ITO WD 12(2)(3), MUMBAI V. MANISH M. SHAH, MUMBAI

ITA 3426/MUM/2009

• Counselvise Citation: 342619914 RSA 2009
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 30-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KIRIT S SANGHVI
• Section: 143(3); 194C

Judgement Text

ITA NO. 3426/M UM/2009 ASSESSMENT YEAR: 2005-06 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH, MUMBAI BEFORE SHRI B R MITTAL (JUDICIAL MEMBER), AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. 3426/MUM/09 ASSESSMENT YEAR: 2005-06 INCOME TAX OFFICER WARD 12(2)(3), MUMBAI ...APPELLANT VS. MANISH M SHAH RESPONDENT G 9, MOTLIBAI HOUSE 22 D, S A BRELVI ROAD, FORT MUMBAI 400 001 ( PAN : AAFPS5594P) APPEARANCES: O A MAO, FOR THE APPELLANT KIRIT S SANGHVI, FOR THE RESPONDENT DATE OF HEARING : NOVEMBER 30, 2011. DATE OF PRONOUNCEMENT : DECEMBER 30, 2011. O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF CIT(A)S ORDER DATED 24 TH MARCH 2009, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT, 1961, FOR THE ASSESSMENT YEAR 2005-06. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: ITA NO. 3426/M UM/2009 ASSESSMENT YEAR: 2005-06 PAGE 2 OF 8 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE CONTR ACTUAL LIABILITY OF RS 7,03,000. (A) WHILE DOING SO, THE LEARNED CIT(A) FAILED TO AP PRECIATE THAT THE LIABILITY CANNOT BE ALLOWED TO EXIST FOR U NLIMITED PERIOD WHEN THE PROJECT IS ALREADY COMPLETED AND MO RE SO WHEN THE SALE PROCEEDS THEREOF HAVE BEEN OFFERED TO TAX. (B) THE LEARNED CIT(A) FURTHER FAILED TO APPRECIATE THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO PROVE THAT MUNICIPAL CORPORATION OF GREATER MUMBAI REFUSED THE GRANT OF OCCUPATION CERTIFICATE FOR UPPER FLOORS CONSTRUCTED BY THE ASSESSEE DUE TO ALTERATIONS MADE BY ONE OF THE MEMB ERS ON THE GROUND FLOOR. (C) THE LEARNED CIT(A) FURTHER FAILED TO APPRECIATE THAT NON GRANT OF OCCUPATION CERTIFICATE BY THE MCGM HAS BEE N USED AS A TOOL AND EXCUSE BY THE ASSESSEE TO DISCHARGE CONTRA CTUAL LIABILITY EVEN THOUGH POSSESSION HAS BEEN GIVEN BY HIM TO THE BUYERS IMMEDIATELY AFTER COMPLETION OF THE PROJECT. 3. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. IN TH E COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICED THAT THE ASSESSEE HAD SHOWN AS DEVELOPMENT CHARGES PAYAB LE TO THE MEMBERS AT RS 7,03,000. AS EVIDENT FROM THE OBSERVA TIONS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, IT APPEA RS THAT THE ASSESSEE HAD TO PAY RS 25,00,000 TO THE MEMBERS OF THE SOCIE TY, AND THIS AMOUNT OF RS 7,03,000 REPRESENTED THE AMOUNT REMAIN ING UNPAID. WHEN ASSESSING OFFICER ENQUIRED ABOUT THIS OUTSTAND ING AMOUNT, IT WAS EXPLAINED BY THE ASSESSEE THAT AS A MEMBER AT THE G ROUND FLOOR HAD MADE SOME ALTERATION, AS A RESULT OF WHICH MCGM HAS WITHHELD THE OCCUPATION CERTIFICATE, THE ASSESSEE HAD WITHHELD L AST INSTALMENT OF PAYMENTS DUE TO THE MEMBERS. THE ASSESSING OFFICER REJECTED THE CLAIM AND OBSERVED THAT THE AMOUNT HAS REMAINED UNPAID FO R 33 MONTHS AND HAS TO BE ADDED TO ASSESSEES INCOME. AGGRIEVED, AS SESSEE CARRIED THE ITA NO. 3426/M UM/2009 ASSESSMENT YEAR: 2005-06 PAGE 3 OF 8 MATTER IN APPEAL BEFORE THE CIT(A) WHO DELETED THE ADDITION. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEF ORE US. 4. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE SEE NO MERITS IN THE GRIEVAN CE OF THE ASSESSING OFFICER AS THERE IS NOTHING ON RECORD TO EVEN SUGGE ST THAT THE LIABILITY IS A FICTITIOUS LIABILITY OR A CEASED LIABILITY. T HE MERE FACT THAT THE PAYMENT HAS NOT BEEN MADE EVEN AFTER 33 MONTHS OF I NCURRING THE LIABILITY, EVEN IF THAT BE SO, CANNOT BE REASON ENO UGH TO MAKE THE IMPUGNED ADDITION. WHETHER REASONS OF NOT MAKING TH E PAYMENT ARE GENUINE OR NOT ALSO DONOT AFFECT THE MERITS, OR RAT HER LACK OF MERITS, OF THE IMPUGNED ADDITION. THE VERY FOUNDATION OF ADDIT ION MADE BY THE ASSESSING OFFICER IS DEVOID OF ANY LEGALLY SUSTAINA BLE BASIS. WE, THEREFORE, UPHOLD THE WELL REASONED CONCLUSIONS ARR IVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 5. GROUND NO. 1 IS DISMISSED. 6. IN GROUND NO. 2, THE ASSESSING OFFICER HAS RAISE D THE FOLLOWING GRIEVANCE: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE DISALLOWAN CE OF RS.90,000 OUT OF THE EXPENSES PAYABLE (A) WHILE DOING SO, THE LD CIT(A) FAILED TO APPRECIATE THAT THE PAYMENT OF RS.90,000 WAS MADE BY THE ASSESSEE T O M/S. V.AMRITLAL & CO. ON 2.3.2005 I.E. DURING THE F INANCIAL YEAR RELEVANT TO THE A.Y. 2005-06 ITSELF AND HENCE NO PROVISION COULD BE MADE ON THIS ACCOUNT UNDER THE H EAD EXPENSES PAYABLE. (B) THE LD CIT(A)FURTHER FAILED TO APPRECIATE THAT THE BILL DATED 13.7.2005 FROM THE SAID PARTY PRODUCED BEFORE THE AO DID NOT MENTION THAT THE PAYMENT OF THIS BILL WA S ITA NO. 3426/M UM/2009 ASSESSMENT YEAR: 2005-06 PAGE 4 OF 8 RECEIVED ON 2.3.05 ON THE CONTRARY IT SAID THAT THE PAYMENT IMMEDIATE DUE DATE 13.7.05. 7. SO FAR AS THIS GRIEVANCE OF THE ASSESSING OFFICE R IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. IN THE COUR SE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER INTER ALIA NOTED THAT THE ASSESSEE HAS CLAIMED A PROVISION FOR EXPENSES PAYABLE WHICH INCLUDES AMOUNT OF RS 90,000 PAYABLE TO V AMRITLAL & CO. THE ASSESS ING OFFICER NOTED THAT AS PER INFORMATION FURNISHED BY THE ASSESSEE, THE AMOUNT WAS PAID VIDE CHEQUE NO. 340465 DATED 13 TH JULY 2005, WHEREAS, AS PER INFORMATION RECEIVED FROM THE ASSESSEES BANKER, TH E CHEQUE WAS ACTUALLY ENCASHED ON 1 ST MARCH 2005. BASED ON THIS FINDING, THE AMOUNT OF PROVISION FOR EXPENSES WAS DISALLOWED. AG GRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING THAT THE FACT THAT TH E BILL WAS PRESENTED SUBSEQUENTLY SHOWS THAT THE AMOUNT WAS ASCERTAINED IN THE RELEVANT PREVIOUS YEAR ITSELF. THE ASSESSING OFFICER IS AGGR IEVED AND IS IN APPEAL BEFORE US. 8. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE SEE NO REASONS TO DISTURB TH E CONCLUSIONS ARRIVED AT BY THE CIT(A) ON THIS ASPECT EITHER. THE FACT THAT THE AMOUNT WAS PAID IN THE RELEVANT PREVIOUS YEAR ITSELF AT BE ST SHOWS THAT THE AMOUNT COULD HAVE BEEN CLAIMED DEDUCTION IN THE REL EVANT PREVIOUS YEAR, WITHOUT BEING TREATED AS A PROVISION BUT AS A N EXPENDITURE ACTUALLY INCURRED IN THAT YEAR. A FINDING ABOUT THE AMOUNT HAVING BEEN PAID IN THE RELEVANT PREVIOUS YEAR ITSELF, THEREFOR E, CANNOT BE REASON ENOUGH TO DECLINE THE DEDUCTION. IN ANY CASE, THE CIT(A) HAS GIVEN A FINDING, WHICH REMAINS UNCONTROVERTED BEFORE US, TH AT THE BILL WAS RECEIVED IN THE SUBSEQUENT PREVIOUS YEAR, AND THAT ASCERTAINMENT OF LIABILITY WAS CORRECTLY MADE. WHETHER THE LIABILITY CRYSTALLIZED IN THE ITA NO. 3426/M UM/2009 ASSESSMENT YEAR: 2005-06 PAGE 5 OF 8 RELEVANT PREVIOUS YEAR ITSELF, OR WHETHER THE AMOUN T IS IN RESPECT OF LIABILITY WHICH CRYSTALLIZED IN SUBSEQUENT YEAR, TH OUGH IT PERTAINED TO THE RELEVANT PREVIOUS YEAR, THE ADMISSIBILITY FOR D EDUCTION REMAINS UNAFFECTED. THE GRIEVANCE RAISED BY THE ASSESSING O FFICER, THEREFORE, IS DEVOID OF LEGALLY SUSTAINABLE MERITS. WE ACCORDI NGLY REJECT THE SAME. WE APPROVE THE ORDER OF THE CIT(A) ON THIS ISSUE A S WELL, AND DECLINE TO INTERFERE IN THE MATTER. 9. GROUND NO. 2 IS ALSO REJECTED. 10. IN GROUND NO.3, THE ASSESSEE HAS RAISED THE FOL LOWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 98,500 U/S.40(A). (A) WHILE DOING SO, THE LD CIT(A) FAILED TO APPRECI ATE THAT THE INSTALLTION OF LIFT IS COMPOSITE CONTRACT, WHICH IN CLUDES MATERIAL AND LABOUR FOR FIXATION, ERECTION AND COMM ISSION AND HENCE, PROVISIONS OF SECTION 194C WERE ATTRACTE D. 11. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER DISALLOWED THE EXPENDITURE OF RS 98,500 ON ACCOUNT OF INSTALLATION OF LIFT ON THE GROUND THAT THE EXPENSES WERE INCURRED FOR THE WORK CARRIED OUT BY THE SUPPLIER. IN APPEAL, LEARNED CIT (A) HAS DELETED THE IMPUGNED DISALLOWANCE BY OBSERVING THAT INSTALLATIO N OF LIFT WAS AN INTEGRAL PART OF PURCHASES OF LIFT AND, ACCORDINGLY , THE TDS PROVISIONS WERE NOT ATTRACTED. THE ASSESSING OFFICER IS NOT SA TISFIED AND IS IN APPEAL BEFORE US. 12. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE INCLINED TO APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A). AS HELD BY A COORDINATE BENCH OF THIS TRIBUNAL, IN THE MATTER OF RAJU BHATIA VS JCIT ( ITA NO. 1454/MUM/20 10), THE ITA NO. 3426/M UM/2009 ASSESSMENT YEAR: 2005-06 PAGE 6 OF 8 PROVISIONS OF SECTION 194 C (1) CANNOT BE INVOKED I N THE CASE OF AN INDIVIDUAL FOR THE ASSESSMENT YEAR 2005-06, AND PRO VISIONS OF SECTION 194C(2) CAN ONLY BE INVOKED ONLY WHEN ASSESSEE ITS ELF IS A CONTRACTOR AND THE PAYMENT IS BEING MADE TO A CONTRACTOR. WHI LE HOLDING SO, THE COORDINATE BENCH OBSERVED AS FOLLOWS: 6. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE PROVISIONS OF SECTION 194 C(1) CANNOT BE PRESSED INTO SERVICE IN THIS CAS E, SINCE, AT THE MATERIAL POINT OF TIME, THIS TAX WITHHOLDING REQUIREMENTS DI D NOT EXTEND TO INDIVIDUALS AND THAT, IT WAS ONLY AS A RESULT OF THE AMENDMENT BY THE VIRTUE OF FINANCE ACT 2008 W.E.F 1 ST JUNE 2008, THAT INDIVIDUALS WERE IMPOSED TAX DEDUCTION OBLIGATIONS UNDER SECTION 19 4 C(1). THE CASE OF THE REVENUE THUS HINGES ON APPLICATION OF SECTION 1 94 C(2), WHICH, FOR READY REFERENCE, IS REPRODUCED BELOW: (2) ANY PERSON (BEING A CONTRACTOR AND NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY), RESPONSIBLE FOR PAYIN G ANY SUM TO ANY RESIDENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE SUB-CONTRACTOR) IN PURSUANCE OF A CONTRACT WITH THE SUB- CONTRACTOR FOR CARRYING OUT, OR FOR THE SUPPLY OF L ABOUR FOR CARRYING OUT, THE WHOLE OR ANY PART OF THE WORK UND ERTAKEN BY THE CONTRACTOR OR FOR SUPPLYING WHETHER WHOLLY OR P ARTLY ANY LABOUR WHICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPL Y SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF TH E SUB- CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CAS H OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WH ICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO ONE PER CENT OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN. PROVIDED THAT AN INDIVIDUAL OR A HINDU UNDIVIDED FA MILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANC IAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT O F THE SUB- CONTRACTOR, SHALL BE LIABLE TO DEDUCT INCOME-TAX UN DER THIS SUB- SECTION. EXPLANATION I : FOR THE PURPOSES OF SUB-SECTION (2) , THE EXPRESSION 'CONTRACTOR' SHALL ALSO INCLUDE A CONTRA CTOR WHO IS CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT B ETWEEN THE CONTRACTOR AND THE GOVERNMENT OF A FOREIGN STATE OR A FOREIGN ITA NO. 3426/M UM/2009 ASSESSMENT YEAR: 2005-06 PAGE 7 OF 8 ENTERPRISE OR ANY ASSOCIATION OR BODY ESTABLISHED O UTSIDE INDIA. EXPLANATION II : FOR THE PURPOSES OF THIS SECTION, WHERE ANY SUM REFERRED TO IN SUB-SECTION (1) OR SUB-SECTION ( 2) IS CREDITED TO ANY ACCOUNT, WHETHER CALLED 'SUSPENSE A CCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE P ERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. EXPLANATION III : FOR THE PURPOSES OF THIS SECTION, THE EXPRESSION 'WORK' SHALL ALSO INCLUDE (A) ADVERTISING; (B) BROADCASTING AND TELECASTING INCLUDING PRODUCTI ON OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; (C) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS; (D) CATERING. 7. A PLAIN READING OF THE ABOVE PROVISION INDICATES THAT IN ORDER TO ATTRACT THE APPLICABILITY OF SECTION 194 C(2), THE PAYMENT HAS TO BE MADE BY A CONTRACTOR TO A SUB-CONTRACTOR FOR CARRYING O UT OR FOR THE SUPPLY OF LABOUR FOR CARRYING OUT, THE WHOLE OR ANY PART OF T HE WORK UNDERTAKEN BY THE CONTRACTOR OR FOR SUPPLYING WHETHER WHOLLY OR P ARTLY ANY LABOUR WHICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY. IT IS, THEREFORE, A CONDITION PRECEDENT, FOR INVOKING SECTION 194C(2), THAT THE PAYMENT IN QUESTION HAS TO BE FOR CARRYING OUT A PART OF THE W ORK, OR THE WORK ITSELF, UNDERTAKEN BY THE CONTRACTOR, OR THE SUPPLY UNDERTA KEN BY THE CONTRACTOR. IN THE PRESENT CASE, THE ASSESSEE HAS RECEIVED THE MONIES FROM ITS CLIENTS AS SPONSORSHIP MONEY. THE QUESTION, THE REFORE, ARISES WHETHER SPONSORSHIP MONEY CAN INDEED BE SAID TO HAVE BEEN P AID TO THE ASSESSEE FOR ORGANIZING THE EVENT AS HAS BEEN CLAIMED BY T HE ASSESSEE. UNLESS THE PAYMENT RECEIVED BY THE ASSESSEE CAN BE SAID TO HAV E BEEN RECEIVED FOR ORGANIZING THE CONFERENCE OR SEMINAR, IN RESPECT OF WHICH THE ASSESSEE HAS RECEIVED THE SPONSORSHIP AMOUNT, THE PROVISIONS OF SECTION 194C(2) CANNOT COME INTO PLAY. 13. IN THIS VIEW OF THE MATTER, THE PROVISIONS OF S ECTION 194 C COULD NOT HAVE BEEN INVOKED ON THE FACTS OF THIS CASE. TH E CIT(A), THEREFORE, RIGHTLY DELETED THE IMPUGNED DISALLOWANCE 40(A)(IA) . WE SUPPORT THE ITA NO. 3426/M UM/2009 ASSESSMENT YEAR: 2005-06 PAGE 8 OF 8 CONCLUSION ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 14. GROUND NO. 3 IS ALSO DISMISSED. 15. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUN CED IN THE OPEN COURT TODAY ON 30 TH DAY OF DECEMBER, 2011. SD/- SD/- (B R MITTAL ) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 30 TH DAY DECEMBER , 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER , MUMBAI 4. COMMISSIONER (APPEALS) , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH, MUMBA I 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI