9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (10) TMI 323 - AT - Income TaxRevision u/s 263 Held that - Even though AO made an enquiry about the amount claimed in the course of assessment the issue is not examined in its correct perspective by the AO - First of all whether the entire amount is assessee s liability or not is required to be examined and further if it is considered as liability to be discharged by assessee whether the entire amount requires to be claimed in the year under consideration also was not examined - assessee paid an amount to the Excise authorities directly by way of cheques/DDs during the year and the balance interest has been paid subsequently but not in the year under consideration - to the extent of interest payable provided in the books of accounts are to be examined under provisions of section 43B - There seems to be no enquiry on this aspect - to the extent of invoking jurisdiction by CIT u/s 263 the order of the CIT is upheld that AO has not examined the issue in correct perspective therefore these proceedings under section 263 to that extent are upheld. - Decided against the assessee. Genuineness of payments - Disallowance u/s 40(a)(ia) - Manufacturing companies made any profit on account of payments or not Held that - The transactions are so arranged that excise duty was paid first and then claim as refund later - There is evidence on record that assessee was providing funds to the OCMs for payment of excise duty which as and when refunded were passed to Assessee company/ or to the bank who provided loans as per arrangement - Consequent to the withdrawal of the notification those assessees have become liable to pay the excise duty and since they were only getting service cost for manufacturing cigarette the liability in a way is passed-on to assessee company - whether the amounts were paid as compensation or whether amounts are paid for business expediency or against the notice issued by Excise Department to Assessee the fact is that ultimate liability is that of assessee company. In that view assessee s claim of entire amount being paid directly to the Excise Department is to be accepted - ultimate liability is that of assessee company as the cigarettes were manufactured at the instance of Assessee company and any excise duty liability is on Assessee company - assessee has claimed the excise duty liability correctly as a business expenditure in the year under consideration. Since the amounts are paid to the Government directly by assessee company - The question of covering the amounts under 194C does not arise - as submitted by Assessee the amounts paid to the contract manufacturers for manufacturing the cigarette were already subjected to TDS - These amounts paid are not to be paid to the OCMs as part of manufacturing charges but it is a liability arising because of statutory levy by the Government and ultimately borne by assessee company which on facts of the case was discharged by assessee company by direct payment and not routed through the four OCMs - amounts cannot be considered as a liability as per provisions u/s 194C - provisions of section 40(a)(ia) does not arise Decided in favor of assessee. Whether assessee has discharged the balance of the interest provided at the end of the year u/s 43B Held that - Excise duty liability is to be considered under provisions of section 43B - Even though assessee contended that this amount is a compensation paid to the four contract manufacturers that arguments can be negatived these four companies are front companies and they have immediately closed down the operations within few days on withdrawal of benefits - The promptness with which the units went into commercial production and the fact that most of the machinery was also provided on hire by assessee company and also assessee company provided finance for payment of tax which were refunded as admitted by assessee itself indicate that those companies are only front companies for assessee company for manufacturing cigarette at a low cost availing the benefit given by the Government of India at that point of time to the companies in North-East - Since the liability has come on to Assessee by virtue of withdrawal of notifications and as part of the agreement the amounts are to be considered as direct liability of assessee company - Assessee also received notices from Excise department for discharge of liability. Provisions of section 43B are applicable since excise duty liability was being discharged by assessee company - Interest amount on such levy also is to be examined in the light of provisions of section 43B - since the payment details of interest liability is not available on record the matter is to be remitted back to the AO to examine whether any disallowance is required to the extent of interest amount provided at the end of year if paid immediately as provided u/s 43B - the amount has been paid during the year the amount is correctly allowed by the AO even though he did not examine it completely - the directions of CIT is modified given in the order u/s 263 and the AO is directed to examine the amount of interest provided under the provisions of section 43B - If the same is not discharged under the provisions it may require disallowance u/s 43B Decided partly in favour of assessee.
Issues Involved:
1. Whether the payments made by the Assessee to the Outside Contract Manufacturers (OCMs) in North Eastern States are liable for deduction of tax at source under section 194C. 2. Whether the payments made by the Assessee are allowable as business expenditure under section 37(1). 3. Whether the payments made by the Assessee are subject to disallowance under section 40(a)(ia). 4. Whether the interest liability provided by the Assessee is subject to disallowance under section 43B. Detailed Analysis: Issue 1: Deduction of Tax at Source under Section 194C The Commissioner of Income Tax (CIT) observed that the Assessee paid an aggregate amount of Rs. 43,88,73,031 to its OCMs, which included excise duty and interest. The CIT noted that the Assessee did not deduct tax on these payments as required under section 194C. The Assessee contended that the payments were not in consideration for job work charges or any work done by the OCMs but were a compensation for the hardship faced by the OCMs due to the retrospective withdrawal of excise duty exemption. The Assessee argued that since the payments were made directly to the Excise Department, the question of TDS did not arise. Issue 2: Allowability of Payments as Business Expenditure under Section 37(1) The CIT held that the Assessee failed to prove that the payments were allowable under section 37(1). The CIT argued that the excise duty liability was related to the business of the OCMs and not the Assessee, and the business under reference was not carried on during the previous year under consideration. The CIT also cited the Gujarat High Court decision in CIT vs. Navsari Cotton & Silk Mills Limited, which states that no deduction is allowable for discontinued business. The Assessee countered that the payments were made for commercial expediency to protect its brand value and were a statutory liability. Issue 3: Disallowance under Section 40(a)(ia) The CIT alternatively held that the payments were in the nature of manufacturing charges liable for deduction of tax at source under section 194C. Since the Assessee did not deduct tax, the payments should be disallowed under section 40(a)(ia). The Assessee argued that the payments were not manufacturing charges but a statutory liability discharged directly to the Excise Department, thus not attracting the provisions of section 194C. Issue 4: Interest Liability under Section 43B The CIT noted that the interest amount of Rs. 12,69,19,426 was not paid during the year and thus was not the Assessee's liability for the assessment year under consideration. The Tribunal agreed that the Assessing Officer (AO) did not examine whether the entire amount of Rs. 43,88,73,031 was the Assessee's liability and whether it was allowable in the year under consideration. The Tribunal directed the AO to examine the interest liability under section 43B, which mandates that certain expenses are allowable only when actually paid. Judgment: The Tribunal upheld the CIT's invocation of jurisdiction under section 263, agreeing that the AO did not examine the issue correctly. However, on the merits, the Tribunal found contradictions in the CIT's stand and examined the issue independently. The Tribunal concluded that the Assessee's liability for the excise duty was legitimate and allowable as a business expenditure under section 37(1). The Tribunal also held that the payments made directly to the Excise Department did not attract TDS provisions under section 194C, thus section 40(a)(ia) was not applicable. However, the Tribunal restored the issue of interest liability to the AO to examine under section 43B and determine if any disallowance was required. The appeal was partly allowed for statistical purposes. Order Pronounced: The appeal of the Assessee was partly allowed for statistical purposes. The AO was directed to examine the interest liability under section 43B and provide an opportunity for the Assessee to submit necessary details.
|
