ACIT, New Delhi V. M/s. K.S. Hotels (P) Ltd., New Delhi

ITA 755/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61672 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 19-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: SUNIL TEHRAN
• Keywords: Business income; Initiation of penalty proceedings; Non-deduction of tax
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SHRI G.D. AGARWAL, HONBLE VICE PRESIDENT & SMT. DIVA SINGH, JUDICIAL MEMBER ITA NO. 755/DEL/2010 ASSESSMENT YEAR: 2006-07 ACIT VS. K.S. HOTELS (P) LTD., CIRCLE 5(1), 409A, B-5, CONNAUGHT PLACE, C.R. BUILDING, NEW DELHI. NEW DELHI. AAACK0813A (APPELLANT) (RESPONDENT) APPELLANT BY: MS. Y. KAKKAR, DR RESPONDENT BY : SUNIL TEHRAN, CA ORDER PER SMT. DIVA SINGH, J.M. : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER DATED 15.12.2009 OF CIT(A)-VIII, NEW DELHI, PERTAINING TO THE A.Y. 206-07 ON THE FOLLOWING GROUNDS: - 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND CONTR ARY TO FACTS AND LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 73,98,662 /- MADE BY THE AO U/S 40(A)(I)(IA) OF THE I.T. ACT. 2.1THE LD. CIT(A) HAS IGNORED IN LAW BY IGNORING TH E FACT THAT NATURE OF PAYMENT TO M/S ZEN CHINESE FOOD IS CONTRACTUAL IN N ATURE AND HAS NOT DEDUCTED TAX AT SOURCE AS IS MANDATORY AS PER T HE TERMS OF SECTION 194C READ WITH SECTION 40(A)(IA) OF THE I.T. ACT. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUND OF THE APPEAL RAISED ABOUT AT THE TIME OF THE HEARING. 2. WE HAVE HEARD THE PARTIES BEFORE THE BENCH, WHE REAS THE LD. DR HEAVILY RELYING UPON THE ASSESSMENT ORDER CONTENDS THAT THE AO HAS MADE OUT A DETAILED ORDER TAKING INTO CONSIDERATION THE FOOD SUPPLY ARRANGEMENT ENTERED INTO BY THE ASSESSEE WITH M/S ZEN CHINESE F OOD AS PER AGREEMENT ITA NO. 755/D/2010 2 DATED 13.07.2005 COPY OF WHICH IS PLACED AT PAPER B OOK PAGE 42; WHICH IS THE SUPPLEMENTARY AGREEMENT TO THE ORIGINAL AGREEMENT P LACED AT PAGE 38 ON A PERUSAL OF WHICH HE HAS COME TO THE CONCLUSION THAT THE FOOD SUPPLY ARRANGEMENT IS ACTUALLY A WORKS CONTRACT AGREEMENT BETWEEN THE ASSESSEE AND M/S ZEN CHINESE FOOD ON THESE PAYMENTS TDS SHOU LD HAVE BEEN DEDUCTED U/S 194C OF THE ACT AS SECTION 40(A)(IA) R EQUIRES THAT APART FROM INTEREST, COMMISSION, RENT, ETC. EVEN FOR AMOUNTS P AYABLE TO A CONTRACTOR OR SUB-CONTRACTOR BEING RESIDENT FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT A LABOUR TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII- B AND SUCH TAX HAS NOT BEEN DEDUCTED OR IN THE FACT S OF THE PRESENT CASE, THE AO AT PAGE 7 PARA 6 FURTHER OBSERVED AS FOLLOWS: - (VI) FROM THE P&L ACCOUNT OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION, AND THE DETAILS FURNISHED BY T HE ASSESSEE COMPANY, IT SEEN THAT THE TOTAL SALES OF CHINESE FO ODS FROM THE MONTHS OF JULY 2005 TO MARCH, 2006 IS RS. 1,40,92,6 90/-. IF THE RATIO OF PRICE SHARING DURING THAT PERIOD IS APPLIE D AT 47.5% & 52.5% FOR THE ASSESSEE COMPANY AND M/S ZEN CHINESE FOODS RESPECTIVELY, THEN THE AMOUNT OF PURCHASES MADE FRO M M/S ZEN CHINESE FOODS WORKS OUT AT RS. 73,98,662/-. SINCE NO TDS WAS MADE ON THESE PAYMENTS, THESE ARE DISALLOWED U/S 40 (A)(IA) OF THE ACT. ACCORDINGLY A SUM OF RS. 73,98,662/-, BEING THE AMO UNT OF PAYMENTS MADE TO M/S ZEN CHINESE FOODS FOR SUPPLY O F CHINESE FOOD, IS ADDED BACK TO THE INCOME OF THE ASSESSEE. SATISFACTION FOR INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) FOR FURNISHING INACCURATE PARTICULARS/ FAILURE TO DISCLOSE TRUE PA RTICULARS OF INCOME ARE HEREBY RECORDED ON THIS ISSUE. 2.1 IN APPEAL BEFORE THE CIT(A), INVITING ATTENTION TO PAGE 13 PARA 3.3, IT WAS HER SUBMISSION THAT THE ADDITION MADE HAS BEEN DELETED WITHOUT GIVING ANY SPECIFIC FINDING. THE SAME IS REPRODUCED AS UN DER: - 3.3 NOW COMING TO THE ANOTHER ADDITION OF RS. 73 ,98,662/- MADE BY THE LD. AO, ON ACCOUNT OF NON-DEDUCTION OF TAX O N THE PAYMENTS MADE AGAINST PURCHASES MADE FROM M/S ZEN CHINESE FO ODS, HERE ALSO, I FIND THAT THE LD. AO HAS FAILED TO CORRECTL Y APPRECIATE THE NATURE OF TRANSACTIONS ENTERED INTO BETWEEN THE PAR TIES. I HAVE SEEN THE FOOD SUPPLYING ARRANGEMENT AGREEMENT DATED 13.0 7.05, ITA NO. 755/D/2010 3 EXECUTED BETWEEN THE APPELLANT COMPANY AND M/S ZEN CHINESE FOODS. IN THE SAID AGREEMENT THERE IS NO AMBIGUITY AND IT IS CLEARLY FOR SUPPLYING OF CHINESE FOOD ITEMS TO THE APPELLAN T COMPANY ON AN AGREED BASIS. FURTHER, I DO NOT FIND ANY LOGIC IN BRINGING TO TAX ONLY A SUM OF RS. 73,98,662/- ON ACCOUNT OF NON-DEDUCTIO N OF TAX U/S 194C OF THE ACT. AS STATED EARLIER, THE TOTAL SALE S MADE BY THE APPELLANT COMPANY FROM THE MONTHS OF JULY 2005 TO M ARCH 2006 WAS TO THE TUNE OF RS. 1,40,92,690/- AND, THEREFORE, TH ERE IS NOTHING TO SUGGEST AS TO HOW THE DISALLOWANCE OF RS. 73,09,662 /- WAS ONLY WARRANTED U/S 40(A)(IA) OF THE ACT. THE PROVISIONS OF SECTION 194C AND SECTION 40(A)(IA) HAVE BEEN ELABORATELY DISCUSS ED BY THE LD. AO AS WELL AS BY THE LD. COUNSEL FOR THE APPELLANT AND , THEREFORE, THE SAME ARE NOT BEING REPEATED HERE. HOWEVER, THERE IS NO HESITATION IN MY MIND THAT SUPPLY OF FOOD IS NOT AT ALL COVERE D WITHIN THE AMOUNT PAYABLE TO A CONTRACTOR OR SUB CONTRACTOR FO R CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING O UT ANY WORK). THEREFORE, THERE WAS NO OCCASION FOR THE AO TO PRES S INTO SERVICE THE PROVISIONS OF SECTION 194C SO AS TO MAKE DISALL OWANCE U/S 40(A)(IA) OF THE I.T.ACT, 1961 . (EMPHASIS PROVED BY THE BENCH) AS RIGHTLY POINTED OUT BY THE LD. COUNSEL FOR THE A PPELLANT, M/S ZEN CHINESE FOODS IS AN INDEPENDENT ENTITY DULY REGISTE RED FOR THE PURPOSES OF VAT, SERVICE TAX AND OTHER GOVERNMENT R EGULATORY AUTHORITIES. THE SAID CONCERN HAS DISCLOSED THE TO TAL SALES TO THE ASSESSEE AS THEIR TURNOVER FOR THE PERIOD 14.07.200 5 TO 31.03.2006 AND THE SAME HAS BEEN ACCEPTED BY THE AO CONCERNED UNDER AN ASSESSMENT MADE U/S 143(3) OF THE ACT. THEREFORE, IN MY OPINION, THERE WAS NEITHER ANY SITUATION WARRANTING FOR INVO CATION OF PROVISIONS OF SECTION 194C READ WITH SECTION 40(A)( IA) NOR THE JUDICIAL PRONOUNCEMENTS INCLUDING CIRCULARS ISSUED BY THE BOARD ARE IN AGREEMENT WITH THE LD. AO. THEREFORE, THE ADDIT ION OF RS. 73,98,662/- IS ALSO BEING DELETED. 2.2 IT WAS HER SUBMISSIONS THAT WHAT IS THE REASONI NG AND FACTS FOR COMING TO THE CONCLUSION THAT THERE IS NO HESITATI ON IN THE MIND OF THE LD. CIT(A) HAS NOT BEEN BROUGHT OUT IN THE ORDER AS SUC H THE REASONING IS MISSING. 2.3 RELIANCE WAS ALSO PLACED UPON ASSOCIATED CEMENT CO. LTD. VS. CIT, 201 ITR 435 (SC), ON THE BASIS OF WHICH IT WA S HER CONTENTION THAT THE IMPUGNED ORDER DESERVES TO BE SET ASIDE AND THE ASSESSMENT ORDER BE UPHELD. ITA NO. 755/D/2010 4 3. THE LD. AR ON THE OTHER HAND, PLACED RELIANCE U PON THE IMPUGNED ORDER. IT WAS FURTHER CLARIFIED BY HIM ON QUERY THAT PURSUANT TO THE FOOD SUPPLY AGREEMENT IN SUBSEQUENT YEARS ALSO THE ASSESSEE HAS NOT TAX DEDUCTED TAX AT SOURCE AS THE ARRANGEMENT I S BASICALLY A SALE PURCHASE ARRANGEMENT IN TERMS OF THE FOOD SUPPLY AG REEMENT ON WHICH NO TDS IS REQUIRED TO BE DEDUCTED. THOSE ISSUES WERE STATED TO BE PENDING BEFORE THE CIT(A). CONFRONTED WITH THE FACT THAT N O SPECIFIC FINDING HAS BEEN GIVEN IN THE IMPUGNED ORDER AS SUCH THE ISSUE WOULD BE RESTORED TO THE CIT(A). LD. AR RAISED NO OBJECTION. 4. ACCORDINGLY IN THE AFOREMENTIONED PECULIAR FACT S AND CIRCUMSTANCES AND CONSIDERING THE SUBMISSIONS ADVAN CED BY THE PARTIES BEFORE THE BENCH. WE ARE OF THE VIEW THE IMPUGNED ORDER CANNOT BE UPHELD. SECTION 250(6) OF THE ACT MANDATES THAT TH E ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING A ND SHALL STATE THE POINTS FOR DETERMINATION, THE DECISION THEREON AND THE REA SONS FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASONS FOR THE DEC ISION. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATI ON THEREOF BY THE QUASI-JUDICIAL AUTHORITIES HAS BEEN READ AS AN INTE GRAL PART OF THE CONCEPT OF FAIR PROCEDURE AND IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRAR INESS IN THE DECISION- MAKING PROCESS. HONBLE JURISDICTIONAL HIGH COURT IN THEIR DECISION IN VODAFONE ESSAR LTD. VS. DRP, 196 TAXMAN 423 (DELHI) HELD THAT WHEN A QUASI JUDICIAL AUTHORITY DEALS WITH A LIST, IT IS OBLIGATORY ON I TS PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS T HE HEARD AND SOUL OF THE MATTER AND FURTHER, THE SAME ALSO FACILITATE S APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BEFORE THE SUPERIOR FOR UM. A DECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITH IN ITS FOLD THE REASONS ITA NO. 755/D/2010 5 FORMING BASIS FOR THE CONCLUSION. [MUKHTIAR SINGH VS. STATE OF PUNJAB, (1995) 1 SCC 760 (SC)]. 5. THE LD. CIT(A) ON A PERUSAL OF THE IMPUGNED ORD ER IT IS SEEN CANNOT BE SAID TO HAVE ANALYSED THE ISSUES IN PROPE R PERSPECTIVE IN THE LIGHT OF RELEVANT PROVISIONS AND THE ORDER PASSED I S CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACTS OF THE RULES OF NATUR AL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST P ASS REASONED ORDER, WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CON CERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN T HE ORDER. IN VIEW OF THE FOREGOING DISCUSSION AS THE LD. CIT(A) HAS NOT PASS ED A SPEAKING ORDER ON THE ISSUES RAISED IN THE APPEAL, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HE MATTER TO HIS FILE FOR DECIDING THE AFORESAID ISSUE, AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS. NEEDLESS TO SAY THAT W HILE KEEPING IN MIND, INTER-ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6 ) OF THE ACT. WITH THESE OBSERVATIONS, GROUNDS NO. 1 & 2 IN THE APPEAL OF TH E REVENUE ARE DISPOSED OF. 6. IN THE RESULT, APPEAL OF THE REVENUE ALLOWED F OR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11.05.2 012 SD/- SD/- (G.D. AGARWAL) (DIVA SINGH) VICE PRESIDENT JUDICIAL MEMB ER DATED: 11.05.2012 *KAVITA ITA NO. 755/D/2010 6 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR