TMI Blog2010 (12) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... 00-01. However, in the present case, the applicability of sec. 40(a)(ia) has not been ruled out and, therefore, to the extent the assessee had made claim of depreciation in the P and L a/c., the same is to be disallowed - direct accordingly. In the result, this ground is dismissed. Disallowance on account of chit funds - deciding this issue, the AO will take into consideration the decision of Hon'ble Supreme Court reported in 124 ITR 1 - In the result, this ground is allowed for statistical purpose. - ITA No. 1562/Mum/2010, - - - Dated:- 29-12-2010 - R.V. Easwar, S.V. Mehrotra, JJ. R. Anand for the Appellant S.S. Rana for the Respondent ORDER S.V. Mehrotra:- 1. This appeal by the assessee is directed against the order passed by the CIT(A)-22, Mumbai, on 09-12-2009 in relation to the asstt. year 2006-07. 2. The assessee company in the relevant assessment year was engaged in the business of goods transporters. It had filed its return declaring total income of Rs.2,18,953/-. The assessment was completed on a total income of Rs.7,92,796/-, inter alia, making the following disallowances:- Disallowance u/s.14A Rs. 78,084/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had not been able to correlate these charges and explain its allowability. Moreover, no TDS had been deducted on these labour charges. Invoking the provisions of sec. 40(a)(ia), the AO disallowed Rs.1,00,000/-. 5.1 Before the ld. CIT(A), it was pointed out that labour charges paid to Vipul Engg. Works for manufacturing of Ammonia Steel Container were added to the cost of the asset and hence there was no question of disallowing the same. The assessee further submitted that sec. 40(a)ia) is applicable in respect of TDS default if amount is payable. The ld. CIT(A), however, confirmed the disallowance, inter alia, observing that since the assessee had not deducted tax u/s.194C, the provisions of sec. 40(a)(ia) were clearly attracted. 6. The ld. counsel for the assessee relied on the decision of ITAT Special Bench in the case of SMS Demag P. Ltd. vs. DCIT in ITA No.3636/Del/2008 dated 29-01-2010 wherein it has been held in para 8 that the provisions of sec. 40(a)(i) are not applicable for claim of deduction u/s.32 of the Act. He, therefore, submitted that even the depreciation claimed by the assessee cannot be allowed. 6.1 The ld. D.R. relied on the order of CIT(A). 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt under the head "computer" and this formed part of the total addition under the head "computer". The contention was that since the amount was not charged to P and L a/c., the provisions of sec.40(a)(i) have no applicability. This argument was rejected. The AO noted that the assessee company had charged depreciation @ 60% u/s.32 of the Act on amount of Rs.1,81,48,673/- which was paid to its parent company. The AO restricted the allowance of deduction to the extent of 50% allowable on computers which resulted in addition of Rs.54,74,602/-. Before the CIT(A), it was submitted that the payment was not in the nature of royalty for technical services. The ld. CIT(A), however, rejected the assessee's contention, inter alia, observing that the expenditure was incurred towards installation of software, namely, SAP, and therefore the said payment was in the nature of royalty/fee for technical services/interest. He upheld the disallowance of depreciation claimed by the assessee. The Tribunal, after considering the submissions of both the parties, inter alia, concluded that the payment made for purchase of software could not be treated either as royalty or even for technical services. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scriber. He pointed out that in the present case the assessee had not explained the purpose and the manner as to how that money was utilized. He, therefore, disallowed the assessee's claim, inter alia, observing that the assessee's business is that of goods transporters and not doing the business of contributing towards chit funds. He relied on following case laws:- 1. Soda Silicate and Chemical Works vs. CIT (1989) 179 ITR 588. 2. CIT vs. Kovur Textile (1982) 136ITR 61 (AP). 8.1 The ld. CIT(A) confirmed the disallowance, inter alia, observing that the assessee neither before the AO nor before him could explain the purpose and the manner as to how money borrowed was utilized by it for the purpose of its business particularly when the assessee has nothing to do with the business of chits. 9. The ld. counsel for the assessee referred to page 11 of paper book and pointed out that as per objects clause 19 the assessee could utilize such surplus funds for investing in shares, stocks, securities, etc. He further referred to clause 30 of the objects clause, which reads as under:- "30. Subject to provisions of the Act, to invest and deal with the moneys and funds belongin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how the money was utilized by the subscriber. After the judgement of the Punjab and Haryana High Court in the case of Soda Silicate and Chemical Works (supra), the income-tax Department in Delhi started reopening several completed assessments by invoking the provisions of section 263 or section 147 of the Income-tax Act, 1961 and in the pending assessments, it started refunding the claim of loss on account of a chit. However, in one of the cases, the Commissioner in proceedings under section 263, having been satisfied about the allowability of the claim on the basis of the judgment of Andhra Pradesh High court as well as the Board's Instruction No.1175 on the subject, referred the matter again to the CBDT for issuing the necessary guidelines. The CBDT has recently issued instructions to all the Commissioners vide letter dated March 25, 1992 holding that the existing Instruction No.1175 on the subject cannot be withdrawn on he basis of the judgment of Punjab and Haryana High Court. In a way, the CBDT has upheld the position that in case the amount of chit fund money is utilized for the purposes of business, any loss incurred out of the same is allowable as business expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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