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TMI Blog2012 (10) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... g activity carried out by Nicholas Piramal is prior to sale of products to the appellant and is essentially and directly linked to such sale of products. 2.4 The CIT(A) erred in not appreciating the fact that the sale of the products by Nicholas Piramal top the appellant is on a principal to principal basis. 2.5 The CIT(A) erred in not appreciating the fact that the transaction with Nicholas Piramal is not in the nature of a works contract for it to be made liable for tax deduction at source u/s 194C of the Act. 2.6 The CIT(A) has failed to take cognizance of the circulars issued by the CBDT which were brought to his knowledge by the appellant wherein the CBDT has held that provisions of sec.194C of the Act will not apply to contract for sale of goods. 3. Disallowance of testing charges u/s 40(a)(ia) of the Act of Rs. 4,048,553/-. 3.1 The CIT(A) erred in relying on his order pertaining to AY: 2005-06 vide ITA NO. 12/DC-11(1)CIT(A)-1/05-06 dated 19th April 2010 and holding that testing charges paid to European Testing Centre(ETC) Ireland was disallowance u/s 40(a)(ia) of the IT Act. 3.2 The CIT(A) erred in relying on the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce tax remitted by the appellant was more than 90% of its income-tax liability and hence the appellant is not liable to pay interest u/s 234B of the IT Act. 6. Erroneous levy of interest u/s 234C of the Act. The CIT(A) erred in holding that interest u/s 234C of the Act is to be levied on assessed income and not appreciating the appellant's submissions that there was an error in computation of interest u/s 234C of the Act. 7. Initiation of penalty proceedings: The CIT(A) erred in upholding the initiation of penalty proceedings by the AO". 8. The appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all relief consequential in nature." 2. Ground nos.1 & 8 being general in nature, needs no adjudication. 2.1 Ground no.7 is also rejected as being immature. 2.2 Coming to ground no.3 learned counsel for the assessee submitted that this issue has arisen in the assessee's own case during the assessment years : 1997-98 to 2005-06 and the 'B' Bench of this Tribunal vide order dated 30-06-2011 has decided this issue in favour of assessee. 2.3 The learned counsel for the assessee placed a copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made u/s 40(a)(i) of the IT Act. In response to the show cause notice issued by the AO, the assessee submitted that the payments made to M/s ETC were reimbursement of the costs and does not constitute fees for technical services and therefore, the assessee is not liable to deduct tax at source u/s 195 of the IT Act. The AO however, was not convinced with this argument as it was already held by the ITO, International Taxation, that the assessee is 'an assessee in default' u/s 201(1) & 201(1A) of the IT Act. Therefore, the deduction claimed u/s 40(a)(i) has to be disallowed. He accordingly, made disallowance for all the relevant assessment years. 3.1 Aggrieved, assessee preferred appeals before the CIT(A) both on merits as well as on reopening of the assessment orders. The CIT(A) upheld the validity of the reopening and also held that the assessee is liable to deduct tax at source u/s 195 of the IT Act. Before the CIT(A), the assessee had also raised an alternative ground that the assessee had made payments of taxes in the previous years relevant to assessment years i.e. 2003-04 and 2005-06 and therefore, in accordance with proviso to clause-(i) of sec.40(a) of the Act, it has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year of remittance of TDS should be considered by the Tribunal. He drew our attention to TDS challans for the Assessment years 1997-98 to 2001-02, given at pages 34 to 40 of the paper book and also the challans for the assessment years 2003-04, 2004-05 and 2005-06, at pages 93,95,97-99 of the paper book. With regard to certain payments, he submitted that the challans are not readily available, however, there are no arrears outstanding u/s 201 of the Act. In support of his contention, he stated that the powers of the CIT(A) are co-terminus with that of the AO. The learned counsel for the assessee also placed reliance upon the following decisions; 1. CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC) 2. Jute Corpn. of India Ltd. v. CIT & another [1991] 187 ITR 688 (SC). 4.2. The learned DR on the other hand, supported the orders of the authorities below and submitted that the assessee has not filed any appeal against the order of the TDS authorities and therefore, the finding that the assessee is liable to deduct tax at source u/s 195 of the IT Act has become final. That being the case, he submitted that the assessee is liable to deduct tax at sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in the light of the challan filed by the assessee and if it is found that the assessee has paid the tax and there is no tax liability with regard to testing charges paid to M/s Nicholas Piramal, the AO shall allow the deduction claimed u/s 40(a)(ia) of the IT Act in the years of payment. This ground is accordingly allowed for statistical purposes. 4. As regards ground no. 2 also the learned counsel for the assessee submitted that this issue is also covered by the decision of the Tribunal in the assessee's own case for the assessment year cited supra. 4.1 The learned DR however, supported the orders of the authorities below. 4.2 Having heard both the parties and having considered the rival contentions, we find that vide Tribunal order dated 30-06-2011 cited supra, the Tribunal has decided this issue at para 14.1 to 16.1, wherein the issue has been set aside to the file of the assessing authority for re-consideration in the light of the observations therein. For the sake of convenience, the said paragraphs are re-produced hereunder; "14.1 The brief facts of the case are that the assessee has entered into a contract of manufacturing agreement with M/s Nicholas Piramal to manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of agreement with M/s Nicholas Piramal for manufacturing certain products as per the specification of the assessee and these medicines also carry the brand name of the assessee. Therefore, it is important that the said medicines are manufactured and are satisfying the quality control tests. As it is not clear as to the party which has to bear the expenses relating to the said quality control tests and as observed by the CIT(A) and the AO this quality control tests are performed prior to their sale to the assessee, it is reasonable to presume that it is the liability of M/s Nicholas Piramal and not the liability of the assessee company. However, in view of the statements of the assessee that there are certain documents to establish liability of the assessee to reimburse the expenditure to M/s Nicholas Piramal and in the interest of justice, we deem it fit and proper to remit the issue back to the AO with a direction to the assessee to produce the relevant material before the AO and on such production of the material, the AO shall reconsider the issue as to liability of assessee to reimburse the expenditure and decide the issue in accordance with the law. 16.1 This ground of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es below drew our attention to sub-clause 2.10(b) of the agreement to demonstrate that the purchase of machinery was second hand ALP machine. He submitted that M/s Nicholas Piramal owns one ALP machine and the assessee purchased second machine from M/s Nicholas Piramal and installed it in the premises of M/s Nicholas Piramal for manufacture of moulds and medicines on behalf of the assessee. He submitted that for the purpose of granting depreciation two conditions are required to be satisfied i.e. ownership and the machinery being put to use for the purpose of assessee's business. He submitted that authorities below have misinterpreted the provision of being put to use to mean that it has to be put to use by the assessee itself. He drew our attention to the contract of manufacture to demonstrate that M/s Nicholas Piramal was manufacturing moulds and medicines as per the specifications of the assessee on its behalf and the medicines were also sold by the assessee under its brand name. Thus, according to learned counsel for the assessee that machinery have been put to use by M/s Nicholas Piramal for the business of the assessee and therefore, the assessee satisfies the conditions of ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds for the assessee, it cannot be said that they are not used for the purpose of business or profession of the assessee. Therefore, we are of the opinion, that the assessee satisfies the condition of using the machinery for the purpose of its business. Hence, the assessee is entitled to depreciation on this machinery. This issue is accordingly allowed. 9. The issue no.4 relates to denial of depreciation on plant & machinery for the assessment years 2003-04, 2004-05 & 2005-06. This issue is related to the plant & machinery acquired during the FYs: 1997-98 on which the depreciation was denied. 9.1 The brief facts relating to this issue are that the said machinery though, was purchased in the year 1995-96, but was put to use in FYs: 1997-98 & 1998-99. Thereafter, the machines were written off in the books of assessee as obsolete in the FY: 1998-99, but was added in the computation of income filed along with its tax return for the assessment years 1999-2000 and claimed depreciation thereon. In the assessment orders for the assessment years : 2003-04 to 2005-06, the AO disallowed the depreciation claimed by the assessee by holding that the machinery on which depreciation was claimed n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not in dispute that for the year under question, the block of assets were used by the assessee the benefit of depreciation was rightly in the year under consideration. Applying the above ratio to the facts of the case before us, we observe that the assessee has purchased the machinery and installed the same in the premises of M/s Nicholas Piramal, but has discontinued the use of the machinery during the relevant financial year. In a case, where a particular asset is discarded, sold, destroyed or demolished, the procedure followed is to reduce the value of written down value of the machinery and also its scrap value from the block of assets and thereafter, on the balance value of the block of assets only the depreciation has to be granted. The fact that the assessee has considered the machinery as obsolete and has written off the value in the books of accounts clearly shows that it had discarded the machinery. In such a case, the assessee ought to have reduced the written down value of the said machinery from the block of assets and ought to have claimed depreciation on the balance of the block of assets. Accordingly, this ground of appeal is rejected and the order of the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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