ACIT, Muzaffarnagar V. M/s Vector Shipping Services (P) Ltd., Muzaffarnagar

ITA 5219/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66024 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 09-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUKHVEER CHAUDHARY
• Assessee Lawyers: SUSHIL KUMAR TONDON
• Keywords: Depreciation; Deemed to accrue or arise in india
• Section: 115JB; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO. 5219/DEL/2012 ASSESSMENT YEAR: 2009-10 ACIT, CIRCLE 2, MUZAFFARNAGAR. VS. VECTOR SHIPPING SERVICES (P) LTD., 3 RD KM, BUDHANA ROAD, MUZAFFARNAGAR. PAN NO. AACCV4186F (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SUKHVEER CHAUDHARY, SR. DR RESPONDENT BY: SH. SUSHIL KUMAR TONDON, FCA O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) DATED 25/07/2012 FOR A.Y. 2009-10. 2. THE ASSESSEE COMPANY, IN THE RELEVANT ASSESSMENT YEAR, DERIVED INCOME FROM BUSINESS OF TECHNICAL AND OPERATIONAL M ANAGEMENT OF SHIPS, WHICH INCLUDED MANAGEMENT OF MAINTENANCE SERVICES, TECHNICAL REPORTING OF SHIPS ETC.. IT HAD FILED ITS RETURN OF INCOME DECL ARING NIL INCOME. HOWEVER, BOOK PROFIT AS PER THE PROVISIONS OF SECTION 115JB HAD BEEN DECLARED AT RS. ITA NO. 5219/D/2012 2 2,02,228/-. THE ASSESSMENT WAS COMPLETED AT A TOTA L INCOME OF RS. 1,17,68,621/- DETAILED AS UNDER: - PAYMENT TO MERCATOR LINES LIMITED IS REIMBURSEMENT OF EXPENSES INCURRED BY THEM ON BEHALF OF THE ASSESSEE COMPANY, AND THERE WAS NO CONTRACTUAL RELATIONSHIP TO PROVIDE ANY SERVICE BY THE MERCATOR LINE LIMITED TO THE ASSESSEE COMPANY. THE LATER COMPANY HAS PAID SALARY AND HAS INCURRED OTHER EXPENSES ON BEHALF OF THE ASSESSEE COMPANY. MERCATOR LINES LIMITED HAS NOT CARRIED OUT ANY CONTRACT FOR WORK FOR THE ASSESSEE COMPANY. IT HA S NOT PROVIDED ANY SERVICES TO THE ASSESSEE COMPANY. HENCE, THERE WAS NO CONTRACT FOR WORK AND THUS, THERE IS NO OBLIGATION ON THE ASSESSEE COMPANY TO DEDUCT AND TDS U/S 194C OF THE INCOME TAX ACT, 1961. 3. LD. CIT(A), DELETED BOTH THE DISALLOWANCES. BEI NG AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE DEPARTMENT IS IN APPEAL BE FORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS. 1,17,68,621/- MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE I.T. ACT, 1961 BY IGNORING THE FACT THAT THE COMPANY M/S MERCATOR LINES LIMITED HAD PERFORMED SHIP MANAGEMENT WORK ON BEHALF OF THE ASSESSEE M/S VECTOR SHIPPING SERVICES (P) LTD. AND THERE WAS ITA NO. 5219/D/2012 3 A MEMORANDUM OF UNDERSTANDING SIGNED BETWEEN BOTH THE COMPANIES AND AS PER THE DEFINITION OF MEMORANDUM OF UNDERSTANDING IT INCLUDED CONTRACT ALSO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS. 13,82,714/- MADE BY THE AO ON ACCOUNT OF WRITE OFF OF BOOKS BY IGNORING THE FACT THAT THE BUSINESS OF M/S VECTOR SHIPPING (P) LTD. WAS TAKEN OVER BY M/S MERCATOR LINES LIMITED AND THERE IS NO CONCRETE EVIDENCE REGARDING DESTRUCTION/DAMAGE OF BOOKS WHICH WERE CLAIMED BY THE ASSESSEE IN AY 2008-09. 4. BRIEF FACTS, APROPOS GROUND NO. 1 ARE THAT IN CO URSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT IN THE PROFIT & LO SS ACCOUNT, RS. 1,17,68,621/- HAD BEEN DEBITED ON ACCOUNT OF SHIFT MANAGEMENT RELATED EXPENSES REIMBURSED. THE ASSESSEE EXPLAINED THAT T HE COMPANY M/S MERCATOR LINES LIMITED, MUMBIA HAD MADE PAYMENTS OF SALARY AND OTHER EXPENSES ON BEHALF OF ASSESSEE COMPANY. HOWEVER, FROM THE DOCUMENTS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE AO NOTICED THAT NO TDS HAD BEEN DEDUCTED BY THE ASSESSEE COMPANY FO R THE PAYMENTS MADE TO M/S MERCATOR LINES LIMITED, MUMBAI. THE AS SESSEE EXPLAINED THAT THE PAYMENT TO MERCATOR LINES LIMITED WAS MERELY RE IMBURSEMENT OF EXPENSES INCURRED BY THEM ON BEHALF OF THE ASSESSEE COMPANY, AND THERE ITA NO. 5219/D/2012 4 WAS NO CONTRACTUAL RELATIONSHIP TO PROVIDE ANY SERV ICE BY THE MERCATOR LINES LIMITED TO THE ASSESSEE COMPANY. M/S MERCATOR LINE S LIMITED HAD NOT CARRIED OUT ANY CONTRACT FOR THE ASSESSEE COMPANY. IT HAD NOT PROVIDED ANY SERVICE TO THE ASSESSEE COMPANY. THEREFORE, THERE WAS NO OBLIGATION ON THE ASSESSEE COMPANY TO DEDUCT ANY TDS U/S 194C. H OWEVER, THE AO CONCLUDED THAT THERE EXISTED A CONTRACT BETWEEN THE TWO COMPANIES AND THE ASSESSEE COMPANY WAS LIABLE TO DEDUCT TDS ON THE SA ME AS PER PROVISIONS OF SECTION 194C. HE, ACCORDINGLY, DISALLOWED THE A SSESSEES CLAIM OF RS. 1,17,68,621/- U/S 40(A)(IA) OF THE ACT. 5. BEFORE LD. CIT(A), IT WAS, INTER-ALIA, SUBMITTED THAT THE COMPANY M/S MERCATOR LINES LIMITED, MUMBAI DEDUCTED TAX ON SALA RIES ETC. ON BEHALF OF THE ASSESSEE AS TDS PROVISIONS OF THE ACT REQUIRED SO AND PAID THE SAME TO THE CREDIT OF CENTRAL GOVERNMENT. THEREFORE, THE A SSESSEE COULD NOT BE TREATED AS ASSESSEE IN DEFAULT IN TERMS OF SECTION 201. UNDER SUCH CIRCUMSTANCES, THE PROVISIONS OF SECTION 194C WERE NOT ATTRACTED. IT WAS ALSO POINTED OUT THAT THE PROVISIONS OF SECTION 40( A)(IA) ARE APPLICABLE IN CASE THE AMOUNT IS PAYABLE IN THE BALANCE SHEET AND NOT ON THE ACCOUNT PAID DURING THE YEAR. SINCE THE AMOUNT WAS PAID FULLY T O THE EXTENT OF RS. 1,17,68,621/-, THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) WERE NOT APPLICABLE. IN THIS REGARD, RELIANCE HAD BEEN PLAC ED ON THE DECISION OF ITAT, ITA NO. 5219/D/2012 5 VISAKHAPATNAM BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTERS VS. ADDL. CIT, 136 ITD 23 (SB). 6. LD. CIT(A), DELETED THE DISALLOWANCE, INTER-ALIA , OBSERVING AS UNDER: IN THE LIGHT OF THE ABOVE FACTS AND FOLLOWING TH E RATIO DECIDENDE OF THE HONBLE COURTS (SUPRA), IT IS HELD THAT FIRS TLY, THE PROVISIONS OF SECTION 194C READ WITH SEC. 40(A)(IA) OF THE ACT ARE NOT APPLICABLE TO THE CASE OF THE APPELLANT. SECONDLY, NATURE OF EXPENSES INCURRED BY THE ASSESSEE DO NOT FORM PART OF EXPENSES DISALLOWABLE U/S 40(A)(IA) OF THE ACT. THIRDLY, WH EN SUCH TYPE OF EXPENSES INCURRED BY THE APPELLANT WERE TOTALLY PAI D AND NOT REMAINED PAYABLE AS AT THE END OF THE RELEVANT ACCO UNTING PERIOD, PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE. FURTHER, THE APPELLANT HAS CLARIFIED A LL THE FIVE QUESTIONS RAISED AS ABOVE AND ITS CLARIFICATIONS AR E FOUND SATISFACTORY AND CONVINCING. THUS, NO ADVERSE INFE RENCE COULD BE DRAWN ON THE ISSUES EVEN AFTER MAKING INTRUSIVE INQUIRIES IN RESPECT OF THE TRANSITION OF BUSINESS MADE BY THE A PPELLANT. THUS, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN M AKING ADDITION OF RS. 1,17,68,621/- ON ACCOUNT OF DISALLOWANCE MADE U /S 40(A)(IA) OF THE I.T. ACT, 1961. THE SAME IS DIRECTED TO BE DELETED. GROUND NOS. 2 & 3 ARE ALLOWED. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE SUBMISSIONS MA DE BEFORE LD. CIT(A), AS NOTED EARLIER, HAVE NOT BEEN CONTROVERTED BY THE DE PARTMENT. IT IS NOT DISPUTED THAT M/S MERCATOR LINES LIMITED HAD DEDUCT ED TDS ON SALARIES PAID ITA NO. 5219/D/2012 6 BY IT ON BEHALF OF ASSESSEE. UNDER SUCH CIRCUMSTAN CES ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS ON REIMBURSEMENT BEING MADE BY IT TO M/S MERCATOR LINES LIMITED. FURTHER, IN ANY VIEW OF THE MATTER, SINCE IT IS NOT DISPUTED THAT NO AMOUNT REMAINED PAYABLE AT THE YEAR END, THEREFO RE, IN VIEW OF THE SPECIAL BENCH DECISION IN THE CASE OF MERILYN SHIPP ING AND TRANSPORT LTD., (136 ITD 23) (SB), ADDITION COULD NOT BE MADE. IN THIS CASE, IT WAS HELD AS UNDER: - SECTION 40(A)(IA) WAS INTRODUCED IN THE ACT, BY THE FINANCE ACT, 2004 WITH EFFECT FROM 1/4/2005 WITH A VIEW TO AUGMENT THE REVENUE THROUGH THE MECHANISM OF TAX DEDUCTION AT SOURCE. THIS PROVISION WAS BROUGHT ON STATUTE TO DISALLOW THE CLAIM OF EVEN GENUINE AND ADMISSIBLE EXPENSES OF THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES. THE DEFAULT IN DEDUCTION OF TDS WOULD RESULT IN DISALLOWANCE OF EXPENDITURE ON WHICH SUCH TDS WAS DEDUCTIBLE. 8. IN THE RESULT, THIS GROUND IS DISMISSED. 9. BRIEF FACTS, APROPOS GROUND NO. 2 ARE THAT THE A O NOTICED THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAD SHOWN TECH NICAL BOOKS WRITTEN OFF AT RS. 17,58,976/-. HE NOTICED THE FOLLOWING DETAI LS FROM THE DEPRECIATION CHART : - ITA NO. 5219/D/2012 7 GROSS BLOCK ON TECHNICAL BOOKS RS. 20,05,236/- DEPRECIATION AS PER COMPANIES ACT FOR A.Y. 2008-09 RS. 2,46,260/- REMAINING GROSS BLOCK AS ON 1/04/08 RS. 17,58,976/ - DEPRECIATION CLAIMED FOR AY 2009-10 NIL TECHNICAL BOOKS WRITTEN OFF RS. 17,58,976/- 10. THE AO FURTHER NOTICED THAT ASSESSEE HAD ADDED BACK RS. 17,58,976/- TO THE TOTAL INCOME IN ITS COMPETITION. HOWEVER, I T HAD CLAIMED SHORT TERM CAPITAL LOSS OF RS. 13,82,714/- ON THE ABOVE TECHNI CAL BOOKS. THE AO OBSERVED THAT IN COURSE OF ASSESSMENT PROCEEDINGS F OR A.Y. 2008-09, THE AO OBSERVED THAT THE ASSESSEE HAD PURCHASED THE BOO KS TO THE TUNE OF RS. 20,05,236/- AND DOUBTED SUCH A HUGE EXPENDITURE ON PURCHASE OF BOOKS AND DISALLOWED RS. 9,02,356/- ON ACCOUNT OF EXCESS DEPR ECIATION CLAIMED AND THE DEPARTMENT IS IN APPEAL BEFORE ITAT. HE FURTHER OB SERVED THAT THE SHORT TERM CAPITAL LOSS AS CLAIMED BY THE ASSESSEE CANNOT BE ACCEPTED SINCE IN ONE YEAR THE ASSESSEE HAD MADE SUCH A HUGE INVESTME NT IN PURCHASE OF BOOKS AND HAD CLAIMED DEPRECIATION @ 60%, AS PER TH E INCOME TAX ACT AND IN THE NEXT YEAR THE COMPANY HAD CLAIMED SHORT TERM CAPITAL LOSS ON SUCH BOOKS. HE NOTED THAT NO SALE PROCEEDS HAD BEEN SHO WN BY THE ASSESSEE. THE AO NOTICED THAT AY 2008-09, THE ASSESSEE HAD SU BMITTED AS UNDER: - THE ADDITION IN TECHNICAL BOOKS WAS MADE TO MAINTAIN INTERNATIONAL STANDARD OF SHIP ITA NO. 5219/D/2012 8 MANAGEMENT, THE COMPANY HAS TO MAINTAIN A LIBRARY OF TECHNICAL BOOKS FOR PROVIDING INTENSIVE TRAINING TO THEIR TECHNICAL STAFF AND TO FACILITATE REFERRING OF BOOKS FOR TROUBLESHOOTING OF VARIOUS PROBLEMS WHILE WORKING IN SHIP. 11. HE FURTHER NOTICED THAT IN AY 2009-10, THE ASSE SSEE SUBMITTED AS UNDER: - SINCE IN THE RELEVANT FINANCIAL YEAR THE ASSESSEE COMPANY WAS IN THE PROCESS OF WINDING UP ITS BUSINESS, IT SHIFTED ITS ALL OF ITS STAFF TO ITS CU STOMER COMPANY, NAMELY MERCATOR LINES LIMITED, WHO HAS TAKEN OVER ALL OF THE STAFF AND INCURRED THEIR SALA RY COSTS AND OTHER EXPENSES ON BEHALF OF VECTOR SHIPPING PVT. LTD. AND CLAIMED REIMBURSEMENT OF THE SAME FROM THE ASSESSEE COMPANY. 12. FROM THESE REPLIES, THE AO CONCLUDED AS UNDER: - IT IS HARD TO BELIEVE THAT WHY THE COMPANY WITH INVESTMENT OF RS. 20,05,236/- ON TECHNICAL BOOKS OF SUCH UTMOST IMPORTANCE WOULD NOT TRANSFER THE SAME TO ITS CUSTOMER COMPANY OR ANY OTHER SHIPPING COMPANY WHEN SUCH BOOKS ARE REGULARLY USED IN SUCH BUSINESSES. THE QUESTION THAT, WHY SUCH IMPORTANT BOOKS ARE RETAINED BY THE COMPANY WHICH HAS CLOSED ITS BUSINESS IS NOT UNDERSTANDABLE? THERE IS NO WEIGHT IN ASSESSEE CONTENTION THAT VALUE OF SUCH BOOKS MUST BE TREATED ITA NO. 5219/D/2012 9 AS CAPITAL LOSS. THERE IS GREAT PROBABILITY THAT T HE ASSESSEE COMPANY MUST HAVE TRANSFERRED SUCH BOOKS ALSO AND MUST HAVE RECEIVED REIMBURSEMENT FOR THE SAME WHICH HAVE NOT BEEN REFLECTED IN THE BOOKS OF ACCOUNTS. HENCE ON ACCOUNT OF THE ABOVE, AN ADDITION OF RS. 13,82,714/- IS MADE ON ACCOUNT OF INCOME FROM SALE OF SUCH BOOKS AND THE SHORT TERM CAPITAL LOSS AS CLAIMED BY THE ASSESSEE IS NOT ALLOWED. 13. LD. CIT(A) AFTER CONSIDERING THE REMAND REPORT OF AO DID NOT ACCEPT THE AOS FINDINGS THAT THE ASSESSEE MUST HAVE RECEI VED RS. 13,82,714/- AND ACCEPTED THE SHORT TERM CAPITAL LOSS U/S 50 AS CLAI MED BY THE ASSESSEE. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE ARE IN AGREEMEN T WITH THE FINDINGS OF LD. CIT(A), THAT THE AO WAS NOT JUSTIFIED IN MAKING ADD ITION OF RS. 13,82,714/- ON ACCOUNT OF DEEMED INCOME FROM SALE OF BOOKS WITHOUT ANY ADVERSE MATERIAL EVIDENCE ON RECORD AND WITHOUT REJECTING THE BOOKS OF ACCOUNT. HOWEVER, LD. CIT(A)S FINDINGS THAT THE SHORT TERM CAPITAL LOSS CLAIMED U/S 50 WAS JUSTIFIED, DOES NOT APPEAR TO BE CORRECT. LD. CIT(A) HAS NOT TAKEN INTO CONSIDERATION THAT THE BLOCK OF ASSETS DID NOT CEASE TO EXIST AS THE COMPANYS BUSINESS WAS NOT CLOSED DOWN. AS LONG AS THE BLOCK OF ASSET EXISTS, THE ASSESSEE IS ONLY ENTITLED FOR DEPRECIATION. WE FIND THAT IN AY 2008-09 ALSO THE ISSUE REGARDING DEPRECIATION IS IN DISPUTE BEFORE THE TRI BUNAL. THEREFORE, WE ITA NO. 5219/D/2012 10 CONSIDER IT IN THE INTEREST OF JUSTICE, THAT THE MA TTER BE RESTORED BACK TO THE FILE OF AO TO DECIDE THE ISSUE AFRESH AFTER TAKING INTO CONSIDERATION THE FINDINGS FOR AY 2008-09. WE DIRECT ACCORDINGLY. 15. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATI STICAL PURPOSES. 16. IN THE RESULT, THE DEPARTMENTS APPEAL IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14/12/2012 SD/- SD/- (C.M. GARG) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 14/12/2012 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR