2014 (2) TMI 569 - AT - Income Tax

Claim of demurrage charges - whether allowable as business expenditure Held that - The assessee failed to pay the amount and he asked for further time and ultimately it was agreed between the assessee and Fort Projects Pvt. Ltd. that subject to interest and demurrage charges in case of termination of the contract time was extended - due to cash crunch the assessee has not been able to pay the amount within the stipulated period - During this period there was slump in property deals and as a prudent decision the assessee settled by paying some compensation and demurrages - The assessee has taken a conscious business decision like a prudent businessman - As the assessee has taken a business decision the demurrage charges and cancellation charges are allowable as business expenditure the order of the CIT(A) upheld Decided against Revenue. Security charges, warehouse maintenance charges and supervision charges allowed Held that - The assessee has maintained the security staff to maintain its warehouse and debited the expenditure in the operating expenses - it has incurred warehouse maintenance charges and supervision charges - The assessee company s main source of income is from letting out of warehouse in Kolkata Dock Area and these warehouses were taken from M/s. Williamson Magor & Co. Ltd. - As these are paid for the purpose of earning this income they have direct co-relation and nexus, the same should have been allowed - The CIT(A) has rightly allowed the expenses Decided against Revenue. TDS u/s 194I on subletting warehouses - Deletion made u/s 40(a)(ia) of the Act - Held that - The assessee s major source of income is from subletting warehouses to R. Piyarilal Import & Export Pvt. Ltd. -The income from subletting was accepted by AO - Even the TDS was deducted in the last month of the accounting year even though the provisions of section 194-I of the Act will not apply for the reason that the tenancy is a sub-tenancy under leave and licence agreement for every 11 months and this has been continuing from earlier years the assessee has deducted TDS on rent paid but only on the last date of the Financial Year on or before the due date of filing of return u/s. 139(1) of the Act the decision in CIT Vs. Virgin Creations, 2011 (11) TMI 348 - CALCUTTA HIGH COURT followed there was no infirmity in the order of CIT(A) - Decided against Revenue.

Summary

Issues:
1. Allowance of demurrage charges
2. Allowance of security charges, warehouse maintenance charges, and supervision charges
3. Disallowance of rent for non-deduction of TDS

Issue 1: Allowance of Demurrage Charges:
The appeal by revenue challenges the order of CIT(A) allowing the claim of demurrage charges. The AO disallowed the charges, alleging they were a means to reduce tax liability. However, CIT(A) allowed the claim, stating the payment was compensation for failure to fulfill a contract due to cash crunch and property market conditions. The Tribunal upheld CIT(A)'s decision, considering it a prudent business decision by the assessee, thus allowing demurrage charges as business expenditure.

Issue 2: Allowance of Security Charges, Warehouse Maintenance Charges, and Supervision Charges:
The revenue's appeal contests CIT(A)'s decision to allow these expenses incurred by the assessee. The AO disallowed the expenses, but CIT(A) ruled in favor of the assessee, noting the expenses were related to maintaining a warehouse rented out for income generation. The Tribunal upheld CIT(A)'s decision, emphasizing the direct correlation between the expenses and income generation, thus permitting the deduction of security charges, warehouse maintenance charges, and supervision charges.

Issue 3: Disallowance of Rent for Non-Deduction of TDS:
The revenue's appeal challenges the deletion of disallowance of rent under section 40(a)(ia) by CIT(A). The Tribunal found that the assessee's income from subletting warehouses was accepted by the AO, and TDS was deducted before the due date of filing the return. The Tribunal cited a decision of the Calcutta High Court to support the assessee's position that the TDS payment, even if made on the last date of the financial year, was within the statutory compliance requirements. Consequently, the Tribunal upheld CIT(A)'s decision to delete the disallowance of rent, dismissing the revenue's appeal.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the decisions of CIT(A) regarding the allowance of demurrage charges, security charges, warehouse maintenance charges, supervision charges, and the deletion of disallowance of rent for non-deduction of TDS. The Tribunal's detailed analysis and application of legal principles led to the confirmation of CIT(A)'s orders on all issues raised in the appeal.