DCIT,CC-VII, KOLKATA, KOLKATA vs. M/S SALTEE INFRASTRUCTURE LTD., KOLKATA

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals), Central-I, Kolkata dated 12.02.2014. The assessee has filed Cross Objection (CO) against the appeal filed by the Revenue. Assessment was framed by DCIT, Central Circle-VII, Kolkata u/s ITA No.856/Kol/2014 & CO64/Kol/2014 A.Y. 2009-10 DCIT CC-VII, Kol. Vs. M/s Saltee Infrastructure Ltd. Page 2 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.03.2013 for assessment year 2009-10. Shri Anand Kumar Singh, Ld. Departmental Representative represented on behalf of Revenue and Shri S. Jhajharia, Ld. Authorized Representative appeared on behalf of assessee. First we take up Revenue’s appeal in for A.Y. 09-10.

Facts in brief are that assessee in the present case is a Limited Company and engaged in the business of real-estate, construction of building and promotion. The assessee filed its return of income on 30.09.2009 declaring total income of ₹9,49,918/-. Originally the assessment was framed u/s. 143(3) of the Act at a total income of ₹11,57,200/-. Thereafter the case was selected u/s 147 of the Act on the ground that the income of assessee has escaped assessment. Accordingly, notice u/s 148 of the Act was issued on 03.04.2012. The assessment was completed u/s 147 of the Act at a total income of ₹72,68,110/- after making certain disallowance / additions to the total income of the assessee.

The first issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition of ₹9,17,076/- made by the Assessing Officer on account of non deduction of Tax Deducted at Source (TDS for short) u/s. 40(a)(ia) of the Act.

During the course of assessment proceedings, AO observed that assessee has incurred expense towards the technical and professional charges aggregating to ₹12,05,742/- without deducting the TDS u/s 194J of the Act. Accordingly, the AO sought clarification from the assessee for non- deduction of TDS. The assessee in compliance thereto assessee could not make any satisfactory reply. Therefore, the AO disallowed the same u/s 40(a)(ia) of the Act and added to the total income of the assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that out of total expenses a payment of ₹9,17,076/- was made to M/s Agarwal & Agarwal. The payment to M/s Agarwal & Agarwal was in the nature of capital expense. Therefore, the same ITA No.856/Kol/2014 & CO64/Kol/2014 A.Y. 2009-10 DCIT CC-VII, Kol. Vs. M/s Saltee Infrastructure Ltd. Page 3 was capitalized as work-in-progress as the expense of ₹9,17,076/- was not claimed in revenue account. There is no question of disallowance of the same due to non-deduction of TDS. The Ld. CIT(A) after considering the submission of assessee has deleted the addition made by the AO. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.

Before us both the parties relied on the orders of Authorities Below as favourable to them.

We have heard the rival submissions of both the parties and perused the materials available on record. It is the admitted fact that the assessee has no deducted any TDS on the impugned expenses on the ground that the relevant expenses were capitalized as work in progress. Since the expenses has not been claimed in the profit and loss account, the question of any disallowance under section 40(a)(ia) of the Act does not arise. However the Revenue is disputing the allowability of the above expenses on account of two reasons, firstly, such expenses are not eligible for deduction under the provisions of section 40(a)(ia) of the Act, secondly, the relief has been given to the assessee on the basis of additional evidences which were admitted in contravention to the provisions of rule 46A of Income Tax Rules 1962. Amounts not deductible. 40. Notwithstanding anything to the contrary in sections 30 to 38[38], the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,— (a) in the case of any assessee— 40[(i) ------------ (ia) any interest, commission or brokerage, 41[rent, royalty,] fees for profes- sional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, A careful analysis to the above provisions of Section 40(a)(ia) of the Act reveals that it is applicable to sums allowable u/s 30 to 38 of the Act. Hence, if ITA No.856/Kol/2014 & CO64/Kol/2014 A.Y. 2009-10 DCIT CC-VII, Kol. Vs. M/s Saltee Infrastructure Ltd. Page 4 any capital expense is allowable as deduction u/s 30 to 38 of the Act while computing income under the head “Profits and gains from business or profession”, the same will be covered u/s 40(a)(ia) of the Act. Now, the issue arises where the claim of depreciation u/s 32 of the Act is covered u/s 40(a)(ia) of the Act. The provisions of Section 40(a)(ia) of the Act is applicable to payments specified therein which are allowable u/s 30 to 38 of the Act. Since the claim of depreciation is not payment or expenditure in strict sense but the same is statutory allowance, so strictly the claim of depreciation will not be covered u/s 40(a)(ia) of the Act. Further, the actual cost and WDV is defined in Section 43 of the Act and provisions of Section 40(a)(ia) of the Act does not override the provisions of Section 43 of the Act. In the case of Shri Vishnu Anant Mahajan vs. ACIT in for A.Y. 2006-07 the Hon’ble Special Bench ITAT, Ahmedabad vide its order dated 25.05.2012, after relying on the decision of the Hon’ble Hon'ble Supreme Court in the case of Nectar Beverages P Ltd vs. DCIT reported in 314 ITR 314 (SC) and of Hon’ble Mumbai ITAT in the case of Hoshang D Nanavati vs. ACIT in ITA No. 3567/Mum/2007 has held that “Depreciation” is not an expenditure but the same is statutory deduction. In view of above, we are of the considered opinion that the provisions of section 40(a)(ia) of the Act is not applicable in the instant case. Therefore, there is no question of deducting the TDS on capital expenditure. We also disagree with the allegation of the Revenue that the relief has been given on the basis of additional evidences. It is because we find that at the time of assessment, the assessee has filed written submission which has been duly recorded by the AO in his assessment order. Moreover, the ld DR has not brought anything on record contrary to the finding of ld CIT(A). Hence, the issue raised by the Revenue is dismissed.

The next issue raised by the Revenue is that ld CIT(A) erred in deleting the addition of Rs.49,05,549/- made by the AO on account of short deduction of TDS. & CO64/Kol/2014 A.Y. 2009-10 DCIT CC-VII, Kol. Vs. M/s Saltee Infrastructure Ltd. Page 5 9. The assessee, in the year under consideration has incurred an expense of Rs.1,93,20,793.00 towards labour charges, contractors, technical and professional charges. The assessee was required to deduct the taxes of Rs. 4,85,839.00 but in actuality it deducted TDS of Rs. 3,62,467.00 only. Therefore, short deduction of TDS for Rs.1,23,372/- was made by the assessee. Accordingly, the AO has disallowed proportionate expenses of Rs.49,05,549/- under the provisions of section 40(a)(ia) of the Act and added to the total income of the assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the provisions of section 40(a)(ia) of the Act are not applicable in case of short deduction of the TDS. The Ld. CIT(A) after considering the submission of assessee has deleted the addition made by the AO.

Before us both the parties relied on the orders of Authorities Below as favourable to them.