IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "E", MUMBAI
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
ITA No.3688/M/2012
Assessment Year: 2008-09
M/s. Selprint, CIT(A)-33, Mumbai,
23B, Jaya Apartment, Tower No.6, 3rd Floor,
Kirol Road, Vs. Vashi Rly. Station Bldg.
Ghatkopar (West), Complex,
Mumbai 400 086 Vashi,
PAN: AAGFS 7952K Navi Mumbai
(Appellant) (Respondent)
Present for:
Assessee by : Shri Vijay Mehta, A.R.
Revenue by : Shri Neil Philp, D.R.
Date of Hearing : 22.06.2015
Date of Pronouncement : 21.10.2015
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order
dated 22.03.2012 of the Commissioner of Income Tax (Appeals) [hereinafter
referred to as the CIT(A)] relevant to assessment year 2008-09.
2. The assessee has taken the following grounds of appeal:
"1. On the facts and circumstances of the case and in law the learned CIT(A)
erred in confirming the disallowance of payments in the nature of purchases from
M/s M.R. Enterprises of Rs.13,51,484 u/s 40(a)(ia) on account of non-deduction of
TDS on payments made to it ignoring the fact that M/s. M.R. Enterprises has
already discharged the tax liability by duly filing the return of income the due date
of filing of the return of income by the appellant. The disallowance being bad in law
the same needs to be deleted.
2. On the facts and circumstances of the case and in law the learned CIT(A)
erred in confirming disallowance of rent of Rs.2,40,000/- u/s.4O(a)(ia) without
appreciating the fact that the TDS of Rs.36,720 on the above amount had been
deducted and deposited on 15.05.2008 i.e. within due date stipulated u/s 200(1).
2 ITA No.3688/M/2012
M/s. Selprint
The addition being bad in law the same needs to be deleted.
3. a) On the facts and circumstances of the case and in law the learned CIT(A)
erred in confirming disallowance of commission of Rs.2,00,000/- u/s 4O(a)(ia)
without appreciating the fact that the TDS was deducted on 31.03.2008 and
deposited on 15.05.2008 i.e. within the due date stipulated under section
200(1).
b) Also, without prejudice to the above, the learned CIT(A) erred in ignoring
the fact that the commission was already paid to Mr Hardik Kothari during
the previous year ended 31 March 2008 and therefore, provisions of section
40(a)(ia) would not apply as section 40(a)(ia) provides for disallowance in
relation to the amounts payable and not to amounts already paid during the
previous year.
The addition being bad in law the same needs to be deleted.
4. On the facts and circumstances of the case and in law the learned CIT(A)
erred in confirming disallowance of Rs.1,50,000/- towards salary paid to Mr Hardik
Kothari holding that no payment of salary has been reflected in the ledger account
of Mr Hardik Kothari without appreciating the fact that the payment has been
routed through Salary Account. The addition being bad in law and arbitrary in
nature needs to be deleted.
5. On the facts and circumstances of the case and in law the learned CIT(A)
erred in confirming disallowance of Rs.99,416/- being 1/3rd of the payments made
to Mr. Vinit Kothari Rs.1,48,250/- towards purchase of software under section 37 of
the Act holding that no sufficient details or bills for job charges were filed before
the learned CIT(A).
Learned CIT(A) erred in not appreciating the fact all the details and explanations in
relation to payment towards software charges including return of income of Mr
Vinit Kothari were filed before the learned CIT(A). The addition being bad in law the
same needs to be deleted.
6. On the facts and circumstances of the case and in law the learned CIT(A)
erred in confirming the addition of unsecured loans of Rs.1,79,400/- under section
68 ignoring the fact that the said amount pertains to the commission of Rs.1,79,400
(net of TDS) that is already disallowed by the learned AO and confirmed by the
learned CIT(A). The addition leading to taxing the amount twice is bad in law and
needs to be deleted.
7. The appellant craves leave to add to amend, alter, delete and/or modify the
above grounds of appeal on or before the final date of hearing of this appeal
petition."
3 ITA No.3688/M/2012
M/s. Selprint
3. The Ld. A.R. of the assessee has invited our attention to ground No.1
vide which the disallowance has been made by the lower authorities under
section 40(a)(ia) on account of non deduction of TDS on payments made to
M/s. M.R. Enterprises. It is the contention of the Ld. A.R. that M/s. M.R.
Enterprises has already discharged the tax liability by duly filing the return of
income. He has contended that as per the new proviso inserted in section
40(a)(ia) vide Finance Act, 2012 w.e.f. 01.04.13 wherein it has been provided
that if the assessee fails to deduct TDS in respect of any payment to which the
TDS provisions apply but he is not deemed to be an assessee in default under
section 201 of the Act, which provides that if the payee of the such amount
computed the same into his income tax return and has paid the due taxes, then
such an assessee will not be deemed to be an assessee in default and then no
disallowance is attracted under section 40(a)(ia). He has further submitted that
the said newly inserted proviso to section 40(a)(ia) is in fact clarificatory in
nature and should be applied/retrospectively for the year under consideration
and as such no disallowance is attracted on this issue.
4. On the other hand, the Ld. D.R. has contended that it has been
specifically provided in the Act that the said proviso comes into operation
w.e.f. 01.04.13 and that where the language of the section as well as the date of
operation of such provisions has been mentioned specifically the courts cannot
supply words to the provisions or amend the provisions to give it a different
meaning and further that the newly inserted proviso under such circumstances
is prospective in nature i.e. w.e.f. 01.04.13 and cannot be applied
retrospectively.
5. The Ld. A.R. of the assessee has brought to our notice that the issue
relating to operation of the newly inserted proviso whether prospective or
retrospective in nature has already been considered and decided by the co-
4 ITA No.3688/M/2012
M/s. Selprint
ordinate Bangalore bench of the Tribunal in the case of "Shri S.M. Anand Vs.
ACIT" in ITA No.183/Bang./13 for A.Y. 2005-06 vide order dated 21.02.14.
The relevant part of the findings of the Tribunal given in the said case, are
reproduced as under:
"3.4.1 We have heard the rival submissions and perused and carefully considered
the material on record. Admittedly, the assessee has not deducted tax at source on
the payments made to Sri G.Shankar of Rs.2,69,21,500 and to Sri Ramesh Kotian of
Rs.1,54,75,000. As pointed out by the learned Authorised Representative as far as
the payments made to the aforesaid two persons is concerned the fact that the said
payees / recipients have shown the said amounts in their respective books of
account and profit and loss accounts and also that the same has been offered to tax
in their returns of income is not controverted by the authorities below. In our
considered opinion, since the payees / recipients i.e. G. Ramesh and Ramesh Kotian
have already shown these amounts in their respective books of account audited
under section 44AB of the Act; declared and offered the same to tax in their returns
of income for the relevant period, thus by virtue of the amendment to the
provisions of section 40(a)(ia) of the Act by insertion of the second proviso to
section 40(a)(ia) of the Act w.e.f. ;1.4.2013, the provisions of section 40(a)(ia) of the
Act would not be attracted to the payments made by the assessee i.e. Sri G.
Shankar of Rs.2,69,21,500 and to Sri Ramesh Kotian of Rs.1,54,75,000. This view of
ours, is in accordance with the decision of the co-ordinate bench of this Tribunal in
the case of Ananda Markala (supra) wherein it was held that the insertion of the
second proviso to section 40(a)(1a) of the Act should be read retrospectively from
1.4.2005 and not prospectively from 1.4.2013. In this view of the matter, the
provisions of section 40(a)(ia) of the Act is not attracted to the payments made by
the assessee to Sri G.Shankar of Rs.2,69,21,500 and to Sri Ramesh Kotian of
Rs.1,54,75,000 since the object of introduction of section 40(a)(ia) of the Act is
achieved for the reason that the payees / recipients have declared and offered to
tax the payments received from the assessee in their respective hands.
3.4.2 As regards the issue of non-furnishing of Form No.26A, we are of the view
that since the second proviso to section 40(a)(ia) of the Act is held to be
retrospective in operation w.e.f. 1.4.2005, similarly, Form 26A was to be filed for an
assessee not to be held as an assessees in default as per proviso to section 201 of
the Act. In all fairness, the assessee in the period under consideration i.e.
Assessment Year 205-06 could not have contemplated that such a compliance was
to be made and therefore in the interest of equity and justice we set aside the
order of the learned CIT (Appeals) and remit the matter to the file of the Assessing
Officer directing the Assessing Officer to consider the allowance or otherwise of the
expenditure claimed amounting to Rs.4,23,96,500; being the payments made by
the assessee to Sri G. Shankar of Rs.2,69,21,500 and to Sri Ramesh Kotiar, of
Rs.1,54,75,000 after affording the assessee adequate opportunity to file Form
No.26A and only after due verification of whether the aforesaid two payees /
recipients have reflected the same receipts in their books of account and have
5 ITA No.3688/M/2012
M/s. Selprint
offered the some to tax. In these circumstances, we hereby set aside the order of
the learned CIT (Appeals) to the file of the Assessing Officer only for the limited
purpose as directed above."
6. Almost identical view has been taken by the Agra Bench of the Tribunal
in the case of "Rajeev Kumar Agarwal vs. ACIT" (2014) 149 ITD 363 (Agra).
The said view has been further upheld by the Hon'ble Delhi High Court in the
case of "CIT vs. Ansal Land Mark Township Pvt. Ltd." in ITA No.160 of 2015
decided on 26.08.2015 (Del.-HC). Respectfully following the above cited
decisions, we hold that disallowance under section 40(a)(ia) of the Act will not
be attracted, if the respective payee has paid the required taxes in accordance
with law. For verification of the actual position, we restore this issue to the file
of the AO to verify whether the payee had paid the due taxes after computation
of its income including the payments received from the assessee. This issue is
accordingly allowed for statistical purposes.
Ground Nos. 2 & 3:
7. The contentions raised by the assessee in ground No.2 are that the
assessee had already deducted the TDS of Rs.36,720/- on the amount of rent
paid of Rs.2,40,000/- and the same was deposited with the treasury within due
date stipulated under section 200(1) of the Act. It may be observed that section
40(a)(ia) was amended by the Finance Act, 2010 and as per the amended
provisions the expenditure has to be allowed if the deposit is made within the
due date of filing of return of income. The Hon'ble Kolkata High Court, in the
case of "Virgin Creations" in ITA No.302 of 2011 decided on 23.11.2011, has
held that the said amendment is retrospective in nature. Following the said
decision, the Mumbai Bench of the Tribunal, in the case of "Piyush C. Mehta"
52 SOT 27, has allowed the claim of the assessee if the deposit has been made
before the due date of filing of return of income. We decide this issue
accordingly and restore the matter to the file of the Assessing Officer
6 ITA No.3688/M/2012
M/s. Selprint
(hereinafter referred to as the AO) to verify whether the TDS was deducted and
deposited within the due date of filing of return and if found so, then the AO to
allow the claim of the assessee accordingly.
Ground No.4
8. Vide ground No.4, the assessee has agitated the confirmation of
disallowance of Rs.1,50,000/- towards salary paid to Mr. Hardik Kothari, son
of the partner of the assessee firm. The AO disallowed the 1/3rd of the amount
of salary paid to Mr. Hardik Kothari on the ground that the above payment was
nothing but method adopted by the assessee for diversion of taxable profits.
The Ld. CIT(A), however, observed that the ledger account of Mr. Hardik
Kothari showed a commission of Rs.1,79,400/- only and there was no further
credit for the salary shown in his name of Rs.1,50,000/-. He, therefore,
observed that no salary had been paid to Mr. Hardik Kothari of an amount of
Rs.1,50,000/-. He, therefore, disallowed the entire amount of Rs.1,50,000/- as
the same was not reflected in the ledger account. The Ld. A.R. of the assessee,
before us, has invited our attention to page 15 of the paper book which is a
letter dated 18.08.10 addressed to Commissioner of Income Tax wherein a
justification has been given regarding payment of commission to Mr. Hardik
Kothari and it has been explained that Mr. Hardik Kothari was son of the
partner of the firm namely Mr. Viren Kothari that to encourage him for hard
work, efficiency and sincerity the firm decided to offer him salary of
Rs.12,500/- and commission on sale of products. It has been explained that he
has been looking after production quality and customer relationship. The Ld.
A.R. has further invited our attention to the written submissions dated 29.08.11
submitted by the assessee to the Ld. CIT(A) wherein it has been explained that
the amount of salary paid to Mr. Hardik Kothari was reasonable. The Ld. A.R.
has further explained that the payment of salary was routed through salary
account. He has further submitted that the payment of salary to Mr. Hardik
7 ITA No.3688/M/2012
M/s. Selprint
Kothari has been allowed in the past. Considering the above submissions of
the Ld. A.R., we do not find any justification on the part of lower authorities to
disallow the amount of salary paid to Mr. Hardik Kothari, son of the partner.
This issue is accordingly decided in favour of the assessee.
Ground No.5
9. Vide ground No.5, the assessee has agitated the confirmation of
disallowance of Rs.99,416/- being 1/3rd of the payments made to Mr. Vinit
Kothari and Rs.1,48,250/- towards purchase of software. The Ld. A.R. of the
assessee has invited our attention to page 20 of the paper book which is a letter
dated 31.08.2010 addressed to Commissioner of Income Tax wherein it has
been explained that Mr. Vinit Kothari had developed a software which was
useful for looking after the day to day production, quality and other
requirements. Mr. Vinit Kothari also gave training regarding the said software.
The assessee paid the amount in question to Mr. Vinit Kothari for designing
and developing a software and providing training in this respect. The AO had
disallowed 1/3rd of the said expenditure whereas the Ld. CIT(A) observed that
the amount in question was actually being paid as labour processing charges on
which TDS has been deducted. He observed that since Mr. Vinit Kothari was
not having any business in individual capacity or running any other business
entity where he was doing the labour processing job, hence the payment was
nothing but a trick to reduce the profits to avoid tax.
10. We find that the assessee in his letter dated 31.08.10 has explained to the
Commissioner that Mr. Vinit Kothari was doing engineering and that the
software was developed by him. It is not disputed that Mr. Vinit Kothari is
working for the firm. The Ld. CIT(A) has overlooked the contentions raised
by the assessee and has disallowed the claim. It is not disputed that the
services were provided by Mr. Vinit Kothari to the firm. It has also been
8 ITA No.3688/M/2012
M/s. Selprint
explained that the software developed by him was very important to the
business of the assessee firm. Considering the above facts and circumstances,
in our view, the disallowance is not justified on this issue also and the same is
accordingly ordered to be deleted.
Ground No.6
11. The Ld. CIT(A) has confirmed the addition of unsecured loans of
Rs.1,79,400/- under section 68. At the outset, the Ld. A.R. of the assessee has
explained that the said amount pertained to the commission of Rs.1,79,400/-
(net of TDS) that was already disallowed by the AO and confirmed by the Ld.
CIT(A). He has explained that this amount was in respect of commission paid
and not the loan received. Considering the above submissions of the assessee,
we feel that the issue requires reexamination at the hands of AO. The AO is
directed to examine the contentions of the assessee in this regard and decide
the issue afresh in accordance with law.
12. With the above observations, the appeal of the assessee is hereby partly
allowed.
Order pronounced in the open court on 21.10.2015.
Sd/- Sd/-
(R.C. Sharma) (Sanjay Garg)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 21.10.2015.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
9 ITA No.3688/M/2012
M/s. Selprint
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
|