Shri Dhiren P.Shah, Surat V. The Income tax Officer,Ward-6(1), Surat

ITA 2414/AHD/2008

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6042 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-04-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 26-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: S N SOPARKAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 2414 /AHD/2008 (ASSESSMENT YEAR: 2005-06) SHRI DHIREN P. SHAH (PROP. OF M/S. KALA TEXTILES) 6/655, MOTI SHERI, LAL DARWAJA, SURAT V/S THE ITO WARD-6(1), SURAT (APPELLANT) (RESPONDENT) PAN: ACIPS 4081R APPELLANT BY : SHRI S.N. SOPARKAR RESPONDENT BY : SHRI P.L KUREEL, SR. D.R. ( )/ ORDER DATE OF HEARING : 02-04-2014 DATE OF PRONOUNCEMENT : 27-06-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-IV, SURAT DATED 04.04.2008 FOR A.Y. 2005-06. 2. AGAINST THE AFORESAID ORDER OF CIT(A), ASSESSEE HAD PREFERRED APPEAL BEFORE HONBLE ITAT IN ITA NO. 2414/AHD/2006. THE S AID APPEAL WAS DECIDED ON 31.01.2012. AGAINST THE AFORESAID ORDER OF HONBLE TRIBUNAL, ASSESSEE PREFERRED M.A. (MA NO. 43/AHD/2012) DATED 13.12.2013 AND THE ORDER IN ITA NO. 2414/AHD/2006 WAS RECALLED ONL Y FOR DECIDING GROUND NO. 2 OF THE APPEAL. THE RELEVANT GROUND OF ASSESSEE READS AS UNDER:- ITA NO 2414/ AHD/2008 . A.Y. 2005- 06 2 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF FOLLOWING EXPENSES U/S. 40(A)(IA) O F THE ACT BY WRONGLY TREATING THOSE EXPENSES AS PAYMENT TO CONTRACTORS. PARTICULARS ARBUDA TEXTILES NATRAJ SYNTHETICS TO TAL FACTORY RENT 78,000 78,000 156,000 MACHINERY RENT 288,000 240,000 528,000 REIMBURSEMENT OF WAGES AND POWER EXPENSES ON ACTUAL BASIS 650,000 530,000 1,180,000 TOTAL 1,016,000 848,000 1,864,000 THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, SU BSTITUTE, MODIFY THE ABOVE GROUND OF APPEAL, IF NECESSARY ON THE BASIS OF SUBMISSIONS TO BE MADE AT THE TIME OF PERSONAL HEARING. 8.AS REGARDS GROUND NO.2 OF THE ASSESSEE, THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD IN CURRED EXPENSES FOR GETTING PRODUCTION THROUGH OTHER PARTIES BUT NO TDS ON SUB-CONTRACT PAYMENTS TO SHREE ARBUDA TEXTILES AND NATRAJ SYNTHE TICS AS WELL AS THE SISTER CONCERN TRISHUL TEXTILE WAS MADE. WHEN REQUI RED TO SHOW-CAUSE, THE ASSESSEE STATED THAT IT HAD TAKEN FOUR SHEDS ON RENT FROM FOUR DIFFERENT PARTIES AND IN THE CASE OF THE SISTER CONCERN THE S AID UTILIZATION EXPENSES WERE INCURRED TOWARDS MACHINERY RENT AND FACTORY RE NT. THE SAID UTILIZATION EXPENSES PAID TO THE OUTSIDE PARTIES IN CLUDED REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF THE ASSESSEE. A RENT AGREEMENT WAS ENTERED INTO WITH THE SAID PARTY AND THE ASSESSEE W AS NOT REQUIRED TO DEDUCT TDS ON THE RENT PAID FOR MACHINERY AND FACTO RY AS PER SECTION 194(I) OF THE ACT. THE PROVISIONS OF TAX DEDUCTION ON MACHINERY RENT CAME INTO FORCE ON 13-07-2006 AND THEREFORE THERE W AS NO NON- COMPLIANCE OF TDS PROVISIONS BY THE ASSESSEE. FURTH ER, IN THE CASE OF THE SISTER CONCERN, ALL EXPENSES I.E. WAGES, ELECTRICIT Y ETC., WERE BORNE BY THE ASSESSEE WHILE IN THE CASE OF OUTSIDE PARTY, THE EX PENSES WERE INCURRED BY THOSE PARTIES ON BEHALF OF THE ASSESSEE WHICH WERE REIMBURSED SUBSEQUENTLY. THE AR RELIED ON THE CBDT CIRCULAR NO.715 DATED 08-08- ITA NO 2414/ AHD/2008 . A.Y. 2005- 06 3 1995 WHICH MENTIONED THAT TAX WAS TO BE DEDUCTED AT SOURCE ONLY IN CASES WHERE BILLS WERE RAISED FOR THE GROSS AMOUNT INCLUS IVE OF EXPENSES. THE AO DID NOT ACCEPT THE EXPLANATION AND HELD THAT SHR EE ARBUDA TEXTILES AND NATRAJ SYNTHETICS WERE CLEARLY SUB-CONTRACTORS OF THE ASSESSEE DURING APRIL. 04 TO NOV.'04 AND THEIR OWNERS WERE IN FULL CONTROL OF THE FACTORY PREMISES AND DOING PRODUCTION FOR THE ASSESSEE THRO UGH THEIR OWN MACHINERY, STAFF ETC., THEREFORE THE CONTENTION OF THE ASSESSEE IN RESPECT OF RENT PAYMENT WAS ONLY ANY AFTERTHOUGHT. THE AO HELD THAT SINCE THE ASSESSEE HAD NOT DEDUCTED TAX ON CREDIT OF PAYMENTS MADE TO THE PARTIES AND ACCORDINGLY DISALLOWED THE CLAIM OF RS.18.64 LA KH U/S.40(A)(IA) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT (A) UPHELD THE ORDER OF A.O BY HOLDING AS UNDER:- BEFORE ME, THE ID. AR SUBMITTED THAT IN THE MANUFAC TURING OF GREY CLOTH THE APPELLANT WAS REQUIRED TO POSSESS EXTRA NUMBER OF LOOMS AND ACCORDINGLY OBTAI NED MANUFACTURING SET-UP OF TWO INDEPENDENT PARTIES ON RENT. IT WAS AGREED THAT THOSE PARTIES W OULD PROVIDE THEIR FACTORY LAND AND BUILDING AND PLANT AND MACHINERY ON RENT WHILE THE EXPENSES ON W AGES WAS TO BE REIMBURSED BY THE APPELLANT. THE ACTIVITY OF MANUFACTURING WAS DEPENDENT ON USE OF A PPROPRIATE QUALITY OF YARN AND WAS UNDER THE FULL CONTROL OF THE APPELLANT. THE PAYMENT OF OPERATING AND UTILIZATION CHARGES WOULD NOT ATTRACT PROVISION S OF SECTION 194(C) OF THE IT ACT AND THERE WAS A REN T AGREEMENT WITH THESE TWO PARTIES WHICH CONTAINED DETAILS OF PREMISES, MACHINERY, AMOUNT OF RENT TO B E PAID AND IT WAS SPECIFICALLY AGREED THAT THE EXPENSES FOR LABOUR AND WAGES WOULD BE REIMBURSED B Y THE APPELLANT. I HAVE CONSIDERED THE SUBMISSIONS BUT I AM NOT INCL INED TO AGREE WITH THE APPELLANT ON HIS ACCOUNT WHEN A PREMISES IS TAKEN ON RENT THE POSSESSION OF SUCH A PREMISE PASSES FROM THE HANDS OF THE OWNER TO THE TENANT. HERE, THE POSSESSION OF MACHINERY AN D PREMISES REMAINED WITH THE OWNERS ONLY WHICH WERE SHREE ARBUDA TEXTILES ANTI NATRAJ SYNTHETICS. THIS IS AGAINST THE CONCEPT OF A RENTAL AGREEMENT AND AS SUCH THE PAYMENT MADE FOR THE SAME CANNOT BE TREATED AS RENT. THESE TWO PARTIES ARE CLEARLY SUB-CONTRACTEE OF THE APPELLANT FOR THE FIRST EIGHT MONTHS OF THE YEAR. THEREFORE, THE SO-CALLED AGREEMENT ENTERED INTO WITH THESE TWO PARTIES IS NO THING BUT A DOCUMENT TO MISLEAD THE REVENUE. THE ENTIRE PAYMENT TO THESE TWO PARTIES IS IN THE NATUR E OF PAYMENT TO A SUB-CONTRACTOR ON WHICH TAX HAD T O BE DEDUCTED AT SOURCE AND DEPOSITED IN THE GOVT. AC COUNT BEFORE THE STIPULATED DATE. SINCE THIS HAS NO T BEEN DONE, I AM OF THE CONSIDERED VIEW THAT PROVISI ONS OF SECTION 40(A)(IA) ARE CLEARLY ATTRACTED IN T HIS CASE AND DISALLOWANCE HAS RIGHTLY BEEN MADE BY THE A.O. THE SAME IS HEREBY CONFIRMED. 4. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US. ITA NO 2414/ AHD/2008 . A.Y. 2005- 06 4 5. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A). HE FURTHER SUBMITTED THAT ASSESSEE HAD TAKE N THE FACTORIES ON RENT FOR WHICH THE ASSESSEE HAD ENTERED INTO RENT A GREEMENT AND THE RENT AGREEMENTS WERE PLACED IN THE PAPER BOOK. HE FURTHE R SUBMITTED THAT RENTAL PAYMENTS ARE NOT COVERED U/S. 194C. HE FURTH ER SUBMITTED THAT TDS WAS DEDUCTIBLE ON MACHINERY WITH EFFECT FROM 20 06 AND NOT UNDER THE PERIOD UNDER REVIEW. AS AN ALTERNATE CONTENTION HE SUBMITTED, THAT THE PAYEES TO WHOM THE PAYMENTS WERE MADE HAVE ALREADY PAID THE TAX. HE THUS SUBMITTED THAT NO DISALLOWANCE CAN BE MADE U/S . 40(A)(IA). 6. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS A FACT THAT DURING THE YEAR, ASSESSEE HAD ENT ERED INTO AGREEMENTS WITH NATRAJ SYNTHETICS AND ARBUDA TEXTILES, WHEREBY THE ASSESSEE HAD TAKEN THE MACHINERIES AND OTHER FACILITIES LOCATED AT THE SHED ON RENT. AS PER THE RENT AGREEMENT, ASSESSEE HAD AGREED TO PAY THE MONTHLY OPERATING CHARGES TOWARDS PLANT AND MACHINERY AND INFRASTRUCT URE FACILITIES AND TOWARDS THE USE OF LAND AND BUILDING. IT WAS ALSO A GREED THAT THE ASSESSEE WOULD BEAR ALL EXPENSES IN THE NATURE OF LABOUR WAG ES STAFF SALARIES, MANUFACTURING EXPENSES ETC. IT WAS ALSO AGREED INTE RALIA THAT AT THE EXPIRATION OF THE TERM, THE ASSESSEE WILL HAND OVER VACANT POSSESSION OF THE SET UP. REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE AGREEMENT ENTERED INTO BY THE ASSESSEE WAS NOT IN EXISTENCE OR AN AFTERTHOUGHT. IN VIEW OF THE AFORES AID FACTS, WE ARE OF THE VIEW THAT THE PAYMENT MADE BY ASSESSEE CONSISTED OF AGREED PAYMENTS TOWARDS RENT AND THEREFORE ALSO REIMBURSEMENTS. FUR THER, WITH RESPECT TO ITA NO 2414/ AHD/2008 . A.Y. 2005- 06 5 REIMBURSEMENTS, NO MATERIAL HAS BEEN BROUGHT ON REC ORD BY REVENUE TO DOUBT ITS GENUINENESS. FURTHER THE SUBMISSION OF LD . A.R. THAT THE PAYEES HAVE ALSO PAID THE TAXES HAS NOT BEEN DOUBTED BY RE VENUE. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT NO DISALLO WANCE U/S. 40(A)(IA) CAN BE MADE IN PRESENT CASE. THUS THIS GROUND OF ASSESS EE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 27 - 06 - 2014. SD/ SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITA T,AHMEDABAD