SAI FRAGRANCE AND FLAVOURS P. LTD, MUMBAI V. DCIT CIR 9(3), MUMBAI

ITA 2717/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71909 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 11-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 23-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAORYA PRATEEP
• Keywords: Reopening of assessment; Difference of opinion; Change of opinion

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI . . , , , ! ' BEFORE SHRI I.P. BANSAL, JM AND SHRI SANJAY AROR A, AM ./ I.T.A. NO. 2717/MUM/2012 ( # # # # $ $ $ $ / ASSESSMENT YEAR :2006-07 M/S. SAIR FRAGRANCE AND FLAVOURS PVT. LTD., SUMMER VILLE, 5 TH FLOOR, PLOT NO. 426, JN OF 14 TH & 33 RD ROAD, KHAR (W), MUMBAI-400 052 THE DCIT-CIRCLE 9(3), MUMBAI % ! ./ & ./PAN/GIR NO. : AADCS 6400Q ( %' /APPELLANT ) .. ( ()%' / RESPONDENT ) %' * / APPELLANT BY : ` SHRI VIPUL JOSHI ()%' + * /RESPONDENT BY : SHRI MAORYA PRATEEP # + ,-! / DATE OF HEARING :11.12.2013 .$ + ,-! / DATE OF PRONOUNCEMENT : 11.12.2013 / / O R D E R PER I.P BANSAL, JM: THE APPEAL IS FILED BY THE ASSESSEE. IT IS DIRECTE D AGAINST THE ORDER OF THE LD. CIT(A)-20, MUMBAI DT. 12.3.2012 FOR A.Y. 2006-07. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. THE CIT (APPEALS) HAS ERRED IN UPHOLDING ACTIO N OF LD. AO IN REOPENING OF ASSESSMENT PROCEEDINGS MERE LY ON CHANGE OF OPINION. 2. THE CIT (APPEALS) HAS ERRED UPHOLDING ACTION OF ID AO WITH RESPECT TO DISALLOWANCE U/S 40(A)(IA) OF THE ACT IN RESPECT OF ITA NO.2717/M/2012 2 RENT EXPENDITURE ALTHOUGH THE SAME DOES NOT OPERA TE FOR THE YEAR UNDER CONSIDERATION. 3. THE CIT (APPEALS) HAS ERRED IN NOT FOLLOWING CIR CULAR NO.1/2007 DATED 27.04.2007 ISSUED BY CENTRAL BOARD OF DIRECT TAXES (CBDT IN SHORT) AS TAXATION LAWS (AMENDMENT) ACT, 2006 - EXPLANATORY NOTES ON AMENDM ENTS WHEREBY IT HAS BEEN SPECIFICALLY MENTIONED THAT DIS ALLOWANCE U/S 40(A)(IA) IN RESPECT OF RENT WOULD OPERATE FR OM AY 2007-08 AND ALSO ERRED IN BRUSHING ASIDE RELEVANT C ASE LAWS IN THE MATTER. 3. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT GROUN D NO. 1 IS NOT PRESSED. THEREFORE IT IS DISMISSED AS NOT PRESSED. 4. GROUND NO. 2 & 3, THE ASSESSEE HAS RAISED SINGLE ISSUE REGARDING DISALLOWANCE OF RS. 10,39,500/- IN RELATION TO RENT PAID BY THE ASSESSEE ON WHICH, ACCORDING TO REVENUE, TAX WAS DEDUCTIBLE AT SOURCE. THE DISALLOWANCE HAS BEEN MADE U/S. 40(A)(IA) ON THE GROUND THAT TH E ASSESSEE FAILED TO DEDUCT TAX AT SOURCE ON RENT PAYMENT. THOUGH ON ME RITS, ASSESSEES CASE IS THAT THE SAID PAYMENT RELATES NOT TO RENT OF THE PR EMISES BUT RELATES TO FURNITURE AND FIXTURES BUT AT THE SAME TIME ASSESSE E IS ALSO CONTENDING THAT EVEN IF THE SAID PAYMENT IS CONSIDERED TO BE RENT WITHIN THE MEANING OF SEC. 194-I THEN ALSO THE ASSESSEE DID NOT HAVE ANY LIABI LITY TO DEDUCT TAX AT SOURCE ACCORDING TO CIRCULAR NO. 1/2007 DT. 27.4.2007. IN THE CIRCULAR, THE CHANGE IN SECTION 40(A)(IA) WHICH INCLUDED RENT WITHIN ITS SCOPE FOR DEDUCTION OF TAX HAS BEEN STATED TO BE APPLICABLE W.E.F ASSESSMENT Y EAR 2007-08 ONWARDS. THE COPY OF THE RELEVANT CIRCULAR WAS FILED BEFORE US. THE RELEVANT PORTION READS AS UNDER: DEDUCTION NOT TO BE ALLOWED IN THE COMPUTATION OF INCOME IF TAX IS NOT DEDUCTED ON PAYMENTS OF RENT AND ROYA LTY - SECTION 40(A)(LA) IN ACCORDANCE WITH THE EXISTING PROVISIONS OF SUB-C LAUSE (IA) OF CLAUSE (A) OF SECTION 40, FAILURE TO DEDUCT, AS REFERRED UNDER THE PROVISIONS OF CHAPTER XVII-B, OR PAY TAX AFTER DED UCTION FROM ITA NO.2717/M/2012 3 AMOUNTS PAYABLE, TO A RESIDENT, AS INTEREST, COMMIS SION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES F OR TECHNICAL SERVICES, OR AMOUNTS PAYABLE TO A RESIDENT CONTRACT OR OR SUB- CONTRACTOR, RESULTS IN DISALLOWANCE OF SUCH PAYMENT S IN THE COMPUTATION OF INCOME OF THE PAYER. THE ACT HAS AMENDED THE AFORESAID SUB-CLAUSE (IA) O F CLAUSE (A) OF SECTION 40 TO EXTEND THE EXISTING PROVISIONS TO PAYMENTS OF RENT AND ROYALTY SUB-CLAUSE (IA) SO AMENDED ALSO PR OVIDES FOR THE DEFINITIONS OF THE TERMS RENT AND ROYALTY APPLICABILITY: ASSESSMENT YEAR 2007-08 ONWARDS 5. IT IS FURTHER THE CASE OF LD. AR THAT THIS POSITI ON HAS BEEN ACCEPTED BY THE TRIBUNAL IN ITS ORDER DT. 23 RD MARCH, 2012 IN THE CASE OF ACIT VS GLOBAL ONE INDIA PVT. LTD IN ITA NO. 774/DEL/2011. THE CO PY OF THIS ORDER WAS ALSO FILED AND THE SAME WAS GIVEN TO LD. DEPARTMENTAL RE PRESENTATIVE. IN THE SAID CASE, CONSIDERING THE AFOREMENTIONED CIRCULAR, IT W AS HELD THAT THE AFOREMENTIONED AMENDMENT WILL BE APPLICABLE FROM A SSESSMENT YEAR 2007- 08. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER: WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BO TH THE SIDES AND ALSO PERUSED THE MATERIAL PLACED BEFORE U S. THE ASSESSING OFFICER DISALLOWED THE PAYMENT OF CIRCUIT EXPENSES OF 28.97 CRORES ON THE GROUND THAT THE PAYMENT IS TOW ARDS LEASED LINE AND, THEREFORE, THE PAYMENT FOR USE OF LEASED LINE IS IN THE NATURE OF RENT LIABLE FOR TDS UNDER SECTION 194-1. SINCE THE ASSESSEE FAILED TO DEDUCT TDS, THE ASSESSING OFFICE R, APPLYING SECTION 40(A)(IA), DISALLOWED THE CIRCUIT EXPENSES PAID TO VARIOUS TELECOM COMPANIES. THE LEARNED CIT(A) REFERRED TO C BDT CIRCULAR NO.1 OF 2007 DATED 27TH APRIL, 2007 AND HAS 3 ITA-7 74/ DEL/201 I POINTED OUT THAT THE AMENDED PROVISION WOULD BE APP LICABLE WITH EFFECT FROM AY 2007-08. FOR READY REFERENCE, THE SA ME IS REPRODUCED BELOW:- 13.4 IN A FEW REPRESENTATIONS RECEIVED AFTER THE PASSAGE OF THE TAXATION LAWS (AMENDMENT) BILL, 2005 AND ASSENT THERETO ON 13TH JULY, 2007, APPREHENSIONS WE RE EXPRESSED THAT THE PROVISIONS OF SECTION 40(A)(IA) AMENDED AS ABOVE WOULD BE EFFECTIVE FROM ASSESSMENT YEAR 20 06- 07 ITA NO.2717/M/2012 4 (I.E. IN RESPECT OF THE PAYMENTS MADE IN 194-I RELA TING TO DEDUCTION OF TAX AT SOURCE ON RENT AND THOSE OF SEC TION 1 94J RELATING TO DEDUCTION OF TAX ON FEES FOR PROFESSION AL OR TECHNICAL SERVICES HAD BEEN INSERTED IN SECTION 40( A)(IA) WITH EFFECT FROM 13TH JULY, 2006, A DATE WHICH WOULD REL ATE TO ASSESSMENT YEAR 2007-08 AND NOT TO 2006-07. IT IS, THEREFORE, NECESSARY TO CLARIFY THAT IN ANY CASE IN WHICH TAX IS NOT DEDUCTED FROM PAYMENT OF RENT OR ROYALTY DURING THE FINANCIAL YEAR 2005-06, NO DISALLOWANCE IN THE COMP UTATION OF INCOME WOULD BE REQUIRED IN TERMS OF THE AMENDED PROVISIONS OF SECTION 40(A)(IA). A PERUSAL OF SUB- CLAUSE (IA) MAKES IT CLEAR THAT A DISALLOWANCE IS ATTRACTED ONL Y WHEN TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND IT IS NOT DEDUCTED OR NOT PAID TO GOVERNMENT ACCOUNT. SINCE T AX IS DEDUCTIBLE UNDER THE AMENDED PROVISIONS OF SECTION 194-I AND SECTION 194J FROM 13TH JULY, 2006, ASSESSMENT Y EAR 2007-08 WOULD BE THE FIRST RELEVANT ASSESSMENT YEAR IN WHICH A DISALLOWANCE WOULD BE ATTRACTED FOR NOT DEDUCTING OR NOT DEPOSITING THE TAX IN TERMS OF THE PROVISIONS OF SE CTION 40(A)(IA). 6. WHEN THE CBDT ITSELF HAS CLARIFIED THAT THE AMEN DED PROVISIONS OF SECTION 1941 RELATING TO DEDUCTION OF TAX AT SOU RCE FOR THE PURPOSE OF SECTION 40(A)(IA) WOULD BE APPLICABLE FO R AY 2007-08, THE ASSESSING 4 ITA-774/DE1/2011. OFFICER WAS NOT JUSTIFIED IN MAKING THE DISALLOWANC E. WE ALSO FIND THAT SIMILAR ISSUE CAME UP BEFORE THE LEA RNED CIT(A) IN AY 2005-06 WHEREIN HE ACCEPTED THE ASSESSEES CONTE NTION. THOUGH IN AY 2005-06, THE REVENUE FILED THE APPEAL AGAINST THE ORDER OF CIT(A) ON THIS POINT, BUT THE GROUND RELATING TO DE LETION OF DISALLOWANCE OF CIRCUIT CHARGES BY THE CIT(A) WAS N OT RAISED BEFORE THE ITAT. THUS, THE REVENUE HAS ACCEPTED THE ORDER OF THE CIT(A) ON THIS POINT FOR AY 2005-06. IN SUCH CIRCUM STANCES, WE DO NOT FIND ANY JUSTIFICATION FOR INTERFERING WITH THE ORDER OF THE LEARNED CIT(A) IN THE YEAR UNDER CONSIDERATION WHER EIN HE HAS FOLLOWED THE ORDER OF HIS PREDECESSOR FOR AY 2005-0 6 WHICH IS ACCEPTED BY THE REVENUE. IN VIEW OF THE ABOVE, WE D O NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ITA NO.2717/M/2012 5 THUS, IT WAS PLEADED BY LD. AR THAT THE DISALLOWAN CE U/S. 40(A)(IA) COULD NOT BE MADE AS THE ASSESSEE WAS NOT UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE ON SO CALLED RENT UNDER THE PROVISIONS OF SEC. 194-I. 6. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE RELIED UPON THE ORDER PASSED BY LD. CIT(A) VIDE WHICH IMPUGNED DIS ALLOWANCE HAS BEEN UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE CASE OF THE ASSESSEE IS LIABLE TO BE ACCEPTED IN VIEW OF THE AFOREMENTIONED CIRCULAR AS WELL AS THE DECISION OF THE ITAT DELHI BENCH. THE CBDT ITSELF HAS CLARIFIED THAT THE AMENDMENT MA DE IN SEC. 40(A)(IA) VIDE TAXATION LAWS (AMENDMENT) ACT, 2006 WITH RETROSPECT IVE EFFECT FROM 1.4.2006 WHICH INCLUDED WORD RENT INTO THE PROVIS IONS OF SEC,. 40(A)(IA) WILL BE APPLICABLE FROM ASSESSMENT YEAR 2007-08 ONWARDS. THE IMPUGNED ASSESSMENT YEAR IS 2006-07. THEREFORE, THE ASSESSE E HAD NO LIABILITY TO DEDUCT TAX AT SOURCE. IF THE ASSESSEE DOES NOT HAVE LIABILITY TO DEDUCT TAX ON SUCH RENT THEN THERE CANNOT BE ANY DISALLOWANCE U/S . 40(A)(IA) FOR THE YEAR UNDER CONSIDERATION. WE HOLD ACCORDINGLY AND ADDITI ON IS DELETED. GROUND NO. 2 & 3 OF ASSESSEES APPEAL ARE ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.12.2013 . / + $ ! 0 1#2 11.12.2013 + 3 SD/- SD/- (SANJAY ARORA) (I.P. BANSAL ) ! / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 1# DATED 11 /12 /2013 . # . ./ RJ , SR. PS ITA NO.2717/M/2012 6 / / / / + ++ + (,4 (,4 (,4 (,4 5 4$, 5 4$, 5 4$, 5 4$, / COPY OF THE ORDER FORWARDED TO : 1. %' / THE APPELLANT 2. ()%' / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 473 (,# , , / DR, ITAT, MUMBAI 6. 38 9 / GUARD FILE. /# /# /# /# / BY ORDER, )4, (, //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI