TMI Blog2016 (12) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... ine imported from M/s.Turnver was not according to its specification. As per assessee, the balance amount was withheld by it due to fault in the machine supplied. No doubt, legal ownership by itself is not a fundamental requirement for a claim of depreciation. However, the machine if not used should be atleast ready to use. In our opinion, assessee was not able to show that the machine was actually used by it or kept in readiness for use. Certificate from Shri. E.M. Ulaganathan, does not say that machine were ready for use. No record showing any trial run was produced by the assessee. In such circumstances, we are of the opinion that the claim was rightly disallowed by the lower authorities.- Decided against assessee TDS u/s 195 - Disallowance of commission paid to non-resident agent for non deduction of tds - Held that:- For assessment year 2010-2011, also commission paid by the assessee to the foreign agents were through local agents. There is no case for the Revenue that assessee had failed to deduct tax on commission paid to local agents. Fact situation being same we are of the opinion that decision of the Tribunal for the assessment year 2010- 2011 would apply here also. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No interference is required. - Decided against assessee Disallowance of Municipal Taxes - Held that:- Claim of the assessee is that property on which property tax was paid was owned by a partner of the assessee firm and was used by assessee firm. However, ld. Assessing Officer has given a clear finding that there were no branches or establishment for the assessee in Bangalore, after verifying its Audit report in form 3CD. We, are therefore of the opinion that assessee could not show its use of the property on which property tax was paid. In our opinion , the disallowance was correctly made. - Decided against assessee Disaalowance of expenses as Revenue outgo - Held that:- In so far as expenditure incurred for Sony camera and one digital recorder are concerned, this expenditure cannot be treated as a non business outgo. Sony cameras and digital recorder having been given to its employees, could never form part of the assets of the assessee. Hence disallowance of the cost of Sony camera and digital recorded were not warranted. Borewell expenditure if there is no water in the borewell, then there is no question of fixing a motor. Thus, claim of the assessee that bore well ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised, of which grounds No. 6 7 are general in nature needing no specific adjudication. 4. Through its ground Nos.1 2, the assessee is aggrieved on the disallowance of cost of replacement of old machinery. 5. Facts apropos are that assessee a manufacturer exporter of tanned leather and finished leather products had filed return of income for the impugned assessment year disclosing income of ₹ 1,66,39,750/-. During the course of assessment proceedings, it was noted by the ld. Assessing Officer that assessee had imported certain machinery which were claimed by it as Revenue outgo under the head spares maintenance. These items comprised of band knife cutting/ splitting machine costing ₹ 8,94,726/- and counter molding machine costing ₹ 3,66,909/-. Assessing Officer was of the opinion that these machinery were capital assets. He disallowed its claim as spares and maintenance expenditure. Out of the aggregate value of ₹ 12,61,635/- he allowed depreciation of ₹ 1,89,245/ and made a net disallowance of ₹ 10,72,390/-. 6. Aggrieved, the assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Argument of the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... linable toe ensured easy operation, the temperature of outer and inner moulds could be adjusted according to the materials. (iii) The machine had a special wiper and suitable for manufacturing all kinds of stitch down shoes. (iv) The projection light could ensure the most accurate moulding location, and the adjustable clamp could make the vamp and toe with 100% accuracy. (v) Adopted computer controlled system with function of automatic testing, automatic fault alarm, and indicate fault source and position on the screen, and it is was convenient for maintenance. (vi) Adopted environmental protection water cooling type refrigerating system, and ensured quick cooling speed and 20C refrigerating temperature. (vii) After moulding, the inner, rubber, piece and vamp were closely integrated without wrinkle, deformation and budge . Thus according to him, these machinery items were not spares but each was a complete machine by itself. He thus upheld the order of the Assessing Officer. 7. Now, before us, ld. Authorised Representative strongly assailing the orders of the lower authorities submitted that cost of replacement of old machine could only be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the ld. Commissioner of Income Tax (Appeals) assessee required the machine to cut the leather with one millimeter thickness but machine supplied by M/s. Turner could give only one and half millimetre thickness. Thus, he confirmed the disallowance made by the ld. Assessing Officer. 14. Now before us, ld. Authorised Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that assessee had the installed machine and used it. According to him, the disallowance was made without considering the claim of the assessee that it was used in its business. Reliance was placed on a certificate issued by one Shri. E.M. Ulaganathan, Chartered Engineer in this regard. 15. Per Contra, ld. Departmental Representative strongly supported the orders of the authorities below. 16. We have considered the rival contentions and perused the orders of lower authorities. Assessee itself has stated that machine imported from M/s.Turnver was not according to its specification. As per assessee, the balance amount was withheld by it due to fault in the machine supplied. No doubt, legal ownership by itself is not a fundamental requirement for a claim of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Venturini Co., Villafranca di Verona (VR) 44,36,642 Total 99,76,379 Assessing Officer required the assessee to explain why the above payments should not be disallowed for non deduction of tax at source. Explanation of the assessee to the Assessing Officer was as under:- a. Foreign agent sends the requirement of the customers to their local agents. b. Local agents in turn communicate the foreign customers requirement to the firm. c. The firm offer them with the price and quantity and are passed on to the foreign agent through local agent. d. After the goods are ready, local agent inspects the goods and shipment is made. e. Foreign agents meets the customer if there are any complaints in shipment. f. After the firm receives the payment, local agent issue Debit note to the firm as per agreed percentage of commission mentioned in the contract documents. g. Make the payment after deducting the TDS for the commission paid to the local agents and no TDS is effected on the payment made to foreign agent . However, Assessing Officer was of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar payments of commission made by the assessee during the previous year relevant assessment year 2010-2011 had come up before this Tribunal in Revenue s appeal. It was held in ITA No.2252/Mds/2013, dated 8.05.2014 at para 4 to 6 as under:- 4. It is seen that wherever the commissions were paid by the assessee to local agents, taxes have been deducted at sources as per law. Only in the case of non-resident agents that the assessee did not deduct any tax on the ground that those non-resident agents did not have any income arising in India on account of the commission paid by the assessee. 5. In the present case, the disputed agents were nonresidents. Those non-resident agents are carrying on the business wholly outside India. The assessee had paid commission to those non-resident agents for services rendered by them wholly outside India. It also has to be seen that the non-resident agents did not have any permanent establishment (PE) in India. The commissions were remitted by the assessee directly to the non-residents outside India. 6. In the facts of the case as stated above, we find that the Commissioner of Income Tax (Appeals) is justified in holding that the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were justified. 28. Per Contra, ld. Departmental Representative strongly supported the orders of the authorities below. 29. We have considered the rival contentions and perused the orders of the authorities below. Reason why ld. Assessing Officer disallowed the claim was that assessee was paying lower interest to bigger credit whereas higher interest for smaller credits. It is not disputed by the Revenue that interest paid by the assessee never exceeded 18%. Assessing Officer did not bring anything on record to show that Scheduled Banks were charging only 15% interest on loans given, without security. The old adage that risk and returns go together should apply to loans without security. It is natural for persons providing loans without security to demand higher rate of interest. We are therefore of the opinion that interest of 18% paid by the assessee could not considered as excessive. Application of Sec. 40A(2) of the Act was not warranted. In the facts and circumstances of the case, we delete the disallowance of ₹ 4,80,000/-. Ground No.1b of the assessee stands allowed. 30. Vide ground No.1c, grievance of the assessee is on disallowance of ₹ 45,230/- u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Representative the college was situated in close proximity. So far as loans given to SITDA, as per the ld. Authorised Representative association of tanners of which assessee was a member. According to him, not charging interest on these loans was a business decision taken by the assessee. Ld. Authorised Representative submitted that Assessing Officer fell in error in making a notional addition. 39. Per Contra, ld. Departmental Representative strongly supported the orders of the authorities below. 40. We have considered the rival contentions and perused the orders of the authorities below. Revenue has not disputed the argument of the assessee that MBS Arabic College was situated in close proximity to the assessee s factory and children of assessee s employees were studying there. In so far as payment to SITDA is concerned, it was an association of tanners where assessee was a member. Loan to MBS Arabic College and SITDA were for periods less than six months. In our opinion, lower authorities ought not have sat in the chair of the assessee and decided on the commercial expediency of the loans given to these entities. The facts and circumstances did not call for any addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any such deduction effected by the assessee. Obvious conclusion is that the transport charges were paid by assessee directly. In our opinion, Sec. 194 C of the Act will clearly apply. We are of the opinion, that ld. Assessing Officer was justified in applying provisions of Sec. 40(a)(ia) of the Act for want of deduction of tax at source. No interference is required. Ground No.1g stands dismissed. 46. Vide ground No.1h, grievance of the assessee is on a disallowance of Municipal Taxes of ₹ 90,882/- 47. Facts apropos are that ld. Assessing Officer found that assessee had claimed a sum of ₹ 90,882/- as payments to M/s. Bruhuth Bangalkore Mahanagara Palika (BBMP). Explanation of the assessee was that this was property tax payment on a property owned by a partner, but partly used by assessee firm. Assessing Officer was of the opinion that assessee could not show use of any such premises for its business. He disallowed a claim of ₹ 90,882/-. The disallowance was confirmed by ld. Commissioner of Income Tax (Appeals) on assessee s appeal. 48. Now before us, the ld. Authorised Representative strongly assailing the orders of the lower authorities submitted that pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y repairs, claim of the assessee was that these represented purchases made for replacing worn out machinery and did not constitute any independent machinery. However, Assessing Officer was not agreeable to the above submissions. According to him, the expenditure were all incurred for acquiring capital assets. He allowed depreciation on these items. Against the claim of ₹ 33,48,025/- depreciation of ₹ 4,42,866/- was allowed and balance ₹ 29,05,159/- was disallowed. 53. Assessee s in appeal before ld. Commissioner of Income Tax (A) on these disallowances did not meet with any success. 54. Now before us, ld. Authorised Representative submitted that Sony cameras were given as gift to employees of the assessee. Confirmation obtained from employees, on receiving such gifts were on record. According to him, assessee has gifted six Sony Cameras and one digital recorder to its employees. The lower authorities ignored the confirmation of the employees and made an addition. In so far as borewell expenditure was concerned, as per the ld. Authorised Representative the borewell could not be used and hence the outgo was pure business loss. As for effluent treatment plant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of cement road and not repair of existing road. Assessee could not produce the contract agreement entered with Shri. M. Shivaraj, who was entrusted with the above work to prove that the contract was only for repair of existing road and not laying of new road. Therefore, we are of the opinion that lower authorities were justified in treating the expenditure incurred on road as capital outgo. 60. Coming to the conference hall expenditure, it is not disputed by the assessee that expenditure was incurred for changing the interiors of existing conference hall, including seating, painting and furniture. The outgo was clearly for renovation. We are of the opinion that renovation of existing conference would not create any new capital asset. The expenditure could only be considered as necessary for effectively continuing the functionality of the existing conference hall. Said expenditure in our opinion could not be treated as capital outgo. 61. Coming to the machine replacement cost, the ld. Assessing Officer has brought out various items included in such claim at page 15 of his assessment order which is reproduced hereunder:- Sl.No Date of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill No.76, Hydraulic Hand pallet Truck 2 No 26,520 12 27.08.2010 Kelcom Power Systems B No.13191027 100 AH Exide battery 2 13,000 13 30.09.2010 Industrial Blowers Bill No.465, M/s. Fabricated blower 41,600 14 31.10.2010 Rathna Fan House Purchase of fans 21,440 15 25.11.2010 Vinar Systems Pvt. Ltd Bill No.258, Conveyor over heads- Drive unit 3,90,915 16 22.12.2010 Delton Air Control Bill No.1011 to way manifold value 99,320 17 01.01.2011 JSP Plastics, Kanchipuram Bill No.56, Overhead Conveyor clip Conveyor frame 2,95,152 18 03.01.2011 Bill No.2, Bharath 20HP 4 pole 1440 RPM Foot mouter motor 1 Nos. 32,500 19 06.01.2011 Vinar Systems Pvt. Ltd. Kolk ..... X X X X Extracts X X X X X X X X Extracts X X X X
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