IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1826 OF 2014 Commissioner of Income Tax 19(2) ... Appellant Vs. M/s. ITD CEM India JV ... Respondent ...... Mr. Abhay Ahuja a/w Mr. P. A. Narayanan for Appellant Mr. Riyaz S. Padvekar a/w Mr. Sameer Dalal and Mr. Tanzil R. Padvekar for Respondent. ...... CORAM : S. C. DHARMADHIKARI & PRAKASH D. NAIK, JJ. DATE : SEPTEMBER 04, 2017. P.C. : 1. This Appeal of Revenue challenges order passed by Income Tax Appellate Tribunal, Bench at Mumbai in Income Tax Appeal No.4225/Mum/2012. 2. assessment year is 2008 2009. Tribunal dealt with, in order of 9th April, 2014, at instance of assessee, six grounds/questions. ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:56 ::: vikrant 2/15 19 ITXA 1826 2014.odt 3. Revenue is in Appeal essentially on findings of Tribunal in relation to ground no. 2 in assessee's Appeal and ground no. 4. 4. These grounds were taken distinctly in memorandum of Appeal before Tribunal. In that memorandum of Appeal, grievance of assessee was that order passed by First Appellate Authority CIT(A) 30, Mumbai dated 26 th March, 2012 is contrary to law. Ground nos. 2 and 4 read as under : 2. On facts and circumstances of case and in law Hon'ble Commissioner of Income Tax (Appeals) 30 has erred in upholding action of AO in disallowing reimbursement of salary and related expenses to tune of Rs.4,99,19,593/ for non deduction of TDS u/s 40(a)(ia). 4. On facts and circumstances of case and in law Hon'ble Commissioner of Income Tax (Appeals) 30 has erred in upholding action of AO in disallowing reimbursement of administrative expenses to tune of Rs.2,39,64,463/ for non deduction of TDS u/s 40(a)(ia). 5. As far as ground no.2 is concerned, Tribunal understood it to mean that it is relatable and referable to ground nos.3 and 4, in sense Tribunal found that it is only Section 40(a)(ia) of ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:56 ::: vikrant 3/15 19 ITXA 1826 2014.odt Income Tax Act, 1961 (for short, IT Act ) which is applicable provision. However, on perusal of order of Assessing Officer and that of Commissioner, we find that Section 40(ba) of IT Act was also invoked and applied. relevant finding on that aspect of matter can be found in order of Assessing officer. In paragraph no. 4.2 and while dealing with issue related to salary of employees of ITD Cementation India Limited, Assessing Officer held as under: 4.2 Salary related to employees of ITD Cementation India Ltd. amount of Rs.4,99,19,593/ has been paid to ITD Cementation India Ltd. as salary and related expenses to employees deputed. As per Annexure 5 of letter dated 14 12 2010 no deduction of TDS has been made on salary paid to employees of Joint Ventures. Total amount is disallowed as per provision of Sec.40(a)(ia) of Income tax Act, 1961. Even disallowance of this amount is also warranted as provision of Sec.40(ba) wherein it is stipulated that in case of association of person, any payment of salary or remuneration by whatever name called, made by such association, body or member of such association shall not be allowed as deductible expenditure. 6. In Appeal before First Appellate Authority as well, matter was approached by First Appellate Authority in ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:56 ::: vikrant 4/15 19 ITXA 1826 2014.odt light of applicability of Section 40(ba) of IT Act. 7. That aspect is dealt with by First Appellate Authority in paragraph 5.4 of order dated 26 th March, 2012 (page 36 of paper book). 8. Thus, First Appellate Authority had before it remand report and reply on remand report by assessee. assessee's representative contended that payments were routed through co ventures and therefore, Tax Deducted at Source (TDS) was 2% from salary at rate applicable to that of sub contractors. Thus, from salary expenses of Rs.4,99,19,593/ sum of Rs.10,19,346/ was deducted as TDS. argument was that assessee has reimbursed expenditure on account of salary and related payments to ITD Cementation India Private Limited, who has claimed same by raising debit notes on assessee. Assessing Officer in remand report (made after remand) held that these payments made cannot be called as payment made to contractor in terms of Section 193C of IT Act. Although these payments were routed through current account of co venturer that requires ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:56 ::: vikrant 5/15 19 ITXA 1826 2014.odt deduction of TDS as per provisions of Section 192 of IT Act. Assessing Officer in remand report also stated that debit notes raised by ITD Cementation India Private Limited were test checked and amount of expenditure claimed by assessee was verified. However, assessee failed to deduct TDS as per provisions of IT Act which was admitted by assessee. That is how Assessing Officer, on remand report, also found that he is justified in disallowing expenditure of Rs.4,99,19,593/ on account of salary and other related expenses for non deduction of TDS under Section 40(a) (ia) of IT Act. Pertinently, Assessing Officer also noted in order that said disallowance is also warranted by provisions of Section 40(ba). That is because in case of association of persons, any payment of interest, salary, bonus, commission or remuneration by whatever name called, made by such association to member of such association shall not be allowed as deductible expenditure. Therefore, on this ground also, salary and related expenses need to be disallowed. First Appellate Authority agreed with Assessing Officer and confirmed this finding. ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:56 ::: vikrant 6/15 19 ITXA 1826 2014.odt 9. aggrieved assessee approached Tribunal. assessee pointed out that it is Joint Venture. Joint Venture is with two companies, namely, ITD Cementation India Limited, Indian Company and Italian Thai Development Public Company Limited, foreign enterprise. Assessing Officer noted that assessee company had not deducted tax at source when making payments on account of salary and related expenses, bank guarantee and administrative expenses paid by Joint Venture to ITD Cementation India Limited. 10. Tribunal approached matter by bifurcating disallowance in relation to salary and administrative expenses. Tribunal, after noting rival contentions and particularly argument that no disallowance has been made in assessment years 2006 2007 and 2007 2008 which were framed under Section 143(3), proceeded further to hold that departmental representative relied on some decision, details of which are not disclosed to justify disallowance. Tribunal holds in paragraph 18 that it has heard detailed arguments, ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:56 ::: vikrant 7/15 19 ITXA 1826 2014.odt perused evidence placed in Appeal paper book and written submissions. 11. It then mixes up its findings and in relation to applicability of Section 40(a)(ia) and 40(ba), but concludes that it does not find any reason to sustain disallowance under Section 40(a)(ia) as payments made by assessee to ITD Cementation India Limited were only on account of salary and related expenses. 12. Then it purports to divert it's attention to Section 40(ba) of IT Act, but proceeds to state that this provision is specific. It calls for disallowance of payment of any kind by association of persons to it's members. Then it holds that it could have accepted arguments of departmental representative had member of assessee been individual. Because provision seeks to prevent enrichment of members through back door. However, in case at hand, payment has been made to company, which is separate juridical person, distinct from it's shareholders/directors. It then holds that payment has been made ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:56 ::: vikrant 8/15 19 ITXA 1826 2014.odt on account of reimbursement of expense incurred by company. Therefore, question of enrichment of member does not arise. There is no profit element. That is why Section 40(ba) does not get attracted. 13. Revenue has proposed before us two substantial questions of law. 14. However, when it came to deletion of addition of Rs.4,99,19,593/ , Mr. Ahuja would submit that finding of Tribunal in that regard raises substantial question of law. 15. counsel for assessee on other hand, would submit that there is no question of invoking Section 40(ba) of IT Act and merely because Assessing Officer has referred to it does not mean that Tribunal was obliged to render any finding about its applicability. We do not agree with counsel for assessee for more than one reason. finding with regard to applicability of Section 40(ba) is rendered in paragraphs 20, 21 and 22 of Tribunal's order. These paragraphs read as under: ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:57 ::: vikrant 9/15 19 ITXA 1826 2014.odt 20. Now we divert our attention to provision of section 40(ba). 21. provision is very specific, because it calls for disallowance of payment of any kind by AOP to its member. We would have accepted arguments of DR/AO/CIT(A), had member of assessee were individual, because, provision has enrichment of members through back door. But here is case of company, which is separate juridical person, distinct from its shareholders/directors. In instant case, payment has been made on account of reimbursement of expense made by company. Here question of enrichment of member does not arise, as has been held earlier that there is no profit element. 22. In such circumstance, provision of section 40(ba) does not get attracted. 16. As far as Section 40(ba) is concerned, that is pertaining to amounts not deductible. Section 40 opens with non obstante clause. Notwithstanding anything to contrary in Sections 30 to 38 of Income Tax Act, 1961, amounts enumerated in clauses and sub clauses thereto shall not be deducted in computing income chargeable under head Profit and ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:57 ::: vikrant 10/15 19 ITXA 1826 2014.odt gains of business or profession That inter alia includes amount in case of AOP (Association Of Persons) or body of individuals (other than company or co operative society or society registered under Societies Registration Act, 1860, or under any law corresponding to that Act in force in any part of India) any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such association or body to member of such association or body. There are three Explanations below same. 17. We have not found from Tribunal's order that it has taken into consideration provisions and wide wording thereof. It's applicability therefore, will have to be decided on touch stone of plain language of this provision. We do no see any discussion in Tribunal's order on this point at all. 18. Apart from that, Tribunal's order is confusing. In impugned order, Tribunal does not indicate what it means by AOP. It does not indicate as to what it means by TAS for both sides tell us that it is identical to TDS, namely, Tax Deducted at ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:57 ::: vikrant 11/15 19 ITXA 1826 2014.odt Source. We are unhappy with abbreviations and short forms in Tribunal's order. We do not see who is reluctant, either one who dictates or one who takes down same, but such abbreviations and shortcuts increase burden on higher Courts. We would caution Tribunal that hereafter it should indicate somewhere in order as to what abbreviations used by it stand for. 19. In circumstances, we proceed to admit this Appeal on question no.10(a) of paper book. question reads as under: 10(a) Whether on facts and in circumstances of case and in law, Hon'ble tribunal erred in deleting addition of Rs.4,99,19,593/ pertaining to salaries, made by Assessing Officer and confirmed by CIT(A), on account of disallowance U/s 40(ba) of Income Tax Act, 1961? 20. Mr. Ahuja for Revenue would submit that even question no.(a 1) as proposed and substituted by amendment is substantial question of law. We are unable to agree with him. That relates to disallowance of administrative expenses at ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:57 ::: vikrant 12/15 19 ITXA 1826 2014.odt Rs.2,39,64,463/ . concurrent finding in that regard of Assessing Officer and Commissioner of Income Tax (Appeals) has been set aside. 21. Tribunal discussed this issue from paragraph 40 of order under challenge. 22. Assessing Officer noticed that assessee had not deducted Tax at Source while making payment on account of administrative expenses. That was paid by Joint Venture to their Indian company, namely ITD Cementation India Limited. payment was hit, according to Assessing Officer, by Section 40(a)(ia) and thus disallowable. Assessing Officer also held that even under Section 40(ba) this expense shall not be allowed because in case of Association Of Persons, any payment of salary or remuneration by whatever name called, is not allowable. 23. assessee contended that there were fresh materials to support it's contentions. Commissioner of Income Tax (Appeals) therefore directed Assessing officer to consider ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:57 ::: vikrant 13/15 19 ITXA 1826 2014.odt further documents and submit remand report. On remand, assessee submitted that it reimbursed expenses (administrative expenses) to ITD Cementation India Limited. They were incurred on behalf of assessee. Thereafter, debit notes were raised on assessee by ITD Cementation India Limited. These facts were checked and verified by Assessing Officer and he found same to be correct. However, in remand, he could not give any categorical finding, and therefore left matter to Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals), after considering remand report and detailed arguments, sustained disallowance on account of non deduction of Tax at Source by referring to Section 40(a)(ia). That is how assessee approached Tribunal. assessee inter alia contended that no disallowance has been made in assessment years 2006 2007 and 2007 2008 which assessment was framed under Section 143(3) of IT Act. Thus, consistent stand should be taken and similar treatment should be given to accounts as in preceding assessment years. alternate argument is made and is noted in paragraph 49 of Tribunal's order. departmental representative referred to remand ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:57 ::: vikrant 14/15 19 ITXA 1826 2014.odt report and thereafter supported finding of Commissioner of Income Tax (Appeals). There were written submissions filed by assessee's representative. In consideration of this issue as well, we note that Tribunal has made identical observations and to some extent it's observations in paragraphs 15 to 21 accord with paragraphs 50 to 55. However, we are of firm view that Section 40(ba) was referred in passing, but not attracted as far as disallowance of administrative expenses in sum of Rs.2,39,64,463/ . Once Assessing Officer has checked debit notes raised by ITD Cementation India Limited and they were test checked and amount of expenditure claimed by assessee was verified and genuineness of same has been proved, then, we do not see any reason to interfere with finding of fact recorded in paragraph 54 of Tribunal's order. All more, when Section 40(ba) was not attracted as far as this disallowance is concerned. 24. Despite his persuasive ability, when Mr. Ahuja would submit that even re framed question (a 1) is substantial question of law, we are unable to agree with him. We affirm findings of ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:57 ::: vikrant 15/15 19 ITXA 1826 2014.odt fact by Tribunal and dismiss this Appeal to that extent. 25. However, we have expressed our displeasure and unhappiness at manner in which Tribunal approached matter/issue insofar as applicability of Section 40(ba) (question no. 10(a) reproduced above) of IT Act is concerned, we allow this Appeal. We set aside Tribunal's order to that extent. We restore issue to file of Tribunal for being decided afresh on merits and in accordance with law. Tribunal shall not be influenced in any manner by it's earlier observations. We also clarify that when we note rival contentions, beyond that exercise, we have expressed no opinion on correctness of these contentions. All of them are open insofar as this issue is concerned for being raised before Tribunal. There will be no order as to costs. (PRAKASH D. NAIK, J.) (S. C. DHARMADHIKARI, J.) ::: Uploaded on - 12/09/2017 ::: Downloaded on - 10/10/2017 15:25:57 ::: CommissionerofIncome-tax-19(2) v. ITDCEMIndiaJV