Case Law Details

Case Name : ACIT Vs Swastik Pipes Ltd. (ITAT Delhi)
Appeal Number : ITA.Nos.4638, 4639 & 4640/Del./2013
Date of Judgement/Order : 18/04/2018
Related Assessment Year : 2007-08
Courts : All ITAT (7592) ITAT Delhi (1792)

ACIT Vs Swastik Pipes Ltd. (ITAT Delhi)

The assessee produced documentary evidences in support of its contention which had not been rebutted by AO and since impugned payments were in the form of reimbursement and no payments were made by assessee directly to shipping companies, therefore, assessee was not liable to deduct tax under section 194C. Since the amount in question were towards the reimbursement of the exact amount which had been paid to the shipping companies and others, therefore, assessee was not liable to deduct tax under section 194C.

FULL TEXT OF THE ITAT JUDGMENT

This order shall dispose-off all the above departmental appeals and the cross objections filed by the assessee on identical issues.

2. We have heard the learned Representatives of both the parties and perused the material on record. The appeals are decided issue-wise as under.

ITA.No.4638/Del./2013 – Revenue Appeal
&
C.O.No.30/Del./2014 – Assessee
(A.Y. 2007-2008)

3. The Departmental Appeal as well as Cross Objection by assessee are directed against the order of the Ld. CIT(A)- 1, New Delhi, dated 27th May, 2013, for the A.Y. 2007-2008. The Learned Counsel for the Assessee did not press ground Nos. 1 to 5 of the cross objection, the same are dismissed as not Ground No.1 in departmental appeal is general and need no adjudication.

ISSUE No.1:

4. On ground No.2, the Revenue challenged the order of the Ld. CIT(A) in deleting the addition of Rs.29,03,991/- made by the A.O. on account of disallowance of Inland Haulage for export consignment, on which, TDS was not deducted. The assessee on ground No.6 of the cross-objection challenged the sustaining of addition of Rs.3,22,666/- on the same issue.

4.1. The A.O. made the addition of Rs.32,26,657/- on account of Inland Haulage on export consignment because the assessee has not deducted TDS on the same payment as per Section 194C of the I.T. Act.

4.2. The assessee challenged the addition before Ld. CIT(A). The submission of the assessee is reproduced in the appellate order in which the assessee briefly explained that all these Inland Haulage charges are in the nature of reimbursement of expenses paid to the Clearing and Forwarding Agents on behalf of assessee to the Shipping Company and thus, Inland Haulage charges are not liable to TDS. The A.O. disallowed the same by stating that these payments are made against the bills of Clearing and Forwarding Agents towards Inland Haulage and was of opinion that these expenses are not mere reimbursement of expenses. The A.O. has ignored the fact that assessee is in the business of export of various items of iron and steel. The services of carrying and forwarding agents are important in the business of export so as to make the goods which in the instant case is H.R. coils available to the buyers in a short span of time as these agents possess the required expertise in shipping the consignment to far reached places. These agents utilised the services of various shipping companies and other facilitators to whom the payments are made for respective services rendered by them. All these expenses incurred by such Agents are taken from the assessee in the form of reimbursement of expenses and thus, Haulage charges paid are in the nature of reimbursement of expenses made by Clearing and Forwarding Agents on behalf of the assessee to the shipping companies. Since, these are reimbursement and no payments have been directly made by assessee to shipping companies, the assessee is not liable to deduct TDS. The liability is upon the Clearing and Forwarding Agents and not upon the assessee. The assessee had drawn attention to the bills received from various parties to whom Inland Haulage charges has been paid which is specifically mentioned in the bills and charged separately. It is not the case that the said amount has been clubbed to the total charges of the shipping agent. The Ld. CIT(A) noted that assessee has paid Rs.32,26,657/- to its C & F Agent for transportation of the steel pipes by freight trains from ICD Tuglakabad to Sea Port at Mumbai for onward export by ship to different countries. The goods were transported in containers owned by the Container Corporation of India Ltd., or CONCORD. The assessee submitted that both these charges were contained in the bills raised by C & F Agents and it would not be possible to ascertain the exact break-up as it was confidential financial information that the C & F Agents would not like to part with, but, bulk of the payments are reimbursed by the assessee to C & F Agents. The Ld. CIT(A) noted that assessee did the same on bonafide belief that such payments are not covered by the provisions of Section 194C of the I.T. Act. The assessee used different C & F Agents and in subsequent year, assessee started deducting TDS. Payments to C & F Agents are made who have made further payments to shipping agents. The Ld. CIT(A) also held that Rail Freight Charges are not exigible to TDS as per Notification of CONCORD. Therefore, Ld. CIT(A) deleted the addition by restricting the addition to 10%. The addition was, therefore, restricted to Rs.3,22,666/- and assessee was granted relief of Rs.29,03,99 1/-. Both parties are in appeal and cross objection.

5. After considering the rival submissions, we are of the view that entire addition is liable to be deleted. Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has submitted that expenses are in the nature of reimbursement, therefore, assessee is not liable to deduct TDS. He has relied upon the decision of Hon’ble Gujarat High Court in the case of CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd., (2014) 361 ITR 192 (Guj.) in which it was held that no disallowance under section 40(a)(ia) related to reimbursement of expenses to C & F Agents can be made. He has submitted that SLP of the Department has been dismissed vide order dated 14th January, 2014. Copies of the same are filed on record. He has submitted that same view have been taken by the Hon’ble Delhi High Court in the case of CIT vs. ONS Creations Pvt. Ltd., in ITA.No.1279/201 1 vide order dated 14.12.2011, Order of ITAT, Delhi Bench in the case of Surinder Kumar vs. ACIT dated 16th June, 2015, order of ITAT, Mumbai Bench in the case of ACIT vs. Paramount Forge dated 24th February, 2015 and Order of ITAT, Ahmedabad Bench in the case of Prayas Engineering Ltd., vs. Addl. CIT dated 29th April, 2014. Copies of the same are filed on record. Learned Counsel for the Assessee also submitted that CIT(A) disallowed 10% of such expenses merely on presumption.

6. The Ld. D.R. on the other hand relied upon the orders of the A.O. and submitted that since no TDS was deducted, therefore, addition should be maintained.

7. Considering the facts of the case in the light of submissions of the parties and case law cited by Learned Counsel for the Assessee, we are of the view that the entire addition is liable to be deducted. It is a fact that assessee paid the entire amount to its C & F Agents for transportation of goods for onward export by shipping to different countries. The goods were transported through Container Corporation of India Ltd., or CONCORD. The assessee made payments to the C & F Agents who have made further payments to the shipping companies. All these expenses were incurred by the Agents who have then taken it from the assessee in the form of reimbursement of Since, these payments are in the form of reimbursement and no payments have been made directly bythe assessee to shipping companies, therefore, assessee is not liable to deduct TDS. The assessee produced documentary evidences in support of the same contention which have not been rebutted by the authorities below. Since the amount in question were towards the reimbursement of the exact amount which have been paid to the shipping companies and others, therefore, assessee is not liable to deduct TDS. The issue is covered by the judgments relied upon by the Learned Counsel for the Assessee. Therefore, Ld. CIT(A) was not justified in making adhoc addition of 10% merely on presumptions. The entire addition is liable to be deleted. We, accordingly, confirm the order of the Ld. CIT(A) in deleting the substantial addition. Further, order of Ld. CIT(A) is also set aside to delete the addition of Rs.3,22,666/-. The departmental appeal fails and cross objection of assessee is allowed. Issue No.1 decided in favour of assessee.

ISSUE No.2:

8. On ground No.3 of the departmental appeal, Revenue challenged the deletion of addition of Rs.2 1,05,632/- made by A.O. on account of disallowance of freight payments to Consignment Agents without deduction of TDS.

8.1. The A.O. made the addition of the above amount on account of freight reimbursement to Consignment Agents. The assessee challenged the addition before the Ld. CIT(A) and written submissions of the assessee were reproduced in the appellate order in which the assessee briefly explained that assessee is engaged in the business of manufacturing of steel pipes, tubes and trading of H.R. Coils etc., The trading of H.R. Coils and various other items is done majorly by way of exports. Considering the quantum of export sales made during the year under consideration, services of various Consignment Agents are undertaken. In Consignment, the Agent incurs all the expenditure in connection with sales which were then either reimbursed to them or deducted from the gross amount of sales. In the instant case, the material for sale is supplied to these Agents. It is the duty of the Consignment Agent to incur all expenses as and when required to make the sales like freight expenses, insurance charges etc., and after deducting various expenses incurred on its own, the remaining amounts is remitted back to the assessee. The actual payment of freight had been made by the Consignment Agents and not by the assessee. The assessee produced sufficient evidence before the authorities below to indicate the sale proceeds net of freight payment made by Agent on behalf of the assessee. It would show that assessee simply interested with the net amount that have been received for the sale made by Consignment Agents. There is no control of assessee on the expenditure incurred by the said Consignment Agents. On the basis of the invoices raised by the Agents towards freight payment, the amount would be paid to the Consignment Agents. Therefore, assessee is not liable to deduct TDS on payments made by Consignment Agents to various parties. The bills specifically highlight the quantum of expenses incurred by the Agents on behalf of the assessee. The documentary evidences have not been disputed by the authorities below.

8.2. The Ld. CIT(A) noted that assessee used the services of Consignment Agents to sell its bulk products Abroad. The assessee raises bills on the Consignment Agents and in turn, the Consignment Agents raises sale invoices showing total sale proceeds and its other expenses included freight and remit to the assessee’s sale proceeds net of its expenses. The case of the Revenue is based on the fact that the expenses charged by the Consignment Agents have an element of freight/shipping charges and the fact that assessee was not in possession of documents to support these payments. The case of the assessee has been that it has no control over the reimbursable expenses incurred by the Consignment Agents. The Ld. CIT(A), therefore, held that payment of the freight are made by the Consignment Agents and not by assessee. The assessee even does not know the transporter or the shipping Agent. It is arranged by the Consignment Agent only. There is no contact between the assessee and different transporters/shipping Agents. The Ld. CIT(A), therefore, held that assessee need not to deduct TDS. Addition was accordingly, deleted.

 8.3. After considering the rival submissions, we do not find any merit in this ground of appeal of the Revenue. The Ld. D.R. submitted that assessee has incurred the expenses and documents have not been considered by the Ld. CIT(A). it is obligation of the assessee to deduct TDS on freight payment.

 8.4. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that it was an obligation on the Consignment Agent to pay the freight charges, therefore, assessee is not liable to deduct TDS. Considering the facts of the case in the light of submissions of the parties and material on record, it is clear that these payments are freight payments to Consignment Agents. The services of various Consignment Agents are undertaken by assessee who incurred the expenses in connection with sales which are then reimbursed to them or deducted from the gross amount of sales. The actual payment of freight charges are made by the Consignment Agents. The assessee would get the sale proceeds net of these expenses. The Ld. CIT(A) was, therefore, justified in holding that freight payments are made by the Consignment Agents only and even the assessee may not aware of different transporters, shipping agents, therefore, it would impossible for assessee to deduct TDS on such payments. Ld. CIT(A), therefore, correctly deleted the addition. This ground of appeal of Revenue fails and is dismissed.

ISSUE No.3:

9. On ground No.4, Revenue challenged the order of the Ld. CIT(A) in deleting the addition of Rs.8,54,52 1/- on account of disallowance of certain expenditure claimed as revenue expenditure by the assessee.

9.1. The A.O. made the above addition holding the expenditure to be capital in nature. The assessee submitted before the Ld. CIT(A) that amounts were paid to three parties, details of which are noted in para 8.1 of the appellate order. The packing expenses were paid to Wood Group Industry, ERP Maintenance expenses are paid to M/s. Trident Information System and M/s. Tulip Information System and Computer repairs and expenses are paid to M/s. Trident Information System.

9.2. The assessee has purchased D.G. set for cost of Rs.56 lakhs. These generator sets were imported from the Company situated in France. These generator sets being of special nature and of high value items required specialized packing. The cost of these specialized packing was not part and parcel of generator set. The A.O. disallowed packaging charges holding the same to be capital expenditure, though, no capital have been generated. The assessee made further payments because the assessee has installed ERP system on which, complete business process is done. It integrates all data and processes of an organisation into one single and centralized system. It was installed in F.Y. 2004-2005 when it was initially purchased. Thereafter, as and when number of user increases, the fresh licenses/access are brought. This system also requires regular maintenance. In this era of modernization, where there are regular innovations in technology, regular keep-up and upgradation of technology is essential. The A.O. disallowed license-fees paid for upgradation of the system. It was submitted that these are revenue expenditure. Further, payments were made for internet connectivity for linking Pune Office with Head Office. The A.O. failed to understand that installation of 32 KBPS connectivity has not resulted in the existence/acquisition of any asset or equipment. These are not capital expenditure. The Ld. CIT(A), considering the material on record held that expenditure of packaging and transportation cannot be considered as cost of acquisition of capital asset and are allowable as revenue expenditure. Further, expenses were incurred for acquisition of software or installation charges for leased line connectivity etc., for the purpose of upgrading the existing ERP Solution and, in view of high attrition and obsolescence of the technology, the same are allowable as revenue expenditure. The Ld. CIT(A), accordingly, deleted the addition.

9.3. The Ld. D.R. relied upon the order of the A.O. and submitted that ERP is capital expenditure. So, the expenses were capital in nature.

10. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that there is only improvement in the year. Software expenses are allowable expenditure. In case the expenses incurred on DG set are disallowed, depreciation may be granted to assessee. He has submitted that software expenses are revenue expenditure and relied upon decision of Hon’ble Delhi High Court in the case of CIT vs. Asahi India Safety Glass Ltd., (2012) 346 ITR 329 and CIT vs. Amway Enterprises (2012) 346 ITR 341.

11. After considering the rival submissions, we are of the view that no interference is called for in the matter. Learned Counsel for the Assessee relied upon the decision of the Hon’ble Delhi High Court above in which it was held that expenses incurred by assessee on account of software and professional expenses are revenue expenditure in nature. The assessee further explained that assessee purchased D.G. set costing Rs.56 lakhs which was imported from France. Since, generator sets were special in nature and of high value items, required specialized packing, the cost of the packing was thus not part and parcel of the generator set. The explanation of assessee have not been disputed by the authorities below. Since the cost of the packing was not included in the cost of D.G. set and it was spent for bringing the generator set to the premises of the assessee, it was incurred wholly and exclusively for the purpose of business. Therefore, it was rightly held to be revenue in nature. Further, out of packing no assets have been created in favour of the assessee. The other amount was incurred by assessee for upgradation of software or installation charges or better internet connectivity for business purposes. Therefore, same are revenue in nature. The Ld. CIT(A) on proper appreciation of facts and material on record, correctly deleted the addition. This ground of appeal of Revenue is fails and accordingly dismissed.

ISSUE No.4:

12. On ground No.5, the Revenue challenged the order of the Ld. CIT(A) in deleting the addition of Rs.7,63,248/- on account of disallowance of prior period expenses. The assessee submitted before the Ld. CIT(A) that it is maintaining its accounts on the principal on “going concern”. Liabilities/expenses are recorded as and when same gets crystalized i.e., when the bills are finally received. In certain cases, the clearance of bills takes time due to some corrections, disputes, clarifications and additional services etc. The same are cleared only after the pending issue is finally decided and are recorded in the books of account. The assessee has been following the same system which have been accepted by the department. The liabilities of the bills crystalized in assessment year under appeal, the details of same is reproduced at page-24 of the appellate order. The Ld. CIT(A) accepted the explanation of assessee that many times dispute arise between the parties as to their respective rights and are liabilities and the cost relating there to. The expenses are booked on crystallization of liability/when disputes are settled. In earlier year, same method have been accepted by the department. The Ld. CIT(A) accordingly deleted the addition.

13. The Ld. D.R. relied upon the order of the A.O. and submitted that the expenses pertain to F.Y. 2005-2006 which have been rightly disallowed by the A.O.

14. Learned Counsel for the Assessee, however, reiterated the submissions made before the authorities below. He has submitted that liability has actually crystalized during assessment year under appeal. Rate of tax is same. Therefore, it is a mere tax neutral exercise and relied upon decision of the Hon’ble Delhi High Court in the case of CIT vs. Dinesh Kumar Goel (2011) 331 ITR 10.

15. After considering the rival submissions, we do not find any merit in the departmental appeal. The assessee has given details of entire expenses which is reproduced in the appellate order which shows that the bills have been received in assessment year under appeal and settled. The liabilities to pay these expenses have, therefore, crystalized during assessment year under appeal. Same practice has been followed in earlier year, on which, expenses have been allowed by the Department. Therefore, rule of consistency also applies against the Revenue. Further, whether expenses are allowed in this year or in earlier year, it is not reported as to if revenue has been deprived of any tax. Therefore, it is a mere tax neutral exercise and such expenditure are allowable in assessment year under appeal. We, rely upon the decision of Hon’ble Bombay High Court in the case of CIT vs. Nagri Mills Co. Ltd., (1958) 33 ITR 681. Ground No.5 of appeal of Revenue is accordingly dismissed.

ISSUE No.5:

16. On ground No.6, Revenue challenged the addition of Rs. 14,64,445/- made on account of disallowance of general repair and maintenance expenses. The assessee explained before Ld. CIT(A) that it has incurred expenses for various types of electrical, mechanical and engineering type of activities which were got done from labour on regular basis. Local/casual labour is hired on regular basis for execution of various types of electrical, mechanical and engineering works. They are being paid small amounts for carrying out these activities. The details of the same are maintained and assessee had produced the payment sheet. The Ld. CIT(A) accepted the contention of assessee on the basis of documents produced before him which are wage rolls for the wages paid by the assessee in assessment year. The services were hired on rate contract basis and payments are relating thereto. The quantum of expenditure pointed out by the Revenue is also not in any consequence keeping in view the fact that assessee runs several steel and coil manufacturing units and such expenses on repairs and maintenance of the factory premises are naturally running into lakhs of rupees. Ld. CIT(A) accepted the explanation of assessee and deleted the addition.

17. The Ld. D.R. relied upon the order of the A.O. and submitted that no supporting documents have been filed.

18. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below.

19. After considering the rival submissions we do not find any merit in this ground of Revenue. the Ld. CIT(A) correctly appreciated the fact that for repair and maintenance, assessee has to engage labour for which details are maintained. Learned Counsel for the Assessee pointed out to various documents in the paper book to show that same are properly vouched. Since the expenditure were incurred wholly and exclusively for the purpose of business, therefore, the same were correctly allowed as deduction. Ground No.6 of appeal of Revenue is dismissed.

ISSUE NO.6:

20. The Revenue on ground No.7 challenged the deletion of addition of Rs. 1 lakh on account of disallowance of bad debts. The assessee submitted before the Ld. CIT(A) that A.O. had disallowed a sum of Rs. 1 lakhs on account of bad debts written off which were receivable from Mr. Satyanarayana Gupta. It was submitted that the amount was written off in the books of account as same were outstanding for more than 4-5 years and hence, were irrecoverable. Copies of the accounts for this year and earlier years were filed in support of the contention. Ld. CIT(A), however, noted that the amount does not qualify as bad debt because it was advance paid for acquisition of capital However, the amount is only loss to the assessee and would be an allowable expenditure under section 37 of the I.T. Act. This ground was allowed and addition was deleted.

21. The Ld. D.R. relied upon the order of the A.O. and Learned Counsel for the Assessee reiterated the submissions made before the authorities below.

22. After considering the rival submissions, we don’t find any merit in this ground of appeal of Revenue. It is claimed that assessee has given advance of Rs. 1 lakhs to Shri Satyanarayana Gupta in the course of business. He did not carry out his obligation and assessee could not recover the amount in question. Therefore, it were written off in assessment year under appeal. This amount was paid earlier during the course of business, therefore, it is allowable as business loss. Learned Counsel for the Assessee relied upon the decision of Hon’ble Supreme Court in the cases of Badridas Daga vs. CIT (1958) 34 ITR 10 (SC) and CIT vs. Nainital Bank Ltd., (1965) 55 ITR 707 (SC) in which it was held that as a result of misappropriation or loss of cash by dacoity is an admissible deduction. Considering the facts of the case in the light of decisions cited above, it is clear that the loss is incidental to the business of the assessee which were written off in the books of account as irrecoverable. Therefore, it was correctly allowed as business loss by the Ld. CIT(A). Ground No.7 of the appeal of Revenue is dismissed.

ISSUE NO.7:

23. On ground No.8, Revenue challenged the deletion of addition of Rs.2 1,50,000/- on account of unexplained, unsecured loans/trade deposits received by assessee and disallowance of interest relating thereto amounting to Rs.7,78,344/-. The A.O. made addition of the above amount on account of unsecured loans creditors/trade deposits treating the same as unexplained and disallowed interest of Rs.7,78,343/-. The assessee submitted before the Ld. CIT(A) that addition has been made in respect of following loans/trade deposits.

Sl.No. Party Amount
1. Grawal Steel & Holding (P) Ltd., Rs. 7,00,000
2. Lee Roy Securities Pvt. Ltd., Rs. 4,00,000
3. M/s. Nirmal Pipes Rs. 2,00,000
4. M/s. Mangla Enterprises Rs. 2,00,000
5. M/s. Madan Lal Goyal & Sons Rs. 4,50,000
6. M/s. Biyani Traders Pvt. Ltd., Rs. 2,00,000
Total Rs.2 1,50,000

23.1. The A.O. made the addition because income of these parties were very less and assessee has failed to establish the genuineness of the transaction. The assessee explained each and every fact with regard all these parties and submitted that in case of creditors, the assessee filed confirmations, bank statements, income tax return and balance sheet. The balance sheet of these creditors show they are having sufficient funds to make investment in assessee company. If A.O. was not satisfied with the explanation of assessee, he could have verified the facts directly from the parties or ask the assessee to produce them before A.O. for examination. However, nothing have been done. All the loans have been taken through banking channel. The creditors have regular credit entries in the form of cash and cheque. The amounts given to the assessee have not been funded by cash transaction only. In respect of three creditors M/s. Biyani Traders Pvt. Ltd., M/s. Nirmal Pipes and M/s. Mangla Enterprises, it was also explained that they are trade creditors and assessee made substantial sales to them and these are the amounts received as security for allowing credit against sale to these parties. The details of the same are also noted in the appellate order. It was, therefore, explained that assessee proved identity of the creditors, their creditworthiness and genuineness of the transaction in the matter.

24. The Ld. CIT(A) noted that similar ground have been decided by him in favour of the assessee for A.Ys. 2003-2004 to 2006-2007. Following his order for these years, he has deleted the addition.

25. The Ld. D.R. relied upon the order of the A.O.

26. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and filed copies of the appellate orders of Ld. CIT(A) for A.Ys. 2003-2004 to 2006-2007 and submitted that to his knowledge these are not challenged by the department.

27. After considering the rival submissions we do not find any merit in this ground of appeal of the Revenue. Assessee explained before Ld. CIT(A) that in case of the creditors, it has filed confirmations, bank statements, copy of the income tax return and balance sheet. The A.O. did not make further enquiry on these documentary evidences and in case he was having any doubt on the same, he could have made an enquiry from the creditors. However, no steps have been taken by him in this regard. In the case of three creditors, the assessee explained that these are trade creditors from whom assessee has received security for allowing credit against sales. The details of same are also filed on record. These would clearly support the explanation of assessee that assessee proved identity of the creditors, their creditworthiness and genuineness of the transaction in the matter. In preceding A.Ys. 2003-2004 to 2006-2007, the Ld. CIT(A) on identical issue deleted the addition. We find that out of these six creditors, two are common in the preceding assessment years, in which, Ld. CIT(A), deleted the addition. It is not reported if the order of the Ld. CIT(A) for earlier year have been reversed. The A.O. merely did not accept the explanation of assessee because of the income of the parties are very less. However, the A.O. has forgot to note that some of the parties are trade creditors from whom security have been taken for making sales to them and in other cases, the assessee has specifically pleaded that they have sufficient amount in their books of account and bank to make investment in assessee-company. Therefore, the Ld. CIT(A), on proper appreciation of facts and material on record, correctly deleted the addition because assessee has proved the identity of the creditors, their creditworthiness and genuineness of the transaction in the matter. Therefore, ground No.8 of appeal of the Revenue is dismissed.

ISSUE NO.8:

28. On ground No.9, Revenue challenged the deletion of addition of Rs. 17,99,822/- made by the A.O. on account of disallowance of expenses incurred through credit cards.

29. The A.O. disallowed expenses incurred through credit cards. The A.O. noticed that the Directors of the Company have incurred these expenses on their credit cards. The assessee explained that the credit card facility have been provided by the company to the Directors to facilitate payment of expenses to be made and incurred for and on behalf of Details of the same were filed. The A.O. however, did not accept the explanation of assessee and treated the same for non-business purposes and disallowed the same. The Ld. CIT(A) noted that he has deleted similar addition in A.Y. 2003-2004 to 2006-2007. Addition was accordingly deleted.

30. The Ld. D.R. relied upon the order of the A.O.

31. In the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that expenses were incurred for and on behalf of the assessee-company and order of the Ld. CIT(A) for earlier years have not been reversed.

32. After considering the rival submissions, we do not find any merit in this ground of appeal of the Revenue. The assessee explained that credit card facilities were provided to the Directors only facilitating payment of expenses to be made on behalf of the company. The details of same were filed, which have not been disputed by the authorities below. The expenses are, therefore, incurred wholly and exclusively for the business of the assessee-company. Copy of the ledger account is also filed in the paper book to support the findings of the Ld. CIT(A). In earlier year, the Ld. CIT(A), deleted the similar addition on which nothing is brought to our notice if the findings of the Ld. CIT(A) in earlier year have been reversed. This ground of appeal of Revenue is accordingly dismissed.

ISSUE NO. 10:

33. The assessee on ground No.7 of the cross-objection challenged the disallowance of Rs.2,29,669/- on account of interest on bank held same to be capital in nature.

34. The assessee explained before Ld. CIT(A) that assessee is in business of manufacturing of heavy goods like pipe, C.R. strips and coils. In A.Y. under appeal assessee has undertaken major extension/capital work in progress and incurred a sum of Rs.2,29,669/- towards interest and financial charges. Considering the quantum of business, large number of fund is required to manage his business activities. The requirement of fund is fulfilled through cash credits and term loans. As the assessee has undertaken major expansion during the year under consideration, large number of funds were required and to fulfill the need of funds, monies received by way of term loan and cash credits were utilised. The interest is charged by the Banks from the date when the money is disbursed. The assessee has got loan sanctioned from Bank of Rajasthan Limited for purchase of D.G. sets. The loan was sanctioned for a sum of Rs. 1.70 crores. But, just a sum of Rs. 56 lakhs was utilised from the same for purchase of D.G. sets. The same were used as and when the requirement arose. The interest paid on these loans was part of regular business activity of the assessee and was thus charged to P & L A/c. In the case of assessee, for such transaction, since the funds are regularly sanctioned and disbursed, it is a practice to charge the interest paid to P & L A/c. The documents were filed in support of the contention. It was further submitted that A.O. has considered the interest as capital nature but failed to provide depreciation. The Ld. CIT(A) noted that assessee does not distinguish between source for the funds for different purposes and the entire liability on borrowed funds is charged to revenue account. The case of the Revenue is that this interest was incurred towards funds borrowed for specified capital asset which were clearly identifiable and hence, interest should be capitalized and should not be charged to revenue account. The Ld. CIT(A) accordingly dismissed this ground of appeal of assessee. However, the A.O. has directed to allow depreciation on the same.

35. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that Ld. CIT(A) has confirmed the disallowance being interest paid on bank loan on the ground that same has been utilised for the purpose of generator set. Disallowance is unjustified as the interest expenditure has been incurred for the money borrowed for the purpose of business. There is no dispute to the fact that same have been disallowed on the ground that expenditure is capital nature by applying proviso to Section 36(i)(iii) of the I.T. Act. However, this proviso is applicable only when interest paid in respect of capital borrowed for acquisition of asset for extension of existing business. The generator was for running the existing business more efficiently. Thus, this proviso comes into play only when there is an extension of existing business and not when capital asset is acquired during the course of existing business whereby no extension has taken place. In the case of assessee, generator set is meant for existing business and it was not an extension. Hence, disallowance is  unjustified. He has also submitted that the proviso to Section 36(i)(iii) have been amended w.e.f. 01 .04.2016 which would be applicable to A.Y. 2016-2017 and subsequent year and referred to Circular No.19/2015 dated 27th November, 2015.

36. On the other hand, Ld. D.R. relied upon the orders of the authorities below.

37. After considering the rival submissions, we do not find any justification to sustain the addition. Section 36(i) (iii) as applicable to assessment year under appeal provides the deduction of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. The proviso provides that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not) for any period beginning from the date on which the capital was borrowed for acquisition of asset till the date on which such asset was first put to use, shall not be allowed as deduction. It is not in dispute that assessee obtained loan from the Bank for purchase of D.G. set for a sum of Rs. 1.70 crores but only Rs.56 lakhs have been used. The assessee paid interest thereon. The proviso to Section 36(1)(iii) is applicable only to interest paid in respect of capital borrowed for acquisition of asset for extension of existing business. The generator by nature itself is always ready for functioning. Therefore, Learned Counsel for the Assessee, rightly contended that generator was for running the existing business more efficiently. Thus, generator cannot be for the extension of the business. Therefore, disallowance was wholly unjustified. The assessee, thus, paid interest on Bank loan for capital borrowed for business purpose. Therefore, the same was an allowable deduction. We, therefore, set aside the orders of the authorities below and direct the A.O. to allow deduction of the interest under section 36(1)(iii) of the I.T. Act to the assessee. Ground No.7 of the cross-objection of the assessee is allowed. No other issue is argued.

38. In the result, ITA. No. 4638/Del./2013 of the Department is dismissed and C.O.No.03/Del./2014 of the assessee is partly allowed.

ITA.No.4639/Del./2013 – Revenue Appeal

&
C.O.No.31/Del./2014 – Assessee
A.Y. 2008-2009

39. The Departmental appeal as well as Cross Objection by assessee are directed against the order of the Ld. CIT(A)- 1, New Delhi, dated 27thMay, 2013, for the A.Y. 2008-2009.

40. The Learned Counsel for the Assessee did not press ground Nos. 1 to 6, 9 and 10 of the cross objection. The same are dismissed as not pressed.

41. Ground No.1 of Departmental appeal is general and need no adjudication. The Revenue on Ground No.2 challenged the deletion of addition of Rs. 15,26,417/- on account of disallowance of Inland Haulage for export consignment, on which, no TDS was deducted. On the same issue, assessee raised Ground No.7 in the Cross Objection, challenging the sustaining of part addition of Rs. 1,69,602/- on account of Inland Haulage of export consignment.

42. On Ground No.3, Revenue challenged the deletion of addition of Rs.49,0 1,524/- on account of disallowance of freight payment to Consignment Agents without deducting TDS. On Ground No.4, Revenue challenged the deletion of addition of Rs.5,63,796/- on account of disallowance of certain expenses claimed as revenue expenditure by assessee. However, A.O. treated the same as capital expenditure. On ground No.5, Revenue challenged the deletion of addition of Rs.40,30 1/- on account of disallowance of prior period expenditure. On Ground No.8, Revenue challenged the deletion of addition of Rs. 12 lakhs on account of unexplained unsecured loan/trade deposits. On Ground No.10, Revenue challenged the deletion of addition of Rs.2 1,05,518/- on account of disallowance of expenses incurred through credit cards.

43. Learned Representative of both the parties submitted that all these grounds in Departmental Appeal and Cross Objection by assessee are same as have been considered in A.Y. 2007-2008. We find contention of Learned Representatives of both the parties to be correct that these issues are same as have been considered in A.Y. 2007-2008. Following the reasons for decision for A.Y. 2007-2008 (supra) on these grounds, the Departmental Appeal is dismissed on Ground Nos. 2, 3, 4, 5, 8, and 10. Ground No.7 of the Cross Objection of the assessee is however allowed.

44. On Ground No.8 of the Cross Objection, assessee challenged the confirming of the disallowance of amount of 12,67,000/- on account of interest on Bank holding, the same to be capital in nature.

45. Learned Representatives of both the parties submitted that this ground is same as have been considered on Ground No.7 of the Cross Objection for A.Y. 2007-2008. Following the reasons for decision for A.Y. 2007-2008 on this ground, A.O. is directed to follow the order for A.Y. 2007-2008 and delete the addition accordingly. Ground No.8 of the cross objection of the assessee is allowed.

46. The other grounds of Departmental Appeals are decided as under.

ISSUE No.1:

47. On Ground No.6, the Revenue challenged the order of the Ld. CIT(A) in deleting the addition of Rs.8,25,000/- made by the A.O. on account of disallowance of expenditure booked on account of writing-off of security deposit paid to Haryana State Electricity Board (“HSEB”). It was submitted before Ld. CIT(A) that amount in question paid to HSEB towards enhancement of load as service connection charges. The same were duly taken to the asset side of the balance sheet by showing under the Head “Security Deposit” to HSEB. During the year under consideration it came to the knowledge of the assessee that the said amount was pending since long and thus, a request was made to HSEB for reversal of the same. It was informed by HSEB that the said amount was non-refundable and thus the same were taken to the P & L A/c and marked as expenditure. Copies of the relevant documents were filed on record. It was submitted that A.O. failed to appreciate that same is business expenditure. During the assessment year under appeal, specific exercise was carried out by the assessee wherein it contacted HSEB and asked for refund of the same. Since the Board has intimated assessee that it is non-refundable, therefore, it was charged to P & L A/c. Since the amount is not recovered from the Electricity Board, therefore, it was claimed as deduction. The Ld. CIT(A) noted that while adjusting a portion of the deposit to bill raised by HSEB was net of the amount deducted/adjusted. Thus, electricity charges paid by the assessee to HSEB over a period of time was net of the adjusted amount. Apparently, assessee was unware of this adjustments and requested for refund, whereupon, it was informed to the assessee that amount was non-refundable and had already been adjusted in the electricity bills of the assessee. The assessee, on receipt of this information, made entries in the books of account and charged to P & L A/c. The Ld. CIT(A), therefore, noted that in view of this factual position, there were no reason for the item to continue as an asset on the balance-sheet as the amount had already been adjusted and no more outstanding as payable to the assessee. Further, the amount is allowable as revenue expenditure as it was adjusted against electricity bills paid by the assessee which was incurred wholly and exclusively for the purpose of business. The addition was accordingly deleted.

48. The Ld. D.R. submitted that no supporting evidence were filed. It was paid for enhancement of the electricity load. No details were filed when amount was adjusted.

49. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that payment in question is not in dispute and the entries made in the books of account have not been Therefore, Ld. CIT(A) correctly deleted the addition.

50. After considering the rival submissions, we do not find any merit in this ground of appeal of Revenue. Electricity expenses are charged to P & L A/c because the same are incurred wholly and exclusively for the purpose of business because electricity was consumed for manufacturing and other activities. In the case of assessee, the amount in question was deposited for enhancement of the load. However, it was adjusted against the electricity payment. It came to the knowledge of the assessee in this year that amount is still pending with the Electricity Board but Electricity Board informed the assessee that this amount has already been adjusted against the electricity bill. Therefore, when the amount is adjusted against the electricity bill, it was clearly revenue in nature. Since the Electricity Board intimated to assessee of the adjustment in this assessment year under appeal, therefore, the expenditure is crystalized in assessment year under appeal. Therefore, it was correctly treated as revenue expenditure by making relevant book entries in the books of account. The Ld. CIT(A), therefore, correctly deleted the addition. Ground No.6 of appeal of Revenue is dismissed.

ISSUE No.2:

51. On ground No.7, the Revenue challenged the deletion of addition of Rs. 12,48,750/- on account of disallowance of excess depreciation. The A.O. disallowed Rs. 12,70,000/- being excess depreciation claimed. The assessee submitted before Ld. CIT(A) that there is a mistake in calculation because A.O. has added up Rs.12,70,000/- as against Rs.4,39,803/-. As regards the balance amount of Rs.4,39,803/-, the Ld. CIT(A) confirmed the addition to the extent of Rs.2 1,250/-. For the remaining amount, assessee explained that it had installed the S.S. Plant during the F.Y. 2007-2008 and capitalized the same on 29th February, 2008. The said plant was put to use immediately and S.S. coils totaling to 8.60 MT valuing Rs. 10.77 lakhs were purchased vide Bill No.647 dated 15th March, 2008 and were issued for various processes. This can be verified from the Excise records. Assessee, therefore, submitted that since asset has been owned by assessee and put to use for business purpose, therefore, assessee is entitled for depreciation.

52. CIT(A) accepted the explanation of assessee and noted that there was a mistake in calculation and as regards the disallowance of Rs.4, 18,557/- being depreciation claimed on SS Pipe Plant, it was noted that the assessee installed the same in assessment year under appeal and put to use for production by installing the machinery on 29.02.2008. Therefore, addition was deleted.

53. After considering the rival submissions, we do not find any merit in this ground of appeal of the Revenue. The assessee pointed out to the Ld. CIT(A) that there is a mistake in calculation of disallowance which was accepted by the Ld. CIT(A) after verifying the facts. No material is produced before us to show any infirmity in the finding of the Ld. CIT(A) to that

54. As regards the depreciation claimed on SS Pipe Plant, assessee pleaded that it was installed on 29.02.2008 and was put to use and same facts could be verified from Excise record. No material is produced before us to rebut the finding of fact recorded by Ld. CIT(A). Therefore, this Ground No.7 has no merit and the same is accordingly dismissed.

ISSUE No. 3:

55. On ground No.9, Revenue challenged the deletion of addition of Rs.3,88,785/- on account of disallowance of foreign travel expenses.

56. The Ld. CIT(A) found this issue is same as have been decided by him in A.Ys. 2003-2004 to 2006-2007. Nothing is brought to our notice if the finding recorded by Ld. CIT(A) in earlier year have been reversed by the appellate authorities. Ground No.9 of appeal of Revenue has no merit and the same is accordingly dismissed. No other point is argued or pressed.

57. In the result, ITA.No.4639/Del./2013 of the Department is dismissed and C.O.No.31/Del./2014 of the Assessee is partly allowed.

ITA.No.4640/Del./2013 – Revenue Appeal
&
C.O.No.32/Del./2014 – Assessee

A.Y. 2009-2010

58. The Departmental appeal as well as cross objection by assessee are directed against the order of the Ld. CIT(A), New Delhi, dated 27thMay, 2013, for the A.Y. 2009-20 10.

59. Learned Counsel for the Assessee did not press Ground No.1, 2 and 5 of the cross objection. The same are dismissed as not pressed. Ground No.1 of the Departmental Appeal is general and need no adjudication.

60. On Ground No.2, Revenue challenged the deletion of addition of Rs. 1,46,700/- on account of disallowance of Inland Haulage expenses for export consignment. The assessee on Ground No.3 of cross objection, challenged the addition of Rs. 16,300/- on the same issue. On Ground No.3, Revenue challenged the order of Ld. CIT(A) in deleting the addition of Rs.45,60,744/- on account of disallowance of freight payment to Consignment Agent. On ground No.4, Revenue challenged deletion of addition of Rs. 5,49,002 / – on account of disallowance of expenses claimed as revenue expenditure. On Ground No.6, Revenue challenged the deletion of addition of Rs.62,50,000/- on account of unexplained unsecured loans/trade deposits and disallowance of interest on the same amounting to Rs. 19,13,073/-. On Ground No.7, Revenue challenged the deletion of addition of rs. 1,20,861/- on account of foreign travel expenses. On ground No.8, Revenue challenged the deletion of addition of Rs.7,77,260/- on account of disallowance of expenses incurred through credit cards.

61. Learned Representatives of both the parties submitted that Ground Nos.2, 3, 4, 6 and 8 of the Departmental Appeal and Ground No.3 of the cross objection are same as have been considered in A.Ys. 2007-2008 and 2008-2009. They have also submitted that Ground No.7 of the Departmental appeal is same as have been considered in A.Y. 2008-2009. Learned Representatives of both the parties, therefore, submitted that order for these years may be followed in this year. Following the orders for A.Ys. 2007-2008 and 2008-2009 (supra), these grounds of Departmental Appeal (2, 3, 4, 6, 7 and 8) are dismissed and Ground No.3 of the cross objection of assessee is allowed. The remaining issues are decided as under.

ISSUE No. 1:

62. On ground No.5, Revenue challenged the deletion of addition of Rs. 1,17,32,766/- made by A.O. on account of sales tax incentive receivable during assessment year under appeal. The A.O. made the above addition on account of sales tax incentive. The assessee submitted before Ld. CIT(A) that Kosi Unit of assessee-company enjoys a concessional rate of Sales Tax. The assessee was entitled to claim and deposit Sales Tax on special rates i.e., around 50% of the normal taxes. During the year i.e., on 0 1.01.2008, provisions of Value Added Tax (“VAT”) were applicable on the assessee company. As per the new scheme, assessee were directed to collect and deposit full amount of tax and was eligible to claim the excess amount paid as refund. In this respect, letter dated 10.11.2008 was received from Sales Tax authorities through which, it was made eligible to claim refund. The assessee filed a claim in this respect on 21.09.2009 before the Sales Tax authorities. Since the date of balance sheet i.e., on 31st March, 2009 no asset/liability crystalised in the books of account of assessee, the same was not considered in assessment year under appeal. The amount have been offered as income in next F.Y. i.e., 2009-2010 (A.Y. 2010-2011). Thus the said income has been offered for taxation when the receipt of the same crystalised. The A.O, however, added amount to the income of assessee stating that same accrued to the assessee because of the Certificate of Entitlement dated 10.11.2008. It was submitted that it is not a case that assessee has not booked the said amount to its income. The same was offered for taxation next year. The A.O. failed to appreciate that merely the amount become due to the assessee, does not accrue to its income. There are various calculations like rebate/interest etc., which may change the quantum of the amount finally received. Thus the assessee has recorded the same in the income when the actual amount was received. The A.O. assessed the same income in A.Y. 2010-2011 in the order under section 143(3) of the I.T. Act. Therefore, same amount should not be added in two assessment years. The Ld. CIT(A) accepted the explanation of assessee because entitlement alone does not result in any gain. The assessee made a claim of refund on 21.09.2009 and was received thereafter. Therefore, it was correctly offered for taxation in subsequent A.Y. 2010-2011. The Ld. CIT(A), accordingly, deleted the addition.

63. The Ld. D.R. relied upon the order of the A.O. and submitted that assessee received letter on 10.11.2008 from Sales Tax authorities. Therefore, it should be added in the same year.

64. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below.

65. After considering the rival submissions, we do not find any merit in this ground of appeal of Revenue. The assessee explained that due to applicability of VAT Act, the assessee was directed to collect and deposit full amount of tax and then was eligible to claim the excess amount paid as refund. The assessee received letter from Sales Tax authorities on 10.11.2008 intimating the assessee that he was entitled for refund. The assessee, thereafter, made a claim of refund on 21.09.2009 and according to the explanation of assessee, the amount of refund depends upon various calculations like rebate/interest etc., which may change the quantum of refund. Therefore, assessee would be knowing of the exact amount of refund due to assessee only on actual calculation made in this behalf. Therefore, the refund would depend upon the claim made by the assessee which was made in subsequent A.Y. 2010-2011. The receipt of the amount in question is finally crystalized in A.Y. 2010-2011 which have been correctly offered for tax in A.Y. 2010-2011 which have been assessed by the A.O. also in the order under section 143(3) of the I.T. Act. Therefore, no double addition should be made against the assessee. Ground No.5 of appeal of Revenue has no merit and the same is accordingly dismissed.

ISSUE No.2:

66. On ground No.9, the Revenue challenged the order of CIT(A) in deleting addition of Rs. 1,20,71,504/- on account of disallowance/discount allowed to foreign buyer.

67. The A.O. disallowed the above amount on account of discount allowed to the foreign buyer M/s. Titan Steel FZA. The assessee submitted before Ld. CIT(A) that quantity of 1120.88 MT of GI pipes was supplied to M/s. Titan Steel FZA vide No.9 numbers of consignment through various B/Ls (Bill of Loading) which were presented through Bank of Rajasthan to the parties Banker Societies at New York. The said document were honored on presentation and were returned for number of discrepancies, some of which were not even justified. All these returning advise were produced for perusal. Since the material was not got released, it was attracting heavy demurrages. The company also did not have any other option but to remove all discrepancies and agree to forbear demurrages, if any, remains after waiver. Accordingly, it advised to the buyer through the Banker on 01.01.2009 to accept the revised due date as 31.01.2009 and to deduct US $ 50,000 on account of demurrages. However, the party still did not respond favourably and requested for discount and extension in due date. Finally, the party agreed to honor the documents by asking for discount of US $ 150 per MT and US $ 75,000 towards demurrage charges which was agreed by the assessee. It is only after the acceptance of the above offer, the party has made the payment. The assessee filed the confirmation of documents in support of the contention. The A.O. made the above addition because no formal agreement was produced. The A.O. however, ignored all the relevant material on record. Therefore, the addition is not justified. The discount was given under above compulsion because party was out of India. It was claimed as business loss.

68. The Ld. CIT(A) accepted the contention of assessee and held that it was a genuine transaction. No disallowance can be made because of non-production of former MOU. There is no material to prove or indicate that transaction was collusive in The transaction has been put through Bankers of two sides, therefore, it was held as genuine transaction and addition was deleted.

69. The Ld. D.R. relied upon the order of the A.O. and submitted that no formal agreement was produced to offer

70. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that all the relevant documents were filed in support of the explanation, therefore, addition was correctly deleted by the Ld. CIT(A).

71. After considering the rival submissions, we do not find any merit in this ground of appeal of Revenue. The assessee explained the reasons and the circumstances under which the assessee has to pay for demurrages charges and to give discount to the party. M/s. Titan Steel FEZ raised number of discrepancies before accepting the goods on sale and since party was situated outside India and because of non-delivery of goods under sale, heavy demurrages were being charged from the assessee, therefore, under these compelling reasons, assessee agreed to give discount and to pay demurrages charges to the purchaser. Only after making the above concession, the party accepted the goods and made the payment. Both the parties conducted the transaction through their respective Bankers and the genuineness of the transaction have not been doubted. The assessee produced confirmation from the party as well as other material on record to support the transaction that because of the discount offered, the assessee was able to sell the goods and to receive the payment. Therefore, there were nothing unusual in the transaction. No evidence of any collusive transaction have been brought on record. Merely because no formal agreement or MOU to offer discount has been filed, would not disentitle the assessee to claim the discount. Considering the above discussion, we do not find any merit in this Ground No.9 of appeal of Revenue and the same is accordingly dismissed.

ISSUE No.3:

72. The assessee on Ground No.4 of the cross objection has challenged the orders of the authorities below in disallowing Rs.33,784/- out of labour and staff welfare expenses holding it to be capital in nature. The A.O. noted that assessee has made payment to Hindustan Refrigeration for purchase of water cooler for a sum of Rs.33,784/- which were debited to labour and staff welfare expenses, which was considered as capital in nature and accordingly disallowed. The assessee submitted before Ld. CIT(A) that water cooler was purchased for factory workers and placed in the work area since the same has been installed for welfare of labour, therefore, it was claimed as revenue expenditure. The Ld. CIT(A) noted that water cooler will be treated as office equipment and expenditure claimed shall be excluded from business expenditure but depreciation was allowed on the same.

73. After considering the rival submissions, we do not find any merit in this ground of cross objection of the assessee. The purchase of water cooler is office equipment and was correctly treated as capital in nature. The assessee has not explained as to how the purchase of water cooler would be considered as business expenditure. The assessee failed to explain that it was a business expenditure incurred wholly and exclusively for the purpose of business. Therefore, Ground No.4 of the cross objection of the assessee is dismissed.

74. In the result, ITA. No. 4640/Del./2013 of the Department is dismissed and C.O.No.32/Del./2014 of the Assessee is partly allowed.

75. In the result, all the Departmental Appeals are dismissed and all the Cross Objections of the assessee are partly allowed.

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