INDERRAJ KAPOOR, MUMBAI V. ITO 11(10(2), MUMBAI

ITA 3697/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8995 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 05-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 06-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARUN AGRAWAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. : 3697/MUM/2011 ASSESSMENT YEAR : 2006-07 MR. INDERRAJ KAPOOR 7/8, NAAZ BUILDING, DAMINGTON ROAD, MUMBAI-400 004 PAN NO: AAMPK 1909 L VS. ITO - 11 ( 1 )( 2), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AMIT AGRAWAL & SHRI ARUN AGRAWAL RESPONDENT BY : SHRI CHANDRAJIT SINGH DATE OF HEARING : 05.09.2012 DATE OF PRONOUNCEMENT : ORDER PER RAJENDRA SINGH, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 22.02.2011 OF CIT(A)-3, MUMBAI FOR THE A.Y. 2006-07 . THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL RELATES TO TH E DISALLOWANCE OF PRINT EXPENSES AND PUBLICITY EXPENSES RELATING TO THE PRO PRIETORY CONCERN OF THE ASSESSEE NAMELY RAJ ENTERPRISES U/S.40(A)(IA) O F THE I.T. ACT. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS IN WHIC H THE ISSUE OF DISALLOWANCE OF EXPENSES U/S.40(A)(IA) ON GROUND OF SHORT DEDUCTION OF ITA NO : 3697/MUM/2011 SHRI INDERRAJ KAPOOR 2 TAX AT SOURCE AND DISALLOWANCE OF EXPENSES ALREADY PAID DURING THE YEAR HAS BEEN RAISED. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHO IS A FILM DISTRIBUTOR HAD CLAIMED PRINT EXPENSES OF RS.62,89,770/- OUT OF WHICH A SUM OF RS.25,87,023/- HAD BEEN CLAIMED IN THE PROFIT & LOS S ACCOUNT FOR THE YEAR ENDING 31.03.2006 AND THE BALANCE AMOUNT OF RS .37,02,747/- HAD BEEN TRANSFERRED TO THE CAPITALIZED COST OF FILM. THE A.O. NOTED THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE ONLY ON THE AMO UNT OF RS.28,83,037/- WHICH WAS 45.84% OF GROSS EXPENDITUR E. THUS IN RESPECT OF 54.16% OF GROSS EXPENDITURE, THE TAX HAD NOT BEE N DEDUCTED. THE A.O., THEREFORE, DISALLOWED 54.16% OF THE EXPENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT WHICH COME TO RS.14,01,132/-. HE AL SO DISALLOWED 54.16% OF EXPENSES TRANSFERRED TO THE CAPITALISED C OST OF THE FILM WHICH COME TO RS.20,05,408/-. THE A.O. ALSO NOTED THAT T HE ASSESSEE HAD SPENT RS.14,05,102/- UNDER THE HEAD PUBLICITY EXPE NSES OUT OF WHICH A SUM OF RS.4,46,042/- HAD BEEN DEBITED TO THE PROFI T & LOSS ACCOUNT AND THE BALANCE AMOUNT OF RS.9,59,058/- HAD BEEN TRANSF ERRED TO THE CAPITALISED COST OF THE FILM. THE A.O. ALSO NOTED THAT THE TAX HAD BEEN DEDUCTED ONLY ON THE TOTAL SUM OF RS.6,18,509/- I.E . 44% OF GROSS EXPENDITURE. THUS THE EXPENDITURE ON WHICH NO TAX WAS DEDUCTED WAS 56% OF GROSS EXPENDITURE. THE A.O., THEREFORE, DIS ALLOWED 56% OF EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT WH ICH COME TO ITA NO : 3697/MUM/2011 SHRI INDERRAJ KAPOOR 3 RS.2,49,784/-. HE ALSO DISALLOWED 56% OF EXPENSES CAPITALIZED WHICH CAME TO RS.5,37,072/-. THE ASSESSEE HAD ALSO CLAIM ED PUBLICITY EXPENSES OF RS.63,163/- IN RESPECT OF KAPOOR PICTUR ES IN RESPECT OF WHICH NO TAX HAD BEEN DEDUCTED AT SOURCE NOR FULL DETAILS COULD BE GIVEN. THE A.O., THEREFORE, DISALLOWED THESE EXPENSES ALSO. 3. THE ASSESSEE DISPUTED THE DECISION OF THE A.O. A ND SUBMITTED BEFORE THE CIT(A) THAT THE A.O. HAD NOT CALLED FOR THE DETAILS OF NAMES AND ADDRESSES OF THE PARTIES NOR ANY SHOW CAUSE NOT ICE HAD BEEN ISSUED FOR PROPER DISALLOWANCES. IT WAS ALSO SUBMITTED TH AT IN RESPECT OF THE CAPITALIZED COST UNDER RULE 9B, THERE COULD BE NO D ISALLOWANCE THIS YEAR AS THERE WAS NO CLAIM OF SUCH EXPENDITURE. THE CIT( A) ON PERUSAL OF THE RECORD AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT IN RESPECT OF PUBLICITY EXPENSES, THE ASSESSEE HAD NOT RECONCILED THE PAYMENTS AS TO WHETHER TAX HAD BEEN CONDUCTED AT SO URCE OR NOT. HE, THEREFORE, SUSTAINED DISALLOWANCE OF RS.7,86,593/- AS TAX HAD BEEN DEDUCTED ONLY IN RESPECT OF SUM OF RS.6,18,509/- OU T OF TOTAL SUM OF RS.14,05,102/-. IN RESPECT OF PROCESSING CHARGES, THE CIT(A) OBSERVED THAT THE SAME WERE COVERED UNDER THE PROVISIONS OF SECTION 194J AND NOT U/S.194C AND, THEREFORE, THERE WAS A SHORTFALL IN D EDUCTION OF TAX AT SOURCE. THE CIT(A) ALSO OBSERVED THAT THERE WAS NO EVIDENCE OF ANY TAX DEDUCTED AT SOURCE IN RESPECT OF PAYMENT MADE OF RS .10,33,331/- THROUGH UTV SOFTWARE FOR AD LABS FILMS AND, THEREF ORE, CONFIRMED THE ITA NO : 3697/MUM/2011 SHRI INDERRAJ KAPOOR 4 DISALLOWANCE OF THE SAME AMOUNT. THE CIT(A) ALSO C ONFIRMED THE DISALLOWANCE OF PUBLICITY EXPENSES OF RS.63,163/-. AGGRIEVED BY THE DECISION OF THE CIT(A), THE ASSESSEE IS IN APPEAL B EFORE THE TRIBUNAL. 4. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS NOT PRESSING THE DISALLOWANCE OF RS.63,163/-. IN RESPECT OF OTHER EXPENSES, IT WAS SUBMITTED THAT THE DISALLOWANCE OF EXPENSES WHICH WERE TRANSFERRED TO THE CAPITALISED COST WAS NOT JUSTIFI ED AS THERE WERE NO CLAIMS OF SUCH EXPENDITURE. AS REGARDS THE PAYMENT OF RS.10,33,331/- WAS CONCERNED, IT WAS SUBMITTED THAT THE CIT(A) WAS NOT CORRECT IN STATING THAT NO TAX HAD BEEN DEDUCTED AT SOURCE AS THE TAX HAD INFACT BEEN DEDUCTED. AS REGARDS THE DISALLOWANCE OF PUBL ICITY EXPENSES OF RS.7,86,593/- IS CONCERNED, IT WAS SUBMITTED THAT T HE CIT(A) HIMSELF IN PARA 2.5 HAD GIVEN A FINDING THAT TDS PROVISIONS WA S NOT APPLICABLE IN RESPECT OF THE PAYMENT OF RS.12,000/- FOR FLOWERS, RS.57,000/- FOR DISPATCH AND RS.1,60,156/- AS OCTROI PAYMENT, AGGRE GATING TO RS.2,29,516/-. FINALLY, THE LD. AR SUBMITTED THAT EVEN IF THE TAX HAD NOT BEEN DEDUCTED, ONLY THOSE EXPENSES COULD BE DISALLO WED WHICH REMAINED OUTSTANDING AND PAYABLE AT THE END OF THE YEAR AS H ELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPI NG AND TRANSPORTS V/S. ACIT (136 ITD 23). IT WAS POINTED OUT THAT I N THIS CASE ALL THE PAYMENTS WERE MADE DURING THE YEAR AND, THEREFORE, NO DISALLOWANCE COULD BE MADE U/S.40(A)(IA). AS REGARDS THE DISALL OWANCE MADE BY THE ITA NO : 3697/MUM/2011 SHRI INDERRAJ KAPOOR 5 CIT(A) ON THE GROUND OF SHORT DEDUCTION OF TAX AT S OURCE, IT WAS SUBMITTED THAT NO DISALLOWANCE COULD BE MADE ON THE GROUND THAT TAX DEDUCTION WAS AT LOWER RATE IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S. CHANDABHOY & JASSOBHOY (29 SO T 448). IT WAS THUS ARGUED THAT THERE WAS NO CAUSE FOR ANY DISALLO WANCE OF EXPENSES IN VIEW OF THE DECISION OF THE TRIBUNAL (SUPRA). THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A) AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE APPELLATE ORDER. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE ASSESSEE IS A DISTRIBUTOR OF FILM A ND DISALLOWANCE OF EXPENSES IN RESPECT OF PRINT AND PUBLICITY EXPENSES HAVE BEEN MADE ON THE GROUND OF NON DEDUCTION OF TAX AT SOURCE OR FOR SHORT DEDUCTION OF TAX AT SOURCE. PART OF THE EXPENSES HAD BEEN TRANSFERR ED BY THE ASSESSEE TO THE CAPITALIZED COST OF THE FILM, IN RESPECT OF WHI CH ALSO THE DISALLOWANCE HAS BEEN MADE WHICH IN OUR VIEW IS NOT JUSTIFIED AS THE EXPENSES HAD NOT BEEN CLAIMED IN THE PROFIT & LOSS ACCOUNT. THE CIT (A) HAS ALSO NOTED THAT THE PROCESSING CHARGES HAD BEEN SUBJECTED TO T DS U/S.194C AT LOWER RATE, WHEREAS THE DEDUCTION SHOULD HAVE BEEN AT HIGHER RATE U/S.194J AND ACCORDINGLY FURTHER DISALLOWANCE HAS B EEN MADE ON THE GROUND OF SHORT DEDUCTION OF TAX AT SOURCE. THIS DE CISION OF THE CIT(A) CANNOT BE SUSTAINED IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S. CHANDABHOY & JASSOBHOY (SUPRA) IN WHI CH IT HAS BEEN ITA NO : 3697/MUM/2011 SHRI INDERRAJ KAPOOR 6 HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) COULD BE INVOKED ONLY IN CASE OF NON DEDUCTION OF TAX AT SOURCE AND NOT FOR LESSE R DEDUCTION OF TAX AT SOURCE. SECONDLY, AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V/S. ACIT ( SUPRA) THE PROVISIONS OF SECTION 40(A)(IA) COULD BE APPLIED ONLY TO THE E XPENSES WHICH REMAINED PAYABLE AT THE END OF THE YEAR AND THE EXPENSES ALR EADY INCURRED AND PAID DURING THE YEAR CANNOT BE COVERED BY THE PROVI SIONS OF SECTION 40(A)(IA). IN OUR VIEW, THE CASE OF THE ASSESSEE R EQUIRES FRESH EXAMINATION IN THE LIGHT OF THE ABOVE DECISIONS OF THE TRIBUNAL. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RE STORE THE MATTER TO THE FILE OF THE A.O. FOR PASSING A FRESH ORDER AFTER NE CESSARY EXAMINATION IN THE LIGHT OF THE OBSERVATIONS MADE IN THIS ORDER AN D AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 14 TH DAY OF SEPTEMBER, 2012. SD/- - SD/- ( VIJAY PAL RAO ) ( RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 14.09.2012 ITA NO : 3697/MUM/2011 SHRI INDERRAJ KAPOOR 7 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI