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