Appeal details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 60069 (ITAT-RAJKOT)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-01-2012
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
DB
Next Hearing Date
06-01-2012
Assessment Year
2006-2007
Appeal Filed On
20-01-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI T.K. SHARMA (JM) AND SHRI A.L. GEHLOT ( AM) I.T.A. NO.621/RJT/2010 (ASSESSMENT YEAR 2006-07) M/S. MATANG ENGINEERS, VS. THE .I.T.O., MATANG VAAS, WARD -3 (2), JAMNAGAR. NR. MOTI ASHAPURA MANDIR, JAMNAGAR. PAN:AAGFM2550D. (APPELLANT) (RESPONDENT) DATE OF HEARING : 06-01-2012. DATE OF PRONOUNCEMENT : 20-01-2012. REVENUE BY : SHRI R. N. PRASAD, D.R. ASSESSEE BY : SHRI J. C. RANPURA, C.A. O R D E R PER T.K. SHARMA (JM): THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 01-12-2009 OF CIT (A), JAMNAGAR FOR THE ASSESSMENT YEAR 2006-07. 2. THE VARIOUS GROUNDS RAISED IN THIS APPEAL ARE AS UNDER:- (1) THE GROUNDS OF APPEAL MENTIONED HEREUNDER ARE W ITHOUT PREJUDICE TO ONE ANOTHER. (2) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL) , JAMNAGAR, [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED ON FACTS AS ALSO IN LAW IN RETAINING DISALLOWANCE U/S.40A(3) OF THE ACT AT RS.4,10,000/- OUT OF THE TOTAL DISALLOWANCE MADE OF RS.5,40,000/-. T HE DISALLOWANCE MAY KINDLY BE DELETED. (3) THE LEARNED CIT(A)ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.37,74,081/- MADE U/S.40(A)(IA) I N RESPECT OF RENT PAID ON VEHICLE / MACHINERY. THE DISALLOWANCE MAY KINDLY BE DELETED. ITA NO.620/RJT/2010. 2 (4) THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LA W IN CONFIRMING THE DISALLOWANCE OF RS.5,81,395/- BEING 1/3 RD OF INTEREST PAID ON PARTNERS CAPITAL BALANCES. THE DISALLOWANCE MAY KI NDLY BE DELETED. (5) THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LA W IN DISMISSING GROUND OF APPEAL RELATING TO DISALLOWANCE OF RS.10, 000/- MADE OUT OF KITCHEN EXPENSES. THE DISALLOWANCE MAY KINDLY BE DELETED (6) THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LA W IN DISMISSING GROUND OF APPEAL RELATING TO DISALLOWANCE OF RS.9,8 23/- BEING 20% OF MOBILE EXPENSES. THE DISALLOWANCE MAY KINDLY BE DELETED (7) THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LA W IN DISMISSING GROUND OF APPEAL RELATING TO DISALLOWANCE OF RS.15, 000/- MADE OUT OF CAR EXPENSES. THE DISALLOWANCE MAY KINDLY BE DEL ETED (8) THE LEARNED CIT(A) ERRED ON FACTS AS ALSO IN LA W IN DISMISSING GROUND OF APPEAL RELATING TO DISALLOWANCE OF RS.4,5 22/-MADE OUT OF DEPRECIATION ON CAR. THE DISALLOWANCE MAY KINDLY BE DELETED 3. GROUND NO.1 IS GENERAL IN NATURE. THEREFORE, NEE DS NO ADJUDICATION. 4. AT THE TIME OF HEARING BEFORE US, BOTH SIDES ADM ITTED THAT CONTROVERSY INVOLVED IN GROUND NO.2 IS SQUARELY COVERED BY DECI SION DATED 29-04-2011 OF ITAT, RAJKOT BENCH IN THE CASE OF SISTER CONCERN OF ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.23/RJT/2009. THE RELEVANT D ISCUSSION IS CONTAINED IN PARA-3.3. WHICH READS AS UNDER:- '3.3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF EITHER PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 40A(3) OF THE ACT . SECTION 40(A)(3) OF THE ACT, PROVIDES DISALLOWANCE OF EXPENDITURE IN RE SPECT OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACC OUNT PAYEE CHEQUE EXCEEDING RS.20,000/-. THE QUESTION ARISES FOR OUR CONSIDERATION, IN THE CASE BEFORE US IS THAT WHEN THE ASSESSEE FIRM CREDI TED RENT/CONTRACT AMOUNT PAYABLE TO THE RESPECTIVE PARTNERS IN THE CA PITAL ACCOUNT AND THE PARTNERS WITHDREW THE MONEY FROM THE CAPITAL ACCOUN T, CAN IT BE CONSIDERED AS AN EXPENDITURE WITHIN THE MEANING OF SECTION 40A(3) OF THE ACT. THE EXPENDITURE IN THE COMMON SENSE WOULD MEAN THE AMOUNT SPENT IN THE COURSE OF BUSINESS ACTIVITY. HERE, THE ASSES SEE HAS TAKEN ITA NO.620/RJT/2010. 3 EQUIPMENTS/VEHICLES ON HIRE AND THE LEASE RENT IS C REDITED IN THE PARTNERS CAPITAL ACCOUNT. ADMITTEDLY, THE LEASE RENT PAYABL E BY THE ASSESSEE IS EXPENDITURE AS FAR AS THE ASSESSEE FIRM IS CONCERNE D. THEREFORE, IF THE LEASE RENT IS PAID IN CASH TO THE RESPECTIVE PARTNE RS, THE PROVISIONS OF SECTION 40(A)(3) WOULD DEFINITELY COME INTO OPERATI ON. IN THIS CASE, ADMITTEDLY, THE PAYMENT WAS NOT MADE DIRECTLY TO TH E PARTNERS. THE LEASE RENT WAS CREDITED IN PARTNERS CAPITAL ACCOUNT. TH EREAFTER, THE PARTNERS WITHDRAW MONEY FROM THEIR RESPECTIVE CAPITAL ACCOUN T. ONCE THE AMOUNT WAS WITHDRAWN FROM THEIR RESPECTIVE CAPITAL ACCOUNT SUCH A WITHDRAWAL CANNOT BE CONSIDERED AS EXPENDITURE OF THE FIRM. T HEREFORE, THE PAYMENTS MADE TO THE RESPECTIVE PARTNERS BY MAKING DEBIT ENT RIES IN THE PARTNERS CAPITAL ACCOUNT CAN NOT BE CONSIDERED TO BE EXPENDI TURE. AS SUCH, THE PROVISION OF SECTION 40A(3) IS NOT APPLICABLE. WE ARE UNABLE TO UPHOLD THE ORDER OF LOWER AUTHORITY. ACCORDINGLY, THE ADDITIO N OF RS.7,82,000/- IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 5. THE FACTS OF ASSESSEE CASE ARE IDENTICAL, WE THE REFORE, FOLLOWING THE AFORESAID DECISION OF TRIBUNAL IN CASE OF SISTER CO NCERN OF ASSESSEE DELETE THE DISALLOWANCE OF RS.4,10,000/- MADE BY AO. THE GROU ND NO.2 IS ALLOWED. 6. GROUND NO.3 IS ALSO COVERED BY THE AFORESAID DEC ISION OF TRIBUNAL FOR THE ASSESSMENT YEAR 2005-06. THE RELEVANT DISCUSSION CO NTAINED IN PARA-5.3 WHICH READS AS UNDER:- '5.3. WE CONSIDERED THE CONTENTIONS OF BOTH THE L D.DR AS WELL AS LD. COUNSEL FOR THE ASSESSEE AND ALSO PERUSED THE ORDER S OF THE AUTHORITIES BELOW. ADMITTEDLY, THE RENT WAS PAID BY THE ASSESS EE IN RESPECT OF EQUIPTMENT/VEHICLE/MACHINERY/EQUIPTMENT ETC. W.E.F. 13.7.2006. THEREFORE, EXPLANATION TO SECTION 194-1 IS NOT APPL ICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE RENT PAYAB LE TO LAND/BUILDING ALONG NEEDS TO BE SUBJECTED TO TDS TILL 13.7.2006. MERE TAKING OF VEHICLE/EQUIPMENT/MACHINERY ON HIRE OR LEASE CANNOT BE CONSIDERED SUB- CONTRACT ALSO. THEREFORE, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE IS NOT EXPECTED TO DEDUCT TAX AT SOURC E IN RESPECT OF RENT PAID TO PARTNERS FOR TAKING VEHICLE/EQUIPTMENT/MACH INERY ON LEASE. THEREFORE, DISALLOWANCE MADE BY THE LOWER AUTHORITY IS NOT CALLED FOR. ACCORDINGLY, THE SAME IS DELETED AND THIS GROUND OF APPEAL OF THE ASSESSEE ALLOWED. 7. WE THEREFORE, FOLLOWING THE DECISION OF HONBLE TRIBUNAL IN ASSESSEES SISTER CONCERN CASE FOR THE ASSESSMENT YEAR 2005-06 (SUPRA) DELETE THE ADDITION ITA NO.620/RJT/2010. 4 OF RS.37,74,081/- MADE BY AO U/S. 40(A)(IA) OF THE I.T. ACT,1961. THE GROUND NO.3 IS ALLOWED. 8. AT THE TIME OF HEARING, BOTH SIDES CONCEDED THAT IN THE IMMEDIATELY PRECEDING YEAR, ITAT IN THE ASSESSEES SISTER CONCE RN CASE FOR ASSESSMENT YEAR 2005-06 (SUPRA) THE IDENTICAL ISSUE WAS RESTORED TO THE FILE OF AO. THE RELEVANT DISCUSSION IS CONTAINED IN PARA-9 OF THE ORDER WHIC H READS AS UNDER:- 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS OF EITHER PARTIES AND ALSO PERUSED THE MATERIAL AVAILABLE RECORD. WE FIND THAT THE ASSESSEE HAS PAID A SUM OF RS.8,87,553/- TOWARDS INTEREST IN CLUDING INTEREST ON CAPITAL. THE CONTENTION OF THE LD. DR IS THAT THE INTEREST IS NOT ALLOWABLE TO PARTNERS ON THE RENT AMOUNT CREDITED TO THE PARTNER S CAPITAL ACCOUNT. IT IS NOT CLEAR FROM THE MATERIAL AVAILABLE ON RECORD WHE THER INTEREST WAS PAID ON THE CAPITAL CONTRIBUTION MADE BY THE ASSESSEE OR ON THE RENT PAYABLE TO THE ASSESSEE ON THE MACHINERY TAKEN FROM THE PARTNE RS. IN THE ABSENCE OF ANY MATERIAL, WE FIND THAT THE A.O. HAS TO VERIFY W HETHER INTEREST WAS PAID ON THE CAPITAL CONTRIBUTED BY THE ASSESSEE-FIRM OR IT WAS AN INTEREST ON THE RENT PAYABLE TO THE PARTNERS WITH REGARD TO EQUIPME NT/VEHICLE TAKEN ON LEASE. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDE R OF THE CIT(A) AND REMAND THE MATTER BACK TO THE FILE OF THE A.O. FOR FRESH CONSIDERATION. THE A.O. SHALL VERIFY THE FACTUAL ASPECTS OF THE CASE A ND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING REASO NABLE AND PROPER OPPORTUNITY TO THE ASSESSEE. 9. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TRIBUNAL IN SISTER CONCERN OF THE ASSESSEE FOR ASSESSMENT YEAR 2005-06 (SUPRA) , WE RESTORE THE CONTROVERSY INVOLVED IN GROUND NO.4 TO THE FILE OF AO WHO WILL RE-ADJUDICATE THE SAME KEEPING IN VIEW THE DECISION OF TRIBUNAL IN TH E AFORESAID CASE. 10. GROUNDS NO. 5 TO 8 WERE NOT PRESSED AT THE TIM E OF HEARING. THESE ARE DECIDED ACCORDINGLY. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THIS ORDER PRONOUNCED IN THE OPEN COURT ON 20-01-2 012. SD/- SD/- (A.L. GEHLOT) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT, DT : -1-2012. ITA NO.620/RJT/2010. 5 NVA/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-XXI, AHMEDABAD 4. THE CIT-III, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT
