Unreported Decisions – March 2020
By Ajay R. Singh, Advocate
1. Section 145 – Method of accounting – change in accounting method – bona fide reason for change in method adopted by assessee – change justified.
The assesse company is engaged in the business of development, operation and maintenance of industrial park at Mysore. For the above purpose, it was allotted lease of industrial land by KIADB. The assessee has entered into an agreement with Shapoorji Pallonji & Co.Ltd., for development of industrial park, for which it has paid project management and office management service charges. The assessee has capitalized said expenditure into capital work in progress account up to 30/06/2011. But, from 01/07/2011, it has changed its accounting method for accounting project management expenses and accordingly, debited said expenses into the profit and loss account as revenue in nature. The assessee has explained the reasons for change in method of accounting of particular expenditure from capital in nature to revenue in nature. According to the assessee, the change in accounting method for accounting project management expenses is due to temporarily suspension of construction activities for non allotment of entire parcel of land by the KIADB, as per agreement for more than three years. As a result, the project was temporarily suspended and all construction activities are suspended from 01/07/2011. Therefore, it has debited said project management expense into the profit and loss account and claimed deduction u/s 37(1) of the Act.
The Ld. A.O & CIT(A) held that there is no justification for adopting a different method of accounting from a certain date, during the relevant period. There is no change in the nature or status of the business activity at that point. Denial of renewal of lease of land by KIADB or any other reason for temporarily lull in business is not important for following consistent accounting principles. Accordingly, disallowed project management expenditure claimed as revenue in the profit and loss account and added back to capital work in progress account.
Tribunal observed that there is no dispute with regards to the nature of expenditure incurred by the assessee and the genuineness of said expenditure. In fact, the Ld. AO has not doubted expenditure incurred under the head project management services charges. There is no dispute that the business was temporarily suspended from 01/07/2011, due to certain legal hurdles in the project, as per which the KIADB was not able to handover the land allotted for the project. In view of the above, the company has temporarily suspended its business activity w.e.f. 01/07/2011. Therefore, in view of the changed circumstance, the assessee had to rethink its accounting policies, in order to give a fair and better treatment in its financial statements, in respect of various expenditure incurred for the project. The assessee has changed its method of accounting to give better treatment to said expenditure and accordingly, it has debited project management expenses into profit and loss account, because the particular expenses cannot be capitalized, when the construction work has been temporarily suspended during the relevant period. Therefore, the change in method of accounting was necessary in the given facts and circumstances of the case and was also bonafide. Therefore, the Ld. AO, as well as the Ld.CIT(A) erred in coming to the conclusion that the assessee has changed its method of accounting without there being any changes in facts and circumstances and such changes was not bonafide.
Accordingly, project management expenses was allowed as deductions as claimed by the assessee.
Highstreet Developers Pvt. Ltd v. Income Tax Officer 3 (1)(4), ITA No. 92/Mum/2018, A.Y. 2012-13, Bench. “H”, DOH: 29/01/2020 (Mum)(Trib)
2. S.194H : Deduction of tax at source – Commission – (Discount) – distribution/sale of Set-top Boxes by service provider to distributor – relationship between assessee THE CTC NEWS | March 2020 18 www.ctconline.org and distributor would be that of principal and principal and not principal and agent – hence, TDS under section 194H was not attracted.
S. 194C : Deduction at source – Contractors – distribution/sale of Set-top Boxes by service provider to distributor — Not technical or managerial services — Provisions of S.194C is applicable and not S.194J [S.194J]
The assessee company is engaged in the business of providing Direct to Home (DTH) services in the name of Videocon d2h, for which the license is given by Ministry of Information & Broadcasting, Government of India. The assessee has entered into agreements with various distributors for distribution/sale of Set-top Boxes (STB), prepaid vouchers, recharge vouchers, top-up vouchers etc. The assessee has also entered into agreements with various service providers at various locations for carrying out the work of installations of STB and dish antenna. As per the terms of agreement between the parties, the distributors/dealers are allowed discounts on sale of STB and recharge voucher from their maximum Retail Price (MRP). The distributor/dealer can sell these items to the customers at a price not exceeding the MRP. As regards, the installation charges paid for installation of STB and dish antenna, the assessee has paid service charges to service providers and has deducted tax at source u/s 194C of the Act, whereas no tax has been deducted, in respect of discount offered on sale of STB and recharge vouchers to distributors/dealers.
The AO computed short deduction of TDS u/s 194H, in respect of commission offered to distributors/dealers, for sale of STB and recharge coupons. The AO has also computed short deduction of TDS u/s. 201(1) and 201(1A), in respect of service charges paid to service providers for installation of STB and dish antenna u/s. 194J, as against the assessee application of provisions of section 194C of the Act.
The assessee carried the matter in appeal before the first appellate authority. The assessee submission before the Ld.CIT(A) are that the provision of section 194H has no
application, in respect of discount offered to distributors/dealers for sale of STB and recharge coupons, because the said agreement is on principal to principal basis and the title and ownership in goods has been transferred to distributors/dealers. Insofar as, service charges paid to service providers for installation of STB and dish antenna, the contract between the parties is in the nature of works contract, which comes under the provisions of section 194C of the Act and accordingly, it has rightly deducted TDS, as per section 194C of the Act.
The Ld.CIT(A) after considering relevant submissions of the assessee, deleted additions made by the Ld. AO towards short computation of TDS and interest u/s. 201(1) and 201(1A) of the Act. In respect of discount offered to distributors/dealers, on the ground that the arrangement between the parties is on principal to principal basis. Similarly, the Ld.CIT(A) deleted additions made by the Ld. AO towards short deduction of TDS, in respect of payment made to service providers for installation of STB and dish antenna.
The Tribunal held that an identical issue has been considered by the co-ordinate bench of ‘B’ bench Mumbai, in the case of M/s. Videocon d2h Ltd. vs. DCIT in ITA No. 7200/Mum/2012 and 7201/Mum/2012 for AY 2010-11 and 2011-12, where under identical set of facts and on basis of similar agreement between the parties, the Tribunal held that discount offered to distributors/dealers is on the principal to principal basis which does not come under the definition of commission, as defined u/s. 194H of the Act. Therefore, discount offered to distributor/dealers is not in the nature of commission, as defined u/s 194H of the Act, and the assessee shall not required to deduct tax at source on said payment.
The next issue that, in respect of service charges paid to service providers for installation of STB and dish antenna. This issue is also covered in favour of the assessee by the decision of ITAT, Mumbai ‘B’ bench in the case of M/s. Videocon d2h Ltd vs. DCIT in ITA No. 7200/Mum/2012 and 7201/Mum/2012 for AY 2010-11 and 2011- 12, wherein it is held that that the work of installation of Set-Top Boxes and Antenna at the premises of the end-user is given as per the contract with Installation Service Providers (ISPs). The job of the Installation Service Provider is to go to the premises of the subscriber, to install Dish Antenna and Set-Top Box and connect them to the Television of the subscriber. The Installation Service Provider has to connect the Set-top Box to the Television by making few basic wiring connections. It does not require any special technical expertise or any technical degree and it can be done by any sound person on reading through the installation manual. Also, there is no specific qualification or recognized course required for Installation Service Provider to become eligible for installation of Dish and Set-Top Box. They are given basic training/instructions for a short period to make them understand the process of Installation so that they can apply the same at the place of the subscriber.
Therefore, the services charges paid to service providers is in the nature of works contracts and hence, the assessee has rightly deducted TDS u/s. 194C of the Act.
In this view of the above the service charges paid to service providers for installation of STB and dish antenna is in the nature of works contract and accordingly, the assessee has rightly deducted TDS u/s. 194 C of the Act. The Ld.CIT(A) after considering relevant facts has rightly deleted additions made by the Ld. AO towards short deduction of TDS on service charges u/s. 201(1) and 201(1A) of the Act. In the result, appeal filed by the revenue was dismissed
DCIT(IT)-1(2) v Dish TV India Ltd. (Formerly known as Videocon D2H Ltd.), ITA NO.: 7403/M/2018, A.Y. 2012- 13, Bench. “D”, date : 29/01/2020 (Mum)(Trib)
3. S. 68 : Cash credits – Unsecured loans received – Repaid the loan along with interest to the party – Assessee proved the identity, creditworthiness and genuineness of transactions by providing Confirmation, balance sheet and bank accounts –basic verification u/s 133(6) or u/s 131 of the Act not carried out – cannot make an addition.
The assessee being resident individual was assessed for year under consideration u/s. 143(3) r.w.s. 147 on 17/03/2016 at ₹ 60.30 Lacs after certain additions of ₹ 30 Lacs as against returned income of ₹ 30.30 Lacs filed by the assessee on 31/07/2012. The reassessment proceedings were triggered pursuant to search and survey action carried out by the department in the case of Shri Praveen Kumar Jain group on 01/10/2013. It was noted that the assessee was in receipt of unsecured loans of ₹ 30 Lacs from one of the entities namely M/s. Atharv Business Pvt. Ltd. belonging to said group. Accordingly, the case was reopened by issuance of notice u/s. 148 on 09/02/2015. Although the assessee defended the same, however, not convinced, Ld. AO rejected assessee’s submissions and added the amount of ₹ 30 Lacs to the income of the assessee.
Aggrieved the assessee contested the same before Ld. CIT(A), however without any success wherein Ld. CIT(A) not only confirmed the addition of ₹ 30 Lacs but enhanced the addition by ₹ 10 Lacs since it transpired that the assessee was in receipt of another unsecured loan of ₹ 10 Lacs from another group entity namely M/s. Sumukh Commercial Pvt. Ltd.
Aggrieved, the assessee was under further appeal before ITAT. The Assessee submitted that the assessee had furnished sufficient documentary evidences to prove the genuineness of the transaction carried out with M/s. Atharv Business Pvt. Ltd. These evidences were in the shape of relevant bank statements as well as loan confirmations of the lender, Copy of Income Tax Return Acknowledgement & Audited Accounts of the lender. The Ld. AO completely ignored the same and failed to carry out any independent investigation to bring on record any corroborative evidences to support the conclusions that the transactions were not genuine.
Tribunal held that the documents placed in the paper-book establish that the assessee has placed on record confirmation of account statement & respective bank statements relating to transaction done with M/s. Atharv Business Pvt. Ltd. The perusal of the same reveal that the assessee has obtained loan of ₹ 30 Lacs from the said entity on 03/03/2012 through banking channels. The assessee has paid interest of ₹ 27,616/- against the same on 31/03/2012. Further, this loan has subsequently been squared off on 16/05/2012 with interest of ₹ 44,384/-. There are no immediate cash deposits in the bank account of said entity before transfer of funds to the assessee. The assessee has also placed on record the Income Tax Acknowledgement of the said entity as well as its audited financial statements, wherein the stated transactions have duly been reflected. Similar are the documents with respect to second entity namely M/s. Sumukh Commercial Pvt. Ltd. The perusal of these documents would lead to a conclusion that the assessee had proved the identity of the lender, their creditworthiness and genuineness of the transactions. The onus was on revenue to rebut the same. However, except for relying upon the findings of investigation wing, no independent inquiries were conducted by Ld. AO to rebut the assessee’s documentary evidences and corroborate the conclusion that the transactions were fictitious transactions. In fact, the assessee had repaid the unsecured loans to the lenders within a short span of time even before the search proceedings were carried out against the said group on 01/10/2013. Nothing was brought on record to demonstrate that any cash was exchanged between the assessee and the lenders. Therefore, the impugned addition of ₹ 40 Lacs was deleted .
Bharat Kumar Ludhani v. ACIT-Central Circle – 2(4), ITA No.829/Mum/2018, A.Y. 2012-13, Bench. “B”, DOH: 05/02/2020 (Mum)(Trib)