2019 (1) TMI 1517 - AT - Income Tax

Non deduction of TDS on account of Contractual Payments to the Gunman - Additions u/s 40(a) (ia) - income of a statutory corporation established by Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen (being citizen of India) - Exemption U/S 10(26BBB - Held that - Section 10 (26BBB) came into existence after the issue of the said Circular dated 16-7-2002. The said section was inserted in the Income - tax Act vide Finance Act, 2003 (w.e.f. 1-4-2004) unconditionally exempting any income of a corporation established by a Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen being the citizens of India. The corporations covered under section 10(26BBB) are also statutorily not required to file return of income as per section 139 of the Act. References were received in the Board requesting for extension of the aforesaid exemption from TDS granted vide Circular No.4/2002 to the corporations covered under section 10(26BBB) as well. The CBDT has now clarified that there would be no requirement for tax deduction at source from payment made to corporations enjoying exemption under section 10(26BBB). The Central Board of Direct Taxes, issued Circular No. 07/2015 no. F. No. 275/50/2006 IT(B) Dated April 23, 2015 on serial no 65 Any Income of a corporation for ex-servicemen Section 10(26BBB) . From assessment year 2004-05, any income of a statutory corporation established by Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen (being citizen of India) is exempt from tax under section 10 (26BBB). Keeping in view the Circular issued by the CBDT the disallowance made by the Assessing Officer which was not based on the said Circular is hereby deleted. Disallowance under section 43B - interest expenses payable to SADB as on 31st March 2013 - Held that - We have gone through the provisions of the Income Tax Act,1961 which specifically excludes the Co-operative Development Banks from the purview of the provisions of Section 43B. Hence, the addition made by the Assessing Officer without any legal basis is hereby directed to be deleted.

Summary

Issues:
1. Addition of &8377; 1,24,519 for alleged non-deduction of TDS on contractual payments.
2. Addition of &8377; 6,17,296 for interest payable under section 43B.
3. Disallowance of deduction under section 80P(2)(a)(i).
4. Non-entertainment of additional evidence under Rule 46A of the Income Tax Rules, 1962.

Issue 1: Addition of &8377; 1,24,519 for alleged non-deduction of TDS on contractual payments:
The Assessee challenged the addition of &8377; 1,24,519 for non-deduction of TDS under section 194C on payments to a Gunman. The Ld. CIT(A) upheld the addition citing lack of submission of CBDT Circular before the Assessing Officer. However, the Assessee presented CBDT Circular No. 07/2015, clarifying that corporations exempt under section 10(26BBB) are not required to have TDS deducted. The payment to the Gunman was made to a corporation enjoying exemption under section 10(26BBB), thus no TDS deduction was necessary. Consequently, the addition was deemed unjustified and deleted.

Issue 2: Addition of &8377; 6,17,296 for interest payable under section 43B:
The Assessing Officer disallowed &8377; 6,17,296 under section 43B due to the Assessee's failure to pay interest expenses before the due date. The Assessee argued that the Punjab State Co-operative Agricultural Development Bank, Ltd. does not fall under section 43B. The Tribunal examined the provisions of the Income Tax Act, which exclude Co-operative Development Banks from section 43B. Therefore, the addition made by the Assessing Officer lacked legal basis and was consequently deleted.

Issue 3: Disallowance of deduction under section 80P(2)(a)(i):
The Assessee's claim for deduction under section 80P(2)(a)(i) was disallowed by the Ld. CIT(A). However, this issue was not pressed during the appeal, and hence, no further arguments or decisions were presented regarding this disallowance.

Issue 4: Non-entertainment of additional evidence under Rule 46A:
The Assessee contended that the Ld. CIT(A) did not consider the application filed under Rule 46A of the Income Tax Rules, 1962, for producing additional evidence regarding a CBDT Circular and a Certificate from the Appellant Society's Head Office. However, as the Tribunal found in favor of the Assessee on the primary issues, the non-entertainment of additional evidence did not impact the final decision in this case.

In conclusion, the Tribunal allowed the Assessee's appeal, deleting the additions made by the Assessing Officer regarding TDS non-deduction and interest payable under section 43B. The issues related to the disallowance under section 80P(2)(a)(i) and non-entertainment of additional evidence were either not pressed or did not affect the final outcome of the judgment.