IN THE INCOME TAX APPELLATE TRIBUNAL
"A" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri N.K. Billaiya, Accountant Member
ITA No. 1871/Mum/2013
(Assessment Year: 2006-07)
M/s. Arcadia Share & Stock DCIT, Range 4(1)
Brokers Pvt. Ltd. Room No. 640, 6th Floor
328/329, Ninad CHS, 1st Floor Aayakar Bhavan, M.K. Road
Vs.
Bldg. No. 7, Service Road, Near Mumbai 400020
Bhavishya Nidhi Bhavan
Bandra (E), Mumbai 400051
PAN - AAACA4562G
Appellant Respondent
Appellant by: Shri K. Sivaram
Respondent by: Shri Pavan Kumar Beerla
Date of Hearing: 22.12.2014
Date of Pronouncement: 22.12.2014
ORDER
Per D. Manmohan, V.P.
This appeal by the assessee company is directed against the order
passed by the CIT(A)-8, Mumbai and it pertains to AY 2006-07.
2. Following grounds were urged before us: -
"1. The learned CIT(A) erred upholding the reopening of assessment
by issue of notice u/s. 148 dt. 29/3/2011, without appreciating
that the original assessment has completed u/s. 143(3) by the
A.O. after application of mind to the provisions of sec. 40(a)(ia) of
the Act and also the TDS provisions, therefore again reopening of
assessment on same set of facts merely on change of opinion is
bad in law.
2. The learned CIT(A) failed to appreciate that reopening of
assessment was based on mere change of opinion as there were
no new facts or tangible material before the A.O. to come to a
conclusion that there is escapement of income.
3. The learned CIT(A) erred in upholding the disallowance of
depository charges paid of Rs.6,27,423/- u/s. 40(a)(ia) of the Act
without appreciating that depository charges paid was not for
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M/s. Arcadia Share & Stock Brokers Pvt. Ltd.
technical services therefore provisions of Sec. 194C/194J were
not applicable.
4. The learned CIT(A) filed to appreciate that Sec. 40(a)(ia) is
applicable to amount payable and not already paid. Further the
expenses had been claimed year after year and no disallowance
was made in scrutiny assessment therefore on bonafide belief no
disallowance u/s. 40(a)(ia) ought to be made.
5. The learned CIT(A) also failed to appreciate that the payee are
assessed to tax and already paid taxes on the said amount and
therefore there should not be any disallowance, the aforesaid
view is also supported by the subsequent amendment made by
the Finance Act 2012 inserting proviso to section 40(a)(ia) of the
Act which is clarificatory in nature and inserted with a view to
rationalize the provisions of disallowance, therefore the
amendment should be applicable with retrospective effect."
3. Facts necessary for disposal of the appeal are stated in brief. The
assessee is engaged in the business of share and stock broking. It debited a
sum of `6,27,423/- to the Profit & Loss Account under the head `depository
charges' which are payable on account of services provided with regard to
transactions in securities through Stock Exchange. According to the AO
assessee ought to have deducted tax at source, under section 194C of the
Act, with reference to payments made to the contractor. Assessee paid
depository charges in accordance with the agreement made with depository
participants for execution of work, as per the rate already fixed. According to
the assessee there is no need to deduct tax on payments because these are
not for technical services/for execution of work. The AO, however, in the
reassessment proceedings, was of the opinion that the payments made to
the Stock Exchange, by whatever name called, are technical service falling
within the purview of section 194J and 194C and the assessee having not
deducted tax he invoked provisions of section 40(a)(ia) of the Act. The
learned CIT(A) affirmed the action of the AO and thus the assessee preferred
an appeal before us.
4. The case of the learned counsel for the assessee is that: (a) reopening
of assessment on same set of disallowance, which was made in the original
assessment proceedings would amount to change of opinion, which is not
permissible under law, (b) depository charges do not fall under the head
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M/s. Arcadia Share & Stock Brokers Pvt. Ltd.
`technical services' so as to invoke section 40(a)(ia) since it is only a contract
between the assessee and the party who has to participate in execution of
work, and (c) even otherwise amount having been paid by the assessee, this
being the first year where amount were sought to be disallowed, section
40(a)(ia) comes into play only in the case of amount payable and not with
reference to amount paid. Reliance in this regard was placed on the decision
of the ITAT Special Bench in the case of Marilyn Shipping & Transports 136
ITD 23 and similar view was taken by the Hon'ble Allahabad High Court in
the case of Vector Shipping Services (P) Ltd. 38 taxmann.com 77 (All) on
which the SLP filed by the Revenue has been rejected. The learned counsel
for the assessee placed detailed arguments which are referred to in his
written submissions and also placed before us supporting case law to
submit that reopening is based upon change of opinion and even otherwise
there is no case for making a disallowance under section 40(a)(ia) both on
merit as well as on the issue that the said section is applicable only when
the amount is payable and not after payment is made.
5. On the other hand, the learned D.R. relied upon the orders passed by
the Tax Authorities.
6. We have heard the rival submissions and carefully perused the record.
We shall first take up the last alternative ground, i.e. when the payment is
made by the assessee whether section 40(a)(ia) can be attracted? On this
issue this very Bench, in the case of Amit Naresh Shah (ITA No.
4154/Mum/2013), had taken a consistent stand that in the light of the
decision rendered by Hon'ble Supreme Court, in the form of dismissal of
Revenue's SLP in the case of Vector Shipping Services (P) Ltd. section
40(a)(ia) is not applicable with reference to payments already made since the
expression `payable' has to be satisfied for invoking provisions of section
40(a)(ia). The Bench, in the aforecited decision, observed in this regard as
under: -
"4. Before us, Departmental Representative(DR) stated that order of
the Special Bench delivered in the case of Merilyn Shipping &
Transports (supra)has been kept in abeyance of the Hon'ble Andhra
Pradesh High Court, that the Hon'ble Gujarat High Court had taken a
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M/s. Arcadia Share & Stock Brokers Pvt. Ltd.
different view. Authorised Representative (AR) supported the order of
the FAA. We have heard the rival submissions and perused the
material before us. We find that expenses related to professional fees,
advertisement and management were debited in P&L Account, that
same were paid. Therefore, in our view, no disallowance u/s 40(a)(ia)
of the Act should be made. We further find that while deciding the
appeal in the case of Janapriya Engineers Syndicate (I.T.T.A. No. 352
of 2014- dt. 24.06.2014) the Hon'ble Andhra Pradesh High Court has
clarified the issue of interim stay granted by it in the case of Merilyn
Shipping & Transports (supra). We will like to reproduce the relevant
part of the said order and same reads as under:
"4. We are of the view that until and unless the decision of the
Special Bench is upset by this Court, it binds smaller Bench and
coordinate Bench of the Tribunal. Under the circumstances, it is not
open to the Tribunal, as rightly contended by Mr. Narasimha Sarma,
learned counsel, to remand on the ground of pendency on the same
issue before this Court, overlooking and overruling, by necessary
implication, the decision of the Special Bench. We simply say that it
is not permissible under quasi judicial discipline".
From the clarification issued by the Hon'ble High Court, it is clear that
until and unless the decision of Marilyn Shipping & Transport (supra) is
reversed by the Court, it is binding on all the benches of the Tribunal.
We find that Hon'ble Court has held that judicial discipline mandates
that the decision of the special bench has to be followed by other
benches. As on today, the stay order granted by the Hon'ble Court has
been vacated and the order of the special bench is binding on other
benches of the Tribunal. Therefore, respectfully following the same, we
hold that the FAA was justified in following the order of Marilyn
Shipping & Transport (supra). Considering the facts of the case and the
clarification issued by the Hon'ble Andhra Pradesh High Court on
24.06.2014 in the case of Janapriya Engineers Syndicate, we decide
the effective ground of appeal in favour of the assessee and confirm the
order of the FAA."
7. Reverting to the facts on hand, the Tax Authorities had not disputed
the fact that the assessee paid depository charges without deducting the tax
and taxes are already paid by the recipient [see para 3.3 & 3.4 of the order
passed by the CIT(A)]. Since the amount was already paid and the taxes are
paid by the recipient, in our opinion, the decision of the Special Bench in
the case of Marilyn Shipping & Transports (supra) is applicable and by
following the decision of the ITAT, Mumbai Benches (supra) we hold that the
Tax Authorities have wrongly invoked provisions of section 40(a)(ia) in the
instant case. We, therefore, set aside the orders passed by the Tax
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M/s. Arcadia Share & Stock Brokers Pvt. Ltd.
Authorities disallowing `6,27,423/-. In the light of the decision on merit it is
not necessary for us to deal with the other aspects urged before us since
they will be of academic importance. Suffice to say that disallowance made
by the AO is not called for in the circumstances of the case, in the light of
the decision of the ITAT (supra), which in turn was based upon the decision
of the Hon'ble Supreme Court in the case of Vector Shipping Services (P) Ltd.
8. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 22nd December, 2014.
Sd/- Sd/-
(N.K. Billaiya) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 22nd December, 2014
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) 8, Mumbai
4. The CIT 4, Mumbai City
5. The DR, "A" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.
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