2017 (5) TMI 1269 - AT - Income Tax

Expenditure on acquisition of Engineering Drawings etc - TDS liability - nature of expenditure - Held that - At the time of hearing, the assessee, at the outset, submitted that he concedes the position that the expenditure in question was capital in nature and thus, the ground of appeal raised by the revenue deserves to be succeed. Thus allow the appeal of the revenue. The AO is further directed to allow depreciation as per rules with respect to the impugned capital expenditure. Short deduction of tds - payment made for hiring of crane services in terms - TDS u/s 194C or 194I - Held that - The invoking the provisions of section 40(a) (ia) of the Act in a case of short deduction of tax is not justified, because of the phraseology of section 40(a)(ia) of the Act itself. A perusal of section 40(a) (ia) clearly suggests that it gets triggered only in a situation when a tax is deductible at source but the same has not been deducted. A similar situation has been addressed by the Hon ble Kolkata High Court in the case of S K Tekriwal (2012 (12) TMI 873 - CALCUTTA HIGH COURT ), wherein it has been held that no disallowance could be made by applying section 40(a)(ia) of the Act in a case where tax was deducted at source under a wrong provision resulting in short deduction of tax. Thus disallowance deleted - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of expenditure incurred on procuring design, process, and drawing from a foreign entity without tax deduction at source.
2. Disallowance of interest payment on a car loan under section 40(a)(ia).
3. Proportionate disallowance of hire charges under section 40(a)(ia).

Issue 1:
The appeal involved cross-appeals by the assessee and Revenue regarding the disallowance of expenditure incurred on acquiring design, process, and drawings from a foreign entity without tax deduction at source. The Assessing Officer (AO) disallowed the expenditure as capital in nature and for non-deduction of tax at source. The CIT(A) upheld the expenditure as revenue but affirmed the disallowance on non-deduction of TDS. The AO's position was supported by the assessee during the hearing, leading to the dismissal of the assessee's appeal and allowing the revenue's appeal. The AO was directed to allow depreciation on the capital expenditure as per rules.

Issue 2:
The second issue concerned the disallowance of interest payment on a car loan under section 40(a)(ia). The assessee did not press this ground during the hearing due to the small amount involved, resulting in the dismissal of the ground as not pressed.

Issue 3:
The final issue revolved around the proportionate disallowance of hire charges paid to crane services due to short deduction of tax at source. The AO disallowed a part of the expenditure under section 40(a)(ia) for the shortfall in TDS deduction. The CIT(A) upheld this disallowance, leading to an appeal by the assessee. The assessee argued that the lesser deduction of tax at source did not warrant disallowance under section 40(a)(ia). The Tribunal agreed with the assessee, citing a judgment by the Hon’ble Kolkata High Court, and directed the AO to delete the disallowance of hire charges. As a result, the appeal of the assessee was partly allowed, and that of the revenue was allowed.