Soma Enterprises Limited, Hyderabad vs Department Of Income Tax

ITA No.1418/Hyd/2014 : Assessment year 2006-07 ITA No.1572/Hyd/2014 : Assessment year 2007-08

Asst. Commissioner of Income- V/s. M/s. Soma Enterprises Ltd., tax, Central Circle, Hyderabad Hyderabad

( PAN - AACCS 8242 F)

(Appellant) (Respondent)

Appellant by : Smt. G.Aparna Rao

Respondent by : None

Date of Hearing 12.02.2015 Date of Pronouncement 12.02.2015

ORDER

Per D.Manmohan, Vice President :

These appeals are filed at the instance of the Revenue and they are directed against the orders passed by the Commissioner of Income-tax(Appeals) VII, Hyderabad for the assessment years 2006-07 and 2007-08.

2. The assessee is a company engaged in the business of civil contracts. According to the Assessing Officer, the assessee incurred an expenditure of Rs.15.54 crores in assessment year 2006-07 and Rs.25.60 crores in assessment year 2007-08 towards interest on mobilization advances paid to various joint ventures and such payments are attracted by the provisions of S.194A of the Act. On the other hand, the case of the assessee was that the assessee has utilised the mobilisation advances given by the Government undertakings for the execution of contracts 2 ITA No.1418 &1572/Hyd/2014 M/s. Soma Enterprises Ltd., Hyderabad

through its JV. The contractees collected interest from the JV, which in turn, collects it from SOMA to pay the interest directly out of its funds and the end beneficiary of interest is the contractee and not the JV.

3. The Assessing Officer was, however, of the opinion that the provisions of S.194A are attracted in the instant case and for such failure to deduct tax at source, the assessee's claim for deduction of interest of mobilization advances, is not allowable under S.40(a)(ia) of the Act.

4. Aggrieved, assessee preferred appeal before the CIT(A). The Commissioner of Income-tax(Appeals) observed in paras 7.1 and 7.2 of the order passed for assessment year 2006-07 as under-

"7.1 The issue is whether the appellant should have deducted Tax at source on the "Interest " paid on the mobilization advances received by it and in absence of such tax deduction at source, whether the interest expenditure is disallowable in terms of section 40(a)(ia) r.w.194A. As far as the legal issue raised regarding issual of notice u/s. 148, it is to be stated that as the assessee was seen as having a contractual relation with the JV and not directly with the Govt agency/undertaking, there was a reason to believe that the appellant had claimed expenditure without deducting TDS and which it was not entitled to. The issual of notice is therefore upheld.

7.2 The facts show that the appellant had never "paid" the interest amount as such. It was deducted from the running contract work bills and only the balance amount was given to it. Secondly, the actual payers of such bills (and also the actual givers of such mobilization advance) were Government undertakings like KHPC, NHAL or the State Govt. Irrigation dept. The entries were routed through JV but it was not the JV as such which either paid the advance or received the subsequent "interest payment". In fact, the JV itself received the net bills amounts as part of running account after adjustment of the interest on mobilization advance and passed on the same to the appellant after making the debit and credit entries in its books on the appellant's account. Thus, to hold that the "appellant" paid interest without interest without deducting TDS is only a technical interpretation. It is also seen that the same issue was dealt with by the Hon'ble ITAT, Hyderabad (jurisdictional) in the case of M/s. Ritwik Swati Joint Venture in their order dated 18/02/2011 in ITA No.719/Hyd/2010."

3 ITA No.1418 &1572/Hyd/2014 M/s. Soma Enterprises Ltd., Hyderabad

In short, the learned CIT(A) followed the decision of the ITAT in the case of M/s. Ritwik Swati Joint Venture (ITA No.719/Hyd/2010) dated 18.2.2011 in holding that technically, there was no amount of payment by the assessee in order to invoke the TDS provisions.

5. Aggrieved, Revenue is in appeal before us.

6. Though the Learned Departmental Representative relied upon the order passed by the Assessing Officer, no material whatsoever was furnished to submit that the facts in the instant case are distinguishable. In other words, the Learned Departmental Representative did not place before us the order of the Tribunal in the case of M/s. Ritwik Swati Joint Venture (supra), and could not place any material on record to suggest that on identical circumstances any other view was taken by the ITAT or any superior forum on this issue. As the matter stands today, the learned CIT(A) followed the view taken by the Hyderabad Bench of the Tribunal, which was challenged by the Revenue, without any material to contradict the findings of the learned CIT(A).

7. Having regard to the submissions of the Learned Departmental Representative, we are of the view that the orders passed by the learned CIT(A) do not call for any interference, since they are in consonance with the view taken by the Tribunal in the case of M/s. Ritwaik Swati Joint Venture (supra). We therefore, dismiss the appeals filed by the Revenue.

8. In the result, Revenue's appeals are dismissed.

Pronounced accordingly at the conclusion of hearing on 12.2.2015 Sd/- Sd/-

(B.Ramakotaiah) (D.Manmohan) Accountant Member Vice President

Dt/- 12th February, 2015 4 ITA No.1418 &1572/Hyd/2014 M/s. Soma Enterprises Ltd., Hyderabad

Copy forwarded to:

1. M.s, Soma Enterprises Limited, H.No.2, Avenue 4, Banjara Hills, Hyderabad 500 034

2. Asst. Commissioner of Income-tax, Central Circle 9, Hyderabad

3. Commissioner of Income-tax(Appeals) VII, Hyderabad 4 Commissioner of Income-tax Central Hyderabad

5. Departmental Representative, ITAT, Hyderabad.

B.V.S