DCIT(TDS), TDS Cirlce-1(1), hyd, Hyderabad V. APR Constructions Ltd., Hyd, Hyderabad

ITA 253/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6452 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Keywords: Non-deduction of tax
• Section: 133A; 201(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 253 /HYD/2016 ASSESSMENT YEAR: 2010-11 DY. COMMISSIONER OF INCOME- TAX (TDS), TDS CIRCLE 1(1), HYDERABAD. VS. APR CONSTRUCTIONS LTD., HYDERABAD. PAN AAFCA 0502K (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B. KURMI NAIDU ASSESSEE BY : NONE DATE OF HEARING 31-05-2016 DATE OF PRONOUNCEMENT 17-06-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) - 8 , HYDERABAD FOR AY 2010-11. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE-DEDUCTOR IS A LIMITED COMPANY ENGAGED IN THE CONSTRUCTION BUSINES S. IN THIS CASE, A SURVEY U/S 133A WAS CONDUCTED ON 10.3.2010 AND CONS EQUENTLY ORDER' U/S 201& 201(1A) FOR THE ASST. YEAR 2010-11 WERE PA SSED ON 10.5.2010. LATER, THESE ORDERS HAD BECOME SUBJECT MATTER BEFORE THE COMMISSIONER OF INCOME-TAX (TDS) IN THE PROCEEDINGS U/S 263 OF THE IT ACT. THE COMMISSIONER OF INCOME TAX(TDS), HYDERA BAD HAD SET ASIDE THE ORDERS OF THE AO VIDE ORDER U/S 263 DATED 28/03/2013 DIRECTING THE AO TO COMPLETE THE 201(1) AND 201(1A) AFRESH. THUS THE 2 ITA NO. 253/H/16 APR CONSTRUCTIONS LTD. RE-ASSESSMENT PROCEEDINGS WERE COMPLETED ON 11.3.20 14 FOR THE SAID ASST. YEAR BY RAISING A DEMAND OF RS.1,09,238/-. 3. CONSEQUENT TO SURVEY, THE DEFAULT ON THE PART OF THE ASSESSEE TO COMPLY WITH PROVISIONS OF TDS ON FINANCIAL CHARG ES PAID TO CERTAIN COMPANIES WAS POINTED OUT. DURING THE COURSE OF RE- ASSESSMENT PROCEEDINGS, THE INFORMATION SUBMITTED BY THE ASSES SEE WAS EXAMINED BY THE AO AND IT WAS CONCLUDED THAT THE DE DUCTEES IN RESPECT OF WHOM TDS WAS NOT MADE HAD OFFERED THE SA ME AS INCOME IN THEIR RESPECTIVE HANDS AND THAT IN VIEW OF THE H ON'BLE APEX COURT DECISION IN THE CASE OF COCO COLA BEVERAGES P. LTD VS. CIT (.2007) 163 TAXMAN ( 0355) (SC), TAXES NEED NOT BE LEVIED A GAIN IN THE HANDS OF THE ASSESSEE-DEDUCTOR. 4. THE AO AFTER EXAMINING THE CONTENTION OF THE ASS ESSEE CONCLUDED THAT THE CLAIM OF THE ASSESSEE COMPANY CA NNOT BE EXONERATED FROM THE INTEREST LIABILITY U/S 201(1A) OF THE ACT AND THAT THE COMPANY FAILED TO ESTABLISH PROOF OF OFFERING O F INCOME BY M/S. TML FINANCE, M/S. SREI INTERNATIONAL AND M/S. GE CA PITAL AND ACCORDINGLY, THE PROCEEDINGS U/S 201(1) AND 201(1A ) FOR THE ASST. YEAR 2010-11 WERE CONCLUDED AS ABOVE. AS THE ASSESS EE FAILED TO DEDUCT TAX ON INTEREST PAYMENTS MADE TO NONBANKING FINANCIAL INSTITUTIONS, THE AO INITIATED PENALTY PROCEEDINGS U/S 271C OF THE I.T. ACT. AS THE FAILURE TO ADHERE TO THE PROVISIONS OF TDS UNDER CHAPTER XVII B ATTRACTS PENALTY U/S 271C, A NOTICE WAS ISSU ED TO THE ASSESSEE 23/04/2014 WHICH WAS DULY SERVED ON THE ASSESSEE. A S THERE IS A CHANGE OF INCUMBENT, A FRESH NOTICE WAS ISSUED AFFO RDING AN OPPORTUNITY OF HEARING ON 23.9.2014 WHICH WAS ALSO SERVED ON THE ASSESSEE DEDUCTOR. 5. THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND REFERRING TO THE PROVISIONS OF SECTION 271C OF THE ACT, THE AO HELD THAT THAT THIS IS A FIT CASE FOR IMPOSITION OF PENALTY U /S.271C OF IT. ACT. AS PER THE PROVISIONS OF SECTION 271C AS THE ASSESSEE FAILED TO ADHERE TO 3 ITA NO. 253/H/16 APR CONSTRUCTIONS LTD. THE PROVISIONS OF TDS UNDER CHAPTER XVIIB IN RESPEC T OF PAYMENTS MADE OF RS. 1,30,25,758/- AT THE RATE OF 10% WHICH WORKS OUT TO RS 13,02,576 U/S 194A OF THE I.T. ACT IN RESPECT OF M/ S. TML, M/S. SREI AND M/S. GE CAPITAL AS ABOVE. ACCORDING TO THE AO, THE EXPLANATION FURNISHED BY THE ASSESSEE IN THIS REGARD IS NOT ACC EPTABLE. AS SUCH, THE ASSESSEE WAS TREATED AS ASSESSEE IN DEFAULT A ND HELD THAT THE PENALTY PROVISIONS ARE CLEARLY ATTRACTED IN THE CAS E OF THE ASSESSEE. ACCORDINGLY, THE AO IMPOSED A PENALTY OF RS. 13,02, 576/- U/S 271C BEING THE NON-DEDUCTION OF TAX AT SOURCE/NON REMITT ANCE OF TAX ON THE PAYMENTS MADE AS ABOVE. 6. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) FOLLOWING THE DECI SIONS OF THE ITAT, HYDERABAD IN THE CASE OF ACIT VS. M/S R. BALARAMI R EDDY & CO., IN ITA NO. 2224/HYD/2011, DATED 04/03/2014 FOR THE AY 2008-09 AND THE DECISION OF THE HONBLE AP HIGH COURT IN THE CASE O F CIT VS. MG BROTHERS FINANCE LTD., 360 ITR 603, CANCELLED THE P ENALTY LEVIED BY THE AO U/S 271C. 7. AGGRIEVED WITH THE ABOVE ORDER OF THE CIT(A), TH E REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/ S 271C FOR THE AY 2010-11. 2. THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FAC T THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE U/S 19 4A(1) OF THE INCOME TAX ACT, 1961 ON PAYMENTS MADE TO NON-BANKI NG FINANCIAL INSTITUTIONS AS THE PAYMENTS INCLUDE COM PONENT OF INTEREST. 8. NONE APPEARED ON BEHALF OF THE RESPONDENT-ASSESS EE AT THE TIME OF HEARING OF THIS APPEAL IN SPITE OF SERVICE OF NOTICE. THEREFORE, WE PROCEED TO DECIDE THE APPEAL AFTER HEARING THE L D. DR AND ON MERITS OF THE CASE. 9. LD. DR RELIED ON THE ORDER OF THE AO. 4 ITA NO. 253/H/16 APR CONSTRUCTIONS LTD. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. D R AND PERUSED THE MATERIAL FACTS ON RECORD. WE FIND THAT THE ASSE SSEE MADE PAYMENTS TOWARDS HIRE PURCHASE INSTALLMENTS AND NOT MADE SEPARATE PAYMENTS TOWARDS INTEREST. THEREFORE, THE FINANCIAL CHARGES ON HIRE PURCHASE ARE NOT IN THE NATURE OF INTEREST. THE ISS UE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE ITAT, HYDER ABAD IN CASE OF M/S R. BALARAMI REDDY & CO. (SUPRA) WHEREIN THE BEN CH HAS HELD AS UNDER: 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE IN DISPUT E WHETHER IT IS INTEREST OR NOT ON HIRE PURCHASE CONTRACT HAS BEEN DECIDED BY THE HONBLE AP HIGH COURT IN THE CASE OF CIT VS. M/S M. G. BROTHERS FINANCE LTD., VIDE ITTA NOS. 43,44,45, 50 OF 2007 A ND 761 OF 2006, JUDGMENT DATED 05/12/2013, WHEREIN THE HONBL E COURT HELD AS FOLLOWS: THE OWNER OF THE GOODS, WHICH ARE USABLE MOVABLE G OODS LET OUT TO THE HIRER ON PAYMENT OF CERTAIN AMOUNT EITHER ON MONTHLY OR QUARTERLY OR YEARLY BASIS AND AFTER PAYMENT OF THE ENTIRE AMOUNT AS CLAIMED BY THE OWNER BEING THE PRICE OF THE GOOD S, IT IS OPTIONAL FOR THE HIRER TO BUY UP TO BECOME OWNER OR NOT. IN THE EVENT, HE EXERCISES HIS OPTION T BUY THEM, THEN, TH E OWNER OF THE GOODS IS BOUND TO CONVEY THE SAME BY TRANSFERRING T ITLE IN FAVOUR OF THE HIRER. ON THE OTHER HAND, IF THE HIRER DOES NOT EXERCISE HIS OPTION, THEN THE GOODS IN QUESTION MUST BE RETURNED AND THE PAYMENTS SO FAR MADE ARE TREATED TO BE RENTALS. THEREFORE, THE WHOLE CONCEPT IS WITH REGARD TO PAYM ENT OF CONSIDERATION MONEY OR RENTAL NOT REPAYMENT OF LOAN AMOUNT IN FINANCIAL TRANSACTION. UNLESS THERE IS INVOLVEMENT OF LOAN TRANSACTION, THE QUESTION OF PAYMENT OF INTEREST DO ES NOT ARISE. THE AFORESAID PECULIAR SITUATION WITH REGARD TO THE HIRE PURCHASE AGREEMENT HAS BEEN EXPLAINED BY THE SUPREME COURT Q UITE LONG TIME BACK IN THE CASE OF SUNDARAM FINANCE LTD. VS. THE STATE OF KERALA. IN PARAGRAPH-24 OF THE SAID JUDGMENT, THEIR LORDSHIPS HAVE EXPLAINED THE POSITION STATING THUS: BUT A HIRE PURCHASE AGREEMENT..................... ....IS MORE COMPLEX TRANSACTION. THE OWNER UNDER THE HIRE PURCHASE AGRE EMENT ENTERS INTO A TRANSACTION OF HIRING OUT GOODS ON TH E TERMS AND CONDITIONS SET OUT IN THE AGREEMENT, AND THE OPTION TO PURCHASE EXERCISABLE BY THE CUSTOMER ON PAYMENT OF ALL THE I NSTALMENTS OF HIRE ARISES WHEN THE INSTALMENTS ARE PAID AND NOT B EFORE. IN 5 ITA NO. 253/H/16 APR CONSTRUCTIONS LTD. SUCH A HIRE PURCHASE AGREEMENT THERE IS NO AGREEMEN T TO BUY GOODS; THE HIRER BEING UNDER NO LEGAL OBLIGATION TO BUY, HAS AN OPTION EITHER TO RETURN THE GOODS OR TO BECOME ITS OWNER BY PAYMENT IN FULL OF THE STIPULATED HIRE AND THE PRIC E FOR EXERCISING THE OPTION. THIS CLASS OF HIRE PURCHASE AGREEMENT M UST BE DISTINGUISHED FROM TRANSACTION IN WHICH THE CUSTOME R IS THE OWNER OF THE GOODS AND WITH A VIEW TO FINANCE HIS PURCHAS E HE ENTERS INTO AN ARRANGEMENT WHICH IS IN THE FORM OF A HIRE PURCHASE AGREEMENT. IN THIS CASE, THE LEARNED TRIBUNAL HAD ADMITTEDLY H ELD THAT THERE IS A HIRE PURCHASE AGREEMENT FACTUALLY. THEREFORE, WE AFFIRM THE JUDGMENT AND ORDER OF THE LEARNED TRIBUNAL. THE APP EALS FAIL AND THEY RE ACCORDINGLY DISMISSED. 5.1 IN VIEW OF THE ABOVE JUDGMENT, THE PAYMENT MADE BY THE ASSESSEE ON ACCOUNT OF HIRE PURCHASE TRANSACTION A ND PAYMENT OF FINANCE CHARGES/HIRE CHARGES CANNOT BE CONSTRUED AS INTEREST SO AS TO DEDUCT TDS U/S 194A OF THE IT ACT. ACCORD INGLY, TO THAT EXTENT, THE CIT(A) JUSTIFIED IN OBSERVING THAT SECT ION 40(A)(IA) IS NOT APPLICABLE. HOWEVER, WE FIND THAT INSERTION OF EXPLANATION 1 TO SECTION AFTER AMENDMENT OF SECTION 194A BY TAXAT ION LAWS (AMENDMENT) ACT, 2006, WITH EFFECT FROM 13/07/2006, PAYMENT BY THE ASSESSEE TOWARDS HIRE CHARGES ON HIRE PURCHA SE AGREEMENT TO BE LIABLE FOR TDS U/S 194I OF THE ACT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE DI SALLOWANCE U/S 40(A)(IA) IN THE LIGHT OF THE AMENDED PROVISION S, WHICH CAME INTO EFFECT FROM 13/07/2006. ACCORDINGLY, THIS GROU ND OF APPEAL IS PARTLY ALLOWED. AS THE DECISION OF THE CIT(A) IS IN CONSONANCE WITH THE DECISION OF THE COORDINATE BENCH AS ABOVE AS WELL AS THE JURISD ICTIONAL HIGH COURTS DECISION IN THE CASE OF MG BROTHERS FINANCE LTD. (SUPRA), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A ) IN CANCELLING THE PENALTY LEVIED BY THE AO U/S 271C AND THEREFORE, TH E SAME IS HEREBY UPHELD DISMISSING THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 17 TH JUNE, 2016 6 ITA NO. 253/H/16 APR CONSTRUCTIONS LTD. KV COPY TO:- 1) DCIT, TDS, CIRCLE 1(1), B BLOCK, 4 TH FLOOR, INCOME-TAX TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 500 004.. 2) M/S APR CONSTRUCTIONS LTD., H. NO. 7-1-638 TO 64 3, FLAT NO. 404, BHANU ENCLAVE, SUNDAR NAGAR, ERRAGADDA, HYD. 3) CIT(A) - 8, HYDERABAD 4) CIT(TDS), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.