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TMI Blog2013 (10) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... Nature of payment (expenses) made to bank for converting rupee loan into foreign currency loan - Held that:- The assessee was benefited as the interest rate was reduced and those expenses were incurred by the assessee during the year under consideration and related to the business exigency. order of CIT(A) confirmed - Decided against the revenue. Disallowance u/s 40(a)(ia) of the Income Tax Act – Held that:- Amount was paid by the assessee on account of sea freight, to the agents of non-resident ship owners. Therefore no TDS was to be deducted under section 194C or section 195 of the Act as such the disallowance made by the Assessing Officer by invoking the provisions of section 40(a)(ia) of the Act, was not justified and the learned CIT(A) rightly deleted the addition made by the Assessing Officer by considering the circular No. 723 dated 19/12/1995 issued by the CBDT. The present issue is also covered by the decision of this bench of the tribunal in the case of ACIT Vs. Minpro Industries [2012 (5) TMI 232 - ITAT, Jodhpur], wherein it has been held that reimbursement of the payment towards sea freight transport, CCI charges, steamer freight charges and REPO container charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hom the amount has been paid because the party becomes the owners of the shares and appreciation in share and dividend will belong to that party. Both the transactions are separate and distinct and charging of lower rate of interest cannot be justified. We are also not aware that such share capital was raised during the year or the party purchased the shares from other parties. The ld. CIT(A) has considered the cost of borrowings and noticed that interest rate of borrowings in the hands of the assessee is 8.60%. We therefore, feel that the ld. CIT(A) was justified in restricting the addition to Rs. 2,80,410/-. Hence, on this issue the grounds of appeal of the Revenue and assessee are dismissed. In the year under consideration also, the Assessing Officer made the addition of Rs. 21,55,237/- as difference in the interest in the cases of SRSL Welfare Trust Rs. 6,47,100/- and Rs. 15,08,137/- in SRTL by following the earlier assessment order for the A.Y. 2002-03 and the learned CIT(A) also partly allowed the relief by following his earlier order dated 04/01/2006 in assessee's own case for the A.Y. 2002-03. Since, the above said order dated 04/01/2006 passed by the learned CIT(A) has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 TTJ (Jd) 41 : (2005) 93 ITD 78 (Jd), which has been affirmed by the Hon'ble Jurisdictional High Court in the case of CIT Vs. Shree Rajasthan Syntex Ltd. (2008) 7 DTR (Raj) 393. The above contention of the learned counsel for the assessee was not controverted by the learned C.I.T. D.R. 10. After considering the submissions of both the parties and material on record, it is noticed that the issue under consideration is covered by the ratio laid down in the aforesaid referred to order reported at (2008) 7 DTR 393 (supra), wherein it has been held as under:- "The basic distinguishing feature between the lease being finance lease or operating lease would be, that in case of finance lease, at some point of time, the ownership transfers to the lessee, or the lessee has the option to purchase, the hired assets, in consideration of a token price. Obviously, in that event, the lease rent, or hire charges, called by whatever name, with passage of time, partake the character of the price of the asset in possession of the lessee, or hirer, under the finance lease agreement, as distinct from the lease in question, where there is a very specific stipulation that on termination of the lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inner Ltd. 99 TTJ 180. 2) CIT Vs. Janki Ram Mills Ltd. 196 CTR 561. After considering the submissions of the assessee, the Assessing Officer held that the assessee had acquired new assets in place of existing assets which had been sold out. Therefore, new assets would give enduring benefit to the assessee, so it was a capital expenditure and the assessee should have shown it as an addition in the opening WDV and the sale proceeds of the old assets should have been reduced from the WDV and thereafter, depreciation should have been claimed as per law, but the assessee had not done so. The Assessing Officer further observed that by no stretch of imagination, acquisition of new assets could be charged off as revenue expenditure. As regards to TUF scheme, the Assessing Officer observed that the legislature had specifically provided special rate of depreciation i.e. at the rate of 50% for the spinning equipments acquired under TUF scheme, which clearly provided that the assets acquired under TUF have to be treated as capital expenditure. He further observed that in assessee's own case in the A.Y. 2002-03 such replacement was treated as capital expenditure. He, therefore, treated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Engine of textile mill is revenue expenditure because all machinery put together amount to a single unit. These item/unit cannot work independently but can work only as a part of spinning mill. Therefore, the claim of 100% depreciation on this item is allowable to the company because such expenditure is definitely an expenditure of revenue nature as the same is required for the running of machinery and plant which put together amount to a single unit. The assessee has claimed depreciation @ 100% on the above aforesaid part of plant and machinery as the same is in the nature of repairs and renovation expenditure. The above referred expenditure in the nature of repair and renovation expenses does not amount to single unit and no new asset has been created in the process of replacement of worn out machine. Had this expenditure not incurred by the appellant, the total production would have come to complete halt. further this machine is part of total block of spinning machine and has no independent existence and utility." 17. Learned CIT(A) after considering the submissions of the assessee held that the expenditure of Rs. 3,33,26,540/- for replacement of Autoconer and DG set machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coner is a revenue expenditure. Further, the amount includes Rs. 74,96,357/-, which is towards purchase of Crank Shaft for Kirlosker Diesel Generator. The original cost of the engine in assessment year 1998-99 was Rs. 4,24,41,846/-. The electricity connection from R.S.E.B. was discontinued by the appellant from assessment year 1998-99. The spinning factory completely runs by the electricity generated by Kirlosker Diesel Generator. This is a part of machine without which the machine would not run. This needs to be replaced on breakdown. Further the amount includes a sum of Rs. 29, 54,045/- towards reconditioning of Recon Machine. Before giving observation on the facts and legal issue involved in this appeal it is convenient to have a picture of returned income/loss, income shown u/s. 115JB of the Act by the appellant in assessment years 2004-05,2005- 06 and 2006-07, which is as under:- Assessment year Returned income/loss (Rs.) Declared r/s 1 15JB(Rs.) 2004-05 NIL 1,81,97,300/- 2005-06 (-) 8,01,64,642 1,28,36,575/- 2006-07 NIL 2,05,98,958/- To understand as to whether the various mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onth of December,20O5/The decision was published in January, 2006. The decision in this case is squarely applicable to the appellant's case also. Held: "The impugned expenditure incurred in replacement of cards/blow room machinery/combing machinery of textile mills is a revenue expenditure because all plant and machinery put together amount to a single unit. these items/units cannot work independently, but can work only as a part of the spinning unit. Therefore, the claim of 100% depreciation on these items is allowable to the assessee-company because such expenditure is definitely an expenditure of revenue nature as the same is required for the running of machinery and plant which when put together amounted to a single unit". The Hon'ble ITAT followed the decision in the case of CIT Vs. Jankiram Mills Ltd. Others (2005) 196 CTR (Mad.) 551 which was not quoted by the appellant at the time of deciding the appeal by the CIT(A) for assessment year 2002-03. The Hon'ble Madras High Court has held that "Under these circumstances, in the light of the factual details as demonstrated before us, supported by acceptable documents and the report of the specialised body like SITRA and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessees cannot be brushed aside. It is also brought to our notice that the tribunal had allowed similar claim after conducting personal inspections in the spinning mills, which replaced parts. It is also stated that inasmuch as the question raised now by the Department had been settled by a series of decision of this court as well as the apex court and where long standing precedents settled the law, the courts would be slow to disturb the said law unless there are compelling reasons to do so. Learned counsel appearing for the assessees have cited and demonstrated before us a number of judgments (decisions) wherein expenses of similar nature were held allowable. As discussed earlier, the issues involved in these references and appeals relate to replacement of machinery done in one or more of the several processes of a textile industry, namely, spinning mills. In the case of spinning mills, cotton fibers are converted into yarn and only after the yarn is wound and finished into suitable packages the same can be marketed. Considering the stages of processes and the nature of the processes involved and the facts that the output of intermediary product is not marketable and furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill not arise. In the circumstances, it is the claim of the assessee that the reliance of the Revenue on the depreciation schedule to support their contention is misconceived and does not, in any way, advance the case of the department' As rightly pointed out, the Revenue has not brought out any error either in law or on facts in the decision rendered by the Tribunal. The supreme court has also held at p.386 that "The idea of 'once for all' payment and 'enduring benefit' are not to be treated as something akin to statutory conditions; nor are the notions of 'capital' or 'revenue' a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must need be flexible so as to respond to the changing economic realities of business. The expression 'asset or advantage of an enduring nature' was evolved to emphasise the element of a sufficient degree of durability appropriate to the context". It is also relevant to note that in the scheme of the Act. s.31 deals with 'current repairs', s.32 deals with "depreciation on assets used for the purposes of business,, and s.37 deals with allowance of "business expenditure" not in the nature of capital or persona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned CIT D.R. strongly supported the order passed by the Assessing Officer and reiterated the observations made in the assessment order. It was further stated that in the preceding year, the ITAT has confirmed the view of the Assessing Officer by considering the replacement as a capital expenditure in ITA No. 159/JU/2006 for the A.Y. 2002-03 vide order dated 09/12/2011. 19. In his rival submissions, learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee replaced the old parts of the machinery and DG set. Therefore, no new assets came into existence as such the expenses incurred were revenue in nature. He further submitted that in the earlier year i.e. A.Y. 2002-03, the issue involved was related to the expenses incurred for pinning ring frame, which was an independent machine, however, for the year under consideration the replacement was of Autoconer machine and Crank Shaft of DG set, which are only the parts of the existing plant and machinery. It was accordingly submitted that the learned CIT(A) was fully justified in holding that the impugned expenditure was revenue in nature and not capital expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eplaced an independent machine by acquiring a new one rather a part of the old machine was replaced for proper functioning. Therefore, expenses incurred by the assessee were revenue in nature and not the capital in nature. Similarly, the assessee by incurring an expenditure of Rs. 74,96,357/- replaced the Crank Shaft for the DG set engine. The original cost of the DG set in the A.Y. 1998-99 was Rs. 4,24,41,846/- and due to normal were tear the Crank Shaft was required to be replaced, which cost a sum of Rs. 74,96,357/-. Therefore, it cannot be said that the assessee replaced whole of the DG set rather only a part in the form of Crank Shaft was replaced. So, it was a revenue expenditure and not a capital expenditure. We, therefore, considering the totality of the facts of the present case, are of the view that the learned CIT(A) was fully justified in directing the Assessing Officer to treat the impugned amount incurred by the assessee for replacement of Autoconer and Crank Shaft as revenue expenditure and not the capital expenditure. Accordingly, we do not see any merit in this ground of the departmental appeal. 21. The next issue vide ground No.5 relates to the deletion of dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the submissions of the assessee observed that the assessee had taken working capital from IDBI at the interest rate of 16.35% p.a., but the said interest did not suit to the assessee. Therefore, he requested the IDBI to reduce the interest rate and the IDBI agreed to this proposal with the condition that 50% of the total interest amount payable upto the assessment year 2004-05 should be paid at one time, then only the interest rate would be reduced from 16.35% to 12.5%, therefore, the said proposal was beneficial to the assessee. Learned CIT(A) pointed out that the facts of the present case were similar to the case of M/s. PI Industries Ltd., Udaipur, wherein earlier decision of the ITAT Jodhpur in the case of M/s. Secure Meters Ltd. was followed. Learned CIT(A) also pointed out that the decision of Kedarnath Jute Manufacturing Co. Ltd. VS. CIT (1997) 82 ITR 363 (SC) was also in favour of the assessee. He accordingly deleted the disallowance made by the Assessing Officer. Now, the department is in appeal. 25. Learned CIT D.R. reiterated the observations made by the Assessing Officer in the assessment order and further submitted that the assessee was getting enduring benefit b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the Assessing Officer by following the decision of this bench of the tribunal in the case of PI Industries Udaipur and Secure Meters Ltd. No contradictory decision was pointed out during the course of hearing, therefore, we do not see any valid ground to interfere with the findings of the learned CIT(A) on this issue and accordingly do not see any merit in this ground of the departmental appeal. 28. Vide ground No. 6, the grievance of the department relates to the direction given by the learned CIT(A) to the Assessing Officer to allow deduction under section 80IA/80IB in respect of the profits of power plant and unit No.2 of Poly Propylene Multi Filament Yarn and unit No.3 of Spun Yarn. 29. The facts related to this issue in brief are that the learned CIT(A) directed the Assessing Officer to allow the claim of the assessee as was done in the A.Y. 2001-02 2002-03 vide order dated 04/01/2006 in assessee's own case. During the course of hearing, it was not brought on record that the said decision followed by the learned CIT(A) has been reversed, therefore, by keeping in view the principle of consistency, we do not see any infirmity in the order of the learned CIT(A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy charges is reimbursement of expenses not liable for TDS." 34. The Assessing Officer was not satisfied with the reply of the assessee and made the disallowance by observing that the assessee had not deducted the TDS on the payments to the clearing and forwarding agents for carriage of goods. He therefore made disallowance of Rs. 1,94,56,548/- by invoking the provisions of section 40(a)(ia) of the Act. 35. Being aggrieved, the assessee carried the matter to the learned CIT(A) and submitted that the assessee paid agency charges to foreign agent, which were covered under section 195 of the Act and the circular No. 786 clarified that where the non-resident agent operate outside India and payment also made outside India, no part of his income arises in India and TDS was not deductable on such payment under section 195 of the Act. 36. Learned CIT(A) after considering the submissions of the assessee observed that the assessee was engaged in manufacturing of spun yarn and exporting. He further observed that the assessee paid an amount of Rs. 1,94,56,548/- to M/s. Divya Sipping Clearing Service Pvt. Ltd. and claimed the expenses under the head packing and forwarding expenses and e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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