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TMI Blog2017 (1) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... apital loan has increased from Rs. 17.48 crores last year to Rs. 44.19 crores this year. 2. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of interest of Rs. 32,19,155/- made by the A.O. u/s. 36(1)(iii) of the I.T. Act without appreciating the fact that the assessee had failed to prove in course of assessment proceedings that amount borrowed on which deduction for interest is claimed has been utilized for business of assessee (work-in- progress). 3. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the additions made by the A.O on account of prior period expenses of Rs. 3,66,034/- holding that the same has already been capitalized in earlier year without any evidence being available on record. If any evidence was brought during the appellate stage then fresh evidence was accepted for the first time without giving opportunity of examining the same to the A.O in contravention of Rule 46A of I.T Rules. 4. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in giving relief of Rs. 18,21,489/- out of disallowance of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest for calculating disallowance at Rs. 4,06,24,243/- instead of Rs. 2,00,60,521/- as accepted by the CIT{Appeals) in Para 4.3.7 at page no.11 of the appellate order passed by her. 3) The learned CIT (Appeals) erred in confirming the disallowance of Rs. 6,30,407/- on account of expenses u/s. 14A read with Rule 8D of the Income Tax Act,1961. Your appellants submit that the disallowance is not warranted and ought to be deleted. Without Prejudice to the above, your appellants submit that the disallowance made on account of expenses is excessive and disallowance if any, ought to be restricted to Rs. 10,000/-. 4) The learned CIT{A) erred in confirming the disallowance of Rs. 13,55,948/- under section 40a(ia) of the Income Tax Act, 1961. Your appellants submit that the said disallowance is not called for and this addition be deleted. Your appellants submit that the tax was not required to be deducted from the payments made to Mr. Tarciscio Lucchetta and Mr.Tazo Totsua based on certificate of Chartered Accountants and under bonafide belief that no tax was required to be deducted. Under the circumstances, your appellants submit that the deduction ought to be allowed from amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, he estimated the disallowance at 10% of the expenditure as against 25% made by the Assessing Officer. 3.3 It is quite clear from the manner in which the disallowance was initially made by the Assessing Officer and, thereafter partly confirmed by the CIT(A), that the same is based on mere surmises without bringing out any specific instances of expenditure having been incurred for non-business purposes, inspite of the fact that the complete details were made available by the assessee in the course of the proceedings. In this view of the matter, we deem it fit and proper to set-aside the action of the CIT(A) and direct the Assessing Officer to delete the entire disallowance since the decision of the CIT(A) is based on some conjectures and surmises. Thus, on this ground assessee succeeds. 4. In so far as, Grounds of appeal No. 2 & 3 are concerned, the same relate to disallowance of Rs. 33,25,626/- made by the Assessing Officer by invoking the provisions of section 14A of the Act based on the formula contained in Rule 8D(2)of the Income Tax Rules, 1962 ( in short 'the Rules'). Ground of appeal No.2 relates to a disallowance of Rs. 26,95,219/ made out of interest expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd.,313 ITR 340(Bom), it has to be presumed that the said investments have been made out of interest free funds. It is also pointed out by the assessee that the interest expenditure of Rs. 4,83,83,904/- has been incurred on specific loans raised, details of which have also been reproduced by the Assessing Officer in the assessment order. On this basis, it is also sought to be emphasized that no component of interest expenditure can be said to be relatable to the investments in question and rather the interest expenditure is relatable to the business activities and not to the investments in question. 4.4 Factually speaking, we find that the aforesaid assertions of the assessee are borne out of record and infact, written submissions of the assessee dated 27/12/2011, which has been reproduced by the Assessing Officer in Para-5.1 of his order brings out such details. The aforesaid fact-situation has not been repudiated by the Revenue at any stage and, therefore, following the ratio of the judgments of the Hon'ble Bombay High Court in the cases of CIT vs. HDFC Bank Ltd., 366 ITR 505(Bom) and HDFC Bank Ltd. vs. DC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at pages 114 to 127 of the Paper Book, it is seen that the two individuals were engaged to provide engineering services at Baruch Plant of the assessee company. As per the contract with Mr. Tarciscio Lucchetta dated 22/2/2008, the scope of work is stated to be maintenance of machines, reducing breakdown time, to enhance productivity of machines and quality of products and also to train engineers on maintenance and other aspects of machines. The period of contract have been stated to be six months. Similarly, with respect to the contract with Mr. Tazo Totsua dated 20/09/2008, the services have been hired for assisting the manufacturing team in reducing the set-up time, reduction of cycle time, reduction of in-process rejections, to improve the cp/cpk values and enhancing the quality level of products apart from training the quality team in improving the quality systems and process optimization. Further, it is prescribed that the period of contract shall be of 17 days i.e. 21/09/2008 to 07/10/2008. Similarly, other contracts have also been entered with Mr. Tazo providing for varying periods of engagement. It is pointed out that the total period of engagement for both the consultan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if such person stays in other state for a period or periods exceeding 183 days or in the relevant year he has a fixed base regularly available to him in the other State for the purpose of performing his activities but only so much of the income as is attributable to that fixed base. In this context, Ld. Representative for the assessee pointed out that the period of stay of Mr. Lucchetta is less than 183 days in India and he has no fixed base available in India and therefore, there was no liability to deduct tax at source on such payments. Similarly, in the context of payment made to Mr. Tazo is concerned, reliance has been placed on Article -14 of India-Japan DTAA, wherein similar provisions are existing. By referring to various individual contracts with Mr. Tazo, copies of which has been placed in the Paper Book, it has been pointed out that the said individual has not stayed in India for a period aggregating 183 days in the instant year and nor does he has any fixed base in India. It is pointed out that the two individuals are basically engineers and have provided services to the assessee in their independent capacity as professional services. 5.2 On the other hand, Ld. Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. ITA No.638/Mum/2014, Departmental Appeal: 6. In so far as Ground of appeal No.1 & 2 of the Revenue's appeal are concerned, they relate to a single issue relating to disallowance of interest of Rs. 32,19,155/- made by the Assessing Officer by invoking the proviso to section 36(1)(iii) of the Act . 6.1 In this context, the relevant facts are that the Assessing Officer noted that assessee company had capital work-in-progress of Rs. 2,68,26,292/-. It was also noted that assessee had incurred expenditure on interest on moneys borrowed. In this light, the Assessing Officer referred to the proviso to section 36(1)(iii) of the Act wherein, it is provided that interest paid to acquire asset till the date it is put to use shall not be allowed as deduction. For the said reason, the Assessing Officer show caused the assessee as to why the interest paid on the amount used in the capital work-in-progress should not be disallowed. In para 7.1 of the assessment order, the Assessing Officer has further noticed that the details of the capital work-in-progress of Rs. 2,68,26,298/- reveal that no interest has been capitalized. For the said reasons, the Assessing Officer worked out the interest p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to section 36(1)(iii), as it stood for the assessment year under consideration, prescribed that where any amount of interest is paid in respect of borrowings made for acquisition of an asset 'for extension of existing business', the same shall not be allowed as deduction for any period beginning from the date on which such amount was borrowed till the date on which such asset was put to use. On the strength of the said proviso, the Assessing Officer has inferred that interest relatable to the capital work-in-progress deserves to be disallowed. For that matter, the Assessing Officer has made a notional estimation of such interest @12%. Notably, in so far as the stand of the Assessing Officer in principle is concerned, there cannot be any dispute. So however, in order to invoke the proviso to section 36(1)(iii) of the Act, the Assessing Officer is required to establish interest has been paid in respect of the capital borrowed for acquisition of an asset. Further, it is also required to be established that the acquisition of such asset was for extension of existing business. Quite clearly, the aforesaid aspects of the matter are neither emerging from the assessment order and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to the disallowance of repair and maintenance expenses, wherein Revenue is aggrieved by the action of the CIT(A) in deleting the disallowance of Rs. 43,17,791/- 8.1 In the context of Grounds of appeal No.4 & 5, the relevant facts are that the Assessing Officer noted that assessee had debited a total expenditure of Rs. 181.31 lacs under the head repair and maintenance. On the basis of the details submitted by the assessee, the Assessing Officer has observed that a sum of Rs. 61,36,278/- was claimed to be incurred for renovation of building, etc. The relevant details in this regard have been tabulated by the Assessing Officer in para 11 of the assessment order, whereby it is culled out that expenses incurred on Plant and machinery repair - Rs. 18,07407/-; Building repairs - Rs. 1,07,759/-; Others - Rs. 1,25,087/-; and Wind mill - Rs. 96,025/-, totalling to Rs. 61,36,278/- are capital in nature. The item wise details of such expenditure has also been culled out by the Assessing Officer in para 11 of the assessment order. As per the Assessing Officer assessee has undertaken extensive repairs of the structure of the building and Plant & machinery and, therefore, such amount is li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Revenue are dismissed. 9. In so far as, Grounds of appeal No.6 & 7 are concerned, the same relates to the direction of the CIT(A) requiring the Assessing Officer to rework the adjustment u/s. 145A of the Act. 9.1 In this context, the relevant facts are that in the earlier assessment years of 2005-06, 2006-07 and also for 2008-09, the Assessing Officer had made additions on account of adjustment prescribed in section 145A of the Act. Before CIT(A), assessee pleaded that since such additions have been confirmed in the appellate proceedings, following the same method in the instant assessment year, assessee is entitled to get a relief of Rs. 3, 63,10,937/-. The CIT(A) considered the plea of the assessee and found it quite justified and, therefore, she directed the Assessing Officer to rework the adjustment prescribed under section 145A of the Act and allow appropriate relief. Against such a decision, Revenue is in appeal before us. 9.2 Before us, the only plea of the Revenue is that the instant is a fresh claim made after filing the return of income, and it could be made only by filing a revised return of income following the ratio of the judgment of the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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