Income Tax Appellate Tribunal - Ahmedabad
Amjay Medi-Max(India)Pvt.Ltd.,, ... vs Dy.Cit.,Circle-1,, Ahmedabad on 18 April, 2017
आयकर अपील य अ
धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD - BENCH 'D'
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.1950/Ahd/2012
नधा रण वष /Asstt. Year: 2009-2010
Amjay Medi-Max (India) P.Ltd. Vs. DCIT, Cir.1
Medi-Max, House 4th Floor Ahmedabad.
Opp: Karnavati Hospital
Ellisbridge, Ahmedabad.
PAN : AABCA 8241 R
अपीलाथ / (Appellant) तयथ
् / (Respondent)
Assessee by : Shri Aseem Thakkar, AR
Revenue by : Shri Om Prakash Meen, Sr.DR
सन
ु वाई क तार ख/Date of Hearing : 22/02/2017
घोषणा क तार ख /Date of Pronouncement: 18/04/2017
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Assessee is in appeal before the Tribunal against order of ld.CIT(A)-6, Ahmedabad passed for Asstt.Year 2009-10.
2. In the first ground of appeal, the assessee has pleaded that the ld.CIT(A) has erred in confirming disallowance of Rs.18,40,543/- which was added by the AO with the aid of section 14A of the Income Tax Act, 1961.
ITA No.1950/Ahd/2012 23. Brief facts of the case are that the assessee-company has filed its return of income on 25.1.2010 declaring total income at Rs.2,63,31,960/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has made investment to the tune of Rs.6.50 crores as on 31.03.2009. He, therefore, proceeded to make disallowance of expenditure under section 14A r.w. rule 8D of the Income Tax Act. The ld.AO ultimately worked out disallowance of Rs.18,40,543/-. Appeal to the CIT(A) did not bring any relief to the assessee.
4. With the assistance of the learned representatives, we have gone through the record carefully. The assessee has raised other contentions, but we are not required to look into all these aspects. One of the contentions of the assessee was that it has not earned any income which is exempt in nature, therefore, no disallowance under section 14A can be made. This plea has been specifically raised before the ld.CIT(A), and it is discernible from written submissions of the assessee reproduced by the ld.CIT(A) on page no.6 of the impugned order. Submission made in sub-para 1 to this aspect reads as under:
"1. The perusal of the P&L account would also reveal that the appellant company has not earned any income which is exempt in nature. At this stage the provision of sec. 14A are reproduced for easy reference. "
1) For the purposes of computing the total income under this chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act."
5. According to the ld.counsel for the assessee, the issue in dispute is squarely covered in favour of the assessee by the decision of the Hon'ble High Court rendered in the case of Correctech Energy reported ITA No.1950/Ahd/2012 3 in 372 ITR 97. The Hon'ble High Court has observed that if no tax free income was earned by the assessee, then no expenses can be construed as incurred by the assessee, because plain reading of section 14A provides that if an assessee incurred expenditure in relation to earning of tax free income then such expenditure would not be allowed. The assessee did not earn tax free income, then where is the question of allocating expenditure. The observation of the Hon'ble High Court in this regard reads as under:
"4. Counsel for the Revenue submitted that the Assessing Officer as well as CIT(Appeals) had applied formula of rule 8D of the Income Tax Rules, since this case arose after the assessment year 2009-2010. Since in the present case, we are concerned with the assessment year 2009-2010, such formula was correctly applied by the Revenue. We however, notice that sub-section(l) of section 14A provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not ijnake any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed as under :
"7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no application."
5. We do not find any question of law arising, Tax Appeal is herefore dismissed."
ITA No.1950/Ahd/2012 46. Respectfully following the judgment of the Hon'ble High Court, we are of the view that the CIT(A) is not justified in confirming the disallowance. We allow this ground of appeal and delete the disallowance of Rs.18,40,543/-.
7. Ground nos.2 and 3 are inter-connected with each other. In these grounds, grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.6,08,116/- as interest income. In ground no.3, the assessee has raised an alternative plea with respect to ground no.2 and contended that in case interest income is being confirmed in this year, then income which is offered in subsequent year be excluded from the taxability.
8. Brief facts of the case are that the AO received an information from annual information wing (AIR) exhibiting the fact that the assessee has earned interest income of Rs.9,15,925/-. The assessee has shown interest income of Rs.3,07,914/-. The assessee has reproduced name and address of the parties, gross payments received as per TDS certificate, TDS amount and section under which TDS was deducted etc. When the assessee was confronted, then it could not give any explanation as to why this amount of Rs.6,13,616/-was not offered for taxation. It took an alternative plea that that in case of interest alleged to have received from Sparsh Builders P.Ltd is concerned, it has been accounted in subsequent year. Thus, it has been offered in Asstt.Year 2010-11 and therefore, a direction be issued to the AO to exclude this amount from taxation in Asstt.Year 2011-12. The ld.CIT(A) has observed that the assessee has been following mercantile system of accountancy. Interest income has been accrued in this year therefore, it ought to have been offered by the assessee for taxation in this year. The ld.CIT(A) has confirmed the addition made by the AO.
ITA No.1950/Ahd/2012 59. Before us, the ld.counsel for the assessee submitted that assessee is taxable at the same rate of tax in the Asstt.Year 2009-10 and 2010-
11. Even if this amount has suffered tax in A.Y.2009-10, then it should not be taxed in Asstt.Year 2010-11. In support of his contention, he relied upon the decision of Hon'ble Gujarat High Court in the case of Pr.Commissioner of Income-tax Vs. Gujarat Gas Financial services Ltd., 60 taxmann.com 483 (Guj). He also made reference to the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Gujarat Apollo Industries Ltd., 55 taxmann.com 158 (Guj). For his alternative contention, he relied upon the decision of the Hon'ble Calcutta High Court in the case of CIT Vs. Ajay Forgings Pvt. Ltd., 257 ITR 0572. He further relied upon the order of the ITAT in case of Perfect Equipments Vs. DCIT, 85 ITD 50 (Ahd). On strength of these decisions, he contended that interest income should not be suffered tax twice i.e. 2009-10 and again in 2010-11.
10. On the other hand, the ld.DR relied upon the order of the AO. He pointed out that before the AO, the assessee did not raise this alternative contention. It was raised for the first time before the ld.CIT(A). He also contended that at this stage from the record, it is not discernible whether the assessee has offered this amount for taxation or not.
11. We have duly considered rival contentions and gone through the record carefully. There is no dispute with regard to the proposition that true income of an assessee is to be assessed in the year in which such income has arisen. Similarly, it is also not in dispute that the correct income is to be assessed in the hands of the correct person. The assessee cannot be permitted to shift tax liability in any other assessment year where income was not generated. Payment of taxes in a particular year is not by choice of the assessee, rather it is by ITA No.1950/Ahd/2012 6 operation of law. Neither the rate of payment of tax nor offering of any income in a particular year can absolve assessee from payment of tax by operation of law. Otherwise, it will be discretion of an assessee to offer an income in a particular year. For example, an assessee might have huge losses in a particular year, and he would like to shift the taxable income to that year. As far as decisions referred by the assessee are concerned, these are not strictly applicable in the present case. Because in the case of Gujarat Gas Financial Services Ltd. (supra), disallowance under section 40A(2) was made, which is to be made when facts exhibiting nexus between the assessee and a specified person who has control over operation of the assessee showing undue benefits is being extended by an assessee to such person for availing services or products. In that case, Hon'ble Court has observed that the assessees are assessed at same rate of tax, and there cannot be any intention for avoidance of tax. Thus, facts are quite distinguishable. As far as Hon'ble Calcutta High Court's decision is concerned, in that case the Tribunal has made observation that a particular item was not taxable in a particular year. It has not passed any direction that it should be allowed in the next year. The Tribunal has made observation that debit note received on 15.7.1984 could not be claimed in Asstt.Year 1985-86. According to the Hon'ble High Court in completeness of the order, Tribunal has just made an observation. A perusal of the record would show that the interest income has accrued to the assessee in this year, and its taxable in this year. There is no dispute with regard to this proposition. Dispute relates to the issue whether the Tribunal can give direction for exclusion of interest income offered by the assessee in Asstt.Year 2010-11. According to the ld.DR, assessment year 2010-11 is not open before the Tribunal. It is for the assessee to challenge any inclusion of the interest income in that year. That proceedings will be an independent proceedings. On the other ITA No.1950/Ahd/2012 7 hand, the contention of the assessee is that Tribunal has vast power. It can give direction to the AO for taking up the issue in next assessment year and exclude it from the taxable income. For buttressing this contention, order of the ITAT in the case of Perfect Equipments Vs. DCIT (supra) has been put in service.
12. On due considerations of the facts and circumstances, we find that the tribunal was confronted with almost similar position in the case of Perfect Equipments (supra). Finding recorded by the tribunal para 7 to 11 is relevant finding on this issue, and we deem it appropriate to take note on this finding.
"7. We have given our thoughtful consideration to the rival submissions and also gone through the string of judicial authorities cited before us. There is no dispute in the proposition that the Tribunal by virtue of the powers vested upon it under the provisions of section 254(1) for disposal of an appeal may pass such orders thereon as it thinks fit. The Tribunal would obviously pass the orders which have a bearing on the subject-matter of appeal and cannot possibly record finding or direction on incidental issues which are not connected with the subject-matter of appeal. The various provisions enacted by the Legislature in Chapter XIV of the Income-tax Act, 1961 viz. sections 153(2A) and 153(3) as well as the two Explanations appended below sub- section (3) of section 153, which lift the bar of time limitation for giving effect to the finding or direction given by the Tribunal, amply bring out the legislative intention for enlarged ambit of appellate jurisdiction of the Tribunal conferred under section 254(1). Obviously if section 254(1) is to be construed as prohibiting the Tribunal from giving any direction or finding in relation to any assessment year other than the assessment year under appeal, there was obviously no occasion for the Legislature to include various sections in Chapter XIV for lifting the bar of time limitation to initiate proceedings for assessment in consequence of such directions or findings. The only limitation on the powers of the Tribunal to give directions or finding in relation to another assessment year would be that these are necessary for the disposal of appeal and are not merely incidental.ITA No.1950/Ahd/2012 8
8. With regard to section 153(3) and Explanations appended thereto, the Id. D.R. put forth the contention that these provisions in Chapter XIV of the Income-tax Act are intended for bringing to tax escaped income for any assessment year and could not be pressed into service for the purpose of finding or direction by the Tribunal in respect of claim of deductions for Assessment Years other than the year under appeal before the Tribunal. We feel that the argument of the Id. D.R. suffers from an inherent infirmity inasmuch as it proceeds on the footing that the powers of the Tribunal to record finding or direction in respect of other assessment year are derived from the relevant provisions of Chapter XIV of the Act. The ambit of appellate juriisdiction of the Tribunal is governed by the provisions contained under section 254( 1) and not by the provisions in Chapter XIV of the Act. As we have already indicated hereinbefore section 153(3) as well as the two Explanations appended thereunder lift the bar of time limitation for giving effect to the finding or direction contained in the order of the Tribunal regarding bringing to tax the escaped income. The source of such appellate powers conferred on the Tribunal would essentially be attributed to the provisions contained under section 254(1). If section 254(1) is construed as extending the appellate jurisdiction of the Tribunal to record finding or direction to include income for Assessment Year other than the assessment year under appeal, we are unable to understand as to why a similar finding or direction in respect of deduction of any expenditure relating to other assessment year cannot be given by the Tribunal. It is an admitted position that such finding or direction, with respect to income or expenditure would be inextricably linked with the subject-matter of appeal and would be necessary for the disposal of the appeal. It may further be noted that insofar as finding or direction in respect of deduction of claim for any other assessment year is concerned, this would be subject to time limitation as contained in the scheme of the Income-tax Act. The time limitation has been lifted only with regard to finding or direction in respect of inclusion of income for any other assessment year as specifically provided in the various provisions under Chapter XIV of the Income-tax Act to which reference has already been made by us above.
9. The Id. D.R. has cited decision of the Supreme Court in Murlidhar Bhagwan Das's case (supra). The said decision has been rendered in the context of the second proviso to section 34(3) of the Indian Income-tax Act, 1922. While construing the expressions "finding" and "direction" in the second proviso to section 34(3), the Supreme Court held that a finding could only ITA No.1950/Ahd/2012 9 be that which was necessary for the disposal of an appeal in respect of an Assessment Year of a particular year. Even though the relevant provisions for lifting the bar of time limitation for giving effect to the finding or direction as contained in 1961 Act are worded in terms which are unequivocal and explicit as compared with the 1922 Act, yet the basic proposition, enunciated in Murlidhar Bhagwan Das's case (supra) still holds the ground that a "finding" contained in the order of the Tribunal could only be that which was necessary for the disposal of an appeal in respect of an Assessment Year of a particular year. Similar proposition has been laid down in the various decisions cited by the Id. D.R. to which reference has been made above.
10. We may now consider the facts of the instant case in the context of the aforementioned legal position. The basic issue which arises before us is regarding the year in which the aforementioned commission of Rs. 1,91,611 is liable to be deducted. The admitted facts are that the debit notes have been issued by the selling agent and received by the assessee during the period relevant for Assessment Year 1991-92 whereas the assessee has claimed deduction for the commission for Assessment Year 1992-93 which is the subject-matter of the present appeal on the ground that claim has been settled during this year. No evidence whatsoever at any stage has however been produced in support of the claim that there were any differences and such differences were settled in the present assessment year. In these circumstances the conclusion of the Id. CIT(A) that the amount of commission does not fall for deduction for the Assessment Year 1992-93 since the debit notes have been received in the earlier assessment year is liable to be upheld.
11. Regarding the alternative contention of the assessee that deduction may be allowed in the preceding Assessment Year 1991-92, it is relevant to note that such an alternative contention has been made even at the assessment stage by the assessee as evident from the assessee's letter dated 21-12-1994 placed in the paper book at page 45. The revenue authorities have however disallowed the claim of deduction for Assessment Year 1992-93 without considering the alternative contention of the assessee that claim may otherwise be allowed for 1991-92. In our view for deciding the controversy before us, it would be necessary to reach a finding as to which assessment year the commission has fallen due for payment. The claim of the assessee is that commission has fallen due on settlement of disputes in Assessment Year 1992-93 whereas revenue's claim is that the commission has ITA No.1950/Ahd/2012 10 fallen due when debit notes have been received in Assessment Year 1991-92. For resolving the entire issue it is apparently necessary to record a finding as to which assessment year the commission relates. Since we hold the view that debit notes have been received in Assessment Year 1991-92 and there is no evidence that any dispute or controversy has been raised by the assessee, the commission in questions has fallen due in Assessment Year 1991-92 and no such commission is deductible for Assessment Year 1992-93. We hold accordingly. The claim of deduction of Rs. 1,91,611 is therefore allowable for Assessment Year 1991-92 and not for Assessment Year 1992-93. With these observations the appeal of the assessee for Assessment Year 1992-93 under reference is therefore disposed of as above."
13. A perusal of the above would indicate that debit note was required to be considered in the Asstt.Year 1991-92, but it was considered in Asstt.Year 1992-93. The assessee has claimed commission expenditure for Asstt.year 1992-93 and ultimately it revealed that it was to be claimed Asstt.Year 1991-92. The assessee has raised alternative plea before the AO and contended that in case it is not admissible in Asstt.Year 1992-93, then it would be allowed in the Asstt.Year 1991-92. The Tribunal has considered position of law on this aspect and held that finding can be recorded for permitting the assessee to claim an expenditure which was related to some other year, than the year in which it was claimed and disputed before the Tribunal. In other words, in the case of Perfect Equipments(supra), claim was made for the Asstt.Year 1992-93, whereas it was meant for Asstt.Year 1991-92. The Tribunal has decided the issue by observing alternative plea that claim was allowable in the Asstt.Year 1991-92 and not in the Asstt.Year 1992-
93. Considering this aspect, and on the strength of various authoritative judgments, we are of the view that interest income is taxable in the year 2009-10, and if the assessee has offered the same income for taxation for the Asstt.Year 2010-09, the appropriate action be taken by the ld.AO, in case an application is being moved by an ITA No.1950/Ahd/2012 11 assessee. We observe that same income should not suffer tax twice. Ld.AO shall take action in accordance with law.
14. For taking note of the grievance of the assessee in the next ground, we deem it appropriate to take note of brief facts first. The ld.AO has disallowed a sum of Rs.7,19,385/- under section 40(a)(ia) of the Act. Out of which one amount relates to payment of Rs.6,25,000/- to Harsha Electricals. This amount was disallowed by the AO for the reason that the assessee failed to make TDS deduction while making payment. On appeal, the ld.CIT(A) observed that since it was a payment for purchase of electrical items, the assessee was not supposed to deduct TDS. Thus in a way, ld.CIT(A) did not approve the action of the AO for making disallowance, but alternatively given direction to the AO to consider it as capital expenditure, because it relates to electrical fittings and allow depreciation on this amount.
16. The ld.counsel for the assessee contended that without giving any notice to the assessee, the ld.CIT(A) has changed the character of the addition made by the AO who failed to record any findings as to why it to be considered as capital assets. The ld.DR on the other hand, relied upon the order of the ld.CIT(A).
17. We have duly considered rival contentions and gone through the record carefully. The AO has culled out four payments made by the assessee and appearing in Annexure-H with audit report. He observed that in all these four payments, assessee failed to deduct TDS, therefore he applied section 40(a)(ia) of the Act for making the disallowance. The assessee has given its explanation as to why on these payments, it was not required to be deduct TDS. The explanation of the assessee has been appearing in the written submissions reproduced by the AO on page no.12. It reads as under:
ITA No.1950/Ahd/2012 12"In view of the above, the assessee was asked to show cause why the above amount should not be disallowed. .In response, the assessee vide submission dtd. 10/10/2011 submitted as under:
"4) The auditor in his report in form no. 3CD Annexure H has observed that no tax has been deducted at source. Following statement gives the details of payments made without deduction of tax at source:
Sr Name of Nature of work Amount Reasons for non
No. Party (Rs.) deduction of
Tax at source
1 Dalkin Air AC repairing work 18540 Payment has been made
conditioning for repairing which is not
in the nature of contract.
Hence there was no
liability to deduct tax at
source.
2 Harsha Electrical & fitting 625000 Payment has been made
Electriclas a/c for supply of material.
There was no contract
with the party for such
supply. Hence, there was
no legal obligation to
deduct tax at source.
3 Surya Offset Advt a/c 50000 Expenditure being in the
nature of advertisement
did not attract TDS
liability.
4\ Harilal M Repairs & 50000 TDS of Rs.1030/-has
Vyas Maintenance
'"-_""'•,-
already been deducted
and deposited to the
credit of the government
account. Copy of the
challan is enclosed. The
auditor has by mistake
mentioned that no TDS
has been made in respect
of this payment.
ITA No.1950/Ahd/2012
13
18. On appeal, in principle, the ld.CIT(A) has concurred with the assessee that the TDS was not to be deducted on the payments made to Harsha Electricals, because it was for the purchase of electrical fittings, but ultimately, the ld.CIT(A) has considered it as capital expenditure and directed the AO to allow depreciation on it.
19. With the assistance of the ld.representatives, we have gone through the record. He disallowed claim of the assessee on account of non-deduction of TDS. Thus, the ld.CIT(A) has changed the colour of the dispute. The ld.CIT(A) thereafter did not confront the assessee as to why this expenditure should not be treated as capital expenditure.
Similarly, the ld.CIT(A) himself has also not tallied with items purchased by the assessee whether these electrical fittings were meant for repairing work or they are related to some new products/items. Considering this aspect, we vacate the findings of the ld.CIT(A). The expenditure cannot be disallowed to the assessee, because it was not required to deduct TDS on the purchases. In case the AO has granted deprecation, then, he will withdraw depreciation and allow the expenditure as revenue expenditure. Thus, this ground of appeal is allowed.
20. In the ground no.5, dispute is with regard to disallowance of Rs.94,385/- under section 40(a)(ia) of the Act.
21. With the assistance of the ld.representatives, we have gone through the record carefully. As observed earlier, the assessee made payment to four parties on which it has not deducted TDS. The ld.AO was of the opinion that the assessee should deduct TDS on these payments. In this ground payments to Hemal Shah Associate and Surya Offset are being disputed. With regard to Surya Offset, it was contended that it was an expenditure in the nature of advertisement ITA No.1950/Ahd/2012 14 and did not attract TDS liability. We find that solitary argument raised by the assessee was that payment did not exceed Rs.50,000/- and therefore, liability for TDS deduction does not arise. The ld.CIT(A) has considered this aspect and observed that the assessee was required to deduct TDS under section 194C where the limit is Rs.20,000/-. Before us, the ld.counsel for the assessee failed to controvert this finding of the CIT(A). Similar argument was raised with regard to the payment made to Hemal Shah and Associates. The ld.CIT observed that limit was of Rs.20,000/- which has been exceeded by the assessee. In view of this finding of CIT(A), we do not see any reason to interfere in it. This ground of appeal is rejected.
22. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 18th April, 2017 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER