ACIT, New Delhi V. Shri Dinesh Kumar Mathur, New Delhi

ITA 5623/DEL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7257 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 14-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAN KANT GARG
• Assessee Lawyers: R B MATHUR
• Section: 194C

Judgement Text

1 ITA NO. 5623/DEL/2011 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI INTURI RAMA RAO A CCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 5623/DEL/2011 (ASSESSMENT YEA R-2008-09) ACIT CIRCLE-24(1), ROOM NO. 238-B, 2 ND FLOOR, C. R. BUILDING, I.P. ESTATE NEW DELHI (APPELLANT) VS DINESH KUMAR MATHUR F-10/4 VASANT VIHAR NEW DELHI AAIPM9343D (RESPONDENT) APPELLANT BY SH. RAMAN KANT GARG, SR. DR RESPONDENT BY SH. R. B. MATHUR, C.A. ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 28/9/2011 PASSED BY THE LD. CIT(A)S XXIII, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,19,66,460/- U/S 40(A) (IA) OF THE I.T. ACT FOR THE AMOU9NT REIMBURSED TO M/S AAKR ITI CREATIONS PVT. LTD. DATE OF HEARING 05.11.2015 DATE OF PRONOUNCEMENT 27.01.2016 2 ITA NO. 5623/DEL/2011 3. THE ASSESSEE IS A PROPRIETOR OF M/S ALANKAR CREA TIONS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF GARMENTS AND ACCESSORIES. THE ASSESSEE FILED HIS RETURN OF INCOME ON 30/9/2008 DI SCLOSING A TOTAL INCOME OF RS.49,2,099/- DURING THE SCRUTINY ASSESSMENT PROCEE DINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE CLAIMED THE PAYMEN T OF RS.3,19,66,460/-TO ITS SISTER CONCERN M/S AKRITI CREATIONS PVT. LTD. BY WA Y OF REIMBURSEMENT OF EXPENSES BUT HAD FAILED TO DEDUCT TAX ON THIS PAYME NT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THERE WAS A LIABILITY TO DE DUCT TAX U/S 194C OF THE INCOME TAX ACT, 1961 ON THE CONTRACTUAL PAYMENT OF REIMBURSEMENT OF MANUFACTURING EXPENSES. THE ASSESSING OFFICER, THE REFORE, PROPOSED TO DISALLOW THE PAYMENT OF RS.3,19,66,460/- U/S 40(A) (IA) OF THE INCOME TAX ACT, 1961. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT M/S AKRITI CREATIONS PVT. LTD. RAISED SEPARATE MONTHLY BILLS F OR THE REIMBURSEMENT OF EXPENSES AND FOR THE MANAGEMENT CHARGES AT 5% OF TH E ACTUAL EXPENSES INCURRED. THE ASSESSEE SUBMITTED BEFORE THE ASSESS ING OFFICER THAT THERE WAS NO ELEMENT OF PROFIT OR INCOME IN THE REIMBURSEMENT OF EXPENSES AND HENCE NO LIABILITY FOR DEDUCTION OF TAX AROSE. THE ASSESSEE ALSO RELIED UPON THE JUDGMENT OF ITAT DELHI IN THE CASE OF DR. WILMAR SCHWABE IND IA PVT. LTD. (3 SOT 71), WHEREIN THE TRIBUNAL HELD THAT REIMBURSEMENT OF EXP ENSES WAS NOT COVERED UNDER SECTION 194J OF THE INCOME TAX ACT, 1961 AS I N THAT CASE SEPARATE BILLS WERE RAISED FOR ACTUAL EXPENSES AND FOR TECHNICAL/P ROFESSIONAL FEES. HOWEVER, THE ASSESSING OFFICER DISTINGUISHED THE RATIO OF TH E JUDGMENT, HOLDING THAT IT PERTAINED TO A CASE OF REIMBURSEMENT OF FEES FOR PR OFESSIONAL/TECHNICAL SERVICES UNDER SECTION 194J OF THE INCOME TAX ACT, 1961, AS AGAINST THE ASSESSEES CASE WHICH WAS COVERED UNDER SECTION 194C OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER FURTHER NOTED FROM THE BALANCE-SH EET OF M/S AKRITI CREATIONS PVT. LTD. THAT THERE WAS NO SEGREGATION OF EXPENSES INCURRED ON BEHALF OF THE M/S ALANKAR CREATIONS AND NO SEPARATION OF RECEIPT FROM M/S ALANKAR CREATIONS INTO REIMBURSEMENT AND MANAGEMENT CHARGES . THE ASSESSING 3 ITA NO. 5623/DEL/2011 OFFICER OBSERVED THAT THE BASIS OF BILLS RAISED FOR REIMBURSEMENT OF EXPENSES WAS NOT CLEAR AND RELIED UPON THE JUDGMENT OF THE H ONBLE APEX COURT IN THE CASE OF ASSOCIATED CEMENT CO. VS. CIT [1993] 201 IT R 0435, WHEREIN THE HONBLE APEX COURT HELD THAT THE PERSON RESPONSIBLE FOR DEDUCTION OF TAX HAS TO DEDUCT FROM THE ENTIRE SUM PAID OR CREDITED AND NOT MERELY FROM THE INCOME COMPONENT OF THE SAME. THE ASSESSING OFFICER ALSO RELIED ON CBDT CIRCULAR NO. 715 DATED 8/8/1995 THE TOTAL AMOUNT PAID ON ACC OUNT OF REIMBURSEMENT OF EXPENSES OF RS.3,19,66,460/- WAS DISALLOWED U/S 40( A) (IA) OF THE INCOME TAX ACT, 1961. 4. AGGRIEVED, BY THE SAID ORDER THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) HELD THAT THE AMOUNT OF 2% REQUIRED TO B E DEDUCTED BY THE BUYER OUT OF THE SOME CREDITED TO THE ACCOUNT OR PAID TO THE CONTRACTOR HAS TO BE CONFINED TO HIS INCOME COMPONENT OUT OF THAT SUM. THE SAME WAS HELD BY THE HONBLE APEX COURT IN THE CASE OF ASSOCIATED CEMENT COMPANY, THE CIT(A) HELD THAT THE ASSESSING OFFICER RELIED ON CBDT CIRCULAR NO. 715, WHEREIN IT WAS CLARIFIED THAT THE DEDUCTION OF TAX AT SOURCE U/S 1 94C AND 194J OF THE INCOME TAX ACT, 1961 HAS TO BE MADE OUT ALL THE CROSS AMOU NT OF THE BILL INCLUDING REIMBURSEMENT FOR ACTUAL EXPENSES. THE ASSESSEE ON THE OTHER HAND RELIED ON A NUMBER OF JUDGMENTS INCLUDING HONBLE APEX COURT AND JURISDICTIONAL HIGH COURT. THE HONBLE DELHI HIGH COURT IN THE JUDGMEN T REPORTED AT 323 ITR 130 HELD THAT NO LIABILITY FOR DEDUCTION OF TAX AT SOUR CE AROSE U/S 195 OF THE INCOME TAX ACT, 1961 IN THE CASE OF MOBILIZATION AND DE-MO BILIZATION COST REIMBURSEMENT TO A NO RESIDENT NOT BEING TAXABLE IN INDIA. HENCE, DISALLOWANCE U/S 40(A) (IA) OF THE INCOME TAX ACT, 1961 DID NOT ARISES. THE CIT(A) HAS TAKEN INTO ACCOUNT ALL THE RELEVANT AUDI TED ACCOUNTS AND REIMBURSEMENT OF MANUFACTURING EXPENSES OF THE ASSE SSEE COMPANY AS WELL AS OF THE SISTER CONCERN. THUS, THE CIT (A) ALLOWED T HE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 4 ITA NO. 5623/DEL/2011 5. THE DR FURTHER RELIED UPON THE ASSESSING OFFICER S ORDER AND STATED THAT THE CIT(A) FAILED TO APPRECIATE THE EVIDENCE TAKEN ON RECORD BY THE ASSESSING OFFICER AND PRAYED THAT THE CIT(A)S ORDER SHOULD BE SET ASIDE. 6. THE AR RELIED UPON THE LD. CIT(A)S ORDER AND ST ATED THAT THE LD. CIT(A) HAS TAKEN INTO CONSIDERATION ALL THE CONTENTIONS AN D THE FACTUAL ASPECTS OF THE ASSESSEES CASE. THE AR ALSO RELIED UPON THE VARIOU S CASES LAWS. 7. WE HAVE PERUSED ALL THE RECORDS AND PROCEEDINGS AS WELL AS HEARD BOTH THE PARTIES. THE ASSESSING OFFICER DID NOT DISPUTE THE GENUINENESS OF THE REIMBURSEMENT OF EXPENSES TO M/S. AKRITI CREATIONS PVT. LTD. THERE ARE NO ADVERSE COMMENTS OR FINDINGS OF THE ASSESSING OFFIC ER IN THIS REGARD AND DID NOT DISPUTE THE FACT THAT THE REIMBURSEMENT OF EXPE NSES WERE FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE WHICH ARE ALLOWABLE UNDER CHAPTER IV-D OF THE INCOME TAX ACT, 1961. IN THE CASE OF M/S. AKRITI CR EATIONS PVT. LTD. THE CONCERNED ASSESSING OFFICER DID NOT DISPUTE THEIR C LAIM THAT THERE WAS NO PROFIT ELEMENT IN THE REIMBURSEMENT OF EXPENSES RECEIVED F ROM THE PRESENT ASSESSEE. THUS THE ASSESSING OFFICER IN BOTH THE CASES ACCEPT ED THAT THESE ARE GENUINE REIMBURSEMENT OF EXPENSES AND THERE WAS NO PROFIT E LEMENT AND HENCE NO INCOME LIABLE TO TAX WAS CONTAINED THEREIN. THE HON BLE DELHI HIGH COURT IN CASE OF VAN OORD ACZ INDIA (P) LTD. VS. COMMISSIONE R OF INCOME TAX [2010] 323 ITR 130 (DELHI) HELD THAT LIABILITY TO DEDUCT A T SOURCE ARISES ONLY WHEN THE SUM IS PAID TO THE NON-RESIDENT WAS CHARGEABLE TO T AX. ONCE THAT WAS CHARGEABLE TO TAX, IT WAS NOT FOR THE ASSESSEE TO F IND OUT HOW MUCH AMOUNT OF THE RECEIPTS WAS CHARGEABLE TO TAX, BUT IT WAS THE OBLIGATION OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE ON THE ENTIRE SUM PAID BY THE ASSESSEE TO THE 5 ITA NO. 5623/DEL/2011 RECIPIENT. UNDER SECTION 195, THE OBLIGATION TO DED UCT TAX AT SOURCE WAS ATTRACTED ONLY WHEN THE PAYMENT WAS CHARGEABLE TO T AX IN INDIA. THUS AS POINTED OUT BY THE CIT(A) IN THE ORDER THE HONBLE DELHI HIGH COURT HELD THAT NO LIABILITY FOR DEDUCTION OF TAX AT SOURCE AROSE U NDER SECTION 195 IN THE CASE OF MOBILIZATION AND DEMOBILIZATION COSTS REIMBURSED TO A NON-RESIDENT, NOT BEING TAXABLE IN INDIA, HENCE DISALLOWANCE UNDER SECTION 40(A)(IA) DID NOT ARISE. RECENTLY, IN CASE OF CIT VS. ANSAL LAND MARK TOWNSH IP (P) LTD. [2015] 61 TAXMANN.COM 45 (DELHI) DECIDED ON 03.09.2015 BY THE HONBLE DELHI HIGH COURT, IT WAS HELD THAT WHAT IS COMMON TO BOTH PROV ISO TO SECTION 40(A)(IA) AND SECTION 210(1) OF THE ACT IS THAT AS LONG AS THE PA YEE/RESIDENT HAS FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS ALSO PAID TAX ON S UCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. AS FAR AS THE PRESENT CASE IS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT T HE PAYEE HAS FILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. IN VIEW OF THI S THE ORDER OF THE CIT(A) IS UPHELD. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 27 TH OF JANUARY, 2016. SD/- SD/- (INTURI RAMA RAO) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27/01/2016 R. NAHEED* 6 ITA NO. 5623/DEL/2011 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 09.11.2015 PS 2. DRAFT PLACED BEFORE AUTHOR 10.11.2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .11.2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 27.01.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 28.01.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 7 ITA NO. 5623/DEL/2011