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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI JOGINDER SINGH, JM & SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member)
The captioned appeal by assessee for Assessment Year [AY] 2010-11 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-34 CIT(A)], Mumbai, Appeal No.CIT(A)-34/Addl.CIT 24(3)/IT- 15/2013-14 dated 03/07/2014 qua confirmation of certain additions / ITA.No.5791/Mum/2014 Surendra S. Gupta Assessment Year-2010-11 disallowances. The assessment for impugned AY was framed by Ld. Additional Commissioner of Income Tax Range-24(3), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 06/03/2013. The effective grounds raised
in the appeal reads as under:-
1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals)-34 Mumbai erred in sustaining the addition of Rs.1,03,013/- as Short Term Capital Gain u/s.50C of the Income Tax Act, 1961.
2. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals)-34 Mumbai erred in sustaining the ad-hoc addition of Rs.1,00,000/- in respect of business promotion expenses, telephone expenses and travel expenses. The appellant prays that the addition may be deleted.
3. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals)-34-Mumbai erred in sustaining that the TDS credit to be restricted by Rs.8,06,493/- on income in Assessment Year 2010-11. The appellant prays to Your Honor that the restriction of RS.8,06,493/- may be deleted.
2.1 Briefly stated the assessee being resident individual engaged as consultant has been assessed at Rs.227.35 Lacs after certain additions as against returned income of Rs.224.93 Lacs e-filed by the assessee on 02/10/2010. 2.2 During assessment proceedings, it was noted that the assessee sold an immoveable property for Rs.10.11 Lacs and earned short term capital gain thereupon, which was offered to tax. However, the value of the property as per stamp duty authorities for the purpose of levy of stamp duty was Rs.11,14,013/-. Resultantly, Ld. AO, applying the provisions of Section 50C, added the differential amount of Rs.1,03,013/- to the income of the assessee. The second addition of Rs.1 Lacs pertain to adhoc disallowance to account for personal element against sales promotion, telephone, travel and medical expenditure claimed by the assessee during the impugned AY. The last adjustment pertain to Tax Deduction at Source [TDS] credit claimed by the ITA.No.5791/Mum/2014 Surendra S. Gupta Assessment Year-2010-11 assessee for Rs.8,41,240/-. The assessee following cash system of accounting did not offer consultancy income of Rs.83,70,287/- to tax since the same was not received during the impugned AY. However, it offered corresponding TDS against the same amounting to Rs.8,41,240/- to tax and claimed the equivalent credit thereof in the computation of income. The Ld. AO, applying Rule 37BA(3)(i) restricted the same to Rs.84,547/-, being proportionate TDS against Rs.8,41,240/- offered to tax by assessee and disallowed the balance credit of Rs.7,56,693/-. Similar adjustment against royalty receipts resulted into denial of TDS credit of Rs.49,800/- to the assessee. Finally, the assessee was deprived of aggregate TDS credit of Rs.8,06,493/-. For ease of reference, the same could be tabulated in the following manner:- Sl. Nature of Amount Corresponding Amt. TDS TDS TDS No. Income Accrued TDS (Rs.) Offered Credit Credit Credit (Rs.) to Tax by Claimed Allowed disallowed the (Rs.) by Ld. by Ld. AO Assessee AO (Rs.) (Rs.) (Rs.) 1. Consultancy 83,70,287/- 8,41,240/- 8,41,240/- 8,41,240/- 84,547/- 7,56,693/- 2. Royalty 5,49,257/- 54,926/- 51,255/- 54,926/- 5,126/- 49,800/- TOTAL 89,19,544/- 8,96,166/- 8,92,495/- 8,96,166/- 89,673/- 8,06,493/- 3. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 03/07/2014 where addition u/s 50C and adhoc disallowance was confirmed whereas the matter of TDS credit was adjudicated in the following manner:- 9.9. I have gone through the assessment order very carefully. I have also considered the submissions of the appellant on the issue. The A.O has restricted the claim of the appellant in respect of TDS by Rs.8,06,493/- on the ground that as per rule 37BA(3), TDS credit can be given only for those receipts which are offered to tax in the concerned year. According to the appellant, Rule 37BA(3) does not apply to his case as he follows cash system of accounting and as per section 198 of the Act, tax deducted at source is deemed to be the income received by the payee and since the assessee is following cash system of accounting, said TDS gets assessed ITA.No.5791/Mum/2014 Surendra S. Gupta Assessment Year-2010-11 in the year of withholding by the payer as per the method of accounting followed by the said payer. 9.10. I find that the contention of the appellant is not correct in so far as the appellant is following cash system of accounting and according to the same, income is offered for tax in the year of actual receipt. It is an undisputed fact that TDS corresponding to such income can be claimed only in the year in which such income is offered for tax. Though section 198 of the Act deems tax deducted at source as income received by the payee, it is nowhere mentioned in the section that the same should be claimed by the payee in the year of its deduction itself. TDS though is a part of income of the payee it is not actual receipt in his hands. Therefore, the argument of the assessee that since he is following cash system of accounting such TDS needs to be assessed in the year of deduction itself. Hence, in my opinion the method of accounting followed by the appellant in respect of such TDS is not correct and hence, this contention of the appellant is rejected. 9.11. However, the argument of the appellant that credit for TDS of Rs.8,06,493/- should be given in subsequent years in which income corresponding to such TDS is received by him is accepted. Accordingly, the A.O. is directed to allow credit for such TDS amount of Rs.8,06,493/- in the year of receipt of such income. Ground no.3 of appeal, is thus, partly allowed.
Aggrieved, the assessee is in further appeal before us.
The Ld. Authorized Representative [AR] assailed the additions made by lower authorities whereas Ld. DR placed reliance on the stand of lower authorities. Reliance has been placed on several judicial pronouncements to support their respective stand.
We have carefully considered the rival contentions and perused relevant material on record. So far as addition u/s 50C is concerned, we find that the property has been sold for Rs.10.11 Lacs as against stamp duty value of Rs.11.14 Lacs and differential of the two do not exceed even 10% of the stamp duty valuation. There is nothing on record to suggest that the assessee has received any amount over and above the agreed consideration. Therefore, keeping in view the factual matrix and considering the fact that valuation being subjective matter, the impugned ITA.No.5791/Mum/2014 Surendra S. Gupta Assessment Year-2010-11 additions were not justified and therefore, stand deleted. Ground No.1 stand allowed.
So far as the adhoc disallowance of Rs.1 Lac against certain expenditure claimed by the assessee is concerned, we find that the assessee has claimed aggregate expenditure of Rs.15.75 Lacs under these head and the disallowance percentage comes to only 6.35%. The same, in our opinion, is quite reasonable keeping in view the fact that the personal element in the same could not be ruled out. Ground No. 2 stand dismissed. 7.1 The last issue pertains to TDS credit as claimed by the assessee by offering the same to tax in the impugned AY. The undisputed facts are that the assessee follows cash system of accounting in terms of Section 145 and offer the income on actual receipt basis. In the impugned AY, the assessee has not offered accrued consultancy / royalty charges but offered only the corresponding TDS component to tax which is in consonance with the provisions of Section 198 which stipulates that the amount of tax deducted at source shall be deemed to be the income received. Proceeding further, in terms of Section 199(1), the amount of tax deducted at source is to be treated as a payment of tax on behalf of the person from whose income the deduction was made. There is no quarrel up-to this point. The only point which arises for our consideration is the relevant AY, in which the credit of such TDS would be available to the assessee. For the purpose of granting credit of TDS, the Board, in terms of Section 199(3), has framed Rule 37BA, which is extracted below:-
ITA.No.5791/Mum/2014 Surendra S. Gupta Assessment Year-2010-11 Credit for tax deducted at source for the purposes of section 199. 37BA. (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)[(i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee : Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).] (ii) The declaration filed by the deductee under clause (i) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person. (iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody. (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. (emphasis, being supplied by us)
Upon careful perusal of the rule, we find that the credit of tax deducted at source was to be given for the AY for which such income was assessable. Upon perusal of the Tribunal decisions cited before us, we find that there are two lines of thoughts on the issue – one which favors grant of full TDS credit in the year of deduction itself and the other which, following strict interpretation, allows TDS credit in AY in which the income has actually been assessed / offered to tax. The few decision favoring the former view may be cited as below:- (i) Chander Shekhar Aggarwal Vs. ACIT [2016 Delhi Tribunal 67 Taxmann.com 62] (ii) Praveen Kumar Gupta Vs. ITO [2012 SMC Bench Delhi (iii) Anil Kumar Goel Vs. ITO [2012 SMC Bench Delhi ITA No. 5849/Del/2011] ITA.No.5791/Mum/2014 Surendra S. Gupta Assessment Year-2010-11 The same are pitied against contrary decision of the Tribunal rendered in ITO Vs. Shri Anupallavi Finance & Investments [2010 Chennai Tribunal 9 Taxmann.com 163] where a view has been taken that credit of TDS would be available only in the year when the corresponding income is offered to tax by the assessee. 7.2 So far as the decision of higher Judicial Authority is concerned, we find that Hon’ble Kerala High Court in CIT Vs. Smt. Pushpa Vijoy [19 Taxmann.com 157] has clinched the issue in the following manner:- 11. The question to be considered is whether the assessing officer was justified in refusing to give credit for tax payments based on TDS certificates issued by the Bank for the reason that income is not returned for assessment by the assessees in the assessment year following the year in which tax is recovered and paid by the Banks. We do not think there is any justification for assessees' claim because Section 199 of the Income Tax Act makes it clear that the assessee is entitled to credit based on TDS certificate only in the assessment year in which income from which tax is deducted is assessed. Therefore, when the statute makes it mandatory that credit of tax based on TDS certificate is available only in the assessment year in which the income from which tax deducted at source is assessed, we do not know how the Tribunal can over-rule the statutory provisions and allow the claim. In our view, going by the practical difficulty to retain TDS certificates for several years until the interest is returned for assessment on cash basis, prudent assessees should return income on which tax is recovered and remitted by the payer in the assessment year following the year in which such income is subject to deduction of tax and remittance by the payer. The assessees who do not do it should follow Section 199 and Rule 37BA, retain the TDS certificates and claim credit in the assessment year in which such income is returned for assessment.
The finding of the Tribunal that there is no provision in the Income Tax Act or Rules to defer credit of tax in assessments based on TDS certificates obtained is really incorrect because sub-sections (1) and (3) of Section 199 read with Rule 37BA of the Income Tax Rules specifically authorise the assessee to retain TDS certificates and to produce it and claim credit in the year in which income on which recovery of tax made is returned for assessment. As of now, the Act does not provide that assessees should return the income for assessment in the assessment year following the previous year in which tax is recovered at source and TDS certificate is issued by the payer and if so provided assessment and credit of tax will go together which will avoid botheration for the assessees as well as for the Departmental Officers. In our view, the provisions contained in sub-sections (1) and (3) of Section 199 read with Rule 37BA of the Income Tax Rules serve a purpose because if income is not assessable in the assessment year and at the same time assessees are entitled to credit of tax recovered and remitted in respect of such income, the Department will be compelled to refund the entire tax amount every ITA.No.5791/Mum/2014 Surendra S. Gupta Assessment Year-2010-11 year and along with it if refund is not made within three months from filing of return, mandatory interest will also payable, as provided under Section 243(1) of the Income Tax Act which will defeat the purpose of TDS provisions in the Act. Therefore, we do not find any justification for the Tribunal to allow credit of tax based on TDS certificates without corresponding assessment of income in the assessment years concerned which is against the statutory provision. We also do not find any merit in the contention of the respondents-assessees that the amount covered by TDS certificates itself should be treated as income of the previous year relevant for the assessment year concerned and the tax amount should be assessed as income by simultaneously giving credit for the full amount of tax remitted by the payer. In these cases, the entire interest credited should be assessed on maturity of the deposit and on payment by the bank, as the assessees are admittedly following cash system of accounting. However, in our view, if Section 145(1) is amended for assessment of income on which TDS is made in the assessment year following the year in which deduction is made irrespective of the system of accounting followed by the assessee, the same will avoid problems for the assessees and the Department. Based on the findings above, we allow the Departmental appeals by reversing the orders of the Tribunal and that of the first appellate authority and by restoring the assessments denying credit of tax in the assessments for which corresponding income is not assessed. However, since we are allowing the Departmental Appeals, we leave it open to the respondents-assessees to claim credit based on the very same TDS certificates against the interest income assessed in the year in which such income is assessed. Upon perusal of Tribunal’s order following former view, it appears that the aforesaid decision of Hon’ble Kerala High Court has not been considered while arriving at the decisions. Therefore, respectfully following the wisdom of higher judicial authority, we dismiss this ground of assessee’s appeal since the conclusion drawn by Ld. CIT(A) was in consonance with the applicable statutory provisions and therefore require no interference on our part.
Resultantly, the assessee’s appeal stand partly allowed in terms of our above order.