M/s Triveni Knits, Ludhiana V. Income Tax Officer, Ludhiana

ITA 159/CHANDI/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5130 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 23-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Opportunity of being heard; Retrospective amendment
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES(SMC), CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 159/CHD/2017 ASSESSMENT YEAR: 2011-12 M/S TRIVENI KNITS, VS. THE ITO D-264, PHASE-VII, FOCAL POINT WARD-1(3), LUDHIANA LUDHIANA PAN NO. AABFT8753A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI S.K. MITTAL DATE OF HEARING : 29/05/2017 DATE OF PRONOUNCEMENT : 01/06/2017 ORDER THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-1, LUDHIANA DT. 24/11/2016 FOR ASSESSMENT YE AR 2011-12. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 3. LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUN D NOS. 1,2,5,6 & 7 THE SAME ARE DISMISSED AS NOT PRESSED. 4. GROUND NOS. 2 & 3 READS AS UNDER: 2. NOTWITHSTANDING THE ABOVE SAID GROUND OF APPEAL , THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 48,000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PROCESSING FEE PAID TO RELIANCE CAPIT AL LTD. UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT FOR NOT DEDUCTING T DS ON THE SAID AMOUNT AS PER PARA 3.2 OF THE ORDER. 3. THAT THE WORTHY CIT(A) HAS ALSO ERRED IN CONFIRM ING THE DISALLOWANCE OF HIRE CHARGES PAID TO RELIANCE CAPITAL LTD. TO THE T UNE OF RS. 1,80,000/- AND TO KOTAK MAHINDRA PRIME LTD. TO THE TUNE OF RS. 35,818 /- TOTALING TO RS. 2,15,818/- U/S 40A(IA) OF THE INCOME TAX ACT FOR NOT DEDUCTING TDS AS PER PARA 4.2 OF HIS ORDER. 5. THE AO NOTICED THAT ASSESSEE HAS PAID PROCESSING FEE OF RS. 48,000/- TO RELIANCE CAPITAL LTD. BUT NO TDS WAS DEDUCTED ON TH E SAID AMOUNT. THE AO THEREFORE DISALLOWED THE SAME UNDER SECTION 40(A)(I A) OF THE ACT. SIMILARLY AO NOTED THAT ASSESSEE HAD MADE HIRE CHARGES PAYMENT T O RELIANCE CAPITAL LTD. OF RS. 1,80,000/- AND TO KOTAK MAHINDRA PRIME LTD. OF RS. 35,818/- BUT NO TDS WAS 2 DEDUCTED ON THE SAME AMOUNT THEREFORE, AO DISALLOWE D RS. 2,15,818/- UNDER SECTION 40(A)(IA) OF THE ACT. LD. CIT(A) CONFIRM TH E ADDITION. 6. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE PAYMENT WERE MADE TO THE ABOVE PARTIES WHO HAVE DECLARED THE AMO UNT IN QUESTION IN THEIR RETURN OF INCOME AND PAID THE TAXES. CERTIFIC ATE OF CHARTERED ACCOUNTANT IS FILED IN THE MATTER. HE HAS SUBMITTED THAT IN SA ME CIRCUMSTANCES ITAT CHANDIGARH BENCH IN THE GROUP CASE OF M/S HEERA MOT I AGRO INDUSTRIES VS. DCIT IN ITA NO. 739/CHD/2013 DT. 20/09/2016 RESTORED THE MATTER TO THE FILE OF AO FOR VERIFYING THE SAME FACT AND DECIDES THE ISSUE AFRES H. THE ORDER OF THE TRIBUNAL IN PARA 11 TO 14 ARE REPRODUCED AS UNDER: 11. ON GROUND NO. 7, ASSESSEE CHALLENGED THE ADDITI ON OF RS. 4,62,173/- ON ACCOUNT OF PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX ACT. THE LD. CIT(APPEALS) ALSO NOTE D THAT THIS ISSUE IS COVERED BY HIS FINDINGS GIVEN FOR ASSESSME NT YEAR 2003- 04. THE ASSESSING OFFICER NOTED THAT SPECIAL AUDIT OR HAS OBSERVED THAT ASSESSEE MADE SOME PAYMENTS ON ACCOUN T OF BRAND CHARGES ON WHICH ASSESSEE COMPANY WAS LIABLE TO DEDUCT TDS AS PER PROVISIONS OF INCOME TAX ACT AND SINCE NO TDS HAS BEEN DEDUCTED, THEREFORE, ACCORDING TO PROV ISIONS OF SECTION 40(A)(IA), ADDITION WAS MADE. THE LD. CIT( APPEALS) CONFIRMED THE ADDITION. 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT BRAND CHARGES WERE PAID TO SISTER CONCERN M/S MEERA MOTI SPICES PVT. LTD. WHO HAVE DECLARED THE AMOUNT IN QUESTION IN THEIR RETURN OF INCOME AND PAID THE TAXES. THEREFORE, WHE N BY FILING INCOME TAX RETURNS AND OFFERING SUM RECEIVED FOR TA XATION, DISALLOWANCE WOULD NOT BE JUSTIFIED AND MATTER MAY BE REMANDED TO THE ASSESSING OFFICER FOR RE-EXAMINATIO N IN VIEW OF DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS ANSAL LAND MARK TOWNSHIP P. LTD. REPORTED IN 377 ITR 635, IN WHICH IT WAS HELD AS UNDER : SECTION 40(A)(IA) OF THE INCOME TAX ACT,1961 IS AI MED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN T HE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXP ENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESS EE. IT IS NOT A PENALTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSAT ORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPS E. THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005, BEI NG THE DATE FROM WHICH SUB- CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FI NANCE (NO. 2) ACT, 2004. THE FIRST PROVISO TO SECTION 201(1) OF THE ACT HAS BEEN INSERTED TO BENEFIT THE ASSESSEE. IT ALSO STATES THAT WHERE A PERSON FAILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED T O THE ACCOUNT OF A RESIDENT, SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139. WHAT IS COMMON TO BOTH PROVISOS TO SEC TIONS 40(A)(IA) AND 201(1) OF THE ACT IS THAT AS LONG AS THE PAYEE OR RESIDENT HAS FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WH ICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS ALSO PAID TAX ON SUCH INC OME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. HELD, DISMISSING THE APPEAL, THAT THE PAYEES HAD FI LED RETURNS AND OFFERED THE SUMS RECEIVED TO TAX. NO DISALLOWANCE COULD BE MADE UNDER SE 40(A)(IA). 3 12(I). THE LD. DR ALSO STATED THAT MATTER MAY BE REMANDED TO THE ASSESSING OFFICER FOR VERIFICATION OF THE FACTS . 13. ON CONSIDERATION OF THE SUBMISSIONS OF THE PART IES, WE ARE OF THE VIEW MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL VERIFY THE FACT OF PAYMENT OF TAXES ON FILING THEIR RETURN OF INCOME IN THE LIGHT OF DECISION OF THE DELHI HIGH COURT IN TH E CASE OF CIT VS ANSAL LAND MARK TOWNSHIP P. LTD. SUPRA). THE AS SESSING OFFICER SHALL GIVE REASONABLE SUFFICIENT OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. 14. IN THE RESULT, GROUND NO. 7 OF THE APPEAL OF TH E ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. ON THE OTHER HAND LD. DR RELIED UPON THE ORDER O F THE AUTHORITIES BELOW. 8. ON CONSIDERATION OF THE SUBMISSION OF THE PARTIE S, I AM OF THE VIEW MATTER WAS RECONSIDERED AT THE LEVEL OF THE AO. THE AO SHA LL VERIFY THE FACT OF THE PAYMENT OF TAXES ON FILING RETURN OF INCOME BY THE ABOVE PARTIES, IN THE LIGHT OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. ANSAL LAND MARK TOWNSHIP P. LTD. 377 ITR 635 AND IN THE LIGHT OF OR DER OF THE TRIBUNAL IN THE CASE OF M/S HEERA MOTI AGRO INDUSTRIES (SUPRA). THE AO SHAL L GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 2 & 3 OF APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO. 4 READS AS UNDER: 4. THAT THE WORTHY CIT(A) HAS ALSO ERRED IN CONFI RMING THE DISALLOWANCE OF RS. 46,140/- MADE BY THE ASSESSING OFFICER, BEING 1/6 TH OF CAR EXPENSES AND TELEPHONE EXPENSES FOR PERSONAL USE OF ASSESSEE AS PER PARA-5 OF HIS ORDER AS PER DETAIL GIVEN HEREUNDER:- CAR EXPENSES RS. 74,338/- CAR DEPN. RS. 1,40,237/- CAR INSURANCE RS. 18,515/- TELEPHONE EXPS. RS. 43,749/- TOTAL RS. 2,76,839/- (1/6 TH OF ABOVE RS. 46,140/-) 10. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DIS ALLOWANCE OF 1/6 OF THESE EXPENDITURES IS EXCESSIVE. SINCE THIS IS A CASE OF FIRM THEREFORE 1/10 OF THE EXPENDITURE MAY BE RESTRICTED. 11. ON THE OTHER HAND LD. DR RELIED UPON THE ORDER OF THE AUTHORITIES BELOW. 4 12. CONSIDERING THE SUBMISSION OF THE PARTIES IN TH E LIGHT OF THE FINDINGS OF THE AUTHORITIES BELOW AND THAT ASSESSEE FIRM DECLARED I NCOME OF RS. 65,820/- THEREFORE DISALLOWANCE OF 1/6 OF THESE EXPENDITURES IS EXCESSIVE. I ACCORDINGLY SET ASIDE AND MODIFY ORDER OF THE AUTHORITIES BELOW AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE ON THESE EXPENSES TO 1/10 OF THE T OTAL EXPENDITURE CLAIMED INSTEAD OF 1/6. AO SHALL RE-WORKOUT THE ADDITION AC CORDINGLY. 13. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED : 01/06/2017 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, THE CIT(A), THE DR