By TIOL News Service

KOLKATA, MAY 11, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether expenses capitallized as work-in-progress, warrants deduction of TDS u/s 194J and non deduction of the same on capitalized expenses warrants disallowance u/s 40(a)(ia). NO is the answer.

Facts of the case:

The Assessee company is engaged in the business of real-estate, construction of building and promotion. During assessment, the AO observed that assessee had incurred expense towards the technical and professional charges aggregating to Rs.12,05,742/- without deducting the TDS u/s 194J. Accordingly, the AO sought clarification from assessee. Since the assessee could not make any satisfactory reply, the AO disallowed the same u/s 40(a)(ia) and added it to the total income of assessee. Assessee preferred appeal before CIT(A) and submitted that out of total expenses a payment of Rs.9,17,076/- was made to M/s Agarwal & Agarwal, and this payment was in the nature of capital expense. Therefore, the same was capitalized as work-in-progress as the expense of Rs.9,17,076/- was not claimed in revenue account. The CIT(A) after considering the submission of assessee, deleted the addition made by AO.

On appeal, the ITAT held thhat,

++ it is the admitted fact that the assessee has not deducted any TDS on the impugned expenses on the ground that the relevant expenses were capitalized as work in progress. Since the expenses has not been claimed in the profit and loss account, the question of any disallowance u/s 40(a)(ia) does not arise. However the Revenue is disputing the allowability of the above expenses on account of two reasons, firstly, such expenses are not eligible for deduction under the provisions of section 40(a)(ia), secondly, the relief has been given to the assessee on the basis of additional evidences which were admitted in contravention to the provisions of rule 46A of Income Tax Rules 1962. A careful analysis to the provisions of Section 40(a)(ia) reveals that it is applicable to sums allowable u/s 30 to 38 of the Act. Hence, if any capital expense is allowable as deduction u/s 30 to 38 of the Act while computing income under the head "Profits and gains from business or profession", the same will be covered u/s 40(a)(ia);

++ the issue arises where the claim of depreciation u/s 32 is covered u/s 40(a)(ia) of the Act. The provisions of Section 40(a)(ia) is applicable to payments specified therein which are allowable u/s 30 to 38 of the Act. Since the claim of depreciation is not payment or expenditure in strict sense but the same is statutory allowance, so strictly the claim of depreciation will not be covered u/s 40(a)(ia). Further, the actual cost and WDV is defined u/s 43 and provisions of Section 40(a)(ia) does not override the provisions of Section 43 of the Act. In the case of Shri Vishnu Anant Mahajan vs. ACIT - 2012-TIOL-311-ITAT-AHM-SB for A.Y. 2006-07 the Special Bench ITAT, Ahmedabad, after relying on the decision of the Supreme Court in the case of Nectar Beverages P Ltd vs. DCIT - 2009-TIOL-81-SC-IT and of Mumbai ITAT in case of Hoshang D Nanavati vs. ACIT - 2011-TIOL-953-ITAT-MUM has held that "Depreciation" is not an expenditure but the same is statutory deduction. In view of above, this Tribunal is of the considered opinion that the provisions of section 40(a)(ia) is not applicable in the instant case. Therefore, there is no question of deducting the TDS on capital expenditure.

(See 2017-TIOL-627-ITAT-KOL)