TMI Blog2020 (3) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... sing equipments at the rate of 60%. Disallowance u/s 40(a)(ia) - Housekeeping Expenses u/s 194C - HELD THAT:- We find that the assessee itself before the learned CIT (A) has admitted the fact that the parties for creating the house keeping provisions were not identifiable. Accordingly we hold that these are contingent liabilities which are not based/computed/calculated in scientific manner. Thus, we do not find any infirmity in the order of the learned CIT (A). Retrospectivity of the second proviso to Section 40(a) (ia) - Interest Expenses u/s 194A - HELD THAT:- CIT (A) has no power to set aside the order to the AO for the verification. As such the learned CIT (A) has to adjudicate the issue raised by the assessee after calling the remand report from the AO. However, the facts of the present case are the different. As such, the learned CIT(A) has adjudicated the issue raised by the assessee but set aside to the file of the AO only for the limited purpose of the verification. Therefore, we do not find any infirmity in the order of the learned CIT (A) so far as the direction provided to the AO. Similarly, we also note that, the amendment made under the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts business activities. Therefore, any loss incurred for any activity carried out in the course of the business is eligible for deduction either under section 37 or section 28 of the Act. In this regard we find support and guidance from the judgment of Hon ble Gujarat High Court in case of PCIT vs. Dishman Pharmaceuticals Chemicals Ltd [ 2019 (10) TMI 1195 - GUJARAT HIGH COURT ] Assessee kept showing such security deposit in its balance sheet for 2 years and also chased lessor for the recovery of the security deposits. But all the force of the assessee remains unfruitful. Finally, the assessee in the financial year 14-15 lost the hope of the recovery of the impugned amount and decided to write it off in the financial statements. In our considered view, the action of the assessee writing it off in the financial statements suggests the year of crystallization, though the assessee was entitled to receive the amount of security deposit in the financial year 11-12. As such, in our considered view, the year in which the assessee has written off the amount of security deposit is the relevant year in which the liability has crystallized. Accordingly, we reverse the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 01-04-2013 is applicable for A.Y. 2011-12 also. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary. 3. The first raised by the Revenue in Ground No. 1 is that the learned CIT(A) erred in allowing the depreciation @ 60% on data processing equipment treating them as computer. 4. Brief facts are that the assessee is public company and engaged in retail business of Apparels. The assessee during the year under consideration claimed depreciation of ₹ 2,93,17,617/- @ 60% on its block of assets classified under data processing equipment which is consisting of software, laptop, desktop, printer scanner, etc. 4.1. However, the Assessing Officer held that depreciation on Data Processing Equipment should be allowable @ 15% only as the same is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment framed under section 143(3) of the Act for the assessment year 2010-11. In view of the above, the ld. CIT-A deleted the disallowance made by the AO. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 5. The learned DR before us submitted that there is no clarity to the fact whether the items classified under the head data processing equipments represent computers and its connected devices. As such this fact was not verified in the assessment framed under section 143(3) of the Act for the assessment year 2010-11. Therefore, no reference can be made to the assessment order of the immediate preceding assessment while deciding the issue for the year under consideration. 6. On the other hand, the learned AR before us filed a paper book running from pages 1 to 249 and submitted that all the details of the items falling under the head data processing equipment were furnished which was duly considered by the learned CIT (A). Accordingly, the learned CIT (A) held that such items under the head data processing equipments are computers and other devices are connected to it. The learned AR in support of his contention drew our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dictation, we find that the learned CIT (A) has given very clear finding about the addition of the items under the head data processing equipments are computers/connected devices which was not controverted by the learned DR appearing for the Revenue. Therefore, we find that there is no justification to set aside the issue to the file of the AO for fresh adjudication of the items of addition for ₹ 1,18,73,028/- under data processing equipments. 7.4. We also note that the appeal was filed by the Revenue and the onus was on it to high lights the infirmities in the order of the ld. CIT-A but the ld. DR appearing on behalf of the Revenue failed to do so. In holding so we draw support and guidance from the order of the Hon ble Delhi High Court in the case of CIT Vs. Rama Krishna Jewellers reported in 52 taxmann.com 23 wherein it was held as under: Further, Revenue was aggrieved by the order passed by the Commissioner of Income Tax (Appeals) and was the appellant before the Tribunal. They should have highlighted and pointed out the factual inaccuracies and the incorrect findings recorded by the first appellate authority. Even before us, except for the remand reports, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without prejudice to the above also claimed that in case the addition is confirmed for the year under consideration then it should be allowed the benefit of deduction for the amount of housekeeping expenses offered to tax in the immediate subsequent year. Interest Expenses of ₹ 2,61,55,578/- to M/s Arvind Life Style Brand Limited (in short ALBL). 8.6. The payee of such interest amount from the assessee has already recorded such amount in the books of accounts and offered the same to tax. Therefore, such expenses cannot be disallowed as per the amended provisions of section 40(a)(ia) of the Act. Interest Expenses of ₹ 2,32,890/- to Kotak Mahindra prime Limited under section 194A of the Act . 8.7. The above amount of interest expenses of ₹ 2,32,890/- represents the reimbursement made by the assessee to Arvind Lifestyle Brand Limited (ALBL) on actual basis. As such, there was no element of income in the amount of interest reimbursed to the ALBL. Accordingly the assessee claimed that, the provision of TDS in case of reimbursement of expenses cannot be invoked. 8.8. The assessee alternatively also claimed that the payee ( KMPL) of such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) has grossly erred in upholding the disallowance of deduction for ₹ 2,32,890 made by the learned Assessing Officer u/s.40(1)(ia). He ought to have appreciated, inter alia, that since the impugned amount had been paid by the respondent to Arvind Lifestyle Brands Ltd. in reimbursement of interest paid by it to Kotak Mahindra Primes Ltd. in respect of assets used by the respondent, it did not represent income in the hands of the payee viz., Arvind Lifestyle Brands Ltd. and, therefore, there could be no question for invoking Section 40(a)(ia) for making the impugned disallowance. 3. In law and in the facts and circumstances of the respondent s case, the learned CIT(A) has grossly erred in upholding the disallowance of ₹ 7,23,145 on account of provision for housekeeping expenses made by the learned Assessing Officer by invoking Section 40(a)(ia) (albeit, subject to acceptance of the respondent s alternative Ground for not subjecting the reversal of the provision in the immediately succeeding year to tax as income). The learned CIT(A) ought to have appreciated, inter alia, that the respondent was mandated to make the impugned provision in its books of account on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. It is seen that the second proviso to Section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to subsection (1) of Section 201 of the Act, then, in such event, 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 . 11. The first proviso to Section 201(1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousekeeping expenses, we find that the assessee itself before the learned CIT (A) has admitted the fact that the parties for creating the house keeping provisions were not identifiable. Accordingly we hold that these are contingent liabilities which are not based/computed/calculated in scientific manner. Thus, we do not find any infirmity in the order of the learned CIT (A). 14.2. Regarding the interest expenses of ₹ 2,32,890/- paid to ALBL with respect to car loan from Kotak Mahindra Prime Limited, we note that the learned AR for the assessee has not produced any documentary evidence suggesting that the impugned amount paid to ALBL represents the reimbursement of the expenses. Indeed, there was the submission filed by the assessee before the authorities below claiming that the impugned amount of interest represents the reimbursement of the expenses. However, the learned CIT (A) has not given any finding on this contention of the assessee. Accordingly, in the absence of documentary evidence, we reject the contention of the assessee. 14.3. However, we find force in the alternate contention of the assessee that the payee of such interest has offered the same to tax. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have appreciated, inter alia, that the respondent was mandated to make the impugned provision in its books of account on the last day of the accounting year pursuant to the principle of matching costs with revenue and that in accordance with the generally accepted practice for such provisions, the same had been reversed on the first day of the following year and that therefore, there could be no question for invoking Section 40(a)(ia) in respect thereof. 4. In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in upholding the disallowance of ₹ 3,61,368 made by the learned Assessing Officer by wrongly applying the provisions of Section 36(2) read with Section 36(1)(vii). He ought to have appreciated, inter alia, that the impugned amount represented a business loss (on account of irrecoverability of deposits paid to landlords of rented premises used for the purposes of the respondent's business) which was clearly deductible u/s. 37 and/or u/s. 28. 5. In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in upholding the disallowance of depreciation amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty proceedings, they deserved to be dropped, thereby saving both the appellant and the Department from long drawn unnecessary litigation. 9. The respondent craves leave to add, amend and/or alter the ground or grounds of Cross-objections either before or at the time of hearing. 16. The issue raised by the assessee in Ground No. 1 is general in nature. Therefore no separate adjudication is required for the same. Accordingly we dismiss the same. 17. The issue raised by the assessee in Ground Nos. 2 3 is against the disallowance of housekeeping expenses and interest expenses for ₹ 7,23,145/- and 2,32,890/- respectively by the AO which was subsequently confirmed by the learned CIT(A). 18. At the outset, we note that the issues raised by the assessee in the above grounds of CO have already been adjudicated along with the appeal of the Revenue bearing ITA No. 3369/Ahd/2015 vide paragraph numbers 13 to 14 of this order. Respectfully following the same, the grounds of CO raised by the assessee are partly allowed for statistical purposes. 19. The assessee, vide ground 4 objected the confirmation of disallowances of ₹ 3,61,368/- on account of bad deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 22.1. However, the fact has not been doubted by any of the authorities below that such expenses were not incurred by the assessee in the course of the business. As such, the assessee has taken two showrooms in 2 different cities for the purpose of its business. Accordingly, the security deposits were made in the course of its business activities. Therefore, any loss incurred for any activity carried out in the course of the business is eligible for deduction either under section 37 or section 28 of the Act. In this regard we find support and guidance from the judgment of Hon ble Gujarat High Court in case of PCIT vs. Dishman Pharmaceuticals Chemicals Ltd reported in 417 ITR 373 the relevant extract of the order is reproduced here as under: The only requirement under Section 37 of the Act is that the expenses (not capital or personal) should be incurred for the purposes of the business or profession. There is no need to demonstrate that a certain expense relates to a particular income in order to claim such expense. 22.2. In view of the above, we hold that the loss incurred in the course of the business is eligible for deduction. 22.3. However, the controversy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of any documentary evidence held that the car is not owned by the assessee and not used for the purpose of the business. Accordingly the AO disallowed the depreciation claimed by the assessee and added the same to the total income. Aggrieved assessee preferred an appeal before the learned CIT (A). 25. The assessee before learned CIT(A) submitted that the AO has made an assumption without any basis that the impugned car is owned by its Director. 25.1. The assessee further claimed that the impugned car has been purchased by it on hire purchase basis and also paying hire purchase installment on the same. But inadvertently the impugned car was registered in the name of Arvind Lifestyle Brand Limited (ALBL). The assessee also submitted that this fact was also furnished before the AO vide letter dated 13.03.2014. 25.2. However, the learned CIT (A) confirmed the addition made by the AO by holding as under: 8.3. . On careful consideration of observation of Assessing Officer and contention of Appellant, it is observed that the Assessing Officer has disallowed depreciation on the ground that conditions u/s32 of the Act. It is observed that the Appellant has not provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company in its balance sheet. On finding that the funds for purchase of vehicle had been invested by the appellant company and the same has been duly reflected on the assets side of the balance sheet of the appellant company, we do not find any reason why the claim of depreciation should not be allowed to the appellant company. For this proposition, we draw support from the decision of the Hon ble Supreme Court in the case of Mysore Minerals Ltd. 106 taxmann.com 166. We, accordingly, direct the A.O. to allow the claim of depreciation. 28.1. In view of the above, we are inclined to set aside the issue to the file of the AO for fresh adjudication in the light of the above stated discussion and the order reproduced above. Hence the ground of appeal of the assessee is allowed for the statistical purposes. 29. The issue raised by the assessee in Ground Nos. 6 and 7 is challenging the levy of interest under section 234B/C of the Act. 30. At the outset we note that, there is no finding of the learned CIT (A) in his order on the issues raised by the assessee as discussed above. Accordingly, we in the interest of justice and fair play are inclined to set aside the issue to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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