Konthiyaparambil coir & Rubber Products, Alappuzha V. ITO, Cochin

ITA 813/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68932 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 06-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 30-12-2013
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: A KRISHNAN
• Keywords: Difference of opinion; Reason to believe; Change of opinion; Capital expenditure
• Section: 143(3); 194C; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO. 813/COCH/2013 ASSESSMENT YEAR : 2006-07 KONTHIYAPARAMBIL COIR RUBBER PRODUCTS, RAMANAKARY, ALAPPUZHA. [PAN: AAHFP 4817F] VS. THE INCOME TAX OFFICER, WARD-2, ALAPPUZHA. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI A. KRISHNAN, ADV. REVENUE BY SMT. LATHA V. KUMAR, JR. DR DATE OF HEARING 06/08/2014 DATE OF PRONOUNCEMENT 28/08/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THE APPEAL FILED BY THIS ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 21- 10-2013 PASSED BY THE CIT(A)-IV, KOCHI FOR THE ASSE SSMENT YEAR 2006-07. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF COIR AND RUBBER MATS, FILED THE RETU RN OF INCOME OF RS. 1,72,000/- IN THE ASSESSMENT ORDER U/S. 143(3) ON 09-01-2008, THE INCOME WAS DETERMINED AT RS. 2,97,000/-. HOWEVER, THE ASSESSMENT U/S. 14 3(3)/147 WAS CONCLUDED AT A TOTAL INCOME OF RS. 11,31,770/-. THE ASSESSING OFF ICER FOUND THAT THE INCOME ESCAPED ASSESSMENT ON ACCOUNT OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DUE TO NON-DEDUCTION OF TDS ON PAYMENT OF RS. 8,34, 773/- MADE TO THE I.T.A. NO.813 /COCH/2013 2 CONTRACTORS FOR THE LABOUR CONTRACT WORK. AGAINST THIS, THE ASSESSEE HAS FILED THE APPEAL BEFORE THE CIT(A). 3. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD T O RE-OPENING OF ASSESSMENT U/S. 147/148 OF THE ACT. ACCORDING TO THE LD. COUN SEL FOR THE ASSESSEE, THE RE- OPENING OF THE ASSESSMENT IS NOT PROPER. THE ASSES SEE FILED THE RETURN O INCOME FOR 2006-07 ON 31-10-2006, DECLARING A TOTAL INCOME OF RS. 1,72,000/-. THIS WAS PROCESSED U/S. 143(1) OF THE ACT ON 08-08-2007. SU BSEQUENTLY, THE ASSESSMENT WAS COMPLETED U/S. 143(3) ON 09-01-2008 DETERMINING A TOTAL INCOME OF RS.2,97,000/-. LATER, THE ASSESSING OFFICER VERIFI ED THE TDS CERTIFICATE DATED 24- 07-2006 FILED BY THE ASSESSEE AND FOUND THAT THE TO TAL RECEIPT OF JOB WORK CHARGES FROM THE ALLEPPEY CO. LTD. WAS RS. 14,68,39 81/- AND THE ASSESSEE CLAIMED THE ENTIRE TDS OF RS.30,836/- IN ITS RETURN OF INCOME. HOWEVER, THE ABOVE RECEIPT OF RS. 14,68,381 WAS NOT TAKEN BY THE ASSESSEE FOR ARRIVING AT THE TOTAL INCOME. THE TAX WAS NOT DEDUCTED FROM THE LA BOUR CONTRACT PAYMENT OF RS.8,34,773/-. BEING SO, ACCORDING TO THE ASSESSING OFFICER, THE PROVISIONS OF SEC. 40(A)(IA) WAS APPLICABLE TO THE ASSESSEES CASE. AC CORDINGLY, THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT THE INCOME HAS ESCAPED A SSESSMENT. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS ALREADY DISCLOSED A LL INFORMATION REQUIRED FOR THE PURPOSE OF ASSESSMENT. IF THE ASSESSING OFFICER FA ILED TO LOCATE ANY ERROR OR LAPSE ON THE PART OF THE ASSESSEE AT THE TIME OF FR AMING ASSESSMENT, IT CANNOT BE SAID TO BE ATTRIBUTABLE TO THE ASSESSEE SO AS TO RE -OPEN THE ASSESSMENT. I.T.A. NO.813 /COCH/2013 3 ACCORDING TO THE LD. AR, THERE ARE NO NEW INFORMATI ON OR MATERIAL RECEIVED TO RE- OPEN THE ASSESSMENT AND THERE IS NO EXCESS RELIEF G RANTED TO THE ASSESSEE WHILE FRAMING THE ASSESSMENT. THERE SHOULD BE SOME MATERI AL OR NEW INFORMATION, WHICH WERE NOT AVAILABLE TO THE ASSESSING OFFICER A T THE TIME OF FRAMING ASSESSMENT SO AS TO ENABLE THE ASSESSING OFFICER TO RE-OPEN THE ASSESSMENT. IN SUPPORT OF HIS CONTENTIONS, THE LD. AR RELIED ON TH E FOLLOWING JUDGMENTS: I) BIBHUTI BHUSAN GHOSH AND OTHER VS. IT O (1993)(203 ITR 536) (CAL.) II) BIRLA VXL LTD. VS. ACIT (1996) (217 ITR 1) (G UJ) II) MCDERMOTT INTERNATIONAL INC. VS. ADDL. CIT & A NOTHER (2003) (259 ITR 138) (UTTARANCHAL) IV) VENKATESH POWER WORKS VS. CIT (2005) (278 ITR 436) (KAR.) V) CIT VS. KELVINATOR OF INDIA LTD. (2010) (2 SUP REME COURT CASES 723) 4. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE RE WAS EXCESS RELIEF GIVEN TO THE ASSESSEE AT THE TIME OF THE ORIGINAL A SSESSMENT. THE ASSESSING OFFICER CAME TO KNOW THAT THE INCOME HAS ESCAPED AS SESSMENT ON ACCOUNT OF NON-DEDUCTION OF TDS RELATING TO EXPENSES INCURRED TOWARDS LABOUR CONTRACT PAYMENT OF RS.8,34,773/- AND THEREFORE, THE PROVISI ONS OF SEC. 40(A)(IA) OF THE I.T. ACT IS APPLICABLE TO THE ASSESSEES CASE. FUR THER, THE LD. DR RELIED ON THE FOLLOWING JUDGMENTS: 1) ESS ESS KAY ENGG. CO. (P) LTD. VS. CIT (2001) 247 ITR 818 (SC). 2. INNOVATIVE FOODS LTD. VS. UNION OF INDIA (2013) (356 ITR 389) (KER.). 3. KALYANI MAVJI & CO. VS. CIT (102 ITR 287)(SC). I.T.A. NO.813 /COCH/2013 4 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE LD. AR SUBMITTED BEFORE US THAT ALL THE ABOVE INFORMATION WERE AVAIL ABLE WITH THE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMENT. THE ASSESSING OFFICER CANNOT RE-EXAMINE THE SAME BY RE-OPENING THE ASSESSMENT. IN OUR OPINION, THE ASSESSEE MAY HAVE DISCLOSED THE ABOVE PARTICULARS AT THE TIME OF ORIG INAL ASSESSMENT, IF THEY ARE FOUND TO BE UNTRUE ON THE BASIS OF MATERIAL DISCOVE RED BY A LATER DATE BY THE ASSESSING OFFICER, THE ASSESSMENT WOULD BE VALIDLY RE-OPENED U/S. 147(A) OF THE ACT BECAUSE IN SUCH A CASE, THE ASSESSEE WOULD HAVE FAILED TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSME NT AND IT WOULD NOT BE A CASE OF MERE CHANGE OF OPINION. A MERE PRODUCTION OF THE B OOKS OF ACCOUNT OR DOCUMENTS OR OTHER EVIDENCES IS NOT SUFFICIENT FOR MAKING ASSESSMENT. IF THE ASSESSING OFFICER IS UNABLE TO EXAMINE THOSE DOCUME NTS AND TO DISCOVER THE UNDERSTATEMENT OF INCOME BY RELYING ON THE SAME DOC UMENTS, THE ASSESSING OFFICER COULD RE-OPEN THE ASSESSMENT ON THE BASIS O F FRESH MATERIAL WHICH CAME TO THE KNOWLEDGE OF THE ASSESSING OFFICER THAT THE INCOME HAS ESCAPED ASSESSMENT. THEREFORE, MERELY BECAUSE MATERIAL LIE S EMBEDDED IN THE MATERIAL OR EVIDENCE PRODUCED BY THE ASSESSEE, WHICH THE ASS ESSING OFFICER COULD HAVE UNCOVERED BUT DID NOT UNCOVER IS NOT A GOOD GROUND TO CANCEL THE RE-ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER COULD HAVE FOUND THE TRUTH, BUT HE DID NOT, DOES NOT PRECLUDE THE ASSESSING OFFICER FROM EXERCI SING THE POWER OF RE- ASSESSMENT TO BRING TO TAX THE ESCAPED INCOME. IN T HE PRESENT CASE, AS SEEN I.T.A. NO.813 /COCH/2013 5 FROM THE REASONS RECORDED, THERE IS PRIMA FACIE ESC APEMENT OF INCOME. HENCE, THE ASSESSING OFFICER AFTER RECORDING THE REASONS, ISSUED NOTICE TO THE ASSESSEE U/S. 148 OF THE ACT. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITIES TO RE-OPEN THE ASSESSMENT. THIS VIEW O F OURS IS FORTIFIED BY THE FOLLOWING JUDGMENTS: I) ESS ESS KAY ENGG. CO. (P) LTD. VS. CIT (247 TAXMAN 818 (SC). II) HONDA SEIL POWER PRODUCTS LTD. VS. DCI T (340 ITR 64) (SC). III) CONSOLIDATED PHOTO & FINVEST LTD. VS. CIT (281 ITR 394) (DEL). ACCORDINGLY, THIS GROUND IS REJECTED. 6. COMING TO THE ADDITION OF RS. 8,34,773/- TOWARDS LABOUR CONTRACT PAYMENTS, THE LD. AR SUBMITTED THAT THE ASSESSING O FFICER HAS PASSED HIS ORDER WITHOUT ACCEPTING THE AFFIDAVIT DULY FILED BY THE S UPERVISORS OF THE ASSESSEE AND HAS REACHED THE CONCLUSION THAT THE PAYMENT MADE TO WARDS WAGES IS IN THE NATURE OF CONTRACT AS MENTIONED U/S. 194C OF THE I. T. ACT AND THEREBY FALLS WITHIN THE PROVISION OF CHAPTER XVII-B OF THE I.T. ACT AND THEREFORE IS DISALLOWABLE U/S. 40(A)(IA) OF THE I.T. ACT. THE LD. AR SUBMITTED T HAT THE LOWER AUTHORITIES ERRED IN REJECTING THE DECISION HELD IN TEJA CONSTRUCTION S VS. ACIT (2010) 129 TTJ 57) (HYD) (UO) BY THE TRIBUNAL, HYDERABAD THAT THE PRO VISIONS OF SEC. 40()(IA) OF THE I.T. ACT, 1961 RE APPLICABLE ONLY TO ITEMS COVE RED BY SEC. 30 TO 38 AND NOT TO SEC. 28 AND ALL THE DIRECT COST/EXPENDITURE COVERED BY SEC. 28 OF THE ACT ARE I.T.A. NO.813 /COCH/2013 6 BEYOND THE SCOPE OF DISALLOWANCE U/S. 40(A)(IA) OF THE ACT BY MERELY STATING THAT THE DECISION IS NOT OF A JURISDICTIONAL TRIBUNAL. THE LD. AR FURTHER SUBMITTED THAT THE PAYMENTS HAVE BEEN MADE TO THE EMPLOYEES OF THE ASSESSEE-COMPANY ON WEEKLY BASIS IN CASH. THE ASSESSEES EMPLOYEES NAM ELY SHRI ANIL KUMAR, SHRI JAMES C.S., SHRI PAVITHRAN AND SMT. SOBHANA ANIL HA VE CONFIRMED RECEIPT OF PAYMENTS. THOUGH SHRI ANIL KUMAR WAS ONE OF THE SUP ERVISORS ENGAGED BY THE ASSESSEE, HE DID CUTTING WORKS OF RUBBER/COIR MATS ON CONTRACT BASIS FOR THE ASSESSEE. THE OTHER THREE PERSONS NAMELY SHRI JAME S C.S., SHRI PAVITHRAN AND SMT. SOBHANA ANIL THOUGH NOT EMPLOYEES ADMITTED THA T THEY WERE ENTRUSTED TO DO CUTTING WORKS ON CONTRACT BASIS DURING THE RELEV ANT PREVIOUS YEAR 2005-06. FURTHER, THE ASSESSEE FILED CONFIRMATION LETTERS FR OM THESE PERSONS STATING THAT THEY WERE SUPERVISORS IN THE ASSESSEES FIRM AND IF THE DEPARTMENT HAD ANY DOUBT, THEY SHOULD HAVE SUMMONED AND ENQUIRED ABOUT THESE PERSONS AS POWER IS VESTED WITH THE ASSESSING OFFICER TO EXAMINE THE M FURTHER AND THIS CANNOT BE THE REASON TO SUSTAIN THE ADDITION. FURTHER, HE SU BMITTED THAT THE AMOUNT IS NOT PAYABLE AT THE END OF THE YEAR AND IT WAS ALREADY P AID, AND SO, THE PROVISIONS OF SEC. 40(A)(IA) CANNOT BE INVOKED. 7. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE ASSESSEE MADE THE PAYMENTS WITHOUT DEDUCTION OF TDS AND SO, THE PROVI SIONS OF SEC. 40(A)(IA) WAS RIGHTLY INVOKED ON THIS COUNT AND UPHELD THE SAME. I.T.A. NO.813 /COCH/2013 7 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. IN THE PRESENT CASE, THERE IS NO DISPUTE REGARDING PAYMENT TOWARDS LABOUR CONTRACT WORK. THE PLEA OF THE ASSESSEE IS THAT THE PAYMENTS HAVE BEEN PAID TO THE FOUR EMPLOYEES OF THE ASSESSEE-COMPANY THOUGH THE ASSESSEE IS ENGA GED IN LABOUR CONTRACT WORK. NOW THE QUESTION IS WHETHER THE PROVISIONS OF SEC. IS APPLICABLE OR NOT TO THE ASSESSEES CASE. SECTION 40(A)(IA) PROVIDES TH AT IN CASE OF ANY INTEREST, COMMISSION OR BROKERAGE, RENT ROYALTY, FEES FOR PRO FESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNT S PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK, ON WHICH TAX IS DEDUCTIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE, SUCH AMOUNT SHALL BE ALLOWED AS DEDUCTION IN COMPUTING T HE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE PROVISIONS OF SECT IONS 30 TO 38 OF THE ACT. THE PROPOSITION EMERGED FROM THE AFORESAID PROVISIONS S HOW THAT THE DISALLOWANCE U/S. 40(A)(IA) IS ATTRACTED IN RESPECT OF AMOUNTS O N WHICH TAX IS DEDUCTIBLE AT SOURCE AND SUCH TAX IS EITHER NOT DEDUCTED OR AFTER DEDUCTION IF TAX IS NOT PAID WITHIN THE SPECIFIED DATE, DISALLOWANCE U/S. 40(A)( IA) CAN BE MADE IRRESPECTIVE OF THE PROVISIONS CONTAINED IN SECTIONS 30-38 OF THE I .T. ACT. THE PLEA OF THE ASSESSEE IS THAT IT HAS MADE THE P AYMENTS TO THE EMPLOYEES. IN OUR OPINION, THIS PLEA IS COMPLETELY IRRELEVANT FOR DECIDING THE I.T.A. NO.813 /COCH/2013 8 ISSUE OF DISALLOWANCE U/S. 40(A)(IA) OF THE I.T. AC T. THE APPLICATION OF PROVISIONS OF SEC. 40(A)(IA) DOES NOT DEPEND UPON AS TO WHETHE R THE ASSESSEE HAS PAID MONEY TO THE CONTRACTOR OR TO THE EMPLOYEES OF THE ASSESSEE-COMPANY WHICH HAS NOTHING TO DO WITH THE RECEIPTS IN THIS CASE. IN T HIS CASE, WE HAVE TO SEE THAT WHETHER PAYMENT IS LIABLE FOR DEDUCTION OF TDS U/S. 194C OF THE ACT. PAYMENT TO LABOUR CONTRACT WORK OR TO THE EMPLOYEES CANNOT BE DEFEATED TO THE PROVISIONS OF SECTION 40(A)(IA) ON THE GROUND THAT THE ASSESSEE H AS MADE PAYMENTS TO THE EMPLOYEES. EVEN IF THE PAYMENT IS MADE TO THE EMPLOY EES TOWARDS LABOUR CONTRACT WORK, THEN THE ASSESSEE IS LIABLE FOR DEDU CTION OF TDS U/S. 194C. THE ASSESSEE CLAIMED EXPENDITURE TOWARDS LABOUR CONTRAC T PAYMENT WHICH IS NOT LIABLE FOR DEDUCTION OF TDS U/S. 194C OF THE I.T. A CT. 11.1 SECTION 28 IS A CHARGING SECTION IN RESPECT O F PROFITS AND GAINS OF BUSINESS OR PROFESSION, CLAUSE(1) OF SECTION 28 PROVIDES THA T THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION WHICH WERE CARRIED ON BY THE ASSESSEE AT ANYTIME DURING THE PREVIOUS YEAR WOULD BE CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION . SECTION 29 OF T HE INCOME TAX ACT PROVIDES THAT THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30-43D OF THE INCOME TAX ACT. SECTION 37 OF THE INCOME TAX ACT PROVIDES ANY EXPENDITURE NOT BE ING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 38 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN I.T.A. NO.813 /COCH/2013 9 COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION. IN THE STATUTORY FRAMEWORK OF SECT ION 37,WE ARE UNABLE TO ACCEPT THE SUBMISSION OF THE ASSESSEE THAT THE IMPUGNED EX PENSES IN RESPECT OF WHICH DEDUCTION HAS BEEN CLAIMED DO NOT FALL UNDER SECTIO N 37 AND THEREFORE THEY ARE OUTSIDE THE SCOPE OF DISALLOWANCE CONTEMPLATED BY S ECTION 40(A)(IA) FOR THE FOLLOWING REASONS: 11.2 IN INDIAN MOLASSES CO.(P) LTD. VS. CIT, 37 IT R 66 (SC), IT HAS BEEN HELD THAT EXPENDITURE IS WHAT IS PAID OUT OR AWAY AND IS SOMETHING WHICH IS GONE IRRETRIEVABLY. TO BE A PAYMENT WHICH IS MADE IRRETR IEVABLY THERE SHOULD BE NO POSSIBILITY OF THE MONEY FORMING, ONCE AGAIN, A PAR T OF THE FUNDS OF THE ASSESSEE. THE IMPUGNED EXPENDITURE INCURRED BY THE ASSESSEE F ULLY ANSWERS THE AFORESAID FEATURES OF EXPENDITURE AND HENCE IS FULLY COVERED BY THE TERM ANY EXPENDITURE USED IN SECTION 37. 11.3 THE USE OF PHRASE ANY EXPENDITURE IN SECTION 37 IS WIDE AND COMPREHENSIVE ENOUGH TO INCLUDE ALL FORMS OF EXPEND ITURE IRRESPECTIVE OF WHETHER THEY ARE DIRECT OR INDIRECT EXPENDITURE. TH E TERM EXPENDITURE HAS BEEN DEFINED IN PAGE 577 OF BLACKS LAW DICTIONARY 6 TH EDITION AS SPENDING OR PAYMENT OF MONEY, THE ACT OF SPENDING, DISBURSING, OR LAYING OUT OF MONEY; PAYMENT. THE TERM EXPENSE IS ALSO DEFINED AT THE SAME PAGE OF THE DICTIONARY AS THAT WHICH IS EXPENDED, LAID OUT OR CONSUMED. AN OUTLAY; CHARGE; I.T.A. NO.813 /COCH/2013 10 COST; PRICE. THE EXPENDITURE OF MONEY, TIME, LABOUR , RESOURCES, AND THOUGHT. THAT WHICH IS EXPENDED IN ORDER TO SECURE BENEFIT O R BRING ABOUT A RESULT. BUSINESS EXPENSE IS ALSO DEFINED AT THE SAME PAGE OF THE SAME DICTIONARY AS ONE WHICH IS DIRECTLY RELATED TO ONES BUSINESS AS CONTRASTED WITH EXPENSES INCURRED FOR PERSONAL AND FAMILY REASONS. IT IS TH US CLEAR THAT THE TERM ANY EXPENDITURE USED IN SECTION 37 IS WIDE ENOUGH TO I NCLUDE ALL OUTLAYS, CHARGES, COSTS, PRICES WHICH ARE LAID OUT ON OR EXPENDED WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS IRRESPECTIVE OF WHETHER IT IS IN THE NATURE OF DIRECT OR INDIRECT EXPENDITURE/COSTS. THERE ARE NO WORDS IN SECTION 37 FROM WHICH IT CAN BE INFERRED THAT THE PROVISIONS OF SECTION 37 ARE I NTENDED TO COVER INDIRECT COSTS/EXPENDITURE ALONE. THE PHRASE ANY EXPENDITU RE IN SECTION 37 CANNOT, BY ANY LINGUISTIC TOOL OF INTERPRETATION BE INTERPRETE D TO MEAN INDIRECT COSTS/EXPENDITURE ALONE. WORD ANY HAS DIVERSITY OF MEANING AND IS GENERALLY EMPLOYED IN LEGISLATIONS TO INDICATE ALL OR EVER Y. THE USE OF THE WORD ANY IN THE SAID PHRASE SHOWS THAT THE TERM EXPENDITURE IS INTENDED TO BE WIDE AND COMPREHENSIVE ENOUGH TO COVER ALL FORMS OF EXPENDIT URE IRRESPECTIVE OF WHETHER THEY ARE IN THE NATURE OF DIRECT COSTS/EXPENDITURE OR IN THE FORM OF ANY OTHER OUTLAY. 11.4 THE AFORESAID VIEW, IS ALSO SUPPORTED BY THE J UDGMENT OF THE HONBLE SUPREME COURT IN ATTAR SINGH GURMUKH SINGH VS.ITO,1 91 ITR 667 (SC) IN WHICH IT HAS BEEN HELD THAT THE PAYMENTS MADE FOR PURCHAS ES WOULD ALSO BE COVERED I.T.A. NO.813 /COCH/2013 11 BY THE WORD EXPENDITURE AND SUCH PAYMENTS CAN BE DISALLOWED IF THEY ARE MADE IN CASH IN THE SUMS EXCEEDING THE AMOUNT SPECI FIED UNDER SECTION 40A(3). ON EXACTLY SAME PRINCIPLES, THE IMPUGNED PAYMENTS M ADE BY THE ASSESSEE WOULD CONSTITUTE EXPENDITURE WITHIN THE MEANING O F SECTION 37 FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 40(A)(IA). 11.5 SINCE SECTION 37 SPECIALLY DEALS WITH ANY EX PENDITURE, THE GENERAL PROVISIONS OF SECTION 28 WOULD NOT APPLY TO THOSE E XPENSES WHICH ARE SPECIALLY COVERED BY SECTION 37. IMPUGNED EXPENDITURE IS COV ERED BY SECTION 37 AND HENCE ITS DEDUCTIBILITY HAS TO BE SEEN UNDER SECTIO N 37 READ WITH SECTION 40 AND NOT UNDER SECTION 28. 12. THE SUBMISSION OF THE ASSESSEE IS THAT THE DISA LLOWANCE OF EXPENSES CONTEMPLATED BY SECTION 40(A)(IA) IS LIMITED TO ONL Y THOSE EXPENSES WHICH FALL UNDER SECTIONS 30 TO 38. THERE ARE THREE PRINCIPAL REASONS FOR US TO HOLD THAT THE SCOPE OF DISALLOWANCE OF EXPENSES CONTEMPLATED BY S ECTION 40(A)(IA) IS NOT LIMITED TO THOSE EXPENSES ALONE WHICH FALL UNDER SE CTION 30-38 BUT COVERS ALL THOSE EXPENSES WHICH ARE SPECIFICALLY ENUMERATED IN SECTION 40. THEY ARE AS UNDER: (I) THE SUBJECT MATTER OF DISALLOWANCE UNDER SUB-CL AUSE (IA) OF CLAUSE (A) OF SECTION 40 IS, INTER-ALIA, THE AMOUNTS PAYABLE TO A CONTRACTOR OR A SUB-CONTRACTOR FOR CARRYING OUT ANY WORK OUT OF WHICH TAX IS DEDUC TIBLE AT SOURCE AND SUCH TAX I.T.A. NO.813 /COCH/2013 12 HAS EITHER NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID BEFORE THE SPECIFIED DATE. THEREFORE, THE AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR CANNOT BE ALLOWED AS DEDUCTION UNLESS TAX HAS BEEN DEDUCTED OUT OF SUCH AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR. THE LANGUAGE OF SUB CLAUSE (IA) OF CLAUSE (A) IS UNAMBIGUOUS AND UNEQUIVOCAL I N THAT THE PAYMENTS MADE TO A CONTRACTOR OR A SUB-CONTRACTOR CANNOT BE ALLOWED AS DEDUCTION UNLESS TAX OUT OF SUCH PAYMENTS IS DEDUCTED AT SOURCE, AND AFTER D EDUCTION, PAID TO THE GOVERNMENT WITHIN THE SPECIFIED TIME LIMIT. IF SUC H PAYMENTS WERE INTENDED TO BE KEPT OUTSIDE THE SCOPE OF DISALLOWANCE CONTEMPLA TED BY SECTION 40, THEN THERE WAS NO REASON FOR SPECIFICALLY SUBJECTING THE M TO DISALLOWANCE UNDER SECTION 40(A)(IA). (II) AS APPARENT FROM THE OPENING WORDS OF SECTION 40, THE PROVISIONS OF SECTION 40(A)(IA) BAR DEDUCTION OF CERTAIN TYPES OF EXPENSE S IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSI NESS OR PROFESSION IRRESPECTIVE OF THE PROVISIONS CONTAINED IN SECTIO NS 30 TO 38 OF THE ACT. IN OUR OPINION, THE LEGAL EFFECT OF THE OPENING WORDS OF S ECTION 40 IS THAT THE EXPENSES IN RESPECT OF WHICH DISALLOWANCE IS CONTEMPLATED BY SECTION 40 WOULD NOT BE ELIGIBLE FOR DEDUCTION EVEN IF THEY ARE OTHERWISE E LIGIBLE FOR DEDUCTION UNDER SECTION 30 TO 38. THEY CANNOT THEREFORE BE INTERPR ETED AS SUGGESTING THAT ONLY THOSE EXPENSES WHICH ARE ADMISSIBLE FOR DEDUCTION U NDER SECTION 30 TO 38 ALONE WOULD BE CONSIDERED FOR DISALLOWANCE UNDER SECTION 40. TO SAY THAT THE EXPENSES I.T.A. NO.813 /COCH/2013 13 ENUMERATED IN SECTION 40 SHALL BE DISALLOWED UNDER SECTION 40 IF THE CONDITIONS SPECIFIED THEREIN ARE SATISFIED IRRESPECTIVE OF THE IR ADMISSIBILITY FOR DEDUCTION UNDER SECTION 30 TO 38 IS ONE PROPOSITION AND TO SA Y THAT ONLY THOSE EXPENSES WHICH FALL UNDER SECTION 30 TO 38 ALONE WOULD BE CO NSIDERED FOR DISALLOWANCE UNDER SECTION 40 IS A QUITE DIFFERENT PROPOSITION. BOTH OF THEM DO NOT MEAN ONE AND THE SAME THING. OPENING WORDS OF SECTION 40 DO NOT RESTRICT OR LIMIT THE SCOPE OF EXPENSES CONTEMPLATED FOR DISALLOWANCE BY IT BUT RATHER NOT RESTRICT OR LIMIT THE SCOPE OF EXPENSES CONTEMPLATED FOR DISALL OWANCE BY IT BUT RATHER ENLARGES THE SAME IN THE SENSE THAT THE DISALLOWANC E OF SUCH EXPENSES AS CONTEMPLATED BY SECTION 40 WOULD BE MADE IRRESPECTI VE OF THEIR ELIGIBILITY FOR DEDUCTION UNDER SECTION 30 TO 38. THEY SIMPLY OVER- RIDE THE PROVISIONS OF SECTION 30 TO 38 AND NOT THAT THEY RESTRICT THE SCOPE OF EX PENSES SPECIFICALLY ENUMERATED FOR DISALLOWANCE UNDER SECTION 40 TO THOSE EXPENSES ALONE WHICH FALL UNDER SECTION 30 TO 38. (III) WITHOUT PREJUDICE TO THE AFORESAID, THE OPENI NG WORDS OF SECTION 40 CANNOT BE INTERPRETED SO AS TO LIMIT THE AMBIT AND SCOPE O F SPECIAL PROVISIONS CONTAINED IN CLAUSE (A) (IA) OF SECTION 40 OF THE INCOME TAX ACT. IT IS EQUIVALENT TO SAYING THAT IN SPITE OF THE PROVISIONS IN THE NON-OBSTANTE CLAUSE CONTAINED IN SECTION 40, THE SPECIAL PROVISIONS CONTAINED IN CLAUSE (A) (IA) OF SECTION 40 WILL STILL HAVE ITS FULL OPERATION OR THAT THE PROVISION INDICATED IN T HE NON-OBSTANTE CLAUSE WILL NOT BE AN IMPEDIMENT FOR THE OPERATION OF THE AFORESAID CLAUSE. I.T.A. NO.813 /COCH/2013 14 13. IN VIEW OF THE AFORESAID, WE ARE UNABLE TO AC CEPT THE SUBMISSION OF THE ASSESSEE THAT THE IMPUGNED PAYMENTS ARE NOT IN THE NATURE OF EXPENDITURE WITHIN THE MEANING OF SECTION 37 OR THAT THE SCOPE OF DISALLOWANCE CONTEMPLATED BY SECTION 40(A)(IA) IS RESTRICTED TO THOSE EXPENSE S WHICH FALL U/S. 30 TO 38. IN OUR VIEW, THE SCOPE OF DISALLOWANCE CONTEMPLATED BY SECTION 40 COVERS ALL THOSE EXPENSES WHICH ARE SPECIFICALLY ENUMERATED THEREIN. THE IMPUGNED EXPENSES CLAIMED BY THE ASSESSEE AS DEDUCTION ARE SPECIFIED IN SECTION 40(A)(IA) AND THEREFORE THEY ARE WELL WITHIN THE SCOPE OF DISALLO WANCE CONTEMPLATED BY SECTION 40(A)(IA) IRRESPECTIVE OF THEIR ELIGIBILITY FOR DED UCTION U/S. 30 TO 38. 14. THUS, SUB-SECTION (1) OF SECTION 194C REQUIRES A PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (REFERRED TO AS THE CONTRACTOR IN SECTION 194C) FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOU R FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND SPECIFIED PERSON TO DEDUCT TAX AT SOURCE, WHILE SUB-SECTION (2) OF SECTION 194 C LAYS DOWN THAT WHEN A CONTRACTOR MAKES PAYMENT OF ANY SUM TO A RESIDENT S UB-CONTRACTOR IN PURSUANCE OF A CONTRACT MADE WITH HIM FOR CARRYING OUT THE WH OLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR, OR FOR SUPPLYING ANY LABOUR, THE CONTRACTOR SHALL DEDUCT TDS ON THE INCOME COMPRISED. 15. A PERSON OR COMPANY THAT UNDERTAKES A CONTRACT TO PERFORM A SERVICE OR DO A JOB IS CALLED A CONTRACTOR. SUCH UNDERTAKING M AY BE EXPRESS OR IMPLIED. I.T.A. NO.813 /COCH/2013 15 ACCORDING TO SECTION 2 OF THE INDIAN CONTRACT ACT, EVERY PROMISE AND EVERY SET OF PROMISES, FORMING AND CONSIDERATION FOR EACH OTHER, IS AN AGREEMENT WHILE CONTRACT AS DEFINED IN THE SAME SECTION MEANS AN AGREEMENT ENFORCEABLE BY LAW. SECTION 9 OF THE INDIAN CONTRACT ACT PROVIDES THAT CONTRACT CAN EITHER BE EXPRESS OR IMPLIED. AN EXPRESS CONTRACT IS ONE WHER E THE PROPOSAL OR ACCEPTANCE OF ANY PROMISE IS MADE IN WORDS WHILE IMPLIED CONTR ACT IS ONE HERE SUCH PROPOSAL OR ACCEPTANCE IS MADE OTHERWISE THAN IN WORDS. EVEN IF THERE IS NO EXPRESS CONTRACT, A CONTRACT MAY STILL EXIST BY IMPLICATION , I.E., A CONTRACT CONSISTING OF OBLIGATIONS ARISING FROM THE MUTUAL AGREEMENT AND I NTENT TO PROMISE, WHICH HAVE NOT BEEN EXPRESSED IN WORDS. AN IMPLIED CONTRACT E NVISAGED BY SECTION 9 OF THE INDIAN CONTRACT ACT CAN BE INFERRED FROM THE FACTS AND CIRCUMSTANCES THAT INDICATE A MUTUAL INTENTION TO CONTRACT. CIRCUMSTAN CES MAY EXIST WHICH, ACCORDING TO THE ORDINARY COURSE AND COMMON UNDERST ANDING, DEMONSTRATE SUCH AN INTENT THAT IS A SUFFICIENT TO SUPPORT THE FINDI NG OF AN IMPLIED CONTRACT. CHAPTER V OF THE INDIAN CONTRACT ACT TREATS CERTAIN RELATIONS RESEMBLING THOSE CREATED BY A CONTRACT AS CONTRACTS ENFORCEABLE IN L AW. THE INDIAN CONTRACT ACT THUS ENVISAGES FOUR TYPES OF CONTRACTS, NAMELY, (1) CONTRACTS MADE IN WRITING, (2) CONTRACTS MADE ORALLY, (3) CONTRACTS BY IMPLICATION OR IMPLIED CONTRACTS AND (4) QUASI CONTRACTS. THUS, THE CONTRACTS ENVISAGED BY SECTION 194C ARE NOT LIMITED TO WRITTEN CONTRACTS ALONE; THEY INCLUDE ORAL CONTR ACTS AND IMPLIED CONTRACTS ALSO. ALL PAYMENTS MADE IN PURSUANCE OF A CONTRACT IRRESP ECTIVE OF WHETHER IT IS A WRITTEN CONTRACT, ORAL CONTRACT, IMPLIED CONTRACT A ND QUASI CONTRACT ARE WELL I.T.A. NO.813 /COCH/2013 16 COVERED BY SECTION 194C OF THE INCOME TAX ACT. THE CASE OF THE ASSESSEE FALLS WITHIN THE AFORESAID PARAMETERS. 16. PROVISIONS OF SUB-SECTION (2) OF SECTION 194C A LSO APPLY TO AN INDIVIDUAL WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIF IED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE RELEVANT FINANCIAL Y EAR. TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE IN THE YEAR UNDER APPEAL EXCEED THE MONETARY LIMITS SPECIF IED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE RELEVANT FINA NCIAL YEAR. TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSIO N CARRIED ON BY THE ASSESSEE IN THE YEAR UNDER APPEAL EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A)OR CLAUSE (B) OF SECTION 44AB. IT IS FOR THIS REASON T HAT THE ASSESSEE HAS FILED TAX AUDIT REPORT AS REQUIRED BY SECTION 44AB. IN THIS VIEW OF THE MATTER, THE PROVISIONS OF SECTION 194C(2) APPLY WITH EQUAL FORC E TO HIM AND THE ASSESSEE IS LIABLE TO DEDUCT TDS ON THE IMPUGNED PAYMENT OF RS. 8,34,773/-. 17. THE ASSESSEE HAS RELIED ON THE JUDGMENT OF SPEC IAL BENCH OF TRIBUNAL, VISAKHAPATNAM IN THE CASE OF MERILYN SHIPPING & TRA NSPORTS VS. ADDL. CIT (136 ITD 23) (VISAKHAPATNAM-TRIB.) (SB) AND ALSO RELIED ON THE JUDGMENT OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT (129 TTJ 57) (HYD) (UO). THESE JUDGMENTS ARE NO MORE A PPLICABLE AS THE OPERATION I.T.A. NO.813 /COCH/2013 17 OF THE ORDER OF THE SPECIAL BENCH IN THE CASE OF ME RILYN SHIPPING & TRANSPORTS VS. ADDL. CIT, CITED SUPRA WAS SUSPENDED BY THE HONBLE ANDHRA PRADESH HIGH COURT. ACCORDINGLY THESE JUDGMENTS ARE NOT CONSIDERED. 18. IN VIEW OF THE ABOVE, THE ORDER PASSED BY THE C IT(A) IS UPHELD. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 28-08-2 014. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 28TH AUGUST,, 2014 GJ COPY TO: 1. KONTHIYAPARAMBIL COIR RUBBER PRODUCTS, RAMANAKAR Y, ALAPPUZHA. . THE INCOME TAX OFFICER, WARD-2, ALAPPUZHA. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN