2023 (1) TMI 1212 - AT - Income Tax

Tribunal Decision: Mixed Rulings on Depreciation & Expenses

Pr. CIT-9, Mumbai Versus M/s. ATC Telecom Infrastructure Pvt. Ltd. (Formerly known as M/s. Viom Network Ltd.) And M/s. ATC Telecom Infrastructure Pvt. Ltd. (Formerly known as M/s. Viom Network Ltd.) Versus DCIT-9 (1) (2), Mumbai

The Tribunal partly allowed both the assessee's and the revenue's appeals. It upheld the CIT(A)'s decision on the purchase cost depreciation and new ... Disallowance of depreciation on purchase of assets from its holding company - HELD THAT:- CIT(A) has recorded a finding that though the transfer of assets was between holding company and subsidiary company, the exemption provided u/s 47 was not availed by the transferor company and the transferor company has offered capital gains on such transfer - we notice that the fifth/sixth proviso as the case may be, relates to the case of apportionment of depreciation between the transferor-company and transferee company. We also agree with the analysis made and decision given by CIT(A) holding that the provisions of Explanation 4A, 3 and 6 of Sec.43(1) shall not be applicable to the facts of the present case. The provisions of sec. 43(6)(c)(i)(C) was related to the computation of WDV and it is not applicable, since the assessee has purchased the assets in the hands of seller. We are of the view that the Ld CIT(A) was justified in holding that the assessee is entitled to claim depreciation on the purchase cost. Disallowance of depreciation on the claim of site restoration cost - We are of the view that the depreciation on site restoration cost is not allowable as deduction. Accordingly, we are of the view that the Ld CIT(A) was not justified in allowing depreciation on site restoration cost. Accordingly, we reverse the order passed by Ld CIT(A) on this issue and restore the disallowance made by the AO on site restoration cost. Depreciation claim relates to the disallowance of depreciation on new assets for want of evidences - HELD THAT:- We notice that the AO had made the disallowance of depreciation on the new additions without discussing anything in the assessment order. Only in the remand report, the AO has stated that the assessee did not produce bills. The submission of the assessee before CIT(A) was that the number of towers installed by TTSL on its behalf during November, 2007 to Feb. 2008 was 6603 and the assessee has installed 879 new towers. It is submitted that the materials are purchased in bulk and kept in ware houses. The materials were issued to the construction sites as per the requisition. It is also submitted that the assessee keeps track of goods received and goods issued (GR-GI) for the entire addition of fixed assets and each invoice can be tracked to GR-GI. The assessee being a limited company, its accounts are audited and hence the purchase of materials could not be doubted with. As noticed earlier, the assessee contends that the receipt and issue of materials could be tracked by it in its computer systems. The number of new towers added by the assessee during the period from November, 2007 to March, 2008 was not disputed. Hence the new towers added would definitely have corresponding cost. CIT(A) has observed that the assessee could bring 100 binders before him. Accordingly, under these set of facts, we are of the view that there is no reason to suspect the addition of new towers worth Rs.223.41 crores. Accordingly, we are of the view that the assessee would be entitled for depreciation claimed on the above said amount. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of the same. TDS u/s 194C - Disallowance made u/s 40(a)(ia) of the Act - A.R contended that the supply of security personnal does not involve “carrying on of any work” including supply of labour for ‘carrying out any work’ - HELD THAT:- In the instant case, the security charges involve supply of manpower only and the same does not involve “carrying on of any work” within the meaning of the definition of the term “work” given in the Explanation III. Hence we are of the view that the provisions of sec.194C are not attracted for expenses claimed as “security charges”. Supply of manpower may not fall under the provisions of sec. 194J relating to “professional fees”. Accordingly, we set aside the order passed by CIT(A) on this issue and direct the AO to delete the additions made u/s 40(a)(ia) relating to security charges. The balance amount of addition excluding two items, viz., tower rents and security charges are related to Repairs and maintenance - P & M, Rent, Repairs and Maintenance, Legal & Professional Expenses, Interest and Others The assessee did not show as to how the provisions of tax deduction at source are not applicable to the above said remaining amounts. Accordingly, we confirm the disallowance made u/s 40(a)(ia) of the Act in respect of above said items. Issues Involved:1. Disallowance of depreciation on the difference between purchase cost and WDV of the holding company.2. Disallowance of depreciation on new additions for want of evidence.3. Disallowance of depreciation on site restoration cost.4. Disallowance made under Section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source.Issue-wise Detailed Analysis:1. Disallowance of Depreciation on the Difference Between Purchase Cost and WDV of the Holding Company:The assessee claimed depreciation on assets worth Rs. 846.19 crores acquired under a Business Transfer Agreement (BTA). The AO restricted the depreciation claim to Rs. 816.93 crores, citing Section 43(6)(c)(i)(C) of the Act. The CIT(A) found that Explanation 4A to Section 43(1) invoked by the AO was not applicable as it relates to sale and leaseback transactions. The CIT(A) also noted that Explanation 6 to Section 43, which pertains to transfers between holding and subsidiary companies, was not applicable since the transferor company declared capital gains under Section 50B. The CIT(A) allowed depreciation on the entire purchase cost of Rs. 846.19 crores, a decision upheld by the Tribunal, agreeing that the provisions cited by the AO were not applicable.2. Disallowance of Depreciation on New Additions for Want of Evidence:The AO disallowed depreciation on new assets worth Rs. 223.41 crores due to insufficient evidence. The assessee provided invoices for Rs. 24.19 crores and 100 binders containing invoices, arguing that materials were purchased in bulk and tracked through their system. The CIT(A) disallowed depreciation on the entire amount due to insufficient evidence. The Tribunal, however, found no reason to doubt the addition of new towers worth Rs. 223.41 crores, given the audited accounts and the tracking system, and directed the AO to delete the disallowance.3. Disallowance of Depreciation on Site Restoration Cost:The AO disallowed depreciation on site restoration cost, viewing it as a notional expenditure. The CIT(A) allowed the claim, referencing an earlier decision that such costs are not contingent liabilities. The Tribunal reversed this decision, noting that site restoration costs are not incurred before the asset is ready for use and cannot be included in the asset's cost under AS 10 and Explanation 8 to Section 43(1). The Tribunal held that such costs should be deductible in the year they are incurred, not on an estimated basis.4. Disallowance Made Under Section 40(a)(ia) for Non-Deduction of Tax at Source:The AO disallowed Rs. 36.03 crores for non-deduction of tax at source. The CIT(A) granted relief for Rs. 20.08 crores, finding that each payment was below the threshold for TDS under Section 194I. The Tribunal upheld this relief. The CIT(A) confirmed disallowance for Rs. 15.10 crores, including security expenses, repairs, and other expenses. The Tribunal found that security expenses did not involve 'carrying on of any work' under Section 194C and directed the AO to delete the related disallowance. However, the Tribunal confirmed the disallowance for other expenses, as the assessee did not demonstrate why TDS provisions were not applicable.Conclusion:Both the assessee's and the revenue's appeals were partly allowed. The Tribunal upheld the CIT(A)'s decision on the purchase cost depreciation and new additions but reversed the decision on site restoration cost depreciation. The Tribunal also provided relief on security expenses under Section 40(a)(ia) but confirmed disallowance for other expenses.