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TMI Blog2016 (7) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation thereon in that year. He cannot unilaterally disallow the depreciation based on the opening written down value. Assessee is entitled to entire amount claimed as depreciation on windmill. - Decided against revenue Disallowance made on account of advertisement expenses - assessee produced the copy of the bill of M/s Adsun Advertising Agency and CIT(A) deleted the addition - DR argued that the bill of M/s Adsun Advertising Agency was never subjected to verification by the ld AO and accordingly prayed for setting aside of this issue to the file of the ld AO - Held that:- In the facts and circumstances, we deem it fit and appropriate, to set aside this issue to the file of the ld AO , to decide the same in the light of evidences submitted by the assessee in this regard. - Decided in favour of revenue for statistical purposes. TDS u/s 194C - non deduction of tds on advertisement material expenses - Held that:- We find from the details and the bills submitted the assessee had only made payments for purchase of materials and had admittedly not supplied the materials to the job worker and hence the same would not fall under the definition of ‘work’ as per section 194C of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g shares worth ₹ 15.89 Crores therein and has income from the said company in the form of Managerial Remuneration amounting to ₹ 35.20 Lacs, Royalty & Advertisement Pool A/c. amounting to ₹ 1.49 Crores both assessed as Business 'Income. The assessee is running "Wind Mill" a priority industry Project as its Proprietor and generates electrical energy which is sold wholly to Tamil Nadu Electricity Board which also is assessed as Business Income. The assessee has Dividend Income ₹ 51.68 Lacs on Shares in TT Ltd. above which has been claimed as exempt u/s 10(34) of the Act. The assessee borrowed secured loans ₹ 10.63 Crores & unsecured Loans ₹ 5.57 Crores on which he paid interest ₹ 1.87 Crores (including ₹ 42.04 Lacs on Wind Mill) during this year. The assessee paid interest on unsecured loan of ₹ 46.76 lacs and on secured loans ₹ 93.81 lacs and finance charges of ₹ 4.38 lacs against the said loans. The assessee stated that loan has been utilized for the purpose of carrying on business / profession of royalty from Trade Branch "T.T." , Trading in shares and business of manufacturing electricity through windmill and funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books were outstanding at ₹ 16.19 crores and whereas the own funds available with the assessee were only ₹ 15.467 crores. Hence it could be presumed that the investments were made out of borrowed funds and accordingly disallowance u/s 14A of the Act has been rightly made by the ld AO. In response to this, the ld AR argued that investments made in TT Ltd are strategic investments and business expediency investments and the same were made in the earlier years out of own funds. He stated that the increase in borrowed funds were due to loans availed by the assessee for purpose of acquisition of windmill which was made in Financial Year 2006-07 (Rs 6.20 crores) ; vehicle loans availed during Financial Years 2007-08 & 2008-09 (Rs 0.06 crores) ; loan availed for acquisition of Karol Bagh Office building (Rs 2.15 crores) and working capital for business during Financial Years 2007-08 & 2008-09 amounting to average of ₹ 2.22 crores, whereas, the investments in TT Ltd were made in the earlier years prior to Financial Year 2006-07 which is quite evident from the fact that the ld CIT had passed an order u/s 263 of the Act for the Asst Year 2004-05 wherein the investments in T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagerial remuneration and dividend income which is earned incidentally is an integral part of the business. These submissions were not controverted by the revenue before us. Accordingly we hold that the investments made in shares of TT Limited out of own funds of the assessee take the character of strategic investments in order to protect the business interest and was not made with a view to earn dividend income. The reliance placed by the ld AR on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs Rajeeva Lachan Konaria reported in 208 ITR 616 (Cal) is well founded. Though this decision was rendered in the context of allowability of interest expenditure u/s 36(1)(iii) of the Act, the principles laid down thereon would apply with equal force to the facts of the instant case for the purpose of disallowance u/s 14A of the Act. 2.3.2. We also find that the assessee in the course of proceedings u/s 263 of the Act for the Asst Year 2004-05 vide order u/s 263 dated 27.12.2007 (vide pages 6 & 7 of the paper book) had claimed that the assessee being the Chairman & Managing Director of TT Limited had to acquire its shares so as to have controlling power over it and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend, for which, the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside. Accordingly, we pass the following: ORDER (i) Appeal is allowed. (ii) Impugned orders are hereby set aside. (iii) The substantial question of law is answered in favour of the assessee and against the revenue." 2.3.4. Hence, in view of the aforesaid decisions, we hold that no disallowance u/s 14 A of the Act need to be made by invoking the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following ground:- "2. On the facts & circumstances of the case, the Ld. CIT(A)-XX, Kolkata has erred in deleting the addition of ₹ 4,54,080/- on account of depreciation claimed on land." 3.2. The Ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 3.3. We have heard the rival submissions. At the outset, we find that the action of the ld AO in trying to disturb the opening Written Down Value (WDV) attributable to the cost of land and thereby trying the disallow the depreciation component thereon is not appreciated , as, if at all, the ld AO has got any grievance on the impugned issue, then he should have reopened the assessment for the Asst Year 2007-08 ( i.e. the year in which land on which windmill was installed was purchased) and disallowed the depreciation thereon in that year. He cannot unilaterally disallow the depreciation based on the opening written down value. This action would only result in the ld AO allowing the depreciation on the cost of land in Asst Years 2007-08 and 2008-09 but would disallow only in Asst Year 2009-10. In any case, we find that the co-ordinate bench decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese can be deemed only a part of a windmill for harnessing wind energy. In coming to this conclusion we are fortified by decision of Hon'ble Karnataka High Court in the case of CIT v. Karnataka Power Corporation (247 ITR 268) where it was held that whether a the building can be treated as a plant was a question of fact and when it is found as a fact that the building has been so planned and constructed as to serve the assessee's ITA No.176/Mds/2010 6 special technical requirement, it would qualify to be treated as a plant. In our opinion, the expenses relating to the land and foundation specially incurred with a view to serve the technical requirements would also become a part of the plant in a case that of a wind mill. If we look at Appendix I to the Incometax Rules, prescribing the rates of depreciation, it can be seen that Legislature has given higher depreciation rate of 80% on anti-pollution devices, energy saving and renewable energy devices. Apparently, these higher rate have been given not solely for offsetting the impairment in value of such assets on account of use but also to encourage such entrepreneurial ventures which results in energy savings or utilization of renew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat all the payments were made by account payee cheques and accordingly deleted the disallowance. Aggrieved, the revenue is in appeal before us on the following ground:- "3. On the facts & circumstances of the case, the Ld. CIT(A)-XX, Kolkata has erred in deleting the addition of ₹ 7,93,379/- on account of advertisement expenses without bills." 4.2. The ld DR argued that the bill of M/s Adsun Advertising Agency was never subjected to verification by the ld AO and accordingly prayed for setting aside of this issue to the file of the ld AO which was fairly accepted by the ld AR. 4.3. We have heard the rival submissions. In the facts and circumstances, we deem it fit and appropriate, to set aside this issue to the file of the ld AO , to decide the same in the light of evidences submitted by the assessee in this regard. Accordingly, the ground no 3 raised by the revenue is allowed for statistical purposes. 5. The last issue to be decided in the appeal of the revenue is as to whether the ld CITA is justified in deleting the disallowance made u/s 40(a)(ia) of the Act in the sum of ₹ 11,18,698/- for violation of section 194C of the Act in the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us on the following ground:- "4. On the facts & circumstances of the case, the Ld. CIT(a)-XX, Kolkata has erred in deleting the addition of ₹ 11,18,698/- on account of disallowance u/s. 40(a)(ia) read with section 194C on advertisement materials." 5.2. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR stated that the assessee has not supplied materials to the job worker and hence does not fall within the definition of 'work' as per section 194C of the Act. The assessee has purchased only diaries, calenders etc for which the bills are available in pages 36 to 40 of the paper book filed by the assessee. 5.3. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. We find from the details and the bills submitted in pages 36 to 40 of the paper book, the assessee had only made payments for purchase of materials and had admittedly not supplied the materials to the job worker and hence the same would not fall under the definition of 'work' as per section 194C of the Act. It would be pertinent to reproduce the definition of 'work' in section 194C of the Act for the sake of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce u/s 14A of the Act that the assessee had enough own funds at its disposal and having held so, it has to be presumed that the advance to wife Smt. Kala Devi Jain also should have been made out of own funds and hence there is no question of making any addition towards notional interest income thereon. In response to this, the ld DR vehemently relied on the order of the ld AO. 6.3. We have heard the rival submissions. We find that we have already held while dealing with the issue of disallowance u/s 14A of the Act that the assessee is having sufficient own funds at its disposal which would easily cover the advance given to the wife Smt Kala Devi Jain in the sum of ₹ 7,00,000/- also. Hence there is no question of charging any notional interest thereon on the said advance presumed to have been given out of own funds. Hence the addition made in the sum of ₹ 39,375/- is directed to be deleted. Accordingly, the ground no.1 raised by the assessee in his cross objection is allowed. 7. The next ground to be decided in the cross objection of the assessee is as to whether the ld CITA is justified in upholding the disallowance of ₹ 10,200/- towards staff welfare expenses i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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