WWW.TAXSCAN.IN - Simplifying Tax Laws ITA No. 359/Coch/2016

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH (SMC) KOCHI BEFORE SHRI GEORGE GEORGE K, Judicial Member ITA No 359/Coch/2016 (Asst Year 2009-10 ) The Income Tax Officer Ward 1 Alappuzha

Vs

( Appellant) PAN No. Assessee By Revenue By Date of Hearing Date of pronouncement

Mr Alex Rockey Neroth House Lejnath Ward Alappuzha 688 001 (Respondent)

ABXPR4108G Sh S Mahadevan Sh A Dhanaraj, SR DR 4th Jan 2017 6th Jan 2017

ORDER

This appeal, at the instance of the revenue, is directed against the CIT(A)’s order dated 15.6.2016. The relevant assessment year is 2009-10. 2

The grounds raised read as follows: “The order of the learned Commissioner of Income tax (Appeals), Kottayam in so far as the points stated below are concerned, is opposed to law on the facts and in the circumstances of the case. 2. The Ld. Commissioner of Income Tax (Appeals) has erred in allowing the appeal of the assessee by nullifying the assessment u/s 147 of the Act. 3. The re-assessment u/s 147 of the Act was completed by the Assessing Officer when it was noticed that the assessee failed to deduct tax at source from the warehousing charges of Rs. 4,49,7161 - debited in the Profit and Loss Account. 4. The Central Board of Direct Taxes (CBDT) in its circular No.718 dated 22- 8-1995 has clarified that the t.erm "rent" as defined in Explanation (i) below 1

WWW.TAXSCAN.IN - Simplifying Tax Laws ITA No. 359/Coch/2016

section 194-1 means any payment by whatever name called, under any lease, tenancy or any other agreement or arrangement for the use of any building or land. 5. In view of the above clarification, the warehousing charges paid by the assessee ought to have been subjected to deduction of tax at source uls 194-1 of the Act. 6. The issue is covered by clause ( c ) of para 8 of the CBOT Circular { / NO.2112015 dt. 10/1212015 and hence, the monetary limit for filing appeal I before the ITAT is not applicable to this case. For these and other grounds that may be advanced at the time of hearing, the order of the learned Commissioner of Income tax (Appeals) on the above points may be set aside and that of the Assessing Officer restored.” 3

The brief facts of the case are as follows:

The assessee is an individual engaged in the business of trading of rubber, pepper etc. The original assessment was completed u/s 143(3) vide order dated 20.12.2011 fixing a total income of Rs 16,61,160/-. Thereafter, the Assessing Officer reopened the assessment by issuance of notice u/s 148 on the ground that no tax was deducted on warehousing charges amounting to Rs.4,49,716/- debited in the P&L account. The reassessment u/s 143(3) r.w.s 147 of the Act was completed by disallowing the warehousing charges by invoking provisions of section 40(a)(ia) of the Act; since no tax was deducted on the warehousing charges paid by the assessee.

4

Aggrieved by the reassessment order, the assessee preferred an appeal before

the first appellate authority. Before the first appellate authority, the assessee contended that reopening of assessment is invalid and on merits, submitted that warehousing charges would not come within the ambit of section 194I of the Act.

The CIT(A)

considered the validity of reopening of assessment and decided the issue in favour of 2

WWW.TAXSCAN.IN - Simplifying Tax Laws ITA No. 359/Coch/2016

the assessee. Since the issue on validity of reassessment was decided in favour of the assessee, the contention raised on merits was not adjudicated. The CIT(A) held that in the original assessment, since the Assessing Officer had considered the issue of TDS on warehousing charges paid and had taken a conscious decision not to make the disallowance, the reopening of assessment is only ‘change of opinion’. The CIT(A) in holding so, primarily relied on the judgment of the Hon’ble Apex Court in the case of CIT vs Kelvinator of India Ltd (320 ITR 561)(SC)

5

Aggrieved, the revenue is in appeal before the Tribunal. The ld Sr DR Shri A

Dhanaraj had filed a brief written submissions. It was submitted that the reopening is permissible even if the information is obtained after proper investigation from the materials on record or from any enquiry or research into facts or law and the information need not be from external source. It was further contended in the written submission that the audit report bringing to the attention of the Assessing Officer with regard to the escapement of income, constitutes the information for issuance of notice u/s 148. For the above position, the ld DR, in the written submissions, has placed reliance on the following judicial pronouncements: i) ii) iii)

5.1

New Bank of India vs ITO 136 ITR 679 (Del) CIT vs PVS Beedies P Ltd 237 ITR 13 (SC) CIT vs First leasing Co of India Ltd ( 241 ITR 248 (Mad)

The ld AR, on the other hand, reiterated the submissions made before the

Income Tax Authorities and relied on the findings/conclusion of the first appellate authority. 3

WWW.TAXSCAN.IN - Simplifying Tax Laws ITA No. 359/Coch/2016

6

I have heard the rival submissions and perused the material on record. During

the course of original assessment proceedings, the Assessing Officer had issued an office letter dated 1.12.2011 calling for details on many items. One of the items was warehousing charges paid and tax deduction on the same. The relevant portion of the letter of the Assessing Officer calling for the details of the warehousing charges paid and why tax was not deducted, read as follows “ In your profit & loss account you have incurred warehousing charges of Rs. 4,49,716/-. You are required to furnish whether you have deducted tax as per the provisions of the I T Act and if not, the reasons thereof.”

6.1

The assessee has filed his reply on 25.10.11 and stated that warehousing

charges paid is not

for the exercise of ‘property rights’ and therefore, it was not rent

and the provisions u/s 194I will not be applicable. The relevant portion of the reply submitted by the assessee to the Assessing Officer during the course of original assessment proceedings, reads as follows: “Regarding your query as to the applicability of tax deduction u/s 194I may state that the section applies to ‘Rent’. Warehousing charges does not come under the definition of rent contained in Explanation (i) to this section. There is no lease sub lease tenancy or other agreement for use of any building. The owner of the warehouse has to provide identification of each lot of materials, maintain stock register of all materials stored in the warehouse etc. The materials of not only the assessee but various others are also kept in the warehouse. The goods stored in the warehouse by the assessee cannot be removed without the permission of the warehouse keeper. Further, in some cases insurance is covered by the warehouse. Thus, it will be clear that the warehouse charges paid is not for the exercise of ‘property rights’ and therefore is not rent. Hence tax is not deductible u/s 194I on warehousing charges. Therefore, there cannot be any disallowance u/s 40(a)(ia).”

6.2

On considering of the assessee’s reply, the Assessing Officer did not disallow the

warehousing charges paid on account of non deduction of tax at source and completed

4

WWW.TAXSCAN.IN - Simplifying Tax Laws ITA No. 359/Coch/2016

the assessment u/s 143(3) of the Act by order dated 20.12.2011. This clearly shows that question of TDS on warehousing charges paid by the assessee was considered by the Assessing Officer and the contention raised by the assessee was accepted. Therefore, there was no failure or omission on the part of the assessee to file full and true disclosure of material facts during the course or original assessment; such being the case, reassessment is only a change of opinion . For the said proposition, reliance is placed on the judgment of the Hon’ble Apex Court in the case of Kelvinator of India Ltd (supra).

6.3

With regard to the contention of the ld DR that audit party can bring to notice of

the Assessing Officer the mistake which has crept in the original assessment and such information by audit party constitute reason to believe for reopening the assessment cannot be accepted for the following reasons. In the instant case, the audit party has raised an issue not with regard to factual matrix; but on a legal issue. The Hon’ble Apex Court has categorically held in the case of Indian and Eastern News Paper Society vs CIT reported in 119 ITR 996(SC) that opinion of an internal audit party on a point of law does not constitute an ‘information’ for the purpose of reopening an assessment. This position was reiterated by the judgment of the Hon’ble Gujarat High Court in the case of N K Proteins Ltd Vs ITO reported in 389 ITR 541(Guj).

6.4

As mentioned earlier, in the instant case, the audit party has raised objection

with regard to non deduction of tax on warehousing charges paid. The issue whether

5

WWW.TAXSCAN.IN - Simplifying Tax Laws ITA No. 359/Coch/2016

warehousing charges are liable for tax deduction at source u/s 194I, is purely a legal issue. Hence, the audit objection cannot be a ground for reopening of assessment, especially when in the course of original assessment proceedings, the said issue was considered by the Assessing Officer in detail and the contention of the assessee was accepted. For the aforesaid reasons, I uphold the order of the CIT(A). It is ordered accordingly.

7

In the result, the appeal filed by the revenue is dismissed.

Order pronounced in the open Court on this 6th day of Jan 2017.

( GEORGE GEORGE K) Judicial Member Cochin: Dated 6th Jan 2017 Raj* Copy to:

Appellant – Respondent – CIT(A)CIT, DR Guard File By order Assistant Registrar ITAT, COCHIN

6