Somatheeram Ayurvedic Hospital & Yoga Centre P.Ltd, Trivandrum V. DCIT, Trivandrum

ITA 153/COCH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1046 (ITAT-COCHIN)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 08-06-2012
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR; SUSAN GEORGE VARGHESE
• Assessee Lawyers: K I JOHN
• Keywords: Principle of natural justice
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 153/COCH/2012 ASSESSMENT YEAR : 2005-06 SOMATHEERAM AYURVEDIC HOSPITAL & YOGA CENTRE (P) LTD., CHOWARA P.O., BALARAMAPURAM, TRIVANDRUM. [PAN:AAECS 5973K] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, TRIVANDRUM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI K.I. JOHN, CA REVENUE BY SMT. SUSAN GEORGE VARGHESE, SR. DR AND SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 04/12/2012 DATE OF PRONOUNCEMENT 08/02/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 04-05-2012 PASSED BY THE LD. CIT(A)-III, KOCHI AND IT RELATES TO THE ASSESSMENT YEAR 2005-06. 2. THE GROUNDS URGED BY THE ASSESSEE GIVE RISE TO T HE FOLLOWING THREE ISSUES:- A) DISALLOWANCE OF PART OF INTEREST EXPENSES OF RS . 2,98,931/-. B) DISALLOWANCE MADE U/S. 40(A)(I) OF RS. 55,56,52 1/-. C) DISALLOWANCE MADE U/S. 40(A)(3) OF RS. 22,593/- . 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE-COMPANY IS IN THE TOURISM BUSINESS, I.E., IT PROVIDES THE TOURISTS WI TH THE TRADITIONAL AYURVEDA TREATMENT AND MASSAGES DESIGNED TO REJUVENATE THE MIND AND BO DY. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT, INTER ALIA, BY MAKING THE DISALLOWANCES STATED ABOVE AND THE FIRST APPELLATE AUTHORITY UPHELD THE SAID DISAL LOWANCES. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. I.T.A. NO.153/COCH/2012 2 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF PART OF INTEREST EXP ENDITURE. THE AO NOTICED THAT THE ASSESSEE HAD BORROWED INTEREST BEARING FUNDS AND PA ID INTEREST THEREON TO THE TUNE OF RS. 19,68,289/-. IT WAS FURTHER NOTICED THAT THE A SSESSEE HAD GIVEN INTEREST FREE LOANS TO THE RELATIVES OF THE MANAGING DIRECTOR, DIRECTOR AND SISTER CONCERNS TO THE TUNE OF RS. 29,89,310/-. HENCE THE ASSESSING OFFICER HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS DIVERTED THE INTEREST BEARING FUNDS AND ACCORDI NGLY A PORTION OF THE INTEREST AMOUNTING TO RS. 2,98,931/- WAS DISALLOWED BY THE A SSESSING OFFICER. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE FILED WRI TTEN SUBMISSION; WHEREIN IT IS STATED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND S FOR MAKING THE INTEREST FREE ADVANCES TO THE RELATIVES OF THE MANAGING DIRECTOR, DIRECTOR AND SISTER CONCERNS. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE INVITED OU R ATTENTION TO THE COPY OF ANNUAL ACCOUNTS RELATING TO THE YEAR UNDER CONSIDERATION. THE LD. COUNSEL FURTHER RELIED ON THE FOLLOWING DECISIONS TO CONTEND THAT THE IMPUGNE D DISALLOWANCE IS NOT WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE:- A) MUNJAL SALES CORPORATION VS. CIT (298 ITR 298) (SC). B) CIT VS. BHARTI TELEVENTURE LTD. (DEL. ) (331 ITR 502). C) CIT VS. RELIANCE UTILITIES & POWER LT D. (BOM.) (221 CTR 435) D) VISEN INDUSTRIES LTD. VS. ADD. CIT (THIRD MEM BER) (MUM.) (136 ITD 309). E) JCIT VS. ITC LTD. (KOL.)(SB) (112 ITD 57). 5. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE A SSESSEE HAD GIVEN INTEREST FREE FUNDS TO RELATED PARTIES, WHILE IT WAS PAYING HUGE INTEREST ON ITS BORROWINGS. HENCE THE AO WAS CONSTRAINED TO MADE THE IMPUGNED DISALLOWANC E. SHE FURTHER SUBMITTED THAT THE LD. CIT(A) HAS RELIED UPON THE FOLLOWING TWO DE CISIONS IN ORDER TO CONFIRM THE IMPUGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER : A) PHALTAN SUGAR WORKS LTD. VS. CWT (BOM.) (208 IT R 989). B) CIT VS. ABHISHEK INDUSTRIES LTD. (P&H) (205 CTR 304). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. ACCORDING TO THE LD. AR, THE ASSESSEE HAD SUFFICIENT AMOUNT O F INTEREST FREE FUNDS AND THE I.T.A. NO.153/COCH/2012 3 ASSESSING OFFICER HAS FAILED TO EXAMINE THE RELEVAN T DETAILS BEFORE COMING TO THE CONCLUSION AGAINST THE ASSESSEE. IN THIS REGARD, T HE LD. AR HAS FILED THE SYNOPSIS OF INTEREST FREE FUNDS GENERATED DURING THE YEAR UNDER CONSIDERATION. APPARENTLY, THE ASSESSING OFFICER DID NOT EXAMINE THESE ASPECTS AND HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAD DIVERTED INTEREST BEARING FUNDS. THOUGH IT IS NOT KNOWN AS TO WHETHER THESE EXPLANATIONS WERE GIVEN AT THE TIME OF ASSESS MENT PROCEEDINGS, YET, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THE SAID EXPLANATIONS REQUIRE TO BE ADDRESSED BY THE TAX AUTHORITIES. UNDER THESE CIRCU MSTANCES, IN OUR VIEW THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESS ING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE M ATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE I SSUE AFRESH AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE U/S. 40(A)(I) OF THE ACT. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE-COMPANY HAD CLAIMED A DEDUCTION OF RS.77,28,722/- UNDER THE HEAD BUSINESS PROMOTION EXPENSES. IT WAS NOTICED THAT A SUM OF RS. 55,56,521/- WAS SPENT IN FOREIGN COUNTRI ES, ON WHICH THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE AS PER THE PROVISIONS OF SEC . 195 OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE ABOVE SUM OF RS.56 ,56,521/- BY INVOKING THE PROVISIONS O SEC. 40(A)(I) OF THE ACT. THE LD. CIT (A) ALSO CONFIRMED THE SAID DISALLOWANCE. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SEC. 195 REQUIRING DEDUCTION OF TAX AT SOURCE FOR PAYMENTS M ADE TO NON-RESIDENTS SHALL APPLY ONLY IN RESPECT OF SUMS CHARGEABLE TO INCOME TAX. HE SUBMITTED THAT THE IMPUGNED AMOUNT OF RS. 55.56 LAKHS WAS SPENT OUTSIDE THE COU NTRY BY THE ASSESSEE AND THE RECIPIENTS OF THE AMOUNT DID NOT HAVE ANY BUSINESS ESTABLISHMENT IN INDIA. ACCORDINGLY BY PLACING RELIANCE ON THE FOLLOWING DECISIONS, THE LD. AR SUBMITTED THAT THERE IS NO NECESSITY ON THE PART OF THE ASSESSEE TO DEDUCT TDS U/S. 195 OF THE ACT IN RESPECT OF THE ABOVE SAID PAYMENTS: A) GE INDIA TECHNOLOGY CENTRE P. LTD. VS. CIT (SC) (327 ITR 456) B) CIT VS. CARGILL GLOBAL TRADING (I) (P) LTD. (24 1 CTR (DEL.) 443. I.T.A. NO.153/COCH/2012 4 ON THE CONTRARY, THE LD. DR SUPPORTED THE ORDER PAS SED BY THE LD. CIT(A) ON THIS ISSUE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. WE NOTICE THAT THE SUBMISSION OF THE ASSESSEE THAT THESE EXPE NSES WERE INCURRED OUTSIDE THE COUNTRY THROUGH ITS BUSINESS PROMOTION AGENTS WAS N OT EXAMINED BY THE ASSESSING OFFICER. APPARENTLY, THE IMPUGNED DISALLOWANCE HAS BEEN MADE UNDER THE IMPRESSION THAT THE ASSESSEE HAS PAID A SUM OF RS. 55.56 LAKHS TO M/S. AYUR TOURS AND PROMOTION, GERMANY. THE LD CIT(A) HAS TAKEN THE VIEW THAT THE ASSESSEE HAS SUO MOTO DECIDED NOT TO DEDUCT TAX AT SOURCE ON THE SAID PAYMENTS WI THOUT COMPLYING WITH THE PROVISIONS OF SEC. 195(3) OF THE ACT. HOWEVER, THE ASSESSEE H AS PLACED RELIANCE ON TWO CASE LAWS, REFERRED SUPRA, TO CONTEND THAT IT IS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S. 195 OF THE ACT AS THE IMPUGNED AMOUNT IS NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF RECIPIENTS OF THE SAME. APPARENTLY, NEITHER THE ASSESSING OFFICER NOR THE LD. CIT(A) HAS EXAMINED THE ISSUE OF TAXABILITY OF THE IMPUGNED AMOUNTS IN INDIA IN THE HANDS OF THE RECIPIENTS. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES EXAMINATION AFRESH AT THE END OF THE ASSESSING OFFICER. ACCORD INGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF TH E ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH BY DULY CONSIDERING THE SU BMISSIONS MADE/THAT MAY BE MADE BY THE ASSESSEE AND TAKE APPROPRIATE DECISION IN AC CORDANCE WITH LAW. 10. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE U/S. 40(A)(3) OF THE ACT. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS PAID A SUM OF RS. 1,12,965/-BY WAY OF CASH IN VIOLATION OF THE PROVISIONS OF SEC. 40(A)(3) OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED 20% OF THE ABOVE SUM C ALCULATED AT RS. 22,593/-. THE LD. CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE. BEFOR E US, THE LD. COUNSEL SUBMITTED THAT THE ASSESSING OFFICER DID NOT DISPUTE ABOUT THE GEN UINENESS OF THE TRANSACTION. ACCORDINGLY, BY PLACING RELIANCE ON THE FOLLOWING D ECISIONS, THE LD. AR PRAYED FOR DELETION OF THE IMPUGNED DISALLOWANCE: A) SMT. HARSHILA CHORDIA VS. ITO (RAJ.) (298 ITR 349). B) P.M. ABDUL RAZAK VS. IYO (63 ITD 398) (COCHIN) I.T.A. NO.153/COCH/2012 5 11. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT TH E ASSESSEE HAS FAILED TO SHOW THAT THE IMPUGNED PAYMENTS FALL IN THE CATEGORY OF EXEMPTIONS PROVIDED UNDER RULE 6DD OF INCOME TAX RULES. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. BOTH THE DECISIONS RELIED UPON BY THE ASSESSEE HAVE BEEN REN DERED BY CONSIDERING RULE 6DD(J) THAT WAS EXISTING AT THE RELEVANT POINT OF TIME, WH ICH PROVIDED EXEMPTION FROM THE PROVISIONS OF SEC. 40A(3) UNDER EXCEPTIONAL AND UNA VOIDABLE CIRCUMSTANCES. THE SAID RULE6DD(J) CONTAINING OMNIBUS CLAUSE HAS SINCE BEEN OMITTED LONG BACK. THE PROVISIONS OF SEC. 40A(3) SHALL NOT APPLY ONLY IN R ESPECT OF THOSE PAYMENTS WHICH FALL IN THE CATEGORY LISTED OUT IN RULE 6DD OF THE IT RULES . WE NOTICE THAT THE ASSESSEE WAS NOT ABLE TO PROVE THAT THESE PAYMENTS FALL IN THE C ATEGORY OF EXEMPTIONS PROVIDED UNDER RULE 6DD OF INCOME TAX RULES. UNDER THESE CI RCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD. CIT(A) IN CONF IRMING THIS DISALLOWANCE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 08-02-20 13. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 8TH FEBRUARY, 2013 GJ COPY TO: 1. SOMATHEERAM AYURVEDIC HOSPITAL & YOGA CENTRE (P) LTD., CHOWARA P.O., BALARAMAPURAM, TRIVANDRUM. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL C IRCLE, TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-III, KOC HI. 4.THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN I.T.A. NO.153/COCH/2012 6