2021 (10) TMI 264 - AT - Income Tax

Addition for security deposit forfeited - not offering income to tax - assessee submitted forfeited security deposit is a capital receipts and not liable to be taxed - HELD THAT - From perusal of the above finding of Ld. CIT(A) and judicial precedents referred therein we find that the liability under consideration was not on account of any deduction claimed by the assessee against income/gross revenue. It was a write off of capital receipts being security deposit taken from a company for the purpose of giving security for taking a property on lease on its behalf. The company namely M/s Waveset INC from which the security deposits was received, went into liquidation and the said amount was not liable to be refunded. In our view this security deposit is a capital receipt not chargeable to tax. Thus, no interference is called for in the finding of Ld. CIT(A). Ground no.1 raised by the revenue is dismissed. Non-deduction of tax at source on payments made on behalf of EION Telecom charged to profit and loss account for which reimbursement was received and credited to income - CIT-A deleted the addition - HELD THAT - We find that the M/s. EION Telecom P. Ltd. has deducted the income tax at source as applicable on all the expenses farming part of the alleged disallowance. The details/summary of TDS deducted and deposited by EION Telecom Pvt. Ltd. during the relevant period stands submitted before the Ld. AO. M/s EION Telecom Pvt. Ltd. was assessed u/s 143(3) of the Act for A.Y. 2013-14 and same was not found to have made any default in making compliance to the TDS provisions. Also in assessee s own case for A.Y. 2012-13 and 2013-14 under the similar set of facts no disallowance have been made in the assessment framed u/s 143(3) of the Act. We, therefore, under the given facts and circumstances of the case and factual matrix find no infirmity in the finding of Ld. CIT(A) deleting disallowance u/s 40a(ia) - Decided against revenue.

Summary

Issues:
1. Deletion of addition for security deposit forfeiture
2. Deletion of disallowance for non-deduction of TDS on payments made on behalf of another company

Issue 1: Deletion of addition for security deposit forfeiture

The appeal was filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) for the Assessment Year 2013-14. The Revenue contested the deletion of an addition of ?33,00,000, arguing that the forfeiture of a security deposit should be treated as business income. The Tribunal observed that the security deposit was credited in the profit and loss account as "other income" and was not claimed as revenue expenditure in the past. The Ld. CIT(A) deleted the addition, considering it a capital receipt based on the nature of the liability and the absence of any trading liability. Citing relevant case laws, the Tribunal upheld the deletion, concluding that the security deposit was a capital receipt not chargeable to tax.

Issue 2: Deletion of disallowance for non-deduction of TDS on payments made on behalf of another company

The second ground of appeal related to the deletion of a disallowance of ?2,33,59,716 for non-deduction of tax at source on payments made on behalf of M/s. EION Telecom. The Tribunal noted that the assessee provided fund management services to EION Telecom, where payments were made on behalf of EION Telecom and subsequently reimbursed. The Ld. CIT(A) deleted the disallowance under section 40a(ia) after considering the consistent accounting practice of the assessee and the TDS deductions made by EION Telecom. It was established that the liability to deduct TDS arises in the hands of the principal, and as the assessee acted as an agent, the payments were deemed as reimbursements not liable for TDS deduction. The Tribunal found no fault in the Ld. CIT(A)'s decision, especially considering the absence of disallowance in previous and subsequent assessments under similar circumstances.

In conclusion, the Tribunal dismissed the Revenue's appeal in ITANo.170/Ind/2019, upholding the decisions of the Ld. CIT(A) regarding both the deletion of the addition for security deposit forfeiture and the disallowance for non-deduction of TDS on payments made on behalf of another company. The judgment was delivered on 01.09.2021 in accordance with Rule 34 of ITAT Rules, 1963.