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TMI Blog2017 (8) TMI 1687X X X X Extracts X X X X X X X X Extracts X X X X ..... tails filed thereon. Hence we hold that the ld CIT-A had rightly deleted the said disallowance. Accordingly the Ground raised by the revenue is dismissed. Disallowance of additional depreciation - AO treated the costs incurred towards construction activities as spent towards building and refused to treat the same as part and parcel of value of plant and accordingly denied additional depreciation u/s 32(1)(iia) thereon - AO also refused additional depreciation on the pre-operative expenses and interest that were capitalized to the cost of the plant - AO observed that the Weighing machine is not used in the manufacturing process and hence the same is not eligible for additional depreciation - HELD THAT:- Calcutta High Court in Tribeni Tissues Ltd vs CIT [ 1991 (1) TMI 98 - CALCUTTA HIGH COURT] wherein it was held that Tube well and Weighing machine used in the production of paper are held to be Plant . Based on these observations, the ld CIT-A correctly agreed to the contentions of the assessee that ETP was necessary for the purpose of pollution control and construction of drain etc was essential part of ETP and was not in the nature of building. The assessee company having fulfilled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese agents had not rendered any services to the assessee for payment of commission. We hold that once the rendering of services by these commission agents are not in dispute , there is no reason to disallow the same in the assessment. Incidentally , we find that the said commission and brokerage payments have been duly subjected to deduction of tax at source as per the Indian laws , though that may not be the criterion for allowability of an expenditure. We find in the instant case, the assessee had indeed made payment of commission and brokerage to Indian agents for procuring export orders and the said agents had indeed rendered services to the assessee,, which is not in dispute, and hence the same has been rightly allowed by the ld CIT-A - we hold that the ld CIT-A had rightly deleted the disallowance of commission paid - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. The assessee submitted the complete details of foreign travel expenses again before the ld CITA which are reproduced in pages 15 to 17 of ld CITA order. From the said details it was specifically submitted that the directors of the company and its top executives had to travel to Zurich (Switzerland) in order to visit Boston or Brussels in accordance with aviation rules. The visit to Zurich is only a stop over place as the aircraft would reach Boston or Brussels only via Zurich where the passengers would have to change over the aircraft. This basic fact was not appreciated by the ld AO and based on a pre-conceived notion the ld AO made unwarranted observations that the directors and top executives of the company had visited Zurich (where no exports were made) which is a haven for offloading black money according to media reports and accordingly the said foreign trips were not meant wholly and exclusively for the purpose of business of the assessee. 2.2. The ld CITA deleted the disallowance of foreign travel expenses by making the following observations :- "I have carefully considered the facts of the case, the finding of the Assessing Officer and the submissions put forth on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s etc were done only as a stop over location by complying with the aviation rules. Ultimately the directors and top executives of the company had visited the countries where exports were indeed made by them during the year under appeal. The ld AO had made this disallowance based on surmises and conjectures by making unwarranted allegations against the assessee. We find that the ld CITA had appreciated the entire details filed towards the foreign travel expenses filed on record and it is not the case of the ld AO that the expenditures are not supported by bills and vouchers. The business expediency of the said foreign travel is also proved beyond doubt from the details filed thereon. Hence we hold that the ld CITA had rightly deleted the said disallowance. Accordingly the Ground No. 2 raised by the revenue is dismissed. 3. The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of additional depreciation in the sum of Rs 12,45,778/- in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the assessee is a manufacturer of yarn and its factory is situated near Udaipur in Rajasthan. For the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghing machine used in production of yarn is also 'Plant' used in the manufacturing process. The ld CITA in this regard placed reliance on the decision of Hon'ble Madhya Pradesh High Court in the case of DCIT vs Vippy Solvex Products Ltd reported in (2007) 164 Taxman 483 (MP) , where the assessee is a manufacturer of oil, and boiler has been installed for the purpose, the issue was whether other components such as coal container, coal conveyor, bucket elevator , dust collecting system constitute integral part of boiler to be entitled to 100% depreciation, it was held that utility of an item should not be examined in isolation and the nature shall depend on the function for which it is used and that all the components are integral part of the boiler entitled to 100% depreciation. He also placed reliance on the decision of Hon'ble Madras High Court in the case of CIT vs VTM Ltd reported in (2010) 187 Taxman 319 (Mad) , wherein, it has been held that for claiming additional depreciation u/s 32(1)(iia) of the Act, what is required to be satisfied is only that a new machinery or plant has been acquired and installed after 31.3.2002. The provisions do not state that the said new machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AR vehemently relied on the order of the ld CITA. As the findings of the ld CITA were not rebutted by the ld DR before us , we do not find any justifiable reason to interfere with the order of the ld CITA in this regard. Accordingly, the Ground No. 3 raised by the revenue is dismissed. 4. The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance made u/s 14A of the Act in the sum of Rs 12,92,208/- in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the ld AO observed that the assessee wsa in receipt of exempt income to the tune of Rs 1,486/- and accordingly sought to invoke the provisions of section 14A of the Act read with Rule 8D of the Rules. The ld AO applied the provisions of all the three limbs of Rule 8D(2) and made disallowance of Rs 12,92,208/- u/s 14A of the Act. The assessee submitted that investment made was in subsidiary company which was supplying captive power for its factory and the said investment was wholly for the purpose of business and not for earning dividend income. It was also submitted that the investment in subsidiary company was strategic in nature as the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lized form. He referred to the relevant page in the paper book in this regard to prove his contention. We have gone through the same and we are convinced of the fact that the said expenditure represents custodian charges paid to Regsitrar and Share Transgfer Agents of the company who maintained the records of the shares issued by the company to its shareholders and hence the same has got nothing to do with the investments made by the assessee. Hence the said expenditure of Rs 1,72,346/- does not fall under the ambit of direct expenditure incurred for earning exempt income so as to fall within the mischief of Rule 8D(2)(i) . Hence the same is hereby directed to be deleted. 4.3.2. With regard to the second limb and third limb of Rule 8D(2), we find that in any case the disallowance cannot exceed the exempt income. We find that the total exempt income earned by the assessee was only Rs 1,486/-. We find that the co-ordinate bench of Mumbai Tribunal in the case of Daga Global Chemicals (P) Ltd vs ACIT reported in (2017) 82 taxmann.com 254 (Mumbai Trib.) dated 1.1.2015 had held that the disallowance u/s 14A of the Act cannot exceed the exempt income. We find that the Hon'ble Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haligram Tower, B/h Uniya Vijay Society, Ahmedabad 87461,00 0.00 87461 8746.00 5. Vignesh Commission Agent Pvt. Ltd. There is no agreement 34/1, Ballygunj Circular Road, Kolkata-9 360842.00 213227.00 574069 60544.00 6. Smt. Neeru Shah There is no agreement Gardenia Complex, Vasant Valley, Malad(E), Mumbai500057 61783.00 0.00 61783 6179.00 7. AARDEE Mercantile Pvt. Ltd There is no agreement F-73, First Floor, Manish Global Mall, Plot No.-2, Sector No.- 22, New Delhi. 143130 0.00 143130 14314.00 8. Service Tax (Net) -3185 0.00 -3185 - Total: 850031.00 1678240.00 2528271 .00 236285.00 5.1.2. The ld AO after examining the relevant portion of the agreement in respect of foreign selling agents and that of Indian selling agents, observed that the foreign agents have been remitted the money in the name of commission @ 3% of the invoice value which was over and above the payments made in the name of commission @ 2% to the Indian agents for the same kind of service and limited to only procuring the sale and that the deduction of tax on payment / credit on so called commission in the case of Indian agents was the only difference from the case of forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bring on record any material to suggest that the commission payments are bogus or ingenuine. He thereafter placed reliance on the order of this tribunal in assessee's own case for the Asst Year 2008-09 in ITA No. 1620/Kol/2011 dated 19.12.2013 and deleted the disallowance made towards commission expenditure to the tune of Rs 3,71,78,133/-. The ld CITA however confirmed the disallowance of Rs 2,00,000/- thereon in respect of commission paid to Mr Amit Mandhania without deduction of tax at source and accordingly suggested disallowance u/s 40(a)(ia) of the Act for the same. Aggrieved, the revenue is in appeal before us on the following ground:- 1. That in the facts and in law of the case the Ld. CIT(A) erred in deleting the addition amounting to Rs. 37378133/- added by the Assessing Officer u/s 37 of the I.T. Act, 1961 which his arbitrary and in contravention of the basic principal of allowing any expenditure as business expenditure u/s 37 of the Act. 5.3. We have heard the rival submissions and perused the materials available on record including the relevant pages of the paper book submitted by the assessee comprising of (i) copy of ITAT order for Asst Year 2008-09 (enclosed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered by each of the foreign agents with specific reference to the relevant pages of the paper book already on record in the paper book . The details of overseas commission are as under:- IPON Textile Dis Ticaret Ltd, Turkey Rs 73,32,477 Folex BVBA , Belgium Rs 77,18,980 Suha Kutal Mustafa Gullbaran, Turkey Rs 40,257 Excel Global, Dubai, UAE Rs 1,92,42,677 Rs 3,43,34,391 5.3.1. With respect to commission paid to IPON Textile Dis Ticaret Ltd, Turkey, we find that in page 147 of the Paper book, a certificate issued by the said party that they are acting as selling agent of the assessee in Turkey and that they do not have any permanent establishment in India. They have further certified that they had not rendered any services to the assessee in India and that the entire services were rendered only outside India. We also find from pages 103 & 104 of the paper book, the commission agreement entered into by the assessee with the said party defining the scope of services to be rendered by them outside India and the commission compensation they are entitled from the assessee. We find from page 206 of the paper book containing sample sales contract raised by the assessee on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book, the commission agreement entered into by the assessee with the said party defining the scope of services to be rendered by them outside India and the commission compensation they are entitled from the assessee. We find from page 242 of the paper book containing the debit note raised by the said commission agent on the assessee claiming the commission as per the agreement together with the list of foreign buyers sourced through the said commission agent and value of invoice raised by the assessee on them. From pages 245 to 275 of the paper book, we also find similar correspondences together with the bank remittance letters for payment of commission to the said agent month wise for the export sales made to foreign buyers sourced through the said commission agent. These documents conclusively prove that the said commission agent had indeed rendered services to the assessee outside India for which commission is paid to them. 5.3.4. With regard to commission paid to Suha Kutal Mustafa Gullbaran, Turkey in the sum of Rs 40,257/-, we find from page 100 of the paper book, the commission agreement entered into by the assessee with the said party defining the scope of services t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts directors in any manner whatsoever , nor there is any contrary finding to that effect in the order of the ld AO. Hence it could be safely concluded that the commission is not paid to any related party of the assessee or its directors. We hold that once the rendering of services by these commission agents are not in dispute , there is no reason to disallow the same in the assessment. Incidentally , we find that the said commission payments have been duly subjected to deduction of tax at source as per the Indian laws , though that may not be the criterion for allowability of an expenditure. We find in the instant case, the assessee had indeed made payment of commission to Indian agents for procuring export orders and the said agents had indeed rendered services to the assessee,, which is not in dispute, and hence the same has been rightly allowed by the ld CITA. 5.3.7. We find that the assessee had paid commission and brokerage to Indian agents for procuring sales in India to various parties that are listed in page 82 of the paper book after due deduction of tax at source which are also backed by the commission agreements entered into by them which are enclosed in pages 85 to 95 ..... 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