2011 (1) TMI 127 - AT - Income Tax

Dis allowance u/s 43B - Application of provisions of section 43B on income determined u/s 43BB - Rectification of mistake u/s 154 - interest u/s 220(2)- The principles established by the Hon ble Calcutta High Court in CIT v. Schlumberger Sea Co. Inc. (1997 -TMI - 11561 - CALCUTTA High Court) eventhough directly not applicable are still valid and in view of the same we are of the opinion that disallowance under section 43B are not warranted and that too under section 154 which is applicable only for rectifying the mistake apparent from record. This issue is a debatable one and there are conflicting judicial pronouncements for disallowance under various provisions of the Act. The Hon ble Madras High Court held that artificial disallowance under section 40A(3) does not arise. The Hon ble AP High Court however upheld the orders of disallowance while estimating net profit by rejecting the books of account. So this issue is a debatable one whether provisions of section 43B are applicable or not. We are of the opinion that this is a debatable issue which could not be undertaken in the proceedings under section 154. This is a debatable issue which could not be undertaken in the proceedings under section 154 Accordingly ground No. 1 of the assessee is allowed - Addition to be deleted. Regarding deletion of levy of interest under sections 234B 234C & 234D - as the entire income was subjected to TDS assessee was not eligible to pay advance tax - the issue is in favour of the assessee by the judgment of the Hon ble Bombay High Court in the case of M/s. NGC Network Asia LLC (2009 -TMI - 33839 - BOMBAY HIGH COURT) - Decided in favor of assessee - deletion of interest upheld.

Issues Involved:
1. Disallowance under section 43B.
2. Levy of interest under section 220(2).
3. Exclusion of an amount wrongly considered as part of the gross receipt.
4. Deletion of levy of interest under sections 234B, 234C, and 234D.

Issue-Wise Detailed Analysis:

1. Disallowance under section 43B:

The assessee contended that the income is determined under section 44BB, which assesses deemed profit at 10% of the gross receipts, and thus, section 43B disallowance is not applicable. The assessee relied on the judgment of the Hon'ble Calcutta High Court in CIT v. Schlumberger Sea Co. Inc., which held that once section 44BB is invoked, provisions of section 43B are not applicable. The Revenue argued that section 44BB excludes sections 28 to 43A but not section 43B, thus justifying the disallowance under section 43B.

The Tribunal concluded that since the assessee's books were rejected and income was determined under section 44BB, which does not allow separate claims for deductions, the disallowance under section 43B was not warranted. The Tribunal noted that disallowance under section 43B is only applicable when there is a deduction otherwise allowable under the Act, which was not the case here. The Tribunal allowed the assessee's ground, directing the A.O. to delete the disallowance under section 43B.

2. Levy of interest under section 220(2):

This issue was deemed consequential and academic in nature as it related to the merits of additions under section 143(3), which did not arise from the order under section 154. Thus, this ground was considered infructuous.

3. Exclusion of an amount wrongly considered as part of the gross receipt:

The assessee argued that an amount of Rs. 154,264,243/- was wrongly included in the gross receipts, ignoring the accounting standard 7 issued by the ICAI. However, this issue was not adjudicated by the CIT(A). Since it was related to the merits of additions under section 143(3) and did not arise from the order under section 154, it was considered academic and infructuous.

4. Deletion of levy of interest under sections 234B, 234C, and 234D:

The A.O. levied interest under sections 234B, 234C, and 234D on the disallowance made, charging Rs. 3,31,82,773/- and Rs. 43,12,099/- under sections 234B and 220(2) respectively. The CIT(A) deleted the interest, citing that the assessee, being a non-resident, was not liable to pay advance tax as its income was subject to TDS. The CIT(A) relied on the judgment of the Hon'ble Bombay High Court in DIT (IT), Mumbai v. M/s. NGC Network Asia LLC and other similar decisions.

The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by the Hon'ble Bombay High Court's judgment, which held that no interest could be imposed on the payee-assessee when the duty to deduct tax at source was on the payer. Thus, the Revenue's appeal on this ground was dismissed.

Conclusion:

The assessee's appeal was partly allowed, with the Tribunal directing the deletion of disallowance under section 43B. The Revenue's appeal regarding the deletion of interest under sections 234B, 234C, and 234D was dismissed. The issues related to the levy of interest under section 220(2) and the exclusion of an amount from gross receipts were considered infructuous and academic.

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