VARDHIVINAYAK TOWNSHIP DEVELOPMENT P.LTD, MUMBAI V. PR CIT CEN CIR 4, MUMBAI

ITA 3710/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7930 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 22-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Keywords: Retrospective amendment; Assessment record
• Section: 143(3); 201(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I N.K. PRADHAN , ACCOUNTANT MEMBER ITA NO .3710 /MUM. /2017 ( ASSESSMENT YEAR : 2012 13 ) VARDHVINAYAK TOWNSHIP DEVELOPMENT PVT. LTD. , 412, FLOOR 3, 17G VARDHAMAN CHAMBER, CAWASJI PATEL ROAD, HORINMAN CIRCLE, FORT MUMBAI 400 001 AABCL2680H . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 7(3), MUMBAI . RESPONDENT ASSESSE E BY : SHRI ANUJ KISNADWALA REVENUE BY : MS. S. PADMAJA DATE OF HEARING 28.11.2017 DATE OF ORDER 13.12.2017 O R D E R PER SAKTIJIT DEY, J.M. AFORESAID APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 20 TH MARCH 2017, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 4 , MUMBAI, UNDER SECTION 263 INCOME - TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 12 13 . 2. BRIEF FACTS ARE, THE ASSESSEE A COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPER. FOR THE ASSESSMENT YEAR UNDER 2 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 28 TH SEPTEMBER 2012, DECLARING LOSS OF RS. 87,30,715. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON INTEREST PAYMENT OF RS. 1,68,44,164, DISALLOWED THE PAYMENT MA DE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT W HILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 30 TH MARCH 2015. THE ASSESSEE CHALLENGED THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT BY FILING AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3. THE LEARNED COMMISSIONER (APPEALS) WHILE DECIDING THE ISSUE HELD THAT SINCE THE RECIPIENTS OF SUCH PAYMENT HA VE OFFERED IT AS INCOME IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2012 13 , IN TERMS OF FIRST PROVISO TO SE CTION 201(1) OF THE ACT THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT. FURTHER, THE LEARNED COMMISSIONER (APPEALS) HELD THAT THE ASSESSEE WOULD ALSO BE COVERED BY THE SECOND PROVISO TO SECTION 40(A)(IA) AS IT HAS RETROSPECTIVE OPERATION. ACCORDI NGLY, HE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. AGAINST THE AFORESAID ORDER OF THE LEARNED COMMISSIONER (APPEALS), THE REVENUE WENT IN APPEAL BEFORE THE TRIBUNAL. WHEN THE MATTER STOOD THUS THE LEARNED COMMISSIONER OF INCOME - TAX CALLED FOR THE ASSESSMENT RECORDS OF THE ASSESSEE FOR THE 3 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. IMPUGNED ASSESSMENT YEAR IN EXERCISE OF POWER UNDER SECTION 263 OF THE ACT AND ON EXAMINING THE ASSESSMENT RECORD, HE FOUND THAT WHILE THE ASSESSING OFFICER HAD DISALLOWED INTEREST PAYMENT OF RS. 1,68,44,164 U NDER SECTION 40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE, HOWEVER, AS FAR AS THE FINANCE COST OF RS. 7,91,49,028 IS CONCERNED, THE ASSESSING OFFICER HAS NOT DISALLOWED IT UNDER SECTION 40(A)(IA) OF THE ACT EVEN THOUGH THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS. THEREFORE, BEING OF THE OPINION THAT DUE TO SUCH NON DISALLOWANCE THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE, THE LEARNED COMMISSIONER OF INCOME - TAX ISSUED A NOTICE UNDER SECT ION 263 OF THE ACT CALLING UPON THE ASSESSEE TO SHOW CAUSE WHY THE ASSESSMENT ORDER SHOULD NOT BE REVISED. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED UNDER SECTION 263 OF THE ACT, IT WAS SUBMITTED BY THE ASSESSEE THAT IN RESPECT OF FINANCE COST OF RS. 7,91 ,49,028 ALSO, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WOULD NOT BE APPLICABLE AS THE RECIPIENT MACROTECH CONSTRUCTIONS PVT. LTD. HAS OFFERED THE AMOUNT AS INCOME IN ASSESSMENT YEAR 2012 13. IN THIS CONTEXT, THE ASSESSEE ALSO SUBMITTED A COPY OF THE CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT OF THE RECIPIENT COMPANY IN FORM NO.26A. IT WAS SUBMITTED BY THE ASSESSEE , SINCE , THE RECIPIENT HAS OFFERED THE AMOUNT AS INCOME , THE 4 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT IN TERMS OF FIRST PROV ISO TO SECTION 201(1) OF THE ACT , HENCE, NO DISALLOWANCE UNDER SECTION 40(A)(IA) CAN BE MADE AS PER THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. THE LEARNED COMMISSIONER OF INCOME - TAX AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HOWEVER, DID N OT FIND MERIT IN THE SAME. HE OBSERVED THAT THE ASSESSING OFFICER WHILE DISALLOWING INTEREST PAYMENT OF RS. 1,68,44,164 UNDER SECTION 40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE HAS COMPLETELY OVER LOOKED THE APPLICABILITY OF SECTION 40(A)(IA) ON PAYMENT OF FINANCE CHARGES OF RS. 7,91,49,028 IN ABSENCE OF TDS. THE LEARNED COMMISSIONER OF INCOME - TAX FURTHER OBSERVED , THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE HIM TO DEMONSTRATE THAT THE RECIPIENT OF THE FINANCE CHARGES HAS OFFERED IT AS INCOME IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR. THE LEARNED COMMISSIONER OF INCOME - TAX HELD , SINCE , THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY WHICH HE SHOULD HAVE MADE AS PROVIDED IN EXP LANATION 2 TO SECTION 263 OF THE ACT, THE ASSESSMENT ORDER PASSED BY HIM IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. ACCORDINGLY, HE SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO THE ASSESSING OFFICER TO MAKE DENOVO ASSESSMENT 5 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. ON THE ISS UE OF DISALLOWANCE OF FINANCE CHARGES UNDER SECTION 40( A )(IA) OF THE ACT AFTER MAKING NECESSARY ENQUIRY. 4. LEARNED AUTHORISED REPRESENTATIVE REITERATING THE STAND TAKEN BEFORE THE REVISIONAL AUTHORITY SUBMITTED , AS PER THE FIRST PROVISO TO SECTION 201(1) IN A CASE WHERE THE RECIPIENT OF THE PAYMENT HAS OFFERED THE AMOUNT RECEIVED AS INCOME IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEAR AND A CERTIFICATE TO THAT EFFECT FROM A CHARTERED ACCOUNTANT IS FURNISHED , THEN , EVEN IF NO TAX IS DEDUCTED ON THE PAYMENT MADE , THE PAYER WILL NOT BE TREATED AS ASSESSEE IN DEFAULT. LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT REFERRING TO THE FIRST PROVISO TO SECTION 201(1) ALSO CARVES OUT AN EXCEPTION BY PROVIDIN G FOR NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WHERE THE ASSESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SECTION 201(1). HE SUBMITTED, THOUGH, SECTION 40(A)(IA) WAS INTRODUCED TO THE STATUE BY FINANCE ACT, 2012, W.E .F. 1 ST APRIL 2013, HOWEVER, IT WILL HAVE A RETROSPECTIVE EFFECT. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I) RAJEEV KUMAR AGARWAL V/S ACIT, [2014] 149 ITD 363 ; II) CIT V/S ANSAL LAND MARK TOWNSHIP P. LTD., [2015] 377 ITR 635 ; III) ITO V/S M/S. D.J. ENTERPRISES, ITA NO.973/MUM./2015, ORDER DATED 19.04.2017 ; 6 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. IV) GAURAV MATHRAWALA V/S CIT, ITA NO.2378/MUM./2015, ORDER DATED 06.01.2016 ; V) M/S. A.V. INDUSTRIES V/S ACIT, ITA NO.3469/MUM./2010, ORDER DATED 06.11.2015 ; AND VI) PCIT V/S ASHEESH JA IN, ITA NO.705/2017, ORDER DATED 05.09.2017. 5. LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, AS IN THE FACTS OF THE ASSESSEES CASE THE RECIPIENT HA S OFFERED THE FINANCE CHARGES AS INCOME IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR, THE AS SESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT IN TERMS OF FIRST PROVISO TO SECTION 201(1) OF THE ACT , THEREBY , NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE IN VIEW OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. LEARNED AUTHOR ISED REPRESENTATIVE SUBMITTED, FOR THE AFORESAID REASONS, THE VIEW TAKEN BY THE ASSESSING OFFICER IN NOT DISALLOWING THE FINANCE CHARGES UNDER SECTION 40(A)(IA) BEING A POSSIBLE VIEW , CANNOT BE SUBJECT MATTER OF PROCEEDINGS UNDER SECTION 263 OF THE ACT. WI THOUT PREJUDICE TO THE AFORESAID SUBMISSIONS, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME - TAX CAN BE MODIFIED TO THE EXTENT OF ISSUING A DIRECTION TO THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING WHETHER THE RECIPIENT HAS OFFERED THE AMOUNT IN QUESTION AS INCOME IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR. 7 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. 6. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, THOUGH, THE ISSUE WHETHER AS PER SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT IS APPLICABLE TO THE ASSESSEE IS A DEBATABLE ISSUE AND THE ASSESSEE MIGHT HAVE A STRONG CASE ON THE ISSUE, HOWEVER, THE ASSESSEE HAS TO SATISFY THE CONDITIONS OF THE FIRST PROVISO TO SECTION 201)(1) OF THE ACT. SHE SUBMITTED, UNLESS TH E ASSESSEE SATISFIE S THE CONDITIONS OF THE FIRST PROVISO TO SECTION 201(1), THE PROVISIONS OF SECOND PROVISO TO SECTION 40(A)(IA) WILL NOT BE APPLICABLE. SH E SUBMITTED, CONDITIONS OF FIRST PROVISO TO SECTION 201(1) REQUIRES FACTUAL VERIFICATION AS THE ASSE SSEE HAS TO FURNISH DOCUMENTARY EVIDENCE INCLUDING THE CERTIFICATE FROM CHARTERED ACCOUNTANT INDICATING THAT THE RECIPIENT HAS OFFERED PAYMENT AS INCOME IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEAR. SHE SUBMITTED, DURING THE ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY WITH REGARD TO THE PAYMENT OF FINANCE CHARGES AND HAS NOT EXAMINED WHETHER THE RECIPIENT HAS OFFERED IT AS INCOME IN THE RETURN OF INCOME FILED BY IT. THEREFORE, ALLOWANCE OF ASSESSEES CLAIM OF DED UCTION IN RESPECT OF FINANCE CHARGES WITHOUT EXAMINING THE FACTUAL ASPECT OF THE ISSUE HAS MADE THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THEREFORE, THE LEARNED COMMISSIONER OF INCOME - TAX HAS 8 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. CORRECTLY EXERCISED HIS POWER UNDER SECTION 263 OF THE ACT TO REVISE THE ASSESSMENT ORDER. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. UNDISPUTEDLY, THE REVISIONAL AUTHORITY HAS REVISED THE A SSESSMENT ORDER UNDER SECTION 263 OF THE ACT ONLY FOR THE REASON THAT THE ASSESSING OFFICER HAS FAILED TO DISALLOW THE FINANCE CHARGES PAID OF RS.7 ,91,49,028 UNDER SECTION 40(A)(IA) OF THE ACT IN THE ABSENCE OF DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE ON SUCH PAYMENTS. IN THIS REGARD, IT IS THE SAY OF THE ASSESSEE THAT SINCE THE RECIPIENT OF FINANCE CHARGES HAS OFFERED IT AS INCOME IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEAR , THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT UNDE R THE FIRST PROVISO TO SECTION 201(1) , THEREBY , NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE IN TERMS OF SECOND PROVISO TO SECTION 40(A)(IA) WHICH WILL HAVE RETROSPECTIVE EFFECT. IN PRINCIPLE, WE AGREE WITH THE CONTENTION OF THE LEARNED A UTHORISED REPRESENTATIVE THAT IN A CASE WHERE THE RECIPIENT HAS OFFERED THE PAYMENT RECEIVED BY HIM AS INCOME IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEAR , THEN , THE PERSON MAKING SUCH PAYMENT CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT U NDER SECTION 201(1) OF THE ACT AS PER THE FIRST PROVISO TO THE SAID 9 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. PROVISION. FURTHER, SECOND PROVISO TO S ECTION 40(A)(IA) OF THE ACT PROVIDES THAT NO DISALLOWANCE UNDER THE SAID SECTION CAN BE MADE WHERE THE ASSESSEE IS NOT TREATED TO BE AN ASSESSEE IN D EFAULT UNDER THE FIRST PROVISO TO SECTION 201(1) OF THE ACT. IT IS FAIRLY WELL SETTLED NOW THAT THE SECOND PROVISO TO SECTION 40(A)(IA) WILL HAVE RETROSPECTIVE OPERATION. IN FACT, IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012 13, THE TRIBUNAL IN ITA NO.7011/MUM./2016, DATED 1 ST SEPTEMBER 2017, HAS UPHELD THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IN DELETING THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT BY APPLYING THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. THEREFORE, WE ACCEP T THE CONTENTION OF THE ASSESSEE THAT IN TERMS OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT, THE ASSESSEE WILL NOT BE TREATED AS AN ASSESSEE IN DEFAULT FOR MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT. HOWEVER, THERE IS ANOTHER ASPECT TO THE ISSUE. AS PER THE FIRST PROVISO TO SECTION 201(1) OF THE ACT, THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE RECIPIENT OF PAYMENT MADE WITHOUT DEDUCTION OF TAX AT SOURCE HAS OFFERED IT AS INCOME IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEA R. IN THIS CONTEXT, A CERTIFICATE FROM THE CONCERNED CHARTERED ACCOUNTANT IS REQUIRED TO BE FILED BEFORE THE ASSESSING OFFICER. AS IT EMERGES FROM THE FACTS ON RECORD, NEITHER THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS HAS FACTUALLY 10 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. EXAM INED THE REASON FOR NON DEDUCTION OF TAX BY THE ASSESSEE ON PAYMENT OF FINANCE CHARGES OF RS. 7,91,49,028, NOR HAS VERIFIED WHETHER THE RECIPIENT OF SUCH PAYMENT HAS OFFERED IT AS INCOME. THOUGH, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED BEFORE US THAT THE ASSESSEE HAS FURNISHED DOCUMENTARY EVIDENCE TO DEMONSTRATE THAT THE RECIPIENT OF FINANCE CHARGES HAS OFFERED IT AS INCOME IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR, HOWEVER, THE LEARNED COMM ISSIONER OF INCOME - TAX IN THE IMPUGNED REVISIONAL ORDER HAS RECORDED A FINDING OF FACT THAT NEITHER THE CERTIFICATE FROM CHARTERED ACCOUNTANT NOR ANY OTHER DOCUMENTARY EVIDENCE INDICAT ING THE FACT THAT THE RECIPIENT OF FINANCE CHARGES HAS OFFERED IT AS INC OME HAS NOT BEEN PRODUCED BY THE ASSESSEE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE HIM. IN VIEW OF THE AFORESAID FACTUAL POSITION , WHILE , WE HOLD THAT THE ASSESSEE CANNOT BE TREATED AS ASSESSEE IN DEFAULT IN TERMS OF SECOND PROVISO TO SECTION 40(A)(IA ) OF THE ACT IN CASE THE RECIPIENT HAS OFFERED THE PAYMENT RECEIVED AS INCOME, HOWEVER, THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE WITH SUPPORTING DOCUMENTARY EVIDENCE AS REQUIRED UNDER THE FIRST PROVISO TO SECTION 201(1) OF THE ACT THAT THE RECIPIENT H AS OFFERED THE FINANCE CHARGES AS INCOME IN THE RELEVANT ASSESSMENT YEAR. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO VERIFY THIS ASPECT AND IN CASE IT IS FOUND THAT THE RECIPIENT HAS OFFERED THE FINANCE CHARGES OF RS. 7,91,49,028 AS INCOME IN THE RETURN 11 VARDHVINAYAK TOWNSHIP DEVELOPMENTPVT. LTD. OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IS REQUIRED TO BE MADE. THE IMPUGNED ORDER IS MODIFIED TO THIS EXTENT ONLY. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13.12.2017 SD/ - SD/ - SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 13.12.2017 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT.REGISTRAR) ITAT, MUMBAI