TMI Blog2009 (12) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... ot merit acceptance. As the reimbursement of expenses is not taxable in the hands of payee, there is no point in compelling the assessee to still go ahead with the deduction of tax at source. Ex consequenti the impugned order on this issue is set aside. This ground is allowed. In this view of the matter there remains no doubt whatsoever that if the assessee has failed to claim deduction in the return filed by it, which is otherwise available to it as per law, the doors of justice cannot be closed to the assessee simply for the reason that no revised return was filed making such a claim for deduction. It is simple and plain that the purpose of making assessment is to collect the rightful tax due from the assessee. Filing of revised return by the assessee may be a valid mode of claiming deduction which was omitted to be claimed in the original return. But it is not that if revised return is not filed or the time limit for the filing of the revised return has expired but the assessment is still pending, that the assessee should be prohibited from making such a claim. Technicalities cannot be allowed to work as speed breakers in the course of dispensation of justice. If an amount is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who left the employment - we direct the learned CIT(A) to dispose of such ground raised before him at Sr. No. 4 of Form No. 35. In the result, the appeal of the Revenue is dismissed and that of the assessee is partly allowed. - R.S. SYAL AND N.V. VASUDEVAN, JJ. H.P. Mahajani for the Appellant. Yeshwant U. Chavan for the Respondent. ORDER R.S. Syal, Accountant Member. - These two cross appeals one by the assessee and the other by the Revenue arise out of the order passed by the Commissioner of Income-tax (Appeals) on 11-10-2006 in relation to the assessment year 2003-04. 2. The first ground of the assessee s appeal is against the confirmation of disallowance of Rs. 2,46,41,750 made by the Assessing Officer under section 40( a )( i ) of the Act. Briefly stated the facts of this ground are that the assessee debited a sum of Rs. 2.46 crores as payable to its associate non-resident concern, namely, M/s. Impregilo of Italy, without deduction of tax at source. On being show caused as to why the disallowance be not made under section 40( a )( i ) for non-deduction of tax at source on payment made to the non-resident, the assessee stated vide its rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corollary, if the sum so paid is not chargeable to tax in the hands of the payee, there is no requirement for deduction of tax at source. Section 40( a )( i ) provides that where any sum "chargeable under this Act" which is payable outside India or in India to a non-resident, not being a company or a foreign company, on which tax is deductible at source and such tax has not been deducted or after deduction has not been paid during the previous year or in the subsequent year before the expiry of time prescribed under sub-section (1) of section 200, the amount shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". When we analyze the provisions of section 40( a )( i ) in juxtaposition to section 195(1), it can be easily viewed that if the amount paid or payable to non-resident is chargeable to tax under the provisions of the Income-tax Act and the payer assessee has failed to deduct tax at source or pay tax after such deduction, the amount in question shall not be allowed as deduction under section 40( a )( i ) of the Act. It is not any sum paid or payable to the non-resident that the provisions of section 195(1) are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahindra Ltd. v. Dy. CIT [2009] 30 SOT 374 (Mum.) considered similar issue and came to the conclusion that the payment towards reimbursement of expenses is not in the nature of income and resultantly there was no obligation to deduct tax at source under section 195. As admittedly the amount in dispute is reimbursement of expenses, the ratio of the Special Bench order in Mahindra Mahindra Ltd. s case ( supra ) will apply and resultantly the amount will not be taxable in the hands of the non-resident. In that view of the matter, since there is no element of income in the reimbursement of expenses in the hands of payee, it will not attract taxation. 6. The authorities below have taken a very narrow view of the provisions of section 195(1) thereby concluding that in the absence of any application made by the assessee under sub-section (2), it will be presumed that the amount is taxable in the hands of payee and the deduction of tax at source is inevitable. It is nowhere contemplated in the provisions of the Act that non-compliance with sub-section (2) will be conclusive as to the taxability of such sum in the hands of the payee. Even sub-section (3) is alternative to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res that apart from other consequences flowing out of non-deduction of tax at source etc., the person responsible shall be deemed to be assessee in default in respect of the whole or any part of the tax, which ought to have been deducted or paid after deduction. Who is an assessee in default has also been defined in Explanation to section 191. Thus if there is a failure to deduct tax at source under section 195(1), the person responsible shall be deemed to be an assessee in default. Per contra, an assessee in default is a person who has failed to deduct tax at source as per the provisions of section 195. 8. Let us examine the definition of assessee in default as per Explanation to section 191, at the material time, which reads as under: "For the removal of doubts, it is hereby declared that if any person referred to in section 200 and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax and such tax has not been paid by the assessee direct, then such person, the principal officer and the company shall, without prejudice to any other consequences which he or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursement of expenses is not taxable in the hands of payee, there is no point in compelling the assessee to still go ahead with the deduction of tax at source. Ex consequenti the impugned order on this issue is set aside. This ground is allowed. 11. Ground No. 2 of the assessee s appeal and the only ground in Revenue s appeal is against unamortized cost of temporary structure. During the course of assessment proceedings the assessee claimed that the expenditure of Rs. 1,04,38,065 on temporary structure site facilities should be allowed as deduction during the current year, which was not allowed in the order passed for the immediately preceding assessment year i.e., 2002-03. It was also contended that in the last year s order the expenditure to the extent of 5 per cent of the total expenditure was not allowed as the project was not fully completed. Since the said project got completed in this year, the assessee claimed that the expenditure which was not allowed as deduction in the preceding year should be allowed in the instant year. The Assessing Officer did not accept the assessee s contention for the reason that in the absence of any revised return of income filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these facts it becomes palpable that 5 per cent of the total expenditure which was not allowed as deduction in the immediately preceding year resulting into disallowance of Rs. 1.04 crores became deductible in the year(s) of the completion of the project. Consequently the assessee made a claim during the course of assessment proceedings for the current year that the balance amount, not allowed in the preceding year to the tune of Rs. 1.04 crore, be allowed in this year because the project was now fully completed. The Assessing Officer did not accept the claim of the assessee for the reason that in the absence of the assessee filing any revised return, it was not open to make any claim for deduction. In support of the Assessing Officer s stand, the learned Departmental Representative has relied on the judgment of the Hon ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 . We find that the reliance ol the Revenue on this judgment is partly correct. It is true that it has been held in this case that the Assessing Officer cannot entertain the claim for deduction otherwise than by filing the revised return. However it is not the end of the matter. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue, therefore, stand dismissed. 14. Ground No. 3 of the assessee s appeal is against the action of the learned CIT(A) in upholding the bringing to tax a sum of Rs. 12,83,51,428 towards claim for excise duty refund. The facts apropos this ground are that the assessee stated in Notes on Accounts that it has filed an application dated 28-3-2003 to Director General of Foreign Trade (DGFT) for the refund of terminal excise duty paid on construction materials purchased by the assessee since inception of the project. The assessee was called upon to explain as to why the said amount was not offered for taxation. The assessee replied that the amount due was not still quantified or admitted by the DGFT and hence the income had not accrued. The Assessing Officer observed from the copies of correspondence filed before him that the DGFT vide letter dated 30-4-2004 addressed to the assessee had rejected the claim on technical ground for want of furnishing of necessary documents against the claim. Since the assessee was following mercantile system of accounting, the Assessing Officer held that the income accrued to the assessee on filing the claim for the refund of excise duty and hence s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave accrued to the assessee in the year in question on making application with DGFT. 17. Admittedly the assessee is following mercantile system of accounting in which the expenses are allowed as deduction when the liability to pay arises. In the like manner income is charged to tax on its accrual. Income accrues when the right to receive it is acquired irrespective of the date of actual receipt. The primary argument of the ld. AR is that since the very right to receive was jeopardized by virtue of rejection of claim by DGFT on 30-4-2004 (that is, in the previous year relevant to the assessment year 2004-05), hence no income could be said to have accrued. We are not inclined to accept the view canvassed by the learned Counsel for the assessee on the ground that there is a direct precedent from none other than the highest court of the land in CIT v. Punjab Bone Mills [2001] 251 ITR 780 (SC) in which it has been held that the cash incentive for export accrued to the assessee on filing of the claim. As the nature of item in dispute before us is the deemed export incentive, the ratio decidendi of the said judgment will directly apply to the instant facts. Further the Special B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash incentive would also be not relevant, once it is found that the assessee was maintaining his accounts on mercantile system. Therefore, the accrual of income would either depend on the date of the making of the export or on the date of the making of application by the assessee claiming cash incentive from the Government. The date of export would not create a right unless the assessee made a claim therefor. If the assessee did not file his claim, there was no accrual in his favour. It is held that income accrued on the date of application filed by the assessee claiming cash incentive from the Government. Neither the date of making of export nor the date of receipt of cash incentive from the Government would be relevant." 19. Both the main and alternative submissions made on behalf of the assessee on this ground stand answered by the afore extracted observations of the Hon ble High Court, which are approved by the Hon ble Supreme Court. The reliance of the learned A.R. on the judgment of the Hon ble Supreme Court in Hindustan Housing Land Development Trust Ltd. s case ( supra ) is misconceived in view of the later judgment of the Hon ble Supreme Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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