Ektha.Com Private Limited, Hyd, Hyderabad V. ACIT,Circle-17(1) Hyderabad, Hyderabad

ITA 1310/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2560 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-04-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 10-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Retrospective amendment
• Section: 142(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1310/HYD/2016 ASSESSMENT YEAR: 2012-13 EKTHA.COM PVT. LTD., HYDERABAD. PAN AABCE 3036E VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 17(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C. DEVDAS REVENUE BY : SHRI K.J. RAO DATE OF HEARING : 24-04-2017 DATE OF PRONOUNCEMENT : 26-04-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS IS AN APPEAL OF THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 5, HYDE RABAD, DATED 29- 07-2016 FOR AY 2012-13. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A C OMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT FILED ITS R ETURN OF INCOME FOR THE AY 2012-13 DATED 26/09/2012 DECLARED TOTAL INCO ME OF RS. 94,86,320/-. SUBSEQUENTLY, THE CASE WAS SELECTED FO R SCRUTINY UNDER CASS AND NOTICES U/S 143(2) AND 142(1) WERE SERVED ON THE ASSESSEE. IN RESPONSE TO THE SAID NOTICES, THE ASSE SSEE COMPANY FILED BOOKS OF ACCOUNTS, INFORMATION/DOCUMENTS/CONF IRMATIONS IN SUPPORT OF THEIR CLAIMS/SUBMISSIONS. 2 ITA NO. 1310/H/16 EKTHA.COM PVT. LTD. 2.1 AFTER EXAMINING OF ALL THE DETAILS FURNISHED BY THE ASSESSEE, THE AO NOTICED THAT THE ASSESSEE COMPANY HAD DEBITED AN AMOUNT OF RS. 5,11,11,495/- UNDER THE HEAD LONG TERM BORROWINGS. ON VERIFICATION OF THE DETAILS OF THE SAID EXPENDITURE SUBMITTED BY TH E ASSESSEE, THE AO FOUND THAT THE ASSESSEE COMPANY HAD NOT MADE TDS TO THE TUNE OF RS. 93,23,352/- AND THEREFORE, THE SAME WAS DISALLO WED U/S 40(A)(IA) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. 3. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE AR OF THE ASSESSEE CLAIME D THAT THE ASSESSEE WAS NOT TREATED AS DEEMED TO BE ASSESSEE I N DEFAULT U/S 201. HENCE, IT WAS ARGUED THAT IT CANNOT BE LIABLE TO DEDUCT TAX UNDER ANY PROVISIONS OF THE IT ACT. FOR THIS PROPOSITION, THE AR RELIED ON THE DECISION IN THE CASE OF HINDUSTAN COCA COLA BEVERAG ES P. LTD., 293 ITR 163(DELHI). 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND RELYING ON FEW CASES OF HONBLE HIGH COURTS, H ELD THAT THE LIABILITY TO DEDUCT TDS OUT OF PAYMENTS MENTIONED A BOVE DO ARISE AND SECTION 40(A)(IA) HAS TO BE INVOKED. ACCORDINGLY, H E CONFIRMED THE ACTION OF THE AO. 6. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE COMMISSIONER OF INCOME-TAX (APPEALS)-5, HYD ERABAD (CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.93,23, 352/- BEING THE INTEREST PAID TO M/S. INDIA BULLS U/S 40(A)(IA) OF THE I.T. ACT, 1961 IS UNSUSTAINABLE BOTH ON FACTS AND IN LAW. 2. THE LEARNED CIT(A) FAILED TO NOTE THAT M/S. INDI A BULLS BEING THE RECIPIENT OF THE INTEREST HAS ALREADY SUBMITTED ITS RETURN OF INCOME DISCLOSING THE INCOME AND THEREFORE THE CIT( A) FAILED TO NOTE THAT THE APPELLANT WAS NOT AN ASSESSEE IN DEFA ULT WITHIN THE 3 ITA NO. 1310/H/16 EKTHA.COM PVT. LTD. MEANING OF CHAPTER 17-B OF THE LT. ACT RELATING TO TDS PROVISIONS. 3. THE LEARNED CIT(A) FAILED TO NOTE THAT THE ENTIR E INTEREST WAS PAID DURING THE YEAR AND THAT NO AMOUNT WAS OUTSTAN DING AS ON 31/3/2012 AND THEREFORE THE PROVISIONS OF SECTION 4 0(A)(IA) OF THE ACT R.W.S. 194-A WERE NOT APPLICABLE. 4. THE LEARNED CIT(A) FAILED TO NOTE THAT THE ENTIR E INTEREST PAID TO M/S. INDIA BULLS BEING THE NONBANKING COMPANY AR OSE OUT OF THE MONEYS TAKEN FOR BUSINESS DEVELOPMENT AGAINST S ECURITY OF PROPERTY WITH THE REPAYMENT BEING IN EMLS AND THERE FORE, PROVISIONS OF SECTION 194-A RELATING TO DEDUCTION O F TAX AT SOURCE ON INTEREST PAYMENTS WERE NOT APPLICABLE. 7. LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESS EE HAS NO DOUBT PAID INTEREST TO M/S INDIA BULLS DURING THE Y EAR. BY REFERRING TO THE FINANCIAL STATEMENT, HE SUBMITTED THAT THE ASSE SSEE HAS CLEARLY PAID THE INTEREST PAYMENT BEFORE 31/03/2012 AND THE RE IS NO OUTSTANDING OF INTEREST PAYABLE IN THE BALANCE SHEE T AS ON 31/03/2012. HE SUBMITTED THAT BY FOLLOWING THE SPEC IAL BENCH ORDER OF ITAT IN THE CASE OF MERLYN SHIPPING AND TRANSPORT, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT ATTRACTED. 7.1 HE FURTHER SUBMITTED THAT THE RECIPIENT OF THE INTEREST M/S INDIA BULLS HAS DECLARED THE ABOVE INTEREST IN THEIR RETU RN OF INCOME AND SUCH INCOME WAS SUBJECTED TO TAX. IN THE EVENT OF S UCH INCOME BEING DECLARED BY THE RECIPIENT, AS PER THE PROVISIONS OF SECTION 191, IN CASE OF INCOME IN RESPECT OF WHICH PROVISION IS NOT MADE UNDER CHAPTER XVII FOR DEDUCTING INCOME TAX AT THE TIME O F PAYMENT, INCOME TAX SHALL BE PAYABLE BY THE ASSESSEE DIRECTLY. IN T HE GIVEN CASE, M/S INDIA BULLS HAS PAID THE TAX DIRECTLY. HENCE, THERE IS NO VIOLATION UNDER CHAPTER XVII. ACCORDINGLY, ASSESSEE IS NOT IN DEFAULT. 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. AS PER THE VIZAG ITAT SPECIAL BENCH DECI SION IN THE CASE OF MERLYN SHIPPING AND TRANSPORT, SECTION 40(A)(IA) IS APPLICABLE ONLY TO THE EXPENDITURE WHICH IS PAYABLE AS ON 31 ST MARCH OF EVERY YEAR 4 ITA NO. 1310/H/16 EKTHA.COM PVT. LTD. AND CANNOT BE INVOKED TO DISALLOW THE AMOUNTS WHICH HAVE ALREADY BEEN PAID DURING THE PY, WITHOUT DEDUCTING THE TAX AT SOURCE. 8.1 IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP PVT. LTD., 377 ITR 635 (DELHI), ON WHICH RELIANCE PLACED BY THE AS SESSEE, THE HONBE HIGH COURT HAS HELD AS UNDER: IT WAS SEEN THAT THE SECOND PROVISO TO SECTION 40(A ) (IA) WAS INSERTED BY THE FINANCE ACT 2012 WITH EFFECT FROM 1ST APRIL 2013. T HE EFFECT OF THE SAID PROVISO WAS TO INTRODUCE A LEGAL FICTION WHERE AN A SSESSEE FAILED TO DEDUCT TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII B . WHERE SUCH ASSESSEE WAS DEEMED NOT TO BE AN ASSESSEE IN DEFAULT IN TERM S OF THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201 OF THE ACT, THEN, IN SUCH EVENT, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESID ENT PAYEE REFERRED TO IN THE SAID PROVISO. THE FIRST PROVISO TO S 210 (1) HAD BEEN INSERTED TO BENEFIT THE ASSESSEE. IT ALSO STATED THAT WHERE A PERSON FAILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAD FURNISHED HIS RETURN OF INCOME U/S 139 . NO DOUBT, THERE WAS A MANDATORY REQUIREMENT U/S 201 TO DEDUCT TAX AT SOUR CE UNDER CERTAIN CONTINGENCIES, BUT THE INTENTION OF THE LEGISLATURE WAS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULF ILMENT OF THE CONDITIONS AS STIPULATED IN THE FIRST PROVISO TO S 201(1). THE IN SERTION OF THE SECOND PROVISO TO S 40(A)(IA) WAS ALSO REQUIRED TO BE VIEWED IN TH E SAME MANNER. THIS AGAIN WAS A PROVISO INTENDED TO BENEFIT THE ASSESSEE. THE EFFECT OF THE LEGAL FICTION CREATED THEREBY WAS TO TREAT THE ASSESSEE AS A PERS ON NOT IN DEFAULT OF DEDUCTING TAX AT SOURCE UNDER CERTAIN CONTINGENCIES . WHAT WAS COMMON TO BOTH THE PROVISOS TO S 40(A)(IA) AND S 210(1) WAS THAT AS LONG AS THE PAYEE/RESIDENT HAD FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT WAS EMBEDDED AND HAD ALSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. AS FAR AS THE PRESENT CASE WAS C ONCERNED, IT WAS NOT DISPUTED BY THE REVENUE THAT THE PAYEE HAD FILED RE TURNS AND OFFERED THE SUM RECEIVED TO TAX. AGRA BENCH OF ITAT IN RAJIV KUMAR AGARWAL V. ACIT HAD UNDERTAKEN A THOROUGH ANALYSIS OF THE SECOND PROVISO TO S 40(A)( IA) AND ALSO SOUGHT TO EXPLAIN THE RATIONALE BEHIND ITS INSERTION. THE PRI MARY JUSTIFICATION FOR SUCH A DISALLOWANCE WAS THAT SUCH A DENIAL OF DEDUCTION WA S TO COMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING T AKEN INTO ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE R ECIPIENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION AND RES TRICTIONS SHOULD THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE WAS ABLE TO ESTABLISH THAT THERE WAS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWA NCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIONS A RE DUE, BUT, SO FAR AS THE LEGAL FRAMEWORK IS CONCERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THE SCHEME OF S 40(A)(IA), 5 ITA NO. 1310/H/16 EKTHA.COM PVT. LTD. WAS AIMED AT ENSURING THAT AN EXPENDITURE SHOULD NO T BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATIO N IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAD REMAINED UNTAXED D UE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT WAS NOT A PENALTY FOR TA X WITHHOLDING LAPSE BUT IT WAS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FO R AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FOR TAX W ITHHOLDING LAPSE PER SE WAS SEPARATELY PROVIDED FOR IN S 271 C, AND, S 40(A)(IA ) DID NOT ADD TO THE SAME. IT COULD NOT HAVE BEEN AN 'INTENDED CONSEQUENCE' TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DED UCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME WAS DU LY BROUGHT TO TAX. ACCORDINGLY, HIGH COURT HELD THAT THE INSERTION OF SECOND PROVISO TO S 40(A)(IA) WAS DECLARATORY AND CURATIVE IN NATURE AN D IT HAD RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WH ICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) A CT, 2004. 8.2 ON PERUSAL OF RECORD, WE FIND THAT THE ASSESSEE HAS ALREADY PAID THE INTEREST AMOUNTS DURING THE PY AND NO AMOU NT IS OUTSTANDING AS ON 31 ST MARCH AND MOREOVER, THE ASSESSEE WAS NOT IN ANYWAY DECLARED AS ASSESSEE IN DEFAULT UNDER ANY PROVISI ONS OF THE ACT. BY RESPECTFULLY FOLLOWING THE SPECIAL DECISION IN THE CASE OF MERLYN SHIPPING AND HONBLE DELHI HIGH COURT JUDGMENT, WE DIRECT THE AO TO DELETE THE ADDITION OF RS. 93,23,352/- MADE U/S 40( A)(IA) OF THE ACT. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 26 TH APRIL, 2017. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN ) VICE PRESIDENT AC COUNTANT MEMBER HYDERABAD, DATED:26 TH APRIL, 2017. KV COPY TO:- 1) M/S EKTHA.COM PVT. LTD., SITE 7 & 8, 4 TH FLOOR, EKTA TOWERS, WHITE FIELDS, KONDAPUR, HYDERABAD. 2) ACIT, CIRCLE 17(1), HYDERABAD. 3) CIT(A) - 5, HYDERABAD. 4) PR. CIT 5, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE