2023 (4) TMI 1050 - AT - Income Tax

Disallowance of payment made towards drawing and designing charges outside India - matching concept of account - DR submitted that the drawing and designing expenses claimed by the assessee was part of the contract agreement and therefore separate claim of the same which is in contradiction to the terms and conditions of the contract agreement, cannot be accepted - HELD THAT - Whether the drawing and designing services for which the payments are made are related to the agreement with the Mckeown or not, cannot be verified. AR was unable to substantiate this aspect during the hearing before us. We, therefore, are of the view that this issue needs to be restored back to the file of AO to examine the additional evidence produced before us and also to examine the nexus of payments for drawing and designing charges to the foreign entities that the same was made in terms of agreement with Mckeown for the successful performance of the terms of agreement, AO is directed to examine and verify the information and evidences and after satisfaction that the payment of drawing and design charges were paid in terms of agreement with McKeown international Inc, USA dated 01.02.2012 for sell / purchase of coal charging car under the obligations cast upon the assessee, the same shall be allowed in the year of completion of project under matching concept of accounting. Our view on matching concept of account has support of the view taken in the case of CIT Vs Taparia Tools Ltd 2003 (1) TMI 83 - BOMBAY HIGH COURT - We are persuaded to restore this matter back to the file of AO for readjudication - Ground allowed for statistical purposes. Disallowance u/s.14A - Suo moto addition made by assessee rejected - HELD THAT - Admittedly, in the present case there were certain expenditure incurred by the assessee to earn the exempted income which have suo moto disallowed by the assess, A.O. has rejected the contentions and explanations of the assessee without assigning any specific reasons for his dissatisfaction regarding rejecting the suo moto disallowance by the assessee and the disallowance was made by applying rule 8D. We hold that the disallowance made u/s 14A read with rule 8D of the income tax act is uncalled-for and is liable to be deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Disallowance of Rs. 2,47,85,290/- for drawing and designing charges.
3. Disallowance of Rs. 1,35,957/- under Section 14A of the Income-tax Act, 1961.

Summary:

1. Delay in Filing the Appeal:
The appeal filed by the assessee was delayed by 59 days. The assessee claimed that the delay was due to the Covid-19 period and referred to the Hon'ble Apex Court's directive to extend the limitation period. The Tribunal found the submission satisfactory and condoned the delay.

2. Disallowance of Rs. 2,47,85,290/-:
The assessee claimed expenses for drawing and designing charges incurred outside India, which were disallowed by the Assessing Officer (AO) on the grounds that they were not wholly and exclusively relatable to the assessee's business. The CIT(A) upheld the AO's findings. The assessee argued that these expenses were related to an equipment sale agreement with Mckeown International, Texas, and were necessary for the successful performance of the contract. The Tribunal noted that the agreement allowed for sub-contracting and that the expenses were indeed related to the contract. However, the Tribunal found that the agreements with the parties providing the drawing and designing services were not produced before the authorities. Therefore, the Tribunal restored the matter back to the AO for re-examination, directing the AO to verify the nexus of the payments with the agreement and allow the expenses if they were indeed related.

3. Disallowance of Rs. 1,35,957/- under Section 14A:
The assessee contended that the disallowance under Section 14A was uncalled for, as the interest expenses were minimal and related to car loans and late payment of TDS, which were already added back. The Tribunal observed that the AO had made the disallowance by applying Rule 8D without recording dissatisfaction with the assessee's suo moto disallowance. Citing relevant case laws, the Tribunal held that the disallowance under Section 14A was uncalled for and deleted it.

Conclusion:
The appeal was partly allowed, with the issue of Rs. 2,47,85,290/- disallowance remanded back to the AO for re-examination, and the disallowance under Section 14A of Rs. 1,35,957/- deleted.