M/S. VANSH INDUSTRIES LTD.,NEW DELHI vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘G’, NEW DELHI

BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER

ITA No.6144/Del/2016 Assessment Year: 2012-13

M/s. Vansh Industries Ltd., Vs. DCIT, LG- 1 & 3, R-23, Nehru Circle-26(2), Enclave, New Delhi New Delhi PAN :AAACV4000A (Appellant) (Respondent)

Appellant by Shri B.L. Gupta, AR Respondent by Shri Shailesh Kumar, Sr.DR

Date of hearing 15.10.2019 Date of pronouncement 10.12.2019

ORDER PER O.P. KANT, AM:

This appeal by the assessee is directed against order dated 20/10/2016 passed by the Ld. Commissioner of Income-tax (Appeals)-10, New Delhi, [in short the ‘Ld. CIT(A)’] for assessment year 2012-13, raising following grounds:

On the facts and in the circumstances of the case and in law, the AO was incorrect and unjustified in:- a) Dismissing the appeal of the assessee. b) Holding that the AO was justified in not allowing credit for TDS of Rs. 5,85,000/- claimed by the assessee.

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c) In upholding the withdrawal of TDS credit by the AO d) In upholding the addition of Rs. 5,26,469/- made by the AO e) In rejecting the submissions of the assessee that the expenses of Rs. 5,26,469/- are for business purposes. f) In holding that the expenses of Rs. 5,26,469/- relates to the house property income of these are not allowable. 2. Briefly stated facts of the case are that during the year under consideration, the assessee was engaged in the business of purchasing of properties and to earn income from letting out of those properties. The assessee filed return of income on 29/09/2012, declaring rental income of � 45,72,850/-. The case was selected for the scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short “the Act”) was issued and complied with. In the assessment completed under section 143(3) of the Act on 18/03/2015, the Assessing Officer made adjustment to the income and credit of the tax as under: TDS credit of � 5,85,000/-, which was deducted by 1. M/s. Root Corporation Ltd. on advance rent paid of � 58,50,000/- was not allowed by the Assessing Officer in the year under consideration as the corresponding income was not offered in the return of income filed for the year under consideration. 2. Fuel, Power and maintenance expenses of Rs.5,26,469/- claimed under the head ‘business expenses’ were disallowed on the ground that same pertains to house property, income from which has been assessed under the head ‘income from house

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property’ and 30% of the expenses on repair and maintenance of those properties stands already allowed while computing income under the “income from house property”.

2.1 Aggrieved with the addition made/TDS credit not allowed, the assessee filed appeal before the Ld. CIT(A), who after considering the submission of the assessee, upheld the order of the Assessing Officer. 3. Before us, the Ld. counsel of the assessee filed a paper-book containing pages 1 to 77 and reiterated the submissions made before the lower authorities. The Ld. counsel submitted that the deduction on account of tax deducted at source has to be allowed in the year of deduction irrespective of income has been declared in the next year. He submitted that similar issue was involved in the case of Sunita Devi decided by the Tribunal in ITA No.4473/Del/2012 for assessment year 2009-10. According to him, TDS should be allowed on the basis of form No. 26AS . 3.1 He further submitted that alternatively, credit of the TDS of �5,85,000/- should be allowed in the subsequent year. Regarding the expenses disallowed on fuel, power and maintenance, the Ld. counsel submitted that the assessee is engaged in real estate business and derives rental income from part of the property and other part was used for business purposes. The Ld. counsel contested that those expenses were pertaining to the part of the building, income from which was not offered under the income from house property and that part of the building was used for business purposes. He submitted that in assessment year 2014-

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15, the Assessing Officer has allowed all such expenses and no disallowance has been made. The Ld. counsel relied on the decision in the case of SPPS Systems reported in, 49 ITR 61, wherein it is held that where the expenditure is related to business activity, the expenses are allowable deduction even if there is no income. The Ld. counsel accordingly submitted that disallowance of � 5,26,469/- should be deleted. 4. The learned DR, on the contrary, relied on the orders of the lower authorities. 5. We have heard the rival submissions and perused the relevant material on record. The first issue in dispute is in respect of credit of TDS of �5,85,000/- not allowed by the Assessing Officer on the ground that corresponding amount received from the deductor, M/s Root Corporation Ltd. has been shown by the assessee only as advance rent and not rental income for the year under consideration. The assessee contested that benefit of deduction of the tax has to be allowed to the assessee and the government cannot sit over the money of the taxpayer without any credit. The learned CIT(A), after considering the submission of the assessee, upheld the finding of the Assessing Officer observing as under: “4.1 I have carefully considered the written submissions of the Ld. AR and assessment order passed by the AO. Considering the same, it is pertinent to mention here that in the present case, the main issue is that assessee has claimed deduction on account of TDS of Rs.5,85,000/- but the corresponding advance rent on which the said deduction has been made, is not offered for taxation purpose. In this backdrop of the case, it is pertinent to discuss the provisions of section 198 of the Act, which provides as under:

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“section 198 - all sums deducted in accordance with (the foregoing provisions of this chapter) shall, for the purpose of computing the income of an assessee, be deemed to be income received.”

Further, section 199(1) discuss about credit for tax deducted, providing as under:

“section 199 - any deduction made in accordance with the foregoing provisions of this chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner or the property or of the unit holder, or of the share holder, as the case may be.”

Further, as per provisions of Rule 37BA(3)(i), credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable.

a. From the above provisions of Income Tax Law, it is evident that claim of TDS can be passed on to the assessee only if the corresponding income on which TDS has been deducted, offered for taxation by the assessee. However, in the instant case, though appellant has claimed the benefit of TDS but corresponding advance rent has not been included in the taxable income for the year under consideration. In this regard, I place reliance on the following judicial pronouncements of the Hon'ble Andhra Pradesh High Court on the similar facts and circumstances, in the case reported as Sri Y. Rathiesh vs The Commissioner Of Income Tax on 6 August. 2014, the ratio of which is that, no TDS credit can be claimed in returns if the corresponding income, on which TDS was deducted, not shown in returns. Further such TDS amount shall be treated as deemed to be income received by invoking section 198 of the Income Tax Act, 1961:

"Cases referred HONBLE SRI JUSTICE L. NARASIMHA REDDY AND HQNBLE SRI JUSTICE CUAl.lA KODANDA RAM J.T.TA Nos. 52 AND 54 OF 2002 06-08-2014 COMMON JUDGMENT: (per the Hon'ble Sri Justice L. Narasimha Reddy) These two appeals filed under Section 260A of the Income Tax Act, 1961 (for short the Act) arise out of common order dated 09-11-2001 passed by the Visakhapatnam Bench of the Income Tax Appellate Tribunal (for short

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the Tribunal) in I.T.A No. 2254 and 225/ of 1996 and batch. The assessee is the appellant. The appellant was functioning as a Managing Director of M/s. A.P. Tanneries Limited (for short, the 1st company). He gave loan of certain amounts to the said company as well as to another company by name M/s. Associated Tanners (for short, the 2nd company). The latter wa.s paying interest on the amount advanced by him regularly, whereas the former was just, showing the accumulated interest, in its account books without making actual payment. It was also his case that even while showing the interest payable to him in the account books, the 1st company deducted tax at source (TDS) on the amount of interest payable and issued certificates, in relation thereto. In the returns filed by him, the appellant was adopting a hybrid procedure. While in respect of his transaction with the 1st company, he adopted cash system, as regards the transaction with the 2nd company, he adopted the mercantile system. The' result was that he did not pay the tax on the interest payable to him by the 1st company, even while he enjoyed the entire benefit of TDS made in that behalf. There is no dispute about the interest paid by the 2nd company, since the appellant has shown the same as f income and paid tax thereon. The assessing officer took objection to this and passed an order of assessment treating the interest payable by the 1st company on transfer basis, as income and levied tax. The same result ensued for various financial years. Aggrieved by that, the appellant filed appeals before the Commissioner of Income Tax, Visakhapatnam. The appeals were dismissed. Thereupon, the appellant filed mother appeals before the Tribunal. Through order elated 09.11.20101, the Tribunal dismissed the appeals. Learned counsel for the appellant submits that it is open for an assessee to adopt partly the cash system and partly, the mercantile system and even while holding the same as permissible, the authorities under the Act have adopted the principles underlying the mercantile system for the entire returns. It is pleaded that when the 1st company did not pay the interest at all, the appellant ought not to have been levied tax on such amount. She has also urged that once TDS is deducted even while withholding the

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payment of the corresponding amount, the appellant was entitled to claim the benefit thereof. Sri S.R. Ashok, learned Senior Counsel for the Income Tax Department submits that though it is permissible for an assessee to adopt dual method for the same returns, the appellant cannot claim the benefit of TDS in its entirety and at the same lime, refuse to pay tax on the corresponding interest. Learned Senior Counsel submits that the appellant acquired a right to receive interest from the ist company once it was shown in the account books of that organization; and that is sufficient to levy tax upon the appellant; particularly when he is taking full advantage of the amount recovered as TDS. The assessee has option to file returns by adopting the cash system or mercantile system. In a given case, he can adopt both the systems for different components in one and the same returns. The broad distinction between these tu>o systems is well known. Under the cash system, the assessee would be under an obligation to pay tax only on such of the amount which has been actually received by him. In contrast; under the mercantile system, mere entitlement to receive would bring about the obligation to pay tax. The assessees choose one of them or both of them for different parts, after taking note of the advantages and disadvantages in adopting these methods. We are concerned with the income of the appellant in the form of interest; on the loans which he has advanced to the two companies referred to above. As a matter of fact; he is the Managing Director of the 1st company. His case is that the and company was paying interest regularly and in relation to the transaction of that company, he adopted mercantile system. There is no dispute about payment of tax on that. For the transaction with the 1st company, he has chosen to adopt the cash system. He stated that though the amount payable to him as interest was being shown in the account books of the company, the actual payment of the amount was not done. Another contention was that even while not paying the amount, TDS was affected. By adopting the cash system for this component of his returns, the appellant did not pay any tax on the interest payable to him by the 1st company, on the ground that the amount has not been paid at all. If that were to have been all, there would not have been

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any controversy. The reason is that under the cash system, the liability to pay tax arises only when the concerned amount is received as income. The 1st company made TDS in respect of the amount payable to the appellant as interest and issued certificate. The appellant wanted to use the certificate in its entirety. In other words, the amount reflected in the TDS certificate was being shown as tax already paid. This would have devastating effect. The amount covered by the certificate would take care of the interest payable on other income of the appellant. For example, if the amount refected in TDS constitutes tax payable on a sum of Rs. 1.00,000/-. that would have taken care of the income of the appellant to the extent of Rs. 1,00,000/- from other sources, though the interest as regards which the TDS was affected, was not reflected in the returns at all. All the authorities under the Act i.e., the assessing officer, the Commissioner and the Tribunal did not approve the method adopted by the appellant. The appellant cannot be permitted to blow hot and cold at one and the same time. If no TDS was affected and interest was not paid, he would not have been under an obligation to show the amount of interest in his returns, much less to pay lux thereon. However, once TDS is affected, he cannot be permitted to use the certificate to cover other amounts even while refusing to show the amount of interest in his returns. The steps taken by the authorities in this behalf cannot be treated as applying the parameters for mercantile system to a component of the returns filed under the cash system. The effect of the order passed by the assessing officer as upheld by the Commissioner and the Tribunal is only that the appellant must desist from having the best of both the systems and discarding the one, which is disadvantageous to him. Once he intends to treat the amount deducted as TDS as a component of tax paid, the corresponding to the TDS must form part of the returns and assessment. On the other hand, if he intends to pay the tax on the interest as and when he receives it, the amount covered by the TDS certificate can be treated as just income outstanding, till the actual date of receipt. In the facts of the present case, Section 198 gets attracted. Whenever an amount deducted as tax at source becomes incapable of being adjusted or counted towards tax payable, it acquires the

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character of income. In such an event, it partakes the character of any other income and is liable to be dealt with accordingly, in the order of assessment. Since the appellant has adopted the cash system and he did not receive the interest regarding which the TDS was affected, the TDS amount deserves to be treated as income. However, the attempt made by him to treat that amount as tax for the corresponding amount, cannot be permitted. For the foregoing reasons, we partly allow the appeals holding that the: appellant cannot be permitted to give credit to the amount representing TDS as tax and on the other hand, it shall be treated as an item of income for the concerned assessment year. The miscellaneous petitions filed in these appeals shall also stand disposed of. There shall be no order as to costs.

b. From the above judicial pronouncement, it is clearly held that assessee is duty bound to offer the amount of Rs.58,50,000/- for taxation on which TDS was deducted at Rs.5,85,000/-, which was claimed in the return. In the present case, as per the ratio of above judgment, provisions of Section 198 gets attracted and amount of Rs,58,50,000/- partakes the character of income which is taxable.

c. Further, in the judicial pronouncement reported as Pardeep Kumar Dhir vs. ACIT (2008) 303 ITR (AT) 45 (Chd.), it was held that, the deductee will not be entitled to have benefit or credit for the whole amount mentioned in the TDS certificate, if the whole income relatable to that amount is not shown and is not assessable in that assessment year, if instead of the entire income referable to the amount of tax deducted, only a portion of income is found assessable, the benefit has to be allowed only on the portion shown....” From the ratio of above judicial pronouncement also, it is clearly established that, appellant is duty bound to offer the corresponding income for taxation in respect of which benefit of TDS has been claimed by it.

d. Further, the ratio of judicial pronouncement in the case reported as Varsha G. Salunke vs. Deputy CIT (2006) 98 ITD 147 (Mum.) (TM) is that, if AO finds that income of the TDS certificate is not shown, the AO has only not to give credit for TDS in that assessment year and has to defer the credit being given to the year in which the income is to be assessed. From the above judicial pronouncement, it is clearly established that for claiming benefit of TDS, assessee is duty bound to offer the

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corresponding income for taxation and AO can only allow the benefit of TDS in case the corresponding income is found to be offered for taxation. 4.1.1 Thus, from the factual matrix of the case, ratio of judicial pronouncements discussed above, and clear cut provisions of section 198 and 199 r.w.r. 37BA(3)(i) of the Act. reproduced above, it is evident that appellant has failed to comply with these provisions of law. Therefore, it is held that AO has rightly disallowed the credit of TDS of Rs.5,85,000/- as appellant claimed the benefit of TDS to the extent above but corresponding advance rent has not been offered for taxation. Hence, the withdrawal of TDS credit made by the AO is upheld. Accordingly, this ground of appeal is dismissed.” 4.1 In our opinion, the learned CIT(A) after considering the position of the law in detail, relying on the decision of the Hon’ble Andhra Pradesh High Court in the case of Sri Y Rathiesh Vs. Commissioner of Income Tax (supra) has upheld the withdrawal of TDS credit by the Assessing Officer. We do not find any error in the order of the learned CIT(A) on the issue in dispute. However, we are of the considered opinion that government cannot sit over amount withheld and credit has to be allowed to the assessee in the year rent in advance is offered by the assessee for income. The grounds of the appeal of the assessee with respect to TDS credit are accordingly partly allowed. 5. Regarding the disallowance of Rs.5,26,469/-, the Assessing Officer held that expenses pertaining to the house property, income from which has been offered under the head ‘income from house property’ and deduction for expenses incurred on said property already stand covered by the 30% deduction under the income from house property. The claim of the assessee that the expenses pertain to the portion of the property, which is not rented out and the expenses have been incurred wholly and

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exclusively for the purpose of the business. The learned CIT(A) upheld the disallowance observing as under: “4.2 On careful consideration of the written submissions of the Ld. AR, it can easily be gathered that he is trying to justify the above submissions on the ground that the expenses, in question, which have been disallowed by the AO pertained to the business of the assessee, which were necessary to carry on the same. Before the AO it was contended that above expenses do not pertain to the property rented out but relates to the business. However, from the details available on record, copies of audited accounts, it is clearly evident that appellant company’s main source of income is only rental receipts. From the schedule of fixed assets, forming part of audited accounts, it is clearly established that there are only land and buildings and capital work in progress and no other business asset. On perusal of various schedules, it is evident that assessee mainly deals in real estate business. This fact has also been mentioned by the AO while passing the assessment order. Submissions of the Ld. AR are found to be devoid of any merits as simply saying that appellant has incurred the above expenses in relation to business cannot be accepted since he has failed to establish the hint of any other business activity apart from the rental income. In the P&L A/c, appellant has shown revenue from operation which is nothing but rental receipts, which has been claimed by the appellant as its income from house property while filing the return and income was shown under this head. As per provisions of the Act, appellant is eligible to claim deduction u/s 24 of the Act, which has been claimed and allowed to the appellant. From the modus operandi adopted by the appellant company, it can be held that it is trying to take double benefit of deduction u/s 24 and claiming deduction on the pretext of provisions of Section 37(1) of the Act on a single head of income Simply claiming that company is engaged in business cannot be accepted too as even during the appellant proceedings and before the AO, appellant has failed to explain the nature of business other than the real estate development. Hence, the submissions of the Ld. AR are not found to get acceptable and I am inclined to agree with the action in disallowing the claim of deduction made by the appellant on account of expenses incurred under the heads fuel, power and maintenance expenses to the extent of Rs.5,26,469/-. Hence, the addition made by the AO is upheld and grounds of appeal taken by the appellant is dismissed.”

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dispute pertains to portion of the property, income from which is not included under the head ‘income from house property’. The claim of the assessee cannot be allowed in absence of substantiation with documentary evidences. We do not find any error in the order of the learned CIT(A) on the issue in dispute and accordingly, we uphold the same. The ground of the assessee related to disallowance of � 5,26,469/- are accordingly dismissed. 7. In the result, the appeal of the assessee is dismissed. Order is pronounced in the open court on 10th December, 2019.

Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 10th December, 2019. RK/-(D.T.D.) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi