TMI Blog2016 (7) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... alue. Assessee is entitled to entire amount claimed as depreciation on windmill. - Decided against revenue Disallowance made on account of advertisement expenses - assessee produced the copy of the bill of M/s Adsun Advertising Agency and CIT(A) deleted the addition - DR argued that the bill of M/s Adsun Advertising Agency was never subjected to verification by the ld AO and accordingly prayed for setting aside of this issue to the file of the ld AO - Held that:- In the facts and circumstances, we deem it fit and appropriate, to set aside this issue to the file of the ld AO , to decide the same in the light of evidences submitted by the assessee in this regard. - Decided in favour of revenue for statistical purposes. TDS u/s 194C - non deduction of tds on advertisement material expenses - Held that:- We find from the details and the bills submitted the assessee had only made payments for purchase of materials and had admittedly not supplied the materials to the job worker and hence the same would not fall under the definition of ‘work’ as per section 194C of the Act.Hence there is no violation of section 194C warranting any disallowance u/s 40(a)(ia) of the Act. - Decided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding shares worth ₹ 15.89 Crores therein and has income from the said company in the form of Managerial Remuneration amounting to ₹ 35.20 Lacs, Royalty Advertisement Pool A/c. amounting to ₹ 1.49 Crores both assessed as Business Income. The assessee is running Wind Mill a priority industry Project as its Proprietor and generates electrical energy which is sold wholly to Tamil Nadu Electricity Board which also is assessed as Business Income. The assessee has Dividend Income ₹ 51.68 Lacs on Shares in TT Ltd. above which has been claimed as exempt u/s 10(34) of the Act. The assessee borrowed secured loans ₹ 10.63 Crores unsecured Loans ₹ 5.57 Crores on which he paid interest ₹ 1.87 Crores (including ₹ 42.04 Lacs on Wind Mill) during this year. The assessee paid interest on unsecured loan of ₹ 46.76 lacs and on secured loans ₹ 93.81 lacs and finance charges of ₹ 4.38 lacs against the said loans. The assessee stated that loan has been utilized for the purpose of carrying on business / profession of royalty from Trade Branch T.T. , Trading in shares and business of manufacturing electricity through windmill and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 as per the books were outstanding at ₹ 16.19 crores and whereas the own funds available with the assessee were only ₹ 15.467 crores. Hence it could be presumed that the investments were made out of borrowed funds and accordingly disallowance u/s 14A of the Act has been rightly made by the ld AO. In response to this, the ld AR argued that investments made in TT Ltd are strategic investments and business expediency investments and the same were made in the earlier years out of own funds. He stated that the increase in borrowed funds were due to loans availed by the assessee for purpose of acquisition of windmill which was made in Financial Year 2006-07 (Rs 6.20 crores) ; vehicle loans availed during Financial Years 2007-08 2008-09 (Rs 0.06 crores) ; loan availed for acquisition of Karol Bagh Office building (Rs 2.15 crores) and working capital for business during Financial Years 2007-08 2008-09 amounting to average of ₹ 2.22 crores, whereas, the investments in TT Ltd were made in the earlier years prior to Financial Year 2006-07 which is quite evident from the fact that the ld CIT had passed an order u/s 263 of the Act for the Asst Year 2004-05 wherein the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty income, managerial remuneration and dividend income which is earned incidentally is an integral part of the business. These submissions were not controverted by the revenue before us. Accordingly we hold that the investments made in shares of TT Limited out of own funds of the assessee take the character of strategic investments in order to protect the business interest and was not made with a view to earn dividend income. The reliance placed by the ld AR on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs Rajeeva Lachan Konaria reported in 208 ITR 616 (Cal) is well founded. Though this decision was rendered in the context of allowability of interest expenditure u/s 36(1)(iii) of the Act, the principles laid down thereon would apply with equal force to the facts of the instant case for the purpose of disallowance u/s 14A of the Act. 2.3.2. We also find that the assessee in the course of proceedings u/s 263 of the Act for the Asst Year 2004-05 vide order u/s 263 dated 27.12.2007 (vide pages 6 7 of the paper book) had claimed that the assessee being the Chairman Managing Director of TT Limited had to acquire its shares so as to have controll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld shares have yielded dividend, for which, the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside. Accordingly, we pass the following: ORDER (i) Appeal is allowed. (ii) Impugned orders are hereby set aside. (iii) The substantial question of law is answered in favour of the assessee and against the revenue. 2.3.4. Hence, in view of the aforesaid decisions, we hold that no disallowance u/s 14 A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of ACIT vs Parry Engineering Electronics Pvt. Ltd in ITA No. 3317/Ahm/2011 CO No. 44/Ahm/2012 dated 2.3.2012 in support of his contentions. The ld CITA appreciating the contentions of the assessee deleted the disallowance. Aggrieved, the revenue is in appeal before us on the following ground:- 2. On the facts circumstances of the case, the Ld. CIT(A)-XX, Kolkata has erred in deleting the addition of ₹ 4,54,080/- on account of depreciation claimed on land. 3.2. The Ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 3.3. We have heard the rival submissions. At the outset, we find that the action of the ld AO in trying to disturb the opening Written Down Value (WDV) attributable to the cost of land and thereby trying the disallow the depreciation component thereon is not appreciated , as, if at all, the ld AO has got any grievance on the impugned issue, then he should have reopened the assessment for the Asst Year 2007-08 ( i.e. the year in which land on which windmill was installed was purchased) and disallowed the depreciation thereon in that year. He cannot unilaterally d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these are necessary inputs going into ultimate cost of such wind mill. The foundation structure or the specially demarcated appurtenant thereto cannot be considered as equivalent to a hotel or a cinema building which is adjunct to carrying on a hotel business or theatre business. On the other hand these can be deemed only a part of a windmill for harnessing wind energy. In coming to this conclusion we are fortified by decision of Hon ble Karnataka High Court in the case of CIT v. Karnataka Power Corporation (247 ITR 268) where it was held that whether a the building can be treated as a plant was a question of fact and when it is found as a fact that the building has been so planned and constructed as to serve the assessee s ITA No.176/Mds/2010 6 special technical requirement, it would qualify to be treated as a plant. In our opinion, the expenses relating to the land and foundation specially incurred with a view to serve the technical requirements would also become a part of the plant in a case that of a wind mill. If we look at Appendix I to the Incometax Rules, prescribing the rates of depreciation, it can be seen that Legislature has given higher depreciation rate of 80% on anti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved from the ledger of advertisement expenses that the assessee has shown an amount of ₹ 7,93,379/- paid to M/s Adsun Advertising Agency which was disallowed by him in the assessment. Before the ld CITA, the assessee produced the copy of the bill of M/s Adsun Advertising Agency. The ld CITA observed that all the payments were made by account payee cheques and accordingly deleted the disallowance. Aggrieved, the revenue is in appeal before us on the following ground:- 3. On the facts circumstances of the case, the Ld. CIT(A)-XX, Kolkata has erred in deleting the addition of ₹ 7,93,379/- on account of advertisement expenses without bills. 4.2. The ld DR argued that the bill of M/s Adsun Advertising Agency was never subjected to verification by the ld AO and accordingly prayed for setting aside of this issue to the file of the ld AO which was fairly accepted by the ld AR. 4.3. We have heard the rival submissions. In the facts and circumstances, we deem it fit and appropriate, to set aside this issue to the file of the ld AO , to decide the same in the light of evidences submitted by the assessee in this regard. Accordingly, the ground no 3 raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased for advertisement purposes for sale of products under brand name T.T. Knitwear as payments for contract of printing warranting deduction of tax at source u/s 194C of the Act. The assessee claimed that payment was made for outright purchase of materials and not for execution of any contract. The ld CITA held on perusal of the details and documents that there was no contract existing between the parties and the assessee u/s 194C of the Act as the transaction was purely in the nature of purchase / sale of materials and accordingly the provisions of section 194C of the Act cannot be made applicable to the facts of the instant case. Aggrieved, the revenue is in appeal before us on the following ground:- 4. On the facts circumstances of the case, the Ld. CIT(a)-XX, Kolkata has erred in deleting the addition of ₹ 11,18,698/- on account of disallowance u/s. 40(a)(ia) read with section 194C on advertisement materials. 5.2. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR stated that the assessee has not supplied materials to the job worker and hence does not fall within the definition of work as per section 194C of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of days needs to be added as notional income of the assessee amounting to ₹ 39,375/- which was upheld by the ld CITA. Aggrieved , the assessee has preferred cross objection before us on the following ground :- 1. That the Ld. CIT(A) erred in sustaining addition of ₹ 39,375/- being notional interest @ 13.5% on Trade Advance ₹ 7,00,000/- although no interest whatsoever was receivable or received thereon. 6.2. The ld AR argued that this advance was made with a bona fide belief to carry out certain repair works in the business premises. In any case, he argued that there cannot be any addition towards notional interest income. He further argued that the ld CITA had held while dealing with the issue of disallowance u/s 14A of the Act that the assessee had enough own funds at its disposal and having held so, it has to be presumed that the advance to wife Smt. Kala Devi Jain also should have been made out of own funds and hence there is no question of making any addition towards notional interest income thereon. In response to this, the ld DR vehemently relied on the order of the ld AO. 6.3. We have heard the rival submissions. We find that we have alread ..... X X X X Extracts X X X X X X X X Extracts X X X X
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