Deductions in respect of profits and gains from housing projects [Section 80IBA]

Section 80-IBA provides for 100% deduction in respect of the profits and gains derived from developing and building certain housing projects subject to specified conditions.

Section 80-IBA of the Income Tax Act, 1961 as amendment by the Finance Act, 2016. This section is on similar lines to the erstwhile section 80-IB (10).

Text of Section 80-IBA

^[1][80-IBA. Deductions in respect of profits and gains from housing projects.

 (1) Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects, there shall, subject to the provisions of this section, be allowed, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.

^[2][(1A) Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building rental housing project, there shall be allowed a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.]

(2) For the purposes of sub-section (1), a housing project shall be a project which fulfils the following conditions, namely: -

(a)   the project is approved by the competent authority after the 1st day of June, 2016, but on or before the 31st day of March, ^[3][2022];

(b)   the project is completed within a period of ^[4][five] years from the date of approval by the competent authority:

            PROVIDED that, -

(i)    where the approval in respect of a housing project is obtained more than once, the project shall be deemed to have been approved on the date on which the building plan of such housing project was first approved by the competent authority; and

(ii)   the project shall be deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority;

(c)   the ^[5][carpet] area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate ^[6][carpet] area;

(d)   the project is on a plot of land measuring not less than -

(i)    one thousand square metres, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai ^[7][***]; or

(ii)   two thousand square metres, where the project is located in any other place;

(e)   the project is the only housing project on the plot of land as specified in clause (d);

(f)    the ^[8][carpet] area of the residential unit comprised in the housing project does not exceed—

(i)    thirty square metres, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai ^[9][***]; or

(ii)   sixty square metres, where the project is located in any other place;

(g)   where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual;

(h)   the project utilises -

(i)    not less than ninety per cent of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government or the State Government or the local authority, as the case may be, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai ^[10][***], or

(ii)   not less than eighty per cent of such floor area ratio where such project is located in any place other than the place referred to in sub-clause (i); and

(i)    the assessee maintains separate books of account in respect of the housing project:

^[11][PROVIDED that for the projects approved on or after the 1st day of September, 2019, the provisions of this sub-section shall have effect as if for clauses (d) to (i), the following clauses had been substituted, namely: -

(d)   the project is on a plot of land measuring not less than -

(i)    one thousand square metres, where such project is located within the metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or

(ii)   two thousand square metres, where such project is located in any other place;

(e)   the project is the only housing project on the plot of land as specified in clause (d);

(f)    the carpet area of the residential unit comprised in the housing project does not exceed -

(i)    sixty square metres, where such project is located within the metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or

(ii)   ninety square metres, where such project is located in any other place;

(g)   the stamp duty value of a residential unit in the housing project does not exceed forty-five lakh rupees;

(h)   where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual;

(i)    the project utilises -

(I)   not less than ninety per cent of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government or the State Government or the local authority, as the case may be, where such project is located within the metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or

(II)  not less than eighty per cent of such floor area ratio where such project is located in any place other than the place referred to in sub-clause (I); and

(j)    the assessee maintains separate books of account in respect of the housing project.]

(3) Nothing contained in this section shall apply to any assessee who executes the housing project as a works-contract awarded by any person (including the Central Government or the State Government).

(4) Where the housing project is not completed within the period specified under clause (b) of sub-section (2) and in respect of which a deduction has been claimed and allowed under this section, the total amount of deduction so claimed and allowed in one or more previous years, shall be deemed to be the income of the assessee chargeable under the head "Profits and gains of business or profession" of the previous year in which the period for completion so expires.

(5) Where any amount of profits and gains derived from the business of developing and building housing projects is claimed and allowed under this section for any assessment year, deduction to the extent of such profit and gains shall not be allowed under any other provisions of this Act.

(6) For the purposes of this section, -

^[12][(a)  “carpet area” shall have the same meaning as assigned to it in clause (k) of section 23 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]

(b)   “competent authority” means the authority empowered to approve the building plan by or under any law for the time being in force;

(c)   {floor area ratio" means the quotient obtained by dividing the total covered area of plinth area on all the floors by the area of the plot of land;

(d)   “housing project” means a project consisting predominantly of residential units with such other facilities and amenities as the competent authority may approve subject to the provisions of this section;

^[13][(da) “rental housing project” means a project which is notified by the Central Government in the Official Gazette under this clause on or before the 31st day of March, 2022 and fulfils such conditions as may be specified in the said notification;]

(e)   “residential unit” means an independent housing unit with separate facilities for living, cooking and sanitary requirements, distinctly separated from other residential units within the building, which is directly accessible from an outer door or through an interior door in a shared hallway and not by walking through the living space of another household;]

^[14][(f)   “stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.]

 KEY NOTE

1.    Inserted by the Finance Act, 2016, with effect from 01.04.2017.

2.    Inserted by the Finance Act, 2021, with effect from 01.04.2022.

3.    Substituted for “2021” by the Finance Act, 2021, with effect from 01.04.2022. Earlier “2020” was substituted for “2019” by the Finance Act, 2019, with effect from 01.04.2020 and “2021” was substituted for “2020” by the Finance Act, 2020, with effect from 01.04.2021.

4.    Substituted for “three” by the Finance Act, 2017, with effect from 01.04.2018.

5.    Substituted for “built-up” by the Finance Act, 2017, with effect from 01.04.2018.

6.    Substituted for “built-up” by the Finance Act, 2017, with effect from 01.04.2018.

7.    Words "or within the distance, measured aerially, of twenty-five kilometres from the municipal limits of these cities" omitted by the Finance Act, 2017, with effect from 01.04.2018.

8.    Substituted for “built-up” by the Finance Act, 2017, with effect from 01.04.2018.

9.    Words “or within the distance, measured aerially, of twenty-five kilometres from the municipal limits of these cities” omitted by the Finance Act, 2017, with effect from 01.04.2018.

10.   Words “or within the distance, measured aerially, of twenty-five kilometres from the municipal limits of these cities” omitted by the Finance Act, 2017, with effect from 01.04.2018.

11.   Inserted by the Finance (No. 2) Act, 2019, with effect from 01.04.2020.

12.   Substituted by the Finance Act, 2017, with effect from 01.04.2018. Prior to its substitution, clause (a) read as under :

'(a)      “built-up area” means the inner measurements of the residential unit at the floor level, including projections and balconies, as increased by the thickness of the walls, but does not include the common areas shared with other residential units, including any open terrace so shared;'

13.   Inserted by the Finance Act, 2021, with effect from 01.04.2022.

14.   Inserted by the Finance (No. 2) Act, 2019, with effect from 01.04.2020.

Eligible Entities

The entities in the business of developing and building housing projects.

Deduction Available:

If all the conditions are fulfilled, 100% of Profits and Gains derived from such business.

Maintain Separate Books of Accounts

The assessee shall maintain separate books of accounts to avail the benefits of this provision.

100% Deduction of Profit from Housing Projects [Section 80-IBA(1)]

Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects, there shall, subject to the provisions of this section, be allowed, a deduction of an amount equal to 100% of the profits and gains derived from such business provided the project fulfils the conditions mentioned in section 80-IBA(2).

To help migrant labourers and to promote affordable rental, the Finance Act, 2021 has allowed deduction by inserting sub-section (1A) under section 80-IBA also to such rental housing project which is notified by the Central Government in the Official Gazette and fulfils such conditions as specified in the said notification.

100% Deduction of Profit the Business of Developing and Building Rental Housing Project [Section 80-IBA(IA)]

Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building rental housing project, there shall be allowed a deduction of an amount equal to 100%. of the profits and gains derived from such business.

“Rental housing project” means a project which is notified by the Central Government in the Official Gazette under this clause on or before 31.03.2022 and fulfills such conditions as may be specified in the said notification;’

Conditions for Availing Deduction under Section 80-IBA

There are certain conditions that need to be fulfilled:

§  The project should be completed within the specified time frame.

§  The project should be sold to individual buyers and not to companies or firms.

§  The project should not be transferred to any other person before the expiry of the specified time frame.

Conditions to be Fulfilled [Section 80-IBA(2)]

For the purposes of section 80-IBA(1), a housing project shall be a project which fulfils the following conditions, namely:-

The taxpayer should complete the project within a period of three years from the date of first approval by the competent authority. Therefore, the project would be considered as completed only when a certificate of project completion as a whole is required in writing from the concerned authority

(a)   The project should be approved by the competent authority after 01.06.2016, but on or before 31.03.2022;

(b)   The taxpayer should complete the project is completed within a period of 5 years from the date of approval by the competent authority:

(i)    where the approval in respect of a housing project is obtained more than once, the project shall be deemed to have been approved on the date on which the building plan of such housing project was first approved by the competent authority; and

(ii)   the project shall be deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority.

(c)    The carpet area of the shops and other commercial establishments included in the housing project does not exceed 3% of the aggregate carpet area;

(d)   the project is on a plot of land measuring not less than -

(i) 1000 square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai, or

(ii) 2000 square metres where the project is located in any other place;

(e)   the project is the only housing project on the plot of land as specified in clause (d) above;

(f)   the carpet area of the residential unit comprised in the housing project does not exceed -

(i) 30 square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai; or

(ii) 60 square metres, where the project is located in any other place;

(g)   where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual;

(h)   the project utilises -

(i)    not less than 90% of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government or the State Government or the local authority, as the case may be, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai, or

(ii)  not less than 80% of such floor area ratio where such project is located in any place other than the place referred to in sub-clause (i); and

(i)    the assessee should maintain separate books of account in respect of the housing project.

Conditions mentioned in clauses (d) to (i) of Section 80-IBA(2) have been substituted by the following conditions in respect of projects approved on or after 01.09.2019 [Proviso to Section 80-IBA(2)]

The Finance (No. 2) Act, 2019, with effect from 01.04.2020 has substituted the conditions mentioned in clauses (d) to (i) of Section 80-IBA(2) by the following conditions given in clauses (d) to (j) below in respect of projects approved on or after 01.09.2019:

(d)   the project is on a plot of land measuring not less than -

(i)   1000 square metres, where such project is located within the metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or

(ii)  2000 square metres, where such project is located in any other place;

(e)   the project is the only housing project on the plot of land as specified in clause (d);

(f)    the carpet area of the residential unit comprised in the housing project does not exceed—

(i)   60 square metres, where such project is located within the metropolitan cities of Bengaluru., Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or

(ii)  90 square metres, where such project is located in any other place;

(g)    the stamp duty value of a residential unit in the housing project does not exceed Rs.45,00,000;

(h)    where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual;

(i)     the project utilises -

(I)  not less than 90% of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government or the State Government or the local authority, as the case may be, where such project is located within the metropolitan cities of Bengaluru., Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or

(II)  not less than 0% of such floor area ratio where such project is located in any place other than the place referred to in sub-clause (i); and

(j)    the assessee maintains separate books of account in respect of the housing project.

Restrictions : Section 80-IBA is not applicable in respect of an assessee who executes work contract awarded by any person including Central or State government [Section 80-IBA(3)]

Housing Project as a works contract : No deduction under section 80-IBA shall be allowed to an assessee who executes the housing project as a works-contract awarded by any person (including the Central Government, or the State Government).

Consequences if the project is not completed within a period of 5 years from the date of approval [Section 80-IBA(4)]

Where the housing project is not completed within the period specified under section 80-IBA(2)(b) (i.e., 5 years) and in respect of which a deduction has been claimed and allowed under this section, the total amount of deduction so claimed and allowed in one or more previous years, shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which the period for completion so expires.

Deduction under any other Provisions of the Act Not Allowed if the same is claimed under this section [Section 80-IBA(5)]

While Section 80-IBA(5) provides a generous deduction for affordable housing projects, it also restricts the taxpayers from claiming the same deduction under any other provisions of the Act. This means that if a developer chooses to claim the deduction under Section 80-IBA(5), they cannot claim any other deductions that may be available for the same project under other sections of the Act.

For example, if a developer qualifies for a deduction under both Section 80-IBA(5) and Section 80-IB, they will have to choose only one of the deductions. They cannot claim both deductions for the same project.

This restriction is aimed at preventing taxpayers from double-dipping and claiming excessive deductions for the same project. It ensures that the tax benefits provided under the Act are balanced and fair.

MAT

MAT will be applicable.

Dismisses writ for cut-off date extension under Section 80-IBA; Finds pleadings grossly insufficient

Bombay High Court dismisses writ petition preferred by CREDAI-BANM for extending the cut-off date for availing benefits under Section 80-IBA from 31.03.2022 to 31.03.2023 on the grounds of discrimination; High Court opines that “the present petition is grossly lacking in sufficient pleadings as would be required from making out a case of discrimination as claimed by the Petitioner.”; The Petitioner, filed the present writ petition seeking extension of last date of availing deductions under Section 80-IBA from 31.03.2022 to 31.03.2023 by taking necessary legislative steps and also extension of time period of completion of construction projects from 5 years to 7 years; The Petitioner submitted that although, both Section 80-IBA and Section 80-IAC were enacted under Finance Act, 2016, the date of incorporation for start-up companies was extended from 31.03.2022 to 31.03.2023 by Finance Act, 2022, however no such extension was granted under Section 80-IBA; The Petitioner also pointed out that by the Finance Act, 2022 the last date for availing deductions by manufacturing and production companies under section 115BAB was extended from 31.03.2023 to 31.03.2024; Further, the Petitioner submitted that the Union of India, being aware of the impact of the pandemic on the Real Estate Industry, as evident from the advisory issued by Ministry of Home Affairs, has acted in a discriminatory manner by refusing to extend the timelines contained in the provisions of section 80-IBA and has thus infringed upon the fundamental rights of members of the Petitioner under Article 14 of the Constitution; High Court explains that in order to prove the element of discrimination, the Petitioner would have to: (i) plead specific facts to demonstrate that its members as a class and those covered by the provisions of section 80-IAC are similarly situated, and (ii) make out a case for the issuance of a writ of Mandamus in exercise of powers vested in this Court under Article 226 of the Constitution, for directing the Government to legislate and extend the timelines in the provisions of Section 80-IBA, as requested; Refers to Supreme Court ruling in V.S. Rice and Oil Mills and others v. State of A.P. etc. AIR 1964 SC 1781 wherein Supreme Court elucidated in a challenge to the validity of any statute for violation of Article 14, the grounds should be specific, clear and unambiguous and it must be shown that the impugned statute is based on discrimination i.e., any classification which is not rational and which has no nexus with the object intended to be achieved by the said statute; Further relies on Supreme Court ruling in State of Orissa And Others v. Balaram Sahu & Ors (2003) 1 SCC 250 and State of U.P. & Anr. v. Kamla Palace (2000) 1 SCC 557; Holds that the petition lacks sufficient pleadings all material particulars required to be stated in the pleadings, to draw some parity or similarity between members of the Petitioner and persons stated to be covered by the provisions of section 80-IAC; Also relies on Supreme Court ruling in Supreme Court Employees’ Welfare v. Union of India (1989) 4 SCC 187 to hold that High Court could not exercise its jurisdiction under Article 226 of the Constitution of India, to issue a writ of Mandamus to the Government, much less to the legislature, directing the legislation in the nature sought by the Petitioner in the reliefs claimed in the petition. [In favour of revenue] – [CREDAI-BANM v. Union of India [TS-995-HC-2022(BOM)] – Date of Judgement : 23.12.2022 (Bom.)]

  

Tax Deducted at Source (TDS) on Year End Provisions

Under the Income Tax Act, 1961, a person is required to deduct tax at source at the prescribed rate if the certain payments or credit exceeds specified threshold limits in a financial year. Certain provisions require deduction of tax where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee and the respective TDS provisions shall apply accordingly.

If the payee is identifiable and the amount payable to him is ascertainable, then the assessee would be required to deduct tax at source in respect of such provision.

Year end provisions as on 31st March and disallowance under section 40(a)(ia) and TDS compliance thereon is one of the important issues detected on account of surveys carried out in several cases. It has been found that some companies make provision of expenses as on 31st March. 30% of this expenditure is disallowed and added back under section 40(a)(ia), thus 70% of the expenses is claimed without making TDS.

It has been found that the parties in respect of which provisions are made are identifiable and even amounts are certain. Therefore, there appears to be a very big racket and results into deferment of TDS as the expenditure is booked in next year and legitimate TDS is delayed by several months. To plug this practice, action is required to be taken under section 201 of the Income Tax Act, 1961.

Court rulings

Various courts have dealt with this issue and have given rulings based on the specific facts of the case.  Few of these are as below:

Tax is required to be deducted on year-end provisions made by assessee which are ascertained liabilities

TDS provisions are triggered for amount credited to ‘Provision for expenses account’ also, in view of specific provisions available in all TDS sections. When tax deductor cannot ascertain payee who is beneficiary of credit of tax deduction at source for year end provisions, mechanism of Chapter XVII-B cannot be put into service and if payee is identifiable and amount payable to him is ascertainable, then assessee would be required to deduct tax at source in respect of such provision. [In favour of revenue] (Related Assessment year : 2012-13) – [Biocon Ltd. v. DCIT, LTU (2023] 152 taxmann.com 55 : 102 ITR(T) 485 (ITAT Bangalore)]

No TDS liability on year-end provisions, reversed in subsequent Assessment year, absent payee-identification

Delhi ITAT allows Assessee’s appeal, holds that Assessee cannot be held as assessee-in-default for failure to deduct tax on year-end provisions, made in accordance with AS-29 and reversed on first day of immediately succeeding year; For Assessment year 2013-14, Assessee-company made year-end provision for expenses of Rs. 86.12 Lac without deducting tax at source on the premise that payees of the expenses were not identifiable, and the invoice of those expenses were received in the subsequent Assessment year; Revenue initiated TDS proceedings and treated Assessee as ‘assessee-in-default’ due to non-deduction of tax at source; CIT(A) dismissed Assessee’s appeal; ITAT observes that it is an undisputed fact that as and when the invoices were received by the Assessee in the succeeding year, the same were processed for payment wherein tax at source was duly deducted and remitted, within prescribed time and this practice was consistently followed by Assessee on year-to-year basis; Relies on jurisdictional High Court ruling in UCO Bank v. Union of India (2014) 369 ITR 335 : 272 CTR 339 : 51 taxmann.com 253 : (2015) 228 Taxman 141 (Del.)  and DCIT v. Ericcson Communications Ltd. (2015) 378 ITR 395 : 234 Taxman 895 : 61 taxmann.com 117 : 284 CTR 230 (Del.) wherein it was held that no liability to deduct tax at source arose where the payee is not ascertainable, observes that in absence of an ascertainable amount and identifiable payee, the machinery provision of recovering tax deducted at source falls flat because in either way, it does not aid the charge of tax under Section 4 but takes a form of separate levy independent of other provision; Accordingly, holds that Assessee could not be treated as an ‘assessee in default’ for 'mere book entries' passed within meaning of Section 201(1) and consequently interest under Section 201(1A) is liable to be deleted; On the issue of short deduction of tax at source on certain expenditure of Rs. 14.41 Lac, ITAT notes Assessee’s contention that no short deduction of tax at source was made as the TDS was based on the certificates issued under Section 197 by the Revenue and remits back to Revenue with direction to Assessee to produce the certificates obtained under Section 197 to justify the TDS. [In favour of assessee] (Related Assessment years : 2013-14 & 2014-15) – [HT Mobile Solutions Ltd. v. JCIT(OSD) [TS-275-ITAT-2023(DEL)] – Date of Judgement : 22.05.2023 (ITAT Delhi)]

Year-end provisions Provision created by assessee for liability towards Vendors not liable to TDS as the no income had accrued to anyone while making the provision in the books of account

Karnataka High Court sets aside proceedings under section 201/201(1A) for non-deduction tax at source on amount set aside as provision in the books of account, holding that such amount did not accrue as income of payee; Assessee, a subsidiary of Toyota Motor Corpn. Japan, made provisions at the end of every Financial year for marketing, overseas and general expenses for completed works/ contracts awaiting vendor bills to ascertain profits/ loss; Upon receipt of vendor bills, the Provisions for Expenditure A/c is debited with corresponding credit to respective Vendors' A/c after fulfilling withholding obligations;   For Assessment year 2012-13, assessee disallowed the unutilized year end provision while filing its RoI and subsequently upon receipt of vendor bills, reversed balance un-utilized provision of Rs. 8.71 Cr., which was disallowed by Revenue and proceedings under section 201/ 201(1A) initiated for non-deduction of TDS under section 195, 194C, 194J, 194H, and 194I, which was also upheld by CIT(A) and ITAT; High Court finds force in assessee’s contention  that tax liability cannot be fastened merely on account of book entry in the absence of income, notes that the language in Sections 194C/J/H/I mandates deduction of tax at source by a person who makes the payment; Relies on Supreme Court ruling in CIT v. Shoorji Vallabh Das (1962) 46 ITR 144 (SC) where it was held that there can be no levy of tax in the absence of income; Notes that in the current case, provision and reversal of provision took place in the same year and holds, “the authorities … ought to have appreciated that in the absence of any income accruing to anyone under the Act, the liability to deduct TDS on the assessee could not have been fastened and consequently, the proceeding under section 201/ 201(1A) could not have been initiated”. [In favour of assessee] – [Toyota Kirloskar Motor (P) Ltd. v. ITO(TDS) [TS-249-HC-2021(KAR)] – Date of Judgement : 24.03.2021 (Karn.)]

Once, the assessee has claimed expenses by debiting into profit and loss account, it needs to deduct TDS on such expenditure, even if not credited to respective parties account; Upholds Section 40(a)(ia) disallowance for failure to deduct TDS on ad-hoc year-end provisions

During the relevant Assessment year 2009-10, the assessee made ad-hoc year-end provision of expenses of Rs. 56,97,54,762/- in the absence of receipt of the invoices. Since, the assessee had not deducted tax in Assessment year 2009-10 on such year-end provision, the Assessing Officer has disallowed the same under section 40(a)(ia) of the Act. Upon appeal, CIT(A) confirmed the disallowance. Aggrieved assessee filed an appeal before the Mumbai ITAT.

Mumbai ITAT rules in favour of Revenue, upholds Section 40(a)(ia) disallowance on ad-hoc year-end provisions of Rs. 56.97 Cr made by Tata Sky Ltd (assessee-company) for Assessment year 2009-10; Notes that the assessee had not deducted tax on such year-end provision, ITAT opines that Once, the assessee has claimed these expenses by debiting into profit and loss account, it needs to deduct TDS on such expenditure, even if not credited to respective parties account.”; Holds that since assessee failed to deduct TDS the expenses claimed are liable to be disallowed in terms of chapter XVII-B of the Act which requires that TDS needs to be deducted either at the time of payment or at the time of credit to the party account; Rejects assessee’s submission that in the subsequent year, provisions have been either reversed or paid subject to deduction of TDS, states that such reversal/payment does not alter the legal position in so far as disallowance of expenses under section 40(a)(ia) is concerned; As regards assessee’s reliance on  catena of rulings including Gujarat High Court decision in case of PCIT v. Sanghi Infrastructure Ltd. (2018) 257 Taxman 371 (Guj.) and Mumbai ITAT decision in Mahindra & Mahindra Ltd. v. DCIT in ITA No.8597/Mum/2010’s case, ITAT states that all those cases are contrary to the provisions of chapter XVII-B r.w.s. 40(a)(ia) of the Act, and hence are not followed.”. Separately, deletes disallowance under section 40(a)(ia) for non-deduction of TDS under section 194H on discount given to the customers, opines that one-month free subscription (accounted as discount in books of account) upon subscription by customers for 6 months cannot be regarded as ‘commission’ subject to provisions of section 194H; Relies on co-ordinate bench decision in case of assessee's own case. [In favour of revenue] – [Tata Sky Ltd. v. ACIT [TS-468-ITAT-2020(Mum)] – Date of Judgement : 10.09.2020 (ITAT Mumbai)]

TDS deductible on year-end provisions for ‘ascertained’[ liabilities; Rejects ‘unidentified payees’ plea

Delhi ITAT upholds CIT(A)’s order in treating the assessee (engaged in airlines business) as ‘assessee-in-default’ under section 201(1) for failure to deduct tax at source on year-end provisions for AYs 2010-11 and 2011-12, holds that the liabilities of the assessee for which provisions were created were ascertained;  Finds that, during the year, assessee made provision for airport expenses, airport handling expenses, crew accommodation expense, IT communication charges and other expenses on which assessee has not deducted tax at source stating that they are year end provisions and the payees are not identified; Elucidates that a provision is not an ascertained liability if the recipient of the sum is not identified, there is no methodology available for working out the amount payable, or there is no corresponding liability arising out of an existing contract; However, in the present case, ITAT notes that assessee has not made ad-hoc provisions and has made provisions under the specified heads, on certain basis thereby ascertaining the amount and thus opines that it cannot be said that the payee is not identified”; Rejects assessee’s submission that the provisions are reversed as and when the bills for services are received and tax is deducted at that particular time, holds that There may be reasons for receiving the bills by the service providers after certain time lag but that does not absolve the assessee from the liability of deduction of tax at source”; Separately, upholds CIT(A)’s decision that TDS under section 194C is deductible on security service charges paid  to the owner of the airport in respect of aviation security force deployed at the airport and not that under section 194J as held by the Assessing Officer; Observes that the services provided to the assessee are not any specialized services but only standard facilities, which are available to all the airlines and hence, do not fall within the provisions of technical services as provided under section 194J, relies on Supreme Court decision in Kotak Securities; Rejects assessee’s claim for exemption from deducting tax under section 196 (providing that no tax is deductible on certain payments to Government, RBI etc.), notes that assessee does not pay the sum to CISF but it is paid to the owners and operators of the airport. [In favour of revenue] (Related Assessment year : 2010-11 & 2011-12) – [Inter Globe Aviation Ltd. v. ACIT [TS-8-ITAT-2020(DEL)] – Date of Judgement : 07.01.2020 (ITAT Delhi)]

TDS applicable on year-end provisions, upholds Section 40(a)(ia) disallowance on ‘commission payable’

The assessee, Hardik Jigishbhai Desai was following Mercantile system of accounting. Assessee had created a provision for commission payable” for over Rs 26 lakhs , however no TDS was deducted on same. This provision for commission payable was created on 31.03.2009 and was reversed on 1^st day of Financial year i.e on 01.04.2009, which shows that the liability had no crystallized in this year. Assessee while filing return for Assessment year 2009-10 claimed deduction for such contingent liability. Assessee claimed that making a provision on estimate basis on the sales effected by assessee, becomes an ascertained liability and thus was allowable as business expenditure. However during assessment Assessing Officer denied the deduction on the ground that assessee had debited the commission expenses to profit and loss account which had resulted in reduction of his profit and hence TDS should have been made from such expenses. Assessing Officer further observed that as per the provisions of Section 194H, TDS should be made from the commission amount 'likely to be credited' if the amount exceeded Rs. 2,500/- and as the amount of commission debited by the appellant was Rs.26,00,000/- which was in excess of the amount stipulated in Section 194H, the assessee should have done TDS on this commission amount. 

The Assessing Officer further observed that the accounting practice of the assessee of debiting the amount of  Rs 26 lakhs at the end of the year and crediting the same amount back on the first day of the next F.Y by passing reverse entry shows that the assessee diverted his income which should have been taxed in the year under consideration. The Assessing Officer thus invoked the provisions of Section 40(a)(ia) for disallowing the commission expenses. On appeal CIT(A) upheld Assessing Officer’s order and denied expense allowance invoking section 40(a)(ia). Aggrieved assessee, filed an appeal before Ahmedabad ITAT.

Ahmedabad ITAT upholds Section 40(a)(ia) disallowance for Assessment year 2009-10 on year end provisions of commission expense as no TDS deducted by assessee-individual; Rejects assessee’s stand that since it was following mercantile system of accounting, deduction for 'provision  for commission payable' should be allowed; Firstly, ITAT holds that the provision claim by assessee was totally un-ascertainable, uncrystallized and fanciful, hence it does not assume the character of ascertained liability; Further, ITAT holds that  Even in case of mercantile liability, Section 40(a)(ia) clearly mandates that the expenditure cannot be allowed in the absence of corresponding TDS payment in Government treasury..”; Further rejects assessee’s stand that since the practice followed by him was accepted by Department in past year, making a  provision on estimate basis was an allowable business expenditure, also rejects assessee’s stand that he was not in a position to pay TDS as the exact names, amount of commission and TDS payable to each party was not known. [In favour of revenue] – [Hardik Jignishbhai Desai v. DCIT [TS-603-ITAT-2016(Ahd)] – Date of Judgement : 14.10.2016 (ITAT Ahmedabad)]

Liability to withheld TDS arises on quarterly expense provisions entries (through credit in suspense account as per global group accounting policy) through suspense attracts TDS de hors income-charge under section 4(1)

ITAT dismisses assessee's appeal challenging the levy of interest under section 201(1A), holds liability to deduct tax at source (‘TDS’) arises on quarterly expense provisions entries through credit in suspense account as per global group accounting policy; Rejects assessee's argument that invoice for underlying expenses not received at the time of making provision, and there was no accrual of expenditure nor identification of payee ; ITAT also rejects assessee’s stand that there was no charge in the hands of the payee under section 4(1), holds statutory provisions dealing with collection and recovery of tax under Chapter XVII of the Act envisage TDS collection de hors charge under section 4(1) of the Act”, further notes Section 194C, 194J, 194H and 194I do not use the expression 'chargeable to tax'; Moreover, affirms Revenue's stand that assessee having admitted its default under section 40(a)(i) & 40(a)(ia) of the Act, cannot in proceedings under section 201(1)/(1A) of the Act, argue no default under chapter XVII-B of the Act; Distinguishes assessee's reliance on Bangalore ITAT ruling in Telco Construction Equipment Co. Ltd., Pune ITAT ruling in Yeota Merchants Co-op. Bank Ltd., Karnataka High Court ruling in Bharati Airtel Ltd. and Delhi High Court ruling in UCO Bank.  [In favour of Both, Partially] – [IBM India (P) Ltd. v. ITO(TDS) [TS-305-ITAT-2015(Bang)] – Date of Judgement : 14.05.2015 (ITAT Bangalore)]

TDS inapplicable on year-end expense-provisions, reversed subsequently on the first day of the next accounting year as income accrual to the payee is a must

Bangalore ITAT rules in assessee’s favour, holds that TDS liability does not arise on year-end provisions for expenses which got reversed on first day of next accounting year, provisions were made in accordance with AS-29 issued by ICAI and assessee had suo moto disallowed the same under section 40(a)(i) and 40(a)(ia) while computing taxable income; ITAT observes that liability to deduct tax at source (‘TAS’) arises only when there is accrual of income in the hands of the payee, places reliance on Supreme Court ruling in GE India Technology Centre (P) Ltd; Holds that ‘considering the fact that the provisions were made at the year end is reversed in the beginning of the next accounting year goes to show that there was no income accrued’; Observes that mere entries in the books of accounts does not establish the accrual of income in the hands of the payee, relies on Supreme Court ruling in Shoorji Vallabhdas & Co; Thus, ITAT holds that assessee cannot be treated as ‘assessee in default’ under section 201(1) for not deducting TAS on year-end provisions which got reversed in the following accounting year. [In favour of assessee] – [Bosch Ltd. v. ITO [TS-116-ITAT-2016(Bang)] – Date of Judgement : 01.03.2016 (ITAT Bangalore)]

Year end ad-hoc provisions created not subject to TDS as payee not identifiable; Once assessee suo-moto disallowance for ad-hoc provision ousts liability for failure to deduct tax

During survey proceedings for Assessment year 2007-08, the Assessing Officer noted that the assessee [Pfizer Ltd] had defaulted in not deducting tax on certain expenditure/ payments made by it. These payments included ‘provision made but tax not deducted under section 40 (a)(i) & 40(a)(ia)’, purchase of traded goods, purchase of packing material and clinical trial expenses ('other expenses').

The assessee explained that it was in the practice of making provision for expenses at the end of the year as it had multifarious locations and innumerable transactions. Since all the bills would not be received, without making specific entries into accounts of the parties, it made provision for expenses. Next year the entire provision of expenses was written back and the actual amounts paid to the respective parties were credited to their respective accounts and TDS as per the provisions were made. Assessee contended that making provision entries was not a constructive payment made to any payee and hence was not subject to TDS.

Based on the above, the assessee in its return for Assessment year 2007-08 had disallowed the entire provision made but not deducted tax on the same. The above contention of the assessee was not accepted by the Assessing Officer. The Assessing Officer had proceeded to raise a demand in respect of the tax and interest due under section 201(1)/ 201(1A).

The CIT(A) affirmed the Assessing Officer’s action of levying tax and interest under section 201(1) & 201(1A) with respect to ‘provision made but tax not deducted’ . But, CIT(A) deleted the levy of tax and interest with respect to other expenses as above mentioned. Hence, the assessee and the Revenue filed appeal before ITAT.

Mumbai Bench of ITAT observed that since the payee was not identifiable at the time when provision was made, TDS was not applicable on the same. Further, it noted that the entire provision had been written back in the next year and the actual amounts paid/credited were subjected to TDS provisions. Therefore, assessee followed the provisions of TDS as and when the amounts were paid/ credited to respective parties. ITAT also placed reliance on jurisdictional ITAT ruling in Industrial Development Bank of India v. ITO.

ITAT also noted that the assessee had suo-moto disallowed the expenses under section 40(a)(i)/(ia). ITAT observed that Once an amount was disallowed under section 40(a)(i)/(ia) on the basis of the audit report of the Chartered Accountant, the same amount cannot be subject to the provisions of TDS under section 201(1) on the reason that assessee should have deducted the tax. If the order of Assessing Officer were to be accepted then disallowance under section 40(a)(i) and 40(a)(ia) cannot be made and provisions to that extent may become otiose”. Thus, ITAT held that the assessee was not liable for levy of tax and interest under section 201(1) & 201(1A) on the provision made in respect of expenses for which the payees were not identifiable. - [In favour of assessee] – [Pfizer Ltd. v. ITO [TS-812-ITAT-2012(Mum)] – Date of Judgement : 31.10.2012 (ITAT Mumbai)]

 

Awarding Cost of any appeal by the Income Tax Appellate Tribunal [Section 254(2B)]

Section 254(2B) gives discretion to the Tribunal in the matter of awarding of costs of any appeal. However, no rules have been laid down for the exercise of such power

Text of Section 254(2B)

^[1][(2B) The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal.]

KEY NOTE

1.  Inserted by Finance Act, 1999 with effect from 01.06.1999

Section 254(2B) was inserted by Finance Act, 1999 with effect from 01.06.1999, which provides: “The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal”.

Of course, law confers discretion on the Tribunal / Courts, but it cannot be exercised arbitrarily. As stated in Halsbury’s Laws of England, (para 15, Vol. 10, 4th Edn. (Reissue)

“This discretion must be exercised judicially; it must not be exercised arbitrarily but in accordance with reason and justice”. Decision in this regard must be based on reasons expressed in the judgment indicating that the enormous practical consequences resulting from such exercise have been considered.

The normal practice is that the Courts award costs on the litigating parties for defaults in the course of hearing of appeals and not on the persons who appear as representatives of such parties. The representatives can be hauled up for their personal misdemeanours by way of contempt by the authorities, who have power of punishment for contempt. Awarding of cost on the Department under s. 254(2B) due to various adversities caused by the Department without proper justification to the assessee, like :

(i)      refusal of admission of additional evidence under rule 46A though the remand report was called from the Assessing Officer.

(ii)     non-consideration of detailed submissions filed by the assessee and number of documents filed in the paper book.

(iii)    ignoring the non-advertence to the assessee’s explanations and submissions and passing a summary order rejecting the assessee's claims.

Assessee sought award for cost of filling instant appeal on account of revenues' negligence in misinterpreting nature of return, since appeal of assessee had been disposed under faceless regime, revenue could not be made responsible in said situation and thus, no cost could be granted to assessee

The assessee filed its original return of income for the assessment year 2019-20 on 30.10.2019. Thereafter the assessee revised the return on 15.01.2020, which was considered by the CPC as original return and accordingly, it denied the current year loss of Rs. 3,51,811/-. These losses comprised a bonus of Rs. 3,20,000 and interest of Rs. 31,811. On appeal, the Commissioner (Appeals) confirmed said order. On second appeal:

Assessee incurred cost to correct mistake undertaken by revenue in not understanding fact that return of income filed on 15.01.2020 was not original return but revised return - It prayed to this tribunal to award cost of filling this appeal. Since, appeal of assessee had been disposed under faceless regime contention that officer should be made responsible could not be accepted, where personal contact was avoided and therefore, no prejudice was caused to assessee. Judgement based on set of facts understood by CIT(A) while discharging duty, action might have caused some hardship to assessee due to error of judgement but that does not warrant levy of cost on Department. Therefore, there was no merit in argument of assessee to award cost. [In favour of revenue] (Related Assessment year : 2019-20) – [Khadi Grammodhyog Prathisthan v. Assistant Director of Income-tax, CPC (2024) 158 taxmann.com 517 (ITAT Jodhpur)]

Refuses levy of cost absent malafide, though CIT action caused hardship - Commissioner passed a revisional order setting aside assessment, said order being judicial/quasi judicial in nature, even if it was found non-sustainable later on, assessee's claim for awarding cost under section 254(2B) against said order was to be rejected

The issue raised by assessee relating to awarding of cost on the department under section 254(2B), no doubt, in the instant case, the assessee has relied on two decisions of the Bombay High Court and the Commissioner instead of deciding the issue himself restored the issue to the file of the Assessing Officer with a direction to re-examine the issue of claim of depreciation on fixed assets claimed by the assessee to the extent permissible under the Act. While doing so, he relied on the decision of the Supreme Court in the case of Rampyari Devi Sarogi v. CIT (1968) 67 ITR 84 (SC) where it has been held that since the assessee is getting an opportunity of being heard, no prejudice is caused to the assessee if the order is set-aside. Now the assessee has come up for awarding cost under section 254(2B). The identical ground was taken by the assessee in other appellate proceedings and the co-ordinate Bench of the Tribunal has rejected the claim of award of cost.

ITAT observed that “CIT has passed an order u/s.12AA(3) of the Act during the course of discharge of her duty as CIT. While discharging her duty, her action might have caused some hardship to the assessee due to error of judgement but that in our opinion does not warrant levy of cost on the department.”

ITAT referred to Supreme Court ruling in Pooran Mal v. Director of Inspection (Investigation) (1974) 93 ITR 505 (SC). In that case, it was observed that it caused serious invasion of the privacy of a person. But SC held that “even though the innocent is likely to be harassed by a raid for the purpose of search and seizure that cannot be helped”, noted ITAT. Further, ITAT noted that “In the instant case, there is no such action of search and seizure which causes serious invasion in the privacy of the person. The Commissioner was discharging her quasi-judicial duty. Further, there is nothing on record to suggest that the action of the CIT was malafide.” Also, ITAT distinguished the rulings relied by assessee on facts.

The various decisions reiled on assessee relate to levy of cost by the courts against adminstrative orders and not against judicial/quasi judicial orders. In this view of the matter and following the order in assessee's own case this ground of appeal raised by the assessee is dismissed. [In favour of revenue] (Related Assessment years : 2004-05, 2005-06 and 2008-09) – [Parkar Medical Foundation v. DCIT, Ratnagiri (2015) 153 ITD 297 : 55 taxmann.com 268 : [TS-469-ITAT-2014(PUN)] (ITAT Pune)]

Departmental Representative (DR) without filing an application in advance seeking adjournment of matter, remained absent on pretext of marriage ceremony of his nephew, since said attitude of DR caused obstruction of justice, a token cost of Rs. 500 was to be imposed on absentee DR

At time of hearing of revenue's appeals, Departmental Representative was not present - DR even failed to apply adjournment in advance and inform opposite parties who had come prepared from various outstations - Subsequently, DR appeared and explained his absence as being busy with marriage ceremony of his nephew - It was undisputed that marriage ceremony was fixed well in advance and due intimation was to be given if DR had to proceed on a planned leave. Since attitude of DR caused obstruction of justice, a token cost of Rs. 500 was to be imposed on absentee DR. (Related Assessment years : 2005-06 and 2008-09) – [ACIT, Faridabad v. Laksons Footwear (P) Ltd. (2014) 63 SOT 189 : (2013) 40 taxmann.com 140 (ITAT Delhi)]

ITAT imposes cost of Rs. 1000 on CIT(DR) deductible from salary for contemptuous actions, behaviour & utterances

Before we proceed with the adjudication of appeal, it is very crucial to dwell upon the unbecoming conduct of the ‘D’ Bench in-charge CIT (DR). When the Bench set for hearing at 10.30AM on 20.11.2013, to our surprise, none of the DR was present in the courtroom. It may be worthwhile to mention that about 33 appeals were fixed for hearing. With the current pendency an adjournment takes about 4 to 5 months' period for fixation of any appeal for next hearing in normal course. Thus the situation before us as it stood, neither any DR was present in the courtroom nor any application for adjournment from the revenue's side. We could not have allowed to crash the Bench, therefore, in public interest and interest of justice, Bench continued first with the adjournment applications filed by the assessees and thereafter to proceed with further hearing of the remaining appeals.

After adjournment motion this matter was called out. Since none of the DRs including the in-charge of the Bench CIT (DR) was present, the matter was passed it over and the Bench continued with proceedings of other cases.

At about 10.50 AM CIT(DR) entered the courtroom in a huff and gave a vague reason for his absence that he was held up some where. Observing that Shri D.K. Mishra is now present, this 263 matter, which was to be argued by him was called out.

Ld. Counsel for the assessee contended that the issue in question is squarely covered by ITAT order in its own case for Assessment year 2005-06 wherein the ITAT vide its order dated 13.04.2012 rendered in ITA no. 5023/Del/2011 has deleted the penalty levied under section 271(1)(c) of the Act on the same set of facts namely, in respect of claim of disputed rate of depreciation.

CIT(DR) straightway replied that he has not seen the file and not prepared the case. He was reminded that being CIT (DR), In-charge of the Bench it was not fair on his part to come late without intimation; do not read the file; not apply for the adjournment and make the whole process come to stand still. CIT(DR) then asked for more time to go through the file. In the interest of justice the Bench was kind enough to grant him time to go through the file. In the meanwhile the case of M/s Laksons Footwear P. Ltd. was also proceeded ex parte qua the department, as the Sr. DR was also not present and there was no adjournment application. It may be pertinent here to mention that vide order dated 20-11-2013 the Bench has expressed its displeasure towards the DR’s of “D” Bench. After reading the file, CIT(DR) offered himself for the arguments.

The merits of the appeal will be dealt in subsequent paras. After the assessee completed the arguments CIT(DR) replied to it. However, he wanted to cite the case laws whose names or citations neither he remembered nor had the copies of the citation. He contended that they will be filed in a day or two. It was pointed out to him that it is not fair on his part not to remember the cases, the exact citation and the proposition laid down by these judgments. It was not a fair way to argue that the case laws not remembered by him will be submitted subsequently. He was told that in this situation how the assessee's counsel will counter the case laws which are not being given, nor properly represented and cited. It will not be possible to allow him time to file list, gist and citations of case laws subsequent to hearing which are neither heard by us nor put up to assessee for reply thereon.

At this juncture CIT(DR) in a malicious and contemptuous manner alleged that the “Bench is hurrying the justice and burying the justice”. Such type of unprovoked utterances from a Commissioner of Income Tax, who is the “D” Bench incharge officer from the Revenue’s side came as a shock to the Bench and cannot be taken lightly. It appears that CIT(DR) is not aware of his responsibilities, court discipline, procedure and proper court mannerism. His accusation on the Bench that it was hurrying justice and burying the justice is totally irresponsible, contemptuous and malicious allegation and totally against the glaring facts and proceedings which happened in the open court.

Out of 33 appeals that were listed, the Bench had granted adjournments in 31 cases mainly at the request of the ld. D.R., though the half heartedly written adjournments were filed by the department at about 11.30 AM on that day, which itself was against the prescriptions of ITAT Rules 1963. This demonstrates that Bench was kind and tolerant to the department despite these glaring irregularities. On one hand Bench tried to help and redeem the objectionable situation in which the department was put by CIT(DR) i.e. being not present in the court room, not filing any adjournment applications and least of all not putting any representative to explain all these anomalies. On the other hand to cover up his fallacies Shri Mishra ventured to pounce on the court by making such false, malicious and contemptuous allegations.

CIT(DR) was told that it was not the Bench which was hurrying or burying the justice but it was he who was obstructing the process of dispensation of justice. At the first instance he comes late in the Bench, does not come prepared with the case files, makes the entire court room and litigants wait without justification. The Bench showing kindness and in the interest of justice passes over the matter, after coming the CIT (DR) without remorse, says that he was held up and not studied the files, some time may be given, which was also given. Thereafter he was not in a position to cite the case laws and wanted to press his insistence that he will name, cite and give the proposition of case laws later on. He was clearly told that it is not the Bench which was hurrying or burying the justice but rash and contemptuous conduct of Shri Mishra which was obstructing the sacrosanct object of dispensation of justice. His contemptuous behaviour was proposed to reprimanded and fit to be visited with cost and appropriate consequential action.

In view of the foregoing facts and circumstances we find CIT(DR)’s total behaviour as unfortunate, contemptuous and condemnable and deserves to be visited with appropriate action to inculcate sense of judicial discipline and awareness of responsibilities of duties and further to protect the dignity of the court, which stands offended by the contemptuous conduct of CIT(DR). CIT(DR) was then reminded that his allegations are unbecoming and may be visited with costs. Mr. Mishra did not say anything in reply.

After the Bench rose and retired to the Chamber of Sr. Member for discussion of the heard cases and signing of the judicial proceedings, CIT(DR) barged into the Chamber of Sr. Member without asking permission and threatened that the Bench has insulted him and that he is going to lodge complaint.

In order to pacify, he was offered to sit and have a cup of tea which the Members of the Bench were sharing. He did not show any response to this kind gesture being extended by the Members of the Bench. Looking at his hostile demeanour he was told that it was not permitted to enter in the Chamber of the Judges without intimation and hurl such threats of complaint to intimidate the bench. In our view his over all actions, behaviour and utterances amount to contempt of court. Any party to the litigation has no authority to enter the Judge's room without permissions and endeavour to intimidate and put up such threats.

In view of the entirety of facts and circumstances we have no hesitation but to impose costs of Rs. One thousand on the delinquent CIT (DR) which should be deducted from his salary. The Registry is directed to forward the copies of this order to CIT(DR)-I, CCIT In-charge; Chairman CBDT for record purpose and take appropriate action including placing the observations in his service record at their end.

Separate and appropriate action for initiating contempt of court proceeding will be taken in due course after giving CIT(DR) adequate opportunity of being heard. It may be further mentioned that despite Bench’s direction that no cognizance of case laws being filed by the ld. CIT(DR) subsequent to the hearing will be considered, the audacious CIT(DR) vide letter dated 21.11.2013 without permission has filed the case laws with the Bench Clerk. Same will not be considered as being in the defiance of the court's direction coupled with the fact that the assessee could not be heard on the same post closure of hearing. – [Lala Harbhagwan Das & Memorial & Dr. Prem Hospital (P) Ltd. v. CIT, Karnal (2014) 62 SOT 199 : 29 ITR(T) 316 : (2013) 40 taxmann.com 150 (ITAT Delhi)]

Assessing Officer and Commissioner (Appeals) were performing their statutory function, no cost could be imposed on department under section 253(2B) for difficulties faced by assessee on account of their action

Assessee prayed awarding of cost on department under section 254(2B) due to various adversities caused by department without proper justification to assessee. Since Assessing Officer and Commissioner (Appeals) were performing their statutory functions, no case for imposition of any cost was made out. [In favour of revenue] (Related Assessment years : 2002-03, 2003-04, 2005-06 and 2006-07) – [Russian Technology Centre (P) Ltd. v. DCIT (2013) 155 TTJ 316 : 145 ITD 88 : 37 taxmann.com 400 : 25 ITR(T) 521 (ITAT Delhi)]

Assessee contended for imposing suitable cost on revenue since it had been unnecessarily put to hardship and unnecessary litigation by raising demand exceeding Rs. 3 crore - As orders were passed by Assessing Officer while performing statutory duties, it was not fit case for levy of cost since he was doing his statutory duty while adjudicating matter - In instant case Commissioner (Appeals) had expressed only judicial opinion which might not be correct but that did not call for levy of cost

The ld. counsel of the assessee submitted that the assessee has been unnecessarily put to hardship by way of raising a demand in excess of Rs. 3.00 crore and unnecessary litigation by the Department. Therefore, suitable cost should be imposed on the revenue. On the other hand, the ld. DR for the revenue submitted that the Assessing Officer was doing his duty while adjudicating the matter and therefore, no cost should be imposed. Further no cost can be possibly imposed on the appellate authority. Therefore, this is not a fit case for levy of cost.

We have heard the rival submissions carefully and agree with the ld. DR for the revenue that the orders have been passed while performing the statutory duties by the Assessing Officer and therefore, it is not a fit case for levy of cost. The appellate authorities normally express their judicial opinion and therefore, opinion expressed by the ld. CIT(A) in this case also remains only a judicial opinion. His judicial opinion may not be correct but that does not call for levy of cost. Hence we decline to accept the request that the cost should be imposed on the revenue.

However, we would like to take this opportunity to bring to the notice of CBDT that after the procedure of Central processing of returns, many issues have come before various forums where unnecessary demands have been raised due to non-grant of TDS, wrong computation of income, adjustment of the previous year demand which have already been deleted by the jurisdictional assessing officer. Therefore, we would like to urge the CBDT to take up this matter urgently and establish proper coordination between the assessing authority and Central Processing Authority so that these problems are immediately solved and unnecessary litigation can be avoided. Copy of this order should be forwarded to the Chief Commissioner of Income-tax, Chandigarh and Chairman of CBDT for necessary action. [In favour of revenue] (Related Assessment year : 2009-10) – [Ambala Central Co-operative Bank Ltd. v. ITO, Ambala (2012) 52 SOT 233 : 21 taxmann.com 443 (ITAT Chandigarh)]

ITAT awards compensation to assessee under section 254(2B) for harassment by Income Tax authorities

Income Tax department had imposed penalty on the assessee for violation of theprovisions of section 269-SS and 269-T.  Assessee argued that penalty was levied despite circular issued by Chief Commissioner and three judgments of the Tribunal in favour of the assessee, which were ignored by Income Tax authorities.

Accepting arguments of the assessee, Pune bench of ITAT observed that assessee was subjected to harassment by Income Tax authorities, which was not warranted.  Accordingly, ITAT held that Income Tax department would be required to compensate assessee for harassment as per section 254 (2B). Accordingly, ITAT awarded compensation of Rs 5,000. [In favour of assessee] (Related Assessment year : 2006-07) – [Shramjivi Nagari Sahakari Pat Sanstha v. Additional Commissioner of I ncome-tax, Pune [TS-267-ITAT-2011(PUN)] – Date of  Judgement : 08.06.2011 (ITAT Pune)]