TMI Blog2015 (2) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... As per A.O’s. observation it has endorsing benefit to the assessee. The matter is required to re-examine with reference to addition confirmed by the CIT(A). The A.O. is directed to re-examine the nature of expenditure item-wise and take decisions as per law. - Decided in favour of assessee for statistical purposes. Disallowance of advances - assets leased by the appellant to Western Railway - Held that:- The appellant had 6000 employees. For them, there is a Staff Credit & Consumers Co-operative Society. The appellant had obligation to provide certain facilities to the employees to motivate them as per management principle to get committed services from them. The appellant does not have any hope of recovery of this amount. Therefore, we reverse the order of CIT(A) on this ground. - Decided in favour of assessee. Interest claimed u/s. 36(1)(iii) - diversion of borrowed funds to subsidiary and associate concerns - CIT(A) deleted addition - Held that:- When no interest bearing funds have been diverted to the sister concern by way of interest free advances. The question of going into the commercial expediency of such loans would not arise. In fact, in the light of the findings t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned by the ld. A.O. is applicable for payment made to principal to principal. The nature of payment is reimbursement of actual expenses incurred by the agent which necessary evidence has been filed before us. The agent had deducted the TDS on these payments and paid to the exchequer within prescribed time. Thus, we do not find any reason to intervene in the order of CIT(A). - Decided against revenue. - ITA Nos. 827 & 1003/Ahd/2010 - - - Dated:- 14-9-2012 - Shri G.C.Gupta and Shri T.R. Meena, JJ. For the Appellant : Shri D.P. Gupta, CIT. D.R. For the Respondent :Shri Sanjay R. Shah, A.R. ORDER PER : T.R.Meena, Accountant Member These are two appeals one at the behest of Assessee and second at the behest of Revenue which have emanated from the orders of CIT(A)-VI, Baroda, dated 31.12.2009 for assessment year 2006-07. Both appeals were heard together and are being disposed of by way of this common order for the sake of convenience. ITA No. 827/Ahd/2010 2. The first ground of appeal is general in nature which is not required to be adjudicated upon. The remaining grounds of appeal are as under: 2. The learned Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssly erred in confirming the disallowance of advances amounting to ₹ 21,08,918/- claimed by way of note to the computation of total income. In the facts circumstances of the case it is submitted that the CIT(A) ought to have allowed the same under section 28/37 of the Act. It is submitted it be so held now. 3. The second ground of appeal is against upholding the additions of ₹ 1,88,87,419 (in order it is mentioned as 2,75,61,076/-). The brief facts of the case are that the appellant is a company engaged in the business of manufacturing of fertilizers, various chemicals for industrial use and information technology business. After amalgamation of Narmada Chematur Petrochemicals Limited, erstwhile subsidiary company of the appellant company, consolidated belated return of income was filed on 30.03.2007 after receipt of Gujarat High Court s order approving merger. As per the return of income filed total income of ₹ 4,50,52,32,400/- was declared after considering set off of unabsorbed depreciation of ₹ 73,43,97,518/-. The appellant had advanced interest bearing loan to Gujarat State Investment Limited (GSIL) in A.Y. 1994-95 carrying interest @ 17%. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Oil Distributiojn Co. Ltd. vs. CIT - 206 ITR 359(Bom) v. Swadeshi Cloth Dealers vs. CIT - 187 ITR 620(All) vi. CIT vs. Shiv Prakash Janakraj Co. Pvt. Ltd. - 222 ITR 589(SC) vii. CIT vs. Girishchandraharidas Others - 196 ITR 833(Ker) It is further observed by him that the copy of award of the sole arbitrator Shri B.M. Oza was received on 13.09.2006. Accordingly it is held that the interest income of ₹ 1,88,87,419/- accrued to the assessee during the year and the addition was made by the A.O. of ₹ 1,88,87,419/- 5. The matter went in appeal before the ld. CIT(A)-VI, Baroda, who has confirmed the addition on the basis of that the award of the arbitrator was passed in September 2006 in previous year under consideration. He relied upon Sarabhai Chemicals Pvt. Ltd. vs. CIT - 257 ITR 572(Guj) for real income theory and it was held by the Hon ble Gujarat High Court that the concept of real income could not be utilized for whittling down or nullifying or defect the provisions of the statute. The concept of reality of income is not applicable where the income had already accrued. It was in this context the liability for the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. This is also not in dispute that the Award had been passed only on 30th September, 2006. Therefore, it cannot be said that the interest had not been accrued to the assessee company in the preceding year especially in the impugned year. But at the same time the assessee has already offered the income for taxation in the earlier years and the assessee cannot be taxed again on such income. Therefore, it will be in the interest of justice if the arguments made by the assessee before us are examined by the AO from the records produced by the assessee that the interest upto the end of the impugned year has already been provided / accrued in excess, then no interest income is required to be accrued during the year. The AO is directed to decide the issue de novo as directed above but by affording opportunity of being heard to the assessee. Thus, Ground no.1 of the assessee s appeal is allowed for statistical purpose. From the side of the Revenue, ld. CIT. D.R. relied upon the orders of authorities below but fairly accepted the proposal of the appellant. 8. We have gone through the orders of authorities below and Co-ordinate D Bench decision in assessee s own case for A.Y. 05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on page nos. 13 to 17. After considering the facts and circumstances of the case, he found the Hardware for PLC1 upgrade of ₹ 15,27,931/- and Tube bundle for E-107-IV of ₹ 50,37,942/- as capital expenditure and remaining items were allowed as Revenue s expenditure. 11. Now, the matter is before us. The ld. Counsel for the assessee contended that these are the replacement of parts. The ld. CIT(A) in previous year has allowed these replacement of parts as revenue expenditure on which the Revenue had preferred the appeal before the ITAT, which is pending. He further relied upon the decision of Saravana Spinning Mills Ltd. 293 ITR 201 in which the Hon ble Apex Court held that in plant and machinery replacement of these parts no marketable product can be produced by using of them which is necessitated replacement only. Therefore, he requested to allow the whole expenditure. From the side of the Revenue, ld. CIT.D.R. relied on the order of the A.O. 12. We have considered the rival contentions of the appellant and perused the assessment record and heard the arguments from both sides. The ld. CIT(A) had observed that this replacement of stores and spares can be used ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/- was considered for taxation in the assessment order. 14. Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A) who has confirmed the addition. The appellant relied upon the decision of Hon ble Supreme Court before the CIT(A) in case of Shaan Finance Ltd. 268 ITR 308, decision of Gujarat High Court in the case of CIT vs. Pinnacle Finance Ltd. 268 ITR 395, decision of Special Bench of Mumbai Tribunal in the case of Mid Est India Portfolio Management Ltd. 87 ITD 537, ITAT Madras in the case of CIT Special Range VIII Chennai vs. The Investment Trust of India Ltd. The operative portion of the order is as under:- 16.3 I have gone through the contentions of the appellant and the assessment order. It is noticed that the submissions and the inferences drawn thereon have been comprehensively discussed and dealt with in my predecessor s order for A.Y. 2003-04. The pleadings of the appellant on the issue are identical to those made in connection with the case for A.Y.2003-04. On identical issue for A.Y. 2003-04 vide order No.CAB/VI-97/06-07 dated 31-01-2007 at paras 17 to 17.3.6 on page Nos.42 to 56 the claim of the appellant has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order and Special Bench decision in case of M/s.IndusInd Bank Limited vs. The Addl. Commissioner of Income-tax in ITA No. 6566/Mum/2002 for A.Y. 1998-99 and ITA No. 606/Mum/2003 for A.Y 1999-2000. A fresh re-look is required as Co-ordinate Bench had given findings in above case after considering the Hon ble Supreme Court decision in case of ABB Ltd. (supra). Therefore, this issue is set aside to the A.O. for de novo after considering the decision of M/s. Induslnd Bank Ltd. (supra). Accordingly, this ground of appeal is restored back to the A.O. 18. Ground no.5 is against confirming the disallowance of advances amounting to ₹ 21,08,918/-. The factual matrix of the case is that the assessee had written off following amounts :- 1. Advance to Shree Narmada Fertilizers Staff Credit Consumer Co. Op. Society ₹ 14,22,273/- 2. Advance to Narmada Scientific and EducationResearch Society (NE SRS) ₹ 6,59,845/- 3. Rent Deposit ₹ 22,800/- 4. Deposit with Commercial tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- deposit was given to commercial tax department. Therefore, he claimed it is a business loss and allowable u/s.37 of the IT Act. From the side of the Revenue, the ld. CIT.DR. relied upon the orders of authorities below. 21. We have heard the rival contentions and perused the facts of the case. The appellant had 6000 employees. For them, there is a Staff Credit Consumers Co-operative Society. The appellant had obligation to provide certain facilities to the employees to motivate them as per management principle to get committed services from them. The appellant does not have any hope of recovery of this amount. Therefore, we reverse the order of CIT(A) on this ground. The assessee s appeal on this ground is allowed. ITA NO. - 1003/Ahd/2010 22. The effective grounds of Revenue s appeal are as under: 1(a) On the facts and in the circumstances of the case, the Ld. CIT. (A) erred in deleting the addition of ₹ 3,72,84,754/- made out of the interest claimed u/s. 36(1)(iii) on account of diversion of borrowed funds to subsidiary and associate concerns, by merely relying on the appellate orders for earlier years (which have been contested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. On the facts and in the circumstances of the case, the Ld. CIT. (A) erred in allowing deduction of ₹ 5,83,000/- payment for Information Technology Related Services paid to M/s. Infinium (India) Ltd. treated as expenses deriving benefit of enduring nature. 5. On the facts and in the circumstances of the case, the Ld. CIT. (A) erred in deleting the disallowance u/s. 14A of ₹ 1,50,000/- on account of investment made by the assessee in equity share of Gujarat Green Revolution Company Ltd. 6. On the facts and in the circumstances of the case, the Ld. CIT. (A) erred in deleting the disallowance u/s. 40(a)(ia) on account of non deduction of TDS on CHA charges paid of ₹ 6,93,372/- and consignment expenses paid of ₹ 76,00,509/- 23. The first ground of Revenue s appeal is against deleting the addition of ₹ 3,72,84,754/- on account of the interest claimed u/s. 36(1)(iii). The A.O. observed that the appellant had made total interest free advance was ₹ 32.81 crore to its subsidiary and associated concern. The assessee company had paid net interest of ₹ 42.19 crore o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in view of the Hon ble Supreme Court in case of S.A. Builders. 25. Now the Revenue is before us. Ld. CIT.D.R. Contended that the ld. A.O. had thoroughly analyzed the fund availability on page 5 and had considered the law position on this issue. He had established the nexus between interest bearing loan with interest free advances. From the side of assessee, ld. A.R. contended that the appellant has advanced to GNAL ₹ 28.82 crore NE SRS ₹ 3.99 crore and no new advance was given during the year under consideration. In fact, there was a reduction in balance of advances given to GNAL. The appellant had sufficient own fund on account of share capital, reserve and surplus and accumulated depreciation to the tune of ₹ 2774.93/- crore. The appellant made this payment in commercial expediency which has been established by the appellant before the A.O. He further claimed that Hon ble Gujarat High Court in assessee s own case for A.Y. 1992-93 to had deleted the disallowance of interest. The Hon ble Tribunal also had deleted the disallowance of interest expenses in A.Y. 03-04 to 05-06. Therefore, the same may be allowed in this year. 26. We have perused the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st bearing funds to interest free advances. In the circumstances, the Tribunal was justified in deleting disallowance made under section 36(1)(iii) of the Act. ITAT D Bench, Ahmadabad, has also considered this issue in A.Y. 2005-06 and the facts of the assessee are identical with A.Y. 05-06. The operative part is reproduced as under: 41 We have heard the rival contentions and perused the facts of the case. We concur with the views of the learned CIT(A) and the decision of the Tribunal Ahmadabad Bench in assessee s own case for AY 1995- 96 as referred to in the order of the learned CIT(A) vide para 5.2.3 and therefore we find no infirmity in the order of the learned CIT(A). Thus, Ground no.1 of the Revenue s appeal is dismissed. We respectfully following the decisions of Hon ble Gujarat High Court as well as Co-ordinate D Bench, Ahmadabad, decision in assessee s own case and we delete the addition made by the A.O. u/s. 36(1)(iii) of IT Act at ₹ 3,72,84,754/- and confirm the order of the CIT(A). The Revenue s appeal is dismissed on this ground. 27. Ground no.2 is against allowing the expenses of ₹ 5,08,764/- by the CIT(A) on protecting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84,871/- being 50% of GNFC share of expenses to P L account and credited ₹ 77,46,628/- being 50% share of income to profit and loss account and claimed loss of ₹ 49,38,243/- in respect of its I.T. related business but expenses related to salary of the employees had not been considered by the appellant which was worked out by A.O. at ₹ 11.66 lacs being 50% of share. He disallowed ₹ 5,83,000/- out of them. The CIT(A) had allowed the appeal on the basis of expenses other than this reflected in the books of account was to be born by both the parties respectively. The ld. A.O. had not pointed out any discrepancy in the claim. 31. Now the Revenue is in appeal. Ld. CIT.D.R. relied upon the order of the A.O. whereas ld. Counsel for the appellant vehemently argued that it was decided mutually by both the parties that it would bear its own cost for salary of staffs. The appellant had explained this issue in detail before the A.O. Hon ble Tribunal in assessee s own case in A.Y. 03-04 to 05-06 had deleted the disallowance of expenditure incurred in IT business. After following the Co-ordinate Bench decision for A.Y.05-06 in assessee s own case. The presumption of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany which was reimbursed to them based on details of actual expenses incurred by such agents. Since, this pure reimbursement of expenses, no TDS is deductable. The appellant had taken confirmation from the consignment agent that TDS was deducted from the payment made by them wherever it was applicable. Since transaction has already suffered tax once it cannot be tax again. The ld. A.O. observed that no details of TDS were submitted before him and as per Circular No. 715 dated 08.08.1995. TDS is to be deducted on such type of payments. Thus, he disallowed the expenses of ₹ 76,00,509/- ₹ 6,93,372/- u/s. (40)(a)(ia) of the IT Act. 35. The assessee carried the matter before CIT(A) who had allowed the appeal on the basis of nature of payment reimbursed i.e. expenditure incurred on behalf of the appellant and there is no element of profit. Thus, on reimbursement, no TDS is required to be deducted. 36. Now the Revenue is before us. The ld. D.R. relied on the order of the A.O. and requested to reverse the order of CIT(A) whereas from the side of appellant, the ld. A.R. has argued that this is a reimbursement of actual expenses. These expenses were incurred by the agen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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