2020 (9) TMI 59 - AT - Income Tax

Nature of expenses - expenses on repairs - revenue or capital expenditure - assessee did not wish to agitate the disallowance upheld by CIT(A) partly - HELD THAT - Bills for the expenses indicate it to be for the repairs, supply of consumables, recalibration of the machinery. It is not the case of the Revenue that by incurring of the impugned expenditure any new asset has come into existence. Repairs was for preserving and maintaining an already existing asset. We therefore set aside the addition confirmed by CIT(A) and hold the expense to be of revenue in nature. Thus the ground of the assessee is partly allowed TDS u/s 194C - disallowance of expenses for Non-Deduction of the TDS on payment of share of income of joint venture partner alleging it to be in the nature of procurement commission - HELD THAT - Assessee had entered into a JV with HCIL for the construction of road in Bihar - From the MOU, Learned AR has also demonstrated that the respective parties were not entitled to the profit or loss arising from the services performed by the other party. To the understanding of the sharing of the revenue on receipt from the clients. Considering the totality of the aforesaid facts, we find force in the argument of Ld AR that the amount paid to HCIL represented the diversion of income by overriding title. We also find support from the decision rendered in the case of Soma TRG Joint Venture 2017 (9) TMI 1239 - JAMMU KASHMIR HIGH COURT wherein on identical facts the issue was decided in Assessee s favour. Before us, Revenue has not pointed to any factual error in the submissions of Learned AR nor has pointed to any contrary binding decision. AO was not justified in disallowing the expenses by invoking the provisions of s. 40(a)(ia) of the Act. We therefore, set aside the order of AO. Thus the ground of assessee is allowed.

Summary

Issues:
1. Disallowance of capital expenditure
2. Disallowance of expenses for Non-Deduction of TDS

Issue 1: Disallowance of Capital Expenditure

The appeal concerns the disallowance of ?13,65,851 as capital expenditure by the Assessing Officer (AO) during the assessment for the year 2011-12. The AO concluded that out of the total expenditure claimed by the assessee, only ?14,01,778 could be established as revenue in nature, while the remaining ?49,92,226 was considered capital in nature and disallowed. The Commissioner of Income Tax (Appeals) [CIT(A)] partially upheld the disallowance, categorizing ?35,65,581 as revenue and ?13,56,645 as capital expenditure. The Appellate Tribunal found that the disallowed expenses were for repairs, supply of consumables, and machinery recalibration, preserving existing assets. Consequently, the Tribunal held the expenses to be revenue in nature, overturning the CIT(A) decision.

Issue 2: Disallowance of Expenses for Non-Deduction of TDS

The second issue involves the disallowance of ?30,92,818 for non-deduction of Tax Deducted at Source (TDS) by the AO. The AO disallowed the amount due to the assessee not deducting TDS when paying a commission to Harish Chandra India Ltd (HCIL) for a joint venture project. The CIT(A) upheld the AO's decision, considering the payment as commission subject to TDS. However, the Appellate Tribunal, after reviewing the Joint Venture (JV) agreement and the nature of the payment, found that the amount was not commission but a share of proceeds to HCIL, representing a diversion of income by overriding title. Citing a similar ruling by the Jammu and Kashmir High Court, the Tribunal allowed the appeal, overturning the disallowance under section 40(a)(ia) of the Income Tax Act.

In conclusion, the Appellate Tribunal partially allowed the appeal, ruling in favor of the assessee on both issues. The disallowed capital expenditure was deemed revenue in nature, and the expenses for non-deduction of TDS were considered a share of proceeds, not subject to TDS.