TMI Blog2017 (8) TMI 1687X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly the Ground raised by the revenue is dismissed. Disallowance of additional depreciation - AO treated the costs incurred towards construction activities as spent towards building and refused to treat the same as part and parcel of value of plant and accordingly denied additional depreciation u/s 32(1)(iia) thereon - AO also refused additional depreciation on the pre-operative expenses and interest that were capitalized to the cost of the plant - AO observed that the Weighing machine is not used in the manufacturing process and hence the same is not eligible for additional depreciation - HELD THAT:- Calcutta High Court in Tribeni Tissues Ltd vs CIT [ 1991 (1) TMI 98 - CALCUTTA HIGH COURT] wherein it was held that Tube well and Weighing machine used in the production of paper are held to be Plant . Based on these observations, the ld CIT-A correctly agreed to the contentions of the assessee that ETP was necessary for the purpose of pollution control and construction of drain etc was essential part of ETP and was not in the nature of building. The assessee company having fulfilled the conditions precedent, is entitled for claim of normal and additional depreciation by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of commission. We hold that once the rendering of services by these commission agents are not in dispute , there is no reason to disallow the same in the assessment. Incidentally , we find that the said commission and brokerage payments have been duly subjected to deduction of tax at source as per the Indian laws , though that may not be the criterion for allowability of an expenditure. We find in the instant case, the assessee had indeed made payment of commission and brokerage to Indian agents for procuring export orders and the said agents had indeed rendered services to the assessee,, which is not in dispute, and hence the same has been rightly allowed by the ld CIT-A - we hold that the ld CIT-A had rightly deleted the disallowance of commission paid - Decided in favour of assessee. - I.T.A No. 2041/Kol/2014 - - - Dated:- 16-8-2017 - Hon ble Shri N.V. Vasudevan, JM Shri M.Balaganesh, AM For the Appellant: Shri Pinaki Mukherjee, Addl. CIT DR For the Respondent: Shri A.K. Gupta, AR ORDER Per M.Balaganesh, AM 1. This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax (Appeals) -XX, Kolkata [ in short the ld C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld AO. The assessee submitted the complete details of foreign travel expenses again before the ld CITA which are reproduced in pages 15 to 17 of ld CITA order. From the said details it was specifically submitted that the directors of the company and its top executives had to travel to Zurich (Switzerland) in order to visit Boston or Brussels in accordance with aviation rules. The visit to Zurich is only a stop over place as the aircraft would reach Boston or Brussels only via Zurich where the passengers would have to change over the aircraft. This basic fact was not appreciated by the ld AO and based on a pre-conceived notion the ld AO made unwarranted observations that the directors and top executives of the company had visited Zurich (where no exports were made) which is a haven for offloading black money according to media reports and accordingly the said foreign trips were not meant wholly and exclusively for the purpose of business of the assessee. 2.2. The ld CITA deleted the disallowance of foreign travel expenses by making the following observations :- I have carefully considered the facts of the case, the finding of the Assessing Officer and the submissions p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Boston / Brussels etc were done only as a stop over location by complying with the aviation rules. Ultimately the directors and top executives of the company had visited the countries where exports were indeed made by them during the year under appeal. The ld AO had made this disallowance based on surmises and conjectures by making unwarranted allegations against the assessee. We find that the ld CITA had appreciated the entire details filed towards the foreign travel expenses filed on record and it is not the case of the ld AO that the expenditures are not supported by bills and vouchers. The business expediency of the said foreign travel is also proved beyond doubt from the details filed thereon. Hence we hold that the ld CITA had rightly deleted the said disallowance. Accordingly the Ground No. 2 raised by the revenue is dismissed. 3. The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of additional depreciation in the sum of Rs 12,45,778/- in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the assessee is a manufacturer of yarn and its factory is situated near Udaipur in R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Plant and the weighing machine used in production of yarn is also Plant used in the manufacturing process. The ld CITA in this regard placed reliance on the decision of Hon ble Madhya Pradesh High Court in the case of DCIT vs Vippy Solvex Products Ltd reported in (2007) 164 Taxman 483 (MP) , where the assessee is a manufacturer of oil, and boiler has been installed for the purpose, the issue was whether other components such as coal container, coal conveyor, bucket elevator , dust collecting system constitute integral part of boiler to be entitled to 100% depreciation, it was held that utility of an item should not be examined in isolation and the nature shall depend on the function for which it is used and that all the components are integral part of the boiler entitled to 100% depreciation. He also placed reliance on the decision of Hon ble Madras High Court in the case of CIT vs VTM Ltd reported in (2010) 187 Taxman 319 (Mad) , wherein, it has been held that for claiming additional depreciation u/s 32(1)(iia) of the Act, what is required to be satisfied is only that a new machinery or plant has been acquired and installed after 31.3.2002. The provisions do not state that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In response, the ld AR vehemently relied on the order of the ld CITA. As the findings of the ld CITA were not rebutted by the ld DR before us , we do not find any justifiable reason to interfere with the order of the ld CITA in this regard. Accordingly, the Ground No. 3 raised by the revenue is dismissed. 4. The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance made u/s 14A of the Act in the sum of Rs 12,92,208/- in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the ld AO observed that the assessee wsa in receipt of exempt income to the tune of Rs 1,486/- and accordingly sought to invoke the provisions of section 14A of the Act read with Rule 8D of the Rules. The ld AO applied the provisions of all the three limbs of Rule 8D(2) and made disallowance of Rs 12,92,208/- u/s 14A of the Act. The assessee submitted that investment made was in subsidiary company which was supplying captive power for its factory and the said investment was wholly for the purpose of business and not for earning dividend income. It was also submitted that the investment in subsidiary company was strategi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Units of Mutual Fund (Unquoted) SBI- SHF- Ultra Short Term Fund Institutional Plan- Daily Dividend (Reinvest Dividend) 2,00,00,000 4,25,60,000 - 2,25,60,000 (a) (a)Refer Notes 1(vi) and 9 in Schedule 23 4.3.1. We find that the disallowance under Rule 8D(2) had been made by the ld AO as under:- Rule 8D(2)(i) - Rs 1,72,346 Rule 8D(2)(ii) - Rs 9,57,062 Rule 8D(2)(iii) - Rs 1,62,800 Rs 12,92,208 As far as the disallowance under Rule 8D(2)(i) in the sum of Rs 1,72,346/- is concerned, the ld AR stated that the same represents custodian charges paid to depository for its shares which are held by its shareholders in dematerialized form. He referred to the relevant page in the paper book in this regard to prove his contention. We have gone through the same and we are convinced of the fact that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In all countries of Asia Europe Pieter Paul Rubensstraat, 55B9600, Ronse-Belgium 3602561 4116419 7718980 - 3. Suha Kutal Mustafa Gulbaran In Turkey Rentks Teksil Sanayl Ve Ticaret Ltd., New York 40257 0 40257 - 4. Excel Global In all countries of Asia \ Europe P.O. Box- 18538, Hebel All free Zoryc, Dubai,UAE 15320277 3922400 19242677 - 21268048 13066343 34334391 0 5.1.1. The ld AO observed that the assessee had further debited a sum of Rs 25,28,271/- in respect of commission paid to 7 Indian agents for export sale in foreign countries . The details of the aforesaid Indian agents to whom commission is paid are as under:- Sl. Commission on Export Sales Sales to be procured as per agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.1.2. The ld AO after examining the relevant portion of the agreement in respect of foreign selling agents and that of Indian selling agents, observed that the foreign agents have been remitted the money in the name of commission @ 3% of the invoice value which was over and above the payments made in the name of commission @ 2% to the Indian agents for the same kind of service and limited to only procuring the sale and that the deduction of tax on payment / credit on so called commission in the case of Indian agents was the only difference from the case of foreign agents. The ld AO also brought out the differential factors in the agreement entered into for payment of commission to foreign agents vis a vis Indian agents. He observed that the services rendered by the said foreign and Indian agents were not proved by the assessee and accordingly he sought to disallow the commission payments as expenditure not incurred for the purpose of business as under:- (i) Rs 3,43,34,391/- representing commission paid to foreign agents (ii) Rs 22,39,082/- representing commission paid to Indian agents for export sales (iii) Rs 8,04,660/- representing commission paid to Indian agents for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us on the following ground:- 1. That in the facts and in law of the case the Ld. CIT(A) erred in deleting the addition amounting to Rs. 37378133/- added by the Assessing Officer u/s 37 of the I.T. Act, 1961 which his arbitrary and in contravention of the basic principal of allowing any expenditure as business expenditure u/s 37 of the Act. 5.3. We have heard the rival submissions and perused the materials available on record including the relevant pages of the paper book submitted by the assessee comprising of (i) copy of ITAT order for Asst Year 2008-09 (enclosed in pages 1 to 9 of PB) ; (ii) copy of notice u/s 142(1) dated 3.5.2013 (enclosed in pages 51 to 57 of PB) ; (iii) copy of notice dated 29.11.2013 by the ld AO (enclosed in pages 58 to 59 of PB) ; (iv) copy of letter dated 10.12.2013 of assessee (enclosed in pages 60 to 61 of PB) ; (v) copy of letter dated 16.12.2013 of assessee (enclosed in pages 62 to 66 of PB) ; (vi) copy of letter dated 27.12.2013 of assessee (enclosed in pages 69 to 75 of PB); (vii) copy of letter dated 17.1.2014 of assessee (enclosed in pages 76 to 79 of PB); (viii) details of commission and brokerage along with agreements with the agents (encl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to IPON Textile Dis Ticaret Ltd, Turkey, we find that in page 147 of the Paper book, a certificate issued by the said party that they are acting as selling agent of the assessee in Turkey and that they do not have any permanent establishment in India. They have further certified that they had not rendered any services to the assessee in India and that the entire services were rendered only outside India. We also find from pages 103 104 of the paper book, the commission agreement entered into by the assessee with the said party defining the scope of services to be rendered by them outside India and the commission compensation they are entitled from the assessee. We find from page 206 of the paper book containing sample sales contract raised by the assessee on the foreign buyer in Turkey, the name of the said commission agent and email dated 10.12.2010 is referred to. Apart from this, we also find lot of email correspondences between the assessee and the said commission agent enclosed in pages 207 to 241 of the paper book defining the various sizes and specifications required by the foreign buyer for export of the products from India. These documents conclusively prove that the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers sourced through the said commission agent and value of invoice raised by the assessee on them. From pages 245 to 275 of the paper book, we also find similar correspondences together with the bank remittance letters for payment of commission to the said agent month wise for the export sales made to foreign buyers sourced through the said commission agent. These documents conclusively prove that the said commission agent had indeed rendered services to the assessee outside India for which commission is paid to them. 5.3.4. With regard to commission paid to Suha Kutal Mustafa Gullbaran, Turkey in the sum of Rs 40,257/-, we find from page 100 of the paper book, the commission agreement entered into by the assessee with the said party defining the scope of services to be rendered by them outside India and the commission compensation they are entitled from the assessee. We find from page 107 of the paper book containing the debit note raised by the said commission agent on the assessee claiming the commission as per the agreement together with the bank remittance documents thereon. These documents conclusively prove that the said commission agent had indeed rendered services to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said commission payments have been duly subjected to deduction of tax at source as per the Indian laws , though that may not be the criterion for allowability of an expenditure. We find in the instant case, the assessee had indeed made payment of commission to Indian agents for procuring export orders and the said agents had indeed rendered services to the assessee,, which is not in dispute, and hence the same has been rightly allowed by the ld CITA. 5.3.7. We find that the assessee had paid commission and brokerage to Indian agents for procuring sales in India to various parties that are listed in page 82 of the paper book after due deduction of tax at source which are also backed by the commission agreements entered into by them which are enclosed in pages 85 to 95 of the paper book , stipulating the scope of services to be rendered and compensation eligible for them. The ld AO nowhere stated that these agents had not rendered any services to the assessee for payment of commission. We hold that once the rendering of services by these commission agents are not in dispute , there is no reason to disallow the same in the assessment. Incidentally , we find that the said com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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