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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DLEHI
Before: SHRI O.P. KANT & SHRI K. NARASIMHA CHARY
PER K. NARASIMHA CHARY, J.M. Aggrieved by the order dated 16.02.2017 passed by the Commissioner of Income Tax (Appeals)-39, New Delhi ("Ld. CIT(A)") for the assessment year 2012-13 in the case of M/s. National Fertilizers Ltd. (“the assessee”), both the assessee and the Revenue preferred these cross appeals.
Brief facts of the case are that the assessee company is engaged in the business of manufacturing of Nitrogenous fertilizers and trading of industrial products. For the assessment year 2012-13, they have filed their return of income on 28.09.2012 declaring income of Rs.2,44,97,30,812/-. Assessment u/s. 143(3) of the Income-tax Act, 1961 (“the Act”) was complete by order dated 27.02.2015 at an income of Rs.2,78,54,24,300/- by making the following additions :
Undisclosed interest income 6,48,20,000 2. Disallowance of Demurrage Charges 3,41,00,000 3. Diminution of slow spares 4,26,00,000 4. Provision for post retirement benefits 8,58,00,000 5. Provision for defined contribution pension scheme 8,94,00,000 6. Disallowance out of Repair and Maintenance Exp 1,26,92,268 7. Disallowance of Depreciation on UPS and other 21,25,780 Computer Peripherals 8. Disallowance of Exp. u/s 14A 15,688 9. Disallowance of Additional deprecation 2,32,750 10. Disallowance of Bank Guarantee Commission 1,79,931 11. Addition on account of Interest Income on deposits 2,42,880 of Rs. 1.32 Crore 12. Disallowance of Other Write Off Exp. 34,53,629 13. Addition of income Short booked 30,561
3. Aggrieved by such additions, the assessee preferred appeal before the ld. CIT(A), challenging the additions under Sl. No. 1 to 11. By impugned order, learned CIT(A) upheld the addition of Rs.8.94 crores on account of Provision for defined contribution pension scheme and deleted all other additions. Aggrieved by the order of the ld. CIT(A) in sustaining the addition in respect of the Provision for defined contribution pension scheme, the assessee preferred on the following grounds :
“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) is bad, both in the eye of law and on facts.
2(i). On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in confirming the addition of an amount of Rs.8,94,00,000/- made by the A.O. on account of defined contribution to pension scheme.
(ii). That the addition has been confirmed rejecting the explanation & evidence brought on record by the assessee to prove that the same is an ascertained liability & not a contingent liability.”
4. Challenging the deletion of additions, the Revenue preferred on the following grounds :
“1. Whether in facts and circumstances of the case, the Ld CIT(A) is legally justified in deleting addition of Rs. 6,48,20,000/- on account of accrued interest made by the Assessing Officer (the AO) without considering fact that the assessee was following mercantile system of accounting and the arbitration award gives a right to the assessee to charge simple interest @5% p. a. on the amount of advance till the date of payment?
2. Whether in facts and circumstances of the case, the Ld CIT(A) is legally justified in deleting disallowance of Rs. 3,41,00,000/- on account of demurrage and wharfage charges by ignoring provision of the Railway Act, 1989 and Explanation 1 to Section 37 (1) of the Income Tax Act 1961 (the Act)?
Whether in facts and circumstances of the case, the Ld CIT(A) is legally justified in deleting disallowance of Rs.4,26,00,000/- on account of write- off value of slow moving stores and spares by ignoring the provision of section 145 of the Act and without appreciating the fact that the assessee is not allowed to adopt any Accounting Standard of its choice as and when it deemed to be beneficial to it ?
4. Whether in facts and circumstances of the case, the Ld CIT(A) is legally justified in deleting disallowance of Rs. 8,58,00,000/- on account of post- retirement benefits without considering provisions of section 37 (1) of the Act and a fact that the provision was many times higher than actual expenditure and not determined accurately and scientifically?
5. Whether in facts and circumstances of the case, the Ld CIT(A) is legally justified in deleting disallowance of Rs.1,26,92,268/- on account of ‘repair & maintenance expense’ without considering the facts recorded by the AO in assessment order and also by ignoring the provisions of section 37 (1) of the Act in this regard?
7. Whether in facts and circumstances of the case, Ld. CIT(A) is legally justified in deleting disallowance of Rs. 15,688/- u/s 14A of the Act without considering legislative intend of introducing section 14A by the Finance Act 2001 as clarified by the CBDT's Circular No. 5/2014 dated 10.02.2014?
8. Whether in facts and circumstances of the case, Ld. CIT(A) is legally justified in deleting disallowance of Rs. 15,688/- u/s 14A of the Act without considering a legal principle that allowability or disallowability of expenditure under the Act is not conditional upon the earning of the income as upheld by Hon’ble Supreme Court in case of CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519?
9. Whether in facts and circumstances of the case, Ld. CIT(A) is legally justified in deleting disallowance of Rs. 15,688/- u/s 14A of the Act without considering ratio decidendi as upheld in cases of CIT Vs. Walfort Share and Stock Brokers P. Ltd [2010] 326 ITR 1 (SC) and Maxopp Investment Vs CIT [2012) 347 ITR 272 (Delhi) on application of provisions of section 14A of the Act?
10. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting the disallowance of Rs. 2,32,750/- on account of additional depreciation claimed u/s 32 (l)(iia) of the Act without considering the fact that the relevant provisions are affected w.e.f. 01.04.2013?
11. Whether on facts and in circumstances of the case, the Ld.CIT(A) is legally justified in deleting disallowance of Rs. 1,79,931/- u/s 40(a)(ia) of the Act on account of non-deduction of TDS on 'Bank Guaranttee Expenses' by ignoring the contents of Notification No. 56/2012 of the CBDT in this regard issued vide F.No. 275/53/2012-IT(B) /SO 3069 (E) dated 31.12.2012 and also by ignoring the fact that the said notification had come into force w.e.f. 1st January, 2013?
12. Whether in facts and circumstances of the case, the Ld CIT(A) is legally justified in deleting addition of Rs. 2,42,880/- on account of accrued interest made by the Assessing Officer (the AO) on deposits without considering facts that the assessee was following mercantile system of accounting?”
5. At the outset, learned AR submitted that most of the additions are covered by the orders for earlier assessment years in assessee’s own case and the ld. CIT(A) is, therefore, justified in deleting the same. He also submitted that even the disallowance of contribution to defined contribution pension scheme is also covered in assessee’s own case for the assessment year 2010-11 by order dated 28.07.2017 passed by a coordinate Bench of this Tribunal. He drew our attention to paragraph No. 7 of the Tribunal order, wherein while following the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. Ranbaxy Laboratories Ltd. 334 ITR 341 (Del), the Coordinate Bench of this Tribunal allowed relief to the assessee. Having gone through the order dated 28.07.2017 in in assessee’s own case for the assessment year 2010-11, we are satisfied that the ground of appeal
of the assessee is squarely covered by the findings of the Co-ordinate Bench of Tribunal and since there is no change of circumstances, we follow the same and allow the grounds of appeal of the assessee. Consequently, filed by the assessee is allowed.
6. Now coming to the Revenue’s appeal, the first ground relates to the addition of Rs.6,48,20,000/- made by the Assessing Officer on account of interest accrued on advances given to M/s. Karsan. Learned counsel drew our attention to the judgment dated 24.04.2017 of Hon’ble jurisdictional High Court in assessee’s own case for the assessment years 2006-07 to 2009-10 in ITA Nos. 551, 782, 784 and 817 of 2016. He also submitted that in ITA No. 5201/Del/2017 by order dated 28.07.2017, a coordinate Bench of this Tribunal dealt with this issue in the light of the judgment of Hon’ble High Court and granted relief to the assessee. On a perusal of this order, we find that coordinate Bench of this Tribunal vide paragraph No. 9 observed as follows :
“9. Now, we take up the appeal of the Revenue. In the grounds no. 1 to 4 are regarding the interest accrued on advance given to M/s. Karsan. 9.1 Learned Sr. DR relied on the order the Assessing Officer. 9.2 Learned counsel for the assessee submitted that the issue is squarely covered by the judgment of Hon’ble Jurisdictional High Court in assessee’s own case for assessment years 2006-07 to 2009-10 (supra). 9.3 We have heard the rival submission and perused the relevant material on record. We find that the issue in dispute is squarely covered by the decision of Hon’ble Jurisdictional High Court in the assessee’s own case (supra) wherein the Hon’ble High Court observed as under: “10. The third ground urged by the Revenue is regarding the failure by ITAT to disclose as part of its income, the interest accrued on the advance made by it to M/s. Karsan. Learned counsel for the Revenue pointed out that by a judgment dated 4th December 2006 of this Court, the arbitral award in favour of the Assessee under the Arbitration Act, 1940 was made rule of the Court. He submitted that although up to that date it could be said that the interest on the advance had not crystallized (as was held by this Court in its order dated 24th September, 2012 in ITA 541/2012 in the Assessee's own case for the AY 2005-2006), for the subsequent AYs the right to receive interest had accrued to the Assessee and should have been added to its income.
Learned counsel for the Assessee, on the other hand, states that the concept of 'real income’ has been accepted by the Supreme Court in Godhra Electricity Co. Ltd. v. CIT, (1997) 225 ITR 746 (SC) and this was followed by this Court in its decision dated 19lh May, 2015 in (Liquidator Polymerland India Pvt. Ltd. v. DCLT). It is pointed out that where no part of the advance has been able to be recovered by the Assessee, notwithstanding the Award in its favour, no 'real income' can be said to have accrued to it. 12.The ITAT has in the impugned order held as under: "There is no dispute that the ICA has awarded interest to the assessee @5% p.a. on the advance made to M/s. Karsan. It is also not disputed that the assessee could not make recovery against the advance (principal amount) of rs.130.69 crores, an amount of Rs.1.05 crores only could be recovered leaving balance advance of Rs.129.64 crores which could not be recovered till date. The notational interest awarded by the International Court of Arbitration, which has now attained finality is a hypothetical income which cannot be subjected to tax. Merely because the saie amount has been awarded by way of an order, does not mean that the assessee has received such income. The assessee followed mercantile system of accounting where there cannot be a situation of hypothetical income being taxed.” 13. Indeed, it is seen that no part of the advance given by the Assessee to M/s. Karsan has been able to be recovered by it. As pointed out by learned counsel for the Assessee, there was a case registered with the Central Bureau of Investigation (CBI) in that regard and any prospect of the money being recovered has all but vanished. Since no part of the principal amount could actually be recovered by the Assessee, there was no ’real income' and the question of adding any notional accrued interest to its income on such amount does not arise. In the entire facts and circumstances of the case, the Court agrees with the concurrent findings of the CIT (A) and ITAT. No substantial question of law arises as regard this issue as well.” 9.4 Respectfully following the above decision of Hon’ble High Court, we uphold the order of the CIT(A) regarding the issue in dispute. Accordingly, grounds no. 1 to 4 are dismissed.”
7. Ground No.2 of Revenue’s appeal relates to addition of Rs.3,41,00,000/- made on account of disallowance of demurrage and wharfage expenses, which again is covered by the order of Hon’ble High Court in assessee’s own case for the assessment years 2006-07 to 2009- 10, referred to supra and followed by the Tribunal in assessee’s own case for the assessment year 2010-11. Relevant observations of the Tribunal vide paragraph No. 10 read as follows :
“10. Ground no. 5 to 8 are regarding the addition made on accoung of disallowance of demurrage and wharfage expenses. 10.1 Learned Sr. Departmental Representative relied on the order of the learned Assessing Officer. 10.2 Learned counsel for the assessee submitted that this issue is squarely covered by the judgment of Hon’ble Jurisdictional High Court in the assesee’s own case for assessment year 2006-07, 2007-08, 2008-09 and 2009-10 in and 817 of 2016, dated 24.04.2017. 10.3 We have heard the rival submission of the parties and perused the relevant material on record. We find that this issue is also squarely covered by the decisions of Hon’ble Jurisdictional High Court (supra), where the Hon’ble Court held as under: “3. These four appeals seek to raise a common question whether the ITAT was justified in deleting the disallowance of demurrage and wharfage charges, which according to the Revenue was in the nature of penalty and, therefore, not amenable to deduction under Section 37(1) of the Income Tax Act, 1961? 4. The said question already stands answered in favour of the Assessee and against the Revenue by the judgment of this Court in Mahalaxmi Sugar Mills Company v. Commissioner of Income Tax, (1986) 157 ITR 683 (Delhi) and of the Allahabad High Court in Nanhoomal Jyoti Prasad v. Commissioner of Income Tax, (1980) 123 ITR 269 (All.)
However, learned counsel for the Revenue seeks to reply of the judgment of the Rajasthan High Court in Tata Iron & Steel Co. Ltd. v. Union of India (decision dated 28th January, 2014 in SB Civil Misc. Appeal No. 65/1997). Having perused the said judgment, the Court is not persuaded to taken a view different from that earlier taken by this Court Mahalaxmi Sugar Mills Company v. Commissioner of Income- Tax (supra).” 10.4 Respectfully following the above decision of the Hon’ble Jurisdictional High Court, we uphold the order of the learned CIT(A). Accordingly, grounds no. 5 to 8 of the Revenue are dismissed.”
8. Ground No.3 relates to deletion of addition of Rs.4.26 crores, made on account of slow moving stores and spares, which again is covered by the decision of Hon’ble High Court as well as the Tribunal and the relevant observations of the Tribunal while following the High Court’s view read as follows :
“5. In ground no. 2(i) and (ii), the assessee has challenged the addition of Rs.4,20,00,000/- made on account of slow moving, non-moving and obsolete stores written off. 5.1 At the time of hearing, learned counsel for the assessee submitted that the issue in dispute is squarely covered by the judgment of Hon’ble Jurisdictional High Court in assesee’s own case for assessment years 2006-07, 2007-08, 2008-09 and 2009-10 in and 816 of 2016 dated 08.02.2017. 5.2 On the other hand, the Sr. Departmental Representative relied on the order of Assessing Officer and contented that the assessee has not given any satisfactory reasons for changing the method of accounting, therefore, the addition made by the Assessing Officer is justified. 5.3 We have heard the rival submission and perused the relevant material on record. We find that the issue in dispute is squarely covered by the decision of Hon’ble Jurisdictional High Court in the assessee’s own case (supra) wherein the Hon’ble High Court observed as under:
6. Having regard to these circumstances, the Revenue’s contention that the accepted of 5% as the basis for valuing the Slow Moving Stock being unscientific, is baseless in our opinion. Once the engineering expert examined all the heads of stock valued them, to the best of his judgment, and in the absence of any finding that the 5% was not relatable to such valuation without an alternative valuation or that it is a flawed method of valuation, the AO could not have rejected what was offered as the reduced value of the Slow-Moving Stock. In other words, there is nothing on the record to doubt the bonafides of the valuation. In the event of likelihood of the stocks realizing a higher amount than the value shown, the same would be reflected in the subsequent year in the income or profit of the assessee, the Revenue’s contention is without any merit.
Respectfully following the decision of the Hon’ble Jurisdictional High Court, we delete the addition of Rs.4,20,00,000/- made by the Assessing Officer. Accordingly, ground nos. 2(i) & (ii) are allowed.”
Ground No. 4 relates to disallowance of Rs.8.58 crores, made on account of post-retirement benefits, which again is coverd by the decision of Hon’ble High Court as well as the Tribunal referred to supra and relevant observations of the Tribunal vide paragraph No. 11 are as follows :
“11. In ground no. 9 & 10 is regarding the addition made on account of provision of post retirement benefits. 11.1 Learned Sr. DR relied on the order of the Assessing Officer. 11.2 Learned counsel for the assessee submitted that this issue is also squarely covered by the judgment of Hon’ble Jurisdictional High Court in the assesee’s own case for assessment year 2006-07, 2007-08, 2008-09 and 2009-10 (supra). 11.3 We have heard the rival submission of the parties and perused the relevant material on record. We find that this issue is also squarely covered by the decisions of Hon’ble Jurisdictional High Court (supra), wherein the Hon’ble Court held as under:
“6. The other question raised by the Revenue concerns the provision made for superannuation/post-retirement benefits of the employees of the Assessee. The Assessee made the provision n the basis of an actuarial report. Its consistent stand was accepted by the Commissioner of Income Tax (Appeals) [CIT(A)] who came to the conclusion that it was not an item of deduction covered under Section 43B of the Act. The ITAT in the impugned order followed the decision of the Supreme Court in Bharat Earth Movers v CIT, [2000] 245 1TR 428 (SC) and the decision of this Court in CIT vs. Bharat Heavy Electrical Ltd. [2013] 352 ITR 08 (Del) and upheld the order of the CIT (A).
The Court's attention is drawn by learned counsel for the Assessee to the decision in CIT v Ranbaxy Laboratories Ltd. (2011) 334 ITR 341 (Del). The ratio of the above decision is that where there are actuarial reports supporting the provision to meet a contingent liability, it cannot be gone behind by the Assessing Officer (AO) unless it is shown to be not based on any scientific or know financial principles.
It is sought to be urged by learned counsel for the Revenue that only because the actual payouts by way of post-retirement benefits to the employees in the AYs in question were far less than the provision made for that purpose, the actuarial report cannot be said to have been prepared on a scientific basis and was therefore not binding on the AO.
9. The Court is unable to accept this submission. The making of a provision to meet a contingent liability need not be in order to meet such liability entirely in the year of its creation. The provision having been made on the basis of an actuarial report, which is not shown by the Revenue to be unacceptable on the ground that it is not based on known accounting or financial principles, the mere fact that the actual pay out in a particular AY may be far less than the provision cannot provide a justification to deny the deduction. The Court concurs with the view of the CIT (A) and ITAT that the provision does not attract Section 43 B of the Act. The concurrent finding of the CIT(A) and the ITAT on the above issue does not give rise to any substantial question of law.”
11.4 Respectfully following the above decision of the Hon’ble Jurisdictional High Court, we uphold the order of the learned CIT(A). Accordingly, grounds no. 9 & 10 of the Revenue are dismissed.”
Ground No. 6 relates to disallowance of Rs.21,25,780/- on account of depreciation claimed on UPS and according to the ld. AR, this ground too is covered by the order dated 15.07.2011 of the Tribunal in for the assessment year 2005-06 and, therefore, the established view may not be disturbed. On a perusal of the order, we find that the claim of the assessee for depreciation at 60% on computer peripherals and accessories such as printers, scanners, servers etc. was considered and allowed by the Tribunal in the light of the decision dated 31st August, 2010 of Hon’ble jurisdictional High Court in the case of CIT vs. BSES Yamuna Powers Ltd. (ITA No. 1267/2010) followed by a coordinate Bench of this Tribunal in the case of ITO vs. Samiran Majumdar (2006) 98 ITD 119 (Kol). In this way, this issue is covered by the orders of the Tribunal for earlier assessment years in assessee’s own case.
11. Now coming to ground No. 10, it relates to the disallowance of Rs.2,32,750/- on account of additional depreciation on the ground that benefit is available only to those undertakings which are engaged in the business of manufacture or production of any article or thing; that generation of power according to the Assessing Officer cannot be equated with the production of any article or thing; and that clause ii(a) of sub-sec. (1) of section 32 of the Act was amended with effect from 1st April 2013 and therefore, such additional depreciation could be allowed only w.e.f. 1st April, 2013 and thus the same was disallowed by the Assessing Officer. Learned CIT(A) allowed the claim of the assessee.
Learned AR brought to our notice the decision dated 18.02.2019 of Hon’ble jurisdictional High Court in the case of PCIT vs. NTPC SAIL Power Co. Pvt. Ltd. (ITA No. 1290/2018) wherein this issue is dealt with and the Hon’ble High court while noticing the decision of Hon’ble Apex Court in the case of State of Andhra Pradesh vs. NTPC Ltd., AIR 2002 SC 1895 and also a Tribunal judgment NTPC vs. DCIT (ITA No. 1438/Del/2009) held the issue in favour of the assessee. Hon’ble High court observed that electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption and use like any other movable property; that following the same logic, to deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an “article” or “thing” is in our view an artificially restrictive meaning of the provisions; and that the benefit of additional depreciation under section 32(1)(iia) has, therefore, been rightly granted to the assessee by the concurrent judgments of the CIT(A) and the Tribunal. In view of the decision of the jurisdictional High Court, we answer this issue in favour of the assessee and ground No. 10 of the Revenue’s appeal is dismissed.
Since there is no change in the circumstances nor the law, we find it difficult to take a different view and while respectfully following the consistent view taken in assesssee’s own cases for the earlier assessment years relating to grounds Nos. 1 to 4, 6 & 10, we do not find any substance in the contentions of the Revenue. Accordingly, we dismiss grounds Nos. 1 to 4, 6 & 10 of the Revenue’s appeal.
Coming to ground No. 5, which is in respect of disallowance of 1,26,92,268/- on account of repair and maintenance charges, during the year under consideration, the assessee claimed repair and maintenance expenditure to the tune of Rs.80.31 crores; that the assessee submitted the complete details of repair and maintenance charges before the Assessing Officer; that the assessee submitted before the Assessing Officer that when major equipment is added or replaced, item with similar description need to be capitalized, however, if few small parts are replaced with similar description such items are treated as maintenance; that as per assessee, there is no estimate that the annual repair and maintenance should be a particular percentage of sales; and that the Assessing Officer calculated the disallowance at 2.23% on the basis of proportion of amount that the ld. Assessing Officer was of the opinion that for similar nature of items the assessee in one of its units claimed as revenue expenditure while in some other units it was capitalized. The Assessing Officer, however, computed the disallowance at the rate of 2.23% of Rs.66.96 crores, i.e., Rs.1,49,32,080/- and after allowing the depreciation made the net disallowance of Rs.1,26,92,268/- holding that the same shall be treated as the part of block of plant and machineries. The Assessing Officer calculated the above disallowance at 2.23% on the basis of proportion of amount capitalized over the repair and maintenance in Panipat Unit.
Learned CIT(A), however, deleted the said disallowance on the ground that the assessee had given valid explanation for not capitalizing the same items in different units and disallowance was made on presumption basis and adhoc basis. Learned AR places reliance on the decisions in the cases of CIT vs. Ms. Shehnaz Hussain, 267 ITR 572 (Del), ACIT vs. M/s. Modi Rubber Limited (ITA No. 1952/Del/2014)(ITAT Delhi), ACIT vs. Amtek Auto Ltd., 112 TTJ 455, M/s. Nine Dot Nine Media Work Pvt. Ltd. vs. ITO (ITANo. 1262/Del/2016 and dated 30.07.2018, DCIT vs. Grintex India Ltd (ITA No. 4622/Del/2016, Dhir & Dhir Associates vs. ACIT (ITA No. 2169/Del/2014) dated 16.06.2017 and ACIT vs. Precision Pipes & Profiles Co. Ltd. (IYA No. 4257 and 4258/Del/2012) dated 12.10.2012.
We understand from the orders of the authorities below that the assessee contended before the authorities below that such replacement of parts which have impacted the capacity utilization of the plant and machinery are capitalized and the value of small parts which were required to be replaced having regard to their life time, their contribution in the capacity utilization as expenditure. Learned Assessing Officer rejected the contention of the assessee stating that for similar nature of items, the assessee in one of the units claimed it as revenue expenditure while in some other units, it was capitalized and on that basis, he calculated the disallowance at 2.23% on pro-rata basis and again it is on adhoc basis.
It could be seen from the impugned order, learned CIT(A) after considering the submissions made on behalf of the assessee found that due to continuous process plants in the assessee’s units, when major equipment is added or replaced with similar description of equipment it is capitalized but if few small parts are replaced with similar description items this is treated as maintenance. Learned CIT(A) reached such conclusion on a perusal of the documents regarding the policy of the assessee on this aspect which were provided at the assessment stage itself. On an analysis of facts in the light of policy documents, learned CIT(A) inferred that the presumptive disallowance on adhoc basis cannot be sustained.
On a careful consideration of the matter in the light of observations made by the ld. CIT(A), we find that the ld. CIT(A) reached this conclusion on the basis of the repair & maintenance expenses of one unit. We are, therefore, of the opinion that although the ld. CIT(A) is right in his approach in respect of one unit, he was required to examine the expenditure in respect of other units also. We, accordingly while rejecting the percentage approach adopted by the ld. Assessing Officer, direct the learned Assessing Officer to verify the repair & maintenance expenditure in respect of other units in tune with the approach of the ld. CIT(A). Assessee will produce all the necessary documents before the ld. Assessing Officer in this regard. This ground is accordingly allowed for statistical purposes.
Grounds Nos. 7 to 9 of the departmental appeal relate to the disallowance of Rs.15,688/- by invoking section 14A of the Act read with Rule 8D of the Income-tax Rules. It can be seen from the assessment order that the assessee represented before the Assessing Officer that in this year, the assessee has not received any exempt income on investment and therefore, no disallowance is warranted u/s. 14A of the Act. Assessing Officer did not dispute the factual aspect, but proceeded on the assumption that even in the absence of any earnings of exempt income, section 14A read with Rule 8D are attracted.
Learned CIT(A) followed the decision of the Hon’ble jurisdictional High Court in the case of Cheminvest Limited vs. CIT, 378 ITR 33 and allowed the plea of the assessee. In Cheminvest Ltd. (supra), Hon’ble jurisdictional High court held that the expression “does not form part of the total income” in section 14A of the Act envisage that there should be an actual receipt of income which is not includable in the total income during the relevant previous year for the purpose of disallowance of any expenditure incurred in relation to the said income; and that in other words, section 14A will not apply if no exempt income is received or receivable.
Ground No. 11 relates to disallowance of Rs.1,79,931/- on account of non-deduction of TDS on bank guarantee expenses. Learned Assessing Officer was of the opinion that the Notification No. 56/2012 dated 31.12.2012 which provides relief from TDS on specified payments made to scheduled Banks is effective from 01.01.2013 and will apply prospectively only and therefore, the assessee is liable to deduct TDS on such payments. Learned CIT(A), however, held that the notification is applicable retrospectively also. Learned AR places reliance on the decision dated 31.05.2021 of the coordinate Bench of this Tribunal in the case of DCIT vs. Nalwa Steel and Power Ltd. that the notification No. 56/2012 dated 31.12.2012 has retrospective effect. Relevant observations of the Tribunal in the case of Nalwa Steel and Power Ltd.(supra) are as follows :
We have carefully considered the rival contention and find that the assessee has paid guarantee commission charges of state bank of India for giving guarantee in favour of the seller of coal to the assessee. It is one of the banking services provided by the state bank of India to the assessee. It cannot be said to be a “commission” as intended to u/s 194H of the but it is in the nature of Bank charges charged by the bank for provision of services to the assessee. Now this issue has been decided by the honourable Bombay High Court in case of CIT - TDS (1), Bombay versus Larsen and Toubro Ltd 101 taxmann.com 83 wherein the honourable High Court while dealing with the case for assessment year 2010 - 11 held as Under:- “3. Learned counsel for the Revenue stated that the Revenue stated that the Revenue had filed an appeal against the judgment of the Tribunal in case of Kotak Securities Ltd. but that the appeal was withdrawn on the ground of low tax effect. He has, however, made available a copy of the judgment of the Tribunal in the said case which contains a detailed discussion on the issue at hand. In the said judgment, the Tribunal referred to Section 194H of the Act which requires an assessee responsible for paying any income by way of commission or brokerage to deduct tax at source. The Tribunal was of the opinion that the words "commission or brokerage" must take colour from each other. The Tribunal was of the opinion that the payment in question, though categorized as 'bank guarantee commission" is not strictly speaking payment of commission since there is no principal to agent relationship between the payer and the payee. The Tribunal, therefore, held that the requirement of deducting tax at source emanating from Section 194H of the Act in the present case does not arise.
We are broadly in agreement with the view of the Tribunal. The so called bank guarantee commission is not in the nature of commission paid to an agent but it is in the nature of bank charges for providing one of the banking service. The requirement of Section 194H of the Act, therefore, would not arise. No question of law arises. The Income Tax Appeal is dismissed. ”
7. Therefore, respectfully following the decision of the honourable Bombay High Court rendered in case for assessment year 2010 -11 and also the Notification No 56/2012 of CBDT which has been considered by several coordinate benches and held that same also applies to earlier period then the date of issue of notification, we hold that the assessee was not required to withheld any tax on bank guarantee charges paid to state bank of India and therefore no disallowance would have been made u/s. 40a(ia) of the Act. So we confirm the order of the ld. CIT(A). In view of this ground No. (1) of the appeal is dismissed.”
In these circumstances, we do not find any merit in the addition made and the ld. CIT(A) rightly deleted the addition and it does not warrant any interference. We, therefore, decline to interfere with the order of the ld. CIT(A) in deleting the addition.
Ground No. 12 of Revenue’s appeal relate to the addition of Rs.2,42,880/- on account of accrued interest on deposits. Ld. AR submitted that ground No. 1 has a bearing on this ground. We have perused the record and since we deleted the addition of Rs.6,48,20,000/- relating to ground No.1, we find no justification to interfere with the finding of ld. CIT(A) that the advances given by the assessee to Karsan pending recovery cannot be assessed as income of the assessee. Thus, this ground does not stand and is accordingly dismissed.