THE DCIT, CIRCLE - 2(1), Vijayawada V. M/s Indwell Constructions Pvt Ltd., Vijayawada

ITA 39/VIZ/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8925 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 04-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S RAVI SHANKAR NARAYANSR
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HONBLE JUDICIAL MEMBER & SHRI G. MANJUNATHA, HONBLE ACCOUNTANT MEMBER ITA NO. 39/VIZ/2014 (ASST. YEAR : 2010-11) DCIT, CIRCLE-2(1), VIJAYAWADA. V. M/S. INDWELL CONSTRUCTIONS PVT. LTD., D.NO. 40-9-94, SAI NAGAR, VIJAYAWADA. PAN NO. AAACI 4781 P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C. SUBRAHMANYAM FCA. DEPARTMENT BY : SHRI S. RAVI SHANKAR NARAYANSR.DR DATE OF HEARING : 26/04/2017. DATE OF PRONOUNCEMENT : 28/04/2017. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), VISAKHAPATNAM, DATED 18/08/2013 FOR THE ASSESSMENT YEARS 2010-11. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT ASSESSEECOMPANY IS ENGAGED IN THE BUSINESS OF ERECTION, COMMISSIONING AND OVERHAULING OF TURBO GENERATORS, BOILERS AND PIPING WITH BHEL, NTPC, STATE ELECTRICITY BOARDS, FILED ITS RETURN OF INCOME BY DECLARING TOTAL INCOME OF RS.6,68,97,080/-. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT'). THEREAFTER, AFTER FOLLOWING DUE PROCEDURE, ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. DURING THE COURSE OF 2 ITA NO.39/VIZ/2014 (M/S. INDWELL CONSTRUCTIONS PVT. LTD.) ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTED THAT IN THE PROFIT & LOSS ACCOUNT, ASSESSEE HAS DEBITED EXPENDITURE AS BANK CHARGES WHICH INCLUDES AN AMOUNT OF RS. 32,53,858/- AS BANK GUARANTEE CHARGES. THE ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF THE BANK GUARANTEE CHARGES. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT BANK WILL UNDERTAKE AND AGREE TO PAY A SUM EQUIVALENT AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT TO THE CONTRACTEE IN CASE OF ANY BREACH OF CONTRACT. THE ASSESSING OFFICER ASKED THE ASSESSEE WHY TDS WAS NOT DEDUCTED ON THE ABOVE PAYMENTS. IN REPLY, IT WAS SUBMITTED THAT THE PAYMENTS WERE MADE TO NATIONALIZED BANK, EXEMPT FROM TDS PROVISIONS AND, THEREFORE, NO TDS IS DEDUCTED. HOWEVER, ASSESSING OFFICER HAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA), THE AMOUNT OF RS. 32,53,858/- ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3 . ON APPEAL, LD. CIT(A) BY FOLLOWING THE DECISION OF THE ITAT, BOMBAY BENCH IN THE CASE OF KOTAK SECURITIES LTD. VS. DCIT REPORTED IN (2012) 14 ITR 495, DIRECTED THE ASSESSING OFFICER TO DELETED THE ADDITION. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS FOLLOWS:- 5.1. THE ISSUE IS WITH REGARD TO DISALLOWANCE OF BANK GUARANTEE CHARGES DEBITED TO THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.32,53 858/-. IN FACT THIS PARTICULAR AMOUNT WAS DEBITED BY THE BANK ITSELF. BUT, THE AO WAS OF THE VIEW THAT THE PROVISIONS OF SECTION 194H OF THE ACT WERE APPLICABLE AND HENCE WRITTEN BACK THE SAME IN TERMS OF SECTION 40(A)(IA), WHICH IS CONTESTED. IT MAY BE NOTED HERE THAT WHEN THE AMOUNTS UNDER THE HEAD INTEREST, COMMISSION OR ANY OTHER SUM IS PAID OR PAYABLE TO ANY GOVERNMENT, FINANCIAL INSTITUTE OR TO ANY BANK ETC, ON SUCH PAYMENTS, NO TDS IS APPLICABLE. EVEN OTHERWISE ALSO, AS RIGHTLY POINTED OUT BY THE AR, BANK GUARANTEE COMMISSION IS NOT LIABLE TO TDS UNDER SECTION 194H, AS IT IS NOT A TRANSACTION BETWEEN PRINCIPAL AND AGENT. SINCE PRINCIPAL-AGENT RELATIONSHIP IS NECESSARY FOR INVOKING THE PROVISIONS OF WITHHOLDING TAX FOR 3 ITA NO.39/VIZ/2014 (M/S. INDWELL CONSTRUCTIONS PVT. LTD.) COMMISSION PAYMENTS, BANK GUARANTEE COMMISSION PAYABLE TO THE BANK IS NOT SUBJECTED TO WITHHOLDING TAX. THIS IS WHAT THE MUMBAI TRIBUNAL HAS HELD IN THE CASE OF KOTAK SECURITIES LIMITED VS. DY. CIT (TDS) REPORTED IN (2012) 50 SOT 158 (MUMBAL TRIBUNAL). IN THE CIRCUMSTANCES, THE ACTION OF THE AO IS NOT APPRECIATED. 4. ON BEING AGGRIEVED, REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE COORDINATE BENCH OF THE TRIBUNAL, VISAKHAPATNAM IN THE CASE OF DCIT VS. EFFTRONIC SYSTEMS PVT. LTD. IN ITA NO. 205/VIZAG/2013, FOR ASSESSMENT YEAR 2009-10, BY ORDER DATED 06/03/2014, HAS CONSIDERED THE VERY SAME ISSUE BY FOLLOWING THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 6 . ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE BY PLACING RELIANCE OF CBDT NOTIFICATION NO. 56/2012, DATED 31/12/2012 POINTED OUT THAT THE NOTIFICATION SHALL COME INTO FORCE FROM 01/01/2013. 7 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 8 . THE ONLY ISSUE FOR CONSIDERATION IS WHETHER PAYMENT MADE BY THE ASSESSEE TO THE BANK IN THE FORM OF BANK GUARANTEE CHARGES ATTRACTS THE TDS PROVISIONS OR NOT. THE VERY SAME ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF EFFTRONIC SYSTEMS PVT. LTD., (SUPRA) BY FOLLOWING THE DECISION OF MUMBAI BENCH IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) AND HELD AS UNDER:- 3. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES LIMITED SUPRA HELD AS FOLLOWS:- 4 ITA NO.39/VIZ/2014 (M/S. INDWELL CONSTRUCTIONS PVT. LTD.) THERE IS NO PRINCIPAL AGENT RELATIONSHIP BETWEEN THE BANK ISSUING THE BANK GUARANTEE AND THE ASSESSEE. WHEN BANK ISSUES THE BANK GUARANTEE, ON BEHALF OF THE ASSESSEE, ALL IT DOES IS TO ACCEPT THE COMMITMENT OF MAKING PAYMENT OF A SPECIFIED AMOUNT TO, ON DEMAND, THE BENEFICIARY, AND IT IS IN CONSIDERATION OF THIS COMMITMENT, THE BANK CHARGES A FEES WHICH IS CUSTOMARILY TERMED AS BANK GUARANTEE COMMISSION. WHILE IT IS TERMED AS GUARANTEE COMMISSION, IT IS NOT IN THE NATURE OF COMMISSION AS IT IS UNDERSTOOD IN COMMON BUSINESS PARLANCE AND IN THE CONTEXT OF THE SECTION 194H. THIS TRANSACTION, IS NOT A TRANSACTION BETWEEN PRINCIPAL AND AGENT SO AS TO ATTRACT THE TAX DEDUCTION REQUIREMENTS UNDER SECTION 194H. CIT(A) INDEED ERRED IN HOLDING THAT THE ASSESSEE WAS INDEED UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE UNDER SECTION 194H FROM PAYMENTS MADE BY THE ASSESSEE TO VARIOUS BANKS. ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECTION 194H, THE QUESTION OF LEVY OF INTEREST UNDER SECTION 201(1A) CANNOT ARISE. CONCLUSION:- WHEN THERE IS NO PRINCIPAL AGENT RELATIONSHIP BETWEEN BANK ISSUING BANK GUARANTEE AND ASSESSEE, TRANSACTION BETWEEN THEM IS NOT TRANSACTION BETWEEN PRINCIPAL AND AGENT SO AS TO ATTRACT TAX DEDUCTION UNDER SECTION 194H. 4. RESPECTFULLY FOLLOWING THE ORDER IN THE CASE OF KOTAK SECURITIES LIMITED (SUPRA), WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 9. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD.CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE DEPARTMENT IS DISMISSED. 10 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF APRIL, 2017. SD/- SD/- (G. MANJUNATHA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH APRIL, 2017. VR/- 5 ITA NO.39/VIZ/2014 (M/S. INDWELL CONSTRUCTIONS PVT. LTD.) COPY TO: 1. THE ASSESSEE - M/S. INDWELL CONSTRUCTIONS PVT. LTD., D.NO. 40-9-94, SAI NAGAR, VIJAYAWADA. 2. THE REVENUE - DCIT, CIRCLE-2(1), VIJAYAWADA. 3. THE CIT, VIJAYAWADA 4. THE CIT(A), VIJAYAWADA. 5. THE D.R., VISAKHAPATNAM. 6. GUARD FILE. BY ORDER