Appeal partly allowed, depreciation ground dismissed, 40(a)(ia) remitted for verification, additions under 41(1)(a) deleted.

The appeal was partly allowed. The ground concerning depreciation was dismissed as not pressed. The disallowance under Section 40(a)(ia) was remitted to the Assessing Officer for verification. The additions under Section 41(1)(a) were deleted.

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Issues Involved:
1. Depreciation on civil works of windmill.
2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on freight payments.
3. Addition under Section 41(1)(a) for cessation of trading liabilities.

Issue-wise Detailed Analysis:

1. Depreciation on Civil Works of Windmill:
- Ground: The assessee contested the partial confirmation of additions by the CIT(A) regarding the non-allowance of depreciation at 80% on all civil works of the windmill.
- Outcome: During the hearing, the assessee's representative did not press this ground. Therefore, this ground of appeal was dismissed as not pressed.

2. Disallowance under Section 40(a)(ia) for Non-deduction of TDS on Freight Payments:
- Contention by Assessee: The assessee argued that the disallowance of Rs. 4,10,188 under Section 40(a)(ia) was unjustified as the recipients of freight had already paid taxes on their incomes and had submitted requisite declarations (Form 15D).
- CIT(A) Findings: The CIT(A) upheld the disallowance, stating that the provisions of Section 194C were not applicable to the assessee as a contractor. Additionally, the second proviso to Section 40(a)(ia), introduced by the Finance Act 2012, was not retrospectively applicable for the assessment year 2006-07.
- ITAT Observations: The ITAT noted that there were conflicting decisions from various High Courts regarding the retrospective applicability of the second proviso to Section 40(a)(ia). Following the principle laid down by the Supreme Court in CIT vs. Vegetable Products Ltd., which favors the assessee in case of conflicting interpretations, the ITAT remitted the matter to the Assessing Officer (AO) for limited verification. The AO was directed to verify whether the recipient of the payment had included the same in their income computation and, if so, to delete the disallowance.

3. Addition under Section 41(1)(a) for Cessation of Trading Liabilities:
- Contention by Assessee: The assessee challenged the addition of Rs. 4,97,804 under Section 41(1)(a), arguing that there was no remission or cessation of trading liabilities.
- Details of Creditors:
- M/s Tirupati Balaji Minerals Pvt. Ltd.: The assessee argued that disputes over quality led to non-payment of Rs. 3,16,553, and the amount continued to appear in the books. The creditor had unilaterally written off the amount, which did not constitute remission or cessation of liability for the assessee.
- M/s Kay Jay Marbles Ceramics Pvt. Ltd.: The assessee argued that the goods purchased were defective and the amount of Rs. 1,81,251 was included in the closing stock. There was no deduction claimed in the profit and loss account, and the creditor had not written off the amount.
- CIT(A) Findings: The CIT(A) confirmed the addition, stating that the liabilities had ceased in terms of Section 41(1)(a) as the creditors had denied any outstanding amounts.
- ITAT Observations:
- M/s Tirupati Balaji Minerals Pvt. Ltd.: The ITAT found that the creditor had confirmed no outstanding amount, indicating a unilateral remission of liability. However, the remission did not occur in the previous year under consideration. Therefore, the addition of Rs. 3,16,553 was deleted.
- M/s Kay Jay Marbles Ceramics Pvt. Ltd.: The ITAT noted that there was no evidence of unilateral remission by the creditor. The liability continued to be shown in the assessee's books, and mere non-response from the creditor did not imply cessation of liability. Therefore, the addition of Rs. 1,81,251 was deleted.

Conclusion:
The appeal was partly allowed. The ground regarding depreciation was dismissed as not pressed. The disallowance under Section 40(a)(ia) was remitted to the AO for verification. The additions under Section 41(1)(a) were deleted.

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