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2016 (8) TMI 325 - ITAT AHMEDABAD

2016 (8) TMI 325 - ITAT AHMEDABAD - TMI - 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 IRC .....

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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 th .....

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ternatively, 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 direc .....

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. 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). .....

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ven 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 - ITA No. 3081/Ahd/2014, ITA No. 3082/Ahd/2014, ITA No. 3083/Ahd/2014, ITA No. 3084/Ahd/2014, ITA No. 3259/Ahd/2014, ITA No. 3260/Ahd/2014, ITA No. 3261/Ahd/2014, CO No. 327/Ahd/2014, ITA No. 3262/Ahd/2014, ITA No. 83/Ahd/2015 - Dated:- 29-7-2016 - Shri R. P. Tolani, Judicial Member And Shri Anil Chaturvedi, Accountant Member Assessee by : Shri S.N. Sop .....

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venue bearing ITA No. 3261/Ahd/2014 and the Cross Objection thereof bearing CO No. 327/Ahd/2014 filed by the assessee are directed against the order of the Commissioner of Income-Tax (Appeals)-XX, Ahmedabad dated 30.09.2014 for AY 2008-09. The appeals for AYs 2006-07, 07-08, 09-10 are framed consequent to reassessment proceedings u/s 147/148; AY 08-09 has been passed u/s 143(3) r.w.s 263 and AY 2011-12 is by way of a regular assessment u/s 143. Since all these appeals involve common issues, thes .....

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passed by AO u/s 143 (3) r w s 147 as illegal, invalid and bad in law. It be so held now. 2. Ld. CIT (A) erred in law and on facts in not appreciating that reopening on examination of the very same material of original assessment framed after detailed scrutiny u/s 143 (3) amounts to change of opinion impermissible under law. Ld. CIT (A) ought to have quashed reassessment order passed by AO on mere change of opinion. It be so held now. b. All Assessment Years including CO for AY 2008-09: 3. Ld. C .....

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confirming view taken by AO that license fee payments duly fall under provisions of section 194J of the Act. Ld. CIT (A) ought to have held that payment to IRCTC for taking license not in consideration for rendering any managerial, technical or consultancy services is outside the ambit of section 194J of the Act. It be so held now. 5. Ld. CIT (A) erred in law and on facts in holding that even otherwise license fee payment made in accordance with the agreement between the appellant & IRCTC pr .....

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judgment of Apex Court affirming Special Bench decision in case of Merilyn Shipping & Transport no disallowance deserves to be made. It be so held now. 7. Ld. CIT (A) erred in law and on facts in partly confirming disallowance of difference of total license fee payment made by appellant and amount included in the gross receipts of IRCTC the payee. Assessee being taxable at highest rate of tax Ld. CIT (A) ought not to have disallowed such difference when the license fee payments were made by .....

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duly audited books of accounts are accepted by AO. Ld. CIT(A) ought to have deleted disallowance u/s 40(a)(ia) of the Act. c. Assessment Year 2011-12:- 9. Ld. CIT(A) erred in law and on facts in: a. Confirming disallowance of ₹ 2,81,38,206/- claimed on account of cash embezzlement b. Confirming disallowance holding embezzlement loss as prior period expenses not appreciating that it is allowable as business loss in the year of claim and need not be claimed only in the year of detection of .....

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69C of the I T Act. 11. Levy of interest u/s 234 A/B & C of the Act is not justified. 2.1 a. Common grounds raised in all Revenue s appeals are as under:- 1. The ld. CIT(A)-XX, Ahmedabad has erred on facts that the Second Proviso to Section 40(a)(ia) inserted by the Finance Act w.e.f. 01.04.2013 is retrospective in operation and not on a prospective date. 2. The ld. CIT(A)-XX, Ahmedabad has erred not appreciating the fact that it is not in the case of the assessee where he has not paid up t .....

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by verifiable evidences. 2. The ld. CIT(A)-XX, Ahmedabad has erred in deleting the addition of ₹ 20,87,625/- and not appreciating the fact that the bills/vouchers were not available in respect of an amount of ₹ 15,79,211/- out of burning charges and ₹ 7,08,414/- out of laundry expenses, hence the claim could not be verified in absence of necessary evidences. 3. The brief facts of the case are - The assessee firm is engaged in the business of Railway Catering Contractor. During .....

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al and technical services liable for TDS u/s 194J of the IT Act. Since assessee had not deducted requisite TDS u/s 194J, provisions of Sec. 40(a)(ia) of Act were applicable and the license fee payments were to be disallowed. Assessee filed detailed replies raising various contentions to the effect that: a. The reassessment notices were bad in law; all the relevant facts about payment to IRCTC were considered by ld. AO in original assessments framed u/s 143(3). The 148 notices were issued after a .....

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were untenable. The issue of allowability of payments to IRCTC having been allowed as business expenditure u/s 143(3), the reassessments tantamount to review of the order which was not permissible. Therefore, the reassessment notice and reassessments were invalid and untenable. c. On merits, the payments to IRCTC were for license fee simpliciter and cannot be assumed to be payments for managerial and technical services as contemplated by sec. 194J. Therefore assessee was not liable for TDS u/s .....

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so made by ld. AO. 3.1 Aggrieved assessee preferred first appeals before the ld. CIT(A), challenging the legality of reassessment u/s 147 as well as the disallowances made u/s 40(a)(ia) of the Act. The other additions agitated by the assessee in grounds mentioned above, i.e. claim qua embezzlement, alleged excess burning loss, 40A(3), ad hoc disallowance for possible leakage of revenue and addition u/s 69C were vehemently contested. 3.2 Ld. CIT(A) upheld the 148 notices and validity of reassessm .....

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penses as not allowable in this year; lump sum addition for leakage of revenue was reduced; additions qua 40A(3), burning loss and disallowance u/s 69C were confirmed. Aggrieved by the aforesaid order of the CIT(A), both parties i.e. assessee and revenue are now in appeal before us. 4. The first set of grounds challenge the validity re-assessment proceedings carried out by the Assessing Officer u/s 147 of the Act. 4.1 The ld. Counsel for the assessee submits that all the original assessments wer .....

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by filing objections which are placed at paper-book 1 to 20. Attention of ld. AO was drawn to the notice under section 142(1) issued during original assessment proceedings by which proper details of License fees paid and details of TDS were furnished. Again, by reply dated 14.03.2009 complete details of explanation and information of business activity, license fee were submitted. It is pertinent to point out that the ld. AO has accepted this fact in his order (AY 2008-09) on Objections dated 19. .....

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lear that the AO made proper inquiries about IRCTC payments, license fee, issues about TDS and other relevant queries relevant to the issue of TDS, after due inquiries ld AO examined the details called for and allowed the ITCTC license fee expenditure. 4.3 Ld. Counsel placed reliance on Hon ble Gujarat High Court judgment in the case of Vodafone West Ltd vs Asst CIT (2013) 354 ITR 520 (Guj). In this case also, reassessment was sought to be made for failure to make TDS as the assessee had merely .....

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oner provided the details of large number of such service providers and instances of payment of roaming charges for different telecom circles. [Para 10] If at that stage, the Assessing Officer was of the opinion that such charges paid by the petitioner incurred the liability of deducting tax at source, he could surely have expressed such opinion in his assessment order or if he had any doubt about further details, he could have as well called for the same. Surely, it was not the responsibility o .....

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part of the petitioner to disclose true and full material facts. [Para 12] 4.4 Thus viewed from Hon ble Gujarat High Court, it is contended that there is no justification in AO s reassessment despite this binding judgment. AO applied his mind and framed a proper opinion about the allowability license. Thus notices u/s 147/148 amount to an exercise for change of opinion and review of an order which is not permissible even within four years as held by the Supreme Court in the case of CIT vs Kelvi .....

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o mention whatsoever in reasons recorded for reopening that there is any failure on the part of the assessee in disclosing the relevant details during the course of regular assessments. Hon ble Supreme Court has squarely held that concept of change of opinion must be treated as in-built balancing mechanism to check abuse of power to reopen. 4.5 Further reliance is placed on the Gujarat High court judgment in the case of Ashwamegh Co.op Hous. Society Ltd Vibhag-2 vs. Dy CIT (2013) 214 Taxman 42 ( .....

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l material facts need not be established. However, as held by the Apex Court in case of Commissioner of Income-tax v. (1) Kelvinator of India Ltd. (2) Eicher Ltd. ( supra.) reopening even within four years would not be permissible on a mere change of opinion. In the present case, the Assessing Officer having examined the entire claim threadbare, any deviation from his decision on the ground that the receipts of the assessee from sale of land should be treated as business income in and not as lon .....

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ctual and legal propositions, the conditions of section 147 have not been satisfied by ld. AO, therefore, the impugned reassessments are without jurisdiction, unsustainable, bad in law and liable to be quashed. 4.7 An academic question may arise - that if ld. AO was in possession of primary details at the time of original assessment but did not consider the relevant issue; can it be deemed that no opinion was formed and income escaped assessment so as to resort to reassessment? This question als .....

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ight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The Income-tax Officer had all the material facts before him when he made the original assessment. He cannot now take recourse to section 147(a) to remedy the error resulting from his own oversight . 4.8 It is contended that assessee s case stands on even better footin .....

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an 140 (Guj) has held that reassessment is not permissible to reassess again by a second thought by considering the same material. The Department s SLP against this judgment has also been dismissed by Hon ble Supreme Court. Therefore, looking from any angle the impugned reassessments are bad in law. 4.10 Further reliance is placed on Hon ble Gujarat High Court in the recent judgment of Pr. CCIT v Gujarat Fluro Chemicals judgment dtd. 20-6-2016, in which followed earlier Gujarat High Court judgme .....

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nces, an opinion stands formed by A.O. without there being anything more, reopening on such issue is not permissible even within in 4 years limitation. Reliance is further placed on: 1. NDT System 81 DTR 1 (Bom) - holding that in these circumstances reopening within four years was not permissible. 2. NYK Line (India) Ltd (2012) 346 ITR 355 (Bom) - holding that even within four years reopening on change of opinion is not permissible and the fact that there was no specific discussion in the course .....

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ased on change of opinion, initiated after 4 years. Judging the impugned exercise on the touchstone of judgments of the Apex Court and jurisdictional and other High Courts, these reassessments deserve to be quashed. 5. The ld. Departmental Representative, on the other hand, supported the orders of the authorities below in this regard. Reliance is placed on Hon ble Madras High court judgment in the case of Sri Sakthi Textiles Ltd. v JCIT, Coimbtore 340 ITR 144 for the proposition that there is no .....

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d to Hon ble Supreme court judgment. 6. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. Adverting to the validity of reassessment proceedings in AY 2006-07, 2007-08 and 2009-10, relevant facts about original assessments being u/s 143(3), IRCTC license payments fees having been allowed as business expenditure after calling for relevant details about payments and TDS compliance, legal position and other relevant as .....

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he end of the assessment years. There is neither any mention of assessee s failure in disclosing all the relevant primary facts in reasons recorded for issuing notices nor record suggests that assessee failed in this aspect, this has been held to be a mandatory prerequisite to reopen the assessment after 4 years from the end of the relevant assessment year.. There is no mention of any non cooperation in assessment orders which also implies assessee furnished all the relevant details. iii. The is .....

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at High court judgments in the case of Ashwamegh CH Society Ltd.; Gujarat Power Corpn.; Gujarat Fluro chemicals (supra) and various other judgments cited above, we hold that the reassessments made in the impugned years are bad in law and are accordingly quashed. Consequently for AYs 2006-07, 2007-08 & 2009-10 - assessee s appeals are allowed and that of revenue dismissed for the reasons that 147/148 proceedings are bad in law. 7. We may hasten to add that in AY 2008-09 assessment being u/s 1 .....

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purposes is Govt. which is exempt from TDS deduction. c. IRCTC having offered the license fee as income, there is no TDS liability on assessee in view of the amendment. a. The payments to IRCTC were for license fee simpliciter. The contractor is IRCTC and assessee is a contractee, this is a peculiar contract where reverse methodology is followed i.e. the license fee is paid by contractee to contractor for availing the license to serve food on trains. The simple payment of license fee can by no s .....

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nse fee cannot be disallowed under sec. 40(a)(ia) of Act under no circumstances. Ld. AO however rejected the assessee s valid objections & explanations without giving cogent reasons and took an outlandish view that license payments to IRCTC were for managerial and technical services as contemplated by sec. 194J, since TDS was not made, payments were disallowed as expenditure u/s. 40(a)(ia) in impugned years. 7.2 It is further contended that ld AO grossly misdirected and erred in holding on s .....

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es of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".] 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 pa .....

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there is no service, there is no question of applicability of sec. 194J as contemplated by ld. AO. 7.3 It is vehemently contended that payment of license fees to IRCTC by no stretch of imagination can be assumed to be consideration for rendering any managerial, technical or consultancy services. No services much less any managerial, technical or consultancy services are provided by IRCTC while issuing the license of vending food on trains. Hon ble supreme court judgment in the case of CIT, Mumb .....

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ble Supreme Court reversed the High Court order, gist if as under: (i) Managerial and consultancy services and, therefore, necessarily technical services , would obviously involve services rendered by human efforts. This has been the consistent view taken by the courts including Supreme Court in Bharti Cellular Ltd. 330 ITR 97. (ii) The automated services made available by the BSE are available to all members for transaction effected through it. There is nothing special, exclusive or customised .....

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available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange fail to satisfy the aforesaid test of being specialized, exclusive and individual requirements of the user. Service rendered being in the nature of a routine facility would not be covered by the aforesaid provision of the Act. (iv) The service made available by BSE Online Trading (BOLT) System are common services necessary for carrying out trading in securities in the Stock Ex .....

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it has been held that roaming charges paid by telecom operators to BSNL via sophisticated computers does not amount to technical services and are not covered by sec. 194J in Bharti Cellular case. Looking at the issue in question in the light of plain and simple meaning of technical services and elucidated by Hon ble Supreme court, ld. CIT(A) instead of deciding the applicability of the IRCTC by charging license fee for allotting food catering rights on a particular route no services are rendere .....

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ak securities and Bharti Cellular, there is neither any element of service or rendering of technical service whatsoever in simple payment of license fee, sec. 194J is not at all applicable.sec. 194J rather confounded the issue by holding that if 194J is not applicable than 194C may applicable, since there is one or other liability of TDS the license fee payment is one way or other disallowable u/s 40(a)(ai). It is contended that basis of allotment of catering rights on license fee involves pecul .....

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y contractee to contractor can by no stretch of imagination be assumed to liable for TDS u/s. 194C. Ld. CIT(A) failed to appreciate that tt is a reverse case and contractee has no liability for TDS u/s 194C. 7.5 Therefore, when no service much less technical service are rendered there is no question of liability of TDS u/s 194I. Likewise when in the license process where contractor confers a right of catering on a contractee against license fee, there being no TDS liability on u/s 194C, license .....

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not for not sharing any such license that IRCTC might have. IRCTC is the license granter and not sharer or non-sharer of license. Therefore neither provisions of section 28(va) nor 194J are applicable to such payments. Since the payments are not for the services as contemplated by section 28(va) or 194J, no disallowance can be made on a second thought u/s 40(a) (ia). 7.7 Without prejudice to the above, the payment is also not subject to TDS as IRCTC is only an extended arm of the Ministry of Ra .....

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tered into a works contract agreement with SSNNL which is not an entity specified in sub-clause (b) of section 80IA(4)(i) of the Act. According to the Revenue, SSNNL is not a Central Government or State Government or a local authority or any other statutory body, so as to be considered as an entity specified in sub-clause(b) of section 80IA(4)(i) of the Act. As per the Revenue, SSNNL is a company registered under the Companies Act, 1956 and does not fall within the prescription of sub-clause (b) .....

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Ltd. & Ors., AIR 1998 SC 418. In terms of the said judgement, it is sought to be canvassed that although capital of SAIL was entirely owned by Government of India, but by virtue of its incorporation under the Companies Act, 1956 its personality was held to be distinct than that of the Government of India. Similarly, reliance has been placed on the judgement of the Hon ble Supreme Court in the case of Heavy Engineering Mazdoor Union vs. State of Bihar, AIR 1970 SC 82 for the proposition that .....

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Canal Pumping Scheme ; and, thus the mandatory condition prescribed in section 80IA (4)(i)(b) of the Act has not been complied with. 7.8 Pune ITAT, apart from various High court and supreme Court judgments mentioned therein derived support from Ahmedabad Bench decision in the case of JCIT vs. Sardar Sarovar Narmada Nigam Ltd., (2005) 93 ITD 321 (Ahd) held that Govt. may carry out it s functions through SPV also by observations in para 16 below. 16. The aforesaid background of the manner in whic .....

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ble Supreme Court in the case of Som Prakash Rekhi by following observations and held that Govt. arms like SSNL for all legal and practical purposes can be interpreted as Govt. while giving effect to IT provisions by following observations: 17. At this point, we may refer to the judgement of the Hon ble Supreme Court in the case of Som Prakash Rekhi (supra). In the said case, dispute was between Burmah Shell, a company under the Companies Act, 1956, and one of its former employees. The company .....

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ests in this context and the relevant portion of the Head notes of judgement is as under :- 2. Some of the tests laid down by this Court for deciding whether a body is State within the meaning of Article 12 are : (i) If the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of the Government. (ii) A finding of State financial supports plus an unusual degree of control over the management an .....

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as instrumentality or agency of the Government. (vi) If a department of Government is transferred to a corporation, it would be a strong factor supportive of the inference that it is an instrumentality of the State (vii) Where the chemistry of the corporate body answers the test of State if comes within the definition of Article (viii) Whether the legal person is a corporation created by a statute, as distinguished from under a statue is not an important criterion although it may be an indicium .....

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s created. The Hon ble Supreme Court also observed that all the tests may not be applicable or satisfied in a given case, but one will have to arrive at a conclusion based on the cumulative effect of the said tests. 19. The claim of the assessee before us is that SSNNL complies with all the tests laid down by the Hon ble Supreme Court in the case of Som Prakash Rekhi (supra). First test is whether the share capital of the corporation is held by the Government. In the present case, the entire sha .....

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ociation of SSNNL clearly establish that the said concern is operating under superintendence and direction of the Government of Gujarat. It has also been pointed out before us that the Directors of the SSNNL are drawn from the officials of the Government of Gujarat. The next test is the existence of deep and pervasive State control. In this context, it emerges that the Board of Directors of SSNNL are appointed by the Gujarat Government and it consists of the Government employees of the rank of S .....

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spects clearly show that SSNNL is involved in carrying out State monopoly functions, like operation of Airports, Ports, Railways, etc.. The next test is whether the functions performed are important public functions related to governmental functions. In the case of SSNNL, it is quite obvious that apart from executing, operating and maintaining the Sardar Sarovar project it is also involved in promoting schemes in the State of Gujarat for flood control in the Narmada river, irrigation and water s .....

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chemistry of the concerned body answers the test of a State. In our view, the said test is also fulfilled in the face of the fact that the incorporation of SSNNL, its ownership, management, control as well as the powers have a unmistakable stamp of a Government. 20. In view of the aforesaid discussion, in our view, the tests laid down by the Hon ble Supreme Court in the case of Som Prakash Rekhi (supra) are fulfilled in the present case and it would be appropriate to deduce that SSNNL is an ins .....

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that merely because an entity is created under a statute and not created by a statute is not an important criteria. The test relating to the purpose, State control and functions performed are more important and determinative of the issue. Such tests, in our view, are clearly applicable in the case of SSNNL, and it is to be understood as an entity specified in section 80IA(4)(i)(b) of the Act. 7.10 Ld. Counsel contends that IRCTC is a 100% owned company of Govt. of India, earlier the catering wa .....

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cense fee. On this count also there is no question of disallowance u/s 40(a)(ia), consequently the entire disallowance deserves to be deleted. 7.11 Assessee at this juncture craved leave to admit additional ground for these years as under: Without prejudice to the other grounds, the disallowance made under section 40(a)(ia) deserves to be deleted in view of the second proviso to section 40(a)(ia) as the appellant is not to be deemed to be in default under the first proviso to sub- section (1) of .....

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on Supreme Court judgment in NTPC - 229 ITR 283. 7.13 Ld. DR is heard, after hearing both parties, respectfully following Hon ble Supreme court judgment in the case of NTPC judgment we are inclined to admit the additional ground. In view thereof the prayer to admit relevant letter addressed to IRCTC to forward the prescribed Form No. 26 and their certificate as additional evidence is accepted as they are necessary to decide the issue and assessee obtained them in view of Rajkot Special Bench jud .....

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paid then for non deduction of tax on payment made to payee, the payer assessee shall not be deemed to be in default qua the TDS liability. It is pertinent that similar amendment was made in section 206C by inserting proviso to section 206C (6A). 7.15 In this connection, the ITAT Special Bench in Bharati Auto Products 145 ITD 1 (Rajkot) (SB) and also in Gujarat Pipavav Port Ltd (2013) 40 taxman.com 174 (Rajkot) held that the proviso to section 201 is retrospective and if the payee has paid taxes .....

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ts of license fees in its respective returns of income, the assessee cannot be held as in default. In view of the retrospectively of amendment no disallowance under section 40(a)(ia) is called for and the same deserves to be deleted. 8. We have heard the rival contentions and perused the material on record. In our considered view, on merits, the assessee deserves to succeed on these counts in view of the following:- a. The impugned license fee is paid by assessee to IRCTC for awarding licensed r .....

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ot applicable to assessees case. b. Similarly sec. 194C is also not applicable since the basis of allotment of catering rights on license fee involves peculiar features. The IRCTC is the contractor who awards rights and assessee is the contractee obliged to pay license fee for availing those rights. Sec. 194C fastens liability on contractor when amount is paid to contractee and not vice versa. Therefore payment of license fee by contractee to contractor can by no stretch of imagination be assume .....

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ing paid for sharing any know how, patent , copy right , trade mark, license, franchise cannot fall under its purview. d. Apropos additional ground also respectfully Hon ble Supreme court judgments Som Prakash Rekhi has laid down parameters as to when a corporation can be called a state for legal and practical purposes. Income Tax law provides some beneficial and relaxing provisions for Govt. local bodies etc. for ease of administration and flexibility. TDS is a mechanism to avoid nonpayment of .....

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tended results, Hon ble supreme court laid down these parameters. They have been deftly followed by Pune Bench in Kirloskar Bros. case. In our considered view in the given facts and circumstances IRCTC falls within those parameters. Following Hon ble Supreme Court in Som Prakash Rekhi and coordinate ITAT Pune Bench, we hold that IRCTC amounts to Govt. Therefore, assuming even there was any TDS liability; assessee was not liable to deduct any TDS from license fee paid to IRCTC. e. The ITAT Specia .....

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reason as to why the assessee shall be held to be liable for TDs and disallowance u/s 40(a)(ia). 8.1 In view of foregoing facts, circumstances and respectfully following the judicial precedents as mentioned above we hold that assessee s licence fee payments to IRCTC were not liable for TDS and cannot be disallowed u/s. 40(a)(ia). Thus we allow the assessee grounds on merits also in this behalf and dismiss relevant revenue grounds in the impugned years. 8.2 Since the reassessments for AYs. 2006- .....

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No.7 of the assessee s appeal which is pertained to embezzlement loss; the facts, contentions and conclusions from the Assessing Officer s level are as under:- 6.2. The submission of the assessee has been verified, but the same is not found convincing. The assessee himself states that the embezzlement was occurred during the F.Y.2008-09 relevant to A.Y.2009-10 and F.Y.2009-10 relevant to A.Y.2010- 11. The assessee has claimed a part of the amount in the A.Y.2010-11 and the remaining part in the .....

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owever, there is no evidence on record to prove such a claim). (v) The total misappropriation of funds in the case of assessee were to the tune of ₹ 3,94,71,082/-, i.e. ₹ 2,57,61,000/- in the F.Y.2008-09 and ₹ 1,37,10,082/- in the F.Y.2009-10, whereas reply of show cause reveals that the assessee has not given any evidences regarding increase in the amount of embezzlement from ₹ 3,94,71,082/- to ₹ 4,01,97,436/-. It is surprising to note that during the course of aud .....

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in the payment of license fee to IRCTC by the assessee during the period in which the fraud was occurred. If the embezzlement took place, then there must have been default in payment to IRCTC. It is also noted that the same auditor, who is auditing the books of the assessee, has quantified the amount of embezzlement, but he has failed to take note of the misappropriation of funds from bank as well as cash balance, which are the core books of accounts of any assessee, especially when the assessee .....

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(F.Y.2010-11). In this regard, the CBDT has issued a Circular No.35-D dated 24.11.1965, which envisages that the loss arising due to embezzlement by employees should be allowed as deduction in the year in which it is discovered. 6.4. The assessee came to know' about the fraud by its employee by 16.03.2010 (i.e. the date of filing complaint with Police authorities). The fraud was noticed much before the date of audit of the firm for the F.Y. 2009-10 as it is noticed that the audit of the firm .....

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ncement and after its expiry cannot be the subject of any allowance in assessing the income of that particular year. In making the assessment for any particular year, deductions can therefore be permitted only in respect of expenses, which are found to have been incurred in the relevant accounting period. In adjudging the admissibility of a claim for deduction, the determination of the question whether the assessee had incurred the expenditure during the relevant accounting period is an indispen .....

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enses. Hence, the amount debited to P&L A/c on account of embezzlement of cash of ₹ 2,81,38,206/- is disallowed and added to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of the IT Act is being initiated separately for furnishing inaccurate particulars of income. 9.1 Aggrieved, the assessee preferred first appeal where the ld. CIT(A) accepted the genuineness of the embezzlement and lodging of FIR report and relied on CBDT Circular No.35-D dated 24.11.1965. However .....

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he Court and the accused employee would be able to pay that much sum is not supported with any details/documents. It was the mere estimation of the appellant at his level. Rather as per the CBDT Circular once the embezzlement has been discovered and for the same Police complaint has been filed on 16.03.2010 then the entire claim of embezzlement would have been made in AY 2010-11 only rather than to claim in two different years without any basis. Thus the case laws relied upon by the appellant ar .....

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an indication that part of the embezzlement money will be returned by him; therefore, there was a ray of hope that part of the amount will be recovered. In view thereof, based on a prudent business decision which is in conformity with mercantile system of accounting, the assessee debited 30% in AY 2010-11 hoping that balance will be recovered subsequently. In the impugned year, the assessee exhausted all his ways and means and came to a business decision that no amount will be recoverable and w .....

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2014. A copy of said reply is attached EXHIBIT-C page No...to.. At point No: 2, the appellant has clarified the factual aspects . It is also admitted fact that the appellant had written off ₹ 1,20,59,230/- being 30% of the total loss in the assessment year 2010-11 on the hope that it would be able to recover balance 70% as Court had granted remand of the accused and the accused employee will be able to pay that much sum rest he might have used away or lost. It is also admitted fact that th .....

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fact that fraud came to notice by the appellant on 16.03.2010. The stand of the AO is that the entire sum of loss could have been claimed and allowable in Asst.Year 2010-11 on the ground that there was ample time for the assessee to estimate the quantum of embezzlement and claim the same in the return filed for A. Y. 2010-11 itself. The Id AO, based on CBDT circular has therefore observed and held that claim made by writing off of the balance sum of ₹ 2,81,38,206/- for the year under appea .....

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34 ITR 10 and Associated Banking Corporation of India vs CIT, 56 ITR 1. The Apex Court in the judgment of Associated Banking Corporation, 56 ITR 1 has observed that "...... Even after the embezzlements came to the knowledge of the liquidator, trading loss cannot be deemed to have resulted. We are unable to countenance the proposition that irrespective of other considerations, .as soon as the embezzlement takes place of the employer's funds, whether the employer is aware or not of the e .....

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allowed in the year in which it is discovered. It is not to be understood that if assessee honestly expects chance of part recovery, he must write off and claim entire amount in the year of detection. This is the concession given by CBDT but the fact remains that the CBDT has also considered above judgment of Apex Court. Your honours kind attention is drawn to the judgment in the case of CIT vs Durga Jewellers 172 ITR 134 (MP) in which also it was held that where the assessee was hopeful of rec .....

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claim on the ground that it amounted to claim of prior period expenses, it is submitted that as per CBDT and Apex Court judgments, it is not an expenditure or expenses which is being claimed and allowed. It is the trading loss or loss incidental to business claimed u/s 28 and hence there is no justification to reject the claim on the ground of prior period expenses. It is further submitted that, even if the claim would have been made in Asst. Year 2010-11, (as per plea of AO), the result would .....

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idental to business occurred in the year AY 2010-11. The disallowance be deleted. Incidentally, even with regard to the deduction of prior period expenses, the High Court of Bombay (In the period prior to partition of Gujarat and Maharastra and hence it is therefore equivalent to judgment of Gujarat High Court ) in the case of CIT vs Nagri Mills 33 ITR 681 (Bom) has held that when tax rates in two years are same, there is no effect on taxability whether deduction is given in one year or other. T .....

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ding loss which is incurred in the regular course of business, the amount was bifurcated by a prudent businessmen s decision and the Revenue Authorities cannot step into the shoes of businessmen as to how and when such loss can be decided to be incurred. Reliance is placed on the Hon ble Supreme Court judgment in the case of Associated Banking Corporation of India vs. CIT, 56 ITR 01. Further reliance is placed on the Hon ble Supreme Court judgment in the case of CIT vs. Excel Industries Ltd, (20 .....

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ce, a direction may be given to allow the same in AY 2010-11. 10. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. From the facts mentioned above, it is undisputed facts 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 wa .....

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ager 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. In view of these facts and considering the Hon ble Supreme Court judgment in the case of Associated Banking Corporation of India (supra), MP High Court judgment in the case of Durga Jewellers (supra) and Bombay High Cour .....

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have no hesitation in allowing the claim in this year as claimed by the assessee. Accordingly, this ground of the assessee in all assessment years is allowed. 11 Apropos assessee s Ground No.10 for AY 2011-12, the Assessing Officer made a lump-sum disallowance of ₹ 50,00,000/- for possible coverage of leakage of revenue which has been reduced by ld. CIT(A) to ₹ 5 lacs again to plug any leakage of revenue. 12. We have heard both the parties and are of the firm view that there is no c .....

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d No.11 for AY 2011-12, i.e., confirmation of addition of ₹ 2,82,020/- u/s 40A(3), ld. Counsel for the assessee contends that the expenditure in question is incurred by the staff on moving train staff at various stations having a stoppage of 3 to 5 minutes. It is impossible to pay cheque during mobility and the payments are necessarily to be made in cash to cope up with the mobile pantry car requirements. These payments are covered under Rule 60DD, therefore, no disallowance is called for .....

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d-hoc disallowance of ₹ 2,00,000/- towards burning expenses the subject matter is same as assessee s Ground No.10 - lump-sum addition. Therefore, for the same reasons, the disallowance of ₹ 2,00,000/- is deleted. This ground of the assessee is allowed. 16. Apropos Ground No.13 of assessee s appeal for AY 2011-12, i.e. confirmation of unexplained expenditure of ₹ 12,09,023/- u/s 69C, the ld. CIT(A) confirmed the disallowance by following observations:- 10.3 I have considered the .....

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ture of the trains before goods received at the stations and the bills might have been kept in the records only and no much payments have been made to them. However, it was noticed that the contention of the appellant that the goods have been returned back to the parties is not verifiable from the records/goods returned register. Therefore, the claim of the appellant was not verifiable. Since the purchases bills were available on record and the same have not been found debited in the books of ac .....

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sessee has any malafide intention it would rather claim the bills as an expenditure which would reduce its profits. Therefore, the presumption drawn by ld. CIT(A) is bereft of business exigencies, it amounts self injury by not claiming the bills and expenditure; this is so because each and every transaction is in record of the assessee; therefore, there is no justification in disallowing such purchases which have not been effected due to non-delivery of goods u/s 69C. 17. We have heard the rival .....

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