2016 (8) TMI 325 - AT - Income Tax

TDS u/s 194J - license fees paid to IRCTC (Indian Railway Catering & Tourism Corporation) due to non deduction of tax from the payment - Held that - The license fee is paid consequent to regular system devised by IRCTC which calls for tenders offering the license for food catering rights on passenger trains on a particular train route. The successful bidders are given licenses against payment of license fee and the contractee renders the services not IRCTC. The tenders, license and payment of license fee are a part of a routine and regular legal process as approved by Railway Ministry for everyone at large. There is neither any skill, special knowledge or element of service involved in discharge of this legal obligation. IRCTC neither deputed as any special personnel to render any service to assessee. In these circumstances even an iota of rendering any service is missing, when there is no service, there is no question of applicability of sec. 194J as contemplated by ld. AO. Assessee s licence fee payments to IRCTC were not liable for TDS and cannot be disallowed u/s. 40(a)(ia). - Decided in favour of assessee Treatment to Embezzlement loss - Held that - The embezzlement claim of the assessee is genuine, legal and the loss there from is allowable. Revenue takes a stand that the assessee should have claimed the entire loss in AY 2010-11. Per contra, the assessee claims that some ray of hope was remaining to recover the part of the amount and to be on a safer side and its commercial wisdom, it was felt expedient to claim 30% for AY 2010-11 and 70% in AY 2011-12. Revenue has no objection in allowing the entire loss in AY 2010-11. This rather proves the assessee s contention that instead of claiming in one year, by a prudent business decision it was decided to bifurcate the loss as a ray of partial recovery existed. In any case, the embezzlement amount was due from the said employee-manager Shri Rajesh Joshi. Therefore, alternatively, it becomes a debt due from Shri Rajesh Joshi, consequently, the amount is allowable either as embezzlement loss and when ray of partial recovery faded out; relevant bad debt is actually written off and thirdly as a business loss. Thus the embezzlement loss should be allowed in this year. In view of Hon ble Supreme Court judgment in the case of Excel Industries Ltd (2013 (10) TMI 324 - SUPREME COURT) also, there is no prudence in not allowing the claim in this year and giving a direction to allow in AY 2010-11. In cumulative consideration of all these facts and circumstances, legal position and substantial justice, we have no hesitation in allowing the claim in this year as claimed by the assessee. - Decided in favour of assessee Leakage of revenue - Held that - We have heard both the parties and are of the firm view that there is no concept of plugging any possible leakage of revenue which becomes a general and sweeping way of disallowance not contemplated by the law. Any disallowance should be specific and properly quantified. In view of these facts, we are unable to sustain this presumptive and ad-hoc addition based on an outlandish consideration of plugging possible leakage or revenue; consequently the same is deleted. Thus, this ground of the assessee is allowed and that of revenue dismissed. Addition u/s 40A - Held hat - Cash payments are made in exceptional circumstances and the same are covered by Rule 60DD and cannot be disallowed u/s 40A(3). Unexplained expenditure u/s 69C - purchases which have not been effected due to non-delivery of goods - Held that - The assessee cannot adopt such a self defeating approach, human conduct, surrounding circumstances and business exigencies on a moving train; the contention of the assessee is reasonable and acceptable and cannot be disregarded on presumption. In moving train, it may happen that the bill is given to the moving train staff and goods will not reach in time and payment is not given due to non-delivery, i.e., non-purchase. In view of the foregoing, we delete this disallowance. Thus, this ground of the assessee is allowed

Issues Involved:
1. Validity of reassessment proceedings under section 147.
2. Disallowance under section 40(a)(ia) for non-deduction of TDS on license fees paid to IRCTC.
3. Claim of embezzlement loss.
4. Lump-sum disallowance for possible leakage of revenue.
5. Disallowance under section 40A(3) for cash payments.
6. Ad-hoc disallowance of burning expenses.
7. Addition under section 69C for unexplained expenditure.
8. Levy of interest under section 234 A/B & C.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The assessee argued that the reassessment notices were issued beyond four years without any failure on their part to disclose all material facts, making the reassessment invalid. The Tribunal upheld this contention, citing that the original assessments were framed under section 143(3) after detailed scrutiny, and the reassessment amounted to a change of opinion, which is impermissible under law. The Tribunal quashed the reassessment proceedings for AYs 2006-07, 2007-08, and 2009-10, following the Supreme Court's judgment in CIT vs Kelvinator Of India Ltd.

2. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on License Fees Paid to IRCTC:
The Tribunal held that the license fees paid to IRCTC did not constitute payments for managerial or technical services under section 194J, nor were they contract payments under section 194C. Therefore, no TDS was deductible, and the payments could not be disallowed under section 40(a)(ia). Additionally, IRCTC, being a government entity, was exempt from TDS under section 196. The Tribunal also noted that IRCTC had included the license fees in its income, further negating the TDS liability.

3. Claim of Embezzlement Loss:
The assessee claimed an embezzlement loss over two assessment years, arguing that they had hoped to recover part of the amount initially. The Tribunal allowed the claim for the current year, acknowledging the genuineness of the embezzlement and the business decision to bifurcate the loss. The Tribunal cited the Supreme Court's judgment in Associated Banking Corporation of India vs. CIT and other relevant case law to support this decision.

4. Lump-Sum Disallowance for Possible Leakage of Revenue:
The Tribunal rejected the lump-sum disallowance made by the Assessing Officer and reduced by the CIT(A), stating that disallowances should be specific and properly quantified. The Tribunal found no basis for the presumptive and ad-hoc addition and deleted it.

5. Disallowance under Section 40A(3) for Cash Payments:
The Tribunal accepted the assessee's contention that the cash payments were made under exceptional circumstances on moving trains, which are covered under Rule 60DD. Therefore, the disallowance under section 40A(3) was not warranted and was deleted.

6. Ad-Hoc Disallowance of Burning Expenses:
The Tribunal deleted the ad-hoc disallowance of burning expenses, reiterating that disallowances should be specific and properly quantified. The Tribunal found no justification for the presumptive addition.

7. Addition under Section 69C for Unexplained Expenditure:
The Tribunal found merit in the assessee's explanation that some goods ordered were not delivered in time, leading to non-payment and non-recording of the bills. The Tribunal deleted the addition, accepting the assessee's contention that the non-delivery of goods was a reasonable and acceptable business exigency.

8. Levy of Interest under Section 234 A/B & C:
The Tribunal did not specifically address the issue of interest under section 234 A/B & C, implying that the primary focus was on the substantive issues raised in the reassessment and disallowances.

Conclusion:
The Tribunal allowed the appeals of the assessee and dismissed those of the Revenue, quashing the reassessment proceedings and deleting the various disallowances and additions made by the Assessing Officer. The Tribunal's decision was based on a thorough examination of the facts, legal precedents, and the principles of natural justice.

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