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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri G. P. Mehta Department by: Shri B. Satyanarayana Raju सुनवाईकीतारीख / Date of Hearing:03.10.2016 घोषणाकीतारीख /Date of Pronouncement:.06.01.2017 आदेश / O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 22.12.2008 passed by the Commissioner of Income Tax (Appeals)-VII, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2005- 06.
The assessee has raised the following grounds:- “1. The order passed by the learned lower authorities are bad in law and bad in facts.
ITA No.654.M.09 A.Y. 2005-06
2. The learned lower authorities have grossly erred in holding that the provisions of Sec.14A of the I.T.Act, 1961, are applicable in the case of the appellant and have further erred in making disallowances under said section r.w.Rule 8D of the I.T. Rules 1962.
3. The learned lower authorities have grossly erred in disallowing / upholding the disallowance of Rs.30,00,000/- being the consultancy charges paid by recourse to Sec. 194J of the I.T. Act, 1961, though the provisions of said section are not attracted at all. 4. The learned CIT(A) has erred is not adjudicating upon a specific ground raised
in regard to disallowance of Rs.30,00,000/- by resource to Sec.40A(2)(a) of the I. T. Act, 1961. The conviction of the learned CIT(A) is wrong and untenable in law.
5. The learned lower authorities have grossly erred in disallowing Rs.75,477/- out of general expenses on ad-hoc basis. The impugned disallowance is highly excessive and unreasonable.
6. The learned lower authorities have grossly erred in disallowing Rs.55,207/- i.e. 50% of the foreign travel expenses. The reasons assigned for the impugned disallowance are wrong and unrelated to the material on record.
7. Having regard to the facts of the case, provisions of law and judicial propositions, the impugned disallowance are unsubstantiated hence untenable in law.” Additional Ground:-
1. The learned lower authorities have grossly erred in making / upholding an addition of Rs.30,00,000/- by recourse to section 40(a)(ia) of the I.T.Act, 1961, even though said provisions are not attracted in appellant’s case, in view of NIL amount payable as at the end of the year”
ITA No.654.M.09 A.Y. 2005-06
The brief facts of the case are that the assessee filed its return of income declaring total income to the tune of Rs.1,93,690/- on 31.10.2005 along with tax audit report, copies of profit and loss account and balance sheet etc. The return was processed u/s.143(1) of the Income Tax Act, 1961 ( in short “the Act”) on 15.02.2006 without any adjustment. The case was selected for scrutiny and notices u/s.143(2) and 142(1) of the Act were issued on 26.07.2006 which was duly served upon the assessee on 28.07.2006. A fresh notice u/s.142(1) of the Act was also issued on 15.05.2007. The assessee company is engaged in the business of development of real estate. Assessee’s project was going on at Bangalore. The whole project was sold out to M/s.Prasiddhie Properties, Bangalore for a total sum of Rs.3,09,00,000/-. Copy of sale agreement was also kept on record. The assessee company paid a sum of Rs.30,00,000/- to M/s. Batra Development for rendering development services and consultancy charges which was disallowed in view of the provision u/s.40A(2)(b) of the Act, therefore, the said charges were added to the income of the assessee. The Assessing Officer also disallowed the general expenses to the tune of Rs.3,77,388/- on adhoc basis and foreign travel expenses to the tune of Rs.1,10,414/- i.e. 50% of the total expenses and also disallowed certain expenses in view of the provision contained in section 40A(2)(b) of the Act and assessed the total income to the tune of Rs.40,71,910/-. On appeal before CIT(A) the assessee’s claim was partly accepted but denied on the above said issues, therefore, feeling aggrieved the assessee has filed the present appeal before us. ISSUE NO.1:- 3 ITA No.654.M.09 A.Y. 2005-06
Issue no.1 is general in nature which nowhere require specific adjudication. ISSUE NO.2:- 5. The learned representative of the assessee did not press the Issue no.2, therefore, the issue no.2 is hereby decide in favour of the revenue against the assessee being not pressed. ISSUE NO.3 & 4:- 6. Issue no.3 & 4 are interconnected, therefore are being taken up together for adjudication. Under these issues the Assessing Officer has disallowed Rs.30,00,000/- as consultancy charges paid to M/s. Batra Development by invoking the provision u/s.194J and section 40(a)(ia) of the Act. At the time of examination of the return, the Assessing Officer observed that the assessee have paid Rs.30,00,000/-to M/s.Batra Development u/s.40A(2)(a) of the Act. The said amount was paid for rendering the professional and consultancy services. The Assessing Officer was of the view that the assesse was under obligation to deduct the TDS but failed to deduct the TDS, therefore, in view of the said circumstances the amount paid to M/s. Batra Development was not allowable u/s.40(a)(ia) of the Act. However, the Assessing Officer was also of the view that the said payment was also not allowable, alternatively, in view of the provision u/s.40A(2)(a) of the Act. Firstly, we take the issue on the point of disallowance u/s.40(a)(ia) of the Act. The factual position is not in dispute. The assessee company entered into an agreement with its associate concerned with regard to development and sale of project. On appraisal of 4 ITA No.654.M.09 A.Y. 2005-06 the order of the Assessing Officer as well as CIT(A), nothing came into the notice that in which provision contained in chapter XVII of the Act, the assessee was under obligation to deduct the tax at source and to pay credit to the Government. No reason of any kind was discussed by the Assessing Officer as well as CIT(A) in connection with the applicability of the provision to the facts and circumstances of the present case under which the assessee was under obligation to deduct the tax and to pay the same with the revenue. No doubt in the said circumstances, the CIT(A) has wrongly confirmed the said addition. The provision of section 40(a)(ia) of the Act applies only when a person is under obligation to deduct the tax at source and failed to deposit the same on or before the due date. In the instant case the amount in question has been paid to the M/s.Batra development o account of consultancy charges. No doubt in view of the said circumstances the provision which has been invoked by the Assessing Officer and confirmed by the CIT(A) is not applicable to the facts of the present case. In this regard we also found support of law settled in (2009) 26 DTR (Jaipur)(Tribu) 79 in case titled as Jaipur Vidyut Vitran Nigam Ltd. Vs. Deputy Commissioner of Income Tax.
Now coming to the other point by which the Assessing Officer has disallowed the amount of Rs.30,00,000/- paid to M/s.Batra Development by invoking the provision of section 40A(2)(a) of the Act is concerned, it is required to be seen whether the said provision has rightly been invoked by the Assessing Officer and confirmed by the CIT(A) or not. The assessee has produced the accounts and explained that the assessee had paid an amount of Rs.30,00,000/- on account of consultancy charges. It is up to the Assessing 5 ITA No.654.M.09 A.Y. 2005-06 Officer to arrive at this conclusion that the payment is excessive or unreasonable. The Assessing Officer cannot be proceed merely on the basis of surmises and conjunctures. He has to place on record some evidence in connection with the payment of the said amount as excessive and unreasonable. There is noting on record to which it can be assumed that the payment made to M/s.Batra Development is highly excessive and unreasonable. No evidence of any kind was brought into record and discussed. Since there is no plausible explanation on record with regard to the applicability of the provision u/s.40A(2)(a) of the Act. We are of the view that the addition of the amount in question on this account is also wrong. In this regard we also placed reliance upon the law settled in [2006] 103 ITD 97, Hon’ble ITAT, Bangalore Bench in case titled as S.K,Engg. Vs, Joint Commissioner of Income Tax (Asst.), Special Range – II and Hon’ble ITAT Delhi Bench in (1990) 39 TTJ (Del) 132 in case titled as Shriram Pistons & Rings Ltd. Vs. Inspecting Assistant Commissioner and Hon’ble ITAT Madras Bench in (1979) 8 TTJ (Mad) 589 in case titled as Second Income Tax Officer Vs. Bright Spinners (P) Ltd. and Hon’ble ITAT Pune Bench in [2005] 93 ITD 120 (Pune) in case titled as Deputy Commissioner of Income Tax Vs. Lab India Instruments (P.) Ltd. and Hon’ble ITAT, Rajkot Bench in [2000] 67 TTJ (Rajkot) 396 in case titled as Deputy Commissioner of Income Tax Vs. Joshi Formulabs (P.) Ltd. Taking into account of all facts and circumstances mentioned above, we are of the view that the finding of the CIT(A) is wrong against law and facts and is not liable to be sustainable in the eyes of law. We set aside the order of the CIT(A) on this issue and delete the said additions.