2023 (2) TMI 253 - AT - Income Tax

Tribunal rules in favor of assessee, directing deletion of disputed expenses.

The Tribunal ruled in favor of the assessee on all contested grounds, directing the AO to delete the additions made on account of sponsorship expenses, ... Allowable business expenses - Addition on account of sponsorship expenses incurred by the assessee company - addition made as expenses were not wholly and exclusively incurred for the purpose of business - HELD THAT:- Mr. Harshvardhan Barech went abroad for study which was sponsored by the assesse as authorized by the board of directors in its meeting held on 26.07.2011 and also an agreement signed with that person for getting his commitment to serve the assessee company after he comes back from his study. We note that the person Shri Harshvardhan Barech has honoured the commitment by serving the company after coming back from US. We also note that in AY 2012-13 and 2015-16 the appeal of the assessee were allowed by the Ld. CIT(A) on the similar issue and revenue has not preferred any appeal challenging the said appellate and thus issue has attained finality as the department has not challenged the order before the higher authority. In our opinion, once the order has attained finality in the earlier and succeeding assessment years then the revenue has no locus standi to agitate on the same issue and on same facts. This is in line with the ratio laid down in the case of Radhasoami Satsang [1991 (11) TMI 2 - SUPREME COURT] wherein it has been held that where there is no change in facts and circumstances and revenue has accepted decision in one year , then the revenue cannot be allowed to agitate the same in the other years. Accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Consequently ground no. 1 is allowed. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- We observe that the Ld. CIT(A) has principally agreed that only those investments are required to be considered for making disallowance under Rule 8D(2)(iii) which yielded exempt income during the year. However due to non-availability of the details of those investments the disallowance was upheld by ld CIT(A). In our opinion the Ld. CIT(A) has given correct findings that only those investments are required to be taken into accounts for calculating disallowance under Rule 8D(2)(iii). Accordingly we restore this issue to the file of AO to calculate the disallowance only by taking those investments which yielded exempt income during the year. The case of the assessee finds support from the decision of REI Agro Ltd. [2013 (9) TMI 156 - ITAT KOLKATA] and the decision of Ashika Global Securities Ltd. [2018 (7) TMI 1425 - CALCUTTA HIGH COURT]. Accordingly the ground no. 2 raised by the assessee is allowed for statistical purposes. Addition of prior period expenses on repairs to building - HELD THAT:- We note that the assessee has incurred expenses in the preceding financial year under the head capital work-in-progress which was completed during the year. During the year the same were charged to repairs of building and claimed accordingly. The AO rejected the claim of the assesse by adding the same to the income of the assessee. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by holding the amount pertains to prior period and cannot be allowed. CIT(A) has affirmed the disallowance. However we find force the alternative plea raised before us that depreciation has to be allowed on the applicable rate of depreciation. Accordingly we have allowed the alternative plea of the assessee by directing the AO to allow the depreciation on this account by capitalizing the said amount under the head building. Accordingly ground no. 2 is allowed. TDS u/s 194C - repairs to building on which the assessee failed to deduct tax - HELD THAT:- Assessee has purchased building materials, the details whereof has been placed before us and is available in the PB. We find that the assessee has purchased materials only comprised bricks, stones,sand and grite etc. from Mehmood Hassan on which the provisions of TDS are not applicable as provided u/s 194C of the Act as this is just a purchase of material and not a contract for supply of materials. The case of the assessee finds support from the case of CIT vs. Deputy Chief Accounts officer, Markfed [2008 (2) TMI 260 - PUNJAB AND HARYANA HIGH COURT] wherein it has been held that if a manufacturer purchases material on its own and manufactures a product as per the requirement of a specific customers, it is a case of sale and not a contract for carrying out any work. In this case before us also the assessee has carried out repairs itself by purchasing material from outside. In the present case also the case is only for the purchase for materials and not a work contract. We are not in agreement with the conclusion drawn by the Ld. CIT(A). Accordingly we reverse the order of Ld. CIT(A) and direct the AO to delete the addition. Accordingly ground no. 4 is allowed. Issues Involved:1. Confirmation of addition of Rs. 22,22,358/- on account of sponsorship expenses.2. Confirmation of addition of Rs. 22,115/- under Rule 8D(2)(iii).3. Confirmation of addition of Rs. 5,29,472/- on account of prior period expenses on repairs to building.4. Confirmation of addition of Rs. 13,64,921/- on account of repairs to building due to failure to deduct tax at source under section 194C.Issue-wise Detailed Analysis:1. Confirmation of Addition of Rs. 22,22,358/- on Account of Sponsorship Expenses:The primary issue was whether the sponsorship expenses incurred by the assessee company for the education of Shri Harshvardhan Barech, the son of a director, were wholly and exclusively for the purpose of business. The AO disallowed the expenses, noting that Harshvardhan Barech was not an employee at the relevant time. The Ld. CIT(A) upheld this disallowance, referencing several judgments where similar expenses were not allowed. However, the Tribunal found that Harshvardhan Barech had honored his commitment to serve the company post-graduation, and similar expenses had been allowed in previous and subsequent years without challenge from the revenue. Citing the Supreme Court's decision in Radhasoami Satsang vs. CIT, the Tribunal held that the revenue could not agitate the same issue in different years when it had accepted the decision in other years. Thus, the Tribunal directed the AO to delete the addition, allowing the ground in favor of the assessee.2. Confirmation of Addition of Rs. 22,115/- under Rule 8D(2)(iii):The issue pertained to the disallowance under Rule 8D(2)(iii). The Ld. CIT(A) agreed that only investments yielding exempt income during the year should be considered for disallowance. However, due to the non-availability of details, the disallowance was upheld. The Tribunal restored the issue to the AO to calculate the disallowance based on investments that yielded exempt income, referencing decisions in REI Agro Ltd. and CIT vs. Ashika Global Securities Ltd. Thus, this ground was allowed for statistical purposes.3. Confirmation of Addition of Rs. 5,29,472/- on Account of Prior Period Expenses on Repairs to Building:The assessee claimed expenses incurred in the preceding financial year under capital work-in-progress, which were charged to repairs of the building during the year. The AO and Ld. CIT(A) disallowed the claim, treating it as prior period expenses. However, the Tribunal accepted the alternative plea for depreciation on the capitalized amount under the building head. Thus, the Tribunal directed the AO to allow depreciation, allowing this ground.4. Confirmation of Addition of Rs. 13,64,921/- on Account of Repairs to Building Due to Failure to Deduct Tax at Source under Section 194C:The AO disallowed expenses for purchasing building materials from Mehmood Hassan, treating it as a contract requiring TDS under section 194C. The Ld. CIT(A) affirmed this view. However, the Tribunal found that the purchases were of materials (bricks, stones, sand, etc.) and not a contract for work. Citing decisions in CIT vs. Deputy Chief Accounts Officer, Markfed and M/s Nipra Exports Pvt. Ltd. vs. ITO, the Tribunal concluded that TDS provisions under section 194C were not applicable. Thus, the Tribunal reversed the Ld. CIT(A)'s order and directed the AO to delete the addition, allowing this ground.Conclusion:The Tribunal allowed both appeals for statistical purposes, providing relief to the assessee on all contested grounds. The order was pronounced on 17th January 2023.