TMI Blog2011 (4) TMI 1355X X X X Extracts X X X X X X X X Extracts X X X X ..... ent expenses. The expenses incurred were for printing cigarette packs through third parties which in turn had procured some specific printing cylinders/ dyes for the printing. The payments for procuring the cylinders/ dyes had been made by the assessee. The AO observed that even though the assets were lying with third parties, the assessee was having right to use the same and expenses were of capital in nature. He therefore disallowed the same. In appeal CIT(A) following the decision in A.Y.2002-03 confirmed the disallowance aggrieved by which the assessee is in appeal before the tribunal. 2.1.1 We have heard both the parties, perused the records and considered the matter carefully. We find that the same issue has already been considered by the tribunal in assessee s own case in A.Y.2002-03 in ITA No.2793/M/2006. The tribunal in the said year on perusal of invoice of M/s. Twenty-first Century Printers Ltd. relating to the purchases of cylinders/ dyes noted that these were consumable stores used in printing. The assessee had also issued specific certificate certifying that the items were charged to consumable stores. Tribunal also observed that the life of such items used in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case of DCIT Vs Service Finishing Equipment (2 SOT 232). The tribunal accordingly allowed the claim of the assessee. The facts in the years under consideration are identical except for some difference in rate of depreciation. We therefore respectfully following the decision of the tribunal in assessee s own case in A.Y.2002-03, set aside the order of CIT(A) and allow the claim of the assessee. 2.3 The third dispute is regarding disallowance of EDP charges. The AO noted that the assessee had claimed expenditure of ₹ 37.80 lacs in A.Y.2003-04 and ₹ 37.54 lacs in A.Y.2004-05 on account of EDP charges i.e for purchase of new computer software. The AO observed that in the depreciation table, computer software had been listed as a depreciable asset on which depreciation @ 60% was allowable. He also referred to the judgment of Hon ble High Court of Rajasthan in case of CIT Vs Arawali Construction Pvt. Ltd. (259 ITR 30) in which computer software expenses were held to be of capital in nature. He therefore disallowed the claim of the assessee as revenue expenditure and allowed depreciation @ 60%. Aggrieved by the said decision the assessee in appeal before the tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. During the assessment proceedings, the AO noted that the assessee had unutilized modvat credit which had not been added to the closing stock as required under the provisions of section 145A which was applicable from A.Y.1999-2000. The assessee submitted that there would be no net effect on the profit of the assessee because of adjustment on account of unutilized modvat credit. AO however did not accept the contentions raised and made additions of ₹ 88,42,780/- and ₹ 1,08,60,116/- respectively for the two years. In appeal CIT(A) confirmed the orders of AO aggrieved by which the assessee is in appeal before the tribunal. 2.5.1 We have heard both the parties, perused the records and considered the matter carefully. We find that the same issue has already been considered in the assessee s own case in A.Y.2002-03 in ITA No.2792/M/2006. The tribunal noted that in A.Y.2000-01 the same issue has been remitted back to the AO for fresh consideration in the light of decision of Hon ble High Court of Delhi in case of CIT Vs Mahavir Aluminum Ltd. (297 ITR 277). The tribunal accordingly restored the issue to the file of AO. The facts are identical in these years. We therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere mostly coming from the earlier years when there was no disallowance and therefore no disallowance could be made ion respect of the opening balances. The assessee placed reliance on the judgment of Hon ble High Court of Karnataka in case of CIT Vs Sridev Enterprises (192 ITR 165) and some other judgments. CIT(A) however did not accept the contentions raised. It was observed by him that there was no dispute that the assessee had given interest free loans to the subsidiary for a certain period of time and thereafter at a subsidized rate. Further there was no evidence with the assessee to show that the loans given to the subsidiary were generated internally and not from the borrowed funds. There was also no evidence to show that loans given to the subsidiary had anything to do with the business of the assessee. CIT(A) referred to the judgment of Hon ble High Court of Punjab Haryana in case of CIT Vs Abhishek Industries Ltd. (286 ITR 1) in which it was held that once the assessee claimed deduction on account of interest the onus was on the assessee to show that whatever loans were taken, were used for business purposes and in case the assessee advanced funds to sister concerns or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on the judgment of Hon ble Supreme Court in case of S.A.Builders (288 ITR 1). It was accordingly urged that addition made on account of disallowance of interest should be deleted. The Learned DR on the other hand supported the orders of authorities below and placed reliance on the findings given in the respective orders. 2.6.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding disallowance of interest paid by the assessee on account of advances given to the subsidiary of the assessee company. The assessee had advanced interest free loan of ₹ 342.65 lacs. It had also advanced further loans at concessional rate. The assessee had also made borrowings on which substantial interest was being paid. The authorities below have disallowed part of the interest proportionate to interest free advances and advances given on concessional rate on the ground that there was no material to show that the loans taken by the assessee were used wholly and exclusively for the purpose of business or that these loans and advances were given out of own funds. The case of the assessee is that the interest free advances had been given since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court held that interest on money borrowed cannot be allowed on commercial expediency in all cases of loans and advances given to the sister concern. It was also observed by the Hon ble Supreme Court that in case the holding company advanced borrowed funds to the subsidiary in which it had deep interest, it would ordinarily be entitled for deduction and that it will depend upon facts and circumstances of each case. We find that in the present these aspects have not been examined and it is not clear how the interest free loans and advances to the sister concerns would have promoted the interest of the assessee. We also note that the assessee had filed the fund flow statement available on page 64 of the paper book but the same was filed only before CIT(A) and was not available before the AO. Therefore the aspects as to whether and how much loans and advances were coming from earlier years is required to be verified by the AO. The assessee has also filed copy of the Board resolution dated 10.8.92 available at page 61 of the paper book as per which some loans had been given to the subsidiary company for development of the property with understanding that the assessee would acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but consequent to the amendment of section 43B the claim was being made on payment basis from A.Y.2003-04. The AO has made estimated disallowance out of the claim made on payment basis on the ground that part of the payments made may relate to earlier year when these were allowed on actuarial basis. The AO has made disallowance on estimate which cannot be sustained. Only the payment which had actually been allowed earlier can be disallowed. In our view matters require fresh examination and disallowance has to be restricted to the amounts allowed in the earlier year. We therefore set aside the order of CIT(A) and restore the issue to the file of AO for passing a fresh order after necessary examination and after allowing opportunity of hearing to the assessee. 2.9 The dispute raised in ground No.9 is regarding claim of deduction under section 80HHC in respect of DEPB income. The AO noted that the assessee had received DEPB income of ₹ 2,88,41,387/- and ₹ 5,01,03,898/- for A.Yrs. 2003-04 and 2004-05 respectively. The assessee had claimed deduction under section 80HHC in respect of DEPB income also. The AO however observed that the assessee had not satisfied the cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i in case of Kalpataru Colours Chemicals Ltd. (supra). 2.9.3 We have perused the records and considered the matter carefully. The dispute is regarding allowability of deduction under section 80HHC in respect of DEPB income. There is no dispute that the entire DEPB income including the face value as well as the profit on sale is required to be considered as profit of business under section 28(iiid) in view of the judgment of Hon ble High Court of Mumbai in case of CIT Vs Kalpataru Colour and Chemicals (supra). Once the entire income is considered under section 28(iiid) the deduction under section 80HHC could be allowed only if the two conditions mentioned in the 3rd proviso to section 80HHC(3) are fulfilled as the turnover in respect of the assessee exceeded ₹ 10 crores. The two conditions referred to above have been reproduced in para 2.9.1 in this order earlier. The case of the assessee is that in case of the assessee, the duty draw back scheme was not applicable at all and therefore there was no way, the conditions could be fulfilled and therefore the said conditions could not be made applicable in case of the assessee and deduction could be allowed without fulfilli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02 and therefore the liability had crystallized only during the assessment year 2003- 04. In view of the finding of the tribunal in A.Y.2002-03 that bill was dated 19.4.2002 which related to A.Y.2003-04 the claim of the assessee has to be allowed in A.Y.2003-04. We accordingly allow the claim of the assessee this year. 3. Appeals of the revenue in ITA No.1301/M/2007 (Assessment Year 2003-04) and ITA No.5585/M/2007 (Assessment Year 2004-05). In these appeals of the revenue, disputes have been raised on six different grounds which are mostly common. 3.1 The first dispute is regarding disallowance of contribution to labour welfare fund. This dispute is relevant only for A.Y.2003-04. The AO noted that the assessee had deposited an amount of ₹ 360/- towards company s contribution to Labour Welfare Fund but the same had not been realized within 15 days as pointed out by the auditors. The assessee explained that the amount had been deposited within the due date but the same was not realized within 15 days for no fault of the assessee. AO however did not accept the contentions raised. It was observed by him that the deduction could be allowed under section 43B only if the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered by the tribunal in assessee s own case in A.Y.2002-03 in which case also the assessee had claimed depreciation at higher rate treating the cars as commercial vehicle. The tribunal noted that there was no dispute that the cars were used in the business of the assessee though the business was not of plying of vehicles on hire. The tribunal also noted that Note IIIA under the Appendix I defined commercial vehicles which also included a light motor vehicle. Further light motor vehicle had been defined in section 2 of Motor Vehicles Act which in addition to other vehicles also included a motor car with unladen weight not exceeding 7500 kg. Thus the motor cars with unladen weight not exceeding 7500 kgs will be covered by the definition of commercial vehicles. The tribunal therefore held that the assessee was entitled higher rate of depreciation. Facts this year are identical as no distinctive features have been brought to our notice by the Learned DR. We therefore see no infirmity in the order of CIT(A) allowing the rate of higher depreciation and the same is therefore upheld. 3.3 The third dispute which is also relevant for both the years is regarding depreciation on buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses had been incurred to create awareness about the company s brands and to help create market for the company. AO however observed that the assessee had failed to substantiate the business necessity. He therefore disallowed the claim. CIT(A) following the decision in A.Y.2002-03 allowed the claim of the assessee aggrieved by which the revenue is in appeal before the tribunal. 3.4.1 Before us the Learned AR for the assessee submitted that the issue was covered in favour of the assessee by the decision of the tribunal in assessee s own case in A.Y.2002-03 in ITA No.2792/M/2006 and in A.Y.2005-06 in 6692/M/2008 in which similar sample expenses have been allowed by the tribunal. The Learned DR fairly conceded that the issue was covered. 3.4.2 We have perused the said orders of tribunal. The tribunal in A.Y.2002- 03 noted that the sample distribution expenses were miniscule considering the turnover of over ₹ 600 crores. The assessee had produced all necessary details and vouchers. The claim was therefore allowed. This year also the facts are identical. There is no case made out by the department that details and vouchers were not available. The disallowance has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g over of possession. The rental income was therefore from exploitation of commercial assets. The tribunal, therefore hold that such lease rental income was of the nature of business. The tribunal also held that while computing deduction under section 80HHC such income had to be treated as other income covered by the Explanation (baa) and 90% of the same was required to be deducted from the profit of business. Respectfully following the said decision of the tribunal, we hold that rental income from subletting of spare office space as well as plant and machinery and equipments will be of the nature of business income and will be considered as per Explanation (baa) while computing deduction under section 80HHC. As regards the interest income from loans, deposits and income-tax refund there is no material produced before us to show that the loans and deposits had any nexus with the business of the assessee. Therefore we agree with the finding of the AO that interest income from loans deposits and income-tax refund has to be treated as income from other sources. We accordingly set aside the order of CIT(A) on this point and uphold the order of AO. 3.6 The sixth dispute is regardi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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