Hi-tech Rock Products & Aggregates Ltd., CHENNAI V. DCIT, CHENNAI

ITA 759/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9438 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 09-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: RAGHAVAN RAMABADRAN
• Keywords: Capital asset; Depreciation; Wholly owned subsidiary; Revenue expenditure
• Section: 143(3); 234B; 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.759/MDS/2015 ( / ASSESSMENT YEAR: 2010-11) M/S. HI-TECH ROCK PRODUCTS & AGGREGATES LTD. MOUNT POONAMALLEE ROAD, P.O.BOX NO.979, MANAPAKKAM, CHENNAI-600 089. VS . THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(2) CHENNAI. PAN: AACCH0917H ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.RAGHAVAN RAMABADRAN, ADVOCATE /RESPONDENT BY : MR. P.RADHAKRISHNAN, JCIT /DATE OF HEARING : 23 RD FEBRUARY, 2016 /DATE OF PRONOUNCEMENT : 29 TH APRIL, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- II, CHENNAI DATED 16.09.2014 IN ITA NO.624/2013-14 PASSED UNDER SECTION 143(3) R.W.S 250(6) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER, THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD DISALLOWED THE EXPENDITUR E PERTAINING TO THE ERECTION COST OF CRUSHER PLANTS I N LAIYARA QUARRY AND BERAJA QUARRY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON- 2 ITA NO.759 /MDS/2015 DEDUCTION OF TAX TOWARDS PAYMENT MADE TO CONTRACTOR S UNDER SECTION 194C OF THE ACT. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAS NOT GRANTED CREDIT FOR TA X COLLECTED AT SOURCE FOR RS.11,74,254/-. III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAS LEVIED INTEREST UNDER SEC TION 234B & 234C OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS A WHOLLY OWNED SUBSIDIARY COMPANY OF M/S. LARSEN & TOUBRO LTD., ENGAGED IN THE BUSINESS OF QUARRYING A ND MINING AND MAINLY SUPPLYING THE SAME TO ITS HOLDING COMPAN Y M/S. L & T LTD., FOR ITS CONSTRUCTION ACTIVITIES. THE ASSE SSEE COMPANY FILED ITS RETURN OF INCOME ON 30.09.2010 FOR THE ASSESSMENT YEAR 2010-11 DECLARING INCOME OF ` 14,88,190/-. SUBSEQUENTLY, ASSESSMENT WAS COMPLETED UNDER SECTIO N 143(3) OF THE ACT ON 18.03.2013 WHEREIN THE LEARNED ASSESSING OFFICER MADE CERTAIN ADDITIONS. GROUND NO.1: DISALLOWANCE OF RS.2,00,97,286/- INVOK ING SECTION 40(A)(IA) OF THE ACT:- 3 ITA NO.759 /MDS/2015 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSE E HAD PAID RS.2,00,97,286/- TO M/S. LARSEN & TOUBRO LTD. TOWARDS ERECTION OF CRUSHERS LOCATED AT LAIYARA QUARRY AND BERAJA QUARRY FOR WHICH TAX WAS NOT DEDUCTED IN ACCORDANC E WITH SECTION 194C OF THE ACT. THEREFORE, THE LEARNED AS SESSING OFFICER INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER BY OBSERVING AS UNDER:- 4.6 THE ASSESSEES ARGUMENT, THAT SINCE L&T LTD. HAS DEDUCTED THE NECESSARY TDS ON ITS PAYMENTS TO ITS S UB- CONTRACTORS, THERE WAS NO NEED TO DEDUCT ANY TDS ON THE PAYMENTS MADE TO L&T LTD., IS NOT WELL-FOUNDED. IN THE PRESENT CASE, THERE ARE TWO CLEAR AND INDEPENDENT TRANSACTI ONS I.E (I) CONTRACT BETWEEN THE ASSESSEE AND L&T LTD.AND (II) SUB-CONTRACT BETWEEN L&T LTD AND THE VARIOUS SUB-CONTRACTORS. TH OUGH BOTH ARE REGARDING THE ERECTION OF CRUSHERS FORTE STRUCT URES, THE TRANSACTIONS ARE INDEPENDENT. AS PER THE ACT, THE ASSESSEE IS REQUIRED TO DEDUCT TDS ON EVERY CONTRACT WORK INCLU DING THE SUB- CONTRACTS. THE FIRST CONTRACT ENDS BETWEEN THE ASS ESSEE AND M/S L&T LTD. THE CONTRACT BETWEEN L&T LTD. AND ITS SUB -CONTRACTORS HAS NO RELEVANCE AS FAR AS THE ASSESSEE IS CONCERNE D. THE CONTRACTUAL OBLIGATIONS IN THE LATTER CASE ARE BETW EEN THE L&T LTD. AND THE VARIOUS SUB-CONTRACTORS. THEREFORE, T HE TRANSACTION BETWEEN THE ASSESSEE AND M/S L&T LTD. IS AN INDEPEN DENT AND SEPARATE CONTRACT AND REQUIRES TDS TO BE DEDUCTED. SINCE THE ASSESSEE HAS FAILED TO DEDUCT THE NECESSARY TDS ON ITS PAYMENTS TO M/S L&T LTD. OF ERECTION OF CRUSHERS A ND OTHER STRUCTURES AT THE ABOVE QUARRIES, THE PROVISIONS OF SECTION 40(A)(IA) CLEARLY GETS ATTRACTED. THEREFORE, THE A CTION OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENSES OF ER ECTION OF CRUSHERS AND OTHER STRUCTURES IS JUSTIFIED AND CONF IRMED. 4 ITA NO.759 /MDS/2015 4.7 IT IS ALSO IMPORTANT TO MENTION HERE THAT WHEN THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 40(A)(IA) AND DISALLOWED THE EXPENSES ON THE ERECTION OF CRUSHERS AND OTHER STRUCTURES, THE ASSESSEE REALIZED THE IMPORTANCE OF PROVISIONS OF SEC.40(A)(IA) AND DEDUCTED NECESSARY TDS AND REMITT ED INTO GOVERNMENT ACCOUNT ON 31.3.2013 ON ALL THE PAYMENTS MADE TO M/S L&T LTD. IN VARIOUS FINANCIAL YEARS INCLUDING T HE CURRENT FINANCIAL YEAR 2009-10. THIS ALSO GOES TO PROVE TH AT THE PAYMENTS ARE LIABLE FOR TDS. 4.8 THE NEXT CONTENTION OF THE ASSESSEE IS THAT O UT OF THE ABOVE EXPENSES OF RS.2,00,97,286/-, ONLY A SUM OF RS.1,70 ,07,370/- WAS DEBITED TO PROFIT AND LOSS ACCOUNT OF THE CURRE NT YEAR (AND THE BALANCE WAS DEBITED IN THE PROFIT AND LOSS ACCO UNT OF F.Y 2010-11), AND HENCE, DISALLOWANCE U/S 40(A)(IA) SHO ULD BE RESTRICTED TO RS.1,70,17,370/- ONLY. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ISSUE AND IF THE CLAIM IS F OUND TO BE CORRECT, THE DISALLOWANCE MAY BE RESTRICTED TO THE AMOUNT WHICH IS ACTUALLY DEBITED IN THE PROFIT AND LOSS ACCOUNT. IN SUCH CASE, THE ASSESSING OFFICER HAS TO DISALLOW THE BALANCE O F THE AMOUNT IN THE FOLLOWING FINANCIAL YEAR 2011-12, BY TAKING APPROPRIATE ACTION. THE ASSESSING OFFICER IS DIRECTED ACCORDIN GLY. 4.9 FROM THE DETAILS SUBMITTED BY THE ASSESSEE, MO ST OF THE STRUCTURES CLAIMED BY THE ASSESSEE AS TEMPORARY ST RUCTURES AND DEBITED TO PROFIT AND LOSS ACCOUNT, ARE NOT THE REA L TEMPORARY STRUCTURES. THE ERECTION OF THE CRUSHERS AND STRUCT URES ARE MAY BE FOR TEMPORARY USE. BUT, THE MATERIALS USED IN T HESE STRUCTURES ARE NOT TEMPORARY MATERIAL. THEY ARE ALL PRE-FABRI CATED AND RE- USABLE COMPONENTS, MOSTLY MADE UP OF IRON AND RELAT ED MATERIAL. ONCE THE WORK IN A PARTICULAR SITE IS OVER, THE COM PONENTS CAN EASILY BE DISMANTLED AND TAKEN TO THE NEW PLACE AND USED FOR RE- ERECTION. THUS, THE COMPONENTS INVOLVED IN THE STR UCTURES ARE RE- USABLE MATERIALS WITHOUT ANY LOSS IN VALUE. THEREF ORE, THE STRUCTURES OF CRUSHERS AND OTHERS IN THE QUARRIES C ANNOT BE CLASSIFIED AS TEMPORARY STRUCTURES FOR THE PURPOSE OF ALLOWING THEM AS REVENUE EXPENSES. ON THIS REASON ALSO, THE ASSESSEE IS NOT ENTITLED FOR WRITING OFF THESE CRUSHERS AND OTHER STRUCTURES AS REVENUE EXPENSES IN THE PROFIT AND LOSS ACCOUNT. 4.10 IN VIEW OF THE ABOVE REASONS, THE ACTION OF THE ASSESSING OFFICER, SUBJECT TO THE REMARKS MENTIONED ABOVE, IS JUSTIFIED AND CONFIRMED. THE ASSESSEE FAILS IN HIS APPEALS. 5 ITA NO.759 /MDS/2015 4.1 FURTHER WITH RESPECT TO THE CLAIM OF THE A SSESSEE THAT ONLY RS.1,70,07,370/- WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT ASSESSMENT YEAR 2010-11, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DIRECT ED THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESS EE AND DISALLOW ONLY THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT DURING THE RELEVANT ASSESSMENT YEARS. FURT HER, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD T HAT THE ERECTION OF CRUSHER WITH THE HELP OF TEMPORARY STRU CTURES AND PRE-FABRICATED AND REUSABLE COMPONENTS MAINLY MADE UP OF IRON & RELATED MATERIALS CANNOT BE CONSIDERED AS TH E REVENUE EXPENSES OF THE ASSESSEE BECAUSE ONCE WORK IN A PAR TICULAR CITE IS COMPLETED THE ERECTED MACHINERY IS DISMANTL ED AND TAKEN TO A NEW PLACE FOR RE-ERECTION. HENCE, IT REM AINS AS AN ASSET TO THE COMPANY WHICH HAS ENDURING BENEFIT. 4.2 BEFORE US THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESSEES HOLDING COMPANY M/S. L & T LTD., HAS ERECTED THE STRUCTURES ON BEHALF OF THE A SSESSEE COMPANY AND THEY HAD MADE THE PAYMENTS TO VARIOUS CONTRACTORS BY DEDUCTING TAX AT SOURCE AS PER THE P ROVISIONS OF SECTION 194C OF THE ACT. HENCE, THE ASSESSEE CO MPANY 6 ITA NO.759 /MDS/2015 HAS ONLY REIMBURSED THE EXPENSES INCURRED BY THE ASSESSEES HOLDING COMPANY AND THEREFORE PROVISIONS OF SECTION 194C OF THE ACT WILL NOT BE ATTRACTED. 4.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, ARGUED IN SUPPORT OF THE ORDERS OF THE REVENU E. 4.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE ASSESSEE COMPANY HAS NOT ENTERED INTO ANY CONTRACT WITH ITS HOLDING COMPANY FOR ERECTION OF CRUSHERS. SINCE THE ASSESSEE COMPANY W AS MAINLY ENGAGED IN CATERING TO THE REQUIREMENTS OF A SSESSEES HOLDING COMPANY M/S. L & T LTD., IT HAD INSTALLED T HE CRUSHER ON BEHALF OF THE ASSESSEE COMPANY AND SUBSEQUENTLY THE ASSESSEE COMPANY REIMBURSED THE COST. IN THIS SITUA TION WE DO NOT FIND THE RELATIONSHIP BETWEEN THE ASSESSEE C OMPANY AND M/S. L& T LTD., AS CONTRACTEE AND CONTRACTOR RE SPECTIVELY. WHEN THERE IS NO CONTRACTOR-CONTRACTEE RELATIONSHIP BETWEEN M/S. L & T LTD., AND THE ASSESSEE COMPANY, THE PROV ISIONS OF SECTION 194C OF THE ACT WILL NOT BE ATTRACTED AND A CCORDINGLY PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CANNOT B E INVOKED. 7 ITA NO.759 /MDS/2015 HOWEVER, WE FIND THAT THE ASSESSEE HAS CREATED AN A SSET BY ERECTING A CRUSHER WHICH IS A CAPITAL ASSET AS RIGH TLY HELD BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). E RECTION OF SUCH AN ASSET CANNOT BE CONSIDERED AS REVENUE EXPENDITURE. THE ASSESSEE WILL BE ELIGIBLE TO CLAI M ONLY DEPRECIATION AS PROVIDED UNDER THE ACT & RULES. THE SE ASPECTS HAVE NOT BEEN LOOKED INTO BY THE LEARNED AS SESSING OFFICER. THEREFORE, IN THE INTEREST OF JUSTICE, WE REMIT THE ENTIRE MATTER BACK TO THE FILE OF THE LEARNED ASSES SING OFFICER FOR FRESH CONSIDERATION AND PASS APPROPRIATE ORDERS AS PER LAW & MERIT AND IN THE LIGHT OF THE OBSERVATIONS MADE BY US HEREIN ABOVE. GROUND NO.2: DENIAL OF CREDIT FOR TAX COLLECTED AT SOURCE FOR RS.11,74,254/-. 5. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED BEFORE US THAT THE REVENUE HAS NOT GRANTED CREDIT T O THE ASSESSEE FOR THE TAX COLLECTED AT SOURCE ON BEHALF OF THE ASSESSEE FOR RS.11,74,254/-. ON THIS ISSUE, WE DO N OT FIND ANY DISCUSSION EITHER IN THE ORDER OF THE LEARNED A SSESSING OFFICER OR IN THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THEREFORE, IN THE INTEREST OF JUSTIC E, WE HEREBY 8 ITA NO.759 /MDS/2015 REMIT THIS ISSUE ALSO BACK TO THE FILE OF THE LEARN ED ASSESSING OFFICER WHO SHALL EXAMINE THE CLAIM OF THE ASSESSEE AND IF FOUND TO BE CORRECT GRANT CREDIT TO THE ASSESSEE FO R THE TAX COLLECTED AT SOURCE ON BEHALF OF THE ASSESSEE. IT IS ORDERED ACCORDINGLY. GROUND NO.3: LEVY OF INTEREST UNDER SECTION 234B & 234C: 6. ON THIS ISSUE ON SEVERAL OCCASIONS WE HAVE HELD THAT THE LEVY OF INTEREST UNDER SECTION 234B & 234C OF T HE ACT IS CONSEQUENTIAL IN NATURE AND ACCORDINGLY THIS GROUND IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 29 TH APRIL, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 29 TH APRIL, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF