2021 (10) TMI 162 - AT - Income Tax

TDS u/s 194H - Addition u/s 40(a)(ia)- assessee has paid Bank Guarantee Commission to Scheduled Banks approved by RBI - HELD THAT - As decided in M/S NALWA STEEL AND POWER LTD 2021 (6) TMI 66 - ITAT DELHI considering the Notification No. 56/2012 dated 31.12.2012 so-called bank guarantee commission is not in the nature of commission paid to an agent but it is in the nature of bank charges for providing one of the banking service. The requirement of Section 194H of the Act, therefore, would not arise. In the present case it is one of the banking services provided by the Scheduled Banks to the assessee as per the norms of the RBI. It cannot be said to be a commission as intended to u/s 194H of the but it is in the nature of Bank charges charged by the bank for provision of services to the assessee. Now this issue has been decided in M/S. LARSEN TOUBRO LTD. 2018 (12) TMI 991 - BOMBAY HIGH COURT as well as per Notification No. 56/2012 of the CBDT the said provisions will also applied to earlier period than the date of issue of notification. Appeal of the assessee allowed. Addition on account of accrued interest - real income theory - taxation of hypothetical income - assessee was following mercantile system of accounting and the arbitration award give a right to the assessee to charge simple interest @ 5% per annum on the amount of advance given to M/s Karsan till the date of payment - HELD THAT - As decided in own case 2017 (5) TMI 485 - DELHI HIGH COURT the notional interest awarded by the International Court of Arbitration, which has now attained finality is a hypothetical income which cannot be subjected to tax. Merely because the said amount has been awarded by way of an order, does not mean that the assessee has received such income. The assessee followed mercantile system of accounting where there cannot be a situation of hypothetical income being taxed - since no part of the principal amount could actually be recovered by the Assessee, there was no real income and the question of adding any notional accrued interest to its income on such amount does not arise. - Decided against revenue. Disallowance of demurrage and wharfage charges - Scope of provision of the Railway Act, 1989 and Explanation 1 to Section 37(1) - CIT-A deleted the addition - HELD THAT - As decided in own case 2017 (5) TMI 485 - DELHI HIGH COURT question already stands answered in favour of the Assessee and against the Revenue by the judgment of this Court in Mahalaxmi Sugar Mills Company 1984 (5) TMI 6 - DELHI HIGH COURT and of the Allahabad High Court in Nanhoomal Jyoti Prasad v. Commissioner of Income Tax 1979 (8) TMI 38 - ALLAHABAD HIGH COURT - Decided against revenue. Addition of write-off value of slow moving stores and spares - scope of provisions of section 145 - assessee is not allowed to adopt any Accounting Standard of its choice as and when it deemed to be beneficial to it - CIT-A deleted the addition - HELD THAT - As decided in own case 2017 (2) TMI 1226 - DELHI HIGH COURT there is nothing on the record to doubt the bonafides of the valuation. In the event of likelihood of the stocks realizing higher amount than the value shown, the same would be reflected in the subsequent year in the income or profit of the assessee, the Revenue s contention is without any merit - no reason to subscribe and uphold the AO s adverse observations that the change in method of valuation was without basis. In fact the observations of the CAG in this case led to the change and adoption of AS-2, which was not previously resorted to. Disallowance on account of excess depreciation claimed on UPS (Uninterrupted Power Supply) - UPS as an integral part of computer - HELD THAT - As decided in own case 2011 (7) TMI 1202 - ITAT DELHI we uphold the order of the learned CIT(A) in accepting the assessee s claim of depreciation @ 60% on UPS and LAN/WAN. Disallowance u/s 14A - HELD THAT - As in the absence of any exempt income, disallowance under Section 14-A of the Act of any amount was not permissible. The decision in Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COURT was followed - as no exempt income was earned during the year, thus, disallowance u/s 14A of the Act will not be applicable. Additional depreciation claimed u/s 32(1)(iia) - HELD THAT - The electricity has been held as good as per the decision of the Hon ble Apex Court in case of State of Andhra Pradesh vs. NTPC 2002 (4) TMI 694 - SUPREME COURT - To deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an article or thing is an artificially restrictive meaning of the provision. Thus, the benefit of additional depreciation under Section 32(1)(iia) has to be granted to the assessee and w.e.f 01.04.2013, the provision has been amended by the Finance Act, 2012 wherein the assessees engaged in the generation of power have expressly been included in the ambit. Thus, the CIT(A) rightly deleted the disallowance. Addition on account of repair and maintenance expenses - CIT-A deleted the addition - HELD THAT - It is pertinent to note that disallowance made by the Assessing Officer is an ad-hoc disallowance. The submission of the Ld. AR that there is no estimate that the annual repair and maintenance should be in consonance with the percentage of sales, is accepted as the Assessing Officer has not given any particular reason on why the said expenses has to be disallowed on ad-hoc basis. The contention of the Ld. DR that Section 37 (1) was not properly followed is also not correct to say as the details of the expenses were before the Assessing Officer which was totally ignored by the Assessing Officer. Thus, the CIT(A) rightly deleted this disallowance. Expenditure actually incurred on the Corporate Social Responsibility - HELD THAT - These expenditure was incurred in compliance of Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014. This can be seen from the records itself produced during the assessment proceedings by the Assessee. Thus, these expenditure were incurred as the statutory obligation of the assessee. The case laws referred by the Ld. AR are applicable in the present case. In fact, the Explanation 2 to Section 37(1) will be applicable in the Assessment Year 2015-16 and not that of present Assessment Year i.e. 2014-15. Thus, Ground Nos. 2(i) and 2(ii) of the Assessee s appeal is allowed.

Summary

Issues Involved:
1. Addition on account of interest accrued on advances.
2. Disallowance of demurrage and wharfage charges.
3. Disallowance on account of write-off value of slow-moving stores and spares.
4. Disallowance of repairs and maintenance expenses.
5. Disallowance of depreciation on UPS and other computer peripherals.
6. Disallowance of expenses under section 14A.
7. Disallowance of additional depreciation.
8. Disallowance of bank guarantee commission.
9. Disallowance of CSR expenditure.
10. Addition on account of interest income on deposits.
11. Disallowance of other expenses written off.
12. Disallowance of income short booked.

Detailed Analysis:

1. Addition on Account of Interest Accrued on Advances:
The Revenue contended that the CIT(A) erred in deleting the addition of ?6,48,20,000/- on account of accrued interest, arguing that the assessee was following the mercantile system of accounting and had the right to charge simple interest as per an arbitration award. The Tribunal dismissed this ground, noting that the issue was covered by the jurisdictional High Court's decision in the assessee's favor for earlier assessment years. It was held that since no part of the principal amount could be recovered, there was no 'real income' to be taxed.

2. Disallowance of Demurrage and Wharfage Charges:
The Revenue argued that the CIT(A) wrongly deleted the disallowance of ?2,59,00,000/- by ignoring the provisions of the Railway Act and Section 37(1) of the Income Tax Act. The Tribunal dismissed this ground, referencing the jurisdictional High Court's decision that such charges were not in the nature of a penalty and were deductible under Section 37(1).

3. Disallowance on Account of Write-off Value of Slow-Moving Stores and Spares:
The Revenue contended that the CIT(A) erred in deleting the disallowance of ?3,91,00,000/- for slow-moving stores and spares, arguing that the assessee adopted an accounting standard beneficial to it. The Tribunal dismissed this ground, upholding the High Court's view that the valuation was based on an engineering expert's assessment and was bona fide.

4. Disallowance of Repairs and Maintenance Expenses:
The Revenue challenged the deletion of ?41,47,983/- on account of repair and maintenance expenses. The Tribunal upheld the CIT(A)'s decision, noting that the disallowance was made on an ad-hoc basis without proper justification.

5. Disallowance of Depreciation on UPS and Other Computer Peripherals:
The Revenue argued that the CIT(A) wrongly allowed depreciation at 60% on UPS, treating it as an integral part of computers. The Tribunal dismissed this ground, citing previous Tribunal decisions and a High Court ruling that UPS is an integral part of the computer system.

6. Disallowance of Expenses under Section 14A:
The Revenue contended that the CIT(A) wrongly deleted the disallowance under Section 14A, arguing that the allowability of expenditure is not conditional upon earning income. The Tribunal dismissed this ground, noting that no exempt income was earned during the year, referencing the Delhi High Court's decision in Cheminvest Limited and the Supreme Court's affirmation in PCIT v. Oil Industries Development Board.

7. Disallowance of Additional Depreciation:
The Revenue argued that the CIT(A) wrongly deleted the disallowance of ?6,45,673/- on account of additional depreciation, stating that the provisions were applicable from 01.04.2013. The Tribunal dismissed this ground, referencing the Delhi High Court's decision that generation of power qualifies for additional depreciation and the Finance Act, 2012's amendment applies from 01.04.2013.

8. Disallowance of Bank Guarantee Commission:
The assessee's appeal against the disallowance of ?7,29,769/- for bank guarantee commission was allowed. The Tribunal held that bank guarantee commissions are banking services not subject to TDS under Section 194H, referencing the Bombay High Court's decision and CBDT Notification No. 56/2012.

9. Disallowance of CSR Expenditure:
The assessee's appeal against the disallowance of ?76,00,000/- for CSR expenditure was allowed. The Tribunal noted that CSR expenditure incurred in compliance with the Companies Act, 2013, and related rules was a statutory obligation and that the amendment to Section 37(1) applies prospectively from AY 2015-16.

10. Addition on Account of Interest Income on Deposits:
The Revenue's appeal on this ground was dismissed, with the Tribunal noting that the issue was identical to the accrued interest on advances, and no distinguishing facts were presented.

11. Disallowance of Other Expenses Written Off:
The Tribunal did not find any specific discussion on this issue in the provided text, implying that it was not a significant point of contention.

12. Disallowance of Income Short Booked:
Similarly, there was no specific discussion on this issue, suggesting it was not a major point of dispute.

Conclusion:
The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals, providing detailed reasoning for each issue based on previous judicial decisions and relevant legal provisions. The judgments consistently favored the assessee, particularly where the issues had been previously adjudicated by higher courts.