Uttar Pradesh Rajkiya Nirman Ltd Vs DCIT (ITAT Lucknow)
Income Tax Appellate Tribunal (ITAT) Lucknow Bench has partly allowed the appeals filed by Uttar Pradesh Rajkiya Nirman Ltd. for Assessment Years 2014-15, 2015-16, and 2016-17, restoring all disputed issues back to the Commissioner of Income Tax (Appeals) [CIT(A)] for a fresh decision. The Tribunal emphasized the need for the assessee to be provided a reasonable opportunity of hearing.
The appeals challenged separate orders of the CIT(A) for each assessment year. The core issues across the three years primarily revolved around the eligibility for TDS credit on interest income earned from “Client Funds” (State/Central Government Funds), which the assessee contended was not its income but rather government funds. Additionally, the appeals included disputes concerning disallowances of various expenses such as Provision for Gratuity, Unpaid Bonus, Unpaid Service Tax, and discrepancies in “Other Income” and “Prior Period Expenses.”
Key Issues in Dispute
The assessee, Uttar Pradesh Rajkiya Nirman Ltd., a state-owned construction corporation, raised several common and specific grounds in its appeals:
Common Grounds across AY 2014-15, 2015-16, and 2016-17:
1. Invalid Directions by CIT(A) on TDS Credit: The assessee argued that the CIT(A)’s direction to the Jurisdictional Assessing Officer (JAO) to examine the claim for TDS credit on interest income (under Section 199 read with Rule 37BA of the Income Tax Rules) was invalid. This direction, according to the assessee, was issued without providing them an opportunity to be heard or issuing any notice during the appellate proceedings before the CIT(A).
2. TDS Credit on Client Fund Interest: A central contention was that interest income earned on “Client Funds” (State/Central Government Funds) should not be treated as the assessee’s taxable income. The assessee asserted that as per Government Orders (G.O.), this interest is considered government funds, meant either for appropriation towards construction costs or refund to the government. They maintained that since the State/Central Government, providing funds on a cost-plus centage basis, is not taxable under the Income Tax Act, the provisions of TDS and Rule 37BA are not applicable to the transfer of such corresponding interest income. The assessee explained that while interest income from the bank was initially booked as its income, it was subsequently transferred to the Client Account as per G.O., with only the net interest income offered for tax.
Specific Grounds:
- AY 2014-15: Disallowances related to Provision for Gratuity (Rs. 74,874/-), Unpaid Bonus (Rs. 2,11,874/-), and Unpaid Service Tax (Rs. 1,61,177/-). The assessee claimed these amounts were paid in time but could not upload receipts due to “technical mistake.”
- AY 2015-16: Disallowance of Service Tax amounting to Rs. 7,86,66,490/- shown under “Operating Expenses.” The assessee argued that this should not lead to an addition as its centage income (profitability) remained unaffected. They also cited technical problems in the e-filing portal preventing the upload of a large volume of challans and requested physical hearing to produce evidence of payment.
- AY 2016-17: Addition of Rs. 4,67,19,796/- due to a difference between “Other Income” shown in the ITR and as per the Independent Auditor’s Report, and an addition of Rs. 60,537/- for “Prior Period Expenses.” The assessee contended that revised details were submitted to the AO but a revised return could not be filed due to lapse of time, and the CIT(A) had the power to consider these revised details.
Tribunal’s Decision to Remand
