ACIT, UDAIPUR V. M/s. Nahar Colour & Coating Ltd., UDAIPUR

ITA 193/JODH/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7958 (ITAT-JODHPUR)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K CHOWBE SHRI G R KOKANI
• Assessee Lawyers: R K POKARNA
• Keywords: Depreciation; Revised return
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NOS. 193, 290 & 291/JU/2012 ASSESSMENT YEARS: 2008-09, 2005-06 & 2006-07 THE A.C.I.T VS. M/S NAHAR COLOUR & COATI NG LTD CIRCLE - 2 G- 1, 90-93, UDYOG VIHAR, UDAIPUR SUKHER, UDAIPUR PAN NO. AAACN 6942 K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.K. POKARNA DEPARTMENT BY : SHRI R.K. CHOWBE SHRI G.R. KOKANI DATE OF HEARING : 16.11.2012 DATE OF PRONOUNCEMENT : 14.12.2012 ORDER PER HARI OM MARATHA, J.M. THE ABOVE CAPTIONED THREE APPEALS HAVE BEEN FILED B Y THE REVENUE AGAINST THE SAME ASSESSEE. THESE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF THE CIT(A), 2 UDAIPUR. FOR A.Y. 2008-09, THE APPELLATE ORDER IS D ATED 28.2.2012 AND FOR TWO ASSESSMENT YEARS, NAMELY, 200 5-06 & 2006-07, THE APPELLATE ORDER IS COMMON AND DATED 7.5.2012. BUT THE ISSUES INVOLVED IN THEM ARE INTE R- CONNECTED AND TO SOME EXTENT ARE COMMON AND IDENTIC AL. THEREFORE, FOR THE SAKE OF CONVENIENCE AND BREVITY, THESE APPEALS ARE BEING DECIDED BY A COMMON ORDER. ITA NO. 193/JU/2012 [ASSESSMENT YEAR 2008-09] 2. THIS IS AN APPEAL OF THE REVENUE FILED AGAINST T HE COMMON ORDER DATED 28.2.2012 OF THE LD. CIT(A), UDA IPUR. THE APPELLANT [REVENUE] HAS RAISED THE FOLLOWING GR OUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN : 1. DELETING THE DISALLOWANCE OF EXCESS DEPRECIATION OF RS. 13,66,440/- CLAIMED ON WIND-MILL 2. DELETING THE DISALLOWANCE OF DEPRECIATION CLAIMED @ 80% ON EVACUATION CHARGES OF RS. 20,20,000/-. 3 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE- COMPANY IS ENGAGED IN THE MANUFACTURING OF GLAZE FR IT MAINLY USED FOR CERAMIC TILE MANUFACTURING UNITS. I T IS ALSO ENGAGED IN GENERATION OF WIND-POWER-ENERGY. THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME FOR ASS ESSMENT YEAR 2008-09 ON 29.9.2008, DISCLOSING TOTAL INCOME OF RS. 1,31,999,340/-. SUBSEQUENTLY, THE ASSESSEE REVISED ITS RETURN ON 16.3.2010 IN WHICH INCOME WAS DISCLOSED A T RS. 2,18,04,980/-. IN THE REVISED RETURN, THE ASSESSEE ITSELF WITHDREW THE CLAIM OF DEDUCTION MADE U/S 80IA OF TH E INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'T HE ACT', FOR SHORT]. THE ASSESSEE HAD GOT INSTALLED A WINDMI LL THROUGH SUZLON INFRASTRUCTURE LIMITED ON WHICH DEPRECIATION @ 80% HAS BEEN CLAIMED. THE VALUE OF ASSETS AND RATE OF DEPRECIATION APPLIED BY THE ASSESSEE TO CLAIM DEPRECIATION IS AS UNDER : ITEM COST RATE OF DEPRECI ATION CIVIL WORK INCLUDING FOUNDATION WORK & TRANSFORMER PLINTH, ETC RS. 26,61,554/ - 80% OTHER WORKS [LABOUR RELATED ] RS. 11,88,769/ - 80% 4 COST OF WIND MILL, TUBULAR TOWER AND LABOUR WORK FOR INSTALLATION AND FINAL TESTING RS.2,85,76,881/ - 80% LAND EVACUATION CHARGES RS. 2 0 , 20 , 000 / - 80% ELECTRICAL ITEMS [938000 + 813904] RS. 17,51,904/ - 80% INSTALLATION OF ELECTRICAL LINE FOR POWER TRANSMISSION AND METERING JOB RS. 13,38,141/ - 80% THERE IS NO DISPUTE WITH REGARD TO DEPRECIATION ON WIND- MILL AND THE A.O. HAS ACCEPTED IT @ 80%. THE ONLY DISPUTE IS WITH REGARD TO THE FOLLOWING ITEMS: (I) CIVIL WORK FOUNDATION [COST 34,60,760/-] (II) ELECTRICAL ITEMS, COMPONENTS AND INSTALLATION [COST 31,41,435/- (III) COMMON POWER EVACUATION [COST 31,25,000/-] AS PER THE ASSESSEE, THE ABOVE ITEMS ARE INTEGRAL P ART OF WINDMILL. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO W HY DEPRECIATION BE NOT ALLOWED AT NORMAL RATES WITH RE GARD TO CIVIL AND OTHER WORK INCURRED ON ERECTION AND CONST RUCTION ON WINDMILL. THE ASSESSEE REPLIED ON 4.11.2010 STA TING THAT THE CIVIL CONSTRUCTION FOUNDATION OF WIND MILL DOES 5 NOT TANTAMOUNT TO BUILDING OF PLANT AND MACHINERY. IT WAS STATED THAT VARIOUS COURTS, INCLUDING THE TRIBUNAL, HAVE HELD THAT THESE ARE NECESSARY PART OF A WINDMILL. BUT, THE A.O. IGNORED THE SUBMISSION OF THE ASSESSEE AND RED UCED THE CLAIM OF DEPRECIATION BY APPLYING RATE OF 15% I NSTEAD OF 80% AS CLAIMED BY THE ASSESSEE. CONTRARY TO THE ABOVE, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ON CIVIL WORK AND FOUNDATION AND ELECTRICAL ITEMS, COMPONENT S AND INSTALLATION ETC. NOW THE REVENUE IS AGGRIEVED AND HAS FILED THIS APPEAL. 4. AFTER HEARING BOTH THE SIDES, WE ARE CONVINCED T HAT THERE IS NO ERROR IN THE FINDING OF THE LD. CIT(A). THE ISSUES INVOLVED IN THIS APPEAL ARE SQUARELY COVERED BY THE DECISION OF THE JODHPUR BENCH WHICH HAVE RENDERED A DECISION, IN FAVOUR OF THE ASSESSEE, UNDER IDENTICA L FACTS AND THE CIRCUMSTANCES OF THE CASE ESPECIALLY IN THE CASE OF K.K. ENTERPRISES, UDAIPUR VS. DCIT ITA NO. 438/JU/2 010 DATED 20.9.2012, COPIES OF WHICH ARE ENCLOSED IN TH E PAPER BOOK FURNISHED BY THE ASSESSEE. THE A.O. HAS DISAL LOWED 6 ALLEGED EXCESS CLAIM OF DEPRECIATION MADE BY THE ASSESSEE. THE FOLLOWING CHART DEPICTS THE ITEM-WIS E DEPRECIATION CLAIMED AND ALLOWED: ITEM COST (RS.) ELIGIBLE RATE OF DEPRECI ATION DEPRECIATION ALLOWABLE @ 50% (RS.) EXCESS CLAIM BY THE ASSESSEE (RS.) FOUNDATION WORK AND TRANSFORMER 26,61,554/ - 10% 1,33,077/ - 9,31,544 COST OF WIND-MILL, TOWER AND INSTALLATION CHARGES 2,73,20, 696 + 11,88,769 80% 1,14,30,752 - TRANSFORMER AND ELECTRICAL COMPONENTS 17,51,904 80% 7,00,761 - ELECTRICAL ITEMS AND INSTALLATION 13,38,141 15% 1,00,360 4,34,896 13,66,440 SO, THE A.O. HAS DISALLOWED TOTAL EXCESS CLAIM OF DEPRECIATION OF RS. 13,66,440/- [RS. 9,31,544/- ON FOUNDATION WORK AND TRANSFORMER PLINTH, AND RS. 4,34,896/- ON ELECTRICAL ITEMS AND INSTALLATION]. THIS AMOUNT HAS BEEN DELETED BY THE LD. CIT(A) AD IS THE SUBJECT-MATTER OF GROUND NO. 1 OF REVENUES APPEAL. DELETION OF ADDITION OF RS. 20,20,000/- RELATES TO 7 DISALLOWANCE OF EXCESS CLAIM OF DEPRECIATION ON EVA CUATION CHARGES. THIS ISSUE IS THE SUBJECT MATTER OF GROUN D NO. 2. 5. WE WILL DISCUSS AL THE ISSUES HEAD-WISE. EXPENDITURE ON FOUNDATION AND ELECTRICAL REGARDING INSTALLATION OF WIND-MILL THE WIND TURBINE GENERATION MACHINE OF 600 KW ALONG WITH ROTOR BLADES ARE INSTALLED AT 50 FEET ABOVE THE GRO UND LEVEL AND ITS VERY WEIGHT RUNS INTO TONES. WITHOUT SPECIFIC AND SPECIALIZED INSTALLATION AND FOUNDATION, WIND-M ILL CANNOT BE PUT TO USE AND AS SUCH, THE FOUNDATION EX PENSES WHICH, ALTHOUGH ARE IN THE NATURE OF CIVIL CONSTRUC TION EXPENSES, THEY ESSENTIALLY FORM PART OF WIND-MILL. THE EXPENDITURE INCURRED FOR THE PURPOSE OF BRINGING IN TO EXISTENCE AN ASSET OF CAPITAL NATURE HAS TO BE CAPI TALIZED AS PART OF THAT ASSET. THE EXPENDITURE INCURRED TO BRING INTO EXISTENCE SOME SPECIFIC ASSET WILL BE ADDED TO THE COST OF THE ASSET ONLY. THE HON'BLE BOMBAY HIGH CO URT HAS HELD IN THE CASE OF CIT VS. HERDILLIA CHEMICALS LTD [1995] 8 216 ITR 742 [BOMBAY] THAT THE EXPENDITURE INCURRED ON FOUNDATION FOR FIXING THE PLANT AND MACHINERY WOULD FORM PART OF THE COST OF PLANT AND MACHINERY AND THE ASS ESSEE WOULD BE ENTITLED TO DEPRECIATION AT THE SAME RATE AS APPLICABLE TO THAT PLANT AND MACHINERY. HON'BLE MA DRAS HIGH COURT HAS TAKEN A SIMILAR VIEW IN THE CASE OF ACIT VS. MADRAS CEMENTS LTD [1977] 110 ITR 281 [MAD] WHILE T HE HON'BLE SUPREME COURT HAS ALSO FORTIFIED THE ABOVE VIEW IN THEIR DECISION RENDERED IN THE CASE OF CIT VS. KARN ATAKA POWER CORPORATION [2001] 247 ITR 268 [HON'BLE SUPRE ME COURT]. THE HON'BLE JURISDICTIONAL HIGH COURT HAS ALSO HELD THAT THE MASSIVE REINFORCED CONCRETE STRUCTURE, ESP ECIALLY DESIGNED TO TAKE UP LOANS CONSTITUTED PLANT WITHI N THE MEANING OF SECTION 43(3) OF THE ACT. THE DECISION SO RENDERED WAS IN THE CASE OF CIT VS. R.G. ISPAT LTD [1995] 186 CTR 262 [RAJ]. THEREFORE, WE ARE CONVINCED THA T THE DEPRECIATION ON FOUNDATION WORK AND TRANSFORMER PLI NTH AND ON INSTALLATION AND ELECTRIC LINES, ETC. IS TO BE ALLOWED AT THE RATE AT WHICH WIND-MILL IS ALLOWABLE. 9 6. WE CAN FURTHER FORTIFY OUR ABOVE VIEW WITH THE DECISION OF THE JODHPUR BENCH TAKEN ON IDENTICAL FA CTS, IN THE CASE OF K.K. ENTERPRISES, UDAIPUR VS. DCIT [SUP RA], COPY OF WHICH IS PLACED AT PAGES 1 TO 9 OF THE ASSE SSEES PAPER BOOK. THUS, THE DECISION OF THE LD. CIT(A) I N DELETING DISALLOWANCE OF DEPRECIATION MADE BY THE A .O. OF RS. 9,31,544/- AND RS. 4,34,896/- IS IN CONSONANCE OF TESTED JUDICIAL VIEW AND EARLIER DECISION OF JODHPU R BENCH. 7. LIKEWISE, THE POWER EVACUATION CHARGES ARE ESSEN TIAL PART OF PLANT INSTALLATION AND WITHOUT WHICH, WIND POWER PLANT CANNOT RUN. THE A.O. HAS INCORRECTLY MENTION ED THAT IT IS LAND EVACUATION CHARGES. ELECTRICITY GENERAT ED BY THE WINDMILL IS TRANSMITTED TO THE STATE ELECTRICITY BO ARDS GRID THROUGH POWER EVACUATION FACILITY. POWER EVAC UATION IS ESSENTIAL TO TRANSMIT ELECTRICITY GENERATED BY W INDMILL TO STATE ELECTRICITY GRID WITHOUT WHICH IT IS IMPOS SIBLE TO SELL THE POWER GENERATED BY THE WIND-MILL. THIS SY STEM IS DEVELOPED BY AUTHORIZED AGENCIES BY THE STATE GOVERNMENT. FOR AUGMENTATION OF TRANSMISSION/ 10 DISTRIBUTION SYSTEM TO EVACUATE THE POWER FROM RECE IVING STATION, DISCOM DEVELOP/AUGMENTS THE NECESSARY TRANSMISSION/DISTRIBUTION NETWORK AND FOR THAT, THE ASSESSEE PAYS ITS ONE-TIME CHARGES, WHICH ARE NON- REFUNDABLE. THUS, EVACUATION CHARGES PAID ARE AN I NTEGRAL PART OF THE COST OF ACQUIRING THE WIND-MILL. SIMIL AR VIEW HAS BEEN TAKEN BY THE JODHPUR BENCH IN THE CASE OF K.K. ENTERPRISES [SUPRA]. THEREFORE, BY RESPECTFULLY FO LLOWING THE TRIBUNAL ORDER, WE CANNOT ALLOW THE GROUNDS RAI SED BY THE REVENUE AND CONFIRM THE FINDING OF THE LD. CIT( A). ACCORDINGLY, BOTH THE GROUNDS RAISED IN THIS APPEAL STAND DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ITA NO. 290/JU/2012 [ASSESSMENT YEAR 2005-06] 9. THIS IS AN APPEAL OF THE REVENUE FILED AGAINST T HE COMMON ORDER DATED 7.5.2012 OF THE LD. CIT(A), UDAI PUR. 11 10. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN : 1. DELETING THE ADDITION OF RS. 1,92,584/- U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF COMMISSION PAID WITHOUT TDS 2. DELETING THE DISALLOWANCE EXPENDITURE OF RS. 46,49,403/- U/S 40(A)(IA) OF THE ACT. 3. DELETING THE DISALLOWANCE OF DEPRECIATION ON DG SET AND COOLING TOWERS TREATING PART AND PARCEL OF THE FURNACE WHICH WAS RESTRICTED FROM 80% TO 25% APPLICABLE TO PLANT AND MACHINERY. 11. THE FIRST ISSUE OF THIS APPEAL IS REGARDING DEL AYED PAYMENT OF TDS AMOUNT OF RS. RS. 1,92,584/-. THE ASSESSEE HAS CREDITED A SUM OF RS. 1,92,584/- TO M/ S CERA CERAMICS AS COMMISSION. ON THIS AMOUNT, TDS WAS DEDUCTED ON 8.2.2005 WHICH SHOULD HAVE BEEN DEPOSIT ED IN THE GOVERNMENT ACCOUNT BY 7.3.2005 AS PER PROVISION S OF SECTION 200(I) OF THE ACT. AS AGAINST WHICH, THE A SSESSEE HAS DEPOSITED THIS TDS ON 6.4.2005. WHEN CONFRONTED , THE ASSESSEE SUBMITTED AS UNDER: 12 IT IS SUBMITTED THAT TAX WAS PROPERLY DEDUCTED AND TIMELY DEPOSITED IN THE CASE OF COMMISSION PAID TO CERA CERAMICS. WE ARE ENCLOSING HEREWITH COPY OF ACCOUNT OF CERA CERAMICS AND COPY OF ACCOUNT OF TDS DEDUCTED AND DEPOSITED FOR YOUR HONOURS KIND VERIFICATION. THEREFORE, PROVISIONS OF SECTION 40( A) ARE NOT ATTRACTED. BUT THE A.O HAS NOT AGREED WITH THE ABOVE SUBMISSIO N OF THE ASSESSEE. HE WAS OF THE VIEW THAT THE TDS WAS DEPOSITED BEYOND THE PRESCRIBED TIME-LIMIT AND THAT TOO, IN THE SUBSEQUENT YEAR. THEREFORE, BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA), HE HAS DISALLOWED THIS SUM OF RS. 1,92,584/- AND HAS ADDED IT TO THE ASSESSEE S INCOME OF THIS YEAR. HOWEVER, THE LD. CIT(A) HAS DE LETED THIS ADDITION. NOW THE REVENUE IS AGGRIEVED. THE LD. COUNSEL FOR THE DEPARTMENT HAS GIVEN THE SAME REASO NS IN SUPPORT OF GROUND RAISED IN THIS REGARD AS GIVEN BY THE A.O., AS ABOVE. THE LD. COUNSEL FOR THE ASSESSEE H AS SUPPORTED THE FINDING OF THE LD. CIT(A), AND HAS ST ATED THAT THIS ISSUE STANDS SQUARELY COVERED BY THE TRIB UNAL ORDER RENDERED BY THE JODHPUR BENCH. 13 12. AFTER HEARING BOTH THE SIDES AND GOING THROUGH THE ENTIRE RECORD, INCLUDING THE PROVISIONS AND THE REL EVANT PRECEDENTS, WE ARE CONVINCED THAT THE DECISION OF L D. CIT(A) IN DELETING THIS ADDITION IS CORRECT. 13. THE A.O. HAS POINTED OUT THAT THE COMMISSION OF RS. 1,92,584/- WAS DEDUCTED ON 8.2.2005 WHICH SHOULD HA VE BEEN DEPOSITED BY 7.3.2005 WHILE THE SAME WAS DEPOS ITED ON 6.4.2005. THE ASSESSEES CASE IS THAT THE BILL AFTER VERIFICATION WAS PASSED FOR PAYMENT ON 1.3.2005 AND TDS WAS MADE ON 1.3.2005, WHICH WAS DEPOSITED ON 7.4.20 05, AND THE SAME IS WITHIN THE PRESCRIBED LIMIT. THE L D. CIT(A) HAS RELIED ON THE DECISION OF THE HON'BLE CA LCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS ORDER DATED 20.11.2011, HOLDING THAT THE FINANCE ACT, 201 0 HAS AMENDED THE PROVISIONS OF SECTION 40(A)(IA) WHICH A RE APPLICABLE W.E.F. 1.4.2005 AND AS PER THIS AMENDED PROVISION, THE EXPENDITURE IS ALLOWABLE IF THE TAX HAS BEEN DEDUCTED AT SOURCE BEFORE THE END OF THE PREVIOUS Y EAR AND PAID BEFORE THE DUE DATE OF FILING OF THE RETUR N OF 14 INCOME. IN THIS CASE, ADMITTEDLY AND UNDENIABLY TH E RETURN OF INCOME WAS FILED BEFORE THE DUE DATE. THEREFORE, WE ARE ALSO IN AGREEMENT WITH THE ABOVE FINDING OF THE LD. CIT(A) WHICH COULD NOT BE SUCCES SFULLY CONTROVERTED BY THE DEPARTMENT. FURTHERMORE, WE H AVE NOTICED THAT THE ASSESSEE COMPANY PAID QUARTERLY COMMISSION TO M/S CERA CERAMICS AND THE REQUIRED TD S FOR EACH QUARTER WAS DULY DEDUCTED AND DEPOSITED AS PER LAW. THE BILL OF 3 RD QUARTER WAS RECEIVED BY THE ASSESSEE- COMPANY AND AFTER NECESSARY VERIFICATION, BILL WAS PASSED FOR PAYMENT ON 1.3.1985 AND TDS WAS MADE ON 1.3.198 5 AND WAS DEPOSITED IN TIME ON 7.4.2005. ON THIS REA SON ALSO, NO SUCH ADDITION CAN BE MADE. 14. FACTS APROPOS OF SECOND GROUND ARE THAT THE ASS ESSEE- COMPANY PAID AN AMOUNT OF RS. 42,70,253/- TO M/S IN DUS INTERMODAL CARRIERS [BOMBAY] PVT. LTD, FOR THE IMPO RT OF RAW MATERIAL AS CLEARING AND FORWARDING CHARGES. AS PER THE A.O., THIS PAYMENT WAS MADE TO THE CLEARING AND FORWARDING AGENT FOR THE IMPORT OF RAW MATERIAL AND 15 EXPORT OF FINISHED GOODS UNDER THE HEAD CLEARING EXPENSES WHICH FALL U/S 194C AND THE ASSESSEE IS R EQUIRED TO DEDUCT TAX AT SOURCE BY RELYING ON BOARDS CIRCU LAR NO. 715 DATED 8.8.1995. ACCORDINGLY, HE HAS MADE AN AD DITION OF RS. 46,49,403/- [RS. 4270,23/- MINUS RS. 3,79,15 0/-]. THE ASSESSEE CHALLENGED THIS ADDITION IN FIRST APPE AL AND SIMILAR ARGUMENTS WERE ADVANCED BY THEIR LD. COUNSE L FOR THE ASSESSEE AGAINST THE IMPUGNED ADDITIONS, AS WER E TAKEN BEFORE THE A.O. THE LD. COUNSEL FOR THE ASSES SEE ARGUED AS TO HOW CIRCULAR NO. 715 WAS NOT APPLICABL E BUT INSTEAD CIRCULAR NO. 723 DATED 19.9.1995 OF CBDT WO ULD APPLY. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BILL- WISE DETAIL OF CLEARING AND FORWARDING CHARGES, TO EXPLAIN THAT AMOUNT PAID TO CFA AS REIMBURSEMENT OF EXPENSE S ON BEHALF OF THE ASSESSEE IS RS. 38,71,866/- [RS. 16,5 6,020/- + RS. 22,15,848/-] AND AGENCY CHARGES WERE PAID TO THE TUNE OF RS. [2,35,482/- + RS. 5,98,033/-] ONLY. HE ALSO DISCUSSED AS TO WHY THE TDS PROVISIONS WILL NOT APP LY TO THE FACTS OF THE CASE, WITH THE HELP OF VARIOUS DEC ISIONS. THE LD. CIT(A), AFTER AGREEING WITH THE LD. COUNSEL FOR THE 16 ASSESSEES SUBMISSION, HAS DELETED ENTIRE ADDITION OF RS. 46,49,403/-. NOW THE REVENUE IS AGGRIEVED. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PE RUSED THE RELEVANT MATERIAL ON RECORD. IT WAS ARGUED BY T HE LD. COUNSEL FOR THE DEPARTMENT, SHRI R.K. CHOWBE THAT T HE A.O. HAS CORRECTLY ADDED THE HANDLING CHARGES BY DISALLOWING U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF NON- DEDUCTION OF TAX RELYING ON THE QUESTION/ANSWERS GI VEN IN THE BOARDS CIRCULAR NO. 715 DATED 8.8.1995. HE HA S SUPPORTED THE FINDING OF THE A.O, IN TOTO. HE HAS R EPEATED THE ENTIRE REASONS TAKEN BY THE A.O. TO SUPPORT THI S GROUND OF APPEAL. AS AGAINST WHICH THE LD. COUNSEL FOR THE ASSESSEE, SHRI POKHARANA, HAS TAKEN THE REASONING W HICH WERE TAKEN BEFORE THE A.O. AND THE LD. CIT(A) AND H AS AGREED WITH REFERENCE TO THE POINT MADE IN THE ORDE RS BY THE AUTHORITIES. 16. AFTER CO-AGITATING RIVAL STANDS IN THE LIGHT OF AVAILABLE EVIDENCE ON RECORD, AGREE WITH THE FINDING OF LD. C IT(A), IN 17 THIS REGARD. IT IS NOTICED FROM RECORDS THAT THE A SSESSEE HAS MADE PAYMENT OF RS. 42,70,753/- TO INDUS INTERM ODEL CARRIERS [BOMBAY] PVT. LTD. FOR PAYMENT OF DUTIES, FREIGHT AND OTHER PART EXPENSES. THE PAYEE COMPANY HAS ISS UED DETAILED BILL SUPPORTED BY PROOF OF EXPENSES INCURR ED ON ASSESSEES BEHALF. THE COMPANY HAS SEPARATELY CHAR GED FOR THIS WORK. IT WAS FOUND AS A FACT THAT THE LIK ES OF PAYEE COMPANY [AGENCY] ARE AUTHORIZED OR LICENSED T O WORK AT PARTS AND ASSESSEE HAS TO CARRY ITS WORK TH ROUGH ONE OF THEM, WITHOUT THERE BEING ANY WRITTEN AGREEM ENT, ETC. THE WORK OF MEDIATOR-AGENCY LIKE PAYMENT TO SHIPPING LINE FOR FREIGHT, FREIGHT CHARGES, ADMINIS TRATIVE AND OTHER CHARGES PAYABLE TO RESPECTIVE AUTHORITIES BY THE ASSESSEE, ARE DONE THROUGH THEM. FOR THIS WORK, TH E COMPANY [PAYEE] CHARGES, SEPARATELY APART FROM THE ACTUAL PAYMENTS MADE ON BEHALF OF THE ASSESSEE. THE ENTIR E PROCESS IS HANDLED BY THE CLEARING AGENT. FINALLY, THEY RAISE BILL SHOWING COMPLETE DETAILS OF CHARGES PAID ON ASSESSEES BEHALF AND THEIR AGENCY CHARGES, SEPARAT ELY. THE PAYMENT TO CHARGING AGENCY ARE MADE BY THE ASSE SSEE, 18 ACCORDINGLY. THE CBDT HAD CLARIFIED THROUGH ITS CI RCULAR NO. 723 DATED 19.9.1995, AS UNDER: THERE WOULD BE CASES WHERE PAYMENTS ARE MADE TO SHIPPING AGENTS OF NON RESIDENT SHIP OWNERS/CHARTER S OF SHIP FOR CARRIAGE OF PASSENGERS, ETC SHIPPED AT PORT IN INDIA. SINCE THE AGENT ACTS ON BEHALF OF T HE NON-RESIDENT SHIP OWNERS OR CHARTERER, HE STEPS INT O THE SHOES OF THE PRINCIPAL. ACCORDINGLY, PROVISION S OF SECTION 172 SHALL APPLY AND THOSE OF SECTION 194C A ND 195 WILL NOT APPLY. THUS, PAYMENTS MADE TO SHIPPING AGENTS OF NON-RESID ENT SHIP OWNERS/CHARTERS OF SHIP CARRIAGE OF PASSENGERS , ETC SHIPPED AT PARTS IN INDIA, THE AGENT STEPS INTO THE SHOES OF THE PRINCIPAL. SO, THE PROVISIONS OF SECTION 172 S HALL APPLY BUT NOT THAT OF SECTIONS 194C AND 195 OF THE ACT. THE ASSESSEE HAS GIVEN BILL-WISE DETAILS OF CLEARING AN D FORWARDING CHARGES WHICH ARE AS UNDER: 19 JOLWA UNIT :- AMOUNT PAID ON OUR BEHALF CHARGIN G OF HANDLING AGENCY TOTAL 22,15,748.00 5,98,033.00 28,13,881.00 THOOR UNIT :- AMOUNT PAID ON OUR BEHALF CHARGING OF HANDLING AGENCY TOTAL 16,56,020.00 2,35,482.00 18,91,502.00 17. WE ARE OF THE CONSIDERED OPINION THAT PAYMENT M ADE TO CFA AS REIMBURSEMENT OF EXPENSES IS NOT LIABLE T O BE DISALLOWED U/S 40(A)(IA) OF THE ACT. IN THIS REGAR D, WE DRAW SUPPORT FROM THE FOLLOWING DECISIONS: 1. IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ADDL. CIT [2012] 70 DTR 81 [VISHAKAPATANAM] WHEREIN IT HAS BEEN HELD BY A S.B. OF ITAT THAT PROVISIONS OF U/S 40(A)(IA) OF THE ACT ARE APPLICABLE ONLY TO THE AMOUNT OF EXPENDITURE WHICH IS PAYABLE AS ON 31 ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW THE EXPENDITURE WHICH HAD BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR WITHOUT DEDUCTION OF TDS. 20 2. INCOME-TAX OFFICER VS. DR. WILLMAR SCHWABE INDIA [P ] LTD 3 SOT 71 [DEL] HELD THAT REIMBURSEMENT OF EXPENSES DO NOT FALL U/S 194C. 3. THE JODHPUR BENCH HAS TAKEN A SIMILAR VIEW IN TH E CASE OF ACIT VS. M/S PYROTECH ELECTRONICS PVT. LTD IN ITA NO. 390/JU/2010. THE OPERATIVE PART OF THIS TRIBUNAL ORDER READS AS UNDER: 13. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF T HE ASSESSEE ON ACCOUNT OF THAT THESE PAYMENTS WERE MADE ON ACCOUNT OF REIMBURSEMENT OF EXPENDITURE WHICH DO NOT CONSTITUTE ANY INCOME IN THE HANDS OF PAYEE. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF GRANDPRIX FAB LTD. 34 DTR 248. THEREFORE, WE ARE OF THE VIEW LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT ON ACCOUNT REIMBURSEMENT OF EXPENSES, NO LIABILITY WAS THERE U/S 194C. 18. REGARDING REMAINING PAYMENT OF RS. 3,79,150/- I .E. PAYMENT MADE TO CFA, THE AGENT OF NON-RESIDENT SHIP PING CARRIERS IN PURSUANCE OF SEC. 175 DO NOT ATTRACT 21 APPLICATION OF SEC. 194C, WHICH IS APPLICABLE TO ON LY RESIDENTS. IN THIS REGARD, THE DECISION OF JODHPUR BENCH RENDERED IN THE CASE OF AMARJYOTHI GRANITES [INDIA] PVT. LTD VS. ACIT IN ITA NO. 201/JU/2010 AND THAT OF MIN PRO INDUSTRIES REPORTED IN 143 TTJ 331, ARE RELEVANT. 19. HENCE WE DO NOT FIND ANY FALLACY IN THE FINDING GIVEN B THE LD. CIT(A). HE HAS COME TO HIS CONCLUSION BY RELYING ON THE DECISION OF JURISDICTIONAL JODHPUR BENCH OF ITAT AND THE S.B. OF THE ITAT, INTER ALIA. BY RESPECTFULLY FOLLOWING THE HON'BLE JURISDICTIONAL BENCHS DECISION WE ARE BOUND TO UPHOLD THE DECISION OF THE LD. CIT(A), WHEN, THE RE ARE NO CONTRARY DECISIONS IN FAVOUR OF THE REVENUE. GR OUND NO. 2 OF THE REVENUES APPEAL STANDS DISMISSED. 20. THE FACTS APROPOS GROUND NO. 3 ARE THAT THE ASS ESSEE COMPANY HAS DEPRECIATION IN RESPECT TO CERAMIC FURN ACE, UNDER THE HEAD PLANT AND MACHINERY @ 80% ON AN AM OUNT OF RS. 1,88,62,593/- BEFORE 30.9.2004 AND RS. 11,66 ,229/- AFTER 30.9.2004. OUT OF RS. 1,88,62,593/-, A SUM OF RS. 22 1,34,91,276/- RELATES TO THE COST OF FABRICATION OF FURNACE AND REMAINING RELATES TO VARIOUS GENERAL PLANT AND MACHINERY AND D.G. SET. THE A.O. HAS ALLOWED DEPRECIATION ON FABRICATION OF FURNACE @ 80% BUT FO R THE REMAINING HE HAS ALLOWED @ 25%. AS PER THE ASSESSE E, THE D.G. SET IS ATTACHED TO THE FURNACE AND IS A GAS BA SED ENERGY SAVER AND IS A PART AND PARCEL OF FURNACE. BUT THE A.O. WAS NOT AGREEABLE. HE HAS HELD THAT FABRICATI ON OF FURNACE WAS COMPLETED ON 15.6.2004 AND THE DATE ON WHICH IT WAS CAPITALIZED AND TOTAL AMOUNT INCURRED IS RS. 1,34,51,276/-. THE REMAINING AMOUNT RELATES TO PUR CHASE OF DG SET AND OTHER MACHINERIES, ACCESSORIES AND VA RIOUS MACHINERIES. LIKE VACUUM CLEANER, SEWING MACHINE, COOLING TOWERS, ETC. FOR WHICH DEPRECIATION @ 80% I S NOT ALLOWABLE AS THEY ARE NOT DIRECTLY RELATED TO THE C OST OF FABRICATION OF FURNACE. ON THESE MACHINES, HE HAS ALLOWED DEPRECIATION @ 25%. THUS, A DEPRECIATION TO THE EX TENT OF RS. 32,97,213/- HAS BEEN DISALLOWED. 23 21. BEFORE THE LD. CIT(A), THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS: IT IS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION COMPANY HAS MADE ADDITIONS OF RS. 2,00,28,822/- ON SETTING UP CONTINUES FURNACE. THE DEPRECIATION ALLOWABLE ON SUCH FURNACE IS @ 80% AND ASSESSEE-COMPANY HAS CLAIMED THE SAME AS PER LAW. THE A.O., WHILE MAKING ASSESSMENT HAS ALLOWED DEPRECIATION @ 25% ON PART OF PLANT RS. 65,78,546/- INSTEAD OF 80% ARBITRARILY TREATING THE SAME AS NOT PART OF THAT FURNACE AND DISALLOWED DEPRECIATION OF RS. 32,97,213/-. THE FURNACE SET UP AT THE UNIT INCLUDES SEVERAL PAR T COMBINED TOGETHER MAKES CONTINUES FURNACE ANY PART CANNOT BE SEEN ISOLATION. IT WAS SUBMITTED BEFORE THE A.O. THAT THESE ARE GAS BASED FURNACE AND COMPLETE UNIT IS MADE OF TOO MANY SMALL UNIT AND CANNOT BE SEEN INDIVIDUALLY. THE A.O.S OBSERVATIO N THAT DG SET IS NOT THE PART OF FURNACE IS WRONG AS THIS IS NOT DG SET, THIS IS GAS BASED GENERATOR AND THE SAME WAS PART OF FURNACE AND WITHOUT THIS FURNACE CANNOT WORK. THE GAS BASED GENERATOR IS INTEGRATED PART OF FURNACE AND CANNOT BE SEPARATED. 24 IT IS SUBMITTED PROCESS OF MANUFACTURING IS SUCH TH AT IT CANNOT AFFORD TO BREAK AT ANY MOMENT OTHERWISE WHOLE BATCH OF THE PRODUCT IS LIABLE TO BE WASTE. FURTHER, FURNACE COMPRISES OF TOO MANY ITEMS AND GA S BASED GENERATOR IS ALSO ONE OF THEM. FURTHER, ASSESSEE COMPANY HAS CAPITALIZED ON THE BASIS OF COMPLETE TECHNICAL REPORTS. THE A.O. HAS NOT UNDERSTOOD COMPLETE TECHNICALITIES AND ONLY BY COMMON WORDS HE MADE HIS OPINION AND ARBITRARILY DISALLOWED DEPRECIATION ON PART OF PLAN T. THEREFORE, CONSIDERING ABOVE DEPRECIATION IS ALLOWABLE ON COMPLETE FURNACE INCLUDING THE GAS BASED GENERATOR AND ALLIED ATTACHED TO THAT. THE APPELLANT HAS FURTHER STATED THAT IN THE PROCE SS OF MANUFACTURING OF FRIT, THE REQUIRED RAW MATERIA L IS MIXED IN CERTAIN PROPORTIONS AND IS BEING MELTED PRODUCT IS THEN QUENCHED INTO WATER TO COOL DOWN AND THEN DRIED UPTO FORM CRYSTALS, FINISHED PRODUCT . ALONGWITH THIS, THE APPELLANT HAS GIVEN COPY OF LEDGER ACCOUNT FOR THE INSTALLATION OF SAID FURNACE IN SUPPORT OF HIS CONTENTIONS AND DEPRECIATION WAS ALLOWED @ 80% ON AMOUNT DEBITED TO PLANT AND MACHINERY ON COMPLETION OF KLIN IV OF RS. 1,34,91,276/-. 25 22. THE LD. CIT(A), AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, CAME TO THE CONCLUSION THAT THE DG SET IS A PART OF THE FURNACE. REGARDING OTHE R ITEMS, I.E. VACUUM CLEANER, SEWING MACHINE AND ACCESSORIES , HE HAS AGREED WITH THE A.O. AND HAS NOT ALLOWED HIGHER RATE OF DEPRECIATION. 23. AFTER GOING THROUGH THE RECORDS, WE ALSO HOLD T HAT DG SET AND COOLING OWNERS ARE PART AND PARCEL OF FURNA CE AND ARE ELIGIBLE FOR E80% RATE OF DEPRECIATION. THE OT HER ITEMS WILL GET NORMAL RATE OF DEPRECIATION. WE DON T FIND ANY ERROR IN THIS FINDING OF THE LD. CIT(A). THE D G SET IS A GAS BASED GENERATOR WHICH IS A PART OF THE FURNACE AND WITHOUT WHICH, FURNACE CANNOT WORK. THIS DG SET CAN NOT BE SEPARATED EITHER. THE COOLING TOWERS ARE ALSO AN E SSENTIAL PART OF FURNACE FUNCTION. THEREFORE, WE DISMISS GR OUND NO. 3 OF THIS APPEAL. 24. IN THE RESULT, THIS APPEAL OF THE REVENUE STAND S DISMISSED. 26 ITA NO. 291/JU/2012 25. THIS IS AN APPEAL OF THE REVENUE FILED AGAINST THE COMMON ORDER DATED 7.5.2012 OF THE LD. CIT(A), UDAI PUR. 26. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN : 1. DELETING THE ADDITION OF RS. 50,000/- U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF AUDIT FEE PAID WITHOUT TDS 2. REDUCING THE DISALLOWANCE OF EXPENDITURE OF RS . 34,20,934/- U/S 40(A)(IA) OF THE ACT. 3. DELETING THE DISALLOWANCE OF DEPRECIATION ON DG SET AND COOLING TOWERS TREATING PART AND PARCEL OF THE FURNACE WHICH WAS RESTRICTED FROM 80% TO 25% APPLICABLE TO PLANT AND MACHINERY. 27. FACTS APROPOS GROUND NO. 1 ARE THAT THE ASSESS EE HAS PAID A SUM OF RS. 50,000/- AS PROFESSIONAL FEES TO ITS AUDITORS AS PER FORM NO. 3CD, BUT NO TDS HAS BEEN DEDUCTED THEREON. THE A.O. HAS INVOKED SECTION 194 J AND HAS DISALLOWED THE ENTIRE AMOUNT U/S 40(A)(IA) OF T HE ACT. THE LD. CIT(A), TO THE CONTRARY, HAS DELETED THIS A DDITION. 27 28. WE HAVE FOUND THAT TDS ON PROFESSIONALS ARE DED UCTED AT THE TIME OF PAYMENT AS THESE ARE LIABLE TO TAX O N RECEIPT OF FEE. THE ASSESSEE-COMPANY HAS PAID THE FEE AND HAS DEDUCTED TDS AND DEPOSITED THE SAME ON 7.10.2005, PRIOR TO DUE DATE OF FILING OF RETURN OF INCOME U/S 139(1). THIS DUE DATE WAS 31.10.2005. THE LD. CIT(A) HAS HELD THIS AMOUNT CAN BE ALLOWED IN ASSESSMENT Y EAR 2006-07 AS PER SECTION 40(A)(IA) OF THE ACT. AGAIN ST THIS FINDING, THE REVENUE IS IN APPEAL. 29. AFTER HEARING BOTH SIDES, WE FIND THAT THE FEE OF RS. 50,000/- PAID A PROFESSIONAL FEE TO ITS AUDITORS FA LLS U/S 194J. TDS HAS BEEN DEDUCTED IN ASSESSMENT YEAR 200 5-06 BUT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IN OUR OPINION, THE LD. CIT(A) IS FAIR ENOUGH AND HAS TAKEN A JUST DECISION BY DIRECTING THE A.O. TO ALLOW THIS IN ASSESSMENT YEAR 2006-07. THERE IS NO FALLACY IN THIS FINDING OF THE LD. CIT(A), WHO HAS UPHELD T HE ADDITION IN THIS ASSESSMENT YEAR. 28 30. FACTS AND CIRCUMSTANCES OF SECOND GROUND RAISED IN THIS APPEAL ARE SIMILAR TO GROUND NO 3. RAISED IN ASSESSMENT YEAR 2005-06. EXCEPT THE AMOUNTS, ALL FA CTS OF THE PARTIES ARE SIMILAR. THEREFORE, WITH SIMILAR RE ASONING, WE DISMISS THIS GROUND OF APPEAL. 31. THIRD GROUND IS DECIDED IN SAME MANNER AS IT SI DECIDED IN ASSESSMENT YEAR 2005-06 AS ABOVE. 32. ACCORDINGLY, THIS APPEAL IN DISMISSED. 33. IN THE RESULT, ALL THE THREE APPEALS OF THE REV ENUE STAND DISMISSED. ORDER PRONOUNCED IN THE COURT ON 14.12.2012. SD/- SD/- (R.C. SHARMA) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14 TH DECEMBER, 2012 VL/- 29 COPY TO: THE APPELLANT THE RESPONDENT THE CIT BY ORDER THE CIT(A) THE DR ASSISTANT REGISTRAR ITAT, JODHPUR