STONE & WEBSTER ROLATA LTD, MUMBAI v. JCIT RG 15(3), MUMBAI

ITA 1831/MUM/2009 | 2005-2006
Pronouncement Date: 25-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 183119914 RSA 2009
Assessee PAN AAICS7355M
Bench Mumbai
Appeal Number ITA 1831/MUM/2009
Duration Of Justice 1 year(s) 5 day(s)
Appellant STONE & WEBSTER ROLATA LTD, MUMBAI
Respondent JCIT RG 15(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-03-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 25-03-2010
Assessment Year 2005-2006
Appeal Filed On 20-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE P.M. JAGTAP (A.M.) AND SHRI N.V. VASUDEVAN ( J.M.) ITA NO.1831/MUM/2009 ASSESSMENT YEAR : 2005-2006 STONE & WEBSTER ROLATA LTD. ROLTA BHAVAN ROLTA TECHNOLOGY PARK MIDC MAROL MUMBAI 400 093. PAN : AAICS7355M VS. JCIT RG 15(3) MATHRU MANDIR TARDEO RD. MUMBAI 400 007. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHEKHAR GUPTA RESPONDENT BY : SHRI NAVEEN GUPTA O R D E R PER P.M. JAGTAP A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A) XV MUMBAI DATED 11.07.2008. 2. AT THE TIME OF HEARING BEFORE US THE LEARNED CO UNSEL FOR THE ASSESSEE HAS NOT PRESSED GROUND NO.1 RAISED BY THE ASSESSEE IN THIS APPEAL RELATING TO DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.3 7 38/-. ACCORDINGLY THE SAME IS DISMISSED AS NOT PRESSED. 3. IN GROUND NO.2 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.13 15 575/- AND RS.6 87 385/- MADE BY THE ASSESS ING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF BOARD MEETING FEES AND SATLINK CHARGES RESPECTIVELY. 4. THE ASSESSEE IN THE PRESENT CASE IS A JOINT VENT URE OF M/S. ROLTA INDIA LTD. AND M/S. STONE & WEBSTER USA. IN THE YEAR U NDER CONSIDERATION IT WAS NOT HAVING ANY INFRASTRUCTURE IN INDIA AND SO I T WAS TOTALLY DEPENDENT ON THE PARENT COMPANY M/S. ROLTA INDIA LTD. FOR THE INFRASTRUCTURAL FACILITIES. IN THE P & L A/C FILED ALONG WITH ITS RETURN OF INCOME FOR THE YEAR ITA NO.1831/MUM/2009 A.Y.: 2005-2006 2 UNDER CONSIDERATION THE ASSESSEE COMPANY HAD DEBIT ED RS.26 20 200/- AND RS.34 85 063/- ON ACCOUNT OF BOARD MEETING EXPENSES AND SATLINK CHARGES RESPECTIVELY. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS THE CLAIM OF THE ASSESSEE FOR THE SAID EXPENSES WAS EXAMINED BY THE ASSESSING OFFICER AND ON SUCH EXAMINATION HE FOUND THAT THE ASSESSEE HAS CLAIMED THE EXCESS EXPENDITURE TO THE EXTENT OF RS.13 18 575/- ON ACCOUNT OF BOARD MEETING EXPENSES AND RS.6 87 385/- ON ACCOUNT OF SA TLINK CHARGES. HE THEREFORE DISALLOWED THE SAID EXPENSES TO THAT EXT ENT BEING EXCESS PROVISION OF EXPENDITURE MADE BY THE ASSESSEE. BEFORE THE LEARNED CIT(A) IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT PROVISION FOR BOARD MEETING EXPENSES AT RS.26 20 200/- WAS MADE ON THE BASIS OF BOARD RESOLUTION AUTHORISING PAYMENT OF BOARD MEETING EXPENSES TO EA CH DIRECTOR @5 000 US $ FOR EACH BOARD MEETING. IT WAS SUBMITTED THAT OUT OF THE SAID AMOUNT A SUM OF RS.13 10 625/- WAS PAID IN THE IMMEDIATELY S UCCEEDING YEAR I.E. ASSESSMENT YEAR 2006-07 AND THE BALANCE AMOUNT WHI CH REMAINED UNPAID WAS SUBSEQUENTLY REVERSED AND OFFERED TO TAX AS INC OME IN ASSESSMENT YEAR 2007-08. IT WAS CONTENDED THAT THE LIABILITY FOR BOARD MEETING EXPENSES TO THE EXTENT OF RS.26 20 200/- HOWEVER WAS CRYSTALLIS ED IN THE YEAR UNDER CONSIDERATION AS PER THE BOARD RESOLUTION AND THE S AME WAS RIGHTLY CLAIMED IN THAT YEAR. AS REGARDS THE SATLINK CHARGES IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT THE PRO VISION WAS MADE AT RS.34 85 262/- ON ACCOUNT OF USE OF SATLINK PROVIDE D TO THE ASSESSEE COMPANY BY ITS HOLDING COMPANY. IT WAS SUBMITTED THAT OUT OF THE PROVISION SO MADE A SUM OF RS.28 27 324/- WAS PAID IN THE IMMEDIATELY SUCCEEDING YEAR I.E. ASSESSMENT YEAR 2006-07 AND TH E BALANCE AMOUNT HAD BEEN OFFERED TO TAX AS INCOME IN THAT YEAR BEING EX CESS PROVISION MADE. 5. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE HIM THE LEARNED CIT(A) CONFIRMED THE DISALL OWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOARD MEETING EXPEN SES AND SATLINK CHARGES FOR THE FOLLOWING REASONS GIVEN IN PARA 3.2.2 OF HI S IMPUGNED ORDER: 3.2.2 I HAVE CONSIDERED THE CLAIM OF THE APPELLANT . I FIND THAT BOTH THE AMOUNTS RELATING TO BOARD MEETING EXP ENSES AND SATLINK CHARGES HAVE BEEN PROVIDED UNDER THE ACCOUN T AT THE ITA NO.1831/MUM/2009 A.Y.: 2005-2006 3 END OF THE PREVIOUS YEAR I.E. 31.03.2005. SINCE THIS AMOUNT WAS ONLY PROVISION MADE BY THE COMPANY PRIMA FACIE IT IS NOT ALLOWABLE DEDUCTION. HOWEVER I FIND THAT THE CRYS TALLISATION OF LIABILITY IN RESPECT OF SUCH EXPENDITURE CANNOT BE TOTALLY DENIED. SINCE IT WAS ONLY A PROVISION MADE ON ESTIMATE BAS IS AND THE APPELLANT HIMSELF HAS REVERSED THE DEBIT FOR SUCCEE DING ASSESSMENT YEAR IT IS TO BE UNDERSTOOD THAT THE PR OVISION WAS NOT PRECISE AND THE LIABILITY WAS NOT QUANTIFIED CO RRECTLY. THEREFORE TAKING INTO ACCOUNT THAT EACH ASSESSMENT IS A SEPARATE ASSESSABLE UNIT THE UNACCOUNTED LIABILITY CANNOT BE ALLOWED FOR ASSESSMENT YEAR 2005-06. THE REVERSAL ENTRY MADE BY THE APPELLANT FOR SUCCEEDING ASSESSMENT YEA R SUBSTANTIATES THIS POINT. IT IS A CASE OF POSTPON EMENT OF TAX BY CLAIMING EXCESS EXPENDITURE WHICH WAS NOT ACCRUED. HENCE I CONFIRMED THE DISALLOWANCE OF RS.26 20 200/- AND TH E APPEAL IS DISMISSED ON THIS GROUND. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS INVITED ATTENTION TO PAGE NO.24 OF HIS PAPER BOOK T O POINT OUT THAT THE PROVISION FOR BOARD MEETING EXPENSES OF RS.26 20 20 0/- WAS MADE ON THE BASIS OF BOARD RESOLUTION AUTHORISING BOARD MEETING EXPENSES OF 500 US$ TO EACH DIRECTOR FOR EACH BOARD MEETING. IT IS THUS CLEAR THAT THE PROVISION FOR BOARD MEETING WAS MADE BY THE ASSESSEE COMPANY IN T HE YEAR UNDER CONSIDERATION ON THE BASIS OF BOARD RESOLUTION AND EVEN THE SAME WAS QUANTIFIED ON THE SPECIFIC BASIS AS GIVEN IN THE SA ID RESOLUTION AUTHORISING BOARD MEETING EXPENSES OF 500 US$ TO EACH DIRECTOR PER MEETING. THE LIABILITY ON ACCOUNT OF BOARD MEETING EXPENSES TO T HE EXTENT OF RS.26 20 200/- THUS WAS CLEARLY CRYSTALLISED IN THE YEAR UNDER CONSIDERATION AND THE SAME HAVING BEEN QUANTIFIED WITH REASONABLE CERTAINTY ON THE BASIS OF THE BOARD RESOLUTION WE ARE OF THE VIEW THAT TH E ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF SUCH LIABILITY PROVID ED FOR THAT YEAR. THE SUBSEQUENT EVENT OF REDUCTION IN THE SAID LIABILITY AND THE ACTION OF THE ASSESSEE IN OFFERING THE SAME TO TAX AS ITS INCOME IN ASSESSMENT YEAR 2007- 2008 IN OUR OPINION IS NOT RELEVANT IN THIS CONTE XT SINCE THE CONCERNED LIABILITY WAS PROVIDED FOR THE ASSESSEE ON A DEFINI TE BASIS AND THE SAME WAS ALSO CRYSTALLISED IN THE YEAR UNDER CONSIDERATION. WE THEREFORE HOLD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON A CCOUNT OF EXCESS ITA NO.1831/MUM/2009 A.Y.: 2005-2006 4 PROVISION ALLEGEDLY MADE BY THE ASSESSEE ON ACCOUNT OF BOARD MEETING EXPENSES WAS NOT SUSTAINABLE AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE SAID DISALLOWANCE. THE SAME IS TH EREFORE DELETED. 7. AS REGARDS THE PROVISION MADE BY THE ASSESSEE ON ACCOUNT OF SATLINK CHARGES TO THE EXTENT OF RS.34 85 262/- IT IS OBSE RVED THAT NO BASIS WHATSOEVER WAS GIVEN BY ASSESSEE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE LEARNED CIT(A) FOR QUANTIFICATION OF THE SAID PROVISION. EVEN AT THE TIME OF HEARING BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN ANY BASIS ON WHICH THE SAID PR OVISION WAS MADE AT RS.34 85 262/-. THE SAID PROVISION AT LEAST TO TH E EXTENT IT REMAINED UNPAID AND FINALLY REVERSED IN THE IMMEDIATELY SUCC EEDING YEAR THUS WAS CLEARLY THE EXCESS PROVISION MADE BY THE ASSESSEE W ITHOUT ANY BASIS AND IT COULD NOT BE SAID THAT LIABILITY ON ACCOUNT OF SUCH EXCESS PROVISION WAS CRYSTALLISED IN THE YEAR UNDER CONSIDERATION. TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE SAID EXCESS PRO VISION FOR SATLINK CHARGES THUS WAS FULLY JUSTIFIED IN THE FACTS OF THE CASE A ND WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) CONFIRMING THE SAID DISALLOWANCE. GROUND NO.2 OF THE ASSESSEES APPEAL IS THUS PARTLY ALLOWED. 8. IN GROUND NO.3 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.39 09 725/- MADE BY THE ASSESSING OFFICER AND CO NFIRMED BY THE LEARNED CIT(A) BY INVOKING THE PROVISION OF SECTION 40(A)(I A). 9. DURING THE COURSE OF ASSESSMENT PROCEEDING IT W AS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT DEDUCTE D TAX AT SOURCE FROM THE PAYMENTS MADE TO ROLTA INDIA LTD. ON ACCOUNT OF TEC HNICAL FEES AMOUNTING TO RS.15 82 832/- AND ON ACCOUNT OF INFRASTRUCTURA L SERVICES AMOUNTING TO RS.23 81 893/-. HE THEREFORE INVOKED THE PROV ISIONS OF SECTION 40(A)(IA) AND DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF THE SAID PAYMENTS. THE LEARNED CIT(A) CONFIRMED THE DISALL OWANCE MADE BY THE ASSESSING OFFICER U/S.40(A)(IA) FOR THE FOLLOWING R EASONS GIVEN IN PARA 4.4 OF HIS IMPUGNED ORDER: ITA NO.1831/MUM/2009 A.Y.: 2005-2006 5 4.4 I HAVE CONSIDERED THE FACTS OF THE CASE VIS-- VIS PERUSAL OF AGREEMENT ENTERED BETWEEN THE APPELLANT- COMPANY & M/S. ROLTA INDIA LTD. DTD.30.08.2004. I FIND THA T THE AGREEMENT HAS BEEN CAPTIONED AS AGREEMENT FOR PROV ISION OF IT SOFTWARE ENGINEERING & INFRASTRUCTURE SERVICES. I ALSO FIND THAT CLAUSE 2 OF AGREEMENT CONTEMPLATED TO PROVIDE TWO TAX SERVICES I.E. IT SOFTWARE ENGINEERING SERVICES & IT INFRASTRUCTURE SERVICES FOR WHICH IT IS TO BE CHARG ED SEPARATELY. IT IS ALSO TO BE NOTED THAT THE APPELLANT COMPANY H AS PAID RS.15 82 832/- IN RESPECT OF SOFTWARE SERVICES & RS.23 81 893/- IN RESPECT OF INFRASTRUCTURE SERVES. AS FAR AS SOFTWARE SERVICES IS CONCERNED AT RS.15 82 832/- I T CLEARLY CONVEYS A TECHNICAL OR PROFESSIONAL SERVICES. FOR WHICH IT HAS BEEN PAID. UNDOUBTEDLY IT ALSO COMES WITHIN THE P URVIEW OF 115J R.W DEFINITION GIVEN FOR FEE FOR TECHNICAL SE RVICES GIVEN IN EXPLANATION 2 TO SEC.9(1)(VII). HENCE I HAVE NO ESTIMATION TO HOLD THAT PROVISION OF SEC. 194J IS CLEARLY APPLICA BLE ON SUCH TECHNICAL FEES PAID AND ASSESSEE WAS UNDER LEGAL OB LIGATION TO DEDUCT THE TAX ON THE SAID AMOUNT. AS REGARD TO TH E AMOUNT PAID IN LIEU OF INFRASTRUCTURAL SERVICES AT RS.23 8 1 893/- IT IS CLEARLY IN NATURE OF RENT PAID FOR USE OF FURNISHED SPACE PROVIDED TO APPELLANT-COMPANY BY M/S. ROLTA INDIA L TD. HENCE IT IS ALSO COVERED BY PROVISION OF SEC. 1941 WHICH MANDATES THE APPELLANT TO DEDUCT THE TAX ON SUCH PA YMENT. SINCE THE APPELLANT HAS NOT DEDUCTED TDS ON SUCH A MOUNT THE PROVISION OF SEC.40(A)(IA) CLEARLY VISITED. THE D ECISION OF SUPREME COURT IN THE CASE OF HINDUSTAN COCOA BEVERA GES PVT. LTD. VS. CIT 293 ITR 226 ARE ALSO NOT APPLICABLE AS THE SAID DECISION WAS NOT ON THE POINT OF DISALLOWANCE U/S.4 0(A)(IA). THE SAID DECISION WAS IN THE DIFFERENT CONTEXT WH ERE IT WAS HELD THAT A PAYER CANNOT BE FORCED TO PAY THE TDS O NCE THE TAX HAS BEEN PAID BY THE PAYEE. IN ANY CASE SEC40(A) (IA) IS A DEEMING PROVISION AND IT IS TO BE MANDATORY APPLICA BLE CREATED BY FICTION OF LAW. HENCE APPEAL IS DISMISSED ON T HIS GROUND. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS REGARDS TO DISALL OWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT( A) ON ACCOUNT OF TECHNICAL FEES OF RS.15 82 832/- BY INVOKING THE PR OVISIONS OF SECTION 40(A)(IA) THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT RAISED ANY CONTENTION TO DISPUTE THE SAID DISALLOWANCES. THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER TO THAT EXTENT IS ACCORDINGLY CONFIRMED. AS REGARDS THE REMAINING DISALLOWANCE OF RS.23 81 893/- MADE U/S.40(A)(IA) O N ACCOUNT OF INFRASTRUCTURAL SERVICES PAID TO M/S. ROLTA INDIA L TD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS INVITED OUR CONTENTION TO THE RELE VANT PORTION OF PARA 4.4 OF ITA NO.1831/MUM/2009 A.Y.: 2005-2006 6 THE IMPUGNED ORDER OF THE LEARNED CIT(A) WHERE HE H AS HELD THE INFRASTRUCTURAL CHARGES PAID BY THE ASSESSEE TO M/S . ROLTA INDIA LTD. AS IN NATURE OF RENT PAID FOR USE OF FURNISHED SPACE. I N THIS REGARD THE LEARNED COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE PROVISIONS OF SECTION 40(A)(IA) TO POINT OUT THAT PAYMENT OF RENT AND ROYALTY HAS BEEN COVERED IN THE SAID PROVISION BY THE TAXATION LAWS (AMENDMENT) ACT 2006 W.E.F. 01.04.2006. HE HAS CONTENDED THAT PAYMENT OF RENT THUS WAS NOT COVERED BY THE PROVISION OF SECTION 40(A)(IA) FOR T HE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2005-06 AND NO DISALLOWANCE ON ACCOUNT OF RENT COULD BE MADE BY INVOKING THE SAID PROVISION. SINCE T HIS POSITION CLEARLY EVIDENT FROM THE RELEVANT PROVISION OF SECTION 40(A)(IA) CO VERING THE PAYMENT OF RENT AND ROYALTY ONLY W.E.F. 01.04.2006 I.E. ASSESSMENT YEAR 2006-07 AND ONWARDS HAS NOT BEEN DISPUTED EVEN BY THE LEARNED D .R. WE HOLD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONF IRMED BY THE LEARNED CIT(A) ON ACCOUNT OF PAYMENT OF RENT FOR FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE THEREFROM INVOKING THE PROVISION OF SECTI ON 40(A)(IA) IS NOT SUSTAINABLE AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRM ING THE SAME. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO DE LETE THE DISALLOWANCE MADE U/S.40(A)(IA) TO THE EXTENT OF RS.23 81 893/-. G ROUND NO.3 IS THUS PARTLY ALLOWED. 11. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF MARCH 2010. SD/- (N.V. VASUDEVAN) (JUDICAIL MEMBER) SD/- (P.M. JAGTAP) (ACCOUNTANT MEMBER) MUMBAI DATED 25 TH MARCH 2010. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- VIII MUM BAI 4. COMMISSIONER OF INCOME TAX CITY- VIII MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH E MUMBAI ITA NO.1831/MUM/2009 A.Y.: 2005-2006 7 //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI ITA NO.1831/MUM/2009 A.Y.: 2005-2006 8 DATE INITIALS 1. DRAFT DICTATED ON 23-03-10 PS 2. DRAFT PLACED BEFORE AUTHOR 24-03-10 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER