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Sri Satish Rajapur Versus The Deputy Commissioner of Income Tax, Circle 1, Bellary.

2015 (10) TMI 2429 - ITAT BANGALORE

Disallowance of additional depreciation u/s. 32(1)(iia) - Held that:- The claim of assessee in respect of additional depreciation has been denied by the AO on the ground that the assessee is not in the business of manufacture or production of goods or articles. Though the AO has recorded this fact that the assessee is in the activity of excavation, crushing and screening of iron ore, but such activity has been carried out by the assessee on behalf of the mine owners. Thus, the AO was of the view .....

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r and then, adjudication as per law - Decided in favour of assessee by way of remand.

Disallowance u/s. 40(a)(ia) - assessee has paid interest/financial charges without deduction of tax as required u/s. 194C - Held that:- This issue is decided in favour of the assessee. The disallowance made by the AO u/s. 40(a)(ia) of the Act is deleted. See case of Merilyn Shipping [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] concluding that provisions of Section 40(a)(ia) are applicable only to the amou .....

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Member This appeal by the assessee is directed against the order dated 30.1.2014 of the CIT(Appeals), Hubli for the assessment year 2008-09. 2. The assessee has raised the following grounds:- 1. The CIT (Appeals) erred in passing the order in the manner in which he did. 2. The learned CIT (Appeals) erred in disallowing a sum of ₹ 90,55,120/- towards additional depreciation without appreciating the submission of the Appellant that the Appellant being engaged in the business of manufacture .....

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n if finance charge is to be held as interest, then, the payment to the parties mentioned have been paid within 3l March of the relevant financial year and thus the disallowance under Section 40a(ia) of the Act is uncalled for. 6. The learned CIT (Appeals) ought to have allowed the claim with regard to finance charge by relying on the decision of the Special Bench of ITAT, Visakhapatnam in the case of Merilyn Shipping Corporation & Transports vs. ACIT reported in (2012) 16 ITR (Tri) 1. 7. Fo .....

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ment proceedings, the Assessing Officer noticed that the assessee has claimed additional depreciation on plant & machinery aggregating to ₹ 90,55,120. The AO found that the assessee is engaged in the purchase and sale of iron ore and in the nature of contract work of excavation, crushing, screening, transport, loading and hiring of machineries. Thus, the AO asked the assessee as to why the claim for additional depreciation should not be disallowed. The assessee filed its reply and subm .....

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allowed the claim of assessee. On appeal, the CIT(Appeals) has confirmed the disallowance made by the AO on this account. 7. Before us, the ld. AR of the assessee has submitted that the assessee purchased the machinery which is used for mining work as well as crushing and screening work. The ld. AR of the assessee has referred to the details of revenue earned by the assessee from the activity of crushing, screening as well as trading in iron ore. Thus, he has submitted that when the assessee is .....

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and screening of iron ore falls under the definition of manufacture of goods and therefore the assessee satisfies the conditions as provided u/s. 32(1)(iia) of the Act for claiming additional depreciation. 8. On the other hand, the ld. DR has relied on the orders of authorities below and submitted that the AO has given a factual finding in the case of the assessee that it is not engaged in the business of manufacture and products of articles or goods, as required under the provisions of section .....

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see is not in the business of manufacture or production of goods or articles, the decision relied upon by the assessee will not help the case of the assessee. 9. We have considered the rival submissions as well as relevant material on record. The claim of assessee in respect of additional depreciation has been denied by the AO on the ground that the assessee is not in the business of manufacture or production of goods or articles. Though the AO has recorded this fact that the assessee is in the .....

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e, or it was on contract basis on behalf of other parties. Even otherwise, an identical issue has been considered by the coordinate Bench of this Tribunal in the case of R. Prabhu (supra) in para 7 as under:- 7. Having heard both the parties and having considered their rival contentions, we find that clause - (2a) of sub sec. 1 of sec. 32, provides than an assessee is eligible for additional depreciation if it has acquired any new plant or machinery and installed the same after 31st day of March .....

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ia) of the Act, it is necessary that the assessee has to carry on the work of manufacture or production of an article or thing and work of excavation, processing and transportation carried on by the assessee is evident from the agreements with each of the contractors that he has entered into and it would be sufficient and would satisfy the condition u/s 32(1)(iia) of the Income-tax Act if the assessee has purchased the machinery and has installed and used the same during the relevant financial y .....

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additional depreciation u/s 32(1)(iia)of the Income-tax Act. Thus, assessee s appeal is allowed. 10. The relevant facts have not been examined by the AO as to the source of revenue earned by the assessee and for earning income from the activity of excavation, crushing and screening, whether the assessee has used newly acquired machinery on which the claim for additional depreciation has been made by the assessee. Accordingly, we are of the view that this issue requires a proper verification and .....

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ee has paid interest/financial charges of ₹ 1,04,09,238 without deduction of tax as required u/s. 194C of the Act. Since the assessee failed to deduct tax at source, the AO invoked the provisions of section 40(a)(ia) of the Act and disallowed the said sum of ₹ 1,04,09,238. On appeal, the CIT(Appeals) has confirmed the disallowance made by the AO in this respect. 12. Before us, the ld. AR of the assessee has submitted that the assessee has paid interest/financial charges to 3 companie .....

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o deduct tax at source while making payment of interest to Sundaram Finance Ltd. 13. In respect of the other two payments to SREI Infrastructure Finance Ltd. and Tata Motor Finance Ltd., the ld. AR of the assessee has submitted that payment was not outstanding and already paid before the end of financial year as on 31.3.2008 and therefore in view of the decision of the Vishakapatnam Special Bench in the case of Merilyn Shipping Corporation & Transports vs. ACIT, 136 ITD 23, no disallowance c .....

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hus the ld. AR has submitted that disallowance made by the AO u/s. 40(a)(ia) of the Act is not warranted and the same may be deleted. 14. On the other hand, the ld. DR has relied on the orders of the authorities below. 15. Having considered the rival submissions and the relevant material on record, we note that the AO has disallowed the payment of interest/financial charges u/s. 40(a)(ia), the details of which are recorded by the AO in para 4 page 7 of the assessment order as under:- 4. The asse .....

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tax at source in respect of payment made to the said company. In view of the fact that the Department has already granted exemption to the said company, therefore, disallowance made by the AO u/s. 40(a)(ia) of the Act for want of tax deduction at source is not warranted. Accordingly, the same is deleted. 17. For the remaining two payments, the ld. AR has relied on decision of the Special Bench of the Tribunal in the case of Merilyn Shipping Corporation & Transports (supra). We further note t .....

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refore, should be given retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. In CIT Vs. Alom Extrusions Ltd. 319 ITR 306 (SC), the Hon ble Supreme Court had to deal with the question, whether omission (deletion) of the second proviso to s. 43B of the IT Act, 1961, by the Finance Act, 2003, operated w.e.f. 1st April, 2004, or whether it operated retrospectively w.e.f. 1st April, 1988? Prior to Finance .....

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e date for filing the return of income and necessary evidence of such payment was enclosed with the return of income. In other words, if contribution stood paid after the date for filing of the return, it stood disallowed. This resulted in great hardship to the employers. They represented to the Government about their hardship and, consequently, pursuant to the report of the Kelkar Committee, the Government introduced Finance Act, 2003, by which the second proviso stood deleted w.e.f. 1st April, .....

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w.e.f. 1st April, 1988 (retrospectively). The Hon ble Supreme Court held that the deletion of the second proviso was retrospective w.e.f.1.4.2004. The Court considered the scheme of the Act and the historical background and the object of introduction of the provisions of S. 43B. The Court also referred to the earlier amendments made in 1988 with introduction of the first and second provisos. The Court also noted further amendment made in 1989 in the second proviso dealing with the items covered .....

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d the second proviso and also made first proviso applicable to contribution to employees welfare funds referred to in S. 43B(b). 15. We find no merit in these civil appeals filed by the Department for the following reasons : firstly, as stated above, s. 43B (main section), which stood inserted by Finance Act, 1983, w.e.f. 1st April, 1984, expressly commences with a non obstante clause, the underlying object being to disallow deductions claimed merely by making a book entry based on mercantile sy .....

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ven in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the IT Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightf .....

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, in our view, the Finance Act, 2003, which is made applicable by the Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), the scheme of s. 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales-tax collected by the assessee an .....

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deduction was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that the first proviso which came into force w.e.f. 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Ltd. Etc. (supra). However, the assessee contended that even though the first proviso came to be inserted w.e.f. 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively .....

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ration, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Ltd. Etc. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-avis contributions to welfare .....

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he assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example-in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March (end of accounting year) but before filing of the Returns under the IT Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second provi .....

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In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate w.e.f. 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. 16. Before concluding, we extract hereinbelow the relevant observat .....

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eferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction." 17. For the aforestated reasons, we hold that Finance Act, 2003, to the extent indicated above, is curative in nature, hence, it is retrospective and it would operate w.e.f. 1st April, 1988 (when the first .....

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tended to remove hardship. It was argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. 27. As far as the appeal of the revenue is concern .....

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that provisions of Section 40(a)(ia) of the Act are applicable to even sums paid during the year. • In the case of Teja Construction vs. ACIT reported in 39 SOT 13 the Hon ble Hyderabad ITAT has decided the issue against the Revenue and has held that provisions of Section 40(a)(ia) of the Act are not applicable in respect of sums/amount paid during the year and which are not payable at end of the year on date of balance sheet, as it is applicable only in respect of Payable amount shown in b .....

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provision from the words amount credited or paid to payable has held that it has to be concluded that provisions of Section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS. 28. In CIT Vs. Sikandarkhan N.Tunvar & Others, TAX APPEAL NO. 905 of 2012 & others Dated02/05/2013, the Hon ble Gujarat .....

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ature described, which is such on which tax is deductible at source but such tax has not been deducted or if deducted not paid before the due date. The provision nowhere requires that the amount which is payable must remain so payable throughout during the year. If the assessee s interpretation is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the .....

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a change is brought about. The Special Bench was wrong in comparing the language used in the draft bill to that used in the final enactment to assign a particular meaning to s. 40(a)(ia). Accordingly, Merilyn Shipping does not lay down correct law. The correct law is that s. 40(a)(ia) covers not only to the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. The Hon ble Kolkatta High Court in CIT Vs. Md.Jakir Hossai Mondal (supr .....

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Shipping (supra) in the case of M/s. Vector Shipping Services Pvt. Ltd. (supra). The relevant observations of the Hon ble Court were as follows:- We do not find that the revenue can take any benefit from the observations made by the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (136 lTD 23) (SB) quoted as above to the effect Section 40(a)(ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through .....

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