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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A.MOHAN ALANKAMONY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
These appeals by the assessee are directed against the orders passed by the learned Commissioner of Income Tax (Appeals) - 11, Chennai dated 31.10.2016 in 14/CIT(A)-11 for the assessment year 2007-08 and dated 06.10.2016 in ITA No.544/2013-14/CIT(A)-11 for the assessment year 2008-09 both passed U/s. 250(6) r.w.s. 143(3) & 147 of the Act.
Assessment year 2007-08:- The assessee has raised four grounds in its appeal and they are briefly stated herein below for adjudication:-
(i) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed expenses incurred towards water charges of Rs.1,91,220/- invoking the provisions of Section 40(a)(ia) of the Act because of non-compliance of the provisions of Section 194C of the Act. (ii) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed expenses incurred towards professional charges paid to Chitale & Sons of Rs.7,99,775/- by treating it as capital expenditure.
(iii) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed expenditure incurred towards commission paid outside India of Rs.14,41,793/- invoking the provisions of Section 40(a)(ia) of the Act.
(iv) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed expenditure incurred towards commission paid in India for processing domestic orders with respect to 3D Techno Prints amounting to Rs.32,400/- invoking the provision of Section 40(a)(ia) of the Act, though the appellant had deducted TDS.
Assessment year 2008-09:- The only issue raised by the assessee is that the Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed expenditure incurred towards payment made to unapproved gratuity fund U/s.36(1)(v) of the Act of Rs.5,53,871/- invoking the provisions of Section 43B of the Act, though the appellant had applied under the gratuity scheme with LIC awaiting sanction.
The brief facts of the case are that the assessee is a domestic company engaged in the business of manufacturing industrial valves filed its return of income for the assessment years 2007-08 & 2008-09 on 29.10.2007 & 29.09.2008 admitting income of Rs.1,08,49,760/- & Rs.2,87,15,363/- respectively. Initially the return was processed U/s.143(1) of the Act and thereafter for the assessment year 2007-08 the case was taken up for scrutiny under CASS and for the assessment year 2008- 09 the case was reopened U/s.147/148 of the Act and finally assessment was completed on 02.12.2009 & 07.05.2012 for the assessment years 2007-08 & 2008-09 respectively wherein several additions were made for the assessment year 2007-08 and an addition was made disallowing payment towards group gratuity scheme for the assessment year 2008-09.
Assessment year 2007-08 5. Ground No. 2(i) : Disallowance of water charges of Rs.1,91,220/- :-
The assessee had incurred expenditure of Rs.1,91,220/- towards water charges. Since predominantly the amount of Rs.1,91,220/- represented transportation cost, the Ld.AO disallowed the same because TDS was not deducted. The argument of the assessee was that the amount of Rs.1,91,220/- was paid for purchase of water and the Board Circular No.13 of 2006 dated 13.12.2006 had made it clear that the provisions of TDS is not applicable for ‘contract for sale’. On appeal the Ld.CIT(A) upheld the order of Ld.AO by holding that providing of water can only be regarded as ‘contract for work’ and not ‘contract for sale’.
5.1 Before us the Ld.AR reiterated the arguments advanced before the Ld.Revenue Authorities and the Ld.DR relied on the orders of the Ld. Revenue Authorities.
5.2 We have heard the rival submissions and carefully perused the materials available on record. It is obvious that for procuring water from the wells from third parties the cost incurred is minimal while as the cost of transportation is quite high. Therefore the Ld.Revenue Authorities had treated the payment made for water charges as payment made for transporting the water because the assessee has not furnished the breakup. In this situation we do not find any infirmity in the orders of the Ld. Revenue Authorities. However assuming the cost of water to be 20% of the aggregate cost of transportation, we hereby grant relief to the assessee for Rs.40,000/- being the cost of the water. Accordingly we sustain the addition for Rs.1,51,220/-. It is ordered accordingly.
6) Ground No.2(ii): Addition of Rs.7,99,775/- The assessee had incurred expenditure of Rs.7,99,775/- being payment made to architect towards consultancy charges for expansion of factory. Since the expenses incurred towards expansion of factory is a capital expenditure the Ld.AO treated the amount paid to architect for expansion of factory also to be capital in nature. Accordingly the Ld.AO disallowed the same as revenue expenditure and added to the income of the assessee.
6.1 On appeal the Ld.CIT(A) placing reliance in the case decided by the Hon’ble Delhi High Court viz, State Trading Corporation India Ltd. vs. CIT reported in 94 ITR 496 wherein it was held that payment for architects towards preparation of plan for construction is capital in nature, upheld the order of the Ld.AO.
6.2 Before us, the Ld.AR reiterated the arguments made before the Ld.CIT(A) by stating that the assessee had incurred the expenditure only with regard to the existing asset and no new asset has come into existence. It was therefore submitted that the aforesaid payment should be treated as revenue in nature.
The Ld.DR on the other hand relied on the orders of the Ld.Revenue Authorities.
6.3 We have heard the rival submissions and carefully perused the materials available on record. Since the Ld.AR have not produced any other details with respect to the expenditure incurred, we do not find it necessary to interfere with the orders of the Ld.Revenue Authorities because when an expenditure is incurred which is attributable for creating an asset then such expenditure falls within the capital field and not in the revenue field. Accordingly we hereby confirm the orders of the Ld.Revenue Authorities on this issue.
Ground No. 2(iii) : Disallowance of Commission expenses amounting to Rs.14,41,793/-:- The assessee had incurred commission expenses aggregating to Rs.14,41,793/- against which the assessee had failed to deduct TDS. The claim of the assessee was that the commission was paid to persons outside India for services rendered outside India. Hence the provisions of TDS is not applicable. However the assessee had not given the details with respect to such payment in order to establish that the commission was paid to persons outside India towards services rendered outside India. Therefore the Ld.AO invoked the provisions of Section 40(a)(ia) of the Act and disallowed the expenditure incurred for Rs.14,41,793/-. The Ld.CIT(A) upheld the order of the Ld.AO because even before him the assessee had failed to furnish the required details in order to establish that such payments were made outside India for services rendered outside India. Even before us at this stage, the assessee had not furnished any details in order to establish its claim. Therefore we do not have any other option but to confirm the orders of the Ld.Revenue Authorities on this issue. Accordingly we confirm the addition made by the Ld.AO by invoking the provisions of Section 40(a)(ia) of the Act for Rs.14,41,793/-
Ground No.2(iV) : Disallowance of payment to 3D Techno Prints amounting to Rs.32,400/-:-
The assessee had paid Rs.32,400/- as commission for preparing order for 3D Techno Prints. Since the assessee had not deducted TDS on such payments the Ld.AO disallowed the same invoking the provisions of Section 40(a)(ia) of the Act.
Before the Ld.CIT(A) also the assessee had failed to produce any evidence for complying with the provisions of TDS and therefore the Ld.CIT(A) confirmed the order of the Ld.AO. Since the assessee has not furnished any details even before us at this stage for complying with the provisions of TDS, we do not have any other option but to confirm the orders of the Ld.Revenue Authorities on this issue. Accordingly the addition made by the Ld.AO for Rs.32,400/- stands confirmed.
Assessment year 2008-09 Ground No. 3 : Disallowance of payment made towards unapproved gratuity fund U/s.36(1)(v) of the Act for Rs.5,53,871/-:- The assessee company had incurred expenditure of Rs.5,53,871/- towards group gratuity scheme of LIC. Since the assessee company had failed to produce the approval of such fund from the appropriate Authority, the Ld.AO disallowed the expenditure relying in the decision of the Hon’ble Apex Court in the case Nonsuch Tea Estate Limited reported in 98 ITR 189, wherein it was held that “if any expenditure to be incurred under some law, which requires prior approval of the Government, the liability to incur such expenditure does not accrue, unless such approval has been obtained from the competent person.” On appeal the Ld.CIT(A) confirmed the order of the Ld.AO by placing reliance in the various decisions that are cited in his order.
9.1 At the outset the Ld.AR submitted before us that the issue is covered by the decision of the Tribunal in assessee’s own case in & 1566/Mds/2011 for the assessment year 2002-03 and 2004-05 dated 20.11.2012, wherein it is held as follows: “We have perused the orders and heard the rival submissions. There cannot be any dispute that for allowance of amounts paid to gratuity and superannuation funds, such gratuity and superannuation schemes require approval of competent authority. Sections 36(1)(iv) and 36(1)(v) are clear in this regard. However, in the case before us, there is no dispute that assessee indeed had made an application on 22nd March, 1993 and later on 15.12.2006 for such approval. It is also not disputed that the said applications were still to be disposed of. We are, therefore, of the view that the matter requires a re-look by the CIT(Appeals). If the assessee is able to produce before CIT(Appeals) the approval received by it for gratuity and superannuation funds, or show that such approval was not forthcoming despite its best efforts, then its claim has to be considered. Therefore, in the interest of justice, we set aside the order of CIT(Appeals) and remit the matter to him for consideration afresh. Assessee shall be given an opportunity for adducing evidence in this regard and CIT(Appeals) shall dispose and deal with the issue in accordance with law.”
The Ld.AR further pleaded before us that the same decision may be followed in the case of the assessee and accordingly remit back the matter to the file of Ld.AO. The Ld.DR could not controvert to the submission of the Ld.AR.
9.2 We have heard the rival submissions and carefully perused the materials available on record and the decision cited by the Ld.AR. On the earlier occasion the Tribunal vide its order dated 20.11.2012 in the assessee’s own case had set aside the order of the Ld.CIT(A) and remitted back the matter for fresh consideration. Following the same ratio, we hereby set aside the order of the Ld.CIT(A) in the present case before us and remit back the matter to the file of Ld.AO thereby enabling the assessee to produce the requisite approval before him for verification. The Ld.AO is further directed to pass appropriate order as per merit and law after giving sufficient opportunity to the assessee of being heard and after examining the issue afresh.
In the result the appeal of the assessee for the assessment year 2007-08 is partly allowed and the appeal of the assessee for the assessment year 2008-09 is allowed for statistical purposes.
Order pronounced on the 16th January, 2018 at Chennai.