T.M.Abdul Rahman & Sons, CHENNAI V. ACIT, CHENNAI

ITA 1088/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8103 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 22-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL IRS
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Capital asset; Gift; Depreciation; Retrospective amendment; Notional interest; Commercial expediency; Capital expenditure
• Section: 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A NO.1088 /MDS/2016 / ASSESSMENT YEARS : 2009-2010 M/S. T.M. ABDUL RAHMAN & SONS, NO.49, WUTHUCATTAN STREET, PERIAMET, CHENNAI 600 003 . VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 6, CHENNAI 600 006 . ./I.T.A .NO.1089/MDS/2016 / ASSESSMENT YEARS : 2011-2012 M/S. T.M. ABDUL RAHMAN & SONS, NO.49, WUTHUCATTAN STREET, PERIAMET, CHENNAI 600 003. [ PAN AABFT 2029F] ( /APPELLANT) VS. THE JOINT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE XII, CHENNAI 600 034. ( /RESPONDENT) / APPELLANT BY : SHRI. G. SEETHARAMAN, C.A. /RESPONDENT BY : SHRI. SUPRIYO PAL, IRS, JCIT. /DATE OF HEARING : 13-10-2016 ! /DATE OF PRONOUNCEMENT : 16-11-2016 ITA NOS.1088 & 1089/2016 :- 2 -: / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS FILED BY THE ASSESSEE FOR ASSES SMENT YEARS 2009-2010 AND 2011-2012 DIRECTED AGAINST ORDERS DAT ED 29.02.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)-5, CHENNAI. 2. APPEAL FOR ASSESSMENT YEAR 2009-2010 IS TAKEN UP FI RST FOR DISPOSAL. 3. THERE ARE SEVEN GROUNDS RAISED, OF WHICH GROUNDS N O. 6 & 7 ARE GENERAL IN NATURE NEEDING NO SPECIFIC ADJUDICAT ION. 4. THROUGH ITS GROUND NOS.1 & 2, THE ASSESSEE IS AGGRI EVED ON THE DISALLOWANCE OF COST OF REPLACEMENT OF OLD MA CHINERY. 5. FACTS APROPOS ARE THAT ASSESSEE A MANUFACTURER & E XPORTER OF TANNED LEATHER AND FINISHED LEATHER PRODUCTS HAD FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING INCOME OF C1,66,39,750/-. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, IT WAS NOTED BY THE LD. ASSESSING OFFICER THAT ASSESSEE HA D IMPORTED CERTAIN MACHINERY WHICH WERE CLAIMED BY IT AS REVENUE OUTG O UNDER THE HEAD ITA NOS.1088 & 1089/2016 :- 3 -: SPARES & MAINTENANCE. THESE ITEMS COMPRISED OF BAN D KNIFE CUTTING/ SPLITTING MACHINE COSTING C8,94,726/- AND COUNTER M OLDING MACHINE COSTING C3,66,909/-. ASSESSING OFFICER WAS OF THE O PINION THAT THESE MACHINERY WERE CAPITAL ASSETS. HE DISALLOWED ITS C LAIM AS SPARES AND MAINTENANCE EXPENDITURE. OUT OF THE AGGREGATE VALU E OF C12,61,635/- HE ALLOWED DEPRECIATION OF C1,89,245/ AND MADE A NET DISALLOWANCE OF C10,72,390/-. 6. AGGRIEVED, THE ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT THE ABOVE MENTIONED ITEMS WERE REPLACEMEN T OF OLD MACHINERY. ACCORDING TO HIM, COST OF REPLACEMENT OF OLD MACHINERY WITH NEW MACHINERY WAS A REVENUE OUTGO. LD. CO MMISSIONER OF INCOME TAX (APPEALS) HOWEVER, DID NOT ACCEPT THIS C ONTENTION. HE CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. A CCORDING TO HIM, BAND KNIFE CUTTING MACHINE HAD THE FOLLOWING FEATUR ES. (I) THERE WAS A SERIES OF THREE OR MORE PULLEYS, WHI CH PROVIDED CONTINUOUS ROTATING MOTION TO THE KNIFE. (II) AN ENDLESS KNIFE IS USED. (III) KNIFE USED IS USUALLY NARROWER THAN A STRAIGHT KNIF E. (IV) A LARGE SIZE TABLE IS USED TO SUPPORT THE FABRIC & FOR CUTTING. (V) AIR BLOWER, BLOWS THE AIR TO MINIMIZE THE WEIGHT OF FABRIC. (VI) BALLS IN AIR BLOWER HELP MOVE THE FABRIC IN DIFFER ENT DIRECTIONS. (VII) AUTOMATIC GRINDER IS USED. (VIII) MACHINE IS STATIONARY BUT FABRIC IS MOVABLE. (IX) HIGH SPEED R.P.M. MOTOR IS ISSUED. ITA NOS.1088 & 1089/2016 :- 4 -: (X) KNIFE LIFE TIME DEPENDS ON FABRIC TYPE & USES OF MA CHINE. FURTHER, AS PER THE LD.CIT(A) BAND KNIFE SPLITTING MACHINE MANUFACTURED BY CANNROGA SPA ITALY HAD THE FOLLOWIN G SPECIAL FEATURES:- (I) NO KNIFE TREND SETTING (II) GRINDING UNIT SUITABLE FOR CORUNDUM OR DIAMOND WHE ELS. (III) EASY, SINGLE MICROMETRIC CONTROL (IV) FLEXIBLE, FAST SETTING OF BEVEL WIDTH. (V) GUIDE GIBS GROUP WITH AUTOMATIC ADJUSTMENT. (VI) INDEPENDENT EXHAUSTERS FOR EMERY DUST AND WORKING SCRAPS. (VII) MOVING WHEEL ON PRECISION ROLLER GUIDES. (VIII) WORKING PRESSURE FAST ADJUSTMENT (IX) OPTICAL VIEWER TO CHECK BEVEL SYMMETRY (X) DIGITAL THICKNESS READOUT (XI) HANDBOOK AND SERVICE TOOLS (XII) ERGONOMIC WORK POSITION TO REDUCE TIREDNESS. (XIII) SAFETY DEVICES COMPLIANCE WITH CE STANDARDS. (XIV) LOW NOISE LEVEL (XV) FAST REPLACEMENT GUIDE ROLL/GUIDE BAR WITHOUT REMOV ING JOINT. (XVI) ACCESS TO ALL COMPONENTS FOR AN EASY AND RAPID MAINTENANCE (XVII) LIFE LUBRICATED MECHANICAL COMPONENTS. SHOE COUNTER MOULDING MACHINE, THE OTHER MACHINERY CLAIMED BY THE ASSESSEE AS REPLACEMENT, AS PER THE LD. COMMISSION ER OF INCOME TAX (APPEALS) HAD FOLLOWING FEATURES. (I) SHOE COUNTER MOULDING MACHINE WAS SUITABLE FOR MOLDING GANGBAO MATERIALS, HIGH-GRADE MAN SHOES AND WOMAN SHOES, RIDING SHOES, SPORTS SHOES AND LEISURE SHOWS BEFORE LASTING. ITA NOS.1088 & 1089/2016 :- 5 -: (II) INCLINABLE TOE ENSURED EASY OPERATION, THE TEMPERATURE OF OUTER AND INNER MOULDS COULD BE ADJUSTED ACCORDING TO THE MATERIALS. (III) THE MACHINE HAD A SPECIAL WIPER AND SUITABLE FOR MANUFACTURING ALL KINDS OF STITCH DOWN SHOES. (IV) THE PROJECTION LIGHT COULD ENSURE THE MOST ACCURATE MOULDING LOCATION, AND THE ADJUSTABLE CLAMP COULD MAKE THE VAMP AND TOE WITH 100% ACCURACY. (V) ADOPTED COMPUTER CONTROLLED SYSTEM WITH FUNCTION OF AUTOMATIC TESTING, AUTOMATIC FAULT ALARM, AND INDICATE FAULT SOURCE AND POSITION ON THE SCREEN, AND IT IS WAS CONVENIENT FOR MAINTENANCE. (VI) ADOPTED ENVIRONMENTAL PROTECTION WATER COOLING TYPE REFRIGERATING SYSTEM, AND ENSURED QUICK COOLING SPEED AND 20C REFRIGERATING TEMPERATURE. (VII) AFTER MOULDING, THE INNER, RUBBER, PIECE AND VAMP WERE CLOSELY INTEGRATED WITHOUT WRINKLE, DEFORMATION AND BUDGE. THUS ACCORDING TO HIM, THESE MACHINERY ITEMS WERE NOT SPARES BUT EACH WAS A COMPLETE MACHINE BY ITSELF. HE THUS UPHE LD THE ORDER OF THE ASSESSING OFFICER. 7. NOW, BEFORE US, LD. AUTHORISED REPRESENTATIVE STRON GLY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMI TTED THAT COST OF REPLACEMENT OF OLD MACHINE COULD ONLY BE CONSIDERED AS REVENUE OUTGO. ITA NOS.1088 & 1089/2016 :- 6 -: 8. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THE FEATURES OF T HE MACHINERY IMPORTED BY THE ASSESSEE FROM ITALY HAS BEEN CAPTUR ED BY LD. ASSESSING OFFICER AND THESE FEATURES HAVE BEEN REPR ODUCE BY US AT PARA 6 ABOVE. THOUGH ASSESSEE STATES THAT THESE WER E REPLACEMENT OF OLD MACHINES, IT COULD NOT SHOW WHICH MACHINERY WER E PLACED AND WHAT WAS THE REALIZATION FROM SCRAP VALUE OF THE R EPLACED MACHINERY, IF ANY. FEATURES OF THE MACHINERY SHOW THAT THESE WERE INDEPENDENT AND COULD WORK ON ITS OWN AND WERE NOT SOMETHING TH AT WOULD WORK ONLY IN ADJUNCTION WITH ANOTHER MACHINERY. IN OUR OPINION, LOWER AUTHORITIES WERE JUSTIFIED IN TREATING THE PURCHAS E AS A CAPITAL EXPENDITURE. WE DO NOT FIND ANY REASON TO INTERFE RE WITH THE ORDERS OF THE LOWER AUTHORITIES. 10. GROUND NOS. 1 & 2 STAND DISMISSED. 11. VIDE ITS GROUND NOS. 3 TO 5, THE GRIEVANCE OF THE A SSESSEE IS THAT DEPRECIATION ON MACHINERY COSTING C27,52,404/ - WAS NOT ALLOWED. ITA NOS.1088 & 1089/2016 :- 7 -: 12. FACT APROPOS ARE THAT ASSESSEE HAD IMPORTED A SECO ND HAND SPLITTING MACHINE CALLED SCIMATIC X6 ON 25.08.2 008 AT A COST OF C27,52,404/-. INVOICE COPY ISSUED BY M/S. TURNER WH O HAD SOLD THE MACHINE TO THE ASSESSEE HAD IN IT A CONDITION THAT IT BELONGED TO THE SELLER, TILL FULL PAYMENT WERE MADE. AGAINST THE SUM OF C27,52,404/- ASSESSEE HAD PAID C5,61,774/- BEFORE THE END OF TH E RELEVANT ASSESSMENT YEAR. M/S. TURNER APPEARED AS A TRADE CREDITOR FOR THE BALANCE SUM OF C21,90,630/- IN THE ACCOUNTS OF THE ASSESSEE. ASSESSING OFFICER WAS OF THE OPINION THAT THE SAID MACHINERY WAS NOT OWNED BY THE ASSESSEE AND THERE WERE DISPUTES REGAR DING THE CONDITION OF THE MACHINE. HE DISALLOWED THE DEPRE CIATION OF C4,12,760.60 ON THE ABOVE MACHINE. 13. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT THE MACHINE WAS ALREADY INSTALLED IN ITS F ACTORY AND USED BY IT. HENCE, ACCORDING TO IT DEPRECIATION CLAIMED H AD TO BE ALLOWED. LD. COMMISSIONER OF INCOME TAX (APPEALS) HOWEVER WAS NO T APPRECIATIVE OF THIS CONTENTION. ACCORDING TO HIM, ASSESSEE HIM SELF HAD STATED THAT THE MACHINE WAS NOT CUTTING THE LEATHER ACCORDING T O SPECIFICATION MENTIONED BY THE SELLER. AS PER THE LD. COMMISSION ER OF INCOME TAX ITA NOS.1088 & 1089/2016 :- 8 -: (APPEALS) ASSESSEE REQUIRED THE MACHINE TO CUT THE LEATHER WITH ONE MILLIMETER THICKNESS BUT MACHINE SUPPLIED BY M/S. T URNER COULD GIVE ONLY ONE AND HALF MILLIMETRE THICKNESS. THUS, HE C ONFIRMED THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER. 14. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE STRONG LY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT ASSESSEE HAD THE INSTALLED MACHINE A ND USED IT. ACCORDING TO HIM, THE DISALLOWANCE WAS MADE WITHOUT CONSIDERING THE CLAIM OF THE ASSESSEE THAT IT WAS USED IN ITS BUSIN ESS. RELIANCE WAS PLACED ON A CERTIFICATE ISSUED BY ONE SHRI. E.M. UL AGANATHAN, CHARTERED ENGINEER IN THIS REGARD. 15. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 16. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES. ASSESSEE ITSELF HAS ST ATED THAT MACHINE IMPORTED FROM M/S.TURNVER WAS NOT ACCORDING TO ITS SPECIFICATION. AS PER ASSESSEE, THE BALANCE AMOUNT WAS WITHHELD BY IT DUE TO FAULT IN THE MACHINE SUPPLIED. NO DOUBT, LEGAL OWNERSHIP B Y ITSELF IS NOT A FUNDAMENTAL REQUIREMENT FOR A CLAIM OF DEPRECIATION . HOWEVER, THE ITA NOS.1088 & 1089/2016 :- 9 -: MACHINE IF NOT USED SHOULD BE ATLEAST READY TO USE. ASSESSEES OWN ADMISSION IS THAT THE MACHINE WAS NOT IN ACCORDANCE WITH THE AGREED SPECIFICATION. IN OUR OPINION, ASSESSEE WAS NOT ABL E TO SHOW THAT THE MACHINE WAS ACTUALLY USED BY IT OR KEPT IN READINES S FOR USE. CERTIFICATE FROM SHRI. E.M. ULAGANATHAN, DOES NOT SAY THAT MACH INE WERE READY FOR USE. NO RECORD SHOWING ANY TRIAL RUN WAS PRO DUCED BY THE ASSESSEE. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPIN ION THAT THE CLAIM WAS RIGHTLY DISALLOWED BY THE LOWER AUTHORITIES. W E DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AU THORITIES. GROUNDS 3 TO 5 OF THE ASSESSEE IS DISMISSED. 17. NOW, WE TAKE UP APPEAL OF THE ASSESSEE FOR THE ASSE SSMENT YEAR 2011-2012. ASSESSEE HAS ALTOGETHER RAISED THI RTEEN GROUNDS. HOWEVER, ITS GRIEVANCE RAISED THOUGH THESE THIRTEE N GROUNDS IS SUMMARIZED IN ITS GROUND NO.01, WHICH HAS BEEN DIV IDED INTO NINE SUB-PARTS. 18. FIRST ISSUE RAISED BY THE ASSESSEE IS A DISALLOWANC E OF COMMISSION OF C99,79,376/- PAID TO NON-RESIDENT AGE NT. 19. FACTS APROPOS ARE THAT ASSESSEE HAD FILED A RETURN DISCLOSING AN INCOME OF C2,26,17,293/-. DURING TH E COURSE OF ITA NOS.1088 & 1089/2016 :- 10 -: ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE LD. ASS ESSING OFFICER THAT ASSESSEE HAD PAID SALES COMMISSION TO THE FOLLOWING AGENTS ABROAD. SL.NO NATURE OF EXPENSES AMOUNT 1 NIMAPAL INTERNATIONAL, TOKYO, JAPAN 6,33,026 2 PARPIA INTERNATIONAL, SINGAPORE 34,92,947 3 TADASHI IWANE, JAPAN 19,188 4 FEATHER TOUCH LTD, HONGKONG 1,83,222 5 JOYPOP CORPORATION, TOKYO, JAPAN 56,825 6 ULLMER GMBH, MATHIAS, GERMANY 1,50,396 7 YAMMOTO TATSUFUMI, JAPAN 29,316 8 R & C TRADING SAS, ITALY 7,15,531 9 M/S. BLUE LAKE INTERNATIONAL LTD, HONG KONG 7,260 10 M/S. BLUE LAKE INTERNATIONAL LTD, HONG KONG 2,52,026 11 VENTURINI & CO., VILLAFRANCA DI VERONA (VR) 44,36,642 TOTAL 99,76,379 ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN WHY THE ABOVE PAYMENTS SHOULD NOT BE DISALLOWED FOR NON DEDUCTIO N OF TAX AT SOURCE. EXPLANATION OF THE ASSESSEE TO THE ASSESSIN G OFFICER WAS AS UNDER:- A. FOREIGN AGENT SENDS THE REQUIREMENT OF THE CUSTOME RS TO THEIR LOCAL AGENTS. B. LOCAL AGENTS IN TURN COMMUNICATE THE FOREIGN CUS TOMERS REQUIREMENT TO THE FIRM. ITA NOS.1088 & 1089/2016 :- 11 -: C. THE FIRM OFFER THEM WITH THE PRICE AND QUANTITY AND ARE PASSED ON TO THE FOREIGN AGENT THROUGH LOCAL AGENT. D. AFTER THE GOODS ARE READY, LOCAL AGENT INSPECTS THE GOODS AND SHIPMENT IS MADE. E. FOREIGN AGENTS MEETS THE CUSTOMER IF THERE ARE A NY COMPLAINTS IN SHIPMENT. F. AFTER THE FIRM RECEIVES THE PAYMENT, LOCAL AGENT ISSUE DEBIT NOTE TO THE FIRM AS PER AGREED PERCENTAGE OF COMMIS SION MENTIONED IN THE CONTRACT DOCUMENTS. G. MAKE THE PAYMENT AFTER DEDUCTING THE TDS FOR THE COMMISSION PAID TO THE LOCAL AGENTS AND NO TDS IS E FFECTED ON THE PAYMENT MADE TO FOREIGN AGENT. HOWEVER, ASSESSING OFFICER WAS OF THE OPINION THAT BY VIRTUE OF EXPLANATION 4 TO SEC. 9(1)(I) READ ALONG WITH EXPL ANATION 2 TO SEC. 195(1), BROUGHT INTO THE ACT BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.1962, ANY PAYMENTS RECEIVED BY A FOREIGN ENTITY FROM AN INDIAN ENTITY, IF THERE WAS AN INDIRECT O R REMOTE BUSINESS CONNECTION WOULD ATTRACT TAX IN INDIA. ASSESSEE HAV ING NOT DEDUCTED TAX ON THE ABOVE PAYMENTS TO THE NON-RESIDENT AGENT S, LD. ASSESSING OFFICER APPLIED SECTION 40(A)(I) OF THE ACT, AND DI SALLOWED THE SUM OF C99,79,376/-. 20. IN ITS APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT FOREIG N AGENTS WERE RENDERING MARKETING SERVICES OUTSIDE INDIA AND THE Y HAD NO BUSINESS CONNECTION IN INDIA. ACCORDING TO THE ASSESSEE, IT WAS NOT OBLIGED TO DEDUCT TAX ON PAYMENTS TO THE NON RESIDENTS AGENTS. HOWEVER, LD. ITA NOS.1088 & 1089/2016 :- 12 -: COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT APPREC IATIVE OF THIS CONTENTION. ACCORDING TO HIM, ASSESSEE WAS NOT DIR ECTLY DEALING WITH THESE FOREIGN AGENTS. THESE FOREIGN AGENTS WERE W ORKING FOR LOCAL AGENTS, AND IT WAS THE LOCAL AGENTS WHO WERE WORKIN G FOR THE ASSESSEE. ACCORDING TO LD. COMMISSIONER OF INCOME T AX (APPEALS) ASSESSEE WAS OBLIGED TO DEDUCT TAX ON SUCH PAYMENTS . HE CONFIRMED THE DISALLOWANCE. 21. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE STRONG LY ASSAILING THE ORDERS OF LOWER AUTHORITIES, SUBMITTE D THAT SIMILAR PAYMENTS FOR NON RESIDENT AGENTS HAD COME UP BEFORE THIS TRIBUNAL IN REVENUES APPEAL FOR THE ASSESSMENT YEAR 2010-2011 IN ASSESSEES OWN CASE IN ITA NO.2252/MDS/2013. AS PER THE LD. AU THORISED REPRESENTATIVE FOR THAT YEAR, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD DELETED THE DISALLOWANCE MADE FOR WAN T OF DEDUCTION OF TAX AT SOURCE. AS PER THE LD. AUTHORISED REPRESENT ATIVE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) R EVENUE HAD PREFERRED AN APPEAL BEFORE THIS TRIBUNAL. LD. AUT HORISED REPRESENTATIVE, POINTED OUT THAT TRIBUNAL HAD CONFI RMED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). FOR T HE IMPUGNED ASSESSMENT YEAR ALSO, ACCORDING TO HIM, PAYMENTS EF FECTED WERE ITA NOS.1088 & 1089/2016 :- 13 -: SIMILAR AND THE CLAIM OUGHT NOT HAVE BEEN DISALLOWE D U/S.40(A)(I) OF THE ACT. 22. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRON GLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 23. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT SIM ILAR PAYMENTS OF COMMISSION MADE BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT ASSESSMENT YEAR 2010-2011 HAD COME UP BEFORE THIS T RIBUNAL IN REVENUES APPEAL. IT WAS HELD IN ITA NO.2252/MDS/2013, DATED 8.05.2014 AT PARA 4 TO 6 AS UNDER:- 4. IT IS SEEN THAT WHEREVER THE COMMISSIONS WERE PAID BY THE ASSESSEE TO LOCAL AGENTS, TAXES HAVE BEEN DEDUC TED AT SOURCES AS PER LAW. ONLY IN THE CASE OF NON-RESIDEN T AGENTS THAT THE ASSESSEE DID NOT DEDUCT ANY TAX ON THE GRO UND THAT THOSE NON-RESIDENT AGENTS DID NOT HAVE ANY INCOME A RISING IN INDIA ON ACCOUNT OF THE COMMISSION PAID BY THE ASSE SSEE. 5. IN THE PRESENT CASE, THE DISPUTED AGENTS WERE NONRESIDENTS. THOSE NON-RESIDENT AGENTS ARE CARRYIN G ON THE BUSINESS WHOLLY OUTSIDE INDIA. THE ASSESSEE HAD PAI D COMMISSION TO THOSE NON-RESIDENT AGENTS FOR SERVICE S RENDERED BY THEM WHOLLY OUTSIDE INDIA. IT ALSO HAS TO BE SEEN THAT THE NON-RESIDENT AGENTS DID NOT HAVE ANY PERMA NENT ESTABLISHMENT (PE) IN INDIA. THE COMMISSIONS WERE R EMITTED BY THE ASSESSEE DIRECTLY TO THE NON-RESIDENTS OUTSI DE INDIA. 6. IN THE FACTS OF THE CASE AS STATED ABOVE, WE FIN D THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED I N HOLDING THAT THE PAYMENTS OF COMMISSION MADE BY THE ASSESSE E TO THE NON-RESIDENT AGENTS WERE NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THOSE NON-RESIDENT AGENTS. WHEN NO INC OME IS GENERATED TO THE NON-RESIDENTS WITHIN INDIA, THOSE NON- ITA NOS.1088 & 1089/2016 :- 14 -: RESIDENT AGENTS ARE NOT LIABLE FOR ANY LEVY OF INCO ME TAX ON ACCOUNT OF THE COMMISSIONS THEY EARNED OUT OF THE S ERVICES RENDERED OUTSIDE INDIA FOR THE ASSESSEE. TDS ARISES ONLY WHERE THERE IS A CORRESPONDING TAX LIABILITY IN THE HANDS OF THE PAYEE. FOR ASSESSMENT YEAR 2010-2011, ALSO COMMISSION PAI D BY THE ASSESSEE TO THE FOREIGN AGENTS WERE THROUGH LOCAL AGENTS. THERE IS NO CASE FOR THE REVENUE THAT ASSESSEE HAD FAILED TO DE DUCT TAX ON COMMISSION PAID TO LOCAL AGENTS. FACT SITUATION BE ING SAME WE ARE OF THE OPINION THAT DECISION OF THE TRIBUNAL FOR THE A SSESSMENT YEAR 2010- 2011 WOULD APPLY HERE ALSO. COMMISSION PAID BY THE ASSESSEE COULD NOT HAVE BEEN DISALLOWED FOR WANT OF DEDUCTION OF T AX AT SOURCE. WE DELETE THE DISALLOWANCE. GROUND NO.1(A) OF THE ASS ESSEE STANDS ALLOWED. 24. VIDE GROUND NO.1B, GRIEVANCE RAISED BY THE ASSESSEE IS ON DISALLOWANCE OF INTEREST C4,80,000 PAID TO CLOSE RELATIVES OF THE ASSESSEE. 25. FACTS APROPOS ARE THAT CERTAIN LOANS CREDITORS APP EARING IN ITS BOOKS OF THE ASSESSEE WERE RELATIVES OF THE PAR TNERS OF THE ASSESSEE. AS PER LD. ASSESSING OFFICER, ASSESSEE W AS PAYING INTEREST @12% ON BIGGER CREDITS AND 18% ON SMALLER CREDITS. LD. ASSESSING ITA NOS.1088 & 1089/2016 :- 15 -: OFFICER RESTRICTED THE INTEREST TO 15%. RESULTANT DISALLOWANCE CAME TO C4,80,000/-. 26. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT INTEREST PAID WAS NOT IN EXCESS OF THE MAR KET RATE. ACCORDING TO ASSESSEE, THERE WAS NO SECURITY GIVEN BY IT FOR THE LOANS PROVIDED BY THE RELATIVES AND HENCE 18% INTEREST WAS SUSTAINED. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS HOWEVER, N OT APPRECIATIVE OF THIS CONTENTION. ACCORDING TO HIM, ASSESSEE COU LD NOT SHOW WHY INTEREST AT THE RATE OF 18% WAS PAID TO ITS FAMILY MEMBERS. 27. NOW, BEFORE US, THE LD. AUTHORISED REPRESENTATIVE S TRONGLY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMI TTED THAT LD. ASSESSING OFFICER HAD WENT BY BANK RATE OF INTEREST . ACCORDING TO HIM, PRESUMPTION THAT BANK LENDS MONEY AT 15% INTEREST W AS ITSELF WRONG. ACCORDING TO HIM, ASSESSEE HAD NOT GIVEN ANY SECURI TY FOR THE LOANS AND HENCE HIGHER INTEREST PAYMENTS WERE JUSTIFIED. 28. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRON GLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NOS.1088 & 1089/2016 :- 16 -: 29. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. REASON WHY LD. ASS ESSING OFFICER DISALLOWED THE CLAIM WAS THAT ASSESSEE WAS PAYING L OWER INTEREST TO BIGGER CREDIT WHEREAS HIGHER INTEREST FOR SMALLER CREDITS. IT IS NOT DISPUTED BY THE REVENUE THAT INTEREST PAID BY THE A SSESSEE NEVER EXCEEDED 18%. ASSESSING OFFICER DID NOT BRING ANYT HING ON RECORD TO SHOW THAT SCHEDULED BANKS WERE CHARGING ONLY 15% IN TEREST ON LOANS GIVEN, WITHOUT SECURITY. THE OLD ADAGE THAT RISK A ND RETURNS GO TOGETHER SHOULD APPLY TO LOANS WITHOUT SECURITY. IT IS NATURAL FOR PERSONS PROVIDING LOANS WITHOUT SECURITY TO DEMAND HIGHER RATE OF INTEREST. WE ARE THEREFORE OF THE OPINION THAT INTE REST OF 18% PAID BY THE ASSESSEE COULD NOT CONSIDERED AS EXCESSIVE. A PPLICATION OF SEC. 40A(2) OF THE ACT WAS NOT WARRANTED. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DELETE THE DISALLOWANCE OF C4,80,00 0/-. GROUND NO.1B OF THE ASSESSEE STANDS ALLOWED. 30. VIDE GROUND NO.1C, GRIEVANCE OF THE ASSESSEE IS ON DISALLOWANCE OF C45,230/- U/S.40A(3) OF THE ACT. 31. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE WAS NOT PRESSING THIS GROUND. HENCE GROUND NO.1C IS DISMIS SED AS NOT PRESSED. ITA NOS.1088 & 1089/2016 :- 17 -: 32. VIDE GROUND NO.1D, GRIEVANCE OF THE ASSESSEE IS ON DISALLOWANCE OF DEPRECIATION ON MACHINERY PURCHASE D FROM M/S. TURNER. 33. THIS ISSUE IS SIMILAR TO GROUND NOS. 3 TO 5 BY THE ASSESSEE IN ITS APPEAL FOR THE ASSESSMENT YEAR 2009-2010 IN ITA NO.1688/MDS/2016. AT PARA 16 ABOVE, WE HAVE HELD T HAT THE DISALLOWANCE WAS RIGHTLY MADE BY THE LD. ASSESSING OFFICER. FACT SITUATION REMAINING THE SAME, WE DO NOT FIND ANY RE ASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES. GROUND N O.1D OF THE ASSESSEE STANDS DISMISSED. 34. VIDE GROUND NO.1E, GRIEVANCE OF THE ASSESSEE IS THA T FOREIGN TRAVEL EXPENDITURE OF C1,25,000/- WAS DISALLOWED 35. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE WAS NOT PRESSING THIS GROUND. HENCE GROUND NO.1E IS DISMIS SED AS NOT PRESSED. 36. VIDE GROUND NO.1F, GRIEVANCE OF THE ASSESSEE IS ON A DISALLOWANCE OF INTEREST OF C1,20,000/- U/S.36(1)( III) OF THE ACT. ITA NOS.1088 & 1089/2016 :- 18 -: 37. FACTS APROPOS ARE THAT ASSESSEE HAD PAID A SUM OF C10,00,000/- TO M/S. MBS ARABIC COLLEGE ON 25.06.20 10. WHICH WAS RECEIVED BACK ON 01.12.2010. HOWEVER, ASSESSEE HAD NOT CHARGED ANY INTEREST FOR THE AMOUNT ADVANCED. EXPLANATION OF T HE ASSESSEE WAS SOUGHT. REPLY OF THE ASSESSEE WAS THAT AMOUNT WAS GIVEN ON COMMERCIAL EXPEDIENCY, SINCE CHILDREN OF ITS EMPLO YEES WERE STUDYING IN THIS COLLEGE. HOWEVER, ASSESSING OFFICER WAS NO T IMPRESSED BY THIS REPLY. SIMILARLY, C10,00,000/- WAS PAID BY THE ASS ESSEE TO SITDA ON 17.09.2010 WHICH WAS RECEIVED BACK ON 31.03.2011. EXPLANATION OF THE ASSESSEE WAS THAT SITDA WAS THE ASSOCIATION OF TANNERS, AND LOANS WERE GIVEN FOR COMMERCIAL REASONS. HOWEVER, LD. ASSESSING OFFICER WAS NOT IMPRESSED BY THIS REPLY ALSO. ACCO RDING TO LD. ASSESSING OFFICER, ASSESSEE OUGHT TO HAVE CHARGED I NTEREST AT 12% ON THE ABOVE LOANS. HE CALCULATED NOTIONAL INTEREST @ 12% AND MADE AN ADDITION OF C1,20,000/-. THE LD. COMMISSIONER OF IN COME TAX (APPEALS) ON ASSESSEES APPEAL CONFIRMED THIS ADDI TION. 38. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE SUBMIT TED THAT THE LOANS WERE GIVEN CONSIDERING COMMERCIAL NECESSI TY. ACCORDING TO HIM, ASSESSEE WAS OBLIGED TO GIVE ADVANCE TO THE CO LLEGE SINCE CHILDREN OF ITS EMPLOYEES WERE STUDYING IN THE SAID COLLEGE. AS PER LD. AUTHORISED REPRESENTATIVE THE COLLEGE WAS SITUATED IN CLOSE PROXIMITY. ITA NOS.1088 & 1089/2016 :- 19 -: SO FAR AS LOANS GIVEN TO SITDA, AS PER THE LD. AUTH ORISED REPRESENTATIVE ASSOCIATION OF TANNERS OF WHICH ASSE SSEE WAS A MEMBER. ACCORDING TO HIM, NOT CHARGING INTEREST O N THESE LOANS WAS A BUSINESS DECISION TAKEN BY THE ASSESSEE. LD. AUTH ORISED REPRESENTATIVE SUBMITTED THAT ASSESSING OFFICER FEL L IN ERROR IN MAKING A NOTIONAL ADDITION. 39. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 40. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. REVENUE HAS NOT D ISPUTED THE ARGUMENT OF THE ASSESSEE THAT MBS ARABIC COLLEGE WA S SITUATED IN CLOSE PROXIMITY TO THE ASSESSEES FACTORY AND CHIL DREN OF ASSESSEES EMPLOYEES WERE STUDYING THERE. IN SO FAR AS PAYMEN T TO SITDA IS CONCERNED, IT WAS AN ASSOCIATION OF TANNERS WHERE A SSESSEE WAS A MEMBER. LOAN TO MBS ARABIC COLLEGE AND SITDA WERE FOR PERIODS LESS THAN SIX MONTHS. IN OUR OPINION, LOWER AUTHO RITIES OUGHT NOT HAVE SAT IN THE CHAIR OF THE ASSESSEE AND DECIDED ON THE COMMERCIAL EXPEDIENCY OF THE LOANS GIVEN TO THESE ENTITIES. T HE FACTS AND CIRCUMSTANCES DID NOT CALL FOR ANY ADDITION OF NATI ONAL INTEREST. ITA NOS.1088 & 1089/2016 :- 20 -: ADDITION OF C1,20,000/- STANDS DELETED. GROUND NO .1F OF THE ASSESSEE STANDS ALLOWED. 41. VIDE GROUND NO.1G, GRIEVANCE OF THE ASSESSEE IS ON DISALLOWANCE OF TRAVEL EXPENDITURE OF C3,58,275/-, FOR NON DEDUCTION OF TAX AT SOURCE. 42. FACTS APROPOS ARE THAT ASSESSEE HAD PAID VAN CHARGE S OF C3,58,275/- TO ONE SHRI. E. SHAMMEL AHMED, FOR TRA NSPORTING ITS WORKERS FROM ARCOT TO ITS FACTORY AT PERIAMET. EX PLANATION OF THE ASSESSEE WAS THAT THE VAN OWNED BY SHRI. E. SHAMM EL AHMED, WAS USED FOR TRANSPORTING ITS WORKERS AND SEC. 194C OF THE ACT WOULD NOT BE ATTRACTED TO THE PAYMENTS. HOWEVER, ASSESSING OF FICER WAS OF THE OPINION THAT PAYMENTS WERE COVERED BY SEC. 194C OF THE ACT. ASSESSEE HAVING NOT DEDUCTED TDS, ASSESSING OFFICER APPLIED SEC 40(A) (IA) OF THE ACT AND MADE A DISALLOWANCE OF C3 ,58,275/-. THIS DISALLOWANCE WAS CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 43. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE, STRON GLY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMI TTED THAT PAYMENTS WERE EFFECTED ON BEHALF OF THE EMPLOYEES. ASSESSEE WAS ONLY A ITA NOS.1088 & 1089/2016 :- 21 -: CONDUIT FOR PAYING AMOUNT, WHICH OTHERWISE WAS PAY ABLE BY THE EMPLOYEES WHO USED THE VAN. ACCORDING TO HIM, SEC. 194C OF THE ACT COULD NOT BE APPLIED FOR SUCH PAYMENTS. 44. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 45. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. SEC. 194C IS REPRO DUCED HEREUNDER:- ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE CONTRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SU PPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND A SPECIFIED PER SON SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MO DE, WHICH IS EARLIER, DEDUCT AN AMOUNT EQUAL TO ...................(I) (II)..................OF SUC H SUM AS INCOME TAX ON INCOME COMPRISED THEREIN........... ASSESSEES CLAIM THAT THE PAYMENTS WERE EFFECTED ON BEHALF OF ITS EMPLOYEES FOR THEIR TRAVEL FROM ARCOT TO ITS FACTO RY, COULD HAVE BEEN ACCEPTED IF HAD DEDUCTED SUCH TRANSPORTATION CHAR GES FROM THE WAGES PAID TO THEM. NOTHING HAS BEEN PRODUCED TO S HOW ANY SUCH DEDUCTION EFFECTED BY THE ASSESSEE. OBVIOUS CONCLU SION IS THAT THE TRANSPORT CHARGES WERE PAID BY ASSESSEE DIRECTLY. IN OUR OPINION, SEC. 194 C OF THE ACT WILL CLEARLY APPLY. WE ARE OF THE OPINION, THAT LD. ITA NOS.1088 & 1089/2016 :- 22 -: ASSESSING OFFICER WAS JUSTIFIED IN APPLYING PROVISI ONS OF SEC. 40(A)(IA) OF THE ACT FOR WANT OF DEDUCTION OF TAX AT SOURCE. NO INTERFERENCE IS REQUIRED. GROUND NO.1G STANDS DISMISSED. 46. VIDE GROUND NO.1H, GRIEVANCE OF THE ASSESSEE IS ON A DISALLOWANCE OF MUNICIPAL TAXES OF C90,882/- 47. FACTS APROPOS ARE THAT LD. ASSESSING OFFICER FOUND THAT ASSESSEE HAD CLAIMED A SUM OF C90,882/- AS PAYMENT S TO M/S. BRUHUTH BANGALKORE MAHANAGARA PALIKA (BBMP). EXPLAN ATION OF THE ASSESSEE WAS THAT THIS WAS PROPERTY TAX PAYMENT ON A PROPERTY OWNED BY A PARTNER, BUT PARTLY USED BY ASSESSEE F IRM. ASSESSING OFFICER WAS OF THE OPINION THAT ASSESSEE COULD NOT SHOW USE OF ANY SUCH PREMISES FOR ITS BUSINESS. HE DISALLOWED A CLAIM OF C90,882/-. THE DISALLOWANCE WAS CONFIRMED BY LD. COMMISSIONER OF INCOME TAX (APPEALS) ON ASSESSEES APPEAL. 48. NOW BEFORE US, THE LD. AUTHORISED REPRESENTATIVE ST RONGLY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMI TTED THAT PROPERTY WAS USED BY THE ASSESSEE FIRM AND THEREFORE THE CLA IM HAD TO BE ALLOWED. ITA NOS.1088 & 1089/2016 :- 23 -: 49. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 50. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES. CLAIM OF THE ASSESSEE IS THAT PROPERTY ON WHICH PROPERTY TAX WAS PAID WAS OWNED BY A PARTNER OF THE ASSESSEE FIRM AND WAS USED BY ASSESSEE FIRM. HOWEVER, LD. ASSESSING OFFICER HAS GIVEN A CLEAR FINDING THAT THERE WERE NO BRANCH ES OR ESTABLISHMENT FOR THE ASSESSEE IN BANGALORE, AFTER VERIFYING IT S AUDIT REPORT IN FORM 3CD. WE, ARE THEREFORE OF THE OPINION THAT ASSESSEE COULD NOT SHOW ITS USE OF THE PROPERTY ON WHICH PROPERTY TAX WAS PAID. IN OUR OPINION , THE DISALLOWANCE WAS CORRECTLY MADE. GROUND NO.1H OF THE ASSESSEE STANDS DISMISSED. 51. VIDE GROUND NO.1I, GRIEVANCE OF THE ASSESSEE IS ON DISALLOWANCE OF C29,68,236/-. 52. LD. ASSESSING OFFICER NOTED DURING THE COURSE OF A SSESSMENT PROCEEDINGS, THAT ASSESSEE HAD CLAIMED THE FOLLOWIN G EXPENSES AS REVENUE OUTGO. ITA NOS.1088 & 1089/2016 :- 24 -: PARTICULARS AMOUNT CLAIMED C SONY CAMERAS 75,000 BOREWELL 36,681 EFFLUENT TREATMENT PLANT 4,02,000 ROAD EXPENSES 3,89,820 CONFERENCE HALL EXPENSES 5,59,243 MACHINERY REPAIRS 18,85,281 TOTAL 33,48,025/- ASSESSING OFFICER PUT THE ASSESSEE ON NOTICE AS TO HOW THE ABOVE EXPENDITURE COULD BE CLAIMED AS REVENUE OUTGO. EXP LANATION OF THE ASSESSEE WAS THAT SONY CAMERAS WERE GIVEN AS INCEN TIVES TO ITS EMPLOYEES AS PART OF ITS STAFF WELFARE MEASURE. V IS-A-VIS BOREWELL EXPENDITURE, EXPLANATION OF THE ASSESSEE WAS THAT IT WAS INCURRED FOR REPAIRING AN EXISTING BOREWELL. VIZ-A-VIZ EFFLUEN T TREATMENT PLANT CLAIM OF THE ASSESSEE WAS THAT AN OLD PLANT HAD BECOME O BSOLETE AND EXPENDITURE INCURRED WAS FOR REPLACEMENT OF SUCH OL D PLANT WITH A NEW PLANT. AS FOR THE ROAD EXPENDITURE, ITS EXPLAN ATION WAS THAT THESE WERE INCURRED FOR REPAIR OF EXISTING ROAD AND NOT F OR A NEW ROAD. IN SO AS CONFERENCE HALL WAS CONCERNED, CLAIM OF THE ASSE SSEE WAS THAT IT WAS REPAIR CHARGES AND NOT CONSTRUCTION OF A NEW H ALL. FOR MACHINERY REPAIRS, CLAIM OF THE ASSESSEE WAS THAT THESE REPRE SENTED PURCHASES MADE FOR REPLACING WORN OUT MACHINERY AND DID NOT CONSTITUTE ANY INDEPENDENT MACHINERY. HOWEVER, ASSESSING OFFICER WAS NOT ITA NOS.1088 & 1089/2016 :- 25 -: AGREEABLE TO THE ABOVE SUBMISSIONS. ACCORDING TO H IM, THE EXPENDITURE WERE ALL INCURRED FOR ACQUIRING CAPITAL ASSETS. HE ALLOWED DEPRECIATION ON THESE ITEMS. AGAINST THE CLAIM OF C33,48,025/- DEPRECIATION OF C4,42,866/- WAS ALLOWED AND BALANC E C29,05,159/- WAS DISALLOWED. 53. ASSESSEES IN APPEAL BEFORE LD. COMMISSIONER OF IN COME TAX (A) ON THESE DISALLOWANCES DID NOT MEET WITH ANY SU CCESS. 54. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE SUBMIT TED THAT SONY CAMERAS WERE GIVEN AS GIFT TO EMPLOYEES OF THE ASSESSEE. CONFIRMATION OBTAINED FROM EMPLOYEES, ON RECEIVING SUCH GIFTS WERE ON RECORD. ACCORDING TO HIM, ASSESSEE HAS GIFTED SI X SONY CAMERAS AND ONE DIGITAL RECORDER TO ITS EMPLOYEES. THE LOWER A UTHORITIES IGNORED THE CONFIRMATION OF THE EMPLOYEES AND MADE AN ADDIT ION. IN SO FAR AS BOREWELL EXPENDITURE WAS CONCERNED, AS PER THE LD. AUTHORISED REPRESENTATIVE THE BOREWELL COULD NOT BE USED AND HENCE THE OUTGO WAS PURE BUSINESS LOSS. AS FOR EFFLUENT TREATMENT PLANT, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THIS WAS I NCURRED FOR REPLACEMENT OF AN OLD PLANT. IN SO FAR AS ROAD EXPE NDITURE WAS CONCERNED, AS PER LD. AUTHORISED REPRESENTATIVE TH ERE WAS NO NEW ROAD LAID BY THE ASSESSEE. CONFERENCE HALL EXPENDIT URE, AS PER THE LD. ITA NOS.1088 & 1089/2016 :- 26 -: AUTHORISED REPRESENTATIVE WERE EXPENDITURE INCURRE D ON REPAIRS OF AN EXISTING CONFERENCE HALL. IN SO FAR AS, MACHINERY R EPAIRS WERE CONCERNED, AS PER THE LD. AUTHORISED REPRESENTATIVE , LOWER AUTHORITIES ERRONEOUSLY CONSIDERED IT AS A CAPITAL OUTGO. 55. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 56. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES. IN SO FAR AS EXPENDITURE INCURRED FOR SONY CAMERA AND ONE DIGITAL RECORDER ARE CONCERNED, EMPL OYEES OF THE ASSESSEE HAD ACKNOWLEDGED RECEIPTS OF THE ITEMS FRO M ASSESSEE. CLAIM OF THE ASSESSEE IS THAT THIS WAS A GESTURE OF STAF F WELFARE AND INCURRED TO KEEP THE EMPLOYEES MOTIVATED. IN OUR OPINION THI S EXPENDITURE CANNOT BE TREATED AS A NON BUSINESS OUTGO. SONY CA MERAS AND DIGITAL RECORDER HAVING BEEN GIVEN TO ITS EMPLOYEES, COUL D NEVER FORM PART OF THE ASSETS OF THE ASSESSEE. HENCE DISALLOWANCE OF THE COST OF SONY CAMERA AND DIGITAL RECORDED WERE NOT WARRANTED. 57. COMING TO THE BOREWELL EXPENDITURE, CLAIM OF THE L D. AUTHORISED REPRESENTATIVE IS THAT THERE WAS NO WATE R IN THE BOREWELL, HENCE, IT IS A LOSS. WHAT WE FIND IS THAT LD. ASSES SING OFFICER HAS PLACED ITA NOS.1088 & 1089/2016 :- 27 -: SPECIFIC RELIANCE ON A BILL ISSUED BY M/S. ANDAL MO TORS FOR FIXING A MOTOR AND PUMP TO THE BOREWELL. IF THERE IS NO WATER IN THE BOREWELL, THEN THERE IS NO QUESTION OF FIXING A MOTOR. THUS, CLA IM OF THE ASSESSEE THAT BORE WELL EXPENDITURE WAS A BUSINESS LOSS HAVI NG DERIVED NO WATER IS INCORRECT. IN OUR OPINION, COST OF BOREWE LL WAS RIGHTLY CONSIDERED AS CAPITAL OUTGO. 58. COMING TO THE EFFLUENT TREATMENT PLANT, WE FIND THA T EARLIER PLANT HAS BECOME OBSOLETE AND IT WAS A NEW PLANT E RECTED. WE ARE OF THE OPINION THAT LOWER AUTHORITIES HAD RIGHTLY TREA TED THE PLANT AS CAPITAL OUTGO, SINCE ITS WAS AN INDEPENDENT MACHINE RY ITEM. 59. COMING TO THE ROAD REPAIR EXPENDITURE CLAIMED BY TH E ASSESSEE, CONTENTION OF THE ASSESSEE WAS THAT NO NE W ROAD WAS LAID BUT IT WAS ONLY A REPAIR OF EXISTING ROAD. LD. COM MISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A CLEAR FINDING THAT EXPEN DITURE WAS INCURRED FOR CONSTRUCTION OF CEMENT ROAD AND NOT REPAIR OF EXISTING ROAD. ASSESSEE COULD NOT PRODUCE THE CONTRACT AGREEMENT E NTERED WITH SHRI. M. SHIVARAJ, WHO WAS ENTRUSTED WITH THE ABOVE WORK TO PROVE THAT THE CONTRACT WAS ONLY FOR REPAIR OF EXISTING ROAD AND NOT LAYING OF NEW ROAD. THEREFORE, WE ARE OF THE OPINION THAT LOWER AUTHORITIES WERE JUSTIFIED IN TREATING THE EXPENDITURE INCURRED ON R OAD AS CAPITAL OUTGO. ITA NOS.1088 & 1089/2016 :- 28 -: 60. COMING TO THE CONFERENCE HALL EXPENDITURE, IT IS NO T DISPUTED BY THE ASSESSEE THAT EXPENDITURE WAS INCURRED FOR CHANGING THE INTERIORS OF EXISTING CONFERENCE HALL, INCLUDING S EATING, PAINTING AND FURNITURE. THE OUTGO WAS CLEARLY FOR RENOVATION. WE ARE OF THE OPINION THAT RENOVATION OF EXISTING CONFERENCE WOU LD NOT CREATE ANY NEW CAPITAL ASSET. THE EXPENDITURE COULD ONLY BE CO NSIDERED AS NECESSARY FOR EFFECTIVELY CONTINUING THE FUNCTIONAL ITY OF THE EXISTING CONFERENCE HALL. SAID EXPENDITURE IN OUR OPINION CO ULD NOT BE TREATED AS CAPITAL OUTGO. 61. COMING TO THE MACHINE REPLACEMENT COST, THE LD. ASS ESSING OFFICER HAS BROUGHT OUT VARIOUS ITEMS INCLUDED IN S UCH CLAIM AT PAGE 15 OF HIS ASSESSMENT ORDER WHICH IS REPRODUCED HEREUND ER:- SL .NO DATE OF EXPENDITURE DEBITED NATURE OF EXPENDITURE AMOUNT OF EXPENDITURE 1 20.7.2010 PAYMENT TO KUMAR ENG. COMPANY PURCHAE OF 1HP JET MOTOR (DEBITED TO BUILDING REPAIR EXPENSES) 7,190 2 20.04.2010 02.08.2010 29.09.2010 PAYMENT MADE TO KATTE & NATTAN, CHENNAI. 1. BHARAT 7.5 HP MOTOR 2. BILL NO.1126 10HP RPH MOTOR 1 3. BILL NO.1639 BHARAT 10HP MOTOR 13,323 26,448 15,719 3 08.12.2010 31.12.2010 PAYMENT MADE TO MAYURA INDL. SER. CHENNAI. 1. BILL NO.1298 CONTROL PANEL FOR AC DRIVE 2. BILL NO.1445 AC DRIVE 30,797 11,419 ITA NOS.1088 & 1089/2016 :- 29 -: 4 15.07.2010 15.07.2010 PAYMENT TO MIKRO ZONE TECHNOLOGIES BILL NO.86-12V/135 AH BATTERY BILL NO.87 5KVA ONLINE UPS & 1 NO.12V /17AH BATTERY 2 NOS. 17,437 48,464 5 23.09.2010 PAYMENT MADE TO S.S. ASSOCIATES - BILL NO.279 REFRIGERATED AIR DIRS 3 NOS. 1,03,646 6 RATHA FAN HOUSE B NO.98528 RACOLD WATER HEATER 14,280 7 02.04.2010 MACHINERY REPAIR EXPENSES BILL NO.002, TUMBE DRIER THERMETIC FLUED LINE MATERIAL 61,740 8 15.04.2010 G.K. SYSTEMS VELLORE B. NO.2369 1015 600 VA KEVIN HOME UPS 1 NO. & 100 AH 12 V EXIDE BATTERY 1 NO. (TMAJ) PERSONAL IN NATURE (MACHINERY REPAIRS EXPENDITURE) 14,000 9 11.05.2010 GOPI ENGINEERING WORKS BILL NO. 05 REVERSIBLE SETTINGS 61,739 10 12.07.2010 NEW TECH MACHINES BILL NO.34, AIR COM SPRAY GUNGS 1,04,000 11 18.07.2010 S.V. INDUSTRIES BANGALORE BILL NO.76, HYDRAULIC HAND PALLET TRUCK 2 NO 26,520 12 27.08.2010 KELCOM POWER SYSTEMS B NO.13191027 100 AH EXIDE BATTERY 2 13,000 13 30.09.2010 INDUSTRIAL BLOWERS BILL NO.465, M/S. FABRICATED BLOWER 41,600 14 31.10.2010 RATHNA FAN HOUSE PURCHASE OF FANS 21,440 15 25.11.2010 VINAR SYSTEMS PVT. LTD BILL NO.258, CONVEYOR OVER HEADS- DRIVE UNIT 3,90,915 16 22.12.2010 DELTON AIR CONTROL BILL NO.1011 TO WAY MANIFOLD VALUE 99,320 17 01.01.2011 JSP PLASTICS, KANCHIPURAM BILL NO.56, OVERHEAD CONVEYOR CLIP & CONVEYOR FRAME 2,95,152 18 03.01.2011 BILL NO.2, BHARATH 20HP 4 POLE 1440 RPM FOOT MOUTER MOTOR 1 NOS. 32,500 19 06.01.2011 VINAR SYSTEMS PVT. LTD. KOLKATTA BILL NO.165 LABOUR CHARGES FOR ERECTION JOB OF CONVEYOR OVER HEAD 600FT 99,270 20 23.02.2011 ECOTECH SERVICES, HOSUR BILL NO.54, AGITATOR ASSEMBLY 1,01,590 ITA NOS.1088 & 1089/2016 :- 30 -: 21 22.11.2010 11.12.2010 PAYMENT TO GAJALAKSHMI ENGINEERING WORKS BILL NO.56 BILL NO.562, NEW TANKER ASSEMBLY MATERIAL 40,000 60,000 22 G.K. SYSTEMS, VELLORE UPS RELATED EXPENSES 65,820 23 19.08.2010 ELECT ENGINEERING BILL NO.29, ROLLING SHUTTERS 37,402 24 04.10.2010 BILL NO.50, 2 TON LIFT OUTSIDE 30,550 TOTAL 18,85,281 A READING OF THE ABOVE WOULD CLEARLY SHOW THAT MANY OF THE ITEMS COULD BE CONSIDERED AS INDEPENDENT MACHINERY WHEREA S SOME OF THEM LIKE BATTERIES, ETC COULD BE CONSIDERED AS SPARES A ND REPAIR WORKS. WE ARE OF THE OPINION THAT LD. ASSESSING OFFICER OUGHT HAVE MADE A DETAILED ANALYSIS OF THE BILLS AND CORRECTLY DEMARC ATED THE ITEMS. DISALLOWANCE OUGHT HAVE BEEN CONFINED ONLY TO THOS E WHICH COULD BE CONSIDERED AS INDEPENDENT MACHINERY. THUS THIS ISS UE REQUIRES A FRESH LOOK BY THE LD. ASSESSING OFFICER. 62. THUS, WE DELETE THE DISALLOWANCE ON THE CLAIMS ON SONY CAMERA AND CONFERENCE HALL EXPENDITURE, WHILE UPHOL D THE DISALLOWANCE OF BOREWELL, EFFLUENT TREATMENT PLANT AND ROAD EXPENDITURE. IN SO FAR MACHINERY EXPENDITURE IS CON CERNED, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES TO THE FI LE OF THE LD. ASSESSING ITA NOS.1088 & 1089/2016 :- 31 -: OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 63. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2009-2010 IS DISMISSED WHEREAS THAT FOR ASSESSMENT YEAR 2011-12 IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 16TH DAY OF NO VEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:16TH NOVEMBER, 2016 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF