Prakausali Investment (India) Pvt. Ltd., New Delhi v. JCIT, New Delhi

ITA 2199/DEL/2010 | 2007-2008
Pronouncement Date: 31-03-2011 | Result: Dismissed

Appeal Details

RSA Number 219920114 RSA 2010
Assessee PAN AAACP3716F
Bench Delhi
Appeal Number ITA 2199/DEL/2010
Duration Of Justice 10 month(s) 21 day(s)
Appellant Prakausali Investment (India) Pvt. Ltd., New Delhi
Respondent JCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 31-03-2011
Date Of Final Hearing 23-03-2011
Next Hearing Date 23-03-2011
Assessment Year 2007-2008
Appeal Filed On 10-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI K.G. BANSAL ACCOUNTANT MEMBER ITA NO.2472/DEL/2010 ASSESSMENT YEAR : 2008-09 ITO WARD 51 (1) ROOM NO.510 5 TH FLOOR AAYAKAR BHAWAN LAXMI NAGAR NEW DELHI. VS. PRAKAUSALI INVESTMENTS (INDIA) PVT. LTD. C-41 MAYFAIR GARDEN NEW DELHI 110 016. PAN : AAACP3716F C.O. NO.225/DEL/2010 (ITA NO.2472/DEL/2010) ASSESSMENT YEAR : 2008-09 PRAKAUSALI INVESTMENTS (INDIA) PVT. LTD. C-41 MAYFAIR GARDEN NEW DELHI 110 016. PAN : AAACP3716F VS. ITO WARD 51 (1) ROOM NO.510 5 TH FLOOR AAYAKAR BHAWAN LAXMI NAGAR NEW DELHI. ITA NO.2844/DEL/2010 ASSESSMENT YEAR : 2008-09 ITO WARD 51 (1) ROOM NO.509 5 TH FLOOR AAYAKAR BHAWAN LAXMI NAGAR NEW DELHI PRAKAUSALI INVESTMENTS (INDIA) PVT. LTD. C-41 MAYFAIR GARDEN NEW DELHI 110 016. PAN : AAACP3716F ITA NO.2199/DEL/2010 ASSESSMENT YEAR : 2007-08 PRAKAUSALI INVESTMENTS (INDIA) PVT. LTD. C-41 MAYFAIR GARDEN NEW DELHI 110 016. PAN : AAACP3716F VS. JCIT RANGE-51 NEW DELHI ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 2 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJESH MALHOTRA CA REVENUE BY : SHRI H.K. LAL SR.DR ORDER PER BENCH: ITA NO.2472/DEL/2010 AND CO NO.225/DEL/2010 ARE DI RECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 4 TH MARCH 2010 RELATING TO DEMAND RAISED ON THE ASSESSEE FOR DEFAULT OF NON-DEDU CTION OF TAX AND INTEREST THEREON IN RESPECT OF ASSESSMENT YEAR 2007-0 8 VIDE ORDER DATED 24 TH MARCH 2008 PASSED U/S 201(1)/201(1A) OF INCOME TAX A CT 1961. ITA NO.2844 & 2199/DEL/2010 ARE DIRECTED AGA INST THE ORDER PASSED BY THE CIT (A) DATED 16 TH MARCH 2010 FOR ASSESSMENT YEAR 2007-08 IN RESPECT OF AN ORDER DATED 30 TH DECEMBER 2009 PASSED U/S 271C OF THE ACT LEVYING PENALTY ON THE ASSESSEE AMOUNTI NG TO ` 1 55 34 474/- FOR FAILURE OF DEDUCTION OF TAX U/S 19 4A AND 194J OF THE ACT. 2. ALL THESE APPEALS WERE ARGUED TOGETHER AND THESE AR E INTERRELATED THEREFORE FOR THE SAKE OF CONVENIENCE ALL THESE APPEALS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVEST MENT. IT TOOK LOANS AMOUNTING TO ` 150 CRORE FROM G.E. CAP ITAL SERVICES INDIA THE DETAILS OF WHICH ARE AS UNDER:- I. LOAN AGREEMENT DATED 27.06.2007 BETWEEN PRAKAUSALI INV ESTMENTS (INDIA) PRIVATE LIMITED (THE BORROWER AND/OR THE PLE DGER) AND GE CAPITAL SERVICES INDIA (THE LENDER) AMOUNTING RS.50 CRORES. II. LOAN AGREEMENT DATED 27.06.2007 BETWEEN PRAKAUSA LI INVESTMENTS (INDIA) PRIVATE LIMITED (THE BORROWER AND/ OR THE PLEDGER) AND GE CAPITAL SERVICES INDIA (THE LENDER ) AMOUNTING TO RS.50 CRORES. ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 3 III. LOAN AGREEMENT DATED 31.07.2007 BETWEEN PRAKAUS ALI INVESTMENTS (INDIA) PRIVATE LIMITED (THE BORROWER AND/ OR THE PLEDGER) AND GE CAPITAL SERVICES INDIA (THE LENDER ) AMOUNTING RS.50 CRORES. 4. THE AFOREMENTIONED LOANS WERE ASSIGNED BY GE CAPITA L SERVICES TO ITS TRUSTEES AS FOLLOWS:- I. LOAN FACILITY OF RS.50 CRORES PURSUANT TO LOAN AGRE EMENT DATED 27.06.2007 ASSIGNED TO M/S KPU LOAN TRUST THROUGH DEE D OF ASSIGNMENT DATED 27.06.07. II. LOAN FACILITY OF RS.50 CRORES PURSUANT TO LOAN AGR EEMENT DATED 27.06.2007 ASSIGNED TO M/S KPU LOAN TRUST THROUGH DEE D OF ASSIGNMENT DATED 28.06.07. III. LOAN FACILITY OF RS.50 CRORES PURSUANT TO LOAN AG REEMENT DATED 31.07.2007 ASSIGNED TO M/S KUP LOAN TRUST THROUGH DEE D OF ASSIGNMENT DATED 08.08.07. 5. A SURVEY U/S 133A WAS CONDUCTED ON THE ASSESSEE ON 28 TH DECEMBER 2007 AND IT WAS NOTICED THAT THE ASSESSEE DID NOT DEDUCT TAX ON THE FOLLOWING PAYMENTS MADE BY IT AS INTEREST O F AFOREMENTIONED LOANS:- DATE AMOUNT 26.07.2007 RS.1 03 45 891/- 27.08.2007 RS.1 16 16 438/- 26.09.2007 RS.1 08 90 410/- 28.10.2007 RS.1 19 79 452/- 26.11.2007 RS.1 01 64 384/- TOTAL RS.5 49 96 575/- ========== 6. AMONG OTHER CONTENTIONS IT WAS THE PLEA OF THE ASSE SSEE THAT IT HAS NO LIABILITY TO DEDUCT TAX AT SOURCE FROM THE AFO REMENTIONED PAYMENTS OF INTEREST ON ACCOUNT OF APPLICATION OF SEC TION 196 AS THE INTEREST WAS PAID TO THE MUTUAL FUNDS. IT WAS ALSO THE CONTENTION OF THE ASSESSEE THAT THEY WERE INFORMED BY THE TRUSTS THAT THEY WILL GET THE EXEMPTION CERTIFICATE AND HENCE NO TAX SHOULD BE D EDUCTED. HOWEVER THE EXEMPTION CERTIFICATE WAS ISSUED LATER ON HENCE THE ASSESSEE SHOULD NOT BE CONSIDERED TO BE AN ASSESSEE IN DEFAULT. T HE ASSESSING ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 4 OFFICER DID NOT ACCEPT SUCH SUBMISSIONS OF THE ASSESSEE AND HELD THAT FOR THE PERIOD BEFORE THE ISSUE OF EXEMPTION CERTIFIC ATE THE ASSESSEE WAS LIABLE FOR DEDUCTION OF TAX. 7. SIMILARLY IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE DID NOT DEDUCT TAX ON PROCESSING CHARGES OF ` 2 28 02 338/- WHICH THE ASSESSEE ADMITTED ITS DEFAULT AND DEPOSITED THE TDS OF ` 25 67 844/- ON 10 TH JANUARY 2008 WHICH INCLUDED INTEREST FOR NON-DEDUC TION OF TAX. THE DEMAND RAISED IN RESPECT OF NON-DEDUCTION OF TAX FROM INTEREST WAS AN AGGREGATE SUM OF ` 1 39 57 549/- WHICH INCLUDE D AN INTEREST OF ` 8 40 066/- THE DETAILS OF WHICH ARE AS UNDER:- S.NO. DATE OF PAYMENT/CR. OF INTEREST AMOUNT OF INTEREST RATE OF TDS AMT. OF TDS DEDUCTIBLE DEFAULT MONTHS INTEREST @ 12% 1. 26.07.2007 10345891 22.66 23 44 379/- 8 1 87 550/- 2. 27.08.2007 11616438 -DO- 26 32 285/- 7 1 84 260/- 3. 03.09.2007 5989727 -DO- 13 57 272/- 7 95 009/- 4. 26.09.2007 10890410 -DO- 24 67 766/- 6 1 48 066/- 5. 02.10.2007 5445205 -DO- 12 33 884/- 6 74 033/- 6. 28/29.10.2007 11979452 -DO- 27 14 544/- 5 1 35 727/- 7. 9.10.2007 13 15 924 -DO- 2 99 188/- 5 14 960/- 8. 26.11.2007 1315924 0.1133 68 165/- 4 461/- RS. 1 31177483 RS. 8 40 066/- TOTAL: 1 39 57 549/- 8. ON ACCOUNT OF PROCESSING CHARGES CONSOLIDATED DEMAN D OF ` 25 67 844/- WAS CREATED WHICH INCLUDED AN INTEREST OF ` 1 50 853/-. 9. IN THIS MANNER A TOTAL TDS LIABILITY OF THE ASSESSEE ON BOTH THE ACCOUNTS WAS COMPUTED AT A SUM OF ` 1 65 25 393/-. 10. BEFORE CIT (A) THE DEMAND OF AFOREMENTIONED AM OUNT WAS AGITATED ON VARIOUS GROUNDS THE MAIN OF WHICH IS THAT THE EXEMPTION CERTIFICATES WERE ISSUED BY THE ASSESSING OFFICER FOR NON- DEDUCTION OF TAX AND THOSE CERTIFICATES WERE APPLICABLE FOR THE W HOLE OF THE YEAR ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 5 AND THEREFORE THE DEMAND RAISED IN RESPECT OF PERIO D BEFORE ISSUE OF CERTIFICATE COULD NOT BE RAISED. THE OTHER CONTENTI ON RAISED WAS REGARDING THESE INTEREST PAYMENTS BEING CLAIMED TO BE MADE TO MUTUAL FUNDS HENCE NO TDS PROVISIONS WAS APPLICABLE A ND ALSO THE GROUND THAT THE LIABILITY TO PAY TAX WAS RAISED VIDE AN ORDER DATED 24 TH MARCH 2008 WHICH IS A DATE BEFORE THE END OF THE RE LEVANT FINANCIAL YEAR HENCE THE VALIDITY OF THE ORDER CREATING THE AFOREMENTIONED DEMAND WAS CHALLENGED. LD. CIT (A) HAS ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE SO AS IT RELATES TO DEMAND RAISED ON ACCOUNT OF NON-DEDUCTION OF TAX ON INTEREST AND INTEREST THEREON AND SO FAR AS IT RELATES TO DEMAND RELATING TO NON-DEDUCTION OF TAX U /S 194J LEARNED CIT (A) HAS UPHELD THE ORDER OF THE ASSESSING OFFICER. 11. TO DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE REFERR ING TO DEMAND RAISED ON ACCOUNT OF NON-DEDUCTION OF TAX FRO M INTEREST LEARNED CIT (A) HAS GIVEN A FINDING THAT THE BENEFIT OF EXEMPTION CERTIFICATE GRANTED BY THE ASSESSING OFFICER COULD NOT BE TAKEN AWAY FROM THE ASSESSEE AS THE APPLICATION FOR ISSUE OF LOWER DE DUCTION OR NON-DEDUCTION OF INCOME CERTIFICATE IS MADE WITHIN T HE TIME FOR A PARTICULAR FINANCIAL YEAR AND GENERALLY IT TAKES TIM E AND THE CERTIFICATE IS OFTEN ISSUED BELATEDLY THEREFORE THE BENEFIT TO T HE ASSESSEE CANNOT BE DENIED EVEN IF THE CERTIFICATE IS ISSUED AFTER A LA PSE OF 3 MONTHS IN A CASE WHERE THE ASSESSING OFFICER HAS NOTED/ACCEPTED THE CERTIFICATES AND ISSUED THE CERTIFICATE FOR WHOLE OF THE FINANCIAL YEAR. SHE NOTED THAT IN THE CASE OF THE ASSESSEE CERTIFICATES FOR EXEMPT ION WERE GRANTED ON 9 TH OCTOBER 2007 AND 31 ST OCTOBER 2007 AND THEY WERE FOR FULL FINANCIAL YEAR I.E. FROM 01.04.2007 TO 31 ST MARCH 2008 HENCE IT WAS WRONG ON THE PART OF THE ASSESSING OFFICER TO TREAT THE ASSESSEE AS THE ASSESSEE IN DEFAULT FOR THE PERIOD FROM 26 TH JULY 2007 AND 27 TH AUGUST 2007 TO 9 TH OCTOBER 2007 AND 31 ST OCTOBER 2007 RESPECTIVELY AND FOR THIS PURPOSE SHE RELIED UPON THE FOLLOWING T WO DECISIONS:- ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 6 I) ITO (TDS) CHITTORGARH VS. DEPUTY GENERAL MANAGER (F INANCE) ADITYA CEMENT 196 ITD 398. II) CIT VS. GINNI INTERNATIONAL LTD. (2006) 202 CTR (D ELHI) 551. 12. FURTHER LEARNED CIT (A) HAS OBSERVED THAT SINCE T HE DEDUCTEES HAVE FILED THEIR RETURN OF INCOME SHOWING NIL INCOME THEREFORE APPLYING THE RATIO OF THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE P. LTD. VS. CIT (2007 ) 293 ITR 226 (SC) NO DEMAND IS VISUALIZED U/S 201 (1) OF THE ACT AN D IT CANNOT BE ENFORCED AFTER THE TAX DEDUCTOR HAS SATISFIED THE OFFI CE IN-CHARGE TDS THAT THE TAXES DUE HAVE BEEN PAID BY THE DEDUCTEE ASSE SSEE. REFERENCE IN THIS REGARD HAS ALSO BEEN MADE TO THE SPE CIAL BENCH DECISION OF MUMBAI BENCHES IN THE CASE OF MAHINDRA & M AHINDRA VS. DCIT 30 SOT 374 (SB) (MUM). REFERRING TO ALL THESE ARGUMENTS SHE HAS HELD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS F ROM THE INTEREST PAID BY IT TO KPU LOAN TRUST AND KUP LOAN TR UST AND IN THIS MANNER SHE HAS DELETED THE DEMAND RAISED ON ACCOUNT O F NON- DEDUCTION OF TAX ON INTEREST AMOUNTING TO `1 31 17 4 83/- AND SINCE THERE WAS NO DEFAULT IN NON-DEDUCTION OF TAX INTERE ST THEREON OF ` 8 40 066/- HAS ALSO BEEN CANCELLED. 13. THE DEPARTMENT IN ITS APPEAL IS AGGRIEVED BY THE AFOREMENTIONED FINDINGS OF LEARNED CIT (A) AND HAS RAISED THE FOLLOWI NG GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED CIT (A) HAS ERRED IN HOLDING/OVERRULING THE DATE OF ISSUANCE OF CERTIFICATE U/S 197 OF THE ACT IS IMMATERIAL TO THE STATUTORY PROVISIONS OF THE ACT IF THE SAME HAS BEEN ISSUED WITHIN THAT PARTICULAR FINANCIAL YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED CIT (A) HAS ERRED IN HOLDING/OVERRULING ASSESSEE IS NOT IN DEFAULT AS PROV IDED IN SECTION 201(1) OF THE ACT FOR NOT DEDUCTING TAX AT SOURCE U/S 194A ON THE PAYMENT OF INTEREST MADE TO M/S KUP LOAN TRUST & M/S KUP LOAN TRUST PRIOR TO 31.10.07 & 09.10.0 7 ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 7 TRUST & M/S KUP LOAN TRUST PRIOR TO 31.10.07 & 09.10.0 7 RESP. SINCE THE PARTY PRODUCED CERTIFICATE U/S 197 IN F ORM NO.15AA ISSUED ON 31.10.07 & 09.10.07 RESPECTIVELY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED CIT (A) HAS ERRED IN HOLDING/OVERRULING BOARD CIRCULAR NO.774 DATED 17.03 .1999 WHICH CURTAIL THE POWER OF A.O. TO ISSUE AUTHORIZATION U /S 197 WITH RETROSPECTIVE EFFECT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED CIT (A) HAS ERRED IN HOLDING/OVERRULING AS THE DEDUCTEES HAVE FILED THEIR I NCOME TAX RETURNS AT NIL THEREFORE THE ASSESSEE CANNOT BE HELD AS ASSESSEE IN DEFAULT BY RELYING ON APEX COURTS DEC ISION IN THE CASE OF M/S HINDUSTAN COCO COLA BEVERAGES. THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AMEND ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 14. THE ASSESSEE IN ITS CROSS OBJECTION IS AGGRIEVED WITH T HE ORDER OF THE CIT (A) VIDE WHICH NO FINDINGS HAVE BEEN RECORDE D IN RESPECT OF GROUND TAKEN BY THE ASSESSEE THAT NO TDS LIABILITY WAS T HERE AS THESE INTEREST PAYMENTS ARE PAID TO THE MUTUAL FUNDS SPECIFIE D U/S 10 (23D). SECONDLY ON THE GROUND THAT NO FINDING HAS BEEN REC ORDED BY THE LEARNED CIT (A) ON ASSESSEES SUBMISSION THAT THE IMPUGNED ORDER WAS PASSED BEFORE THE END OF THE FINANCIAL YEAR I.E. ON 24 TH MARCH 2008 HENCE THE ORDER PASSED WAS NOT VALID IN THE EYES OF LA W AND WAS REQUIRED TO BE QUASHED. 15. AS OBSERVED HEREINBEFORE A PENALTY OF ` 1 55 34 474/- WAS ALSO LEVIED ON THE ASSESSEE U/S 271C OF THE ACT VIDE ORDER DA TED 30 TH DECEMBER 2009. LEARNED CIT (A) HAS DELETED THE PENA LTY OF ` 1 31 17 483/- LEVIED ON ACCOUNT OF NON-DEDUCTION OF TAX ON INTEREST PAID TO AFOREMENTIONED KPU LOAN TRUST AND KUP LOAN T RUST AS IN THE QUANTUM THE ASSESSEE HAS BEEN HELD TO BE NOT LIABLE FOR DEDUCTION OF TAX. SHE HAS SUSTAINED ANOTHER AMOUNT OF ` 24 16 991/ - ON THE GROUND THAT THERE WAS A LIABILITY OF THE ASSESSEE FOR DEDUCTION OF TAX AND THE ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 8 ASSESSEE DID NOT DEDUCT AND DEPOSIT THE SAID TAX HENCE IT WAS LIABLE FOR PENALTY. THE DEPARTMENT ITS APPEAL IN ITA NO.28 44/DEL/2010 IS CONTESTING THE DELETION OF PENALTY OF ` 1 31 17 483/ - AND THE ASSESSEE IN ITS APPEAL IS CONTESTING THE SUSTENANCE OF PENALTY OF ` 24 16 991/-. 16. AT THE TIME OF HEARING LEARNED AR OF THE ASSESSEE FILED A LETTER DATED 23 RD MARCH 2011 IN WHICH HE HAS STATED THAT THE ASSESSEE MAY BE PERMITTED TO WITHDRAW ITS APPEAL RELATING TO SUSTEN ANCE OF PENALTY OF ` 24 16 991/- LEVIED ON ACCOUNT OF NON-DEDUCTION OF TDS ON PROCESSING CHARGES U/S 194J. LEARNED DR DID NOT HAVE A NY OBJECTION UPON SUCH REQUEST FOR WITHDRAWAL HENCE AFTER HEARIN G BOTH THE PARTIES THE ASSESSEE WAS PERMITTED TO WITHDRAW ITS APPEAL RELATING TO SUSTENANCE OF PENALTY FOR NON-DEDUCTION OF TAX U/S 194 J HENCE ITA NO.2199/DEL/2010 IS DISMISSED AS WITHDRAWN. 17. AFTER NARRATING THE FACTS RELYING UPON THE GROU NDS OF APPEAL IT WAS SUBMITTED BY LEARNED DR THAT CIT (A) HAS ERRED IN NOT TAKING INTO CONSIDERATION THE DATE OF ISSUANCE OF CERTIFICATE U/S 1 97 WHICH IS AN IMPORTANT FACTOR AND TILL THE DATE OF ISSUE OF THE CE RTIFICATE THE ASSESSEE WAS LIABLE FOR DEDUCTION OF TAX HENCE WAS AN A SSESSEE IN DEFAULT. HE SUBMITTED THAT BY HOLDING SO LEARNED CI T (A) HAS ACTED CONTRARY TO BOARD CIRCULAR NO.774 DATED 17 TH MARCH 1999 VIDE WHICH THE POWERS OF THE ASSESSING OFFICER WERE CURTAILED TO ISSU E AUTHORIZATION U/S 197 WITH RETROSPECTIVE EFFECT. HE SUBMITTED THAT LEARNED CIT (A) HAS ALSO ERRED IN HOLDING THAT SINCE D EDUCTEES HAVE FILED THEIR INCOME-TAX RETURN AT NIL THEREFORE TH E ASSESSEE CANNOT BE CONSIDERED TO BE THE ASSESSEE IN DEFAULT. THUS IT WAS SUB MITTED BY LEARNED DR THAT LEARNED CIT (A) HAS ERRED IN DELETIN G THE DEMAND OF ` 1 31 17 483/- AND INTEREST THEREON OF ` 8 40 066/-. 18. ON THE OTHER HAND RELYING UPON THE ORDER OF CI T (A) AND THE SUBMISSIONS MADE BEFORE HER LEARNED AR SUBMITTED THAT T HE DEMAND ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 9 HAS RIGHTLY BEEN CANCELLED. HE IN THIS REGARD HAS ALSO RELIED UPON CERTAIN DOCUMENTS PLACED IN THE PAPER BOOK. HE PLEA DED THAT THE ORDER OF THE CIT (A) SHOULD BE UPHELD. REFERRING TO THE CROSS OBJECTIONS FILED BY THE ASSESSEE HE SUBMITTED THAT THOUGH THE CIT (A) HAS GRANTED THE RELIEF TO THE ASSESSEE THE ASSESSEE IS AGGRI EVED WITH THE ORDER OF THE CIT (A) FOR NOT GIVING HER FINDING UPON THE TWO ISSUES WHICH ARE STATED IN THE GROUNDS OF APPEAL AS UNDER:- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN THE LAW THE LD. CIT (A) HAS ERRED BY NOT GIVING HER FINDING O N THE CONTENTION RAISED BY THE ASSESSEE THAT THE ASSESSEE WAS N OT LIABLE TO DEDUCT ANY TDS ON THE PAYMENT OF INTEREST MADE TO THESE EXEMPTED TRUSTS I.E. M/S KPU LOAN TRUST AND M/S K UP LOAN TRUST FOR THE SECURITIES HELD BY THESE TRUSTS AS THE FULL BENEFICIAL INTEREST IN THESE TRUSTS WERE HELD BY MUTUAL F UNDS AS SPECIFIED U/S 10(23D). THEREFORE IN VIEW OF THE SP ECIFIC PROVISIONS OF SECTION 196 WHICH OVERRIDES PROVISION S OF SECTION 194A WHICH STIPULATES THAT NO DEDUCTION OF TAX AT SOURCE SHALL BE MADE BY ANY PERSON FROM ANY SUMS PAYABLE TO SECTION 196 (IV) A MUTUAL FUND SPECIFIED UNDER CLAUSE (23D) OF SECTION 10 WHERE SUCH SUM IS PAYABLE TO IT BY WAY OF INTEREST OR DIVIDEND IN RESPECT OF ANY SECURITIES OR SHARES OWNED BY IT OR IN WHICH IT HAS FULL BENEFICIAL INTEREST OR ANY OTHER INCOME ACCRUING OR ARISING TO IT. THEREFORE THE ACTION OF THE LD. CIT (A) IS INCOMPLETE AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TDS ON THIS GROUND ITSELF AS THE CASE OF THE ASSESSEE IS DULY COVERED BY THE PRO VISIONS OF SECTION 196. HENCE ORDER DATED 24/03/2008 PASSED BY THE LD. ITO TDS WARD 51 (1) SHOULD BE QUASHED ON THIS GROUND ITSELF. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CI T (A) HAS ERRED BY NOT GIVING ANY FINDING ON THE CONTENTION R AISED BY THE ASSESSEE THAT THE ORDER DATED 24/03/2008 U/S 201(1)/201(1A) FOR THE FINANCIAL YEAR 2007-08 WAS PA SSED BEFORE THE END OF THE FINANCIAL YEAR WHICH COULD HAVE BEEN PASSED ONLY AFTER THE END OF THE FINANCIAL YEAR HENCE THE ORDER WAS BAD AT LAW. THEREFORE THE ACTION OF THE LD. CIT ( A) IS INCOMPLETE AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TDS. HENCE ORDER DATED 24/03/2008 PASSED BY THE LD. ITO T DS WARD 51 (1) SHOULD BE QUASHED. ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 10 19. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE DETAILS OF LOANS O BTAINED BY THE ASSESSEE HAVE ALREADY BEEN NARRATED IN THE ABOVE PART O F THE ORDER. IN RESPECT OF LOAN OF ` 50 CRORE ASSIGNED BY THE G.E. CAP ITAL SERVICES INDIA IN THE NAME OF KUP LOAN TRUST THE DATE OF BORROWING IS 2 ND AUGUST 2007. THE SAID PARTY VIDE LETTER DATED 31 ST AUGUST 2007 (COPY OF WHICH IS PLACED AT PAGE 330 OF THE PAPER BOOK) HAS IN FORMED THE ASSESSEE THAT BENEFICIARY OF THE SAID TRUST ARE ALL EXEMP T ENTITY FOR THE PURPOSES OF TDS AND THE TRUST HAS APPLIED FOR AN EXEMPT ION CERTIFICATE FOR THE PURPOSE OF NON/DEDUCTION OF TAX AT SOURCE WHI CH IS EXPECTED SHORTLY AND WILL BE FURNISHED TO YOU AND THEY HAVE RE QUESTED THE ASSESSEE TO MAKE THE PAYMENT OF INTEREST DUE WITHOUT DED UCTION OF TAX AT SOURCE AND IT HAS BEEN MENTIONED THAT IN THE EVENT THE TRUST IS UNABLE TO PROVIDE THE CERTIFICATE THEY WILL REFUND THE TAX AMOUNT INCLUDING PENALTIES AS APPLICABLE. 20. SIMILARLY KPU LOAN TRUST WHO HAS BEEN ASSIGNED THE LOAN OF ` 100 CRORE THE BORROWED AMOUNT WAS RECEIVED BY THE A SSESSEE ON 26 TH JULY 2007 HAS WRITTEN A LETTER TO THE ASSESSEE DATED 20 TH JULY 2007 OF THE SIMILAR INTENT. THE COPY OF SUCH LETTER IS PLACED AT PAGES 329 OF THE PAPER BOOK AND IN FURTHERANCE THEREOF THE ITO TDS HAS ISSUED LETTERS DATED 9 TH OCTOBER 2007 AND 31 ST OCTOBER 2007 TO THE ASSESSEE IN RESPECT OF KUP LOAN TRUST AND KPU LOAN TRUST RESPECTIVE LY VIDE WHICH ON THE LOANS RECEIVED FROM KUP LOAN TRUST THE TAX RAT E WAS INFORMED TO BE NIL AND ON THE LOANS OBTAINED FROM KPU LOAN TR UST THE DEDUCTION WAS REQUIRED TO BE MADE @ 0.10%. COPIES OF THESE CERT IFICATES ARE PLACED AT PAGES 331 AND 332 RESPECTIVELY. FOR THE SAK E OF CLARITY THE COPY OF BOTH THESE CERTIFICATES ARE REPRODUCED BELOW: - ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 11 CERTIFICATE UNDER SECTION 197(1) OF THE INCOME TAX ACT 1961 RELATING TO DEDUCTION OF TAX CERTIFICATE NO.ITO(TDS)2(2)/40/07-08 OFFICE OF THE ITO (TDS) 2(2) ROOM NO.707 SMT. K.G. MITTAL HOSP. BLDG. CHARNI ROAD (WEST) MUMBAI 400 002. DATE: 09.10.2007. TO PRAKAUSALI INVESTMENTS (INDIA) PRIVATE LTD. C-41 MAYFAIR GARDENS NEW DELHI 110 016. I HEREBY AUTHORIZE YOU TO PAY THE INTEREST AMOUNT P AYABLE BY YOU ON UNDER MENTIONED SUMS CREDITED IN THE NAME OF KUP LO AN TRUST IL & FS TRUST COMPANY LIMITED THE IL & FS FINANCIAL CEN TRE PLOT C-22 BLOCK G BANDRA KURLA COMPLEX BANDRA (EAST) MUMBA I 400 051 AFTER DEDUCTING INCOME-TAX @ NIL AND SURCHARGE & EDUCATIO N CESS AT THE RATE APPLICABLE ON THE AMOUNT OF THE INTEREST. THIS CERTIFICATE SHALL REMAIN IN FORCE UP TO 31.03. 2008 UNLESS IT IS CANCELLED BY ME UNDER INTIMATION TO YOUR BEFORE THA T DATE. SCHEDULE SR. NO. NAME & ADDRESS OF THE PERSON TO WHOM THE SUMS ARE GIVEN ON INTEREST AMOU NT OF SUCH SUMS THE DATE ON WHICH SUCH SUMS WERE GIVEN ON INTEREST. PERIOD FOR WHICH SUCH SUMS WERE GIVEN ON INTEREST. RATE OF INTEREST ESTIMAT ED AMOUNT OF INTEREST TO BE RECEIVED . 1. PRAKAUSALI INVESTMENTS (INDIA) PRIVATE LTD. C-41 MAYFAIR GARDENS NEW DELHI 110 016. RS.50 CRORES 2/8/07 01/4/07 TO 31/3/08 15.10% RS.5.03 CRORES SD/- (H.G. MULKI) INCOME-TAX OFFICER (TDS) 2 (2) MUMBAI. ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 12 CERTIFICATE UNDER SECTION 197(1) OF THE INCOME TAX ACT 1961 RELATING TO DEDUCTION OF TAX CERTIFICATE NO.ITO(TDS)2(2)/383/07-08 OFFICE OF THE ITO (TDS) 2(2) ROOM NO.707 SMT. K.G. MITTAL HOSP. BLDG. CHARNI ROAD (WEST) MUMBAI 400 002. DATE: 31.10.2007. TO PRAKAUSALI INVESTMENTS (INDIA) PRIVATE LTD. C-41 MAYFAIR GARDENS NEW DELHI 110 016. I HEREBY AUTHORIZE YOU TO PAY THE INTEREST AMOUNT P AYABLE BY YOU ON UNDER MENTIONED SUMS CREDITED IN THE NAME OF KPU LO AN TRUST IL & FS TRUST COMPANY LIMITED THE IL & FS FINANCIAL CEN TRE PLOT C-22 BLOCK G BANDRA KURLA COMPLEX BANDRA (EAST) MUMBA I 400 051 AFTER DEDUCTING INCOME-TAX @ 0.10% AND SURCHARGE & EDUCAT ION CESS AT THE RATE APPLICABLE ON THE AMOUNT OF THE INTEREST. THIS CERTIFICATE SHALL REMAIN IN FORCE UP TO 31.03. 2008 UNLESS IT IS CANCELLED BY ME UNDER INTIMATION TO YOUR BEFORE THA T DATE. SCHEDULE SR. NO. NAME & ADDRESS OF THE PERSON TO WHOM THE SUMS ARE GIVEN ON INTEREST AMOU-NT OF SUCH SUMS THE DATE ON WHICH SUCH SUMS WERE GIVEN ON INTEREST. PERIOD FOR WHICH SUCH SUMS WERE GIVEN ON INTEREST. RATE OF INTERE ST ESTIMAT-ED AMOUNT OF INTEREST TO BE RECEIVED 1. PRAKAUSALI INVESTMENTS (INDIA) PRIVATE LTD. C-41 MAYFAIR GARDENS NEW DELHI 110 016. RS.100 CRORES 26/7/07 01/4/07 TO 31/3/08 14.30 % RS.109110959 SD/- (H.G. MULKI) INCOME-TAX OFFICER (TDS) 2 (2) MUMBAI. 21. AS IT CAN BE SEEN FROM THE ABOVE CERTIFICATES THE DATES ON WHICH THE AMOUNTS HAVE BEEN BORROWED BY THE ASSESSEE IS ALSO STA TED AND ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 13 THE PERIOD FOR WHICH THE SAID SUM HAVE BEEN GIVEN IS A LSO RECORDED AND ESTIMATED AMOUNT OF INTEREST TO BE RECEIVED IS ALSO REC ORDED. IF IT IS SO THEN WHILE ISSUING THE CERTIFICATE THE CONCERNED ASSESSI NG OFFICER HAS TAKEN INTO CONSIDERATION ALL THE FACTS OF RECEIVING T HE INTEREST BY THOSE CONCERNS FROM THE ASSESSEE. EVEN THE DEPARTMENT HAS RECO GNIZED THAT ALMOST NO TAX WAS EXIGIBLE ON THE INTEREST RECEIVED BY THOSE CONCERNS FROM THE ASSESSEE. BOTH OF THE AFOREMENTIONED CONCERNS HAVE INTIMATED THE ASSESSEE IN ADVANCE (I.E. BEFORE THE DUE DATE OF DEDUCTION OF TAX) FOR NON-DEDUCTION OF TAX AS APPROP RIATE MEASURE HAVE ALREADY BEEN TAKEN BY THOSE CONCERNS FOR GETTING PERMISSION FROM THE DEPARTMENT FOR NON-DEDUCTION OR LOWER DEDU CTION OF THE TAX. THE EXISTENCE OF ALL THESE EVIDENCES ON RECORD HAS NOT BEEN DOUBTED OR DISPUTED. IF IT IS SO THEN THE ASSESSEE CANNOT BE TR EATED TO BE THE ASSESSEE IN DEFAULT FOR NON-DEDUCTION OF TAX EVEN FOR T HE PERIOD PRIOR TO THE DATE OF ISSUE OF THE CERTIFICATE AS TRANSACTION IN ITS ENTIRETY HAS BEEN TAKEN INTO CONSIDERATION BY THE ITO TDS WHILE ISSUING THE CERTIFICATE FOR NON-DEDUCTION OF TAX/LOWER DEDUCTIO N OF TAX. THE CASE LAW RELIED UPON BY THE LD. CIT (A) ALSO SUPPORTS THE C ASE OF THE ASSESSEE. IN THE CASE OF GINNI INTERNATIONAL LTD. (SUPRA ) THE ASSESSEE HAS CREDITED A SUM OF ` 26 35 746/- AS INTEREST PAYABLE TO G.F LTD. ON 31 ST MARCH 1995. ON 10 TH MARCH 1995 THE SAID COMPANY HAD INFORMED THE ASSESSEE THAT IT BEING 100% EOU WAS EXEMPT FROM PAYMENT OF INCOME-TAX AND IT IS IN THE PROCESS OF APPL ICATION BEING SUBMITTED TO THE COMPETENT AUTHORITY FOR AN EXEMPTIO N CERTIFICATE FROM DEDUCTION OF TAX AT SOURCE. ON THE BASIS OF THE SAID I NTIMATION THE ASSESSEE THOUGH HAD CREDITED THE AMOUNT OF INTEREST TO T HE ACCOUNT OF PAYEE BUT NO TAX WAS DEDUCTED AT SOURCE. IT WAS HELD BY HONBLE DELHI HIGH COURT THAT IN VIEW OF ISSUE OF AUTHORIZATI ON REGARDING NON- DEDUCTION OF TAX AT SOURCE ON 10 TH MAY 1995 THERE WAS NO DEFAULT IN COMPLIANCE WITH THE PROVISIONS REGARDING TAX DEDUCTIO N AT SOURCE. SIMILARLY IN THE CASE OF ITO (TDS) CHITTORGARH VS. D EPUTY GENERAL ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 14 MANAGER (FINANCE) ADITYA CEMENT IT WAS HELD THAT C ERTIFICATE FOR NON- DEDUCTION OF TAX WOULD HOLD GOOD AND WOULD REMAIN I N FORCE TILL THE CLOSE OF FINANCIAL YEAR IN WHICH IT IS ISSUED. HENCE IN OUR OPINION NO INFIRMITY HAS BEEN COMMITTED BY THE LEARNED CIT (A) IN ARRIVING AT A CONCLUSION THAT THE ASSESSEE WAS NOT UNDER AN OBLIGATION TO DEDUCT TAX ON INTEREST PAYMENT RELATING TO AFOREMENTIONED TWO B ORROWED FUNDS I.E. IN RESPECT OF KPU LOAN TRUST AND KUP LOAN TRUST. WE DECLINE TO INTERFERE IN SUCH FINDINGS RECORDED BY THE CIT (A). 22. SO AS IT RELATES TO THE CONTENTION OF THE REVENUE THAT THE CIT (A) WHILE HOLDING SO HAS ACTED CONTRARY TO THE CIRCULAR N O.774 DATED 17 TH MARCH 1999 COPY OF SUCH CIRCULAR WAS PRODUCED BEFOR E US WHICH READ AS UNDER:- 1174. WHETHER CERTIFICATE ISSUED UNDER SECTION 197(1) WILL BE APPLICABLE ONLY IN RESPECT OF CREDIT OR PAYMENTS A S THE CASE MAY BE SUBJECT TO TAX DEDUCTION AT SOURCE MADE ON OR A FTER DATE OF SUCH CERTIFICATE. 1. SECTION 197 (1) OF THE ACT ENVISAGES THAT WHERE TAX I S DEDUCTIBLE AT SOURCE IN TERMS OF SECTION 192 193 194 194A 194D 194-I 194K AND 195 OF THE INCOME-TAX ACT AND TH E RECIPIENT JUSTIFIES THE DEDUCTION OF TAX AT ANY LOWER RATE OR NO DEDUCTION OF TAX TO THE SATISFACTION OF THE ASSESSING OFFI CER THE ASSESSING OFFICER SHALL ISSUE AN APPROPRIATE CERTIFIC ATE. IT HAS COME TO THE NOTICE OF THE BOARD THAT IN CERTAIN CHARGES A PRACTICE HAS DEVELOPED TO ISSUE CERTIFICATES UNDER SECTI ON 197(1) OF THE INCOME-TAX ACT EVEN AFTER THE CREDIT OR PAYMENT OF AMOUNTS SUBJECT TO TAX DEDUCTION AT SOURCE. THIS IS NOT I N ACCORDANCE WITH THE PROVISIONS OF LAW. 2. IT IS THEREFORE CLARIFIED THAT THE CERTIFICATE ISSUED UNDER SECTION 197(1) OF THE INCOME TAX ACT WILL BE APPLICABLE ONLY IN RESPECT OF CREDIT OR PAYMENTS AS THE CASE MAY BE SUBJ ECT TO TAX DEDUCTION AT SOURCE MADE ON OR AFTER THE DATE OF SUC H CERTIFICATE. THEREFORE NO CERTIFICATE UNDER SECTION 1 97(1) OF THE INCOME-TAX ACT SHOULD BE ISSUED AFTER THE AMOUNTS SUBJEC T TO TAX DEDUCTION AT SOURCE STAND CREDITED OR PAID WHICHEVE R IS EARLIER. 3. IN OTHER WORDS HENCEFORTH APPLICATION REQUESTING F OR CERTIFICATE UNDER SECTION 197(1) SHOULD NOT BE ACTED UPO N IF ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 15 SUBMITTED AFTER CREDIT/PAYMENT OF THE AMOUNT SUBJECT TO TAX DEDUCTION AT SOURCE. HOWEVER ASSESSEE HAVING GENUIN E HARDSHIP IN SUBMITTING SUCH APPLICATIONS ON TIME MAY RE FER TO THE BOARD FOR CONDONATION OF DELAY IN TERMS OF SECTION 119(2)(B) OF THE INCOME-TAX ACT. 23. THE AFOREMENTIONED CIRCULAR IS AN OPINION EXPRE SSED BY THE CBDT ON THE PROVISIONS OF THE ACT. HOWEVER IT IS A M ATTER OF FACT THAT THE CONCERNED TDS AUTHORITY HAD ISSUED THE CERTIFICAT E TO THE ASSESSEE AUTHORIZING THEREIN FOR NON-DEDUCTION OF TAX/LOWER DEDUCTION OF TAX AND THAT AUTHORIZATION IS STILL SUBSISTING. HENCE ON THE B ASIS OF AFOREMENTIONED CIRCULAR IT CANNOT BE SAID THAT THE ASSESSEE HAS COMMITTED ANY WRONG IN NOT FOLLOWING THE EXEMPTION CERTIFICATES ISSUED BY ITO (TDS). THEREFORE SUCH ARGUMENT OF THE DEPARTMENT DOES NOT SUPPORT THE CASE OF THE REVENUE. 24. IN VIEW OF THE ABOVE DISCUSSION WE UPHOLD THE DEL ETION OF DEMAND OF ` 1 31 17 483/- RAISED ON ACCOUNT OF NON-D EDUCTION OF TAX AND INTEREST THEREON OF ` 8 40 066/-. THE DEPARTMEN TAL APPEAL IN THIS REGARD IS DISMISSED. 25. AS APPROPRIATE RELIEF GIVEN BY THE CIT (A) IN RE SPECT OF TDS ON INTEREST HAS ALREADY BEEN UPHELD AND DEPARTMENTAL APP EAL IN THIS REGARD IS DISMISSED THE C.O. FILED BY THE ASSESSEE HAS BEC AME INFRUCTUOUS AND ACADEMIC THEREFORE THE SAME IS ALSO D ISMISSED. 26. IN THE RESULT THE DEPARTMENTAL APPEAL AS WELL AS CROSS OBJECTIONS FILED BY THE ASSESSEE BOTH ARE DISMISSED. 27. NOW COMING TO ITA NO.2844/DEL/2010 WE HAVE AL READY HELD THAT LEARNED CIT (A) HAS RIGHTLY DELETED THE ADDITION MAD E ON ACCOUNT OF NON-DEDUCTION OF TAX ON INTEREST. IN VIEW OF THE FA CT THAT NO DEMAND IS NOW EXISTING AGAINST THE NON-DEDUCTION OF TAX ON INTE REST THEN THE ITA NO.2472/DEL/2010 CO NO.225/DEL/2010 ITA NO.2844/DEL/2010 ITA NO.2199/DEL/2010 16 QUESTION OF LEVY OF PENALTY U/S 271-C THEREON DOES NOT ARISE HENCE THE DEPARTMENTAL APPEAL ON THAT ISSUE IS ALSO DISMISSED. 28. IT HAS ALREADY BEEN OBSERVED THAT ITA NO.2199/DEL /2010 IS DISMISSED AS WITHDRAWN. 29. TO SUM UP THE THREE APPEALS AND CROSS OBJECTION AR E DISMISSED IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 31.03.20 11. SD/- SD/- [K.G. BANSAL] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 31.03.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES