H-One, Mumbai vs Assessee

ITA No. : 765/Mum/2013 (Assessment year: 2007-08) H-one, Vs ACIT- 15(3), Ground Floor, Baba House, Matru Mandir, Opp. Bhatia M. V. Road, Andheri (East), Hospital, Mumbai -400 093 Mumbai -400 004 ःथयी लेखा सं.:PAN: AADFH 7681 P अपीलाथ (Appellant) ू यथ (Respondent) Appellant by : Shri K. R. Lakshminarayanan Respondent by : Shri Jitendra Kumar

सुनवाई क# तार%ख /Date of Hearing : 05-01-2015 घोषणा क# तार%ख /Date of Pronouncement : 18-02-2015

आदेश ORDER ी िववेक वमा , या स: PER VIVEK VARMA, JM:

The appeal is filed by the assessee against the order of CIT(A) 26, Mumbai, dated 14.01.2010, wherein, the following grounds have been taken:

"1. The order passed by the learned CIT (A) is bad in law.

2. The learned CIT (A) erred in not deleting the addition of Rs. 6,83,670/- made by the A.O. being service tax paid by the appellant.

3.The learned CIT (A) failed to appreciate that the appellant paid the said service tax on a/c of commercial expediency which was payable by its clients.

4. The learned CIT (A) failed to appreciate that in some cases clients pay only the professional fees and are unwilling to pay service tax and the appellant does not want to enter in to litigation with them due to long business dealings.

5. It is prayed that the addition Rs. 6,83,670/- may please be deleted.

6. The appellant craves liberty to add, amend, alter, 2 H-one ITA 765/M/2013

and/or withdraw any of the above grounds of appeal.

2. In the GOA, solitary issue threads all the grounds, therefore, grounds no. 1 to 5 dealt with commonly.

3. The facts are that in the assessment proceeding AO noticed that the assessee has paid Rs. 6,83,670/-, which was claimed by the assessee to have been paid the assessee on behalf of its clients. On explanation gathered from the assessee, the AO found out that out of total service tax liability of Rs. 23,21,302/-, the assessee could collect Rs. 16,37,630/-. Since the service tax is a liability of the assessee as per service tax Act and default of the same would invite penal proceedings, the assessee sidelined the liability and consequential penal proceedings under the Service Tax Act.

4. Before the AO, the assessee submitted that the assessee did not collect service tax out of commercial expediency and placing reliance on the decision of Catalysts and Chemicals India vs CIT, reported in 166 ITR 769, the Kerala High Court states, expense incurred for commercial expediency shall be allowed, if it facilitated the carrying on the business. The AO disregarded the explanation of the assessee and added it back to the income of the assessee.

5. Against this order, the assessee approached the CIT(A), who sustained the order of the AO, placing reliance on the decision of the coordinate Bench of the ITAT at Mumbai in the case of M/s Pharma Search vs ACIT, ITA No. 7303/Mum/2010.

6. Against this order of the CIT(A), the assessee in now before the ITAT.

7. Before us, the AR pointed out that the revenue authorities wrongly relied on the order of Pharma Search (supra), as the 3 H-one ITA 765/M/2013

coordinate Bench was not seized with the issue as that of the assessee.

8. The AR further pointed out that the ratio laid down by Hon'ble Kerala High Court in the case of Catalysts and Chemicals India (West Asia) Ltd. (supra) is squarely applicable on the assessee. He further submitted that the issue came up before the Hon'ble Gujarat High Court in the case of CIT vs. Kaypee Mechanical India (P.) Ltd., reported in 223 Taxman 346 (Guj) held, "Assessee paid up said amount though it was not his primary liability and treated it as business expenditure". The Hon'ble Gujarat High Court allowed it as business expenditure. The AR therefore pleaded that the incurring of expense of Rs. 6,88,670/- be allowed, placing reliance on the above cited case laws.

9. The DR placed heavy reliance on the decisions of the revenue authorities and submitted that there was no infirmity in the order.

10. We have heard the arguments and pursued the orders of the revenue authorities and the details filed by the assessee.

11. Undisputedly, the claim of the assessee have been non- receipt of service tax from its client, which in any case is a liability of the client. But to have smooth business and commercial expediency, the assessee paid the amounts, not collected from the clients, on this behalf. It is also a fact that the revenue authorities have not questioned the business character of payment. Hence it is to accepted to be a payment made for the purposes of business. The residual issue before us is, whether this payment is to be allowed or not.

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12. Hon'ble Kerala High Court and Hon'ble Gujarat High Court have delved on the issue of commercial expediency and an expenditure which is primary liability of the client, and have allowed the claim of the assessee.

13. Reading both the orders of the Hon'ble Kerala High Court & Hon'ble Gujarat High Court together, we are of the opinion that the service tax as paid by the assessee on behalf of the clients is an expense pertaining to business. We, therefore, respectfully relying on the decisions of the above Hon'ble High Courts, hold that Rs. 6,83,670/- should be allowed.

14. We, therefore, set aside the order of the CIT(A) and direct the AO to delete the addition as made. Grounds no. 1 to 5 are therefore allowed.

15. Thus, the appeal as filed by the assessee is allowed. Order pronounced in the open Court on 18th February, 2015.

(आर.

आर. सी.

सी. शमा ) (िववेक वमा ) Sd/- Sd/-

लेखा सदःय याईक सदःय (R C SHARMA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Date: 18th February, 2015

ूित/Copy to:-

1) अपीलाथ /The Appellant.

2) ू यथ /The Respondent.

3) The CIT(A) -26, Mumbai.

5) -वभागीय ूितिनिध "यॅच", आयकर अपीलीय अिधकरण, मुब

4) The CIT-15, Mumbai/CIT -15, Mumbai.

ं ई/ The D.R. "H" Bench, Mumbai.

6) गाड1 फाईल Copy to Guard File.

5 H-one ITA 765/M/2013

आदे शानुसार/By Order / / True Copy / /

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, मुबं ई Dy./Asstt. Registrar I.T.A.T., Mumbai

*च हान व.िन.स *Chavan, Sr.PS