DCIT, Coimbatore V. Quantum Knits Private Limited, Coimbatore

ITA 287/CHNY/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5043 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 12-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYKUMAR PUNNA ST
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Wholly owned subsidiary; Non-deduction of tax
• Section: 201(1); 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 287/MDS/2016 / ASSESSMENT YEAR : 2012-13 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1, 63 A, RACE COURSE ROAD, COIMBATORE VS. M/S. QUANTUM KNITS PRIVATE LIMITED, S.F. NO. 181, KOLLUPALAYAM VILLAGE, ARASUR, COIMBATORE 641 407. [PAN: AAACQ 1959K] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI. VIJAYKUMAR PUNNA, ST. COUNSEL )*% & / RESPONDENT BY : SHRI. A.S. SRIRAMAN, ADVOCATE & /DATE OF HEARING : 28.12.2017 & /DATE OF PRONOUNCEMENT : 10.01.2018 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS)-1, COIMBATORE IN ITA NO. 19 /2015-16 DATED 30.11.2015 FOR ASSESSMENT YEAR 2012-13. :-2-: ITA NO. 287/MDS/2016 2. M/S. QUANTUM KNITS PRIVATE LIMITED, THE ASSESSEE , IS A DOMESTIC COMPANY CARRYING ON THE BUSINESS OF MANUFACTURE OF TEXTILES, HANDLOOMS AND POWERLOOMS. THE ASSESSEE IS 100% SUBSIDIARY OF KPR MILLS LIMITED. DURING THE ASSESSMENT YEAR 2012-13, THE ASSESSEE PAID RS 5 5,44,28,121,/- BUSINESS PROMOTIONAL EXPENSES TO M/S. KPR MILLS LIMITED, THE HOLDING COMPANY WITHOUT DEDUCTING TAX AT SOURCE. BEFORE THE ASSESSING OFFI CER, THE ASSESSEE BASED ON THE MEMORANDUM OF AGREEMENT DATED 24.06.2009, BETWE EN THE HOLDING COMPANY AND ITS 100% SUBSIDIARY COMPANY SUBMITTED T HAT IT WAS TO SHARE THE REVENUE AT THE END OF THE FINANCIAL YEAR THROUGH A BOOK ENTRY ON A FIXED AND PREDETERMINED PORTION I.E., A SAID PERCENTAGE OF NE T REVENUE EARNED OUT OF THE GARMENT EXPORTED TO THE CUSTOMERS LIST SUPPLIED BY KPR MILLS LIMITED, TRANSFERRED TO THEM AFTER RETAINING 1% ON TURNOVER BY QUANTUN KNITS (P) LTD. FOR THEIR OPERATIONS AND ACCORDINGLY PAID THE IMPUG NED SUM. FURTHER, IT PLEADED THAT THE TWO CONTRACTING PARTIES ACTED ON P RINCIPAL TO PRINCIPAL BASIS AND ONE DID NOT PROVIDE ANY SERVICE TO ANOTHER. IN THE AGREEMENT, THERE WAS NO SHARING OF LOSS BETWEEN THE PARTIES. HENCE, THE BUSINESS PROMOTIONAL EXPENSES IS NOT LIABLE FOR TDS U/S. 194C, 194H, 194 I OR 194J OR UNDER ANY OTHER SECTION UNDER CHAPTER VII, GOVERNING DEDUCTIO N OF TAX AT SOURCE . IT WAS FURTHER SUBMITTED THAT THE AMOUNT RECEIVED AS B USINESS PROMOTIONAL EXPENSES BY M/S. KPR MILLS LIMITED WAS REFLECTED IN THEIR ACCOUNTS IN THE COMPUTATION OF INCOME TAX STATEMENT AND THERE IS NO REVENUE LOSS TO THE DEPARTMENT. THUS, THE ASSESSEE ARGUED THAT THE BUS INESS PROMOTIONAL :-3-: ITA NO. 287/MDS/2016 EXPENSES DOES NOT COME UNDER THE AMBIT OF TAX. AFT ER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ANALYSING THE FACT S, THE AO OBSERVED THAT THE AGREEMENT FILED BY THE ASSESSEE DETAILS THE BUN DLE OF SERVICE LIKE RENT, ROYALTY, COMMISSION HAS BEEN COMPLIED WITH BY M/S. KPR MILLS LIMITED FOR WHICH THEY HAVE RAISED PAYMENTS IN THE NAME OF BUSI NESS PROMOTIONAL EXPENSES AND HELD THAT NON-DEDUCTION OF TDS ON THIS PAYMENT IS HIT DIRECTLY BY THE PROVISIONS OF SECTION 40(A)(IA) AND HENCE DI SALLOWED. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A), THE ASSESSEE TOOK AN ALTERNAT IVE PLEA THAT M/S. KPR MILLS LIMITED HAS ACCOUNTED THE ENTIRE PAYMENTS AT RS. 54,40,85,961/- IN THEIR BOOKS OF ACCOUNTS UNDER THE HEAD MISCELLANEOUS RECE IPTS AND HAVE PAID THE TAX ON THE SAME. THEREFORE, THE ASSESSEE REQUESTE D THAT IT MAY BE GIVEN A BENEFIT OF THE SUPREME COURT DECISION IN THE CASE O F M/S. HINDUSTAN COCA COLA BEVERAGES (P) LTD VS CIT[2007] 293 ITC 226(SC) AS W ELL AS ON THE SUBSEQUENT AMENDMENTS IN THE FINANCIAL ACT, 2012. IT SUBMITTED THAT THESE ISSUES WERE RAISED BEFORE THE ASSESSING OFFICER DUR ING THE COURSE OF ASSESSMENT ALSO. THE CIT(A) ALLOWED THE ASSESSEES APPEAL. 4. AGGRIEVED, THE REVENUE FILED THIS APPEAL WITH TH E FOLLOWING GROUNDS: 1) THE ORDER OF THE LEARNED CIT(A)-I IS AGAINST TH E LAW AND FACTS OF THE CASE. 2) THE LEARNED CIT(A)-I, COIMBATORE HAS ERRED IN HO LDING THAT SINCE THE RECIPIENT HAS ADMITTED THE SUM RECEIVED AS INCOME A ND PAID TAXES THERE ON :-4-: ITA NO. 287/MDS/2016 THEN THE DEDUCTION (IN THIS CASE THE ASSESSEE) IS A BSOLVED FROM DEDUCTING TAX AT SOURCE WHICH IS NOT THE PROVISION OF LAW AND AGAINS T THE LEGISLATIVE INTENT. 3) THE LEARNED CIT(A)- I, COIMBATORE SHOULD HAVE TA KEN NOTE OF THE FACT THAT THE ASSESSEE LIABLE TO DEDUCT TAX AT SOURCE IN RESP ECT OF THE PAYMENTS MADE AS BUSINESS PROMOTION EXPENSES AND HAVING FAILED TO DO SO, THE EXPENDITURE WAS LIABLE TO BE DISALLOWED U/S 40(A)(IA). THE DECISION IN THE CASE OF M/S. HINDUSTAN COCO COLA BEVERAGES DOES NOT SQUARELY APPLY TO THE FACTS AND LAW OF THE CASE AND CAN BE DISTINGUISHED ON FACTS AND LAW. 4) THE LEARNED CIT(A)-I OUGHT TO HAVE CONSIDERED TH E FACT THAT TRANSACTION IS BETWEEN RELATED PARTIES. MOREOVER, THIS IS NOT THE FIRST YEAR OR FIRST INSTANCE, WHERE ASSESSEE IS VIOLATING PROVISION OF SECTION 40 (A)(IA). 5) THE LEARNED CIT(A)-I, COIMBATORE SHOULD HAVE TAK EN NOTE OF THE FACT THAT IF THE CONTENTION OF THE ASSESSEE THAT THE TAXES HAS A LREADY BEEN PAID BY M/S. KPR MILLS LTD., ON THE SUM PAID BY THE ASSESSEE IS ACCEPTED, THE PROVISIONS OF TDS WILL BE REDUNDANT WHICH IS NOT THE INTENTION OF THE LEGISLATURE AND LAW. THE BOARD CIRCULAR NO.275/201/95- IT DATED 29.01.1997 Q UOTED SPECIFICALLY PERTAINS TO THE PROVISIONS OF SECTION 201(IA) AND HAS NO BEA RING ON THE LARGER QUESTION WHETHER TAX IS LIABLE TO BE DEDUCTED OR NOT. 6) THE LEARNED CIT(A) FAILED TO CONSIDER THE JURISD ICTIONAL HIGH COURT'S DECISION IN THE CASE OF TUBE INVESTMENTS OF INDIA LTD VS. AC IT, TDS CIRCLE-IL CITED IN [2009] 185 TAXMAN 438 (MAD) WHEREIN IT WAS HELD THA T THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF HINDUST AN COCA COLA BEVERAGES (P) LTD WAS IN THE LIGHT OF SECTIONS 201(1) AND 201 (IA) AND CANNOT BE APPLIED TO A SITUATION WHERE SECTION 40(A)(IA) GETS ATTRACTED WHICH STANDS ENTIRELY ON A DIFFERENT SET OF CIRCUMSTANCES. 7) FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT(A) MAY BE CANCELLED AN D THAT OF ASSESSING OFFICER BE RESTORED. 5. THE DR SUPPORTED THE ORDER OF THE ASSESSING OFFI CER AND ARGUED ON THE LINES OF THE GROUNDS OF APPEAL. FURTHER, HE SUPPOR TED THE ORDER OF THE ASSESSING OFFICER BASED ON THE DELHI HIGH COURT DEC ISION IN THE CASE OF CIT VS. :-5-: ITA NO. 287/MDS/2016 ITC LIMITED [2017] 83 TAXMAN.COM 167 (DELHI). PER CONTRA, THE AR RELIED ON THIS TRIBUNAL DECISION IN THE ASSESSEES OWN CASE RENDERED FOR ASSESSMENT YEAR 2010-11 IN ITA NO. 2164/MDS/2014 DATED 21.06.2 017 6. WE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL. THE RELEVANT PORTION OF THE CIT(A) ORDER IS EXTRACT ED AS UNDER: 11. ON A PERUSAL OF THE RETURN OF INCOME FILED BY KPR MILLS IT IS NOTICED THAT THE ASSESSEE HAS ACCOUNTED THE ENTIRE AMOUNT U NDER THE HEAD MISCELLANEOUS RECEIPTS TOTALLING RS.54,40,85,961/- BEING THE AMOUNT RECEIVED FROM M/S. QUANTUM KNITS. THEREFORE RELYING ON THE D ECISION OF HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES (P) LTD. VS. CIT AND SUBSEQUENT DECISION OF THE ITAT CHENNAI IN THE CASE OF M/S. FOXCONN INDIA DEVELOPERS (P) LTD. VS. ITO TDS AND ALSO THE DECISI ON OF ITAT PANAJI BENCH IN THE CASE OF SHRI CHANDRASHEKAR SHIVALINGAPPA VS. TH E CIT IN ITA 33/PNJ/2013, ITAT B BENCH BANGALORE IN THE CASE OF DCIT VS. SHRI ANANDA MARAKALA IN ITA NO. 1584/BANG/2012, ITAT PUNE BENCH B, PUNE IN THE CASE OF ITO VS GAURIMAL MAHAJAN & SONS IN ITA NO. 1852/PN/2012, ITAT HYDERA BAD BENCH A HYDERABAD IN THE CASE OF PLR PROJECTS VS. DEPARTMEN T OF INCOME TAX IN ITA NO. 1079/HYD/2013 THE ASSESSEE IS ENTITLED TO RELIEF. I T IS ALSO TO BE NOTED THAT FINANCE ACT 2012 HAS MADE AN AMENDMENT TO SECTION 2 01 (1) TO THE EFFECT THAT THE DEDUCTEE HAS DISCHARGED THE TAX LIABILITY ATTRI BUTABLE TO SUCH RECEIPTS AND HAS FILED THE RETURN OF INCOME THE DEDUCTOR NEED NO T BE HELD TO BE AN ASSESSEE IN DEFAULT DESPITE FAILURE TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS. IN THIS PRESENT CASE IT IS OBSERVED THAT DEDUCTEE HAS INCLU DED THE PAYMENT IN ITS TOTAL INCOME AND HAS ALSO FILED THE RETURN OF INCOME. IN EFFECT THE DEPARTMENT HAS NOT SUFFERED ANY REVENUE LOSS AND IN THE CIRCUMSTAN CES THE AMENDMENT THOUGH PROCEDURAL IN NATURE, MADE EFFECTIVE FROM A SUBSEQU ENT DATE SHOULD ALSO BE TAKEN TO BE APPLICABLE TO THE YEAR UNDER CONSIDERAT ION. THEREFORE THE APPEAL OF THE ASSESSEE IS ALLOWED. :-6-: ITA NO. 287/MDS/2016 7. IN THIS CASE, WE FIND THAT THE ASSESSEE HAS PAID RS. 54,40,85,961/- AS BUSINESS PROMOTIONAL EXPENSES TO M/S. KPR MILLS LTD ., THE HOLDING COMPANY OF WHICH, THE ASSESSEE IS A 100% SUBSIDIARY. M/S. KPR MILLS LTD. HAS INCLUDED THE PAYMENT IN ITS TOTAL INCOME AND HAS ALSO FILED THE RETURN OF INCOME AND THEY HAVE PAID THE TAXES ON THE SAME, WHICH IS NOT IN DISPUTE. THE ONLY DISPUTE BEFORE US IS WHETHER THE SECOND PROVISO TO SECTION 40(A)(IA) TAKES EFFECT FROM 01.04.2013 IS APPLICABLE TO THE ASSESSE E OR NOT ? THE COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE AND SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN ASSESSEES FAVOUR BY THIS TRIBUNAL DECI SION, SUPRA. 8. AFTER CONSIDERING THE DECISION IN THE CASE OF ST AR INVESTMENTS PVT. LTD., VS ACIT IN ITA NOS. 20 & 231/MDS/2015 DATED 21.06.2 016, THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 2167/MDS/2014 DATED 21.06.2014, FOR ASSESSMENT YEAR 2010-11 HELD AS UNDER: 8. THE LD. DR COULD NOT CONTROVERT THE ABOVE FIN DINGS OF THE COORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF S TAR INVESTMENTS PVT. LTD., WHEREIN THE DECISION OF AGRA BENCHES OF THE TRIBUNA L IN THE CASE OF RAJEEV KUMAR AGARWAL V. ADDL. CIT (SUPRA) HAS BEEN FOLLOWE D, WHICH WAS AFFIRMED BY THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF AN SAL LANDMARK TOWNSHIP PVT. LTD. V. ADDL. CIT (SUPRA), WHICH WAS SUBSEQUENTLY C ONFIRMED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. ANSAL LANDMA RK TOWNSHIP PVT. LTD. 377 ITR 635 (DEL) AND THE SAME WAS NOT REVERTED BY THE HIGH COURT. THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCHES OF THE TRIBUNAL IN THE CASE OF STAR INVESTMENTS PVT. LTD. (SUPRA) AND ANSAL LANDMARK TOWNSHIP PVT. LTD. 377 ITR 635 (DEL), THE GROUND RAISED BY T HE REVENUE IS DISMISSED. :-7-: ITA NO. 287/MDS/2016 SINCE, THERE IS NO CHANGE IN THE FACTS AND IN LAW, FOLLOWING THE CO-ORDINATE BENCH DECISION IN THE ASSESSEES CASE, SUPRA, THE R EVENUES APPEAL IS DISMISSED. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED ON WEDNESDAY, THE 10 TH DAY OF JANUARY, 2018 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) ! ' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 10 TH JANUARY, 2018 JPV & )12 32 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2 ) /DR 6. 7 /GF