2013 (7) TMI 252 - AT - Income Tax

Re opening of assessment - TDS - disallowance of payment on account of share of profit paid to M/s. JSMS for managing the Lokhandawala Branch following judgment of IT vs. Panipat Woollen and General Mills Co. Ltd. 1976 (1) TMI 1 - SUPREME Court - Held that - Unable to agree with the view taken by the authorities below as the case of CIT vs. Panipat Woollen and General Mills Co. Ltd. (supra), is distinguishable as in that case the agent had also made most of the investments and was sharing both profits and losses whereas in this case, the assessee was only sharing profit with M/s. JSMS who was managing only day to day affairs of the branch whereas policy decisions were taken by the assessee and the entire investments had also been made by the assessee. - the arrangement was not a case of joint venture. - Decision in 2012 (9) TMI 124 - ITAT, MUMBAI followed - Decided in favor of assesseeee. Non deduction of TDS on the payment made to M/s. JSMS as is of the nature of fees for professional services/technical services - Held that - Considering assessee's reliance on case of Merilyn Shipping and Transports vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) wherein held that the word payable used in section 40(a)(ia) has to be given its natural meaning and section 40(a)(ia) would be applicable only to expenditure which is payable as on March 31 of every year and can not be invoked to disallow amount which have already been paid during the previous year. As assessee submitted that no amount remained payable on account of M/s. JSMC at the end of the year provision of section 40(a)(ia) were not applicable. Levy of interest u/s 220(2) - AO has charged interest under section 220(2) from date of the original assessment order - Held that - Once the original demand notice has been dispensed with and fresh demand notice has been raised in view of the order giving effect to the Commissioner (Appeals)'s order wherein instead of demand there was a refund and such an order has attained finality as no second appeal was filed, then interest cannot be levied under section 220(2) from the date of original demand notice - restore this issue back to the file of the AO to verify whether interest has been charged as per the demand notice in pursuance of assessment order dated 24th December 2009, passed under section 143(3) r/w section 147 or original assessment order dated 23rd February 2005, passed under section 143(3) - partly in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Validity of re-opening of assessment under section 147.
2. Disallowance of payment to M/s. J.S. Financial Services.
3. Chargeability of interest under section 220(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Re-opening of Assessment under Section 147:
Grounds no.1 and 2:
The assessee challenged the re-opening of the assessment under section 147. However, since the other grounds raised in the appeal were decided in favor of the assessee on merits, these legal grounds became academic in nature and did not require separate adjudication. Thus, these grounds were treated as dismissed.

2. Disallowance of Payment to M/s. J.S. Financial Services:
Ground no.3:
The issue of disallowance of expenses paid to M/s. J.S. Financial Services was previously decided in favor of the assessee by the Tribunal for the assessment year 2006-07. The Tribunal found that the arrangement with M/s. J.S. Financial Services was not a joint venture since the assessee made all investments and took policy decisions, while M/s. J.S. Financial Services only managed day-to-day affairs. The Tribunal also noted that the nature of work done by M/s. J.S. Financial Services was managerial, requiring tax deduction under section 194J. However, following the Special Bench decision in Merilyn Shipping and Transports vs. ACIT, the Tribunal held that section 40(a)(ia) applies only to amounts payable as of March 31 and not to amounts already paid. Thus, the disallowance was set aside, subject to verification that no amount remained outstanding at the end of the year. Consequently, the ground was allowed.

3. Chargeability of Interest under Section 220(2):
Ground no.4:
The assessee contested the levy of interest under section 220(2), arguing that the Assessing Officer had granted a refund while giving effect to the Commissioner (Appeals)'s order, and thus, there was no occasion to charge interest from the date of the original demand notice. The Tribunal observed that interest under section 220(2) could not be charged from the original demand notice date if the original demand was dispensed with and a fresh demand notice was issued following the Commissioner (Appeals)'s order, which resulted in a refund. The Tribunal restored the issue to the Assessing Officer to verify the correct period for charging interest, directing that interest should not be calculated from the original assessment order's due date if it had been replaced by a subsequent order. This ground was partly allowed for statistical purposes.

Consolidated Orders:
1. Assessment Year 2004-05 (ITA no. 340/Mum./2011):
- Grounds no.1 and 2 dismissed as academic.
- Ground no.3 allowed.
- Ground no.4 partly allowed for statistical purposes.

2. Assessment Year 2003-04 (ITA no. 341/Mum./2011):
- Grounds no.1 and 2 dismissed as academic.
- Ground no.3 allowed.
- Ground no.4 partly allowed for statistical purposes.

3. Assessment Year 2002-03 (ITA no. 342/Mum./2011):
- Ground no.3 allowed.

Overall Summary:
The appeals for assessment years 2004-05 and 2003-04 were partly allowed for statistical purposes, while the appeal for assessment year 2002-03 was fully allowed. The Tribunal's decisions were based on previous rulings in similar cases and specific legal interpretations, particularly concerning the applicability of section 40(a)(ia) and section 220(2) of the Income Tax Act.