Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: These two appeals by the assessee and the Revenue respectively are directed against the order dated 21/11/2012 of the learned Commissioner of Income-tax (Appeals)-XXI, New Delhi for assessment year 2007-08. As both the appeals have emanated from the same impugned order of learned Commissioner of Income-tax (Appeals), they are heard together and disposed of by this consolidated order.
The grounds of appeal raised by the assessee in are as under: i. The learned appellate authority erred in law and on facts in confirming an addition of Rs. 9,13,562/- being the balance of some parties outstanding as on 31.03.2007 alleging the same as not genuine ignoring the facts and evidences placed on record that the same has been written back in AY 2009-10. Thus, the addition so made should be deleted. ii. The learned appellate authority erred in law and on facts in confirming an addition of Rs. 428.83 lacs being the amount paid towards Municipal taxes alleging that the payment of disputed amount cannot be allowed though the taxes paid are eligible for deduction on payment basis u/s 43B of the Act. Thus, the addition so made should be deleted. iii. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing.
The grounds of appeal raised by the Revenue in are as under: i. Learned CIT(A) erred in law and on the facts of the case in deleting the addition of Rs. 2,36,42,615/- made by the AO u/s 40(a)(ia) of the I.T. Act. ii. Learned CIT(A) erred in law and on the facts of the case in deleting the addition of Rs. 80,62,500/- made by the AO by disallowing the claim of provision for ground rent. The CIT(A) failed to appreciate that the liability was not an ascertained one as the assessee had disputed the demand raised by the DDA before the Delhi High Court vide W.P.(C) 5326 of 2008 and W.P. (C) 2029/2010. iii. The appellant craves, leave or reserving the right to amend, modify, alter, add, or forego any ground(s) of appeal at any time before or during the hearing of this appeal.
First, we take up the assessee’s appeal in ITA No. 957/Del/2013.
The facts in brief of the case are that the assessee filed return of income on 31/10/2007 declaring nil income. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act (for short “the Act”) was issued and served upon the assessee within the stipulated period. In the scrutiny assessment completed under section 143(3) of the Act on 31/12/2009, the Assessing Officer made additions on various accounts. On appeal, the learned Commissioner of Income-tax (Appeals) allowed part relief to the assessee. Against the said order of learned Commissioner of Income-tax (Appeals), both the assessee and the Revenue are in appeals before the Tribunal, raising the grounds as reproduced above. 6. In ground No. 1 of the assessee’s appeal, the assessee has challenged confirming of an addition of Rs. 9,13,562/- against outstanding non-genuine creditors by the learned Commissioner of Income-tax (Appeals). 6.1 The facts in respect of the issue in dispute are that during assessment proceedings, the assessee failed to provide addresses of following nine creditors, despite being asked by the Assessing Officer and, thus, the Assessing Officer held the same as bogus liability and added to the total income of the assessee company: 1. Premier Electrical Rs. 82,467/- 2. Craft Art International Rs. 33,918/- 3. Glass relate Rs. 17,831/- 4 Mark Engineers Pvt. Ltd. Rs. 19,669/- 5 Prabhu constructions Rs. 7,141/- 6 Spriax Marshal Ltd. Rs. 1,92,213-50 7. Marks Engineers Pvt. Ltd. Rs. 1,19,692/- 8 Vijay Bros Rs. 2,35,357/- 9 Vijay Bros Rs. 2.05.274/- Rs. 9.13.562/- 6.2 In appellate proceeding before the learned Commissioner of Income-tax (Appeals), the assessee provided addresses of the creditors, which were forwarded by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer. The Assessing Officer objected to the admission of the details filed by the assessee before the learned Commissioner of Income-tax (Appeals) as additional evidences on the ground that same were not provided during the assessment proceeding to avoid the investigation of the said parties. The learned Commissioner of Income-tax (Appeals) though admitted the additional evidences, however, concurred with the Assessing Officer and sustained the addition. On further submission by the assessee that creditors in question have already been written back by the assessee in assessment year 2009-10, the learned Commissioner of Income-tax (Appeals), directed the Assessing Officer to verify the documents submitted by the assessee in this respect and to grant relief in assessment year 2009-10. 6.3 Before us, the learned Authorized Representative of the assessee submitted that once the details required by the Assessing Officer were provided, the learned Commissioner of Income-tax (Appeals) was not justified in sustaining the addition. He further submitted that the said creditors in question were written back by the assessee itself in assessment year 2009-10, therefore, no addition was warranted in the year under consideration. He further submitted that issue may be restored to the file of the Assessing Officer for verification of the fact that the creditors have already been written back in assessment year 2009-10. 6.4 On the other hand, the learned Senior Departmental Representative relied on the findings of the authorities below.
6.5 We have heard the rival submissions and perused the material on record. We find that the assessee has already provided the addresses of the creditors in question then sustaining the addition by the learned Commissioner of Income-tax (Appeals), without verifying the creditor parties, is not justified. We find from the impugned order that the assessee claimed to have written back these creditors in question in assessment year 2009-10. In support of the submission, the assessee filed necessary evidences which includes profit and loss account for the year ended 31/03/2009, other income showing the figures of sundry balances and liability written off, item-wise details of credit balances written back in assessment year 2009-10. We find that the cessation of the liability can be considered by the assessee as income when the liability ceased finally and there was no possibility of revival of the liability. In the case of the assessee, the assessee has admitted the remission of liability in assessment year 2009- 10. Thus, the Assessing Officer cannot direct the assessee to remit the same in assessment year under consideration. However, we agree with the submission of the learned Authorized Representative that fact of creditors in question written back in assessment year 2009-10 may be verified at the end of the Assessing Officer. In view of above, we feel it appropriate to reverse the direction of the learned Commissioner of Income-tax (Appeals) on the issue in dispute and restore the matter to the file of the Assessing Officer for verification of the fact that creditors in question have been written off by the assessee in assessment year 2009-10, and if same is found verified then in such circumstances, no addition is required to be made in the year under consideration. Needless to mention that the assessee shall be afforded sufficient opportunity of hearing. Accordingly, the ground no. 1 of the assessee’s appeal is allowed for statistical purpose.
In ground No. 2 of the appeal, the assessee has challenged confirming of an addition of Rs. 482.83 lakhs being the amount paid towards municipal taxes. 7.1 The facts in brief in respect of issue in dispute are that the Municipal Corporation of Delhi (MCD) recovered an amount of Rs. 482.80 lakhs from the assessee company against which the assessee filed writ petition which was pending before the Hon’ble Delhi High Court. According to the Assessing Officer, the assessee had disputed the liability, therefore, it was not a crystallized liability. The assessee pleaded that the amount was claimed on payment basis in terms of section 43B of the Act, however, the Assessing Officer did not agree and disallowed the sum of Rs. 482.83 lakhs. Before the learned Commissioner of Income-tax (Appeals), the assessee submitted documentary evidence in support of payment of municipal taxes and stated that Municipal Corporation has completed the assessment of the assessee company and matter was settled. However, the learned Commissioner of Income-tax (Appeals) did not accept the contention of the assessee and dismissed the ground. 7.2 Before us, the learned Authorized Representative of the assessee submitted that the liability of the municipal tax was paid by the assessee in the year under consideration and, therefore, it was allowable on the basis of payment in terms of section 43B of the Act. He further submitted that the liability of the municipal taxes was finally settled and, therefore, it was no longer a disputed liability. 7.3 On the other hand, the learned Senior Department Representative, supported the orders of the authorities below on the issue in dispute. 7.4 We have heard the rival submissions and perused the material on record. We find that in terms of section 43B of the Act, any payment by the assessee by way of taxes, duty, cess or fee is allowable as deduction in the year in which such sum is actually paid irrespective of the fact whether the liability to pay such sum was incurred by the assessee according to the of accounting regularly followed by him. The fact that municipal taxes of Rs. 428.83 lakhs was paid in the year under consideration is undisputed and the assessee has also stated that matter of liability has been finally settled with municipal Corporation and it is no longer in dispute, therefore, according to us, it is no longer a disputed liability. In view of the above facts, the assessee is entitled for deduction of the payment in terms of section 43B of the Act. Accordingly, we delete the additions of 428.83 Lacs. The ground no. 2 of the appeal is allowed.
The ground No. 3 of the appeal of the assessee being general in nature, it is not required to be adjudicated upon by us.
Thus, the appeal of the assessee is partly allowed for statistical purposes.
In ground No. 1 of the Revenue’s appeal, deletion by the learned Commissioner of Income-tax (Appeals) of the addition of Rs. 2,36,42,615/- made by the Assessing Officer under section 40(a)(ia) of the Act has been challenged. 10.1 The facts in respect of the issue in dispute are that the Assessing Officer observed amount of Rs. 2,36,42,615/- towards commission on travel agent paid in foreign currency under the head ‘commission and brokerage’, however no tax was deducted at source (TDS) by the assessee and, thus, he disallowed the expenses of Rs. 2,36,42,615/- in terms of section 40(a)(ia) of the Act. The learned Commissioner of Income-tax (Appeals) following the order of the Tribunal in the case of the assessee in assessment year 2006-07, dismissed the ground of the Revenue.
10.2 Before us, learned Senior Departmental Representative relied on the order of the Assessing Officer, whereas the learned Authorised Representative of the assessee relying on the order of the learned Commissioner of Income-tax (Appeals) submitted that issue in dispute was covered in favour of the assessee by the order of the Tribunal in assessment year 2006- 07. 10.3 We have heard the rival submissions and perused the material on record including the order of the Tribunal in assessment year 2006-07. We find that the Assessing Officer has also made the disallowance following the assessment order in assessment year 2006-07. We also find that the Tribunal in for assessment year 2006-07 has dismissed the appeal of the Revenue on the issue in dispute with observations as under: “5. We have considered the rival contentions, gone through the orders of the authorities below and found from the record that assessee has paid commission and brokerage to the non-resident travel agents outside India in respect of services rendered outside India. As no tax was deducted at source on such payment, by invoking provisions of section 40(a)(i), the AO disallowed the deduction. As per our considered view, under the provisions of section 195 tax has to be deducted at source from any payment made to non-resident which is chargeable to tax under this Act. If no such tax has been deducted by the assessee, an exemption certificate u/s 195(2) is required to be obtained, only if provisions of Section 195(1) are applicable. Under Section 40(a)(i), the payment of any amount to a non-resident on which tax is deducted at source under Chapter XVII-B will not be allowed as deduction/expenditure if tax has not been paid or deducted thereon. On combined reading of provisions of section 195 and 40(a)(i), if the sum in question paid to non-resident is not chargeable to tax in India under the IT Act, there would be no requirement to deduct tax at source in respect of such payments and provisions of Section 40(a)(i) and 195 would not be applicable to such payments and no disallowance can be made in respect of the same. In the instant case before us, the amount of Rs.24.86 lakhs was paid to overseas agents who have accepted booking from clients/customers at a place outside India. The services have been provided by non-resident commission agents to the assessee only outside India. These agents were not having business connection in India nor any permanent establishment in India. These agents were rendering services outside India and payment was also made in foreign currency outside India. Thus, no income accrues or arises or deemed to arise to non-agents in India, insofar as services were rendered by the agents outside India. Thus, the commission paid to these agents was not chargeable to tax in India and no TDS was required to be deducted on the said payment u/s 195. Since no tax was required to be deducted on the said payment under Chapter XVII-B, no disallowance can be made by invoking the provisions of Section 40(a)(i) of the Act. There is no finding by the AO with regard to taxability of such commission in India. ITAT Delhi Bench in the case of A.B.Hotels (supra) in identical facts held that commission paid by the assessee to non- resident agents for booking hotels for its customers outside India, could not be regarded as income accrued or arise in India as non-resident agents have no permanent establishment or business connection in India, hence not liable to deduction at source in India and consequently no disallowance u/s 40(a)(i) can be made. Recently, Hon'ble Delhi High Court in the case of Van Oord ACZ India (supra) held that obligation to deduct tax at source u/s 195 arises only when the payment is chargeable to tax in India. In this case, Indian company remitted mobilization charges to its parent company based in Netherlands. As no tax was deducted u/s 195, the AO disallowed the same u/s 40(a)(i). It was held by CIT(A) that assessee was duty bound to deduct tax u/s 195(1) and could not escape liability without obtaining a certificate u/s 195(2). On a further appeal, Hon’ble High Court held that tax at source is to be deducted from the sum chargeable under provisions of the Act. Thus, obligation to deduct tax at source is attracted only when the payment is chargeable to tax in India. Since the alleged payment was not chargeable to tax in India, there was no obligation to deduct any tax thereon, accordingly no disallowance can be made u/s 40(a)(i). Recently, Hon'ble Supreme Court in the case of G.E.India Technology Centre held that Section 195(1) uses the expression “sum chargeable under the provisions of the Act”, this means that person paying interest or any other sum to a non- resident is not liable to deduct tax if such sum is not chargeable to tax. It was further observed that Section 195(1) uses the word “payer” and not the word “assessee”. The payer is not the assessee. The payer becomes an assessee in default only when he fails to fulfill the statutory obligation u/s 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee in default. The provisions of Section 195(2) were held to be applicable where the payer is in no doubt that tax is payable in respect of some part of the remittance but is not sure as to what is the taxable portion. In that situation, he is required to make an application to the ITO(TDS) for determining the amount. Section 195(2) and 195(3) are safeguards and not of practical importance. It was categorically observed by the Hon'ble Supreme Court that department’s apprehension that if tax is not deducted on all payments, there will be seepage of revenue, is ill-founded because there are adequate safeguards in the act to prevent the payer from wrongly not deducting tax at source such as Section 40(a)(i) which disallowed deduction for the expenditure”
10.4 We find that facts in the year under consideration are identical to the facts in assessment year 2006-07, therefore, respectfully following the finding of the Tribunal (supra), we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) and hold that disallowance under section 40(a)(ia) of the Act is not warranted in the case of the assessee. Accordingly, the ground no. 1 of the appeal of the Revenue is dismissed.
The ground No. 2 of the appeal of the Revenue relates to deletion of the disallowance of claim of provision for ground rent amounting to Rs. 80,62,500/- by the learned Commissioner of Income-tax (Appeals). 11.1 The facts in respect of the issue in dispute are that the assessee company debited a sum of Rs. 80,62,500/- as annual ground rent payable to the Delhi Development Authority (DDA) as per the lease-deed on the cost of the plot of land acquired for development of a hotel. According to the assessee, it was not a statutory liability but a contract obligation between the assessee in the DDA and it was payable as rental or annual lease money for the use of the plot of land as a part of the contract and not by way of any tax etc. The Assessing Officer, following the finding of the Assessing Officer in earlier years, disallowed the expenditure in respect of ground rent of Rs. 80,62,500/- in the year under consideration. The Ld. Commissioner of Income-tax (Appeals) following the decision of the Tribunal in the case of the assessee for assessment years 2004–05 and 2005-06, allowed the appeal of the assessee on the issue in dispute. 11.2 Before us, the learned Senior Departmental Representative relied on the order of the Assessing Officer whereas the learned Authorised Representative of the assessee supported the order of the learned Commissioner of Income-tax (Appeals). 11.3 We have heard the rival submission and perused the material on record in respect of the issue in dispute. We find that issue in dispute was also available before the Tribunal in assessment year 2005-06, wherein the Tribunal following the order in assessment year 2004-05, dismissed the appeal of the Revenue on the issue in dispute. The relevant part of the order of the Tribunal is reproduced as under: “2. In the course of hearing, it transpired that the issue stands covered by the order of ‘F’ Bench of Delhi Tribunal in the case of the assessee for the assessment year 2004-05 in dated 23.02.2009, a copy of which was placed before us. Paragraphs 9, 10 and 11 of that order, deal with the issue at hand, in which it was held that ground rent payable to the DDA was not covered under the provisions contained in section 43B. For the sake of ready reference, the aforesaid portion of the order is reproduced below:- “9. Apropos Ground no. 2, the issue about lease rent being not covered by section 43B has been decided by our coordinate bench Delhi by holding as under “Ground rent does not come under any of the items mentioned in various clauses of s. 43B. So, no disallowance on account of damages demanded by L&DO for misuse of the premises could be made even u/s 43B. Considering the facts as a whole, the assessee is entitled to deduction of amount payable to L&DO for misuse of the premises u/s 24(l)(v). The AO is, therefore, directed to allow the same. Amount demanded by the L&DO from the assessee-lessee for misuse of the leasehold premises was in the nature of ' ground rent allowable as deduction u/s 24(1)(v) even though the assessee had not made the payment to L&DO; no disallowance on account of non-payment of said dues could be made even u/s 43B. ” 10.Since relationship between DDA and assessee is contractual in nature, therefore, the payment is not covered by section 43B in the instant case. 11.Adverting to alternate contention of Id. DR that the liability accrued cannot be accepted inasmuch as the payment of ground rent is regulated by a binding agreement, which also prescribes the rate of rent payable. Even if the demand notice is not issued by DDA, the ground rent becomes accrued liability by flux of time. It our view, the ground rent liability shown by assessee becomes accrued liability, which is allowable. Order of CIT(A) is upheld. This ground of revenue is dismissed. ”
Respectfully following the aforesaid order, it is held that the learned CIT(Appeals) rightly allowed the deduction of the amount of ground rent payable to the DDA.” 11.4 As the facts of the year under consideration are identical to the facts on the issue in dispute in assessment years 2004- 05 and 2005-06 and the Assessing Officer itself has relied on the finding of the Assessing Officer in assessment years 2004- 05 and 2005-06, we respectfully following the decision of Tribunal in for assessment year 2005- 06, uphold the findings of the learned Commissioner of Income- tax (Appeals) on the issue in dispute. Accordingly, the ground no. 2 of the Revenue’s appeal is dismissed.
Ground No. 3 of the appeal of the Revenue, being general in nature, is not required to be adjudicated upon by us.
In the result, appeal of the assessee is partly allowed for statistical purposes and the appeal of the Revenue is dismissed.