMOUNT BY CHEQUE NO.136282 OF RS.2,24,795/-. THIS IS EQUAL TO THE AMOUNT MENTIONED IN THE BILL ITSELF (EVIDENT FORM P AGES 15 & 16 OF THE PAPER BOOK). THUS, EVEN THE DISTRIBUTOR HAS NOT DE DUCTED THE TDS AS CLAIMED BY THE ASSESSEE. HE FURTHER DREW OUR ATTEN TION TO VARIOUS OTHER BILLS SUBMITTED BY THE ASSESSEE. HE SUBMITTED THAT THERE WAS A STRUCTURE ARRANGEMENT TO CIRCUMVENT THE LIABILITY OF DEDUCTIN G TDS AND THE ASSESSEE ITA NO.3898/DEL./2013 CO NO.245/DEL/2013 7 CANNOT BE ABSOLVED BY VICARIOUS LIABILITY OF ENSURI NG TDS FOR MAKING THE PAYMENTS FOR ADVERTISEMENTS WHOLLY AND EXCLUSIVELY ON THE ASSESSEES BEHALF. 6. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ASSESSEE HAS CLAIMED THAT THESE WERE THE REIMBURSEMENTS AND THERE CANNOT BE A TDS LIABILITY ON THE REIMBURSEMENTS IN VIEW OF VARIOUS DECISIONS REL IED UPON. WE AGREE WITH THIS CONTENTION THAT NO TDS PROVISIONS ARE ATT RACTED WHERE IT IS A PURELY REIMBURSEMENT AND THERE WAS NO PROFIT ELEMEN T FOR THE PAYEE, AS HELD BY THE CIT (A) IN ITS ORDER ITSELF. HOWEVER, FROM THE FACTS OF THE ASSESSEES CASE, IT APPEARS THAT IT WAS A STRUCTURE ARRANGEMENT WHEREIN THE PAYMENTS ARE ROUTED THROUGH THE DISTRIBUTORS TO CIR CUMVENT THE PROVISIONS OF CHAPTER XVII-B OF THE ACT. THE BILL RAISED FOR ADVERTISEMENT IN THE DANIK BHASKAR BY DB CORP LTD., ZONE-I, M.P. NAGAR, BHOPAL WAS IN THE NAME OF SPICE COMMUNICATION LTD. AND THE CLIENT NAM E IS ALSO MENTIONED AS SPICE COMMUNICATION LTD. THE SPG DISTRIBUTORS H AVE MENTIONED IN ITS LETTER TO MR. SAHIL KOHLI, SPICE MOBILE LTD., PLACE D AT PAGE 15 OF THE PAPER BOOK, THAT THEY HAVE ALREADY ISSUED A CHEQUE NO.136 282 OF RS.2,24,795/- AND ASKED FOR REIMBURSEMENT. THUS, THE BILL RAISED BY THE ADVERTISEMENT AGENCY WAS NOT IN THE NAME OF DISTRIBUTOR. THIS FA CT ITSELF SHOWS THAT THERE WAS A STRUCTURE ARRANGEMENT TO AVOID THE TDS PROVIS IONS. THE ASSESSEE HIMSELF HAS SUBMITTED LETTERS FROM VARIOUS REGIONAL DISTRIBUTORS THAT THEY HAVE COMPLIED WITH THE PROVISIONS OF TDS UNDER THE ACT. SUCH ITA NO.3898/DEL./2013 CO NO.245/DEL/2013 8 CONFIRMATIONS ARE PLACED AT PAGES 42 TO 45 OF THE P APER BOOK. CERTAIN BILLS RAISED BY THE ADVERTISEMENT AGENCIES ARE IN THE NAM E OF DISTRIBUTORS. WHETHER THESE PERSONS HAVE MADE TDS OR NOT IS NOT C LEAR FROM THE RECORDS. KEEPING ALL THESE FACTS IN VIEW, WE FIND THAT CIT ( A) WAS JUSTIFIED IN DIRECTING THE ASSESSEE TO PRODUCE THE EVIDENCES BEF ORE ASSESSING OFFICER TO ESTABLISH THAT THE PARTIES TO WHOM THE REIMBURSEMEN TS HAVE BEEN MADE HAD ACTUALLY COMPLIED WITH THE PROVISIONS OF CHAPTER XV II-B. IN OUR CONSIDERED VIEW, SUCH VERIFICATION IS NECESSARY TO ARRIVE AT THE CORRECT FACTS OF THE CASE AND TO ESTABLISH THE EXTENT OF DEFAULT ON THE PART OF THE ASSESSEE FOR VIOLATING THE PROVISIONS OF TDS IN RESPECT OF T HE PAYMENTS OF THE ADVERTISEMENT EXPENSES THROUGH THE STRUCTURAL ARRAN GEMENT. THEREFORE, WE UPHOLD THE ORDER OF THE CIT (A) AND DISMISS THE APP EAL OF THE REVENUE AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE. 7. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE AN D CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED WITH ABOVE OBSERVATIONS. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH DAY OF DECEMBER, 2014. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 29 TH DAY OF DECEMBER, 2014 TS ITA NO.3898/DEL./2013 CO NO.245/DEL/2013 9 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.