Dy. CIT 1(1), Bhopal V. M/s. Ashkom Media India (P) Ltd., Bhopal

ITA 170/Ind/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7165 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 21-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S S DESH
• Keywords: Capital asset; Business income; Business expenditure; Non-deduction of tax; Capital receipt; Revenue expenditure; TDS; Liquidation; FORM 26AS
• Section: 143(3); 142(1); 143(2); 40a(ia); 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HONBLE RAJPAL YADAV, VICE PRESIDENT AND SHRI MANISH BORAD, ACCOUNTANT MEMBER VIRTUAL HEARING ITA NO.170/IND/2019 ASSESSMENT YEAR: 2013-14 DCIT 1(1) BHOPAL : APPELLANT V/S M/S. ASHKOM MEDIA INDIA PVT. LTD. BHOPAL PAN:AAACO4374Q : RESPONDENT REVENUE BY SHRI HARSHIT BARI, SR. DR RESPONDENT BY SHRI S.S. DESHPANDE, AR DATE OF HEARING 05.08.2021 DATE OF PRONOUNCEMENT 01.09.2021 O R D E R PER MANISH BORAD, A.M THE ABOVE CAPTIONED APPEAL FILED AT THE INSTANCE O F THE REVENUE FOR ASSESSMENT YEAR 2013-14 IS DIRECTED AGA INST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS) (I N SHORT LD. CIT],-1 BHOPAL DATED 24.12.2018 WHICH IS ARISING O UT OF THE M/S. ASHKOM MEDIA INDIA P. LTD. . ITA NO.17/IND/2019 2 ORDER U/S 143(3) OF THE INCOME TAX ACT 1961(IN SHO RT THE ACT) DATED 31.03.2016 FRAMED BY ITO-1(2), BHOPAL. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL IN ITANO.170/IND/2019: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.33,00,000/- BY HOLDING THAT FORFEITURE OF SECURI TY DEPOSIT WAS CAPITAL IN NATURE AND AS THE AMOUNT WAS NEVER CLAIMED AS REVENUE EXPENDITURE IN THE PAST, WHEREAS SUCH SECURITY DEPOSIT FORFEITED IS IN THE N ATURE OF BENEFIT ARISEN IN THE HANDS OF THE ASSESSEE AND IS LIABLE TO TAX AS BUSINESS INCOME OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,33,59,716/- TOWARDS THE PAYMENTS MADE ON BEHALF OF M/S. EION TELECOM BY HOLDING THAT TDS ARI SES IN THE HANDS OF THE PRINCIPAL AND THE AGENT WHO IS MAKING THE PAYMENT/EXPENSE ON HALF OF THE PRINCIPAL IS NOT LIABLE TO TDS? 2. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY. E-RETURN OF INCOME FILED ON 29.09.2013 DECLARING INCOME OF RS. 26,77,0 90/-. CASE SELECTED FOR SCRUTINY FOLLOWED BY SERVING OF NOTICE S U/S 143(2) AND 142(1) OF THE ACT. THE ASSESSEE COMPANY IS INTO THE BUSINESS OF MANPOWER OUTSOURCING. NET PROFIT SHOWN DURING THE Y EAR WAS 2.69% AS AGAINST 2.70% IN THE IMMEDIATELY PRECEDING YEAR. TURNOVER OF THE COMPANY IS RS.15.95 CR. THE ASSESSE E WAS ASKED TO EXPLAIN THE REASONABLENESS AND GENUINENESS OF EX PENSES AND M/S. ASHKOM MEDIA INDIA P. LTD. . ITA NO.17/IND/2019 3 OTHER DETAILS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. SUBMISSIONS MADE BY THE ASSESSEE WERE CONSIDERED. L D. AO COMPLETED THE ADDITION AFTER MAKING FOLLOWING TWO A DDITIONS ASSESSING INCOME AT RS.2,93,36,806/-: A. SECURITY DEPOSIT FORFEITED OF RS.33,00,000/- B. DISALLOWANCE U/S 40A(IA) FOR NON-DEDUCTION OF TD S OF RS.2,33,69,716/-. 3. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE TH E LD. CIT(A) AND SUCCEEDED. NOW REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. 4. LD. DR VEHEMENTLY ARGUED SUPPORTING THE ORDER OF THE LD. AO. 5. PER CONTRA LD. COUNSEL FOR THE ASSESSEE APART FR OM PLACING RELIANCE ON THE FINDING OF LD. CIT(A) ALSO MADE SUB MISSION REFERRING TO THE WRITTEN SUBMISSIONS FILED BEFORE F IRST APPELLATE AUTHORITY AND THE PAPER BOOK DATED 15.07.2020 PAGE NO. 1 TO 168 . 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. AS REGARDS THE FIRST ISSUE OF DEL ETION OF ADDITION FOR SECURITY FORFEITED, WE OBSERVE THAT SUM OF RS.3 3,00,000/- WAS CREDITED IN P & L ACCOUNT UNDER THE HEAD OF OTHER INCOME. THE ASSESSEE WHILE FURNISHING RETURN OF INCOME REDUCED THIS SUM M/S. ASHKOM MEDIA INDIA P. LTD. . ITA NO.17/IND/2019 4 FROM PROFIT AS PER P & L ACCOUNT IN THE COMPUTATION OF INCOME. WHEN THE ASSESSEE WAS ASKED TO JUSTIFY THE BASIS FO R NOT OFFERING INCOME OF RS.33,00,000/- TO TAX IT WAS SUBMITTED TH AT THE FORFEITED SECURITY DEPOSIT IS A CAPITAL RECEIPTS AN D NOT LIABLE TO BE TAXED. BUT LD. AO WAS NOT SATISFIED AND HE MADE THE ADDITION AGAINST WHICH THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD. CIT(A) WHO AFTER CONSIDERING THE ASSESSEES SUBMISS IONS MENTIONED IN PARA 7.2 OF THE IMPUGNED ORDER DELETED THE ADDITION OBSERVING AS FOLLOWS:- 7.3 IT IS OBSERVED THAT ASSESSE WAS RENDERING CERT AIN SERVICES TO M/S WAVESET INC FOR WHICH PURPOSE IT HAD TAKEN A PROPER TY SITUATED AT BANGALORE ON LEASE FOR WHICH A SECURITY DEPOSIT OF RS.33,00,000/- WAS GIVEN BY THE ASSESSEE TO THE LAND LORD OF THE PROPE RTY. THE ASSESSEE TOOK AN EQUIVALENT AMOUNT AS SECURITY DEPOSIT FROM WAVESET INC. SUBSEQUENTLY THE SAID COMPANY WENT INTO LIQUIDATION AND THE SAID AMOUNT WAS NOT REFUNDED AND RETAINED BY THE ASSESSE . THE SAID LIABILITY WAS CREDITED TO THE PROFIT & LOSS ACCOUNT AS THE COMPANY TO WHICH AMOUNT WAS PAYABLE HAD CEASED TO EXIST AND TH E SAME WAS NOT OFFERED TO TAX AS IT DID NOT RELATE TO ANY TRADING LIABILITY AND WAS ON CAPITAL ACCOUNT. IT IS UNDISPUTED THAT THE LIABILIT Y UNDER CONSIDERATION WAS NOT ON ACCOUNT OF ANY DEDUCTION CLAIMED BY THE ASSESSEE AND IT IS ALSO A ACCEPTED FACTS THAT THE LIABILITY WAS ON ACC OUNT OF A DEPOSIT WHICH AS RECEIVED FOR GIVING RENT DEPOSIT WHICH WAS A CAPITAL ASSET AND ACCORDINGLY THE WRITE OFF OF THE SAID DEPOSIT WILL ALSO CONSTITUTE A CAPITAL RECEIPT. THE CASE LAWS CITED BY THE APPELLANT DO SU PPORT ITS CASE. 7.4 IN VIEW OF THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE AND RELYING UPON HON'BLE SUPREME COURT DECISION IN THE CASE OF CIT V. MAHINDRA & MAHINDRA AND HON'BLE DELHI HIGH COURT DE CISION IN THE CASE OF LOGITRONICS P. LTD. VS. CIT(ITANO.1623 OF 2 010), IT IS HELD THAT THE IMPUGNED FORFEITURE OF SECURITY DEPOSIT WAS CAP ITAL RECEIPT IN NATURE AS THE AMOUNT WAS NEVER CLAIMED AS REVENUE EXPENDIT URE IN PAST. THE ADDITION IS, THEREFORE, UNJUSTIFIED AND IS DELETED. M/S. ASHKOM MEDIA INDIA P. LTD. . ITA NO.17/IND/2019 5 7. FROM PERUSAL OF THE ABOVE FINDING OF LD. CIT(A) AND JUDICIAL PRECEDENTS REFERRED THEREIN WE FIND THAT THE LIABIL ITY UNDER CONSIDERATION WAS NOT ON ACCOUNT OF ANY DEDUCTION C LAIMED BY THE ASSESSEE AGAINST INCOME/GROSS REVENUE. IT WAS A WRITE OFF OF CAPITAL RECEIPTS BEING SECURITY DEPOSIT TAKEN FROM A COMPANY FOR THE PURPOSE OF GIVING SECURITY FOR TAKING A PROPERT Y ON LEASE ON ITS BEHALF. THE COMPANY NAMELY M/S WAVESET INC FROM WHI CH THE SECURITY DEPOSITS WAS RECEIVED, WENT INTO LIQUIDATI ON AND THE SAID AMOUNT WAS NOT LIABLE TO BE REFUNDED. IN OUR VIEW T HIS SECURITY DEPOSIT IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. THUS, NO INTERFERENCE IS CALLED FOR IN THE FINDING OF LD. CI T(A). GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 8. AS REGARDS GROUND NO.2 RELATING TO DELETION OF DISALLOWANCE OF RS.2,33,59,716/- MADE FOR NON-DEDUCTION OF TAX AT S OURCE ON PAYMENTS MADE ON BEHALF OF EION TELECOM CHARGED TO PROFIT AND LOSS ACCOUNT FOR WHICH REIMBURSEMENT WAS RECEIVED A ND CREDITED TO INCOME, WE FIND THAT THE ASSESSEE USED TO PROVID E FUND MANAGEMENT SERVICES TO A CUSTOMER NAMELY EION TELEC OM P. LTD. UNDER THE ARRANGEMENT WITH THIS CLIENT ALL PAY MENTS OF THAT COMPANY WERE FIRST PAID BY THE ASSESSEE AND THEREAF TER GOT M/S. ASHKOM MEDIA INDIA P. LTD. . ITA NO.17/IND/2019 6 REIMBURSED. IN ADDITION SERVICE CHARGES WERE RECEIV ED FOR RENDERING THESE SERVICES. THE ASSESSEE IS CONSISTEN TLY FOLLOWING ACCOUNTING SYSTEM UNDER WHICH ALL PAYMENTS MADE FOR AND ON BEHALF OF THE SAID COMPANY ARE CHARGED TO EXPENSES UNDER THE HEAD DIRECT EXPENSES EION. 9. WE ALSO NOTE THAT DURING THE YEAR ASSESSEE HAS M ADE PAYMENTS OF RS.6,01,84,004/- (RS.2,33,59,716/- TOWA RDS OTHER EXPENSES AND RS.3,68,24,288/- TOWARDS SALARY OF EIO N (APPEARING AS SUCH IN DETAILS OF OTHER ADMINISTRAT IVE EXPENSES GIVEN IN SCHEDULE 34) ON BEHALF OF M/S EION TELECOM P. LTD. AND THE ASSESSEE RECEIVED REIMBURSEMENT OF RS.6,01,84,0 04/- FROM THE SAID COMPANY WHICH WAS CREDITED TO ITS INCOME A CCOUNT IN SCHEDULE 27 REVENUE FROM OPERATION UNDER THE ACCO UNT HEAD BUSINESS AUXILIARY SERVICES(REIMBURSEMENT). THE A BOVE POSITION WAS CLEARLY BROUGHT TO THE NOTICE OF THE AO DURING THE ASSESSMENT PROCEEDINGS AND THE SUBMISSION/ ANNEXURE WERE FILED WITH THE AO DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. M/S. ASHKOM MEDIA INDIA P. LTD. . ITA NO.17/IND/2019 7 10. THEREAFTER THE MATTER CAME UP BEFORE THE LD. CI T(A) WHO AFTER CONSIDERING THE SUBMISSIONS DELETED THE DISALLOWANC E U/S 40A(IA) OF THE ACT OBSERVING AS FOLLOWS:- 8.3 THE ASSESSEE HAS EXPLAINED THAT IT PROVIDED FUND MA NAGEMENT SERVICES TO 'EION TELECOM P LTD'. UNDER THE ARRANGE MENT WITH THAT CLIENT ALL PAYMENTS OF THAT COMPANY WERE FIRST PAID BY THE ASSESSEE AND THEREAFTER WERE GOT REIMBURSED. IN ADD ITION SERVICE CHARGES WERE RECEIVED FOR THESE SERVICES RENDERED. AS PER THE ACCOUNTING SYSTEM CONSISTENTLY FOLLOWED BY THE ASSE SSEE SINCE ITS INCEPTION ALL PAYMENTS MADE FOR AND ON BEHALF OF TH E SAID COMPANY WERE CHARGED TO EXPENSES UNDER THE HEAD 'DI RECT EXPENSES EION'. THESE PAYMENTS ALONG WITH THE AGREE D SERVICE CHARGES WERE BILLED TO 'EION TELECOM P LTD' AND ARE CREDITED TO INCOME ACCOUNT. THUS NO PART OF THESE PAYMENTS WAS EFFECTIVELY CHARGED TO EXPENSES AND GOT SET OFF THROUGH ITS COR RESPONDING CREDIT IN THE INCOME SIDE. M/S EION TELECOM P LTD DEDUCTED TDS, WHEREVER REQUIRED, ON THE GROSS PAYMENTS MADE BY IT TO THE ASSESSEE TOWARDS REIMBURSEMENT AND SERVICES CHARGES PAID AND SUCH TDS HAS BEEN CLAIMED BY THE ASSESSEE IN ITS RE TURN. THE TDS SO DEDUCTED AND THE CORRESPONDING RECEIPTS DO APPEA R IN FORM 26AS OF THE ASSESSEE. THE DETAILS/SUMMARY OF TDS MA DE AND DEPOSITED BY EION TELECOM P LTD DURING THE RELEVANT PERIOD WAS SUBMITTED TO THE A.O. IT HAS ALSO BEEN INFORMED BY AR THAT THE ASSESSMENT OF EION TELECOM P LTD WAS ALSO COMPLETED U/S 143(3) SIMULTANEOUSLY AND THE SAID PARTY WAS NOT FOUND TO HAVE DEFAULTED IN MAKING COMPLIANCE OF ITS TDS LIABILITY IN ANY MANNER. THE AO OF THE SAID COMPANY IN THE ASSESSMENT ORDER HAS SPECIFICALLY CONFIRMED THAT THE SAID COMPANY HAS MA DE TDS ON ALL EXPENSES AS PER LAW. A COPY OF THE ASSESSMENT ORDER HAS BEEN SUBMITTED. 8.4 IT IS OBSERVED THAT THE TDS ON ALL SUCH PAYMENT S WAS DULY MADE BY M/S EION TELECOM ON WHOSE BEHALF THE PAYMENTS WERE MADE BY THE ASSESSEE AND AS SUCH THE ASSESSEE DID N OT HAVE ANY LIABILITY TO DEDUCT TDS. IT IS A WELL SETTLED PRINC IPLE OF LAW THAT THE LIABILITY TO TDS ARISES IN THE HANDS OF THE PRINCIP LE AND THE AGENT WHO IS MAKING THE PAYMENT EXPENSE ON BEHALF OF THE PRINCIPLE IS NOT LIABLE TO TDS. IT IS, THEREFORE, CONCLUDED THAT IN THIS CASE, THE ASSESSEE WAS ACTING AS AN AGENT AND HAD GOT ALL THE PAYMENTS MADE, REIMBURSED FROM THE CLIENT. THEREFORE, QUA THE ASSESSEE, THE PAYMENTS WERE ONLY REIMBURSEMENTS NOT LIABLE FO R TDS DEDUCTION AT THE END OF THE ASSESSEE. 8.5 REGARDING, THE OBSERVATION OF THE AO THAT VARIOUS P AYMENTS ARE NOT IN THE NATURE OF BUSINESS EXPENSES IT IS OB SERVED THAT THE APPELLANT HAD PROVIDED THE SERVICES TO THE SAID CLI ENT AND ALL M/S. ASHKOM MEDIA INDIA P. LTD. . ITA NO.17/IND/2019 8 PAYMENTS MADE ON BEHALF OF THE CLIENT WERE GOT REIM BURSED FROM THE CLIENT ALONG WITH APPLICABLE SERVICES CHARGES. THEREFORE, THE NATURE OF EXPENSES AND ITS ALLOWABILITY IS TO BE SE EN IN THE HANDS OF M/S EION TELECOM P LTD. AS THE APPELLANT HAD MERELY ACTED AS AN AGENT AND HAD GOT ALL THE PAYMENTS MADE REIMBURSED FROM THE CLIENT, THE NATURE OF EXPENSES WAS NOT RELEVANT IN THE CASE OF ASSESSEE. 8.6 IT HAS ALSO BEEN POINTED OUT BY THE APPELLANT THAT SIMILAR TRANSACTIONS- WERE UNDERTAKEN BY THE ASSESSEE WITH THE SAME CONCERN IN PREVIOUS YEAR (A.Y 2012-13) & IN SUBSEQUENT YEAR (A.Y 2014-15). ASSESSMENT OF BOTH THESE YEARS WAS COMPLETED UJS 143(3) AND NO ADDITION WAS MADE ON THIS ACCOUNT. COPIES OF ASSESSMENT ORDERS HAVE BEEN FILED. THEREFORE, CLEARLY THE A.O. WAS INCONSISTENT IN HIS APPROACH IN TREATING THE REIMBURSEMENTS AS E XPENDITURES IN THE HANDS OF THE APPELLANT. 8.7 IN VIEW OF THE OVERALL DISCUSSION MADE ABOVE AN D ALSO CONSIDERING THAT NO DISALLOWANCE IN THIS REGARD ON IDENTICAL FACTS HAS BEEN MADE, IN EARLIER AND SUBSEQUENT ASSESSMENT S, FINALIZED U/S 143(3), THE ADDITION MADE BY THE ASSESSING OFFI CER IS FOUND TO BE INCORRECT AND UNJUSTIFIED. THE ADDITION IS, THER EFORE, DELETED. 11. FROM PERUSAL OF THE ABOVE FINDING OF LD. CIT(A) WHICH STANDS UNCONTROVERTED BY THE LD. DR, WE FIND THAT THE M/S. EION TELECOM P. LTD. HAS DEDUCTED THE INCOME TAX AT SOUR CE AS APPLICABLE ON ALL THE EXPENSES FARMING PART OF THE ALLEGED DISALLOWANCE. THE DETAILS/SUMMARY OF TDS DEDUCTED A ND DEPOSITED BY EION TELECOM PVT. LTD. DURING THE RELE VANT PERIOD STANDS SUBMITTED BEFORE THE LD. AO. M/S EION TELECO M PVT. LTD. WAS ASSESSED U/S 143(3) OF THE ACT FOR A.Y. 2013-14 AND SAME WAS NOT FOUND TO HAVE MADE ANY DEFAULT IN MAKING CO MPLIANCE TO THE TDS PROVISIONS. ALSO IN ASSESSEES OWN CASE FOR A.Y. 2012-13 AND 2013-14 UNDER THE SIMILAR SET OF FACTS NO DISAL LOWANCE HAVE M/S. ASHKOM MEDIA INDIA P. LTD. . ITA NO.17/IND/2019 9 BEEN MADE IN THE ASSESSMENT FRAMED U/S 143(3) OF TH E ACT. WE, THEREFORE, UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND FACTUAL MATRIX FIND NO INFIRMITY IN THE FINDING OF LD. CIT(A) DELETING DISALLOWANCE OF RS. 2,33,59,716/- U/S 40A (IA) OF THE ACT. ACCORDINGLY GROUND NO.2 OF THE REVENUES APPEAL IS ALSO DISMISSED. 12. IN THE RESULT, REVENUES APPEAL IN ITANO.170/IND/2019 IS DISMISSED. THE ORDER PRONOUNCED AS PER RULE 34 OF ITAT RULES, 1963 ON 01.09.2021. SD/- SD/- (RAJPAL YADAV) (M ANISH BORAD) VICE PRESIDENT ACCOUNTA NT MEMBER / DATED : 01.09.2021 PATEL/PS COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ASSTT. REGISTRAR, I.T.A.T., INDORE