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Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-6, Mumbai, dated 21.11.2017, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s 254 of the Income Tax Act, 1961 (for short „I.T Act‟), dated 30.12.2016. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:
1. The learned Commissioner of Income Tax (Appeals) has erred in upholding the action of A.O in disallowing the service charges of Rs.2,71,540/- u/s 40(a)(ia) of Income Tax Act, 1961, when there was no obligation on the part of the appellant to deduct tax at source u/s 194C of the Income Tax Act,1961.
P a g e | Hybrid Services and Trading Limited Vs. Asst. Commissioner of Income Tax, Circle 2(3)(2) 2. The learned Commissioner of Income Tax (Appeals) has erred in upholding the action of A.O without understanding the facts of the case that when separate bills were raised by the retainers for reimbursement of expenses to the tune of Rs.1,78,995/-, included in service charges of Rs.2,71,540/- , there was no requirement of TDS and hence no disallowance is attracted u/s 40(a)(ia) of Income Tax Act, 1961.
Each one of the above grounds is without prejudice to the other.
The appellant reserves the right to amend, alter or add to the grounds of the appeal.”
Briefly stated, the assessee company had e-filed its return of income on 30.10.2007, declaring total income at Rs. Nil (after set off of B/forward losses of Rs.78,722/-). Subsequently, the assessee filed a revised return of income on 12.02.2009, declaring total income of Rs.57,573/-, which however was „set off‟ against the B/forward losses. Thereafter, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) and the income of the assessee was assessed at Rs. Nil (after setting off the B/forward business losses of Rs.46,68,821/-) on 14.12.2009.
3. Aggrieved, the assessee carried the original assessment in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee did not find favour with the same and dismissed the appeal.
4. The assessee being aggrieved with the order of the CIT(A) (in the course of first round) carried the matter in appeal. The Tribunal i.e ITAT, „E‟ Bench, Mumbai, vide its order passed in /Mum/2011, dated 11.02.2015, set aside the issue as regards the disallowance u/s 40(a)(ia) of the „service charges‟ of Rs.2,96,235/- to the file of the A.O, with a direction to examine the same afresh after giving a reasonable opportunity of being heard to the assessee.
The A.O in the course of the set aside proceedings called upon the assessee to furnish its explanation as regards the disallowance of the „service charges‟ of Rs.2,96,325/- u/s 40(a)(ia). Further, the A.O P a g e | Hybrid Services and Trading Limited Vs. Asst. Commissioner of Income Tax, Circle 2(3)(2) also called upon the assessee to explain as to why tax was not liable to be deducted at source on the „service charges‟ under Sec.194J of the I.T Act. In reply, it was submitted by the assessee that as the „service charges‟ was a part of the contractual amount that was paid to the parties engaged on retainership basis, therefore, the provisions of Sec.194J which were applicable for professional services could not be invoked. Further, it was submitted by the assessee that part of the payments made to the aforementioned persons was towards reimbursement of expenses incurred by them. As such, it was the claim of the assessee that as the amount of „service charges‟ paid to the aforesaid persons who were engaged on retainership basis was below Rs.20,000/- per person, thus no tax was liable to be deducted on the same under Sec. 194C. However, the A.O after deliberating on the contentions advanced by the assessee was not persuaded to accept the same. Insofar, the claim of the assessee that as the amount paid to the respective parties (excluding the amount paid towards reimbursement of expenses) brought the aggregate of „service charges‟ paid to the respective parties below an amount of Rs. 20,000/-, thus no liability to deduct tax at source under Sec.194C was cast upon the assessee was concerned, the same did not find favour with the A.O. In fact, the A.O was of the view that the assessee was obligated to deduct tax at source on the aggregate payment that was paid to the persons providing the services. It was observed by the A.O that except for the payments made by the assessee to one person viz. Sh. Kantamaru, in all the other remaining cases the payments were found to be in excess of Rs.20,000/-. On the basis of his aforesaid deliberations, the A.O disallowed an amount of Rs. 2,71,540/- u/s 40(a)(ia) of the I-T Act.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee, dismissed the appeal.
P a g e | Hybrid Services and Trading Limited Vs. Asst. Commissioner of Income Tax, Circle 2(3)(2) 7. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee, at the very outset of the hearing of the appeal took us through the facts of the case. It was submitted by the ld. A.R that it was the second round of appeal of the assessee before the Tribunal. It was submitted by him, that the Tribunal in the course of the first round of appeal, had vide its order dated 11.02.2015 after considering the claim of the assessee that the amount of „service charges‟, included the reimbursements made to the said parties for the expenses incurred by them, had restored the matter to the file of the A.O for deciding the issue afresh. In sum and substance, it was submitted by the ld. A.R, that the Tribunal after taking cognizance of the claim of the assessee that as the payment of the „service charge‟ (excluding reimbursement of expenses) was below Rs.20,000/- in each case, thus no obligation was cast upon it to deduct tax at source under Sec. 194C, had restored the matter for verifying the veracity of the said claim of the assessee and readjudicate the matter afresh. The ld. A.R submitted that the A.O in the course of the „set aside‟ proceedings had failed to carry out any verifications as directed by the Tribunal, and had merely endorsed the view taken by his predecessor. Apart there from, the ld. A.R in order to buttress his claim that the amount of „service charge‟ (excluding reimbursement of expenses) in case of each respective payee was below an amount of Rs. 20,000/-, took us through a „Chart‟, which therein on a sample basis substantiated the aforesaid claim of the assessee. It was submitted by the ld. A.R, that as in all the cases the payments made towards „service charges‟ during the year were below Rs.20,000/-, therefore, the assessee was under no obligation to deduct tax at source under Sec.194C of the I.T Act. The ld. A.R further took us through certain „debit notes‟ (forming part of the „APB‟) which revealed that the P a g e | Hybrid Services and Trading Limited Vs. Asst. Commissioner of Income Tax, Circle 2(3)(2) payments towards the „service charge‟ were separately placed as against those made towards reimbursement of certain expenses viz. lunch expenses, conveyance expenses, and travelling expenses. It was submitted by the ld. A.R, that as the assessee was not obligated to deduct any tax at source on the payments made towards the „service charges‟ under Sec.194C, therefore, the lower authorities had erred in disallowing an amount of Rs.2,71,540/- under Sec.40(a)(ia) of the I.T Act.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R, that as the payments made by the assessee were not towards any reimbursement of expenses, and were in the nature of contractual payments, therefore, the assessee remained under an obligation to deduct tax at source under Sec.194C. Accordingly, it was submitted by the ld. D.R that as the assessee had failed in his statutory obligation of deducting tax at source under Sec.194C, therefore, the lower authorities had rightly made/sustained the addition of Rs.2,71,540/- under Sec.40(a)(ia) of the I.T Act.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that in the course of the first round of appeal, the Tribunal had restored the matter to the file of the A.O for adjudicating the issue afresh, after considering the claim of the assessee that the „service charges‟ included amounts reimbursed to the said respective persons. It was observed by the Tribunal, as under: “5.2 We have heard the rival submission and perused the materials available on record. We find that the assessee had furnished the details of payment made under the head service charges, but the A.O had not considered the argument about the reimbursement of expenses as evident from page no. 52-54 of the paper hook. Therefore, we are of the opinion that in the interest of justice matter should he restored back to the file of the A.O for deciding the issue afresh. He is directed to afford a reasonable opportunity of hearing to P a g e | Hybrid Services and Trading Limited Vs. Asst. Commissioner of Income Tax, Circle 2(3)(2) the assessee. Further you will observe from the said documents that none of the person retainership fee excceeds Rs.20,000/- and total payments made to each persons does not attract TDS u/s. 1 9 4C i n c l u d e s r e i m b u r s e m e n t e x p e n s e s c l a i m e d s e p ar at e l y wh i c h t he company has paid through “account payee” cheques. We have also submitted for sample verification statement of bank accounts wherein the payments made to each persons are appearing in the statement. Under the circumstances we request vow good self to allow the entire amount of Rs. 2,96,325/-.” As is discernible from the aforesaid observations, we find that the Tribunal had after taking cognizance of the claim of the assessee, that the lower authorities had without considering its contention that no obligation was cast upon it to deduct tax at source insofar the reimbursement of expenses were concerned, had thus restored the matter to the file of the A.O with a specific direction to consider the said aspect while deciding the issue afresh. However, we find that the A.O in the course of the „set aside‟ proceedings had failed to comply with the directions of the Tribunal, and had not deliberated on the contention of the assessee that as the „service charges‟ (excluding reimbursement of expenses) paid to the respective persons had remained below Rs.20,000/- during the year, hence no obligation was cast upon it to deduct tax at source as regards the same. In fact, we find that as claimed by the ld. A.R, though the bifurcated details of the „service charges‟ along with the details of the reimbursement of certain expenses viz. lunch expenses /conveyances expenses/travelling expenses were once again filed with the A.O in the course of the set aside proceedings, however, the latter had not considered the same, despite the fact that that a specific direction to the said effect was given by the Tribunal, vide its order dated 11.02.2015. We further find that the CIT(A) in the course of the appellate proceedings had also failed to appreciate that the A.O had erred in not giving effect to the specific directions of the Tribunal. Be that as it may, we have perused the material available on record, and are persuaded to subscribe to the claim of the assessee that as no payment of the „service charge‟ (excluding reimbursement of expenses) made to the various persons