TMI Blog2019 (4) TMI 1473X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be held to be erroneous. Therefore, we confirm the order of Ld. CIT(A) and dismiss this ground of appeal of assessee. Expenditure on account of replacement of certain parts of machinery which the assessee has claim under the head Repairs and Maintenance - expenditure incurred on replacement of cylinder - assessee has contended that this expenditure is a revenue expenditure - HELD THAT:- From a perusal of the items given from 2 to 8, supra, we note that these items are nothing but replacements of the already existing assets and thus does not bring into existence any new asset or the assessee acquire any new advantage of enduring benefit. Item nos. 2 to 8 the Ld. CIT(A) also notes that the expenditure was necessary since in the absence of replacement of the said parts, the machines would not be operational. Therefore, it is essential that for the smooth functioning of the business operations of the assessee, the replacement of the spare parts was a necessity. Even if by such replacement, some advantage has been derived by the assessee due to improvement in technology, it may at the most reduce the operating cost. Therefore, the action of the Ld. CIT(A) in giving relief to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employee s contribution of PF before the due date of filing of Return of Income u/s. 139 of the Act. Since in the ground of appeal of the revenue, the revenue has not assailed the decision of the CIT(A) that any payment made by the assessee in the PF account was after the due date of filing of return u/s. 139 of the Act, so the factual finding of Ld CIT(A) is crystallized. Thus by relying on the decision of the CIT Vs. Vijayshree ltd. [ 2011 (9) TMI 30 - CALCUTTA HIGH COURT] , we confirm the order of Ld. CIT(A) and dismiss this ground of appeal of the revenue. Addition u/s 40A(2)(b) - AO disallowed 50% of the expenditure incurred for rent - rent paid to person covered u/s. 40A(2)(b) - HELD THAT:- On careful readings of the Section, it is worth to mention that before applying the provision it is required that the Assessing Officer should form an opinion having regard to fair market value of the facility rendered. In the present case this exercise is found lacking and we note that the AO did not make any attempt to find from the market to compare the prevalent market rate of the facility given by Smt. Sachi Bhardwaj. The AO has not arrived at an exact figure of disallowance m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned order of Ld CIT(A) and remand the issue back to AO and the AO is directed to verify the fact regarding the payment of the tax by the recipient and if the AO finds that the recipient has included the amount in the total income in its return of income and paid taxes thereon, then the disallowance made by the AO by invoking the provisions of section 40(a)(ia) be deleted. See M/S. TIRUPATI CONSTURCTION [ 2016 (8) TMI 1310 - CALCUTTA HIGH COURT] - I.T.A. No. 345/Kol/2016 And I.T.A. No. 339/Kol/2016 - - - Dated:- 11-4-2019 - Mr P.M. Jagtap, Vice President And Shri A. T. Varkey, JM For The Assessee : Shri Miraj D. Shah, FCA For The Revenue : Shri C. J. Singh, JCIT, Sr. DR ORDER Per Shri A.T.Varkey, JM Both these cross appeals preferred by the assessee and the Revenue are against the order of Ld. CIT(A)-15, Kolkata dated 22.12.2015 for AY 2006-07. 2. First of all we will deal with the appeal preferred by the assessee. The assessee s ground no. 1 is against the action of the Ld. CIT(A) in upholding the addition of ₹ 79,45,426/- on account of bad debt written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e through the facts and circumstances of the case. The facts aforesaid noted by the AO are not repeated for the sake of brevity. We note that the assessee is in the business of manufacture and sale of industrial gases and it had to buy raw materials and consumables from different suppliers. According to the assessee, in the normal course of business it had paid advance to few of the suppliers and since neither they supplied the materials nor they returned the money, even though the assessee tried its level best to realize it could not materialize, so in this year, the assessee wrote off the same. The details of the amount advanced to the parties are given below: Name of the suppliers Amount (Rs) 1. Swastika Industries 2,50,000 2. Dharam Steel Tubes Pvt. Ltd. 55,311 3. B.K. Enterprises 2,50,000 4. Arunodaya Industries 5,00,000 5. Growtrer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addresses have not been given. What was the need for giving such advances to unknown parties is also not clear. In general commercial world it is quite common to give advances. It can also happen that those parties can supply part of the material as agreed upon and subsequently they are not in a position to honour their commitment and part of the advances could not be recovered from those parties. However, the facts in the present case is quite contrary. The assessee could not submit any bills pertaining to these parties during the assessment proceedings or the appellate proceedings, which meant that there was no transaction with these parties after the advance given by the assessee to them. This makes the transactions very doubtful. Hon'ble S.C have held in the case of CIT Vs. Mysore Sugar Co Ltd. 46 ITR 649 that it is very important to find out the nature of transaction, whether it is on capital account or on revenue. Not all losses can be held to be revenue loss. The assessee has to show the purpose for which money was advanced. Was it to acquire an asset of an enduring nature for the benefit of the business or was it an outgoing in the doing of the business. If the mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to Ld. AR, in the audited accounts at Schedule 15 the auditor has wrote off the amount after taking note of these facts and since the assessee has submitted before the Ld. CIT(A) the chart wise details of the advances written off, the assessee s claim ought to have been upheld. However, we are not in agreement with the assess s claim raised on this issue. We note that the assessee s claim is in respect of trade advances which according to it, are irrecoverable and so written off. So, therefore, the assessee s claim even if allowable it is only u/s. 28 of the Act as business loss and not u/s. 36(1)(vii) read with section 36(2) of the Act. In such an event, the assessee has to first of all prove that the trade advances which the assessee has given to the parties were in the ordinary course of business and, therefore, the nature of the advance given by the assessee to the parties is to be ascertained. Therefore, in order to successfully claim the trade advance which is written off as irrecoverable and so to be treated as a business loss, the assessee has to first prove that the advances were paid during the ordinary course of business, secondly, if it succeeds in proving the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly, purchase of 900 pieces of sprinkler pipe (total length is 5.4 kilometer) also show that these pipes were used for construction of network of pipes for sprinkling. Such large scale purchase of pipe cannot be termed as part of regular repair and maintenance. Further, Oxygen Trace Analyser, Heat Exchanger and Oxygen in Hydrogen Analyser specific instruments which are used to know purity of gases. These items are instrument in itself which are used in manufacturing industries. These are not spare part of any big machineries so question of these being under the head repair maintenance does not arise. The assessee was asked to give explanation with respect to above but no specific reply could be given instead reply of general nature was submitted. So, the reply of assessee is not acceptable. In view of above, revenue expenditure claim of ₹ 32,44,478/- on above items are disallowed. Depreciation of ₹ 4,00,868/- is allowed at the rate of 15%. 10. Thus the AO disallowed the claim of ₹ 32,44,478/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to give partial relief to the assessee by holding as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this ground is dismissed. Coming to the item no. 1 which the Ld. CIT(A) has not allowed and assessee is in appeal, we note that it pertains to expenditure incurred on replacement of cylinder. According to Ld. CIT(A), this expenditure incurred by assessee on cylinder has given the assessee an enduring benefit by creating a long term asset which cannot be countenanced. We note that the cylinder represents a component part of the Argon Compressor originally purchased by the assessee in December 1993. This cylinder was a replacement of the worn out existing cylinder fitted with the compressor and cannot be said to be a new asset or any new advantage of enduring benefit. Thus, by changing the worn out cylinder, the assessee has effected to preserve and maintain the asset, in this case the compressor. For doing so, we rely on the ration decidendi laid by the Hon ble jurisdictional High Court decision in CIT Vs. Tea Estate Pvt. Ltd. 198 ITR 535 (Cal) wherein the Hon ble High Court has held as under: We now refer to a landmark judgment of Hon ble Supreme Court in the context of classification of expenditure as revenue or capital. In the case of CIT Vs. Saravana Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. CIT(A) in deleting the disallowance of interest expenses claimed by the assessee wherein the AO noted that assessee has obtained loan at a higher rate and advanced the loan at a lower rate. 14. Brief facts of the case are that the assessee had taken loan at varying interest rate from 11.75% to 15%. The AO noted that the assessee has also advanced loan to M/s. Universal Cylinder Ltd. @ 9%. Thus, according to AO, the loan at the higher interest rate was given to this party at lower rate and, therefore, AO was of the opinion that the average lending rate should be at 12% and considering the differential rate of 3% was disallowed. Thus, an amount of ₹ 1,95,000/- was added to the income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the claim of the assessee. Aggrieved, the revenue is before us. 15. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee had made payment of ₹ 65 lacs to M/s. Universal Cylinder Ltd. on account of security deposit towards supply of gas cylinders. The payment was made towards securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act even though the payment was made after the due date prescribed under the PF Act. According to us, so long as the payment was made before the due date of filing of the return of income u/s. 139 of the Act it should be allowed. We note that the Ld. CIT(A) has allowed the ground of appeal of the assessee by noting that assessee has remitted the employee s contribution of PF before the due date of filing of Return of Income u/s. 139 of the Act. Since in the ground of appeal of the revenue, the revenue has not assailed the decision of the Ld. CIT(A) that any payment made by the assessee in the PF account was after the due date of filing of return u/s. 139 of the Act, so the factual finding of Ld CIT(A) is crystallized. Thus by relying on the decision of the CIT Vs. Vijayshree ltd. (2014) 43 taxmann.com 396 (Cal), we confirm the order of Ld. CIT(A) and dismiss this ground of appeal of the revenue. 19. Ground no. 4 of the revenue is against the action of the Ld. CIT(A), which reads as under: 4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has not determined the fair rental value of the property and in the abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. b) The person referred to in clause a) would be the following, namely: i. . . ii. Where the assessee is a company, firm, association of persons or Hindu Undivided Family- any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member 22. Thus, according to Ld. AR, for an amount to be disallowed under this section, following conditions have to be fulfilled: a) The payment is in respect of expenditure; b) The payment has been made to a specified person (i.e., relative or close associates of the assessee) in respect of such expenditure; c) The AO is of the opinion that such an expenditure is excessive or unreasonable having regard to: i. The fair market value of the goods, services or facilities for which payment is made; or ii. The legitimate b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation loss claimed by the assessee for AY 1997-98 of ₹ 4,78,987/-. 26. Brief facts of the case are that the AO disallowed the set off for brought forward depreciation loss for AY 1997-98 of ₹ 4,78,987/- on the ground that as per the applicable provisions of Act during AY 1997-98, the brought forward depreciation loss was permitted to be carried forward for 8 years only i. e. till AY 2005-06. Hence, assessee s claim for adjustment of brought forward depreciation loss in the current year i.e. 2006-07 was disallowed by AO. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who decided this ground in favour of the assessee by observing as under: I have gone through the submission of the assessee and the assessment order. This issue has been decided by Hon ble Gujarat High Court in the case of General Motors (supra). Following the decision, other benches of ITAT have also rendered decision in favour of the assessee. In view of this the ground is decided in favour of the assessee. Aggrieved by the aforesaid action of the Ld. CIT(A) the revenue is before us. 27. We have heard rival s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 7,78,825/- which was booked under the head Interest Others . The AO held that such payments were subjected to TDS and as TDS was not deducted, the payment was disallowed u/s. 40(a)(ia) of the Act. During the assessment proceedings, the assessee explained that such expenditures were incurred due to late payment of electricity bills and, therefore, the payments were not in the nature of interest. However, according to assessee, the payments were wrongly booked under the head Interest Others . The AO did not accept the assessee s contention and disallowed the payment. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who after going through the detailed submission of the assessee and appreciating the fact that the interest payment was not really interest payment but the late payment charges of the electricity bill held that the assessee was not liable to deduct TDS on this amount. Hence, the disallowance of ₹ 7,48,825/- was deleted by the Ld. CIT(A). Aggrieved, revenue is before us. 30. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee s electricity supply was connected to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efault if the recipient of income, has taken into account the amount received from the payer in computing income as declared in the return and has paid due tax on the returned income. We note that the Tribunal has held that the insertion of second proviso to sec. 40(a)(ia) of the Act is curative and it has retrospective effect w.e.f. 1st April, 2005, being a date from which Sec. 40(a)(ia) of the Act was inserted by the Finance (No. 2) Act, 2004. In view of this, we are of the view that matter needs fresh adjudication in the light of the fact that the AO will carry out necessary verification. In CIT v. Ansal Land Mark Township Pvt. Limited [ITA 160/2015 161/2015, dated 26/08/2015], High the Hon'ble Delhi High Court held that the 2nd proviso to section 40(a)(ia) has retrospective effect from 01/04/2005: 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 15. In that v ..... 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