M/s. Sri Surya Earth Moving, Rajahmundry V. THE ITO, WARD - 4, Rajahmundry

ITA 317/VIZ/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8979 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-12-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 06-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MURTHY NAIK
• Keywords: Unexplained cash credit; Non-deduction of tax
• Section: 194C; 68

Judgement Text

ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.317/VIZAG/2013 ( / ASSESSMENT YEAR: 2006-07) M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY ITO, WARD - 4, RAJAHMUNDRY [PAN NO. ABDFS1318F ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI MURTHY NAIK, DR / DATE OF HEARING : 18.04.2017 / DATE OF PRONOUNCEMENT : 05.05.2017 / O R D E R PER SHRI G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-11, MUMBAI, CAMP AT VISAKHAPATNAM DATED 13.3 .2013 AND IT PERTAINS TO THE ASSESSMENT YEAR 2006-07. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A FIRM ENGAGED IN THE BUSINESS OF CONTRACT WORKS FILED ITS RETURN OF INCOME FOR THE ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 2 ASSESSMENT YEAR 2006-07 ON 4.12.2006 DECLARING TOTA L INCOME OF ` 1,54,136/-. THE ASSESSMENT WAS COMPLETED U/S 143(3 ) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') ON 12.12.2008 DETERMINING THE TOTAL INCOME OF ` 50,96,493/-, INTER-ALIA MAKING ADDITIONS TOWARDS DISALLOWANCE OF SUNDRY CREDITORS U/S 68 OF THE ACT AND DISALLOWANCE OF MACHINERY MAINTENANCE EXPENDITURE U /S 40(A)(IA) OF THE ACT FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY. THE FIRST APPELLATE AUTHORITY HAS CONFIRMED THE ADDITIO NS MADE BY THE A.O. AND DISMISSED APPEAL FILED BY THE ASSESSEE. THE AS SESSEE HAS FILED FURTHER APPEAL BEFORE THE ITAT. THE ITAT HAS SET A SIDE THE ISSUE TO THE FILE OF THE A.O., WITH A DIRECTION TO RE-EXAMINE TH E ISSUE IN THE LIGHT OF THE DISCUSSIONS IN ITS ORDER DATED 25.10.2010. WHIL E DOING SO, THE ITAT HAS OBSERVED THAT THE A.O. WAS ERRED IN MAKING ADDI TIONS TOWARDS SUNDRY CREDITORS ARISED OUT OF MACHINERY RENT PAYAB LE, WHEN THE TOTAL EXPENDITURE DEBITED BY THE ASSESSEE HAS NOT BEEN DO UBTED. THE ITAT, FURTHER OBSERVED THAT WHEN THE EXPENDITURE INCURRED TOWARDS MACHINERY RENT WAS NOT IN DOUBTFUL, THE CREDITORS ARISED OUT OF SUCH EXPENDITURE CANNOT BE TREATED AS UNEXPLAINED CREDITS U/S 68 OF THE ACT. IN SO FAR AS DISALLOWANCE OF MACHINERY MAINTENANCE EXPENDITURE U /S 40(A)(IA) OF THE ACT, THE ITAT OBSERVED THAT THE ASSESSEE HAS EXPLAI NED EXPENDITURE ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 3 INCURRED UNDER THE HEAD MACHINERY MAINTENANCE, WHIC H IS INCURRED TOWARDS REIMBURSEMENT OF FUEL AND SPARE PARTS COST INCURRED BY M/S. ESSAR CONSTRUCTIONS, CHENNAI AND M/S. KISHORE ENTER PRISES, WHICH CANNOT BE CONSIDERED SERVICE CONTRACT WHICH ATTRACT S TDS PROVISIONS OF SECTION 194C OF THE ACT. 3. CONSEQUENT TO THE DIRECTIONS OF THE ITAT, THE A. O. HAD TAKEN UP THE CASE FOR RE-EXAMINATION. DURING THE COURSE OF RE-EXAMINATION PROCEEDINGS, THE A.O. ASKED THE ASSESSEE TO FURNISH NECESSARY DETAILS OF EXPENDITURE INCURRED UNDER THE HEAD MACHINERY RENT INCLUDING NAME AND ADDRESS OF THE PAYEE, MODE OF PAYMENT AND ALSO CONF IRMATION LETTER FROM THE PARTIES. IN RESPONSE TO NOTICE, THE ASSES SEE HAS FILED LEDGER EXTRACT ALONG WITH CONFIRMATION LETTERS EXPLAINING THE NATURE OF EXPENDITURE INCURRED, MODE OF PAYMENT AND ALSO BALA NCE OUTSTANDING AT THE END OF THE YEAR. THE A.O., HOWEVER, COULD NOT SATISFIED WITH THE EXPLANATIONS OF THE ASSESSEE, OBSERVED THAT THE ASS ESSEE FAILED TO PRODUCE ANY PROOF TO ESTABLISH THE IDENTITY OF SUCH PERSONS AND THE GENUINENESS OF THE PAYMENT, THEREFORE, TREATED TOTA L EXPENDITURE INCURRED UNDER THE HEAD MACHINERY RENT AS UNPROVED EXPENDITURE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. SI MILARLY, IN RESPECT OF DISALLOWANCE OF MACHINERY MAINTENANCE EXPENDITURE U /S 40(A)(IA) OF THE ACT, THOUGH THE ASSESSEE STATED THAT EXPENDITURE IN CURRED UNDER THE ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 4 HEAD MACHINERY MAINTENANCE EXPENDITURE IS TOWARDS R EIMBURSEMENT OF FUEL AND SPARE PARTS COST TO M/S. ESSAR CONSTRUCTIO NS AND M/S. KISHORE ENTERPRISES, FAILED TO FURNISH NECESSARY CONTRACTUA L AGREEMENTS ENTERED WITH THE PARTIES TO PROVE THAT THE SAME WAS A REIMB URSEMENT OF EXPENDITURE, BUT NOT ACTUAL PAYMENT MADE TO THE PAR TIES FOR RENDERING SERVICES. THEREFORE, OPINED THAT THE ASSESSEE FAIL ED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS ACCORDINGLY, DISALLOWED AN AMOUNT OF ` 9,31,101/- U/S 40(A)(IA) OF THE ACT, FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAD TAKEN A LEGAL PLEA IN AS MUCH, THE A.O. WAS ERRED IN TRAVEL BEYOND THE DIRECTIONS GIVEN BY THE ITAT, TO MAKE ADDITIONS TOWARDS DISALL OWANCE OF TOTAL EXPENDITURE INCURRED UNDER THE HEAD MACHINERY RENT S IGNORING THE CLEAR DIRECTIONS OF THE ITAT, WHEREIN THE ITAT AS SUCH SE T ASIDE THE ISSUE FOR THE LIMITED PURPOSE OF VERIFICATION OF FACTS FOR TH E REASON THAT THE ASSESSEE HAS NOT FURNISHED NECESSARY DETAILS BEFORE THE A.O. THE ASSESSEE FURTHER SUBMITTED THAT THE ITAT HAS CONSID ERED THE ISSUE IN DETAIL AND AFTER ANALYZING THE FACTS AND ALSO CONSI DERING THE CONFIRMATION LETTER FILED BY THE ASSESSEE HAS GIVEN A CATEGORICA L FINDING THAT THE A.O. CANNOT MAKE ANY ADDITIONS TOWARDS CREDITORS FOR EXP ENSES U/S 68 OF THE ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 5 ACT, WHEN THE EXPENDITURE HAS BEEN CONSIDERED AS GE NUINE, THEREFORE, THE A.O. WAS COMPLETELY ERRED IN DISALLOWING TOTAL EXPENDITURE AS UNPROVED EXPENDITURE. IN SO FAR AS DISALLOWANCE OF MACHINERY MAINTENANCE EXPENDITURE U/S 40(A)(IA) OF THE ACT, T HE ASSESSEE SUBMITTED THAT IT IS A MERE REIMBURSEMENT OF EXPEND ITURE INCURRED BY THE PARTIES TOWARDS COST OF FUEL AND SPARE PARTS, T HEREFORE, THE A.O. WAS ERRED IN TREATING THE SAME AS A SERVICE CONTRACT, W HICH ATTRACTS TDS PROVISIONS U/S 194C OF THE ACT. 5. THE CIT(A) AFTER CONSIDERING THE RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO BY RELIED UPON CERTAIN JUDICIAL P RECEDENTS, INCLUDING THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS BV VS. CIT (311 ITR 46), OBS ERVED THAT THE ASSESSEE HAS NOT PRODUCED THE DETAILS OF PAYMENT, E TC. AS SOUGHT TO DECIDE WHETHER EXPENSES WERE GENUINELY INCURRED AND PAYMENT WAS GENUINELY MADE, MORE SO, WHEN EVEN IDENTITY OF PAYE R IS NOT ESTABLISHED AND ONE PAYEE HAS BEEN DENIED THE CONFIRMATION FILE D BY THE ASSESSEE AND SAID IT TO BE FORGED, THE DETAILS OF PAYMENTS S UCH AS CHEQUE NUMBERS, ETC. ARE ALSO NOT FURNISHED, THE FINDINGS OF THE A.O. ARE UNCHANGED. THE ASSESSEE HAS NOT PRODUCED ANY EVIDE NCE IN SUPPORT OF GENUINENESS OF PAYMENTS AND TDS AS PER LAW WAS DONE , THEREFORE, UPHOLD ADDITIONS MADE BY THE A.O. TOWARDS DISALLOWA NCE OF UNPROVED ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 6 EXPENDITURE. IN SO FAR AS DISALLOWANCE OF MACHINER Y MAINTENANCE EXPENDITURE, THE CIT(A) OBSERVED THAT THE ASSESSEE FAILED TO PRODUCE ANY AGREEMENT IN SUPPORT OF PAYMENTS OR ANY DOCUMEN TARY EVIDENCE IN SUPPORT OF PAYMENTS MADE AND FAILED TO SUBSTANTIATE THAT THE SAID EXPENDITURE WAS NOT LIABLE FOR TDS OR THE TDS HAS B EEN DONE ON THE SAME, THEREFORE, CONFIRMED DISALLOWANCE MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT. AGGRIEVED BY THE CIT(A) ORDER, THE ASS ESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THE FIRST ROUND OF LITIGATION, THE A.O. HAS MADE ADDITI ONS TOWARDS UNEXPLAINED CREDITS ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THE IDENTITY AND GENUINENESS OF THE CREDITORS. IN THE SECOND ROUND OF LITIGATION, THE A.O. HAS DISALLOWED TOTAL EXPENDITU RE INCURRED UNDER THE HEAD MACHINERY RENTS ON THE GROUND THAT THE ASSES SEE HAS FAILED TO FURNISH THE DETAILS OF PAYEES AND ALSO FAILED TO PR OVE THE GENUINENESS OF PAYMENTS. IT IS THE CONTENTION OF THE ASSESSEE THA T THE A.O. WAS ERRED IN DISALLOWING TOTAL EXPENDITURE, IGNORING THE SPEC IFIC DIRECTIONS OF THE ITAT, WHEREIN THE ITAT HAS GIVEN A CATEGORICAL FIND ING THAT THE A.O. CANNOT MAKE IMPUGNED DISALLOWANCE U/S 68 OF THE ACT , WHEN THE EXPENDITURE INCURRED UNDER THE HEAD HAS BEEN CONSID ERED GENUINE, ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 7 HOWEVER, THE ITAT HAS SET ASIDE THE ISSUE FOR THE L IMITED PURPOSE OF VERIFICATION OF FACTS TO ASCERTAIN WHETHER THOSE DE TAILS ARE FILED BEFORE THE A.O. OR NOT. THE ASSESSEE FURTHER CONTENDED TH AT IT HAS FILED NECESSARY DETAILS OF EXPENDITURE INCLUDING LEDGER E XTRACTS OF THE PARTIES ALONG WITH CONFIRMATION LETTERS EXPLAINING THE NATU RE OF EXPENDITURE AND ALSO PROOF OF PAYMENT. THE ASSESSEE ALSO CONTENDS THAT THE SAID OUTSTANDING EXPENDITURE WAS PAID IN THE SUBSEQUENT FINANCIAL YEARS. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IALS ON RECORD, WE FIND THAT IN THE FIRST ROUND OF LITIGATION, THE A.O. DISALLOWED UNPAID EXPENDITURE INCURRED UNDER THE HEAD MACHINERY RENT S U/S 68 OF THE ACT, FOR FAILURE TO FILE CONFIRMATION LETTERS FROM THE P ARTIES. THE ASSESSEE HAS FILED NECESSARY LEDGER EXTRACT ALONG WITH CONFIRMAT ION LETTERS BEFORE THE ITAT. THE ITAT AFTER CONSIDERING THE CONFIRMATION LETTERS AND LEDGER EXTRACTS OBSERVED THAT THE ACTION OF THE A.O. IN AC CEPTING PART OF THE EXPENDITURE WAS GENUINE AND REMAINING PART IS NON-G ENUINE IS NOT IN ACCORDANCE WITH THE SCHEME OF THE ACT. IT WAS FURT HER OBSERVED THAT ON THE BASIS OF THESE LEGAL PROPOSITIONS, THE ENTIRE A DDITION IS LIABLE TO BE DELETED. WE FURTHER OBSERVED THAT THE ITAT HAS GIVE N A SPECIFIC DIRECTION TO THE A.O. WITH A LEGAL PROPOSITION THAT ONCE THE EXPENDITURE HAS BEEN ACCEPTED AS GENUINE, THE CREDITORS ARISED OUT OF SUCH EXPENDITURE CANNOT BE CONSIDERED AS UNEXPLAINED U/S 68 OF THE ACT. THE ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 8 A.O. IGNORING THE ABOVE FINDINGS, WENT ON TO DISALL OW THE EXPENDITURE AS UNPROVED EXPENDITURE FOR THE SIMPLE REASON THAT THE ASSESSEE HAS FAILED TO FURNISH NECESSARY DETAILS, IGNORING ALL THE EVID ENCES FILED BY THE ASSESSEE IN THE FORM OF CONFIRMATION LETTERS FROM T HE PARTY AND ALSO LEDGER EXTRACTS TO PROVE THE PAYMENT OF SUCH OUTSTA NDING CREDITS IN THE SUBSEQUENT FINANCIAL YEARS. WE FURTHER OBSERVED TH AT THE ASSESSEE HAS FILED A PAPER BOOK CONTAINING CONFIRMATION LETTERS ALONG WITH LEDGER EXTRACTS. ON PERUSAL OF THE DETAILS FILED BY THE A SSESSEE, WE FIND THAT THE PARTIES HAVE CONFIRMED THE TRANSACTIONS AND ALS O OUTSTANDING BALANCE AT THE END OF THE YEAR. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERRED IN TRAVEL BEYOND THE DIRECTIONS OF T HE ITAT, WHILE DISALLOWING THE ENTIRE EXPENDITURE INCURRED UNDER T HE HEAD MACHINERY RENTS. THE CIT(A) WITHOUT APPRECIATING THE FACTS, SIMPLY UPHOLD ADDITIONS MADE BY THE A.O., THEREFORE, WE DIRECT TH E A.O. TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCE OF MACHINERY RE NT. 8. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS DISALLOWANCE OF MACHINERY MAINTENANCE EXPENDITURE U/S 40(A)(IA) OF THE ACT, FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT . THE A.O. DISALLOWED IMPUGNED EXPENDITURE ON THE GROUND THAT THE ASSESSE E FAILED TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT. IT IS THE CONTE NTION OF THE ASSESSEE THAT EXPENDITURE INCURRED UNDER THE HEAD MACHINERY MAINTENANCE IS ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 9 REIMBURSEMENT OF COST OF FUEL AND SPARE PARTS TO M/ S. ESSAR CONSTRUCTIONS AND KISHORE ENTERPRISES FOR SUPPLY OF SPARE PARTS FOR WHICH THE PROVISIONS OF SECTION 194C OF THE ACT DOES NOT APPLY. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE, FOR THE REASON TH AT THE PROVISION OF SECTION 194C OF THE ACT HAS NO APPLICATION, WHEN TH E PAYMENT IS MADE TOWARDS REIMBURSEMENT OF COST OF FUEL AND SPARE PAR TS. THE A.O. NEVER DISPUTED THE FACT THAT THE IMPUGNED EXPENDITURE IS INCURRED IS TOWARDS REIMBURSEMENT OF FUEL AND SPARE PARTS, BUT DISALLOW ED SAID EXPENDITURE FOR FAILURE TO PRODUCE CONTRACTUAL AGREEMENTS TO PR OVE ITS CLAIM. WE DO NOT FIND ANY MERITS IN THE FINDINGS OF THE A.O. FOR THE REASON THAT THERE IS NO NECESSITY OF WRITTEN CONTRACTUAL AGREEMENT TO PROVE THE EXPENDITURE INCURRED TOWARDS REIMBURSEMENT OF COST OF FUEL AND SPARE PARTS. THE ASSESSEE IS IN THE BUSINESS OF HIRING O F MACHINERY AND IN THE PROCESS IT HAS HIRED OUT ITS MACHINERIES TO M/S. ES SAR CONSTRUCTIONS, CHENNAI. THE ASSESSEE HAS INSTRUCTED THE PARTY TO INCUR EXPENDITURE TOWARDS COST OF FUEL AND SPARE PARTS, WHICH WAS ADJ USTED AGAINST THE MACHINERY RENTS PAYABLE TO THE ASSESSEE. SINCE, TH E PARTY HAS DEDUCTED AMOUNT TOWARDS COST OF FUEL AND SPARE PARTS, THERE IS NO NECESSITY FOR THE ASSESSEE TO DEDUCT TDS U/S 194C OF THE ACT. IN SO FAR AS AMOUNT PAID TO M/S. KISHORE ENTERPRISES, THE ASSESSEE HAS FILED NECESSARY PROOF TO PROVE THE SAID AMOUNT HAS BEEN PAID FOR SUPPLY O F SPARE PARTS. ITA NO.317/VIZAG/2013 M/S. SRI SURYA EARTH MOVING, RAJAHMUNDRY 10 THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERR ED IN DISALLOWING MACHINERY MAINTENANCE EXPENDITURE U/S 40(A)(IA) OF THE ACT FOR FAILURE TO DEDUCT TDS. HENCE, WE DIRECT THE A.O. TO DELETE ADDITION MADE TOWARDS DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 5 TH MAY17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 05.05.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. SRI SURYA EARTH MOVING, D.N O.19-5-23, RAMACHANDRARAO PETA, RAJAHMUNDRY 2. / THE RESPONDENT THE ITO, WARD-4, VISAKHAPATNAM 3. + / THE CIT, VISAKHAPATNAM 4. + ( ) / THE CIT (A)-11, MUMBAI, CAMP AT VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM