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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश / O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER: The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-1, Chennai, in ITA No.15/CIT(A)-1/2016-17 dated 29.06.2018 for the assessment year 2007-08.
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M/s. Conference Call Services India Private Ltd., the assessee, is engaged in providing conference call services. The AO completed the assessment U/s.143(3) for the assessment year 2007-08 on 24.12.2009 , in which Rs.1,80,40,918/- has been added on account of the assessee’s failure to deduct tax at source resulting in disallowance U/s.40A(ia) and 40(a)(i). These amounts were paid to Indian and overseas parties for acquiring band width connection. Aggrieved against that order, the assessee filed an appeal before the CIT(A). The ld.CIT(A) sustained the addition. Aggrieved against that order, the assessee filed an appeal before this Tribunal which was decided by an order in ITA No.484 & 1057/Mds/2014 dated 17.07.2015. The Hon’ble ITAT has noted that the assessee has incurred a sum of Rs.2,21,63,895/- towards connectivity charges due to which the AO has disallowed a sum of Rs.33,91,949/- U/s.40(a)(i) and Rs.1,46,48,969/- U/s.40(a)(ia). The ITAT has held that in case of payment to overseas parties only those amounts can be disallowed on which there is no deduction of tax at source. If there was short deduction of TDS, such amounts cannot be disallowed U/s.40(a)(i). With regard to domestic payments only, non-deduction of TDS can be disallowed under deduction and not short deduction. The ITAT further held that only those items can be subjected to disallowance which
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remain payable at the end of the year. Thus, the ITAT held that the provisions of Section 40(A)(ia) would not apply to amounts that have been paid of during the previous year without TDS. The AO has given effect to the order of the ITAT in his order dated November, 2015. Aggrieved against that order, the assessee filed an appeal before the CIT(A). The ld.CIT(A) dismissed the appeal. Aggrieved against that order, the assessee filed this appeal.
The ld.AR pleaded that in the order giving effect to the ITAT, the ld.AO made the following adjustments / denied relief: a) Erroneous reduction of Rs.28,32,022/- from the total relief to be granted to the assessee; b) Non grant of relief for expenses which were paid during the year and which were not outstanding as at the year end ; c) Consideration of expenses inclusive of service tax while making the disallowance amounting to Rs.1,80,40,918/-.
4 With regard to the issue of short relief, the ld.AR invited our attention to the following table,
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Particulars Amount Total amount debited to profit and loss (a) Rs.2,08,72,940/- account (under schedule -7 operating cost) Amount disallowed by AO under assessment (b) Rs.1,80,40,918/- order u/s 143(3) Amount on which no deduction of TDS is (c) Rs.88,28,419/- done (to be disallowed as directed by the ITAT order) Amount of relief to be given to assessee (a)- (d)=(b-c) Rs.92,12,499/- (b) Amount of actual relief given to the assessee (e) Rs.63,80,475/- (as per the AO order giving effect to the ITAT order) Short relief to the assessee (f)=(d-e) Rs.28,32,024/-
and submitted that the AO has granted the relief of Rs.63,80,475/- instead of Rs.92,12,499/- (ie., Rs.1,80,49,918 – Rs.88,28,419) to the assessee. Therefore, there is short relief granted to the extent of Rs.28,32,022/-. On all the above aspects, the ld.CIT(A) without duly appreciating the facts and circumstances of the case, dismissed the appeal and hence the ld.AR pleaded to allow the appeal.
4.1 Per contra, the ld.DR submitted that on the issue of short relief, the ld.CIT(A) held that the assessee has not placed any document before her to show that there was short deduction of tax in respect of any payment and therefore there is no mistake in the order of the AO In spite of such finding , the ld.CIT(A) has directed the AO to once again ensure that from the total claim of the assessee amounts on
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which there is short deduction of tax are allowed and retain the balance disallowance. On the issue of non-grant of relief for expenses which were paid during the year and which were not outstanding as at the year end, the ld.CIT(A) held that the assessee’s claim is contrary to the law laid down by the Hon’ble Supreme Court in the case of Palam Gas Service vs. CIT, (2017) 81 taxmann.com 43(SC). In the said decision, the Hon’ble Supreme Court has explained that the provisions of Section 40A(ia) are applicable in respect of all payment and not merely those remaining unpaid at the end of the year. On the issue of non-consideration of expenses inclusive of service tax while making the disallowance amounting to Rs.1,80,40,918/-, the assessee explained that tax has been deducted at source on the total payment including the service tax element which comes to Rs.2,21,63,893/-. Against it , the amount claimed as deduction in P&L account is only Rs.2,08,72,940/-. The AO while disallowing the sum of Rs.1,80,40,918/- has considered the gross payments including service tax. It was pleaded that no disallowance on account of service tax component is warranted as no deduction in this regard has been claimed by the assessee. The ld.CIT(A) found that this issue has not been raised by the assessee at any time in the first round of appeal. Since it has been raised for the first time now and there is no direction
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in this regard in the order of the ITAT, the ld.CIT(A) very correctly dismissed this issue and hence supported the order of the ld.CIT(A) .
4.2 We heard the rival submissions. In order to appreciate the issues, the relevant portion of the order giving effect to the ITAT order dated 24.12.2009 is extracted as under:- “Consequent to the order of the ITAT vide ITA No.484 & 1057/Mds/2014 dated 17-07-2015, and as per the directions of the Hon’ble ITAT, the TDS deducted in respect to payments made to foreign provider is reworked and segregated as per short deduction and no deduction as per the table below: Description Name of the Service Section Quantum of No deduction Provider Disallowance (in Rs.) Data Variable Cost Webex Communications 194J 89,00,336 10,71,626 India Pvt. Ltd. E1-Circuit Charges Reliance 194J 27,10,917 27,47,082 Communications Ltd Carriage Reliance 194J 12,66,971 International Communications Ltd Carriage Domestic Reliance Infocom 194J 9,25,110 9,25,110 Bridge Connection Asianet Com 194J 4,16,316 4,16,316 Charges Video Room Rent Reliance Webstore 194J 4,29,319 2,76,333 Carriage AAPT/Teleglobe 195 33,91,949 33,91,949 International 1,80,40,918 88,28,419 Out of the total expenses of Rs.2,08,72,942 which is subject to TDS, Rs.28,32,024 has not been disallowed vide order dated 24.12.2009. As per the Honourable ITAT order dt. 17.07.2015, an amount of Rs.63,80,475 on which the assessee had made short deduction of TDS is reduced from the taxable income.
Income assessed as order U/s 143(3) dated 24.12.2019 -Rs.97,36,748 Less: Relief as per ITAT order u/s 40(a)(ia) & 40(a)(i) -Rs.63,80,475 ____________ Assessed Income -Rs.33,56,273 ____________
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Since, the AO has observed that out of total expenses of Rs.2,08,72,942 which is subject to TDS, Rs.28,32,024 has not been disallowed in the above order, to appreciate it properly the relevant portion of the original order is extracted as under:- “3.1 The principal bone of contention in the taxation of the income of the assessee is the eligibility of claim of expenses when the same had not complied with the provisions of Section 40(a)(i) and 40(a)(ia). The details of such expenditure that the assessee ought to have deducted while making the payments were obtained. The assessee is in the business of providing Web Conference Services. The assessee is in the business of providing Web Conference Services, Audio Conference Services and Video Conference Services to various customers across the globe. The Registered Office is located at No.28, Chesney Town House, Ethiraj Salai, Chennai – 600 008, Tamil Nadu and the Corporate Office at No11, Level 2, Adam Chambers, Richmond Road, Bengaluru – 560 025. The most essential tool in this business activity is the hyper bandwidth connection for which a substantial sum towards operating cost amounting to Rs.2,21,63,895/- had been expended during the year. The operating cost are segregated as found in the table provided below:
Description Name of the Service Amount TDS Provider Deducted Data Variable Cost Webex Communications 12,031,051 175,678 India Pvt. Ltd. E1-Circuit Charges Reliance 3,196 ,175 27,223 Communications Ltd Telehousing Expenses MTNL 247,970 0 Carriage International AAPT / Reliance 4,658,920 0 Communications Ltd / Teleglobe Carriage Domestic Reliance Infocom 925,110 0 Installation Charges BSNL & 5 others 155,505 0 Bridge Connection Charges Asianet Com 416,316 0 Video Room Rent Reliance Webstore 532,848 5,808 Total 22,163,895 208,709
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3.2 These charges are paid both to Indian Service Providers and foreign service providers as well. The assessee in respect of Data Variable Cost paid to Webex Communications India Pvt. Ltd. had deducted tax towards a major amount paid to them. Similarly, for Video Room Rent a portion of expenditure had suffered TDS. In respect of EI-Circuit Charges, on a payment of Rs.31,96,175/-, the TDS made is Rs.27,223/-. The assessee is fully aware that TDS ought to have been deducted on these payments made to the Domestic Service Providers at the prescribed rates and withholding tax in respect of foreign players. The assessee had deducted only a meager sum of Rs.2,08,709/- while making the other payments at gross.
……………………………………………………………………………………………… ……………………………………………………………………………………………… …………… 3.8 ……………………………………………………………………………………………… …………………………………………………… The assessee itself exhibits partial acceptance to this contention of the Department that it is fundamentally an Technical Service and therefore deducted taxes on a portion of such payments. Having failed in respect of the balance therefore qualifies for disallowance u/s.40(a)(ia). The assessee had deducted a portion of domestic payments but at a lesser rate of 2.24% instead of 5.61% applicable for section 194J. Credit to the extent of tax deducted in its proportion is granted. The bifurcation of payments requiring TDS u/s.195 and 194J are tabulated below: Description Name of the Service Section Quantum of Provider Disallowance Data Variable Webex Communications 194J 8,900,336 Cost India Pvt. Ltd. E1-Circuit Reliance 194J 2,710,917 Charges Communications Ltd Carriage Reliance 194J 1,266,971 International Communications Ltd Carriage Domestic Reliance Infocom 194J 925,110 Bridge Connection Asianet Com 194J 416,316
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Charges Video Room Rent Reliance Webstore 194J 429,319 Carriage AAPT/Teleglobe 195 3,391,949 International Total 18,040,918
By the above discussion a sum of Rs.1,46,48,969/- is disallowed u/s.40(a)(ia) and Rs.33,91,949/- is disallowed u/s.40(a)(i) and the total amount disallowed under these heads due to non-deduction of tax is Rs.1,80,40,918/-.”
From the above, it is clear that in the original assessment order the AO has quantified the disallowance at Rs.1,80,40,918/- by making an adjustment of a lesser rate of tax reduction of 2.24% to 5.61% U/s.194J. In other words, the entire sum of Rs.2,21,63,895/- was the subject matter as per Para 3.1, of the original order, extracted supra. While giving effect to the order of the ITAT, prima facie it appears that the A O has not properly examined this aspect . The ld.CIT (A) has also given a direction to re- examine this issue. Further, the relevant portion of the order of the ITAT is extracted as under:- “Being so, this issue is squarely covered by the above order. Taking a consistent view, we are inclined to hold that the assessee is liable to deduct TDS for payment made to foreign service provider. However, if there is short deduction of TDS then the payment cannot be disallowed as short deduction is different from no deduction of TDS. Accordingly, the Assessing Officer is directed to segregate the short deduction and no deduction of TDS on the payments made to foreign provider and he has disallowed only payment where there is no deduction of TDS. Accordingly, this ground is partly allowed.
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The next ground is with regard to disallowance of D.1,46,48,969/- made u/s.40(a)(ia) of the Act. This issue is squarely covered by the order of the Special Bench of the Tribunal (Vizag) in the case of Merilyn Shipping and Transports vs. ACIT (2012) 136 ITD 23 (Visakhapatnam) wherein it was held that the provisions of section 40(a)(ia) are applicable only to the expenses that are “payable” and outstanding at the end of the close of the financial year relevant to the assessment year and not to the amount already paid. The same view was taken by the High Court of Allahabad in the case of CIT vs. M/s. Vector Shipping Services (P) Ltd in ITA No.122 of 2013 dated 09.7.2013 by holding that sec 40(a)(ia) is not applicable when there is no outstanding balance at the end of the close of the year relevant to the assessment year and SLP filed by the Revenue in Supreme Court of India in CC No.8068/2014 dated 02.07.2014 is also dismissed. Being so, in our opinion an amount outstanding at the end of the close of the assessment year is not to be allowed as business expenditure in view of provisions of section 40(a)(ia) of the Act. Further, we make it clear that the Assessing Officer should consider only payment which are not subject to TDS for disallowance and not short deduction of TDS. In view of the above order of the Special Bench, we are not inclined to follow the order of the Mumbai Bench in the case of M/s. Pratibhuti Viniyog Ltd in ITA No.1689/Mum/2011 dated 23.08.2014 relied by Departmental Representative. With these observations, this ground is partly allowed for statistical purposes. This appeal is partly allowed for statistical purposes.”
From the above, it is also clear that the ITAT has also given an open order for the A O to examine this issue on the lines indicated above. Therefore, we deem it fit to remit this issue back to the AO for a proper examination. After giving due opportunity to the assessee, the AO shall decide the issue in accordance with the direction given by the
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ITAT, supra. To this extent, the assessee’s corresponding grounds are treated as partly allowed for statistical purposes.
On the issue of non-grant of relief for expenses which were paid during the year and which were not outstanding as at the year end, the ld.CIT(A) held that the assessee’s claim is contrary to the law laid down by the Hon’ble Supreme Court in the case of Palam Gas Service vs. CIT, (2017) 81 taxmann.com 43(SC). It is settled law that the decision of the Apex Court enunciating a principle of law is applicable to all cases irrespective of its stage of pendency because it is assumed that what is enunciated by the Supreme Court is in fact, the law from inception. Therefore, we do not find merit in the assessee’s submission on this issue and hence dismiss the corresponding grounds.
On the issue of non-consideration of expenses inclusive of service tax while making the disallowance amounting to Rs.1,80,40,918/- also, since this issue has not been raised by the assessee at any time in the first round of appeal and there is no direction in this regard in the order of the ITAT, we do not find any
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reason to interfere the with the order of ld.CIT(A) and hence dismiss the corresponding grounds.
In the result, the assessee’s appeal is partly allowed.
Order pronounced in the court on the 17th October, 2019 at Chennai.
Sd/- Sd/- (एन.आर.एस.गणेशन) ( एस जयरामन ) (N.R.S. Ganesan) (S. Jayaraman) �या�यक सद�य/Judicial Member लेखा सद�य /Accountant Member चे�नई/Chennai, �दनांक/Dated 17th October, 2019 RSR आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF