M/s. Hakimchand D & Sons, Ahmedabad V. The Dy.CIT, Circle-6(1), Ahmedabad

CO 327/AHD/2014

• Counselvise Citation: [2016] 119 COUNSELVISE.COM (IT) 3378 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VEEBHA BHALLA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Reopening of assessment; Unexplained expenditure; Business expenditure; Additional evidence; Difference of opinion; Assessment record; Change of opinion; Reassessment proceedings
• Section: 69C; 40A(3); 143(3); 142(1); 194C; 147; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ASSESSEE BY : SHRI S.N. SOPARKAR, AR REVENUE BY : SMT. VEEBHA BHALLA, CIT-DR & SHRI SANJAY KUMAR, SR DR / DATE OF HEARING : 23/06/2016 / DATE OF PRONOUNCEMENT: 29/07/2016 / O R D E R PER R.P. TOLANI, JUDICIAL MEMBER:- ITA NOS. 3081 TO 3084/AHD/2014 AND ITA NOS. 3259, 3 260, 3262/AHD/2013 & 83/AHD/2015 ARE A SET OF CROSS APPEALS FILED BY T HE ASSESSEE AND REVENUE SN ITA/CO NO. AY APPELLANT RESPONDENT 1 ITA NO. 3081/AHD/2014 2006-07 M/S. HAKMICHAND D & SONS, G/4, NITYANAND APARTMENT, VAKILWADI, NR. PUNIT ASHRAM, MANINAGAR, AHMEDABAD-8 PAN : AACFH 5016 P ACIT, CIRCLE -12, AHMEDABAD 2 ITA NO. 3082/AHD/2014 2007-08 ASSESSEE REVENUE 3 ITA NO. 3083/AHD/2014 2009-10 ASSESSEE REVENUE 4 ITA NO. 3084/AHD/2014 2011-12 ASSESSEE REVENUE 5 ITA NO. 3259/AHD/2014 2006-07 REVENUE ASSESSEE 6 ITA NO. 3260/AHD/2014 2007-08 REVENUE ASSESSEE 7 ITA NO. 3261/AHD/2014 2008-09 REVENUE ASSESSEE 8 CO NO. 327/AHD/2014 2008-09 ASSESSEE REVENUE 9 ITA NO. 3262/AHD/2014 2009-10 REVENUE ASSESSEE 10 ITA NO. 83/AHD/2015 2011-12 REVENUE ASSESSEE ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 2 RESPECTIVELY AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XX, AHMEDABAD OF EVEN DATED 30.09.2014 FOR AY 2006-07, 2007-08 & 2009-10 AND DATED 15.10.2014 FOR AY 2011-12, RESPECTIVELY. THE APPEAL FILED BY THE REVENUE BEARING ITA NO. 3261/AHD/2014 AND THE CROSS OBJECTION THERE OF BEARING CO NO. 327/AHD/2014 FILED BY THE ASSESSEE ARE DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XX, AHMEDABAD DATED 30.09.2014 FOR AY 2008-09. THE APPEALS FOR AYS 2006-07, 07-08, 09-10 ARE FRAMED CONSEQUENT TO REASSESSMENT PROCEEDINGS U/S 147/148; AY 08-09 HAS BEEN PASSED U/S 143(3) R.W.S 263 AND AY 2011-12 IS BY WAY OF A REGULAR ASSESSMEN T U/S 143. SINCE ALL THESE APPEALS INVOLVE COMMON ISSUES, THES E WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDE R FOR THE SAKE OF CONVENIENCE. 2. COMMON GROUNDS RAISED IN THE ASSESSEES APPEALS ARE AS UNDER:- A. ASSESSMENT YEARS: 2006-07, 07-08, 09-10: 1. LD. CIT (A) ERRED IN LAW AND ON FACTS IN DISMIS SING THE GROUND CHALLENGING ACTION OF AO MAKING REASSESSMENT U/S 147 BEYOND A P ERIOD OF 4 YEARS IN ABSENCE OF ANY FAILURE ON THE PART OF THE APPELLANT TO FULLY A ND TRULY DISCLOSE ALL MATERIAL FACTS. LD. CIT (A) OUGHT TO HAVE HELD ORDER PASSED BY AO U /S 143 (3) R W S 147 AS ILLEGAL, INVALID AND BAD IN LAW. IT BE SO HELD NOW. 2. LD. CIT (A) ERRED IN LAW AND ON FACTS IN NOT A PPRECIATING THAT REOPENING ON EXAMINATION OF THE VERY SAME MATERIAL OF ORIGINAL A SSESSMENT FRAMED AFTER DETAILED SCRUTINY U/S 143 (3) AMOUNTS TO CHANGE OF OPINION I MPERMISSIBLE UNDER LAW. LD. CIT (A) OUGHT TO HAVE QUASHED REASSESSMENT ORDER PA SSED BY AO ON MERE CHANGE OF OPINION. IT BE SO HELD NOW. B. ALL ASSESSMENT YEARS INCLUDING CO FOR AY 2008-09 : 3. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIR MING APPLICABILITY OF SECTION 40(A)(IA) FOR DISALLOWANCE OF LICENSE FEES PAID TO IRCTC (INDIAN RAILWAY CATERING & TOURISM CORPORATION) DUE TO NON DEDUCTION OF TAX FROM THE PAYMENT. LD. CIT (A) OUGHT TO HAVE HELD THAT THE APPELLANT WAS NOT U NDER ANY OBLIGATION TO DEDUCT TAX FROM THE PAYMENT TO IRCTC, ADMINISTRATIVE SUBSI DIARY OF RAILWAY MINISTRY UNDER PROVISIONS OF SECTION 196 OF THE ACT. IT BE S O HELD NOW. 4. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIR MING VIEW TAKEN BY AO THAT LICENSE FEE PAYMENTS DULY FALL UNDER PROVISIONS OF SECTION 194J OF THE ACT. LD. CIT (A) OUGHT TO HAVE HELD THAT PAYMENT TO IRCTC FOR TA KING LICENSE NOT IN CONSIDERATION FOR RENDERING ANY MANAGERIAL, TECHNIC AL OR CONSULTANCY SERVICES IS OUTSIDE THE AMBIT OF SECTION 194J OF THE ACT. IT BE SO HELD NOW. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 3 5. LD. CIT (A) ERRED IN LAW AND ON FACTS IN HOLDIN G THAT EVEN OTHERWISE LICENSE FEE PAYMENT MADE IN ACCORDANCE WITH THE AGREEMENT BETWE EN THE APPELLANT & IRCTC PROVISIONS OF SECTION 194C MAKES APPELLANT LIABLE T O DEDUCT TAX FROM THE PAYMENT. LD. CIT (A) OUGHT NOT TO HAVE MADE SUCH OBSERVATION S. 6 LD. CIT (A) ERRED IN LAW AND ON FACTS IN REFRA INING FROM ADJUDICATING THE CONTENTION RAISED BY THE APPELLANT THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY TO OUTSTANDING PAYABLES AND NOT TO ACTUAL PAYM ENTS MADE BEFORE THE END OF THE FINANCIAL YEAR. LD. CIT (A) OUGHT TO HAVE APPRECIAT ED THAT ALL THE EXPENSES BEING ACTUALLY PAID BY THE APPELLANT AS PER JUDGMENT OF A PEX COURT AFFIRMING SPECIAL BENCH DECISION IN CASE OF MERILYN SHIPPING & TRANSP ORT NO DISALLOWANCE DESERVES TO BE MADE. IT BE SO HELD NOW. 7. LD. CIT (A) ERRED IN LAW AND ON FACTS IN PARTL Y CONFIRMING DISALLOWANCE OF DIFFERENCE OF TOTAL LICENSE FEE PAYMENT MADE BY APP ELLANT AND AMOUNT INCLUDED IN THE GROSS RECEIPTS OF IRCTC THE PAYEE. ASSESSEE BEI NG TAXABLE AT HIGHEST RATE OF TAX LD. CIT (A) OUGHT NOT TO HAVE DISALLOWED SUCH DIFFE RENCE WHEN THE LICENSE FEE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES, DULY E VIDENCED WITH RECEIPTS AND BANK STATEMENTS, FOLLOWED WITH CONSISTENT METHOD OF ACCOUNTING ALL OF WHICH SUPPORTS CORRECTNESS OF THE EXPENSE INCURRED BY THE APPELLANT. 8. LD. CIT (A) ERRED IN LAW AND ON FACTS IN NOT DE LETING TOTAL DISALLOWANCE WHEN THE APPELLANT IS SUBJECTED TO SAME TAX RATE IN ALL THE YEARS AND INCOME BEING IN THE HIGHEST SLAB RATE, THE MANNER OF ACCOUNTING AT THE END OF PAYEE CANNOT EFFECT ACTUAL EXPENDITURE OF THE APPELLANT IN A PARTICULAR YEAR W HEN DULY AUDITED BOOKS OF ACCOUNTS ARE ACCEPTED BY AO. LD. CIT(A) OUGHT TO H AVE DELETED DISALLOWANCE U/S 40(A)(IA) OF THE ACT. C. ASSESSMENT YEAR 2011-12:- 9. LD. CIT(A) ERRED IN LAW AND ON FACTS IN: A. CONFIRMING DISALLOWANCE OF RS. 2,81,38,206/- CLA IMED ON ACCOUNT OF CASH EMBEZZLEMENT B. CONFIRMING DISALLOWANCE HOLDING EMBEZZLEMENT LOS S AS PRIOR PERIOD EXPENSES NOT APPRECIATING THAT IT IS ALLOWABLE AS BUSINESS LOSS IN THE YEAR OF CLAIM AND NEED NOT BE CLAIMED ONLY IN THE YEAR O F DETECTION OF FRAUD. C. ALTERNATIVELY AND WITHOUT PREJUDICE, DIRECTION M AY BE GIVEN TO ALLOW GENUINE BUSINESS LOSS OF A.Y. 2010-11 10. LD. CIT(A) ERRED IN LAW AND ON FACTS IN: A. CONFIRMING LUMP SUM DISALLOWANCE OF RS. 5 LACS OUT OF 50 LACS TO COVER THE LEAKAGE OF REVENUE IF ANY. B. CONFIRMING ADDITION OF RS. 2,82,020/- U/S 40A(3) OF THE I T ACT. C. CONFIRMING DISALLOWANCE OF RS. 2 LACS ON ADHOC B ASIS OUT OF BURNING EXPENSES. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 4 D. CONFIRMING ALLEGED UNEXPLAINED EXPENDITURE OF RS . 12,09,023/- U/S 69C OF THE I T ACT. 11. LEVY OF INTEREST U/S 234 A/B & C OF THE ACT IS NOT JUSTIFIED. 2.1 A. COMMON GROUNDS RAISED IN ALL REVENUES APPEA LS ARE AS UNDER:- 1. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED ON FACTS THA T THE SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY THE FINANCE ACT W.E.F . 01.04.2013 IS RETROSPECTIVE IN OPERATION AND NOT ON A PROSPECTIVE DATE. 2. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED NOT APPRECIA TING THE FACT THAT IT IS NOT IN THE CASE OF THE ASSESSEE WHERE HE HAS NOT PA ID UP THE INTEREST CHARGEABLE U/S 201(1A) OF THE IT ACT IN RESPECT OF THE DEFAULT COMMITTED BY HIM BY NOT DEDUCTING TAX AT SOURCE. B. GROUNDS RAISED BY REVENUE FOR AY 2011-12 ARE AS UNDER:- 1. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN DELETING THE ADDITION OF RS.45,00,000/- BEING ESTIMATION OF GROSS PROFIT AND NOT APPRECIATING THE FACT THAT THE ASSESSEE COULD SUBMIT ONLY PART OF THE BIL LS/VOUCHERS FOR VERIFICATION AND THE BOOKS OF A/C. WERE MAINTAINED IN AN IRREGULAR M ANNER AND NOT SUPPORTED FULLY BY VERIFIABLE EVIDENCES. 2. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN DELETING THE ADDITION OF RS.20,87,625/- AND NOT APPRECIATING THE FACT THAT T HE BILLS/VOUCHERS WERE NOT AVAILABLE IN RESPECT OF AN AMOUNT OF RS.15,79,211/- OUT OF BURNING CHARGES AND RS.7,08,414/- OUT OF LAUNDRY EXPENSES, HENCE THE CL AIM COULD NOT BE VERIFIED IN ABSENCE OF NECESSARY EVIDENCES. 3. THE BRIEF FACTS OF THE CASE ARE THE ASSESSEE F IRM IS ENGAGED IN THE BUSINESS OF RAILWAY CATERING CONTRACTOR. DURING THE COURSE OF HIS BUSINESS, LICENSED RIGHTS ARE ALLOTTED BY IRCTC FOR SPECIFIED ROUTES AGAINST PAYMENT OF LICENSE FEE. ORIGINAL RETURNS OF INCOME FOR RESPECTIVE YEARS WERE FILED F OLLOWED BY SCRUTINY ASSESSMENTS U/S 143(3) IN WHICH THE IRCTC LICENSE PAYMENTS WERE ALLOWED AS BUSINESS EXPENDITURE. SUBSEQUENTLY, THE ASSESSMENTS FOR AYS 2006-07 TO 2009-10 WERE RE- OPENED BY ISSUING NOTICES U/S 148 OF THE ACT ON 28. 03.2013 ON THE REASON THAT LICENSE FEE PAID TO IRCTC AMOUNTED TO RENDERING OF MANAGERIAL AND TECHNICAL SERVICES LIABLE FOR TDS U/S 194J OF THE IT ACT. SIN CE ASSESSEE HAD NOT DEDUCTED REQUISITE TDS U/S 194J, PROVISIONS OF SEC. 40(A)(IA ) OF ACT WERE APPLICABLE AND THE ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 5 LICENSE FEE PAYMENTS WERE TO BE DISALLOWED. ASSESSE E FILED DETAILED REPLIES RAISING VARIOUS CONTENTIONS TO THE EFFECT THAT: A. THE REASSESSMENT NOTICES WERE BAD IN LAW; ALL T HE RELEVANT FACTS ABOUT PAYMENT TO IRCTC WERE CONSIDERED BY LD. AO IN ORIGI NAL ASSESSMENTS FRAMED U/S 143(3). THE 148 NOTICES WERE ISSUED AFTE R A PERIOD OF 4 YEARS FROM THE END OF THE ASSESSMENT YEARS. THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE IN DISCLOSING ALL THE RELEVANT PRIMARY FACTS AND REASONS DID NOT SAY THAT THERE WAS ANY FAILURE ON THE PART OF THE A SSESSEE IN DISCLOSING PRIMARY FACTS, WHICH HAS BEEN HELD BY COURTS TO BE A MANDATORY CONDITION IN ORDER TO ISSUE 148 NOTICE AFTER END OF 4 YEARS F ROM THE END OF RELEVANT ASSESSMENT YEAR. CONSEQUENTLY REASONS WERE INADEQUA TE, WITHOUT APPLICATION OF MIND AND PERUSAL OF RECORD AND WERE UNTENABLE. THE ISSUE OF ALLOWABILITY OF PAYMENTS TO IRCTC HAVING BEEN ALLOW ED AS BUSINESS EXPENDITURE U/S 143(3), THE REASSESSMENTS TANTAMOUN T TO REVIEW OF THE ORDER WHICH WAS NOT PERMISSIBLE. THEREFORE, THE REA SSESSMENT NOTICE AND REASSESSMENTS WERE INVALID AND UNTENABLE. C. ON MERITS, THE PAYMENTS TO IRCTC WERE FOR LICENSE F EE SIMPLICITER AND CANNOT BE ASSUMED TO BE PAYMENTS FOR MANAGERIAL AND TECHNICAL SERVICES AS CONTEMPLATED BY SEC. 194J. THEREFORE AS SESSEE WAS NOT LIABLE FOR TDS U/S 194J OR ANY OTHER PROVISIONS OF TDS; CO NSEQUENTLY IMPUGNED PAYMENTS CANNOT BE DISALLOWED UNDER SEC. 4 0(A)(IA) OF ACT. D. LD. AO HOWEVER REJECTED THE ASSESSEES OBJECTIONS & EXPLANATIONS AND HELD THAT PAYMENTS TO IRCTC AMOUNTED FOR MANAGERIAL AND TECHNICAL SERVICES AS CONTEMPLATED BY SEC. 194J AND PROVISION S OF SEC. 40(A)(IA) WERE APPLICABLE AS TDS WAS NOT DEDUCTED THEY CANNOT BE ALLOWED AS BUSINESS EXPENDITURE IN IMPUGNED YEARS. IN REASSESS MENT FOR AY 2011- 12 SOME OTHER DISALLOWANCE WERE ALSO MADE BY LD. AO . 3.1 AGGRIEVED ASSESSEE PREFERRED FIRST APPEALS BEFO RE THE LD. CIT(A), CHALLENGING THE LEGALITY OF REASSESSMENT U/S 147 AS WELL AS THE DISALLOWANCES MADE U/S 40(A)(IA) OF THE ACT. THE OTHER ADDITIONS AGIT ATED BY THE ASSESSEE IN GROUNDS ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 6 MENTIONED ABOVE, I.E. CLAIM QUA EMBEZZLEMENT, ALLEG ED EXCESS BURNING LOSS, 40A(3), AD HOC DISALLOWANCE FOR POSSIBLE LEAKAGE OF REVENUE AND ADDITION U/S 69C WERE VEHEMENTLY CONTESTED. 3.2 LD. CIT(A) UPHELD THE 148 NOTICES AND VALIDITY OF REASSESSMENTS MADE U/S 147 OF THE ACT. ON MERITS, LD. CIT(A) TOOK A NEW S TAND BY HOLDING THAT TDS PROVISIONS EITHER 194J WERE APPLICABLE OR ALTERNATI VELY PROVISIONS OF SEC. 194C WERE APPLICABLE TO IRCTC LICENSE FEE PAYMENTS. AS THE AS SESSEE HAD NOT DEDUCTED THE TDS UNDER ANY OF THIS SECTION, DISALLOWANCE U/S 40( A)(IA) OF THE ACT WAS CALLED FOR. HOWEVER, THE QUANTUM OF DISALLOWANCE WAS REDUCED ON WHICH REVENUE IS IN APPEAL. IN AY 2011-2012 THE EMBEZZLED AMOUNT DISAL LOWANCE WAS CONFIRMED AS PRIOR PERIOD EXPENSES AS NOT ALLOWABLE IN THIS YEAR ; LUMP SUM ADDITION FOR LEAKAGE OF REVENUE WAS REDUCED; ADDITIONS QUA 40A(3), BURN ING LOSS AND DISALLOWANCE U/S 69C WERE CONFIRMED. AGGRIEVED BY THE AFORESAID ORDE R OF THE CIT(A), BOTH PARTIES I.E. ASSESSEE AND REVENUE ARE NOW IN APPEAL BEFORE US. 4. THE FIRST SET OF GROUNDS CHALLENGE THE VALIDITY RE-ASSESSMENT PROCEEDINGS CARRIED OUT BY THE ASSESSING OFFICER U/S 147 OF THE ACT. 4.1 THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT A LL THE ORIGINAL ASSESSMENTS WERE FRAMED UNDER SECTION 143(3) AFTER DETAILED SCR UTINY AND CALLING FOR VARIOUS ELABORATE DETAILS INCLUDING THE IRCTC LICENSE FEE P AYMENTS. THEY WERE DULY FURNISHED AND AFTER DUE VERIFICATION AND AFTER PROP ER APPLICATION OF MIND, LD. AO TOOK A DECISION TO ALLOW THE IRCTC EXPENSES. THUS, THE REASONS ON WHICH THE REASSESSMENT PROCEEDINGS WERE INITIATED ARE UNTENAB LE SINCE ON THE VERY ISSUE AN OPINION HAS BEEN EXERCISED BY LD. AO IN 143(3) ASSE SSMENTS. ASSESSEE VEHEMENTLY OPPOSED THE 147/148 NOTICES BY FILING OBJECTIONS WH ICH ARE PLACED AT PAPER-BOOK 1 TO 20. ATTENTION OF LD. AO WAS DRAWN TO THE NOTICE UNDER SECTION 142(1) ISSUED DURING ORIGINAL ASSESSMENT PROCEEDINGS BY WHICH PRO PER DETAILS OF LICENSE FEES PAID AND DETAILS OF TDS WERE FURNISHED. AGAIN, BY R EPLY DATED 14.03.2009 COMPLETE DETAILS OF EXPLANATION AND INFORMATION OF BUSINESS ACTIVITY, LICENSE FEE WERE ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 7 SUBMITTED. IT IS PERTINENT TO POINT OUT THAT THE LD . AO HAS ACCEPTED THIS FACT IN HIS ORDER (AY 2008-09) ON OBJECTIONS DATED 19.12.2012 W HERE HE STATES THAT, .. THOUGH THE ASSESSEE HAS FURNISHED DETAILS OF PAY MENT REGARDING LICENSE FEES TO IRCTC BUT THE ASSESSEE HAS NOT FURNISH THE DETAI LS REGARDING TDS NOT APPLICABILITY NOR THE CONFIRMATION FROM IRCTC AS TO TDS INCIDENTS UP TO A.Y. 2007-08 AS PER ADMINISTRATIVE POLICY / CLARIFICATIO N FROM CBDT AND THE RAILWAY MINISTRY IN REGARD TO THE DEDUCTION OF TDS WHICH P ROVES THAT THERE IS NO STATUTORY REQUIREMENT OF DEDUCTION OF TAX AT SOURCE... 4.2 IT IS THUS ABUNDANTLY CLEAR THAT THE AO MADE PR OPER INQUIRIES ABOUT IRCTC PAYMENTS, LICENSE FEE, ISSUES ABOUT TDS AND OTHER R ELEVANT QUERIES RELEVANT TO THE ISSUE OF TDS, AFTER DUE INQUIRIES LD AO EXAMINED TH E DETAILS CALLED FOR AND ALLOWED THE ITCTC LICENSE FEE EXPENDITURE. 4.3 LD. COUNSEL PLACED RELIANCE ON HONBLE GUJARAT HIGH COURT JUDGMENT IN THE CASE OF VODAFONE WEST LTD VS ASST CIT (2013) 354 ITR 520 (GUJ). IN THIS CASE ALSO, REASSESSMENT WAS SOUGHT TO BE MADE FOR FAILU RE TO MAKE TDS AS THE ASSESSEE HAD MERELY FURNISHED DETAILS OF PAYMENT OF CERTAIN SUMS . THE HONBLE HIGH COURT HAS HELD THAT: IN THE ORIGINAL ASSESSMENT, THE ASSESSEE IN RESPONS E TO THE QUERIES RAISED BY THE ASSESSING OFFICER PROVIDED VARIOUS DETAILS INCLUDIN G THE DETAILS OF DEALERS' COMMISSION AND THE LIST OF DEALERS WHO RECEIV ED SUCH COMMISSION IN EXCESS OF RS. 50 LAKHS DURING THE PERIOD UNDER CONSIDERATION. [PARA 8] LIKEWISE WITH RESPECT TO ROAMING CHARGES PAID BY TH E PETITIONER TO OTHER TELECOM SERVICE PROVIDERS, THE PETITIONER PROVIDED THE DETAILS OF L ARGE NUMBER OF SUCH SERVICE PROVIDERS AND INSTANCES OF PAYMENT OF ROAMING CHARGES FOR DIF FERENT TELECOM CIRCLES. [PARA 10] IF AT THAT STAGE, THE ASSESSING OFFICER WAS OF THE OPINION THAT SUCH CHARGES PAID BY THE PETITIONER INCURRED THE LIABILITY OF DEDUCTING TAX AT SOURCE, HE COULD SURELY HAVE EXPRESSED SUCH OPINION IN HIS ASSESSMENT ORDER OR I F HE HAD ANY DOUBT ABOUT FURTHER DETAILS, HE COULD HAVE AS WELL CALLED FOR THE SAME. SURELY, IT WAS NOT THE RESPONSIBILITY OF THE ASSESS EE TO RAISE THE CONTENTION THAT SUCH TAX AT SOURCE WAS NOT REQUIRED TO BE DEDUCTED AND JUSTI FY THE SAME BY POINTING OUT LEGAL PROVISIONS AND JUDGMENTS, IF ANY. THE FACT THAT TAX AT SOURCE WAS NOT DEDUCTED ON SUC H PAYMENTS MADE BY THE PETITIONER WAS PART OF THE RETURNS FILED. THERE WAS NO DISPUTE NOR DISGUISE IN THIS RESPECT. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 8 WHEN FULL FACTS RECORDING SUCH CHARGES BEEN PAID HA VING COME ON RECORD DURING SUCH PROCEEDINGS, IT CANNOT BE STATED THAT IN THE PRESEN T CASE THERE WAS FAILURE ON PART OF THE PETITIONER TO DISCLOSE TRUE AND FULL MATERIAL FACTS . [PARA 12] 4.4 THUS VIEWED FROM HONBLE GUJARAT HIGH COURT, IT IS CONTENDED THAT THERE IS NO JUSTIFICATION IN AOS REASSESSMENT DESPITE THIS BINDING JUDGMENT. AO APPLIED HIS MIND AND FRAMED A PROPER OPINION ABOUT THE ALLO WABILITY LICENSE. THUS NOTICES U/S 147/148 AMOUNT TO AN EXERCISE FOR CHANGE OF OPI NION AND REVIEW OF AN ORDER WHICH IS NOT PERMISSIBLE EVEN WITHIN FOUR YEARS AS HELD BY THE SUPREME COURT IN THE CASE OF CIT VS KELVINATOR OF INDIA LTD 320 ITR 561 (SC) APPROVING CIT VS KELVINATOR OF INDIA 256 ITR 1 (DELHI )(FB). IT HAS BEEN EMPHATICALLY HELD BY HONBLE SUPREME COURT THAT EVEN AFTER 1.04.1989 AME NDMENT IN SEC.147, ON A CHANGE OF OPINION, PROCEEDINGS UNDER S. 147 WERE NO T VALID. IN THIS JUDGMENT, REASSESSMENT WAS SOUGHT TO BE MADE WITHIN FOUR YEAR S (FOR A.Y. 1987-88, NOTICE UNDER S. 148 ISSUED ON 20.04.1990) WHEREAS IN ASSE SSEES CASE THEY ARE ISSUED AFTER EXPIRY OF 4 YEARS FROM THE ASSESSMENT YEAR. THERE I S NO MENTION WHATSOEVER IN REASONS RECORDED FOR REOPENING THAT THERE IS ANY FA ILURE ON THE PART OF THE ASSESSEE IN DISCLOSING THE RELEVANT DETAILS DURING THE COURS E OF REGULAR ASSESSMENTS. HONBLE SUPREME COURT HAS SQUARELY HELD THAT CONCEPT OF CHA NGE OF OPINION MUST BE TREATED AS IN-BUILT BALANCING MECHANISM TO CHECK AB USE OF POWER TO REOPEN. 4.5 FURTHER RELIANCE IS PLACED ON THE GUJARAT HIGH COURT JUDGMENT IN THE CASE OF ASHWAMEGH CO.OP HOUS. SOCIETY LTD VIBHAG-2 VS. DY CIT (2013) 214 TAXMAN 42 (GUJ) MAG./ 254 CTR 362 (GUJ); HONBLE JURISDICTION AL HIGH COURT HAS HELD THAT EVEN WITHIN A PERIOD OF FOUR YEARS, REOPENING ON CH ANGE OF OPINION IS NOT PERMITTED BY OBSERVING AS UNDER:- . ....... IT IS TRUE THAT THE IMPUGNED NOTICE HAS BEEN ISSUED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. THE REFORE, THE REQUIREMENT THAT THE INCOME CHARGEABLE TO TAX SHOULD HAVE ESCAPED ASSESS MENT FOR THE REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRU LY AND FULLY ALL MATERIAL FACTS NEED NOT BE ESTABLISHED. HOWEVER, AS HELD BY THE APEX CO URT IN CASE OF COMMISSIONER OF INCOME-TAX V. (1) KELVINATOR OF INDIA LTD. (2) EICH ER LTD. ( SUPRA.) REOPENING EVEN WITHIN FOUR YEARS WOULD NOT BE PERMISSIBLE ON A MER E CHANGE OF OPINION. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 9 IN THE PRESENT CASE, THE ASSESSING OFFICER HAVING E XAMINED THE ENTIRE CLAIM THREADBARE, ANY DEVIATION FROM HIS DECISION ON THE GROUND THAT THE RECEIPTS OF THE ASSESSEE FROM SALE OF LAND SHOULD BE TREATED AS BUS INESS INCOME IN AND NOT AS LONG TERM CAPITAL GAIN MUST BE TAKEN TO BE A CHANGE OF O PINION. IT MAY BE THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER DID NOT ELA BORATE ON THIS ASPECT OF THE MATTER. TO OUR MIND THE SAME WOULD BE OF NO CONSEQU ENCE.... WHILE HOLDING SO HONBLE HIGH COURT RELIED UPON THE JUDGMENT OF THE APEX COURT IN KELVINATOR OF INDIA LTD (SUPRA) AND A LSO ITS OWN JUDGMENT IN THE CASE OF GUJARAT POWER CORPORATION LTD VS ACIT 350 ITR 266 (GUJ) . 4.6 IT IS VEHEMENTLY CONTENDED THAT KEEPING IN VIEW THE ABOVE FACTUAL AND LEGAL PROPOSITIONS, THE CONDITIONS OF SECTION 147 HAVE NO T BEEN SATISFIED BY LD. AO, THEREFORE, THE IMPUGNED REASSESSMENTS ARE WITHOUT J URISDICTION, UNSUSTAINABLE, BAD IN LAW AND LIABLE TO BE QUASHED. 4.7 AN ACADEMIC QUESTION MAY ARISE - THAT IF LD. AO WAS IN POSSESSION OF PRIMARY DETAILS AT THE TIME OF ORIGINAL ASSESSMENT BUT DID NOT CONSIDER THE RELEVANT ISSUE; CAN IT BE DEEMED THAT NO OPINION WAS FORMED AND INCOME ESCAPED ASSESSMENT SO AS TO RESORT TO REASSESSMENT? THIS QUESTION ALSO STANDS DECIDED BY HONBLE APEX COURT IN THE CASE OF GEMINI LEATHER STORES V ITO 100 ITR 1 (SC) HOLDI NG THAT :- .. AFTER THIS DISCOVERY THE INCOME-TAX OFFICER HAD IN HIS POSSESSION ALL THE PRIMARY FACTS AND IT WAS FOR HIM TO MAKE NECESSARY ENQUIRIE S AND DRAW PROPER INFERENCE AS TO WHETHER THE AMOUNTS INVESTED IN THE PURCHASE OF THE DRAFTS COULD BE TREATED AS PART OF THE TOTAL INCOME OF THE ASSESSEE DURING THE RELEVANT YEAR. THIS THE INCOME- TAX OFFICER DID NOT DO. IT WAS PLAINLY A CASE OF OV ERSIGHT, AND IT CANNOT BE SAID THAT THE INCOME CHARGEABLE TO TAX FOR THE RELEVANT ASSES SMENT YEAR HAD ESCAPED ASSESSMENT BY REASON OF THE OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. THE INCOME-TAX OFFICER HAD ALL THE MATERIAL FACTS BEFORE HIM WHEN HE MADE THE ORIGINAL ASSESSMENT. HE CANNOT NOW TAKE RECOURSE TO SECTION 147(A) TO REMEDY THE ERROR RESULTING FROM H IS OWN OVERSIGHT. 4.8 IT IS CONTENDED THAT ASSESSEES CASE STANDS ON EVEN BETTER FOOTING AS LD. AO DID CALL FOR THE DETAILS AND VERIFIED THEM; BASED T HEREON A VIEW WAS FORMED TO ALLOW THE EXPENDITURE. ADVERTING TO THE OTHER ASPEC TS LD. COUNSEL CONTENDS THAT THE IN REASONS LD. AO HAS RECORDED THAT ON VERIFICATION OF ASSESSMENT RECORDS FOR ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 10 A.Y. 2007-08...... . THEREFORE, IT IS CLEAR THAT IT IS FROM THE VERY S AME FACTS AND MATERIAL AVAILABLE ON RECORD THAT THE ASSESSMENT IS SOUGHT TO BE REOPENED. 4.9 HONBLE GUJARAT HIGH COURT IN THE CASE OF PARIXIT INDUSTRIES VS ACIT (2012) 207 TAXMAN 140 (GUJ) HAS HELD THAT REASSESSMENT IS NOT PERMISSIBLE TO REASSESS AGAIN BY A SECOND THOUGHT BY CONSIDERING T HE SAME MATERIAL . THE DEPARTMENTS SLP AGAINST THIS JUDGMENT HAS ALSO BEE N DISMISSED BY HONBLE SUPREME COURT. THEREFORE, LOOKING FROM ANY ANGLE TH E IMPUGNED REASSESSMENTS ARE BAD IN LAW. 4.10 FURTHER RELIANCE IS PLACED ON HONBLE GUJARAT HIGH COURT IN THE RECENT JUDGMENT OF PR. CCIT V GUJARAT FLURO CHEMICALS JUDG MENT DTD. 20-6-2016, IN WHICH FOLLOWED EARLIER GUJARAT HIGH COURT JUDGMENT IN THE CASE OF GUJARAT POWER CORPN. 350 ITR 266 AND HONBLE SUPREME COURT JUDGME NT IN THE CASE OF KELVINATOR INDIA, IT HAS BEEN SQUARELY HELD THAT WHEN THE AO E XAMINED A PARTICULAR ISSUE AT LENGTH, WITHOUT THERE BEING ANYTHING MORE, REASSESS MENT WOULD NOT BE PERMISSIBLE. 4.11 IT IS FURTHER SUBMITTED THAT IN VIEW OF THESE BINDING JUDICIAL PRECEDENTS IT IS A SETTLED PROPOSITION OF LAW THAT ASSESSEE HAVING D ISCLOSED PRIMARY FACTS, QUERIES BEING RAISED ON THE ISSUE IN QUESTION, IN THESE CIR CUMSTANCES, AN OPINION STANDS FORMED BY A.O. WITHOUT THERE BEING ANYTHING MORE, R EOPENING ON SUCH ISSUE IS NOT PERMISSIBLE EVEN WITHIN IN 4 YEARS LIMITATION. RELI ANCE IS FURTHER PLACED ON: 1. NDT SYSTEM 81 DTR 1 (BOM) - HOLDING THAT IN THESE CIRCUMSTANCES REOPENING WITHIN FOUR YEARS WAS NOT PERMISSIBLE. 2. NYK LINE (INDIA) LTD (2012) 346 ITR 355 (BOM) - HOLDING THAT EVEN WITHIN FOUR YEARS REOPENING ON CHANGE OF OPINION IS NOT PE RMISSIBLE AND THE FACT THAT THERE WAS NO SPECIFIC DISCUSSION IN THE COURSE OF ORIGINAL ASSESSMENT ORDER MEANT THAT THE A.O. DID NOT FIND ANY JUSTIFIC ATION TO REJECT THE CLAIM OF THE ASSESSEE. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 11 4.12 THE ASSESSEES CASE STANDS ON BETTER FOOTING I NASMUCH AS THE NOTICES U/S 147 HAVE BEEN ISSUED AFTER 4 YEARS, ALL THE PRIMARY DE TAILS WERE DISCLOSED, QUESTIONS ABOUT LICENSE FEE AND TDS DETAILS WERE RAISED, THER EAFTER THE IRCTC PAYMENTS WERE ALLOWED AS BUSINESS EXPENDITURE. THUS IN VIEW OF ENTIRETY OF THE FACTUAL AND LEGAL POSITION, THE IMPUGNED REASSESSMENTS ARE UNTE NABLE, BASED ON CHANGE OF OPINION, INITIATED AFTER 4 YEARS. JUDGING THE IMPUG NED EXERCISE ON THE TOUCHSTONE OF JUDGMENTS OF THE APEX COURT AND JURISDICTIONAL A ND OTHER HIGH COURTS, THESE REASSESSMENTS DESERVE TO BE QUASHED. 5. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD. RE LIANCE IS PLACED ON HONBLE MADRAS HIGH COURT JUDGMENT IN THE CASE OF SRI SAKTH I TEXTILES LTD. V JCIT, COIMBTORE 340 ITR 144 FOR THE PROPOSITION THAT THE RE IS NO LEGAL NECESSITY THAT FOR INVOKING SECTION 147, THERE SHOULD BE FRESH MATERIA L; EVEN FROM THE MATERIAL AVAILABLE ON RECORD A SUBSEQUENT OFFICER CAN FORM A BELIEF THAT THERE WAS ESCAPEMENT OF INCOME, SUCH REOPENING OF ASSESSMENT IS PERMISSIBLE. 5.1 LD. COUNSEL CONTENDS THAT HONBLE SUPREME COURT JUDGMENT IN THE CASE OF KELVINATOR INDIA IS SUBSEQUENT TO SAKTHI JUDGMENT A ND IS SQUARELY COVERS THE FACTS OF ASSESSEES CASE, THEREFORE, MADRAS HIGH COURT JU DGMENT IN SRI SAKTHI WILL NOT APPLY AS COMPARED TO HONBLE SUPREME COURT JUDGMENT . 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE LOWER AUT HORITIES. ADVERTING TO THE VALIDITY OF REASSESSMENT PROCEEDINGS IN AY 2006-07, 2007-08 AND 2009-10, RELEVANT FACTS ABOUT ORIGINAL ASSESSMENTS BEING U/S 143(3), IRCTC LICENSE PAYMENTS FEES HAVING BEEN ALLOWED AS BUSINESS EXPENDITURE AFTER C ALLING FOR RELEVANT DETAILS ABOUT PAYMENTS AND TDS COMPLIANCE, LEGAL POSITION A ND OTHER RELEVANT ASPECTS HAVE BEEN DISCUSSED ABOVE. FOLLOWING FACTS EMERGE F ROM THESE OBSERVATIONS:- I. ASSESSEE HAS DEMONSTRATED THAT ALL THE RELEVANT FAC TS ABOUT PAYMENT TO IRCTC AND ASSESSEES TDS RECORD WERE CONSIDERED BY LD. AO IN ORIGINAL ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 12 ASSESSMENTS. THEREAFTER THE IRCTC PAYMENTS WERE ALL OWED AS BUSINESS EXPENDITURE, WHICH IMPLIES THAT AO WAS OF THE OPINI ON THAT PROVISIONS OF SEC. 40(A)(IA) OF ACT WERE NOT APPLICABLE TO ASS ESSEE. II. THE NOTICES U/S 148 ARE ADMITTEDLY ISSUED AFTER A PERIOD OF 4 YEARS FROM THE END OF THE ASSESSMENT YEARS. THERE IS NEITHER A NY MENTION OF ASSESSEES FAILURE IN DISCLOSING ALL THE RELEVANT P RIMARY FACTS IN REASONS RECORDED FOR ISSUING NOTICES NOR RECORD SUGGESTS TH AT ASSESSEE FAILED IN THIS ASPECT, THIS HAS BEEN HELD TO BE A MANDATORY P REREQUISITE TO REOPEN THE ASSESSMENT AFTER 4 YEARS FROM THE END OF THE RE LEVANT ASSESSMENT YEAR.. THERE IS NO MENTION OF ANY NON COOPERATION I N ASSESSMENT ORDERS WHICH ALSO IMPLIES ASSESSEE FURNISHED ALL THE RELEV ANT DETAILS. III. THE ISSUE OF ALLOWABILITY OF PAYMENTS TO IRCTC AND TDS RECORD HAVING BEEN CONSIDERED BY LD. AO AND ALLOWED AS BUSINESS E XPENDITURE U/S 143(3), THE REASONS FOR REASSESSMENT TANTAMOUNT TO REVIEW OF THE ORDER WHICH IS NOT PERMISSIBLE. IV. THEREFORE, IN VIEW OF THESE UNDISPUTED FACTS, REASO NS, REASSESSMENT NOTICES AND REASSESSMENTS WERE INVALID AND UNTENABL E. 6.1 IN VIEW OF THESE OBSERVATIONS AND RESPECTFULLY FOLLOWING HONBLE SUPREME COURT JUDGMENT IN THE CASE OF KELVINATOR OF INDIA L TD AND HONBLE GUJARAT HIGH COURT JUDGMENTS IN THE CASE OF ASHWAMEGH CH SOCIETY LTD.; GUJARAT POWER CORPN.; GUJARAT FLURO CHEMICALS (SUPRA) AND VARIOUS OTHER JUDGMENTS CITED ABOVE, WE HOLD THAT THE REASSESSMENTS MADE IN THE IMPUGNED YEARS ARE BAD IN LAW AND ARE ACCORDINGLY QUASHED. CONSEQUENTLY FOR AYS 2006- 07, 2007-08 & 2009-10 - ASSESSEES APPEALS ARE ALLOWED AND THAT OF REVENUE DISMISSED FOR THE REASONS THAT 147/148 PROCEEDINGS ARE BAD IN LAW. 7. WE MAY HASTEN TO ADD THAT IN AY 2008-09 ASSESSME NT BEING U/S 143(3) R.W.S 263 AND FOR AY 2011-12 BEING U/S 143(3) SAME ISSUES ARE BEING DECIDED HEREINAFTER ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 13 ON MERITS, THESE FINDINGS WILL BE APPLICABLE TO MER ITS OF AYS 2006-07, 2007-08 & 2009-10 ALSO. 7.1 ADVERTING TO MERITS, THE LD. COUNSEL CONTENDS T HAT THE ACTION OF LD. AO AND LD. CIT(A) IN THIS BEHALF IS ASSAILED ON FOLLOWING ALTERNATIVE COUNTS:- A. THE IRCTC PAYMENTS ARE NEITHER FOR TECHNICAL SERVIC E NOR CONTRACT PAYMENTS, CONSEQUENTLY NO TDS IS DEDUCTIBLE U/S 194 J AND 194C. B. IRCTC FOR ALL LEGAL PURPOSES IS GOVT. WHICH IS EXEM PT FROM TDS DEDUCTION. C. IRCTC HAVING OFFERED THE LICENSE FEE AS INCOME, THE RE IS NO TDS LIABILITY ON ASSESSEE IN VIEW OF THE AMENDMENT. A. THE PAYMENTS TO IRCTC WERE FOR LICENSE FEE SIMPLIC ITER. THE CONTRACTOR IS IRCTC AND ASSESSEE IS A CONTRACTEE, THIS IS A PECUL IAR CONTRACT WHERE REVERSE METHODOLOGY IS FOLLOWED I.E. THE LICENSE FEE IS PAI D BY CONTRACTEE TO CONTRACTOR FOR AVAILING THE LICENSE TO SERVE FOOD O N TRAINS. THE SIMPLE PAYMENT OF LICENSE FEE CAN BY NO STRETCH OF IMAGINA TION BE ASSUMED TO FOR AVAILING ANY MANAGERIAL OR TECHNICAL SERVICES RENDE RED BY IRCTC AS CONTEMPLATED BY SEC. 194J. B. BESIDES NORMALLY THE TDS IS DEDUCTIBLE U/S 194C BY CONTRACTOR OUT OF PAYMENTS TO ANY CONTRACTEE. WHEREAS IT IS A REVERSE CASE AND CONTRACTEE HAS NO LIABILITY FOR TDS U/S 194C. LICENSE CONFERS A ME RE RIGHT OF VENDING AND NOT FOR RENDERING ANY SERVICE WHATSOEVER, SERVICES IF ANY ARE RENDERED BY CONTRACTEE . THUS THERE BEING NO TDS LIABILITY U/S 194J OR 194C, LICENSE FEE CANNOT BE DISALLOWED UNDER SEC. 40(A)(IA) OF ACT UN DER NO CIRCUMSTANCES. LD. AO HOWEVER REJECTED THE ASSESSEES VALID OBJECT IONS & EXPLANATIONS WITHOUT GIVING COGENT REASONS AND TOOK AN OUTLANDIS H VIEW THAT LICENSE PAYMENTS TO IRCTC WERE FOR MANAGERIAL AND TECHNICAL SERVICES AS CONTEMPLATED BY SEC. 194J, SINCE TDS WAS NOT MADE, PAYMENTS WERE DISALLOWED AS EXPENDITURE U/S. 40(A)(IA) IN IMPUGNE D YEARS. 7.2 IT IS FURTHER CONTENDED THAT LD AO GROSSLY MISD IRECTED AND ERRED IN HOLDING ON SECOND THOUGHT THAT LICENSE FEES PAID TO IRCTC W AS FOR MANAGERIAL AND TECHNICAL SERVICES LIABLE FOR TDS U/S 194J READ WIT H SEC. 9(1)(VII) EXPLANATION 2, ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 14 CONSEQUENTLY EXPENDITURE WAS DISALLOWABLE 40(A) (IA ). RELEVANT EXPLN. 2 READS AS SUNDER:- EXPLANATION [2].FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CON SIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICE S (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIEN T CHARGEABLE UNDER THE HEAD 'SALARIES'.] THE LICENSE FEE IS PAID CONSEQUENT TO REG ULAR SYSTEM DEVISED BY IRCTC WHICH CALLS FOR TENDERS OFFERING THE LICENSE FOR FO OD CATERING RIGHTS ON PASSENGER TRAINS ON A PARTICULAR TRAIN ROUTE. THE SUCCESSFUL BIDDERS ARE GIVEN LICENSES AGAINST PAYMENT OF LICENSE FEE AND THE CONTRACTEE R ENDERS THE SERVICES NOT IRCTC. THE TENDERS, LICENSE AND PAYMENT OF LICENSE FEE ARE A PART OF A ROUTINE AND REGULAR LEGAL PROCESS AS APPROVED BY RAILWAY MINIST RY FOR EVERYONE AT LARGE. THERE IS NEITHER ANY SKILL, SPECIAL KNOWLEDGE OR EL EMENT OF SERVICE INVOLVED IN DISCHARGE OF THIS LEGAL OBLIGATION. IRCTC NEITHER D EPUTED AS ANY SPECIAL PERSONNEL TO RENDER ANY SERVICE TO ASSESSEE. IN THE SE CIRCUMSTANCES EVEN AN IOTA OF RENDERING ANY SERVICE IS MISSING, WHEN THERE IS NO SERVICE, THERE IS NO QUESTION OF APPLICABILITY OF SEC. 194J AS CONTEMPLATED BY LD . AO. 7.3 IT IS VEHEMENTLY CONTENDED THAT PAYMENT OF LICE NSE FEES TO IRCTC BY NO STRETCH OF IMAGINATION CAN BE ASSUMED TO BE CONSID ERATION FOR RENDERING ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. NO S ERVICES MUCH LESS ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES ARE P ROVIDED BY IRCTC WHILE ISSUING THE LICENSE OF VENDING FOOD ON TRAINS. HON BLE SUPREME COURT JUDGMENT IN THE CASE OF CIT, MUMBAI V KOTAK SECURITIES LTD. 67 TAXMANN.COM 356 REVERSED BOMBAY HIGH COURT JUDGMENT AND ELUCIDATED THE NATU RE AND SCOPE OF TECHNICAL AND MANAGERIAL SERVICES BY FOLLOWING OBSERVATIONS:- IN THIS CASE BOMBAY HIGH COURT INITIALLY HELD THAT THE TRANSACTION CHARGES PAID BY A MEMBER OF BSE ON SALE AND PURCHASE OF SHA RES AMOUNTED TO PAYMENT OF A FEE FOR TECHNICAL SERVICES WHICH WAS LIABLE FOR TDS U/S 194J. TDS WAS NOT ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 15 DEDUCTED BY ASSESSEE, THE ENTIRE AMOUNT PAID TO BSE WAS NOT ALLOWABLE U/S 40(A)(IA). HONBLE SUPREME COURT REVERSED THE HIGH COURT ORDER, GIST IF AS UNDER: (I) MANAGERIAL AND CONSULTANCY SERVICES AND, THEREFOR E, NECESSARILY TECHNICAL SERVICES, WOULD OBVIOUSLY INVOLVE SERVI CES RENDERED BY HUMAN EFFORTS. THIS HAS BEEN THE CONSISTENT VIEW TA KEN BY THE COURTS INCLUDING SUPREME COURT IN BHARTI CELLULAR LTD. 330 ITR 97. (II) THE AUTOMATED SERVICES MADE AVAILABLE BY THE BSE AR E AVAILABLE TO ALL MEMBERS FOR TRANSACTION EFFECTED THROUGH IT. THERE IS NOTHING SPECIAL, EXCLUSIVE OR CUSTOMISED SERVICE THAT IS RENDERED BY THE STOCK EXCHANGE. (III) TECHNICAL SERVICES LIKE MANAGERIAL AND CONSULTAN CY SERVICE WOULD DENOTE SEEKING OF SERVICES TO CATER TO THE SPECIAL NEEDS OF THE CONSUMER/USER AS MAY BE FELT NECESSARY AND THE MAKI NG OF THE SAME AVAILABLE BY THE SERVICE PROVIDER. IT IS THE ABOVE FEATURE THAT WOULD DISTINGUISH/IDENTIFY A SERVICE PROVIDED FROM A FACI LITY OFFERED. WHILE THE FORMER IS SPECIAL AND EXCLUSIVE TO THE SEEKER O F THE SERVICE, THE LATTER, EVEN IF TERMED AS A SERVICE, IS AVAILABLE TO ALL AN D WOULD THEREFORE STAND OUT IN DISTINCTION TO THE FORMER. THE SERVICE PROVI DED BY THE STOCK EXCHANGE FAIL TO SATISFY THE AFORESAID TEST OF BEIN G SPECIALIZED, EXCLUSIVE AND INDIVIDUAL REQUIREMENTS OF THE USER. SERVICE RE NDERED BEING IN THE NATURE OF A ROUTINE FACILITY WOULD NOT BE COVERED B Y THE AFORESAID PROVISION OF THE ACT. (IV) THE SERVICE MADE AVAILABLE BY BSE ONLINE TRADING ( BOLT) SYSTEM ARE COMMON SERVICES NECESSARY FOR CARRYING OUT TRADING IN SECURITIES IN THE STOCK EXCHANGE BEING OF ROUTINE NATURE, VIEW TAKEN BY THE HIGH IS NOT CORRECT. SUCH SERVICES CAN BE APPROPRIATELY TERMED AS FACILITIES PROVIDED BY THE SE DO NOT AMOUNT TO TECHNICAL SERVICES AS APPEARING IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 16 7.4 BESIDES, BY A SERIES OF JUDGMENTS VARIOUS COURT S HAVE ILLUSTRATED THE SCOPE OF TECHNICAL AND MANAGERIAL SERVICES TO MEAN SERVIC ES OFFERED BY PROVIDER TO OTHER PERSON WHICH ARE SPECIALIZED AND SKILFUL TO C ATER TO THE SPECIAL NEEDS OF THE USER. LIKEWISE IT HAS BEEN HELD THAT ROAMING CHARGE S PAID BY TELECOM OPERATORS TO BSNL VIA SOPHISTICATED COMPUTERS DOES NOT AMOUNT TO TECHNICAL SERVICES AND ARE NOT COVERED BY SEC. 194J IN BHARTI CELLULAR CAS E. LOOKING AT THE ISSUE IN QUESTION IN THE LIGHT OF PL AIN AND SIMPLE MEANING OF TECHNICAL SERVICES AND ELUCIDATED BY HONBLE SUPREM E COURT, LD. CIT(A) INSTEAD OF DECIDING THE APPLICABILITY OF THE IRCTC BY CHARG ING LICENSE FEE FOR ALLOTTING FOOD CATERING RIGHTS ON A PARTICULAR ROUTE NO SERVI CES ARE RENDERED. ITS A QUID PRO QUO THAT YOU PAY ME LICENSE FEE I GIVE YOU LIMITED RIG HTS FOR A TIME PERIOD. THIS SET OF FACTS DOES NOT INVOLVE ANY TECHNICAL SERVICE MUCH LESS EVEN A SERVICE AND LICENSE FEE PAYMENT IS A STEP OF A SET OF LEGAL OBL IGATIONS. SINCE THE IMPUGNED LICENSE FEE IS NOT PAID TO IRCTC FOR ANY SERVICE OR RENDERING ANY SPECIALIZED SERVICES OR PASSING ON OF ANY MANAGERIAL OR TECHNIC AL SKILL OR SERVICE. VIEWING FROM THE PARAMETERS LAID DOWN BY HONBLE SUPREME CO URT IN THE ABOVE CASES OF KOTAK SECURITIES AND BHARTI CELLULAR, THERE IS NEIT HER ANY ELEMENT OF SERVICE OR RENDERING OF TECHNICAL SERVICE WHATSOEVER IN SIMPLE PAYMENT OF LICENSE FEE, SEC. 194J IS NOT AT ALL APPLICABLE.SEC. 194J RATHER CONF OUNDED THE ISSUE BY HOLDING THAT IF 194J IS NOT APPLICABLE THAN 194C MAY APPLICABLE, SINCE THERE IS ONE OR OTHER LIABILITY OF TDS THE LICENSE FEE PAYMENT IS ONE WAY OR OTHER DISALLOWABLE U/S 40(A)(AI). IT IS CONTENDED THAT BASIS OF ALLOTMENT OF CATERING RIGHTS ON LICENSE FEE INVOLVES PECULIAR FEATURES. THE IRCTC IS THE CONTRA CTOR WHO AWARDS RIGHTS AND ASSESSEE IS THE CONTRACTEE OBLIGED TO PAY LICENSE F EE FOR AVAILING THE RIGHTS CONFERRED. LD. CIT(A) HAS COMPLETELY MISCONSTRUED T HE FACTS AND BY ERRONEOUS UNDERSTANDING HAS ASSUMED THAT ASSESSEE IS THE CONT RACTOR AND IRCTC IS THE CONTRACTEE AND THEREFORE, SEC. 194C IS APPLICABLE. THE ENTIRE BASIS IS MISCONCEIVED, MISDIRECT AND THE LIABILITY HAS BEEN FASTENED BY WRONG UNDERSTANDING OF BASIC FACTS. THIS SIMPLE PAYMENT O F LICENSE FEE BY CONTRACTEE TO CONTRACTOR CAN BY NO STRETCH OF IMAGINATION BE ASSU MED TO LIABLE FOR TDS U/S. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 17 194C. LD. CIT(A) FAILED TO APPRECIATE THAT TT IS A REVERSE CASE AND CONTRACTEE HAS NO LIABILITY FOR TDS U/S 194C. 7.5 THEREFORE, WHEN NO SERVICE MUCH LESS TECHNICAL SERVICE ARE RENDERED THERE IS NO QUESTION OF LIABILITY OF TDS U/S 194I. LIKEWISE WHEN IN THE LICENSE PROCESS WHERE CONTRACTOR CONFERS A RIGHT OF CATERING ON A C ONTRACTEE AGAINST LICENSE FEE, THERE BEING NO TDS LIABILITY ON U/S 194C, LICENSE F EE CANNOT BE DISALLOWED UNDER SEC. 40(A)(IA) OF ACT UNDER ANY CIRCUMSTANCES. 7.6 LD. COUNSEL CONTENDS THAT, IT IS ALSO NOT A PAY MENT COVERED U/S 28(VA) WHICH IS IN RESPECT OF ANY SUM FOR NOT SHARING AN Y KNOW HOW, PATENT , COPY RIGHT , TRADE MARK, LICENSE, FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE ETC. THE PAYMENTS MADE BY ASSESSEE T O IRCTC ARE NOT FOR SHARING ANY LICENSE OR OTHER BUSINESS OR COMMERCIAL RIGHT. ON THE CONTRARY, IT IS PAYMENT MADE FOR TAKING LICENSE AND NOT FOR NOT SHARING ANY SUCH LICENSE THAT IRCTC MIGHT HAVE. IRCTC IS THE LICENSE GRANTER AND NOT SH ARER OR NON-SHARER OF LICENSE. THEREFORE NEITHER PROVISIONS OF SECTION 28(VA) NOR 194J ARE APPLICABLE TO SUCH PAYMENTS. SINCE THE PAYMENTS ARE NOT FOR THE SERVIC ES AS CONTEMPLATED BY SECTION 28(VA) OR 194J, NO DISALLOWANCE CAN BE MADE ON A SE COND THOUGHT U/S 40(A) (IA). 7.7 WITHOUT PREJUDICE TO THE ABOVE, THE PAYMENT IS ALSO NOT SUBJECT TO TDS AS IRCTC IS ONLY AN EXTENDED ARM OF THE MINISTRY OF RA ILWAYS AND PAYMENT TO GOVERNMENT IS EXEMPTED FROM TDS LIABILITY U/S 196. RELIANCE IS PLACED ON PUNE ITAT JUDGMENT IN THE CASE OF KIRLOSKAR BROTHERS LTD . V.DY CIT (2015) 167 TTJ 0102 (PUNE); THE RELEVANT FACTS ARE AS UNDER: NOW, THE FIRST AND THE FOREMOST OBJECTION TAKEN B Y THE REVENUE IS THAT THE ASSESSEE DOES NOT FULFIL THE CONDITION PRESCRIBED IN SUB-CLA USE (B) OF CLAUSE (I) TO SUB-SECTION (4) OF SECTION 80IA OF THE ACT. IN TERMS OF THE SAI D OBJECTION, THE REVENUE CONTENDS THAT ASSESSEE HAS ENTERED INTO A WORKS CONTRACT AGR EEMENT WITH SSNNL WHICH IS NOT AN ENTITY SPECIFIED IN SUB-CLAUSE (B) OF SECTIO N 80IA(4)(I) OF THE ACT. ACCORDING TO THE REVENUE, SSNNL IS NOT A CENTRAL GOVERNMENT O R STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY OTHER STATUTORY BODY, SO AS TO BE CONSIDERED AS AN ENTITY SPECIFIED IN SUB-CLAUSE(B) OF SECTION 80IA(4)(I) OF THE ACT. AS PER THE REVENUE, SSNNL IS A COMPANY REGISTERED UNDER THE COMPANIES A CT, 1956 AND DOES NOT FALL WITHIN THE PRESCRIPTION OF SUB-CLAUSE (B) OF SECTIO N 80IA(4)(I) OF THE ACT. AS PER THE ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 18 REVENUE, THOUGH THE ENTIRE SHARE CAPITAL IN THE SAI D COMPANY IS OWNED EITHER BY THE CENTRAL OR THE STATE GOVERNMENT, YET IT CAN ONLY BE CALLED A GOVERNMENT COMPANY BUT IT DOES NOT COME WITHIN THE PURVIEW OF THE ENTI TIES SPECIFIED IN SUB-CLAUSE (B) OF CLAUSE (I) OF SECTION 80IA(4) OF THE ACT. THE REVEN UE HAS SUPPORTED ITS PLEA BY REFERRING TO THE JUDGEMENT OF THE HONBLE SUPREME C OURT IN THE CASE OF STEEL AUTHORITY OF INDIA LTD. VS. SHRI AMBICA MILLS LTD. & ORS., AIR 1998 SC 418. IN TERMS OF THE SAID JUDGEMENT, IT IS SOUGHT TO BE CAN VASSED THAT ALTHOUGH CAPITAL OF SAIL WAS ENTIRELY OWNED BY GOVERNMENT OF INDIA, BUT BY VIRTUE OF ITS INCORPORATION UNDER THE COMPANIES ACT, 1956 ITS PER SONALITY WAS HELD TO BE DISTINCT THAN THAT OF THE GOVERNMENT OF INDIA. SIMI LARLY, RELIANCE HAS BEEN PLACED ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN TH E CASE OF HEAVY ENGINEERING MAZDOOR UNION VS. STATE OF BIHAR, AIR 1970 SC 82 FO R THE PROPOSITION THAT IN THE ABSENCE OF STATUTORY PROVISIONS, A COMMERCIAL CORPO RATION ACTING ON ITS OWN BEHALF, THOUGH CONTROLLED WHOLLY OR PARTIALLY BY A GOVERNME NT DEPARTMENT, WILL BE ORDINARILY PRESUMED NOT TO BE A SERVANT OR AGENT OF THE STATE. ON THE AFORESAID BASIS, IT IS SOUGHT TO BE MADE OUT THAT ASSESSEE HA S NOT ENTERED INTO AN AGREEMENT WITH ANY STATUTORY BODY OR ANY OTHER ENTITY SPECIFI ED IN SUB-CLAUSE (B) OF SECTION 80IA(4)(I) OF THE ACT FOR THE PURPOSE OF EXECUTING THE WORK RELATING TO SAURASHTRA BRANCH CANAL PUMPING SCHEME; AND, THUS THE MANDATO RY CONDITION PRESCRIBED IN SECTION 80IA (4)(I)(B) OF THE ACT HAS NOT BEEN COMP LIED WITH. 7.8 PUNE ITAT, APART FROM VARIOUS HIGH COURT AND SU PREME COURT JUDGMENTS MENTIONED THEREIN DERIVED SUPPORT FROM AHMEDABAD BE NCH DECISION IN THE CASE OF JCIT VS. SARDAR SAROVAR NARMADA NIGAM LTD., (200 5) 93 ITD 321 (AHD) HELD THAT GOVT. MAY CARRY OUT ITS FUNCTIONS THROUGH SPV ALSO BY OBSERVATIONS IN PARA 16 BELOW. 16. THE AFORESAID BACKGROUND OF THE MANNER IN WHIC H SSNNL CAME TO BE INCORPORATED AND READ WITH THE MAIN OBJECTS CONTAIN ED IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF SSNNL, SHOW THAT IT WAS TO WORK UNDER THE DIRECT SUPERVISION AND CONTROL OF THE GOVERNMENT OF GUJARA T. THE OTHER OBJECTS WHICH WE HAVE ENUMERATED ABOVE ALSO SHOW THAT SSNNL IS TO BE UNDERSTOOD AS A SPECIAL PURPOSE VEHICLE (I.E. SPV) THOUGH WHICH THE GOVERNM ENT OF GUJARAT IS CARRYING OUT FUNCTIONS OF A STATE. 7.9 THEREAFTER, PUNE ITAT ADVERTED TO VARIOUS TESTS LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF SOM PRAKASH REKHI BY F OLLOWING OBSERVATIONS AND HELD THAT GOVT. ARMS LIKE SSNL FOR ALL LEGAL AND PR ACTICAL PURPOSES CAN BE INTERPRETED AS GOVT. WHILE GIVING EFFECT TO IT PROV ISIONS BY FOLLOWING OBSERVATIONS: 17. AT THIS POINT, WE MAY REFER TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOM PRAKASH REKHI (SUPRA). IN THE SAID CASE, DISPUTE WAS BETWEEN ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 19 BURMAH SHELL, A COMPANY UNDER THE COMPANIES ACT, 19 56, AND ONE OF ITS FORMER EMPLOYEES. THE COMPANY M/S BURMAH SHELL WAS ACQUIRE D BY GOVERNMENT OF INDIA AND LATER IT WAS KNOWN AS BHARAT PETROLEUM. A WRIT PETITION WAS FILED BY THE EMPLOYEE AGAINST BHARAT PETROLEUM. A PRELIMINARILY OBJECTION AROSE AS TO WHETHER THE WRIT PETITION WAS MAINTAINABLE AGAINST M/S BHAR AT PETROLEUM AS IT WAS NEITHER A STATUTORY CORPORATION AND NOR A GOVERNMENT DEPART MENT. THE COURT EXAMINED WHETHER IT WAS A STATE WITHIN THE MEANING OF ARTICL E 12 OF THE CONSTITUTION OF INDIA. THE HONBLE SUPREME COURT LAID DOWN CERTAIN TESTS IN THIS CONTEXT AND THE RELEVANT PORTION OF THE HEAD NOTES OF JUDGEMENT IS AS UNDER :- 2. SOME OF THE TESTS LAID DOWN BY THIS COURT FOR D ECIDING WHETHER A BODY IS STATE WITHIN THE MEANING OF ARTICLE 12 ARE : (I) IF THE ENTIRE SHARE CAPITAL OF THE CORPORATION IS HELD BY GOVERNMENT, IT WOULD GO A LONG WAY TOWARDS INDICATING THAT THE CORPORATION IS AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT. (II) A FINDING OF STATE FINANCIAL SUPPORTS PLUS AN UNUSUAL DEGREE OF CONTROL OVER THE MANAGEMENT AND POLICIES MIGHT LEAD, ONE TO CHARACTE RIZE AN OPERATION AS STATE ACTION. (III) THE EXISTENCE OF DEEP AND PERVASIVE STATE CON TROL MAY AFFORD AN INDICATION THAT THE CORPORATION IS A STATE AGENCY OR INSTRUMENTALIT Y. (IV) WHETHER THE CORPORATION ENJOYS MONOPOLY STATUS WHICH IS STATE CONFERRED OR STATE PROTECTED IS A RELEVANT FACTOR. (V) IF THE FUNCTIONS OF THE CORPORATION ARE IMPORT ANT PUBLIC FUNCTIONS AND RELATED TO GOVERNMENTAL FUNCTIONS IT WOULD BE A RELEVANT FACTO R IN CLASSIFYING THE CORPORATION AS INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT. (VI) IF A DEPARTMENT OF GOVERNMENT IS TRANSFERRED TO A CORPORATION, IT WOULD BE A STRONG FACTOR SUPPORTIVE OF THE INFERENCE THAT IT I S AN INSTRUMENTALITY OF THE STATE (VII) WHERE THE CHEMISTRY OF THE CORPORATE BODY ANS WERS THE TEST OF STATE IF COMES WITHIN THE DEFINITION OF ARTICLE (VIII) WHETHER THE LEGAL PERSON IS A CORPORATION CR EATED BY A STATUTE, AS DISTINGUISHED FROM UNDER A STATUE IS NOT AN IMPORTA NT CRITERION ALTHOUGH IT MAY BE AN INDICIUM.' 18. AS PER THE HONBLE SUPREME COURT, IF THE AFORES AID TESTS ARE FULFILLED BY AN ENTITY, IT WOULD QUALIFY TO BE UNDERSTOOD AS AN INS TRUMENTALITY OF STATE. AS PER THE HONBLE SUPREME COURT, THE AFORESAID TESTS PROVIDE AN AID TO DETERMINE WHETHER A PARTICULAR BODY IS A STATE WITHIN MEANING OF ARTICL E 12 OF THE CONSTITUTION OF INDIA. EMPHASIZING THE IMPORT OF THE AFORESAID TESTS, THE HONBLE SUPREME COURT NOTED THAT TRUE TEST IS NOT HOW THE LEGAL ENTITY IN QUEST ION WAS CREATED BUT WHY IT WAS CREATED. THE HONBLE SUPREME COURT ALSO OBSERVED TH AT ALL THE TESTS MAY NOT BE ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 20 APPLICABLE OR SATISFIED IN A GIVEN CASE, BUT ONE WI LL HAVE TO ARRIVE AT A CONCLUSION BASED ON THE CUMULATIVE EFFECT OF THE SAID TESTS. 19. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT SSN NL COMPLIES WITH ALL THE TESTS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SOM PRAKASH REKHI (SUPRA). FIRST TEST IS WHETHER THE SHARE CAPITAL OF THE CORP ORATION IS HELD BY THE GOVERNMENT. IN THE PRESENT CASE, THE ENTIRE SHARE CAPITAL OF SS NNL IS ADMITTEDLY OWNED AND HELD BY THE GOVERNMENT OF GUJARAT. THE SECOND TEST IS AS TO WHETHER THE STATE EXERCISES UNUSUAL DEGREE OF CONTROL OVER THE MANAGEMENT AND P OLICIES AND FINANCIAL SUPPORT IS RECEIVED FROM THE STATE. IN OUR CONSIDERED OPINI ON, THE SAID TEST IS FULFILLED IN THE CASE OF SSNNL AS PER THE DETAILED DISCUSSION MADE B Y THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF SARDAR SAROVAR NARMADA NIGA M LTD.. MOREOVER, THE MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATI ON OF SSNNL CLEARLY ESTABLISH THAT THE SAID CONCERN IS OPERATING UNDER SUPERINTENDENCE AND DIRECTION OF THE GOVERNMENT OF GUJARAT. IT HAS ALSO BEEN POINTED OUT BEFORE US THAT THE DIRECTORS OF THE SSNNL ARE DRAWN FROM THE OFFICIALS OF THE GO VERNMENT OF GUJARAT. THE NEXT TEST IS THE EXISTENCE OF DEEP AND PERVASIVE STATE C ONTROL. IN THIS CONTEXT, IT EMERGES THAT THE BOARD OF DIRECTORS OF SSNNL ARE APPOINTED BY THE GUJARAT GOVERNMENT AND IT CONSISTS OF THE GOVERNMENT EMPLOYEES OF THE RANK OF SECRETARY/ADDITIONAL SECRETARIES. THE NEXT TEST IS WHETHER THE CORPORATI ON ENJOYS MONOPOLY STATUS WHICH IS OTHERWISE CONFERRED ON A STATE. THE OBJECTS TO B E PURSUED BY THE SSNNL, THE POWERS CONFERRED ON IT, AS REVEALED BY THE MEMORAND UM OF ASSOCIATION CLEARLY SUGGEST THAT SSNNL IS IN THE ACTIVITY OF EXECUTING, OPERATING AND MAINTAINING THE SARDAR SAROVAR PROJECT COMPRISING OF A DAM ACROSS R IVER NARMADA, A CANAL SYSTEM, THE SARDAR SAROVAR POWER HOUSES AT THE FOOT OF THE SAID DAM, ETC.. ALL THESE ASPECTS CLEARLY SHOW THAT SSNNL IS INVOLVED IN CARRYING OUT STATE MONOPOLY FUNCTIONS, LIKE OPERATION OF AIRPORTS, PORTS, RAILWAYS, ETC.. THE NEXT TEST IS WHETHER THE FUNCTIONS PERFORMED ARE IMPORTANT PUBLIC FUNCTIONS RELATED TO GOVERNMENTAL FUNCTIONS. IN THE CASE OF SSNNL, IT IS QUITE OBVIOU S THAT APART FROM EXECUTING, OPERATING AND MAINTAINING THE SARDAR SAROVAR PROJEC T IT IS ALSO INVOLVED IN PROMOTING SCHEMES IN THE STATE OF GUJARAT FOR FLOOD CONTROL IN THE NARMADA RIVER, IRRIGATION AND WATER SUPPLY SCHEMES FOR UTILIZATION OF WATER FROM SARDAR SAROVAR. ALL THESE ARE ESSENTIALLY GOVERNMENT FUNCTIONS AND OBLIGATIONS, WHICH ARE BEING PERFORMED BY SSNNL. THE NEXT TEST IS IF A DEPARTMEN T OF A GOVERNMENT IS TRANSFERRED TO A CORPORATION. IN THIS CONTEXT, IT I S QUITE CLEAR THAT THE ERSTWHILE NARMADA DEVELOPMENT DEPARTMENT CONSISTING OF ITS EM PLOYEES AS WELL AS THE ASSETS OF SARDAR SAROVAR PROJECT WERE TRANSFERRED ENBLOC B Y THE GOVERNMENT OF GUJARAT TO SSNNL. THE NEXT TEST IS AS TO WHETHER THE CHEMISTRY OF THE CONCERNED BODY ANSWERS THE TEST OF A STATE. IN OUR VIEW, THE SAID TEST IS ALSO FULFILLED IN THE FACE OF THE FACT THAT THE INCORPORATION OF SSNNL, ITS OWNERSHIP, MAN AGEMENT, CONTROL AS WELL AS THE POWERS HAVE A UNMISTAKABLE STAMP OF A GOVERNMEN T. 20. IN VIEW OF THE AFORESAID DISCUSSION, IN OUR VIE W, THE TESTS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SOM PRAKASH RE KHI (SUPRA) ARE FULFILLED IN THE PRESENT CASE AND IT WOULD BE APPROPRIATE TO DED UCE THAT SSNNL IS AN INSTRUMENTALITY OR AN AGENCY OF THE STATE. THEREFOR E, SSNNL IS TO BE UNDERSTOOD AS AN ENTITY AKIN TO THOSE SPECIFIED IN SUB-CLAUSE (B) OF CLAUSE (I) TO SUB-SECTION (4) OF SECTION 80IA OF THE ACT. THEREFORE, THE OBJECTION O F THE REVENUE THAT SSNNL WAS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956 AND IS ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 21 THEREFORE OUTSIDE THE PURVIEW OF SECTION 80IA(4)(I) OF THE ACT IS UNFOUNDED. IN-FACT, THE HONBLE SUPREME COURT IN THE CASE OF SOM PRAKAS H REKHI (SUPRA) SPECIFICALLY OBSERVED THAT MERELY BECAUSE AN ENTITY IS CREATED U NDER A STATUTE AND NOT CREATED BY A STATUTE IS NOT AN IMPORTANT CRITERIA. THE TEST RE LATING TO THE PURPOSE, STATE CONTROL AND FUNCTIONS PERFORMED ARE MORE IMPORTANT AND DETE RMINATIVE OF THE ISSUE. SUCH TESTS, IN OUR VIEW, ARE CLEARLY APPLICABLE IN THE C ASE OF SSNNL, AND IT IS TO BE UNDERSTOOD AS AN ENTITY SPECIFIED IN SECTION 80IA(4 )(I)(B) OF THE ACT. 7.10 LD. COUNSEL CONTENDS THAT IRCTC IS A 100% OWNE D COMPANY OF GOVT. OF INDIA, EARLIER THE CATERING WAS DONE BY RAILWAYS. S UBSEQUENTLY OBSERVING THE MANIFOLD INCREASE IN CATERING FOR EXPEDIENCY GOVT. FORMED ITS SUPPORTING ARM BY CONSTITUTING THE IRCTC AS A 100% OWNED COMPANY. ITA T, PUNE HAS THREADBARE EXAMINED ALL ASPECTS INCLUDING THE CONSTITUTION OF INDIA, THE RATIO OF JUDGMENT IS FULLY APPLICABLE TO THIS CASE. THEREFORE, IT IS ALT ERNATIVELY URGED THAT IRCTC FOR ALL LEGAL AND PRACTICAL PURPOSES BEING A GOVT. NO TDS I S DEDUCTIBLE BY ASSESSEE FROM ANY PAYMENT MADE TO IT INCLUDING THE IMPUGNED LICEN SE FEE. ON THIS COUNT ALSO THERE IS NO QUESTION OF DISALLOWANCE U/S 40(A)(IA), CONSEQUENTLY THE ENTIRE DISALLOWANCE DESERVES TO BE DELETED. 7.11 ASSESSEE AT THIS JUNCTURE CRAVED LEAVE TO ADMI T ADDITIONAL GROUND FOR THESE YEARS AS UNDER: WITHOUT PREJUDICE TO THE OTHER GROUNDS, THE DISALL OWANCE MADE UNDER SECTION 40(A)(IA) DESERVES TO BE DELETED IN VIEW OF THE S ECOND PROVISO TO SECTION 40(A)(IA) AS THE APPELLANT IS NOT TO BE DEEMED TO BE IN DEFAU LT UNDER THE FIRST PROVISO TO SUB- SECTION (1) OF SECTION 201 SINCE THE PAYEE IRCTC HA S INCLUDED THE PAYMENT OF LICENSE FEES IN ITS RETURN OF INCOME AND CONSEQUEN TLY IT IS DEEMED THAT TAX IS DULY DEDUCTED AND PAID HENCE NO DISALLOWANCE UNDER SECTI ON 40(A)(IA) IN THE CASE OF APPELLANT IS CALLED FOR. IT MAY BE SO HELD AND ADDI TION BE DELETED. 7.12 IT IS CONTENDED THAT THIS GROUND IS PURELY LEG AL IN NATURE, BASED ON GOVT. INFORMATION, REQUIRES NO VERIFICATION OF NEW FACTS AND IS IMPERATIVE FOR PROPER DECISION OF THESE APPEALS. RELIANCE IS PLACED ON SU PREME COURT JUDGMENT IN NTPC 229 ITR 283. 7.13 LD. DR IS HEARD, AFTER HEARING BOTH PARTIES, R ESPECTFULLY FOLLOWING HONBLE SUPREME COURT JUDGMENT IN THE CASE OF NTPC JUDGMENT WE ARE INCLINED TO ADMIT ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 22 THE ADDITIONAL GROUND. IN VIEW THEREOF THE PRAYER T O ADMIT RELEVANT LETTER ADDRESSED TO IRCTC TO FORWARD THE PRESCRIBED FORM N O. 26 AND THEIR CERTIFICATE AS ADDITIONAL EVIDENCE IS ACCEPTED AS THEY ARE NECESSA RY TO DECIDE THE ISSUE AND ASSESSEE OBTAINED THEM IN VIEW OF RAJKOT SPECIAL BE NCH JUDGMENT. 7.14 IT IS SUBMITTED THAT AS PER AMENDED SECOND PRO VISO TO SECTION 40(A)(IA) , IF AN ASSESSEE WHO FAILS TO DEDUCT TAX IS NOT DEEMED T O BE IN DEFAULT UNDER FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201 , THEN IT IS DEEMED THAT THE ASSESSEE HAS DEDUCTED TAX AND PAID THE SAME AND NO DISALLOWANC E IS TO BE MADE. FIRST PROVISO TO SECTION 201 (1) INTER ALIA PROVIDES THAT IF PAYE E HAS FURNISHED ITS RETURN OF INCOME AND HAS TAKEN IN TO ACCOUNT SUCH SUM IN COMP UTING ITS INCOME AND TAX PAYABLE IS PAID THEN FOR NON DEDUCTION OF TAX ON PA YMENT MADE TO PAYEE, THE PAYER ASSESSEE SHALL NOT BE DEEMED TO BE IN DEFAULT QUA THE TDS LIABILITY. IT IS PERTINENT THAT SIMILAR AMENDMENT WAS MADE IN SECTIO N 206C BY INSERTING PROVISO TO SECTION 206C (6A). 7.15 IN THIS CONNECTION, THE ITAT SPECIAL BENCH IN BHARATI AUTO PRODUCTS 145 ITD 1 (RAJKOT) (SB) AND ALSO IN GUJARAT PIPAVAV POR T LTD (2013) 40 TAXMAN.COM 174 (RAJKOT) HELD THAT THE PROVISO TO SECTION 201 I S RETROSPECTIVE AND IF THE PAYEE HAS PAID TAXES (WHERE PAYABLE) THE PAYER CANNOT BE DEEMED TO BE IN DEFAULT OF TDS LIABILITY. THE CERTIFICATE OF IRCTC DATED 27.03.20 14 PLACED AT PAPER-BOOK PAGE 23, CERTIFYING THAT THE APPELLANT HAS DEPOSITED FULL LI CENSE FEES FOR FY 2005-06 TO 2010- 11 WHICH IS INCLUDED IN IRCTCS ANNUAL PROFIT & LOS S ACCOUNT, BALANCE SHEET AND THEIR RETURNS OF INCOME. IN VIEW OF THE RAJKOT SPEC IAL BENCH JUDGMENT THE CORRECT INTERPRETATION OF SECS. 40(A)(IA), 206C, 201, 201A, THE IRCTC HAVING INCLUDED THE IMPUGNED PAYMENTS OF LICENSE FEES IN ITS RESPECTIV E RETURNS OF INCOME, THE ASSESSEE CANNOT BE HELD AS IN DEFAULT. IN VIEW OF T HE RETROSPECTIVELY OF AMENDMENT NO DISALLOWANCE UNDER SECTION 40(A)(IA) IS CALLED F OR AND THE SAME DESERVES TO BE DELETED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, ON MERITS, THE ASSESSEE DESERV ES TO SUCCEED ON THESE COUNTS IN VIEW OF THE FOLLOWING:- ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 23 A. THE IMPUGNED LICENSE FEE IS PAID BY ASSESSEE TO IRC TC FOR AWARDING LICENSED RIGHTS. PAYMENTS CANNOT BE CONSTRUED FOR RENDERING ANY SPECIALIZED SERVICES OR PASSING ON OF ANY MANAGERIAL OR TECHNICAL SKILL OR SERVICES, MUCH LESS EVEN A SERVICE. THE LICENSE FEE PAYMENTS ARE ATTRIBUTABL E TO A SET OF LEGAL OBLIGATIONS FLOWING FROM LICENSE. VIEWING FROM THE PARAMETERS L AID DOWN BY HONBLE SUPREME COURT IN THE CASES OF KOTAK SECURITIES AND BHARTI CELLULAR, THERE IS NEITHER ANY ELEMENT OF SERVICE OR RENDERING OF TECH NICAL SERVICES WHATSOEVER. IN OUR CONSIDERED VIEW SEC. 194J IS NOT APPLICABLE TO ASSESSEES CASE. B. SIMILARLY SEC. 194C IS ALSO NOT APPLICABLE SINCE T HE BASIS OF ALLOTMENT OF CATERING RIGHTS ON LICENSE FEE INVOLVES PECULIAR FE ATURES. THE IRCTC IS THE CONTRACTOR WHO AWARDS RIGHTS AND ASSESSEE IS THE CO NTRACTEE OBLIGED TO PAY LICENSE FEE FOR AVAILING THOSE RIGHTS. SEC. 194C FA STENS LIABILITY ON CONTRACTOR WHEN AMOUNT IS PAID TO CONTRACTEE AND NOT VICE VERS A. THEREFORE PAYMENT OF LICENSE FEE BY CONTRACTEE TO CONTRACTOR CAN BY NO S TRETCH OF IMAGINATION BE ASSUMED TO COME UNDER THE PURVIEW OF SEC. 194C. THE RE BEING NO TDS LIABILITY EITHER U/S 194C OR 194J, LICENSE FEE PAID CANNOT BE DISALLOWED UNDER SEC. 40(A)(IA) OF ACT UNDER ANY CIRCUMSTANCES. C. THE LICENSE FEE PAYMENT IS NOT COVERED U/S 28(VA) A LSO, WHICH IS SPECIFICALLY FOR PAYMENTS TO SHARING ANY KNOW HOW, PATENT , COPY RIGHT , TRADE MARK, LICENSE, FRANCHISE OR ANY OTHER BUSINESS OR COMMERC IAL RIGHT OF SIMILAR NATURE ETC. THE SIMILAR NATURE OF GREAT SIGNIFICANCE AND T HE IMPUGNED LICENSE FEE NOT BEING PAID FOR SHARING ANY KNOW HOW, PATENT , COPY RIGHT , TRADE MARK, LICENSE, FRANCHISE CANNOT FALL UNDER ITS PURVIEW. D. APROPOS ADDITIONAL GROUND ALSO RESPECTFULLY HONBLE SUPREME COURT JUDGMENTS SOM PRAKASH REKHI HAS LAID DOWN PARAMETER S AS TO WHEN A CORPORATION CAN BE CALLED A STATE FOR LEGAL AND PRA CTICAL PURPOSES. INCOME TAX LAW PROVIDES SOME BENEFICIAL AND RELAXING PROVISION S FOR GOVT. LOCAL BODIES ETC. FOR EASE OF ADMINISTRATION AND FLEXIBILITY. TD S IS A MECHANISM TO AVOID NONPAYMENT OF TAXES BY PAYEES. LEGISLATURE IN ITS S UPERIOR WISDOM HAS INTENDED THAT GOVT. BODIES WILL NOT VENTURE INTO NO NPAYMENT OF THEIR INCOME ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 24 TAX, THEREFORE THEY ARE EXENPTE FROM TDS. IT IS MOR E SO AS MOSTLY THEY ARE GOVT. FUNDED, UNDER STRICT REGULATORY AND FINANCIAL CONTROL AND ARE COMPLIMENTARY ARMS OF GOVT. TO PERFORM PARTICULAR F UNCTIONS. LOOKING INTO ALL THESE NECESSITIES AND PRACTICAL DIFFICULTY THE WORD STATE HAS BEEN INTERPRETED TO AVOID THE RIGOR OF LITERAL CONSTRUCT ION WHICH WAS LEADING TO UNINTENDED RESULTS, HONBLE SUPREME COURT LAID DOWN THESE PARAMETERS. THEY HAVE BEEN DEFTLY FOLLOWED BY PUNE BENCH IN KIRLOSKA R BROS. CASE. IN OUR CONSIDERED VIEW IN THE GIVEN FACTS AND CIRCUMSTANCE S IRCTC FALLS WITHIN THOSE PARAMETERS. FOLLOWING HONBLE SUPREME COURT I N SOM PRAKASH REKHI AND COORDINATE ITAT PUNE BENCH, WE HOLD THAT IRCTC AMOUNTS TO GOVT. THEREFORE, ASSUMING EVEN THERE WAS ANY TDS LIABILIT Y; ASSESSEE WAS NOT LIABLE TO DEDUCT ANY TDS FROM LICENSE FEE PAID TO IRCTC. E. THE ITAT SPECIAL BENCH IN BHARATI AUTO PRODUCTS AN D IN GUJARAT PIPAVAV PORT LTD (SUPRA) HAS HELD THAT THE PROVISO TO SEC TION 201 IS RETROSPECTIVE AND IF THE PAYEE HAS PAID TAXES (WHERE PAYABLE) THE PAY ER CANNOT BE DEEMED TO BE IN DEFAULT OF TDS LIABILITY. ASSESSEE BY IRCTC DAT ED 27.03.2014 AND FORM NO 26 HAS DEMONSTRATED THAT LICENSE FEES PAID BY HIM F OR FY 2005-06 TO 2010-11 HAS BEEN INCLUDED BY IRCTC IN ITS ANNUAL PROFIT & L OSS ACCOUNT, BALANCE SHEET AND THEIR RETURNS OF INCOME. IN VIEW THEREOF WE SEE NO REASON AS TO WHY THE ASSESSEE SHALL BE HELD TO BE LIABLE FOR TDS AND DISALLOWANCE U/S 40(A)(IA). 8.1 IN VIEW OF FOREGOING FACTS, CIRCUMSTANCES AND R ESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS AS MENTIONED ABOVE WE HOLD THAT ASSESSEES LICENCE FEE PAYMENTS TO IRCTC WERE NOT LIABLE FOR TDS AND CANNO T BE DISALLOWED U/S. 40(A)(IA). THUS WE ALLOW THE ASSESSEE GROUNDS ON ME RITS ALSO IN THIS BEHALF AND DISMISS RELEVANT REVENUE GROUNDS IN THE IMPUGNED YE ARS. 8.2 SINCE THE REASSESSMENTS FOR AYS. 2006-07, 2007- 08 AND 2009-10 HAVE BEEN ALREADY QUASHED; THERE IS NO NEED TO GO INTO OTHER GROUNDS RAISED BY BOTH SIDES. SIMILARLY IN AY 2008-09, THERE IS NO OTHER GROUND E XCEPT IRCTC PAYMENTS WHICH ON MERITS WE HAVE HELD THAT ASSESSEE WAS NOT LIABLE FOR TD, CONSEQUENTLY IRCTC ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 25 LICENSE FEE PAYMENTS CANNOT BE DISALLOWED U/S 40(A) (IA). IN VIEW THEREOF FOR AY 2008-09 REVENUES APPEAL IS DISMISSED AND THAT OF A SSESSEE IS ALLOWED. 9. NOW WE ADVERT TO REMAINING GROUNDS OF ASSESSEE F OR 2011-12. APROPOS GROUND NO.7 OF THE ASSESSEES APPEAL WHICH IS PERTA INED TO EMBEZZLEMENT LOSS; THE FACTS, CONTENTIONS AND CONCLUSIONS FROM THE ASSESSI NG OFFICERS LEVEL ARE AS UNDER:- 6.2. THE SUBMISSION OF THE ASSESSEE HAS BEEN VERIF IED, BUT THE SAME IS NOT FOUND CONVINCING. THE ASSESSEE HIMSELF STATES THAT THE EM BEZZLEMENT WAS OCCURRED DURING THE F.Y.2008-09 RELEVANT TO A.Y.2009-10 AND F.Y.200 9-10 RELEVANT TO A.Y.2010- 11. THE ASSESSEE HAS CLAIMED A PART OF THE AMOUNT I N THE A.Y.2010-11 AND THE REMAINING PART IN THE CURRENT ASSESSMENT YEAR. THE INFORMATION PROVIDED BY THE ASSESSEE WITH REGARD TO EMBEZZLEMENT OF CASH CAN BE SUMMARIZED AS FOLLOWS:- (I) THE EMBEZZLEMENT WAS DONE BY AN EMPLOYEE OF TH E ASSESSEE NAMELY MR. RAJESH J. JOSHI, DURING THE PERIOD 02.06.2008 TO 15.02.201 0. (II) THE FRAUD WAS CARRIED OUT NOT ONLY IN THE CAS E OF ASSESSEE, BUT IN VARIOUS' SISTER CONCERNS OF THE ASSESSEE ALSO, TOTALING TO RS.5,61, 14,131/. (III) ASSESSEE CLAIMS TO HAVE RECOVERED SOME PART O F THE EMBEZZLED AMOUNT (HOWEVER, THERE IS NO EVIDENCE ON RECORD TO PROVE S UCH A CLAIM). (V) THE TOTAL MISAPPROPRIATION OF FUNDS IN THE CASE OF ASSESSEE WERE TO THE TUNE OF RS.3,94,71,082/-, I.E. RS.2,57,61,000/- IN THE F.Y. 2008-09 AND RS.1,37,10,082/- IN THE F.Y.2009-10, WHEREAS REPLY OF SHOW CAUSE REV EALS THAT THE ASSESSEE HAS NOT GIVEN ANY EVIDENCES REGARDING INCREASE IN THE A MOUNT OF EMBEZZLEMENT FROM RS.3,94,71,082/- TO RS.4,01,97,436/-. IT IS SU RPRISING TO NOTE THAT DURING THE COURSE OF AUDIT OF THE ASSESSEE FOR THE A.Y.200 9-10 & 2010-11, THE AUDITOR FAILED TO NOTICE ANY DISCREPANCY IN THE CASH BOOK A S WELL AS IN THE BANK STATEMENT OF THE ASSESSEE. MOREOVER, THE ASSESSEE I S CLAIMING THAT THE CASH WAS PAID TO THE MANAGER TO DEPOSIT IN THE BANK ACCOUNT AS ALSO SIGNED CHEQUES WERE HANDED OVER TO HIM FOR PAYMENT OF LICENSE FEE TO IR CTC AND THE MANAGER SHRI RAJESH JOSHI HAS MISAPPROPRIATED THE CASH BALANCE A ND THE FUNDS AVAILABLE IN THE BANK ACCOUNTS. HOWEVER, THERE WAS NO DEFAULT IN THE PAYMENT OF LICENSE FEE TO IRCTC BY THE ASSESSEE DURING THE PERIOD IN WHICH THE FRAUD WAS OCCURRED. IF THE EMBEZZLEMENT TOOK PLACE, THEN THERE MUST HAVE B EEN DEFAULT IN PAYMENT TO IRCTC. IT IS ALSO NOTED THAT THE SAME AUDITOR, WHO IS AUDITING THE BOOKS OF THE ASSESSEE, HAS QUANTIFIED THE AMOUNT OF EMBEZZLEMENT , BUT HE HAS FAILED TO TAKE NOTE OF THE MISAPPROPRIATION OF FUNDS FROM BANK AS WELL AS CASH BALANCE, WHICH ARE THE CORE BOOKS OF ACCOUNTS OF ANY ASSESSEE, ESP ECIALLY WHEN THE ASSESSEE IS MOSTLY DEALING IN CASH. (V) THE ASSESSEE HAS REGISTERED A COMPLAINT WITH TH E POLICE ON 16.03.2010 IN THE NAME OF MR. RAJESH J. JOSHI AND VARIOUS OTHER PERSO NS. 6.3. IT IS SURPRISING THAT SUCH A LARGE SCAM, INVOL VING CRORES OF RUPEES, NEVER CAME TO THE NOTICE OF THE FIRM FOR ALMOST TWO YEARS. EVE N IF THE ASSESSEE'S STORY IS TAKEN ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 26 INTO CONSIDERATION, SCRUTINY OF THE CLAIM OF THE AS SESSEE REVEALS THAT THERE WAS NO EMBEZZLEMENT TOOK PLACE DURING THE CURRENT ASSESSME NT YEAR, I.E. A.Y.2011-12 (F.Y.2010-11). IN THIS REGARD, THE CBDT HAS ISSUED A CIRCULAR NO.35-D DATED 24.11.1965, WHICH ENVISAGES THAT THE LOSS ARISING D UE TO EMBEZZLEMENT BY EMPLOYEES SHOULD BE ALLOWED AS DEDUCTION IN THE YEA R IN WHICH IT IS DISCOVERED. 6.4. THE ASSESSEE CAME TO KNOW' ABOUT THE FRAUD BY ITS EMPLOYEE BY 16.03.2010 (I.E. THE DATE OF FILING COMPLAINT WITH POLICE AUTHORITIE S). THE FRAUD WAS NOTICED MUCH BEFORE THE DATE OF AUDIT OF THE FIRM FOR THE F.Y. 2 009-10 AS IT IS NOTICED THAT THE AUDIT OF THE FIRM FOR THE F.Y. 2009-10 RELEVANT TO A.Y.20 10-11 WAS CONDUCTED IN THE MONTH OF SEPTEMBER 2010. THUS, THERE WAS AMPLE TIME AVAILABLE WITH THE ASSESSEE TO ESTIMATE THE QUANTUM OF EMBEZZLEMENT AND CLAIM THE SAME IN THE RETURN FILED FOR A.Y.2010-11 ITSELF. THE ASSESSEE IS FOLLOWING MERCA NTILE SYSTEM OF ACCOUNTING. FOR THE PURPOSE OF COMPUTING YEARLY PROFITS AND GAINS F OR ASSESSMENT TO INCOME-TAX, EACH YEAR IS A SEPARATE AND SELF-CONTAINED PERIOD O F TIME AND LOSSES AND EXPENSES INCURRED BEFORE ITS COMMENCEMENT AND AFTER ITS EXPI RY CANNOT BE THE SUBJECT OF ANY ALLOWANCE IN ASSESSING THE INCOME OF THAT PARTICULA R YEAR. IN MAKING THE ASSESSMENT FOR ANY PARTICULAR YEAR, DEDUCTIONS CAN THEREFORE B E PERMITTED ONLY IN RESPECT OF EXPENSES, WHICH ARE FOUND TO HAVE BEEN INCURRED IN THE RELEVANT ACCOUNTING PERIOD. IN ADJUDGING THE ADMISSIBILITY OF A CLAIM FOR DEDUC TION, THE DETERMINATION OF THE QUESTION WHETHER THE ASSESSEE HAD INCURRED THE EXPE NDITURE DURING THE RELEVANT ACCOUNTING PERIOD IS AN INDISPENSABLE PRELIMINARY S TEP. UNDER THE MERCANTILE SYSTEM OF ACCOUNTS, THE INCOME AND THE EXPENDITURE ARE REQUIRED TO BE ACCOUNTED FOR IN THE RELEVANT YE AR. THE EXPENDITURE IS ALLOWABLE IN THE YEAR TO WHICH IT RELATES. INSTEAD OF DEBITIN G THE SAME IN THE YEAR IN WHICH IT OCCURRED, THE ASSESSEE CHOSE TO CLAIM THE DEDUCTION IN TWO PARTS, I.E. FIRST PART IN THE A.Y.2010-11 AND THE SECOND PART IN A. Y. 2011-12. T HERE IS NO PROVISION IN THE INCOME-TAX ACT WHICH ALLOWS THE ASSESSEE TO CLAIM P RIOR PERIOD EXPENSES. HENCE, THE AMOUNT DEBITED TO P&L A/C ON ACCOUNT OF EMBEZZL EMENT OF CASH OF RS.2,81,38,206/- IS DISALLOWED AND ADDED TO THE TOT AL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE IT ACT IS BEING IN ITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 9.1 AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL WHERE THE LD. CIT(A) ACCEPTED THE GENUINENESS OF THE EMBEZZLEMENT AND LO DGING OF FIR REPORT AND RELIED ON CBDT CIRCULAR NO.35-D DATED 24.11.1965. H OWEVER IT WAS HELD THAT THE ENTIRE CLAIM OF EMBEZZLEMENT SHOULD HAVE BEEN MADE IN THE YEAR 2010-11 AS THE EMBEZZLEMENT WAS DETECTED BEFORE THE AUDIT OF THE A SSESSEE IN AY 2010-11; THEREFORE, THERE WAS NO JUSTIFICATION IN DEFERRING THE BALANCE AMOUNT TO THE YEAR IN QUESTION BY FOLLOWING OBSERVATIONS:- 5.4 APPELLANTS CLAIM THAT OUT OF THE TOTAL AMOUN T OF EMBEZZLEMENT THE 30% OF THE SAME WAS CLAIMED IN AY 2010-11 IN THE HOPE THAT IT WOULD BE ABLE TO RECOVER ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 27 BALANCE 70% DUE TO GRANTING OF THE REMAND BY THE CO URT AND THE ACCUSED EMPLOYEE WOULD BE ABLE TO PAY THAT MUCH SUM IS NOT SUPPORTED WITH ANY DETAILS/DOCUMENTS. IT WAS THE MERE ESTIMATION OF THE APPELLANT AT HIS LEVEL. RATHER AS PER THE CBDT CIRCULAR ONCE THE EMBEZZLEMENT HAS BEEN DISCOVERED AND FOR THE SAME POLICE COMPLAINT HAS BEEN FILED ON 16.03.2010 THEN THE ENT IRE CLAIM OF EMBEZZLEMENT WOULD HAVE BEEN MADE IN AY 2010-11 ONLY RATHER THAN TO CLAIM IN TWO DIFFERENT YEARS WITHOUT ANY BASIS. THUS THE CASE LAWS RELIED UPON BY THE APPELLANT ARE ALSO NOT IDENTICAL ON FACTS AND ACCORDINGLY NOT APPLICAB LE. IN VIEW OF THE AFORESAID DISCUSSION, THE CLAIM OF EMBEZZLEMENT MADE BY THE A PPELLANT WHICH WAS DISALLOWED BY THE AO IS FOUND CORRECT AND JUSTIFIED AND THE SA ME IS CONFIRMED. THUS, THE GROUND OF APPEAL IS DISMISSED. 9.2 LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUES THAT THE FACTUM OF THE EMBEZZLEMENT AND ITS GENUINENESS HAS BEEN ACCEPTED BY THE LOWER AUTHORITIES. ASSESSEE HELD TALKS WITH THE ACCUSED MANAGER SHRI R AJESH JOSHI, WHO GAVE AN INDICATION THAT PART OF THE EMBEZZLEMENT MONEY WILL BE RETURNED BY HIM; THEREFORE, THERE WAS A RAY OF HOPE THAT PART OF THE AMOUNT WILL BE RECOVERED. IN VIEW THEREOF, BASED ON A PRUDENT BUSINESS DECISION WHICH IS IN CONFORMITY WITH MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE DEBIT ED 30% IN AY 2010-11 HOPING THAT BALANCE WILL BE RECOVERED SUBSEQUENTLY. IN TH E IMPUGNED YEAR, THE ASSESSEE EXHAUSTED ALL HIS WAYS AND MEANS AND CAME TO A BUSI NESS DECISION THAT NO AMOUNT WILL BE RECOVERABLE AND WROTE OFF THE BALANC E AMOUNT. LD. COUNSEL CONTENDS THAT CIRCULAR NO.35-D DATED 24.11.1965 IS VERY OLD AND RELIANCE ON HONBLE SUPREME COURT JUDGMENT IN THE CASE OF BADRI DAS DAGA VS. CIT, 34 ITR. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE DR EW OUR ATTENTION TO ASSESSEES WRITTEN SUBMISSION DATED 06.05.2014, WHICH WAS FILE D BEFORE THE LD. CIT(A), WHICH READS AS UNDER:- ..IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE ID AO, THE APPELLANT HAS SUBMITTED A DETAILED REPLY DATED 30.01.2014. A COPY OF SAID REPLY IS ATTACHED EXHIBIT-C PAGE NO...TO.. AT POINT NO: 2, THE APPELL ANT HAS CLARIFIED THE FACTUAL ASPECTS . IT IS ALSO ADMITTED FACT THAT THE APPELLA NT HAD WRITTEN OFF RS.1,20,59,230/- BEING 30% OF THE TOTAL LOSS IN THE ASSESSMENT YEAR 2010-11 ON THE HOPE THAT IT WOULD BE ABLE TO RECOVER BALANCE 70% AS COURT HAD G RANTED REMAND OF THE ACCUSED AND THE ACCUSED EMPLOYEE WILL BE ABLE TO PAY THAT M UCH SUM REST HE MIGHT HAVE USED AWAY OR LOST. IT IS ALSO ADMITTED FACT THAT TH E AMOUNT OF RS. 1,20,59,230/- HAS ALREADY BEEN ALLOWED IN ASSESSMENT YEAR 2010-11 IN THE ASSESSMENT U/S 143(3). UNFORTUNATELY, IT IS ASCERTAINED THAT THE ACCUSED H AS LOST ENTIRE SUM AND THERE IS NO HOPE OF RECOVERY OF ANY AMOUNT AND HENCE THE BALANC E AMOUNT OF RS. 2,81,38,206/- WAS WRITTEN OFF FOR THE YEAR UNDER APPEAL. IT IS PE RTINENT TO POINT OUT THAT THIS ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 28 ASPECT IS NOT DISPUTED BY AO AND AT PARA 6.3 AND 6. 4, THE ID AO HAS DISCUSSED ABOUT CBDT CIRCULAR NO: 35D DATED 24.11.1965 AND TH E FACT THAT FRAUD CAME TO NOTICE BY THE APPELLANT ON 16.03.2010. THE STAND OF THE AO IS THAT THE ENTIRE SUM OF LOSS COULD HAVE BEEN CLAIMED AND ALLOWABLE IN ASST. YEAR 2010-11 ON THE GROUND THAT THERE WAS AMPLE TIME FOR THE ASSESSEE TO ESTIM ATE THE QUANTUM OF EMBEZZLEMENT AND CLAIM THE SAME IN THE RETURN FILED FOR A. Y. 20 10-11 ITSELF. THE ID AO, BASED ON CBDT CIRCULAR HAS THEREFORE OBSERVED AND HELD THAT CLAIM MADE BY WRITING OFF OF THE BALANCE SUM OF RS. 2,81,38,206/- FOR THE YEAR U NDER APPEAL AMOUNTED TO PRIOR PERIOD EXPENSES AND HENCE THE SAID AMOUNT IS DISALL OWED. IN THIS REGARD, THE APPELLANT RESPECTFULLY SUBMITS THAT THE LD AO HAS NOT AT ALL CONSIDERED THE BONAFIDES OF THE APPELLANT AND HOPE ABOUT LIKELY RECOVERY WHEREBY ONLY 30% OF THE AGGREGATE ESTIMATED LOSS WAS CLAIME D IN A. Y. 2010-11. IN FACT THE CBDT HAS IN THE SAID CIRCULAR NO: 35-D DATED 24.11. 1965 (COPY ATTACHED EXHIBI- D PAGE NO:.....) CONSIDERED THE JUDGMENTS OF THE SU PREME COURT IN THE CASE OF BADRIDAS DAGA VS CIT, 34 ITR 10 AND ASSOCIATED BANK ING CORPORATION OF INDIA VS CIT, 56 ITR 1. THE APEX COURT IN THE JUDGMENT OF A SSOCIATED BANKING CORPORATION, 56 ITR 1 HAS OBSERVED THAT '...... E VEN AFTER THE EMBEZZLEMENTS CAME TO THE KNOWLEDGE OF THE LIQUIDATOR, TRADING LOSS CA NNOT BE DEEMED TO HAVE RESULTED. WE ARE UNABLE TO COUNTENANCE THE PROPOSITION THAT I RRESPECTIVE OF OTHER CONSIDERATIONS, .AS SOON AS THE EMBEZZLEMENT TAKES PLACE OF THE EMPLOYER'S FUNDS, WHETHER THE EMPLOYER IS AWARE OR NOT OF THE EMBEZZL EMENT, THERE RESULTS A TRADING LOSS. SO LONG AS THERE WAS A REASONABLE PROSPECT OF RECOVERING THE AMOUNTS EMBEZZLED BY THE BANK, TRADING LOSS IN A COMMERCIAL SENSE MAY NOT BE DEEMED TO HAVE RESULTED...' THE CBDT HAS CONSIDERED THIS JUDGMENT OF THE SUPREM E COURT IN THE SAID CIRCULAR THAT LOSS ARISES ONLY WHEN THE EMPLOYER COMES TO KN OW ABOUT IT AND REALISES THAT THE AMOUNTS EMBEZZLED CANNOT BE RECOVERED. IT WAS THUS IN THIS BACKGROUND THAT THE CBDT ISSUED A CIRCULAR THAT LOSS SHOULD BE ALLOWED IN THE YEAR IN WHICH IT IS DISCOVERED. IT I S NOT TO BE UNDERSTOOD THAT IF ASSESSEE HONESTLY EXPECTS CHANCE OF PART RECOVERY, HE MUST WRITE OFF AND CLAIM ENTIRE AMOUNT IN THE YEAR OF DETECTION. THIS IS THE CONCES SION GIVEN BY CBDT BUT THE FACT REMAINS THAT THE CBDT HAS ALSO CONSIDERED ABOVE JUD GMENT OF APEX COURT. YOUR HONOURS KIND ATTENTION IS DRAWN TO THE JUDGMENT IN THE CASE OF CIT VS DURGA JEWELLERS 172 ITR 134 (MP) IN WHICH ALSO IT WAS HEL D THAT WHERE THE ASSESSEE WAS HOPEFUL OF RECOVERY, THE LOSS COULD BE ALLOWED IN T HE NEXT YEAR WHEN THAT HOPE IS VANISHED WHILE IT IS FOUND THAT NO RECOVERY IS POSS IBLE. IT IS THEREFORE SUBMITTED THAT AS SUBMITTED BY APPE LLANT TO THE AO, DESPITE SINCERE AND HONEST EFFORTS TO RECOVER THE SUM THROUGH POLIC E AND COURT, THE SAME BEING FOUND OF NO USE, THE BALANCE AMOUNT IS WRITTEN OFF. THE DISALLOWANCE MADE IS THEREFORE UNJUSTIFIED AND DESERVES TO BE DELETED. I T BE SO HELD NOW. WITHOUT PREJUDICE TO THE ABOVE, SINCE THE ID AO HAS DISALLOWED THE CLAIM ON THE GROUND THAT IT AMOUNTED TO CLAIM OF PRIOR PERIOD EX PENSES, IT IS SUBMITTED THAT AS PER CBDT AND APEX COURT JUDGMENTS, IT IS NOT AN EXP ENDITURE OR EXPENSES WHICH IS BEING CLAIMED AND ALLOWED. IT IS THE TRADING LOS S OR LOSS INCIDENTAL TO BUSINESS ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 29 CLAIMED U/S 28 AND HENCE THERE IS NO JUSTIFICATION TO REJECT THE CLAIM ON THE GROUND OF PRIOR PERIOD EXPENSES. IT IS FURTHER SUBMITTED THAT, EVEN IF THE CLAIM WOU LD HAVE BEEN MADE IN ASST. YEAR 2010-11, (AS PER PLEA OF AO), THE RESULT WOULD BE T HE SAME SINCE AS AGAINST THE ASSESSED INCOME OF RS.12,24,460/- THERE WOULD BE LO SS TO THE TUNE OF RS. 2,69,13,746/- WHICH WOULD BE BROUGHT FORWARD AND SE T OFF AGAINST THE INCOME FROM THE YEAR UNDER APPEAL AND FURTHER NO TAX ON INCOME OF RS. 12,24,460/- WOULD HAVE BEEN PAYABLE FOR A. Y. 2010-11 DUE TO LOSS AS ABOVE . IT IS THEREFORE SUBMITTED THAT THERE IS NO JUSTIFICATION ON THE PART OF THE AO TO MAKE DISALLOWANCE OF RS.2,81,38,206/- HOLDING THAT THE TRADING LOSS OR L OSS INCIDENTAL TO BUSINESS OCCURRED IN THE YEAR AY 2010-11. THE DISALLOWANCE B E DELETED. INCIDENTALLY, EVEN WITH REGARD TO THE DEDUCTION OF PRIOR PERIOD EXPENSES, THE HIGH COURT OF BOMBAY (IN THE PERIOD PRIOR TO PARTITION O F GUJARAT AND MAHARASTRA AND HENCE IT IS THEREFORE EQUIVALENT TO JUDGMENT OF GUJ ARAT HIGH COURT ) IN THE CASE OF CIT VS NAGRI MILLS 33 ITR 681 (BOM) HAS HELD THAT W HEN TAX RATES IN TWO YEARS ARE SAME, THERE IS NO EFFECT ON TAXABILITY WHETHER DEDU CTION IS GIVEN IN ONE YEAR OR OTHER. THE SAID JUDGMENT IS ALSO FOLLOWED BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS VISHNU INDUSTRIAL GASES P LTD INCOME TAX RE F NO. 229/1099 JUDGMENT DATED 6. 05.2008 IN WHICH THE OBSERVATIONS OF NAGRI MILLS LTD CASE ARE REPRODUCED BY DELHI HIGH COURT. IN VIEW OF ABOVE, THE DISALLOWANCE MADE DESERVES TO BE DELETED. IT BE DELETED NOW. ALTERNATIVELY, DIRECTION BE GIVEN TO ALLOW THE SAME IN THE ASSESSMENT YEAR 2010- 11. 9.3 ALTERNATIVELY, IT IS CLAIMED THAT THE EMBEZZLEM ENT IS ULTIMATELY A TRADING LOSS WHICH IS INCURRED IN THE REGULAR COURSE OF BUS INESS, THE AMOUNT WAS BIFURCATED BY A PRUDENT BUSINESSMENS DECISION AND THE REVENUE AUTHORITIES CANNOT STEP INTO THE SHOES OF BUSINESSMEN AS TO HOW AND WHEN SUCH LO SS CAN BE DECIDED TO BE INCURRED. RELIANCE IS PLACED ON THE HONBLE SUPREM E COURT JUDGMENT IN THE CASE OF ASSOCIATED BANKING CORPORATION OF INDIA VS. CIT, 56 ITR 01. FURTHER RELIANCE IS PLACED ON THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD, (2013) 358 ITR 0295 TO THE EFFECT T HAT IF THE ASSESSEE IS CHARGEABLE TO TAX ON THE SAME RATE, PREPONEMENT OR POSTPONEMENT O F LIABILITY IS REVENUE NEUTRAL AND SHOULD NOT BE AGITATED BY THE REVENUE IN APPEAL S. IN VIEW OF THE HONBLE SUPREME COURT JUDGMENT, THE EMBEZZLEMENT LOSS MAY B E ALLOWED IN THIS YEAR; ALTERNATIVELY SINCE THE YEAR OF ALLOWABILITY I.E. A Y 2010-11 IS ACCEPTABLE TO REVENUE, ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 30 A SUITABLE DIRECTION MAY BE TO ALLOWED THE SAME IN AY 2010-11. THEREFORE, IN THE INTEREST OF SUBSTANTIAL JUSTICE, A DIRECTION MAY BE GIVEN TO ALLOW THE SAME IN AY 2010-11. 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE LOWER AUT HORITIES. FROM THE FACTS MENTIONED ABOVE, IT IS UNDISPUTED FACTS THAT THE EM BEZZLEMENT CLAIM OF THE ASSESSEE IS GENUINE, LEGAL AND THE LOSS THERE FROM IS ALLOWABLE. REVENUE TAKES A STAND THAT THE ASSESSEE SHOULD HAVE CLAIMED THE ENT IRE LOSS IN AY 2010-11. PER CONTRA, THE ASSESSEE CLAIMS THAT SOME RAY OF HOPE W AS REMAINING TO RECOVER THE PART OF THE AMOUNT AND TO BE ON A SAFER SIDE AND IT S COMMERCIAL WISDOM, IT WAS FELT EXPEDIENT TO CLAIM 30% FOR AY 2010-11 AND 70% IN AY 2011-12. REVENUE HAS NO OBJECTION IN ALLOWING THE ENTIRE LOSS IN AY 2010-11 . THIS RATHER PROVES THE ASSESSEES CONTENTION THAT INSTEAD OF CLAIMING IN O NE YEAR, BY A PRUDENT BUSINESS DECISION IT WAS DECIDED TO BIFURCATE THE LOSS AS A RAY OF PARTIAL RECOVERY EXISTED. IN ANY CASE, THE EMBEZZLEMENT AMOUNT WAS DUE FROM THE SAID EMPLOYEE-MANAGER SHRI RAJESH JOSHI. THEREFORE, ALTERNATIVELY, IT BE COMES A DEBT DUE FROM SHRI RAJESH JOSHI, CONSEQUENTLY, THE AMOUNT IS ALLOWABLE EITHER AS EMBEZZLEMENT LOSS AND WHEN RAY OF PARTIAL RECOVERY FADED OUT; RELEVANT BA D DEBT IS ACTUALLY WRITTEN OFF AND THIRDLY AS A BUSINESS LOSS. IN VIEW OF THESE F ACTS AND CONSIDERING THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF ASSOCIATED BA NKING CORPORATION OF INDIA (SUPRA), MP HIGH COURT JUDGMENT IN THE CASE OF DURG A JEWELLERS (SUPRA) AND BOMBAY HIGH COURT JUDGMENT IN THE CASE OF NAGRI MIL LS (SUPRA) AND APEX COURT JUDGMENT IN THE CASE OF EXCEL INDUSTRIES LTD (SUPRA ), IN OUR CONSIDERED VIEW, THE EMBEZZLEMENT LOSS SHOULD BE ALLOWED IN THIS YEAR. IN VIEW OF HONBLE SUPREME COURT JUDGMENT IN THE CASE OF EXCEL INDUSTRIES LTD (SUPRA) ALSO, THERE IS NO PRUDENCE IN NOT ALLOWING THE CLAIM IN THIS YEAR AND GIVING A DIRECTION TO ALLOW IN AY 2010-11. IN CUMULATIVE CONSIDERATION OF ALL THE SE FACTS AND CIRCUMSTANCES, LEGAL POSITION AND SUBSTANTIAL JUSTICE, WE HAVE NO HESITA TION IN ALLOWING THE CLAIM IN THIS YEAR AS CLAIMED BY THE ASSESSEE. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IN ALL ASSESSMENT YEARS IS ALLOWED. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 31 11 APROPOS ASSESSEES GROUND NO.10 FOR AY 2011-12, THE ASSESSING OFFICER MADE A LUMP-SUM DISALLOWANCE OF RS.50,00,000/- FOR POSSIBLE COVERAGE OF LEAKAGE OF REVENUE WHICH HAS BEEN REDUCED BY LD. CIT(A) TO RS. 5 LACS AGAIN TO PLUG ANY LEAKAGE OF REVENUE. 12. WE HAVE HEARD BOTH THE PARTIES AND ARE OF THE F IRM VIEW THAT THERE IS NO CONCEPT OF PLUGGING ANY POSSIBLE LEAKAGE OF REVENUE WHICH BECOMES A GENERAL AND SWEEPING WAY OF DISALLOWANCE NOT CONTEMPLATED BY TH E LAW. ANY DISALLOWANCE SHOULD BE SPECIFIC AND PROPERLY QUANTIFIED. IN VIE W OF THESE FACTS, WE ARE UNABLE TO SUSTAIN THIS PRESUMPTIVE AND AD-HOC ADDITION BAS ED ON AN OUTLANDISH CONSIDERATION OF PLUGGING POSSIBLE LEAKAGE OR REVEN UE; CONSEQUENTLY THE SAME IS DELETED. THUS, THIS GROUND OF THE ASSESSEE IS ALL OWED AND THAT OF REVENUE DISMISSED. 13. APROPOS ASSESSEES GROUND NO.11 FOR AY 2011-12, I.E., CONFIRMATION OF ADDITION OF RS.2,82,020/- U/S 40A(3), LD. COUNSEL F OR THE ASSESSEE CONTENDS THAT THE EXPENDITURE IN QUESTION IS INCURRED BY THE STAFF ON MOVING TRAIN STAFF AT VARIOUS STATIONS HAVING A STOPPAGE OF 3 TO 5 MINUTES. IT IS IMPOSSIBLE TO PAY CHEQUE DURING MOBILITY AND THE PAYMENTS ARE NECESSARILY TO BE MAD E IN CASH TO COPE UP WITH THE MOBILE PANTRY CAR REQUIREMENTS. THESE PAYMENTS ARE COVERED UNDER RULE 60DD, THEREFORE, NO DISALLOWANCE IS CALLED FOR U/S 40A(3) . 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE LOWER AUT HORITIES. WE FIND MERIT IN THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE. I N OUR CONSIDERED VIEW, THE CASH PAYMENTS ARE MADE IN EXCEPTIONAL CIRCUMSTANCES AND THE SAME ARE COVERED BY RULE 60DD AND CANNOT BE DISALLOWED U/S 40A(3). THIS GROUND OF THE ASSESSEE IS ALLOWED. 15. GROUND NO.12 OF ASSESSEES APPEAL FOR AY 2011-1 2 AND REVENUE GROUND 3 PERTAINS TO AD-HOC DISALLOWANCE OF RS.2,00,000/- TO WARDS BURNING EXPENSES THE SUBJECT MATTER IS SAME AS ASSESSEES GROUND NO.10 LUMP-SUM ADDITION. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 32 THEREFORE, FOR THE SAME REASONS, THE DISALLOWANCE O F RS.2,00,000/- IS DELETED. THIS GROUND OF THE ASSESSEE IS ALLOWED. 16. APROPOS GROUND NO.13 OF ASSESSEES APPEAL FOR A Y 2011-12, I.E. CONFIRMATION OF UNEXPLAINED EXPENDITURE OF RS.12,09 ,023/- U/S 69C, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY FOLLOWING OBSERVATION S:- 10.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION MADE BY THE APPELLANT. THE AO HAS MADE THE ADDITION OF RS.12,09,023/- INVO KING THE PROVISIONS OF SECTION 69C OF THE I.T. ACT FOR THE REASON THAT THE BILLS F OR THE AFORESAID AMOUNT WERE RELATED TO VARIOUS PURCHASES WHICH WERE NOT FOUND RECORDED IN THE BOOKS OF ACCOUNTS. IN THE APPELLATE PROCEEDINGS AND ALSO IN THE ORIGINAL ASSESSMENT PROCEEDINGS IT WAS CONTENDED BY THE APPELLANT THAT THE GOODS HAVE BEEN RETURNED TO THE RESPECTIVE PARTIES DUE TO EARLIER DEPARTURE OF THE TRAINS BEFO RE GOODS RECEIVED AT THE STATIONS AND THE BILLS MIGHT HAVE BEEN KEPT IN THE RECORDS O NLY AND NO MUCH PAYMENTS HAVE BEEN MADE TO THEM. HOWEVER, IT WAS NOTICED THAT THE CONTENTION OF THE APPELLANT THAT THE GOODS HAVE BEEN RETURNED BACK TO THE PARTI ES IS NOT VERIFIABLE FROM THE RECORDS/GOODS RETURNED REGISTER. THEREFORE, THE CL AIM OF THE APPELLANT WAS NOT VERIFIABLE. SINCE THE PURCHASES BILLS WERE AVAILAB LE ON RECORD AND THE SAME HAVE NOT BEEN FOUND DEBITED IN THE BOOKS OF ACCOUNTS AND ALS O IN ABSENCE OF VERIFICATION OF CONTENTION OF THE APPELLANT, AOS ACTION FOR MAKING THE DISALLOWANCE IS JUSTIFIED AND CORRECT. THEREFORE, THE SAME IS CONFIRMED. 16.1 LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE ASSESSEE HAS A HUGE TURNOVER AND WIDE FIELD COVERAGE ON MOVING TRAIN ON DAY TODA Y BASIS. IT IS NORMAL IN ITS BUSINESS THAT SOME GOODS ARE ORDERED WHOSE BILLS AR E RECEIVED BUT BY THE TIME THE GOODS ARRIVED, THE TRAIN STARTS MOVING AND THEN THA T AMOUNT IS NOT PAID. IF THE ASSESSEE HAS ANY MALAFIDE INTENTION IT WOULD RATHER CLAIM THE BILLS AS AN EXPENDITURE WHICH WOULD REDUCE ITS PROFITS. THEREFO RE, THE PRESUMPTION DRAWN BY LD. CIT(A) IS BEREFT OF BUSINESS EXIGENCIES, IT AMO UNTS SELF INJURY BY NOT CLAIMING THE BILLS AND EXPENDITURE; THIS IS SO BECAUSE EACH AND EVERY TRANSACTION IS IN RECORD OF THE ASSESSEE; THEREFORE, THERE IS NO JUSTIFICATI ON IN DISALLOWING SUCH PURCHASES WHICH HAVE NOT BEEN EFFECTED DUE TO NON-DELIVERY OF GOODS U/S 69C. 17. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE LOWER AUT HORITIES. WE FIND CONSIDERABLE MERITS IN THE SUBMISSIONS OF THE LD. COUNSEL FOR TH E ASSESSEE. IN OUR CONSIDERED VIEW, THE ASSESSEE CANNOT ADOPT SUCH A SELF DEFEATI NG APPROACH, HUMAN CONDUCT, SURROUNDING CIRCUMSTANCES AND BUSINESS EXIGENCIES O N A MOVING TRAIN; THE ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 33 CONTENTION OF THE ASSESSEE IS REASONABLE AND ACCEPT ABLE AND CANNOT BE DISREGARDED ON PRESUMPTION. IN MOVING TRAIN, IT MAY HAPPEN THA T THE BILL IS GIVEN TO THE MOVING TRAIN STAFF AND GOODS WILL NOT REACH IN TIME AND PAYMENT IS NOT GIVEN DUE TO NON-DELIVERY, I.E., NON-PURCHASE. IN VIEW OF TH E FOREGOING, WE DELETE THIS DISALLOWANCE. THUS, THIS GROUND OF THE ASSESSEE IS ALLOWED. IN THE RESULT, THE ASSESSEES APPEAL FOR AY 2011-12 IS ALLOWED. 18. APROPOS REVENUES APPEAL FOR AY 2011-12, GROUND NOS. 1 & 4 WITH RESPECT TO DELETION OF DISALLOWANCE U/S 40(A)(IA) HAVE ALRE ADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE. HENCE, FOLLOWING OUR OWN DECISION AB OVE, THE GROUND NOS. 1 & 4 ARE DISMISSED. 19. GROUND NO.3 OF THE REVENUES APPEAL FOR AY 2011 -12 IS PART OF GROUND NO.12 OF THE ASSESSEES APPEAL FOR AY 2011-12. SIN CE WE HAVE ALLOWED ASSESSEES GROUND IN RESPECT OF BURNING LOSS, THE PART RELIEF AWARDED BY LD. CIT(A) ON VERIFICATION OF RECORD ABOUT BURNING AND LAUNDRY EX PENSES IS PROPER. THE BALANCE AD HOC DISALLOWANCE STANDS DELETED. IN VIEW OF ENTI RETY OF FACTS AND CIRCUMSTANCES REVENUE GROUNDS IN THIS BEHALF ARE DISMISSED. 20. THIS LEAVES US WITH REVENUE GROUND NO.2 IN RESP ECT OF ESTIMATED GP ADDITION OF RS.45,00,000/-, WHICH WE HAVE ALREADY D EALT WITH WHILE DEALING ASSESSEES GROUND NO.10 FOR AY 2011-12 AND WE ALLOW ED THIS GROUND OF ASSESSEE FOR THE REASONS STATED THEREIN. ACCORDINGLY, THIS GROUND OF THE REVENUE IS DELETED. THUS, THE APPEAL OF THE REVENUE FOR AY 2011-12 IS D ISMISSED. 21. IN THE COMBINED RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED AND THAT OF REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 29 TH JULY, 2016 AT AHMEDABAD. SD/- SD/- ANIL CHATURVEDI (ACCOUNTANT MEMBER) R.P. TOLANI (JUDICIAL MEMBER) AHMEDABAD; DATED 29/07/2016 *BIJU T. ITA NOS. 3081-3084, 3259-3262/AHD/2014 & 83/AHD/2015 & CO NO.327/AHD/2014 HAKMICHAND D & SONS CROSS APPEALS AY : 2006-07 TO 2009-10 & 2011-12 34 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, TRUE COPY / (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD