Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs National Building Construction ... on 14 May, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "E" NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
&
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
I.T.A. No.756/DEL/2015
Assessment Year: 2011-12
National Building Construction vs. Addl. CIT, Range-18,
Corporation Ltd., New Delhi.
M/s. S.B. Garg & Co., CAs,
20/17, Shakti Nagar, New Delhi.
TAN/PAN: AAACN 3053B
(Appellant) (Respondent)
I.T.A. No.1598/DEL/2015
Assessment Year: 2011-12
DCIT, Central Circle-17(2), National Building Construction
New Delhi. vs. Corporation Ltd.,
M/s. S.B. Garg & Co., CAs,
20/17, Shakti Nagar, New
Delhi.
TAN/PAN: AAACN 3053B
(Appellant) (Respondent)
Appellant by: S/Shri S.B. Garg, CA & Achin
Garg, Adv.
Respondent by: Shri Shefali Swaroop, CIT-D.R.
Date of hearing: 09 05 2018
Date of pronouncement: 14 05 2018
ORDER
PER AMIT SHUKLA, J.M.:
The aforesaid cross appeals have been filed by the assessee as well as by the Revenue against the impugned order dated 12.12.2014, passed by ld. CIT (Appeals)-VI, Delhi I.T.A. No.756 & 1598/Del/2015 2 for the quantum of assessment passed u/s.143(3) for the Assessment Year 2011-12. We will first take up assessee's appeal wherein assessee is aggrieved by;
Firstly, disallowance u/s.40(a)(ia) of Rs.88,88,542/- on payment of 'Bank Guarantee Charges' on the ground that tax at source has not been deducted by making such payment to the schedule bank and;
Secondly, disallowance of Rs.1,72,23,000/- debited under the head 'community development and welfare expenses'.
2. The assessee is a Public Sector undertaking under the aegis of Ministry of Urban Development, Government of India. The assessee corporation is engaged in executing various types of civil / electrical projects all over India and abroad.
3. The brief facts qua the issue involved are that Assessing Officer noted that assessee has claimed an amount of Rs.1,15,54,000/- in its profit and loss account under the head 'Bank Charges and Guarantee Commission" as deductible expenditure. A show cause notice was issued by the AO as to why guarantee commission paid may not be disallowed on the ground that no TDS has been deducted and the CBDT notification no.56/2012 brought to exempt such deduction of TDS covers the matter only from 31.12.2012 onwards. In response, the assessee filed details submission stating that;
I.T.A. No.756 & 1598/Del/2015 3 Firstly, such payment of guarantee commission is not covered u/s.194H, because there is no element of agency and;
Secondly, assessee relied upon various decisions of the Hon'ble High Court and Tribunal which has been incorporated in the assessment order at pages 6 to 8 of the assessment order.
Apart from that, it was further submitted that the said CBDT notification itself says that bank guarantee commission paid to the schedule bank is not covered under any of the tax withholding sections.
4. However, the learned Assessing Officer held that the CBDT notification issued in this regard is applicable only from 1st day of January, 2013 and not for the prior years; and secondly, the said notification does not cover the definition of interest u/s.2(28A) of the Act and therefore, exemption provided u/s.194A(3)(iii)(a) is not applicable to such payments. Accordingly, he disallowed a sum of Rs.88,88,542/- and added back to the income of the assessee after invoking the provision of Section 40(a)(ia).
5. Ld. CIT (A) too has confirmed the said disallowance on the ground that notification cannot have a retrospective effect and guarantee commission paid to the scheduled bank is covered u/s.194H and hence TDS should have been deducted.
I.T.A. No.756 & 1598/Del/2015 46. After hearing both the parties and on perusal of the impugned orders, we find that assessee is engaged in the business of civil contracts and to get these contracts, assessee corporation approaches the other PSUs, Government Organizations, State Electricity Board, etc., through tenders and in terms of the tender, assessee has to either deposit earnest money or submit bank guarantee to such organizations. The bank charges for bank guarantee paid by the assessee have been claimed as expenditure. Before us the ld. counsel for the assessee has submitted that similar payment of bank guarantee commission has been allowed to the assessee corporation right from the Assessment Years 2003-04 to 2009-10 and in none of the years assessee had deducted TDS, despite the fact that in all these years the assessment have been completed u/s.143(3). He has also placed reliance upon various decisions of the Tribunals like DCIT vs. PRL Projects & Infrastructure Ltd, (2017) 51 CCH 0366 (Del. Trib) & Efftronics Systems Pvt. Ltd. vs. ACIT, (2016) 161 ITD 688 (Vizag), wherein on similar payments of bank guarantee commissions it has been held that no TDS is required to be deducted. Apart from that, he submitted that already bank guarantee commission paid to the these scheduled bank, viz., Corporation Bank, Indus Ind. veBank, Punjab National Bank and Yes Bank has declared the said bank guarantee charges as income in their respective return of income for which certificates have also been filed in the paper book at pages 116 to 120, and therefore, it was I.T.A. No.756 & 1598/Del/2015 5 contended that in view of second proviso to Section 40(a)(ia), no disallowance should be made. He further submitted that, the said proviso though inserted w.e.f. 01.04.2013, but has been held to be retrospectively applicable from A.Y. 2005-06 by the Hon'ble Jurisdictional High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd. (2015) 377 ITR 635 (Del.). Lastly, he submitted that disallowance will only result into enhancement of profit on which deduction u/s. 80IA of the Act should be allowed.
7. On the other hand, learned Department Representative has strongly relied upon the order of the Assessing Officer and ld. CIT (A).
8. From the perusal of the details of the bank guarantee expenses, we find that assessee had paid following bank guarantee commission to the schedule banks:-
Name of Bank Amount
Corporation Bank 34,60,014
Indus Ind. Bank Ltd. 24,40,875
Punjab National Bank 29,66,100
Yes Bank Ltd. 88,88,542
8. To remove the rigours of deduction of TDS on the various kinds of payment to Scheduled banks, CBDT had issued a notification no. 56/2012 dated 31.12.2012 which has been taken note by the learned Assessing Officer and ld. CIT (A) also and reads as under:-
I.T.A. No.756 & 1598/Del/2015 6"SECTION 197A OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - NO DEDUCTION IN CERTAIN CASES - SPECIFIED PAYMENT UNDER SECTION 197A (1F).
NOTIFICATION NO. 56/2012 [F. NO. 275/53/2012-IT(B)]/SO 3069(E), DATED 31-12- 2012.
In exercise of the powers conferred by sub-section (IF) of section 197A of the Income- tax Act, 1961 (43 of 1961), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely:-
(i) bank guarantee commission;
(ii) cash management service charges;
(iii) depository charges on maintenance of DEMAT
accounts;
(iv) charges for warehousing services for commodities;
(v) underwriting service charges;
(vi) clearing charges (MICR charges);
(vii) credit card or debit card commission for transaction between the merchant establishment and acquirer bank.
2. This notification shall come into force from the 1st day of January, 2013."
Though the said notification came into force from 1st day of January, 2013, but it only clarifies that the payment made by a person to a bank listed in the 2nd Schedule of RBI, no I.T.A. No.756 & 1598/Del/2015 7 deduction of tax under Chapter XVII would be required which includes bank guarantee commission. Such a clarificatory circular/notification issued by the CBDT to explain or remove the rigours of the law has to be given retrospective effect. Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd., (2015) 377 ITR 635 (Del.) in the context of second proviso to Section 40(a)(ia) has held that if the newly inserted provision has been introduced to remove the hardship, then it is in the nature of declaratory and curative, hence same has to be given retrospective effect. The CBDT circulars clarifying the statutory provisions acts as Contemporanea Expositio while interpreting the said provision in the statute and such an exposition to remove the hardships and rigours has to be reckoned retrospectively. Thus, we hold that such a notification issued by the CBDT is not only curative and declaratory but also shows the intention of the Government that payment of bank guarantee commission etc. to the schedule bank, no TDS provisions should be applicable, and therefore, such notification would apply even prior to 1st day of January, 2013. Moreover, assessee has already filed certificates from all the Schedule Banks that the bank guarantee commission received has been offered as income on which due taxes has been paid, therefore, in view of second proviso to Section 40(a)(ia) which has been held to be applicable retrospectively by the Hon'ble Jurisdictional High Court in Ansal Land Mark Township (supra), no disallowance u/s.40(a)(ia) can be made.
I.T.A. No.756 & 1598/Del/2015 8Accordingly, ground no.1 raised by the assessee is allowed.
9. Coming to the issue of disallowance of Rs.1,72,23,000/-, the Assessing Officer has disallowed such an expenditure paid to various organisation towards sales promotion and advertisement, holding it to be expenses in the nature of Corporate Social Responsibility. The assessee in response to show-cause notice submitted that expenditure was incurred as per Office Memorandum issued by the Department of Public Enterprises, which issued guidelines to the effect that Public Sector Companies should spend certain percentage of their profits to discharge their corporate social responsibilities and hence such an expenditure is mandatory for the assessee corporation. However, the Assessing Officer inferred that such an Office Memorandum and the expenditure is appropriation of profits after tax and cannot be allowed as expenditure.
10. Learned CIT (A) too has confirmed the said disallowance on the ground that no commercial expediency has been established by the assessee in connection with such an expenditure and in view of Explanation 2 to Section 37(1) inserted w.e.f. 01.04.2015, the said expenditure incurred for Corporate Social Responsibility is not allowable.
11. Before us, the details of expenditure incurred by the assessee on account of office memorandum issued by the Department of Public Enterprises are as under:
I.T.A. No.756 & 1598/Del/2015 9 Sr. No. Particulars Purpose Amount
1. Paid to DTC Advertisement 54,00,000
2. For Durgabari Sale Promotion 99,16,940
3. For SPCA NOIDA Advertisement 9,15,000
4. For Tithva, Advertisement 9,83,000
Rajasthan School
5. For Thermal Inner Advertisement 6,08,000
Wear to Leh Flood
Victims
Total 1,72,22,940
12. Ld. Counsel for the assessee submitted that Hon'ble Delhi High Court in the case of CIT vs. GAIL (India) Ltd., ITA No.362/2017 vide judgment and order dated 03.07.2017 has held that though claim of CSR expenses as a deduction is not allowable per se except for that initial onus is on the assessee to show that CSR expenses were for the business purpose and further such an expenditure is not capital expenditure, and therefore, same needs to be allowed. Here the expenditure incurred are for sales promotion and advertisement and all the details were furnished, hence same is allowable u/s 37(1).
13. Learned DR, on the other hand, strongly relied upon the order of the ld. CIT(A) submitted that Explanation-2 has been added u/s.37(1), wherein such CSR will not be deemed to the expenditure incurred to the assessee for the purpose of business/profession.
14. We have heard the rival submissions and also perused the relevant findings given in the impugned orders. So far as I.T.A. No.756 & 1598/Del/2015 10 invoking of Explantion-2 to Section 37(1) which envisages that any expenditure incurred by an assessee on the activities relating to Corporate Social Responsibility as referred in Section 135 of the Companies Act, 2013, shall not be deemed to be an expenditure by the assessee for the purpose of business or profession. Such an explanation has been inserted by the Finance Act, 2014 w.e.f. 01.04.2015. If any deemed disallowance has been brought in the statute with a particular date creating any liability upon taxpayer or claim has been made disallowable, then such a provision cannot held to be applicable retrospectively. Such an invocation of Explanation-2 in the Assessment Year 2011-12 is not called for. The assessee being a public sector undertaking and is governed by Ministry of Urban and Development and is also guided by the Office Memorandum issued by the Department of Public Enterprises. The expenditure incurred in pursuance of any guidelines or office memorandum, however has to be seen from the perspective of, whether there was any commercial expediency in making such payment or not; and if the payment is to be made to any other department or organization for advertisement or sales promotion, then whether assessee's name and publicity in such advertisement is appearing or not needs to be verified. Accordingly, we restore this matter to the file of the Assessing Officer to see whether for incurring such an expenditure given to various departments or organization for advertisement and sales promotion purpose or publicity, the name of Assessee I.T.A. No.756 & 1598/Del/2015 11 Corporation is appearing in such advertisement and publicity/ or is for commercial expediency. With these directions, we restore this issue to the file of the Assessing Officer for fresh adjudication. Thus, the grounds raised by the assessee are partly allowed for statistical purposes.
15. Coming to the Revenue's appeal, following grounds have been raised:-
"(1) Whether on the facts and in the circumstances of the case & in law, the ld. CIT (A) erred in deleting the disallowance made u/s.14A of the IT Act, 1961.
(2) Whether on the facts and in the circumstances of the case & in law, the ld. CIT (A) erred in directing the Assessing Officer to verify whether the conditions specified in section 80IA are fulfilled by assessee and if the conditions are fulfilled, the claim of assessee u/s.80IA may be allowed disregarding the judgment of Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (2006) 157 Taxman 1 (SC).
(3) That the order of the ld. CIT (A) is erroneous and is not tenable on facts and in law."
16. So far as the disallowance u/s.14A is concerned, the facts in brief are that the Assessing Officer noted that assessee has earned exempt income of Rs.6,80,84,736/- by way of dividend. In response to the show cause notice as to why Rule 8D should not be applied for making disallowance u/s.14A, the assessee submitted that in the computation of income assessee itself has disallowed Rs.73,75,428/- in I.T.A. No.756 & 1598/Del/2015 12 accordance with Rule 8D(2)(iii). It was further submitted that assessee has made investment in various joint ventures from where no exempt income has been derived. However, the learned Assessing Officer held that joint ventures are taxable as AOP and the assessee being a member is exempted from such tax. He further noted that assessee has been made investment in mutual funds also and interest income paid by the assessee and some administration and indirect cost must have been incurred, therefore, he proceeded to make disallowance u/s.14A in accordance with Rule 8D had worked out total disallowance of Rs.1,33,72,000/- and after reducing the disallowance offered by the assessee added the balance amount of Rs.59,96,572/-.
17. Ld. CIT (A) has deleted the said disallowance on the ground that;
Firstly, assessee has no secured and unsecured loans and there is no interest bearing borrowed funds during the year, therefore, the disallowance of interest made by the Assessing Officer under Rule 8D is uncalled for;
Secondly, the investment made in five Joint Ventures, there was no exempt income relating from such investment, therefore, applying the ratio of Delhi High Court in the case of Cheminvest Ltd. vs. ITO, he held that no disallowance should be made on such investments.
Lastly, on the investment made in Liquidity Fund Cash I.T.A. No.756 & 1598/Del/2015 13 Plan, he noted that assessee has already made suo motu disallowance and therefore, no inference is required.
18. After hearing the rival submissions and on perusal of the relevant findings given in the impugned orders, we find that Assessing Officer has made disallowance under Rule 8D (2)(ii) of interest of Rs.28,04,000/-, which ostensibly could not have been made for the reason that assessee has not taken any secured or unsecured loan for making any investment and; secondly, the interest expenditure debited is on account of delayed payment made to the contractors. Thus, there could not have been any question of disallowance of interest under Rule 8D (2)(ii).
19. In so far as indirect expenditure is concerned, assessee has already suo motu disallowed expenditure of Rs.73.75 lacs as per the detailed working given and also submitted that investment in JVs has no exempt income either in present or in future. Learned Assessing Officer without examining the nature of accounts and the assessee's claim of expenditure allocable has simply proceeded to mechanically apply Rule 8D and made the disallowance, without even recording his satisfaction having regards to nature of accounts maintained by the assessee and expenditure debited to the profit and loss account. To invoke Rule 8D, it is sine qua non that Assessing Officer must record his satisfaction having regard to the nature of expenditure debited in accounts maintained so as to see whether any expenditure has been incurred which could I.T.A. No.756 & 1598/Del/2015 14 be said to be attributable for earning of exempt expenditure. The Assessing Officer here has not applied his mind which is evident from the fact that he has even proceeded to disallow interest expenditure when there is no secured or unsecured loan or borrowed funds in the balance sheet. Further, how the joint venture investment made in the JVs is capable of earning exempt income has not been examined by the Assessing Officer. Recording of such satisfaction upon the claim made by the assessee is mandatory as held by Jurisdictional High Court in the case of H.T. Media Ltd. vs. Pr. CIT. ITA No. 548,549 of 2015; and failure on part of the AO to comply with section 14(2) read with Rule 8D(1)(a), disallowance cannot be made. Thus, we hold that in absence of mandatory requirement of Section 14A (2), AO could not have applied Rule 8D, and therefore, disallowance made by the Assessing Officer cannot be sustained. Hence, ground no.1 raised by the Revenue is dismissed.
20. Lastly, on the issue of 80IA, we find that ld. CIT (A) has mainly directed the Assessing Officer to verify the condition specified in Section 80IA and allow the same to the assessee. Even if such a claim has been made by the assessee at the appellate stage, then ld. CIT (A) is well within his jurisdiction and power to entertain such a plea and decide in accordance with law. Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (surpa) as referred in the grounds of appeal by the Revenue itself lays down that such a power to I.T.A. No.756 & 1598/Del/2015 15 entertainment the claim does not impinge upon the ld. CIT(A). Thus, we do not find any infirmity in such a direction by the ld. CIT (A) and same is affirmed. Accordingly, the ground raised by the Revenue is dismissed.
21. In the result, the appeal of the assessee is partly allowed whereas the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 14th May, 2018.
Sd/- Sd/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14th May, 2018