GALAXY AVIATION P. LTD, MUMBAI V. ACIT RG 1(1), MUMBAI

ITA 5905/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8767 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 11-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 26-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Assessee Lawyers: ANUJ KISANDWALA
• Keywords: Principle of natural justice; Difference of opinion
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 5905/MUM/2010 (ASSESSMENT YEAR: 2006-07) GALAXY AVIATION PVT. LTD., 5TH FLOOR, EROS THEATRE BUILDING, M.K. ROAD, MUMBAI -400 020 PAN: AAACG 5075 C VS ASST. COMMISSIONER OF INCOME-TAX, RANGE -1(1), MUMBAI APPELLANT RESPONDENT APPELLANT BY : SHRI ANUJ KISANDWALA RESPONDENT BY : SHRI NAVEEN GUPTA DATE OF HEARING : 11.09.2012 DATE OF PRONOUNCEMENT : 26.09.2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER OF CIT (A) 1, MUMBAI, DATED 08.04.2010, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT (A) HAS ERRED IN LAW AND IN FACT S IN UPHOLDING THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE A CT WITHOUT FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE. 2. THE LEARNED CIT (A) HAS ERRED IN LAW AND IN UPHO LDING THE ADDITION OF RS. 5,26,892/- ON ACCOUNT OF VALUATION OF CLOSING STOCK OF GROOVE DIVISION. 3. THE LEARNED CIT (A) HAS ERRED IN LAW AND IN UPHO LDING THE ADDITION OF RS. 4,26,584/- WHICH IS ON ACCOUNT OF SHORT DEDUCTION O F TAX ON EXPENSES INCURRED. 2. GROUND NO. 1 : THE AR CONCEDES THE GROUND AS NO T PRESSED, HENCE IT IS REJECTED. 3. GROUND NO. 2 PERTAINS TO ADDITION OF RS. 5,26,89 2 ON ACCOUNT OF VALUATION OF CLOSING STOCK OF GROOVE DIVISION. GALAXY AVIATION PVT. LTD. ITA NO.5905/MUM/2010 2 4. THE FACTS, AS REPRODUCED BY THE CIT (A) IN THE I MPUGNED ORDER IS: YOUR APPELLANT SUBMIT THAT THE COMPANYS GROOVE DI VISION WAS DEALING IN V SALE OF MUSIC CASSETTES. SUBSEQUENTLY, BECAUSE OF THE CHANGE IN THE TREND CD, TV MUSIC CHANNEI, DVD PLAYE R, ETC REPLACED THE MUSIC CASSETTES. THE MUSIC CASSETTES WHICH WERE ORIGINALLY SOLD FOR RS. 45 50 WAS AVAILABLE IN CDS HAVING NEARLY 100 S ONGS AT A PRICE OF NEARLY RS.100/-. IN OTHER WORDS THE WHOLE CONCEPT O F ENTERTAINMENT INDUSTRY WAS CHANGED AND MUSIC CASSETTES BECAME OUT DATED. DURING THE YEAR YOUR APPELLANT HAS VALUED THE CLOSI NG STOCK OF MUSIC CASSETTES AT 10% OF THE ORIGINAL VALUE WHICH IS THE NET REALIZABLE VALUE OF THE PRODUCT. THE MUSIC CASSETTES WERE VALUED AT LOWER OF THE COST PRICE MAINLY BECAUSE THE PRODUCT WAS OUTDATED, OCCU PYING HUGE SPACE AND EVEN MAJORITY OF THE CASSETTES WERE PURCHASED T WO TO THREE YEARS BEFORE AND WAS IN OBSOLETE CONDITION. IN VIEW OF CH ANGE AND UPGRADATION OF THE TECHNOLOGY IN MUSIC INDUSTRY THE MUSIC CASSETTES HAD NO REALIZABLE VALUE AND THE SAME HAVE BEEN SOLD AT THROW AWAY PRICE IN THE SUBSEQUENT YEAR. SIR, AS PER THE PROVISIONS OF THE ACT THE CLOSING STOCK IS TO BE VALUED AT MARKET PRICE OR COST PRICE WHICHEVER IS LOWER AND I N THE CASE OF YOUR APPELLANT THE STOCK OF MUSIC CASSETTES WAS OBSOLETE AND OUT OF THE TREND HENCE VALUED AT NET REALIZABLE PRICE. EVEN IN THE CASE OF CONSOLIDATED PNEUMATIC TOOL CO . (INDIA) LTD. 15 LTD 564 (BORN.- TRIB.) IT HAS BEEN HELD BY THE LEARNED TRIBUNAL THAT INVENTORY OF OBSOLETE AND NON MOVING ITEMS VALUED A T THE MARKET VALUE OR COST PRICE WHICHEVER IS LOWER IS AGREEABLE AND I N THE CASE OF ALFA LAVAL (INDIA) LTD. [20081 170 TAXMAN 615 (SC) EVEN THE LEARNED SUPREME COURT HAS CONFIRMED THE VALUATION OF OBSOLE TE ITEMS AT LOWER OF THE COST PRICE. 4.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL AS APPELLANTS A/R SUBMISSION. HAVING PERUSED THE SAME, I FIND THA T THE AO HAS GIVEN DETAILED REASONING IN HIS ORDER FOR REJECTION OF THE CLAIM OF THE APPELLANT FOR DEDUCTION OF VALUE OF STOCK TO THE EX TENT OF RS.5,26,892/ BEING OLD STOCK AS CLAIMED BY THE APPELLANT COMPANY . THE APPELLANTS A/R HAS SUBMITTED A CHART DEPICTING THE OPENING STO CK PURCHASES AND CLOSING STOCK, SALES FOR PRECEDING FOUR ACCOUNTING YEARS AND ALSO OF THE CURRENT ASSESSMENT YEAR. THE SAME IS REPRODUCED HER EUNDER:- GALAXY AVIATION PRIVATE LIMITED GROOVE DIVISION ASSESSMENT YEAR 2006-2007 YEARWISE DETAILS OF OPENING STOCK, PURCHASES, SALES & CLOSING OF MUSIC CASSETTES PARTICULARS 2006 2005 2004 2003 2002 OPENING STOCK ADD PURCHASES LESS : RETURN 707,547,00 - 39,343.00 6,211,754.00 717,269.00 - 8,342,308.00 11,511,044.00 - 6,507,739.00 22,046,511.00 - 9,828,562.00 26,190,394.00 - LESS CLOSING STOCK 668,204.00 180,655.00 6,929,023.00 707,547.00 19,853,352.00 6,211,754.00 28,554,250.00 8,342,308.00 36,018,956.00 6,507,739.00 COST OF GOODS SOLD 487,549.00 6,221,476.00 13,641,598.00 20,211,942.00 29,511,217.00 SALES 24,265.00 6,963,613.00 17,296,751.00 26,021,644.00 38,441,724.00 GALAXY AVIATION PVT. LTD. ITA NO.5905/MUM/2010 3 4.3 HAVING PERUSED THE ABOVE CHART, IT IS EVIDENT T HAT IN JUST PRECEDING ACCOUNTING YEAR I.E. 2005-06, THE APPELLANT COMPANY AFFECTED THE SALES OF RS.69,63,613/-. THE COST OF THE GOODS SOLD HAS B EEN SHOWN TO RS.62,21,476/-. THUS, IN JUST PRECEDING ASSESSMENT YEAR THE BOOK PROFIT RS.7,42,137/- I.E. A.Y.2005-06, WHICH COMES TO 10.65% OF THE TOTAL TURNOVER. THE VALUE OF CLOSING STOCK HAS BEEN SHOWN AS ON 31.03.2005 IS OF RS.7,07,5471-. HENCE, THIS ACT OF THE APPELLANT COMPANY CLAIMING OF DEDUCTION OF RS.5,26,892/- WITH OUT HAVING ANY COGENT EVIDENCE FOR SUCH ACTION CANNOT BE ACCEDED T O. IT IS BEYOND IMAGINATION THAT GOODS HAVING VALUE OF RS.4,87,549/ - WILL BE SOLD OUT FOR JUST MEAGRE SUM OF RS.24,625/-. AS PER APPELLAN TS SUBMISSION, THE CLOSING STOCK BECOME SO OBSOLETE AND OUTDATED THAT HE HAS TO REDUCE THE VALUE OF THIS STOCKS TO RS.5,26,892/- SUO-MOTTO . BUT, HOWEVER, I DO NOT AGREE TO THE CLAIM OF THE APPELLANTS IN ABSENC E OF ANY VALID REASONS. HENCE, THIS CLAIM OF THE APPELLANT CANNOT BE ACCEPTED, IN ABSENCE OF ANY VALID REASON OR PROOF. THE APPELLANT ALSO FAILED IN HIS DUTY TO SUBSTANTIATE ITS CLAIM WITH THE PROOF OF BO OKS OF ACCOUNTS. HOW, THE APPELLANT COME TO THIS CONCLUSION THAT THESE ST OCKS HAVE BECOME REDUNDANT. IT CAN NOT BE ACCEPTED IN ABSENCE OF ANY VALID REASONS. I ALSO FIND THAT EVEN THE EASE LAWS REFERRED BY THE A PPELLANTS AIR DOES NOT SUPPORT TO THE APPELLANT CASE. THE CASE CITED B Y THE APPELLANT COMPANY, CIT VS. ALFA LAVAL (INDIA) LTD. (2008) 170 TAXMAN 615 (SC) CANNOT BE APPLIED IN THE PRESENT CASE AS THE FACT O F THE CASE AND THE NATURE OF THE TRADE IS COMPLETELY DIFFERENT IN COMP ARISON. BESIDES THIS, IN THIS CASE THE COMPANY ALFA LAVAL HAS WRITTEN OFF THE AMOUNT ON ACCOUNT OF OBSOLETE ITEMS WHICH WERE NOT MOVING FOR LAST THREE YEARS. HENCE CLOSING STOCK OF OBSOLETE ITEMS VALUED AT 10% OF COST, WHEREAS, IN THE CASE OF APPELLANT COMPANY, THE APPELLANT WAS JUST AFFECTING SALES IN PRECEDING ASSESSMENT YEAR WITH PROFIT OF 1 0.65% WHEREIN NEW PURCHASES WERE ALSO AFFECTED. THERE WAS NO SUPPORT OF ANY EVIDENCES OR PROOF TO PROVE THAT THE APPELLANTS STOCK WAS OBS OLETE AND NOT ACCEPTABLE IN THE MARKET. THE APPELLANT ACT OF CLAI MING DEDUCTION WAS MERELY SELF SERVING, WHICH HAS NO SUPPORT OF ANY AC TIVITIES OF BUSINESS BACKGROUND OR SUPPORT OF RESULTS OF BOOK OF ACCOUNT . ACCORDINGLY, THE DECISION OF THE HONBLE SUPREME COURT CANNOT BE APP LIED TO THE APPELLANT CASE AS THIS CASE IS COMPLETELY DIFFERENT . HENCE, ON THE BASIS OF AFORESAID DISCUSSION, I CONSIDERED IT PROPER AND APPROPRIATE TO CONFIRM THE ADDITION MADE BY THE AO. 5. THE CIT(A), THUS SUSTAINED THE ORDER OF THE AO. 6. AGGRIEVED, THE ASSESSEE IS BEFORE THE ITAT. 7. BEFORE US, THE AR REITERATED HIS SUBMISSIONS MAD E BEFORE THE REVENUE AUTHORITIES AND POINTED OUT THAT MARKET FOR MUSIC C ASSETTES HAD BEEN ON A DECLINE OVER THE YEARS AND ITS MARKET IS BEING EATE N AWAY BY THE GALAXY AVIATION PVT. LTD. ITA NO.5905/MUM/2010 4 INTRODUCTION OF CDS AND MP3S, WHERE A LARGE NUMBER OF SONGS ETC. COULD BE RECORDED AT LESS THAN HALF THE PRICE. 8. THE AR ALSO POINTED OUT FROM THE CHART PREPARED BY THE ASSESSEE COMPANY AND REPRODUCED BY THE CIT(A) THAT EVEN SINC E 2002, THE PURCHASES OF CASSETTES HAVE BEEN GOING DOWN, I.E. FROM RS. 2, 61,90,394 IN 2002 TO RS. 2,20,46,511 IN 2003, TO RS. 1,15,11,044, THEN THERE IS SUDDEN AND HUGE FALL IN 2005, WHEN THE PURCHASES WERE ONLY FOR RS. 7,17, 369 AND FINALLY IN THE CURRENT YEAR NIL PURCHASES. THE AR, CORRESPONDINGLY POINTED OUT THAT EVEN THE SALE FIGURES HAD BEEN CONSISTENTLY GOING DOWN, I.E. FROM RS. 69,63,613, A SUDDEN AND HUGE DROP AND FINALLY IN THE CURRENT YEA R THE ASSESSEE SOLD WHATEVER AT RS. 24,265. 9. THE AR, FURTHER SUBMITTED THAT THERE HAS BEEN NO CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK, BUT BECAUSE O F THE MARKET CONDITIONS, THE VALUE HAD BEEN DWINDLING AND HAS DROPPED. THE A R, PLEADED THAT CONSIDERING THE MARKED CHANGE IN THE MARKET SITUATI ON, AS REPRODUCED BY THE CIT(A) IN THE IMPUGNED ORDER, THERE IS NO JUSTI FICATION FOR THE ADDITION OF RS. 5,26,892. 10. THE DR POINTED OUT THAT THE CIT(A) HAS GIVEN A VERY CATEGORICAL FINDING OF FACTS THAT THE ASSESSEE CANNOT BE ALLOWED TO TAK E SUO MOTO DECISION ON THE VALUATION OF CLOSING STOCK, AS THERE WAS NO VALID J USTIFICATION GIVEN BY THE ASSESSEE. THE DR, THEREFORE, SUPPORTED THE DECISION S OF THE REVENUE AUTHORITIES. 11. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E MATERIAL ON RECORD AND HAVE EXAMINED THE FACT THAT PURCHASE & S ALE OF CASSETTES HAD BEEN GOING DOWN CONSISTENTLY AND THEN THERE IS A SU DDEN DROP IN PURCHASES AND SALE. IN THE CURRENT YEAR, THERE HAS BEEN NO PU RCHASE AT ALL, BECAUSE THERE IS NO DEMAND OF MUSIC CASSETTES IN THE DAYS O F CDS AND MP3, WHICH CAN RECORD, RE-RECORD IN HUGE QUANTITY AT EXTREMELY LOW PRICES. AS A MATTER OF FACT, WE CAN GET PIRATED CDS IN THE EVENING OF T HE DAY, WHEN THE MOVIE IS GALAXY AVIATION PVT. LTD. ITA NO.5905/MUM/2010 5 RELEASED OR WHEN THE MUSIC IS LAUNCHED AT LESS THEN EVEN RS 50/-. WE ARE ALSO AWARE THAT, AT PRESENT, THE CDS HAVING MP3 VER SION CAN STORE HUNDREDS OF SONGS. 12. WE CANNOT SUSTAIN THE OBSERVATIONS OF THE CIT(A ), WHEN HE DISTINGUISHES THE CASE LAWS CITED BY THE ASSESSEE. THE ASSESSEE HAD CITED TWO CASE LAWS, I.E. CONSOLIDATED PNEUMATIC TOOL CO. (INDIA) LTD. REPORTED IN 15 ITD 564 (BOM) AND ALFA LAVAL (INDIA) LTD., REPOR TED IN 170 TAXMAN 615 (SC), WHEREIN THE ISSUE WAS ON VALUATION OF OBSOLETE AND NON MOVING ITEMS VALUED AT MARKET VALUE OR COST PRICE WHICHEVER IS L OWER . THE ISSUE IN THE INSTANT CASE, ALSO IS THE VALUATION OF OBSOLETE AND NON MOVING ITEMS. WE ARE ALSO IN AGREEMENT OF THE AR THAT THERE HAS BEEN NO DEVIATION OR DEPARTURE FROM THE PRESCRIBED VALUATION U/S 145A, AS NOTED BY THE REVENUE AUTHORITIES. HAD THERE BEEN SUCH A SCENARIO, THE CA WOULD HAVE QUALIFIED ITS REPORT UNDER 3CB. IN FACT, THE PRESCRIBED FORM SPEC IFICALLY MENTION THAT THERE IS NO DEVIATION IN THE METHOD OF EXECUTING (P AGE OF 4 OF 3CD REPORT). THIS POINT ALSO FINDS SUPPORT BY THE DECISION OF HO NBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS WOLKEM INDIA LTD. REPOR TED IN 315 ITR 211 (RAJ), WHEREIN, IT HAS BEEN HELD (HEAD NOTE) SECTION 145A OF THE INCOME-TAX ACT, 1961, PROVIDES THAT THE INVENTORY SHALL BE VALUED IN ACCORDANCE WITH THE METHOD OF AC COUNTING EMPLOYED BY THE ASSESSEE. THEREFORE, IF THE METHOD OF VALUA TION ADOPTED BY THE ASSESSEE IS A RECOGNISED METHOD, IT CANNOT BE REJEC TED ON THE GROUND THAT THE NET REALISABLE VALUE / MARKET VALUE HAS BE EN DETERMINED ON THE BASIS OF ESTIMATE. HELD, DISMISSING THE APPEAL, THAT CONSIDERING THE T OTALITY OF THE FACTS AND CIRCUMSTANCES, THE VALUE OF THE STORES INVENTOR Y WRITTEN DOWN TAKEN AT 10 PER CENT. OF THE COST BY THE COMMISSION ER (APPEALS) WAS CORRECT. 13. RESPECTFULLY FOLLOWING THE DECISION AS CITED AB OVE AND TAKING THE FACTS INTO CONSIDERATION, WE HOLD THAT THE REVENUE AUTHOR ITIES WERE NOT JUSTIFIED IN MAKING AN ADDITION OF RS. 5,26,892/-. 14. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION MADE. GALAXY AVIATION PVT. LTD. ITA NO.5905/MUM/2010 6 15. THE GROUND IS THUS ALLOWED. 16. GROUND NO. 3 IS WITH REGARD TO THE ADDITION OF RS. 4,26,584 ON ACCOUNT OF SHORT DEDUCTION OF TAX. 17. BEFORE THE CIT(A), THE ASSESSEE MADE A DETAILED SUBMISSIONS, WHICH HAS BEEN REPRODUCED BY THE CIT(A) IN PARA 5.1 OF TH E IMPUGNED ORDER, WHICH READS AS 5.1 YOUR APPELLANT SUBMIT THAT THEY HAVE DISALLOWE D PROPORTIONATE EXPENSES FOR LOWER DEDUCTION OF TDS ON EXPENSES INC URRED. THE LEARNED DCIT HAS NOT TAKEN INTO CONSIDERATION THE PROPORTIO NATE TDS DEDUCTED AND PAID AND HAS DISALLOWED THE TOTAL EXPENSES UNDE R THE PRETEXT THAT THERE IS NO PROVISION FOR PROPORTIONATE DISALLOWANC E OF EXPENSES AGAINST TDS DEDUCTED. YOUR APPELLANT SUBMIT THAT TH EY HAVE DEDUCTED TAX BUT THROUGH OVER SIGHT THERE IS A SHORT DEDUCTI ON OF TDS IN SOME OF THE CASES AND HAS DISALLOWED PROPORTIONATE EXPENSES ON ITS OWN. MORE OVER AS PER THE PROVISIONS IF ONE MAKES THE PAYMENT OF TDS, ONE GETS THE BENEFIT OF DEDUCTION IN THAT YEAR. IN CASE OF Y OUR APPELLANT SINCE TAX HAS BEEN DEDUCTED AND PAID THE EXPENSES SHOULD BE A LLOWED IN THAT PROPORTION AND IF THE BALANCE PAYMENT OF TDS IS/MAD E IN THE SUBSEQUENT YEAR THE BENEFIT OF DEDUCTION OF THE BAL ANCE EXPENSES SHOULD BE ALLOWED IN THAT YEAR. 5.2 THE APPELLANTS AIR ARGUED THAT THE ADDITION MA DE BY THE A.O. SHOULD BE DELETED. I HAVE CONSIDERED THE A.OS ORDE R AS WELL AS APPELLANTS AIR SUBMISSION AS DEPICTED ABOVE. HAVIN G CONSIDERED THE SAME AND ALSO AFTER PERUSAL OF THE CHART FURNISHED BY THE APPELLANT, I FIND THAT THE APPELLANT COMPANY WAS REGULARLY IN DE FAULT FOR EVERY PAYMENT OF TDS MADE ON THE EXPENSES WHICH WERE SHOR T. HAVING PERUSED THE RELEVANT PROVISIONS OF SECTION 40(A)(IA ), I AM OF THE CONSIDERED VIEW THAT THERE IS NO SPECIFIC PROVISION IN SECTION 40(A) TO COVER UP THE SHORT. HENCE IN ABSENCE OF ANY SPECIFI C PROVISION IN THE ACT, AND ALSO AS APPELLANTS A/R COULD NOT PRODUCE ANY DECISION IN SUPPORT OF HIS CONTENTION, I CONSIDER IN PROPER AND APPROPRIATE TO CONFIRM THE ADDITION MADE BY THE A.O. 18. THE CIT (A), THEREFORE, SUSTAIN THE ADDITION MA DE BY THE AO. AGGRIEVED, THE ASSESSEE IS BEFORE THE ITAT. 19. BEFORE US, THE AR, REITERATED THE SUBMISSIONS M ADE BEFORE THE REVENUE AUTHORITIES AND HAVE ALSO POINTED OUT THAT THE ASSE SSEE HAD SUO MOTO DISALLOWED THE SHORT DEDUCTION OF TAS AT RS. 32,362 (APB 14). DESPITE THE GALAXY AVIATION PVT. LTD. ITA NO.5905/MUM/2010 7 SUO MOTO DISALLOWANCE, THE AO DISALLOWED THE ENTIRE EXPENSE OF RS 4,26,854 U/S 40(A)(IA). THE AR CITED THE CASES OF COORDINAT E BENCHES IN ITA NO. 20/MUM/2010 IN THE CASE OF DCTI VS. M/S. CHANDABHOY & JASSOBHOY, WHEREIN IT WAS OBSERVED, IT IS ALSO NOT THE CASE THAT ASSESSEE HAS NOT DEDU CTED ANY AMOUNT. ASSESSEE HAS INDEED DEDUCTED TAX UNDER SECTION 192 AND SO WE ARE OF THE OPINION THAT PROVISIONS OF SECTION 40(A)(IA) AL SO DO NOT APPLY AS THE SAID PROVISION CAN BE INVOKED ONLY IN THE EVENT OF NON DEDUCTION OF TAX BUT NOT FOR LESSER DEDUCTION OF TAX. IN VIEW OF THI S, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN REVENUES CONTENTION THAT THE AMOUNT PAID TO THE EMPLOYEES SHOULD BE DISALLOWED AS PROVISIONS OF SECTION 194J WOULD ATTRACT. 20. THE SIMILAR ISSUE WAS TAKEN UP IN THE CASE OF D CIT VS. S.K. TEKRIWAL IN ITA NO. 1135/KOL/2010, WHEREIN COORDINATE BENCH AT KOLKATA HELD, THERE IS NOTHING IN THE SAID SECTION TO TREAT, INT ER ALIA, THE ASSESSEE AS DEFAULTER WHERE THERE IS A SHORTFALL IN DEDUCTION. WITH REGARD TO THE SHORTFALL, IT CANNOT BE ASSUMED THAT THERE IS A DEF AULT AS THE DEDUCTION IS NOT AS REQUIRED BY OR UNDER THE ACT, BUT THE FAC TS IS THAT THIS EXPRESSION, ON WHICH TAX IS DEDUCTIBLE AT SOURCE U NDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCT ION HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SEC TION (1) OF SECTION 139. THIS SECTION 40(A)(IA) OF THE ACT REFERS ONLY TO THE DUTY TO DEDUCT TAX AND PAY TO GOVERNMENT ACCOUNT. IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPINION AS TO THE TAXABILITY OF ANY I TEM OR THE NATURE OF PAYMENTS FALLING UNDER VARIOUS TDS PROVISIONS, THE ASSESSEE CAN BE DECLARED TO BE AN ASSESSEE IN DEFAULT U/S. 201 OF T HE ACT AND NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 21. THE AR, THEREFORE, PLEADED THAT THE REVENUE AUT HORITIES WERE WRONG TO DISALLOW THE ENTIRE EXPENSE, WHEN IT WAS A CASE OF SHORT DEDUCTION OF TAS. 22. THE DR ON THE OTHER HAND SUPPORTED THE ORDERS O F THE REVENUE AUTHORITIES AND PLEADS THAT THE CASE LAWS CITED WER E DISTINGUISHABLE BECAUSE THEY WERE ON A DIFFERENT FACTUAL MATRIX. HE, THEREF ORE, PLEADED THAT THE ORDERS HAVE TO BE SUSTAINED. GALAXY AVIATION PVT. LTD. ITA NO.5905/MUM/2010 8 23. WE HAVE HEARD THE ARGUMENTS AND PERUSED THE REC ORD BROUGHT BEFORE US AND THE ORDER OF THE COORDINATE BENCHES OF MUMBA I & KOLKATA. WE FIND THAT THE CASE OF THE ASSESSEE IS NOT OF NON DEDUCTI ON OF TAS BUT SHORT DEDUCTION OF TDS, WHICH THE ASSESSEE HAD REALISED I TSELF & ON THE BASIS, THE AMOUNT EQUIVALENT TO SHORT DEDUCTION OF TAS WAS ADD ED BACK. SIMILAR QUESTION ALSO AROSE BEFORE THE HONBLE COORDINATE B ENCHES IN MUMBAI & KOLKOTA AND THE CO-ORDINATE BENCHES HAVE HELD THAT SHORT DEDUCTION OF TAS DOES NOT ATTRACT THE PROVISION OF SECTION 40(A)(IA) . 24. RESPECTFULLY FOLLOWING THE DECISIONS OF THE COO RDINATE BENCHES ON THE IMPUGNED ISSUE, WE SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 4,26,584. 25. THE GROUND, IS ALLOWED. 26. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 6 TH SEPTEMBER, 2012. SD/- SD/- ( P.M. JAGTAP ) ACCOUTANT MEMBER ( VIVEK VARMA ) JUDICIAL MEMBER MUMBAI, DATE: 26 TH SEPTEMBER, 2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-1, MUMBAI. 4) THE CIT -1, MUMBAI, 5) THE D.R. G BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN