2022 (2) TMI 764 - AT - Income Tax

Tribunal Upholds Deductions, Disallowances in Tax Appeal Decision

The A.C.I.T., Circle 20 (2) New Delhi Versus QNS Facility Management Pvt. Ltd.

The Tribunal dismissed the Revenue's appeal challenging the disallowance of maintenance charges for sinking funds and the amount transferred to the asset ... Disallowance amount transferred to asset replacement account from the maintenance fees & charges - assessee is not the owner of the property and plant/equipments installed in the complex and it adopted this method to avoid being taxed on the amount by way of a colourable device - Whether total maintenance charges received by the appellant irrespective of its nomenclature constitutes revenue receipts and appropriation out of the same for so called sinking funds cannot be allowed as deduction? - HELD THAT:- The assessee company is a part of the Unitech Group. It would be pertinent to refer to the judgment in the case of Bhupinder Singh Vs. Unitech Ltd.[2020 (1) TMI 1185 - SUPREME COURT] wherein the Hon'ble Supreme Court approved the proposal of the Ministry of Corporate Affairs, Government of India vide its order whereby the erstwhile management of Unitech was superseded and constitution of new management was approved. This appeal filed by the Revenue is dismissed. Issues:1. Disallowance of maintenance charges for sinking funds.2. Disallowance of amount transferred to asset replacement account.3. Disallowance made under section 14A r.w.r. 8D of the IT Act.4. Addition/disallowance on account of delayed EPF and ESIC payments.5. Permission to add, delete, or amend grounds of appeal.Analysis:Issue 1: Disallowance of Maintenance Charges for Sinking FundsThe Revenue contended that the maintenance charges, regardless of nomenclature, constitute revenue receipts, and any appropriation for sinking funds should not be allowed as a deduction. The CIT(A) deleted the disallowance of Rs. 6,00,01,073, which the Revenue challenged. The Tribunal noted the Revenue's argument but dismissed the appeal, stating that the maintenance charges were not to be disallowed for sinking funds.Issue 2: Disallowance of Amount Transferred to Asset Replacement AccountThe Revenue disputed the deletion of disallowance of Rs. 6,00,01,073, transferred to the asset replacement account, arguing that the assessee adopted this method to avoid taxation. The Tribunal observed that the assessee was not the owner of the property and plant/equipment in question. Despite the utilization of Rs. 1.06 crores out of the transferred amount, the appeal was dismissed, emphasizing that the method was not a colorable device.Issue 3: Disallowance under Section 14A r.w.r. 8D of the IT ActThe AO disallowed Rs. 9,15,842 under section 14A r.w.r. 8D, which the CIT(A) deleted. The Revenue contended that the CIT(A) erred in ignoring the mandatory provisions of section 14A r.w.r. 8D. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.Issue 4: Addition/Disallowance on Account of Delayed EPF and ESIC PaymentsThe AO made an addition/disallowance of Rs. 19,66,540 under sections 2(24)(X) and 36(1)(va) due to delayed EPF and ESIC payments. The CIT(A) deleted this addition, prompting the Revenue to appeal. The Tribunal noted the Revenue's argument but upheld the CIT(A)'s decision, emphasizing that the clarification issued by CBDT was not ignored.Issue 5: Permission to Amend Grounds of AppealThe appellant sought permission to add, delete, or amend any grounds of appeal. This request was not specifically addressed in the judgment but is typically considered by the tribunal based on procedural rules.In conclusion, the Tribunal dismissed the Revenue's appeal on various issues related to disallowances and additions, citing legal interpretations and factual considerations. The judgment highlighted the importance of adhering to tax laws and regulations while determining deductions and allowances.