Bharat Forge Ltd., Pune V. Addl. CIT, Range-1, Pune

ITA 795/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79843 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Keywords: Earning of tax free income; Non-deduction of tax; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.795/PN/2013 (ASSESSMENT YEAR : 2008-09) BHARAT FORGE LTD., MUNDHWA, PUNE 411 036. PAN : AAACB8519L . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE- 1, PUNE. . RESPONDENT ASSESSEE BY : MR. NIKHIL PATHAK DEPARTMENT BY : MR. P. L. PATHADE DATE OF HEARING : 22-04-2014 DATE OF PRONOUNCEMENT : 30-05-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DA TED 25.01.2013 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 13.12.2011 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2008-09. 2. IN THIS APPEAL, THE FIRST ISSUE RAISED BY THE AS SESSEE IS TO THE EFFECT THAT THE INCOME-TAX AUTHORITIES ARE NOT JUSTIFIED IN ENH ANCING THE DISALLOWANCE U/S 14A OF THE ACT TO RS.1,16,40,000/- INSTEAD OF RS.30 ,23,852/- DISALLOWED BY THE ASSESSEE COMPANY IN ITS COMPUTATION OF TOTAL INCOME . 3. IN BRIEF, THE RELEVANT FACTS ARE THAT THE APPELL ANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 WHICH IS, INTER- ALIA, ENGAGED IN THE BUSINESS OF MANUFACTURE AND SA LE OF STEEL FORGINGS, FINISHED MACHINE CRANKSHAFTS, AXLE BEAMS, COUPLINGS AND GENERAL ENGINEERING PRODUCTS, ETC.. IT IS ALSO ENGAGED IN THE BUSINESS OF GENERATION OF POWER BY ITA NO.795/PN/2013 A.Y. 2008-09 INSTALLING WIND GENERATION TOWERS, ETC.. FOR THE A SSESSMENT YEAR UNDER CONSIDERATION, THE TOTAL INCOME DECLARED BY THE ASS ESSEE INCLUDED A SUM OF RS.26,05,53,164/- WHICH REPRESENTED DIVIDEND INCOME THAT WAS CLAIMED AS EXEMPT U/S 10(35) OF THE ACT. IN THE RETURN OF INC OME FILED, THE ASSESSEE COMPANY DETERMINED A SUM OF RS.30,23,852/- AS HAVIN G BEEN INCURRED IN RELATION TO SUCH EXEMPT INCOME AND ACCORDINGLY THE SAME WAS ADDED BACK TO THE TOTAL INCOME ON ACCOUNT OF SECTION 14A OF THE A CT. NOTABLY, SECTION 14A OF THE ACT PRESCRIBES THAT FOR THE PURPOSES OF COMPUTI NG THE TOTAL INCOME, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY EXPEND ITURE INCURRED BY THE ASSESSEE IN RELATION TO AN INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER, HOWEVER, COMPUTED THE AMOUNT DISALLOWABLE ON ACCOUNT OF SECTION 14A OF THE ACT AT RS.1,16,40,000/- AND ACCORDINGLY, A FURTHER AMOUNT OF RS.86,16,148/- (I.E. RS.1,16,40,000/- MINUS RS.30,23,852/-) WAS ADDED TO THE RETURNED INCOME. THE AFORESAID INCREMENTAL DISALLO WANCE MADE BY THE ASSESSING OFFICER HAS BEEN UPHELD BY THE CIT(A), AG AINST WHICH ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LIMITED PLEA RAISED BY THE ASSESS EE IS TO THE EFFECT THAT THE DISALLOWANCE SUSTAINED BY THE CIT(A) WAS INCORR ECT ESPECIALLY WHEN ASSESSING OFFICER HAD FAILED TO RECORD THE SATISFAC TION REQUIRED IN TERMS OF SECTION 14A(2) OF THE ACT ABOUT THE INCORRECT OF TH E DISALLOWANCE COMPUTED BY THE ASSESSEE SUO MOTU , HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. B Y PLACING RELIANCE ON THE JUDGEMENT OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. D CIT, 328 ITR 81 (BOM), WHICH HAS BEEN CONSIDERED AND APPLIED BY THE PUNE B ENCH OF THE TRIBUNAL IN THE CASE OF KALYANI STEELS LTD. VS. ADDL. CIT, VIDE ITA NO.1733/PN/2012 ORDER DATED 30.01.2014, IT IS SUBMITTED THAT IN TERMS OF SECTION 14A(2) OF THE ACT IT WAS MANDATORY FOR THE ASSESSING OFFICER TO RECORD A N OBJECTIVE SATISFACTION ABOUT THE INCORRECTNESS OF THE CLAIM MADE BY THE AS SESSEE AND ONLY THEREAFTER ITA NO.795/PN/2013 A.Y. 2008-09 INVOKE RULE 8D OF THE INCOME TAX RULES, 1962 (IN SH ORT THE RULES) IN ORDER TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT. JUSTI FYING THE COMPUTATION OF DISALLOWANCE AT RS.30,23,852/- OUT OF THE ADMINISTR ATIVE EXPENDITURES, A REFERENCE WAS MADE TO PAGE 10 OF THE PAPER BOOK WHE REIN THE WORKING OF THE DISALLOWANCE IS PLACED. WITH REFERENCE TO THE SAID WORKING, IT IS POINTED OUT THAT SALARY OF TWO PEOPLE WAS FULLY ALLOCATED TOWAR DS EARNING OF EXEMPT INCOME AND IN OTHER TWO CASES A PART OF THE SAME HAS BEEN ALLOCATED TOWARDS THE INVESTMENT ACTIVITY. SIMILARLY, OTHER EXPENSES REL ATING TO THE INVESTMENT ACTIVITY OUT OF OFFICE EXPENSES I.E. TELEPHONE, TEL EX, POSTAGE, PRINTING, XEROX, SUNDRY EXPENSES AND COURIER CHARGES, ETC., WERE ALS O ALLOCATED ON THE BASIS OF THE PROPORTION OF DIVIDEND INCOME TO THE TOTAL I NCOME OF THE ASSESSEE. IT IS ALSO POINTED OUT THAT SO FAR AS THE INTEREST EXPEND ITURE IS CONCERNED, THERE IS NO DISPUTE THAT THE INVESTMENTS IN MUTUAL FUNDS, WH ICH HAVE YIELDED THE IMPUGNED EXEMPT INCOME, WERE OUT OF FUNDS RAISED BY WAY OF GLOBAL DEPOSITORY RECEIPTS (GDRS), WHICH DO NOT CARRY ANY INTEREST COSTS. IT WAS POINTED OUT THAT EVEN THE ASSESSING OFFICER HAS NOT MADE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE AND THE POSITION CANVAS SED BY THE ASSESSEE THAT THERE ARE NO INTEREST COSTS INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME STANDS ACCEPTED. THE LEARNED COUNSEL VEHEMENTLY PO INTED OUT THAT NO ERROR IN THE WORKING OF DISALLOWANCE MADE BY THE ASSESSEE HA S BEEN POINTED OUT BY THE ASSESSING OFFICER IN TERMS OF THE PRESCRIPTION CONTAINED IN SECTION 14A(2) OF THE ACT AND THEREFORE THE MECHANICAL INVOKING OF RULE 8D OF THE RULES TO COMPUTE THE DISALLOWANCE IS ERRONEOUS IN LAW AND AL SO ON FACTS. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE SUBMITTED THAT THE ASSESSING OFFICE R HAS CONSIDERED THE DISALLOWANCE COMPUTED BY THE ASSESSEE AND WAS NOT S ATISFIED WITH THE WORKING AND THEREFORE HE HAS COMPUTED THE DISALLOWA NCE IN TERMS OF RULE 8D OF THE RULES. ITA NO.795/PN/2013 A.Y. 2008-09 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN THE CASE BEFORE US, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS INCU RRED CERTAIN INDIRECT EXPENDITURE IN RELATION TO AN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THEREFORE, A DISALLOWANCE IS QUITE JUSTIFIED ON THE STRENGTH OF SECTION 14A OF THE ACT. THE PERTINENT DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE IS THE MANNER OF DETERMINA TION OF SUCH DISALLOWANCE. THE ASSESSING OFFICER HAS INVOKED RU LE 8D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE. HOWEVER, THE AFORESAI D ACTION OF THE ASSESSING OFFICER IS SUBJECT TO FULFILLMENT OF A CONDITION PR ESCRIBED IN SECTION 14A(2) OF THE ACT. NOTABLY, SUB-SECTION (2) OF SECTION 14A OF TH E ACT PRESCRIBES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXP ENDITURE INCURRED IN RELATION TO AN INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, S UCH PRESCRIBED METHOD BEING CONTAINED IN RULE 8D OF THE RULES. NOTABLY, THE PHRASEOLOGY OF SECTION 14A(2) OF THE ACT LENDS CREDENCE TO THE PROPOSITION THAT THE AFORESAID EMPOWERMENT OF THE ASSESSING OFFICER TO INVOKE RULE 8D OF THE RULES, IS SUBJECT TO FULFILLMENT OF THE CONDITION THAT THE AS SESSING OFFICER RECORDS A SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCO ME, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. IN-FACT, THE HONBLE BOM BAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) HA S HELD THAT INVOKING OF RULE 8D OF THE RULES FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT IS NEITHER AUTOMATIC AND NOR CAN BE TRIGGER ED MERELY BECAUSE ASSESSEE HAS EARNED AN EXEMPT INCOME. MOREOVER, SU B-SECTION (2) OF SECTION 14A OF THE ACT DEALS WITH CASES WHERE ASSESSEE SPEC IFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT, WHEREAS SUB-SECTION (3) OF SECTION 1 4A OF THE ACT APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITUR E HAS BEEN INCURRED IN RELATION TO SUCH INCOME. SO FAR AS THE PRESENT CAS E IS CONCERNED, THE FACT- SITUATION IS COVERED BY THE FORMER I.E. SUB-SECTION (2) OF SECTION 14A OF THE ACT ITA NO.795/PN/2013 A.Y. 2008-09 BECAUSE IN THE PRESENT CASE, ASSESSEE HAS SPECIFIED A SUM OF RS.30,23,852/-, AS EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THEREFORE, THE ASSESSI NG OFFICER WAS NOT COMPETENT TO TAKE RECOURSE TO THE RULE 8D OF THE RU LES UNLESS HE RECORDS A FINDING THAT HE WAS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE IN RESPECT TO THE EXPENDITURE INCURRED IN RELATION TO EARNING OF THE EXEMPT INCOME, HAVING REGARD TO THE ACCOUNT OF THE ASSESSEE. IN COMING TO THE AFORESAID CONCLUSION, APART FROM BEING GUIDED B Y THE PARITY OF REASONING LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) AS WELL AS THE DECIS ION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KALYANI STEELS LTD. (SU PRA), WE ARE ALSO CONSCIOUS THAT SIMILAR VIEW HAS BEEN EXPRESSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. & ORS. VS. CIT, (201 2) 247 CTR 162 (DEL) ALSO. 7. IN THE ABOVE BACKGROUND, NOW WE MAY EXAMINE THE FACTS OF THE PRESENT CASE. THE RELEVANT DISCUSSION IS CONTAINED IN PARA 8.4 OF THE ASSESSMENT ORDER WHEREIN THE ASSESSING OFFICER HAS BROUGHT OUT HIS REASONING AS TO WHY HE DISAGREED WITH THE EXPENDITURE OF RS.30,23,852/- SPECIFIED BY THE ASSESSEE OF HAVING BEEN INCURRED IN RELATION TO THE EXEMPT I NCOME. WE HAVE CAREFULLY PERUSED THE SAID DISCUSSION AND FIND THAT THE ONLY REASONING ADVANCED IS THAT THE EXPENDITURE SPECIFIED BY THE ASSESSEE IS VERY MEAGRE AS COMPARED TO THE TAX FREE DIVIDEND RECEIVED BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER WAS OBLIGATED TO RECORD A SATISFA CTION WITH REGARD TO THE INCORRECTNESS OF ASSESSEES CLAIM, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, A REQUIREMENT WHICH IS QUITE CLEAR FROM A PERUSAL OF SECTION 14A(2) OF THE ACT. ON THE CONTRARY, THE REASONING ADVANCE D BY THE ASSESSING OFFICER, WHICH WE HAVE NOTED IN THE EARLIER LINES, IS BASED ON MERE SURMISES AND CONJECTURES AND IS NOT IN COMPLIANCE WITH THE REQUI REMENTS OF SECTION 14A(2) OF THE ACT. THEREFORE, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER WAS ITA NO.795/PN/2013 A.Y. 2008-09 NOT JUSTIFIED IN RESORTING TO RULE 8D OF THE RULES IN ORDER TO COMPUTE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT I NCOME FOR THE PURPOSES OF SECTION 14A OF THE ACT, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 8. IN CONCLUSION, WE HOLD THAT IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT RECORDED AN OBJECTIVE SATISFACTION IN REGAR D TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WHICH IS A MANDATORY REQUIREM ENT OF SECTION 14A(2) OF THE ACT AND THEREFORE, HIS ACTION OF INVOKING RULE 8D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE IS UNTENABLE. THUS, THE O RDER OF THE CIT(A) IS SET- ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO RETA IN THE DISALLOWANCE U/S 14A OF THE ACT TO THE EXTENT OF RS.30,23,852/- AS RETUR NED BY THE ASSESSEE. ACCORDINGLY, GROUND OF APPEAL NO.1 IS ALLOWED. 9. THE NEXT ISSUE RAISED BY THE ASSESSEE IS WITH RE GARD TO ACTION OF THE CIT(A) IN CONFIRMING THAT AN AMOUNT OF RS.1,92,58,2 07/- DEBITED UNDER THE HEAD COMPUTER SOFTWARE EXPENSES WAS A CAPITAL EXP ENDITURE IN NATURE AND NOT ALLOWABLE AS A REVENUE EXPENDITURE, AS CLAIME D BY THE ASSESSEE. 10. IN THIS REGARD, THE DETAILS OF THE EXPENDITURE OF RS.1,92,58,207/- READS AS UNDER :- SR. NO. PARTICULAR VENDOR NAME AMOUNT IN LOCAL CUR. PURPOSE/USE 1 GROUP LICENSE OF FORGE 2005 TRANSVALOR, FRANCE TRANSVALOR S A 14,417,040 FORGING SIMULATION SOFTWARE, USED TO TEST THE PROCESS ADEQUACY OF DESIGN AND TOOLS 2 PROLIANT BL460C/DUAL PROCESSOR DUAL- PHOEBUS TECHNOLOGIES PVT. LTD. 468,000 THIS IS SERVER USAGE FOR USER DATA 3 MSC NASTRAN BASIC PACK (NETWORK LIC.) MSC SOFTWARE CORPORATION 1,825,167 THIS INFORMATION TECHNOLOGY SOFTWARE 4 FCA2214 2GB FC HBA FOR LINUX & WINDOWS PHOEBUS TECHNOLOGIES PVT. LTD. 260,000 NETWORK COMPONENT USED FOR FIBRE CONNECTIVITY 5 UG NS SOFTWARE TATA CONSULTANCY SERVICES LIMI 2,288,000 UNIGRAPHIC SOFTWARE USED FOR DESIGN APPLICATION 19,258,207.48 ITA NO.795/PN/2013 A.Y. 2008-09 11. ON THIS ASPECT, THE LEARNED COUNSEL FOR THE AS SESSEE HAS MADE A SOLITARY PLEA BASED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RAYCHEM RPG LTD. (2011) 64 DTR 57 ( BOM), WHICH ACCORDING TO HIM HAS BEEN APPLIED BY THE TRIBUNAL IN THE ASSE SSEES OWN CASE FOR PRECEDING ASSESSMENT YEAR 2007-08 VIDE ITA NO.340/P N/2012 ORDER DATED 30.09.2013. IN TERMS OF THE SAID JUDGEMENT WHERE T HE SOFTWARE ACQUIRED BY THE ASSESSEE DID NOT FORM PART OF THE PROFIT-MAKING APPARATUS SUCH EXPENDITURE WAS LIABLE TO BE ALLOWED AS REVENUE EXP ENDITURE. APPLYING THE AFORESAID PARITY OF REASONING, LEARNED COUNSEL FOR THE ASSESSEE CONCEDED DURING THE COURSE OF HEARING THAT IN SO FAR AS THE EXPENDITURES OF RS.1,44,17,040/- ON ACCOUNT OF TRANSVALOR SA AND RS .22,88,000/- ON ACCOUNT OF UG NX SOFTWARE ARE CONCERNED, THE SAME ARE SPENT ON ACQUIRING SOFTWARES WHICH ARE RELATABLE TO THE MANUFACTURING PROCESS CA RRIED OUT BY THE ASSESSEE AND THEREFORE THE SAME ARE LIABLE TO BE TREATED AS CAPITAL EXPENDITURES. SO FAR AS THE BALANCE EXPENDITURE OF RS. 25,53,167/- IS CO NCERNED IT IS QUITE CLEAR THAT THE SAME RELATES TO FACILITATION OF ASSESSEES TRAD ING ACTIVITY OR ENABLING IT TO CONDUCT ITS BUSINESS MORE PROFITABILITY AND DO NOT CONSTITUTE A PART OF ITS PROFIT- MAKING APPARATUS. THEREFORE, FOLLOWING THE RATIO O F THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RAYCHEM RP G LTD. (SUPRA), WE HOLD THAT THE AMOUNT OF RS.25,53,167/- BE ALLOWED A S A REVENUE EXPENDITURE AND THE BALANCE OF RS.1,67,05,040/- BE TREATED AS C APITAL EXPENDITURE. THE ASSESSING OFFICER IS DIRECTED TO RE-WORK THE DISALL OWANCE AS ABOVE. THUS, ON THIS GROUND ASSESSEE PARTLY SUCCEEDS. 12. THE LAST GROUND IN THIS APPEAL RELATES TO DISAL LOWANCE OF RS.56,78,560/- MADE BY THE ASSESSING OFFICER BY INVOKING SECTION 4 0(A)(IA) OF THE ACT WHICH HAS SINCE BEEN SUSTAINED BY THE CIT(A). ITA NO.795/PN/2013 A.Y. 2008-09 13. ON THIS ASPECT, IT WAS A COMMON POINT BETWEEN T HE PARTIES THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 30.09.2013 . 14. IN THIS CONTEXT, THE DETAILS OF THE DISALLOWANC E ARE CONTAINED IN PARA 6.1 OF THE ORDER OF THE CIT(A). IN SO FAR AS THE FIRST LIMB OF DISALLOWANCE RELATES TO A SUM OF RS.4,15,000/- ON ACCOUNT OF DIRECTOR SITTI NG FEES. THE ASSESSEE DID NOT DEDUCT ANY TAX AT SOURCE ON SUCH PAYMENTS. AS P ER THE ASSESSING OFFICER, IN TERMS OF SECTION 194J OF THE ACT, TAX WAS DEDUCT IBLE AT SOURCE ON SUCH PAYMENTS, BEING PAYMENTS IN THE NATURE OF PROFESSIO NAL SERVICES. IN THIS CONNECTION, THE LEARNED COUNSEL POINTED OUT THAT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 VIDE ITA NO.1357/PN/201 0 DATED 31.01.2013 THE TRIBUNAL HELD THAT NO TAX WAS REQUIRED TO BE DE DUCTED UNDER SECTION 194J OF THE ACT IN RELATION TO THE PAYMENT OF DIRECTOR S ITTING FEES. FOLLOWING THE SAID DECISION, A COPY OF WHICH HAS BEEN PLACED ON RECORD , WE HOLD THAT THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IS NOT WARRANTED. AND THE SAME IS DIRECTED TO BE DELETED. 15. FOR THE BALANCE DISALLOWANCE OF RS.47,27,902/-, IT IS POINTED OUT THAT THE ASSESSING OFFICER HAS INVOKED SECTION 40(A)(IA) OF THE ACT ON THE GROUND THAT ASSESSEE HAS SHORT DEDUCTED THE TAX AT SOURCE. THE LEARNED COUNSEL EXPLAINED THE TAX DEDUCTED AT SOURCE IN RESPECT OF TESTING AND INSPECTION, MISC. HIRE CHARGES, DIE REPAIRS AND MOTOR REWINDING EXPENSES WAS DEDUCTED BY THE ASSESSEE IN TERMS OF SECTION 194C O F THE ACT WHEREAS AS PER THE ASSESSING OFFICER, THE SAME WAS REQUIRED TO BE DEDUCTED IN TERMS OF SECTION 194J OF THE ACT. ACCORDING TO THE LEARNED COUNSEL, THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 VID E ORDER DATED 30.09.2013 (SUPRA) HAS UPHELD THE POSITION THAT SEC TION 40(A)(IA) CAN BE INVOKED ONLY IN CASES OF NON-DEDUCTION OF TAX AT SO URCE BUT NOT IN CASES WHERE SOME SHORT DEDUCTION TAX AT SOURCE IS INVOLVED. IN THIS CONNECTION, THE ITA NO.795/PN/2013 A.Y. 2008-09 FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL D ATED 30.09.2013 (SUPRA) HAS BEEN REFERRED :- 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. OSTENSIBLY, THE POINT MADE OUT BY THE ASSESSEE, IS TO THE EFFECT THAT SECTION 40(A)(IA) OF THE ACT CAN BE INVOKED ONLY IN CASES W HERE THERE IS A NON- DEDUCTION OF TAX AT SOURCE AND NOT IN CASES WHERE T HERE IS SHORT-DEDUCTION OF TAX AT SOURCE. IN THE PRESENT CASE, THE CHARGE MADE BY THE ASSESSING OFFICER IS THAT ASSESSEE HAS NOT DEDUCTED TAX AT APPROPRIAT E RATE UNDER SECTION 194C OF THE ACT. WITHOUT GOING INTO THE MERITS OF THE RI VAL CLAIMS, FOR THE PRESENT, IT IS SUFFICIENT TO OBSERVE THAT THE ASSESSEE HAS BEEN HE LD TO BE AN ASSESSEE IN DEFAULT FOR THE REASON THAT IT DEDUCTED TAX AT SOUR CE ON PAYMENTS MADE BY WAY OF DIE REPAIRS AND MOTOR REWINDING EXPENSES WHI CH WAS LOWER THAN THE RATE PRESCRIBED IN LAW, AS PER THE VIEW OF THE ASSE SSING OFFICER. THE CONTROVERSY IS AS TO WHETHER IN SUCH A SITUATION, P ROVISIONS OF SECTION 40(A)(IA) OF THE ACT CAN BE ATTRACTED SO AS TO DISALLOW THE C ORRESPONDING EXPENDITURE, WHICH ACCORDING TO THE ASSESSING OFFICER HAS SUFFER ED DEDUCTION AT LOWER RATE OF TAX AT SOURCE. 18. TO ANSWER THE AFORESAID CONTROVERSY, ONE MAY NO TICE THE CRUCIAL EXPRESSION IN SECTION 40(A)(IA) OF THE ACT WHICH PRESCRIBES THAT THE EXPENDITURE SPECIFIED THEREIN SHALL BE DISALLOWED ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE D ATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139. CLEARLY, THE PHRASEOL OGY TO SECTION 40(A)(IA) OF THE ACT SEEKS TO DISALLOW AN EXPENDITURE ONLY IN SI TUATIONS WHERE THE TAX IS DEDUCTIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDU CTED OR AFTER DEDUCTION HAS NOT BEEN PAID AS PER THE PERIOD PRESCRIBED THER EIN. THE PHRASEOLOGY USED IN SECTION 40(A)(IA) OF THE ACT CLEARLY REMOVES FRO M ITS PURVIEW CASES WHERE TAX HAS BEEN SHORT-DEDUCTED. THEREFORE, THE INFEREN CE DRAWN BY THE CIT(A) IS BORNE OUT OF A PLAIN READING OF SECTION 40(A)(IA) O F THE ACT. MOREOVER, THE DECISIONS OF THE PUNE BENCH OF THE TRIBUNAL IN TH E CASE OF SANDVIK ASIA LTD. VS. JCIT 146 TTJ 644 (PUNE); AND, ALSO THE MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF CHANDABHOY & JASSOBHOY VIDE ITA NO.20/M UM?2010 DATED 08.07.2011 SUPPORT THE AFORESAID PREMISE. THUS, IN THE PRESENT CASE THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT ATTRACTED AS THIS IS A CASE OF SHORT-DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C OF THE ACT AND NOT A CASE OF NON-DEDUCTION OF TAX AT SOURCE. THE DISALLOWANCE OUT OF DIE REPAIRS AND MOTOR REWINDING EXPENSES IS HEREBY SET-ASIDE. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE APPEARI NG FOR THE REVENUE HAS NOT DISPUTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE. 17. THEREFORE, FOLLOWING THE AFORESAID PRECEDENT, I N OUR VIEW, NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS MERITED WI TH RESPECT TO THE EXPENDITURE INCURRED IN RELATION TO TESTING AND INSPECTION, MIS C. HIRE CHARGES, DIE REPAIRS ITA NO.795/PN/2013 A.Y. 2008-09 AND MOTOR REWINDING EXPENSES AMOUNTING TO RS.47,27, 902/-. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT ALSO. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 30 TH MAY, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, 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