DCIT, Circle-17(1), Hyd, Hyderabad V. Delta Constructions Ltd (new name Delta Constructions Systems Ltd), Hyd, Hyderabad

ITA 54/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2716 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 14-01-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: V RAGHAVENDRA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.54/HYD/2016 ASSESSMENT YEAR 2011 - 2012 DCIT, CIRCLE - 17(1), HYDERABAD. VS. M/S. DELTA CONSTRUCTIONS LTD, (NEW NAME DELTA CONSTRUCTIONS SYSTEMS LTD), HYDERABAD. PAN:AAACD7127J (APPELLANT) (RESPONDENT) C.O. NO.18/HYD/2016 (ARISING OUT OF ITA.NO.54/HYD/2016) ASSESSMENT YEAR 2011 - 2012 M/S. DELTA CONSTRUCTIONS LTD, (NEW NAME DELTA CONSTRUCTIONS SYSTEMS LTD), HYDERABAD. PAN:AAACD7127J VS. DCIT, CIRCLE - 17(1), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI V. RAGHAVENDRA RAO FOR REVENUE : SMT. N . SWAPNA, DR DATE OF HEARING : 14.08.2017 DATE OF PRONOUNCEMENT : 14.08.2017 ORDER PER D. MANMOHAN, VP. THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) - 5, HYDERABAD. 2. THE FACTS CONCERNING THE ONLY ISSUE IN DISPUTE CENTRES AROUND THE FACT S STATED BELOW. ASSESSEE IS ENGAGED IN THE CIVIL CONSTRUCTION. THE ASSESSEE INCURRED CERTAIN 2 EXPENDITURE UNDER THE HEAD BANK GUARANTEE CHARGES ON WHICH TAX WAS NOT DEDUCTED AT SOURCE. THE A.O. WAS OF THE OPINION THAT THE TDS HAS TO BE MADE A S REQUIRED U/S 194H OF THE ACT. CONSEQUENTLY, PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE INVOKED. THE CASE OF THE CASE OF THE ASSESSEE, ON THE OTHER HAND, WAS THAT SECTION 194H IS NOT APPLICABLE SINCE THERE IS NO PRINCIPAL AND AGENT RELATIONSHIP BE TWEEN THE ASSESSEE AND THE BANK. RELIANCE WAS PLACED UPON THE CBDT NOTIFICATION DATED 4.1.2013 WHICH GRANTS EXEMPTION FROM TDS ON THE PAYMENTS MADE TOWARDS BANK GUARANTEE COMMISSION. IT WAS ALSO CONTENDED THAT SECTION 40(A)(IA) OF THE ACT IS APPLICABLE O NLY WHEN THE AMOUNT IS PAYABLE WHEREAS IN THE INSTANT CASE, THE AMOUNT WAS ALREADY PAID TO THE BANK AND IN THIS REGARD RELIED UPON THE DECISION OF THE ITAT, VISAKHAPATNAM SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD VS . ACIT (16 ITR 1) . 3. THE ASSESSING OFFICER DID NOT ACCEPT BOTH THE CONTENTIONS AND INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE AC FOR THE PURPOSE OF MAKING AN ADDITION / DISALLOWANCE OF RS. 48,33,907/ - . 4. THOUGH BOTH THE ISSUES WERE URGED BEFORE THE LD. CIT(A), THE FIRST CONTENTION I.E., WITH REGARD TO NON - APPLICABILITY OF SECTION 194H, WAS NOT ACCEPTED BY THE LD. CIT(A) AS IN HIS OPINION THE PAYMENT MADE TO THE BANK IS IN THE NATURE OF COMMISSION AS IT IS UNDERSTOOD IN THE BUSINESS PARLANCE AND HENCE IT HAS T O BE TREATED AS A TRANSACTION BETWEEN PRINCIPAL AND AGENT AND THE PROVISIONS OF SECTION 194H WERE APPLIED. IT WAS FURTHER OBSERVED THAT THE NOTIFICATION ISSUED BY CBDT WERE APPLICABLE FROM 4.1.2013 AND THUS IT IS NOT RETROSPECTIVE IN OPERATION. 5. AS RE GARDS THE INTERPRETATION OF THE EXPRESSION PAID AND PAYABLE THE LD. CIT(A) FOLLOWED THE DECISION OF THE ITAT, VISAKHAPATNAM SPECIAL BENCH DECISION AS WELL AS THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF JANAPRIYA ENGINEERS SYNDICATE (I. T.T.A NO.352 OF 214, DATED 24.06.2014) AND OBSERVED THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE TO THE CASE ON HAND. 6. AGGRIEVED BY THE SECOND FINDING OF THE LD. CIT(A) REVENUE IS IN APPEAL WHEREAS WITH REGARD TO THE REJECTION OF THE CONTE NTION AS TO NON - APPLICABILITY OF SECTION 194H 3 OF THE ACT, THE ASSESSEE FILED CROSS OBJECTION. THE ONLY GROUND URGED BY THE REVENUE READS AS UNDER: - THE LD. CIT(A) ERRED IN HOLDING THAT PROVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED IN RESPECT OF PAYME NTS WHICH WERE ACTUALLY PAID DURING THE FINANCIAL YEAR BUT IT CAN BE INVOKED ONLY WITH RESPECT TO THE AMOUNTS WHICH REMAINED PAYABLE AS ON 31 ST MARCH, WITHOUT APPRECIATING THAT IN THE CONTEXT OF SECTION 40(A0(IA) OF THE ACT THE TERM PAYABLE WOULD INCLUDE AMOUNTS WHICH ARE PAID DURING THE PREVIOUS YEAR. 7. IN THE CROSS OBJECTIONS, THE ASSESSEE RAISED FOUR GROUNDS BUT AT THE TIME OF HEARING IT WAS SUBMITTED THAT GROUND NO.2(B) IS NOT PRESSED, C ONCERNING VALIDITY OF REOPENING OF THE ASSESSMENT. I N FACT IN THE REVISED CROSS OBJECTIONS NO SUCH GROUND WAS RAISED. WE THEREFORE, CONFINE TO THE ISSUE OF APPLICABILITY OF PROVISIONS OF SECTION 194H OF THE ACT. 8. AT THE OUTSET, IT IS NOTICED THAT THERE IS A DELAY ABOUT 15 DAYS IN FILING THE CROSS OBJECTIONS. T HE APPEAL MEMO WAS RECEIVED BY THE ASSESSEE ON 05.04.2016 WHEREAS THE CROSS OBJECTIONS WERE FILED ON 19.04.2016. HAVING REGARD TO THE REASONS GIVEN IN THE APPLICATION FILED FOR CONDONATION OF DELAY, IN FILING THE CROSS OBJECTION, WE ARE OF THE VIEW THAT T HERE IS A SUFFICIENT CAUSE FOR FILING BELATED CROSS OBJECTIONS AND ACCORDINGLY UPON TAKING TO CONSIDERATION THE FACT OF THE CASE WE ADMIT THE CROSS OBJECTIONS AND PROCEED TO DISPOSE OF THE CROSS OBJECTIONS ON MERITS. 9. IT IS NOT IN DISPUTE THAT THE ORDER PASSED BY THE ITAT, VISAKHAPATNAM SPECIAL BENCH (SUPRA) AND THE DECISION OF THE HON BLE A NDHRA PRADESH HIGH COURT IN THE CASE OF JANAPRIYA ENGINEERS SYNDICATE (SUPRA) IS OVERRULED BY THE HONBLE SUPREME COURT IN THE CASE OF PALAM GAS SERVICE VS. CIT ( CIVIL APPEAL NO. 5512 OF 2017, DATED. 03.05.2017) . IN OTHER WORDS, EVEN IN A CASE WHERE THE PAYMENT IS MADE TO THE BANK , THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE. UNDER THESE CIRCUMSTANCES, THE ORDER PASSED BY THE LD. CIT(A), ON THE AFOREMENTIONED I SSUE, DESERVES TO BE SET ASIDE. IN OTHER WORDS, THE APPEAL FILED BY THE REVENUE IS ALLOWED. 10. HOWEVER IN THE CASE OF CROSS OBJECTIONS, THE ASSESSEE CONTENDS THAT IN ORDER TO INVOKE THE PROVISIONS OF SECTION 40(A)(IA) IT HAS TO BE SHOWN THAT THE PAYMENT MADE BY THE ASSESSEE IS ATTRACTED BY THE PROVISIONS OF SECTION 194H OF THE ACT I.E., THERE IS LIABILITY TO DEDUCT TAX AT SOURCE ON THE BANK GUARANTEE COMMISSION PAYABLE WHEREAS ON THE SAME ISSUE THE CBDT HAS ISSUED NOTIFICATION WHICH EX EMPTS FROM DEDUCTION OF 4 TAX. THOUGH THE NOTIFICATION SPEAKS OF APP LICABILITY OF THE CLARIFICATION FROM 4.1.2013 THE FACT REMAINS THAT THERE ARE NUMBER OF DECISIONS OF VARIOUS BENCHES OF ITAT IN FAVOUR OF THE ASSESSEE, EVEN PRIOR TO THE NOTIFICATION AND THUS THE NOTIFICATION MERELY CLARIFIES THE ISSUE AND THUS APPLICABLE RETROSPECTIVELY. AT ANY RATE, IN THE LIGHT OF THE FOLLOWING DECISIONS, THE ONLY VIEW POSSIBLE IN THIS MATTER IS THE PROVISIONS OF SECTION 194H IS NOT APPLICABLE TO THE PAYMENTS MADE TO BANK SINCE IT IS NOT IN THE NATURE OF COMMISSION, AS IT IS UNDERSTOOD IN COMMON BUSINESS PARLANCE AND IN THE CONTEXT OF PROVISIONS OF SECTION 194H OF THE ACT. IN OTHER WORDS, IT IS NOT A TRANSACTION BETWEEN PRINCIPAL AND AGENT SO AS TO INVOKE THE PROVISIONS OF SECTION 194H OF THE ACT. LD COUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS; VIZ., (I) DECISION OF THE ITAT, SMC BENCH, MUMBAI IN THE CASE OF DCIT VS. M/S. LAQSHYA MEDIA PVT LTD (ITA NO.4390/MUM/2015, DATED 7.7.2016); (II) KOTAK SECURITIES LTD [2012] 14 ITR (TRIB) 495 (ITAT [MUM]) AND (III) M/S. EFFTRONICS SYSTEMS PVT LTD VS. ACIT (ITA NOS.188 AND 216/VIZAG/2015, DATED 21.10.2016). 11. LD DR HOWEVER COULD NOT PLACE ANY DECIS ION IN FAVOUR OF THE REVENUE. SH E STRONGLY RELIED UPON THE ORDERS PASSED BY THE T AX AUTHORITIES. 12. HAVING REGARD TO THE CONSISTENT VIEW TAKEN BY VARIOUS BENCHES OF ITAT, WE ARE OF THE VIEW THAT THE A.O. AS WELL AS THE LD. CIT(A) WERE NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 194H OF THE ACT IN THE INSTANT CASE IN ORDER TO H OLD THAT THE ASSESSEE IS A DEFAULTER. IN OTHER WORDS, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE AND CONSEQUENTLY THE DISALLOWANCE IN THE INSTANT CASE IS NOT WARRANTED. 13. IN THE RESULT, THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. PRON OUNCED ACCORDINGLY IN THE OPEN COURT ON 14 TH AUGUST, 2017. SD/ - SD/ - (S. RIFAUR RAHMAN) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDEN T HYDERABAD, DATED: 14.08. 2017 OKK, SR.PS COPY TO 5 1. M/S. DELTA CONSTRUCTIONS LTD, (NEW NAME DELTA CONSTRUCTIONS SYSTEMS LTD), STREET NO.16, 3 - 6 - 213, HIMAYAT NAGAR, HYDERABAD. 2. DCIT, CIRCLE 17(1), 6 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 3. CIT (A) - 5, HYDERABAD. 4 PR. CIT 5, HYDERABAD. 5 . D.R. ITAT B BENCH, HYDERABAD. 6 . GUARD FILE