2016 (5) TMI 547 - AT - Income Tax

Disallowance of interest paid - whether in the absence of any material to establish that the assessee was not using the building for business purpose, disallowance of interest is not justified? - Held that - no material is available on record to suggest that the assessee has used the building for its business. The assessee being in the business of engineering contract, it has to necessarily obtain license /permission to use the building from the local Municipal Corporation. The assessee also needs to register itself with sales tax authorities for payment of sales tax. Apart from that, the assessee also needs to get clearance from other statutory authorities for carrying out its business in the premises, which was purchased by using the borrowed funds. In this case, no material is available on record to suggest that the building was used for business. In fact, the assessee demolished the building during the year under consideration. Therefore, the contention of the assessee that the building was used for its business in the year under consideration is farfetched one. When the building was demolished and new construction was started, at no stretch of imagination it can be said that the assessee used the building for its business - Decided against assessee Claim of depreciation on the building - Held that - The assessee claims depreciation on the building purchased on 24.09.2007. The fact remains that the building purchased was never put to use for the business of the assessee and in fact, the building was demolished and new construction was started. When the building purchased on 24.09.2007 was demolished immediately after its purchase, this Tribunal is of the considered opinion that claiming depreciation on the very same asset is not justified. Disallowance under Section 40(a)(ia - Held that - Hiring of generator, JCB and paying hire charges are liable for TDS under Section 194-I of the Act. Therefore, failure of the assessee to deduct tax would disentitle the assessee to claim the same as expenditure in view of Section 40(a)(ia) of the Act. Soil testing and concrete mixer testing are nothing but technical services. Therefore, the assessee is liable to deduct tax at the time of payment or giving credit. Hence, the assessee cannot claim the same as expenditure unless the TDS was made. The payment made for centring work is nothing but sub-contract. Therefore, the assessee is liable to deduct tax under Section 194C of the Act. In view of the above, this Tribunal is of the considered opinion that the assessee is liable to deduct tax in respect of all the payments made. Therefore, the Assessing Officer has rightly disallowed the claim under Section 40(a)(ia) of the Act. - Decided against assessee Addition towards sundry creditors - Held that - Since the liability is not outstanding as on 31.03.2010, the same has to be added as income only for the assessment year 2010-11 and not for the assessment years 2011-12 and 2012-13. Merely because the assessee has offered the same as income for the assessment years 2011-12 and 2012-13 that cannot be a reason to shift the income which is otherwise assessable for taxation for the assessment year 2010-11. In view of the above, this Tribunal do not find any reason to interfere with the order of the CIT(Appeals) and accordingly, the same is confirmed - Decided against assessee

Issues Involved:
1. Disallowance of interest paid.
2. Claim of depreciation on the building.
3. Disallowance under Section 40(a)(ia) of the Income Tax Act.
4. Addition towards sundry creditors.

Detailed Analysis:

1. Disallowance of Interest Paid:
The primary issue pertains to the disallowance of interest amounting to ?23,82,173/-. The assessee purchased a property for business purposes and claimed the interest paid on borrowed funds as a business expenditure. The Assessing Officer (AO) disallowed this claim on the grounds that the building was demolished during the financial year 2008-09, and the new building was put to use in the subsequent financial year, necessitating the capitalization of the interest payment. The Tribunal upheld the AO's decision, emphasizing the lack of evidence to prove that the building was used for business purposes during the relevant period.

2. Claim of Depreciation on the Building:
The assessee claimed depreciation on the building purchased on 24.09.2007. However, the building was demolished shortly after its purchase, and new construction began. The Tribunal found that since the building was not put to use for business purposes and was demolished, claiming depreciation on the asset was unjustified. The Tribunal confirmed the order of the CIT(Appeals) disallowing the depreciation claim.

3. Disallowance under Section 40(a)(ia) of the Income Tax Act:
For the assessment year 2010-11, the issue involved the disallowance of payments made to subcontractors, amounting to ?39,44,719/-, due to non-deduction of TDS. The assessee argued that certain payments were for hiring charges and technical services, which should not be treated as subcontract payments requiring TDS deduction. The Tribunal, however, held that these payments, including those for hiring machinery and technical services, were liable for TDS under Sections 194-I and 194C of the Act. Failure to deduct TDS warranted disallowance under Section 40(a)(ia). The Tribunal also rejected the assessee's alternative claim that TDS should only apply to amounts payable at the year-end, citing judgments from the Calcutta and Gujarat High Courts that contradicted this view.

4. Addition Towards Sundry Creditors:
The AO added ?17,95,370/- to the assessee's income, representing sundry creditors that were not settled as of 31.03.2010. Summons issued to the creditors revealed that no amounts were outstanding. The assessee contended that these amounts were written off in subsequent years (2011-12 and 2012-13). The Tribunal found no material to support the assessee's claim and held that the liability was not outstanding as of 31.03.2010, thus confirming the addition for the assessment year 2010-11.

Conclusion:
The Tribunal dismissed both appeals of the assessee, confirming the disallowance of interest and depreciation claims, the disallowance under Section 40(a)(ia) for non-deduction of TDS, and the addition towards sundry creditors. The judgment emphasized the necessity of compliance with statutory requirements for claiming deductions and the importance of substantiating claims with adequate evidence.

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