Vildirect: IncomeTax-caselaws-2014-VIL-902-ITAT-HYD

2014-VIL-902-ITAT-HYD

Income Tax Appellate Tribunal HYDERABAD

ITA No. 1079/Hyd/2013, C.O. No. 03/Hyd/2014

Date: 12.03.2014

THE ASST. CIT CIRCLE-16(3) HYDERABAD

M/s . PLR PROJECTS PVT. LTD.

For the Petitioner : Smt. K. Harita
For the Respondent : Sri Pawan Kumar Chakrapani

BENCH

Shri Chandra Poojari And Shri Saktijit Dey,JJ.

JUDGMENT

Per Chandra Poojari, AM:

The above appeal by the Revenue is directed against the order of the CIT(A)-V, Hyderabad dated 15.4.2013 for A.Y. 2007-08. The assessee filed the Cross Objection (CO) against the same order of the CIT(A).

2. The Revenue raised the following grounds:

(1) The order of the CIT(A) is erroneous both in law and in facts of the case.

(2) The CIT(A) is not correct in directing the Assessing Officer to allow the expenditure of Rs. 1,29,980 on which TDS is not made u/s. 194C of the IT Act and which was accepted by the assessee.

(3) The CIT(A) ignored the provisions of TDS by deleting the addition of Rs. 1,52,09,336 only on the reason that the payment directly credited to the books of constituents of of JV by another constituent of JV and the situation of deducting the TDS does not arise.

(4) The CIT(A) erred on the mechanism of JVs adopted by the assessee, just to evade taxes.

(5) The CIT(A) should have disallowed the expenditure of Rs. 1,52,09,336 by invoking the provisions of sec. 14A of the IT Act.

3. The assessee raised the following grounds in its CO:

1. The order of the learned Commissioner of Income-tax [Appeals] in so far as it is against the Respondent 1 Cross Objector are opposed to law, weight of evidence, natural justice, facts and circumstances of the case.

2. The Respondent 1 Cross Objector denies itself liable to be "assessed over and above the total income reported by the Respondent 1 Cross Objector of Rs. 5,96,42,217 under the facts and circumstances of the case.

3. The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the disallowance of Rs. 49,70,460 made by the assessing officer under the provisions of section 40(a)(ia) of the Act, being the payment made by the appellant to Shri. CH. Venkat Reddy and Chalapati & Co., under the facts and circumstance of the case.

4. The learned authorities failed to appreciate the fact that the provisions of section 40[a][ia] of the Act is not applicable to the facts of the instant case since the recipient/payee i.e. Sri. CH. Venkat Reddy and Chalapati & Co., has already declared the payments made by the appellant in his respective returns hence no disallowance is warranted under the provisions of section 40[a][ia] of the Act under the facts and circumstances of the case.

5. The learned authorities below are not justified in law in not appreciating that the deduction of tax is only one mode of recovery of tax and once the tax is recovered by any other mode and the recovery of tax on the amount which has suffered tax in the hands of payee is not permissible since the same will amount to taxing the same income twice i.e. once disallowance of expenditure in the hands of the payer and once again the amounts being taxed in the hands of the payee under the facts and circumstances of the case.

6. Without prejudice, the learned authorities below failed to appreciate that the provisions of section 40[a][ia] of the Act is attracted only to the amounts which are payable at the end of the year and not to the entire actual payments paid during the year under the facts and circumstances of the case.

7. Without prejudice, the learned Commissioner of Incometax [Appeals]-V, Hyderabad, ought of have considered that the amount of Rs. 49,70,460 was paid to the contracts during the impugned assessment year 2007-2008, and there is no outstanding as on the date of the balance sheet as payable, under the facts and circumstances of the case.

8. The Respondent / Cross Objector denies itself liable to be charged to interest under section 234 A & 234 B of the Income Tax Act under the facts and circumstances of the case. Further the levy of interest under section 234 A & 234 B of the Act is also bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are all not discernable and are wrong on the facts of the case.

9. The Respondent / Cross Objector craves leave of this Hon'ble Tribunal to add, alter, delete or substitute any of the grounds urged above.

10. In view of the above and other grounds that may be urged at the time of hearing of the Cross Objection, your Respondent / Cross Objector humbly pray that the Cross Objection may be allowed in the interest of equity and justice.

4. At the outset it was pointed out that there was a delay in filing the CO by 48 days. The assessee filed a petition stating as follows:

1. An Order of assessment was passed under section 143[3] r.w.s. 263 of the Income-Tax Act, 1961 for the Assessment Year 2007-08 was passed by the Assistant Commissioner of Income-Tax, Circle - 16[3], Hyderabad on 23.11.2012.

2. Aggrieved by the order of assessment passed under section 143[3] r.w.s. 263 of the Act, for the Assessment Year 2007-08 an appeal was filed before the learned Commissioner of Income-Tax [Appeals] - V, Hyderabad, by the Respondent Cross Objector for the Assessment year 2007-08, was heard and the appeal filed came to be partly allowed. The Order of the First Appellate Authority was passed on 15.4.2013, and the same was received by the Respondent/Cross Objector.

3. The order of the First Appellate authority was received and collected by the authorized representative of the Respondent/ Cross Objector. Subsequently, the revenue being aggrieved by the order of the learned CIT [A] filed an appeal before this Hon'ble Income-Tax Appellate Tribunal, Bangalore Bench, Bangalore. The notice of appeal filed before this Hon'ble Tribunal by the revenue challenging the order of the learned CIT [A] dated 18.07.2013 was received by the Respondent/Cross Objector only on 25.10.2013 in ITA No. 1079/Hyd/2013 [Department Appeal].

4. The entre files pertaining to the Assessment Year 2007-08 which were in appeal before the CIT [A] was with the authorized representative who represented the Respondent/Cross Objector before the learned CIT [A]. The said authorized representative who represented the matter before the learned CIT [A] did not guide the Respondent I Cross Objector as regard to the next course of action. The Respondent I Cross Objector ought to have filed the cross objection within 30 days from the receipt of the communication from the Hon'ble Tribunal i.e. on or before 24.11.2013.

5. Subsequent, to the order of the first appellate authority, the revenue preferred an appeal before this Hon'ble Income-Tax .A:ppellate Tribunal, Hyderabad Bench, Hyderabad, as against the order of the learned CIT [A], to the extent which is against the revenue. The same was communicated to the Respondent I Cross Objector on 25.10.2013. The Respondent I Cross Objector thereafter gave the brief to the present counsel and the present counsel after verifying the case expressed that a cross objection is required to be filed as against the order of the first appellate authority to the extent which is against the Respondent I Cross Objector. Soon after obtaining the professional advice from the present counsel the Respondent/Cross Objector within a reasonable time has filed this present cross objection before this Hon'ble Tribunal. .

6. It is submitted that due to the wrong professional advice the Respondent/Cross Objector could not file the Cross Objection before this Hon'ble Tribunal well in time i.e. on or before 24.11.2013 and by the time the Respondent/ Cross Objector sought the present counsel's advice, there arose 78 days delay in filing the Cross objection before this Hon'ble Tribunal.

7. It is humbly prayed that this Hon'ble Tribunal takes a lenient and compassionate view and condone the delay of 78 days in filing the Cross Objections before this Hon'ble Tribunal and hear the same on merits for the advancement of substantial cause of justice.

8. It is submitted that if this application for condonation of delay in filing the cross objection is not allowed, the Respondent/Cross Objector would be put to great hardship and irreparable injury and on the other hand no hardship or injury would be caused to the Appellant if this application of Condonation of delay is allowed. Reliance is placed on the decision of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST Katiji and Others (1987) 167 ITR 471 and also in the case of Concord of India Insurance Co. Ltd., Vs Smt. Nirmala Devi and Others 118 ITR 507. The assessee also filed an affidavit confirming the reasons advanced by the assessee are true and correct.

5. We have carefully gone through the reasons advanced by the assessee for filing the CO belatedly is that the assessee's counsel who represents the case before the CIT(A) did not guide the assessee properly and only after when the assessee engaged the present counsel, he has advised him to file the CO. We find there is no evidence or supporting document to suggest that the earlier counsel has wrongly advised the assessee. There is no confirmation from the earlier counsel what he has advised the assessee. It is observed that nothing has been brought on record by the assessee with regard to the fact that which counsel has advised the assessee as stated in the affidavit and there is no affidavit or letter from the concerned counsel, who has wrongly advised the assessee. The law assists those who are vigilant, not those who sleep over their rights. The delay cannot be condoned simply because the assessee's case is hard and calls for sympathy or merely out of benevolence to the party seeking relief. In granting the indulgence and condoning the delay, it must be proved beyond the shadow of doubt that the assessee was diligent and was not guilty of negligence, whatsoever. The sufficient cause within the contemplation of the limitation provision must be a cause which is beyond the control of the party invoking the aid of the provisions. The cause for the delay in filing the appeal, which by due care and attention, could have been avoided, cannot be a sufficient cause within the meaning of the limitation provision. Where no negligence, or inaction, or want of bona fides can be imputed to the assessee, a liberal construction of the provisions has to be made in order to advance substantial justice. Seekers of justice must come with clean hands. In the present case, as stated in the affidavit, the reasons advanced by the assessee are not supported by any cogent evidence and hence, we decline to condone the delay in filing the aforesaid appeals of the assessee on the ground that the assessee was not able to establish that it has prevented by a reasonable cause in filing these appeals belatedly. In view of the above discussion, the CO filed by the assessee is dismissed.

6. Now, we will take up the Revenue appeal. Brief facts of the case are that for the A.Y. 2007-08, the assessee firm filed its return of income on 16.11.2007 admitting total income of Rs. 4,53,74,330. Original assessment u/s. 143(3) of the Act was completed on 30.11.2009 determining the income at Rs. 20,83,52,228. Thereafter, an order u/s. 263 was passed by the CIT directing the AO (i) to disallow a sum of Rs. 49,70,460 out of the sub-contract charges u/s. 194C (ii) to verify whether TDS was made or not u/s. 194C for a sum of Rs. 5,40,51,832. Accordingly, the AO completed the assessment u/s. 143(3) r.w.s. 263 of the Act determining the total income at Rs. 7,99,51,993 by making following disallowances:

(a) Disallowance u/s. 40(a)(ia) – Rs. 49,70,460

(b) Disallowance u/s. 40(a)(ia) – Rs. 1,29,980

7. On appeal, the CIT(A) observed that the issue relating to disallowance of Rs. 49,70,460 does not require adjudication as this disallowance is consequent to the order u/s. 263 of the Act wherein the assessee admitted that no TDS was made. Accordingly, there is no adjudication by the CIT(A) and matter has reached finality.

8. Regarding disallowance of Rs. 1,29,980 u/s. 40(a)(ia) it was observed by the AO that no TDS on this amount was paid to Babu Tata Hitachi. However, it was observed by the CIT(A) that this issue was already subject matter of appeal before the Tribunal in questioning the 263 order by the assessee and the Tribunal has deleted the disallowance. Being so, this issue is decided in favour of the assessee by the CIT(A). Against this, the Revenue is in appeal before us. We do not find any merit in the plea of the Revenue as this issue was already decided in favour of the assessee while deciding the order passed u/s. 263 by the Tribunal.

9. Coming to the next ground relating to disallowance of Rs. 1,52,09,336 u/s. 40(a)(ia) of the Act. The facts relating to this addition are that as per TDS certificate enclosed, the assessee is in receipt of gross amount of Rs. 18,49,40,581 vide 6 bills - 3rd bill to 8th bill from Executive Engineer, PJP Executive Division - 3, Pebbair, Mahaboobnagar District. The issue for consideration is that no TDS was made on the third bill netted at Rs. 1,52,09,336/- by the assessee. When the same questioned, it was replied by the assessee that this amount was directly paid to M/s Kranthi Constructions by the deductee and therefore no TDS was required to be made by them. The assessee also produced a copy of the MOU for execution of project of Water Resource Development, confirmation letter from M/s Kranthi Constructions that the work was executed by them and the amount of Rs. 1,52,09,336/- was received by them and offered to tax in their hands. However, as the Assessing Officer could not get any clarity, from the above submissions of the assessee, disallowed the amount of Rs. 1,52,09,336/- under section 40(a)(ia} of the Act.

10. On appeal, the CIT(A) observed that there is merit in the submissions of the assessee. The TDS certificate was issued by Executive Engineer, Pebbair, Mahaboobnagar District in the name of M/s P Lakshmu Reddy and Kranthi Constructions (Joint Venture), Hyderabad - P Lakshmu Reddy Account. The gross amounts as per the statement enclosed to the main TDS certificate is Rs. 18,49,40,581/- and the net figure is Rs. 13,89,91,796. As per the TDS certificate, the amounts were paid towards package No. 108 work bills. This net figure consists of six amounts paid vide six bills starting from 3rd bill to 8th bill. The issue for consideration is the 3rd bill for net figure of Rs. 1,52,09,336. The assessee submitted that this figure was directly credited to the books of another constituent of joint Venture M/s Kranthi Constructions. When the six bills standing in the name of JV there should be some basis to claim that five bills starting from 4th to 8th bills were offered by one constituent and another one is offered in the hands of the other constituent of JV. For this division, the assessee produced a copy of the MOU entered by the constituents of JV. As per the contents of MOU, which was also produced before the Assessing Officer, it can be seen from page 4 clause 1(III) that the parties hereto agree to distribute allotted works as per the details given hereunder:

Party Work Value (in Rs.)

PLR Package No. 5 (Entire) 72,90,00,000

KC Package No. 101 (Entire) 62,91,25,110

11. In clause 2 at page 5 of the MOU, the work division relating to 108 package is also mentioned, which is follows: That insofar as Package No. 108 is concerned PLR shall undertake a portion of the work which is of a tendered value of Rs. 37.70,00,000/- of the Tatikunta Reservoir (Total Project). Which shall be referred to as Part-A of Package No. 108 and KC shall undertake a portion of the work it is of the tender value of Rs. 17,59,46,240/- of Nagardoddi Reservoir total Project which shall be referred as part-B the Package No. l08"

12. The CIT(A) observed that as per the TDS certificate which was issued in the name of JV and not in the name of assessee alone, the payments were made towards Package No. 108 work bills, he observed that there is no reason to disagree with the submissions of the assessee. When the payments were made towards Package No. 108 work bills and the constituents of the JV have a clear understanding of the total works to be carried out between themselves, including Package No. 108, there is no point to disagree to the claim that some payments were directly paid to M/s. Kranthi Constructions by the assessee based on MOU. The other evidences filed by the assessee like bank statements of M/s. Kranthi Construction and confirmation from them also indicate the same. In view of the foregoing discussions, he was in agreement with the claim of the assessee that out of six work bills shown in the TDS certificate amount relating to 3rd bill representing Rs. 1,52,09,336/- was paid directly to M/s Kranthi Constructions and in such a situation deducting tax on a payment directly credited to the books of constituent of JV by another constituent of JV does not arise. Accordingly, no disallowance under section 40(a){ia) is attracted in respect of this transaction and he directed the Assessing Officer to delete the disallowance of 1,52,09,336/-. Against this, the Revenue is in appeal before us.

13. We have heard both the parties and perused the material on record. In this case it is admitted that payment is relating to package No. 108 and work was executed by Kranthi Constructions Ltd. and the payment has been received by the principal JV – P. Lakshmu Reddy and M/s. Kranthi Constructions Ltd. and deposited into JV Bank A/c. on 7.2.2006 with the Syndicate Bank A/c. No. 30361010002650 and the same was paid to JV to M/s. Kranthi Constructions on 10.7.2006. However, an entry was made by way of journal entry in the books of account of the assessee on 5.7.2006 debiting M/s. Kranthi Constructions crediting EE Gadwal (sub contract account) at Rs. 1,52,09,336. Later, the entry was reversed on 10.7.2006 by debiting sub-contract account crediting Kranthi Constructions account at Rs. 1,52,09,336. The receipt of money by Kranthi Constructions and treating the same as income of it was evidenced by the confirmation letter issued by Kranthi Constructions which reads as follows

"TO WHOM SO EVER IT MAY CONCERN

This is to state that, an RA Bill dated 06/07/2006 of our Package No. 108 Lift Irrigation project situated at Gadwal, gross value of which is Rs. 1,85,55,663/- and the Net Payment after all recoveries Rs. 1,52,09,336/- relates to our own project, but not as a sub-contract from M/s. PLR Projects Pvt. Ltd. We hereby certify that, the Bill relates to the Package No. 108 Project awarded to us and the Receipt from client is deposited in our Bank Account. The said bill is assessed to tax in our hands for the AY 2007-08. We once again clarify that, the Bill relates to our own project, but not a sub-contract from M/s. PLR Projects Pvt. Ltd.

Thanking you,

For Kranthi Constructions

Sd/

Authorised Signatory "

14. It is an admitted fact that the amount has been taxed in the hands of Kranthi Constructions only. There may be so many reasons for accounting this contract receipt in the hands of the assessee and it was pleaded before us that because of mistake in 26AS issued by the contractor, the entry was made in the books of account of the assessee. However, it is an admitted fact that the amount was offered for taxation in the hands of Kranthi Constructions and it cannot be brought to tax in the hands of the assessee. Being so there is no question of deduction of TDS by the assessee on the payment received by the Kranthi Constructions. Further there is insertion of second proviso to section 40(a)(ia) by Finance Act, 2012 w.e.f. 1.4.2013 wherein stated that disallowance u/s. 40(a)(ia) of the Act need not be made if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1) of the Act. It was held by various judicial authorities that its retrospective in nature since it has been introduced to eliminate unintended consequences which may cause undue hardship to the tax payer. For this purpose we refer to the order of the Tribunal Cochin Bench in the case of Antony D. Mundackal vs. ACIT vide ITA No. 38/Cochin/2013 dated 29.11.2013 for A.Y. 2009- 10 wherein it was held as follows:

"7. We have heard the rival contentions and carefully perused the record. According to the assessee, there is no written contract between him and the persons doing polishing works. Accordingly, the assessee has contended before us that the provisions of sec. 194C shall not apply to the polishing charges. However, we notice that the assessing officer has given a clear finding that essential ingredients of a contract are very much available in the polishing works entrusted by the assessee. Further we notice that the CBDT, vide circular No.433 dated 25-09-1985 (1986)(157 ITR St. 27) has clarified that the provisions of sec. 194C are wide enough to cover oral contracts also. A contract is normally reduced in writing in order to make clear the terms and conditions, obligations of the parties to the contract etc. If the conditions of contract are otherwise understood by the parties, in view of the repeated transactions, in our view, the absence of a written contract would not make any difference. In the instant case, the assessee is repeatedly given works to the polishing people and hence the terms and conditions of the work would be clearly understood by both the parties. Accordingly, we reject this contention of the assessee and hold that the provisions of sec. 194C shall apply to the polishing works given by the assessee.

7.1 According to Ld A.R, the assessee has acted as a conduit pipe in connection with the polishing works between the customers and the person doing polishing job. Accordingly, it was submitted that there is no profit element in the said transactions. The Ld A.R further submitted that the assessee has included the cost of polishing works in the sale value of aluminium extrusions, without knowing tax implications. However, we notice that the assessee did not furnish any proof to substantiate the above said claims. The assessee, being a dealer in aluminium extrusions, has only supplied the products after carrying out the polishing works according to the taste and requirement of customers. It is only one of the many business techniques normally adopted by a business man to improve his sales, since it will be very difficult for customers to identify the polishing people and get the work done by themselves. Hence, we are of the view that it may not be correct to argue that the contract existed between the customers and the polishing people. In fact, the customer may not have any contact with the polishing people in this type of transactions. Hence, it is hard to believe the claim of the assessee that he has acted as mere conduit pipe between the customers and polishing people. Accordingly, the claim that the assessee stands in a fiduciary capacity is also liable to be rejected. In this kind of factual situation, in our view, the existence or absence of profit element in the polishing works does not make any difference.

7.2 The Ld Counsel, by placing reliance on the decision of special bench in the case of Meryline Shipping and transports (supra) contended that the provisions of sec. 40(a)(ia) shall apply only to amount payable and not to the amount paid. However, the Hon'ble Gujarat High Court in the case of CIT Vs. Sikandar Khan N Tunvar (357 ITR 312) and the Hon'ble Calcutta High Court in the case of CIT Vs. Crescent Export Syndicate (ITAT 20 of 2013) have held that the decision rendered by the Special Bench in the case of Meryline Shipping & Transports is not a good law. The Ld A.R, however, placed reliance on the decision of Hon'ble Allahabad High Court in the case of Vector Shipping Services (357 ITR 642). On a careful perusal of the decision given by Hon'ble Allahabad High Court, we notice that the High Court has decided the issue referred to it on a different footing and has made a passing comment about the decision rendered by the Special Bench. Thus, the ratio of the said decision is different from that rendered in the case of Meryline Shipping and Transports by the Special bench. Hence, we are inclined to reject the contentions of the assessee on this point also.

7.3 The assessee placed reliance on the decision of Hon'ble Supreme Court in the case of Hindustan Coco-Cola beverages Ltd (supra) in order to contend that the revenue is not entitled to recover taxes, if the recipient has declared the payments in his return of income. We notice that the above said decision was rendered in the context of the provisions of sec. 201(1) and hence, we are of the view that the ratio of the said decision cannot be applied to the disallowance made u/s 40(a)(ia) of the Act.

7.4 The last contention of the assessee is that the second proviso to sec. 40(a)(ia) of the Act, inserted by the Finance Act, 2012 with effect from 1.4.2013 is clarificatory in nature and hence the benefit of the same should be applied retrospectively. However, the correctness of this contention has not been examined by the tax authorities. Hence, in the interest of natural justice, we are of the view that this contention of the assessee requires examination at the end of the assessing officer. Accordingly, we modify the order of the Ld CIT(A) and set aside this ground to the file of the assessing officer with the direction to examine the above said contention of the assessee and decide the same in accordance with the law, after affording necessary opportunity of being heard. We make it clear that we have, in effect, rejected all the contentions of the assessee except the ground relating to applicability of the second proviso to sec. 40(a)(ia) of the Act to the year under consideration."

15. Further this view is also upheld by Pune Bench of this Tribunal in the case of M/s. Gaurimal Mahajan & Sons in ITA No. 1852/PN/2012 order dated 6.1.2014 for A.Y. 2008-09. From this point of view also there cannot be any disallowance u/s. 40(a)(ia) of the Act. Accordingly, we confirm the order of the CIT(A).

16. In the result, Revenue appeal in ITA No. 1079/Hyd/ 2013 and assessee's CO in CO No. 03/Hyd/2014 are dismissed.

Order pronounced in the open Court on 12th March, 2014.

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