ACIT 5(1)(1), MUMBAI, MUMBAI V. HARI KRISHNA EXPORTS PVT. LTD., MUMBAI

ITA 3618/MUM/2025

AI Insights

The case involves an appeal by the revenue against the order of the National Faceless Appeal Centre (NFAC), which had allowed the appeal of Hari Krishna Exports Pvt Ltd, the assessee, regarding the disallowance of expenses under section 40(a)(ia) of the Income-tax Act, 1961 for non-deduction of TDS. The revenue argued that the appeal was maintainable under the exceptions provided in the CBDT circular due to the nature of the TDS dispute. However, the tribunal, referencing a judgment by the Hon'ble Bombay High Court, concluded that the exceptions did not apply to the case at hand, leading to the dismissal of the revenue's appeal and the assessee's cross-objection.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714680 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2012-2013
• Other Referred Cases: Commissioner of Income-tax v. V. M. Salgaonkar and Brothers (P.) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NITESH JOSHI; HEMANSHU JOSHI
• Keywords: Reasonable cause; Tax effect; TDS; Services rendered outside India; Non-deduction of tax
• Section: 147; 143(3); 201(1); 40(a)(ia)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No 3618/Mum/2025 (Assessment Year: 2012-13) ACIT 5(1)(1), Mumbai Room No.568, 5th Floor, Aayakar Bhavan, Mumbai-400 020 vs Hari Krishna Exports Pvt Ltd 1701-B, 17th Floor, the Capital BK, Mumbai-400 051 PAN: AACCH8430N APPELLANT RESPONDENT C.O. No 167/Mum/2025 (Arising out of ITA No 3618/Mum/2025) (Assessment Year: 2012-13) Hari Krishna Exports Pvt Ltd 1701-B, 17th Floor, the Capital BK, Mumbai-400 051 PAN: AACCH8430N vs ACIT 5(1)(1), Mumbai Room No.568, 5th Floor, Aayakar Bhavan, Mumbai-400 020 CROSS OBJECTOR RESPONDENT Assessee by : Shri Nitesh Joshi Respondent by : Shri Hemanshu Joshi, SR DR Date of hearing : 04/08/2025 Date of pronouncement : 06/08/2025 O R D E R Per Anikesh Banerjee (JM): The instant appeal of the revenue and the cross objection filed by the assesse against the order of the National Faceless Appeal Centre (NFAC), Delhi [in Printed from counselvise.com 2 ITA 3618/Mum /2025 & CO 167/Mum/2025 Hari Krishna Exports Pvt Ltd short, ‘the Ld.CIT(A)] passed under section 250 of the Income-tax Act, 1961 [in short, “the Act”] for A.Y. 2012-13, date of order 27/03/2025. The impugned order emanated from the order of the Ld. Assistant Commissioner of Income tax- 5(1)(2), Mumbai, order passed under section 143(3) read with section 147 of the Act, date of order 12/12/2019. 2. During course of hearing Ld. AR stated that the tax effect involved in the appeal filed by the revenue is below the limit prescribed by the CBDT. In the assessment, the Ld.AO disallowed expenses amount to Rs. 42,18,986/- under section 40(a)(ia) of the Act, for non-deduction of TDS. The issue was carried before the Ld. CIT(A). The Ld. CIT(A) allowed the appeal of the assesse. Being aggrieved the revenue preferred an appeal before the Bench. 3. The Ld. DR in argument stated that the revenue’s appeal is falling under the exceptions provided in 3.1 (l) (i) in circular No.279/Misc.142/2007-ITJ (Pt.), Circular No.5/2024 dated 15th March, 2024, therefore, the appeal is maintainable. The relevant paragraphs of the circular are extracted below:- “3.1 Monetary limits given in paragraph 4 with regard to filing appeal/SLP shall be applicable to all cases including those relating to TDS/TCS under the Act with the following exceptions where the decision to appeal/file SLP shall be taken on merits, without regard to the tax effect and the monetary limits: a to k xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx l. In respect of litigation arising out of disputes related to TDS/TCS matters in both domestic and International taxation charges:- i. Where dispute relates to the determination of the nature of transaction such that the liability to deduct TDS/TCS thereon or otherwise is under question, or Printed from counselvise.com 3 ITA 3618/Mum /2025 & CO 167/Mum/2025 Hari Krishna Exports Pvt Ltd ii. Appeals of International taxation charges where the dispute relates to the applicability of the provisions of a Double Taxation Avoidance Agreement or otherwise.” 4. We have heard the rival submissions and perused the material available on record. Upon careful consideration, we find that the benefit of exceptions is applicable only with respect to Sections 201(1) and 201(1A) of the Act. In the present case, the disallowance pertains to Section 40(a)(ia), which was invoked on account of non-deduction of tax at source. The Ld. AR has placed reliance on the judgment of the Hon’ble Bombay High Court in the case of Commissioner of Income-tax v. V. M. Salgaonkar and Brothers (P.) Ltd., [2024] 169 taxmann.com 597 (Bombay), wherein the Hon’ble Court has adjudicated a similar issue in favour of the assessee. The relevant paragraphs of the said judgment are reproduced below for reference:– “12. In this view of the matter Ms Razaq submitted that the substantial questions of law on which both the present appeals were admitted clearly show that the dispute between the assessee and the Department relates to the nature of the transaction i.e. whether the payments made by the assessee towards sales and marketing services rendered outside India to Marriott International in terms of their contract, are amenable to tax in India and whether the assessee is liable to deduct such tax before payment of funds abroad to Marriott International. She submitted that the said substantial questions of law would involve interpretation of the contract between the parties as well as the provisions of the Income Tax Act 1961 and the Double Taxation Avoidance Agreements in place between India and the USA. xxxxxxxxxxxxxxxxxxxxxxx 31. In any event, in our opinion the Revenue's case does not fall in the exception carved out in para 3.1(l) of the Circular dated 15.03.2024 for the following reasons. According to us, Clause 3.1 (l) excludes appeals arising out of proceedings taken against a deductor for failure to deduct tax at source and recovery of the tax from the payer that was omitted to be deducted. If there is an Printed from counselvise.com 4 ITA 3618/Mum /2025 & CO 167/Mum/2025 Hari Krishna Exports Pvt Ltd obligation to deduct tax at source on a payer in terms of the provisions contained in Chapter XVII- B of the Act and the payer fails to discharge such obligation, it is liable for several consequences. The first and the foremost being that it could be treated as a Respondent in default for failing to deduct taxes and, accordingly, the tax which ought to have been deducted could be recovered from it by passing an order under section 201. Consequently, there would be a levy of interest in terms of section 201(1A) as well as a levy of penalty under section 271C, if such failure was without reasonable cause. The amount of tax that could have been recovered from the payer would be equivalent to the amount that he would have had to deduct. Another collateral consequence that would flow is that the payer would suffer a disallowance of the expenditure that he had claimed as a deduction having regard to the provisions of section 40(a)(i) or section 40(a)(ia). In such circumstances for the assessment years that one is concerned with in the present appeals, the consequence would be that the expense that was claimed as a deduction on which tax was not deducted would be disallowed. 32. The present appeals raise one of the question as to whether the respondent is entitled to a deduction of the expenses incurred by it by way of making a payment to Marriott International Inc. because it had not deducted tax at source under section 195 on such payment. In our opinion, this issue would not fall within the scope and ambit of clause (l). This is brought out by the manner in which the tax effect has to be determined. The appeals arising from regular assessments where an expense is disallowed or a claim for an allowance is disallowed or an amount is sought to be assessed as income is dealt with in para 5.1. In these circumstances, the tax effect is calculated by taking the difference of tax on the total income assessed and the tax would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which the appeal is intended to be filed. The following example relied upon by the learned Senior Advocate for the assessee appealed to us. Learned Senior Advocate submitted that for example, say in the case of an assessee, it incurred an expenditure of Rs.20/- which it claims as a deduction and returns a total income of Rs.100/-. If the expenditure so claimed is disallowed, by invoking section 40(a) (i) for a failure to deduct tax at source, then, the assessee would be assessed on an income of Rs.120/-. If the prevalent rate of tax is 30%, the tax effect would be calculated by applying the rate of 30% on Rs.120/- i.e. Rs.36 and subtracting from it the tax on the total income returned of Rs.100/- i.e. Rs.30/- and, accordingly, the amount of Rs.6/- would be determined to be the tax effect. On the other hand, in the case of a litigation pertaining to TDS, suppose on the aforesaid payment of Rs.20/- tax at the rate of 15% would have to be deducted, then, in terms of clause 5.4 of the 15.03.2024 circular the tax effect would be calculated at Rs.3/- . We find force in the submissions of the learned Senior Advocate that this is indicative of the fact that what is covered by para 3.1.l are cases springing out of a litigation from orders passed under section 201, 201(1A) etc. In the present appeals, the original order which was passed arises from an assessment framed under section 143(3) and, therefore, the exclusion contemplated in para 3.1.l would not apply and, accordingly, the appeals must be dismissed as withdrawn.” Printed from counselvise.com 5 ITA 3618/Mum /2025 & CO 167/Mum/2025 Hari Krishna Exports Pvt Ltd 5. We respectfully follow the decision of the Hon’ble Bombay High Court, as the factual matrix of the present case is identical to that considered in the said judgment. Upon examination, we find that the present appeal does not fall within the exceptions enumerated under paragraph 3.1, clauses (l)(i) and (ii), of the aforementioned Circular. Accordingly, the appeal filed by the revenue is dismissed as not maintainable. Consequently, the cross-objection filed by the assessee is rendered infructuous and is dismissed as being academic in nature. 6. In the result, the appeal filed by the revenue bearing ITA No.3618 /Mum/2025 and the Cross Objection filed by the assessee bearing C.O. 167/Mum/2025 are dismissed. Order pronounced in the open court on ____ day of August, 2025. (PRABHASH SHANKAR) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, िदनांक/Dated: /08/2025 Pavanan Copy of the Order forwarded to: 1. अपीलाथ /The Appellant , 2. ितवादी/ The Respondent. 3. आयकर आयु\u0014 CIT 4. िवभागीय ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 5. गाड फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai Printed from counselvise.com 6 ITA 3618/Mum /2025 & CO 167/Mum/2025 Hari Krishna Exports Pvt Ltd Details Date Initials Designation 1 Draft dictated on PC on 04.08.2025 Sr.PS/PS 2 Draft Placed before author 04.08.2025 Sr.PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member JM/AM 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS/PS 7. File sent to the Bench Clerk Sr.PS/PS 8 Date on which the file goes to the Head clerk 9 Date of Dispatch of order Printed from counselvise.com "