2012 (9) TMI 284 - AT - Income Tax

Tribunal rules in favor of mining company on wagon facilitation charges assessment dispute.

Bonai Industrial Co. Ltd. Versus Deputy Commissioner of Income-tax. Circle1(1). Sambalpur

The tribunal ruled in favor of the appellant, a mining and processing company, in an assessment dispute involving payments for wagon facilitation charges. ... Non-deduction of TDS on Wagon Facilitation Charges - TDS u/s 194I - Held that:- The assessee had entered into an agreement with Indian Railways to invest under Wagon Investment Scheme as public private partnership no lease charge payable against wagons investment in Railways and the assessee is only getting priority in allotment of rakes. Therefore, the investment in wagon Investment Scheme is only to acquire an entitlement and the assessee and other users are paying the usual freight to railways - as decided in Vodafone Essar Ltd. Versus DCIT [2010 (12) TMI 842 - ITAT, MUMBAI] Government owned machinery available for utilization cannot be at any point of time be considered as owned by the user thereof when the depletion in the license right has been held as claimed for depreciation during the license period - AO was therefore misdirected to hold that the arrangement was an arrangement as considered under the provisions of Section 194-I insofar as at no point of time the license to use the wagons could be considered for the peaceful enjoyment of the landlord being the assessee - in favour of assessee. Disallowance u/s. 43B - Outstanding entry tax payable - Held that:- Favor in the contention of the assessee to the extent that the amount which has not been claimed as deduction cannot be disallowed u/s.43B because it pertains to a liability created being a tax, cess or duty already subjected to tax. Therefore, the said disallowance is also directed to be deleted - in favour of assessee. Issues:1. Arbitrariness in assessment and wrongful application of law.2. Disallowance under section 40(a)(ia) for wagon facilitation charges.3. Disallowance of outstanding entry tax payable.Issue 1: Arbitrariness in assessment and wrongful application of lawThe appellant, engaged in mining and processing of iron ore, faced scrutiny assessment due to payments made to certain companies without TDS deduction under section 194-I. The Assessing Officer disallowed the payments under section 40(a)(ia) as hiring charges for railway rakes. The CIT(A) upheld the disallowance, considering the payments as part of an arrangement for deduction of tax at source. The appellant argued that the payments were for wagon facilitation charges, not hire charges for wagons, under a Public-Private Partnership scheme with Indian Railways. The tribunal found the payments not subject to deduction under section 194-I, as they were part of the scheme and not for hiring services. The disallowance under section 40(a)(ia) was directed to be deleted.Issue 2: Disallowance under section 40(a)(ia) for wagon facilitation chargesThe appellant contended that the wagon facilitation charges were not hire charges but business expenditure to acquire entitlement for wagon allotment. The tribunal analyzed the scheme with Indian Railways, clarifying that the appellant's investment entitled priority allotment of wagons without lease charges. The tribunal held that the payments were not hire charges for wagon use but part of the investment scheme, thus not liable for TDS deduction under section 194-I. The disallowance under section 40(a)(ia) for wagon facilitation charges was deleted.Issue 3: Disallowance of outstanding entry tax payableThe Assessing Officer disallowed outstanding entry tax payable under section 43B, considering it as a liability in the books. The CIT(A) confirmed the disallowance, requiring evidence of payment. The appellant argued that the tax was not claimed as an expense and was already reflected in the income. The tribunal agreed that if a liability is not claimed as an expenditure, it cannot be disallowed under section 43B. The disallowance of outstanding entry tax payable was directed to be deleted.In conclusion, the tribunal allowed the appeal of the assessee, ruling in favor of the appellant on all issues raised in the appeal.