Income Tax Appellate Tribunal - Ahmedabad
Suraj Stainless Ltd., Ahmedabad vs Assessee on 30 July, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA YADAV, JUDICIAL MEMBER AND ANIL CHATURVEDI ACCOUNTANT MEMBER I.T.A. NO.2686/AHD/2011 (ASSTT. YEAR 2008-09) SURAJ STAINLESS LTD., VS THE ASSISTANT COMMISSIONER SURAJ HOUSE, OF INCOME TAX (OSD), VIDYANAGAR SOCIETY, CIRCLE-8, ROOM NO.208 OPP. USMANPURA GARDEN, "B" WING, 2ND FLOOR, USMANPURA, PRATYAKSHA KAR BHAVAN, AHMEDABAD. PANJARA POLE, AMBAWADI, AHMEDABAD.
PAN AAGCS 6939 M
(Appellant) (Respondent)
Appellant by Shri Gyan Pipara
Respondent by Shri Dinesh Singh, Sr. D.R.
सन
ु वाई क तार ख/Date of Hearing : 23-07-2015
घोषणा क तार ख /Date of Pronouncement : 30-7-2015 आदे श/O R D E R PER ANIL CHATURVEDI ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the order of Ld. CIT (A)-XIV, Ahmedabad dated 26-08-2011 for Assessment Year 2008-09.
2. The relevant facts as culled out from the material on record are as under.
ITA No. 2686/ Ahd/2011Assessment Year 2008-09.
Suraj Stainless Ltd.
23. The assessee is a company stated to be engaged in the business of manufacturing of pipes and tubes. The assessee electronically filed its return of income for A.Y. 2008-09 on 27-9-2008 declaring total income of Rs.20,12,86,950/-.The case was selected for scrutiny and thereafter the assessment was framed u/s. 143(3) of the Income tax Act,1961 vide order dated 27-12-2010 and the total income was determined at Rs.20,48,61,950/-. Aggrieved by the order of the Assessing Officer, assessee carried the matter before the CIT (A), who vide order dated 26-8-2011 granted partial relief to the assessee.
4. Aggrieved by the order of CIT (A), the assessee is now in appeal before us and raised following grounds of appeal:-
"1. The Ld. CIT (A) has erred in law and on facts in confirming the addition of Rs.15,94,765/- on account of disallowance u/s.40(a)(ia) of the Act without proper appreciation of the facts, submissions and legal position as well as arguments put forth in the written submissions filed before the AO. and the CIT (A). In view of the facts and submissions filed coupled with legal position in support thereof, the impugned addition requires to be deleted/cancelled.
2. The Ld. CIT (A) has erred in law and on facts in confirming the addition of Rs.1,04,669/- on account of non-deduction of TDS u/s. 194C r.w.s. 40(a)(ia) of the Act on the payment made for purchasing calendars with the name of the company printed on it. The contract in question being for sale and not being a works contract, the provisions of Section 194C do not apply and accordingly the impugned addition ought to have been deleted keeping in view the legal position in this respect.
3. The Ld. CIT (A) has erred in law and on facts in confirming the addition of Rs.1,69,023/- made by the A.O. in respect of expenses under various account heads on the ground that they are prior period expenses. In view of facts and submissions filed and more particularly the fact that the liability for the sad expenses having been crystallized during the year in dispute, the said expenses ought to have been allowed as expenditure for the year.ITA No. 2686/ Ahd/2011
Assessment Year 2008-09.
Suraj Stainless Ltd.3
4. The Ld. CIT (A) has erred in law and on facts in confirming the addition of Rs.45,375/- made by the A.O. u/s. 40A(3) of the Act. In view of facts and submissions filed, the impugned addition requires to be deleted."
5. Ground No.1 is with respect to the addition on account of disallowance under sec. 40 (a) (ia) of the Act.
6. During the course of assessment proceedings A.O. noticed that assessee has claimed deduction of Rs.15,94,765/- of non TDS expenses that were disallowed in earlier years. Before the A.O. it was submitted that the Tax Auditor reported in the Tax Audit Report in A.Y. 2007-08 about the disallowance and therefore, the expenses was disallowed in A.Y. 2007-08 though it was not required to be disallowed as it was in the nature of reimbursement and the assessee therefore claimed the expenses in A.Y. 2008-09. The submission of the assessee was not found acceptable to the A.O. as he was of the view that the expenses did not pertain to the year under consideration and further the expenses according to the A.O. could not be allowed even on payment basis as assessee had neither deducted TDS nor paid the TDS in the current year. He accordingly, disallowed Rs.15,94,765/-.
6. Aggrieved by the order of the A.O., assessee carried the matter before the CIT (A), who upheld the order of the A.O. by holding as under:-
"2.3. I have carefully perused the findings of the Assessing Officer and submissions made by Ld. A.R. The facts are that the appellant incurred an expenditure of Rs.15,94,765/- during the F.Y. 2006-07 on account of reimbursement to clearing and forwarding agents. Since the appellant company did not deduct TDS u/s. 194C in that year, the expenses were disallowed by the appellant himself u/s. 40(a)(ia) of the Act. Now, in the present year, the appellant has claimed the deduction on account of this expenditure saying that no tax was liable to be deducted on this expenditure and since it cannot be claimed in earlier year, the ITA No. 2686/ Ahd/2011 Assessment Year 2008-09.
Suraj Stainless Ltd.4
expenditure is claimed in this year. The claim of the appellant is not acceptable. The fact remains that the expenditure does not pertain to the current year and the assessee has neither deducted the tax nor paid the said tax during the previous year under consideration and, therefore, no deduction can be allowed in the current year in respect of that expenditure. The claim of the appellant that no TDS was required to be deducted and, therefore, disallowance of expenditure was not warranted is not relevant. The relevant point is that the expenditure pertains to earlier year and the appellant in that year had himself made a disallowance for some reason in the return. The appellant has also claimed in his written submission that the first appellate authority can consider the claim of expenditure where the same was not entertained during the assessment proceedings or was not claimed in the return of income and no return was filed. This claim of the appellant is also not acceptable for the similar reason that the expenditure pertains to earlier year and there is no change of facts in the present year. In view of all the above mentioned facts and circumstances, the action of the A.O. in disallowing the claim in the computation of income was justified and the same is upheld. The ground of appeal is, therefore, dismissed."
7. Aggrieved by the order of Ld. CIT (A), assessee is now in appeal before us. Before us the Ld. A.R. reiterated the submissions made before the A.O. and the Ld. CIT (A) and further submitted that the expenditure in question pertains to reimbursement of expenses which were incurred on behalf of the assessee by clearing and forwarding agents and the expenditure was incurred during A.Y. 2007-08 and was wrongly disallowed in the computation of total income on the basis of incorrect report of the Tax Auditor on account of non-deduction of TDS on such reimbursed expenditure. It was therefore, submitted that in view of the aforesaid mistake the said amount was claimed as expenditure in A.Y. 2008-09.He further placed reliance on the decision of Hon'ble apex court in the case of CIT v/s. Bharat Carbon & Ribbon Manufacturing Co. Pvt. Ltd., 239 ITR 505 (SC) and the decision in the case of CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 217 Taxman 114 (Guj.)(HC).
ITA No. 2686/ Ahd/2011Assessment Year 2008-09.
Suraj Stainless Ltd.
58. The Ld. D.R. on the other hand supported the order of A.O. and CIT (A) and further submitted that the assessee is following mercantile system of accounting and therefore, it should claim the expenditure in the year in which the liability crystallized. He further submitted that no evidence of the liability crystallization in the year under consideration has been placed on record by the Ld. A.R. He thus supported the order of the A.O. and CIT (A).
9. We have heard rival submissions and perused the material available on record. We find that before the lower authorities it was claimed that the expenditure were in the nature of reimbursement for the goods that were exported by the assessee. During the course of hearing a question was put to the Ld. A.R. and he was asked to demonstrate the crystallization of liability vis-à-vis the date of exports of goods as it was claimed that the expenditure were with respect to export of goods and to which the Ld. A.R. could not place any evidence to demonstrate that the goods were exported in the year under consideration or even at the fag end of F.Y. 2006-07. Before us the Ld., A.R. has also not placed any material on record to demonstrate that the liability crystallized during the year nor has placed any material on record to controvert the findings of Ld.CIT (A). Further the case laws relied upon by Ld. A.R. are also distinguishable on facts and in view of the aforesaid facts, we find no reason to interfere with the order of the Ld. CIT (A) and thus this ground of the assessee is dismissed.
10. Second ground is with respect to the addition of Rs.1,04,669/- on account of non deduction of TDS for the payments for purchasing calendars.
ITA No. 2686/ Ahd/2011Assessment Year 2008-09.
Suraj Stainless Ltd.
611. Assessing Officer during the course of assessment proceedings noticed that assessee has paid Rs.1,04,669/- for calendars printing work but no TDS was deducted and for non deduction of TDS the assessee's submission was that the contract for printing calendar was including material and was therefore the assessee was not liable to deduct TDS. The submission of the assessee was not found acceptable to the A.O. for the reason that according to him the contract was given by the assessee for printing of calendars and there was no separate contract for material and /or labour work and A.O. was therefore, of the view that the assessee was liable to deduct TDS u/s. 194C of the Act and since assessee has failed to deduct TDS he disallowed Rs.1,04,669/-.
12. Aggrieved by the order of A.O. assessee carried the matter before the CIT (A), who upheld the disallowance made by the A.O. by holding as under:-
"7.3. I have carefully perused the findings of the assessing officer and submissions made by the Ld. A.R. The appellant has submitted that the payment was for contract for sale and not for works contract and, therefore, no TDS was liable to be deducted. The appellant company had not given any material for the said parties for printing the calendars and, therefore, the provisions of section 194C were not applicable. The submission of the appellant is not acceptable as the appellant has purchased calendars from the parties which have been printed according to the specifications given by the appellant. It was not a readymade product which was available off the shelf in the market and purchased by the appellant. Therefore, it is clearly a works contract that has been executed on behalf of the appellant company. Therefore, the appellant was liable to deduct tax on the payment made to the agency. The disallowance made by the A.O. was, therefore, justified and is upheld. The ground of appeal is, therefore, dismissed."
13. Aggrieved by the order of CIT (A), the assessee is now in appeal before us.
ITA No. 2686/ Ahd/2011Assessment Year 2008-09.
Suraj Stainless Ltd.
714. Before us the Ld. A.R. reiterated the submissions made before the A.O. and CIT (A) and further submitted that there was no contract entered by the assessee with the party selling calendars and it was a case of outright purchase with the name of the company printed on it. and submitted that neither any material or labour was provided and it was not a contract for work. He further submitted that assessee had incurred similar expenditure in earlier years and subsequent years and for non deduction of TDS no disallowance was made. He therefore, submitted that the addition made by the A.O. and confirmed by Ld.CIT (A) be deleted. He also placed reliance on the decision in the case of Associated Cement Company v/s. CIT reported in 201 ITR 435. Ld. D.R. on the other hand, supported the order of A.O. and the CIT (A).
15. We have heard rival submissions and perused the material available on record. We find that the CIT (A) while upholding the disallowance has held that the contract for purchase of calendars was a works contract and therefore, the assessee was liable to deduct TDS. On the other hand before us Ld. A.R. submitted that the assessee had also purchased calendars in earlier and subsequent years and in those years, in the assessments framed u/s. 143(3), no disallowance on account of non deduction of TDS has been made by the Revenue Authorities. We however find that to support the contention of allowing the expenses in earlier and subsequent years, the relevant assessment orders are not on record. We therefore, are of the view that in the interest of justice, the issue needs to be re-examined at the end of A.O. and if no disallowance of similar expenditure has been made in earlier years and or subsequent years, the addition made by the A.O.in the year under consideration be deleted. We therefore, restore the matter to the file of A.O. to decide the issue as per the directions given hereinabove. Thus this ground of assessee is allowed for statistical purposes.
ITA No. 2686/ Ahd/2011Assessment Year 2008-09.
Suraj Stainless Ltd.
816. Ground No.3 is with respect to the addition on account of prior period expenses amounting to Rs.1,69,023/-.
17. During the course of assessment proceedings, A.O. noticed that assessee has debited a sum of Rs.5,82,373/- which pertain to earlier years. A.O. was of the view that in the absence of any evidence placed by the assessee to prove that the expenses crystallized during the year, the claim of expenses cannot be allowed in the year under consideration and accordingly, worked out the disallowance of Rs.1,69,023/-.
18. Aggrieved by the order of A.O. the assessee carried the matter before the CIT (A) who upheld the order of A.O. by holding as under:-
"8.3 I have carefully perused the findings of the Assessing Officer and submissions made by the Ld. A.R. The appellant has submitted that the invoices in respect of these expenses were raised in the year under consideration by the parties and, therefore, the same were recognized during the year. The submission of the appellant is not acceptable, as the appellant has not given any justifiable reason for not receiving the invoices during the earlier year. It has also not demonstrated that the method of accounting followed by the appellant was such that the expenses are taken into account when the invoices are received. It is not the claim of the appellant that it has been consistently following the practice of accounting such expenditure in this manner. The appellant has also relied on various judicial pronouncements related to the issue but the same are not applicable as in all the decisions the issue of crystallization of liability was involved. Whereas in the present case the appellant has not been able to prove that the liability has crystallized in the present year. It has not submitted any evidence in this regard, either before the A.O. or at this stage. Therefore, considering all these facts and circumstances, the disallowance made by the A.O. in respect of the prior period expenses is upheld. The ground of appeal is, therefore, dismissed."ITA No. 2686/ Ahd/2011
Assessment Year 2008-09.
Suraj Stainless Ltd.
919. Aggrieved by the order of Ld. CIT (A), the assessee is now in appeal before us. Before us the Ld. A.R. reiterated the submissions made before the A.O. and the Ld.CIT (A) and further submitted that the prior period expenses in question have not been claimed at all while computing the income for A.Y. 2008-09 as it was below the line adjustment in the profit and loss account. He therefore, submitted that since the assessee has not claimed the expenditure, the question of any disallowance does not arise at all. He further submitted that the said expenses crystallized during the year is not in dispute because the invoices were received during the year and for which he pointed to Annexure F of Tax Audit Report placed at page 56 of the paper book and submitted that the auditor has also certified the crystallization of the liability during the year. He therefore, submitted that the addition made by the A.O. be deleted and for which he also placed reliance on the decision reported in the case of CIT v/s. CIT v/s. Bharat Carbon & Ribbon Manufacturing Co. Pvt. Ltd., 239 ITR 505 (SC) (supra).
20. The Ld. D.R. on the other hand supported the order of AO and CIT (A).
21. We have heard the rival submissions and perused the material available on record. The issue in the present case is about the disallowability of prior period expenses. We find that the Ld. CIT (A) while upholding the disallowance has noted that the assessee has not been able to prove that the liability of the expenses which has been claimed has crystallized during the year under consideration and the claim of assessee is not supported by documentary evidence and that there was no evidence to that effect was either placed before the A.O. or before Ld.CIT (A). Before us also the assessee has not placed any material on record to demonstrate the crystallization of liability in the year under consideration. Before us, Ld. A.R. has stated that the prior period expenses is below the line adjustment in the Profit and loss ITA No. 2686/ Ahd/2011 Assessment Year 2008-09.
Suraj Stainless Ltd.
10account and therefore it has not been claimed as expenses is contrary to the fact and is not correct because on perusing the computation of income that has been placed on record at page-2 of the paper book, it is seen that assessee has claimed expenses of Rs.5,53,979/- as "prior period expenses crystallized during the year". In view of the aforesaid facts we find no reason to interfere with the order of the CIT (A) and thus this ground of assessee is dismissed.
22. Ground No.4 is with respect to the addition of Rs. 45,375/- u/s. 40A(3) of the Act:-
23. The A.O. noticed that the assessee had paid Rs.45,375/- for expenses other than by account payee cheque or bank draft. He noticed that the assessee has given cash to Bank and obtained 1000$ and these 1000$ were given to the person which according to the A.O. amounts to payment in cash. He therefore, disallowed the expenditure u/s. 40A(3).
24. Aggrieved by the order of A.O., assessee carried the matter before the CIT (A) who upheld the order of A.O. by holding as under:-
"9.3. I have carefully perused the findings of the Assessing Officer and submissions made by the Ld. A.R. The appellant has submitted that the payment was made to the representative of M/s. Song, a Koeran firm who was in India during the previous year. The payment was made for some repair and the representative asked for payment in US dollar in order to facilitate his travelling. The submission of the appellant may be factually correct but the same cannot be accepted as a reason for making the payment in cash. The fact remains that the appellant has made the payment in cash for the repair of the machinery and the payment was in violation to the provisions of Sec. 40A(3) of the Act. The appellant has not been able to give any reason so as to prove that the cash payment was necessary and is covered with Rule 6DD of the Income Tax Rules. The claim of the appellant that the foreign currency was purchased from an authorized dealer, the payment was made to a foreigner and on demand will not exempt him from the provisions of Sec. 40A (3) of the Act. It has ITA No. 2686/ Ahd/2011 Assessment Year 2008-09.
Suraj Stainless Ltd.11
to be proved by him that the payment in cash is covered by Rule 6DD of the Income Tax Rules which he has failed to do. Accordingly, the disallowance made by the A.O. is upheld. The ground of appeal is therefore, dismissed."
25. Aggrieved by the order of CIT (A), the assessee is now in appeal before us. Before us the Ld. A.R. reiterated the submissions made before A.O. and the CIT (A) and further submitted that the payments in question pertains to machinery repairs expenses paid to the foreign representative of the company during his stay in India and on his specific request. He further, submitted that the person to whom payment was made was not having any bank account in India and the payment was made under exceptional circumstances. He further submitted that the genuineness of the payment has not been questioned by the A.O., and in such circumstances the payment be allowed. The Ld. D.R. on the other hand supported the order of A.O. and CIT (A).
26. We have heard the rival submissions and perused the material available on record. Before us it is assessee's submission that the payment was made to the representative of the foreign company, who was a foreigner and was not having Bank account and on the specific request to meet the expenses have not been controverted by the Revenue. Further the genuineness of the payment has also not been doubted by the A.O. In view of the aforesaid facts and considering the fact that the foreign currency was obtained from the foreign money changer registered with Reserve Bank of India and in view of any contrary material on record to controvert the submissions of the assessee, we are of the view that in the peculiar facts of the case the expenditure be allowed. We accordingly direct the deletion of addition of Rs.45,375/-. In the result, this ground of assessee is allowed.
ITA No. 2686/ Ahd/2011Assessment Year 2008-09.
Suraj Stainless Ltd.
1229. In the result, the appeal of assessee is partly allowed.
Order pronounced in the Court on Thursday, the 30th July,2015 at Ahmedabad.
Sd/- Sd/-
(SHAILENDRA YADAV) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER