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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI KULDIP SINGH
Present for: Assessee by : Shri Sumit Mantri, A.R. Revenue by : Shri Krishna Kumar, D.R. Date of Hearing : 17 . 11 . 2022 Date of Pronouncement : 23 . 12 . 2022 O R D E R Per : Kuldip Singh, Judicial Member: Present appeal has been filed by the appellant, Mr. Manish Prakash Mutha (hereinafter referred to as ‘the assessee’) by a delay of 1018 days and also moved an application for condonation of delay. The assessee sought to condone the delay of 1018 days on the grounds inter-alia that out of total delay of 1018 days the delay of 726 days is due to pandemic and has already been excluded for the purpose of computing the limitation by the Hon’ble Supreme 2 Mr. Manish Prakash Mutha Court in miscellaneous application No.21 of 2022 in Miscellaneous Application No.665 of 2021 in Suo Motu writ petition (C) No.3 of 2020 vide order dated January 10, 2022 qua the remaining delay the applicant stated that he has not received the impugned order passed by the Ld. CIT(A) dated 29.03.2019 physically or by mail and he came to know about the order only when he has received the penalty notice for the year under consideration.
On the other hand, the Ld. D.R. for the Revenue opposed the application for condonation of delay on the ground that the assessee was duly served and copy of order was received by him on 12.04.2019 as is evident from acknowledgment and copy of letter written by Commissioner of Income Tax (Appeals) [hereinafter referred to as Ld. CIT(A)] dated 12.09.2012.
I have perused the document brought on record by the Ld. D.R. containing the fact that copy of appeal order was received by the assessee on 20.03.2019 by one Nain Singh. First of all it has not come on record as to who was Nain Singh, secondly acknowledgment date is 20.03.2019 whereas the impugned order passed by the Ld. CIT(A) is dated 29.03.2019. It is highly improbable as to how the assessee was served the copy of impugned order passed by the Ld. CIT(A) on 20.03.2019 even prior to the passing of order by Ld. CIT(A) on 29.03.2019. So the document brought on record by the Ld. D.R. are self contradictory and cannot be relied upon to dispose of the application of the assessee for condonation of delay. 3 Mr. Manish Prakash Mutha
Hon’ble Supreme Court in case of Land Acquisition Collector vs. MST Katiji & Others 167 ITR 471 (SC) has held, “it is on contention of delay that when substantial justice and technical considerations are pitted against each other, the case of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non deliberate delay.”
In view of the matter, I find sufficient cause to condone the delay of 1018 days and appeal is registered for disposal.
The assessee by filing the present appeal, sought to set aside the impugned order dated 29.03.2019 passed by the National Faceless Appeal Centre(NFAC) [CIT(A)] qua the assessment year 2011-12 on the grounds inter-alia that :- “1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the disallowances amount of Rs.21,69,345/- U/s 40(a)(ia) on account of non-deduction of TDS without appreciating that the above expenses were debited to CWIP and no revenue expenses have been claimed in the return of income and therefore there could have been no disallowance for the same.
2. On the facts and circumstances of the case, the disallowance if any has to be restricted to 30% of the amount on which TDS has not been deducted due to amendment made in section 40(a)(ia), which has been introduced to avoid undue hardship and therefore is applicable retrospectively”
Briefly stated facts necessary for adjudication and consideration of the issues at hand are: the assessee is into the business of construction and he has started for the first time construction activities in this year known as ‘Sai Dham’ and ‘Sai Icon’ by showing total work in progress (WIP) at Rs.9,95,19,837/- and shown loss at Rs.14,84,753/-. The assessee’s return of income 4 Mr. Manish Prakash Mutha declaring total income at Rs.14,84,753/- was subjected to scrutiny. The assessee has also shown selling and administrative expenses at Rs.1,01,25,293/- and Rs.16,22,137/- in respect of Sai Dham project and Sai Icon project respectively. The assessee has also claimed construction material and labour at Rs.62,92,694/- and Rs.28,59,284/- in respect of Sai Icon project. The assessee also debited civil contractor’s expenses at Rs.3,82,95,053/- and purchase of steel and cement at Rs.2,87,23,485/- in respect of Sai Dham project. The assessee also furnished various details and clarifications from which it is noticed by the AO that the assessee has debited a sum of Rs.11,65,470/- under the head civil contract expenses and also claimed expenses of Rs.16,22,137/- under the head “selling, administrative and other expenses”. From the audit report filed in form No.3CB and 3CD the AO noticed that the assessee has not deducted TDS on various payments total amounting to Rs.21,69,345/-. Declining the explanation given by the assessee, Assessing Officer (AO) disallowed an amount of Rs.1,00,000/- out of the total expenses claimed by the assessee. The assessee also made addition of Rs.21,69,345/- under section 40a of the Income Tax Act,1961 (for short ‘the Act’) and depreciation on car to the tune of Rs.4,46,115/- and thereby framed the assessment under section 143(3) of the Act. Declining the contentions raised by the assessee the AO disallowed the amount of Rs.21,69,345/- under section 40(a)(ia) of the Act.
Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same. 5 Mr. Manish Prakash Mutha
Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing present appeal.
I have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
I have perused the impugned order passed by the Ld. CIT(A). The assessee has raised three issues before the Ld. CIT(A) out of which two issues were decided in favour of the assessee and third issue qua the disallowance of amount of Rs.21,69,345/- under section 40(a)(ia) of the Act was decided against the assessee and now the assessee is before the Tribunal qua this issue only.
The Ld. CIT(A) decided the issue raised before the Tribunal qua addition of Rs.2169345/- against the assessee by returning following findings: “6. In the second ground of appeal
, the appellant had challenged the action of the AO in making an addition of Rs.21,69,345/- on account of non-deduction of TDS U/s 40afia) of the Act. Before me, the counsel of the appellant has argued that during the course of assessment, the assessee had filed tax audit report in Form 3CB & Form 3CD. In Annexure to Form 3CD, the auditor had given list of parties to whom the payments were made without deduction of TDS The auditor had not mentioned that there would be any disallowance U/s 40(a)(ia) since the assessee had debited all the expenditure to CWIP and not to revenue thereby not claiming any deduction of expenses in the return of income filed. In fact the Assessing Officer in para-5 of the assessment order had also confirmed that such expenses were debited to CWIP and no revenue expenses had been claimed in the return of income. Therefore there could have been no disallowance by the AO for the same. Notwithstanding, the Assessing Officer erred in making
6. Mr. Manish Prakash Mutha disallowance of Rs.21,69,345/- U/s 40a(ia) on account of non- deduction of TDS. The AO without appreciating the law made entire addition of expenses Ufs 40(a)(ia) ignoring that the amendment made in section 40(a)(ia) which was to remove unintended hardship and restricting disallowances to the 30% of such amount by giving the effect of this amendment retrospectively. Therefore the maximum disallowance U/s 40(a)(ia) should have been restricted to 30% of the said amount. Reliance was placed on the decision in the case of Rajendra Yadav (2016 (3) TMI 358-ITAT Jaipur). Chopra Properties in Smt. Kanta Yadav in ITA No.6312/Del/2016 and Zuberi Engineering Company (54 CCH 0430) (Jaipur Tribunal). As per above judgments, the amendment brought into the provisions of section 40(a)(ia) by the Finance Act, 2015 was held as remedial in nature and retrospective in applicability. The amendment brought into section 40(a)(ia) had been considered at retrospective in nature. Accordingly, the disallowance was to t to 30% of the amount. In view of above facts, it was requested to allow appropriate relief to the assessee.”
The Ld. A.R. for the assessee contended that the Ld. CIT(A) has erred in disallowing the amount of Rs.21,69,345/- under section 40(a)(ia) of the Act, because the assessee has debited all the expenditures to CWIP and not to Revenue and has also not claimed any deduction of expenses in the return of income and as such provisions contained under section 40(a)(ia) of the Act are not attracted and relied upon the order assed by the co-ordinate Bench of the Tribunal in case of Balaji Amines Ltd. vs. Addl. CIT (2015) 54 taxmann.com 364 and also in case of ACIT vs. M/s. Conwood Medipharma Pvt. Ltd. in for A.Y. 2011-12.
On the other hand, the Ld. D.R. for the Revenue relied upon the order passed by the AO as well as the Ld. CIT(A).
I have perused the financials brought on record by the assessee viz. copy of audit, balance sheet and profit & loss account for A.Y. 2011-12 wherein the assessee has not debited all the 7 Mr. Manish Prakash Mutha expenditures claimed to the Revenue nor claimed any deduction of expenses in the return of income filed rather all the expenses are debited to CWIP. The identical issue has been decided by the co- ordinate Bench of the Tribunal in case of Balaji Amines Ltd. vs. Addl. CIT (supra) by returning following findings:
“16.1 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us for the deletion of Rs.12,43,533/- on account of payment to Gujarat Agro Chem. Ltd. only.
We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee.
17.1 We find the Ld.CIT(A) while deleting the amount of Rs.12,43,533/- being payment to Gujarat Agro Chem Ltd. has observed as under :
"In case of this payment towards professional charges, it was noticed from the ledger account of legal and professional charges furnished by the appellant for the period 01/01/2007 to 31/03/2007, the amount was debited to the account on 31/03/2007 with the narration "credited to a/c towards liaison and negotiation charges' and the entry was reversed on the same day i.e. 31/03/2007 with the narration "entry reversed due to cancellation of credit note'. It is also noticed that the legal and profession charges debited to the profit & loss account of Rs.57,02,564/- does not include the credit note of Rs.12,43,533/-. A scanned copy of the ledger account of Gujarat Agro-chem Ltd. where the reversal entry is made is reproduced hereunder:-
Balani Amines Ltd., Balaji Bhavan, 165-A, Railway Lines, Solapur Gujarat Agrochem Ltd. CRS Ledger Account 1-Apri-2006 to 31-Mar-2007 8 Mr. Manish Prakash Mutha Date Particulars Vch Vch Ref. Debit Credit Balance Type No. No. 01- 04- By Opening Balance -- -- -- -- -- -- 2006 By Legal & Professional Charges Credit Note Being the 31- 337 amt. credited to A/c twds. 03- 341 dt.31- 12,43,533.00 12,43,533.00 Liaison and negotiation 2007 03-07 charges details as per credit note No.337, dt.31-03-07 To Legal & Professional charges journal being the entry reversed due to cancellation of credit note 342 12,43,533.00 No.337/2006-07 to 31-03- 2007 issued to Gujarat Agrochem Ltd.
12,43,533.00 12,43,533.00
When the expenditure is not even debited to the P&L A/c. of the year, the question of disallowance of such expenditure by invoking the provisions of sec.40(a)(ia) does not arise. Accordingly, the disallowance of Rs.12,43,533/- made by the A.O. does not survive and is accordingly deleted".
18. The Ld. Departmental Representative could not controvert the above factual findings given by the Ld.CIT(A) regarding non- applicability of provisions of section 40(a)(ia) when the same has not been debited to the profit and loss account. Under these circumstances, we find no infirmity in the order of the Ld.CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue is dismissed.”
In another case decided by the co-ordinate Bench of the Tribunal cited as ACIT vs. M/s. Conwood Medipharma Pvt. Ltd. (supra) also taken identical view on the issue at hand by returning following findings: “12. Now coming to the .next issue of the deletion of addition of Rs. 2,76,200/-, the CIT(A) noted that the assessee had not claimed the said 9 Mr. Manish Prakash Mutha
professional expenses in its profit & loss account and had capitalized the same under work in progress i.e. “Building under Construction” in fixed assets schedule. The CIT(A) thus deleted the addition. We find merit in the order of the CIT(A) and uphold that the provisions of section 40(a)(ia) of the Act are attracted only if expenses are claimed in the profit & loss account and not when the same are capitalized.”
17. Following the order passed by the co-ordinate Bench of the Tribunal in the case cited Balaji Amines Ltd. vs. Addl. CIT (supra) and ACIT vs. M/s. Conwood Medipharma Pvt. Ltd. (supra) on identical issue decided in favour of the assessee, I am of the considered view that when the assessee has not debited the claimed expenditures to the profit & loss account rather debited all the expenditures to CWIP provisions contained under section 40(a)(ia) of the Act are not attracted. Consequently order passed by the Ld. CIT(A) is set aside and the AO is directed to delete the disallowance made in this case.
Resultantly, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 23.12.2022.