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Income Tax Appellate Tribunal, Hyderabad ‘ A‘ Bench, Hyderabad
Before: Shri R.K. Panda & Shri Laliet Kumar
ITA No 649 of 2018 Pallavi Constructions
आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No. 649/Hyd/2018 Assessment Year: 2014-15 M/s. Pallavi Constructions Vs. ACIT Hyderabad Circle 14(1) PAN:AACFP1600M Hyderabad (Appellant) (Respondent) Assessee by: Shri K.C. Devdas, CA Revenue by: Shri Rohit Mujumdar, DR Date of hearing: 26/10/2022 Date of pronouncement: 31/10/2022 ORDER Per R.K. Panda, A.M This appeal filed by the assessee is directed against the order dated 28.2.2018 of the learned CIT (A)-6, Hyderabad relating to A.Y.2014-15.
Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of development of properties/construction. It filed its return of income on 30.11.2014 declaring total income of Rs.1,16,40,200/-. During the course of assessment proceedings, the Assessing Officer observed from the details furnished by the assessee that it has claimed an amount of Rs.2,72,36,046/- towards “Bank Interest & Charges”. On being asked by the Assessing Officer to submit the
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details of the interest paid along with the TDS thereon, the assessee submitted the details of loan taken and its interest. The Assessing Officer observed from the details that the assessee has paid interest to the tune of Rs.1,40,96,519/- to the Non-Banking Financial Institution (NBFC) i.e., to M/s. Srei Equipment Finance Ltd without deducting TDS. In absence of any supporting documentary evidence and considering the fact that the assessee has failed to deduct TDS on interest payment and deposited the same into the govt. a/c within the stipulated time, the Assessing Officer disallowed the interest to the tune of Rs.1,40,96,519/- by invoking the provisions of section 40(a)(ia) of the Act.
Before the learned CIT (A), it was submitted that the interest amount disallowed by the Assessing Officer by invoking the provisions of section 40(a)(ia) is covered under the provisions of section 194A(3)(iii) of the Act according to which, there is no requirement to deduct tax at source in respect of interest payment made to certain financial institutions.
3.1 However, the learned CIT (A) was not satisfied with the arguments advanced by the assessee. He not only sustained the disallowance made by the Assessing Officer of interest of Rs.1,40,96,519/- made u/s 40(a)(ia) but also enhanced the income to the extent of Rs.1,01,31,766/- on the ground that the actual finance charges amount to Rs.39,64,743/- whereas the assessee has claimed the entire EMI amount of Rs.1,40,96,519/-.
Aggrieved with such order of the learned CIT (A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal:
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“1. The order of the Hon'ble CIT(A) is erroneous in law as well as facts of the case. 2. The Hon'ble CIT(A) ought to have observed that the assessing officer erred in disallowing interest payment of Rs.1,40,96,519/- by invoking provisions of section 40(a)(ia) of the IT Act as the financial institutions to whom the payments were made were covered by section 194A(3)(ii) of the IT Act. 3. The Hon'ble CIT(A) ought to have observed that the conclusions of the assessing officer were not supported by any material on record, hence the disallowance of Rs.1,40,96,519/- was liable to be deleted. 4. Without prejudice to the above grounds, the Hon'ble CIT(A) ought not to have arrived at the conclusion that the expenditure to the tune of Rs.1,01,31,766/- was not allowable u/s.37(1) or 36(1)(ii) of the IT Act without allowing sufficient opportunity to the appellant. 5. The Hon'ble CIT(A) arrived at a conclusion that the expenditure to the tune of Rs.1,01,31,766/- was not allowable as expenditure without bringing any fresh material on record and hence the enhancement made is erroneous in law as well as facts of the case. 6. The Hon'ble CIT(A) ought to have observed that in the facts and circumstances of the present case, initiation of penalty proceedings u/s.271(1)(c) of the IT Act was not warranted and therefore ought not to have assumed jurisdiction for initiation of such action. 7. Any other ground will be raised at the time of hearing”.
The assessee has also raised the following additional grounds: “1. The learned authorities below ought to have applied the provisions of section 191 of the I.T. Act, 1961 in TOTO by drawing the attention by the appellant to the CBDT Circular No.14(XL-35)of 1955 dated 11.04.1955 as to whether the recipient company to whom interest was paid by the appellant firm had paid tax directly. 2. The learned authorities below ought to have applied the provisions of section 40(a)(ia) r.w. the further proviso thereto and given an opportunity to the appellant firm to fulfil the conditions laid down in the first proviso to sub- section (1) of the section 201 of the I.T. Act, 1961”
The learned Counsel for the assessee referring to the decisions of the Hon'ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 and the decision in the case of Jute
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Corporation of India Ltd. v. CIT (1991) 187 ITR 688(1990) submitted that these grounds being purely legal in nature and no new facts are required to be investigated, these grounds should be admitted for adjudication.
6.1 After hearing both the sides and considering the fact that the additional grounds raised by the assessee are purely legal in nature and no new facts are required to be investigated, the additional grounds raised by the assessee are admitted for adjudication.
The learned Counsel for the assessee strongly challenged the order passed by the learned CIT (A) sustaining the addition made as well as the income so enhanced. Referring to the order of the learned CIT (A), the learned Counsel for the assessee drew the attention of the Bench to Page 11 of the order of the CIT (A) and submitted that the disallowance made by the Assessing Officer contains payments made for overdue charges, other charges, migration/PLR charges, cheque bouncing charges etc., on which TDS is not required to be made.
Referring to the CBDT Circular No.14(XL-35) dated 11.04.1955, he submitted that as per the said CBDT Circular, the Department must not take advantage of ignorance of assessee. He submitted that since M/s. Srei Equipment Finance Ltd, whose PAN no.is given is a reputed company and must have declared such income in their return of income and paid taxes thereon, therefore, in view of the first proviso to sub-section 201 of the Act, no disallowance should have been made. He submitted that given an opportunity, the assessee will substantiate before the
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Assessing Officer by filing all the requisite details to show that M/s Srei Equipment Finance Ltd has paid taxes, filed return of income and paid taxes thereon. He however, submitted that since the Assessing Officer has all the powers, he can call for the information from the said party in case the assessee failed to do so. So far as the enhancement of income is concerned, he submitted that the assessee was not given adequate opportunity by the learned CIT (A) to explain his case. He submitted that given an opportunity, the assessee is in a position to substantiate his case.
The learned DR, on the other hand, opposed the arguments advanced by the assessee. Referring to the order of the learned CIT (A), he submitted that the learned CIT (A) after examining thoroughly the issue on hand has not only sustained the addition but has also enhanced the same by following due process of law and therefore, the same should be upheld and the grounds raised by the assessee should be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case disallowed an amount of Rs.1,40,96,519/- u/s 40(a)(ia) on the ground that the assessee has not deducted TDS on interest paid to NBFC i.e., M/s.Srei Equipment Finance Ltd. We find in appeal, the learned CIT (A) after considering the submissions made by the assessee not only sustained the disallowance of Rs.1,40,96,519/- made by the Assessing Officer u/s 40(a)(ia) but enhanced the income by
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Rs.1,01,31,766/- treating the same as expenditure not in nature of interest as envisaged u/s 2(28A). It is the submission of the learned Counsel for the assessee that in view of the provisions of section 194(3)(iii) of the I.T. Act, no disallowance can be made u/s 40(a)(ia) on account of interest paid to financial institutions. It is also the contention of the learned Counsel for the assessee that the learned CIT (A) without allowing sufficient opportunity to the assessee should not have enhanced the income to the tune of Rs.1,01,31,766/- treating the same as not an allowable expenditure. It is the alternate contention of the learned Counsel for the assessee that since the payee i.e., M/s Srei Equipment Finance Ltd has already filed the return of income and paid the taxes, declaring the income including the amount received from the assessee towards interest, in view of the 1st proviso to sub section 201, no disallowance can be made. We find the alternate contention of the learned Counsel for the assessee as acceptable. The Coordinate Benches of the Tribunal are taking a consistent view that if the payee has included the interest paid by the payer in its income and paid due taxes thereon and filed the return of income, then in view of the first proviso to sub section (1) of section 201, the assessee cannot be treated as an assessee in default and therefore, no disallowance u/s 40(a)(ia) can be made. We, therefore, deem it proper to restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue after giving an opportunity of being heard to the assessee to substantiate with evidence to his satisfaction that the payee has filed its return of income declaring such income and paid due taxes thereon. Needless to say, the Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard. The grounds raised by the assessee challenging the
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disallowance of Rs.1,40,96,519/- is accordingly allowed for statistical purposes.
So far as the 2nd issue i.e., enhancement of income to the tune of Rs.1,01,31,766/- by the learned CIT (A) is concerned, it is the submission of the learned Counsel for the assessee that the assessee was not given any opportunity to substantiate its case to explain that the amount of Rs.1,01,37,766/- has already been subsumed in the amount of Rs.1,40,96,519/- and therefore, amounts to double addition. Therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate its case that no disallowance of the same can be made either u/s 37(1) or u/s 36(1)(iii) of the I.T. Act by filing cogent evidences before him. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The 2nd issue raised by the assessee in the grounds of appeal is accordingly allowed for statistical purposes.
In the result, appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the Open Court on 31st October, 2022. Sd/- Sd/- (LALIET KUMAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 31st October, 2022. Vinodan/sps
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Copy to: S.No Addresses 1 Pallavi Constructions C/o B Narsing Rao & Co. C.A Plot No.554, Road No.92, Jubilee Hills, Hyderabad 500096 2 ACIT Circle 14(1) Hyderabad 3 CIT (A)-6 ,Hyderabad 4 Pr. CIT-6, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File
By Order
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