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2016 (9) TMI 1560 - AT - Income TaxTDS u/s 194I - Disallowance on account of Plant and Machinery hire charges u/s.40(a)(ia) - HELD THAT - The machineries were actually used by the assessee and the lease rent paid by SIL was reimbursed by the assessee. It is clear from the order of CIT(A) elaborating the details of payment made by M/s. Sanghi Industries Ltd to Sanghi Infra Ltd towards lease rent and the similar amount recovered by the SIL from the assesse as reimbursement of expenditures. The SIL had made the payment on account of plant and machinery, hire charges after deduction of TDS under the provisions of section 194I of the Act and the reimbursement of these payments by the assessee to the SIL has no income element. 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. Disallowance of operation maintenance charge and Repairs Maintenance - HELD THAT - Assessee has made provisions for the expenses incurred during the year pertaining to operation maintenance, repairs maintenance but their bills were not received during the year. The assessee has made these provisions on the basis of actual estimation of liability because of this fact these provisions cannot be included in the category of contingent liability. CIT(A) has shown in his order the table reflecting the actual payment made by the assessee to the various parties in the subsequent year along with particulars of date of credit, name of party, PAN No, amount, TDS, date of payment of TDS. The assessee has been following the mercantile system of accounting and correctly made estimation of its liability. In view of above stated facts and findings, we justify the order of CIT(A) deleting the additions made by the Assessing Officer. We also agreed with the findings of CIT(A) that the provisions of section 40(a)(ia) are also not applicable to the case of the assessee as the assessee has only made the provisions in the account but not credited the same in the account of concerned parties. Disallowance on account of legal and professional expenses u/s.40(a)(ia) - HELD THAT - We noticed that the Ld. Commissioner of Income Tax(A) has shown the complete chart in his order with particulars of date, amount, nature of expenses etc. reflecting the nature of payment made and application of TDS provisions. We find that above stated facts and findings prove that the assessee has made reimbursement of the expenses to the SIL to which no income element involved. In view of above stated facts and findings, we justify the decision of Ld. Commissioner of Income Tax(A) to delete this addition. Disallowance under the head Operation and Maintenance charges - HELD THAT - Assessee has not produced supporting documents and evidences of the other parties with detail of services availed by the assessee, or any material purchased by the assesssee for which these three parties have made payment on behalf of the assessee. Even in the paper book, the claim of the asssessee is not supported with proper evidences from these three parties that they have made payment on behalf of the assessee to the third parties. In view of above stated facts and circumstances, we 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. Addition under the head Legal and Professional Expenses - HELD THAT - Commissioner of Income Tax(A) has disallowed the part payment made by Tapan Jha as the assessee failed to furnish the supporting evidences for its claim that this is reimbursement payment. We noticed that the pages referred in the paper book by the Ld. A.R. are pertained to the Sanghi Industries Ltd and the supporting documents/evidences as proof of reimbursement payment to Shri Tapan Jha was not furnished. In view of the above facts and findings, we uphold the order of the Ld. Commissioner of Income Tax(A) disallowing Disallowance of interest u/s. 36(1)(iii) - HELD THAT - Commissioner of Income Tax(A) has proved in his findings that assessee has not charged any interest on the advances made to the Sanghi Cement Ltd and Sanghi Energy Ltd. The assessee failed to prove with supporting evidences that these are not the advances made to these concerns. There was no surplus interest free funds available for that advances with the assessee. Since the advances were given for one day on the last day of the financial year so we uphold the decision of the Ld. Commissioner of Income Tax(A) to disallow the interest for one day only.
Issues Involved:
1. Deletion of disallowance of ?2,85,61,000/- made on account of Plant and Machinery hire charges under section 40(a)(ia) of the Income Tax Act. 2. Deletion of disallowance of operation & maintenance charge of ?70,00,000/- and Repairs & Maintenance charge of ?60,00,000/- made under section 37(1) of the Income Tax Act. 3. Deletion of disallowance of ?8,69,623/- made on account of legal and professional expenses under section 40(a)(ia) of the Income Tax Act. Issue-wise Detailed Analysis: Ground No. 1: Deletion of Disallowance on Account of Plant and Machinery Hire Charges The assessee-company, engaged in providing dredger and other infrastructural facilities, filed its return of income declaring a total income of ?1,31,95,545/-. During the assessment, the Assessing Officer (AO) noted that the assessee had not deducted TDS on payments made to Sanghi Industries Ltd. amounting to ?2,68,62,500/- and ?17,63,500/- for plant and machinery hire charges. The assessee argued that these payments were reimbursements and not subject to TDS. The AO rejected this claim, viewing the MOU as an afterthought to cover the TDS default. Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, noting that the payments were reimbursements for lease rent charges paid by Sanghi Industries Ltd. to SREI Infrastructure Finance Ltd. The CIT(A) highlighted that the payments were exact reimbursements with no income element, and the tax had already been deducted by Sanghi Industries Ltd. when making payments to SREI. The Tribunal upheld the CIT(A)’s decision, confirming that the assessee had not defaulted under section 40(a)(ia) of the Act. Ground No. 2: Deletion of Disallowance of Operation & Maintenance and Repairs & Maintenance Charges The AO disallowed ?70,00,000/- for operation and maintenance charges and ?60,00,000/- for repairs and maintenance charges, claiming these were contingent liabilities with no TDS deducted. The assessee argued that these were provisions for expenses incurred during the year but for which bills were not received, and TDS was deducted in the following year. The CIT(A) deleted the disallowance, stating that the provisions were based on actual estimation of incurred expenses, not contingent liabilities. The CIT(A) provided detailed tables showing the payments made in the subsequent year and TDS deducted. The Tribunal agreed with the CIT(A), emphasizing that the provisions were correctly estimated liabilities and not contingent. The Tribunal also noted that section 40(a)(ia) was not applicable as the provisions were not credited to the concerned parties' accounts. Ground No. 3: Deletion of Disallowance on Account of Legal and Professional Expenses The AO disallowed ?8,69,623/- for legal and professional expenses paid to Sanghi Industries Ltd. without TDS deduction. The assessee claimed these were reimbursements. The CIT(A) deleted the disallowance, providing a detailed chart of payments showing the nature of expenses and TDS applicability. The CIT(A) concluded that the payments were reimbursements with no income element, and where applicable, TDS had been deducted by Sanghi Industries Ltd. The Tribunal upheld the CIT(A)’s decision, confirming that the payments were reimbursements and not subject to TDS. The Tribunal noted that the assessee had provided sufficient evidence to support the reimbursement claim. Cross Objections: 1. Disallowance of ?65,000/- under Section 40(a)(ia): The assessee did not press this ground during the appellate proceedings. 2. Disallowance of ?15,74,675/- for Operation and Maintenance Charges: The AO disallowed these payments for non-deduction of TDS. The CIT(A) upheld the disallowance, noting the assessee failed to prove no profit element in the payments. The Tribunal agreed, stating the assessee did not provide sufficient evidence to support the reimbursement claim. 3. Disallowance of ?55,350/- paid to Shri Tapan Jha: The CIT(A) upheld this disallowance as the assessee did not furnish evidence to show it was a reimbursement. The Tribunal confirmed the CIT(A)’s decision due to lack of supporting evidence. 4. Disallowance under Section 36(1)(iii): The AO disallowed interest on advances given without interest. The CIT(A) reduced the disallowance to one day’s interest, noting the advances were made on the last day of the financial year. The Tribunal upheld the CIT(A)’s decision. Order Pronounced: The Tribunal upheld the CIT(A)’s decisions on all grounds and dismissed the revenue’s appeal and the assessee’s cross objections. The order was pronounced in the open court on 30-09-2016.
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