PIRAMAL FINANCE PVT. LTD.,,MUMBAI vs. THE ACIT, CIRCLE-2(1)(2),, VADODARA

The first two grounds taken by the assessee are in respect of addition of Rs.14,00,285/- made on the basis of Form No.26AS. Shri RonakDoshi, ld. AR of the assessee explained that certain difference was found between the amount received and the TDS credit as per 26AS statement of the assessee and the amount as appearing in the books of account. As this difference was not reconciled in the course of assessment, the AO had made addition of Rs.1,84,17,486/- in respect of 4 parties as under: i. Urbanize Developers India Pvt. Ltd. 14,00,285/- ii. True Value Homes (I) Pvt. Ltd. 881,507/- iii. Vijaya Bank 135,694/- iv. True Value Homes (I) Pvt. Ltd. 16,000,000/- The ld. CIT(A) had confirmed the addition in respect of difference of Rs.14,00,285/- appearing in the case of Urbanize Developers India Pvt. Ltd. As regarding difference of Rs.1,35,694/- in case of Vijaya Bank, the CIT(A) had directed the AO to make enquiry from the bank and thereafter decide the matter. The assessee has grievance against the decision of CIT(A) in respect of difference appearing in the name of these two parties only and the decision of the CIT(A) in respect of other two parties has not been contested.

The ld. AR submitted that no addition could have been made on the basis of Form No.26AS. He explained that a copy of ledger account of Urbanize Developers India Pvt. Ltd. as appearing in the books of the assessee was filed before the AO and, therefore, the AO was not correct in disregarding the (PiramalFinance Pvt. Ltd.vs. ACIT) A.Y.– 2014-15 - 6 – evidence filed by the assessee and in making the addition on the basis of 26AS statement. The ld. AR relied upon the following decisions in support of the proposition that no addition could have been made on the basis of difference in payment received as per form 26AS and the books of accounts.

Per contra, the ld. CIT-DR submitted that the assessee had merely filed a copy of the ledger account of Urbanize Developers India Pvt. Ltd as appearing in its books of account which was not confirmed by the other party. Therefore, the AO was correct in making the addition in respect of this difference as the same was not reconciled. As regarding difference in the case of Vijaya Bank, the ld. DR submitted that the direction of the ld. CIT(A) to verify the transaction was proper.

We have carefully considered the rival submissions and the facts of the case. There is no dispute to the fact that there was difference appearing in the accounts of the assessee vis-à- vis amount of transaction as per 26AS statement in the case of (PiramalFinance Pvt. Ltd.vs. ACIT) A.Y.– 2014-15 - 7 – Urbanize Developers India Pvt. Ltd. As per 26AS statement, the total receipt from Urbanize Developers India Pvt. Ltd. was Rs.13,55,39,687/- on which TDS of Rs.1,35,57,968/- was deducted. In the return of income, the assessee had claimed credit for TDS of Rs.1,34,14,940/- only and the credit for balance TDS of Rs.1,40,028/- was not claimed and carried forward in the return and corresponding income of Rs.14,00,285/- was also not booked. A copy of the ledger account on Urbanize Developers India Pvt. Ltd. as appearing in the books of accounts of the assesse has been filed from which it is seen that there was opening balance of Rs.1,52,43,836/- and there were regular debit and credit transactions during the year. Further, the account of Urbanize Developers India Pvt. Ltd. was squared off during the year and no balance was carried forward to the next year. Once, the difference in transactions with Urbanize developers India Pvt. Ltd. was pointed out to the assessee by the AO, the onus was squarely on the assessee to reconcile this difference.

The assessee has relied upon the decision of Hon’ble Gujarat High Court in case of MBC Infra Space (P.) Ltd. (supra). In that case, the assessee had claimed that there was double deduction of TDS on the same project on certain bills and the claim of the assessee was not verified by the AO. The addition in that case was deleted after verification of bank account and contract amount received by the assessee on the basis of running bills which was upheld by the Hon’ble High Court. In the present case, no such verification has been carried (PiramalFinance Pvt. Ltd.vs. ACIT) A.Y.– 2014-15 - 8 – out, neither the assessee has explained the reason for the difference. In the case of Seal For Life India (P.) Ltd.(supra), the assessee had produced reasonable evidence establishing that a particular quantum of interest income was received in his hands and no fault was found with such evidence. In the present case, no such evidence has been brought on record. The assessee has not filed even the confirmed copy of ledger account form the opposite party. In the case of P. K. Rajasekar (supra), the matter was remitted back to the AO to examine the claim of the assessee that the difference in 26AS and accounts of the assessee was due to wrong entry and wrong credit. In the case of M/s. Nozaki Finance & Investment Pvt. Ltd. (supra), the assessee had denied the amount as reported in AIR and it was held that once the assessee has objected to the amount reported in AIR, the AO was duty bound to make further enquiries. In the present case, the assessee has not denied the transaction and the TDS as appearing in 26AS statement. Thus facts of all these cases and the other cases as relied upon by the assessee are found to be different.

It is apparent from the facts as discussed above that the assessee had not denied the quantum of transaction and the TDS of Urbanize Developers India Pvt. Ltd. as reported in Form No. 26AS, rather the difference of TDS of Rs.1,40,028/- was carried forward in the return. Under the circumstances, the assessee was duty bound to reconcile the difference in the quantum of transaction as per 26AS and as appearing in the books of accounts. The assessee has also not filed any confirmation from (PiramalFinance Pvt. Ltd.vs. ACIT) A.Y.– 2014-15 - 9 – Urbanize Developers India Pvt. Ltd. that ledger account appearing in its own account which was filed before the AO, was correct. The ledger account as appearing in the books of the assesse is a self-serving document and it does not explain the difference in transaction as noted in the case of Urbanize Developers India Pvt. Ltd. On the other hand, the AO has not made any enquiry from Urbanize Developers India Pvt. Ltd. on the basis of ledger account as filed by the assessee. The matter is, therefore, set aside to the file of the AO to re-examine the matter once again by making necessary enquiry from Urbanize Developers India Pvt. Ltd. The assessee may also be allowed another opportunity to reconcile the difference in respect of Urbanize Developers India Pvt. Ltd. and the AO may decide the matter after making a proper enquiry as indicated above. The ground is allowed for statistical purpose.

As regard to Ground No.2, we do not find anything wrong with the direction of the CIT(A) to make enquiry from Vijaya Bank and re-decide the matter in respect of difference of Rs.1,35,694/- as appearing in 26AS. Any mismatch between the accounts of the assessee and Form No.26AS has to be properly explained and enquired into. A direction to make specific enquiry from the bank and to re-decide the matter does not tantamount to setting aside the order of the AO. In view of discussions in respect of Ground No.1 as above, the direction of the CIT(A) is held as proper and Ground No.2 is dismissed.

The assessee has paid a sum of Rs.11,78,12,000/- to Health Management and Research Institute, Hyderabad (HMRI) which is an eligible institute for the purpose of deduction u/s. 35AC of the Act. The claim of the assessee was examined by the AO and it was found that contribution of the assessee to HMRI had gone into its corpus. Further, HMRI had spent Rs.21,36,25,000/- on six eligible projects and an amount of Rs.5,35,36,000/- was spent on non-eligible projects. As the deduction u/s.35AC of the Act is admissible in respect of amount spent on eligible projects, the amount spent by HMRI towardsineligible project was not found eligible for deduction u/s 35AC of the Act. The AO had, therefore,disallowed proportionate deduction of Rs.2,36,08,173/- in respect of amount spent on ineligible projects. The addition made by the AO was confirmed by the Ld. CIT(A). The assessee’s alternate claim to allow the deduction u/s.80G of the Act in this respect was also not acceded by the Revenue.

The Ld. AR submitted that assessee had made contribution to an approved institution. If HMRI had spent certain amount for ineligible projects, the assessee had no control over that and the deduction cannot be denied in the hands of the assessee for any wrong done by the Institute. He further submitted that if HMRI spent certain amount on ineligible projects, then the certificate issued by the CBDT should have been cancelled, which was not done. The ld. AR has drawn our attention to provision of Section 35AC of the Act and contended that for any (PiramalFinance Pvt. Ltd.vs. ACIT) A.Y.– 2014-15 - 11 – wrong done by the institute, no addition can be made in the hands of donor. He has placed relied upon the decision of CIT vs. Gujarat Co-op Milk Marketing Federation Ltd. 43 taxmann.com 398 (Guj.HC) in this regard.

The Ld. DR, on the other hand, submitted that the contribution made by the assessee to HMRI was for specific projects only and if the entire amount was not spent on those approved projects, the AO had rightly made the disallowance. He strongly supported the order of the CIT(A) in this regard.

We have carefully considered the facts of the case. As per provision of Section 35AC of the Act, the assessee is eligible for deduction in respect of payment made to approved institute for carrying out any eligible project or scheme. As long as this condition is satisfied, the donor is eligible to claim the deduction. The Ld. AR had contended that for wrong application of funds by the recipient institute, no disallowance can be made in the hand of the donor and he has drawn our attention to Explanation to Section 35AC(2) of the Act, which reads as under:

It was held by Hon’ble Gujarat High Court in the case of Gujarat Co-op Milk Marketing Federation Ltd. (supra) that if the donee trust doesn’t fulfil the conditions as stipulated u/s. 80G of the Act, it will not have any effect on the deduction in the hands of the donor. Though, this decision was rendered in (PiramalFinance Pvt. Ltd.vs. ACIT) A.Y.– 2014-15 - 13 – the context of deduction u/s. 80G of the Act, the ratio of this decision is equally applicable in respect of deduction u/s. 35AC of the Act. Considering the provision of Section 35AC of the Act as discussed above and also the decision of the Jurisdictional High Court, we are of the considered opinion that no disallowance of claim u/s. 35AC of the Act should have been made in the hands of the assessee for the default on the part of the approved institute.Accordingly, the addition made on account of proportionate disallowance of claim u/s. 35AC of the Act is deleted. The ground is allowed.

Ground No.4 was only an alternate claim for deduction u/s.80G of the Act, in case the deduction u/s.35AC of the Act was not found eligible. In view of our decision in respect of Ground No.3, this Ground has become infructuous, hence dismissed.

The AO disallowed 50% of corporate guarantee commission paid to the associate concern M/s. Piramal Enterprises Ltd. who had extended guarantee for various loans taken by the assessee from HFDC Bank, Kotak Bank, Axis bank, IndusInd Bank & SBICAP Trustee Co. etc. The corporate guarantee commission was paid @ 1.5% to 1.8% per annum. The AO found that the rate of guarantee commission was excessive and, therefore, disallowed 50% of the guarantee commission paid, which has been upheld by the Ld. CIT(A).

The ld. AR submitted that similar guarantee commission payment was claimed in the earlier years and there was no disallowance made by the department. Further that the AO did not invoke the provision of Section 40A(2)(b) of the Act to make this disallowance. He submitted that the onus was on the AO to demonstrate that the expenditure incurred was excessive or unreasonable, which was not discharged while making this disallowance.

The ld. DR supported the order of the lower authorities on this issue.

We have carefully considered the facts of the case and the rival submissions. The AO has not disputed the genuineness of the guarantee commission paid. Though it is mentioned in the assessment order that there was no need for paying guarantee commission to Piramal Enterprises Ltd., a group company, he did not disallow the entire guarantee commission. The AO has treated the guarantee commission as excessive and disallowed 50% of the claim without bringing on record any comparable case. As rightly pointed out by the assessee the onus was on the department to demonstrate that the expenditure incurred was excessive or unreasonable by brining on record guarantee commission payment in comparable cases. The AO has also not given any reason for disallowing 50% of guarantee commission payment. Further, the provision of Section 40A(2)(b) of the Act was not invoked before making adhoc disallowance of 50% of (PiramalFinance Pvt. Ltd.vs. ACIT) A.Y.– 2014-15 - 15 – guarantee commission. Even in the case where the provision of Section 40A is invoked, the AO has to establish that the expenditure was excessive or unreasonable having regard to fair market value of the payment made or the legitimate needs of the business. The fact that similar guarantee commission was claimed in the past years which was allowed by the department has also not been disputed. The disallowance made by the AO is based on mere assumption and presumption, which cannot be upheld. Accordingly, 50% disallowance out of corporate guarantee commission made by the Revenue is deleted. The ground is allowed.

The ld. AR submitted that full credit of tax deducted at source of Rs.14,36,36,876/- as claimed in the return of income was not allowed by the AO. The assessee had filed reconciliation of TDS as per Form 26AS and TDS as claimed in the return. The assessee had also filed a rectification application u/s. 154 of the Act dated 12.12.2016 for allowing full credit of TDs claim. The AO is directed to verify the claim of TDS as made in Income Tax Return and also the re- conciliation statement filed by the assessee. The credit for TDS claim should be allowed in accordance with provision of Section 199 of the Act. The ground is allowed for statistical purpose.

The ld. AR submitted that the due date of filing of Income Tax Return for this year was extended by the CBDT. The assessee had paid all the taxes within the original due date of filing of return i.e. before 30th September, 2017. Under the circumstances, no interest u/s. 234A of the Act should have been charged. In this regard, reliance was placed on the decision of Hon’ble Gujarat High Court in the case of All Gujarat Federation of Tax Consultants vs. CBDT, [2014] 50 taxmann.com 115 (Guj.HC).

Ld. DR, on the other hand, submitted that charging of interest u/s. 234A of the Act was mandatory.

We have carefully considered the submissions of the assessee. Hon’ble Gujarat High Court in the case of All Gujarat Federation of Tax Consultants (supra) held as under:

In the result, appeal preferred by the assessee is partly allowed.