ACIT(OSD) CORPORATE RANGE-1, CHENNAI V. DAECHANG INDIA SEAT COMPANY P.LTD, SRIPERUMBUDUR

ITA 1460/CHNY/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1803 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 08-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS
• Section: 43B; 37(1); 251

Judgement Text

आयकर अपीलीय अिधकरण, ’डी’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ŵी वी दुगाŊ राव Ɋाियक सद˟ एवं ŵी जी. मंजुनाथा, लेखा सद˟ के समƗ Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T.A. No.1460/Chny/2019 िनधाŊरण वषŊ/Assessment Year: 2015-16 The Assistant Commissioner of Income Tax (OSD), Corporate Range 1, Chennai. Vs. M/s. Daechang India Seat Company P. Ltd., No. 491, Mannur Village, Sriperumbudur, Tamil Ndu 602 105. [PAN:AACCD3176F] (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से / Appellant by : Shri D. Hema Bhupal, JCIT ŮȑथŎ की ओर से/Respondent by : Shri G. Baskar, Advocate सुनवाई की तारीख/ Date of hearing : 18.07.2022 घोषणा की तारीख /Date of Pronouncement : 29.07.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Chennai, dated 31.01.2019 relevant to the assessment year 2015-16. 2. The first ground raised in the appeal of the assessee relates to deleting the disallowance of guarantee fee claimed based on fresh evidence without affording an opportunity to the Assessing Officer under Rule 46A of the Income Tax Rules. I.T.A. No. 1460/Chny/19 2 2.1 In the assessment order, the Assessing Officer has observed that during the year under scrutiny, the assessee has claimed a sum of ₹.4,71,52,666/- as guarantee fees paid to its holding company M/s. Daechang Seat Co. Ltd., Korea at the rate of 1.4% of loan amount received. During the year, the holding company has provided corporate guarantee for the loans from institutions such as Shinhan Bank, Citi Bank, Standard Chartered Bank, Korea Exchange Bank, etc. On perusal of the guarantee agreement, the Assessing Officer has noted that the guarantee limit was a sum of $39,155,000 USD and also for the period from 01.01.2014 to 31.12.2014 which would be automatically extended by 1 year as long as there was no appeal. Following conditions are laid down by the said agreement: i. The guarantee rate shall be 1.40% which shall be renewed every three years. ii. The fee shall be calculated as Actual loan “days of loan/365(366) x rate. iii. The fee shall be charged on the last day of the fiscal year. iv. The fee has to be mandatorily paid three month from the date of invoice. v. Method of payment shall be such that the cash would be paid in full. During the course of scrutiny, the assessee was asked to furnish the breakup and working of guarantee fees paid and on examination of the details filed by the assessee, the Assessing Officer has noticed that the I.T.A. No. 1460/Chny/19 3 assessee has claimed certain amounts under the head Guarantee Fees on loans already closed during the earlier previous year or on those loans not pertaining to the current year. The total amount of such excess Guarantee Fees paid over and above the proportion calculated as per the Guarantee Agreement is a sum of ₹.2,20,38,517/- as per assessee’s own admission vide letter dated 22.12.2017. After considering the submissions of the assessee the Guarantee fee claimed in excess of ₹.2,20,38,517/- was disallowed under section 37(1) of the Act and added to the total income of the assessee. On appeal, after considering the details furnished by the assessee, the ld. CIT(A) deleted the disallowance of ₹.2,20,38,517/- made by the Assessing Officer. 3. Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR has submitted that without giving an opportunity to the Assessing Officer, the ld. CIT(A) has deleted the disallowance of excess guarantee fee claimed is in violation of Rule 46A of the Income Tax Rules. 4. On the other hand, the ld. Counsel for the assessee supported the order of the ld. CIT(A). I.T.A. No. 1460/Chny/19 4 5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The assessee has claimed a sum of ₹.4,71,52,666/- as guarantee fees paid to its holding company M/s. Daechang Seat Co. Ltd., Korea at the rate of 1.4% of loan amount received. On verification of the details furnished by the assessee, the Assessing Officer has observed the assessee has claimed certain amounts under the head Guarantee Fees on loans already closed during the earlier previous year or on those loans not pertaining to the current year. The total amount of such excess Guarantee Fees paid over and above the proportion calculated as per the Guarantee Agreement is a sum of ₹.2,20,38,517/- as per assessee’s own admission vide letter dated 22.12.2017. Accordingly, the Assessing Officer disallowed the same and brought to tax. On appeal, after considering the evidences furnished by the assessee regarding the incurring of expenses and the details regarding the deduction of tax on the said expenses, the ld. CIT(A) deleted the disallowance of excess claim of guarantee fee amounting to ₹.2,20,38.517/-. For the sake of convenience, the relevant portion of the ld. CIT(A)’s order is extracted: I.T.A. No. 1460/Chny/19 5 “During the appellate proceedings, the appellant was asked to furnish details of the tax deducted on guarantee fee and to also substantiate the fact that the appellant had not claimed guarantee fees twice as stated by the A.O. The written submissions filed by the appellant are as follows: “The Appellant has claimed a sum of Rs.4,71,52,666/- as guarantee fee for the Financial Year 2014-15 and Rs.2,22,94,179/- as guarantee fee for the Financial Year 2013-14. In this connection, we would like to submit the following tabulation: S.No. Particulars Financial year Amount TDS Remarks 1 Guarantee Fee 2013-14 2,22,94,179 22,29,418 TDS Challan is enclosed herewith Total 2,22,94,179 22,29,418 2 Guarantee Fee 2014-15 2,20,38,516 22,03,852 TDS Challan is enclosed herewith 3 Guarantee Fee 2014-15 2,51,14,140 25,11,414 TDS Challan is enclosed herewith Total 4,71,52,666 47,15,266 For the Financial Year 2013-14, the Appellant Company has remitted a higher sum of Rs.2230543/- to the credit of the central government whereas the amount to be remitted is only Rs,22,29,418/-. Appellant has not claimed Guarantee Fees twice: The Appellant has claimed a sum of Rs.4,71,52,666/- as guarantee fee for the Financial Year 2014-15, the guarantee fee claimed in the Financial Year 2014-15 includes guarantee fee for the Financial Year 2013-14 which amounts to Rs.2,20,38,517/-. The guarantee fee claimed in Financial Year 2013-14 is Rs.2,22,94,179/-. From the above, it would be evident that the appellant as not claimed guarantee fee twice. Agreement entered is for Calendar Year: The appellant company has remitted guarantee fee to the company incorporated in Korea, M/s. Daechang Seat Co. Ltd. The Appellant Company and M/s. Daechang Seat Co. Ltd has agreed for a contracting period as calendar year since the calendar year is the financial year for the Korean Company. The Korean companies prepare the accounts for the calendar year only. By relying on the ratio of above submissions, it is therefore most humbly prayed that this learned Commissioner of Income Tax (Appeals) may be pleased to delete the addition on account of excess claim of Guarantee Fee & allow the guarantee fee in the Financial Year 2014-15 itself”. I.T.A. No. 1460/Chny/19 6 The Appellant prayed that the addition on account of excess claim of guarantee fee should be deleted and the guarantee fee claimed by the appellant in the F.Y. 2014-15 itself should be allowed. 4A(1) CIT(A)’s inference and decision: The submissions of the appellant were considered vis-a-vis the findings of the Assessing Officer. The appellant's claim of guarantee fee was considered to be an excessive claim by the A.O. It was also stated to be inadmissible u/s. 37(1) of the Act since the appellant had not been able to prove that the same had been incurred wholly and exclusively for the purpose of business. It was maintained that the appellant was following the mercantile system of accounting and had to claim the expenses whenever they accrued to the appellant and not when they were paid or actually realised. The A. O declared that the appellant cannot change the method of accounting to claim expenses of an earlier accounting period as and when it decides to do so. During the appellate proceedings, the appellant furnished a copy of the Guarantee Agreement entered into with the holding company, M/s. Daechang Seat Company Ltd, Korea. It also furnished details of borrowings made by the appellant from the banking institutions. While submitting the summary of borrowings; the appellant furnished details of borrowings from the various Banks such as amount of guarantee fee, date of sanction of loan and date of closure of loan. It was also explained that "during the F.Y.2013- 14, guarantee fee to the extent of 0.87% out of 1.73% was booked in the F.Y. 2013-14. The invoices for the 0.86% i.e. for the sum of Rs.2,20,38,517/- was received only in the next F.Y. 2014-15. The appellant also furnished evidences to leverage its claim that it had deducted TDS and remitted the same to the credit of the Government in the year in which the company had accounted for the expense. It was also clarified that the appellant had not claimed guarantee fees twice as the sum of Rs.4,71,52,666/- which was claimed as guarantee fee for the F.Y. 2014-15 includes the guarantee fee for the F.Y. 2013-14 which amounts to Rs.2,20,38,517/-. It was also declared that the appellant company and the holding company had agreed for a contracting period as calendar year since the calendar year is the financial year for the Korean company. Taking into account the facts, circumstances and the evidences furnished by the appellant regarding the incurring of expenses and the details regarding the deduction of tax on the said expenses, I am inclined to accept the contentions of the appellant. Hence, the disallowance of excess claim of guarantee fee amounting to Rs.2,20,38,517/- requires to be deleted. This ground of appeal is allowed.” 5.1 From the above, it is clear that the ld. CIT(A) has directed the I.T.A. No. 1460/Chny/19 7 assessee to produce the details of tax deducted on guarantee fee and also substantiate that the assessee had not claimed the guarantee fees twice as stated by the Assessing Officer. The assessee by following the directions given by the ld. CIT(A) filed the details in respect of tax deducted on guarantee fee, which was already filed before the Assessing Officer. The Assessing Officer has extracted half portion in one page and half portion in another page and without considering the details, addition was made. The action of the ld. CIT(A) in directing the assessee to produce the details is covered by Rule 46A (4) of the Income Tax Rules, 1962. The relevant clause (4) is extracted for ready reference: “(4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.” 5.2 Admittedly, in this case, the ld. CIT(A) has not entertained any fresh material for adjudication of the issue. The TDS on guarantee fee paid by the assessee was very much produced before the Assessing Officer and the Assessing Officer, without considering its entirety, extracted half portion in one page and half portion in another page and I.T.A. No. 1460/Chny/19 8 made the addition. Moreover, under section 251(1)(a) of the Act, the powers of the first appellate authority are coterminous with those of Assessing Officer, considering the facts and circumstances of the case, we are of the considered opinion that the ld. CIT(A) has rightly assumed the jurisdiction to conclude the issue based on the materials already available with the Assessing Officer. Thus, the ground raised by the Revenue is dismissed. 6. The next ground raised in the appeal of the Revenue relates to deletion of disallowance of delayed payment of EPF and ESI dues. In the assessment order, the Assessing Officer has noticed that the assessee has made delayed payments of employee contributions of EPF to the tune of ₹.20,07,225/- and ESI to the tune of ₹.1,16,946/- beyond due dates of remittance. Accordingly, the above total sum of ₹.21,24,171/- was disallowed under section 36(1)(va) of the Act and brought to tax. On appeal, By following the decision of the Hon’ble Madras High Court in the case of CIT v. Industrial Security and Intelligence Private Limited in Tax Case Appeal Nos. 585 & 586 of 2015 dated 24.07.2015, the ld. CIT(A) directed the Assessing Officer to I.T.A. No. 1460/Chny/19 9 allow the deduction to the extent payments are made within due date of filing of return of income. 7. Aggrieved, the Revenue is in appeal before the Tribunal. By relying upon the decision of the Hon’ble Jurisdictional High Court in WP No.5264 of 2018, the ld. DR pleaded for reversing the order passed by the ld. CIT(A). 8. On the other hand, the ld. Counsel for the assessee has submitted that the issue is squarely covered in favour of the assessee by the decision of the of the Hon’ble Jurisdictional High Court in the case of CIT v. Industrial Security & Intelligence India Pvt. Ltd. in TCA Nos. 585 and 586 of 2015 vide order dated 24.07.2015. 9. We have considered the rival contentions. In the assessment order, the Assessing Officer has disallowed an amount of ₹.21,24,171/- being belated remittance of the employee contributions of EPF and ESI as it is the income of the assessee in view of the provisions of section 2(24)(x) of the Act read with section 36(1)(va) of the Act. Before the ld. CIT(A), the assessee has submitted that since the entire amount has been remitted before the due date for filing of return of income, the same should be allowed as deduction under section 43B of the Act. I.T.A. No. 1460/Chny/19 10 Accordingly, by following the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Industrial Security & Intelligence India Pvt. Ltd. (supra) as well as decision of the Hon’ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. 319 ITR 306 (SC), the ld. CIT(A) directed the Assessing Officer to allow deduction to the extent payments are made within due date of filing of return of income. 10. So far as the case law relied on by the ld. DR in WP No. 5264 of 2018 dated 23.10.2018 is concerned, we find that it is a Single Judge decision, which was subsequently, vide order dated 09.01.2019 in W.P. No. 2854 of 2018 & CMP 23727 of 2018 in the case of M/s. Unifac Management Services (India) Pvt. Ltd. v. DCIT, the assessee was permitted to withdraw the writ petition namely W.P. No. 5264 of 2018 as well as W.P. No. 2854 of 2018 by the Division Bench of the Hon’ble Madras High Court. Hence the case law relied on by the ld. DR has no legs to stand. 11. In view of the above facts and circumstances, we find that the ld. CIT(A) has rightly followed the decision in the case of CIT v. Industrial Security & Intelligence India Pvt. Ltd. (supra) as well as decision of the Hon’ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. I.T.A. No. 1460/Chny/19 11 (supra) in directing the Assessing Officer to allow the deduction to the extent payments are made within due date of filing of return of income. Thus, the ground raised by the Revenue is dismissed. 12. In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 29 th July, 2022 at Chennai. Sd/- Sd/- (G. MANJUNATHA) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER Chennai, Dated, 29.07.2022 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ (अपील)/CIT(A), 4. आयकर आयुƅ/CIT, 5. िवभागीय Ůितिनिध/DR & 6. गाडŊ फाईल/GF.