M/s Mplex Networks Private Limited , Bangalore V. Assistant Commissioner of Income Tax Circle-4(1)(2), Bangalore

ITA 3370/BANG/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4542 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 21-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Notional interest; TDS; Set aside
• Section: 40(a)(ia); 201; 139(1); 194A; 119; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI , JUDICIAL MEMBER IT A NO S . 3370 & 3371/BANG/2018 ASSESSMENT YEAR S : 2013 - 14 & 2014 - 15 MPLEX NETWORKS PVT. LTD., NO.109, 3 RD FLOOR, K.H. ROAD, BENGALURU 560 027. PAN: AAFCA 3629K VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(2), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : S HRI YOGESH JOIJODE, CA RESPONDENT BY : SHRI PRIYADARSHI MISHRA, AD D L .CI T(DR)(ITAT), B ENGALURU. DATE OF HEARING : 07 . 0 9 .202 1 DATE OF PRONOUNCEMENT : 27 .0 9 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AG AINST THE DIFFERENT ORDERS OF THE CIT(APPEALS) BOTH DATED 26. 10.2018 FOR THE ASSESSMENT YEARS 2013-14 & 2014-15. CERTAIN GROUN DS ARE COMMON IN THESE APPEALS, HENCE THEY WERE HEARD TOGETHER AND D ISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON GROUND IS WITH REGARD TO DISALL OWANCE OF INTEREST ON THE REASON THAT INTEREST BEARING FUNDS WAS UTILI SED FOR THE PURPOSE OF CAPITAL WORK-IN-PROGRESS AS FOLLOWS:- AY 2013 - 14 AY 2014 - 15 RS. 104,32,894 RS. 204,61,517 ITA NOS. 3370 & 3371/BANG/2018 PAGE 2 OF 6 3. FOR THESE ASSESSMENT YEARS, THE AO OBSERVED THA T THE ASSESSEE IS HAVING INTEREST BEARING FUNDS AS WELL AS INTEREST F REE FUDS WHICH IS IN THE RATIO OF 1:2 IN AY 2013-14 AND 1.25:1 IN THE AY 201 4-15. ACCORDING TO HIM, INTEREST BEARING FUNDS HAS BEEN USED FOR THE PURPOS E OF CAPITAL WORK-IN- PROGRESS. ACCORDINGLY IN THE RATIO OF INTEREST BEA RING FUNDS AND INTEREST FREE FUNDS, HE COMPUTED THE DISALLOWANCE TOWARD INTEREST BEARING FUNDS USED FOR THE PURPOSE OF CAPITAL WORK-IN-PROGRESS, WHICH WORKED OUT AT RS.104,32,894 AND RS.204,61,517. 4. BEFORE THE CIT(APPEALS), THE ASSESSEE PLEADED T HAT THE RATIO BETWEEN THE INTEREST BEARING FUNDS TO THE NON-INTER EST BEARING FUNDS WAS ROUGHLY 5:1 AND AT BEST, INTEREST DISALLOWANCE TO B E MADE IN THE SAME RATIO. HOWEVER, THE CIT(APPEALS) REJECTED IT IN VIEW OF TH E FACT THAT ASSESSEE IN ITS OWN ADMISSION DURING THE ASSESSMENT STAGE ADMIT TED THAT BOTH INTEREST BEARING FUNDS AND INTEREST FREE FUNDS WERE UTILIZED TOWARDS WORK-IN- PROGRESS. FURTHER, THE ASSESSEE DID NOT FURNISH REL EVANT BIFURCATION OF FUNDS FOR EXAMINATION BY THE AO. ACCORDING TO THE CIT(A) , THE ASSESSEES PLEA MADE AT THE FIRST APPELLATE STAGE BEFORE HIM IS IN THE NATURE OF AN AFTER- THOUGHT. ACCORDINGLY, HE REJECTED THE CLAIM OF ASS ESSEE. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE PLACED NE CESSARY MATERIAL BEFORE THE CIT(APPEALS) TO DEMONSTRATE THAT THE ASS ESSEE IS HAVING INTEREST FREE FUNDS TO INVEST IN THE CAPITAL WORK-I N-PROGRESS. THEREFORE, THERE WAS NO QUESTION OF UTILISING INTEREST BEARING FUNDS TOWARDS CAPITAL WORK-IN-PROGRESS. EVEN THE RATIO WORKED OUT BY THE AO WITH REGARD TO THE INTEREST BEARING FUNDS AND INTEREST FREE FUNDS IS A LSO INCORRECT AND THERE IS NO NEED TO DISALLOW ANY NOTIONAL INTEREST ON THIS C OUNT. HE PLEADED TO REVERSE THE ORDERS OF LOWER AUTHORITIES. ITA NOS. 3370 & 3371/BANG/2018 PAGE 3 OF 6 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD. AR IS THAT ASSESSEE IS HAVING ENOUGH INTEREST FREE FUNDS TO INVEST IN THE CAPITAL WORK-I N-PROGRESS. MORE SO, THE RATIO WORKED OUT BETWEEN INTEREST BEARING FUNDS AND INTEREST FREE FUNDS IS WRONG. IN OUR OPINION, THE ASSESSEE HAS TO DEMONST RATE THAT ENOUGH INTEREST FREE FUNDS IS AVAILABLE WITH IT TO INVEST IN THE CAPITAL WORK-IN- PROGRESS. THE CIT(APPEALS) OBSERVED THAT IT WAS TH E ASSESSEES OWN ADMISSION DURING THE ASSESSMENT STAGE THAT BOTH INT EREST BEARING FUNDS AND INTEREST FREE FUNDS WERE UTILISED TOWARDS WORK- IN-PROGRESS. THE ARGUMENT OF THE ASSESSEE IS CONTRARY TO THIS ADMISS ION. WE ARE OF THE VIEW THAT IT IS APPROPRIATE TO REMIT THE ISSUE TO THE FI LE OF AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(APPEALS) ON THIS ISS UE AND REMIT THE ISSUE TO THE AO FOR FRESH EXAMINATION AFTER DUE OPPORTUNITY TO THE ASSESSEE WITH A DIRECTION TO THE ASSESSEE TO DEMONSTRATE THAT THERE WERE ENOUGH INTEREST FREE FUNDS TO INVEST IN THE CAPITAL WORK-IN-PROGRES S BY PRODUCING THE NECESSARY CASH & FUND FLOW STATEMENT, ETC. THE AO WILL PASS THE ORDER AFRESH IN ACCORDANCE WITH LAW. 8. THE NEXT COMMON GROUND IS REGARDING TO DISALLOW ANCE OF THE AMOUNT U/S. 36(1)(IV) R.W.S. 2(24)(X) OF THE ACT WI TH REGARD TO EMPLOYEES CONTRIBUTION TO THE RECOGNIZED EMPLOYEES PROVIDENT FUND AFTER THE DUE DATE MENTIONED IN THE PROVIDENT FUND (PF) ACT AS FOLLOWS :- AY 2013-14 AY 2014-15 RS. 26,86,712 RS. 2,40,254 ITA NOS. 3370 & 3371/BANG/2018 PAGE 4 OF 6 9. THE CONTENTION OF THE LD. AR IS THAT THE ABOVE P AYMENTS HAVE MADE WITHIN THE DUE DATE FOR FILING THE RETURN OF INCOME U/S. 139(1) OF THE ACT, THOUGH IT WAS AFTER THE DUE DATE PRESCRIBED IN THE CORRESPONDING STATUTE. 10. THE LD. DR RELIED ON THE ORDER OF CIT(APPEALS). 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, IF THE EMPLOYEES CONTRIBUTION TOWAR DS PROVIDENT FUND HAS BEEN MADE BY THE ASSESSEE ON OR BEFORE THE DUE DATE FOR FILING THE RETURN U/S. 139(1) OF THE ACT, THOUGH AFTER THE DUE DATE P RESCRIBED IN THE CORRESPONDING STATUTE, THE SAME CANNOT BE DISALLOWE D U/S. 36(1)(IV) R.W.S. 2(24)(X) OF THE ACT AS HELD BY THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SALZGITTER HYDRAULICS (P.) LTD. V. ITO, 189 ITD 676 (HYD. TRIB) WHEREIN THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSE SSEE PLACING RELIANCE ON THE FOLLOWING JUDGMENTS:- (I) CIT V. MERCHEM LTD. [2015] 61 TAXMANN.COM 119 / 235 TAXMANN 378 / 378 ITR 443 (KER) (II) CIT V. GUJARAT STATE ROAD TRANSPORT CORPN. [2014] 3 66 ITR 170 (GUJ) (III) CIT V. SOUTH INDIA CORPN. LTD. [2000] 108 TAXMAN 32 2 / 242 ITR 114 (KER) (IV) CIT V. GTN TEXTILES LTD. [2004] 269 ITR 282 (KER) (V) CIT V. JAIRAM & SONS [2004] 134 TAXMAN 503 / 269 IT R 285 (KER) 12. ACCORDINGLY, THIS ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER TO VERIFY WHETHER THE ABOVE CONTRIBUTION TOWARDS PR OVIDENT FUND HAS BEEN MADE WITHIN THE DUE DATE OF FILING THE RETURN OF IN COME U/S. 139(1) OF THE ACT AND THEREAFTER THE AO HAS TO PASS FRESH ASSESSMENT ORDER. 13. WITH REGARD TO THE NEXT COMMON GROUND ON THE DI SALLOWANCE OF THE AMOUNT OF RS.1,91,592 AND RS.2,40,254 FOR AYS 2013- 14 & 2014-15 RESPECTIVELY U/S. 36(1)(V) R.W.S. 2(24)(X) OF THE A CT WITH REGARD TO EMPLOYEES ITA NOS. 3370 & 3371/BANG/2018 PAGE 5 OF 6 CONTRIBUTION TO THE RECOGNIZED EMPLOYEES STATE INSU RANCE SCHEME AFTER THE DUE DATE MENTIONED UNDER THE SPECIFIED ACT, AS DISC USSED IN THE EARLIER GROUND WITH REGARD TO EMPLOYEES CONTRIBUTION TO PRO VIDENT FUND, THIS GROUND IS REMITTED TO THE AO WITH SIMILAR DIRECTIONS. 14. THE NEXT GROUND RAISED BY THE ASSESSEE IN ITA N O.3370/BANG/2018 FOR THE AY 2013-14 IS WITH REGARD TO DISALLOWANCE O F INTEREST ON LOAN PAID TO NBFC OF RS.84,21,607 U/S. 40(A)(IA) OF THE ACT WHER E NO TDS WAS DEDUCTED AT RS.27,32,393. THE AO OBSERVED THAT THE ASSESSEE PAID INTEREST OF RS.84,21,607 TO NBFC VIZ., INDIA BULLS. SINCE THE ASSESSEE WAS REQUIRED TO DEDUCT TAX U/S. 194A AND FAILED TO DO S O, DISALLOWANCE OF RS.84,21,607 BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WAS MADE, WHICH WAS CONFIRMED BY THE CIT(APPEALS). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE SUBMI SSION OF THE LD. AR THAT INTEREST PAYMENT MADE TO NBFC WAS DULY ACCOUNT ED BY THE RECIPIENT IN THEIR RESPECTIVE RETURN OF INCOME. HOWEVER, THE A SSESSEE COULD NOT FURNISH NECESSARY DOCUMENTARY EVIDENCE IN RESPECT OF THE CL AIM. THE LD. AR PLEADED THAT THE ISSUE MAY BE REMITTED TO THE AO TO ENABLE THE ASSESSEE FILE THE NECESSARY CERTIFICATES TO PROVE THAT THE R ECIPIENT HAS PAID TAX ON THIS INTEREST RECEIVED FROM THE ASSESSEE. HOWEVER, THE ASSESSEE HAS NOT PLACED BEFORE US AN IOTA OF EVIDENCE TO SHOW THAT T HE RECIPIENT HAS DULY ACCOUNTED THIS INTEREST RECEIVED FROM THE ASSESSEE AND OFFERED THE SAME TO TAX. IN THE ABSENCE OF PRIMARY EVIDENCE BEFORE US, WE ARE NOT IN A POSITION TO APPRECIATE THE ARGUMENT OF THE LD. AR. THE DISA LLOWANCE U/S. 40(A)(IA) OF THE ACT IS JUSTIFIED AND THE SAME IS CONFIRMED. TH IS GROUND OF THE ASSESSEE IS DISMISSED. 16. THE NEXT GROUND BY THE ASSESSEE IN ITA NO.3371/ BANG/2018 FOR THE AY 2014-15 IS WITH REGARD TO DISALLOWANCE OF RS.18, 34,740 U/S. 37 OF THE ITA NOS. 3370 & 3371/BANG/2018 PAGE 6 OF 6 ACT WITH REGARD TO INTEREST ON LATE PAYMENT OF TDS. THIS GROUND WAS NOT PRESSED BEFORE US AND ACCORDINGLY THE SAME IS DISMI SSED AS NOT PRESSED. 17. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF SEPTEMBER, 2021. SD/- SD/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 27 TH SEPTEMBER, 2021. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.