2021 (5) TMI 914 - AT - Income Tax

TDS u/s 194A - Disallowance u/s 40(a)(a) on account of non-deduction of tax at source on interest payments - HELD THAT - As decided in own case 2021 (5) TMI 735 - ITAT HYDERABAD assessee has deposited the amount with the Court, but, it has not actually paid to the actual recipients directly i.e., pattadars. On analysis of the above cited section and Circulars, it is clear that the assessee is not responsible for deducting tax deduction at source and assessee is also not sure that when the amount shall be paid to the actual recipients/pattadars. In our considered opinion, the addition made in this regard is not sustainable in the eyes of law and, therefore, the addition is deleted. Depreciation on plant and machinery - AO allowed depreciation @ 10% treating it as building as against the assessee s claim of 15% as plant machinery - HELD THAT - As decided in own case 2021 (5) TMI 735 - ITAT HYDERABAD we allow this ground of appeal of the assessee by holding that the assessee is entitled to charge depreciation @ 15% under the block of assets plant and machinery , as against 10% made by the AO. This ground of appeal raised in both the appeals under consideration is allowed. Disallowance of expenditure by way of penalty or fine for violation of any law for the time being in force - allowable revenue expenditure u/s 37(1) or not? - Since the assessee failed to substantiate the said expenditure with documentary evidence, the AO made the addition, which was confirmed by the CIT(A) - HELD THAT - The submissions of the assessee is that these are the payments made to various state government departments for delay in submission of form or document or compliance with the procedures, in which case, the payment is not for violation of law but compensation for not complying with law and allowable expenditure as normal business expenditure u/s 37(1) of the Act. We are in agreement with the submissions of the assessee and, therefore, we direct the AO to delete the addition made on this count. Accordingly, this ground of appeal is allowed.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of tax at source on interest payments.
2. Depreciation rate on plant and machinery.
3. Addition of expenditure as penalty or fine.
4. Deduction under Section 234C.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for non-deduction of tax at source on interest payments:
The primary issue in both appeals pertains to the disallowance made under Section 40(a)(ia) due to the non-deduction of tax at source on interest payments. The Assessing Officer (AO) disallowed ?86,81,487/- being interest on land compensation deposited with courts and revenue officers. The CIT(A) upheld the disallowance, following the decisions in the assessee's own case for previous assessment years. The ITAT examined similar issues in the assessee's own case for AYs 2009-10 to 2011-12, where it was held that the assessee deposited the interest as per court directions on enhanced compensations to be paid to pattadars. The ITAT noted that the assessee was not responsible for deducting tax at source as the amount was deposited with the court and not directly paid to the pattadars. The ITAT referred to Circular No. 526 and subsequent clarifications, concluding that the responsibility for TDS lies with the authority making the payment, not the court. Consequently, the ITAT deleted the disallowance made by the AO under Section 40(a)(ia) for both assessment years under consideration.

2. Depreciation rate on plant and machinery:
The second issue concerns the rate of depreciation on plant and machinery. The AO allowed depreciation at 10%, treating the assets as 'building', whereas the assessee claimed 15% depreciation, classifying them as plant and machinery. The CIT(A) upheld the AO’s decision, following earlier years' rulings. The ITAT referred to its decision in the assessee's own case for AY 2011-12, where it was held that expenditures incurred for mine development should be treated as plant and machinery, given their functional nature in the coal mining business. The ITAT concluded that the assessee is entitled to 15% depreciation under the block of assets "plant and machinery" and allowed the appeal on this ground.

3. Addition of expenditure as penalty or fine:
The third issue pertains to the addition of ?51,539/- in AY 2013-14, which the AO treated as expenditure by way of penalty or fine for violation of law. The CIT(A) confirmed this addition. The assessee argued that these payments were made to various state government departments as compensation for delays in compliance, not as penalties for legal violations. The ITAT agreed with the assessee's submissions, directing the AO to delete the addition, treating the expenditure as allowable under Section 37(1) of the Act.

4. Deduction under Section 234C:
The final issue relates to the deduction under Section 234C for AY 2014-15. The ITAT noted that charging interest under this section is consequential in nature and directed the AO to make adjustments accordingly.

Conclusion:
In conclusion, the ITAT allowed both appeals, deleting the disallowance under Section 40(a)(ia), allowing 15% depreciation on plant and machinery, deleting the addition of ?51,539/- as penalty, and directing the AO to adjust interest under Section 234C consequentially. The judgment was pronounced in the open court on 27th May 2021.