Income Tax Appellate Tribunal - Hyderabad
Demi Realtors, Chennai vs Assessee on 30 September, 2016
ITA No 1364 of 2014 Demi Realtors Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'A ' Bench, Hyderabad
Before Smt. P.Madhavi Devi, Judicial Member
& Shri S. Rifaur Rahman, Accountant Member
ITA No.1364/Hyd/2014
(Assessment Year: 2008-09)
M/s. Demi Realtors Dy. Commissioner of Income
Hyderabad Vs. Tax, Circle 14(1)
PAN: AAFFD 9401 P Hyderabad
(Appellant) (Respondent)
For Assessee : Shri J. Prabhakar
For Revenue : Shri A. Sitarama Rao, DR
Date of Hearing : 2.8.2016
Date of Pronouncement : 30.9.2016
ORDER
Per Smt. P. Madhavi Devi, J.M.
This is assessee's appeal for the A.Y 2008-09 against the order of the CIT (A) in confirming the order passed by the AO u/s 201(1) and 201(1A) of the Act.
2. Brief facts o the case are that there was a TDS survey u/s 133A was conducted on the business premises of the assessee on 14.12.2010 to verify the adherence of TDS provisions by the assessee. During the said proceedings, it was learnt that the assessee has deducted tax at source, but has not filed quarterly statement for the financial year relevant to the A.Y 2008-09. Various details were called for which were filed by the assessee. The AO considered the said details and observed that the assessee has not filed the statements (returns of TDS) as prescribed under the I.T. Act and further that the assessee had Page 1 of 9 ITA No 1364 of 2014 Demi Realtors Hyderabad deducted a sum of Rs.92,79,396, but has not remitted the same to the Central Govt. A/c., He, therefore, treated the assessee as "an assessee in default" u/s 201(1) to the extent of Rs.86,26,425 and also levied interest of Rs.35,42,890 u/s 201(1A), a total of which comes to Rs.1,21,69,325. Aggrieved the assessee preferred an appeal before the CIT (A) along with various details. The CIT (A) called for a remand report from the AO and after considering the same at length has held as under:
"4.8 Perused the submissions of the appellant and the order/report of the A.O. As could be seen from the facts of the case, the appellant firm is engaged in the business of real estate and during the year under reference, has entered into an MoU dated 21.05.2007 with M/s. Sai Surya Realtors & Developers for settling all disputes and making good the title of the properties located at Narsingi Village (Ac 5.06 Guntas) for the purpose of sale of same to DLF Group. Accordingly, the agreed amount of Rs. 5.00 crores was paid as commission and TDS was deducted as per the entries made in the books of the appellant, as traced during the course of survey proceedings conducted. However, it was found that the amounts deducted were not remitted to Govt. Account. The sale deed was also shown to have been executed on 24.08.2007, for sale of said property. The A.O initiated and levied penalty u/s. 201 and charged interest ujs. 201(lA) for the said default of non-remittance of deducted amounts. However, the appellant raised the ground against such penalty/interest, holding that the amounts paid were representing the advances, subject to clearance of disputes/titles and with the dispute cropped up later, the amounts were ordered to be repaid with interest, as per the award by Arbitration Authority. Accordingly, as per the appellant, there is no liability for making the TDS on such payments, and the said amounts are ordered for repayments by the deductee, as such there was no liability to remit the amount to Govt. Account. The main argument of the Page 2 of 9 ITA No 1364 of 2014 Demi Realtors Hyderabad appellant was that partners of the firm were not conversant with I.T. procedures and accounts and as such the retention money was shown as commission in books of firm and the entries made in books of account may not be taken as determinative of the tax liability. It was also contended by the appellant that substance of transaction be appreciated on the basis of MoU and the subsequent dispute/arbitration proceedings between the parties to MoU. However, it was a fact that the appellant remitted certain amounts to the Govt. Account before the levy of penalty as well as subsequently. As per the informatin brought on record, the amount failed to be deducted as TDS was Rs.92,79,396 against which the appellant deducted Rs.92,79,396 but have remitted only Rs.10,65,235 before passing the order u/s 201(1), thus the TDS payable was determined at Rs.86,26,435, while giving a credit only for Rs.6,52,961. Thus, interest (Rs.25,42,890) was levied u/s 201(1A) on the liable/payable amount of Rs.86,26,435 as against the actual payable amounts of Rs.82,14,161. It was also submitted and ratified by the AO that appellant remitted a total amount of Rs.21,68,320 and the appellant requested for giving credit for the said amounts, for calculating the penalty amounts and nterest u/s 201(1A).
4.9. As could be observed, the appellant entered into MoU with M/s Sai Surya Realtors & Developers for certain activities/ services and paid a commission of Rs.5.00 crores, on which tax of Rs.92,79,396 was also deducted. It was only the subsequent development of not fulfilling the contractual obligation on the part of the other party, enabled the appellant to take a stand that the amounts are nothing but retention money, which was ordered by the Arbitration Authority for repayment. In this regard it is pertinent to mention here that the said contract/MoU was implemented and the property under reference was also registered, subsequent to the date of MoU, forcing the appellant to fulfil the obligation of payment of commission on which the liability of TDS has arisen, which was in fact complied by the appellant by deducting the amounts Page 3 of 9 ITA No 1364 of 2014 Demi Realtors Hyderabad to the extent of Rs.92,79,396. It was only the post thought to show the amount paid as retention money, since the subsequent litigation by the third party was not foreseen/anticipated by the parties to the MoU. As on the date of payment, there was an obligation on the part of appellant which was complied by deduction of TDS. It was the default of non-remitting the amounts as on the date of levy of penalty, which is the main issue for the proceedings under reference. Relevant TDS provisions of the Act only contemplate the deduction on the amounts payable or paid, as the case may be, unless a certificate for deduction of tax at lower rate or NIL is obtained by the deductee. In this case, the amounts were paid by appellant as commission, as per the terms of MoU dated 21.05.2007 and it was only subsequent to the payment of such amount, it was treated as retention money, subject to the fulfilment of certain conditions stipulated therein. As on the date of payment, there was obligation on the deductor to deduct the tax on the commission paid, which infact was complied with, however the default was, as stated, on account of non-remittance of the amounts into Govt. Account. It may also be relevant that appellant also remitted a part of such amounts before the orders u/s. 201(1) & 201(lA) and some· amounts subsequently, totalling to Rs. 21,68,320/-. Once the deductions were made, part of the amounts remitted, it may not be correct on the part of the appellant to argue that there was no liability cast on him for making TDS on the amounts of Rs. 5.00 crores paid to M/s. Sai Surya Realtors & Developers and remit the same to Govt. Account as stipulated in the Act. It is an established fact that where a transaction takes place, there lies the liability for deduction of tax as on the date of transaction, without any reference to the future of such transaction. The appellant was liable for making TDS on the entire amounts of Rs. 5.00 crores and was also under obligation to remit the amounts to Govt. Account and having failed to remit the said amounts to Govt. Account, the appellant is liable to be treated as assessee in default and levy of penalty u/s. 201 is justified. Similarly, the interest u/s 201(lA) is Page 4 of 9 ITA No 1364 of 2014 Demi Realtors Hyderabad leviable on the amounts of default or remittance, till the date of remittances, since charging of interest u/s 201(1A) is consequential. The AO however, is directed to give credit for the amounts of Rs.21,68,320 remitted to the Govt. Account till date, while levying the penalty u/s 201 and reduce the interest u/s 201(1A) proportionately. On these lines, the appeal is treated as PARTLY ALLOWED".
3. Aggrieved by the order of the CIT (A), the assessee is in second appeal before us.
4. The learned Counsel for the assessee, while reiterating the submissions made before the authorities below, has submitted that the said expenditure has also been disallowed u/s 40(a)(ia) and treating the assessee as "an assessee in default" u/s 201(1) and levying of interest u/s 201(1A) is nothing but double jeopardy. He also justified the non remittance of the TDS from the payment of Rs.5.00 crores as commission, on the ground that there was an arbitral award in which there was a clear direction to repay a sum of Rs.5.00 crores thereby making the entire disallowance of the said sum u/s 40(a)(ia) and consequent levy of interest u/s 201(1) and 201(1A) OTEIOSE. Thus, according to him, the order of the AO and the CIT (A) needs to be set aside. The learned DR, however, supported the orders of the authorities below and submitted that the assessee having deducted the tax at source from the payment of Rs.5.00 crores to Sai Surya Realtors and Developers, ought to have remitted the same to the govt. a/c as stipulated in the Act. It was submitted that the assessee's reliance upon the subsequent events for non compliance of its obligations is not justified.
Page 5 of 9ITA No 1364 of 2014 Demi Realtors Hyderabad
5. Having regard to the rival contentions and the material on record, we find that the liability of the assessee to deduct the tax at source and obligation to remit the same to the govt. a/c arises on making of the payment or crediting the party's a/c whichever is earlier. In the case before us, the assessee has made payment of Rs.5.00 crores and has also deducted the tax at source. Having done so, it is the obligation of the assessee to remit the same to the govt. a/c. Contention of the assessee justifying the non-remittance of the TDS amount into Govt. a/c on the ground that there was a dispute with regard to the compliance of the conditions of the contract and that the assessee had to approach the Arbitrator and further that the arbitral award subsequently directed the deductor to repay the amount, is not acceptable. The dispute that has arisen, is arisen subsequent to the lapse of time for deposit of the sum into the govt. a/c. Therefore, the assessee is not justified in stating that the TDS was not remitted to the govt. a/c as there was a dispute. The assessee ought to have complied with the provisions of the law and thereafter if the arbitral award was complied with and the amount returned, the assessee could have made the claim for refund in accordance with the provisions of law. As far as the assessee's obligation is concerned, we are satisfied that the assessee has not fulfilled the obligation during the relevant period and therefore, the assessee was rightly treated as an assessee in default u/s 201(1) and was also rightly correctly levied interest u/s 201(1A) of the Act.
5.1 As regards assessee's argument that there is a double jeopardy by disallowance of expenditure u/s 40(a)(ia) and also treating the assessee as "an assessee in default" u/s 201(1) of the Page 6 of 9 ITA No 1364 of 2014 Demi Realtors Hyderabad Act, we are not inclined to accept the assessee's contention for the following reasons:-
U/s 40(a)(ia), the disallowance is of the claim of deduction in computing the income chargeable to tax whereas u/s 201(1), the assessee is deemed to be "an assessee in default" in respect of tax deducted but defaulted in remittance u/s 200(1). The scope of both the sections is different and both are mutually exclusive. Further, in the case of Tube Investments of India Ltd and Another v. ACIT (TDS) & Others, reported in (2010) 325 ITR 610 (Mad.), the Hon'ble Madras High Court has considered this issue at length while considering the constitutional validity of section 40(a)(ia) and held as under:
"67. One other argument made on behalf of the petitioners is that when under Chapter XVII-B stringent provisions have been made for imposing penalty, interest etc., for committing any default in making the TDS, creating a disallowance of the entirety of the expenses should be held to be arbitrary or unreasonable and violate Articles 14 and 19(1)(g) of the Constitution. As far as the said submission is concerned, with reference to a provision contained in Chapter XVII- B, the relevant sections are 199, 201 and 221. Section 199 states that all taxes made in accordance with the provisions of that Chapter and paid to the Central Government to be treated as payment of tax on behalf of the persons on whose income the deduction is made. Section 200 prescribes the period within which the deducted amount should be paid to the Government. Section 201 talks of the consequence of failure to deduct or pay, in which event, the payer by virtue of the default could be deemed to be an assessee in default of the TDS amount and nothing more. As far as the implication of section 221 is concerned, by virtue of the deemed to be an assessee as provided under section 201, the scope for imposition of penalty is provided. As is the usual stipulations, section 221 creates an obligation on the Authority to give necessary opportunity etc., before imposing any penalty. Further under the proviso to section 201, it is specifically provided that if the payer satisfies the Assessing Officer, the failure to make the deduction or payment was for good and sufficient reasons no penalty need be imposed.
68. All the above consequence are all related and restricted to the amount of TDS to be deducted under Chapter XVII-B. The purport and intent of the above said provision are only to ensure that in the Page 7 of 9 ITA No 1364 of 2014 Demi Realtors Hyderabad event of any default in making the deduction, the required amount to be deducted is ultimately collected. As compared to those provisions, the legislative intent of the introduction of section 40(a)( ia) is in the larger perspective of augmenting the very TDS provisions themselves. It is not merely related to the collection of TDS alone. In this context, it will be appropriate to refer to one of the submission of the learned standing counsel for the revenue that only about 3 per cent of the Returns filed are taken up for scrutiny, in view of the fact that the Act and administration have been moving towards self- assessment. In other words, reposing higher amount of confidence in the law abiding citizens that they would voluntarily come forward to pay the tax as a Honourable Citizen, scrutiny is stated to have been limited to 3 per cent of the Returns. Having regard to such a notable advancement in the revenue administration, it cannot be said that the objective sought to be achieved viz., augmentation of TDS provisions by bringing out a stringent provision in the form of section 40(a)( i) or 40(a)( ia) can be said to be draconic or highly excessive in its approach. Here again, the resultant position in the TDS recoveries for the year 2008-09 discloses that the objective sought to be achieved has been successfully realized by the introduction of section 40(a)( ia). Therefore, the submission made on that footing also does not inspire us to hold that the provision should be held to be unreasonable or arbitrary and in violation of Article 14 of the Constitution".
Thus, it can be seen that both the above provisions operate in different circumstances. In the case before us, the assessee has deducted the tax but has failed to remit the same into the Govt. A/c. Therefore, the assessee has rightly been considered as 'an assessee in default' u/s 201(1) of the Act and there is no double jeopardy as alleged by the assessee.
6. In view of the same, this ground is rejected,
7. In the result, assessee's appeal is dismissed.
Order pronounced in the Open Court on 30th September, 2016.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 30th September, 2016.
Vnodan/sps
Page 8 of 9
ITA No 1364 of 2014 Demi Realtors Hyderabad
Copy to:
1. Shri J. Prabhakar, CA, Residency Apartments, 245, TTK Road, Alwarpet, Chennai 600018
2. DCIT, Circle 14(1) Hyderabad
3. CIT(A) -VI Hyderabad
4. CIT (TDS) Hyderabad
5. The DR, ITAT, Hyderabad
6. Guard File By Order Page 9 of 9