Case Law Details
ACIT Vs Quippo Oil & Gas Infrastructure Ltd. (ITAT Delhi)
ITAT Delhi held that disallowance u/s 40(a)(ia) of the Income Tax Act unjustified as there was due compliance with provisions of section 194C(6). Violation of provisions of section 194C(7) doesn’t attract disallowance u/s 40(a)(ia) of Income Tax Act.
Facts- The assessee filed return of income for A.Y. 2013-14 declaring loss of Rs. 10,63,43,600/-. The assessment order came to be passed disallowing the depreciation of Rs.3,01,78,780/- on oil drilling rigs, unpaid provisions of leave encashment of Rs. 4,32,147/-, the mobilization of expenses u/s 40(a)(ia) of the Act of Rs. 4,77,50,400/- and further disallowed the capitalization and repair and maintenance expenses of Rs.5,02,90,513/-.
The assessee has preferred an appeal before the CIT(A) and the Ld.CIT(A) deleted the addition of Rs. 3,01,78,780/- made on account of disallowance of excess depreciation, deleted the disallowance of Rs. 7,53,447/- made on account of unpaid provisions of leave encashment u/s 43B of the Act, deleted the disallowance of mobilization expenses made to Rs. 4,77,50,400/- u/s 40(a)(ia) of the Act and also deleted the addition of Rs. 5,02,90,513/- being disallowance of capital expenditure.
Aggrieved by the order of the Ld.CIT(A), the Revenue has filed the present appeal.
Conclusion- Even if there is violation of provisions of Sec. 194C(7) of the Act, disallowance u/s 40(a)(ia) of the Act does not arise, if assessee had complied with the provision of Sec. 194C(6) of the Act. In the instant case, the assessee had obtained PAN of the transporters and duly complied with the provisions of Sec. 194C(6) of the Act. Therefore, TDS was not required to be deducted by the assessee.
The Hon’ble Kolkata Tribunal in the case of Rani Ghosh vs. DCIT in ITA No. 1420/Kol/2015 held that if the assessee compliance with provision of section 194C(6), the disallowance u/s 40(a)(ia) of the Act does not arise just because there is a violation of provision of section 194C(7) of the Act. The section 194C(6), 94C(7) and section 194C(7) of the Act are independent of each other and cannot be read together to attract disallowance u/s 40(a)(ia) of the Act read with section 194C of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-38, (hereinafter referred to CIT (Appeals) New Delhi, dated 28.12.2017 for assessment year 2013-14.
2. The Revenue has raised the following substantive grounds of appeal :-
“1. On the facts and under the circumstances of the case, Ld. CIT (A) has erred in law and fact in deleting the addition of Rs.3,01,78,780/- on account of disallowance of excess depreciation claimed by the assessee on oil rigs when it is clearly established that the assessee, being in the business of hiring plant and machinery to mineral oil concerns and not being a mineral oil concern itself, was not eligible for higher depreciation as claimed under Part A-III 8(xii) of the new Appendix-I to the Income Tax Rules, 1962.
2. On the facts and under the circumstances of the case, Ld. CIT (A) has erred in law and facts in deleting the addition/disallowance of Rs.7,53,447/- on account of un-paid provisions of leave encashment u/s 43B of the Income Tax Act, 1961.
3. On the facts and under the circumstances of the case, Ld. CIT (A) has erred in law and facts in deleting the addition/disallowance of mobilization expenses amounting to Rs.4,77,50,400/- u/s 40(a)(ia) of the Income Tax Act, 1961.
4. On the facts and under the circumstances of the case, Ld. CIT (A) has erred in law and facts in deleting the addition of Rs.5,02,90,513/- being disallowance of capital expenditure, when it is clearly established that the expenditure on M.S. Plates for bunk house had resulted in creation of enduring benefit to the assessee and hence was capital expenditure, as evidenced by the addition to fixed assets shown in the assessee’s balance sheet.”
3. Brief facts of the case are that, the assessee filed return of income for the Assessment Year 2013-14 declaring loss of Rs. 10,63,43,600/-. The assessment order came to be passed on 15/03/2016 by disallowing the depreciation of Rs.3,01,78,780/- on oil drilling rigs, unpaid provisions of leave encashment of Rs. 4,32,147/-, the mobilization of expenses u/s 40(a)(ia) of the Act of Rs. 4,77,50,400/- and further disallowed the capitalization and repair and maintenance expenses of Rs.5,02,90,513/-.
4. As against the assessment order, the assessee has preferred an appeal before the CIT(A) and the Ld.CIT(A) vide order dated 28/12/2017 deleted the addition of Rs. 3,01,78,780/- made on account of disallowance of excess depreciation, deleted the disallowance of Rs. 7,53,447/- made on account of unpaid provisions of leave encashment u/s 43B of the Act, deleted the disallowance of mobilization expenses made to Rs. 4,77,50,400/- u/s 40(a)(ia) of the Act and also deleted the addition of Rs. 5,02,90,513/- being disallowance of capital expenditure.
5. Aggrieved by the order of the Ld.CIT(A) the Revenue has filed the present appeal on the grounds mentioned above.
6. The Ld. DR by relying on the order of the A.O., submitted that the impugned order passed by the CIT(A) deserves to be set aside and the appeal is liable to be allowed. Further the Ld. DR has withdrawn the Ground No.3 as not pressed.
7. Per contra, the Ld. Counsel for the assessee submitted that the Ground No. 1 and 4 are covered by the order of the Tribunal and prayed for dismissal of the appeal.
8. We have heard the parties perused the material available on record.
9. The Ground No. 1 is regarding deletion of disallowance of higher depreciation on Oil drilling rigs given on hire. The assessee had claimed depreciation of Rs.4,02,38,373/- at 60% on oil drilling rigs classifying them as plant used for extracting mineral oil as per entry at Part AIII-(8) (xii) of New Appendix I of the Income Tax Rules, 1962. The A.O. disallowed the excess of Rs. 3,01,78,780/-on the ground that the assessee is not a mineral oil concern. In appeal, the Ld.CIT(A) by relying on the decision of the Hon’ble Delhi High Court in the case of CIT vs. HLS India Ltd. (2011) 335 ITR 292 (Del.) and also order of the assessee’s own case in earlier years, deleted the addition made by the A.O.
10. For the purpose of claiming the deprecation u/s 32 of the Act, following two conditions need to be satisfied:-
(i) The assets must by owned by the assessee.
(ii) The assets must be used for the purpose of business or profession.
In the instant case, both the above conditions are duly satisfied since the oil rigs being plant of ‘specific category’ are owned by the assessee and further it is used in drilling operations for the purpose of exploration and extraction of mineral oil in the field of mineral oil concerns.
11. The Hon’ble Jurisdictional High court in the case of CIT Vs. HLS India Ltd. (2011) 335 ITR 292 (Del) held as under:-
“Depreciation allowance is a kind of tax benefit which is given to the business concerns for promotion of business activities in any particular field of business. In the instant case depreciation is allowable to mineral oil concerns @ 100% on the equipments used below the earth surface. If the same depreciation is not allowed to other business concerns on the ground that the owner of these equipments is not a mineral oil concern but it is just providing an assistance or leasing these equipments to a mineral oil concern then definitely this “other concern” will charge more for these services and consequently the mineral oil concerns will be commercially forced not to outsource wireline logging activities to other cmnpanies but to do it themselves”.
12. Further, the above order of the Hon’ble High Court of Delhi has been challenged by the Department in SLP No. 2723/2012 which has been dismissed by the Hon’ble Supreme Court. Thus, by respectfully following the above decisions, we do not find error in the order of the Ld.CIT(A) in deleting the above addition. Accordingly, we dismissed the ground no. 1 of the Revenue.
13. The Ground No. 2 is regarding disallowance of leave encashment claimed on provisional basis, since the Hon’ble Apex Court in the case of CIT Vs. HLS India Ltd. (supra) decided against the Revenue, the Ld. DR has withdrawn the Ground No. 2. Accordingly, Ground No. 2 is dismissed as withdrawn.
14. The Ground No. 3 is regarding deletion of disallowance of mobilization expenses u/s 40(a)(ia) of the Act to the tune of Rs.4,77,50,400/-. The assessee had debited to profit & loss account a sum of Rs.5,15,15,500/-towards mobilization expenses. The same has been disallowed by the AO on the ground that the payment debited to profit and loss account of mobilization charges are not covered under the provisions of section 194C(6) of the Act as the payment are not made to contracts for playing, hiring or leasing goods carriages. The said addition has been deleted by the CIT(A) after verifying following: –
(a) Statement showing the details of mobilization expenses which includes expenses in the nature of transportation charges and also the expenses which are not in the nature of transportation charges along with the TDS returns and the acknowledgement of TDS returns.
(b) Copy of agreements with customers in support of services provided by the assessee which includes incurring mobilization expenses for transporting rigs to a new location for installation and removal of these rigs from the old sites.
(c) Statement giving details of origin and destination points for carrying of rigs, etc. and details of the customer in respect of which rigs, etc. were transferred, in respect of mobilization expenses.
(d) Copy of work orders with transporters.
15. Further, in terms of section 194C(7) read with Rule 31A(4)(vi), the deductor is required to furnish particulars of amount paid or credited on which tax was deducted in view of compliance of provision of sub-section (6) of section 194C by the payer in its quarterly TDS statement. In compliance of the same, the assessee had filed the TDS return giving the details of payment made transporters on which TDS has not been made. Apart from the same as per provision of Sec. 194C(6), no tax needs to be deducted at the time of making payments to the transporters, if the transporter furnished his PAN to the person making the payment. In this connection, PAN of the parties have been submitted before the AO and the assessee had duly submitted TDS returns giving the details of the payments made to transporters on which no TDS was deducted and a statement showing expenses not in the nature of transportation expenses vide reply dated 01.03.2016. Even if there is violation of provisions of Sec. 194C(7) of the Act, disallowance u/s 40(a)(ia) of the Act does not arise, if assessee had complied with the provision of Sec. 194C(6) of the Act. In the instant case, the assessee had obtained PAN of the transporters and duly complied with the provisions of Sec. 194C(6) of the Act. Therefore, TDS was not required to be deducted by the assessee.
16. The Hon’ble Kolkata Tribunal in the case of Rani Ghosh vs. DCIT in ITA No. 1420/Kol/2015 held that if the assessee compliance with provision of section 194C(6), the disallowance u/s 40(a)(ia) of the Act does not arise just because there is a violation of provision of section 194C(7) of the Act. The section 194C(6), 94C(7) and section 194C(7) of the Act are independent of each other and cannot be read together to attract disallowance u/s 40(a)(ia) of the Act read with section 194C of the Act. The relevant portion of the order of the Hon’ble High Court of Kolkata are as follows: –
“27. From the above, it could be observed that only slight modification had been introduced as to the procedure by replacing “declaration” with the words “Permanent Account Number” as the thing to be obtained from the Transporter. We are, therefore, inclined to hold that the provisions of Section 194C(6) and 1940(7) are similar to the Proviso (2) and (3) of the pre-amended Section 1940(3), and on this premise we shall proceed to I . T. A . N o. 1 4 2 o / KO L./2015 Assessment year: 2012-2013 examine whether Section 1940(6) and 1940(7) are to be read together to invoke provisions under section 40(a)(ia) of the Act.
28. After drawing an analogy between the pre-amended proviso between Clause (2) and Clause (3) of section 1940(3) and the present amended section 1940(6) and 1940(7), Learned AR submitted that even on earlier occasions when the declaration obtained in Form 15I ( requirement similar to the PAN particulars under Sec. 1940(6)) obtained from the Transporter under Second Proviso is not submitted in Form 15J to the Commissioner of Income Tax in Form 15J (requirement similar as is provided under the third proviso and equivalent to the requirement Sec. 1940(7), the Department made attempts to make additions, but such additions have been deleted and rendered invalid. He submitted that the Courts and Tribunals consistently held that on obtaining of either the declaration contemplated under second proviso to the pre-amended section 1940(3) or the PAN details under the present section 1940(6), the assessee was not required to make any deduction at source on the payments made to the contractor or subcontractor, irrespective of the fact whether or not such information was furnished to the authorities as prescribed under third proviso to the amended section 1940(3) or the present section 1940(7).
29. In CIT -vs.- Valibhai Khanbhai Mankad (Tax Appeal No. 1182 of 2011, order dated 01.10.2012), it is held by the Hon’ble Gujarat High Court at Ahmedabad that :-
“(6) Section 194C, as already noticed, makes provision where for certain payments, liability of the payee to deduct tax at source arises. Therefore, if there is any breach of such requirement, question of applicability of section 40(a)(ia) would arise. Despite such circumstances existing, sub-section (3) makes exclusion in cases where such liability would not arise. We are concerned with the further proviso to sub-section(3), which provides that no deduction under subsection (2) shall be made from the amount of any sum credited or paid or likely to be credited or paid to the subcontractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum in the prescribed form and verified it in the prescribed manner within the time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year.
7) The exclusion provided in sub-section (3) of section 194C from the liability to deduct tax at source under sub-section (2) would thus be complete the moment the requirements contained therein are satisfied. Such requirements, principally, are that the sub-contractor, recipient of the payment produces a necessary declaration in the prescribed format and further that such sub-contractor does not own more than two I . T.A.No. 1420 / KO L . / 2 o 1 5 Assessment year: 2012-2013 goods carriages during the entire previous year. The moment, such requirements are fulfilled, the liability of the assessee to deduct tax on the payments made or to be made to such sub-contractors would cease. In fact he would have no authority to make any such deduction.
8) The later portion of sub-section (3) which follow the further proviso is a requirement which would arise at a much later point of time. Such requirement is that the person responsible for paying such sum to the sub-contractor has to furnish such particulars as prescribed. We may notice that under Rule 29D of the Rules, such declaration has to be made by the end of June of the next accounting year in question.
9) In our view, therefore, once the conditions of further proviso of section 1940(3) are satisfied, the liability of the payee to deduct tax at source would cease. The requirement of such payee to furnish details to the income tax authority in the prescribed form within prescribed time would arise later and any infraction in such a requirement would not make the requirement of deduction at source applicable under subsection (2) of section 194C of the Act. In our view, therefore, the Tribunal was perfectly justified in taking the view in the impugned judgment. It may be that failure to comply such requirement by the payee may result into some other adverse consequences if so provided under the Act. However, fulfilment of such requirement cannot be linked to the declaration of tax at source. Any such failure therefore cannot be visualized by adverse consequences provided under section 4o(a)(ia) of the Act.
10) When on the basis of the record it is not disputed that the requirements of further proviso were fulfilled, the assessee was not required to make any deduction at source on the payments made to the sub-contractors. If that be our conclusion, application of section 4o(a)(ia) would not arise since, as already noticed, section 4o(a)(ia) would apply when there is a requirement of deduction of tax at source and such requirement is either not fulfilled or having deducted tax at source is not deposited within prescribed time”.
30. In CIT -vs.- Sri Marikamba Transport Co. in ITA No. 553 of 2013 reported in 379 ITR 129 (Karn.), Hon’ble Karnataka High Court has formulated a question as to whether non-filing of Form No. 15I/J within the prescribed time is only a technical default or the provisions of section 4o(a)(ia) of the Act are attracted? and proceeded to answer the same as under:-
“Section 40 (a)(ia) and Section 194C(3) of the Act reads thus: “Section 4o(a)(ia) : Any interest, commission or brokerage, rent, royalty, fees for professional 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 XII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section(i) of Section 139”.
Section 194C/3): No deduction shall be made under subsection (1) or sub- section(2) from –
I. T. A.No. 1420 / KO L . / 2 o 1 5 Assessment year: 20122013
(i) the amount of any sum credited or paid or likely to be credited or paid to the account of or to the contractor or subcontractor, if such sum does not exceed twenty thousand rupees:
Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-s.(l) or as the case may be sub-s.(2) shall be liable to deduct income-tax under this section: Provided further that no deduction shall be made under subs. (2) from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the subcontractor during the course of business of plying hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum in the prescribed form and verified in the prescribed manner and within such time as may be prescribed, if such subcontractor is an individual who has not owned more than two goods carriages at any time during the previous year.
Provided also that the person responsible for paying any sum as aforesaid to the sub- contractor referred to in the second proviso shall furnish to the prescribed IT authority or the person authorised by it such particulars as may be prescribed in such form and within such time as may be prescribed: or
(i) any sum credited or paid before the 1st day of June, 1972; or
(ii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the subcontractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society.”
4. The combined reading of these two provisions make it clear that if there is any breach of \ requirements of Section 1940(3), the question of applicability of Section 4o(a)(ia) arises. The exclusion provided in Sub-Section(3) of Section 194C from the liability to deduct tax at source under sub-section(2) would be complete, the moment the requirements contained therein are satisfied. Once, the declaration forms are filed by the subcontractor, the liability of the assessee to deduct tax on the payments made to the sub-contractor would not arise. As we have examined, the sub-contractors have filed Form No. lSl before the assessee. Such being the case, the assessee is not required to deduct tax under Section 1940(3) of the Act and to file Form N0.15]. It is only a technical defect as pointed out by the Tribunal in not filing Form N0.15J by the assessee. This matter was extensively considered by the ITAT, Ahmedabad Bench in Valibhai Khanbhai Mankad’s case (supra) and the said Judgment has been upheld by the High Court of Gujarat reported in (2013) 216 Taxman 18 (Guj) wherein it is held that once the conditions of Section 1940(3) were satisfied, the liability of the payee to deduct tax at source would cease and accordingly, application of Section 4o(a)(ia) would also not arise. The Tribunal, placing reliance on the judgment of the ITAT, Ahmedabad Bench, has dismissed the appeal filed by the Revenue. We agree with die said propositions and hold that filing of Form No.isl/j is only directory and not mandatory.”
I. T. A.No. 1420 / KO L . / 2 o 1 5 Assessment year: 2012-2013
31. A Coordinate Bench of this Tribunal in ITA No. 86/VIZ/2013 in the case of ITO -vs.- Kolli Brothers, order dated 11.12.2013 followed the decision of the Hon’ble High Court of Gujarat in the case of Valibhai Khanbhai Mankad (supra). In the case of M/s. Mahalaxmi Cargo Movers -vs.- ITO in ITA No. 6191/MUM/2013, order dated 09.12.2015, another Coordinate Bench of this Tribunal reached the same conclusion while following the decision of the Coordinate Bench in the case of CIT -vs.- Valibhai Khanbhai Mankad (supra) and CIT-vs.- Sri Marikamba Transport Co. in ITA No. 553 of 2013 reported in 379 ITR129 (Karn.).
32. It is worth noticing that in ACIT -vs.- Mr. Mohammed Suhail, Kurnool in ITA No. i536.Hyd/20i4, order dated 13.02.2015, the Coordinate Bench of this Tribunal specifically held that the provisions of section 194C(6) are independent of section 1940(7), and just because there is violation of provisions of section 1940(7), disallowance under section 4o(a)(ia) does not arise if the assessee complies with the provisions of section 1940(6).
33. In view of the above and respectfully following the judicial reasoning delineated in the above judgments, we find that if the assessee complies with the provisions of section 194C(6), disallowance under section 4o(a)(ia) does not arise just because there is violation of provisions of section 1940(7) of the Act.”
17. In view of the above, we do not find any error in the order of the CIT(A) in deleting the disallowance of mobilization expenses and find no merit in the ground No. 3 of the Revenue. Accordingly, ground No. 3 of the Revenue is dismissed.
18. Ground No. 4 is regarding deletion of disallowance of repair and maintenance (equipment expenses) of Rs. 5,02,90,513/- . The above issue has also been decided in favour of the assessee on earlier years by the Tribunal in ITA No. 3886/Del/2015, 3887/Del/2015 & 2027/Del/2017. The Co-ordinate Bench while dealing with the issue for the Assessment Year 201011 held as under:-
“13. We have carefully considered the rival submissions. The assessee-company is engaged in providing plants and machinery, mobile drilling rigs, equipment and other related services to oil and gas industry. The assessee during the year has entered into contract with Jubilant Oil and Gas Pvt. Ltd. On perusal of the terms of the contract, it was observed that while the payment terms are clearly specified and there does not appear to be any reimbursement of expenses relating to repair and maintenance specified therein. .There is no dispute that expenses have been actually incurred towards repair and maintenance. The only dispute is whether such expenditure are eligible for deduction or being capital in nature. At this juncture, we take note of the plea of the assessee that there is no reimbursement of expenses and such expenses are integral part of the execution of the contract as demonstrated. Hence, the expenditure incurred requires to be set off against the revenue income arising from contract as per rudimentary principles of accountancy. The assessee has taken a plea that no new asset is created or no benefit of enduring nature has been derived. We do not see any rebuttal on this score from the revenue. The Assessing Officer has merely proceeded on a hypothesis of such expenditure being capital in nature without showing any justifiable grounds for doing so. The Assessing Officer has capitalized such expenditure without showing any reasonable grounds. On the contrary, we find merit in the conclusion drawn by the CIT(A) holding the same to be revenue expenditure on the face of such tell-tale facts. In the absence of any merits in the plea of the revenue, we decline to interfere with the order of the CIT(A).
14. In the result, the ground no.2 of the Revenue’s Appeal is dismissed.”
19. Further even in the AY 2011-12 & 2012-13 also the coordinate bench in ITA No. 3887/Del/2015 & ITA No. 2027/Del/2015 taken the similar view and deleting the addition.
20. By respectfully following the order of the Coordinate Bench in assessee’s own case for the Assessment Year 2010-11, 2011-12 & 2012-13 we are of the considered opinion that the Ground No. 4 of the Revenue deserves to be dismissed.
21. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on : 23/03/2023.
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