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Income Tax Appellate Tribunal, BANGALORE BENCH “A”
Kanthula Ravishanker, ‘Ravshan’ No.7, Bruton Road, Bangalore. . Appellant Vs. The Asst. Commissioner of Income-tax, Circle-2(3)(1), Bangalore . Respondent Appellant by : Shri A.C Raju, C.A Respondent by : Shri B.R Ramesh, CIT Date of Hearing : 03-1-2018 Date of Pronouncement : 19-1-2018 O R D E R
PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals) – 7, Bangalore dated 30/8/2016 for asst. year 2012-13.
Briefly stated, the facts of the case are as under:- 2.1 The assessee, Prop. K.K Corporation, engaged in business as selling agents for M/s Raymonal Ltd., products for the states of Karnataka Goa, filed his return for asst. year 2012-13 on 30/9/2012 declaring income of Rs.3,92,56,910/-. The case was taken up for scrutiny and the assessment was completed u/s 143(3) of the Income- tax Act, 1961 (in short ‘the Act’), wherein the assessee’s income was determined at Rs.3,97,60,968/- in view of an addition of Rs.5,04,063/-u/s 198 of the Act on account of TDS credited upto 31/3/2012. On appeal, the ld CIT(A) dismissed the assessee’s appeal vide order dated 30/8/2016. 3.1 Aggrieved by the order of the ld CIT(A)-7, Bangalore dated 30/8/2016 for asst. year 2012-13, the assessee has filed this appeal before the Tribunal, wherein the following grounds are raised:-
“1. The Order of the Learned Commissioner of Income Tax (Appeals) -7, Bangalore is opposed to law and facts of the case. 2. The Learned Commissioner of Income Tax (A) is not correct in holding that tax deducted is deemed income under section 198 of the Income Tax Act, 1961 and adding the tax deducted at source as income of the appellant.”
3.2 The sole issue raised in the grounds (Supra) for consideration before us is as to whether the actions of the authorities below were correct in holding that the TDS of Rs.5,04,063/- is deemed income u/s 198 of the Act and adding the TDS as income of the assessee.
3.3 Before us, the ld AR for the assessee put forth oral submissions before the Bench which were a reiteration of the written submissions dated 3/1/2018 which are extracted below:-
“2. The Appellant is following the cash system of accounting and filed the return of Income as mentioned above.
The Appellant is a selling agent of M/s. Raymond Ltd., The Raymond Limited being a company registered under the Companies Act, 1956 is following the mercantile basis of accounting. Since, the appellant is following cash basis of accounting the income received during the year is offered for tax as against the accrual basis of income.
While filing the return of income the appellant has shown the details of income offered and taxes applicable claiming the tax deducted at source proportionately to the income received and the balance of tax deducted at source (TDS) relating to the income not received is carried forward for subsequent years for tax credit as provided under section l99ofthe Income Tax Act, 1961 r.w.r 37BA(3)(i)(ii).
The Learned Assessing Officer while completing the assessment treated Rs.5,04,063/- being the unutilized TDS carried forward as undisclosed TDS and has invoked the provisions of section 198 of the Income Tax Act, 1961 and made additions of Rs. 5,04,063/- during the year.
The Learned Assessing Officer has failed to appreciate that under Section 198, the amount of tax deducted at source under the provisions of Section 192 to 196D is, so far as affected person is concerned, to be treated as income received by him. For the purpose of computation of his total income, gross salary, gross dividend or gross interest or gross commission, etc., i.e., the amount actually received plus the amount of tax deducted at source will have to be considered. In the present case your appellant has shown the income at gross including the TDS. The amount of income recognised on Gross Basis has never been a matter of dispute by the Assessing Officer. The Learned Assessing Officer has added the TDS as undisclosed TDS amounting to Rs.5,04,063/- instead of it being carry forward to the year in which income is received. The fact is that there is no undisclosed TDS, since the assessee has disclosed the income on receipt basis & has claimed TDS only to the extent of the income received during the year. The balance of TDS cannot be treated as undisclosed TDS.
While filing the return of income the appellant has shown the details of income offered and taxes applicable claiming the tax deducted at source proportionately to the income received and the balance of tax deducted at source (TDS) relating to the income not received is carried forward for subsequent years for tax credit as provided
under section 199 of the Income Tax Act, 1961. The details of claim of TDS are as below:
It is submitted that the Assessing Officer has added TDS from Raymonds Ltd amounting to Rs.5,04,063/- for the assessment year 2012-13 the break of which is as follows :
It is seen from the above that the Assessing Officer has added Rs. 5,04,063/- TDS, as undisclosed TDS which is added to income.
The Learned Commissioner of Income Tax (A) is not correct in holding that tax deducted is deemed income under section 198 of the Income Tax Act, 1961 and adding the tax deducted at source as income of the appellant. The Learned CIT(A) in para 5.2 of the Appellate order has stated that: "As per the provisions of section 198 of the Act all Tax Deducted is an income of that person. It talks about the income being received and it does not assign it a statue of being accrued. The actual credit of the tax deducted amount is given as per the provisions of section 199 of the Act. The Rule 37BA further classifies that the credit of Tax deducted at source shall be allowed across the years in proportion to the assessed income. In the instant case, the A 0, after going through the reconciliation data furnished by the Appellant has found that income corresponding to Rs.4,53,657 is not assessed in the year under consideration thus it was rightfully allowed to be carried forward to the subsequent year. Similarly, on the basis of same data provided by the appellant, the A 0 has found that a sum of Rs.5,04,063 not being a part of total TDS Rs. 54,79,160/-. As per the provisions of Section 198, the amount of TDS is deemed income of the deductee and in the instant case the TDS amount which is not disclosed is accordingly, has to be added as income of the appellant. The appellant has total pre-paid tax credit of Rs. 1,20,29,159/- which includes Rs. 65,50,000/- as advance tax and Rs. 54,79,160/- of TDS. The A.O has allowed the credit of prepaid taxes of Rs. 1,20,79,565/- including proportionate TDS on the amount of undisclosed TDS which is treated as income of the instant year. The proportionate credit of TDS at 10% has been allowed by the A.O out of the undisclosed TDS of Rs. 5,04,063/-. The amount of this undisclosed TDS has never been a point of dispute. But the only contention regarding the amount is regarding the addition to the total income." Section 199 reads as follows: (1) Any deduction made in accordance with the foregoing pro-visions 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 was made, or of the owner of the security, or of the depositor or of the owner of property or : e unit-holder, or of the shareholder, as the case may be. (2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be as the tax paid on behalf of the person in respect of whose income such payment of tax has been made. (3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of ping credit to a person other than those referred to in sub- section (1) and sub-section (2) and also the assessment year for which such credit may be given. Rule 37 BA reads as follows: (1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom
payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority. (2) .......................... (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. (ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. (4) ...................................... The above Rule provides for considering the TDS as income of the year in which the income is assessable to tax. The Learned CIT(A) has erred in holding that Rs. 5,04,063/- is rightly assessed as undisclosed TDS and taxable under section 198. The Learned CIT(A) has overlooked the aspect of income returned at gross as per section 198 and to the extent of the income received during the year and there is no undisclosed income/TDS. Section 198 is not a computation provision. Where the accounts are maintained under cash basis, the income will be taxable only on receipt basis. In such a case, Section 198 has to be understood as applicable for the year in which such income is assessable. There is no bar for the tax deducted to be refunded in the year of deduction though the receipt is not taxed in the same year. In view of the above submissions, we pray that the additions made be deleted.”
3.4 Per contra, the ld DR relied on and supported the orders of the authorities below. 3.5.1 We have heard the rival contentions and perused and carefully considered the material on record. As can be seen from the order of assessment (page1/column 8) and the assessee’s submissions, admittedly, the assessee is following the cash systems of accounting and professional receipts are declared on receipt basis. From a perusal of the reconciliation statement of professional receipts and TDS furnished, the AO was of the view that the assessee has neither declared the income of the corresponding amount nor claimed TDS of Rs.5,04,063/- pertaining to it and proceeded to make an addition thereof as income of the assessee as per the provisions of sec. 198 of the Act. On appeal, we find that the ld CIT(A) upheld the AO’s order, brushing aside the assessee’s contentions that his case clearly falls under the provisions of sec. 199(3) of the Act (credit for tax deducted) r.w Rule 37BA(3)(ii) of the IT Rules, 1962 (Credit for tax deducted at source for the purposes of sec. 199) and that TDS credit should be allowed across those years. We also observed that the ld CIT(A) did not consider and dispose off the assessee’s claim that carry forward of earlier years TDS commencing from F.Y 2008-09 should be allowed for reducing yearwise utilization admittedly made before him. 3.5.2 Section 199(3) of the Act provides that the CBDT, for the purposes of giving credit in respect of TDS or tax paid in terms of the provisions of Chapter XVII-B, make such rules as may be necessary, including for the purposes of giving credit to a person other than those referred to in sub-section (1) and (2) and also the asst. year for which such credit may be given. Rule 37BA(3)(ii) of the Rules specifies that where TDS has been made and paid to the central government and the income is assessable over a number of years, credit for TDS shall be allowed across those years in the same proportion in which the income is assessable to tax. From a perusal of the facts on record, as discussed above, it is seen that the ld CIT(A) in the impugned order has brushed aside and not examined or considered the assessee’s contentions that since his case falls clearly under the provisions of sec. 199(3) r.w. Rule 37BA(3)(ii), carry forward of earlier years TDS commencing from Financial Year 2008-09 should be allowed for reducing year wise utilization, by giving credit thereof across the various years in which such income was assessable to tax. This fact on record, that the ld CIT(A) had failed to address the aforesaid claim of the assessee, was not controverted before us by Revenue. In this factual and legal matrix of the case, as discussed above, we are of the view that the aforesaid claim of the assessee as laid out in his written submissions (Supra) and in paras 3.5.1 and 3.5.2 (Supra), that his claim and case is squarely covered by the provisions of sec. 199(3) r.w. Rule 37BA(3)(iii) which was not addressed by the ld CIT(A) in the impugned order requires to be examined and considered. In this view of the matter, we set aside the finding of the authorities below on this issue and remand the same for examination, verification and consideration to the file of the ld CIT(A) and for adjudication thereon after affording adequate opportunity of being heard to the assessee and the AO and also to file details/submissions in this regard. We hold and direct accordingly. Consequently grounds raised by the assessee are allowed for statistical purposes.
4. In the result, the assessee’s appeal for asst. year 2012-13 is allowed for statistical purposes. Order pronounced in the open court on 19th January, 2018. Sd/- Sd/- (SUNIL KUMAR YADAV) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated : 19/1/2018 Vms Copy to :1. The Assessee
2. The Revenue 3.The CIT concerned. 4.The CIT(A) concerned. 5.DR 6.GF By order
Sr. Private Secretary, ITAT, Bangalore