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2018 (7) TMI 1552 - AT - Income TaxDisallowance of Value Added Tax (VAT) written off - assessee has neither routed the impugned write off through its profit and loss account nor does it satisfy the basic tenet of bad debt write off claim u/s. 36(2) - Held that - There is further no issue between the parties about the fact that assessee has actually written off the sum in question of ₹2,12,100/-. Coming to CIT(A) former reason that the assessee had not routed the said sum for its profit and loss account, it is not in dispute that the instant taxpayer has followed the relevant accounting treatment to be given to the VAT item(s). No substance in CIT(A) s former reason as assessee has to mandatorily comply with the relevant accounting principle regarding VAT in question. Coming to the latter issue of having not included said VAT amount as income, we are of the view that assessee s impugned write off is very much incidental to carrying out of its business activity. We thus follow hon ble apex court s decision in (1965) CIT vs. Nanital Bank Ltd. 1964 (9) TMI 11 - SUPREME COURT to conclude that assessee s impugned claim is rather allowable as a business loss u/s 28 r.w.s 37 - We accordingly delete the impugned disallowance. Disallowance of earnest money deposit as no longer recoverable - Held that - DR fails to dispute the basic fact that the assessee has actually written off the impugned in question in respect of its deposits for participating tenders processes in different organizations recoverable. The CIT(A) has also found perceptible evidence in assessee s favour. His only view that it is not clear as to whether the said amount is in capital or revenue account. We find no merit in such reasoning. The fact remains that the assessee has made the impugned deposits so as to carry out its routine business activity of taking part in tender process. We therefore conclude the same to be revenue expenditure allowable in the nature of business loss u/s 28 r.w.s 37 of the Act since incidental to its core business activity of tenders. The assessee succeeds in its second substantive ground as well. TDS u/s 194C - TDS liability - Held that - Both the lower authorities are of the view that the assessee ought to have deducted TDS as the impugned expenditure pertaining to supply of materials. We quote section 194C Explanation (iv)(e) of the Act in this backdrop to conclude that there is no specific finding in lower authorities orders under challenge that the assessee had, in fact, supplied the necessary material to its payees for manufacture or supply purposes. We therefore conclude that the CIT(A) has erred in law as well as on facts in confirming the impugned disallowance of outright material purchase. Repair expenditure claim on building - revenue or capital expenditure - Held that - We afford sufficient opportunities to the Revenue to refer to the case record for the purpose of pin-pointing any capital expenditure element in assessee s claim i.e. creation of altogether a new asset or any enduring advantage etc. There is no such rebuttal coming from the case file. The Revenue s latter argument raising ownership issue of the repaired premises also has no force as there is no such pre-condition in the Act that only self-owned asset or premises of the concerned assessee can be repaired for the purpose raising the consequential claim as revenue expenditure. Employees contribution PF/ESI u/s. 36(1)(va) on account of late payment - Held that - The assessee had paid the sum in question of employees contribution to PF and ESI amounting to ₹44,655/- before the date of filing its return u/s. 139(1) of the Act. Hon ble jurisdictional high court s decision in CIT vs. M/s Vijay Shree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT has already decided the very issue in assessee s favour
Issues Involved:
1. Disallowance of VAT write-off claimed as a deduction. 2. Disallowance of earnest money deposit as no longer recoverable. 3. Disallowance of material supply claims under section 40(a)(ia) read with section 194C. 4. Treatment of repair expenditure on building as revenue or capital expenditure. 5. Disallowance of employees' contribution to PF/ESI due to late payment. 6. Disallowance of excessive VAT write-off claim. Issue-wise Detailed Analysis: 1. Disallowance of VAT Write-off Claimed as a Deduction: The assessee's appeal for the assessment year 2011-12 challenged the disallowance of ?2,12,100/- VAT written off. The CIT(A) disallowed the claim under section 36(2)(i) of the Income Tax Act, 1961, citing that the VAT amount was not part of the income in the profit and loss account in any previous assessment years. The Tribunal found that the VAT write-off was incidental to business activity and should be allowed as a business loss under section 28 read with section 37 of the Act, following the Supreme Court's decision in CIT vs. Nanital Bank Ltd. The disallowance was deleted. 2. Disallowance of Earnest Money Deposit as No Longer Recoverable: The assessee claimed a deduction of ?7,55,500/- for earnest money written off. The CIT(A) disallowed the claim due to lack of evidence on whether the earnest money was given on revenue or capital account. The Tribunal found that the deposits were made for participating in tender processes, which are routine business activities. Therefore, the amount was considered revenue expenditure allowable as a business loss under section 28 read with section 37 of the Act. The disallowance was deleted. 3. Disallowance of Material Supply Claims under Section 40(a)(ia) read with Section 194C: The assessee contested the disallowance of ?28,71,827/- for non-deduction of TDS on payments to four parties. The CIT(A) directed the AO to disallow only the sums on which no TDS was effected. The Tribunal found no specific finding that the assessee supplied materials to its payees for manufacture or supply purposes. Hence, the disallowance was deemed incorrect, and the assessee's claim was allowed. 4. Treatment of Repair Expenditure on Building as Revenue or Capital Expenditure: For the assessment year 2012-13, the Revenue challenged the CIT(A)'s decision treating ?1,07,03,835/- repair expenditure as revenue. The AO had disallowed the claim, treating it as capital expenditure. The CIT(A) and the Tribunal found that the expenses were for maintaining existing structures and did not create new assets or enduring benefits. The disallowance was deleted, following the Supreme Court's decision in Ballimal Naval Kishore vs. CIT. 5. Disallowance of Employees' Contribution to PF/ESI Due to Late Payment: The Revenue's appeal challenged the CIT(A)'s decision allowing the assessee's claim for employees' contribution to PF/ESI amounting to ?44,655/- paid before the due date of filing the return. The Tribunal upheld the CIT(A)'s decision, citing the jurisdictional High Court's ruling in CIT vs. M/s Vijay Shree Ltd., which favored the assessee. 6. Disallowance of Excessive VAT Write-off Claim: The assessee's cross-appeal for the assessment year 2012-13 challenged the disallowance of ?13,39,900/- for excessive VAT paid. Both parties agreed that the issue was covered by the Tribunal's decision for the assessment year 2011-12, where the VAT write-off was allowed. The Tribunal adopted the same reasoning and allowed the assessee's claim. Conclusion: The Tribunal allowed the assessee's appeals for ITA No.2219 and 2220/Kol/2016 and dismissed the Revenue's appeal ITA No.1793/Kol/2016. The order was pronounced in the open court on 20/07/2018.
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