Mc Nally Sayaji Engineering Limited, North 24 Parganas V. D.C.I.T Cir - 1,kolkata, Kolkata

ITA 927/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9239 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 17-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 25-04-2013
• Court: TRIBUNAL
• Department Lawyers: MD GHAYAS UDDIN
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Additional depreciation; Earning of tax free income; Proportionate interest; Additional evidence; Bad and doubtful debts; Corroborative evidences; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 14A; 37(1); 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI PARTHA SARAT HI CHAUDHURY, JM] I.T.A NO.2776/A/2011 ASSESSMENT YEAR: 2008-09 MC NALLY SAYAJI ENGINEERING LTD. VS. ASSISTANT COM MISSIONER OF INCOME-TAX, (PAN: AACCS5491A) CIRCLE-4, BARODA. ( APPELLANT ) ( RESPONDENT ) & I.T.A NO.1575/KOL/2011 ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX, VS. MC NALLY SA YAJI ENGINEERING LTD CIRCLE-1, KOLKATA. ( APPELLANT ) ( RESPONDENT ) & I.T.A NO.927/KOL/2013 ASSESSMENT YEAR: 2009-10 MC NALLY SAYAJI ENGINEERING LTD. VS. DEPUTY COMMIS SIONER OF INCOME-TAX, CIRCLE-1, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 27.02.2017 DATE OF PRONOUNCEMENT: 10.03.2017 FOR THE ASSESSEE: SMT. SHREYA LOYALKA, CA FOR THE REVENUE: MD. GHAYAS UDDIN, JCIT, SR. DR ORDER PER SHRI M. BALAGANESH, AM: THE CAPTIONED CROSS APPEALS BEING ITA NOS. 2776/A/2 011 AND 1575/KOL/2011 BY ASSESSEE AND REVENUE ARE ARISING OUT OF ORDER OF CI T(A)-III, BARODA VIDE APPEAL NO. CAB/III-245/10-11 DATED 23.08.2011 AND ITA NO. 927/ KOL/2013 BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-XXIV, KOLKATA VIDE APPEAL NO.115 8/CIT(A)-XXIV/C-1/12-13 DATED 18.02.2013 RESPECTIVELY. ASSESSMENT WAS FRAMED BY A CIT, CIRCLE-4, BARODA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT) FOR ASSESSMENT YEAR 2008- 09 VIDE HIS ORDER DATED 30.11.2010 AND ASSESSMENT W AS FRAMED BY DCIT, CIRCLE-1, KOLKATA U/S. 143(3) OF THE ACT FOR ASSESSMENT YEAR 2009-10 VIDE HIS ORDER DATED 29.12.2011 . SINCE SOME OF THE ISSUES ARE COMMON A ND FACTS ARE IDENTICAL, WE DISPOSE OF THE SAME BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 2. AT THE OUTSET, WE FIND THAT THERE IS A DELAY OF 8 DAYS IN FILING THE APPEAL BY THE REVENUE BEFORE US IN ITA NO. 1575/KOL/2011 FOR ASST YEAR 2008-09. WE HAVE GONE THROUGH THE REASONS GIVEN IN THE DELAY CONDONATION PETITION AND WE ARE CONVINCED WITH THE SAME AND HENCE THE DELAY OF 8 DAYS IS CONDONED AND APPEAL OF THE REVENUE IS HEREBY ADMITTED FOR ADJUDICATION. 3. DISALLOWANCE U/S 14A OF THE ACT GROUNDS COVERED GROUND NO. 1 (A) & (B) IN ITA NO. 2776/KOL/2011 FO R ASST YEAR 2008-09 GROUND NOS. 3 (A) &(B) IN ITA NO. 927/KOL/2013 FOR ASST YEAR 2009-10 THE FACTS IN ASST YEAR 2008-09 ARE TAKEN UP FOR ADJ UDICATION AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE AS THE FACTS A RE IDENTICAL IN ASST YEAR 2009-10 ALSO EXCEPT WITH VARIANCE IN FIGURES. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBS ERVED THAT THE ASSESSEE HAD CLAIMED DIVIDEND INCOME OF RS 3,20,894/- AS EXEMPT. THE LD AO SHOW CAUSED THE ASSESSEE AS TO WHY THE DISALLOWANCE U/S 14A OF THE ACT READ WITH R ULE 8D OF THE RULES BE NOT MADE IN THE INSTANT CASE. IN RESPONSE THERETO, THE ASSESSE E REPLIED THAT THE INVESTMENTS WERE MADE IN EARLIER YEARS OUT OF ITS OWN FUNDS AND NOT FRESH INVESTMENTS WERE MADE IN THE YEARS UNDER APPEAL EXCEPT GROWTH ORIENTED INVESTMENT IN M UTUAL FUNDS WHICH DID NOT FETCH ANY DIVIDEND INCOME. HENCE IT WAS PLEADED THAT NO EXPE NDITURE WAS INCURRED FOR EARNING THE AFORESAID DIVIDEND INCOME. FURTHER, IT WAS STATED THAT INVESTMENTS ARE MADE IN MUTUAL FUNDS BASED ON PRE-DETERMINED INVESTMENT CRITERIA A ND HENCE NO OVERHEAD EXPENDITURE IS ALSO RELATABLE TO THE SAID INCOME IN THIS YEAR. THE AGGREGATE OF THE ASSESSEES OWN FUNDS AMOUNTED TO RS. 2279.06 LACS WHEREAS THE AGGREGATE INVESTMENTS AMOUNTED TO RS. 70.77 LACS ONLY. HENCE, IT IS APPARENT THAT THE INVESTM ENTS WERE MADE ONLY OUT OF OWN FUNDS AND NO PART OF INTEREST PAID ON LOANS IS RELATABLE TO THE INVESTMENT ACTIVITY. THE LD AO NOTICED THAT THE ASSESSEE HAD PAID INTEREST ON ITS BORROWED FUNDS TO THE TUNE OF RS. 38,99,276/- . HE ACCORDINGLY WORKED OUT THE DISALLO WANCE UNDER RULE 8D(2)(II) OF THE RULES IN THE SUM OF RS. 2,16,172/- AND UNDER RULE 8 D(2)(III) OF THE RULES IN THE SUM OF RS. 57,386/-. ACCORDINGLY, TOTAL DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE 3 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 RULES WORKED OUT TO RS. 2,73,558/-. THE LD CIT(A) SUSTAINED THE DISALLOWANCE MADE BY THE LD AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BE FORE US ON THE FOLLOWING GROUNDS:- GROUND NOS. 1(A) & 1(B) OF ASSESSEES APPEAL FOR A Y 2008-09: 1(A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT (A) WAS NOT JUSTIFIED IN MAKING A DISALLOWANCE OF RS. 273,588 UNDER SECTI ON 14A OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE APPELLANT DID NOT INCUR ANY EXPEN DITURE TO EARN EXEMPT INCOME. 1(B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND WITHOUT PREJUDICE TO GROUND NO. 1(A) TAKEN HERE IN ABOVE, THE LEARNED CI T (A) ERRED IN COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. GROUND NOS. 3(A) & 3(B) OF ASSESSEES APPEAL FOR AY 2009-10: 3(A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN UPHOLDING THE DISALLOWANCE O F RS 173,862 BY THE LD. DCIT UNDER SECTION 14A READ WITH RULE 8D WITHOUT APPRECIATING THE FACT THAT THE APPELLANT DID NOT INCUR ANY EXPENDITURE TO EARN EXEMPT INCOME. 3(B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDICE TO GROUND NO 3(A), THE LD. CIT(A) ERRED IN UPHOLDING THE DISA LLOWANCES MADE BY THE LD. DCIT BY INVOKING THE PROVISIONS OF RULE 8D WHILE MAKING DIS ALLOWANCE UNDER SECTION 14A OF THE ACT. 3.1. THE LD AR ARGUED THAT THE ASSESSEE HAD OWN INT EREST FREE FUNDS MANY TIMES OVER THE INVESTMENT MADE IN INDIAN SUBSIDIARIES AND FURTHER THERE WAS NO DIRECT NEXUS BETWEEN INTEREST BEARING BORROWED FUNDS AND SUCH INVESTMENT . THE LD AR PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SUPPORT OF HER ARGUMENTS :- CIT VS SUZLON ENERGY LTD (TAX CASE APPEAL NO. 223 O F 2013 ) BY HONBLE GUJARAT HIGH COURT CIT VS HDFC BANK LTD (ITA NO. 330 OF 2012 ) BY HON BLE BOMBAY HIGH COURT CIT VS RELIANCE UTILITIES & POWER LTD REPORTED IN ( 2009) 313 ITR 340 (BOM) WITHOUT PREJUDICE TO THE ABOVE, THE LD AR ARGUED TH AT ONLY INVESTMENTS WHICH YIELDED DIVIDEND / EXEMPT INCOME SHOULD BE TAKEN INTO ACCOU NT FOR MAKING DISALLOWANCE UNDER RULE 8D(2)(II) AND (III) OF THE RULES. IN SUPPORT OF THIS, SHE PLACED RELIANCE ON THE FOLLOWING DECISIONS :- RANIGANJ CO-OPERATIVE BANK LTD VS DCIT REPORTED IN (2016) 73 TAXMANN.COM 90 (KOLKATA TRIB) REI AGRO LTD VS DCIT IN ITA NO. 1331/KOL/2011 DATED 19.6.2013 (KOLKATA TRIB) TATA METALICS LTD VS ACIT IN ITA NO. 737/KOL/2012 ( KOLKATA TRIB) 4 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 TEENLOK ADVISORY SERVIES (P) LTD VS DCIT REPORTED I N (2016) 71 TAXMANN.COM 269 (KOLKATA TRIB) 3.2. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY REL IED ON THE ORDERS OF THE LOWER AUTHORITIES AND ARGUED THAT THE PROVISIONS OF RULE 8D ARE TO BE MANDATORILY COMPLIED WITH FROM ASST YEAR 2008-09 AND ONWARDS. THE LD DR PLACE D RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DHANUKA & SONS REPORTED IN 339 ITR 319 (CAL) WHEREIN IT WAS HELD THAT THE ONUS IS ON THE ASSESS EE TO PROVE THAT THE INVESTMENTS WERE MADE OUT OF OWN FUNDS EVEN THOUGH THE INVESTME NTS WERE MADE IN THE EARLIER YEARS. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DHANUKA & SONS REPORTED IN 339 ITR 319 (CAL) HAD CATEGORICALLY HELD THAT EVEN THOUGH THE INVESTMENTS WERE MADE IN THE E ARLIER YEARS, THE ONUS IS ON THE ASSESSEE TO PROVE THAT IN THOSE RESPECTIVE YEARS, T HE INVESTMENTS WERE MADE OUT OF OWN FUNDS AND NO BORROWED FUNDS WERE UTILIZED FOR THE S AME. HENCE WE SET ASIDE THIS ASPECT OF THE ISSUE TO THE FILE OF THE LD AO WITH A DIRECT ION TO THE LD AO TO PRODUCE THE EARLIER YEAR RECORDS TO PROVE THAT THE INVESTMENTS IN EARLIER YE ARS WERE INDEED MADE OUT OF OWN FUNDS. IF THE SAME IS FOUND TO BE CORRECT, THEN NO DISALLO WANCE UNDER RULE 8D(2)(II) OF THE RULES TOWARDS PROPORTIONATE INTEREST WOULD OPERATE. WE D IRECT THE LD AO ACCORDINGLY. 3.3.1. IN RESPECT OF DISALLOWANCE MADE TOWARDS ADMI NISTRATIVE EXPENSES UNDER RULE 8D(2)(III) OF THE RULES, WE HOLD THAT THE CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF REI AGRO LTD SUPRA HAD HELD THAT ONLY DIVIDEND BEAR ING INVESTMENTS SHOULD BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF WORKING OUT THE DISALLOW ANCE UNDER RULE 8D(2)(III) OF THE RULES. WE DIRECT THE LD AO ACCORDINGLY. HENCE THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4. DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT GROUND NO. 2 IN ITA NO. 2776/KOL/2011 FOR ASST YEA R 2008-09 THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE MADE PROVISION FOR LEAVE ENCASHMENT TO THE TUNE OF RS. 11,17,925/- AND CLAIMED THE SAME AS DED UCTION WHICH WAS DISALLOWED BY THE LD AO BY INVOKING THE PROVISIONS OF SECTION 43B(F) OF THE ACT. THE LD CIT(A) SUSTAINED THE 5 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 DISALLOWANCE BY PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EXIDE INDUSTRIES LTD. AGGRIEVED, THE ASSESSEE I S IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT (A) WAS NOT JUSTIFIED AND ERRED IN DISALLOWING THE CLAIM OF THE APPELLANT IN RESPECT OF DEDUCTION OF PROVISION FOR LEAVE ENCASHMENT OF RS 1,117,925 UNDER SECTION 43B OF THE ACT. 4.1. THE LEARNED AR ARGUED THAT SINCE THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD 292 ITR 470 (CAL) HAS STRUCK DOWN THE PROVISIONS OF SECTION 43B(F) OF THE ACT, THE DEDUCTION MAY BE GRANTED TOW ARDS LEAVE ENCASHMENT MADE ON PROVISION BASIS ITSELF IN LINE WITH THE DECISION OF THE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LTD REPORTED IN 245 ITR 428 (SC). IN RESPONSE TO THIS, THE LEARNED DR ARGUED THAT THE HONBLE SUPREME COURT VIDE ITS INTE RIM ORDER DATED 8.5.2009 HAD HELD IN THE CONCLUDING PARAGRAPH THAT THE ASSESSEE SHALL PA Y TAX AS IF THE PROVISIONS OF SECTION 43B(F) OF THE ACT IS THERE IN THE STATUTE AND THE L D AO SHOULD DISALLOW THE SAME TILL THE DISPOSAL OF THE MAIN APPEAL BY THE HONBLE APEX COU RT. 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THOUGH THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD VS UNION OF INDIA REPORTED IN 292 ITR 470 (CAL) HAD STRUCK DOWN THE PROVISIONS OF SECTION 43B(F) OF THE ACT AS UNCONSTITUTIONAL, THE REVENUE HAD CARRIED THE MATTER FURTHER TO THE HONBLE SUPREME COURT WHICH INITIALLY IN SPECIAL LE AVE TO APPEAL (CIVIL) CC 12060 / 2008 DATED 8.9.2008 HAD HELD AS UNDER:- THE PETITION WAS CALLED ON FOR HEARING TODAY. UPON HEARING COUNSEL THE COURT MADE THE FOLLOWING O RDER. ISSUE NOTICE. IN THE MEANTIME, THERE SHALL BE STAY OF THE IMPUGNE D JUDGEMENT, UNTIL FURTHER ORDERS. LATER THE HONBLE SUPREME COURT IN SPECIAL LEAVE TO APPEAL (CIVIL) NO(S). CC 22889 / 2008 DATED 8.5.2009 HAD HELD AS UNDER:- THE PETITION WAS CALLED ON FOR HEARING TODAY. UPON HEARING COUNSEL THE COURT MADE THE FOLLOWING O RDER DELAY CONDONED. LEAVE GRANTED. PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL APP EAL, DEPARTMENT IS RESTRAINED FROM RECOVERING PENALTY AND INTEREST WHICH HAS ACCRUED T ILL DATE. IT IS MADE CLEAR THAT AS FAR AS 6 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 THE OUTSTANDING INTEREST DEMAND AS OF DATE IS CONCE RNED, IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APP EAL OF THE DEPARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD, D URING THE PENDENCY OF THIS CIVIL APPEAL , PAY TAX AS IF SECTION 43B(F) IS ON THE STATUTE BO OK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. HENCE, FROM THE AFORESAID SUPREME COURT JUDGEMENT, IT COULD BE INFERRED THAT THE HONBLE SUPREME COURT HAD NOT STAYED THE JUDGEMENT OF THE C ALCUTTA HIGH COURT DURING LEAVE PROCEEDINGS. BUT THE HONBLE SUPREME COURT HAD ONL Y PASSED AN INTERIM ORDER ON THE IMPUGNED ISSUE. HENCE WE DEEM IT FIT AND APPROPRIAT E , IN THE INTEREST OF JUSTICE AND FAIR PLAY, TO SET ASIDE THIS ISSUE TO THE FILE OF THE LE ARNED AO TO PASS ORDERS BASED ON THE OUTCOME OF THE MAIN APPEAL ON MERITS BY THE HONBLE SUPREME COURT AS STATED SUPRA. ACCORDINGLY GROUND NO. 2 IN ITA NO. 2776/KOL/2011 F OR ASST YEAR 2008-09 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5. DISALLOWANCE OF EXPENDITURE INCURRED FOR REPAIRS AND MAINTENANCE OF FACTORY ROOF, FLOORING AND DOORS GROUND NOS. 3(A) & (B) IN ITA NO. 2776/KOL/2011 IN ASST YEAR 2008-09 THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBS ERVED THAT THE ASSESSEE HAD DEBITED UNDER THE HEAD REPAIRS AND MAINTENANCE EXPENDITURE INC URRED TOWARDS CIVIL AND ROOF REPAIRS OF FACTORY WALLS, STORES AND OFFICE AT RS. 10,27,538/- ; REPAIRS TO FLOOR FACTORY AND BUILDING AT RS. 5,22,914/- AND CHANGE AND REPAIRS OF DOORS AMOU NTING TO RS. 5,05,000/-. THE LD AO SHOW CAUSED THE ASSESSEE AS TO WHY THE AFORESAID EX PENDITURE SHOULD NOT BE TREATED AS CAPITAL IN NATURE. THE ASSESSEE REPLIED VIDE ITS LETTER DATED 11.10.2010 THE COMPLETE DETAILS OF REPAIRS AND MAINTENANCE TOGETHER WITH T HE RESPECTIVE BILLS. THE ASSESSEE VIDE FURTHER REPLY DATED 30.11.2010 EXPLAINED THE NATURE OF WORK CARRIED OUT IN RESPECT OF REPAIRS AND MAINTENANCE TOGETHER WITH THE NAMES OF THE PARTIES TO WHOM THE AMOUNTS WERE PAID . IT WAS STATED THAT BASED ON THESE SUBMISSIO NS, THE AFORESAID EXPENDITURE ARE PURELY REVENUE IN NATURE AND ALLOWABLE AS DEDUCTION UNDER THE ACT. THE ASSESSEE REFERRED TO THE PROVISIONS OF SECTION 30 OF THE ACT WHICH READ AS U NDER:- 30. IN RESPECT OF RENT, RATES, TAXES, REPAIRS AND I NSURANCE FOR PREMISES, USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWI NG DEDUCTIONS SHALL BE ALLOWED (A) WHERE THE PREMISES ARE OCCUPIED BY THE ASSESSEE 7 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 (I) AS A TENANT, THE RENT PAID FOR SUCH PREMISES ; AND FURTHER IF HE HAS UNDERTAKEN TO BEAR THE COST OF REPAIRS TO THE PREMI SES, THE AMOUNT PAID ON ACCOUNT OF SUCH REPAIRS ; (II) OTHERWISE THAN AS A TENANT, THE AMOUNT PAID BY HIM ON ACCOUNT OF CURRENT REPAIRS TO THE PREMISES; ACCORDINGLY IT WAS STATED THAT THE PROVISIONS OF TH E ACT PROVIDE FOR DEDUCTION IN RESPECT OF REPAIRS MADE TO THE PREMISES USED FOR THE PURPOSE O F BUSINESS BY RESTRICTING IT TO THE CONCEPT OF CURRENT REPAIRS. TO DECIDE THE APPLICAB ILITY OF SECTION 30 OF THE ACT, THE TEST IS NOT WHETHER THE EXPENDITURE IS REVENUE OR CAPITAL I N NATURE, BUT WHETHER THE EXPENDITURE IS CURRENT REPAIRS OR NOT. SECTION 30 OF THE ACT DO ES NOT SPECIFICALLY DEFINE THE TERM CURRENT REPAIRS. THE ASSESSEE PLACED RELIANCE ON THE DEFINITION GIVEN IN THE DICTIONARY. REFERENCE WAS INVITED TO OXFORD DICTIONARY TO DEFIN E THE TERM CURRENT IN CONJUNCTION WITH REPAIRS. ACCORDING TO THE OXFORD DICTIONARY, THE WORD CURRENT IS DERIVED FROM THE LATIN WORD CURRERE WHICH MEANS TO RUN. THE WOR D CURRENT THEREFORE LITERALLY MEANS RUNNING. AS PER THE LEXICOGRAPHIC MEANING THE TE RM CURRENT MUST BE INTERPRETED AS RUNNING IN TIME; BELONGING TO THE PRESENT TIME. THE WORD REPAIR ACCORDING TO THE OXFORD DICTIONARY, WOULD MEANS TO RESTORE TO GOOD CONDITION BY RENEWAL OR REPLACEMENT OF DECAYED OR DAMAGED PARTS OR TO RENEW OR RENOV ATE SOMETHING OR PART. A RENEWAL MAY BE REPAIR OR RECONSTRUCTION. RENEWAL IS REPAIR ONLY IF IT IS RESTORATION OR REPLACEMENT OF SUBSIDIARY PARTS OF THE OLD MACHINERY. THE AS SESSEE PLACED RELIANCE ON VARIOUS DECISIONS IN SUPPORT OF ITS CONTENTIONS THAT THE AF ORESAID EXPENDITURES ARE ONLY REVENUE IN NATURE AND ONLY IN THE NATURE OF REPAIRS. THE LD AO DISREGARDED THE VARIOUS CONTENTIONS OF T HE ASSESSEE AND PROCEEDED TO DISALLOW THE EXPENDITURE BY TREATING THE SAME AS CAPITAL EXP ENDITURE AND ACCORDINGLY ADDED BACK THE SAME TO THE TOTAL INCOME. THE SAID ACTION OF THE L D AO WAS UPHELD BY THE LD CIT(A). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUNDS :- 3 (A) THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) WAS NOT JUSTIFIED IN IGNORING THE SUBMISSIONS/DOCUMENTS MAD E/FILED BY THE APPELLANT AND IN DISALLOWING THE CLAIM OF THE APPELLANT IN RESPECT O F CLAIM OF EXPENDITURE INCURRED FOR REPAIRS AND MAINTENANCE OF OFFICE / FACTORY ROOF, F LOORING AND DOORS OF RS 1,600,952 BY TREATING THE SAME AS CAPITAL IN NATURE. 3(B) WITHOUT PREJUDICE TO GROUND NO. 3(A) TAKEN HER E IN ABOVE, THE LEARNED CIT (A) WAS NOT JUSTIFIED AND ERRED IN CONSIDERING THAT THE EXP ENDITURE INCURRED ON REPAIRS AND 8 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 MAINTENANCE OF OFFICE / FACTORY ROOF ETC HAD BEEN I NCURRED ON ACQUISITION OF NEW ASSETS AND THUS DO NOT QUALIFY FOR DEDUCTION UNDER SECTION 37 OF THE ACT. 5.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE BILLS FOR REPAIRS AND MAIN TENANCE INCURRED BY THE ASSESSEE. FROM THE PERUSAL OF THE SAME, WE FIND THAT THE EXPE NDITURES WERE INCURRED ONLY ON ACCOUNT OF CURRENT REPAIRS WHICH WOULD DEFINITELY FALL ONLY UNDER THE AMBIT OF REVENUE EXPENDITURE. WE FIND THAT THERE IS ABSOLUTELY NO ENDURING BENEFI T THAT OCCURS TO THE ASSESSEE IN THE CAPITAL FIELD. THE LD DR ARGUED THAT THE ASSESSEE HAD BEEN GIVEN DEPRECIATION ON THE SAID EXPENDITURE ACCEPTING ITS ALTERNATIVE ARGUMENT BEFO RE THE LOWER AUTHORITIES AND HENCE THERE CANNOT BE ANY GRIEVANCE TO THE ASSESSEE IN THIS REG ARD. THE LD AR ARGUED THAT THE ASSESSEE VEHEMENTLY OBJECTED TO TREATING THE SAID EXPENDITUR E AS CAPITAL EXPENDITURE AND DEPRECIATION CLAIM THEREON WAS MADE ONLY AS AN ALTE RNATIVE MEASURE WITHOUT PREJUDICE TO ITS ORIGINAL CLAIM OF REVENUE EXPENDITURE. THE LD AR STATED APART FROM PLACING RELIANCE ON VARIOUS DECISIONS AND EXPLAINING THE NATURE OF WORK S CARRIED OUT BY THE ASSESSEE WITH SPECIFIC REFERENCE TO THE RELEVANT BILLS, FINALLY S TATED THAT SIMILAR ISSUE WITH REGARD TO REPLACEMENT OF FOUNDATION BASE OF PLANT AND MACHINE RY HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2007-08 IN IT A NO. 72/2011 DATED 6.1.2017. WE FIND THAT THE EXPENDITURE INCURRED ARE SUCH THAT IF LOOKED FROM THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY, IT COULD BE SAFEL Y CONCLUDED THAT THE EXPENDITURE INCURRED IS SO RELATED TO THE CARRYING ON OR CONDUC T OF THE BUSINESS THEREBY REGARDING THE SAME AS AN INTEGRAL PART OF THE PROFIT EARNING PROC ESS AND NOT FOR ACQUISITION OF ASSET OR ANY RIGHT OF PERMANENT CHARACTER. WE FIND THAT THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ALLIED METAL PRODUCTS VS CIT REPORTED I N (1981) 137 ITR 689 (P&H) HAD DECIDED THAT EXPENDITURE INCURRED BY THE ASSESSESE FOR REPAIR OF THE LEAKING ROOF OF THE OFFICE PREMISES WILL BE CONSIDERED AS EXPENDITURE I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AS THE BUSINESS CANNOT BE A DVANTAGEOUSLY CARRIED OUT UNDER A LEAKING ROOF. WE ALSO FIND THAT THE RELIANCE PLAC ED BY THE LD AR ON THE CO-ORDINATE BENCH DECISION OF JAIPUR TRIBUNAL IN THE CASE OF ACIT VS MEWAR POLYTE X PVT LTD REPORTED IN (1995) 51 TTJ 698 (JP) IS WELL FOUNDED WHEREIN IT WAS DECIDED THAT WHERE AN ASSESSEE INCURS EXPENDITURE ON EXTENSIVE REPAIRS CARRIED OUT IN REPLACING ROOF SHEETS, FLOORING ETC, NECESSITATED DUE TO HEAVY RAIN AND FLOODS WHICH CAU SED THE EXTENSIVE DAMAGE, SUCH 9 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 EXPENDITURE WOULD BE CONSIDERED AS ALLOWABLE BUSINE SS EXPENDITURE AND IT WAS FURTHER DECIDED THAT NO NEW ASSET WOULD COME INTO EXISTENCE BY VIRTUE OF THE SAID EXPENDITURE. WE FIND THAT FROM THE DETAILS OF THE EXPENDITURE IN CURRED TOGETHER WITH THEIR BILLS, WE HOLD THAT THE ASSESSEE DOES NOT DERIVE ANY ENDURING BENE FIT IN THE CAPITAL FIELD SO AS TO FALL WITHIN THE AMBIT OF CAPITAL EXPENDITURE. WE ALSO FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2007-08 SUPRA AFTER ANALYZIN G THE HONBLE DELHI HIGH COURT AND SUPREME COURT DECISIONS IN THE CASE OF MODI SPINNIN G & WEAVING MILLS CO LTD AND SARAVANA SPINNING MILLS P LTD RESPECTIVELY RELIED U PON BY THE LOWER AUTHORITIES, HAD HELD AS UNDER:- 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A LSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF REPLACEMENT OF FLOORING/FOUNDATION HAS BEEN CONSIDERED BY THE AUTHORITIES BELOW ONLY F ROM THE ANGLE OF CURRENT REPAIRS AS PROVIDED IN SECTION 31(I) AND NOT UNDER SECTION 37. AS HELD, INTER ALIA, BY THE HONBLE SUPREME COURT IN THE CASES OF BADRIDAS DAGA VS.- CIT [34 ITR 10] AND CALCUTTA COMPANY LIMITED VS. CIT [37 ITR 1], EVEN IF THE EXPENDITURE MADE BY THE ASSESSEE CANNOT BE DESC RIBED AS CURRENT REPAIRS, HE IS ENTITLED TO INVOKE THE BENEFIT OF SE CTION 37. EVEN IN THE CASE OF MODI SPINNING & WEAVING MILLS CO. LIMITED (SUPRA ), HONBLE DELHI HIGH COURT WHILE HOLDING THAT THE AMOUNT SPENT FOR REPLA CEMENT OF ADMINISTRATIVE BLOCK OF THE ASSESSEE, WHICH WAS LON G OVERDUE, COULD NOT BE ALLOWED AS DEDUCTION UNDER THE HEAD CURRENT REPAIR S, FURTHER CLARIFIED THAT SUCH REPLACEMENT AMOUNTING TO RENOVATION OR RE PAIRS MAY BE ENTITLED TO DEDUCTION UNDER SECTION 37. EVEN IN THE CASE OF SARAVANA SPINNING MILLS (P) LIMITED (SUPRA) CITED BY THE LD. D.R., IT WAS H ELD BY THE HONBLE SUPREME COURT THAT WHILE DECIDING THE APPLICABILITY OF SECTION 31(1), THE TEST IS NOT WHETHER THE EXPENDITURE IS REVENUE OR C APITAL IN NATURE BUT WHETHER THE EXPENDITURE IS CURRENT REPAIRS. IT IS T HUS CLEAR THAT THE ISSUE RELATING TO THE ALLOWABILITY OF THE EXPENDITURE INC URRED ON REPLACEMENT OR RENOVATION AS IS INVOLVED IN THE PRESENT CASE HAS T O BE DECIDED ON THE TOUCHSTONE OF SECTION 37 AND FROM THIS ANGLE, THE R ELEVANT TEST TO BE APPLIED IS WHETHER SUCH EXPENDITURE INCURRED ON REPLACEMENT IS REVENUE OR CAPITAL IN NATURE. IN THIS REGARD, THE LEGAL POSITION IS WE LL SETTLED THAT IF IT IS A CASE OF REPLACEMENT OF CAPITAL ASSET AS A WHOLE OR SUBST ANTIALLY THE WHOLE, THE EXPENDITURE INCURRED ON SUCH REPLACEMENT IS OF CAPI TAL NATURE. IN THE PRESENT CASE, THE FOUNDATION/FLOORING UNDOUBTEDLY W AS A PART OF A CAPITAL ASSET EITHER OF MACHINERY AS CLAIMED BY THE ASSESSE E OR OF BUILDING AS HELD BY THE AUTHORITIES BELOW AND THEREFORE, THE EXPENDI TURE INCURRED ON REPLACEMENT THEREOF, IN OUR OPINION, WAS REVENUE IN NATURE, WHICH IS ALLOWABLE AS DEDUCTION UNDER SECTION 37. FOR THIS C ONCLUSION, WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS.- MAHALAKSHMI TEXTILES MILLS LIMITED VS.- CIT [66 ITR 710], WHEREIN IT WAS HELD THAT IN A CASE, WHERE THE PRODUCTIVE UN IT SET UP BY THE ASESSEE REMAINED THE SAME BUT A PART OF IT, WHICH HAS BECOM E UNSUITABLE FOR ITS USE, IS REPLACED BY SOMETHING, WHICH MAKES IT POSSIBLE F OR THE EXISTING SET UP TO FUNCTION EFFICIENTLY, THE COST INCURRED ON SUCH REP LACEMENT WOULD BE REVENUE EXPENDITURE. WE ALSO DRAW SUPPORT FROM THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS.- FENNER INDIA LIMITED [292 ITR 605] WHEREIN IT WAS HELD THAT THE QUESTION WHETHER THE 10 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 EXPENDITURE ON REPLACEMENT OF MACHINERY IS CAPITAL OR REVENUE EXPENDITURE IS NOT DETERMINED BY TREATMENT GIVEN IN THE BOOKS O F ACCOUNT AND THAT THE CLAIM HAS TO BE DETERMINED ONLY BY THE PROVISIONS O F THE ACT. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE AND KEEPING I N VIEW THE RATIO OF THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON REPLACEMENT OF THE EXISTING FLOORING/FOUNDATION USED FOR PLANT AND MACHINERY IS ALLOWABLE AS DEDUCTION BEING REVENUE IN NATURE AND THE DISALLOWANCE MADE B Y THE AUTHORITIES BELOW BY TREATING THE SAME AS CAPITAL NATURE IS NOT SUSTA INABLE. WE, THEREFORE, DELETE THE SAID DISALLOWANCE AND ALLOW GROUND NO.1 OF THE ASSESSEES APPEAL. 5.2. IN VIEW OF THE AFORESAID FACTS AND RESPECTFUL LY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT THE EXPENDITU RE INCURRED TOWARDS REPAIRS AND MAINTENANCE SUPRA WOULD BE SQUARELY ALLOWABLE AS RE VENUE EXPENDITURE AND THE LD AO IS HEREBY DIRECTED TO DELETE THE DISALLOWANCE OF THE S AME. ACCORDINGLY, THE GROUND NOS. 3 (A) & (B) IN ITA NO. 2776/KOL/2011 IN ASST YEAR 2008-09 ARE ALLOWED. 6. CLAIM OF ADDITIONAL DEPRECIATION ON PLANT AND MA CHINERY GROUND NO. 4 IN ITA NO. 2776/KOL/2011 FOR ASST YEAR 2008-09 DURING THE COURSE OF HEARING, THE LD AR STATED THAT SHE IS NOT PRESSING THIS GROUND. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 7. DISALLOWANCE OF LEGAL AND PROFESSIONAL CHARGES GROUND NOS. 5(A) TO 5 (C ) IN ITA NO. 2776/KOL/2011 FOR ASST YEAR 2008-09 THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBS ERVED THAT THE ASSESSEE HAS PAID PROFESSIONAL FEES TO THE FOLLOWING PARTIES :- DELOITTE HASKINS AND SELLS RS. 1,12,36,000 PATNI PARMAR & CO., CHARTERED ACCOUNTANTS RS. 22 ,44,848 JRS PATEL MANAGEMENT CONSULTANTS PVT LTD RS. 33, 70,800 ----------------------- RS. 1,68,51,648 --------------------- THE LD AO REQUESTED THE ASSESSEE TO GIVE EXPLANATIO N AND JUSTIFICATION WITH REGARD TO THE PAYMENTS MADE TO THE ABOVE PARTIES. THE ASSESSEE FILED THE DETAILS OF LEGAL AND PROFESSIONAL FEES PAID TO VARIOUS PARTIES TOGETHER WITH THE DETAILS OF TAX DEDUCTED AT SOURCE ON THE SAME. THE ASSESSEE VIDE FURTHER LETTER DA TED 30.11.2010 FILED THE DETAILS OF LEGAL AND PROFESSIONAL FEES PAID TO DELOITTE HASKINS AND SELLS (DHS IN SHORT) [RS. 1,12,36,000] 11 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 AND PATNI PARMAR & CO (PPC IN SHORT) [RS. 22,44,848 ] TOGETHER WITH THE NATURE OF SERVICES THEY PROVIDED TO THE ASSESSEE. THE ASSESSEE ALSO F URNISHED THE ENGAGEMENT LETTERS ISSUED TO THEM BY THE ASSESSEE DESCRIBING NATURE OF SERVICES EXPECTED OF THEM. THE ASSESSEE ALSO EXPLAINED THE DETAILS OF SERVICES RECEIVED FROM THE SE TWO PARTIES AS UNDER:- PAYMENT TO DELOITTE HASKINS & SELLS (DHS) AMOUN TING TO RS, 11,236,000, DURING THE ASSESSMENT PROCEEDING, THE ASSESSEE HAS RECEIVED ADVISORY SERVICES FROM DHS IN CONNECTION WITH THE DRAWING UP SUITABLE MANAGEMENT STRUCTURE AND PREPARING A BUSINESS PLAN ETC. DURING THE ASSESSMENT YEAR UNDER CONSIDER ATION, THE ASSESSEE WAS EXPLORING THE POSSIBILITIES TO RESTRUCTURE ITS BUSINESS OPERATION FOR THE SMOOTH FUNCTIONING OF ITS BUSINESS OPERATIONS AND ENABLING THE MANAGEMENT TO CONDUCT T HE ASSESSEE'S BUSINESS MORE PROFITABLY, AS ONE OF THE OPTIONS. THE SAID EXPENDITURE HAS NOT RESULTED IN ACQUIRING ANY NEW ASSETS AND THE EXPENDITURE INCURRED IS UNDOUBTEDLY NOT PERSONA L OR CAPITAL IN NATURE AND IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF ASSE SSEE. THE BASIC OBJECTIVE IS TO OBTAIN ADVANTAGE IN THE COMMERCIAL SENSE. - PATNI PARMAR & CO ('PPC'). AMOUNTING TO RS.2,244, 848 DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED MANAGEMENT AND FINANCIAL CONSULTING SERVICES FROM PPC WHICH THE FO LLOWING SERVICES: A) CORPORATE AND COMMERCIAL AGREEMENT B) COMPANY LAW COMPLIANCES; C) INCOME TAX RELATED SERVICES; D) FEMA RELATED SERVICES; AND E) OTHER SERVICES. THE AFORESAID SERVICES ARE RECEIVED FROM PPC IN ORD ER TO FACILITATE THE CARRYING ON OF THE BUSINESS MORE EFFICIENTLY AND EFFECTIVELY. THE ASSE SSEE IS CORPORATE ENTITY AND IT IS REQUIRED TO MAINTAIN ITS BOOKS OF ACCOUNTS AS PER THE ACCOUN TING STANDARD AND HAS TO COMPLY VARIOUS REGULATORY PROVISIONS AND, HENCE, APPOINTED PPC FOR COMPLIANCE OF LEGAL AND REGULATORY MATTER. IN THIS CONNECTION, IT IS SUBMITTED THAT TH E SAID EXPENDITURE IS NOT CAPITAL OR PERSONAL IN NATURE AND THE EXPENSES HAS BEEN INCURRED FOR TH E PURPOSE OF BUSINESS. 7.1. THE ASSESSEE PLEADED THAT THE AFORESAID EXPEN DITURE IS SQUARELY ALLOWABLE AS DEDUCTION U/S 37(1) OF THE ACT. IT PLACED RELIANCE ON VARIOUS DECISIONS IN SUPPORT OF ITS CONTENTIONS. THE LD AO OBSERVED THAT THE ASSESSEE HAD STATED THAT THE PAYMENT MADE TO DHS WAS MADE FOR ADVISORY SERVICES AND IN THE CASE OF PPC AND JRS PATEL MANAGEMENT CONSULTANTS PVT LTD , PAYMENTS WERE MADE FOR MANAGE MENT AND FINANCIAL CONSULTANCY SERVICES. THE ASSESSEE WAS ASKED TO FURNISH COPY O F THE AGREEMENT BETWEEN THESE PARTIES AND THE REPORT SUBMITTED BY THEM PROVING THE SERVIC ES RENDERED BY THEM. SINCE NO SUCH PAPERS WERE FURNISHED BY THE ASSESSEE, THE LD AO CO NCLUDED THAT THE AFORESAID EXPENDITURE WAS NOT SUPPORTED BY ANY CORROBORATIVE EVIDENCE AND ALSO THE ASSESSEE WAS NOT ABLE TO PROVE THE BENEFIT IT DERIVED ON ACCOUNT OF PROFESSI ONAL SERVICES RENDERED BY THESE PARTIES TO 12 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 THE ASSESSEE. ACCORDINGLY HE DISALLOWED THE ENTIRE LEGAL AND PROFESSIONAL CHARGES OF THESE THREE PARTIES AMOUNTING TO RS. 1,68,51,648/- AS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 7.2. THE LD CIT(A) OBSERVED THAT THOUGH THE ENGAGE MENT LETTER WAS ISSUED PRIOR TO 31.3.2008, THE SERVICES WERE RENDERED ONLY IN ASST YEAR 2009-10 WHICH IS EVIDENT FROM THE INVOICES RAISED BY THE SAID PARTIES ON THE ASSE SSEE AND ACCORDINGLY THE EXPENSES DID NOT ACCRUE TO THE ASSESSEE IN THE YEAR UNDER APPEAL. THE LD CIT(A) OBSERVED THAT THE ASSESSEE WAS ASKED TO PROVE THE NATURE OF SERVICES RENDERED BY THESE PROFESSIONALS TO THE ASSESSEE IN THE FORM OF REPORTS, LETTERS, CORRESPONDENCES ETC. THE LD CIT(A) BY PLACING RELIANCE ON CERTAIN DECISIONS OBSERVED THAT MERE EXISTENCE OF A N AGREEMENT BETWEEN THE ASSESSEE AND OTHER PARTY, THE ITO IS NOT BOUND TO HOLD THAT THE PAYMENT MADE IS EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF ASSESSEES BUSINESS AND HENCE TH E BURDEN OF PROOF IS ON THE APPELLANT TO PROVE WITH CORROBORATIVE EVIDENCES THAT THE EXPENDI TURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE. HE FURTHER OBSERVED THAT IT IS VERY STRANGE THAT FROM THE NATURE OF SERVICES PROMISED T O BE RENDERED BY THOSE THREE PARTIES, THE SAME REQUIRES FREQUENT CORRESPONDENCES, REGULAR REP ORTING, MEETINGS AND DELIBERATIONS BETWEEN THE ASSESSEE AND THOSE PARTIES . IN SUCH A SCENARIO, HOW AND WHY THE ASSESSEE IS NOT ABLE TO PRODUCE ANY EVIDENCE TO SUPPORT ITS CLA IM IS NOT KNOWN. ACCORDINGLY HE OBSERVED THAT NON-PRODUCTION OF ANY SUCH DOCUMENTS CLEARLY MEANS THAT THE ASSESSEE HAD NOT AVAILED ANY SERVICES FROM THESE PARTIES AND THE ALLEGED PAYMENTS TO THEM ARE NOTHING BUT COLOURABLE DEVICE TO REDUCE THE INCOME OF THE A SSESSEE. 7.3. THE LD CIT(A) FURTHER WITH REGARD TO THE ACCR UAL OF THE SAID EXPENSES FOR THE ASST YEAR 2008-09 OBSERVED THAT THE SERVICES WERE RENDER ED ONLY IN THE NEXT FINANCIAL YEAR RELEVANT TO ASST YEAR 2009-10 WHICH IS EVIDENT FROM THE ENGAGEMENT LETTER AND THE DATE OF INVOICES RAISED BY THE PARTIES WHEREIN THE LIABILIT Y TO PAY THE SUMS WOULD ACCRUE ONLY ON COMPLETION OF THE WORK BY THE RESPECTIVE PARTIES AN D HENCE ON ANY COUNT , THE EXPENDITURE CANNOT BE CLAIMED AS DEDUCTION FOR THE ASST YEAR 20 08-09. WITH THESE OBSERVATIONS, HE SUSTAINED THE DISALLOWANCE OF LEGAL AND PROFESSIONA L CHARGES FOR THE ASST YEAR 2008-09. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUNDS :- 5 (A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT (A) WAS NOT JUSTIFIED AND ERRED IN CONSIDERING THAT THE LEGAL A ND PROFESSIONAL CHARGES HAVE NOT BEEN 13 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE APPELLANT AND THUS DISALLOWING THE CLAIM OF THE APPELLANT IN RESPECT OF LEGAL AND PROF ESSIONAL CHARGES AMOUNTING TO RS.16,851,648. 5(B) WITHOUT PREJUDICE TO GROUND NO. 5(A), THE LD. CIT(A) WITHOUT APPRECIATING THE VARIOUS DOCUMENTS SUBMITTED BY THE APPELLANT, ERRED IN CONSIDERING THAT NO SERVICES WERE ACTUALLY RENDERED BY THE SERVICE PROVIDERS TO THE A PPELLANT AND THAT THE APPELLANT USED A COLOURABLE DEVICE TO REDUCE HIS TAXABLE INCOME. 5(C) WITHOUT PREJUDICE TO THE ABOVE GROUNDS, IN CAS E YOUR HONOUR IS OF THE VIEW THAT THE CLAIM IS NOT ALLOWABLE IN THE YEAR UNDER CONSIDERAT ION, ON THE GROUND, AS ALLEGED BY THE LD. CIT(A), THAT THE SAID AMOUNT HAS NOT CRYSTALLIZED I N THE YEAR UNDER CONSIDERATION, THEN YOUR HONOUR MAY GIVE NECESSARY DIRECTION TO THE AO TO ALLOW THE SAID CLAIM, IN THE YEAR THE SAID AMOUNT HAS CRYSTALLIZED. 7.4. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE GONE THROUGH THE CONTENTS OF THE PAPER BOOK OF THE ASSESSEE IN THIS REGARD. WE FIND THAT DELOITTE HASKINS AND SELLS HAD SPECIFIED THE DETAILS OF SERVICES THAT THEY ARE WIL LING TO RENDER TO THE ASSESSEE VIDE ENGAGEMENT LETTER DATED 1.2.2008 WHICH ARE ENCLOSED IN PAGES 296 TO 310 OF THE PAPER BOOK TOGETHER WITH INVOICE OF DELOITTE RAISED ON 15 .5.08 , 26.5.08, 9.6.08 ENCLOSED IN PAGES 311 TO 313 OF PAPER BOOK. WE FIND THAT JRS PATEL MANAGEMENT CONSULTANTS PVT LTD HAD SPECIFIED THE DETAILS OF SERVICES THAT THEY ARE WILLING TO RENDER TO THE ASSESSEE VIDE ENGAGEMENT LETTER DATED 10.3.2008 WHICH ARE ENCLOSE D IN PAGES 315 TO 321 OF THE PAPER BOOK TOGETHER WITH THEIR INVOICE RAISED ON 29.4.08 ENCLOSED IN PAGE 322 OF PAPER BOOK. SIMILARLY WE FIND THAT PATNI PARMAR & CO, CHARTERED ACCOUNTANTS HAD SPECIFIED THE DETAILS OF SERVICES THAT THEY ARE WILLING TO RENDER TO THE ASSESSEE VIDE ENGAGEMENT LETTER DATED 11.3.2008 WHICH ARE ENCLOSED IN PAGES 323 TO 329 OF THE PAPER BOOK TOGETHER WITH THEIR INVOICE RAISED ON 15.4.08 ENCLOSED IN PAGE 330 OF P APER BOOK. WE ALSO FIND THAT THE ASSESSEE HAD FILED ADDITIONAL EVIDENCE IN TERMS OF RULE 29 OF THE ITAT RULES CONTAINING THE FOLLOWING:- A) CERTIFICATE ISSUED BY DELOITTE THAT IT HAS RENDERED SERVICES TO THE ASSESSEE (ENCLOSED IN PAGE 419 OF THE PAPER BOOK) B) COPY OF REPORT DATED 18.5.2008 ISSUED BY PATNI PARM AR & CO, CHARTERED ACCOUNTANTS (ENCLOSED IN PAGES 420 TO 427 OF THE P APER BOOK) C) COPY OF REPORT DATED 23.5.2008 ISSUED BY JRS PATEL MANAGEMENT CONSULTANTS PVT LTD ( ENCLOSED IN PAGES 428 TO 435 OF THE PAPER BOO K) . 14 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 WE FIND THAT THE LOWER AUTHORITIES HAD DISALLOWED T HE SAID EXPENSES OF LEGAL AND PROFESSIONAL CHARGES INCURRED ON THESE THREE PARTIE S ON THE BASIS THAT THE ASSESSEE HAD NOT BEEN ABLE TO PRODUCE ANY CORROBORATIVE EVIDENCES TO PROVE THAT THE ASSESSEE HAD AVAILED PROFESSIONAL SERVICES FROM THE SAID PARTIES FOR THE PURPOSE OF THE BUSINESS. WE FIND THAT THE AFORESAID ADDITIONAL EVIDENCES WOULD BE VERY CR UCIAL TO ADJUDICATE THE ISSUE UNDER DISPUTE AND ACCORDINGLY WE ADMIT THESE ADDITIONAL E VIDENCES AND SINCE THE SAME WAS NOT AVAILABLE BEFORE THE LOWER AUTHORITIES, WE DEEM IT FIT AND APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE LD AO TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE ADDITIONAL EVIDENCES FILED HEREIN AND IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION THAT, THE ASSESSEE BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. ACCORDINGLY , THE GROUND NOS. 5(A) TO 5 (C ) ARE ALLOWED FOR STATISTICAL PURPOSES. 8. THE GROUND NO. 6 RAISED BY THE ASSESSEE IN ITA NO. 2776/KOL/2011 FOR ASST YEAR 2008-09 IS ONLY CONSEQUENTIAL IN NATURE AND DOES NO T REQUIRE ANY SPECIFIC ADJUDICATION. 9. THE GROUND NO. 7 RAISED BY THE ASSESSEE IN ITA NO. 2776/KOL/2011 FOR ASST YEAR 2008-09 IS GENERAL IN NATURE AND DOES NOT REQUIRE A NY SPECIFIC ADJUDICATION. 10. DISALLOWANCE U/S 40(A)(IA) RS. 1,38,409/- GROUND NO. 1 IN ITA NO. 1575/KOL/2011 FOR ASST YEAR 2008-09 THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBS ERVED THAT THE ASSESSEE HAD DEBITED UNDER THE HEAD MISCELLANEOUS EXPENDITURE , PAYMENTS MAD E TO SHRI S PRAJAPATI (RS. 2,00,984/-) AND SHRI K C PAPACHAN (RS. 1,50,445/-) FOR DESIGN A ND DRAWINGS FOR MACHINES AND SERVICE ENGINEERING RESPECTIVELY. THE LD AO OBSERVED THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE AT THE RATE OF 2% AS AGAINST 10% PRESCRIBED U/S 194J OF THE ACT BY TREATING THE SAID PAYMENTS AS FEES FOR PROFESSIONAL AND / OR TECHNICA L SERVICES. ACCORDINGLY HE FOUND THAT THE ASSESSEE IS ENTITLED TO CLAIM THE EXPENDITURE T O THE EXTENT OF TAX DEDUCTED AT SOURCE. ACCORDINGLY HE DISALLOWED A SUM OF RS. 1,38,409/- I N THE ASSESSMENT U/S 40(A)(IA) OF THE ACT. BEFORE THE LD CIT(A), THE ASSESSEE SUBMITTED T HAT THESE TWO PARTIES (VIZ SHRI S PRAJAPATI AND SHRI K C PAPACHAN) WERE EMPLOYEES OF THE ASSESSEE AND THEY WERE CONTROLLED AND DIRECTED BY THE ASSESSEE UNDER AN EX PRESS OR AN IMPLIED CONTRACT OF HIRE AND PAID SALARY AS PER CONTRACTUAL TERMS. SINCE THERE EXISTED AN EMPLOYER-EMPLOYEE 15 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 RELATIONSHIP, THE SAME IS LIABLE FOR DEDUCTION OF T AX U/S 192 OF THE ACT AND ASSESSEE ALSO PRODUCED COPY OF EMPLOYMENT LETTER AND FORM 16 ISSU ED TO THOSE EMPLOYEES. THE LD CIT(A) OBSERVED THAT THESE PERSONS WERE EMPLOYED AS SERVICE ENGINEER AND DESIGN MANAGER ON A CONTRACTUAL BASIS FOR THE PERIOD OF 2 YEARS AND THEY HAVE BEEN ISSUED FORM 16 BY THE ASSESSEE TREATING THEM AS SALARIED EMPLOY EE. HENCE TDS U/S 192 OF THE ACT ALONE IS ATTRACTED AND HENCE NO DISALLOWANCE U/S 40 (A)(IA) OF THE ACT COULD BE ATTRACTED IN THE INSTANT CASE. AGGRIEVED, THE REVENUE IS IN APP EAL BEFORE US ON THE FOLLOWING GROUND:- 1. LD. CIT(A) HAS ERRED ON THE FACTS AND IN LAW I N DELETING THE ADDITION OF RS.1,38,409/- MADE U/S. 40(A)(IA) CONSIDERING ADDITIONAL EVIDENCE S WITHOUT SEEKING REMAND REPORT FROM THE AO. 10.1. THE LD DR ARGUED THAT THE LD CIT(A) SIMPLY AC CEPTED THE VERSION OF THE ASSESSEE THAT THESE TWO PERSONS ARE EMPLOYED BY THE ASSESSEE ON C ONTRACTUAL BASIS WITHOUT REMANDING THE MATTER TO THE LD AO FOR VERIFICATION OF THE DOC UMENTS SUBMITTED BY THE ASSESSEE. HENCE HE ARGUED THAT THE FINDINGS OF THE LD CIT(A) IN THI S REGARD IS PERVERSE. IN RESPONSE TO THIS, THE LD AR ARGUED THAT THE DETAILS OF CONTRACTUAL PA YMENT ALONG WITH TDS WAS CALLED FOR BY THE LD AO DURING THE COURSE OF ASSESSMENT PROCEEDIN GS AND THE SAME WAS DULY PROVIDED TO HIM VIDE LETTER DATED 30.11.2010 WHICH ARE ENCLOSED IN PAGES 272 TO 287 OF THE PAPER BOOK. IT WAS ARGUED THAT THE DETAILS OF TDS, EMPL OYMENT LETTER, TDS RETURN, LEAVE APPLICATION AND OTHER RELEVANT DOCUMENTS WERE ENCLO SED BEFORE THE LD AO . THE LD AR ARGUED THAT IT WAS CLEARLY POINTED OUT TO THE LD AO THAT THERE EXIST AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE ASSESSEE AND THOSE TWO PAR TIES (CONTRACT EMPLOYEES), THE ASSESSEE CONTROLS AND DIRECTS THE WORKERS UNDER AN EXPRESS O R IMPLIED CONTRACT OF HIRE AND PAYS THE WORKERS SALARY OR WAGES AS PER THE CONTRACT ENTERED WITH THEM. IT WAS ALSO STATED THAT THE TAX IS DEDUCTED AT SOURCE U/S 192 OF THE ACT ON THE SE EMPLOYEES. HENCE THE ARGUMENTS OF THE LD DR IS FACTUALLY INCORRECT AND DESERVES TO BE DISMISSED. IN ANY CASE, SHE ARGUED THAT SINCE THERE IS SOME DEDUCTION OF TAX AT SOURCE, THE N IT WOULD ONLY AMOUNT TO SHORT DEDUCTION OF TAX , FOR WHICH THE PROVISIONS OF SECT ION 40(A)(IA) OF THE ACT CANNOT BE INVOKED. RELIANCE IN THIS REGARD WAS PLACED ON THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS S.K.TEKRIWAL REPORT ED IN (2011) 15 TAXMANN.COM 289 (KOLKATA TRIB). 16 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 10.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE EXISTENCE OF EMPLOYER EMPLOYEE RELATIONSHIP HAS BEEN PROVED BY THE ASSESS EE IN THE INSTANT CASE AND THE LD CIT(A) HAD RIGHTLY DELETED THE DISALLOWANCE U/S 40( A)(IA) OF THE ACT IN THE INSTANT CASE. WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD CIT(A). ACCORDINGLY, THE GROUND NO. 1 RAISED BY THE REVENUE IN ITA NO. 1575/KOL/201 1 IS DISMISSED. 11. ADDITION TOWARDS RETENTION MONEY GROUND NO. 2 IN ITA NO. 1575/KOL/2011 FOR ASST YEAR 2008-09 GROUND NOS. 1(A) TO 1(D ) IN ITA NO. 927/KOL/2013 F OR ASST YEAR 2009-10 THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBS ERVED THAT AS PER NOTE ATTACHED TO THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAD STATE D THAT IN RESPECT OF THE CONTRACT BUSINESS OF THE COMPANY , CERTAIN PERCENTAGE IS RETAINED BY THE PARTIES AS RETENTION MONEY TO BE PAID AFTER THE COMPLETION OF THE CONTRACT. PRESENTLY TH E COMPANY HAS NOT RIGHT TO RECEIVE THE SAID MONEY BY VIRTUE OF THE TERMS OF THE CONTRACT A ND ALSO HAS NO RIGHT TO ENFORCE THE PAYMENT. THUS THE AMOUNT HAS NOT ACCRUED AS INCOM E OF THE COMPANY DURING THE YEAR UNDER CONSIDERATION. HENCE THE SAME HAD BEEN CLAIM ED AS EXCLUSION FROM COMPUTATION OF TOTAL INCOME AND SHALL BE OFFERED TO TAX AS AND WHE N THE SAME ACCRUES TO THE COMPANY. THE ASSESSEE PLACED RELIANCE ON THE DECISIONS OF TH E HONBLE MADRAS HIGH COURT IN THE CASE OF EAST COAST CONSTRUCTION AND INDUSTRIES LTD REPORTED IN 283 ITR 297 (MAD) ; IGNIFLUID BOILERS (I) LTD REPORTED IN 283 ITR 295 ( MAD) AND HONBLE CALCUTTA HIGH COURT IN THE CASE OF SIMPLEX CONCRETE PILES LTD REPORTED IN 179 ITR 8 (CAL) . THE LD AO SHOWCAUSED THE ASSESSEE TO BRING TO TAX THE SAID RE TENTION MONEY IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE REPLIED THAT IT IS MAI NLY ENGAGED IN MANUFACTURING AND SUPPLY OF HEAVY EQUIPMENT AND TOOLS UNDER CONTRACT AND REI TERATED WHAT HAS BEEN ALREADY MENTIONED IN THE NOTE TO THE COMPUTATION OF TOTAL I NCOME. THE LD AO HELD THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG, THE RETENTION MONEY IN THE SUM OF RS. 9,56,450/- IS TO BE BROUGHT TO TAX AS THE SAME IN HIS OPINION HAD ACCRUED DURING THE YEAR. ACCORDINGLY, A SUM OF RS. 9,56,450/- WAS ADD ED TO THE TOTAL INCOME OF THE ASSESSEE TOWARDS RETENTION MONEY. SIMILAR SUM OF RS. 3,09, 09,437/- WAS ADDED TO THE TOTAL INCOME TOWARDS RETENTION MONEY FOR THE ASST YEAR 2009-10 B Y THE LD AO. THE LD CIT(A) BY PLACING RELIANCE ON THE AFORESAID DECISIONS RELIED UPON BY THE ASSESSEE DELETED THE ADDITION 17 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 TOWARDS RETENTION MONEY. AGGRIEVED, THE REVENUE I S IN APPEAL BEFORE US ON THE FOLLOWING GROUND :- 2.LD. CIT(A) HAS ERRED ON THE FACTS AND IN LAW IN DELETING THE ADDITION OF RS.9,56,450/- FOR RETENTION MONEY, WHICH WAS MADE ON RECEIPT BASIS WH EN THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. 11.1. THE LD CIT(A) FOR THE ASST YEAR 2009-10 UPHEL D THE ACTION OF THE LD AO BY HOLDING THAT THE CORRECTNESS OF THE CLAIM FOR DEDUCTION IN RESPECT OF THE RETENTION MONEY WAS SUPPORTED BY AUDITED ACCOUNTS OR ANY DOCUMENTARY EV IDENCE. THE LD CIT(A) ALSO OBSERVED THAT THE ASSESSEE HAD NOT EXPLAINED AS TO HOW THE RETENTION MONEY HAD INCREASED FROM RS. 9,56,450/- IN ASST YEAR 2008-09 TO RS. 3,0 9,09,437/- IN ASST YEAR 2009-10 WHEN THE VOLUME AND NATURE OF THE BUSINESS HAD REMAINED SAME IN BOTH THE YEARS. HE FURTHER OBSERVED THAT SINCE THE RETENTION MONEY HAS BEEN DI RECTLY CLAIMED AS REDUCTION FROM THE TOTAL INCOME IN THE COMPUTATION OF TOTAL INCOME WIT HOUT ANY CORRESPONDING ENTRY IN THE AUDITED ACCOUNTS, THERE IS NO SAFEGUARD FOR THE REV ENUE THAT IT WOULD BE OFFERED FOR TAXATION IN FUTURE. BASED ON THESE OBSERVATIONS, HE CONFIRM ED THE ADDITION MADE TOWARDS RETENTION MONEY IN THE SUM OF RS. 3,09,09,437/- FOR ASST YEAR 2009-10. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- L(A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) FAILED TO FOLLOW THE DECISION OF THE LD. CIT(A) - III, BARODA IN APP ELLANT'S OWN CASE FOR AY 2008-09 IN RELATION TO CLAIM OF RETENTION MONEY. I(B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN NOT EXCLUDING RETENTION MONE Y AMOUNTING TO RS. 30,909,437 IN COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT ON THE GROUND THAT THE CLAIM OF THE DEDUCTION WAS NOT SUPPORTED BY AUDITED ACCOU NTS OR ANY DOCUMENTARY EVIDENCE WITHOUT GIVING ANY OPPORTUNITY TO THE APPELLANT. I(C) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN STATING THAT NO EXPLANATION WAS FURNISHED BY THE APPELLANT DURING THE PROCEEDINGS FOR THE INCREASE IN RETENTION MONEY FROM AY 2008-09 TO AY 2009-10 WI THOUT GIVING ANY OPPORTUNITY TO THE APPELLANT. I(D) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN STATING THAT WITHOUT ANY CORRESPONDING ENTRY IN THE AUDITED ACCOUNTS THERE IS NO SAFEGUARD FOR THE REVENUE THAT IT WOULD BE OFFERED FOR TAXATION IN FU TURE. 11.2. THE LD DR ARGUED THAT THE SAID RECEIPT WAS IN THE NATURE OF RETENTION MONEY WAS NOT PROVED BY THE ASSESSEE IN THE INSTANT CASE AND PLAC ED HEAVY RELIANCE ON THE ORDER OF THE LD CIT(A) FOR THE ASST YEAR 2009-10. IN RESPONSE THE RETO, THE LD AR PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS SIMPLEX CONCRETE 18 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 PILES (INDIA) PVT LTD REPORTED IN (1989) 179 ITR 8 (CAL) . SHE FURTHER ARGUED THAT THE LD CIT(A) FOR ASST YEAR 2009-10 DID NOT DISPUTE THE PR INCIPLES OF OFFERING THE RETENTION MONEY ON RECEIPT BASIS ON SATISFACTORY COMPLETION O F THE CONTRACT AND AS AND WHEN THE SAME IS CLEARED BY THE CONCERNED PARTIES TO THE CON TRACT. SHE ADDED THAT THE TURNOVER HAD INCREASED FROM RS 59 CRORES IN ASST YEAR 2008-09 TO RS 200 CRORES IN ASST YEAR 2009-10. SHE FILED ADDITIONAL EVIDENCES BEFORE THIS TRIBUNAL WITH REGARD TO THE FACT OF OFFERING THE SUBJECT MENTIONED RETENTION MONIES BELONGING TO ASS T YEARS 2008-09 AND 2009-10 IN SUBSEQUENT YEARS. SHE STATED THAT THESE DETAILS WE RE NEVER ASKED FOR BY THE LOWER AUTHORITIES AND THE ASSESSEE CAME TO KNOW OF THIS O NLY FROM THE ORDER OF THE LD CIT(A) FOR THE ASST YEAR 2009-10. HENCE THE DETAILS OF OFFER TOWARDS RETENTION MONEY IN SUBSEQUENT YEARS IS FILED HEREIN AS ADDITIONAL EVIDENCES AND P RAYED FOR ADMISSION OF THE SAME AS IT COMPLETELY REVERSES THE FINDINGS OF THE LD CIT(A). SHE FAIRLY STATED THAT LET THIS ASPECT BE EXAMINED BY THE LD AO IN ORDER TO ARRIVE AT THE COR RECTNESS OF THE CLAIM MADE BY THE ASSESSEE. 11.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE DESERVES TO BE ADMITTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS IT CONTAINS THE NECESSARY DETAILS OF OFFER OF RETENTION MONEY FROM VARIOUS PROJECTS IN THE SUBSEQUENT ASSES SMENT YEARS. ADMITTEDLY THE SAME WERE NOT FILED BY THE ASSESSEE BEFORE THE LOWER AUT HORITIES AS THEY WERE NOT CALLED FOR BY THE LOWER AUTHORITIES. ONCE IT IS PROVED THAT THE SAID NATURE COMPRISES OF RETENTION MONEY AND THE SAME IS OFFERED TO TAX BY THE ASSESSEE IN T HE SUBSEQUENT YEARS THEN THE ENTIRE FINDINGS OF THE LD CIT(A) FOR THE ASST YEAR 2009-10 GETS ANSWERED. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT AND APPROPRIATE, IN THE INTEREST OF JUSTICE AND FAIRPLAY, TO SET ASIDE THIS ISSUE OF ADDITION TOWARDS RETENTION MONEY FOR BOTH THE ASST YEARS 2008-09 AND 2009-10, TO THE FILE OF THE LD AO , TO VERIFY T HE CORRECTNESS OF THE OFFER OF RETENTION MONIES IN SUBSEQUENT YEARS AND ACCORDINGLY DECIDE T HE ISSUE IN ACCORDANCE WITH LAW. ACCORDINGLY, THE GROUND NO. 2 IN ITA NO. 1575/KOL/2 011 RAISED BY THE REVENUE FOR ASST YEAR 2008-09 AND GROUND NOS. 1(A) TO 1(D ) IN ITA N O. 927/KOL/2013 FOR ASST YEAR 2009- 10 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTIC AL PURPOSES. 12. DISALLOWANCE OF ADDITIONAL DEPRECIATION ON WIND MILL 19 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 GROUND NO. 3 IN ITA NO. 1575/KOL/2011 FOR ASST YEAR 2008-09 THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBS ERVED THAT THE ASSESSEE HAD CLAIMED ADDITIONAL DEPRECIATION ON WINDMILL TO THE TUNE OF RS. 79,69,231/- WHICH WAS SOUGHT TO BE DISALLOWED BY HIM IN THE ASSESSMENT. THE ASSESSEE VIDE ITS REPLY DATED 30.11.2010 CONTENDED THAT THE DEPRECIATION HAD BEEN CLAIMED U/ S 32(1)(IIA) OF THE ACT AND THAT THE SAID SECTION LAYS DOWN THAT IN ADDITION TO NORMAL DEPREC IATION AT PRESCRIBED RATES, FURTHER DEPRECIATION SHALL BE ALLOWED TO THE ASSESSEE AT TH E RATE OF 20% ON NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED AFTER 31.3.2005. IT WAS FURTHER CONTENDED THAT THE ADDITIONAL DEPRECIATION WAS RIGHTLY CLAIMED ON THE ACTUAL COST OF ASSETS. THE LD AO OBSERVED THAT THERE IS NO DOUBT THAT ADDITIONAL DEP RECATION WAS FOR GIVING FURTHER THRUST IN INVESTMENT IN GENERAL PLANT AND MACHINERY USED FOR MANUFACTURING OF ITS PRODUCTS BY THE ASSESSEE. THE ADDITIONAL DEPRECIATION IS NOT FOR T HE PURPOSE OF WINDMILL IN THE INSTANT CASE, WHICH IS ALREADY ENTITLED FOR 80% DEPRECIATION I.E AT THE ACCELERATED RATE. HE ACCORDINGLY CONCLUDED THAT THE ADDITIONAL DEPRECIATION IS ONLY TO BE ALLOWED ON GENERAL PLANT AND MACHINERY ELIGIBLE FOR DEPRECIATION AT THE RATE OF 15% AND NOT FOR THOSE ASSETS WHICH WERE ALREADY EXIGIBLE FOR ACCELERATED DEPRECIATION. AC CORDINGLY HE DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION ON WINDMILL IN THE ASSESSME NT. 12.1. THE LD CIT(A) OBSERVED THAT THE ASSESSEE PL ACED RELIANCE ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS TEX MO PRECISION CASTINGS REPORTED IN 321 ITR 481 (MAD) ; CIT VS HI TECH ARAI LTD REPORTE D IN 321 ITR 477 (MAD) WHEREIN IT WAS HELD THAT AS FAR AS APPLICATION OF SECTION 32(1 )(IIA) OF THE ACT IS CONCERNED, WHAT IS REQUIRED TO BE SATISFIED IN ORDER TO CLAIM THE ADDI TIONAL DEPRECIATION IS THAT A NEW MACHINERY OR PLANT SHOULD HAVE BEEN ACQUIRED AND IN STALLED AFTER 31 ST MARCH 2002 BY AN ASSESSEE, WHO WAS ALREADY ENGAGED IN THE BUSINESS O F MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE SAID PROVISION DOES NOT STAT E THAT THE SETTING UP OF NEW MACHINERY OR PLANT, WHICH WAS ACQUIRED OR INSTALLED AFTER 31 ST MARCH 2002 SHOULD HAVE ANY OPERATIONAL CONNECTIVITY TO THE ARTICLE OR THING THAT WAS ALREA DY BEING MANUFACTURED BY THE ASSESSEE. ACCORDINGLY THE COURT HELD THAT THE CONTENTION THAT THE SETTING UP OF WINDMILLS HAS NOTHING TO DO WITH INDUSTRY OF MANUFACTURING OF OIL SEED IS TOTALLY NOT GERMANE TO THE SPECIFIC PROVISIONS CONTAINED IN SECTION 32(1)(IIA) OF THE A CT. THE LD CIT(A) APPRECIATED THESE 20 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 SUBMISSIONS OF THE ASSESSEE AND RESPECTFULLY FOLLOW ING THE DECISIONS OF THE HONBLE MADRAS HIGH COURT SUPRA , DELETED THE DISALLOWANCE OF ADDITIONAL DEPRECIATION ON WINDMILL. AGGRIEVED, THE REVENUE IS IN APPEAL BEFO RE US ON THE FOLLOWING GROUND:- 3. LD. CIT(A) HAS ERRED ON THE FACTS AND IN LAW I N DELETING THE ADDITION OF RS.79,69,231/- CLAIMED BY THE ASSESSEE AS ADDITIONAL DEPRECIATION ON WINDMILL, WHICH IS ALREADY ALLOWED AT A HIGHER RATE OF DEPRECIATION I.E. 80%. 12.2. THE LD DR ARGUED THAT WHETHER WINDMILLS WERE ADDED DURING THE YEAR OR IN EARLIER YEARS WERE NOT PROVED BY THE ASSESSEE. IN RESPONSE TO THIS, THE LD AR STATED THAT BOTH THE LD AO AS WELL AS THE LD CIT(A) HAD CLEARLY BIFURCAT ED THE DEPRECIATION AND ADDITIONAL DEPRECIATION ON WINDMILLS ADDED DURING THE YEAR AS WELL AS IN EARLIER YEARS IN THEIR RESPECTIVE ORDERS AND HENCE THE VERSION OF THE LD D R DESERVES TO BE DISMISSED. 12.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE UNDER DISPUTE IS SQUARELY COVERED BY THE DECISIONS OF THE HONBLE MADRAS HIGH COURT SUPRA WHICH HAS BEEN RIGHTLY RELIED UPON BY THE LD CIT(A). HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT(A) IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 3 IN ITA NO. 1575/KOL/2011 FOR ASST YEAR 2008-09 RAISED BY THE REVENUE IS DISMISSED. 13. DISALLOWANCE OF ADDITIONAL DEPRECIATION ON MACH INERY GROUND NO. 4 IN ITA NO. 1575/KOL/2011 FOR ASST YEAR 2008-09 THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION ON MACHINERY TO THE TUNE OF RS. 10,51,944/- WHICH WAS DISALLOWED BY THE LD AO ON THE GROUND THAT THE ASSESSEE HAD NOT PROVED THE INCREAS E IN INSTALLED CAPACITY AS WARRANTED IN THE PROVISIONS OF SECTION 32(1)(IIA) OF THE ACT. T HE LD CIT(A) DELETED THE SAID DISALLOWANCE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 4. LD. CIT(A) HAS ERRED ON THE FACTS AND IN LAW I N DELETING THE ADDITION OF RS.10,51,944/- CLAIMED BY THE ASSESSEE AS ADDITIONAL DEPRECIATION WITHOUT INCREASING IN INSTALLED CAPACITY. 13.2. THE LD DR RELIED ON THE ORDER OF THE LD AO. IN RESPONSE THERETO, THE LD AR RELIED ON THE ORDER OF THE LD CIT(A). 13.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE CONDITION FOR INCREASE IN INSTALLED CAPACITY FOR THE PURPOSE OF ADDITIONAL DE PRECIATION WAS DISPENSED WITH BY 21 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 FINANCE ACT 2005, YET THE LD AO DISALLOWED THE SAME HOLDING THAT RELAXATION IN THE CONDITIONS OF INCREASE IN INSTALLED CAPACITY BY FIN ANCE ACT 2005 DOES NOT CHANGE THE BASIC PURPOSE FOR WHICH THE SECTION WAS INSERTED. WE HOLD THAT THE REASON FOR GRANTING ADDITIONAL DEPRECIATION IS TO GIVE MORE FURTHER THRUST IN INVE STMENT IN GENERAL PLANT AND MACHINERY USED FOR MANUFACTURING OF ITS PRODUCTS BY THE ASSES SEE. THE LD CIT(A) HAD OBSERVED THAT NO CONDITION FOR INCREASE IN INSTALLED CAPACITY IS PROVIDED FOR ALLOWANCE OF ADDITIONAL DEPRECIATION AND ACCORDINGLY DELETED THE DISALLOWAN CE BY THE LD AO. WE DO NOT FIND ANY INFIRMITY IN THE SAID ORDER OF THE LD CIT(A) . ACC ORDINGLY, GROUND NO. 4 IN ITA NO. 1575/KOL/2011 FOR ASST YEAR 2008-09 RAISED BY THE R EVENUE IS DISMISSED. 14. DISALLOWANCE OF TDS RECOVERABLE RS. 5,53,934/ - AND ADVANCES WRITTEN OFF RS. 1,73,862/- GROUND NOS. 2(A) & 2(B) IN ITA NO. 927/KOL/2013 FOR ASST YEAR 2009-10 THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBS ERVED THAT THE ASSESSEE HAD DEBITED BAD DEBTS AGGREGATING TO RS. 99,87,000/- IN ITS PROFIT AND LOSS ACCOUNT ON ACCOUNT OF ITS NUMEROUS DEBTORS / CUSTOMERS WHICH BECAME BAD DURIN G THE YEAR UNDER CONSIDERATION ON THE PLEA THAT THE SAME ARE NOT REALIZABLE. THE LD AO OBSERVED THAT THE AMOUNT HAD BEEN DULY WRITTEN OFF IN THE BOOKS OF THE ASSESSEE AS IR RECOVERABLE AND CLAIMED AS BAD DEBTS BY THE ASSESSEE U/S 36(1)(VII) OF THE ACT. THE ASSESS EE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD VS CIT REPORTED IN 230 CTR 14 (SC). THE LD AO ON SCRUTINY OF THE DETAILS OF BAD DEBTS F OUND THAT THE AMOUNT OF BAD DEBTS OF RS. 31,48,061/- WAS WRITTEN OFF UNDER THE FOLLOWING HEA DS :- 1) ERIEZ MBI INDIA LTD RS. 7,99,850/- RELATED TO THE YEAR 2007-08 TOWARDS SALES COMMISSION 2) DIFFERENTIAL TAX DUE TO NON SUBMISSION OF STATUTORY FORMS RS. 51,007/- 3) ADVANCES WRITTEN OFF RS. 13,14,188/- 4) BAD DEBTS AT KUMARDHUBI BRANCH FOR THE YEAR 2007-08 RS. 9,83,016/- THE ASSESSEE WAS ASKED TO EXPLAIN AS TO HOW THE DEB T HAD BECOME BAD IN RESPECT OF THE ABOVE AND HOW THE CONDITIONS U/S 36(1)(VII) READ WI TH SECTION 36(2) OF THE ACT WERE FULFILLED BY THE ASSESSEE. THE LD AO NOT CONVINCE D WITH THE REPLY GIVEN BY THE ASSESSEE PROCEEDED TO DISALLOW A SUM OF RS. 31,48,061/- TOWA RDS BAD DEBTS IN THE ASSESSMENT. 22 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 14.1. BEFORE THE LD CIT(A), THE ASSESSEE CONTENDED THAT THE LD AO HAD WRONGLY CONSIDERED THE ADVANCES WRITTEN OFF FIGURE AT RS. 1 3,14,188/- IN STAED OF CORRECT FIGURE OF RS 7,43,971/- THEREBY RESULTING IN EXCESS DISALLOWA NCE THEREON. WITH REGARD TO THE CLAIM OF BAD DEBTS , THE LD CIT(A) WAS CONVINCED WITH THE EXPLANATIONS GIVEN BY THE ASSESSEE THAT IT HAD DULY COMPLIED WITH THE PROVISIONS OF SE CTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT AND ACCORDINGLY DELETED THE DISALLOWANCE OF BAD DEBTS TO THE TUNE OF RS. 18,33,873/-. THE LD CIT(A) HOWEVER OBSERVED THAT T HE ADVANCES WRITTEN OFF IN RESPECT OF THE SUM OF RS. 5,53,934/- ON ACCOUNT OF TDS RECOVER ABLE CANNOT BE ALLOWED AS DEDUCTION U/S 28 OF THE ACT READ WITH SECTION 37 OF THE ACT. HE FURTHER HELD THAT THE ASSESSEE FAILED TO EXPLAIN AS TO HOW THE ADVANCES WRITTEN OFF IN RE SPECT OF THE REMAINING AMOUNT OF RS.1,90,034/- COULD BE ALLOWED U/S 28 READ WITH SEC TION 37 OF THE ACT. ACCORDINGLY, HE CONFIRMED THE DISALLOWANCE MADE IN RESPECT OF ADVAN CES WRITTEN OFF IN THE SUM OF RS. 7,43,968/- . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 2(A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN DISALLOWING AMOUNT OF RS.553,934 WRITTEN O FF ON ACCOUNT OF TDS RECOVERABLE UNDER SECTION 28 READ WITH SECTION 37 OF THE ACT AND/OR S ECTION 36(2) OF THE ACT. 2(B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN DISALLOWING ADVANCES WRITTEN OFF AMOUN TING TO RS.190,034 IN TERMS OF SECTION 28 READ WITH SECTION 37 OF THE ACT. 14.2. THE LD AR ARGUED THAT THE PARTY WISE DETAILS OF ADVANCE TO SUPPLIERS WRITTEN OFF DURING THE YEAR UNDER APPEAL ARE ENCLOSED IN ADDITI ONAL EVIDENCES FILED BEFORE THIS TRIBUNAL. SHE REQUESTED FOR THE SAME TO BE ADMITTED FOR BETTE R APPRECIATION OF THE FACTS ON RECORD. SHE ARGUED THAT THE SAID ADVANCES WERE GIVEN TO SUP PLIERS IN THE REGULAR COURSE OF BUSINESS OF THE ASSESSEE AND THE SAME HAD TO BE EVENTUALLY W RITTEN OFF AS IRRECOVERABLE AND ACCORDINGLY CLAIMED AS DEDUCTION U/S 28 OF THE ACT AS A TRADING LOSS. SHE ALSO REFERRED TO THE REPLY FILED BEFORE THE LD AO VIDE LETTER DATED 21.12.2011 ENCLOSED IN PAGES 38 TO 40 OF THE PAPER BOOK WHEREIN THE ENTIRE DETAILS OF ADVANC ES WRITTEN OFF WERE FURNISHED. SHE PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SUPPO RT OF HER CONTENTION FOR ALLOWABILITY OF TDS RECOVERABLE WRITTEN OFF AS UNDER:- (A) HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS M/S SHREYANS INDUSTRIES LTD IN ITA NO. 277 OF 2004 DATED 15.11.2013 (B) DELHI TRIBUNAL IN THE CASE OF KELLY SERVICES IN DIA PVT LTD VS DIT IN ITA NO. 5435/DEL/2011 DATED 16.9.2011 23 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 IN RESPECT OF REGULAR ADVANCES WRITTEN OFF WHICH WE RE GIVEN IN THE ORDINARY COURSE OF BUSINESS, SHE ARGUED THAT THE SAME WOULD BE SQUAREL Y ALLOWABLE AS A TRADING LOSS U/S 28 OF THE ACT . SHE PLACED RELIANCE ON THE FOLLOWING DEC ISIONS:- (A) HONBLE SUPREME COURT IN THE CASE OF BADRIDAS D AGA VS CIT REPORTED IN (1958) 34 ITR 10 (SC) (B) HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS BALDEORAM BEHARILAL REPORTED IN (1975) 99 ITR 108 (CAL) (C ) HONBLE KERALA HIGH COURT IN THE CASE OF TRAVA NCORE TEA ESTATES CO LTD VS CIT REPORTED IN (1992) 197 ITR 528 (KER) (D) HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS GILLANDERS ARBUTHNOT & CO LTD REPORTED IN (1982) 138 ITR 763 (CAL) 14.3. IN RESPONSE TO THIS, THE LD DR ARGUED THAT T HE PROVISIONS OF SECTION 36(2) OF THE ACT WERE NOT COMPLIED WITH BY THE ASSESSEE FOR CLAIMING DEDUCTION IN RESPECT OF TDS RECOVERABLE WRITTEN OFF AND ADVANCE TO SUPPLIERS WR ITTEN OFF. 14.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD FILED THE LIST OF PAR TIES TO WHOM ADVANCES WERE GIVEN IN THE ORDINARY COURSE OF ITS BUSINESS I.E. ADVANCE PAID TO SUPPLIERS , IN THE FORM OF ADDITIONAL EVIDENCES WHICH, IN OUR CONSIDERED OPINION, WOULD H AVE TO BE ADMITTED FOR BETTER APPRECIATION OF THE FACTS. HOWEVER, WE FIND THAT T HE SAME HAD NOT BEEN EXAMINED BY THE LOWER AUTHORITIES. HENCE IN THE INTEREST OF JUSTIC E AND FAIR PLAY, WE DEEM IT FIT AND APPROPRIATE, TO SET ASIDE THIS ASPECT OF THE ISSUE TO THE FILE OF THE LD AO TO EXAMINE THOSE ADDITIONAL EVIDENCES AND IF IT IS FOUND THAT THE SA ID ADVANCES WERE GIVEN IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE, THEN THE SAME W OULD HAVE TO BE ALLOWED AS A TRADING LOSS U/S 28 OF THE ACT AS ADMITTEDLY THE SAME WERE WRITTEN OFF IN THE BOOKS BY THE ASSESSEE. THE ASSESSEE HAS TO PROVE THE FACT OF IRRECOVERABIL ITY OF THE SAID ADVANCES TO THE LD AO. ACCORDINGLY THIS ASPECT OF THE LD AO I.E. GROUND NO . 2(B) RAISED BY THE ASSESSEE IN ITA NO. 927/KOL/2013 FOR ASST YEAR 2009-10 IS ALLOWED F OR STATISTICAL PURPOSES. WITH REGARD TO ALLOWABILITY OF TDS RECOVERABLE WRIT TEN OFF IS CONCERNED, WE FIND THAT THE ASSESSEE HAD FILED THE DETAILS OF THE SAME BEFORE T HE LD AO , WHEREIN IT WAS CLEARLY MENTIONED THAT THE ASSESSEE HAD DECIDED TO WRITE OF F THE SAME DUE TO NON AVAILABILITY OF TDS CERTIFICATES. SINCE THE RECOVERABILITY AROSE O NLY IN THE FORM OF COLLECTION OF TDS 24 ITA NOS.2776/A/2011,1575/K/2011 & 927/K/.2013 MC NALLY SAYAJI ENGG. LTD.., AY 2008-09 & 2009-10 CERTIFICATES, IT GOES BEYOND DOUBT THAT THE ASSESSE E HAD OFFERED THE SAME AS INCOME IN THE EARLIER YEARS AS ADMITTEDLY THE TDS WOULD BE RELATA BLE TO INCOME ONLY. MOREOVER, WE HOLD THAT THERE IS NO REQUIREMENT TO SATISFY THE TEST OF OFFERING OF INCOME IN THE EARLIER YEARS IN TERMS OF SECTION 36(2) OF THE ACT AS THE SUBJECT ME NTIONED ISSUE IS NOT TOWARDS BAD DEBTS BUT ONLY BAD ADVANCES WRITTEN OFF. HENCE, THE ALLO WABILITY OF THE SAME WOULD BE GOVERNED BY THE PROVISIONS OF SECTION 28 OF THE ACT. THE AS SESSEE IN THE INSTANT CASE HAD WRITTEN OFF THE TDS PORTION DUE TO NON-AVAILABILITY OF THE SAME AND HENCE IT BECOMES A TRADING LOSS U.S 28 OF THE ACT AS TO THAT EXTENT, IT HAD NEITHER RECEIVED THE MONEY NOR THE TDS CERTIFICATE. HENCE IT BECOMES A TRADING LOSS ALLOW ABLE U/S 28 OF THE ACT. ACCORDINGLY, THE GROUND NO. 2(A) RAISED BY THE ASSESSEE IN ITA NO. 9 27/KOL/2013 FOR ASST YEAR 2009-10 IS ALLOWED. 15. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NO. 2776/KOL/2011 FOR ASST YEAR 2008-09 ; ITA NO. 927/KOL/2013 FOR ASST YEAR 2009- 10 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IN ITA NO. 1575/ KOL/2011 FOR ASST YEAR 2008-09 IS ALSO PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 10.03.2017 SD/- SD/- (PARTHA SARATHI CHAUDHURY) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10TH MARCH, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT MC NALLY SAYAJI ENGINEERING LTD., ECOSP ACE CAMPUS, 2B, 11F/12 (OLD PLOT NO. AA II/BLK 3), NEW TOWN, RA JARHAT, NORTH 24 PARGANAS, KOLKATA-700 156 2 RESPONDENT DCIT, CIRCLE-1, KOLKATA. 3. THE CIT(A), KOLKATA 4. 5. CIT, KOLKATA. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .