The ACIT,Anand Circle, Anand V. Eimco Elecon (India) Ltd., Anand

ITA 1/AHD/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9201 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 02-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Keywords: Earning of tax free income; Difference of opinion
• Section: 143(3); 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE ACIT, ANAND CIRCLE, 3 RD FLOOR, S.P. COMPLEX, NEAR OLD C.K. HALL, MAYFAIR ROAD, ANAND - 388001 (APPELLANT) VS EIMCO ELECON (INDIA) LTD., ANAND SOJITRA ROAD, V.N. NAGAR - 388120, DIST - ANAND PAN: AACCE4644D (RESPONDENT) REVE NUE BY : S H RI OM PRAKASH MEENA , SR. D . R. ASSESSEE BY: S H RI SUNIL TALATI , A.R. DATE OF HEARING : 20 - 02 - 2 017 DATE OF PRONOUNCEMENT : 23 - 02 - 2 017 / ORDE R P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL FOR A.Y. 2008 - 09 , AR ISES FROM ORDER OF THE CIT(A) - IV, BARODA DATED 07 - 10 - 2011 IN APPEAL NO. CAB/IV - A - 185/2010 - 11 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SH ORT THE ACT . I T A NO . 01 / A HD/20 12 A SSESS MENT YEAR 200 8 - 09 I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 2 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW, IN DELETING THE ADDITI ON OF INTEREST DISALLOWANCE OF RS. 5,42,985/ - BEING THE FINANCIAL EXPENSES INCURRED FOR EARNING THE EXEMPT ED INCOME U/S 14A IGNORING THE FACT THAT THE ASSESSEE HAD BORROWED FUNDS FOR INVESTMENT AND THE ASSESSEE HAD NOT MAINTAINED SEPARATE ACCOUNTS FOR EXEMPTED INCOME AND TAXABLE INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW TH E LEARNED CIT(A) ERR ED IN DELETING THE ADDITION OF RS. 58,13,415/ - BEING DISALLOWANCE OF WARRANTY PROVISION DEBITED TO SPARES ACCOUNT, CONTRARY TO AUDITOR'S FINDING IN THE AUDIT REPORT THAT IT WAS IN THE NATURE OF CONTINGENT LIABILITY. 3 (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN ALLOWING THE CLAIM OF RS. 36,73,952/ - DISALLOWED U/S 40(A)(IA) OF THE ACT HOLDING THAT PROVISIONS OF SECTION 194J IS NOT APPLICABLE. (II) THE LEARNED CIT(A) ALSO ERRED IN NOT CONSIDERING THE FACT THAT ON THE SAME TYPE OF SERVICES OF AAKAISH MECHATRONIC S LTD, M/S. ELECON ENGG. CO LTD , A COMPANY OF THE SAME GROUP HAD DEDUCTED TDS U/S 194J OF THE ACT. 3. IN THIS CASE , RETURN OF INCOME DECLARING INCOME OF RS. 22 , 16 , 08 297 / - WAS F ILED ON 2 3 RD SEPTEMBER, 2008. THEREAFTER, THE CASE W AS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/S. 143(2) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTICED THAT ASSESSEE HAS MADE INVESTMENT IN THE SHARE TO THE EXTENT OF RS. 8.96 CRORES. ON VERIFICATION OF BALANCE SHEET , THE ASSESSING OFFICER FOUND THAT ASSESSEE S OWN FUND WAS TO THE EXTENT OF RS. 106.55 CRORES AS ON 31 ST MARCH, 2008 AND THE BORROWED FUND TAKEN BY THE ASSESSEE COMPANY AS ON 31 ST MARCH, 2008 WAS RS. 7.29 CRORES. HE FURTHER NOTICED THAT ASSESSEE HAD DEBITED TOTAL INTEREST EXPENSES OF RS. 10094154/ - TO THE PROFIT AND LOSS ACCOUNT AND I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 3 EARNED DIVIDEND INCOME OF RS. 10 , 94 , 214/ - . D U RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH SPECIFIC SOURCE EVIDENCE FOR THE FUND UTILIZED FOR MAKING INVESTMENTS OF RS. 8.96 CRORES. THE ASSESS EE WAS ALSO ASKED TO EXPLAIN AS TO WHY INTEREST EXPENSES AND OTHER EXPENSES SHOULD NOT BE DISALLOWED U/S. 14A R.W. RULE 8D FOR THE DIVI DEND EARNED BY IT. T HE ASSESSEE CLAIMED THAT ENTIRE INVESTMENT OF RS. 8.96 CRORES ON TAX FREE INCOME I.E. DIVIDEND HAS BEEN EARNED FROM ITS OWN INTE NAL ACCRUAL AND THE RESERVES AND SURPLUS WERE TO THE TUNE OF RS. 74.28 CRORES AT THE BEGINNING OF THE YEARS. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSE AND STATED THAT CLAIM OF THE ASSESSEE WAS NOT FOUND TO BE ACCEPTABLE AS THE ASSESSEE HAD NOT MAINTAINED ANY SEPARATE DETAILS OF EXPENSES ATTRIBUTABLE TO EXEMPT INCOME. THE ASS ESSING OFFICER DISALLOWED AN AMOUNT OF RS. 5 , 42 , 985/ - U/S. 14A R.W. RULE 8D OF THE ACT. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE ASSESSI NG OFFICER BY OBSERVING AS UNDER: - THE REASON FOR MAKING DISALLOWANCE OF EXPENDITURE OF RS.5,42,985/ - U/S 14A AS MENTIONED BY THE A.O. IN THE ASSESSMENT ORDER AS WELL AS ABOVE SUBMISSION OF THE APPELLANT HAVE BEEN CONSIDERED. THE A.O. HAS DISALLOWED THIS EXPENDITURE MERELY ON THE GROUND THAT APPELLANT WAS NOT MAINTAINING ANY SEPARATE DETAILS OF EXPENSES ATTRIBUTABLE TO EXEMPT INCOME. HOWEVER, THE A.O. HAS NOT GIVEN ANY SPECIFIC FINDINGS WHICH COULD SHOW THAT APPELLANT HAS INCURRED CERTAIN EXPENSES TO EARN EXEMPTED INCOME. THE ONUS IS ON THE A.O. TO ESTABLISH THAT EXPENDITURE WAS INCURRED TO EARN TAX FREE INCOME WHICH HE HAS NOT DISCHARGED. ON THE CONTRARY ABOVE CASE LAWS AS CITED BY THE APPELLANT IN THE SUBMISSION SUPPORT ITS CASE. MOREVOER EARLIER THE DISA LLOWANCE OF EXPENSES ON SIMILAR GROUND HAS BEEN DELETED BY MY LD. PREDECESSOR. THUS IN VIEW OF ALL THESE FACTS, I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 4 I HOLD THAT THE A.O. IS NOT CORRECT IN MAKING DISALLOWANCE OF ABOVE EXPENDITURE OF RS.5,42,985/ - U/S 14A OF THE ACT AND THEREFORE THE SAME IS DE LETED. 4. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE STATED THAT CIT(A) HAS ERRED IN DELETING THE ADDITION OF INTEREST DISALLOWANCE MADE BY THE ASSESSING OFFICER ACCORDING TO THE PROVISION OF SECTION 14A OF THE ACT AND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, LEARNED COUNSEL SUPPORTED THE ORDER OF LD. CIT(A) AND ALSO STATED THAT ISSUE WAS COVERED IN FAVOUR OF THE ASSESSE IN ITS OWN CASE BY HON BLE ITAT VIDE ITS ORDER ITA NO. 931/AHD/201 0 FOR ASSESSMENT YEAR 2007 - 08. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE NOTICE THAT IN THIS CASE THE ASSESSING OFFICER HAS MADE DISALLOWANCE AS PER PROVISION OF SECTION 14A R.W. RULE 8D OF THE ACT WHEREAS IN THE ASSESSMENT YEAR 2007 - 08 QUOTED BY THE ASSESSEE PERTAINING TO THE SIMILAR DISALLOWANCE THE RULE 8D WAS NOT APPLICABLE . WE FIND THAT THESE FACT HA VE NOT BEEN CONSIDERED BY THE LD. CIT(A). WE FURTHER NOTICE D THAT ASSESSEE HAS NOT FURNISHED SEPARATE DETAILS OF EXPENSE S ATTRIBUTABLE TO THE EXEMPT INCOME BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEEDINGS. IN VIEW OF THE ABOVE FACTS AND FINDINGS W E FIND THAT THE CLAIM OF THE ASSESSEE THAT IT HAS HUGE INTEREST FREE FUNDS, RESERVES AND SURPLUSES FROM WHICH THE ASSESSEE HAS MADE INVESTMENT FOR EARNING EXEMPT INCOME REQUIRED TO BE VERIFIED BY THE ASSESSING OFFICER, THEREFORE, WE RESTORE THIS I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 5 MATTER TO THE FILE OF ASSESSING OFFICER TO DECIDE AFRESH AFTER PROVIDING OPPORTUNITY TO THE ASSESSEE. GROUND NO. 2. 6 . DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSING OFFICER HAS DISALL OWED WARRANTY PROVISION OF RS. 58 , 13 , 415/ - ON THE GROUND THAT THE SAME WAS NOT AN ASCERTAINABLE LIABILITY. THE ASSESSING OFFICER HELD THAT T H ERE WAS NO JUSTIFICATION FOR MAKING PROVISION FOR WARRANTY AND FURTHER STATED THAT WARRANTY EXPENSE S WERE DISALLOWED BY HIS PREDECESSOR IN ASSESSMENT YEAR 2005 - 06 AND 2007 - 08. AGGRIEVED AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE , THE ASSESSSEE PREFERRED APPEAL BEF ORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: - THE REASONS FOR MAKING DISALLOWANCE OF PROVISION FOR WARRANTEE OF RS.58, 1 3,415/ - AS MENTIONED BY THE A.O. IN THE ASSESSMENT ORDER AND ABOVE SUBMISSION OF T HE APPELLANT HAVE BEEN CONSIDERED. IN THI S REGARD IT IS MENTIONED THAT M Y LD. PREDECESSOR (I.E. EARLIER CIT(A) - IV, BARODA) HAS DECIDED THE IDENTICAL ISSUE FOR A.Y. 2007 - 08 VIDE HIS ORDER NO.CAB/I V - A - 127/2009 - 10 DATED 26.02.2010 IN FA VOUR OF APPELLANT AND R ELEVANT POTION OF HIS ORDER IS REPRODUCED HEREUNDER FOR R EFERENCE. 'NEXT GROUND OF APPEAL IS REGARDING DISALLOWANCE OF WARRANTY PROVISION OF RS. 47,96,517/ - ASSESSING OFFICER MADE THE DISALLOWANCE BY FOLLOWING ASSESSMENT ORDERS IN APPELLANT'S CASE FOR A.YS 05 - 06 & 06 - 07 HOLDING WARRANTY PROVISION TO BE IN THE NATURE OF CONTINGENT LIABILITY AND ALSO ON THE GROUND THAT PROVISION MADE BY THE APPELLANT AT 0.5% OF THE SALES WAS NOT REALISTIC DUE TO ACTUAL EXPENSES VARYING WIDELY IN THE RANGE OF 0.75% TO 2.54% OF THE SALES. THIS GROUND OF APPEAL IS COVERED BY MY DECISION IN APPELLANT'S CASE IN A.Y. 05 - 06 IN CAB - XV/A - I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 6 85/09 - 1Q THROUGH ORDER DATED 13.10.09, WHEREIN IT WAS HELD THAT THE ESTIMATE MADE BY THE APPELLANT WAS ON A CONSERVATIVE SIDE, BEING LESS THAN THE ACT UAL EXPENDITURE YEAR AFTER THE PROVISION MADE WAS BASED ON HISTORICAL DATA IN RESPECT OF ACTUAL EXPENDITURE ON WARRANTY SERVICES. THE ESTIMATE/ PROVISION MADE BY THE APPELLANT WAS FOUND TO BE RELIABLE ONE. DEDUCTION FOR PROVISION FOR WARRANTY WAS ALLOWED B Y ME IN A.Y. 05 - 06 AS WELL AS A.Y, 06 - 07 IN APPELLANT'S CASE BY FOLLOWING DECISIONS OF VARIOUS COURTS/TRIBUNALS AND ALSO SUPREME COURT'S DECISION IN THE CASE OF ROTORK CONTROL INDIA P LTD, FOLLOWING APPELLATE DECISIONS IN EARLIER YEARS, DISALLOWANCE OF RS . 47,96,517/ - IN THIS YEAR IS CANCELLED'. SINCE THE FACTS AND CIRCUMSTANCES E FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS AND CIRCUMSTANCES IN THE CASE OF APPELLANT FOR ABOVE A.YS. 2007 - 08, 2005 - 06 AND 2006 - 07 AND THEREFORE FOLLOWING ABOVE DECISION OF LD. CIT(A), THE DISALLOWANCE OF WARRANTEE PROVISION OF RS . 58,13,415/ - AS MADE BY THE A.O, IS DELETED FOR THIS YEAR ALSO I.E . FOR A.Y. 2008 - 09. T HUS THE ADDITION OF RS. 58,13,415/ - IS HEREBY DELETED. 7. DURING THE COURSE OF APPELLATE PROCEEDI NGS BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND CONTENDED THAT LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF WARRANTY PROVISION . ON THE OTHER HAND, LD. COUNSEL SUPPORTED THE ORDER OF THE CIT(A) AND STATED TH AT THIS ISSUE WAS COVERED IN ITS OWN CASE BY HON BLE GUJARAT HIGH COURT VIDE ITS ORDER TA NO. 828 & 829 OF 2012 AND FURTHER STATED THAT THE ISSUE WAS SQUARELY IN FAVOUR O F THE ASSESSE IN ITS OWN CASE BY HON BLE ITAT VIDE ITS ORDER ITA NO. 1389/AHD /2010 F OR ASSESSMENT YEAR 2007 - 08. 8. IT IS AN UNDISPUTED FACT THAT THE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEAR SO WE FIND NO REASON TO TAKE A DIFFERENT VIEW THAN TAKEN BY COORDINATE BENCH IN EARLIER YEAR. WE I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 7 THEREFORE, RESPECTFULL Y FOLLOWING THE ORDER OF COORDINATE BENCH AHMEDABAD IN ITA NO. 1389/AHD/2010 FOR ASSESSMENT YEAR 2007 - 08 FIND NO REASON TO INTERFERE IN THE ORDER OF LD.CIT(A). GROUND NO . 3 9. DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS MADE TOTAL PAYMENT OF RS.6 1,32,532 TO AKAAISH MECHJATRONICS LTD. FOR MAINTENANCE AND SERVICE OF ITS VARIOUS MISSIONARY AND ALSO ENTERED INTO ANNUAL MAINTENANCE CONTRACT WITH THE SAID COMPANY. ON A PERUSAL OF THE TERMS OF THE AGREEMENT T HE ASSESSING OFFICER OBSERVED THAT THE SERVICES RENDERED BY THE AML WAS IN THE NATURE OF TECHNICAL SERVICES THEREFORE PROVISION OF SECTION 194J OF THE ACT APPLICABLE FOR DEDUCTING TAX INSTEAD OF SECTION 194C OF THE ACT .THEREFORE, THE ASSESSING OFFICE R HAS MADE DISALLOWANCE OF RS. 36 , 73 , 952/ - U/S. 40(A)(IA) OF THE ACT. AGAINST THIS ADDITION , THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO HAS DELETED THE D ISALLOWANCE BY OBSERVING AS UNDER: - 5.3 I HAVE CONSIDERED THE REASONS AS MENTIONED BY THE A.O. IN THE ASSESSMENT ORDER FOR MAKING DISALLOWANCE OF ABOVE EXPENDITURE OF RS. 36,73,952/ - AS WELL AS ABOVE SUBMISSION OF THE APPELLANT. THE APPELLANT VIDE ITS ABOVE LETTER DATED 12.09.2011 HAS SUBMITTED THAT ABOVE ISSUE HAS ALREADY BEEN DECIDED BY LD . CIT(A) - IV, BARODA IN ITS FAVOUR FOR A.Y. 2007 - 08 IN ITS OWN CASE. ON PERUSAL OF ORDER NO. CAB/IV - A - 213/09 - 10 DATED 19.07.2010 OF LD. CIT(A) - IV, BARODA (I.E. MY PREDECESSOR), IT IS SEEN THAT IDENTICAL ISSUE IN APPELLANT'S OWN CASE FOR A.Y. 2007 - 08 WAS INV OLVED AND WHILE DECIDING THE ISSUE, THE LD. CIT (A) HAS HELD AS UNDER : 'I HAVE CONSIDERED THE MATTER. APPELLANT HAD DEDUCTED TAX AT SOURCE, ALTHOUGH U/S 194C FROM THE PAYMENTS TO AKAAISH MECHATRONICS LTD (AML). SECTION 40(A) ( IA) IS APPLICABLE, WHERE TAX I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 8 THOUGH DEDUCTIBLE IS NOT DEDUCTED OR AFTER DEDUCTION NOT PAID TO THE CREDIT OF GOVERNMENT. EVEN THOUGH, THERE IS DIFFERENCE OF OPINION BETWEEN THE A.O. AND THE APPELLANT REGARDING CORRECT SECTION UNDER WHICH TAX IS REQUIRED TO BE DEDUCTED AT SOURCE, SE CTION 40A( IA) WOULD NOT GET INVOKED IN SUCH A SITUATION. EXPLANATORY - NOTES TO FINANCE ACT ( NO. 2) OF 2004, WHICH INSERTED SECTION 40A(IA) READ AS UNDER; 'FURTHER, WITH A VIEW TO AUGMENT COMPLIANCE OF TDS PROVISIONS IN THE OF RESIDENTS AND CURB BOGUS PAYMENTS TO THEM IT HAS PROVIDED THAT NO DEDUCTION WILL BE ALLOWED IN THE COMPUTATION OF INCOME WHERE TAX IS NOT DEDUCTED FROM PAYMENTS OF INTEREST/ COMMISSION OR BROKERAGE? FEES FOR PROFESSIONS SERVICES OR FEES FOR TECHNICAL SERVICES AND PAYMENTS T O A CONTRACTOR OR SUB - CONTRACTOR FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS BEEN DEDUCTED OR F AFTER DEDUCT/ON, H AS NOT: BEEN PAID DURING THE P REVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB SECTION (1) OF SECTION 200'. AS PER THE EXPLANATORY NOTES, SECTION 40(A) ( IA) WAS AIMED TO CURB BOGUS PAYMENT, BY BRINGING THEM IN TAX NET. SINCE APPELLANT DEDUCTED TAX AT SOURCE U/S 194C FROM PAYMENTS TO AKAAISH MECHATRONICS LTD. AND PAID IT TO THE CREDIT OF GOVERNMENT, SUCH PAYMENTS WERE BROUGHT INTO TAX NET AND SECTION 40(A) (IA) WOULD NOT GET TRIGGERED. ACTION, IF ANY FOR SHORT DEDUCTION OF TAX DUE TO APPLICATION OF A DIFFERENT SECTION IS TO BE TAKEN U/S 201 ETC. WITHOUT PREJUDICE, SINCE AML WAS ASSIGNED ANNUAL MAINTENANCE CONTRACT AT AFFIXED MONTHLY RATE FOR PREVENTIVE MAINTENANCE OF ALL THE MACHINERIES OF THE APPELLANT AS WELL AS BREAK DOWN AND CORRECTIVE MAINTEN ANCE AND OUT OF TOTAL PAYMENT MADE, PART OF THE PAYMENT WAS TOWARDS PREVENTIVE REPAIRS AND MAINTENANCE OF MACHINERY, ENTIRE PAYMENT, IN ANY CASE CANNOT BE SAID TO BE TOWARDS RENDERING OF TECHNICAL SERVICES' IN TERMS OF EXPLANATION 2 BELOW SECTION 9(T)(VII ) , BOARD'S CIRCULAR NO. 715 CLARIFIES THAT FOR NORMAL MAINTENANCE CONTRACTS INCLUDING SUPPLY OF SPARES, SECTION 194C WOULD APPLY; HOWEVER, WHERE TECHNICAL SERVICES ARE RENDERED, SECTION 194J WOULD APPLY. THE MATTER REGARDING SHORT DEDUCTION OF TAX AT SOUR CE, IF ANY DUE TO APPLICATION OF DIFFERENT SECTION NEEDS TO BE DEALT WITH BY THE ASSESSING OFFICER U/S 201 ETC, FOR APPROPRIATE ACTION. AS FAR AS, DISALLOWANCE U/S 40(A) ( IA) OF RS. 60,60,960/ - IS CONCERNED , THE SAME IS CANCELLED.' I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 9 5.4 IN HIS ABOVE DECI SION, THE LD. CIT(A) HAS HELD THAT THOUGH THE APPELLANT HAD DEDUCTED TAX AT SOURCE U/S 194 C ON THE PAYMENTS MADE TO AKAAISH MECHATRONICS LTD. (AML) WHEREAS AS PER A.O. TAX WAS REQUIRED TO BE DEDUCTED IN TERMS OF PROVISIONS OF SECTION 194 3 OF THE ACT ON S UCH PAYMENT AND THUS THERE IS DIFFERENCE OF OPINION AND SECTION 40(A) (IA) WOULD NOT GET INVOKED IN SUCH A SITUATION . AS PER CIT(A) AS PER EXPLANATORY NOTES, SECTION 40(A) (IA) WOULD NOT GET INVOKED IN SUCH A SITUATION. THE LD. CIT(A) IS OF THE VIEW THAT A S PER EXPLANATORY NOTES SECTION 40(A) (IA) WAS AIMED TO CURB BOGUS PAYMENT BY BRINGING THEM IN TAX NET. SINCE APPELLANT DEDUCTED TAX AT SOURCES U/S 194C FROM PAYMENTS TO AKAAISH MECHATRONICS LTD. AND PAID IT TO CREDIT OF GOVERNMENT, SUCH PAYMENTS WERE BROU GHT INTO TAX NET AND SECTION 40(A) (IA) WOULD NOT GET TRIGGERED. THE LD. CIT(A) HAS FURTHER HELD THAT SINCE AKAAISH MECHATR ONICS LTD. WAS ASSIGNED ANNUAL / MAINTENANCE CONTRACT AT A FIXED MONTHLY RATE FOR PREVENTIVE MAINTENANCE OF ALL THE MACHINERIES OF TH E APPELLANT AS WELL AS BREAK DOWN AND CORRECTIVE MAINTENANCE AND OUT OF TOTAL PAYMENTS MADE, PART OF THE PAYMENT WAS TOWARDS PREVENTIVE REPAIRS AND MAINTENANCE OF MACHINERY AND THEREFORE ENTIRE PAYMENT IN ANY CASE CANNOT BE SAID TO BE TOWARDS RENDERING OF 'TECHNICAL SERVICES' IN TERMS OF EXPLANATION 2 BELOW SECTION 9(1) (VII). THUS FINALLY AS PER LD. CIT(A), THE MATTER REGARDING SHORT DEDUCTION OF TAX AT SOURCE, IF ANY DUE TO APPLICATION OF DIFFERENT SECTION NEEDS TO BE DEALT WITH BY THE ASSESSING OFFICER U /S 201 ETC. FOR APPROPRIATE ACTION AND AS FAR AS DISALLOWANCE U/S 40(A) (IA) OF THE ACT IS CONCERNED, THE SAME S CANCELLED. 5. 5 I AGREE WITH THE ABOVE OBSERVATION OF THE CIT(A) AND EVEN OTHERWISE ALSO IN MY OPINION THE TAX IS REQUIRED TO BE DEDUCTED ON PA YMENTS MADE BY THE APPELLANT TO AKAAISH MEACHATRONICS LTD. (AMI) IN TERMS OF PROVISIONS OF SECTION 194 C OF THE ACT ONLY AS THE APPELLANT HAD ENTERED INTO ANNUAL MAINTENANCE AGREEMENT WITH AKAAISH MECHATRONICS LTD (AML) FOR PROVIDING MAINTENANCE EQUIPMENTS , ELECTRICAL AND ELECTRONICS APPLICATION FORMING PART OF MACHINERY . IN THIS REGARD, SUPPORT IS DRAWN FROM DECISION OF HON'BLE ITAT X C' BENCH IN THE CASE OF GUJARAT STATE ELECTRICITY CORPN. LTD. VS. ITO IN APPEAL NO. 3795 (AHD) OF 2002. (ASSESSMENT YEAR 20 01 - 2002). 5.6 SUPPORT IS ALSO DROWN FROM DECISION OF HON'BLE ITAT - DELHI IN THE CASE OF DCIT VS. PARASRAM PURIA SYNTHETICS LTD., ( I.E. IN APPEAL NO. 1354 OF 2005 ), 20 SOT 248. IN THIS REFERRED CASE, DURING THE RELEVANT I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 10 PREVIOUS YEAR, THE ASSESSEE COMPANY MADE CERTAIN PAYMENTS TO A CONTRACTOR IN RESPECT OF INSPECTION AND MAINTENANCE SUPPORT AGREEMENT, FABRICATION OF CHILLED WATER LINE, WORK ORDER FOR THERMAL INSULATION/ERECTION, CONVERSION OF PARTIALLY ORIENTED YARN (POY)INTO POLYSTER TEXTURED YARN AND TWI STED YARN, AND DEDUCED TAX AT SOURCE AS PER THE PROVISION OF SECTION 194C. THE ASSESSING OFFICER HELD THAT THE PAYMENT IN QUESTION AMOUNTED TO PAYMENT OF FEES FOR TECHNICAL SERVICES AND NOT MERELY PAYMENT TO A CONTRACTOR AN D, THEREFORE, THE ASSESSEE SHOUL D HAVE DEDUCTED TAX AT SOURCE AS PER PROVISIONS OF SECTION 1943. HE, THEREFORE, TREATED THE ASSESSEE AS ASSESS EE IN - DEFAULT UNDER SECTION 201 (1) AND ALSO LEVIED INTEREST UNDER SECTION 201(A) UPON IT. 5. 7 ON APPEAL, THE COMMISSIONER (APPEALS) HELD THAT THE AMOUNT PAID IN QUESTION WAS NOT TOWARDS PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES. HE, THEREFORE, SET ASIDE THE ORDER PASSED BY THE A.O. THE MATTER WENT TO IT AT, THE ITAT - DELHI, DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY MAKING ITS OBSERVATION AS UNDER: THE TERMS FEES FOR TECHNICAL SERVICES AS PER EXPLANATION(B) TO SECTION 194] MEANS AS DEFINED IN EXPLANATION 2 BELOW CLAUSE (VII) OF SUB - SECTION (1) OF SECTION 9. AS PER SAID EXPLANATION 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (IN CLUDING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES ( INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL), BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES. THE MADRAS HIGH COURT IN THE CASE OF SKY CELL COMMUNICATIONS LTD .V. DY.CIT/'[2001] 251 ITR 53 HAS HELD THAT THE INSTALLATION AND OPERATION OF SOPHISTICATED EQUIPMENTS WITH A VIEW TO EARN INCOME BY ALLOWING CUSTOMERS TO AVAIL OF THE BENEFIT OF USER OF SUCH EQUIPMENT DOES NOT RESULT IN THE PROVISION OF TECHNICAL SERVICES OF TECHNICALLY QUALIFIED PERSONS TO RENDER THE SERVICES, BUT THAT ITSELF DID NOT BRING THE AMOUNT PAID AS FEES FO R TECHNICAL SERVICES' WITHIN THE MEANING OF EXPLANATION 2 TO SECTION 9 (1) ( VII). THE AMOUNT PAID WAS TOWARDS ANNUAL MAINTENANCE CONTRACT OF CERTAIN MACHINERY OR FOR CONVERTING POY INTO TEXTURED/TWISTED YAM. THE TECHNOLOGY OR THE TECHNICAL KNOWLEDGE, SERV ICE WERE RENDERED TO THE ASSESSEE. THEREFORE, IT COULD NOT BE SAID THAT THE AMOUNT WAS PAID AS FEES FOR TECHNICAL SERVICES. FURTHER, RENDERING SERVICES BY USING TECHNICAL I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 11 KNOWLEDGE OR SKILL IS DIFFERENT THAN CHARGING FEES FOR TECHNICAL SERVICES. IN THE LAT TER CASE, THE TECHNICAL SERVICES ARE MADE AVAILABLE DUE TO WHICH THE ASSESSEE ACQUIRED CERTAIN RIGHT WHICH CAN BE FURTHER USED. IN THE INSTANT CASE, IT WAS NOT SO. THE PERSONS RENDERING SERVICES HAD ONLY MAINTAINED MACHINERY OR CONVERTED YEAR, BUT THAT KNO WLEDGE WAS NOT VESTED WITH THE ASSESSEE BY WHICH ITSELF IT COULD MO RESEARCH WORK. THEREFORE, THE AMOUNT PAID IN QUESTION COULD NOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 194] [PARA 5]'. 5.8 SINCE THE CIT(A) HAS DECIDED IDENTICAL ISSUE (I.E. THE ISSUE REGARDING DISALLOWANCE OF PAYMENTS AS MADE BY THE APPELLANT TO AKAAISH MECHATRONICS LTD.,) IN FAVOUR OF APPELLANT IN ITS OWN CASE FOR A.Y. 2007 - 08 AND THEREFORE RESPECTFULLY FOLLOWING HIS ABOVE DECISION, THE DISALLOWANCE OF SIMILAR PAYMENT OF RS. 36,73,952/ - AS MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT FOR THE YEAR UNDER CONSIDERATION IS HEREBY DELETED. 10. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF ASSESSIN G OFFICER AND CONTENDED THAT THE LD. CIT(A) HAS ERRED IN DISALLOWING THE ADDITION MADE BY THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUNSEL SUPPORTED THE ORDER OF THE LD. CIT(A) AND ALSO STA T ED THAT THIS ISSUE IS COVERED IN FAVOR OF THE ASSESSEE. THE LD. COUNSEL FURTHER STATED THAT THIS ISSUE WAS SQUARELY IN FAVOR OF THE ASSESSEE IN ITS OWN CASE BY HON BLE ITAT VIDE ITA NO 1 389/AHD/2010 FOR ASSESSMENT YEAR 2007 - 08. 11. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE HAVE A LS O NOTICED THAT THE COORDINATE BENCH OF ITAT AHMEDABAD IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08 ON THE IDENTICAL ISSUE OF MAKING PAYMENT TO THE SAME PARTY AML AFTER DEDUCTING TAX UNDER THE PROVISION OF SECTION 194C OF THE I.T.A NO. 01 /AHD/20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. EIMCO ELECON (INDIA) LTD. 12 ACT HELD THAT P ROVISION OF SECTION 40(A)(IA) ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. WE HAVE CONSIDERED THE DETAIL FINDINGS AS SUPRA OF LD.CIT(A) AND THE DECISION OF THE COORDINATE BENCH ON THE SIMILAR ISSUE IN THE CASE OF THE ASSESSEE. WE FIND THAT THE CASE OF THE ASSESSEE ON THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF COORDINATE BENCH VIDE ITA NO 1389/AHD/2010 FOR ASSESSMENT YEAR 2007 - 08 AND WE FIND NO REASON TO TAKE A DIFFERENT VIEW THAN THAT TAKEN BY THE CO - ORDINATE BENCH, THEREFORE, WE DISINCLINED TO INTERFERE IN THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE . 12. IN THE RESULT , THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PR ONOUNCED IN THE OPEN C OURT ON 23 - 02 - 201 7 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SI NGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 23 /02 /2017 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,