TaxTMI 
TaxTMI 
2016 (8) TMI 325
X X X X Extracts X X X X
X X X X Extracts X X X X
....XX, Ahmedabad dated 30.09.2014 for AY 2008-09. The appeals for AYs 2006-07, 07-08, 09-10 are framed consequent to reassessment proceedings u/s 147/148; AY 08-09 has been passed u/s 143(3) r.w.s 263 and AY 2011-12 is by way of a regular assessment u/s 143. Since all these appeals involve common issues, these were heard together and are being disposed of by this consolidated order for the sake of convenience. 2. Common grounds raised in the assessee's appeals are as under:- a. Assessment Years: 2006-07, 07-08, 09-10: "1. Ld. CIT (A) erred in law and on facts in dismissing the ground challenging action of AO making reassessment u/s 147 beyond a period of 4 years in absence of any failure on the part of the appellant to fully and truly disclose all material facts. Ld. CIT (A) ought to have held order passed by AO u/s 143 (3) r w s 147 as illegal, invalid and bad in law. It be so held now. 2. Ld. CIT (A) erred in law and on facts in not appreciating that reopening on examination of the very same material of original assessment framed after detailed scrutiny u/s 143 (3) amounts to change of opinion impermissible under law. Ld. CIT (A) ought to have quashed reassessment order pass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellant is subjected to same tax rate in all the years and income being in the highest slab rate, the manner of accounting at the end of payee cannot effect actual expenditure of the appellant in a particular year when duly audited books of accounts are accepted by AO. Ld. CIT(A) ought to have deleted disallowance u/s 40(a)(ia) of the Act. c. Assessment Year 2011-12:- 9. Ld. CIT(A) erred in law and on facts in: a. Confirming disallowance of Rs. 2,81,38,206/- claimed on account of cash embezzlement b. Confirming disallowance holding embezzlement loss as 'prior period expenses' not appreciating that it is allowable as business loss in the year of claim and need not be claimed only in the year of detection of fraud. c. Alternatively and without prejudice, direction may be given to allow genuine business loss of A.Y. 2010-11 10. Ld. CIT(A) erred in law and on facts in: a. Confirming lump sum disallowance of Rs. 5 lacs out of 50 lacs to cover the leakage of revenue if any. b. Confirming addition of Rs. 2,82,020/- u/s 40A(3) of the I T Act. c. Confirming disallowance of Rs. 2 lacs on adhoc basis out of burning expenses. d. Confirming alleged unexplained expenditure of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt to IRCTC were considered by ld. AO in original assessments framed u/s 143(3). The 148 notices were issued after a period of 4 years from the end of the assessment years. There was no failure on the part of the assessee in disclosing all the relevant primary facts and reasons did not say that there was any failure on the part of the assessee in disclosing primary facts, which has been held by courts to be a mandatory condition in order to issue 148 notice after end of 4 years from the end of relevant assessment year. Consequently reasons were inadequate, without application of mind and perusal of record and were untenable. The issue of allowability of payments to IRCTC having been allowed as business expenditure u/s 143(3), the reassessments tantamount to review of the order which was not permissible. Therefore, the reassessment notice and reassessments were invalid and untenable. c. On merits, the payments to IRCTC were for license fee simpliciter and cannot be assumed to be payments for managerial and technical services as contemplated by sec. 194J. Therefore assessee was not liable for TDS u/s 194J or any other provisions of TDS; consequently impugned payments cannot be disa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....posed the 147/148 notices by filing objections which are placed at paper-book 1 to 20. Attention of ld. AO was drawn to the notice under section 142(1) issued during original assessment proceedings by which proper details of License fees paid and details of TDS were furnished. Again, by reply dated 14.03.2009 complete details of explanation and information of business activity, license fee were submitted. It is pertinent to point out that the ld. AO has accepted this fact in his order (AY 2008-09) on Objections dated 19.12.2012 where he states that, ..... " Though the assessee has furnished details of payment regarding license fees to IRCTC but the assessee has not furnish the details regarding TDS not applicability nor the confirmation from IRCTC as to TDS incidents up to A.Y. 2007-08 as per administrative policy / clarification from CBDT and the Railway Ministry in regard to the deduction of TDS which proves that there is no statutory requirement of deduction of tax at source..." 4.2 It is thus abundantly clear that the AO made proper inquiries about IRCTC payments, license fee, issues about TDS and other relevant queries relevant to the issue of TDS, after due inquiries....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inator of India 256 ITR 1 (Delhi )(FB). It has been emphatically held by Hon'ble Supreme Court that even after 1.04.1989 amendment in sec.147, on a change of opinion, proceedings under s. 147 were not valid. In this judgment, reassessment was sought to be made within four years (For A.Y. 1987-88, notice under s. 148 issued on 20.04.1990) whereas in assessee's case they are issued after expiry of 4 years from the assessment year. There is no mention whatsoever in reasons recorded for reopening that there is any failure on the part of the assessee in disclosing the relevant details during the course of regular assessments. Hon'ble Supreme Court has squarely held that concept of change of opinion must be treated as in-built balancing mechanism to check abuse of power to reopen. 4.5 Further reliance is placed on the Gujarat High court judgment in the case of Ashwamegh Co.op Hous. Society Ltd Vibhag-2 vs. Dy CIT (2013) 214 Taxman 42 (Guj) Mag./ 254 CTR 362 (Guj); Hon'ble Jurisdictional High Court has held that even within a period of four years, reopening on change of opinion is not permitted by observing as under:- ". ....... It is true that the impugned notice has been issued withi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or failure on the part of the assessee to disclose fully and truly all material facts. The Income-tax Officer had all the material facts before him when he made the original assessment. He cannot now take recourse to section 147(a) to remedy the error resulting from his own oversight". 4.8 It is contended that assessee's case stands on even better footing as ld. AO did call for the details and verified them; based thereon a view was formed to allow the expenditure. Adverting to the other aspects ld. Counsel contends that the in reasons ld. AO has recorded that "On verification of assessment records for A.Y. 2007-08......". Therefore, it is clear that it is from the very same facts and material available on record that the assessment is sought to be reopened. 4.9 Hon'ble Gujarat High Court in the case of Parixit Industries vs ACIT (2012) 207 Taxman 140 (Guj) has held that reassessment is not permissible to reassess again by a second thought by considering the same material. The Department's SLP against this judgment has also been dismissed by Hon'ble Supreme Court. Therefore, looking from any angle the impugned reassessments are bad in law. 4.10 Further reliance is placed on Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ermissible. 5.1 Ld. Counsel contends that Hon'ble Supreme court judgment in the case of Kelvinator India is subsequent to Sakthi Judgment and is squarely covers the facts of assessee's case, therefore, Madras High court judgment in Sri Sakthi will not apply as compared to Hon'ble Supreme court judgment. 6. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. Adverting to the validity of reassessment proceedings in AY 2006-07, 2007-08 and 2009-10, relevant facts about original assessments being u/s 143(3), IRCTC license payments fees having been allowed as business expenditure after calling for relevant details about payments and TDS compliance, legal position and other relevant aspects have been discussed above. Following facts emerge from these observations:- i. Assessee has demonstrated that all the relevant facts about payment to IRCTC and assessee's TDs record were considered by ld. AO in original assessments. Thereafter the IRCTC payments were allowed as business expenditure, which implies that AO was of the opinion that provisions of sec. 40(a)(ia) of Act were not applicable to assessee. ii. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erse methodology is followed i.e. the license fee is paid by contractee to contractor for availing the license to serve food on trains. The simple payment of license fee can by no stretch of imagination be assumed to for availing any managerial or technical services rendered by IRCTC as contemplated by sec. 194J. b. Besides normally the TDS is deductible u/s 194C by contractor out of payments to any contractee. Whereas it is a reverse case and contractee has no liability for TDS u/s 194C. License confers a mere right of vending and not for rendering any service whatsoever, services if any are rendered by contractee . Thus there being no TDS liability u/s 194J or 194C, license fee cannot be disallowed under sec. 40(a)(ia) of Act under no circumstances. Ld. AO however rejected the assessee's valid objections & explanations without giving cogent reasons and took an outlandish view that license payments to IRCTC were for managerial and technical services as contemplated by sec. 194J, since TDS was not made, payments were disallowed as expenditure u/s. 40(a)(ia) in impugned years. 7.2 It is further contended that ld AO grossly misdirected and erred in holding on second thought that l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee, the entire amount paid to BSE was not allowable u/s 40(a)(ia). Hon'ble Supreme Court reversed the High Court order, gist if as under: (i) "Managerial and consultancy services" and, therefore, necessarily "technical services", would obviously involve services rendered by human efforts. This has been the consistent view taken by the courts including Supreme Court in Bharti Cellular Ltd. 330 ITR 97. (ii) The automated services made available by the BSE are available to all members for transaction effected through it. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. (iii) "Technical services" like "Managerial and Consultancy service" would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Excha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. The IRCTC is the contractor who awards rights and assessee is the contractee obliged to pay license fee for availing the rights conferred. Ld. CIT(A) has completely misconstrued the facts and by erroneous understanding has assumed that assessee is the contractor and IRCTC is the Contractee and therefore, sec. 194C is applicable. The entire basis is misconceived, misdirect and the liability has been fastened by wrong understanding of basic facts. This simple payment of license fee by contractee to contractor can by no stretch of imagination be assumed to liable for TDS u/s. 194C. Ld. CIT(A) failed to appreciate that tt is a reverse case and contractee has no liability for TDS u/s 194C. 7.5 Therefore, when no service much less technical service are rendered there is no question of liability of TDS u/s 194I. Likewise when in the license process where contractor confers a right of catering on a contractee against license fee, there being no TDS liability on u/s 194C, license fee cannot be disallowed under sec. 40(a)(ia) of Act under any circumstances. 7.6 Ld. Counsel contends that, it is also not a payment covered u/s 28(va) which is in respect of any sum for not sharing any know ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gh capital of SAIL was entirely owned by Government of India, but by virtue of its incorporation under the Companies Act, 1956 its personality was held to be distinct than that of the Government of India. Similarly, reliance has been placed on the judgement of the Hon'ble Supreme Court in the case of Heavy Engineering Mazdoor Union vs. State of Bihar, AIR 1970 SC 82 for the proposition that in the absence of statutory provisions, a commercial corporation acting on its own behalf, though controlled wholly or partially by a Government department, will be ordinarily presumed not to be a servant or agent of the State. On the aforesaid basis, it is sought to be made out that assessee has not entered into an agreement with any statutory body or any other entity specified in sub-clause (b) of section 80IA(4)(i) of the Act for the purpose of executing the work relating to 'Saurashtra Branch Canal Pumping Scheme'; and, thus the mandatory condition prescribed in section 80IA (4)(i)(b) of the Act has not been complied with. 7.8 Pune ITAT, apart from various High court and supreme Court judgments mentioned therein derived support from Ahmedabad Bench decision in the case of JCIT vs. Sardar Sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ency or instrumentality. (iv) Whether the corporation enjoys monopoly status which is State conferred or State protected is a relevant factor. (v) If the functions of the corporation are important public functions and related to governmental functions it would be a relevant factor in classifying the corporation as instrumentality or agency of the Government. (vi) If a department of Government is transferred to a corporation, it would be a strong factor supportive of the inference that it is an instrumentality of the State (vii) Where the chemistry of the corporate body answers the test of State if comes within the definition of Article (viii) Whether the legal person is a corporation created by a statute, as distinguished from under a statue is not an important criterion although it may be an indicium." 18. As per the Hon'ble Supreme Court, if the aforesaid tests are fulfilled by an entity, it would qualify to be understood as an instrumentality of State. As per the Hon'ble Supreme Court, the aforesaid tests provide an aid to determine whether a particular body is a State within meaning of Article 12 of the Constitution of India. Emphasizing the import of the aforesaid ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quite obvious that apart from executing, operating and maintaining the Sardar Sarovar project it is also involved in promoting schemes in the State of Gujarat for flood control in the Narmada river, irrigation and water supply schemes for utilization of water from Sardar Sarovar. All these are essentially government functions and obligations, which are being performed by SSNNL. The next test is if a Department of a Government is transferred to a corporation. In this context, it is quite clear that the erstwhile Narmada Development Department consisting of its employees as well as the assets of Sardar Sarovar project were transferred enbloc by the Government of Gujarat to SSNNL. The next test is as to whether the chemistry of the concerned body answers the test of a State. In our view, the said test is also fulfilled in the face of the fact that the incorporation of SSNNL, its ownership, management, control as well as the powers have a unmistakable stamp of a Government. 20. In view of the aforesaid discussion, in our view, the tests laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) are fulfilled in the present case and it would be appropriate to dedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... information, requires no verification of new facts and is imperative for proper decision of these appeals. Reliance is placed on Supreme Court judgment in NTPC - 229 ITR 283. 7.13 Ld. DR is heard, after hearing both parties, respectfully following Hon'ble Supreme court judgment in the case of NTPC judgment we are inclined to admit the additional ground. In view thereof the prayer to admit relevant letter addressed to IRCTC to forward the prescribed Form No. 26 and their certificate as additional evidence is accepted as they are necessary to decide the issue and assessee obtained them in view of Rajkot Special Bench judgment. 7.14 It is submitted that as per amended second proviso to section 40(a)(ia) , if an assessee who fails to deduct tax is not deemed to be in default under first proviso to sub-section (1) of section 201 , then it is deemed that the assessee has deducted tax and paid the same and no disallowance is to be made. First proviso to section 201 (1) inter alia provides that if payee has furnished its return of income and has taken in to account such sum in computing its income and tax payable is paid then for non deduction of tax on payment made to payee, the payer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stretch of imagination be assumed to come under the purview of sec. 194C. There being no TDS liability either u/s 194C or 194J, license fee paid cannot be disallowed under sec. 40(a)(ia) of Act under any circumstances. c. The license fee payment is not covered u/s 28(va) also, which is specifically for payments to sharing any know how, patent , copy right , trade mark, license, franchise or any other business or commercial right of similar nature etc. the similar nature of great significance and the impugned license fee not being paid for sharing any know how, patent , copy right , trade mark, license, franchise cannot fall under its purview. d. Apropos additional ground also respectfully Hon'ble Supreme court judgments Som Prakash Rekhi has laid down parameters as to when a corporation can be called a state for legal and practical purposes. Income Tax law provides some beneficial and relaxing provisions for Govt. local bodies etc. for ease of administration and flexibility. TDS is a mechanism to avoid nonpayment of taxes by payees. Legislature in its superior wisdom has intended that Govt. Bodies will not venture into nonpayment of their income tax, therefore they are exenpte ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment loss; the facts, contentions and conclusions from the Assessing Officer's level are as under:- "6.2. The submission of the assessee has been verified, but the same is not found convincing. The assessee himself states that the embezzlement was occurred during the F.Y.2008-09 relevant to A.Y.2009-10 and F.Y.2009-10 relevant to A.Y.2010- 11. The assessee has claimed a part of the amount in the A.Y.2010-11 and the remaining part in the current assessment year. The information provided by the assessee with regard to embezzlement of cash can be summarized as follows:- (i) The embezzlement was done by an employee of the assessee namely Mr. Rajesh J. Joshi, during the period 02.06.2008 to 15.02.2010. (ii) The fraud was carried out not only in the case of assessee, but in various' sister concerns of the assessee also, totaling to Rs. 5,61,14,131/. (iii) Assessee claims to have recovered some part of the embezzled amount (However, there is no evidence on record to prove such a claim). (v) The total misappropriation of funds in the case of assessee were to the tune of Rs. 3,94,71,082/-, i.e. Rs. 2,57,61,000/- in the F.Y.2008-09 and Rs. 1,37,10,082/- in the F.Y.2009-10, wher....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f embezzlement and claim the same in the return filed for A.Y.2010-11 itself. The assessee is following mercantile system of accounting. For the purpose of computing yearly profits and gains for assessment to Income-tax, each year is a separate and self-contained period of time and losses and expenses incurred before its commencement and after its expiry cannot be the subject of any allowance in assessing the income of that particular year. In making the assessment for any particular year, deductions can therefore be permitted only in respect of expenses, which are found to have been incurred in the relevant accounting period. In adjudging the admissibility of a claim for deduction, the determination of the question whether the assessee had incurred the expenditure during the relevant accounting period is an indispensable preliminary step. Under the mercantile system of accounts, the income and the expenditure are required to be accounted for in the relevant year. The expenditure is allowable in the year to which it relates. Instead of debiting the same in the year in which it occurred, the assessee chose to claim the deduction in two parts, i.e. first part in the A.Y.2010-11 and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee debited 30% in AY 2010-11 hoping that balance will be recovered subsequently. In the impugned year, the assessee exhausted all his ways and means and came to a business decision that no amount will be recoverable and wrote off the balance amount. Ld. Counsel contends that Circular No.35-D dated 24.11.1965 is very old and reliance on Hon'ble Supreme Court judgment in the case of Badridas Daga vs. CIT, 34 ITR. In this regard, the ld. Counsel for the assessee drew our attention to assessee's written submission dated 06.05.2014, which was filed before the ld. CIT(A), which reads as under:- ".....In response to the show cause notice issued by the Id AO, the appellant has submitted a detailed reply dated 30.01.2014. A copy of said reply is attached EXHIBIT-C page No...to.. At point No: 2, the appellant has clarified the factual aspects . It is also admitted fact that the appellant had written off Rs. 1,20,59,230/- being 30% of the total loss in the assessment year 2010-11 on the hope that it would be able to recover balance 70% as Court had granted remand of the accused and the accused employee will be able to pay that much sum rest he might have used away or lost. It is als....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d cannot be recovered. It was thus in this background that the CBDT issued a circular that loss should be allowed in the year in which it is discovered. It is not to be understood that if assessee honestly expects chance of part recovery, he must write off and claim entire amount in the year of detection. This is the concession given by CBDT but the fact remains that the CBDT has also considered above judgment of Apex Court. Your honours kind attention is drawn to the judgment in the case of CIT vs Durga Jewellers 172 ITR 134 (MP) in which also it was held that where the assessee was hopeful of recovery, the loss could be allowed in the next year when that hope is vanished while it is found that no recovery is possible. It is therefore submitted that as submitted by appellant to the AO, despite sincere and honest efforts to recover the sum through police and Court, the same being found of no use, the balance amount is written off. The disallowance made is therefore unjustified and deserves to be deleted. It be so held now. Without prejudice to the above, since the Id AO has disallowed the claim on the ground that it amounted to claim of prior period expenses, it is submitted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., (2013) 358 ITR 0295 to the effect that if the assessee is chargeable to tax on the same rate, preponement or postponement of liability is revenue neutral and should not be agitated by the Revenue in appeals. In view of the Hon'ble Supreme Court judgment, the embezzlement loss may be allowed in this year; alternatively since the year of allowability i.e. AY 2010-11 is acceptable to revenue, a suitable direction may be to allowed the same in AY 2010-11. Therefore, in the interest of substantial justice, a direction may be given to allow the same in AY 2010-11. 10. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. From the facts mentioned above, it is undisputed facts that the embezzlement claim of the assessee is genuine, legal and the loss there from is allowable. Revenue takes a stand that the assessee should have claimed the entire loss in AY 2010-11. Per contra, the assessee claims that some ray of hope was remaining to recover the part of the amount and to be on a safer side and its commercial wisdom, it was felt expedient to claim 30% for AY 2010-11 and 70% in AY 2011-12. Revenue has no objecti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the assessee contends that the expenditure in question is incurred by the staff on moving train staff at various stations having a stoppage of 3 to 5 minutes. It is impossible to pay cheque during mobility and the payments are necessarily to be made in cash to cope up with the mobile pantry car requirements. These payments are covered under Rule 60DD, therefore, no disallowance is called for u/s 40A(3). 14. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. We find merit in the contentions of the ld. Counsel for the assessee. In our considered view, the cash payments are made in exceptional circumstances and the same are covered by Rule 60DD and cannot be disallowed u/s 40A(3). This ground of the assessee is allowed. 15. Ground No.12 of assessee's appeal for AY 2011-12 and revenue ground 3 pertains to ad-hoc disallowance of Rs. 2,00,000/- towards burning expenses the subject matter is same as assessee's Ground No.10 - lump-sum addition. Therefore, for the same reasons, the disallowance of Rs. 2,00,000/- is deleted. This ground of the assessee is allowed. 16. Apropos Ground No.13 of assessee's appe....