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TMI Blog2016 (9) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to N.K. Roadways P. Ltd. and that the said company has in fact used the tankers as per evidence furnished and that the hire charges was not charged through oversight which was offered voluntarily for taxation. 2.1 The appellant says and submits that the learned CIT(A) is not correct in observing that the evidences furnished are internal. In fact, the evidences furnished are from N.K. Roadways P. Ltd. which is separate company. 2.2 The appellant says and submits that the disallowance is on presumption and conjuncture. 3. The learned CIT(A) has erred in confirming the disallowance of depreciation of Rs. 4,64,850 on Plant & Machinery and electrical installation of Rs. 30,99,000 on the ground that it is included in work in progress as stated by way of note in Auditors Report in Form No. 3CD in as much as the WIP of Rs. 138.49 lacs in the opening .balance which is included in the plant & machinery and electrical installation and the said assets have been used during A.Y. 2009- 2010 as per the details provided in the chart of depreciation. 4. The learned CIT(A) has erred in confirming the disallowance of Rs. 1,13,521 under section 14A in as much as the investment is made out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as deduction. However, ld. CIT(A) confirmed the disallowance on the basis of his view that in the absence of specific detail of the miscellaneous expenses it is hard to believe that these expenses attracted TDS liability and these impugned expenses were not required to be disallowed as per section 40(a)(ia) of the Act in the first instant the same cannot be disallowed in this year. 7. On the other hand, ld. DR supported the orders of lower authorities. 8. We have heard the rival contentions and perused the material on record. In this ground the issue relates to allowability of deduction of prior period miscellaneous expenditure of Rs. 14.40 lacs which have been claimed in the year of appeal on the basis of depositing due TDS as per the provisions of section 40(a)(ia) proviso (i) which reads as under :- [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid:] 9. From going through the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... memorandum of understanding between the assessee and N. K. Roadways, consolidated bills were raised to N. K. Roadways for fuel charges and also the proof of hire charges income which was declared by assessee during the course of assessment proceedings. Assessing Officer was not satisfied with these proofs of use of the assets and disallowed depreciation on these 5 trucks at Rs. 16,83,501/-. 13. When the issue came up before ld. CIT(A), the ground was dismissed by ld. CIT(A) by observing as under :- 4.3 I have carefully considered the rival submissions. I have also perused various evidences furnished by the appellant during the appellate proceedings. It is seen that the appellant is placing heavy reliance on the RC Books of the five trucks in question which indicate that these trucks were registered on or before 31/3/2009. To prove the fact that these trucks were used for the purposes of business, the appellant is placing reliance on the diesel bills raised by N.K. Roadways Pvt. Ltd. The appellant has also placed reliance on supplementary MOU entered with M/s.N.K. Roadways Pvt. Ltd. wherein these trucks were shown as hired to M/s. N.K. Roadways Pvt. Ltd. The appellant has also of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese 5 trucks were purchased on 27.3.2009 and hired to M/s N. K. Roadways. Further Assessing Officer has mentioned that only internal evidences were provided to prove that assets were put to use in the year, was not correct because assessee has placed on record copy of purchase bill, goods carriage permit issued by Regional Transport Office, insurance of vehicle, certificate of fitness and copy of RC book on Form No.23 along with Pollution Under Control (PUC) certificate. All these evidences are external evidences and the fact has repeatedly coming out from external evidences that assets were purchased and put to use during Asst. Year 2009-10 only and, therefore, depreciation is allowable on the same. Ld. AR relied on the judgments of Hon. Jurisdictional High Court in the case of ACIT vs. Asima Syntex (2001) 251 ITR 133 (Guj), CIT vs. Pinnacle Finance Ltd. 268 ITR 395 (Guj) and CIT vs. UTI Bank Ltd. 319 ITR 357 (Guj). 16. On the other hand ld. DR supported the orders of lower authorities. 17. We have heard the rival contentions and perused the material on record. Through this ground assessee has challenged the order of ld. CIT(A) confirming the disallowance on depreciation of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication in the system. There may be some cases wherein after commencement of the production, the machine may not give proper results-may be on account of failure of certain parts, may be on account of requirement of certain additional machinery, etc. In such a case, the production obtained at the initial stage would be considered as trial production. In the instant case, there is nothing to indicate that the assessee was required to instal any additional part or machinery with a view to run the entire unit. It is not a case similar to that case where before the Bombay High Court there was no production and only tools were tested. The present case is not similar to that of Speciality Paper Ltd. (1982] 133 ITR 879 (Guj) (Appex.) where wet press was required to be installed and even thereafter additional machinery was required to be installed. In the instant case, plant and machinery were installed and it worked smoothly. There may be certain machines, which in view of the latest technology, require no trial run. If separate parts are fitted and the machine is brought into existence, it may require a trial run, but if machinery is imported and it is merely fixed here, it does not mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets have been used during A.Y. 2009- 2010 as per the details provided in the chart of depreciation. 20. Assessing Officer disallowed depreciation of Rs. 4,64,850/- on plant and machinery and electrical installation on the ground that as per the auditors report these items were included in work-in-progress and, therefore, not eligible for depreciation. This addition was challenged before ld. CIT(A) but assessee could not succeed as the same was dismissed by ld. CIT(A) by observing as under :- 5.2 I have carefully considered the rival submissions. It is seen that the depreciation on the addition to plant & machinery and electric installation of Rs. 30.99 lacs has been disallowed on the basis of auditors observation. It is clearly mentioned by the A.O. that the auditors observation pertains to 31/3/2008. I have perused Annexure-3 to Form No.SCD which consist of WDV and allowable depreciation for the A.Y.2009-10. In this annexure the auditors has observed as under :- "Additions during the year includes an amount of Rs. 30.99 lacs which has been qualified under capital work-in-progress in the financial statement." It is also observed that the details of capital work-in-progress h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y both the lower authorities in F.Y.2008-09 i.e. Asst. Year 2009-10 is not correct. In fact at the close of F.Y.2007-08 capital work in progress related to plant and machinery was at Rs. 27,83,223/- and Rs. 3,15,984/- under electrical installation head. These two totals to Rs. 30,99,207/-. These two items were part of the total capital of work in progress as on 31.3.2008 shown at Rs. 1,38,49,192/-, the impugned work in progress of Rs. 30,99,207/- were put to use for the business during F.Y.2008-09 in the month of May, 2008. In the statutory auditor of the company in annexure-3 of form No.3CD of F.Y.2008-09 relate to depreciation allowable as per IT Act mentioned under marked point -3 that addition during the year includes an amount of Rs. 30.99 lacs which has been classified under the capital in progress in the audited financial statement. Ld. AR further clarified that this remark was mentioned to show that addition during the year includes Rs. 30.99 lacs which was classified under capital work in progress in the financial statement of FY 2007-08. Further depreciation has been charged on the impugned assets which have been duly certified by the auditors. Therefore, disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2007-08 we observe that at page 146 of the paper book dated 6.11.2015 Annexure-C to Tax audit report is appearing which shows depreciation working u/s 32 of the I.T. Act for FY 2007-08 showing the capital work in progress Rs. 27,83,223/- and Rs. 3,15,984/- in the plant & machinery and electrical installation respectively. Further when we move to the Tax Audit report of FY 2007-08 the relevant data is available at page 185 of the paper book at Annexure-3. This Annexure-3 is further supported by Annexure-3A showing itemwise details of addition to block of assets with the column no., sl.no., detail of assets, amount, date of putting to use and assets held more than 180 days or less than 180 days. On this examination of this detailed annexure-3 at page 188 of the paper book there appears details of assets costing Rs. 27,83,223/- which were transferred from capital work in progress to fixed assets a/c. under plant & machinery head and were put to use on 3rd May, 2008. Similarly, on page 195 of this paper book shows that assets of Rs. 3,15,984/- under electrical installation head were put to use on 22nd May, 2008. Auditors remark which both the lower authorities are referring to is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 8D, the Income tax Act has clearly provided for disallowance under rule 14A as per the computation elaborated in rule 8D of the I.T. Rules, 1962. Provisions of 14A(2) r.w. rule 8D does not prescribe any exceptions. In fact provisions of Sec.14A(3) makes it very clear that even in the cases where appellant claims that no expenditure has been incurred by it in relation to the income which does not form part of total income under this Act, provisions of sec.14A(2) will be applicable. This way disallowance u/s.14A is mandatory in nature after the A.Y.2008-09. In view of above, I am inclined to agree with the contentions of A.O. Accordingly, disallowance of Rs. 1.13.521/- is confirmed. This ground of appeal is dismissed. 26. Now the assessee is in appeal before the Tribunal. At the outset ld. AR submitted that the issue is squarely covered in favour of assessee by the judgment of Hon. Gujarat High Court in the case of CIT vs. Corrtech Energy P. Ltd, reported in [2015] 372 ITR 97 (Guj.), "Counsel for the Revenue submitted that the Assessing Officer as well as CIT(Appeals) had applied formula of rule 8D of the Income Tax Rules, since this case arose after the assessment year 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance u/s 14A of the Act as the assessee has not claimed any exempt income. Similar is the situation in the case of assessee and we respectfully following the judgment of Hon. Jurisdictional High Court are of the view that no disallowance is called for u/s 14A as assessee has not claimed any exempt income in the year under appeal. We hold that ld. CIT(A) was not correct in upholding the disallowance and allow the ground of assessee. 30. Ground no.5 of assessee is as under :- 5. The learned CIT(A) has erred in confirming the disallowance of Rs. 56,000 being the provision for diminution in assets in as much as it is allowable as deduction following the Supreme Court decision in the case of Vijya Bank 323 ITR 166 31. Disallowance of Rs. 56,000/- was made by ld. Assessing Officer by not allowing the claim of sundry debit balance written off during the year by treating them of capital in nature. These sundry debit balance were the old balances lying in the bank account held by assessee which were not recovered as no transactions were entered through both banks for last many years. Ld. CIT(A) confirmed the disallowance by observing as below :- 9.2 I have carefully considered the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. Some times for business expediencies new bank accounts are opened for having smooth working of business and quick services. In this process business transaction moves to the new bank account and the previous bank account become inoperative. Similar things happened in the case of assessee where Rs. 56,000/- remained unutilized in such defunct bank account and due to lack of entering transactions for last many years such type of balances are transferred to suspense account by the banks. Certainly transfer of such type of balance in sundry debit balances written off account is rightly covered under the provisions of section 37 of the Act. We further observe that Jurisdictional High Court in the case of CIT vs. Abdul Razak & Co. (supra) has dealt with similar issue about irrecoverable advances and has held the same to be allowable revenue expenditure by observing as under :- 7. In view of these well accepted legal principles, in our opinion, by necessary implication, either short-term or long-term financing is an integral part of the commission agency business. As a commission agent, one either buys the goods or sells the goods for one's principal. When he acts as a commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness as factors or commission agents for purchase and supply of goods. It is a matter of surprise how the Tribunal lost sight of the finding made by the ITO that in the course of the business of commission agency, the assessee-firm had advanced money to the constituents who where required to pay interest on such advances. It is no doubt true that the ITO has found that these advances were made to the constituents against the goods received from them for sale on commission basis, but that observation of the ITO, in our opinion, does not detract from the nature of the business of commission agents, whether for sale or purchase of the goods, which, in our opinion, necessarily requires the advances to be made. We should not be, however, understood to subscribe to the view that if in a given case a trader doing commission agency business makes advances or lends money to an unknown outsider or to a complete stranger, it would be a part of his commission agency business. In the present case, however, the ITO has not only found that the assessee-firm was making such advances in the course of commission agency business but the ITO, Rajkot, has also recorded the statement of one of the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [vide CIT v. Nainital Bank Ltd. [1965] 55 ITR 707 (SC)]. In that view of the matter, therefore, for the reasons stated in this order, we are of the opinion that the said loss being a bad debt is allowable as trading loss under s. 28 of the I.T. Act, 1961, and, therefore, for the reasons stated hereinabove, the answer to the question referred to us is in the affirmative, that is, in favour of the assessee and against the revenue. 35. Respectfully following the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Abdul Razak & Co. (supra), we are of the considered opinion that sundry debit balance written off for Rs. 56,000/- should be allowed as a revenue expenditure. This ground of assessee is allowed. In the result, assessee's appeal is partly allowed for statistical purposes. 36. Now we take Revenue's appeal in ITA No.2133/Ahd/2012 for Asst. Year 2009-10 wherein following grounds have been raised :- i) The Id, CIT (A) has erred in law and on facts in deleting the disallowance of Rs. 36,30,000/- made u/s 40(a)(ia) of the I T Act, ii) The Id. CIT (A) has erred in law and on facts in deleting the disallowance of Rs. 83,98,0007- made on account of non compliance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year u/s.40(a)(ia). After fulfillment of these conditions, the appellant can claim these expenses during the year under consideration after payment of TDS. It is seen that a similar issue has been decided in favour of the assessee by the Hon'ble Gileu.tta ITAT in ABN Amro Bank vs JCIT reported at 97 ITD 1 (3rd Member). For the sake of ready reference the concluding para of this order is reproduced as under :- "81.lt is interesting to note that the provisions of s.40(a)(i) are disabling provisions as well as enabling provisions. While s.40(a) lays down the restrictions on deducibility of certain expenses, proviso to s. 40(a)(i) lays down the conditions in which such an expense is to be allowed. 82.Normally, proviso to a section sets out an exception to the scope of section. It craves out an area, out of the area covered by the scope of the section, and takes it away from applicability thereof. As Lush J said, "When one finds a proviso to a section, the natural presumption is that, but for the proviso, the enacting part of section would have included the subject-matter of the proviso." As Lord Macnaghaten observed, 'the proviso may be a qualification of the preceding en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has also claimed other miscellaneous expenses of Rs. 14.4 lacs which pertains to earlier years but on these expenses the appellant had deducted toe taxes and paid the same to the Government Account during the year under consideration. It is interesting to note that appellant has not furnished nature of these expenses. Apparently these expenses does not attract the liability of tax deducted at source as per the provisions of Chapter XVII of I.T.Act. Accordingly, these expenses can neither be disallowed as per the provisions of sec.40(a)(ia) on the first instance in the earlier years u/s.40(a)(ia) and the same cannot be allowed as per the provisions of sec.40(a)(ia) on payment of TDS during the year under consideration. In view of above, disallowance to the extent of Rs. 14.4 lacs is confirmed. As a result the appellant will get relief of Rs. 36.3 lacs. Addition to the extent of Rs. 26,94,384/- (14,40,000/- + 12,54,384/-) is confirmed. This ground of appeal is partly allowed. 39. Aggrieved, Revenue is now in appeal before the Tribunal. 40. Ld. DR supported the order of Assessing Officer. 41. On the other hand, ld. AR submitted that expenditure of Rs. 36.3 lacs which was not cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise of deducting and depositing TDS was carried out in the year under appeal which fulfills all the conditions of section 40(a)(ia) of the Act which allows to claim deduction of such expenditure in the year in which due taxes (TDS) are deposited. By claiming this expenditure of Rs. 36.3 in this year there is no impact to the Revenue in terms of tax liability. We are, therefore, of the view that assessee should be allowed deduction u/s 40(a)(ia) of the Act for Rs. 36.3 lacs and therefore, no interference is called for in the order of ld. CIT(A) with respect to this ground. Accordingly this ground of Revenue is dismissed. 46. Ground no.(ii) of Revenue's appeal - ii) The Id. CIT (A) has erred in law and on facts in deleting the disallowance of Rs. 83,98,0007- made on account of non compliance of the provision of Section 194H of the I T Act while making payment of commission to the Directors. 47. During assessment proceedings it was observed by ld. Assessing Officer that commission of Rs. 83.98 lacs was given to the Chairman and Managing Director at Rs. 41.99 lacs each. No tax was deducted at source on this amount during the year. As per ld. Assessing Officer disallowance was cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly deducted tax on directors remuneration as per the provisions of sec. 192 of the l.T. Act. In view of above the addition of Rs. 83,98,000/- is untenable. Otherwise also the method adopted by the A.O. is prejudicial to the interest of revenue. As per the provisions of sec.192 of the l.T. Act, TDS on salary is deducted at the rate of almost 30 to 33%. In this case the tax has been deducted at the rate of 33%. As per the provisions of sec.194H, the tax is to be deducted @10% only. As the appellant has deducted more tax by following the provisions of sec. 192, accordingly, it cannot be said that by deducting the tax as per the provisions of sec. 192, the appellant had tried to deduct lesser tax at source. In view of above facts, the A.O. is directed to delete addition of Rs. 83,98,000/-. This ground of appeal is allowed. 48. Aggrieved, Revenue is now in appeal before the Tribunal. 49. Ld. DR supported the order of Assessing Officer. 50. On the other hand, ld. AR of assessee submitted that sume of Rs. 83,98,000/- was actually part of salary to the Directors on which TDS was deducted as per section 192 of the Act whereas as per ld. Assessing Officer TDS had to be deducted as provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been held that commission paid to the Directors as per their terms of employment for the work done in their capacity as whole time directors should have been treated as an incentive in addition to salary, bonus and other perquisites and they do not fall under the purview of sec.194H or 194J. It is true that tax is deductible on such commission at the rate prescribed u/s 192 of the Act, since such commission is nothing but part of salary and the appellant has failed to deduct such tax. However, provisions of sec.40(a)(ia) of the Act do not cover expenditure subject to tax deductible u/s 192 of the Act. We are therefore of the view that the impugned amount of commission/brokerage paid to directors is a part of salary and remuneration to the Chairman and Managing Directors and incometax is required to be deducted at source u/s 192 of the Act. 54. Now coming to question 2 whether section 40(a)(ia) of the Act covers the expenditure incurred on salary or not. Now provisions of section 40(a)(ia) of the Act reads as under :- 40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) ofsection 139, [thirty per cent of] such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :] [Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.] Explanation.-For the purposes of this sub-clause,- (i) "commission or brokerage" shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) "professional services" shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses of Rs. 91,07,595/-was disallowed u/s.36(1)(iii) of IT. Act. As per the provisions of section 36(1)(iii), to claim interest expenses, following conditions should be fulfilled. (i) The Assessee must have borrowed money (ii) The interest should have been payable (iii) Borrowing should be made for the purpose of business. In my considered view, appellant has fulfilled all the above conditions and accordingly it is entitled to claim deduction u/s.36(1)(iii) of IT. Act against interest payment, Perusal of the assessment order reveals that the A.O. has not challenged basic enabling conditions as laid down u/s.36(1)(iii) for the allowance of interest. Since the enabling conditions for allowance of interest u/s.36(1)(iii) are fulfilled, accordingly in my considered view disallowance of interest is unwarranted. 10.4 The only observation made by the A.O. is that the assessee has not charged interest on interest free advance of Rs. 13,58,96,000/-[13,00,00,000/- + 50,00,000/- + 2,50,000/- + 64,60,000/-]. However, the action of the A.O. is not tenable as non charging of interest on interest free advance cannot be a reason for disallowance of interest. It is well settled princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vances made is much below the interest free funds available with the appellant in the form of paid up share capital and reserve & surplus. It is held by Hon'ble Mumbai High Court in Reliance Utilities and Power Ltd. 313 ITR 340 that if funds are available, both interest free and. interest bearing, then a pre assumption arise that investments are made out of interest free funds generated or available with the assessee. If the interest free funds were sufficient to meet investment, no disallowance of interest is warranted. Respectfully following the ratio of Hon'ble Mumbai High Court decision in the case of Reliance Utilities & Power Ltd. I am inclined to agree with the contentions of the Id. A.R. 10.8 During the appellate proceedings the appellant submitted that the advance made to M/s. N.K. Industries Ltd. of Rs. 13 crores was for business purposes. The A.O. had clearly mentioned that the appellant is making purchases of Rs. 3 crores per month from the above said company. In view of these facts, I am of the considered view that the said advance is a business advance and accordingly as per the ratio of S.A. Builders 288 ITR 1 (S.C.) interest on these advances cannot be dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guru Commodities and Pearl Energy old advances of Rs. 2.50 lacs and Rs. 646627/- were given since about 15 years ago. 63. We find that assessee company is dealing with edible oil and non-edible oil and the gross turnover of Rs. 1478.7 crores and profit before taxes at Rs. 13.49 crores. We further observe that reserve and surplus of Rs. 42.56 crores stood along with 6.47 crores as capital as on 31/3/2008. We also observe that total of share capital reserve and surplus at Rs. 49.03 crores is almost 3 times of loan funds of Rs. 15.36 crores. The reason for observing these financial datas are to analyse that assessee company is having huge turnover, heavy profits, sufficient capital basis and availability of interest-free funds. Further we find that there is no dispute to the basic finanancial results i.e. GP or NP of the company and audited books of account have been accepted by the Revenue. Now as far as M/s N. K. Industries is concerned, we find that assessee is regularly purchasing non-edible oil on exclusive basis and if we analyse the advances standing at the end of the month with the monthly sales of the assessee company, we find that the monthly sales of the company are approx ..... X X X X Extracts X X X X X X X X Extracts X X X X
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