Income Tax Appellate Tribunal - Hyderabad
Vivimed Labs Ltd., (Formerly Known As ... vs Acit, Circle-3(3), Hyd, Hyderabad on 3 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" (SMC), HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 1143/HYD/2016
Assessment Year: 2007-08
Vivimed Labs Ltd., The Asst. Commissioner
(Formerly known as V.V.S. Vs of Income Tax,
Pharmaceuticals & Chemicals Circle-3(3),
Pvt. Ltd., now merged with HYDERABAD
Vivimed Labs Ltd)
HYDERABAD
[PAN: AABCV3087C]
(Appellant) (Respondent)
For Assessee : Shri M.V. Joshi, AR
For Revenue : Smt Suman Malik, DR
Date of Hearing : 25-01-2017
Date of Pronouncement : 03-02-2017
ORDER
This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-5, Hyderabad dated 30-06-2016. The only issue for adjudication is the disallowance u/s. 40(a)(ia) of the Income Tax Act [Act] made by the Assessing Officer (AO) at Rs. 19,00,842/-, whereas the Ld.CIT(A) confirmed an amount of Rs. 9,41,428/- being the correct amount to be disallowed.
2. Assessee, M/s. V.V.S. Pharmaceuticals & Chemicals Pvt. Ltd has merged with M/s. Vivimed Labs Ltd., vide orders of the Hon'ble High Court of Andhra Pradesh dt. 22-10-2007. The Registrar of Companies has issued Registration No. 01-34149 dt. 31-12-2007, confirming the amalgamation of the M/s. V.V.S. Pharmaceuticals & :- 2 -: I.T.A. No.1143/Hyd/2016 Chemicals Pvt. Ltd., with M/s. Vivimed Labs Ltd., (transferee company). However, the assessment proceedings for AY. 2007-08 have been completed in the name of M/s. V.V.S. Pharmaceuticals & Chemicals Pvt. Ltd., and the order dt. 30-12-2009 has been passed, disallowing the amount u/s. 40(a)(ia) and also other amount u/s. 36(i)(va) of the Act. In further appeal before the Ld.CIT(A), it seems neither assessee has intimated the merger nor Ld.CIT(A) noticed and appeal was decided against M/s. V.V.S. Pharmaceuticals & Chemicals Pvt. Ltd., by the order dt. 30-06- 2016. Assessee while filing the appeal however, has filed Form No. 36 in the name of M/s. Vivimed Labs Ltd., and on enquiry, furnished the certificate issued on 31-12-2007. Accordingly, the appeal is considered in the name of M/s. Vivimed Labs Ltd., even though the order of the CIT(A) is against M/s. V.V.S. Pharmaceuticals & Chemicals Pvt. Ltd.( transferred company)
3. As briefly stated, the only issue in this appeal is with reference to disallowance of amount of Rs. 19,00,842/- by the AO stated to be on the following reason:
"3. Disallowance u/s. 40(a)(ia) of the I.T Act:
During the year under consideration, the assessee company paid the following amounts without deducting taxes as per Chapter-XVII B of the Income-tax Act.
Sl.No. Type of payment Amount (Rs)
1 Effluent treatment charges 10,70,475
2 Processing charges 7,92,925
3 Freight outward 37,442
Total 19,00,842
As the assessee failed to comply with the provisions of Chapter-XVII B of the Income-tax Act, the above payments are disallowed under section 40(a)(ia) of the Income-tax Act".
:- 3 -: I.T.A. No.1143/Hyd/2016
4. It was contested before the Ld.CIT(A) that :
a) The entire amount was paid during the year and there is no outstanding amount payable at the end of the financial year in following the principles laid down by the Special Bench, ITAT in the case of Merilyn Shipping & Transports Vs. ACIT, [136 ITD 23 (SB)] [16 ITR 1] (SB)(Visakha.)(Trib.) the disallowance u/s. 40(a)(ia) does not arise.
b) It was further contended that AO erred in making the disallowance as he has not treated assessee as the assessee-
in-default u/s. 201(1) and therefore, following the principles laid down by the ITAT in the case of M/s. Visu International Limited in ITA Nos. 488/Hyd/2013 & 621/Hyd/2013, dt. 12-11-2014, the disallowance cannot be sustained.
4.1. However, Ld.CIT(A) in his detailed order not only examined the facts of the case but also various case law on the issue. As far as the facts are concerned, he was of the opinion that only an amount of Rs. 1,11,061/- should be considered as against Rs. 10,70,475/- made by the AO. Revenue accepted the same. Accordingly, as against Rs. 19,00,842/-, Ld.CIT(A) restricted the disallowance to Rs. 9,41,128/-.
5. Coming to the issue of legal principles on disallowance u/s. 40(a)(ia), Ld.CIT(A) while noticing that there are various decisions of Hon'ble High Courts for and against the disallowance. He followed the judgment of Hon'ble P&H High Court and held that liability to deduct TDS out of the payments mentioned above would :- 4 -: I.T.A. No.1143/Hyd/2016 arise and Section 40(a)(ia) had to be invoked. Accordingly, he limited the disallowance to Rs. 9,41,428/-.
6. It was submitted by the Ld. Counsel that the provisions of Section 40(a)(ia) are applicable only to the amounts which are payable at the end of the financial year and are not applicable to the amounts which were already paid during the year under consideration. Therefore, since the above payments were already made during the year, no disallowance u/s. 40(a)(ia) is warranted.
6.1. In this regard, reliance is placed on the following case law:
a) Decision of Hon'ble AP High Court in the case of Janapriya Engineers Syndicate [371 ITR 439];
b) Order of Hon'ble Hyderabad ITAT Janapriya Properties Pvt. Ltd., in ITA No. 1614/H/2012;
c) Order of Hon'ble Hyderabad ITAT, Warangal Urban Cooperative Bank Ltd., in ITA No. 73 taxmann.com 229;
d) Decision of Hon'ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd [357 ITR 642];
e) Decision of Hon'ble Supreme Court of India in SLP filed by department in the case of Vector Shipping Services (P) Ltd., 8068/2014;
6.2. Further, as per the second proviso to Section 40(a)(ia) inserted in statute which is held to be retrospective, the provisions of Section 40(a)(ia) cannot be invoked if no order u/s. 201(1) & 201(1A) has been passed against assessee. Fact remains that order u/s. 201(1) & 201(1A) has not been passed against the assessee-company for AY. 2007-08. This being so, no disallowance :- 5 -: I.T.A. No.1143/Hyd/2016 can be made u/s. 40(a)(ia) of the Act. In this regard, reliance is placed on the order of ITAT, Hyderabad in the case of Visu International Limited in ITA No. 488 & 621/H/2013, wherein the Hon'ble ITAT have directed to delete the disallowance made u/s. 40(a)(ia) of the Act, if there are no 201(1) & 201(1A) proceedings in that year on the said non deduction of tax.
7. Ld.DR however, relied on the orders of the Ld.CIT(A).
8. I have considered the issue and perused the rival contentions. The fact is that the amounts were paid during the financial year and there is no amount outstanding at the end of the financial year. It is also confirmed that the amounts so paid were accounted by the respective parties and no proceedings u/s. 201(1A) are initiated.
8.1. I further find that while deciding the appeal in the case of Janapriya Engineers Syndicate (I.T.T.A. No.352 of 2014 dated 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 and Transport Ltd., Vs. ACIT 136 ITD 23 (SB) [16 ITR 1] (SB)(Visakha.)(Trib.) (Supra). I would 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".
:- 6 -: I.T.A. No.1143/Hyd/2016 8.2. From the clarification issued by the Hon'ble High Court, it is clear that until and unless the decision of Merilyn Shipping and Transport Ltd., Vs. ACIT [136 ITD 23 (SB)] [16 ITR 1] (SB)(Visakha.)(Trib.) (Supra) is reversed, it is to be followed. Hon'ble High Court has held that judicial discipline mandates that the decision of the Special Bench has to be followed by other Benches.
In Teja Construction Vs. ACIT [2010J 39 SOT 13(HYD)(URO) ITAT Hyderabad Bench 'A' and Bartronics India Ltd. V. ACIT [2012J 22 taxmann.com 5 (Hyd.) it was held that Section 40(a)(ia) are applicable only in respect of 'payable amount' shown in Balance Sheet as outstanding expenses, on which TDS has not been made.
8.3. No decision of the jurisdictional High Court or the decision of the ITAT Hyderabad Bench was brought to my notice wherein a contrary view is taken on this aspect. Since the ITAT is following the observations of the Hon'ble jurisdictional High Court which in turn was referred to by the ITAT Hyderabad Benches in number of cases and in various cases as stated in assessee submissions this principle was accepted, I direct the AO to delete the amounts, following the principles laid down by the Hon'ble Special Bench of ITAT in the case of Merilyn Shipping and Transport Ltd., Vs. ACIT [136 ITD 23 (SB)] [16 ITR 1] (SB)(Visakha.)(Trib.). Accordingly, assessee's grounds are allowed.
9. In the result, appeal of assessee is allowed.
Order pronounced in the open Court on 3rd February, 2017 Sd/-
(B. RAMAKOTAIAH)
ACCOUNTANT MEMBER
Hyderabad, Dated 3rd February, 2017
TNMM
:- 7 -: I.T.A. No.1143/Hyd/2016
Copy to :
1. Vivimed Labs Ltd., (Formerly known as VVS Pharmaceuticals & Chemicals Pvt. Ltd., now merged with Vivimed Labs Ltd), C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad.
2. The Asst. Commissioner of Income Tax, Circle-3(3), Hyderabad.
3. Commissioner of Income Tax(Appeals)-5, Hyderabad.
4. The Pr. Commissioner of Income Tax-5, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.