M/s Sahney Commutators Pvt Ltd , Bangalore V. The Deputy Commissioner of Income Tax Circle-6(1)(1), Bangalore

ITA 421/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6482 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-08-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 22-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 40(a)(ia); 13; 22

Judgement Text

ITA NO.421 /BANG/2017 M/S. SAHNEY COMMUTATORS, BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.421/BANG/2017 ASSESSMENT YEAR: 2012 13 M/S. SAHNEY COMMUTATORS PVT. LTD. NO.772, II FLOOR 4 TH BLOCK 80 FEET PERIPHERAL ROAD KORAMANGALA BANGALORE-560 034 PAN NO : AACCS0865J VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-6(1)(1) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI S. PARTHASARATHI, A.R. RESPONDENT BY : SHRI PRIYADARSHI MISHRA, D.R. DATE OF HEARING : 15.09.2020 DATE OF PRONOUNCEMENT : 18.09.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 11.11.2016 PASSED BY LD. CIT(A)-6, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2012-13. 2. THE GROUNDS URGED BY THE ASSESSEE RELATE TO THE FOLLOWING ISSUES: A) DISALLOWANCE OF REPAIR EXPENSES HOLDING IT AS CAPIT AL IN NATURE. B) DISALLOWANCE OF RS.12 LAKHS U/S 40(A)(IA) OF THE AC T. ITA NO.421 /BANG/2017 M/S. SAHNEY COMMUTATORS, BANGALORE PAGE 2 OF 9 C) DISALLOWANCE OF RS.7,97,180/- U/S 40(A)(IA) OF THE ACT. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND MARKE TING OF COMMUTATORS, ELECTRICAL INSULATION MATERIALS AND OT HER ALLIED PRODUCTS. 4. THE FIRST ISSUE RELATES TO DISALLOWANCE OF RS.8, 68,960/- OUT OF REPAIR EXPENSES HOLDING THE SAME AS CAPITAL IN NATU RE. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED FOLLOWING EXPENSES UNDER THE HEAD REPAIRS. 1 A CRANKSHAFT IS A MECHANICAL PART ABLE TO PERFORM A CONVERSION BETWEEN RECIPROCATING MOTION AND ROTATIO NAL MOTION ( PURCHASED FROM DAMODAR POWER DEVICES ON 9.11.2011) RS.20,500 2 PURCHASE OF MACHINERY FROM SRI TECH ENGINEERING O N 29.4.2011 (NO DESCRIPTION HAS BEEN PROVIDED) RS.26,010 3 250KVA TRANSFORMER PURCHASED FROM SIDDHEENDRA ASSOCIATES ON 23.5.2011 RS.28,000 4 CAGE STRIPPING MACHINE PURCHASED FROM ONLINE SPM ON 31.5.2011 RS.27,500 5 SHEET MATE SIDE TRAY FOON TRAY PURCHASED FROM ONL INE SPM ON 31.5.2011 RS.25,000 6 RP PUMP PURCHASED FROM STANDARD HYDRAULIK (INDIA) EQUIPMENT BELGAUM PVT. LTD. ON 9.6.2011 RS.41,994 7 CONTROL PANEL PURCHASED FROM VIJAYALAKSHMI POWER CONTROLS & AUTOMATION ON 19.7.2011 RS.30,784 8 TAOC 5K AIR OIL COOLER 2000 KCAL PURCHASED FROM TECCON SERVICES PVT. LTD. ON 31.10.2011 RS.21,054 9 CCR SINGLE PEN WITH DISPLAY PURCHASED FROM G-TEK CORPORATION ON 19.12.2011 RS.44,202 10 HYDRAULIC POWER PRESS PURCHASED FROM RCS ASSOCIA TES ON 31.12.2011 RS.35,500 11 COMBINED OIL COLLER PURCHASED FROM COBURG ENGG SERVICES ON 31.01.12 RS.75,616 12 PLC MOD NO.IC200 PURCHASED FROM FORTIUS AUTOMATI ON SERVICES PVT. LTD. ON 31.1.2012 RS.32,000 13 SUPERHEAT MAKE DRIVER PURCHASED FROM SUPERHEAT FURNACES ON 31.1.2012 RS.44,500 14 CONTROL PANEL PURCHASED FROM VIJAYALAKSHMI POWER RS.26,099 ITA NO.421 /BANG/2017 M/S. SAHNEY COMMUTATORS, BANGALORE PAGE 3 OF 9 CONTROLS & AUTOMATION ON 27.03.2012 15 5KVA LINE INTRA CHIVE UPS PURCHASED FROM ORBIT E LECTRO POWER SYSTEMS ON 23.4.2011 RS.39,998 17 YD-70 HYDRAULIC CHECK CYLINDER PURCHASED FROM OR IENTAL RUBBER TRADING CO. RS.57,640 18 EXCHANGE AIR END SIGMA 01 PURCHASED FROM COBUR G ENGG. SERVICES PVT. LTD. ON 30.8.2011 RS.1,18,573 19 TAOC 5K AIR OIL COOLER 2000 KCAL PURCHASED FROM TECCON SERVICES PVT. LTD. ON 31.10.2011 RS.21,054 20 COMMANDER 5K AC VARIABLE FREQUENCY DRIVE PURCHAS ED VIJAYALAKSHMI POWER CONTROLS & AUTOMATION ON 26.12.2011 RS.26,099 21 YD-70 HYDRAULIC CHECK CYLINDER PURCHASED FROM OR IENTAL RUBBER TRADING CO. ON 31.1.2012 RS.62,251 22 TAOC 5KA AIR OIL COOLER 2000 KCAL PURCHASED FROM TECCON SERVICES PVT. LTD. ON 14.2.2 012 RS.42,109 23 11KV, 250MVA, 40A HT FUSES METERING CUBICLE WITH LOAD BREAKER SWITCH PANEL PURCHASED FROM SIDDHEENDRA ASSOCIATES ON 31.3.2012 RS.1,25,000 TOTAL RS.9,71,483 THE AO TOOK THE VIEW THAT THE ASSESSEE IS GETTING B ENEFIT OF ENDURING NATURE FROM THESE EXPENSES. ACCORDINGLY H E HELD THAT THESE ARE CAPITAL EXPENSES AND ACCORDINGLY DISALLOW ED THEM. THE A.O., HOWEVER, ALLOWED DEPRECIATION OF RS.1,02,523/ - ON THE AMOUNT SO CAPITALISED AND ACCORDINGLY THE NET AMOUNT OF DI SALLOWANCE CAME TO RS.8,68,960/-. THE LD. CIT(A) ALSO CONFIRMED TH E SAME. 5. THE LD. A.R. SUBMITTED THAT THE EXPENDITURE CLAI MED BY THE ASSESSEE UNDER THE HEAD REPAIRS ARE RELATED TO REPA IR EXPENSES ONLY AND THEY ARE IN THE FORM OF SPARE PARTS, LABOUR CHA RGES, ETC. HE SUBMITTED THAT NONE OF THE ABOVE SAID ITEMS COULD W ORK INDEPENDENTLY AND IN ANY CASE THEY ARE REPLACEMENT OF THE EXISTING ITEMS OF SPARE PARTS. ACCORDINGLY, HE SUBMITTED TH AT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN TREATING THE EXPEN SES AS CAPITAL IN NATURE. THE LD. A.R. SUBMITTED THAT THE ASSESSEE H AS FURNISHED THE DETAILS OF ITEMS PURCHASED AND ALSO SPECIFIED THAT THESE PARTS ITA NO.421 /BANG/2017 M/S. SAHNEY COMMUTATORS, BANGALORE PAGE 4 OF 9 CANNOT FUNCTION INDEPENDENTLY. IN THIS REGARD, HE INVITED OUR ATTENTION TO PAGE NO.1 OF THE PAPER BOOK, WHEREIN T HE DETAILS ARE FURNISHED. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE SAID DETAILS: SAHNEY COMMUTATORS PVT. LTD., BANGALORE REFERENCE TO AOS ORDER PAGE 2 SERIAL NO.3 CAPITAL EXPENDITURE DISALLOWED DETAILS OF REPAIR & MAINT. MACHINERY SL.NO. ITEM NAME OF MACHINE IN WHICH NATURE OF THE PART USED THE PART OR REPAIR FOR REPAIR/REPLACE TAKEN PLACE 1 CRANK SHAFT ASSEMBLY 2 RACKS, BOLTS, STEEL ANGLES ETC., 3 TRANSFORMER OIL, FILTERS,EARTHPITS ETC., 4 REPAIR CHARGES 5 SHEET METAL TRAYS 6 OIL PUMB 7 CONTROL PANEL 8 OIL COOLERS 9 CCR SINGLE PEN WITH DISPLAY 10 INSPECTION CHARGES 11 OIL AND COOLERS 12 PL CONTROL 13 DRIER 14 SHEET METAL TRAYS 15 UPS FOR BACK UP 17 HYDRAULIC CYLINDERS 18 EXCHANGER 19 OIL COOLERS A 20 CONTROL PANEL 21 HYDRAULIC CYLINDERS 22 OIL COOLERS 23 SWICH GEAR ASSEMBLY POWER GENERATOR FIXTURES NEAR TO MACHINERY TRANSFORMER EDGE STRIPPING MACHINE WELDING MACHINE HYDRAULIC PRESS AC DRIVE HYDRAULIC PRESS HYDRAULIC PRESS FOR VARIOUS MACHINES HYDRAULIC PRESS SLOTTING MACHINE MOULDING COMPOUND MACHINE FREQUENCY DRIVE TESTING OVEN 20 TON PRESS SIGMA CRANE HYDRAULIC PRESS FREQUENCY DRIVE HYDRAULIC PRESS HYDRAULIC OIL TANK METERING CUBICAL-POWER THIS PART CANNOT FUNCTION INDEPENDENTLY CANNOT WORK INDEPENDENTLY CANNOT WORK INDEPENDENTLY LABOUR CHARGES ONLY CANNOT WORK INDEPENDENTLY CANNOT WORK INDEPENDENTLY CANNOT WORK INDEPENDENTLY OIL FOR PRESS CANNOT WORK INDEPENDENTLY CHARGES ONLY OILS FOR MACHINERY CANNOT WORK INDEPENDENTLY CANNOT WORK INDEPENDENTLY CANNOT WORK INDEPENDENTLY SUPPORTING POWER SUPPLY CANNOT WORK INDEPENDENTLY CANNOT WORK INDEPENDENTLY OILS FOR MACHINERY CANNOT WORK INDEPENDENTLY CANNOT WORK INDEPENDENTLY OILS FOR MACHINERY CANNOT WORK INDEPENDENTLY ACCORDINGLY HE SUBMITTED THAT THESE EXPENSES CANNOT BE CAPITALIZED. HE SUBMITTED THAT THE TEST OF BENEFIT OF ENDURING NATURE CANNOT BE THE SOLE CRITERIA TO DETERMINE AN EXPENDITURE AS CAPITAL IN NATURE. THE LD. A.R. PLACED HIS RELIANC E ON THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CAS E OF DR. ITA NO.421 /BANG/2017 M/S. SAHNEY COMMUTATORS, BANGALORE PAGE 5 OF 9 ASHWAT N. RAO VS. ACIT (2010) 326 ITR 188 IN SUPPOR T OF ITS CONTENTIONS. 6. THE LD. D.R., ON THE CONTRARY, SUPPORTED THE ORD ER PASSED BY THE LD. CIT(A) AND SUBMITTED THAT THE NATURE OF EXP ENSES INCURRED BY THE ASSESSEE PROVIDE BENEFIT OF ENDURING NATURE AND HENCE THE TAX AUTHORITIES HAVE CATEGORISED THIS EXPENDITURE A S CAPITAL IN NATURE. 7. IN THE REJOINDER, THE LD. A.R. SUBMITTED THAT TH E TEST OF BENEFIT OF ENDURING NATURE ALONE CANNOT BE THE CRIT ERIA TO DETERMINE THE NATURE OF EXPENDITURE. HE SUBMITTED THAT THE H ONBLE KARNATAKA HIGH COURT IN THE CASE OF DR. ASHWAT N. R AO (SUPRA) HAS HELD THAT THE SPARE PARTS PURCHASED FOR EXISTING MA CHINERIES CANNOT BE TREATED AS CAPITAL EXPENDITURE. 8. WE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. F ROM THE PERUSAL OF DETAILS FURNISHED BY THE ASSESSEE REGARD ING NATURE OF ITEMS PURCHASED, WE NOTICE THAT THE ASSESSEE HAS ON LY PURCHASED SPARE PARTS AND HAS ALSO SPECIFIED THAT NONE OF THE ITEMS COULD WORK INDEPENDENTLY. IN THIS VIEW OF FACTUAL ASPECT , WE ARE OF THE VIEW THAT THE DECISION RENDERED BY THE HONBLE KARN ATAKA HIGH COURT IN THE CASE OF DR. ASHWAT N. RAO (SUPRA) WOUL D SUPPORT THE CONTENTIONS OF THE ASSESSEE. AS RIGHTLY POINTED OU T BY LD. A.R., THE TEST OF BENEFIT OF ENDURING NATURE COULD NOT BE THE SOLE CRITERIA TO CATEGORISE AN EXPENDITURE AS CAPITAL IN NATURE. WH EN THE SPARE PARTS OF A MACHINERY COULD NOT FUNCTION INDEPENDENT LY, DEHORS THE MACHINERY, THE SAME WOULD ACQUIRE THE CHARACTER OF REVENUE EXPENDITURE ONLY. ACCORDINGLY, WE SET ASIDE THE OR DER PASSED BY THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE DISALL OWANCE MADE BY ITA NO.421 /BANG/2017 M/S. SAHNEY COMMUTATORS, BANGALORE PAGE 6 OF 9 HIM. CONSEQUENTLY, THE DEPRECIATION ALLOWED UPON C ATEGORISATION OF THE EXPENDITURE AS CAPITAL IN NATURE, REQUIRES TO B E REVERSED. WE ORDER ACCORDINGLY. 9. THE NEXT ISSUE RELATES TO DISALLOWANCE OF RS.12 LAKHS PAID TO M/S. LUCAS TVS LIMITED BY INVOKING SECTION 40(A)(IA ) OF THE ACT. THE A.O. TOOK THE VIEW THAT THE ABOVE SAID AMOUNT R EPRESENTS COMMISSION PAYMENT AND ACCORDINGLY, DISALLOWED THE SAME FOR NON- DEDUCTION OF TAX AT SOURCE THERE FROM. THE LD. CI T(A) ALSO CONFIRMED THE SAME ALONG WITH THE ISSUE OF DISALLOW ANCE OF RS.7,97,180/- REFERRED ABOVE. 10. THE LD. A.R. INVITED OUR ATTENTION TO PAGE NO.2 9 & 30 OF THE PAPER BOOK AND SUBMITTED THAT THE AMOUNT OF RS.12 L AKHS ACTUALLY REPRESENTS VOLUME DISCOUNT GIVEN BY THE ASSESSEE TO M/S. LUCAS TVS LIMITED. THE LD. A.R. SUBMITTED THAT M/S. LUCA S TVS LIMITED IS THE CUSTOMER OF THE ASSESSEE AND IT DEMANDED THE DISCOUNT ON THE BASIS OF SALES PERFORMANCE. HENCE THE ASSESSEE HAS PAID A SUM OF RS.12 LAKHS AS DISCOUNT. THE LD. A.R. SUBMITTED THAT THE TAX AUTHORITIES HAVE NOT PROPERLY APPRECIATED THE NATUR E OF EXPENDITURE. HE SUBMITTED THAT DISCOUNT GIVEN BY THE ASSESSEE IS NOT LIABLE FOR TAX DEDUCTION AT SOURCE. 11. WE HEARD LD. D.R. ON THIS ISSUE. HE SUBMITTED T HAT THE FACTS FURNISHED BY THE ASSESSEE WERE NOT DISCUSSED IN THE ASSESSMENT ORDER AND ACCORDINGLY PRAYED THAT THIS ISSUE MAY BE RESTORED TO THE FILE OF THE A.O. ITA NO.421 /BANG/2017 M/S. SAHNEY COMMUTATORS, BANGALORE PAGE 7 OF 9 12. WE HEARD THE PARTIES ON THIS ISSUE. ACCORDING TO LD. A.R., THE ASSESSEE HAS FURNISHED THE COPIES OF CREDIT NOTE AN D ALSO AN E-MAIL COPY, WHICH ARE PLACED IN THE PAPER BOOK, BEFORE TH E AO IN ORDER TO SUBSTANTIATE THE FACT THAT THE AMOUNT OF RS.12 LAKH S REPRESENT DISCOUNT PAYMENT. IT WAS SUBMITTED THAT , IN THE B OOKS OF ACCOUNTS ALSO, IT HAS BEEN ACCOUNTED AS DISCOUNT PAYMENT ONL Y. ACCORDINGLY, IT WAS SUBMITTED THAT THE A.O. WAS NOT CORRECT ON F ACTS IN TREATING THE ABOVE SAID AMOUNT AS COMMISSION PAYMENT. 13. WE NOTICE THAT THE CREDIT NOTE AS WELL AS E- MAIL CORRESPONDENCE DESCRIBES THE PAYMENT AS DISCOUNT ON LY. IF THE PAYMENT IS IN THE NATURE OF DISCOUNT, THEN THE PROV ISIONS OF SECTION 194H OF THE ACT RELATING TO COMMISSION SHALL NOT AP PLY. HOWEVER, AS POINTED BY LD. D.R., THESE DOCUMENTS HAVE NOT BEEN LOOKED INTO BY THE ASSESSING OFFICER. WE ALSO NOTICE THAT THE LD. CIT(A) HAS NOT SEPARATELY DISCUSSED THE ISSUE RELATING TO PAYMENT OF RS.12 LAKHS TO M/S. LUCAS TVS LIMITED. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE NEEDS TO BE RESTORED TO THE FILE OF THE A.O. IF THE ASSESSING OFFICER IS SATISFIED THAT THE SAME REPRESENTS DISCO UNT PAYMENT, THEN NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS CALLED FOR. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE A.O. FOR EXAMIN ING IT AFRESH IN THE LIGHT OF DISCUSSIONS MADE (SUPRA). 14. THE NEXT ISSUE RELATES TO DISALLOWANCE OF RS.7, 97,180/- U/S 40(A)(IA) OF THE ACT. THE A.O. DISALLOWED THE ABOV E SAID PAYMENT BY OBSERVING THAT THE SAME REPRESENTS COMMISSION PAYME NTS AND ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. BEFORE LD. CIT(A), THE ASSESSEE SUBMITTED THAT THE ABOVE SAID PAYMENT WAS MADE TO M/S. WILEC- A DIVISION OF SAVCIO HOLDINGS (PVT) LTD. T HE ASSESSEE ITA NO.421 /BANG/2017 M/S. SAHNEY COMMUTATORS, BANGALORE PAGE 8 OF 9 FURTHER SUBMITTED THAT THE COMMISSION PAID TO M/S. WILEC IS NOT TAXABLE IN INDIA, SINCE THE PAYEE DOES NOT HAVE PER MANENT ESTABLISHMENT IN INDIA. ACCORDINGLY, IT WAS SUBMIT TED THAT THERE IS NO REQUIREMENT OF DEDUCTING TAX AT SOURCE FROM THE ABOVE SAID PAYMENT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE H AS OBTAINED A CERTIFICATE FROM A CHARTERED ACCOUNTANT IN FORM NO. 15CB AND ACCORDINGLY, REMITTED THE MONEY TO M/S. WILEC WITHO UT DEDUCTION OF TAX AT SOURCE. HE SUBMITTED THAT THE CHARTERED ACCOUNTANT HAS STATED IN THE CERTIFICATE THAT THE ABOVE SAID PAYME NT IS NOT TAXABLE IN THE HANDS OF THE PAYEE IN INDIA. HE SUBMITTED TH AT, SINCE THE ASSESSEE DID NOT PRODUCE FORM NO.15CB BEFORE THE A. O., THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE A .O. 15. BEFORE US LD. A.R. REITERATED THE CONTENTIONS M ADE BEFORE LD. CIT(A). 16. WE HEARD THE LD. D.R. AND PERUSED THE RECORD. HAVING REGARD TO THE FACT THAT THE ASSESSEE HAS REMITTED THE PAYM ENT TO M/S. WILEC AND THE RELEVANT DOCUMENTS HAVE NOT BEEN EXAM INED BY THE A.O., WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES F RESH EXAMINATION AT THE END OF THE A.O. ACCORDINGLY, WE SET ASIDE T HE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO TH E FILE OF THE A.O. FOR EXAMINING IT AFRESH. ITA NO.421 /BANG/2017 M/S. SAHNEY COMMUTATORS, BANGALORE PAGE 9 OF 9 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPT, 2020 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 18 TH SEPT, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.