Hollywod Associates, Mumbai vs Department Of Income Tax

आयकर अपील य अ धकरण, एच खंडपीठ मंब ु ई INCOME TAX APPELLATE TRIBUNAL,MUMBAI-H,BENCH सव ी जो ग दर संह, या यक सद य एवं राजे , लेखा सद य Before S/Sh. Joginder Singh,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.5732/Mum/2012, नधारण वष/Assessment Year-2008-09 ACIT-Circle 19(2) M/s. Hollywod Associates rd Room No.315, 3 Floor Ground Floor, Suratwala Piramal Chambers Lalbaug Vs Compound, Station Road, Parel,Mumbai-400 012. Santacruz (W),Mumbai-400 054.

PAN:AABFH 1878 E (अपीलाथ /Appellant) ( यथ / Respondent) नधा रती ओर से/Assessee by :Shri Anil J. Sathe राज व क ओर से/ Revenue by :Shri Jeetendra Kumar-DR सुनवाई क तार ख/ Date of Hearing : 01-07 -2015 घोषणा क तार ख / Date of Pronouncement : 22-07-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Inco me-tax Act,1961(Act) लेखा सद य राजे के अनुसार PER RAJENDRA, AM-

Challenging the order dt.21.06.2012 of CIT(A)-30, the AO (AO) had raised following Grounds of Appeal:

"1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) had erred in restricting the disallowance in respect of administrative expenses to Rs.1,76, 173/- being 15% of the total expenses and deleting the balance disallowance of Rs. 9,98,316/ - without appreciating the fact that during the course of assessment proceedings as well as remand report proceedings, the assessee had failed to submit proper bills / vouchers in respect of 50 to 60% of cash expenses out of total expenses incurred and also failed to submit bank statement in support of balance payment of the said expenses.

2. On the facts and in the circumstances of the case and in law, the Learned CIT(A) had erred in restricting the disallowance in respect of Selling & Distribution expenses to Rs.1,64,930/ - being 10% of the expenses incurred in cash and deleting the balance disallowance of Rs.14,84,377/- without appreciating the fact that during the course of assessment proceedings as well as remand report proceedings, the assessee had failed to submit bank statement in support of the expenses made through banking channels and the nature of expenses so claimed be contract payments on which TDS is compulsory and as such the provision of section 40(a)(ia) of the I. T. Act is applicable.

3. On the facts and in the circumstances of the case and in law, the Learned CIT(A) had erred in deleting the addition of Rs.3,62,60,776/ - on account of equipments and hire charges after relying on the decision of the ITAT Special Bench of Vishakhapattanam in the case of M/s. Merilyn Shipping & Transport without appreciating the fact that the AO had discussed the issues at length and came to the conclusion in the assessment order as well as in the remand report that the proviso of TDS are not fully complied with and the expenses claimed as equipment hire charges is sub-contract made with the hiring parties which are disallowable u/s. 40(a)(ia) although the payments are routed through bank channels.

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4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) had erred in restricting the disallowance of Rs.3,40,000/- being 25% of the expenses incurred in cash and deleting the balance disallowance of Rs.64,54,651/- without appreciating the fact that the assessee had debited the amount of Rs.67,94,651/- to salary and wages, accounting averaging to 5.6 lacs per month and had paid 80% of these payment through banking channels which attracts the provision of TDS against the payment of salary.

5. The appellant prays that the order of the CIT(A) on the above ground be set side and that of the AO be restored.

6. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."

Assessee-firm engaged in the business of hiring of cine equipments filed its return on 14.09. 2008,declaring income of Rs.28.09 lakhs.The AO finalized the assessment on 20.12.2010,u/s.144 of the Act,determining the income of the assessee at Rs.5.05 Crores.

2.First ground of appeal is about restricting the disallowance in respect of administrative expenses to Rs.1,76,173/-.During the assessment proceedings the assessee had not appeared before the AO,so he disallowed the entire expenditure claimed under the head administrative expenses,amounting to Rs. 11.74 lakhs.

2.1.During the appellate proceedings,the First Appellate Authority(FAA) called for a remand report from the AO.In his report the AO stated that the total amount debited to the Profit & Loss account was of Rs.11,74,489/-,that it comprised of conveyance,electricity charges,insurance, membership fees, staff welfare expenses, society charges (office), printing and stationery expenses,mobile and internet charges, postage & courier and office miscellaneous expenses,that the assessee submitted the extracts of ledger account for the period 01.04.2007 to 31.03. 2008, that other than expenditure on account of insurance,mobile and internet charges, electricity charges and society charges all other expenses were incurred in cash to the tune of 50 to 60%, that those expenses were incurred under the head petty cash and no proper narration was written in the ledger account,that in support of the remaining payment routed through bank account the assessee had not submitted the bank statement to support it,that the possibility of self made bills and vouchers in some cases could not be ruled out. After going through the remand report the FAA held as under:

"Keeping in view the fact that the expenses were incurred in cash to the tune of 50 to 60% and the expenses include items like staff welfare expenses, conveyance, miscellaneous expenses, etc. it will be just and fair,if disallowance of 15% out of the total expenses claimed at Rs.11,74,489/- is made. The same works out to Rs.1,76,173/- The AO is directed to restrict the disallowance at Rs.l,76,173/ -. The appellant gets relief of Rs.l,76,173/-."

2.2.Before us,the Departmental Representative(DR) contended that the FAA has restricted the disallowance without any basis,that the AO had specifically mentioned that the assessee had not furnished bank statement.The Authorised Representative(AR)supported the order of the FAA. 2.3.We have heard the rival submissions and perused the material before us.We find that the FAA has not mentioned anything about the submissions made by the assessee with regard to the disallowance made.Generally,after receipt of the report from the AO the assessee is given a copy of the report and comments from the assessee are sought.In the matter before us,we do not know the explanation of the assessee for incurring cash expenses or for not giving 'proper narration'in 2 5732/M/12-Hollywod Associates (AY:08-09)

the ledger or not submitting the bank statement in its support.Without these basic facts the FAA has given major relief to the assessee.There appears to be typographical error in the last two lines of the order of the FAA.In our opinon,the order of the FAA is not a speaking order and has been passed without assigning any reasons.We are of the opinion that in the interest of justice the issue should be restored back to the file of the FAA for fresh adjudication,who would decide the issue after hearing both the sides.Ground no.1 is decided in favour of the AO,in part.

3.Next ground of appeal deals with restricting the disallowance in respect of Selling and Distribution expenses to Rs.1,64,930/ -being 10% of the expenses incurred in cash and deleting the balance disallowance of Rs.14,84,377/-.

During the appellate proceedings,the AO in his remand report,stated that the assessee had submitted the ledger extracts in the books of the assessee for the period 01.04.2007 to 31.03. 2008,that the expenses comprised of Repairs and maintenance, business promotion expenses; transportation, travelling expenses and vehicle expenses (repairs & fuel),that the details submitted were test checked,that almost 20% of the expenses were incurred in cash through petty cash and in few cases there was no proper narration written against the claimed expendi - ture,that it was claimed that the payments made under the head were through banking channel, that no supporting bank summary or statement was submitted.The AO held that the payment were in the nature of payment made for a sub-contract and that the TDS provision were applicable in that regard.He left the issue of applicability of section 40(a)(ia) to the discretion of the FAA.

3.1.After considering the Report of the AO,the FAA held that the AO had not pointed out as to how the payments were in nature of sub-contracts,that it had not been specified as to who the contractor was and how the payments were made to the sub-contractors.The FAA referred to the decision of ITAT Special Bench of Visakhapatnam delivered in the case of M/s. Merilyn Shippi

-ng & Transports (ITA No.477/Viz/2008),wherein was held that the provisions of Sec.40 (a)(ia) were applicable only to the amount of expenditure which were payable on the date 31st March of every year and it could not be invoked to disallow expenditure which had been actually paid during the previous year without deduction of tax.He held that the said sum of Rs.16,49,307 /- had been paid during the previous year and nothing was payable out of this amount as on 31st March and that the provisions of Sec.40 (a)(ia)were not applicable on the sum of Rs.16,49,307/- in view of the aforesaid Special Bench decision.The FAA further held that the AO had found that 20% of the expenses were incurred in cash through petty cash and that in few cases there were no proper narrations written against the claimed expenditure,that it would be fair and just if the disallowance was restricted to 10% of the expenditure.Finally,he restricted the disallowance to Rs.1.64 lakhs.

3.2.Before us,the DR stated that the FAA had restricted the disallowance without assigning any valid reason.The AR supported the order of the FAA.

We have perused the material on record.We find that the FAA has not passed speaking and reasoned order as envisaged by the provisions of section 250(6)of the Act.The AO had mentioned that the assessee had not produced any bank statement or summary.Therefore,it was 3 5732/M/12-Hollywod Associates (AY:08-09)

duty of the FAA having coterminous power of the AO to make further inquiry in that regard.We find without giving proper reasoning he has adjudicated the issue.We also want to mention that he has relied upon the decision of M/s. Merilyn Shipping & Transports for deciding the issue of applicability of section 40(a)(ia)of the Act and that the Hon'ble Punjab and Haryana High Court has recently,in the case of PMS Diesel,deliberated upon the issue as under:

"(i) The introduction of Section 40(a)(ia) had achieved the objective of augmenting the TDS to a substantial extent. When the provisions and procedures relating to TDS are scrupulously applied, it also ensured the identification of the payees thereby confirming the network of assessees and that once the assessees are identified it would enable the tax collection machinery to bring within its fold all such persons who are liable to come within the network of tax payers. These objects also indicate the legislative intent that the requirement of deducting tax at source is mandatory.

(ii) The argument that section 40(a)(ia) relates only to assessees who follow the mercantile system and does not pertain to the assessees who follow the cash system is not acceptable. The purpose of the section is to ensure the recovery of tax. We see no indication in the section that this object was confined to the recovery of tax from a particular type of assessee following a particular accounting practice.

(iii) The argument that section 40(a)(ia) applies only to amounts which are "payable" and not to amounts that are already "paid" is also not acceptable (Commissioner of Income Tax vs. Crescent Export Syndicate (2013) 216 Taxman 258 (Cal) and Commissioner of Income Tax vs. Sikandar Khan N. Tunwar (2013) 357 ITR 312 (Guj) followed)

(iv) Though in Commissioner of Income Tax vs. M/s Vector Shipping Services (P) Ltd (2013)262 CTR (All) 545, 357 ITR 642 it was held that no disallowance could be made u/s 40(a)(ia) as no amount remained payable at the year end and the Special Bench decision of the Tribunal in Merilyn Shipping & Transports, 136 ITD 23 (SB) (Vishakhapatnam) was noted, this cannot be agreed with as there is no reasoning for the finding.The dismissal of the department's petition for special leave to appeal (SLP) was in limine.The dismissal of the SLP, therefore, does not confirm the view of the Allahabad High Court. As held by the Supreme Court in V.M. Salgaocar & Bros. (P) Ltd., etc. Vs. Commissioner of Income Tax, etc. (2000) 243 ITR 383 (SC) and in Supreme Court Employees Welfare Association vs. Union of India (1989) 4 SCC 187, when an SLP is summarily dismissed under Article 136 of the Constitution, the Court does not lay down any law and that the dismissal of an SLP in limine by a non speaking order does not justify any inference that the contentions raised on the merits of the case have been rejected."

Therefore,in the interest of justice we are remitting back the matter to the file of the FAA for fresh adjudication.He would decide the issue after hearing both the sides.Ground no.2 is decided in favour of the AO,in part.

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4.Next ground pertains to deleting the addition of Rs.3,62,60,776/ - on account of equipments and hire charges after relying on the decision of the ITAT Special Bench of Vishakhapattanam in the case of M/s. Merilyn Shipping & Transport.

During the remand proceedings,the assessee was asked to submit the details such as Name and PAN of the party,address, amount paid, mode of payment and TDS deducted details.He found that the assessee had made payment amounting to Rs.3,50,00,764/- to 23 parties and the balance payments to the tune of Rs.12,60, 012/-were made to various other parties where it was claimed that payments were below Rs.1,20,000/-.As per the AO,no details were submitted in respect to amount of Rs.12.60 lakhs,that it submitted the third party confirmation in all the aforesaid 23 cases,that the copy of acknowledgement of return filed for the AY.2008-09 had also been filed in 16 cases,that the payments were routed through banking channels,that there was no mention of any TDS deducted on the above payments,that there was violation of the provision of section 194-I of the Act,that it was contended that the payees (hiring parties) had shown these amounts as income in their respective returns and had paid the taxes due on the same and that there was no requirement of collection of taxes for the assessee as the same would lead to double taxation. The AO further mentioned that the submissions of the assessee were devoid of merits,that the provisions of TDS were not fully complied with and the amount paid to these parties was not allowable,that the expenses claimed as equipment hire charges was sub-contract made with the hiring parties,that same were disallowable u/ s 40(a)(ia)for non-compliance of TDS provisions. 4.1.During the course of appellate proceedings the assessee relied upon the decision of the Special Bench pronounced in the case of M/s. Merilyn Shipping & Transports,as stated earlier.The assessee also relied upon the decision of Cargo Handling Pvt. Workers Pool Visakhapatnam(ITA Nos. 152 to 156/ Vizag/2011).

After going through the report of the AO and the submissions of the assessee,the FAA held that the amount of Rs.3,62,60,7761 - was claimed by the assessee as equipments hiring charges in P&L A/c.The assessee was asked by the AO to submit details such as name and PAN of the parties, address, amount paid, mode of payment and TDS deducted details,that the assessee had made the above payments amounting to Rs.3,50,00,764/-to 23 parties and the balance payment to the tune of Rs.12, 60, 012/-was made to the various other parties where it was claimed that the payments were below Rs.1,20,000/-.Finally,relying upon above referred two cases he decided the issue in favour of the assessee.

4.2.Before us,the DR supported the report of the AO and AR relied upon the order of the FAA. We find that the AO has specifically mentioned that out of the 23 parties only 16 parties had filed retruns.What details were made available about remaining seven parties is not known. In our opinion the issue needs further verification.Secondly,while deciding the second ground of appeal we have referred to the judgment of PMS Diesel delivered by the Hon'ble P & H High Court.Considering all these factors we are remitting back the matter to the file of the FAA for fresh adjudication.He will afford reasonable opportunity of hearing to the assessee and the AO. Ground no.3 is partly allowed in favour of the AO.

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5.Last ground of appeal pertains to restricting the disallowance of Rs.3,40,000/- being 25% of the expenses incurred in cash.As per the FAA "12.1 The issue raised in this ground of appeal had not been discussed by the AO in the Remand Report.However,in the Reference letter of this office dtd. 28.09.2011 bearing No.CIT(A)-30/ Remand Report/ 2011-12 dtd. 28.09.2011 a specific mention was made of Salary & Wages of Rs.67,94,651/ -. However, as stated above, the AO had not offered any comments on the issue of salary and wages."

5.1.Before him,the assessee argued that about 80% of the expenses had been paid through bank, that 20% of the expenses were incurred in cash.Considering the submission of the assessee,the FAA held that the expenses to the tune of Rs.13,58, 990/- (rounded off Rs.13,60,000/-) were incurred in cash,that the sum of Rs.67,94,651/ - also included wages,that details of salary & wages did not contain the addresses of some of the workers,that it would be just and fair if the disallowance of 25% out of the payments made in cash i.e. Rs. 13,60,000/-was confirmed.

5.2.The DR left the issue to the discretion of the Bench.The AR supported the order of the FAA. It is found that the AO had not made any inquiry during remand proceedings.He also did not file any reply to the letter of the FAA wherein specific query was raised about the issue.In these circumstances I do not see any justification in the appeal filed by the AO.On the one hand he ignores the directions of an appellate authority and on the other files appeal before the Tribunal for the same issue.The FAA after considering the submissions restricted the disallowance to a reasonable extent.In our opinion,his guess work cannot be reversed without any contrary comment from the AO.Confirming his order,we decide ground no.4 against the AO.

As a result,appeal filed by the AO stands partly allowed.

फलतः नधा रती अ धकार वारा दा खल क गई अपील अंशतः मंजूर क जाती है . Order pronounced in the open court on 22nd July,2015. आदे श क घोषणा खल ु े यायालय म दनांक 22 जल nd ु ाई 2015 को क गई ।

Sd/- Sd/- (जो ग दर संह/ Joginder Singh) (राजे / RAJENDRA) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मुंबई/Mumbai, दनांक/Date: 22 .07.2015 व. न.स.Jv.Sr.PS. आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त

5.DR " " Bench, ITAT, Mumbai / वभागीय त न ध, ए खंडपीठ,आ.अ. याया.मुंबई

6.Guard File/गाड फाईल

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स या पत त //True Copy// आदे शानस ु ार/ BY ORDER,

उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai.

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