M/s. Talent Maximus India Pvt.Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1399/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0765 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 31-01-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 25-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENN AI BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER .. ITA NO.1398 & 1399/MDS./2012 ASSESSMENT YEARS:2006-07 & 2007-08 M/S.TALENT MAXIMUS INDIA PVT. LTD., II FLOOR, OXFORD CENTRE, 66,C.P.RAMASWAMY ROAD, ALWARPET, CHENNAI 600 018. VS. THE A.C.I.T. COMPANY CIRCLE III(1), CHENNAI-34. PAN AACCT 3076 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.BASKAR, ADVOCATE RESPONDENT BY : SHRI SHAJI P JACOB ADDL. CIT DATE OF HEARING : 31 .01.13 DATE OF PRONOUNCEMENT : 14 .02.13 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS OF THE ASSESSEE ARE DIRECTED A GAINST ORDERS DATED 05.04.2012 OF CIT(A)-III, CHENNAI FOR THE IMPUGNED ASSESSMENT YEARS. ITA. 1398 & 1399/MDS/12 2 2. FIRST GROUND TAKEN BY THE ASSESSEE WHICH IS COM MON FOR BOTH THE YEARS IS THAT CIT(A) ERRED IN GIVING A BLA NKET DIRECTION NOT TO ALLOW CREDIT FOR TAX DEDUCTED AT SOURCE ON THOSE AMOUNTS WHICH WERE NOT OFFERED AS INCOME, WHETHER IT WAS ADVANCE, SERVICE TAX OR OTHER YEARS INCOME. 3. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSINESS OF PROVIDING STAFFING SERVICES, PAYROLL PROCESSING AND HR CONSULTING SERVICES HAD FILED RETURNS FOR THE IMPUG NED ASSESSMENT YEARS DECLARING LOSS OF ` 90,28,331/- & ` 1,61,94,486/- RESPECTIVELY. ASSESSMENTS WERE COMPL ETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHOR T THE ACT) DETERMINING THE LOSS AT ` 89,59,910/- & ` 67,99,511/- RESPECTIVELY. THEREAFTER FOR A.Y 2006-07 ASSESSEE FILED REVISED R ETURN ON 26.11.08 CLAIMING A REFUND OF ` 2,50,924/- BEING TAX DEDUCTED AT SOURCE. FOR A.Y. 2007-08, ASSESSEE FILED LETTERS O N 24.02.2010 & 24.07.2010 AGAIN REQUESTING REFUNDS BASED ON CER TIFICATES OF TDS FILED. IT SEEMS SUCH TDS CERTIFICATES WERE FI LED SUBSEQUENT TO THE ORIGINAL ASSESSMENT ORDER. FROM THE TDS CER TIFICATES, ASSESSING OFFICER CAME TO A CONCLUSION THAT THERE W AS A DIFFERENCE IN THE RECEIPTS SHOWN IN THE PROFIT AND LOSS ACCOUNT VIS--VIS THE RECEIPTS MENTIONED IN SUCH CERTIFICAT ES. ASSESSING ITA. 1398 & 1399/MDS/12 3 OFFICER REACHED AN OPINION THAT THERE WAS INCOME C HARGEABLE TO TAX THAT HAD ESCAPED ASSESSMENT. NOTICE UNDER SEC TION 148 WAS ISSUED FOR BOTH THE ASSESSMENT YEARS ON 19.11.2010. ASSESSEE VIDE ITS LETTER DATED 08.12.10, REQUESTED THE ASSES SING OFFICER TO CONSIDER THE RETURNS FILED ORIGINALLY AS RETURNS FILED IN PURSUANCE OF SUCH NOTICE. THEREAFTER ASSESSMENTS WERE COMPLE TED FOR BOTH THE YEARS MAKING AN ADDITION OF ` 6,16,29,316/- FOR A.Y. 2006-07 AND AN ADDITION OF ` 33,29,61,287 FOR A.Y.2007-08, BEING THE DIFFERENCE IN GROSS RECEIPTS AS PER THE TDS CERTIFI CATES AND GROSS RECEIPTS AS PER P & L A/C OF THE ASSESSEE. SUBSEQU ENTLY THERE WAS A RECTIFICATION DONE ON THE ABOVE ORDER WHEREBY ADDITION ON ACCOUNT OF SUCH DIFFERENCE WERE SCALED DOWN BY THE ASSESSING OFFICER TO ` 54,34,390/- AND ` 4,41,33,204/- RESPECTIVELY. 4. AGGRIEVED BY THE ADDITION, ASSESSEE MOVED IN AP PEAL BEFORE THE CIT(A). ARGUMENT OF THE ASSESSEE WAS TH AT IT WAS DOING STAFFING SERVICES FOR ITS CLIENTS AND CHARGES LEVIED FOR SUCH SERVICES RENDERED RANGED FROM ` 250/- TO ` 325/- PER EMPLOYEE PER MONTH. AS PER ASSESSEE, IT WAS MAINTAINING PAY ROLLS FOR ITS CLIENTS INCLUDING PAY REGISTERS AND STATUTORY REGI STERS. ASSESSEE ALSO STATED THAT IT WAS DOING HR CONSULTING SERVICE S ALSO FOR ITS CLIENTS. AS PER ASSESSEE, IT HAD FURNISHED RECONCI LIATION OF GROSS ITA. 1398 & 1399/MDS/12 4 RECEIPTS BEFORE THE ASSESSING OFFICER, EXPLAINING T HE DIFFERENCE IN RECEIPTS AS PER THE P & L A/C AND AS PERTDS CERTIF ICATES. SUBMISSION OF THE ASSESSEE WAS THAT SUCH DIFFERENCE S WERE ON ACCOUNT OF SERVICE TAX COLLECTED FROM THE CLIENTS, REIMBURSEMENT OF EXPENSES BY THE CLIENTS AND ADVANCES RECEIVED F ROM CLIENTS ON WHICH TAX WAS DEDUCTED AT SOURCE BY THE CLIENTS. A S PER ASSESSEE, THERE WERE CERTAIN OTHER ITEMS ON WHICH D ISPUTES WERE THERE WITH CLIENTS REQUIRING IT TO POSTPONE OR PRE- PONE THE RECOGNITION OF REVENUE. A COPY OF RECONCILIATION W AS ALSO GIVEN TO THE CIT(A). AS PER ASSESSEE THE RECONCILIATION STA TEMENT ITSELF WAS SELF-EXPLANATORY. LEDGER ACCOUNT COPIES OF SE RVICE-TAX AND CLIENTS ACCOUNTS FOR REIMBURSEMENT OF EXPENSES CLE ARLY SHOWED THAT TAX WAS DEDUCTED AT SOURCE ON SUCH AMOUNTS BY THE CLIENTS, AND THESE HAD NO ELEMENT OF INCOME THEREIN. NEVERTH ELESS, AS PER ASSESSEE, TAXES HAVING BEEN DEDUCTED BY THE CLI ENTS AND REMITTED TO THE GOVERNMENT, IT BECAME PART OF THE A SSESSEES INCOME AND HENCE, CREDIT WAS REQUIRED TO BE GIVEN. 5. AS FOR THE ADVANCES RECEIVED FROM THE CLIENTS, ASSESSEE SUBMITTED THAT THERE WERE CONTINUING TRANSACTION WI TH ITS CLIENTS AND THE BALANCE THAT WAS APPEARING IN THE BALANCE S HEET WERE THE NET THEREOF. HENCE, IT WAS ARGUED BY THE ASSESSEE THAT ABSENCE ITA. 1398 & 1399/MDS/12 5 OF A HEAD FOR ADVANCE IN THE BALANCE SHEET OF AS SESSEE WAS NOT DECISIVE. 6. CIT(A) AFTER GOING THROUGH THE SUBMISSIONS AND RECONCILIATION STATEMENT BY THE ASSESSEE, FOUND THA T THE DIFFERENCE BETWEEN IN RECEIPTS SHOWN IN THE TDS CER TIFICATE AND RECEIPTS SHOWN IN THE P & L A/C OF THE ASSESSEE WAS ON ACCOUNT OF FOLLOWING ITEMS. I) SERVICE-TAX, (II) REIMBURSEMENT OF EXPENSES, ( III) ADVANCE RECEIVED FROM THE CLIENTS WHICH WERE ADJUSTED IN TH E SAME YEAR (IV) ADVANCE RECEIVED FROM THE CLIENTS WHICH WERE A DJUSTED IN THE NEXT YEAR, (V) FRINGE BENEFIT TAX (FBT) RECEIVED FR OM THE CLIENTS, (VI) TDS DEDUCTED FROM ADVANCE AND CREDITS, (VII) R EVENUE RECOGNIZED BY ASSESSEE IN OTHER FINANCIAL YEARS CIT(A) CAME TO AN OPINION, AFTER GOING THROUGH TH E RECONCILIATION STATEMENT, LEDGER ACCOUNT COPIES AND CONFIRMATION L ETTERS OF CLIENTS OF ASSESSEE, THAT DIFFERENCE IN GROSS RECEI PTS STOOD FULLY EXPLAINED WITH SUPPORTING DETAILS. NEVERTHELESS, A CCORDING TO HIM, IT WAS NECESSARY FOR THE ASSESSING OFFICER TO VERIFY THE CLIENTS ACCOUNTS TO SEE WHETHER ADVANCES RECEIVED STOOD ADJUSTED. HE THEREFORE, SET ASIDE THE MATTER TO THE ASSESSING ITA. 1398 & 1399/MDS/12 6 OFFICER FOR THE LIMITED PURPOSE OF VERIFYING THE AM OUNTS IN RECONCILIATION STATEMENTS, BUT NEVERTHELESS DELETED THE ADDITION, SUBJECT TO SUCH VERIFICATION. HOWEVER, CIT(A) HELD THAT CREDIT FOR TAX DEDUCTED AT SOURCE COULD NOT BE GIVEN TO THE AS SESSEE FOR THOSE AMOUNTS, WHICH WERE NOT INCLUDED IN ITS P&L A /C. AS PER LD. CIT(A) WHEN THE INCOME WAS NOT OFFERED FOR TAX WHETHER IT BE IN THE NATURE OF ADVANCE TAX, OR SERVICE TAX OR OT HER YEARS INCOME, CREDIT FOR TAX DEDUCTED COULD NOT BE GIVEN IN THE IMPUGNED ASSESSMENT YEARS. 7. NOW, BEFORE US ASSESSEE IS AGGRIEVED AT THE DIR ECTIONS GIVEN WITH REGARD TO THE CREDIT FOR TAX DEDUCTED AT SOURCE. LD. A.R SUBMITTED THAT AS THE CLIENTS HAD DEDUCTED TAX AT S OURCE ON ALL THE AMOUNTS PAID TO THE ASSESSEE, WHICH INTER ALIA INCL UDED SERVICE TAX, REIMBURSEMENT OF EXPENSES AND ADVANCE, ASSESS EE WAS ENTITLED FOR CREDIT THEREOF. WHEN THE CLIENTS PAID ADVANCE AMOUNTS, IT DEDUCTED TAX AT SOURCE ON WHOLE OF THE AMOUNT, BUT ON BILLING, IF THE BILL AMOUNTS WERE LOWER, THEN AS SESSEE HAD TO RETURN THE EXCESS ADVANCE TO THE CLIENT. HOWEVER, THE TAX DEDUCTED REMAINED SAME VIZ. ON THE WHOLE OF SUCH AD VANCES. AS FOR SERVICE TAX, LD. A.R SUBMITTED THAT ASSESSE E WAS BOUND TO REMIT THIS FULLY TO THE GOVERNMENT. IN SO FAR AS THE ITA. 1398 & 1399/MDS/12 7 REIMBURSEMENT OF EXPENSES WERE CONCERNED, LD. A.R S UBMITTED THAT THERE WAS NO ELEMENT OF INCOME. THUS ACCORDIN G TO HIM, DESPITE THERE BEING NO ELEMENT OF INCOME IN THESE I TEMS, TAX WAS DEDUCTED AT SOURCE BY THE CLIENTS. WHEN TAX WAS DED UCTED AT SOURCE BY THE CLIENTS AND REMITTED TO THE GOVERNMEN T, ASSESSEE SHOULD NOT BE DENIED CREDIT THEREOF. IF IT WAS DENI ED CREDIT, THE EFFECT WOULD BE A LEVY OF DOUBLE TAX ON THE SAME AM OUNT. 8. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUB MITTED THAT ASSESSEE COULD NOT CLAIM CREDIT FOR TAX DEDUCTED AT SOURCE ON ITEMS, WHICH WERE NOT IN THE NATURE OF INCOME. ACC ORDING TO HIM, IT WAS CLEAR THAT CREDIT FOR TAX COULD BE GIVEN ONL Y IN RESPECT OF THE INCOME OFFERED FOR TAX AND NOTHING MORE. THEREFORE , LD. D.R SUBMITTED THAT THE DIRECTIONS GIVEN BY THE CIT(A) W AS IN ACCORDANCE WITH STATUTE AND OUGHT NOT BE DISTURBED. 9. WE HAVE PERUSED THE ORDER OF CIT AND HEARD THE RIVAL CONTENTIONS. LD. CIT(A) HAS GIVEN A CLEAR FINDING THAT THE DIFFERENCE IN THE RECEIPTS AS REFLECTED IN THE P & L ACCOUNT AND AS SHOWN IN THE TAX DEDUCTION CERTIFICATES, WERE ON AC COUNT OF ITEMS MENTIONED THAT (I) TO (VI) OF PARA-6 ABOVE. THIS P OSITION HAS NOT BEEN DISPUTED BY THE REVENUE. AS PER THE ASSESSEE, A PART OF ITA. 1398 & 1399/MDS/12 8 THE ADVANCE ON WHICH TAX WAS DEDUCTED AT SOURCE BY THE CLIENTS WAS RETURNED. CLIENTS HAD ALSO DEDUCTED AT SOURCE ON SERVICE TAX AND REIMBURSEMENTS. WHAT WE FIND IS THAT THERE HAS BEEN A HIGHER TAX DEDUCTION BY THE CLIENTS OF ASSESSEE ON THE PAYMENTS EFFECTED TO IT. IN OUR OPINION, ASSESSEE IS ENTITL ED FOR CREDIT FOR SUCH EXCESS DEDUCTIONS, I.E. DEDUCTION MADE IN EXCE SS OF WHAT HAS BEEN STIPULATED IN THE ACT OR RATES ALLOWED BY THE A.O. FOR EXAMPLE, IF RATE AT WHICH TAX WAS REQUIRED TO BE DE DUCTED WAS 5.51% AND IF SUCH DEDUCTION WAS ALSO EFFECTED ON P AYMENTS WHICH WERE NOT IN THE NATURE OF INCOME, LIKE SERVIC E TAX AND REIMBURSEMENTS, THE ACTUAL EFFECT WOULD BE THAT RA TE OF TAX DEDUCTED GOT ENHANCED. OR IN OTHER WORDS , IT WAS NOTHING BUT A DEDUCTION AT ENHANCED RATE IF INCOME COMPONENT ALON E, WAS CONSIDERED. DEDUCTION AT SOURCE MADE BY THE CLIENT S ON ITEMS ON WHICH NO SUCH DEDUCTION WAS WARRANTED WOULD ONLY RE SULT IN AN ENHANCED DEDUCTION ON ITEMS ON WHICH TAX WAS LEGITI MATELY DEDUCTED OR DEDUCTIBLE. THE FACT OF THE MATTER IS THAT SUCH AMOUNTS DEDUCTED HAVING BEEN REMITTED TO THE GOVERN MENT, IT AUTOMATICALLY BECAME TAX PAID BY THE ASSESSEE. 10. ONCE TAX WAS DEDUCTED AND PAID BY THE CLIENTS ON BEHALF OF THE ASSESSEE, WHETHER AT THE RATE PRESCRIBED BY THE ACT OR AT A ITA. 1398 & 1399/MDS/12 9 HIGHER RATE, AT LEAST TO THIS EXTENT IT BECAME THE INCOME OF ASSESSEE AND THEREFORE, CREDIT HAD TO BE GIVEN ON S UCH DEDUCTIONS. ASSESSEE COULD NOT BE PUT ON PERIL FOR THE HIGHER TAX DEDUCTIONS EFFECTED BY ITS CLIENTS, SO LONG AS DED UCTIONS WERE PROPERLY REMITTED TO THE GOVERNMENT BY SUCH CLIENTS . TAXES REMITTED BY THE CLIENTS AFTER DEDUCTING IT FROM THE PAYMENT MADE TO THE ASSESSEE, WERE EFFECTIVELY TAXES PAID BY TH E ASSESSEE ONLY. IN SUCH CIRCUMSTANCES, NOT TO GIVE CREDIT FO R SUCH TAXES WOULD DEFINITELY BE UNJUSTIFIED. FURTHER, WE FIND THAT THERE CAN BE NO ELEMENT OF INCOME IN SERVICE TAX, SINCE IT HAD T O BE REMITTED IN FULLY THE ASSESSEE . IN OUR OPINION, WHEN THE CIT (A) GAVE THE DIRECTION TO THE A.O TO VERIFY THE AMOUNTS TAKEN IN THE RECONCILIATION AND DELETE THE ADDITIONS TO THE EXTE NT IT WAS CORRECTLY REMITTED, HE SHOULD HAVE GIVEN A FREE HA ND TO A.O FOR CONSIDERING THE CLAIM FOR TAX CREDIT IN ACCORDANCE WITH LAW. THEREFORE, WE MODIFY THE DIRECTIONS OF THE CIT(A) A ND GIVE A FREE HAND OF THE A.O. FOR CONSIDERING ISSUES REGARDING T AX DEDUCTIONS AFRESH IN ACCORDANCE WITH LAW. GROUND NO.1 FOR ASS ESSMENT YEARS 2006-07 & 2007-08 OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ITA. 1398 & 1399/MDS/12 10 11. ONLY OTHER GROUND RAISED BY THE ASSESSEE, THAT TOO A.Y.2006-07, IS REGARDING DISALLOWANCE OF ` 15,55,152/- ON PAYMENT OF SALARY. ASSESSING OFFICER, DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, FOUND THAT THE ASSESSEE HAD PAID A SUM OF ` 51,83,841/- AS SALARIES AND EMPLOYEES BENEFIT . AS PER A.O., ASSESSEE HAD DONE BUSINESS ONLY FOR A PER IOD OF 6 MONTHS AND EXPENDITURE INCURRED WAS HUGE, WHEN COMP ARED TO THE SUM OF ` 62,02,286/- RECEIVED BY IT AS SERVICE CHARGES. ACCORDING TO THE A.O, ASSESSEE COULD NOT PRODUCE A NY RECORDS IN SUPPORT OF THE CLAIM. HE, THEREFORE CONSIDERED 30% OF THIS AMOUNT, VIZ. ` 15,55,152/- AS EXCESS CLAIM AND MADE AN ADDITION. 12. IN ITS APPEAL BEFORE THE CIT(A), ARGUMENT OF THE ASSESSEE WAS THAT IT HAD PRODUCED BEFORE THE A.O. ALL DETAIL S AND SUPPORTING RECORDS JUSTIFYING THE CLAIM. AS PER TH E ASSESSEE, IT HAD PRODUCED RECORDS LIKE ACQUITTANCE ROLL AND SAL ARY REGISTER BEFORE THE A.O. HOWEVER, THE CIT(A) REJECTED THIS CONTENTION TAKING A VIEW THAT NO EVIDENCE WAS AVAILABLE WITH T HE ASSESSEE IN PROVE SUBMISSION OF THE DETAILS BEFORE THE A.O. ITA. 1398 & 1399/MDS/12 11 13. NOW BEFORE US, LD. A.R SUBMITTED THAT THE ASSE SSEE HAD FURNISHED ALL NECESSARY DETAILS BEFORE THE A.O. REL YING ON THE PAPER BOOK AT PAGE NOS.1 & 2, LD. A.R. SUBMITTED THAT A LETTER ADDRESSED TO A.O. FILED DURING THE COURSE OF HEARIN G CLEARLY MENTIONED PRODUCTION OF PAY REGISTER AND ATTENDANCE REGISTER. 14. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE SUB MITTED THAT THE MATTER MAY BE SENT BACK TO THE ASSESSING OFFICE R FOR CONSIDERATION AFRESH. 15. WE HAVE PERUSED THE ORDER OF CIT AND HEARD TH E CONTENTIONS. LETTER PLACED BY THE ASSESSEE AT PAG E NOS.1 & 2, CLEARLY IMPLY THAT ASSESSEE HAD PRODUCED PAY-REGIST ER AND ATTENDANCE REGISTER BEFORE THE A.O. WE ARE THEREFO RE, OF THE OPINION THAT THE CIT(A) FELL IN ERROR IN GIVING A F INDING THAT ASSESSEE HAD NOT PRODUCED RECORDS BEFORE THE A.O. HOWEVER, IN THE INTEREST OF JUSTICE, WE ARE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY THE A.O. WE THEREFORE, SE T ASIDE THE ORDERS OF THE AUTHORITIES AND REMIT THE ISSUE REGAR DING THE CLAIM OF SALARY AND STAFF WELFARE EXPENSES TO THE A.O FOR CO NSIDERATION AFRESH IN ACCORDANCE WITH LAW. ASSESSEE SHALL BE G IVEN AN OPPORTUNITY TO PRESENT ITS CASE. ITA. 1398 & 1399/MDS/12 12 16. IN RESULT, APPEALS OF THE ASSESSEE FOR BOTH TH E YEARS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY , THE 14 TH FEBRUARY,, 2013 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBE R CHENNAI, DATED 14 TH FEBRUARY, 2013. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA. 1398 & 1399/MDS/12 13 ITA. 1398 & 1399/MDS/12 14