TMI Blog2024 (1) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... as been deducted u/s 194J - In our opinion, if there is shortfall of deduction of TDS by applying wrong provisions i.e. section 194J of the Act instead of 194C of the Act, then the disallowance u/s 40(a)(ia) of the Act cannot be made. This view of ours is fortified by the judgement of Future First Info Services Pvt. Ltd. [ 2022 (7) TMI 748 - DELHI HIGH COURT ] wherein held that where there was short deduction of tax at source, disallowance could not be made u/s 40(a)(ia) of the Act and correct course of action would have been to invoke the provisions of section 201 of the Act . Hence, to the expenditure wherein assessee deducted the TDS, however, there was a short deduction of TDS to that extent, the disallowance u/s 40(a)(ia) of the Act cannot be made. Other amount wherein TDS has not been deducted or not remitted to the government account before the specified date. With regard to this, we are of the opinion that if the TDS is deducted but not remitted to the government account before the specified date, and the recipient of that income, furnished the return of income u/s 139 of the Act after taking into account that income for computing the income of the assessee for that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital in nature - HELD THAT:- This expenditure incurred towards labour charges for dismantling of old and faulty assets ad by incurring this expenditure, no new asset has been created and the expenditure incurred to remove the non-useful assets from the gross block. It is nothing but expenditure incurred for maintaining the existing asset. Being so, in our opinion, it is just like repairs maintenance incurred for dismantling of old assets. Accordingly, we are of the opinion that it is to be allowed as revenue expenditure only and this ground of assessee is allowed. Grants and Contributions received during the year - HELD THAT:- The assessee has received the total grant in the assessment year which is the gross amount and that to be deducted from the gross block of plant machinery and not the only amount as the balance amount which has not gone into the computation of income and resulted in excess allowance of depreciation - The error crept in the computation of the gross block of assets has been correctly rectified by the ld. AO while framing assessment and we do not find any infirmity in the order of the lower authorities on this count and the same is confirmed in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee expended certain expenditure towards Managerial and Technical services. However, from the details furnished with regard to TDS deducted and remitted that in some cases no TDS has been made and in respect of some cases, grant of TDS deducted has not been remitted before the specified due date stipulated and in respect of payments made against bill management services TDS has been made u/s 194C instead of deducting the rate applicable for such managerial and technical services u/s 194J of the Act. As the assessee has failed to deduct tax and remitted the same before the specified due date, the ld. AO disallowed the corresponding payments to the tune of Rs. 8,30,87,468/-. The NFAC has confirmed the same. Against this assessee is in appeal before us. 4. The contention of the ld. A.R. is that the impugned amount of Rs. 8,30,87,468/- even liable for deduction of TDS u/s 194J of the Act. The assessee has deducted the TDS u/s 194C of the Act. There was only short deduction of TDS if so and not liable for disallowance of entire amount by invoking the provisions of section 40(a)(ia) of the Act. For this purpose, he relied on the judgement of Delhi High Court in the case of PCIT V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration paid to CAs for auditing 28781 5 Remuneration to contractors 663500 6 Legal charges 441800 7 Payment to contractors 2619832 Total 24381732 6.1 Short deduction of tax which ought to have been done u/s 194J of the Act deducted u/s 194C of the Act. Sl. No. Description Amount 1 Aggregate amount of payment made towards bill management services 91615206 2 Amount of TDS required to be deducted u/s 194J 10380002 Less: Amount of TDS deducted 3040880 Amount of short deduction of tax 73,39,122 3 Proportionate payments relating to short deduction of tax Less: Amount disallowed separately on account of no deduction of tax (included in the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine the same afresh in the light of above observations. Ground Nos.2 3 are partly allowed for statistical purposes. 7. Ground Nos.4 5 of the assessee s appeal, which reads as under: 4. The learned CIT(A) erred in confirming the disallowance u/s 43B of the Act of Rs. 73,13,171/- on the ground that payments not made to government within due date. 5. The Learned CIT(A) ought to have appreciated the submission of the Appellant that the expenses can only be claimed in the year of payment. Section 43B provisions disallow the sum not paid in the financial year or before the due date of filing tax returns, thus, the disallowance made has to be deleted. 8. Facts of the issue are that the assessee did not pay full amount outstanding as on 31.3.2010 before the specified date as provided u/s 43B of the Act in respect of following payments: Sl. No. Particulars Amount 1 Royalty payable to government 1,08,564 2 Inspection charges payable to government 11,725 3 Rates and rates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch service tax had become payable in terms of S. 43B(a). (2) 145 A includes sales tax, excise duty, etc. in the turnover of purchases and sales of goods, but it does not apply to services and hence service tax cannot be included in the turnover. (3) In the given case, the assessee had not preferred a claim for the amount of service tax. Further, there was no liability on the assessee to make payments to the credit of Central Government because of non-receipt of payments from the receiver of services. Therefore, the rigor of S. 43 B is not attached and the CIT (A) was right in deleting the additions made on account of disallowance u/s 43B. 9 We further find that in the case of CIT Vs. Noble and Hewitt India Pvt. Ltd. (Supra) Hon ble Delhi High Court has held as under :- In our opinion since the assessee did not debit the amount to the Profit Loss Account as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise. Ld. Counsel for the revenue submits that the assessee has sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. 1973) 87 ITR 542 (SC) in which was held that sales tax collected by assessee is revenue receipt even if it is shown by the assessee not non-revenue head and such treatment by the assessee is not decisive. 10.2 Further, in the case of M/s. Jain Christopher v. DCIT in ITA No.855/Bang/2012 order dated 12.04.2013, it was held as under:- 7.2 During the course of assessment proceedings, the AO observed that a sum of Rs. 29 lakhs representing service tax collected by the assessee had not been paid, but, was shown as outstanding liability . Being queried, it was explained that it had not preferred any claim for deduction and, thus, it was argued, the question of disallowance u/s 43B of the Act does not arise. The AO took a view that even though the assessee had not claimed the same in its P L account as an expenditure and, therefore, section 43B has no application. However, he was of the view that the fact remains that service tax collected by the assessee but not paid to the Government account up-to the end of the financial year or even up-to the date of filing of the return of income and, thus, by not including this amount in its service, it had clearly made a cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the rigour of section 43B may be applicable in the case of Sales-tax or Excise Duty but the same cannot be said to be the position in case of Service- tax because of two reasons. Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Govt. and paid to the Govt. accordingly. Therefore, a service provider is merely acting as an agent of the Govt. and is not entitled to claim deduction on account of service tax. Hence, on this account alone addition u/s 43B could not be made and the same has been correctly deleted by the CIT(Appeals) . However, in the instant case, as admitted by the assessee, service tax has been collected but not paid to the Government account either up-to the end of the financial year or even up-to the date of filing of the return of income. Thus, the case law relied on by the assessee is distinguishable and cannot come to the rescue of the assessee. (ii) CIT v. Noble and Hewitt India (P) Ltd (Del) 7.2.2 The Hon ble Delhi High Court was predominantly concerned with the disallowance of deduction by invoking the provisions of section 43B of the Act. The Hon ble Delhi High Court was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee has recorded his turnover after deducting the service tax received and the service tax has been credited separately. In section 145, of the Act for determining the income chargeable under the head profits and gains of business or profession or income from other sources, the same is to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The said provisions were substituted by the Finance Act, 1995 w.e.f. 01.04.1997. Under section 145A of the Act, it is provided that notwithstanding anything to the contrary contained in clause(a) to section 145, the valuation of purchase and sale of goods and inventory, for the purpose of determining the income chargeable under the head profits and gains of business or profession, shall be (i) in accordance with method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duties, cess or fees, by whatever name called, actually paid or incurred by the assessee, to bring the goods to the place of its location and condition, as on the date of valuation. As per the explanation under the said clause, it is pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment received from service recipients as to how they have paid - separately or inclusive of service Tax. He has also not produced any evidence regarding whether the TDS has been remitted on payment after excluding the service tax. After going through the paper book filed by the assessee, we observe that the assessee has utilized service tax credit towards payment of duty on capital goods and as per Reverse Charge Mechanism. Therefore, it is necessary to discuss the relevant provisions of the Cenvat Credit Rules, 2004 as well as section 43B of the IT Act. 7. Section 43B(a) is as under : 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or 8. Rule 4 of the CENVAT Credit Rules, 2004 reads as under : Rule 4. Conditions for allowing CENVAT credit.- (1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder heading 6804 of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years. Illustration.- A manufacturer received machinery on the 16 th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit upto a maximum of one lakh rupees in the financial year 2002-2003, and the balance in subsequent years. (3) The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer, provider of output service even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company. (4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output service claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961). (5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the month of March is required to be made by 31 st of March itself. As per Rule 6(4) of the Service Tax Rules, 1994, the assessee can pay for provisional payment of service tax in case he is not able to correctly estimate the tax liability. In such a situation, he may request in writing to the jurisdictional Assistant/Dy. Commissioner for the same. 10. As per section 73A of the Finance Act, 1994, any person who has collected any sum on account of Service Tax, is under obligation to pay the same to the Government. He cannot retain the sum so collected with him by contending that the service tax is not payable. 11. As per section 173A of the Service Tax Act, in case, the service tax is collected, the provision is as under : 173A. Service Tax collected from any person to be deposited with Central Government:- (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made there under from the recipient of taxable service in any manner as rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be provided is issued : Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be the date of completion of provision of the service. (b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment : Provided that for the purposes of clauses (a) and (b), - (i) in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service; (ii) wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3B of the Income Tax Act. 1961. Due to the change in the law now those decisions does not help to the assessee. Moreover, the assessee has filed the service tax returns belatedly, i.e., for April to June on 16.04.2015, for July to September and half yearly from October to March, 2013 on 08.07.2015. In view of all these facts, the ld. CIT(A) has rightly dealt with the issue in question by giving elaborate findings in the impugned order regarding confirmation of addition u/s. 43B of the Act, which we do not find fit to be interfered with. Accordingly, the appeal of the assessee deserves to be dismissed. 10.4 In view of the above, we have no hesitation to hold that non- payment of above amount to government account before the due date of filing the return is to be disallowed, though it was not charged to the P L account and it attracts the provisions of section 43B of the Act and the provisions of section 145A of the Act cannot be applied in view of the non-obstante clause in section 43B of the Act. Same view has been taken by Cochin Bench of Tribunal in the case of ACIT Vs. Kunnel Engineers Contractors Pvt. Ltd. in ITA No.653/Coch/2019 4/Coch/2020 dated 19.5.2020 and by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of ITAT, Bangalore Bench, Bangalore in appellant's own case in ITA Nos.896 to 903/B/11 for A.Yr: 2007-08 to 2010-11 dt. 31.7.12 while concluding assessment. 15.1 Facts of the issue are that the assessee-Company has expended certain expenditure towards managerial and technical services. However, from the details furnished in respect of TDS deducted and remitted, it was found that in respect of some cases no TDS has been made and in respect of some cases amount of TDS deducted has not been remitted before the specified due date and in respect of payments made against Bill Management Services TDS has been made u/s 194C instead of deducting at the rate applicable for such managerial and technical services u/s 194J of the Act. As the assessee has failed to deduct tax and remit the same before the specified due date, it was proposed to disallow the corresponding payments (of Rs. 2,43,81,732/- + Rs. 5,87,05,736 = 8,30,87,468/-) as mentioned below in accordance with the provisions of section 40(a)(ia) of the Act. The AO has observed vis- -vis payment with respect to professional (Technical fee) . A sum of Rs. 1,69,34,25,237/- is debited towards Transmission charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee s own case before Hon ble High Court in the case of CIT Vs. Hubli Electricity Company Ltd. reported in 386 ITR 271 wherein held as under: Held: High Court have carefully perused the contents of. the power transmission agreement. There is no mention of any offer with regard to any technical services by the KPTCL Plain and simple intention of the parties to the agreement as discernable from the power transmission agreement is that the assessee was desirous of using the transmission network belonging to the KPTCL in accordance with the provisions of the Electricity Act subject to payment of charges applicable and determined by KERC. KPTCL was willing to provide its transmission network for the purpose of carrying electricity to its users subject to payment of transmission and other charges as determined by KERC. There is neither an offer nor an acceptance of any technical service inter se between the parties. Admittedly, KPTCL is a State owned Company and the only power transmitting agency. It has installed and developed its own infrastructure. Assessee is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved during the year, there are no assets created and capitalized during the year from out of the grants received Rs. 34,36,15,915/-. The Assessing Officer ought to allow the depreciation as claimed without reducing the amount from the cost of assets. 18.1 Facts of the case are that a s per the details furnished during the discussion, it is observed that aggregate amount of Grants and Contributions from Consumers received during the year towards cost of capital assets works out under: 1. Consumers Contributions Rs. 79,00,29,790 2. Grants received Rs. 6,08,00,000 3. Grants received Rs. 8,29,66,446 Total Rs. 93,37,96,236 18.2 As against the aggregate amount of Rs. 93,37,96,236/-, only a sum of Rs. 59,01,80,321/- is deducted from the cost of additions made to Plant and Machinery during the year at Rs. 278,52,08,882/-. The explanation submitted during the discussion that a reversal entry to the extent of Rs. 34,36,15,915/- was made relating to earlier years found to be not acceptable. As the above mentioned consumers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery. The contention of the assessee is that an amount of Rs. 34,36,15,915/- was the grant received by the assessee not relating to the assessment year under consideration and it was relating to earlier assessment year and restricted to deduction of grant to the tune of Rs. 59,01,80,321/- instead of Rs. 93,37,96,326/-. However, the ld. AO has deducted entire amount of grant received of Rs. 93,37,96,236/- so as to calculate the correct depreciation to be allowed to the assessee. 20.1 Thus, there was disallowance of Rs. 2,57,71,191/- on account of excess claim of depreciation. In our opinion, the assessee has received the total grant in the assessment year at Rs. 93,37,96,236/-, which is the gross amount and that to be deducted from the gross block of plant machinery and not the only amount of Rs. 59,01,80,321/- as the balance amount of Rs. 34,36,15,915/- which has not gone into the computation of income and resulted in excess allowance of depreciation at Rs. 2,57,71,194/-. The error crept in the computation of the gross block of assets has been correctly rectified by the ld. AO while framing assessment and we do not find any infirmity in the order of the lower authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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