DCIT, NEW DELHI vs. M/S. K.S. HOTELS (P) LTD., NEW DELHI

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ITA 2809/DEL/2015Status: DisposedITAT Delhi01 November 2018AY 2011-126 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that Section 194C was not applicable to the purchase of food as it was a sale of material, not a contract for work. Regarding Section 14A, the Tribunal noted that no borrowed funds were used for investments and the Revenue failed to provide evidence to rebut this.

What were the facts?

The Revenue appealed against the deletion of disallowance made under Section 40(a)(ia) for non-deduction of TDS on purchases of Chinese food. The Revenue also challenged the deletion of addition under Section 14A related to investment in shares.

What were the issues?

Whether the purchase of food constitutes a contract for work attracting TDS under Section 194C, and whether disallowance under Section 14A is justified without evidence of borrowed funds used for investments.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194C,Section 14A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, DELHI BENCHES “D” : DELHI

Before: SHRI BHAVNESH SAINI, J.M. & SHRI L.P. SAHU, A.M.

Hearing: 29.10.2018Pronounced: 01.11.2018

For Revenue : Smt. Naina Soin Kapil, Sr.DR For Assessee : Shri Salil Aggarwal, Advocate And Shri Shailesh Gupta, CA Date of Hearing : 29.10.2018 Date of Pronouncement : 01.11.2018 ORDER PER BHAVNESH SAINI, J.M. This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-V, New Delhi, Dated 24.02.2015, for the A.Y. 2011-2012.

2.

We have heard the Learned Representatives of both the parties and perused the findings of the authorities below.

2 ITA.No.2809/Del./2015 M/s. K.S. Hotels (P) Ltd., New Delhi.

3.

On ground No.1, Revenue challenged the Order of the Ld. CIT(A) in deleting the disallowance made under section 40(a)(ia) of the I.T. Act, 1961, at Rs.2,33,50,158/-.

4.

The assessee submitted before the A.O. that the assessee-company has purchased Chinese food of Rs.2,33,50,158/- from M/s Zen Chinese Food during the assessment year under appeal. The assessee-company sells those Chinese foods to its customers and charges the VAT thereon. Similarly M/s Zen Chinese Food is also charging VA T on its sale to the company and depositing VAT collected thereon. The assessee-company is also claiming VAT input and adjusting the same before depositing the VAT. Thus, all the transactions between the two concerns are of purchase and sale in nature. It was submitted that in various cases it was held that where there is a contract of supply of material/food, it cannot be termed to be a contract for work and labour and is not amenable to the provisions of the Section 194C of Income Tax Act, 1961. The A.O. however, held

3 ITA.No.2809/Del./2015 M/s. K.S. Hotels (P) Ltd., New Delhi. that since no tax was deducted, therefore, amount is disallowable under section 40 (a) (ia) of I.T. Act as provisions of Section 194C would apply in this case.

4.1. Ld. CIT(A) considering the various decisions cited by the assessee-company before him and considering the Explanation-III to Section 194C of the I.T. Act noted that the transactions relate to sale of material which cannot be termed as contract for work and labour. Hence, Section 194C is not applicable in assessee’s case. Ld. CIT(A) also noted that since assessee had paid VAT on sale of goods to its customers, Section 194C of the Act is not applicable. Therefore, provisions of section 40(a)(ia) applied by the A.O. is not justified. Entire addition have been deleted.

5.

Learned Counsel for the Assessee, at the outset, submitted that in preceding A.Ys. 2006-2007 and 2007-2008, ITAT, Delhi Bench in the case of assessee dismissed the departmental appeals on the same ground vide Orders dated 13.08.2018 and 17.10.2018 in which it was held that on the 4 ITA.No.2809/Del./2015 M/s. K.S. Hotels (P) Ltd., New Delhi.

above transactions Section 194C is not applicable. He has, therefore, submitted that the issue is covered in favour of the assessee. Copies of the above orders are placed on record which are supplied to the Ld. D.R. who have also stated that identical issue have been decided in favour of the assessee by the Tribunal in earlier years.

6.

Considering the facts of the case in the light of Orders of the Tribunal Dated 13.08.2018 and 17.10.2018 in which it was held that in the aforesaid transactions Section 194C is not applicable, therefore, there is no need to deduct the TDS. The issue is covered in favour of the assessee by the decision of the Tribunal. We, therefore, do not find any merit in the departmental appeal on this ground. Ground No.1 is accordingly dismissed.

7.

On ground No.2, Revenue challenged the deletion of addition of Rs.68,288/- under section 14A of the I.T. Act, 1961.

5 ITA.No.2809/Del./2015 M/s. K.S. Hotels (P) Ltd., New Delhi.

7.1. The Ld. CIT(A) noted that A.O. made addition of Rs.1,76,829/- under section 14A of the I.T. Act. Assessee submitted that there is no borrowed funds utilised by the assessee for purchase of investment in shares. Hence, disallowance of interest under sub-rule 2(ii) of Rule 8D is not applicable in assessee’s case. The Ld. CIT(A), accordingly, deleted the addition of Rs.68,288/-. Part of this ground was allowed.

8.

After considering the rival submissions, we do not find any merit in this ground of appeal of Revenue. Learned Counsel for the Assessee relied upon decision of Hon’ble Punjab and Haryana High Court in the case of CIT vs. Metalman Auto (P) Ltd., (2011) 336 ITR 434 (P&H) in which it was held that “in the absence of any expenditure shown for earning dividend income, disallowance under section 14A was not justified”. The assessee contended that no borrowed funds have been used for purchase of investment have not been rebutted by the Revenue through any evidence or material on 6 ITA.No.2809/Del./2015 M/s. K.S. Hotels (P) Ltd., New Delhi.

record. The Hon’ble Punjab and Haryana High Court in the case of Abhishek Industries Ltd., 380 ITR 652 held that “onus is upon A.O. to record satisfaction that interest bearing funds have been used for investment to earn tax free income”. Since no borrowed funds have been used by assessee to make investment, therefore, Ld. CIT(A) correctly deleted the addition. Ground No.2 of appeal of Revenue is dismissed.

9.

In the result, appeal of Revenue is dismissed.

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