M/S. RMC READYMIX (INDIA) PVT. LTD, MUMBAI v. THE DCIT CEN CIR 34, MUMBAI

ITA 1255/MUM/2008 | 2004-2005
Pronouncement Date: 07-01-2011 | Result: Dismissed

Appeal Details

RSA Number 125519914 RSA 2008
Assessee PAN AAACR4938D
Bench Mumbai
Appeal Number ITA 1255/MUM/2008
Duration Of Justice 2 year(s) 10 month(s) 17 day(s)
Appellant M/S. RMC READYMIX (INDIA) PVT. LTD, MUMBAI
Respondent THE DCIT CEN CIR 34, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 07-01-2011
Date Of Final Hearing 16-09-2010
Next Hearing Date 16-09-2010
Assessment Year 2004-2005
Appeal Filed On 20-02-2008
Judgment Text
ITA NO.: 1255/MUM/08 ASSESSMENT YEAR: 2004-05 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH MUMBAI [CORAM : N V VASUDEVAN JM AND PRAMOD KUMAR AM] ITA NO.: 1255/MUM/08 ASSESSMENT YEAR: 2004-05 RMC READYMIX INDIA PVT LTD .. APPELLA NT 7 TH FLOOR WINDSOR CST ROAD NEAR VIDYANAGARI KALINA MUMBAI 400 098 PAN : AAACR4938D VS. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 34 MUMBAI 400 020 .. RES PONDENT APPEARANCES: NITESH JOSHI FOR THE APPELLANT JITENDRA YADAV FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL THE ASSESSEE HAS CHALLENG ED CORRECTNESS OF CIT(A)S ORDER DATED 7 TH JANUARY 2008 FOR THE ASSESSMENT YEAR 2004-05 ON THE FOLLOWING GROUNDS OF APPEAL : 1. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS 6 99 4 92 OUT OF MISCELLANEOUS EXPENSES STATING THAT IT IS PERTAININ G TO TDS PAYMENT IGNORING THE APPELLANTS SUBMISSION THAT THE SAME C ONSTITUTED BUSINESS EXPENDITURE OF THE APPELLANT. ITA NO.: 1255/MUM/08 ASSESSMENT YEAR: 2004-05 PAGE 2 OF 7 2. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE DEDUCTION OF DEBT RECOVERY TRIBUNAL EXPENSES AMOUNTING TO RS 27 39 911 OUT OF MISCELLANEOUS EXPENSES TREATING THE SAME AS CAPITAL EXPENDITURE. 2. SO FAR AS THE FIRST GROUND OF APPEAL IS CONCERNE D THE MATERIAL FACTS ARE LIKE THIS. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A DEDUCTION O F RS 6 99 492 IN RESPECT OF TDS PAID BY FLETCHER PIONEER INDIA PVT LTD WHICH HAD MERGED IN THE ASSESSEE COMPANY ON CERTAIN FOREIGN REMITTANCES. THIS AMOUNT REPRESENTED THE DEMANDS RAISED BY THE INCOME TAX OFFICER ( INTE RNATIONAL TAXATION BANAGLORE) UNDER SECTION 201 OF THE INCOME TAX ACT IN RESPECT OF ALLEGED NON DEDUCTION OF TAX AT SOURCE FROM REMITTANCES MAD E BY THE ASSESSEE TO HANSONS PACIFIC (S) PTE LTD SINGAPORE. THE ASSESSE E CLAIMED DEDUCTION OF THIS AMOUNT WHICH WAS AN ADDITIONAL PAYMENT BY THE ASSE SSEE IN RESPECT OF REMITTANCES TO HANSONS AS AN EXPENSES IN THE ASSES SMENT YEAR 2004-05 I.E. THE YEAR BEFORE US. THE ASSESSEE CLAIMED THAT THE AFORESAID PAYMENT IS NOT A PAYMENT OF TAX LIABILITY OF THE APPELLANT BUT A PAY MENT TO AVAIL SERVICES FROM HANSONS WHICH AS PER THE UNDERSTANDING WITH HANSON THE APPELLANT WAS LIABLE TO BEAR. WE MAY ALSO MENTION THAT IN THE SUBSEQUENT YEAR WHEN THE ASSESSEE WON APPEAL AGAINST THIS TAX WITHHOLDING LI ABILITY THE ASSESSEE OFFERED THE REFUND OF RS 6 99 492 AS INCOME OF THE ASSESSEE. THE CLAIM FOR DEDUCTION WAS DECLINED BY BOTH THE AUTHORITIES BELO W AND THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. ITA NO.: 1255/MUM/08 ASSESSMENT YEAR: 2004-05 PAGE 3 OF 7 4. LEARNED COUNSEL HAS LAID LOT OF EMPHASIS ON THE FACT THAT THE CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON TH E GROUND THAT THE SUBJECT AMOUNT REQUIRED TO BE DEPOSITED AS TDS BY THE INCOM E TAX DEPARTMENT WAS NEVER ADMITTED AS A LIABILITY BY THE APPELLANT AND THEREFORE IT WAS NEVER AN EXPENSES MUCH LESS AN ALLOWABLE ONE. IT IS CONTEN DED THAT THIS LINE OF REASONING IS INCORRECT INASMUCH AS AT THE POINT OF TIME THE MONEY WAS PAID BY THE ASSESSEE IT WAS INDEED HIS LIABILITY AND TH E LIABILITY WAS CANCELLED ONLY IN THE SUBSEQUENT YEAR I.E. THE YEAR IN WHICH ASSES SEE OFFERED THE TDS LIABILITY CANCELLATION TO TAX. ON THE BASIS OF HON BLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF SRIKANT TEXTILES VS CIT (81 ITR 222) IT IS SOUGHT TO BE ARGUED THAT THE DEMAND RAISED BY THE INCOME TAX AUT HORITIES IS A CRYSTALLIZED LIABILITY IN THE YEAR IN WHICH DEMAND IS INITIALLY RAISED. IN OUR CONSIDERED VIEW HOWEVER THE ISSUES BEING RAISED BY THE LEARN ED COUNSEL ARE NOT REALLY RELEVANT INASMUCH AS THE LAW IS WELL SETTLED THAT A TAX WITHHOLDING LIABILITY RAISED UNDER SECTION 201 IN RESPECT OF REMITTANCES MADE ABROAD CANNOT BE ALLOWED AS A DEDUCTION. ON MATERIALLY SIMILAR FACTS HONBLE SUPREME COURT HAS IN THE CASE OF INDIA ALUMINUM CO LTD VS CIT (7 9 ITR 514) HELD AS FOLLOWS: SECONDLY THE QUESTION IS WHETHER THE ASSESSEE COUL D CLAIM DEDUCTION UNDER SECTION 10(2)( XV ) OF THE ACT [ PARI MATERIA WITH SECTION 37(1) OF 1961 ACT ] . FOR THAT PURPOSE THE ASSESSEE HAD TO ESTABLISH T HAT THE AMOUNT IN QUESTION HAD BEEN WHOLLY AND EXCLUSIVELY LAID OUT F OR THE PURPOSE OF ITS BUSINESS. OUR ATTENTION HAS BEEN INVITED TO A DECIS ION OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME-TAX V. PANNALAL NAROTTAMDAS & CO. [1968] 67 ITR 667 (BOM.) IN WHICH IT WAS HELD THAT THE AMOUNT OF PENALTY IMPOSED NOT FOR THE FAULT OF THE ASSESSEE BUT BECAU SE HE HAD TO PAY THE SAME FOR THE PURPOSE OF GETTING THE GOODS RELEASED FROM THE CUSTOMS AUTHORITIES COULD BE REGARDED AS WHOLLY AND EXCLUSI VELY INCURRED FOR THE PURPOSE OF HIS BUSINESS. WE CONSIDER IT UNNECESSARY TO PRONOUNCE ON THE CORRECTNESS OF THIS DECISION. THE POINT WHICH CAME UP FOR CONSIDERATION THERE WAS ALTOGETHER DIFFERENT AND IT CAN AFFORD NO ASSISTANCE TO US IN DETERMINING WHETHER AN AMOUNT WHICH AN ASSESSEE HAD TO PAY BY VIRTUE OF THE PROVISIONS OF THE ACT COULD BE REGARDED AS A N EXPENSE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS. THE ASSESSEE WAS PRESUMED TO KNOW THE RELEVANT PROVISIONS OF THE ACT AT THE TIME WHEN IT ITA NO.: 1255/MUM/08 ASSESSMENT YEAR: 2004-05 PAGE 4 OF 7 ENTERED INTO AN AGREEMENT WITH THE MONTREAL COMPANY WHICH CREATED A CONTRACTUAL OBLIGATION ON THE ASSESSEE TO MAKE PAYM ENT OF THE TAXES DEDUCTIBLE UNDER SECTION 18(3B). AT ANY RATE IT IS DIFFICULT TO UNDERSTAND HOW A PAYMENT MADE UNDER A STATUTORY OBLIGATION BE CAUSE THE ASSESSEE WAS IN DEFAULT COULD CONSTITUTE EXPENDITURE LAID O UT FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS. 5. THE RELEVANT RATIO OF HONBLE SUPREME COURT JUDG MENT IS APTLY SUMMED UP AS FOLLOWS : SECTION 201 READ WITH SECTIONS 36(1)(VII) AND 37(1 ) OF THE INCOME-TAX ACT 1961 [CORRESPONDING TO SECTION 18(7) READ WITH SECTIONS 10(2)(XI) AND 10(XV) OF THE INDIAN INCOME-TAX ACT 1922] DE DUCTION OF TAX AT SOURCE CONSEQUENCES FAILURE TO DEDUCT OR PAY AP PELLANT COMPANY FAILED TO DEDUCT TAX AT SOURCE FROM RETAINER FEE PA ID TO FOREIGN COMPANY ITO TREATED ASSESSEE AS BEING IN DEFAULT UNDER SECT ION 18(7) AND ON PAYMENT OF THAT AMOUNT OF TAX ASSESSEE CLAIMED DEDU CTION THEREFORE UNDER EITHER SECTION 10(2)(XI) OR (XV) HAVING WRIT TEN OFF SAID LIABILITY ON REFUSAL OF NON-RESIDENT COMPANY TO REIMBURSE IT W HETHER PAYMENT IN QUESTION MADE BY APPELLANT COULD NOT BE REGARDED AS BAD DEBT UNDER SECTION 10(2)(XI) DEBT BEING NOT INCIDENTAL TO ITS BUSINESS BECAUSE IT AROSE OUT OF NON-COMPLIANCE WITH PROVISIONS OF ACT AND WAS MORE A MATTER OF COMMERCIAL EXPEDIENCY HELD YES WHETH ER A PAYMENT MADE UNDER STATUTORY OBLIGATION BECAUSE ASSESSEE WAS IN DEFAULT COULD NOT CONSTITUTE EXPENDITURE LAID OUT FOR PURPOSES OF ITS BUSINESS WITHIN MEANING OF SECTION 10(2)(XV) AND HENCE SAME WAS NO T ALLOWABLE UNDER THAT SECTION HELD YES (HEAD NOTES FROM TAXMANNS DIRECT TAX LAWS SOFTWARE 2010) 6. IN VIEW OF THE LAW SO LAID DOWN BY HONBLE SUPRE ME COURT WHICH SQUARELY APPLIES TO THE FACTS OF THIS CASE WE UPHO LD THE DISALLOWANCE SUSTAINED BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. HOWEVER AS REGARDS THE FACT THAT THE ASSESSEE HAS HIMSELF OFFE RED THE SAID AMOUNT ON CANCELLATION OF TDS DEMAND BY THE CIT(A) IN THE IM MEDIATELY SUCCEEDING ASSESSMENT YEAR ONCE WE GIVE A FINDING THAT THE D EMAND PAID BY THE ITA NO.: 1255/MUM/08 ASSESSMENT YEAR: 2004-05 PAGE 5 OF 7 ASSESSEE WAS NOT IN THE NATURE OF DEDUCTIBLE EXPENS E IT IS ONLY COROLLARY THERETO THAT CANCELLATION OF DEMAND CANNOT CONSTITU TE INCOME EITHER. IT IS ONLY ELEMENTARY THAT THE ORDERS GIVING EFFECT TO O R AS A CONSEQUENCE OF THE FINDINGS OF THE APPELLATE AUTHORITY ARE UNDER SECT ION 153(3) NOT BARRED BY TIME AND THE ASSESSING OFFICER WILL THEREFORE GI VE APPROPRIATE RELIEF TO THE ASSESSEE. SUBJECT TO THESE OBSERVATIONS THE GRIEVA NCE OF THE ASSESSEE IS REJECTED. 7. GROUND NO. 1 IS DISMISSED. 8. AS REGARDS SECOND GROUND OF APPEAL THE MATERIAL FACTS ARE LIKE THIS. ON 19 TH JUNE 1988 FLETCHER PIONEER INDIA PVT LTD WHICH H AD MERGED IN THE ASSESSEE COMPANY HAD PURCHASED A PLOT OF LAND AT WHITEFIELD BANGALORE FOR A TOTAL CONSIDERATION OF RS 144 LAKHS. THE ASSESS EE HAD MADE FULL PAYMENTS TO THE SELLER BUT ONE OF ITS CHEQUES FOR RS 17 LAK H THOUGH ORIGINALLY CLAIMED TO HAVE BEEN ISSUED ON 16 TH JUNE 1998 REMAINED UNPAID AND A FRESH CHEQUE FOR THE SAME AMOUNT WAS ISSUED ON 24 TH MARCH 2000 WHICH GOT CLEARED ON 5 TH JULY 2000. THE SELLER HAD AN OUTSTANDING OVERDUE STATE BANK OF INDIA LOAN IN RESPECT OF WHICH PROCEEDINGS WERE PENDING IN THE DE BT RECOVERY TRIBUNAL. IT APPEARS THAT IN DEFIANCE TO NOTICE SERVED ON THE AS SESSEE 12 TH JUNE 1998 CALLING UPON THE ASSESSEE TO HAND OVER THE DUES PAY ABLE TO THE SELLER TO THE STATE BANK OF INDIA THE ASSESSE PAID THE BALANCE AMOUNT OF RS 17 LAKHS TO THE SELLER. THE DEBT RECOVERY TRIBUNAL ALSO HELD THAT T HIS ARRANGEMENT OF ISSUING REPLACEMENT CHEQUE WAS A COLLUSIVE TRANSACTION AND THE ASSESSEE WAS AT FAULT IN MAKING PAYMENT OF RS 17 LAKHS TO THE SELLER. IT WAS ON ACCOUNT OF THIS ALLEGED LAPSE THAT THE DEBT RECOVERY TRIBUNAL ASKED THE ASSESSEE TO PAY AN AMOUNT OF RS 17 LAKHS PLUS 16.25% PA INTEREST. ACCO RDINGLY THE ASSESSEE HAD TO PAY RS 27 39 000 TO THE DEBT RECOVERY TRIBUNAL. THE ASSESSEE CLAIMED THIS PAYMENT AS A REVENUE DEDUCTION WHICH WAS DECLINED B Y THE ASSESSING OFFICER. THE MATTER WAS CARRIED IN APPEAL BUT WITHOUT ANY SU CCESS. THE ASSESSING OFFICER HELD IT TO BE CAPITAL EXPENDITURE IN NATURE . IN APPEAL THE PAYMENT WAS ITA NO.: 1255/MUM/08 ASSESSMENT YEAR: 2004-05 PAGE 6 OF 7 HELD TO BE A GRATUITOUS PAYMENT WHICH HAD TO BE MAD E BECAUSE THE ASSESSEE DID NOT TAKE THE PRECAUTIONS THE ASSESSEE OUGHT TO HAVE TAKEN. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD WE SEE NO MERITS IN THE PLEA THAT THE PAYME NT MADE TO THE DEBT RECOVERY TRIBUNAL SHOULD BE ALLOWED AS A DEDUCTION IN COMPUTATION OF ASSESSEES INCOME. LEARNED COUNSELS RELIANCE ON HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF RAMCHANDER SHIVNARAYAN VS C IT (111 ITR 263) DOES NOT REALLY HELP THE ASSESSEE BECAUSE AS HELD BY HO NBLE SUPREME COURT IN THE SAID CASE WHEN LOSS IS DIRECTLY CONNECTED WITH TH E BUSINESS OPERATION AND INCIDENTAL TO CARRYING ON OF BUSINESS IT CAN BE AL LOWED AS A DEDUCTION BUT THEN IN THE PRESENT CASE THE PAYMENT IN VIOLATION OF GARNISHEE NOTICES ISSUED BY THE DRT WAS MADE NOT IN THE COURSE OF BUSINESS A ND AS INCIDENTAL TO BUSINESS BUT SOLELY WITH A VIEW TO ACQUIRE THE LAN D. IT IS AS A RESULT OF THIS WRONGFUL PAYMENT THAT THE ASSESSEE HAD TO MAKE GOOD THE LOSS TO THE STATE BANK OF INDIA. A PERUSAL OF THE ORDERS PASSED BY TH E DRT CLEARLY EVIDENCE THIS FACT. THIS PAYMENT IN OUR HUMBLE UNDERSTANDING C ANNOT BE SAID TO FOR THE PURPOSES OF BUSINESS AND IS INFACT A PAYMENT FOR C ONTRAVENING THE PROVISIONS OF LAW. THE CIT(A) RIGHTLY UPHELD THE DISALLOWANCE AND WE APPROVE HIS ACTION OF DOING SO. HOWEVER WE SEE MERITS IN ASSESSEES ALTERNATIVE PLEA THAT THIS PAYMENT SHOULD BE INCLUDED IN THE COST OF ACQUISITI ON OF THE ASSET. ACCORDING TO THE LEARNED COUNSEL ONCE ASSESSING OFFICER HOLD S THAT THE EXPENDITURE IS CAPITAL IN NATURE IT HAS TO BE TAKEN INTO ACCOUNT IN THE COST OF ACQUISITION. LEARNED DR DID NOT SERIOUSLY DISPUTE THIS ALTERNATI VE PLEA. IN OUR CONSIDERED VIEW EVEN IF THE PAYMENT BY THE ASSESSEE CAN BE SA ID TO BE A COLLUSIVE PAYMENT TO THE ASSESSEE IN VIOLATION OF GARNISHEE NOTICE THE ONLY PURPOSE OF THE PAYMENT WAS PURCHASE OF PLOT IN AS PEACEFUL AND UNDISPUTED MANNER AS POSSIBLE. THE PAYMENT BY THE ASSESSEE IS NOT IN DIS PUTE NOR IS THERE ANY DISPUTE ABOUT THE PURPOSES OF THIS PAYMENT BEING IN THE NATURE OF PAYMENT TO ACQUIRE THE PROPERTY. BEARING IN MIND ALL THESE F ACTORS AS ALSO ENTIRETY OF THE ITA NO.: 1255/MUM/08 ASSESSMENT YEAR: 2004-05 PAGE 7 OF 7 CASE WE HOLD THAT THE PAYMENT OF RS 27.39 LAKHS THOUGH NOT ADMISSIBLE AS DEDUCTION WILL BE INCLUDED IN THE COST OF ACQUISIT ION OF THE LAND. 10. SUBJECT TO THE ABOVE OBSERVATIONS GROUND NO. 2 IS ALSO DISMISSED. 11. IN THE RESULT AND SUBJECT TO OUR OBSERVATIONS A BOVE THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 7 TH DAY OF JANUARY 2011. SD/- SD/- (N V VASUDEVAN) (PRAMOD KUMAR ) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; 7 TH _ DAY OF JANUARY 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER MUMBAI 4. COMMISSIONER (APPEALS) MUMBAI 5. DEPARTMENTAL REPRESENTATIVE D BENCH MUMBA I 6. GUARD FILE TRUE COPY BY O RDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI