Asst.CIT., Circle-15(2), Hyderabad V. M/s Tecumseh Products India Private Limited, Hyderabad

ITA 388/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82474 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 25-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.388/HYD/2013 ASSESSMENT YEAR 2007-2008 ACIT, CIRCLE 15(2) HYDERABAD. VS. M/S. TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. PAN AABCT6893J (APPELLANT) (RESPONDENT) FOR REVENUE : MR. R. MOHAN REDDY FOR ASSESSEE : MR. DHANESH BAFNA DATE OF HEARING : 11.09.2014 DATE OF PRONOUNCEMENT : 17.10.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-II, HYDERABAD DATED 28.01.2 013 ON THE DELETION OF INTEREST OF SHORT/NON-DEDUCTION UNDER S ECTION 201(1A). REVENUE HAS RAISED THE ONLY EFFECTIVE GROU ND WHICH IS AS UNDER: WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) WAS CORRECT IN HOLDING THAT THE TDS WAS NOT DEDUCTABLE IN THE SAME YEAR IN WHICH ASSESSEE ACTUA LLY INCURRED THE EXPENDITURE AND RELEVANT ENTRIES MADE IN THE BOOKS. 2. BRIEFLY STATED, ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND TRADING IN COMPRESSORS FOR AIR-CO NDITIONERS AND REFRIGERATORS. DURING THE SCRUTINY OF THE ASSE SSMENT RECORDS, THE A.O. NOTICED THAT ASSESSEE COMPANY HAS DEBITED A 2 ITA.NO.388/HYD/2013 M/S. TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. SUM OF RS.1,01,00,000 TOWARDS PROVISION FOR INTERES T, RS.48,80,333 TOWARDS PROVISION FOR PROFESSIONAL FEE S AND RS.28,33,533 TOWARDS PROVISION ON TRANSPORT CONTRAC TORS TO ITS P & L ACCOUNT, WITHOUT DEDUCTING THE TDS ON THE ABO VE AMOUNTS. THE A.O. DISALLOWED THE CLAIM OF ASSESSEE UNDER SECTION 40(A)(IA) OF THE I.T. ACT AND CONSIDERED A SUM OF RS.22,66,440, RS.5,02,674 AND RS.58,371 ON THE ABOV E HEADS AS TDS ON PROVISION FOR INTEREST, PROFESSIONAL FEES AND PROVISION ON TRANSPORT CONTRACTORS AND RAISED DEMAN D OF RS.16,96,440 UNDER SECTION 201(1A) FOR THE PERIOD F ROM 01.04.2006 TO 31.03.2011. 3. AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) CONTENDING INTER ALIA, THAT A PROVISION HAS BEEN CREATED ON 31.03.2007 UNDER THE ABOVE HEADS. HOWEVER, SINCE , THERE WAS NO IDENTIFICATION AND QUANTIFICATION AGAINST AN Y PAYEE AND AS SUCH TDS WAS NOT DEDUCTED AND HAS NOT CLAIMED TH E SAID AMOUNTS AS EXPENDITURE IN ITS RETURN OF INCOME FOR THE A.Y. 2007-08. IT WAS CONTENDED THAT IT HAD MADE TDS PAYM ENTS AFTER REVERSING THE PROVISION AND THE YEAR RELEVANT IS A.Y. 2008-09 BUT NOT A.Y. 2007-08 AND HAS FILED COPIES O F CHALLANS IN SUPPORT OF THE SAME. IT WAS SUBMITTED THAT LEVY OF INTEREST FROM THE BEGINNING OF THE F.Y. 01.04.2006 TO 31.03. 2011 I.E., DATE OF PASSING OF THE ASSESSMENT ORDER WAS NOT JUS TIFIED AND IN VIOLATION TO THE PRINCIPLES OF NATURAL JUSTICE A ND RELIED ON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF PFIZER L TD. VS. ITO (TDS) IN ITA.NO.1667/MUM/2010. THE LD. CIT(A) CALLE D FOR THE REMAND REPORT OF THE A.O. IN WHICH IT WAS STATED TH AT THE ONLY ISSUE IN THE CASE IS THAT ASSESSEE MADE A PROVISION FOR CERTAIN EXPENSES IN THE BOOKS OF ACCOUNTS FOR THE F.Y. 2006 -07 AND SUCH PROVISION HAS NOT BEEN REVERSED WITHIN THE F.Y . 2006-07. 3 ITA.NO.388/HYD/2013 M/S. TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. HOWEVER IT WAS ADMITTED THAT WHILE FILING THE RETUR N OF INCOME, ASSESSEE HAS ADDED BACK THE SAID AMOUNTS ON ITS OWN . SUBSEQUENTLY, IN THE NEXT F.Y. 2007-08 RELEVANT TO THE A.Y. 2008-09 ASSESSEE MADE PAYMENTS BY REVERSING THE ENT RIES AND CREDITING THE PARTYS ACCOUNT AND WHILE MAKING THE PAYMENT THE TDS WAS DEDUCTED AND WAS CLAIMED AS EXPENDITURE FOR A.Y. 2008-09. AFTER EXAMINING THE SUBMISSIONS OF ASSESSE E AND THE REMAND REPORT, THE LD. CIT(A) WHILE RELYING ON THE DECISIONS OF INDUSTRIAL DEVELOPMENT BANK OF INDIA VS. ITO 104 TT J 230 (MUM.) AND PFIZER LTD. VS. ITO ITA.NO.1667/MUM/2010 DATED 31 ST OCTOBER, 2012 OBSERVED AS FOLLOWS : 6. IT IS SURPRISING TO NOTE THAT THE A.O. DID NOT HOLD THE APPELLANT AS ASSESSEE IN DEFAULT AND NO REASONS W ERE GIVEN AS TO WHY TAX U/S.201(1) WAS NOT LEVIED AND H AS SIMPLY PROCEEDED WITH LEVYING INTEREST U/S.201(1A) OF I.T. ACT, 1961. I HAVE ALSO NOTED THE OBSERVATIONS OF TH E A.O. AND THE ADDL. CIT IN THE REMAND REPORT AND I DO NOT AGREE WITH THE OBSERVATION MADE OF THE APPELLANT THAT THE RE HAS BEEN AN ARRANGEMENT BY WHICH TAX DEDUCTION HAS BEEN POSTPONED. THOUGH IT HAS BEEN STATED THAT THE PROVI SIONS HAVE BEEN ADDED BACK IN THE COMPUTATION OF INCOME I N VIEW OF THE HUGE LOSSES IT HAS FOR A.Y. 2007-08, TH E A.O. AND THE ADDL. CIT DID NOT BOTHER TO EXPLAIN HOW THE APPELLANT BENEFITTED BY CLAIMING THE EXPENDITURE AN D TDS IN THE SUBSEQUENT YEAR. 6.1. THE DETAILS FILED BY THE APPELLANT HAVE BEEN EXAMINED AND IT IS FOUND THAT THE APPELLANT HAS ONL Y PROVIDED FOR THE EXPENSES IN THE ACCOUNTS FOR F.Y. 2006-07 AND DID NOT CLAIM THE SAME AS EXPENDITURE AND THE PROVISION HAS BEEN ADDED BACK IN THE COMPUTATION OF INCOME FOR THE A.Y. 2007-08 I.E., THE YEAR UNDER CONSIDERATION. IT IS ALSO SEEN THAT THE APPELLANT H AS REVERSED THE ENTRIES IN THE ACCOUNTS FOR A.Y. 2008- 09 AND DEDUCTED TAX AT SOURCE FROM THE SAME WHILE MAKING T HE PAYMENT TO THE CONCERNED PARTIES. THERE IS MERIT IN THE APPELLANTS CONTENTION THAT THE OBLIGATION TO DEDUC T TDS WILL ARISE ONLY WHERE THERE IS A SUM CHARGEABLE UNDER TH E I.T. ACT AND WHEN THE APPELLANT ITSELF HAS NOT CLAIMED A NY DEDUCTION FOR ANY OF THE PROVISIONS MADE IN THE ACC OUNTS, 4 ITA.NO.388/HYD/2013 M/S. TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. TDS WILL NOT BE ATTRACTED ON THE SAID AMOUNTS AND A LSO THAT FOR ATTRACTING TDS PROVISIONS THE PAYEE HAS TO BE IDENTIFIABLE AND THE QUANTIFICATIONS SHOULD ALSO BE MADE. IN THIS CONNECTION, RELIANCE IS PLACED ON THE FOLLOWIN G JUDICIAL DECISIONS : (A) IN THE CASE OF INDUSTRIAL DEVELOPMENT BANK OF INDIA VS. ITO (2006) 104 TTJ 230 (MUM.) IT IS HELD AS UNDER: IT WOULD BE THUS SEEN THAT THE WHOLE SCHEME OF TDS PROCEEDS ON THE ASSUMPTION THAT THE PERSON WHOSE LIABILITY IS TO PAY AN INCOME KNOWS THE IDENTITY OF THE BENEFICIARY OR THE RECIPIENT OF THE INCOME. IT IS A SINE QUO NON FOR A VICARIOUS TAX DEDUCTION LIABILITY THAT TH ERE HAS TO BE A PRINCIPAL TAX LIABILITY IN RESPECT OF THE R ELEVANT INCOME FIRST, AND A PRINCIPAL TAX LIABILITY CAN COM E INTO EXISTENCE WHEN IT CAN BE ASCERTAINED AS TO WHO WILL RECEIVE OR EARN THAT INCOME BECAUSE THE TAX IS ON T HE INCOME AND IN THE HANDS OF THE PERSON WHO EARNS THA T INCOME. IN THIS VIEW OF THE MATTER, TDS MECHANISM CANNOT BE PUT INTO PRACTICE UNTIL IDENTITY OF THE P ERSON IN WHOSE HANDS, IT IS INCLUDIBLE AS INCOME CAN BE ASCERTAINED. IN THE CASE OF PFIZER LTD. VS. ITO (ITA.NO.1667/MUM /2010) DATED 31 ST OCTOBER, 2012 WHEREIN IT IS HELD AS UNDER : IN VIEW OF THE ABOVE DECISION OF COORDINATE BENCH, SINCE THE PAYEE IS NOT IDENTIFIABLE IN THIS CASE ALSO AT THE TIME OF MAKING PROVISION, NO TDS NEED TO BE MADE ON THE ABOVE AMOUNT. FURTHER, THE ENTIRE PROVISION HAS BEE N WRITTEN BACK IN THE NEXT YEAR AND THE ACTUAL AMOUNT S PAID/CREDITED WERE SUBJECTED TO TDS AS PER THE DETA ILED STATEMENTS FILED BEFORE THE AUTHORITIES ON WHICH TH ERE IS NO DISPUTE. THEREFORE, ASSESSEE IS FOLLOWING THE PROVISIONS OF TDS AS AND WHEN THE AMOUNTS ARE PAID/CREDITED TO RESPECTIVE PARTIES. .. ONCE AN AMOUNT WAS DISALLOWED UNDER SECTION 40(A)(I A) ON THE BASIS OF THE AUDIT REPORT OF THE CHARTERED ACCOUNTANT, THE SAME AMOUNT CANNOT BE SUBJECT TO TH E PROVISIONS OF TDS UNDER SECTION 201(1) ON THE REASO N 5 ITA.NO.388/HYD/2013 M/S. TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. THAT ASSESSEE SHOULD HAVE DEDUCTED THE TAX. IF THE ORDER OF A.O. WERE TO BE ACCEPTED THEN DISALLOWANCE UNDER SECTION 40(A)(IA) AND 40(A)(IA) CANNOT BE MADE AND PROVISIONS TO THAT EXTENT MAY BECOME OTIOSE. IN VIE W OF THE ACTUAL DISALLOWANCE UNDER SECTION 40(A)(I) BY ASSESSEE HAVING BEEN ACCEPTED BY A.O. WE ARE OF THE OPINION THAT THE SAME AMOUNT CANNOT BE CONSIDERED A S AMOUNT COVERED BY THE PROVISIONS OF SECTION 194C TO 194J SO AS TO RAISE TDS DEMAND AGAIN UNDER SECTION 201 AND LEVY OF INTEREST UNDER SECTION 201(1A). 6.2. IN VIEW OF THE ABOVE, THE DEMAND RAISED U/S.201(1A) OF RS.16,96,440/- IS ORDERED TO BE DELE TED. 4. LEARNED D.R. SUBMITTED THAT THE LD. CIT(A) WAS NOT CORRECT IN DELETING THE AMOUNT AND RELIED ON TH E ORDERS OF A.O. HE FURTHER SUBMITTED THAT THE COORDINATE BENCH OF THE COCHIN TRIBUNAL IN THE CASE OF AGREENCO FIBRE FOAM (P) LTD., VS. ITO (TDS), KANNUR ITA.NO.165/COCH/2012 DATED 16.08.2013 UPHELD THE CONTENTION OF REVENUE THAT IN TEREST UNDER SECTION 201 AND 201(1A) CAN BE LEVIED, EVEN I F THE AMOUNT WAS DISALLOWED UNDER SECTION 40(A)(IA). HE P LACED COPY OF THE ORDER OF THE COORDINATE BENCH ON RECORD AND SUPPORTED REVENUE CONTENTIONS. 5. LD. COUNSEL IN REPLY, REITERATED THE SUBMISSION S MADE BEFORE THE LD. CIT(A) AND RELIED ON THE COORDI NATE BENCH DECISION IN THE CASE OF PFIZER LTD. VS. ITO ITA.NO.1667/MUM/2010 DATED 31 ST OCTOBER, 2012 (SUPRA) AND RELIED ON THE ORDER OF LD. CIT(A). 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RIVAL CONTENTIONS. THERE IS NO DISPUTE WITH REFEREN CE TO THE FACT THAT ASSESSEE HAS ONLY MADE THE PROVISIONS WITHOUT IDENTIFYING THE PARTIES AS A LIABILITY IN THE YEAR AND ACTUAL A MOUNTS WERE CREDITED IN A LATER YEAR ON WHICH TDS WAS MADE. IT IS ALSO A 6 ITA.NO.388/HYD/2013 M/S. TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. FACT THAT IN THE COMPUTATION OF INCOME, ASSESSEE HA S ADDED BACK THE ENTIRE PROVISION AND HAS NOT CLAIMED ANY D EDUCTION. THESE FACTS ARE SIMILAR TO THE FACTS OF PFIZER LTD. (SUPRA), RELIED ON BY THE CIT(A) AND THE DECISION WAS EXTRACTED AS PART OF THE ORDER OF LD. CIT(A). WE FULLY AGREE WITH THE FINDIN GS OF THE LD. CIT(A) ON THE ISSUE THAT THERE IS NO SCOPE FOR DEDU CTING TAX, AS THE AMOUNTS ARE NOT COVERED BY THE PROVISIONS OF SE CTION 194C TO 194J. NOT ONLY THAT A.O. HAS ONLY RAISED THE INT EREST UNDER SECTION 201(1A) AND HAS NOT RAISED THE BASIC DEMAND UNDER SECTION 201(1). THIS ASPECT WAS ALSO CONSIDERED BY THE LD. CIT(A) THAT ASSESSEE WAS NOT HELD AS ASSESSEE IN D EFAULT AND THEREFORE, ON THIS REASON ALSO INTEREST CANNOT BE L EVIED AS THE AMOUNT TO BE DEDUCTED HAS NOT EVEN QUANTIFIED UNDER SECTION 201. AO WAS ALSO NOT CORRECT IN LEVYING INTEREST UP TO THE DATE OF ORDER WHILE ACCEPTING THAT THE AMOUNTS PROVIDED WERE REVERSED IN LATER YEAR AND TDS WAS MADE ON ACTUAL C LAIMS MADE IN THAT YEAR. 7. LEARNED D.R. HOWEVER, RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF AGREENCO FIBRE FOAM ( P) LTD., VS. ITO (TDS), KANNUR (SUPRA). THE FACTS IN THE SAID CA SE ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY AND CREDITED INTEREST TO THE SISTER CONCERNS DURING THE YEAR UNDER CONSIDERA TION WITHOUT DEDUCTING TAX AT SOURCE. NOT ONLY THAT A.O. TREATED ASSESSEE AS ASSESSEE IN DEFAULT AND RAISED DEMAN D UNDER SECTION 201 OF THE ACT EQUAL TO THE AMOUNT OF TAX D EDUCTIBLE AT SOURCE. THEREAFTER, A.O. LEVIED INTEREST UNDER SECT ION 201(1A) TO THE TUNE OF RS.7,16,290. IT WAS THE FINDING OF T HE ITAT THAT EVEN THOUGH THE AMOUNTS WERE DISALLOWABLE UNDER SEC TION 40(A)(IA) AS ASSESSEE DID NOT CLAIM THE SAME AS EXP ENDITURE AT ALL, ASSESSEE SHALL BE LIABLE TO DEDUCT TAX AT SOUR CE UNDER 7 ITA.NO.388/HYD/2013 M/S. TECUMSEH PRODUCTS INDIA P. LTD., HYDERABAD. SECTION 194A OF THE ACT ON THE INTEREST AMOUNT SO P AID/ CREDITED AS THE SAID PAYMENT WAS LIABLE TO TAX DEDU CTION AT SOURCE. THE BENCH DISTINGUISHED THE DECISION OF THE PFIZER LTD. VS. ITO (SUPRA) WHILE GIVING THE JUDGMENT THEREIN. SINCE THE FACTUAL CONDITIONS CONSIDERED IN THE DECISION OF PF IZER LTD. VS. ITO (SUPRA) ARE SIMILAR TO ASSESSEES CASE AND ARE DIFFERENT FROM THE FACTS IN THE SAID CASE OF AGREENCO FIBRE F OAM (P) LTD., VS. ITO (TDS), KANNUR (SUPRA), WE ARE NOT CONVINCED WITH THE ARGUMENTS OF THE LEARNED D.R. SINCE THE LD. CIT(A) ORDER IS IN TUNE WITH THE COORDINATE BENCH DECISIONS ON THE ISS UE ON THE GIVEN FACTS, WE AFFIRM THE SAME AND DISMISS THE GRO UND OF REVENUE. 8. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.10.20 14. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 17 TH OCTOBER, 2014 VBP/- COPY TO 1. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRA L CIRCLE-15(2), ROOM NO.444, 4 TH FLOOR, D BLOCK, I.T. TOWERS, HYDERABAD. 2. M/S. TECUMSEH PRODUCTS INDIA P. LTD., BALANAGAR, HYDERABAD 500 037. 3. CIT(A)-II, HYDERABAD. 4. CIT-(TDS), HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD.