IMPERIAL PROCUREMENT SERVICES LTD, MUMBAI V. ITO 5(1)(4), MUMBAI

ITA 6674/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8617 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 05-11-2014
• Court: TRIBUNAL
• Department Lawyers: K V VISPUTE
• Assessee Lawyers: NITESH S JOSH I
• Section: 143(3); 14A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I , MUMBAI BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI CN PRASAD , JUDICIAL MEMBER ITA NO. 6 674 /MUM/201 4 : (A.Y : 20 10 - 11 ) M/S IMPERIAL PROCUREMENT SERVICES LTD. ( FORMERLY ESSAR PROCUREMENT SERVICES LTD ) MUMBAI 400 0 34 PAN : AA ACE0892R ( / APPELLANT) VS. ITO 5 ( 1 )( 4 ) AAYAKAR BHAVAN MK ROAD NEW MARINE LINES MUMBAI 400 020 ( / RESPONDENT) / A PPELLANT BY : SHRI NITESH S JOSHI REVENUE BY : SHRI KV VISPUTE / DATE OF HEARING : 1 5 /1 1 /201 6 DATE OF PRONOUNCEMENT : 10 / 02/2017 / O R D E R PER C.N.PRASAD (J.M.) : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT (APPEALS) - 9, MUMBAI DATED 28 .08.2014 FOR THE ASSESSMENT YEAR 2010 - 11 . IN THIS APPEAL, THE ASSESSEE RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 9, MUMBAI, {THE CIT (A)]} ERRED IN CONFIRMING THE DISALLOWANCE OF RS.37,231/ - MADE BY THE INCOME TAX OFFICER 5(1)(4), MUMBAI (THE AO), U/S 14A OF THE INCOME TAX ACT, 1961. 2 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 2. THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO OF TDS CLAIM OF RS.5,68,84,546/ - . 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IN VIEW OF THE SMALLNESS, THE GROUND RAISED AGAINST DISALLOWANCE MADE U /S 14A IS NOT PRESSED. THEREFORE, THIS GROUND 1 RELATING TO DISALLOWANCE OF RS.37,231/ - U/S 14A IS DISMISSED AS NOT PRESSED. 3. COMING TO THE SECOND ISSUE IN THE APPEAL, RELATING TO WITHDRAWING OF TDS CREDIT OF RS.5,68,84,546/ - , THE FACTS ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 14.10.2010, DECLARING TAXABLE INCOME AT RS.NIL AND REFUND OF RS. 5,68,84,546/ - WAS CLAIMED BEING TDS CREDIT . THE RETURN WAS PROCESSED ON 12.10.2011 U/S 143(1) OF THE ACT , A CCEPTING TH E INCOME RETURN ED AND REFUND WAS ISSUED ALONG WITH INTEREST. SUBSEQUENTLY, ASSESSMENT WAS COMPLETED U/S 143(3) ON 30.03.2013 DETERMINING THE INCOME OF THE ASSESSEE AT RS.28,95,620/ - . FURTHER, CREDIT GIVEN FOR TDS OF RS.5,68,84,546/ - IN THE INTIMATION U/ S 143(1) WAS WITHDRAWN BY THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT . THE ASSESSING OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE OBTAINED WORK CONTRACT VIDE LETTER OF INTENT DATED 08.04.2009 FROM M/S ESSAR CONSTRUCTION (INDIA) LTD, NOW KNOWN AS ESSAR PROJECTS (INDIA) LTD FOR SUPERVISION OF CERTAIN CONSTRUCTION, CONSTRUCTION AND ERECTION, QUALITY ASSURANCE AND INSPECTION ACTIVITIES AT ISBL/OSBL UNITS OF ESSAR OIL REFINERY EXPANSION PRO JECT FOR AN AMOUNT OF RS.52 CRORES WHICH IS TO BE PAID BASED ON THE PAYMENT SCHEDULE. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CLAIMED TDS AMOUNTING TO RS.5,68,84,546/ - IN THE A.Y. 3 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 2010 - 11 WITHOUT OFFERING THE CORRESPONDING INCOME FOR TAXATION. TH EREFORE, HE I SSUED A SHOW CAUSE NOTICE TO RECONCILE THE GROSS RECEIPTS SHOWN IN THE P&L ACCOUNT WITH THE CLAIM OF TDS AND IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, ASSESSEE BY LETTER DATED 22.11.2012 SUBMITTED THAT ASSESSEE COMPANY GOT A CONTRACT FROM ESS AR CONSTRUCTION ( INDIA ) LTD., NOW KNOWN AS ESSAR PROJECTS (INDIA) LTD., FOR SUPERVISION AND CERTAIN CONSTRUCTION, CONSTRUCTION AND ERECTION, QUALITY ASSURANCE AND INSPECTION ACTIVITIES AT ISBL/OSBL UNITS OF ESSAR OIL REFINERY EXPANSION PROJECT. THE ASSESS EE SUBMITTED THAT DURING THE YEAR ONLY MOBILIZATION ADVANCE WAS RECEIVED FOR POOLING THE RESOURCES INTO THE PROJECT AND THE SAME IS DEDUCTED FROM THE PROGRESS PAYMENTS, WHEREAS TDS IS DEDUCTED ON ADVANCES PAID AS PER THE PROVISIONS OF SECTION 194J. THEREFORE, IT WAS CONTENDED THAT ONCE THE MILESTONE IS ACHIEVED AND INCOME IS RECOGNIZED, THE ASSESSEE COMPANY WILL BE PAYING THE APPLI CABLE TAX ON THAT INCOME. IT WAS CONTENDED THAT TDS CLAIM IN THE YEAR IN WHICH THE ADVANCE IS RECEIVED, AS PER THE CONTRACT AND TDS IS DEDUCTED, IT CANNOT BE STATED THAT THE ASSESSEE IS NOT SHOWING THE INCOME IN THE YEAR OF TDS. THEREFORE, THE ASSESSEE C ONTENDED THAT RECEIPT OF ADVANCE PAYMENTS ON WHICH THE TDS IS DEDUCTED CONTAINS INCOME ELEMENT OF ZERO AND THUS THE TAX PAYABLE ON THAT AMOUNT IS ZERO IN WHICH CASE, THE TDS IS TO BE REFUNDED. 4. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE, AS PER THE INTENT LETTER SHOULD HAVE COMPLETED THE CONTRACT BY 08.10.2009 WITHIN THE ASSESSMENT YEAR ITSELF AND SINCE THE ASSESSEE HAS NOT FURNISHED THE PAYMENT SCHEDULE OF THE CONTRACT AND SINCE THE ASSESSEE ALSO CLAIMED TO HAVE GIVEN ABOVE CONTRACT WORK TO ESSAR ENGINEERING SERVICES LTD. FOR SUB CONTRACT VIDE AGREEMENT DATED 4 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 28.04.2009 FOR A SUM OF RS.58,68,33,788/ - T O VERIFY AND TO EXAMINE WHETHER ANY INCOME OUT OF THE SAID CONTRACT HAS BEEN OFFERED FOR TAXATION IN ANY OF THE ASSESSMENT YEARS, NOTICES U/S 133(6) WERE ISSUED TO ESSAR PROJECTS (INDIA) LTD. AND ESSAR ENGINEERING SERVICE LTD AND OBTAINED INFORMATION FROM THE SAID COMPANIES. THE ASSESSING OFFICER RECEIVED INFORMATION FROM ESSAR PROJECTS (INDIA) LTD VIDE LETTER DATED 22.03.2013 STATING THAT THEY HAVE GIVEN CONTRACT TO THE ASSESSEE COMPANY AND PAID SUM OF RS.54,08,75,555/ - DURING THE YEAR UNDER CONSIDERATION. ESSAR ENGINEERING SERVICES LTD. VIDE LETTER DATED 15.03.2013 STATED THAT THEY HAVE RECEIVED PAYMENTS FROM THE ASSESSEE COMPANY AMOUNTIN G TO RS.54,04,47,510/ - IN TWO ASSESSMENT YEARS I.E. 2010 - 11 AND 2011 - 12 AT RS.49,10,40,576/ - AND RS.4,94,06,934/ - RESPECTIVELY. ESSAR ENGINEERING SERVICES LTD. FURTHER STATED THAT THE ENTIRE ADVANCE OF RS.54,04,47,510/ - WAS PAID BACK TO THE ASSESSEE IN TH E FINANCIAL YEAR 2010 - 11 RELEVANT TO THE ASSESSMENT YEAR 2011 - 12 AS THE CONTRACT COULD NOT BE EXECUTED. THE ASSESSEE CONTENDED THAT THE WHOLE CONTRACT GOT CANCELLED AND THE CONTRACT AMOUNT IS YET TO BE RETURNED BACK TO THE ESSAR PROJECTS (INDIA) LTD. AND THE AMOUNT IS SHOWN AS A LIABILITY IN THE ASSESSMENT YEAR S 2011 - 12 AND 2012 - 13 AS PER THE COPY OF LEDGER ACCOUNTS SUBMITTED TO THE ASSESSING OFFICER. THE ASSESSEE CONTENDED THAT SINCE THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE HAS BEEN SHOWN AS REFUNDABLE TO ESSAR PROJECTS (INDIA) LTD., AS THE CONTRACT COULD NOT BE EXECUTED AND GOT CANCELLED, NO INCOME HAS ACCRUED TO THE ASSESSEE, WHEREAS TDS HAS BEEN DEDUCTED AND PAID TO THE GOVT. ACCOUNT . THE ASSESSEE CONTENDED THAT SINCE THERE IS INCOME SUBJECT TO TAX, THERE WILL NOT BE ANY TAX PAYABLE AND THE TAX COLLECTED FROM THE ASSESSEE BY WAY OF TDS AND PAID TO THE GOVERNMENT IS LIABLE TO BE REFUNDED AND THUS IT HAS RIGHTLY BEEN REFUNDED TO THE ASSESSEE, 5 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 WHILE PROCESSING THE RETURN U/S 143(1) OF THE ACT FOR THE AS SESSMENT YEAR 2010 - 11 . THEREFORE, IT WAS SUBMITTED THAT THERE SHOULD NOT BE WITHDRAWAL OF ANY TDS CLAIM WHILE COMPLETING THE ASSESSMENT . 5. HOWEVER, THE SUBMISSIONS OF THE ASSESSEE W ERE NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER CONCLU DED THAT IN VIEW OF THE PROVISIONS OF S ECTION 199 , SINCE THE ASSESSEE HAS NOT OFFERED THE INCOME FOR TAXATION FOR THE ASSESSMENT YEAR 2010 - 11 , THE CLAIM FOR TDS OF RS.5,68,84,546/ - GRANTED TO THE ASSESSEE SHOULD BE WITHDRAWN. HE PLACED RELIANCE ON THE DE CISION OF HYDERABAD BENCH IN THE CASE OF ITO VS. LIMAK - SOMA J.V. IN ITA NO.99/HYD/2010 DATED 24.09.2010 AND MUMBAI BENCH IN THE CASE OF SMT. VARSHA G. SALUNKE VS. DCIT (2006) 98 ITD 141 (TM). THE ASSESSMENT WAS COMPLETED ACCORDINGLY. 6 . ON APPEAL BY THE ASSESSEE, THE LD. CIT (APPEALS) SUSTAINED THE ACTION OF THE ASSESSING OFFICER IN DENYING CREDIT FOR THE TDS FOR THE REASON THAT THE ASSESSEE HAS NOT OFFERED INCOME TO TAX DURING ASSESSMENT YEAR 2010 - 11 . HE ALSO CONCLUDED THAT THE MOBILIZATION ADVANCE IS TA XABLE IN THE HANDS OF THE ASSESSEE AND SINCE THE SAID RECEIPT IS NOT OFFERED AS INCOME, THE ASSESSEE IS NOT ENTITLED FOR TDS CREDIT. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND SUBMITS THAT THE ASSESSE E HAS NOT CARRIED OUT ANY CONTRACT WORK AND T HE CONTRACT ULTIMATELY GOT CANCELLED AND THE ENTIRE CONTRACT AMOUNT WHICH WAS RECEIVED AS ADVANCE IS REFUNDABLE AND THEREFORE SINCE NO INCOME IS ACCRUED TO THE ASSESSEE, THE ASSESSEE HAS NOT OFFERED INCOME AND SINCE THE ENTIRE CONTRACT AMOUNT IS LIABLE TO BE REFUNDED, 6 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 TDS CREDIT CLAIMED BY THE ASSESSEE SHOULD BE REFUNDED. THE LD. COUNSEL FOR THE ASSESSEE PLACING RELIANCE ON THE DECISION OF THE MUMBAI BENCH IN THE CASE OF ARVIND MURJANI BRANDS (P.) LTD. VS ITO [ 137 ITD 173 ] SUBMITS THAT WHEN AN AMOUNT ON WH ICH TAX WAS DEDUCTED AT SOURCE IS NOT CHARGEABLE TO TAX, THE CREDIT FOR THE TAX DEDUCTED AT SOURCE SHOULD BE ALLOWED EVEN IF THE AMOUNT IS NOT OFFERED TO TAX. HE ALSO RELIED ON THE DECISION OF CHENNAI BENCH IN THE CASE OF SUPREME RENEWABLE ENERGY LTD. VS. ITO [ 124 ITD 394 ] IN SUPPORT OF HIS CONTENTIONS. 7 . THE LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW . R E FERRING TO THE PROVISIONS OF SECTION 199 OF THE ACT, THE LD. DR SUBMITS THAT UNLESS THE INCOME IS OFFERED, CREDIT FOR TDS CANNOT BE GRANTED AND S INCE THE ASSESSEE HAS NOT OFFERED ANY INCOME, HE SUBMITS THAT THE ASSESSING OFFICER HAS RIGHTLY WITHDRAWN CREDIT FOR TDS WHILE COMPLETING THE ASSESSMENT . 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW . IN THIS CASE, THE ASSESSEE PROCURED CONTRACT FROM ESSAR PROJECTS (INDIA) LTD AND RECEIVED A SUM OF RS. 54,08,75,555/ - AND IN TURN GRANTED SUB CONTRACT TO ESSAR ENGINEERING SERVICES LTD FOR AN AMOUNT OF RS.58,68,33,788 / - . ESSAR PROJECTS (INDIA) LTD. HA S GIVEN ADVANCE OF RS 54,08,75,555/ - TO THE ASSESSEE AND THE ASSESSEE IN TURN HAS GIVEN RS.54,04,47,510/ - TO ESSAR ENGINEERING SERVICES LTD AS ADVANCE IN RESPECT OF THE SA ME CONTRACT TO BE EXECUTED BY THEM. ESSAR PROJECTS (INDIA) LTD DEDUCTED TDS OF RS . 5, 68,84,546/ - ON THE MOBILIZATION ADVANCE GIVEN TO THE ASSESSEE, WHICH THE ASSESSEE CLAIMED AS REFUND IN ITS RETURN OF INCOME FILED FOR THE 7 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 ASSESSMENT YEAR 2010 - 11. IT IS THE CONTENTION OF THE ASSESSEE THAT INCOME FROM THE CONTRACT SHALL BE RECOGNIZED ON PE RCENTAGE COMPLETION METHOD AS PER THE ACCOUNTING STANDARD 7 ISSUED BY ICAI AND SINCE THE ASSESSEE HAS NOT EXECUTED ANY PART OF THE CONTRACT DURING THIS ASSESSMENT YEAR NO INCOME IS ACCRUED TO THE ASSESSEE AND THEREFORE NO INCOME IS OFFERED FROM THE SAID CO NTRACT. THE ASSESSING OFFICER DENIED CREDIT FOR TDS TO THE ASSESSEE FOR THE PRIMARY REASON THAT THE ASSESSEE HAS NOT OFFERED THE INCOME FOR ASSESSMENT YEAR 2010 - 11 AND THEREFORE, CREDIT IS NOT GRANTED IN VIEW OF THE PROVISIONS OF SECTION 199 OF THE ACT. 9 . T HE ASSESSING OFFICER HAS RELIED ON THE DECISIONS OF HYDERABAD ITA IN ITA NO 99/HYD/2010 IN THE MATTER OF ITO V LIMAK SOMA J. V. AND THAT OF MUMBAI ITAT IN THE MATTER OF SMT VARSHA G. SALUNKE V DCIT (98 LTD 141) FOR NOT GIVING CREDIT FOR THE T D S DULY DEDUCTED AND PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT. BOTH THESE CASES DEAL WITH THE QUESTION OF THE PARTICULAR ASSESSMENT YEAR IN WHICH THE CREDIT FOR TDS NEEDS TO BE GIVEN BASED ON THE YEAR IN WHICH THE SUM ON WHICH THE TDS WAS MADE WAS ASSES SABLE TO TAX. HOWEVER, AS ALREADY STATED ABOVE, THE RECEIPT ON WHICH THE TDS WAS MADE IN THE CASE OF THE ASSESSEE WAS AN ADVANCE IN NATURE WHICH WOULD BE DEDUCTED IN THE BILLS TO BE RAISED IN FUTURE ON EXECUTION OF CONTRACT AND THUS CANNOT BE TREATED AS TA XABLE INCOME. FURTHER, THE CONTRACT ITSELF HAS SINCE BEEN CANCELLED WITHOUT PERFORMING ANY WORK AND THE ADVANCE IS TO BE REFUNDED IN FULL AS CLEARLY MENTIONED IN THE ASSESSMENT ORDER ITSELF. THUS, THE QUESTION OF TAXABILITY OF THIS SUM DOES NOT ARISE AT AL L AND THEREFORE THE QUESTION OF THE ASSESSMENT YEAR IN 8 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 WHICH THE SAID SUM IS TAXABLE ALSO DOES NOT ARISE. IN VIEW OF THE FACTS OF THE CASE, THE TDS DEDUCTED HAS TO BE REFUNDED AS SUCH. THUS THE CASE LAWS RELIED ON BY THE AO ARE IRREL E VANT TO THE FACTS OF T HE CASE AND FIT TO BE REJECTED. 10 . MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ARVIND MURJANI BRANDS (P.) LTD. VS ITO (SUPRA) CONSIDERED A SITUATION, WHERE IN A CASE, IF THE AMOUNT IS NOT CHARGEABLE TO TAX, BUT THE TDS REFUND CAN BE GRATED OR NOT VIS - - V IS THE PROVISIONS OF THE 199 OF THE ACT HELD AS UNDER. SECTION 199 HAS BEEN ENSHRINED IN THE ACT TO GIVE A LOGICAL CONCLUSION TO THE EARLIER SECTIONS UNDER WHICH TAX IS DEDUCTED AT SOURCE FROM VARIOUS ITEMS OF INCOME AS ENUMERATED THEREIN SO THAT CREDIT FOR THE TAX DEDUCTED AT SOURCE IS ALLOWED TO THE PERSON W HILE ASSESSING THE INCOME IN THE HANDS OF THE PAYEE. IT IS OF PARAMOUNT IMPORTANCE TO NOTE THAT THIS SECTION RECOGNIZES A VERY IMPORTANT POSITION OF LAW, THAT THE TAX DEDUCTED AT SOURCE IS 'TREATED AS A PAYMENT OF TAX ON BEHALF OF THE PERSON FROM WHOSE INC OME THE DEDUCTION WAS MADE' AND, CONSEQUENTLY, 'CREDIT SHALL BE GIVEN TO HIM FROM THE AMOUNT SO DEDUCTED.' SO THE ROLE OF SECTION 199 IS CONFINED TO ALLOWING THE CREDIT FOR THE TAX DEDUCTED AT SOURCE TO THE PAYEE OF THE AMOUNT AND NONE ELSE. THUS, IT IS EV IDENT THAT SECTION 199 ONLY DEALS WITH ALLOWING OF THE CREDIT FOR THE TAX DEDUCTED AT SOURCE AND NOT WITH THE DISALLOWING OF SUCH CREDIT. IT DOES NOT ENCOMPASS WITHIN ITS PURVIEW THE QUESTION FOR DETERMINATION AS TO WHETHER THE CREDIT FOR TAX DEDUCTED AT S OURCE SHOULD AT ALL BE ALLOWED OR DISALLOWED. THIS ENABLING PROVISION CANNOT BE EMPLOYED TO DISABLE THE ALLOWING OF CREDIT FOR THE TAX DEDUCTED AT SOURCE FROM THE PAYMENT MADE TO THE ASSESSEE IN THE NATURE OF INCOME. EVIDENTLY, IT CAN NEVER BE CONTEMPLATED NOR IT CAN BE THE CASE OF THE REVENUE THAT THE NO CREDIT FOR THE AMOUNT OF TAX DEDUCTED AT SOURCE SHOULD BE ALLOWED IN A GIVEN SITUATION. THE REASON BEING THAT THE AMOUNT OF TAX DEDUCTED AT SOURCE HAS TO BE NECESSARILY ADJUSTED AGAINST THE TAX LIABILITY A RISING OUT OF PAYMENT 9 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 RECEIVED IN THE NATURE OF INCOME BY THE PAYEE. TILL THE TIME SUCH ADJUSTMENT IS MADE, THE SEISIN OF THE REVENUE OVER SUCH AMOUNT COLLECTED BY WAY OF DEDUCTION OF TAX AT SOURCE IS ONLY IN THE NATURE OF AN OBLIGATION, IF THE AMOUNT OF T AX DUE ON SUCH INCOME, IN THE HANDS OF RECIPIENT, TURNS OUT TO BE LOWER THAN THE AMOUNT OF TAX DEDUCTED AT SOURCE, THE REVENUE IS OBLIGED TO REFUND THE EXCESS. THE POSITION IS, THEREFORE, CRYSTAL CLEAR THAT THE AMOUNT OF TAX DEDUCTED AT SOURCE HAS TO BE NE CESSARILY ALLOWED CREDIT SOMEWHERE. IT CANNOT BE A CASE THAT THE AMOUNT OF SUCH TAX DEDUCTED AND PAID TO THE EXCHEQUER IS NOT TO BE REFUNDED, IF THE TAX DUE ON THE AMOUNT OF INCOME RECEIVED IS EITHER LOWER THAN THE AMOUNT OF TAX DEDUCTED OR THERE DOES NOT EXIST ANY LIABILITY TO TAX IN RESPECT OF THE AMOUNT RECEIVED. FROM THE ABOVE DISCUSSION IT FOLLOWS THAT THE AMOUNT OF TAX DEDUCTED AT SOURCE NEEDS TO BE ADJUSTED AGAINST SOME TAX LIABILITY OF THE PAYEE AND IN CASE THERE IS NO SUCH LIABILITY, IT HAS TO BE R EFUNDED TO PAYEE BECAUSE OF THE VERY MANDATE OF SECTION 199 AS PER WHICH SUCH AMOUNT IS 'TREATED AS A PAYMENT OF TAX ON BEHALF OF THE PERSON FROM WHOSE INCOME THE DEDUCTION WAS MADE' THAT IS THE PAYEE. (PARA 14) AS THE AMOUNT ON WHICH TAX WAS DEDUCTED AT SOURCE IS NOT AT ALL CHARGEABLE TO TAX, THEN THE COMMAND OF SECTION 199 WILL HAVE TO BE HARMONIOUSLY AND PRAGMATICALLY READ AS PROVIDING FOR ALLOWING CREDIT FOR THE TAX DEDUCTED AT SOURCE IN THE YEAR OF THE RECEIPT OF THE AMOUNT, ON WHICH TAX WAS DEDUCTED AT SOURCE. IF THE VIEWPOINT C ANVASSED BY THE REVENUE IS ACCEPTED AND THE ASSESSEE IS NOT ALLOWED CREDIT FOR THE TAX DED UCTED AT SOURCE, AN ARDUOUS SITUATION WILL ARISE. THE AMOUNT OF TAX DEDUCTED A T SOURCE WILL REMAIN IN LIMBO THE REVENUE WILL NEVER BE IN A POSITION TO ALLOW CREDIT FO R SUCH TAX BECAUSE THE AMOUNT IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSE E AND IT CANNOT RETAIN SUCH AMOUNT WITH IT IN CONTRAVENTION OF ARTICLE 265 OF THE CONST IT UTION OF INDIA. TO CIRCUMVENT SUCH A SITUATION, THE ONLY POSSIBLE SOLUTION IS TO ALLOW CREDIT FOR THE TAX DEDUCTED AT SOURCE TO THE PAYEE OF THE AMOUNT IN THE YEAR FOR WHI C H SUCH TAX WAS DEDUCTED AND THE AMOUNT WAS PAID AFTER DEDUCTION OF TAX AT SOUR CE. AS IN THE PRESENT CASE THE ASSESSEE RECEIVED THE AMOUNT AFTER DEDUCTION OF TAX AT SOURCE FROM 'G' AND 10 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 SUCH AMOUNT IS NOT ADMITTEDLY CHARGEABLE TO TAX IN ITS HANDS, THE CREDIT FOR THE TAX DEDUCTED AT SOURCE SHOULD BE ALLOWED IN THE INSTANT YEAR. (EMPHASIS SUPPLIED). 1 1 . SIMILARLY, THE CHENNAI BENCH OF THE TR IBUNAL IN THE CASE OF SUPREME RENEWABLE ENERGY LTD. VS. ITO ( SUPRA ) HELD AS UNDER. FROM THE ABOVE IT IS CLEAR THAT WHEN A PARTICULAR INCOME IS RECEIVED BY THE ASSESSEE AFTER DEDUCTION OF TAX AT SOURCE AND THE SAID TDS HAS BEEN DULY DEPOSITED WITH THE GO VERNMENT AND THE ASSESSEE HAS RECEIVED THE REQUISITE CERTIFICATE TO THIS EFFECT, THEN ON PRODUCTION OF THE SAID CERTIFICATE THE ASSESSEE BECOMES ENTITLED FOR THE CREDIT OF TDS EVEN IF THE ASSESSEE HAS NOT DIRECTLY OFFERED THE SAID INCOME FOR TAX AS THE ASS ESSEE CONSIDERED THE SAME WAS NOT LIABLE TO TAX. IN VIEW OF THE ABOVE - MENTIONED DECISIONS OF THE TRIBUNAL, IT IS CLEAR POSITION OF LAW THAT WHEN TDS IS MADE ON A PARTICULAR INCOME WHICH IS OTHERWISE NOT LIABLE FOR TAX, THE ASSESSEE IS ENTITLED FOR THE SAI D CREDIT OF THE TDS. IN THE CASE IN HAND WHEN THE ASSESSEE HAS EARNED INTEREST ON DEPOSIT MANDATORY FOR ACQUISITION ON INSTALLATION OF MACHINERY THEN THE INTEREST WAS EARNED BY THE ASSESSEE AND IS DIRECTLY INCIDENTAL TO THE ACQUISITION IN RESPECT OF MACHIN ERY AND THEREFORE THE SAME HAS BEEN RIGHTLY REDUCED FROM THE COST OF THE MACHINERY. IN THIS WAY THE ASSESSEE HAS INDIRECTLY DISCLOSED INCOME AND HAS OFFERED FOR ASSESSMENT. WE ARE OF THE CONSIDERED VIEW THAT EVEN IF THE INCOME EARNED BY THE ASS E SSEE HAS NO T BEEN OFFERED FOR TAX BEING NOT LIABLE FOR TAX, THE ASSESSEE IS ENTITLED FOR CREDIT OF TDS MADE IN RESPECT OF THAT INCOME...' (EMPHASIS SUPPLIED) IN BOTH THE CASES QUOTED ABOVE, THE ASSESSEE HAS NOT DISCLOSED THE RECEIPT ON WHICH TDS WAS MADE AS HIS INCO ME SINCE IT WAS CONSIDERED AS NOT TAXABLE. IN BOTH THE CASES, THE AO DID NOT ALLOW THE CREDIT FOR TDS IN THE ABSENCE OF CORRESPONDING TAXABLE INCOME, SIMILAR TO THE ACT OF THE AO IN THE ASSESSMENT ORDER IN OUR CASE. IN THIS SITUATION, THE ITAT HAS HELD THA T THE TDS IS TO BE REFUNDED IN 11 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 THE YEAR IN WHICH IT WAS DEDUCTED SINCE THE RECEIPT ON WHICH THE TDS WAS MADE NOT CHARGEABLE TO TAX. ON GOING THROUGH THE ASSESSMENT ORDER, IT CAN BE SEEN THAT THE AMOUNT RECEIVED IN OUR CASE WAS IN THE NATURE OF AN ADVANCE AND NOT AN INCOME AS SUCH. FURTHER, THE CONTRACT AGAINST WHICH THIS ADVANCE WAS RECEIVED HAS BEEN CANCELLED WITHOUT PERFORMING ANY WORK AND THUS THE ADVANCE IS TO BE REPAID IN FULL. THUS THE AMOUNT ON WHICH THE TAX WAS DEDUCTED CAN NEVER BE TAXED AS INCOME IN ANY ASSESSMENT YEAR AND THEREFORE, THE TDS HAS TO BE REFUNDED IN THE YEAR WHICH IT HAS BEEN DEDUCTED AS CATEGORICALLY HELD BY THE JURISDICTIONAL ITAT OF MUMBAI AS ABOVE AND ALSO SUPPORTED BY THE DECISION OF ITAT OF CHENNAI. THUS THE ACTION OF THE AO IN NOT GIVING CREDIT FOR THE ABOVE TDS IS NOT IN ACCORDANCE WITH THE LAW IN THIS REGARD. AS PER THE DECISION OF THE JURISDICTIONAL BENCH OF ITAT WHICH IS BINDING ON THE JUDICIAL AUTHORITIES, THE DISALLOWANCE OF TDS AS ABOVE IS CLEARLY AGAINST THE LAW AND TH EREFORE QUESTED THAT THE AO BE DIRECTED TO ALLOW THE TDS. 1 2 . AS COULD BE SEEN FROM THE ABOVE DECISIONS, THAT IF A PARTICULAR AMOUNT ON WHICH TAX WAS DEDUCTED AT SOURCE IS NOT CHARGEABLE TO TAX, THE ASSESSEE IS ENTITLED FOR CREDIT FOR TDS. SIMILARLY IN THE CASE ON HAND BEFORE US, THE ASSESSEE RECEIVED MOBILIZATION A DVANCE AND IN TURN THIS WAS PASSED ON TO ESSAR ENGINEERING SERVICES LTD FOR EXECUTION OF SUB CONTRACT, HOWEVER, THE WHOLE CONTRACT GOT CANCELLED BY VIRTUE OF WHICH ESSAR ENGINEERING SERVICES LTD REFUNDED THE ASSESSEE THE ENTIRE SUB CONTRACT AMOUNT OF RS. 5 4,04,47,510/ - AND THE ASSESSEE IN TURN HAS TO REFUND THE ENTIRE CONTRACT AMOUNT WHICH WAS AGREED BETWEEN THE ASSESSEE AND ESSAR PROJECTS (INDIA) LTD AND IN THIS CIRCUMSTANCE , NO PART OF INCOME HAS BEEN ACCRUED TO THE ASSESSEE. IN THIS SITUATION, WHEN NO P ART OF THE CONTRACT HAS BEEN ACCRUED AND NOTHING IS TAXABLE IN THE HANDS OF THE 12 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 ASSESSEE, THERE IS NO JUSTIFICATION IN DENYING THE CREDIT FOR TDS ON THE GROUND THAT THE ASSESSEE HAS NOT OFFERED INCOME TO TAX. THE FACT OF C ANCELLATION OF CONTRACT HAS NOT B EEN DENIED BY THE ASSESSING OFFICER AND IT IS NOT THE CONTENTION OF THE ASSESSING OFFICER THAT THE ASSESSEE OR THE SUB CONTRACTOR HAS EXECUTED A PART OF THE CONTRACT AND T HEREFORE, INCOME WAS ACCRUED TO THE ASSESSEE OR TO THE SUB CONTRACTOR . THEREFORE, IN THE ABSENCE OF ANY SUCH FINDING BY THE ASSESSING OFFICER THAT THE ASSESSEE OR THE SUB CONTRACTOR HAS EXECUTED A PART OF THE CONTRACT, THE QUESTION OF ACCRUING INCOME TO THE ASSESSEE FROM THIS CONTRACT DOES NOT ARISE, HENCE IN OUR CONSIDERED VIEW, THE ASSE SSING OFFICER SHOULD NOT HAVE DENIED CREDIT FOR TDS REFUND TO THE ASSESSEE. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO GRANT CREDIT FOR TDS OF RS.5,68,84,546/ - TO THE ASSESSEE. 13 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONO UNCED IN THE OPEN COURT ON THE 10 TH DAY OF FEBRUARY 2017 . SD/ - SD/ - RAJENDRA C.N.PRASAD / / ACCOUNTANT MEMBER JUDICIAL MEMBER / MUMBAI; / DATED 10 / 02 / 2017 LR, SPS 13 M/S IMPERIAL PROCUREMENT SERVICE LTD. ITA NO. 6 674 /MUM/2014 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, (ASSTT. REGISTRAR) , / ITAT, MUM 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. // TRUE COPY / /