2017 (2) TMI 917 - AT - Income Tax

Tribunal grants TDS credit in appeal, aligning with precedents.

M/s Imperial Procurement Services Ltd. (Formerly Essar Procurement Services Ltd) Versus ITO 5 (1) (4), Mumbai

M/s Imperial Procurement Services Ltd. (Formerly Essar Procurement Services Ltd) Versus ITO 5 (1) (4), Mumbai - TMI Issues Involved:1. Disallowance under Section 14A of the Income Tax Act, 1961.2. Withdrawal of TDS credit of Rs. 5,68,84,546.Issue-wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act, 1961:The assessee raised a ground against the disallowance of Rs. 37,231 under Section 14A of the Income Tax Act, 1961, made by the Income Tax Officer. However, at the outset, the assessee's counsel did not press this ground due to its smallness. Consequently, this ground was dismissed as not pressed.2. Withdrawal of TDS credit of Rs. 5,68,84,546:The primary issue in the appeal was the withdrawal of TDS credit amounting to Rs. 5,68,84,546. The facts are as follows:- The assessee filed its return of income on 14.10.2010, declaring a taxable income of Rs. Nil and claiming a refund of Rs. 5,68,84,546 as TDS credit. The return was processed under Section 143(1) of the Act, and the refund was issued with interest.- Subsequently, the assessment was completed under Section 143(3) on 30.03.2013, determining the income of the assessee at Rs. 28,95,620. The TDS credit granted in the intimation under Section 143(1) was withdrawn by the Assessing Officer.- The Assessing Officer noticed that the assessee claimed TDS for the assessment year 2010-11 without offering the corresponding income for taxation. The assessee had obtained a work contract from Essar Construction (India) Ltd. (now Essar Projects (India) Ltd.) for Rs. 52 crores and received mobilization advances on which TDS was deducted.- The assessee contended that the mobilization advance was received for pooling resources into the project and would be deducted from progress payments. The income would be recognized once the milestone was achieved, and applicable taxes would be paid then.- The Assessing Officer, however, concluded that since the assessee had not offered the income for taxation for the assessment year 2010-11, the TDS credit should be withdrawn as per Section 199 of the Act. The Assessing Officer relied on the decisions of the Hyderabad Bench in ITO Vs. Limak-Soma J.V. and the Mumbai Bench in Smt. Varsha G. Salunke Vs. DCIT.Appeal to CIT (Appeals):- The CIT (Appeals) sustained the action of the Assessing Officer, reasoning that the mobilization advance was taxable, and since the receipt was not offered as income, the assessee was not entitled to TDS credit.Tribunal's Analysis:- The Tribunal noted that the assessee received a sum of Rs. 54,08,75,555 from Essar Projects (India) Ltd. and granted a sub-contract to Essar Engineering Services Ltd. for Rs. 58,68,33,788.- Essar Projects (India) Ltd. deducted TDS on the mobilization advance, which the assessee claimed as a refund.- The Tribunal observed that the income from the contract should be recognized on a percentage completion method as per Accounting Standard 7. Since the contract was not executed during the assessment year, no income accrued to the assessee.- The Tribunal referred to the decisions of the Mumbai Bench in Arvind Murjani Brands (P.) Ltd. Vs. ITO and the Chennai Bench in Supreme Renewable Energy Ltd. Vs. ITO, which supported the view that if the amount on which TDS was deducted is not chargeable to tax, the assessee is entitled to TDS credit.- The Tribunal concluded that since the contract was canceled and no part of the income accrued to the assessee, there was no justification in denying the TDS credit. The Tribunal directed the Assessing Officer to grant credit for the TDS of Rs. 5,68,84,546 to the assessee.Conclusion:The appeal was partly allowed, with the Tribunal directing the Assessing Officer to grant the TDS credit to the assessee. The order was pronounced in the open court on the 10th day of February 2017.