DCIT, Circle-4(2), Kolkata, Kolkata V. M/s Mercury Car Rentals Limited, Kolkata

ITA 2051/KOL/2016

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4271 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 25-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANDEEP LAKRA
• Assessee Lawyers: A K GUPTA
• Keywords: Business expenditure; Retrospective amendment; Bad and doubtful debts; Royalty expenses; Ignorance of law
• Section: 115JB; 194C; 6

Judgement Text

1 ITA NO. 2051/KOL/2016 MERCURY CAR RENTALS LTD., AY 2006-07 , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA ( ) BEFORE . . , /AND . , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI M. BALAGANESH , AM] I.T.A. NO. 2051/KOL/2016 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4(2), KOLKATA. VS. M/S. MERCURY CAR RENTALS LTD. (PAN: AACCM0488P) APPELLANT RESPONDENT DATE OF HEARING 25.09.2018 DATE OF PRONOUNCEMENT 10.10.2018 FOR THE APPELLANT SHRI SANDEEP LAKRA, ADDL. CIT, SR . DR FOR THE RESPONDENT SHRI A. K. GUPTA, FCA ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL PREFERRED BY THE REVENUE IS AGAINST THE ORDER OF THE LD. CIT(A)-8, KOLKATA DATED 29.08.2016 FOR AY 2006-07. 2. THE FIRST GROUND OF APPEAL IS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.82,13,618/- AS UNDISCLOSED INCOME IG NORING THE PROVISIONS OF SEC. 199 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT). 3. BRIEF FACTS OF THE CASE AS NOTED BY THE AO ARE T HAT THE ASSESSEE IS INTO THE BUSINESS OF GIVING VEHICLES ON RENTALS. THE AO NOTED FROM THE ITS DETAILS THAT THERE WAS SOME MIS- MATCH, THEREFORE, THE ASSESSEE WAS ASKED TO RECONCI LE THE SAME. ACCORDING TO AO, THE ASSESSEE COULD NOT RECONCILE THE ITS STATEMENT VIS- -VIS THE BOOKS OF ACCOUNT IN TERMS OF QUANTUM OF INCOME, ITS NATURE OF TRANSACTION IN RE SPECT OF PARTIES. ACCORDING TO AO, AS PER ITS DETAILS INCOME UNDER THE HEAD COMMISSION BROKE RAGE COMES TO RS.64,75,433/- (U/S. 194J), RENT (U/S. 194-I) RS.4,60,850/- AND PROFESSI ONAL FEES FOR RS.12,77,335/-. ACCORDING TO AO, IN THE RECONCILIATION STATEMENT SUBMITTED BY TH E ASSESSEE IT HAS BEEN STATED THAT THE FEES 2 ITA NO. 2051/KOL/2016 MERCURY CAR RENTALS LTD., AY 2006-07 FOR PROFESSIONAL SERVICES AND RENT HAS BEEN INCLUDE D IN THE TRANSPORT INCOME. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO AND HE WONDERED AS TO HOW IT IS POSSIBLE WHEN TDS HAS BEEN DEDUCTED ON SPECIFIC NAT URE OF RECEIPTS. THEREFORE, HE REJECTED THE CONTENTION OF THE ASSESSEE AND WAS PLEASED TO A DD THE AMOUNT OF RS.82,13,618/-. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO ALLOW THE SAME. AGGRIEVED, REVENUE IS IN APPEAL BE FORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRANSPORTATION AND CAR RENTALS. IT WAS BROUGHT TO OUR NOTICE BY THE LD. A R THAT THE ASSESSEE SUPPLIES CHAUFFER DRIVEN CARS ON RENT TO CUSTOMERS FOR A PERIOD OF TI ME AS PER THE CUSTOMERS REQUIREMENT. ELABORATING ON THE BUSINESS, THE LD. AR SUBMITTED T HAT THE TIME PERIOD FOR WHICH VEHICLES MAY BE GIVEN TO CUSTOMERS VARIED FOR FEW HOURS ON A DAY TO A FULL DAY OR FOR A NUMBER OF DAYS DEPENDING UPON THE REQUIREMENT OF THE CUSTOMER S. ACCORDING TO LD. AR, THE ASSESSEE COMPANY OPERATES THROUGH ITS BRANCH OFFICES SITUATE D IN ALMOST ALL THE MAJOR CITIES AND PLACES OF TOURIST INTERESTS IN INDIA. IT WAS BROUGH T TO OUR NOTICE THAT AS PER THE ITS DETAILS GENERATED BY THE DEPARTMENT THROUGH ITS SOFTWARE AN D THE REPORTS THROWN BY IT IS BASED ON THE INPUTS FILED BY THE PAYEE WHO DEDUCTS TDS ON PA YMENTS MADE TO ASSESSEE AND AS PER THE PAYEES UNDERSTANDING OF THE FISCAL STATUTE. AND I T WAS POINTED OUT TO US BY THE LD. AR THAT IN CASE IF THE DEDUCTEE FILLS UP THE QUARTERLY TDS INCORRECTLY, THE ASSESSEE CANNOT BE PENALIZED AND ACCORDING TO LD. AR THE NATURE OF THE TRANSACTION BETWEEN THE PAYEE AND THE ASSESSEE CANNOT BE ASCERTAINED BY THE TDS DEDUCTION ERRONEOUSLY MADE BY THE PAYEE/DEDUCTEE OF TDS. IN ORDER TO SHOW THAT THE D EDUCTEES IN THIS CASE HAS ERRONEOUSLY MADE THE DEDUCTION UNDER VARIOUS HEADS, THE LD. AR DREW OUR ATTENTION TO THE TDS DETAILS FROM WHICH IT IS SEEN THAT THE ASSESSEE PURPORTEDLY RECEIVED RS.23,286/- AS DIVIDEND (SEC. 194); RS.22,61,20,789/- DEDUCTION U/S. 194C (CONTRA CTEES); RS.64,75,433/- DEDUCTION U/S. 194H (COMMISSION/BROKERAGE); RS.4,60,850/- TDS U/S. 194-I (RENT); RS.12,77,335/- TDS U/S. 194J (FEE FOR PROFESSIONAL SERVICE). THE LD. AR POINTED OUT THAT WITH REGARD TO THE DIVIDEND INCOME, THE FACT IS THAT ASSESSEE DID NOT MAKE ANY INVESTMENT IN SHARES OF COMPANIES OR IN MUTUAL FUND TO YIELD DIVIDEND. THU S, IT WAS POINTED OUT BY THE LD. AR THAT THERE COULD BE NO QUESTION OF ASSESSEE RECEIVING AN Y DIVIDEND INCOME AND IT IS COMMON 3 ITA NO. 2051/KOL/2016 MERCURY CAR RENTALS LTD., AY 2006-07 KNOWLEDGE THAT THE DIVIDEND INCOME IS NOT SUBJECT T O TAX SO, THEREFORE, THERE WAS NO QUESTION OF DEDUCTION OF TAX AT SOURCE AS ERRONEOUSLY REPORT ED IN THE ITS DATA WHICH HAS OCCURRED DUE TO WRONG UNDERSTANDING OF LAW BY THE PERSON/PAYEE W HO DEDUCTED THE TAX. ACCORDING TO LD. AR, ITS INCOME FROM TRANSPORT WAS TO THE TUNE OF RS .53,17,24,569/- WHICH SHOULD HAVE BEEN SUBJECTED TO TDS U/S. 194C OF THE ACT AND THE SAID INCOME OF ASSESSEE SUFFERED TAXATION WHEREAS, IT WAS POINTED OUT THAT AS PER THE ITS DAT A THE INCOME IS ONLY TO THE TUNE OF RS.22,61,20,789/- ONLY. THUS, ACCORDING TO LD. AR, THIS ESTABLISHES THE FACT THAT SOME PARTIES MUST HAVE DEDUCTED TAX UNDER OTHER SECTIONS BASED ON ERRONEOUS UNDERSTANDING OF LAW OR UNDER IGNORANCE OF LAW AND, THEREFORE, THE ITS DATA HAS REPORTED ERRONEOUSLY INCOME UNDER THE HEADS OF RENT AND PROFESSIONAL FEES. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE ASSESSEE DOES NOT OWN ANY PROPERTY WHICH COULD FETC H RENTAL INCOME WHICH WOULD BE APPARENT ON A PERUSAL OF THE FIXED ASSET SCHEDULE. THUS, IT WAS CONTENTED BY THE LD. AR THAT THE TAX MUST HAVE DEDUCTED INADVERTENTLY BY THE PAY EE U/S. 194-I OF THE ACT. LIKEWISE, THE CASE OF ERRONEOUS DEPICTION OF PROFESSIONAL INCOME AT RS.12,77,335/-. SO FAR AS COMMISSION INCOME IS CONCERNED, IT WAS BROUGHT TO OUR NOTICE T HAT IT COMPRISES OF SERVICE CHARGES OF RS.11,03,134/-, SUNDRY INCOME OF RS.53,26,778/- REF ERRAL COMMISSION OF RS.7,46,495/- AND MISCELLANEOUS INCOME OF RS.23,85,648/-. ACCORDING TO LD. AR, THE INCOME OFFERED FOR TAXATION BY THE ASSESSEE FAR EXCEEDED THE AMOUNT AP PEARING IN THE ITS DETAILS. IT WAS BROUGHT TO OUR NOTICE THAT DURING THE ASSESSMENT PR OCEEDINGS IT WAS BROUGHT TO THE NOTICE OF THE AO THAT THE INCOME AS PER THE ITS DETAILS HAVE BEEN DULY ACCOUNTED FOR THOUGH IN SOME CASES THE ACCOUNTING HEADS MAY NOT BE MATCHING AND AS STATED EARLIER THAT MISTAKE IS ATTRIBUTABLE TO THE IGNORANCE ON BEHALF OF THE PAYE ES WHILE DEDUCTING THE TAX AND/OR FILL-UP THE TDS RETURN. AFTER CONSIDERING THE FACTS AND CIR CUMSTANCES OF THE ISSUE BEFORE US, WE NOTE THAT THE ASSESSEE HAD SHOWN TOTAL TURNOVER OF RS.54,91,34,241/- WHEREAS THE TOTAL INCOME AS PER ITS DETAILS WAS ONLY TO THE TUNE OF R S.23,43,57,693/- AND THUS WE NOTE THAT ASSESSEE HAS DECLARED INCOME FAR EXCEEDING THE INCO ME SHOWN IN ITS DETAILS. THE LD. CIT(A) HAS CORRECTLY APPRECIATED THE FACTS THAT THE ASSESSEE HAS ACCOUNTED FOR THE INCOME SHOWN IN ITS DETAILS WHICH IS PART OF THE INCOME SH OWN BY THE ASSESSEE IN ITS P&L ACCOUNT. WE NOTE THAT THE ASSESSEES ONLY INCOME IS FROM TRA NSPORTATION AND RENTAL CHARGES OF VEHICLES AND IF THE PAYEE/DEDUCTEE OF TDS HAS WRONG LY DEDUCTED TAX OR MISTAKENLY FILLED UP THE RETURN IN NO WAY AFFECT THE NATURE OF SERVICES RENDERED BY THE ASSESSEE. SINCE THE 4 ITA NO. 2051/KOL/2016 MERCURY CAR RENTALS LTD., AY 2006-07 AMOUNT OF MIS-MATCH TAKEN NOTE BY THE AO IS PART OF THE INCOME SHOWN BY THE ASSESSEE WHICH HAS BEEN OFFERED TO TAX BY THE ASSESSEE IN IT S RETURN OF INCOME, WE AGREE WITH THE LD. CIT(A)S VIEW ON THIS ISSUE AND CONFIRM HIS ACTION AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 5. SECOND GROUND IS IN RESPECT OF DELETING THE ADDI TION OF RS.30,95,643/- UNDER THE HEAD ROYALTY EXPENSES. BRIEF FACTS OF THE CASE ARE TH AT FROM THE DETAILS THE AO FOUND THAT THE ASSESSEE HAS DEBITED ROYALTY OF RS.2,22,57,030/- IN THE P&L ACCOUNT. THE DETAILS OF ROYALTY CALCULATION AND IDENTITY OF THE PARTY HAS BEEN FURN ISHED. ACCORDING TO AO, THE ROYALTY PERTAINING TO EARLIER YEAR FOR RS.30,95,643/- HAS B EEN DEBITED IN THIS YEARS ACCOUNT AS IS EVIDENT FROM THE NOTES ON ACCOUNT, WHERE IT WAS REC ORDED THAT THE SAME IS NOT RELATED TO THE CURRENT YEAR. WHEN AO ASKED FOR EXPLANATION FROM AS SESSEE IT FILED A SUBMISSION WHEREFROM THE AO FOUND THAT ROYALTY WAS PAID TO AVIS AND DU E TO REVISION OF CALCULATIONS/COMPUTATION AS PER DECISION OF MANAGEM ENT, THE SAME HAS BEEN RAISED DURING THE YEAR. HOWEVER, ACCORDING TO AO, SINCE THE EXPE NSES ARE NOT RELATED TO THIS YEAR, THE SAME CANNOT BE ALLOWED AND SO HE ADDED BACK THE SAM E TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO DELETED THE ADDITION. AGGRIEVED, REVENUE IS IN APPEAL BEFORE U S. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORDS. WE NOTE THAT THE AO HAS DISALLOWED AN AMOUNT OF RS.30,95,643/- OUT OF THE T OTAL ROYALTY PAYMENT OF RS.2,22,57,030/- DURING THE YEAR ON THE GROUND THAT THE SAME PERTAIN ED TO EARLIER YEARS. WE NOTE THAT IN THIS YEAR THE BASIS OF ROYALTY COMPUTATION HAS BEEN CHAN GED WITH RETROSPECTIVE EFFECT FROM 01.04.2003 ARISING OUT OF A POLICY DECISION AND THE ADDITIONAL EXPENDITURE ON ACCOUNT OF ROYALTY HAS BEEN ACTUALLY DETERMINED DURING THE YEA R UNDER CONSIDERATION BEFORE US. THE LD. CIT(A) HAS CLEARLY MADE A FINDING OF FACT THAT THIS LIABILITY WAS DETERMINED THIS YEAR AND THIS LIABILITY CRYSTALLIZED DURING THE CURRENT YEAR. TH IS FINDING OF FACT HAS NOT BEEN CHALLENGED BY THE REVENUE BEFORE US. THEREFORE, WHEN THE LIABILI TY HAS CRYSTALLIZED IN THIS YEAR, IT CANNOT BE CALLED AS PRIOR PERIOD EXPENDITURE AND SINCE THE AD DITIONAL EXPENDITURE ON ACCOUNT OF ROYALTY HAS BEEN DETERMINED AND HAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION, IT IS AN 5 ITA NO. 2051/KOL/2016 MERCURY CAR RENTALS LTD., AY 2006-07 ALLOWABLE BUSINESS EXPENDITURE AND SO WE FIND NO IN FIRMITY IN THE ORDER OF THE LD. CIT(A) AND WE CONFIRM THE SAME. THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 7. GROUND NO. 3 IS AGAINST THE ACTION OF THE LD. CI T(A) IN DELETING THE ADDITION OF PROVISION FOR BAD DEBTS OF RS.46,63,357/- TO ASSESS EES BOOK PROFIT IGNORING THE PROVISIONS OF ITEM (C) OF EXPLANATION 1 BELOW SECTION 115JB OF THE ACT. 8. BRIEF FACTS OF THE CASE ARE THAT THE AO HAD ADDE D BACK AN AMOUNT OF RS.46,63,357/- REPRESENTING THE PROVISION FOR DOUBTFUL DEBTS TO BO OK PROFIT FOR THE PURPOSE OF COMPUTATION OF DEEMED TOTAL INCOME AND TAX LIABILITY U/S. 115JB (1) OF THE ACT. THE AO HAS ADDED BACK AN AMOUNT OF RS.46,63,357/- REPRESENTING DOUBTFUL DEBTS FOR COMPUTATION OF TOTAL INCOME. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO DELETED THE SAME. AGGRIEVED, REVENUE IS BEFORE US. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORDS. AT THE TIME OF HEARING LD. AR FAIRLY CONCEDED THAT THIS ISSUE NEEDS TO BE HELD AGAINST THE ASSESSEE. WE NOTE THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ILP EA PARAMOUNT P. LTD. (2011) 336 ITR 54 (DEL) WHEREIN THE HONBLE COURT HAS HELD AS UNDE R: 4. THE QUESTIONS WITH REGARD TO THE PROVISION FOR D OUBTFUL DEBTS AND PROVISION FOR DOUBTFUL ADVANCES HAVE TO BE ANSWERED IN FAVOUR OF THE REVEN UE AND AGAINST THE ASSESSEE BECAUSE OF THE RETROSPECTIVE AMENDMENT INTRODUCED IN SECTION 1 15JA OF THE SAID ACT. BY VIRTUE OF FINANCE (NO. 2) ACT, 2009, CLAUSE (G) HAS BEEN INSERTED IN THE EXPLANATION CONTAINED IN SECTION 115JA(2). BY VIRTUE OF THE SAID AMENDMENT, THE AMOU NT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET, IS SPECIFICAL LY MENTIONED. THE SUPREME COURT IN THE CASE OF CIT V. HCL COMNET SYSTEMS AND SERVICES LTD. [200 8] 305 ITR 409 (SC) HELD THAT PROVISION FOR DOUBTFUL DEBTS AND DOUBTFUL ADVANCES DID NOT FA LL WITHIN CLAUSE (C) OF THE SAID EXPLANATION INASMUCH AS THEY AMOUNTED TO PROVISION IN RESPECT O F DIMINUTION IN THE VALUE OF ASSET. 5. NOW, WITH THE INTRODUCTION OF THE SAID AMENDMENT WITH RETROSPECTIVE EFFECT FROM APRIL 1, 1998, THE PROVISION FOR DOUBTFUL DEBTS AND THE PROV ISION FOR DOUBTFUL ADVANCES, WHICH ARE NOTHING BUT PROVISION FOR DIMINUTION IN THE VALUE O F ASSET, ARE SPECIFICALLY COVERED UNDER CLAUSE (G) OF THE SAID EXPLANATION. CONSEQUENTLY, T HE QUESTION IN SO FAR AS IT RELATES TO PROVISION FOR DOUBTFUL DEBTS AND PROVISION FOR DOUB TFUL ADVANCES, REQUIRES TO BE ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. IT IS SO ANSWERED. 6 ITA NO. 2051/KOL/2016 MERCURY CAR RENTALS LTD., AY 2006-07 10 . THEREFORE, WE FIND FORCE IN THE GROUND RAISED BY TH E REVENUE AND WE REVERSE THE ORDER OF LD. CIT(A) AND UPHOLD THE ORDER OF AO ON THIS IS SUE. THEREFORE, THIS GROUND OF APPEAL OF REVENUE SUCCEEDS AND IS THUS ALLOWED. 11. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 10/10/201 8 SD/- SD/- (M. BALAGANESH) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10TH OCTOBER, 2018 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 APPELLANT DCIT, CIRCLE-4(2), KOLKATA. 2 RESPONDENT M/S. MERCURY CAR RENTALS LTD., 4, MANG OE LANE, KOLKATA-700 001. 3 4 5 CIT(A)-8, KOLKATA. (SENT THROUGH E-MAIL) CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY