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2017 (2) TMI 917 - AT - Income TaxDenial of TDS credit - accrual of income - assessee has not offered income to tax - Held that - If a particular amount on which tax was deducted at source is not chargeable to tax, the assessee is entitled for credit for TDS. Similarly in the case on hand before us, the assessee received mobilization advance and in turn this was passed on to Essar Engineering Services Ltd for execution of sub contract, however, the whole contract got cancelled by virtue of which Essar Engineering Services Ltd refunded the assessee the entire sub contract amount of ₹ 54,04,47,510/- and the assessee in turn has to refund the entire contract amount which was agreed between the assessee and Essar projects (India) Ltd and in this circumstance, no part of income has been accrued to the assessee. In this situation, when no part of the contract has been accrued and nothing is taxable in the hands of the assessee, there is no justification in denying the credit for TDS on the ground that the assessee has not offered income to tax. The fact of cancellation of contract has not been denied by the assessing officer and it is not the contention of the assessing officer that the assessee or the sub contractor has executed a part of the contract and therefore, income was accrued to the assessee or to the sub contractor. Therefore, in the absence of any such finding by the assessing officer that the assessee or the sub contractor has executed a part of the contract, the question of accruing income to the assessee from this contract does not arise, hence in our considered view, the assessing officer should not have denied credit for TDS refund to the assessee. - Decided in favour of assessee
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Withdrawal of TDS credit of ?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 ?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 ?5,68,84,546: The primary issue in the appeal was the withdrawal of TDS credit amounting to ?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 ?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 ?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 ?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 ?54,08,75,555 from Essar Projects (India) Ltd. and granted a sub-contract to Essar Engineering Services Ltd. for ?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 ?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.
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