Meghamani Agro Dyne P. Ltd., Hyderabad V. DCIT, Hyderabad

ITA 1064/HYD/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3010 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 26-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: A V RAGHURAM
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.1064/HYD/2009 ASSESSMENT YEAR : 2005-06 M/S MEGHAMANI AGRO DYNE (P) LTD., HYDERABAD. (AACCM 6900 C) VS DCIT, CIRCLE 16 (2), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI A.V. RAGHURAM RESPONDENT BY: SMT. NIVEDITA BISWAS, DR O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-V DATED 13.8.2009 AND PERTAINS TO THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 1. THE CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASS ESSING OFFICER DISALLOWING RS.84,43,006 U/S 40(A) (IA) HOLDING THA T THERE IS A CONTRACT BETWEEN THE ASSESSEE AND ITS DEALERS. 2. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE A MOUNTS PAID TO THE DEALERS ARE ALL ACTUAL AS REIMBURSEMENT AND IN A CO NTRACT THE PAYMENTS WILL NOT BE ACTUAL BUT WILL BE AN AGREED S UM AND THEREBY ERRED IN HOLDING THAT THERE IS A CONTRACT BETWEEN T HE ASSESSEE AND THE DEALERS. 3. THE CIT(A) ERRED IN COMING TO A CONCLUSION THAT IT IS NOT CORRECT TO STATE THAT THE DEALERS DOES WORK WITHOUT ANY PROFIT S, FAILING TO APPRECIATE THE FACT THAT THE DEALERS GET BENEFITED BY SALES THROUGH ADVERTISEMENT, WHICH RESULTS IN PROFITS AND THEREBY ERRED IN HOLDING THAT THE REIMBURSEMENT THEORY IS NOT CORRECT. 4. THE CIT(A) FURTHER ERRED IN NOT APPRECIATING THE FA CT THAT THE PROVISIONS OF SEC.40(A) (IA) APPLIES ONLY WHERE THE AMOUNTS REMAINED ITA NO.1064 OF 2009 M/S. MEGHAMANI AGRO DYNE (P) LTD . 2 PAYABLE AND IN THE CASE OF THE ASSESSEE WHERE THE A MOUNTS ARE ALREADY PAID THE PROVISIONS ARE NOT APPLICABLE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF MARKETING OF AGRO CHEMICALS FOR THE ASSESSM ENT 2005- 06. THE COMPANY FILED ITS RETURN OF INCOME ON 20.10.2 005 AT RS.19,15,010. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ON EXPENSES WORTH RS.3,43,238 /- THE ASSESSEE HAD DEDUCTED TDS BUT HAD FAILED TO PAY THE SAME TO GOVERNMENT IN TIME. ACCORDINGLY, EXPENDITURE U/S 40(A )(IA) OF THE ACT WAS DISALLOWED BY THE ASSESSING OFFICER. SECONDLY, THE ASSE SSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD ENGAGED SUB DEALERS T O POPULARIZE ITS PRODUCTS THROUGH BANNERS, JEEP ANNOUNCEM ENTS ETC. AT THE FIELD LEVEL. THE ASSESSEE INCURRED AN EXPENDITURE O F RS.84,43,006/- ON ACCOUNT OF PAYMENT MADE TO THE SUB DEALERS DURING TH E YEAR. WHEN QUESTIONED, WHETHER TDS HAS BEEN DEDUCTED ON THESE PAYM ENTS OR NOT, THE ASSESSEE REPLIED THAT THESE AMOUNTS WERE IN THE NATUR E OF REIMBURSEMENT OF EXPENSES, NO TDS WAS DEDUCTIBLE ON ANY REIMBURSEMENT. THE ASSESSING OFFICER DISAGREED WITH EXPLA NATION STATING THAT EXPENSES INCURRED BY THE ASSESSEE ARE IN THE N ATURE OF ADVERTISEMENT. FURTHER, THE ENGAGEMENT OF SUB DEALE RS CAN NO WAY FALL WITHIN THE CONCEPT OF REIMBURSEMENT. ACCORDINGLY, TDS W AS REQUIRED TO BE DEDUCTED ON THESE PAYMENTS U/S 194C OF THE ACT. SINCE THE SAME WAS NOT DONE, THE EXPENSES NEED TO BE DISALLOWED U/S 40A (IA) OF THE ACT. 3. ON APPEAL TO CIT(A), THE ASSESSEE PLEADED THAT EXP ENDITURE INCURRED BY THE ASSESSEE IS NOTHING BUT REIMBURSEMENT OF E XPENSES WHICH CONTAINS NO PROFIT ELEMENT IN THE HANDS OF THE RE CIPIENT AND PROVISIONS OF SEC.194C IS NOT APPLICABLE ON THIS AMOUNT A ND THE ITA NO.1064 OF 2009 M/S. MEGHAMANI AGRO DYNE (P) LTD . 3 ASSESSEE IS NOT LIABLE TO DEDUCT TDS. AS SUCH, PROVISIONS O F SEC.40A(IA) IS NOT APPLICABLE. THE CIT(A) INTER ALIA REJECTED THE CLAIM OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAS NO EVIDENCE REGARDI NG THE NATURE OF SERVICE RENDERED AND THE BASIS FOR CALCULATION OF PAYMENT . HE ALSO OBSERVED THAT THERE IS NO REASON FOR RENDERING SERV ICES TO THE ASSESSEE BY RECIPIENT OF THIS IMPUGNED AMOUNT WITHOUT EAR NING ANY PROFIT SINCE THERE IS NO CONTRACT WAS PRODUCED. THE CIT(A ) WAS OF THE OPINION THAT THE RATIO LAID DOWN BY DELHI HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL ENGINEERING PRODUCTS (P) LTD. IS NOT APPL ICABLE. AGGRIEVED AGAINST THIS, THE ASSESSEE IN APPEAL BEFORE US. 4. BEFORE US THE AUTHORISED REPRESENTATIVE MADE THE SAME ARGUMENTS THAT THE EXPENDITURE IS NOTHING BUT REIMBUR SEMENT EXPENSES TO VARIOUS PARTIES AND PROVISIONS U/S 194C IS NOT APPLICA BLE. WE HAVE GONE THROUGH THE LIST OF SALES PROMOTION EXPENSES LISTED IN PAGE NOS.8,9,10 OF THE CIT(A) ORDER. WE ARE NOT ABLE TO CONVINCE ABOUT THE NATURE OF EXPENSES INCURRED SINCE THERE WAS CERTAIN EXPENSE S INCURRED NARRATED AS PETTY CASH EXPENSES, HOTEL TAJ RESIDENCY ETC. SUCH EXPENSES ARE TO BE EXAMINED BY THE ASSESSING OFFICER. FUR THER, IT IS OBSERVED THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE TAKEN A PLEA THAT PAYMENT IN EACH CASE DOES NOT EXCEEDS MINIMUM STIPULA TED AMOUNT WHICH IS LIABLE FOR TDS. IT WAS DEMONSTRATED B Y THE ASSESSING OFFICER THAT IN EACH CASE, THE PAYMENTS ARE ABOVE THE PR ESCRIBED LIMITS LIABLE FOR DEDUCTION OF TDS. LATER THE ASSESSEE TAKEN A PLEA THAT ITS SUB DEALERS INCURRED THE EXPENDITURE PAID BY IT TOWAR DS SALARIES, TA/DA TO THE EMPLOYEE OF THE SUB DEALERS IN EXECUTING THE JO B WORKS ALLOTTED TO THEM. LATER IT WAS TAKEN A PLEA THAT EMPLOYEES OF TH E SUB DEALERS TO BE TREATED AS ITS OWN EMPLOYEES FOR THE PURPOSE OF TDS DED UCTION UNDER THE HEAD SALARIES. HOWEVER, IT IS A FACT THAT THE ASSESSE E IS NOT ITA NO.1064 OF 2009 M/S. MEGHAMANI AGRO DYNE (P) LTD . 4 DEMONSTRATED HOW THIS EXPENDITURE IS REIMBURSEMENT OF EXPENSES TOWARDS THE EXPENSES INCURRED BY SUB DEALERS. THE ASSESSEE PRODUCED CERTAIN VOUCHERS WHICH DO NOT SHOW THESE ARE FURNISHED BY SUB DEALERS HENCE THE ASSESSEE IS REQUIRED TO EXPLAIN THAT THE ACTUAL EXPENSES IS REIMBURSED BY IT AND IT CONTAINS NO ELEMENT OF PROFIT TO THE SUB DEALERS AND REIMBURSEMENT EXPENSES SHOULD HAVE DIRECT NEXUS WITH THE EXPENSES INCURRED BY THE SUB DEALERS. IF THIS IS SATISFIED THE CLAIM OF THE ASSESSEE TO BE ALLOWED IN THE LIGHT OF THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL ENGINEERING PRODUCTS ( P) LTD. (202 ITR 1014) (DELHI) WHEREIN IT WAS HELD: THAT REIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUM STANCES, BE REGARDED AS A REVENUE RECEIPT AND IN THE PRESENT CASE THE TRIBU NAL HAD FOUND THAT THE ASSESSEE RECEIVED NO SUMS IN EXCESS OF EXPENSES INC URRED. THE TRIBUNAL WAS, THEREFORE, JUSTIFIED IN DELETING THE DISALLOWANCE U /S 37(2A) OF THE IT ACT, 1961 AND RULE 6D OF THE IT RULES 1962. II) THAT IT WAS NOT OPEN TO THE REVENUE TO RAISE TH E CONTENTION THAT THERE WAS NO PROOF OF THE EXPENSES HAVING BEEN INCURRED BY TH E ASSESSEE, AS THIS WAS NOT RAISED BEFORE THE TRIBUNAL AND FURTHERMORE THE DISALLOWANCE BY THE ITO WAS ALSO NOT ON THE BASIS THAT THE EXPENSES HAD NOT BEEN INCURRED BUT WAS ON THE PREMISES THAT THE EXPENDITURE WAS IN EXCESS OF WHAT WAS PERMISSIBLE UNDER THE PROVISIONS OF SEC.37 READ WITH RULE 6D. III) THAT THE QUESTION WHETHER, CONSIDERING THE TER MS OF THE AGREEMENT BETWEENS HE ASSESSEE AND ETAG, IN ITS ENTIRETY, THE ITO TRIBUNAL WAS RIGHT IN LAW IN CONCLUDING THAT THE ARRANGEMENT WAS NOT A DE VICE TO DEFEAT CERTAIN PROVISIONS OF THE INCOME TAX LAW, WAS A QUESTION OF FACT. 5. ACCORDINGLY, THE ISSUE IS SET ASIDE TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 16.7.2 010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 16 TH JULY, 2010 ITA NO.1064 OF 2009 M/S. MEGHAMANI AGRO DYNE (P) LTD . 5 COPY FORWARDED TO: 1. SHRI K. VASANT KUMAR, 403, MANISHA TOWERS, 10-1-18/ 31, SHYAMNAGAR, HYDERABAD 2. THE DCIT CIRCLE 16(2), HYDERABAD 3. CIT(A)- V, HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP