Chandana Brothers Textiles and Jewellers Private Limited, Secunderabad V. Dy.CIT, Circle-1(2), Hyderabad

ITA 776/HYD/2013

• Counselvise Citation: 77622514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 15-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Business expenditure; Charitable institution; Opportunity of being heard; Earning of tax free income
• Section: 143(3); 12A; 201(1); 6; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 776/HYD/2013 ASSESSMENT YEAR : 2008-09 CHANDANA BROTHERS TEXTILES & JEWELLERY PVT. LTD., HYDERABAD. PAN AACCC3901F ASST. COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE 1, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI S. RAMA RAO REVENUE BY SHRI D. SUDHAKAR RAO DATE OF HEARING 11-08-2014 DATE OF PRONOUNCEMENT 28-08-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18/03/2013 OF THE CIT-I, HYDERABAD PASSED U/S 263 OF THE ACT REVISING THE ASSESSMENT ORDER PASSED U/S 143(3) PER TAINING TO THE AY 2008-09. 2. BRIEFLY THE FACTS ARE, ASSESSEE A COMPANY IS ENG AGED IN THE BUSINESS OF RETAIL TRADE IN TEXTILES, SILKS, READY MADE GARMENTS, GOLD JEWELLERY, SILVER ARTICLES ETC. FOR THE AY UNDER DI SPUTE THE ASSESSEE HAD FILED ITS RETURN OF INCOME 13/09/2008 DECLARING TOTAL INCOME OF RS. 3,43,64,912/-. ASSESSMENT IN CASE OF THE ASSESSEE W AS COMPLETED U/S 143(3) OF THE ACT VIDE ASSESSMENT ORDER DATED 1 5/10/2010 BY ACCEPTING THE INCOME RETURNED. THE CIT IN EXERCISE OF POWER CONFERRED U/S 263 OF THE ACT WHILE EXAMINING THE AS SESSMENT RECORD 2 ITA NO. 776/HYD/2013 CHANDANA BROTHERS TEXTILES & JEWELLERY PVT. LTD. FOR THE IMPUGNED ASSESSMENT YEAR WAS OF THE VIEW TH AT THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT IS ER RONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE FOLLOWING REASONS: 1. DEDUCTION CLAIMED TOWARDS STT AND BROKERAGE AMOU NTING TO RS. 45,599/- IS NOT ALLOWABLE AS THEY ARE ATTRIBUTA BLE TO EXEMPTED INCOME. 2. ASSESSEE HAS PAID RENTAL INCOME AMOUNTING TO RS . 32,77,171/- TO KAMMA SANGHAM WITHOUT DEDUCTING TAX U/S 197-I OF THE ACT. HENCE, THE RENTAL INCOME WAS REQU IRED TO BE DISALLOWED U/S 40(A)(IA) OF THE ACT. 3. ACCORDINGLY, CIT ISSUED A NOTICE TO THE ASSESSEE DIRECTING HIM TO SHOW CAUSE WHY THE ASSESSMENT ORDER PASSED U/S 1 43(3) BEING ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE SHOULD NOT BE REVISED U/S 263 OF THE ACT. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED ITS REPLY STATING THEREIN TH AT SECURITY TRANSACTION TAX (STT) BEING A STATUTORY LEVY HAS BE EN CLAIMED AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. IT WAS SUBMITTED THAT AS THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF STA TUTORY COMPLIANCE IT IS ADMISSIBLE AS BUSINESS EXPENDITURE. SO FAR A S DISALLOWANCE OF RENT PAID TO KAMMA SANGHAM BY INVOKING PROVISIONS O F SECTION 40(A)(IA), IT WAS SUBMITTED BY THE ASSESSEE THAT K AMMA SANGHAM IS A PUBLIC CHARITABLE TRUST REGISTERED U/S 12A OF THE ACT. IT WAS SUBMITTED THAT AS KAMMAM SANGHAM IS CLAIMING EXEMPT ION U/S 11 OF THE ACT, AND IT HAS FILED ITS RETURN OF INCOME BY S HOWING THE RENTAL INCOME AND HAS CLAIMED EXEMPTION U/S 11 TAX WAS NOT REQUIRED TO BE DEDUCTED ON SUCH EXEMPT INCOME. IT WAS SUBMITTED T HAT KAMMA SANGHAM HAS REPRESENTED THE ASSESSEE NOT TO DEDUCT TAX AT SOURCE ON RENTAL INCOME FOR THE AFORESAID REASON AND CONS IDERING SUCH REQUEST OF THE KAMMA SANGHAM TAX WAS NOT DEDUCTED O N THE RENT PAID. IN SUPPORT OF SUCH CLAIM, THE ASSESSEE ALSO SUBMITTED THE REGISTRATION CERTIFICATE GRANTED U/S 12A OF THE ACT TO KAMMA SANGHAM, INCOME TAX RETURN FILED BY KAMMA SANGHAM FOR THE AY 2008-09 CLAIMING EXEMPTION U/S 11, ETC. THUS, IT WAS SUBMIT TED BY THE 3 ITA NO. 776/HYD/2013 CHANDANA BROTHERS TEXTILES & JEWELLERY PVT. LTD. ASSESSEE AS KAMMA SANGHAM IS ENJOYING EXEMPTION U/S 11 OF THE ACT, TDS IS NOT REQUIRED TO BE MADE ON THE RENT PAI D TO KAMMA SANGHAM THEREFORE QUESTION OF DISALLOWANCE U/S 40(A )(IA) OF THE ACT WILL NOT ARISE. THE CIT, HOWEVER, WAS NOT CONVINCE D WITH THE ARGUMENT OF THE ASSESSEE. HE HELD THAT SECTION 194 -I DOES NOT IN ANY MANNER PROVIDE EXEMPTION FROM DEDUCTION OF TAX IN CASE OF A PAYEE BEING A CHARITABLE TRUST. HE, THEREFORE, DIRECTED THE AO TO DISALLOW THE RENT PAID U/S 40(A)(IA) OF THE ACT. FURTHER, THE CIT ALSO DIRECTED THE AO TO DISALLOW THE DEDUCTION CLAIMED TOWARDS PA YMENT OF STT AND BROKERAGE. HE ALSO DIRECTED THE AO TO EXAMINE THE ISSUE OF PROPORTIONATE DISALLOWANCE OF FINANCE CHARGES BY VE RIFYING THE FACTUAL POSITION IN THE LIGHT OF RULE 8D OF IT RULES. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI ALS ON RECORD AS WELL AS THE ORDERS OF THE REVENUE AUTHORITIES. THE LEARNED AR HAS CONTENDED BEFORE US THAT THE PAYEE KAMMA SANGHAM IS A PUBLIC CHARITABLE TRUST REGISTERED U/S 12A OF THE ACT AND IT HAS FILED ITS RETURN OF INCOME FOR THE AY 2008-09 SHOWING NIL INCOME AFT ER CLAIMING EXEMPTION U/S 11 OF THE ACT, THOUGH THE RENTAL INCO ME RECEIVED FROM THE ASSESSEE WAS DISCLOSED IN THE RETURN OF INCOME. IN THIS CONTEXT, THE LEARNED AR REFERRED TO REGISTRATION CERTIFICATE AT PAGE 93 OF THE PAPER BOOK AND APPROVAL U/S 80G(5) AT PAGE 94 OF TH E ASSESSEES PAPER BOOK. HE ALSO REFERRED TO THE RETURN OF INCOM E FILED BY KAMMA SANGHAM FOR THE AY 2008-09 PLACED AT PAGE 95 OF THE PAPER BOOK. THE LEARNED AR ALSO DREW OUR ATTENTION TO LETTER DA TED 01/09/2008 OF KAMMA SANGHAM FILED BEFORE THE DY. DIRECTOR, INCOME -TAX, A COPY OF WHICH IS AT PAGE 100 OF THE PAPER BOOK, REQUESTING FOR A CERTIFICATE FOR NO DEDUCTION OF TAX OR DEDUCTION OF TAX AT LOWER RA TE. IT WAS SUBMITTED BY THE LEARNED AR THAT AS THE INCOME OF KAMMA SANGH AM IS EXEMPT U/S 11 OF THE ACT, THERE IS NO NEED FOR DEDUCTION O F TAX AS THERE IS NO TAXABLE INCOME OF THE PAYEE. IT WAS THUS SUBMITTED THAT IN THESE CIRCUMSTANCES THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT IN TERMS OF SECTION 201(1) OF THE ACT, SO A S TO INVOKE THE 4 ITA NO. 776/HYD/2013 CHANDANA BROTHERS TEXTILES & JEWELLERY PVT. LTD. PROVISIONS OF SECTION 40(A)(IA) FOR DISALLOWING THE DEDUCTION CLAIMED TOWARDS RENT PAID. THE LEARNED AR SUBMITTED THAT A S THE ASSESSEE CANNOT BE TERMED AS AN ASSESSEE IN DEFAULT IN TERMS OF SECTION 201(1) OF THE ACT, NO DISALLOWANCE CAN BE MADE U/S 40(A)(I A) IN VIEW OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT WHIC H HAS BEEN BROUGHT TO THE STATUTE BY FINANCE ACT, 2012 WITH EFFECT FRO M 01/04/2013. THE LEARNED AR SUBMITTED THAT THE AFORESAID PROVISO TO SECTION 40(A)(IA) OF THE ACT BEING CLARIFICATORY IN NATURE WILL APPLY RETROSPECTIVELY. IN THIS CONTEXT, HE RELIED UPON THE DECISION OF THE HONBLE AP HIGH COURT IN CASE OF CIT VS. PEC ELECTRICALS LTD., ITTA NO. 236 OF 2013, DATED 12 TH JULY, 2013. THE LEARNED AR SUBMITTED THAT, INCOME OF KAMMA SANGHAM BEING EXEMPT U/S 11 OF THE ACT AND KAMMA SA NGHAM HAVING FILED ITS RETURN OF INCOME DISCLOSING SUCH R ENTAL INCOME THE PROVISO TO SECTION 201(1) ALSO IS ATTRACTED, HENCE ASSESSEE CANNOT BE CONSIDERED TO BE A ASSESSEE IN DEFAULT SO AS TO DIS ALLOW RENT PAYMENT U/S 40(A)(IA) OF THE ACT. THE LEARNED AR SUBMITTED THAT WHEN THE DEDUCTEE HAS NO TAX LIABILITY THE DEDUCTOR WOULD NO T BE EVEN LIABLE FOR PAYMENT OF TAX AND INTEREST U/S 201(1) AND 201(1A). FOR SUCH PROPOSITION, HE RELIED ON THE DECISION IN CASE OF T HOMAS MUTHOOT VS. DCIT [2012] 12 TMI 641 (ITAT, COCHIN). 5. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T DISALLOWANCE U/S 40(A)(IA) IS NOT DEPENDENT UPON THE DECLARATION OF THE ASSESSEE AS A ASSESSEE IN DEFAULT U/S 201(1) OF THE ACT. HE SUBMITTED THAT IF TAX IS NOT DEDUCTED IN TERMS WITH SECTION 194-I OF THE ACT, THE PROVISIONS CONTAINED U/S 40(A)(IA) AUTOMATICALLY GETS ATTRACTE D. HE SUBMITTED THAT AS THE AO HAS FAILED TO ACT IN ACCORDANCE WITH STAT UTORY PROVISIONS, THE CIT HAS CORRECTLY EXERCISED HIS POWER U/S 263 A ND REVISED THE ASSESSMENT ORDER BY DIRECTING THE AO TO DISALLOW TH E EXPENDITURE CLAIMED TOWARDS RENT PAYMENT U/S 40(A)(IA) OF THE A CT. 6. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES , WE ARE OF THE VIEW THAT EXERCISE OF POWER U/S 263 OF THE ACT IN THE PRESENT CASE IS 5 ITA NO. 776/HYD/2013 CHANDANA BROTHERS TEXTILES & JEWELLERY PVT. LTD. JUSTIFIED. IN FACT, THE ASSESSEE HAS ALSO ACCEPTED SUCH POSITION BY ONLY CONTESTING THE DIRECTION OF THE CIT IN RESPECT OF DISALLOWANCE TO BE MADE U/S 40(A)(IA) OF THE ACT. SO FAR AS THE DIR ECTION OF THE CIT IN RESPECT OF DISALLOWANCE OF DEDUCTION CLAIMED TOWARD S STT AND BROKERAGE AND CONSIDERING THE ISSUE OF PROPORTIONAT E DISALLOWANCE OF FINANCE CHARGES THE ASSESSEE HAS ACCEPTED THE VIEW OF THE CIT. THEREFORE, CITS OBSERVATION THAT THE ASSESSMENT OR DER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE AND CONSEQUENT EXERCISE OF POWER U/S 263 HAS TO BE UPHE LD. EVEN SO FAR AS THE ISSUE OF DISALLOWANCE U/S 40(A)(IA) IS CONCE RNED, ON A PERUSAL OF THE ASSESSMENT ORDER AS WELL AS OTHER MATERIALS ON RECORD, WE ARE OF THE VIEW THAT THE AO HAS NOT AT ALL EXAMINED THE ISSUE OF APPLICABILITY OF SECTION 194-I TO THE EXPENDITURE C LAIMED TOWARDS RENT PAID AND CONSEQUENTIAL DISALLOWANCE WHETHER TO BE M ADE U/S 40(A)(IA) OF THE ACT. HENCE, TO THAT EXTENT, THERE IS NOT ONL Y FAILURE TO MAKE ANY ENQUIRY BY THE AO, BUT, ALSO TOTAL NON-APPLICATION OF MIND ON THE PART OF THE AO. THEREFORE, THE CIT WAS CORRECT IN HOLD ING THAT THE ASSESSMENT ORDER PASSED U/S 143(3) IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR NOT CONSIDERING TH E APPLICABILITY OF SECTION 194-I AND ISSUE OF DISALLOWANCE U/S 40(A)(I A) OF THE ACT. HOWEVER, WE ARE OF THE VIEW THAT CIT WAS NOT CORREC T IN STRAIGHTAWAY DIRECTING THE AO TO MAKE DISALLOWANCE U/S 40(A)(IA) OF THE ACT WITHOUT PROPERLY CONSIDERING THE CONTENTIONS RAISED BY THE ASSESSEE. IT IS A FACT ON RECORD THAT THE PAYEE KAMMA SANGHAM AT THE RELEVANT TIME WAS A CHARITABLE TRUST REGISTERED U/S 12A OF THE AC T. IT IS ALSO A FACT ON RECORD THAT IT HAS FILED ITS RETURN FOR THE AY 2008 -09 CLAIMING EXEMPTION U/S 11 OF THE ACT THOUGH IT HAS SHOWN THE RENTAL INCOME. IT IS ALSO AN UNCONTROVERTED FACT THAT NO ORDER HAS BE EN PASSED U/S 201(1) OF THE ACT TREATING THE ASSESSEE AS A ASSESS EE IN DEFAULT. THEREFORE, IN THE AFORESAID PERSPECTIVE IT NEEDS TO BE EXAMINED WHETHER TAX AT ALL WAS REQUIRED TO BE DEDUCTED AT S OURCE WHEN THE PAYEE WAS NOT HAVING TAXABLE INCOME OR IN OTHER WOR DS PAYEES INCOME IS EXEMPT. IN THIS CONTEXT, THE PROVISIONS C ONTAINED U/S 201 6 ITA NO. 776/HYD/2013 CHANDANA BROTHERS TEXTILES & JEWELLERY PVT. LTD. AND SECTION 40(A)(IA) HAVE TO BE READ TOGETHER TO C OME TO A APPROPRIATE CONCLUSION. SIMILARLY, THE DECISIONS RE LIED UPON BY THE ASSESSEE ALSO REQUIRES TO BE EXAMINED IN THE CONTEX T OF ARGUMENT ADVANCED BY THE ASSESSEE. IT IS APPARENT FROM THE O RDER OF THE CIT THAT WITHOUT MAKING AN INDEPTH ANALYSIS OF THE ENTI RE ISSUE HE HAS ABRUPTLY COME TO A CONCLUSION THAT ASSESSEES CONTE NTIONS ARE NOT ACCEPTABLE AND ACCORDINGLY DIRECTED DISALLOWANCE U/ S 40(A)(IA) OF THE ACT. IN THE AFORESAID VIEW OF THE MATTER, WE MODIF Y THE ORDER OF THE CIT BY DIRECTING THE AO TO EXAMINE THE ISSUE OF DIS ALLOWANCE U/S 40(A)(IA) OF THE ACT IN SO FAR AS THE PAYMENT OF RE NT TO KAMMA SANGHAM IS CONCERNED AFTER CAREFULLY CONSIDERING AS SESSEES SUBMISSIONS AND KEEPING IN VIEW THE RELEVANT STATUT ORY PROVISIONS AS WELL AS RATIO LAID DOWN IN THE DECISIONS, WHICH ASS ESSEE MAY RELY UPON. THE AO MUST DECIDE THE ISSUE INDEPENDENTLY W ITHOUT BEING INFLUENCED BY THE OBSERVATIONS OF THE CIT. ACCORDIN GLY, WE SET ASIDE THE ORDER OF THE CIT ON THE ISSUE OF DISALLOWANCE U /S 40(A)(IA) OF RENT PAID TO KAMMA SANGHAM AND REMIT THE MATTER BACK TO THE FILE OF THE AO FOR DECIDING AFRESH AND IN ACCORDANCE WITH LAW A FTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28/08/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED:28 TH AUGUST, 2014 KV 7 ITA NO. 776/HYD/2013 CHANDANA BROTHERS TEXTILES & JEWELLERY PVT. LTD. COPY TO:- 1) CHANDANA BROTHERS TEXTILES AND JEWELLERS PVT. LTD., D. NO. 1-2-166 TO 193, UG-1 TO UG-5, BHUVANA T OWERS, SD ROAD, SECUNDERABAD 500 003. 2) DCIT, CIRCLE 1(2), 4 TH FLOOR, ROOM NO. 411, AAYAKAR BHAVAN, BASHEERBAG, HYDERABAD. 3) CIT-I, HYDERABAD. 4)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.