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TMI Blog2017 (4) TMI 1518X X X X Extracts X X X X X X X X Extracts X X X X ..... here was some mismatch. It was found that AIR data showed credit card transactions amounting to Rs. 5,34,631/- through American Express Banking Corporation by the Assessee during the year under consideration, but, whereas in the books of the Assessee it showed a credit card transaction of Rs. 4,93,466/-. Thus, there was a mismatch to the extent of Rs. 61,732/-. The Assessee submitted before the Assessing Officer that it is unable to reconcile the difference as the records of the Assessee company showing credit card transaction of Rs. 4,93,466/- only. However, the Assessing Officer added this difference of Rs. 61,732/- as income observing that the Assessee failed to get the confirmation from American Express Banking Corporation in respect of whom there was mismatch. He observed that the Assessee has not discharged the primary onus to match the transactions in the accounts with AIR data. 4. The Assessee preferred appeal before the Ld. CIT (Appeals) and submitted that the difference between the two figures i.e. (5,34,631-4,93,466) is only Rs. 41,165/- and not Rs. 61,732/-, therefore, the Assessing Officer is not justified in making the addition of Rs. 61,732/-. It was further submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee solely based on the AIR information. The Ld. Counsel for the Assessee further placing reliance on the decision of the Coordinate Bench in the case of AF Ferguson and Company Vs. JCIT in ITA No.5037/Mum/2012 dated 17.10.2014 submits that the addition made solely on the basis of AIR information without providing complete details of parties and the transactions, addition cannot be made. 6. The Ld. DR on the other hand supported the orders of the authorities below. 7. We have heard rival submissions, perused the orders of the authorities below and the decision relied on. The Assessing Officer received AIR data i.e. the credit card payments of Rs. 5,34,631/- and forwarded the same to the Assessee for reconciliation. The Assessee reconciled and furnished the details in respect of the transactions upto an amount of Rs. 4,93,466/-. The Assessee submitted that in the absence of specific details, it is not able to reconcile with the figure of AIR data and the amounts which were debited in its books of account were reconciled with the details. The lower authorities, however were of the view that it is for the Assessee to reconcile the figures and in the absence of any such recon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 decided on 08.12.10 wherein the Tribunal has held that in the absence of any material brought by the revenue authorities that the assessee has received amount more than the professional fees which has been declared by him in the P&L account and when the professional income declared by the assessee far exceeds the professional fees shown in the AIR information, then additions solely based on the AIR information are not sustainable. 7. In view of our above observations and in the facts and circumstances of the case, the additions made by the Revenue solely based on the AIR information are not sustainable and the same are hereby ordered to be deleted." 8. In the case on hand before us also, the Assessing Officer has not provided the transaction-wise and party-wise details to the Assessee for reconciliation and in the absence of such complete details simply because the Assessee could not reconcile the figure matching with the AIR data, addition cannot be made solely based on such AIR information. However, the Assessee out of Rs. 5,34,631/- has given the details and explanation to an amount of Rs. 4,93,466/-. Therefore, following the said decision, we direct the Assessing Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the authorities below. The Assessee earned interest on fixed deposits from banks and on deposits with MIDC or MSEB and claimed such interest is assessable as business income and not under the head income from other sources. Almost similar issue has been considered by the Jurisdictional High Court in the case of CIT Vs. Swani Spices Pvt. Ltd (supra), wherein the Assessee received income from discounting bills and inter corporate deposits from out of surplus funds and claimed as business income for the purpose of deduction u/s 80HHC of the Act. The Jurisdictional High Court considering various decisions held that income received by way of bill discounting charges and interest on inter corporate deposits would not fall under the head of profits and gains of business or profession but would fall under the head income from other sources. The Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. Vs. CIT [202 ITR 278] held that interest from deposits with electricity board is not income derived from business of the undertaking. Respectfully following the above said decisions, we hold that interest on fixed deposits with banks, interest on deposits with MIDC / MSEB would not fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phosphate material from ground and to carry in Silo (storage tank) system. The Ld. Counsel submits that rock conveyor system was not functioning properly and unit was not able to support the service and therefore the service was under dispute. He submits that inspite of several requests invoices were not sent to the Assessee and therefore this amount was written off. ii) With regard to the payment to Sterling, it was submitted that in 2003 this amount was paid for the study of improvement in operations of gasifier run on coal in Ambernath plant and since project study was not conducted properly, it was under dispute. iii) In respect of payment to Reliance Slope Oil, it was submitted that slope oil raw material was purchased from Reliance by making advance payments. It was submitted that since the balance was lying since 2000 it was written off. 17. Therefore, the Ld. Counsel submits that the aforesaid balances were on account of advances made to creditors for the purchases / services made in the course of the Assessee's business, therefore, the said expenses were allowable u/s 37(1) of the Act. Alternatively, the same should be allowed as business loss u/s 28 of the Act. The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for purchases of raw materials and services for the purpose of business only. Since they could not be recovered they are allowable as business loss u/s 28 of the Act. 22. The Chennai Bench in the case of Sterling Agro Products Processing Pvt. Ltd (supra) considering the decision of Supreme Court in the case of Woodward Governor India Pvt. Ltd. (supra) held that losses on account of irrecoverable amounts which were advanced to parties for supply of raw materials, agricultural produce etc. would result in definitely to be a loss to Assessee and such loss would lie in revenue field. Therefore, following the decisions of Supreme Court and also the Chennai Bench referred to above, we hold that the write off of all advances made to parties for rendering services / supply of material it is a revenue expenditure allowable u/s 37(1) or u/s 28 of the Act. 23. Further, we hold that since the Assessee has written off only the advances made to parties for supply of materials / services, and it is not actually credit balances written off, the provisions of Section 41(1) are not attracted. Thus ground nos. 4 and 5 are allowed. 24. Coming to ground no.6, the Assessee is challenging the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Double Taxation Relief, section 90 thereof deals with cases where the Indian Government has entered into Double Tax Avoidance Agreement (DTAA) with foreign countries. Sub section (2) of section 90 of the Act provides that where there is DTAA, the provisions of the Act are to apply only if they are more favorable to the taxpayer and India has a Double Taxation Avoidance Agreement with Singapore and under the said DTAA the aforesaid payments are not chargeable to tax in India. As per IndoSingapore treaty, fee for technical services is taxable in India if such services make available technical knowledge, experience, skill, know-how or process which enable the person acquiring the services to apply the technology contained therein. In support of the above contention, assessee placed reliance on following decisions. 1. Dy CIT v ITC Ltd.(82 1TD 239) (Kol). 2. Mckinsey & Co., Inc.(Phillippines) v Asstt.Dirèctor of IT(284 ITR 227)(Mum) (AT) 3. Motoroloa Inc. v Dy.CIT(2005)(96 TTJ 1)(Del)(SB). 4. DIT vs Guy Carpenter & Co. Ltd (346 ITR 504) 5. CIT vs De Beers India Minerals Pvt. Ltd (21 Taxmen.com 214) 6. Bharat Petroleum Corpn Ltd. Vs Joint Director of Income Tax (14 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Article 5 of the said Treaty. A certificate to that effect from RAP is enclosed. The technical services rendered by RAP to AWCI cannot also be categorised as Fees for technical services .(FTS) under Article 1ef the said Treaty. Article 12(4) reads as under 4. The term "fees for technical services' as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provisions of such services through technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Verizone Communications, the amount paid by the Assessee to RAP is taxable as royalty under Article 12(3) of India Singapore DTAA. 31. In the case of Ashok Pyramal Corporation (supra), the Coordinate Bench of the Tribunal held that withholding tax obligations are to be discharged in the light of law as it stands at that point of time i.e. relevant to the assessment year. Retrospective amendment made by Finance Act 2010 w.e.f. 01.06.1976 in Explanation-2 to section 9(2) does not create any liability upon Assessee for deduction of tax u/s 195 since payment was made much earlier in period relevant to assessment year 2009-10. The Coordinate Bench after elaborate discussion and considering various decisions held as under : "4.3.1 We have heard the contentions of both the parties and perused and carefully considered the material on record, including the judicial pronouncements cited. There is no dispute with regard to the fact that the said remittance of professional fees of Rs. 26,05,239/- made by the assessee to 'OBT' was towards rendering of services in respect of due diligence of 'DIAM Group of France. The assessee was of the view that since these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rola International's case (supra) the Bench was of the view that the legal position was that unless the services are rendered in India, the same cannot be brought to tax as 'FTS' under section 9 of the Act, but that this legal position did undergo a change when the Finance Act, 2010 received the assent of the President of India on 08.05.2010. The Tribunal further observed at para 8 thereof that till 08.05.2010, the prevailing legal position was that unless technical services were rendered in India, the fees for such services could not be brought to tax under section 9 of the Act. Though the law was amended retrospectively, but as far as tax withholding liability was concerned, it would depend on the law as it existed at that point of time when the payments, from which tax was to be deducted, was made. A retrospective amendment in law does change the tax liability in respect of an income, but it cannot change the withholding tax liability. In our view, the legal maxim lex non cogit ad impossibilia' would apply, meaning thereby that law cannot possibly compel a person to do something which is impossible to perform Withholding tax ('TDS') obligations are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (v) or (vi) or (vii) of sub-section (1) and shall be included in the total income of the non-resident whether or not the non-resident has residence or place of business or business connection in India or the nonresident has rendered services in India. The destination sample charges are consultant/technical charges paid for gradation of the iron ore exported and due to explanation-2 to Sec. 9(1)(vii) fee for technical services means any consideration including any lump sum consideration for rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel). The technical services rendered in the case of the Assessee, according to the id. DR, was taxable in the hands of the party who received it outside India as the said income is deemed to accrue or arise in India. In view of the provisions of Sec. 40(a)(i) any interest or fee for technical services which is payable outside India on which tax is deductible at source under Chapter 17B is not allowable unless TDS is deducted. This is an undisputed fact that in this case the Assessee has not deducted the tax. We are 10 ITA NOS. 145 & 146/PNJ/2014 (A.Y 2010-11) not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axability in a tax jurisdiction is confined to the income within its borders. Under this system, any foreign income that is earned outside of its borders is taxed by the tax jurisdiction, but then apart from tax heavens, the only prominent countries that are 11 ITA NOS. 145 & 146/PNJ/2014 (A.Y 2010-11) considered territorial tax systems are France, Belgium, Hong Kong and the Netherlands, and in those countries also this system comes with certain anti abuse riders. In other major tax systems, the source and residence rules are concurrently followed. On a conceptual note, source rule of taxation requires an income sourced from a tax jurisdiction to be taxed in this jurisdiction, and residence rule of taxation requires income, earned from wherever, to be taxed in the tax jurisdiction in which earner is resident. In the US tax system, this residence rule is further stretched to cover US taxation of all its citizens irrespective of their domicile, and the source rule is also concurrently followed. It is this conflict of source and residence rules which has been the fundamental justification of mechanism to relieve a taxpayer, whether under a bilateral treaty or under domestic legislatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that other state. This article also provides that such royalty and technical/consultancy fees may also be taxed in the contracting state in which they arise or accrue according to the laws of the state. Prior to the insertion of explanation to Sec. 9(1) by the Finance Act, 2010 with retrospective effect, the professional and consultancy services even though rendered outside India were not deemed to accrue or arise in India irrespective of the fact whether the party who rendered the services is having place of residence or place of business in India. It is only due to the retrospective amendment made by the Finance Act, 2010 that the position has become clear. If the income was not taxable in India it cannot be made taxable in view of the tax treaty. This is a fact that as argued by the Id. AR the retrospective amendment brought by the Finance Act, 2010 was not in existence at the time when the Assessee had made the payments. The Id. AR submitted that the Assessee cannot be penalized for performing an impossible task of deducting TDS in accordance with the law which was brought into the statute book much after the point of time when the tax deduction obligation was to be discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even the id. DR could not site any contrary decision. Therefore, we hold that the aforementioned amendment does not create any liability against the Assessee as the legal position prevailing at the relevant time has to be considered when the payment was made by the Assessee to the non-resident party. Accordingly, we hold that the Assessee was not liable for deduction of tax u/s. 195 of the Income Tax Act. Since the Asses see was not liable at that time to deduct the tax, the disallowance u/s. 40(a)(1) cannot be made. We accordingly confirm the order of CIT (A) deleting the addition though on a different ground pleaded by the id. AR. Thus, this ground stands dismissed.' 4.3.4 Following, inter alia, the decisions of the ITAT Panaji Bench in the case of Ajit Ramakant Phatarpekar (supra), of the ITAT Agra Bench in the case of Virola International (supra), we hold that the retrospective amendment made by Finance Act, 2010 w.e.f. 01.06.1976 in Explanation 2 to section 9(2) of the Act, which received the assent of the President of India on 08.05.2010, does not create any liability to the assessee in the case on hand for deduction of tax under section 195 of the Act on the remittance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration. 34. Ground No.7 of the grounds of appeal of the Assessee is in respect of disallowance of prior period expenses of Rs. 1,28,331/- incurred on survey fees and maintenance charges. 35. The Assessing Officer while completing the assessment disallowed Rs. 1,28,331/- observing that these expenses were not incurred during the assessment year under consideration, but were incurred in the prior years and therefore they cannot be allowed as deduction in the year of actual payment as Assessee is following mercantile system of accounting. He placed reliance on the decision in the case of CIT Vs. Travancore Titanium [198 ITR 458]. On appeal, the Ld.CIT (Appeals) sustained the disallowance, however, accepted the alternative claim of the Assessee that expenses should be allowed for the period to which it pertains to after proper verification and a direction was given to the Assessing Officer to allow the expenses for the period to which the expenses relate to. 36. The Ld. Counsel for the Assessee submits that during the year under consideration the Assessee had incurred expenditure on survey fees and maintenance charges and debited these expenses to Profit & Loss account in the audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as to whether there is rate difference in tax or not and if there is no difference in rate of tax apply the decision of the jurisdictional High Court in the case of CIT Vs. Nagri Mills Co. Ltd. (supra) and allow the claim of the Assessee. The Assessing Officer shall also examine the ratio of decision in the case of Phalton Sugar Works Ltd (supra) and find out whether the expenses have crystalized and quantifiable during the year under consideration and allow the expenditure during this year accordingly. This ground is allowed for statistical purpose. 40. The 8th ground in the grounds of appeal is relating to disallowance under 40(a)(ia) in respect of the provisions amounting to Rs. 85,000/-. The Ld. Counsel submits that this ground is not pressed. Therefore this ground is dismissed as not pressed. 41. Coming to the Revenue's appeal, the first ground is relating to the assessability of income on account of insurance claim, rent recovery, scrap sale and miscellaneous income as business income instead of income from other sources. 42. The Assessing Officer while completing the assessment treated the above said incomes under the head income from other sources and not as business i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order amounting to Rs. 96,27,579/- stating that this expenditure was incurred for renovation of building for which construction materials, tiles etc. were purchased and therefore, such expenditure is capital in nature. On appeal, the Ld. CIT (Appeals) following the decision of the Coordinate Bench in Assessee own case for the earlier years held that the said expenditure is of revenue in nature and deleted the addition. 47. The Ld. DR vehemently supported the orders of the Assessing Officer. 48. Ld. Counsel for the Assessee submits that in Assessee's own case for the assessment years 2004-05 to 2008-09 in ITA Nos. 55/Mum/2008, 1222/Mum/2009, 1777/Mum/2011, 5762/Mum/2012, the Tribunal allowed similar claims of the Assessee. He further placed reliance on the following the decisions in support of his submissions. 1. CIT Vs. Mewar Oil and General Mills Ltd. [216 CTR 65] (Raj) 2. Gunter Merchant Cotton Press Co. Ltd. Vs. ITO [108 ITR 620](A.P.) 3. CIT Vs. Bhupinder Flour Mills P. Ltd [206 Taxman 123] (P&H) 4. CIT Vs. Bharat Suryodaya Mills Co. Ltd [202 ITR 942] (Guj) 5. New Shorrock Spinning and Manufacturing CO. Ltd. Vs. CIT [30 ITR 338] (Bom) 6. CIT Vs. Chog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to be in the nature of current repairs. Hence, the addition of Rs. 96,27,579/- stands deleted." On a careful consideration of the facts and the submissions of the Assessee and going through the findings of the lower authorities and the Coordinate Bench of the Tribunal, we are of the considered view that since similar expenditures were allowed as revenue expenditure for preserving and maintaining the existing assets by the Tribunal in Assessee's own case which the Ld. CIT (Appeals) followed, we do not find any valid reason to interfere with the reasoning and the decision of the Ld. CIT (Appeals). Hence order of the Ld. CIT (Appeals) is sustained. Grounds raised by the Revenue on this issue are rejected. 51. Coming to ground no. 4 of the grounds of appeal, the issue is related to deletion of disallowance of Rs. 1,85,465/- made u/s 40(a)(ia) of the Act. 52. The Assessing Officer while completing the assessment disallowed Rs. 3,15,486/- being payment made for rendering of service for e-mail activity for non deduction of TDS u/s 194(H) of the Act. The Ld. CIT (Appeals) in so far as Rs. 1,85,465/- is concerned which is the provision for payment to Equant Technology Service ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that the Assessee is deriving long term benefit of enduring nature by purchasing this software. On appeal, the Ld. CIT (Appeals) deleted the addition treating the cost of software as revenue expenditure. 56. The Ld. Counsel reiterating the submissions made before the lower authorities submits that the acquisition of software did not result in any advantage of enduring in nature and it had not acquired the absolute ownership of the software but only the right to use of the software. The expenditure constitutes recurring operational expenses and are necessary for the efficient day to day functioning of the assets of the company and hence are in the nature of revenue expenditure. It is also submitted that the application software purchased i.e excise and service tax software and e-TDS software was only to facilitate proper accounting and other functions within the organization and it did not result in any enduring benefit or profitability to the Assessee. Therefore, such software applications do not help in increasing the business of the Assessee and only helps in efficient and effective conduct of the business placing reliance on the decision of the Bombay High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at means, the unit was in operation from April to June 2008 and therefore, the unit was used in the previous year. Since the unit was used in the previous year relevant to the assessment year under consideration, depreciation has to be allowed. While holding so, he has considered the detailed submissions of the Assessee wherein various case laws were relied on by the Assessee. 60. The Ld. Counsel for the Assessee submits that the shut down unit of Ambernath was used for part of the year and it is forming part of block of assets. Therefore, Assessee is entitled for depreciation. Placing reliance on the following decisions of the Delhi and Gujarat High Courts in the cases of Capital Bus Service Pvt. Ltd Vs. CIT [123 ITR 404] and ACIT vs. Ashima Syntex [251 ITR 133], the counsel submits that in these decisions, it was held that even if asset was used for part of the year, depreciation is allowable. The Ld. Counsel for the Assessee also submits that depreciation is allowable even if unit remains closed during the entire year. For this he places reliance on the decision of the Mumbai Bench in the case of Swati Synthetics Ltd. Vs ITO [38 SOT 208] and the Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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