TMI Blog2023 (1) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in holding that the assessee is entitled to claim depreciation on the purchase cost. Disallowance of depreciation on the claim of site restoration cost - We are of the view that the depreciation on site restoration cost is not allowable as deduction. Accordingly, we are of the view that the Ld CIT(A) was not justified in allowing depreciation on site restoration cost. Accordingly, we reverse the order passed by Ld CIT(A) on this issue and restore the disallowance made by the AO on site restoration cost. Depreciation claim relates to the disallowance of depreciation on new assets for want of evidences - HELD THAT:- We notice that the AO had made the disallowance of depreciation on the new additions without discussing anything in the assessment order. Only in the remand report, the AO has stated that the assessee did not produce bills. The submission of the assessee before CIT(A) was that the number of towers installed by TTSL on its behalf during November, 2007 to Feb. 2008 was 6603 and the assessee has installed 879 new towers. It is submitted that the materials are purchased in bulk and kept in ware houses. The materials were issued to the construction sites as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.A. No. 6366/Mum/2018 And I.T.A. No. 6147/Mum/2018 - - - Dated:- 4-1-2023 - Shri B.R. Baskaran (AM) And Smt. Kavitha Rajagopal (JM) For the Assessee : Shri P.J. Pardiwalla Shri Satyen Sehti For the Department : Shri Sandeep Raj ORDER PER B.R.BASKARAN (AM) :- These cross appeals are directed against the order dated 31.08.2018 passed by Ld CIT(A)-16, Mumbai and it relates to the assessment year 2008- 09. 2. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the (a) disallowance of depreciation of Rs.14.72 crores on the additions of Rs.223.40 crores. (b) disallowance made u/s 40(a)(ia) of the Act. 3. The revenue is aggrieved by the decision of Ld CIT(A) in granting relief in respect of (a) disallowance of depreciation on purchase of assets from its holding company. (b) disallowance of depreciation on the claim of site restoration cost. (c) disallowance made u/s 40(a)(ia) of the Act. 4. The facts relating to the case are stated in brief. The present name of the assessee is M/s ATC Telecom Infra P Ltd . Earlier it was known as Viom Networks Ltd and earlier to that, it was known as Wireless TT Info Services Ltd (W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with regard to item (b) above and hence the assessee is in appeal. 6.2.0 The first item relates to the disallowance of depreciation between purchase cost and the WDV of the holding company. The assessee had purchased the undertaking on slump sale basis by paying Rs.37 crores as detailed below:- Fixed assets - 846.19 crores Current assets - 17.33 crores 863.52 crores Less:- Liabilities 826.52 crores 37.00 crores The assessee claimed depreciation on the amount of Rs.846.19 crores. However, the WDV of assets in the hands of transferor TTSL was Rs.817.93 crores. Hence, the AO held in the remand report that the depreciation should be allowed on Rs.816.93 crores. In this regard, the AO referred to the provisions of Sec.43(6)(c)(i)(C) of the Act. 6.2.1 The Ld CIT(A) noticed that the Explanation 4A to sec. 43(1) invoked by the AO in the assessment order is not applicable to the facts of the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of assets was between holding company and subsidiary company, the exemption provided u/s 47 was not availed by the transferor company and the transferor company has offered capital gains on such transfer. Further, we notice that the fifth/sixth proviso as the case may be, relates to the case of apportionment of depreciation between the transferor-company and transferee company. We also agree with the analysis made and decision given by Ld CIT(A) holding that the provisions of Explanation 4A, 3 and 6 of Sec.43(1) shall not be applicable to the facts of the present case. The provisions of sec. 43(6)(c)(i)(C) was related to the computation of WDV and it is not applicable, since the assessee has purchased the assets in the hands of seller. Accordingly, we are of the view that the Ld CIT(A) was justified in holding that the assessee is entitled to claim depreciation on the purchase cost of Rs.846.19 crores. 6.4 The next issue raised by the revenue relates to the relief granted in respect of depreciation disallowed on site restoration cost of Rs.6.96 crores. We noticed earlier that the, while working out the cost of towers, the assessee has estimated the cost that would be inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting Standard 10. We may also refer to Explanation 8 to sec. 43(1) of the Act, which reads as under:- Explanation 8:- For the removal of doubts, it is hereby declared that where any amount is paid is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first to put use shall not be included, and shall deemed never to have been included, in the actual cost of such asset. Admittedly, the site restoration cost is not a cost incurred before the asset is ready for use. It is an expenditure that will be incurred, when the asset is dismantled. Even though it may not be a contingent liability as held by Ld CIT(A), yet the cost of restoration of site cannot be included in the cost of asset, since it is not an expenditure incurred before the asset is ready to put to use. In this regard, in our view, the consistent accounting practice followed by the assessee may not be relevant, since the consistent practice cannot override the accounting standard and law. 6.4.2 In the written submissions, certain propositions have been raised:- (a) The first proposition was that the provision for site re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposition is that the either claiming of expenses in the first year itself or claiming the same over the years by way of depreciation is a tax neutral exercise and hence the claim of the assessee should not be disturbed. This proposition would also fail, since we have held that the assessee is not entitled to claim deduction of site restoration cost u/s 37(1) of the Act. 6.4.3 In view of the foregoing discussions, we are of the view that the depreciation on site restoration cost is not allowable as deduction. Accordingly, we are of the view that the Ld CIT(A) was not justified in allowing depreciation on site restoration cost. Accordingly, we reverse the order passed by Ld CIT(A) on this issue and restore the disallowance made by the AO on site restoration cost. 6.5 The next issue under depreciation claim relates to the disallowance of depreciation on new assets for want of evidences. During the year under consideration, the assessee claimed depreciation on new assets worth Rs.223.41 crores. In the assessment order, the AO had disallowed the claim of depreciation on this amount without assigning any reason. In the remand report, the AO stated that the assessee could furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from November, 2007 to March, 2008 was not disputed. Hence the new towers added would definitely have corresponding cost. The Ld CIT(A) has observed that the assessee could bring 100 binders before him. Accordingly, under these set of facts, we are of the view that there is no reason to suspect the addition of new towers worth Rs.223.41 crores. Accordingly, we are of the view that the assessee would be entitled for depreciation of Rs.14.72 crores claimed on the above said amount. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of the same. 6.6 We shall now take up the next item of dispute, viz., disallowance made u/s 40(a)(ia) of the Act. The assessing officer disallowed a sum of Rs.36.03 crores by invoking the provisions of sec. 40(a)(ia) of the Act for non-deduction of tax at source. The CIT(A) deleted the disallowance to the extent of Rs.20.08 crores. With regard to the balance amount, the Ld CIT(A) granted relief to the extent of 0.85 lakhs, since the assessee had deducted tax at source. Accordingly, the Ld CIT(A) confirmed the balance amount of Rs.15.10 crores. 6.6.1 The revenue is contesting the relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not involve carrying on of any work including supply of labour for carrying out any work . It is the contention of Ld A.R, supply of security personnel does not fall within the meaning of work defined in sec. 194C. In support of above said proposition, the Ld A.R placed reliance on the following passage from the decision rendered by Hon ble Supreme Court in the case of Birla Cement Works vs. CBDT (248 ITR 216) @ paragraph 11:- 11. The key words in section 194C are 'carrying out any work'. The learned counsel for the appellant contended that a word or collection of words should fit into the structure of the sentence in which the word is used or collection of words formed. The contention is that in the context of section 194C, carrying out any work indicates doing something to conduct the work to completion or something which produces such result. The mere transportation of goods by a carrier does not affect the goods carried thereby. The submission is that by carrying the goods, no work to the goods is undertaken and the context in which the expression 'carrying out any work' has been used makes it evident that it does not include in it the transportat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and as such would fall outside the purview of section 194C of the Act. It was further stated in the said circular that contracts for rendering professional services by lawyers, physicians, surgeons, engineers, accountants, architects, consultants, etc. would not be regarded as contracts for carrying out any work under section 194C of the Act. 5. Another Circular bearing No. 93, dated 26-9-1972 was issued by the Deputy Secretary to the Government of India clarifying that service contracts which do not involve the carrying out of any work would be outside the scope of section 194C of the Act. 6. Thus, since inception there was no dispute that all service contracts are outside the purview of section 194C of the Act. Accordingly, no tax was required to be deducted by a person making payment to the hotel for availing the facilities/amenities provided by the hotel. Both the above said decisions clarify that the carrying on of any work is the sine qua non for attracting the provisions of sec.194C of the Act. 6.6.6 The word Work is defined as under in the Explanation III:- For the purposes of this section, the expression work shall also include:- (a) advertis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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