THE questions before the Bench are - Whether expenditure
incurred on issuance of shares is revenue in nature; Whether when the business
of the assessee is continuing, merely writing off of the various security
deposits made to Electricity Board, Telecom Department and Customs for issuance
of import licence in the books is allowable - Whether when the assessee receives
certain payments after deduction of tax at source and such deduction is
deposited in the Treasury, the assessee can still write off such sum as short
receipt merely because it did not receive TDS Certificates from payers. And the
verdict goes against the assessee.
Facts of the
case
The assessee incurred expenses of
Rs.2,89,898 on account of share issue expenses and claimed deduction for this
sum in entirety. On being called upon to explain as to why such expenses should
not be partly disallowed, the assessee submitted that in pursuance to the scheme
of amalgamation of Gestetner India Limited (GIL) with Ricoh India Limited (RIL)
as approved by the Bombay and Calcutta High Courts, one share in GIL was
allotted six equity shares to RIL. The said expenditure of Rs.2.89 lakh was
claimed to have been incurred on account of issuance of share certificates of
RIL to the erstwhile shareholders of GIL. It was, therefore, claimed that the
entire expenditure should be allowed as deduction u/s 37(1) of the Act. The
Assessing Officer did not accept the assessee’s contention and held that only a
sum of Rs.57,980 was deductible u/s 35DD. Resultantly the remaining amount of
Rs.2,31,918 was disallowed to be amortized in subsequent four years. No relief
was allowed in the first appeal.
Assessment Year
2007-2008
First
ground of the appeal is against the confirmation of disallowance of Rs.1,29,855
written off in respect of security deposits not recoverable. The assessee
claimed deduction for this amount. The Assessing Officer observed that this
deduction was not permissible because the amount was given as deposit to
Government towards electricity deposits etc. He, therefore, refused to allow
deduction. The CIT(A) upheld the assessment order on this issue.
The
third ground is against the confirmation of disallowance of Rs.13,19,872 in
respect of tax deducted at source for which TDS certificates were not received
from parties. The assessee claimed deduction for this sum on writing off the
amount of TDS receivable by contending that it was not in a position to recover
the TDS certificate from the parties, who deducted tax at source. It was claimed
that this amount was nothing but short recovery of the revenue receipts from the
payers. The A.O. refused this claim on the ground that it was nothing but
payment of income tax which cannot be allowed as deduction. The CIT(A) approved
the action of the A.O.
On appeal, the Tribunal
held that,
++
after perusing
the relevant material on record, we find that the assessee incurred the
expenditure of Rs.2.89 lakh on issuance of shares. By no standard this
expenditure can be considered as revenue. Since the Assessing Officer himself
has allowed deduction u/s 35DD at the rate of 1/5th of the total expenses, we
hold that no further relief can be allowed. This ground is, therefore, not
allowed.
++
the second ground is against the confirmation of disallowance of Rs.1,11,918 on
account of postal expenses incurred in relation issuance of shares. The assessee
claimed expenditure of Rs.1,31,718 as deductible u/s 37(1). The Assessing
Officer allowed deduction u/s 35DD at 1/5th of the expense and disallowed the
remaining part. The learned CIT(A) confirmed the order on this issue.
++ we
have heard the rival submissions. Such postal expenses were incurred in relation
to the issue of shares, being the subject matter of ground no.1, which has been
dismissed by us above. Following the same view, we approve the impugned order on
this score;
Assessment Year
2007-2008
++
after considering the rival submissions and perusing the relevant material on
record, we find that detail of such deposits written off is placed at page 78 of
the paper book. Major amount is against deposits given to Electricity Board; to
Collector of Custom against import clearance; to Indian Oil Corporation against
gas cylinders; and to Posts & Telegraphs Department against telephone
connections. Except for some minor amounts included in this sum, the larger
chunk represents deposits given to the Government Departments / PSUs. On a
specific query raised from the Bench, the AR conceded that the business of the
assessee-company was continuing. We fail to understand the rationale in claiming
deduction for security deposits given during the currency of business to various
Government Departments. When the business is going on and the electricity and
other facilities as provided against such security deposits are being used, how
these Departments can refund the security deposit given at the time of
installation of meters or availing the facility. The assessee has written off
the said amount by claiming it to be irrecoverable, which in our considered
opinion, is not acceptable. One cannot accept that the Government has failed to
refund any sum legitimately becoming due to its citizens. When the amount has
not become due for refund because of the continuation of business, how the
assessee becomes entitled to its refund, is beyond our comprehension. Under such
circumstances, we are of the considered opinion that the authorities below were
justified in refusing deduction for such amount on a mere write off;
++
the econd ground is against the confirmation of disallowance of Rs.8,59,952 in
respect of custom duty drawback not recoverable. Here also the facts are almost
similar to the first ground. The assessee wrote off this sum due from Government
being duty drawback. No material has been placed on record to show as to how the
amount of duty draw back became irrecoverable from Government. Following the
view taken hereinabove in respect of ground no.1, we approve the learned
CIT(A)’s opinion on this ground as well. This ground is also not
allowed;
++ we
find that the claim of the assessee is that certain parties made payments to the
assessee after deduction of tax at source, but failed to issue TDS certificates
and hence the amount of TDS certificates not recovered should be allowed as
deduction as business loss. We are not convinced with this submission because
the parties, on deduction of tax at source, made the payment to the assessee for
the remaining amount and duly deposited tax at source with the treasury. Once
the assessee received the net amount and further the amount of TDS certificates
also stood deposited in the Government exchequer, the position of the assessee
vis-à-vis the parties stands neutralized as nothing remains due from them. In
such a situation, there can be no question of incurring any business loss or
treating the amount of TDS certificates not received as short receipts. Since
this amount represents tax deducted at source by the parties on behalf of the
assessee, the same is in the nature of TDS receivable. It is settled position
that tax payment is not a charge against but application of income. That is why
section 40(a)(ii) clearly provides that any sum paid on account of taxes on the
profits or gains of any business or profession, is not deductible. In view of
the foregoing reasons, we are of the considered opinion that the authorities
below were justified in not allowing deduction for this amount. This ground
fails.
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