A.C.I.T Cir - 34,Kolkata., Kolkata V. Devendra Kr Dugar, Kolkata

ITA 257/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9307 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 28-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 06-02-2013
• Court: TRIBUNAL
• Department Lawyers: MD GHAYAS UDDIN
• Assessee Lawyers: S JHAJHARIA; SU JOY SEN ADVO
• Keywords: Question of law
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI PARTHA SARAT HI CHAUDHURY, JM] I.T.A NO.257/KOL/2013 ASSESSMENT YEAR: 2009-10 ASSISTANT COMMISSIONER OF INCOME-TAX VS. DEVENDR A KUMAR DUGAR CIRCLE-34, KOLKATA. (PAN : ADEPD7349E) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 28.02.2017 DATE OF PRONOUNCEMENT: 03.03.2017 FOR THE APPELLANT: MD. GHAYAS UDDIN, JCIT, SR. DR ` FOR THE RESPONDENT:S/SHRI S. JHAJHARIA, FCA & SU JOY SEN, ADVOCATE ORDER PER SHRI PARTHA SARATHI CHAUDHURY,, JM: THIS APPEAL BY REVENUE ARISES OUT OF THE ORDER OF C IT(A)-XX, KOLKATA VIDE APPEAL NO. 296/CIT(A)-XX/WD-34(3)/2011-12/KOL DATED 19.11. 2012 ON THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BOTH O N QUESTION OF LAW AND FACTS. 2. LD. CIT(A) HAS FAILED TO APPRECIATE THAT EVEN IF THE EXPENSES MADE BY CECO ELECTRONICS (P) LTD. ON BEHALF OF CONTROL ENGINEERING CO. IS CO NSIDERED TO BE GENUINE, IT DOES NOT CHANGE THE NATURE OF PAYMENT MADE BY THE ASSESSEE T O M/S. CECO ELECTRONICS (P) LTD. THE NATURE OF PAYMENT IS CONTRACTUAL AND THE ASSESSEE I S REQUIRED TO DEDUCT TDS ON IT. SO WITHOUT BEING PREJUDICE ABOUT THE GENUINENESS OF TH E EXPENSES, THE PAYMENT OF RS.49,53,046/- MADE TO CECO IS NOT REIMBURSEMENT BU T CONTRACTUAL. 3. THE APPELLANT CRAVES FOR LEAVE TO ADD, DELETE OR MODIFY AND GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS AN INDIVIDUAL HAVING BUSINESS WHERE INCOME FROM MANUFACTURING OF INVERTER DRIVES AND CONTROL PANEL AND TRADING OF SWITCHGEAR ITEMS. THE RETURN OF INCOME FOR AY 2009 -10 WAS FILED ON 03.02.2010 DISCLOSING TOTAL INCOME OF RS.39,88,290/-. THE CAS E HAS BEEN PROCESSED U/S. 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) AND THEREAFTER SELECTED FOR SCRUTINY. ACCORDINGLY, NOTICES U/S. 143(2) AND 142 (1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. IN RESPONSE TO THE SAID NOTICES , THE LD. AR OF THE ASSESSEE APPEARED ON DIFFERENT DATES AND EXPLAINED THE RETURN WITH REGAR D TO DETAILS FILED AND BOOKS OF ACCOUNT PRODUCED. THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT WITH THE ASSESSED INCOME BEING AT RS.96,21,224/-. 2 ITA NO.257/K/2013 DEVENDRA KR. DUGAR, AY 2009-10 4. THE SOLE GRIEVANCE OF THE REVENUE IS THAT WHETH ER THE PAYMENT OF RS.49,53,046/- MADE TO CECO ELECTRONICS PVT. LTD. (CECO) IS A REIM BURSEMENT OR CONTRACTUAL IN NATURE AND WHETHER TDS TO BE DEDUCTED ON IT. THE AO HAS D ISALLOWED A SUM OF RS.49,53,046/- U/S. 40(A)(IA) OF THE ACT BROADLY THE REASON BEING THAT THE ASSESSEE WAS LIABLE TO DEDUCT TDS ON IT U/S. 194C OR 194J OF THE ACT. THE AO IN HIS ORDER HAS STATED THAT THE SUBMISSION OF THE ASSESSEE BEING CONSIDERED BUT IS NOT ACCEPTABLE TO THE AO DUE TO THE FOLLOWING REASON: (I) THE PAYMENT OF RS.49,53,046/- MADE BY THE ASSES SEE TO CECO IS REIMBURSEMENT OF EXPENSES AS SHOWN BY CECO IN ITS P&L ACCOUNT AS REC EIPT OR INCOME AND EXPENSES ARE CLAIMED AGAINST THIS INCOME BY CECO; (II) THE LD. AR OF THE ASSESSEE DID NOT ABLE TO GIV E ANY SUPPORTING BILL RAISED BY CECO FOR REIMBURSEMENT OF THE EXPENSES TO THE ASSESSEE; (III) ALL LEGAL REQUIREMENTS REGARDING PAYMENT AS D EDUCTION OF TDS ETC. ARE DONE BY THE CECO; (IV) TILL AY 2007-08 ALL PAYMENT MADE BY THE ASSESS EE TO CECO IS SHOWN BY THE ASSESSEE AS CONTRACTUAL PAYMENT. (V) FROM AY 2008-09 ASSESSEE CHANGED THE NOMENCLATU RE OF THE PAYMENT TO CECO BUT LD. AR OF THE ASSESSEE WAS UNABLE TO EXPLAIN WHY TH E NOMENCLATURE OF EXPENSES IS CHANGED INSPITE OF THE FACT THAT THE SERVICES RENDE RED BY CECO WAS SAME AS IN THE PREVIOUS YEAR. 5. THE AO OBSERVED THAT CECO GIVES SOME SERVICES AS CLAIMED BY ASSESSEE AND THE ASSESSEE MAKES PAYMENT AGAINST IT. THE AO CAME TO THE CONCLUSION THAT THE NATURE OF PAYMENT IS CONTRACTUAL PAYMENT OR PAYMENT FOR MANAG ERIAL SUPPORT AND THE ASSESSEE WAS REQUIRED TO DEDUCT TDS ON IT AND, THEREFORE, THE PA YMENT OF RS.49,53,046/- SHOWN BY THE ASSESSEE AS REIMBURSEMENT OF THE EXPENSES TO CECO I S NOT A REIMBURSEMENT BUT A CONTRACTUAL PAYMENT OR PAYMENT MADE FOR MANAGERIAL SUPPORT FOR WHICH THE ASSESSEE WAS LIABLE TO DEDUCT TDS U/S. 194C OF THE ACT. AS THE ASSESSEE DID NOT DEDUCT TDS ON THIS PAYMENT SO RS.49,53,046/- WAS DISALLOWED BY THE AO U/S. 40(A)(IA) OF THE ACT. THAT AT THE 3 ITA NO.257/K/2013 DEVENDRA KR. DUGAR, AY 2009-10 APPELLATE STAGE THE ASSESSEE HAS SUBMITTED THAT THE AO IN HIS ASSESSMENT ORDER HAS WRITTEN ON PAGE 4 PARA 7 WHICH IS AS UNDER: ALL LEGAL REQUIREMENTS REGARDING PAYMENT AS DEDUCT ION OF TDS ETC. ARE DONE BY THE CECO ONLY. 4 ITA NO.257/K/2013 DEVENDRA KR. DUGAR, AY 2009-10 5 ITA NO.257/K/2013 DEVENDRA KR. DUGAR, AY 2009-10 6. IT WAS SUBMITTED BEFORE THE LD. CIT(A) BY THE AS SESSEE THAT TDS WAS DULY DEDUCTED AND PAID TO GOVERNMENT ACCOUNT WHEREVER IT WAS APPL ICABLE. SINCE IT IS A REIMBURSEMENT CASE ONLY ONE TIME TAX DEDUCTION IS REQUIRED ON EAC H EXPENDITURE AND THAT WAS DONE. THERE IS NO PROVISION IN THE INCOME TAX ACT FOR DED UCTION OF INCOME TAX TWICE ON SAME EXPENDITURE. THE ASSESSEE FURTHER SUBMITTED THAT M ANY OF THE REIMBURSED EXPENDITU5RE LIKE ELECTRICITY PAYMENT, TELEPHONE BILL PAYMENT, L OCAL CONVEYANCE EXPENDITURE ARE OUT OF THE PROVISION OF TDS BUT THE AO HAS ADDED ALL SUCH EXPENDITURE ALSO. IT WAS FURTHER ARGUED THAT THE AO HAS STATED THE REIMBURSEMENT WAS SHOWN IN THE P&L ACCOUNT BY CECO SO, IT SHOULD BE TREATED AS INCOME OF THE COMP ANY. IN CASE, IT IS NOT SHOWN LIKE THIS, TAX DEDUCTED BY CECO CANNOT BE CLAIMED. TO THE ISS UE, THE AO HAS CONTENDED THAT THE EXPENDITURE WERE CONTRACTUAL PAYMENT COVERED U/S. 1 94C OF THE ACT. THE ASSESSEE SUBMITTED THAT NO AMOUNT HAS BEEN PAID TO CECO OVER AND ABOVE THE ACTUAL AMOUNT OF EXPENDITURE. THE REIMBURSEMENTS ARE NOT TO BE TREAT ED AS PAYMENT WHICH CONSTITUTES RECEIPTS IN THE HANDS OF THE RECIPIENT. THE ASSESS EE ON THIS ISSUE RELIED ON TWO TRIBUNAL DECISIONS (I) ITO VS. K. M. VARGHESE & CO., ITA NO. 4091/MUM/2010 AND (II) ACIT VS. MINPRO INDUSTRIES, ITA NO. 394/JODH/2008. THE LD. CIT(A) IN HIS ORDER AFTER CONSIDERING THE ASSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE OBSERVED THAT CERTAIN PAYMENTS WERE MADE BY THE ASSESSEE TO CECO IN RESPECT OF EXPENSES INCURRED BY CECO ON BEHALF OF THE ASSESSEE. THE AO HAS CONSIDERED THESE PAYMENTS BEI NG MADE FOR MANAGERIAL SUPPORT ON WHICH THE ASSESSEE WAS REQUIRED TO DEDUCT TDS WHILE THE ASSESSEE HAD ARGUED THAT THESE EXPENSES WERE INCURRED ON ITS BEHALF FOR WHICH THEY DULY DEDUCTED TDS. THE LD. CIT(A) OPINED THAT AS PER THE JUDGMENTS CITED BY THE ITAT WHEREIN IT WAS HELD THAT EXPENDITURE MADE ON BEHALF OF THE ASSESSEE AND THE ASSESSEE ONL Y REIMBURSED THE EXPENSES. IN SUCH CIRCUMSTANCES, NO DEDUCTION OF TAX CAN BE MADE AT S OURCE. THE LD. CIT(A) IN VIEW OF THE JUDGMENT OF THE ITAT HELD THAT SECTION 40(A)(IA) OF THE ACT IS NOT APPLICABLE IN RESPECT OF EXPENSES REIMBURSED BY THE ASSESSEE AND HENCE, THE ADDITION OF RS.49,53,046/- WAS DELETED. THAT BEING FURTHER AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 6 ITA NO.257/K/2013 DEVENDRA KR. DUGAR, AY 2009-10 7. THE LD. DR SUBMITTED THAT AS HAD BEEN PUT FORTH BEFORE THE SUBORDINATE AUTHORITIES AND RELIED ON THE ORDER OF THE AO. THE LD. AR REIT ERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND RELIED ON HIS ORDER. THAT FURTHERMO RE, THE LD. AR REFERRED TO THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF ITO VS. DR. WIL LMAR SCHWABE INDIA (P) LTD. (2005) 3 SOT 71 (DEL) WHEREIN THE ISSUE WAS THAT THE ASSESSE E COMPANY HAD BEEN PROCURING BACKING MATERIALS FROM VARIOUS SUPPLIERS AS PER ITS SPECIFICATION - REQUIRED RAW MATERIAL FOR MANUFACTURE OF SAID PACKING MATERIAL WAS PURCHA SED BY CONCERNED SUPPLIERS ON THEIR OWN - CONCERNED SUPPLIERS ALSO PAID SALES TAX AND E XCISE DUTY ON PACKING MATERIAL SUPPLIED TO ASSESSEE. THE ISSUE WAS WHETHER OWNERS HIP OF SAID MATERIAL WAS ENTIRELY WITH CONCERNED SUPPLIERS TILL ITS SUPPLY TO ASSESSEE COM PANY AND CONTRACT BETWEEN ASSESSEE COMPANY AND THOSE SUPPLIERS WAS FOR SALE OF GOODS A ND NOT FOR WORK AS ENVISAGED IN SECTION 194C OF THE ACT. IT WAS HELD YES, WHETHER, THEREFORE, SECTION 194C WAS NOT APPLICABLE AND ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE UNDER THAT SECTION-HELD YES. THE ITAT, DELHI BENCH IN THIS CASE HAS HELD T HAT HERE WAS THE SITUATION WHERE VARIOUS PACKING MATERIALS WERE PROCURED BY THE ASSE SSEE COMPANY DURING THE YEAR UNDER CONSIDERATION FROM SEVERAL MANUFACTURERS WHERE REGU LARLY MANUFACTURING SUCH MATERIALS. IT WAS ALSO OBSERVED THAT EVEN THOUGH THE SAID PACKING MATERIAL WAS MANUFACTURED BY THE CONCERNED SUPPLIERS AS PER THE SPECIFICATION GIVEN BY THE ASSESSEE COMPANY AND EVEN SOME PRINTING WAS ALSO DONE AS PER THE ASSESSEES REQUIR EMENT, THE REQUIRED RAW MATERIAL FOR THE PURPOSE OF MANUFACTURING THE SAID PACKING MATERIAL WAS PURCHASED BY THE CONCERNED SUPPLIERS ON THEIR OWN. THUS, THE OWNERSHIP OF THE SAID MATERIAL WAS ENTIRELY WITH THE CONCERNED MANUFACTURERS TILL ITS SUPPLY TO THE ASSE SSEE COMPANY AND THE CONTRACT BETWEEN THE ASSESSEE COMPANY AND THOSE MANUFACTURERS WAS TH AT FOR SUPPLY OF MATERIAL AND NOT FOR CARRYING OUT ANY PARTICULAR WORK AS ENVISAGED IN SE CTION 194C. IT WAS A CLEAR CASE OF SALE OF GOODS BY THE SAID SUPPLIERS TO THE ASSESSEE AND THAT WAS EVIDENT FROM THE FACT THAT SALES TAX AS WELL AS EXCISE DUTY WAS PAID BY THE CONCERNE D SUPPLIERS ON THE PACKING MATERIAL SUPPLIED TO THE ASSESSEE COMPANY WHEREVER APPLICABL E. THE CBDT ITSELF IN CLAUSE 7(B) OF ITS CIRCULAR NO. 681 ISSUED ON 08.03.1994 HAS CLARI FIED THAT WHERE THE CONTRACTOR UNDERTAKES TO SUPPLY AND ARTICLE OR THING FABRICATE D ACCORDING TO THE SPECIFICATIONS, THE PROPERTY IN SUCH ARTICLE OR THING PASSES TO THE PUR CHASER ONLY AFTER SUCH ARTICLE OR THING IS DELIVERED AND THE CONTRACT THUS BEING FOR SALE OF S UCH ARTICLE OR THING WOULD BE OUTSIDE THE PURVIEW OF SECTION 194C. THEREFORE, THE LD. CIT(A) WAS RIGHT IN HOLDING THAT PROVISIONS OF 7 ITA NO.257/K/2013 DEVENDRA KR. DUGAR, AY 2009-10 SECTION 194C OF THE ACT WERE NOT APPLICABLE IN RESP ECT OF THE PAYMENTS MADE BY THE ASSESSEE TO THE SUPPLIERS OF PACKING MATERIAL. 8. WE HAVE PERUSED THE CASE RECORDS, FACTS AND CIRC UMSTANCES OF THE CASE AND HEARD THE RIVAL CONTENTIONS. WE OBSERVED AT THE TIME OF H EARING AS OUR ATTENTION WAS DRAWN BY THE LD. AR TO THE FACT THAT THERE EXISTED A ROYALTY-CUM -REIMBURSEMENT AGREEMENT BETWEEN THE ASSESSEE AND CECO AND AS PER THE SAID AGREEMENT CER TAIN SERVICE CHARGES FOR CONTRACT JOB WORK WERE TO BE REIMBURSED BY THE ASSESSEE TO CECO E.G. (I) ROYALTY FOR USE OF THE NAME OF CECO, (II) REIMBURSE OF DIRECT EXPENSES MADE EXC LUSIVELY BY CECO FOR THE BUSINESS OF THE ASSESSEE AND (III) PAYMENT FOR SERVICES AND REI MBURSEMENT WILL BE BASED ON PRACTICAL ASPECT AND REQUIREMENT OF FUNDS. THEREFORE, THIS C LAUSE IS CLEAR ABOUT THE FACT THAT ALL DIRECT EXPENSES MADE BY CECO HAVE TO BE REIMBURSED BY THE ASSESSEE. AT THE SAME TIME, WE OBSERVE FROM THE ORDER OF THE LD. CIT(A) ITSELF WHEREIN THERE IS A CHART OF STATEMENT OF EXPENSES WHERE FOR ALL EXPENSES PAID TDS WAS DEDUC TED AND I.E. EVIDENT FROM THE CHART. THEREFORE, THERE IS NO LOSS TO THE REVENUE IN THE E NTIRE TRANSACTION. FURTHER IN THE JUDGMENT OF THE DELHI ITAT IN CASE OF DR. WILLMAR SCHWABE IN DIA (P) LTD., SUPRA IT IS CRYSTAL CLEAR PROPOSITION OF LAW THAT WHEN THERE IS NO ELEMENT OF INCOME AND THERE IS MERE REIMBURSEMENT MADE THERE IS NO QUESTION OF DEDUCTIO N OF TDS. IN THE INSTANT CASE, WE ARRIVE AT OUR CONSIDERED VIEW THAT ASSESSEE MADE PA YMENT TO CECO BY WAY OF REIMBURSEMENT ONLY. THEREFORE, WE FIND NO INFIRMIT Y WITH THE FINDINGS OF THE LD. CIT(A) AND THE RELIEF GRANTED TO THE ASSESSEE IS SUSTAINED . THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 9. GROUND NOS. 1 AND 3 ARE GENERAL IN NATURE AND HE NCE, NEED NO ADJUDICATION. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 03.03.201 7 SD/- SD/- (M. BALAGANESH) (PARTHA SARATHI CHAUDHURY ,) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3 RD MARCH, 2017 JD.(SR.P.S.) 8 ITA NO.257/K/2013 DEVENDRA KR. DUGAR, AY 2009-10 COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT ACIT, CIRCLE-34, KOLKATA 2 RESPONDENT SHRI DEVENDRA KUMAR DUGAR, 18, R. N. MUKHERJEE ROAD, KOLKATA-700 001. 3. THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .