Madhu R. Balakrishnan, Kollam V. JCIT, Kollam

ITA 496/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61351 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 03-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R SIVAKUMAR
• Assessee Lawyers: R KRISHNAN
• Keywords: Tax effect

Judgement Text

1 ITA NO.496 & 552/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKARA N(AM) I.T.A NO. 496/COCH/2010 (ASSESSMENT YEAR 2007-08) MADHU R BALAKRISHNAN VS DY.CIT, CIR.1 M/S PRIYA PRODUCTS KOLLAM RANGE, KOLLAM CONVENT ROAD, KOLLAM PAN : ACLPR7667R (APPELLANT) (RESPONDENT) I.T.A NO. 552/COCH/2010 (ASSESSMENT YEAR 2007-08) DY.CIT, CIR.1 VS SHRI MADHU R BALAKRISHNAN KOLLAM M/S PRIYA PRODUCTS, KOLLAM (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. KRISHNAN RESPONDENT BY : SHRI R SIVAKUMAR DATE OF HEARING : 08-03-2012 DATE OF PRONOUNCEMENT : 03-04-2012 O R D E R PER N.R.S. GANESAN (JM) BOTH THE APPEAL OF THE ASSESSEE AND THE REVENUE AR E DIRECTED AGAINST THE VERY SAME ORDER OF THE COMMISSIONER OF INCOME-TAX(A) , TRIVANDRUM DATED 28-07- 2010 AND PERTAIN TO ASSESSMENT YEAR 2007-08. THERE FORE, WE HEARD BOTH THE 2 ITA NO.496 & 552/COCH/2010 APPEALS TOGETHER AND ARE DISPOSING OF THE APPEALS B Y THIS COMMON ORDER, FOR CONVENIENCE. 2. LET US TAKE THE ASSESSEES APPEAL FIRST. THE FIR ST GROUND OF APPEAL IS DISALLOWANCE OF RS. 8,56,461 U/S 40A(IA) OF THE ACT . 3. SHRI R KRISHNAN, THE LD.REPRESENTATIVE FOR THE AS SESSEE SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON THE GROUND THAT THE TDS WAS NOT MADE. ACCORDING TO THE LD.REPRESENTATIVE, WHAT WAS PAID WAS A ROYALTY; THEREFORE, TDS WAS NOT DEDUCTIBLE U/S 194J OF THE A CT. REFERRING TO SECTION 44AA OF THE ACT, THE LD.REPRESENTATIVE SUBMITTED THAT WR ITER IS NOT A PROFESSION AS NOTIFIED BY THE CBDT. THEREFORE, IT CANNOT BE CONS IDERED AS PROFESSIONAL FEES HENCE THE DISALLOWANCE SUSTAINED BY THE COMMISSIONE R OF INCOME-TAX(A) ON THE GROUND THAT THE TDS WAS NOT MADE IS NOT JUSTIFIED. 4. ON THE CONTRARY, THE LD.DR SUBMITTED THAT WHAT W AS PAID TO THE ASSESSEE IS ONLY A PROFESSIONAL FEE, THEREFORE, TDS HAS TO BE M ADE. EVEN OTHERWISE, ACCORDING TO THE LD.REPRESENTATIVE, IT HAS TO BE TR EATED AS SALARY. ON ANY ACCOUNT, NON DEDUCTION OF TAX AT SOURCE AT THE TIME OF PAYME NT HAS TO BE CONSTRUED AS VIOLATION OF PROVISIONS OF SECTION 194J OF THE ACT. THEREFORE, THE ASSESSEE IS NOT ENTITLED TO CLAIM THE SAME AS DEDUCTION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CAR EFULLY GONE THROUGH THE PROVISIONS OF SECTION 44AA OF THE ACT. SECTION 44A A CLEARLY SAYS THAT EVERY PERSON CARRYING ON LEGAL, MEDICAL ENGINEERING OR AR CHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR ANY 3 ITA NO.496 & 552/COCH/2010 OTHER PROFESSION AS IS NOTIFIED BY THE BOARD IN THE OFFICIAL GAZETTE SHALL KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS A S MAY ENABLE THE ASSESSING OFFICER TO COMPUTE HIS TOTAL INCOME IN AC CORDANCE WITH THE PROVISIONS OF THIS ACT. SUB SECTION (2) OF SECTION 44AA PROVI DES FOR MAINTENANCE OF BOOKS OF ACCOUNT BY PROFESSIONALS OTHER THAN THE PROFESSION WHICH ARE REFERRED TO IN SUB SECTION (1) OF SECTION 44AA OF THE ACT WHERE THE TO TAL SALES / TURNOVER EXCEEDS RS.10 LAKHS IN ANY ONE OF THE THREE YEARS IMMEDIATEL Y PRECEDING THE PREVIOUS YEAR. WE FIND THAT THE CBDT BY NOTIFICATION NO.SO 17(E) DATED 12-01-1977 NOTIFIED THE PROFESSION OF STORY WRITER AS A PROFES SION WITHIN THE MEANING OF SECTION 44AA OF THE ACT. THIS NOTIFICATION ISSUED BY CBDT WAS NOT TAKEN INTO CONSIDERATION EITHER BY THE A.O. OR COMMISSIONER OF INCOME-TAX(A). THEREFORE, THE ASSESSEE HAD NO OCCASION TO EXPLAIN THE CIRCULA R BEFORE THE LOWER AUTHORITIES. EVEN BEFORE THIS TRIBUNAL NO ONE BROUGHT TO THE NOT ICE OF THE BENCH ABOUT THE CIRCULAR ISSUED BY THE CBDT DATED 12-01-1977. AS PER THIS CIRCULAR, PRIMA FACIE IT APPEARS THAT STORY WRITER IS A PROFESSIONAL. HOWEV ER, THE NOTIFICATION IMPLIEDLY SUGGESTS THAT STORY WRITER WOULD FALL WITHIN THE PR OFESSION OF FILM ARTIST. THEREFORE, IT IS TO BE EXAMINED AFTER GIVING OPPORT UNITY TO THE ASSESSEE WHETHER THE ASSESSEE WOULD FALL WITHIN THE MEANING OF STORY WRITER AS NOTIFIED BY THE CBDT IN CIRCULAR DATED 12-01-1977. SINCE THIS WAS NOT EX AMINED BY THE LOWER AUTHORITIES AND THE ASSESSEE ALSO HAD NO OCCASION T HIS TRIBUNAL IS OF THE OPINION THAT THE ASSESSING OFFICER SHALL EXAMINE THE ISSUE IN THE LIGHT OF ABOVE CBDT CIRCULAR. ACCORDINGLY THE ORDER OF THE LOWER AUTHO RITIES ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE IN THE LIGHT OF CIRCULAR NO.SO 17(E) DATED 12-01-1977 AND DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GI VING REASONABLE OPPORTUNITY TO THE ASSESSEE. 4 ITA NO.496 & 552/COCH/2010 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO ADDI TION OF RS.1 LAKH IN RESPECT OF REPAIR AND MAINTENANCE, BUSINESS PROMOTION, AGEN CY COMMISSION, ETC. ON THE GROUND THAT THE ASSESSEE WAS MAINTAINING ONLY SELF MADE VOUCHER. ACCORDING TO LD.REPRESENTATIVE FOR THE ASSESSEE, THE ASSESSING O FFICER HAS NOT POINTED OUT ANY SPECIFIC DISCREPANCY IN THE VOUCHERS. 7. ON THE CONTRARY, THE LD.DR SUBMITTED THAT THE AS SESSEE CLAIMED RS.2 LAKHS AS EXPENSES. IN THE ABSENCE OF ANY PROPER VOUCHER, THE ASSESSING OFFICER RESTRICTED THE EXPENDITURE AT RS.1 LAKH. IN THE ABS ENCE OF ANY VERIFIABLE VOUCHER, THE COMMISSIONER OF INCOME-TAX(A) CONFIRMED THE ORDE R OF THE ASSESSING OFFICER. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE RECORDS. ADMITTEDLY THE ASSESSEE CLAIMED RS.2 LAKHS AS EXPENDITURE TOWARDS REPAIR & MAINTENANCE, BUSINESS PROMOTION EXPENSES, AGENCY COMMISSION, ETC. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE A SSESSEE TO THE EXTENT OF RS.1 LAKH ON THE GROUND THAT THE ASSESSEE WAS MAINTAINING ONLY SELF MADE VOUCHERS WHICH ARE NOT PRONE TO VERIFICATION. IF THE VOUCHE RS WERE COMPLETELY NOT VERIFIABLE IT IS FOR THE ASSESSING OFFICER TO DISAL LOW THE ENTIRE CLAIM OF THE ASSESSEE. THE VERY FACT THAT PART OF THE CLAIM WAS ALLOWED BY THE ASSESSING OFFICER SHOWS THAT HE ADMITTED THE CLAIM OF THE ASSESSEE. HOWEVE R, IN THE ABSENCE OF ANY MATERIAL, PART OF THE EXPENDITURE HAS TO BE DISALLO WED. THIS TRIBUNAL IS OF THE OPINION THAT THE DISALLOWANCE OF RS.50,000 WOULD ME ET THE ENDS OF JUSTICE. ACCORDINGLY, INSTEAD OF RS.1 LAKH, THE ASSESSING OFF ICER IS DIRECTED TO RESTRICT THE DISALLOWANCE TO RS.50,000. 5 ITA NO.496 & 552/COCH/2010 9. NOW COMING TO THE REVENUES APPEAL IN ITA NO.552 /COCH/2010, THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISALLOWANCE OF R S. 20,67,436 TOWARDS THE COST OF UNSOLD COPIES. 10. SHRI R SIVAKUMAR, THE LD.DR SUBMITTED THAT THE E XPENDITURE ON PRINTING THE UNSOLD COPIES WAS ALREADY ALLOWED AS A DEDUCTION. THE COST OF THE UNSOLD COPIES, IF ALLOWED AGAIN, WOULD AMOUNT TO DOUBLE DEDUCTION. ACCORDING TO THE LD.DR, AT THE BEST, THE COPIES CAN BE CONSIDERED AS SALES RET URNS. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE COST OF UNSOLD COPIES WAS INCLUDED IN THE SALES, IT CANNOT BE ALLOWED AS SALES RETURN ALSO. THEREFORE, ACCORDING TO THE LD.DR, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE. REFERRING TO THE ORDER OF THE TRIBUNAL IN THE CASE OF DR. B.A. RAJAKR ISHNAN IN ITA NO.349(COCH)/2006 ORDER DATED 20-08-2007, THE LD.DR S UBMITTED THAT THE REVENUE HAS NOT FILED ANY APPEAL BEFORE THE HIGH CO URT BECAUSE OF LAW TAX EFFECT. ACCORDING TO THE LD.DR, MERELY BECAUSE NO APPEAL WA S FILED AGAINST THE ORDER OF THE TRIBUNAL DATED 20-08-2007 IT DOES NOT PRECLUDE TH E DEPARTMENT FROM CONTESTING THE MATTER ON MERIT. 11. ON THE CONTRARY, SHRI R KRISHNAN, THE LD.REPRESE NTATIVE FOR THE ASSESSEE SUBMITTED THAT THE AGENTS WOULD RETURN ONLY THE WRA PPERS OF THE UNSOLD COPIES OF THE MAGAZINES. THE AGENTS DO NOT MAKE THE PAYMENTS FOR THE UNSOLD COPIES. THEREFORE, THE COST OF UNSOLD COPIES SHOULD BE ALLO WED AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME. WHILE CONSIDERING A S IMILAR CLAIM IN THE CASE OF DR. B.A. RAJAKRISHNAN (SUPRA) THIS TRIBUNAL ALLOWED A SI MILAR CLAIM IN RESPECT OF UNSOLD PERIODICALS. THEREFORE, ACCORDING TO THE LD.REPRES ENTATIVE, THE COMMISSIONER OF INCOME-TAX(A) HAS RIGHTLY FOLLOWED THE ORDER OF THIS TRIBUNAL IN THE CASE OF DR B.A. RAJAKRISHNAN (SUPRA) AND ALLOWED THE CLAIM OF THE AS SESSEE. 6 ITA NO.496 & 552/COCH/2010 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL ON RECORD. ON IDENTICAL CIRCUMSTANCES , THIS TRIBUNAL IN THE CASE OF DR. B.A. RAJAKRISHNAN (SUPRA) FOUND THAT THE COST OF UNSOLD COPIES OF MAGAZINES HAS TO BE ALLOWED AS DEDUCTION. THOUGH THE REVENUE HAS CLAIMED THAT DUE TO LOW TAX EFFECT NO APPEAL WAS PREFERRED BEFORE THE HIGH COURT AGAINST THE ORDER OF THIS TRIBUNAL, THE FACT REMAINS IS THAT ON THE IDENTICAL SET OF FACTS, THE CO-ORDINATE BENCH OF THIS TRIBUNAL FOUND THAT THE COST OF UNSOL D MAGAZINES HAS TO BE ALLOWED AS DEDUCTION WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. SINCE THE FACTS ARE IDENTICAL AND THE REVENUE COULD NOT BRING ON RE CORD ANY CHANGE IN THE CIRCUMSTANCES, BY FOLLOWING THE ORDER OF THIS TRIBU NAL IN THE CASE OF DR. B.A. RAJAKRISHNAN (SUPRA) WE HOLD THAT THE COST OF UNSOLD MAGAZINES HAS TO BE ALLOWED AS DEDUCTION. THEREFORE, WE DO NOT FIND ANY INFIRM ITY IN THE ORDER OF LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.496/COCH/2010 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THAT OF THE DEP ARTMENT IN ITA NO.552/COCH/2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 03 RD DAY OF APRIL, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 03 RD APRIL, 2012 PK/- COPY TO: 1. JT.C.I.T., KOLLAM RANGE, KOLLAM 2. MADHU R BALAKRISHNAN, M/S PRIYA PRODUCTS, CONVENT RO AD, KOLLAM 3. THE COMMISSIONER OF INCOME-TAX(A), TRIVANDRUM 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH