2010 (12) TMI 286 - AT - Income Tax

Disallowance - Deduction u/s 80IB - Depreciation - assessee has acquired its sister concern s land, building, plant and machinery on lease without there being any further responsibility on the part of its sister concern - CIT(A) was justified in holding that the withdrawal of deduction u/s 80-IB was not justified Regard to disallowance u/s 40A(2)(b) - the assessee onus cast on the assessee to justify the claim of contracting agreement fee was successfully explained by the assessee and there was no occasion for the Assessing Officer to disallow 80% of the expenditure amounting to Rs. 17,76,000 by invoking provisions of section 40A(2)(b) of the Act - mere making of payment to a relative will not automatically call for disallowance u/s 40A(2)(b) of the Act as the Assessing Officer has to prove that the payment so made was excessive or unreasonable - Decided in favor of assessee Dis allowance u/s 40(a)(ia) - Non deduction of TDS - exclusion of reimburse of expenses u/s 194C / 194J - separate invoice - since the agency commission and reimbursement of expenses are separately charged and recovered, the appellant was not required to deduct tax at source on reimbursement of expenses. TDS on transportation charges recovered from customers - Since, this transportation is recovered, it is not claimed as expenses in P&L account as debit is set off by credit in sales. - When they are not claimed as deduction, there can not be any disallowance u/.s 40(a)(ia). The disallowance can come into picture only when allowance is claimed. Depreciation on car - car in the name of partner - since the funds for purchase of car was gone out of the coffer of the firm it is undoubtedly proved that the assessee firm is the owner of the case - Depreciation allowed in the hands of firm. - The appeal filed by the revenue is dismissed

Issues Involved:
1. Deletion of disallowance made on account of deduction under Section 80IB of the Income Tax Act.
2. Deletion of disallowance made on account of Section 40A(2)(b) of the Income Tax Act.
3. Deletion of disallowance made under Section 40(a)(ia) of the Income Tax Act.
4. Deletion of disallowance made on depreciation on car.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB:
The primary issue was whether the assessee was eligible for deduction under Section 80IB despite using second-hand machinery obtained on lease from a non-eligible unit. The Assessing Officer (AO) denied the deduction, arguing that the assessee combined production from eligible and non-eligible units without maintaining separate records, thus violating the spirit of Section 80IB, which mandates that the deduction is only for profits from new plant and machinery.

The CIT(A) overturned the AO's decision, referencing the Mumbai ITAT decision in Laxmi Packers, which clarified that the prohibition on using second-hand machinery applies only at the formation of the industrial undertaking, not afterward. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's unit started in 2000 with new machinery and had been availing the deduction since then. The Tribunal concluded that the lease of additional machinery did not constitute the formation of a new undertaking, and therefore, the deduction under Section 80IB was justified.

2. Disallowance under Section 40A(2)(b):
The AO disallowed 80% of the payment made to the sister concern under Section 40A(2)(b), deeming it excessive and unreasonable. The CIT(A) deleted the disallowance, noting that the payment was for legitimate business needs and was not excessive compared to the fair market value.

The Tribunal agreed with the CIT(A), emphasizing that the AO failed to prove that the payment was excessive or unreasonable. The Tribunal highlighted that the provisions of Section 40A(2)(b) require a comparison with the fair market value, which the AO did not attempt. The Tribunal upheld the CIT(A)'s decision, stating that the payment was justified and the disallowance was unwarranted.

3. Disallowance under Section 40(a)(ia):
The AO disallowed payments made to clearing and forwarding agents, arguing that the assessee failed to deduct tax at source on reimbursement of expenses. The CIT(A) deleted the disallowance, distinguishing between combined bills and separate bills for principal amounts and reimbursements. The CIT(A) referenced the Delhi ITAT decision in Dr. Willmar Schwabe (India) Pvt Ltd., which held that separate bills for reimbursements do not require TDS.

The Tribunal upheld the CIT(A)'s decision, noting that the reimbursement of expenses was billed separately from the agency commission. The Tribunal found no infirmity in the CIT(A)'s findings and rejected the AO's contention that the same bill number invalidated the separation of invoices. The Tribunal also accepted the alternative plea regarding terminal handling charges and documentation charges, which were covered by Board Circular No. 723 and not subject to TDS.

4. Depreciation on Car:
The AO disallowed depreciation on a car purchased in the name of a partner, arguing that the ownership did not lie with the firm. The CIT(A) allowed the depreciation, referencing Section 14 of the Indian Partnership Act, which considers the firm as the owner if the funds for the purchase were provided by the firm.

The Tribunal upheld the CIT(A)'s decision, agreeing that the car was used for the firm's business and purchased with the firm's funds. The Tribunal concluded that the firm was the owner of the car and entitled to claim depreciation.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all issues. The Tribunal found that the disallowances made by the AO were unjustified and not in accordance with the law. The order was pronounced in the open court on 23-12-2010.

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