Zelan Projects Pvt. Ltd.,, Hyderabad vs Assessee

This appeal filed by the assessee is directed against the order of the learned CIT-III, Hyderabad dated 26th March, 2013 whereby he directed the A.O. to withdraw the credit allowed by him for tax deducted at source from the amount received by the assessee towards mobilization advance during the year under consideration.

2. The assessee in the present case is a company which is engaged in the business of procurement of erection contracts for 200-300 MW thermal power station and sub- contract the same to other contractors. The return of income for the year under consideration was filed by it on 13.11.2006 declaring a loss of Rs.65,48,374. During the course of assessment proceedings, the A.O. found that the assessee has 2 ITA.No.1361/Hyd/2013 M/s. Zelan Projects P. Ltd., Hyderabad.

received mobilization advance of Rs.14.49 crores against the contract procured by it from Lanco Amarkantak Power P. Ltd., (in short "LAPPL") for setting-up of its 300 MW thermal power station. The said advance was shown by the assessee as its liability in the balance sheet and a total sum of Rs.16.22 crores paid to the sub-contractors for the execution of the contract received from LAPPL was shown as work-in-progress. No income from the said project, however, was recognised or declared by the assessee for the year under consideration. While making the payment of mobilization advance to the assessee, tax at source was deducted by LAPPL under section 194J treating the same as fees paid for professional and technical services. While explaining its stand of not recognizing any income from the contract procured from LAPPL, it was submitted by the assessee before the A.O. that the said contract was not fully executed during the year under consideration and since no bill was raised on the said party, no income was recognised and the expenditure incurred on payment made to sub-contractors was shown as work in progress. This explanation of the assessee was not found acceptable by the A.O. According to him, the assessee should have recognise the revenue on year-to-year basis despite the fact that the work was not completed and by not doing so, the recognition of profit was postponed by the assessee which is not permissible. He, therefore, estimated the income of the assessee from the said contract at Rs.1.29 crores by applying the net profit rate of 8% to the total expenditure of Rs.16.22 crores and brought to tax the same in the hands of the assessee for the year under consideration in the assessment originally completed under section 143(3) vide order dated 12.10.2008.

3 ITA.No.1361/Hyd/2013 M/s. Zelan Projects P. Ltd., Hyderabad.

3. Against the Order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT, Guntur deleted the addition made by the A.O. on account of estimated income from the contract of LAPPL holding that no such income could be estimated in respect of the amount received by the assessee towards mobilization advance. The A.O. accordingly, passed a consequential order on 10.05.2012 giving effect to the appellate order of the learned CIT whereby, he deleted the addition of Rs.1.29 crores made to the total income of the assessee on account of estimated income from the contract of LAPPL but allowed the credit for TDS made by LAPPL from the payment of mobilization advance as was done in the order originally passed under section 143(3).

4. On examination of the order passed by the A.O. dated 10.05.2012 giving effect to the order of the Ld. CIT(A), the Ld. CIT was of the opinion that the same was erroneous as well as prejudicial to the interest of the Revenue, inter alia, on the issue of giving credit for the TDS made by LAPPL from the payment made on account of mobilization advance since the amount of mobilization advance was not chargeable to tax in the hands of the assessee as income in the year under consideration as held by the Ld. CIT(A). He, therefore, issued a notice under section 263 requiring the assessee to explain as to why the order passed by the A.O. under section 143(3) should not be revised under section 263 withdrawing the credit allowed for the TDS. In reply, it was submitted by the assessee that there was no error in the order of the A.O. in giving credit for the TDS made by LAPPL from the payment of 4 ITA.No.1361/Hyd/2013 M/s. Zelan Projects P. Ltd., Hyderabad.

mobilization advance made during the year under consideration. It was also submitted that giving such credit for TDS, in any case, did not cause any prejudice to the interests of the Revenue as the issue involved was limited as to which year the credit for TDS should be given. The Ld. CIT did not find merit in the submissions made on behalf of the assessee. According to him, as per the provisions of section 199 as applicable to the year under consideration, credit for TDS was liable to be given only in respect of the income which was assessable to tax in the relevant assessment year. He held that since the amount of mobilization advance received by the assessee was not chargeable to tax in its hands for the year under consideration as held by the Ld. CIT(A), the credit allowed by the A.O. for TDS made from the mobilization advance was in violation of provisions of section 199. He also held that as each assessment year is to be considered independently, the wrong claim allowed by the A.O. for credit of TDS for the year under consideration was certainly prejudicial to the interests of the Revenue. He, therefore, set aside the order passed by the A.O. on this issue with a direction to pass the order afresh withdrawing the credit allowed for TDS. Aggrieved by the Order of the Ld. CIT passed under section 263, the assessee has preferred the present appeal before the Tribunal.

5. We have heard the arguments of both the parties and also perused the relevant material on record.

6. The Ld. Counsel for the assessee has submitted that the issue relating to the grant of TDS made from the mobilization advance for the relevant year in which such advance is not chargeable to tax, as involved in the present 5 ITA.No.1361/Hyd/2013 M/s. Zelan Projects P. Ltd., Hyderabad.

case, is squarely covered in favour of the assessee on merits by the decision of the Coordinate Bench of this Tribunal in the case of ACIT vs. Peddi Srinivasa Rao was directed vide its order dated 03.03.2011 in ITA.No.324/Vizag/2009. He has also placed on record a copy of the said order and perusal of the same shows that similar issue has been decided by the Tribunal in favour of the assessee vide para 7 to 10 of its order which read as under :

"7. Having heard the rival submissions and from a careful perusal of the orders of the authorities below and documents placed on record in the light of all relevant provisions of the Act, we find that undisputedly, the assessee has received the mobilization amount which is to be adjusted against subcontract bills raised in subsequent years. It is also evident from the record that on this mobilization amount, assessee was required to pay the interest. Therefore, once the entire mobilization amount is not an income of the assessee, TDS should not have been deducted by the payer. But in any case, the TDS was deducted on this payment of mobilization amount though it was not an income in the hands of the assessee on its receipt. But subsequently, whenever it is to be adjusted in the sub-contract bills to be raised in the subsequent years, it would gradually partake the character of the income of the assessees. Now the question arise, once the TDS was deducted on the receipt, how the credit of the same is to be allowed to the assessees ?

8. We have carefully perused the provisions of section 199 of the Act and according to the pre-amended provisions of section 199, the credit of deduction made in accordance with the relevant provisions of this chapter and paid to the Central Government, shall be given for the amount so deducted on the production of the certificate furnished u/s 203 for the assessment made under this Act for the assessment year for which such income is assessable. But in the amended provisions the words "for the assessment year for which such income is assessable" has been omitted. Meaning thereby, that the legislature was quite conscious about the facts and hardships faced by some assessees, while making the amendments in section 199 6 ITA.No.1361/Hyd/2013 M/s. Zelan Projects P. Ltd., Hyderabad.

and in amended provisions nothing has been stated about the year in which the credit of TDS is to be claimed. As per amended provisions of section 199, in sub-section 1, it has been stated that any deductions made in accordance with the foregoing provisions of this chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. Therefore, as per the amended provisions, once the TDS was deducted, a credit of the same to be given to the assessees, irrespective of the year to which it relates. The pre-amended and the amended provisions of section 199 are extracted hereunder:

"Section 199: Credit for tax deducted - (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or depositor or owner of property or of unit-holder or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment made under this Act for the assessment year for which such income is assessable:

(3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-

section (1) and sub-section (2) and also the assessment year for which such credit may be given.

Section 199. (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit- holder, or of the shareholder, as the case may be.

(2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made."

7 ITA.No.1361/Hyd/2013 M/s. Zelan Projects P. Ltd., Hyderabad.

9. In the light of these amendments, we have also examined the judgment of this Hyderabad Tribunal in the case of Progressive Constructions Limited Vs. JCIT ITA 482 and 557/Hyd/2001 and the order of the Tribunal of Chennai Bench in the case of Supreme Renewable Energy Limited Vs. ITO 32 DTR 140 and Toyo Engineering Limited 5 SOT 616 in which the Tribunal has taken a consistent view that the credit of TDS should be given in the year of receipt. The facts of the case of M/s. Progressive Constructions Ltd. (supra) and Toyo Engineering India Limited (supra) are almost similar to that of the present case. In the case of Supreme Renewable Energy Limited (supra), the Tribunal has held that when the interest income is incidental to the acquisition and installation of an asset and is not directly liable for tax, assessee is entitled for the credit of TDS from the interest income which has been duly received by the Government. The relevant observation of the Tribunal are extracted hereunder:

"The deposit on which interest was earned by the assessee is mandatory as per statutory requirement. Therefore, the interest income earned on the deposit is not out of surplus fund of the assessee but due to the statutory requirement under which the deposit was made for availing the credit facility of installation of machinery. When the interest income is in the nature of capital then the assessee has rightly deducted the same from the cost of the assets and while doing so the assessee has offered the said income though capitalized for assessment. When the interest income is not directly liable for tax as the same is incidental in the acquisition and installation of the asset then the tax deducted at source from the interest income which was duly received by the Government shall be refunded to the assessee or the assessee is entitled for the credit of the same. The Government cannot benefit itself by taking advantage of legal technicalities. Even otherwise, once the income receipt has been deducted from the cost of machinery to be installed the assessee has indirectly offered the same for assessment and taxation because due to the reduction of cost of the machinery and depreciation on the said machinery would be lesser and the net result of this would be offering the same income otherwise. When a particular income is received by the assessee after deduction of 8 ITA.No.1361/Hyd/2013 M/s. Zelan Projects P. Ltd., Hyderabad.

tax at source and the said TDS has been duly deposited with the Government and the assessee has received the requisite certificate to this effect, then on production of the said certificate the assessee becomes entitled for the credit of TDS even if the assessee has not directly offered the said income for tax as the assessee considered the same was not liable to tax. When the assessee has earned interest on deposit mandatory for acquisition on installation of machinery then the interest was earned by the assessee and is directly incidental to the acquisition in respect of machinery and therefore the same has been rightly reduced from the cost of the machinery. In this way the assessee has indirectly disclosed income and has offered for assessment. Even if the income earned by the assessee has not been offered for tax being not liable for tax, the assessee is entitled for credit of TDS made in respect of that income. Accordingly, assessee is entitled for credit of TDS relating to interest income."

10. From a careful perusal of the legal propositions laid down through the aforesaid orders by the Tribunal and the relevant provisions of the Act, we are of the view that once the TDS was deducted and paid to the Central Government, a credit of the same should be given to the assessees in order to avoid all sorts of complications in the year of deduction of the TDS. Therefore, we find no infirmity in the order of the CIT(A) who has rightly directed the A.O. to allow the credit of the TDS in the impugned assessment year. Accordingly, the order of the CIT(A) is confirmed."

6.1. It is manifest from the relevant portion of the Tribunal's Order as reproduced above that the issue involved in the present case is squarely covered in favour of the assessee by the Coordinate Bench's order on merit whereby, similar issue involving identical facts has been decided by the Tribunal in favour of the assessee after taking into consideration all the relevant aspects of the matter including the provisions of section 199 as applicable to A.Y. 2006-2007. The learned D.R. has also not been able to dispute this position clearly evident from the order of the Tribunal, a copy 9 ITA.No.1361/Hyd/2013 M/s. Zelan Projects P. Ltd., Hyderabad.

of which is placed on record before us. Moreover, the order passed by the Tribunal in the case of Mr. P. Srinivasa Rao (supra) deciding a similar issue on merit in favour of the assessee clearly shows that the view taken by the A.O. while allowing credit for the TDS made from mobilization advance was a possible view and the Ld. CIT, in our opinion, was not justified in substituting his own view for such possible view taken by the A.O. by his impugned order passed under section 263 as the same is not permissible under the provisions of section 263 as held inter alia, by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd., vs. CIT 243 ITR 83. We, therefore, set aside the impugned order of the Ld. CIT passed under section 263 and allow the appeal of the assessee.

7. In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 12.01.2015.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 12th January, 2015

VBP/-

Copy to

1. M/s. Zelan Projects P. Ltd., Hyderabad

C/o. P. Murali & Co., C.As. 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad - 82.

2. DCIT, Circle 3(3), Hyderabad

3. CIT-III, Hyderabad.

4. Addl. CIT, Range-3, Hyderabad.

5. D.R. I.T.A.T. "A" Bench, Hyderabad.