ITO, Ward-1(2), Hyd, Hyderabad V. Andhra Pradesh Power Finance Corporation Ltd., Hyd, Hyderabad

ITA 27/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6383 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-06-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 12-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: A V RAGHURAM
• Section: 201(1)

Judgement Text

ITA 27 AND CO 16 OF 2016 AP POWER FINANCE CORPORATI N LTD HYDERABAD PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI PARTHA SARATHI CHAUDHURI, JUDICIAL MEMBER ITA NO.27/HYD/2016 (ASSESSMENT YEAR: 2012-13) AND C.O. NO.16/HYD/2016 (ARISING OUT OF ITA NO.27/HYD/2016) (A.Y. 2012-13) INCOME TAX OFFICER WARD 1(2) HYDERABAD VS. ANDHRA PRADESH POWER FINANCE CORPORATION LTD 403 L BLOCK AP SECRETARIAT HYDERABAD PAN: AADCA 0857 D (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI K.E. S UNIL BABU , DR FOR ASSESSEE : SHRI A.V. RAGHURAM DATE OF HEARING : 30 .06.2016 DATE OF PRONOUNCEMENT : 01 .07 .2016 O R D E R PER SHRI PARTHA SARATHI CHAUDHURI, J.M. THE APPEAL AND CROSS OBJECTION ARE FILED BY THE REV ENUE AND THE ASSESSEE RESPECTIVELY AGAINST THE ORDER OF THE LEARNED CIT (A)-1, DATED 08.10.2015 FOR THE RELEVANT A.Y 2012-1 3. THE GROUNDS RAISED BY THE REVENUE IS REPRODUCED BELOW: A) THE ORDER OF THE CIT (A) IS ERRONEOUS IN LAW AND ON FACTS OF THE CASE. ITA 27 AND CO 16 OF 2016 AP POWER FINANCE CORPORATI N LTD HYDERABAD PAGE 2 OF 6 B) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE OF RS.4,93,77,480 TOWARDS DISALLOWANCE U/S 40(A)(IA) OF THE I.T. ACT, 1961 AS THE ASSESSEE HAD FAILED TO DEDUCT TAX ON PAYMENT OF INTEREST. C) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 2. GROUND NOS. 1 AND 3 ARE GENERAL IN NATURE, HENCE NEEDS NO ADJUDICATION. 3. BRIEF FACTS RELATING TO THE CASE ARE THAT THE AS SESSEE IS A COMPANY INCORPORATED BY THE STATE OF ANDHRA PRADESH , ENGAGED IN MOBILIZING FUNDS AND FUNDING POWER PROJECTS OF T HE STATE OF A.P. IT HAS FILED ITS RETURN OF INCOME FOR THE A.Y 2012-13 ON 30.09.2012 ADMITTING NIL INCOME. AO COMPLETED THE ASSESSMENT AFTER SCRUTINY WHEREIN AN AMOUNT OF RS.4,93,77,482 WAS DISALLOWED U/S 40(A)(IA) OF THE ACT AND ADDED TO TH E TOTAL INCOME OF THE ASSESSEE. THIS IS PRECISELY THE ISSUE IN GRO UND NO.2 IN THE GROUND OF APPEAL WHICH WE WOULD ADJUDICATE HEREUNDE R. 4. BEFORE THE AO AS WELL AS THE CIT (A), THE CASE O F THE ASSESSEE IS THAT THE ORGANIZATION TO WHOM THE INTER ESTS WERE PAID ARE EXEMPT FROM PAYMENT OF TAX AND HENCE THE QUESTI ON OF PASSING THE ORDER U/S 201(1) DOES NOT ARISE AND NO DISALLOWANCE U/S 40(A)(IA) IS WARRANTED. ASSESSEE INVITED THE AT TENTION OF THE SUBORDINATE AUTHORITIES TO THE PROVISO TO SECTION 4 0(A)(IA) WHICH IS AS UNDER: [ PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII- B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEF AULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201, THEN, FO R THE PURPOSE OF THIS SUB- CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DE DUCTED AND PAID THE TAX ITA 27 AND CO 16 OF 2016 AP POWER FINANCE CORPORATI N LTD HYDERABAD PAGE 3 OF 6 ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO.] IN ACCORDANCE WITH THE PROVISO WHERE IT IS NOT POSS IBLE TO PASS AN ORDER U/S 201 HOLDING THE ASSESSEE IN DEFAULT, N O DISALLOWANCE U/S 40(A)(IA) COULD BE MADE. IN THE PR ESENT CASE OF THE ASSESSEE, THE PAYMENTS OF INTERESTS ARE MADE TO ENTITIES WHICH ARE NOT LIABLE TO TAX AND HENCE THE QUESTION OF HOLDING THE ASSESSEE IN DEFAULT DOES NOT ARISE AND ACCORDIN GLY DISALLOWANCE CANNOT BE MADE. 5. THAT THE ASSESSEE FURTHER SUBMITTED BEFORE THE CIT (A) THAT THE AMOUNTS HAVE ALREADY BEEN PAID AND THE PRO VISO OF SECTION 40(A)(IA) ARE APPLICABLE ONLY IF THE AMOUNT S ARE PAYABLE. IN THIS REGARD THE ASSESSEE CITED THE DECI SION OF THE SPECIAL BENCH OF THE ITAT VISAKHAPATNAM IN THE CASE OF MERLYN SHIPPING & TRANSPORT (136 ITD 23). THIS DECI SION THOUGH STAYED BY THE HON'BLE A.P. HIGH COURT, THE S AME HIGH COURT IN A LATER CASE HELD THAT THE TRIBUNAL IS BOU ND TO FOLLOW THIS DECISION AS IT HAS NOT BEEN REVERSED BY THE HI GH COURT. THE HYDERABAD ITAT IN A RECENT CASE FOLLOWED THE DE CISION OF THE MERLYN SHIPPING (SUPRA) AND HELD THAT NO DISALL OWANCE U/S 40(A)(IA) ONCE THE AMOUNT IS NOT PAYABLE. ASSES SEE FURTHER RELIED ON THE DECISION OF THE MUMBAI ITAT IN THE CA SE OF SRI JITHENDRA MANSUKLAL SHAH IN ITA NO.2293 OF 2013 WHE REIN THE ITAT HAS HELD THAT AS THE HON'BLE ALLAHABAD HIG H COURT FOLLOWED THE VIEW OF MERLYN SHIPPING AND SLP FILED BY THE DEPARTMENT WAS DISMISSED BY THE HON'BLE SUPREME COU RT, THERE CAN BE NO DISALLOWANCE IF THE AMOUNTS ARE NOT PAYABLE. THE ASSESSEE FURTHER SUBMITTED BEFORE THE CIT (A) T HAT THE ITA 27 AND CO 16 OF 2016 AP POWER FINANCE CORPORATI N LTD HYDERABAD PAGE 4 OF 6 INTERESTS PAID IN MOST OF THE CASE OF EMPLOYEES PRO VIDENT FUND/SUPERANNUATION/G.P.F. ORGANIZATION OF VARIOUS ENTITIES OR OTHER ORGANIZATION WHOSE INCOME ARE EXEMPT FROM TDS DEDUCTION AS PER THE PROVISIONS OF SECTION 196. ASS ESSEE SUBMITTED A STATEMENT GIVING THE DETAILS OF INTERES T PAID ALONG WITH A COLUMN GIVING STATUS OF THE RECIPIENTS. IT W AS FURTHER SUBMITTED BY THE ASSESSEE THAT WHEREVER THE RECIPIE NT WAS LIABLE FOR TAX, THE ASSESSEE HAS DEDUCTED THE TAX A ND ONLY WHERE THE INCOME WAS NOT TAXABLE, DEDUCTION OF TAX WAS NOT MADE. THAT THE ASSESSEE MORE SPECIFICALLY PLACED RE LIANCE IN THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF JANAPRIYA ENGINEERS SYNDICATE IN ITTA NO.352 OF 201 4 DATED 24.6.2014 HAS HELD THAT THE TRIBUNAL IS BOUND TO FO LLOW THE DECISION IN THE CASE OF MERLYN SHIPPING & TRANSPORT (SUPRA) UNTIL AND UNLESS THE SAID DECISION IS UPSET BY THEM . THEREFORE, THEY HELD THAT IT IS NOT OPEN TO THE TRIBUNAL TO KE EP THE ISSUE ALIVE TILL THE ISSUE IS DECIDED BY THE HIGH COURT. THAT IN FACT THE JURISDICTIONAL HIGH COURT HAS SANCTIFIED THAT T HE DECISION OF MERLYN SHIPPING SHALL HAVE TO BE FOLLOWED BY TH E SMALLER AND COORDINATE BENCHES OF THE TRIBUNAL. THE LEARNED CIT (A) IN HER ORDER OBSERVED THAT THE ASSESSEE HAS CLAIMED THAT THE PAYMENT HAS BEEN MADE TO 204 INVESTORS MOSTLY WHICH ARE PUBLIC TRUST AND WELFARE FUND. ALL OF THEM ARE INCO ME TAX ASSESSEES. THAT THEREFORE, FOLLOWING THE DIRECTION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF JANAPRIYA ENGINEERS SYNDICATE (SUPRA) AND FOLLOWING THE SPECIAL BENCH D IRECTIVE IN THE CASE OF MERYLN SHIPPING & TRANSPORT (SUPRA), TH E LEARNED CIT (A) HELD THAT SECTION 40(A)(IA) OF THE ACT CANN OT BE APPLIED IN THE CASE OF THE ASSESSEE AND THEREFORE, THE ADDI TION OF ITA 27 AND CO 16 OF 2016 AP POWER FINANCE CORPORATI N LTD HYDERABAD PAGE 5 OF 6 RS.4,93,77,480 WERE DELETED. BEING AGGRIEVED, THE R EVENUE IS IN APPEAL BEFORE US ON THIS ISSUE. 5. WE HAVE PERUSED THE FACTS AND CIRCUMSTANCES OF T HIS CASE, THE ORDERS OF THE SUBORDINATE AUTHORITIES AND THE L EGAL SCENARIO INVOLVED HEREIN AND WE ARRIVE AT OUR CONSIDERED VIE W THAT IN THE PRESENT CASE OF THE ASSESSEE, THE AMOUNTS OF INTERE STS HAD ALREADY BEEN PAID AND THE PROVISIONS OF SECTION 40( A)(IA) ARE APPLICABLE ONLY TO THE AMOUNTS REMAINING PAYABLE. T HAT WE ALSO TAKE NOTE OF THE PROVISO TO SECTION 40(A)(IA) THAT WHERE THE ASSESSEE CANNOT BE FOUND IN DEFAULT U/S 201, NO DIS ALLOWANCE U/S 40(A)(IA) COULD BE MADE. THAT THE JURISDICTIONA L HIGH COURT IN THE CASE OF JANAPRIYA ENGINEERS SYNDICATE (SUPRA) H AS HELD THAT THE TRIBUNAL IS BOUND TO FOLLOW THE DECISION OF THE MERLYN SHIPPING (SUPRA) UNTIL AND UNLESS THE DECISION IS U PSET BY THEM. THAT IN FACT THE AFORESAID DECISION OF THE MERYLN S HIPPING OF THE SPECIAL BENCH SHALL BE VALID AND BINDING ON THE SMA LLER AND COORDINATE BENCHES OF THIS TRIBUNAL. THAT THE ASSES SEE HAS ALREADY SUBMITTED BEFORE THE CIT (A) LIST OF ALL TH E PEOPLE TO WHOM INTERESTS WERE PAID AND IT IS ALSO NOT DISPUTED THA T INTERESTS WERE PAID IN MOST OF THE CASES TO ORGANIZATIONS WHICH AR E EXEMPT FROM PAYMENT OF TAX. THAT CONSIDERING ALL THE FACTS IN T HIS CASE IN ITS ENTIRETY AND THE JUDICIAL PRONOUNCEMENTS AS DISCUSS ED ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT (A). THE RELIEF GRANTED TO THE ASSESSEE IS THER EFORE, SUSTAINED. THE APPEAL BY THE REVENUE IS DISMISSED. 6. NOW WE TAKE UP THE CROSS OBJECTION. IN THE CROSS OBJECTION, ASSESSEE CONTENDS THAT THE CIT (A) SHOULD HAVE ADJU DICATED THE ITA 27 AND CO 16 OF 2016 AP POWER FINANCE CORPORATI N LTD HYDERABAD PAGE 6 OF 6 ISSUE ON MERITS THAT PROVISIONS OF TDS ARE NOT APPL ICABLE TO THE AMOUNTS PAID TO EXEMPT UNITS. SINCE WE HAVE ALREADY DECIDED THE APPEAL IN FAVOUR OF THE ASSESSEE, THE C.O. BECO MES ACADEMIC. HENCE THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 7. TO SUM UP, BOTH THE APPEAL OF THE REVENUE AND AS SESSEES CROSS OBJECTION ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JULY, 2016. S D/ - S D/ - (B. RAMAKOTAIAH) (PARTHA SARATHI CHAUDHURI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 1 ST JULY, 2016. VNODAN/SPS COPY TO: 1. INCOME TAX OFFICER WARD 1(2) 3 RD FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500004 2. M/S. ANDHRA PRADESH POWER FINANCE CORPORATION LTD, ENERGY DEPARTMENT, H-BLOCK (NORTH), GROUND FLOOR, A.P. SEC RETARIAT, HYDERABAD 500022 3. CIT-1 HYDERABAD 4. PRINCIPAL CIT-1 HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER