M/s. MCS Ltd, New Delhi V. DCIT, New Delhi

ITA 1503/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4016 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 07-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 16-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SAHOTA
• Assessee Lawyers: ASHWANI TANEJA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI I.P.BANSAL AND SHRI K.G. BANSAL I.T.A. NO. 1503(DEL)/2009 ASSESSMENT YEAR: 2005-06 M/S MCS LIMITED, D EPUTY COMMISSIONER OF INCOME W-40, OKHLA INDL. AREA, VS. TAX, CIRCLE 6(1), NEW DELHI. PHASE-II, NEW DELHI. PAN-AAACM8027G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI TANEJA & SHRI TARUN KUMAR RESPONDENT BY: SHRI G.S. SAHOTA, SR. DR ORDER PER K.G. BANSAL : AM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAI NST THE ORDER OF CIT(APPEALS)-IX, NEW DELHI, PASSED ON 29.01.2009 IN APPEAL NO. 38/07- 08, PERTAINING TO ASSESSMENT YEAR 2005-06. TH E CORRESPONDING ORDER OF ASSESSMENT WAS PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 6(1), NEW DELHI, ON 30.11.2007 UNDER THE PROVISI ONS OF SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. GROUND NO. 1 REGARDING DISALLOWANCE OF RS. 5,0 00/- BY INVOKING THE PROVISION CONTAINED IN SECTION 14-AOF THE ACT, W AS NOT PRESSED BY THE LD. COUNSEL BEFORE US. THEREFORE, THIS GROUND IS DISM ISSED AS NOT PRESSED. ITA NO. 1503(DEL)/2009 2 3. GROUND NO. 2 IS THAT ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN CONFIRMING T HE DISALLOWANCE OF RS. 3,18,225/- MADE BY THE AO OUT OF VEHICLE EXPENSE S ON ACCOUNT OF ALLEGED PERSONAL USE THEREOF. 3.1 IN THIS CONNECTION, THE SUBMISSION OF THE ASS ESSEE BEFORE THE LD. CIT(A) WAS THAT THE EXPENDITURE WAS INCURRED TO PROVIDE FACILITIES TO THE WORKING DIRECTORS. THE AO DISALLOWED A PART OF THE EXPENDITURE ON A HYPOTHETICAL BASIS WITHOUT FURNISHING ANY VAL ID JUSTIFICATION. THE LD. CIT(A) CONSIDERED THE ASSESSMENT ORDER AND THE SU BMISSIONS OF THE ASSESSEE. IT HAS BEEN MENTIONED THAT THE AO D ISALLOWED THE EXPENSES ON AN AD-HOC BASIS AFTER POINTING OUT TO THE A SSESSEE THAT THE DIRECTORS USED THE VEHICLES FOR PERSONAL PURPOSES ALSO, TO WHICH NO REPLY HAS BEEN FILED. IT WAS ADMITTED BEFORE HIM THAT THE ASSESSEE DID NOT MAINTAIN ANY LOG BOOK AND NO PERQUISITE HAS BEEN CHARGED IN THE HANDS OF THE DIRECTOR FOR PROVIDING THE VEHICLE. IT IS FURTHER MENTI ONED THAT IN THE CASE OF VAIKUNDAM RUBBER CO. LTD. VS. STATE OF TAMIL NADU, (1993) 202 ITR 589, THE HONBLE MADRAS HIGH COURT HELD THAT DISAL LOWANCE OF 25% OUT OF MOTOR CAR EXPENSES WAS JUSTIFIED. IN THE CASE OF ACIT VS. PERFECT PROJECT LTD., (2002) 253 ITR (AT) 16, THE CUTTAK BENCH OF THE TRIBUNAL HELD THAT ITA NO. 1503(DEL)/2009 3 WHERE A CAR OF THE COMPANY WAS USED BY THE DIRECT ORS FOR PERSONAL PURPOSES, THE SAME WOULD CONSTITUTE PERQUISITE I N THE HAND OF THE DIRECTOR, BUT THE EXPENSES WILL BE DEDUCTIBLE IN THE ASS ESSMENT OF THE ASSESSEE COMPANY. SINCE NO AMOUNT WAS OFFERED FOR TAXATI ON BY THE DIRECTOR, DISALLOWANCE OF 20% OF THE EXPENSES WAS JUSTIF IED. 3.2 THE CASE OF THE LD. COUNSEL BEFORE US WAS TH AT THE ASSESSEE IS A FICTIONAL ENTITY AND IT WAS INCAPABLE OF PERSONA L USE OF ITS ASSETS. THEREFORE, IN VIEW OF THE DECISION IN THE CASE OF SAYAJI IRON & ENGINEERING CO. VS. CIT, (2002) 253 ITR 749 (GUJ.), IN WHICH IT WAS HELD THAT WHILE THE AMOUNT COULD BE TAXED IN THE HANDS OF THE DIRECTORS AS PERQUISITE, DISALLOWANCE COULD NOT BE MADE IN TH E CASE OF THE COMPANY WHERE SUCH FACILITY WAS PROVIDED AS A MATTER OF CONTRACT BETWEEN THE DIRECTORS AND THE COMPANY. 3.3 IN REPLY, THE LD. DR MENTIONED THAT NO AM OUNT WAS OFFERED BY ANY DIRECTOR AS PERQUISITE IN RESPECT OF PERSONAL EXPENSES. THEREFORE, THE AMOUNT WAS RIGHTLY DISALLOWED BY THE LD. CIT(A ). ITA NO. 1503(DEL)/2009 4 3.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. THE DECISION IN THE CASE OF VAIKUNDAM RUBBER CO. (SU PRA) IS THAT A PART OF THE EXPENDITURE CAN BE DISALLOWED IN THE HANDS OF THE COMPANY ON ACCOUNT OF PERSONAL USER OF VEHICLE BY THE DIRECTORS. IN THE CASE OF PERFECT PROJECT LIMITED (SUPRA), IT HAS BEEN HELD THAT THE AMOUNT IS TAXABLE AS PERQUISITE IN THE HANDS OF THE DIRECTORS, BUT NO DISALLOWANCE CAN BE MADE IN THE HANDS OF THE COMPANY. THE DECISION IN THE CASE OF S AYAJI IRON & ENGINEERING CO. (SUPRA) IS THAT WHERE SUCH FACILITIES ARE P ROVIDED AS A MATTER OF CONTRACT, THE AMOUNT CAN BE TAXED ONLY AS PERQ UISITE IN THE HANDS OF THE DIRECTOR. IN THE INSTANT CASE, THERE IS NO EVIDENCE ON RECORD THAT THE FACILITY WAS PROVIDED AS A MATTER OF CONTRACT BETWEEN THE ASSESSEE COMPANY AND THE DIRECTORS. THE DIRECTORS HAVE ALSO NOT OFFERED ANY AMOUNT FOR TAXATION ON THIS GROUND. HOWEVER, THE FACT REMAINS THAT THE ASSESSEE, BEING A FICTIONAL ENTITY, IS INCAPABLE OF CONSUMING ANY BENEFIT. THEREFORE, THE ALLEGATION OF PERSONAL USE CANNOT BE RAISED IN CASE OF A COMPANY. IN OTHER WORDS, THE AMOUNT IS TAXAB LE AS PERQUISITE IN THE HANDS OF DIRECTOR EVEN IF SUCH SERVICES AR E PROVIDED DE-HORS THE CONTRACT BETWEEN THEM. IN VIEW OF THIS, IT IS HELD THAT THE LD. CIT(APPEALS) ERRED IN UPHOLDING THE DISALLOWANC E. THUS, GROUND NO. 2 IS DISMISSED. ITA NO. 1503(DEL)/2009 5 4. GROUND NO. 3 IS THAT THE LD. CIT(APPEALS) ERR ED IN CONFIRMING THE DISALLOWANCE OF RS. 92,687/- MADE BY THE AO BY I NVOKING THE PROVISION CONTAINED IN SECTION 40(A)(I) OF THE ACT. 4.1 IN THIS CONNECTION, IT IS MENTIONED BY THE LD. CIT(A) THAT THE ASSESSEE PAID INTEREST OF RS. 80,976/- TO COMPUTE CH INTERNATIONAL LTD. AND RS. 11,891/- TO KOTAK MAHINDRA LTD. THE ASSESSE E ALSO RECEIVED INTEREST OF RS. 1,14,280/- FROM COMPUTECH INTERNATIONAL LTD ., WHICH MEANS THAT NET AMOUNT OF RS. 33,304/- WAS RECOVERED FROM THIS COMPANY AS INTEREST DURING THE YEAR. TAX WAS NOT DEDUCTED ON EITH ER OF THE PAYMENTS AS PROVIDED U/S 194-A OF THE ACT. THE CASE OF THE ASSESSEE BEFORE HIM WAS THAT THERE WAS A NET SURPLUS IN THE INTEREST ACCOUNT AND, THEREFORE, THE PROVISION CONTAINED IN SECTION 194-A WAS NOT APPLICABLE TO IT. THE LD. CIT(A) REFERRED TO THE AFORESAID PROVISION AN D HELD THAT THE ASSESSEE PAID INTEREST OF RS. 11,891/- TO KOTAK MAHINDRA LTD., ON WHICH TAX WAS NOT DEDUCTED AT SOURCE. THEREFORE, THE PROVISION CONTAINED IN SECTION 40(A)(I) WAS APPLICABLE IN RESPECT OF THE AFOR ESAID AMOUNT. COMING TO THE CASE OF COMPUTECH INTERNATIONAL LTD., IT WAS MENTIONED THAT THE PROVISION CONTAINED IN SECTION 194A CASTS A RE SPONSIBILITY TO DEDUCT TAX AT SOURCE FROM INTEREST AT THE TIME OF CREDIT THEREOF IN THE ACCOUNT; OR ITA NO. 1503(DEL)/2009 6 PAYMENT IN CASH, BY ISSUE OF CHEQUE, DRAFT OR ANY OTHER MODE, WHICHEVER IS EARLIER. THEREFORE, THIS SECTION C ASTS AN OBLIGATION TO DEDUCT TAX AT SOURCE AT THE EARLIEST POINT OF TIME WH EN THE INTEREST IS CREDITED TO THE ACCOUNT OF THE PAYEE. SINCE THAT HAD NOT BEEN DONE, IT WAS HELD THAT THE AO RIGHTLY MADE THE DISALLOWANCE. 4.2 BEFORE US, THE LD. COUNSEL SUBMITTED THAT TH E NET OF INTEREST ACCOUNT WAS A POSITIVE SUM AND, THEREFORE, IN VIEW TH EREOF NO AMOUNT COULD BE DISALLOWED IN COMPUTING THE TOTAL INCOME. AS AGA INST THE AFORESAID, THE CASE OF THE LD. DR IS THAT THE PROVISION CONTAINE D IN SECTION 194A IS CLEARLY APPLICABLE IN RESPECT OF INTEREST PAI D TO KOTAK MAHINDRA LTD. IT IS FURTHER SUBMITTED THAT SECTION 194A DOES NOT CONTAIN ANY CONCEPT OF FINDING OUT NET INTEREST INCOME FOR THE PURPOS E OF TDS. ANY INTEREST CREDITED TO THE ACCOUNT OF CREDITOR IS LIABLE F OR TAX DEDUCTION AT SOURCE IRRESPECTIVE OF THE FACT WHETHER THE ASSESSEE IS LIABLE TO RECEIVE INTEREST FROM THAT PARTY ON SOME OTHER ACCOUNT. 4.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. SECTION 194-A READS AS UNDER:- 194A(1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF INTEREST OTHER THA N INCOME BY WAY OF INTEREST ON SECURITIES, SHALL, AT THE TI ME OF CREDIT OF ITA NO. 1503(DEL)/2009 7 SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT T HE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUC T INCOME-TAX THEREON AT THE RATES IN FORCE: 4.4 THE ASSESSEE HAS PAID INTEREST OF RS. 11,89 1/- TO KOTAK MAHINDRA LTD., ON WHICH TAX HAS NOT BEEN DEDUCTED AT SOU RCE. THEREFORE, THIS AMOUNT HAS BEEN RIGHTLY DISALLOWED BY THE LD. C IT(APPEALS) IN COMPUTING THE INCOME. 4.5 COMING TO THE ISSUE OF DEDUCTION OF TAX AT S OURCE FROM RS. 80,976/- PAID TO COMPUTECH INTERNATIONAL LTD., WE FIND THA T SECTION 194-A DOES NOT CONTEMPLATE THE NETTING OF INTEREST, AS SUGGE STED BY THE LD. COUNSEL. IT PROVIDES THAT AS AND WHEN INTEREST IS CREDITED IN THE BOOKS IN THE ACCOUNT OF THE CREDITOR, OR PAID BY ANY MODE, TAX WILL BE DEDUCTED AT THE EARLIEST POINT OF TIME. THERE IS NO DOUBT THA T THE AMOUNT WAS CREDITED TO THE ACCOUNT OF COMPUTECH INTERNATIONAL LTD. EV EN SETTING OFF OF THIS CREDIT BY DEBIT IN ANOTHER ACCOUNT WILL BE ANY OTHER MODE OF PAYMENT. THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON THIS AMOUNT ALSO. IN THIS VIEW OF THE MATTER, WE A GREE WITH THE LD. CIT(APPEALS) THAT THE PROVISION CONTAINED IN SE CTION 40(A)(I) IS ITA NO. 1503(DEL)/2009 8 APPLICABLE TO THE CREDIT OF INTEREST IN THE CAS E OF COMPUTECH INTERNATIONAL LTD. 4.6 THUS, THIS GROUND IS DISMISSED. 5. GROUND NO. 4 REGARDING DISALLOWANCE OF RS. 19 ,009/- OUT OF THE CLAIM WAS NOT PRESSED BY THE LD. COUNSEL. THEREF ORE, THIS GROUND IS DISMISSED AS NOT PRESSED. 6. GROUND NO. 5 IS THAT ON THE FACTS AND IN THE C IRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN CONFIRMING AN ADDITION OF RS. 1,43,063/-, BEING THE EXPENDITURE INCURRED ON SO FTWARE DEVELOPMENT CHARGES BY HOLDING IT TO BE A CAPITAL EXPENDITU RE. 6.1 BOTH THE PARTIES AGREED THAT THIS MATTER MA Y BE RESTORED TO THE FILE OF THE AO IN THE LIGHT OF THE DECISION OF SPECIA L BENCH OF DELHI TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DY. CIT (2008) 111 ITD 112. THEREFORE, THE MATTER IS RESTORED TO THE FI LE OF THE AO TO DECIDE THE MATTER AGAIN AFTER HEARING THE ASSESSEE. IN T HE RESULT, THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1503(DEL)/2009 9 7. GROUND NO.6 IS AGAINST DISALLOWANCE OF RS. 2, 35,855/- ON ACCOUNT OF DELAYED PAYMENT OF PROVIDENT FUND DUES. IT WAS ADMITTED BY BOTH THE PARTIES THAT THE PAYMENTS WERE MADE BEFORE DUE DATE OF FILING THE RETURN U/S 139(1). WE FIND THAT THE ISSUE STANDS CO VERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. IN CIVIL APPEAL NO. 7 771 OF 2009 DATED 25.11.2009. RESPECTFULLY FOLLOWING THIS JUDGM ENT, IT IS HELD THAT THE LD. CIT(APPEALS) ERRED IN DISALLOWING THE AFORESAID AMOUNT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THUS, THIS GROUND IS ALLOWED. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 30 APRIL, 2010. SD/- SD/- (I.P. BANSAL) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 30 .04.2010. SP SATIA ITA NO. 1503(DEL)/2009 10 COPY OF THE ORDER FORWARDED TO:- 1. MCS LIMITED, NEW DELHI. 2. DCIT, CIRCLE 6(1), NEW DELHI. 3. CIT(A) 4. CIT, NEW DELHI. 5. DR, ITAT, NEW DELHI. ASSISTANT REGISTRA R.