DS issue: Mumbai ITAT in Aditya Birla Ltd case on allowability of provision u/s 37 read with section 40(a)(ia): tax deduction at source (where assessee not received the bills under various heads, held that provisions of tax deducting at source were not applicable for the provisions made );Real estate: Method of accounting and year of taxability of income: mere allotment letters cannot accrue income and section 2(47) TRANSFER definition limitedly applies to capital gains and not business head;interest u/s 201(1A): Held for the delay in deposit of TDS on account of circumstances beyond the control of the assessee, the assessee should not be held to be in default and interest under section 201(1A) of the Act should not be charged.
Kapil Goel
Included in this update:
i) TDS issue: Mumbai ITAT in Aditya Birla Ltd case on allowability of provision u/s 37 read with section 40(a)(ia): tax deduction at source (where assessee not received the bills under various heads, held that provisions of tax deducting at source were not applicable for the provisions made )
ii) Search Assessments: Builder case Luck ITAT on money (unaccounted receipt) 8% profit can be assessed as “undisclosed income” u/s 153A; Luck ITAT searched person AO satisfaction must as per Allahabad high court in Gopi Appt. case (even where AO is same);
iii) Real estate: Method of accounting and year of taxability of income: mere allotment letters cannot accrue income and section 2(47) TRANSFER definition limitedly applies to capital gains and not business head;
iv) TDS interest u/s 201(1A): Held for the delay in deposit of TDS on account of circumstances beyond the control of the assessee, the assessee should not be held to be in default and interest under section 201(1A) of the Act should not be charged.
Aditya Birla Nuvo Ltd. (Formerly
Known as Indian Rayon and
Industries Ltd.), INCOME TAX APPELLATE TRIBUNAL,MUMBAI - ‘A’ BENCH.
ITA No.8427/Mum/2010
Date of Pronouncement : 17-09-2014
“On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax, (Appeals) here in after mentioned as CIT (A) :-
has erred in confirming the disallowance u/s 40(a)(ia) by an amount of Rs.3,42,59,643 being provision
made at the yearend as per best estimates according to prudent accounting policies.
After considering the explanation of the assessee, the AO held that the assessee had estimated an
amount of Rs. 4.21 Crores as expenditure, that the said sums had been provided in the books of
accounts, that TDS had not been made in violation of the provisions of chapter XVIIB, that the
Auditors had made qualifying remarks in the notes to the annexure of the Tax Audit Report, that
vide its letter dated 17.12.2008 the assessee informed that in the subsequent years it had reversed
the estimated provisions for expenses of Rs. 3.42 Crores by crediting the same to P&L Account,
that stand taken by the assessee clearly indicated the fact that the provision made in the year was
contingent liability, that assessee itself had argued that expenses were on the estimated basis
pending the receipts of the actual bills of the vendors, that the assessee had not submitted a
scientific basis for its submission, that liability credited by it was contingent and uncertainable,
that same was not allowable as per the provisions of the Act, that if the abovementioned liability
was treated as non-contingent liability, the assessee was liable to deduct tax as per the provisions
of chapter XVIIB of the Act. On 19.12.2008 the assessee-company informed the AO that TDS was
paid on or before due date of Rs. 17.81 Lakhs. It also filed Auditors Certificate to the effect.
Finally, the AO made an addition of Rs. 3.42 Crores 3.1.Assessee preferred an appeal before the FAA. While dismissing the appeal of the assessee, he
did not give any reason and just confirmed the order of the AO. Before us,AR argued that FAA
had not discussed the merits of the case.He further argued that similar issue had been discussed by
the Tribunal in the case of Industrial Development Banking Company (10 SOT 497), Pfizer Ltd.
(ITA No. 1667/M/2010) and Mahindra & Mahindra Ltd. (ITA No. 8597/M/2010). DR supported
the order of the AO and stated that the amount in question was contingent liability,that same was
not allowable as per the provisions of the Act.
3.2.We have heard the rival submissions and perused the material before us.We find that the AO
had invoked the provisions of section 40(a)(ia),though he has also discussed the principles of
contingent liability, while making the disallowance. We find that FAA has passed a non-speaking
order and just endorsed the views of the AO but he was also of the opinion that provisions of
section 40(a)(ia) were applicable. It is found that assessee had specifically mentioned during the
assessment proceedings, that it had not received the bills under various heads, that provisions of
tax deducting at source were not applicable for the provisions made. We find that similar issue
had arisen in the case of Mahindra & Mahindra Ltd. (supra). In that matter it was held that TDS
provisions were not applicable for the provisions made at the year-end. Similarly, in the case of
Industrial Development Banking Company(supra),the Tribunal had held as under:
"The deduction of tax at source can only be effected when payee is known. As far as the situation
before us is concerned, the regular return bonds being transferable on simple endorsement and
delivery and the relevant registration date being a date subsequent to the closure of books of
account, the assessee could not have ascertained the payees at the point of time when the provision
for interest accrued but not due was made. Accordingly, no tax was required to be deducted at
source in respect of the provision for interest payable made by the assessee which reflected
provision for 'interest accrued but not due' in a situation where the ultimate recipient of such
'interest accrued but not due' could not have ascertained at the point of time when the provision is
made"
In the case under consideration, the assessee had made provisions but had not received the bills,
that in the subsequent year the provisions made by it were offered for taxation. Considering these
facts and following the orders of the Tribunal in the case of Mahindra & Mahindra Ltd. &
Industrial Development Banking Company (supra),we decide ground no.2 in favor of the
assessee.
IN THE INCOME TAX APPELLATE TRIBUNAL “ C” BENCH, MUMBAI
M/s. Platinum Properties,
Assessment Year : 2008-09
/Date of Pronouncement :12.09.2014 I.T.A. No. 2600/Mum/2012
10. A perusal of these unaccounted entries shows that the assessee was
making entries of the on-money received by it during the course of its
business. U/s. 153A, the AO has the power to assess or reassess the total
income in respect of each assessment year falling within such assessment
year in case of person where a search is initiated u/s. 132 of the Act.
Thus, the AO has the power to assess or reassess the total income of the
assessee. What can be taxed is the undisclosed income and not the
undisclosed receipts, this means that only a reasonable amount of profit
which the assessee could have earned can be added. Seized paper
indicates assessee was receiving on-money in the ordinary course of its
business. Even the unaccounted expenditures are also reflected in the
seized papers.
10.1. Considering the facts in totality, in our considered opinion, a
reasonable profit should be taxed which is embedded in the total
unaccounted gross receipts and therefore 8% should meet the end of
justice. We, accordingly, direct the AO to recompute the undisclosed
income by taking 8% as net profit ratio on total unaccounted receipts.
Since we have directed to estimate the profit at 8%, all the expenditures
are deemed to be allowed.
IN THE INCOME TAX APPELATE TRIBUNAL
LUCKNOW BENCH “B”, LUCKNOW
ITA No.525/LKW/2012 Asesment year:204-05
M/s Reshma Builders (P) Ltd.,
Date of pronouncement 17/09/2014
Learned D.R. of the Revenue supported the assessment order.
Regarding the evidence in suport of this claim that satisfaction was
recorded by the Assessing Officer of the searched person for issuing notice
u/s 153C, he submitted a copy of letter dated 15/07/2014 received from
the Assessing Officer.
4. As against this, Learned A.R. of the assessee supported the order of
CIT(A). He also placed reliance on a recent judgment of Hon'ble Allahabad
High Court rendered in the case of CIT (Central) vs. Gopi Apartment in
Income Tax Appeal No. 60 of 214 dated 01/05/2014. He submitted that
the copy of this judgment is available on page No. 39 to 54 of the paper
book and in this case, it was held by Hon'ble Allahabad High Court that if
no satisfaction has been recorded by the Assessing Officer of the searched
person, the proceedings against the other person u/s 153C are not valid. We have considered the rival submissions. We find that it is
specifically reported by the Assessing Officer in his letter dated 15/07/2014
that no satisfaction note could be located by the Assessing Officer. Since
the Revenue could not establish that any satisfaction was recorded by the
Assessing Officer of the searched person, we do not find any reason to
interfere in the order of CIT(A) by respectfully following this judgment of
Hon'ble Allahabad High Court cited by Learned A.R. of the assessee having
been rendered in the case of Gopi Apartment (supra). We, therefore, hold
that the assessment framed by the Assessing Officer u/s 153C is not valid
and therefore, we quash the same. As a consequence, the appeal filed by
the Revenue is dismissed.
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH “A” , PUNE
ITA Nos. 2047 to 2052/PN/2012
Assessment Years : 2003-04 to 2008-09
Sujata Farms Pvt. Ltd
We have gone through the allotment letter which copy is placed on
record. In our opinion both the authorities below have not at all
understood the nature of the said allotment letter. The allotment letter
is issued on company letter head. On perusal of the contents of the
allotment letter, we find that it is like a booking letter accepting the offer
of the buyer. Nowhere there is mentioned in the allotment letter that the
possession of the plot is given to the prospective buyers. The assessee
has filed the copy of allotment letter dated 26-07-2002 issued to one Mr.
Arun Ramdas Pangarkar. As per the allotment letter said Mr. Arun
Ramdas Pangarkar has applied for the allotment of the plot and booking
an amount was paid to the assessee company and the assessee agreed to
allot him the plot of agricultural land as per the particulars given. It is
stated in the allotment letter that the said buyer has inspected the plot
and the same is allotted as per his choice. In respect of the private roads
there is mentioned in the allotment letter. It appears that even the
allotment letters were issued when the project was under developed that
there were no proper roads but demarcation was done. It appears that
the electricity poles and water facility was under progress. The cost of
the plot is mentioned as well as administrative and security expenses are
mentioned. There is condition that the said person has to use the plot
for an agricultural purpose and for construction of his own farm house
as per rules and regulations and prospective buyer has to prove that he
is agriculturist. It is in clear terms clarified that the assessee company
will execute sale deed of the said plot depending upon the buyers
agriculture status and claiming the amount towards cost of plot
administrative expenses etc. It is also mentioned that the buyer has to
become member of GIRIVAN project. We do not understand on which
basis both the authorities below came to conclusion that the possession
was given to the prospective buyers and the assessee should have
recognized the revenue or income on the issue of allotment letters. In
our understanding the approach of both the authorities below on this
particular is totally misplaced.
The assessee is following consistent method of accounting in
respect of the said GIRIVAN project recognizing income on execution of
sale deed and save these six assessment years the same has been
accepted. As argued before us and which also not controverted by the
revenue, the assessee is recognizing the income on the final execution of
the sale deed. Allotment letter cannot be said to be conferring the
possession on the prospective buyers but it is only accepting the offer of
the buyer to sale the specific plot. As per the Transfer of Property Act
the title is transferred only on the completion of the terms and
conditions agreed between the parties. We find that authorities below
have referred to Sec. 2(47) of the Act. Sec. 2(47) of the Income-tax Act is
a definition of the term “transfer”. As rightly argued by the Ld. Counsel
the said definition is applicable when the income is computed under the
head Capital Gain. Admittedly, in the case of present assessee the
income is computed under the head business hence, the said definition
is not applicable at all. Moreover, as the letter of allotment does not
disclose nor it is meant for conferring the right of the enjoyment or
possession on the date of issue. In our opinion the method of
accounting regularly employed by the assessee cannot be disturbed. The
Assessing Officer did all the exercise merely on the basis of the survey
action u/s. 133A which he could have done in normal assessment
proceedings u/s. 143(3) by verifying method of accounting adopted by
the assessee for recognizing income. We have also gone through the
Compilation filed by the assessee and the assessee has filed the copies of
letters from the buyers of the plots and as per the letters given by the
buyers of the plots, the possession of the plot is given only on the
execution on the sale deed. In our opinion both the authorities below
have misunderstood the provisions of law nor they have properly
appreciated the letter of allotment issued by the assessee to the
prospective buyers. We, therefore, allow the grounds taken by the
assessee and set aside the order of the CIT(A) in all these six assessment
years and direct the Assessing Officer to accept the method of
accounting regularly followed by the assessee and also to accept the
return/loss declared.
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH “A”, LUCKNOW
ITA No.596/LKW/2011
Assessment Year:2008-09
Oriental Bank of Commerce
Our attention was also invited to the order of the Tribunal in the
case of Income Tax Officer vs. Registrar, Cochin University of Science and
Technology, 1 ITR (Trib) 252 (Cochin) in which it has been held that the
delay due to technical lapse in the public institution, assessee cannot be
declared to be in default and interest under section 201(1A) of the Act
should not be charged. Our attention was also invited to the order of the
Tribunal in the case of Uttar Pradesh Financial Corporation vs. Income Tax
Officer (TDS) in I.T.A. Nos. 642&643/LKW/2010, in which similar view was
taken by the Tribunal.
Keeping in view the aforesaid orders of the Tribunal, we are of the
considered opinion that for the delay in deposit of TDS on account of
circumstances beyond the control of the assessee, the assessee should not
be held to be in default and interest under section 201(1A) of the Act
should not be charged. But in the instant case, since the assessee has filed
an affidavit along with evidence first time before the Tribunal, it requires
verification by the Assessing Officer. If the additional evidence filed before
us is found to be correct, assessee should not be held to be in default and
interest under section 201(1A) of the Act should not be charged.
Accordingly, with these directions, we set aside the order of the ld. CIT(A)
and restore the matter to the file of the Assessing Officer for making
necessary verification of the additional evidence filed before us.
(During the course of hearing of the appeal before us, an affidavit
of Shri Rajeev Khosla, an employee of the assessee was filed to the effect
that the delay of one day in depositing the tax deducted at source on
interest payment etc. was purely on account of technical fault taken place
in the server/computer, due to which the entire functioning came to be
suspended/standstill.)