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2015 (10) TMI 2545 - ITAT CHANDIGARH

2015 (10) TMI 2545 - ITAT CHANDIGARH - TMI - Guarantee Fee paid - revenue or capital expenditure - Held that:- It is not in dispute that assessee has taken loans from HUDCO for maintaining and improvement of State Highways and other District roads in State of Haryana and same loan was capitalized. The Haryana Government has given guarantee for State Corporation of HUDCO against grant of loan. For this activity of giving guarantee, the Haryana State Government has taken the Guarantee Fees. The co .....

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ustification has been submitted for giving guarantee fees to the State Government 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 .....

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ltancy 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 before authorities below. The issue of ‘paid’ and ‘payable’ has already been decided against the assessee by Hon'ble Punjab & Haryana High Court in the case of PMS Diesels (2015 (5) TMI 617 - PUNJAB & HARYANA HIGH COURT ). .....

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d any reason why assessee has not filed these documents before the authorities below which have been now filed at pages 11 to 15 of the Paper Book, genuineness of same are in doubt. - Decided against assessee - ITA No. 404/CHD/2014 - Dated:- 16-10-2015 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND Ms. RANO JAIN, ACCOUNTANT MEMBER Appellant by: Shri Harry Rikhy Respondent by: Shri S.K.Mittal O R D E R PER BHAVNESH SAINI, JM This appeal by assessee is directed against the order of ld. CIT(Appeals) Pa .....

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7; 96,91,000/-. The assessee was asked to explain the nature of this expenditure. The assessee replied that this amount was paid to the State of Haryana for giving guarantee against loan taken from HUDCO by the assessee corporation. The total guarantee against fees was ₹ 1121.56 lacs which was to be amortized in the period of loan taken in various schemes. The Assessing Officer concluded that assessee had raised loan from HUDCO for its projects on which guarantee fee of ₹ 96,91,000/- .....

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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 gr .....

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loans taken by appellant used for various project the expenditure on which were capital in nature. Whereas, appellant have argued that guarantee fee paid for received of such loan from HUDCO is one time expense and was paid to Haryana Government on whose guarantee the loan was released to the appellant. The guarantee fee paid by its inherent nature in one time expenses which is not refundable and hence revenue expenses. In this regard, the appellant has relied in the case of CIT Vs Siwakanii Mil .....

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& Haryana High Court in the case of CIT (Central), Ludhiana Vs Sobhag Textile Pvt. Ltd.(2006) 153 taxman 597 where the Hon'ble High Court adjudicated on the following question of law. "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding the guarantee commission paid to Canara Bank against purchase of machinery through IDBI as not of capital nature ?' The Hon'ble Punjab & Haryana High Court answered the .....

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a State Government has given guarantee for State Corporation to HUDCO (a Central Government Organization) against grant of loan. For this activity of giving guarantee, the Haryana State Government has 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 i .....

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f 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 appellant in its books of account has amortised the total guarantee fee of Rs.l 121.56 lacs in the period .....

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or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or prof .....

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d by way of fee to the State Government for having given as guarantee for the loans borrowed by the appellant is not one of the expenditure which falls within sections 30 to 36 of the Act. Therefore, it has to be examined within section 37 of the Act. 4.5 In the present case, the appellant is a creation of State Government. The appellant has paid guarantee fee of ₹ 1121.56 lacs to State Government for raising a loan of ₹ 560.78 Crores from another Central Government Organization (HUD .....

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f 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 .....

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es was not used by the Directors as a sources of remuneration, from the borrowing company and the banks were also advised to obtained such an undertaking from the borrowing company. 4.7 Regarding the appellant's submission on rule of consistency to be adopted by department, it is mentioned that Res judicata is not applicable in Income Tax Proceedings as each assessment year is a separate proceedings. In this regard, I place reliance on the decision of Hon'ble Supreme Court in the case of .....

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that the claim of guarantee fee of ₹ 96,91,000/- during the year is merely a diversion of part of loan received from the borrowing company to the State Government without any basis or the business activity of the appellant corporation. The said expenditure incurred is not found to be wholly and exclusively incurred for the purposes of business and therefore, not allowable in computing the income chargeable under the head "profits and gains of business or profession". Therefore, t .....

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n. For this activity of giving guarantee, the Haryana State Government has taken the Guarantee Fees. The counsel for assessee was directed to explain and justify that it was revenue expenditure. It is also admitted fact that assessee in its books of account has amortized the total guarantee fees of ₹ 1121.56 lacs in the period of loan taken 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 .....

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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 t .....

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, 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 .....

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on'ble Supreme Court in the decision reported in 227 ITR 464. On going through the judgement of the Hon'ble Supreme Court, we find that Hon'ble Supreme Court passed the following order, Heard counsel for parties. Dismissed. No costs. Since in this case, Hon'ble Supreme Court dismissed the petition by non-speaking order, therefore, the same would not attract the doctrine of merger. We rely upon decision of the Hon'ble Supreme Court in the case of Kunhayammed & Others V Sta .....

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ve 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 consultan .....

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paid consultancy charges on 15.09.2009 to M/s Consulting Engineer Associates without deducting TDS. He has relied upon decision of the Hon'ble Calcutta High Court in the case of Cresent Expots Syndicate 216 Taxman 258 and decision of the Gujrat High Court in the case of Sikandar Khan N. Tanwar 87 DTR 137 in which issue of paid and payable have been decided in favour of the revenue. The ld. CIT(Appeals), following the same decisions, confirmed the addition and dismissed this ground of appeal .....

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e course of arguments, did not seek adjournment to make request for admission of the additional evidences or to explain any reason for not filing these documents before authorities below. The ld. DR, therefore, submitted that these evidences could not be considered at the second appellate stage. The ld. DR also pointed out that the assessee pleaded before authorities below that no tax have been deducted on the aforesaid payment and assessee claimed that since amount is paid, therefore, provision .....

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