TaxTMI 
TaxTMI 
2016 (9) TMI 55
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....ss in as much as all the five tankers have been hired to N.K. Roadways P. Ltd. and that the said company has in fact used the tankers as per evidence furnished and that the hire charges was not charged through oversight which was offered voluntarily for taxation. 2.1 The appellant says and submits that the learned CIT(A) is not correct in observing that the evidences furnished are internal. In fact, the evidences furnished are from N.K. Roadways P. Ltd. which is separate company. 2.2 The appellant says and submits that the disallowance is on presumption and conjuncture. 3. The learned CIT(A) has erred in confirming the disallowance of depreciation of Rs. 4,64,850 on Plant & Machinery and electrical installation of Rs. 30,99,000 on the ground that it is included in work in progress as stated by way of note in Auditors Report in Form No. 3CD in as much as the WIP of Rs. 138.49 lacs in the opening .balance which is included in the plant & machinery and electrical installation and the said assets have been used during A.Y. 2009- 2010 as per the details provided in the chart of depreciation. 4. The learned CIT(A) has erred in confirming the disallowance of Rs. 1,13,521 under....
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....r period expenses and the miscellaneous expenditure of Rs. 14.40 lacs was claimed as deduction. However, ld. CIT(A) confirmed the disallowance on the basis of his view that in the absence of specific detail of the miscellaneous expenses it is hard to believe that these expenses attracted TDS liability and these impugned expenses were not required to be disallowed as per section 40(a)(ia) of the Act in the first instant the same cannot be disallowed in this year. 7. On the other hand, ld. DR supported the orders of lower authorities. 8. We have heard the rival contentions and perused the material on record. In this ground the issue relates to allowability of deduction of prior period miscellaneous expenditure of Rs. 14.40 lacs which have been claimed in the year of appeal on the basis of depositing due TDS as per the provisions of section 40(a)(ia) proviso (i) which reads as under :- [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous ....
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....t to use during Asst. Year 2009-10 were internal evidences only which included supplementary memorandum of understanding between the assessee and N. K. Roadways, consolidated bills were raised to N. K. Roadways for fuel charges and also the proof of hire charges income which was declared by assessee during the course of assessment proceedings. Assessing Officer was not satisfied with these proofs of use of the assets and disallowed depreciation on these 5 trucks at Rs. 16,83,501/-. 13. When the issue came up before ld. CIT(A), the ground was dismissed by ld. CIT(A) by observing as under :- 4.3 I have carefully considered the rival submissions. I have also perused various evidences furnished by the appellant during the appellate proceedings. It is seen that the appellant is placing heavy reliance on the RC Books of the five trucks in question which indicate that these trucks were registered on or before 31/3/2009. To prove the fact that these trucks were used for the purposes of business, the appellant is placing reliance on the diesel bills raised by N.K. Roadways Pvt. Ltd. The appellant has also placed reliance on supplementary MOU entered with M/s.N.K. Roadways Pvt. Ltd. wh....
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.... 14. Aggrieved, assessee is now in appeal before the Tribunal. 15. Ld. AR submitted that all these 5 trucks were purchased on 27.3.2009 and hired to M/s N. K. Roadways. Further Assessing Officer has mentioned that only internal evidences were provided to prove that assets were put to use in the year, was not correct because assessee has placed on record copy of purchase bill, goods carriage permit issued by Regional Transport Office, insurance of vehicle, certificate of fitness and copy of RC book on Form No.23 along with Pollution Under Control (PUC) certificate. All these evidences are external evidences and the fact has repeatedly coming out from external evidences that assets were purchased and put to use during Asst. Year 2009-10 only and, therefore, depreciation is allowable on the same. Ld. AR relied on the judgments of Hon. Jurisdictional High Court in the case of ACIT vs. Asima Syntex (2001) 251 ITR 133 (Guj), CIT vs. Pinnacle Finance Ltd. 268 ITR 395 (Guj) and CIT vs. UTI Bank Ltd. 319 ITR 357 (Guj). 16. On the other hand ld. DR supported the orders of lower authorities. 17. We have heard the rival contentions and perused the material on record. Through this gro....
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....on". If the machines are installed properly and it gives good result, then one need not wait for any rectification in the system. There may be some cases wherein after commencement of the production, the machine may not give proper results-may be on account of failure of certain parts, may be on account of requirement of certain additional machinery, etc. In such a case, the production obtained at the initial stage would be considered as trial production. In the instant case, there is nothing to indicate that the assessee was required to instal any additional part or machinery with a view to run the entire unit. It is not a case similar to that case where before the Bombay High Court there was no production and only tools were tested. The present case is not similar to that of Speciality Paper Ltd. (1982] 133 ITR 879 (Guj) (Appex.) where wet press was required to be installed and even thereafter additional machinery was required to be installed. In the instant case, plant and machinery were installed and it worked smoothly. There may be certain machines, which in view of the latest technology, require no trial run. If separate parts are fitted and the machine is brought into existe....
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.... lacs in the opening .balance which is included in the plant & machinery and electrical installation and the said assets have been used during A.Y. 2009- 2010 as per the details provided in the chart of depreciation. 20. Assessing Officer disallowed depreciation of Rs. 4,64,850/- on plant and machinery and electrical installation on the ground that as per the auditors report these items were included in work-in-progress and, therefore, not eligible for depreciation. This addition was challenged before ld. CIT(A) but assessee could not succeed as the same was dismissed by ld. CIT(A) by observing as under :- 5.2 I have carefully considered the rival submissions. It is seen that the depreciation on the addition to plant & machinery and electric installation of Rs. 30.99 lacs has been disallowed on the basis of auditors observation. It is clearly mentioned by the A.O. that the auditors observation pertains to 31/3/2008. I have perused Annexure-3 to Form No.SCD which consist of WDV and allowable depreciation for the A.Y.2009-10. In this annexure the auditors has observed as under :- "Additions during the year includes an amount of Rs. 30.99 lacs which has been qualified u....
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....given in Annexure-3 of form No.3CD for F.Y.2008-09. Ld. AR submitted that impugned amount of Rs. 30,99,000/- which has been provided as work in progress by both the lower authorities in F.Y.2008-09 i.e. Asst. Year 2009-10 is not correct. In fact at the close of F.Y.2007-08 capital work in progress related to plant and machinery was at Rs. 27,83,223/- and Rs. 3,15,984/- under electrical installation head. These two totals to Rs. 30,99,207/-. These two items were part of the total capital of work in progress as on 31.3.2008 shown at Rs. 1,38,49,192/-, the impugned work in progress of Rs. 30,99,207/- were put to use for the business during F.Y.2008-09 in the month of May, 2008. In the statutory auditor of the company in annexure-3 of form No.3CD of F.Y.2008-09 relate to depreciation allowable as per IT Act mentioned under marked point -3 that addition during the year includes an amount of Rs. 30.99 lacs which has been classified under the capital in progress in the audited financial statement. Ld. AR further clarified that this remark was mentioned to show that addition during the year includes Rs. 30.99 lacs which was classified under capital work in progress in the financial stateme....
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....to impugned assets of Rs. 30,99,207/- we find that this amount comprises of Rs. 27,83,223/- towards plant & machinery and Rs. 3,15,984/- towards electrical installation. Analysing the Tax audit report for Asst. Year 2007-08 we observe that at page 146 of the paper book dated 6.11.2015 Annexure-C to Tax audit report is appearing which shows depreciation working u/s 32 of the I.T. Act for FY 2007-08 showing the capital work in progress Rs. 27,83,223/- and Rs. 3,15,984/- in the plant & machinery and electrical installation respectively. Further when we move to the Tax Audit report of FY 2007-08 the relevant data is available at page 185 of the paper book at Annexure-3. This Annexure-3 is further supported by Annexure-3A showing itemwise details of addition to block of assets with the column no., sl.no., detail of assets, amount, date of putting to use and assets held more than 180 days or less than 180 days. On this examination of this detailed annexure-3 at page 188 of the paper book there appears details of assets costing Rs. 27,83,223/- which were transferred from capital work in progress to fixed assets a/c. under plant & machinery head and were put to use on 3rd May, 2008. Simila....
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....laced reliance on Reliance Utilities and Power Ltd 313 ITR 340 (Bom). 7.3 It is a matter of fact that the provision of rule 8D has come into effect from the A.Y.2008-09 onwards. As per the provisions of sec.14A(2) r.w. rule 8D, the Income tax Act has clearly provided for disallowance under rule 14A as per the computation elaborated in rule 8D of the I.T. Rules, 1962. Provisions of 14A(2) r.w. rule 8D does not prescribe any exceptions. In fact provisions of Sec.14A(3) makes it very clear that even in the cases where appellant claims that no expenditure has been incurred by it in relation to the income which does not form part of total income under this Act, provisions of sec.14A(2) will be applicable. This way disallowance u/s.14A is mandatory in nature after the A.Y.2008-09. In view of above, I am inclined to agree with the contentions of A.O. Accordingly, disallowance of Rs. 1.13.521/- is confirmed. This ground of appeal is dismissed. 26. Now the assessee is in appeal before the Tribunal. At the outset ld. AR submitted that the issue is squarely covered in favour of assessee by the judgment of Hon. Gujarat High Court in the case of CIT vs. Corrtech Energy P. Ltd, reported in....
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....o exempt income earned by the assessee during the year. We also observe that in the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Corrtech Energy P. Ltd.(supra) has confirmed the order of the Tribunal deleting disallowance u/s 14A of the Act as the assessee has not claimed any exempt income. Similar is the situation in the case of assessee and we respectfully following the judgment of Hon. Jurisdictional High Court are of the view that no disallowance is called for u/s 14A as assessee has not claimed any exempt income in the year under appeal. We hold that ld. CIT(A) was not correct in upholding the disallowance and allow the ground of assessee. 30. Ground no.5 of assessee is as under :- 5. The learned CIT(A) has erred in confirming the disallowance of Rs. 56,000 being the provision for diminution in assets in as much as it is allowable as deduction following the Supreme Court decision in the case of Vijya Bank 323 ITR 166 31. Disallowance of Rs. 56,000/- was made by ld. Assessing Officer by not allowing the claim of sundry debit balance written off during the year by treating them of capital in nature. These sundry debit balance were the old balances l....
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....nts since last many years and no transaction with the said banks happened to be in past few years. We observe that assessee is a limited company carrying on business for last many years and transactions with the bank is in regular course of business. Some times for business expediencies new bank accounts are opened for having smooth working of business and quick services. In this process business transaction moves to the new bank account and the previous bank account become inoperative. Similar things happened in the case of assessee where Rs. 56,000/- remained unutilized in such defunct bank account and due to lack of entering transactions for last many years such type of balances are transferred to suspense account by the banks. Certainly transfer of such type of balance in sundry debit balances written off account is rightly covered under the provisions of section 37 of the Act. We further observe that Jurisdictional High Court in the case of CIT vs. Abdul Razak & Co. (supra) has dealt with similar issue about irrecoverable advances and has held the same to be allowable revenue expenditure by observing as under :- 7. In view of these well accepted legal principles, in our opi....
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.... sale of goods under s. 171 and of agents under s. 221 of the Indian Contract Act extends to the general balance of account of their principal which would, therefore, necessarily include the advances made apart from strictly in the course of the business as factors or commission agents for purchase and supply of goods. It is a matter of surprise how the Tribunal lost sight of the finding made by the ITO that in the course of the business of commission agency, the assessee-firm had advanced money to the constituents who where required to pay interest on such advances. It is no doubt true that the ITO has found that these advances were made to the constituents against the goods received from them for sale on commission basis, but that observation of the ITO, in our opinion, does not detract from the nature of the business of commission agents, whether for sale or purchase of the goods, which, in our opinion, necessarily requires the advances to be made. We should not be, however, understood to subscribe to the view that if in a given case a trader doing commission agency business makes advances or lends money to an unknown outsider or to a complete stranger, it would be a part of his....
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.... business of the assessee and was allowable as a bad debt, and, consequently, therefore, a trading loss under section 28(1). It is no doubt true that every loss is not so deductible unless it is incurred in carrying out the operation of the business. [vide CIT v. Nainital Bank Ltd. [1965] 55 ITR 707 (SC)]. In that view of the matter, therefore, for the reasons stated in this order, we are of the opinion that the said loss being a bad debt is allowable as trading loss under s. 28 of the I.T. Act, 1961, and, therefore, for the reasons stated hereinabove, the answer to the question referred to us is in the affirmative, that is, in favour of the assessee and against the revenue. 35. Respectfully following the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Abdul Razak & Co. (supra), we are of the considered opinion that sundry debit balance written off for Rs. 56,000/- should be allowed as a revenue expenditure. This ground of assessee is allowed. In the result, assessee's appeal is partly allowed for statistical purposes. 36. Now we take Revenue's appeal in ITA No.2133/Ahd/2012 for Asst. Year 2009-10 wherein following grounds have been raised :- i) The Id, C....
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.... provisions of sec.40(a)(ia). The A.O. was of the opinion that for allowance of these expenses during the year under consideration as the same has to be debited in the books of accounts in the respective assessment year and the same should have been disallowed in that year u/s.40(a)(ia). After fulfillment of these conditions, the appellant can claim these expenses during the year under consideration after payment of TDS. It is seen that a similar issue has been decided in favour of the assessee by the Hon'ble Gileu.tta ITAT in ABN Amro Bank vs JCIT reported at 97 ITD 1 (3rd Member). For the sake of ready reference the concluding para of this order is reproduced as under :- "81. lt is interesting to note that the provisions of s.40(a)(i) are disabling provisions as well as enabling provisions. While s.40(a) lays down the restrictions on deducibility of certain expenses, proviso to s. 40(a)(i) lays down the conditions in which such an expense is to be allowed. 82. Normally, proviso to a section sets out an exception to the scope of section. It craves out an area, out of the area covered by the scope of the section, and takes it away from applicability thereof....
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....in lacs) 1. Advertisement expenses 19.66 2. Brokerage and commission expenses 13.77 3. Legal and professional expenses 2.87 TOTAL 36.30 The A.O. is directed to allow expenses to the extent of Rs. 36.3 lacs. The appellant will get relief to this extent. The appellant has also claimed other miscellaneous expenses of Rs. 14.4 lacs which pertains to earlier years but on these expenses the appellant had deducted toe taxes and paid the same to the Government Account during the year under consideration. It is interesting to note that appellant has not furnished nature of these expenses. Apparently these expenses does not attract the liability of tax deducted at source as per the provisions of Chapter XVII of I.T.Act. Accordingly, these expenses can neither be disallowed as per the provisions of sec.40(a)(ia) on the first instance in the earlier years u/s.40(a)(ia) and the same cannot be allowed as per the provisions of sec.40(a)(ia) on payment of TDS during the year under consideration. In view of above, disallowance to the extent of Rs. 14.4 lacs is confirmed. As a result the appellant will get relief of Rs. 36.3 lacs.....
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....s when there is no dispute to the genuineness of the expenditure which proves that these expenses of Rs. 36.3 lacs were actually incurred in earlier years but could not have been claimed for some reason or other. Even if these expenditure had been claimed, they certainly would have been disallowed u/s 40(a)(ia) of the Act as no tax was deducted and deposited. This exercise of deducting and depositing TDS was carried out in the year under appeal which fulfills all the conditions of section 40(a)(ia) of the Act which allows to claim deduction of such expenditure in the year in which due taxes (TDS) are deposited. By claiming this expenditure of Rs. 36.3 in this year there is no impact to the Revenue in terms of tax liability. We are, therefore, of the view that assessee should be allowed deduction u/s 40(a)(ia) of the Act for Rs. 36.3 lacs and therefore, no interference is called for in the order of ld. CIT(A) with respect to this ground. Accordingly this ground of Revenue is dismissed. 46. Ground no.(ii) of Revenue's appeal - ii) The Id. CIT (A) has erred in law and on facts in deleting the disallowance of Rs. 83,98,0007- made on account of non compliance of the provisio....
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....y the Hon'ble ITAT that commission paid to the directors as per the terms of employment has to be treated as incentive in addition to salary and the same did not come within the purview of commission or brokerage as defined in sec.194H of the I.T. Act. In view of the above I hold that the commission paid to the directors is part and parcel of salary and the appellant has rightly deducted tax on directors remuneration as per the provisions of sec. 192 of the l.T. Act. In view of above the addition of Rs. 83,98,000/- is untenable. Otherwise also the method adopted by the A.O. is prejudicial to the interest of revenue. As per the provisions of sec.192 of the l.T. Act, TDS on salary is deducted at the rate of almost 30 to 33%. In this case the tax has been deducted at the rate of 33%. As per the provisions of sec.194H, the tax is to be deducted @10% only. As the appellant has deducted more tax by following the provisions of sec. 192, accordingly, it cannot be said that by deducting the tax as per the provisions of sec. 192, the appellant had tried to deduct lesser tax at source. In view of above facts, the A.O. is directed to delete addition of Rs. 83,98,000/-. This ground of appea....
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....92 of the Act or it is to be treated as commission/brokerage on which TDS is deductible u/s 194H of the Act ? (ii) Whether provisions of section 40(a)(ia) of the Act are applicable for non-deduction of TDS u/s 194H? 53. Now as far as question no.1 is concerned, issue has been settled by the Co-ordinate Bench, Kolkata in the case of Jahangir Biri Factory (P) Ltd. v. Dy. CIT (supra) wherein it has been held that commission paid to the Directors as per their terms of employment for the work done in their capacity as whole time directors should have been treated as an incentive in addition to salary, bonus and other perquisites and they do not fall under the purview of sec.194H or 194J. It is true that tax is deductible on such commission at the rate prescribed u/s 192 of the Act, since such commission is nothing but part of salary and the appellant has failed to deduct such tax. However, provisions of sec.40(a)(ia) of the Act do not cover expenditure subject to tax deductible u/s 192 of the Act. We are therefore of the view that the impugned amount of commission/brokerage paid to directors is a part of salary and remuneration to the Chairman and Managing Directors and incometax ....
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.... for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work)], on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid23a on or before the due date23a specified in subsection (1) of section 139 :] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) ofsection 139, [thirty per cent of] such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :] [Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such s....
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....vances which was in relation to 4 parties namely - N. K. Industries 8400000 Vipui Industries 600000 Guru Commodities 30000 Pearl Energy 77595 Total 9107595 Reply of the assessee was not found satisfactory and Assessing Officer went ahead to make disallowance of Rs. 91,07,595/-. On appeal before ld. CIT(A) assessee got relief as ld. CIT(A) deleted the disallowance by observing as below :- 10.3 I have carefully considered rival submissions. I have also perused evidences furnished by the appellant and the case laws relied upon by the Id. A.R. It is seen that interest expenses of Rs. 91,07,595/-was disallowed u/s.36(1)(iii) of IT. Act. As per the provisions of section 36(1)(iii), to claim interest expenses, following conditions should be fulfilled. (i) The Assessee must have borrowed money (ii) The interest should have been payable (iii) Borrowing should be made for the purpose of business. In my considered view, appellant has fulfilled all the above conditions and accordingly it is entitled to claim deduction u/s.36(1)(iii) of IT. Act against interest payment, Perusal of the assessment order reveals that the A.O. has no....
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....this regard is placed on the following case laws: i) Shhadiram & Sons v/s. DCIT 92 ITD 22 ii) Modipon Ltd. v/s.ITO 22 TTJ 108 iii) JCIT v/s. Sterisheets Ltd. 106 TTJ 460 It is noticed that the A.O. had miserably failed to discharge his onus and failed to prove that part of interest bearing fund was diverted as non interest bearing funds. 10.7 It is further seen that appellant was having interest free funds of Rs. 49.02 crores (in the form of paid up share capital of Rs. 6.46 crores and reserves & surplus of Rs. 42,55 crores). The A.O. has mentioned that appellant has made interest free loans and advances of Rs. 13.58 crores. Thus, interest free advances made is much below the interest free funds available with the appellant in the form of paid up share capital and reserve & surplus. It is held by Hon'ble Mumbai High Court in Reliance Utilities and Power Ltd. 313 ITR 340 that if funds are available, both interest free and. interest bearing, then a pre assumption arise that investments are made out of interest free funds generated or available with the assessee. If the interest free funds were sufficient to meet investment, no disallowance of inte....
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....n-interest bearing advances. The issue emanating in this ground is with regard to advances in the name of M/s N. K. Industries, Vipul Industries, Guru Commodities & Pearl Energy. As per ld. Assessing Officer in the case of M/s N.K. Industries the opening debit balance was at Rs. 6.42 crores (approx.) and closing debit balance was at Rs. 13.78 crores and round the year the closing balance has never come below approx. Rs. 10 crores at the end of every month and no justification was given for keeping this heavy advances to this party. However, in the case of Vipul Industries to which sum of Rs. 50 lacs has been shown as deposit and was received back in the subsequent year and in the case of Guru Commodities and Pearl Energy old advances of Rs. 2.50 lacs and Rs. 646627/- were given since about 15 years ago. 63. We find that assessee company is dealing with edible oil and non-edible oil and the gross turnover of Rs. 1478.7 crores and profit before taxes at Rs. 13.49 crores. We further observe that reserve and surplus of Rs. 42.56 crores stood along with 6.47 crores as capital as on 31/3/2008. We also observe that total of share capital reserve and surplus at Rs. 49.03 crores is almos....