M/s. Airlink Communication Pvt. Ltd, Surat V. Pr. Commissioner of Income Tax-1, Surat

ITA 328/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1547 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-07-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 16-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Revision of order; Opportunity of being heard; Principle of natural justice; Assessment record; TDS
• Section: 263; 143(3); 40(a)(ia); 194C; 201(1); 194J

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकरअपीलसं./ITA No.328/SRT/2019 (Ǔनधा[रणवष[ / Assessment Year: (2014-15) (Virtual Court Hearing) Airlink Communications Pvt. Ltd., 1, 2 Annupama Shopping Centre, 1 st Floor, Adajan Patia, Surat-395009. Vs. The PCIT -1, Surat. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAICA9078P (Appellant) (Respondent) Assessee by Shri Sapnesh Sheth, CA Respondent by Shri H. P. Meena, CIT(DR) Date of Hearing 06/07/2022 Date of Pronouncement 06/10/2022 आदेश / ORDER PER DR. A. L. SAINI, AM: Captioned appeal filed by assessee, pertaining to Assessment Year (AY) 2014-15, is directed against the order passed by the Learned Principal Commissioner of Income Tax, Surat (in short “ld. PCIT”], under section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 27.03.2019. 2. Grounds of appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income-Tax erred in passing revisionary order u/s 263 of the I.T Act setting aside the order of ld. Assessing officer passed u/s 143(3) of the Act dated 21.12.2016 for the year under consideration although said order is neither erroneous nor prejudicial to the interest of revenue. 2. On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income-Tax has erred in holding that disallowance of Rs.2,19,96,779/- should be made u/s 40(a)(ia) of the Act for depositing TDS made after due date of filling return of income. 3. On the facts and circumstances of the case as well as law on the subject, even otherwise also revisionary order u/s 263 of the Act cannot be passed as the assessment order is subject matter of appeal before ld. Commissioner of Income tax (Appeals). Page | 2 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. 4. It is therefore prayed that order passed by Pr. Commissioner of Income-Tax u/s 263 of the I.T Act setting aside the order of assessing officer and directing assessing office to make fresh assessment may please be quashed. 5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 3. Brief facts of the issue in dispute are stated as under. During the year under consideration, the assessee- company, M/s Airlink Communication Pvt. Ltd. was engaged in the business of Broadband Internet Services, High Speed Broadband Internet, Seamless Connectivity, Wire & Wireless Broadband etc. The assessee company had filed return of income for A.Y.2014-15 on 02.02.2016 declaring ‘NIL’ income. The case was selected under CASS for scrutiny and assessment order u/s 143(3) of the Act was passed on 21.12.2016 by the then ITO Ward 1(1)(1), Surat assessing total income at Rs.23,70,262/- by way of making additions of Rs.82,18,882/- on account of disallowances u/s 40(a)(ia) of the Act. 4. Later on, Learned Principal Commissioner of Income Tax (in short “ld. PCIT”], has exercised his jurisdiction under section 263 of the Income Tax Act, 1961. The ld PCIT examined the assessment order and assessment records. On perusal of the assessment records as well as on perusal of Audited Balance sheet and Profit and Loss account with notes on accounts, 3CD report, computation of income and submission filed by the assessee- company in respect of tax deducted but not credited to Government account revealed that the assessee -company had paid a total sum of Rs.2,19,96,779/- (being fees for technical services and lease rent) during F.Y.2013-14 (A.Y.2014-15) to RK Infratel Ltd (RKIL). The assessee had duly deducted tax of Rs.21,99,678/- at source at prescribed rate of 10 percent but deposit the so deducted amount much after the due date of filing of the return for A.Y.2014-15. During the course of assessment proceedings, contention put forth by the assessee company that RKIL has taken into account the said sum for computing income in its return of income and has paid the due taxes; therefore no disallowance u/s 40(a)(ia) can be made. This contention was accepted by Assessing Officer and no disallowance was made thereupon. However, where tax was deducted and credited to the Government account after due date of filing of return; the deductor is to be treated, as assessee in default, and proviso u/s 201(1) of the Page | 3 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. Act are not applicable and consequently, expenditure incurred were required to be disallowed during the course of assessment proceedings, which was not done by the assessing officer. Therefore, ld PCIT observed that order passed by the assessing officer is erroneous and prejudicial to the interest of Revenue. Accordingly, show - cause notice dated 18.03.2019, was issued by ld PCIT to the assessee- company, to offer explanation, if any, as well as to adduce evidence, if any, against the proposal of revision u/s 263 of the Act. However, assessee did not appear before ld PCIT. The ld PCIT, then held that the assessment order in the case of Airlink Communication Pvt. Ltd. passed under section 143(3) of the Act for A.Y. 2014-15 on 21.12.2016 is found to be erroneous and prejudicial to the interest of revenue and the AO concerned was accordingly directed to re-compute and determine the correct total income of the assessee company after making disallowance of wrong claims made by assessee. 5. Aggrieved by the order of the ld. PCIT, the assessee is in appeal before us. 6. Learned Counsel for the assessee, at the outset stated that during the revision proceedings under section 263 of the Act, the ld. PCIT has not given sufficient opportunity of being heard and that is why assessee has raised additional ground of appeal. The ld. PCIT has issued a show cause notice on 18.03.2019 which was served on the assessee- company. The hearing of the case was fixed on 25.03.2019, however neither the assessee nor his Authorized Representative (AR) appeared before the ld. PCIT, therefore, ld PCIT passed revision order under section 263 of the Act. The Ld. Counsel submitted that ld. PCIT ought to have given more opportunity to the assessee and ought to have issued more notice of hearing to the assessee. Only one opportunity of hearing was given to the assessee, therefore revision order passed by ld PCIT is against the principle of natural justice. 7. On merits, Ld. Counsel pointed out that issue under consideration is that where tax was deducted and credited to the Government account after due date of filing of return; therefore, as per ld PCIT, the deductor is to be treated, as assessee in default. The ld Counsel pointed out that assessee -company had paid a total sum Page | 4 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. of Rs.2,19,96,779/- (being fees for technical services and lease rent) during F.Y.2013-14 (A.Y.2014-15) to RK Infratel Ltd (RKIL). The assessee had duly deducted tax of Rs.21,99,678/- at source at prescribed rate of 10 percent but deposit the so deducted amount much after the due date of filing of the return for A.Y.2014-15. However, M/s RK Infratel Ltd (RKIL), to whom the fee was paid, has shown such income in its books of accounts and paid the tax thereon. Therefore, assessing officer took a possible view, hence order passed by the AO should not be erroneous. 8. The Ld. Counsel also submitted that no doubt the assessee has deducted TDS but did not deposit the same on or before the due date, into the Government Account and therefore assessee was treated, as assessee in default, under the provision of Income Tax Act. However, the assessee has paid subsequently the TDS so deducted, therefore, Ld. Counsel submitted that order may be erroneous but not prejudicial to the interest of Revenue, there is no loss to the Revenue, as the assessee has deposited the TDS in subsequent year, therefore one of the limbs of Section 263 that order should be erroneous and prejudicial to the interest of Revenue has not been fulfilled. That is, out of the two conditions, that is, order should be erroneous and prejudicial to the interest of Revenue, the term prejudicial to the interest of Revenue is not applicable to the assessee under consideration, as there is no loss to the Revenue, as the assessee has deposited the TDS subsequently, therefore order passed by the Assessing Officer is erroneous but not prejudicial to the interest of Revenue, hence the jurisdiction exercised by the ld. PCIT under section 263 of the Act may be quashed. 9. On the other hand, Ld. Departmental Representative (Ld. DR) for the Revenue submitted that if the assessee had not been given sufficient opportunity during the revision proceedings under section 263 of the Act, then the Bench may remit this issue back to the file of the ld. PCIT for de novo adjudication after giving sufficient opportunity of being heard to the assessee. 10. On merits, the Ld. DR submits that since the assessee has deducted TDS but not deposited to the Government Account, therefore ld. PCIT has exercised his Page | 5 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. jurisdiction on the this issue that assessee has not deposited the TDS on time, therefore issue raised by ld PCIT in his revision order was correct in the eye of law and hence order passed by the ld. PCIT under section 263 of the Act, does not called any interference, therefore order passed by the ld. PCIT should be upheld. 11. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We note that assessing officer framed the assessment order dated 21.12.2016, under section 143(3) of the Act, after considering assessee`s submission on the issue of TDS on technical services and lease rent. We note that solitary issue raised by ld PCIT in his revision order under section 263 of the Act was that assessee -company had paid a total sum of Rs.2,19,96,779/- (being fees for technical services and lease rent) during F.Y.2013- 14 (A.Y.2014-15) to RK Infratel Ltd (RKIL), however, the assessee had duly deducted tax of Rs.21,99,678/- at source at prescribed rate of 10 percent but deposit the so deducted amount much after the due date of filing of the return for A.Y.2014-15, therefore, assessee should have been treated by the assessing officer, ‘as assessee in default’. 12. We note that issue raised by ld PCIT, has been examined by the assessing officer, vide assessment order framed by the assessing officer dated 21.12.2016, under section 143(3) of the Act, which is reproduced below: “4. During the assessment proceedings, on verification of audit report for the year under consideration, it is seen that the assessee has made payment towards fees for professional or technical services, Payments to contractors, Rent, Commission or brokerage and Salary etc. during the year under consideration, the details of which is as under. As per the provision of section 194C, 192B, 1943, 194H, 1941 etc. tax is required to be deducted at source from the payments of salary, rent, commission etc. at the time of credit or payment whichever is earlier. From the details submitted during the course of assessment proceedings, it is seen that the assessee has deducted tax at source from such payments but not deposited in Government account: Sr No. Name of the party Nature of payment Total amount Section 1. Vigyapan Sewa Payment to 605006/- 194C Page | 6 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. Contract 2. Spacecom Technology Ltd. Payments to contractors 882561/- 194C 3. Pooja Publication Payment to Contract 73500/- 194C 4. Nagpal Prakashan Pvt. Ltd Payment to Contract 85000/- 194C 5. M.S. Enterprise Payment to Contract 28,23,889/- 194C 6. Hotel Lords Plaza Payment to Contract 40,000/- 194C 7 Dip Graphics Payment to Contract 280200/- 194C Total 47,90,156/- 1. Aditya Infortech Dsa Commission or Brokerage 17650/- 194H 2. Ganpatl DSA Commission or Brokerage 37600/- 194H 3. I Smart Internet DSA Commission or Brokerage 21100/- 194H 4. Kapadiya Infotech-DSA Commission or Brokerage 18750/- 194H 5. Keeran Communication DSA Commission or Brokerage 11900/- 194H 6, Meenu Garg DSA Commission or Brokerage 16100/- 194H 7 Online Enterprise DSA Commission or Brokerage 64150/- 194 H 8 Padmavati DSA Commission or Brokerage 16150/- 194H 9, Rajesh Dekhate DSA Commission or Brokerage 32,350/- 194H 10. Ruby DSA Commission or Brokerage 19850/- 194H 11. Sahil Enterprise DSA Commission or Brokerage 382750/- 194H 12 Subham Computer Commission or Brokerage 47732/- 194H 13 Sun Enterprises Commission or Brokerage 17,900/- 194H 14. Super Telecom Commission or Brokerage 4600/- 194H 15 Umesh Mishtri Commission or Brokerage 68,250/- 194H Page | 7 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. 16. Zainab Commission or Brokerage 10,350/- 194 Total 7,87,182/- 1. Shri Ankit Mansukhbhai Rathod Salary 3,96,000/- 192B 2 Jafar Miyarnahmad Tai Salary 4,91,000/- 192B Total 7,87,182/- 1. Devang Ashokbhai Rania Fees for Professional or technical services 837148/- 194J 2. Nairn Kapadia Fees for Professional or technical services 33708/- 1943 3. Neeta Harish Gandhi Fees for Professional or technical services 98004/- 194J 4. R K Infratel Limited Fees for Professional or technical services 2,19,96,779/- 194J 5. Tata Telecom Fees for Professional or technical services 314593/- 194J 6. Tata Docomo Fees for Professional or technical services 100091/- 194J 7. Umang Modi Fees for Professional or technical services 176,000/- 194J 8. Vikrambhai Rajesh Shah Fees for Professional or technical services 1,95000/- 194J Total 2,37,51,323/- Page | 8 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. 4.1. As per the provisions of section 40(a)(ia) of the Income Tax Act, 1961, any amount on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid in to Government account during the previous year or the subsequent year before the expiry of the time prescribed under sub section(i) of section 200, such amounts shall not be deducted in computing the income chargeable under the "Income from business or profession." 4.2. In light of the above, it is clear that the assessee has deducted tax at source from the payment of salary expenses, labour expenses/contract expenses, commission expenses, Rent expenses amounting to Rs.3,02,15,661/- but not deposited with Central Government and not added back. Hence, as per the provision of section 40(a)(ia) of the I T Act, the same is required to be disallowed and to be added to its total income. Therefore, assessee was requested, vide letter dated 22.11.2016 to show cause as to why above expenses aggregating to Rs.3,02,15,661/- should not be disallowed and added to the total income. 5. In response to the show cause notice, the assessee has filed written submission on 30.11.2016, the relevant portion of the reply is reproduced as under:- "With regard to disallowance of expenses claimed on account of tax deducted but not deposited during the year under consideration, it is submitted that the assessee has deposited TDS belatedly and copy of challans evidencing deposit of the same is also filed vide earlier letter. Further it is requested that no disallowance of such expenses be made as parties to whom payment has been made must have shown it as proviso to section 201(1) as inserted by the Finance Act 2012 w.e.f. 01.07.2012 provides that any person, including the Principal Officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident – (i) Has furnished his return of income under section 139. (ii) Has taken into account such sum for computing income in such return of income and (iii) Has paid the tax due on the income declared by him in such return of income, And the person furnishes a certificate to this effect from an accountant in such form. Accordingly, form 26A obtained from r.k. Infratel Limited, is enclosed here with. Thus, no disallowance should be made with regard to payment of Rs.2,19,96,779/- made to R.K. Intratel Limited as said amount is already considered as income by them in their books. Also copy of acknowledgement of return of income filed by M/s M/s R. K. Infratel Limited for A. Y.2014-15 is enclosed herewith. Chart showing details of payment on which TDS has been deducted but deposited belatedly with central government along with ledger account of parties reflecting date of payment is enclosed herewith. Further, chart Page | 9 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. showing tax deposited on various dates along with TDS challan is also enclosed". 6. Further, it is seen that the assessee has made payment towards Rent of Rs.1,07,86,580/- during the year under consideration. As per the provision of section 1941 of the I T Act, tax is required to be deducted at source from the payments of rent at the time of credit or payment whichever is earlier. From the details submitted during the course of assessment proceedings, it is clear that the assessee has deducted tax at source from the payment of Rent expenses amounting to Rs.1,07,86,560/- but not deposited with Central Government and not added back. Therefore, again the assessee was requested, vide this office letter dated 30.11.2016 to show cause as to why rent expenses aggregating to Rs.1,07,86,560/- disallowed and added to the total income should not be disallowed and added to the total income. 7. In response to above show cause notice dated 30.11.2016, the assessee filed written submission which is reproduced as under: "with regard to deduction of tax at source from payment of rent expenses amounting to Rs.1,07,86,560/-, it is submitted that said payment: exclusively pertains to lease rent paid to M/s R.K. Infratel limited, Details relating to the same are enclosed in a separate chart. Further it should be noted that said amount is already included in earlier show cause (Sr. No.4 of table ) issued by your goodself. Also assessee has duly deposited tax with central government but inadvertently at the time of depositing tax assessee had selected section 194J instead of section 1941. The same is evident on perusal of TDS returns i. e. form 26Q filed with earlier letter. Thus, no separate disallowance is called for as total payment of Rs.2,19,96,779/- made to M/s. R.K Infratel Limited includes rent expense of Rs.1,07,86,560/- , Even otherwise also no disallowance can be made in this regard as said amount is already shown as income by M/s. R. K Infratel Limited in return of income filed for the year under consideration and the assessee has also submitted form 26A in last hearing. 8. I carefully and thoroughly gone through the submission of the assessee. The reply of the assessee in respect of the payment of Rs.2,19,96,779/- made to M/s R.K. Infratel limited is acceptable....” 13. From the above order of assessing officer, it is vivid that during the assessment proceedings, the assessing officer issued show cause notice to the assessee to explain the reasons of late deposit of TDS amount in the Government Account. In response, the assessee submitted written submissions before the assessing officer stating that deduction of tax at source from payment of rent expenses amounting to Rs.1,07,86,560/-, it is submitted that said payment, exclusively pertains to lease rent paid to M/s R.K. Infratel limited. Details relating to the same are enclosed in a separate chart. Also assessee has duly deposited tax Page | 10 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. with central government but inadvertently at the time of depositing tax assessee had selected section 194J instead of section 1941. The same is evident on perusal of TDS returns i. e. form 26Q filed with AO. Thus, no separate disallowance is called for as total payment of Rs.2,19,96,779/- made to M/s. R.K Infratel Limited includes rent expense of Rs.1,07,86,560/-. Even otherwise also no disallowance can be made in this regard as said amount is already shown as income by M/s. R. K Infratel Limited in return of income filed for the year under consideration and the assessee has also submitted form 26A.Therefore, assessing officer, taking into account the possible view, has allowed the claim of the assessee. Hence, such order passed by the AO should not be erroneous and prejudicial to the interest of Revenue. 14. Without prejudice, we also state that TDS so deducted by the assessee, was deposited by the assessee in subsequent year, hence there is no loss to the Revenue, therefore order passed by the ld. PCIT is not prejudicial to the interest of Revenue. In order to exercise the jurisdiction under section 263 of the Act, the two terms should be satisfied viz: “Erroneous and Prejudicial to the interest of Revenue”. If one of them is absent, then in that situation, ld PCIT cannot exercise his jurisdiction under section 263 of the Act. We note that after deducting the TDS, if the assessee does not deposit into the Government Account in that event, the assessee would be treated ‘as assessee in default’. In this case, we note that assessee has deposited the TDS in the subsequent year, hence there is no loss to the Revenue, therefore the order passed by the assessing officer is not prejudicial to the interest of Revenue, however it can be erroneous order. No doubt, as per provisions of the Act, the assessee can be treated ‘as assessee in default’, but for the purpose of section 263 of the Act, the order passed by the AO is not prejudicial to the interest of Revenue, as the assessee has deposited the TDS amount in subsequent year, hence there is no loss of revenue. 15. The Hon’ble Apex Court in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far Page | 11 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”. 16. Taking note of the aforesaid dictum of law laid down by the Hon’ble Apex Court, we note that assessing officer, in the assessee`s case under consideration has taken possible view, therefore order passed by the assessing officer is neither erroneous nor prejudicial to the interest of Revenue. 17. In view of the facts of the case and judicial pronouncements relied upon, it is well established that the impugned order passed u/s. 143(3) of the Act dated 21.12.2016, was passed by assessing officer, after calling for relevant information and after detailed examination of the same. The Assessing Officer has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind Page | 12 328/SRT/2019/AY.2014-15 M/s. Airlink Communication Pvt. Ltd. passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT’s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. Based on these facts and circumstances, we quash the order dated 27.03.2019 passed by the ld PCIT under section 263 of the Act. 18. We note that assessee also raised additional ground stating that during the revision proceedings under section 263 of the Act, the ld. PCIT has not given sufficient opportunity of being heard and that is why assessee has raised additional ground of appeal. Since, we have allowed the appeal of the assessee, therefore such additional ground raised by the assessee becomes infructuous and therefore does not require adjudication. 19. In the result, the appeal filed by the assessee is allowed. Order is pronounced in the open court on 06/10/2022 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat Ǒदनांक/ Date: 06/10/2022 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat