M/s. Frohberg Reality Pvt. Ltd., Baroda V. The ACIT, Circle-1(2), Baroda

ITA 2066/AHD/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6979 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-11-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 09-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: RASESH SHAH
• Keywords: Retrospective amendment
• Section: 143(3); 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT JUDICI AL MEMBER M/S. FROHBERG REALITY PVT. LTD, DEVASHISH-II, FLAT NO. 1, OPP. PARUL APARTMENT, FATEHGUNJ, VADODARA-390002 PAN: AAACF9817F (APPELLANT) VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), BARODA-390007 (RESPONDENT) REVENUE BY: SRI V.K SINGH, SR. D.R. ASSESSEE BY: SRI RASESH SHAH, A.R. DATE OF HEARING : 28-11-2014 DATE OF PRONOUNCEMENT : 12-12-20 14 / ORDER PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER:- THIS IS THE ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-I, BARODA DATED 23-05-2014 FOR A.Y. 2010-11. 2. FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN TH E BUSINESS OF CONSTRUCTION OF RESIDENTIAL AND COMMERCIAL STRUCTUR ES. ASSESSEE ITA NO. 2066/AHD/2014 ASSESSMENT YEAR 2010-11 I.T.A NO. 2066/AHD/2014 A.Y. 2010-11 PAGE NO M/S. FROHBERG REALTY PVT. LTD VS. ACIT 2 ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2010-11 ON 06-02-2012 DECLARING TOTAL INCOME OF RS. 81,51,000/-. THE CAS E WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U /S. 143(3) VIDE ORDER DATED 20-03-2013 AND THE TOTAL INCOME WAS DETERMINE D AT RS. 1,23,11,379/-. AGGRIEVED BY THE ORDER OF AO, ASSES SEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 23-05-2014 D ISMISSED THE APPEAL OF THE ASSESSSEE. AGGRIEVED BY THE ORDER OF LD. CI T(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GR OUNDS. APPELLANT BEING AGGRIEVED BY THE ORDER DATED 23-05 -2014 PASSED BY THE LD. CIT(A)-I, BARODA (HEREIN AFTER REFERRED TO AS LD. ASSESSING OFFICER) PRESENTS THIS APPEAL AGAINST THE SAME ON T HE FOLLOWING AMONGST OTHER GROUNDS: 1. THE ORDER PASSED BY THE LD. ASSESSING OFFICER IS ILLEGAL AND BAD IN LAW. THE LD. ASSESSING OFFICER HAS ERRED BO TH ON FACTS AND LAW. IT IS SUBMITTED THAT IT MAY BE HELD SO NO. 2. THE LD ASSESSING OFFICER HAS ERRED IN MAKING DIS ALLOWANCE OF INTEREST PAID TO NBFC OF RS. 41,60,384/- DUE TO NON DEDUCTION OF TDS. IT IS SUBMITTED THAT HE HAS ERRED ON FACTS AN D IN LAW. THOUGH VARIOUS GROUNDS ARE RAISED, THE ONLY EFFECTI VE GROUND IS WITH RESPECT TO DISALLOWANCE OF INTEREST. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD PAID INTEREST OF RS. 41,60,384/- TO IN DIA BULL. AO WAS OF THE VIEW THAT SINCE THE LOAN WAS FROM A NON-BANKING COM PANY, THE INTEREST PAYMENT WAS LIABLE FOR TDS. AO NOTICED THAT SINCE ASSESSEE HAD NOT DEDUCTED TDS, THE INTEREST EXPENSE OF RS. 41,60,384 /- WAS LIABLE TO BE FOR DISALLOWANCE U/S. 40(A)(IA) OF THE ACT AND ACCORDIN GLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE BY HOLDING AS UNDER:- 5. THE REASONS FOR MAKING DISALLOWANCE OF RS. 41,60 ,384/- U/S. 40(A)(IA) OF THE ACT AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER U/S. 143(3) AS WELL AS ABOVE SUBMISSION OF THE APPE LLANT HAVE BEEN I.T.A NO. 2066/AHD/2014 A.Y. 2010-11 PAGE NO M/S. FROHBERG REALTY PVT. LTD VS. ACIT 3 CONSIDERED. THE FIRST GROUND OF APPEAL OF THE APPE LLANT IS THAT THE ORDER PASSED BY THE LD. ASSESSING OFFICER IS ILLEGA L AND BAD IN LAW. AS PER THIS GROUND OF APPEAL THE LD. ASSESSING OFFI CER HAS ERRED BOTH ON FACTS AND LAW. IT IS SUBMITTED THAT IT MAY BE HELD SO NOW. THIS GROUND OF APPEAL OF THE APPELLANT IS OF GENERAL NAT URE AND THE SAME IS DEALT WITH GROUND OF APPEAL NO. 2. THE SECOND GROUN D OF APPEAL OF THE APPELLANT IS THAT THE LD. ASSESSING OFFICER HAS ERR ED IN MAKING DISALLOWANCE OF INTEREST PAID TO NBFC OF RS. 41,60, 384/- DUE TO NON DEDUCTION OF TDS. IT IS SUBMITTED THAT HE HAS ERRED ON FACTS AND IN LAW. WITH REGARD TO THESE TWO GROUNDS OF APPEAL, THE APP ELLANT IN ITS SUBMISSION DATED 20/05/2014 HAS STATED THAT IT WAS ARGUED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT DI SALLOWANCE WAS NOT CALLED FOR IN VIEW OF THE DECISION OF ITAT VISHAKHA PATNAM, IN THE CASE OF M/S. MERILYN SHIPPING & TRANSPORT VS. CTT -RANGE 1 PRONOUNCED ON 09/04/2012 PERTAINING TO AY 2005-06. AS PER THE APP ELLANT THE HON'BLE ITAT HAS HELD THAT SECTION 40A(IA) OF THE INCOME TA X ACT, 1961 IS APPLICABLE ONLY TO EXPENDITURE WHICH IS PAYABLE AS ON 31 ST MARCH EVERY YEAR AND CANNOT BE INVOKED TO DISALLOW THE AMOUNT W HICH HAVE ALREADY BEEN PAID DURING THE YEAR WITHOUT DEDUCTING TDS. AS PER THE APPELLANT ITS AUTHORIZED REPRESENTATIVE, AT THE TIME OF ASSESSMEN T, ALSO REFERRED TO THE DECISION OF THE HONBLE ITAT BANGALORE BENCH IN WHIC H THE ITAT HAD DECIDED THAT ONLY PAYABLE SERVICES ON WHICH TDS HAS NOT BEEN DEDUCTED WITHIN THE TIME ALLOWED, SUCH AMOUNT SHALL BE DISAL LOWED WHILE COMPUTING THE INCOME. 5.1 IT IS FURTHER SUBMITTED BY THE APPELLANT THAT THOUGH THE DECISION OF ITAT IN CASE OF M/S. MERILYN SHIPPING & TRANSPORT H AS BEEN SUSPENDED FROM OPERATION BUT IT IS STILL PENDING BEFORE THE H IGH COURT FOR FINAL DECISION. AS PER THE APPELLANT IN THIS CASE, IT HAS BEEN HELD THAT THE PROVISIONS IS APPLICABLE TO THE PAYABLE SERVICES ON LY WHICH APPEARS TO BE CORRECT WHEN SOMEONE GOES BY THE WORDS USED IN THE SECTION IN ABSENCE OF ANY CLARIFICATION OR AMENDMENT BY PARLIAMENT AND IN VIEW OF THE PRINCIPLE OF INTERPRETATION, IN THE NORMAL COURSE, THE WORDS USED IN THE STATUTE SHOULD BE TAKEN INTO CONSIDERATION FOR INTE RPRETATION OF THE CLAUSE. AS PER THE APPELLANT ALTHOUGH, HONBLE GUJARAT HIGH COURT HAS GIVEN DIFFERENT INT ERPRETATION IN THE CASE OF CIT VS. SIKANDAR KHAN N. TUNVAR BUT WITH DUE REGARDS IT IS SUBMITTED THAT THE SECTION H AS USED CLEARLY THE WORD PAYABLE', THEREFORE, THE PROVISION SHOULD NOT BE A PPLIED ON 'PAID' SERVICES. AS PER THE APPELLANT FURTHERMORE, THE PA YEE COMPANY MUST HAVE PAID THE DUE TAX ON THE INTEREST INCOME RECEIV ED BY IT, THEREFORE, THERE IS NO LOSS OF REVENUE AISO IN THIS CASE. AS P ER THE APPELLANT HENCE, IN EQUITY ALSO THE ADDITION MADE BY THE ASSESSING OFFI CER IS NOT JUSTIFIED. 5.2 BUT THE ABOVE ENTIRE SUBMISSION OF THE APPELLA NT IS NOT FOUND TO BE TENABLE IT IS MENTIONED THAT THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS SIKANDARKHAN N. TUNVAR 33 TAXMANN.COM 133 HAS HELD THAT SECTION 40(A)(IA) WOULD COVER NOT ONLY THE AMOUNTS WHICH ARE PAYABLE AS I.T.A NO. 2066/AHD/2014 A.Y. 2010-11 PAGE NO M/S. FROHBERG REALTY PVT. LTD VS. ACIT 4 ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYA BLE AT ANY TIME DURING THE YEAR. IN THIS REFERRED CASE ALSO, THE QU ESTION AROSE WHETHER U/S 40(A)(IA) DISALLOWANCE OF THE EXPENDITURE PAYMENT O F WHICH, THOUGH REQUIRED DEDUCTION OF TAX AT SOURCE HAS NOT BEEN MA DE WOULD BE CONFINED ONLY TO THOSE CASES WHERE THE AMOUNT REMAINS PAYABL E TILL THE END OF THE PREVIOUS YEAR OR WOULD INCLUDE ALL AMOUNTS WHICH BE CAME PAYABLE DURING THE ENTIRE PREVIOUS YEAR. THE HON'BLE HIGH COURT OF GUJARAT HAS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) NOWHERE REQUIRE S THAT THE AMOUNT WHICH IS PAYABLE MUST REMAIN SO PAYABLE THROUGHOUT DURING THE YEAR. AS PER THE HON'BLE HIGH COURT OF GUJARAT IF THE INTERPRETATION AS ADVANCED BY THE ASSESSEE IS ACCEPTED, IT WOULD LEAD TO A SITUATION WHERE THE ASSESSEE WHO, THOUGH WAS REQUIRED TO DEDUCT THE TAX AT SOURC E BUT NO SUCH DEDUCTION WAS MADE OR MORE FLAGRANTLY DEDUCTION THO UGH MADE IS NOT PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONL Y BECAUSE THE AMOUNT WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE THE AMOUNT REMAINED PAYABLE TILL THE END OF TH E YEAR. AS PER THE HON'BLE HIGH COURT OF GUJARAT THERE IS NO LOGIC WHY THE LEGISLATURE WOULD HAVE DESIRE TO BRING ABOUT SUCH IRRECONCILABLE AND DIVERSE CONSEQUENCES. AS PER THE HON'BLE HIGH COURT OF GUJARAT HIGH COURT IN THE CONTEXT OF REQUIREMENTS OF SECTION 40(A)(IA), THERE IS NO WARR ANT TO APPLY THE TEST OF PAYABILITY ONLY AS ON 31 ST MARCH OF THE YEAR UNDER CONSIDERATION. AS PER THE HONBLE COURT MERELY BECAUSE, ACCOUNTS ARE CLOS ED ON THE DATE AND THE COMPUTATION OF PROFIT AND LOSS IS TO BE JUDGED WITH REFERENCE TO SUCH DATE, DOES NOT MEAN THAT WHETHER AN AMOUNT IS PAYAB LE OR NOT MUST BE ASCERTAINED ON THE STRENGTH OF THE POSITION EMERGIN G ON 31 ST MARCH. THUS, FINALLY THE HONBLE HIGH COURT OF GUJARAT HAS HELD THAT SECTION 40(A)(IA) WOULD COVER NOT ONLY THE AMOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. IN VIEW OF IS DECISION OF HONBLE HIGH COURT OF GUJ ARAT IT IS HELD THAT THE AMOUNT FOR RS. 41,60,384/- IS TO ABLE TO BE DISALLO WED U/S. 40(A)(IA) OF THE IT ACT AS THE APPELLANT HAS FAILED TO DEDUCT THE TA X AT SOURCE DURING THE YEAR UNDER CONSIDERATION ON THIS AMOUNT OF PAYMENT OF INTEREST AS REQUIRED U/S. 194A OF THE I.T. ACT. IN VIEW OF THI S THE DISALLOWANCE OF RS. 41,60,384/- AS MADE BY THE AO U/S. 40(A)(IA) OF THE ACT IS HEREBY CONFIRMED. THUS THE GROUNDS OF APPEAL NO. 1 AND 2 OF THE APPELLANT ARE DISMISSED. 5. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 6. BEFORE US LD. AR SUBMITTED THAT AMENDMENT HAS BE EN BROUGHT IN SECTION 40(A)(IA) BY WAY OF INSERTION OF SECOND PRO VISO BY FINANCE ACT 2012. AS PER THIS 2 ND PROVISO TO SECTION 40(A)(IA), ASSESSEE SHALL BE I.T.A NO. 2066/AHD/2014 A.Y. 2010-11 PAGE NO M/S. FROHBERG REALTY PVT. LTD VS. ACIT 5 DEEMED TO HAVE DEDUCTED AND PAID TDS ON THE DATE OF FURNISHING THE RETURN OF INCOME BY THE PAYEE IF THE ASSESSEE IS NO T DEEMED TO BE IN FAULT AS PER FIRST PROVISO TO SECTION 201(1). AS PER PRO VISO TO SECTION 201(1) IF THE PAYEE HAS FURNISHED THE RETURN OF INCOME U/S. 1 39(1) AND HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING THE INCOME IN I TS RETURN OF INCOME AND IF IT HAS PAID THE TAX DUE ON THE INCOME DECLAR ED THEN ASSESSEE SHALL NOT BE DEEMED TO BE IN DEFAULT. HE THEREFORE SUBMI TTED THAT IF INDIA BULLS HAS FILED THE RETURN OF INCOME FOR A.Y. 2010-11 U/S . 139(1) AND HAS PAID THE TAX ON DECLARED INCOME BY TAKING INTO ACCOUNT ASSES SEES PAYMENTS TO HIM, NO DISALLOWANCE BE MADE IN CASE OF ASSESSEE. H E THEREFORE SUBMITTED THAT THE MATTER MAY BE REMITTED TO THE FI LE OF AO SO THAT THE NECESSARY VERIFICATION CAN BE DONE AT HIS END. LD. AR FURTHER RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF HINDU STAN COCOCOLA BEVERAGE VS. CIT (2007) 293 ITR 226 (SC). LD. AR F URTHER SUBMITTED THAT THOUGH SECOND PROVISO TO SECTION 40(A)(IA) WAS INSE RTED W.E.F. 01-04-2013, THE PROVISO HAS TO BE GIVEN RETROSPECTIVE EFFECT AN D FOR WHICH HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF RAJI V KR. AGRAWAL VS. ADDITIONAL CIT (AGRA) (2014) 40 CCH 304 (AGRA TRIB) . LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS PAID INTEREST TO INDIA BULLS AND NO TDS WAS DEDUCTED WHILE MAKING THE PAYM ENT. WE FIND THAT THE CO-ORDINATE BENCH IN THE CASE OF RAJIV KR. AGAR WAL VS. ACIT (SUPRA) HAS HELD AS UNDER:- SECTION 40 OF THE INCOME TAX ACT, 1961- BUSINESS-IN TEREST, ETC., PAID TO RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE (SECOND PROVISO) ASSESSMENT YEAR 2006-07- WHETHER INSERTION OF SECOND PROVISO TO SECTION 40(A ) (IA) WITH EFFECT FROM 1-4- 2013 DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1-4- 2005, BEING DATE FROM WHICH SUB-CLAUSE (IA) OF SECT ION 40(A) WAS INSERTED BY FINANCE (NO.2) ACT, 2014-HELD, YES [PARA 9] [IN FAV OUR OF ASSESSEE] I.T.A NO. 2066/AHD/2014 A.Y. 2010-11 PAGE NO M/S. FROHBERG REALTY PVT. LTD VS. ACIT 6 IT FURTHER AT PARA 8 HAS HELD AS UNDER:- WE ARE OF THE CONSIDERED VIEW THAT SECTION 40(A)(IA ) CANNOT BE SEEN AS INTENDED TO BE A PENAL PROVISION TO PUNISH THE LAPSES OF NON DEDUCTION OF TAX AT SOURCE FROM PAYMENTS FOR EXPENDITURE-PARTICULARLY WHEN THE RECIPIENTS HAVE TAKEN INTO ACCOUNT INCOME EMBEDDED IN THESE PAYMENTS, PAID DUE TAXES THEREON AND FILED INCOME TAX RETURNS IN ACCORDANCE WITH THE LAW. AS A COROLLARY TO THIS PROPOSITION, IN OUR CONSIDERED VIEW, DECLINING DEDUCTION IN RESP ECT OF EXPENDITURE RELATING TO THE PAYMENTS OF THIS NATURE CANNOT BE TREATED AS AN 'INTENDED CONSEQUENCE' OF SECTION 40(A)(IA). 8.1. IN THE PRESENT CASE BEFORE US, THE ID. A.R, H AS NOT PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE INDIA BULLS HAS FILE D RETURN OF INCOME U/S. 139(1), HAD OFFERED THE AMOUNTS RECEIVED FROM ASSESSEE AS I TS INCOME AND HAS PAID THE TAX ON SUCH INCOME. FURTHER, WE FIND THAT THE DECIS ION OF THE CO-ORDINATE BENCH IN THE CASE OF RAJIV KUMAR AGARWAL (SUPRA) WAS NOT AVAILABLE BEFORE A,O. AND CIT(A). WE THEREFORE FEEL THAT THE ISSUE WHERE THE ASSESSEE HAS NOT DEDUCTED TDS BUT PAYEE HAS PAID THE TAXES NEEDS TO BE RE-EXA MINED BY THE A.O IN THE LIGHT OF THE AFORESAID DECISION OF AGRA TRIBUNAL AN D WE THEREFORE SET ASIDE THE ISSUE TO THE FILE OF A.O FOR HIM TO DECIDE THE ISSU E IN THE LIGHT OF DECISION OF AGRA TRIBUNAL AND IN ACCORDANCE WITH LAW. NEEDLESS TO S TATE, THAT A.O SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE ASSEASEE. T HE ASSESSEE IS ALSO DIRECTED TO PROMPTLY FURNISH THE REQUIRED DETAILS AS CALLED FOR BY THE AO. WE THUS ALLOW THIS GROUND OF ASSESSEE FOR STATISTICAL PURPOSES . 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 12/12/2014 AK I.T.A NO. 2066/AHD/2014 A.Y. 2010-11 PAGE NO M/S. FROHBERG REALTY PVT. LTD VS. ACIT 7 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,