ADDL CIT 23(1), MUMBAI V. NATHPA JHAKRI JOINT VENTURE, MUMBAI

ITA 6187/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101024 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Department
• Bench Allotted: L
• Next Hearing Date: 16-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 07-09-2011
• Court: TRIBUNAL
• Department Lawyers: H P MAHAJANI
• Assessee Lawyers: SHRI
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice
• Section: 194C; 28

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI SANJAY GARG, JM ./I.T.A. NO.6187/M/2011 ( / ASSESSMENT YEAR: 2006 - 2007 ) ACIT - CIRCLE 23(1), C - 10, 1 ST FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. / VS. NATHPA JHAKRI JOINT VENTURE, HINCON HOUSE, LBS MARG, VIKHROLI (W), MUMBAI 400 083. ./ PAN : AAAFM1528K ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI H.P. MAHAJANI, AR / RESPONDENT BY : SHRI PANKAJ KUMAR, SR. AR / DATE OF HEARING : 17.08.201 5 / DATE OF PRONOUNCEMENT : 11 .09.201 5 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 7.9.2011 IS AGAINST THE ORDER OF THE CIT (A) - 33, MUMBAI DATED 23.6.2011 FOR THE ASSESSMENT YEAR 2006 - 07. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN IGNORING THE CLARIFICATION ON VARIOUS PROVISIONS RELATING TO TAX DEDUCTION AT SOURCE, REGARDING THE CHANGES INTRODUCED THROUGH FINANCE ACT, 1995 VIDE CIRCULAR NO.715 DATED 8.8.1995 WHEREIN ANSWER TO QUESTION NO.30, THE BOARD CLARIFIED THAT SECTION 194C AND 194J REFER TO ANY SUM PAID AND OBVIOUSLY REIMBURSEMENTS CANNOT BE DEDUCTED OUT OF THE BILL AMOUNT FOR THE PURPOSE OF TAX DEDUCTED AT SOURCE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANCE U/S 40(A)(IA) RELYING ON THE ORDER OF M/S. MAHINDRA MAHINDRA VS. DCIT (2009) 122 TTJ (MU M) (SB) 577 IGNORING THE DICISION OF THE HONBLE TRIBUNAL, HYDERABAD BENCH IN THE CASE OF CHEMINOR DRUGS LTD VS. ITO (76 ITD 37). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE AO TO DELETE THE DISALL OWANCE ON THE GROUND THAT REIMBURSEMENT OF EXPENDITURE IS NOT IN THE NATURE OF INCOME LIABLE FOR TAX DEDUCTION U/S 195(1) WHEREAS THE JUDGMENT IN THE CASE OF MAHINDRA & MAHINDRA REFERRED TO ABOVE DO NOT DRAW SUCH A CONCLUSION. 4. ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN ARRIVING AT CONCLUSION THAT THERE IS NO LIABILITY U/S 195(1) IGNORING THE FACT THAT PAYMENT IS MADE TO THE NON - RESIDENT MEMBER AND IT 2 WAS NOT CLEAR WHETHER THE SAME WAS IN THE NATURE OF REIMBURSEM ENT AND NO ELEMENT OF INCOME IS EMBEDDED THEREIN. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN IGNORING THE FACT THAT NO APPLICATION U/S 195(2) OR 195(3) HAD BEEN FILED WHICH WERE THE CONDITIONS FOR DISCHARGING L IABILITY U/S 195(1) WITHOUT DEDUCTION OF TAX. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF EXPENSES TO THE TUNE OF RS. 23,78,624/ - WITHOUT APPRECIATING THE FACT THAT THE ASSESSEES INCOME COMPRISES OF ONLY OTHER INCOME IN THE FORM OF FOREIGN EXCHANGE FLUCTUATION AND INTEREST INCOME AND THE EXPENSES CLAIMED WERE NOT DIRECTLY ASSOCIATED IN EARNING SUCH INCOME. 2. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE GROUNDS FILED BY THE REVENUE AND SUBMITTED THAT GROUND NOS.1 TO 5 RELATES TO THE APPLICABILITY OF THE TDS PROVISIONS R.W. S. 40(A)(IA) OF THE ACT TO THE PAYMENTS WHEN THE AMOUNTS INVO LVED ARE MERELY REIMBURSEMENTS. THE OTHER ISSUE RAISED IN GROUND NO.6 RELATES TO THE ALLOWABILITY OF THE EXPENSES TO THE TUNE OF RS. 23,78,624/ - WHEN THE ASSESSEES BUSINESS IS CLAIMED TO HAVE BEEN STILL ON DURING THE YEAR UNDER CONSIDERATION. 3. BEFORE US, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT IDENTICAL ISSUES WERE THE SUBJECT MATTER OF ADJUDICATION BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY 2004 - 05 VIDE ITA NOS. 260 AND 459/M/2008, COPY OF THE SAID ORDER DATED 30.4.2014 IS PLACED ON RECO RD. BRINGING OUR ATTENTION TO GROUND NO.1 OF THE ASSESSEE S APPEAL FOR THE AY 2004 - 05 , WHICH WAS DISCUSSED BY THE TRIBUNAL VIDE PARAS 11 TO 15 OF THE SAID TRIBUNALS ORDER (SUPRA), LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE IDENTICAL DISALLOWANCES / ADDITIONS WERE MADE BY THE AO IN THE SAID AY 2004 - 05 AND THE TRIBUNAL GRANTED RELIEF AND DELETED THE ADDITION AS PER THE DISCUSSION GIVEN IN PARA 15 OF THE SAID TRIBUNA LS ORDER (SUPRA). 4. AFTER HEARING BOTH THE PARTIES, WE HAVE PERUSED THE SAID ORDER OF THE TRIBUNAL DATED 30.4.2014 (SUPRA) , WHEREIN ONE OF US (AM) IS A PARTY TO THE SAID ORDER, AND FIND PARA 15 OF THE SAID ORDER IS RELEVANT IN THIS REGARD AND THE SAME IS EXTRACTED AS FOLLOWS: 15. ON HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE DECISION OF THE TRIBUNAL FOR THE AY 2003 - 2004 WAS TAKEN BASING ON THE COMPARING FACTS OF THE PRESENT CASE. IT IS NOT APPROPRIATE FOR US TO GO INTO THE ERRORS IN THE ORDER OF THE TRIBUNAL WHEN THE SAME WERE NOT REMOVED THROUGH MISCELLANEOUS APPLICATION U/S 254 OF THE ACT. NOW, THE MATTER IS SEIZED UP BY THE HONBLE HIGH COURT BY WAY OF ADMITTING THE APPEAL OF THE REVENUE. THEREFORE, THE ORDER OF THE TRIBUNAL FOR THE AY 2003 - 2004 WILL HAVE A BINDING VALUE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) IS REQUIRED TO BE REVERSED ON THE ISSUE OF DISALLOWANCE OF 3 RS. 1,98,64,847/ - AND THE ASSESSEE GETS RELIEF ACCORDINGLY. THUS, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED . 5. REVENUE HAS BEEN CONSISTENTLY MAKING ADDITIONS ON THE ISSUE UNDER CONSIDERATION AND THE SAME ARE DELETED BY THE TRIBUNAL. REVENUE HAS TAKEN THIS ISSUE TO HONBLE HIGH COURT OF BOMBAY. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE REVENUE HAS NOT BROUGHT ANYTHING ON RECORD TO CONTROVERT THE DECISIONS OF THE TRIBUNAL. T HEREFORE, THE GROUND S RAISED BY THE REVENUE ARE RIGHTLY DECIDED BY THE CIT (A) IN FAVOUR OF THE ASSESSEE . T HE SA ME IS NOW CONFIRMED BY US. ACCORDINGLY, GROUND NOS. 1 TO 5 RAISED BY THE REVENUE ARE DISMISSED . 6. GROUND NO.6 RELATES TO THE ALLOWABILITY OF THE EXPENSES WHEN THE ASSESSEE HAS NOT DONE ANY BUSINESS ACTIVITY IN THE YEAR UNDER CONSIDERATION. IN THIS REGAR D, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO PARA 1 TO 9 OF THE SAID ORDER OF THE TRIBUNAL AND SUBMITTED THAT SIMILAR ISSUE WAS ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITS ORDER DATED 30.4.2014 (SUPRA) FOR THE AY 2004 - 05 AND THE ISSUE WAS REMANDED TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH AFTER CONSIDERING THE RELEVANT DATES AS DIRECTED BY THE TRIBUNAL. 7. AFTER HEARING THE LD REPRESENTATIVES OF BOTH THE PARTIES, WE HAVE PERUSED THE SAID ORDER OF THE TRIBUNAL DATED 30.4 .2014 (SUPRA) FOR THE AY 2004 - 05, WHEREIN ONE OF US (AM) IS A PARTY TO THE SAID ORDER, AND FIND PARA 9 OF THE SAID TRIBUNALS ORDER IS RELEVANT IN THIS REGARD. CONSIDERING THE SIGNIFICANCE OF THE SAID PARA AND FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAID PARA 9 OF THE TRIBUNALS ORDER DATED 30.4.2014 IS EXTRACTED AS FOLLOWS: 9. ON HEARING BOTH THE PARTIES AND GOING THROUGH THE CASE LAWS AND THE JUDGMENTS CITED BEFORE US, IT IS NOTICED THAT THERE IS NO DISPUTE ON THE FACT OF GIVING PERFORMANCE BA NK GUARANTEES AND RETENTION MONEY GUARANTEES. THERE IS A CORRESPONDENCE FROM THE BANK CONFIRMING THE EXISTENCE OF THESE GUARANTEES (PAGES 59 TO 63 OF THE PAPER BOOK ARE RELEVANT). AT THE SAME TIME, IT IS A FACT THAT THE CORE BUSINESS ACTIVITY OF COMPL ETION OF WORK IS COMPLETED. THE REVENUE AUTHORITIES HAVE NOT ANALYZED IF THE PENDING WORKS LISTED ABOVE CONSTITUTE PART OF THE CORE BUSINESS ACTIVITY OR ALTERNATIVELY IF THEY ARE AKIN TO THE MISCELLANEOUS ACTIVITIES LIKE RECOVERIES, SETTLEMENT OF PENDING BILLS ETC BROUGHT OUT BY THE LD DR RELYING ON THE JUDGMENT IN THE CASE OF JOSHI AND VARMA (SUPRA), KAR VALVES LTD (SUPRA) AND OTHERS. THE IS ALSO A NEED FOR EXAMINING THE JOINT VENTURE AGREEMENT IN THE LIGHT OF THE BINDING JUDGMENT OF THE HONBLE HIGH COUR T IN THE CASE OF JOSHI AND VARMA (SUPRA). FROM THE ABOVE FACTS AS WELL AS THE LEGAL PROPOSITIONS OF THE CASE, WE ARE OF THE OPINION THAT THE ASSESSEE CLAIMS THAT THE BUSINESS IS IN CONTINUATION AND THE BUSINESS INCLUDE (I) GUARANTEES ARE IN EXISTENCE; (II ) DAMAGES ARE CLAIMED AND THE CONTRACTUAL AMOUNTS ARE RECEIVABLE AND ETC ARE REQUIRED TO BE EXAMINED BY WAY OF A SPEAKING ORDER. THE ORDERS OF THE REVENUE DO NOT EXAMINE IF THESE ACTIVITIES CONSTITUTE CONTINUATION OF 4 BUSINESS ACTIVITY WITHIN THE MEANING O F SECTION 28 OF THE ACT. IT IS A SETTLED LEGAL PROPOSITION THAT ONCE THE CONTRACT SPECIFIC JV IS INCORPORATED AND THE SAME COMPLETES THE CONTRACT SO SPECIFIED, THE BUSINESS EXPENDITURE INCURRED AFTER THE SAID COMPLETION IS NOT ALLOWABLE. THE LEGAL PROPOS ITIONS EXTRACTED ABOVE SUPPORTS THIS VIEW. IT IS A FACT THAT THE REVENUE AUTHORITIES HAVE NOT DETAILED THE PENDING WORKS AFTER JULY, 2003 AND IF THEY FORM PART OF THE BUSINESS ACTIVITIES OF THE ASSESSEE. THIS BEING A VERY IMPORTANT BASIC FACT REQUIRED FO R ADJUDICATION OF THE ISSUE UNDER CONSIDERATION. CONSIDERING THE SAME, WE ARE OF THE OPINION THAT THE GROUND NO.1 AND 2 RAISED BY THE REVENUE IN THIS APPEAL SHOULD BE REMANDED TO THE FILES OF THE AO FOR DECIDING THE ISSUE AFRESH AFTER AFFORDING A REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, BOTH THE GROUNDS RAISED BY REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 8. CONSIDERING THE ABOVE, WE ARE OF THE OPINION, SINCE THE ISSUE RAISED IN GROUND NO.6 OF THE PRESENT APPEAL IS IDENTICAL TO THAT OF THE ONE ADJUDICATED BY THE TRIBUNAL VIDE THE ORDER DATED 30.4.2014 (SUPRA), THE INSTANT GROUND NO.6 IS REQUIRED TO BE REMANDED TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE AS PER THE PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, GROUND NO.6 RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 1 T H SEPTEMBER, 2015. S D / - S D / - ( SANJAY GARG ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 1 1 .09.2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, 5 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI