TMI Blog2015 (10) TMI 2662X X X X Extracts X X X X X X X X Extracts X X X X ..... id expenditure cannot be treated as prior period expenses. In our opinion, it is not necessary that agreement should be registered to be a valid agreement. We do not find any – thing illegal or wrong in the method adopted by the assessee for the year under appeal, So, we are reversing the order of the FAA and deciding the ground no.1 in favour of the assessee. Addition on account of netting off of interest - treatment as ‘income from other sources' - Held that:- We find that the assessee had netted off the interest and made necessary entries in the books of account, that remaining interest was capitalised as stipulated by AS-16, that the loan taken by it was a term loan, that it could not be used for any other purpose except for the obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any engaged in the business of manufacturing of silicon coated papers and films, filed its return of income on 25.09.2008, declaring income of ₹ 3.13 crores. The Assessing Officer (AO)completed the assessment on 21.11.2011u/s.143(3) of the Act, determining the income of the assessee at ₹ 3.35 crores. 2. First Ground deals with confirming the disallowance of ₹ 13.75lacs. During the assessment proceedings, the AO found the assessee had paid commission of ₹ 13,75,133/-to Loprex H K Ltd. (LHKL)in foreign currency, that LHKL was holding company of the assessee. He directed it to file documentary evidences with regard to commission paid. Vide its letter, dated 19.10. 2011, the assessee furnished details about the comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under appeal only, that the services were rendered outside India, that TDS was not to be deducted for such payments. The assessee relied upon the cases of Godra Electric Co. Ltd. (225 ITR 746) and DDIT (Intl. Tax) vs. Sherton Int. Inc of 2012. After considering the submissions of the assessee and the order of the AO, the FAA held the assessee had appointed LHKL to render services, that during the year the agent had procured orders from Australia, that the material was despatched from December 7, 2006 to June 18, 2007,that commission at a flat rate of 5%was to be given to the agent for procuring the order, that the Australian party made payment to the assessee from 16.03.2007 to 20.09.2007, that the commission was due to the agent from 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the new agreement, that the assessee had filed details of foreign commission for the year under consideration as per the revised agreement, that the details are available at page no.9 of the paper-book. A perusal of the details clearly show the full foreign commission expenses for the year under appeal and lead to the conclusion that the assessee had correctly made a claim about it. In our opinion, the said expenditure cannot be treated as prior period expenses. In our opinion, it is not necessary that agreement should be registered to be a valid agreement. We do not find any thing illegal or wrong in the method adopted by the assessee for the year under appeal, So, we are reversing the order of the FAA and deciding the ground no.1 in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y linked to the expansion project, that after netting the balance amount was capitalised, that the facts of the case of Tuticorin (supra), were different and not applicable to the facts under consideration. It relied upon the case of Bokaro Steel Ltd. (236 ITR 315) and Indian Oil Panipat Power Consortium Ltd. (315 ITR 255), Karnal Co-operative Sugar Ltd. (234 ITR 2). After considering the submissions of the assessee and the assessment order, the FAA held that in the case of Lovesh Jain (5 Taxman 26), the Tribunal had held that if the funds for the business were parked for safe keeping the interest resulting there from could not assume the character of business income, that it would fall under the head income from other sources . He furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could not be taxed under the head income from other sources . We would like to refer to the case of Bokaro Steel of the Hon ble Apex Court (supra), wherein the court has held as under: - In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. By the same reasoning if the assessee receives any amounts which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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