M/s M.G. Electroics Ltd., New Delhi V. DCIT, New Delhi

ITA 4663/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1240 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 01-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Retrospective amendment; TDS; Set aside
• Section: 40(a)(ia); 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER I.T.A. NO.4663/DEL/2016 ASSESSMENT YEAR: 2011-12 M.G. ELECTRONICS LTD., 3, COMMUNITY CENTRE, NEW DELHI. V. DCIT, CIRCLE-6(1), NEW DELHI. TAN/PAN: AAACM 6538J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SAUMY AGARWAL, CA RESPONDENT BY: SHRI RINKU SINGH, SR.D.R. DATE OF HEARING: 23 01 2019 DATE OF PRONOUNCEMENT: 14 03 2019 O R D E R THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 10.05.2016, PASSED BY LD. CIT(APPEALS)-VI, NEW DELHI FOR THE QUANTUM OF ASSES SMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2011-12. THE ASSESSEE IS AGGRIEVED BY ADDITION OF RS.9,92,000/- MADE BY THE ASSESSING OFFICER U/S.40(IA). 2. THE FACTS IN BRIEF ARE THAT ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FIBRE GLASS TIS SUE WHICH IS USED FOR INSULATION PURPOSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS MADE REIMBURSEMENT OF INVESTMENT INCUR RED BY UP TWIGA FIBERGLASS LTD. LTD. (HEREINAFTER REFERRED TO AS UPT), A SEPARATE LEGAL ENTITY, ON BEHALF OF THE ASSESSEE COMPANY I.T.A. NO.4663/DEL/2016 2 TOWARDS SUPERVISION RENDERED BY PERSONNEL OF UPT EM PLOYED TO OVERLOOK THE CONVERSION OF THEIR RAW MATERIAL IN TO FINISHED GOODS AND ALSO IN THE PROCESS TO OVERLOOK ANY WASTA GE OR PILFERAGE OF THEIR MATERIAL IN QUANTITATIVE AND QUA LITATIVE TERMS UNDER THE CONTRACT. IN RESPONSE TO THE SHOW CAUSE N OTICE BY THE ASSESSING OFFICER AS TO WHY THE EXPENSES CLAIME D UNDER THE HEAD MATERIAL HANDLING CHARGES PAID TO UPT SH OULD NOT BE TREATED AS PROFESSIONAL CHARGES, THE ASSESSEE VI DE ITS REPLY DATED 21.03.2014 HAS SUBMITTED AS UNDER: DURING THE YEAR UNDER THE HEAD MATERIAL HANDLING C HARGES (DETAIL ENCLOSED), THERE IS A DEBIT OF RS.9,92,000/- AS SUP ERVISORY CHARGES PAID TO M/S U P TWIGA FIBER GLASS LTD (UPT). AS REG ARDS TDS ON SUPERVISION CHARGES PAID IT IS SUBMITTED THAT SUPER VISION CHARGES ARE INFECT REIMBURSEMENT OF EXPENSES TO M/S UPT FOR DEPUTING THEIR OWN STAFF FOR SUPERVISION THE JOB CONTRACT OF CONVE RTING UPTS MATERIAL INTO FIBERGLASS TISSUE. ALSO REFER TO Q 30 OF CIRCULAR NO 715 DATED 8.8.95 WHERE IT IS MENTIONED THAT SUCH REIMBU RSEMENT OF EXPENSES IS NOT SUBJECT TO TDS DEDUCTION. IN THIS R EGARD PLEASE FIND ENCLOSED THE ORDER OF LD. CIT(A)-IX GIVING RELIEF I N THE MATER FOR A.Y. 2009-10 ON SIMILAR GROUND IN THE ASSESSEES OWN MAT TER. 3. LD. ASSESSING OFFICER REJECTED THE ASSESSEES CO NTENTION ON THE GROUND THAT THIS EXPENDITURE IS INCURRED FOR AVAILING TECHNICAL /MANAGERIAL/SUPERVISORY SERVICES, AGAINST WHICH PAYMENT WAS MADE TO UPT, WHICH HAS PROVIDED THESE S ERVICES BY DEPUTING THEIR OWN SUPERVISORS, AT THE COST OF T HE ASSESSEE COMPANY. THOUGH THESE EXPENSES WERE INCURRED BY WAY OF DEBIT NOTE RAISED BY THE SAID COMPANY TOWARDS REIMBURSEMENT OF EMPLOYEE COST, BUT ACTUALLY PAYMEN TS WERE I.T.A. NO.4663/DEL/2016 3 MADE FOR TECHNICAL SERVICES PERFORMED BY THE SUPERV ISORS OF UPT, AND THEREFORE, SUCH A PAYMENT WAS HIT BY THE P ROVISION OF SECTION 194J FOR WHICH ASSESSEE SHOULD HAVE DEDU CTED TDS. ACCORDINGLY, HE MADE THE DISALLOWANCE U/S. 40( A)(IA). LD. ASSESSING OFFICER HAS DISCUSSED THIS ISSUE THREADBA RE IN THE ASSESSMENT ORDER AS TO HOW SUCH EXPENDITURE FALLS I NTO CATEGORY OF FEES FOR TECHNICAL SERVICES IN TERMS OF EXPLANATION 2 TO SECTION 9(1)(VII) AFTER ANALYZING THE ENTIRE AG REEMENT AND THE CONTACT OF THE PARTIES. 4. LD. CIT(A) TOO HAS CONFIRMED THE SAID ACTION OF THE ASSESSING OFFICER AND REJECTED THE ASSESSEES CONTE NTION THAT SUPERVISORY CHARGES WAS MERELY IN THE NATURE OF REIMBURSEMENT OF EMPLOYEE COST EXPENSES INCURRED BY UPT FOR SUPERVISORY OF THE JOB CONTRACT AND ALSO RELIAN CE PLACED BY THE ASSESSEE ON CIRCULAR NO.715 DATED 08.08.1995, SPECIFICALLY QUESTION NO.30. LD. CIT A) HAS DISCUSS ED THE ASSESSEES SUBMISSION IN VERY DETAIL AND ALSO REQUI RED THE ASSESSEE TO SUBMIT FURTHER DETAILS FOR VERIFICATION LIKE PAY SLIPS OF THE FOUR SUPERVISORS DEPUTED BY UPT AND HA D NOTED THAT THESE SUPERVISORS WERE PAID CERTAIN AMOUNTS BY UPT WHICH HAS BEEN CHARGED FROM THE ASSESSEE. HE HAS AL SO CALLED FOR THE COPY OF THE DEBIT NOTE ISSUED BY UPT, COPY OF AGREEMENT BETWEEN THE ASSESSEE AND UPT, LEDGER COPY OF SUPERVISORY CHARGES, ETC. AFTER TAKING NOTE OF THE VARIOUS CLAUSES OF THE AGREEMENTS, HE DEDUCED THAT THERE WA S NO OBLIGATION ON THE PART OF THE ASSESSEE TO REIMBURSE THE ACTUAL EXPENSES INCURRED BY THE UPT AND IN FACT THEY HAVE CHARGED I.T.A. NO.4663/DEL/2016 4 FROM THE ASSESSEE AS SUPERVISORY CHARGES. THUS, HE REJECTED THE ASSESSEES CONTENTION THAT THESE SUPERVISORY CH ARGES ARE IN THE NATURE OF REIMBURSEMENT AND ACCORDINGLY UPHE LD THE DISALLOWANCE MADE BY THE ASSESSEE. 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THESE SUPERVISORY CHARGES WERE PAID BY UPT TO ITS P ERSONNEL AND ONCE DEBIT NOTE WAS RAISED THE SAME WAS REIMBUR SED AS EXPENSES. HERE, THE SUPERVISORS PROVIDED BY THE UPT WERE FOR UPTS ON OWN INTEREST AND SAME HAS BEEN ADJUSTED THR OUGH UPT ACCOUNT AND IT CANNOT BE HELD THAT IT IS A PAYM ENT FOR TECHNICAL SERVICES LIABLE FOR TDS. HOWEVER, HE SUBM ITTED THAT EVEN IF IT IS TREATED TO BE IN THE NATURE OF FEE FO R TECHNICAL SERVICES, THEN ALSO NOW IN VIEW OF 2 ND PROVISO TO SECTION 40(IA) READ WITH 1 ST PROVISO TO SECTION 201(1) BROUGHT W.E.F. 01.04.2013, THAT IF THE PAYER HAS SHOWN THIS PAYMEN T AS ITS INCOME IN THE RETURN OF INCOME AND ALSO PAID TAXES, THEN NO DISALLOWANCE U/S.409A0(IA) CAN BE MADE. HE ALSO REL IED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS. ANSAL LANDMARK TOWNSHIP PRIVATE LIMITED (2015) 279 CTR 384 (DEL), WHEREIN HON'BLE HIGH COURT HAS HELD THAT 2 ND PROVISO TO SECTION 40(IA) AND 1 ST PROVISO TO SECTION 201(1) HAS TO BE TREATED AS RETROSPECTIVE. THUS, MATTER CAN BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO BE DEC IDED IN THE LIGHT OF THE AMENDED PROVISIONS. 6. ON THE OTHER HAND, LEARNED DEPARTMENT REPRESENTA TIVE HAS STRONGLY RELIED UPON THE ORDER OF THE LD. CIT ( A) AND I.T.A. NO.4663/DEL/2016 5 SUBMITTED THAT HERE IN THIS CASE BOTH ASSESSING OFF ICER AND LD. CIT (A) HAVE THREADBARE ANALYZED THAT THE SUPER VISORY CHARGES PAID BY THE ASSESSEE IS NOTHING BUT IN THE NATURE OF FEE FOR TECHNICAL SERVICES FOR WHICH ASSESSEE WAS R EQUIRED TO DEDUCT TDS U/S.194J, THEREFORE, ACTION OF THE ASSES SING OFFICER AND LD. CIT (A) SHOULD BE UPHELD. 7. REGARDING ALTERNATE PLEA RAISED BY THE LD. COUNS EL , HE SUBMITTED THAT MATTER CAN BE RESTORED BACK TO THE F ILE OF THE ASSESSING OFFICER TO EXAMINE, WHETHER THE PAYEE HAS SHOWN THIS AMOUNT AS ITS INCOME TAX RETURN AND ALSO PAID DUE TAXES THEREOF. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER S, WE DO FIND SUBSTANCE IN THE REASONING GIVEN BY THE LD. CI T(A) AND ASSESSING OFFICER THAT PAYMENT OF SUPERVISORY CHARG ES WHICH THOUGH HAS BEEN CLAIMED AS REIMBURSEMENT OF EXPENSE S IS NOTHING BUT A CONTRACTUAL PAYMENT MADE IN THE TERMS OF THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND UPT, BEC AUSE UPT HAS DEPUTED THEIR OWN SUPERVISORS TO SUPERVISE THE CONVERSION OF RAW MATERIAL INTO FINISHED GOODS AND TO OVERLOOK ANY WASTAGE OF PILFERAGE OF THEIR MATERIAL IN QUANT ITATIVE AND QUALITATIVE TERMS AS THE ASSESSEE WAS CARRYING OUT THE JOB WORK FOR UPT. EVEN IF THE UPT HAS MADE THE PAYMENT TO ITS PERSONNEL BUT THE MATTER OF FACT IS THAT ASSESSEE H AS MADE THE PAYMENT TO UPT FOR THE SERVICES CARRIED OUT BY THE PERSONNEL AT THE PREMISES OF THE ASSESSEE. LD. CIT (A) HAS AL SO ANALYZED I.T.A. NO.4663/DEL/2016 6 FROM THE COPIES OF THE DEBIT NOTE ISSUED BY UPT AND THE TERMS OF THE AGREEMENT WHERE UPT HAS AGREED TO DEPUTE THE SUPERVISOR AT THE PREMISE OF THE FACTORY FOR WHICH THE ASSESSEE WAS REQUIRED TO MAKE THE PAYMENT OR AMOUNT WAS CHAR GED BY THE UPT FROM THE ASSESSEE. THERE IS A FINDING OF FA CT THAT AS PER THE AGREEMENT THERE WAS NO OBLIGATION OF THE AS SESSEE TO REIMBURSE THE ACTUAL EXPENDITURE INCURRED BY THE UP T IN RESPECT OF DEPUTED SUPERVISORS, WHICH FACT HAS NOT BEEN CONTROVERTED. FURTHER, UPT HAS CHARGED SUPERVISORY CHARGES FROM THE ASSESSEE AT A PARTICULAR RATE AND DOES NOT HAVE ANY DIRECT OR INDIRECT NEXUS WITH THE EXPENSES INCURRED BY THE UPT ON THESE SUPERVISORS. THUS, IT HAS RIGHTLY BEEN HELD BY THE LOWER AUTHORITIES THAT IT CANNOT BE TERMED AS REIMBURSEMENT OF EMPLOYEES COST INCURRED BY UPT. T HOUGH IN THE SUBMISSION OF THE ASSESSEE BEFORE CIT (A) AN D ALSO DISCUSSED IN THE IMPUGNED ORDER, THAT THERE IN THE ASSESSMENT YEAR 2009-10, LD. CIT (A) HAS DELETED TH E SAME ADDITION. HOWEVER, WHAT IS THE FATE OF THE EARLIER ORDER HAS NOT BEEN PLACED BEFORE US NOR ARGUED BEFORE US. IN ANY CASE, THE LD. CIT (A) AND ASSESSING OFFICER HAS DECIDED THE I SSUE ON THE BASIS OF MATERIAL ON RECORD, WHICH WE ARE IN TANDEM IN SO FAR AS TREATING OF SUCH A PAYMENT TO BE IN THE NATURE O F TECHNICAL SERVICES AND THEREFORE, PROVISION OF SECTION 194J W AS CLEARLY APPLICABLE ON SUCH PAYMENTS. 9. HOWEVER, WE AGREE TO THE ALTERNATE CONTENTIO N OF THE LD. COUNSEL THAT, NOW IN THE WAKE OF 2 ND PROVISO TO SECTION 40(A)(IA) READ WITH 1 ST PROVISO TO SECTION 201(1), IF THE PAYEE I.T.A. NO.4663/DEL/2016 7 HAS FURNISHED ITS RETURN OF INCOME U/S.139; AND HAS TAKEN INTO ACCOUNT SUCH INCOME FOR COMPUTING THE INCOME I N ITS RETURN OF INCOME; AND HAS PAID THE TAXES ON SUCH IN COME; AND ALSO FURNISHED THE CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT, THEN NO DISALLOWANCE U/S.40(A)(IA) CAN BE MADE. SINCE SUCH A PROVISION WAS BROUGHT IN THE STATUTE W .E.F. 01.04.2013, BUT LEGISLATURE HAD BROUGHT THIS AMENDM ENT ONLY TO REMOVE THE RIGORS AND HARDSHIP CAUSED TO TH E ASSESSEE, BECAUSE THE MAIN PURPOSE OF SECTION 40(A) (IA) WAS TO COLLECT TAX ON THE PAYMENT CLAIMED BY THE ASSESS EE AS AN EXPENDITURE. IF THE PAYEE HAS PAID THE TAXES THEREO F THEN SUCH A DISALLOWANCE SHOULD NOT BE UPHELD. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ANSAL LANDMARK TOWNSHIP PRIVATE LIMITED (SUPRA) HAS HELD THAT SUCH AN AMENDMENT IS A CURATIVE IN NATURE AND HENCE HAS TO BE GIVEN RETROSPECTIVE EFFECT. ACCORDINGLY, FOLLOWI NG THE BINDING PRECEDENT OF HON'BLE JURISDICTIONAL HIGH CO URT, WE HOLD THAT THE 2 ND PROVISO TO SECTION 40(IA) WOULD BE APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR 2011-12 ALSO. ACCO RDINGLY, WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSIN G OFFICER TO VERIFY, WHETHER THE PAYEE HAS SHOWN THIS PAYMENT AS ITS INCOME IN ITS RETURN OF INCOME AND HAS PAID TAXES T HEREON. THE ASSESSEE SHALL FURNISH ALL THESE DOCUMENTS AND EVIDENCES TO SUBSTANTIATE THE SAID CLAIM. WITH THIS DIRECTION , THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFIC ER WHO SHALL DECIDE THE ISSUE IN THE LIGHT OF THE 2 ND PROVISO TO SECTION 40(IA) READ WITH 1 ST PROVISO TO SECTION 201(1) AFTER GIVING DUE AND I.T.A. NO.4663/DEL/2016 8 EFFECTIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH MARCH, 2019. SD/- SD/- [ANADEE NATH MISSHRA] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 TH MARCH, 2019