ITA No 898 of 2018 Comfortline Systems P Ltd Hyderabad. IN INCOME TAX APPELLATE TRIBUNAL Hyderabad B SMC Bench, Hyderabad Before Smt. P. Madhavi Devi, Judicial Member ITA No. 898/Hyd/2018 Assessment Year 2012-13 M/s. Comfortline Systems Vs. Income Tax Officer, Private Ltd, Hyderabad Ward 1(4) PAN AACCF4458Q Hyderabad (Appellant) (Respondent) Assessee by Sri P. Murali Mohan Rao Revenue by Sri Mohan Reddy, DR Date of hearing 13/08/2019 Date of pronouncement 28/08/2019 ORDER This is assessees appeal for A.Y 2012-13 against order of CIT (A)-1, Hyderabad, dated 19.12.2017. assessee has raised following grounds of appeal 1. Ld. Commissioner of Income Tax (Appeals) erred both on facts and law in passing appellate order by dismissing appeal of appellant on all issues except on issue of discrepancy in amount of disallowance. 2. Ld. CIT (Appeals) erred in dismissing appeal of appellant without giving reasonable opportunity of being heard to appellant. 3. Ld. CIT (Appeals) erred in dismissing appeal of appellant without appreciating facts of case and legal position on issues involved. 4. Ld. CIT (A) erred in dismissing appeal of appellant without appreciating grounds of appeal and written submissions of appellant. Page 1 of 9 ITA No 898 of 2018 Comfortline Systems P Ltd Hyderabad. Addition of Rs.1,16,976/- towards Payment of Service Tax u/s 43B of Act: 5. Ld. CIT (A) erred in dismissing appeal of appellant on issue of addition of Rs.1,16,976/- towards disallowance of Service tax u/ s.43B of Income tax Act 1961 without appreciating details and evidence furnished by appellant. 6. Ld. CIT (A) erred in dismissing appeal of appellant on issue of addition towards disallowance of Service tax, without appreciating facts that no such amount was received or paid and debited to P&L a/ c. 7. Ld. ClT (A) ought to have appreciated fact that AO erred in making addition towards disallowance of Service tax, without considering facts of issue. Addition of Rs.31,405/- towards payment of ESI and Provident fund of u/s 36(1)(va) of Act. 8. Ld. CIT (A) erred in dismissing appeal of appellant on issue of disallowance of employees' contribution towards ESI of Rs.3253/- and PF of Rs.28,170/- without appreciating fact that same were paid within due dates of filling return of income u/ s.139(1) of Act. 9. Ld. CIT(A) ought to have appreciate fact that contributions towards ESI and PF which were paid before due date for filling of return of income are allowable as deduction u/s.43B of Act, as held by number of Hon. Court and Tribunals. Addition of Rs. 5,19,805/- towards disallowance of interest payments U/S 40(a)(ia) of Act. 10. Ld. CIT (A) erred in dismissing appeal of appellant on issue of addition of Rs.5,19,805/ - towards disallowance of payment of interest u/s.40(a)(ia) of LT. Act,1961, without considering facts of case, legal decisions on issue and details and evidence furnished by appellant. 11. Ld. CIT (A) ought to have appreciated fact that provisions of Sec 40a(ia) are not applicable in respect of payments towards interest by appellant since same were paid and no amounts remained payable at end of relevant year. Page 2 of 9 ITA No 898 of 2018 Comfortline Systems P Ltd Hyderabad. 12. Ld. CIT (A) ought to have appreciated fact that provisions u/s.40(a)(ia) of Act are not applicable in respect of payments towards interest by appellant since same were admitted by recipients as income in their returns of income, as held by Hon'ble courts. 13. Ld. CIT (A) ought to have appreciated fact that there is no loss of revenue since recipients of interest incomes have 'admitted payment of interest by appellant as their incomes in their returns and paid taxes. 14. Ld. CIT (A) ought to have appreciated fact that provisions of section 40(a)(ia) of Act, 1961 are not applicable to interest payments in question since appellant was not held to be assessee in default by A.O by initiating proceedings u/ s 201(1) of Act. Addition of Rs.6,O5,980/- towards of interest- U/S 14A of Act 15. Ld. CIT (A) erred in dismissing appeal of appellant on issue of addition of Rs.6,05,980/- towards payment of interest u/s. 14A of Act, without appreciating facts and details submitted by appellant. 16. Ld. CIT (A) ought to have appreciated fact that Assessing Officer has not established any direct nexus between interest paid and investment made in assets, income of which is exempt from tax. 17. Ld. CIT(A) ought to appreciated fact that no disallowance u/s.14A of Act read with sub-rule (2) of rule BD of LT. Rules, 1962 can be made since appellant has not incurred any expenditure in earning exempt income. 18. Ld. CIT (A) ought to have appreciated fact that there are no fresh investments made by assessee during year under consideration and no exempted dividend/income on earlier investment was earned during year. 19. Ld. CIT (A) ought to have appreciated fact that no interest bearing funds were utilised for purpose of investments, income of which is exempt from tax. 20. Ld. CIT (A) ought to have appreciated fact that Rule 8D of LT. Rules, 1962 cannot be applied when assessee is maintaining regular books of accounts and got them audited by qualified chartered accountant. Page 3 of 9 ITA No 898 of 2018 Comfortline Systems P Ltd Hyderabad. 21. Without prejudice to other grounds, CIT (A) ought to have appreciated fact that AO has made mistakes in application of Rule 8D of I'I' Rules while computing disallowance u/ s 14A of Act. General: 22. Though some grounds were not taken up before lower authorities, they Lo' are now taken before Hon'ble ITAT, in view of supreme court decision in case of NTPC Vs CIT (229 ITR 383). 23. appellant may add or alter or amend or modify or substitute or delete and/ or rescind all or any of grounds of appeal at any time before or during course of hearing of appeal . 2. Further, assessee has filed letter dated 4.6.2019 seeking admission of additional grounds which are already raised as Ground.No.6 and 12 to 14 on ground that they relate to question of law arising from facts of case which are already on record. 3. In support of above contentions, learned Counsel for assessee placed reliance on decision of Hon'ble Supreme Court of India in case of NTPC vs. CIT (229 ITR 383) (SC). 4. Both parties were heard and since grounds which are sought for admission as additional grounds are on questions of law, they are admitted and are adjudicated as under. 5. Grounds 1 to 4 are general in nature and need no adjudication and assessee is also not pressing ground that Page 4 of 9 ITA No 898 of 2018 Comfortline Systems P Ltd Hyderabad. assessee has not been given reasonable opportunity of being heard by CIT (A). 6. Grounds 5 to 7 are against addition of Rs. 1,16,976/- towards payment of service tax u/s 43B of Act. learned Counsel for assessee submitted that assessee has not debited same to P&L A/c but had entered it in balance sheet and therefore, there can be no disallowance u/s 43B of Act. He submitted that when assessee does not make claim of expenditure, it cannot be disallowed and brought to tax u/s 43B of Act. In support of his contention, he placed reliance upon following case law: i) ITA No.315/Bang/2016 in case of Envison Enterprises Solutions P Ltd. ii) ITA No.315/Agra/2014 in case of Shivhare Road Lines vs. ITO iii) Hon'ble Delhi High Court in case of Jet Lite (India) Ltd (63 taxmann.com 62) 7. learned DR, on other hand, submitted that when assessee is following mercantile system of accounting, he has to debit expenditure to P&L A/c but cannot take it directly to balance sheet and any such expenditure mentioned in section 43B which has not been paid during year, has to be disallowed u/s 43B of Act. 8. Having regard to rival contentions and material on record, we find that u/s 43B, certain deductions are allowable on actual payment. By not debiting service tax to P&L A/c, assessee has not claimed it as expenditure. Therefore, Page 5 of 9 ITA No 898 of 2018 Comfortline Systems P Ltd Hyderabad. disallowance of same u/s 43B of Act would not arise. IN case before us, AO is not disallowing expenditure, but is bringing it to tax, which is not purpose of section. Therefore, addition made u/s 43B is deleted. 9. second addition is on account of disallowance of interest payment u/s 40(a)(ia) of Act. With regard to this ground, learned Counsel for assessee submitted that assessee has not been treated as assessee in default u/s 201(1) of Act and therefore, provisions of section 40(a)(ia) are not applicable. In support of his contention, he placed reliance upon following case law. i) ITA No.663 & 664/Hyd/2016 in case of Sri Azmath Ulla ii) ITA No.1319/Hyd/2014 in case of M/s. Aditya Constructions Company India P Ltd iii) ITA No.249/Hyd/2013 in case of M/s. AGA Publications Ltd. iv) ITA No.488 & 621/Hyd/2013 in case of Visu International Ltd. 10. He submitted that recipients also have offered receipts as income in their hands and therefore, provisions of section 40(a)(ia) are not applicable. 11. learned DR, on other hand, supported orders of authorities below. 12. Having regard to rival contentions and material on record, I find that w.e.f. 1.4.2013, 2nd proviso has been Page 6 of 9 ITA No 898 of 2018 Comfortline Systems P Ltd Hyderabad. appended to section 40(a)(ia) according to which where assessee is not deemed to be assessee in default under 1st proviso to sub-section 1 of section 201, it shall be deemed that assessee has deducted and paid tax on such sum on date of furnishing of such income by recipient in said proviso. Further, it is case of assessee that recipient has offered income to tax in his hands and therefore, proviso to section 201(1) applies and assessee cannot be deemed to be assessee in default. Admittedly, assessee has not been treated as assessee in default u/s 201(1) of Act and proviso to section 201(1) has been held to be retrospectively applicable. Therefore, applying same and following judicial precedents on issue, I hold that disallowance u/s 40(a)(ia) cannot be made subject to verification that recipient has offered income to tax in its hands. Thus, ground is allowed for statistical purposes. 13. third addition is u/s 14A r.w.Rule 8D of Act. learned Counsel for assessee submitted that assessee has not earned any exempt income during relevant A.Y and therefore, disallowance u/s 14A is not called for. learned Counsel for assessee has placed reliance upon following case law: i) ITA No.1302/Hyd/2015 in case of Prathista Industries Ltd. ii) ITA No.471/Hyd/2015 in case of ACIT vs. Mishra Dhatu Nigam Ltd. 14. learned DR, however, supported orders of authorities below. Page 7 of 9 ITA No 898 of 2018 Comfortline Systems P Ltd Hyderabad. 15. Having regard to rival contentions and material on record, I find that this issue is covered in favour of assessee by decision of various Courts particularly Hon'ble Delhi High Court in case of Cheminvest Limited vs Commissioner Of Income Tax-Vi on 2 September, 2015 in ITA No.794/2014 (378ITR 33 Delhi) and also decisions of Coordinate Benches of this Tribunal to which I am also signatory. Respectfully following same, I delete disallowance made u/s 14A of Act. 16. Further additions are towards payment of ESI and PF on account of disallowance u/s 36(1)(va)of Act i.e. employees contribution. learned Counsel for assessee submitted that this issue is also covered in favour of assessee since assessee has remitted said amount to Govt. A/c before due date of filing of return of income. He placed reliance upon following decisions: i) Hon'ble High Court of Uttarakhand in case of Kichna Sugar Co Ltd (35 taxmann.com 54). ii) ITA No.473/Hyd/2013 in case of Speck Systems Ltd iii) ITA No.879/Hyd/2015 in case of Tanla Solutions Ltd. iv) ITA No.664/Hyd/2016 in case of Pragati Green Meadows vs. ITO 17. learned DR, however, supported orders of authorities below. 18. Having regard to fact that assessee has made payment before filing of return of income and as held by Page 8 of 9 ITA No 898 of 2018 Comfortline Systems P Ltd Hyderabad. Coordinate Benches in cases cited Supra which are relied upon by learned Counsel for assessee, disallowance u/s 36(1)(va) is deleted. 19. In result, assessees appeal is partly allowed. Order pronounced in Open Court on 28th August, 2019. Sd/- (P. MADHAVI DEVI) JUDICIAL MEMBER Hyderabad, dated 28th August, 2019. Vinodan/sps Copy to: 1 Comfortline Systems (P) Ltd C/o P. Murali Mohan & Co. C.As, 6- 3-655/2/3 1st Floor, Somajiguda, Hyderabad 500082 2 ITO Ward 1(4) Hyderabad 3 CIT (A)-1 Hyderabad 4 Pr. CIT 1 Hyderabad 5 DR, ITAT Hyderabad 6 Guard File By Order Page 9 of 9 Comfortline Systems Private Ltd. v. Income-tax Officer, Ward 1(4) Hyderabad