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TMI Blog2015 (4) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... icable to the payments made by assessee claimed to be in the nature of reimbursements. - Decided against revenue. Revision u/s 263 - non consideration of applicability of section 40(a)(ia) to payment made to M/s. Aditya Spinners Ltd. has made the assessment order erroneous and prejudicial to the interests of the Revenue - Held that:- in the impugned assessment year also, no disallowance can be made under section 40(a)(ia) of the Act as the entire payment, as claimed by the assessee was made during the relevant previous year and nothing remained payable. Therefore, as there cannot be any disallowance under section 40(a)(ia) of the Act, assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue. Moreover on a perusal of the assessment order, it appears the Assessing Officer after conducting enquiry and applying his mind to the materials brought on record, as far as it relates to conversion expenses, has passed the assessment order. Whether provisions of section 194C will be applicable to conversion expenses claimed to be in the nature of reimbursement, in our view, is a debatable issue on which more than one view is possible. That being the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of conversion expenses. 6. In response to the show cause notice it was stated by the assessee that M/s Aditya Spinners Ltd is a sick unit declared by the BIFR and is facing auction. It was submitted, the electricity department have disconnected the electricity supply and labour union is not providing labour due to non payment of dues. As per the conversion agreement the assessee is to pay an amount of ₹ 22.45 per kg of yarn produced as conversion charges which amounted to ₹ 2,89,95,843 on which the TDS was made. As per the very same agreement besides conversion charges, assessee also has to incur various expenditures like power and labour bills etc on its own account and the total expenditure amounted to ₹ 5,98,13,357. It was submitted as the assessee was not having a full fledged office at Srikalahasthi, it requested M/s Aditya Spinners Ltd to act as its agent for making various payments on behalf of the assessee. It was submitted the assessee periodically remits amounts to M/s Aditya Spinners Ltd for onward payment of various expenditure, on behalf of the assessee. At the year end, Aditya Spinners Ltd remits the account copy and the details of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, and not for carrying out any work, it will not come within the purview of section 194C. Assessee also relied upon number of decisions to substantiate its claim that provisions of section 194C is not applicable to reimbursement of expenditure. Besides the aforesaid contentions, it was also argued by the assessee that the entire amount of ₹ 5,98,13,357 was paid by the assessee during the relevant financial year and nothing remained payable/outstanding on the last day of the relevant previous year. Hence the provisions of section 40(a)(ia) will have no application. In support of such contentions assessee relied upon the decision of the Hyderabad Bench of the ITAT in the case of Teja Constructions in ITA No.3081/Hyd/09 dated 23.10.2009 and ITAT Visakhapatnam Special Bench decision in the case of Meryllin Shipping Transport vs. ACIT (136 ITD 23). 8. The learned CIT (A) after considering the submissions of the assessee in the context of the facts and materials on record as well as the decisions relied upon by the assessee and more specifically on examining the terms of the agreement found that the amount of ₹ 5,98,13,357 was in the nature of repayment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire amount was paid during the relevant previous year, the learned Departmental Representative submitted, as the decision of the ITAT Special Bench in case of Merilyin Shipping Transports vs. ACIT (Supra) has been stayed by the Hon'ble jurisdictional High Court, the ratio laid down therein will not apply. 12. The learned Authorised Representative on the other hand reiterated the submissions made before the first appellate authority. He submitted before us that as per the terms of the agreement, M/s Aditya Spinners Ltd is entitled to receive an amount of ₹ 22.45 kg towards conversion charges. All other expenditures were to be incurred on account of assessee which M/s. Aditya Spinners Ltd will pay initially and subsequently get reimbursed from the assessee. Therefore, as the expenditure incurred is not in relation to any work entrusted under the terms of the contract but are in the nature of reimbursement, it will not attract provisions of section 194C. The learned Authorised Representative submitted, considered in the aforesaid perspective if M/s. Aditya Spinners Ltd incurs any expenditure on account of the assessee, then there is certainly a debt due in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly contended by Mr. Narasimha Sarma, learned Counsel to remand on the ground of pendancy on the same issue before this Court, overlooking and overruling, by necessary implication, the decision of the Special Bench. We simply say that it is not permissible under quasi judicial discipline. Under the circumstances, we set aside the impugned judgment and order and restore the matter to the file of the Tribunal which will decide the issue in accordance with law and it would be open to the Tribunal either to follow the Special Bench decision or not to follow. If the special Bench decision is not followed, obviously remedy lies elsewhere. 5. The appeal is thus allowed only on the point of remand. We direct the Tribunal to decide the matter on remand afresh within a period of two months from the date of communication of this order. No cost . 14. Following the aforesaid decision of the Hon'ble jurisdictional High Court, ITAT Hyderabad Bench in a recent order in the case of Ushodaya Enterprises vs. Dy.Commissioner of Income Tax in ITA No.676/Hyd/2009 and 411/Hyd/2010 dated 7.1.14 followed the ratio laid down by the ITAT Special Bench in case of Merilyn Shipping Transports (Supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70 vide assessment order dated 29.12.2010. The assessment records of the assessee for the year under consideration came up for examination by the learned CIT in exercise of power under section 263 of the Act. On going through the assessment order the learned CIT was of the view that the assessment order passed is erroneous and prejudicial to the interests of the Revenue, as the assessment Assessing Officer has failed to apply the provisions of section 40(a)(ia) of the Act to the payments made by the assessee of ₹ 5,26,58,980 to M/s. Aditya Spinners Ltd. Accordingly, by observing that non consideration of applicability of section 40(a)(ia) of the Act to such payment has made the assessment order erroneous and prejudicial to the interests of the Revenue, the learned CIT issued a show cause notice to the assessee directing him to explain why assessment order shall not be revised. In response to the said show cause notice, it was submitted by the assessee that as the payments made were in the nature of reimbursement of expenditure incurred by M/s Aditya Spinners Ltd on account of the assessee, it will not attract TDS provisions of section 194C. It was submitted the payments made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Transport vs. ACIT (Supra) has been stayed by the jurisdictional High Court. With the aforesaid observation learned CIT set aside the assessment order and directed the Assessing Officer to complete the assessment in accordance with the observation made by him in the order passed under section 263. 21. We have heard the parties and perused the materials on record. While deciding Department s appeal in ITA No.287/Vizag/2012, we have held that no disallowance can be made under section 40(a)(ia) of the Act, if the payments on which tax was required to be deducted were paid during the relevant previous year and nothing remained payable on the last day of the previous year. Following the same, we hold that in the impugned assessment year also, no disallowance can be made under section 40(a)(ia) of the Act as the entire payment, as claimed by the assessee was made during the relevant previous year and nothing remained payable. Therefore, as there cannot be any disallowance under section 40(a)(ia) of the Act, assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue. Moreover on a perusal of the assessment order, it appears the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X
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