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2019 (4) TMI 1473 - ITAT KOLKATAAddition on account of debit balance written off - trade advances - allowable u/s. 36(1)(vii) r.w.s 36(2) or as a deduction as a trading loss u/s. 28 - HELD THAT:- 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 same, then the assessee has to prove that he took all steps to recover the advanced amount and since it failed to recover the amount then only assessee will be eligible to claim the amount as business loss. In this case, the assessee neither during the assessment proceedings nor before the first appellate authority could prove the nature of the advances given to the thirteen parties. Since the assessee could not produce any evidence to prove the nature of the advances given to the thirteen parties by producing some materials either by way of purchase order or a money receipt it failed to pass the first stage we discussed above. CIT(A) cannot 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 the assessee taking note of item nos. 2 to 8 is confirmed. Coming to the item no. 1 which the CIT(A) has not allowed and assessee is in appeal, we note that it pertains to expenditure incurred on replacement of cylinder. 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. We allow the ground of appeal of the assessee in respect of item no. 1 of chart above on this ground and dismiss the ground of appeal of the Revenue in respect of item nos. 2 to 8 Disallowance of interest expenses - AO noted that assessee has obtained loan at a higher rate and advanced the loan at a lower rate - HELD THAT:- CIT(A) for taking note that the borrowed money was used for the purpose of business, he was of the opinion that the interest expenditure was deductible u/s. 36(1)(iii). Further, it was brought to our notice that the assessee company has substantial interest free own funds out of which payment in question was made. It was brought to our notice that as on 31.03.2005 out of the total funds of ₹ 36.79 cr. only ₹ 10.63 cr. related to loan funds. And the position was almost same even as on 31.03.2016. The security deposit since was only to the extent of ₹ 65 lacs it cannot be said that interest bearing borrowed fund has been diverted to third parties for the purpose other than the business. Since the assessee had mixed fund which includes its own fund in sufficient quantity, a presumption can be drawn that its own funds were utilized for the security deposit in question. For this proposition of law, we rely in CIT-vs.- Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] , and looking from both angles, we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of the assessee. Addition regarding PF on account of employees’ contribution - payment was made before the due date of filing of the return of income u/s. 139 - HELD THAT:- We note that the 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 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 merely on ad-hoc estimate basis, which is an arbitrary exercise of power. Since no comparable instance was cited from the side of Revenue and this primary onus was not discharged, therefore in the totality of the circumstances discussed above warrants upholding the view of the Ld. CIT(A). We confirm the CIT(A)’s order and dismiss the ground of appeal of revenue. Brought forward depreciation loss - HELD THAT:- provisions of section 32(2) as amended by Finance (No.1) Act, 2001 would allow the unabsorbed depreciation allowance available in the assessment years 1997-98, 1999- 2000, 2000-01 and 2001-02 to be carried forward to the succeeding years and if any unabsorbed depreciation or part thereof could not set off till the assessment year 2002-03, then it would be carried forward till the time it is set off against the profits and gains of subsequent years without any limit whatsoever. As relying M/S ARCH FINE CHEMICALS PVT. LTD. VERSUS ASSTT. COMMISSIONER OF INCOME TAX [2013 (10) TMI 425 - ITAT MUMBAI] CIT(A) was justified in allowing set off of unabsorbed depreciation for the assessment year 1997-98 against the profit for the assessment year 2006-07. Disallowance u/s. 40(a)(ia) for interest payment - payment was not really interest payment but the late payment charges of the electricity bill - recipient has included the amount in the total income in its return of income and paid taxes thereon - HELD THAT:- In the case of the assessee, the payment being in the nature of late surcharge, the same was not covered under the TDS provisions of Act and accordingly no disallowance can be made u/s. 40(a)(ia). We note that the Finance Act 2012 made an amendment of section 201 & 40(a)(ia). In accordance with this amendment, the payer assessee would not be deemed to be in default 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) is curative and it has retrospective effect w.e.f. 1st April, 2005, being a date from which Sec. 40(a)(ia) was inserted by the Finance (No. 2) Act, 2004. The assessee made payment to Ajmer Vidyut Vitran Nigam Ltd, which is a State Government Undertaking. Considering the judicial decisions as cited above, we set aside the impugned 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]
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