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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI R.K. PANDA & SHRI K.NARASIMHA CHARY
PER K. NARASIMHA CHARY, JM
Aggrieved by the Order dated 27.04.2017 in Appeal No. 14/16-17 passed by the Ld. Commissioner of Income Tax (Appeals)- 6, Delhi (“Ld. CIT(A)”), M/s. NKC Projects (P) Ltd., (“the assessee”) preferred this is an appeal.
Brief facts of the case are that the assessee is a contractor and is engaged in the business of constructing highways, roads and commercial buildings for corporate sector etc. For the assessment year 2013-14 they have filed their return of income on 30/9/2013 declaring a total income of Rs. 10,51,41,070/-. During the course of
2 assessment proceedings, learned Assessing Officer noticed that the assessee paid a bank guarantee commission amounting to Rs. 1,50,59,660/- till 31/12/2012, such payments were in the nature of those mentioned in NotificationNo. 56/2012 dt. 31/12/2012, not covered within the definition of interest under section 2 (28 A) of the Income Tax Act, 1961 (for short “the Act”) and therefore exemption provided under section 194A (3 (iii) (a) of the Act is not applicable to such payments, since payment for such services can be made without deduction of TDS to scheduled banks.
He further observed that on identical facts, addition on account of disallowance of bank guarantee commission under section 40(a)(ia) of the Act was made in assessee’s own case for assessment year 2011-12, against which the assessee filed appeal before the Ld. CIT(A) and by order dated 16/12/2014 in appeal No. 279/13-14; and that the Ld. CIT(A) dismissed the assessee’s appeal and confirmed the addition made on the impugned issue.Learned Assessing Officer, therefore, concluded that the assessee was required to deduct TDs on bank guarantee commission of Rs. 1,50,59,663/- debited to P&L account till 31/12/2012, but since the assessee did not deduct the tax at source, the claim of the assessee of Rs. 1,50,59,663/- was to be disallowed under section 40(a)(ia) of the Act on account of non-deduction of tax at source on bank guarantee charges and the same was added to the income of the assessee.
3 4. Assessee preferred appeal to the Ld. CIT(A). Ld. CIT(A) by way of impugned order held that the scheme of notification of payments under section 197A (1F) of the Act presupposes that a payment which has been notified under such subsection was not exempted from deduction of tax before the date of notification of such payment and the power of notification under section 197A (1F) of the Act is not applicable for those payments from which tax is not deductible under chapterXVII of the Act. CIT further observed that the issue of notification under section 197A (1F) of the Act of the Act, interalia, providing that tax under chapter XVII shall not be deducted from payments in the nature of bank guarantee to specified banks makes it obvious that the tax is required to be deducted under chapter XVII of the Act from the payments in the nature of bank guarantee commission, however, such payments made to the specified banks w.e.f. 1st January, 2013 shall not be liable for tax deduction in view of the notification issued under section 197A (1F) of the Act. On this premise he held that the tax was required to be deducted from the payment of bank guarantee commission/charges amounting to Rs. 1,50,59,663/- made till 31/12/2012 and as the tax was not deducted, the same was not allowable in view of the provisions of section 40(a)(ia) of the Act. He, therefore, confirmed the disallowance of Rs. 1,50,59,663/-.
Felt aggrieved by the said finding of the Ld. CIT(A), assessee preferred this appeal stating that in view of the decisions of the Tribunal reported in 147 of the Act TTJ 443 (Mum) in the case of Kotak Securities Ltd vs. DCIT and ITA number 20/4/2019/PN/2012 dated 10/0/2014 in the case of ACIT vs. M/s Ashok Buildcon Ltd, the bank guarantee commission paid to the Corporation bank is an allowable expenditure and once the
4 assessee had bona fides reason to believe TDS was not deductible, section 40(a)(ia) of the Act has no application for the allowability of the expenditure. He further submitted that the issue is no longer res Integra inasmuch as a coordinate Bench of this Tribunal in assessee’s own case in ITA No. 1517/Del/2015 for the assessment year 2011-12 held that when there is no principal agent relationship between the bank issuing bank guarantee and the assessee, transaction between them is not the transaction between principal and agent so as to attract tax deduction under section 194H of the Act.
Per contra, it is the argument of the Ld. DR that the authorities below carefully approached the issue in the light of the provisions of section 197A (1F) of the Act and also notification No. 56/2012 dated 31/12/2012 and, therefore, there are no reasons for interference with such a finding of the authorities below.
We have gone through the record in the light of the submissions made on either side.It could be seen from the assessment order that while dealing with the issue of allowability of the bank guarantee commission, learned Assessing Officer held that on identical facts in assessee’s own case for the assessment year 2011-12 an addition under section 40(a)(ia) of the Act was made and the same was confirmed by the Ld. CIT(A) in appeal. However the order dated 28/11/2018 in ITA No. 1517/del/2015 for the assessment year 2011-12 clearly shows that after following the orders of the Mumbai, Pune and Visakhapatnam benches of the Tribunal, a conclusion was reached by the Tribunal that in the absence of any principal agent relationship between the bank issuing
5 bank guarantee and the assessee, the transaction between them is not transaction between the principal and agent so as to attract the tax deduction under section 194H of the Act.
The submissions of the assessee that the facts involved in both the years are identical, as observed by the learned Assessing Officer in the assessment order itself, is not contradicted by the Ld. DR. Since the issue is no longer res Integra and has squarely been covered in assessee’s own case for the earlier year by the orders of the Tribunal, while respectfully following the same we reach the conclusion that in the absence of any principal agent relationship between the bank issuing bank guarantee and the assessee, the transaction between them is not transaction between the principal and agent so as to attract the tax deduction under section 194H of the Act, and the addition made in this case under section 40(a)(ia) of the Act cannot be sustained. We accordingly allow the grounds of appeal, and direct the assessing officer to delete the addition of Rs. 1,50,59,663/-.
In the result, appeal of the assessee is allowed. Order pronounced in the Open Court on 19th Nov, 2019.
Sd/- Sd/- (R.K. PANDA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19th Nov, 2019
6 Copy forwarded to:
Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI