INDUSTRIAL PACKAGING PRODUCTS, MUMBAI V. ADDL CIT 14(1), MUMBAI

ITA 1452/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48503 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Keywords: Business income; Retrospective amendment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI R.V.EASWAR (PRESIDENT) & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.1452/MUM/2010 A.Y 2006-07 M/S INDUSTRIAL PACKAGING PRODUCTS, FLT. NO.13, ISHWAR BHAVAN, 22 A-ROAD, CHURCHGATE, MUMBAI 400 020. AAAFI 0637 H VS. ADDL. COMMISSIONER OF I.T. 14(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. VIMAL PUNMIYA. RESPONDENT BY : SMT. VANDANA SAGAR. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LD COMMISSIONER OF INCOME TAX [A] ERRED IN CONF IRMING THE DEDUCTION U/S.80IB OF ` `` ` .23,92,260/- AS AGAINST ` `` ` .25,25,138/- CLAIMED BY THE ASSESSEE. 2. THE LD COMMISSIONER OF INCOME TAX [A] ERRED IN CONF IRMING THE DISALLOWANCE OF ` `` ` .5,31,511/- ON ACCOUNT OF LATE PAYMENT OF TDS ON COMMISSION AND LABOUR CHARGES AND EXCLUSION OF INTE REST INCOME OF ` `` ` .1,30,998/- IN VIEW OF SECTION 40[A][IA]. 3. THE LD COMMISSIONER OF INCOME TAX [A] ERRED IN STAT ING THAT 25% OF MOBILE EXPENSES OF ` `` ` .67,705/- = ` `` ` .16,926/- =20% OF THE RESIDENTIAL PHONE EXPENSES OF ` `` ` .1,10,127 = ` `` ` .22,025/- WHICH TOTALS TO ` `` ` .38,951/- BUT THE LD COMMISSIONER OF INCOME TAX [A] ERRED IN CONFIRMING THE DISALLOWANCE OF ` `` ` .44,458/- ON ACCOUNT OF TELEPHONE EXPENSES ON ESTIMATION BASIS IN VIEW OF SECTION 37[1] OF THE IN COME TAX ACT, 1961. 4. THE LD COMMISSIONER OF INCOME TAX [A] ERRED IN CONF IRMING THE DISALLOWANCE OF ` `` ` .1,33,139/- ON ACCOUNT OF VEHICLE EXPENSES [20% OF THE VEHICLE EXPENSES OF ` `` ` .6,65,697/-]. 5. THE LD COMMISSIONER OF INCOME TAX [A] ERRED IN CONF IRMING THE INTEREST CHARGED U/S.234B & 234C OF THE INCOME TAX ACT. 2. GROUND NOS.1 & 2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT ASSESSEE HAS MADE A CLAIM FOR DEDUCTION U/S.80IB @ 25% OF THE 2 PROFITS ON THE TOTAL BUSINESS INCOME OF ` `` ` .1,01,00,551/-. THE ASSESSING OFFICER NOTED THAT AS PER THE TAX AUDIT REPORT, PRO FIT FROM ELIGIBLE BUSINESS WAS ONLY ` `` ` .97,00,038/-. HE NOTED THAT THE DIFFERENCE WAS ON ACCOUNT OF ADDITIONAL CLAIM OF DEDUCTION U/S.40(A)( IA) OF ` `` ` .5,31,511/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT DISALLO WANCE U/S.40(A)(IA) WAS BECAUSE OF LATE PAYMENT OF TDS AND, THEREFORE, IT CANNOT BE CONSIDERED AS INCOME DERIVED FROM INDUSTRIAL UNDERT AKING AND ACCORDINGLY THIS AMOUNT WAS NOT CONSIDERED AS PART OF THE BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION U/S.80IB. HE AL SO MENTIONED THAT DIFFERENCE WAS FURTHER ON ACCOUNT OF INCLUSION OF I NTEREST AMOUNTING TO ` `` ` .1,30,998/- IN THE BUSINESS INCOME. HE ACCORDINGLY REWORKED THE DEDUCTION U/S.80IB. 3. BEFORE THE LD. CIT[A] IT WAS MAINLY SUBMITTED TH AT IN THE MEANTIME SECTION 40(A)(IA) HAS BEEN AMENDED RETROSP ECTIVELY AND THE DISALLOWANCE WAS MADE BY THE ASSESSEE ON THE BASIS OF THE OLD PROVISION, THEREFORE, THIS SUM SHOULD BE ALLOWED BE CAUSE PAYMENT HAS BEEN MADE BEFORE THE DUE DATE OF FILING OF THE RETU RN. THE LD. CIT[A] AFTER CONSIDERING THE SUBMISSIONS ADJUDICATED THIS ISSUE VIDE PARA-5 WHICH IS AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIO N OF THE APPELLANT AND ALSO PERUSED THE ORDER OF THE AO. ADM ITTEDLY AND EVIDENTLY, THE APPELLANT ITSELF IN THE STATEMENT OF INCOME FILED ALONG WITH THE RETURN OF INCOME HAS DISALLOWED AN AMOUNT OF ` `` ` /5,31,511/-, BEING AMOUNTS NOT DEDUCTIBLE U/S.40(A)(IA) FOR LATE PAYMENT OF TDS. THIS FACT HAS ALSO BEEN ADMITTED BY THE ANNUAL REPO RTS OF THE APPELLANT IN THE AFORESAID SUBMISSIONS. THIS BEING AN ADMITTED FACT, THE AO HAS THUS NOT MADE ANY INDEPENDENT DISALLOWANCE O N HIS OWN. BUT THE DISALLOWANCE IS BASED ON THE COMPUTATION OF INC OME AS PER THE 3 AUDITED ACCOUNTS AND THE AUDIT REPORT FILED BY THE APPELLANT, WHEREIN THE APPELLANT ITSELF HAS MADE THE DISALLOWANCE. THI S BEING AN ADMITTED FACT AND THE AO HAVING NOT MADE ANY DISALLOWANCE ON THIS ACCOUNT, EVEN IF THE PROVISION OF SECTION 40(A)(IA) HAS BEEN AMENDED TO COVER THE LATE PAYMENT OF TDS TILL THE DATE OF FILING OF RETURN OF INCOME, THIS GROUND RAISED BY THE APPELLANT IS NOT MAINTAINABLE. THE ANNUAL REPORT OF THE APPELLANT ALSO COULD NOT BRING THE FACTS AND MATERIAL ON RECORD REGARDING THE AMOUNT DISALLOWED IN THE STATEMENT OF INCOME BY THE APPELLANT DURING HE YEAR UNDER APPEAL, HAVING NOT C LAIMED IN THE SUBSEQUENT YEAR ON ACTUAL PAYMENT BASIS. THEREFORE, IN MY OPINION THE AO HAVING NOT MADE ANY DISALLOWANCE AND THE DISALLO WANCE HAVING MADE SUMOTO BY THE APPELLANT ITSELF, THE GROUND RAI SED IS REJECTED AND DECIDED AGAINST THE APPELLANT. 4. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUES RAISED IN GROUND NOS.1 & 2 ARE INTER-LINKED. HE SUB MITTED THAT ASSESSEE HAS ITSELF DISALLOWED A SUM OF ` `` ` .5,31,511/- BECAUSE PAYMENT OF TDS DEDUCTED FROM LABOUR CHARGES WAS MADE LATE. THEN HE REFERRED TO PAGE 2 OF THE COMPILATION AND POINTED OUT THAT AS F AR AS INTEREST IS CONCERNED, ASSESSEE HAS ITSELF REDUCED THE INTEREST INCOME FROM THE BUSINESS PROFITS. HE MADE TWO FOLD SUBMISSIONS. FIR STLY, HE ARGUED THAT SECTION 40(A)(IA) HAS BEEN AMENDED BY THE FINANCE ACT, 2008 WITH RETROSPECTIVE EFFECT FROM 1-4-2005 AND NOW IT HAS B EEN PROVIDED THAT EVEN IF TDS ON ACCOUNT OF COMMISSION OR PROFESSIONA L SERVICES ETC. IS PAID BEFORE THE DUE DATE SPECIFIED IN SUB-SEC.[1] O F SEC.139, EVEN THEN SUCH PAYMENT COULD BE ALLOWED. THEREFORE THIS DISAL LOWANCE IS NOT MAINTAINABLE AS LAW ITSELF STANDS AMENDED. SECONDLY , HE ARGUED THAT IN ANY CASE, IF THIS DISALLOWANCE IS TO BE MADE THEN S UCH DISALLOWANCE WOULD INCREASE THE BUSINESS INCOME AND ACCORDINGLY DEDUCTION U/S.80IB SHOULD HAVE BEEN INCREASED. 4 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE CIT [A] HAS DECIDED THIS ISSUE BECAUSE NO SUCH DISALLOWANCE WAS MADE BY THE AO AND ASSESSEE HAS ITSELF DISALLOWED THE SUM ON ACCOU NT OF LATE PAYMENT OF TDS. THEREFORE, ASSESSEE CANNOT BE SAID TO BE AG GRIEVED BY THE ORDER OF THE CIT[A] ON THIS ISSUE. IN THIS REGARD, HE RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF SEASON RUBB ERS LTD. VS. DCIT [75 ITD 95] (COCH). SHE FURTHER ARGUED THAT, IN ANY CASE, WHEN ASSESSEE ITSELF DISALLOWED THE SUM, NATURALLY, ASSE SSEE MUST HAVE CLAIMED THIS SUM ON THE BASIS OF PAYMENT WHICH WAS PERMISSIBLE UNDER THE OLD SECTION 40(A)(IA). FURTHER SHE SUBMITTED TH AT AS FAR AS THE ISSUE OF DEDUCTION U/S.80IB IS CONCERNED, DISALLOWANCE OF A PARTICULAR AMOUNT WOULD NOT AUTOMATICALLY CONSTITUTE BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION U/S.80IB. 6. IN THE REJOINDER, LD. COUNSEL OF THE ASSESSEE SU BMITTED THAT NO SUCH CLAIM WAS MADE IN THE NEXT YEAR AND THIS FACT CAN BE VERIFIED BY THE ASSESSING OFFICER. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y, WE FIND NO FORCE IN THE SUBMISSIONS OF THE LD. DR THAT THIS IS SUE COULD NOT HAVE BEEN RAISED BEFORE THE TRIBUNAL BECAUSE THE CIT[A] HAS DISMISSED THIS ISSUE ON THE BASIS THAT ASSESSEE ITSELF HAS DISALLO WED THIS CLAIM. FIRST OF ALL, WE FIND THAT A GROUND WAS RAISED BEFORE THE LD . CIT[A] VIDE PARA11(1) WHICH READS AS UNDER: 11. THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFI ED IN 5 (1) ADDING TO THE INCOME ` `` ` .5,31,511/- DISALLOWANCE U/S.40(A)(IA) IN VIEW OF AMENDMENT TO THE SAID PROVISION BY THE FINA NCE ACT 2008 RETROSPECTIVELY, WITH EFFECT FROM 1-4-2008. SECONDLY, IN THE CASE OF SEASON RUBBERS LTD. VS. DC IT [SUPRA], THE FACTS BEFORE THE TRIBUNAL WERE THAT ASSESSEES APPE AL WAS ALLOWED FULLY BY THE CIT[A]. THE ONLY GROUND OF APPEAL BEFORE THE CIT[A] WAS REGARDING CARRY FORWARD OF LOSS AND IT WAS ALLOWED BY THE COMMISSIONER [APPEALS]. THE ASSESSEE HAD FILED SECO ND APPEAL ON THE GROUND THAT THE ASSESSMENT ITSELF WAS TIME BARRED W HICH GROUND WAS NOT RAISED BEFORE THE COMMISSIONER [APPEALS]. ON TH ESE FACTS, IT WAS HELD THAT NO ADDITIONAL GROUND COULD BE RAISED BECA USE THERE WAS NO APPEAL PENDING BEFORE THE TRIBUNAL. HOWEVER, IN THI S VERY CASE IN PARA- 9 IT WAS OBSERVED THAT WHEN VALID APPEAL FILED BY THE ASSESSEE IS PENDING BEFORE THE TRIBUNAL, THERE IS NO DOUBT THAT ASSESSEE CAN RAISE A NEW OR ADDITIONAL GROUND. THAT HAD NOT BEEN RAISE D EITHER BEFORE THE REVENUE AUTHORITIES. THUS, IT IS CLEAR THAT IN THE CASE OF SEASON RUBBERS LTD. VS. DCIT [SUPRA], THE ONLY ISSUE WAS W HETHER AN ADDITIONAL GROUND COULD BE RAISED WHEN NO VALID APP EAL WAS PENDING BEFORE THE TRIBUNAL. IN THE CASE BEFORE US, FIRST O F ALL, THIS GROUND WAS RAISED EVEN BEFORE THE CIT[A] AND IN ANY CASE, THE APPEAL WAS NOT FULLY ALLOWED BECAUSE OTHER ISSUES WERE ALSO INVOLVED WHI CH HAVE BEEN RAISED BEFORE US BY WAY OF GROUND NOS.3 & 4. THEREF ORE, WE HOLD THAT ASSESSEE HAS CORRECTLY RAISED THIS GROUND BEFORE US . WE FURTHER FIND THAT SECTION 40(A)(IA) READS AS UNDER: 6 40[A]( IA ) ANY INTEREST, COMMISSION OR BROKERAGE, [ RENT, ROYALTY, ] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SER VICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R, AFTER DEDUCTION, [HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIF IED IN SUB-SECTION (1) OF SECTION 139] THE HIGHLIGHTED PORTION HAS BEEN INSERTED BY FINANC E ACT 2008 WITH RETROSPECTIVE EFFECT FROM 1-4-2005. IN CONTRAST, BE FORE THE AMENDMENT OF 2008, THE PROVISION READ AS UNDER: 40[A]( IA ) ANY INTEREST, COMMISSION OR BROKERAGE, [ RENT, ROYALTY, ] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SER VICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YE AR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESC RIBED UNDER SUB- SECTION (1) OF SECTION 200 THUS, IT IS CLEAR FROM THE ABOVE COMPARISON THAT BE FORE THE AMENDMENT, THE DISALLOWANCE COULD BE MADE IF TAX WA S NOT PAID DURING THE PREVIOUS YEAR OR DURING THE SUBSEQUENT YEAR AS PRESCRIBED UNDER THE RULES. HOWEVER, AFTER THE AMENDMENT EVEN IF TAX WAS PAID BEFORE THE DUE DATE OF FILING OF THE RETURN U/S.139[1], TH EN NO DISALLOWANCE SHOULD BE MADE UNDER THIS PROVISION. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO ALLOW THE AMOUNT OF DISALLOWANCE ON AC COUNT OF COMMISSION AND LABOUR CHARGES IF ASSESSEE HAS PAID THIS SUM BEFORE THE DUE DATE OF FILING OF THE RETURN. THIS AMOUNT S HOULD BE ALLOWED AFTER VERIFICATION THAT NO SIMILAR CLAIM HAS BEEN M ADE IN THE SUBSEQUENT YEAR. AS FAR AS THE ISSUE REGARDING DEDU CTION U/S.80IB IS 7 CONCERNED, IF THE AMOUNT IS FOUND TO BE ALLOWABLE, THEN THIS QUESTION WOULD NOT ARISE. HOWEVER, IF THE AMOUNT IS FOUND TO BE NOT ALLOWABLE IN VIEW OF OUR DIRECTION THEN ASSESSING OFFICER SHOUL D DECIDE THE ISSUE REGARDING DEDUCTION U/S.80IB ON THIS AMOUNT IN ACCO RDANCE WITH THE LAW AFTER PROVIDING AN ADEQUATE OPPORTUNITY TO THE ASSESSEE. 8. GROUND NOS.3 & 4 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED A SUM OF ` `` ` .4,44,458/- ON ACCOUNT OF PERSONAL USAGE OF MOBILE PHONE AS WELL AS TELEPH ONE PROVIDED AT THE RESIDENCE BEING 25% OF THE MOBILE PHONE CHARGES AND 20% OF RESIDENTIAL TELEPHONE CHARGES. THE ASSESSING OFFICE R FURTHER DISALLOWED A SUM OF ` `` ` .1,33,139/- ON ACCOUNT OF VEHICLE EXPENSES BEING 20 % OF THE VEHICLE EXPENSES FOR PERSONAL USE. 9. BEFORE THE CIT[A] IT WAS MAINLY CONTENDED THAT S INCE ASSESSEE HAS ALREADY PAID FRINGE BENEFIT TAX [FBT] ON THESE AMOUNTS, THEREFORE, NO SUCH FURTHER DISALLOWANCE COULD BE MADE. HOWEVER , LD. CIT[A] DID NOT AGREE WITH THIS SUBMISSION AND DECIDED THE ISSU E AGAINST THE ASSESSEE. 10. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEES FACTORY WAS LOCATED IN DAMAN AND, THEREF ORE, ASSESSEE WAS REQUIRED TO BE CONSTANTLY IN TOUCH WITH THE FACTORY OPERATIONS AND, THEREFORE, DISALLOWANCE WAS NOT JUSTIFIED. IN ANY C ASE, ASSESSEE HAS ALREADY PAID FBT ON THESE TWO AMOUNTS AND, THEREFOR E, DISALLOWANCE WAS NOT JUSTIFIED. IN THIS REGARD HE REFERRED TO AN NEXURE I OF THE TAX AUDIT REPORT AND POINTED OUT THAT A SUM OF ` `` ` .1,33,139/- AND ` `` ` .76,272/- 8 WERE CONSIDERED FOR FBT PURPOSES UNDER THE HEAD VE HICLE MAINTENANCE AND TELEPHONE EXPENDITURE. HE ALSO REL IED ON THE DECISION OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF ADELTA OPTEE VS. ITO IN I.T.A.NO.1255/CHD/2009, WHEREIN IT WAS HELD THAT ONCE ASSESSEE HAS PAID FBT THEN SUCH EXPENDITURE COULD N OT BE DISALLOWED FOR PERSONAL USE. 11. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER O F THE CIT[A]. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. THE ASSESSEE HAS ALREADY PAID FBT OF ` `` ` .1,22,129/- ON ACCOUNT OF CAR EXPENSES AND ` `` ` .76,272/- ON ACCOUNT OF TELEPHONE EXPENSES. THE CO- ORDINATE BENCH OF THE CHANDIGARH TRIBUNAL WHILE CON SIDERING THE SIMILAR DISALLOWANCE HAS OBSERVED VIDE PARA 12 AS UNDER: 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RELEVANT PROVISIONS OF THE ACT. THE CHARGE OF FRINGE BENEFIT TAX IS ON SUCH EXPENDITURE WHICH ARE INCURRED IN THE COURSE OF BUS INESS. IN SUCH CIRCUMSTANCES, WHERE FBT HAS BEEN PAID BY THE ASSES SEE ON SUCH EXPENDITURE, WE FIND NO MERIT IN DISALLOWING ANY PA RT OF SUCH EXPENDITURE FOR THE PERSONAL USE OF THE PARTNERS. A CCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASS ESSEE IN ENTIRETY AND DELETE THE ADDITION OF ` `` ` .78,024/-. THUS, THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. FOLLOWING THE ABOVE DECISION, WE HOLD THAT NO DISAL LOWANCE COULD HAVE BEEN MADE ON ACCOUNT OF PERSONAL EXPENSES INCURRED ON TELEPHONE AND CAR MAINTENANCE AGAINST WHICH ASSESSEE HAS ALRE ADY PAID FBT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DEL ETE THESE ADDITIONS. 9 13. GROUND NO.5 REGARDING LEVY OF INTEREST U/S.234B AND 234C IS OF CONSEQUENTIAL NATURE AND, ACCORDINGLY, WE DIRECT TH E AO TO LEVY INTEREST IN ACCORDANCE WITH THE LAW. 14. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 0/4/2011. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI: 20/4/2011. P/-*