Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Shri Pawan Singh (JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the revenue is directed against the order dated 10- 12-2013 passed by Ld CIT(A)-21, Mumbai and it relates to the assessment year 2010-11. The revenue is aggrieved by the decision rendered by Ld CIT(A) on the following issues:-
(a) Addition relating to un-reconciled difference – Rs.808.69 lakhs. (b) Disallowance of loan processing charges (c) Disallowance of retention money claimed as expenditure
The facts relating to the case are set out in brief. The assessee is engaged in the business of development of infrastructure. It secured a contract for construction of certain items in Common Wealth Games Village Project.
The first issue relates to the disallowance of un-reconciled difference. The facts relating thereto are stated in brief. The AO noticed that the assessee has 2 M/s. Sportina Payce Infrastructure P. Ltd.
shown gross receipts of Rs.1346.71 lakhs in its Profit and Loss account. However the payments made to the assessee was found to be at Rs.2155.49 lakhs by aggregating the amount shown in Form 26AS statement, Other receipts from DDA (Delhi Development Authority) and sale of materials. Hence the AO added the difference of Rs.808.96 lakhs as income of the assessee. Before the Ld CIT(A), the assessee submitted that the above said amount of Rs.808.96 lakhs represent following amounts and the same has been directly reduced from the Gross receipts, i.e., the disclosed receipt of Rs.1346.71 lakhs is net figure after reducing the expenditure of Rs.808.96 lakhs. Amount Paid to Fedders Lloyd Corporation Ltd - 291.28 lakhs Bank Guarantee encashed - 482.00 lakhs Other expenses - 35.49 lakhs Other differences - 0.19 lakh ------------------ 808.96 lakhs ============= The Ld CIT(A) accepted the explanations of the assessee and accordingly directed the AO to delete the addition of Rs.808.96 lakhs.
The case of the revenue is that the assessee has not shown that the above said amount was debited to Profit and Loss account. Further the bank guarantee paid by the assessee does not qualify as revenue expenditure. The revenue has also submitted that the assessee has disallowed the amount of Rs.291.28 lakhs paid to M/s Fedder Lloyd Corporation u/s 40(a)(ia) in its Statement of total income without claiming the same as expenditure and the assessee would be claiming the same as deduction in future on payment basis.
We have heard Ld A.R and perused the record. It is the case of the assessee that it has reduced the gross receipts by Rs.808.96 lakhs, being the expenses listed above. The assessee could have debited these expenses in the debit side of Profit and Loss account and accordingly could have shown the gross receipts at Rs.2155.49 lakhs. Thus there is a change in the presentation of accounts. If the submission of the assessee is correct, then the reduction of the amount from Gross receipts would amount to claim of expenditure, i.e., if 3 M/s. Sportina Payce Infrastructure P. Ltd.
an item of expenditure is reduced from the Gross receipts, instead of debiting the same to the Profit and Loss account, the same would amount to claiming of expenditure. However, we notice that the Ld CIT(A) has granted relief without examining the claim of the assessee from the books of accounts maintained by the assessee. We notice that the AO also did not verify the Contract receipts ledger in order to ascertain as to whether the above said expenditure of Rs.808.96 lakhs (subject to reconciliation difference) was debited to the Contract receipts Ledger account. In this view of the matter, we deem it proper to restore this issue for the limited purpose of verification of the entries passed by the assessee. If the AO is satisfied with the submissions of the assessee that the Contract receipts account has been debited with the expenditure claimed by the assessee, then there is no requirement of making any separate addition towards the difference in the contract receipts. Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining the issue in the manner discussed above.
The revenue has also contesting that the bank guarantee payment of Rs.482.00 lakhs included the above said amount of Rs.808.96 lakhs is not allowable as revenue expenditure. The Ld CIT(A) has allowed the same on observing that the bank guarantee was given by the assessee to DDA in connection with the execution of contract works and the said guarantee has been invoked by DDA on failure of the assessee to complete the contract, i.e., for breach of contract. The Ld CIT(A) has taken support of following decisions in order to come to the conclusion that the said expenditure is allowable as deduction:- (a) CIT Vs. S.A builders (p) Ltd (2008)(299 ITR 88)(P & H). In this case the security deposit forfeited by way of compensation for not completing the contract was held to be allowable as deduction as normal commercial loss.
(b) CIT vs. R.D.Sharma & Co. (1982)(137 ITR 333)(Bom). In this case, the compensation paid for delay in completion of building contract is held to be deductible.
4 M/s. Sportina Payce Infrastructure P. Ltd.
We heard the parties on this issue. There is no dispute that the bank guarantee was given by the assessee to DDA in connection with execution of contract works. There is also no dispute that the assessee’s contract was terminated due to breach of contract terms. Hence the DDA has invoked the bank guarantee and hence the same is compensatory in nature and it is allowable as deduction as per the ratio laid down in the above said decisions. Hence we do not find any infirmity in the decision rendered by Ld CIT(A) on this issue.
The revenue is also contending that the disallowance of Rs.291.27 lakhs made by the assessee u/s 40(a)(ia) was not related to expenses debited to profit and loss account and further the assessee would be claiming deduction of the same on payment of TDS amount in future years. We have already held that reduction of contract receipts by the amount of expenditure would amount to claim of expenses, which has been directed to be verified. If it is found to be so, then the disallowance made by the assessee u/s 40(a)(ia) for non-deduction of tax at source is justified.
The next ground urged by the revenue relates to the claim for deduction of loan processing charges of Rs.20.81 lakhs and Loan stamp duty of Rs.5.00 lakhs. The AO disallowed the above said claims by holding that they are not revenue expenses. The Ld CIT(A), however, allowed the claim and in this regard he took support of the definition of the term “Interest” given in sec. 2(28A) of the Act. The said section defines the term Interest as under:- “Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized.”
The Ld CIT(A) held that the definition of the term “interest” would include processing charges and other charges incurred for borrowing the loan. Before us, the revenue could not controvert the above said observations of Ld CIT(A).
5 M/s. Sportina Payce Infrastructure P. Ltd.
We also find merit in the said observations of Ld CIT(A). Accordingly we uphold his order passed on this issue.
The last ground relates to the claim of retention money. The DDA, while disbursing the contract amount retained a part of contract receipt as security deposit. On termination of contract awarded to the assessee, it is stated that the DDA did not give the amount so retained by it. Hence the Assessee claimed the same as deduction. The Ld CIT(A) allowed the same by following the decision rendered by Hon’ble Gujarat High Court in the case of Anup Engineering Ltd vs. CIT (2001)(114 Taxman 584), wherein the deduction made from the payment towards inferior quality was held to be allowable as deduction.
We heard the parties on this issue. We notice that the Ld CIT(A) has allowed the claim by observing that the retention amount did not accrue to the assessee nor it was received by the assessee. However, we notice that the AO has disallowed the claim by holding that this item is not an expense at all. Apparently, the AO was under the impression that the Retention money shall be received back by the assessee. We also notice that the assessee has failed to furnish any material to show that the retention money was not paid by DDA at all. In our view, it is the responsibility of the assessee to show that the retention money was forfeited by DDA. Hence we are of the view that the assessee may be given an opportunity to prove its claim. Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining this claim afresh.
In the result, the appeal of the revenue is partly allowed. Order has been pronounced in the Court on 03.08.2018.