TMI Blog2016 (12) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... s decisions on merits which is a plausible decisions which does not warrant interference u/s 263 of the Act to revise concluded assessment. We have also considered all the replies given by the assessee on merits before AO and CIT as well before us which are set out in preceding para’s and are not repeated for the sake of brevity , and we find that the assessee has convincingly replied on all issues on merits and the view taken by the AO before passing assessment order was a plausible view on merit taken after due enquiries and cannot be categorized as erroneous so far as prejudicial to the interest of the Revenue With respect to the usance interest, the proceedings u/s 154 was contemplated by the AO vide reply to audit objection on 19-08-2009, while ld. CIT issued show cause notice only on 11.03.2011 u/s 263 of the Act. Thus, the record of proposal to take action by the AO u/s 154 of the Act was before the CIT before issuing notice u/s 263 and hence the order of the AO cannot be termed as erroneous so far as prejudicial to the interest of Revenue as the word ‘records’ used in Section 263 of the Act shall also contemplate including the record pertaining to proceedings u/s 154 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06-07 reveals that the assessment made by the ACIT 8(3)(OSD) u/s 143(3) dated 23.12.2008 is erroneous and prejudicial to the interest of revenue for the following reasons:- (a) For the relevant financial year the assessee has made following payments which were the subject matter of TDS but no TDS has been made: S No. Nature of payment Section under which the tax was deductible Amount (Rs) 1 Ground Rent paid to Visa Industries Ltd. And Balaji Coke Industries Pvt. Ltd. 194I 34,94,512/- 2 Wharfage charges Visa Industries Ltd. And Balaji Coke Industries Pvt. Ltd. 194C 5,65,974 3 Stevedoring charges industries Ltd. And Industries Pvt. Ltd. paid to Balaji Visa Coke 194C 16,68,998/- 4 Freight charges paid to Antai Balaji Ltd. 194C 36,00,308/- 5 Usance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for depreciation @ 10%. Thus, the allowable depreciation works out to ₹ 1,42,424/- . As a result, excess depreciation of ₹ 71,212/- has been allowed to the assessee. To such extent, the assessment order is erroneous and prejudicial to the interest of the revenue. For the above reasons, as the assessment completed by the ACIT- 8(3)(OSD) for A. Yr. 2006-07 on 23.12.2008 is erroneous and prejudicial to the interest of revenue, you are hereby given this notice to show cause as to why the assessment made by the A.O. should not be modified/cancelled as the same is erroneous and prejudicial as detailed above. You are, therefore, required to attend before the undersigned on 21.03.2011 at 3.30 p.m. either in person or by a representative duly authorized in writing in this behalf. If you do not wish to avail of this opportunity of being heard in person or through authorized representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 263. In response to the above show cause notice issued by the AO, the assessee made oral and , as well written submission vide letter dated 25th March, 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of handling charges of ₹ 2,683,992/- to Balaji Coke Ind. Pvt. Ltd. In respect of the above facts, we wish to state as follows: (a) Your Honour may note that the assessee has reimbursed a sum of ₹ 16,04,512/- towards Ground Rent to M/s Visa Industries Ltd and Balaji Coke Industry Pvt. Ltd and not ₹ 3,494,512/- as mentioned. (b) The assessee had purchase raw material from Visa Industries Ltd and it was required to incur some expenses in respect of the clearance storage of the goods. It was also agreed between the parties that the assessee company will reimburse the actual cost incurred by Visa Industries Ltd towards Ground Rent, Wharfage Charges and Stevedoring Charges. M/s Gautam Freight Pvt. Ltd has arranged the facility required for Visa Industries and Visa Industries have accordingly made the payment to Gautam Freight. Subsequently the assessee company has reimbursed the said cost to Visa industries based on the actual cost incurred by them for which they have raised a separate debit note with supporting for actual cost incurred by it. Since the assessee has only reimbursed the actual cost, no TDS is liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at source even if the expenses claimed through a separate statement. (g) Attention is also invited to the judgment of Delhi Bench of ITAT in case of ITO vs. Dr. Willmar Schwabe India (P.) Ltd (2005) 1 SOT 71/95TTJ53 wherein it is held that reimbursement of expenses for which bill is separately raised did not attract the provisions of TDS. The same view is also taken by the Hon'ble Delhi Bench of ITAT in United Hotels Ltd vs. Income Tax Officer (2004) 93TTJ822. (h) Your Honour shall also appreciate that the assessee has submitted all the details and debit notes related to the reimbursement of the expenses during the assessment proceedings to assessing officer vide point no. 10 11 of our submission dated 21/11/2008. (i) In respect of the above, we are enclosing herewith the copies of Debit Notes raised by M/s Visa Industries Ltd and Balaji Coke Industry Pvt. Ltd or their sister concerns along with the relevant supporting to show that the parties have claimed only the actual amount charges to them by the ultimate service provider. (j) Also, Your Honour would appreciate that in so far as deduction u/s.194I is concerned, the same is based on the nature of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice provider directly it has duly deducted the tax thereon. c. That reimbursement are on actual amounts paid by the supplier to the service providers and separate debit note, with supporting documents for rate charged are also supplied on which there is no profit element of the supplier included. d. In most of the case the suppliers have made payment for a larger quantities and taken reimbursement of your assessee only to the extent of quantities actually supplied to the assessee. e. That even as per the circular mentioned above and specific explanations in (j) and (k) above in respect of nature of deductions u/s. 194I and s. 194C there is no liability on your assessee to deduct tax. Your assessee was not required to deduct any tax on the amounts reimbursed and therefore to this extent there is no error in the order made by the Assessing Officer and there cannot be any annulment thereof or revision on the above count. B. The assessee has paid the Interest on unsecured loans of ₹ 839,272/- and on this interest TDS has been deducted @ 10.20% whereas the actual TDS should have been deducted @ 22.44%: a. As per your opinion TDS should have been dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings. In view of the above it is clear that there is no error in deducting the TDS on Interest paid on unsecured loans u/s 194A. Therefore, the order of assessing officer in this respect cannot be considered to be erroneous and prejudicial to the interests of revenue. C. Depreciation In respect of the claim of the depreciation, you have made an observation on classification of some of the assets, that the same are erroneous and prejudicial to the interest of the revenue. In this regards, in respect of each of the observations, we have to submit as under- a) Your Honour has observed that Labour Quarters are classified as Factory Buildings and depreciation @ 10% has been claimed on the same instead of Residential Buildings on which depreciation @ 5% only is allowable. In this regards, we wish to state as follows: (i) The factory of the assessee is situated at the Kutch (Gujarat) and the assessee is manufacturing the LAM Coke. The process of manufacturing of LAM Coke requires running of furnace around the clock and the factory of the assessee company runs for 24 hours. The labourers are required to continuously watch the process and hence they have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the same instead of factory Buildings on which depreciation @ 10% only is allowable. In this regards, we wish to state as follows: (i) The process involved in the manufacture of LAM coke is a continuous process and it is also power intensive process. The bunker shed is constructed over the furnace unit and is very much a part of the whole plant in which the process of manufacturing LAM coke is carried out. Since the bunker shed is part of the whole plant, same is taken as part of plant and depreciation is claimed at the rate applicable to the plant, which in this case is 15%. Attention of Your Honour is also invited to the Annexure of Depreciation attached to Form No. 3CD where the Bunker Shed has been included as part of the plant only. (ii) The Bunker Shed has a very useful purpose in keeping the furnace running uninterrupted continuously without any interruption of the outside natural force. Further, it is not a building in the sense that any human being can enter it as it located exactly over the furnace. Thus, having regards to its function and its placement in overall manufacturing process, it has to be considered as part of the plant and accordingly depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there is no error in the order of the Assessing Officer or even if there is error, the same is not prejudicial to the interest of the revenue. The order of Assessing Officer is also passed with the approval of the JCIT as per the new norms of scrutiny assessments. We hope that you will find the above submissions sufficient and to your satisfaction on the points raised by your Honour in the show cause notice and that you shall drop the action initiated for revision proceedings. Should you still decide to proceed ahead with the revision proceedings by holding any view contrary to our submission, we request you to grant us further opportunity to controvert the same. Should you require any further clarification, explanation or elaboration on the above or any matter relating to our assessment, we shall gladly furnish the same. 3. Vide further submissions dated 29.03.2011, Ld. ARs of the assessee have stated as under: Further to the our earlier submission dated 25/03/2011 and as discussed personally with Your Honour on the hearing on 25/03/2011 regarding TDS deducted by the ultimate payer, we are herewith enclosing the following documents of the few of the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs. The assessee's contention that the payments made by it for the above charges are not liable to provisions of TDS u/s.194C/194I as the payments are merely in the nature of reimbursement, needs further probing and factual finding, since the expenses have been expressly debited by the assessee under the heads of stevedoring, wharfage charges, transport charges, etc., which are otherwise covered under the TDS provisions of the IT Act. The A.O. has to further examine the nature of the actual business relationship between the assessee and the parties to whom such payments have been made and the terms and conditions of such business relationship, to exactly find out if the payments are actually contractual in nature or mere reimbursements as claimed by the assessee. Since the assessment order has not dealt with the applicability of provisions of sec.40(a)(ia) in the light of the TDS liability of the assessee on the above payments, the order has become erroneous and prejudicial to the interest of revenue to that extent. Therefore, the matter is set aside with the direction to the A.O. to examine this aspect afresh by considering all the relevant facts, so as to decide the applicabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r afresh after affording reasonable and adequate opportunity to the assessee. Thus, in nutshell , the ld. CIT held that assessment order dated 23rd December, 2008 passed by the A.O. u/s 143(3) of the Act for the assessment year 2006-07 is erroneous and prejudicial to the interest of the Revenue and directions were issued to the A.O. to pass assessment order afresh after affording reasonable and adequate opportunity to the assessee, vide orders dated 30-03-2011 passed by learned CIT u/s 263 of the Act. 4. Aggrieved by the order dated 30-03-2011 passed by the ld. CIT u/s 263 of the Act, the assessee filed first appeal before the Tribunal. 5. The ld. Counsel for the assessee submitted that the ld. CIT invoked the provisions of section 263 of the Act and held that the assessment order passed by the AO on 23rd December, 2008 u/s 143(3) of the Act is erroneous and prejudicial to the interest of the Revenue. It was submitted that the said order of the ld. CIT passed u/s 263 is not sustainable in law as the order of the A.O. is neither erroneous nor prejudicial to the interest of the Revenue. The ld. Counsel submitted that the A.O. has examined the issues properly and due invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Handling charges to Balaji industries P. Ltd. Coke 194C 26,83,992/- Total 1,25,88,961/- It was submitted that the AO vide notices u/s 142(1) of the Act dated 4th July, 2008 and 4th September 2008 (paper book/page 37-40) called for the detail of major expenses which were filed by the assessee vide replies on 11th November, 2008 and 21st November, 2008 which are placed in the paper book /page 42-47. It was submitted that detail examination were made by the A.O. before concluding that these are merely reimbursement of expenses hence no TDS was required to be deducted . It was submitted that all these expenses were allowed by the AO in scrutiny assessment u/s 143(3) of the Act. The assessee relied upon several case laws to contend that no TDS was required to be deducted on merely reimbursement of expenses.It was also submitted that the AO while replying to audit objections has categorically stated that no TDS is required as it is merely reimbursement of expenses and hence the AO made an informed decision that keeping in view that these expenses are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for temporary accommodation for workers. Since it is part of factory, the assessee correctly classified it as factory building. The ld. Counsel relied upon the decision in the case of CIT v. Motor Industries Co. Ltd. (1986) 158 ITR 734(Kar.), and in the case of CIT v. Engine Valves Ltd. (1980) 126 ITR 347 (Mad) and in the case of CIT v. Bajaj Auto Ltd. (2009) 182 Taxman 163 (Bom). Thus it is submitted that the claim of depreciation was examined by the A.O. in detail and thereafter accepted in scrutiny assessment, hence, it cannot be said that the order of the A.O. is erroneous and prejudicial to the interest of Revenue. It was submitted that section 263 of the Act was invoked by learned CIT because of audit objections. The A.O. has categorically stated that no error had taken place and the audit objections was dismissed by the AO. The reply vide letter no ACIT/Circle-8(3)/Audit Objection/2009-10 dated 19.08.2009 from the A.O. to CIT-8, Mumbai is placed in file. With respect to the bunker, it is submitted that the assesssee is in the manufacture of LAM coke which is a continuous process and is also power intensive process. Bunker shed is constructed over the furnace and corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d submitted that the assessment order was rightly set aside by learned CIT as the same was erroneous and prejudicial to the interest of Revenue. The ld. D.R. relied upon the decision of the ITAT Chandigarh Bench in the case of Vodafone South Ltd. V. CIT (2015) 61 taxmann. Com 108(Chd. Trib.) and ITAT Bangalore Bench in the case of Southern Ferro Steels Ltd. v. ITO, (2016) 69 taxmann.com 196(Bang. Trib.). 7. We have considered the rival contentions and also perused the material available on record including the case laws relied upon. We have observed that the assessment was framed u/s 143(3) of the Act by the A.O. on 23rd December, 2008 and during the course of assessment proceedings, the A.O. has made necessary enquiries with respect to the matters covered by the order of the CIT u/s 263 of the Act. Tax-audit report were also submitted by the assessee before the AO and it cannot be said that the A.O. has not gone through the tax audit report as being a statutory document, the AO is bound to go through the same before framing assessment . All the details were duly submitted before the A.O. by the assessee as set out in preceding para s and the AO has taken a decision based on his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of revenue. With respect to the usance interest, the proceedings u/s 154 of the Act was contemplated by the AO vide reply to audit objection on 19-08-2009, while ld. CIT issued show cause notice only on 11.03.2011 u/s 263 of the Act. Thus, the record of proposal to take action by the AO u/s 154 of the Act was before the CIT before issuing notice u/s 263 of the Act and hence the order of the AO cannot be termed as erroneous so far as prejudicial to the interest of Revenue as the word records used in Section 263 of the Act shall also contemplate including the record pertaining to proceedings u/s 154 of the Act arising subsequently out of the assessment order passed by the AO u/s 143(3) of the Act , and such record was before ld CIT before he issued notice u/s 263 of the Act on 11.03.2011. Thus, in our considered view, the assessment order dated 23.12.2008 passed by the A.O. u/s 143(3) of the Act is neither erroneous nor it is prejudicial to the interest of Revenue , and the ld. CIT has not correctly invoked the provisions of section 263 of the Act, hence, the order of the CIT in our considered view is not sustainable in law and is hereby ordered to be quashed. We order accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
