Income Tax Appellate Tribunal - Hyderabad
Acit, Central Circle-3(2), Hyd, ... vs Hill County Properties Ltd., (Formerly ... on 7 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND
SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
ITA No. AY. Appellant Respondent
M/s. Hill County
1000/Hyd/16 2010-11 Asst. Commissioner of Properties Limited
Income Tax, Central (Formerly Maytas
Circle-3(2), Properties Limited)
1001/Hyd/16 2011-12 Hyderabad Hyderabad
[PAN: AAECM2732Q]
M/s. Hill County
991/Hyd/16 2010-11 Properties Limited Addl. Commissioner
(Formerly Maytas of Income Tax,
Properties Limited) Central Range-3,
992/Hyd/16 2011-12 Hyderabad Hyderabad
[PAN: AAECM2732Q]
For Revenue : Shri Pathlavath Peerya, CIT-DR
Shri L. Ramji Rao, DR
For Assessee : Shri S. Rama Rao, AR
Date of Hearing : 02-08-2017
Date of Pronouncement : 07-08-2017
ORDER
PER CHANDRA POOJARI, A.M. :
These are cross-appeals directed against different orders of the Commissioner of Income Tax (Appeals)-11, Hyderabad, for the AYs. 2010-11 & 2011-12, wherein the issues are common in nature. We heard all the files together and decided the same by this common order.
ITA Nos. 1000 & 1001/Hyd/16
:- 2 -: & ITA Nos. 991 & 992/Hyd/16
ITA No. 1000/Hyd/2016 AY.2010-11 (Revenue's Appeal):
Ground-wise discussion is as under:
Ground No.2 : The Ld.CIT(A) erred in directing the AO to verify as to whether the expenditure bills amounting to Rs. 41,78,480/- which are in the name of the subsidiary company are claimed as expenditure in that company and to disallow only when there is a double claim i.e., claim by the assessee company and subsidiary company:
2. The facts of the first issue for adjudication is with regard to disallowance of expenditure u/s 37(1) of the Income Tax Act [Act] amounting to Rs. 41,78,480/-. The Assessing Officer (AO) disallowed the said expenditure since the bills and evidences of the same are not in the name of the assessee-company. In the course of the first appellate proceedings, the Ld.AR submitted that the AO disallowed the expenditure like internet charges, electricity charges, consultant charges etc., without observing that all such expenditure was incurred wholly for the purpose of the Hill County project and the expenditure would therefore, be liable to be borne by the assessee. However, due to similarity of names of the other companies which are under the same management, suppliers/service providers by oversight raised such invoices on the names of the other entities. It was further submitted that all these payments have been made through regular banking channels of the assessee's bank accounts which can be verified from the bank statements including deduction of any applicable TDS.
2.1. On appeal, CIT(A) placed reliance on the earlier order of the Tribunal for the AY. 2009-10 and directed the AO to verify whether there is any double claim once in assessee's hand and ITA Nos. 1000 & 1001/Hyd/16 :- 3 -: & ITA Nos. 991 & 992/Hyd/16 another in sister-concern. Against the order of the CIT(A), the Revenue is in appeal before us.
2.2. During the course of argument, Ld.DR urged that CIT(A) has no power to remit the issue to the file of AO for fresh consideration and he should have called for remand report from the AO and ought to have decided the issue.
2.3. We have heard the rival contentions and perused the material available on record. Admittedly in earlier year, similar issue in assessee's own case came up for consideration before this Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014 for the AY. 2008-09. In the said case, the Co-ordinate Bench of the Tribunal, remitted the issue to the file of the AO with the following directions:
"10. We have heard both the parties, perused the record as well as gone through the orders of the authorities. The assessee brought on record confirmation letter from Maytas Estate Pvt. Ltd. issued to the Maytas Properties Ltd. stating that Maytas Properties Ltd., whose name formerly was Maytas Estate Pvt. Ltd. wherein neither bills are raised for this expenditure nor accounted for the same in their books of account, which is placed on record at pages 125 & 126 of assessee's paper book. If there is no evidence with the department that there is a double claim of this expenditure one by Maytas Properties Pvt. Ltd. and another by Maytas Properties Ltd., the assessee company, the department cannot disallow the expenditure because the same is a clerical error in the bills produced by the assessee towards expenditure. If this expenditure is not claimed by Maytas Properties Pvt. Ltd., therefore, it is fair to grant deduction towards business expenditure in the hands of the present assessee M/s Maytas Properties Ltd. Accordingly, we remit this issue back to the file of the AO to cause enquiry whether M/s Maytas Properties Pvt. Ltd. claimed any expenditure towards the impugned bills and if there is no double claim, the claim of the assessee has to be allowed. This issue is allowed for statistical purposes".
ITA Nos. 1000 & 1001/Hyd/16 :- 4 -: & ITA Nos. 991 & 992/Hyd/16 2.4. Later, for the AY. 2009-10 similar issue came up for consideration. The Tribunal took same view in ITA No. 1644/Hyd/2014 dt. 22-05-2015 in para No. 7 as follows:
"7. At the time of hearing, the learned representatives of both the sides have agreed that a similar issue was involved in the case of the assessee for the assessment year 2008-09 and vide its order dated 6.6.2014 (supra), the Tribunal has decided the same holding that the department cannot disallow the expenditure merely because there is a clerical error in the bills produced by the assessee towards the expenditure. It was held that if the expenditure is not claimed by M/s. Maytas Properties Ltd., it is fair to allow deduction towards business expenditure in the hands of the assessee. Accordingly, the issue was restored by the Tribunal to the file of the Assessing Officer to verify whether the same expenditure was claimed by M/s. Maytas Properties P. Ltd. and if it is found, on such verification that there is no such double claim, the Assessing Officer was directed by the Tribunal to allow the claim of the assessee of such expenditure.
Respectfully following the said decision of the coordinate bench of this Tribunal in assessee's own case for assessment year 2008-09 on similar issue, we uphold the impugned order of the Dispute Resolution Panel, setting aside this issue to the file of the Assessing Officer for deciding the same afresh as per the same directions as given by the Tribunal for assessment year 2008-09. Ground No.2 of the Revenue's appeal is accordingly dismissed".
2.5. As seen from the above, Tribunal held in earlier years that there cannot not be any double claim by different assessee towards the same expenditure. It is the duty of the assessee to establish that there is no double claim towards this expenditure and thereafter it is to be proved that expenditure was incurred wholly and exclusively for the purpose of carrying on the business of assessee. With these observations, we remit this issue to the file of the AO for fresh consideration. This Grounds is partly allowed for statistical purposes.
ITA Nos. 1000 & 1001/Hyd/16
:- 5 -: & ITA Nos. 991 & 992/Hyd/16
3. Next grounds for our consideration is as follows:
3. The ld. CIT(A) erred in directing the AO to allow the payments made by the assessee through banking channels especially when the payments were made by the assessee by bearer cheque which is in contra of the provisions of section 40A(3) of the I.T. Act.
4. The ld. CIT(A) erred in directing to disallow on 10% of the cash expenditure where as the provisions of section 40A(3) mandates for disallowance of 10% of such expenditure.
3.1. It is with regard to disallowance of expenditure u/s.
40A(3) amounting to Rs.13,67,000/-. In the Special Audit Report, the Special Auditor has pointed out that the assessee had made payments to the tune of Rs. 67,17,000/- in excess of Rs. 20,000/- otherwise than by a crossed cheque or demand draft violating the provisions of Section 40A(3) of the Act. It was further stated by the Special Auditor that a sum of Rs. 53,50,000/- has already been disallowed by the assessee and added back to the total income. With regard to the balance of Rs. 13,67,000/-, the assessee has produced bills as evidence towards the payments made under the head 'Land Scaping'. The AO observed that none of the bills produced by the assessee are from out of a bill book having a Sales Tax or a Commercial Tax Number and all the bills are generated from plain paper and do not bear the semblance issued by different parties. Accordingly, he disallowed the amount of Rs.13,67,000/- u/s 40A(3) of the Act. On appeal before the CIT(A), he placed reliance on para 30 of the Hon'ble ITAT's order in its own case for AY 2008-09(supra) and decided partly in favour of assessee.
ITA Nos. 1000 & 1001/Hyd/16
:- 6 -: & ITA Nos. 991 & 992/Hyd/16
3.2. We have heard the rival contentions and perused the material available on record. Admittedly in earlier year, similar issue in assessee's own case came up for consideration before this Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014 for the AY. 2008-09. In the said case, the Co-ordinate Bench of the Tribunal has decided the issue as under:
"30. We have heard the arguments of both the parties, perused the record and gone through the orders of the revenue authorities. In our opinion the reason for disallowance is regarding genuineness of expenditure. According to the lower authorities most of the payments are self-generated, which have high bill value and being so it was disallowed. Incurring of expenditure was not doubted by the Department, but, only quantum of expenditure is doubted. The expenditure is wholly and exclusively laid out for the purpose of business, therefore, the entire expenditure cannot be disallowed. Since the bills are self-generated, there is no conclusive proof that 100% of the expenditure is genuine. Hence, considering the facts and circumstances of the case, we direct the AO to disallow 10% of cash expenditure incurred by the assessee and there could be no disallowance if the assessee incurred the expenditure by cheque. Thus, this ground is partly allowed".
3.3. Further, similarly for AY. 2009-10 in ITA No. 1644/Hyd/2014 dt. 22-05-2015, the Tribunal held as follows:
"9. As noticed by the Assessing Officer from the report of the Special Auditor, the assessee company had made payment of certain expenditure in excess of Rs.20,000 otherwise than by crossed cheque or bank draft. As these payments aggregating to Rs.1,03,32,278 were clearly hit by the provisions of S.40A(3), the assessee was called upon by the Assessing Officer to offer its explanation in the mater. The explanation offered by the assessee in this matter, however, was not found acceptable by the Assessing Officer. Accordingly, he proposed to disallow the expenditure of Rs.1,03,32,278 by invoking the provisions of S.40A(3). He also observed that the said expenditure was not supported by any documentary evidence and the same was, therefore, liable to be disallowed alternatively as per the provisions of S.37(1). On the objection raised by the assessee, the Dispute Resolution Panel found that a similar issue was decided by the Tribunal in assessee's own case for assessment year 2008-09 vide order dated 6.6.2014 (supra) wherein similar disallowance made by the Assessing Officer by invoking the provisions of S.40A(3) was held to be not sustainable. As regards the disallowance of the said ITA Nos. 1000 & 1001/Hyd/16 :- 7 -: & ITA Nos. 991 & 992/Hyd/16 expenditure made by the Assessing Officer alternatively as per the provisions of S.37(1), it was held by the Tribunal that such expenditure claimed by the assessee, which was otherwise genuine, could not be disallowed entirely for want of vouchers. It was held by the Tribunal that it would be fair and reasonable in the facts of the case to disallow relevant expenditure to the extent of 10% for the unverifiable element. Following the decision of the Tribunal in assessee's own case for assessment year 2008-09, the Dispute Resolution Panel directed the Assessing Officer to restrict the amount of disallowance to the extent of 10%".
3.4. Before us, Ld.AR submitted that the issue in this year is squarely covered by the above order of the Tribunal. On the contrary, Ld.DR submitted that it is not proper to disallow 10% of the expenditure. On the other hand, 100% of expenditure is to be disallowed which is paid by cash. In our opinion, if the facts are similar as in earlier year and the expenditure was incurred towards horticulture, then it falls under exceptions provided in Rule 6DD of IT Rules. There cannot be disallowance u/s. 40A(3) of the Act. On the other hand, the assessee has to prove thereafter that the expenditure was incurred wholly and exclusively for the purpose of business and falls under the purview of Section 37(1) of the Act. Accordingly, we direct the AO not to disallow any payments made by cross account payee cheque if the assessee is able to prove that it is incurred for the purpose of business of assessee. In case of expenses incurred in cash, the assessee is not only to prove the incurring of the expenditure for the purpose of business, it has to be proved that there is no inflation of expenditure. Since, it was held already on earlier occasion that there is a chance of inflating the expenditure by assessee by way of cash voucher, 10% of that cash expenditure is to be disallowed. With this, these grounds are partly allowed for statistical purposes.
ITA Nos. 1000 & 1001/Hyd/16
:- 8 -: & ITA Nos. 991 & 992/Hyd/16
4. Next ground of appeal is as follows:
5. The Ld. CIT(A) erred in directing the addition of Rs.6,08,95,308/- which was disallowed by AO as the interest bearing funds were found to be utilize for giving interest free loans to sister concerns.
4.1. The facts of this issue are that the Special Auditor has pointed out that the assessee had advanced interest free loans to the Land Owning Companies and its related companies. It had estimated the accrual of notional interest @ 10.5% on proportionate Interest Free Advances given in the earlier year and at the same rate, after including the identified Third Parties as Related Parties and also after examining the Average Fund Flow i.e., Average Total Funds available and Average Funds Advanced to Related parties, the ratio of 8.80% has been considered by the AO to arrive at the Notional Interest chargeable @ 10.5% on the proportionate Interest Free Advances and disallowed an amount of Rs. 6,08,95,308/-.
4.2. The Ld.CIT(A) by following the earlier order of the Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014, deleted the addition. Against which, the Revenue is in appeal before us.
4.3. We have heard the rival contentions and perused the material available on record. Admittedly in earlier year, similar issue in assessee's own case came up for consideration before this Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014. In the said case, the Co-ordinate Bench of the Tribunal has decided the issue as under:
ITA Nos. 1000 & 1001/Hyd/16 :- 9 -: & ITA Nos. 991 & 992/Hyd/16 "34. We have heard both the parties and perused the record. The revenue authorities disallowed the notional interest on the amounts advanced to sister concerns on the reason that interest bearing borrowed funds were used by the assessee for non-business purposes. However, the assessee made a plea before us that it is having enough own funds in the form of share capital, reserves and surplus, interest free advance from customers and deposits and the funds were diverted to the sister concern for business purpose which are in the similar nature of business of the assessee. Being so, it cannot be considered that the assessee used the interest bearing funds for non-business purposes. The assessee also placed reliance on the judgment of the Hon'ble Supreme Court in the case of SA Builders Ltd., Vs. CIT, 288 ITR 1 (SC). In our opinion, before disallowance of notional interest it is incumbent upon AO to establish that there is a nexus between the amount diverted and interest incurred by the assessee. Even if assessee has diverted interest bearing funds to the sister concern, then it is business decision taken by the assessee to make such an investment and even if it has resulted no income to the assessee, notional interest cannot be disallowed on the reason that assessee should have used its non-interest bearing funds for the purpose of business instead of using borrowed funds. The AO cannot sit in the arm chair of businessman and decide what the assessee has to do to maximize its profit. In our opinion, the judgment relied upon by the learned AR of the assessee in the case of SA Builders (supra) and also coordinate bench decision in the case of SSPDL Ltd. Vs. DCIT, 24 ITR(Trib.)(Hyd.) 290 also support the case of the assessee. Accordingly, this ground is allowed".
4.4. Now the contention of the DR is that the assessee has not proved commercial expediency to advance the money to the sister concern at free of interest.
4.5. On the contrary, Ld.AR submitted that it was in possession of customer advances to the tune of Rs. 635.50 Crores and CCD's worth Rs. 600 Croes which do not bear interest. Out of which the assessee advanced Rs. 625.85 Crrores for meeting its business requirements and such advances are for meeting its business requirements. Whereas amounts borrowed from bank is only Rs. 126.18 Crores and the said amounts were utilized for working capital requirements. It is also submitted that no interest can be held as income on notional basis where no interest has ITA Nos. 1000 & 1001/Hyd/16 :- 10 -: & ITA Nos. 991 & 992/Hyd/16 actually been charged. There is no provision in the Act which empowers the AO to charge notional interest on interest-free loans given to sister concerns.
4.5.i. Without prejudice to the above, it is also submitted by AR that the advances made to the subsidiaries and others are either for the purpose of acquiring the lands or blocking developmental rights against the properties held by the said companies. Therefore, the advances were made for the purpose of business activity of the assessee. Assessee is in the business of real estate and the subsidiaries are also in the same business.
Assessee was intending to promote the developmental activities with the subsidiaries who are also in the same line of business. Assessee also submitted that:
a. The amounts are advanced from out of interest free funds and;
b. The amounts were advanced for the purpose of carrying on the business activity;
4.5.ii. Further, it was submitted that Income Tax is chargeable only on real income. The assessee, while paying the advance, did not intend to collect interest from the recipient companies as advances are business advances. The said companies also did not undertake to pay interest on such advance and hence no right accrued to assessee to charge any interest.
There is no obligation for the recipients to pay interest on the advances. Hence, the AO is not justified in assuming that income ITA Nos. 1000 & 1001/Hyd/16 :- 11 -: & ITA Nos. 991 & 992/Hyd/16 accrued to assessee. It is also submitted that all the subsidiaries except three are merged with assessee-company w.e.f. 01-04-2015.
4.6. We have heard the rival submissions. In our opinion, assessee has to demonstrate that assessee has not borrowed any money to lend to its sister concern and it has lent its own funds or lent non-interest bearing funds and not resulted in any additional interest cost to assessee. Whenever the assessee advanced interest free funds to subsidiaries, there cannot be any disallowance of notional basis. It is the duty of assessee to demonstrate the above facts before the AO. In the present case, CIT(A) blindly followed the earlier order of the Tribunal without going into the actual facts of the case. In other words, CIT(A) has not gone into the money advanced to the sister concern as a measure of commercial expediency and only in such cases, no notional interest could be disallowed. With these observations, we remit the issue-in-dispute to the file of the AO with a direction to assessee to demonstrate that interest free funds are available with assessee as on date of advance to the sister concern and it is on account of commercial expediency so as to apply the ratio laid down by the Hon'ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT [288 ITR 1] (SC) and Hero Cycles (P) Ltd., Vs. CIT [379 ITR 347] (SC). With these observations, we remit the issue-in-dispute to the file of AO for his consideration. This ground is partly allowed for statistical purposes.
5. The next ground in Revenue's appeal is as follows:
6. The ld. CIT(A) erred in directing to allow the payments made through banking channels that it bearer cheques etc. and disallow ITA Nos. 1000 & 1001/Hyd/16 :- 12 -: & ITA Nos. 991 & 992/Hyd/16 only 10% of the expenditure in respect of addition of Rs. 2,34,06,450/- made for non-submission of bills of expenditure.
5.1. The above ground is with regard to the disallowance of expenses amounting to Rs.2,34,06,450/-. It is seen that the AO has disallowed the above expenditure as there were no supporting evidences for establishing the genuineness of the payments. In the course of the appellate proceedings, it was submitted that the AO disallowed the expenditure like telephone charges, monthly consultant charges, legal expenses, professional charges, house- keeping, security charges, wages, water charges, building WIP charges etc. without observing that all such expenditure was incurred wholly for the purpose of the Hill County project and the expenditure would therefore, be liable to be borne by the assessee. It was further submitted that all these payments have been made through regular banking channels of the assessee's bank accounts which can be verified from the bank statements including deduction of TDS applicable, if any.
5.2. The Ld.CIT(A) observed and gave a finding that the bills in respect of these expenses were either in the name of a sister concern or not available at all. The assessee argued that the expenses were paid for by cheque and assets in question are borne on the books of the assessee. The assessee further relied on para 38 of the ITAT's order in its case for AY 2008-09. Seen in the light of the assessee's submissions CIT(A) considered and held that the Tribunal in earlier year similar facts observed, that the mere fact of the bill being in the name of a sister concern will not go against the assessee unless there is a double claim or any adverse finding regarding the genuineness of the expenditure. In the matter of a ITA Nos. 1000 & 1001/Hyd/16 :- 13 -: & ITA Nos. 991 & 992/Hyd/16 depreciation claim the bill is only one of the documentary evidences possible to establish ownership. If the exclusive ownership of the impugned asset can be established by any other means - in the present case by collection of a cheque payment by a party selling the item in the fixed assets register, depreciation on such assets should be allowed. Such a verification that no double claim is made was in fact directed by the Tribunal in AY. 2008-09, and in AY. 2009-10. Finally, he directed the AO to allow the claim in line with the verification so made. Accordingly, he allowed this ground. Against the order of the CIT(A), Revenue is in appeal before us.
5.3. We have heard the rival contentions and perused the material available on record. Admittedly in earlier year, similar issue in assessee's own case came up for consideration before this Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014. In the said case, the Co-ordinate Bench of the Tribunal has decided the issue as under:
"17. We have heard both the parties and perused the material on record. The reason for disallowing this expenditure is that the special auditor made an observation that no supporting evidence for these payments for establishing genuineness of the payment has been filed. Before us, the learned AR submitted that these payments were made through cheques and out of total payment of Rs. 1,75,70,005/-, the DRP accepted the payment of Rs. 26,72,773/- as genuine and there is no reason for disallowing of Rs. 1,48,97,232/-. The payment has been by way of cheque and being so the expenditure is to be allowed. Considering the request of the assessee's counsel, we are inclined to direct the AO not to disallow the payments which are made by way of cheque and in respect of cash expenses there is every chance of inflating the same. Accordingly, we direct the AO to disallow 10% of cash expenses made by cash payments. This ground is partly allowed".
ITA Nos. 1000 & 1001/Hyd/16 :- 14 -: & ITA Nos. 991 & 992/Hyd/16 5.4. Further, similarly for AY. 2009-10 in ITA No. 1644/Hyd/2014 dt. 22-05-2015, the Tribunal held as follows:
"40. As regards the issue involved in additional ground No.1 of the Revenue, relating to disallowance of various expenses amounting to Rs.5,72,62,133 proposed to be made by the Assessing Officer on the ground that the bills produced by the assessee company in support of the said expenses were not in its name, but were in the name of other group companies, it is observed that a similar issue as involved in ground No.2 originally raised in the appeal of the Revenue has already decided by us in the foregoing portion of this order by following the decision of the coordinate bench in assessee's own case for assessment year 2008-9. Following the said decision, we uphold the impugned order of the DRP directing the Assessing Officer to verify the relevant expenses and if it is found on such verification that the payments are made by the assessee company by cheque and the same expenses are not claimed by the other group companies, in whose names the relevant bills are issued, the same may be allowed as deduction in the case of the assessee. Additional Ground No.1 of the Revenue's appeal is accordingly dismissed".
5.5. In view of this, we remit the issue to the file of the AO not to disallow the payments which are made by account payee crossed cheques and if it is proved that it is wholly and exclusively incurred for the purpose of business. However, in the case of cash payment, assessee has to prove the genuineness of the payments and also to prove that there is no inflation of any expenditure. If the AO finds that there is inflating expenditure, 10% of such cash payment is to be disallowed. In view of this we remit the issue to the file of AO for fresh consideration.
6. The next ground in Revenue's appeal is as follows:
7. The ld. CIT(A) erred in deleting the addition of Rs.2,48,43,132/- made by the AO being the prior period expenditure which not relatable to AY. under consideration.
ITA Nos. 1000 & 1001/Hyd/16
:- 15 -: & ITA Nos. 991 & 992/Hyd/16
6.1. As far as this ground is concerned, the assessee challenged the disallowance of prior period expenditure amounting to Rs.2,48,43,132/- before CIT(A). The AO noticed that the above sum of expenditure belongs to an earlier accounting period and therefore proposed to disallow the same. The assessee submitted that there was a difficulty in obtaining the bills and providing for the expenditure in view of the ongoing nature of the project. It was submitted that such difficulties were common in the realty sector. It was further submitted that the claim of expenditure in any case was an annual estimate and the materiality of the expense was never in question. Reliance was also placed on a decision of the Delhi High Court in the case of CIT vs. Vishnu Industrial Gases. The AO was not inclined to consider this explanation and proceeded with the disallowance of Rs.2,48,43,132/-.
6.2. The Ld.CIT(A) observed that as seen from the assessment order that in making the disallowance, the AO at para 11.2 considered that under the mercantile system of accounting expenditure pertaining to AY 2010-11 should be recognised only in AY 2010-11. Admittedly, the bills were for value received in an earlier accounting period. But they were accounted for as soon as they were received and paid for. It is seen from the order that the payments were made by cheque, and the genuineness of such expenditure was never an issue. It is in this context that the assessee's arguments on materiality of expenditure should be seen. It is not uncommon that ascertainment of a claim or its recognition in books or accounts spills over into a subsequent accounting period. While expenditure should normally be claimed in the year of account to which it pertains, this should not be seen as a ITA Nos. 1000 & 1001/Hyd/16 :- 16 -: & ITA Nos. 991 & 992/Hyd/16 prohibition on prior period expenses. On the facts of the case brought out in the 'particulars' column of the expenditure break- up on page 36 & 37 of the assessment order, and the specific nature of the assessee's project with its income recognition model, it is held that delay in ascertainment of the expenditure claimed is not unreasonable. The claim of expenditure as a prior period item therefore, was deleted by the CIT(A). Against this, the Revenue is in appeal before us.
6.3. We have heard the rival contentions and perused the material available on record. The contention of the Ld.DR is that assessee is following the mercantile system of book keeping and as such prior period expenditure cannot be allowed. Ld.AR submitted that out of this, majority expenditure is relating to tax payments which is covered by Section 43B of the Act and it will be allowed on actual basis. He further submitted that expenditure is crystalised in the assessment year under consideration and accordingly it is to be allowed. In our opinion, if it is statutory payment covered by Section 43B, it is to be allowed on actual payment basis. In respect of other payments which are not covered by the provisions of Section 43B, it cannot be allowed in the assessment year under consideration which is not relating to the assessment year under consideration. More so, the assessee is following the mercantile system of book keeping which is on accrual basis. Accordingly, we remit the issue-in-dispute to the file of AO for fresh consideration. This ground is partly allowed for statistical purposes.
ITA Nos. 1000 & 1001/Hyd/16
:- 17 -: & ITA Nos. 991 & 992/Hyd/16
7. The next ground in Revenue's appeal is as follows:
8. The ld. CIT(A) erred in directing to verify whether the deductee has paid the taxes and to allow the expenses if so, while the provisions of section 40(a)(ia) mandates disallowances of expenditure where TDS was not done.
7.1. The sum of Rs 8,61,52,185/- is an expenditure on account of interest towards ICD from Maytas Infra Ltd. It is seen from page 76 of the assessment order that the assesse had represented before the AO that the payee has considered the same as income in its return of income for the AY.2010-11. The AO, however, was not inclined to accept this explanation and held:
"Mere offering of income by the 3rd party will not indemnify the assessee from discharging its liabilities."
7.2. In appellate first proceedings, the arguments were reiterated in the written submissions. The Company also furnished in its Paper Book TDS certificates evidencing deduction at the end of the next accounting period, and account copies from its books recording the entries passed.
7.3. The CIT(A) observed that the provisions of Section 40(a)(ia) are primarily to help in the enforcement of compliance with TDS provisions. In so far as taxes relatable to a given transaction are realised the operation of the negative sanction contained in section 40(a)(ia) becomes redundant. A similar issue was considered by the Tribunal in the case of the assessee- company in ITA 1404/Hyd/2013. It endorsed a decision of the Cochin Bench in the case of Antony. DMundacakal Vs. ACIT in ITA No. 38/Cochin/2013, dated 29-11-2013 which relied, inter-alia on ITA Nos. 1000 & 1001/Hyd/16 :- 18 -: & ITA Nos. 991 & 992/Hyd/16 the Supreme Court decision in the case of Hindustan Coco-Cola Beverages Ltd. [293 ITR 226] wherein it was held that Revenue is not entitle to recover tax from payer if recipient has declared the payments in his return of income. It was, therefore, directed at para 56.2 that the AO should examine whether the recipient had paid its taxes or not on this payment. In the event taxes were paid by the recipient this disallowance in the hands of the assessee should be deleted.
7.4. It was also observed that the amendment brought about vide Finance Act, 2012 if the payment in question has been accounted for as income by the payee it cannot be disallowed u/s 40(a)(ia) in the hands of the payee. It was held by the Tribunal in the case of DCIT Vs. AP Industrial Infrastructure Corporation Ltd., ITA No. 1806 & 1807/Hyd/2013 dated 04-09-2015 that the proviso inserted w.e.f. 01-04-2013 is declaratory and clarificatory in nature and therefore has retrospective effect from 01-04-2005. The assessee is also supported in the matter by the decision of the Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. [2009] 319 ITR 306. Though this decision was rendered in the context of section 43B, it held that as a rule of interpretation a provision amended to remove unintended consequences is necessarily retrospective in operation. Against this, the Revenue is in appeal before us.
7.5. We have heard the rival contentions and perused the material available on record. Admittedly in earlier year, similar issue in assessee's own case came up for consideration before this Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014. In the said ITA Nos. 1000 & 1001/Hyd/16 :- 19 -: & ITA Nos. 991 & 992/Hyd/16 case, the Co-ordinate Bench of the Tribunal has decided the issue as under:
"56.2 Following the decision of the coordinate bench of ITAT, Cochin in the case of Antony D. Mundackal Vs. ACIT(supra), we direct the Assessing Officer to see whether the recipient has paid tax or not on this payment and decide the issue in accordance with law. Further, short deduction of TDS and remittance of the same cannot be a reason for disallowance u/s 40(a)(ia) as held by the Hon'ble Calcutta High Court in the case of Tekriwal (supra). This ground is partly allowed for statistical purposes".
7.6. However, in our opinion, assessee has to prove that recipient of such income has declared the same in the return of income and paid tax on it. However, in the present case, assessee has not demonstrated this fact as such we are not in a position to appreciate the argument of the Ld.AR that recipient has paid the tax on the said income. Accordingly, the issue is remitted to the file of AO for fresh consideration with a direction to assessee to demonstrate that recipient of the said income has disclosed the same in their return of income and paid taxes thereon. Accordingly, we remit this issue to the file of AO for fresh consideration. This ground is partly allowed for statistical purposes.
8. The next ground of appeal in Revenue's appeal is as follows:
9. The ld. CIT(A) erred in deleting the addition made under section 40(a)(ia) for short deduction of tax, observing that short deduction of tax does not extract the provisions of section 40 (a)(ia) of the I.T. Act.
8.1. In this ground the Revenue challenges the allowance of Rs. 2,41,06,046/- u/s. 40(a)(ia) on account of short deduction of taxes. It is seen that the AO disallowed the above expenditure ITA Nos. 1000 & 1001/Hyd/16 :- 20 -: & ITA Nos. 991 & 992/Hyd/16 which is debited to Profit & Loss A/c u/s. 40(a)(ia) on the ground that TDS was short deducted.
8.2. The CIT(A) observed that the assessee is a Principal Contractor/Principal Employer who in turn has appointed a sub- contractor to execute the project. On the payments being made by assessee to sub-contractors, the assessee has deducted tax at source @1% but the AO disallowed the entire amount of the sub- contract expenditure on which TDS was deducted @ 1.133% though there is only short deduction of TDS. It was further urged that provisions of section 40(a)(ia) are triggered only if tax is not withheld or after withholding it is not paid. If tax is withheld at a lower rate, the provisions of the above section do not get attracted. For this proposition reliance was placed on a decision of the Calcutta High Court in the case of CIT Vs. S.K. Tekriwal, ITA No.183 of 2012 and another decision of the Mumbai Bench of the Hon'ble ITAT in the case of DCIT Vs. M/s. Chandabhoy & Jassobhoy, ITA No.20/Mum/2010. It was further submitted that similar disallowance made in AYs 2008-09 & 2009-10. In AY 2008- 09 the DRP's directions to delete the addition was upheld by the Tribunal to the extent that the payee had paid taxes on this amount. A similar view was taken by the DRP for AY. 2009-10 also.
8.3. The Ld.CIT(A) deleted addition by placing reliance on the earlier order of Tribunal, in assessee's own case in ITA No. 1404 and 1373/Hyd/2013, wherein it was held as under:
"78. After hearing the parties, perusing the record as well as the orders of the revenue authorities, we find that the Hon'ble Kolkata Tribunal in the case of SK Tekriwal (Infra) has held that the disallowance u/s 40a(ia) is not applicable in the case of short ITA Nos. 1000 & 1001/Hyd/16 :- 21 -: & ITA Nos. 991 & 992/Hyd/16 deduction of TDS. It was held that if there is a shortfall due to a difference of opinion, the tax payer may be treated as a defaulter u/s 201 but no disallowance can be made u/s 40a(ia). In view of the above, we do not find any infirmity in the order of the DRP, hence, the same is hereby upheld dismissing the grounds raised by the revenue".
Against the order of the CIT(A), Revenue is in appeal before us.
8.4. We have heard the rival contentions and perused the material available on record. Admittedly in earlier year, similar issue in assessee's own case came up for consideration before this Tribunal in ITA No. 1404/Hyd/2013 dt. 06-06-2014. In the said case, the Co-ordinate Bench of the Tribunal has decided the issue in favour of assessee in para 78 as above.
8.5. In view of the above, we are inclined to dismiss this ground of appeal taken by the Revenue.
9. In the result, appeal of Revenue in ITA No. 1000/Hyd/2016 (AY.2010-11) is partly allowed for statistical purposes.
ITA No. 991/Hyd/2016 AY.2010-11 (Assessee's Appeal):Ground-wise discussion is as under:
Ground No.2. The learned Commissioner of Income-Tax (Appeals) ought to have directed the Assessing officer to delete the addition made of Rs.41,78,480/- as such payments were made by the appellant through the banking channels for the purpose of appellant's business.
10. After hearing both the parties, we are of the opinion that this ground does not require any adjudication as the similar ITA Nos. 1000 & 1001/Hyd/16 :- 22 -: & ITA Nos. 991 & 992/Hyd/16 issue of Revenue appeal, discussed above, has been remitted to the file of AO for fresh consideration in para Nos. 2 to 2.5 of this order. Accordingly this ground is dismissed as infructuous.
The next grounds of appeal are as follows:
3. The learned Commissioner of Income-Tax (Appeals) erred in not deleting the addition made of Rs.8,61,52,185/-. The learned Commissioner of Income-Tax (Appeals) ought to have seen that no such addition could be made by the Assessing officer.
4. The learned Commissioner of Income-Tax (Appeals) ought to have considered the fact that the amounts were paid to MAYTAS Infra Ltd., which is separately assessed to tax.
5. Alternatively, the learned Commissioner of Income-Tax (Appeals) ought to have directed the Assessing officer to allow the amount in the year in which the TDS was paid to the credit of the Government.
6. The learned Commissioner of Income-Tax (Appeals) erred in confirming the addition made of Rs.39,76,803/- when the amount was actually paid during the previous year and when the provisions of Sec.40(a)(ia) are not applicable.
7. The learned Commissioner of Income-Tax (Appeals) erred in confirming addition of Rs.1,69,000/- which was actually paid during the previous year.
11. After hearing both the parties, we are of the opinion that these grounds does not require any separate adjudication as the similar issues in Revenue appeal vide Ground Nos. 8 & 9, discussed in para Nos. 7 & 8 of this order, which have been remitted to the file of AO for fresh consideration. Accordingly these grounds are also dismissed as infructuous.
12. In the result appeal of assessee in ITA No. 991/Hyd/2016 (AY. 2010-11) is dismissed.
ITA Nos. 1000 & 1001/Hyd/16
:- 23 -: & ITA Nos. 991 & 992/Hyd/16
ITA No. 1001/Hyd/2016 AY.2011-12 (Revenue's Appeal):
13. Ground-wise discussion is as under:
1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to verify that whether the company on whose name bills were there, has claimed the expenditure to the tune of Rs.5,64,273/- which was disallowed u/s.37(1) as bills were not in the name of assessee company.
13.1. After hearing both the parties, we are of the opinion that as the similar issue was considered in Revenue appeal in ITA No. 1000/Hyd/2016, as discussed above has been remitted to the file of AO for fresh consideration. Accordingly this ground is remitted to AO for fresh consideration.
14. Next ground by Revenue in as follows:
2. The learned CIT(A) erred in directing the AO to allow the payments made through banking channels that is a bearer cheque etc., and disallow only 10% of the expenditure of the cash expenditure of Rs.2,67,10,513/-which was disallowed u/s37(1) for non-submission of bills of expenditure.
14.1. After hearing both the parties, we are of the opinion that as the similar issue in Revenue appeal in ITA No. 1000/Hyd/2016, discussed above has been remitted to the file of AO for fresh consideration. Accordingly this ground is remitted to the file of AO on similar direction.
15. The next ground in Revenue's appeal is as follows:
3. The ld. CIT(A) erred in deleting the addition of Rs.9,10,000/-
made by AO being the prior period expenditure which not relatable to AY in consideration.
ITA Nos. 1000 & 1001/Hyd/16
:- 24 -: & ITA Nos. 991 & 992/Hyd/16
15.1. After hearing both the parties, we are of the opinion that as the similar issue in Revenue appeal in ITA No. 1000/Hyd/2016, discussed above has been remitted to the file of AO for fresh consideration. Accordingly this ground is remitted to AO for fresh consideration.
16. The next grounds in Revenue's appeal is as follows:
4. The Ld. CIT(A) erred in deleting the addition of Rs.1,42,02,401/-
made u/s 40(a)(ia) of the IT. Act.
a. The CIT(A) erred in deleting the addition of Rs.1,00,00,000/- made u/s. 40(a)(ia) of the IT. Act on the ground that it is a mere provision and hence no tax is deductible at source.
b. The CIT(A) ought to have enhanced the income, as the said expenditure is not an ascertained liability and its being a mere provision.
16.1. After hearing both the parties, we are of the opinion that as the similar issue in Revenue appeal in ITA No. 1000/Hyd/2016, discussed above has been remitted to the file of AO for fresh consideration. Accordingly this ground is remitted to AO on similar directions.
17. The next ground in Revenue's appeal is as follows:
5. The earned CIT(A) erred in deleting the addition made u/s40(a)(ia) for short deduction of tax, observing that short deduction of tax does not attract the provision of section 40(a)(ia) of the IT. Act.
17.1. After hearing both the parties, we are of the opinion that as the similar issue in Revenue appeal in ITA No. 1000/Hyd/2016, discussed above has been dismissed. Accordingly this ground is dismissed as infructuous.
ITA Nos. 1000 & 1001/Hyd/16 :- 25 -: & ITA Nos. 991 & 992/Hyd/16
18. In the result, appeal of Revenue in ITA No.1001/Hyd/2016 (AY. 2011-12) is partly allowed for statistical purposes.
ITA No. 992/Hyd/2016 AY.2011-12 (Assessee's Appeal):19. Ground-wise discussion is as under:
2. The learned Commissioner of Income-Tax (Appeals) ought to have directed the Assessing officer to delete the addition made of Rs.5,64,273/- as such payments were made by the appellant through the banking channels for the purpose of appellant's business.
19.1. After hearing both the parties, we are of the opinion that this ground does not require any adjudication as the similar issue of Revenue appeal discussed above has been remitted to the file of AO for fresh consideration. Accordingly this ground is dismissed as infructuous.
20. The next ground in assessee's appeal is as follows:
3. The learned Commissioner of Income-Tax (Appeals) ought to have directed the Assessing officer to delete the disallowance of expenditure Rs.28,19,190/- without requiring any further verification as the payments do not attracts the provision of sec.194C of the Income Tax Act, 1961.
20.1. After hearing both the parties, we are of the opinion that this ground does not require any adjudication as the similar issue of Revenue appeal discussed above has been remitted to the file of AO for fresh consideration. Accordingly this ground is dismissed as infructuous.
ITA Nos. 1000 & 1001/Hyd/16
:- 26 -: & ITA Nos. 991 & 992/Hyd/16
21. The next ground in assessee's appeal is as follows:
4. The learned Commissioner of Income-Tax (Appeals) erred in confirming addition of Rs.1,50,000/- which was actually paid during the previous year.
21.1. After hearing both the parties, we are of the opinion that regarding this payment, the Ld.AR of assessee did not raise any argument controverting the findings of CIT(A). Accordingly, this ground of appeal is dismissed.
22. In the result, appeal of assessee in ITA No. 992/Hyd/2016 (2011-12) is dismissed.
23. To sum-up, both the appeals of Revenue are partly allowed for statistical purposes and both the appeals of assessee are dismissed.
Order pronounced in the open court on 7th August, 2017 Sd/- Sd/-
(P. MADHAVI DEVI) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 7th August, 2017
TNMM
ITA Nos. 1000 & 1001/Hyd/16
:- 27 -: & ITA Nos. 991 & 992/Hyd/16
Copy to :
1. The Addl. Commissioner of Income Tax, Central Range-3, Hyderabad.
2. The Asst. Commissioner of Income Tax, Central Circle- 3(2), Hyderabad.
3. M/s. Hill County Properties Ltd., (Formerly Maytas Properties Ltd.,) C/o. Sri S. Rama Rao, Advocate, Flat No. 102, Shriya's Elegance, 3-6-643, Street No. 9, Himayat Nagar, Hyderabad.
3. CIT (Appeals)-11, Hyderabad.
4. Pr.CIT(Central), Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.