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TMI Blog2016 (9) TMI 1560X X X X Extracts X X X X X X X X Extracts X X X X ..... 60,00,000/- made u/s.37(1) of the Act. 3). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs. 8,69,623/- made on account of legal and professional expenses u/s.40(a)(ia) of the Act." Ground No. 1 2. The assessee-company is engaged in the business of providing dredger and other infrastructural facilities. The return of income was filed on 30/09/2009 declaring total income of Rs. 1,31,95,545/-. During the course of assessment proceedings, the Assessing Officer noticed that the assesssee had not deducted TDS on the following payments:- (i) Payments made to Sanghi Industries Ltd. Rs. 26862500 (ii) Payments made to Sanghi Industries Ltd. Rs. 1763500 3. The Assessing Officer asked the assessee to furnish justification on non-deduction of TDS on above payments of plant and machinery & hire charges. The asseseee replied as under:- "Deduction of TDS has been done on prescribed rate and no deduction has been made in cases where the expenses have been reimbursed to parties for diesel, traveling/conveyance etc." 4. The Assessing Officer provided further opportunity to the assessee to fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries Ltd. For, Sanghi Infrastructure Ltd Authorized Signatory Authorized Signatory" 5. The Assessing Officer has not accepted the submission of the assessee on the reasoning that the reply given by the assessee is nothing but an afterthought with intention to cover the default of TDS committed by the assessee by way of creating a MOU. 6. Aggrieved against the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A). 7. The Ld. Commissioner of Income Tax(A) has deleted the addition made by the Assessing Officer stating that there is no default of the provision of section 40(a)(ia) and restricted the disallowance to Rs. 65,000/-. The decision of the Ld. CIT(A) is reproduced as under:- "3.3 I have carefully perused the assessment order and the submission filed by the Id.AR of the appellant. The facts show that the appellant had made payment of Rs. 2,86,26,000/- to M/s. Sanghi Industries Limited. The A. O. has disallowed the expenditure claimed by the appellant on account of Plant and. Machinery hire charges, of which the payments were part, by applying the provisions of section 40(a)(ia) of the Act, as in his opinion TDS was to be ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the person to whom the payment is being made and the person is earning income from that payment, the tax is to be deducted. In the present case, the provisions of section 4(2) were applicable on the payment which was made by SIL to SREI. The payment position mentioned above also clearly show that the payment made by the appellant was in the nature of reimbursement of actual expenditure and there was no profit embedded in the bills. The observations of the A. O. that the MOU between the appellant and SIL' is an afterthought is not correct according to the facts. The above table shows-that the appellant has immediately reimbursed the payment to SIL as soon as if was paid to SREI. The dates of payment clearly belie the theory of afterthought propounded by the A. O. Further, the observations regarding no payment from November, 2008 to January, 2009 is also not relevant as first of all the appellant has submitted that the machineries which were used were subsequently purchased by the appellant company. Further, the fact that the payments have not been made in subsequent months will not alter the nature and genuineness of payment. The observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of these payments by the assessee to the SIL has no income element. 10. After hearing both the sides and perusal of material on record, we find that in view of above stated facts and findings, the assessee has not committed any default under the provisions of sec. 40(a)(ia) of the Act, therefore, we uphold the order of the Ld. Commissioner of Income Tax(A) and ground of appeal of the Revenue is rejected. Ground No. 2 11. During the course of assessment proceeding, the Assessing Officer noticed that the assessee had shown provisions for expenses at Rs. 70,00000/- under the head 'operation and maintenance charges' on which no TDS was deducted. The Assessing Officer asked the asssessee to furnish details of provisions of Rs. 70,00000/- and evidences for non-deduction of tax in respect of all such payments covered in the provisions as no TDS was deducted by the assessee. The assessee stated before the Assessing Officer that it was a block provision where the liabilities were not ascertained. The Assessing Officer observed that these provisions not ascertained as on 31/03/2009 contingent in nature and to be disallowed u/s. 371(1) of the I.T. Act. 12. The Assessing Officer also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that the appellant had incurred certain expenses but the bills in respect of those expenses were not received during the year. The expenses were in the nature of operation and maintenance .charges and for repairs-of machineries. The bills were received by the appellant In the next Financial Year and, therefore, the expenses could not be claimed on actual basis. Since the appellant had a fair idea about the quantum of the expenditure, which was pertaining to the current Financial Year as the bills were received before finalization of the accounts, the appellant made a provision for those expenses. The provisions were, therefore, not without any basis of an estimate but were made on the basis of actual estimation of the liability. The expenditure had already been incurred but the exact quantification was not known before the end of the Financial Year. Therefore, it cannot be said that the provisions were in the nature of contingent liability. The contingent liability which is dependent on a subsequent event, whereas in the present case, the expenditure has already been incurred. The following chart show the actual payment made by the appellant to the various parties in the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3C Repairs and Maintenance of CSD Ashoka Dredger 29000 657 08/06/2009 01/05/2009 Electronics Marine APPPR2282D Repairs and Maintenance of Pertius II Dredger 22500 510 08/06/2009 08/05/2009 Engitech Ltd. BWAPS7053J Repairs and Maintenance of CSD Ashoka Dredger 262000 5937 08/06/2009 08/05/2009 Kuldeep Enterprises Repairs and Maintenance of CSD Ashoka Dredger (Pur of repair items for Ashok Dredger) 281074 09/05/2009 Ras Tak Private Limited AABCR6988G Repairs and Maintenance of CSD Ashoka Dredger 358475 22483 08/0.6/2009 09/05/2009 Ras Tak Private Limited AABCR6988G Repairs and Maintenance of CSD Ashoka Dredger (Spares for repair of Turbine Motor) 732937 11/05/2009 R Lakshmi Narsimhan Repairs and Maintenance of CSD Ashoka Dredger 19800 23/05/2009 Fuji Technical Services Pvt. Ltd. AAACF1784F Repairs and Maintenance of CSD Ashoka Dredger (Pur of Nozzels for Ashok Dredger) 318465, 23/05/2009 Fuji Technical Services Pvt. Ltd. AAACF1784F Repairs and Maintenance of CSD Ashoka Dredger (Spare parts for KU30 Dies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant did-not make the provision for the expenditure for which the bills were not received, the expenditure would have become prior period expenses and accordingly it would not have been permissible as deduction in the subsequent year. The appellant has maintained the books of accounts on mercantile basis and has-shown the income and expenses on accrual basis and accordingly the provisions made by the appellant which are clearly on the basis of properly ascertaining the liability is to be allowed. The disallowance made by the A.O. is, therefore, directed to be deleted. The A. O. has also given a finding which is without prejudice to the main observations disallowing expenditure u/s.37(1) of the Act. It has been held by him that since the IDS has not been deducted while making the provision, the expenditure will not be allowable by applying the provisions of section 40(a)(ia) of the Act. The observation of the A. O. is on a wrong footing. The appellant had only made the provisions in the account but had not credited the same in the accounts of concerned parties and, therefore, the provisions of section 40(a)(ia) will not be applicable. The grounds of appeal are according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer. The Ld. Commissioner of Income Tax(A) has deleted this addition on the reasoning that the nature of these payments is reimbursement of expenses to which TDS provisions are not applicable. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:- "6.3 I have carefully perused the assessment order and the submission filed by the Id.AR of the appellant. The Assessing Officer has held that TDS has not been deducted on the payment and after applying provisions of section 40(a)(ia) disallowance has been made. The appellant has claimed that it was a reimbursement of payment and therefore was no liability to deduct TDS. After consideration of facts, it is noted that the following payments have been made by the appellant to Sanghi Industries Limited. Date (MM/DD/YY) Particulars Rs TDS Remarks 5/31/2008 Being registration and inspection of CSD Ashoka paid to GMB by SIL and debited to SIPL 9910.00 Not Applicable Registration fees- to Govt Dept 5/31/2008 Being registration and inspection of CSD Ashoka paid to GMB by SIL and debited to SIPL 1 685.00 Not Applicable Registration fees to Govt. Dept 7/3/2008 Bieng navtesh Marit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp;India on which the provisions of TDS are not applicable. Accordingly, the disallowance of Rs. 8,69,662.50 made by the appellant on account of reimbursement of payment to SIL was not justified. As discussed while deciding the second ground of appeal, as there is no income element involved, in this payment which is in the nature of reimbursement, the provisions of TDS will not be applicable. The SIL has been reimbursed the expenses by the appellant, there is no income element involved in the payment made to SIL by the appellant. The disallowance made by the A. O. in respect of the payment made, to SIL is directed to be deleted. In respect of the payment made to Shri Tapan Jha amounting to Rs. 55,350/-, the appellant has not furnished any detail or information to show that it was indeed a reimbursement of expenditure. The disallowance made by the A. O. is, therefore, upheld in respect of this payment. The ground of appeal is accordingly partly allowed." 19. The Ld. D.R. before us relied on the order of the Assessing Officer. On the other hand, the Ld. A.R. supported the order of the Ld. Commissioner of Income Tax(A). We have heard both the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been deducted on the following payments:- (i) Payments made to Sanghi Industries Ltd. Rs. 2,18,160/- (ii) Payments to ITD Cementation India Ltd. Rs. 11,75,365/- (iii) Payment to Anand-ITD Cementation India Ltd. Rs. 37,750/- The assessee stated that it was reimbursement of expenses. The Assessing Officer had disallowed these payments u/s. 40(a)(ia) of the Act for want of supporting evidential document which were not produced by the assessee. The assessee filed appeal before the Ld. Commissioner of Income Tax(A) against the order of the Assessing Officer for making the said addition. The Ld. Commissioner of Income Tax(A) sustain the addition made by the Assessing Officer as the assessee failed to prove that no profit element included in the payment made to the above stated concerns. The part of the decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:- "4.3 I have carefully perused the assessment order and the submission filed by the Id.AR of the appellant. The disallowance has been made on account of non- deduction of TDS on the following payments: - Sanghi Industries Ltd. Rs. 218160/- ITD Cementation India Ltd Rs. 1175365/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justify the findings of the Ld. Commissioner of Income Tax(A) that the copies of the ledger provided do not clearly show that nature of payment and the fact that whether any profit element was there in the so-called reimbursement. We, therefore, dismiss this ground of cross objection filed by the assessee. Ground No. 3 26. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited in the P & L account a sum of Rs. 2865900/- in the P & L account under the head "Legal and Professional Expenses". Out of these payments, Assessing Officer noticed that in respect of the following payments, the assessee has not deducted TDS. 1. Sanghi Industries Ltd. Rs. 8,69,623/- 2. Tapan Jha Rs. 55,350/- ---------------------- 9,24,973/- ---------------------- The assessee submitted before the Assessing Officer that these payments were the reimbursement of expenses but no supporting evidences were furnished and the Assessing Officer disallowed these payments under the provisions of section 40(a)(ia) of the act. 27. The assessee filed appeal before the Ld. Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on various judicial pronouncements, the Assessing Officer worked interest @ 12% and added a sum of Rs. 2042840/- u/s. 36(1)(iii) of the Act to the total income of the assessee. 30. The assessee filed appeal before the Ld. Commissioner of Income Tax(A) against the decision of the Assessing Officer. The Ld. Commissioner of Income Tax(A) provided relief to the assessee stating that the disallowance should be made by calculating the interest for one day on the reasoning that advance has only been given for one day i.e. on the last day of the financial year. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:- "7.3 I have carefully perused the assessment order and the submission filed by the Id.AR of the appellant. The A. O. has made the disallowance as it was noted by him that an amount of Rs. 1,70,24,504/- has been advanced without interest, 'whereas the appellant has incurred substantial interest expenditure. The A. O. accordingly made the disallowance by taking notional interest rate of 12% on the amount advanced for one year. The appellant has submitted that the advance which is appearing in the balance sheet is on account of transfer of b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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