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TMI Blog2020 (1) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, Chennai (hereinafter called "the Tribunal") read as under:- "1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The Id.CIT(A) erred in deleting the disallowance of Interest paid on trade advance Rs. 34,86,845/- holding that the interest on borrowed capital for the purpose of construction of building can be disallowed on interest accrued only upto the date of completion of building or put to use of building to capitalize the same. 2.2 The Id. CIT(A) failed to verify the actual purpose for which trade was received and terms of repayment along with the interest, etc. The assessee company has not produced any agreement of loan between the assessee company and M/s. Brakes India Limited to prove the terms and conditions of trade advance and nature of same and payment of interest thereon. 2.3 The learned CIT(A) ought to have seen that the assessee itself accepts that advance received is of the nature of trade advance which will be adjusted with the sale receivables from M/s. Brakes India Limited. The CIT(A) failed to examine whether such adjustment on sale receivables have passed through the Profit and Loss Account of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. The AO observed that the assessee has not accounted for re-payment of principal which is an income of the assessee. The AO also observed that assessee has not grossed the amounts through P&L A/c and set off his liability which the assessee should have done. The AO also observed that trade advances are short term liability but same were used for capital purpose. It was observed by AO that amounts were not used for intended purposes and thus AO disallowed said interest expenses and added the same to income of the assessee, vide assessment order dated 23.12.2016 passed by AO u/s 143(3) of the 1961 Act. 3.2. Aggrieved by an assessment framed by AO u/s 143(3) of the 1961 Act, the assessee filed first appeal with Ld.CIT(A), who was pleased to allow said interest expenses as deduction while computing business income of the assessee . The Ld.CIT(A) observed that re-payment of principal part of trade advance or loan cannot be treated as income of the assessee until or otherwise, the re-paid amount itself is unaccounted , while the AO has not made any such case. The Ld.CIT(A) observed that said sum have been repaid from books of accounts of assessee and from known sources. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has shown said trade advances received from M/s.Brakes India Ltd., as long term liability in its audited financial statements. It is also observed that assessee is doing job work entirely for said M/s.Brakes India Ltd. . We have observed that the assessee has earned Revenue from operation to the tune of Rs. 15,76,92,179/- which consisted majorly of conversion charges being Rs. 15,76,83,679/-. The assessee has paid interest to Brakes India Limited on the trade advances to the tune of Rs. 83,78,010/- which is debited to Profit and Loss Account and claimed as business deduction while computing income of the assessee. We have also observed from assessee's balance sheet that total size of its Balance Sheet is Rs. 24.38 Crs. as on 31.03.2014( Rs. 27.11 crores as on 31.03.2013), out of which Rs. 19.02 Crs. is invested in Fixed assets. As observed earlier, the trade advance outstanding as on 31.03.2013 was Rs. 17.15 Crs. and as on 31.03.2014, the said trade advance outstanding were to the tune of Rs. 13.57 Crs.. Thus the major source of funding for the assessee was through these trade advances from Brakes India Limited who is assessee's associated enterprise and the assessee is doing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business deduction while computing income of the assessee and dismiss appeal filed by Revenue on this issue. We order accordingly. 4. The second issue concerns itself with secondment charges paid by assessee to M/s.Brakes India Ltd. to the tune of Rs. 1,30,28,173/- by way of reimbursement of salaries and allowance of employees of Brakes India Limited deputed with assessee. The AO invoked provisions of Sec.40(a)(ia) of the 1961 Act and disallowed the said amount as assessee did not deducted income-tax at source on these payments made towards reimbursement of salaries and allowances of employees of Brakes India Limited on deputation with assessee company. The assessee claimed before AO that said sum was paid by assessee to M/s.Brakes India Ltd., which is in the nature of reimbursement of expenditure incurred by the assessee. The said contention of the assessee were rejected by AO while Ld.CIT(A) was pleased to allow said expenses in first appeal filed by assessee by following judgment of Hon'ble Bombay High Court in the case of CIT v. M/s.Emerson Process Management (India) Pvt. Ltd., in ITA No.237 of 2012 dated 11.06.2014. 4.2 Aggrieved by an appellate order dated 23.10.2017 passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee did not deducted income-tax at source as is contemplated under provisions of Chapter XVIIB of the 1961 Act and rather it is claimed that there is no necessity of deducting income-tax at sources as these are merely reimbursement of expenses and in any case Brakes India Limited has deducted income-tax at source u/s 192 of the 1961 Act while making payments to its employees who were on deputation with assessee. We have observed that assessee has not placed on record secondment agreement entered into by it with Brakes India Limited and its terms and conditions for deputing these employees of Brakes India Limited were not analysed by authorities below. We have also observed that authorities below have also not analyzed the nature of services rendered and functions performed by these employees who were deputed by Brakes India Limited with assessee. Under these circumstances, we are inclined to set aside and restore this issue back to the file of the AO for detailed analysis of terms and conditions of secondment agreements and also of various services and functions performed by employees who were deputed with assessee, keeping in view ratio of decision of Hon'ble Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X
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