Shriram Jawahar Sahakari Sakhar Udyog, V. Deputy Commissioner of Income-tax,

ITA 430/PUN/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2824 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-03-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 10-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Keywords: Revised return; TDS; Set aside
• Section: 143(3); 40(a)(ia); 194C; 15

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.430/PUN/2015 / ASSESSMENT YEAR : 2010-11 SHRIRAM JAWAHAR SAHAKARI SAKHAR UDYOG PHALTAN 415523, DISTRICT SATARA. PAN : AACAS5389M. . / APPELLANT V/S THE DY. COMMISSIONER OF INCOME TAX, SATARA CIRCLE, SATARA. . / RESPONDENT ASSESSEE BY : SHRI KISHORE PHADKE & SHRI VIVEK AGARWAL. REVENUE BY : SHRI S.B. PRASAD, CIT. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (A) 4, PUNE DT.09.01.2015 FOR THE ASSESSMENT YEAR 2010-11. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A CO-OPERATIVE SOCIETY STATED TO BE ENGAGE D IN THE BUSINESS OF MANUFACTURING AND SALE OF WHITE CRYSTAL SUGAR A ND ITS BYE- PRODUCTS. ASSESSEE INITIALLY ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2010-11 ON 25.09.2010 DECLARING TOTAL INCOME AT RS. NIL. / DATE OF HEARING : 28.03.2019 / DATE OF PRONOUNCEMENT: 07.06.2019 2 ITA NO.430/PUN/2015 SUBSEQUENTLY, ASSESSEE ELECTRONICALLY FILED REVISED RETURN OF INCOME ON 29.09.2011 DECLARING TOTAL INCOME AT RS.69,750/-. THE CA SE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAM ED U/S 143(3) OF THE ACT VIDE ORDER DT.21.03.2013 AND THE TOTAL INCOME W AS DETERMINED AT RS.6,72,50,330/-. AGGRIEVED BY THE ORDER OF AO, ASSE SSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.09.01.2015 (IN AP PEAL NO.PN/CIT(A)-4/CIRCLE-SATARA/135/2013-14) GRANTED PARTIA L RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW BEFORE US AND HAS RAISED THE GROUNDS WHICH HAVE BEEN LATER MODIFIE D AND THE MODIFIED GROUNDS READ AS UNDER : 1. THE LEARNED CIT(A) - 4, PUNE ERRED IN LAW AND ON FACTS IN SUSTAINING THE ADDITION O F RS . 6,07,91,993/- (OUT OF TOTAL ADDITION OF RS.6 , 71 , 80,576/-) U/S 40(A)(IA) OF THE ITA, 1961; MADE BY THE LEARNED AO , ON THE ANALOGY THAT THE PAYMENT OF RS.6,07,91,993/ - TO SHRIRAM SAHAKARI SAKHAR KARKHANA LTD. (SHRIRAM SSK) I S I N THE NATURE OF CONTRACT WORK AND THEREFORE, SUBJECT TO PROVISIONS OF SECTION 194C OF THE ITA, 1961 . 2. THE LEARNED CIT(A)-4, PUNE AND THE LEARNED AO ER RED IN LAW AND ON FACTS IN NOT APPRECIAT I NG THE FACT THAT, PAYMENTS MADE TO SHRIRAM SSK IS IN THE NATURE O F REIMBURSEMENT OF SALARY & WAGES AND NOT FOR ANY CONTRACT WORK. 3. THE LEARNED CIT(A)-4, PUNE AND THE LEARNED AO ERRED IN LAW AND ON FACTS I N NOT APPRECIATING THAT NO ANY MARK-UP HAS BEEN CHA RGED BY SHRIRAM SSK TO THE APPELLANT FOR PROVIDING THE EMPL OYEES. 3. ALL THE GROUNDS BEING INTER-CONNECTED ARE CONSIDERED TOGETHE R. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTIC ED THAT ASSESSEE HAD MADE PAYMENT OF RS.6,71,80,576/- TO SHRIRAM SSK LTD., ASSESSEE WAS ASKED TO FURNISH THE TDS DETAILS ON THE PA YMENTS MADE TO SHRIRAM SSK LTD. ASSESSEE INTER-ALIA SUBMITTED THAT IT H AD ENTERED INTO A JOINT VENTURE WITH SHRIRAM SSK LTD., AND AS PER THE T ERMS OF JOINT VENTURE AGREEMENT, SHRIRAM SSK LTD., HAD TO DEPUTE ITS EMPLOYEES FOR WHICH THE ASSESSEE HAD TO REIMBURSE THE SALARY AND WAG ES TO SHRIRAM 3 ITA NO.430/PUN/2015 SSK LTD. IT WAS FURTHER SUBMITTED THAT IN TERMS OF UND ERSTANDING, THE EMPLOYEES WERE WORKING ON DEPUTATION FOR THE NEW VENTU RE AND THAT THE ASSESSEE WAS REIMBURSING THE SALARY ON COST TO COST B ASIS TO SHRIRAM SSK LTD AND THEREFORE THE REQUIREMENT OF DEDUCTING TDS WAS NOT APPLICABLE. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND A CCEPTABLE TO THE AO. AO WAS OF THE VIEW THAT ASSESSEE WAS REQUIRED TO DEDUCT TDS U/S 194C OF THE ACT AS THE PAYMENTS MADE BY ASSESSE E TO SHRIRAM SSK LTD., WERE NOT COVERED UNDER THE EXCEPTIONAL PROVISIONS O F THE ACT. HE THEREAFTER RELYING ON THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF ASSOCIATED CEMENT COMPANY LTD., VS. CIT REPORTED IN (1993 ) 111 CTR (SC) 165 HELD THAT SINCE ASSESSEE HAS COMMITTED DEFAULT WITHIN THE MEANING OF SEC.194C OF THE ACT, THE EXPENSES OF RS.6,71,80,5 76/- WERE LIABLE FOR DISALLOWANCE U/S 40(A)(IA) OF THE ACT. HE ACCORDINGLY DISALLOWED THE AFORESAID PAYMENT MADE BY ASSESSEE TO SH RIRAM SSK LTD. U/S 40(A)(IA) OF THE ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A). LD.CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE A SSESSEE NOTED THAT THE REIMBURSEMENT OF SALARY OF RS.63,88,583/- BY THE ASSESSEE TO SHRIRAM SSK LTD., WAS NOT SUBJECT TO THE PROVISIONS OF SEC.194C R.W.S 40(A)(IA) OF THE ACT AND THEREFORE DELETED AD DITION TO THE EXTENT OF RS.63,88,583/-. HOWEVER, WITH RESPECT TO THE P AYMENT OF WAGES AMOUNTING TO RS.6,07,91,993/- HE HELD THAT THE PA YMENTS FALLS WITHIN THE AMBIT OF SEC.194C OF THE ACT AND SINCE ASSESSEE HAS FAILED TO DEDUCT TDS, HE HAS UPHELD THE DISALLOWANCE TO THE EXTENT OF RS.6,07,91,993/-. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESS EE IS NOW BEFORE US. 4 ITA NO.430/PUN/2015 5. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE IS A PARTNE RSHIP OF TWO SUGAR FACTORIES NAMELY, SHRIRAM SAHAKARI SAKHAR KHARKHA NA LTD. (SSK LTD.,) AND JAWAHAR SHETKARI SAHAKARI SAKHAR KARKHANA LT D., REGISTERED VIDE DEED OF PARTNERSHIP DATED 09.10.2006. THE MAIN OBJE CT OF THE PARTNERSHIP WAS TO PROCESS THE SUGARCANE THROUGH THE EXISTING UNIT OF SHRIRAM SAHAKARI SAKHAR KHARKHANA LTD. AS PER THE PAR TNERSHIP DEED, SSK LTD., WAS TO MAKE AVAILABLE THE SERVICES OF THE EMPLOYE ES FOR THE OPERATION AND RUNNING OF THE SUGAR PLANT AND FOR WHICH I T WAS TO BE REIMBURSED THE WAGES AND SALARY. HE POINTED TO THE CLAU SE 15 OF THE PARTNERSHIP DEED WHICH IS PLACED AT PAGE 50 ONWARDS OF THE PAPER BOOK. IT WAS SUBMITTED THAT THE ASSESSEE WAS NOT THE PRINCIP AL EMPLOYER OF THE EMPLOYEES AND THE RESPONSIBILITY OF DEDUCTION OF TAX WAS TH E RESPONSIBILITY OF SSK LTD. HE SUBMITTED THAT THE PAYMENT S MADE TO SSK LTD., WAS DISBURSED TO THE EMPLOYEES ON COST TO COS T BASIS AND HAD NO ELEMENT OF PROFIT AND THEREFORE ASSESSEE WAS NOT LIABLE FOR DEDUCTION OF TDS. HE SUBMITTED THAT AO WAS OF THE VIEW THAT REIMBU RSEMENT OF SALARY MADE BY ASSESSEE WAS LIABLE FOR DEDUCTION OF TDS U/ S 194C OF THE ACT. HE SUBMITTED THAT THE PRESENT ARRANGEMENT WAS CONTINUING SINCE A.Y. 2007-08 ONWARDS BUT THERE WAS NO DISTURBANCE BY REVENUE AUTHORITIES FROM 2007-08 TO 2009-10 AND FOR THE FIRST TIM E AMOUNT WAS DISALLOWED U/S 40(A)(IA) OF THE ACT. HE FURTHER SUBMITTED TH AT WHEREVER APPLICABLE, IF THE SALARY OF THE INDIVIDUAL EMPLOYEE WAS IN EXCES S OF THE PRESCRIBED LIMITS, SSK LTD., HAD DEDUCTED TDS IF APPLICABLE. LD .A.R. THEREFORE REITERATED AND SUBMITTED THAT SINCE THE AMOUN TS HAVE BEEN REIMBURSED WITHOUT ANY MARKUP, ASSESSEE WAS NOT LIABLE T O DEDUCT TDS AND CONSEQUENTLY NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS CALLED FOR IN THE PRESENT CASE. 5 ITA NO.430/PUN/2015 6. LD. D.R. ON THE OTHER HAND TOOK US THROUGH THE ORDE RS OF LOWER AUTHORITIES AND SUBMITTED THAT RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF ASSOCIATED CEMENT CO., LTD., (SUPRA), AO HAS RIGHTLY INVOKED THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT. HE THUS SU PPORTED THE ORDER OF LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT APPEAL IS WITH RESPECT TO DISALLOWANCE U/S 40(A)(IA) OF THE ACT. IT IS ASSESSEES CASE THAT AS PE R THE MEMORANDUM OF UNDERSTANDING (MOU) ENTERED BETWEEN TWO PARTIES NAME SHRIRAM SSK LTD., AND JAWAHAR SHETKARI SAHAKARI SAK HAR KHARKHANA LTD., SHRIRAM SSK WAS REQUIRED TO DEPUTE ITS E MPLOYEES FOR RUNNING THE SUGAR PLANT AND FOR WHICH THE ASSESSEE WAS REQUIRED TO REIMBURSE THE SALARY / WAGES OF THE EMPLOYEES DEPUTED BY IT. AS PER THE TERMS OF AGREEMENT, ASSESSEE HAD REIMBURSED THE WAGES TO SHRIRAM SSK LTD., ON COST TO COST BASIS, WITHOUT ANY ELEMENT OF PROFIT A ND SHRIRAM SSK IN TURN HAD DISBURSED THE SALARY / WAGES TO THE CO NCERNED EMPLOYEES. THE AFORESAID CONTENTIONS OF ASSESSEE HAVE NO T BEEN CONTROVERTED BY REVENUE. THE ARGUMENT OF REVENUE IS TH AT ON THE SALARY / WAGES THAT HAS BEEN PAID / REIMBURSED BY ASSESSEE T O SHRIRAM SSK LTD., ASSESSEE SHOULD HAVE DEDUCTED TDS U/S 194C AND S INCE ASSESSEE HAD FAILED TO DEDUCT TDS, PROVISIONS OF SEC.40(A)(IA) OF THE ACT ARE APPLICABLE AND THEREFORE EXPENSES CANNOT BE ALLOWED AS DE DUCTION. THE CONTENTION OF THE ASSESSEE AS NOTED ABOVE THAT THE PA YMENTS MADE BY ASSESSEE TO SHRIRAM SSK LTD., IS ON COST-TO-COST BASIS, HAS NO ELEME NT OF PROFITS, HAS NOT BEEN CONTROVERTED BY REVENUE. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT WHEN THE AMOUNTS THAT HAVE BEEN PAID ARE BY W AY OF 6 ITA NO.430/PUN/2015 REIMBURSEMENTS WITHOUT ANY ELEMENT OF PROFITS OR MARK UP, THEN THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT ARE NOT APPLICABLE. FOR OUR AFORESAID VIEW, WE FIND SUPPORT BY THE DECISION OF HONBLE D ELHI HIGH COURT IN THE CASE OF CIT VS. DLF COMMERCIAL PROJECT CORP ORATION (2015) 379 ITR 538 (DEL) WHEREIN THE HONBLE HIGH COURT HAS HELD REIMBURSEMENT OF EXPENSES CANNOT BE REGARDED AS REVEN UE RECEIPTS AND HENCE TAX NEED NOT BE DEDUCTED AT SOURCE FROM SUCH P AYMENTS. WE ALSO FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CI T VS. KARMA ENERGY LTD. (2015) 375 ITR 264 (BOM) HAS HELD THAT WHEN T HE PAYMENTS MADE TO A GROUP COMPANY WAS NOT IN THE NATURE OF INCOM E BUT WAS EXPENDITURE WHICH WAS REIMBURSED THEN DISALLOWANCE U/S 40 (A)(IA) OF THE ACT WAS NOT WARRANTED. RELYING ON THE AFORESAID DE CISIONS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT. WE THEREFORE SET ASIDE THE ORDER OF AO ON THIS ISSUE AND THUS THE GROUNDS OF ASSESSEE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 7 TH DAY OF JUNE, 2019. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 7 TH JUNE, 2019. YAMINI 7 ITA NO.430/PUN/2015 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-4, PUNE. PR. CIT/CIT-3, PUNE. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.