ACIT, CHENNAI V. Smt. Sanchita Bhattacharya, CHENNAI

ITA 1446/CHNY/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7153 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 04-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Non-deduction of tax; Reasonable cause; Condonation of delay
• Section: 37; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 1446/MDS/2012 ( / ASSESSMENT YEAR: 2005-06) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-XIV, 6 TH FLOOR, NEW BLOCK, 121 M.G.ROAD, CHENNAI-600 034. VS SMT. SANCHITA BHATTACHARYA Y-90, 7 TH STREET, ANNANAGAR, CHENNAI-40. PAN: ABGPS4432C ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.V.SREEKANTH, JCIT /RESPONDENT BY : MR. S.SRIDHAR, ADVOCATE / DATE OF HEARING : 9 TH DECEMBER, 2014 /DATE OF PRONOUNCEMENT : 12 TH DECEMBER, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XII, CHENN AI DATED 15.03.2012 FOR THE ASSESSMENT YEAR 2005-06. T HE ONLY GRIEVANCE OF THE REVENUE IN ITS APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) IN RESPE CT OF LABOUR EXPENSES FOR STITCHING OF LEATHER GARMENTS. 2 ITA NO.1446/MDS/2012 2. THE APPEAL OF THE REVENUE IS TIME BARRED BY ON E DAY. THE REVENUE FILED PETITION EXPLAINING REASON FOR D ELAY IN FILING OF APPEAL AND PRAYS FOR CONDONATION OF DELA Y. WE HAVE PERUSED THE REASONS AND ARE SATISFIED THAT THERE IS A REASONABLE CAUSE FOR THE DELAY IN FILING OF THE APP EAL. IN THE INTEREST OF JUSTICE, WE CONDONE THE DELAY OF ONE DA Y IN FILING OF THE APPEAL. THE PETITION FOR CONDONATION OF DELAY IS ALLOWED AND THE APPEAL IS ADMITTED. 3. THE ASSESSING OFFICER WHILE COMPLETING THE ASSES SMENT DISALLOWED LABOUR CHARGES TO THE EXTENT OF ` 13,50,464/- STATING THAT ASSESSEE HAS NOT DEDUCTED TDS ON SUCH LABOUR CHARGES INCURRED TOWARDS STITCHING OF LEATHER GARME NTS AND THEREFORE DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) HELD T HAT IN THE INSTANT CASE LABOUR EXPENSES INCURRED FOR STITC HING OF LEATHER GARMENTS BEING DIRECT EXPENSES ARE ALLOWABL E UNDER SECTION 28 ITSELF AND NOT UNDER THE PROVISIONS OF SECTIONS 30 TO 38. COMMISSIONER OF INCOME TAX (APPEALS) HELD TH AT PAYMENTS OF LABOUR EXPENSES ARE NOT WITHIN THE PURV IEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND THEREFORE 3 ITA NO.1446/MDS/2012 ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING T HE LABOUR CHARGES ON THE GROUND THAT TDS WAS NOT DEDUCTED. WI TH THESE OBSERVATIONS, THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE BY DELE TING THE DISALLOWANCE AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 4. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING LABOU R CHARGES FOR NON-DEDUCTION OF TDS UNDER SECTION 40(A)(IA) OF THE ACT. 5. COUNSEL FOR THE ASSESSEE PLACES RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). HE FUR THER SUBMITS THAT ASSESSEE HAS PAID LABOUR CHARGES FOR S TITCHING OF LEATHER GARMENTS AT ` 13,50,464/- BEFORE THE END OF ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 200 5-06 AND SINCE THE AMOUNTS WERE ALREADY PAID, PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE AND THIS TRIBU NAL IS CONSISTENTLY HOLDING THAT PROVISIONS OF SECTION 40( A)(IA) OF THE ACT ARE NOT APPLICABLE WHEN THE AMOUNTS WERE PAID WITHIN THE ACCOUNTING YEAR. 4 ITA NO.1446/MDS/2012 6. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THE ASSESSING OFFICER DISALLOWED LABOUR CHARGES FOR STITCHING OF LEATHER GARMENTS PAID BY THE ASSESSEE TO M/S. PA YAL LEATHER APPARELS AND M/S. AARTHI GARMENTS ON THE GR OUND THAT ASSESSEE HAS NOT DEDUCTED TDS. THE COMMISSIONE R OF INCOME TAX (APPEALS) HELD THAT THESE EXPENSES ARE D IRECT EXPENSES AND FALL UNDER SECTION 28 OF THE ACT AND T HEREFORE PROVISIONS OF SECTION 40(A)(IA) WILL NOT APPLY FOR THE REASON THAT THE SAID SECTION APPLIES ONLY TO THOSE EXPENSE S COVERED BY SECTIONS 30 TO 38 OF THE ACT. AS FAR AS THIS PRO POSITION IS CONCERNED, THIS TRIBUNAL DID NOT AGREE WITH THE VIE W OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE CASE OF ITO VS. SARVODAYA MUTUAL BENEFIT TRUST (22 ITR (TRIB) 277]. THE CO-ORDINATE BENCH OF THIS TRIBUNAL HELD AS UNDER:- 19. NEXT IS THE QUESTION OF TDS AND APPLICATION OF SECTION 40(A)(IA) OF THE ACT. 20. FIRST OF ALL, WE HAVE TO STATE THAT WE DO NOT AGREE WITH THE LEGAL PROPOSITION MADE BY THE COMMISSIONER OF INCOME TAX (APPEALS) THAT INTEREST EXPENDITURE IS DIRECTLY COVERED BY SECTION 28 AND, THEREFORE, SECTION 40(A)(IA) WILL NOT APPLY FOR THE REASON THAT THE SAID SECTION APPLIES ONLY TO THOSE EXPENSES COVERED BY SECTIONS 30 TO 38. SECTION 28, PROVIDED UNDER CHAPTER IV, DEALS WITH THE NATURE OF INCOME THAT 5 ITA NO.1446/MDS/2012 WILL BE TREATED AS PROFITS AND GAINS OF BUSINESS OR PROFESSION. SECTION 28 DOES NOT PROVIDE ANY MECHANISM TO COMPUTE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT IS AN EXPLANATORY SECTION WHICH DESCRIBES ON VARIOUS TYPES OF RECEIPTS OF INCOME WHICH ARE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. APART FROM THIS GENERAL DESCRIPTION, SECTION 28 DOES NOT PROVIDE FOR DEDUCTION OF ANY EXPENDITURE INCURRED BY AN ASSESSEE IN EARNING PROFITS AND GAINS OF BUSINESS OR PROFESSION. THIS POSITION IS MADE VERY CLEAR IN SECTION 29. SECTION 29 PROVIDES THAT THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. WHEN SECTION 29 SPECIFICALLY PROVIDES THAT THERE ARE DIFFERENT SECTIONS PROVIDED AFTER SECTIONS 28 AND 29 FOR THE PURPOSE OF COMPUTING PROFITS AND GAINS OF BUSINESS OR PROFESSION, IT MEANS THAT DIFFERENT EXPENSES THAT MAY BE CLAIMED BY AN ASSESSEE SHALL BE CONSIDERED FOR DEDUCTIONS UNDER THOSE RESPECTIVE SECTIONS ARRANGED IN BETWEEN SECTIONS 30 TO 43D. SECTION 36 SPECIFICALLY PROVIDES FOR OTHER DEDUCTIONS ALLOWABLE TO AN ASSESSEE. SECTION 36(1)(III) PROVIDES FOR DEDUCTION OF INTEREST PAID BY AN ASSESSEE. SECTION 37 PROVIDES A RESIDUARY PROVISION FOR DEDUCTING OTHER EXPENDITURE INCURRED IN CARRYING ON OF THE BUSINESS, BUT NOT SPECIFIED ELSEWHERE. ALL THESE THINGS SHOW THAT LAW HAS PROVIDED A COMPREHENSIVE SYSTEM FOR DECIDING WHAT ARE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND HOW PROFITS AND GAINS OF BUSINESS OR PROFESSION WILL BE COMPUTED. WHEN SUCH AN EXHAUSTIVE PROVISION IS MADE IN THE ACT, IT IS NOT POSSIBLE TO HOLD THAT SECTION 28 ITSELF 6 ITA NO.1446/MDS/2012 PROVIDES FOR EXPENDITURE AND, THEREFORE, THE ASSESSEE CAN CLAIM THE EXPENDITURE OF INTEREST PAYMENT AS AN EXPENDITURE DEDUCTIBLE AT SOURCE ITSELF UNDER SECTION 28. WE DISAGREE WITH THE LEGAL PROPOSITION LAID OUT BY THE COMMISSIONER OF INCOME-TAX(APPEALS) AND HIS LEGAL CONCLUSION ON THAT POINT IS SET ASIDE. 7. IN VIEW OF THE ABOVE FINDING OF THIS TRIBUNAL, W E REVERSE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) ON THIS POINT. HOWEVER, IT IS THE SUBMISSION OF THE AS SESSEE THAT LABOUR CHARGES PAID FOR STITCHING OF LEATHER GARMEN TS INCURRED BY THE ASSESSEE WERE ALL PAID BEFORE THE END OF THE ACCOUNTING YEAR AND THEREFORE PROVISIONS OF SECTION 40(A)(IA) HAVE NO APPLICATION TO THE AMOUNTS THAT WERE ALREAD Y PAID. WE AGREE WITH THE SUBMISSIONS OF THE COUNSEL THAT P ROVISIONS OF SECTION 40(A)(IA) WILL APPLY ONLY TO THE EXPENDI TURE WHICH IS PAYABLE AND NOT IN THE CASE WHERE EXPENDITURE IS PA ID. THIS TRIBUNAL IS CONSISTENTLY HOLDING THAT PROVISIONS OF SECTION 40(A)(IA) HAVE NO APPLICATION IN CASE OF THE EXPE NDITURE ALREADY PAID BY THE ASSESSEE BEFORE THE END OF THE ACCOUNTING YEAR FOLLOWING VARIOUS HIGH COURT DECIS IONS. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. 7 ITA NO.1446/MDS/2012 ANABOND LTD. VS. DCIT IN ITA NOS.1576 & 1577/MDS/20 14 DATED 13 TH NOVEMBER, 2014, HELD AS UNDER:- 7. THE NEXT ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS WITH REGARD TO DIS-ALLOWANCE U/S.40(A)(IA ). THE ASSESSING OFFICER HAS MADE DIS-ALLOWANCE OF ` 47,98,284/- FOR NON-DEDUCTION OF TAX AT SOURCE ON PAYMENTS EXCE EDING ` 50,000/- MADE TO TRANSPORTERS. THE CLAIM OF THE ASSESSEE IS THAT THE PAYMENTS WERE MADE FOR TRANSPORTATION OF GOODS. THE EXPENDITURE ON TRANSPORTATION IS DIRECT EXPENDITURE AND FALLS U/S. 28 OF THE ACT AND NOT UNDER THE PROVISIONS OF SECTION 30 TO 3 8. THE LD.AR MADE ALTERNATE SUBMISSION THAT EVEN IF THE PAYMENTS ARE HELD TO BE COVERED U/S.30 TO 38 OF THE ACT, THE PROVISIONS OF SECTION 40(A)(IA) APPLY TO EXPEND ITURE WHICH IS PAYABLE AND NOT IN THE CASES WHERE EXPEN DITURE IS PAID. THE LD.AR IN ORDER TO STRENGTHEN HIS SU BMISSIONS DRAWS SUPPORT FROM THE JUDGMENT OF THE HON'BLE ALLA HABAD HIGH COURT RENDERED IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICE PVT. LTD., IN ITA NO.122 OF 2013 D ECIDED ON 09-07-2013 AND THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. THEEKATHIR PRES S (SUPRA). ON THE OTHER HAND, THE DEPARTMENT DRAWS SUPPORT FROM THE JUDGMENTS RENDERED BY THE HON'BLE HIGH COURTS IN THE CASE OF CIT VS. CRESCENT EXPORT SYND ICATE (SUPRA) AND CIT VS. SIKANDAR KHAN N.TUNVAR (SUPRA). SIMILAR ISSUE HAD COME UP BEFORE THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. THEEKA THIR PRESS (SUPRA). THE BENCH OBSERVED THAT, IN CIRCUMSTANCES, WHERE TWO DIFFERENT POSSIBLE VIEW AR E AVAILABLE, THE RULE OF JUDICIAL PRECEDENCE DEMANDS THAT THE VIEW FAVOURABLE TO THE ASSESSEE MUST BE ADOPTED , AS HAS BEEN HELD BY THE HONBLE SUPREME COURT OF INDI A IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD., REPORT ED AS 88 ITR 192 (SC). APPLYING THE PRINCIPLE LAID DOWN BY THE HON'BLE APEX COURT, WE FOLLOW THE JUDGMENT OF THE HON'BLE ALLAHABAD HIGH COURT, WHICH IS IN FAVOUR OF THE ASS ESSEE. WE HOLD THAT DIS-ALLOWANCE U/S.40(A)(IA) APPLIES TO AMOUNT 8 ITA NO.1446/MDS/2012 PAYABLE AND NOT THOSE AMOUNTS WHICH HAVE ALREADY BEEN PAID. ACCORDINGLY, THE FINDINGS OF CIT(APPEALS) ON THIS ISSUE ARE SET ASIDE AND DELETE THE ADDITION MADE U/S.40(A)(IA). THIS GROUND OF APPEAL OF THE ASSESS EE IS ALLOWED. 8. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DIR ECT THE ASSESSING OFFICER TO VERIFY WHETHER THE ASSESSEE HA S PAID THE LABOUR CHARGES WITHIN THE ACCOUNTING YEAR, IF IT IS PAID, NO DISALLOWANCE IS REQUIRED TO BE MADE UNDER SECTION 4 0(A)(IA) OF THE ACT. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY , THE 12 TH DAY OF DECEMBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGEND RA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED, 12 TH DECEMBER, 2014 SOMU 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .