Halani Shipping P.Ltd, Mumbai vs Assessee

Halani Shipping P.Ltd, Mumbai vs Assessee on 13 February, 2015 `आयकर अपील य अ धकरण "H" यायपीठ मब ंु ई म । IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No.1919 /Mum/2013 ( नधा रण वष / Assessment Year : 2009-2010 DCIT - 2(1), बनाम/ Halani Shipping Pvt. Aayakar Bhavan, Ltd., Vs. R. No. 561, 5 t h floor, 114, Rex Chambers, M.K. Road, W.H. Marg, Fort, Mumbai - 400 020. Mumbai- 400 001. थायी ले खा सं . /PAN : AABCH3586N (अपीलाथ /Appellant) .. ( यथ / Respondent) या ेप सं/C.O. No. 137/Mum/2014 Arising out of ITA No. 1919/Mum/2013 Halani Shipping Pvt. बनाम/ DCIT - 2(1), Ltd., Vs. Aayakar Bhavan, 114, Rex Chambers, R. No. 561, 5 t h floor, W.H. Marg, Fort, M.K. Road, Mumbai- 400 001. Mumbai - 400 020. Cross Obj ector .. ( यथ / Respondent) Department by Shri Jeetendra Kumar Assessee by : Shri K.P. Dewani ु वाई क3 तार5ख / Date of Hearing सन : 05-01-2015 घोषणा क3 तार5ख /Date of Pronouncement : 13-02-2015 [ आदे श / O R D E R PER R.C. SHARMA, A.M. : This is an appeal filed by the Revenue and Cross Objection filed by the assessee is directed against the order of Ld.

CIT(A) -4, Mumbai dated 14-12- 2 ITA 1919/M/13 & C.O. 137/M/14 2012 for the A.Y. 2009-10 in the matter of order passed u/s 143(3) of the Income Tax Act, 1961. 2. Rival contentions have been heard and record perused. The facts of the case are that the assessee has taken loan/advances of Rs.4,36,68,525/- from M/s Bhambani Shipping Pvt. Ltd. whereas Mr. Hariram Bhambani is holding 90% shares of M/s Bhambani Shipping Pvt. Ltd. and 20% shares of the assessee company and whereas, M/s Bhambani Shipping Pvt. Ltd. had reserves and surplus of Rs.2,53,87,248/-, therefore, A.O. has made addition u/s 2(22)(e) on account of loans taken by the assessee from M/s Bhambani Shipping Pvt. Ltd. to the extent of reserves and surplus available Rs.2,53,87248/- which has been objected to by the assessee, claiming that assessee is not directly the shareholder of M/s Bhambani Shipping Pvt. Ltd., therefore, provisions of section 2(22)(e) are not applicable to the case of the assessee. However the A.O. did not agree with the assessee's contention and added an amount u/s 2(22)(e) of the Act. 3. By the impugned order, the ld.

CIT(A) deleted the addition after having following observation:- "7. I have considered the facts of the case and submissions of the assessee. The A.O. has made the addition on protective basis in the hands of the assessee, whereas, the A.O. has held that it is to be added in the hands of Mr. Hari Bhambhani, director and shareholder of the company on substantive basis. The A.O. has relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. Universal Medicare Pvt. Ltd. 324 ITR 263, whereas, this decision is in favour of the assessee company because it has been held that even if such defalcated amount was to be treated as a dividend then it can be assessed in the hands of shareholder only. Admittedly, assessee is not the shareholder of M/s Bhambhani Shipping Pvt. Ltd. A.O. has not given any specific reason for making protective assessment in the hands of the assessee but on the basis of the fact that Mr. Hari Bhambhani is the common shareholder of more than 20% in the assessee company and more than 90% in M/s Bhambhani Shipping Pvt. Ltd., the addition has been made in the hands of the assessee.

The A.O. has rightly held that it is taxable in the hands of Mr. Hari Bhambhani on substantive basis because he is the shareholder, but no decision is given on the taxability of the same in the hands of Mr. Hari 3 ITA 1919/M/13 & C.O. 137/M/14 Bhambhani because that is not the issue in appeal before me. The only issue to be decided whether such loan can be assessed in the hands of the assessee company despite the fact that assessee is not the shareholder of M/s Bhambhani Shipping Pvt. Ltd. The assessee in this regard has relied on the decision of Hon'ble ITAT, Special Bench decision in the case of ACIT vs. Bhaumik Colours Pvt. Ltd. 118 ITD 1. In this case Hon'ble ITAT has clearly held that addition in such cases u/s. 2(22)(e) can be made only in the hands of the beneficial and registered shareholder of the company, which has given loan. Similar is the finding of Hon'ble Rajasthan High Court in the case of CIT vs. Hotel Hilltop 313 ITR 116. Therefore, in the case of the assessee, no addition u/s. 2(22)(e) can be made in the hands of the assessee on account of loan taken from M/s. Bhambhani Shipping Pvt. Ltd. because assessee is not the registered and beneficial shareholder of M/s Bhambhani Shipping Pvt. Ltd. Therefore, respectfully following the decision of Hon'ble ITAT in the case of Bhaumik Colours Pvt. Ltd. (supra) and the decision of Hon'ble Rajasthan High Court in the case of Hotel Hilltop (supra), the addition made u/s. 2(22)(e) is deleted.

In result, the grounds of appeal are allowed." 4. The A.O. has also made addition in respect of hire charges paid for hiring of shipping or vessel. The facts of the case are that assessee claimed hiring of shipping or vessel charges Rs.11,96,62,6801- which included hiring charges paid and payable both. The A.O. has disallowed the entire hiring charges u/s 40(a)(ia) holding that no TDS is made, which has been disputed by the assessee, claiming that no TDS is required to be made on the hiring charges which have been actually paid during F.Y. 08-09, Rs.4,03,43,500/- and relied on the decision of Hon'ble ITAT in the case of M/s Merilyn Shipping and Transport vs. ACIT, ITAT (SB)· Vishakhapatnam). Assessee further claimed that on payment of hiring charges Rs.4,83,64,270/-, the assessee has made TDS @ 1.699% as per the certificate issued by ACIT-TDS and, therefore, no disallowance is required on the payment of Rs.4,83,64,270/- because TDS has been made as per the certificate issued by the ACIT, TDS, and the same has been paid on 31/3/09. On balance amount of Rs.3,09,54,910/- it is claimed that TDS has been made and deposited on 3/8/09 i.e. before the due date of filing of return on 30/9/09 and, therefore, claimed as allowable expenditure and not covered u/s. 40(a)(ia) .

By the impugned order, the ld. CIT(A) deleted the disallowance made u/s 40(a)(ia) of the Act after having following observation:- 4 ITA 1919/M/13 & C.O. 137/M/14 "11. I have considered the facts of the case and submissions of the assessee. The disallowed amount on account of shipping hire charges Rs.ll,96,62,680/- consists of three parts, 1) Amount actually paid during F.Y.2008-09 Rs.4,03,43,500/-, 2) Amount on which TDS has been made as per the Certificate for lower TDS issued by ACIT(TDS) - Rs.4,83,64,270/- and the balance amount on which appropriate TDS is made but deposited after the due date but before filing of return - Rs.3,09,54,910/-. 11.1 With regard to the hiring charges actually paid during the year, assessee has claimed that the actual amount paid is not covered u/s.40(a) (ia) because the word used in this section "is 'payable' and, therefore, the amount actually paid during the financial year is not covered. In this regard, assessee has relied on the decision of Hon'ble IT AT in the case of Merilyn Shipping and Transports (supra), the relevant portion is reproduced below :- "In view of the above judicial pronouncements of Hon'ble Supreme Court and Hon'ble High Courts, materials placed before us, arguments made by both the sides and in view of the provisions of section 40 (a}(ia) of the Act, on comparison between the proposed and enacted provisions, the only conclusion which I can reach is that the Legislature consciously replaced the words "amounts credited or paid" with the word "payable" in the final enactment.

By changing the words from "credited" or "paid" to "payable" the legislative intent has been made clear that only outstanding amounts or the provisions for expenses liable for TDS under chapter XVII-B of the Act is sought to be disallowed in the event there is a default in following the obligations casted upon the assessee under chapter XVII-B of the Act. I agree with the arguments made by ld. Counsel for the assessee and other Counsels for the Interveners that while interpreting the word "payable" in this provisions, the word of astatute must be understood in its natural ordinary or popular sense and construed according to its grammatical meaning in this context or in the object of this statute to suggest to the contrary. It is a cardinal principle of Interpretation that the words of a statute must be prima facie given their ordinary meaning, when the words of the statute are clear, plain and unambiguous really means that there should be no interpretation of the statute, rather in other words, we should read the statute as it is without doing any violence to the language. In the present dispute before us, the word "payable" used in section 40(a)(ia) of the Act is to be assigned strict interpretation, in view of the object of Legislation, which is intended from the replacement of the words In the proposed and enacted provisions from the words "amount credited or paid" to "payable".

Hence, in my view, my answer to the question referred by Hon'ble President to the Special Bench is as under. 5 ITA 1919/M/13 & C.O. 137/M/14 "The provisions of section 40(a)(ia) of the Act are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS. Therefore, respectfully following the decision of Hon'ble ITAT in the case of Merilyn Shipping and Transport (supra), disallowance to the extent of Rs.4,03,43,5001- is deleted because this is the amount of shipping hire charges claimed by the assessee paid during the year and, therefore, it is not covered u/s. 40(a)(ia) of I.T. Act. 5. Against the above order of ld. CIT(A), the Revenue has preferred this appeal and assessee has filed the cross objection before the Tribunal. 6. At the time of hearing, the ld. A.R. has drawn our attention to the order of the Hon'ble Bombay High Court in the case of CIT vs. Impact Containers Pvt. Ltd. in Income Tax Appeal No. 114 of 2012 dated July, 4, 2014 wherein exactly similar issue of addition u/s 2 (22(e) was before the Hon'ble Bombay High Court and it was held as under:- "In these Appeals which have been filed by the Revenue the challenge is to the order of the Income Tax Appellate Tribunal holding that the provisions of Section 2(22) (e) of Income Tax Act 1961 (for short "1.

T. Act ) cannot be invoked as the assessee company was not a shareholder in the lending company. The argument in all these Appeals on behalf of the Revenue is that, though the assessee is a common shareholder with controlling stake in the lending company, the Tribunal found that Section 2(22) (e) of the I.T. Act is not attracted and this finding raises a substantial question of law. 2. It was then contended that the Income Tax Appellate Tribunal has- applied the ratio of its own special bench decision in the case of Assistant Commissioner of Income Tax v/s Bhaumik Colour Pvt. Ltd reported in 2009 (313) ITR (AT) 146(Mumbai) (SB), equally the Income Tax Appellate Tribunal has proceeded on the footing that the view taken in the case of Bhaumik Colour Pvt Ltd(supra) has been approved by the Division Bench of this Court in the case of Commissioner of Income Tax v/s Universal Medicare Pvt. Ltd. reported in 2010 (324) ITR 263 (Bom.)." 6 ITA 1919/M/13 & C.O. 137/M/14 7. It was held by the Hon'ble Bombay High Court that insofar as the assessee company which is not a shareholder in any of the entities which have advanced and lent sums, no addition is required to be made u/s 2(22)(e) of the Act.

In the instant case, the ld. CIT(A) recorded a categorical finding to the effect that the assessee is not a shareholder of M/s Bhambhani Shipping Pvt. Ltd., therefore, the amount received by the assessee is not liable to be taxed u/s 2(22)(e) of the Act. This finding of the ld. CIT(A) has not been controverted by the ld. D.R. by bringing any positive material on record. The ld. CIT(A) has relied on the decision of ITAT Special Bench in the case of ACIT vs. Bhaumik Colours Pvt. Ltd. 118 ITD 1 wherein it was held that provisions of section 2(22)(e) can be applied only in the hands of the beneficial and registered shareholder of the company which has given loan. Respectfully following the decision of Hon'ble jurisdictional High Court and ITAT Special Bench, as discussed above we do not find any infirmity in the order of the ld. CIT(A) for deleting the addition made u/s 2(22)(e) of the Act. 8. Out of disallowance of hiring charges, Revenue is in appeal before us for deletion of Rs. 4,03,43,500/- on the plea that hire charges had been paid and was not outstanding at the end of the year. With regard to disallowance of hiring charges on the plea that hiring charges actually paid during the year, it was argued by the ld.

A.R. that no disallowance can be made u/s 40(i)(a) of the Act because the word used in this section 'payable' and therefore, the amount actually paid during the financial year cannot be disallowed u/s 40(i)(a) of the Act. For this purpose, reliance was placed on the decision of ITAT in the case of M/s Merilyn Shipping and Transport vs. ACIT. It was also contention of the ld. A.R. that recipient of hire charges had already included hire charges in their return of income and also paid taxes thereon, therefore, taxes cannot be recovered once more on the very same income. 7 ITA 1919/M/13 & C.O. 137/M/14 9. The ld. A.R. has placed reliance on the decision of Hon'ble Allahabad High Court in the case of CIT vs. Vector Shipping Services (P ) (2013) 357 ITR 642 (All) wherein it was held that for disallowing expenses u/s 40(i)(a) 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. It was further submitted by the ld. A.R. that SLP filed by the Revenue against this order of Hon'ble Allahabad High Court has been dismissed by the Hon'ble Supreme Court vide order dated 2-7-2014.

The copy of the Special Leave Petition filed before the Hon'ble Supreme Court is also placed on record wherein following substantial question of law was referred to the Hon'ble Supreme Court. "(i) Whether on the facts and circumstances of the case the Hon'ble High Court has erred in law in holding that for disallowance of expenses on the ground that YDS has not been deducted the amount should be payable and not which has been that the word 'payable' in the section means the amount which was payable at any time during the year. (ii) Whether on the facts and circumstances of the case the Hon'ble High Court has erred in law in holding that for disallowing expenses 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 ignoring the decision of different Hon'ble High Courts in CIT v. Crescent Export Syndicate (GA No. 319 of 2013) of the Hon'ble Calcutta High Court as also CIT vs. Sikandarkhan N. Tunvar 2013 (5) TMI of the Hon'ble Gujarat High Court." Leave to appeal by Special Leave is sought for on the followings grounds: (i) That the Hon'ble High Court erred in law and in the facts and circumstances of the case in dismissing the appeal of the Department and deciding the issue in favour of the assesse, the Respondent herein.

(ii) That the Hon'ble High Court erred in law and in the facts and circumstances of the case in dismissing the appeal filed by the Department and upholding the decision of the ITAT on the premise that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid (iii) That the Hon'ble High Court erred in law and in the facts and circumstances of the case in not appreciating that the view taken by the Hon'ble High Court is contrary to the view taken by the Hon'ble Calcutta High Court in CIT vs. Crescent Export Syndicate 8 ITA 1919/M/13 & C.O. 137/M/14 (GA No. 319/2013) as also by the Hon'ble Gujarat High Court in CIT vs. Sikadarkhan N. Tunvar (2013) 5 TMI 457. (iv) That the Hon'ble High Court erred n law and in the facts and circumstances of the case in not appreciating that a perusal of Section 40(a)(ia) of the Income Tax Act, 1961, reveals that the section nowhere uses the words "amount payable by the end of the year". (v) That the Hon'ble High Court erred in law and in the facts and circumstances of the case in not appreciating that the work 'payable' is usd to mean the amount which is required to be paid for carrying out any work done during the previous year under consideration.

It includes the amount which is actually paid during the year as well as the amount which remains unpaid at the end of the year." 10. The ld. A.R. has also placed on record Mumbai ITAT order in the case of M/s Arcadia Share & Stock Brokers Pvt. Ltd. vs. DCIT in ITA No. 1871/Mum/2013 order dated 22-12-2014 wherein exactly similar issue has been decided by the Tribunal by observing as under:- "We have heard the rival submissions and carefully perused the record. We shall first take up the last alternative ground, i.e. when the payment is made by the assessee whether section 40(a)(ia) can be attracted? On this issue this very Bench, in the case of Amit Naresh Shah (ITA No. - 4154/Mum/2013), had taken a consistent stand that in the light of the decision rendered by Hon'ble Supreme Court, in the form of dismissal of Revenue's SLP in the case of Vector Shipping Services (P) Ltd. section 40(a)(ia) is not applicable with reference to payments already made since the expression 'payable' has to be satisfied for invoking provisions of section 40(a)(ia) . The Bench, in the afore cited decision, observed in this regard as under - "4.

Before us, Departmental Representative (DR) stated that order of the Special Bench delivered in the case of Merilyn Shipping & Transports (supra)has been kept in abeyance of the Hon'ble Andhra Pradesh High Court, that the Hon'ble Gujarat High Court had taken a different view. Authorised Representative (AR) supported the order of the FAA. We have heard the rival submissions and perused the material before us. We find that expenses related to professional fees, advertisement and management were debited in P&L Account, that same were paid. Therefore, in our view, no disallowance u/ s 40(a)(ia) of the Act should be made. We further find that while deciding the appeal in the case of Janapriya Engineers Syndicate (1. T. T.A. No. 352 of 2014- dt. 24.06.2014) the Hon'ble Andhra Pradesh High Court has clarified the issue of interim stay granted by it in the case of 9 ITA 1919/M/13 & C.O. 137/M/14 Merilyn Shipping & Transports (supra). We will like to reproduce the relevant part of the said order and same reads as under: "4. We are of the view that until and unless the decision of the Special Bench is upset by this Court, it binds smaller Bench and coordinate Bench of the Tribunal.

Under the circumstances, it is not open to the Tribunal, as rightly contended by Mr. Narasimha Sarma, learned counsel, to remand on the ground of pendency on the same issue before this Court, overlooking and overruling, by necessary implication, the decision of the Special Bench. We simply say that it is not permissible under quasi judicial discipline". From the clarification issued by the Hon'ble High Court, it is clear that until and unless the decision of Marilyn Shipping & Transport (supra) is reversed by the Court, it is binding on all the benches of the Tribunal. We find that Hon'ble Court has held that judicial discipline mandates that the decision of the special bench has to be followed by other benches. As on today, the stay order granted by the Hon'ble Court has been vacated and the order of the special bench is binding on other benches of the Tribunal. Therefore, respectfully following the same, we hold that the FAA was justified in following the order of Marilyn Shipping & Transport (supra). Considering the facts of the case and the clarification issued by the Hon'ble Andhra Pradesh High Court on 24.06.2014 in the case of Janapriya Engineers Syndicate, we decide the effective ground of appeal in favour of the assessee and confirm the order of the FAA."

7. Reverting to the facts on hand, the Tax Authorities had not disputed the fact that the assessee paid depository charges without deduction the tax and taxes are already paid by the recipient [see para 3.3 & 3.4 of the order passed by the CIT(A). Since the amount was already paid and the taxes are paid by the recipient, in our opinion, the decision of the Special Bench in the case of Marilyn Shipping & Transports (supra) is applicable and by following the decision of the ITAT, Mumbai Benches (supra) we hold that the Tax Authorities have wrongly invoked provisions of section 40(a)(ia) in the instant case. We, therefore, set aside the orders passed by the Tax Authorities disallowing 6,27,423/-. In the light of the decision on merit it is not necessary for us to deal with the other aspects urged before us since they will be of academic importance. Suffice to say that disallowance made by the AO is not called for in the circumstances of the case, in the light of the decision of the ITAT (supra), which in turn was based upon the decision of the Hori'ble Supreme Court in the case of Vector Shipping Services (P) Ltd. 10 ITA 1919/M/13 & C.O.

137/M/14 11. Similarly, reliance was also placed on the decisions in the case of ITO vs. Smt. Zeenat N. Shaik in ITA No. 13/Mum/2013 for A.Y. 2009-10 orders dated 17-09-2014 wherein similar disallowance was deleted by the Tribunal. 12. Order of the co-ordinate Bench of this Tribunal in the case of ACIT vs. Amit Naresh Sinha in ITA No. 4154/Mum/2013 dated 10-09-2014 was also placed on record wherein exactly similar issue has been decided by the Tribunal in favour of the assesee. 13. The ld. Counsel for the assesse has also placed on record the following Tribunal orders in support of his contention that on the similar facts, the issue has been decided in favour of the assessee: 1. Decision of ITAT Jodhpur Bench in the case of ACIT vs. Shri Amol Agarwal in ITA No. 412 & 413/JU/2014 for AYs. 2008-09 & 2010-11 dated 25-09-2014. 2. Decision of ITAT Ahmedabad Bench in the case of M/s Frohberg Reality Pvt. Ltd. vs. ACIT in ITA No. 2066/Ahd/2014 for A.Y. 2010- 11 dated 12-12-2014 3. Decision of ITAT Nagpur Bench in the case of Gopal Dineshchandra Tulshan vs. ITO in ITA No. 161/Nag/2011 for A.Y.

2006-07 dated 8-09-2014. 3. Decision in the case of ITAT Agra Bench in the case of Rajeev Kumar Agarwal vs. ACIT in ITA No. 337/Agra/2013 for A.Y. 2006-07 dated 29-5-2013. 4. Decision of ITAT Mumbai Bench in the case of Orchard Advertising P. Ltd. vs. DCII in ITA No. 6127/Mum/2011 for A.Y. 2006-07 datd 11-1-2013 5. Decision of ITAT Nagpur Bench the case of DCIT vs. M/s Dayalal Meghji & Company in ITA No. 825/Nag/96 for A.Y. 1993-94 dated 29-5-2002. 11 ITA 1919/M/13 & C.O. 137/M/14 6. Decision of ITAT Hyderabad Bench in the case of Ushodaya Enterprises Ltd. vs. DCIT in ITA No. 676/Hyd/2009 & 411/Hyd/2010 for AYs 2005-06 & 2006-07 dated 5-1-2015. 14. We have carefully gone through all these decisions and found that not only the issue has been decided in favour of the assessee by various benches of tribunal and Hon'ble Allahabad High Court but the SLP filed by the Revenue against this order of Hon'ble Allahabad High Court has been dismissed by the Hon'ble Supreme Court vide order dated 2-7-2014. The copy of the Special Leave Petition filed before the Hon'ble Supreme Court is also placed on record.

Respectfully following the orders of Tribunal, Hon'ble Allahabad High Court and Hon'ble Supreme Court, we do not find any infirmity in the order of the ld. CIT(A) deleting the disallowance u/s 40(a)(ia) of the Act. 15. In the result, appeal of the Revenue is dismissed. 16. With regard to the C.O. filed by the assessee, the same is just supporting the order of the ld. CIT(A) which we have already upheld. Accordingly the C.O. has become infructuous, hence, dismissed. 17. In the result, appeal of the Revenue as well as C.O. filed by the assessee are dismissed. Order pronounced in the open court on 13th February, 2015. आदे श क3 घोषणा खल ु े ?दनांकः 13-02-2015 को क3 गई । Sd/- sd/- (VIVEK VARMA) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; ?दनांक Dated 13-02-2015 [ व.Kन.स./ RK , Sr. PS 12 ITA 1919/M/13 & C.O. 137/M/14 आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयुLत(अपील) / The CIT(A) -8,, Mumbai 4. आयकर आयुLत / CIT --4, Mumbai 5. Oवभागीय KतKनQध, आयकर अपील5य अQधकरण, मुंबई / DR, ITAT, Mumbai H Bench 6. गाडU फाईल / Guard file. ु ार/ BY ORDER, आदे शानस स याOपत Kत //True Copy// उप/सहायक पंजीकार (Dy./Asstt.

Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai