Smt. Bhargavi Gopinath, Bangalore V. ACIT, Bangalore

ITA 280/BANG/2014

• Counselvise Citation: 28021114 RSA 2014
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 25-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR PANDA
• Keywords: Question of law
• Section: 142(1)

Judgement Text

ITA NO.280 OF 2014 SMT. BHARGAVI GOPINATH BANGALORE PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.280/BANG/2014 (ASSESSMENT YEAR: 2006-07) SMT. BHARGAVI GOPINATH PROP: M/S. LOAVES & ROLLS, NO.52/1 17 TH CROSS, MALLESHWARAM, BANGALORE 560055 PAN: AELPG 1254 G VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 9(1) BANGALORE (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SURESH MUTHUKRISHNAN, CA DEPARTMENT BY: SHRI BIJOY KUMAR P ANDA, (DR) DATE OF HEARING: 19/11/2014 DATE OF PRONOUNCEMENT: 21/11/2014 O R D E R PER RAJPAL YADAV, J.M. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF THE LEARNED CIT (A) DATED 18.10.2013 PASSED FOR ASSESSM ENT YEAR 2006-07. THE ASSESSEE HAS TAKEN FIVE GROUNDS OF APP EAL, BUT HER GRIEVANCE REVOLVES AROUND A SINGLE ISSUE WHEREBY TH E ASSESSEE HAS PLEADED THAT THE CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS.21,62,784/- WHICH WAS DISALLOWED BY THE ASSESSING OFFICER WITH THE AID OF SECTION 40(A)(IA) OF THE INCOME TAX ACT ON THE GROUND THAT THE ASSESSEE FAILED TO D EDUCT THE TDS U/S 194H OF THE INCOME TAX ACT. ITA NO.280 OF 2014 SMT. BHARGAVI GOPINATH BANGALORE PAGE 2 OF 8 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL. SHE IS IN THE BUSINESS OF MANUFACTURING AND TRADING OF BAKERY PRODUCTS. SHE HAS FILED HER RETURN OF INC OME ON 30.10.2006 DECLARING AN INCOME OF RS.10,19,352/-. T HE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND A NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. 3. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED A SUM OF RS.2 1,62,784/- ON THE GROUND THAT SHE HAD PAID A LICENSE FEE OF THIS AMOUNT TO DECCAN AVIATION LTD FOR PROVIDING STORAGE PLACE, SE RVICES OF THE CABIN ATTENDANTS IN AIR DECCAN AIRCRAFT. ACCORDING TO THE ASSESSEE, SHE HAD ENTERED INTO AN AGREEMENT WITH AI R DECCAN FOR SALE OF FOOD ITEMS IN THE AEROPLACE OF AIR DECCAN. SHE HAS TO PAY 20% OF THE GROSS SALES AS A LICENSE FEE AND FURTHER 10% TOWARDS THE SERVICES PROVIDED BY THE CABIN CREW INSIDE THE AIRCRAFT FOR PROVIDING SERVICES TO SELL THOSE FOOD ITEMS. THE AS SESSING OFFICER CONSTRUED THE PAYMENT AS A COMMISSION AND OBSERVED THAT THE ASSESSEE FAILED TO DEDUCT THE TDS U/S 194H OF THE I NCOME TAX ACT ON THE COMMISSION PAYMENT, THEREFORE, THE EXPEN SES SO CLAIMED ARE TO BE DISALLOWED U/S 40(A)(IA) OF THE I .T. ACT. 3. APPEAL TO THE CIT (A) DID NOT BRING ANY RELIEF T O THE ASSESSEE. 4. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE S UBMITED THAT THE ASSESSEE HAS ALREADY MADE THE PAYMENT. THE SEPCIAL ITA NO.280 OF 2014 SMT. BHARGAVI GOPINATH BANGALORE PAGE 3 OF 8 BENCH OF THE ITAT IN THE CASE OF MERILYN SHIPPING ( 2012) 16 ITR (TRIB.) 1, VISAKHAPATNAM HAS OBSERVED THAT WHERE PA YMENT HAS BEEN MADE, THEN DISALLOWANCE U/S 40(A)(IA) WOULD NO T BE MADE. IF THE AMOUNTS ARE PAYABLE ONLY DISALLOWANCE WOULD BE MADE. HE FURTHER CONTENDED THAT THE PAYEE HAS ALREADY PAID T HE TAXES ON THIS AMOUNT, THEREFORE, THE ASSESSEE SHOULD NOT BE BURDENED WITH THE LIABILITY. IN SUPPORT OF HIS CONTENTION, H E RELIED UPON THE ORDER OF THE ITAT BANGALORE BENCH IN THE CASE OF DC IT VS. SHRI ANANDA MARAKALA IN ITA NO.1584/BANG/2012. 5. THE LEARNED DR ON THE OTHER HAND CONTENDED THAT THIS PLEA WAS NOT TAKEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. THEREFORE, THIS ASPECT WAS NOT VERIFIED. IT IS NOT DISCERNIBLE FROM THE RECORD, WHETHER THE ASSESSEE HAS PAID THE AMOUN T OR NOT?. THIS ASPECT NEEDS TO BE VERIFIED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CON TENDED THAT IT IS TO BE ADJUDICATED, WHETHER THE PAYMENT M ADE BY HER WERE IN THE NATURE OF COMMISSION PAYMENT OR A LICEN SE FEE FOR USING THE AIRCRAFT OF THE AIR DECCAN?. THE ASSESSEE IS DISPUTING THE 20% OF THE GROSS SALE, REST 10% WERE PAID BY HE R TOWARDS SERVICES PROVIDED BY THE CABIN CREW. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. THE ITAT IN THE CASE OF SHRI ANANDA MARAKALA (SUPRA) HAS CONSIDERED THE APPLICABILITY O F SECTION 40(A)(IA) AND FOLLOWED THE ORDER OF THE ITATS SPEC IAL BENCH, ITA NO.280 OF 2014 SMT. BHARGAVI GOPINATH BANGALORE PAGE 4 OF 8 VISAKHAPATNAM. THE DISCUSSION MADE BY THE TRIBUNAL IS WORTH TO NOTE AND IT READ AS UNDER: 26. WE ARE OF THE VIEW THAT THE REASONING OF THE H ONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD(SU PRA) WILL EQUALLY TO THE AMENDMENT TO SEC.40(A)(IA) OF T HE ACT WHEREBY A SECOND PROVISO WAS INSERTED IN SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 BY THE FINANCE ACT, 201 2, W.E.F. 1-4-2013. THE PROVISIONS ARE INTENDED TO REMOVE HARDSHIP. IT WAS ARGUED ON BEHALF OF THE REVENUE THAT THE EXI STING PROVISIONS ALLOW DEDUCTION IN THE YEAR OF PAYMENT A ND TO THAT EXTENT THERE IS NO HARDSHIP. WE ARE OF THE VI EW THAT THE HARDSHIP IN SUCH AN EVENT WOULD BE TAXING AN ASSESSEE ON A HIGHER INCOME IN ONE YEAR AND TAXING HIM ON LOWER INCOME IN A SUBSEQUENT YEAR. TO THE EXTENT T HE ASSESSEE IS MADE TO PAY TAX ON A HIGHER INCOME IN O NE YEAR, THERE WOULD STILL BE HARDSHIP. 27. AS FAR AS THE APPEAL OF THE REVENUE IS CONCERNE D, WE FIND THAT THE USE OF WORD PAYABLE, IN SECTION 40(A)(IA) OF THE ACT HAS CREATED CONTROVERSY AS TO WHETHER PAYAB LE INCLUDES AMOUNTS PAID DURING THE YEAR. THERE WERE CONFLICTING DECISIONS RENDERED BY THE TRIBUNAL. IN THE CASE OF DCIT VS. ASHIKA STOCK BROKING LTD. REPORTED IN 44 SOT 556 THE HONBLE KOLKATTA ITAT HAS DECIDED THE MATTER IN FAVOUR OF REVENUE AND AFTER FOLLOWING ITS DECISION DATED 15.01.2010 IN TH E CASE OF PODDAR SONS EXL. P LTD VS. ITO IN ITA NO. 1418(KOL.)/09 HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE APPLICABLE TO EVEN SUMS PA ID DURING THE YEAR. IN THE CASE OF TEJA CONSTRUCTION VS. ACIT REPORTED IN 39 SOT 13 THE HONBLE HYDERABAD ITAT HAS DECIDED THE ISSUE AGAINST THE REVENUE AND HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE IN RESPECT OF SUMS/AMOUNT PAID DURING THE YEAR AND WHICH ARE NOT PAYABLE AT END OF THE YEAR ON DATE OF BALANCE SHEET, AS IT IS APPLICABLE ONLY IN RESPECT OF PAYABLE AMOUNT SHOWN IN BALANCE SHEET AS OUTSTANDING EXPENSES ON WHICH TDS HAS NOT BEEN MADE. SIMILAR LAWS WERE LAID IN VARIOUS OTHER CASES. ITA NO.280 OF 2014 SMT. BHARGAVI GOPINATH BANGALORE PAGE 5 OF 8 TO RESOLVE THE ABOVE ISSUE SPECIAL BENCH WAS CONSTITUTED AND THE HONBLE VISAKHAPATNAM SPECIAL BENCH OF ITAT IN THE CASE OF MERILYN SHIPPING & TRANSPORT VS. ADDL CIT REPORTED IN 20 TAXMANN.COM 244 HAS DECIDED THE ISSUE AGAINST THE REVENUE AND AFTER COMPARING THE PROPOSED AND ENACTED PROVISION WHICH IS INTENDED FROM THE REPLACEMENT OF THE WORDS IN THE PROPOSED AND ENACTED PROVISION FROM THE WORDS AMOUNT CREDITED OR PAID TO PAYABLE HAS HELD THAT IT HAS TO BE CONCLUDED THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY TO THE AMOUNTS OF EXPENDITURE WHICH ARE PAYABLE AS ON THE DATE 31ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW EXPENDITURE WHICH HAS BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR, WITHOUT DEDUCTION OF TDS. 28. IN CIT VS. SIKANDARKHAN N.TUNVAR & OTHERS, TAX APPEAL NO. 905 OF 2012 & OTHERS DATED02/05/2013, TH E HONBLE GUJARAT HIGH COURT HELD THAT IN MERILYN SHI PPING 146 TTJ 1 (VIZ) (SB,) THE MAJORITY HELD THAT AS THE FINANCE BILL PROPOSED THE WORDS AMOUNT CREDITED OR PAID A ND AS THE FINANCE ACT USED THE WORDS AMOUNTS PAYABLE, S . 40(A)(IA) COULD ONLY APPLY TO AMOUNTS THAT ARE OUTS TANDING AS OF 31ST MARCH AND NOT TO AMOUNTS ALREADY PAID DU RING THE YEAR. THIS VIEW IS NOT CORRECT FOR TWO REASONS. FIRSTLY, A STRICT READING OF S. 40(A)(IA) SHOWS THAT ALL THAT IT REQUIRES IS THAT THERE SHOULD BE AN AMOUNT PAYABLE OF THE NATUR E DESCRIBED, WHICH IS SUCH ON WHICH TAX IS DEDUCTIBLE AT SOURCE BUT SUCH TAX HAS NOT BEEN DEDUCTED OR IF DED UCTED NOT PAID BEFORE THE DUE DATE. THE PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE MUST REMA IN SO PAYABLE THROUGHOUT DURING THE YEAR. IF THE ASSESSEE S INTERPRETATION IS ACCEPTED, IT WOULD LEAD TO A SITU ATION WHERE THE ASSESSEE WHO THOUGH WAS REQUIRED TO DEDUC T THE TAX AT SOURCE BUT NO SUCH DEDUCTION WAS MADE OR MORE FLAGRANTLY DEDUCTION THOUGH MADE IS NOT PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAU SE THE AMOUNT WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER ASSESSEE WHO WOULD OTHE RWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE THE AMOUN T REMAINED PAYABLE TILL THE END OF THE YEAR. THERE IS NO LOGIC WHY THE LEGISLATURE WOULD HAVE DESIRED TO BRING ABO UT SUCH IRRECONCILABLE AND DIVERSE CONSEQUENCES. SECONDLY, THE PRINCIPLE OF DELIBERATE OR CONSCIOUS OMISSION IS AP PLIED MAINLY WHEN AN EXISTING PROVISION IS AMENDED AND A ITA NO.280 OF 2014 SMT. BHARGAVI GOPINATH BANGALORE PAGE 6 OF 8 CHANGE IS BROUGHT ABOUT. THE SPECIAL BENCH WAS WRON G IN COMPARING THE LANGUAGE USED IN THE DRAFT BILL TO TH AT USED IN THE FINAL ENACTMENT TO ASSIGN A PARTICULAR MEANI NG TO S. 40(A)(IA). ACCORDINGLY, MERILYN SHIPPING DOES NOT LAY DOWN CORRECT LAW. THE CORRECT LAW IS THAT S. 40(A)( IA) COVERS NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31S T MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYAB LE AT ANY TIME DURING THE YEAR. THE HONBLE KOLKATTA HIG H COURT IN CIT VS. MD.JAKIR HOSSAI MONDAL (SUPRA) DID NOT A GREE WITH THE VIEW OF THE SPECIAL BENCH IN THE CASE OF M ERILYN SHIPPING FOLLOWING ITS JUDGMENT ON 3RD APRIL, 2013 IN ITAT NO. 20 OF 2013, G.A. NO. 190 OF 2013 (CIT, KOLKATA- XI VS. CRESCENT EXPORT SYNDICATES) HOLDING THAT THE VIEWS EXPRESSED IN THE CASE OF MERILYN SHIPPING & TRANSPO RTS (ITA.477/VIZ./2008 DATED 20.3.2012) WERE NOT ACCEPT ABLE. 29. HOWEVER, WE FIND THAT THE HONBLE ALLAHABAD HI GH COURT HAS HOWEVER UPHELD THE VIEW TAKEN BY THE SPEC IAL BENCH ITAT IN THE CASE OF MERILYN SHIPPING (SUPRA) IN THE CASE OF M/S. VECTOR SHIPPING SERVICES PVT. LTD. (SU PRA). THE RELEVANT OBSERVATIONS OF THE HONBLE COURT WERE AS FOLLOWS:- WE DO NOT FIND THAT THE REVENUE CAN TAKE ANY BENEF IT FROM THE OBSERVATIONS MADE BY THE SPECIAL BENCH OF THE TRIBU NAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (136 LTD 23) (S B) QUOTED AS ABOVE TO THE EFFECT SECTION 40(A)(IA) WAS INTRODUCE D IN THE ACT BY THE FINANCE ACT, 2004 WITH EFFECT FROM 1.4.2005 WITH A VIEW TO AUGMENT THE REVENUE THROUGH THE MECHANISM OF TAX DEDUCTION AT SOURCE. THIS PROVISION WAS BROUGHT ON STATUTE TO DISALLOW THE CL AIM OF EVEN GENUINE AND ADMISSIBLE EXPENSES OF THE ASSESSEE UNDER THE H EAD INCOME FROM BUSINESS AND PROFESSION IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES. THE DEFAULT IN DEDUCTION OF TDS WOUL D RESULT IN DISALLOWANCE OF EXPENDITURE ON WHICH SUCH TDS WAS D EDUCTIBLE. IN THE PRESENT CASE TAX WAS DEDUCTED AS TDS FROM THE SALAR IES OF THE EMPLOYEES PAID BY M/S MERCATOR LINES LTD., AND THE CIRCUMSTANCES IN WHICH SUCH SALARIES WERE PAID BY M/S MERCATOR LINES LTD., FOR M/S VECTOR SHIPPING SERVICES, THE ASSESSEE WERE SUFFICI ENTLY EXPLAINED. IT IS TO BE NOTED THAT FOR DISALLOWING EXPENSES FRO M BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDU CTED, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID BY TH E END OF THE YEAR. WE DO NOT FIND THAT THE TRIBUNAL HAS COMMITTED ANY ERROR IN RECORDING THE FINDING ON THE FACTS, WHICH WERE NOT CONTROVERT ED BY THE DEPARTMENT AND THUS THE QUESTION OF LAW AS FRAMED D OES NOT ARISE FOR CONSIDERATION IN THE APPEAL. ITA NO.280 OF 2014 SMT. BHARGAVI GOPINATH BANGALORE PAGE 7 OF 8 THE INCOME TAX APPEAL IS DISMISSED. 30. THUS THERE ARE TWO VIEWS ON THE ISSUE, ONE I N FAVOUR OF THE ASSESSEE EXPRESSED BY THE HONBLE ALLAHABAD HIGH CO URT AND THE OTHER AGAINST THE ASSESSEE EXPRESSED BY THE HONBLE GUJARAT & CALCUTTA HIGH COURTS. ADMITTEDLY, THERE IS NO DECI SION RENDERED BY THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE GIVEN CIRCUMSTANCES, FOLLOWING THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF VEGETABLE PRODUCTS LTD. (SUPRA ), WE HOLD THAT WHERE TWO VIEWS ARE POSSIBLE ON AN ISSUE, THE VIEW IN FAVOUR OF THE ASSESSEE HAS TO BE PREFERRED. FOLLOWING THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT, WE UPHOLD THE ORDER O F THE CIT(A). 31. IN THE RESULT, THE APPEAL BY THE REVENUE IS DI SMISSED, WHILE THE CROSS OBJECTION BY THE ASSESSEE IS ALLOWE D. PERUSAL OF THIS ORDER WOULD SUGGEST THAT THE ISSUE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESSEE. THE ASSESSEE HAS CONTENDED THAT SHE HAS PAID THE AMOUNTS, BUT SINCE IT IS NOT DISCERNIBLE SPECIFICALLY FROM THE IMPUGNED ORDER, WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OF FICER SHALL ASCERTAIN WHETHER THE ASSESSEE HAS PAID THE AMOUNTS TO THE AIR DECCAN OR NOT. IN CASE IT IS FOUND THAT PAYMENTS HA VE ALREADY BEEN MADE, THEN THE ASSESSING OFFICER SHALL EXAMINE THE ISSUE IN THE LIGHT OF THE ORDER OF THE ITAT EXTRACTED (SUPRA ), UNLESS THIS POSITION IS REVERSED BY THE HON'BLE JURISDICTIONAL HIGH COURT OR THE HON'BLE SUPREME COURT. IN THAT SITUATION THE A SSESSEE WILL BE AT LIBERTY TO REAGITATE ITS GROUND THAT PAYMENT WAS NOT IN THE NATURE OF COMMISSION PAYMENT, RATHER IT WAS A LICEN SE FEE, WHICH WILL NOT CALL FOR DEDUCTION OF TDS U/S 194H. THE OB SERVATION MADE BY US WOULD NOT IMPAIR OR INJURE THE CASE OF T HE ASSESSING OFFICER OR WOULD NOT CAUSE ANY PREJUDICE TO THE DEFENSE/EXPLANATION OF THE ASSESSEE. THE IMPUGNED O RDERS ARE ITA NO.280 OF 2014 SMT. BHARGAVI GOPINATH BANGALORE PAGE 8 OF 8 SET ASIDE. THE ASSESSING OFFICER SHALL READJUDICATE THE ISSUE ACCORDINGLY. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 21 ST NOVEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE