M/s Rana Polycot Ltd., Chandigarh V. Addl. CIT, Chandigarh

ITA 1382/CHANDI/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68538 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 06-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Depreciation; Proportionate interest; Non-deduction of tax; Assessment record; Notional interest; Capital expenditure
• Section: 143(3); 194C; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1382/CHD/2010 ASSESSMENT YEAR : 2006-07 M/S RANA POLYCOT LTD., VS THE ADDL. CIT, SCO 49-50, RANGE 1, SECTOR 8-C, CHANDIGARH CHANDIGARH. PAN : AAACR-7623M & ITA NO.1386/CHD/2010 ASSESSMENT YEAR : 2006-07 THE DY.COMMISSIONER OF INCOME TAX, VS M/S RANA POL YCOT LTD., CIRCLE 1(1), SCO 49-50, CHANDIGARH. SECTOR 8-C, CHANDIGARH. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T.N.SINGLA DEPARTMENT BY : SHRI MANJIT SINGH DATE OF HEARING : 03.10.2013 DATE OF PRONOUNCEMENT : 28.10.2013 ORDER PER SUSHMA CHOWLA, JM THE CROSS-APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE CIT(APPEALS), CHAN DIGARH DATED 11.08.2010 RELATING TO ASSESSMENT YEAR 2006-07 AGAI NST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO NSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE ORDERS OF LEARNED CIT(A) IS BAD, AGAINST T HE FACTS & LAW. 2. THAT THE LEARNED CIT(A) HAS WRONGLY DIS ALLOWED L/5 TH OF PUBLIC ISSUE EXPENDITURE U/S 35D AMOUNTING TO RS. L 53945/-. 3.. THAT THE LEARNED CIT(A) HAS WRONGLY DISALLOWED REIMBURSEMENT OF EXPENSE PAID THROUGH SHIPPING AGENTS FOR SHIPMENT O F MATERIAL AMOUNTING TO RS. 55, 74, 552/- U/S 40(A)(IA)OF THE ACT. 4. THAT THE LEARNED CIT(A) HAS WRONGLY DISALLOWED INTE REST AMOUNTING TO RS. 93,500/-- AS NOTIONAL INTEREST ON FUNDS GIVEN TO OTHER COMPANIES. 5. THAT THE LEARNED CIT(A) HAS WRONGLY DISALLOWED HIRE CHARGES AMOUNTING TO RS. 4,27,226/- ON VEHICLE PURCHASE U/S 40(A)(IA) OF THE ACT. 4. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER PROVISIONS OF LAW THE LD. CIT(A) HAS ERRED IN ALLOW ING THE RELIEF OF RS. 10,40,000/- ON ACCOUNT OF INTEREST ON INVESTMENT IN FIXED ASSET DURING THE YEAR. ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE PROPORTIONATE IN TEREST OF RS. 10,40,000/- LACS ON AVERAGE RATE ON INVESTMENT ON FIXED ASSETS. 2. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER PROVISIONS OF LAW THE LD. CIT(A) HAS ERRED IN ALLOWING THE RELIEF TO THE ASSESSEE ON THE FREIGHT CHARGES PAID AMOUNTING TO RS. 2,50,093/- U/S 40(A)( IA) OF THE ACT WHICH WAS DISALLOWED BY THE ASSESSEE. 3. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER PROVISIONS OF LAW THE LD. CIT(A) IS RIGHT IN LAW IN DELETING THE DISALLOWANCES MADE U/S 40(A)(IA) OF THE INCOME TAX ACT IN VIEW OF THE AMENDED PROVIS IONS OF SEC 194C(3)(I) OF THE INCOME TAX ACT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT(A) HAS ERRED IN ALLOWING EXCESS DEPRECIATION @ 15% ON PLANT & MACHINERY IN R ESPECT OF FEE PAID TO REGISTRAR OF COMPANIES. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING DEPRECIATION @ 15% ON ELECTRICAL INSTALLAT IONS WHEREAS THE DEPRECIATION @ 15% IS ALLOWABLE ONLY FOR PLANT & MA CHINERY AND NOT FOR ELECTRICAL INSTALLATIONS AS IT IS A SEPARATE HEAD D ISTINCT FORM PLANT & MACHINERY. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD . CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE ON ACCOUNT OF EMPLO YEE'S CONTRIBUTION OF EPF DEPOSITED IN THE RESPECTIVE FUNDS BEYOND THE D UE DATE U/S 36(L)(VA) OF THE I.T. ACT, 1961. 5. THE GROUND NO.1 RAISED BY THE ASSESSEE BEING GEN ERAL IN NATURE IS DISMISSED. 3 6. THE GROUND NO. 2 RAISED BY THE ASSESSEE IS AGAIN ST THE DISALLOWANCE OF 1/5 TH OF PUBLIC ISSUE EXPENDITURE UNDER SECTION 35D OF THE ACT AMOUNTING TO RS. 1,53,945/-. 7. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED A SUM OF RS. 7,69,725/- UNDER THE HEAD PUBLIC ISSUE EXPENSES. THE ASSESS EE WAS SHOW CAUSED TO JUSTIFY THE ALLOWABILITY OF THE SAID EXPE NDITURE AND IN REPLY THE ASSESSEE ADMITTED THAT THE EXPENDITURE WAS NOT OF REVENUE NATURE. THE ASSESSING OFFICER, THUS DISALLOWED THE SAID EXP ENDITURE. HOWEVER, 1/10 TH OF THE SAID EXPENDITURE WAS ALLOWED UNDER SECTION 35D OF THE ACT. 8. THE CIT(APPEALS) CONSIDERED THE CLAIM OF THE ASS ESSEE UNDER SECTION 35D OF THE ACT. THE PROVISIONS OF SECTION 35D OF THE ACT, WHICH PROVIDED THAT THE EXPENDITURE INCURRED EITHER BEFORE THE COMMENCEMENT OF THE BUSINESS OR AFTER THE COMMENCEM ENT OF THE BUSINESS IN CONNECTION WITH THE EXTENSION OF INDUST RIAL UNDERTAKING, IS TO BE ALLOWED IN FIVE EQUAL INSTALLMENTS BEGINNI NG WITH THE PREVIOUS YEAR OF COMMENCEMENT OF BUSINESS OR PREVIO US YEAR IN WHICH THE EXTENSION OF THE INDUSTRIAL UNDERTAKING I S COMPLETED. THE CIT(APPEALS) VIDE PARA 7 OBSERVED AS UNDER : FROM THE PERUSAL OF THE ASSESSMENT RECORDS, I FIND THAT THE EXPENSES HAVE BEEN INCURRED DURING THE YEAR FOR THE EXTENSION OF THE EXISTING BUSINESS BUT THE EXTENSIO N HAS NOT BEEN COMPLETED. APPELLANT HAS ITSELF CAPITALIZED CE RTAIN EXPENSES SINCE THE EXTENSION OF BUSINESS WAS NOT CO MPLETE. IN MY VIEW, AMORTIZATION OF EXPENSES WILL BE AVAILA BLE ONLY WHEN THE EXTENSION OF THE INDUSTRIAL UNDERTAKING IS COMPLETED. 9. IN VIEW OF THE EXTENSION OF THE BUSINESS HAVING NOT BEEN COMPLETED BY THE ASSESSEE, THE CIT(APPEALS) DIRECTE D THE ASSESSING OFFICER TO ADD BACK THE SUM OF RS. 76,972/- AS INCO ME OF THE 4 ASSESSEE. THE LD. AR FOR THE ASSESSEE HAS FAILED T O BRING ON RECORD ANY EVIDENCE TO PROVE THAT THE EXTENSION OF THE BUS INESS WAS COMPLETED DURING THE YEAR UNDER CONSIDERATION AND I N THE ABSENCE OF THE SAME, WE ARE IN CONFORMITY WITH THE OBSERVATION OF THE CIT(APPEALS) THAT THE PROVISIONS OF SECTION 35D OF THE ACT HAVING NOT BEEN FULFILLED, THE ASSESSEE WAS NOT ENTITLED T O ANY DEDUCTION. UPHOLDING THE ORDER OF CIT(APPEALS), WE DISALLOW GR OUND NO.2 RAISED BY THE ASSESSEE. 10. THE ISSUE IN GROUND NO.3 RAISED BY THE ASSESSEE IS DISALLOWANCE OF EXPENDITURE INCURRED ON SHIPPING AGENTS IN SHIPM ENT OF MATERIAL AMOUNTING TO RS. 55,74,552/- FOR NON-DEDUCTION OF T AX AT SOURCE OUT OF THE SAID PAYMENT AND CONSEQUENT DISALLOWANCE UND ER SECTION 40A(IA) OF THE ACT. 11. THE ASSESSING OFFICER VIDE PARA 7.1(B) AT PAGES 9 TO 12 OF THE ASSESSMENT ORDER CONSIDERED THE EXPENDITURE INCURRE D BY THE ASSESSEE AS PAYMENT TO VARIOUS CLEARING AND FORWARDING AGENT S. THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE OUT OF THE SAID PAYMENT AND HENCE, WAS ASKED TO EXPLAIN AS TO WHY PROVISIONS OF SECTIO N 40(A)(IA) OF THE ACT SHOULD NOT BE INVOKED TO DISALLOW SUCH AMOUNTS. THE ASSESSEE CLAIMED THAT TDS WAS DEDUCTED OUT OF PAYMENTS MADE TO THE AGENTS BUT NO TDS WAS DEDUCTED OUT OF COMMISSION PAID TO V ARIOUS AGENTS, AS THE SAME WERE NOT SUBJECTED TO DEDUCTION OF TAX AT SOURCE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD FAILE D TO FURNISH ANY EVIDENCE TO PROVE THAT THE PERSONS TABULATED AT PAG E 10 OF THE ASSESSMENT ORDER WERE AGENTS OF NON-RESIDENT COMPAN IES, TO WHOM PAYMENT TOTALING RS. 77,34,552/- WAS MADE. THE ASS ESSING OFFICER, THUS MADE A DISALLOWANCE OF RS. 77,34,552/- ON THE SAID ACCOUNT. 5 12. THE CIT(APPEALS) ADMITTED THAT THERE WAS MIS-C ALCULATION OR ERROR IN THE ORDER OF ASSESSING OFFICER UNDER WHICH THE TOTAL AMOUNT WAS RS. 55,74,552/- AND NOT RS. 77,34,552/-. HOWEV ER, NO DETAILS WERE FILED BY THE ASSESSEE TO ESTABLISH THAT THE SA ID PERSONS WERE RELATING TO NON-RESIDENT SHIPPING COMPANIES AND IN THE ABSENCE OF SAME, ADDITION OF RS. 55,74,552/- WAS CONFIRMED. 13. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT TH E ISSUE INVOLVED VIDE PRESENT GROUND IS TWO FOLD. FIRST, WHETHER TD S WAS DEDUCTIBLE OUT OF SAID PAYMENT AND IN THE ALTERNATIVE, IF IT W AS HELD THAT TDS WAS SO DEDUCTIBLE, SINCE THE AMOUNT HAS BEEN PAID T O THE ASSESSEE DURING THE YEAR, THE PROVISIONS OF SECTION 40(A)(IA ) OF THE ACT WERE NOT APPLICABLE. 14. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDER OF THE LOWER AUTHORITIES. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAS FAILED TO FURNISH ON RECORD ANY EV IDENCE TO PROVE ITS CASE THAT THE PAYMENT HAS BEEN MADE TO THE SO CALLE D AGENTS OF FOREIGN SHIPPING COMPANY AND IN THE ABSENCE OF THE SAME, WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE AND THE SAME IS R EJECTED. NOW, COMING TO THE ALTERNATE PLEA OF THE ASSESSEE THAT N O DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IS MERITED IN VI EW OF THE RATIO LAID DOWN BY THE SPECIAL BENCH IN ACIT VS. MERILYN SHIPP ING & TRANSPORTS, ITA NO.477 /VIG /2008 (SB). WE FIND TH AT THE ISSUE, NOW STANDS COVERED BY THE RATIO LAID DOWN BY THE G UJRAT HIGH COURT IN CIT VS SIKANDER KHAN N.TUNVAR & OTHERS ITA NO. 905 OF 2012 JUDGEMENT DATED 02.05.2013 AND THE HON'BLE CAL CUTTA HIGH COURT IN CIT VS CRESENT EXPORT SYNDICATE ITA NO. 20 OF 2013, G.A. NO. 190 OF 2013 UNDER WHICH THE RATIO LAID DOW N BY THE 6 SPECIAL BENCH HAS BEEN REVERSED. FOLLOWING THE ABOV ESAID RATIO LAID DOWN BY THE HON'BLE GUJRAT HIGH COURT, WE DISM ISS PLEA RAISED BY THE ASSESSEE AND BECAUSE OF FAILURE OF THE ASSES SEE TO DEDUCT TAX AT SOURCE OUT OF THE AFORESAID PAYMENTS MADE TO SHI PPING AGENTS, AND FOR NON-DEDUCTION OF TAX AT SOURCE, THE SAID EX PENDITURE IS LIABLE TO BE DISALLOWED UNDER THE PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT. THE GROUND OF APPEAL NO. 3 RAISED BY ASSE SSEE IS THUS, DISMISSED. 16. THE ISSUE IN GROUND NO. 4 RAISED BY THE ASSESSE E IS AGAINST THE DISALLOWANCE OF INTEREST EXPENDITURE RELATABLE TO INTEREST FREE ADVANCES MADE TO THE SISTER CONCERN. THE CLAIM OF THE ASSESSEE WAS THAT IT HAD RUNNING ACCOUNT WITH THE SISTER CON CERN AND THERE WAS NO MERIT FOR SAID DISALLOWANCE MADE UNDER SECTI ON 36(1)(III) OF THE ACT. THE ASSESSING OFFICER NOTED THAT THE ASSE SSEE HAD GIVEN LOANS TO M/S RANA INFORMATICS LTD. AND M/S RANA SUG AR LTD. THE ASSESSEE HAD NOT CHARGED ANY INTEREST ON THE SAID A DVANCES MADE BY IT THOUGH IT WAS USING INTEREST BEARING FUNDS FOR C ARRYING ON ITS BUSINESS. THE ASSESSING OFFICER NOTED THAT THERE W AS DEBIT BALANCE OF SUCH PERSONS IN THE BOOKS OF THE ASSESSEE FOR TH E ENTIRE YEAR AND IN THE ABSENCE OF THE ASSESSEE HAVING SHOWN THAT AN Y OF ITS BUSINESS PURPOSES WERE SERVED BY INCURRING SUCH EXP ENSES, THE ASSESSING OFFICER APPLIED AVERAGE RATE OF INTEREST AT 5.5% PER ANNUM AND DISALLOWED A SUM OF RS. 93,500/-. THE SA ID ADDITION WAS CONFIRMED BY THE CIT(APPEALS). THE ASSESSEE HA S FAILED TO BRING ON RECORD ANY EVIDENCE IN RESPECT OF ITS CLAI M OF BUSINESS NECESSITY FOR INCURRING SUCH EXPENSES AND IN THE AB SENCE OF THE SAME, WE FIND NO MERIT IN GROUND NO. 4 RAISED BY TH E ASSESSEE AND THE SAME IS DISMISSED. 7 17. THE ISSUE IN GROUND NO. 5 RAISED BY THE ASSESSE E IS AGAINST DISALLOWANCE OF HIRE CHARGES ON VEHICLE PURCHASED A MOUNTING TO RS. 427,226/- OF THE ACT IN VIEW OF THE PROVISIONS OF SECTION 40A(IA) OF THE ACT. THE ASSESSING OFFICER NOTED TH E ASSESSEE TO HAVE MADE INTEREST PAYMENT OF RS. 52,438/- TO M/S K OTAK MAHENDRA PRIMUS LTD. AND RS. 374,788/- TO M/S CITI FINANCIAL SERVICES LTD. THE SAID LOAN WAS TAKEN BY THE ASSESSEE FROM THESE TWO CONCERNS FOR PURCHASE OF CAR. THE ASSESSEE WAS HELD TO BE L IABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 194A OF THE ACT ON SUCH PAYMENTS AND IN THE ABSENCE OF THE SAME, THE INTEREST EXPENDITUR E CLAIMED BY THE ASSESSEE WAS DISALLOWED IN VIEW OF THE PROVISIONS O F SECTION 40A(IA) OF THE ACT AND WAS UPHELD BY THE CIT(APPEAL S). IN VIEW OF THE PROVISIONS OF SECTION 194A OF THE ACT, WHERE TH E LIABILITY IS UPON THE ASSESSEE TO DEDUCT TAX AT SOURCE OUT OF PA YMENTS OF INTEREST TO THE RESPECTIVE PARTIES, SUCH NON-DEDUCT ION OF TAX AT SOURCE WOULD ATTRACT THE PROVISIONS OF SECTION 40A( IA) OF THE ACT UNDER WHICH, IT IS CLEARLY PROVIDED THAT SUCH SUM O N WHICH THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE AND WHE RE NO SUCH TAX HAD BEEN DEDUCTED AT SOURCE, THE SAID AMOUNT IS TO BE DISALLOWED AND CANNOT BE ALLOWED AS EXPENDITURE OF THE ASSESSE E. IN VIEW OF THE DEFAULT OF THE ASSESSEE IN DEDUCTING TAX AT SOU RCE OUT OF CAR LOAN INTEREST PAID BY THE ASSESSEE, WE UPHOLD THE D ISALLOWANCE OF RS. 427,226/-. GROUND NO. 5 RAISED BY THE ASSESSEE IS, THUS DISMISSED. 18. THE REVENUE IN ITA NO. 1386/CHD/2010 IS AGGRIEV ED BY THE RELIEF GIVEN BY THE CIT(APPEALS) AND IS IN APPEAL B EFORE US. THE ISSUE IN GROUND NO. 1 RAISED BY THE REVENUE IS AGAI NST THE DELETION OF ADDITION OF RS. 10,40,000/-. THE ASSESSING OFFI CER VIDE PARA 3 NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD 8 MADE ADDITION TO THE FIXED ASSETS FOR EXTENSION OF ITS EXISTING BUSINESS. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS TO WHY THE INTEREST RELATABLE TO SUCH FUNDS UTILIZED FOR THE A CQUISITION OF THE ASSETS SHOULD NOT BE CAPITALIZED IN VIEW OF THE PRO VISO TO SECTION 36(1)(III) OF THE ACT. THE REPLY OF THE ASSESSEE IN THIS REGARD WAS THAT DURING THE YEAR UNDER CONSIDERATION, THE AMOUN T OF INTEREST ON TERM LOAN FOR ADDITION IN ASSETS FOR DYEING UNIT TO THE TUNE OF RS. 21.14 LACS WAS ALREADY CAPITALIZED AND NO OTHER UNI T WAS SET UP OR NO EXTENSION OF ANY EXISTING UNIT WAS MADE DURING T HE YEAR. THE ASSESSING OFFICER NOTED THAT THERE WAS ADDITION OF RS. 3.12 CRORES TO THE BUILDING AND CIVIL WORK, ELECTRICAL INSTALLA TIONS OF RS. 26.63 LACS AND MISCELLANEOUS FIXED ASSETS TO THE TUNE OF RS. 37.46 LACS. THE ASSESSING OFFICER APPLIED AN AVERAGE INTEREST R ATE OF 5.5% PER ANNUM TO WORK OUT THE DISALLOWANCE. THE ADDITION T O THE BUILDING WAS OVER THE PERIOD FROM 30.04.2005 TO 31.03.2006 A ND DISALLOWANCE OF RS. 8,60,000/- WAS MADE BY THE ASSE SSING OFFICER. SIMILARLY, THE ADDITION TO ELECTRICAL INSTALLATION WAS SPREAD OVER THE YEAR AND ASSESSING OFFICER ESTIMATED DISALLOWAN CE OF RS. 75,000/- WAS MADE FROM THE INTEREST EXPENDITURE. S IMILARLY, IN RESPECT OF MISCELLANEOUS FIXED ASSETS, ESTIMATED DI SALLOWANCE OF RS. 1,05,000/- WAS MADE. IN TOTAL, INTEREST EXPEND ITURE WORKED OUT TO RS. 10,40,000/- AND DISALLOWANCE OF THE SAID AMO UNT WAS MADE BY THE ASSESSING OFFICER. THE CIT(APPEALS) VIDE PA RA 14 TO 16 AT PAGE 7 OF THE APPELLATE ORDER OBSERVED AS UNDER : 14 AFTER READING VARIOUS JUDGEMENTS AND PROVISI ON OF LAW, I AM OF THE VIEW THAT SINCE THE TERM 'EXTENSION' HAS NOT BEEN DEFINED, IT WILL COVER NORMAL CIRCUMSTANCES WHICH IN BUSINESS CIRCLE S ARE REGARDED AS EXTENSION OF BUSINESS, FOR EXAMPLE, INCREASING EFFI CIENCY & PRODUCTIVITY BY ADDING A FEW ASSETS WILL NOT TANTAMOUNT TO EXTENSIO N OF BUSINESS. IF CAPITAL IS BORROWED TO ACQUIRE NEW ASSETS TO MEET DEFICIENC Y OR TO HAVE MORE OF OWN ASSETS, IT CANNOT BE TAKEN AS A CASE OF EXTENSI ON OF BUSINESS. IN ANY EXISTING BUSINESS, SOME EXTENSION/EXPANSION IS A NO RMAL FEATURE WHICH SHOULD NOT BE CONFUSED WITH SUBSTANTIAL EXPANSION W HICH PROBABLY THE 9 WORLD 'EXTENSION' HERE INTENDED TO IMPLY. MERELY ST ATING THAT ASSETS/ELECTRICAL INSTALLATIONS BOUGHT OUT OF BORRO WED CAPITAL FOR THE PURPOSE OF BUSINESS IF NOT PUT TO USE WOULD DISENTI TLE THE APPELLANT FROM DEDUCTION DOES NOT SEEM JUSTIFIED. IT IS, AS IF ONE PART OF THIS PROVISO TO SECTION 36(L)(III) REGARDING USE OF ASSETS HAS BEEN CONSIDERED AND OTHER PART REGARDING EXTENSION OF BUSINESS HAS BEEN IGNOR ED. 15 IN VIEW OF THE ABOVE, I FIND THAT THERE IS FORC E IN LD. COUNSEL'S CONTENTION THAT THE LISTED ASSETS/CIVIL WORKS/ELEC TRIC INSTALLATIONS HAVING NEXUS WITH THE BORROWED CAPITAL AND NOT PUT TO USE WAS NOT FOR EXTENSION OF EXISTING BUSINESS AND THEREFORE WILL N OT COME WITHIN THE AMBIT OF THE PROVISO OF SECTION 36(L)(III). FURTHER MORE, SINCE IT HAS NOT BEEN ESTABLISHED BY THE ASSESSING OFFICER THAT THE ASSETS ACQUIRED LED TO ANY SORT OF MAJOR CAPACITY ENHANCEMENT WHICH MAY BE CONSIDERED AN EXTENSION OF BUSINESS, THE ADDITION D OES NOT SEEM JUSTIFIED. EVEN IF SECTION 36(L)(III) IS READ IN CONJUNCTION W ITH EXPLANATION 8 TO SECTION 43(1), THE RESULTS WOULD NOT CHANGE. 16 SINCE THE ASSESSEE HAD ALREADY CAPITALIZED INTE REST ON TERM LOAN FOR ADDITION IN FIXED ASSETS FOR DYING UNIT TO THE TUNE OF RS.21,14,495/-, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN WORKING OUT PROPORTIONATE INTEREST OF RS. 10.40 LACS ON AVERAGE RATE ON INVESTMENT ON FIX ED ASSETS. AS ALREADY DISCUSSED, ADDITION IN EXISTING ASSETS IS A REVENUE EXPENSE. AS SUCH, THE ADDITION OF RS. 10.40 LACS IS DELETED, ALLOWING THI S GROUND OF APPEAL. 19. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDER OF THE ASSESSING OFFICER AND LD. AR FOR THE ASSESSEE PLACE D RELIANCE ON THE ORDER OF THE CIT(APPEALS). 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF ESTIMATED INTEREST EXPENDITURE RELATABLE TO ADDITION IN THE A CCOUNT OF BUILDING ELECTRICAL INSTALLATION AND MISC. FIXED ASSETS. TH E ASSESSEE, DURING THE YEAR UNDER CONSIDERATION HAD SET UP A DYEING UN IT AND HAD RAISED TERM LOAN FOR ADDITION TO THE FIXED ASSETS FOR DYEI NG UNIT, WHICH WERE CAPITALIZED BY THE ASSESSEE ITSELF TO THE TUNE OF R S. 21,14,495/-. FURTHER, THE ASSESSEE HAS NOT ESTABLISHED ANY OTHER UNIT NOR THERE IS ANY EXTENSION OF THE UNIT, THOUGH VARIOUS ADDITIONS WERE MADE TO THE FIXED ASSETS UNDER THE HEAD BUILDING ACCOUNT, ELECT RICAL INSTALLATION AND MISC. FIXED ASSETS THROUGH OUT THE YEAR. UNDER THE PROVISO TO SECTION 36(1)(III) OF THE ACT, IT IS PROVIDED THAT WHERE ANY AMOUNT OF 10 INTEREST PAID RELATES TO THE CAPITAL BORROWED FOR A CQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESS ION, THEN THE SAME IS NOT TO BE ALLOWED AS DEDUCTION BEING INTEREST RE LATABLE TO THE PERIOD BEGINNING FROM DATE ON WHICH CAPITAL WAS BOR ROWED FOR THE ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUC H ASSET WAS FIRST PUT TO USE. THE BASIC CONDITION FOR ATTRACTING THE PROV ISO TO SECTION 36(1)(III) OF THE ACT IS THAT THE CAPITAL SHOULD BE BORROWED FOR ACQUISITION OF AN ASSET WHICH IN-TURN IS FOR EXTENS ION OF BUSINESS OR ESTABLISHMENT OF NEW BUSINESS. THE ASSESSING OFFIC ER, IN THE PRESENT CASE HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO PROVE THAT THE ASSESSEE HAD EXTENDED ITS BUSINESS DURING THE YEAR UNDER CONSIDERATION FOR WHICH CAPITAL WAS BORROWED AND UT ILIZED FOR THE PURCHASE OF ASSETS FOR EXTENSION OF THE BUSINESS OF THE ASSESSEE. IN THE ABSENCE OF THE SAME, WE FIND NO MERIT IN APPLYI NG THE PROVISIONS OF THE PROVISO TO SECTION 36(1)(III) OF THE ACT. T HE CIT(APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT THE ADDITIONS WERE MADE BY THE ASSESSEE BY WAY OF ACQUISITION OF ASSET S TO THE EXISTING BUSINESS. THE LD. DR FOR THE REVENUE HAS FAILED TO CONTROVERT SUCH FINDING OF THE CIT(APPEALS) AND IN THE ABSENCE OF T HE SAME, WE FIND NO MERIT IN GROUND OF APPEAL NO. 1 RAISED BY THE RE VENUE AND THE SAME IS DISMISSED. 21. THE GROUNDS OF APPEAL NO. 2 & 3 RAISED BY THE R EVENUE ARE AGAINST THE ALLOWANCE OF RELIEF OF FREIGHT CHARGES PAID AMOUNTING TO RS. 250,093/-. THE ASSESSING OFFICER HAD DISALLOWE D THE SAID AMOUNT AS PER PARA 7.1(A) IN RESPECT OF FREIGHT PAID TO TR ANSPORTERS, FOR NON- DEDUCTION OF TAX AT SOURCE AND AS SUCH THE APPLICAT ION OF PROVISIONS OF SECTION 40A(IA) OF THE ACT. THE CIT(APPEALS) VI DE PARA 34 AT PAGES 19 AND 20 OF THE APPELLATE ORDER HAD ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THE ASSESSEE AS NOT LIABLE TO DEDU CT TAX AT SOURCE 11 UNDER SECTION UNDER SECTION 194C OF THE ACT ON PAYM ENT OF FREIGHT ON INDIVIDUAL CONTRACTS. IN THE ABSENCE OF ANY CONTRA CT BETWEEN THE ASSESSEE AND THE TRANSPORTER, THE CIT(APPEALS) APPL IED THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS UNITED RICE LTD. 217 CTR 332. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE FACTS OF THE PRESENT CASE, EACH INDIVIDUAL GR W AS LESS THAN RS. 20,000/- THOUGH PAYMENT WAS MADE TO SAME TRANSPORTE R. THE ASSESSEE CLAIMS THAT THERE WAS NO CONTRACT FOR CARRIAGE OF T RANSPORTATION OF GOODS BETWEEN THE ASSESSEE AND THE TRANSPORTER. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WHERE EACH GR WAS LESS THA N RS. 20,000/-, AND IN THE ABSENCE OF ANY CONTRACT, THE PROVISIONS OF SECTION 194C OF THE ACT ARE NOT ATTRACTED AND THERE WAS NO LIABILIT Y UPON THE ASSESSEE TO DEDUCT TAX AT SOURCE. UPHOLDING THE ORDER OF CI T(APPEALS), WE DISMISS THE GROUND NOS. 2 & 3 RAISED BY THE REVENUE . 23. THE ISSUE IN GROUND NO. 4 RAISED BY THE REVENUE IS AGAINST THE ALLOWANCE OF EXCESS DEPRECIATION @ 15% IN RESPECT O F FEE PAID TO THE REGISTRAR OF THE COMPANY. THE ASSESSING OFFICER VI DE PARA 4.1 AT PAGE 4 NOTED THE ASSESSEE TO HAVE INCLUDED THE SUM OF RS. 10 LACS RELATING TO FEE FOR INCREASE IN AUTHORIZED CAPITAL PAID TO REGISTRAR OF COMPANIES IN PLANT & MACHINERY ACCOUNT AND CLAIMED DEPRECIATION ON THE SAME. THE EXPLANATION OF THE ASSESSEE WAS T HAT THE FEE FOR INCREASE IN AUTHORIZED CAPITAL WAS PAID TO THE REGI STRAR OF COMPANIES FOR MOBILIZING FUNDS BY INCREASING THE SHARE CAPITA L FOR THE PURCHASE OF PLANT & MACHINERY AND OTHER ASSETS. THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THE SAID ACCOUNT WAS CAPITAL IN NATUR E BUT COULD NOT BE TREATED AS DIRECTLY RELATABLE TO THE ADDITIONS TO P LANT & MACHINERY AND CONSEQUENTLY, THE DEPRECIATION CLAIMED @ 15% ON THE SAME WAS 12 DISALLOWED, RESULTING IN ADDITION OF RS. 1,50,000/- . THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE IN V IEW OF THE RATIO LAID DOWN BY THE APEX COURT IN PUNJAB STATE INDUSTR IAL DEVELOPMENT CORPORATION LTD. VS CIT 225 ITR 792 (S.C). 24. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT(APPEALS) AND RELIANCE WAS PLACED UPON THE ORDER OF ASSESSING OFFICER BY THE LD. DR FOR THE REVENUE. THE LD. AR FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE CIT(APPEALS). 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ADMITTEDLY THE HON'BLE SUPREME COURT IN PUNJAB STAT E INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS CIT (SUPRA) HAS LAI D DOWN THE PRINCIPLE THAT THE FEE PAID TO THE REGISTRAR OF COM PANIES FOR EXPANSION OF THE CAPITAL BASE WAS TO BE TREATED AS CAPITAL EXPENDITURE. HOWEVER, IN THE FACTS OF THE PRESENT CASE BEFORE US, THE CLAIM OF THE ASSESSEE IS THAT ADDITIONAL FUNDS WERE MOBILIZED BY RAISING THE CAPITAL FOR THE PURPOSE OF INVESTMENT I N PLANT & MACHINERY AND OTHER ASSETS. CONSEQUENTLY, THE FEE PAID TO THE REGISTRAR OF COMPANIES FOR EXPANSION OF THE CAPITAL RAISE OF THE COMPANY WAS DIRECTLY RELATABLE TO SUCH ASSETS REQUI RED BY THE ASSESSEE UNDER THE HEAD PLANT & MACHINERY. WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT, WHEREIN IT HAS BEEN HELD AS UNDER : WE DO NOT CONSIDER IT NECESSARY TO EXAMINE ALL TH E DECISIONS IN EXTENSO BECAUSE WE ARE OF THE OPINION THAT THE F EE PAID TO THE REGISTRAR FOR EXPANSION OF THE CAPITAL BASE OF THE COMPANY WAS DIRECTLY RELATED TO THE CAPITAL EXPENDITURE INC URRED BY THE COMPANY AND ALTHOUGH INCIDENTALLY THAT WOULD CERTAI NLY HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN PR OFIT- MAKING, IT STILL RETAINS THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPENDITURE WAS DIRECTLY RELATED TO THE E XPANSION OF THE CAPITAL BASE OF THE COMPANY. WE ARE, THEREFORE , OF THE OPINION THAT THE VIEW TAKEN BY THE DIFFERENT HIGH C OURTS IN FAVOUR OF THE REVENUE IN THIS BEHALF IS THE PREFERA BLE VIEW AS 13 COMPARED TO THE VIEW BASED ON THE DECISION OF THE M ADRAS HIGH COURT IN KISENCHAND CHELLARAMS CASE (1981) 130 ITR 385. WE, THEREFORE, ANSWER THE QUESTION RAISED FOR OUR DETER MINATION IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE REVENUE AND A GAINST THE ASSESSEE. THE TAX REFERENCE WILL STAND ANSWERED ACCORDINGLY WITH NO ORDER AS TO COSTS. THE EXPENDITURE BEING HELD TO BE CAPITAL IN NATURE, NO DEPRECIATION IS ALLOWABLE ON THE SAME. ACCORDINGLY, WE REVERSE THE ORDER OF CIT(APPEALS) ON THIS ISSUE AND GROUND NO. 4 RAISED BY THE REVENUE IS, THUS ALLOWED. 26. THE GROUND NO. 5 RAISED BY THE REVENUE IS AGAIN ST THE ORDER OF CIT(APPEALS) IN ALLOWING EXCESS DEPRECIATION AT 15% ON PLANT & MACHINERY ON ELECTRICAL INSTALLATIONS. THE LD. COU NSEL FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IS COVERED BY T HE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE EARLIER YE ARS WHERE SIMILAR CLAIM HAS BEEN ALLOWED. WE FIND THAT IDENTICAL ISS UE OF DEPRECIATION @ 15% ON ELECTRICAL INSTALLATIONS AROSE BEFORE THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO. 26/CHD/2007 RELATIN G TO ASSESSMENT YEAR 2003-04, WHEREIN THE TRIBUNAL VIDE ORDER DATED 20.07.2007 HAS DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATIO N @ 15% ON ELECTRICAL INSTALLATIONS. FOLLOWING THE SAME PARIT Y OF REASONING, WE UPHOLD THE ORDER OF CIT(APPEALS) AND DISMISS GROUND NO.5 RAISED BY THE REVENUE. 27. THE ISSUE IN GROUND NO.6 RAISED BY THE REVENUE IS AGAINST RELIEF ALLOWED BY THE CIT(APPEALS) IN RESPECT OF EMPLOYEE S CONTRIBUTION TO EPF WHICH, AS PER THE ASSESSING OFFICER WAS DEPOSIT ED BEYOND THE RESPECTIVE DUE DATES. THE ASSESSING OFFICER HAD DI SALLOWED SUM OF RS. 20,61,167/- ON ACCOUNT OF THE NON-DEPOSIT OF TH E EMPLOYEES SHARE OF EPF WITHIN THE STIPULATED PERIOD. THE DET AILS OF LATE 14 PAYMENTS ARE TABULATED AT PAGES 11 & 12 OF THE APPE LLATE ORDER. THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE FOLL OWING THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN CIT VS NUCHEM LTD. IN ITA NO. 323 OF 2009 FOLLOWING THE DE CISION OF THE HON'BLE APEX COURT IN CIT VS ALOM EXTRUSIONS (2009) 227 CTR 417 (S.C). THE CIT(APPEALS) HAD FURTHER PLACED RELIANC E ON THE RATIO LAID BY HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V LAK HANI INDIA LTD. IN ITA NO. 325 OF 2009-JUDGEMENT DATED 16.11.2 009. THE AMOUNTS WERE FOUND TO BE DEPOSITED BEFORE THE DUE D ATE OF FILING THE RETURN OF INCOME AND CONSEQUENTLY, ADDITION OF RS. 20,61,167/- WAS DELETED BY THE CIT(APPEALS). WE ARE IN CONFORMITY WITH THE ORDER OF CIT(APPEALS) IN VIEW OF THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT AND FOLLOWING THE SAME, WE DISMISS GROUN D NO.6 RAISED BY THE REVENUE. 28. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED AND THAT OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER,2013. SD/- SD/- ( T.R.SOOD) (SUSHMA C HOWLA) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 28 TH OCTOBER, 2013 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR ITAT,CHD.