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Income Tax Appellate Tribunal, “C ”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM Shri Chandrakant Narayan Mane
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the assessee against the order of CIT(A)- 1, Thane dated 21/02/2017 for A.Y/2012-13 in the matter of order passed u/s.143(3) of the IT Act. 2. In this appeal, assessee is aggrieved for the disallowance of royalty payment u/s.37(1) and u/s. 40(a)(ia) of the IT Act. Assessee is also aggrieved for disallowance of transportation charges u/s. 40(a)(ia) of the IT Act.
2 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee, an individual is the proprietor of M/s. Sabari Engineering Company and was engaged in the business of civil engineering contractor and sub-contractor. During the course of assessment proceedings the learned A.O. has made following addition; 1) Disallowances u/s.!4A r.w.r. 8D of IT rules of Rs.5,84,799/- 2) Disallowances u/s. 37, 69C and 40(a)(ia) of royalty payment of Rs. 1,81,85,3927- made to government of Maharashtra. 3) Disallowances u/s. 37, 69C and 40(a)(ia) of transportation charges of Rs. 1,78,54,942/-.
By the impugned order, CIT(A) confirmed the addition in respect of royalty payment and transportation charges after having the following observation against which assessee is in further appeal before us.
―I have carefully considered the appellant’s submissions, observations of the AO in the assessment order and the facts of the case. The appellant had claimed an amount of Rs. 1,81,85,392/- in the P & L account as Royalty expenses. On being asked to file details it was submitted before the AO that M/s. Wadhwa Buildcon Pvt. Ltd. had made the payment of Royalty to Collector Thane on the appellant's behalf. The appellant on the directions of M/s Wadhwa Buildcon Pvt. Ltd. had made this payment to M/s. Chirag Enterprises and M/s. United Investment Corporation. On being asked to file details of tax deducted on source on this payment, the appellant submitted before the AO that as this payment had been made to the Government of Maharashtra, provision of TDS were not applicable in respect of this payment as per section 196 of the Act. 12. During the course of present proceedings the appellant was asked about the nature of this payment, for what purpose the payment was made and to whom the payment had been made. The appellant submitted that it had been granted one Reti /
3 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane Sand excavation order from Dombivli dock by the Collector, Thane. A copy of order of Collector, Thane dated 05.05.2011 was placed on record in Marathi language, the translation of which was obtained from the appellant in English. The appellant reiterated that that M/s. Wadhwa / Buildon Pvt. Ltd. had made payment of royalty to the Maharashtra Government on the appellant's behalf and on the directions of M/s. Wadhwa Buildon Pvt. Ltd., the appellant had paid this amount to two concerns i.e. Rs.80,00,000/- to M/s. Chirag Enterprises and Rs. 1,01,85,392/- to M/s. United Investment Corporation and the balance amount of Rs. 18,925/- was received by the appellant as discount. The confirmed copies of accounts of M/s. Chirag Enterprises and M/s. United Investment Corporation, which were filed before the AO were again placed on record. This whole explanation of the appellant is without any merit as discussed hereunder 13. On perusal of the order of Collector, Thane (English translation as provided by the appellant) reveals that the appellant was given order for excavation for sand / reti from Dombivli dock vide order of the Collector, Thane dated 05.05.2011. As per this order the appellant was required to deposit the auction amount of Rs. 1,47,04,802/- which the appellant deposited vide challan No. 84/2011 dated 05.05.2011 as mentioned on the last para on page-2 and para-6 on page no. 4 of the English translation of the order of the Collector, Thane. The appellant further deposited an amount of Rs. 19,46,460/- vide DD No. 868257 of Indian Bank of India, which was the refundable deposit for observing the terms and conditions of the contract as mentioned in para-6 on page no. 4 and para-26 on page no. 8 of the English translation of the order which is reproduced as under for ready reference – 6. M/s. Sabari Engineering Company has deposited an amount of Rs. 1,4 7,04,802/-with Govt. as per Govt. Revenue and forest Division decided for auction Gat. M/s. Sabari Engineering Company has deposited an amount ofRs.1,47,04,802/-with Govt. as decided and fixed up by Govt. Revenue and forest Division for auction Gat vide challan No. 84/2011, Date 05.05.2011 further an amount of Rs. 19,46,460/- has been deposited by auction holder towards implementation of Terms and conditions with office vide demand draft no. 868257 of Indian Bank of India.
4 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane 26. Auction holder has deposited an amount of Rs. 19,46,460/- towards obeying terms and conditions property while entering agreement with competent officer vide Demand Draft No. 868257 drawn on Indian Bank of India. This amount will be refunded to auction holder after completion of auction period if he followed and obeyed all terms and conditions during auction period. 14. In this order there is no mention of any Royalty required to be paid by the / appellant apart from the two amounts which the appellant has deposited with the State Government, as mentioned above. In the submissions filed by the appellant before the AO as well as before me, it has been submitted that the Royalty had been paid by M/s. Wadhwa Buildon Pvt. Ltd. on the appellant's behalf. Why M/s Wadhwa Buildon Pvt. Ltd. had paid any amount as Royalty on the appellant's behalf has not been explained. No documentary evidence supporting this contention of the appellant has been placed on record. There is no documentary evidence or copy of any agreement on record in support of the appellant's claim that the appellant had to pay any amount to M/s. Wadhwa Buildon Pvt. Ltd. on account of Royalty. Further, there is no documentary evidence on record to show that M/s. Wadhwa Buildon Pvt. Ltd. had given any directions to the appellant that any payment was to be made on their behalf to any third party. Therefore, the whole — explanation of the appellant regarding payment of Royalty to M/s. Wadhwa Buildon Pvt. Ltd and to M/s. Chirag Enterprises and M/s. United Investment Corporation on behalf of M/s. Wadhwa Buildon Pvt. Ltd. is only a story without any documentary evidence or any agreement. All the entries made by the appellant in its books with regard to these three parties are mainly through journal entries without there being any payment, as can be seen from the following ledger accounts filed by the appellant during the course of present proceedings – Royalty Payment Ledger Account l-Apr-2011 to 31-Mar-2012 Date Particulars Vch.Type Vch.No. Debit Credit Excise Inv. No. 1-5-2011 To collector of Journal 60 1,81,85,392 Thane District Govt. of Maharashtra By Closing Balance 1,81,85,392 1,81,85,392 1,81,85,392
5 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane
Collector of Thane District Govt. Of Maharashtra Ledger Account l-Apr-2011 to 31-Mar-2012 Date Particulars Vch.Type Vch.No. Debit Credit Excise Inv. No. 1-4-2011 To Opening Balance 1,81,85,392 1-5-2011 By Royalty payment Journal 60 1,81,85,392 1,81,85,392 1,81,85,392
Wadhwa Buildcon Pvt. Ltd. Ledger Account l-Apr-2011 to 31-Mar-2012 Date Particulars Vch. Type Vch No./ Debit Excise Credit Inv.No. 1-4-2011 By Opening Balance 1,81,85,392 1-4-2011 To Chirag Enterprises Journal 9 80,00,000 being amount paid to Chirag infra on behalf of Wadhwa 19-5-2011 To United Investment Corpn. Journal 75 1,01,66,467 being amount paid to United on behalf of Wadhwa To Discount recd. Journal 76 18,925 being amount recd.as discount.
1.81.85,392 1.81.85,392 Chirag Enterprises Ledger Account l-Apr-2011 to31-Mar-2012 Date Particulars Vch. Type Vch No./ Debit Credit Excise Inv.No. 1-4-2011 To Opening Balance 80,00,000 1-4-2011 By Wadhwa Buildon Pvt.Ltd. Journal 9 80,00,000 On Account 80,00,000 Cr. being amount paid to Chirag Infra on behalf of Wadhwa 80.00,000 80.00,000
6 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane
United Investment Corporation Ledger Account l-Apr-2011 to31-Mar-2012 Date Particulars Vch. Type Vch No./ Debit Credit Excise Inv.No. 19-5-2011 To HDFC Bank Payment 118 1,01,66,467 Others 19-05-2011 1,01,66,467 CH.No.:733592
By Wadhwa Buildon Pvt.Ltd. Journal 75 1,01,66,467 On Account being amount paid to United on behalf of Wadhwa
1,01,66,467 1,01,66,467
Therefore for all the reasons discussed above, it is seen that the appellant has not been able to file any documentary evidence in support of his claim of payment of royalty and the AO has rightly disallowed the same u/s. 37(1) of the I.T. Act on the ground that the appellant has not been able to establish the genuineness of this transaction. 16. It needs to be pointed out here that M/s. Wadhwa Buildon Pvt. Ltd. was being shown as a sundry creditor of the appellant in the immediately preceding year for the same exact amount of Rs. 1,81,85,392/- as on 31.03.2011, as can be seen from the Schedule-8 of Liabilities filed with the audited accounts of the appellant. M/s. Wadhwa Buildon Pvt. being shown as a creditor in the appellant's books of accounts as on 01.04.2011 excavation contract was allotted to the appellant on 05.05.2011 and two Amounts which the appellant had paid in respect of the contract were deposited by the appellant on 05.05.2011. Therefore, even if it was to be assumed that the amount of Rs. 1,81,85,392/- had been paid to M/s. Chirag Enterprises and M/s. United Investment Corporation on the directors of M/s. Wadhwa Buildon Pvt. Ltd., the same pertained to the outstanding liability of the appellant incurred in the immediately preceding year and could not have been claimed as a revenue expenditure in the year under consideration.
7 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane 17. With regard to disallowance of this amount u/s. 40(a)(ia) of the I.T. Act, it is seen that the only explanation that the appellant had filed before the AO and reiterated during the course of the present proceedings is that as per section 196, if, a payment of interest/ dividend/ other sum is made to the Government then no TDS is required to be made. In the appellant's case, admittedly, the amount of Rs. 1,81,85,392/- claimed by the appellant as Royalty, has not been paid to the Government. Therefore, going by the appellant's own explanation also, this amount was disallowable u/s. 40(a)(ia) of the I.T. Act as held by the AO. Therefore, under this section also this amount could not have been allowed to the appellant. 18. For the detailed reasons discussed above, it is held that the AO has rightly disallowed the amount of Rs. 1,81,85,392/- to the appellant u/s. 37(1) of the I.T. Act and the same is therefore confirmed.
Disallowance made on account of transportation charges u/s.40(a)(ia), the CIT(A) confirmed the action of the AO after observing as under:- 23. I have carefully considered the appellant's submissions, observations of the AO in the assessment order and the facts of the case. The appellant had claimed an amount of Rs. 1,78,54,9427- as Transportation charges. As far as the applicability of section 194C to these charges is concerned, the same has not been disputed by the appellant. The only explanation filed before the AO as well as before me that in terms of sub section (6) of section 194C he was not required to deduct tax from these charges. Sub-section (6) of section 194C is reproduced as under for ready reference - "(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum. " 24. From a perusal of the above provisions it is seen that this section provides exemption from deducting tax on payments made by those persons who are in the business of plying, hiring or leasing goods carriages, to contractors if the contractor furnishes his PAN to the deductor. Therefore, the observation of the AO that during the course
8 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane of business of plying, hiring or leasing goods carriages, are meant for the deductor and not for the deductee, has not been rebutted by the appellant either with any explanation or any judicial precedent on the same. Therefore, the appellant was required to make deduction of tax with respect to the transportation charges, which he had failed to do. Therefore, the disallowance of Rs. 1,78,54,942/- made by the AO u/s. 40(a)(ia) of the I.T. Act in respect of transportation charges is confirmed.
We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that the learned A.O. has disallowed royalty payment under section 37 ignoring the fact that the same is revenue in nature considering the nature of assessee’s business. The learned A.O. has not considered the fact that assessee was engaged in sand lease business. The learned A.O. has disallowed the same also under section 69C stating that the source of expenditure is unexplained. The learned A.O. has ignored the submission made by the assessee and has made this addition. 7. The assessee has duly submitted before the AO that M/s. Wadhwa Buildcon Pvt. Ltd. had made the payment of Royalty to Collector Thane on the assessee's behalf. The assessee on the directions of M/s Wadhwa Buildcon Pvt. Ltd. had repaid the amount to M/s. Chirag Enterprises and M/s. United Investment Corporation. The assessee filed copies of account of all these three parties before the AO. The AO did not accept assessee's explanation and disallowed this amount u/s. 40(a)(ia) by holding that the provisions of section 194J(l)(c) r.w.s. 9(l)(vi) were applicable in the assessee's case. The AO also disallowed this amount u/s. 69C of the IT.
9 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane Act by holding that this was an unexplained expenditure made by the assessee and also u/s.37(1) of the IT Act. 8. From the record, we found that royalty was paid by assessee in respect of lease granted by the Government. Initially the sand lease payment was made by M/s. Wadhwa Buildcon Pvt. Ltd., In support of the same, assessee had furnished following details in respect of this transaction; 1) Return of Income of M/s. Wadhwa Buildcon Pvt. Ltd. 2) Bank Statement highlighting payment made. 3) Address and PAN of M/s. Wadhwa Buildcon Pvt. Ltd. 9. Now while returning the same amount, the assessee at the instruction of Wadhwa repaid the amount to M/s. United Investment Corporation and M/s. Chirag Enterprises.
Following details were submitted before the lower authorities in respect of this transaction;
1) Confirmation from both the parties stating that the payment was received on behalf of M/s. Wadhwa Buildcon Pvt. Ltd. 2) Bank Statement showing payment received by both the parties. 3) Address and PAN of both the parties. 10. Since payment by Wadhwa to Government was out of bank account, there does not appear to be any doubt with regard to the source of the expenditure. 11. Looking into the nature of business, vis-à-vis payment so made, we observe that expenditure so incurred was revenue in nature. We also
10 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane found that as against expenditure of Rs.1.81 Crores, the assessee has income out of royalty of Rs.1.44 Crores. So far as deduction of TDS on the royalty payment is concerned, since the payment was made to the Government Department, there is no requirement of deduction of tax at source for the payment so made to the Government. 12. From the record, we found that M/s. Wadhwa Buildon Pvt. Ltd. had made payment of royalty to the Maharashtra Government on the assessee's behalf and on the directions of M/s. Wadhwa Buildon Pvt. Ltd., the assessee had repaid this amount to two concerns i.e. Rs.80,00,000/- to M/s. Chirag Enterprises and Rs. 1,01,85,392/- to M/s. United Investment Corporation and the balance amount of Rs. 18,925/- was received by the assessee as discount. The confirmed copies of accounts of M/s. Chirag Enterprises and M/s. United Investment Corporation, which were filed before the AO & CIT(A) were again placed on record. 13. The fact of award of contract by Collector of Thane District Government of Maharashtra to the Assessee has not been disputed by the AO or CIT(A). How can a contract be awarded to the Assessee without payment of Royalty as recorded in the order of Collector of Thane! The income from the said contract has been duly returned by the Assessee and taxed by the AO in A.Y. 2012-13, without allowing the basic amount of royalty by which the contract was awarded to him. It is fundamental cannon of taxation that what can be taxed is only the net income of the assessee. Reliance is placed on the decision of Bombay High Court in CIT
11 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane V/s. Shri Hariram Bhambhani [ITA No. 313 of 2013]. Since the royalty is paid to Government of Maharashtra, the question of TDS does not arise due to express provisions of section 196. Therefore the same cannot be disallowed u/s 40(a)(ia). 14. In view of the above discussion, we do not find any merit for the addition made on account of royalty payment. Accordingly, AO is directed to delete the same. 15. From the record we found that AO has disallowed transportation charges of Rs. 1,78,54,943 u/s 40(a)(ia) of the Income Tax Act. 16. Section 194C(6) provides that "No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of playing, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum." "Accordingly the Assessee has not deducted tax at source from the above payments. Learned AO and CIT(A) has held that this section provides exemption from deducting tax on payments made by those persons who are in the business of plying, hiring or leasing goods carriages, to contractors if the contractor furnishes his PAN to the deductor. 17. With regard to disallowance u/s.40(a)(ia) during the assessment year under consideration i.e., 2012-13, we found that the amendment made to Section 194C by Finance (No. 2) Act, 2009 has been explained by the CBDT in circular no. 05/2010 dated 30.09.2010. Para 49.3(B) of
12 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane the said circular clearly explains that all payments to transport operators have been exempted from TDS and there is no further requirement that even the deductor should be in transport business. Even the Explanatory Memorandum to Finance Bill 2009 explains the above position. To support out contention, we rely upon the following case laws - 1. ITO V/s. M/s Raymond UCO Denim Pvt Ltd [ITA Nos. 351&352/Nag/2015] 2. ITO V/s. Manikgarh Cement [ITA No. 316 to 319/Nag/2015] 3. DCIT V/s. M/s JSW Ispat Steel Ltd [ITA No. 324 to 327/Nag/2015] 4. DCIT V/s. M/s Indorama Synthetic (India) Ltd. [ITA No. 320 to 323/Nag/2015] 5. ITO V/s. M/s JSW Steel Coated Product Ltd. [ITA No. 314 to 315/Nag/2015] 6. M/s Ambuja Cement Ltd V/s. ITO [ITA No. 648 & 649/Chd/2014] "
As per our considered view, upto 30.09.2009, the legal position as per second proviso to Section 194C(3)(i) was that no deduction shall be made where transport operator owns maximum of two goods carriages. However, Finance (No.2) Act, 2009, has substituted Section 194C w.e.f 01.10.2009, which provides that no deduction shall be made where transport operator furnishes his PAN [Section 194C(6)]. Further, Section 194C(6) has been amended w.e.f 01.06.2015 by Finance Act, 2015 to provide that no deduction shall be made where transport operator owns maximum of ten goods carriages 19. In view of the above, we do not find any disallowance made by the AO u/s.40(a)(ia) of the IT Act.
13 ITA No.3788/Mum/2017 Shri Chandrakant Narayan Mane
In the result, appeal of the assessee is allowed in part.
Order pronounced in the open court on this 28/06/2018 Sd/- Sd/- (AMARJIT SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 28/06/2018 Karuna Sr.PS
Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, 6. Guard file. सत्यापित प्रतत //True Copy// (Asstt. Registrar) ITAT, Mumbai