2014 (12) TMI 94 - AT - Income Tax

Deletion of deposits made in PF/ESI payment beyond prescribed time As per section 36(1)(va) employees contribution should have been deposited in time as prescribed Held that - CIT(A) rightly was of the view that the assessee made payment before due date of return assessee relied upon CIT Vs. Udaipur Dugdh Udpadak Sahkari Sangh Ltd. 2014 (8) TMI 677 - RAJASTHAN HIGH COURT - the assessee has paid employees contribution towards ESI paid before due date of return therefore it is allowable - the assessee should have paid this amount before due date of return is allowable u/s 43B the order of the CIT(A) is upheld Decided against revenue. Payment made for transmission/wheeling/SLDC charges to RRVPN Applicability of section 40(a)(ia) - Technical services or not Liability to deduct TDS u/s 194J Held that - As decided in assessee s own case for the earlier assessment year it has been held that all the parties involved with generation transmission and distribution of electricity are to comply with the direction of State Load Dispatch center and the Regulatory commission for achieving the economy and efficiency in the operation of power system and therefore question of any person rendering service to another does not arise - The operation and maintenance of transmission lines by RVPNL and the user of these lines by assessee for transmitting energy does not result into any technical services being rendered to the assessee - The technical staff of RVPN by operating and maintaining its grid station and transmission lines simply discharge thereon functioning - They do not render any technical service to the assessee the order of the CIT(A) is upheld Decided against revenue. Deletion of front end fees to HUDCO for raising loan Revenue expenses or not Held that - CIT(A) rightly was of the view that front end fees had been paid to HUDCO in connection with the money borrowed - There was no extension of the existing business therefore proviso to Section 36(i)(iii) of the Act is not applicable - The revenue expenditure which was incurred wholly and exclusively for the purpose of business could be allowed in its entirety in the year in which it was incurred - It could not be spread over in number of years even if the assessee had written it off in his books over a period of years - assessee has raised loan of 300 crores for improvement in transmission network and infrastructure - The assessee paid this amount to HUDCO which was pre-decided condition on the loan sanctioned thus the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made on account of depositing PF/ESI payment beyond the prescribed time.
2. Non-applicability of TDS under Section 194J on transmission/wheeling/SLDC charges.
3. Deletion of addition made on account of front-end fees paid to HUDCO for raising the loan, classified as revenue expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Depositing PF/ESI Payment Beyond Prescribed Time:
The first ground of appeal concerns the deletion of an addition of Rs. 1,09,018/- made due to the late deposit of employees' ESI contributions. The assessing officer noted that the company failed to deposit these contributions within the prescribed time, as required by Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act. The CIT(A) allowed the appeal by the assessee, relying on various High Court decisions, stating that the payment made before the due date of return filing is allowable under Section 43B. The Revenue, referencing the Gujarat High Court decision in CIT Vs. Gujarat State Road Transport Corporation, argued for adherence to the prescribed date. However, the Tribunal upheld the CIT(A)'s decision, citing the jurisdictional High Court's ruling in CIT Vs. Udaipur Dugdh Udpadak Sahkari Sangh Ltd., confirming that payments made before the due date of return filing are allowable.

2. Non-applicability of TDS under Section 194J on Transmission/Wheeling/SLDC Charges:
The second issue involves the payment of Rs. 281,23,73,125/- towards transmission/wheeling/SLDC charges to RRVPN, which the assessing officer argued required TDS deduction under Section 194J. The officer contended that human intervention in transmission services classified these as technical services. However, the CIT(A) ruled that these charges did not involve technical services requiring human intervention, referencing previous ITAT decisions and the statement of the Chief Engineer. The Tribunal upheld this view, noting that the services provided were operational and maintenance activities rather than technical services rendered to the assessee. The Tribunal also considered the retrospective effect of the second proviso to Section 40(a)(ia), which deems tax deducted if the payee has filed returns and paid due taxes, further supporting the CIT(A)'s decision.

3. Deletion of Addition on Account of Front-End Fees Paid to HUDCO:
The third ground of appeal pertains to the deletion of an addition of Rs. 1,73,07,800/- made on account of front-end fees paid to HUDCO for raising a loan. The assessing officer treated this as capital expenditure, noting that the assessee had amortized the expense over five years in its books. The CIT(A) allowed the appeal, classifying the fees as revenue expenditure, citing that the fees were a one-time payment necessary for obtaining the loan and did not result in an asset of enduring nature. The Tribunal upheld this decision, aligning with precedents such as CIT Vs. Super Spinning Mills Ltd., which treated similar fees as revenue expenditure, confirming that the payment was essential for obtaining the loan and did not create a lasting asset.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decisions on all three grounds. The Tribunal emphasized adherence to jurisdictional High Court rulings, the nature of the expenses, and the retrospective application of relevant provisions, ensuring that the assessee's claims were justified under the prevailing legal framework.