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Income Tax Appellate Tribunal, “ C ” BENCH, AHMEDABAD ds le{kA
Before: SHRI WASEEM AHMED & SHRI MAHAVIR PRASAD
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the assessee against the appellate order of the Commissioner of Income Tax(Appeals)-9, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- 9/463/14-15 dated 01/05/2015 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 06/11/2013 relevant to Assessment Year (AY) 2011-12.
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 2 - 2. The grounds of appeal raised by the assessee are as under:-
“Disallowance under section 36(1)(va) r.w.s. 43B & section 37 1. The learned CIT(A) erred on the facts and circumstances of the and in law in confirming the disallowance of Rs.26548/- without appreciating that actual payment of provident fund and ESIC was made before due date of filing of return of income under section 43B. 2. The learned CIT (A) erred on the facts and circumstances of the case and in law in not allowing actual payment of business expense for employees' contribution towards PF and ESIC of Rs.26548/- under section 37. Relief claimed The said payment towards PF and ESIC be allowed as normal business expense under section 37 or section 43B.
Disallowance under section 32 3. The learned CIT (A) erred on the facts and circumstances of the case and in law in confirming the disallowance of Rs.590440/- without appreciating facts that depreciation on rented machineries were used for assessee's business, also owned by it and income of rent shown under the head Income from Business and Profession.
Relief claimed Said amount towards depreciation on rented machinery owned and used by appellant and income from the same is offered for taxation under the head Income from Business and Profession, be allowed under section 32. Disallowance under section 40(a)(ia) read with section 194J 4. The learned CIT(A) erred on the facts and circumstances of the case and in law in confirming the disallowance of Rs.80000/- though appellant is not assessee in default according provisions
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 3 - of sub-section (1) of section 201 read with section 194J and section 40(a)(ia).
The learned CIT (A) erred on the facts and circumstances of the case and in law in confirming the disallowance of Rs.25000/- though amount paid for legal expense is below threshold limit as specified under section 194J and hence, tax is not required to be deducted by appellant.
Relief claimed Disallowance for both the amount i.e. Rs.80000/- and Rs.25000/- be deleted and be allowed as expense as claimed in original return of income.
Non-consideration of an argument by the ld. CIT (A) 6. The learned CIT (A) erred in law in not considering submission made for allowance of depreciation under section 32 as per ground of appeal numbers 3 above. The learned CIT (A) erred in law by not passing speaking order against contention made by the appellant. Relief claimed The said submission be considered and disallowance of depreciation of Rs.590440/- be deleted. 7. The learned CIT(A) erred in law in not considering submission made towards compliance with provision of section 40(a)(ia) r.w.s. 201(1) for disallowance of Rs.80000/- as per ground of appeal numbers 4 above. The learned CIT (A) erred in law by not passing speaking order for the same.
Relief claimed The said submission be considered and disallowance of Rs.80000/- be deleted.” 3. The first issue raised by assessee in ground no.1 and 2 is that Ld. CIT(A) erred in confirming the disallowance of Rs.26,548/- on account
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 4 - of payment for employees’ contribution towards PF and ESIC after the due date.
Briefly stated facts are that the assessee is a private limited company and engaged in the business of Architecture, Interior Decorator and Turnkey Contractor. The AO during the assessment proceedings observed that the assessee has deposited employees’ contribution towards PF and ESIC amounting to Rs.26,548/- after the due date as specified under the relevant Act. Therefore, the AO disallowed the same and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal to Ld. CIT(A) who has confirmed the order of AO by observing as under:
“3.2 I have carefully considered the rival submission. I have also perused the case laws relied upon by the Ld. A.R. It is seen that the provident fund received from employees were deposited in the provident fund account beyond the due dates as prescribed in the P.F. Act. Similarly, there has been delayed payment w.r.t. ESIC. After decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Gujarat State Road Transport Corporation reported in 265 CTR 64 (Guj.) the factual legal position has changed. In this case Hon'ble High Court of Gujarat held that the provisions of section 43B of the Income Tax Act, 1961 ('the Act') do not apply to "employees' contribution to ESI/PF" and the deduction in respect of the same is allowable only if such contribution is deposited within the 'due date' specified in Explanation to section 36(1)(va) of the Act. While ruling in favour of the Revenue, the High Court distinguished the Apex Court ruling in Alom Extrusions and other High Court decisions, at the same time dissented from the view adopted by High Courts, which ruled in favour of the taxpayer. The Hon'ble Gujarat High Court in the said decision has held that where the employer has not credited the sum received by it as employees' contribution to employees' account in relevant fund on or before due date as prescribed in Explanation to Section 36(1)(va), the assessee
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 5 - shall not be entitled to deduction of such amount though he deposits the said sum before the due date prescribed u/s.43B, i.e. prior to filing of return u/s.139(1) of the I.T. Act. Since in this case, the employees contribution towards EPF and ESIC was not deposited before due date as prescribed in Explanation to Section 36(1)(va) accordingly, disallowance of Rs.26,548/- is confirmed. This ground of appeal is dismissed.” Being aggrieved by the order of Ld. CIT(A), assessee is in second appeal before us.
The Ld. AR before us filed a paper book comprising Pages 1 to 40 and conceded the fact that the issue for late deposits of employees’ contribution towards PF and ESIC has been decided against the assessee by the jurisdictional High Court in the case of CIT vs. GSRTC reported in 265 CTR 64.
On the contrary, the Ld. DR vehemently supported the order of authorities below.
We have heard the rival contentions and perused the materials available on record. At the outset, it was observed that the issue for delayed deposits of employees’ contribution towards PF and ESIC has been decided against the assessee by the Hon’ble Jurisdictional High Court in the case of GSRTC (supra). The relevant extract of the order is reproduced below:
“In view of the above and considering section 36(1)(va), read with sub- clause (x) of clause (24) of section 2, it is to be held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies, the assessee shall be entitled to deduction in computing the income referred
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 6 - to in section 28 with respect to such sum credited by the assessee to the employees account in the relevant fund or funds on or before the 'due date' mentioned in Explanation to section 36(1)(va). Consequently, it is held that the Tribunal has erred in deleting respective disallowances being employees' contribution to PF Account/ESI Account made by the Assessing Officer as, as such, such sums were not credited by the respective assessee to the employees 'accounts in the relevant fund or funds on or before the due date as per the Explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.” Respectfully following the above judgment laid down by the Jurisdictional High Court, we find no infirmity in the order of Ld. CIT(A). Hence, the ground of appeal of the assessee is dismissed.
The second issue raised by the assessee in ground no.3 and 6 is that Ld. CIT(A) erred in confirming the disallowance of depreciation Rs.5,90,440/- on the ground that the machineries were not used by the assessee for the purpose of its business.
The assessee during the year has shown rental income under the head income from Business and Profession on account of renting out of the machineries. Accordingly, the assessee claimed depreciation in its books of accounts, on the value of the machineries rented out to third party. However, the AO was of the view that machineries rented out by the assessee were not actually used by the assessee itself. Therefore, the Assessee is not entitled for depreciation.
Similarly, the AO without prejudice to the above also opined that there is no evidence brought on record by the assessee suggesting that
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 7 - such machines have actually been used by the persons who have taken them on rent.
Thus, in view of above, the depreciation claimed by the assessee for Rs.5,90,440/- on such machineries was disallowed and added back to the total income of the assessee.
Aggrieved, assessee preferred an appeal to Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the provision of Section 32 of the Act requires that the asset must be owned either wholly or partly by it and the same should be used for the purpose of the business. Provision of Section 32 of the Act does not say that the asset must be used by the assessee itself, meaning thereby, it can be used by any other persons for the purpose of the business. The assessee has given machines on rental basis, which has been used for the purpose of the business by the other party. Thus, the provision of Section 32 have been duly complied with in the case on hand.
Even in the earlier year a rental income was offered to tax under the head business or profession and depreciation thereon was duly allowed to the assessee.
The objects mentioned in the memorandum of the association permits the assessee to rent out the machineries. Therefore, it can be inferred that the assessee has rented out the machineries for the purpose of its business.
However, the Ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under:
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 8 - “5.2 I have carefully considered the rival contentions. I am in agreement with the contention of the AO wrt the disallowance of Rs.5,90,440/- u/s.32 of the I. T. Act. The appellant has failed to produce evidence wrt usage of machinery given on the rent in connection with claim of depreciation by it. The rented machineries are owned by the assessee. However, they have not been utilized by the assessee. Further, the machineries have been given on rent. In this case, the assessee is engaged in the business of 'Architecture, interior Decorators and Turnkey Contractor' as per 3CD report. 'Giving machineries on rent' is not the business of the assessee. Thus, the condition prescribed in 32 regarding ‘use for the purposes of business or profession' is not fulfilled. Therefore, in my considered opinion the appellant is not entitled to claim depreciation section 32 on the machinery given on rent. Accordingly, the addition on account of disallowance of depreciation/s 32 is confirmed. This ground of appeal is dismissed.” Being aggrieved by the order of Ld. CIT(A) assessee is in second appeal before us.
The Ld. AR before us reiterated the submission as made before the Ld. CIT(A). On the contrary, the Ld. DR vehemently supported the order of authorities below.
We have heard the rival contention and perused the material available on record. The issue in the present case relates to the depreciation allowance claimed by the assessee on the machineries, which have been rented out by it. As per the lower authorities, the machineries have not been used by the assessee for the purpose of its business. Therefore, the depreciation claimed thereon cannot be allowed as deduction under the provision of Section 32 of the Act.
At this juncture, we find important and relevant produce the provision of Section 32 of the Act, which reads as under:
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 9 - “32. (1) 89 [In respect of depreciation of— (i) buildings 90 , machinery 90 , plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned 90 , wholly or partly, by the assessee 90 and used for the purposes of the business 90 or profession.” A reading the above provision reveals that the assessee must owned the asset either partly or wholly and the same should be used for the purpose of the business. It is nowhere mentioned that the asset must be used for the purpose of the business by the assessee itself. There is sufficient compliance of the provisions of Section 32 of the Act, if the assets are used by any other persons for the purpose of the business. In this regard, we find support and guidance on the judgment of Hon’ble Supreme Court in the case of ICDS Ltd. vs. CIT, reported in 350 ITR 527, wherein it was held as under:
“Therefore, in the facts of the present case, we hold that the lessor i.e. the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of Section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out.” From the above judgment, it is inferred that the use of capital asset by the assessee being owner is not mandatory. What is required under the provisions of Section 32 of the Act is that the asset must be used for the purpose of the business.
The AO in his order has also alleged that there is no evidence suggesting that the party who has taken machinery on rental basis has
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 10 - used the machine for the purpose of its business. In this regard, we observed that the assessee has discharged his onus by showing the rental income from the machineries in its income tax return. Therefore, the assessee is not answerable, whether the party who has taken the machines from the assessee has actually used for the purpose of their business.
Besides the above we also observe that the assessee has offered rental income from the machineries under the head business or provisions and the same has not been disputed by the lower authorities. Therefore, the assessee is entitled to claim depreciation corresponding to the rental income derived from the letting out of machineries u/s 32 as well as 57(iii) of the Act. In view of above, we hold that the assessee is entitled to claim depreciation in respect of the machineries rented out to the third party by the assessee. Accordingly, we reverse the order of lower authorities and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.
The third issue raised by the assessee in ground no.4, 5 and 7 is that Ld. CIT(A) erred in confirming the addition made by the AO on account of non-deduction of TDS u/s 194J r.w.s. 40(a)(ia) of the Act. The assessee during the year has claimed certain expenses under the head legal and professional fees. The details of the expenses claimed by the assessee is listed as under:
Sr. Party Name Amount No. 1. Sanjiv Khurana Rs. 30,000/- 2. R. M. Modi (Account writing fees) Rs. 50,000/-
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 11 - 3. Nilesh B. Soni Rs. 15,000/-
Total Rs.1,05,000/- The AO during the assessment proceedings observed that the above expenditure has been incurred by the assessee without deducting the TDS u/s 194J of the Act. Accordingly, the AO disallowed the same and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the accountant inadvertently omitted to deduct TDS from the aforesaid payment. However the aforesaid parties have duly disclosed above receipts in their respective income tax returns and accordingly, paid the taxes on their income after including the above receipts.
The assessee also submitted that the payment made to Nilesh B. Soni for Rs.25,000/- is below the threshold limit specified u/s 194J of the Act. Therefore, there was no obligation on the part of the assessee to deduct the TDS u/s 194J of the Act. However, the Ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under:
“6.2 I have carefully considered the rival contentions. I am not inclined to agree with the contention of the appellant completely. It is a fact that with regard to the expenses pertaining to legal fee amounting to Rs.1,05,000/-, the AO has righty disallowed this amount. The appellant has also accepted its mistake in non-deduction of TDS. Accordingly, the disallowance of Rs.1,05,000/- u/s.40(a)(ia) of the Act is confirmed.”
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 12 - Being aggrieved by the order of Ld. CIT(A) assessee is in second appeal before us.
The Ld. AR before us submitted that Shri Sanjiv Khurana has included the amount of fees received from the assessee in their income tax return. Therefore, the assessee is not under the obligation to deduct TDS u/s 194J r.w.s. 40(a)(ia) of the Act. Ld. AR in support of his claim has filed the copies of Income Tax Return, Statement of Income, Trading and Profit & Loss account and Balance Sheet, which are placed on Pages 36 to 39 of the Paper book.
The Ld. AR also submitted that the payment to Shri Sanjiv Khurana does not exceed the threshold unit as specified u/s 194J of the Act. Therefore, the assessee is not liable to deduct TDS in respect of payment made to Shri Sanjiv Khurana. The assessee also submitted that the threshold unit was increased from Rs.20,000 to Rs.30,000/- under the provision of Section 194J of the Act w.e.f 01/07/2010 and in the instant case the bill was raised by Sanjiv Khurana after 1st July, 2007. The Ld. AR in support of his claim drew our attention on the copy of ledger of Shri Sanjiv Khurana Maintained by the assessee in its book of accounts, which is placed on Page 35 of the paper book.
In case payment made to Shri R. M. Modi, the Ld. AR submitted that the payment was in the nature of salary to Shri R. M. Modi and therefore the liability of TDS arises under the provision u/s 192 of the Act. Accordingly, there was no liability on the part of the assessee to
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 13 - deduct TDS u/s 192 of the Act as such payment did not exceed the threshold limit specified u/s 192 of the Act.
In case of payment to Shri Nilesh B. Soni, Ld. AR submitted that payment was made below the threshold limit as specified u/s 194J of the Act. Therefore, there is no liability on the part of the assessee for deduction of TDS u/s 194J of the Act. Ld. AR also submitted that the threshold limit has specified u/s 194J of the Act was enhanced from Rs.20,000/- to 30,000/- w.e.f 01/07/2010. But in the instant case, the bills were raised by Shri Nilesh B. Soni on 7th July 2010. In this regard, the Ld. AR filed the copy of ledger of Nilesh B. Soni maintained by the assessee in its books of accounts, which is placed on Page 40 of the Paper book.
On the other hand, Ld. DR vehemently supported the order of authorities below.
We have heard rival contentions and perused the material available on record. The facts of the present case have already been elaborated in the preceding paragraph. Therefore, we are not inclined to repeat the same for the sake of brevity.
In case the payment made to Shri Sanjiv Khurana, we note that the bill was raised by Shri Sanjiv Khurana after 1st July, 2010 and the limit was enhanced from 20,000/- to 30,000/- in the F.Y. 2010 w.e.f 01/07/2010. Therefore, the case of the assessee falls after the enhancement of threshold limit. As per the new threshold limit the
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 14 - liability of the assessee arises if the payment of professional charges to a person exceeds Rs.30,000/-. In the instant case, no dispute has been raised by the lower authorities suggesting that the payment exceeds Rs.30,000/- in the case of hand to Shri Sanjiv Khurana. Therefore, we hold that the assessee was not liable to deduct TDS u/s 194J of the Act. Consequently the assessee cannot be hold guilty for non-deduction of TDS u/s 40(a)(ia) of the Act.
Besides the above, we also note the assessee has claimed that Shri Sanjiv Khurana has paid the taxes on the amount of professional charges received from the assessee. The assessee in this regard has duly filed the copy of Income Tax Return, Statement of Income of Shri Sanjiv khurana. Therefore, in our considered view further disallowance u/s 194J r.w.s 40(a)(ia) of the Act will lead to double taxation in the hands of the assessee. Therefore we hold that the assessee is not in default on account of non-deduction of TDS u/s 40(a)(ia) of the Act.
Now coming to the payment made to R. M. Modi, it was claimed by the Ld. AR that such payment is in the nature of salary and therefore there is no liability for the deduction of TDS from the payment made to Shri R. M. Modi. However, in this regard we note that no documentary evidence has been furnished by the assessee demonstrating that there exists employer and employee’s relationship between the assessee and Shri R. M. Modi. Therefore, in the absence of the documentary evidence, we reject the arguments advanced by the Ld. AR. However, we find force in the argument of Ld. AR that Shri R. M. Modi has included the amount
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 15 - of professional charges received from the assessee in their receipts and offered the same in the income tax return but no documentary evidence in support of assessee’s claim was produced before us. Therefore, in the absence of any documentary evidence, we remit the issue to the file of the AO with direction that the AO will collect necessary evidences to ensure that amount paid by the assessee to Shri R. M. Modi has been offered to Tax. It is needless to mention that the assessee shall co-operate in the assessment proceedings before the AO.
Now coming to the payment made to Shri Nilesh B. Soni, we note that the payment made by the assessee to Shri Nilesh B. Soni has not been disputed the lower authorities. Accordingly, we note that the payment is below the threshold limit as specified u/s 194J of the Act. The copy of the ledger of Nilesh B. Soni is placed on page 40 of the PB and the same reproduced as under:
Ledger Account
1-Apr-2010 to 31-Mar-2011 Page 1
Date Particulars Vch Vch No Debit Credit Type 7-7-2010 Dr Consultancy Charges Journal BILL 25,000.00 31-8-2010 Cr The J&K Bank Ltd – Bk Pymt 092703 15,000.00 0447030100000058 2-9-2010 Cr The J&K Bank Ltd – Payment 353 10,000.00 0447030100000058 25,000.00 25,000.00
ITA No.2361/Ahd/2015 Sthapati Architecture and Interiors Pvt. Ltd. vs. DCIT Asst.Year –2011-12 - 16 -
In view of we hold that the assessee was not under the obligation to deduct the TDS on the payment made to Shri Nilesh B. Soni on the reasoning as discussed in the case of payment to Shri Sanjiv Khurana in the preceding paragraph. In view of above the ground of appeal raised by the assessee is partly allowed for statistical purposes.
In the result, appeal filed by the assessee is partly allowed for statistical purposes.
This Order pronounced in Open Court on 31/05/2018
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