M/s Margadarsi Chit Fund Private Limited, Hyderabad V. DCIT., Circle-16(2), Hyderabad, Hyderabad

ITA 1700/HYD/2014

• Counselvise Citation: 170022514 RSA 2014
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-03-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 05-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: K GOPAL
• Keywords: Revised return
• Section: 143(3); 194C

Judgement Text

ITA NOS.1700 AND 1718 OF 2014 MARGADARSI CHIT FUND P LTD HYD. PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1700/HYD/2014 (ASSESSMENT YEAR: 2011-12) MARGADARSI CHIT FUND PRIVATE LIMITED, HYDERABAD PAN- AABCM 4751 G VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(2) HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.1718/HYD/2014 (A.Y 2011-12) DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(2) HYDERABAD VS. MARGADARSI CHIT FUND PRIVATE LIMITED, HYDERABAD PAN- AABCM 4751 G (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K. GOPAL FOR REVENUE : SMT. G. APARNA RAO, DR DATE OF HEARING : 18.03.2015 DATE OF PRONOUNCEMENT : 13 .05.2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THESE ARE THE CROSS APPEALS PREFERRED BY THE ASSES SEE AND THE REVENUE AGAINST THE ORDER OF THE CIT (A)-V, HYD ERABAD, DATED 11.08.2014. 2. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS ENG AGED IN THE BUSINESS OF RUNNING CHIT FUND BUSINESS, ENTERTAINME NT, FOOD PROCESSING AND FARM MAINTENANCE. FOR A.Y 2011-12, A SSESSEE COMPANY FILED ITS RETURN OF INCOME ON 29.09.2011 AD MITTING TOTAL INCOME OF RS.88,24,87,208 AND LATER FILED A REVISED RETURN OF ITA NOS.1700 AND 1718 OF 2014 MARGADARSI CHIT FUND P LTD HYD. PAGE 2 OF 8 INCOME ON 15.3.2013 ADMITTING GROSS TOTAL INCOME OF RS.88,10,55,036. THE AO COMPLETED THE ASSESSMENT U/ S 143(3) OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSE SSEE COMPANY AT RS.540,53,59,193 BY MAKING DISALLOWANCE U/S 40(1 )(IA) FOR NON DEDUCTION OF TAXES ON PAYMENTS MADE TO M/S. USH A KIRON MOVIES LTD OF RS.38,66,773, AMONG OTHER DISALLOWANC ES. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE COMPANY HAD MADE DIFFERE NT PAYMENTS TO M/S USHA KIRON MOVIES LTD. OUT OF THIS PAYMENTS, TDS IS MADE ON SOME OF THE PAYMENTS, WHEREAS TDS HA S NOT BEEN MADE ON SOME OTHER PAYMENTS.DURING FINANCIIAL YEAR 2010- 11, IT WAS OBSERVED THAT THE ASSESSEE COMPANY HAS M ADE A PAYMENT OF RS.1,27,66,093 TO USHA KIRON MOVIES ON W HICH NO TAX WAS DEDUCTED AT SOURCE ON AN AMOUNT OF RS.38,66 ,773. IN THIS CONNECTION ASSESSEE COMPANY WAS ASKED TO EXPLA IN WHY THESE PAYMENTS SHOULD NOT BE DISALLOWED AS THESE PA YMENTS ARE MADE TOWARDS COMPOSITE CONTRACT ENTERED INTO WITH M /S USHA KIRON MOVIES LTD. IN RESPONSE TO THIS, ASSESSEE COM PANY REPLIED THAT THESE PAYMENTS WERE MA DE TO M/S USHA KIRON MOVIES AMOUNTING TO RS.38,66,773 WILL NOT ATTRACT TDS AS M OST OF THE HEAD OF ACCOUNTS INVOICES INCLUDES VAT WHICH WERE T REATED AS PURCHASES IN NATURE. FURTHER IT WAS SUBMITTED BY TH E ASSESSEE THAT ALL THE PAYMENTS WERE MADE AS PER MOU ENTERED BY BOTH THE PARTIES. 4. AO STATED AS FOLLOWS: ON VERIFICATION OF MOU, IT IS OBSERVED THAT M/S USHA KIRON MOVIES LTD HAS TO PROVIDE MARKETING SERVICES TO M/S MARGADARSI CHIT FUND PVT. LTD FOR THE PURPOSE OF COMMERCIAL EXPLOITATION OF THE VARIO US ITA NOS.1700 AND 1718 OF 2014 MARGADARSI CHIT FUND P LTD HYD. PAGE 3 OF 8 FACILITIES CREATED IN FILM CITY. IN THIS MOU THERE IS A CLAUSE AS PER WHICH M/S MARGADARSI CHIT FUND PVT. LTD HAS TO REIMBURSE ALL THE CHARGES/COSTS FOR UTILIZING INFRASTRUCTURAL FACILITIES. THIS CLEARLY SHOWS THAT ALL THE PAYMENTS MADE BY M/S MARGADARSI CHIT FUND PVT LTD TO M/S USHA KIRON MOVIES LTD IS AS PER THIS MOU. OUT OF THESE PAYMENTS, SOME ARE SUBJECTED TO TDS, WHEREAS SOME ARE NOT SUBJECTED TO TDS IN THE PRETEXT OF PURCHASES. THIS IS NOT ACCEPTABLE. BECAUSE ALL THE PAYMENTS ARE MADE IN CONNECTION WITH A COMPOSITE CONTRACT WITH M/S USHA KIRON MOVIES LTD IN CONNECTION MARKETING OF VARIOUS FACILITIES CREATED IN FILM CITY. HENCE IRRESPECTIVE OF NATURE OF EACH PAYMENT, ALL THE PAYMENTS SHOULD HAVE SUBJECTED TO TDS. IN THIS CONNECTION IT IS REL IED ON HON'BLE SUPREME COURT DECISION IN CASE OF CHATTURBHUJ VITHALDAS JASAR V. MORESHWAR PARASHRAM (1954) AIR 1954 SC 236. IN THIS CASE, HON'BLE APEX COURT OPIED AS UNDER: WHEN A CONTRACT CONSISTS OF A NUMBER OF TERMS AND CONDITIONS, EACH CONDITION DOES NOT FORM A SEPARATE CONTRACT, BUT IS AN ITEM IN THE ONE CONTRACT OF WHICH IT IS A PART. THE CONSIDERATION FOR EACH CONDITION IN A CASE LIKE THI S IS THE CONSIDERATION FOR THE CONTRACT TAKEN AS A WHILE. IT IS NOT SPLIT UP INTO SEVERAL CONSIDERATIONS APPORTIONED BETWEEN EAC H TERM SEPARATELY. IN VIEW OF THE ABOVE IT IS VERY CLEAR THAT THE ASSESSEE COMPANY DEFAULTED IN DEDUCTING TAX ON PAYMENTS OF RS.38,66,773 MADE TO M/S. USHA KIRON MOVIES LTD. HENCE THE SAME IS DISALLOWED U/S 40(A)(IA) AND ADDED TO THE INCOME RETURNED. 5. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A) AND SUBMITTED THAT A SUM OF RS.38,66,773 WAS MADE FOR PURCHASES ON WHICH VAT WAS LEVIED AND HENCE PROVISIONS OF SEC TION 194C REGARDING DEDUCTION OF TAX ON WORKS CONTRACT WILL N OT APPLY. ALTERNATIVELY, ASSESSEE SUBMITTED THAT IF IT IS TRE ATED AS SINGLE CONTRACT, THE TOTAL VALUE OF THE CONTRACT WAS RS.11 ,27,66,093 THE ITA NOS.1700 AND 1718 OF 2014 MARGADARSI CHIT FUND P LTD HYD. PAGE 4 OF 8 DEDUCTION U/S 194C ON THIS AMOUNT WORKS OUT TO RS.2 ,55,322 AND AS THE ASSESSEE HAD PAID TDS OF RS.4,88,590 ON THIS CONTRACT, THERE SHALL BE NO DISALLOWANCE ON THE SAM E. 6. THE CIT (A) HELD THAT HE HAD ALREADY DECIDED THE ISSUE IN HIS ORDER FOR A.Y 2010-11 AND FOR THE SAME REASONS THE AO IS JUSTIFIED IN MAKING THE ADDITION OF RS.38,66,773. T HUS, THE CIT (A) CONFIRMED THE ORDER OF THE AO. 7. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE AND RAISED THE FOLLOWING EFFECTIVE GROUNDS: 2(A) THE CIT (A) GROSSLY ERRED IN SUSTAINING THE DISALLOWANCE OF RS.38,66,773 U/S 40(A)(IA) FOR NON- DEDUCTION OF TDS ON PAYMENTS MADE TO USHA KIRON MOVIES STATING THAT ALL PAYMENTS MADE TO USHA KIRON MOVIES ARE BY VIRTUE OF A CONTRACT AND THEREFORE, S UCH PAYMENTS ARE LIABLE FOR TDS IRRESPECTIVE OF THE FAC T THAT WHETHER SUCH PAYMENTS ARE LIABLE FOR TDS OR NOT UND ER CHAPTER XVII-B OF THE INCOME TAX ACT 1961. THE CIT (A) FAILED TO NOTE THAT MOST OF THE ITEMS FOR WHICH PAY MENTS WERE MADE WERE FOR SUPPLY OF GOODS WHICH DO NOT ATT RACT THE PROVISIONS OF TAX DEDUCTION UNDER CHAPTER XCIIB OF THE I.T. ACT. 1961. (B) WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT S UBMITS THAT SINCE TAX WAS DEDUCTED ON PAYMENTS MADE TO USH A KIRON MOVIES, THOUGH AT LOWER RATE, NO DISALLOWANCE IS WARRANTED U/S 40(A)(IA). 8. FURTHER, THE ASSESSEE RAISED THE FOLLOWING ADDIT IONAL GROUNDS: 1. THE CIT (A)-V HYDERABAD (HEREINAFTER REFERRED T O AS THE LD CIT (A)) ERRED IN CONFIRMING THE DISALLOWA NCE OF RS.38,66,773 MADE BY THE LD.AO U/S 40(A)(IA) OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HA S PAID RS.1,27,66,093 AGAINST THE COMPOSITE CONTRACT AND H AS DEDUCTED TDS OF RS.4,38,590. HENCE THE DISALLOWANCE BY INVOKING SECTION 40(A)(IA) ON THE GROUND THAT TA X IS NOT DEDUCTED AT SOURCE IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. ITA NOS.1700 AND 1718 OF 2014 MARGADARSI CHIT FUND P LTD HYD. PAGE 5 OF 8 2. WITHOUT PREJUDICE TO THE ABOVE THE LD CIT (A) ER RED IN DISALLOWING AMOUNT OF RS.38,66,773 BY INVOKING SECT ION 40(A)(IA) WITHOUT APPRECIATING THE FACT THAT THE SA ID AMOUNT HAS BEEN ACCOUNTED BY THE PAYEE IN ITS REGUL AR BOOKS OF ACCOUNTS AND CONSIDERED FOR COMPUTING INCO ME FOR THE IMPUGNED A.Y. HENCE THE DISALLOWANCE OF RS.38,66,773 U/S 40(A)((IA) IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. 9. THE LD DR RELIED ON THE DECISION OF SA BUILDERS (289 ITR 26) AND OBJECTED FOR THE ADDITIONAL GROUNDS TO BE ADMIT TED. THE DR ALSO RELIED ON THE DECISION IN THE CASE OF CIT VS.S OUTHERN GROUP INDUSTRIES LTD (300 ITR 113) (CHENNAI) AND THE ITAT HYDERABAD B BENCH DECISION IN IT(SS)A NO.26/HYD/2009 IN THE CASE OF JAWAHARLAL VS. DCIT DATED 3.9.2004. 10. THE LD COUNSEL FOR THE ASSESSEE COUNTERED THE A RGUMENTS OF THE DR AND STATED THAT THE ISSUES RAISED IN THE ADD ITIONAL GROUNDS WERE ALREADY THERE BEFORE THE AO AND THE CI T (A) AND NO FRESH FACTS OR ADDITIONAL FACTS HAVE BEEN BROUGHT O UT BY THESE ADDITIONAL GROUNDS. 11. WE HEARD BOTH THE PARTIES. WE FIND THAT THE SAI D ISSUES RAISED IN THE ADDITIONAL GROUNDS OF APPEAL ARE LEGA L ISSUES AND GO TO THE ROOT OF THE MATTER. RELYING UPON THE DECISIO N OF THE APEX COURT IN THE CASE OF NATIONAL THERMAL POWER CORPORA TION (229 ITR 383 (S.C) AND THE DECISION OF THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF AHMEDABAD ELECTRIC COMPANY LTD VS. CIT (199 ITR 351), WE ADMIT THE ADDITIONAL GROUNDS OF A PPEAL. 12. WE ARE OF THE OPINION THAT THE CONTENTION OF TH E ASSESSEE IS TO BE ACCEPTED. IF ANY PAYMENT IS MADE TOWARDS PURC HASE OF ARTICLES ON WHICH VAT IS LEVIABLE, THEN SECTION 194 C WILL NOT APPLY FOR THE SAME. EVEN IF IT IS ASSUMED THAT THE ENTIRE TAX IS TO ITA NOS.1700 AND 1718 OF 2014 MARGADARSI CHIT FUND P LTD HYD. PAGE 6 OF 8 BE TAKEN AS A SINGLE ONE AND THE PURCHASES ON WHICH VAT WAS PAID SHOULD NOT BE SEGREGATED, EVEN THEN THE ASSESS EE HAS PAID TDS OF RS.4,38,590 WHICH IS IN EXCESS OF THE REQUIR ED RATE U/S 194C ON THE TOTAL VALUE OF THE CONTRACT AMOUNTING T O RS.1,27,66,093. FURTHER THE ASSESSEE HAS PAID THE ENTIRE AMOUNT OF RS.38,66,773 BEFORE THE CLOSURE OF THE YE AR AND NO PART OF THE SAME IS OUTSTANDING AS ON 31.3.2011. TH E SAID AMOUNT HAS BEEN ACCOUNTED BY THE PAYEE IN ITS REGUL AR BOOKS OF ACCOUNTS AND CONSIDERED FOR COMPUTING INCOME FOR TH E IMPUGNED A.Y. HENCE APPLYING THE DECISION OF THE SPECIAL BEN CH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ADDITIONAL CIT (A) (16 ITR TRIB-1 VISAKA SB), WE HOLD THAT THE DISALLOWANCE U/ S 40(A)(IA) CANNOT BE MADE IN RESPECT OF THE AMOUNT WHICH HAS A LSO BEEN PAID DURING THE YEAR. IN VIEW OF THE ABOVE DISCUSSI ON, WE DELETE THE DISALLOWANCE OF RS.38,66,773 U/S 40(A)(IA) FOR NON DEDUCTION OF TDS AND ALLOW THE APPEAL OF THE ASSESSEE. 13. IN THE RESULT APPEAL IN ITA NO.1700/HYD/2014 IS ALLOWED. ITA NO.1718/HYD/2014- REVENUES APPEAL 14. THE FIRST ISSUE IS REGARDING DISALLOWANCE OF DIVIDEND/INTEREST PAID ON SUBSCRIPTION PAID TO THE SUBSCRIBERS WITHOUT DEDUCTING TAX U/S 194H. THE AO HELD THAT TH E PAYMENT OF DIVIDEND TO CHIT FUND SUBSCRIBERS TAKES ON THE C HARACTER OF INTEREST ON DEPOSITS AND ACCORDINGLY TDS WAS TO BE DEDUCTED ON THESE PAYMENTS. ADDITION OF RS.451,72,94,766 U/S 40 (A)(IA) OF THE ACT MADE. THE CIT (A) DELETED THE ADDITION. REV ENUE IS IN APPEAL BEFORE US. 15. WE FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAV OUR OF THE ASSESSEE BY THE JURISDICTIONAL HIGH COURT FOR THE A .Y 2008-09 IN ITA NOS.1700 AND 1718 OF 2014 MARGADARSI CHIT FUND P LTD HYD. PAGE 7 OF 8 ASSESSEES OWN CASE, WHEREIN THE APPEAL FILED BY TH E DEPARTMENT WAS DISMISSED BY THE HON'BLE HIGH COURT AND THE HON 'BLE SUPREME COURT UPHELD THE JUDGMENT OF THE HON'BLE HI GH COURT OF ANDHRA PRADESH DISMISSING THE SLP FILED BY THE R EVENUE IN SLP NO.9454/2014. IN THIS VIEW OF THE MATTER, RESPE CTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT, WHOSE DECISION WAS UPHELD BY THE HON'BLE SUPREME COURT, W E DISMISS THE APPEAL OF THE REVENUE REGARDING DISALLOWANCE OF INTEREST/DIVIDEND PAID TO THE SUBSCRIBERS WITHOUT D EDUCTION OF TAX. 16. THE NEXT ISSUE IS REGARDING PROPORTIONATE DISAL LOWANCE OF EXPENSES ON THE GROUND THAT DIFFERENT OFFICERS OF T HE ASSESSEE COMPANY MADE COLLECTION ON BEHALF OF ITS SUBSIDIARY COMPANIES AND ACCORDINGLY PROPORTIONATE EXPENSES APPORTIONED ON THE BASIS OF COLLECTION WERE DISALLOWED BY THE AO. 17. BEFORE THE CIT (A), ASSESSEE RELIED ON THE DECI SION IN THE CASE OF SA BUILDERS V. CIT (288 ITR 1). FOLLOWING T HE DECISION OF THE EARLIER YEARS, THE CIT (A) DISALLOWED A SUM OF RS.3.00 LAKHS BEING THE EXPENSES INCURRED ON BEHALF OF THE SUBSID IARY COMPANY. 18. WE FIND THAT THE ISSUE IS COVERED BY THE DECISI ON OF THE HYDERABAD BENCH OF THE ITAT IN ASSESSEES OWN CASE FOR A.Y 2010-11 IN ITA NO.1620/HYD/2013 DATED 11/02/2015 WH EREIN IT WAS HELD THAT ONLY THE EXPENDITURE INCURRED FOR COLLECTION OF SUBSCRIPTION OF THE OTHER GROUP COMPANIES SHOULD BE PROPORTIONATELY DISALLOWED IN THAT YEAR. THE CIT ( A) DISALLOWED AN EXPENDITURE OF RS.2.00 LAKHS ON THE GROUND THAT VERY LITTLE EXPENDITURE WERE DEPLOYED FOR COLLECTION OF SUBSCRI PTION FROM ITA NOS.1700 AND 1718 OF 2014 MARGADARSI CHIT FUND P LTD HYD. PAGE 8 OF 8 OTHER GROUP COMPANIES. THUS COLLECTION WAS DONE AS MINOR ADDITIONAL WORK ALONG WITH REGULAR EMPLOYMENT. IN T HIS VIEW OF THE MATTER, THE DISALLOWANCE OF RS.2.00 LAKHS WAS C ONFIRMED BY THE TRIBUNAL. 19. WE FIND THAT THE FACTS OF DISALLOWANCE OF RS.3. 00 LAKHS IS IDENTICAL WITH THOSE FOR THE EARLIER A.Y 2010-11 AN D THE CIT (A) HAS MADE DISALLOWANCE OF RS.3.00 LAKHS ON THE SAME BASIS AS HAS BEEN DONE FOR THE A.Y 2010-11. IN THESE CIRCUMS TANCES, WE HAVE NO HESITATION IN ACCEPTING THE DISALLOWANCE OF RS.3.00 LAKHS MADE BY THE CIT (A) AND DISMISS THE APPEAL OF THE R EVENUE SEEKING A HIGHER DISALLOWANCE. HENCE THE APPEAL OF THE REVENUE IS DISMISSED. 20. IN THE RESULT, APPEAL IN ITA NO.1718/HYD/2014 F ILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MAY, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 13 TH MAY, 2015. VNODAN/SPS COPY TO: 1. MARGADARSI CHIT FUND (P) LTD., 5-10-195 CORPORATE O FFICE, OPP: POLICE CONTROL ROOM, HYDERABAD 500004 2. DY. COMMISSIONER OF INCOME TAX CIRCLE 16(2) HYDERAB AD 3. CIT(A) V HYDERABAD 4. CIT IV HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER