AMITHA M. KINAGI, MUMBAI V. ACIT 22(1)-1, NAVI MUMBAI

ITA 2185/MUM/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1519 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-05-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 18-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S R PANDIT
• Keywords: Depreciation; Set aside
• Section: 143(3); 40(a)(ia); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, A, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 2185/MUM/2010 (ASSESSMENT YEAR: 2007-08) SMT AMITHA M KINAGI, MUMBAI APPELLANT (PAN: AGRPK6721B) VS INCOME TAX OFFICER 22(1)-1, MUMBAI RESPONDENT APPELLANT BY: SHRI S R PANDIT RESPONDENT BY: SHRI RAJARSHI DWIVEDY O R D E R R V EASWAR, PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSM ENT YEAR 2007-08 AND ARISES OUT OF THE ASSESSMENT MADE UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, ON 30.11.2009. THE AS SESSEE IS AN INDIVIDUAL CARRYING ON THE BUSINESS OF ADVERTISING AGENCY. 2. THE FIRST THREE GROUNDS RELATE TO THE DISALLOWAN CE OF THE AMOUNTS OF RS.1,22,52,156/- AND RS.38,428/- UNDER S ECTION 40(A)(IA) OF THE INCOME TAX ACT. AT THE TIME OF THE HEARING IT WAS STATED ON BEHALF OF THE ASSESSEE THAT THE ASSESSEE WAS NOT PRESSING HER CASE AGAINST THE DISALLOWANCE OF THE COMMISSION OF RS.38,428/-. SO FAR AS THE DISALLOWANCE OF RS.1,22,52,156/- IS CONCERNED, THE BRIEF FACTS ARE THESE. THE ASSESSEE RELEASES ADVERTISEMENT IN NEWS PAPER AND IS HAVING CLASSIFIED DEPOT FOR NEWSPAPERS SUCH AS MIDD AY, CHITRALEKHA, MUMBAI AND GUJARAT SAMACHAR, TIMES AND INDIAN EXPRE SS GROUP, HINDUSTAN TIMES, DNA, ETC. AND SHE IS RUNNING THE B USINESS IN THE ITA NO: 2 NAME AND STYLE OF M/S K PARTH PUBLICITY. SHE DECLA RED TOTAL ADVERTISEMENT RECEIPTS OF RS.1,29,59,383/- AND THE RATE OF GROSS PROFIT AT 3.92%. WHILE SCRUTINIZING THE RETURN, THE ASSES SING OFFICER WAS OF THE VIEW THAT THE EXPENSES OF RS.1,22,52,156/- ATTR ACTED THE PROVISIONS OF SECTION 194C OF THE ACT AND THE ASSESSEE WAS LIA BLE TO DEDUCT TAX AT SOURCE. SINCE SHE HAD NOT DEDUCTED THE TAX, THE AS SESSING OFFICER INVOKED SECTION 40(A)(IA) AND PROPOSED TO DISALLOW THE ENTIRE PAYMENT. THE ASSESSEE EXPLAINED THAT SECTION 194C WAS NOT AP PLICABLE SINCE THE AMOUNTS WERE NOT PAID BY HER TO ANY CONTRACTOR FOR CARRYING OUT ANY WORK PURSUANT TO A CONTRACT. SHE RELIED ON THE CLA RIFICATION OF THE HONBLE FINANCE MINISTER ON THE FLOOR OF THE HOUSE WHILE MOVING THE FINANCE BILL, 1995 THAT THE AMENDED SECTION WOULD A PPLY WHEN A CLIENT MAKES PAYMENT TO AN ADVERTISING AGENCY AND NOT WHEN THE ADVERTISING AGENCY MAKES PAYMENT TO THE MEDIA. IT WAS PLEADED THAT SINCE THE ASSESSEE WAS AN ADVERTISING AGENCY AND MAKING PAYME NTS TO THE MEDIA (BOTH PRINT AND ELECTRONIC) NO DEDUCTION IS T O BE MADE FROM SUCH PAYMENTS UNDER SECTION 194C OF THE ACT. THE ASSESS EES EXPLANATION WAS NOT ACCEPTED BY THE ASSESSING OFFICER, WHO REIT ERATED THAT THE SECTION DID APPLY TO THE PAYMENTS MADE BY THE ASSES SEE. SINCE NO TAX WAS DEDUCTED FROM THE PAYMENTS, THE ASSESSING OFFIC ER DISALLOWED THE ENTIRE PAYMENT OF RS.1,22,52,156/-. 3. THE ASSESSEE FILED AN APPEAL TO THE CIT(A) AND R ELIED ON THE CIRCULAR NO. 715 DATED 08.08.1995 ISSUED BY THE CBD T. THE ATTENTION OF THE CIT(A) WOULD APPEAR TO HAVE BEEN DRAWN TO TH E QUESTION NO.2 AND ANSWER THERETO WHICH CLARIFIED THAT WHEN AN ADV ERTISING AGENCY ITA NO: 3 MAKES PAYMENT TO THE MEDIA NO TAX IS TO BE DEDUCTED FROM SUCH PAYMENT UNDER SECTION 194C. THE CIT(A) HELD THAT T HE ASSESSEE WAS NOT ACTING AS AN INTERMEDIARY BETWEEN THE ADVERTISI NG AGENCY AND THE MEDIA FOR DISCOUNT OR COMMISSION AND THAT THERE IS A CONTRACT BETWEEN THE ASSESSEE AND ADVERTISING AGENCY AND IN TURN THE ASSESSEE HAS ENTERED INTO A SUB-CONTRACT WITH THE MEDIA. HE ALS O HELD THAT DISTINCT BILLS WERE RAISED BY THE CONCERNED PARTIES, WHICH M AKES THE POSITION CLEAR. IN THIS VIEW OF THE MATTER HE HELD THAT SPE CIFIC WORK HAS BEEN ASSIGNED TO THE ASSESSEE BY HER CLIENT AND THE ASSE SSEE HAS IN TURN ASSIGNED THE WORK TO THE MEDIA. ACCORDINGLY HE HEL D THAT THERE WAS A WORKS CONTRACT AND THE ASSESSEE WAS JUST A CHANNEL THROUGH WHICH THE ADVERTISING MATERIAL WAS BEING ROUTED BY THE CL IENT TO THE MEDIA. IT WAS ACCORDINGLY HELD THAT THE ASSESSEE WAS LIABLE T O DEDUCT TAX UNDER SECTION 194C FROM THE PAYMENTS MADE TO THE MEDIA AN D SINCE IT WAS NOT DONE, THE DISALLOWANCE WAS RIGHTLY MADE. 4. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRI BUNAL TO REITERATE ITS SUBMISSIONS MADE BEFORE THE DEPARTMENTAL AUTHOR ITIES ON THE BASIS OF THE CIRCULAR. WE HAVE GONE THROUGH THE CIRCULAR AND IT SUPPORTS THE ASSESSEES CONTENTION THAT WHEN THE ADVERTISING AGE NCY MAKES PAYMENT TO THE MEDIA, THERE IS NO NEED TO DEDUCT TA X UNDER SECTION 194C OF THE ACT. IT IS HOWEVER NOT CLEAR AS TO WHA T IS THE BASIS OF THE FINDING OF THE CIT(A) THAT THERE ARE TWO CONTRACTS ONE BETWEEN THE ASSESSEE AND HER CLIENT AND ANOTHER BETWEEN THE ASS ESSEE AND THE MEDIA, UNDER WHICH THE ASSESSEE HAS ASSIGNED THE WO RK TO THE MEDIA MAKING IT A WORKS CONTRACT WHICH ATTRACTS THE SECTI ON. THERE IS NO ITA NO: 4 REFERENCE TO ANY SUCH ARRANGEMENT IN THE ASSESSMENT ORDER NOR IS THERE ANY REFERENCE TO THE TERMS OF PAYMENT OR TO T HE FACT THAT DISTINCT BILLS WERE RAISED BY THE CONCERNED PARTIES. IN THE INTEREST OF JUSTICE WE ARE OF THE VIEW THAT THE FULL FACTS HAVE TO BE BROU GHT ON RECORD BEFORE ANY DECISION IS TAKEN REGARDING THE APPLICABILITY O F THE CIRCULAR. WE, THEREFORE, SET ASIDE THE ORDERS OF THE DEPARTMENTAL AUTHORITIES ON THIS ISSUE AND RESTORE THE MATTER TO THE ASSESSING OFFIC ER FOR BEING DECIDED AFRESH, IN ACCORDANCE WITH LAW, AFTER BRINGING ON R ECORD ALL THE RELEVANT FACTS AND AFTER GIVING DUE OPPORTUNITY TO THE ASSES SEE. THE GROUNDS ARE DISPOSED OF AS ABOVE. 5. GROUND NOS. 4 TO 8 ARE DIRECTED AGAINST SUNDRY D ISALLOWANCES SUCH AS RS.5,000/- EACH UNDER BUSINESS PROMOTION EX PENSES AND CONVEYANCE EXPENSES; RS.6,500/- UNDER OFFICE EXPENS ES; RS.24,729/- AS TELEPHONE EXPENSES; RS.13,303/- AND RS.4,289/- A S MOTOR CAR EXPENSES AND DEPRECIATION THEREON. AS REGARDS THE TELEPHONE EXPENSES, IT IS SEEN THAT THE DISALLOWANCE OF 20% O F THE TOTAL EXPENSES IS SOMEWHAT ON THE HIGHER SIDE. THE SAME IS REDUCE D TO 10% OF THE EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT. AS REGARDS TO THE BUSINESS PROMOTION EXPENSES, CONVEYANCE EXPENSES AN D OFFICE EXPENSES, THE DISALLOWANCE HAS BEEN MADE FOR LACK O F EVIDENCE. WE SEE NO REASON TO INTERFERE WITH THE ORDERS OF THE D EPARTMENTAL AUTHORITIES. AS REGARDS THE DISALLOWANCE OF MOTOR CAR EXPENSES AND DEPRECIATION, WE UPHOLD THE SAME IN PRINCIPLE SINCE THE ASSESSEE WAS NOT MAINTAINING ANY LOG REGISTER SHOWING DAY-TO-DAY USE OF THE CAR AND, THEREFORE, THE POSSIBILITY OF SOME PERSONAL USE CAN NOT BE RULED OUT. ITA NO: 5 HOWEVER, THE DISALLOWANCE IS REDUCED TO 10%, WHICH WILL MEET THE REQUIREMENTS OF THE CASE. THUS, THESE GROUNDS ARE ALLOWED IN PART. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE 2010. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 18 TH JUNE 2010 SALDANHA COPY TO: 1. SMT AMITHA MAHANTESH KINAGI R. NO.7, A-WING, GURUDATTA BUILDING, PATEL CHOWK R B MEHTA ROAD, GHATKOPAR (EAST), MUMBAI 400 077 2. ITO 22(1)-1 3. CIT-22 4. CIT(A)-33 5. DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI