D.C.I.T. 9(1), MUMBAI V. ALLIED INSTRUMENT PVT. LTD., MUMBAI

ITA 4314/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3735 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 22-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA KUMARDR
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Earning of tax free income; Non-deduction of tax
• Section: 14A; 194C

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -ABENCH MUMBAI , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMIT SHUKLA,JUDICIAL MEMBER ./ I.T.A. NO.4314/MUM/2012 / ASSESSMENT YEAR: 2009-10 DY. CIT-RANGE-9(1) ROOM NO.223 AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. ALLIED INSTRUMENT PVT. LTD. 30-CD, GOVT. INDUSTRIAL ESTATE KANDIVALI (W),MUMBAI-400 067. PAN:AAACA 1032 F ( /APPELLANT ) ( / RESPONDENT ) CO NO.130/MUM/2013 (ARISING OUT OF I.T.A. NO.4314/M UM/2012 / ASSESSMENT YEAR: 2009-10 M/S. ALLIED INSTRUMENT PVT. LTD. MUMBAI-67. VS. DY. CIT-RANGE-9(1) MUMBAI-20 ( / CROSS OBJECTOR) ( / RESPONDENT) REVENUE BY: SHRI RAJENDRA KUMAR-DR ASSESSEE BY: SHRI SANJIV M. SHAH / DATE OF HEARING: 03.03.2016 / DATE OF PRONOUNCEMENT: 11.03.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER,DT.17.4.12 OF CIT(A)-19,MUMBA I THE ASSESSING OFFICER (AO)HAS FILED THE PRESENT APPEAL.THE ASSESSEE HAS FILED CROSS OB JECTION(CO) RAISING TWO GROUNDS. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF STATIONERY AND INDUSTRIAL ARTICLES,FILED ITS RETURN OF INCOME ON 29.9.2009 DE CLARING INCOME AT RS.1.10 CRORESS.THE AO COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 2 .12.2011 , DETERMINING THE INCOME OF THE ASSESSEE AT RS.2.52 CRORES. ITA NO.4314/M/2012: 3. THE SOLITARY GROUND OF APPEAL RAISED BY THE AO IS A BOUT DELETING THE DISALLOWANCE MADE U/S.40(A)(IA) OF THE ACT AMOUNTING TO RS.1.40 CRORE S FROM M/S. ASHIT PACKAGING PVT. LTD. DURING THE COURSE OF HEARING BEFORE US,AUTHORISED R EPRESENTATIVE (AR)AND THE DEPARTMENTAL REPRESENTATIVE (DR) AGREED THAT IDENTICAL QUESTION WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL,VIDE ITS ORDER DT.19.4.2013(ITA/8042/M UM/2011 ).WE FIND THAT THE GROUND RAISED BY THE AO FOR THE AY 2008-09 READ AS UNDER : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES U/S 40(A)(IA) FOR PURCHA SE OF RS.1,43,49,490/-. M/S. ASHIT PACKAGING PVT. LTD. IS PROVIDING PACKAGING MATERIAL AS PER TH E SPECIFICATION GIVEN BY THE ASSESSEE. ALL THE ITEMS PRODUCED/MANUFACTURED /PROVIDED BY M/S. ASHIT PACKAGING PVT. LTD. IS CUSTOM MADE AS PER THE SPECIFIC REQUIREMENT OF THE ASSESSEE. ASSES SEE HAS MADE AN OFFER TO MANUFACTURE/PRODUCE OBJECT OF HIS SPECIFICATION WHI CH WAS DULY ACCEPTED BY M/S. ASHIT PACKAGING PVT. LTD. THE OBJECT OF HIS SPECIFICATION WHICH WAS DULY ACCEPTED BY M/S. ASHIT PACKAGING ITA NO. 8042/MUM/2011 M/S. ALLIED INSTRUM ENT PVT. LTD. 2 PVT. LTD. THE OBJECT OF THIS CONTACT/ORAL CONTRACT WAS LAWFUL AND WAS NOT V OID IN ANY LAW AND BOTH THE PARTIES WERE COMPETENT TO MAKE A CONTRACT AND HAD ACCEPTED IT IN THEIR FAVOUR. HENCE, THE TRANSACTIONS BETWEEN ASSESSEE AND M/S. ASHIT PACKAGING PVT. LTD. FULFIL ALL THE NECESSARY CONDITIONS FOR A CONTRACT. REGARDING M/S. LIBA ENTERPRISE, IT IS SIS TER CONCERN OF THE ASSESSEE AND MADE SALES TO ASSESSEE ALL THE MOULDS FOR 500 PRODUCTS & COMPONEN TS IT WAS MANUFACTURING AS PER SPECIFIC 4314/M/12-ALLIED INSTRUMENTPL 2 REQUIREMENT OF THE ASSESSEE. THE LD. CIT(A) HAVE NO T REFUTED THAT THE TRANSACTIONS QUALIFY TO BE A CONTRACT. 3.1. WE FIND THAT THE TRIBUNAL HAS NARRATED THE FACTS OF THE CASE IN PARA NOS.3-5 OF THE ORDER AND THE SAME READS AS UNDER :- 3. FACTS NECESSARY FOR DISPOSAL OF THIS ISSUE ARE STATED IN BRIEF. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SCHOOL STATIONERY ARTICLES. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2008-09 ASSESSEE DECLARED TOTAL INCOME OF ` 43,07,802/-. THOUGH IT WAS ORIGINALLY PROCESSED UNDER SECTION 143(1) OF THE ACT IT WAS LA TER ON TAKEN UP FOR SCRUTINY AND ACCORDINGLY NOTICE UNDER SECTION 143(2) WAS ISSUED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS GOT THE WORK OF PACKA GING DONE FROM M/S. ASHIT PACKAGING PVT. LTD. AND M/S. LIBA ENTERPRISE BUT ON THE PAYMENTS M ADE TO SUCH PARTIES THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. IN THE OPINION OF THE AO, P ROVISIONS OF SECTION 194C OF THE I.T. ACT ARE APPLICABLE AND UPON FAILURE TO DEDUCT TAX AT SOURCE AMOUNT PAID TO PARTIES CANNOT BE ALLOWED AS DEDUCTION IN VIEW OF SECTION 40(A)(IA) OF THE AC T. THE AO NOTICED THAT M/S. ASHIT PACKAGING PVT. LTD. IS DEALING WITH ASSESSEE COMPANY FOR THE LAST 25 YEARS. IT WAS MAKING PACKAGING MATERIAL AS PER ASSESSEES REQUIREMENTS, I.E. SIZE, QUALITY AND PRINTING WORK. ON BEHALF OF M/S. LIBA ENTERPRISE THE PARTNER STATED ON OATH THAT IT IS A SISTER CONCERN OF THE ASSESSEE COMPANY AND MANUFACTURES MOULDS FOR M/S. ALLIED INSTRUMENTS PVT. LTD. HAVING REGARD TO THE FACTS OF THE CASE THE AO WAS PRIMA FACIE OF THE OPINION THAT THE PAYMENTS MADE TO M/S. ASHIT PACKAGING PVT. LTD. AND M/S. LIBA ENTERPRISE SHOULD BE TREATE D AS PAYMENTS FOR JOB WORK GIVEN ON CONTRACTUAL BASIS. IN RESPONSE THERETO THE ASSESSEE SUBMITTED THAT THIS IS A CASE OF PURCHASE OF GOODS AND MATERIAL FROM THE RESPECTIVE PARTIES AND NOT A CASE OF CONTRACT. IN SUPPORT OF THE ABOVE CONTENTION IT WAS SHOWN THAT BOTH THE PARTIES HAVE COLLECTED EXCISE DUTY ON GOODS SOLD TO THE ASSESSEE. HAD IT BEEN A LABOUR WORK THERE WOULD NOT HAVE BEEN ANY EXCISE DUTY. 4. THE SUBMISSIONS OF THE ASSESSEE WERE REJECTED B Y THE AO. HE OBSERVED THAT M/S. ASHIT PACKAGING PVT. LTD. IS PROVIDING PACKAGING MATERIAL AS PER SPECIFICATIONS GIVEN BY THE ASSESSEE. ALL THE ITEMS MANUFACTURED BY M/S. ASHIT PACKAGING PVT. LTD. ARE CUSTOM MADE AND AS PER SPECIFICATIONS OF THE ASSESSEE. EVEN IF IT IS T REATED AS ORAL CONTRACT IT IS LAWFUL. HE THEREFORE CONCLUDED THAT THE TRANSACTIONS BETWEEN THE ASSESSE E AND M/S. ASHIT PACKAGING PVT. LTD. HAVE ALL THE INGREDIENTS OF A VALID CONTRACT. 5. REGARDING M/S. LIBA ENTERPRISE THE AO OBSERVED T HAT IT IS A SISTER CONCERN OF THE ASSESSEE AND ALL THE MOULDS FOR 500 PRODUCTS AND COMPONENTS WERE SOLD TO THE ASSESSEE AND MANUFACTURED AS PER SPECIFIC REQUIREMENTS OF THE AS SESSEE AND HENCE THIS SHOULD ALSO BE TREATED AS CONTRACT BETWEEN THE ASSESSEE AND M/S. LIBA ENTE RPRISE. SINCE IT IS A JOB WORK DONE FOR THE ASSESSEE, PROVISIONS OF SECTION 194C ARE APPLICABLE AND ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE WHILE MAKING PAYMENT TOWARDS PACKAGING MATER IAL AND FOR FAILURE TO DEDUCT TAX THE AO INVOKED PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HE ACCORDINGLY BROUGHT TO TAX A SUM OF `1,43,49,490/-. FINALLY,THE TRIBUNAL HAS DECIDED THE ISSUE AS UNDER :- 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. IT IS NOT IN DISPUTE THAT THE MATERIAL FOR MANUFACTURING THE END PRODUCT WAS NOT SUPPLIED BY THE ASSESSEE TO M/S. ASHIT PACKAGING PVT. LTD. OR TO M/S. LIBA ENTE RPRISE. IN FACT, EXCISE DUTY WAS CHARGED ON THE GOODS SOLD BY THE ABOVE MENTIONED PARTIES. THE CLAIM THAT THE AGREEMENT OF SALE WAS ON PRINCIPAL TO PRINCIPAL BASIS IS NOT CONTROVERTED BY THE REVENUE. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE WE ARE OF THE VIEW THAT T HE DECISION OF THE HON'BLE BOMBAY HIGH COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE CA SE. UNDER THE CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE CIT(A). TH EREFORE THE GROUND URGED BY THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL,WE DECIDE GROUND NO.1 AGAINST THE AO. CO NO.130/MUM/2013 4. IN GR.NO.1 RAISED BY THE ASSESSEE ,THE ISSUE IS ABO UT DISALLOWANCE MADE U/S.40(A)(IA) OF THE ACT.THE ASSESSEE HAS SUPPORTED THE ORDER OF THE FI RST APPELLATE AUTHORITY (FAA).WHILE 4314/M/12-ALLIED INSTRUMENTPL 3 DECIDING THE APPEAL FILED BY THE AO WE HAVE ADJUDIC ATED THE ISSUE IN FAVOUR OF THE ASSESSEE , THEREFORE, WE ARE OF THE OPINION THAT GROUND.NO.1 D OES NOT REQUIRE ANY ADJUDICATION. 5. SECOND GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE BY THE AO U/S. 14A R.W.RULE 8D OF THE INCOME TAX RULES, 1962(RULES), AMOUNTING TO RS. 2.19 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT ASSESSEE HAD CREDITE D DIVIDEND INCOME OF RS.1,545/- IN ITS P&L ACCOUNT, THAT IT HAD NOT ALLOCATED ANY EXPENDIT URE AGAINST THE DIVIDEND INCOME IN TERMS OF SECTION 14A R.W.R 8D OF THE RULES. HE DIRECTED T HE ASSESSEE TO FURNISH THE WORKING OF DISALLOWANCE U/S. 14A AND TO EXPLAIN AS TO WHY DISA LLOWANCE SHOULD NOT BE MADE IN VIEW OF THE SAID SECTION AND THE RULE.VIDE ITS LETTER DT. 2 1.10.11, THE ASSESSEE CLAIMED THAT IT HAD NOT INCURRED ANY EXPENSE NOR HAD IT CLAIMED ANY EXPENDI TURE IN RELATION TO EARNING EXEMPT INCOME.REFERRING TO THE JUDGMENT OF GODREJ AND BOYC E MFG. LTD.,THE AO MADE A DISALLOWANCE OF RS.2,19,923/- UNDER SECTION 14A R.W .RULE 8D OF THE RULES 6. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FAA. FOLLOWING THE ORDER OF HER PREDECESSOR,THE FAA DIRE CTED THE AO TO MAKE CERTAIN ADJUSTMENTS AND PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE . 7. BEFORE US,THE AR ARGUED THAT THE ASSESSEE HAD NOT I NCURRED ANY EXPENDITURE, THAT NOTHING WAS BROUGHT ON RECORD BY THE AO OR THE FAA PROVING THAT THE ASSESSEE HAD CLAIMED ANY EXPENDITURE AGAINST THE EXEMPT INCOME.HE REFERRED T O THE CASE OF CHEMINVEST LTD.(ITAPPEAL NO.749 OF 2014, DATED 2.9.2015) OF THE HONBLE DELH I HIGH COURT.THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD DIVIDEND INCOME OF RS.1,545/- ONLY, TH AT IT DID NOT CLAIM ANY EXPENDITURE AGAINST THE SAID INCOME, THAT THE AO HAD INVOKED THE PROVIS IONS OF SEC.14A R.W.RULE 8D OF THE RULES AND HAD A MADE A DISALLOWANCE OF RS.2.19 LACS. THE ASSESSEE HAD SPECIFICALLY MENTIONED THAT NO EXPENDITURE WAS INCURRED BY IT,BUT THE AO DID NO T REBUT THE ASSERTION MADE BY THE IT. IN OUR OPINION,IF THE ASSESSEE DOES NOT CLAIM ANY EXPENDIT URE WITH REGARD TO THE EXEMPT INCOME NO DISALLOWANCE SHOULD BE MADE.THE PURPOSE BEHIND THE SECTION 14A IS TO DISCOURAGE THE ASSESSEE FROM TAKING DOUBLE ADVANTAGE I.E. CLAIMING THE EXPENDITURE AGAINST EXEMPT INCOME. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION, AND THE AMOUNT INVOLVED WE ARE OF THE OPINION THAT FAA WAS NOT JUS TIFIED IN CONFIRMING THE ORDER OF THE AO. THEREFORE,REVERSING HER ORDER,WE ARE DECIDING GROUN D NO.2 OF THE C.O. IN FAVOUR OF THE ASSESSEE. AS A RESULT APPEAL FILED BY THE AO STANDS DISMISSE D AND THE C.O. OF THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MARCH, 2016. 11 , 2016 SD/- SD/- ( / AMIT SHUKLA ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, DATE: 11.03.2016 . . . .. . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 4314/M/12-ALLIED INSTRUMENTPL 4 5. DR C BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.