TaxTMI 
TaxTMI 
2016 (9) TMI 1560
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....70,00,000/- and Repairs & Maintenance charge of Rs. 60,00,000/- made u/s.37(1) of the Act. 3). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs. 8,69,623/- made on account of legal and professional expenses u/s.40(a)(ia) of the Act." Ground No. 1 2. The assessee-company is engaged in the business of providing dredger and other infrastructural facilities. The return of income was filed on 30/09/2009 declaring total income of Rs. 1,31,95,545/-. During the course of assessment proceedings, the Assessing Officer noticed that the assesssee had not deducted TDS on the following payments:- (i) Payments made to Sanghi Industries Ltd. Rs. 26862500 (ii) Payments made to Sanghi Industries Ltd. Rs. 1763500 3. The Assessing Officer asked the assessee to furnish justification on non-deduction of TDS on above payments of plant and machinery & hire charges. The asseseee replied as under:- "Deduction of TDS has been done on prescribed rate and no deduction has been made in cases where the expenses have been reimbursed to parties for diesel, traveling/conveyance etc." 4.....
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....eby authorise Mr Biren Modi on behalf of SIL and Mr Anil Agrawal on behalf of SIPL to conclude the MOU and sign on behalf of the companies. For, Sanghi Industries Ltd. For, Sanghi Infrastructure Ltd Authorized Signatory Authorized Signatory" 5. The Assessing Officer has not accepted the submission of the assessee on the reasoning that the reply given by the assessee is nothing but an afterthought with intention to cover the default of TDS committed by the assessee by way of creating a MOU. 6. Aggrieved against the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A). 7. The Ld. Commissioner of Income Tax(A) has deleted the addition made by the Assessing Officer stating that there is no default of the provision of section 40(a)(ia) and restricted the disallowance to Rs. 65,000/-. The decision of the Ld. CIT(A) is reproduced as under:- "3.3 I have carefully perused the assessment order and the submission filed by the Id.AR of the appellant. The facts show that the appellant had made payment of Rs. 2,86,26,000/- to M/s. Sanghi Industries Limited. The A. O. has disallowed the expenditure claimed by the appellant o....
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....income was in the payment which was made by SIL to SREI and not the payment which was made by the appellant to SIL. The provisions of section 4(2) also state that in respect of an income chargeable under section 4(1), the income tax shall be deducted at source. This provision imply that if the person to whom the payment is being made and the person is earning income from that payment, the tax is to be deducted. In the present case, the provisions of section 4(2) were applicable on the payment which was made by SIL to SREI. The payment position mentioned above also clearly show that the payment made by the appellant was in the nature of reimbursement of actual expenditure and there was no profit embedded in the bills. The observations of the A. O. that the MOU between the appellant and SIL' is an afterthought is not correct according to the facts. The above table shows-that the appellant has immediately reimbursed the payment to SIL as soon as if was paid to SREI. The dates of payment clearly belie the theory of afterthought propounded by the A. O. Further, the observations regarding no payment from November, 2008 to January, 2009 is als....
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....s Ltd to Sanghi Infra Ltd towards lease rent and the similar amount recovered by the SIL from the assesse as reimbursement of expenditures. The SIL had made the payment on account of plant and machinery, hire charges after deduction of TDS under the provisions of section 194I of the Act and the reimbursement of these payments by the assessee to the SIL has no income element. 10. After hearing both the sides and perusal of material on record, we find that in view of above stated facts and findings, the assessee has not committed any default under the provisions of sec. 40(a)(ia) of the Act, therefore, we uphold the order of the Ld. Commissioner of Income Tax(A) and ground of appeal of the Revenue is rejected. Ground No. 2 11. During the course of assessment proceeding, the Assessing Officer noticed that the assessee had shown provisions for expenses at Rs. 70,00000/- under the head 'operation and maintenance charges' on which no TDS was deducted. The Assessing Officer asked the asssessee to furnish details of provisions of Rs. 70,00000/- and evidences for non-deduction of tax in respect of all such payments covered in the provisions as no TDS was deducted by the assessee. T....
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....e year and the expenses were payable during the year under consideration. But since the bills were not received in time, the provisions have been made. The liability has been fulfilled in the succeeding year and there was a minor difference as compared to provision and the actual payment. After consideration of all facts, it is noted that the appellant had incurred certain expenses but the bills in respect of those expenses were not received during the year. The expenses were in the nature of operation and maintenance .charges and for repairs-of machineries. The bills were received by the appellant In the next Financial Year and, therefore, the expenses could not be claimed on actual basis. Since the appellant had a fair idea about the quantum of the expenditure, which was pertaining to the current Financial Year as the bills were received before finalization of the accounts, the appellant made a provision for those expenses. The provisions were, therefore, not without any basis of an estimate but were made on the basis of actual estimation of the liability. The expenditure had already been incurred but the exact quantification was not known before the end of the Financial....
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.... Maintenance of CSD Ashoka Dredger (Hydraulic Pump for CSD Ashoka Dredger) 185000 03/04/2009 Sangir Plastics Pvt. Ltd. Repairs and Maintenance of CSD Ashoka Dredger (HOPE Floaters for CSD Ashoka Dredger) 695719 04/04/2009 Engltech Industries BWAPS7053J Repairs and Maintenance of CSD Ashoka Dredger 13750Q 3116 27/05/2009 01/05/2009 New Sharma Engineering Works AMTPM9003C Repairs and Maintenance of CSD Ashoka Dredger 29000 657 08/06/2009 01/05/2009 Electronics Marine APPPR2282D Repairs and Maintenance of Pertius II Dredger 22500 510 08/06/2009 08/05/2009 Engitech Ltd. BWAPS7053J Repairs and Maintenance of CSD Ashoka Dredger 262000 5937 08/06/2009 08/05/2009 Kuldeep Enterprises Repairs and Maintenance of CSD Ashoka Dredger (Pur of repair items for Ashok Dredger) 281074 09/05/2009 Ras Tak Private Limited AABCR6988G Repairs and Maintenance of CSD Ashoka Dredger 358475 22483 08/0.6/2009 09/05/2009 Ras Tak Private Limited AABCR6988G Repai....
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....rther, since the appellant is following mercantile system of accounting, the expenditure for the income which has been shown in a particular year has to be accounted for in the same year by following the matching concept. Without this, true profit of- the appellant cannot be ascertained. The appellant has demonstrated that the liability has definitely arisen in the accounting year. The deduction is, therefore, to be allowed even if the liability might not have been quantified. The discharge of liability at subsequent date is not a bar in claiming the deduction in the next year. The appellant has rightly estimated the liability and made the provision. It is also important to note that in case the appellant did-not make the provision for the expenditure for which the bills were not received, the expenditure would have become prior period expenses and accordingly it would not have been permissible as deduction in the subsequent year. The appellant has maintained the books of accounts on mercantile basis and has-shown the income and expenses on accrual basis and accordingly the provisions made by the appellant which are clearly on the basis of properly ascertaining the liability is to ....
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....e account of concerned parties. Ground No.3 18. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had made payment of Rs. 869623/- for legal and progressional expenses to Sanghi Industries Limited without deduction of tax. The assessee claimed before the Assessing Officer that these payments were made towards reimbursement of expenses and TDS was not deductable. The Assessing Officer has not accepted the explanation of the assessee and added this payment to the total income of the assessee under the provisions of section 40(a)(ia) of the Act. The assessee filed appeal before the Ld. Commissioner of Income Tax(A) against the above addition made by the Assessing Officer. The Ld. Commissioner of Income Tax(A) has deleted this addition on the reasoning that the nature of these payments is reimbursement of expenses to which TDS provisions are not applicable. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:- "6.3 I have carefully perused the assessment order and the submission filed by the Id.AR of the appellant. The Assessing Officer has held that TDS has not been deducted on the payment and after app....
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.... 12/18/2008 Being legal fees and taxes of Pertuis II Dredger paid by SIL to OMCS -31 09.45 USD 148857.00 Not Applicable Legal taxes paid to Panama Country and TDS not applicable u/d. 195 1/30/2009 Being Legal fees and taxes of Pertuis II Dredger paid to OMCS - USD 2400 - paid by SIL and debited to SIPL 1 1 7696.00 Not Applicable Legal taxes paid to Panama Country and TDS not applicable u/d 195 869622.50 The above chart clearly show the nature of payment and the applicability of TDS provisions on the payments made by SIL. It is noted that wherever the provisions of TDS were applicable, the same have duly been deducted. There are certain payments which have been made to the government department and outside India on which the provisions of TDS are not applicable. Accordingly, the disallowance of Rs. 8,69,662.50 made by the appellant on account of reimbursement of payment to SIL was not justified. As discussed while deciding the second ground of appeal, as there is no income element involved, in this payment which is in the nature of reimbursement, the prov....
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....sessing Officer u/s.36(1)(iii) of the I.T. Act, directing the Assessing Officer to restrict the disallowance for a period of only one day taking note of the fact that the transfer entry was passed on the last day of the accounting year." 21. We have gone through the orders of the lower authorities to decide the cross objections filed by the assessee. Ground No. 1. 22. During the course of appellate proceedings before us, the Ld. counsel stated that the ground number one of the cross objection is not pressed. Ground No. 2. 23. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited a sum of Rs. 39124266/- in the P & L account under the head "Operation and Maintenance charges. The Assessing Officer noticed from the details of TDS deduction filed by the assessee that the TDS had not been deducted on the following payments:- (i) Payments made to Sanghi Industries Ltd. Rs. 2,18,160/- (ii) Payments to ITD Cementation India Ltd. Rs. 11,75,365/- (iii) Payment to Anand-ITD Cementation India Ltd. Rs. 37,750/- The assessee stated that it was reimbursement of expenses. The Assessing Office....
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....the paper book submitted by him. On the other hand, Ld. D.R. relied on the order of the lower authorities. 25. We have heard both the sides and perused the material on record. In this connection, we have noticed from the relevant pages of the paper book that assessee had made general entries in its books that payments were made by these parties on behalf of the assessee. But we have observed that assessee has not produced supporting documents and evidences of the other parties with detail of services availed by the assessee, or any material purchased by the assesssee for which these three parties have made payment on behalf of the assessee. Even in the paper book, the claim of the asssessee is not supported with proper evidences from these three parties that they have made payment on behalf of the assessee to the third parties. In view of above stated facts and circumstances, we justify the findings of the Ld. Commissioner of Income Tax(A) that the copies of the ledger provided do not clearly show that nature of payment and the fact that whether any profit element was there in the so-called reimbursement. We, therefore, dismiss this ground of cross objection filed by the assesse....
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....ment proceedings, the Assessing Officer noticed that the assessee had paid interest to the tune of Rs. 6,82,15,176/-. In this connection, Assessing Officer asked the assessee to furnish the details of interest charged on advances given by the assessee to the tune of Rs. 1,70,24,504/-. The Assessing Officer stated that the assessee had not furnished any clear reply ,however, replied that there has been transfer of balance from Sanghi Cement Ltd. and Sanghi Energy Ltd to the assesse company and no actual transfer of balance has taken place from bank/cash book. The Assessing Officer has not accepted the reply of the assessee for want of purpose of advances, contra confirmation of advances, business justification, date from which the advances were given. The Assessing Officer stated that the assessee could not prove nexus between interest free fund availaable and loans and advances given by it. After placing reliance on various judicial pronouncements, the Assessing Officer worked interest @ 12% and added a sum of Rs. 2042840/- u/s. 36(1)(iii) of the Act to the total income of the assessee. 30. The assessee filed appeal before the Ld. Commissioner of Income Tax(A) against the decisi....