ACIT, Circle- 18(2), New Delhi V. Noida Software Technology Park Ltd., New Delhi

ITA 32/DEL/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 9585 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 01-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Retrospective amendment; Non-deduction of tax; TDS; Rule 8D; Set aside
• Section: 143(3); 14A; 40(a)(ia); 195; 139(1); 113; 13

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “E” BENCH: NEW DELHI BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.32/Del/2018 [Assessment Year : 2013-14] ACIT, Circle-18(2), New Delhi. vs Noida Software Technology Park Ltd., Scindia Villa, Sarojini Nagar, Ring Road, New Delhi-110023. PAN-AABCN0137F APPELLANT RESPONDENT Appellant by Shri Jeetender Chand, Sr.DR Respondent by None Date of Hearing 08.09.2022 Date of Pronouncement 30.09.2022 ORDER PER KUL BHARAT, JM : The present appeal filed by the Revenue for the assessment year 2013- 14 is directed against the order of Ld. CIT(A)-6, Delhi dated 16.10.2017. The Revenue has raised following grounds of appeal:- 1. “Whether on facts and in circumstances of the case, the Ld.CIT(A) is legally justified in deleting disallowance of Rs. 2,22,64,353/- on account of 'non-deposit of TDS' deducted from payment to Non- Residents u/s 40(a)(i) r.w. section 195 of the Income Tax Act, 1961 (the Act) by completely ignoring the detailed findings of the Assessing Officer (the AO) in assessment order on the issue and also by ignoring a fact that the assessee had claimed expenses without complying with TDS provisions r.w. section 200(1) of the Act? 2. Whether on facts and in circumstances of the case, Ld. C1T(A) is legally justified in deleting disallowance of Rs. 6,57,572/- u/s 14A of the Act without considering a legal principle that allowability or disallowability of expenditure under the Act is not conditional upon Page | 2 the earning of the income as upheld by Hon'ble Supreme Court in case of CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519? 3. Whether on facts and in circumstances of the case, Ld. CIT(A) is legally justified in not holding that application of Rule 8D of the Income Tax Rule,1962 (the Rule) to compute quantum of disallowance u/s 14 A of the Act is mandatory ? 4. That the appellant craves leave to add, amend, alter or forgo any ground/(s) of appeal either before or at the time of hearing of the appeal.” 2. At the time of hearing, no one attended the proceedings on behalf of the assessee. It is seen from the records that there was no representation on behalf of the assessee since 09.09.2021. Therefore, the appeal of the assessee is taken up for hearing in the absence of the assessee and being disposed off on the basis of material available on record. BRIEF FACTS OF THE CASE 2. Brief facts of the case are that in this case, the assessee company filed its return of income through electronic mode on 30.09.2013 at Rs.36,84,266/-. The return of income was subsequently revised thereby, the assessee declared income at Rs.1,05,40,277/-. The tax was paid under the MAT provision. Thereafter, the case was selected for scrutiny through CASS and the assessment u/s 143(3) of the Income Tax Act, 1961 (“the Act”) was framed vide order dated 29.03.2016. Thereby, the Assessing Officer (“AO”) made addition of Rs.2,22,64,353/- on account of disallowance of expenses u/s 40(a)(ia) of the Act. The AO while making this addition, recorded that the assessee had failed to deposit the tax deducted u/s 195 of the Act, amounting to Rs.22,26,353/- on account of transmission and uplinking expenses before filing of return of Page | 3 income in Form 27Q in terms of sub section (1) of section 200 of the Act. Further, the disallowance of bank guarantee expenses of Rs.9,84,668/- was made on account of non-deduction of tax. The AO also invoked the provision of section 40(a)(ia) of the Act thereby, he made disallowance of Rs.6,57,572/- under Rule 8D of Income Tax Rules, 1962. Hence, the AO assessed the income at Rs.3,44,46,870/-. 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, partly allowed the appeal of the assessee. Thereby, Ld.CIT(A) deleted the disallowance of Rs.2,22,64,353/- and in respect of disallowance of Rs.9,84,668/-, Ld.CIT(A) partly allowed the grounds of appeal. In respect of disallowance u/s 14A of the Act, the Ld.CIT(A) following the judgement of Hon’ble Delhi High Court in Cheminvest Limited vs CIT reported in 378 ITR 0033 (Del.), deleted the disallowance. 5. Aggrieved against the order of Ld.CIT(A), the Revenue is in appeal before this Tribunal. 6. Ld.Sr.DR on the other hand opposed the reasoning of the learned CIT(Appeals) and supported the order of the AO. 7. We have heard the Ld. Sr. DR and perused the material available on record. In respect of deletion of disallowance of Rs. 2,22,64,353/- on account of non-deposit of TDS, deducted from payment to non-residents u/s 40(a)(i) read with Section 195 of the Act, we find that the Ld. CIT(Appeals) has considered the submissions of the assessee and has given a finding of fact by relying on various case laws as under: Page | 4 3.1.3. “The facts of the case and the submissions of the appellant have been carefully considered. It is undisputed fact that payments are made to non residents, that tax has been duly deducted at source, said tax deduction is not called in question, only limited aspect on basis of which subject disallowance is made by the assessing officer is belated payment of tax deducted at source before the time limit prescribed under section 200(1) of the act, whereas in similar provision time limit given for depositing the tax deducted at source for payments made to residents is extended up to the return filing time limit under section 139(1) of the act. Therefore, whether said extended time limit which was available for resident payments can be extended to non-resident recipients is one issue and secondly whether said amendment subsequently made in section 40(a)(i) by Finance No. 2 act 2014 can be treated to be retrospective in nature is 2 nd issue. On aforesaid narrow controversy I am reproducing the memorandum explaining the provisions of Finance No. 2 act 2014/ related notes on clauses to have complete idea of the issue involved. CBDT CIRCULAR NO. 01/2015 Relevant Extract of Memorandum explaining provisions of Finance No. 2 Act, 2014 14. Disallowance of expenditure for non- deduction of tax at source 14.1 The provisions of section 40(a)(i) of the Income-tax Act, prior to the amendment by the Act, provided that certain payments such as interest, royalty and fee for technical services made to a non- resident shall not be allowed as deduction in computing business income if tax on such payments had not been deducted, or after deduction, has not been paid within the time prescribed under section 200(1) of the Income-tax Act. The Income-tax Act contains similar provisions for disallowance of business expenditure in Page | 5 respect of certain payments made to residents. Under section 40(a)(ia) of the Income-tax Act, in case of payments made to resident, the deductor is allowed to claim deduction for payments as expenditure in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return of income under section 139(1) of the Income-tax Act. However, in case of disallowance for non- payment of tax from payments made to non-residents, this extended time limit of payment of tax deducted at source up to the date of filing of return of income under section 139(1) was not available. 14.2 In order to provide similar extended time limit for payment of tax deducted from payments made to non-residents, section 40(a)(i) of the Income-tax Act has been amended so as to provide that the deductor shall be allowed to claim deduction for payments made to non-residents in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return under section 139(1) of the Income-tax Act. 14.3 As mentioned above, in case of non-deduction of tax at source or non-payment of tax so deducted from certain payments made to residents, the entire amount of expenditure on which tax was deductible is disallowed under section 40(a)(ia) for the purposes of computing income under the head "Profits and gains of business or profession". The disallowance of whole of the amount of expenditure causes hardship, especially in case of payment made to a resident in whose case the withholding of tax is only a mode of collection of tax and does not result into final discharge of tax liability. 14.4 Accordingly, section 40(a)(ia) of the Income-tax Act has been amended to provide that in case of non-deduction of tax at source or non-payment of tax so deducted on payments made to residents as specified in section 40(a)(ia) of the Income-tax Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed. 14.5 Further, the first proviso to section Page | 6 40(a)(ia) of the Income-tax Act, prior to its amendment by the Act, provided that sum, which was disallowed due to non-deduction of tax at source or non-payment of tax so deducted, shall be allowed deduction in the previous year in which such tax deducted at source has been paid. As the disallowance under the amended section 40(a)(ia) of the Income-tax Act has been restricted to 30% of the amount of expenditure, the first proviso to the said section 40(a)(ia) has also been amended to provide that deduction of 30% of the amount of expenditure shall be allowed in the previous year in which the tax so deducted has been paid. In this regard, it is hereby clarified that in respect of the amount disallowed for assessment year commencing on or before 1st day of April 2014, the deduction for the whole of the amount disallowed under section 40(a)(ia) of the Income-tax Act, shall be allowed under the first proviso to section 40(a)(ia) in the previous year in which tax deducted at source has been paid. 14.6 Further, provisions of section 40(a)(ia) of the Income-tax Act, prior to its amendment by the Act, provided that certain payments such as interest, commission, brokerage, rent, royalty fee for technical services and contract payment made to a resident shall not be allowed as deduction for computing business income if tax on such payments was not deducted, or after deduction, was not paid within the time specified under the said section. Chapter XVII-B of the Income-tax Act mandates deduction of tax from certain other payments such as salary, directors fee, which were not specified in section 40(a)(ia) of the Income-tax Act. The payments on which tax is deductible under Chapter XVII-B but not specified under section 40(a)(ia) of the Income-tax Act may also be claimed as expenditure for the purposes of computation of income under the head "Profits and gains from business or profession". 14.7 Section 40(a)(ia) of the Income-tax Act has proved to be an effective tool for ensuring compliance of TDS provisions by the payers. Therefore, in order to improve the TDS compliance in respect of payments to residents Page | 7 which were not specified in section 40(a)(ia) of the Income-tax Act, the said section 40(a)(ia) has been amended to provide that the disallowance under the said section shall extend to all expenditure on which tax is deductible under Chapter XVII-B of the Income-tax Act. 14.8 Applicability:- These amendments takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. From the aforesaid clarificatry notes, it is evident that subject amendment in section 40(a)(i) is made to provide similar time limits available in section 40(a)(ia) to have level playing field. It is noteworthy that although amendment is stated to be made applicable from assessment year 2015-16, but similar amendments made in the same finance no.2 act has been treated as retrospective nature. Few of the decisions wherein the said view is taken are referred below: i) IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, AHMEDABAD M/s. Amruta Quarry Works Date of Pronouncement: 19/07/2016 "8. I have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. I find merit in the contentions of the Id. Counsel for the assessee. Respectfully following the judgment of Vatika Township Private Limited (supra), the amendment brought in by Finance (No.2) Act of 2014 in Section 40(a)(ia), the same is held to be retrospective in nature; therefore, the amount to be disallowed u/s 40(a)(ia) should be restricted to 30% of the impugned amount" ii) DELHI BENCH - 'D' NEW DELHI ITA No. 6312/Del/2016 ASSESSMENT YEAR : 2012-13 Page | 8 Smt. Kanta Yadav, "We have considered rival submissions and find that issue is covered in favour of the assessee by order of HAT Jaipur Bench in the case of Shri Rajendra Yadav vs. ITO and Smt. Sonu Khandelwal vs. ITO. In these orders it was held that the disallowance u/s 40(a)(ia) to be restricted to 30% of the addition. In these orders the Tribunal has considered the amended provisions of section 40(a)(ia) of I.T. Act. In these orders the assessment year's involve was 2007- 08 and 2008-09. In the present appeal the assessment year is 2012-13. Therefore facts are identical In this view of the matter and following the above decisions of Jaipur Bench, we set aside and modify the orders of the authorities below and direct the Assessing Officer to restrict the addition to 30% of the total addition made on account of deduction of TDS u/s 40(a)(ia) of the Act.” Further, it may be relevant here to discuss the decision of Hon'ble Supreme Court 5 judge Constitution bench in case of Vatika Township 367 ITR 466, the relevant extract from which is reproduced below: "We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India v. Indian Tobaco Association, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold Page | 9 that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are not confronted with any such situation here. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors" It can be further seen that the violation made by the appellant is marginal delay in deposit of tax which has resulted in hundred percent disallowance of the said expenditure. However, once tax has been deposited with the due interest etc. further disallowance of hundred percent expenditure is against the intent of law. Legislative intent is to foster compliance of tax deduction provisions and inculcate discipline in the deductors. In present facts tax has been deducted and has been deposited which is not called in question. Only marginal delay in deposit of tax deducted at source has attracted hundred percent disallowance of the Page | 10 concerned expenditure which is not in accordance with context of provisions of section 40(a)(i) of the act. Even otherwise since the appellant is also engaged in the business of providing uplinking and down linking services, stated disallowance of expenditure pertaining to transmission and uplinking expenses, being directly and inextricably connected with the receipts being direct and overriding costs, may not be disallowed under section 40(a)(i). Further, genuineness of the expenditure is never called in question. In present facts the belief harboured by the appellant is not doubted as in genuine and same is clearly bona fide supported by similar provision in section 40(a)(ia) of the act. On the issues framed above I am of the view that when for resident recipients has extended time limit for deposit of tax deducted at source similar time limit should be available for non-resident recipients, on principle of equality and secondly the amendment made by Finance No. 2 Act 2014 is clearly curative and clarificatory in nature and hence applicable to present year also. I am also supported by decision by theory of doubtful penalisation which is highlighted below by Hon'ble Delhi High Court in its decision in case of JDS Apparels (supra): Relevant Extract of Hon'ble Delhi High Court decision in case of JDS Apparels Pvt. Ltd., order dated 18.11.2014 (ITA no. 608/2014) (370 ITR 454) "17. Another reason why we feel Section 40(a)(ia) of the Act should not have been invoked in the present case is the principle of doubtful penalization which requires strict construction of penal provisions. The said principle applies not only to criminal statutes but also to provisions which Page | 11 create a deterrence and results in punitive penalty. Section 40(a)(ia) is a deterrent and a penal provision. It has the effect of penalising the assessee, who has failed to deduct tax at source and acts to the detriment of the assessee"s property and other economic interests. It operates and inflicts hardship and deprivation, by disallowing expenditure actually incurred and treating it as disallowed. The Explanation, therefore, requires a strict construction and the principle against doubtful penalization would come into play. The detriment in the present case, as is noticeable, would include initiation of proceedings for imposition of penalty for concealment, as was directed by the Assessing Officer in the present case. The aforesaid principle requires that a person should not be subjected to any sort of detriment unless the obligation is clearly imposed. When the words are equally capable of more than one construction, the one not inflicting the penalty or deterrent may be preferred. In Maxwell’s The Interpretation of Statutes, 12th edition (1969) it has been observed:- "The strict construction of penal statutes seems to manifest itself in four ways: in the requirement of express language for the creation of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfillment to the letter of statutory conditions precedent to the infliction of punishment; and in insisting on the strict observance of technical provisions concerning criminal procedure and jurisdiction." 18. The aforesaid principles and interpretations can apply to taxing statutes. In the present case we further feel the said principle should be applied as HDFC would necessarily have acted as per law and it is not the case of the Revenue that the bank had not paid taxes on their income. It is not a case of Page | 12 loss of revenue as such or a case where the recipient did not pay their taxes." Accordingly the disallowance made by the assessing officer under section 40(a)(i) cannot be sustained. Other pleas raised by the assessee to support its additional round becomes academic in nature in view of my finding above. After considering all the facts in holistic manner as discussed above in line with the legal position as explained in Hon'ble Supreme Court decisions, I am of the considered view that disallowance made of Rs.2,22,64,353/- is incorrect and accordingly the same is directed to be deleted. Therefore the additional ground is allowed.” 8. The Revenue could not controvert the finding of the Ld. CIT(Appeals). Looking to the finding, it is clear that the Ld. CIT(Appeals) has relied upon the binding precedents. Therefore, we do not see any reason to disturb the finding of Ld. CIT(A) and the same is affirmed. Thus, Ground No.1 raised by the Revenue is dismissed. 9. Ground Nos. 2 & 3 raised by the Revenue are against deleting the disallowance of Rs. 6,57,572/- made by the Assessing Officer by invoking the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. We find that the Ld. CIT(A) has given a finding that the assessee has not earned or received any dividend in the year under appeal, therefore, no disallowance could be made. The finding of the Ld. CIT(A) is in accordance with the binding precedent of the Hon’ble Delhi High Court rendered in the case of CIT Vs. Interglobe Enterprises Ltd. in ITA no. 456/2016. Therefore, we do not see any reason to disturb the finding of the Ld. CIT(Appeals) and the same is Page | 13 hereby affirmed. Thus, Ground Nos. 2 & 3 raised by the Revenue are dismissed. 10. In the result, the appeal of the Department is dismissed. Order pronounced in the open Court on 30 th September, 2022. Sd/- Sd/- (N.K.BILLAIYA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI