DEVIDAYAL SALES LTD, MUMBAI V. ADDL CIT RG 6(2), MUMBAI

ITA 4551/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2408 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 03-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-06-2013
• Court: TRIBUNAL
• Keywords: Salary income; Non-deduction of tax
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI SANJAY GARG (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO.4551 /MUM/2013 (ASSESSMENT YEAR : 2009-10) DEVIDAYAL SALES LIMITED 123-124, MITTAL CHAMBERS, 12 TH FLOOR, NARIMAN POINT, MUMBAI-21 VS THE ADDL CIT, RANG 6(2), MUMBAI PAN : AAACD0557C (APPELLANT) (RESPONDENT) APPELLANT BY SHRI DHINAL SHAH RESPONDENT BY SHRI VACHASPATI TRIPATHI DATE OF HEARING : 06-10-2016 DATE OF PRONOUNCEMENT : 19 -10-2016 O R D E R PER ASHWANI TANEJA, AM: THIS APPEAL IS AGAINST THE ORDER OF COMMISSIONER O F INCOME-TAX (APPEALS)-12, MUMBAI [HEREINAFTER CALLED CIT(A)] DA TED 28-03-2013 PASSED AGAINST THE ASSESSMENT ORDER U/S DATED 26-12-2011 F OR A.Y. 2009-10 ON THE FOLLOWING GROUNDS: ALL THE GROUNDS OF APPEAL IN THIS APPEAL ARE MUTUAL LY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XLL, MUMBAI HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 75,00,000/- PAID TO DIRECTORS A S 2 I.T.A. NO.4551/MUM/2013 REMUNERATION BY HOLDING THAT THE PAYMENT MADE TO TH EM UNDER THE HEAD 'COMMISSION' WOULD ATTRACT THE PROVISIONS OF SEC. 194H AS AGAINST SEC. 192 SO AS TO ATTRACT THE PROVISIONS OF SEC. 40(A)(IA). THE IMPUGNED DISALLOWANCE OF RS. 75,00,0 00/- BEING BAD IN LAW AND IN FACTS IS PRAYED TO BE ALLOWED. 1.1 THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND IN FACTS IN HOLDING THAT THE COMMISSION RECEIVED BY THE DIRECTORS WAS N OT A PART OF SALARY BUT WOULD BE REQUIRED TO BE CONSIDERED AS COMMISSION AS ENVISAGED IN SEC. 194H. 1.2 THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND IN FACTS IN HOLDING THAT THE AMENDMENT TO SEC. 194J BY THE FINA NCE ACT 2012 IS UNAMBIGUOUS AND PROVIDE FOR INVOCATION OF T HE PROVISIONS OF SEC. 194J AND CONSEQUENTLY SEC. 40(A) (IA) WHEREVER THE COMMISSION IS PAYABLE TO THE DIRECTORS . 2. THE LD. COMMISSIONER OF INCOME TAX (A PP EALS)-X1I, MUMBAI HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LD. A.O. IN THE DISALLOWANCE OF RS. 4,78,949 /- BY INVOKING THE PROVISIONS OF ULS. 40(A)(IA) OF THE ACT AND ALS O IGNORING THE DECISION OF THE SPECIAL BENCH OF THE HON'BLE TRIBUN AL IN THE CASE OF MERYLIN SHIPPING & TRANSPORTS VS. ACJT 136 LTD 2 3 (VIZAG). THE IMPUGNED DISALLOWANCE OF RS. 4,78,949/- BEING B AD IN LAW AND IN FACTS IS PRAYED TO BE ALLOWED. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XII, MUMBAI HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LD. A.O. IN THE ADDITION TO THE EXTENT OF RS. 1 ,01,754 (RS. 1,53,724 MINUS RS. 51,970) BEING THE AMOUNT OF LONG TERM CAPITAL GAINS WITH RESPECT TO PROPERTY AT NAVI MUMB AI BY INVOKING THE PROVISIONS OF SEC. SOC AS ALSO MAKING FURTHER ADJUSTMENTS TO THE LONG TERM CAPITAL GAINS COMPUTED BY THE APPELLANT. THE IMPUGNED ADDITION BEING BAD IN LAW A ND IN FACTS IS PRAYED TO BE ALLOWED. 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XII , MUMBAI HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACT ION OF THE LD. A.O. IN ASSUMING AND ESTIMATING THE ANNUAL LETTING VALUE OF THE COMPANY'S PROPERTY AT NAVI MUMBAI AT RS. 19,012 IN DISREGARD OF THE FACTS AS ALSO THE LAW. THE IMPUGNE D ADDITION BEING BAD IN LAW AND IN FACTS IS PRAYED TO BE DELET ED. 3 I.T.A. NO.4551/MUM/2013 5. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XII , MUMBAI HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LD. A.O. IN ASSUMING AND ESTIMATING THE ANN UAL LETTING VALUE OF COMPANYS PROPERTY AT NAVI MUMBAI AT RS.19,012 IN DISREGARD OF THE FACTS AS ALSO THE LA W. THE IMPUGNED ADDITION BEING BAD IN LAW AND IN FACTS IS PRAYED TO BE DELETED. 2. DURING THE COURSE OF HEARING, GROUNDS 2, 4, 5 & 6 W ERE NOT PRESSED; HENCE THESE GROUNDS ARE DISMISSED, AS SUCH. 3. GROUND 1 : IN THIS GROUND, THE ASSESSEE HAS CONTESTED THE ACTI ON OF THE LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 75 LAKHS PAID TO DIRECTORS AS REMUNERATION BY HOLDING THAT THE PAYME NT MADE TO THEM UNDER THE HEAD COMMISSION WOULD ATTRACT THE PROVI SIONS OF SECTION 194H AS AGAINST SECTION 192 OF THE ACT. 4. THE BRIEF BACKGROUND OF THE CASE IS THAT THE ASSE SSEE WAS PAYING SALARY TO ITS DIRECTORS. IN ADDITION TO THAT THE A SSESSEE ALSO PAID COMMISSION. ACCORDING TO THE ASSESSEE, ONLY PROVIS IONS OF SECTION 192 WERE APPLICABLE ON ANY PAYMENT MADE TO DIRECTORS, W HETHER IT WAS CALLED AS SALARY OR COMMISSION OR BY ANY OTHER NAME. ON T HE OTHER HAND, THE ASSESSING OFFICER WAS OF THE VIEW THAT WITH REGARD TO AMOUNT OF COMMISSION PAID TO DIRECTORS, PROVISIONS OF SECTION 194H WERE APPLICABLE AND, THEREFORE, ASSESSEE WAS LIABLE TO DEDUCT TAX O N COMMISSION PAYMENT SEPARATELY. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) WHEREIN NO RELIEF WAS GRANTED BY HOLDING THAT IF AN Y PAYMENT HAD BEEN MADE TO A DIRECTOR AS COMMISSION, THEN PROVISIONS O F SECTION 194H WOULD BE APPLICABLE AND, THEREFORE, THE ASSESSEE WAS UNDE R OBLIGATION TO DEDUCT TAX AT SOURCE ON THE COMMISSION PAID TO ITS DIRECTO RS. IT WAS ALSO HELD THAT FAILURE TO DEDUCT TAX AT SOURCE U/S 194H MAKES THE ASSESSEE LIABLE FOR 4 I.T.A. NO.4551/MUM/2013 DISALLOWANCE U/S 40(A)(IA) OF THE ACT AND ACCORDING LY DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) WAS UPHELD. 5. DURING THE COURSE OF HEARING BEFORE US, THE LD. COU NSEL OF THE ASSESSEE BROUGHT OUR ATTENTION UPON THE FACT THAT C OMMISSION WAS PAID AS PER THE TERMS OF AGREEMENT WITH THE DIRECTOR FOR WH ICH REQUISITE RESOLUTION WAS PASSED BY THE COMPANY. OUR ATTENTIO N WAS ALSO DRAWN ON THE RETURN FILED BY THE DIRECTOR WHEREIN THE ENTIRE AMOUNT RECEIVED BY THE DIRECTOR FROM THE ASSESSEE COMPANY WAS OFFERED TO T AX UNDER THE HEAD INCOME FROM SALARIES AND HAS BEEN ACCEPTED AS SUC H BY THE DEPARTMENT. OUR ATTENTION WAS ALSO DRAWN TO PROVISIONS OF SECTI ON 17(1)(IV) WHEREIN IT IS CLEARLY LAID OUT THAT THE ENTIRE AMOUNT HAS TO B E ASSESSED AS SALARIES. UNDER THESE CIRCUMSTANCES, THE ENTIRE AMOUNT WAS LI ABLE FOR TDS U/S 192 WHICH IS OUTSIDE THE PROVISIONS OF SECTION 40(A)(IA ) IN THE IMPUGNED ASSESSMENT YEAR. 6. PER CONTRA, THE LD. DR RELIED UPON THE ORDERS OF TH E AUTHORITIES BELOW. 7. WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIE S. IT IS NOTED THAT THOUGH THE AMOUNT PAID TO THE DIRECTOR HAS BEE N TERMED AS COMMISSION, BUT THE SAME HAS BEEN PAID AS PART OF OVERALL REMUNERATION PAID TO THE DIRECTOR AS PER TERMS OF A PPOINTMENT OF THE DIRECTOR. THE SAID PAYMENT HAS BEEN OFFERED AS PAR T OF SALARY INCOME UNDER THE INCOME FROM SALARIES BY THE DIRECTORS A ND HAS BEEN ACCEPTED AS SUCH BY THE INCOME TAX DEPARTMENT, AS PER THE FA CTS BEFORE US. SECTION 17(1)(IV) CLEARLY PROVIDES THAT SALARY INCLUDES ANY FEE, COMMISSIONS, PERQUISITES OR PROFITS IN LIEU OF OR IN ADDITION TO ANY SALARY OR WAGES. THUS, ONCE THE SAID PAYMENT IS ASSESSABLE UNDER THE HEAD INCOME FROM 5 I.T.A. NO.4551/MUM/2013 SALARIES, THEN CLEARLY PROVISIONS OF SECTION 192 A RE APPLICABLE FOR DEDUCTION OF TAX AT SOURCE. IN THE YEAR BEFORE US, I.E. A.Y. 2009-10, PROVISIONS OF SECTION 40(A)(IA) WERE NOT APPLICABLE ON THE AMOUNTS PAID AS SALARY ON WHICH TDS WAS TO BE DEDUCTED U/S 192. UN DER THESE CIRCUMSTANCES, WE HOLD THAT THE IMPUGNED PAYMENT WA S NOT LIABLE TO BE DISALLOWED U/S 40(A)(IA). IN CASE ASSESSEE HAS HAD FAILED IN DEDUCTING TAX U/S 192, THEN, THE OTHER REMEDIES AS AVAILABLE UNDE R THE LAW SHOULD HAVE BEEN PURSUED BY THE ASSESSING OFFICER. WE LEAVE IT AT THAT STAGE. AS FAR AS THE PRESENT APPEAL IS CONCERNED, WE FIND FORCE IN T HE ARGUMENTS OF THE LD. COUNSEL IN VIEW OF THE AFORESAID DISCUSSION MADE BY US AND, THEREFORE, DISALLOWANCE MADE BY THE ASSESSING OFFICER IS DIREC TED TO BE DELETED. 8. GROUND 3: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE AC TION OF THE LOWER AUTHORITIES IN MAKING DISALLOWANCE U/ 14A. IT WAS ARGUED THAT ASSESSEE HAD VOLUNTARILY DISALLOWED A SUM OF RS.60, 000/-. THE ASSESSING OFFICER WITHOUT RECORDING ANY SATISFACTION APPLIED RULE 8D AND MADE DISALLOWANCE OF RS.10,82,549 COMPRISING OF DISALLOW ANCE ON ACCOUNT OF INTEREST OF RS.88,857 AND ON ACCOUNT OF EXPENSES OF R.9,93,692 COMPUTED @0.5% OF INVESTMENT. IT WAS ARGUED BY THE LD. DR T HAT THE ASSESSEE HAD HIMSELF AGREED FOR DISALLOWANCE OF RS.9,93,687/- AS PER ITS TAX AUDIT REPORT AND THEREFORE, DISALLOWANCE OF THE SAME AMOUNT SHO ULD BE CONFIRMED. 9. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND FIND THAT A SUM OF RS.88,857/- REPRESENTING INT EREST ON VEHICLE LOANS SHOULD BE DELETED AS THE SAID LOAN HAS BEEN CLEARLY USED FOR ACQUISITION OF VEHICLES AND NOT FOR MAKING ANY INVESTMENT IN TAX F REE SECURITIES. WITH REGARD TO THE BALANCE DISALLOWANCE ON ACCOUNT OF EX PENSES, IN OUR VIEW, NO EFFECTIVE ARGUMENTS HAVE BEEN MADE BEFORE US. T HE AO HAS RIGHTLY 6 I.T.A. NO.4551/MUM/2013 MADE THE DISALLOWANCE AND, THEREFORE, THE SAME IS C ONFIRMED. THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE OF RS.6 0,000/- SHOULD BE ADJUSTED AGAINST THE DISALLOWANCE TO BE MADE ON ACC OUNT OF ADMINISTRATIVE EXPENSES. THUS, THIS GROUND IS PART LY ALLOWED. 10. AS A RESULT, THIS APPEAL IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING. SD/- SD/- (SANJAY GARG) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 19 TH OCTOBER, 2016 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , D-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES