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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH & SRI MANOJ KUMAR AGGARWAL
O R D E R PER MAHAVIR SINGH, JM: Out of these three appeals, the appeal in by the Revenue are directed against order of the CIT (A)-13, Mumbai passed in appeal No.CIT (A)-13/IT-237/ Rationalisation / Or.602/11-12 dated 06-02-2014. In this case, Order u/s 201 (1) read with Section 40 (a) (ia) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was passed by the ACIT (TDS)-2(2), Mumbai vide his Order dated 29-03-2011 for assessment year 2009-10. The other appeal in ITA No.2631/Mum/2014 is preferred 2 ITA No.2630 & 2631/Mum/2014 ITA No.3125/Mum/2014 by the assessee against the order of the CIT (A)-13, Mumbai dated 04-02-2014 passed in appeal No.CIT (A)-13/IT-272/Rationalisation/Or.602/11-12. Order u/s 201 read with Section 40(a) (ia) of the Act was also passed by the ACIT (TDS)-2(2), Mumbai vide his Order dated 31-03-2011 for assessment year 2007-08.
At the outset, the learned Counsel for the assessee, with regard to the Revenue’s appeal in pointed out that in this case, the tax demand is Rs.8,78,889/- and thus, the tax effect in this appeal is below Rs.10.00 lacs and further submitted that in view of the CBDT Circular No.21/2015, dated 10.12.2015 brought out by the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, the appeal was not maintainable and be dismissed. The learned Sr. DR also agreed to the facts stated by the learned Counsel for the assessee but could not point out whether this case falls under any of the exception provided in the Circular.
We have heard the rival submissions and perused the material on record. We find from the records before us that the tax involved in the disputed issue is below Rs.10 lacs and therefore, in view of the circular No. 21/2015 dated 10th December, 2015 no appeal should be filed by the Revenue before the Tribunal which has tax effect of Rs. 10.00 lacs or less and this circular is also applicable retrospectively to all pending appeals. The relevant extract the said CBDT Circular (Supra) is as under:- “This instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts/Tribunals. Pending appeals below the specified tax limits in para 3 above may be withdrawn/not pressed. Appeals before the Supreme Court will be governed by the instructions on this subject, operative at the time when such appeal was filed.”
Considering the above, the appeal filed by the Revenue, is therefore dismissed.
Now in regard to both the appeals of assessee, the only issue is as regards to the order of the CIT (A) in upholding the action of the AO treating the assessee as, “assessee in default” for short deduction/non-deduction of TDS u/s 201 (1) of the Act 3 & 2631/Mum/2014 ITA No.3125/Mum/2014 and charging of interest thereon u/s 201(1A) of the Act. For this, the assessee has raised following grounds in its appeal in 2009- 10:- “1. On the facts and circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeals)-13, Mumbai (“the CIT (A)”) erred in upholding the action of the Assistant Commissioner of Income Tax (TDS)-2 (2) (Ä.O.”) in treating the Appellant as “assessee in default” u/s 201(1) / 201(1A) of the Income Tax Act, 1961, (“the Act”) on an amount of Rs.3,72,04,741/-) and consequently upheld the act of the AO on levying interest u/s 201 (1A) on the same.
2. The Appellant, prays that on the facts and in law it be held that, the Appellant is not an assessee in default and consequently no demand u/s 201 (1) and (1A) of the Act is leviable on the Appellant”. The assessee raised the following grounds in its appeal in ITA No.2631/Mum/2014 for assessment year 2007-08:- “1. On the facts and circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeals)- 13, Mumbai (“the CIT (A)”) erred in upholding the action of the Assistant Commissioner of Income Tax (TDS)-2 (2) (Ä.O.”) in treating the Appellant as “assessee in default” for short deduction of Rs.59,21,831/- u/s 201(1) / 201(1A) of the Income Tax Act, 1961, (“the Act”) and interest thereon amounting to Rs. 28,42,479/- u/s 201 (1A) of the Act.
2. The Appellant, prays that on the facts and in law it be held that, the Appellant is not an assessee in default and consequently no demand u/s 201 (1) and (1A) of the Act is leviable on the Appellant”.
6. Briefly stated facts of the case are that the assessee suo moto made disallowance of inadmissible amount u/s 40(a)(ia) of the Act amounting to Rs.2,63,89,625/-. The AO noticed this fact and issued notice that the assessee has not deducted TDS on the above payment of expenditure and for this reason, as to why the assessee should not be treated as, “assessee in default u/s 201 (1)” and as to why consequential interest should not be charged “u/s 201 (1A) of the Act”. There was no response from the assessee’s side before the AO and he passed order u/s 201(1) charging the TDS on expenditure of Rs.2,63,89,265/- u/s 194 I of the Act @ 22.4% amounting to Rs.59,21,831/-. The AO also charged consequent interest u/s 201 (1A) of the Act amounting to Rs.28,42,479/-. Aggrieved, the assessee preferred appeal before the CIT (A), who also confirmed the action of the AO. Aggrieved, the assessee came in second appeal before the Tribunal.
4 & 2631/Mum/2014 ITA No.3125/Mum/2014 7. Before us, the learned Counsel for the assessee first of all argued that the assessee itself has disallowed a sum of Rs.2,63,89,625/- in its computation of income for assessment year 2007-08 (copy of the Profit & Loss account is enclosed in assessee’s paper book at page 4). The learned Counsel for the assessee stated that the amount inadmissible was mere provision for the year end. For this, he took us through a chart produced before the CIT (A) and the same is reproduced at page 2 and 3 of the CIT (A)’s order. He referred to the entries made in the chart that the provision is made as on 31-03-2007. When his attention was drawn to some of the entries for the month of April, 2006 and June, 2006, he stated that only the entries related to the year end i.e. March, 2007 were the provisions which are reversed and added as income for the assessment year 2008-09 and for these entries only he is contesting. For this, he took us through the profit & loss account for the assessment year 2008-09 relating to previous year 2007-08 (copy of which is enclosed at assessee’s paper book on page 12), wherein reversal entries claimed by assessee and the amount admissible was claimed as deduction amounting to Rs.3,86,12,839/-. He stated that on this amount, the assessee deducted TDS and made a claim accordingly. Further, when he was asked about bifurcation of the same, he fairly stated that the issue can be remitted back to the file of the AO for verification of the facts. In terms of the above, the learned Counsel for the assessee stated that in case of provision made at the year end and it was subsequently reversed the assessee cannot be held to be “assessee in default” in terms of the provisions of Section 201 (1) of the Act in view of the decision of the Hon’ble Karnataka High Court in the case of Karnataka Power Transmission Corporation Ltd. V. DCIT (2016) 383 ITR 59 (Kar), wherein the Hon’ble High Court has held that where the assessee made provision towards contingent payment for such interest and treated the same as expenditure in the profit & loss account, in view of the fact subsequently the assessee noticed that payment of such interest were never made in view of understanding between the parties and made corresponding reversal entries in the books of account, that the assessee is not liable for TDS as no income accrued to the suppliers. In the present case, when a query was put to the learned Counsel for the assessee to show the fact of reversal of entries, he fairly agreed that the issue can be remitted back for verification of the fact by the AO. In terms of the above, the learned Sr. DR however, agreed to the proposition but he also stated that consequential interest is to be charged till the date of payment of TDS.
5 & 2631/Mum/2014 ITA No.3125/Mum/2014 8. After hearing both the sides and going through the facts of the case, we find that the facts of the case are not clear. The assessee has stated the items of inadmissible expenses u/s 40(a) of the Act amounting to Rs.2,63,89,625/-. Admittedly, in the next assessment year 2008-09 the assessee claimed deduction for the reason that it was disallowed as in last year u/s 40(a) of the Act. First of all, we find that this amount does not match and details of which are required. The same need verification at the level of the AO. The assessee claimed that these are reversal and are in the nature of contingent liabilities and it should be allowed in favour of the assessee in view of the decision of the Hon’ble Karnataka High Court in the case of Karnataka Power Transmission Company (supra). We are in agreement with the arguments of the learned Counsel for the assessee that once the amount has been disallowed under the provisions of section 40(a)/40 (a) (ia) of the Act on the reason that tax has not been deducted, the AO cannot invoke the TDS provisions for holding the assessee as, “assessee in default” u/s 201 (1) of the Act. But, if the assessee subsequently claims deduction of the amount after payment of TDS, charging of interest u/s 201 (1A) of the Act for limited period during which TDS was not paid as per the provisions of the Act are applied and be charged accordingly. Accordingly, we direct the AO to verify the provisions made by the assessee towards contingent payments as narrated in the order of the CIT (A) at page 2 and 3, chart filed by the assessee and reproduced by the CIT (A). In terms of the above, the AO will verify the details and will follow the decision of the Hon’ble Karnataka High Court in the case of Karnataka Power Transmission Company (supra).
Similar are the facts in assessment year 2009-10 in ITA No.2631/Mum/2014. Hence, exactly similar directions are for the AO to decide the issue. The orders of the lower authorities are set aside and the appeals of the assessee are allowed for statistical purposes remitting the issue back to the file of the AO.
In the result, the appeal of the Revenue is dismissed and both the appeals of the assessee are allowed for statistical purposes. Order pronounced in the open court on 26/07/2016.