ANISH INFRACON INDIA PVT. LTD. V. DY. COMMISSIONER OF INCOME TAX

SCA/3349/2018

AI Insights

The case involves Anish Infracon India Pvt. Ltd., a private limited company engaged in infrastructure development, which sought a direction from the Gujarat High Court for the credit of tax deducted at source (TDS) and a refund of excess tax for the assessment year 2014-15. The company, having succeeded a partnership firm, faced issues where TDS was credited to the firm's account instead of the company's due to ongoing projects and security deposits that were not substituted post-conversion. The Income Tax Department did not accept the TDS credit claim due to mismatches in the Permanent Account Number (PAN). The court heard arguments from both sides, considering the automatic processing of returns by the department and the lack of physical verification by the Assessing Officer.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 684836 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 25-09-2018
• Assessment Year: misc
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: DARSHAN PATEL
• Keywords: Assessment Year 2014-15; Income Tax; Tax deducted at source; TDS credit; Permanent Account Number mismatch
• Section: 143(3)

Judgement Text

"C/SCA/3349/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 3349 of 2018 ========================================================== ANISH INFRACON INDIA PVT. LTD. Versus DY. COMMISSIONER OF INCOME TAX ========================================================== Appearance: DARSHAN R PATEL(8486) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1,2 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 25/09/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioner has prayed for a direction to the respondent authorities to grant credit of the tax deducted at source and consequentially to refund such excess tax to the petitioner with statutory interest for the assessment year 2014­15. 2. Brief facts are as under :­ Petitioner is a private limited company duly registered under the Companies Act and is engaged in carrying out infrastructure development projects. Previously the business was carried on by a partnership firm. This partnership firm was converted into the present private limited company with effect from 24.12.2010. The Page 1 of 6 C/SCA/3349/2018 ORDER business of the firm continued in the hands of the company. For all purposes the company succeeded the business of the firm. At the time of this switchover there were several projects either executed in part or though fully executed by the firm defect liability period was not yet over. 3. We are concerned with the assessment year 2014­15 which as can be seen, was the period when the Company was already in existence and the partnership firm was not. For the said year the petitioner Company had filed a return of income. In such return the petitioner had claimed the credit of TDS of Rs.3,32,67,998/­. Out of such claim a sum of Rs.21,31,964/­ of TDS was not accepted by the Department on the ground of mismatch of the Permanent Account Number ('PAN' for short) of the Company and the PAN of the entity in whose account such TDS was credited by the deductee. This mismatch, as is explained by the counsel for the petitioner, arose on account of two factors. One was where the partnership firm had executed the work of infrastructure development for and on behalf of its clients but the contract contained a defect liability clause and such defect liability period was yet not over. In such situations, the firm would have to provide a deposit by way of security. The clients of the firm who were principally the Government and Semi­ Page 2 of 6 C/SCA/3349/2018 ORDER Government organizations even after conversion of firm into a private limited company, refused to allow substitution of the security FDs. These FDs therefore had to be kept alive. Such FDs would earn periodic interest. The banks on which such FDs were drawn, therefore had no choice but to make payment of interest in name of the firm. The TDS at the time of making payment of such interest, was made in the hands of the firm and accordingly credited in the account of the firm. Counsel for the petitioner however stated that such interest income has been declared by the company in its accounts and taxes have been accordingly paid, since the firm has no existence in eye of law any longer. 4. The second factor is where the payees actually made payments to the company but by error deducted tax and deposited in the account of the firm. These are payments for the ongoing works of the company, being executed by the company, the payments are made to the company but due to oversight or error the tax deducted at source is deposited in the credit of the firm. In this case the Department had asked the petitioner to approach the payees to correct this error. The petitioner had entered into detailed correspondence with such entities but no fruitful result came above. Page 3 of 6 C/SCA/3349/2018 ORDER 5. These two sums together account for a total of Rs.21,31,964/­ of the TDS though deducted by the payees but for which the petitioner is not getting the credit. Counsel for the Revenue submitted that the return filed by the petitioner was accepted without scrutiny. The system therefore operates automatically. To the extent TDS was matched with the payments it was immediately recognized. Admittedly in the present case there was a mismatch between the petitioner's claim of TDS to the extent of Rs.21,31,964/­ and the deposit of such tax by the payer or deductor. The Assessing Officer had no authority to carry out physical verification and give credit even if the petitioner's case was found to be correct. 6. Having heard learned counsel for the parties and having perused documents on record, if the petitioner is correct in his assertions noted above and if a total deduction of Rs.21,31,964/­ is deducted by the payees but for which no credit is being given to the petitioner, it would be a case of the Government retaining the amount without authority of law. We may address the two issues separately. Before that we may record that virtually all the payers/deductor of the petitioner where such mismatch arisen, are Government or Semi­ Government bodies such as the Road & Building Department of different panchayats. In the first of the two reasons leading to mismatch, as noted, the ground Page 4 of 6 C/SCA/3349/2018 ORDER was that the fixed deposits offered by the firm by way of security to cover defect liability for specified period, the authorities not permit substitution of the FDs even though the firm had ceased to be in existence. The Banks of which such FDs were therefore offered by way of security, had no choice but to make payment of interest in the name of the firm and also deduct tax in such name. However, according to the petitioner, the income was declared by the company. If so, the company must get the benefit of tax deducted at source. 7. Likewise wherever the payer­deductor had made the payment to the company but by error deposited tax in the account of the firm, the petitioner company must get benefit of such tax deducted at source. The petitioner has no control over the payer­deductor. In the present case those payees are all Government organizations. At the instance of Income­tax Department the petitioner did try to persuade such organizations to make corrections, but failed. 8. Under the circumstances, the respondent No.1 ­ Assessing Officer is requested to verify full details of payments and deduction of tax at source. The petitioner shall provide necessary documents alongwith representation which may be mad latest by 10.10.2018. If the petitioner is able to establish facts Page 5 of 6 C/SCA/3349/2018 ORDER recorded above, to the extent it is so established, the AO shall give the benefit of tax deduction to the petitioner company. If this gives rise to any refund, the same shall be made with interest as may be prescribed. This exercise may be completed preferably by 31.12.2018. 9. Petition is disposed of accordingly. (AKIL KURESHI, J) (B.N. KARIA, J) K.K. SAIYED Page 6 of 6 "