ACIT, Circle 2(1), Hyderabad V. M/s UAN RAJU IVRCL Constructions JV, Hyderabad

ITA 1425/HYD/2010

• Counselvise Citation: 142522514 RSA 2010
• Duration Of Justice: 2 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 16-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARILAL NAYAK
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Non-deduction of tax; Reason to believe; Reassessment proceedings
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND S HRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1425/HYD/2010 ASSESSMENT YEAR 2006-07. ACIT, CIR-2(1), -V- M /S. UAN RAJU IVRCL HYDERABAD. CONS TRUCTIONS JV, HYDERABAD. PAN:AABFU6454D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI HARILAL NAYAK RESPONDENT BY SHRI V. RAGHAVENDRA RAO DATE OF HEARING 14 - 10 - 2013 DATE OF PRONOUNCEMENT 18 - 10 - 2013 ORDER PER SAKTIJIT DEY, J.M: THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST T HE ORDER DATED 30-8-2010 PASSED IN ITA NO.0209/CIT(A)- III/09-10 PERTAINING TO THE ASSESSMENT YEAR 2006-07. 2. THE ONLY ISSUE IN THIS APPEAL OF THE DEPARTMENT IS WITH REGARD TO CIT (A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT FOR NOT DEDUCTING TAX AT SOURCE. 2 3. BRIEFLY THE FACTS ARE THE ASSESSEE IS A JOINT VE NTURE ASSESSED IN THE STATUS OF AOP. IT IS ENGAGED IN THE BUSINESS OF EXECUTION OF CIVIL CONTRACT WORKS. THE ASSESSEE ENT ERED INTO AN AGREEMENT ON 31-8-2002 WITH KONKAN RAILWAY CORPORAT ION LTD., A GOVERNMENT OF INDIA UNDERTAKING FOR EXECUTING B G SINGLE LINE TUNNELS WORKS UNDER THE UDHAMPUR SRINAGAR-B ARMULLA RAIL LINK PROJECT BY M/S. KONKAN RAILWAY CORPORAT ION LTD VIDE WORK ORDER NO.108/05-06 DATED 9-10-2005. FOR THE IM PUGNED ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN OF I NCOME DECLARING A LOSS OF RS.19,90,292/-. INITIALLY, THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFFICER HAVING REASON TO BELIEVE THAT THERE IS ESCA PEMENT OF INCOME ON ACCOUNT OF EXCESS DEDUCTION GRANTED TO TH E ASSESSEE U/S 80IA OF THE ACT, REOPENED THE ASSESSMENT BY ISS UING A NOTICE U/S 148 OF THE ACT ON 24-3-2009. 4. IN COURSE OF REASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER APART FROM HOLDING THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION CLAIMED U/S 80IA OF THE ACT MADE FURTHER DISALLOWANCE ON VARIOUS COUNTS ONE OF THEM BEING DI SALLOWANCE OF INTEREST U/S 40(A)(IA) OF THE ACT AMOUNTING TO RS.1,56,72,913. IT WAS NOTICED BY THE ASSESSING OF FICER DURING THE ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD PA ID AN AMOUNT OF RS.1,56,72,913/- AS INTEREST TO M/S KONKA N RAILWAY CORPORATION LTD., ON MOBILISATION ADVANCE. THE ASS ESSING OFFICER NOTICING THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON SUCH INTEREST PAYMENT, PROPOSED TO DISALL OW HE SAME BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE 3 ASSESSEE HOWEVER CONTENDED THAT THE PROVISIONS OF S ECTION 40(A)(IA) IS NOT APPLICABLE AS THE INTEREST ON MOBI LISATION ADVANCE WAS RECOVERED BY KONKAN RAILWAY CORPORATION LTD., FROM THE RUNNING BILL AND WAS NOT PAID BY THE ASSES SEE. THE ASSESSING OFFICER THOUGH ACCEPTED THE POSITION THAT THERE IS FACTUAL DIFFICULTY ON THE PART OF THE ASSESSEE IN M AKING TDS ON INTEREST PAYMENT AS INTEREST WAS RECOVERED BY THE C ONTRACTEE KONKAN RAILWAY CORPORATION LTD., WHILE MAKING PAYME NT OF CONTRACT CHARGES BUT HE NEVERTHELESS HELD THAT THE ASSESSEE WAS OBLIGED UNDER LAW TO DEDUCT TAX AT SOURCE AND A CCORDINGLY DISALLOWED THE INTEREST PAYMENT OF RS.1,56,72,913 U /S 40(A)(IA) OF THE ACT. THE ASSESSEE CHALLENGED THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT BY PREFERRING AN APPEAL BE FORE THE CIT (A). 5. THE CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF THE TERMS OF THE CONTRACT AS WELL AS THE STATUTORY PROVISIONS CONTAINED U/S 194A OF THE ACT CONCLUDED THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF T HE ACT BY HOLDING AS UNDER:- 7.3. FROM THE ABOVE STIPULATION, IN THE SAID AGREE MENT RELATING TO CHARGING OF INTEREST ON THE MOBILIZATION ADVANCE GRANTED EARLIER TO THE APPELLANT AND THE MODE OF PAYMENT OF THE SAME TO KONKAN RAILWAY CORPORATION LTD., AS PER THE SAID AG REEMENT, EXECUTED BY THE LATTER, IT IS SEEN THAT THE APPELLA NT WAS NOT REQUIRED TO ACTUALLY MAKE PAYMENT OF SUCH AMOUNT TO THE CONTRACTEE DURING THE PREVIOUS YEAR. AS PER THE SAI D AGREEMENT, THE CONTRACTEE HAS TO RECOVER THE AMOUNT PERTAINING TO INTEREST ON SUCH MOBILIZATION ADVANCES, BY WAY OF ADJUSTMENT FROM THE RUNNING BILLS SUBMITTED BY THE APPELLANT. THE MANNE R OF 4 COMPUTATION OF THE INTEREST AMOUNT, WHILE MAKING TH E RECOVERY TOWARDS INTEREST, IS INDICATED IN ARTICLE- 28.5 OF THE SAID AGREEMENT. FROM THE ABOVE AGREEMENT, THUS, IT IS CL EAR THAT THE APPELLANT WAS NOT REQUIRED TO ACTUALLY MAKE PAYMENT OF THE SAID SUM TO THE CONTRACTEE DURING THE PREVIOUS YEAR. UNDER THIS CIRCUMSTANCE AND WHEN NO SUCH AMOUNT HAS BEEN CREDITED TOWARDS INTEREST TO THE ACCOUNT OF THE CONTRACTEE I N ITS BOOKS, I AGREE WITH THE CONTENTION OF THE APPELLANT THAT IT WAS NOT POSSIBLE IN THEIR CASE TO DEDUCT TAX ON SUCH AMOUNT AS PER T HE PROVISIONS OF SEC.194A OF THE ACT. 7.4. EVEN THOUGH INTEREST OF RS.L,56,72,913/- HAS B EEN CHARGED BY KONKAN RAILWAY CORPORATION LTD. IN THIS CASE, SINCE THE APPELLANT WAS NOT REQUIRED TO MAKE ACTUAL PAYMENT OF THE SAID AMOUNT TO THE CONTRACTEE AND MOREOVER, SUCH AMOUNT HAS BEEN R ECOVERED BY THE CONTRACTEE FROM THE RUNNING BILLS OF THE APPELL ANT, ON GROUND OF NON-DEDUCTION OF TAX (TDS) ON THAT AMOUNT, IN MY CONSIDERED VIEW, PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, ARE NOT APPLICABLE TO SUCH AMOUNT. THEREFORE, THE SAID DISALLOWANCE MADE BY TH E ASSESSING OFFICER APPLYING PROVISIONS OF SEC. 40(A) (IA) OF THE ACT, IS NOT SUSTAINABLE. HENCE, THE SAME IS DELETED. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US . 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D BEFORE US THAT WHEN THE ASSESSEE IS PAYING INTEREST THEN HE HAD TO COMPLY WITH THE TDS PROVISIONS. WHEN ADMITTEDLY TH E ASSESSEE HAS NOT DEDUCTED TDS INTEREST PAYMENT, THE EXPENDIT URE COULD NOT BE ALLOWED AS A DEDUCTION IN VIEW OF THE MANDAT ORY PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN SUPP ORT OF HIS CONTENTION, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON A DECISION OF THE HONBLE MADRAS HIGH COURT IN CASE OF VISWA PRIYA FINANCIAL SERVICES AND SECURITIES LTD. VS. CIT (258 ITR 496). 5 7 THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASS ESSEE, ON THE OTHER HAND, SUBMITTED BEFORE US THAT THE ASSESS MENT ORDER MAKES IT VERY CLEAR THAT THE ASSESSEE HAS NOT PAID ANY INTEREST AMOUNT TO THE CONTRACTEE M/S. KONKAN RAILWAY CORPOR ATION LTD., BUT THE AMOUNT WAS RECOVERED FROM THE RUNNING BILLS OF THE ASSESSEE. THEREFORE, IT CANNOT BE SAID THAT IN TEREST WAS PAID BY THE ASSESSEE TO ATTRACT THE PROVISIONS CONT AINED UNDER SEC. 194A OF THE ACT. IT WAS FURTHER SUBMITTED THA T THE ASSESSING OFFICER DOES NOT DISPUTE THE FACT THAT M/ S KONKAN RAILWAY CORPORATION IS A GOVERNMENT UNDERTAKING. H ENCE WHEN ALL THE SHARES OF THE COMPANY ARE HELD BY THE CENTR AL GOVERNMENT OR STATE GOVERNMENT, THEN PROVISIONS OF SECTION 194A OF THE ACT ARE NOT APPLICABLE IN VIEW OF THE N OTIFICATION NO. SO NO.3489 DATED 22-10-1970. ARGUING FURTHER T HE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT EVEN ASSUMING THAT THE ASSESSEE HAS PAID INTER EST AMOUNT TO THE CONTRACTEE STILL THEN THE PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT WILL NOT BE APPLICABLE IN VIEW OF THE I NCOME-TAX APPELLATE TRIBUNAL, VISAKHAPATNAM SPECIAL BENCH IN CASE OF MERLIN SHIPPING AND TRANSPORTS VS. ADDL. CIT (16 I TR (TRIB) PAGE 1). 8. WE HAVE CONSIDERED SUBMISSIONS OF THE PARTIES A ND PERUSED THE MATERIAL ON RECORD. AS CAN BE SEEN FR OM THE FINDING OF THE ASSESSING OFFICER, HE HAS NOT DISPUT ED THE FACT THAT THE INTEREST ON MOBILISATION ADVANCE WAS RECOV ERED BY THE CONTRACTEE M/S KONKAN RAILWAY CORPORATION LTD., FR OM RUNNING BILLS OF THE ASSESSEE AND THE ASSESSING OFFICER ALS O ACCEPTS THAT 6 IT IS DIFFICULT ON THE PART OF THE ASSESSEE FOR MA KING TDS AS INTEREST WAS RECOVERED BY THE CONTRACTEE M/S KONKA N RAILWAY CORPORATION LTD., WHILE MAKING THE PAYMENT OF CONTR ACT CHARGES. THEREFORE, IN REAL SENSE IT CANNOT BE SAI D THAT THE ASSESSEE HAS CREDITED THE INTEREST TO THE ACCOUNT O F THE CONTRACTEE IN TERMS OF SECTION 194A OF THE ACT. AS OBSERVED BY THE CIT (A) IN HIS ORDER THE TERMS OF THE CONTRACT ENTERED INTO BETWEEN THE PARTIES AUTHORISES THE CONTRACTEE TO RE COVER INTEREST ON THE MOBILISATION ADVANCES AND ALSO PRES CRIBES THE MODE AND MANNER OF CALCULATION OF INTEREST. THEREF ORE, WHEN THE INTEREST ON MOBILISATION ADVANCE WAS RECOVERED BY THE CONTRACTEE FROM THE RUNNING BILLS BEFORE RELEASING THE CONTRACT CHARGES TO THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE HAS CREDITED THE INTEREST PAID OR PAYABLE TO THE AC COUNT OF THE ASSESSEE. IN FACT, THE CIT (A) HAS ALSO NOTED THAT THE ASSESSEE HAS NOT CREDITED ANY SUCH AMOUNT TOWARDS PAYMENT OF INTEREST TO THE ACCOUNT OF THE CONTRACTEE IN ITS BOOKS OF AC COUNTS. IN THE AFORESAID FACTUAL SITUATION, IT CANNOT BE SAID THAT THERE IS ANY VIOLATION OF PROVISIONS OF SECTION 194A OF THE ACT. A LIABILITY CANNOT BE FASTENED ON THE ASSESSEE OR A D EFAULT CANNOT BE ATTRIBUTED TO THE ASSESSEE FOR NOT DISCHARGING A N OBLIGATION WHICH IS IMPOSSIBLE ON ITS PART TO PERFORM. THE DEC ISION OF THE HONBLE MADRAS HIGH COURT IN CASE OF VISWAPRIYA FI NANCIAL SERVICES AND SECURITIES LTD., VS. CIT (SUPRA) IS AL SO NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS IN T HAT CASE THE ASSESSEE ACTUALLY MADE THE PAYMENT BUT DID NOT TREA T IT AS 7 INTEREST. IN AFORESAID VIEW OF THE MATTER, WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF THE CIT (A). 9. EVEN OTHERWISE ALSO, THE ASSESSEE HAS A VALID POINT IN CONTENDING THAT THE PROVISIONS OF SECTION 194A IS N OT APPLICABLE EVEN ASSUMING THAT THE ASSESSEE HAS PAID INTEREST T O M/S KONKAN RAILWAY CORPORATION LTD., BECAUSE OF THE FAC T THAT IT IS A COMPANY WHOSE SHARES ARE HELD BY CENTRAL AND STAT E GOVERNMENTS. A PERUSAL OF THE NOTIFICATION NUMBER SO NO.3489 DATED 22-10-1970 MAKES IT CLEAR THAT THE PR OVISIONS OF SECTION 194A OF THE ACT ARE NOT APPLICABLE TO INTER EST PAID TO A COMPANY WHOSE SHARES ARE HELD BY EITHER CENTRAL OR STATE GOVERNMENT. IN THE PRESENT CASE, IT IS APPARENT FR OM THE ASSESSMENT ORDER ITSELF THAT THE ASSESSING OFFICER HAS ADMITTED THE FACT THAT THE CONTRACTEE M/S KONKAN RAILWAY COR PORATION LTD., IS A GOVERNMENT COMPANY AS DEFINED U/S 617 OF THE COMPANIES ACT, 1956. IT IS ALSO A FACT THAT THE EN TIRE PAID UP SHARE CAPITAL OF M/S KONKAN RAILWAY CORPORATION LTD ., IS HELD BY THE CENTRAL GOVERNMENT AND FOUR OTHER STATE GOVERNM ENTS. IN THAT VIEW OF THE MATTER, THE PROVISIONS OF SECTION 194A OF THE ACT WILL NOT APPLY TO THE SAID COMPANY IN VIEW OF T HE NOTIFICATION IN S O NO.3489 DATED 22-10-1970. THER EFORE, THE INTEREST PAYMENT TO SUCH COMPANY IS OUTSIDE THE PUR VIEW OF SECTION 194A AND CONSEQUENTLY NO DISALLOWANCE CAN B E MADE BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN AFORESAID VIEW OF THE MATTER, WE FIND NO JUSTIFICAT ION TO INTERFERE WITH THE ORDER PASSED BY THE CIT (A) ON T HIS ISSUE 8 WHICH IS ACCORDINGLY UPHELD. HENCE, THE GROUNDS RA ISED BY THE DEPARTMENT BEING DEVOID OF MERIT, ARE HEREBY DISMIS SED. 10. IN THE RESULT, APPEAL FILED BY THE REVENUE STAN DS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 18-10-2013. SD/- ( B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 18 TH OCTOBER, 2013 COPY TO:- 1) ACIT, CIR-2(1), 8-B IT TOWERS, AC GUARDS, MASABTANK , HYDERABAD. 2) M/S. UAN RAJU IVRCL CONSTRUCTIONS JV, VIJAYANAGAR COLONY, HYDERABAD. 3) CIT (A))III, HYDERABAD. 4) CIT II, HYDEERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. JMR*