Tribunal allows assessee's appeals, overturns disallowed expenses

The Tribunal allowed the assessee's appeals, dismissing the Revenue's appeal. The disallowance of VAT write-off, earnest money deposit, material supply claims, repair expenditure, and employees' contribution to PF/ESI were overturned. The Tribunal considered the expenses as allowable business losses or revenue expenditures, following relevant legal precedents. The decision was pronounced on 20/07/2018.

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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 Rs. 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 Rs. 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 Rs. 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 Rs. 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 Rs. 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 Rs. 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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