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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA No.:- 6578/Del /2014 Assessment Year: 2007-08 ITO, Ward-23(2), M/s. Shivaai Industries Pvt. New Delhi. Ltd. Vs. E-3/38, Sector-7, Rohini New Delhi – 110 085 (Appellant) (Respondent)
Department by: Shri S.S. Rana, CIT(DR) Department by : Shri Pradeep Dinodia, CA Shri R.K. Kapoor, CA Date of Hearing 25/10/2017 Date of pronouncement 25/10/2017
O R D E R PER AMIT SHUKLA, J.M.
The aforesaid appeal has been filed by the revenue against the impugned order dated 3.9.2014, passed by Ld. CIT(Appeals)- XI New Delhi for the quantum of assessment passed u/s 147/143(3) for the assessment year 2007-08. In the grounds of appeal revenue has raised following grounds :-
“The Ld. CIT(A) has erred in law and on facts in admitting additional evidence in the form of agreement between the assessee company and DTC in contravention of Rule 46A of I.T. Rules 1962 as it was never produced before A.O.
ITA No. 6578/Del/2014 ITO vs. M/s. Shivaai Industries Pvt. Ltd.
The Ld. CIT(A) has erred in law and on facts in deleting the disallowance u/s 40(a)(ia) made by the A.O. in respect of payment made to DTC on account of non deduction of TDS.
The appellant craves leave to amend, modify, alter or forgo any ground(s) of appeal at any time before or during the hearing of this appeal.”
Brief facts of the case are that Assesse Company is engaged in the business of display of advertisement and was awarded contract for display of such advertisement on DTC bus queue shelters and time keeper booths for different zones for a period of three years including the year under consideration, by DTC New Delhi. It has filed its original return of income on 31.10.2007, declaring total income of Rs. 1,52,062/- and as against this the original assessment was completed u/s 143(3) vide order dated 22.12.2009 at an income of Rs. 2,25,251/-. Later on, the assessee’s case was reopened u/s 147 by issuance of notice u/s 148 dated 28.3.2012, primarily on the reason that, while completing the assessment the disallowance of Rs. 15,15,66,324/- being payment of rent to DTC could not be made by the AO as the assessee has failed to comply with the provisions of section 40(a)(ia) which has resulted into under assessment by this amount. During the course of reassessment proceedings, the assessee was asked to give its justification for non deduction of TDS on the payment of site rent amounting to Rs. 15,15,66,324/- paid to DTC in view of the provision of section40(a)(ia). In response, the assessee submitted copy of certificate u/s 197 for deduction of tax at lower/ nil rate. However the Ld. AO after detailed discussion held that the payment made by the assessee to DTC was akin to licence fee paid to DTC for display of advertisement on various sites in terms of section
ITA No. 6578/Del/2014 ITO vs. M/s. Shivaai Industries Pvt. Ltd.
194I and therefore, failure to deduct TDS attracts disallowance u/s 40(a)(ia). Accordingly, the entire payment was disallowed by the AO.
In the first appeal besides various submissions made before the Ld. CIT (A), one of the crucial submissions made was that no tax was deductable u/s 194I in respect of 50% of payment of licence fee, because the same was paid to Municipal Corporation of Delhi (MCD) and MCD’s income is exempt u/s 10(20), therefore, there was no liability to deduct TDS on payment made to MCD. It was brought on record from the terms of tender for award of contract for display of advertisement on DTC bus queue shelter/ time keeping booths, that 50% of the lease fee is payable to MCD and a separate cheque in favour of MCD has been presented to DTC and balance 50% is a lease fee cheque issued in favour of DTC. Hence both the authorities share the revenue in ratio of 50:50. In support copies of monthly bills raised by DTC as well as the forwarding letters of payment of licence fee were enclosed. Apart from that, it was further submitted that the payment made to DTC is already part of the receipts and if in the case of the payee (i.e. DTC) which is an undertaking of Govt. Of Delhi, assessment u/s 143(3) for the relevant assessment year has been completed much prior to the date of notice, then no disallowance can be made u/ 40(a)(ia). In support reliance was placed on second proviso to section 40(a)(ia) read with proviso to section 201(1) brought by the Finance Act, w.e.f 1.4.2013. It was submitted that this amendment should be treated as retrospective and in support; reliance was placed on the judgment of Hon’ble Delhi High Court in the case of CIT vs. Rajinder Kumar reported as 2013 TIOL 547.
Ld. CIT (A) so far as the assessee’s contention and the additional evidence placed by the assessee vide its application under
ITA No. 6578/Del/2014 ITO vs. M/s. Shivaai Industries Pvt. Ltd.
rule 46 A, had called for remand report from the AO vide letter dated 15.4.2004 and in response the AO has submitted his remand report vide letter dated 9.7.2014, wherein he has requested not to accept the additional evidences. After calling for the rejoinder from the assessee and considering the entire gamut of facts, the Ld. CIT(A) on this issue observed and held as under :-
“In Ground No. 9, it has been argued that as per the agreement itself, 50% of payment of license fee was paid to MCD. The MCD being a Govt. organization, its relevant income is exempt U/S 10(20) of the Act. Although the appellant has made application under Rule 46A of the Income Tax Rules, 1962 in respect of this issue, however, the contents of agreement between the appellant and DTC shows that 50% of license fee was to be paid to MCD. Further, the, payments to 'MCD have, been, directly made through appellant's bank account without routing the same from the account of DTC. It seems the AO could not examine this issue at the time of assessment. The fact being so, it is not a case of additional evidence but just a case of highlighting the already existing facts. On examining the agreement signed by the appellant with DTC, it is evident that the appellant was bound to make payment of 50% of license fee to MCD. The appellant has produced all the evidences in respect of direct payments made to MCD. Further, the income of MCD is exempt U/S 10(20) of the Act as it comes under the definition of local authorities. The facts being so, the AO's action in not excluding such payments from the applicability of TDS provisions and thus applying the provisions of section 40(a)(ia) of the Act in respect of payment made directly to MCD which covers 50% of the total amount involved, is not justified.” 5. On the contention raised by the assessee that, since regular assessment in the respect of payee, i.e. DTC, has been completed u/s 143(3) much prior to the date of issuance of notice u/s 148, therefore, in view of the second proviso of section 40(a)(ia) no disallowance can be made, his relevant observation and finding reads as under :-
ITA No. 6578/Del/2014 ITO vs. M/s. Shivaai Industries Pvt. Ltd.
“12.3. I have carefully considered all the arguments put forward by the appellant regarding the applicability of provisions u/s 40(a)(ia) of the Act in respect of outstanding amounts (payable), there are contradictory views from different High Courts and the CBDT has also issued a circular in this regard. The appellant's case finds support from the decisions of Hon'ble Courts relied upon by it. Without prejudice to appellant's this argument, the argument that the payee's (DTC) assessment has already been completed u/s 143(3) of the Act, wherein it has shown all the receipts in respect of license fees paid by the appellant. It is observed that the Hon'ble Jurisdictional High Court has held that second proviso to section 40(a)(ia) is curative and remedial in nature and for making the provision workable giving it a reasonable interpretation, therefore, such amendment must be construed retrospectively in operation. As held by the Hon'ble Court on the basis of rule of reasonable consideration in holding the retrospective effect of this proviso, the AO is not justified in invoking section 40(a)(ia) of the Act in making disallowance. Ne fruitful purpose is served if the appellant is made liable to make TDS on such payments which have already been shown as income in payee's account. In a recent judgment, the Hon'ble ITAT, Delhi, Bench-D, New Delhi in ITA No. 3893/De1/2010 and 5696/De1/2011 in the case of ITO, 37(2), New Delhi vs. Dr. Jaideep Kumar Sharma, have held the similar view based on the decision of Jurisdictional High Court in the case of CIT vs. Rajinder Kumar (supra).The facts being so, the A.O.’s action in making the disallowance u/s 40(a)(ia) of the Act is not justified and the Ground No. 6,7,9 & 11 of the appeal are allowed.”
Before us the Ld. CIT (DR), submitted that despite several opportunities given by the AO to the assessee, nowhere it was pointed out or brought to the notice of the AO that, firstly, 50% of the advertisement fee has been paid to MCD and not to DTC as the assessee’s contention before the AO was all together different and no
ITA No. 6578/Del/2014 ITO vs. M/s. Shivaai Industries Pvt. Ltd.
reasonable cause were given by the assessee before the Ld. CIT (A) as to why such additional evidence could not be filed before the AO. Thus he submitted that matter should be remanded back to the file of AO for examining this issue. Secondly, on the issue that in the case of the payee, assessment has been completed u/s 143(3), he submitted that it cannot be ascertained as to whether the payments received by the DTC has been credited to the profit and loss account or it is part of its receipts. Thus, for verification of this aspect also, matter should be restored back to the file of AO.
On the other hand, Ld. Counsel submitted that, assessee after giving the entire explanation before the Ld. CIT(A) along with the tender document through which this payment has been made, it is quite clear that 50% of the payment has been made to MCD and therefore, to the extent of 50% no TDS was deductible. Ld. CIT (A) has given due opportunity to the AO to verify this aspect who has simply failed to examine and has objected to admissibility without going into the fact it goes to the very root of the matter of disallowance u/s 40(a)(ia). Regarding second contention raised by the Ld. CIT (DR), he submitted that such a huge payment made to DTC towards advertisement fee is part of the receipt of DTC and once the assessment has been completed u/s 143(3) in the case of DTC at a huge loss, then there was no requirement for the assessee to deduct TDS on such payment. Therefore, Ld. CIT (A) has rightly accepted the assessee’s contention on this score. In any case, now it is a settled law that second proviso to section 40(a)(ia) has been held to be retrospective from 1.4.2005 in view of the judgement of Hon’ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P.) Ltd. (2015) 377 ITR 635 (Delhi).
ITA No. 6578/Del/2014 ITO vs. M/s. Shivaai Industries Pvt. Ltd.
We have heard rival contentions and also perused the relevant finding given in the impugned order qua the issue raised before us. So far as the admissibility of additional evidence by the Ld. CIT(A) is concerned, we find that the very basis for making the payment is originating from the contract entered by the assessee with the DTC for display of advertisement on DTC on their bus queue shelters and time keeper booths. In the said contract itself, it has been agreed that 50% of the lease fee is payable to the MCD and as per the agreement a separate cheque in favour of MCD is given. Once this fact was placed before the Ld. CIT (A), he immediately confronted to the AO to submit his remand report after verification. AO after taking note of all these documents has simply objected to admission of additional evidence, which in our opinion was not correct on the part of the AO. When the mandate was given by the Ld. CIT(A) to verify the payment made to MCD which is flowing from the bank statement of the assessee placed before the AO during the course of assessment proceedings, then it was the duty of the AO to verify the same. In any case the Ld. CIT(A) has given a categorical finding that payment to MCD has been made through assessee’s bank account through cheque duly reflected in the bank account of DTC which is already part of the original record, which AO has not even bother to examine this issue at the time of assessment. Thus, there was a complete failure on part of the AO himself while making such a disallowance u/s 40(a)(ia). The finding and observation of Ld. CIT (A) in this regard as incorporated above is therefore, confirmed as it is based on appraisal of facts and provisions of law.
So far as the second issue is concerned that, since regular assessment of DTC, i.e., payee has been completed u/s 143(3) at a huge loss, wherein all the receipts of licence fee paid by the assessee
ITA No. 6578/Del/2014 ITO vs. M/s. Shivaai Industries Pvt. Ltd.
has been reflected in its income, therefore, no disallowance is called for, we find that this fact that the payment made by the assessee is part of DTC’s receipts, has been duly noted by the Ld. CIT (A) in para 12.2. Once in the hands of the payee, receipts have been shown and income thereon has been assessed u/s 143(3), then no disallowance u/s 40(a)(ia) can be made in view of the second proviso to section 40(a)(ia) brought by the Finance Act 2012 w.e.f. 1.4.2013 which has held to be declaratory and curative in nature by the Hon’ble Jurisdictional High Court in various cases including that of CIT vs. Ansal Land Mark Township (P) Ltd. (Supra). Thus the finding and observation of Ld. CIT (A) while deleting the said disallowance in para 12.3 which has been reproduced above is affirmed and accordingly, ground raised by the revenue is dismissed.
In the result appeal of the revenue is dismissed.
Order pronounced in the open court on 25th October, 2017.
Sd/- sd/-
(PRASHANT MAHARISHI) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 31 /10/2017 Veena Copy forwarded to
Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi
ITA No. 6578/Del/2014 ITO vs. M/s. Shivaai Industries Pvt. Ltd.