Case Law Details
Indoworth India Ltd Vs ACIT (TDS) (ITAT Nagpur)
Conclusion: AO passed TDS order issued for non–deduction of TDS and interest thereon u/s 201(1) and 201(1A) was beyond the four-year limit and the same was barred by limitation under section 201(1) was invalid.
Held: Assessee challenged orders by CIT (Appeals) for the assessment year 2012–13 and 2013–14, uploading order under section 201(1A) passed by the ACIT (TDS), Nagpur. Registry had pointed out a delay of 218 days in filing the present appeal before the Tribunal. Tribunal opined that assessee was prevented in filing the appeal belatedly and the delay in filing the appeal was due to reasonable and sufficient cause. Consequently, the delay of 218 days in filing the present appeal was condoned and admitted the same for adjudication on merit since there was no mala fide intention on the part of assessee. During the year, assessee collected share application money from various applicants. It had also received total amount of ` 4,65,79,390, as advance against share application money. Assessee had taken interest provision @ 12% per year amount of ` 55,89,527, in his books of account from F.Y. 2012-13 to F.Y. 2018-19. This entry was purely provision and contingent liability nature hence assessee did not claim this expenditure in her income tax returns. Due to this reason, assessee had not deposited TDS on the credited interest amount in financial year. Assessee challenged the order for non–deduction TDS and interest u/s 201(1) and 201(1A) on share application money of Rs.55,89,527/- amounting to Rs.22,45,596/- was incorrect, illegal, bad in law and without natural justice and the same was to be deleted. It was held that following the decision in GE India Technology Centre v/s CIT, [2010] (10) SCC 29, and the judgment of the Hon’ble Jurisdictional High Court in Mahindra & Mahindra Ltd. [2014] 365 ITR 0560 (Bom.) wherein it has been held that the reasonable time limit for issue of notice u/s 201(1)/201(1A) was 4 years. In cases, where the notice was issued beyond 4 years, the Co–ordinate Bench of ITAT held that the same was barred by limitation under section 201(1) passed in September 2021. Since, in the present case, the orders were beyond 4 years from end of financial year, hence not sustainable and was quashed. Hence, insofar as non–residents were concerned, the order to that extent was clearly time barred. Therefore, assessee could not be considered as assessee in default.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
The present appeals have been filed by the assessee challenging the impugned orders of even date 20/03/2023, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2012–13 and 2013–14, uploading order under section 201(1A) of the Act dated 30/09/2021, passed by the ACIT (TDS), Circle–1, Nagpur.
ITA no.3/Nag./2024
Assessee’s Appeal – A.Y. 2012–13
2. In its appeal, the assessee has raised following revised and modified grounds of appeal on the date of hearing:–
“1. The order passed by learned ACIT(TDS) and order of Honourable CIT(A) is illegal, incorrect, bad in law and without natural justice.
2. The order passed by AO is TDS demand is time barred as per section 201(3) the Financial Act, 2012.
3. The non–deduction TDS and interest thereon u/s 201(1) and 201(1A) on share application money of Rs.55,89,527/- amounting to Rs.22,45,596/- is incorrect, illegal, bad in law and without natural justice and the same is to be deleted.
4. That the levy of TDS on advance Share Capital from resident/ non– resident Rs.11,06,205 + Interest u/s 201(1A) of Rs.10,06,647 total Rs.22,45,596/- is incorrect, illegal, bad in law and without natural justice and same is to be deleted.
5. Appellant craves a right to add, modify, alter, or withdraw and of the ground/s of appeal during the course of hearing.
PRAYS: Appellant prays before your honor to delete the non-deduction TDS and interest thereon u/s 201(1) and 201(1A) of Rs.22,45,596/- or the appropriate relief is to be granted as the Honorable ITAT may think fit..”
3. During the course of hearing, the Registry has pointed out a delay of 218 days in filing the present appeal before the Tribunal. While going through the record available before us, we find that the assessee has filed application– cum–affidavit dated 12/09/2024 praying before the Bench for condoning the delay in filing the present appeal. The reason for the delay in filing the present appeal is due to the ill health of the learned A.R. appearing for the assessee. Sufficient evidences have been filed proving hospitalization of the learned A.R. on account of heart surgery. The learned Departmental Representative vociferously objected to the issue of condonation and prayed that the appeal may be dismissed in limene.
4. After considering the submissions of the learned Authorised Representative and averments made in the affidavit, we are of the opinion that the assessee was prevented in filing the appeal belatedly and we are satisfied that the delay in filing the appeal is due to reasonable and sufficient cause. Consequently, we condone the delay of 218 days in filing the present appeal and admit the same for adjudication on merit since there is no mala fide intention on the part of the assessee.
5. Before us, the learned A.R. succinctly brought out the ground of dispute before us. He submitted that the assessee is a Private Limited Company and is engaged in the business of manufacturing Industry Textiles, Handloom and Power Looms. The assessee filed its return of income for the year under consideration 2013-14 on 29/09/2014, disclosing total taxable income is nil with TDS of ` 10,63,979, and refund of ` 10,63,979. During eth year, the assessee collected share application money from various applicants as details below. The assessee has also received total amount of ` 4,65,79,390, as advance against share application money. The assessee has taken interest provision @ 12% per year amount of ` 55,89,527, in his books of account from F.Y. 2012-13 to F.Y. 2018-19. This entry was purely provision and contingent liability nature hence the assessee did not claim this expenditure in her income tax returns. Due to this reason, the assessee has not deposited TDS on the credited interest amount in financial year. The learned A.R. further submitted that the assessee had passed reversal entry in books of account for interest amount of ` 55,89,527, per annum and has taken reversed for entire period from F.Y. 2012-13 to F.Y. 2018-19. The total interest amount ` 3,91,26,689. The learned A.R. further submitted that the assessee made provision for interest on share application money for the purposes of accounting whereas the assessee has no liability to pay interest on the share application money. It is usual practice of the assessee to reverse the provision of expenditure of interest, therefore, the assessee has not deducted TDS for the same and considering this, as contingent liability. He submitted that the assessee made provision of interest payable on share allotment money, however, the same was not certain to pay share application money. The assessee claimed the same as contingent liability, therefore, the assessee reversed and not claimed this expenditure while computing its income and filling of income tax return for respective assessment year. The assessee had omission which are corrected in the F.Y. 2019-20. The assessee had forgotten to disallow the interest being contingent expenditure of ` 55,89,527, for the F.Y. 2012-13 and F.Y. 2013-14. The assessee corrected the omission and claim disallowance of ` 55,89,527, in F.Y. 2019-20 and carry forward the buyback income. He submitted that the contingent provisions for expenses are not liable for TDS. As per the IT return and computation from F.Y. 2014-15 to F.Y. 2018-19 disallowed the interest as contingent expenditure of ` 55,89,527, but due to some clerical mistakes, the assessee had not disallowed the interest provision for the F.Y. 2012-13 and F.Y. 2013-14. The assessee disallowed the interest in F.Y. 2019-20 at the time of filling the return of income for the F.Y. 2012-13 and 2013-14. He submitted that considering the nature of expenditure being contingent expenses, disallowing in the A.Y. 2013-14 and 2014-15, there shall not be any impact on tax liability on the assessee, as the assessee has huge losses in the books of account.
6. Heard the learned Authorised Representative appearing for the assessee as well as the learned Departmental Representative, we find that since the issue relating to the provisions of limitation under section 201(3) of the Income Tax Act, 1961 (“the Act”) goes to the root of the matter and does not require investigation of fresh facts, therefore, we admit the same. The learned A.R. for the assessee also relied on the contents of Para–7 of the decision of the Co–ordinate Bench of the Tribunal rendered in Adabala Manmohan v/s ITO, ITA no.135/Viz./2021, for A.Y. 2011–12, order dated 14/07/2022, which is reproduced below for better appreciation of facts:–
“7. We have heard both the sides and perused the material available on record. In this case the admitted facts are that the assessee has purchased a property during the FY 2010-11 relevant to the AY 2011-12 on 7/3/2011. The assessee has paid a sum of Rs. 54,22,000/- out of which Rs. 50,39,500/- was paid to the NRI. As per the provisions of section 195 of the Act, the assessee is required to deduct tax at source on payments made to non-residents. In the instant case, the assessee required to deduct the tax at source on the sums chargeable to capital gains. The assessee has failed to deduct the tax at source, therefore the assessee is liable for payment tax and interest U/s. 201(1)/201(1A) of the Act. The Ld. AO passed order U/s. 201(1)/201(1A) on 27/03/2018 which is after a lapse of five years from the end of the relevant assessment year. There is no time limit provided under the Act for treating the assessee as an assessee in default in respect of payment made to nonresident. As per section 201(3), as rightly pointed out by the Ld. AR it applies to residents and not to non-residents. The identical issue has come up before this Tribunal in the case of Bheemarasetty Sunitha cited supra and this Tribunal after considering the decisions of Hon’ble Delhi High Court in the case of Bharti Airtel Limited & Anr Vs. Union of India & Anr and the decision of NHK Japan Broadcasting Corporation [305 ITR 0137], the decision of Hon’ble Supreme Court in the case of GE India Technology Centre and the decision of Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. [365 ITR 0560 (Bom)] held that the reasonable time limit for issue of notice u/s 201(1)/201(1A) is 4 years. In cases, where the notice is issued beyond 4 years, the Coordinate Bench of ITAT held that the same is barred by limitation. For the sake of clarity and convenience, we extract relevant part of the order of this Tribunal in para No.6 to 7 which reads as under:–
“6. We have heard both the parties and perused the materials placed on record. The relevant provisions of section 201(1A) of the Act is reproduced as under: “201(1A) Without prejudice to the provisions of sub- section (1), if any such person, principal officer or company as is referred to in that subsection does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at 2 fifteen] per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.]”
7. The Hon’ble Delhi High Court while deciding the writ petition in the case of Bharti Airtel& Another rendered the judgement considering the statement of Objects and Reasons of the Finance (No.2) Bill, 2009. In respect of time limit, Hon’ble Bombay High Court has considered the issue in detail and held that 6 years is reasonable period for initiating the action u/s 201 and 201(1A). The Hon’ble Delhi High Court in the decision relied upon by the Assessee considered the issue with regard to the limitation of time for initiating the proceedings u/s 201/201(1A) and held that 4 years is the reasonable time forinitiating proceedings u/s 201/201(1A). While holding so, the Hon’ble High Court has relied on the decision of CIT Vs. NHK Japan Broadcasting Limited [305 ITR 137] and the CIT Vs. Hutchison Essar Telecom. Limited [323 ITR 330], Further, Hon’ble Delhi High Court has considered amendment made to Section 201 of the Act vide Finance Bill, 2009 and viewed that the Parliament did not make any amendment to the time limits for the non residents which indicates that the Parliament has accepted the judicial pronouncements for the limitation period already set out by the courts. The Hon’ble Delhi High Court also considered the decision of Hon’ble Supreme Court in the case of GE India Technology Centre Vs. CIT (2010) (10) SCC 29, wherein, the Hon’ble Supreme Court held that the proceedings should be initiated u/s 201/201(1A) within reasonable period and it cannot extend without limitation. After considering the decision of the Hon’ble Supreme court in GE India Technology and the Vodafone Essar Mobiles Ltd. the Hon’ble Delhi High Court followed its own decision in the case of CIT Vs. NHK Japan Broadcasting Limited (supra) and held that 4 years is the reasonable period for initiating the proceedings u/s 201/201(1A) of IT Act. The Ld. DR relied on the decision of Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. Considering the Hon’ble Supreme court decision in CIT Vs. Vegetable Products Ltd., 88 ITR 192 (SC) and CIT Vs. Karamchand Premchand Ltd (1960) 40 ITR 106, we are also of the view that the decision favourable to the assessee is required to be taken. Accordingly following the decision of Hon’ble Delhi High Court we hold that reasonable period is 4 years for initiating of proceedings u/s 201/201(1A). In the instant case the property was registered on 18.7.2007 and the assessee is liable to deduct the TDS during the F.Y.2007-08 and the 4 years time limit for initiating action u/s 201/201A expires before March 2012. In the instant case, notice u/s 195 treating the assessee as assessee in default was issued on 11.08.2013 beyond the 4 years of the financial year in which the assessee required to deduct tax at source. As held by Hon’ble Delhi High Court, the time limit for initiating the proceedings u/s 201 and 201(1A) is 4 years and it is barred by limitation. Therefore, following the decision of Hon’ble Delhi High Court, we are unable to sustain the orders of the lower authorities. Accordingly, the order passed u/s 201 / 201(1A) is set aside and the appeal of the assessee is allowed.”
8. Similarly, the Hon’ble AP High Court in the case of M/ s U.B. Electronic Instruments Limited cited supra held that the 4 years is reasonable time. For ready reference, we extract relevant part of the order of the AP High Court which reads as under :
“By and large, four years is treated as the period within which any penal action cat-be initiated against an assessee. Failure to initiate steps within that period would disable the department to proceed against the assessee. The reason is not difficult to be discerned. With each passing year, the assessee is required to adjust his or her own affairs in such a way that the activity undertaken by it goes on smoothly. Incase, liability for the preceding one or two years is fastened, there can be scope for making adjustment thereof in the activities of the subsequent years. However, if fairly long gap intervenes, it becomes difficult for making such adjustments, particularly when the activity is commercial in nature. In the instant case, the assessment years are 1989-90, 1990-91 and 1991-92. It was nearly seven years thereafter that a notice was issued. For an assessee to be required to pay the amount, even if due five or six years preceding the demand, would be a serious problem. Several developments take place over the period, and the nature of relations undergoes change.”
9. In the instant case, Smt. Davuluri Sai Swapna has filed her return of income in response to the notice U/s. 148 of the Act for the AY 2012- 13 admitting a total taxable income of Rs. 16,16,878/- and offered capital gains of Rs. 15,22,953/-. The AO of the non-resident ITO, Ward12(2), Hyderabad passed the assessment order U/s. 143(3) r.w.s 147 of the Act on 12/6/2019 accepting the return filed by the NRI Smt. Davuluri Sai Swapna. Since the non-resident has discharged her obligation with respect to payment of capital gains tax, the assessee cannot be taxed once again for non-deduction of TDS U/s. 195 of the Act. It is also observed that the seller Smt. Davuluri Sai Swapna is a non-resident from the assessment order passed by AO, Ward-12(2), Hyderabad. Similarly it is also noticed that the AO erred in not adopting the SRO value as prescribed U/s. 50C of the Act while concluding the assessment of the Non-Resident. The reliance placed by the Ld. DR in ITO vs. Shri Rang Infrastructure (P) Ltd (supra) is distinguishable on the fact that the extension of the period of time limit U/s. 201(3) applies only to residents and not to NRIs and hence reliance cannot be placed for the instant case. Respectfully following the judicial precedents as discussed in the earlier paras, we are of the considered view that treating the assessee as an assessee in default U/s. 201 of the Act is not valid in law. We therefore are inclined to quash the order of the Ld. CIT(A). It is ordered accordingly.”
7. Here, it is pertinent to refer to the judgments of the Hon’ble Supreme Court rendered in GE India Technology Centre GE India Technology Centre v/s CIT, [2010] (10) SCC 29, and the judgment of the Hon’ble Jurisdictional High Court in Mahindra & Mahindra Ltd. [2014] 365 ITR 0560 (Bom.) wherein it has been held that the reasonable time limit for issue of notice u/s 201(1)/201(1A) is 4 years. In cases, where the notice is issued beyond 4 years, the Co–ordinate Bench of ITAT held that the same is barred by limitation under section 201(1) of the Act passed in September 2021. Since, in the present case, the orders are beyond 4 years from end of financial year, hence not sustainable and is quashed. It is pathetic to note that the entire proceeding arose out of a survey under section 133A(2A) conducted on 09/12/2019, at the office premises, which is our firm opinion is belated and unsustainable and is hereby quashed. However, we are in full agreement with the contentions of the learned A.R. for the assessee and the case laws relied upon by him are squarely applicable to the facts of the present case. Hence, insofar as non–residents are concerned, the order to that extent is clearly time barred. There is a small credit of income to a resident, but the transaction did not crystalize. In view of the aforesaid discussions, we set aside the impugned order passed by the learned CIT(A) and allow the grounds raised by the assessee in its appeal for the A.Y. 2012–13 in its entirety. We hold that the assessee cannot be considered as assessee in default.
8. In the result, appeal filed by the assessee for A.Y. 2012–13 is allowed.
ITA no.4/Nag./2024
Assessee’s Appeal – A.Y. 2013–14
9. In its appeal, the assessee has raised following revised grounds of appeal:–
“1. The order passed by learned ACIT (TDS) and order of Honourable CIT(A) is illegal, incorrect, bad in law and without natural justice.
2. The order passed by AO is TDS demand is time barred as per section 201(3) the Financial Act, 2012.
3. The non–deduction TDS and interest thereon u/s 201(1) and 201(1A) on share application money of Rs.55,89,527/- amounting to Rs.21,12,852/- is incorrect, illegal, bad in law and without natural justice and the same is to be deleted.
4. That the levy of TDS on advance Share Capital from resident/ non–resident Rs.11,06,205 + Interest u/s 201(1A) of Rs. 10,06,647 total Rs.21,12,852/- is incorrect, illegal, bad in law and without natural justice and same is to be deleted.
5. Appellant craves a right to add, modify, alter, or withdraw and of the ground/s of appeal during the course of hearing.
PRAYS: Appellant prays before your honor to delete the non-deduction TDS and interest thereon u/s 201(1) and 201(1A) of Rs.21,12,852/- or the appropriate relief is to be granted as the Honorable ITAT may think fit.”
12. Since the facts and circumstances of the issues raised in this appeal for our adjudication are mutatis mutandis identical to the facts and circumstances of the issues decided by us in assessee’s appeal being ITA no.3/Nag./2014, for ay 2012–13, vide Para–6 and 7, above, wherein we have decided this issue in favour of the assessee and against the Revenue for the reasons stated supra, consistent with the view taken therein, we set aside the impugned order passed by the learned CIT(A) by allowing the grounds of appeal raised by the assessee for A.Y. 2013–14 as well.
13. We may briefly add here that the learned Departmental Representative agreed that the order is not time barred as per Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. But, we reject the same following the mandate of the Hon’ble Jurisdictional High Court in Mahindra & Mahindra Ltd. [2014] 365 ITR 0560 (Bom.).
14. In the result, appeal filed by the assessee for A.Y. 2013–14 is also allowed.
15. To sum up, both the appeals filed by the assessee are allowed.
Order pronounced in the open Court on 23/09/2024
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