M.R. ENTERPEISES, MUMBAI V. ITO 14(3)-3, MUMBAI

ITA 8849/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79301 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MOURYA PRATAP
• Assessee Lawyers: D N NEGANDHI
• Keywords: Unexplained expenditure; Opportunity of cross examination; Royalty expenses
• Section: 69C; 131

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.8849/MUM/2010, A.Y. 2007-08 M/S. M.R.ENTERPRISES, 599, JSS ROAD, 1 ST FLOOR, KAPADIA CHAMBERS, CHIRA BAZAR, MUMBAI 400002 PAN:AAKEM 6256A (APPELLANT ) VS. THE ITO 14(3)(3), 6 TH FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI 400 021. (RESPONDENT) ITA NO.8908/MUM/2010 ,A.Y. 2007-08 THE ITO 14(3)(3), 6 TH FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI 400 021. (APPELLANT ) VS. M/S. M.R.ENTERPRISES, 599, JSS ROAD, 1 ST FLOOR, KAPADIA CHAMBERS, CHIRA BAZAR, MUMBAI 400002 PAN:AAKEM 6256A (RESPONDENT) ASSESSEEE BY : SHRI D.N.NEGANDHI REVENUE BY : SHRI MOURYA PRATAP DATE OF HEARING : 07/07/20 14 DATE OF PRONOUNCEMENT : 07/07/2014 ORDER PER I.P.BANSAL, J.M, THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST O RDER PASSED BY LD. CIT(A) DATED 1/10/2010 FOR ASSESSMENT YEAR 2007-08. THE A SSESSEE HAS FILED REVISED GROUNDS OF APPEAL WHICH READ AS UNDER: REVISED GROUNDS OF ASSESSEE IN ITA NO.8849/MUM/201 0: 1.THE LEARNED COMMISSIONER OF I.TAX (A) HAS ERRED I N LAW AND IN FACTS IN CONFIRMING THE AOS ASSESSMENT ORDER MAKING ADDITION OF RS.4.4 0 LAKHS TO THE TOTAL INCOME OF THE APPELLANT AS UNEXPLAINED EXPENDITURE U/S 69-C O F THE I. TAX ACT, 1961 WITHOUT ITA NO.8849& 8908/MUM/2010, A.Y. 2007-08 2 MAKING AN ENQUIRY AS REQUIRED U/S 131 OF THE ACT AN D GIVING AN OPPORTUNITY TO THE APPELLANT TO CROSS-EXAMINE M/S. STANDARD INDUSTRIES . 2. THE ORDER MAD BY THE CIT (A) CONFIRMING ADDITION OF RS.4.40 LAKHS U/S 69-C UNEXPLAINED EXPENDITURE WAS INVALID AS HE DID NOT E XERCISE HIS POWERS U/S 131 TO CALL M/S. STANDARD INDUSTRIES AND GIVE OPPORTUNITY TO THE APPELLANT TO CROSS EXAMINE THEM AND HENCE LIABLE TO BE QUASHED. 3. THE AO AND CIT (A) HAVE FAILED TO APPRECIATE THE REQUIREMENTS OF LAW AND VARIOUS DECISIONS OF HONBLE SUPREME COURTS AND HIGH COURTS TO ALLOW THE APPELLANT TO CROSS-EXAMINE THE PARTY BEFORE MAKING ADDITIONS OF RS.4.40 LAKHS. 4. FOR THESE AND OTHER GROUNDS THAT MAY HE ADDUCED AT THE TIME OF HEARING THE ORDER OF THE AO ON THIS ISSUE HE SET ASIDE AND THE AO MAY BE DIRECTED TO DELETE THE ADDITION MADE TO THE TOTAL INCOME. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY GROUND OF APPEAL ON OR BEFORE THE DATE OF HEARING. GROUNDS OF REVENUE IN ITA NO.8908/MUM/2010: 1. THE ORDER OF THE LD.CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, THE LD.CIT(A) ERRED IN LAW IN ACCEPTING ASSESSEES CLAIM OF ROYALTY PAY MENT OF 9,00,000/- PAID BEFORE 12-07-2006, HENCE IT IS OUT OF PURVIEW OF PROVISION OF SECTION 194 J(1)(C) OF THE I. T. ACT, 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, THE LD.CIT(A) ERRED IN LAW IN DELETING THE ADDITION MADE OF 9,00,000/- MADE U/S 40(A)(IA) THE I. T. ACT, 1961. BY THE AO AS ASSESSEE AT DEFAULT IN NOT DEDUC TING TAX AT SOURCE U/S. 194J(1)(C) OF THE I. T.ACT, 1961. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, THE LD.CIT(A) ERRED IN LAW IN NOT APPRECIATING THE PROVISION U/S 194J(1 )(B) THE INCOME TAX ACT, 1961 BY WHICH ENTIRE PAYMENT OF ROYALTY MADE WITHIN THE FIN ANCIAL YEAR TO M/S.STANDARD INDUSTRIES LTD. IS LIABLE TO DEDUCT THE TAX AT SOUR CE UNDER SECTION 194J(1)(C) OF THE I. T. ACT, 1961. 5. FOR THESE AND ANY OTHER REASONS THAT MAY BE URGE D AT THE TIME OF HEARING, IT IS REQUESTED THAT THE ORDER OF THE CIT(A) BE QUASHED A ND THAT OF THE A.O. BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. 2. SO FAR AS IT RELATES TO APPEAL FILED BY THE REVE NUE, IT MAY BE MENTIONED HERE THAT ON ACCOUNT OF ROYALTY EXPENSES A SUM OF RS.19, 60,000/- WAS DEBITED BY THE ITA NO.8849& 8908/MUM/2010, A.Y. 2007-08 3 ASSESSEE AND THE ROYALTY WAS PAID WITHOUT DEDUCTION OF TAX. AO DISALLOWED THIS AMOUNT UNDER SECTION 40(A)(IA) OF THE INCOME TAX AC T, 1961 (THE ACT). THE AMOUNT WAS PAID BY THE ASSESSEE TO M/S. STANDARD IN DUSTRIES LTD. BEFORE LD. CIT(A) IT WAS CLAIMED BY THE ASSESSEE THAT AS PER PROVISIONS OF SECTION 194J (1)(C) OF THE ACT, THE PROVISION REGARDING DEDUCTION OF TA X ON ROYALTY WAS BROUGHT W.E.F. 13/7/2006 BY TAXATION LAWS (AMENDMENT) ACT, 2006 AN D ACCORDING TO THE ACCOUNTS OF THE ASSESSEE THE ROYALTY PAYABLE W.E.F. 13/7/2006 WILL ONLY BE A SUM OF RS.10,16,129/-. AFTER ANALYZING THE PROVISION S OF SECTION 194J OF THE ACT, LD. CIT(A) HAS COME TO A CONCLUSION THAT ACCORDING TO T HE PROVISIONS THERE WAS NO LIABILITY OF THE ASSESSEE REGARDING DEDUCTION OF TA X ON ROYALTY PAYMENTS PRIOR TO 12/7/2006. ON THE BASIS OF COPY OF ACCOUNTS FURNIS HED BY THE ASSESSEE AS WELL AS COPY OF AGREEMENT BETWEEN ASSESSEE AND STANDARD INDUSTRIES LTD., LD. CIT(A) FOUND THAT A SUM OF RS.9.00 LACS WAS PAID UPTO 12/7 /2006. THE ROYALTY WAS PAYABLE AT THE FIXED RATE OF RS.3.00 LACS PER MONTH AND WAS PAYABLE WITHIN 10 DAYS OF THE FOLLOWING MONTH BY DEMAND DRAFT OR PAY ORDER. ACCORDINGLY, LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE OF RS. 9.0 0 LACS. REVENUE IS AGGRIEVED, HENCE, HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. 3. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. IT IS NOT DISPUTED THAT THE AMENDMENT WAS BROUGHT INTO THE STATUTE I.E. IN SECTION 194J(1) (C) BY THE TAXATION LAW (A MENDMENT) ACT 2006 W.E.F. 13/7/2006. IT IS BY VIRTUE OF THAT AMENDMENT THE ASSESSEE BECAME LIABLE FOR DEDUCTION OF TAX ON PAYMENT OF ROYALTY. THEREFORE , LIABILITY OF THE ASSESSEE REGARDING DEDUCTION OF TAX CANNOT BE FOR A PERIOD PRIOR TO 13/7/2006. LD. CIT(A) ON THE BASIS OF AGREEMENT OF THE ASSESSEE WITH STAN DARD INDUSTRIES LTD. HAS WORKED OUT A SUM OF RS. 9.00 LACS OUT OF TOTAL ROYA LTY PAID BY THE ASSESSEE OF RS.19,16,000/- AS A SUM ON WHICH THE ASSESSEE WAS N OT LIABLE TO PAY ANY DEDUCTION OF TAX. THESE ARE FINDINGS OF FACTS WHIC H HAVE NOT BEEN CONTROVERTED BY LD. DR. THEREFORE, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF LD. CIT(A) VIDE WHICH IT HAS BEEN HELD THAT LIABILITY REGARDING DE DUCTION OF TAX COULD NOT BE FASTENED UPON ASSESSEE PRIOR TO THE PERIOD WHEN CLA USE (C) TO SUB-SECTION (1) OF ITA NO.8849& 8908/MUM/2010, A.Y. 2007-08 4 SECTION 194J W.E.F. 13/7/2006 BY THE TAXATION LAWS (AMENDMENT) ACT 2006 WAS INSERTED AND THE WORD ROYALTY WAS ADDED TO THE PR OVISION. ACCORDINGLY, WE DECLINE TO INTERFERE IN THE RELIEF GRANTED BY LD. C IT(A) AND APPEAL FILED BY THE REVENUE IS DISMISSED. ASSESSEES APPEAL: 4. THIS APPEAL IS ALSO RELATING TO PAYMENT OF ROYALTY. AS PER LETTER DATED 12/9/2009 WRITTEN BY M/S. STANDARD INDUSTRIES LTD., IT WAS MENTIONED TO THE AO THAT TOTAL PAYMENT OF ROYALTY WAS MADE TO THE EXTENT OF RS.24.00 LACS. HOWEVER, FINDING THAT ASSESSEE HAD DEBITED ONLY AN AMOUNT OF RS.19,60,000/- ON ACCOUNT OF ROYALTY, THE BALANCE AMOUNT OF RS.4,40 ,000/- WAS TREATED BY THE AO AS UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE ACT. LD. CIT(A) HAS UPHELD THE DISALLOWANCE. 5. AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL, IT IS THE GRIEVANCE OF THE ASSESSEE THAT IT DID NOT PAY ROYALTY OF MORE THAN RS.19,60,000/-, THEREFORE, ADDITION COULD NOT BE MADE UNDER SECTION 69C. IT IS THE GRIEVANCE OF THE ASSESSEE THAT LETTER FILED BY M/S. STANDARD INDUSTR IES LTD., HAS BEEN ACCEPTED BY THE AO WITHOUT CONFRONTING THE SAME TO THE ASSESSEE OR WITHOUT PROVIDING ANY OPPORTUNITY FOR CROSS EXAMINATION. THEREFORE, IT I S THE CASE OF THE ASSESSEE THAT UNLESS THE ASSESSEE IS CONFRONTED WITH THE EVIDENCE AND OPPORTUNITY OF CROSS EXAMINATION OF M/S. STANDARD INDUSTRIES LTD., IS G IVEN IT WILL BE INCORRECT TO MAKE AND UPHOLD THE ADDITION. IT WAS SUBMITTED BY LD. AR THAT THE ISSUE MAY BE RESTORED BACK TO THE FILE OF AO WITH A DIRECTION TO RE-ADJUDICATE THE ISSUE AFTER PROVIDING THE ASSESSEE WITH AN OPPORTUNITY TO CROSS EXAMINE M/S. STANDARD INDUSTRIES LTD. 6. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. DR TH AT UPON THE BASIS OF INFORMATION RECEIVED BY THE AO THE BALANCE AMOUNT WAS TREATED TO BE UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE AC T AND LD. CIT(A) HAS COMMITTED NO ERROR IN UPHOLDING THE DISALLOWANCE. ITA NO.8849& 8908/MUM/2010, A.Y. 2007-08 5 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY CONSIDERED. AFTER CAREFUL CONSIDERATION, WE FIND SUBSTANCE IN THE CLAIM OF THE ASSESSEE THAT WITHOUT GIVING THE OPPORTUNITY OF CRO SS EXAMINATION SUCH ADDITION COULD NOT BE MADE PARTICULARLY WHEN ASSESSEE IS CO NTENDING THAT NOTHING MORE HAS BEEN PAID AS WHAT IS DEBITED IN THE BOOKS OF ACCOUNTS. WE, THEREFORE, DIRECT THE AO TO GIVE THE ASSESSEE AN OPPORTUNITY TO CROSS EXAMINE M/S. STANDARD INDUSTRIES AND THEN RE-ADJUDICATE THE ISSUE AS PER LAW. WE DIRECT ACCORDINGLY. FOR STATISTICAL PURPOSES THE APPEAL FILED BY THE AS SESSEE TREATED TO BE ALLOWED. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED AND APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 07/07/20 14 ! ' #$ % &'( 07/07/2014 ' ) SD/- SD/- ( /SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; &' DATED 07/07/2014 ! ! ! ! ' '' ' *+, *+, *+, *+, -,$+ -,$+ -,$+ -,$+ / COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. *0./ / THE RESPONDENT. 3. 1 ( ) / THE CIT(A)- 4. 1 / CIT 5. ,2) *+' , , / DR, ITAT, MUMBAI 6. )3 4 / GUARD FILE. !' !' !' !' / BY ORDER, 0,+ *+ //TRUE COPY// 5 55 5 / 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS