Suryachakra Power Corporation Ltd., Hyd, Hyderabad V. ITO (TDS), Ward-2(2), Hyd., Hyderabad

ITA 1315/HYD/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3040 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 19-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Section: 133A; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NOS.1314 & 1315 /HYD/2015 ASSESSMENT YEARS 2012-2013 & 2013-2014 SURYACHAKRA POWER CORPORATION LTD., HYDERABAD. PAN AACCS8126J VS. THE INCOME TAX OFFICER (TDS), WARD-2(2), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. SAMUEL NAGADESI FOR REVENUE : MR. B. KURMI NAIDU DATE OF HEARING : 20.01.2016 DATE OF PRONOUNCEMENT : 10 .0 2 .2016 ORDER PER SMT. P. MADHAVI DEVI, J.M. THESE ARE ASSESSEES APPEALS FOR THE A.YS. 2012-2013 AND 2013-2014 RESPECTIVELY AGAINST THE OR DERS OF THE A.O. PASSED UNDER SECTION 201(1) AND 201(1A) OF THE I.T. ACT, 1961. 2. IN THESE APPEALS, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ORDER OF THE A.O. HOLDING THE ASSESSEE TO BE AN ASSESSEE-IN-DEFA ULT UNDER SECTION 201(1) OF THE I.T. ACT AND ALSO IN LE VYING INTEREST UNDER SECTION 201(1A) OF THE I.T. ACT, FOR NON- 2 ITA.NOS.1314 & 1315/HYD/2015 SURYACHAKRA POWER CORPORATION LTD., HYDERABAD. DEDUCTION OF TAX AT SOURCE ON THE FACTORING CHARGES PAID BY THE ASSESSEE TO SBI GLOBAL TRADE FINANCE LIMITED . 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF GENERATION OF POWER FROM DIESEL AND SALE OF THE SAME. THERE WAS A SURVEY OPERATION UNDER SECTION 133A OF THE I.T. ACT , 1961 IN THE BUSINESS PREMISES OF THE ASSESSEE (DEDUCTOR) ON 26.09.2014 TO VERIFY THE DEDUCTORS COMPLIANCE WITH VARIOUS TDS PROVISIONS. DURING THE COURSE OF SURVEY OPERATION AND SUBSEQUENT THERETO, INFORMATION WITH REGARD TO EXPENDITURE CLAIMED UNDER VARIOUS HEADS F OR THE RELEVANT FINANCIAL YEAR HAS BEEN CALLED FOR. TH E ASSESSEE FURNISHED THE INFORMATION AND ON VERIFICAT ION OF THE SAME, THE A.O. FOUND THAT ASSESSEE HAS NOT DEDU CTED TAX AT SOURCE EVEN THOUGH IT HAS CREDITED INTEREST TO THE ACCOUNT OF THE RESPECTIVE PAYEES FOR THE YEAR UNDER CONSIDERATION. ON A QUERY RAISED BY THE A.O, THE AS SESSEE SUBMITTED THAT THOUGH ASSESSEE HAD DEBITED INTEREST IN ITS P & L A/C AS PAYABLE TO FINANCIAL INSTITUTIONS, ASS ESSEE HAS NOT MADE THE PAYMENT AND HAS NOT BEEN ABLE TO E FFECT TDS ON THE AMOUNT SO PROVIDED. IT WAS SUBMITTED THA T ASSESSEE HAD APPROACHED ALL THE FINANCIAL INSTITUTI ONS AND APPRAISED THEM OF THE REASONS FOR THE FAILURE TO ME ET THE COMMITMENTS FOR THE PAYMENT OF INTEREST AND REPAYME NT OF THE TERM LOAN ETC., AND THAT IT WAS BROUGHT TO T HE NOTICE OF THE FINANCIAL INSTITUTIONS ABOUT THE STATUS OF T HE DISPUTE BETWEEN THE COMPANY AND THE GOVERNMENT OF ANDAMAN & NICOBAR ISLANDS FROM WHOM ASSESSEE WAS DU E 3 ITA.NOS.1314 & 1315/HYD/2015 SURYACHAKRA POWER CORPORATION LTD., HYDERABAD. TO RECEIVE CONTRACT RECEIPTS AND THE UNDUE DELAY IN RESOLUTION OF DISPUTES DUE TO SEVERAL LAYERS OF APP ROVALS THAT ARE REQUIRED AND ARE PENDING RESOLUTION. IT WA S SUBMITTED THAT IN VIEW OF THE FINANCIAL CRISIS, THE SBI GLOBAL TRADE FINANCE LIMITED HAD OFFERED ONE-TIME SETTLEMENT OF THE LOAN SANCTIONED BY THEM AND THAT ALL THE LOANS GIVEN BY THE FINANCIAL INSTITUTIONS HAVE BECO ME NON- PERFORMING ASSETS IN THE BOOKS OF THE RESPECTIVE EN TITIES. THUS, ACCORDING TO HIM, THE LIABILITY HAS BECOME UNASCERTAINED REQUIRING REVERSAL OF THE EXPENDITURE BOOKED IN EARLIER YEARS AND HENCE, NO TDS WAS MADE. THE A.O. HOWEVER, WAS NOT CONVINCED WITH THE ASSESSEES CONTENTIONS AND OBSERVING THAT THE DEDUCTOR HAS CRE DITED THE SUM TO THE ACCOUNT OF THE PAYEES, HELD THAT THE DEDUCTOR OUGHT TO HAVE DEDUCTED TAX @ 10% UNDER SEC TION 194A OF THE I.T. ACT, 1961. HE ACCORDINGLY, DISALLO WED THE SAME BY TREATING THE ASSESSEE AS AN ASSESSEE-IN-DE FAULT UNDER SECTION 201(1) AND BROUGHT THE SAME TO TAX. H E ALSO CHARGED INTEREST UNDER SECTION 201(1A) OF THE I.T. ACT. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ORDER OF THE A.O. AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE, MR. SAMUEL NAGADESI, SUBMITTED THAT THE ASSESSEE HAD ENTERED I NTO CONTRACTS WITH THE GOVERNMENT OF ANDAMAN & NICOBAR ISLANDS AND THE ASSESSEE WAS DUE TO RECEIVE THE PAY MENTS FROM THE GOVERNMENT. HE SUBMITTED THAT MEANWHILE TH E ASSESSEE HAD ENTERED INTO A FACTORING AGREEMENT WIT H SBI 4 ITA.NOS.1314 & 1315/HYD/2015 SURYACHAKRA POWER CORPORATION LTD., HYDERABAD. GLOBAL TRADE FINANCE LIMITED AND RECEIVED THE CONSIDERATION FOR THE SAID CONTRACTS AFTER WITHHOLD ING OF THE FACTORING PAYMENTS (BY SBI GLOBAL TRADE FINANCE LIMITED). IT WAS SUBMITTED THAT THE GOVERNMENT OF ANDAMAN & NICOBAR ISLANDS FAILED TO HONOUR THE CONT RACT AND DID NOT MAKE THE PAYMENT TO SBI GLOBAL TRADE FINANCE LIMITED AS PER THE FACTORING AGREEMENT AND IN VIEW OF THE SAME, THE SBI GLOBAL TRADE FINANCE LIMI TED HAS RAISED INVOICES ON THE ASSESSEE. HE SUBMITTED T HAT THE ASSESSEE WAS IN SEVERE FINANCIAL CRISIS AND COU LD NOT MAKE PAYMENT TO SBI GLOBAL TRADE FINANCE LIMITED IN RESPONSE TO THE INVOICE AND HAS INSTEAD FILED AN APPLICATION IN THE JURISDICTIONAL HIGH COURT FOR WI NDING-UP OF THE COMPANY. HE SUBMITTED THAT THE WRIT PETITION FILED BY SBI GLOBAL TRADE FINANCE LIMITED BEFORE THE HONBLE JURISDICTIONAL HIGH COURT WAS CONSIDERED BY THE HON BLE HIGH COURT AND HAVING TAKEN INTO CONSIDERATION ALL THE ABOVE FACTORS, THE HONBLE JURISDICTIONAL HIGH COUR T ADMITTED THE COMPANY PETITION FOR WINDING-UP. HE SUBMITTED THAT IN THE MEANWHILE, SBI GLOBAL TRADE FINANCE LIMITED HAS INVITED THE ASSESSEE FOR A ONE- TIME- SETTLEMENT OF THE FACTORING AGREEMENT AND THEREFORE , ACCORDING TO HIM, THE LIABILITY OF THE ASSESSEE TO PAY THE FACTORING CHARGES TO THE AGENT I.E., SBI GLOBAL TRA DE FINANCE LIMITED HAS NOT CRYSTALLIZED DURING THE REL EVANT FINANCIAL YEAR. HOWEVER, WHEN WE QUESTIONED AS TO W HY THE SAME WAS CREDITED TO THE ACCOUNT OF THE PAYEE, IT WAS SUBMITTED THAT THE SAME WAS DONE ONLY FOR THE A.Y. 2012- 2013 AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTE M OF 5 ITA.NOS.1314 & 1315/HYD/2015 SURYACHAKRA POWER CORPORATION LTD., HYDERABAD. ACCOUNTING. BUT SINCE, THE ENTIRE ISSUE WAS IN DISP UTE BEFORE THE HONBLE JURISDICTIONAL HIGH COURT, THE L IABILITY IS NOT YET CRYSTALIZED. HE FURTHER SUBMITTED THAT T HE FACTORING PAYMENTS ARE NOT IN THE NATURE OF INTERES T AND THEREFORE, THE PROVISIONS OF SECTION 194A ARE NOT APPLICABLE. HE HAS ALSO DRAWN OUR ATTENTION TO THE DEFINITION OF THE TERM INTEREST UNDER SECTION 2(2 8) OF THE I.T. ACT TO DEMONSTRATE THAT FACTORING PAYMENTS A RE NOT IN THE NATURE OF INTEREST. HE HAS ALSO PLACED RELIA NCE UPON THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT, KOLKATA-II, KOLKATA VS. M/S. MKJ ENTERPRIS ES LIMITED IN ITTA.NO. 74 OF 2014 DATED 12 TH AUGUST, 2014 WHEREIN THE HONBLE HIGH COURT HAS HELD THAT THE DISCOUNTING CHARGES OF BILL OF EXCHANGE OR FACTORIN G CHARGES ON SALE CANNOT BE TERMED AS INTEREST. HE HA S ALSO FILED A COPY OF THE ORDER OF THE COORDINATE BENCH O F THE TRIBUNAL AT DELHI IN THE CASE OF M. SONS GEMS N JEW ELLERY P. LTD., NEW DELHI VS. ADDL. CIT, RANGE-6, NEW DELH I IN ITA.NO.5419/DEL/2012 DATED 17.06.2015 WHEREIN BY FOLLOWING THE ABOVE JUDGMENT OF THE HONBLE CALCUTT A HIGH COURT, IT HAS BEEN HELD THAT FACTORING CHARGES ARE NOT IN THE NATURE OF INTEREST AND TAX IS NOT EXIGIBLE TO D EDUCTING OF TAX AT SOURCE. 5. THE LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE HAS NOT BROUGHT ON RECORD ANY OF THE ABOVE FACTS ARGUED BY HIM. HE SUBMITTED THAT AS SEEN FROM THE O RDER OF THE A.O. UNDER SECTION 201(1) AND 201(1A) OF THE I.T. 6 ITA.NOS.1314 & 1315/HYD/2015 SURYACHAKRA POWER CORPORATION LTD., HYDERABAD. ACT, ASSESSEE HAS CREDITED THE PAYEES ACCOUNT AS IN TEREST ONLY AND THEREFORE, THE A.O. AS WELL AS THE LD. CIT (A) HAVE HELD THAT THE PROVISIONS OF SECTION 194A ARE APPLIC ABLE. HE SUBMITTED THAT THE ASSESSEE, HAVING ENTERED TO THE FACTORING AGREEMENT AND HAVING RECEIVED THE CONSIDE RATION FOR ENTERING INTO SUCH AGREEMENT, THE LIABILITY HAS ACCRUED AND THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOUR CE AT THE TIME OF CREDITING THE SUM TO PAYEES ACCOUNT. T HUS, ACCORDING TO HIM, THE PROVISIONS OF SECTION 194A AR E APPLICABLE AND THE ASSESSEE WAS RIGHTLY TREATED AS AN ASSESSEE-IN-DEFAULT UNDER SECTION 201(1) AND THE I NTEREST WAS ALSO RIGHTLY LEVIED UNDER SECTION 201(1A) OF TH E I.T. ACT. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE AMOUNT CREDITE D TO SBI GLOBAL TRADE FINANCE LIMITED HAS BEEN SHOWN AS INTEREST. THE A.O. AND THE LD. CIT(A) HAVE THEREFOR E, BASED ON NOMENCLATURE GIVEN THE CREDIT IN THE PAYEES ACCO UNT, HELD THAT THE TDS PROVISIONS ARE ATTRACTED. IT IS S EEN THAT THE FACTS REGARDING THE FACTORING AGREEMENT AND THE NATURE OF THE PAYMENT HAS NOT BEEN CONSIDERED OR EXAMINED BY ANY OF THE AUTHORITIES BELOW. THOUGH TH E COPY OF THE FACTORING AGREEMENT IS FILED BEFORE US IN THE PAPER BOOK, SINCE IT WAS FILED ON THE DATE OF HEARI NG AND THE LD. D.R. HAS OBJECTED FOR CONSIDERATION OF THE SAME, WE HAVE NOT TAKEN THE SAME INTO CONSIDERATION. FURT HER WE ALSO FIND THAT THE A.O. AS WELL AS THE LD. CIT(A ) HAVE NOT EXAMINED THE FACTORING AGREEMENT. AS HELD BY TH E 7 ITA.NOS.1314 & 1315/HYD/2015 SURYACHAKRA POWER CORPORATION LTD., HYDERABAD. HONBLE CALCUTTA HIGH COURT AND FOLLOWED BY THE COORDINATE BENCH OF THE TRIBUNAL AT DELHI IN THE C ASE OF M. SONS GEMS N JEWELLERY P. LTD., NEW DELHI VS. ADD L. CIT, RANGE-6, NEW DELHI (CITED SUPRA), THE FACTORIN G CHARGES ARE NOT IN THE NATURE OF INTEREST AND HENCE , THE TDS PROVISIONS ARE NOT APPLICABLE TO THE SAME. SINC E THE BASIC FACTS HAVE NOT BEEN PRODUCED BEFORE THE A.O. AS WELL AS THE LD. CIT(A) AND NOT CONSIDERED BY THEM, BUT A RE NECESSARY OF PROPER ADJUDICATION OF THE BASIC ISSUE , I.E., THE NATURE OF THE PAYMENT/CREDIT, WE DEEM IT FIT AN D PROPER TO REMIT THE ISSUE TO THE FILE OF THE A.O. W ITH A DIRECTION TO THE ASSESSEE TO PRODUCE THE FACTORING AGREEMENT BEFORE THE A.O. WHO SHALL CONSIDER THE SA ME AND IF IT IS FOUND BY THE A.O. THAT THE INTEREST CR EDITED TO THE SBI GLOBAL TRADE FINANCE LIMITED IS IN FACT TH E FACTORING CHARGE AND NOT INTEREST ON THE LOAN, THE N RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT, KOLKATA-II, KOLKATA VS. M/S. MKJ ENTERPRISES LTD., (CITED SUPRA), WE DI RECT THAT THE A.O. SHALL NOT APPLY THE TDS PROVISIONS TO SUCH PAYMENTS AND MORE PARTICULARLY, THE PROVISIONS OF S ECTION 194A OF THE I.T. ACT. WITH THESE OBSERVATIONS, THE ISSUE IS REMITTED TO THE FILE OF A.O. FOR RECONSIDERATION. N EEDLESS TO MENTION THAT ASSESSEE SHALL BE GIVEN A FAIR OPPORTU NITY OF HEARING. 7. IN THE RESULT, APPEALS OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS ARE TREATED AS ALLOWED FOR STA TISTICAL PURPOSES. 8 ITA.NOS.1314 & 1315/HYD/2015 SURYACHAKRA POWER CORPORATION LTD., HYDERABAD. ORDER PRONOUNCED IN THE OPEN COURT ON 10.02.2016. SD/- SD/- (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 10 TH FEBRUARY, 2016 VBP/- COPY TO : 1. SURYACHAKRA POWER CORPORATION LTD., HYDERABAD. C/O. MR. SAMUEL NAGADESI, C.A. 408, SRI RAMAKRISHNA TOWERS, BESIDES IMAGE HOSPITALS, AMEERPET, HYDERABAD 500 073. 2. THE INCOME TAX OFFICER (TDS) , WARD - 2(2), 4 TH FLOOR, D BLOCK, I.T. TOWERS, A.C. GUARDS, MASAB TANK, HYDERABAD-28. 3. CIT(A) - 8 , HYDERABAD. 4 . C IT ( TDS ), HYDERABAD. 5 . D.R. ITAT B BENCH, HYDERABAD. 6 . GUARD FILE