SUNANDA SERVICES & TRADING LTD, MUMBAI V. ASST CIT 2(3), MUMBAI

ITA 8457/MUM/2011

• Counselvise Citation: 845719914 RSA 2011
• Duration Of Justice: 3 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 13-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 13-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Section: 194C

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH , !' , ! BEFORE S/SH.JOGINDER SINGH, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER . ITA NOS.8456-57/MUM/2011, # # # # $ $ $ $ / ASSESSMENT YEAR-2007-08 & 2008-09 SUNANDA SERVICES & TRADING LTD. UNIT NO.16, 'A' WING, 2ND FLOOR, RAJ IND ESTATE, MAROL MILITARY ROAD, OPP. BOROSIL COMPOUND, ANDHERI(E), MUMBAI-4000059 PAN: AAACS9176L # VS. ACIT 2(3), R.NO.557 AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020. ( %& / APPELLANT) ( '(%& / RESPONDENT) #)* #)* #)* #)* + + + + ! !! ! / ASSESSEE BY :SHRI NITESH JOSHI , + ! / REVENUE BY : SHRI NEIL PHILIP # # # # , ,, , *- *- *- *- / DATE OF HEARING :11 -02-2015 .$ , *- / DATE OF PRONOUNCEMENT :11 -02-2015 # # # # , 1961 , ,, , 254 )1 ( ! !! ! ** ** ** ** !/ !/ !/ !/ ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. ! !' ! # : CHALLENGING THE ORDERS OF THE CIT(A)-6,MUMBAI,THE A SSESSEE HAS RAISED FOLLOWING IDENTICAL GROUNDS OF APPEAL FOR THE ABOVE MENTIONED TWO ASSES SMENT YEARS(AY.S.): 1.COMMISSIONER (APPEALS) ERRED IN DISALLOWING SERVI CE CHARGES U/S.40(A)(IA) RELATING THE TRANSACTION U/S.194C OF THE INCOME TAX ACT,1961 AS THE AGGREGATE PAYMENT INCLUSIVE OF REIMBURSEMENT OF EXPENSES DID NOT EXCEED THE LIMIT PROVIDED U/S.194C. 2.COMMISSIONER (APPEALS) ERRED IN DISALLOWING THE S ERVICE CHARGES U/S.40 A (IA) WHEN THE DEDUCTEE HAS PAID THE TAXES ON THE INCOME OFFERED T O TAX INCLUSIVE OF SERVICE CHARGES PAID TO THEM WHICH AMOUNTS TO DOUBLE TAXATION 3.COMMISSIONER (APPEALS) ERRED IN DISALLOWING THE B ROKERAGE PAYMENT U/S.40 (A) (IA) AND RELATING THE TRANSACTION U/S.194H OF THE INCOME TAX ACT,1961 WHEN THERE WAS NO OBLIGATION ON THE PART OF THE APPELLANT TO DEDUCT T AX AT SOURCE AS IT WAS RELATED TO BUYING & SELLING OF GOVERNMENT SECURITIES. 4.COMMISSIONER (APPEALS) ERRED IN DISALLOWING THE B ROKERAGE PAYMENT U/S.40 A (IA) WHEN THE DEDUCTEE HAS PAID THE TAXES ON THE INCOME OFFERED T O TAX INCLUSIVE OF BROKERAGE WHICH AMOUNTS TO DOUBLE TAXATION. 5.EACH ONE OF THE ABOVE GROUNDS IS WITHOUT PREJUDIC E TO THE OTHER. 6.THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER, OR ADD TO THE GROUNDS OF THE APPEAL. FOLLOWING ADDITIONAL GROUND OF APPEAL WAS ALSO FILE D BY THE ASSESSEE FOR THE AY.2006-07: THE AO/CIT (A)'S OUGHT TO HAVE HELD THAT NO DISALLO WANCE WOULD BE MADE OF RS.2,06, 131/- BY INVOKING THE PROVISIONS OF SEC 40(A)(IA) OF THE INC OME TAX ACT, 1961 AS NO EXPENDITURE WHICH HAS BEEN DISALLOWED WAS PAYABLE AT THE OF THE YEAR I.E. 31 MARCH,2007. DURING THE COURSE OF HEARING THE AUTHORISED REPRESE NTATIVE(AR)OF THE ASSESSEE DID NOT PRESS THE ADDITIONAL GROUNDS FOR BOTH THE AY.S.,HENCE SAME ST AND DISMISSED AS NOT PRESSED. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANAGER IAL,SYNDICATION SERVICES AND COMPUTER TRAINING,FILED ITS RETURN OF INCOME ON,30.10.2007,D ECLARING TOTAL INCOME AT RS.NIL.ASSESSING OFFICER (AO)FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 14.12.2009,DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.NIL,AFTER ALLOWING BRO UGHT FORWARD LOSSES OF EARLIER YEARS. ITA/8456-57/MUM/11 SSTL-AY.07-08&08-09 2 2. FIRST EFFECTIVE GROUND OF APPEAL,I.E.GS.OA1&2,AS AD MITTED BY THE AR,DEAL WITH ONE ISSUE ONLY AND IT IS ABOUT DISALLOWANCE OF SERVICE CHARGES MAD E U/S.40(A)(IA) OF THE ACT.DURING THE ASSESSMENT PROCEEDING,THE AO FOUND THAT THE ASSESSE E HAD CREDITED INCOMES UNDER VARIOUS CHARGES INCLUDING THE HEAD SERVICE CHARGES. HE CALLED FOR EXPLANATION IN THAT REGARD.AFTER CONSIDERING THE COPIES OF DEBIT NOTES ,RAISED BY THE ASSESSES FOR SERVICES AND OTHER DOCUMENTARY EVIDENCE FURNISHED BY THE ASS ESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS,THE AO OBSERVED THAT THAT THE ASSESSEE HAD BEEN DEPUTING ITS OWN EMPLOYEES FOR PROVIDING SERVICES TO M/S.MAFATLAL SECURITIES LIMIT ED(MSL)WHEREAS IT HAD BEEN ENGAGING THE SERVICES OF VARIOUS OUTSIDE PARTIES FOR PROVIDING S ERVICES TO M/S.MAFATLAL FINANCE COMPANY LIMITED(MFCL)AND CITIBANK. HE FURTHER FOUND THAT IT HAD DEBITED AN AMOUNT OF RS.17,42,933/- UNDER THE HEAD 'SERVICE CHARGES PAID UNDER 'SCHEDULE 7.HE ALSO FOUND THAT THE ASSESSEE HAD INCURRED EXPENDITURE UNDER THE HEA D ADMINISTRATIVE AND OTHER EXPENSES' TOWARDS PAYMENT TO THE OUTSIDE PARTIES ENGAGED BY I T FOR PROVIDING SERVICES TO MFCL AND CITIBANK.REFERRING TO THE EARLIER YEARS ASSESSMENT, THE AO ASKED THE ASSESSEE AS TO WHY FOLLOWING THOSE ORDERS DISALLOWANCE SHOULD NOT BE M ADE FOR THE PAYMENT MADE BY IT.VIDE LETTER DATED 19.08.2009 THE ASSESSEE FURNISHED THE DETAILS AND DOCUMENTARY EVIDENCE WITH REGARD TO THE EXPENDITURE.THE AO CONSIDERED IT AND HELD THAT DETAILS OF TAX DEDUCTED AT SOURCE BY THE ASSESSEE ON VARIOUS PAYMENTS FOR THE YEAR UNDER CONSIDERATION FURNISHED BY THE ASSESSEE REVEALED THAT NO TAX WAS DEDUCTED AT SOURC E ON ANY OF THE PAYMENTS MADE TO ANY OF THE OUTSIDE PARTIES EVEN THOUGH PAYMENTS WERE SUBJE CT TO TDS PROVISIONS-ESPECIALLY U/S.194J OF THE ACT.AS PER THE AO THE AMOUNT INVOLV ED WAS RS.2, 96,325/-.AS THE ASSESSEE HAD NOT DEDUCTED TAX ON IT,SO,HE DISALLOWED IT BY INVOK ING THE PROVISIONS OF SECTION 40(A)(IA)OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHOIRTY(FAA).BEFORE HIM IT WAS CONTENDE D THAT PROVISIONS OF SEC.194J OF THE ACT WERE NOT APPLICABLE TO THE TRANSACTIONS IN QUESTION,THAT THE SAID SECTION WAS APPLICABLE FOR PROFESSIONAL SERVICES,THAT THE SERVI CE CHARGES PAID WAS A PART OF CONTRACTUAL AMOUNT FOR ENGAGEMENT OF RETAINERSHIP,THAT PAYMENT INCLUDED REIMBURSEMENT OF EXPENSES. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER THE FAA HELD THAT THE ASSESSEE ITSELF HAD ADMITTED SERVICE CHARGES PAID W AS A PART OF CONTRACTUAL AMOUNT,THAT EVEN BY ASSESSEE S OWN SUBMISSIONS TDS PROVISIONS OF SECTI ON 194C WERE ATTRACTED,THAT THE STAND TAKEN BY THE ASSESSEE THAT THE SERVICE CHARGES AS S UCH CAME BELOW RS.20,000/- AND HENCE PROVISION OF TDS WERE NOT ATTRACTED WAS FOUND NOT T O BE TENABLE.HE HELD THAT PAYMENT TO ALL THE PERSON EXCEPT ONE WAS MORE THAN RS.20,000/- DURING THE YEAR AND PROVISIONS OF TDS WERE APPLICABLE.FINALLY, HE UPHELD THE ORDER OF THE AO F OR ALL THE PAYMENTS EXCEPT FOR THE ONE PAYMENT. 4. BEFORE US,THE AR CONTENDED THAT SERVICE CHARGES WER E PAID TO VARIOUS PARTIES WHO WERE ENGAGED FOR THE PURPOSE OF BUSINESS OF THE COMPANY, THAT PAYMENT TO THEM INCLUDED REIMBURSEMENT LIKE LUNCH EXPENSES,CONVEYANCE EXPENS ES AND TRAVELLING EXPENSES,THAT THE ACTUAL SERVICE CHARGES PAID AS PER DEBIT NOTES RAIS ED BY THE PARTIES DID NOT EXCEEDED RS.20,000/- PER ANNUM,THAT PAYMENT MADE BY THE ASSE SSEE DID NOT ATTRACTED THE LIABILITY OF TAX,THAT THE ASSESSEE ENTERED IN TO CONTRACTS FOR V ARIOUS CHARGES,THAT THE DETAILS OF REIMBURSEMENT WERE FILED DURING THE ASSESSMENT AND APPELLATE PROCEEDINGS,THAT SAME WERE NOT CONSIDERED. DEPARTMENTAL REPRESENTATIVE(DR)SUPP ORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT THE ASSESSEE HAD FURNISHED THE DETAILS OF PAYMENT MADE UNDER THE HEAD SERVICE CHARGES,BUT THE AO HAD NOT CONSIDERED THE ARGUMENT ABOUT THE REIMBURSEMENT OF EXPENSES AS EVIDENT FROM PAGE NO.52-54.OF THE PAPER BOOK.THEREFORE,WE ARE OF THE OPINION THAT IN ITA/8456-57/MUM/11 SSTL-AY.07-08&08-09 3 THE INTEREST OF JUSTICE MATTER SHOULD BE RESTORED B ACK TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.GROUNDS NO.1-2 ARE DECIDED IN FAVOUR OF TH E ASSESSEE,IN PART. 6. NEXT TWO GROUNDS(GOA 3-4)PERTAIN TO DISALLOWANCE MA DE U/S.40(A)(IA)FOR NOT DEDUCTING TAX AT SOUCE WITH REGARD TO BROKERAGE PAYMENT AS PER TH E PROVISIONS OF SECTION 194H OF THE ACT. DURING THE ASSESSMENT AND APPELLATE PROCEEDINGS,THE AO/FAA MADE THE DISALLOWANCE FOLLOWING THE EARLIER AY.S.S ORDERS. 7 .BEFORE US,THE AR STATED THAT THE TRIBUNAL,WHILE DE CIDING THE APPEAL FOR THE AY. 2005-06, HAD DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE(ITA/ 8415/MUM/2010,AY.2005-06,DATED 29. 10.2014).DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH.WE FIND THAT ASSESSEE HAD RAISED FOLLOWING GROUND (GAO-7)IN THE APPEAL FILED BY IT: COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS.52,88,458/- MADE BY THE ASSESSING OFFICER ON THE BASIS THAT SUB- BROKER AGE PAID FOR THE BUSINESS OF THE STOCK BROKING COMPANY IS NOT COVERED UNDER THE EXCL USION CLAUSE OF SECTION 194H AND THEREBY DISALLOWED THE EXPENSES U/S 40(A)(IA). DECIDING THE ISSUE, THE TRIBUNAL HELD AS UNDER: 14.WE FIND FORCE IN THE CONTENTION OF THE LD. A.R. OF THE ASSESSEE.THOUGH,THE ASSESSEE HAD ENTERED INTO A SERVICE CONTRACT WITH THE MFCL WHICH INCLUDE D SOLICITING/MARKETING WORK, MAINTENANCE OF RECORDS, CLERICAL WORK AS WELL AS ADVISORY SERVICES . HOWEVER, FOR ALL THE SERVICES THERE WAS NO NEED TO APPOINT SUB BROKERS. THE SUB BROKERAGE WAS PAID BY THE ASSESSEE FOR BRINGING BUSINESS FOR M1FCL IN RELATION TO INVESTMENT IN SECURITIES.T HE SAID MFCL WAS A STOCK BROKING COMPANY AND A MEMBER OF BOMBAY STOCK EXCHANGE AS WELL AS NA TIONAL STOCK EXCHANGE. IT CAN BE INFERRED FROM THE NATURE OF THE SERVICES OFFERED BY THE ASSESSEE THAT THE ASSESSEE WAS NOT SUPPOSED TO PAY BROKERAGE FEE FOR OFFICE AND MANAGERIAL SERV ICES RATHER FOR THE SERVICES RELATING TO BRINGING THE BUSINESS OF INVESTMENT IN GOVERNMENT S ECURITIES. HENCE, IN VIEW OF THE EXPLANATION TO SECTION 194H ANY PAYMENT IN RELATION TO TRANSACTIONS RELATI NG TO SECURITIES DID NOT ATTRACT THE PROVISIONS OF 194C. THE DISALLOWANCE MA DE BY THE LOWER AUTHORITIES IN THIS REGARD THUS WAS NOT WARRANTED AND THE SAME IS ACCORDINGLY DELETED. RESPECTFULLY,FOLLOWING THE ABOVE,WE DECIDE GROUND N O.3-4 IN FAVOUR OF THE ASSESSEE. ITA/8457/MUM/2011, - AY. 2008-09: 8. AS STATED EARLIER,THE GROUNDS OF APPEAL FOR BOTH TH E AY.S.ARE IDENTICAL EXCEPT FOR THE AMOUNTS INVOLVED.HOWEVER,THERE IS SLIGHT DIFFERENCE ABOUT T HE DEDUCTION OF TAX.DURING THE YEAR UNDER CONSIDERATION THERE WAS ISSUE OF SHORT DEDUCTION OF TAX.THE DISALLOWANCE WAS MADE BECAUSE AS PER THE AO THE ASSESSEE DEDUCTED LESS TAX AT SOURCE.TH E FAA UPHELD THE ORDER OF THE AO. 9 .BEFORE US,THE AR STATED THAT THERE WAS NO SHORT DE DUCTION IF OVERALL PICTURE OF TAX DEDUCTED AT SOURCE WAS TAKEN IN TO CONSIDERATION,THAT NO DISALL OWANCE COULD BE MADE IF THERE WAS SHORT DEDUCTION OF TAX.HE REFERRED TO PAGES 33 AND 38 OF THE PB.HE RELIED UPON THE JUDGMENT OF THE HONBLE KOLKATA HIGH COURT DELIVERED IN THE CASE OF S K TEKRIVAL(ITAT NO.183 OF 2012,DATED 03.12.2012)AND MATTER OF CHANDABHOY & JESSOBHOY(ITA /20/MUM/2010-AY.2006-07,DATED 08. 07.2011)OF C BENCH OF MUMBAI TRIBUNAL.DR SUPPORTED THE ORDER OF THE FAA. 10 .WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US.WE FIND THAT IF OVERALL TAX DEDUCTED BY THE ASSESSEE IS CONSIDERED THEN SH ORT DEDUCTION IS NOT THERE.HOWEVER,FOLLOWING THE JUDGMENT OF HONBLE KOLKATA HIGH COURT OF S K T EKRIWAL(SUPRA),WE HOLD THAT PROVISIONS OF SECTION 40(A)(IA)ARE NOT APPLICABLE WHERE THERE IS SHORT DEDUCTION OF TAX.GROUNDS NO.1-2 ARE DECIDED IN FAVOUR OF THE ASSESSEE. GROUNDS NO.3-4 ARE DECIDED IN FAVOUR OF THE ASSESSE E,FOLLOWING OUR ORDER FOR PREVIOUS AY. ITA/8456-57/MUM/11 SSTL-AY.07-08&08-09 4 AS A RESULT, APPEAL FILED BY THE ASSESSEE FOR AY 2 007-08 IS PARTLY ALLOWED AND APPEAL FOR AY 2008-09 STANDS ALLOWED. 0*1 #)* 3 4 , #.. 2007-08 , /*16 7 2008-09 , 6 * 8 . ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH ,FEBRUARY,2015. !/ , .$ ! 9 :# 11 ,0- , ,, , 21 5 , < SD/- SD/- ( /JOGINDER SINGH) ( !' / RAJENDRA) / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER / MUMBAI, :# /DATE: 11.02.2015 SK !/ !/ !/ !/ , ,, , '*= '*= '*= '*= >!=$* >!=$* >!=$* >!=$* / COPY OF THE ORDER FORWARDED TO : 1. / %& 2. RESPONDENT / '(%& 3. THE CONCERNED CIT(A)/ ? @ , 4. THE CONCERNED CIT / ? @ 5. DR E BENCH, ITAT, MUMBAI / =A '*# , . . . 6. GUARD FILE/ 0 (=* '* //TRUE COPY// !/# / BY ORDER, B / DY./ASST. REGISTRAR , /ITAT, MUMBAI