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TMI Blog2016 (9) TMI 1560X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to operation maintenance, repairs maintenance but their bills were not received during the year. The assessee has made these provisions on the basis of actual estimation of liability because of this fact these provisions cannot be included in the category of contingent liability. CIT(A) has shown in his order the table reflecting the actual payment made by the assessee to the various parties in the subsequent year along with particulars of date of credit, name of party, PAN No, amount, TDS, date of payment of TDS. The assessee has been following the mercantile system of accounting and correctly made estimation of its liability. In view of above stated facts and findings, we justify the order of CIT(A) deleting the additions made by the Assessing Officer. We also agreed with the findings of CIT(A) that the provisions of section 40(a)(ia) are also not applicable to the case of the assessee as the assessee has only made the provisions in the account but not credited the same in the account of concerned parties. Disallowance on account of legal and professional expenses u/s.40(a)(ia) - HELD THAT:- We noticed that the Ld. Commissioner of Income Tax(A) has shown the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the last day of the financial year so we uphold the decision of the Ld. Commissioner of Income Tax(A) to disallow the interest for one day only. - ITA No. 2576/Ahd/2012 & CO No. 49/Ahd/2016 - - - Dated:- 30-9-2016 - Shri Rajpal Yadav, Judicial Member and Shri Amarjit Sigh, Accountant Member Revenue by: Shri James Kurian, Sr. D.R. Assessee by: Shri Vartik Choksi, A.R. ORDER Amarjit Singh, This Revenue s appeal assessee s cross objection for A.Y. 200910, arise from order of the CIT(A)-XIV, Ahmedabad dated 17-08-2012 in appeal no. CIT(A)-XIV/AC. Cir. 8(OSD)/240/2011-12, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . The Revenue has filed following grounds of appeal:- 1). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 2,85,61,000/- made on account of Plant and Machinery hire charges, u/s.40(a)(ia) of the Act. 2). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of operation maintenance charge of ₹ 70,00,000/- and Repairs Maintenance charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger Pertius II and the procedure for accounting of Income and Expenditure for the financial year 2008-09. The understanding finalised is as under: 1. That all the income generated for the year 2008-09 be accounted for in the books of Sanghi Infrastructure Limited. 2. That all the expenditure incurred for the year 2008-09 be accounted for in the books of Sanghi Infrastructure Limited. 3. That presently the dredger is under lease as per agreement between Saright Industries Limited (SIL) and Srei Infrastructure Finance Limited and lease rental is paid by SIL. Due to agreement, the company SIL will continue to pay the lessor and deduct income tax on credit/payment whichever is earlier as per the Income tax Act. The expense booked in SIL would be reversed by a debit note on SIPL and (ultimately the expense would be shown in the books of SIPL. 4. This arrangement has been decided to streamline the business of infrastructure services SIPL from 1st April 2008. The dredger Pertius-ll is in process of being transferred to SIPL but due to some technical difficulties, the same is in process for which the above arrangement is necessary. The companies hereby authorise M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Sanghi Industries. Ltd. Amount Recovered from Appellant Sr. No. Date Amount Rs. TDS Date Amount Rs. 01. 30-04-2008 38,37,500 21,739 30-04-2008 38,37,500 02. 31-05-2008 38,37,500 21,739 31-05-2008 38,37,500 03. 30-06-2008 38,37,500 21,740 30-06-2008 38,37,500 04 - 31-07-2008 38,37,500 21,740 31-07-2008 38,37,500 05. 31-08-2008 38,37,500 21,739 31-08-2008 38,37,500 06. 30-09-2008 38,37,500 21,739 30-09-2008 38,37,500 07. 31-10-2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the. provisions of section 4. The tax has duly been deducted by SIL on the payments made for utilization of Plant and Machinery and, therefore, the provisions of -section 4 are satisfied. Further, the payment that have been made to the SIL had no profit element and, therefore, no tax was required to be deducted. The J5IL had hired the machinery initially and made the payment to SREI-after deducting-the tax and, therefore, the provisions of section 1941 have also been complied with reference to the payments received by SREI. The basic purpose of section 40(a)(ia) which is to ensure that the tax is deducted from a payment, which has income element, and the fax so deducted should be deposited in the government account has been fulfilled. 8. The Ld. D.R. relied on the order of the A.O. in appellate proceedings before us. The Ld. A.R. relied on the order of the Ld. CIT(A) and stated that the nature of payment made by the assessee company to the Sanghi Industries Ltd. is of reimbursement of expenditure. He referred to the different pages of paper book containing copy of accounts of Sanghi Industries Ltd. for A.Y. 2008-09. Copy of MOU between assessee and Sanghi Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of repairs maintenance (Pertius-II) 13. The Assessing Officer pointed out that no TDS was deducted by the assessee on the above expenses. The assessee submitted before the Assessing Officer that these are the parts of the block provision related to unascertained liabilities and TDS on the same has been deducted in the following year on submission of bills. The Assessing Officer observed that liability for expenses of ₹ 60,00000/- as stated above debited in the P L under the head Repair and Maintenance was contingent liability not to be allowed u/s. 37(1) of the I.T. Act. The Assessing Officer also observed that no TDS was deducted at the time of credit of these liabilities for expenses under the head Repair Maintenance during the previous year, therefore, provisions of section 40(a)(ia) to be clearly attracted in the case of the assessee. 14. Similarly the Assessing Officer also pointed out that no TDS was deducted at the time of the credit of provision for expenses under the head Operation and Maintenance of ₹ 70,00000/- during the previous year, therefore, provisions of section 40(a)(ia) are clearly attracted in the case of the assessee and thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of Party PAN No. Particulars Rs. TDS Date of payment of TDS 01-05-2009 D S Saliya AVZPS5527J Operation and Maintenance of CSD Ashoka Dredger 95594 2166 08-06-2009 01-06-2009 Ashapura Marinetech Pvt.Ltd. AAFCA4875P Operation and Maintenance of TSHD Partius II Dredqer 13030 295 08-07-2009 01-08-2009 Dolphin Under Water Service AFQPP0187C Operation and Maintenance of CSD Ashoka Dredqer 50000 1133 08-07-2009 01-06-2009 Ashapura Marinetech Pvt.Ltd. AAFCA4875P Operation and Maintenance of TSHD Partius II Dredger 16545 295 08-07-2009 04-06-2009 Lord Varun Driving Services AADFL2137L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04/04/2009 Engltech Industries BWAPS7053J Repairs and Maintenance of CSD Ashoka Dredger 13750Q 3116 27/05/2009 01/05/2009 New Sharma Engineering Works AMTPM9003C Repairs and Maintenance of CSD Ashoka Dredger 29000 657 08/06/2009 01/05/2009 Electronics Marine APPPR2282D Repairs and Maintenance of Pertius II Dredger 22500 510 08/06/2009 08/05/2009 Engitech Ltd. BWAPS7053J Repairs and Maintenance of CSD Ashoka Dredger 262000 5937 08/06/2009 08/05/2009 Kuldeep Enterprises Repairs and Maintenance of CSD Ashoka Dredger (Pur of repair items for Ashok Dredger) 281074 09/05/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 583 01/09/2009 01/07/2009 Fuji Technical Services Pvt. Ltd. AAACF1784F Repairs and Maintenance of CSD Ashoka Dredger 518410 10368 18/01/2010 02/07/2009 Ras Tak Private Limited AABCR6988G Repairs and Maintenance of CSD Ashoka Dredger 82710 1704 01/09/2009 03/07/2009 Naresh Engineers Contractors AKMPP2288H Repairs and Maintenance of CSD Ashoka Dredger 64600 1464 18/01/2010 18/07/2007 Engitech Ltd. BWAPS7053J Repairs and Maintenance of CSD Ashoka Dredger 546750 11798 15/12/2009 27/07/2009 Shree Kartik Engineering ABIFS0267Q Repairs and Maintenance of CSD Ashoka Dredger 22612 512 15/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer. The Ld. A.R. supported the order of the Ld. Commissioner of Income Tax(A) and he also referred pages in the paper book containing details relating to account of operating and maintenance charges along with account of parties pertaining to F.Y. 2008-09. 17. We have considered the submission of both the sides and perused the material as per record. We find that the assessee has made provisions for the expenses incurred during the year pertaining to operation maintenance, repairs maintenance but their bills were not received during the year. The assessee has made these provisions on the basis of actual estimation of liability because of this fact these provisions cannot be included in the category of contingent liability. The Ld. Commissioner of Income Tax(A) has shown in his order the table reflecting the actual payment made by the assessee to the various parties in the subsequent year along with particulars of date of credit, name of party, PAN No, amount, TDS, date of payment of TDS. The assessee has been following the mercantile system of accounting and correctly made estimation of its liability. In view of above stated facts and findings, we justify the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Not Applicable Registration fees to Govt. Dept 7/3/2008 Bieng navtesh Maritime -Superficial inspection on Dredger - Ashoka Dredger exps paid by SIL and debited to SIPL - JPY210000 85365.00 Not Applicable Maritime inspection charges paid in Japan's 7/30/2008 Bieng Legal Fees and Taxes of Pertuis II Dredger exps paid by SIL and debited to SIPL - 2030 USD 86316.00 Not Applicable Legal taxes paid to Panama Country and TDS, not applicable u/d 195 8/29/2008 Being paid to OMCS for approval for obtaining certificate of Pertuis II dredger -Paid by SIL and Debited to SIPL 1850 USD 81270.50 Not Applicable Legal taxes paid to Panama Country and-TDS not applicable u/d 195 9/6/2008 Being Inv of Pankaj Joshi for Pertuis II Radio SEQ Verification - booked by SIL and debited to SIPL 50000.00 Applicable TDS deducted and paid by Sanghi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome element involved, in this payment which is in the nature of reimbursement, the provisions of TDS will not be applicable. The SIL has been reimbursed the expenses by the appellant, there is no income element involved in the payment made to SIL by the appellant. The disallowance made by the A. O. in respect of the payment made, to SIL is directed to be deleted. In respect of the payment made to Shri Tapan Jha amounting to ₹ 55,350/-, the appellant has not furnished any detail or information to show that it was indeed a reimbursement of expenditure. The disallowance made by the A. O. is, therefore, upheld in respect of this payment. The ground of appeal is accordingly partly allowed. 19. The Ld. D.R. before us relied on the order of the Assessing Officer. On the other hand, the Ld. A.R. supported the order of the Ld. Commissioner of Income Tax(A). We have heard both the parties and perused the material on record. We noticed that the Ld. Commissioner of Income Tax(A) has shown the complete chart in his order with particulars of date, amount, nature of expenses etc. reflecting the nature of payment made and application of TDS provisions. We find that above stated f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 11,75,365/- (iii) Payment to Anand-ITD Cementation India Ltd. ₹ 37,750/- The assessee stated that it was reimbursement of expenses. The Assessing Officer had disallowed these payments u/s. 40(a)(ia) of the Act for want of supporting evidential document which were not produced by the assessee. The assessee filed appeal before the Ld. Commissioner of Income Tax(A) against the order of the Assessing Officer for making the said addition. The Ld. Commissioner of Income Tax(A) sustain the addition made by the Assessing Officer as the assessee failed to prove that no profit element included in the payment made to the above stated concerns. The part of the decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:- 4.3 I have carefully perused the assessment order and the submission filed by the Id.AR of the appellant. The disallowance has been made on account of non- deduction of TDS on the following payments: - Sanghi Industries Ltd. ₹ 218160/- ITD Cementation India Ltd ₹ 1175365/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of above stated facts and circumstances, we justify the findings of the Ld. Commissioner of Income Tax(A) that the copies of the ledger provided do not clearly show that nature of payment and the fact that whether any profit element was there in the so-called reimbursement. We, therefore, dismiss this ground of cross objection filed by the assessee. Ground No. 3 26. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited in the P L account a sum of ₹ 2865900/- in the P L account under the head Legal and Professional Expenses . Out of these payments, Assessing Officer noticed that in respect of the following payments, the assessee has not deducted TDS. 1. Sanghi Industries Ltd. ₹ 8,69,623/- 2. Tapan Jha ₹ 55,350/- ---------------------- 9,24,973/- ---------------------- The assessee submitted before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted the reply of the assessee for want of purpose of advances, contra confirmation of advances, business justification, date from which the advances were given. The Assessing Officer stated that the assessee could not prove nexus between interest free fund availaable and loans and advances given by it. After placing reliance on various judicial pronouncements, the Assessing Officer worked interest @ 12% and added a sum of ₹ 2042840/- u/s. 36(1)(iii) of the Act to the total income of the assessee. 30. The assessee filed appeal before the Ld. Commissioner of Income Tax(A) against the decision of the Assessing Officer. The Ld. Commissioner of Income Tax(A) provided relief to the assessee stating that the disallowance should be made by calculating the interest for one day on the reasoning that advance has only been given for one day i.e. on the last day of the financial year. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:- 7.3 I have carefully perused the assessment order and the submission filed by the Id.AR of the appellant. The A. O. has made the disallowance as it was noted by him that an amount of ₹ 1,70,24,504/- has been advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by calculating the interest for one day. The A.O. accordingly directed to calculate the interest for one day by taking the notional interest rate of 12% on the advances in the accounts of Sanghi Cement Limited and Sanghi Energy Limited. The disallowance made by the A. O. is accordingly upheld to this extent. The Ld. A.R. contended that there was transfer of balance from other concerns and advances were made by the assessee company and the assessee company had sufficient interest free funds. On the other hand, the Ld. D.R. relied on the order of the Ld. Commissioner of Income Tax(A). 31. After hearing both the sides and perusal of the material on record, we find that the Ld. Commissioner of Income Tax(A) has proved in his findings that assessee has not charged any interest on the advances made to the Sanghi Cement Ltd and Sanghi Energy Ltd. The assessee failed to prove with supporting evidences that these are not the advances made to these concerns. There was no surplus interest free funds available for that advances with the assessee. Since the advances were given for one day on the last day of the financial year so we uphold the decision of the Ld. Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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