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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SMT. BEENA PILLAI & MS PADMAVATHY S
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeals are filed by assessee against separate orders dated 22/02/2018 for A.Ys. 2013-14 and 2014-15 on following grounds of appeal: Assessment Year 2013-14:
1. On the facts, the learned CIT (A) erred in passing the order in the manner he did.
Page 2 of 7 & 2367/Bang/2018 2. The learned CIT (A) erred in confirming the disallowance as made by the AO of Rs.9,77,976/- by applying the provisions of Section 40(a)(ia) of the Act.
3. The learned CIT (A) ought to have accepted the explanation offered by the Appellant and refrained from confirming the disallowance of Rs.9,77,976/- as made by the AO.
The learned CIT (A) ought to have appreciated that the provisions of Section 40(a)(ia) had no application to the payments made by the Appellant to KARNIK as there being no obligation to deduct tax at source on the payments made.
5. The learned CIT (A) ought to have appreciated that the payments were only by way of reimbursement and no payments had been made by the Appellant to the service provider to justify to cast the obligation upon the Appellant for the tax deducted at source.
6. The learned CIT (A) ought to have considered the payments made towards labour cess and third party payments of royalty and VAT and consequently sustaining the disallowance to the extent of Rs.91,10,923/- as made by the AO was opposed to law and liable to be deleted.
7. The learned CIT (A) ought to have refrained from confirming the disallowance of the expenses incurred for renovation to the extent of Rs.35,39,935/- as the expenses incurred by the Appellant were in the course of business and for the purpose of the Appellant's business activity.
8. The learned CIT (A) ought to have appreciated that the payments are required to be allowed under Section 37 of the Act.
The learned CIT (A) erred in not considering the amount expended towards "Entry Tax" to the tune of Rs.2,26,727/- which was spent on purchasing machinery from an external State and the same was not included in the cost of the project and instead was debited in the Profit & Loss Account by the Appellant.
Without prejudice, the disallowances as confirmed by the learned CIT (A) are excessive, arbitrary and unreasonable and ought to be reduced substantially.
The learned CIT (A) erred in confirming the levy of interest under Sections 234A, 234B 86 234C of the Act.
For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.” Assessment Year 2014-15: “1. On the facts, the learned CIT (A) erred in passing the order in the manner he did.
Page 3 of 7 & 2367/Bang/2018 2. On the facts, the learned CIT (A) ought to have appreciated that the claim of expenditure incurred towards VAT payable and labour cess were actually incurred by the Appellant and therefore the learned CIT (A) ought not to have confirmed the additions as made by the AO by relying on Section 43B of the Act.
3. The learned CIT (A) ought to have appreciated that the conditions contained in Section 43B of the Act were not applicable on the facts of the case of the Appellant and therefore the additions as confirmed by the learned CIT (A) to the extent of Rs.65,61,743/- is opposed to law and thus the addition is liable to be deleted.
4. The learned CIT (A) erred in confirming the disallowance as made by the AO under Section 40(a)(ia) of the Act which is against the principles of natural justice and liable to be deleted.
5. The learned CIT (A) erred in confirming the addition of Rs.6,27,000/- which was the payment made by the Appellant towards technical sanction fees and legal charges for which TDS is not required to be deducted and thus the addition as confirmed by the learned CIT (A) is incorrect, opposed to law and liable to be deleted.
Without prejudice, the disallowances as confirmed by the learned CIT (A) are excessive, arbitrary and unreasonable and ought to be reduced substantially.
The learned CIT (A) erred in confirming the levy of interest under Sections 234A, 234B & 234C of the Act.
For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.”
Both sides submitted that the facts leading to additions in the above appeals are identical and similar in both the years under consideration. 2.1 The Ld.AR at the outset summarised the common issues that are raised in the present appeals as under: 1) Disallowance u/s. 43B and disallowance u/s. 40(a)(ia) (common for both the years under consideration) and 2) Disallowance u/s. 37(1) is made by the Ld.AO for AY 2013-14 only. We therefore refer to the facts in AY 2013-14 for sake of convenience as under:
Page 4 of 7 & 2367/Bang/2018 2.2 The assessee is an organization promoted by the State Government of Karnataka registered under Karnataka Societies Registration Act, 1960, The assessee is carrying on Civil as Other Contract works pertaining to the State Government. The work assigned to it is by another limb of the State Government, namely Karnataka Rajya Nirmana Kendra (KARNIK), who in turn is paying the consultancy charges to various engineers for technical assistance. The assessee was reimbursing the expenditure to the tune of Rs.9,77,976/- and claimed deduction. 2.3 The Ld.AO held that the assessee having not deduct tax at source on the payments made to KARNIK, the same was not liable to be allowed u/s.40(a)(ia) of the Act, however the assessee submitted that, it had no obligation to deduct tax at source on the reimbursement made to KARNIK. 2.4 The Ld.AO also disallowed Rs.91,10,923/- towards expenditure on labour cess and third party payment including royalty and VAT etc., and the assessee submitted that these expenditure were incurred by the assessee during the course of business, and for the business purposes only. 2.5 The Ld.AO further disallowed sum of Rs.35,39,935/- u/s. 37(1) of the Act which was allegedly incurred by the assessee towards Renovation to DC Home. The Ld.AO considered the expenditure as capital expenditure, as against revenue expenditure held by the assessee in its books.
Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT(A). It is submitted that assessee could not file details in support the claim and therefore the additions were upheld in the impugned order.
Page 5 of 7 & 2367/Bang/2018 4. Aggrieved by the order of Ld.CIT(A), assessee filed appeal before this Tribunal with a delay of 94 days. 4.1 An affidavit of assessee to the effect has been filed, wherein it is submitted that, the concerned authority incharge of the assessee was on medical leave and therefore a decision could not be taken to file the appeal immediately. It is submitted that, there was bonafide reason for the delay of 94 days in filing the appeal which may be condoned. 4.2 The Ld.AR also submitted that, there is no malafide intention on behalf of the assessee, in belatedly filing the present appeal before this Tribunal. In support, he placed reliance on the decision of Hon’ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji [1987] 167 ITR 471(SC). 4.3 On the contrary, the Ld.DR though vehemently opposed the condonation petition filed by the assessee, however could not establish any malafide intention of assessee. 4.4 We have perused the submissions advanced by both sides in the light of records placed before us. When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right for injustice being done because of non deliberate delay. We have to prefer substantial justice rather than technicality in deciding the issue. As observed by Hon’ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors.(supra), if the application of the assessee for condoning the delay is rejected, it would amount to legalise injustice on technical ground when the Tribunal is capable of removing injustice and to do justice.
Page 6 of 7 & 2367/Bang/2018 Respectfully following the above view, we condone the delay in filing the appeal before the Ld.CIT(A). 4.5 The Ld.AR further submitted that identical delay in filing the appeal for A.Y. 2014-15 may also be condoned. 4.6 Considering the facts and the reasoning of the assessee in the affidavit filed along with condonation petition, we are inclined to admit the present appeals to be heard on merits. Accordingly the condonation petition filed by the assessee for both the years under consideration stands allowed.
On merits, the Ld.AR filed application under Rule 29 for admission of additional evidence. It is submitted that, these documents could not be produced during the assessment proceedings nor could be filed before the Ld.CIT(A), since assessee was in the process of gathering these documents. It is submitted that, based on these evidences filed, the issue may be considered in accordance with law in the interest of justice. 5.1 The Ld.DR though did not support the admission of additional evidences, alternatively prayed that in the event the additional evidences are admitted, the same may be remanded for necessary verification. 5.2 We have considered the submissions of both sides and are of the view that the additional evidences filed by the assessee are to be considered for adjudicating the issue raised in these appeals as the issues alleged are admittedly identical for both the years under consideration. The assessee is directed to file the evidence in respect of the alleged issues before the Ld.AO. The assessee is directed to furnish the bills and documents establishing the renovation of the DC office wherein a disallowance was made Page 7 of 7 ITA Nos. 2366 & 2367/Bang/2018 u/s. 37(1) for A.Y. 2013-14 by the Ld.AO and necessary accounts, ledgers, and cash flow statements are to be produced which shall be verified by the Ld.AO in accordance with law. Needless to say that proper opportunity may be granted to the assessee in accordance with law. The Ld.AO is directed to carry out denovo assessment for both the years under consideration. Accordingly, all the grounds raised by assessee in both the years under consideration stands allowed for statistical purposes. In the result, the appeals filed by the assessee for both the years under consideration stands allowed for statistical purposes. Order pronounced in the open court on 28th October, 2022.