2017 (2) TMI 1119 - AT - Income Tax

Addition u/s 40(a)(ia) - non deduction of tds on payments of machinery hiring charges - Held that - CIT(A) has directed the Assessing Officer to allow deduction of ₹ 80,14,600/- under the head machinery hiring charges paid to 8 parties after verifying whether said 8 parties to whom the payments have been made by the assessee has shown the amount receipt in the return of income and paid due tax thereon by following the decision of Hon ble Supreme Court in the case of Hindustan Coca Cola Beverages Ltd (2007 (8) TMI 12 - SUPREME COURT OF INDIA ) and the CBDT Circular No.275/201/95- IT(B) dated 29.1.1997. We find no good reason to interfere with the order of the CIT(A), which is hereby confirmed and grounds of the revenue are dismissed.

Summary

Issues:
Appeal against CIT(A) order for assessment year 2009-2010 - Addition of ?80,14,600 under section 40(a)(ia) - Payments of machinery hiring charges not considered rent under section 194-I - Application of section 194C for machinery hiring charges - Disallowance of expenses for non-deduction of TDS under section 194-I.

Analysis:
The appeal involved a dispute regarding the addition of ?80,14,600 under section 40(a)(ia) for the assessment year 2009-2010. The revenue contended that the CIT(A) erred in deleting this addition. The revenue argued that the payments for machinery hiring charges should be considered rent under section 194-I, and therefore, tax should have been deducted at source. The revenue further claimed that even if section 194C applied, the absence of a contractual element did not exempt the assessee from the TDS requirement. The revenue also challenged the CIT(A)'s refusal to accept the AO's findings on the issues.

The Assessing Officer observed that the assessee debited ?81,21,300 under "Machine hiring charges" in the P&L account. The AO noted that most payments attracted section 194-I, totaling ?80,14,600, except in one case. The AO disallowed this amount under section 40(a)(ia) due to non-deduction of TDS under section 194-I. The assessee argued that previous tribunal decisions and circulars exempted the expenses from disallowance if paid before year-end without TDS deduction. The CIT(A) referred to a Supreme Court decision and directed verification of tax payment by the payee parties.

During the appeal, the CIT(A)'s order was supported by the AR, while the DR supported the AO's order. The ITAT found no specific error in the CIT(A)'s order and upheld it. The ITAT confirmed the CIT(A)'s direction to allow the deduction of ?80,14,600 after verifying tax payment by the payee parties. The ITAT dismissed the revenue's grounds. The cross objection filed by the assessee was deemed infructuous and dismissed since the CIT(A)'s order was upheld.

In conclusion, the appeal and cross objection were dismissed, affirming the CIT(A)'s order. The ITAT upheld the CIT(A)'s decision to allow the deduction of machinery hiring charges after verifying tax payment by the payee parties, in accordance with the Supreme Court decision and CBDT circular.