M/s. George Maijo Industries (P) Ltd., Kerala V. ITO, CHENNAI

ITA 2192/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4338 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 05-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 20-07-2016
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATHI JT
• Keywords: Business income
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C, CHENNAI , . ! #$, & #' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ITA NO.2192/MDS/2016 & ! (! / ASSESSMENT YEAR : 2012-13 GEORGE MAIJO INDUSTRIES PVT. LTD., NO.5, NUMGAMBAKKAM HIGH ROAD, CHENNAI 600 034. [PAN: AACCG 6145R] VS. INCOME TAX OFFICER, CORPORATE WARD-2(3), CHENNAI. ( /APPELLANT ) ( / RESPONDENT ) $) * + / APPELLANT BY : SHRI R.SREENIVASAN, CA ,-$) * + / RESPONDENT BY : SHRI ASHISH TRIPATHI, JT.CIT . * / / DATE OF HEARING : 05.06.2017 0( * / / DATE OF PRONOUNCEMENT : 08.06.2017 /O R D E R PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI (C IT(A) FOR SHORT) DATED 20.06.2016, DISMISSING THE ASSESSEES APPEAL CONTES TING ITS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREI NAFTER) FOR THE ASSESSMENT YEAR (AY) 2012-13 VIDE ORDER DATED 23/03/2014. 2. THE DISPUTE IN THE PRESENT CASE INVOLVES THE APP LICABILITY OR OTHERWISE IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF S. 40(A)(IA) OF THE ACT. THE ASSESSEE, A DEALER OF YAMAHA MOTOR COMPANY LTD., DI STRIBUTING MECHANIZED 2 ITA NO.2192 /MDS/2016 (AY 2012-13) GEORGE MAIJO INDUSTRIES PVT. LTD. V. ITO FISHING EQUIPMENTS, MADE PAYMENTS TO RELATED FIRMS, NAMELY, PANDIAN BUILDERS, GEORGE MAIJO AND GEORGE MAIJO & CO. (VIZAG), STATED (BY THE LD. AR BEFORE US) TO BE PARTNERSHIP FIRMS, AGAINST SALARY OF THEIR EM PLOYEES ON DEPUTATION TO THE ASSESSEE-COMPANY. THE PAYMENT/S IS ADMITTEDLY WITHO UT DEDUCTION OF TAX AT SOURCE. WHILE THE ASSESSEE CLAIMS IT TO BE ONLY A R EIMBURSEMENT OF EXPENSES, PRECLUDING DEDUCTION OF TAX AT SOURCE, THE REVENUE CONTENDS THE PAYMENTS TO HAVE BEEN MERELY ROUTED THROUGH THE BOOKS OF THE RE LATED PARTIES, AND WHICH WOULD NOT BY ITSELF, I.E., WITHOUT ANYTHING MORE, D ISCHARGE THE OBLIGATION ON THE ASSESSEE TO DEDUCT TAX AT SOURCE ON THE SAID PAYMEN TS. IT ALSO DRAWS ON THE FACT THAT THE RELEVANT STAFF HAS BEEN TAKEN ON THE ROLLS OF THE ASSESSEE-COMPANY FROM 01.01.2015. REFERENCE IN THIS REGARD MAY BE MADE TO SUB-PARAS 4-6 / PG. 2 AND SUB-PARA 1 / PG.3 OF THE ASSESSMENT ORDER AND PARAS 6 TO 6.2 OF THE IMPUGNED ORDER. THE LD. AUTHORIZED REPRESENTATIVE (AR) WOULD DURING HEARING TAKE US THROUGH THE LEDGER ACCOUNTS OF THE RELATED PARTIES, WHICH BEAR DEBITS TO THEIR ACCOUNTS FOR PAYMENTS MADE TO THEM (BY THE ASSESSEE ). HE WAS, HOWEVER, UNABLE TO SHOW US THE CORRESPONDING CREDIT/S IN THEIR ACCO UNTS, CLAIMED TO BE ON THE BASIS OF DEBIT NOTES RAISED, ON MONTHLY BASIS, BY T HE SAID PARTIES. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD, ON THE OTHE R HAND, EMPHASIZE THAT THE RELATED CONCERNS WERE NOT DOING ANY BUSINESS AND, A CCORDINGLY, THEIR STAFF WAS PAID SALARY BY THE ASSESSEE-COMPANY, WHICH MUST THE REFORE BE REGARDED AS A FIRST-HAND PAYMENT AND NOT AS A REIMBURSEMENT. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEES ALTERNATE CLAIM, WHICH BEING LEGAL IS DEALT WITH FIRST, I.E., OF S. 40(A)(IA) BEING NOT APPLICABLE AS NO AMOUNT WAS PAYABLE AS AT THE YEAR-END, IS WITHOUT SUBSTANCE IN VIEW OF THE DECISION BY THE AP EX COURT IN PALAM GAS SERVICE V. CIT (IN CIVIL APPEAL NO. 5512/2017, DATED 03/5/2017), A PPROVING THE DECISIONS BY THE PUNJAB & HARYANA ( PMS DIESELS V. CIT [2015] 374 ITR 562); GUJARAT ( CIT V. SIKANDARKHAN N. TUNVAR [2013] 357 ITR 312); CALCUTTA ( CIT V. 3 ITA NO.2192 /MDS/2016 (AY 2012-13) GEORGE MAIJO INDUSTRIES PVT. LTD. V. ITO CRESCENT EXPORTS SYNDICATE [2013] 262 CTR 525); AND JURISDICTIONAL HIGH COURT ( TUBE INVESTMENTS OF INDIA LTD. V. ASST. CIT [2010] 325 ITR 610). ON FACTS, THE REVENUE DENIED THE CLAIM ON THE BASIS THAT THE EXPENDITURE HAS BEEN MERELY ROUTED THROUGH THE BOOKS OF ITS SIS TER CONCERNS, WHICH WERE IN- OPERATIONAL, SO THAT THEIR STAFF WAS SURPLUS. IF TH E EMPLOYEES HAD BEEN RENDERED SURPLUS DUE TO LACK OF BUSINESS OR THERE BEING NO B USINESS, WHICH HAS NOT BEEN TAKEN-OVER BY THE ASSESSEE-COMPANY, AT LEAST DURING THE RELEVANT YEAR, THE AREA TO PROBE OR EXAMINE (BY THE REVENUE) OUGHT TO HAVE BEEN IF THE SERVICES HAD INDEED BEEN RENDERED BY THE CONCERNED EMPLOYEES TO THE ASSESSEE-COMPANY, SO THAT IT IS NOT A CASE OF ONLY THEIR SALARY BEING PA ID BY THE ASSESSEE-COMPANY, WHETHER DIRECTLY OR THROUGH THE SISTER CONCERNS. TH E SAME HAS, HOWEVER, NOT BEEN QUESTIONED BY THE REVENUE. SECTION 40(A)(IA) P LACES AN ADDITIONAL BURDEN, I.E., OF DEDUCTION OF TAX AT SOURCE AND ITS PAYMENT TO THE CREDIT OF THE CENTRAL GOVERNMENT QUA THE SPECIFIED SUM/S, FOR ITS DEDUCTION IN COMPUTATI ON OF BUSINESS INCOME, SO THAT THE VERY FACT OF ITS INVOC ATION IMPLIES THAT THE CONDITION OF DEDUCTIBILITY IS OTHERWISE MET. PROCEEDING FURTHER, IT NEEDS TO BE APPRECIATED THAT THE CONCERNED EMPLOYEES, TILL THEIR CO-OPTION BY THE ASSESSEE-COM PANY W.E.F. 01.01.2015, CONTINUE TO BE THE EMPLOYEES OF THE SISTER CONCERN/ S, WHO IS CONTRACTUALLY OBLIGED TO PAY SALARY THERETO, IRRESPECTIVE OF WHET HER IT IS IN BUSINESS OR NOT. THAT THE SAID PAYMENT WOULD NOT BE DEDUCTIBLE IN CO MPUTING ITS INCOME IN THE ABSENCE OF ANY BUSINESS IS A DIFFERENT MATTER. WHER E WORKING FOR THE ASSESSEE- COMPANY, AS IS THE ADMITTED POSITION, THE EXPENDITU RE TOWARD SERVICES RENDERED BY THE EMPLOYEES, WOULD STAND TO BE PAID BY THE ASS ESSEE COMPANY TO ITS SISTER CONCERN/S AND NOT TO ITS EMPLOYEES. AS STATED BY T HE LD. AR DURING HEARING, THERE IS NO CONTRACT FOR RENDERING SERVICES BETWEEN THE ASSESSEE AND ITS SISTER CONCERNS. THE COPY OF THE DEBIT NOTES RAISED BY THE M (NOT ON RECORD) WOULD REVEAL THE EXACT NATURE OF THE TRANSACTIONS, THOUGH SURPRISINGLY WERE NOT FOUND 4 ITA NO.2192 /MDS/2016 (AY 2012-13) GEORGE MAIJO INDUSTRIES PVT. LTD. V. ITO REFLECTED IN THE LEDGER ACCOUNTS THEREOF. IF, THERE FORE, THE DEBIT NOTES REFLECT A CONTRACTUAL OBLIGATION FOR THE SERVICES RENDERED BY THOSE CONCERNS TO THE ASSESSEE, IT WOULD BE A CASE OF DIRECT PAYMENT THER ETO, INDEPENDENT OF THE PERSONS DEPLOYED BY THEM OR MADE AVAILABLE TO THE A SSESSEE-COMPANY . THE APPLICABILITY OF TDS IN SUCH A CASE WOULD DEPEND ON THE NATURE OF THE PAYMENT AND THE WORK DONE (BY THE SISTER CONCERNS). IF, ON THE OTHER HAND, THE DEBIT NOTES STATE OF ONLY THE EMPLOYEES HAVING BEEN DEPUTED TO THE ASSESSEE-COMPANY, WHICH MAY DEPLOY THEM FOR ANY WORK IT DEEMS FIT AND PROPER FOR THE PURPOSE OF ITS BUSINESS, IT WOULD BE A CASE OF THE EMPLOYEES B EING MADE AVAILABLE TO THE ASSESSEE-COMPANY. THE PAYMENT IN SUCH A CASE WOULD HAVE TO BE DIRECTLY TO THE CONCERNED PERSONS IN-AS-MUCH AS THEY STAND SECONDED , I.E., ARE ON DEPUTATION, TO THE ASSESSEE-COMPANY, EVEN AS THEY CONTINUE TO BE T HE REGULAR EMPLOYEES OF AND ON THE ROLLS OF THEIR PARENT FIRMS. THE TDS IN THIS , LATTER CASE WOULD BE ON SALARY, I.E., AS AGAINST ON THE AGGREGATE PAYMENT S MADE/CREDIT ALLOWED (DURING THE YEAR) DIRECTLY TO THE SISTER CONCERN/S, AS THE OBLIGATION TO PAY SALARY THERETO, ON ACCOUNT OF SECOND-MENT/DEPUTATION, IS ON THE ASS ESSEE-COMPANY. HOW, WE WONDER, COULD THIS BE REGARDED AS A CASE OF REIMBUR SEMENT OF EXPENDITURE? THE ASSESSEE NEED NOT HAVE CREDITED, OR ROUTED THE TRAN SACTION THROUGH, THE ACCOUNT OF THE SISTER CONCERN/S. THAT IS, CONSIDERED EITHER WAY, IT IS NOT A CASE OF REIMBURSEMENT OF EXPENDITURE . THIS IS PRECISELY WHAT THE REVENUE MEANS WHEN IT STATES THAT THE ASSESSEE-COMPANY HAS MERELY ROUT ED THE EXPENDITURE THROUGH THE ACCOUNT OF THE RELATED PARTIES, AND THAT THEREF ORE NOTHING TURNS THEREON. BE THAT AS IT MAY, WHERE, HOWEVER, THE CONCERN ED EMPLOYEES, OR THE SISTER CONCERNS, AS THE CASE MAY BE, HAVE DISCHARGED THEIR TAX LIABILITY ON THE RELEVANT INCOME/S, THE ASSESSEE-COMPANY, FOLLOWING THE PROCE DURE ENSHRINED IN S. 40(A)(IA) R/W. S. 201 (AS AMENDED BY FINANCE ACT, 2 012), CLAIM SAVING FROM THE RIGOR OF S. 40(A)(IA). THIS IS AS THE SAID AMENDMEN TS HAVE BEEN CLARIFIED BY THE HON'BLE COURTS, AS IN THE CASE OF CIT V . ANSAL LANDMARK TOWNSHIP (P.) LTD . 5 ITA NO.2192 /MDS/2016 (AY 2012-13) GEORGE MAIJO INDUSTRIES PVT. LTD. V. ITO [2015] 377 ITR 635 (DEL), AS CURATIVE AND, THEREFOR E, RETROSPECTIVE. IN THIS REGARD, IT MAY BE APPRECIATED THAT THE AMENDMENT, B Y PRECLUDING APPLICATION OF S. 40(A)(IA) IN CASES WHERE THE PAYEE/CREDITOR HAS DISCHARGED THE TAX LIABILITY ON THE RELEVANT SUM FOR THE RELEVANT YEAR, ONLY SEEKS TO OPERATIONALIZE AND APPLY THE DECISION BY THE HON'BLE APEX COURT IN CIT V . HINDUSTAN COCA COLA BEVERAGES (P.) LTD. [2007] 293 ITR 226 (SC). THE MATTER, ACCORDINGLY, S ETTING ASIDE THE IMPUGNED ORDER, IS, FOR FRESH DETERMINATION, ON THE LINES INDICATED ABOVE, RESTORED TO THE FILE OF THE AO, TO DO SO BY ISSUING DEFINITE FINDINGS OF FACT. THE ASSESSEE, ON WHOM THE BURDEN TO ESTABLISH ITS CLAI MS LIE, SHALL BE ALLOWED PROPER OPPORTUNITY TO REPRESENT ITS CASE BEFORE HIM . WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON JUNE 8, 2017 AT CHENNAI . SD/- ( ! #$ ) (GEORGE MATHAN) & / JUDICIAL MEMBER SD/- ( ) (SANJAY ARORA) /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED, JUNE 8, 2017. EDN 2 * ,&/34 54(/ /COPY TO: 1. $) /APPELLANT 2. ,-$) /RESPONDENT 3. . 6/ ( )/CIT(A) 4. . 6/ /CIT 5. 478 ,&/& /DR 6. 89! : /GF