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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’, NEW DELHI Before Sh. N. K. Saini, AM and Smt. Suchitra Kamble, JM ITA No. 2683/Del/2016 : Asstt. Year : 2010-11 DCIT Circle-1 Vs Cell Com Teleservices Pvt. Ltd., A- Ghaziabad 52, A-36, UPSIDC Industrial Area, Sikandarabad, Bulandshahar- 203205 PAN-AACCC1688D (APPELLANT) (RESPONDENT) CO No. 51/Del/2018 : Asstt. Year : 2010-11 Cell Com Teleservices Pvt. Ltd., A- Vs DCIT Circle-1 52, A-36, UPSIDC Industrial Area, Ghaziabad Sikandarabad, Bulandshahar-203205 PAN-AACCC1688D (APPELLANT) (RESPONDENT) PAN No- AACCC1688D Assessee by : Sh. Kaushlendra Tiwari, Sr. DR Revenue by : Sh. Akhilesh Kumar, Advocate Date of Hearing : 30.05.2018 Date of Pronouncement : 31.07.2018
ORDER Per N. K. Saini, AM: The appeal by the Department and the cross objection by the assessee are directed against the order dated 09.02.2016 of the learned CIT(A), Muzaffarnagar. In the Departmental appeal following grounds have been taken:-
ITA No. 2683/Del/2016 2 CO No. 51/Del/2018 i. The ld. CIT(A) has erred in law as well as on fact by allowing the amount of Rs. 1,27,284/- out of disallowance of Rs. 12,36,720/- made u/s 43B ignoring the fact that it has been levied on account of Non- registration with VAT Authorities which being mandated by law and an expenditure in infringement of law is not allowable u/s 43B. ii. The ld. CIT(A) has erred in law as well as on facts by deleting addition of Rs. 30,12,580/- made u/s 68 of the I.T. Act, 1961 as the assessee has failed to discharge his onus to prove the identity, genuineness and capacity of the creditors. iii. The ld. CIT(A) has erred in law in ignoring the decision of Hon’ble Kerela High Court in the case of Unneeri Kutty which has been affirmed by the Hon’ble Supreme Court in the case in (SLP (Civil) No. 4789 of 1993) 201 ITR 23 (st.).
We have considered the submissions of both the parties and perused the material on record. It is noticed that the tax effect involved in the departmental appeal is less than Rs. 20,00,000/- therefore, the department ought not to have filed the appeal in view of the Circular No. 3/2018 dated 12.7.2018.
After considering the submissions of both the parties and the material available on record, it is noticed that Section 268A has been inserted by the Finance Act, 2008 with retrospective effect from 01/04/99. The said section 268 of the Act provides that the Board may issue instruction or directions to the other income-tax authorities fixing monetary limits for not filing the appeals before the Appellate Tribunal or the Courts, said instructions/directions are binding on the income tax authorities.
ITA No. 2683/Del/2016 3 CO No. 51/Del/2018 4. It is noticed that the CBDT has issued Circular No. 3 of 2018 dated 11.07.2018, vide which it has revised the monetary limit to Rs.20,00,000/- for not filing the appeal before the Tribunal, the said circular reads as under: “Subject: Revision of monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal, High Courts and SLPs/appeals before Supreme Court- measures for reducing litigation-Reg.
Reference is invited to Board’s Circular No. 21 of 2015 dated 10.12.2015 wherein monetary limits and other conditions for filing departmental appeals (in Income-tax matters) before Income Tax Appellate Tribunal, High Courts and SLPs/ appeals before Supreme Court were specified.
In supersession of the above Circular, it has been decided by the Board that departmental appeals may be filed on merits before Income Tax Appellate Tribunal and High Courts and SLPs/ appeals before Supreme Court keeping in view the monetary limits and conditions specified below.
Henceforth, appeals/ SLPs shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder:
Appeals/SLPs in Income-tax Monetary S No matters Limit (in Rs) 1 Before Appellate Tribunal 20,00,000/- 2 Before High Court 50,00,000/- 3 Before Supreme Court 1,00,00,000/-
It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case.
ITA No. 2683/Del/2016 4 CO No. 51/Del/2018 4. For this purpose, ‘tax effect’ means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as ‘disputed issues). Further, ‘tax effect’ shall be tax including applicable surcharge and cess. However, the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.
The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal can be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals can be filed only with reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeals shall be filed in respect of all such assessment years even if the tax effect is less than the prescribed monetary limits in any of the year(s), if it is decided to file appeal in respect of the year(s) in which tax effect exceeds the monetary limit prescribed. In case where a composite order/judgement involves more than one assessee, each assessee shall be dealt with separately.
ITA No. 2683/Del/2016 5 CO No. 51/Del/2018 6. Further, where income is computed under the provisions of section 115JB or section 115JC, for the purposes of determination of ‘tax effect’, tax on the total income assessed shall be computed as per the following formula-
(A — B) + (C — D) where,
A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions);
B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of the disputed issues under general provisions;
C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 1I5JCwas reduced by the amount of disputed issues under the said provisions:
However, where the amount of disputed issues is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.
In a case where appeal before a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above, the Pr. Commissioner of Income-tax/ Commissioner of Income Tax shall specifically record that “even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this Circular”. Further, in such cases, there will be no presumption that the Income-tax Department has
ITA No. 2683/Del/2016 6 CO No. 51/Del/2018 acquiesced in the decision on the disputed issues. The Income-tax Department shall not be precluded from filing an appeal against the disputed issues in the case of the same assessee for any other assessment year, or in the case of any other assessee for the same or any other assessment year, if the tax effect exceeds the specified monetary limits.
In the past, a number of instances have come to the notice of the Board, whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year, by not filing an appeal on the same disputed issues. The Departmental representatives/counsels must make every effort to bring to the notice of the Tribunal or the Court that the appeal in such cases was not filed or not admitted only for the reason of the tax effect being less than the specified monetary limit and, therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any precedent value and also bring to the notice of the Tribunal/ Court the provisions of sub section (4) of section 268A of the Income-tax Act, 1961 which read as under :
“(4) The Appellate Tribunal or Court, hearing such appeal or reference, shall have regard to the orders, instructions or directions issued under sub-section (1) and the circumstances under which such appeal or application for reference was filed or not filed in respect of any case.”
As the evidence of not filing appeal due to this Circular may have to be produced in courts, the judicial folders in the office of Pr. CsIT/CsIT must be maintained in a systemic manner for easy retrieval.
ITA No. 2683/Del/2016 7 CO No. 51/Del/2018 10. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect:
(a) Where the Constitutional validity of the provisions of an Act or Rule is under challenge, or
(b) Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra fires, or
(c) Where Revenue Audit objection in the case has been accepted by the Department, or
(d) Where the addition relates to undisclosed foreign assets/ bank accounts.
The monetary limits specified in para 3 above shall not apply to writ matters and Direct tax matters other than Income tax. Filing of appeals in other Direct tax matters shall continue to be governed by relevant provisions of statute and rules. Further, in cases where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12A/ 12AA of the IT Act, 1961 etc., filing of appeal shall not be governed by the limits specified in para 3 above and decision to file appeals in such cases may be taken on merits of a particular case.
It is clarified that the monetary limit of Rs. 20 lakhs for filing appeals before the ITAT would apply equally to cross objections under section 253(4) of the Act. Cross objections below this monetary limit, already filed, should be pursued for dismissal as withdrawn/ not pressed. Filing of cross objections below the monetary limit may not be considered henceforth. Similarly, references to High Courts and SLPs/ appeals before Supreme Court below the monetary limit of Rs. 50 lakhs and Rs. 1 Crore respectively should be pursued for dismissal as withdrawn/ not pressed. References before
ITA No. 2683/Del/2016 8 CO No. 51/Del/2018 High Court and SLPs/ appeals below these limits may not be considered henceforth.
This Circular will apply to SLPs/ appeals/ cross objections/ references to be filed henceforth in SC/HCs/Tribunal and it shall also apply retrospectively to pending SLPs/ appeals/ cross objections/references. Pending appeals below the specified tax limits in pare 3 above may be withdrawn/ not pressed.
The above may be brought to the notice of all concerned.
This issues under Section 268A of the Income-tax Act 1961.”
From Clause 12 & 13 of the above said circular it is clear that these instructions are applicable to the pending appeals also and as per clause 13, there is clear cut instruction to the department to withdraw or not to press the appeals filed before the ITAT wherein tax effect is less than Rs.20,00,000/-. These instructions are operative retrospectively to the pending appeals.
Keeping in view the CBDT Circular No. 3 of 2018 dated 11.07.2018 and also the provisions of Section 268A of Income Tax Act, 1961, we are of the view that the Revenue should not have filed the instant appeal before the Tribunal.
In its cross objection, the only ground raised by the assessee read as under:- “i. The ld. CIT(A) has erred in law as well as on fact by allowing the amount of Rs. 1,27,284/- out of disallowance of Rs. 12,36,720/- made under section 43B ignoring the fact that it has been levied on account of Non-registration with
ITA No. 2683/Del/2016 9 CO No. 51/Del/2018 VAT Authorities which being mandated by law and an expenditure in infringement of law is not allowable u/s 43B.
ii. The ld. CIT(A) has erred in law as well as on facts by deleting addition of Rs. 30,12,580/- made u/s 68 of the I.T. Act, 1961 as the assessee has failed to discharge his onus to prove the identity, genuineness and capacity of the creditors.
iii. The ld. CIT(A) has erred in law in ignoring the decision of Hon’ble Kerela High Court in the case of Unneeri Kutty which has been affirmed by the Hon’ble Supreme Court in the case in (SLP (Civil) No. 4789 of 1993) 201 ITR 23 (St.).
iv. The ld. CIT(A) has erred in law as well as on facts in admitting the additional evidence furnished before him by the assessee when there was no exceptional circumstances as provided under Rule 46A.
Facts of the case related to this issue in brief are that the assessee e-filed its return of income on 30.9.2010 declaring an income of Rs. 1,33,73,720. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had shown work contract tax (WCT) to the tune of Rs. 12,36,720/- written off in details given on comparative expenses. The AO asked the assessee to give the documentary evidences of the same. In response the assessee submitted as under:- “that the customers of the assessee company had deducted the work contract tax of Rs. 12,36,720/-, which is being claimed as expenses. The details of WCT are being submitted alongwith the specimen copy of WCT deduction. The details are also verifiable from the concerned parties.” It was further stated “that the details of the WCT were submitted by us in earlier letters dated 25.3.2013. In this connection, we are submitting here with the complete charts of WCT deductions by the parties in the
ITA No. 2683/Del/2016 10 CO No. 51/Del/2018 various other States other than Uttar Pradesh, where the assessee was not registered with the VAT Depptt, and which could not be claimed by the assessee in his VAT assessments or could get the refund of the WCT decutions. The copy of Specimen bills, are also being submitted alongwith the WCT charts”.
The AO disallowed the claim of the assessee by observing that the assessee could not get the refund of the Works Contract Tax (WCT) deductions in the states other than Uttar Pradesh because the assessee was not registered in those states with the VAT department and that it was an infringement of law and not liable to be written off in the books of assessee. 10. Being aggrieved the assessee carried the matter to the learned CIT(A) and submitted as under:-
“That the said expense is a levy of state tax caused due to the Turnover made by the appellant. The details of these expenses were submitted by us in our letter dt. 28th March, 2013 alongwith all the documentary evidences, the copy of which are also being submitted before your good self, which comprises of the Ledger A/c of the said expense and the chart showing the bill wise entries of the tax deductions. That this tax is not a tax which has arisen on the income of the appellant but it has arisen on the Works executed by the Appellant. The State taxes , like Sales tax/VAT are the part of cost of goods and has to be considered while declaring the value of goods. Similarly the WCT is also a state tax and a bonafide cost to the Assessee. That the Contention of the Ld AO that the Appellant might get the Refund of the said taxes deducted by the Customers of the Appellant, does not hold good as the process, of claiming Refund is a long process , under which the Appellant had to first get the Registration in the Concerned State by establishing a full fledged Office after obtaining the Premises on Rent and then certain Returns were to be filed stating the Turnover and to maintain the accounts relating to that State. The State Level AO had to then
ITA No. 2683/Del/2016 11 CO No. 51/Del/2018 assess the said case and then might issue the Refund, if no further demands are raised by him. That the Refund of Rs. 1236720.00 spread over Eight States, even if assessed in favour of the Appellant, was not so easily to be received, Which is a very practical thing. That the Appellant had made such Transactions, on which the said WCT were deducted, in Eight States and it was neither Practical nor feasible to get the Refund after obtaining the Eight States Registrations and employing the staffs to get the work done, rather the Appellant might land at shelling out another Equivalent sum like the WCT Expense of Rs. 12.36 lacs instead of getting a Refund. That no Prudent businessman would go for such a venture by wasting his precious time.That the said expense of Rs. 12,36,720/- of WCT is an allowable expense and may be allowed.”
It was further submitted that the disallowance made by the AO was also against the provisions contained in the VAT account. The assessee furnished the details of the Rajasthan VAT account to show that the provisions contained in the said Act and the similar other VAT Acts of other states. It was further submitted that the contractees in those states had deducted TDS erroneously and this deduction had become unwitting business expenses of the assessee which was allowable expenses and by considering the complexities of Works Contract Tax (WCT), an exemption method was launched in the case of contract, whose taxes were deducted under the WCT and they could opt for the scheme. It was contended that in Works Contract Taxation, the scheme of exemption fees was a mechanism provided for the collection of the Works Contract Tax from the contractor in such a way that causes minimum inconvenience to the contractor assesses and also to the department collecting the tax in
ITA No. 2683/Del/2016 12 CO No. 51/Del/2018 computing and assessing the taxable figures. It was also contended that in the exemption fee method the following deductions are made from the gross value of the works contract performed by the contractor:-
i. Labour Charges for execution of Works. ii. Amount paid to sub contractor for labour and services. iii. Charges paid for obtaining on hire the equipment or machinery used for execution of works contract. iv. Charges for planning and designing and architect’s fees. v. Cost of consumable used in execution of works contract. vi. Cost of establishment of the contractor to the extent it is relatable to supply of labour and services. vii. Other similar expenses relating to supply of labour and services. viii. Profits earned by contractor to the extent it relates to supply of labour and services.
It was stated that after deducting the above items, the remaining figures would be the taxable turnover of the contractor. It was also stated that the said scheme was just like the provisions contained u/s 14AD of the Act where a contractor, whose tax has been deducted under the Act may opt for deemed income @ 8% of the turnover. In that case he shall not be obliged to maintain the books of accounts and produce before an AO. Similarly, under the VAT provision, a contractor whose taxes had been deducted, if he did not want a proper assessment to be made may, opt for scheme and the taxes deducted under WCT may be deemed as his tax liability and he shall be treated as assessed for his part of VAT tax liabilities. It was submitted that the AO disallowed the impugned amount of Rs. 12,36,720/- by considering the same as an
ITA No. 2683/Del/2016 13 CO No. 51/Del/2018 infringement of law whereas the said expenditure was deducted at source and paid as VAT on behalf of the assessee, had it been an infringement of law and penalty was impossible to the tune of Rs. 12,36,720/-, then a show cause notice might have been served on the assessee and an opportunity might have also been offered to the assessee but the factual position is such that the said taxes are deemed to have been paid under the self assessment scheme of the states, where no registration is required and the WCT deducted are the taxes which are required to be paid by the assessee. Therefore, the said amount may be allowed as an expenditure of the assessee. It was submitted that the WCT of Rs. 12,36,720/- was deducted from the invoices raised by the assessee in the names of the deductees and the total value of the invoices were declared as income whereas the assessee has recevived only the remaining amount after the deduction of an amount of Rs. 12,36,720/- therefore, the said expenses were allowable expenditure related to the business of the assessee and the income against which had been declared by the assessee.
The learned CIT(A) after considering the submissions of the assessee observed that the assessee is based in U.P. whereas these WCT deductions had been made by the customers in various other states other than U.P. where the assessee is not registered with VAT department and therefore, could not claim the said deduction in its VAT assessments or could get the refund of those WCT deductions. He further observed that the assessee is in the business of manufacturing of steel structures for the telecom operators alongwith their installation/erection etc. and that whenever the
ITA No. 2683/Del/2016 14 CO No. 51/Del/2018 assessee raises an invoice in the name of customer (telecom operator) against the installation/erection contract, the customer deducted WCT at the rates applicable and made the net payment to the assessee after the deduction of WCT. The customer deposited the WCT deducted with the State Government on behalf of the assessee and the assessee credited the gross amount of invoice as turnover or sales and debited the amount on account of WCT in the manufacturing / profit & loss account. The learned CIT(A) was of the view that the allowability was governed by the provisions of Section 43B of the Income Tax Act as it was in the nature of tax and to be allowed in the year of payment to the respective authorities. He also pointed out that the WCT component of Rs. 11,09,436/- had been paid to the respective State Governments in respective financial years 2005-06 to 2008-09 by the customers on behalf of the assessee, therefore, the claim of the assessee for WCT of Rs. 11,09,436/- was not an allowable expenditure for A.Y. 2010- 11 under section 43B of the Act, however, the amount of Rs. 1,27,284/- (Rs. 12,36, 720/- (-) Rs. 11,09,436/-) relating to the assessment year 2010-11 was held as allowable under section 43B of the Act. 14. Now the assessee is in appeal.
The learned counsel for the assessee reiterated the submissions made before the authorities and further submitted that the amount which was deducted by the customers had been shown by the assessee in its balance-sheet, a reference was made to page no. 4 of the assessee’s paper book which is a copy of the balance-
ITA No. 2683/Del/2016 15 CO No. 51/Del/2018 sheet as on 31st March, 2010. It was further submitted that the assessee has written off the amount which has been paid by the customers during the year under consideration in its profit & loss account a reference was made to page no. 5 of the assessee’s paper book which is the copy of manufacturing, trading and profit & loss account for the year ended on 31st March, 2010. It was accordingly submitted that the assessee had shown the income under the head sales and the amount deducted was shown under the head WCT written off as expenses therefore the provisions of section 43B were not applicable. The learned counsel for the assessee also drew our attention towards page no. 168 and 169 of the assessee’s paper book which is the copy of the ledger account relating to WCT written off. It was accordingly submitted that the expenses claimed by the assessee were related to its business therefore these were allowable under section 37 of the Act.
In his rival submissions, the learned Sr. DR strongly supported the orders of the authorities below.
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the assessee was engaged in the business of manufacturing of steel structures for the telecom operators and raised invoices in the name of the customers against the installation / erection contract, those customers deducted contract tax and made the net payments to the assessee. After such deduction, the amount deducted was deposited with the State Government on behalf of the assessee by the customers. In the
ITA No. 2683/Del/2016 16 CO No. 51/Del/2018 instant case, there is no dispute that the liability crystallized during the year under consideration and the payments were made by the customers on behalf of the assessee during the year under consideration. The assessee had already credited the gross amount of invoices as turnover for sales in its profit & loss account and also debited the amount which was deducted by the customers in the manufacturing / profit & loss account. In our opinion, when the liability relating to the business of the assessee was crystallized and paid during the year under consideration then it was an allowable expenditure. In that view of the matter the impugned addition made by the AO and sustained by the learned CIT(A) is deleted.
In the result, appeal of the department is dismissed and cross objection of the assessee is allowed.
(Order Pronounced in the Court on 31/07/2018)
Sd/- Sd/- (Suchitra Kamble) (N. K. Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31/07/2018 SH Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR
ITA No. 2683/Del/2016 17 CO No. 51/Del/2018
Date Initial 1. Draft dictated on 27 .07.2018 PS 2. Draft placed before author 30.07.2018 PS 3. Draft proposed & placed before the second member JM/AM 4. Draft discussed/approved by Second Member. JM/AM 5. Approved Draft comes to the Sr.PS/PS PS/PS 6. Kept for pronouncement on PS 7. File sent to the Bench Clerk PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Date of Uploading 31.07.2018