M/s Innovative Technomic P. Ltd, Pune V. Addl CIT Rg- 9 Pune, Pune

ITA 647/PUN/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72490 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-12-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 28-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 647/PN/2012 (ASSESSMENT YEAR : 2005-06) M/S. INNOVATIVE TECHNOMICS PVT. LTD., REGISTERED OFFICE : GOMATI, BUILDING A, FLAT NO.101 & 102, PLOT NO. H-1 & H-3, PATWARDHAN BAUG, ERANDAWANE, PUNE 411 004. PAN : AABCM2595A . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-9, AKURDI, PUNE. . RESPONDENT APPELLANT BY : SHRI S.N. PURANIK RESPONDENT BY : SHRI P. L. PATHADE DATE OF HEARING : 16-12-2013 DATE OF PRONOUNCEMENT : 20-12-2013 ORDER PER G. S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DATED 29.02.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 20.12.2007 PAS SED BY THE ASSESSING OFFICER, U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2005-06. 2. IN THIS APPEAL, THE ONLY POINT RAISED BY THE ASS ESSEE IS WITH REGARD TO AN AMOUNT OF RS.65,14,029/- DISALLOWED BY THE INCOME-T AX AUTHORITIES BY INVOKING SECTION 40(A)(IA) OF THE ACT. 3. BRIEFLY PUT THE RELEVANT FACTS ARE AS FOLLOWS. THE APPELLANT IS A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND IS INTER-ALIA ENGAGED IN THE BUSINESS OF MANUFACTURE OF CONTROL PANELS, SOFT STA RTERS AND OTHER INDUSTRIAL & ITA NO. 647/PN/2012 A.Y. 2005-06 ELECTROMECHANICAL ITEMS. THE APPELLANT INCURS EXPE NDITURE BY WAY OF COMMISSION PAYMENTS TO SALES REPRESENTATIVES WITH R ESPECT TO THE SALES MADE. THE COMMISSION ACCRUES TO THE SALES REPRESENTATIVES ON DELIVERY OF GOODS TO THE CUSTOMERS. THE ASSESSING OFFICER NOTED THAT TO TAL INLAND SALES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WAS TO THE TUNE OF RS.14,61,04,286/- OUT OF WHICH SALES FOR TH E PERIOD 01.04.2004 TO 28.02.2005 WAS RS.11,60,49,892/- AND THE BALANCE OF RS.3,00,54,394/- WAS FOR THE MONTH OF MARCH, 2005. THE TOTAL COMMISSION EXPENDITURE CLAIMED BY THE ASSESSEE WAS RS.1,86,22,180/- AND AS PER THE AS SESSING OFFICER, SUCH COMMISSION ON PROPORTIONATE BASIS FOR THE PERIOD 01 .04.2004 TO 28.02.2005 CAME TO RS.1,47,91,503/- AND FOR THE MONTH OF MARCH , 2005 THE SAME WAS ESTIMATED AT RS.38,30,677/- THEREBY TOTALING TO RS. 1,86,22,180/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNT O F COMMISSION TO THE EXTENT OF RS.1,47,91,503/-, BEING LIABILITY UPTO THE END O F FEBRUARY, 2005 SHOULD HAVE BEEN CREDITED IN THE BOOKS OF ACCOUNT UPTO FEBRUARY , 2005 AND THE TAX DEDUCTED AT SOURCE (TDS) ACCORDINGLY. ACCORDING TO THE ASSESSING OFFICER, TDS OF RS.8,29,803/- OUGHT TO HAVE BEEN DEDUCTED ON SUCH SUM OF RS.1,47,91,503/- AND DEPOSITED WITH THE STATE-EXCHE QUER BY 31.03.2005 IN TERMS OF SECTION 194H OF THE ACT. AS AGAINST THE A MOUNT OF RS.8,29,803/-, THE DEPOSIT OF TDS WAS ONLY RS.4,64,366/- AND THUS THER E WAS A SHORTFALL OF RS.3,65,437/-. ACCORDINGLY, THE AMOUNT OF COMMISSI ON EXPENDITURE CORRESPONDING TO SUCH SHORTFALL OF TDS WAS WORKED O UT AT RS.65,14,029/-. THE ASSESSING OFFICER CONCLUDED THAT THE EXPENDITURE OF RS.65,14,029/- ON ACCOUNT OF COMMISSION EXPENDITURE RELATING TO THE T DS SHORTFALL WAS LIABLE TO BE DISALLOWED U/S 40(A)(IA) OF THE ACT. THE CIT(A) HAS ALSO SUSTAINED THE DISALLOWANCE, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION PUT-FORTH BEFORE THE LOWER AUTHORITI ES WHICH WAS TO THE EFFECT THAT ASSESSEE DULY CREDITED THE ENTIRE COMMISSION E XPENDITURE IN THE ITA NO. 647/PN/2012 A.Y. 2005-06 RESPECTIVE PARTIES ACCOUNT ONLY IN THE MONTH OF MAR CH, 2005 AS RELEVANT COMMISSION INVOICES WERE PENDING APPROVAL OF THE RE SPECTIVE DEPARTMENT AND THEREFORE, THE TDS WAS DEDUCTED IN THE MONTH OF MAR CH, 2005 AND DEPOSITED IN THE FIRST WEEK OF APRIL, 2005 AS PER THE REQUIRE MENTS OF THE SAID ACT. THE LEARNED COUNSEL VEHEMENTLY POINTED OUT THAT IT IS N OT A CASE WHERE THE TAX HAS NOT BEEN DEDUCTED ON THE ENTIRE EXPENDITURE OF COMM ISSION DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT IS CONTENDED THAT THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS CONCLUDED THAT THE AMOUNT OF COMMISS ION TO THE SALES REPRESENTATIVES ACCRUED AT THE TIME OF DELIVERY OF GOODS AND INVOICING DONE BY THE ASSESSEE AND THEREFORE AT THAT POINT OF TIME ASSESSEE WAS REQUIRED TO DEDUCT THE TDS AND DEPOSIT WITH THE STATE-EXCHEQUER . HOWEVER, THE LEARNED COUNSEL POINTED OUT THAT THE REQUIREMENT OF SECTION 194H OF THE ACT IS TO DEDUCT THE TDS AT THE TIME OF CREDIT OF COMMISSION TO THE ACCOUNT OF THE RESPECTIVE PARTIES OR THE DATE OF PAYMENT OF SUCH C OMMISSION, WHICHEVER IS EARLIER. ASSESSEE DULY DEDUCTED THE TAX AT THE TIM E OF CREDITING OF THE COMMISSION TO THE ACCOUNT OF THE RESPECTIVE PARTIES AND THE TDS WAS DEDUCTED AND DEPOSITED WITHIN THE PERIOD SPECIFIED. IN SUPPORT OF HIS SUBMISSION RELIANCE HAS ALSO BEEN PLACED ON THE DEC ISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PRANIK SHIPPIN G & SERVICES LTD. VS. ACIT, 135 ITD 233 TO POINT OUT THAT THE PROPOSITION OF TH E ASSESSEE THAT THE LIABILITY TO DEDUCT THE TAX ARISES AT THE TIME OF CREDIT TO THE PAYEES ACCOUNT OR ACTUAL PAYMENT WHICHEVER IS EARLIER, HAS BEEN AFFIRMED IN THE SAID DECISION OF THE TRIBUNAL. 5. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESEN TATIVE APPEARING FOR THE REVENUE HAS SUBMITTED THAT THE COMMISSION HAD B ECOME DUE AND PAYABLE TO THE SALES REPRESENTATIVES MUCH EARLIER THAN THE TIME WHEN ASSESSEE CREDITED SUCH COMMISSION TO THE ACCOUNT OF THE RESP ECTIVE SALES REPRESENTATIVES AND THEREFORE ASSESSEE HAD DELAYED THE CREDITING OF THE PARTYS ACCOUNT WHICH HAS LEAD TO DELAY IN DEDUCTIO N AND PAYMENT OF TDS TO ITA NO. 647/PN/2012 A.Y. 2005-06 THE GOVERNMENT ACCOUNT, AND THEREFORE, SECTION 40(A )(IA) OF THE ACT HAS BEEN RIGHTLY INVOKED BY THE LOWER AUTHORITIES TO DISALLO W THE CORRESPONDING COMMISSION EXPENDITURE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE DISALLOWANCE IN QUESTION HAS BEEN MADE BY THE ASSESSING OFFICER OUT OF COMMISSION EXPENDITURE PAYABLE TO THE SALES REPRESENTATIVES ON THE SALES EFFECTED BY THE ASSESSEE COMPANY. SECTION 40(A)(IA) OF THE ACT PRE SCRIBES THAT SUMS SPECIFIED THEREIN WHICH INCLUDES THE IMPUGNED EXPEN DITURE SHALL NOT BE ALLOWABLE AS DEDUCTION UNLESS THE TAX CHARGEABLE TH EREON HAS BEEN DEDUCTED AND AFTER DEDUCTION HAS BEEN PAID IN THE MANNER SPE CIFIED IN LAW. THE CASE OF THE REVENUE IS THAT WITH REGARD TO THE EXPENDITURE OF RS.65,14,029/- REPRESENTING COMMISSION PAID TO SALES REPRESENTATIV ES, TAX HAS NOT BEEN DEDUCTED IN TERMS OF SECTION 194H OF THE ACT, AND H ENCE SUCH EXPENDITURE IS DISALLOWABLE IN TERMS OF SECTION 40(A)(IA) OF THE A CT. SECTION 194H OF THE ACT PRESCRIBES FOR DEDUCTION OF TAX AT SOURCE ON PAYMEN TS MADE BY WAY OF COMMISSION OR BROKERAGE. SHORN OF OTHER DETAILS, F OR THE PRESENT PURPOSE IT WOULD SUFFICE TO NOTE THAT SECTION 194H OF THE ACT PRESCRIBES THAT THE TAX SHALL BE DEDUCTED AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUN T OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER . IN OTHER WORDS, THE TRIGGER FOR DEDUCTING THE TAX AT SOURCE U/S 194H OF THE ACT IS AT THE TIME OF CREDITING OF AN INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIM E OF PAYMENT, WHICHEVER IS EARLIER. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE DEDUCTED THE TAX AT SOURCE WHEN IT CREDITED THE IMPUGNED SUMS TO THE ACCOUNT OF THE RESPECTIVE PAYEES IN THE MONTH OF MARCH, 2005 AND T HEREAFTER DEPOSITED THE TAX SO DEDUCTED TO THE ACCOUNT OF THE STATE-EXCHEQU ER AS PER LAW. HOWEVER, THE CASE OF THE REVENUE IS THAT THE IMPUGNED COMMIS SION EXPENDITURE RELATED TO SALES MADE UPTO 28.02.2005 AND IT ACCRUED TO THE PAYEES BEFORE 28.02.2005 AND THUS THE ASSESSEE IS DEEMED TO HAVE CREDITED IT TO THE ITA NO. 647/PN/2012 A.Y. 2005-06 ACCOUNT OF PAYEES ON 28.02.2005, AND THUS IT WAS LI ABLE TO DEDUCT TAX U/S 194H OF THE ACT AT THAT POINT OF TIME AND DEPOSIT T HE SAME BEFORE 31.03.2005. 7. IN OUR CONSIDERED OPINION, WE ARE UNABLE TO SEE THE MERIT IN THE PROPOSITION SOUGHT TO BE ADVANCED BY THE REVENUE TO THE EFFECT THAT THE LIABILITY TO DEDUCT THE TAX AT SOURCE IS AT THE TIM E OF AMOUNT BECOMING DUE OR ACCRUING TO THE PAYEE. IN-FACT, THE AFORESAID PROP OSITION SOUGHT TO BE CANVASSED BY THE REVENUE DOES NOT FALL IN THE PRESC RIPTION OF SECTION 194H OF THE ACT WHICH REQUIRES THE DEDUCTION OF TAX AT SOUR CE ONLY AT THE TIME OF CREDITING OF INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME, WHICHEVER IS EARLIER. THE ARGUMENT OF THE REVENUE THAT ONCE COMMISSION ACCRUES TO THE PAYEES IT IS DEEMED TO HA VE BEEN CREDITED TO THE RESPECTIVE ACCOUNTS OF THE PAYEES IN THE BOOKS OF A CCOUNT MAINTAINED BY THE ASSESSEE, IN OUR VIEW, IS FALLACIOUS AND CANNOT BE UPHELD. THEREFORE, HAVING REGARD TO THE EXPLICIT REQUIREMENTS OF SECTION 194H OF THE ACT, WHICH PRESCRIBES THAT THE TAX IS TO BE DEDUCTED AT THE TI ME OF CREDITING AN INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT, WHICHEVER IS EARLIER, HAS BEEN COMPLIED WITH BY THE ASSESSEE AND THE PROPOSIT ION SOUGHT TO BE CANVASSED BY THE REVENUE DOES NOT CARRY STATUTORY S UPPORT. AS A RESULT, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO DELETE THE DISALLOWANCE OF RS.65,14,029/- BECAUSE THERE IS NO JUSTIFICATION FOR INVOKING OF SECTION 40(A)(IA) OF THE ACT IN THE PRESENT CASE, H AVING REGARD TO THE AFORESAID DISCUSSION. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 20 TH DECEMBER, 2013 ITA NO. 647/PN/2012 A.Y. 2005-06 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR, A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE