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Income Tax Appellate Tribunal, ‘’ B’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SHRI SIDDHARTHA NAUTIYAL
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 order of the Learned Commissioner of Income Tax (Appeals)-8, Ahmedabad (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2012-13.
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The assessee has raised the following grounds of appeal:
To delete disallowance in respect of addition on account of 40a(ia) of Rs.1,44,21,556/- 2. To delete disallowance u/s.36(1)(va) of Rs.1,50,202/- 3. To delete addition of write back of unsecured loan of Rs.2,58,30,000/- 3. The first issue raised by the assessee is that the Ld. CIT(A) erred in confirming the addition made by the AO for Rs. 1,44,21,556/- under the provision of section 40(a)(ia) of the Act.
The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of Manufacturing Rolled, figured and Wired Glass. The assessee in the year under consideration has claimed the deduction of certain expenses which were disallowed in earlier years in the computation of income. The details of the same stands as under:
Expenses on payment u/s 40(a)(ia) in the AY 2010-11 Rs. 1,15,54,910/- 2. Expenses on payment u/s 40(a)(ia) AY 2011-12 Rs. 1,26,67,773/-
4.1 As per the assessee, certain expenses pertaining to different Assessment Years were disallowed in the respective AYs under the provisions of section 40(a)(ia) of the Act on account of non-deduction and non-deposit of TDS. However, the TDS was deducted and deposited in the Government Treasury in the year under consideration, therefore, the same should be allowed under section 40(a)(ia) of the Act, on actual payment basis. However, the AO during the assessment proceedings sought certain details to justify the deduction claim by the assessee but the necessary details were not furnished with respect to the deduction claimed by the assessee. As per the AO, it was the onus upon the assessee to justify the deduction claim by it based on the documentary evidence.
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4.2 Besides above, the AO also found that the amount of TDS for the AY 2010- 11 was paid for Rs. 3,51,625/- which corresponds to the expenses covered u/s 194C of the Act amounting to Rs. 35,16,250/- only whereas the assessee has claimed the deduction of Rs. 1,15,54,910/- leading to excess deduction of Rs. 80,38,660/- which was disallowed and added to the total income of the assessee.
4.3 Likewise, the assessee inter-alia has made the payment of TDS u/s 194C of the Act, amounting to Rs. 1,86,836/- which corresponds to the expense of Rs. 18,68,360/- only whereas the assessee has claimed the deduction of Rs. 82,51,256/- leading to the excess deduction claimed for Rs. 63,82,896/- (82,51,256 – 18,68,360) only. Thus, the AO disallowed the excess deduction claimed by the assessee for Rs. 63,82,896/- and added to the total income of the assessee. The AO in effect has made the addition of Rs. 1,44,21,556/- (80,38,660 + 63,82,896) to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Ld. CIT(A) and submitted that it has furnished the complete details such as the amount of expense, amount of TDS deducted, payment of tax and details of challan during the assessment proceedings. Furthermore, the AO has not pointed out any defect in such details. However, the AO rejected the claim of the assessee in an arbitrary manner. The assessee also claimed to have filed the computation of income/ income tax return pertaining to AYs 2010-11 and 2011-12 along with the calculation of TDS amount.
However, the Ld. CIT(A) observed that the amount of TDS was claimed to be paid on 31/03/2012, but no breakup of TDS vis-a-vis interest on such delayed payment of TDS was furnished. According to the Ld. CIT(A), it was onus upon the assessee to furnish the party-wise details of TDS payment, copy of TDS return along with TDS certificate to demonstrate with the expenses which were disallowed in earlier year on account of non-payment of TDS to work out the amount that should be allowed as deduction in the year under consideration.
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6.1 The Ld. CIT(A), also observes that the assessee has filed the photocopy of computation of income for the AY 2010-11 which is not readable. Thus, it was not clear that the amount of TDS paid pertains to the earlier AYs. The Ld. CIT(A) also noted that the assessee failed to justify the genuineness of the expenses claim in the computation of income. In view of the above, the Ld. CIT(A) confirmed the order of the AO by observing as under: 4.5. In the absence of these details, no relief as sought for by the assessee can be granted to it. It was for the assessee to satisfy the Assessing Officer with regard to payment of TDS in respect of expenses which were earlier added due to a non-deduction of TDS. The challans which are filed by the appellant does not show that it is the same payment which was required to be made in earlier years in respect of the amounts which was added by the assessee in those years. The assessee has also failed to satisfy with regard to addition made in the earlier years for the same amount. Without party wise details, return of TDS, and TDS certificate or Form 26AS of 3 parties this verification pertaining to an earlier years can never be completed, During the appellate proceedings also the appellant has been allowed opportunities of hearing on 05.07.2016, 07.07.2016, 21.12.2016, 03.01.2017, 13.01.2017, 24.01.2017,02.02.17, 08.02.2017, 22.05.2017, 14.08.2017, considering this, the groudn number 1 of the appellant is dismissed. 7. Being aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us.
The Ld. AR before us filed a paper book running from pages 1 to 47 and contended that the assessee has been deducted and deposited the amount of TDS in the account of Government Treasury. Thus, the assessee cannot be denied the benefit of deduction provided u/s 40(a)(ia) of the Act. It was also contended by the Ld. AR that if the amount of TDS deducted and deposited does not tally with the amount of expenses which were disallowed on account of non-deduction of TDS, the same should be allowed to the extent of the amount of TDS deducted and deposited. The Ld. AR also submitted that assuming Rs. 100 was disallowed on account of non-payment of TDS of Rs. 10 and the assessee on the later date pays the amount of TDS say Rs. 7 only, then the assessee is entitled for the deduction to the extent of the amount of expenses corresponding to the amount of TDS. Merely in sufficient amount has been paid does not dis-entitle the assessee for 100% disallowance.
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On the contrary, the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that there were certain expenses which were claimed by the assessee in earlier years but the same was disallowed on account of non-deduction of TDS. It is settled law that the assessee is entitled for the deduction of the expenses which were subject to TDS based on the deduction and deposit of TDS in the Government Treasury. Admittedly, the onus lies upon the assessee to furnish the supporting documents. As such, the assessee is under the obligation to furnish the necessary information of the expenses along with the party details which were disallowed in the earlier year on account of non-deduction of TDS. Likewise, the assessee has to furnish the details of the expenses along with the party details to demonstrate deduction of TDS and the payment to the Government treasury thereof. This establishes that the law is clear that such expense will be allowed as deduction on actual payment basis.
10.1 It is not out of place to mention that the benefit of the expense disallowed on account of non-deduction of TDS should be allowed on an actual payment basis in pursuance to the provision of section 40(a)(ia) of the Act. It is also important to note that if the assessee makes the payment of TDS of the lesser amount, than the amount which he was supposed to deposit with Government treasury, then the corresponding expenses should only be allowed as deduction. There is no confusion with finding of the Ld. CIT(A), as observed that the assessee has made the payment of Rs. 3,51,625/- dated 31/03/2012 but there was no break-up of such amount indicating the amount of TDS and the interest thereon. Admittedly, the assessee has made deposits of TDS belatedly and therefore it is onus upon the assessee to furnish the break-up of the TDS deposited by him.
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10.2 Nevertheless, the revenue in the absence of necessary details from the side of the assessee about the interest and the amount of TDS, was very much empowered to re-workout interest embedded in such amount of TDS by doing reverse working. However, we find that the revenue authority has not carried out such an exercise. Therefore, in the interest of justice and fair play, we are of the view that the assessee should be given one more opportunity to represent his case before the AO.
10.3 We also note that the assessee before the Ld. CIT(A), has submitted that the disallowance of the expenses was made in the AYs 2010-11 and 2011-12 merely on account of non-deduction of TDS. As such the genuineness of the expenses was not doubted by the authorities below, therefore, it was contended that once the payment of TDS amount has been made, the genuineness of such expenses cannot be questioned. It is because the genuineness of the expenses has already been established during the relevant AYs except the deduction and deposit of TDS into Government Treasury. In the light of the above discussion, we are of the view that the assessee should be given one more opportunity to represent his case before the AO. Accordingly, we set aside the finding of the Ld. CIT(A), and remit the issue back to the file of the AO for fresh adjudication as per the provision of law and in the light of the above discussion. Hence the ground of appeal of the assessee is partly allowed for the statistical purposes.
The next issue raised by the assessee is that the Ld. CIT(A), erred in confirming the addition made by the AO under the provision of section 36(1)(va) of the Act.
The AO during the assessment proceeding found that the assessee deposited employee contribution towards the provident fund amounting to Rs. 1,50,202/- after the due date specified under PF Act. Therefore, the AO, by invoking the provision of section 36(1)(va) r.w.s. 2(24)(x) of the Act treated the same as income and added to the total income of the assessee.
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On appeal by the assessee, the learned CIT(A) also confirmed the addition made by the AO.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
Both the learned AR and the learned DR before us agreed that the issue on hand has been covered against the assessee by the judgment of Hon’ble Jurisdictional High Court in case of CIT vs. Gujarat State Road Transport Corporation reported in (2014) 366 ITR 170 (Guj).
We have heard both the parties and perused the materials available on record. At the outset, we note that the impugned issue has been covered against the assessee by the order of the Hon’ble Gujarat High court in the case of CIT vs. Gujarat State Road Transport Corporation reported in (2014) 366 ITR 170 (Guj). Therefore, respectfully following the order of the Hon’ble Jurisdictional High Court the ground of appeal raised by the assessee is hereby dismissed.
The next issue raised by the assessee is that the Ld. CIT(A) erred in confirming the addition of Rs. 2,58,30,000/- representing the unsecured loan written back which is not chargeable to tax.
The assessee in the year under consideration has shown income in its profit and loss account of Rs. 3,10,33,778/- which was inclusive of the unsecured loan written back from M/s Haryana Sheet Glass Limited amounting to Rs. 2,58,30,000/- only. However, the assessee in the computation of income has reduced the same on the reasoning that such waiver of loan is not taxable under the provision of the Act. The assessee in support of such waiver of loan has also filed the confirmation from the party namely M/s Haryana Sheet Glass Limited. However, the AO disagreed with the contention of the assessee on the reasoning
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that the necessary details such as income tax detail, credit worthiness of the party namely Haryana Sheet Glass Limited was not furnished. Furthermore, there was no justification filed by the assessee from the party which waived off such huge amount of loan. As per the AO, the Auditor of the assessee has rightly qualified in his report that waiver of loan has been shown as income under the head income from other sources. Thus, the AO added the sum of Rs. 2,58,30,000/- to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Ld. CIT(A) and submitted that the loan amount from Haryana Sheet Glass Limited was never shown as sundry creditor for the expenses. Thus, the same cannot be qualified as income under the provisions of section 41(1) of the Act. However, the Ld. CIT(A) confirmed the order of the AO by making the reference to the following judgments.
CIT vs Ramaniyam Homes P Ltd (Madras High Court) 384 ITR 530 (Madras)/[2016) 287 CTR 200 (Madras) 2. [1996] 88 Taxman 429 (SC)/[1996] 222 ITR 344 (SC)/[1996] 136 CTR 444 (SC) Commissioner of Income-tax vs. T.V. Sundaiam Iyengar & Sons Ltd. 3. [2009] 308 ITR 417 (Bombay)/[2009] 222 CTR 455 (Bombay) Solid Containers Ltd. V. Deputy Commissioner of Income-tax 20. The relevant extract of the order of the Ld. CIT(A), is reproduced as under: Considering the above position, it is clear that any waiver of loan is a benefit accruing to the assessee by virtue of his running the business and so is taxable under section 28(iv). There is no denying the fact that loan was taken in connection with the business of the assessee and has been written off by the creditor. Thus, the amount is taxable and the assessee was not justified in reducing it from computation of its income. This ground of appeal is dismissed.
Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
The Ld. AR before us submitted that the fact of the cases referred by the Ld. CIT-A in his order are distinguishable from the present fact of the case. As per the Ld. AR, the Hon’ble Gujarat High Court in the case of PCIT v/s Gujarat State Financial Corporation reported in 122 taxmann.com 101 after considering the
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judgment of Hon’ble SC in the case of T.V Sundaram Iyengar & Sons Ltd. has held that the waiver of loan which was not claimed on revenue account cannot be treated as cessation of trading liability within the meaning of the provision of section 41(1) of the Act.
On the other hand, the Ld. DR contended that the assessee has not furnished the details about the utilization of loan whether it was used for trading activity of the assessee. As such, in the absence of such details the issue cannot be decided in the right prospective. The Ld. DR vehemently supported the order of the authorities below.
In the rejoinder the Ld. AR contended that none of the authority below has investigated about the utilization of loan whether it was for capital asset or for running of the business. Therefore, the issue in dispute cannot be further improved to find out whether the amount of loan was towards the trading activity of the assessee.
We have heard the rival contentions of both the parties and perused the materials available on record. The controversy in the case on hand relates whether the waiver of loan amounting to Rs. 2,58,30,250/- is chargeable to tax in the hands of the assessee either under the provisions of section 28(iv) of the Act or section 41(1) of the Act. To attract the provisions of section 28(iv) of the Act there must be some benefit to the assessee in any form other than the cash arising from business or the exercise of profession. In the present case, the benefit arising to the assessee is in the form of cash, i.e., waiver of loan represents the benefit in the form of cash. The Hon’ble Supreme Court in the case of CIT vs. Mahindra and Mahindra Ltd reported in 93 taxmann.com 32 has observed as under: On a plain reading of section 28(iv), prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of section 28(iv), the benefit which is received has to be in some other form rather than in the shape of money. In the instant case, it is a matter of record that the amount of Rs.57.74 lakhs is having received as cash receipt due
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to the waiver of loan. Therefore, the very first condition of section 28(iv) which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the instant case. Hence, in no circumstances, it can be said that the amount of Rs 57.74 lakhs can be taxed under the provisions of section 28(iv).[Para 13] 25.1 From the above discussion, there remains no ambiguity to the fact that the waiver of loan cannot be made subject to tax under the provisions of section 28 (iv) of the Act.
25.2 The next aspect arises whether such waiver of loan can be brought to tax under the provisions of section 41(1) of the Act. To bring any item under the net of income in pursuance to the provisions of section 41(1) of the Act, there has to be recovery either in cash or in-kind in respect of loss, expenditure or trading liability which was allowed as deduction in any of the assessment year. Thus, first, we have to see whether the waiver of loan in the given case represents the loan for the acquisition of the capital assets or it represents the working capital loan. Again, if the loan is in a capital account, used for the purpose of the fixed assets, then the assessee cannot be made subject to tax under the provisions of section 41(1) of the Act. In holding so, we draw support and guidance from the judgement of Hon’ble Supreme Court in the case of CIT vs. Mahindra and Mahindra Ltd (supra) where it was held as under: 15. On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respondent had been paying interest at 6 % per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the deprecation of the machine and not on the interest paid by it. 16. Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is
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important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between 'trading liability' and 'other liability'. Section 41 (1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41 (1) of the IT Act. 25.3 However, we note that if the loan relates to the working capital loan, then the waiver of such loan represents the benefit to the assessee in respect of which the expenditure was claimed by the assessee and allowed as deduction to the assessee. Accordingly, such working capital loan has to be treated as income of the assessee within the provisions of section 41(1) of the Act. In holding so, we draw support and guidance from the judgement of Hon’ble Delhi High Court in the case of Logitronics (P) Ltd vs. CIT reported in 9 taxmann.com 302 wherein it was held as under: 23. In the context of waiver of loan amount, what follows from the reading of the aforesaid judgment is that the answer would depend upon the purpose for which the said loan was taken. If the loan was taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax. On the other hand, if this loan was for trading purpose and was treated as such from the very beginning in the books of account, as per T.V. Sundaram Iyengar & Sons Ltd.'s case (supra), the waiver thereof may result in the income more so when it was transferred to Profit and Loss account. 25.4 Coming to facts of the case on hand, the AO treated the impugned waiver of loan as income of the assessee for the reason that the assessee has not furnished the explanation regarding why the amount has been waived off as well as assessee failed to furnish necessary details regarding genuineness of the transaction and creditworthiness of the party. On the other hand, the learned CIT(A) confirmed the addition made by the AO on the reasoning that the waiver of loan falls under the benefit arising to the assessee on running the business, hence the same is taxable under the provision of section 28(iv) of the Act. Thus, we note that neither the AO nor the learned CIT(A) in their respective findings invoked the provision of section 41(1) of the Act. Accordingly, we set aside the findings of the ld. CIT-A and direct the AO to delete the addition made by the AO. Hence, the ground of appeal of the assessee is hereby allowed.
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In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the Court on 12/01/2024 at Ahmedabad.
Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 12/01/2024 Manish