M/s.Focuz Corporation P.Ltd, Cochin V. The ACIT, Cochin

ITA 22/COCH/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4419 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 09-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Assessee Lawyers: P K SASIDHARAN
• Keywords: Business expenditure
• Section: 43B; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., JM I.T.A. NOS.22 & 23/COCH/2015 ASSESSMENT YEAR S : 2010 - 11 & 2011 - 12 M/S. FOCUZ CORPORATION P. LTD., FOCUZ TOWERS, EDAPALLY KOCHI-682 024. [PAN: AAACB 9529J] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), KOCHI. (ASSES SEE - APPELLANT) (REVENUE - RESPONDENT) A SSESSEE BY SHRI P.K. SASIDHARAN, CA REVENUE BY SHRI A. DHANARAJ, SR. DR D ATE OF HEARING 14 / 0 3 /2018 DATE OF PRONOUNCEMENT 1 5 / 0 3 /2018 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE ORDER OF THE CIT(A)- II, KOCHI DATED 30/09/2014 FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 2. SINCE COMMON ISSUES WERE INVOLVED IN THESE APPE ALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. I.T.A. NOS. 22&23/C/2015 2 ITA NO. 22/COCH/2015 : A.Y. 2011-12 3. THE FIRST GROUND IS WITH REGARD TO DISALLOWANCE MADE U/S. 40(A)(IA) OF THE ACT. 3.1 THE FACTS OF THE CASE ARE THAT THE ASSESSEE HA S NOT DEDUCTED TDS ON CERTAIN PAYMENTS AMOUNTING TO RS.28,11,538/-. IT WAS THE AR GUMENT BEFORE THE LOWER AUTHORITIES THAT THE ASSESSEE HAD PAID THE AMOUNT T O VARIOUS PARTIES WITH DELAY. AS SUCH INTEREST WAS PAID ON IT AND THAT INTEREST CANN OT BE CONSIDERED AS LIABLE FOR DEDUCTION OF TDS U/S. 194A OF THE ACT AND IT IS TO BE CONSIDERED AS PART OF PURCHASE CONSIDERATION. 3.2 ON APPEAL, IT WAS OBSERVED BY THE CIT(A) THAT SEC. 194A DEALS WITH THE DEDUCTION OF TAX ON INTEREST OTHER THAN INTEREST ON SECURITIE S. AS SUCH SEC. 194A IS APPLICABLE SINCE THE ASSESSEE HAS NOT DEDUCTED TDS. THE PROVISION O F SECTION 40(A)(IA) WAS APPLIED. THE ASSESSEE ALSO TOOK ANOTHER ARGUMENT BEFORE THE LOWER AUTHORITIES THAT THE AMOUNT WAS ALREADY PAID TO THE PARTIES AND IT IS NOT OUTST ANDING AT THE END OF THE CLOSING OF THE RELEVANT FINANCIAL YEAR. THEREFORE, THE PROVISION OF SEC. 40(A)(IA) CANNOT BE APPLIED. THIS ARGUMENT WAS ALSO REJECTED BY THE CIT(A) BY PL ACING RELIANCE ON THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF PRUDENTIAL L OGISTICS AND TRANSPORT VS. ITO IN ITA 2014-1-97 DATED 13/01/2014. 3.3 AGAINST THIS, THE ASSESSEE IS IN APPEAL BEF ORE US. THE LD. AR SUBMITTED THAT THE INTEREST PAID TO THE SUPPLIERS FOR DELAYED PAYMENT OF BILLS IS OUTSIDE THE PURVIEW OF SEC. I.T.A. NOS. 22&23/C/2015 3 194A AND IT IS TO BE CONSIDERED AS PART OF THE PURC HASE CONSIDERATION AND IT CANNOT BE CONSIDERED AS INTEREST LIABLE FOR DEDUCTION U/S. 19 4A OF THE ACT. THE LD. AR PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: 1) CIT VS. CARGILL GLOBAL TRADING P. LT D. (335 ITR 94) (DELHI) 2) GHAZIABAD DEVELOPMENT AUTHORITY VS. DR. N.K. GUPTA (256 ITR 337) (NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSIO N) 3.4 THE LD. DR RELIED ON THE ORDER OF THE CIT(A). 3.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIAL ON RECORD. THE ASSESSEE PAID INTEREST TO THE PARTIES FOR THE BELAT ED PAYMENTS OF THE PURCHASE CONSIDERATION. THE PLEA OF THE ASSESSEE IS THAT IT IS A COMPENSATION TO BE CONSIDERED AS PART OF THE PURCHASE CONSIDERATION. WE FIND NO MERI T IN THE ARGUMENT OF THE ASSESSEE THAT PAYMENT OF INTEREST ON ACCOUNT OF DELAY IN PAY MENT OF BILLS IS TO BE CONSIDERED AS PART OF THE PURCHASE CONSIDERATION. SECTION 2(28 A) CLEARLY DEFINES INTEREST AS FOLLOWS: 28A) INTEREST MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLA IM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER C HARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CRED IT FACILITY WHICH HAS NOT BEEN UTILIZED BEING SO, THE AMOUNT WAS PAID BY THE ASSESSEE ON A CCOUNT OF DELAY IN PAYMENT OF DEBT INCURRED BY THE ASSESSEE WHICH IS NOTHING BUT INTER EST AS PER S. 2(28A) OF THE I.T. ACT. ACCORDINGLY, WE ARE OF THE OPINION THAT THE ASSESSE E IS LIABLE TO DEDUCT TDS ON THE SAID I.T.A. NOS. 22&23/C/2015 4 PAYMENT WHICH THE ASSESSEE FAILED TO DO SO. SECTIO N 40(A)(IA) IS APPLICABLE. THUS THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS REJECTED . 4. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF MEDICAL EXPENSES INCURRED ON ONE OF THE DIRECTORS. THE ASSESSEE CLAIMED EXPENSES OF RS.5,75,000/- BEING MEDICAL EXPENSES OF ONE OF THE DIRECTORS OF THE ASSESSEE-CO MPANY WHICH WAS DISALLOWED BY THE LOWER AUTHORITIES BY HOLDING THAT THE EXPENDITURE W AS NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE ASS ESSEE. 4.1 THE LD. AR SUBMITTED THAT MR. M.F. JOSE WAS T HE DIRECTOR OF THE ASSESSEE COMPANY ACTIVELY ENGAGED IN THE MANAGEMENT OF THE A SSESSEE-COMPANY. ACCORDING TO THE LD. AR HE WAS NOT DRAWING ANY REMUNERATION DURI NG THE RELEVANT PREVIOUS YEAR. IT WAS SUBMITTED THAT WHEN HE WAS HOSPITALIZED, THE AS SESSEE-COMPANY DECIDED TO REIMBURSE THE MEDICAL EXPENSES. THE LD. AR SUBMITT ED THAT AS MR. M.F. JOSE WAS NOT TAKING ANY REMUNERATION BUT AT THE SAME TIME HE WAS LOOKING AFTER THE INTEREST OF THE ASSESSEE-COMPANY, IT WAS PRUDENT AND REASONABLE TO REIMBURSE THE MEDICAL EXPENSES WHICH IS RIGHTLY ALLOWABLE AS A BUSINESS EXPENDITUR E. THE LD. AR SUBMITTED THAT THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF SHA NTI BHUSHAN VS. CIT (336 ITR 26) IS CLEARLY DISTINGUISHABLE, AS IN THIS CASE, THE AMOUN T WAS CLAIMED AS CURRENT REPAIRS U/S. 31 OF THE I.T. ACT. I.T.A. NOS. 22&23/C/2015 5 4.2 THE LD. AR ALSO RELIED ON THE JUDGMENT OF TH IS BENCH OF THE TRIBUNAL IN THE CASE OF M/S. HOTEL & ALLIED TRADERS (P) LTD. VS. DCIT IN ITA NO. 678/COCH/2010 DATED 25/10/2012 WHEREIN IT WAS HELD AS UNDER: WE HAVE GONE THROUGH THE DECISION RENDERED BY LD C IT(A) ON THIS ISSUE IT IS NOTICED THAT SHRI DOMINIC JOSEPH, IS THE CHAIRMAN O F THE ASSESSEE COMPANY AND SHRI JOSE DOMINIC IS THE MANAGING DIRECTOR OF THE A SSESSEE COMPANY. THUS, IT IS SEEN THAT BOTH THE PERSONS ARE WORKING IN THE ASSES SEE COMPANY. UNDER THESE CIRCUMSTANCES, WE AGREE WITH THE VIEW OF THE LD. CI T(A) THAT THE MEDICAL EXPENSES INCURRED ON THEM CANNOT BE CONSIDERED AS PERSONAL IN NATURE ACCORDINGLY, WE UPHOLD THE DECISION OF THE LD. CIT( A) IN ALLOWING THE EXPENSES INCURRED ON SHRI DOMINIC JOSEPH FOR THE REASONS CIT ED BY HIM AND ALSO IN PARTLY SUSTAINING THE DISALLOWANCE MADE ON EXPENSES INCURR ED ON SHRI JOSE DOMINIC. WE ALSO DO NOT FIND ANY INFIRMITY IN THE DECISION O F THE LD. CIT(A) ON EXPENSES INCURRED IN RESPECT OF THREE OTHER PERSONS. 4.3 THE LD. DR RELIED ON THE ORDERS OF THE LOWE R AUTHORITIES. 4.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIAL ON RECORD. THE ASSESSEE INCURRED EXPENDITURE TOWARDS MEDICAL EXPEN SES OF MR. M.F. JOSE WHO WAS THE DIRECTOR OF THE ASSESSEE-COMPANY. THE PLEA OF THE ASSESSEE IS THAT IT WAS INCURRED FOR THE BENEFIT OF M.F. JOSE WHO WAS ACTUALLY INVOLVED IN THE MANAGEMENT OF THE ASSESSEE COMPANY. HOWEVER, THE ASSESSEE HAS NOT LET IN ANY EVIDENCE/RESOLUTION REGARDING THE TERMS AND CONDITIONS OF APPOINTMENT OF THE SAID DIR ECTOR. HENCE IT IS TO BE INFERRED THAT THERE WERE NO TERMS AND CONDITIONS OF APPOINTMENT F OR INCURRING SUCH MEDICAL EXPENSES IN FAVOUR OF MR. M.F. JOSE. BEING SO, THIS EXPENDI TURE CANNOT BE CONSIDERED AS BUSINESS EXPENDITURE OF THE ASSESSEE-COMPANY. IT IS ONLY TH E PERSONAL EXPENSES OF MR. M.F. JOSE. ACCORDINGLY, BY PLACING RELIANCE ON THE JUDG MENT OF THE DELHI HIGH COURT IN THE I.T.A. NOS. 22&23/C/2015 6 CASE OF SHANTI BHUSHAN VS. CIT (336 ITR 26), THE ME DIAL EXPENSES IS TO BE DISALLOWED. WE REJECT THIS GROUND OF APPEAL RAISED BY THE ASSES SEE. 4.5 THE ASSESSEE HAS RAISED GROUND NO. 3 BEFORE U S AS FOLLOWS: THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS GONE W RONG IN NOT CONSIDERING THE GROUND REGARDING DISALLOWANCE OF CLAIM AS REVEN UE EXPENDITURE, THE ADDITION MADE IN LEASED PREMISES. THE CLAIM IS IN ACCORDANC E WITH THE DECISION OF THE MADRAS HIGH COURT IN TVS LEAN LOGISTICS LTD. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS RAISED GROUND NO. 6 ON THIS ISSUE BEFORE THE CIT(A) AS FOLLOWS: 6. THE DISALLOWANCE OF THE CLAIM FOR CURRENT REPAI RS ON BUILDING OF RS.16,79,071/- RELYING ON THE DECISION OF THE MADRA S HIGH COURT IN THE CASE OF TCS LOGISTICS LTD. IS WITHOUT ANY JUSTIFICATION. T HE FACTS BEING IDENTICAL THE ASSESSING OFFICER OUGHT TO HAVE FOLLOWED THE DECISI ON OF THE MADRAS HIGH COURT AND UPHELD THE CLAIM OF THE APPELLANT. EXPLANATION TO SUB-SECTION 32(1) DOES NOT JUSTIFY THE DISALLOWANCE. HOWEVER, THERE IS NO FINDING GIVEN BY THE CIT(A) IN HIS ORDER. THUS IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE TO THE FILE OF THE CIT (A) TO GIVE A FINDING ON THIS ISSUE. ACCORDINGLY THIS GROUND OF APPEAL OF THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES. HENCE, THE ASSESSEES APPEAL IN ITA NO. 22/COCH/201 6 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 23/COCH/2016 : A.Y. 5. THE FIRST GROUND IS WITH REGARD TO DISALLOWANCE OF RS.22,50,504/- BY INVOKING THE PROVISIONS OF SEC. 36(1)(VA) R.W.S. 2(24)(X) OF TH E ACT. I.T.A. NOS. 22&23/C/2015 7 5.1 THE FACTS OF THE CASE ARE THAT THE ASSESSING OF FICER DISALLOWED A SUM OF RS.4,26,713/- BY INVOKING THE PROVISIONS OF SEC. 36 (1)(VA) R.W.S. 2(24)(X) OF THE ACT BY OBSERVING THAT SEC. 43B IS NOT APPLICABLE IN RESPEC T OF EMPLOYEES CONTRIBUTION TO PF. THE ASSESSEE ITSELF DISALLOWED RS.22,50,504/-. THE ASSESSING OFFICER OVER AND ABOVE THIS, DISALLOWED A FURTHER SUM OF RS.4,26,713/-. 5.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFO RE THE CIT(A) BY RAISING GROUND NO. 1(A) AS FOLLOWS: 1. THE ORDER OF THE ASSESSING OFFICER IS BAD IN L AW AND OPPOSED TO FACTS AND CIRCUMSTANCES OF THE CASE TO THE EXTENT OBJECTED HE REUNDER: A) THE ASSESSING OFFICER HAS GONE WRONG IN DISALLOW ING A SUM OF RS.26,77,217/-, INVOKING THE PROVISION OF SECTION 36(1)(VA) R.W.S. 2(24)(X). THE OBSERVATION OF THE ASSESSING OFFICER THAT THE APPELLANT HAS NOT PA ID THE EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND BEFORE THE DUE DATE IS NOT CO RRECT. THE CONTRIBUTION BECOMES PAYABLE ONLY BEFORE THE 20 TH OF NEXT MONTH TO THE MONTH IN WHICH THE DEDUCTIONS ARE MADE. SINCE THE SALARY FOR THE MONT H IS DUE AND PAYABLE ON THE 5 TH OF THE NEXT MONTH THE DEDUCTIONS HAVE TO BE TAKEN AS MADE ONLY IN THE SUBSEQUENT MONTH WHEN THE SALARIES ARE DISBURSED. HOWEVER, THE CIT(A) CONSIDERED ONLY THE DISALLOWANC E OF RS.4,26,713/- AND NOT CONSIDERED THE ENTIRE GROUND AS RAISED BY THE ASSES SEE. IN VIEW OF THIS, WE ARE INCLINED TO REMIT THIS ISSUE TO THE FILE OF THE CIT(A) FOR G IVING A FRESH FINDING ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES 6. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF RS.5,20,777/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THIS G ROUND IS SIMILAR TO GROUND NO. 1 IN I.T.A. NOS. 22&23/C/2015 8 I.T.A NO. 22/COCH/2016. ACCORDINGLY, THIS GROUND O F APPEAL OF THE ASSESSEE IS DISMISSED ON SIMILAR LINES . THUS THE APPEAL IN ITA NO. 23/COCH/2016 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH MARCH, 2018. SD/- SD/- ( GEORGE GEORGE K.) (CHAN DRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: DATED: 15 TH MARCH, 2018 GJ COPY TO: 1. M/S. FOCUZ CORPORATION P. LTD., FOCUZ TOWERS, EDA PALLY, KOCHI-682 024. 2. THE ASSISTANT/DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I 4. THE PR. COMMISSIONER OF INCOME-TAX, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRA R) I.T.A.T. , COCHIN