Rohm & Haas (I) P. Ltd, Mumbai vs Department Of Income Tax

This appeal has been preferred by the Revenue against order dated 02.02.2011, passed by the Ld.CIT(A)-18, for the quantum of assessment passed u/s 143(3) of the Act for the A.Y. 2005-06.

2. In Ground no. 1 and 2, Revenue has challenged the disallowance U/S 40(a)(ia) of Rs.54,12,000/-, being the principal amount adopted by the AO, corresponding with the excess TDS of Rs.2,70,613/- claimed to be reversal of excess TDS.

3. In Ground no. 3 and 4, the Revenue has challenged the direction of the Ld. CIT(A), for allowing the deduction on account of legal and professional charges.

2 ITA No. 4026/Mum/2011 Assessment Year: 2005-06

4. Brief facts relating to ground no. 1 and 2 are that, Assessing Officer during the course of the assessment proceedings, from the details of other liabilities noted that an amount of Rs.44,63,919/- has been shown there on account of TDS, whereas, the assessee has filed the details in respect of payment of TDS of Rs.41.94 lakhs. Regarding the balance amount, the assessee stated that same was in the nature of excess provisions made which has been reversed. He noted that the assessee could not file the details in respect of the principal amount involved and how it was in the nature of excess provision and why the same has been reversed. The principal amount on the basis of TDS amount, he held that will come to Rs.54.12 lakhs, which shall be disallowed u/s 40(a)(ia). He further noted that assessee has made payment of Rs.14.02 lakhs to contractors which has been capitalized as part of fixed assets on which depreciation has been claimed. It was submitted by the assessee that same is outside the purview of section 40(a)(ia) as the same was not claimed as deduction in the computation of income. The Assessing Officer held that section 194C provides that assessee was liable to deduct TDS on the said amount and therefore, the claim of depreciation for 25% which was Rs.3,51,447/- would be disallowed u/s 40(a)(ia).

5. Before the Ld. CIT(A), the assessee submitted that under the head other liabilities appearing in the balance sheet, an amount of Rs.44,63,919/- was shown on account of TDS. The appellant has reversed certain provision of expenses during the year and accordingly, the corresponding TDS amount was also reversed. Since the assessee as reversed the expenses the same was not claimed as deduction. Thus, the disallowance made by the AO should be deleted. Regarding 3 ITA No. 4026/Mum/2011 Assessment Year: 2005-06

disallowance of depreciation he submitted that same could not have been disallowed u/s 40(a)(ia), because the assessee has capitalized the payment as part of fixed assets. The Ld. CIT(A) after considering the entire facts has confirmed the disallowance of depreciation of Rs.3,51,447/-, however, has deleted the disallowance to Rs.54,12,000/- after observing and holding as under:-

"On the issue of the disallowance of Rs.54,12,000/- on account of reversal of excess TDS of Rs.2,70,613/-, the AO has mentioned that the assessee has not filed details in respect to the principal amount involved and why excess provision should be reversed. The AO estimated the principal amount at Rs.54.12 lakhs and disallowed u/s 40(a)(ia). The appellant has explained that out of total other liabilities appearing in the balance sheet, an amount of Rs.44,63,919/- was shown on account of TDS. The appellant has paid TDS of Rs.41.94 lakhs and the AO also has observed that the appellant filed details with respect to payment of Rs.41.94 lakhs. The amount of provision of TDS, which remained unutilized i.e. the amount of Rs.2,70,613/- represent excess provision made under the head other liabilities in the balance sheet. The reversal of excess provision of TDS does not attract provisions of section 40(a)(ia) and the action of the AO to estimate the principle amount at Rs.54.12 lakhs and making disallowance u/s 40(a)(ia) is found to be not valid hence the addition is deleted."

6. Regarding disallowance of legal and professional charges, which was made by the AO, the Ld. CIT(A), directed the AO to verify the same as the assessee has filed the invoices before the AO along with the petition/application u/s 154. The relevant observations are as under:-

"Ground no. 8 is regarding disallowance of legal and professional charges amounting to Rs.20,82,784/-. The AO has discussed this issue at Para-9 of the assessment order. The AO asked for copies of bills of GGI Services Clearing & Forwarding Pvt. Ltd. of Rs.14,50 lakhs and S. Nandkumar of Rs.6.33 lakhs. In course of assessment proceedings the bills could not be produced, the AO therefore made disallowance. As the appellant had already filed writ petition u/s 154 along with copies of invoices of these two parties, the AO shall rectify the mistake."

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7. After hearing both the parties it is seen that, so far as deletion of disallowance u/s 40(a)(ia) of Rs.54,12,000/-, the assessee has reversed some of the expenses in its account and accordingly, the corresponding TDS amount has also been reversed. Such a reversal of excess provision of TDS cannot attract provision of section 40(a)(ia) because there is no claim for corresponding expenses as deduction. Accordingly, finding of the Ld. CIT(A) is affirmed.

8. Regarding disallowance of legal and professional charges, it is seen that assessee has filed the invoices before the AO, along with the application u/s 154. The Ld. CIT(A) has merely directed the AO to rectify the mistake after considering the copies of invoices. Thus, there is no illegality in such a direction of the Ld. CIT(A). Accordingly, the direction of the Ld. CIT(A) is affirmed and AO is directed to consider the invoices while adjudicating the petition of the assessee. Accordingly, Revenue's appeal is dismissed.

9. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on this 10th day of April, 2015.

Sd/- Sd/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 10.04.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "D" Bench //True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.