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2025 (1) TMI 1339 - AT - Income TaxTDS u/s 194A - payment of interest to JV - as per the AO the assessee was liable to deduct tax at source on the interest payment made by it to the JV on the mobilisation advance which it had failed to do - CIT (A) directed the Ld. AO that the assessee cannot be considered as assessee-in-default u/s 201(1)/ 201(1A) and consequently demand was deleted - HELD THAT - As per CBDT Circular No.07/2016 dated 07/03/201 where consortium arrangement is made for executing the EPC/ Turnkey contracts in which each member is independently responsible for executing its part of work through its own resources and also bears the risk of its scope of work i.e. there is clear demarcation in the work and costs between the consortium members and each member incurs expenditure only in its specified area of work such a consortium may not be treated as an AOP. Thus once in the case of the assessee no work is performed by the JV or the other constituent member i.e. AGE but only by the assessee the AOP does not exist and therefore we accept the contention of the assessee about non-applicability of Chapter XVII of the Act and no TDS was allowable to be deducted. Accordingly the order of the ld. CIT(A) is confirmed and the grounds raised by the Revenue in both the years are dismissed. Disallowance of deduction u/s 80IA - infrastructure facility should not only be developed but also operated by the assessee so as to make the profits derived from the infrastructure facility qualify for deduction u/s. 80IA - HELD THAT - Assessee is a developer of each of the infrastructure facility mentioned and considering the scope of work undertaken by the assessee in each of the contracts the work carried out by the assessee cannot be said to be works simplicitor. Hence in our view all the conditions required to be claimed and the deduction u/s. 80IA for all the projects are fulfilled. Accordingly the order of the ld. CIT(A) on this ground is upheld and the appeal of the Revenue is dismissed. Taxing Capital gain @20% on sale of depreciable long-term capital asset - HELD THAT - Both the parties agreed that this issue now stands covered by the judgment of SKF Ltd. 2024 (10) TMI 477 - ITAT MUMBAI as held that in case of long-term capital asset which are depreciable asset in terms of Section 50 even though are deemed to be taxed as short term capital gain however the tax rate u/s. 112 would be 20%. Thus order of the ld. CIT (A) is upheld and the grounds raised by the Revenue are dismissed. Additions u/s 35D on account of AIR reconciliation while computing the Book Profit u/s 115JB - HELD THAT - A perusal of the audited accounts would show that there is no adverse comment by the auditor regarding the preparation of accounts in accordance with the provisions of Schedule III to the Companies Act 2013. Moreover there is no such allegation by the AO and the hence the audited accounts comply with the requirements of section 115JB(2) of the Act. A perusal of Explanation 1 regarding adjustments to be made in the computation of the Book profits would show that the adjustments made by the AO fall in none of clauses stated therein and since AO has limited power u/s 115JB to make adjustment to book profit only in respect of items provided in Explanation 1 to section 115 JB(1) - Decided against revenue. Disallowance of Prior Period Expenses - HELD THAT - Though the payment of expenses were made during the next assessment year i.e. A.Y.2018-19 the said expenses have bene incurred for the period pertaining to impugned assessment year. Since assessee follows mercantile system of accounting; the said expenses are to be allowed in the year in which they pertained. Accordingly the said claim of prior period expenses which has been incurred pertain to this year even though the payment has been made in the next assessment year then also same has to be allowed. Accordingly grounds raised by the assessee are allowed. Addition on account of difference in reconciliation as per 26AS - HELD THAT - The income returned by the parties and income reflected by the assessee was different except in one case with AGE PATEL Joint Venture (JV) which is for the amount of Rs. 1, 48, 34, 838/- rest are all minor accounts. Once the assessee had produced books of accounts which have been accepted then if there is any reconciliation amount and assessee had claimed that assessee had shown the correct income then ld. AO should have at least verified from those parties reflecting the payment. Looking to the fact that assessee has already reconciled almost every item except for 0.10% of total reported entries therefore we agree with the contention of the assessee that addition should not be made and this view is supported by the decision of the Co-ordinate Bench in the case of TUV India (P) Ltd. 2019 (8) TMI 1050 - ITAT MUMBAI Allowability of interest on delayed payments of TDS - AO held that interest of late payment of TDS is not an allowable expenditure whereas CIT (A) has allowed the same - HELD THAT - Claim of the assessee regarding interest expenditure and delayed deposit of TDS cannot be held to be an allowable expenditure. This issue has been discussed in detail in the case of DLF Ltd. 2019 (6) TMI 1288 - ITAT DELHI held that depositing TDS in time is responsibility of assessee and interest in delay in deposit of TDS cannot be allowed as business expenditure. Accordingly ground No.1 raised by the Revenue are allowed and the claim of the assessee is rejected. Disallowance made u/s. 40 (a) (ia) - Assessee indemnified the JV and AGE from all contractual responsibilities and liabilities arising out of the contract - HELD THAT - JV had ceased to exist as it was merely a pass through entity which shall not be executed any work independently. Apart from that ld. AO of JV had accepted that entire contract receipts are taxed in the hands of the assessee only and JV is only a pass through entity. The assessee during the year had paid interest on mobilization advances received from IRCON wherein ld. AO has held that assessee did not deduct TDS u/s. 194A(3)(iii). As already given a detailed finding after relying upon the judgment of the Hon ble Bombay High Court and CBDT Circular. Thus we hold that no TDS is to be deducted accordingly disallowance u/s. 40(a)(ia) deleted by the ld. CIT(A) is confirmed. Write off of bad debt relating to Patel Engineering Resources Ltd. (PERL) - Allegations of the AO that interest accrued on loan given to PERL has been added to the loan itself and therefore the writing off of such interest is nothing but writing off of loans - HELD THAT - Once there is a categorical finding that interest income has been considered as business income in the earlies years which has been written off by the assessee during the year under consideration the conditions provided in Section 36(1)(vii) r.w.s. 36(i) stands satisfied and therefore the finding and observation of the ld. CIT(A) is upheld and the grounds raised by the Revenue are dismissed. Write off of loan advanced to DEPL and advance to wholly step down subsidiary - HELD THAT - CIT (A) has given a finding of fact that advances were given to its subsidiaries in furtherance of the business objects of the Assessee and therefore were given in the course of routine business transactions. The revenue has not controverted the said factual finding. Write off of advances made during routine business activity are allowable as a deduction as the same are incidental to carrying on of business activity. The utilisation of advances by the borrower in no manner dictates the allowability of the loss in the hands of the Assessee. The Assessee here in this case had advanced the loans in furtherance of its business objective and therefore the loss suffered while writing off the advances/loans is a business loss and eligible for a deduction. If the contention of the Ld. AO is accepted it would lead to an absurd result since for instance a sale of machinery by a dealer which is a capital asset in the hands of the purchaser would have to be treated as capital receipt in the hands of the seller also. We are of the opinion that the utilisation of the loan by the subsidiary is not determinative of allowability of the expenditure in the hands of the Assessee. Once the loan has been given out of commercial expediency it is allowable as deductions this issue is covered by the decisions in CIT vs. Colgate Palmolive (India) Ltd. 2014 (12) TMI 846 - BOMBAY HIGH COURT and CIT vs. BDA Limited 2024 (2) TMI 1342 - BOMBAY HIGH COURT Accordingly this issue is decided in favour of the assessee. Taxing capital gain @20% on the sale of depreciable long-term Capital asset - HELD THAT - As already decided in favour of the assessee following the judgment of SKF Ltd. 2024 (10) TMI 477 - ITAT MUMBAI wherein held that in case of long-term capital asset which are depreciable asset in terms of Section 50 even though are deemed to be taxed as short term capital gain however the tax rate u/s. 112 would be 20%. Write off of advance/deposit is not acceptable as bad debt as a such advance/deposits have not been offered as income in the earlier years - HELD THAT - If the advance has been given during the course of business and if any loss has been suffered on account of writing off of the advance granted during the course of carrying out of business then it is an allowable loss under section 28 read with section 29 of the Act. This fact has not been disputed at all. It is not a case of claim of bad debts albeit claim of loss incurred during the course of business. Accordingly Ld. AO is directed to allow the deduction. Nature of expenditure - Disallowance of compensation paid by the assessee to promoters for invocation of shares pledged by the Promoters to lenders - AO contended that the compensation given to promoters for invocation of pledged shares was on loan account and hence held to be capital expenditure - HELD THAT - The manner in which the Promoters have been recompensated i.e. by issuance of further shares is not a relevant criteria for determining whether the expenditure incurred by the Assessee is revenue in nature or not. If the contention of the Ld. AO is accepted then it leads to an absurd result inasmuch as if a capital asset is acquired out of accumulated/ working profits then such acquisition would not be treated as capital expenditure but a revenue expenditure since it was incurred out of accumulated profits. The mode of discharge of consideration is not germane for deciding the nature of expenditure. Thus we hold that the compensation payable to promoters is allowable as a deduction u/s 37(1) of the Act. AIR Reconciliation assessed as business income - Assessee is not able to substantiate the amount has already been offered to tax in its return of income therefore the addition made by AO is upheld - HELD THAT - We find that assessee was able to reconcile the AIR transactions with the income of the Assessee running into voluminous number of entries. Only un-reconciled entries were 0.03% of the total reported entries which is miniscule difference. If the assessee has shown all the entries in the books of account duly supported by invoices then no addition can be made merely upon the basis of entries getting reflected in the AIR report. Moreover the books of accounts of the Assessee have been accepted by the Ld. AO. In such a case we agree with the ld. Counsel and the addition is directed to be deleted. Accordingly ground raised by the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Deduction of TDS on Interest Payments to JV:
Eligibility for Deduction under Section 80IA:
Interest on Delayed TDS Payments:
Write-off of Bad Debts and Advances:
Tax Rate on Capital Gains from Depreciable Assets:
Reconciliation of AIR Discrepancies:
Compensation to Promoters for Pledged Shares:
3. SIGNIFICANT HOLDINGS
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