Case :-
INCOME TAX APPEAL No. - 122 of 2013
Appellant :- Commissioner Of Income Tax, Muzaffarnagar
Respondent :- M/S Vector Shipping Services(P)
Ltd,Muzaffarnagar
Counsel for Appellant :- Shambhu Chopra
Hon'ble Sunil Ambwani,J.
Hon'ble Surya Prakash Kesarwani,J.
We have heard Shri Shambhu Chopra, learned counsel for the appellant.
This income tax appeal under Section 260 (A) of
the Income Tax Act, 1961 arises out of the judgment and order of the Income Tax
Appellate Tribunal in ITA No.5219/Del/2012 for the assessment year 2009-10.
The department has pressed the only question of
law as follows:-
"(a) Whether on the facts and in the
circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of
the CIT (A) and thereby deleting the disallowance of Rs.1,17,68,621/- made by
the Assessing Officer under section 40 (a) (ia) of the I.T. Act, 1961 by
ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship
management work on behalf of the assessee M/s Vector Shipping Services (P) Ltd.
and there was a Memorandum of Understanding signed between both the companies
and as per the definition of memorandum of understanding, it included contract
also."
In the present case the A.O. disallowed expenses
on the ground that under Section 40 (a) (ia) expenses could not be allowed as
no tax was deducted at source under Chapter XVII (B).
The CIT (A) reversed the findings, which have been
affirmed by the Tribunal in para 7 as follows:-
"7. We have considered the submissions of
both the parties and have perused the record of the case. The submissions made
before ld. CIT (A), as noted earlier, have not been controverted by the
Department. It is not disputed that M/s Mercator Lines Limited had deducted TDS
on salaries paid by it on behalf of assessee. Under such circumstances assessee
was not required to deduct TDS on reimbursement being made by it to M/s
Mercator Lines Limited. Further in any view of the matter, since it is not
disputed that no amount remained payable at the year end, therefore, in view of
the Special Bench decision in the case of Merilyn Shipping and Transport Ltd.,
(136 ITD 23) (SB), addition could not be made. In this case, it was held as
under:-
"Section 40(a)(ia) was introduced in the Act,
by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the
revenue through the mechanism of tax deduction at source. This provision was
brought on statute to disallow the claim of even genuine and admissible
expenses of the assessee under the head 'Income from Business and Profession'
in case the assessee does not deduct TDS on such expenses. The default in
deduction of TDS would result in disallowance of expenditure on which such TDS
was deductible."
On the
remaining questions the Tribunal remanded the matter to the A.O.
Shri Shambhu Chopra, learned counsel for the
department states that the A.O. had recorded findings that on the services for
which assessee was claiming allowance of the expenses, tax was not deducted at
source and thus the expenses on salaries to the employees could not be claimed.
He submits that expenses were clearly disallowable under Section 40 (a) (ia) of
the Act.
We find that CIT (A) has recorded finding that the
allowance was claiming for salaries on which TDS was deducted by M/s Mercator
Lines Ltd. for the assessee. The circumstances in which salaries were paid by
M/s Mercator Lines Ltd. were sufficiently explained and the explanation was
accepted by CIT (A). The CIT (A) held:-
"In the light of the above facts and following
the ratio decidende of the Hon'ble Courts (supra), it is held that firstly, the
provisions of section 194C read with sec 40(a)(ia) of the Act are not
applicable to the case of the appellant. Secondly, nature of expenses incurred
by the assessee do not form part of expenses disallowable under section 40(a)(ia)
of the Act. Thirdly, when such type of expenses incurred by the appellant were
totally paid and not remained payable as at the end of the relevant accounting
period, provisions of section 40(a)(ia) of the Act are not applicable. Further,
the appellant has clarified all the five questions raised as above and its
clarifications are found satisfactory and convincing. Thus no adverse inference
could be drawn on the issues even after making intrusive inquiries in respect
of the transition of business made by the appellant. Thus it is held that the
AO was not justified in making addition of Rs.1,17,68,621/- on account of
disallowance made under section 40 (a) (ia) of the I.T. Act, 1961.The same is
directed to be deleted.Grounds Nos.2 & 3 are allowed."
We do not find that the revenue can take any
benefit from the observations made by the Special Bench of the Tribunal in the
case of Merilyn Shipping and Transport Ltd. (136 ITD 23) (SB) quoted as above
to the effect Section 40 (a) (ia) was introduced in the Act by the Finance Act,
2004 with effect from 1.4.2005 with a view to augment the revenue through the
mechanism of tax deduction at source. This provision was brought on statute to
disallow the claim of even genuine and admissible expenses of the assessee
under the head 'Income from Business and Profession' in case the assessee does
not deduct TDS on such expenses. The default in deduction of TDS would result
in disallowance of expenditure on which such TDS was deductible. In the present
case tax was deducted as TDS from the salaries of the employees paid by M/s
Mercator Lines Ltd., and the circumstances in which such salaries were paid by
M/s Mercator Lines Ltd., for M/s Vector Shipping Services, the assessee were
sufficiently explained.
It is to be noted 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 by the end of the year.
We do not find that the Tribunal has committed any
error in recording the finding on the facts, which were not controverted by the
department and thus the question of law as framed does not arise for
consideration in the appeal.
The income tax appeal is dismissed.
Order Date :- 9.7.2013
SP/
Civil Misc. Review Application No.248688 of 2013 in
Case :- INCOME TAX APPEAL No. - 122 of 2013
Appellant :- Commissioner Of Income Tax,
Muzaffarnagar
Respondent :- M/S Vector Shipping Services(P) Ltd,Muzaffarnagar
Counsel for Appellant :- Shambhu Chopra
Hon'ble Sunil Ambwani,J.
Hon'ble Surya Prakash Kesarwani,J.
The department has sought review of our judgment
dated 9.7.2013 on the grounds that two other appeals have been admitted on
similar question, and that the judgment of Vishakhapatnam Bench of the
Tribunal, on which the reliance is place, has been stayed by the Andhra Pradesh
High Court.
We do not find that the grounds of review are good
and sufficient. The department has not pointed out any error apparent on the
face of record. The admission of two other appeals on the same question or stay
of judgment of Vishakhapatnam Bench of the Tribunal is not a ground on which
the judgment of the Court may be reviewed.
The review application is rejected.
Order Date :- 27.9.2013
RKP
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