ACIT, Cochin V. M/s.Kinship Services(India) P.Ltd, Cochin

ITA 465/COCH/2014

• Counselvise Citation: 46521914 RSA 2014
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-10-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V R GOPAKUMAR
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Opportunity of being heard
• Section: 194C; 10

Judgement Text

ITA 465/C/2014 & CO 3/COCH/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , JM ITA NO . 465/COCH/2014 (ASST YEAR 2008 - 09 ) & CROSS OBJECTION NO. 3/COCH/2015 THE ASST COMMR OF INCOME TAX CIRCLE 1(2), KOCHI VS M/S KINSHIP SERV ICES (INDIA) P LTD KINSHIP HOUSE PLOT NO. 1 & 6 CAT IV MAAR ROAD WISLAND KOCHI 682 033 ( APP LICANT /RESPONDENT ) (RESPONDENT /CROSS OBJECTOR ) PAN NO. AABCK1973G ASSESSEE BY SH T M SREEDHARAN REVENUE BY SH V R GOPAKUMAR, SR DR DATE OF HEARING 1 SEP T 2015 DATE OF PRONOUNCEMENT 3 RD , SEPT 2015 OR D ER PER G E O RGE GEORGE.K JM : THIS APPEAL AT THE INSTANCE OF THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE IS DIRECTED AGAINST CIT(A)S ORDER DATED 30.6.2014. THE ORDER OF THE CIT(A) ARISES OUT OF THE ORDER OF THE ACIT GIVING EFFECT TO THE ORDER OF THE ITAT DATED 28.3.2013. THE RELEVANT ASSESSMENT YEAR IS 2008 - 09. 2 THE EFFECT IVE G ROUNDS RAISED READS AS FOLLOWS: ITA 465/C/2014 & CO 3/COCH/2015 2 2. THE LEARNED COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE CO NSIDERED THE FACTS MENTIONED IN THE PARA 2 AND ITS SUB - PARA OF THE ASSESSMENT ORDER DATED 27.12.2010 THAT DISALLOWANCES HAVE BEEN MADE U/S 40 (A)(IA) R.W.S . 9(1)(VI)(C) , ITS EXPLANATION 2(IVA) AND SECTION 195 OF THE I . T.ACT 1961. RELIANCE IS PLACED ON THE ORDER OF HON ' BLE CHENNAI H I GH COURT IN THE CASE OF POOMPUHUR SHIPPING CORPORATION LTD . VS ITO INTERNATIONAL IN [ 360 ITR 257]. 3 . WHEREAS , THE L EARNED COMMISS I ONER OF INCOME TAX (A) HAS IN PRINCIPAL AGREED THAT THERE HAS BEEN SHORT DEDUCTION , THEN AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE I . T.ACT - IF THE DEDUCTION OF TAX AT SOURCE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVIIB - THE ENTIRE EXPENDITURE IS NOT ALLOWABLE . WHETHER THE DEFAULT IS SUBSTANTIA L OR MINIMAL? - IS IMMATERIAL . ACCO RDINGLY , THE ENTIRE EXPENDITURE CORRESPONDING TO THE SHORT DEDUCTION OUGHT TO HAVE BEEN UPHELD U/S 40(A)(IA) OF THE LT . ACT , 1961 . 2.1 IN THE CROSS OBJECTION, THE GROUNDS RAISED ARE ALL SUPPORTING THE ORDER OF THE CIT(A). 3 THE SHORT FACTS IN RELATION TO THE GROUNDS RAISED ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY ENGAGED IN SHIPPING, STEAMER, STEVEDORING AND CARRIAGE & FORWARDING BUSINESS. FOR THE RELEVANT YEAR, THE RETURN OF INCOME WAS FILED ON 5.3.2009 DECLARING A NET INCOME OF RS. 1,70,26,080/ - . THE ASSESSMENT W AS TAKEN UP FOR SCRUTINY BY ISSUING NOTICE U/S 143 (2) OF THE I T ACT AND THE SCRUTINY ASSESSMENT WAS COMPLET ED , ASSESSING THE TOTAL INC OME OF RS. 6,23,92,942/ - . AMONG THE MANY ADDITIONS/DISALLOWANCES, THE AO DISALLOW ED A SUM OF RS. 1,93,78,500/ - . THE ABOVE SUM WAS HIRE CHARGES PAID TO M/S NEW ERA SHIPPING LTD. , WHICH WAS DISALLOWED BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, ON THE GROUND THAT TAX HAS NOT BEEN DEDUCTED A T THE TIME OF PAYMENT . THE DISALLOWANCE BY INVOKING PROVISIONS OF SEC. 40(A)(IA) WAS CONFIRMED BY THE CIT(A). ON FURTHER APPEAL, THE ASSESSEE POINTED OUT BEFORE THE TRIBUNAL THAT IT ITA 465/C/2014 & CO 3/COCH/2015 3 WAS NOT A CASE OF NON DEDUCTION OF TAX; BUT WAS A CASE OF SHORT DEDUCTION. IT WAS SUBMITTED THAT FOR THE SHORT DEDUCTION OF TAX, PROVISIONS OF SEC. 40 (A)(IA) CANNOT BE INVOKED. THE ASSESSEE HAD RELIED ON THE FOLLOWING ORDERS OF THE TRIBUNAL IN SUPPORT OF ITS CONTENTION: I ) DCIT VS CHANDABHOY & JASSOBHOY (2012) 49 SOT 448 (MUM) II ) CIT VS S K TEKRIWAL (2011) 48 SOT 515( KOL) 3.1 THE TRIBUNAL VIDE ORDER DATED 28.3 .2013 REMANDED THE MATTER TO THE AO. THE TRIBUNAL FOUND THAT THE CLAIM RELATING TO SHORT DEDUCTION WAS MADE FOR THE FIRST TIME IN THE ITAT AND DIRECTED THAT THE AO SHALL CONSIDER THE ISSUE AFRESH I N ORDER TO FIND OUT WHETHER IT IS A CASE OF NON DEDUCTION OF TAX OR SHORT DEDUCTION OF TAX. 3.2 PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL, THE AO PASSED AN ORDER GIVING EFFECT TO THE TRIBUNALS ORDER ON 23.12.2013. THE AO AGAIN DISALLOWED THE PAYMENT OF RS. 1,93 ,78,500/ - . BEFORE THE AO, THE ASSESSEE PRODUCED THE FORM 16A SHOWING THAT TDS WAS DEDUCTION WHILE MAKING PAYMENT OF HIRE CHARGES TO M/S NEW ERA SHIPPING CO PVT LTD. HOWEVER, THE AO DISALLOWED THE EXPENSES FOR THE REASON THAT THE TAX DEDUCT ED AT SOURCE WAS PAID ONLY ON 25.9.2009, WHICH WAS BEYOND THE D ATES S PECIFIED U/S 40(A)(IA) OF THE A CT . ITA 465/C/2014 & CO 3/COCH/2015 4 3.3 ON FURTHER APPEAL, THE CIT(A) HELD THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE EVEN THOUGH IT IS A CASE OF SHO RT DEDUCTION OF TAX . THE CIT(A) CONSIDERED THE LEGAL POSITION, A FTER REFERRING TO THE FIRST PROVISO TO SEC. 40(A)(IA), WHICH IS APPLICABLE W.E.F 1.4.2005 AND HELD THAT IT IS A CASE OF SHORT DEDUCTION OF TAX AT SOURCE ; THEREFORE, DISALLOWANCE O F THE WHOLE EXPENSES AMOUNTING TO RS. 1,93,78,500/ - CANNOT BE MADE. THE CIT(A) FURTHER HELD THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS POOMPUHAR SHIPPING CORPORATION LTD REPORTED IN 282 ITR 3(MAD) HAD CONCLUDED THAT THE PAYMENTS OF HIRE C HARGES FOR TAKING TEMPORARY POSSESSION OF SHIPS BY THE ASSESSEE COMPANY WOULD NOT FALL WITHIN THE PROVISIONS OF SEC. 194C AND THEREFORE , SUCH TAX IS NOT REQUIRED TO BE DEDUCTED AT SOURCE. FOR THIS REASONS ALSO, THE ADDITION WAS DELETED BY THE CIT(A). THE REL EVANT FINDINGS OF THE CIT(A) IN DELETING THE ADDITION READS AS FOLLOWS: 4.2. I HAVE GONE THROUGH THE ORDE R GIV I NG EFFECT TO THE ITAT ORDER , T HE ITAT ORDE R AND THE SUBMISSIONS OF T HE ASSESSEE . IT I S SE EN THAT IT IS NOT A CASE WHERE THE ASSESSEE HAS NOT DED UCTED ANY TAX AT SO UR CE RATHER TAX WAS DEDUCTED @ 2% AND THE SAME WAS DEPOS I TED ON 25 . 2 . 2009 I N THE GOVERNMENT TREASURY F OR WH I CH TDS CERTIFICATE WAS ALSO I SSUED BY T H E ASSESSEE . IT I S FURTHER SEEN T HAT I N THE CASE OF CIT VS . POOMPUHAR SH I PPING CO R PORAT I ON LTD ., WHICH I S RE LI ED UPON BY THE ASSESSEE , THE HIGH COUR T O F MADRAS HAS H ELD THAT WHEN THE PAYMENT IS MADE FOR HIRING OF SHIPS IT CANNOT BE T AKEN AS PAY M ENT T O CON T RACTORS . SUCH PAYMENTS OF HIRE CHARGES FOR TAKING TEMPORA R Y POSSESS I ON OF THE SHIPS BY TH E ASSESSEE COMPANY WOULD NOT FA L L W I TH I N T H E PROV I S I ONS O F SECTION 194C AND HE N CE ANY SUCH TAX IS NOT REQUIRED TO BE DEDUCTED AT SOUR C E . 4.3. IN V I EW OF THE FACT THAT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE , EVEN THOUGH I T I S A CASE OF SHORT DED U C TI ON OF TAX , T A X OF RS . 5 , 21 , 954 / - H AS ACTUAL L Y BEEN DEDUCTED AND PAID AND F O R M 1 6A H AS ALSO BEEN I SSUED . AS PER T HE FIRS T PROV I SO OF SECT I ON 40 ( A )( IA ), WH I CH I S APP LI CABLE W I TH EFFECT FROM ITA 465/C/2014 & CO 3/COCH/2015 5 1 . 4 . 2005 , THE L EGAL POSITION I S AS UNDER : - PROVIDED THAT WHERE IN R ESPECT O F AN Y S U C H SU M, TAX HAS BEEN DEDUCTED I N ANY SUBSEQUENT YEAR , O R HAS BEE N DEDUC T ED - (A) DUR I NG THE L AST MONT H OF T HE P R E VI OUS YEA R B UT PA I D AFTER THE SA I D DUE DATE ; OR (B) DUR I NG ANY O T HER MON TH O F TH E P R EV I O U S YEA R BU T PA I D AFTER THE E N D OF T H E SA I D PREVIOUS YEA R, SUCH SUM SHAL L BE A L LOWED AS A DEDUCT I ON IN C OMPUT I NG T HE I NCOME O F T HE P R E VI OUS YEAR I N WH I CH SUCH T AX H AS B E E N PA I D . THUS IN ACCORDANCE WITH THIS PROVISION EVEN IF THE TAX IS DEDUCTED IN ANY SUBSEQUENT YEAR , THE SAME SHALL BE ALLOWED A S A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. 4.4 IN THIS PARTICULAR CASE , ASSESSEE HAS DEDUCTED THE TAX AT SOURCE AND THOUGH THE PAYMENT IS MADE IN THE SUBSEQUENT YEAR, THE SAME WOULD BE ALLOWABLE IN SUBSEQUE NT YEAR . MOREOVER, IT IS ONLY A CASE OF SHORT DEDUCTION OF TAX AT SOURCE , AND HENCE DISALLOWANCE FOR THE WHOLE AMOUNT CANNOT BE MADE. IN ADDITION TO THIS, SINCE IT IS A CASE OF HIRING OF SHIPS AND NOT ANY PAYMENTS TO CONTRACTOR , FOLLOWING THE DECISION OF C IT VS . POOMPUHAR SHIPPING CORPORATION LTD BY HIGH COURT OF MADRAS , SUCH PAYMENTS OF HIRE CHARGES FOR TAKING TEMPORARY POSSESSION OF THE SHIPS BY THE ASSESSEE COMPANY WOULD NOT F~1I WITHIN THE PROVISIONS OF SECTION 194C AND HENCE ANY SUCH TAX IS NOT REQUIRE D TO BE DEDUCTED AT SOURCE . AS PROVISIONS OF TAX DEDUCTION AT SOURCE ARE NOT APPLICABLE IN THIS CASE THEREFORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. ACCORDINGLY, THE ADDITION OF RS. 1,93,78,500/ : IS HEREBY DELETED. 4 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5 THE LD DR SUBMITTED THA T FOR INVOKI NG PROVISIONS OF SEC. 40(A)(IA) , IT IS IMMATERIAL WHETHER IT IS A CASE OF NON DEDUCTION OR SHORT DEDUCTION OF TAX. THE LD DR SUBMITTED THAT EVEN IN A CASE OF SHORT DEDUCTION OF TAX THE PROVISIONS OF SECTION 40(A) (IA) CAN BE APPLIED AND DISALLOWANCE OF EXPENSES ARE TO BE MADE. THE LD DR RELIED ON THE LATEST JUDGMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S P V S MEMORIAL HOSPITAL LTD IN ITA NO. 16 OF 2014 ( JUDGMENT DATED 20.7.2015 ) . ITA 465/C/2014 & CO 3/COCH/2015 6 5.1 PER CONTRA, THE LD SENIOR COUNSEL FOR THE ASSESSEE SHRI T M SREEDHARAN SUBMITTED THAT IN THE INSTANT CASE THE NATURE OF PAYMENT WHETHER IT FALLS UNDER THE PROVISIONS OF SEC. 194C OR 194I HAS NOT BEEN EXAMINED AND THEREFOR E , THE MATTER NEEDS TO BE RESTORED TO THE AO. 6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE TRIBUNAL WHILE DECIDING THE ORIGINAL APPEAL IN ITA NO.155/COCH/2012 ( ORDER DATED 28.3.2013 ) HAD REST ORED THE CASE FOR LIMITED PURPOSE , NAMELY TO EXAMINE WHETHER THERE IS NO N DEDUCTION OF TAX OR SHORT DEDUCTION OF TAX. THE LD SR COUNSEL , WHO HAD APPEARED THEN HAD CONTENDED THAT IT IS NOT THE CASE OF NON DEDUCTION OF TAX; BUT IT IS ONLY SHORT DEDUCTION OF TA X . IT WAS FURTHER SUBMITTED THAT IF IT IS THE CASE OF SHORT DEDUCTION OF TAX , PROVISIONS OF SEC. 40(A)(IA) CANNOT HAVE APPLICATION . FOR THE ABOVE PROPOSITION, THE LD SR COUNSEL HAD RELIED ON THE FOLLOWING ORDERS OF THE TRIBUNAL : I ) DCIT VS CHANDABHOY & JASSOBHOY (2012) 49 SOT 448 (MUM) II ) CIT VS S K TEKRIWAL (2011) 48 SOT 515( KOL) THE TRIBUNAL, BASED ON THIS SUBMISSIONS MADE BY THE LD SR COUNSEL HAD RESTORED THE MATTER TO THE AO SPECIFICALLY TO FIND OUT WHETHER IT IS A CASE OF SHORT DEDUCTION AND IF SO DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. FOR THE SAKE OF CLARITY, THE RELEVANT FINDINGS OF THE TRIBUNAL IS REPRODUCE D HERE UNDER: 4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. FOR THE FIRST TIME, THE TAXPAYER CLAIMS THAT IT IS NOT A CASE OF ITA 465/C/2014 & CO 3/COCH/2015 7 NON DEDUCTION OF TAX BUT A CASE OF SHORT DEDUCTION OF TAX . THE AO PROCEEDED ON THE PRESUMPTION THAT IT IS A CASE OF NON DEDUCTION OF TAX. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE AO. ACCORDINGLY, THE ORDERS OF LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE OF DEDUCTION OF TAX IS REMITTED BACK TO T HE FILE OF THE AO FOR RECONSIDERATION. THE AO SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE CONTENTIONS OF THE TAXPAYER AND FIND OUT WHETHER IT IS A CASE OF NON DEDUCTION OF TAX OR SHORT DEDUCTION OF TAX AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF BEARING TO THE TAXPAYER. (EMPHASIS SUPPLIED) 7 THIS APPEAL IS IN PURSUANT TO THE ORDER GIVING EFFECT TO THE TRIBUNALS ORDER DATED 28.3.2013 . I N SECOND ROUND OF LITIGATION, WE CANNOT EXPAND THE SCOPE OF PROCEEDINGS WHEN , THE TRIBUNAL IN ITS EARLIER ORDER HAS SPECIFICALLY DIRECTED THE AO ONLY TO EXAMINE , WHETHER IT IS A CASE OF NON DEDUCTION OR SHORT DEDUCTION OF TAX. HAD THE TRIBUNAL DIRECTED THE AO TO EXAMINE ALSO THE NATURE OF PAYMENT TO M/S NEW ERA SHIPPING COMPANY P LTD , WHETHER IT IS FALL UNDER THE PROVISIONS OF SEC. 194C OR 194I, THE MATTER WOULD HAVE STOOD IN A DIFFERENT ANGLE. IN SO FAR AS THE ISSUE WHETHER EVEN IN THE CASE OF SHORT DEDUCTION, THE PROVISIONS OF SEC. 40(A)(IA) CAN BE INVOKED IS NO LONGER RES - INTIGRA , IN VIEW OF TH E JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT , WHICH IS CATEGORICALLY HELD THAT DEDUCTION UNDER A WRONG PROVISION OF LAW WILL NOT SAVE AN ASSESSEE FROM SECTION 40(A)(IA) OF THE ACT. THE RELEVANT FINDINGS OF THE HONBLE JURISDICTIONAL HIGH COURT READS AS UNDER: 9 IF SECTION 40(A)(IA) IS UNDERSTOOD IN THE MANNER AS LAID DOWN BY THE APEX COURT, IT CAN BE SEEN THAT THE EXPRESSION TAX DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B OCCURRING IN THE SECTION HAS TO BE UNDERSTOOD AS TAD DEDUCTIBLE AT SOURCE UNDER THE APPROPRIATE PROVISION OF CHAPTER XVII - B. THEREFORE, AS IN THIS CASE, IF TAX IS DEDUCTIBLE U/S 194J BUT IS DEDUCTABLE ITA 465/C/2014 & CO 3/COCH/2015 8 U/S 194C, SUCH A DEDUCTION WOULD NOT SATISFY THE REQUIREMENT OF SECTION 40(A)(IA). THE LATTER PART OF THIS SECTION THAT SUCH TAX HAS N OT BEEN DEDUCTED, AGAIN REFERS TO THE TAX DEDUCTED UNDER THE APPROPRIATE PROVISION OF CHAPTER XVII - B. THUS, A CUMULATIVE READING OF THIS PROVISIONS, THEREFORE, SHOWS THAT DEDUCTION UNDER A WRONG PROVISION OF LAW WILL NOT SAVE AN ASSESSEE FROM SECTION 40(A) (IA). 8 IN VIEW OF THE ABOVE FINDINGS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S P B S MEMORIAL HOSPITAL LTD (SUPRA) , WE HOLD THAT THE CIT(A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 1,93,78,500/ - U/S 40(A)(IA) OF TH E ACT. IT IS ORDERED ACCORDINGLY. 9 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. CROSS OBJECTION NO. 3/COCH/2015 10 IN SO FAR AS THE CROSS OBJECTION ARE CONCERNED, THE GROUNDS ARE ONLY SUPPORTING THE ORDER OF THE CIT(A) . F OR THE ABOVE MENTIONED REASON S, WE DISMISS T SAME. 11 HENCE, THE REVENUE APPEAL IS ALLOWED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF SEPT 2015 . SD/ - SD/ - ( B P JAIN ) (GEORGE GEORGE .K ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 3 RD , SEPT 2015 RAJ* ITA 465/C/2014 & CO 3/COCH/2015 9 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN