DCIT, Circle-1(1), Hyderabad, Hyderabad V. AGA Publications Limited, Hyderabad, Secunderabad

ITA 975/HYD/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2500 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 06-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR K J DIVYA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Opportunity of being heard
• Section: 143(3); 142(1); 201(1); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 975/HYD/2017 ASSESSMENT YEAR: 2013-14 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(1), HYDERABAD. VS. AGA PUBLICATIONS LTD., HYDERABAD. PAN AABCA 8511G (APPELLANT) (RESPONDENT) REVENUE BY : SMT. DR. K.J. DIVYA ASSESSEE BY : SHRI P. MURALI MOHAN RAO DATE OF HEARING 22-01-2018 DATE OF PRONOUNCEMENT 28-02-2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF CIT(A) 1, HYDERABAD, DATED 21/02/2017 FOR THE AY 2013-14. 2. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE IS A PUBLISHER OF NATIONAL TELUGU NEWSPAPER VAARTHA AND FILED ITS R ETURN OF INCOME ON 22/07/2014 FOR THE AY 2013-14 DECLARING AN INCOME O F RS. 35,35,790/- UNDER NORMAL PROVISIONS AND BOOK PROFIT S OF RS. (-) 1,46,21,872/-. THE CASE WAS SELECTED FOR SCRUTINY U NDER CASS AND NOTICES WERE ISSUED U/S 143(2) AND 142(1) OF THE IN COME-TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSMENT WAS COMPL ETED U/S 143(3) 2 ITA NO. 975 /HYD/2017 AGA PUBLICATIONS LTD., HYD. ON 21/03/2016 BY DETERMINING TOTAL INCOME AT RS. 3, 34,25,861/- BY MAKING DISALLOWANCES U/S 40(A)(IA) OF THE ACT. 2.1 DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTIC ED THAT THE ASSESSEE COMPANY REIMBURSED THE EXPENDITURE INCURRE D BY M/S PRABHATA VAARTHA PVT. LTD. AND M/S SUPERIOR PRINTER S PVT. LTD. TOWARDS SALARIES, AUDIT FEE AND OTHER EXPENSES AGGR EGATING TO RS. 1,85,62,456/- AND RS. 1,13,27,615/- RESPECTIVELY WI THOUT DEDUCTING TDS FOR THE AY UNDER CONSIDERATION. ACCORDINGLY, TH E AO MADE A DISALLOWANCE U/S 40(A)(IA) AMOUNTING TO RS. 2,98,90 ,071/-. 3. AGGRIEVE BY THE ORDER OF AO, THE ASSESSEE PREFER RED AN APPEAL BEFORE THE CIT(A), WHO DELETED THE DISALLOWANCES MA DE BY THE AO. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: (I) LD. CIT(APPEALS) ERRED IN DIRECTING THE ASSESS ING OFFICER TO VERIFY WHETHER IN RESPECT OF REIMBURSEMENT OF EXPEN SES, PAYEES HAVE TAKEN INTO ACCOUNT SUCH SUM PAID BY THE ASSESS EE FOR COMPUTING THEIR INCOME FOR THE SUBJECT YEAR AND PAI D TAX THEREON AS PER THE PROVISO TO SEC. 201(1) AND THEN ALLOW THE EXPENDITURE UPON VERIFICATION. (II) LD. CIT(A) OUGHT TO HAVE CONSIDERED THAT THE C LAIM OF THE ASSESSEE UNDER THE SECOND PROVISO TO SEC 40A(IA) RE AD WITH FIRST PROVISO TO SEC 201 (1) CAN BE ALLOWED ONLY WHEN THE ASSESSEE FURNISHES A CERTIFICATE IN FORM NO. 26A THAT CONDIT IONS THEREIN ARE FULFILLED AND IN THE PRESENT CASE ASSESSEE FAIL ED TO PRODUCE ANY EVIDENCE TO THAT EFFECT EITHER BEFORE THE AO OR THE CIT(A). (III) LD. CIT(A) OUGHT TO HAVE FURTHER APPRECIATED THAT THE RECIPIENTS OF SO CALLED REIMBURSEMENT CHARGES HAVE ADMITTED NIL INCOME IN THE INCOME TAX RETURN FILED BY THEM F OR ASSESSMENT YEAR UNDER CONSIDERATION. (IV) THE APPEAL CRAVES LEAVE TO ADD, DELETE, SUBSTI TUTE AND AMEND ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. FOR THESE AND OTHER GROUNDS THAT MAY BE CANVASSED A T THE TIME OF HEARING OF THE APPEAL, IT IS PRAYED THAT DISALLO WANCES OF 3 ITA NO. 975 /HYD/2017 AGA PUBLICATIONS LTD., HYD. EXPENDITURE MADE BY THE ASSESSING OFFICER UNDER SEC . 40A(IA) BE RESTORED. 5. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FOR THE SAKE OF CLARITY, WE REPRODUCE THE S UBMISSIONS OF THE ASSESSEE BEFORE THE CIT(A) AND THE DECISION OF THE CIT(A), AS UNDER: 5.2. BEFORE ME, THE APPELLANT SUBMITTED THAT IT HAD REIMBURSED THE EXPENDITURE INCURRED BY THE SUBSIDIARY COMPANIE S ON BEHALF OF THE APPELLANT. THE EXPENDITURE HAS BEEN REIMBURS ED ON COST TO COST BASIS TO SUBSIDIARY COMPANIES ON ACTUAL INC URRED BASIS. THE APPELLANT SUBMITTED THAT NO TAX IS DEDUCTIBLE A T SOURCE IN RESPECT OF PAYMENT COMPRISING NO ELEMENT OF INCOME. REIMBURSEMENT OF EXPENSES DOES NOT PARTAKE THE NATU RE OF INCOME IN THE HANDS OF THE PAYEE OF SUCH EXPENSES, THEREFORE, TDS U/S.194C/194H NEED NOT BE DEDUCTIBLE. THE APPEL LANT SUBMITTED THAT THE PROVISIONS U/S 40(A)(IA) IS NOT APPLICABLE AS THE EXPENDITURE IS ALREADY PAID. 5.3. IN APPELLANT'S OWN CASE IN ITA NO.249/HYD/2013 DATED 26.08.2016 FOR THE AY 2009-10, THE HON'BLE ITAT HAS ALLOWED PAYMENTS U/S 4O(A)(IA). THE TRIBUNAL CATEGORICALLY MENTIONED THAT IF THE PAYEES HAVE OFFERED THEIR INCOME TO TAX , IS CRITERIA FOR ALLOWING ABOVE EXPENDITURES. FOLLOWING THE TRIBUNAL , I DIRECT THE ASSESSING OFFICER ON THE SAME LINES. THE ASSESSING OFFICER SHOULD VERIFY WHETHER THE INCOME HAS BEEN OFFERED T O TAX BY THE RECIPIENTS. ONLY AFTER VERIFICATION, THE EXPENDITUR E SHOULD BE ALLOWED. IT IS EVIDENT FROM THE FINDINGS OF THE CIT(A) THAT SHE HAD FOLLOWED THE EARLIER ORDER OF ITAT FOR AY 2009-10, IN WHICH, THE COORDINATE BENCH HAD FOLLOWED DECISION OF SPECIAL BENCH IN THE CASE OF MERLYN SHIPPING AND REMITTED THE ISSUE TO THE FILE OF AO. SINCE THE LAW HAS CHANGED AS PER THE LATEST DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF PALAM GAS VS. CIT, (CIVIL APPEAL NO. 5512 OF 2017, JUDGMENT DATED 03/05/2017) THE PAID/PAYABLE ISSUE WAS PUT TO REST, THE CASE OF MERLYN SHIPPING IS NOT APPLICABLE. THEREFORE, WE RE MIT THE ISSUE BACK TO THE FILE OF THE LD. CIT(A) TO ADJUDICATE THE ISS UE ON MERIT AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE. 4 ITA NO. 975 /HYD/2017 AGA PUBLICATIONS LTD., HYD. 8. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 28 TH FEBRUARY, 2018 KV COPY TO:- 1) DCIT, CIRCLE 1(1), 8 TH FLOOR, C-BLOCK, ROOM NO. 836, IT TOWERS, HYD 500 004. 2) M/S AGA PUBLICATIONS LTD., 396, VAARTHA BUILDING S, LOWER TANK BUND ROAD, HYDERABAD 500 080. 3) CIT(A) 1, HYDERABAD. 4) PR. CIT 1 , HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE