ACIT, CHENNAI V. M/s. TVS Motor Company Limited, CHENNAI

ITA 943/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64372 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 20-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB ADD
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Double taxation relief; Earning of tax free income; Services rendered outside India; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NOS. 943 & 944/MDS/2011 (ASSESSMENT YEARS : 2006-07 & 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI - 600 034 . (APPELLANT) V. M/S TVS MOTOR COMPANY LIMITED, JAYALAKSHMI ESTATES, 29 (OLD NO.8), HADDOWS ROAD, CHENNAI - 600 006. PAN : AAACS7032B (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADD. CIT RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADV OCATE DATE OF HEARING : 11.09.2012 DATE OF PRONOUNCEMENT : 04.10.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE REVENUE AGAINST OR DERS DATED 21.2.2011 OF COMMISSIONER OF INCOME TAX (APPEALS)-I II, CHENNAI, FOR IMPUGNED ASSESSMENT YEARS. 2. APPEAL FOR ASSESSMENT YEAR 2006-07 IS TAKEN UP F IRST FOR DISPOSAL. I.T.A. NO. 943 & 944/MDS/11 2 3. REVENUE HAS TAKEN NINE GROUNDS IN THIS APPEAL, O UT OF WHICH, GROUND NOS.1 AND 9 ARE GENERAL NEEDING NO ADJUDICAT ION. GRIEVANCE RAISED VIDE GROUND NO.2 IS THAT CIT(APPEALS) HAD DE LETED AN ADDITION OF ` 16,14,13,328/- FOR ASEAN PROJECT IN INDONESIA. CO UNSEL FOR THE ASSESSEE POINTED OUT SIMILAR ISSUE HAD COME UP BEFO RE THIS TRIBUNAL IN REVENUES APPEAL FOR ASSESSMENT YEAR 2000-01 IN I.T.A. NO. 976/MDS/2009. ACCORDING TO HIM, THIS TRIBUNAL HAD SUSTAINED THE ORDER OF CIT(APPEALS) ALLOWING THE CLAIM OF EXPENDI TURE, THOUGH IN THE ACCOUNTS IT WAS SHOWN AS EXPENDITURE PENDING ALLOC ATION. LEARNED D.R. FAIRLY ADMITTED THAT THIS ISSUE STOOD DECIDED IN FAVOUR OF ASSESSEE FOR ASSESSMENT YEAR 2000-01. 4. WE FIND THAT THIS TRIBUNAL IN I.T.A. NO. 976/MDS /2009 FOR ASSESSMENT YEAR 2000-01, HAD DEALT WITH THE ISSUE R EGARDING CLAIM OF EXPENDITURE ON PROVIDING SERVICE TO INDONESIAN PROJ ECT IN PROGRESS. THERE ALSO IT WAS SHOWN BY THE ASSESSEE AS EXPENDI TURE PENDING ALLOCATION. THIS TRIBUNAL AT PARAS 5(III) TO 5(XI V) OF ITS ORDER DATED 22 ND DECEMBER, 2010, HELD AS UNDER:- 5.(III) THE EXPENDITURE INCURRED BY THE ASSESSEE-C OMPANY FOR THE ABOVE PURPOSES RELATED TO THE PREVIOUS YEAR S 2004-05, 2005-06 AND 2006-07. THE ASSESSEE ACCOUNTED THESE EXPENDITURE UNDER THE HEAD EXPENDITURE PENDING ALL OCATION. WHILE THE INDONESIAN PROJECT WAS IN PROGRESS, THE E XPENSES WERE I.T.A. NO. 943 & 944/MDS/11 3 DEBITED IN THE ABOVE ACCOUNT OF THE ASSESSEE-COMPAN Y, ULTIMATELY, FOR THE PURPOSE OF TRANSFERRING THE SAM E TO THE INDONESIAN COMPANY ONCE THE PROJECT WAS COMPLETED A ND PUT ON STREAM. 5.(IV) THE ASSESSEE INCURRED THE ABOVE EXPENDITUR E FOR THE SAID THREE PREVIOUS YEAR PERIOD AS FOLLOWS : (I) FINANCIAL YEAR 2004-05 ` 5,00,31,849/- (II) FINANCIAL YEAR 2005-06 ` 16,14,13,328/- (III) FINANCIAL YEAR 2006-07 ` 15,73,34,099/- TOTAL ` 36,87,79,276/- 5.(V) AS AGAINST THE ABOVE EXPENDITURE INCURRED BY THE ASSESSEE-COMPANY FOR THE PERIOD RELEVANT TO THE ASS ESSMENT YEARS 2005-06, 2006-07 AND 2007-08, A DEBIT NOTE WA S RAISED AGAINST THE INDONESIAN SUBSIDIARY IN THE PREVIOUS Y EAR 2006-07 RELEVANT TO THE ASSESSMENT YEAR 2007-08. THE TOTAL AMOUNT RAISED BY THE ASSESSEE-COMPANY WAS ` 39,70,06,142/- WITH A MARK UP AGAINST THE DUE AMOUNT OF ` 36,87,79,276/-. 5.(VI) THIS AMOUNT OF ` 39,70,06,142/- RECOVERED BY THE ASSESSEE FROM ITS INDONESIAN SUBSIDIARY HAS BEEN OF FERED AS INCOME FOR TAXATION IN ITS RETURN FILED FOR THE ASS ESSMENT YEAR 2007-08. 5.(VII) IT IS IN THE ABOVE FACTUAL BACKGROUND THAT THE DISPUTE AROSE AND THE ASSESSEE HAS RAISED THE GROUN D THAT THE LOWER AUTHORITIES HAVE ERRED IN DISALLOWING THE CLA IM OF EXPENDITURE INCURRED BY THE ASSESSEE-COMPANY TOWARD S PROJECT SET UP BY ITS INDONESIAN SUBSIDIARY. 5.(VIII) IN THE COURSE OF THREE PREVIOUS YEAR PERI OD, WHEN THE EXPENDITURE WERE INCURRED BY THE ASSESSEE-COMPA NY, THOSE EXPENDITURE WERE DEBITED IN THE ACCOUNTS OF THE ASS ESSEE- COMPANY UNDER THE HEAD EXPENDITURE PENDING ALLOCAT ION. THIS EXPENDITURE INCURRED BY THE ASSESSEE WAS CARRIED FO RWARD FROM YEAR TO YEAR TILL THE PREVIOUS YEAR 2006-07, IN WHI CH THE INDONESIAN PROJECT WAS COMPLETED. THE ASSESSEE DID NOT CLAIM I.T.A. NO. 943 & 944/MDS/11 4 THE AMOUNT AS EXPENDITURE AT THE POINT OF INCIDENCE . THE ALLOCATION FINALLY TOOK PLACE IN THE PREVIOUS YEAR 2006-07 RELEVANT TO THE ASSESSMENT YEAR 2007-08, WHEN THE A SSESSEE- COMPANY RECOVERED THE MARK UP AMOUNT OF ` 39,70,06,142/- AS AGAINST THE INCURRED EXPENDITURE OF ` 36,87,79,276/-. THE REAL CHARACTER OF THE AMOUNT SPENT BY THE ASSESSEE-COMPA NY IN ITS INDONESIAN PROJECT WAS DETERMINED BY THE ASSESSEE-C OMPANY AT THAT POINT OF TIME. THIS IS PROVED BY THE FACT THA T THE ASSESSEE HAS TREATED THE RECOVERED AMOUNT OF ` 39,70,06,142/- FROM THE INDONESIAN COMPANY AS ITS INCOME AND OFFERED FOR TA XATION FOR THE ASSESSMENT YEAR 2007-08. WHEN THE ASSESSEE HAS OFFERED THE RECOVERED AMOUNT AS ITS INCOME, IT IS QUITE RIG HTFUL IN ITS PART TO CLAIM THE EARLIER EXPENDITURE AS DEDUCTIONS IN C OMPUTING THE INCOME ARISING OUT THE AMOUNT RECOVERED FROM INDONE SIAN SUBSIDIARY. THE ASSESSEE THOUGHT IT FIT TO CLAIM S UCH EXPENDITURE ASSESSMENT YEAR-WISE RATHER THAN CLAIMING FULL DED UCTION IN THE ASSESSMENT YEAR 2007-08 WHEN THE ENTIRE RECOVERED A MOUNT WAS OFFERED AS INCOME THE AMOUNT CLAIMED BY THE ASSESS EE BY WAY OF EXPENDITURE FOR THE ASSESSMENT YEAR 2005-06 IS ` 5,00,31,489/-THE ACTUAL AMOUNT SPENT BY THE ASSESSE E-COMPANY IN THE RELEVANT PREVIOUS YEAR. THIS HAS BEEN DISAL LOWED BY THE ASSESSING AUTHORITY AND CONFIRMED BY THE COMMISSION ER OF INCOME-TAX (APPEALS). WHEN THE ASSESSEE-COMPANY WA S INCURRING THE EXPENDITURE TOWARDS ITS INDONESIAN PROJECT, THE REAL CHARACTER OF THE SPENDING WAS NOT DECIDED BY THE AS SESSEE- COMPANY. THAT IS WHY THE AMOUNTS WERE DEBITED AND KEPT UNDER THE HEAD EXPENDITURE PENDING ALLOCATION. THIS AC COUNTING TREATMENT GIVEN BY THE ASSESSEE-COMPANY CAN BE JUST IFIED FOR THE REASON THAT THE REAL CHARACTER COULD BE DECIDED ONLY WHEN THE ASSESSEE-COMPANY WAS ABLE TO RECOVER THE AMOUNT S FROM ITS INDONESIAN SUBSIDIARY. ONCE THE RECOVERY WAS MADE NOT ONLY IN FULL BUT EVEN TO A MARK UP EXTENT, THE ASSESSEE-COM PANY ULTIMATELY DECIDED TO DECLARE ITS NATURE AS EXPENDI TURE AND CORRESPONDINGLY OFFERED THE AMOUNTS RECOVERED FROM THE INDONESIAN COMPANY AS INCOME. 5.(IX) WE DO NOT FIND ANY ACCOUNTING OR LEGAL INFI RMITY IN THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE-COMPANY IN THE ABOVE BACKGROUND. WHEN THE ASSESSEE HAS OFFERED TH E ENTIRE I.T.A. NO. 943 & 944/MDS/11 5 AMOUNT RECOVERED FROM ITS INDONESIAN SUBSIDIARY AS INCOME FOR THE ASSESSMENT YEAR 2007-08, NOTHING CAN PREVENT TH E ASSESSEE FROM CLAIMING THE CORRESPONDING EXPENDITURE AS DEDU CTION IN COMPUTING ITS TAXABLE INCOME. THE ASSESSEES CLAIM IS IN ACCORDANCE WITH THE MATCHING PRINCIPLE OF ACCOUNTAN CY. THE REVENUE CANNOT INSIST THAT THE ASSESSEE HAD EARNED THE INCOME OF ` 39,70,06,142/- WITHOUT INCURRING ANY EXPENDITURE. THE REVENUE CANNOT HAVE A CASE THAT THE AMOUNT RECOVERE D BY THE ASSESSEE-COMPANY IN THE PREVIOUS YEAR 2006-07 AND O FFERED AS INCOME FOR THE ASSESSMENT YEAR 2007-08 WAS WINDFAL L. 5.(X) THEREFORE, WE FIND NO REASON OR RHYME TO REF USE THE LEGITIMATE CLAIM OF DEDUCTION MADE BY THE ASSES SEE-COMPANY. 5.(XI) NOW ACADEMICALLY SPEAKING THE ASSESSEE-COMP ANY HAD TWO ALTERNATIVES. FIRST ONE IS THE METHOD ADOP TED BY THE ASSESSEE-COMPANY. IT OFFERED THE ENTIRE RECOVERY A S INCOME FOR THE ASSESSMENT YEAR 2007-08 AND CLAIMED CORRESPONDI NG EXPENDITURE IN THE ASSESSMENT YEARS 2005-06, 2006-0 7 AND 2007-08. THIS TREATMENT IS ON THE BASIS OF ACTUAL EXPENSES INCURRED IN THE RESPECTIVE ASSESSMENT YEAR. THE EX PENSES WERE CLAIMED EITHER ASSESSMENT YEAR WHEN THEY WERE INCUR RED; THE INCOME WAS OFFERED WHEN THE RECOVERY WAS ACTUALLY M ADE. THIS TREATMENT IS ON THE BASIS OF ACTUAL PAYMENT AND REC EIPT. THE NEXT ALTERNATIVE IS THAT THE ASSESSEE COULD SET OFF THE TOTAL EXPENDITURE OF ` 36,87,79,276/- AGAINST THE AMOUNT OF ` 39,70,06,142/- RECOVERED FROM THE INDONESIAN COMPAN Y AND OFFER THE BALANCE AMOUNT AS INCOME FOR THE ASSESSME NT YEAR 2007-08. BOTH METHODS ARE ACCEPTABLE IN LAW. 5.(XII) THE ASSESSEE HAS CHOSEN THE FIRST ALTERNAT IVE. THIS METHOD MAY BE MORE PRUDENT BECAUSE ULTIMATELY THE A SSESSEE HAS TREATED THE ENTIRE TRANSACTION IN THE NATURE OF A BUSINESS TRANSACTION OF ITS OWN BY OFFERING THE GROSS RECOVE RY AS ITS INCOME SO THAT THE CORRESPONDING EXPENDITURE ARE CL AIMED AS DEDUCTIONS IN THE YEAR IN WHICH THEY WERE ACTUALLY INCURRED. 5.(XIII) IN VIEW OF THE FACTS AND CIRCUMSTANCES AS STATED ABOVE, WE HOLD THAT THE ASSESSEE IS ENTITLED IN LAW TO CLAIM THE I.T.A. NO. 943 & 944/MDS/11 6 EXPENDITURE OF ` 5,00,31,849/- AS DEDUCTION IN COMPUTING THE TAXABLE INCOME OF THE IMPUGNED ASSESSMENT YEAR 2005 -06. THE BALANCE INSTALMENTS OF ` 16,14,13,328/- AND ` 15,73,34,099/- HAVE TO BE ALLOWED AS DEDUCTIONS IN THE ASSESSMENT YEARS 2006- 07 AND 2007-08 RESPECTIVELY. 5.(XIV) THIS ISSUE IS DECIDED IN FAVOUR OF THE ASS ESSEE AND THE ASSESSING AUTHORITY IS DIRECTED TO MODIFY THE C OMPUTATION OF INCOME ACCORDINGLY. ACCORDINGLY, WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE CIT(APPEALS) DELETING THE ADDITION MADE FOR THE IMP UGNED ASSESSMENT YEAR. 5. GROUND NO.2 THEREFORE STANDS DISMISSED. 6. VIDE ITS GROUND NO.3, GRIEVANCE OF THE REVENUE I S THAT CIT(APPEALS) DELETED AN ADDITION MADE FOR EXPENSES CLAIMED BY THE ASSESSEE ON REPLACEMENT OF DYES AND MOULDS. 7. LEARNED A.R. SUBMITTED THAT THIS ISSUE ALSO STOO D DECIDED IN FAVOUR OF ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04 IN I.T.A. NO. 89 3/MDS/2007. LEARNED D.R. FAIRLY AGREED THAT THE ISSUE WAS COVER ED. 8. WE FIND FROM THE ORDER DATED 22 ND MAY, 2008 OF THIS TRIBUNAL IN I.T.A. NO. 893/MDS/2007 THAT ORDER OF CIT(APPEALS) ALLOWING I.T.A. NO. 943 & 944/MDS/11 7 ASSESSEES CLAIM FOR DYES AND MOULDS AS REVENUE OUT GO, WAS SUSTAINED BY THIS TRIBUNAL. RELEVANT PARAS 23 AND 27 OF THE ORDER IS REPRODUCED HEREUNDER:- 23. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY CLAIMED COST OF DIES AND MOULDS AMOUNTING TO ` 22,66,52,504/- AS REPAIRS AND MAINTENANCE. UPON ENQUIRY IT WAS EXPLA INED THAT LIFE OF A DIE OR MOULD CLEARLY EXTINGUISHES WITHIN A YEA R DUE TO HIGH PRODUCTION IN VOLUME AND SUCH DIES WILL BE USED WIT HIN A PERIOD OF ONE YEAR AND THE OLD DESIGN IS REPLACED WITH NEW DE SIGN. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT DIES CAN ALSO BE CLASSIFIED AS PLANT AND MACHINERY AND THE A SSESSEE WAS ENTITLED TO DEPRECIATION. THEREFORE, HE REJECTED T HE CLAIM OF THE ASSESSEE AND ALLOWED DEPRECIATION AT 12 % WHE RE THE DIES WERE USED FOR LESS THAN SIX MONTHS AND 25% WHERE TH E DIES WERE USED FOR MORE THAN SIX MONTHS. THE CIT(APPEALS) AL LOWED THE CLAIM OF THE ASSESSEE MAINLY ON THE BASIS OF THE DE CISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. JAN AKIRAM MILLS LTD. [275 ITR 403]. 27. WE FURTHER FIND THAT IN THE CASE OF JANAKIRAM MILLS LTD., THE HONBLE MADRAS HIGH COURT WAS CONCERNED WITH TH E ISSUE OF REPLACEMENT OF CERTAIN MACHINES AND ONLY THAT DECIS ION HAS BEEN REVERSED BY THE HONBLE SUPREME COURT BY HOLDING TH AT REPLACEMENT OF MACHINERY CANNOT BE CALLED REPAIRS A ND MAINTENANCE. WE ARE OF THE VIEW THAT THESE TWO DEC ISIONS HAVE NOTHING TO DO WITH THE ISSUE AND FOR CLAIMING EXPEN DITURE INCURRED ON REPLACEMENT OF DIES AND MOULDS. THEREF ORE, FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIG H COURT IN THE CASE OF MYSORE SPUN CONCRETE PIPE PVT. LTD. (SUPRA) WE HOLD THAT THE REPLACEMENT OF DIES AND MOULDS WOULD AMOUNT TO INCURRING OF REVENUE EXPENDITURE. IN THESE CIRCUMSTANCES, WE FI ND NOTHING WRONG WITH THE ORDER OF THE CIT(APPEALS) AND CONFIR M THE SAME. ACCORDINGLY GROUND NO.3 IS DISMISSED. I.T.A. NO. 943 & 944/MDS/11 8 9. VIDE ITS GROUND NO.4, GRIEVANCE OF THE REVENUE I S THAT CIT(APPEALS) DELETED AN ADDITION OF ` 5,81,72,790/- MADE BY THE A.O., RELYING ON SECTION 35(1)(IV) OF INCOME-TAX AC T, 1961 (IN SHORT 'THE ACT'). LEARNED A.R. SUBMITTED THAT THIS ISSUE ALSO STOOD DECIDED IN FAVOUR OF ASSESSEE VIDE ORDER OF THIS TRIBUNAL I N REVENUES APPEAL IN I.T.A. NO. 893/MDS/2007 FOR ASSESSMENT YEAR 2003 -04. LEARNED D.R. FAIRLY AGREED TO THIS SUBMISSION. 10. WE FIND THAT THIS TRIBUNAL HAD, WITH REGARD TO CLAIM OF R & D EXPENSES SHOWN AS PART OF WORK-IN-PROGRESS, HAD HEL D AT PARAS 19 TO 22 OF ITS ORDER MENTIONED SUPRA, AS UNDER:- 19. AS FAR AS SECOND ISSUE IS CONCERNED, AFTER HEA RING BOTH THE PARTIES, WE FIND THAT THE ASSESSEE COMPANY HAD CLAI MED EXPENDITURE UNDER RESEARCH AND DEVELOPMENT. THE DETAILS OF SUC H EXPENDITURE ARE AS UNDER: (I) R & D BUILDING WORK - IN - PROGRESS 93,87,077 (II) R & D EQUIPMENTS WORK - IN - PROGRESS 14,27,733 (III) ADVANCE PAYMENT FOR PROCUREMENT OF R & D 1,68 ,17,868 TOTAL 2,76,32,678 LESS: R & D WORK - IN - PROGRESS EXPENDITURE DISALLOWED IN THE ORDER U/S 143(3) FOR A.Y. 2002-03 WHICH WAS COMPLETED DURING THE YEAR 1,07,47,346 BALANCE 1,68,85,332 THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE TH E ASSETS HAVE NOT COME INTO EXISTENCE, THESE EXPENDITURE COULD NOT BE ALLOWED. HE FURTHER OBSERVED THAT EXPENDITURE ON RESEARCH AND D EVELOPMENT WHICH WAS DISALLOWED IN EARLIER ASSESSMENT YEARS, I S ALLOWED DURING THE I.T.A. NO. 943 & 944/MDS/11 9 YEAR BECAUSE THOSE ASSETS HAD BEEN PUT TO USE. ACC ORDINGLY, BALANCE OF ` 1,68,85,332/- WAS DISALLOWED. ON APPEAL, THE CIT( APPEALS) ALLOWED THIS EXPENDITURE FOLLOWING THE APPELLATE OR DER FOR ASSESSMENT YEAR 2002-03. 20. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE AMOUNT CLAIMED DURING THE YEAR WAS ONLY TOWARDS WORK-IN-PROGRESS AND ADVANCE PAYMENT AND THEREFORE, THE SAME HAS BEE N RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. HENCE, THE AD DITION IS JUSTIFIED. 21. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE, REFERRED TO THE PROVISIONS OF SEC.35(1)(IV) AND SUBMITTED TH AT THIS PROVISION CLEARLY STIPULATES THAT EVEN THE CAPITAL EXPENDITUR E ON ACCOUNT OF SCIENTIFIC RESEARCH HAS TO BE ALLOWED AND THERE IS NO CONDITION THAT SUCH CAPITAL EXPENDITURE MUST BRING SOME ASSETS INT O EXISTENCE. HE THEN REFERRED TO THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. RANE BRAKE LININGS LTD. [255 ITR 395 ] WHERE IT WAS OBSERVED THAT THE SECTION REFERS ONLY TO CAPITAL EX PENDITURE AND DOES NOT FURTHER REQUIRE THAT THE ASSET BROUGHT INTO EXI STENCE BY INCURRING SUCH EXPENDITURE SHOULD HAVE BEEN COMPLETE IN ALL A SPECTS. THE DEDUCTION IS FOR THE EXPENDITURE TO THE EXTENT INCU RRED. EXPENDITURE INCURRED ON ON-GOING CONSTRUCTION OF BUILDING DESIG NED FOR HOUSING THE RESEARCH WING IS CLEARLY CAPITAL EXPENDITURE AND IS DEDUCTIBLE UNDER THIS PROVISION. HE ALSO RELIED ON THE DECISION OF THE HONBLE ORISSA HIGH COURT IN THE CASE OF BELPAHAR REFRACTORIES LTD . V. CIT [207 ITR 144]. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SECTION 35(1)(IV) READS AS UNDER:- 35(1)(IV) IN RESPECT OF ANY EXPENDITURE OF A CAPI TAL NATURE ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE, SUCH DEDUCTION AS MAY BE ADMISSIBLE UNDER THE PROVISIONS OF SUB-SECTION (2) WHILE INTERPRETING THIS PROVISION THE HONBLE MADRA S HIGH COURT IN THE CASE OF CIT V. RANE BRAKE LININGS LTD. (SUPRA) HAS OBSERVED AS UNDER: I.T.A. NO. 943 & 944/MDS/11 10 AS PER SECTION 35(1)(IV) OF THE INCOME-TAX ACT, 19 61, IN RESPECT OF ANY EXPENDITURE OF A CAPITAL NATURE ON S CIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE SUCH DEDUCTION AS MAY BE ADMISSIBLE UNDER THE PROVI SIONS OF SUB-SECTION (2) SHALL BE ALLOWED. SECTION 35(2)(IA ) PROVIDES THAT IN A CASE WHERE SUCH CAPITAL EXPENDITURE IS INCURRE D AFTER MARCH 31, 1967, THE WHOLE OF SUCH CAPITAL EXPENDITU RE INCURRED IN ANY PREVIOUS YEAR SHALL BE DEDUCTED FOR THAT PRE VIOUS YEAR. THE SECTION REFERS ONLY TO CAPITAL EXPENDITURE AND DOES NOT FURTHER REQUIRE THAT THE ASSET BROUGHT INTO EXISTEN CE BY INCURRING SUCH EXPENDITURE SHOULD HAVE BEEN COMPLET E IN ALL RESPECTS. THE DEDUCTION IS FOR THE EXPENDITURE TO THE EXTENT INCURRED. EXPENDITURE INCURRED ON ON-GOING CONSTRU CTION OF A BUILDING DESIGNED FOR HOUSING THE RESEARCH WING IS CLEARLY CAPITAL EXPENDITURE AND IS DEDUCTIBLE UNDER THIS PR OVISION. THUS, THE ABOVE DECISION CLEARLY SHOWS THAT IT IS N OT NECESSARY THAT THE ASSETS MUST COME INTO EXISTENCE WHICH MEANS CAP ITAL EXPENDITURE INCURRED WOULD BE ALLOWED AS SUCH. RESPECTFULLY FO LLOWING THE ABOVE DECISIONS, WE DECIDE THIS ISSUE AGAINST THE REVENUE . ACCORDINGLY, THIS GROUND OF REVENUE STANDS DISMISSE D. 11. VIDE ITS GROUND NO.5, GRIEVANCE RAISED BY THE R EVENUE IS THAT CIT(APPEALS) DELETED AN ADDITION OF ` 12,58,94,838/- MADE UNDER SECTION 35(2AB) OF THE ACT. 12. FACTS APROPOS ARE THAT ASSESSEE HAD CLAIMED DED UCTION OF ` 12,58,94,838/- UNDER SECTION 35(2AB) OF THE ACT AGA INST R&D EXPENDITURE OF ` 8,39,29,892/-. AS PER SECTION 35(2AB), ASSESSEE WAS ENTITLED TO CLAIM 1 TIMES OF THE ACTUAL EXPEN DITURE INCURRED. SUCH R&D EXPENDITURE WAS SHOWN AS EXPENDITURE PENDI NG ALLOCATION, I.T.A. NO. 943 & 944/MDS/11 11 IN ITS BOOKS. ASSESSING OFFICER DISALLOWED THE CLA IM FOR A REASON THAT SIMILAR DEDUCTION WAS DISALLOWED IN EARLIER ASSESSM ENT YEARS AND ALSO FOR A REASON THAT ASSESSEE ITSELF HAD SHOWN SU CH AMOUNT AS PENDING ALLOCATION. 13. BEFORE CIT(APPEALS), ASSESSEE ARGUED THAT ONCE ASSESSEE WAS ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 35(1) (IV) FOR ITS R&D WORK-IN-PROGRESS, THEN IT WILL AUTOMATICALLY BE ELI GIBLE FOR DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. ASSESSEE ALSO PO INTED OUT TO THE CIT(APPEALS) THAT ITS RESEARCH & DEVELOPMENT FACILI TIES WERE APPROVED BY DEPARTMENT OF SCIENTIFIC & INDUSTRIAL R ESEARCH (DSIR) AND APPROVAL OF DSIR WAS AVAILABLE IN FORM 3CM. NE VERTHELESS, IT WAS ACCEPTED BY THE ASSESSEE THAT THE ORDER FROM DS IR QUANTIFYING THE AMOUNT OF DEDUCTION AVAILABLE IN FORM NO.3CL WA S RECEIVED ONLY ON 24.8.2010. CIT(APPEALS), AFTER GOING THROUGH TH E CONTENTION OF THE ASSESSEE, WAS OF THE OPINION THAT SIMILAR CLAIM FOR THE EARLIER YEARS, WERE ALLOWED BY HIM ON ASSESSEES APPEALS, AND THIS WAS UPHELD BY THE TRIBUNAL IN REVENUES APPEALS. RELYING ON THE DECISION OF THIS TRIBUNAL IN I.T.A. NO. 1017/MDS/2009, FOR ASSESSMEN T YEAR 2005-06, CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE. HE ALSO NOTED THAT ASSESSEE HAD RECEIVED FORM NO.3CL FROM DSIR QUANTIF YING THE I.T.A. NO. 943 & 944/MDS/11 12 AMOUNT AND THEREFORE, IT WAS ELIGIBLE FOR THE CLAIM . NEVERTHELESS, HE DIRECTED THE ASSESSING OFFICER TO GRANT THE DEDUCTI ON AFTER VERIFICATION OF FORM NO.3CL ISSUED BY DSIR. 14. WHEN THE MATTER CAME UP BEFORE US, LEARNED A.R. SUBMITTED THAT THE MATTER STOOD DECIDED IN FAVOUR OF ASSESSEE BY THIS TRIBUNAL IN ITS EARLIER ORDER MENTIONED SUPRA AND THAT DSIR CER TIFICATE WAS AVAILABLE FOR THE CLAIM. LEARNED D.R. FAIRLY AGRE ED WITH THIS SUBMISSION OF THE ASSESSEE. 15. WE HAVE PERUSED THE ORDERS AND HEARD THE SUBMI SSIONS. INSOFAR AS WORK-IN-PROGRESS UNDER R&D WAS CONCERNED , WE ARE FOLLOWING ORDER OF THIS TRIBUNAL THAT THE CLAIM IS ALLOWABLE UNDER SECTION 35(1)(IV) OF THE ACT, DESPITE THE AMOUNT BE ING SHOWN AS PENDING ALLOCATION IN BOOKS. THE CLAIM UNDER SECTI ON 35(2AB) IS ON SIMILAR FOOTING AND IT IS CLEARLY NOTED BY THE CIT( APPEALS) THAT ASSESSEE HAD SUBMITTED ALL DETAILS WITH REGARD TO C LAIM AND ALSO OBTAINED CERTIFICATE FROM DSIR IN FORM NO.3CL WHICH QUANTIFIED THE AMOUNT OF ALLOWANCE. LD. CIT(APPEALS) HAD DIRECTED ALLOWANCE OF AMOUNT BASED ON CERTIFICATE OF DSIR AND REMITTED TH E MATTER BACK TO THE FILE OF THE A.O. FOR CONSIDERING SUCH CERTIFICA TE FOR DECIDING THE QUANTUM OF ALLOWANCE. WE DO NOT FIND ANY REASON TO INTERFERE SINCE I.T.A. NO. 943 & 944/MDS/11 13 CIT(APPEALS) HAD ONLY DIRECTED THE ASSESSING OFFICE R TO GIVE THE ALLOWANCE IN ACCORDANCE WITH QUANTIFICATION DONE BY DSIR IN FORM NO.3CL. 16. GROUND NO.5 OF THE REVENUE STANDS DISMISSED. 17. GRIEVANCE RAISED BY THE REVENUE IN ITS GROUND N O.6 IS THAT CIT(APPEALS) RESTRICTED THE DISALLOWANCE UNDER SECT ION 14A OF THE ACT TO 2% OF EXEMPT INCOME. ASSESSING OFFICER HAD MADE DISALLOWANCE OF ` 6,01,13,730/- RELYING ON RULE 8D OF INCOME-TAX RULES, 1962. 18. WHEN THE MATTER CAME UP BEFORE US, LEARNED A.R. SUBMITTED THAT FOR THE IMPUGNED ASSESSMENT YEAR, IN VIEW OF T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD V. DY. CIT (328 ITR 81), RULE 8D COULD NOT HAVE BEEN APPLIED. AS AGAINST, LEARNED D.R. SUBMITTED THAT T HOUGH RULE 8D DID NOT APPLY FOR YEARS PRIOR TO ASSESSMENT YEAR 2008-0 9, FORMULA EVOLVED BY HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. DHANALAKSHMI BANK (344 ITR 259) HAD TO BE FOLLOWED. 19. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT RULE 8D DID NOT APPLY FOR IMPUGNED I.T.A. NO. 943 & 944/MDS/11 14 ASSESSMENT YEAR IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. (SUPRA). A.O. HAD APPLIED RULE 8D FOR MAKING DISALLOWANCE AND CIT (APPEALS) HAD RESTRICTED IT TO 2%. IN OUR OPINION, BOTH THESE ME THODS WERE NOT CORRECT. MATTER REQUIRES RE-VISIT BY THE ASSESSING OFFICER. HE HAS TO MAKE A DISALLOWANCE AFTER CONSIDERING THE CLAIM OF THE ASSESSEE AND ALSO THE POSITION OF LAW. WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE OF SECTION 14 A BACK TO THE FILE OF A.O. FOR CONSIDERATION AFRESH, IN ACCORDANCE WITH L AW. ASSESSEE SHALL BE GIVEN AN OPPORTUNITY TO EXPLAIN ITS CASE. 20. GROUND NO.6 IS ALLOWED FOR STATISTICAL PURPOSES . 21. VIDE ITS GROUND NO.7, GRIEVANCE RAISED BY THE R EVENUE IS THAT CIT(APPEALS) ALLOWED DEDUCTION UNDER SECTION 80-IA TO THE ASSESSEE ON NOTIONAL PROFIT DERIVED FROM CAPTIVE POWER GENER ATION AT ITS MYSORE FACTORY. 22. WHEN THE APPEAL CAME UP FOR HEARING, LEARNED A. R. SUBMITTED THAT THIS ISSUE STOOD COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. THIAGARAJAR I.T.A. NO. 943 & 944/MDS/11 15 MILLS LTD. IN T.C.A. NO.68-70 OF 2010 DATED 7.6.201 0. LEARNED D.R. FAIRLY ACCEPTED THIS SUBMISSION. 23. WE FIND THAT BY VIRTUE OF THE DECISION OF HONB LE JURISDICTIONAL HIGH COURT MENTIONED SUPRA, ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80-IA OF THE ACT ON PROFITS ARISING OUT OF CAPTIVE POWER GENERATION, FOR POWER USED FOR CAPTIVE CONSUMPTION. 24. GROUND NO.7 IS, THEREFORE, DISMISSED. 25. GROUND NO.8 OF THE REVENUE AGITATES THE DELETIO N OF ADDITION OF ` 8,01,793/- WHICH WAS MADE BY THE A.O. DISALLOWING T HE CLAIM OF ENTRY TAX. 26. WHEN THE MATTER CAME UP, LEARNED A.R. SUBMITTED THAT THE ISSUE STOOD COVERED IN FAVOUR OF ASSESSEE VIDE PARA S 28 AND 32 OF THIS TRIBUNAL DATED 22 ND MAY, 2008, IN REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04 IN I.T.A. NO. 893/MDS/2007. LEARNED D.R. FAIRLY AGREED TO THIS. 27. WE FIND THAT THIS TRIBUNAL, VIDE PARAS 28 AND 3 2 OF THE ORDER MENTIONED SUPRA, HAD HELD AS UNDER:- I.T.A. NO. 943 & 944/MDS/11 16 28. AS FAR AS FOURTH ISSUE IS CONCERNED, DURING TH E ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD CLAIMED DEDUCTION AMOUNTING TO I 1,19,77,063/- TOWARDS ENTRY TAX PAID TO VARIOUS DATED. THIS ENTRY TAX WA S REQUIRED TO BE PAID FOR ENTRY OF VEHICLES TO VARIOUS STATES WHICH HAVE BEEN DISPATCHED FOR SALE. IT WAS FURTHER NOTICED THAT A S PER SALE TAX RULE OF TN GOVERNMENT, THE ENTRY TAX PAID WAS ALLOWED TO BE SET OFF AGAINST SALES TAX PAYABLE BY THE ASSESSEE. THE ASS ESSEE COMPANY WAS REQUESTED THAT ONCE THE SALES TAX COLLECTED WAS NOT DEBITED TO PROFIT & LOSS ACCOUNT THEN WHY THIS DEDUCTION SHOULD BE AL LOWED. IT WAS EXPLAINED THAT THE CLAIM WAS MADE UNDER SEC.43B ON THE BASIS OF PAYMENT TO THE GOVERNMENT. THE ASSESSING OFFICER T HOUGH AGREED THAT ENTRY TAX WAS ALLOWABLE ON PAYMENT BASIS BUT S INCE SET OFF WAS AVAILABLE AGAINST THIS SALES TAX AND THE ASSESSEE H AD NOT SET OFF THE SALES TAX, THE DEDUCTION WAS NOT ALLOWED. 32. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTI ES, WE ARE OF THE VIEW THAT THE CIT(APPEALS) HAS CORRECTLY ADJUDICATE D THE ISSUE BECAUSE IF THE ASSESSEE HAS NOT RECEIVED OR COLLECT ED THE SALES TAX ON ACCOUNT OF SALES MADE BY IT, THEN NATURALLY ENTRY T AX CANNOT BE SET OFF AGAINST SUCH SALES TAX. EVEN, THE ASSESSING OFFICE R HAS ADMITTED THAT THE DEDUCTION ON ACCOUNT OF ENTRY TAX IS ALLOWABLE IF THE PAYMENT IS ACTUALLY MADE AND ADMITTEDLY PAYMENT OF ENTRY TAX H AS BEEN MADE BY THE ASSESSEE. THEREFORE, WE FIND NOTHING WRONG WIT H THE ORDER OF THE CIT(APPEALS). THE REVENUES APPEAL IS DISMISSED. ACCORDINGLY, WE ARE DISMISSING THIS GROUND. 28. IN THE RESULT, APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2006- 07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 29. NOW, WE TAKE UP APPEAL OF THE REVENUE FOR ASSES SMENT YEAR 2007-08. IN THIS APPEAL, TEN GROUNDS HAVE BEEN RAI SED BY REVENUE, I.T.A. NO. 943 & 944/MDS/11 17 OUT OF WHICH, GROUND NOS.1 AND 10 ARE GENERAL NEEDI NG NO ADJUDICATION. 30. VIDE ITS GROUNDS NO.2, ITS GRIEVANCE IS THAT CI T(APPEALS) DELETED THE DISALLOWANCE CLAIMED BY THE ASSESSEE FO R REPLACEMENT OF DYES AND MOULDS. 31. WE HAVE ALREADY IN REVENUES APPEAL FOR ASSESSM ENT YEAR 2006-07, FOLLOWING THE EARLIER ORDER OF THIS TRIBUN AL IN I.T.A. NO. 893/MDS/2007, HELD AT PARA 8 OF THIS ORDER THAT THE CLAIM WAS ALLOWABLE. ACCORDINGLY THIS GROUND OF REVENUE IS D ISMISSED. 32. VIDE ITS GROUND NO.3, REVENUE IS AGGRIEVED THAT CIT(APPEALS) DELETED DISALLOWANCE ON R&D CAPITAL WORK-IN-PROGRES S PENDING ALLOCATION UNDER SECTION 35(1)(IV) OF THE ACT. 33. FOLLOWING EARLIER ORDER OF THIS TRIBUNAL IN REV ENUES APPEAL FOR ASSESSMENT YEAR 2006-07, WE HAVE ALREADY HELD AT PA RA 10 ABOVE THAT CLAIM OF THE ASSESSEE WAS ALLOWABLE. ACCORDIN GLY, GROUND NO.3 IS DISMISSED. 34. VIDE ITS GROUND NO.4, GRIEVANCE RAISED BY THE R EVENUE IS THAT CIT(APPEALS) DELETED THE ADDITION MADE UNDER SECTIO N 35(2AB) OF THE I.T.A. NO. 943 & 944/MDS/11 18 ACT AND DIRECTED THE A.O. TO ALLOW SUCH CLAIM BASED ON DSIR CERTIFICATE IN FORM NO.3CL DATED 24.8.2010. 35. A SIMILAR ISSUE WAS RAISED BY THE REVENUE FOR A SSESSMENT YEAR 2006-07. WE HAVE ALREADY HELD AT PARA 15 THAT THE CLAIM WAS RIGHTLY ALLOWED BY THE CIT(APPEALS). ACCORDINGLY, GROUND N O.4 STANDS DISMISSED. 36. VIDE ITS GROUND NO.5, REVENUE HAS RAISED THAT C IT(APPEALS) RESTRICTED THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 14A OF THE ACT TO 2% EXEMPT INCOME AGAINST THE DISALLOWANC E OF ` 8,81,14,392/- MADE BY THE ASSESSING OFFICER RELYING ON RULE 8D OF INCOME-TAX RULES, 1962. AGAINST A SIMILAR ISSUE RA ISED FOR ASSESSMENT YEAR 2006-07, WE HAVE ALREADY HELD AT PA RA 19 ABOVE THAT RULE 8D IS APPLICABLE ONLY FOR ASSESSMENT YEAR 2008-09 AND REMITTED THE ISSUE BACK TO THE A.O. FOR CONSIDERATI ON AFRESH IN ACCORDANCE WITH LAW AT PARA 20 ABOVE. SIMILAR DIRE CTIONS ARE GIVEN HERE ALSO. 37. GROUND NO.5 IS ALLOWED FOR STATISTICAL PURPOSES . I.T.A. NO. 943 & 944/MDS/11 19 38. VIDE ITS GROUND NO.6, GRIEVANCE RAISED BY THE R EVENUE IS THAT CIT(APPEALS) DELETED AN ADDITION MADE FOR AGENCY CO MMISSION OF ` 17,74,00,154/-. 39. WHEN THE MATTER CAME UP, LEARNED A.R. SUBMITTED THAT A SIMILAR ISSUE WAS RAISED BY THE REVENUE IN ITS APPEAL BEFOR E THIS TRIBUNAL FOR ASSESSMENT YEAR 2005-06 IN I.T.A. NO. 1017/MDS/2009 , AND THIS TRIBUNAL HAD UPHELD THE ORDER OF CIT(APPEALS) DELET ING SUCH ADDITION. LEARNED D.R. FAIRLY AGREED TO THIS SUBMISSION. 40. WE FIND THAT THIS TRIBUNAL HAD IN ITS ORDER DAT ED 22 ND DECEMBER, 2010 IN I.T.A. NO. 1017/MDS/2009, FOR ASSESSMENT YE AR 2005-06, HELD AT PARAS 9 TO 9(IX) AS UNDER:- 9. THE NEXT ISSUE RAISED BY THE REVENUE IS AGAINS T THE DECISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS ) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN RESPE CT OF PROCESSING FEE PAID TO NON-RESIDENTS, SETTING ASIDE THE DISALL OWANCE OF CONSULTANCY PAYMENT AND REMANDING THE MATTER BACK T O THE ASSESSING OFFICER FOR EXAMINATION. 9.(I) IT IS THE CASE OF THE REVENUE THAT THE DISAL LOWANCE MADE BY THE ASSESSING OFFICER IN RESPECT OF PAYMENTS MAD E TO REGIONAL CAPITAL PVT. LTD., SINGAPORE AND ASIA PACIFIC PLC, UK SHOULD HAVE BEEN CONFIRMED. THE REVENUE ARGUES THAT THE DISALLOWAN CE OF ` 9,53,00,671/- WAS RIGHTLY MADE BY THE ASSESSING AUT HORITY AGAINST THE EXPORT AGENCY COMMISSION FOR NON DEDUCTION OF TAX A S REQUIRED UNDER SEC.40(A)(I). I.T.A. NO. 943 & 944/MDS/11 20 9.(II) THIS IS THE SAME ARGUMENT WITH REFERENCE TO THE PAYMENT OF ` 1,71,40,266/-. 9.(III) ON THE QUESTION OF DISALLOWANCE UNDER SEC. 40(A)(I), THE REVENUE HAS RELIED ON THE JUDGMENT OF THE HONBLE S UPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF AP LTD. V. CIT (239 ITR 587). 9.(IV) THE THREE AMOUNTS RAISED BY THE REVENUE IN ITS GROUNDS HAVE BEEN DISALLOWED BY THE ASSESSING AUTHORITY UND ER SEC.40(A)(I) FOR NON DEDUCTION OF TAX AT SOURCE. THOSE PAYMENTS REL ATED TO EXPORT AGENCY COMMISSION AND CONSULTANCY PAYMENT. 9.(V) IN CIRCULAR NO.786 DATED 7.2.2000, THE CENTR AL BOARD OF DIRECT TAXES HAS DELIBERATED ON THE ISSUE OF DEDUCT ION OF TAX IN RESPECT OF EXPORT COMMISSION PAYABLE TO NON-RESIDEN T AGENT FOR SERVICES RENDERED ABROAD. AFTER EXAMINING THE SCHEM E OF SEC.195, THE BOARD HAS CLARIFIED THAT NO TAX IS DED UCTIBLE UNDER SEC.195 AND CONSEQUENTLY THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BECOMES AN ALLOWABLE EXPENDITURE. 9.(VI) IN RESPECT OF OTHER ITEMS MADE BY THE ASSES SEE AS CONSULTANCY FEE ETC., THE PAYMENTS WERE MADE TO RES IDENTS OF SINGAPORE AND U.K. INDIA IS HAVING DTAA WITH BOTH OF THE COUNTRIES. AS PER THE TERMS OF DTAAS THE PAYMENTS MADE WOULD B E TREATED AS FEES FOR TECHNICAL KNOW-HOW AVAILABLE TO THE RESIDE NT IN INDIA. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS CLEARLY EX PLAINED IN HIS ORDER THAT SUCH SERVICES HAVE NOT BEEN RENDERED BY THE NON-RESIDENT TO THE ASSESSEE IN INDIA. THEREFORE, THOSE PAYMENT S DO NOT PERTAKE THE CHARACTER OF FEES FOR TECHNICAL SERVICES. 9.(VII) WHEN SUCH PAYMENTS THUS FOUND NOT LIABLE T O TAXATION IN INDIA OR WHERE SUCH PAYMENTS DO NOT CONTAIN WHOLLY OR PARTLY ANY TAXABLE INCOME, NO DEDUCTION OF TAX AT SOURCE IS CA LLED FOR. 9.(VIII) THIS ISSUE HAS BEEN RECENTLY SETTLED BY TH E HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD. V. CIT (327 ITR 456). THE COURT EXAMINED THE EXPRESSION CHARG EABLE UNDER THE PROVISIONS OF THE ACT. THE COURT HELD THAT THE EX PRESSION CHARGEABLE UNDER THE PROVISIONS OF THE ACT IN SEC .195(1) SHOWS THAT THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF I.T.A. NO. 943 & 944/MDS/11 21 WHICH IS LIABLE TO TAX IN INDIA. IF THE TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED. THE H ONBLE SUPREME COURT HAS EXPLAINED THE RATIO OF ITS EARLIER DECISI ON IN THE CASE OF TRANSMISSION CORPORATION OF A.P. LTD. V. COMMISSION ER OF INCOME-TAX (239 ITR 587) THAT THE SAID DECISION DOES NOT IMPOS E A BLANKET RESPONSIBILITY TO APPROACH THE ASSESSING OFFICER U NDER SEC.195(2) IN RESPECT OF EVERY PAYMENTS REMITTED OUTSIDE INDIA WI THOUT EXAMINING THE CHARACTER OF THE PAYMENTS. THE COURT IN ITS EA RLIER DECISION WHAT WAS HELD IS THAT THE ASSESSING OFFICER HAS TO BE AP PROACHED UNDER SEC.195(2), TO DECIDE THE CORRECT AMOUNT OF DEDUCTI ON WHERE TAX IS DEDUCTIBLE AND NOT TO INVOKE SEC.195(2) INDISCRIMIN ATELY WITHOUT BOTHERING AND LOOKING INTO WHETHER THE PAYMENTS CON TAINED ELEMENT OF INCOME OR NOT. 9.(IX) IN VIEW OF THE FACTS AND LAW STATED ABOVE, WE FIND THAT THE DECISION ARRIVED AT BY THE COMMISSIONER OF INCO ME-TAX (APPEALS) ON ALL THE ABOVE ISSUES ARE JUST, PROPER AND SUSTAI NABLE IN LAW. RESPECTFULLY FOLLOWING THE ABOVE ORDER FOR CO-ORDIN ATE BENCH OF THIS TRIBUNAL, WE DISMISS GROUND NO.6 RAISED BY THE REVE NUE. 41. GRIEVANCE RAISED BY THE REVENUE IN GROUND NO.7 IS THAT CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO GRAN T DEPRECIATION AT 80% FOR UPS AND VOLTAGE STABILIZERS, AGAINST 15% GR ANTED BY THE A.O. 42. WHEN THE MATTER CAME UP, LEARNED A.R. SUBMITTED THAT THIS ISSUE HAD COME UP BEFORE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF HARITA FINANCE LTD. IN I.T.A. NO. 193/MDS/9 1 AND THE TRIBUNAL HAD IN ITS ORDER DATED 28 TH APRIL, 1998, HELD SUCH EQUIPMENT TO BE I.T.A. NO. 943 & 944/MDS/11 22 ENERGY SAVING DEVICES ELIGIBLE FOR CLAIM OF HIGHER DEPRECIATION. LEARNED D.R. FAIRLY AGREED TO THIS. 44. WE FIND THAT THIS TRIBUNAL IN PARA 3 OF ITS ORD ER DATED 28 TH APRIL, 1998 IN I.T.A. NO. 193/MDS/91 IN THE CASE OF HARITA FINANCE LTD. (SUPRA), HAD HELD AS UNDER:- 3. AFTER CAREFULLY GOING THROUGH THE RECORDS, WE FI ND THAT THE I.T. RULES PROVIDE FOR HIGHER RATE OF DEPRECIATION AT 10 0% FOR ALL ENERGY SAVING DEVICES. IN THE CLAUSES MENTIONED IN THE I. T. RULES, INSTRUMENTATION AND MONITORING SYSTEM FOR MONITORIN G ENERGY FLOWS WHICH HELP IN AUTOMATIC ELECTRICAL LOAD MONITORING SYSTEMS ARE ENTITLED FOR 100% DEPRECIATION. THE STABILIZERS AND UNINTER RUPTED POWER SUPPLY SYSTEMS EMPLOYED BY THE ASSESSEE ARE FOR THE PURPOSES OF LOAD MONITORING AND LOAD FLUCTUATIONS OF THE ENERGY. WE , THEREFORE, ACCEPT THE ASSESSEES PRAYER AND DIRECT THE ASSESSING OFFI CER TO ALLOW DEPRECIATION AT 100% OF THE COST OF THESE ASSETS. IT HAS BEEN INFORMED TO US THAT THE ASSESSEE HAS NOT CLAIMED AN Y DEPRECIATION ON THE SAID ASSETS AT 15% IN ANY SUBSEQUENT ASSESSMENT YEARS. THE ASSESSING OFFICER SHALL VERIFY THIS FACT AND IF HE HAS GRANTED ANY DEPRECIATION, THE SAME SHALL BE LIABLE TO BE WITHDR AWN. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE HOLD THAT ASSESSEE IS ELIGIBLE FOR HIGHER RATE OF DEPRECIATION FOR UPS AN D VOLTAGE STABILIZERS, WHICH ARE AVAILABLE FOR ENERGY SAVING DEVICES. 44. THUS, GROUND NO.7 IS DISMISSED. 45. IN GROUND NO.8, GRIEVANCE OF THE REVENUE IS THA T CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO ALLOW 100% DEPREC IATION ON I.T.A. NO. 943 & 944/MDS/11 23 TEMPORARY CONSTRUCTION. LEARNED A.R. SUBMITTED THA T THIS ISSUE STOOD DECIDED IN FAVOUR OF ASSESSEE VIDE ORDER OF THIS TR IBUNAL DATED 22 ND MAY, 2008 IN I.T.A. NO. 792/MDS/2007 FOR ASSESSMENT YEAR 2003-04 IN ASSESSEES APPEAL. LEARNED D.R. FAIRLY AGREED T O THIS SUBMISSION. 46. WE FIND THAT IN PARA 12 OF ORDER OF THIS TRIBUN AL MENTIONED SUPRA, IT WAS HELD BY THIS TRIBUNAL FOR ASSESSMENT YEAR 2003-04, AS UNDER:- 12. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E ASSESSEE HAS CLAIMED DEPRECIATION ON THE FOLLOWING ITEMS:- 6. DISALLOWANCE OF 100% DEPRECIATION CLAIM ON CIVIL WOR KS : (A) TEMPORARY SHED AT SPARES WARE - HOUSE ` 7,57,326/ - (B) TEMPORARY VEHICLE PARKING SHED ` 1,89,72,571/ - (C) FENCING AT STORAGE YARD ` 1,85,611/ - (D) TEMPORARY DISCUSSION ROOM ` 3,17,248/ - (E) PARTITION OF QAD LABORATORY ` 6,96,805/ - (F) PARTITION AND STORAGE FACILITIES ` 8,01,350/ - (G) PARTITION AND STORAGE FACILITIES ` 1,09,330/ - (H) RECEPTION LOBBY ` 75,000/ - (I) FENCING OF LAND, FACTORY & ESTATE AT MYSORE ` 9,28,000/ - THE ASSESSING OFFICER WAS OF THE VIEW THAT IN SOME OF THE ITEMS HUGE EXPENDITURE WAS INCURRED WHICH ITSELF SHOWS THAT SU CH CONSTRUCTION WAS NOT TEMPORARY AND THEREFORE, THE ABOVE NOTED EX PENSES WERE HELD TO BE CAPITAL NATURE AND ONLY 10% DEPRECIATION WAS ALLOWED. ON APPEAL, THE CIT(APPEALS) HAS CONFIRMED THE ADDITION . 13. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT THE SIMPLE READING OF THE ABOVE ITEMS SHOW THAT THEY AR E TEMPORARY CONSTRUCTIONS AND THUS ENTITLED FOR 100% DEPRECIATI ON AS PRESCRIBED IN THE RULES. HE ALSO SUBMITTED THAT EVEN PARKING SHED WAS A I.T.A. NO. 943 & 944/MDS/11 24 TEMPORARY CONSTRUCTION BECAUSE ONLY SOME ROOF WAS C ONSTRUCTED ON THE PARKING SHED AND THE SAME CANNOT BE HELD TO BE NOT TEMPORARY. 14. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT HUGE EXPENDITURE INCURRED ITSELF SHO WS THAT THE CONSTRUCTION WAS NOT TEMPORARY. 15. AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT PLAIN READING OF THE ABOVE ITEM SHOW THAT THEY ARE IN THE NATURE OF TEMPORARY CONSTRUCTION ONLY. THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THESE CONSTRUCT IONS ARE NOT TEMPORARY. EVEN BEFORE US, NO MATERIAL HAS BEEN BR OUGHT TO SHOW THAT CONSTRUCTIONS WERE IN PERMANENT NATURE. TEMPO RARY SHED AT SPARE WARE-HOUSE, TEMPORARY VEHICLE PARKING SHED, F ENCING AT STORAGE SHED, PARTITION OF QAD LABORATORY ETC. CANNOT BY AN Y STRETCH OF IMAGINATION CALLED OFF PERMANENT NATURE. THEREFORE , WE SET ASIDE THE ORDER OF THE CIT(APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW 100% DEPRECIATION. HOWEVER, WE WOULD LIKE TO CLARI FY THAT DEPRECIATION IF ANY, ALLOWED IN FUTURE YEARS MAY BE WITHDRAWN. 47. GROUND NO.8 OF THE REVENUE, THEREFORE, STANDS D ISMISSED. 48. VIDE ITS GROUND NO.9, GRIEVANCE RAISED BY THE R EVENUE IS THAT CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE UNDE R SECTION 80-IA OF THE ACTION ON NOTIONAL PROFITS ARISING OUT OF CA PTIVE GENERATION OF POWER. 49. WE FIND THAT SIMILAR GROUND WAS RAISED BY THE REVENUE IN ITS APPEAL FOR ASSESSMENT YEAR 2006-07 ALSO. WE HAVE A LREADY HELD AT PARA 23 ABOVE THAT THE CLAIM WAS RIGHTLY ALLOWED BY THE CIT(APPEALS). I.T.A. NO. 943 & 944/MDS/11 25 50. ACCORDINGLY, GROUND NO.9 STANDS DISMISSED. 51. IN THE RESULT, APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2007- 08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 52. TO SUMMARIZE THE RESULT, REVENUES APPEALS FOR BOTH THE ASSESSMENT YEARS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 4 TH OF OCTOBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 4 TH OCTOBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE