M/s Overture Hospitalities Pvt Ltd , Bangalore V. The Income Tax Officer ward-5(1)(2), Bangalore

ITA 1737/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7642 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 23-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VENKATESH
• Keywords: Recovery proceedings; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 173 7 / BANG/201 8 ASSESSMENT YEAR : 20 1 4 - 1 5 M/S. OVERTURE HOSPITALITIES PVT. LTD., NO. 204/A, COLLECTION NO. 24, UB CITY COMET BLOCK, VITTAL MALLYA ROAD, BANGALORE 560 001. PAN: AABCO6649M VS. THE INCOME TAX OFFICER, WARD 5 (1) (2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SOUMYA, ADVOCATE RESPONDENT BY : SHRI S. VENKATESH, JCIT (DR) DATE OF HEARING : 0 5 .0 7 .2018 DATE OF PRONOUNCEMENT : 20 .0 7 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND IT IS DIRE CTED AGAINST THE ORDER OF LD. CIT(A)-5, BANGALORE DATED 12.03.2018 FOR ASSESS MENT YEAR 2014-15. 2. THE GROUNDS RAISED BY THE ASSESSEEARE AS UNDER. 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF LABOUR CHARGES AND RO YALTY PAYMENTS BY APPLYING THE PROVISIONS OF SEC.40A(IA) OF THE AC T. 2. THE LEARNED COMMISSIONER (A) ERRED IN NOT CONSID ERING THE SUBMISSIONS AND EVIDENCE PROVIDED TO PROVE THAT THE PAYMENT OF TAX DEDUCTED AT SOURCE OUT OF THE LABOUR CHARGES AND RO YALTY CHARGES WITHIN THE PERMISSIBLE TIME AND ACCORDINGLY THE PRO VISIONS OF SEC.40A(IA) OF THE ACT WERE NOT APPLICABLE AND THE EXPENDITURE CLAIMED WERE LIABLE TO BE ALLOWED IN FULL. 3. THE LEARNED COMMISSIONER (A) ERRED IN NOT APPLYI NG HIS MIND AND CONSIDERING THE FACTS AND EVIDENCE AND ALSO THE CIT ED CASE LAW OF THE JURISDICTIONAL HIGH COURT AND ALSO THE HON'BLE SUPR EME COURT WHILE UPHOLDING THE DISALLOWANCE AND ACCORDINGLY HIS ORDE R IS OPPOSED TO LAW AND TO THE PRINCIPLES OF NATURAL JUSTICE AND LI ABLE TO BE SET ASIDE. 4. ON THE FACTS AND LEARNED COMMISSIONER (A) OUGHT TO HAVE ACCEPTED THE EXPLANATION OFFERED AND EVIDENCE PRODUCED AND O UGHT TO HAVE ALLOWED THE DEDUCTION CLAIMED TOWARDS LABOUR AND RO YALTY CHARGES IN ITA NO.1737/BANG/2018 PAGE 2 OF 6 FULL. 5. WITHOUT PREJUDICE, THE DISALLOWANCE IS EXCESSIVE , ARBITRARY AND UNREASONABLE AND LIABLE TO BE DELETED. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED. 3. BRIEFLY STATED, THE FACTS ARE THAT IT IS NOTED B Y THE AO IN PARA NO. 4 OF THE ASSESSMENT ORDER THAT UNDER THE EXPENDITURE HEAD M ISCELLANEOUS EXPENDITURE, THE ASSESSEE HAS SHOWN RS. 7,86,273/- AS LABOUR CHARGES BUT NOT PRODUCED ANY PROOF OF MAKING TDS AFTER THE DETAILS HAVE BEEN SOUGHT. WITH THESE OBSERVATIONS, THE AO DISALLOWED THIS AMOUNT U /S. 40(A)(IA) OF IT ACT. THEREAFTER, IN PARA 6 OF THE ASSESSMENT ORDER, THE AO HAS NOTED THAT THE ASSESSEE COMPANY HAS PAID ROYALTY TO M/S. MANGII CA FES PVT. LTD. FOR AN AMOUNT OF RS. 2,32,231/- BUT NO TDS HAS BEEN MADE O N PAYMENT OF ROYALTY FOR THIS AMOUNT AND WITH THESE OBSERVATIONS, HE MADE DI SALLOWANCE OF BOTH THESE AMOUNTS U/S. 40(A)(IA) OF IT ACT. AGAINST BOTH THE SE DISALLOWANCES, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A) WHO HAS CONFIRMED BOTH THESE DISALLOWANCES AND NOW THE ASSESSEE IS IN FURT HER APPEAL BEFORE THE TRIBUNAL. THE LD. AR OF ASSESSEE MADE WRITTEN SUBM ISSIONS AND ALONG WITH THE SAME, THE ASSESSEE HAS FURNISHED COPY OF CHALLAN IN RESPECT OF PAYMENT OF TDS AGAINST THESE TWO EXPENSES ALL DATED 17.03.2014 . HE SUBMITTED IN THE WRITTEN SUBMISSIONS THAT THE CHALLANS WERE PRODUCED BEFORE THE AUTHORITIES BELOW BUT THE ISSUE WAS DECIDED WITHOUT CONSIDERING THESE CHALLANS. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES B ELOW. 4. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, I REPRODUCE THE WRITTEN SUBMISSIONS FILED BY THE LD. AR OF ASSESSEE BEFORE THE TRIBUNAL. THE SAME IS AS UNDER. THE APPELLANT-COMPANY IS ENGAGED IN THE BUSINESS OF HOSPITALITY SERVICES AND FILED ITS RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2014-15 ON 29.11.2014 THROUGH E-FILING DECLARING NIL INCOME . IN RESPONSE TO THE VARIOUS NOTICES ISSUED, AN AUTHO RIZED REPRESENTATIVE FROM THE APPELLANT-COMPANY APPEARED ON VARIOUS DATE S AND FURNISHED THE DETAILS CALLED FOR. THE ASSESSING OFFICER ON PE RUSAL OF THE DETAILS CALLED FOR, WENT AHEAD TO MAKE THE DISALLOWANCES UN DER SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TDS FOR L ABOUR CHARGES AND ITA NO.1737/BANG/2018 PAGE 3 OF 6 ROYALTY TO THE EXTENT OF RS.7,86,273/- AND RS.2,32, 231/- RESPECTIVELY. FURTHER, THE ASSESSING OFFICER STATED IN HIS ORDER DATED 30.12.2016 THAT THERE WAS NO SUBSTANTIAL PROOF AVAILABLE FOR TDS BE ING DEDUCTED EVEN AFTER THE DETAILS WERE SOUGHT FOR. HENCE, THE DISAL LOWANCE UNDER SECTION 40(A)(IA) WAS ADDED BACK TO THE TOTAL INCOM E OF THE-APPELLANT- COMPANY, THEREBY RAISING THE DEMAND OF RS.18,870/-. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE APPELLANT FILED AN APPEAL BEFORE THE CIT (APPEALS) AGAINST THE ORDER DATED 30.12.2016 PA SSED UNDER SECTION 143(3) OF THE ACT. THE CIT (APPEALS) ON CONSIDERING THE GROUNDS RAISED BY THE APPELLANT, STATEMENT OF FACTS, WRITTEN SUBMISSION A ND THE ASSESSMENT ORDER, UPHELD THE ORDER OF THE ASSESSING OFFICER WI THOUT GIVING ANY SUBSTANTIAL FINDINGS, BUT HOWEVER STATED THAT 'THE PURPOSE OF SECTION 40(A)(IA) IS TO ENSURE THE RECOVERY OF TAX.' THERE IS NO INDICATION IN THE SAID SECTION THAT THIS OBJECT WAS CONFINED TO T HE RECOVERY OF TAX FROM A PARTICULAR TYPE OF TAX PAYER FOLLOWING CERTA IN ACCOUNTING PRINCIPLES. THEREFORE, IT CAN BE INFERRED THAT THE QUESTION AS TO WHETHER THE OBLIGATION AROSE TO WITHHOLD TAXES AT T HE TIME OF MAKING CERTAIN PAYMENTS UNDER VARIOUS PROVISIONS OF CHAPTE R XVII-B OF THE IT ACT OR IS TO BE DECIDED BEFORE INVOKING PROVISIO NS OF SECTION 40(A)(IA) WHICH IS THE CAUSE OF ACTION. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 40(A) (IA) OF THE ACT AND MADE THE DISALLOWANCE THEREON. AGGRIEVED BY THE ORDER OF THE CIT (APPEALS), THE AP PELLANT HAS NOW FILED AN APPEAL BEFORE THE HON'BLE TRIBUNAL, SUBMIT TING THAT ALL THE PROOFS FOR TAX DEDUCTED AT SOURCE WERE PROVIDED TO THE ASSESSING OFFICER WHICH WAS NOT CONSIDERED AT THE TIME OF THE ASSESSMENT PROCEEDINGS. FURTHER, THE APPELLANT SUBMITS THAT ALL THE PROOFS IN THE FORM OF CHALLANS AND LEDGER EXTRACTS WERE PLACED BEFORE THE ASSESSING OFFICER FOR HIS PERUSAL WHICH WAS TOTALLY NOT TAKEN INTO CO NSIDERATION BEFORE MAKING SUCH DISALLOWANCES. THE APPELLANT HUMBLY SUBMITS THAT THESE DOCUMENTS A S PROOFS WERE PLACED BEFORE THE ASSESSING OFFICER VIA ITS LETTERS DATED 16.01.2017 - PAGE 53 OF THE PAPER BOOK, 28.12.2016 - PAGE 57 OF THE PAPER BOOK, 26.12.2016 - PAGE 59 OF THE PAPER BOOK AND 15.11.20 16 - PAGE 61 OF THE PAPER BOOK RESPECTIVELY. THE APPELLANT ALSO SUB MITS THAT ALL THESE DOCUMENTS PLACED BY THE APPELLANT WERE ACCEPTED BY THE ASSESSING OFFICER. FURTHER, FOR THE DISALLOWANCE MADE TOWARDS LABOUR C HARGES, THE APPELLANT SUBMITS THAT ALL THE COPIES OF THE CHALLA NS ARE ENCLOSED ALONG WITH PAPER BOOK FROM PAGE NOS.69 TO 77 WHICH SHOWS THE VARIOUS CONSOLIDATED AMOUNTS OF THE APPELLANT DURIN G THAT PERIOD WHICH WAS DEDUCTED AND REMITTED WITHIN THE PERMISSI BLE TIME AND ACCORDINGLY THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IS NOT ITA NO.1737/BANG/2018 PAGE 4 OF 6 APPLICABLE. THE OTHER CHALLANS FOR THE AY 2014-15 ARE ALSO INCLUDED ALONG WITH THIS WRITTEN SUBMISSION. THE APPELLANT FURTHER SUBMITS THAT THE LEDGER ACCOU NTS FOR THE LABOUR CHARGES AND TDS ENTRIES ARE ENCLOSED FROM PAGE 63 T O 68 OF THE PAPER BOOK PLACED BEFORE THE HON'BLE TRIBUNAL. THE LEDGER BALANCES ON PAGE 64 THAT DO NOT SHOW THE TDS ENTRY FOR THE L AST THREE ENTRIES DATED 21.02.2014 TO 31.03.2014 ARE AVAILABLE ON PAG E 68 OF THE PAPER BOOK ALONG WITH PREVIOUS TDS ENTRIES AS WELL. FOR ROYALTY FEES DISALLOWED, THE APPELLANT HUMBLY S UBMITS THAT A COPY OF CHALLAN AND VARIOUS LEDGER BALANCES WERE PLACED BEFORE THE RELEVANT AUTHORITIES WHICH WERE NOT TAKEN INTO CONS IDERATION. A COPY OF THE CHALLAN IS ENCLOSED AT PAGE 81 OF THE PAPER BOOK ALONG WITH LEDGER ACCOUNTS AND ENTRIES MADE FOR TDS WHICH IS ENCLOSED AT PAGES 79 86 80 OF THE PAPER BOOK. FURTHER, THE APPELLANT HUMBLY SUBMITS THAT SINCE AL L THE EVIDENCES WERE PLACED BEFORE THE CIT (APPEALS) AND THE ASSESS ING OFFICER, DISALLOWANCE UNDER SECTION 40(A)(IA) IS NOT RIGHT A ND THEREFORE IT IS SINCERELY PRAYED THAT THE APPEAL MAY BE ALLOWED. 5. I HAVE CONSIDERED THE WRITTEN SUBMISSIONS AS REP RODUCED ABOVE AND I FIND THAT VARIOUS CHALLANS ARE ALSO ENCLOSED WITH THE WRITTEN SUBMISSIONS BUT THESE CHALLANS WERE NOT CONSIDERED BY CIT(A) AT ALL AND I N THIS REGARD, I REPRODUCE PARA NO. 5 FROM THE ORDER OF CIT(A) FOR THE SAKE OF READY REFERENCE. 5. I HAVE CONSIDERED THE ABOVE GROUNDS OF APPEAL, S TATEMENT OF FACTS AND WRITTEN SUBMISSIONS FILED BY THE APPELLANT AND ALSO PERUSED THE ASSESSMENT ORDER. THE APPELLANT HAS RAISED AS MANY AS EIGHT GROUNDS OF APPEAL AND THE GROUND NOS.1, 7 AND 8 ARE GENERAL IN NATURE, NO ADJUDICATION IS NEEDED. THE SECOND AND THIRD GROUND S RELATE TO DISALLOWANCE OF LABOUR CHARGES OF RS.7,86,273/- AND ROYALTY FEE OF RS.2,32,231/- FOR NON FURNISHING OF PROOF OF TDS U/ S.40A(IA) OF THE IT ACT. DURING THE APPELLATE PROCEEDINGS THE APPELLANT SUBMITTED THAT IT HAD FILED THE DETAILS OF TDS DEDUCTED ON LABOUR CHA RGES AND ROYALTY FEE ON 28/12/2016 WHICH WAS ALSO ACKNOWLEDGED BY TH E ASSESSING OFFICER FURNISHING THE COPY OF THE LETTER FILED ON BEHALF OF THE APPELLANT VIDE LETTER DATED 28/12/2016 AND THE ASSESSING OFFI CER HAS FAILED TO CONSIDER THE PROOF OF TDS FURNISHED IN ITS ORDER DA TED 30TH DECEMBER 2016. IT IS PERTINENT TO MENTION HERE THAT SEC.40(A )(IA) HAS BEEN INTRODUCED TO ENSURE NOT ONLY THE COLLECTION OF TAX BUT ALSO ENABLES THE AUTHORITIES TO BRING WITHIN THEIR FOLD ALL SUCH PER SONS WHO ARE LIABLE TO COME WITHIN THE NETWORK OF TAXPAYERS. THE INTENTION WAS TO ENSURE THE COLLECTION OF TAX IRRESPECTIVE OF THE ACCOUNTING SY STEM FOLLOWED BY THE TAXPAYERS. ALL THE SECTIONS IN CHAPTER XVII-B REQUI RE A PERSON TO DEDUCT TAX AT SOURCE AT THE RATES SPECIFIED THEREIN . THE REQUIREMENT IN ITA NO.1737/BANG/2018 PAGE 5 OF 6 EACH OF THE SECTIONS IS PRECEDED BY THE WORD 'SHALL '. THE PROVISIONS ARE THEREFORE, MANDATORY. THERE IS NOTHING IN ANY OF T HE SECTIONS THAT WOULD WARRANT READING THE WORD SHALL AS MAY'. TH E POINT OF TIME AT WHICH THE DEDUCTION IS TO BE MADE ESTABLISHES THAT THE PROVISIONS ARE MANDATORY. FOR INSTANCE, UNDER SECTION 194C OF THE ACT, A PERSON RESPONSIBLE FOR PAYING THE SUM IS REQUIRED TO DEDUC T TAX AT THE TIME OF CREDIT OF SUCH SOURCE UNDER VARIOUS PROVISIONS OF C HAPTER XVII-B. THIS VIEW IS SUPPORTED BY THE JUDGMENTS OF THE CALC UTTA AND MADRAS HIGH COURTS. THE PURPOSE OF SECTION 40(A)(IA) IS TO ENSURE THE RECOVERY OF TAX. THERE IS NO INDICATION IN THE SAID SECTION THAT THIS OBJECT WAS CONFINED TO THE RECOVERY OF TAX FROM A P ARTICULAR TYPE OF TAXPAYER FOLLOWING A CERTAIN ACCOUNTING PRACTICE. T HEREFORE, IT CAN BE INFERRED THAT THE QUESTION AS TO WHETHER THE OBLIGA TION AROSE TO WITHHOLD TAXES AT THE TIME OF MAKING CERTAIN PAYMEN TS UNDER VARIOUS PROVISIONS OF CHAPTER XVII-B OF THE INCOME TAX ACT 1961 OR NOT IS TO BE DECIDED BEFORE INVOKING PROVISIONS OF SEC.40(A)( IA) WHICH IS THE CAUSE OF ACTION. THEREFORE, THE ASSESSING OFFICER H AS RIGHTLY INVOKED THE PROVISIONS OF SEC.40(A)(IA) OF THE INCOME TAX A CT 1961 AND DISALLOWED THE INTEREST PAID WITHOUT WITHHOLDING TA XES THEREON. THE GROUNDS TAKEN ON THIS ISSUE ARE HEREBY DISMISSED. 6. FROM THE ABOVE PARA REPRODUCED FROM THE ORDER OF CIT(A), IT IS SEEN THAT THERE IS NO FINDING GIVEN BY CIT(A) REGARDING THE CLAIM O F THE ASSESSEE THAT TDS WAS DEDUCTED AND PAID TO CENTRAL GOVERNMENT AND HENCE, I FEEL IT PROPER TO SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF CIT(A) FOR FRESH DECISION BY WAY OF A SPEAKING AND REASONED ORDER IN RESPECT OF THIS CLAIM OF THE ASSESSEE THAT TDS WAS DEDUCTED AN D PAID TO CENTRAL GOVERNMENT AND THEREFORE, NO DISALLOWANCE IS CALLED FOR U/S. 40(A)(IA) OF IT ACT. THE CIT(A) SHOULD PASS NECESSARY ORDER AS PER LAW A S PER ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (ARUN KUMAR GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED, THE 20 TH JULY, 2018. /MS/ ITA NO.1737/BANG/2018 PAGE 6 OF 6 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.