The DCIT, Circle-4,, Ahmedabad v. Ignite Mundra Pvt.Ltd.,, Ahmedabad

ITA 3110/AHD/2010 | 2006-2007
Pronouncement Date: 04-04-2014 | Result: Dismissed

Appeal Details

RSA Number 311020514 RSA 2010
Bench Ahmedabad
Appeal Number ITA 3110/AHD/2010
Duration Of Justice 3 year(s) 4 month(s) 12 day(s)
Appellant The DCIT, Circle-4,, Ahmedabad
Respondent Ignite Mundra Pvt.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 04-04-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 04-04-2014
Date Of Final Hearing 01-04-2014
Next Hearing Date 01-04-2014
Assessment Year 2006-2007
Appeal Filed On 22-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AND SHRI N.S. SAINI ACCOUNTANT MEMBER ITA NO.3110 & 3111/AHD/2010 A.YS. 2006-07 & 2007-08 DCIT CIRCLE-4 AHMEDABAD. VS IGNITE MUNDRA PVT. LTD. (FORMERLY KNOWN AS CANVAS COMMUNICATION P. LTD.) MUDRA TOWER SHANTISADAN SOC. OFF. C.G. ROAD AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. BATHEJA SR.D.R. ASSESSEE(S) BY : SHRI RAKESH JOSHI A.R. / DATE OF HEARING : 01/04/2014 / DATE OF PRONOUNCEMENT: 4/04/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT JUDICIAL MEMBER THESE TWO APPEALS HAVE BEEN FILED BY THE REVENUE AR ISING FROM A CONSOLIDATED ORDER OF LEARNED CIT(A)-VIII AHMEDABA D DATED 16.08.2010. FOR BOTH THE ORDERS ALMOST AN IDENTICAL WORDED GROUNDS HAVE BEEN RAISED REPRODUCED FROM THE LEAD ASSESSMENT YE AR 2006-07 AS UNDER: THE LEARNED CIT(A)-VIII AHMEDABAD HAS ERRED IN LA W AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.61 97 917/- FOR A.Y. 2006-07 (RS .1 56 43 255/- FOR A.Y. 2007-08) MADE BY THE ASSESSING OFFICER U/S.40(A)(IA) OF THE INCOME TAX ACT 1961 WITHOUT PROPERTY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. 1.2 IN DOING SO THE LEARNED CIT(A) HAS ERRED IN L AW AND ON FACTS IN HOLDING THAT THE AMOUNTS PAID PURELY AS REIMBURSEMENT OF MANPOWER CO STS CANNOT BE SUBJECTED TO TDS WITHOUT APPRECIATING THAT THE SAID PAYMENTS MA DE BY THE ASSESSEE TO M/S. MUDRA COMMUNICATION PRIVATE LIMITED WERE IN THE NAT URE OF PAYMENT OF PROFESSIONAL ITA NO.3110 & 3111/AHD/2010 DCIT CIRCLE-4 AHMEDABAD VS. IGNITE MUNDRA PVT. L TD. A.YS.2006-07 & 2007-08 - 2 - CHARGES AND TAX WAS REQUIRED TO BE DEDUCTED AT SOUR CE ON THE AFORESAID PAYMENT BY THE ASSESSEE AS PER THE PROVISIONS OF SECTION 194J OF THE ACT. 1.3 IN DOING SO THE LEARNED CIT(A) HAS ERRED IN LA W AND ON FACTS IN NOT APPRECIATING THAT THOUGH M/S. MUDRA COMMUNICATION PRIVATE LIMITE D IS NOT ENGAGED IN THE BUSINESS OF PROVIDING MANPOWER THE SAID COMPANY HA D A CREW OF TRAINED MANPOWER WHICH HAD BEEN PROVIDED TO THE ASSESSEE COMPANY AND THEREFORE THE PAYMENTS MADE BY THE ASSESSEE TO THE SAID COMPANY WAS IN THE NATU RE OF PAYMENT FOR PROFESSIONAL SERVICES. 1.4 IN DOING SO THE LEARNED CIT(A) HAS ERRED IN LA W AND ON FACTS IN NOT APPRECIATING THAT THE ASSESSEE COMPANY ITSELF HAS ST ARTED DEDUCTING TDS ON THE SAID PAYMENTS FROM THE A.Y. 2008-09 ONWARDS. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 26.12.2008 WERE THAT THE A SSESSEE COMPANY IS IN THE BUSINESS OF ADVERTISING AND MARKETING. THE COMP ANY IS PROVIDING PROFESSIONAL SERVICES IN THE FIELD OF ADVERTISING T O ITS CLIENTS THROUGH VARIOUS AGENCIES. IT WAS NOTED BY THE AO THAT THE A SSESSEE HAD CLAIMED AN EXPENDITURE OF RS.61 97 917/- AND RS.16 183 255/ - RESPECTIVELY AS MANPOWER DEPUTATION COST FOUND TO BE PAID TO MUDRA COMMUNICATION PVT. LTD. (MUDRA). A SHOW CAUSE NOTICE WAS ISSUED B Y THE AO STATING THEREIN THAT THE PAYMENT MADE TO MUDRA COMMUNICATIO N WAS IN THE NATURE OF FEES FOR PROFESSIONAL SERVICES BUT WITHOU T DEDUCTION OF TDS THEREFORE REQUIRED TO BE DISALLOWED IN TERMS OF PR OVISIONS OF SECTION 40(A)(IA) OF IT ACT. THE DETAILS OF THE PAYMENTS MA DE TO MUDRA COMMUNICATION PVT. LTD. WITH THE PARTICULARS MENTIO NED IN THE DEBIT NOTE WERE AS UNDER: DATE OF DEBIT NOTE PARTICULARS OF DEBIT NOTE AMOUNT PAYMENT DATE PAYMENT AMOUNT 31.3.2006 20 00 000 17.8.2006 38 00 000 31.3.2006 20 00 000 25.8.2006 9 00 000 31.3.2006 20 00 000 06.09.2006 7 00 000 31.3.2006 1 97 917 12.10.2006 5 00 000 17.12.2006 1 00 000 12.10.2006 3 74 043 REIMBURSEMENT OF MANPOWER DEPUTATION COST AND EXPENSES 61 97 917 ITA NO.3110 & 3111/AHD/2010 DCIT CIRCLE-4 AHMEDABAD VS. IGNITE MUNDRA PVT. L TD. A.YS.2006-07 & 2007-08 - 3 - 2.1 THE GIST OF THE ASSESSEES REPLY WAS AS UNDER: THE COMPANY DECIDED NOT TO HIRE PAYMENT STAFF FOR ITS BUSINESS SINCE THIS WAS THE FIRST YEAR OF OPERATION AND THERE WAS NO CO NFORMITY OF REGULAR BUSINESS. INSTEAD THEY HAD CHOICE TO DEPEND ON: - TO HIRE MANPOWER OF THIRD PARTY OR - TO HIRE MANPOWER FROM WITHIN THE GROUP/ASSOCIATED C OMPANIES. SINCE THE GROUP COMPANY MUDRA AGREED TO DEPUTE ITS MANPOWER AS AND WHEN REQUIRED BY CANVASS WE DECIDED TO REQUEST MUDRA TO DEPUTE THEIR STAFF MEMBERS FOR WHICH IT WAS AGREED THAT THE ACTUAL SALARY COST FOR THE PERIOD USED BY US SHALL BE SHAR ED AND REIMBURSED TO MUDRA. TO ATTRACT THE PROVISIONS OF SC. 194-J THE CONDITI ONS THAT WOULD BE APPLICABLE WOULD BE AS UNDER: - THERE SHOULD BE AN ELEMENT OF PROFIT INVOLVED. - THERE WOULD BE AN ELEMENT OF RESPONSIBILITY ATTACHE D TO THIS RELATION. - THERE SHOULD BE PROFESSIONAL SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON ADVERTISING. MUDRA IS NOT INTO THE BUSINESS OF SUPPLY OF MANPOWE R OR RENDERING SERVICE BY PROVIDING ITS EMPLOYEES TO US. WE HAVE ONLY SHARED THE ACTUAL MANPOWER COST INCURRED BY MUDRA AND THE MUDRA HAS NEVER PROVIDE D ANY PROFESSIONAL SERVICE TO THE ASSESSEE COMPANY. MUDRA HAS NOT CHAR GED ANY FEE FOR PROVIDING ITS EMPLOYEES NOR HAS EARNED ANY PROFIT IN ANY MANN ER. THE ENTIRE AMOUNT IS THE ACTUAL COST INCURRED BY MUDRA ON BEHALF OF OUR COMPANY AND IT WAS REIMBURSED PURELY ON COST TO COST BASIS AND DOES NO T AND IS NOT INTENDED TO BRING ANY INCOME IN THE HANDS OF MUDRA. THIS IMPLIE S THAT THE CONDITION MENTIONED ABOVE HAS FAILED. 2.2 THE AO WAS NOT CONVINCED AND BY INVOKING THE PR OVISIONS OF SECTION 40(A)(IA) DISALLOWED THE IMPUGNED AMOUNT OF RS.61 97 917/- BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE THE F IRST APPELLATE AUTHORITY. 3. AFTER EXAMINING THE FACTS OF THE CASE LEARNED C IT(A) HAS HELD AS UNDER: 3.2 ) I HAVE CAREFULLY CONSIDERED THE FACTS OF T HE CASE FINDINGS OF THE AO AND SUBMISSION OF THE APPELLANT. APPARENTLY THERE IS NO DISPUTE ON THE FACTS THAT - MUDRA IS NOT INTO THE BUSINESS OF SUPPLY OF MANPO WER OR RENDERING SERVICES BY PROVIDING ITS EMPLOYEES TO OTHERS. ITA NO.3110 & 3111/AHD/2010 DCIT CIRCLE-4 AHMEDABAD VS. IGNITE MUNDRA PVT. L TD. A.YS.2006-07 & 2007-08 - 4 - - THERE IS NO ELEMENT OF PROFIT INVOLVED IN THE TRA NSACTION. THE APPELLANT HAS CATEGORICALLY STATED THAT 'THE CO MPANY DECIDED NOT TO HIRE PERMANENT STAFF FOR ITS BUSINESS SINCE THIS WAS TH E FIRST YEAR OF OPERATION AND THERE WAS NO CONFORMITY OF REGULAR BUSINESS. INSTEA D THEY HAD CHOICE TO DEPEND ON: TO HIRE MANPOWER OF THIRD PARTY OR TO HIRE MANPOWER FROM WITHIN THE GROUP/ASSOCIATE D COMPANIES. SINCE THE GROUP COMGANY MUDRA AGREED TO DEPUTE ITS MANPOW ER AS AND WHEN REQUIRED BY CANVASS WE DECIDED TO REQUEST MUDRA TO DEPUTE THEIR STAFF MEMBERS FOR WHICH IT WAS AGREED THAT THE ACTUAL SA LARY COST FOR THE PERIOD USED BY US SHALL BE SHARED AND REIMBURSED TO MUDRA. THE FACTS WERE PLACED BEFORE THE ASSESSING OFFICER IN RESPECT OF THE DEBI T NOTES RAISED BY MUDRA ON OUR COMPANY WHICH HAD THE NOMENCLATURE OF REIMBURSE MENT OF SALARY. THE NATURE OF THE EXPENSES TO US IS IN THE NATURE OF CO ST SHARING OF SALARY EXPENSES FOR WHICH AMPLE PROOF HAS BEEN PLACED ON RECORD. COMBINING WITH THE FOLLOWING PARAMETERS IT IS QUIT E AMPLY CLEAR THAT THE AMOUNT PAID DOES NOT WARRANT DEDUCTION OF TDS: A) THE AMOUNT PAID IS THE EXACT AMOUNT OF SAL ARY PAID BY MUDRA TO ITS EMPLOYEES. B) THE PAYMENT HAS BEEN MADE FOR THE ACTUAL P ERIOD FOR WHICH THE PERSONS WERE ON DEPUTATION WITH OUR COMPANY. C) THE PAYMENT MADE HAS NO ELEMENT OF PROFIT WHICH IS A PRIMARY CONDITION FOR TREATING THE NATURE OF PAYMENT TO BE THAT IN THE NATURE OF PROFESSIONAL FEES. D) MUDRA HAS NOT BEEN NOR WAS IT INTO THE BUSINESS OF SUPPLY OF MANPOWER OR RENDERING SERVICE BY PROVIDING ITS EMPL OYEES. E) MUDRA HAS NEVER ACTED AS PROFESSIONAL CONSULTANT WHOSE PRIMARY RESPONSIBILITY WOULD BE TO STAND THE TEST OF WORK D ONE WHICH 'WOULD MEAN INCURRING THE ADDITIONAL LIABILITY & BURDEN TO STAN DBY FOR THE FAILURES AND QUALITY CHECK IF ANY FOR THE WORK DONE. F) AS STATED EARLIER MUDRA HAS BEEN THE ELEMENT O F SUPPORT TO THE COMPANY IN TIME OF NEEDS BY DEPUTING THE REQUIRED P ERSON. G) THE EMPLOYEES WERE EMPLOYED BY MUDRA AND THEY H AVE FULFILLED ALL APPLICABLE LEGAL PROVISIONS INCLUDING THE PROVISION S OF TDS ON SALARY PAID TO THE EMPLOYEES THAT WERE DEPUTED TO OUR COMPANY. H) THE RECEIPTS IN THE NATURE OF COST SHARING AMOUN T HAS BEEN DEDUCTED FROM COST AND NOT REFLECTED AS INCOME. WITHOUT PREJUDICE TO THE ABOVE WE MAY CLARIFY THAT MUDRA IN ITS ACCOUNTS WHICH WE HAVE SUBMITTED HAVE FOLLOWED THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA'S STANDARDS FOR DISPLAYING THE AMOUNT RECEIVED FROM RELATED PARTIES. A CLEAR PICTURE WOULD EMERGE IF ON E LOOKS AT THE TOTALITY OF THE AMOUNT SPECIFIED UNDER THAT HEAD. THE FIGURES DISPL AYED INCLUDE 'MANPOWER COST' AND ALSO 'REIMBURSEMENT OF EXPENSES'. THAT EX PLAINS THE POSITION. IT IS 'MANPOWER COST' THAT HAS BEEN DISCLOSED SIGNIFYING THAT THE SAME IS PART OF 'COST' THAT HAS BEEN RECOVERED AND IT IS NOT REFLEC TED AS 'MANPOWER ITA NO.3110 & 3111/AHD/2010 DCIT CIRCLE-4 AHMEDABAD VS. IGNITE MUNDRA PVT. L TD. A.YS.2006-07 & 2007-08 - 5 - INCOME'. IT IS OF SIGNIFICANCE THAT EVEN 'REIMBURSE MENT OF EXPENSES' IS ALSO GROUPED UNDER THE SAME HEAD AND IT WOULD BE UNIMAG INABLE TO TERM THE SAME AS A MEAN OF 'INCOME' IN THE HANDS OF THE RECIPIENT . WE MAY BRING TO YOUR NOTICE THAT IT IS THE WAY THE AUDITORS HAVE DISCLOS ED THE SAID AMOUNTS UNDER THE HEAD 'INCOME' BUT UNDER NO CIRCUMSTANCES THAT REALLY FORMS A PART OF INCOME. FURTHER ON THE BASIS OF INFORMATION PROVIDE D BY MUDRA IT ALSO CLARIFIES THE FACT THAT THE RECOVERY OF THE SALARY AMOUNT PAID ON BEHALF OF EMPLOYEES DEPUTED TO OUR COMPANY HAS BEEN REDUCED F ROM THE AMOUNT OF GROSS SALARY PAID BY MUDRA IN THEIR ACCOUNTS AND I T HAS BEEN NO WHERE REFLECTED AS BEING INCOME. THE SAID FACT CAN BE VOU CHED BY THE AUDITORS IF CALLED FOR.' THE APPELLANT'S SUBMISSION/EXPLANATION CLEARLY BRIN G OUT THE FACT THAT THE EXPENSES CLAIMED WAS PURELY 'REIMBURSEMENT OF S ALARY OF DEPUTED PERSONNEL' AND IN THE NATURE OF 'COST SHARING' BASE D PURELY ON DISTRIBUTION OF COST AS PER WORK DONE AND HENCE CAN NOT BE DISALLOWED UNDER SECTION 40A(AI). VARIOUS JUDICIAL DECISIONS REFERRE D TO BY THE APPELLANT AS MENTIONED ABOVE ARE RELEVANT IN THE MATTER. IN PAR TICULAR THE DECISION OF 'M/S. UTILITY POWERTECH LTD. VS. ACIT' WHEREIN INT ER-ALIA IT HAS BEEN HELD AS UNDER: '....... 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION S AND PURSUED THE RECORD. THE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. SEIMENS AKTIONGESELLSCHAFT (SUPRA) HAS HELD THAT REIMBURSEM ENT OF EXPENSES CANNOT BE REGARDED AS REVENUE IN THE HANDS OF THE P AYEE. WHILE DECIDING THE ISSUE THE HON'BLE HIGH COURT HAS FOLL OWED THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. INDU STRIAL ENGG. PROJECTS P. LTD. (202 ITR 1014). IT IS SETTLED PROP OSITION OF LAW FROM THE VARIOUS DECISIONS OF HIGH COURTS AND PARTICULAR LY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT (SUPRA) THAT WHEN THERE IS NO ELEMENT OF INCOME AND THE PAYMENT IS ONLY AS A REIM BURSEMENT OF EXPENSES INCURRED BY THE PAYEE THEN NO DISALLOWANC E CAN | BE MADE U/S. 40(A)(IA).............' THE APPELLANT HAS ACTUALLY SHARED THE COST WITH MUD RA TO THE EXTENT OF ACTUAL UTILIZATION OF EMPLOYEES TIME AND THERE HAS BEEN NO PROFIT ELEMENT INVOLVED AT ALL. THE AMOUNTS PAID PURELY AS REIMBURSEMENT OF MANPOWE R COST CANNOT BE SUBJECTED TO TDS. THEREFORE THE SAID DISALLOWANCE U /S. 40A(IA) IS DELETED. AS SUCH APPELLANT GETS THE RELIEF OF RS.61 97 917/- IN A.Y. 2006-07 AND RS.1 56 43 255 IN A.Y. 2007-08. ITA NO.3110 & 3111/AHD/2010 DCIT CIRCLE-4 AHMEDABAD VS. IGNITE MUNDRA PVT. L TD. A.YS.2006-07 & 2007-08 - 6 - 4. WE HAVE HEARD BOTH THE SIDES. WE HAVE PERUSED TH E MATERIAL PLACED BEFORE US. FROM THE SIDE OF THE REVENUE LEA RNED SR.D.R. MR. O.P. BATHEJA HAS PLACED RELIANCE ON THE ORDER OF THE AO. HOWEVER ON THE OTHER HAND FROM THE SIDE OF THE ASSESSEE LEARNED AR MR. RAKESH JOSHI HAS PLACED RELIANCE ON THE FOLLOWING ORDERS: 1. ACIT VS. GUJARAT. NARMADA VALLEY FERTILIZER CO . LTD. ITA NO.1003/AHD/2010 ITAT AUTHORITY. 2. THE ABOVE DECISION OF HONBLE AHMEDABAD TRIBUNAL UPHELD BY THE HONBLE GUJARAT HIGH COURT AS REPORTED AS 21 7 TAXMANN 114 AND SLP OF THE DEPARTMENT REJECTED BY T HE HONBLE SUPREME COURT VIDE ORDER CC/175/2014 DATED 17.01.2.14 3. ADDITIONAL COMMISSIONER OF INCOME TAX VS.INDIA I NDEX SERVICES & PRODUCTS LTD. 34CCH 306 ITAT MUMBAI. 4. ACIT VS. SHIPPING SERVICES P. LTD. 34CCH 341 I TAT DELHI 5. TEMASEK HOLDINGS ADVISORS (I) P. LTD. VS. DCIT 27 ITR (TRIB) 125 I MUMBAI. 4.1 LEARNED AR HAS ALSO PLACED RELIANCE ON THE DETA ILS FURNISHED SUCH AS STATEMENT SHOWING DETAILS OF SALARY DEBITED BY M /S. MUDRA COMMUNICATION COPY OF CONFIRMATION RECEIVED FROM M /S. MUDRA COMMUNICATION DETAILS OF TDS DEDUCTED BY MUDRA ON SALARY PAID TO ITS EMPLOYEES ETC. 4.2 WITHOUT GOING FURTHER IN DETAIL AND KEEPING BRE VITY IN MIND WE HEREBY HOLD THAT IN A SITUATION WHEN THE ADMITTED F ACTUAL POSITION WAS THAT THE PAYMENT WAS NOTHING BUT A REIMBURSEMENT AS ADMITTED BY LEARNED CIT(A); HENCE WE ARE NOT INCLINED TO INTERFERE WIT H THOSE FACTUAL FINDING; HENCE AFFIRM THE SAME; ESPECIALLY WHEN NO CONTRAR Y MATERIAL IS PLACED BEFORE US FROM THE SIDE OF THE REVENUE. RESULTANTLY GROUNDS RAISED BY THE REVENUE ARE HEREBY DISMISSED. ITA NO.3110 & 3111/AHD/2010 DCIT CIRCLE-4 AHMEDABAD VS. IGNITE MUNDRA PVT. L TD. A.YS.2006-07 & 2007-08 - 7 - 5. IN THE RESULT BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. SD/- SD/- (N.S. SAINI) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 04/04/2014 PRABHAT KR. KESARWANI SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III AHMEDABAD 5. / DR ITAT AHMEDABAD 6. / GUARD FILE. / BY ORDER / ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD