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Facts of the Case:
The assessee had received advance income which was not offered to tax. However, tax was deducted in the year of receipt of the entire income. The assessee did not claim the credit of TDS in the year in which tax was deducted but carried forward the TDS. The income was offered to tax in the Assessment Year 2016-17 and the assessee claimed the credit of the brought forward TDS in its return of income.
However, in the Intimation passed by the CPC, Bangalore under section 143(1), credit for brought forward TDS was not allowed. CPC did not mention any reason for the disallowance of the credit of TDS.
Aggrieved, the assessee filed an appeal before the CIT(A) with condonation of delay. The assessee filed the appeal belatedly when the Management/Finance team realized that there was disallowance of brought forward TDS credit and an appeal should be filed. However, CIT(A) did not impress with the plea taken by the assessee and denied to condone the delay.
Aggrieved, the assessee carried the matter before the Tribunal.
Issues:
Whether the disallowance of credit of brought forward TDS by the CPC in legally correct when the income was offered to tax in the AY 2016-17?
Arguments of the assessee:
On the issue of CIT(A) decision to dismiss the appeal without condoning the delay, the Ld. A/R argued that learned CIT(A) failed to appreciate the reasons given by the assessee to file the appeal with the delay in their proper perspective and it resulted in miscarriage of justice.
On the issue of disallowance of brought forward TDS credit, it was submitted that the assessee had already offered the corresponding Rs. 94,64,792/- was not in consonance with the law under section 199 read with Rule 37BA of the Income Tax Rules, 1962. However, no reasons were incorporated in the intimation issued under section 143(1) of the Act and the assessee never knew the reasons why such a disallowance of the TDS had taken place.
Arguments of the department:
Ld. DR supported the impugned order of the Ld. CIT(A) by adverting to the reasons recorded by him to refuse to condone the delay. He submitted that the process at the stage of intimation and section 143(1) of the Act is done by the automatic process by the Centralized Processing Centre, Bangalore and is open for the assessee to ventilate the grievance by way of properly constituted proceedings either before the learned Assessing Officer or before the Ld. CIT(A) and by preferring the appeal with the delay, the assessee has to own up the responsibility and for that, the assessee cannot blame the authorities who are bound to follow the law.
The Decision:
On the CIT(A)'s decision to refuse to condone the delay, the Tribunal held that there were no mala fides on the part of the assessee in preferring the appeal with any delay. Obviously, assessee does not stand to gain by preferring the appeal with delay. When the technicalities are pitted against the substantial justice, the former must give way to the latter. There is no reason not to accept the explanation offered by the assessee that it is only due to bona fide mistaken impression the delay occurred in preferring the appeal. Revenue does not plead any rights to have been crystallized due to efflux of time. Hence, the CIT(A)'s order could not be upheld.
So far as the disallowance of TDS credit is concerned, the ITAT found that the Intimation issued u/s 143(1) does not contain any reasons for disallowing the credit of TDS. The intimation is only a matter of information generated in a pro forma by the Centralized Processing Centre, Bangalore. This intimation, not only does not speak of the reasons for the impugned disallowance, but it also does not appear to be the result of any due examination of the issue by the learned Assessing Officer.
The ITAT set aside the orders and remanded the issue to the AO for reconsideration of the case and the AO is required to pass a speaking order since the impugned disallowance of credit of TDS under intimation under section 143(1) of the Act suffers legal irregularity and cannot be sustained.
Analysis:
It is indeed a matter of great concern that CPC passes the Intimation u/s 143(1) in a mechanical manner without reading the explanation given by the assessee. Even the CPC does not bother to give speaking reasons for not accepting the assessee's explanation but issues the Intimation in a predefined tabular format only. Though this decision is related to disallowance of credit of TDS the ratio of this decision can equally be applied in other cases too. Similar disallowances without any speaking order are also made in the Intimation issued by the CPC when there is a delay in depositing the employees' contribution to provident fund account after the due date but deposited before the due date of filing of return even after the assessee submits that his case is squarely covered in his favour by the decision of jurisdictional High Court. Such a decision is very useful to the assessee to seek relief against such actions of the income tax department.
Full text of the judgment:
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI FRIDAY BENCH ‘A’ : NEW DELHI
(Through Video Conferencing)
BEFORE SHRI G.S. PANNU, VICE PRESIDENT
AND
SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER
ITA No. 5128/Del/2018
Assessment Year: 2016-17
ORDER
PER K.NARASIMHA CHARY, JM :
Aggrieved by the Order dated 28/5/2018 in Appeal No. 434/17-18 (AY 2016-17) passed by the Ld. Commissioner of Income Tax (Appeals)-1, Gurgaon [Ld. CIT(A)] for the assessment year 2016-17 in the case of M/s AWP Assistance (India) Pvt. Ltd. (the ‘Assessee’), this Appeal is preferred by the Assessee.
2. Briefly stated facts of the case are that in the business of the assessee certain payments for a service are received in advance for the total service period. Only such portion of income which pertains to a particular year is recognized along with corresponding TDS; and that the balance amount is shown as Deferred Revenue on the liability side of the balance sheet. For the assessment year 2015-16 the appellant had carried forward the amount of Rs. 1,56,74,596/- of TDS which pertained to subsequent years and the TDS for the assessment year 2015-16 was not allowed. Assessee therefore filed an appeal before the Ld. CIT(A), since the TDS was not allowed as brought forward in the Income Tax Return of AY 2016-17. On receipt of intimation under section 143(1) of the I.T. Act for the assessment year 2016-17, the assessee did not realize the fact that the corresponding TDS brought forward from assessment year 2015-16 to the income of assessment year 2016-17 was rejected by the Revenue authorities. But upon internal revenue by Management / Finance Team, it was realized that an appeal should also have been filed for the assessment year 2016-17 and therefore, such an appeal was filed before the Ld. CIT(A) with delay.
3. Ld. CIT(A), however, did not impress with the plea taken by the assessee that it is only on subsequent realization of the fact that the revenue rejected the corresponding TDS brought forward from the assessment year 2015-16 to the income of assessment year 2016-17, the appeal was filed with delay and according to the Ld. CIT(A) such cause does not constitute sufficient cause to condone the delay.
4. Submissions of Ld. AR before us are twofold. Firstly, he submitted that the learned CIT(A) failed to appreciate the reasons given by the assessee to file of the appeal with the delay in their proper perspective and it resulted in miscarriage of justice in the form of dismissal of the appeal by the learned CIT(A). Secondly, he submitted that when the assessee had already offered the corresponding income to tax, the disallowance of the credit of Tax Deducted Source (TDS) to the tune of ₹ 94, 64, 792/- is not in consonance with the law under section 199 of the Income Tax Act, 1961 (“the Act”) read with Rule 37BA of the Income Tax Rules, 1962 (the Rules). However, no reasons are incorporated in the intimation issued under section 143(1) of the Act and the assessee never knew the reasons why such a disallowance of the TDS had taken place. Ld. AR submitted that no opportunity was given to the assessee either before or after the process of the matter under section 143(1) of the Act and equally the assessee had no chance of agitating the merits of the case before the Ld. CIT(A) because of the refusal of the Ld. CIT(A) to condone the delay. In the circumstances, Ld. AR submitted that if the impugned orders are not quashed, the assessee would go without any remedy and a meritorious case be thrown out without affording an opportunity to the party who suffers.
5. Ld. DR supported the impugned order of the Ld. CIT(A) by adverting to the reasons recorded by him to refuse to condone the delay. He submitted that the process at the stage of intimation and section 143(1) of the Act is done by automatic process by the Centralized Processing Centre, Bangalore and is open for the assessee to ventilate the grievance by way of properly constituted proceedings either before the learned Assessing Officer or before the Ld. CIT(A) and by preferring the appeal with the delay, the assessee has to own up the responsibility and for that the assessee cannot blame the authorities who are bound to follow the law.
6. We have gone through the record, in the light of the submissions made on either side. Insofar as the aspect of delay in preferring the appeal before the Ld. CIT(A) is concerned, Ld. CIT(A) recorded a finding that the delay in realization of the need of appeal by the assessee, by itself, does not constitute sufficient cause and it clearly shows the want of due care and caution on the part of the assessee. He, therefore, declined to condone the delay. However, the same time, it is not a case of the Revenue that there are any mala fides on the part of the assessee in preferring the appeal with any delay. Obviously, assessee does not stand to gain by preferring the appeal with delay. When the technicalities are pitted against the substantial justice, the former must give way to the latter. There is no reason not to accept the explanation offered by the assessee that it is only due to bona fide mistaken impression the delay occurred in preferring the appeal. Revenue does not plead any rights to have been crystallized due to efflux of time. By condoning the delay, the highest that would happen is that a cause could be decided on merits, which would go in the interest of justice. With this view of the matter, we are of the considered opinion that the delay in preferring the appeal could have been condoned. We, therefore, find it difficult to sustain the impugned order of the Ld. CIT(A).
7. Insofar as the grievance of the assessee, basing on the fact that no reasons are assigned for a disallowance of the TDS is concerned, having gone through the intimation under section 143(1) of the Act, we find that such an intimation does not contain any reasons for disallowing the credit of TDS. As a matter of fact, such intimation is only a matter of information generated in a pro forma by the Centralized Processing Centre, Bangalore. This intimation, not only does not speak of the reasons for the impugned disallowance, it also does not appear to be the result of any due examination of the issue by the learned Assessing Officer. For want of reasons by way of speaking order, not only the assessee does not know the reason for disallowance, but at the same time we are also unable to appreciate the legality otherwise of such an act of disallowance. It is only reasons that infuse life into the action of any public authority, and such reasons allow the higher forums to appreciate the legal sustainability of such an action, without which not only the party affected by such an action suffers, but the higher forums would be handicapped either to confirm or to set it aside. It is, therefore, clear that the impugned action of disallowance of the credit of TDS is unsustainable, in the manner it is presently manifested in the impugned order.
8. In view of our finding that the impugned disallowance of credit of TDS under intimation under section 143(1) of the Act suffers legal irregularity and cannot be sustained as it is, it goes without saying that the matter requires reconsideration by the learned Assessing Officer to pass a speaking order with the reasons. Under the circumstances, we set aside the impugned orders and remand the issue to the file of the learned Assessing Officer for disposal, according to law by way of speaking order, after affording an opportunity of being heard to the assessee.
9. In the result, the appeal of the assessee is allowed for statistical purposes.
Above decision was pronounced on 7th day of August, 2020.
Sd/- Sd/-
(G.S. PANNU) (K.NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER
Download Copy of the ITAT Delhi Order in ITA No. 5128/Del/2018 on Disallowance of TDS credit by CPC without speaking order in pdf format.
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