DCIT, New Delhi V. M/s. Delphi Automotive Systems Pvt. Ltd., New Delhi

ITA 6718/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3770 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 10-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Double taxation relief; Wholly owned subsidiary; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 37; 28

Judgement Text

ITA NO.6718/DEL/2014 ASSESSMENT YEAR: 2005 - 06 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A BENCH NEW DELHI) BEFORE SHRI P.K. BANSAL , VICE PRESIDENT & SHRI AMIT SHUKLA, JUDICIAL MEMBER IN ITA NO. 67 18 /DEL/2014 ASSESSMENT YEARS: 200 5 - 0 6 D CIT CIRCLE 7 (1), NEW DELHI VS. DELPHI AUTOMOTIVE SYSTEMS PVT. LTD. 23, KG MARG, NEW DELHI (APPLICANT) (RESPONDENT) (PAN: A AACD0226E ) REVENUE BY: SHRI ANSHU PRAKASH, SR. DR ASSESSEE BY: NONE DATE OF HEARING 2 1 /09/2017 DATE OF PRONOUNCEMENT 31 / 1 0 /2017 ORDER PER AMIT SHUKLA, JUDICIAL MEMBER: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 1 1 .0 9 .2014, PASSED BY THE LD. CIT (APPEALS) - V , NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 20 0 5 - 0 6 . IN THE GROUNDS OF APPEAL , REVENUE HAS RAISED FOLLOWING GROUNDS: - 1.ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,40,59,212/ - IN RESPECT OF LOSS ON EXCHANGE RATE FLUCTUATION. 2. ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 5,58,566/ - IN RESPECT OF DEPRECIATION ON UNUTILIZED ASSETS. PAGE 2 OF 15 3. ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,94,25,18 4/ - IN RESPECT OF DISALLOWANCE OF DEDUCTION CLAIMED U/S 10A OF THE I.T. ACT. 4. ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,42,75,498/ - FOR DISALLOWANCE OF PAYMENT MADE TO APPROVED GRATUIT Y FUND. 5. ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 94,14,147/ - ON ACCOUNT OF ADVANCES WRITTEN OFF WITHOUT APPRECIATING. THAT AMOUNT WRITTEN OFF WAS IN RESPECT OF SECURITY DEPOSITS OF TAK EN OVER BUSINESS. THE LD. CIT (A) DID NOT EXAMINE WHETHER THE SECURITY DEPOSIT WAS PART OF BUSINESS TRANSFER AGREEMENT OR NOT. 6. ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS THE ALLOWING RELIEF FOR DISALLOWANCE SUO - MOTO MADE BY THE ASSESSEE. ON THE PLEA THAT THE AMOUNT WAS INADVERTENTLY OFFERED BY HIM, WITHOUT CONSIDERING THAT NO SUCH PLEA WAS TAKEN BEFORE THE A.O. AND THE CIT (A) DID NOT EXAMINE THE REASON FOR DISALLOWANCE AS MADE BY THE ASSESSEE. 7. THE APPELLANT CRAVES TO LEAV E, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. N ONE APPEARED ON BEHALF OF THE ASS ESSEE DESPITE SERVICE OF NOTICE , THEREFORE, THE APPEAL IS BEING HEARD ON MERITS AFTER HEARING THE LD. DR AND ALSO ON THE BASIS OF MATERIALS AVAILABLE ON RECORD. 3. AT THE OUTSET, THE LD. SR. DR FAIRLY SUBMITTED THAT THE GROUND NO. 1 TO 5 ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE A.Y. 2003 - 04 . 4. THE BRIEF FACTS ARE T HAT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF DELPHI AUTOMOTIVE SYSTEMS INC. AND IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF AUTOMOTIVE COMPONENTS , VIZ. , DRIVE SHAFTS (CONSTANT VELOCITY JOINT), INTEGRATED WIRING HARNESSES, CATALYTIC PAGE 3 OF 15 CONVERTERS , HEATING, COOLING AND VENTILATING SYSTEMS AND SUSPENSION SYSTEMS. THE ASSESSEE HAS VARIOUS MANUFACTURING DIVISIONS LOCATED AT GU R GAON, NOIDA AND BANGALORE AND A SOFTWARE DIVISION LOCATED AT BANGALORE. THE AO HAS DISALLOWED THE LO SS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AMOUNTING TO RS. 1,40,59,212/ - ON THE GROUND THAT THE ASSESSEE HAS FAILED T O EXPLAIN/PROVIDE DOCUMENTARY EVIDENCE AND FOR THE REASONS THAT FIRSTLY, WHETHER THE EXCHANGE LOSS WAS OF REVENUE OR CAPITAL IN NATURE; S ECONDLY, WHETHER THE SAME HA S BEEN ACTUALLY INCURRED BY THE ASSESSEE; AND LASTLY, IN THE EARLIER YEARS THESE EXPENSES HAVE BEEN DISAL LOWED BY THE ASSESSING OFFICER. THE LEARNED CIT(APPEALS) RELYING UPON THE DECISION OF HIS PREDECESSOR FOR THE EARLIER YEARS HELD THAT THE FOREIGN EXCHANGE LOSS WAS OF REVENUE IN NATURE AND CAPITAL IN NATURE , THEREFORE IT HAS TO BE ALLOWED . 5. AFTER GOING THROUGH THE IMPUGNED ORDER, WE FIND THAT THE ASSESSEE HAD STATED THAT IT HAS INCURRED THIS FOREIGN EXCHANGE LOSS ON FOLLOWI NG ITEMS: - IMPORT OF RAW MATERIALS AND COMPONENTS ON EXPORT OF FINISHED GOODS ON SERVICES RENDERED BY THE APPELLANT INTEREST ON EXTERNAL COMMERCIAL BORROWING MERCANTILE TRADE OF DPSS DIVISION OTHER REVENUE TRANSACTIONS THE ASSESSEE HAD ALSO FURNISHED DIVISION BY DETAILS ON FOREIGN EXCHANGE WHICH HAS BEEN INCORPORATED IN THE APPELLATE ORDER AT PAGE 8. THE ASSESSEE HAS ALSO REBUTTED ALL THE CONTENTIONS OF THE ASSESSING OFFICER STATING THAT THE ENTIRE DETAILS AND EVIDENCES WERE DULY FILED BEFORE THE ASSESSING OFFICER AND ALSO CERTAIN DETAILS AS REQUIRED TO SUBSTANTIATE WERE ALSO FILED BEFORE THE LEARNED CIT(APPEALS) ON WHICH REMAND REPORT WAS CALLED UPON. AFTER CONSIDERING THE ENTIRE GAMUT OF MATERIAL AND FOLLOWING THE EARLI ER YEAR S ORDERS THE CIT (APPEALS) HELD THAT THE FOREIGN PAGE 4 OF 15 LOSS WOULD IS A REVENUE NATURE. THIS POINT HAS ALSO BEEN DISCUSSED BY THE TRIBUNAL IN THE APPEAL FOR THE A.Y. 2003 - 04 , WHEREIN THE TRIBUNAL HAS ALLOWED THE ASSESSEE S CLAIM AND UPHELD THE ORDER OF TH E LEARNED CIT(APPEALS) IN DELETING THE DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATIONS AFTER OBSERVING AND HOLDING AS UNDER: - WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND THE FACT OF THE MATTER IS THAT THE ASSESSEE HAS MADE A PROVISION OF LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AMOUNTING TO RS. 1,85,84,380/ - ARISING ON ACCOUNT OF IMPORT AND EXPORT OF GOODS, SERVICES RENDERED AND RECEIVED, INTEREST ON ECB AND OTHER REVENUE TRANSACTIONS. THESE EXPENSES ARE DEDUCTIBLE U/S 37 AND28 ITSELF. THE DETAIL OF SUCH EXPENDITURE IS ALSO AT PAGE 171 OF THE PB WHICH SHOWS THAT IT IS REVENUE EXPENDITURE. FOR ASSESSMENT YEAR 2001 - 02 A SIMILAR AMOUNT OF DISALLOWANCE WAS MADE BY THE AO WHICH HAS BEEN DELETED. FOR THIS YEAR ALSO THE L D . CIT (A) HAS DELETED THIS DISALLOWANCE AFTER AFFORDING COMPLETE OPPORTUNITY TO THE AO FOR VERIFICATION AND SUBMITTING REMAND REPORT. HOWEVER THE AO SIMPLY RELIED ON THE ASSESSMENT ORDER OF YE ARS. IN THE PREVIOUS YEARS THE L D . CIT(A) HAS DELETED THE IDENTICAL DISALLOWANCE. IN VIE W OF THIS FACT IT CANNOT BE SAID THAT PROPER OPPORTUNITY HAS NOT BEEN GIVEN TO THE AO. FURTHER FOREIGN EXCHANGE LOSS THAT HAS ARISEN IS ON ACCOUNT OF REVENUE EXPENDITURE AND NOT ON ACCOUNT OF CAPITAL EXPENDITURE. HENCE WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE L D CIT(A)IN DELETING THE DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS OF RS.1,85,84,388/ - . IN THE RESULT THE GROUND NO.2 OF THE APPEAL IS DISMISSED. THUS, RESPECTFULLY FOLLOWING THE EARLIER YEAR S PRECEDENCE , WE ALSO HOLD THAT DISALLOWA NCE MADE ON ACCOUNT OF FOREIGN EXCHANGE LOSS BY THE ASSESSING OFFICER CANNOT BE SUSTAINED AND SAME IS DIRECTED TO THE DELETED. 7. AS REGARDS THE SECOND ISSUE RELATING TO DISALLOWANCE OF DEPRECIATION ON UNUTILIZED ASSETS OF RS. 5,58,565/ - , THE ASSESSING OFFICER HAS DISALLOWED THE SAME ON THE GROUND THAT THE ASSET IN PAGE 5 OF 15 QUESTIONS WERE NOT USED BY THE ASSESSEE AND WHILE COMING TO THE CONCLUSION HE RELIED UPON THE EARLIER ASSESSM ENT ORDER. THE ASSESSEE BEFORE THE LEARNED CIT (APPEALS) POINTED OUT THAT IN THE EARLIER YEARS THE SAID DISALLOWANCE HAS BEEN DELETED BY THE LEARNED CIT(APPEALS) AND ALSO EXPLAINED THAT THE ASSESSING OFFICER DID NOT EXAMINE THE FACT THAT THE SAID ASSETS WE RE ACTUALLY USED FOR THE BUSINESS PURPOSE OF THE ASSESSEE AND THEREFORE, NO DISALLOWANCE ON DEPRECIATION SHOULD HAVE BEEN MADE. THE LEARNED CIT( APPEALS) FOLLOWING THE EARLIER YEARS APPELLATE ORDER DELETED THE SAID DEPRECIATION AND ALSO H E LD THAT IT IS A S ETTLED PROPOSITION OF LAW THAT EVEN IF THE ASSET IS KEPT FOR READY FOR USE , THEN SAME SHOULD BE DEEMED TO HAVE BEEN USED FOR THE PURPOSE OF BUSINESS IN TERMS OF SECTION 32, HENCE ASSESSEE IS ENTITLED FOR DEPRECIATION THEREON. 8. WE FIND THAT THIS ISSU E HAD COME FOR CONSIDERATION IN THE EARLIER YEARS BEFORE THE TRIBUNAL; WHEREIN TRIBUNAL HAS ALLOWED THE SIMILAR CLAIM DEPRECIATION IN A.Y. 2003 - 04 , VIDE PARA NO. 30. ONCE DEPRECIATION HAS BEEN ALLOWED ON THE SAME ASSET IN THE EARLIER YEARS , THEN IN THIS YEAR DEPRECIATION CANNOT BE DISALLOWED ON WDV AND ACCORDINGLY , THE ORDER OF THE LEARNED CIT (APPEALS) IS CONFIRMED. 9. IN THE GROUND NO. 3 THE REVENUE HAS CHALLENGED THE DISALLOWANCE OF DEDUCTION U/S 10A OF RS. 2,99,25,184/ - . THE RELEVANT FA CTS QUA THE ISSUE ARE THAT T HE ASSESSEE HAD AN UNDERTAKING KNOWN AS TECHNICAL CENTRE INDIA DULY REGISTERED UNDER SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI) VIDE APPROVAL DATED 29.32.2000. THE SAID UNDERTAKING IS ENGAGED IN THE BUSINESS OF INBUILT COMPUTER SOFTWARE SYSTEM FOR AUTOMOTIVE COMPONENT INDUSTRY AND IN THE RETURN OF INCOME IT HAS CLAIMED A DEDUCTION OF RS. 2,94,95,184/ - U/S 10A ON THE BASIS OF AUDIT REPORT OBTAINED IN FORM NO. 56F. THE ASSESSING OFFICER HA D DENIED THE SAID CLAIM OF THE ASSESSEE ON THE GROUND THAT IT HAS NOT FILED PAGE 6 OF 15 APPROVAL/EXTENSION OF APPROVAL OF THE 3 UNITS AND SO FAR AS THE STPI UNIT OF BANGALORE IS CONCERNED , HE HELD APPROVAL HA S TO BE PROVIDED BY THE INTER - M INISTERIAL S TANDING C OMMITTEE. THE L D. CIT (APPEALS) HAD DELETED THE SAID ADDITION NOT ONLY FOLLOWING THE EARLIER YEAR S ORDER OF THE CIT (APPEALS) BUT ALSO RELIED UPON THE CBDT CIRCULAR NO. 1 DATED 31.3.2006 , WHEREIN IT WAS CLARIFIED THAT THE DEDUCTION U/S 10A WHICH HAVE BEEN DENIED TO STPI UNIT ON THE GROUND THAT IF THE APPROVAL/REGISTRATION TO SUCH UNITS HAS BEEN GRANTED BY THE DIRECTOR OF SOFTWARE TECHNOLOGY PARKS INDIA , THEN IT IS SUFFICIENT FOR MAKING THE CLAIM . HOWEVER, T HE ASSESSEE HAS DULY SUBMITTED THAT THE GREEN CARD ISSUE D BY THE STPI WHICH CLEARLY PROVIDE D THAT APPROVAL OF THE DIVISION /UNIT HAS BEEN ACCORDED BY THE C HAIRMAN OF I NTER - M INISTERIAL S TANDING C OMMITTEE ; LETTER OF PERMISSION CONFIRMING EXTENSION OF THE 4 STPI FACILITIES; AND THEREFORE , THE VERY BASIS OF THE DISALLOWANCE MADE BY THE AO GOES . FURTHER THI S ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE ORDER S PARA NO. 20 RELYING UPON THE SAME CBDT CIRCULAR NO. 1 . 10. WE ALSO FOLLOWING THE JUDICIAL PRECEDENT OF THE EARLIER YEAR AND ALSO TAKING INTO ACCOUNT THE CATEGORICAL FINDING GIVEN BY THE LEARNED CIT (APPEALS) THAT ALREADY G REEN C ARD HAS BEEN ISSUED BY I NTER M INISTERIAL S TANDING C OMMITTEE ON SOFTWARE TECHNOLOGY PARKS OF INDIA SCHEME AND ASSESSEE HAS FILED LETTER CONFIRMING THE EXTENSION OF THE STPI FACI LIT IES, HOLD THAT THE DEDUCTION U/S 10A CANNOT BE DENIED TO THE ASSESSEE ON THE GROUND S RAISED BY THE ASSESSING OFFICER . A CCORDINGLY , THE ORDER OF THE LEARNED CIT (APPEALS) IS CONFIRMED. 11 . THE GROUND NO. 4, REVENUE HAS CHALLENGED THE DELETION OF ADDITIO N OF RS. 1,42,75,498/ - ON ACCOUNT OF DISALLOWANCE OF PAYMENT MADE TO APPROVED GRATUITY FUND. THE RELEVANT FACTS AS DISCUSSED IN THE IMPUGNED ORDER ARE THAT THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM PAGE 7 OF 15 ON THE BASIS OF DISCLOSURE IN THE AUDITOR S REPORT IN THE F ORM NO. 3CD THAT THE PAYMENT S AGGREGATING TO RS. 1,42,75,498/ - ARE NOT ALLOWABLE UNDER THE PROVISION S OF SECTION 40 A(7), WHICH ASSESSEE HAS NOT ADDED BACK. BEFOR E THE LEARNED CIT (APPEALS), IT W AS SUBMITTED THAT SIMILAR DISALLOWANCE HAS BEEN ALLOWED IN THE EARLIER YEARS BY THE LEARNED CIT (APPEALS) AND IN THIS YEAR ALSO THE ASSESSEE HAS MADE CONTRIBUTION TO DULY APPROVED FUNDS KNOWN AS DELPHI AUTOMOTIVE SYSTEMS PVT. LTD. GROUP E MPLOYEES G RATUITY F UND T RUST WHICH HAS BEEN APPROVED BY THE LEARNED CIT (APPEALS) ORDER DATED 8.1.1997 . THE LD. CIT(A) HELD THAT T HE ASSESSEE HA S DULY DEBITED THE SAID PAYMENT IN ITS PROFIT AND LOSS ACCOUNT AND THE SAME CANNOT BE DISALLOWED WITHIN THE SCOPE AND AMBIT OF SECTION 40 A(7) AND DELETED THE SAME ON THE GROUND THAT TH E GRATUITY FUND WAS DULY APPROVED. RELEVANT OBSERV ATIONS AND FINDING OF LD. CIT (A) READS AS UNDER: - I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AS WELL AS BY THE AO. A PERUSAL OF CLAUSE (A) OF SECTION 40A (7) REVEALS THAT IT RESTRICTS THE DEDUCTION IN RESPECT OF ANY PROVISION MADE IN THE BOOKS OF ACCOUNT FOR PAYMENT OF FUTURE GRATUITY LIABILITY. HOWEVER, CLAUSE (B), WHICH IS AN EXCEPTION TO CLAUSE (A) PROVIDES THAT WHERE THE PROVISION IS MADE FOR MAKING PAYMENT TOWARDS AN APPROVED GRATUITY FUND OR FOR THE PURPOSE OF PAYMENT OF ANY GRATUITY THAT HAS BECOME PAYABLE DURING THE PREVIOUS YEAR, THEN THE DEDUCTION OF SUCH A PROVISION SHALL NOT BE PROHIBITED. HENCE, I DO NOT SEE ANY REASON FOR DISALLOWANCE U/S 40A (7). FURTHER, AFTER LOOKING AT THE COPY OF APPROVAL LETTER GRANTED BY THE CIT WHICH IS PLACED AT PAGE NO. 152 OF THE PAPER BOOK , THERE IS HARDLY ANY ROOM FOR DOUBT AND FURTHER, THE A.O. IN HER REMAND REPORT DATED JUNE 27, 2014 DID NOT COMMENT ON THESE FACTS. THE AO HAS SIMPLY MECHANICALLY DISALLOWED THE DEDUCTION ON THE GROUND THAT THERE WAS NO EXPLANATION AS TO THE NATURE OF THE FUND. FURTHER, THE SAME GROUND HAS BEEN ALLOWED IN AY 2003 - 04 AND 2004 - 05. SINCE, THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES, I THEREFORE DELETE THE ADDITIO N MADE BY THE AO AND IN THE RESULT ALLOW THIS GROUND. PAGE 8 OF 15 1 2 . WE FIND THAT THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE A.Y. 2002 - 03 HAS DELETED THE SIMILAR DISALLOWANCE ON THE GROUND THAT THE SAID GRATUITY TRUST HAS BEEN DULY APPROVED . IN VIEW OF THE AFORES AID FACTS AND FOLLOWING THE EARLIER YEAR S PRECEDENCE, WE FIND NO REASON TO DEVIATE FROM THE FINDINGS RECORDED BY THE LD. CIT(A) THAT THE DISALLOWANCE U/S 40 A(7) CANNOT BE MADE BECAUSE CLAUSE (A) OF THE SECTION RESTRICTS THE DEDUCTION IN RESPECT OF ANY PROVISION MADE IN THE BOOKS OF ACCOUNTS FOR PAYMENT OF FUTURE GRATUITY LIABILITY, HOWEVER CLAUSE (B) CLEARLY PROVIDES EXCEPTION WH E R E THE PROVISION WAS MADE BY THE ASSESSEE FOR THE PURPOSE OF PAYMENT OF A SUM BY WAY ANY CONTRIBU TION TOWARDS AN APPROVED GRATUITY FUND WHICH HERE IN THIS CASE IS NOT IN DISPUTE. THUS , THE SAID DISALLOWANCE HAS RIGHTLY BEEN DELETED BY THE LEARNED CIT (APPEALS). 1 3 . AS REGARDS THE ISSUE RAISED IN THE GROUND NO. 5 THAT THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 94,14,147/ - ON ACCOUNT OF ADVANCES WRITTEN OFF ; THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FILE COMPLETE ADVANCES WRITTEN OFF FOR WHICH THE ASSESSEE HAD ASKED FOR SOME REASONABLE AMOUNT OF TIME TO FURNISH THE DETAILS AS THE KEY MEMBERS OF THE ORGANIZATION HA D LEFT THE ORGANISATION AND IT WAS DIFFICULT TO GET THE PAST RECORDS. HOWEVER, THE ASSESSING OFFICER REJECTED THE ASSESSEE S CONTENTION AND MADE THE DISALLOWANCE. THE LD . CIT (APPEALS) HA S DELETED THE SAID DISALLOWANCE / ADDITION AFTER OBSERVING AND HOLDING AS UNDER: - I HAVE GONE THROUGH THE FACTS AS STATED ABOVE. THE AO, AS EVIDENT FROM THE REMAND REPORT HAS MISCONSTRUED THE NATURE OF THE EXPENSE AND REFUSED THE DEDUCTION ON THE GROUND THAT IT IS CAPITAL EXPENSE. FURTHER, IT IS SETTLED PRINCIPLE THAT ACCOUNTING ENTRIES CANNOT DETERMINE THE TAXABILITY OF ANY TRANSACTION (SUTLEJ COTTON MILLS LTD PAGE 9 OF 15 VS. CIT (116 ITR L). THE APPELLANT VIDE HIS REJOINDER DATED AUGUST 7, 2014 HAS ESSENTIALLY REITERATED ITS EARLIER SUBMISSIONS. IT IS PERTINENT TO MENTION THAT THE ONLY GROUND, ON WHICH THE DISALLOWANCE OF ADVANCES WRITTEN OFF WAS MADE, WAS THAT THE DETAILS WERE NOT FURNISHED. AN APPRAISAL OF THE DOCUMENTS PLACED AT PAGE NO. 153 - 156 OF THE PAPER BOOK WOULD SHOW THAT THE SAME ARE ALLOWABLE AS DEDUCTIONS AS APPARENTLY A MAJOR CHUNK OF THE AMOUNT WHICH IS FOR RS. 90,35,812/ - IS RELATED TO SECURITY DEPOSIT GIVEN TO THE APPELLANT GIVEN TO MARUTI UDYOG LIMITED AND OTHER OEM CUSTOMERS TO WHOM THE ASSESSEE WAS SUPPLYING SPARE PARTS FROM ITS STEERING DIVISION. THIS DEPOSIT WAS OBTAINED BY T HE SAID CUSTOMERS IN ORDER TO ENSURE THAT THE SUPPLY SCHEDULE IN THEIR CONCERN DOES NOT GO HAYWIRE. THUS THE ADVANCES / SECURITY DEPOSIT WHICH HAVE BECOME UNRECOVERABLE ( MORE SO FOR THE REASON THAT THE APPELLANT S STEERING DIVISION ITSELF HAS BEEN SOLD TO MS/ RHODES INDIA AUTOMOTIVE INDIA PVT. LTD. VIDE BUSINESS TRANSFER AGREEMENT) DUE TO PASSAGE OF TIME, ARE T ALLOWABLE AS BUSINESS LOSS UNDER SECTION 28 ITSELF, AS THESE DEPOSITS WERE GIVEN DURING THE COURSE OF BUSINESS AND IN ORDER TO CONDUCT THE BUSINESS AND THEREFORE THE DEPOSITS WERE INTEGRAL TO THE CARRYING OUT OF BUSINESS. RESULTANTLY, THE NON RECOVERY OF SUCH DEPOSIT SHOULD ALSO AS A COROLLARY IS REQUIRED TO BE ALLOWED AS A BUSINESS LOSS. IN THIS CONNECTION, RELIANCE IS PLACED ON THE RATIO OF DECISION S IN CASE OF CIT V CRESCENT FILMS PVT. LTD. 248 ITR 670 (MADRAS) WHEREIN, THE HON BLE COURT HAS WHILE GIVING ITS FINDING HAS MADE THE FOLLOWING OBSERVATIONS: - A DECISION IS TO BE REGARDED AS A PRECEDENT FOR ITS RATIO - DECIDENDI AND NOT FOR THE FACTS IN RE LATION TO WHICH SUCH RATIO WAS LAID DOWN. THE RATIO OF THE CASE IN CIT V. COIMBATORE PICTURES (P.) LTD. [1973] 90 ITR 452 (MAD.) IS THAT , BEFORE A DEDUCTION CAN BE CLAIMED ON THE GROUND OF BUSINESS LOSS, THE LOSS SHOULD HAVE BEEN INCURRED IN THE COURSE OF BUSINESS AND IT SHOULD BE IN THE NATURE OF REVENUE LOSS. ON THE FACTS OF THE INSTANT CASE, THE LOSS TO THE ASSESSEE BEING A REVENUE LOSS WHICH HAD BEEN INCURRED IN THE COURSE OF BUSINESS, THE ASSESSEE WAS ENTITLED TO DEDUCT THE SAME UNDER SECTION 37(1). PAGE 10 OF 15 I N A RESULT, THE ADVANCES WRITTEN OFF FOR RS 94,14,147, ARE ALLOWED AS BUSINESS LOSS. 1 4 . HOWEVER, WE FIND THAT IN THE ASSESSMENT YEAR 2003 - 04, THIS MATTER HAS BEEN REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER BY THE TRIBUNAL , AFTER MAKING FOLLOWING OBSERVATIONS: - 32. WE HAVE CAREFULLY CONSIDERED THE DETAILS SUBMITTED AT PAGE 254 OF THE PB OF THE ASSESSEE. BASED ON THIS WE COULD FIND THAT THE AMOUNT OF ADVANCE GIVEN TO MARUTI UDYOG LTD. OF RS.5226437/ - AND ALSO OVERDUE RECEI VABLE FROM DEL PH I USA OF RS.5623770/ - WERE WRITTEN OFF. FURTHER THE DETAILS FURNISHED DID NOT SHOW THAT WHETHER THESE ARE DEBTS ARISING OUT OF SALES AND SERVICES AND CONDITIONS OF SECTION 36(2) HAVE BEEN FULFILLED BY THE ASSESSEE APPLICABLE BAD DEBTS WRITT EN OFF BY THE ASSESSEE. FURTHER SOME ADVANCES WERE ALSO WRITTEN OFF FOR WHICH COMPLETE DETAILS WERE NOT AVAILABLE WITH THE ASSESSING OFFICER AND FROM THE ORDER OF CIT (A) THE ADDITION HAS BEEN DELETED WITHOUT COMPLETE EXAMINATION OF THE ITEMS. THEREFORE IN THE INTEREST OF JUSTICE WE SET ASIDE THIS ISSUE TO THE FILE OF AO TO VERIFY THE CLAIM OF SUCH WRITE OFF OF WHETHER IT IS BAD DEBTS WRITTEN OF OR IT IS ADVANCES WRITTEN OFF. IN CASE OF BAD DEBTS WRITTEN OFF WHETHER THE REQUISITE CONDITIONS HAVE BEEN SATISF IED OR NOT AND IN CASE OF ADVANCE WRITTEN OFF WHETHER THEY ARE TRADE ADVANCE OR ADVANCE AGAINST CAPITAL GOODS AND HOW ARE THEY ALLOWABLE TO THE ASSESSEE. NEEDLESS TO SAY THAT PROPER OPPORTUNITY OF HEARING MAY BE GRANTED TO THE ASSESSEE IN THIS REGARD. IN T HE RESULT GROUND NO.3 OF THE APPEAL IS PARTLY ALLOWED. 1 5 . SINCE SIMILAR FACTS ARE PERMEATING IN THIS YEAR ALSO, THEREFORE, FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, WE ALSO SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRE CTION. IN THE RESULT THE GROUND NO. 5 TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 1 6 . LASTLY, AS REGARDS THE ISSUE RAISED IN THE GROUND NO. 6 IS CONCERNED, THE BRIEF FACTS ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTUR ING AND EXPORT OF AUTOMOTIVE COMPONENTS. THE PAGE 11 OF 15 ASSESSEE EXPORTED AUTOMOTIVE COMPONENTS TO ITS CUSTOMER IN USA IN THE FINANCIAL YEAR 2004 - 05 . HOWEVER, THE PRODUCTS SO MANUFACTURED AND SHIPPED BY THE ASSESSEE SUFFERED FROM QUALITY ISSUES AND REPORTED OF RUSTING AND CONTAMINATION. THE QUALITY PROBLEM AND RESULTANT RUSTING OF GOODS RESULTED IN REFUSAL BY THE CUSTOMER TO ACCEPT THE GOODS ALREADY SHIPPED BY THE ASSESSEE TO USA. THUS, DUE TO QUALITY ISSUES, THE CUSTOMER REFUSED TO ACCEPT THE GOODS PHYSICALLY LYING IN USA UNLESS AND UNTIL: A PPROPRIATE INSPECTION OF THE GOODS WERE CARRIED OUT (TO THE SATISFACTION OF THE CUSTOMER) A PPROPRIATE RE - WORKING OF THE GOODS (LIKE DOING THE PAINT WORK, REMOVAL OF MOTH BALLS ETC.) WERE CARRIED OUT TO THE SATISFACTION OF THE C USTOMER, AND INSPECTION REPORT RELEASED CERTIFYING THAT THE GOODS LYING IN USA WERE NOT SUFFERING FROM QUALITY ISSUES. FOR THIS PURPOSE, THE ASSESSEE HAD TO ENGAGE A NON - RESIDENT INSPECTION SERVICE P ROVIDER IN USA CALLED AS KEYSTONE INDUSTRIES LTD, USA (KEYSTONE) TO CARRY OUT INSPECTION AND REWORK OF THE PRODUCTS WHILE THE PRODUCTS WERE PHYSICALLY LYING IN US PORT. THE PARAMETER ON WHICH THE INSPECTION WAS CARRIED OUT BY KEYSTONE WAS LAID DOWN BY THE ASSESSEE . BASED ON THE SPECIFICATIONS PROVIDED BY TH E ASSESSEE , THE INSPECTION SERVICE PROVIDER CARRIED OUT A MANUAL AND VISUAL INSPECTION OF GOODS AND AFTER THE INSPECTION, KEYSTONE, PROVIDED A CERTIFICATE ON THE RUSTING/ NON - RUSTING OF THE GOODS BY PHYSICALLY VERIFYING THE GOODS . THE ASSESSEE HAD DISALLOW ED THE SAID PAYMENT FOR THE REASON THAT TDS WAS NOT DEDUCTED. HOWEVER B EFORE THE LEARNED CIT (APPEALS), THE ASSESSEE CLAIMED FOR ITS ALLOWABILITY ON THE GROUND THAT THE SAID PAYMENT MADE TO THE US RESIDENT FOR INSPECTION SERVICES HAS TO BE SEEN FROM THE TR EATY PROVISIONS OF ARTICLE 12(4) OF INDIA - US DTAA WHICH DEFINES F EES FOR I NCLUDE D S ERVICES AS CONSIDERATION PAID FOR RENDERING OF ANY TECHNICAL PAGE 12 OF 15 OR CONSULTANCY SERVICES IS SUCH SERVICES MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW, OR PROCESS, OR CONSISTS OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. IN THE INSTANT CASE, THE ASSESSEE POINTED OUT THAT THE SERVICES RENDERED BY KEYSTONE INDUSTRIES LTD., USA TO CARRY OUT INSPECTION AND REWORK OF THE PRODUCTS WHILE THE PRODUCTS WERE PHYSICALLY LYING IN US PORT CAN IN NO MANNER BE RECKONED AS TECHNICAL OR CONSULTANCY SERVICES WITH MAKE AVAILABLE CLAUSE A ND THEREFORE , THE SAME IS NOT TAXABLE UNDER A RTICLE 24 AND ACCORDINGLY , THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS . 17. THE LD . CIT (APPEALS) FOLLOWING THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN CASE OF DIAMOND SERVICES INTERNATIONAL LTD. VS. UOI (304 ITR 201) HELD THAT THE PAYMENT MADE TO KEYSTONE INDUSTRIES LTD., USA (KEYSTONE) DOES NOT MA K E AVAILABLE ANY TECHNICAL KNOWLEDGE ETC. AND THEREFORE SAID SERVICES ARE NOT TAXABLE IN INDIA AND ACCORDINGLY , NO WITHHOLDING OF TAX IS WARRANTED. 18. WE FIND THAT THE A SSESSING OFFICER HAS MADE THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE ITSELF HAS OFFERED FOR SUCH DISALLOWANCE U/S 40(A) (I) . HOWEVER, IF WE EXAMINE THE NATURE OF PAYMENT , IT IS PURELY MADE OF FOLLOWING SERVICES: - KEYSTONE ONLY PROVIDED A CERTIFICATE/REPORT ON RUSTING OF THE GOODS ON THE PARAMETERS LAID DOWN BY THE APPELLANTS. RE - WORKING OF T HE GOODS I.E. PAINTING, REMOVAL OF MONTH BALLS ETC. WAS CARRIED OUT ON THE SPECIFICATIONS PROVIDED BY THE APPELLANTS. THE AFORESAID SERVICES CANNOT BE HELD TO BE FALLING WITHIN THE SCOPE AND AMBIT OF ARTICLE 24(B) OF INDIA US DTAA WHICH STIPULATES AS U NDER: - 'F EES FOR INCLUDED SERVICES' MEAN S - 'PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR PAGE 13 OF 15 CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: A ) XXXXXXXXXXXXXXXX B) MAKE AVAILABLE TECHNICAL KNOWLEDGE , EXPERIENCE, SKILL, KNOW - HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN.' THE PROTOCOL TO THE DTAA CLARIFIES THAT TECHNOLOGY WILL BE CONSIDERED TO BE 'MADE AVAILABLE' WHEN THE PERSON ACQUIRING THE SERVICE 'IS ENABLED TO APPLY THE TECHNOLOGY. HOWEVER, IN THE INSTANT CASE, THE SERVICES RENDERED BY KEYSTONE WERE INSPECTION SERVICES SIMPLICITOR AND CAN NOT BE RECKONED AS TECHNICAL SERVICES BY ANY STRETCH OF IMAGINATION ESPECIALLY WITHIN THE SCOPE OF 'FEES FOR INCLUDED SERVICES' HAVING MAKE AVAILABLE CLAUSE UNDER ARTICLE 12(4)(B) . THE AFORESAID ACTIVITIES ARE NOT MADE AVAILABLE SO THAT THE PERSON ACQUIRING THE SERVICE IS ABLE TO APPLY THE TECHNOLOGY. HERE PROVIDING FOR CERTIFICATE/ REPORT ON RUSTING OF GOODS AND RE - WORKING ON GOODS MAINLY FALL IN THE CATEGORY OF INSPECTION SERVICES LEAVE ALONE MAKE AVAILABLE OF TECHNICAL KNOWLEDGE. ACCORDINGLY, INCOME OF KEYSTONE INDUSTRIES L TD. AMOUNTING TO RS. 16,348,728 / - ON ACCOUNT OF THE SAID SERVICES IS NOT TAXABLE IN INDIA UNDER THE DTAA AND THUS , NO WITHHOLDING OF TAX ON THE SAME IS WARRANTED UNDER CHAPTER XVII OF THE ACT AND CONSEQUENTLY THERE COULD NOT BE ANY DISALLOWANCE U/S 40(A)(I) . 19. SO FAR AS T HE ASSESSEE SUO - MOTO OFFERING SUCH DISALLOWANCE CANNOT BE A ESTOPPEL UPON THE ASSESSEE FOR CHALLENGING THIS ISSUE IN THE APPELLATE PROCEEDINGS , BECAUSE IF ANY PAYMENT OR RECEIPT IS NOT TAXABLE IN INDIA OR CANNOT BE RECKONED TO BE INCOME OF THE PAYEE UNDER THE PROVISIONS OF THE DTAA , THEN THE ASSESSING OFFICER CANNOT MAKE THE ADDITION ON MERE ACQUIESCENCE MADE BY THE ASSESSEE UNDER MISCONCEPTION OF LAW OR TREATY PROVISION . THE ADDITION/DISALLOWANCE HAS TO BE MADE STRICT LY IN ACCORDANCE WITH LAW. ACCORDINGLY WE HOLD THAT PAGE 14 OF 15 EVEN THOUGH THE ASSESSEE HAD SUO - MOTO OFFERED FOR DISALLOWANCE , BUT ONCE THIS ISSUE HAS BEEN CHALLENGED BEFORE THE APPELLATE PROCEEDINGS AND SAME HAS BEEN DECIDED IN ACCORDANCE WITH THE LAW , THEN RELIEF CANNOT BE DENIED TO THE ASSESSEE SOLELY ON THE GROUND THAT ASSESSEE HAD OFFERED FOR DISALLOWANCE . THEREFORE, WE UPHOLD THE DELETION OF DISALLOWANCE BY THE LEARNED CIT (APPEALS) . 20 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 3 1 . 1 0 .2017. S D / - S D / - ( P.K. BANSAL ) (AMIT SHUKLA) VICE PRESIDENT JUDICIAL MEMBER DATED: 3 1 / 1 0 /2016 NARENDER COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI PAGE 15 OF 15 DATE 1. DRAFT DICTATED ON 18 .9.2017 2. DRAFT PLACED BEFORE AUTHOR 19 .9.2017 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 3 1 . 1 0 . 2 0 1 7 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 1 . 1 1 . 2 0 1 7 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.