Case Law Details

Case Name : Apurva Natvar Parikh and Co. (P) Ltd. Vs. Dy. CIT (ITAT Mumbai)
Appeal Number : ITA No. 2093/Mum/2013
Date of Judgement/Order : 21/12/2017
Related Assessment Year : 2009-10
Courts : All ITAT (5168) ITAT Mumbai (1632)

Apurva Natvar Parikh and Co. (P) Ltd. Vs. Dy. CIT (ITAT Mumbai)

The issue taken by the assessee in grounds of appeal no.2 is with regard to dis allowance of Rs. 1,26,65,630 under section 40(a)(ia) of the Act in respect of payment made to Saikrupa Food Services (P) Ltd. (SKFS) on the ground that the assessee failed to deduct the tax at source. The learned Counsel at the outset submitted that as per the second proviso to section 201 of the Act, the assessee has already furnished a certificate that the recipient has already offered the said amount in the income tax return and duly paid taxes thereon, therefore, the issue is covered by the second proviso to section 201 of the Act and hence no dis allowance under section 40(a)(ia) should be made and prayed that the same should be deleted. The learned Authorized Representative also placed on record a decision of the Hon’ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P) Ltd. (2015) 377 ITR 635(Del) and stated that the Hon’ble Delhi High Court has decided the issue in favour of the assessee and the same analogy be applied for in this case also. Hence, no dis allowance under section 40(a)(ia) would be made.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This is an appeal filed by the assessee challenging the order of the learned Commissioner (Appeals)-38, Mumbai, dated 20-12-2012 for the assessment year 2009-10.

2. The issue raised by the assessee in the first ground of appeal is against the upholding the action of the assessing officer in disallowing the expenses of Rs. 1,45,20,421 towards warehousing expenses being expenditure on repairs on the ground that the expenditure has resulted into enduring benefit in respect of capital asset held by the appellant and the same is in the nature of a capital expenditure.

3. Facts of the case are that the assessing officer during the course of assessment proceedings noted that the assessee has debited a sum of Rs. 1,61,33,801 towards warehousing expenses consisting of payment for cost of bricks, cement steel, TMT bars etc. Accordingly, the assessing officer issued show cause notice to the assessee as to why the same should not be treated as capital expenditure which was replied by the letter dated 7-12-2011 by submitting that the assessee has repaired the compound wall which was broken at several places and also stated that the said wall was constructed long back some where in the year 1974-75 and was damaged due to movement of trailers, forklifts and therefore the surface of the plot has to be repaired. However, the assessing officer was not satisfied with the reply of the assessee and added the same to the income of the assessee however allowed the depreciation at the rate of 10% resulting into dis allowance of Rs. 1,45,20,421. In the appellate proceedings, the FAA confirmed the action of the assessing officer vide para 8 of the appellate order which is as under :–

“8. The facts of the case, the grounds of appeal, the stand taken by the assessing officer in the assessment order and the written submissions filed by the appellant have been carefully considered. In factual terms, the appellant has incurred a huge expenditure of Rs. l,61,33,801 towards the excavation in soil, cost of bricks, cement, steel, TMT bars etc. and carried out a construction. The construction activity included renovating the premises/compound wall and the other basic requirement of the go down areas which is a pre- condition for carrying out the kind of business the appellant is involved. The large scale repairs involving excavation in soil, cost of bricks, cement, steel, TMT bars etc. and the costs incurred thereof clearly indicate that the activity had the effect of carrying out construction/renovation of the warehousing facilities which has an enduring benefit in respect of capital assets held by the appellant. The facts indicate that the benefit that flow from the large scale expenditure incurred would certainly be over a period of several years to come and the same cannot be trivialized by claiming that it has no enduring benefit. It is seen from the profit & loss account that the appellant has received warehousing income of only Rs. 10 lakhs approximately, while it has other income runs into several crores of rupees. The meager income derived from warehousing facilities, as compared to the expenses incurred for renovating the warehousing facilities makes it clear that in order to earn income over a period of time,. certain additional investments have been made in the warehousing facilities. Therefore, the contention of the appellant that the expenditure amounting to Rs. l,61,33,801 ought to have been allowed as revenue expenditure is devoid of merit. In similar facts and circumstances, the Hon’ble Courts have held as under :–

(i) Arvind Mills Ltd. v. CIT (197 ITR 422) (SC) wherein the Hon’ble Supreme Court has held that capital expenditure would not become revenue expenditure simply by reason that it was incurred in connection with business activities which ultimately resulted in efficiently carrying day to day business.

(ii) Modells Woolens Ltd. v. CIT (120 ITR 726) (Bom.) wherein the Hon’ble High Court has held that the expenditure incurred for converting a kacha road into pucca road was not deductible as revenue expenditure because it was not an ordinary repair that was carried out to an existing road and it was nothing short of remaking the road which was in a way altogether a new road and therefore, the expenditure incurred for that purpose was, therefore. in the nature of capital expenditure and not deductible as revenue expenditure.

(iii) Such a view was also expressed on a similar issue by the Hou’ble Kerala High Court in the case of CIT v. Glen View Rubber Co. (P) Ltd.

8.1 Having regard to the facts and circumstances of the case, it is hereby held that the expenditure of Rs. 1,61,33,801l- has been rightly considered by the assessing officer as capital expenditure and depreciation at the applicable rates has been allowed. Therefore, no interference is called for”

4. The learned Authorized Representative vehemently submitted before us that the learned Commissioner (Appeals) has grossly erred in upholding the order of the assessing officer by not appreciating all the facts of the case in correct perspective. The learned Authorized Representative submitted that the said expenditure was incurred by the assessee for repairing the compound wall which was in a dilapidated condition and has to be repaired by incurring the said expenses such as excavation, labour charges and purchase of materials etc but all were revenue in nature. The learned Authorized Representative in support of his contention heavily relied on the decision of the Hon’ble Madras High Court in the case of CIT v. Southern Roadways Ltd. (2008) 304 ITR 84 (Mad). The learned Authorized Representative submitted before us that the expenditure incurred for the same be treated as revenue expenditure and accordingly prayed that the order of FAA be reversed and the assessing officer be directed to delete the addition.

5. We have carefully heard the rival contentions and perused the material placed before us including the impugned orders and case law relied upon by the assessee. The undisputed facts of the issue are that the assessee has incurred an expenditure to the tune of Rs. 1,61,33,801 on the repairs of compound wall which comprises payment for cost of bricks, cement steel, TMT bars, excavation and labour charges etc. Now the issue before us is whether the repair of compound wall constitutes revenue expenses in nature or falls under the category of capital expenditure. After examining the facts on records and relevant contentions, we find that the expenditure is clearly of revenue in nature as the same were incurred to repair and restore the dilapidated wall. Moreover, the case of the assessee finds support of the decision of the Hon’ble Madras High Court in the case of Southern Roadways Ltd. (supra), wherein it has been held that the expenditure incurred on compound wall is revenue expenditure. We, therefore, respectfully following the ratio of the decision of Hon’ble Madras High Court (supra) set aside the order of the learned Commissioner (Appeals) and direct the assessing officer to delete the addition. Ground no.1 taken by the assessee stands allowed.

6. The issue taken by the assessee in grounds of appeal no.2 is with regard to dis allowance of Rs. 1,26,65,630 under section 40(a)(ia) of the Act in respect of payment made to Saikrupa Food Services (P) Ltd. (SKFS) on the ground that the assessee failed to deduct the tax at source. The learned Counsel at the outset submitted that as per the second proviso to section 201 of the Act, the assessee has already furnished a certificate that the recipient has already offered the said amount in the income tax return and duly paid taxes thereon, therefore, the issue is covered by the second proviso to section 201 of the Act and hence no dis allowance under section 40(a)(ia) should be made and prayed that the same should be deleted. The learned Authorized Representative also placed on record a decision of the Hon’ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P) Ltd. (2015) 377 ITR 635(Del) and stated that the Hon’ble Delhi High Court has decided the issue in favour of the assessee and the same analogy be applied for in this case also.

7. The learned Departmental Representative on the other hand relied on the order of authorities below.

8. We find that no dis allowance is called for as the recipient has already paid the taxes on the sources of income and due certificate was furnished by the assessee. We also find that the case law relied upon by the learned Authorized Representative in the case of Ansal Land Mark Township (P) Ltd. (supra) support the issue of the assessee. In view of the facts and legal position, we are inclined to set aside the order of Commissioner (Appeals) and direct the assessing officer to delete the dis allowance. The ground of the assessee is allowed

9. In the result, the appeal of the assessee is partly allowed.

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Category : Income Tax (27505)
Type : Judiciary (11709)
Tags : ITAT Judgments (5352) section 40(a)(ia) (201) TDS (1026)

One response to “No disallowance U/s. 40(a)(ia) if recipient already paid taxes on sources of income”

  1. Barun Kr BANERJEE says:

    I would not like mention Bank. A/C, for safety and security,

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