M/s G B Brothers and Knoda Rajagopal Chetty Beedi Factory, Nellore V. ACIT, Nellore

ITA 1121/HYD/2009

• Counselvise Citation: 112122514 RSA 2009
• Duration Of Justice: 6 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 18-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Opportunity of being heard; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORESHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1121/HYD/2009 (ASSESSMENT YEAR 2006-07) M/S. G.B. BROTHERS AND KONDA RAJAGOPAL CHETTY BEEDI FACTORY, NAYUDUPETA (PAN - AABFG 9854 B ) V/S ASST. COMMISSIONER OF INCOME - TAX NELLORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.RAGHAVENDRA RAO RESPONDENT BY : SHRI B.KURMI NAIDU DATE OF HEARING 23.11.015 DATE OF PRONOUNCEMENT 27.11.2015 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 30.9.2009 OF LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) GUNTUR FOR ASSESSMENT YEAR 2006-07. 2. ASSESSEE HAS ORIGINALLY RAISED SIX GROUNDS IN THE MEMORANDUM OF APPEAL. GROUNDS NO.1 AND 6 BEING GENERAL IN NATURE DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. AS FAR AS GROUND NO.5 IS CONCERNED, A T THE OUTSET, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, UNDER THE INST RUCTIONS OF THE ASSESSEE, HE IS NOT PRESSING THE SAME. HENCE, GROUND NO.5 IS DISMISSED AS NOT PRESSED. IN GROUNDS NO. 2, 3 AND 4, THE ASSESSEE HAS CHALLEN GED THE DISALLOWANCE OF EXPENDITURE OF RS.5,29,840 CLAIMED ON ACCOUNT OF FR EIGHT CHARGES, INVOKING S.40(A)(IA) OF THE ACT. ASSESSEE HAS ALSO RAISED A DDITIONAL GROUNDS, WHICH RELATE TO THE ISSUE OF DISALLOWANCE UNDER S.40(A)( IA) AMOUNTING TO RS.5,29,840, AND A FURTHER SUM OF RS.1,26,408 ON AC COUNT OF COMMISSION, WHICH THE ASSESSEE HAD OMITTED TO RAISE IN THE ORIG INAL GROUNDS. ITA NO.1121/HYD/2009 M/S. G.B. BROTHERS AND KONDA RAJAGOPAL CHETTY BEEDI FACTORY, NAYUDUPETA 2 3. BRIEFLY STATED, ASSESSEE IS A FIRM. FOR THE AS SESSMENT YEAR UNDER CONSIDERATION, IT FILED ITS RETURN OF INCOME ON 23. 10.2006 DECLARING AN INCOME OF RS.27,14,993. ASSESSEE IS ENGAGED IN THE BUSINES S OF MANUFACTURE AND SALE OF BEEDIS. DURING THE ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER ON VERIFICATION OF BOOKS OF ACCOUNT AS WELL AS THE FIN ANCIAL STATEMENTS NOTICED THAT THOUGH THE ASSESSEE HAS DEBITED EXPENDITURE ON PRIN TING ACCOUNT OF RS.5,29,840 AND AGENTS SALE COMMISSION OF RS.1,26, 408, BUT HAS FAILED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS. HE THEREFORE , INVOKING THE PROVISIONS OF S.40(A)(IA) OF THE ACT DISALLOWED THE EXPENDITUR E CLAIMED AND ADDED BACK TO THE INCOME OF THE ASSESSEE FOR THE YEAR. 4. BEING AGGRIEVED BY SUCH DISALLOWANCE, ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THOUGH BEFORE THE FIRST APPELLATE AUTHORITY ALSO, THE ASSESSEE CLAIMED THAT THERE IS NO CONTRACT BETWEEN THE ASSESSEE AND THE PAYEES, SO AS TO CONSTRUE THAT TH E PAYMENTS MADE COME WITHIN THE PURVIEW OF S.194C, THEREBY CASTING A LIA BILITY ON THE ASSESSEE TO DEDUCT TAX AT SOURCE, THE CIT(A) HOWEVER, HAVING NO T FOUND MERIT IN THE PLEA OF THE ASSESSEE, SUSTAINED THE DISALLOWANCE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE T IME OF HEARING, CONFINED HIMSELF TO THE ISSUE RAISED IN THE ADDITIO NAL GROUNDS AND SUBMITTED BEFORE US THAT DURING THE RELEVANT PREVIOUS YEAR, T HE ASSESSEE HAS PAID THE ENTIRE AMOUNTS CLAIMED AS EXPENDITURE ON ACCOUNT OF PRINTING AND AGENTS SALES COMMISSION, AND NOTHING REMAINED PAYABLE AT T HE END OF THE RELEVANT ASSESSMENT YEAR, THEREFORE, THE PROVISIONS OF S.40( A)(IA) WOULD NOT BE APPLICABLE. IN SUPPORT OF SUCH CONTENTION, HE RELI ED UPON THE FOLLOWING DECISIONS- ITA NO.1121/HYD/2009 M/S. G.B. BROTHERS AND KONDA RAJAGOPAL CHETTY BEEDI FACTORY, NAYUDUPETA 3 (A) COMMON ORDER OF INCOME TAX APPELLATE TRIBUNAL. HYDE RABAD BENCH B IN THE CASE OF ACIT V/S. JANAPRIYA PROPER TIES PVT. LTD. IN ITA NOS.1614, 1622, 1623 A 1624/HYD/2012 DATED 19.1 .2015 (B) COMMON ORDER OF ITAT, HYDERABAD BENCH B IN THE CA SE OF USHODAYA ENTERPRISES LTD. V/S. DCIT (ITA NOS.676/HY D/2009 AND 411/HYD/2010 DATED 7.1.2015 (C) ORDER OF MUMBAI BENCH A OF ITAT IN THE CASE OF ARC ADIA SHARE & STOCK BROKERS P. LTD. V/S. DCIT (ITA NO.1871/MUM/20 13) DATED 22.12.2014 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE REASONING OF THE DEPARTMENTAL AUTHORITIES. HE ALSO SUBMITTED THAT CONTRARY VIEW HAS BEEN EXPRESSED BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V/S. SIKANDER KHAN TANWAR (357 ITR 312). 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL ON RECORD. AS FAR AS THE ADDITIONAL G ROUNDS RAISED ARE CONCERNED, THE ISSUES RAISED THEREIN BEING PURELY LEGAL ISSUES , WHICH COULD BE DECIDED ON THE BASIS OF THE FACTS AND MATERIAL ALREADY AVAILAB LE ON RECORD, WE ADMIT THE ADDITIONAL GROUNDS. IN FACT, THE LEARNED DEPARTMEN TAL REPRESENTATIVE HAS ALSO NOT OBJECTED TO THE ADMISSION OF THE ADDITIONAL GRO UNDS. IT IS THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE BEFORE US THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS PAID THE ENTIRE AMO UNT ON PRINTING ACCOUNT AND AGENTS SALES COMMISSION AND NOTHING REMAINED P AYABLE AT THE END OF THE RELEVANT PREVIOUS YEAR. IN THIS CONTEXT, HE HAS RE FERRED TO THE EXTRACT OF THE LEDGER ACCOUNTS RELATING TO THE AGENTS SALE COMMIS SION AND PRINTING TO IMPRESS UPON THE FACT THAT WHAT IS CLAIMED AS EXPE NDITURE HAS BEEN PAID DURING THE RELEVANT PREVIOUS YEAR. AS FAR AS THE L EGAL ISSUE RAISED BY THE ASSESSEE, IT WOULD BE OBSERVED THAT THE ITAT VISAK HAPATNAM (SPECIAL BENCH) ITA NO.1121/HYD/2009 M/S. G.B. BROTHERS AND KONDA RAJAGOPAL CHETTY BEEDI FACTORY, NAYUDUPETA 4 IN THE CASE OF MERLYN SHIPPING AND TRANSPORT (136 I TD 23) (SB) HAS HELD THAT PROVISIONS OF S.40(A)(IA) CAN BE INVOKED FOR DISALL OWANCE OF EXPENDITURE ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE, ONLY IN A CASE WHERE THE EXPENDITURE CLAIMED REMAINS OUTSTANDING AT THE END OF THE RELEVANT PREVIOUS YEAR. OF COURSE, IT IS A FACT THAT THE DECISION O F THE SPECIAL BENCH WAS CHALLENGED BEFORE THE HON'BLE JURISDICTIONAL HIGH C OURT BY THE DEPARTMENT. HOWEVER, THE HON'BLE JURISDICTIONAL HIGH COURT VIDE JUDGMENT DATED 24.6.2014 IN THE CASE OF JANAPRIYA PROPERTIES P. LTD. (ITA NO .352 OF 2014), CLARIFIED THE POSITION OBSERVING THAT SINCE THE DECISION OF THE S PECIAL BENCH IS BINDING ON THE DIVISION BENCHES OF THE TRIBUNAL, IT IS OPEN TO THE TRIBUNAL EITHER TO FOLLOW THE DECISION OR NOT TO FOLLOW. KEEPING IN VIEW THE CLARIFICATION OF THE HON'BLE HIGH COURT AS AFORESAID, THE COORDINATE BENCH IN OR DER DATED 19.1.2015 IN THE CASE OF ACIT V/S. JANAPIRIYA PROPERTIES LTD. (ITA N O.1614/HYD/2012 AND OTHERS), DELETED ADDITION MADE ON ACCOUNT OF DISALL OWANCE UNDER S.40(A)(IA) BY OBSERVING AS UNDER. 7. UPON HEARING THE RIVAL SUBMISSIONS, WE ARE OF T HE VIEW THAT THE DECISION OF THE ITAT SPECIAL BENCH IS BINDING ON THE TRIBUNAL, PARTICULARLY IN VIEW OF THE CLARIFICATORY ORDER PAS SED BY THE HON'BLE HIGH COURT OF JUDICATURE AT HYDERABAD IN TH E INSTANT CASE OF MERYLIN SHIPPING AND TRANSPORTS (SUPRA), AND HOLD THAT THE PROVISIONS OF S.40(A)(IA) CANNOT BE INVOKED WHERE T HE PAYMENTS WERE ALREADY MADE BY THE ASSESSEE. WE DIRECT THE AS SESSING OFFICER ACCORDINGLY. IN THE RESULT, APPEALS OF THE REVENUE IN SO FAR AS THE ABOVE ISSUE IS CONCERNED, ARE HEREBY DIS MISSED. 8. IT IS FURTHER RELEVANT TO OBSERVE THAT HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V/S. VECTOR SHIPPING SERVICES PV T. LTD. (357 ITR 647) HAS APPROVED THE VIEW TAKEN IN THE SPECIAL BENCH DECISI ON IN THE CASE OF MERLYN SHIPPING AND TRANSPORTS (SUPRA) AND HAS HELD THAT D ISALLOWANCE UNDER S.40(A)(IA) CAN BE MADE ONLY IF THE EXPENDITURE CLA IMED REMAINS OUTSTANDING AT THE END OF THE RELEVANT PREVIOUS YEAR. DEPARTME NTS SPECIAL LEAVE PETITION ITA NO.1121/HYD/2009 M/S. G.B. BROTHERS AND KONDA RAJAGOPAL CHETTY BEEDI FACTORY, NAYUDUPETA 5 FILED AGAINST THE AFORESAID DECISION OF THE HON'BLE ALLAHABAD HIGH COURT HAS BEEN DISMISSED BY THE HON'BLE APEX COURT. 9. THUS, THE PRINCIPLE WHICH EMERGES IS THAT IF T HE EXPENDITURE CLAIMED WAS PAID WITHIN THE RELEVANT PREVIOUS YEAR, NO DISALLOWANCE CAN BE MADE UNDER S.40(A)(IA). HOWEVER, IN THE PRESENT CA SE, ASSESSEE HAS TO ESTABLISH THAT THE EXPENDITURE CLAIMED WAS PAID DUR ING THE RELEVANT PREVIOUS YEAR AND NOTHING REMAINED PAYABLE AT THE END OF THE YEAR. WE THEREFORE, SET ASIDE THE IMPUGNED ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE, AND DIRECT THE ASSESSING OFFICER TO VERIFY THIS FACT AND ALLOW THE EXPENDITURE IF IT IS FOUND THAT THE ENTIRE EXPENDITURE CLAIMED HAS BEEN PAID WITHIN THE RELEVANT PREVIOUS YEAR AND NOTHING REMAINS PAYABLE/OUTSTANDING AT THE END OF THE YEAR. THE ASSESSEE MUST BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD ON THE ISSUE. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FO R STATISTICAL PURPOSES. PRONOUNCED IN THE COURT ON 27TH NOVEMBER, 2015 SD/- SD/- (B.RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER. JUDICIAL MEMBER DT/- 27 TH NOVEMBER, 2015 COPY FORWARDED TO: 1. M/S. G.B. BROTHERS AND KONDA RAJAGOPAL CHETTY BEEDI FACTORY, (NAYUDUPETA) C/O. SHRI C.L.NARAYANA RAO, B.COM., FC A, CHARTERED ACCOUNTANT, 15/115- 12, VENKATRAMAPURAM, NELLORE - 524 001 2. ASSTT. COMMISSIONER OF INCOME-TAX NELLORE 3. COMMISSIONER OF INCOME - TAX(APPEALS) GUNTUR ITA NO.1121/HYD/2009 M/S. G.B. BROTHERS AND KONDA RAJAGOPAL CHETTY BEEDI FACTORY, NAYUDUPETA 6 4. COMMISSIONER OF INCOME - TAX GUNTUR CHARGE, GUNTUR 5. DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.