2021 (11) TMI 92 - AT - Income Tax

Tribunal Rules in Favor of Assessee on Tax and Expense Issues for Multiple Assessment Years

The Tribunal partly allowed the assessee's appeals for AY 2010-11 and AY 2011-12, while the revenue's appeal for AY 2011-12 was allowed. For AY 2012-13, ... Additions as interest income - Taxability of compensation received by the assessee company from Boeing Co.- aerospace project with Boeing Co.suspended - Capital gain or income from other sources - plea of the assessee that the compensation received would be capital receipt not chargeable to tax was rejected by the ld AO on the ground that the compensation received is akin to interest loss borne by the assessee for the delay in execution of the project by the Boeing Co. and accordingly the ld AO held that the said interest would be liable to be taxed separately under the head ‘income from other sources’ - whether the assessee was justified in claiming the expenses pertaining to Boeing project as revenue expenditure when the aerospace project had been suspended at the behest of Boeing Co.? - HELD THAT:- We find that the compensation so received by the assessee company from Boeing Co. would only go to reduce the cost of project as it is effectively meant to cover up for the expenses and investments incurred by the assessee for the said project. Hence we hold that the receipt of compensation would be capital in nature and would go to reduce the cost of project. As the business of assessee was set up and had started and there was huge investment made by assessee and the project was only temporarily suspended by the Boeing Co - Here what is received by the assessee is part of overall cost of project in the form of compensation from Boeing Co. which cannot be treated as interest. Accordingly, we hold that the compensation received in the sum would go to reduce the cost of aerospace project of the assessee company. Hence the Ground raised by the assessee disposed of. Claim of revenue expenditure - We find that the ld AO had given a categorical finding which remain uncontroverted by the ld AR before us, that the business in Boeing Project started from 10/09/2012 falling in Asst Year 2013-14 onwards. Hence all the expenditure and receipts upto 09/09/2012 pertaining to the project would have to be treated as capital in nature. Accordingly, we hold that the receipt of compensation should go to reduce the cost of project i.e Capital Work in Progress of the assessee company. Similarly all expenditure incurred by the assessee which was claimed as revenue expenditure by assessee should also be capitalized to the Capital Work in Progress. This treatment, in our considered opinion, would meet the ends of justice to both assessee as well as for the revenue. Disallowance of expenses incurred on account of repairs to buildings - HELD THAT:- These expenses were incurred by Tata Motors Ltd on behalf of assessee and were later on billed to the assessee. We also find that similar disallowance made by the lower authorities in assessee’s own case for the Asst Year 2009-10 had been deleted by this Tribunal [2017 (12) TMI 1817 - ITAT MUMBAI] by placing reliance on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs HEDE Consultancy Ltd. [2002 (6) TMI 19 - BOMBAY HIGH COURT] In view of the aforesaid observations and also by placing reliance on the judicial precedent relied upon hereinabove, we direct the ld AO to delete the disallowance made towards repairs to buildings. Disallowance of commission paid - HELD THAT:- We find that the assessee had given an explanation that it had entered into agreement with those parties and commission is paid only if such agent solicits business for the assessee. The assessee also pointed out that due deduction of tax at source was made in accordance with provisions of Chapter XVIIB of the Act while making payment of such commission and payment made through regular banking channels. We find that the ld AO had merely followed his finding in Asst Year 2009-10 and made the disallowance for this year also in respect of the aforesaid two parties. No examination in any manner known to law was made by him for the year under consideration. - As decided in own case [2017 (12) TMI 1817 - ITAT MUMBAI].after considering the details furnished by assessee like copies of agreements, invoice copies, relevant extract of bank statements, TDS certificates, etc, the same issue was decided in favour of the assessee and against the revenue by holding that merely non furnishing of information by the third party cannot be sole criteria for disallowance, when it is provided that expenses per se had been incurred in the normal course of business. Chargeability of interest u/s 234C - HELD THAT:- Interest u/s 234C of the Act could be levied only on the returned income and not on the assessed income - See Smt Premlata Jalani [2003 (7) TMI 62 - RAJASTHAN HIGH COURT] Decided in favour of assessee. Issues Involved:1. Taxability of compensation received from Boeing Co.2. Treatment of expenses related to the Boeing project.3. Disallowance of expenses incurred on account of repairs to buildings.4. Disallowance of commission paid.5. Chargeability of interest under section 234B of the Income Tax Act.6. Chargeability of interest under section 234C of the Income Tax Act.Detailed Analysis:1. Taxability of Compensation Received from Boeing Co.:The primary issue was whether the compensation of Rs. 16,32,39,485 received from Boeing Co. should be taxed. The assessee argued that this compensation, received due to the suspension of the aerospace project by Boeing Co., was a capital receipt and should reduce the cost of the project. The Tribunal agreed, noting that the compensation was meant to cover expenses and investments incurred by the assessee, and thus, it should be treated as a capital receipt. The Tribunal rejected the AO's view that the compensation was akin to interest and should be taxed under 'income from other sources', distinguishing the case from the Tuticorin Alkali Chemicals case.2. Treatment of Expenses Related to the Boeing Project:The assessee claimed Rs. 3,75,34,846 as revenue expenditure, arguing these were routine business expenses. The AO disallowed this, stating the project had not commenced and the expenses should be capitalized. The Tribunal held that both the compensation received and the expenses incurred should be capitalized and included as part of the work in progress, as the business was set up but temporarily suspended due to Boeing Co.'s delays.3. Disallowance of Expenses Incurred on Account of Repairs to Buildings:The assessee incurred Rs. 17,76,404 on repairs to a rented premises and claimed it as a deduction under section 30 of the Act. The AO disallowed Rs. 47,45,546, mistakenly taking a higher figure. The Tribunal found the repairs were routine maintenance and should be allowed as a deduction, directing the AO to delete the disallowance.4. Disallowance of Commission Paid:The assessee incurred Rs. 43,33,367 as commission to increase sales, providing details and agreements for the payments. The AO disallowed Rs. 7,45,031 paid to two parties, following a similar disallowance in the previous year. The Tribunal found that the assessee had provided sufficient evidence of the commission payments and allowed the deduction, noting that non-furnishing of information by third parties could not be the sole criterion for disallowance.5. Chargeability of Interest under Section 234B:The Tribunal noted that the issue of interest under section 234B is consequential and did not require specific adjudication.6. Chargeability of Interest under Section 234C:The Tribunal held that interest under section 234C should be levied only on the returned income, not on the assessed income, citing the decision of the Rajasthan High Court in CIT vs Smt. Premlata Jalani.Summary of Outcomes:- Assessee's appeal for AY 2010-11 (ITA No. 3632/Mum/2014) was partly allowed.- Assessee's appeal for AY 2011-12 (ITA No. 941/Mum/2016) was partly allowed.- Revenue's appeal for AY 2011-12 (ITA No. 1411/Mum/2016) was allowed.- Assessee's appeal for AY 2012-13 (ITA No. 942/Mum/2016) was partly allowed.- Revenue's appeal for AY 2012-13 (ITA No. 1412/Mum/2016) was allowed.