TMI Blog2015 (10) TMI 2545X X X X Extracts X X X X X X X X Extracts X X X X ..... ment by its own corporation. When assessee was asked to justify as to for what purposes, the guarantee fee was paid to the State Government, assessee was not able to explain anything in this regard. It is well settled law that when assessee claimed deduction on account of business expenditure, burden would be upon assessee to prove that the said expenditure was not in the nature of capital expenditure and has been laid out or expended wholly and exclusively for the purpose of business. The assessee, however, failed to produce any evidence or material before authorities below to prove that the guarantee fees paid to State Government, was wholly and exclusively incurred for business purposes. CIT(Appeals) was correct in upholding the addition by treating the Guarantee Fee paid as Capital expenditure - Decide against assessee Addition u/s 40(a)(ia) - non deduction of tds on the payments made for consultancy charge - Held that:- No merit in this ground of appeal of the assessee. The assessee specifically pleaded before authorities below that since amount is actually paid, therefore, assessee is not required to deduct TDS on the same amount. No other submissions were raised befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature of capital expenditure whereas the same was claimed as revenue expenditure. The Assessing Officer, accordingly, treated the same as capital expenditure and made the addition. 6. The assessee submitted before ld. CIT(Appeals) that assessee is engaged in the maintenance and improvement of State Highways and other district roads in the State of Haryana. For the same projects, assessee borrowed loan from HUDCO. The Haryana Government gives guarantee against loan taken from HUDCO by the assessee. The guarantee fees paid to the State Government was claimed as revenue expenditure. The guarantee fees paid is expenditure and is not refundable, therefore, it was revenue expenditure. The assessee relied upon certain decisions in support of the contentions. The ld. CIT(Appeals), however, considering the facts of the case, confirmed the addition and dismissed this ground of appeal of the assessee. Findings of ld. CIT(Appeals) in para 4.2 to 4.8 of the appellate order are reproduced as under : 4.2 I have gone through the facts of the case and written submissions filed by the appellant. The AO made the addition of ₹ 96,91,000/-- on finding that the claimed expenditure as g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken the guarantee fee. During the appellate proceedings, the counsel of appellant was asked to justify and furnish the documentary evidences showing the provision for making such payment and its justification as business expenditure. The appellant submitted a copy of memorandum dated 16.09.2002 issued by Commissioner and Secretary to the Government of Haryana, Public Works Department where under Item No. 8, the payment of Government guarantee fee to the Haryana Government is reflected against recovery of FISRDC Funds. The appellant also furnished a copy of letter dated 17.01.2012 issued by Executive Director to Finance Commissioner and Principal Secretary, Government of Haryana where it is mentioned that an account of ₹ 560.78 Crores was taken as loan from HUDCO. for improvement of state highways and MDR and ODR in the state of Haryana against which bank guarantee at 2% i.e. Rs.l 1,21,56,000/- was payable to State Government. The same has been' paid in full. However, (lie appellant failed to produce any evidence regarding any provision of statute under which the State Government may divert part of loan or make such transaction as source of revenue for itself. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have been diverted to the State Government without any apparent reason. The expenditure has been given a name of guarantee fee which is in fact diversion of funds to the State Government. As per provisions of section 37(1) of the Act, the claimed expenditure as guarantee fee has not been incurred wholly and exclusively for the purposes of earning profits from the business activity by the Corporation. Merely because the State Government became guarantor and charged such guarantee fee, the guarantee fee paid by the corporation would not constituted a lawful expenditure so as to claim' deduction u/s 37(1) of the Act. 4.6 In this context, reliance is placed on the decision of Hon'ble high court of Knrnataka in the case of CIT Vs. United Breweries Ltd. (2012) 17 taxmann.com 6 where it was held that in the circumstances of the case, merely because Managing Director agreed to stand as a guarantor on payment of certain commission, it would not constitute a lawful expenditure so as to be claimed deduction u/s 37(1) of the Act. In that case, the Hon'ble Court cited the reference of circular of RBI dated 29.07.1990 which mandates that the banks were required to ensure th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for various schemes i.e. for 13 to 14 years. Therefore, guarantee fees was amortized by the assessee in the books of account. The ld. CIT(Appeals), in the background of these facts noted that assessee is a creation of State Government and no other basis or justification has been submitted for giving guarantee fees to the State Government by its own corporation. 7(i) The ld. CIT(Appeals) also noted that it is a case of diversion of income by assessee to the State Government. It was also recorded in the finding of fact that in-fact, by such arrangement, a portion of the loan raised have been diverted to the State Government without any apparent reasons. As per letter on record, the State Government decided to levy Guarantee Fee at specified rate on all the current borrowings. The finding of fact recorded by ld. CIT(Appeals) have not been rebutted through any evidence or material on record. It is, therefore, clear case that when the assessee has capitalized the loan taken from HUDCO in the books of account and alleged expenditure of guarantee fees, have been amortized in the books of account in different years, would clearly show that the expenditure claimed as revenue was in-fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of fact recorded by ld. CIT(Appeals), which have not been assailed to through any evidence or material on record, we do not find any justification to interfere with the order of the ld. CIT(Appeals). We confirm his findings and dismiss this ground of appeal of assessee. 9. On ground No. 3, assessee challenged the order of ld. CIT(Appeals) in upholding the addition of ₹ 4,03,129/- under section 40(a)(ia) of the Income Tax Act. The Assessing Officer noted that TDS was not deducted on the payments of ₹ 4,03,129/- made for consultancy charges to M/s Consulting Engg. Associates. The Assessing Officer, therefore, disallowed the same under section 40(a)(ia) of the Act. 9(i) The assessee submitted before ld. CIT(Appeals) that provisions of Section 40(a)(ia) is applicable only in respect of TDS defaults if the payment is payable. In this case, amount is actually paid, therefore, same provisions would not apply. 9(ii) The ld. CIT(Appeals) after going through the submissions of the assessee, noted that in this case, assessee has paid consultancy charges on 15.09.2009 to M/s Consulting Engineer Associates without deducting TDS. He has relied upon decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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