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Facts
The assessee, a State-owned corporation engaged in civil construction, filed its return of income. The Assessing Officer (AO) noticed that the assessee earned interest income on funds deposited in Fixed Deposits, which was not offered for taxation, though TDS was claimed. The AO also disallowed prior period expenses.
Held
The Tribunal noted that the NFAC had deleted the additions made by the AO regarding interest income and prior period expenses, but remanded the issue of TDS credit to the AO for verification without providing a reasonable opportunity. The Tribunal followed its own precedent and restored the issue to the NFAC for fresh adjudication.
Key Issues
Whether the directions issued by the NFAC to examine TDS credit without affording an opportunity of hearing to the assessee were valid, and whether the matter should be remanded for fresh consideration.
Sections Cited
198, 199, 143(3), 270A, 271B, 37BA
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Income Tax Appellate Tribunal, LUCKNOW BENCH “A”, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA & SHRI NIKHIL CHOUDHARY
These two appeals have been preferred by the Assessee against the orders dated 19.04.2022 and 08.08.2022, passed by the ld. Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi for Assessment Years 2017-18 and 2018-19 respectively.
The brief facts of the case for assessment year 2017-18 are that the assessee is a State owned Corporation, engaged in the Civil Construction Work. The assessee had filed its return of income for the year under consideration on 30.10.2017, declaring a total income of Rs.2,62,00,19,32/- and subsequently revised the return of income on 04.09.2018, declaring a total income of Rs.3,40,44,12,340/-. The case of the assessee was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had received advance funds from the clients against projects which were being utilized in stages and that the surplus amount was being deposited in Fixed Deposits, on which the assessee had earned interest income. The AO further noticed that the assessee- company had received interest on such funds, amounting to Rs.33,49,65,000/- during the year under consideration and that this interest income had not been included by the assessee for the computation of total income for the year under consideration, even though credit had been claimed for the Tax Deducted at Source (TDS) thereon. On these facts, the AO held that in view of the provisions of sections 198 and 199 of the Income Tax Act, 1961 (hereinafter called “the Act’), the interest income of Rs.33,49,65,000/- was liable to be added to the total income, as the assessee had claimed TDS relating to said interest income. The AO also disallowed prior period expenses, amounting to Rs.66,44,641/- and added back the same to the income of the assessee. The AO completed the assessment under section 143(3) of the Act, assessing the total income of the assessee at Rs.3,74,60,21,981/- as against the returned income of Rs.3,40,44,12,340/- (revised).
2.1 The AO also initiated penalty proceedings under sections 270A and 271B of the Act, separately.
Aggrieved, the Assessee preferred an appeal before the Ld. First Appellate Authority against the addition of Rs.33,49,65,000/- being interest on FDRs, disallowance of Rs.66,44,641/- being prior period expenses and non-allowance of credit for TDS. The NFAC deleted the addition made by the AO of Rs.33,49,65,000/- and also the disallowance of Rs.66,44,641/- being prior period expenses. However, with regard to the issue relating to non-allowance of credit for TDS, the matter was remanded back to the file of the AO with a direction to verify the claim of TDS made by the assessee and allow TDS credit subject to necessary verification to satisfy himself that the corresponding income has also been assessed to tax in the year under consideration.
Now, the assessee has approached this Tribunal challenging the order of the NFAC by raising the following grounds of appeal:
(1) That directions issued by Ld. Commissioner of Income Tax (Appeals). NFAC, New Delhi "however, in this regard, it is clarified that the claim of credit of TDS deducted on such interest income, in the hands of appellant corporation, shall be examined by the JAO in the light of Provisions of Section 199 of the Act, read with Rule 37BA of the Income Tax Rules, 1962" are invalid as the same were issued without allowing an opportunity or issuing any notice in this regard during appellate proceeding. Without prejudice to above (2) The Ld. CIT(A), NFAC failed to appreciate that Assessee is eligible for TDS Credit w. r. t. Interest Income on "Client Fund" (State / Central Government Fund) Rs. 33,49,65,000/- which has not been offered as Assessee's Income, as Interest Income is as per Government G. O. treated as Government Fund and either has to be appropriated towards the Construction cost as availability of Government Fund or refunded to Government. (3) That Interest Income from Bank as per TDS has first considered as Income of the Assessee Company and TDS Account and Bank Account are duly debited as book entry. Thereafter as per GO Interest Earned on Client Fund transferred through Book Entry to Client Account (State / Central Government) for payment / application as Surplus Funds available. Accordingly, Net Interest Income is offered for Tax. (4) That the State / Central Government providing Fund for Construction on Cost Plus Centage Basis are Not Taxable under Income Tax Act. Further, transfer of Corresponding Interest Income to Central / State Government Account w, r. t. respective work, provisions of TDS are not applicable as per Law. Therefore, Provisions of Section 199 read with Rule
37BA of I. T. Rules are not applicable in the present sets of facts and circumstances.
The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that there is a delay of 89 days in filing the appeal before the Tribunal. The Ld. A.R. invited our attention to the application dated 27.07.2023 of the Managing Director of the assessee-company, for condonation of delay, supported by an Affidavit, stating therein that the impugned order of the NFAC was mailed on the e-filing portal that, however, the concerned staff, who was looking after the taxation matters, was on leave due to severe illness and that the other staff, who had taken over the temporary charge, was not aware of the e-filing portal functions, which has caused delay in filing of the appeal. The prayer of the Ld. A.R. was that the delay of 89 days in filing the appeal be condoned and the appeal be heard on merits.
The Ld. CIT(D.R.) had no objection to the delay being condoned.
In view of the prayer made by the Ld. A.R. supported by an Affidavit and no objection by the Ld. CIT(D.R.), we condone the delay in filing of the appeal and admit the appeal for hearing.
During the course of hearing before us, the Ld. A.R., pressing on Ground No.1 of the grounds of appeal, submitted that the direction of the NFAC, that the claim of credit of TDS deducted on interest income in the hands of the assessee- Corporation, shall be examined by the AO in the light of the provisions of section 199 of the Act read with Rule 37BA of the I.T. Rules, is illegitimate, as this direction was issued by the NFAC without affording an opportunity of hearing to the assessee or issuing any notice in this regard during the appellate proceedings. The Ld. A.R. also invited our attention to the order dated 07.02.2025 in to 183/LKW/2022 for assessment years 2014-15 to 2016-17 of ITAT Lucknow ‘A’ Bench of the Tribunal in the assessee’s own case, wherein identical issues were involved and the Tribunal, at the request of the Ld. A.R. and the consent of the Ld. Departmental Representative, had restored the matter to the file of the ld. CIT(A) with the direction to pass fresh order in accordance with law after providing reasonable opportunity to the assessee. The Ld. A.R. prayed that on similar set of facts, the issues in dispute in the present appeal may also be restored to the file of the NFAC for deciding the same afresh after affording reasonable opportunity of hearing to the assessee.
The ld. CIT(D.R.) could not deny that the plea for restoration was covered in assessee’s own case by order of the ITAT (supra).
We have heard both the parties and have also perused the material on record. It is undisputed that the assessee is aggrieved by the direction of the NFAC on the issue of claim of credit of TDS deducted on interest income. We note that on identical facts and circumstances in the assessee’s own case for assessment years 2014-15 to 2016-17, the ‘A’ Bench of the ITAT Lucknow, vide order dated 07.02.2025 in to 183/LKW/2022 for assessment years 2014-15 to 2016-17, restored the issues in dispute back to the file of the ld. CIT(A) with the direction to pass fresh order in accordance with law after providing reasonable opportunity to the assessee. Relevant paragraphs from the Tribunal order in to 183/LKW/2022 are being reproduced hereunder for ready reference:
“2. At the time of hearing, the Ld. Authorized Representative (AR) for the assessee drew our attention to ground no. 1 of the aforesaid revised grounds of appeal, which is common in all the three appeals. The Ld. AR for the Assessee submitted that the direction given by the Ld. CIT(A) to the Assessing Officer, to the effect that the claim of credit of TDS deducted on such interest income, in the hands of appellant corporation, shall be examined by the JAO (Jurisdictional Assessing Officer) in the light of Provisions of Section 199 of the Act, read with Rule 37BA of the Income Tax Rules, 1962; was prejudicial to the assessee and the aforesaid direction was given by the Ld. CIT(A) without providing any opportunity to the assessee and also without issuing notice during appellate proceedings before the Ld. CIT(A). He submitted that this issue should be restored back to the Ld. CIT(A) with the direction to decide the issue afresh in accordance with law after providing reasonable opportunity to the assessee. He also submitted that the disputes raised in remaining grounds in the present three appeals in the impugned orders of the Ld. CIT(A) should also be restored back to the Ld. CIT(A) because these issues were decided by the Ld. CIT(A) without providing reasonable opportunity to the assessee. In effect, the Ld. AR for the Assessee submitted that all the issues in dispute in the present three appeals should be set aside to the file of the Ld. CIT(A) with the direction to pass afresh order on all the issues in accordance with law after providing reasonable opportunity to the assessee. The Ld. Departmental Representative expressed no objection to this. 2.1 In view of the foregoing, and in the specific facts and circumstances of the present appeals before us, all the issues in dispute in these three appeals are set aside and restored to the file of the Ld. CIT(A) with the direction to pass denovo order in accordance with law after providing reasonable opportunity to the assessee. All the grounds of appeal s are treated as disposed of as aforesaid.”
11. Respectfully following the aforesaid order dated 07.02.2025 of the Tribunal and as requested by the Ld. A.R., the issues in dispute in the present appeal are restored back to the file of the NFAC for deciding the same afresh after affording reasonable opportunity of hearing to the assessee. stands allowed for statistical purposes.
13. Similarly, in assessment year 2018-19, the sole addition made by the AO of Rs.39,46,18,444/- being interest on client fund, was deleted by the NFAC. However, the assessee is aggrieved by the direction of the NFAC that the claim of credit of TDS deducted on interest income in the hands of the assessee- Corporation, shall be examined by the AO in the light of the provisions of section 199 of the Act read with Rule 37BA of the I.T. Rules. The facts and circumstances of the case and also the grounds raised by the assessee in assessment year 2018-19 are identical to the facts and circumstances of the case and the grounds raised by the assessee in assessment year 2017-18, except the difference in amount.
Since the issues and the facts involved in for assessment year 2017-18 are the same as in shall apply mutatis mutandis to and accordingly, the issues in dispute in NFAC for deciding the same afresh after affording reasonable opportunity of hearing to the assessee. Accordingly, ITA No.174/LKW/2022 is also allowed for statistical purposes.
In the final result, both the appeals of the assessee are allowed for statistical purposes.
Order pronounced in the open Court on 22/04/2025.