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TMI Blog2012 (8) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... and conditions of the contract agreement between M/s. Progressive Construction Ltd. and JV partners. He also noticed that the Balance Sheet of the assessee did not represent any bank loans/ deposits, so as to make the assessee eligible for such claim. He felt that the assessee had no obligation to meet such expenditure and therefore, the claim of expenditure was to be disallowed. He further noted that as per the letter dated 2.12.2009, the interest on the said FDs was being claimed by the partners of the JVs in their individual capacity, while the expenditure was debited to the assessee. 4. The learned counsel for the assessee submitted that the principal contractor had issued the bank guarantees on behalf of the assessee and, therefore, the expenses were being charged to the assessee. He submitted that even though there was no mention in this regard in the agreement, it is a normal practice that the principal contractor provides bank guarantee for the performance of the job. The representative argued that since this was done in the course of business, the bank guarantee commission is an allowable business expenditure. He further drew our attention to a copy of letter dated 10.4.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is seen that M/s. Rithwik Projects Ltd. and M/s. Swathi Construction have entered into a MOU dated 6.9.2002 for the purpose of executing the work covered under the original agreement dated 14.11.2002 between M/s. PCL and THDC. By way of the agreement dated 21.12.2002, PCL had agreed to take the services of RS JV and RS JV was to execute and complete the work on back to back basis, as per the agreed rate and in accordance with the scope and specifications prescribed and all other terms and conditions stated in the original agreement, besides the instructions issued by the employer from time to time. Further, as per the stipulation regarding 'Nature of works and consideration', as also 'claims' in the agreement, the claims received from the employer were to go to the credit of RSJV, after duly deducting 5% from the net amount received, besides the TDS of 2.04%. Accordingly, the assessee was to get was to execute the work at 92.96% of the rates approved by the employer. At the same time, RSJV was to ensure that it would fulfil all its obligations under the said agreements, as also the original agreements. 7. The DR further submitted that as per item No. 4, RSJV had agreed to pay m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee then the bank guarantee commission has to be treated as business expenditure in view of the judgement of jurisdictional High Court in the case of ACIT vs. Akkamba Textiles Ltd. (117 ITR 294) wherein it was held as under: "The question whether a particular expenditure is revenue expenditure incurred for the purpose of the business must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure is so related to the carrying on or the conduct of business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition to the carrying on of business, the expenditure may be regarded as revenue expenditure. The transaction of acquisition of assets can be said to be closely related to the commencement and carrying on of business by an assessee. Hence, any expenditure incurred by the assessee, which is a running concern, for ensuring use of money for a certain period or enabling the assessee to make deferred payment of cost of assets acquired, constitutes revenue expenditure and, therefore, the same is admissible as deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mobilisation Advance taken by them and recovering the same by way of deduction from works bills commencing from F.Y. 2002-03. Further, since THDC is a Public Sector Undertaking (A company in which all the shares held by Government of India & Government of U.P.), so no tax on interest is deductible as per Circular/Notification. Due to the above matter, we are deducting full interest from Gross and Escalation bills of M/s. Rithwik Swathi Joint Venture, Hyderabad. Sd/- (D.V. SINGH) Chief Project Officer Dam & Power House KHEP, Koteshwar" 10. Hence no payment has gone out of the assessee company and THDC itself deducted the amount towards the interest. It is being a joint venture of Government of India and Government of U.P., in our opinion, there is no question of deducting the TDS on the impugned interest amount. It is also a fact that THDC falls under the purview of section 194A(3)(iii)(f) of the Income-tax Act, 1961 and as such it is not liable for deducting TDS. In our opinion, the CIT(A) has taken a correct view on the deduction of TDS. We do not find any infirmity in the order of the CIT(A) and the same is confirmed." 13. We have heard both the parties and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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