2021 (2) TMI 1040 - HC - Income Tax

TDS u/s 194H - provision towards commission made - addition u/s 40(a)(ia) - HELD THAT - The Supreme Court in RADHASOAMI SATSANG Vs. COMMISSIONER OF INCOME-TAX 1991 (11) TMI 2 - SUPREME COURT has held that even though principles of res judicata do not apply to income tax proceedings, but where a fundamental aspect permeating through the different Assessment Years has been found as the fact one way or the other and the parties have allowed the position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year. As similar provisions were made in earlier years as well as subsequent years by the assessee and the TDS was not deducted on the provisions. However, the Department has not made any additions with regard to the provisions made during the years in which returns of income were selected for scrutiny assessment. Therefore, the first substantial question of law on the analogy of the principles laid down by the Supreme Court in the aforesaid decision is answered against the revenue and in favour of the assessee. Addition u/s 35D - expenditure incurred towards cost reduction initiative for sustained profitability - CIT-A deleted the addition - tribunal has affirmed the aforesaid finding in appeal and has held that consultancy fee paid by the assessee is for the purposes of studying and preparing a strategy to reduce the cost of production by the assessee and as no new asset has come into existence and the study conducted was only for improving the sales and profitability of the assessee and has upheld the order of the Commissioner of Income Tax (Appeals) - HELD THAT - The aforesaid concurrent findings of fact have not been challenged on the ground of perversity. Thus, concurrent findings of fact which have been recorded on the aforesaid issue, could not be demonstrated to be perverse. Therefore, no interference is called with the aforesaid concurrent findings of fact in this appeal under Section 260A - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 194H of the Income Tax Act regarding tax deduction at source.
2. Determination of consultancy charges as capital or revenue expenditure.

Analysis:

Issue 1:
The appeal involved the interpretation of Section 194H of the Income Tax Act regarding the applicability of tax deduction at source provisions. The revenue contended that the provisions of Section 194H were attracted as the assessee failed to comply with tax deduction requirements, resulting in a decrease in profit due to the debited amount. The revenue argued that debiting the amount to the profit and loss account necessitated tax deduction at source, even without actual payment being made. However, the assessee argued that no part of the debited sum was credited to any agent's account, and all corresponding TDS had been paid. The assessee maintained that the provisions of Section 194H were not applicable to the case, citing past assessments where similar provisions were made without TDS deductions. The court, applying legal principles from previous judgments, ruled in favor of the assessee, stating that the revenue's position could not be changed based on past practices and upheld the assessee's stance.

Issue 2:
The second issue revolved around determining consultancy charges as capital or revenue expenditure. The revenue argued that the consultancy charges should be treated as capital expenditure due to the enduring benefit and profitability increase to the assessee. They relied on various legal precedents to support their claim. Conversely, the assessee contended that the consultancy charges were incurred for cost reduction initiatives and did not result in the creation of a new asset, thus qualifying as revenue expenditure. The Commissioner of Income Tax (Appeals) and the tribunal both ruled in favor of the assessee, stating that no new asset was created, and the study was conducted to enhance sales and profitability. The court upheld these concurrent findings, citing legal principles that prevent interference with factual determinations unless proven to be perverse. Consequently, the court dismissed the appeal, finding no merit in the revenue's arguments.

In conclusion, the High Court dismissed the appeal, upholding the decisions of the lower authorities regarding both issues raised in the case.