Comfortline systems Private Limited, Hyderabad V. Income Tax Officer, Ward-1(4), Hyderabad

ITA 898/Hyd/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3645 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 13-08-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 09-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHAN REDDY
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Opportunity of being heard; Earning of tax free income; Question of law; Rule 8D
• Section: 43B; 14A; 40(a)(ia); 201(1)

Judgement Text

ITA NO 898 OF 2018 COMFORTLINE SYSTEMS P LTD HYDERA BAD. PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B SMC BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 898/HYD/2018 ASSESSMENT YEAR: 2012-13 M/S. COMFORTLINE SYSTEMS PRIVATE LTD, HYDERABAD PAN: AACCF4458Q VS. INCOME TAX OFFICER, WARD 1(4) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI P. MURALI MOHAN RAO REVENUE BY : SRI MOHAN REDDY, DR DATE OF HEARING: 13/08/2019 DATE OF PRONOUNCEMENT: 28/08/2019 ORDER THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13 AGAIN ST THE ORDER OF THE CIT (A)-1, HYDERABAD, DATED 19.12. 2017. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) E RRED BOTH ON FACTS AND LAW IN PASSING APPELLATE ORDER BY DISM ISSING THE APPEAL OF THE APPELLANT ON ALL ISSUES EXCEPT ON THE ISSUE OF DISCREPANCY IN THE AMOUNT OF DISALLOWANCE. 2. THE LD. CIT (APPEALS) ERRED IN DISMISSING THE AP PEAL OF THE APPELLANT WITHOUT GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 3. THE LD. CIT (APPEALS) ERRED IN DISMISSING THE AP PEAL OF THE APPELLANT WITHOUT APPRECIATING THE FACTS OF THE CAS E AND THE LEGAL POSITION ON THE ISSUES INVOLVED. 4. THE LD. CIT (A) ERRED IN DISMISSING THE APPEAL O F THE APPELLANT WITHOUT APPRECIATING THE GROUNDS OF APPEA L AND WRITTEN SUBMISSIONS OF THE APPELLANT. ITA NO 898 OF 2018 COMFORTLINE SYSTEMS P LTD HYDERA BAD. PAGE 2 OF 9 ADDITION OF RS.1,16,976/- TOWARDS PAYMENT OF SERVICE TAX U/S 43B OF THE ACT: 5. THE LD. CIT (A) ERRED IN DISMISSING THE APPEAL O F THE APPELLANT ON THE ISSUE OF ADDITION OF RS.1,16,976/- TOWARDS DISALLOWANCE OF SERVICE TAX U/ S.43B OF THE INCOME TAX ACT 1961 WITHOUT APPRECIATING THE DETAILS AND THE EVIDE NCE FURNISHED BY THE APPELLANT. 6. THE LD. CIT (A) ERRED IN DISMISSING THE APPEAL O F THE APPELLANT ON THE ISSUE OF ADDITION TOWARDS DISALLOW ANCE OF SERVICE TAX, WITHOUT APPRECIATING THE FACTS THAT NO SUCH AMOUNT WAS RECEIVED OR PAID AND DEBITED TO P&L A/ C . 7. THE LD. CLT (A) OUGHT TO HAVE APPRECIATED THE FA CT THAT AO ERRED IN MAKING ADDITION TOWARDS DISALLOWANCE OF SE RVICE TAX, WITHOUT CONSIDERING THE FACTS OF THE ISSUE. ADDITION OF RS.31,405/- TOWARDS PAYMENT OF ESI AND PROVIDENT FUND OF U/S 36(1)(VA) OF THE ACT. 8. THE LD. CIT (A) ERRED IN DISMISSING THE APPEAL O F THE APPELLANT ON THE ISSUE OF DISALLOWANCE OF EMPLOYEES ' CONTRIBUTION TOWARDS ESI OF RS.3253/- AND PF OF RS. 28,170/- WITHOUT APPRECIATING THE FACT THAT THE SAME WERE PA ID WITHIN THE DUE DATES OF FILLING THE RETURN OF INCOME U/ S. 139(1) OF THE ACT. 9. THE LD. CIT(A) OUGHT TO HAVE APPRECIATE THE FACT THAT CONTRIBUTIONS TOWARDS ESI AND PF WHICH WERE PAID BE FORE THE DUE DATE FOR FILLING OF THE RETURN OF INCOME ARE AL LOWABLE AS DEDUCTION U/S.43B OF THE ACT, AS HELD BY NUMBER OF HON. COURT AND TRIBUNALS. ADDITION OF RS. 5,19,805/- TOWARDS DISALLOWANCE OF INTEREST PAYMENTS U/S 40(A)(IA) OF THE ACT. 10. THE LD. CIT (A) ERRED IN DISMISSING THE APPEAL OF THE APPELLANT ON THE ISSUE OF ADDITION OF RS.5,19,805/ - TOWARDS DISALLOWANCE OF PAYMENT OF INTEREST U/S.40(A)(IA) O F THE LT. ACT,1961, WITHOUT CONSIDERING THE FACTS OF THE CASE , LEGAL DECISIONS ON THE ISSUE AND THE DETAILS AND EVIDENCE FURNISHED BY THE APPELLANT. 11. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE F ACT THAT THE PROVISIONS OF SEC 40A(IA) ARE NOT APPLICABLE IN RES PECT OF THE PAYMENTS TOWARDS INTEREST BY THE APPELLANT SINCE TH E SAME WERE PAID AND NO AMOUNTS REMAINED PAYABLE AT THE EN D OF THE RELEVANT YEAR. ITA NO 898 OF 2018 COMFORTLINE SYSTEMS P LTD HYDERA BAD. PAGE 3 OF 9 12. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE F ACT THAT THE PROVISIONS U/S.40(A)(IA) OF THE ACT ARE NOT APPLICA BLE IN RESPECT OF THE PAYMENTS TOWARDS INTEREST BY THE APP ELLANT SINCE THE SAME WERE ADMITTED BY THE RECIPIENTS AS I NCOME IN THEIR RETURNS OF INCOME, AS HELD BY THE HON'BLE COU RTS. 13. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE F ACT THAT THERE IS NO LOSS OF REVENUE SINCE THE RECIPIENTS OF INTEREST INCOMES HAVE 'ADMITTED PAYMENT OF INTEREST BY THE A PPELLANT AS THEIR INCOMES IN THEIR RETURNS AND PAID THE TAXE S. 14. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE F ACT THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, 1961 AR E NOT APPLICABLE TO THE INTEREST PAYMENTS IN QUESTION SI NCE THE APPELLANT WAS NOT HELD TO BE THE ASSESSEE IN DEFAUL T BY THE A.O BY INITIATING PROCEEDINGS U/ S 201(1) OF THE AC T. ADDITION OF RS.6,O5,980/- TOWARDS OF INTEREST - U/S 1 4A OF THE ACT 15. THE LD. CIT (A) ERRED IN DISMISSING THE APPEAL OF THE APPELLANT ON THE ISSUE OF ADDITION OF RS.6,05,980/- TOWARDS PAYMENT OF INTEREST U/S. 14A OF THE ACT, WITHOUT AP PRECIATING THE FACTS AND DETAILS SUBMITTED BY THE APPELLANT. 16. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE F ACT THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED ANY DIRECT NE XUS BETWEEN THE INTEREST PAID AND THE INVESTMENT MADE I N THE ASSETS, THE INCOME OF WHICH IS EXEMPT FROM TAX. 17. THE LD. CIT(A) OUGHT TO APPRECIATED THE FACT TH AT NO DISALLOWANCE U/S.14A OF THE ACT READ WITH SUB-RULE (2) OF RULE BD OF THE LT. RULES, 1962 CAN BE MADE SINCE THE APP ELLANT HAS NOT INCURRED ANY EXPENDITURE IN EARNING EXEMPT INCOME. 18. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE F ACT THAT THERE ARE NO FRESH INVESTMENTS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND NO EXEMPTED DIVIDEND/INCOME ON THE EARLIER INVESTMENT WAS EARNE D DURING THE YEAR. 19. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE F ACT THAT NO INTEREST BEARING FUNDS WERE UTILISED FOR THE PURPOS E OF INVESTMENTS, THE INCOME OF WHICH IS EXEMPT FROM TAX . 20. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE F ACT THAT RULE 8D OF LT. RULES, 1962 CANNOT BE APPLIED WHEN T HE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNTS A ND GOT THEM AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT. ITA NO 898 OF 2018 COMFORTLINE SYSTEMS P LTD HYDERA BAD. PAGE 4 OF 9 21. WITHOUT PREJUDICE TO OTHER GROUNDS, THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE AO HAS MADE MIST AKES IN APPLICATION OF RULE 8D OF I'I' RULES WHILE COMPUTIN G DISALLOWANCE U/ S 14A OF THE ACT. GENERAL: 22. THOUGH SOME GROUNDS WERE NOT TAKEN UP BEFORE TH E LOWER AUTHORITIES, THEY LO' ARE NOW TAKEN BEFORE THE HON' BLE ITAT, IN VIEW OF THE SUPREME COURT DECISION IN THE CASE O F NTPC VS CIT (229 ITR 383). 23. THE APPELLANT MAY ADD OR ALTER OR AMEND OR MODI FY OR SUBSTITUTE OR DELETE AND/ OR RESCIND ALL OR ANY OF THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE COURSE O F HEARING OF APPEAL. 2. FURTHER, THE ASSESSEE HAS FILED A LETTER DATED 4 .6.2019 SEEKING ADMISSION OF ADDITIONAL GROUNDS WHICH ARE A LREADY RAISED AS GROUND.NO.6 AND 12 TO 14 ON THE GROUND THAT THEY RELATE TO QUESTION OF LAW ARISING FROM THE FACTS OF THE CASE WHICH ARE ALREADY ON RECORD. 3. IN SUPPORT OF THE ABOVE CONTENTIONS, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DEC ISION OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF NTPC VS. CIT (229 ITR 383) (SC). 4. BOTH THE PARTIES WERE HEARD AND SINCE THE GROUND S WHICH ARE SOUGHT FOR ADMISSION AS ADDITIONAL GROUND S ARE ON QUESTIONS OF LAW, THEY ARE ADMITTED AND ARE ADJUDIC ATED AS UNDER. 5. GROUNDS 1 TO 4 ARE GENERAL IN NATURE AND NEED NO ADJUDICATION AND THE ASSESSEE IS ALSO NOT PRESSING THE GROUND THAT ITA NO 898 OF 2018 COMFORTLINE SYSTEMS P LTD HYDERA BAD. PAGE 5 OF 9 THE ASSESSEE HAS NOT BEEN GIVEN REASONABLE OPPORTUN ITY OF BEING HEARD BY THE CIT (A). 6. GROUNDS 5 TO 7 ARE AGAINST THE ADDITION OF RS. 1,16,976/- TOWARDS PAYMENT OF SERVICE TAX U/S 43B O F THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT DEBITED THE SAME TO THE P&L A/C BUT HAD ENT ERED IT IN THE BALANCE SHEET AND THEREFORE, THERE CAN BE NO DISALL OWANCE U/S 43B OF THE ACT. HE SUBMITTED THAT WHEN AN ASSESSEE DOES NOT MAKE A CLAIM OF EXPENDITURE, IT CANNOT BE DISALLOWE D AND BROUGHT TO TAX U/S 43B OF THE ACT. IN SUPPORT OF HIS CONTEN TION, HE PLACED RELIANCE UPON THE FOLLOWING CASE LAW: I) ITA NO.315/BANG/2016 IN THE CASE OF ENVISON ENTERPRISES SOLUTIONS P LTD. II) ITA NO.315/AGRA/2014 IN THE CASE OF SHIVHARE RO AD LINES VS. ITO III) HON'BLE DELHI HIGH COURT IN THE CASE OF JET LI TE (INDIA) LTD (63 TAXMANN.COM 62) 7. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T WHEN THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTE M OF ACCOUNTING, HE HAS TO DEBIT THE EXPENDITURE TO P&L A/C BUT CANNOT TAKE IT DIRECTLY TO THE BALANCE SHEET AND AN Y SUCH EXPENDITURE MENTIONED IN SECTION 43B WHICH HAS NOT BEEN PAID DURING THE YEAR, HAS TO BE DISALLOWED U/S 43B OF TH E ACT. 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT U/S 43B, CERTAIN DEDUCTIONS ARE ALLOWABLE ON ACTUAL PAYMENT. BY NOT DEBITING THE SERVICE TAX TO THE P&L A/C, THE ASSESSEE HAS NOT CLAIMED IT AS AN EXPENDITURE. THEREFORE, THE ITA NO 898 OF 2018 COMFORTLINE SYSTEMS P LTD HYDERA BAD. PAGE 6 OF 9 DISALLOWANCE OF THE SAME U/S 43B OF THE ACT WOULD N OT ARISE. IN THE CASE BEFORE US, THE AO IS NOT DISALLOWING THE E XPENDITURE, BUT IS BRINGING IT TO TAX, WHICH IS NOT THE PURPOSE OF THE SECTION. THEREFORE, THE ADDITION MADE U/S 43B IS DELETED. 9. THE SECOND ADDITION IS ON ACCOUNT OF DISALLOWANC E OF INTEREST PAYMENT U/S 40(A)(IA) OF THE ACT. WITH REG ARD TO THIS GROUND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSEE HAS NOT BEEN TREATED AS AN ASSESSEE IN DE FAULT U/S 201(1) OF THE ACT AND THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE. IN SUPPORT OF HIS CONTENTION, H E PLACED RELIANCE UPON THE FOLLOWING CASE LAW. I) ITA NO.663 & 664/HYD/2016 IN THE CASE OF SRI AZM ATH ULLA II) ITA NO.1319/HYD/2014 IN THE CASE OF M/S. ADITYA CONSTRUCTIONS COMPANY INDIA P LTD III) ITA NO.249/HYD/2013 IN THE CASE OF M/S. AGA PUBLICATIONS LTD. IV) ITA NO.488 & 621/HYD/2013 IN THE CASE OF VISU INTERNATIONAL LTD. 10. HE SUBMITTED THAT THE RECIPIENTS ALSO HAVE OFFE RED THE RECEIPTS AS INCOME IN THEIR HANDS AND THEREFORE, PR OVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE. 11. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 12. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, I FIND THAT W.E.F. 1.4.2013, 2 ND PROVISO HAS BEEN ITA NO 898 OF 2018 COMFORTLINE SYSTEMS P LTD HYDERA BAD. PAGE 7 OF 9 APPENDED TO SECTION 40(A)(IA) ACCORDING TO WHICH WH ERE AN ASSESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAUL T UNDER THE 1 ST PROVISO TO SUB-SECTION 1 OF SECTION 201, IT SHALL B E DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID TAX ON SUCH SUM ON THE DATE OF FURNISHING OF SUCH INCOME BY THE RECIPIENT IN TH E SAID PROVISO. FURTHER, IT IS THE CASE OF THE ASSESSEE THAT THE RE CIPIENT HAS OFFERED THE INCOME TO TAX IN HIS HANDS AND THEREFOR E, THE PROVISO TO SECTION 201(1) APPLIES AND THE ASSESSEE CANNOT B E DEEMED TO BE AN ASSESSEE IN DEFAULT. ADMITTEDLY, THE ASSESSEE HA S NOT BEEN TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1) OF THE ACT AND THE PROVISO TO SECTION 201(1) HAS BEEN HELD TO BE RETRO SPECTIVELY APPLICABLE. THEREFORE, APPLYING THE SAME AND FOLLOW ING THE JUDICIAL PRECEDENTS ON THE ISSUE, I HOLD THAT THE DISALLOWAN CE U/S 40(A)(IA) CANNOT BE MADE SUBJECT TO VERIFICATION THAT THE REC IPIENT HAS OFFERED THE INCOME TO TAX IN ITS HANDS. THUS, THE G ROUND IS ALLOWED FOR STATISTICAL PURPOSES. 13. THE THIRD ADDITION IS U/S 14A R.W.RULE 8D OF TH E ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE RELEVAN T A.Y AND THEREFORE, THE DISALLOWANCE U/S 14A IS NOT CALLED F OR. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON T HE FOLLOWING CASE LAW: I) ITA NO.1302/HYD/2015 IN THE CASE OF PRATHISTA INDUSTRIES LTD. II) ITA NO.471/HYD/2015 IN THE CASE OF ACIT VS. MIS HRA DHATU NIGAM LTD. 14. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. ITA NO 898 OF 2018 COMFORTLINE SYSTEMS P LTD HYDERA BAD. PAGE 8 OF 9 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, I FIND THAT THIS ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE VARIOUS COURTS PART ICULARLY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED VS COMMISSIONER OF INCOME TAX-VI ON 2 SEPTEMBER, 2015 IN ITA NO.794/2014 (378ITR 33 DELHI) AND ALSO THE DECISION S OF THE COORDINATE BENCHES OF THIS TRIBUNAL TO WHICH I AM A LSO A SIGNATORY. RESPECTFULLY FOLLOWING THE SAME, I DELET E THE DISALLOWANCE MADE U/S 14A OF THE ACT. 16. FURTHER ADDITIONS ARE TOWARDS PAYMENT OF ESI AN D PF ON ACCOUNT OF DISALLOWANCE U/S 36(1)(VA)OF THE ACT I.E. EMPLOYEES CONTRIBUTION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSE E SINCE THE ASSESSEE HAS REMITTED THE SAID AMOUNT TO THE GOVT. A/C BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. HE PLAC ED RELIANCE UPON THE FOLLOWING DECISIONS: I) HON'BLE HIGH COURT OF UTTARAKHAND IN THE CASE OF KICHNA SUGAR CO LTD (35 TAXMANN.COM 54). II) ITA NO.473/HYD/2013 IN THE CASE OF SPECK SYSTEM S LTD III) ITA NO.879/HYD/2015 IN THE CASE OF TANLA SOLUT IONS LTD. IV) ITA NO.664/HYD/2016 IN THE CASE OF PRAGATI GREE N MEADOWS VS. ITO 17. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. 18. HAVING REGARD TO THE FACT THAT THE ASSESSEE HAS MADE THE PAYMENT BEFORE FILING OF THE RETURN OF INCOME A ND AS HELD BY ITA NO 898 OF 2018 COMFORTLINE SYSTEMS P LTD HYDERA BAD. PAGE 9 OF 9 THE COORDINATE BENCHES IN THE CASES CITED SUPRA WHI CH ARE RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE D ISALLOWANCE U/S 36(1)(VA) IS DELETED. 19. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2019. SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 28 TH AUGUST, 2019. VINODAN/SPS COPY TO: 1 COMFORTLINE SYSTEMS (P) LTD C/O P. MURALI MOHAN & CO. C.AS, 6- 3-655/2/3 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500082 2 ITO WARD 1(4) HYDERABAD 3 CIT (A)-1 HYDERABAD 4 PR. CIT 1 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER