SHRI ABHIJIT MADHUSUDAN SAPKAL,NAGPUR vs. A.C.I.T. CIRCLE 1(1), NAGPUR

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ITA 553/NAG/2016Status: DisposedITAT Nagpur06 January 2017AY 2007-084 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that Section 40(a)(ia) is attracted only if the sum is payable at the end of the year and not upon sums already paid. Since the royalty expenses were paid during the year and not outstanding, the disallowance was not justified.

What were the facts?

The assessee claimed royalty expenses of Rs. 2,69,332, but failed to deduct TDS. The AO disallowed the expense under Section 40(a)(ia) for non-deduction of TDS under Section 194J. The CIT(Appeals) upheld the AO's order.

What were the issues?

Whether disallowance under Section 40(a)(ia) is applicable when the expense has been paid and is not outstanding at the year-end, despite non-deduction of TDS.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194J,Section 9(1)(vi)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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1 ITA No. 553/Nag/2016.

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. No. 553/Nag/2016 Assessment Year: 2007-08. Shri Abhijit Madhusudan Sapkal, Asstt.Commissioner of Income-tax, Nagpur. Vs. Circle-1(1), Nagpur,. PAN AJBPS6656E. Appellant. Respondent. Appellant by : Shri Abhay Agrawal. Respondent by : Shri A.R. Ninawe. Date of Hearing : 20-12-2016 Date of Pronouncement : 6th January, 2017.

O R D E R.

This is an appeal by the assessee directed against the order of Learned CIT(Appeals)-I, Nagpur dated. 30/5/2016, and pertains to assessment year 2007-08. The grounds of appeal read as under :

1.

The order passed by the learned AO is bad in law and the learned CIT(A) erred in upholding the order of the learned AO. 2. The learned AO and learned CIT(A) erred in treating the expenditure of Rs.2,69,332 to be in the matter of ‘Royalty’ as defined under explanation 2 to section 9(1)(vi) of the Act. 3. The learned AO and CIT(A) erred in making disallowance of expenditure of Rs.2,69,332 under section 40(a)(ia) of the Act for non- deduction of TDS under section 194J of the Act. 4. The learned CIT(A) passed the order in violation of principle of natural justice. 2. Brief facts of the case are as under :

2 ITA No. 553/Nag/2016.

In this case, the return of income for the assessment year under consideration was filed on 31-10-2007, declaring a total income at Rs.10,76,520/-. The assessment was completed u/s 143(3) of the Act on 16-12- 2009, determining total income at Rs.13,70,852/-. The AO has made the addition of Rs.2,69,332/- u/s 40(a)(ia) by way of disallowance of royalty expenses to the tune of Rs.2,69,332/- on which the assessee has failed to make TDS in view of the provisions of section 194J of the I.T. Act, 1961.

3.

Upon assessee's appeal Learned CIT(Appeals) affirmed the action of the Assessing Officer.

4.

Against above order assessee is in appeal before the ITAT 5. I have heard both the counsel and perused the records. At the outset Learned counsel of the assessee pleaded that provisions of section 40( a)(ia) were not at all applicable in this case inasmuch as the entire amount was paid at the end of the year, and no amount was payable.

6.

In this regard Learned counsel placed reliance upon decision from the Honourable High Court and this ITAT for the proposition that provisions of section 40(a)(ia) are attracted only if the sum is payable at the end of the year and not upon sums which have already been paid.

7.

Per Contra Learned Departmental Representative relied upon the orders of the authorities below. But he did not dispute the proposition that the amount involved was paid during the year and it was not outstanding.

8.

Upon careful consideration I find that this Tribunal in the case of M/s Chaddha Transport in ITA No. 333/Nag/2014 vide order dated 25 /02/2016, has held as under:

“12. We have carefully considered the submissions and perused the records. First we deal with the issue on the ground that the provisions of section 40(a)(ia) are not attracted inasmuch as the entire freight

3 ITA No. 553/Nag/2016.

expenditure is paid and nothing is payable as on 31-03-2007. The facts in this regard are undisputed. The assessee’s plea is that the entire freight amount was paid and nothing is payable as on 31-03-2007, and that this is duly reflected by a perusal of the balance sheet/profit & loss account where no amount is payable as on 31-03-2007. In this regard learned counsel of the assessee has placed reliance upon CIT vs. Vector Shipping Services (P) Ltd. 357 ITR 642 (All.). In the said case Hon’ble Allahabad High Court has upheld the finding that when the expenses incurred by the assessee is totally paid and not remained payable as at the end of the relevant accounting period, provisions of section 40(a)(ia) are not applicable. The Hon’ble High Court in para 10 of the order has concluded as under : “ It is to be noted that for disallowing expenses from business and provision on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year.” 13. Revenue’s appeal against the above said decision of the Hon’ble Allahabad High Court was dismissed by the Hon’ble Apex Court in CC No. 8068/2014 vide order dated 02-07-2014. The Hon’ble Apex Court has held as under : “ Heard Mr. Mukul Rohatgi, learned Attorney General, for the petitioner. Delay in filing and refilling special leave petition is condoned. Special leave petition is dismissed.” We are also aware that there are certain other Hon’ble High Court decisions wherein this proposition has not been upheld that provisions of section 40(a)(ia) are attracted only when the amount is payable. However, we note that there is no jurisdictional High Court decision on this issue. In such a situation we now have a Hon’ble Allahabad High Court decision which is in favour of the assessee. Revenue Department’s petition for special leave to appeal has been dismissed by the Hon’ble Apex Court by condoning the delay in filing the leave petition. In such a situation, in our considered opinion, the decision of Hon’ble Apex Court in the case of CIT vs. Vegetable Products Ltd. 188 ITR 192 has to be followed. In the said decision the Hon’ble Apex Court has expounded that in case there are two views possible, the view in favour of the assessee should be followed. Accordingly in absence of any jurisdictional High Court decision, we respectfully follow the decision of Hon’ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd. as

4 ITA No. 553/Nag/2016.

above. Accordingly since no amount of the freight was unpaid or was payable as on 31-03-2007 we hold that the provisions of section 40(a)(ia) are not attracted and in this view of the matter we are of the opinion that Revenue’s appeal is liable to be dismissed.” 9. Respectfully following the precedent as above I find that since no amount was outstanding to be paid, the provisions of section 40 (a)(ia) are not attracted in this case. Hence a disallowance is not justified. Since I have already held that provisions of section 40(a)(ia) are not attracted, the adjudication on the issue as to whether the sum involved falls under the head of ‘royalty’ is only of academic interest. Hence I am not engaging into the same.

10.

In the result this appeal by the assessee stands allowed Order pronounced in the Open Court on this 6th day of January., 2017.

Sd/- ( SHAMIM YAHYA) ACCOUNTANT MEMBER.

Nagpur, Dated: 6th January, 2017.

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