The DCIT, Circle-1(1), Guntur, Guntur V. M/s Veera Associates, Hyderabad

CO 29/VIZ/2012

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0460 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 4 month(s) 30 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJEEV K SINGH; LUCAS PETER
• Assessee Lawyers: S RAMA RAO
• Keywords: Application of stay; Assessment record
• Section: 143(3); 194C; 263; 12; 10; 2; 11; 15

Judgement Text

ITA NOS.287 450 652 AND SA NO.59 PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, & SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.287/VIZAG/2012 ASSESSMENT YEAR: 2009-10 DY.COMMISSIONER OF INCOME TAX CIRCLE -1 GUNTUR M/S.VEERA ASSOCIATES, DOOR NO.5-60-1/99, 4/4 ASHOKNAGAR, GUNTUR (APPELLANT) VS. (RESPONDENT) PAN: AAFFV 1824 C C.O. NO.29/VIZAG/2012 (ARISING OUT OF ITA NO.287/VIZAG/2012) ASSESSMENT YEAR 2009-10 DY.COMMISSIONER OF INCOME TAX CIRCLE -1 GUNTUR M/S.VEERA ASSOCIATES, DOOR NO.5-60-1/99, 4/4 ASHOKNAGAR, GUNTUR (CROSS OBJECTOR) VS. (RESPONDENT) PAN: AAFFV 1824 C ITA NO.450/VIZAG/2013 ASSESSMENT YEAR: 2009-10 M/S.VEERA ASSOCIATES, DOOR NO.5-60-1/99, 4/4 ASHOKNAGAR, GUNTUR DY.COMMISSIONER OF INCOME TAX CIRCLE -1 GUNTUR (RESPONDENT) PAN: AAFFV 1824 C VS. (RESPONDENT) ITA NO.652/VIZAG/2014 ASSESSMENT YEAR: 2008-09 M/S.VEERA ASSOCIATES, DOOR NO.5-60-1/99, 4/4 ASHOKNAGAR, GUNTUR DY.COMMISSIONER OF INCOME TAX CIRCLE -1 GUNTUR (APPELLANT) PAN: AAFFV 1824 C VS. (RESPONDENT) ITA NOS.287 450 652 AND SA NO.59 PAGE 2 OF 16 S.A. NO.59/VIZAG/2012 (ARISING OUT OF ITA NO.652/VIZAG/2014) ASSESSMENT YEAR 2008-09 M/S.VEERA ASSOCIATES, DOOR NO.5-60-1/99, 4/4 ASHOKNAGAR, GUNTUR DY.COMMISSIONER OF INCOME TAX CIRCLE -1 GUNTUR (APPELLANT) VS. ASSESSEE BY: SHRI S. RAMA RAO, ADVOCATE DEPARTMENT BY: SHRI LUCAS PETER, CIT(DR) & SHRI RAJEEV K. SINGH, DR DATE OF HEARING: 27/02/2015 DATE OF PRONOUNCEMENT: 04/03/2015 ORDER PER BENCH: THESE ARE THREE APPEALS BY THE ASSESSEE AND THE DEPARTMENT FOR THE ASSESSMENT YEARS 2008-09 AND 2009-1 0. ITA NO.287/VIZAG/2012 2. THIS APPEAL BY THE DEPARTMENT IS AGAINST THE ORDER DATED 04.05.2012 PASSED BY THE LEARNED CIT (A), GUNTUR FO R THE ASSESSMENT YEAR 2009-10. 3. GROUND NOS. 1 & 7 BEING GENERAL GROUNDS, DO NOT R EQUIRE ANY SPECIFIC ADJUDICATION. 4. GROUND NOS. 2 TO 6 ARE ON THE COMMON ISSUE OF THE DECISION TAKEN BY THE LEARNED CIT (A) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF AN AMO UNT OF RS.5,98,13,357 UNDER SECTION 40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C. ITA NOS.287 450 652 AND SA NO.59 PAGE 3 OF 16 5. BRIEFLY, THE FACTS ARE ASSESSEE A PARTNERSHIP FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF C OTTON, POLYESTER-VISCOSE YARNS. FOR THE ASSESSMENT YEAR UND ER CONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME ON 29.09.2009 DECLARING TOTAL INCOME OF RS.18,27,350. D URING THE ASSESSMENT PROCEEDINGS, ON THE BASIS OF INFORMATION SU BMITTED BY THE ASSESSEE, IT WAS NOTICED BY THE ASSESSING OFFIC ER THAT ASSESSEE FIRM HAS ENTERED INTO AN AGREEMENT WITH M/S A DITYA SPINNERS LTD FOR PRODUCTION OF POLYESTER YARNS. ON VER IFICATION OF THE LEDGER ACCOUNT, IT WAS FOUND BY THE ASSESSING OF FICER THAT ASSESSEE FIRM HAS PAID AN AMOUNT OF RS.2,89,98,84 3 TOWARDS CONVERSION CHARGES AND RS.5,98,13,357 TOWARDS CONVERSION EXPENSES. HE FURTHER NOTICED THAT THOUGH TH E ASSESSEE HAS MADE TDS ON CONVERSION CHARGES OF RS.2,89,98,843 IN TERMS OF SECTION 194C OF THE ACT, HO WEVER, HE HAS NOT DEDUCTED TAX AT SOURCE ON CONVERSION EXPENS ES RS.5,98,13,357 UNDER SECTION 194C. HE THEREFORE, CALL ED UPON THE ASSESSEE TO EXPLAIN WHY PROVISIONS OF SECTION 194C WERE NOT APPLIED TO THE PAYMENTS MADE ON ACCOUNT OF CONVERSIO N EXPENSES. 6. IN RESPONSE TO THE SHOW CAUSE NOTICE IT WAS STATED BY THE ASSESSEE THAT M/S ADITYA SPINNERS LTD IS A SICK UNIT D ECLARED BY THE BIFR AND IS FACING AUCTION. IT WAS SUBMITTED, THE ELECTRICITY DEPARTMENT HAVE DISCONNECTED THE ELECTRICITY SUPPLY AND LABOUR UNION IS NOT PROVIDING LABOUR DUE TO NON P AYMENT OF DUES. AS PER THE CONVERSION AGREEMENT THE ASSESSEE IS TO PAY AN AMOUNT OF RS.22.45 PER KG OF YARN PRODUCED AS CO NVERSION CHARGES WHICH AMOUNTED TO RS.2,89,95,843 ON WHICH THE TDS WAS MADE. AS PER THE VERY SAME AGREEMENT BESIDES CONV ERSION ITA NOS.287 450 652 AND SA NO.59 PAGE 4 OF 16 CHARGES, ASSESSEE ALSO HAS TO INCUR VARIOUS EXPENDITU RES LIKE POWER AND LABOUR BILLS ETC ON ITS OWN ACCOUNT AND THE TOTAL EXPENDITURE AMOUNTED TO RS.5,98,13,357. IT WAS SUBMITTED AS THE ASSESSEE WAS NOT HAVING A FULL FLEDGED OFFICE AT SRIKALAHASTHI, IT REQUESTED M/S ADITYA SPINNERS LTD TO ACT AS ITS AGENT FOR MAKING VARIOUS PAYMENTS ON BEHALF OF THE ASSESSEE. IT WAS SUBMITTED THE ASSESSEE PERIODICALLY R EMITS AMOUNTS TO M/S ADITYA SPINNERS LTD FOR ONWARD PAYMENT O F VARIOUS EXPENDITURE, ON BEHALF OF THE ASSESSEE. AT THE YEAR END, ADITYA SPINNERS LTD REMITS THE ACCOUNT COPY AND THE DE TAILS OF EXPENDITURE INCURRED ON ASSESSEES BEHALF. ASSESSIN G OFFICER HOWEVER, WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE. HE OBSERVED THAT AS PER THE AGREEMENT ASSESSE E HAS TO PAY CONVERSION CHARGES TO M/S ADITYA SPINNERS LTD. ASSESSEE HAS GIVEN A JOB CONTRACT TO M/S. ADITYA SPINN ERS LTD TO DO CERTAIN WORK. THEREFORE, WHEN THERE IS A CONTRA CTUAL OBLIGATION BETWEEN TWO PARTIES, THE TDS PROVISIONS W OULD ATTRACT WHATEVER MAY BE THE MODE OF PAYMENT. HE FURTHER OBSERVED THE LEDGER ACCOUNT OF THE ASSESSEE REVEAL THAT LUMP SUM PAYMENTS WERE MADE TO M/S ADITYA SPINNERS LTD. ON GOING THROUGH THE DETAILS OF THE CONVERSION EXPENSES O F RS.5,98,13,357 ASSESSING OFFICER OBSERVED THAT BILLS AND VOUCHERS RELATING TO SUCH EXPENSES WERE RAISED IN THE NAME OF M/S. ADITYA SPINNERS LTD WHICH IS EVIDENT FROM THE ELE CTRICITY BILLS ETC., ASSESSING OFFICER OBSERVED THAT THE AMOUNTS WERE FIRST PAID BY ASSESSEE TO ADITYA SPINNERS LTD AND THEN ADITYA SPINNERS LTD INCURRED THE AMOUNT. ACCORDING TO THE ASS ESSING OFFICER THESE FACTS PROVED THAT ASSESSEE PAID THE AMOUNT AS PER THE AGREEMENT ENTERED WITH ADITYA SPINNERS LTD WHICH C LEARLY ATTRACTS THE PROVISIONS OF SEC 194C. ACCORDINGLY, ASS ESSING OFFICER BY APPLYING THE PROVISIONS OF SECTION 40(A)(I A) OF THE ACT ITA NOS.287 450 652 AND SA NO.59 PAGE 5 OF 16 DISALLOWED THE AMOUNT OF RS.5,98,13,359. BEING AGGRIE VED OF SUCH DISALLOWANCE, ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED CIT (A). 7. IN COURSE OF HEARING OF APPEAL BEFORE THE FIRST AP PELLATE AUTHORITY, IT WAS SUBMITTED BY THE ASSESSEE THAT CONVERSIO N EXPENDITURE WAS REIMBURSED BY THE ASSESSEE IN TERMS WI TH THE AGREEMENT ENTERED INTO WITH M/S ADITYA SPINNERS LTD. IT WAS SUBMITTED, AS PER THE TERMS OF THE AGREEMENT, THE ASSESSE E UNDERTOOK TO INCUR VARIOUS EXPENDITURES SUCH AS POWER AND FUEL, STORES AND SPARES, CARRIAGE INWARD AND CARRIAG E OUTWARDS ETC. IT WAS SUBMITTED, ACCORDING TO THE CONTRACT M/S. ADI TYA SPINNERS LTD COULD ONLY RECEIVE CONVERSION CHARGES O F RS.22.45 PER KG. HOWEVER, THE EXPENDITURE INCURRED ON PRODUCTI ON WILL BE THE LIABILITY AND RESPONSIBILITY OF THE ASSESSEE. IT WAS SUBMITTED, IN THE PROCESS OF INCURRING EXPENDITURE, PAY MENTS WERE INITIALLY MADE BY THE ADITYA SPINNERS LTD AND THE EXACT AMOUNT OF EXPENDITURE INCURRED ON BEHALF OF THE ASSESS EE WAS REIMBURSED TO THE SAID COMPANY BY THE ASSESSEE. IT WAS FURTHER SUBMITTED, AS THE PAYMENT MADE IS MERELY REIMBURSEMENT OF THE EXPENDITURE INCURRED ON BEHALF OF THE ASSESSEE, AN D NOT FOR CARRYING OUT ANY WORK, IT WILL NOT COME WITHIN THE PURVI EW OF SECTION 194C. ASSESSEE ALSO RELIED UPON NUMBER OF DE CISIONS TO SUBSTANTIATE ITS CLAIM THAT PROVISIONS OF SECTION 194C IS NOT APPLICABLE TO REIMBURSEMENT OF EXPENDITURE. BESIDES THE AFORESAID CONTENTIONS, IT WAS ALSO ARGUED BY THE ASSESS EE THAT THE ENTIRE AMOUNT OF RS.5,98,13,357 WAS PAID BY THE ASS ESSEE DURING THE RELEVANT FINANCIAL YEAR AND NOTHING REMAIN ED PAYABLE/OUTSTANDING ON THE LAST DAY OF THE RELEVANT PREV IOUS YEAR. HENCE THE PROVISIONS OF SECTION 40(A)(IA) WILL HAVE NO APPLICATION. IN SUPPORT OF SUCH CONTENTIONS ASSESSEE RE LIED ITA NOS.287 450 652 AND SA NO.59 PAGE 6 OF 16 UPON THE DECISION OF THE HYDERABAD BENCH OF THE ITAT IN THE CASE OF TEJA CONSTRUCTIONS IN ITA NO.3081/HYD/09 DATE D 23.10.2009 AND ITAT VISAKHAPATNAM SPECIAL BENCH DECI SION IN THE CASE OF MERYLLIN SHIPPING & TRANSPORT VS. ACI T (136 ITD 23). 8. THE LEARNED CIT (A) AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE IN THE CONTEXT OF THE FACTS AND MATERIALS ON RECORD AS WELL AS THE DECISIONS RELIED UPON BY THE ASSESSE E AND MORE SPECIFICALLY ON EXAMINING THE TERMS OF THE AGREEMENT FOUND THAT THE AMOUNT OF RS.5,98,13,357 WAS IN THE NATURE OF REPAYMENT OF DEBT DUE TO M/S ADITYA SPINNERS LTD. HE OBSERVED THAT SUCH PAYMENT, AS APPEARS FROM THE TERMS OF THE AGREEMENT IS NOT FOR CARRYING OUT ANY JOB WORK ON BEH ALF OF THE ASSESSEE. 9. ACCORDINGLY, HE CONCLUDED THAT PROVISIONS OF SEC TION 194C WILL HAVE NO APPLICATION TO THE PAYMENT OF RS.5,98,13,357. FURTHER, THE LEARNED CIT (A) ON CONSI DERING THE ALTERNATIVE ARGUMENT OF THE ASSESSEE OBSERVED THAT AS PE R SECTION 40(A)(IA) THE EXPENDITURE INCURRED BY THE ASSE SSEE CAN BE DISALLOWED WHEN IT IS NOT PAID WITHIN THE RELEVANT FI NANCIAL YEAR. HOWEVER, ON VERIFYING THE DETAILS, THE LEARNED CIT (A) FOUND THAT THE ENTIRE AMOUNT WAS ACTUALLY PAID BY THE A SSESSEE DURING THE PREVIOUS YEAR. THEREFORE, THE LEARNED CIT (A) FOLLOWING THE DECISION OF THE ITAT VISAKHAPATNAM SPE CIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS . ACIT (SUPRA) AND THE ITAT HYDERABAD BENCH IN THE CASE OF M/S TEJA CONSTRUCTIONS (ITA NO.308/HYD/2009) HELD THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE. ACCORDINGLY, HE DELETED THE ADDITION. ITA NOS.287 450 652 AND SA NO.59 PAGE 7 OF 16 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERRING T O THE DETAILS OF EXPENDITURE, AS ENUMERATED IN THE ASSESSMEN T ORDER, SUBMITTED BEFORE US THE MAJOR PORTIONS OF THE EXPENDIT URE RELATES TO WAGE PAYMENTS. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT GENERALLY IN SUCH JOB WORK OR FOR THAT MATTER ANY WORK GIVEN ON CONTRACT BASIS, THERE WILL B E A COST WITH MARK UP. WHILE THE COST IS THE ACTUAL EXPENDIT URE INCURRED BY THE CONTRACTOR FOR EXECUTING THE WORK, THE M ARK UP IS HIS PROFIT. THEREFORE, THESE TWO AMOUNTS CANNOT BE SEGREGATED ARTIFICIALLY AS HAS BEEN DONE BY THE ASSES SEE. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THA T THE ENTIRE PAYMENT MADE BY THE ASSESSEE TOWARDS CONVERSI ON CHARGES AS WELL AS CONVERSION EXPENSES IS TO BE TREAT ED AS ONE AS THE PAYMENT WAS TOWARDS MANUFACTURING/PROCESSING ACTIVITY ONLY. THEREFORE, WHEN THE ASSESSEE DEDUCTED TAX ON CONVERSION CHARGES BY APPLYING THE PROVISIONS OF SE C 194C, THE SAME SHOULD ALSO HAVE BEEN DONE IN CASE OF CONVERSI ON EXPENSES AS BOTH THE PAYMENTS ARE SIMILAR IN NATURE. T HE DEPARTMENTAL REPRESENTATIVE SUBMITTED, THE LEARNED CIT (A ) COMPLETELY MISDIRECTED HIMSELF WHILE OBSERVING THAT AS SESSEE HAS MADE PAYMENT TOWARDS A DEBT DUE TO THE ADITYA SPINNE RS LTD. AS FAR AS THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT SEC 40(A)(IA) WOULD NOT BE APPLICABLE AS THE ENTIRE AM OUNT WAS PAID DURING THE RELEVANT PREVIOUS YEAR, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, AS THE DECISION OF THE ITAT SPECIAL BENCH IN CASE OF MERILYIN SHIPPING & T RANSPORTS VS. ACIT (SUPRA) HAS BEEN STAYED BY THE HON'BLE JURIS DICTIONAL HIGH COURT, THE RATIO LAID DOWN THEREIN WILL NOT APPLY . ITA NOS.287 450 652 AND SA NO.59 PAGE 8 OF 16 12. THE LEARNED AUTHORISED REPRESENTATIVE ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPEL LATE AUTHORITY. HE SUBMITTED BEFORE US THAT AS PER THE TERMS O F THE AGREEMENT, M/S ADITYA SPINNERS LTD IS ENTITLED TO RECEI VE AN AMOUNT OF RS.22.45 KG TOWARDS CONVERSION CHARGES. AL L OTHER EXPENDITURES WERE TO BE INCURRED ON ACCOUNT OF ASSESSE E WHICH M/S. ADITYA SPINNERS LTD WILL PAY INITIALLY AND SUBS EQUENTLY GET REIMBURSED FROM THE ASSESSEE. THEREFORE, AS THE EXPENDITURE INCURRED IS NOT IN RELATION TO ANY WORK EN TRUSTED UNDER THE TERMS OF THE CONTRACT BUT ARE IN THE NATURE OF REIMBURSEMENT, IT WILL NOT ATTRACT PROVISIONS OF SECTION 194C. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, CONSIDE RED IN THE AFORESAID PERSPECTIVE IF M/S. ADITYA SPINNERS LTD INCURS ANY EXPENDITURE ON ACCOUNT OF THE ASSESSEE, THEN THERE IS CERTAINLY A DEBT DUE IN FAVOUR OF THE SAID PARTY. THER EFORE, THERE IS NOTHING WRONG IN THE OBSERVATIONS MADE BY THE LEAR NED CIT (A) THAT THE PAYMENTS MADE BY THE ASSESSEE IS TOWARDS DISCHARGE OF DEBT TO M/S. ADITYA SPINNERS LTD. THE LE ARNED AUTHORISED REPRESENTATIVE SUBMITTED, EVEN OTHERWISE ALSO PROVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED TO D ISALLOW THE EXPENDITURE CLAIMED AS THE ENTIRE AMOUNT HAS BEEN PAID DURING THE RELEVANT PREVIOUS YEAR. THE LEARNED AUTHOR ISED REPRESENTATIVE SUBMITTED THAT THE RATIO LAID DOWN BY THE ITA T VISAKHAPATNAM SPECIAL BENCH IN THE CASE OF MERILYN S HIPPING & TRANSPORTS (SUPRA) WOULD STILL APPLY AND BINDING O N DIFFERENT BENCHES AS THE HON'BLE JURISDICTIONAL HIGH COURT HAS OBSERVED TO THAT EFFECT IN CASE OF CIT VS. JAYAPRIYA ENGINEERING IN JUDGMENT DATED 24.06.2013 IN ITTA NO.352 OF 2014. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE DECISI ONS RELIED ITA NOS.287 450 652 AND SA NO.59 PAGE 9 OF 16 UPON BY THE PARTIES. AT THE OUTSET WE PROPOSE TO DEAL WI TH THE ISSUE WHETHER PROVISIONS OF SECTION 40(A)(IA) OF THE A CT WOULD BE APPLICABLE, IF THE PAYMENTS HAVE BEEN MADE DURING THE RELEVANT PREVIOUS YEAR AND NOTHING REMAINED OUTSTANDING/PAYABL E AS ON THE LAST DATE OF THE RELEVANT PREVIOUS YEAR. ITAT VISAKHAPATNAM SPECIAL BENCH IN CASE OF MERILYN SHIP PING & TRANSPORTS (SUPRA) HAS HELD THAT IF THE ASSESSEE HAS PAID THE AMOUNTS TO WHICH TDS PROVISIONS ARE APPLICABLE, WITHI N THE RELEVANT PREVIOUS YEAR AND NOTHING REMAINED PAYABLE O N THE LAST DATE OF THE RELEVANT PREVIOUS YEAR, THEN NO DISALLO WANCE CAN BE MADE UNDER SECTION 40(A)(IA) OF THE ACT. THE DE PARTMENT HAS PREFERRED APPEAL BEFORE THE JURISDICTIONAL HIGH C OURT OF ANDHRA PRADESH AGAINST THE AFORESAID ORDER OF THE ITAT VISAKHAPATNAM BENCH. IT IS AN UNDISPUTED FACT THAT THE HON'BLE HIGH COURT HAS STAYED THE OPERATIONS OF THE AFOR ESAID DECISION OF ITAT. HOWEVER, IT IS WORTH MENTIONING HERE , THE HON'BLE JURISDICTIONAL HIGH COURT WHILE CONSIDERING THE ISSUE WHETHER THE EFFECT OF THE DECISION IN CASE OF MERILYN S HIPPING & TRANSPORTS (SUPRA) HAS BEEN COMPLETELY OBLITERATED B Y OPERATION OF THE STAY ORDER, IN CASE OF CIT VS. JAYAPR IYA ENGINEERING (SUPRA) HELD AS UNDER: 4. WE ARE OF THE VIEW THAT UNTIL AND UNLESS THE DECISION OF THE SPECIAL BENCH IS UPSET BY THIS COUR T, IT BINDS SMALLER BENCH AND COORDINATE BENCH OF THE TRIBUNAL. UNDER THE CIRCUMSTANCES, IT IS NOT OPEN T O THE TRIBUNAL, AS RIGHTLY CONTENDED BY MR. NARASIMHA SARMA, LEARNED COUNSEL TO REMAND ON THE GROUND OF PENDANCY ON THE SAME ISSUE BEFORE THIS COURT, OVERLOOKING AND OVERRULING, BY NECESSARY IMPLICATION, THE DECISION OF THE SPECIAL BENCH. WE SIMPLY SAY THAT IT IS NOT PERMISSIBLE UNDER QUASI JUDICIAL DISCIPLINE. UNDER THE CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED JUDGMENT AND ORDER AND RESTORE THE MATTER TO THE FILE OF THE TRIBUNAL WHICH WILL DECIDE THE ISSUE IN ITA NOS.287 450 652 AND SA NO.59 PAGE 10 OF 16 ACCORDANCE WITH LAW AND IT WOULD BE OPEN TO THE TRIBUNAL EITHER TO FOLLOW THE SPECIAL BENCH DECISIO N OR NOT TO FOLLOW. IF THE SPECIAL BENCH DECISION IS NOT FOLLOWED, OBVIOUSLY REMEDY LIES ELSEWHERE. 5. THE APPEAL IS THUS ALLOWED ONLY ON THE POINT OF REMAND. WE DIRECT THE TRIBUNAL TO DECIDE THE MATTER ON REMAND AFRESH WITHIN A PERIOD OF TWO MONTHS FROM THE DATE OF COMMUNICATION OF THIS ORDER. NO COST. 14. FOLLOWING THE AFORESAID DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, ITAT HYDERABAD BENCH IN A RECENT ORDER IN THE CASE OF USHODAYA ENTERPRISES VS. DY.COMMISSIONER OF INCOME TAX IN ITA NO.676/HYD/20 09 AND 411/HYD/2010 DATED 7.1.14 FOLLOWED THE RATIO LAID DOW N BY THE ITAT SPECIAL BENCH IN CASE OF MERILYN SHIPPING & TR ANSPORTS (SUPRA) BY OBSERVING AS UNDER: 8. WE HAVE HEARD BOTH THE PARTIES. WE DIRECT THAT THE AO MAY FOLLOW THE DECISION OF THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS V. ACIT IN IT A NO.477/VIZ/2008 DATED 29.03.2012 AND THE DISALLOWAN CE U/S 40(A)(IA) MAY NOT BE MADE BY THE AO FOR THE AMOUNTS/PAYMENTS WHICH HAVE ALREADY BEEN PAID BEFOR E THE END OF THE RELEVANT ACCOUNTING YEAR, OUT OF THE AMOUNTS DISALLOWED WHICH HAVE BEEN UPHELD BY THE CI T (A). THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. IN VIEW OF THE AFORESAID, CONTENTION OF THE DEPARTME NT, THAT THE RATIO LAID DOWN BY THE ITAT VISAKHAPATNAM SPECI AL BENCH IN CASE OF MERILYN SHIPPING & TRANSPORTS VS. A CIT (SUPRA) IS NOT APPLICABLE, CANNOT BE ACCEPTED. SINCE THE DEPARTMENT HAS NOT CONTROVERTED THE FACT THAT THE ENTIRE AMOUNT OF RS.5,98,13,357 WAS PAID BY THE ASSESSEE DUR ING THE RELEVANT PREVIOUS YEAR AND NOTHING REMAINED PAYABLE O N THE LAST DAY OF THE PREVIOUS YEAR, IN OUR VIEW, AS PER THE RATIO LAID ITA NOS.287 450 652 AND SA NO.59 PAGE 11 OF 16 DOWN IN CASE OF MERILYN SHIPPING & TRANSPORTS VS. AC IT (SUPRA), NO DISALLOWANCE UNDER SECTION 40(A)(IA) CAN BE MADE. ACCORDINGLY, THE CIT (A)S ORDER ON THIS ISSUE DESERV ES TO BE UPHELD. 16. SINCE WE HAVE HELD THAT NO DISALLOWANCE CAN BE M ADE UNDER SECTION 40(A)(IA) AS THE ASSESSEE HAS PAID THE AMOUNT DURING RELEVANT PREVIOUS YEAR, WE DO NOT FIND IT NECES SARY TO GO INTO THE ISSUE WHETHER OR NOT PROVISIONS OF SECTION 19 4C IS AT ALL APPLICABLE TO THE PAYMENTS MADE BY ASSESSEE CLAIME D TO BE IN THE NATURE OF REIMBURSEMENTS. AS IN OUR VIEW, IT IS OF MERE ACADEMIC INTEREST, HENCE SHOULD BE LEFT OPEN TO BE DECI DED IN AN APPROPRIATE CASE. 17. IN THE RESULT DEPARTMENTAL APPEAL IS DISMISSED. C.O.NO.29/VIZAG/212 18. THE GROUNDS RAISED IN THE CROSS OBJECTIONS ARE ME RELY SUPPORTING THE ORDER OF THE LEARNED CIT (A). IN VIEW O F OUR DECISION IN ITA NO. 287/VIZAG/2012, THE CROSS OBJECTION HAVING BECOME INFRUCTUOUS IS ACCORDINGLY DISMISSED. ITA NO.450/VIZAG/2013 19. THE AFORESAID APPEAL OF THE ASSESSEE IS AGAINST TH E ORDER DATED 15.03.2013 PASSED BY THE LEARNED CIT, GUNTUR UND ER SECTION 263 OF THE ACT. 20. BRIEFLY, THE FACTS ARE FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION ASSESSEE FILED ITS RETURN OF INCOME DECL ARING TOTAL INCOME OF RS.5,79,790. ASSESSMENT IN CASE OF THE ASSE SSEE WAS COMPLETED UNDER SECTION 143(3) OF THE ACT DETERMINING THE TOTAL ITA NOS.287 450 652 AND SA NO.59 PAGE 12 OF 16 INCOME AT RS.8,32,070 VIDE ASSESSMENT ORDER DATED 29.12.2010. THE ASSESSMENT RECORDS OF THE ASSESSEE F OR THE YEAR UNDER CONSIDERATION CAME UP FOR EXAMINATION BY TH E LEARNED CIT IN EXERCISE OF POWER UNDER SECTION 263 O F THE ACT. ON GOING THROUGH THE ASSESSMENT ORDER THE LEARNED CIT WAS OF THE VIEW THAT THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, AS THE ASS ESSMENT ASSESSING OFFICER HAS FAILED TO APPLY THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT TO THE PAYMENTS MADE BY THE ASSESS EE OF RS.5,26,58,980 TO M/S. ADITYA SPINNERS LTD. ACCORDING LY, BY OBSERVING THAT NON CONSIDERATION OF APPLICABILITY OF SECTION 40(A)(IA) OF THE ACT TO SUCH PAYMENT HAS MADE THE ASSES SMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE LEARNED CIT ISSUED A SHOW CAUSE NOTICE TO THE ASSES SEE DIRECTING HIM TO EXPLAIN WHY ASSESSMENT ORDER SHALL NO T BE REVISED. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, IT WAS SUBMITTED BY THE ASSESSEE THAT AS THE PAYMENTS MADE WERE I N THE NATURE OF REIMBURSEMENT OF EXPENDITURE INCURRED BY M/S ADITYA SPINNERS LTD ON ACCOUNT OF THE ASSESSEE, IT WIL L NOT ATTRACT TDS PROVISIONS OF SECTION 194C. IT WAS SUBMITTED THE PAYMENTS MADE WERE NOT TOWARDS ANY WORK EXECUTED UNDE R THE TERMS OF THE CONTRACT. THEREFORE, PAYMENTS MADE WILL NO T COME WITHIN THE PURVIEW OF SECTION 194C. ALTERNATIVELY IT WA S ALSO ARGUED BY THE ASSESSEE THAT AS THE ENTIRE AMOUNT OF RS.5,26,58,980 WAS PAID BY THE ASSESSEE DURING THE RE LEVANT PREVIOUS YEAR AND NOTHING REMAINED PAYABLE AS ON THE LAST DATE OF THE RELEVANT PREVIOUS YEAR AS PER THE DECISION OF THE ITAT VISAKHAPATNAM SPECIAL BENCH IN THE CASE OF MERIL YN SHIPPING & TRANSPORTS VS. ACIT (136 ITD 23), NO DISA LLOWANCE CAN BE MADE UNDER SECTION 40(A)(IA) OF THE ACT. THE LE ARNED CIT HOWEVER, REJECTED BOTH THE CONTENTIONS OF THE ASSESSEE. HE ITA NOS.287 450 652 AND SA NO.59 PAGE 13 OF 16 OBSERVED THAT AS PER THE TERMS OF THE AGREEMENT, IT IS CL EAR THAT ASSESSEE HAS APPROACHED M/S ADITYA SPINNERS LTD TO MANUFACTURE YARNS OUT OF RAW MATERIALS TO BE SUPPLIED BY THE ASSESSEE BY WAY OF JOB WORK. IT WAS OBSERVED BY THE L EARNED CIT THAT AS THE CONVERSION ACTIVITY WOULD INCLUDE VARIO US ACTIVITIES SUCH AS MANUFACTURING PROCESS, PURCHASE AN D USAGE OF STORES AND SPARES AND CONSUMABLES, LOADING AND U NLOADING OF RAW MATERIALS, PACKING MATERIALS, STORES AND SPARE S AND FINISHED GOODS, THE CARRYING OUT OF SUCH ACTIVITIES F ALLS WITHIN THE SCOPE OF THE JOB CONVERSION AGREEMENT. THEREFORE, AS CONVERSION EXPENSES ARE MADE IN PURSUANCE OF THE JOB CONVERSION AGREEMENT FOR CARRYING OUT CERTAIN WORKS, TH E PAYMENTS MADE SQUARELY FALLS WITHIN SECTION 194C OF TH E ACT. THE LEARNED CIT OBSERVED THAT IN CONTRACTS WHICH ARE K NOWN AS COST PLUS CONTRACT, INSTEAD OF QUOTING A LUMP SUM CONSIDERATION FOR CARRYING OUT THE WORK, THE CONSIDERATI ON IS SPLIT INTO TWO COMPONENTS I.E. REIMBURSEMENT OF ACTUAL EXPENSES INCURRED FOR CARRYING OUT THE WORK AND THE P ROFIT MARGIN. THEREFORE, IRRESPECTIVE OF THE MANNER IN WHI CH THE CONSIDERATION FOR THE CONTRACT IS SPECIFIED, THE ENTIRE AMOUNT PAID IN PURSUANCE OF CONTRACT FALLS UNDER THE SCOPE O F SECTION 194C AS THE SAID SECTION REFERS TO ANY SUM PAID IN P URSUANCE OF THE CONTRACT FOR THE WORK DONE. THEREFORE, THE REIMBURSEMENT EXPENSES WILL FORM PART OF THE CONSIDERA TION FOR CONTRACT AND LIABLE FOR TDS UNDER SECTION 194C. AS FAR AS THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT SECTION 40(A)( IA) AS THE ENTIRE AMOUNT WAS PAID WITHIN THE RELEVANT FINANCIAL YEAR, THE LEARNED CIT REFUSED TO ACCEPT THE SAME ON THE PRETEX T THAT THE DECISION OF THE ITAT VISAKHAPATNAM SPECIAL BENCH I N THE CASE OF MERILYN SHIPPING & TRANSPORT VS. ACIT (SUPRA ) HAS BEEN STAYED BY THE JURISDICTIONAL HIGH COURT. WITH THE ITA NOS.287 450 652 AND SA NO.59 PAGE 14 OF 16 AFORESAID OBSERVATION LEARNED CIT SET ASIDE THE ASSES SMENT ORDER AND DIRECTED THE ASSESSING OFFICER TO COMPLETE THE ASSESSMENT IN ACCORDANCE WITH THE OBSERVATION MADE BY H IM IN THE ORDER PASSED UNDER SECTION 263. 21. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL S ON RECORD. WHILE DECIDING DEPARTMENTS APPEAL IN ITA NO.287/VIZAG/2012, WE HAVE HELD THAT NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(IA) OF THE ACT, IF THE PAYMEN TS ON WHICH TAX WAS REQUIRED TO BE DEDUCTED WERE PAID DURIN G THE RELEVANT PREVIOUS YEAR AND NOTHING REMAINED PAYABLE O N THE LAST DAY OF THE PREVIOUS YEAR. FOLLOWING THE SAME, WE HOLD THAT IN THE IMPUGNED ASSESSMENT YEAR ALSO, NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(IA) OF THE ACT AS THE ENTIRE PA YMENT, AS CLAIMED BY THE ASSESSEE WAS MADE DURING THE RELEVA NT PREVIOUS YEAR AND NOTHING REMAINED PAYABLE. THEREFOR E, AS THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 40(A)(I A) OF THE ACT, ASSESSMENT ORDER CANNOT BE HELD TO BE ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF THE REVENUE. MOREOVER O N A PERUSAL OF THE ASSESSMENT ORDER, IT APPEARS THE ASSESS ING OFFICER AFTER CONDUCTING ENQUIRY AND APPLYING HIS MI ND TO THE MATERIALS BROUGHT ON RECORD, AS FAR AS IT RELATES TO C ONVERSION EXPENSES, HAS PASSED THE ASSESSMENT ORDER. WHETHER PROVISIONS OF SECTION 194C WILL BE APPLICABLE TO CONV ERSION EXPENSES CLAIMED TO BE IN THE NATURE OF REIMBURSEMENT, IN OUR VIEW, IS A DEBATABLE ISSUE ON WHICH MORE THAN ONE VIE W IS POSSIBLE. THAT BEING THE CASE, ASSESSMENT ORDER PASSED CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE SO AS TO EMPOWER LEARNED CIT TO REVIS E IT UNDER SECTION 263 OF THE ACT. IN VIEW OF THE AFORESAID, WE SE T ASIDE THE ITA NOS.287 450 652 AND SA NO.59 PAGE 15 OF 16 IMPUGNED ORDER OF THE LEARNED CIT AND RESTORE THE ASSE SSMENT ORDER. 22. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ITA NO.652/VIZAG/2014 : 23. THIS APPEAL ARISES OUT OF THE CONSEQUENTIAL ORDER PASSED IN PURSUANCE OF THE DIRECTIONS OF THE CIT, UNDER SECTIO N 263 OF THE ACT. SINCE WE HAVE SET ASIDE THE ORDER PASSED UNDER SECTION 263 OF THE ACT AND RESTORED THE ASSESSMENT ORDER ORIGIN ALLY PASSED BY THE ASSESSING OFFICER, THE CONSEQUENTIAL ORD ER PASSED IN PURSUANCE TO THE DIRECTIONS OF THE CIT WILL N OT SURVIVE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LEA RNED CIT (A). 24. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. S.A.NO.59/VIZAG/2014 25. IN VIEW OF OUR DECISION IN ITA NO.652/VIZAG/201 4, THE STAY APPLICATION FILED BY THE ASSESSEE HAS BECOME INFR UCTUOUS, ACCORDINGLY DISMISSED. 26. TO SUM UP, DEPARTMENTS APPEAL IN ITA NO.287/VIZAG/2012 AND ASSESSEES C.O. NO.29/VIZAG/2 014 ARE DISMISSED. ASSESSEES APPEALS IN ITA NOS.450/VIZAG/ 2012 AND ITA NO.652/VIZAG/2014 ARE ALLOWED. SA FILED BY THE A SSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 4 TH MARCH, 2015 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 4 TH MARCH, 2015 ITA NOS.287 450 652 AND SA NO.59 PAGE 16 OF 16 PVV/SPS CAMP: VISAKHAPATNAM, COPY TO 1 THE DY.COMMISSIONER OF INCOME TAX CIRCLE 1(1) 1 ST FLOOR, CENTRAL REVENUE BUILDINGS, KANNAVARI THOTA, GUNTUR 2 M/S.VEERA ASSOCIATES, DOOR NO.5-60-1/99, 4/4 ASHOKNAGAR, GUNTUR 3 THE CIT (A) GUNTUR 4 THE CIT GUNTUR 5 DEPARTMENTAL REPRESENTATIVE ITAT VISAKHAPATNAM 6 GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM