Case Law Details

Case Name : Asstt. Commissioner of Income Tax Vs Ms. Krystal Aviation Services Pvt. Ltd. (ITAT Mumbai)
Appeal Number : ITA No. 1682/Mum/2017
Date of Judgement/Order : 29/08/2018
Related Assessment Year : 2012-13
Courts : All ITAT (7591) ITAT Mumbai (2164)

ACIT Vs Ms. Krystal Aviation Services Pvt. Ltd. (ITAT Mumbai)

Conclusion: TDS under section 194A was  liable to be deducted on amount paid towards interest on loan availed for purchasing a vehicle even when the amount in question was debited from the account of assessee through ECS and disallowance under section 40(a)(ia) was to be made for non-deduction of tax at source even when nothing remained outstanding at the end of the year as the provisions contained under section 40(a)(ia)  did not make any distinction between the amount paid or payable.

Held: Undisputedly, assessee had paid the amount to Tata Finance Ltd. towards interest on loan availed for purchasing a vehicle. Merely because the amount in question was debited from the account of assessee through ECS it did not absolve the assessee from deducting tax at source as the nature of payment made clearly came within the ambit of section 194A. Further, the claim of assessee that the amount in dispute was paid in the relevant previous year and nothing remained outstanding at the end of the year was of no relevance as the provisions contained under section 40(a)(ia) did not make any distinction between the amount paid or payable. Therefore, dis allowance under section 40(a)(ia) had to be made even in respect of amount paid in the relevant previous year without deduction of tax at source under section 194A.

FULL TEXT OF THE ITAT JUDGMENT

Aforesaid appeal has been filed by the assessee challenging the order dated 1st December 2016, passed by the learned Commissioner (Appeals)12, Mumbai, for the assessment year 2012-13.

2. Ground no.1, the Revenue has challenged deletion of disallowance of ` 2,10,800 made under section 40(a)(ia) of the Income Tax Act, 1961 (for short “the Act”).

3. Brief facts are, the assessee, a company, is engaged in the business of rendering cleaning and other allied services of Aviation Industry and also operates prepaid taxi booth counters. For the assessment year under dispute, the assessee filed its return of income on 25thSeptember 2012 declaring total income of ` 1,15,19,745. During the assessment proceedings, the Assessing Officer noticing that assessee has debited an amount of ` 2,10,800, towards interest charges paid to Tata Motors Finance Ltd. on vehicle loan, called upon the assessee to explain why such payment should not be disallowed on account of failure to deduct tax at source section 194A of the Act. Though, the assessee objected to the proposed disallowance, however, the Assessing Officer rejecting the objections of the assessee disallowed the amount under section 40(a)(ia) of the Act. Assessee challenged the disallowance before the first appellate authority.

4. The learned Commissioner (Appeals) accepting the contention of the assessee that the amount was automatically debited to the bank account of the assessee through electronic clearing system (ECS) and further, the amount was paid within the relevant previous year and nothing remained payable at the end of the year, deleted the disallowance made by the Assessing Officer.

5. We have considered rival submissions and perused materials on record. Undisputedly, the assessee has paid the amount of Rs. 2,10,800 to Tata Finance Ltd. towards interest on loan availed for purchasing a vehicle. Merely because the amount in question was debited from the account of the assessee through ECS it does not absolve the assessee from deducting tax at source as the nature of payment made clearly comes within the ambit of section 194A of the Act. Further, the claim of the assessee that the amount in dispute was paid in the relevant previous year and nothing remained outstanding at the end of the year is of no relevance as the provisions contained under section 40(a)(ia) of the Act does not make any distinction between the amount paid or payable. Therefore, disallowance under section 40(a)(ia) of the Act has to be made even in respect of amount paid in the relevant previous year without deduction of tax at source under section 194A of the Act. Therefore, reversing the order of the learned Commissioner (Appeals) on this issue, we sustain the addition made by the Assessing Officer. Ground raised is allowed.

6. In ground no.2, the Revenue has challenged deletion of disallowance of `52,547 under section 14A r/w rule 8D.

7. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that in the relevant previous year the assessee has earned dividend income of `13,158, which according to the Assessing Officer was exempt from taxation, called upon the assessee to furnish a working of disallowance to be made under section 14A r/w rule 8D. In response, it was submitted by the assessee that no disallowance under section 14A is required to be made. Rejecting the claim of the assessee the Assessing Officer proceeded to disallow an amount of ` 52,457, under section 14A r/w rule 8D. The assessee challenged the disallowance before the first appellate authority.

8. The learned Commissioner (Appeals) taking note of the fact that in the relevant previous year the assessee has neither earned nor claimed any exempt income deleted the disallowance made by the Assessing Officer.

9. The learned Departmental Representative submitted that irrespective of the fact whether the assessee claims the dividend income as exempt or not, by nature, the dividend income is exempt from taxation. Therefore, disallowance under section 14A r/w rule 8D has to be made.

10. The learned Authorised Representative strongly supporting the decision of the learned Commissioner (Appeals) submitted that the assessee has not claimed any income earned during the relevant previous year as exempt. Drawing our attention to the ScheduleX of the Balance Sheet, he submitted that dividend income was earned on shares in Cooperative Bank and in Private Companies which are neither exempt from taxation nor the assessee has claimed exemption in respect of such income. Thus, he submitted, in the absence of any exempt income, no disallowance under section 14A r/w rule 8D can be made.

11. We have considered rival submissions and perused materials on record. Undisputedly, the assessee has not claimed exemption in respect of dividend income earned of `13,158, in the return of income filed by it. Assessee has pleaded that the aforesaid dividend income was earned by the assessee from shares in Cooperative Bank and Private Companies; therefore, such dividend income is not exempt. However, it appears, the aforesaid claim of the assessee was not properly examined either by the Assessing Officer or the Commissioner (Appeals). In case the dividend income earned by the assessee is taxable under the provisions of the Act, there is no question of making disallowance under section 14A of the Act. However, if the dividend income or any part of it is otherwise exempt under the Act, provisions of section 14A will apply subject to the conditions mentioned therein, irrespective of the fact whether assessee claims exemption in respect of such income or not. This is so because, the expression used in section 14A is “expenditure incurred by the assessee in relation to income which do not form part of total income under the Act”. Therefore, while computing the total income of the assessee the Assessing Officer has to exclude the exempt income as per statutory mandate. We have also noted, though, the Assessing Officer has treated the dividend income earned by the assessee as exempt for the purpose of making disallowance under section 14A, however, while computing the income of the assessee he has not excluded the exempt income. The Assessing Officer is directed to exclude the exempt income, if any, while determining the total income of the assessee. Further, in case it is found that the dividend income earned by the assessee or any part of it is exempt as per the provisions of the Act, then, the disallowance under section 14A r/w rule 8D, if warranted, is to be restricted to the quantum of exempt income earned during the relevant previous year. We, therefore, restore this issue to the Assessing Officer for adjudicating afresh keeping in view our aforesaid observations. Needless to mention, the Assessing Officer must afford reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes.

12. In ground no.3, the Revenue has challenged the deletion of addition of `1,16,74,801, on account of nonpayment of Employees’ Contribution to Provident Fund and Employees State Insurance Corporation.

13. Brief facts are, during the assessment proceedings the Assessing Officer on verification of the tax audit report found that Employees’ Contribution to Provident Fund and Employees State Insurance Corporation were not paid before the due date as prescribed under section 36(1)(va) of the Act. Accordingly, he disallowed Employees’ Contribution to Provident Fund amounting to ` 55,87,269 and employees contribution to Employees State Insurance Corporation amounting to ` 60,87,532 aggregating to ` 1,16,74,801. Assessee challenged the disallowance before the first appellate authority.

14. The learned Commissioner (Appeals), on verification of material on record, found that Employees’ Contribution to Provident Fund and Employees State Insurance Corporation actually are ` 55,87,269 and ` 16,38,951 respectively. The learned Commissioner (Appeals) having found that Employees’ Contribution to Provident Fund and Employees State Insurance Corporation were paid by the assessee before the due date of filing of return of income, deleted the disallowance made by the Assessing Officer by following the decisions of the Hon’ble Supreme Court and Hon’ble Jurisdictional High Court as referred by her in the appellate order. As regards employer’s contribution to ESIC amounting to ` 44,48,581, the learned Commissioner (Appeals) held that such payment is allowable as per the amended provisions of section 43B of the Act. Thus, he deleted the disallowance of ` 1,16,74,801.

15. We have considered rival submissions and perused materials on It is evident, the Assessing Officer disallowed employees contribution to PF and ESIC simply for the reason that such payments were made by the assessee after the due date as provided under section 36(1)(va) of the Act. However, the learned Commissioner (Appeals) on verification of material on record has found that the employee’s contribution to PF and ESIC were paid before the due date of filing of return of income for the impugned assessment year. That being the case, the ratio of the decisions relied upon by the learned Commissioner (Appeals), including the decisions of the Hon’ble jurisdictional High Court in case of CIT v/s Hindustan Organics Ltd., 366 ITR 001 and CIT v/s Ghatge Patil Transport Ltd., 368 ITR 749, clearly apply to the facts of the assessee’s case. As regards disallowance of employer’s contribution to ESIC, undisputedly, such payment is covered by the proviso to section 43B of the Act. The learned Departmental Representative has not controverted the factual finding of the learned Commissioner (Appeals) that the aforesaid payments were made by the assessee before the due date of filing of return of income for the relevant assessment year. In view of the aforesaid, we do not find any infirmity in the decision of the learned Commissioner (Appeals) on the issue. Accordingly, ground raised is dismissed.

16. Ground no.4 and 5, being general in nature, do not require

17. In the result, Revenue’s appeal is partly allowed.

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