M/s. Sharma Kajaria & Co., Kolkata V. DCIT, C ircle- 54, Kolkata, Kolkata

ITA 2214/KOL/2010

• Counselvise Citation: 221423514 RSA 2010
• Duration Of Justice: 2 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2013
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 30-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2010
• Court: TRIBUNAL
• Department Lawyers: P K CHAKRABORTY LD JCIT LD
• Assessee Lawyers: S SADHU; MALAY DHAR LD ARS
• Keywords: Business income
• Section: 143(3); 194C

Judgement Text

, B , , INCOME TAX APPELLATE TRIBUNAL, BENCH- B KOLKATA ( ) BEFORE . , SHRI R.C. SHARMA, ACCOUNTANT MEMBER !' /AND #$ '# , SHRI MAHAVIR SINGH, JUDICIAL MEMBER '% / ITA NO. 2214/ KOL/ 2010 A.Y 2007-08 M/S. SHARMA KAJARIA & CO. PAN: AAKFS 5647K - !' - - VERSUS -. D.C.I.T, CIRCLE-54, KOLKATA ( () / APPELLANT ) ( *+() / RESPONDENT ) () /FOR THE APPELLANT /S/SHRI S.SADHU, ADVOCATE & MALAY DHAR, ADVOCATE, LD.ARS *+() / FOR THE RESPONDENT: / SHRI P.K. CHAKRABORTY, LD. JCIT, LD. SR.DR -'!. / 0 /DATE OF HEARING : 02-12--2013 12 / 0 /DATE OF PRONOUNCEMENT:11-12-2013 / ORDER . , SHRI R.C. SHARMA, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE LD. CIT(A), DATED 18/10/2010 FOR THE ASSESSMENT YEAR 2007-08, IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE I.T ACT 1961. 2. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE OF RS.27,70,105/- U/S.40(A)(IA) OF THE I.T ACT 1961. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED THE RECORD. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN LEGA L PROFESSION AS SOLICITORS AND ADVOCATES. DURING THE COURSE OF SCRUTINY ASSESSMEN T THE A.O FOUND THAT THE ASSESSEE HAS NOT DEDUCTED THE TAX AT SOURCE IN RESPECT OF T HE PAYMENTS MADE TO ADVOCATES AND LAWYERS FOR THEIR PROFESSIONAL SERVICES U/S. 194J OF THE I.T ACT 1961. ACCORDINGLY, THE AO INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF T HE ACT AND MADE DISALLOWANCE OF SUCH PAYMENTS. THE CONTENTION OF THE ASSESSEE BEFOR E THE A.O WAS THAT THE PAYMENT SO ITA NO. 2214/KOL/2010-B-AM 2 MADE THROUGH CHEQUE BY THE ASSESSEE WAS NOT CLAIMED AS EXPENDITURE, THEREFORE, THERE IS NO REASON TO DISALLOW THE SAME BY INVOKING THE PROV ISIONS OF SECTION 40(A)(IA) OF THE ACT. IT WAS ALSO CONTENDED THAT THE TAX HAS BEEN DE DUCTED ON THE PAYMENTS RECEIVED BY THE ASSESSEE FROM THEIR CLIENTS, PART OF WHICH WAS PAID BY THE ASSESSEE AS REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF THE CLIENTS. THE DISALLOWANCE SO MADE BY A.O WAS CONFIRMED BY LD.CIT(A), NOW ASSESSEE IS BEFORE US AGAINST THE SAID DISALLOWANCE. 5. THE LD.AR HAS PLACED ON RECORD THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2006- 07 DATED 17-02-2012, WHEREIN UNDER SIMILAR FACTS AND CIRCUMSTANCES THE MATTER WA S RESTORED BACK TO THE FILE OF THE A.O FOR DECIDING THE ISSUE AFRESH. THE RELIANCE WA S ALSO PLACED ON THE DECISION OF THE HONBLE ITAT KOLKATA BENCH, B BENCH IN THE CASE O F MITRA LOGISTIC P.LTD VS. ITO, W 9(1), KOLKATA DATED 25-09-2012 REPORTED IN (2012) 139 ITD 420(KOL), IN SUPPORT OF THE PROPOSITION THAT NO DISALLOWANCE CAN BE MADE U /S. 40(A)(IA) OF THE I.T ACT 1961 IN RESPECT OF AN EXPENDITURE, WHICH HAS NOT BEEN CLA IMED AS EXPENDITURE IN THE P & L ACCOUNT, WHICH WAS FULLY INCURRED IN THE NATURE OF REIMBURSEMENT. 6. ON THE OTHER HAND, THE LD. SR.DR HAS RELIED ON T HE ORDERS OF THE AUTHORITIES BELOW AND CONTENDED THAT THE ASSESSEE HAS PAID PROFESSIO NAL FEE TO THE LAWYERS ON WHICH TAX WAS REQUIRED TO BE DEDUCTED U/S. 40(A)(IA) OF THE A CT. SINCE THE ASSESSEE HAS NOT DEDUCTED THE SAME, THE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT WAS CORRECTLY MADE BY THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREF ULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND PERUSED THE MATERIAL A VAILABLE ON RECORD. THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 (REFER TO SUPRA) VIDE ORDER DATED 17-02-2012 HAS DEALT WITH THE EXACTLY SIMILAR ISSU E. THE RELEVANT OBSERVATION AND CONCLUSION OF THE TRIBUNAL IN THE SAID CASE WAS AS UNDER:- 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE C ASE AS ALSO THE APPLICABLE LEGAL POSITION. 6. SECTION 40(A)(IA), UNDER WHICH HE IMPUGNED DISAL LOWANCE HAS BEEN MADE, PROVIDES AS FOLLOWS: ITA NO. 2214/KOL/2010-B-AM 3 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION, (A) . [(I) ANY INTEREST, COMMISSION OR BROKERAGE [RENT , ROYALTY] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVI CES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK) ON WHICH TAX IS DEDUCTIBLE A T SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIF IED IN SUB-SECTION (1) OF SECTION 139 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEE N DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTI ON (1) OF SECTION 139 , SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTI NG THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE , (I) COMMISSION OR BROKERAGE SHALL HAVE THE SAME MEANING AS IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194H ; (II) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9 ; (III) PROFESSIONAL SERVICES SHALL HAVE THE SAME MEANING AS IN CLAUSE (A) OF THE EXPLANATION TO SECTION 194J ; (IV) WORK SHALL HAVE THE SAME MEANING AS IN EXPL ANATION III TO SECTION 194C ; 42 [(V) RENT SHALL HAVE THE SAME MEANING AS IN CLAUS E (I) TO THE EXPLANATION TO SECTION 194-I ; (VI) ROYALTY SHALL HAVE THE SAME MEANING AS IN E XPLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9 ;] 7, A PLAIN LOOK AT THE ABOVE STATUTORY PROVISION MAKES IT CLEAR THAT THIS PROVISION SEEKS TO RESTRICT THE DEDUCTIONS WHICH AR E OTHERWISE PERMISSIBLE UNDER SECTION 30 TO 38 OF THE ACT. IN OTHER WORDS, AS A RESULT OF THIS SECTION, A DISALLOWANCE CAN BE MADE ONLY IN RESPECT OF AN AMOU NT WHICH IS SOUGHT TO BE DEDUCTED UNDER THESE SECTIONS, AS A COROLLARY TO TH IS POSITION, UNLESS A DEDUCTION IS CLAIMED IN REPECT OF THE SAID AMOUNT, UNDER SECTIONS 30 TO 38, THE DIILLOWNNCE UNDER SECTION 40(A)(IA) CANNOL COME INT O PLAY AT ALL. 8 WE HAVE NOTED THAT I.T IS ASSESSEES CONTENTION THAT THE AMOUNTS PAID TO THE LAWYERS WERE REIMBURSED BY ASSESSEES CLIENTS, AND, THEREFORE, THE AMOUNTS PAID TO THE 1AWYERS WERE NEVER CLAIMED AS A DEDUCTION IN THE PLACE. ITA NO. 2214/KOL/2010-B-AM 4 IT WAS THEN CONTENDED THAT WHEN DEDUCTION IS NOT CL AIMED IN RESPECT OF THESE AMOUNTS, THERE AMOUNT BE ANY OCCASION TO INVOKE SE CTION 40(A)(IA). LEARNED CIT A HAS NOT DISPUTED THE LEGAL CONTENTION EMBEDDE D IN THIS LINE OF ARGUMENTS AND RIGHTLY SO BECAUSE THE QUESTION OF DI SALLOWANCE UNDER 4O(A)(IA) CAN ONLY ARISE WHEN SOMETHING IS CLAIMED AS A DEDUCTION IN COMPUTATION OF BUSINESS INCOME, AND REIMBURSEMENTS SIMPLICTOR, BEING PROFIT NEUTRAL, ARE NOT ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT TO HE CLAIMED AS DEDUCTION. LEARNED CITA) HAS, HOWEVER, BRUSHED ASID E THE FACTUAL ASPECTS EMBEDDED IN THIS LINE OF ARGUMENTS AND OBSERVED THA T HAD IT BEEN SO (I.E. O REIMBURSEMENT PURE AND SIMPLE), THE CLIENTS WOULD H AVE DEDUCTED TAX AT SOURCE SEPARATELY FOR THE APPELLANT AND THE LAWYERS / COUNSELS AND THAT IT APPEARS FROM THE COPY OF TDS CERTIFICATES THAT THE APPELLANT HAD RAISED THE COMPOSITE BILLS FOR ENTIRE WORK ON ITS CLIENTS AND WAS ACCORDINGLY PAID AFTER DEDUCTION OF TAX.. WHETHER THE ASSESSEE HAS CLAIME D THE TEES PAID TO OUTSIDE LAWYERS AS A REIMBURSEMENT FROM ITS CLIENTS OR NOT, IS SIMPLY A MATTER OF FACT, WHICH WILL BE EVIDENT FROM THE BILLS RAISED ON THE CLIENTS, AND THERE IS NO NEED FOR MAKING ANY INFERENCES IN RESPECT OF THE SAME. T HE MANNER IN WHICH TAXES NAVE BEEN DEDUCTED BY THE END USER OF THE LEGAL SER VICES CANNOT BE DETERMINATIVE OF WHETHER THE ASSESSEE HAS CLAIMED I T AS REIMBURSEMENT OR NOT THERE IS NO NEED TO INFER AS TO WHETHER THE BILLS W ERE COMPOSITE BILLS OR WHETHER THESE PAYOUTS TO OUTSIDE LAWYERS WERE CLAIM ED AS REIMBURSEMENTS. THESE FACTS CAN BE VERIFIED BY EXAMINING THE COPIE S OF BILLS RAISED BY THE ASSESSEE ON ITS CLIENTS. IN CASE THE ASSESSEE HAS S EPARATELY ITEMIZED, IN THE BILLS RAISED ON ITS CLIENTS, THE PAYMENTS MADE TO T HE OUTSIDE COUNSEL AND CLAIMED REIMBURSEMENTS IN RESPECT OR TH SAME, THESE EXPENSES CANNOT OF SUCH A NATURE AS TO SEEK DEDUCTION IN RESPECT OF THE SAM E. WHEN THE EXPENSES ARE BEING REIMBURSED BY THE CLIENTS, THESE EXPENSES CEA SE TO BE EXPENSES OF THE ASSESSEE, AND, THEREFORE, THERE IS NO QUESTION OF D EDUCTION IN RESPECT OF THE SAME. HOWEVER, WHEN ASSESSEE HAS. RAISED COMPOSITE BILLS FOR PROFESSIONAL SERVICES, ON GROSS BASIS AND WITHOUT GIVING DETAILS OF PAYOUTS TO OUTSIDE LAWYERS ON BEHALF OF HIS CLIENTS, THE PAYMENTS TO O UTSIDE LAWYERS WILL HE IN THE NATURE OF DEDUCTION TO BE CLAIMED BY THE ASSESSEE. WITHOUT THERE BEING ANY CATEGORICAL FINDING TO THE EFFECT THAT THE PAYMENTS TO OUTSIDE LAWYERS WERE CLAIMED AS DEDUCTIONS IN COMPUTATION OF PROFITS, TH E DISALLOWANCE UNDER SECTION 40(A)(IA) IN RESPECT OF SUCH PAYMENTS CEASE S TO BE DEVOID OF ANY LEGALLY SUSTAINABLE BASIS. WHEN THIS PROPOSITION WA S PUT TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, HE FAIRLY DID NOT DISP UTE THE SAME BUT PRAYED THAT THE MATTER SHOULD BE RESTORED TO THE FILE OF T HE ASSESSING OFFICER FOR NECESSARY VERIFICATIONS ON THIS FACTUAL ASPECT. LEA RNED COUNSEL FOR THE ASSESSEE DOES NOT OPPOSE THIS PRAYER. 9. IN VIEW OF THESE DISCUSSIONS AND NEARING IN MIN D ENTIRETY OF THE CASE WE DEEM IT FIT AND PROPER :: TO REMIT THE MATTER TO TH E FILE OF THE ASSESSING OFFICER FOR ADJUDICATION DE NOVA IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND IN ITA NO. 2214/KOL/2010-B-AM 5 FORADJUDICATION DE NOVA IN THE LIGHT OF OUR ABOVE O BSERVATION AND IN ACCORDANCE WITH LAW. WHILE DOING SO, THE ASSESSING OFFICER SHALL GIVE A DUE AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE, AN D SHALL DECIDE THE MATTER BY WAY OF A SPEAKING ORDER N ACCORDANCE WITH THE LAW. 10. BEFORE PARTING WITH THE MATTER, WE MAY MENTION THAT THERE HAS BEEN A LOT OF EMPHASIS IN THE ORDERS OF THE AUTHORITIES BELOW, AS INDEED IN LEARNED DEPARTMENTAL REPRESENTATIVES ARGUMENTS BEFORE US, ABOUT THE SCOPE OF ASSESSEES OBLIGATIONS TO DEDUCT TAX AT SOURCE UNDE R SECTION 194J.. HOWEVER, HAVING REGARD TO THE FACT THAT WE ARE IN SEISIN OF THE LIMITED QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(IA), WE SEE NO NEE D TO DEAL WITH THAT ASPECT OF THE MATTER AT THIS STAGE. AS FAR AS THIS APPEAL IS CONCERNED, ALL THESE THINGS ISSUES REGARDING TAX DEDUCTION AT SOURCE OBLIGATION S WILL BE RELEVANT ONLY IF ONE IS TO COME TO THE CONCLUSION THAT SECTION 40(A) (IA) CAN BE INVOKED IN RESPECT OF THE PAYMENTS IN QUESTION. THAT IS A QUES TION WHICH IS STILL OPEN ANU WHICH WILL HAVE TO BE ADJUDICATED UPON BY THE ASSES SING OFFICER IN THE LIGHT OF OUR DIRECTIONS AS SET OUT IN THE EARLIER PARAGRAPH. WE LEAVE IT AT THAT FOR THE TIME BEING 8. AS THE FACTS AND CIRCUMSTANCES OF THE CASE DURIN G THE YEAR UNDER CONSIDERATION ARE PERI-METERIA, RESPECTFULLY FOLLOWING THE SAID DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE(REFER TO SUPRA) AS NARRATED ABOVE, WE RESTORE THE MATTER TO THE FILE OF THE A.O FOR DECIDING THE ISSUE AS P ER DIRECTIONS CONTAINED IN THE SAID ORDER DATED 17-0-2012. WE DIRECT ACCORDINGLY. 9. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE AS STATED ABOVE. # - 3 -' 4 #5 THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT 11.12 .2013 SD/- SD/- ** PRADIP SPS ( #$ '# , ) ( MAHAVIR SINGH, JUDICIAL MEMBER ( . , ) SHRI R.C. SHARMA, ACCOUNTANT MEMBER ( (( ( 0 0 0 0 ) )) ) DATE 11.12.2013 ITA NO. 2214/KOL/2010-B-AM 6 / *6 7628 / COPY OF THE ORDER FORWARDED TO: 1. . () / THE APPELLANT : M/S. SHARMA KAJARIA & CO 12 OLD POST OFFICE ST, KOL-1. 2 *+() / THE RESPONDENT- DCIT, CIR-54, 3 GOVT PL (W), KOL-1 3 4. . ' / THE CIT, ' ( )/ THE CIT(A) 5 . !94 *' / DR, KOLKATA BENCH 6 . GUARD FILE . +6 */ TRUE COPY, '-/ BY ORDER, # ': /ASSTT REGISTRAR