M/s. Bhagyanagar Gas Limited, Hyderabad V. DCIT, Cricle-1(3), Hyderabad

ITA 589/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66239 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPTA
• Assessee Lawyers: C S SUBRAMANYAM
• Keywords: Depreciation
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 588 AND 589/HYD/2012 ASSESSMENT YEAR: 2007-08 AND 2008-09 M/S BHAGYANAGAR GAS LTD., APPELLANT HYDERABAD. (PAN AACCB2130P) VS. ASSTT. COMMISSIONER OF INCOME-TAX, RESPOND ENT CIRCLE 1(3), HYDERABAD APPELLANT BY : SHRI C.S. SUBRAMANYAM RESPONDENT BY : SMT. AMISHA S. GUPTA DATE OF HEARING : 24/07/2012 DATE OF PRONOUNCEMENT : 14/09/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: BOTH THESE APPEALS PREFERRED BY THE ASSESSEE ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF THE CIT(A )-II, HYDERABAD, FOR THE ASSESSMENT YEAR 2007-08 AND 2008 -09. SINCE IDENTICAL ISSUES ARE INVOLVED IN BOTH THESE A PPEALS, THEY WERE HEARD TOGETHER AND THEREFORE A COMMON ORD ER IS PASSED FOR THE SAKE OF CONVENIENCE. ITA NO. 588/HYD/2012 FOR ASSESSMENT YEAR 2007-08 2. THE SUBSTANTIAL GROUND RAISED IN THIS APPEAL IS AGAINST THE DISALLOWANCE OF RS.1,30,67,866/- MADE BY THE AO UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT. ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 2 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY WAS PROMOTED AS JOINT VENTURE COMPANY (JVC) BY HPCL AND GAIL AND THE COMPANY IS ENGAGED IN THE BUS INESS OF DISTRIBUTING AND MARKETING OF CNG, AUTO LPG, NAT URAL GAS AND ANY OTHER GASEOUS FUEL IN THE STATE OF ANDHRA P RADESH. BHAGYANAGAR GAS LTD. (JVC) WAS INCORPORATED ON 22 ND AUGUST, 2003. IT CAME INTO EXISTENCE AS A RESULT OF STRATEGIC BUSINESS DECISION TO HAVE AN ENTITY WITH GEOGRAPHY SPECIFIC FOCUS TO DEVELOP GAS DISTRIBUTION NETWORK. GAIL & H PCL BOTH AGREED TO CONTRIBUTE CAPITAL AND CERTAIN OTHER RESO URCES TO FUNCTIONING OF THE ASSESSEE COMPANY. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD NOTICED THAT THE ASSESSEE PAI D GAIL AND HPCL RS. 1,30,67,866/- TOWARDS REIMBURSEMENT OF THE COST OF SALARIES OF THE EMPLOYEES WITH HPCL & GAIL WHO WERE ON DEPUTATION TO THE ASSESSEE COMPANY AND THE ASSESSEE HAD NOT DEDUCTED TAX FROM THE PAYMENT MADE TO THE TWO CONCERNS. THE ASSESSING OFFICER HELD THAT T HE REIMBURSEMENT OF EXPENSES DEBITED TO P&L ACCOUNT REPRESENTED PAYMENT BY THE ASSESSEE TO HPCL & GAIL FOR SUPPLY OF LABOUR TO CARRY OUT THE WORK OF THE ASSES SEE COMPANY. HE NOTED THAT THIS IS NOT A CASE WHERE THE RE IS AN EMPLOYEE AND EMPLOYER RELATIONSHIP TO ATTRACT THE P ROVISIONS OF SECTION 192 FOR THE PURPOSE OF TDS AND THIS IS P URELY A CASE WHERE THE MANPOWER HAS BEEN HIRED FOR HPCL & G AIL FOR THE PURPOSE OF PERFORMING A SPECIFIC JOB. THE P AYMENTS WERE NOT MADE INDIVIDUALLY TO THE PERSONS OF HPCL & GAIL BUT WAS MADE TO HPCL & GAIL AS REIMBURSEMENT AND THEREFORE IT IS A CLEAR CASE OF PAYMENT MADE FOR SU PPLY OF LABOUR FOR CARRY OUT THE WORK AND AS SUCH FALL WITH IN THE ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 3 AMBIT OF PROVISIONS OF SECTION 194C OF THE IT ACT. THE ASSESSING OFFICER HAD DISALLOWED THE AMOUNT OF RS. 1,30,67,866/- U/S 40(A)(IA) FOR THE FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. 5. ON APPEAL BEFORE CIT(A), THE ASSESSEE SUBMITTED AS UNDER:- 6. THE ASSESSEES CONTENTION THAT TAX IS NOT REQUIR ED TO BE DEDUCTED FROM THE AMOUNTS REIMBURSED BY THE APPELLANT TO HPCL AND GAIL TOWARDS SALARIES OF EMPLOYEES DEPUTED BY THEM, THE APPELLANT SUBMITS TH AT THE ASSESSING OFFICER OUGHT TO HAVE APPRECIATED THA T THE PROVISIONS OF SECTION 40(A)(IA) APPLY ONLY TO T HE EXTENT THAT INTEREST, COMMISSION, BROKERAGE ETC., MENTIONED IN SECTION 40(A)(IA) REMAIN PAYABLE AND T HAT THE SAID PROVISION HAS NO APPLICATION WHERE THE AMOUNTS OF THE NATURE SPECIFIED IN THE SAID SECTION HAVE ALREADY BEEN PAID AND CONSEQUENTLY HE OUGHT NO T TO HAVE DISALLOWED THE AMOUNTS TOWARDS REIMBURSEMENT TO THE EXTENT THEY WERE ALREADY PAID TO HPCL AND GAIL. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IN THE CASE UNDER CONSIDERATION IT IS NOT A QU ESTION OF REIMBURSEMENT OF SALARIES BUT ISSUE IS CONTRACTUAL PAYMENT MADE BY THE APPELLANT TO GAIL AND HPCL. CIT(A) HELD THAT PROVISION OF MANAGEMENT SUPPORT TO THE ASSESSEE, B Y GAIL AND HPCL, THE JV PARTNERS IS PART OF THE MOU AND HE NCE SUPPLY OF THE MANPOWER SHOULD BE CONSIDERED AS PAYM ENT FOR SERVICES RENDERED BY GAIL AND HPCL UNDER THE CO NTRACT AND ACCORDINGLY PROVISIONS OF SECTION 40(A)(IA) APP LY TO SUCH CONTRACTUAL PAYMENTS. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US. ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 4 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS A JOINT VENTUR E COMPANY PROMOTED BY GAIL & HPCL FOR DISTRIBUTION A ND MARKETING OF CNG, NATURAL GAS, LPG, AUTO LPG ETC. T HEY HAD ENTERED INTO A MOU IN CONNECTION WITH THE PROMOTION OF THE JV COMPANY VIZ., THE ASSESSEE HEREIN. UNDER ARTICLE 4 OF THE AGREEMENT GAIL AND HPCL WILL CONTRIBUTE MANAGEMENT AND TECHNICAL SKILL IN THE RESPECTIVE AREAS OF EXPERTIS E, MANAGEMENT SUPPORT BY WAY OF SECONDMENT / DEPUTATIO N ON REQUEST OF JVC AND ENTER INTO THE GAS PURCHASING AG REEMENT WITH HVC ETC. IN SHORT THE TWO COMPANIES HAVE UNDER TAKEN TO PROVIDE ALL NECESSARY ASSISTANCE TO THE ASSESSEE -JV COMPANY. 9. UNDER ARTICLE 14 GAIL AND HPCL HAD AGREED TO BEA R THE COST OF INCORPORATION AS WELL AS EXPENSES RELATING TO THE BUSINESS ACTIVITY EXCEPT MAN POWER COST, ADMINISTRA TION COST OF THE EMPLOYEES. HOWEVER AFTER INCORPORATION OF TH E JVC, ALL SUCH EXPENSES SHALL BE REIMBURSED BY JVC TO THE PAR TIES WITH INTEREST. FROM THE ABOVE, IT CAN BE SEEN THAT GAIL AND HPCL HAD AGREED TO SUPPORT THE ASSESSEE IN CARRYING ON ITS BUSINESS. 10. AS PART OF THIS AGREEMENT GAIL AND HPCL DEPUT ED THEIR PERSONNEL TO WORK FOR THE JVC. EMPLOYEES SO DEPUTED WORKED FOR THE JVC. THE JVC IS LIABLE TO PAY SALARI ES TO THE DEPUTED PERSONNEL. HOWEVER FOR ADMINISTRATIVE CONVE NIENCE, GAIL AND HPCL HAD PAID THE SALARIES TO THE DEPUTED EMPLOYEES AND THE ASSESSEE REIMBURSED THE AMOUNT PA ID BY GAIL AND HPCL. ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 5 11. GAIL AND HPCL DEPUTED THEIR PERSONNEL WHO WORKE D UNDER THE CONTROL AND MANAGEMENT OF JVC. THE EMPLOY EES WERE CARRYING OUT THE WORK OF THE ASSESSEE AS ITS E MPLOYEES NOT CARRYING OUT THE WORK ON BEHALF OF GAIL OR HPCL . SALARY, COST OF THESE EMPLOYEES ARE A CHARGE ON THE PROFITS OF THE ASSESSEE. PAYMENT BY WAY OF SALARY WOULD NOT CONSTI TUTE FEES FOR TECHNICAL SERVICES. NOR CAN THE TRANSACTIO N BE VIEWED AS A WORKS CONTRACT PERFORMED BY GAIL AND HP CL. MERELY BECAUSE THE COMPANIES HAD IN AN AGREEMENT AG REED TO DEPUTE THEIR EMPLOYEES WOULD NOT MEAN THAT IT IS A WORKS CONTRACT. FURTHER THE ASSESSEE PAID ONLY THE SALARI ES OF THE PERSONS WHO WORKED UNDER THE CONTROL AND SUPERVISIO N OF THE ASSESSEE. INSTEAD OF PAYING THE AMOUNT TO THE EMPLOYEES DIRECTLY, THE ASSESSEE REIMBURSED THE AMO UNT TO GAIL AND HPCL WHO HAD PAID THE AMOUNT TO THE EMPLOY EES. THIS CAN BE VIEWED AS A FINANCIAL ARRANGEMENT UNDER WHICH GAIL AND HPCL PAY TO THE DEPUTED EMPLOYEES ON BEHAL F OF THE ASSESSEE AND THE ASSESSEE REIMBURSES THE SAME. IT IS A REIMBURSEMENT OF AMOUNT SPENT BY GAIL AND HPCL IN PAYMENT OF PERSONS IN THE EMPLOY OF THE ASSESSEE AN D PAYMENT FOR ANY SERVICES RENDERED BY GAIL AND HPCL. 12. IN OUR OPINION SUCH PAYMENT CANNOT BE CONSIDERE D AS PAYMENT TOWARDS WORK EXECUTED BY GAIL AND HPCL IN T HE COURSE OF WORK CONTRACT. IN THE CASE OF UNITED HOT ELS LTD VS ITO 2 SOT 267 UNDER SIMILAR CIRCUMSTANCES, THE ITAT, DELHI HAS HELD THAT REIMBURSEMENT OF SALARY TO THE DEPUTED PERSONNEL WOULD NOT ATTRACT DEDUCTION OF TAX AT SOU RCE. WE FIND THAT THESE DECISIONS ARE SQUARELY COVER THE IS SUE ON APPEAL. IN THE FOLLOWING CASES IT HAS BEEN HELD THA T REIMBURSEMENT OF EXPENSES ARE NOT SUBJECT TO TAX DE DUCTION ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 6 AT SOURCE. THE FOLLOWING DECISIONS ALSO SUPPORT THE CASE OF THE ASSESSEE: 1) CIT V INDUSTRIAL ENGINEERING PROJECTS(P) LTD,202 ITR 1014( DEL) 2) CIT V SIEMENS, 310 ITR 320 (BOM.) 3) CIT V DUNLOP RUBBER COMPANY LTD.,003-TIOL-283- HC-KOL-IT 13. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH, WE DELETE THE ADDITION MADE BY THE AO UNDER SECTION 40(A)(IA). 14. IN THIS VIEW OF THE MATTER THE ALTERNATE GROUND RAISED BY THE ASSESSEE, FOR APPLYING THE RATIO OF THE DECI SIONS OF THE SPECIAL BENCH OF ITAT, VIZAG IN THE CASE OF MER ILYN SHIPPING AND TRANSPORT VISAKHAPATNAM VS ADDL.CIT (2 012 TIOL 184 ITAT VIZG SB), THAT THE AMOUNT THA T HAS BEEN ACTUALLY PAID BY THE ASSESSEE TO GAIL AND HPCL BEFORE THE PREVIOUS YEAR ENDED ON 31.03.2007 SHOULD NOT BE DISALLOWED UNDER SECTION 40(A)(IA) IS CONSIDERED AC ADEMIC AND HENCE NOT DECIDED UPON. ITA NO. 589/HYD/12 FOR AY 2008-09 15. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY FILED ITS RETURN OF INCOME FOR THE AY 2008 -09 ON 24/09/2008 ADMITTING A LOSS OF RS. 2,61,046/-. DURI NG THE COURSE OF REGULAR ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER NOTICED THAT THE COMPANY DEBITED AN AMOUNT OF RS. 1,01,72,133/- TOWARDS THE REIMBURSEMENT OF THE COST OF SALARIES OF EMPLOYEES OF HPCL AND GAIL WHO ARE ON ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 7 DEPUTATION TO THE ASSESSEE COMPANY, THE DETAILS OF WHICH ARE AS UNDER:- I) HPCL RS. 56,39,153 II) GAIL RS. 45,32,980 RS. 1,01,72,133 =========== THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE S AID SUM OF RS. 1,01,72,133/- BEING AMOUNT REIMBURSED BY THE ASSESSEE TO GAIL AND HPCL TOWARDS COST OF SALARIES OF THEIR PERSONNEL SENT ON DEPUTATION TO THE ASSESSEE COMPAN Y. 16. ON APPEAL, THE CIT(A) HELD THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE U/S 194C ON THE AMOUNTS REI MBURSED BY THE ASSESSEE TO GAIL AND HPCL OF THE ACT, TOWARD S SALARIES OF EMPLOYEES OF GAIL AND HPCL SENT ON DEPU TATION TO THE ASSESSEE COMPANY. 17. THE ASSESSEE PREFERRED APPEAL BEFORE US. 18. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES, PE RUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHO RITIES BELOW. WE FIND THAT THE ISSUE IS MUTATIS-MUTANDIS W ITH THAT OF AY 2007-08. FOLLOWING THE CONCLUSIONS DRAWN THER EIN VIDE PARAS 12 TO 14 (SUPRA), WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) U/S 4 0A(IA) OF THE ACT. 19. GROUND NOS. 7 TO 11 RAISED BY THE ASSESSEE ARE WITH RESPECT TO THE DISALLOWANCE OF RS. 59,38,916/-. ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 8 20. BRIEFLY THE FACTS ARE THAT THE ASSESSEE DEBITE D A SUM OF RS.59,38,916/- TO PROFIT AND LOSS ACCOUNT, UNDER TH E HEAD 'FEASIBILITY STUDIES OF EARLIER YEARS, WRITTEN OFF' . THIS AMOUNT REPRESENTS PAYMENTS MADE TO GAIL AND HPCL DURING FINANCIAL YEARS 2004-05 AND 2005-06 TOWARDS REIMBUR SEMENT OF COST OF SALARY OF CERTAIN EMPLOYEES. THESE EMPLO YEES WERE ENGAGED IN PLANNING, PROCUREMENT OF FIXED ASSE TS, LIAISON WITH GOVERNMENT AUTHORITIES FOR VARIOUS APP ROVALS AND OTHER ACTIVITIES PERTAINING TO VARIOUS PROJECT S PROPOSED TO BE UNDERTAKEN BY THE ASSESSEE IN RESPECT OF ITS CNG BUSINESS. GIVEN THAT THESE PROJECTS WERE NOT OPERAT IONAL DURING THE EARLIER YEARS, THE EXPENDITURE WAS DEFER RED AND WAS CHARGED TO P&L ACCOUNT/CAPITALIZED AS AND WHEN THE PROJECTS WERE COMMENCED. HOWEVER, DURING THE FINANC IAL YEAR 2007-08, SINCE THE PROJECTS BEING UNDERTAKEN B Y THE ASSESSEE WERE NOT COMMENCED AND THE EXPENDITURE OF RS.59,38,916/- WAS NOT ALLOCABLE TO PARTICULAR PROJ ECT, THE SAME WAS CHARGED OFF TO P&L ACCOUNT. THE ASSESSEE C LAIMED THE EXPENDITURE TO BE IN THE NATURE OF REVENUE EX PENDITURE AND HENCE THE SAME IS ALLOWABLE UNDER SEC.37 OF THE I.T ACT. THE ASSESSEE RELIED ON THE DECISION OF THE DELHI HI GH COURT IN THE CASE OF CIT VS. DIAMOND PRODUCTS LTD., 177 T AXMAN 331 DEL. 21. THE A.O DID NOT ACCEPT THE CLAIM OF THE ASSESS EE. HE WAS OF THE VIEW THAT THE EXPENDITURE DOES NOT PERTA IN TO A.Y 2008-09. BESIDES, HE WAS ALSO OF THE VIEW THAT THE EXPENDITURE WAS CAPITAL IN NATURE. HE WAS OF THE VI EW THAT THE NATURE OF EXPENDITURE DOES NOT CHANGE ON THE BA SIS OF THE PROJECT BECOMING OPERATIONAL OR NON-OPERATIONAL . HE FURTHER STATED THAT IN THE CASE OF THE ASSESSEE, TH E PROJECTS ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 9 I.E., SETTING UP OF NEW CNG UNITS COULD NOT BE PUT UNDER OPERATION. ACCORDINGLY, HE CONCLUDED THAT THE EXPE NDITURE OF RS.59,38,916/- WRITTEN OFF BY THE ASSESSEE IS CA PITAL IN NATURE. HE DISALLOWED THE ASSESSEES CLAIM OF EXPEN DITURE. 22. THE ASSESSEE MADE AN ALTERNATE PLEA THAT IF THE EXPENDITURE WERE TO BE TREATED AS CAPITAL IN NATURE , THE SAME IS ELIGIBLE FOR AMORTIZATION UNDER SEC.35D OF THE IT ACT ON THE GROUND THAT THE IMPUGNED AMOUNT IS ELIGIBLE FOR BEING TREATED AS EXPENDITURE TOWARDS FEASIBILITY STUDY AN D 1/5 TH THEREOF IS ELIGIBLE FOR AMORTIZATION. THE ASSESSEE PLEADED THAT SINCE THE CNG BUSINESS OF THE ASSESSEE COMMENC ED COMMERCIAL OPERATIONS IN THE MONTH OF AUGUST, 2005( F.Y 2005-06) 1/5 TH OF THE EXPENDITURE IS ALLOWABLE IN ASST.YEAR 2008-09 BEING THE THIRD YEAR. 23. THE A.O TURNED DOWN THIS ALTERNATIVE PLEA ALSO STATING THAT THE EXPENDITURE IS NOT COVERED UNDER SEC.35D. IN HIS ORDER, HE DID NOT STATE THE BASIS FOR SUCH A VIEW. 24. WHILE DISALLOWING THE EXPENDITURE OF RS.59,38, 916/-, THE A.O ASSIGNED A FURTHER REASON VIZ., THAT EVEN I F THE EXPENDITURE WERE REVENUE IN NATURE, IT IS LIABLE FO R DISALLOWANCE U/S.40(A)(IA) OF THE I.T ACT BECAUSE T HE ASSESSEE DID NOT DEDUCT TAX AT SOURCE FROM THESE PA YMENTS. 25. BEFORE THE C.I.T(A), THE ASSESSEE SUBMITTED TH AT ON THE FACTS OF THE CASE AND THE LAW RELIED UPON BY TH E ASSESSEE, THE EXPENDITURE INCURRED ON SALARIES OF E MPLOYEES OUGHT TO HAVE BEEN ALLOWED BY THE ASSESSING OFFICER . THE ASSESSEE ALSO RELIED ON THE DECISION OF THE GAUHATI HIGH COURT IN THE CASE OF DCIT VS ASSAM ASBESTOS LTD 26 3 ITR 57 GAU. ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 10 26. THE ASSESSEE SUBMITTED THAT ALL THE CONTENTIONS PUT FORWARD IN THIS APPEAL IN RESPECT OF THE DISALLOWAN CE OF RS.1,01,72,133/- IN GROUND NOS. 1 TO 6 APPLY SQUARE LY TO THE EXPENDITURE OF RS.59,38,916/- ALSO. ACCORDINGLY, TH E ASSESSEE PLEADED THAT THE DISALLOWANCE IS NOT LIABL E TO BE UPHELD. 27. THE C.I.T(APPEALS) DISMISSED THE ASSESSEE'S AP PEAL AND UPHELD THE DISALLOWANCE OF RS.59,38,916/-. SHE HELD THAT THE EXPENDITURE DOES NOT PERTAIN TO THE ASST.Y EAR 2008- 09 AND ALSO THAT IT IS CAPITAL IN NATURE. SHE DID N OT ALLOW THE ALTERNATE CLAIM FOR ALLOWANCE OF 1/5TH OF THE EXPEN DITURE U/S.35D. SHE FURTHER HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION OF THE IMPUGNED AMOUNT SINCE SEC.40(A)(IA ) APPLIES AND THE ASSESSEE HAS NOT SUBSTANTIATED ITS CLAIM FOR EXCLUSION OF PROVISIONS OF SEC.40(A)(IA). THE CI.T( APPEALS) ALSO DECLINED TO DIRECT THAT THE EXPENDITURE SHOULD BE ALLOWED TO BE CAPITALISED AND FORM PART OF CAPITALI SED ASSETS. 28. THE ASSESSEE IS IN APPEAL BEFORE US AND REITERA TED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. 29. THE ASSESSEE CONTENDED THAT THE CIT(A) OUGHT T O HAVE ALLOWED THE CLAIM WHICH IS SUPPORTED BY THE DECISIO N IN THE CASE OF DC IT VS ASSAM ASBESTOS LTD 263 ITR 357 GAU AND CIT VS DIAMOND PRODUCTS LTD., 177 TAXMAN 331 (DEL) (SUPRA). 30. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW. WE ARE OF THE OPINION THAT ALL THE EXPENDIT URE SPECIFIED IN SEC.35D(2) INCURRED BEFORE COMMENCEMEN T OF ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 11 BUSINESS IS ELIGIBLE FOR AMORTISATION UNDER SEC.35D (1)(I). RELYING ON THE DECISION OF THE HON'BLE ITAT IN THE CASE OF L1C HOUSING FINANCE LTD VS DCIT SR 36 105 ITD 86 (M UM.), WE DIRECT THE ASSESSING OFFICER TO CONSIDER SAID E XPENDITURE U/S.35D. 31. FURTHER, THE NATURE OF EXPENDITURE BEING SALARI ES OF DEPUTED EMPLOYEES, LIABILITY TO DEDUCT TAX DOES NOT ARISE FOR THE SAME REASONS ADVANCED BY THE ASSESSEE IN CONNEC TION WITH THE DISALLOWANCE OF CURRENT SALARIES, WHICH WE HAVE DECIDED IN PARA NOS. 12 TO 14 OF ITA NO. 588/HYD/12 (SUPRA), THEREFORE, THE ADDITION MADE BY THE ASSESS ING OFFICER U/S 40A(IA) IS DELETED. 32. IN THE RESULT THE APPEAL OF THE ASSESSEE ARE AL LOWED. PRONOUNCED IN THE OPEN COURT ON 14/09/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 14 TH SEPTEMBER, 2012. KV COPY TO:- 1) M/S BHAGYANAGAR GAS LTD., PARISRAM BHAVAN, APIDC, BASHEERBAGH, HYDERABAD. 2) ACIT, CIRCLE 1(3), HYDERABAD 3) CIT(A)-II, HYDERABAD 4) THE CIT-1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 6/8/12 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 07/08/12 SR.P.S/PS ITA NO. 588 & 589/HYD/12 M/S BHAGYANAGAR GAS LTD. 12 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER