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TMI Blog2017 (3) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... ro Ltd supra had held that only dividend bearing investments should be taken into account for the purpose of working out the disallowance under Rule 8D(2)(iii) of the Rules. We direct the ld AO accordingly. Hence the Grounds raised by the assessee in this regard are partly allowed for statistical purposes. Repairs and maintenance - Allowable of business expenditure - Held that:- The expenditure incurred towards repairs and maintenance supra would be squarely allowable as revenue expenditure and the ld AO is hereby directed to delete the disallowance. Legal and professional charges disallowance - Held that:- We find that the lower authorities had disallowed the said expenses of legal and professional charges incurred on these three parties on the basis that the assessee had not been able to produce any corroborative evidences to prove that the assessee had availed professional services from the said parties for the purpose of the business. We find that the aforesaid additional evidences would be very crucial to adjudicate the issue under dispute and accordingly we admit these additional evidences and since the same was not available before the lower authorities, we deem it fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion, would have to be admitted for better appreciation of the facts. However, we find that the same had not been examined by the lower authorities. Hence in the interest of justice and fair play, we deem it fit and appropriate, to set aside this aspect of the issue to the file of the ld AO to examine those additional evidences and if it is found that the said advances were given in the normal course of business of the assessee, then the same would have to be allowed as a trading loss u/s 28 of the Act as admittedly the same were written off in the books by the assessee. The assessee has to prove the fact of irrecoverability of the said advances to the ld AO. With regard to allowability of TDS recoverable written off since the recoverability arose only in the form of collection of TDS certificates, it goes beyond doubt that the assessee had offered the same as income in the earlier years as admittedly the TDS would be relatable to income only. Moreover, we hold that there is no requirement to satisfy the test of offering of income in the earlier years in terms of section 36(2) of the Act as the subject mentioned issue is not towards bad debts but only bad advances written off. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed dividend income of ₹ 3,20,894/- as exempt. The ld AO show caused the assessee as to why the disallowance u/s 14A of the Act read with Rule 8D of the Rules be not made in the instant case. In response thereto, the assessee replied that the investments were made in earlier years out of its own funds and not fresh investments were made in the years under appeal except growth oriented investment in mutual funds which did not fetch any dividend income. Hence it was pleaded that no expenditure was incurred for earning the aforesaid dividend income. Further, it was stated that investments are made in mutual funds based on pre-determined investment criteria and hence no overhead expenditure is also relatable to the said income in this year. The aggregate of the assessee s own funds amounted to ₹ 2279.06 lacs whereas the aggregate investments amounted to ₹ 70.77 lacs only. Hence, it is apparent that the investments were made only out of own funds and no part of interest paid on loans is relatable to the investment activity. The ld AO noticed that the assessee had paid interest on its borrowed funds to the tune of ₹ 38,99,276/- . He accordingly worked out the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport of this, she placed reliance on the following decisions :- Raniganj Co-operative Bank Ltd vs DCIT reported in (2016) 73 taxmann.com 90 (Kolkata Trib) REI Agro Ltd vs DCIT in ITA No. 1331/Kol/2011 dated 19.6.2013 (Kolkata Trib) Tata Metalics Ltd vs ACIT in ITA No. 737/Kol/2012 (Kolkata Trib) Teenlok Advisory Servies (P) Ltd vs DCIT reported in (2016) 71 taxmann.com 269 (Kolkata Trib) 3.2. In response to this, the ld DR vehemently relied on the orders of the lower authorities and argued that the provisions of Rule 8D are to be mandatorily complied with from Asst Year 2008-09 and onwards. The ld DR placed reliance on the decision of the Hon ble Jurisdictional High Court in the case of Dhanuka Sons reported in 339 ITR 319 (Cal) wherein it was held that the onus is on the assessee to prove that the investments were made out of own funds even though the investments were made in the earlier years. 3.3. We have heard the rival submissions. We find that the Hon ble Jurisdictional High Court in the case of Dhanuka Sons reported in 339 ITR 319 (Cal) had categorically held that even though the investments were made in the earlier years, the onus is on the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph that the assessee shall pay tax as if the provisions of section 43B(f) of the Act is there in the statute and the ld AO should disallow the same till the disposal of the main appeal by the Hon ble Apex Court. 4.2. We have heard the rival submissions and perused the materials available on record. We find that though the Hon ble Calcutta High Court in the case of Exide Industries Ltd vs Union of India reported in 292 ITR 470 (Cal) had struck down the provisions of section 43B(f) of the Act as unconstitutional, the revenue had carried the matter further to the Hon ble Supreme Court which initially in Special Leave to Appeal (Civil) CC 12060 / 2008 dated 8.9.2008 had held as under:- The petition was called on for hearing today. Upon hearing counsel the court made the following Order. Issue Notice. In the meantime, there shall be stay of the impugned judgement, until further orders. Later the Hon ble Supreme Court in Special Leave to Appeal (Civil) No(s). CC 22889 / 2008 dated 8.5.2009 had held as under:- The petition was called on for hearing today. Upon hearing counsel the court made the following Order Delay condoned. Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee referred to the provisions of section 30 of the Act which read as under:- 30. In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed (a) where the premises are occupied by the assessee (i) as a tenant, the rent paid for such premises ; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs ; (ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; Accordingly it was stated that the provisions of the Act provide for deduction in respect of repairs made to the premises used for the purpose of business by restricting it to the concept of current repairs. To decide the applicability of section 30 of the Act, the test is not whether the expenditure is revenue or capital in nature, but whether the expenditure is current repairs or not. Section 30 of the Act does not specifically define the term current repairs . The assessee placed reliance on the definition given in the dictionary. Reference was invited to Oxford Dictionary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al field. The ld DR argued that the assessee had been given depreciation on the said expenditure accepting its alternative argument before the lower authorities and hence there cannot be any grievance to the assessee in this regard. The ld AR argued that the assessee vehemently objected to treating the said expenditure as capital expenditure and depreciation claim thereon was made only as an alternative measure without prejudice to its original claim of revenue expenditure. The ld AR stated apart from placing reliance on various decisions and explaining the nature of works carried out by the assessee with specific reference to the relevant bills, finally stated that similar issue with regard to replacement of foundation base of plant and machinery had come up before this tribunal in assessee s own case for the Asst Year 2007-08 in ITA No. 72/2011 dated 6.1.2017. We find that the expenditure incurred are such that if looked from the larger context of business necessity or expediency, it could be safely concluded that the expenditure incurred is so related to the carrying on or conduct of the business thereby regarding the same as an integral part of the profit earning process and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spent for replacement of administrative block of the assessee, which was long overdue, could not be allowed as deduct ion under the head cur rent repairs , further clarified that such replacement amounting to renovation or repairs may be entitled to deduct ion under sect ion 37. Even in the case of Saravana Spinning Mi l ls (P) Limited (supra) cited by the ld. D.R. , it was held by the Hon ble Supreme Court that while deciding the applicability of sect ion 31(1), the test is not whether the expenditure is revenue or capital in nature but whether the expenditure is current repairs. It is thus clear that the issue relating to the allowability of the expenditure incurred on replacement or renovation as is involved in the present case has to be decided on the touchstone of sect ion 37 and from this angle, the relevant test to be applied is whether such expenditure incurred on replacement is revenue or capital in nature. In this regard, the legal position is well set t led that if it is a case of replacement of capital asset as a whole or substantially the whole, the expenditure incurred on such replacement is of capital nature. In the present case, the foundation/ flooring undoubtedl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DISALLOWANCE OF LEGAL AND PROFESSIONAL CHARGES Ground Nos. 5(a) to 5 (c ) in ITA No. 2776/KOl/2011 for Asst Year 2008-09 The brief facts of this issue is that the ld AO observed that the assessee has paid professional fees to the following parties :- Deloitte Haskins and Sells ₹ 1,12,36,000 Patni Parmar Co., Chartered Accountants ₹ 22,44,848 JRS Patel Management Consultants Pvt Ltd ₹ 33,70,800 ₹ 1,68,51,648 The ld AO requested the assessee to give explanation and justification with regard to the payments made to the above parties. The assessee filed the details of legal and professional fees paid to various parties together with the details of tax deducted at source on the same. The assessee vide further letter dated 30.11.2010 filed the details of legal and professional fees paid to Deloitte Haskins and Sells (DHS in short) [Rs. 1,12,36,000] and Patni Parmar Co (PPC in short) [Rs. 22,44,848] together with the nature of services they provided to the assessee. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re made for management and financial consultancy services. The assessee was asked to furnish copy of the agreement between these parties and the report submitted by them proving the services rendered by them. Since no such papers were furnished by the assessee, the ld AO concluded that the aforesaid expenditure was not supported by any corroborative evidence and also the assessee was not able to prove the benefit it derived on account of professional services rendered by these parties to the assessee. Accordingly he disallowed the entire legal and professional charges of these three parties amounting to ₹ 1,68,51,648/- as not incurred wholly and exclusively for the purpose of business. 7.2. The ld CIT(A) observed that though the engagement letter was issued prior to 31.3.2008, the services were rendered only in Asst Year 2009-10 which is evident from the invoices raised by the said parties on the assessee and accordingly the expenses did not accrue to the assessee in the year under appeal. The ld CIT(A) observed that the assessee was asked to prove the nature of services rendered by these professionals to the assessee in the form of reports, letters, correspondences etc. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used a colourable device to reduce his taxable income. 5(c) Without prejudice to the above grounds, in case your Honour is of the view that the claim is not allowable in the year under consideration, on the ground, as alleged by the Ld. CIT(A), that the said amount has not crystallized in the year under consideration, then your Honour may give necessary direction to the AO to allow the said claim, in the year the said amount has crystallized. 7.4. We have heard the rival submissions. We have gone through the contents of the paper book of the assessee in this regard. We find that Deloitte Haskins and Sells had specified the details of services that they are willing to render to the assessee vide engagement letter dated 1.2.2008 which are enclosed in pages 296 to 310 of the paper book together with invoice of Deloitte raised on 15.5.08 , 26.5.08, 9.6.08 enclosed in pages 311 to 313 of Paper Book. We find that JRS Patel Management Consultants Pvt Ltd had specified the details of services that they are willing to render to the assessee vide engagement letter dated 10.3.2008 which are enclosed in pages 315 to 321 of the paper book together with their invoice raised on 29.4.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure , payments made to Shri S Prajapati (Rs. 2,00,984/-) and Shri K C Papachan (Rs. 1,50,445/-) for design and drawings for machines and service engineering respectively. The ld AO observed that the assessee had deducted tax at source at the rate of 2% as against 10% prescribed u/s 194J of the Act by treating the said payments as fees for professional and / or technical services. Accordingly he found that the assessee is entitled to claim the expenditure to the extent of tax deducted at source. Accordingly he disallowed a sum of ₹ 1,38,409/- in the assessment u/s 40(a)(ia) of the Act. Before the ld CIT(A), the assessee submitted that these two parties (viz Shri S Prajapati and Shri K C Papachan) were employees of the assessee and they were controlled and directed by the assessee under an express or an implied contract of hire and paid salary as per contractual terms. Since there existed an employer-employee relationship, the same is liable for deduction of tax u/s 192 of the Act and assessee also produced copy of employment letter and Form 16 issued to those employees. The ld CIT(A) observed that these persons were employed as Service Engineer and Design Manager on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) had rightly deleted the disallowance u/s 40(a)(ia) of the Act in the instant case. We do not find any infirmity in the findings of the ld CIT(A). Accordingly, the Ground No. 1 raised by the revenue in ITA No. 1575/Kol/2011 is dismissed. 11. ADDITION TOWARDS RETENTION MONEY Ground No. 2 in ITA No. 1575/Kol/2011 for Asst Year 2008-09 Ground Nos. 1(a) to 1(d ) in ITA No. 927/Kol/2013 for Asst Year 2009-10 The brief facts of this issue is that the ld AO observed that as per note attached to the computation of total income, the assessee had stated that in respect of the contract business of the company , certain percentage is retained by the parties as retention money to be paid after the completion of the contract. Presently the company has not right to receive the said money by virtue of the terms of the contract and also has no right to enforce the payment. Thus the amount has not accrued as income of the company during the year under consideration. Hence the same had been claimed as exclusion from computation of total income and shall be offered to tax as and when the same accrues to the company. The assessee placed reliance on the decisions of the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - for Asst Year 2009-10. Aggrieved, the assessee is in appeal before us on the following grounds:- l(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) failed to follow the decision of the Ld. CIT(A) - III, Baroda in appellant's own case for AY 2008-09 in relation to claim of retention money. I(b) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified and erred in not excluding retention money amounting to ₹ 30,909,437 in computing total income under the normal provisions of the Act on the ground that the claim of the deduction was not supported by audited accounts or any documentary evidence without giving any opportunity to the appellant. I(c) That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in stating that no explanation was furnished by the appellant during the proceedings for the increase in retention money from AY 2008-09 to AY 2009-10 without giving any opportunity to the appellant. I(d) That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in stating that without any corresponding entry in the audited accounts there is no safeguard for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to set aside this issue of addition towards retention money for both the Asst Years 2008-09 and 2009-10, to the file of the ld AO , to verify the correctness of the offer of retention monies in subsequent years and accordingly decide the issue in accordance with law. Accordingly, the Ground No. 2 in ITA No. 1575/Kol/2011 raised by the revenue for Asst Year 2008-09 and Ground Nos. 1(a) to 1(d ) in ITA No. 927/Kol/2013 for Asst Year 2009- 10 raised by the assessee are allowed for statistical purposes. 12. DISALLOWANCE OF ADDITIONAL DEPRECIATION ON WINDMILL Ground No. 3 in ITA No. 1575/Kol/2011 for Asst Year 2008-09 The brief facts of this issue is that the ld AO observed that the assessee had claimed additional depreciation on windmill to the tune of ₹ 79,69,231/- which was sought to be disallowed by him in the assessment. The assessee vide its reply dated 30.11.2010 contended that the depreciation had been claimed u/s 32(1)(iia) of the Act and that the said section lays down that in addition to normal depreciation at prescribed rates, further depreciation shall be allowed to the assessee at the rate of 20% on new plant and machinery acquired and installed af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a higher rate of depreciation i.e. 80%. 12.2. The ld DR argued that whether windmills were added during the year or in earlier years were not proved by the assessee. In response to this, the ld AR stated that both the ld AO as well as the ld CIT(A) had clearly bifurcated the depreciation and additional depreciation on windmills added during the year as well as in earlier years in their respective orders and hence the version of the ld DR deserves to be dismissed. 12.3. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decisions of the Hon ble Madras High Court supra which has been rightly relied upon by the ld CIT(A). Hence we do not find any infirmity in the order of the ld CIT(A) in this regard. Accordingly, the Ground No. 3 in ITA No. 1575/Kol/2011 for Asst Year 2008-09 raised by the revenue is dismissed. 13. DISALLOWANCE OF ADDITIONAL DEPRECIATION ON MACHINERY Ground No. 4 in ITA No. 1575/Kol/2011 for Asst Year 2008-09 The brief facts of this issue is that the assessee claimed additional depreciation on machinery to the tune of ₹ 10,51,944/- which was disallowed by the ld AO on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of ₹ 31,48,061/- was written off under the following heads :- 1) Eriez MBI India Ltd ₹ 7,99,850/- related to the year 2007-08 towards sales commission 2) Differential Tax due to non submission of statutory forms ₹ 51,007/- 3) Advances written off ₹ 13,14,188/- 4) Bad Debts at Kumardhubi Branch for the year 2007-08 ₹ 9,83,016/- The assessee was asked to explain as to how the debt had become bad in respect of the above and how the conditions u/s 36(1)(vii) read with section 36(2) of the Act were fulfilled by the assessee. The ld AO not convinced with the reply given by the assessee proceeded to disallow a sum of ₹ 31,48,061/- towards bad debts in the assessment. 14.1. Before the ld CIT(A), the assessee contended that the ld AO had wrongly considered the advances written off figure at ₹ 13,14,188/- in staed of correct figure of ₹ 7,43,971/- thereby resulting in excess disallowance thereon. With regard to the claim of bad debts , the ld CIT(A) was convinced with the explanations given by the assessee that it had duly complied with the provisions of section 36(1)(vii) read with section 36(2) of the Act and accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued that the same would be squarely allowable as a trading loss u/s 28 of the Act . She placed reliance on the following decisions:- (a) Hon ble Supreme Court in the case of Badridas Daga vs CIT reported in (1958) 34 ITR 10 (SC) (b) Hon ble Calcutta High Court in the case of CIT vs Baldeoram Beharilal reported in (1975) 99 ITR 108 (Cal) (c ) Hon ble Kerala High Court in the case of Travancore Tea Estates Co Ltd vs CIT reported in (1992) 197 ITR 528 (Ker) (d) Hon ble Calcutta High Court in the case of CIT vs Gillanders Arbuthnot Co Ltd reported in (1982) 138 ITR 763 (Cal) 14.3. In response to this, the ld DR argued that the provisions of section 36(2) of the Act were not complied with by the assessee for claiming deduction in respect of TDS recoverable written off and advance to suppliers written off. 14.4. We have heard the rival submissions and perused the materials available on record. We find that the assessee had filed the list of parties to whom advances were given in the ordinary course of its business i.e. advance paid to suppliers , in the form of additional evidences which, in our considered opinion, would have to be admitted for better appr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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