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TMI Blog2022 (6) TMI 1379X X X X Extracts X X X X X X X X Extracts X X X X ..... te the maintenance attributable for the years under consideration based on the expenditure incurred and the services rendered by the assessee. Unpaid service tax liability - AO made addition invoking section 43B - AR that the assessee collected amount from its customers, towards service tax liability, however the same was not remitted - HELD THAT:- Section 43B does not contemplate liability to pay the service tax before actual receipt of the funds in the account of the assessee. In our opinion, when the assessee collected the amount, it should not kept it with them and same should be deposited to the Government exchequer within the specified date and time. Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. [ 2014 (3) TMI 386 - KARNATAKA HIGH COURT] has categorically held that the assessee would be entitled to deduction of employees' contribution to PF and ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) We note that in the event the liability stood discharged by the assessee before filing of the return of income, a liberal view can be adopted in view of the decision of Coordinate Bench of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of TDS u/s 201(1A) is an allowable deduction - grounds raised by the assessee stands allowed. Disallowance of interest paid to the NBFC u/s 40(a)(i) - AR submitted that though the assessee did not deduct taxes at source on the interest paid to NBFCs, it is submitted that where the payee has paid the taxes directly, no disallowance under section 40(a) would be warranted - HELD THAT:- We remand to the Ld.AO to verify if the payee has paid the taxes on the interest component paid by the assessee. If the submission is found to be correct, the disallowance is directed to be deleted. Disallowance of depreciation on computer software for non deduction of TDS under section 40(a)(ia) of the Act - HELD THAT:- This issue is covered in favour of assessee by the decision of Hon ble Karnataka High Court in case of PCIT vs.Tally Solutions (P.) Ltd [ 2020 (12) TMI 1160 - KARNATAKA HIGH COURT] as held that the depreciation is not an outgoing expenditure and therefore, provisions of Section 40(a)(1) and (ia) of the Act are not applicable. In the absence of any requirement of law for making deduction of tax out of expenditure, which has been capitalized and no amount was claimed as reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed by assessee for assessment year 2011-12 arising out of separate order dated 07/10/2016 passed by the Ld.CIT(A)-7, Bangalore respectively. Following are the grounds of appeal raised by the assessee well as revenue for assessment year 2010-11: ITA No. 40/Bang/2017 (Revenue s appeal) 1. The order of the learned CIT(A) is opposed to law and facts of the case. 2. The Ld. CIT(A) has erred in ignoring the fact that, assessee had not offered for tax entire advances received for maintenance (which was governed by separate agreement between the assessee company and the flat owner) on which service tax was also collected during the year . 3. The Ld. CIT(A) has erred in allowing the Maintenance Advance received for being taxed in respective assessment years ignoring the decision of the Hon'ble Supreme Court in the case of Sundaram Finance Limited vs. ACIT (2012) 349 ITR 356 . 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 5. The appellant craves leave to add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. The CIT (A) has failed to appreciate that the claim of depreciation is towards recoupment of the value of the asset and not an expenditure. 11. The learned CIT (A) has erred in law in confirming the addition of INR 8,59,111 made by the AO insofar as the contribution made towards Superannuation Fund. 12. The learned CIT(A) has erred in law and fact, by upholding the action of the AO in disallowing the proportionate interest of INR 16,10,960 attributable to the borrowed money diverted for payment of advance tax purpose. 13. The learned CIT (A) has failed to appreciate that there was no diversion of borrowed money and the borrowed money has been fully utilised wholly and exclusively for the purpose of business. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law. 2. Following on the grounds raised by the assessee for assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law. Assessment year 2011-12: 3. Brief facts of the case are as under: 3.1 The assessee is engaged in the development of various residential project. It is engaged in the activities of construction, development, sale, management and operation of housing projects. It also undertake maintenance of project developed by them. For a year under consideration, it filed its return of income on 27/09/2011 declaring total income of ₹ 16,63,25,758/-. The case was selected for scrutiny and notice under section 143(2) and 142(1) of the Act, was issued to assessee, in response to which representative of assessee appeared before the Ld.AO and filed requisite details as called for. The Ld.AO noted that, the assessee disclosed its income from construction projects by following percentage completion method of accounting. The Ld.AO noted that, the assessee received consideration under various heads like land cost, construction cost, customisation cost, car parking, eBay, architect fee, maintenance etc., however for the purpose of arriving at the sale to be booked on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O observed that assessee had purchased certain software is an capitalised ₹ 20,90,000/-. The Ld.AR noted that, the assessee did not make TDS on ₹ 10,90,000/- under section 194J of the Act. The Ld.AO therefore disallowed ₹ 6 lakh under section 40(a)(ia) of the Act. 3.8 Aggrieved by the additions made, assessee preferred appeal before the Ld.CIT(A). 3.9 The Ld.CIT(A) in the impugned order partly allowed the appeal by granting relief in respect of the disallowance made towards a long-term capital gain. 3.10 Aggrieved by the order of the Ld.CIT(A), the assessee as well as revenue are an appeal before the Tribunal. 4. Revenue is in appeal for AY:2010-11 on only one issue being the treatment of maintenance advance in the hands of the assessee. 5. Ground No.2 in assessee appeal and Ground No.2-3 in revenue for appeal are in respect of taxability of maintenance advance in the hands of assessee. 5.1 It is submitted that this issue arises in assessee s appeal for AY 2011-12, and revenue has not raked up any issue for ay 201112. Both sides submitted that facts are identical and therefore we are considering this issue for both the years under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not received during the years under consideration. She submitted that the figures consideration were only projections filed by the assessee at the instance of the Ld.AO during the assessment proceedings for relevant years. 5.7 We note that the Ld.CIT(A) expressed categorical view that, advances do not partake the character of income and that the maintenance advances received by a sissy cannot be characterised as income unless the maintenance services are rendered. We note that the Ld.CIT(A) rightly directed the Ld.AO to compute the amount of expenditure incurred out of the search total advances received for the year under consideration which is based on percentage completion method. 5.8 On perusal of the totality of facts and observations of the Ld. CIT(A), based on various judicial precedents relied by the Ld.AR, we are of the view that the direction issued by the Ld.CIT(A) to the Ld.AO is in accordance with law and cannot be found fault with. We also agree with the submissions of the Ld.AR that, the decision relied by the Ld.AO in case of Sundaram Finance Ltd vs. ACIT (supra) are rendered on different facts and are distinguishable with that of assessee in the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, the amount realised on sales tax by the assessee in his character as an auctioneer formed part of its trading or business receipts. Hon ble Court, in this case, was considering similar situation wherein sales tax collected by the assessee therein was not deposited to the Government account. Hon ble Supreme Court held that, the fact that assessee credited the amount received as sales tax under the head sales tax collection account did not make any material difference. 6.8 However, we note that in the event the liability stood discharged by the assessee before filing of the return of income, a liberal view can be adopted in view of the decision of Coordinate Bench of this Tribunal in case of The Continental Restaurant Caf Co. v. ITO in ITA No.388/Bang/2021 vide order dated 11.10.2021. The relevant finding of the Tribunal reads as follows:- 7. I have heard rival submissions and perused the material on record. Admittedly, the assessee has not remitted the employees' contribution of PF of Rs.1,06,190 and ESI of Rs.16,055 totaling to Rs.1,22,245 before the due date specified under the respective Act. However, the assessee had paid the same before the due date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the view taken by the Gujarat High Court. WE agree with the view taken by this Court in W.A.No.4077/2013. 23. In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs. 7.2 The further question is whether the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M.Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is for the removal of doubts cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees' contribution of PF and ESI if the payment was made prior to due date of filing of the return of income u/s 139(1) of the I.T.Act. Therefore, the amendment brought ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the event the Appellant's claim in the assessment year 2010-11 for deduction of Rs. 50,00,000/- being sales tax demand paid is denied, the same ought to be allowed in the assessment year 201112, since the demand was raised during the assessment year 2011-12 and was paid in the said year . 7.2 We note that no new documents needs to be verified for adjudicating this ground and respectfully following the decisions of Hon ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional ground raised by the assessee. Accordingly, the application for raising additional ground stands allowed for the year under consideration. Accordingly additional ground raised by assessee vide application dated 22.06.2022 stands admitted. 8. The assessee received a sales tax assessment order and a notice of demand dated 17.06.2010 raising a demand of Rs.50,00,000/- pertaining the sales tax periods April 2008 to October 2008 and paid the same. Since the payment of the demand was made before the due date for filing the return for AY 2010-11, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that assessee has paid interest on late payment of TDS. We observe from various decisions relied upon by both the parties and we observe that Ld.CIT(A) has relied upon the decision of Ferro Alloys Corpn. (supra) in which the Hon'ble High Court has not discussed anything on merit considering the fact that the case Bharat Commerce Industries Ltd. v. CIT 11985] 20 Taxman 302/153 ITR 275 was pending before Hon`ble Supreme Court and we observe that even in the case of Bharat Commerce Industries Ltd, the issue involved is relating to interest paid on late payment of advance-tax. Therefore, the issue involved in the present case is not relating to late remittance of advance-tax but late remittance of TDS. Therefore, the issue involved is whether the interest paid by the assessee to the government can be termed as compensatory or penal in nature. In our considered view, the assessee has deducted the tax on behalf of the third party and failed to remit the same within the due date and the interest charged on such amount is only compensatory in nature. Here we notice that the co-ordinate bench of this Tribunal has already held the same view in the case of STUP Consultants (P.) Ltd. (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be held that deduction of interest levied under sections 139 and 215 would not be allowable under section 37. In the above judgment, the claim of the assessee for interest expenses was denied as it defaulted to make the payment of advance tax as per the provisions of the Act. The advance tax is nothing but income tax only which the assessee has to pay on his income. In the instant case the default relates to the delay in the payment of advance tax and consequently interest was charged on the delayed payment of advance tax. In the above judgment the Hon'ble Apex Court held that as Income-tax paid by the assessee is not allowable deduction and therefore interest emanating from the delayed payment of income tax (advance tax) is also not allowable deduction. However the facts of the instant case before us are distinguishable as in the case before us the interest was paid for delayed payment of service tax TDS. The interest for the delay in making the payment of service tax TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on hand. The issue of delay in the payment of service tax is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e coordinate bench, we hold that the interest paid on delayed payment of TDS u/s 201(1A) is an allowable deduction. We direct accordingly. Assessee succeeds in its appeal. 16.2 Respectfully following the same we direct the Ld.AO to delete the disallowance made. Accordingly these grounds raised by the assessee stands allowed. 17. Ground no.8 is in respect of disallowance of interest paid to the NBFC under section 40(a)(i). 17.1 The Ld.AR submitted that though the assessee did not deduct taxes at source on the interest paid to NBFCs, it is submitted that where the payee has paid the taxes directly, no disallowance under section 40(a) would be warranted. Reliance is placed on CIT v. Sahara India Commercial Corpn. Ltd. Reported in [2017] 88 taxmann.com 719 (Allahabad) where it was held that where the payee had paid the taxes, the assessee could not be treated as an assessee in default under section 201 of the Act. 17.2 Based on the above we remand to the Ld.AO to verify if the payee has paid the taxes on the interest component paid by the assessee. If the submission is found to be correct, the disallowance is directed to be deleted. Accordingly this ground rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xiomatic that an amount payable towards interest, royalty, fee for technical services or other sums chargeable under this Act shall not be deducted while computing the income under the head profit and gain of business or profession on which tax is deductible at source; but such tax has not been deducted. The expression 'amount payable' which is otherwise an allowable deduction refers to the expenditure incurred for the purpose of business of the assessee and therefore, the said expenditure is a deductible claim. Thus, section 40 refers to the outgoing amount chargeable under this at and subject to TDS under Chapter XVII-B. The deduction under section 32 is not in respect of the amount paid or payable which is subjected to TDS; but is a statutory deduction on an asset which is otherwise eligible for deduction of depreciation. Section 40(a)(i) and (ia) of the Act provides for disallowance only in respect of expenditure, which is revenue in nature, therefore, the provision does not apply to a case of the assessee whose claim is for depreciation, which is not in the nature of expenditure but an allowance. The depreciation is not an outgoing expenditure and therefore, provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. 19.5 We are therefore remanding this issue back to the Ld.AO with a direction to consider the approval dated 18/09/2017, in accordance with law. Accordingly, this ground raised by the assessee stands allowed for statistical purposes. Accordingly, this ground raised by assessee stands allowed for AY 2010-11 2011-12. 20. Ground no.12-13 for AY 2010-11 is in respect of disallowance of interest on borrowed funds. 20.1 It is submitted that the AO's observation that there has been a diversion of loan funds for payment of advance tax is without any basis as he has not established the nexus between the loans received and the payment of advance tax. It is submitted that the borrowed funds were fully utilised for the purpose of the business of the assessee and therefore, no addition is warranted. 21. Ground no. 3-5 for AY 2011-12 in respect of disallowance under section 14 A. 21.1 It is submitted that the assessee had received dividend of Rs.82,410/- during the year. Applying Rule 8D(2)(iii), the Assessing Officer made a disallowance of Rs. 48,45,096/-. 21.2 We have perused the submissions advanced by both sides in the light of records placed before u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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