ITO, New Delhi V. Mrs. Kanak Singh, New Delhi

ITA 5530/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81699 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R SANTHAN AM; BHARAT AGARWAL
• Keywords: Question of law; Difference of opinion
• Section: 194C

Judgement Text

1 ITA 5530/DEL/12 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI A.T. VARKEY : JUDICIAL MEMBER ITA NO. 5530 /DEL/201 2 ASSTT. YR: 200 9 - 10 INCOME - TAX OFFICER, VS. MRS. KANAK SINGH, WARD 26(2), NEW DELHI. PROP. M/S UNIQUE DESIGNERS, FLAT NO. 136, POCKET - 16, SECTOR - 3, DWARKA, NEW DELHI. PAN: BEBPS 7698 L C.O. NO. 484/DEL/2012 ( IN ITA NO. 5530/DEL/2012) ASSTT. YR: 2009 - 10 MRS. KANAK SINGH, VS. INCOME - TAX OFFICER, PROP. M/S UNIQUE DESIGNERS, WARD 26(2), NEW DELHI. FLAT NO. 136, POCKET - 16, SECTOR - 3, DWARKA, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) DEPARTMENT BY : SHRI V IVEK NANGIA SR. DR ASSESSEE BY : SHRI R . SANTHANAM & SHRI BHARAT AGARWAL ADV. DATE OF HEARING : 16 - 0 9 - 2014 DATE OF ORDER : 19 - 09 - 2014. O R D E R PER S.V. MEHROTRA, A.M: - THE IMPUGNED APPEAL , PREFERRED BY THE REVENUE AND THE CROSS - OBJECTION PREFERRED BY ASSESSEE , ARE DIRECTED AGAINST ORDER DATED 0 8 - 0 8 - 201 2 PASSED BY THE LD. CIT(A) - XXIV , NEW DELHI , IN APPEAL NO. 381/11 - 12 , RELATING TO A.Y. 200 9 - 10. 2 ITA 5530/DEL/12 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, PROPRIETOR OF THE CONCERN M/S UNIQUE DESIGNERS, IN THE RELEVANT ASSESSMENT YEAR , WAS ENGAGED IN CONSTRUCTING AND PREPARING DESIGNS OF TELECOMMUNICATION TOWERS LOCATED IN DIFFERENT PARTS OF INDIA. DURING THE YEAR THE ASSESSEE WAS PROVIDING CONS ULTANCY AS WELL AS WORKING AS SUB - CONTRACTOR FOR ERECTING TELECOMMUNICATION TOWERS. ASSESSEE FILED HER RETURN DECLARING INCOME OF RS. 8,81,210/ - . 2.1. THE AO NOTICED THAT ASSESSEE HAD CLAIMED SOIL TESTING EXPENSES AT RS. 68,87,425/ - , OUT OF WHICH WORK WAS ALLOCATED TO SUB - CONTRACTORS FOR WHICH ASSESSEE HAD PAID RS. 28,50,000/ - . THE AO NOTICED THAT ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THIS AMOUNT AS REQUIRED U/S 194C AND, THEREFORE, HE DISALLOWED RS. 28,50,000/ - U/S 40(A)(IA) . 2.2. LD. CIT(A) DEL ETED THE ADDITION FOLLOWING THE DECISION OF ITAT, VISHAKHAPATNAM, SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT 20 TAXMAN.COM 244 (VISHAKHAPATNAM - TRIB.)(SB) , WHEREIN BY THE MAJORITY VIEW IT HAS BEEN HELD THAT PROVISIONS OF SECTION 4 0(A)(IA) ARE APPLICABLE TO AMOUNTS OF EXPENDITURE WHICH ARE PAYABLE AS ON THE DATE 31 ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW EXPENDITURE WHICH HAS BEEN ACTUALLY PAID DURING PREVIOUS YEAR, WITHOUT DEDUCTION OF TDS. SINCE THE AMOUNT HAD A CTUALLY BEEN PAID TO THE SUB - CONTRACTORS , LD. CIT(A) DELETED THE ADDITION. 2.3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. FOLLOWING GROUNDS ARE RAISED: ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN 1. DELETING THE ADDITION OF RS. 28,50,000/ - MADE BY THE AO U/S 40(A)(IA) OF THE I.T. ACT, 1961. 3 ITA 5530/DEL/12 2. HOLDING THAT THE PROVISIONS OF SECTION 40(A)(IA) IS ONLY APPLICABLE ONLY TO AMOUNT OF EXPENDITURE WHICH ARE PAYABLE AS ON 31 ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW EXPENDITURE WHICH HAS BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR. 3. LD. DR RELIED ON THE ASSESSMENT ORDER AND ALSO POINTED OUT THAT CIT(A) IN PARA 4 OF HIS ORDER HAS ITSELF HELD THAT THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF M/S HI NDUSTAN COCA COLA IS NOT APPLICABLE TO THE FACTS OF THE CASE BECAUSE THE PRESENT CASE PERTAINS TO NON DEDUCTION OF TAX AT SOURCE. LD. DR FURTHER POINTED OUT THAT THE DECISION OF SPECIAL BENCH OF THE ITAT IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) HAS NOT BEEN ACCEPTED BY THE HON BLE CALCUTTA HIGH COURT AND THE HON BLE GUJARAT HIGH COURT. 4. LD. COUNSEL FOR THE ASSESSEE FILED BEFORE US COPY OF ORDER OF HON BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. M/S VECTOR SHIPPING SERVICES (P) L TD. , DISMISSING THE APPEAL OF THE REVENUE. HE FURTHER SUBMITTED THAT THE SLP FILED BY THE DEPARTMENT AGAINST THE ORDER OF HON BLE ALLAHABAD HIGH COURT HAS BEEN DISMISSED. HE FURTHER REFERRED TO THE DECISION OF ITAT B BENCH CHENNAI IN THE CASE OF ITO V S. M/S THEEKATHIR PRESS (ITA NO. 2076/MDS/2012 DATED 9 - 12 - 2013) , WHEREIN TAKING INTO CONSIDERATION THE DIFFERENCE OF OPINION BETWEEN VARIOUS HIGH COURT S , THE TRIBUNAL FOLLOWING THE PRINCIPLE LAID DOWN BY HON BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETAB LE PRODUCTS LTD. 88 ITR 192, ALLOWED THE ASSESSEE S CLAIM, HOLDING THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY WITH REFERENCE TO AMOUNTS PAYABLE AS ON 31 ST MARCH AND WILL NOT APPLY TO THE AMOUNTS WHICH STOOD ACTUALLY PAID BY THE ASSESSEE D URING THE YEAR. LD. COUNSEL ALSO RELIED ON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF RAJINDER KUMAR 362 ITR 241 . 4 ITA 5530/DEL/12 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD OF THE CASE. THE FACTS ARE NOT DISPUTED. ADMITTEDLY ASSESSEE DID NOT DEDUCT THE TAX AS REQUIRED UNDER THE PROVISIONS OF SECTION 194C. HOWEVER, IT IS ALSO NOT DISPUTED THAT NO AMOUNT WAS PAYABLE AT THE END OF THE YEAR TO SUB - CONTRACTORS. UNDER SUCH CIRCUMSTANCES, THE MAJORITY VIEW DECISION OF SPECIAL BENCH IN THE CASE MERILYN SHIPPING & TRANSPORTS (SUPRA), IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. HOWEVER, THE SPECIAL BENCH DECISION WAS EXAMINED BY VARIOUS HIGH COURT AND IT WAS HELD BY HON BLE ALLAHABAD HIGH COURT IN THE CASE OF M/S VE CTOR SHIPPING SERVICES (P) LTD. (SUPRA), AS UNDER: WE DO NOT FIND THAT THE REVENUE CAN TAKE ANY BENEFIT FROM THE OBSERVATIONS MADE BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (136 ITD 23) (SB) QUOTED AS ABOVE T O THE EFFECT 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 O F 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. IN THE PRESENT CASE TAX WAS DEDUCTED AS TDS FROM THE SALARIES OF THE EMPLOYEES PAID BY M/S MERCATOR LINES LTD., AND THE CIRCUMSTANCES IN WHICH SUCH SALARIES WERE PAID BY M/S MERCATOR LINES LTD., FOR M/S VECTOR SHIPPING SERVICES, THE AS SESSEE WERE SUFFICIENTLY EXPLAINED. IT IS TO BE NOTED THAT FOR DISALLOWING EXPENSES FROM BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDUCTED, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID BY THE END OF THE YEAR. WE DO NOT FIND THAT THE TRIBUNAL HAS COMMITTED ANY ERROR IN RECORDING THE FINDING ON THE FACTS, WHICH WERE NOT CONTROVERTED BY THE DEPARTMENT AND THUS THE QUESTION OF LAW AS FRAMED DOES NOT ARISE FOR CONSIDERATION IN THE APPEAL. THE INCOME TAX APPEAL IS DISMISSED. 5. 1. THESE OBSERVATIONS HAVE BEEN MADE WITH REFERENCE TO THE FINDINGS OF THE TRIBUNAL IN ITA NO. 5219/DEL/2012 IN THE CASE OF M/S VECTOR SHIPPING SERVICES , WHICH IS REPRODUCED HEREUNDER : - 5 ITA 5530/DEL/12 7 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE SUBMISSIONS MADE BEFORE LD. CIT(A) , AS NOTED EARLIER, HAVE NOT BEEN CONTROVERTED BY THE DEPARTMENT. IT IS NOT DISPUTED THAT M/S MERCATOR LINES LIMITED HAD D EDUCTED TDS ON SALARIES PAID BY IT ON BEHALF OF ASSESSEE. UNDER SUCH CIRCUMSTANCES ASSESSEE W A S 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 DISP U TED THAT NO AMOUNT REMAINED PAYABLE AT THE YEAR END, THEREFORE, IN VIEW OF THE SPECIAL BENCH DECISION IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD., (136 ITD 23) (SB), ADDIT I ON COULD NOT BE MADE. IN THIS CASE, IT WAS HELD AS UNDER: - SECTION 40(A)(IA) WAS INTROD UCED IN T HE 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 . 5.1.1. T HE SLP FIL ED AGAINST THE ORDER OF THE HON BLE HIGH COURT STANDS DISMISSED BY THE HON BLE SUPREME COURT : 5.2. AS FAR AS THE ASSESSEE S RELIANCE ON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF RAJINDER KUMAR (SUPRA) IS CONCERNED, THE SAME IS NOT APPLICA BLE TO THE FACTS OF THE CASE. IN THIS CASE THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. THE AO REFERRED TO THE ACCOUNT OF DEDUCTION OF TAX AT SOURCE FOR PROFESSIONAL PAYMENT AS ON MARCH 31,2007 AND NOTICED THAT AN AMOUNT OF RS. 8,52,034/ - HAD NOT BEEN PAID BY MARCH 31,2007. TH E ASSESSEE IN ITS REPLY POINTED OUT THAT NO EXPENDITURE HAD BEEN CLAIMED ON ACCRUAL BASIS AS ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. HOWEVER, FOR BETTER CONTROL AND RECORD MAINTENANCE, THEY WERE MAINTAINING A MEMORANDUM IN THE BOOKS. IN 6 ITA 5530/DEL/12 THE BACK DROP OF THESE FACTS THE HON BLE HIGH COURT, INTER ALIA, OBSERVED THAT IN IT IS AN ACCEPTED POSITION THAT THE ASSESSMENT ORDER NOWHERE RECORDED OR SPECIFICALLY HELD THAT THE ACCOUNT OF THE PAYEE WAS CREDITED WITH RS. 78,51,800/ - OR WITH RS. 1,48,49,500/ - . U NDER SUCH CIRCUMSTANCES, A PRAGMATIC AND A PRACTICAL APPROACH HAD TO BE ADOPTED. THE HON BLE HIGH COURT FURTHER OBSERVED THAT ASSESSEE HAD DEDUCTED AS TAX AT SOURCE IN THE MONTH OF MARCH 2007 AND THEREAFTER PAID IT IN APRIL 2007. THEREFORE, THE FACTS OF T HIS CASE ARE NOT APPLICABLE TO THE PRESENT CASE. 5.3. SINCE NO DECISION OF HON BLE JURISDICTIONAL HIGH COURT DIRECTLY ON THE ISSUE HAS BEEN BROUGHT TO OUR NOTICE , THEREFORE, CONSIDERING THE CONFLICT OF OPINION BETWEEN VARIOUS HIGH CO URT AND THE DECISION OF SPECIAL BENCH OF THE ITAT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ON THE ISSUE IN QUESTION . 6. IN THE RESULT, REVENUE S APPEAL IS DISMISSED. 7. IN ITS CROSS OBJECTION THE ASSESSEE HAS RAISED FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AUTHORITIES BELOW HAVE ERRED IN DISALLOWING RS. 93,828/ - OUT OF STAFF WELFARE EXPENSES, RS. 51,312/ - OUT OF ENTERTAINMENT EXPENSES, RS. 9,758/ - OUT OF SALES PROMOTION EXPENSES AND RS. 86,820/ - OUT OF EXPENSES ON VEHICLE REPA IR AND PETROL ALL OF WHICH ARE ADMISSIBLE REVENUE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS AND DISALLOWANCE THEREOF IS CLEARLY ILLEGAL AND UNWARRANTED APPARENT FROM BEING ARBITRARY AND UNSUSTAINABLE AND HENCE, THE ADDITIONS WRONGLY MADE BE DELETED . 8. A PERUSAL OF CIT(A) S ORDER REVEALS THAT THESE ISSUES WERE NOT CONTESTED BEFORE THE CIT(A). SINCE THE ISSUES RAISED IN CROSS OBJECTION DO NOT ARISE OUT OF 7 ITA 5530/DEL/12 THE ORDER OF CIT(A), THEREFORE, WE DECLINE TO ADMIT THE CROSS - OBJECTION FILED BY THE A SSESSEE. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION PREFERRED BY THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 19 - 09 - 2014. SD/ - SD/ - ( A.T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19 - 09 - 2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR