ARCADIA SHARE & STOCK BROKERS P.LTD, MUMBAI V. DCIT RG 4(1), MUMBAI

ITA 1871/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84612 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: K SIVARAM
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 194C; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 1871/MUM/2013 (ASSESSMENT YEAR: 2006-07) M/S. ARCADIA SHARE & STOCK VS. DCIT, RANGE 4(1) BROKERS PVT. LTD. 328/329, NINAD CHS, 1ST FLOOR BLDG. NO. 7, SERVICE ROAD, NEAR BHAVISHYA NIDHI BHAVAN BANDRA (E), MUMBAI 400051 ROOM NO. 640, 6TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN - AAACA4562G APPELLANT RESPONDENT APPELLANT BY: SHRI K. SIVARAM RESPONDENT BY: SHRI PAVAN KUMAR BEERLA DATE OF HEARING: 22.12.2014 DATE OF PRONOUNCEMENT: 22.12.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE COMPANY IS DIRECTED AGA INST THE ORDER PASSED BY THE CIT(A)-8, MUMBAI AND IT PERTAINS TO A Y 2006-07. 2. FOLLOWING GROUNDS WERE URGED BEFORE US: - 1. THE LEARNED CIT(A) ERRED UPHOLDING THE REOPENIN G OF ASSESSMENT BY ISSUE OF NOTICE U/S. 148 DT. 29/3/2011, WITHOUT APPRECIATING THAT THE ORIGINAL ASSESSMENT HAS COMPLETED U/S. 143 (3) BY THE A.O. AFTER APPLICATION OF MIND TO THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT AND ALSO THE TDS PROVISIONS, THEREFORE AGAI N REOPENING OF ASSESSMENT ON SAME SET OF FACTS MERELY ON CHANGE OF OPINION IS BAD IN LAW. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT REO PENING OF ASSESSMENT WAS BASED ON MERE CHANGE OF OPINION AS T HERE WERE NO NEW FACTS OR TANGIBLE MATERIAL BEFORE THE A.O. T O COME TO A CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME. 3. THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALL OWANCE OF DEPOSITORY CHARGES PAID OF RS.6,27,423/- U/S. 40(A) (IA) OF THE ACT WITHOUT APPRECIATING THAT DEPOSITORY CHARGES PAID W AS NOT FOR ITA NO. 1871/MUM/2013 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. 2 TECHNICAL SERVICES THEREFORE PROVISIONS OF SEC. 194 C/194J WERE NOT APPLICABLE. 4. THE LEARNED CIT(A) FILED TO APPRECIATE THAT SEC. 40(A)(IA) IS APPLICABLE TO AMOUNT PAYABLE AND NOT ALREADY PAID. FURTHER THE EXPENSES HAD BEEN CLAIMED YEAR AFTER YEAR AND NO DI SALLOWANCE WAS MADE IN SCRUTINY ASSESSMENT THEREFORE ON BONAFI DE BELIEF NO DISALLOWANCE U/S. 40(A)(IA) OUGHT TO BE MADE. 5. THE LEARNED CIT(A) ALSO FAILED TO APPRECIATE THA T THE PAYEE ARE ASSESSED TO TAX AND ALREADY PAID TAXES ON THE SAID AMOUNT AND THEREFORE THERE SHOULD NOT BE ANY DISALLOWANCE, THE AFORESAID VIEW IS ALSO SUPPORTED BY THE SUBSEQUENT AMENDMENT MADE BY THE FINANCE ACT 2012 INSERTING PROVISO TO SECTION 4 0(A)(IA) OF THE ACT WHICH IS CLARIFICATORY IN NATURE AND INSERTED W ITH A VIEW TO RATIONALIZE THE PROVISIONS OF DISALLOWANCE, THEREFO RE THE AMENDMENT SHOULD BE APPLICABLE WITH RETROSPECTIVE E FFECT. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STAT ED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE AND ST OCK BROKING. IT DEBITED A SUM OF ` 6,27,423/- TO THE PROFIT & LOSS ACCOUNT UNDER THE H EAD DEPOSITORY CHARGES WHICH ARE PAYABLE ON ACCOUNT OF SERVICES P ROVIDED WITH REGARD TO TRANSACTIONS IN SECURITIES THROUGH STOCK EXCHANGE. ACCORDING TO THE AO ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE, UNDE R SECTION 194C OF THE ACT, WITH REFERENCE TO PAYMENTS MADE TO THE CONTRAC TOR. ASSESSEE PAID DEPOSITORY CHARGES IN ACCORDANCE WITH THE AGREEMENT MADE WITH DEPOSITORY PARTICIPANTS FOR EXECUTION OF WORK, AS PER THE RATE ALREADY FIXED. ACCORDING TO THE ASSESSEE THERE IS NO NEED TO DEDUCT TAX ON PAYM ENTS BECAUSE THESE ARE NOT FOR TECHNICAL SERVICES/FOR EXECUTION OF WORK. T HE AO, HOWEVER, IN THE REASSESSMENT PROCEEDINGS, WAS OF THE OPINION THAT T HE PAYMENTS MADE TO THE STOCK EXCHANGE, BY WHATEVER NAME CALLED, ARE TE CHNICAL SERVICE FALLING WITHIN THE PURVIEW OF SECTION 194J AND 194C AND THE ASSESSEE HAVING NOT DEDUCTED TAX HE INVOKED PROVISIONS OF SECTION 40(A) (IA) OF THE ACT. THE LEARNED CIT(A) AFFIRMED THE ACTION OF THE AO AND TH US THE ASSESSEE PREFERRED AN APPEAL BEFORE US. 4. THE CASE OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT: (A) REOPENING OF ASSESSMENT ON SAME SET OF DISALLOWANCE, WHICH WA S MADE IN THE ORIGINAL ASSESSMENT PROCEEDINGS WOULD AMOUNT TO CHANGE OF OP INION, WHICH IS NOT PERMISSIBLE UNDER LAW, (B) DEPOSITORY CHARGES DO NO T FALL UNDER THE HEAD ITA NO. 1871/MUM/2013 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. 3 TECHNICAL SERVICES SO AS TO INVOKE SECTION 40(A)( IA) SINCE IT IS ONLY A CONTRACT BETWEEN THE ASSESSEE AND THE PARTY WHO HAS TO PARTI CIPATE IN EXECUTION OF WORK, AND (C) EVEN OTHERWISE AMOUNT HAVING BEEN PAI D BY THE ASSESSEE, THIS BEING THE FIRST YEAR WHERE AMOUNT WERE SOUGHT TO BE DISALLOWED, SECTION 40(A)(IA) COMES INTO PLAY ONLY IN THE CASE OF AMOUN T PAYABLE AND NOT WITH REFERENCE TO AMOUNT PAID. RELIANCE IN THIS REGARD W AS PLACED ON THE DECISION OF THE ITAT SPECIAL BENCH IN THE CASE OF MARILYN SH IPPING & TRANSPORTS 136 ITD 23 AND SIMILAR VIEW WAS TAKEN BY THE HON'BLE AL LAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES (P) LTD. 38 TA XMANN.COM 77 (ALL) ON WHICH THE SLP FILED BY THE REVENUE HAS BEEN REJECTE D. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED DETAILED ARGUMENTS WHICH AR E REFERRED TO IN HIS WRITTEN SUBMISSIONS AND ALSO PLACED BEFORE US SUPPO RTING CASE LAW TO SUBMIT THAT REOPENING IS BASED UPON CHANGE OF OPINI ON AND EVEN OTHERWISE THERE IS NO CASE FOR MAKING A DISALLOWANCE UNDER SE CTION 40(A)(IA) BOTH ON MERIT AS WELL AS ON THE ISSUE THAT THE SAID SECTION IS APPLICABLE ONLY WHEN THE AMOUNT IS PAYABLE AND NOT AFTER PAYMENT IS MADE . 5. ON THE OTHER HAND, THE LEARNED D.R. RELIED UPON THE ORDERS PASSED BY THE TAX AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY P ERUSED THE RECORD. WE SHALL FIRST TAKE UP THE LAST ALTERNATIVE GROUND, I.E. WHEN THE PAYMENT IS MADE BY THE ASSESSEE WHETHER SECTION 40(A)(IA) CAN BE ATTRACTED? ON THIS ISSUE THIS VERY BENCH, IN THE CASE OF AMIT NARESH S HAH (ITA NO. 4154/MUM/2013), HAD TAKEN A CONSISTENT STAND THAT I N THE LIGHT OF THE DECISION RENDERED BY HON'BLE SUPREME COURT, IN THE FORM OF DISMISSAL OF REVENUES SLP IN THE CASE OF VECTOR SHIPPING SERVIC ES (P) LTD. SECTION 40(A)(IA) IS NOT APPLICABLE WITH REFERENCE TO PAYME NTS ALREADY MADE SINCE THE EXPRESSION PAYABLE HAS TO BE SATISFIED FOR INVOKI NG PROVISIONS OF SECTION 40(A)(IA). THE BENCH, IN THE AFORECITED DECISION, O BSERVED IN THIS REGARD AS UNDER: - 4. BEFORE US, DEPARTMENTAL REPRESENTATIVE(DR) STAT ED THAT ORDER OF THE SPECIAL BENCH DELIVERED IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA)HAS BEEN KEPT IN ABEYANCE OF THE HON'BLE ANDHRA PRADESH HIGH COURT, THAT THE HON'BLE GUJARAT HIGH C OURT HAD TAKEN A ITA NO. 1871/MUM/2013 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. 4 DIFFERENT VIEW. AUTHORISED REPRESENTATIVE (AR) SUPP ORTED THE ORDER OF THE FAA. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL BEFORE US. WE FIND THAT EXPENSES RELATED T O PROFESSIONAL FEES, ADVERTISEMENT AND MANAGEMENT WERE DEBITED IN P&L AC COUNT, THAT SAME WERE PAID. THEREFORE, IN OUR VIEW, NO DISALLOW ANCE U/S 40(A)(IA) OF THE ACT SHOULD BE MADE. WE FURTHER FIND THAT WHI LE DECIDING THE APPEAL IN THE CASE OF JANAPRIYA ENGINEERS SYNDICATE (I.T.T.A. NO. 352 OF 2014- DT. 24.06.2014) THE HON'BLE ANDHRA PRADESH HIGH COURT HAS CLARIFIED THE ISSUE OF INTERIM STAY GRANTED BY IT I N THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA). WE WILL LIKE TO REPR ODUCE THE RELEVANT PART OF THE SAID ORDER AND SAME READS AS UNDER: '4. WE ARE OF THE VIEW THAT UNTIL AND UNLESS THE DE CISION OF THE SPECIAL BENCH IS UPSET BY THIS COURT, IT BINDS SMAL LER BENCH AND COORDINATE BENCH OF THE TRIBUNAL. UNDER THE CIRCUMS TANCES, IT IS NOT OPEN TO THE TRIBUNAL, AS RIGHTLY CONTENDED BY MR. N ARASIMHA SARMA, LEARNED COUNSEL, TO REMAND ON THE GROUND OF PENDENC Y ON THE SAME ISSUE BEFORE THIS COURT, OVERLOOKING AND OVERRULING , BY NECESSARY IMPLICATION, THE DECISION OF THE SPECIAL BENCH. WE SIMPLY SAY THAT IT IS NOT PERMISSIBLE UNDER QUASI JUDICIAL DISCIPLINE' . FROM THE CLARIFICATION ISSUED BY THE HON'BLE HIGH C OURT, IT IS CLEAR THAT UNTIL AND UNLESS THE DECISION OF MARILYN SHIPPING & TRANSPORT (SUPRA) IS REVERSED BY THE COURT, IT IS BINDING ON ALL THE BEN CHES OF THE TRIBUNAL. WE FIND THAT HON'BLE COURT HAS HELD THAT JUDICIAL D ISCIPLINE MANDATES THAT THE DECISION OF THE SPECIAL BENCH HAS TO BE FO LLOWED BY OTHER BENCHES. AS ON TODAY, THE STAY ORDER GRANTED BY THE HONBLE COURT HAS BEEN VACATED AND THE ORDER OF THE SPECIAL BENCH IS BINDING ON OTHER BENCHES OF THE TRIBUNAL. THEREFORE, RESPECTFULLY FO LLOWING THE SAME, WE HOLD THAT THE FAA WAS JUSTIFIED IN FOLLOWING THE OR DER OF MARILYN SHIPPING & TRANSPORT (SUPRA). CONSIDERING THE FACTS OF THE CASE AND THE CLARIFICATION ISSUED BY THE HON'BLE ANDHRA PRADESH HIGH COURT ON 24.06.2014 IN THE CASE OF JANAPRIYA ENGINEERS SYNDI CATE, WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASS ESSEE AND CONFIRM THE ORDER OF THE FAA . 7. REVERTING TO THE FACTS ON HAND, THE TAX AUTHORITIES HAD NOT DISPUTED THE FACT THAT THE ASSESSEE PAID DEPOSITORY CHARGES WITHOUT DEDUCTING THE TAX AND TAXES ARE ALREADY PAID BY THE RECIPIENT [SEE PA RA 3.3 & 3.4 OF THE ORDER PASSED BY THE CIT(A)]. SINCE THE AMOUNT WAS ALREADY PAID AND THE TAXES ARE PAID BY THE RECIPIENT, IN OUR OPINION, THE DECISION OF THE SPECIAL BENCH IN THE CASE OF MARILYN SHIPPING & TRANSPORTS (SUPRA) I S APPLICABLE AND BY FOLLOWING THE DECISION OF THE ITAT, MUMBAI BENCHES (SUPRA) WE HOLD THAT THE TAX AUTHORITIES HAVE WRONGLY INVOKED PROVISIONS OF SECTION 40(A)(IA) IN THE INSTANT CASE. WE, THEREFORE, SET ASIDE THE ORDERS P ASSED BY THE TAX ITA NO. 1871/MUM/2013 M/S. ARCADIA SHARE & STOCK BROKERS PVT. LTD. 5 AUTHORITIES DISALLOWING ` 6,27,423/-. IN THE LIGHT OF THE DECISION ON MERIT I T IS NOT NECESSARY FOR US TO DEAL WITH THE OTHER ASPECTS URGED BEFORE US SINCE THEY WILL BE OF ACADEMIC IMPORTANCE. SUFFICE TO SAY THAT DISALLOWANCE MADE BY THE AO IS NOT CALLED FOR IN THE CIRCUMSTANCES OF THE CASE, IN THE LIGHT OF THE DECISION OF THE ITAT (SUPRA), WHICH IN TURN WAS BASED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF VECTOR SHIPPING SERVICES (P) LTD. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2014. SD/- SD/- (N.K. BILLAIYA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 22 ND DECEMBER, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 8, MUMBAI 4. THE CIT 4, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.