INCOME TAX CASE LAWS

INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

HIGH COURTS

Advance tax --Excess advance tax paid--Interest--Advance tax in excess of minimum alternate tax credit--Interest payable under section 244A--Income-tax Act, 1961, s. 244A-- CIT v . Bharat Aluminium Co. Ltd. (Delhi) . . . 286

Business expenditure --Performance guarantee--Non-performance of contract--Encashment of bank guarantee--Compensatory in nature not penal--Deductible--Income-tax Act, 1961, s. 37(1)-- CIT v . Neo Structo Construction Ltd .
(Guj) . . . 300

Mutual concern --Principle of mutuality--Members’ club--Contribution from members invested in fixed deposit--Interest from such deposit--Mutuality principle not attracted--Income-tax Act, 1961-- CIT v . Dehradun Club Ltd.
(Uttarakhand) . . . 296

Non-resident --Income deemed to accrue or arise in India--Meaning of business connection--Non-resident company having liaison office in India arranging for manufacture in India for export--No part of income accrued or arose in India--Income-tax Act, 1961, ss. 5, 9(1)(i)-- CIT v . Nike Inc. (Karn) . . . 274

Precedent --Effect of Supreme Court decision in CIT v. Tulsyan NEC-- CIT v . Bharat Aluminium Co. Ltd. (Delhi) . . . 286

Res judicata --Not applicable to income-tax proceedings-- CIT v . Dehradun Club Ltd. (Uttarakhand) . . . 296

PRINT EDITION

ITR Volume 356 : Part 4 (Issue dated : 2-9-2013)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

SUPREME COURT

Income-tax --General principles--Compartmentalisation of income under various heads and computation--To be strictly in accordance with scheme of Act-- T. K. Ginarajan v . CIT . . . 618

Salary --Perquisite--Definition--Exhaustive--Incentive bonus paid by employer--Expenses incurred for generating business--Not certified by employer as reimbursement of actual expenses incurred in performance of duty--Is salary and taxable--Income-tax Act, 1961, ss. 2(24), 10(14), 16, 17-- T. K. Ginarajan v . CIT . . . 618

HIGH COURTS

Appeal to Appellate Tribunal --Powers of Tribunal--Power to admit additional evidence--Objection to material must be raised before Tribunal-- CIT v . Vijayawada Bottling Co. Ltd. (AP) . . . 625

Appeal to High Court --Competency of appeal--Law applicable--Effect of insertion of section 268A with retrospective effect from 1-4-1999--Tax effect less than minimum prescribed by CBDT--Appeal not competent--Income-tax Act, 1961, s. 268A-- CIT v . Dr. Ashok Kumar Shukla (All) . . . 697

----Territorial jurisdiction of High Court--Order passed within territorial jurisdiction of High Court--High Court could hear appeal from such order--Income-tax Act, 1961, s. 260A--Code of Civil Procedure, 1908, s. 20-- CIT v . Shree Ganapati Rolling Mills P. Ltd . (Gauhati) . . . 586

Best judgment assessment --Law applicable--Effect of amendment of section 144 w.e.f. 1-4-1989--Prior to 1-4-1989 in case of voluntary return best judgment could be made only after notice under section 139(2)--Income-tax Act, 1961, ss. 139(2), 144--Circular No. 281 dated 22-9-1980-- CIT v. Bake Food Products P. Ltd . (AP) . . . 690

Business expenditure --Disallowance--Ceiling on expenditure--Hotel expenses of employee--Daily allowance granted to employee has same character as hotel expenses for purposes of section 37(3A) to (3D)--Income-tax Act, 1961, s. 37--Income-tax Rules, 1962, r. 6D-- Novopan India Ltd . v . CIT (AP) . . . 580

----Disallowance--Entertainment expenditure--Expenditure incurred on employees who had accompanied visitors to assessee concern--Expenditure constituted entertainment expenditure--Disallowance of part of expenditure--Justified--Income-tax Act, 1961-- CIT v .ING Vysya Bank Ltd . (Karn) . . . 532

Business loss --Banking company--Loss on revaluation of securities--Assessee describing securities as permanent assets--Loss not in stock-in-trade--Loss not deductible--Income-tax Act, 1961-- CIT v . ING Vysya Bank Ltd . (Karn) . . . 532

Capital gains --†Transfer†meaning of --Firm owning land--Reconstitution of firm and addition of new partners--Reduction in shares of erstwhile partners--No transfer of capital asset--Capital gains did not arise on reduction of share of partners--Income-tax Act, 1961, ss. 2(47), 45-- CIT v . P. N. Panjawani (Karn) . . . 676

Capital or revenue receipt --Decision of Supreme Court that dharmada collected from purchasers and deposited in a separate account not a revenue receipt--Finding of Tribunal that assessee failed to show contribution on regular basis to institutions--High Court holding finding of Tribunal purely related to appreciation of evidence not giving rise to question of law--High Court not laying down law contrary to ruling of Supreme Court--Reference to Full Bench uncalled for--Income-tax Act, 1961-- Lilasons Breweries Ltd. v .CIT [FB] (MP) . . . 671

Circulars --Binding on income-tax authorities-- CIT v . Bake Food Products P. Ltd. 
(AP) . . . 690

Depreciation --Investments held as stock-in-trade--Assessee entitled to value investments at cost price or market value, whichever is lower--Entitled to depreciation--Income-tax Act, 1961-- CIT v . Vijaya Bank (Karn) . . . 578

Fringe benefits tax --Reassessment--Scope of Chapter XII-H--Special provisions including for reassessment of fringe benefits escaping assessment--Reassessment under general provisions not permissible in case of fringe benefits tax--Income-tax Act, 1961, ss. 147, 148, Chap. XII-H-- CIT v . P. G. Foils Ltd . (Guj) . . . 594

Intercorporate dividends --Special deduction under section 80M--Disallowance of part of special deduction on ground of expenditure--No evidence of expenditure--Disallowance not justified--Income-tax Act, 1961, s. 80M-- CIT v . ING Vysya Bank Ltd. 
(Karn) . . . 532

Interest on borrowed capital --Loan by assessee to subsidiary company--Finding that loan was not from borrowed capital--Interest deductible--Income-tax Act, 1961, s. 36(1)(iii)-- CIT v. Vijayawada Bottling Co. Ltd . (AP) . . . 625

Interpretation of taxing statutes --External aids can be used-- CIT v . Vijayawada Bottling Co. Ltd . (AP) . . . 625

Investment allowance --Condition precedent--Manufacture or production of article or thing--Milk products made from milk amounts to production--Machinery used in manufacture of milk products--Entitled to investment allowance--Income-tax Act, 1961, s. 32A-- CITv. Vizag District Milk Producers Co-op. Union Ltd. (AP) . . . 612

----Law applicable--Effect of insertion of Explanation to item 5 in Eleventh Schedule w.e.f. 1-4-1988--Amendment not retrospective--Machinery used in manufacture of aerated water with synthetic essence--Entitled to investment allowance prior to 1-4-1988--Income-tax Act, 1961, s. 32A, Sch. XI-- CIT v. Vijayawada Bottling Co. Ltd. (AP) . . . 625

Offences and prosecution --Refund certificate in fictitious names--Prima facie evidence that offence has been committed--Prosecution will not be quashed--Income-tax Act, 1961--Code of Criminal Procedure, 1973, ss. 397, 401-- Hema Mohnot v . State by Chief Commissioner (Administration) (Mad) . . . 602

Penalty --Concealment of income--Claim to deduction of expenditure based on decision of Supreme Court--Expenditure offered thereafter for assessment by filing revised statement--Not a case of filing inaccurate particulars--No case for levy of penalty--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Shriram Properties and Constructions (Chennai) Ltd. (Mad) . . . 700

----Concealment of particulars of income--Assessing Officer originally of impression that cash deposit made by assessee on single day but later finding deposit spread over twelve months--Assessee filing revised profit and loss account statement showing net profit being five per cent. before completion of assessment and agreeing to addition of three per cent.--Case of estimation of income--Imposition of penalty not warranted--Income-tax Act, 1961, s. 271(1)(c)-- CIT v . P. Rojes (Mad) . . . 703

----Loans in cash exceeding specified limit--Assessee building properties--Earnest money returned to parties in cash reflected in balance-sheet--Not loan or deposit--Penalty could not be imposed--Income-tax Act, 1961, s. 271E-- CIT v . Madhav Enterprise Pvt. Ltd. (Guj) . . . 588

Precedent --Effect of Supreme Court decision in Amit Kapoor v. Ramesh Chander [2012] 9 SCC 460-- Hema Mohnot v. State by Chief Commissioner (Administration) (Mad) . . . 602

Reassessment --Notice--Notice not served to the name of principal officer of assessee-company but issued to company without mentioning “Pvt. Ltd.†as a suffix--Not a case of misnomer or misdescription of parties which makes entire proceedings null and void--Income-tax Act, 1961, ss. 147, 148-- CIT v. Jagat Novel Exhibitors P. Ltd .
(Delhi) . . . 559

----Notice--Validity--Issues examined in original assessment--Notice of reassessment in respect of such issues--Not valid--Income-tax Act, 1961, ss. 147, 148-- CIT v . P. G. Foils Ltd. (Guj) . . . 594

Reference --Finding of fact by Tribunal--Normally binding on High Court--Income-tax Act, 1961, s. 256-- CIT v . Vijayawada Bottling Co. Ltd . (AP) . . . 625

Search and seizure --Block assessment--Assessment of third person--Difference between section 158BC and section 158BD--No warrant of authorisation in name of assessee--Search of business premises of assessee in consequence of search of third person--Order of assessment passed under section 158BC--Not valid--Not a defect curable under section 292B--Order passed after period of limitation laid down in section 158BC--Order not valid--Income-tax Act, 1961, ss. 158BC, 158BD-- V. Ramaiah v . CIT 
(Mad) . . . 646

----Block assessment--Undisclosed income--Addition of amount without affording opportunity to assessee to be heard--Not valid--No proof by Revenue that transaction was benami--Addition on ground of benami--Not valid--Income-tax Act, 1961-- V. Ramaiah v . CIT(Mad) . . . 646

Valuation of stock --General principles--Method of valuation adopted by assessee and accepted by Revenue for several years--Securities classified in accordance with Reserve Bank of India circular--Not relevant--Assessee’s valuation to be accepted--Income-tax Act, 1961-- Karnataka Bank Ltd. v . Asst. CIT (Karn) . . . 549

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Code of Civil Procedure, 1908 :

S. 20 --Appeal to High Court--Territorial jurisdiction of High Court--Order passed within territorial jurisdiction of High Court--High Court could hear appeal from such order-- CIT v . Shree Ganapati Rolling Mills P. Ltd . (Gauhati) . . . 586

Code of Criminal Procedure, 1973 :

Ss. 397, 401 --Offences and prosecution--Refund certificate in fictitious names--Prima facie evidence that offence has been committed--Prosecution will not be quashed-- Hema Mohnot v . State by Chief Commissioner (Administration)
(Mad) . . . 602

Income-tax Act, 1961 :

S. 2(24) --Salary--Perquisite--Definition--Exhaustive--Incentive bonus paid by employer--Expenses incurred for generating business--Not certified by employer as reimbursement of actual expenses incurred in performance of duty--Is salary and taxable-- T. K. Ginarajan v . CIT (SC) . . . 618

S. 2(47) --Capital gains--†Transfer†meaning of --Firm owning land--Reconstitution of firm and addition of new partners--Reduction in shares of erstwhile partners--No transfer of capital asset--Capital gains did not arise on reduction of share of partners-- CIT v . P. N. Panjawani (Karn) . . . 676

S. 10(14) --Salary--Perquisite--Definition--Exhaustive--Incentive bonus paid by employer--Expenses incurred for generating business--Not certified by employer as reimbursement of actual expenses incurred in performance of duty--Is salary and taxable-- T. K. Ginarajan v . CIT (SC) . . . 618

S. 16 --Salary--Perquisite--Definition--Exhaustive--Incentive bonus paid by employer--Expenses incurred for generating business--Not certified by employer as reimbursement of actual expenses incurred in performance of duty--Is salary and taxable-- T. K. Ginarajan v. CIT (SC) . . . 618

S. 17 --Salary--Perquisite--Definition--Exhaustive--Incentive bonus paid by employer--Expenses incurred for generating business--Not certified by employer as reimbursement of actual expenses incurred in performance of duty--Is salary and taxable-- T. K. Ginarajan v. CIT (SC) . . . 618

S. 32A --Investment allowance--Condition precedent--Manufacture or production of article or thing--Milk products made from milk amounts to production--Machinery used in manufacture of milk products--Entitled to investment allowance-- CIT v. Vizag District Milk Producers Co-op. Union Ltd. (AP) . . . 612

----Investment allowance--Law applicable--Effect of insertion of Explanation to item 5 in Eleventh Schedule w.e.f. 1-4-1988--Amendment not retrospective--Machinery used in manufacture of aerated water with synthetic essence--Entitled to investment allowance prior to 1-4-1988-- CIT v. Vijayawada Bottling Co. Ltd. (AP) . . . 625

S. 36(1)(iii) --Interest on borrowed capital--Loan by assessee to subsidiary company--Finding that loan was not from borrowed capital--Interest deductible-- CIT v. Vijayawada Bottling Co. Ltd . (AP) . . . 625

S. 37 --Business expenditure--Disallowance--Ceiling on expenditure--Hotel expenses of employee--Daily allowance granted to employee has same character as hotel expenses for purposes of section 37(3A) to (3D)-- Novopan India Ltd . v . CIT
(AP) . . . 580

S. 45 --Capital gains--†Transfer†meaning of --Firm owning land--Reconstitution of firm and addition of new partners--Reduction in shares of erstwhile partners--No transfer of capital asset--Capital gains did not arise on reduction of share of partners-- CIT v . P. N. Panjawani (Karn) . . . 676

S. 80M --Intercorporate dividends--Special deduction under section 80M--Disallowance of part of special deduction on ground of expenditure--No evidence of expenditure--Disallowance not justified-- CIT v . ING Vysya Bank Ltd. (Karn) . . . 532

Chap. XII-H --Fringe benefits tax--Reassessment--Scope of Chapter XII-H--Special provisions including for reassessment of fringe benefits escaping assessment--Reassessment under general provisions not permissible in case of fringe benefits tax-- CIT v . P. G. Foils Ltd . (Guj) . . . 594

S. 139(2) --Best judgment assessment--Law applicable--Effect of amendment of section 144 w.e.f. 1-4-1989--Prior to 1-4-1989 in case of voluntary return best judgment could be made only after notice under section 139(2)--Circular No. 281 dated 22-9-1980-- CIT v.Bake Food Products P. Ltd . (AP) . . . 690

S. 144 --Best judgment assessment--Law applicable--Effect of amendment of section 144 w.e.f. 1-4-1989--Prior to 1-4-1989 in case of voluntary return best judgment could be made only after notice under section 139(2)--Circular No. 281 dated 22-9-1980-- CIT v. Bake Food Products P. Ltd . (AP) . . . 690

S. 147 --Fringe benefits tax--Reassessment--Scope of Chapter XII-H--Special provisions including for reassessment of fringe benefits escaping assessment--Reassessment under general provisions not permissible in case of fringe benefits tax-- CIT v . P. G. Foils Ltd . (Guj) . . . 594

----Reassessment--Notice--Notice not served to the name of principal officer of assessee-company but issued to company without mentioning “Pvt. Ltd.†as a suffix--Not a case of misnomer or misdescription of parties which makes entire proceedings null and void-- CIT v. Jagat Novel Exhibitors P. Ltd . (Delhi) . . . 559

----Reassessment--Notice--Validity--Issues examined in original assessment--Notice of reassessment in respect of such issues--Not valid-- CIT v . P. G. Foils Ltd.
(Guj) . . . 594

S. 148 --Fringe benefits tax--Reassessment--Scope of Chapter XII-H--Special provisions including for reassessment of fringe benefits escaping assessment--Reassessment under general provisions not permissible in case of fringe benefits tax-- CIT v . P. G. Foils Ltd . (Guj) . . . 594

----Reassessment--Notice--Notice not served to the name of principal officer of assessee-company but issued to company without mentioning “Pvt. Ltd.†as a suffix--Not a case of misnomer or misdescription of parties which makes entire proceedings null and void-- CIT v. Jagat Novel Exhibitors P. Ltd . (Delhi) . . . 559

----Reassessment--Notice--Validity--Issues examined in original assessment--Notice of reassessment in respect of such issues--Not valid-- CIT v . P. G. Foils Ltd.
(Guj) . . . 594

S. 158BC --Search and seizure--Block assessment--Assessment of third person--Difference between section 158BC and section 158BD--No warrant of authorisation in name of assessee--Search of business premises of assessee in consequence of search of third person--Order of assessment passed under section 158BC--Not valid--Not a defect curable under section 292B--Order passed after period of limitation laid down in section 158BC--Order not valid-- V. Ramaiah v . CIT (Mad) . . . 646

S. 158BD --Search and seizure--Block assessment--Assessment of third person--Difference between section 158BC and section 158BD--No warrant of authorisation in name of assessee--Search of business premises of assessee in consequence of search of third person--Order of assessment passed under section 158BC--Not valid--Not a defect curable under section 292B--Order passed after period of limitation laid down in section 158BC--Order not valid-- V. Ramaiah v . CIT (Mad) . . . 646

S. 256 --Reference--Finding of fact by Tribunal--Normally binding on High Court-- CIT v . Vijayawada Bottling Co. Ltd . (AP) . . . 625

S. 260A --Appeal to High Court--Territorial jurisdiction of High Court--Order passed within territorial jurisdiction of High Court--High Court could hear appeal from such order-- CIT v . Shree Ganapati Rolling Mills P. Ltd . (Gauhati) . . . 586

S. 268A --Appeal to High Court--Competency of appeal--Law applicable--Effect of insertion of section 268A with retrospective effect from 1-4-1999--Tax effect less than minimum prescribed by CBDT--Appeal not competent-- CIT v . Dr. Ashok Kumar Shukla (All) . . . 697

S. 271(1)(c) --Penalty--Concealment of income--Claim to deduction of expenditure based on decision of Supreme Court--Expenditure offered thereafter for assessment by filing revised statement--Not a case of filing inaccurate particulars--No case for levy of penalty--CIT v. Shriram Properties and Constructions (Chennai) Ltd.
(Mad) . . . 700

----Penalty--Concealment of particulars of income--Assessing Officer originally of impression that cash deposit made by assessee on single day but later finding deposit spread over twelve months--Assessee filing revised profit and loss account statement showing net profit being five per cent. before completion of assessment and agreeing to addition of three per cent.--Case of estimation of income--Imposition of penalty not warranted-- CIT v . P. Rojes (Mad) . . . 703

S. 271E --Penalty--Loans in cash exceeding specified limit--Assessee building properties--Earnest money returned to parties in cash reflected in balance-sheet--Not loan or deposit--Penalty could not be imposed-- CIT v . Madhav Enterprise Pvt. Ltd. (Guj) . . . 588

Sch. XI --Investment allowance--Law applicable--Effect of insertion of Explanation to item 5 in Eleventh Schedule w.e.f. 1-4-1988--Amendment not retrospective--Machinery used in manufacture of aerated water with synthetic essence--Entitled to investment allowance prior to 1-4-1988-- CIT v. Vijayawada Bottling Co. Ltd.
(AP) . . . 625

Income-tax Rules, 1962 :

R. 6D --Business expenditure--Disallowance--Ceiling on expenditure--Hotel expenses of employee--Daily allowance granted to employee has same character as hotel expenses for purposes of section 37(3A) to (3D)-- Novopan India Ltd . v . CIT
(AP) . . . 580

Daily writing tips

Fight the Good Fight Against Creeping Errors - DailyWritingTips

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Fight the Good Fight Against Creeping Errors Posted: 02 Sep 2013 09:56 PM PDT Editing, the skill set practiced by the other half of my writer/editor dual personality, is a pleasurable pursuit for me. It enables me to practice problem solving, help people express themselves, and improve my own writing. But as I peruse some of the prose I examine professionally — more than a million words each year — I repeatedly come across banal but annoying errors that baffle me. There are corollaries of these mistakes in every profession, and in the personal compartments of one’s life. They’re the editorial equivalent of finding that the toilet seat has been left up. (I’m sure you can think of cognates in your experience.) These are among those indefensible editorial errors that seem to perpetuate themselves like a virus, inconsequential in isolation but aggravating in the aggregate. One irritating error I find often is the intrusive framing of a name in commas when it is an appositive of a preceding description of the person named, as in “The exhibition showcases the work of photographer, Mathew Brady, who produced many iconic images from the Civil War era.” This mistake is rarely replicated in well-edited publications. Unfortunately, many people are corrupted by its ubiquitous appearance in not-so-well-edited publications, and it is thus passed on to infect others. (This error is no doubt influenced by a superficially similar — and correct — construction: “The exhibition showcases the work of the photographer, Mathew Brady, who produced many iconic images from the Civil War era.” This is correct form only if the photographer has already been referred to as such in a previous sentence without being named. Also, some publications precede an epithet describing a prominent person with the — as in “The exhibition showcases the work of the photographer Mathew Brady, who produced many iconic images from the Civil War era” — though the insertion is an unnecessary affection — but notice that the name is not set off by a pair of commas.) Many other examples of such evergreen errors exist, including words misspelled (definately in place of definitely), imperfectly rendered because they’re imperfectly heard (supposably substituting for supposedly), unnecessarily augmented (irregardless, whenregardless is sufficient), or faultily combined (alot instead of “a lot”). The persistent prevalence of these mutations is baffling, considering that the correct forms are found in any self-respecting publication. But the answer must lie in the explosion of email and texting, the proliferation of blogs and websites with less-than-rigorous editing, and the erosion of editorial quality in traditional print publications. The only defense against deterioration of grammar, syntax, usage, spelling, and punctuation standards is careful writing and careful editing with the assistance of good role models, knowledgeable editors, and reliable reference sources. Like the DailyWritingTips Facebook page if you haven't already done so!

Income tax case laws

T: Where assessee, a transport contractor, engaged outside trucks and made payment towards hire charges without deduction of tax at source, though assessee submitted Form Nos. 15-I and 15J to Commissioner belatedly, due credit be given to claim of assessee in terms of said forms

■■■

[2013] 36 taxmann.com 229 (Hyderabad - Trib.)

IN THE ITAT HYDERABAD BENCH 'B'

Associated Roadways (P.) Ltd.

v.

Deputy Commissioner of Income-tax, Circle-1(1)*

CHANDRA POOJARI, ACCOUNTANT MEMBER 
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER

IT APPEAL NO. 63 (HYD.) OF 2013
[ASSESSMENT YEAR 2009-10]

MAY  20, 2013 

Section 194C, read with section 40(a)(ia), of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payments to [Transporters] - Assessment year 2009-10 - Assessee, a transport contractor, for carrying out business also engaged outside trucks - It paid an amount of Rs. 3.94 crores as hire charges to lorry owners and claimed deduction of same - On said amount, assessee did not deduct tax at source on ground that lorry owners had undertaken to submit Form No. 15-I - It received from lorry owners Form No. 15-I to extent of Rs. 3.06 crores only and submitted same along with Form No. 15J to Commissioner belatedly on 7-2-2011 - Assessing Officer held that as Form Nos. 15-I and 15J were filed by assessee after prescribed date and payment towards hire charges was made without having Form No. 15-I, there was a default under section 194C - He also examined correctness of Form No. 15-I and having noticed that same was not responded by concerned person disallowed entire payment of hire charges by applying provisions of section 40(a)(ia) - Commissioner (Appeals) held that Form No. 15-I to extent of Rs. 3.06 crores was complete in all respects, but he did not accept same on ground that assessee did not file Form No. 15J within prescribed time - Whether filing of Form No. 15J belatedly could not be a reason to deny deduction claimed by assessee - Held, yes - Whether since Form No. 15-I was duly filled in, due credit be given to claim of assessee in terms of Form Nos. 15-I and 15J filed by it - Held, yes [Paras 22 and 24] [In favour of assessee]

FACTS

 

■		The assessee, a transport contractor, for carrying out business also engaged outside trucks. During the previous year relevant to the assessment year 2009-10, it paid an amount of Rs. 3.94 crores as hire charges to the lorry owners and claimed deduction of the same. On the said amount, the assessee did not deduct tax at source allegedly on the ground that the lorry owners had undertaken to submit Form No. 15-I. It received from the lorry owners Form No. 15-I to the extent of Rs. 3.06 crores only and submitted the same along with Form No. 15J to the Commissioner belatedly on 7-2-2011.
■		The Assessing Officer held that as Form Nos. 15-I and 15J were filed by the assessee only after the prescribed date and the payment towards hire charges was made without having Form No. 15-I, there was a default under section 194C. He also examined the correctness of Form No. 15-I and having noticed that same was not responded by concerned person disallowed the entire payment of hire charges by applying the provisions of section 40(a)(ia) and added the said amount to the income of the assessee.
■		On appeal, the Commissioner (Appeals) held that Form No. 15-I to the extent of Rs. 3.06 crores was complete in all respects, but he did not accept the same on the plea that the assessee did not file Form No. 15J within the prescribed time. He, therefore, confirmed the order of the Assessing Officer.
■		On second appeal:

HELD

 

■		Filing of Form No. 15J belatedly cannot be a reason to deny the deduction claimed by the assessee. If the said form is duly filled with basic details, the same should be considered, as filing of the said form is only procedural in nature. [Para 22]
■		Explanation III to sub-section (2) of section 194C is applicable to the assessment year under consideration, as the Explanation would be applicable prospectively from 1-7-1995, on which date it was introduced. In the instant case, the assessee made specific plea before the lower authorities that it has collected Form No. 15-I from the truck operators, but it could not produce the same before the Assessing Officer. However, the same was produced before the Commissioner. The fact of non-production of Form No. 15-I cannot be taken as default committed by the assessee and burdening the assessee for heavy taxable income. Since the assessee produced Form No. 15-I before the Commissioner and it was duly filled in, due credit be given. In the case of Valibhai Khanbhai Mankad v. Dy. CIT [2011] 46 SOT 469/12 taxmann.com 160 (Mum.), it was held that once the assessee has obtained Form No. 15-I from the sub-contractors, he is not liable to deduct TDS on the payment made to sub-contractors and no disallowance can be made under section 40(a)(ia). Belated furnishing of Form No. 15J to the Commissioner is an act of posterior in time to payments made to sub-contractors and, therefore, this cannot be itself undone the eligibility for exemption created in second proviso to section 194C(3) by virtue of submission of Form No. 15-I by sub-contractors. Accordingly, due credit be given to the claim of the assessee in terms of Form Nos. 15-I and 15J filed by it. [Para 24]

CASE REVIEW

 

Valibhai Khanbhai Mankad v. Dy. CIT [2011] 46 SOT 469/12 taxmann.com 160 (Ahd.) (para 24) followed.

CIT v. Poompuhar Shipping Corpn. Ltd. [2006] 282 ITR 3/153 Taxman 486 (Mad.) (para 24) distinguished.

CASES REFERRED TO

 

Valibhai Khanbhai Mankad v. Dy. CIT [2011] 46 SOT 469/12 taxmann.com. 160 (Ahd.) (para 4), Indian & Eastern Newspaper Societyv. CIT [1979] 119 ITR 996/2 Taxman 197 (SC) (para 7), CIT v. Steel Cast Corpn. [1977] 107 ITR 683 (Guj.) (para 7), Addl. CIT v.Chekka Ayyanna [1977] 106 ITR 313 (AP.) (para 7), CIT v. PVS Beedies (P.) Ltd. [1999] 237 ITR 13/103 Taxman 294 (SC) (para 8),CIT v. First Leasing Co. of India Ltd. [2000] 241 ITR 248/[2001] 118 Taxman 181 (Mad.) (para 8), CIT v. Poompuhar Shipping Corpn. Ltd. [2006] 282 ITR 3/153 Taxman 486 (Mad.) (para 11), CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 (SC) (para 12), Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677/91 Taxman 205 (SC) (para 12), Asstt. CIT v. Sri Sai Road Ways [IT Appeal Nos. 819 and 820 (Hyd.) of 2010, dated 30-11-2010] (para 16), ITO v. MGB Transport [2013] 35 taxmann.com 51 (Kol.) (para 17), ACI v.Mumbai Road Carriers [IT Appeal No. 800 (Mum.) of 2010, dated 30-9-2011] (para 18) and Shree Choudhary Transport Co. v. ITO[2010] 128 TTJ (Jodh.) 90 (para 24).

K.C. Devadas for the Appellant. Smt. Amish S. Gupt for the Respondent.

ORDER

 

Chandra Poojari, Accountant Member - This appeal preferred by the Assessee is directed against the order of the CIT(A)-II, Hyderabad dated 11/02/2012 for the assessment year 2009-10.

2. Ground No. 1 raised by the assessee in this appeal is pertaining to reopening of assessment u/s 147 read with section 148 of the IT Act. 2nd Ground is with regard to confirmation of disallowance of Rs. 3,94,28,546/- on the reason that the assessee has not obtained form 15-I and also had not filed Form No. 15-J, though provisions of section 40(a)(ia) are not applicable in the assessee's case.

3. Briefly the facts of the case are that the assessee company filed its return of income on 30/09/2009 declaring total income of Rs. 85,39,865/- for the AY 2009-10, which was processed u/s 143(1) of the IT Act. Subsequently, a notice u/s 148 was issued on 04/02/2011 and in response to this notice, the assessee filed a letter dated 12/03/2011 stating that the return of income already filed u/s 139(1) of the Act on 30/09/2009 may be treated as the one filed u/s 148 of the IT Act. The assessee is a transport contractor and received freight charges at Rs. 16.94 crores and on this the assessee declared income of Rs. 85.39 lakhs. For carrying out this business, the assessee owned trucks and also engaged outside trucks for which an amount of Rs. 13.89 crores was debited as hire charges and the same was claimed. The AO noted that in the tax audit report in Form No. 3CD, the tax auditor has made the following observations:

"The assessee has also incurred a total amount of Rs. 3,94,28,546/- as lorry freight payment to drivers who had undertaken to submit Form 15-I. However, on verification, it is observed that Form 15-1 was received to the extent of Rs. 3, 06, 79,523/- only, out of which in some cases, aggregating to Rs. 16, 76, 700/- the form is incomplete. In other cases wherever: TDS liability was there, the assessee has deducted tax at source and paid to the Government. In all cases where Form 15-I has been received by the Company, it has not filed the prescribed form 15-J to the Department.

As per provisions of Sec. 194-C of the Act, wherever the hire charges exceeds Rs. 50,000/- per party, the assessee was under obligation to deduct tax at source. However as observed by the tax auditor in Form 3CD, on an amount of Rs. 3,94,28,546/-, the assessee did not deduct tax at source allegedly on the ground that the lorry owners had undertaken to submit Form 15-I. The tax auditor further observed that the assessee had received Form15-1 to the extent of Rs. 3,06,79,523/- only out of which in some cases, aggregating into Rs. 16,76,700/- the forms are incomplete/defective. From the observation of the Tax auditor, it is clear that the assessee has not obtained form 15-1 before actual time of payment. In fact there is no evidence of obtaining the same even before the closure of accounting year. As per IT Rule 290, the assessee was under obligation to submit the Form 15-1 received by him along with Form 15-J to the Commissioner of Income Tax before 30th June of the following year, which in this case happens to be 30.6.2007. However, it is noticed that the assessee has not submitted the same to the CIT within the prescribed time limit or at least before the due date for filing of the return of income as required under the Law. The assessee submitted a bunch of copies of Forms 15-1 and Form 15-J to the CIT on 7-2-2011 only. It is relevant to note that the assessee had submitted the copies of Form 15-1 only after receipt of notice u/s148 of the Act. Since the due date fixed under the rules was 30.6.2007, the assessee should have filed the same before that date. Hence, in the eyes of law, there was no valid Form 15-I or Form 15-J."

4. When the assessee was questioned on the above report of the auditor, it was stated by the assessee that it was only a procedural lapse and it does not distinct the assessee to claim exemption as per the second proviso to section 194C(d) of the IT Act. For this proposition, the assessee relied on the decision of the ITAT, Ahmadabad in the case of Valibhai Khanbhai Mankad v. Dy. CIT [2011] 46 SOT 469/12 taxmann.com. 160. The AO did not agree with the contention of the assessee and held that it is not a mere procedural mistake as the assessee paid the hire charges without having a declaration in Form 15-I from the parties and thereafter the assessee has to file Form No. 15-J within the prescribed time limit before the concerned authorities. As the said forms were filed only after receipt of notice u/s 148 and the payments towards hire charges were made without having Form No. 15-I, there was a default u/s 194C of the IT Act, therefore, the AO disallowed the payment of hire charges to the extent of Rs. 3,94,28,546/- while passing assessment order u/s 143(3) read with section 148 of the IT Act. However, the AO was observed that out of Rs. 3,94,28,546/- the assessee had furnished 15-I form to the extent of Rs. 3,06,79,523/- and no Form 15-I filed remaining balance amount of Rs. 87,49,023/-, which warrants disallowance u/s 40(a)(ia) of the Act. Therefore, the AO disallowed an amount of Rs. 87,49,023/- u/s 87,49,023/-. In the course of the assessment, the AO also wanted to examine the correctness of the Form No. 15-I and sent letters to the parties named in the Form No. 15-I to the stated addresses. All the letters have returned by the postal department with remarks such as 'no such person', 'in sufficient address', 'unclaimed', 'incorrect address', etc. When it was put to the assessee, it was contended that in the business of transportation the lorries are purchased and sold frequently and it was quite possible that the person who transported goods may not be the owner of the lorry after some time and in such circumstances the confirmation from such lorry owners is practically impossible. Being so, it was not delivered to the concerned person to whom the letters were sent. Accordingly, the AO made the disallowance to the tune of Rs. 3,94,28,546/-.

5. Aggrieved, the assessee carried the matter in appeal before the CIT(A), who confirmed the order of the AO.

6. Still aggrieved, the assessee is in appeal before us.

7. The learned counsel for the assessee before us submitted that though the assessee raised ground No. 1 relating to the reopening of assessment u/s 147/148 before the CIT(A), this ground was not adjudicated by the CIT(A), as such, this ground may be adjudicated by this Tribunal. The learned counsel relied on the decision in the case of Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996/2 Taxman 197 (SC) wherein it was held that opinion of the internal audit party on a point of law does not constitute 'information' for the purpose of section 147(b) of the IT Act, being so, reopening on that reason is bad in law. He also submitted that the assessee raised a ground before the CIT(A) regarding the issue of reopening, but, the CIT(A) failed to adjudicate the same, therefore, it should be inferred that the CIT(A) duly considered the ground and dismissed the same. For this proposition, the learned AR relied upon the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Steel Cast Corpn. [1977] 107 ITR 683 and also the judgment of the Hon'ble AP High Court in the case of Addl. CIT v. Chekka Ayyanna [1977] 106 ITR 313.

8. On the other hand, the learned DR submitted that assessment was reopened due to audit objection. The learned DR relied upon the judgment of the Hon'ble Supreme Court in the case of CIT v. PVS Beedies (P.) Ltd. [1999] 237 ITR 13/103 Taxman 294. He also relied on the judgment of the Madras High Court in the case of CIT v. First Leasing Co. of India Ltd. [2000] 241 ITR 248/[2001] 118 Taxman 181.

9. We have heard both the parties on this issue. This ground was raised by the assessee before the CIT(A) as ground No. 1, which reads as follows:

"1. The order passed by the Hon'ble AO u/s 143(3) r.w.s. 47 of the Income-tax Act, 1961 for the assessment year 2009-10 is bad in law, contrary to the facts and circumstances of the case."

10. The CIT(A) had not at all adjudicated the said ground and decided the appeal on merits. Being so, it is proper to remit this reopening issue to the file of CIT(A) after considering the argument advanced by the parties. This ground is allowed for statistical purposes.

11. Coming to the merits of the issue raised, the learned counsel for the assessee submitted that provisions of section 194C(2) are not applicable to the assessee's case as the assessee took the vehicles on hire charges, therefore, the provisions of section 194C(2) do not attract to the case of the assessee. The provisions of section 194C are applicable to payments for carrying out any work, man power is the sine-qua-non and without manpower, it cannot be said that work has been carried out. U/s 194C of the Act 'carrying out any work' is the substance for making payment a payment relating to such work, liable for deduction of tax at source. The provisions of section 194C are attracted only where any sum is paid for carrying out any work including supply of labour for carrying out any work. According to the learned counsel, in the present case, the assessee only hired trucks for temporary period without manpower as there is no carrying out of any work cannot amount to carrying out of any work. He relied on the judgment of the Madras High Court in the case of CIT v.Poompuhar Shipping Corpn. Ltd. [2006] 282 ITR 3/153 Taxman 486 wherein it was held that hiring of ships for the purpose of using them in the assessee's business did not amount to a contract for carrying out any work as contemplated in s. 194C of the Act. As per the Explanation III to s. 194C of the Act, 'work' shall also include carrying out of goods or passengers by any mode of transportation other than railways. The learned AR submitted that in the case under consideration the assessee made payments for hiring of trucks and the assessee had taken temporary possession of the trucks, which does not fall in the provisions of section 194C and there is no question of deduction of TDS. He also submitted that there was an amendment to section 194-C(6) by the Finance Act, 2009 with effect from 01/10/2009 whereby, sub-section (6) to 194C has been introduced, which is as follows:

"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"

12. The learned AR submitted that this section would be considered as retrospective effect in view of the judgment of the Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 wherein it was held that "omission of second proviso to section 43B and the amendment of first proviso by Finance Act, 2003, bringing about uniformity in payment of tax, duty, cess and fee on one hand and contributions to employees welfare funds on the other are curative in nature and thus effective retrospectively with effect from 1988, i.e. the date of insertion of proviso." Further, the learned AR relied upon the decision of Hon'ble Supreme Court in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677/91 Taxman 205.

13. Without prejudice to the above, the learned AR submitted that non-filing of Form No. 15-I is not fatal and if the assessee is able to file the same before the authorities by the time of assessment, which could be considered as due compliance of the IT Act. It is submitted that the assessee has duly filed these form 15-I before the AO and the CIT(A) and even after filing the said form finding errors, which are not material and form No. 15-J has to be accepted. It is submitted that what are the information required to grant relief to the assessee are very much available in the forms and the assessee's case to be considered for allowing of deduction claimed by the assessee.

14. The learned AR submitted that as soon as the assessee is in possession of the form No. 15-I received from the truck owners, the assessee not required to deduct tax from such payments. Once deductibility of tax depends upon submission or non-submission of Form 15-I from the truck owners to the assessee, then non compliance of third proviso becomes merely technical without affecting in substance the deductibility or non-deductibility of tax on payments made by the assessee to the truck owners. Therefore, non compliance of third proviso becomes merely a technical default, which even if, remained non complied would not affect the operation of section 40(a)(ia) of the Act.

15. According to the learned AR non-filing of form 15-J before the AO is only a procedural lapse and in no way take into eligibility of exemption to the assessee, which is provided in second proviso to section 194C(3) of the IT Act. For this purpose, he relied on the decision of the Ahmedabad Bench in the case of Valibhai Khanbhai Mankad (supra). Further, the learned AR submitted that as per the second proviso to section 194C(3) as applicable during the relevant AY, no deduction was required to be made for any paid amount paid to sub-contractor during the course of business of plying, hiring, leasing goods carriage, in case the sub-contractor makes a declaration in the prescribed form No. 15-I. According to the learned AR, the assessee made payments to lorry owners by not deducting tax at source since the assessee had collected declaration from the truck owners to whom the payments has been made in form No. 15-I. According to the learned AR, Form No. 15-I is a self-declaration from the truck owners and that information given in the declaration to be considered as complete and correct and the assessee has in no way required to verify the genuineness of the Form No. 15-I. If the assessee is in possession of Form No. 15-I, there is no necessity of deduction of TDS from the same.

16. The learned AR relied on the para 6 of the judgment of coordinate bench in the case of Asstt. CIT v. Sri Sai Road Ways in ITA Nos. 819 & 820/Hyd/2010 for AY 2005-06 dated 30/11/2010, which reads as under:

"6. We have considered the rival submissions and perused the material available on record. We find that in a sub contract, a prudent contractor would include all the liability clauses in the agreement entered into by him with the sub contractor. The assessee has also claimed before the tax authorities that the responsibility in the whole process lies with it only. Though the passing of liability is not the only criteria to decide about the existence of sub contract, yet this contention of the assessee read with the liability clauses of the work supports its submission that the individual vehicle owners are simple hirers of the vehicles. We find that the CIT(A) is correct in holding that in the instant case, there is no material to suggest that the other lorry owners involved themselves in carrying out any part of the work undertaken by the assessee by spending their time, energy and by taking the risks associated with the main contract work and the payment made to the lorry owners stands at par with the payments made towards salaries, rent, etc. We find that the reasoning of the assessing officer to hold that the payment made for hired vehicles is a sub contract payment is not correct and not based on relevant consideration and hence it cannot be said that the payments made for hired vehicles would fall in the category of payment towards sub contract with the lorry owners. In that case the assessee is not liable to deduct tax at source as per the provisions of section 194C (2) of the Act and consequently the provisions of section 40(a)(ia) shall not apply to such payments. After considering the facts and the circumstances of the case, we are of the opinion that the first appellate authority is perfectly justified in deleting the addition of Rs.10,42,038 made under section 40(a)(ia) of the Act by the assessing officer. Therefore, we are not inclined to accept the contentions of the learned Departmental Representative on this issue and uphold his finding. In view of the above, the ground raised by the revenue is dismissed."

17. He further relied on the order of ITAT, Kolkata in the case of ITO v. MGB Transport [2013] 35 taxmann.com 51 wherein it was held as follows:

'3. We have heard rival contentions and gone through the facts and circumstances of the case. At the outset it is seen that assessee has paid Dumper hire charges amounting to Rs. 36,37,815/- to ten different parties. According to the AO, no TDS has been deducted on these payments, thought these were contractual/sub-contractual payment in nature under section 194C of the Act. According to AO since there is default in not deducting TDS, the payments made attract provisions of section 40(a)(ia) of the Act. The assessee could not explain before AO as to why TDS was not deducted the AO made the disallowance. Aggrieved, the assessee preferred appeal before the CIT(A). CIT(A) deleted the disallowance by following the decision of ITAT, 'A' Bench, Kolkata in the case of M/s Samanwaya in ITA No. 484/Kol./2008 dated 23/04/2009 by stating that there was no contractual agreement between the assessee and the Dumper owners as noted by the AO in the remand report. We find that this issue is covered against the assessee by the decision of the Hon'ble Karnataka High Court in the case of Smt. J. Rama v. CIT [2010] 236 CTR (Kar.) 105, wherein it is held that 'law does not stipulate the existence of a written contract as a condition precedent for invoking the provisions of section 194C of the Act with respect to payment of TDS'. Hon'ble Karnataka High Court concluded as under:

"In order to provide vehicles to a customer as per agreement, assessee used to hire vehicles from others and hiring of vehicles by the assessee is in the nature of transport contract and hence, the disallowance under section 40(a)(ia) was justified when no tax was deducted at source from payments made to those persons"

Further following Smt. J. Rama's case of Hon'ble Karnataka High Court (supra), we have taken a decision dated 17/02/2012 of ITAT, Kolkata Bench in ITA No. 199/Kol/2010 in the case of DCIT, Circle - 9 v. Kamal Mukherjee & Co. (Shipping) (P) Ltd. wherein it is held as under:

From Head Notes

…..Undoubtedly these decisions do indicate that there is a workman employer relationship between the dock workers and the stevedores like assessee when they employ those workers, but be that as it may, the fact remains that the assessee has made payments to the CDLB for supply of labour, even when this labour may be treated as employed by the assessee for all practical purposes, the provisions of section 194C are clearly attracted. In such a situation, i.e. when labour hired by the assessee through CDLB is considered to be in assessee's employment, the payments made to CDLB cannot be treated as payments for any work, but nevertheless these payments could still be covered by the provisions of section 194C because these are payments made for supply of labour which are specifically covered by section 194C(1). CDLB is an agent of the stevedores like the assessee in the sense that the labour is recruited by the assessee through CDLB, but when this fact does not affect the nature of payment by the assessee to the CDLB which is admittedly in the nature of payment for supply of labour. The reasoning adopted by the Commissioner (Appeal), though somewhat impressive at first glance, is fallacious. There is no cause and effect relationship between workers assigned by the CDLB having employer workman relationship with the assessee and the payments being made by the assessee to CDLB being not in the nature of payment for supply of labour."

4. Since the facts and circumstances are exactly identical, what was before us in Kamal Mukherjee & Co. (Shipping) P. Ltd. (supra) and also that in the case of Smt. J Rama of Hon'ble Karnataka High Court (supra), respectfully following the same, we are of the view that even oral contract is sufficient and admittedly the assessee has taken dumpers on hire and he has paid charges for the same. Respectfully following the same, we confirm the disallowance made by the AO and reverse the order of CIT(A). However, as regard to alternative arguments made by ld. Counsel for the assessee regarding applicability of the decision of ITAT, Special Bench, Visakhapatnam in the case of Merilyn Shipping & Transports v. Add. CIT (Visakhapatnam) (SB) reported in [2012] 136 ITD 23 (SB)wherein it is held that the disallowance will be restricted to the amount payable at the end of the year and not on the amount already paid during the relevant year. Ld. Counsel for the assessee before us stated that this payment was made within the due date and nothing remains payable and he relied on the decision of Special Bench of this Tribunal in the case of Merilyn Shipping & Transports v. Addl. CIT (Visakhapatnam) (SB) reported in (2012) 136 ITD 23 (SB), wherein it is held that the TDS is to be deducted only in relation to payments which remains payable at the end of the year i.e. 31st March of the relevant financial year. It was pointed out to Ld. counsel that the operation of the order of Special Bench of this Tribunal in the case of Merilyn Shipping & Transports (Supra), is stayed by Hon'ble Andhra Pradesh High Court in I.T.T.A.M.P. No.908 of 2012 in I.T.T.A. No.384 of 2012 wherein Hon'ble High Court observed, "Interim suspension. Notice." Vide dated 8th October, 2012.

5. On this, the Ld. counsel for the assessee argued that effect of the order staying a pending appeal before any High Court does not amount to any declaration of law but is only binding upon the parties to that proceedings and such interim order does not destroy the binding effect of the principals as laid down in the order as a precedent because the interim order had no occasion to lay down any proposition of law. For this proposition, he relied on the case law of Hon'ble Calcutta High Court in the case of Pijush Kanti Chowdhury v. State of West Bengal & Ors (2007) 2 CALLT 577 dated 14th May, 2007 wherein, at para 10 and 13, it has been held as under:

"10. After hearing the learned counsel for the parties and after going through the aforesaid provision we find that the Supreme Court by those interim orders has no doubt stayed the operation of the order of the Division Bench of this court by directing the parties to maintain status quo and at the same time, even restrained the State from inducting third parties on the lands which were the subject-matters before the Apex Court. Such interim order is binding upon the parties to the proceedings but the law is equally settled that by mere passing of an interim order staying the operation of a judgment with certain further conditions, the existence of the said judgment is not wiped out and at the same time, for such interim orders inter parties, the authority of a decision as a precedent is never undermined. Unless a decision is set aside by the Superior Court, the said decision remains binding as a precedent though may not be binding upon the parties to the proceedings where the Superior Court has granted interim order. Moreover, once a provision has been declared ultra vires the Constitution of India, the State cannot invoke the said ultra vires proceeding against the citizens of the country simply because an interim order of stay of operation order declaring the provision as ultra vires has been passed in an appeal against such order. The object of granting interim order is to see that the relief claimed in the appeal may not become inappropriate or the appeal does not become infructuous for not granting such interim order; but by mere grant of interim stay, the effect of a binding precedent is not destabilized. Over and above, the interim orders of the stay granted by the Supreme Court clearly indicate that the said Court never intended that notwithstanding the decision of the High Court declaring a part of the provisions of vesting as ultra vires the State would nevertheless be free to proceed with the process of vesting during the pendency the proceedings before the Supreme Court and that is why status quo as regards possession has been maintained and even, the State has been restrained from creating any third party interest in the lands in question.

13. Therefore, the effect of the order of stay in a pending appeal before the Apex Court does not amount to any declaration of law but is only binding upon the parties to the said proceedings and at the same time, such interim order does not destroy the binding effect of the judgment of the High Court as a precedent because while granting the interim order, the Apex Court had no occasion to lay down any proposition of law inconsistent with the one declared by the High Court which is impugned."

6. Even, Hon'ble Supreme Court in the case Shree Chamund Mopeds Ltd. v. Church of South India Trust Association, Madras, AIR 1992 SC 1439, 1444 has analysed the difference between "stay of operation" of an order and "quashing" of an order" and held that 'stay of order' of an appellate authority / court by a higher court means that the order passed by the appellate authority / lower court still continues to exist in law inspite of the 'stay' and its existence is not destroyed. But where the order of the appellate / lower court is quashed and the matter is remanded back, it means that the appeal disposed of by the said order of the appellate authority/lower court would be restored and it can be said to be pending before the said authority/lower court.

7. In view of the above, particularly the decision of the Hon'ble Jurisdictional High court in the case of Pijush Kanti Chowdhury(supra), as also in obedience to decision of the Hon'ble Supreme Court in the case of Shree Chamund Mopeds Ltd. (supra), we are of the view that the decision of the special bench of this tribunal in the case of Merilyn Shipping & Transports (supra) still holds ground and accordingly, TDS provisions will apply, for the purpose of invocation of the provisions of section 40(a)(ia) of the Act, only on the amounts remained payable at the end of financial year and not on the paid amounts. Hence, we direct the AO to recompute the disallowance accordingly. Appeal of assessee is partly allowed for statistical purposes.'

18. The learned AR further relied on the order of Mumbai Bench of ITAT in the case of ACI v. Mumbai Road Carriers in ITA No. 800/Mum/2010 for AY 2006-07 dated 30/09/2011.

19. The learned DR, on the other hand, relied upon the orders of the authorities below.

20. We have heard both the parties and perused the record. In this case, the assessee collected Form 15-I from the parties as follows:

"The learned CIT(A), Hyderabad failed to note that the sum of Rs. 3,94,28,546 comprised of:

	(i) Form - 15-I obtained but from 15-J not filed before CIT	- 2,90,02,826
	(ii) Not obtaining of form 15-I	- 87,49,029
	(iii) Defective form 15-I obtained	- 16,76,700
	Total	- 3,94,28,546"

21. Since the genuineness of the payment itself was at stake, the CIT(A) asked the AO to examine the issue as to the genuineness of the transaction and to submit a detailed remand report. The AO submitted his remand report vide letter dt. 29/11/2012, which was extracted by the CIT(A) in his order at pages 5 to 6 is reproduced as under:

"As directed by the CIT(A), enquiries were caused by me through the ITI. During the asst. proceedings, an amount of Rs. 3,94,28, 5461- was added to income returned uls 40(a)(ia) of the Act, as the Form 15-1 produced at the time of assessment, which was obtained from the owners of the trucks, by the assessee are defective and confirmation letters sent to the truck owners, were unserved or no replies were received.

I have verified the expenditure with regard to Form 15-J and Form 15-1. The assessee company is using specialized computer package for the transport companies called F-CUBE for recording receipts and expenditure with the details of consignment. Consignee, consignor, from and to, paid/to pay consignment and details of Lorry Receipts, Debit vouchers, Transport Challans and bills. Some of the transactions were verified randomly with the entries made in the computer package and found to tally with copies of Lorry Receipts, Debit Vouchers, Transport Challans, bills and the details of advance given, balance to be paid to the truck owners. Other expenditure incurred also was verified. Obtained copies of Debit Vouchers, Lorry Receipts, Transport Challans (containing details quantity transported; contents, loading and unloading points, lorry numbers, the freight charged; advance received, drivers name and signature etc.) and bills for 'paid consignment" and Money receipts for "to pay consignment" randomly and found no discrepancy.

When questioned about defective From 15-1, assessee replied that most of the drivers were uneducated and they doesn't know how to fill the form. Assessee was asked to produce some of the truck owners from where confirmation letters were returned back unserved or no confirmations were received. He has produced the following four truck owners form whom statement was recorded and obtained copies of certificate of registration of the truck, PAN card as identity proof and confirmation for the amount received towards hire charges from the assessee.

	S.No.	Name and address of truck owner	Truck No.	Amount received towards hire charges (Rs.)	Remarks
	1.	K.K. Kemagullaiah 3017/43,5th Main Road, 2nd block, Nandini layout, Bangalore-96	1.KA01A8723 2.KA01 B2261	2,24,500/- 1,73,200/-
	2.	N.V. V.R. Satyanarayana 3-8, Pushpaleela Nagar, Thangellamudi (Post) Chintallapudi Road, Eluru-534005	AP37Y4321	1,55,400/-
	3.	V Thirupathaiah 1-Julapally Village, 49/A, Thallakondapally-Mdl, Kalvakurthy-TO, Mahaboobnagar Dist.	AP12U8374	2,23,312/-
	4.	Syed Ahmed 17 -1-137/2B, Rain Bazar, Yakuthpura, Hyderabad	AP10T3068 Ap3otaa07	2,51,100

Sri K. K. Kempagullaiah, in whose case the letter was returned unserved, was asked as to why he did not accept the letter. In reply he stated that, while working in a transport firm, he purchased two trucks for which collateral surety was given by his employer and the employer's address was shown/stated in the RC book issued by Transport department. Subsequently, on closure of business by his employer, Sri K.K. Kempagullaiah was operating on is own from his residence. Hence he could not receive the letter. The address originally given at the time of registration was not the communication address of the self. Hence, the confirmation letters were not claimed by the address.

As the assessee company is maintaining every record with regard to receipts and expenditure on hire charges paid to the truck owners along with the details of debit vouchers, lorry receipts, Transport challans, Money receipts and bills, the expenditure incurred by the assessee-company in lorry hire charges can be said to be genuine and may be allowed.

Randomly obtained Xerox copies of Debit Vouchers, Lorry Receipts, Transport Challan, Bills raised by assessee-company are submitted herewith for kind perusal of the CIT(A)-I/, Hyderabad."

22. After going through the report, the CIT(A) observed that though the assessee received form 15-I to the extent of Rs. 3,06,79,523/-, which is complete in all respects not ready to accept the same as the assessee did not file Form No. 15-J and the same was filed belatedly on 07/03/2011. In our opinion, filing of the form 15-J belatedly cannot be a reason to deny the deduction claimed by the assessee. If these forms are duly filled with basic details, such as, full address, PAN, Father's Name, if assessed to tax and the Jurisdiction, Date & place of verification, and the same should be considered as filing of these forms only procedural in nature.

23. Coming to the other arguments of the assessee's counsel that provisions of section 194C is not applicable in view of the judgment of the Madras High Court in the case of CIT v. Poompuhar Shipping Corpn. Ltd. [2006] 282 ITR 3/153 Taxman 486, we have carefully gone through the Explanation III to sub-section (3)(c) to section 194C, which reads as follows:

"For the purpose of this section, the expression 'work' shall also include-

(a) to (b)**

**

**

(c) carriage of goods and passengers by any mode of transport other than by railways."

24. Being so, the above judgment of the Madras High Court cannot be applied. In our opinion, Explanation III to section 194C being applicable to the assessment year under consideration as the Explanation would be applicable prospectively from 01/07/1995, on which date it was introduced. In the present case, admittedly, the assessee made specific plea before the revenue authorities that assessee has collected form 15-I from the truck operators but he could not produce them before the AO, however, the same was produced before the CIT. The fact of non-production of Form 15-I cannot be taken as default committed by the assessee and burdening the assessee for heavy taxable income. Since the assessee produced Form 15-I before the CIT and it was duly filled in, therefore, due credit to be given. For this proposition, reliance is placed on the decision in the case of Shree Choudhary Transport Co. v. ITO [2010] 128 TTJ (Jodh.) 90. In the case of Valibhai Khanbhai Mankad (supra) it was held that once the assessee has obtained form No. 15-I from the sub-contractors, he is not liable to deduct TDS on the payment made to sub-contractors and no disallowance can be made u/s 40(a)(ia); belated furnishing of Form No. 15-J to the CIT is an act of posterior in time to payments made to sub-contractors and, therefore, this cannot be itself undone the eligibility for exemption created in second proviso to section 194C(3)(1) by virtue of submission of form 15-I by sub-contractors. Accordingly, we are of the opinion that due credit be given to the claim of the assessee in terms of form 15-I and 15-J filed by the assessee.

25. Even otherwise, in our opinion, the provisions of section 194C(6) is applicable to the assessee's case and this section has to be considered retrospectively in view of the judgment of the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra). This ground of the appeal is allowed.

26. In the result, appeal of the assessee is partly allowed.

IT : No depreciation can be allowed on machinery which has been used by assessee's sister concern for its business purpose

IT : Assessee cannot be compelled to value stock at cost price if market value of stock is less

■■■

[2013] 36 taxmann.com 111 (Mumbai - Trib.)

IN THE ITAT MUMBAI BENCH 'D'

Defiance Clothing Company

v.

Assistant Commissioner of Income-tax, Circle 18(2), Mumbai*

R.S. SYAL, ACCOUNTANT MEMBER 
AND SANJAY GARG, JUDICIAL MEMBER

IT APPEAL NO. 6742 (MUM.) OF 2010
[ASSESSMENT YEAR 2007-08]

JUNE  26, 2013 

I. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of [User of asset] - Assessment year 2007-08 - Whether an assessee is entitled to depreciation, in scheme of block of assets, on 'actual' or 'deemed user' - Held, yes - Assessee claimed depreciation on machinery, which was installed at business premises of its sister concern and was actually used by that concern for its own business purpose - Whether it was not a case of assessee having 'actually used' or 'deemed to have used' such asset for its business purpose and, therefore, assessee was not entitled to depreciation on machinery in question - Held, yes [Paras 6 & 7] [In favour of revenue]

II. Section 145 of the Income-tax Act, 1961 - Method of accounting - Valuation of stock [Defective stock] - Assessment year 2007-08 - Whether when assessee is following 'Cost or market price whichever is less' as method for valuation, then assessee cannot be compelled to value such stock at cost price, if market value of such stock is less - Held, yes - Whether where assessee claims that market value of closing stock is less than cost price, then burden is on him to prove so, and such a burden can be discharged either by substantiating such value with report of some approved valuer, or by showing that such stock was subsequently sold at a price close to such declared value - Held, yes - Assessee valued some items of stock at Rs. 8.33 per piece though cost per piece was Rs. 15 - Assessing Officer valued stock at Rs. 15 per piece and made addition - In appeal, assessee placed on record certain sale bills issued in succeeding year to show that defective stock of current year fetched a price much less than Rs. 8.33 per piece - Whether matter was to be remanded to Assessing Officer to verify assessee's contention - Held, yes [Para 11] [Matter remanded]

FACTS-I

 

■		The assessee claimed depreciation on machinery which, though purchased by it, was installed in premises of its sister concern and was actually used by that concern for its business purpose.
■		The Assessing Officer rejected the assessee's claim by holding that machinery was not used by the assessee for its business purpose but was utilized by its sister concern, for which the assessee did not get either rent or any sort of benefit.
■		On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.

HELD-I

 

■		There is no dispute on the fact that the assessee purchased this machinery in the preceding year and recorded it in its books of account. Equally, there is no disagreement on the fact that such machinery was installed ab initio at the business premise of assessee's sister concern, for the business purpose of the sister concern. It is not a case that the machinery was simply installed at some other location but was utilized by the assessee for its business purpose. Under such circumstances, the question arises as to whether the assessee is lawfully entitled to depreciation allowance. [Para 4]
■		It is a trite law that once an asset falling in a particular block is purchased by the assessee and put to use for its business purpose, then depreciation has to be allowed. In the scheme of block of assets, depreciation is allowed irrespective of the fact whether or not a particular asset forming part of a block is distinctly used. The rationale of allowing depreciation in a case of non-user of a particular asset is that the otherwise user of such asset forming part of the block, is not jeopardized in any manner to the assessee. Where an asset is 'actually used' by the assessee for its business purpose, it gives entitlement to depreciation, but if an asset is not actually used but is available for use, it amounts to 'deemed user' in the scheme of block of assets. An asset can be said to be 'deemed to have been used' in contrast to 'actually used' when it is acquired by the assessee for its business purpose but is not actually used for lack of requirement or otherwise, coupled with the fact that such asset remains at its disposal for actual user as and when required. It, therefore, follows that an assessee is entitled to depreciation, in the scheme of block of assets, on 'actual' or 'deemed user'. This position should be seen in contradistinction to a position in which an asset is not only not utilized by the assessee for its business purpose but is acquired for some third party and is also so used. A line of distinction needs to be drawn between a case in which an asset is acquired by the assessee for its business purpose and a case in which such asset is acquired by the assessee for a different entity for the business purpose of such entity. Whereas in the first situation, depreciation is to be allowed whether or not the asset is actually used, but there can be no question of allowing any depreciation in the second situation. Section 32 entitles an assessee to depreciation on the satisfaction of twin conditions. The first is that the asset should be owned by the assessee and the second is that it should be used for the business purpose. An assessee cannot claim depreciation by reason of mere acquisition of an asset. The second condition of section 32, being the 'user' of asset -whether 'actual' on one hand or 'deemed' on the other, in such a case would be wanting. That being the position, there can be no question of granting any depreciation in such a case. [Para 6]
■		Adverting to the facts of the instant case, it is seen that the assessee purchased the asset but installed it at the premises of its sister-concern, which was utilized by the sister concern for its own business purpose. There is no benefit which the assessee derived from its sister concern as a quid pro quo for allowing the user of such asset. The mere fact that the assessee utilized its funds or obtained a loan in its own name for acquiring the asset and also showed it in its books of account, would not change the consequence of the non-granting of depreciation in any manner when the essential fact prevails that the asset was, in fact, utilized by the sister concern for its own business purpose. As it is not a case of the assessee having 'actually used' or 'deemed to have used' such asset for its business purpose, there can be no scope for allowing depreciation to the assessee on such asset. [Para 7]

FACTS-II

 

■		The assessee valued stock of undergarments at Rs. 8.33 per piece though cost per piece was Rs. 15.
■		When the assessee was called upon to explain this, it stated that market value of such defective stock was not more than that shown.
■		The Assessing Officer rejected the assessee's contention and valued the stock at Rs. 15 per piece and thereby making certain addition.
■		On appeal, the Commissioner (Appeals) upheld the assessment order.
■		On second appeal:

HELD-II

 

■		The assessee was following 'Cost or market price, whichever is less' as the method of its stock valuation. Under such a method, it is the market price of the stock, which is taken into consideration, if the same is less than the cost price. But where the assessee claims that the market value of closing stock is less than the cost price, then burden is on him to prove so. Such a burden can be discharged either by substantiating such value with the report of some approved valuer, or in some other reasonable but reliable manner. It can be possibly done by showing that such stock was subsequently sold at a price close to such declared value. [Para 10]
■		In the instant case the assessee had total stock worth Rs. 2.36 crore, of which only Rs. 9.60 lakh was claimed as defective stock valued at below the cost price. The valuation of the good stock has been accepted by the Assessing Officer. The assessee placed on record certain sale bills issued in the succeeding year to show that the defective stock of the current year fetched a price much less than Rs. 8.33 per piece. On a pertinent query, it was conceded that such invoices showing the sale of defective goods at a lower price in succeeding year were not placed before the AO. In principle, when the assessee is following 'Cost or market price whichever is less' as method for valuation, then the assessee cannot be compelled to value such stock at the cost price, if the market value of such stock is less. In such circumstances, it is the market value which is required to be considered for determining the overall profit. Under these circumstances, it would be in the fitness of things, if the impugned order on this issue is set aside and the matter is remitted back to the file of the Assessing Officer to verify the assessee's contention of such stock having been sold at a price less than Rs. 8.33 per piece in the subsequent year. If this contention turns out to be correct, then there can be no question of sustaining any addition in this regard. In the otherwise circumstance, the Assessing Officer is obliged to decide the issue as per law after allowing a reasonable opportunity of being heard to the assessee. [Para 11]
■		In the result, the appeal is partly allowed for statistical purposes. [Para 12]

CASES REFERRED TO

 

E-City Entertainment (India) (P.) Ltd. v. Addl. CIT [IT Appeal No. 1382 (Mum.) of 2012, dated 26-3-2013] (para 5) and Punjab Bone Mills v. CIT [IT Appeal No. 596 of 2007, dated 10-7-2008] (para 5).

Sanjiv M. Shah for the Appellant. O.P. Meena for the Respondent.

ORDER

 

R.S. Syal, Accountant Member - This appeal by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals) on 30-07-2010 in relation to the assessment year 2007-2008.

2. The first ground is against the confirmation of denial of depreciation amounting to Rs. 47,16,988 on the plant and machinery.

3. Briefly stated the facts of the ground are that the assessee claimed depreciation totaling Rs. 81,82,786 on various assets including depreciation amounting to Rs. 47,16,998 on the machinery which was used by its sister concern, viz., M/s Defiance Knitting Industries Private Limited (DKIPL). This machinery was purchased by the assessee in the preceding year and the same was installed at the factory premises of DKIPL, which was actually used by the said sister-concern. The assessee was called upon to explain as to why the depreciation on such machinery be not disallowed as it was not utilized by it but the sister-concern. The assessee submitted that it was operating from rented premises and due to paucity of space, the machinery was installed at the business premises of DKIPL, which was located at a different place. The assessee claimed that it was a pure business decision and hence the allowance could not be denied. Not convinced with the assessee's submissions, the Assessing Officer rejected the assessee's claim by holding that the machinery was not used by the assessee for its business purpose but was utilized by DKIPL, for which the assessee did not get either rent or any sort of benefit. The learned CIT(A) echoed the action of the Assessing Officer on this score.

4. We have heard the rival submissions and perused the relevant material on record. There is no dispute on the fact that the assessee purchased this machinery in the preceding year and recorded it in its books of account. Equally, there is no disagreement on the fact that such machinery was installed ab initio at the business premise of DKIPL, for the business purpose of the sister-concern. It is not a case that the machinery was simply installed at some other location but was utilized by the assessee for its business purpose. Under such circumstances, the question arises as to whether the assessee is lawfully entitled to depreciation allowance.

5. In support of the entitlement to the depreciation, the learned AR relied on certain decisions to accentuate that once the machinery has entered into block of assets, then there can be no denial of depreciation under any circumstance. His main emphasis was on the order dated 26-3-2013 passed by the Mumbai Bench of the Tribunal in E-City Entertainment (India) (P.) Ltd v. Addl. CIT [ITA No. 1382/Mum/2012] entitling the assessee to depreciation on an asset forming part of block of asset notwithstanding the fact that it was not put to use during the relevant financial year. Per contra, the learned Departmental Representative relied on the judgment dated 10-07-2008 of the Hon'ble Punjab & Haryana High Court in Punjab Bone Mills v. CIT [ITA No. 596 of 2007], a copy of which has also been placed on record. In this judgment, the Hon'ble High Court noticed the fact that the boiler in respect of which benefit was claimed, was also used by the sister-concern. Their Lordships upheld the Tribunal order holding that deduction u/s 32 be restricted to a fair proportionate part thereof having regard to the user of the asset by the assessee for its business purpose.

6. It is a trite law that once an asset falling in a particular block is purchased by the assessee and put to use for its business purpose, then depreciation has to be allowed. In the scheme of block of assets, depreciation is allowed irrespective of the fact whether or not a particular asset forming part of a block is distinctly used. The rationale of allowing depreciation in a case of non-user of a particular asset is that the otherwise user of such asset forming part of the block, is not jeopardized in any manner to the assessee. Where an asset is 'actually used' by the assessee for its business purpose, it gives entitlement to depreciation, but if an asset is not actually used but is available for use, it amounts to 'deemed user' in the scheme of block of assets. An asset can be said to be 'deemed to have been used' in contrast to 'actually used' when it is acquired by the assessee for its business purpose but is not actually used for lack of requirement or otherwise, coupled with the fact that such asset remains at its disposal for actual user as and when required. It, therefore, follows that an assessee is entitled to depreciation, in the scheme of block of assets, on 'actual' or 'deemed user'. This position should be seen in contradistinction to a position in which an asset is not only not utilized by the assessee for its business purpose but is acquired for some third party and is also so used. A line of distinction needs to be drawn between a case in which an asset is acquired by the assessee for its business purpose and a case in which such asset is acquired by the assessee for a different entity for the business purpose of such entity. Whereas in the first situation, depreciation is to be allowed whether or not the asset is actually used, but there can be no question of allowing any depreciation in the second situation. Section 32 entitles an assessee to depreciation on the satisfaction of twin conditions. The first is that the asset should be owned by the assessee and the second is that it should be used for the business purpose. It is beyond our comprehension as to how an assessee can claim depreciation by reason of mere acquisition of an asset. The second condition of section 32, being the 'user' of asset - whether 'actual' on one hand or 'deemed' on the other, in such a case would be wanting. That being the position, there can be no question of granting any depreciation in such a case.

7. Adverting to the facts of the instant case, it is seen that the assessee purchased the asset but installed it at the premises of its sister-concern, which was utilized by the sister concern for their own business purpose. There is no benefit which the assessee derived from its sister-concern as a quid pro quo for allowing the user of such asset. The mere facts that the assessee utilized its funds or obtained a loan in its own name for acquiring the asset and also showed it in its books of account, would not change the consequence of the non- granting of depreciation in any manner when the essential fact prevails that the asset was, in fact, utilized by the sister concern for its own business purpose. As it is not a case of the assessee having 'actually used' or 'deemed to have used' such asset for its business purpose, there can be no scope for allowing depreciation to the assessee on such asset.

8. This case has another interesting dimension. The sister-concern, DKIPL, which actually used the asset was running into consistent losses. In the preceding year i.e. A.Y. 2006-2007, when the assessee purchased and recorded such asset in its books of account, DKIPL suffered loss of Rs. 1.23 crore making total of carry forward loss to the tune of Rs. 25.19 crore. It shows that the affairs of the group concerns were cooked up in such a way so as to reduce the incidence of tax by shifting the claim of depreciation in tax paying company rather than genuinely retaining it in a non-tax paying entity. This type of arrangement between the sister-concerns needs to be discouraged. The further argument of the ld. AR that the claim of depreciation was allowed to the assessee in the preceding year and hence the principle of consistency should be followed, is again devoid of merits. On a pointed query, it was candidly admitted that the return for the last year was processed u/s 143(1) in a summary manner and the case was not taken up for scrutiny assessment. Since in view of the detailed discussionsupra, it is manifest that the assessee is not entitled to depreciation as per law, we are disinclined to accept the argument of the ld. AR to follow the principle of consistency in the given circumstances as obviously there can be no estoppel against the provisions of the Act. The impugned order is upheld on this issue. This ground is not allowed.

9. The second ground is against the confirmation of addition of Rs. 9,60,000 on account of difference in valuation of closing stock of defective and rejected goods. The facts apropos this ground are that the assessee valued 1,44,000 pieces of undergarments at Rs. 8.33 per piece making total valuation of such stock at Rs. 12,00,000. It is pertinent to note that the assessee was subjected to survey action u/s 133A during the previous year relevant to the assessment year under consideration in which it was admitted that the cost per piece was Rs. 15. The assessee was called upon to explain as to why it valued some of the undergarments at Rs. 8.33 per piece as against Rs. 15, being its cost price. The assessee stated that the market value of such defective stock was not more than that shown. The Assessing Officer rejected the assessee's contention and valued the stock of 1,44,000 pieces at Rs. 15 per piece, thereby making an addition of Rs. 9,60,000. The learned CIT(A) upheld the assessment order on this point.

10. We have heard the rival submissions and perused the relevant material on recor

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