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2015 (10) TMI 2545 - AT - Income TaxGuarantee 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 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 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. 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 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 ). Now, the ld. counsel for the assessee has come up with new plea that since tax has been deducted, therefore, matter may be remanded to the Assessing Officer. First of all, the plea of the assessee has no merit because once assessee pleaded before authorities below that amount of ₹ 4,03,129/- has been paid on 15.09.2009, where is the question of deduction of TDS on the same amount. Further, assessee has not filed any application for admission of the additional evidences and has not explained 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
Issues Involved:
1. Whether the guarantee fee paid by the assessee should be treated as capital expenditure or revenue expenditure. 2. Whether the addition of Rs. 4,03,129/- under section 40(a)(ia) of the Income Tax Act was justified due to non-deduction of TDS on consultancy charges. Issue-wise Detailed Analysis: 1. Treatment of Guarantee Fee as Capital or Revenue Expenditure: The assessee contested the order of the CIT(Appeals) which upheld the addition of Rs. 96,91,000/- by treating the guarantee fee paid as capital expenditure. The Assessing Officer (AO) had noted that the assessee claimed guarantee fees of Rs. 96,91,000/- paid to the State of Haryana for guaranteeing a loan from HUDCO. The AO concluded that since the loan was capitalized for projects, the guarantee fees should also be capitalized, thus treating it as capital expenditure rather than revenue expenditure. The assessee argued that the guarantee fee was a one-time, non-refundable expense and should be considered revenue expenditure. The CIT(Appeals), however, upheld the AO's decision, noting that the guarantee fee was inherently capital in nature as it was related to loans used for capital projects. The CIT(Appeals) referenced the decision of the Punjab & Haryana High Court in CIT (Central), Ludhiana Vs Sobhag Textile Pvt. Ltd., which held that guarantee commission paid for the purchase of machinery was of a capital nature. The Tribunal, after hearing both parties, agreed with the CIT(Appeals). It was noted that the assessee had amortized the guarantee fee over the period of the loan in its books of account, indicating that the fee was treated as a capital expenditure. The Tribunal also found that the guarantee fee paid to the State Government was a diversion of income and not wholly and exclusively for business purposes, as required under Section 37(1) of the Income Tax Act. The Tribunal upheld the CIT(Appeals)'s finding that the expenditure was capital in nature and dismissed this ground of appeal. 2. Addition under Section 40(a)(ia) for Non-Deduction of TDS: The assessee challenged the addition of Rs. 4,03,129/- under section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on consultancy charges paid to M/s Consulting Engg. Associates. The AO disallowed the payment as the assessee had not deducted TDS on the said amount. The assessee argued before the CIT(Appeals) that Section 40(a)(ia) applies only to amounts payable and not to amounts already paid. However, the CIT(Appeals) relied on the decisions of the Calcutta High Court in Cresent Exports Syndicate and the Gujarat High Court in Sikandar Khan N. Tanwar, which held that the provisions apply to both paid and payable amounts. Consequently, the CIT(Appeals) upheld the AO's addition. Before the Tribunal, the assessee submitted additional evidence claiming that TDS had been deducted, but this evidence was not presented before the authorities below. The Tribunal noted that the assessee had not filed any application for admission of additional evidence and had not explained why the evidence was not submitted earlier. The Tribunal also referenced the decision of the Punjab & Haryana High Court in PMS Diesels, which held that the requirement to deduct TDS is mandatory regardless of the accounting method. Given the lack of justification for the additional evidence and the established legal precedent, the Tribunal dismissed this ground of appeal, affirming the CIT(Appeals)'s decision. Conclusion: The Tribunal dismissed the appeal of the assessee on both grounds, confirming the CIT(Appeals)'s decisions that the guarantee fee was capital expenditure and that the addition under Section 40(a)(ia) for non-deduction of TDS was justified.
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