2018 (4) TMI 1664 - AT - Income Tax

TDS u/s 194H - disallowance u/s 40(a)(ia) with respect to bank guarantee commission for non-deduction of tax - HELD THAT - There is no principal and agent relationship between the bank issuing the bank guarantee and the assessee and further that when the bank issues the bank guarantee on behalf of the assessee all it does is to accept the commitment to make the payment of a specified amount to on demand to beneficiary and it is in consideration of this commitment that the bank charges a fee termed as bank guarantee commission. Followed KOTAK SECURITIES LIMITED 2012 (2) TMI 77 - ITAT MUMBAI . As further held that although it is termed as guarantee commission it is not in the nature of commission as is understood in the common business parlance and in context of section 194F of the Act. Respectfully following the order of the Coordinate Benches we hold that since principal-agent relationship is a sine qua non for invoking provisions of section 194H CIT (A) was not justified in upholding the disallowance u/s 40(a)(ia) in respect of bank guarantee commission. Accordingly we allow ground of the assessee s appeal and order the deletion of this disallowance. Expenses incurred towards corporate social responsibility - allowable expenditure u/s 37(1) - expenditure was not mandatory in nature -HELD THAT - Disallowance under Explanation (2) to section 37(1) will not come into play and there is no such disabling provision even if the expenses in discharge of corporate social responsibility are incurred on voluntary basis. Explanation (2) to section 37(1) comes into play only w.e.f. 1.4.2015 and accordingly expenses incurred towards corporate social responsibility incurred prior to this date will necessarily be allowable as revenue expenditure. We set aside the order of the CIT (A) on this issue and direct the AO to allow the expenses incurred towards corporate social responsibility. Provision for long service award made on actuarial basis -ascertained liability - MAT computation - HELD THAT - As decided in assessee s own case for assessment years 2008-09 and 2009-10 liability determined on the basis of provision was not a contingent liability but was definite and ascertained liability even though exact quantification had not happened and therefore the same was allowable under the provisions of the Act as relying on Bharat Heavy Electricals 2012 (9) TMI 515 - DELHI HIGH COURT . We also hold that since this provision is allowable under normal provisions of the Act the deduction as relying on will be allowable under the provisions of MAT also. Disallowance of additional depreciation on electricity - electricity is not an article or thing - electricity would fall under the definition of goods - Held that - We find that this issue is also covered in favour of the assessee by order of the ITAT Delhi Bench in the case of NTPC Ltd. vs. DCIT 2012 (5) TMI 127 - ITAT DELHI wherein as placing reliance on the judgment of Andhra Pradesh vs. NTPC 2002 (4) TMI 694 - SUPREME COURT OF INDIA and had held that electricity would fall under the definition of goods as given in Article 366 (12) of the Constitution of India. In this case had observed that goods means all kinds of moveable properties and merely because electrical energy was not tangible or cannot be moved or touched it cannot cease to be moveable property. The Coordinate Bench of ITAT went on to hold that additional depreciation cannot be denied to the assessee merely on the ground that electricity is not an article or thing. Commissioner of Income Tax (A) had rightly directed the deletion of disallowance with respect to additional depreciation - Decided in favour of assessee.

Summary

Issues:
1. Disallowance u/s 40(a)(ia) of the Income Tax Act
2. Disallowance of expenses on Corporate Social Responsibility (CSR)
3. Disallowance of provision for long service award made on actuarial basis
4. Disallowance of additional depreciation

Issue 1: Disallowance u/s 40(a)(ia) of the Income Tax Act:
The assessee appealed against the disallowance of bank guarantee commission under section 40(a)(ia) of the Income Tax Act. The ITAT Delhi Bench ruled in favor of the assessee, citing precedents that bank guarantee commission does not fall under the purview of section 194H for TDS deduction. The tribunal held that there is no principal-agent relationship between the bank and the assessee in such transactions, leading to the deletion of the disallowance.

Issue 2: Disallowance of expenses on Corporate Social Responsibility (CSR):
The appeal challenged the disallowance of CSR expenses by the assessing officer and confirmed by the CIT (A). The ITAT held that prior to 1.4.2013, CSR expenses are revenue in nature and allowable. The tribunal examined the nature of CSR expenses incurred by the assessee and concluded that these expenses were valid and allowable as revenue expenditure, irrespective of being voluntary, as there was no disabling provision for such expenses before 1.4.2015. The order directed the AO to allow the CSR expenses incurred by the assessee.

Issue 3: Disallowance of provision for long service award made on actuarial basis:
The department appealed against the deletion of provision for long service award made on an actuarial basis. The ITAT upheld the deletion, stating that the liability determined on the basis of provision was definite and ascertained, making it allowable under the provisions of the Act. The tribunal referred to previous judgments and held that the provision for long service award was legitimate and allowable under both normal provisions and MAT.

Issue 4: Disallowance of additional depreciation:
The department's appeal challenged the deletion of disallowance of additional depreciation. The ITAT supported the deletion, citing that electricity falls under the definition of goods and additional depreciation cannot be denied based on the intangibility of electricity. The tribunal upheld the decision of the CIT (A) to delete the disallowance, emphasizing that electricity is movable property and thus eligible for additional depreciation.

In conclusion, the ITAT allowed the appeal of the assessee while dismissing the department's appeal, providing detailed reasoning for each issue and referring to relevant legal precedents and judgments.