DCIT 7(2), MUMBAI vs. ALBRIGHT & WILSON CHEMICALS INDIA LTD, MUMBAI

2. Ground no. 1 in the appeal of the Assessee is in respect of addition of Rs.41,165/- made for the mismatch of AIR data with the Assessee’s accounts.

Briefly stated the facts are that the Assessing Officer has received AIR information on credit card transactions and the Assessee was requested to reconcile the data with the books of account as there was some mismatch. It was found that AIR data showed credit card transactions amounting to Rs.5,34,631/- through American Express Banking Corporation by the Assessee during the year under consideration, but, whereas in the books of the Assessee it showed a credit card transaction of Rs.4,93,466/-. Thus, there was a mismatch to the extent of Rs.61,732/-. The Assessee submitted before the Assessing Officer that it is unable to reconcile the difference as the records of the Assessee company showing credit card transaction of Rs.4,93,466/- only. However, the Assessing Officer added this difference of Rs.61,732/- as income observing that the Assessee failed to get the confirmation from American Express Banking Corporation in respect of whom there was mismatch. He observed that the Assessee has not discharged the primary onus to match the transactions in the accounts with AIR data.

The Assessee preferred appeal before the Ld. CIT (Appeals) and submitted that the difference between the two figures i.e. (5,34,631-4,93,466) is only Rs.41,165/- and not Rs.61,732/-, therefore, the Assessing Officer is not justified in making the addition of Rs.61,732/-. It was further submitted that the Assessee company had issued credit cards to two of its employees to incur expenses on behalf of the company. It was submitted that these credit cards were sometimes used by the employees for their personal purposes apart from business purposes and the personal expenses of the employees were borne by the employees only since the respective employees either paid directly or recovered from them by the Assessee. Therefore, it was submitted that the difference in the expenditure booked by the Company on the said credit cards and the amounts shown by the credit card issuing bank was because of the Assessee accounted for only those expenses which were incurred for the purpose of Assessee’s business only. Therefore, it was contended that the Assessee reconciled and submitted details only upto Rs.4,93,466/- which was accounted for in the books of the Assessee and differential amount of Rs.41,165/- represented the amount which was in personal nature i.e. personal expenses incurred by the employee through the credit card provided by the company. Therefore such amount was never accounted in the books of the Company. The Ld. CIT(Appeals) without appreciating the submissions of the Assessee sustained the addition observing that Assessee admitted that such difference pertains to personal expenses of the employees and therefore not allowable.

The Ld. Counsel for the Assessee before us referring to page nos. 94 and 99 of the paper book, the statements of account given by the credit card Company i.e. American Express Banking Corporation submits that personal expenses incurred by the Assessee were clearly demarcated and recovered from the employees and therefore the Assessee accounted for all the expenditure correctly and hence there is no difference as observed by the Assessing Officer. The Ld. Counsel for the Assessee further submits that the Assessing Officer has not provided the exact details where there is a mismatch and in the absence of any such specific information it is difficult for the Assessee to reconcile the difference. Therefore, the Ld. Counsel submits that when the Assessee has provided the details along with explanation accounting for the credit card payments to the extent of the Assessee incurring such expenditure for the purpose of the its business, the Assessing Officer should not have treated the difference of Rs.41,165/- as income of the Assessee solely based on the AIR information. The Ld. Counsel for the Assessee further placing reliance on the decision of the Coordinate Bench in the case of AF Ferguson and Company Vs. JCIT in dated 17.10.2014 submits that the addition made solely on the basis of AIR information without providing complete details of parties and the transactions, addition cannot be made.

We have heard rival submissions, perused the orders of the authorities below and the decision relied on. The Assessing Officer received AIR data i.e. the credit card payments of Rs.5,34,631/- and forwarded the same to the Assessee for reconciliation. The Assessee reconciled and furnished the details in respect of the transactions upto an amount of Rs.4,93,466/-. The Assessee submitted that in the absence of specific details, it is not able to reconcile with the figure of AIR data and the amounts which were debited in its books of account were reconciled with the details. The lower authorities, however were of the view that it is for the Assessee to reconcile the figures and in the absence of any such reconciliation, the amount was held to be treated as income of the Assessee. The Assessee before us submits that the Assessing Officer has not provided the specific information i.e. party-wise and transaction-wise details and therefore in the absence of such specific information, it is highly impossible to reconcile the transaction with the figure of AIR data and to explain as to why such difference arose. The Assessee also further contended that based on AIR information addition cannot be made. In the case of AF Ferguson & Co., more or less a similar case came up for consideration before the Coordinate Bench and the Coordinate Bench by observing as under held that in the absence of full details of parties and transaction, the addition solely based on AIR information is not sustainable in the eyes of law.

In the case on hand before us also, the Assessing Officer has not provided the transaction-wise and party-wise details to the Assessee for reconciliation and in the absence of such complete details simply because the Assessee could not reconcile the figure matching with the AIR data, addition cannot be made solely based on such AIR information. However, the Assessee out of Rs.5,34,631/- has given the details and explanation to an amount of Rs.4,93,466/-. Therefore, following the said decision, we direct the Assessing Officer to delete the addition.

Ground No.2 and 3 of the Assessee’s appeal is in respect of the issue as to whether the interest earned on fixed deposits from banks amounting to Rs. 43,57,525/- and interest received on deposits with MIDC or MSEB amounting to Rs.4,12,924/-is assessable under the head income from business or income from other sources.

The Ld. Counsel for the Assessee before us placing reliance on the following decisions submits that income from fixed deposits in Banks, MIDC & MSEB should be assessed under the head income from business and not under the head income from other sources. 1. CIT Vs. Paramount Premises Ltd. [190 ITR 259] (Bom) 2. Eveready Industries India Ltd. Vs CIT [323 ITR 312] (Cal) 3. CIT Vs. Jagdishprasad M. Joshi [318 ITR 420] (Bom)

The Ld. DR strongly placed reliance on the orders of the authorities below and the decision of the Bombay High Court in the case of Swani Spice Mills Pvt. Ltd. (supra) and submits that interest on fixed deposits can never be income from business as the Assessee is not into money lending, but engaged in the business of manufacturing of chemicals and bulk drugs.

We have heard the rival submissions, perused the orders of the authorities below. The Assessee earned interest on fixed deposits from banks and on deposits with MIDC or MSEB and claimed such interest is assessable as business income and not under the head income from other sources. Almost similar issue has been considered by the Jurisdictional High Court in the case of CIT Vs. Swani Spices Pvt. Ltd (supra), wherein the Assessee received income from discounting bills and inter corporate deposits from out of surplus funds and claimed as business income for the purpose of deduction u/s 80HHC of the Act. The Jurisdictional High Court considering various decisions held that income received by way of bill discounting charges and interest on inter corporate deposits would not fall under the head of profits and gains of business or profession but would fall under the head income from other sources. The Hon’ble Supreme Court in the case of Pandian Chemicals Ltd. Vs. CIT [202 ITR 278] held that interest from deposits with electricity board is not income derived from business of the undertaking. Respectfully following the above said decisions, we hold that interest on fixed deposits with banks, interest on deposits with MIDC / MSEB would not fall under the head of profits and gains of business of profession but would fall under the head income from other sources. These grounds are dismissed.

Ground Nos. 4 and 5 are relating to the disallowance/addition on account of debit balances of creditors written off amounting to Rs.7,64,057/-.

Briefly stated, the facts are that the Assessing Officer noticed that the Assessee has reduced this amount from its computation of income as creditors balances written off. In the course of assessment proceedings, the Assessing Officer called for the details, explanation was sought from Assessee how this amount is allowable. The Assessee submitted the details of the creditors balances written off giving breakup which is mentioned at page 19 of the assessment order. Further, the Assessing Officer also asked to explain how this amount qualifies for deduction and he also required the Assessee to explain why this amount should not be brought to tax u/s 41(1) of the Act as cessation of liability. Before the Assessing Officer, it seems that no explanation was provided by the Assessee. The Assessing Officer therefore disallowed the write off of creditors balances which was reduced by the Assessee in the computation of income and he also made addition of the very same amount u/s 41(1) of the Act as cessation of liability. The Assessee carried the matter to the Ld. CIT (Appeals) and the Ld.CIT (Appeals) held that this amount is capital and is not revenue in nature and therefore not allowable u/s 37(1) of the Act. The Ld. CIT (Appeals) also observed that the Assessee failed to explain that why this amount was not debited/credited to the books of accounts when it is incurred in the course of business. The Ld. CIT (Appeals) confirmed the addition/disallowance. However the Ld. CIT (Appeals) directed the Assessing Officer to verify the submission of the Assessee that same amount cannot be disallowed and directed to grant relief if there is double disallowance.

Before us, the Ld. Counsel for the Assessee submits that these amounts represents the payments made to 3 parties namely :- 1. Praweg Conveyor - Rs.5,20,865/- 2. Sterling Strips - Rs.1,23,812/- 3. Reliance Slope - Rs. 74,411/- i) The Ld. Counsel submits that in respect of payment to Praweg Conveyor, the amount was paid in 2002 for the project of Rock Conveyor system in Ambernath plant which lifts rock phosphate material from ground and to carry in Silo (storage tank) system. The Ld. Counsel submits that rock conveyor system was not functioning properly and unit was not able to support the service and therefore the service was under dispute. He submits that inspite of several requests invoices were not sent to the Assessee and therefore this amount was written off. ii) With regard to the payment to Sterling, it was submitted that in 2003 this amount was paid for the study of improvement in operations of gasifier run on coal in Ambernath plant and since project study was not conducted properly, it was under dispute. iii) In respect of payment to Reliance Slope Oil, it was submitted that slope oil raw material was purchased from Reliance by making advance payments. It was submitted that since the balance was lying since 2000 it was written off.

Therefore, the Ld. Counsel submits that the aforesaid balances were on account of advances made to creditors for the purchases / services made in the course of the Assessee’s business, therefore, the said expenses were allowable u/s 37(1) of the Act. Alternatively, the same should be allowed as business loss u/s 28 of the Act. The Ld. Counsel further submits that since the write off made by the Assessee was itself due to the Assessee company by the creditors and not the credit balances payable to the creditors, the question of applicability of Section 41 (1) of the Act does not arise.

Ld Counsel in support of his above contentions placed reliance on the following cases 1. CIT Vs. Woodward Governor India (P) Ltd. [312 ITR 254] 2. CIT Vs. Mysore Sugar Co-Ltd [46 ITR 649] 3. Sterling Agro Products Processing Pvt. Ltd. Vs. ACIT [48 SOT 80]

The Ld. DR on the other hand vehemently supported the orders of the authorities below.

We have heard the rival submissions, perused the orders of the authorities below. The Assessing Officer disallowed this amount as the Assessee in the assessment proceedings did not give proper explanation as to how this amount is allowable deduction and further why it should not be treated as cessation of liability. The Assessing Officer disallowed this amount twice while completing the assessment i.e. once by adding back this amount to the income and secondly by separately making addition u/s 41(1) of the Act.

The nature of services for which advances were made by the Assessee in all these cases is explained by the Ld. Counsel and also extracted by Ld. CIT (Appeals) in Para 8.3 at page 17 of the order suggests that in respect of payments to Praweg Converyor and Sterling Strips they relates to rendering of particular services by the parties which they have failed because of the disputes. The nature of services also does not appear to be on capital account. In the third case i.e. Reliance Industries advance payment was made for supply of raw material. All the above payments were made in the years from 2000 to 2003 and since the services could not be rendered by the parties, the Assessee written off these amounts as allowable expenditure u/s 37(1) of the Act. These expenses cannot be held to be capital expenditure but allowable as revenue expenses. Even otherwise the advances were made for purchases of raw materials and services for the purpose of business only. Since they could not be recovered they are allowable as business loss u/s 28 of the Act.

The Chennai Bench in the case of Sterling Agro Products Processing Pvt. Ltd (supra) considering the decision of Supreme Court in the case of Woodward Governor India Pvt. Ltd. (supra) held that losses on account of irrecoverable amounts which were advanced to parties for supply of raw materials, agricultural produce etc. would result in definitely to be a loss to Assessee and such loss would lie in revenue field. Therefore, following the decisions of Supreme Court and also the Chennai Bench referred to above, we hold that the write off of all advances made to parties for rendering services / supply of material it is a revenue expenditure allowable u/s 37(1) or u/s 28 of the Act.

Further, we hold that since the Assessee has written off only the advances made to parties for supply of materials / services, and it is not actually credit balances written off, the provisions of Section 41(1) are not attracted. Thus ground nos. 4 and 5 are allowed.

Coming to ground no.6, the Assessee is challenging the order of the Ld. CIT (Appeals) in upholding the action of the Assessing Officer in disallowing infrastructure service management fees and smart SMS fees amount to Rs.14,77,863/- u/s 40(a)(i) of the Act for non deduction of TDS u/s 195 of the Act.

Briefly stated the facts are that the Assessing Officer while completing the assessment, noticed that the Assessee paid a sum of Rs.8,41,184/- and Rs.6,36,679/- to Rhodia Asia Pacific Pte Ltd. (for short, RAP), Singapore towards infrastructure service management fees and smart SMS fees. The Assessing Officer noticed that the Assessee did not deduct TDS, therefore required the Assessee to explain why no TDS was deducted. The Assessee submitted that it had paid Rs.8,41,184/- as management/professional fee to RAP who provides advice and guidelines in security practices, operations management on IT infrastructure, ensures compliance to corporate policies on usage of IT services etc. every year for which Assessee is required to pay. It was submitted that no income has accrued or arisen in India to RAP and hence income is not liable to tax in India. Consequently, no tax is required to be deducted at source. The Assessing Officer not convinced with the explanation of the Assessee treated the payment made by Assessee to non-resident holding the Assessee made payment towards services charges to non-resident, services used in Assessee’s business in India and used for earning income in India. The Assessing Officer held that the same being in the nature of technical fees paid to non resident, this is income deemed to accrue or arise in India u/s 9(i)(vii) attracting TDS u/s 195. The Ld. CIT (Appeals) referring to various decisions and the various clauses of services listed in Appendix I of the agreement entered between Assessee and RAP concluded that RAP is providing technical services to the Assessee and therefore the Assessee is liable to deduct TDS on the fees paid towards FTS which is taxable in India.

The Ld. Counsel for the Assessee before us submits that during the remand proceedings it was submitted that Assessee had received services from 'Rhodia Asia Pacific Pte. Ltd (RAP) a tax-resident of Singapore under the Supply of Service Agreement (SSA) effective, from 1st January. 2009 between Assessee Co. and RAP whereby RAP agreed to provide certain services. Further it was stated that Chapter IX of the Act deals with Double Taxation Relief, section 90 thereof deals with cases where the Indian Government has entered into Double Tax Avoidance Agreement (DTAA) with foreign countries. Sub section (2) of section 90 of the Act provides that where there is DTAA, the provisions of the Act are to apply only if they are more favorable to the taxpayer and India has a Double Taxation Avoidance Agreement with Singapore and under the said DTAA the aforesaid payments are not chargeable to tax in India. As per Indo- Singapore treaty, fee for technical services is taxable in India if such services make available technical knowledge, experience, skill, know-how or process which enable the person acquiring the services to apply the technology contained therein. In support of the above contention, assessee placed reliance on following decisions. 1. Dy CIT v ITC Ltd.(82 1TD 239) (Kol). 2. Mckinsey & Co.,Inc.(Phillippines) v Asstt.Dirèctor of IT(284 ITR 227)(Mum) (AT) 3. Motoroloa Inc. v Dy.CIT(2005)(96 TTJ 1)(Del)(SB). 4. DIT vs Guy Carpenter & Co. Ltd (346 ITR 504) 5. CIT vs De Beers India Minerals Pvt. Ltd (21 Taxmen.com 214) 6. Bharat Petroleum Corpn Ltd. Vs Joint Director of Income Tax (14 S0T 307) Thus assessee pleads that the services rendered by RAP of IT, Admn and Security support services cannot be covered within the ambit of Fees for technical services under Article 12 of the Indo-Singapore DTAA because the aforesaid service does not make available any technical knowledge, skills, process to assesee. Further it is stated that issue was not examined by the Assesssing Officer with the reference to Article 12 of the Indo-Singapore DTAA as the same was never asked for and hence was never submitted.

The Ld. Counsel for the Assessee further submits that TDS cannot be fastened on a retrospective amendment to Section 9(i)(vii). He places reliance on the decision of the Mumbai Bench in the case of Ashok Piramal Management Corporation Lt. Vs. ACIT [161 ITD 234].

The Ld. DR strongly places reliance on the orders of the Ld. CIT (Appeals)/AO.

We have heard the submissions, perused the orders of the authorities below. The Ld Counsel drew out attention to a note submitted which reads as under : “Rhodia Asia Pacific Pte Ltd. (RAP) is a Singapore based company in the business of operational services in Singapore. RAP is a tax resident of A certificate to that effect from Inland Revenue Authority of Singapore is enclosed. Under the Supply of Service Agreement (the agreement), effective 01.01.2009, between RAP and Albright & Wilson Chemicals India Ltd. (AWCI), RAP agreed to render services defined in Appendix I of the said agreement to AWC). The defined services are broadly providing advice and guidelines on security practices, operations management on IT infrastructure, ensuring compliance policies on usage of IT services such as mail, network, Internet and intranet, perform application support, organize and perform training for users, regular

In the course of assessment proceedings, the Assessee did not furnish the agreement which was furnished only in the course of appellate proceedings, therefore a remand was called for. Considering the remand report and submission of the Assessee, the Ld. CIT (Appeals) concluded that the payment made by the Assessee to RAP falls under fees for technical services, therefore liable for TDS even though there is no PE of the recipient company. RAP in India which is a Singapore resident. The Ld. CIT (Appeals) also held that the Assessee has utilized the operation of the process developed by RAP and this by itself does not take the Assessee out of the scope of royalty. He concluded that the consideration being the use and the right to use of process is royalty within the meaning of clause (iii) of Explanation-2 to Section 9(i)(vii) of the IT Act. Therefore, he concluded that applying the ratio of the decision of Madras High Court in the case of Verizone Communications, the amount paid by the Assessee to RAP is taxable as royalty under Article 12(3) of India Singapore DTAA.

In the case of Ashok Pyramal Corporation (supra), the Coordinate Bench of the Tribunal held that withholding tax obligations are to be discharged in the light of law as it stands at that point of time i.e. relevant to the assessment year. Retrospective amendment made by Finance Act 2010 w.e.f. 01.06.1976 in Explanation-2 to section 9(2) does not create any liability upon Assessee for deduction of tax u/s 195 since payment was made much earlier in period relevant to assessment year 2009-10. The Coordinate Bench after elaborate discussion and considering various decisions held as under : “4.3.1 We have heard the contentions of both the parties and perused and carefully considered the material on record, including the judicial pronouncements cited. There is no dispute with regard to the fact that the said remittance of professional fees of Rs. 26,05,239/- made by the assessee to 'OBT' was towards rendering of services in respect of due diligence of 'DIAM Group of France. The assessee was of the view that since these services were rendered by 'OBT' outside India, the same was not taxable in India and therefore the assessee did not have any obligation to deduct tax at source under section 195 of the Act while making the said payment. It was thus contended that since there was no obligation on the part of the assessee to deduct tax at source, the disallowance under section 40(a)(i) of the Act could not be made. The learned CIT (A), however, being of the view that the said remittances made to 'OBT', a non resident, was in the nature of fees for technical services, ('FTS'), held that the assessee was under obligation under section 195 of the Act to withhold tax at source from this payment and proceeded to uphold the disallowance made under section 40(a)(1) of the Act. According to the learned AR of the assessee, even if by any stretch of imagination, the remittance was considered as 'FTS', no TDS was required to be made at the time of remittance as per the law existing at that time (i.e. in the period relevant to Financial year 2008-09) because the said services were not rendered in India. The learned A.R. submitted, by virtue of amendment to Explanation to section 9(2) by Finance Act, 2010 w.e.f. 01.06.1976 even income received from services rendered outside India is to be treated as FTS. However, he submitted, by virtue of such retrospective amendment liability of TDS cannot be fastened upon the assessee under section 195, since as per the existing provision at the relevant period the income was not taxable, hence, assessee was not required to deduct tax at source. The learned D.R., though, supported the order of the CIT (A), however, he agreed that the legal issue raised by the assessee is covered by the decisions of ITAT cited by learned 4 A.R. 4.3.2 We may observe, the aforesaid legal issue argued by the learned A.R. was not raised either before the AO or before the CIT (A). However, as per the submissions counsels of both the parties that the appeal can be decided on this limited issue, we proceed to deal with the same. The question for consideration before us is whether or not the disallowance under section 40(a)(i) of the Act can be made based on the effect of the retrospective amendment in Explanation to section 9(2) of the Act which was inserted by Finance Act, 2010 w.e.f. 01.06.1976. In the decision of the Agra Bench of ITAT in VIrola International's case (supra) the Bench was of the view that the legal position was that unless the services are rendered in India, the same cannot be brought to tax as 'FTS' under section 9 of the Act, but that this legal position did undergo a change when the Finance Act, 2010 received the assent of the President of India on 08.05.2010. The Tribunal further observed at para 8 thereof that till 08.05.2010, the prevailing legal position was that unless technical services were rendered in India, the fees for such services could not be brought to tax under section 9 of the Act. Though the law was amended retrospectively, but as far as tax withholding liability was concerned, it would depend on the law as it existed at that point of time when the payments, from which tax was to be deducted, was made. A retrospective amendment in law

The concept of territorial nexus, for the purpose of determining the tax liability, is relevant only for a territorial tax system in which taxability in a tax jurisdiction is confined to the income within its borders. Under this system, any foreign income that is earned outside of its borders is taxed by the tax jurisdiction, but then apart from tax heavens, the only prominent countries that are 11 & 146/PNJ/2014 (A.Y 2010-11) considered territorial tax systems are France, Belgium, Hong Kong and the Netherlands, and in those countries also this system comes with certain anti abuse riders. In other major tax systems, the source and residence rules are concurrently followed. On a conceptual note, source rule of taxation requires an income sourced from a tax jurisdiction to be taxed in this jurisdiction, and residence rule of taxation requires income, earned from wherever, to be taxed in the tax jurisdiction in which earner is resident. In the US tax system, this residence rule is further stretched to cover US taxation of all its citizens irrespective of their domicile, and the source rule is also concurrently followed. It is this conflict of source and residence rules which has been the fundamental justification of mechanism to relieve a taxpayer, whether under a bilateral treaty or under domestic legislations, of the double taxation either by way of exclusion of income from the scope of taxability in one of the competing jurisdictions or by way of tax credits. Except in a situation in which a territorial method of taxation is followed, which is usually also a lowest common factor in taxation policies of tax heavens, source rule is an integral part of the taxation system and any double jeopardy, due to inherent clash of source and residence rule, to a taxpayer is relieved only through the specified relief mechanism under the treaties and the domestic law. It is thus fallacious to proceed on the basis that territorial nexus to a tax jurisdiction being sine qua non to taxability in that jurisdiction is a normal international practice in all tax systems. This school of thought is now specifically supported by the retrospective amendment to section 9."

It is an undisputed fact that the Finance Act, 2010 received the assent of the President on 8.5.2010 and all the payments have been made by the Assessee to the non-resident party prior to receiving of assent of the President making the retrospective amendment by adding explanation to Sec.. 9(1). At the time when the Assessee made the payment there was no provision u/s. 9(1) making the technical fees deemed to accrue or arise in India whether or not (a) the non-resident has residence or place of business or business connection in India or (b) the non-resident has rendered services in India. It is not disputed by the Id. DR that the non-resident did not have residence or place of business or business connection in India. The non-resident has also not rendered services in India. The source of the income in the hands of the non-resident was outside India. Even the place of business which earned the income was also outside India. Since the technical fees was not deemed to accrue or arise in India at the time when the Assessee made the payment as there was no provision under Sec. 9(1), 12 & 146/PNJ/2014 (A.Y 2010-11) the income received by the non-resident as per the existing law at the time when the Assessee made the payment, in our opinion, was not taxable in India under the Income Tax Act. We are not going through the tax treaty which under Article 12 provides that any fees for technical/consultancy services arising in a contracting state and paid to a resident of other contracting state may be taxed in that other state. This article also provides

As could be seen from the above decision, it was held that so far as the payments/remittances made before 08.05.2010 which is the date, the assent of the President of India was given to the amendment in Explanation to section 9(2) by Finance Act, 2010 w.e.f. 01.06.1976. The Assessee did not have any liability to deduct the tax on remittances abroad for services rendered outside India.

On a perusal of the assessment order as well as the Ld CIT (Appeals) order, we find that the lower authorities have not thoroughly examined the nature of services rendered by RAP to the Assessee and also whether they are rendered outside India or rendered in India. No such finding is given by the lower authorities. We find from the orders of the authorities below that the services were rendered by RAP to the Assessee and RAP is a resident of Singapore but it is not clear as to the detailed services rendered by RAP vis-à- vis the agreement and where such services were rendered to Assessee whether in abroad or in India and how they were rendered. These findings of fact are necessary to examine as to whether RAP has rendered technical services to the Assessee within the meaning of the provisions of section 9(1)(vii) r.w.s. 195 of the Act. In such circumstances, we are of the considered view that the Assessing Officer should examine thoroughly this issue with reference to the nature of services rendered by RAP, by calling complete details from the Assessee and ascertaining whether these services were rendered outside India or in India to the Assessee and how they were rendered and also to examine the applicability of the decision of this Tribunal in Ashok Pyramal Management Corporation Ltd (supra) and decide the issue in accordance with law after providing adequate opportunity to the Assessee. Hence, we restore this issue to the file of the Assessing Officer for denovo consideration.

Ground No.7 of the grounds of appeal of the Assessee is in respect of disallowance of prior period expenses of Rs.1,28,331/- incurred on survey fees and maintenance charges.

The Ld. Counsel for the Assessee submits that during the year under consideration the Assessee had incurred expenditure on survey fees and maintenance charges and debited these expenses to Profit & Loss account in the audited financial statements for the assessment year under consideration. The Ld. Counsel for the Assessee submits that these expenses were in the nature of legal and professional fees paid to consultant for various professional works and they were incurred for the purpose of business. He submits that the expenditure is crystalized and quantified in the current year and hence the same should be allowed as deduction in the current year. It is further submitted that it is settled legal position that the expenses should have crystalized and quantifiable during the year and they should be incurred for the purpose of the business. For this he relied on the decision of Bombay High Court in the case of Phalton Sugar Works Ltd. [162 ITR 622]. Further placing reliance on the decision of Bombay High Court in the case of CIT Vs. Nagri Mills Co. Ltd [33 ITR 681], the Ld. Counsel submits that the Hon’ble High Court held that “the question as to the year in which deduction is allowable may be material when the rate of tax chargeable on the Assessee in two different years is different. But in the case of income of a company, tax is attracted at a uniform rate and whether the deduction in respect of bonus was granted in assessment year 1952-53 or in the year corresponding to the accounting year 1952 i.e. in the assessment year 1953-54 should be a matter of no consequence to the department and one should have thought that the department would not fritter away its energies in fighting matters of this kind.”

The Ld. DR supported the orders of the authorities below.

We have heard the rival submissions, perused the orders of the authorities below. We find that the Assessing Officer disallowed these expenses stating that they relate to prior years and not relate to the assessment year under consideration. The Ld. CIT (Appeals) though sustained the disallowance directed the Assessing Officer to allow in the year to which the expenditure pertains to.

On hearing both the parties, we are of the considered view that in view of the decisions of the jurisdictional High Court referred to above if there is no difference in the rate of tax in the year in which the expenditure pertains to and the year in which the Assessee has claimed the expenditure as prior period expenses we do not see any reason not to allow such expenditure. Therefore, we direct the Assessing Officer to verify as to whether there is rate difference in tax or not and if there is no difference in rate of tax apply the decision of the jurisdictional High Court in the case of CIT Vs. Nagri Mills Co. Ltd. (supra) and allow the claim of the Assessee. The Assessing Officer shall also examine the ratio of decision in the case of Phalton Sugar Works Ltd (supra) and find out whether the expenses have crystalized and quantifiable during the year under consideration and allow the expenditure during this year accordingly. This ground is allowed for statistical purpose.

The 8th ground in the grounds of appeal is relating to disallowance under 40(a)(ia) in respect of the provisions amounting to Rs.85,000/-. The Ld. Counsel submits that this ground is not pressed. Therefore this ground is dismissed as not pressed.

The Assessing Officer while completing the assessment treated the above said incomes under the head income from other sources and not as business income. The Ld. CIT (Appeals) accepted the contention of the Assessee that the said incomes are forming part of business income and not income from other sources.

The Ld. DR vehemently supported the orders of the Assessing Officer and the Ld. Counsel for the Assessee supported the orders of the Ld. CIT (Appeals). Counsel for Assessee also placed reliance on the decision in the case of CIT Vs. Sadhu Forging Ltd. [336 ITR 444 (Delhi)] in support of his submissions that scrap sale and other miscellaneous receipts are income from business. As regards insurance claim, the Ld. Counsel for Assessee submits that because of theft of raw materials insurance claim was received by the Assessee. Counsel for Assessee submits that in the case of Mazda Colours Ltd. Vs. DCIT in and in the case of Grauer and MEIL (India) Ltd. Vs. ACIT in ITA No.782/Mum/2010, it was held that insurance claims are forming part of income from business only. As regards rent recovery, he placed reliance on the decision in the case of Penta Media Graphics Ltd and Ors. Vs. DCIT in ITA No.1780/MDS/2009.

We have heard the rival submissions, perused the orders of the authorities below. The Ld. CIT (Appeals) after elaborate discussion and consideration of the submissions of the Assessee and the findings of the Assessing Officer held that on examination of facts on record, receipts on account of insurance claim, rent recovery, scrap sale & miscellaneous income have to be treated as business income as they are inextricably linked with the business. The Revenue could not rebut the findings of the Ld. CIT (Appeals) and the submissions of the Assessee before the Ld. CIT (Appeals). In our view insurance claim and scrap sales are income from business. Rent recovered and miscellaneous income cannot be business income of the Assessee. Thus we direct the AO to treat the receipt from insurance claim and scrap sales as business income and rent recovered and miscellaneous income as income from other sources. This ground is partly allowed.

Coming to ground nos. 2 and 3 of the grounds of appeal, the Revenue is challenging the order of the Ld. CIT (Appeals) in deleting the addition on account of repairs and maintenance treating them as revenue expenditure.

The Ld. DR vehemently supported the orders of the Assessing Officer.

Ld. Counsel for the Assessee submits that in Assessee’s own case for the assessment years 2004-05 to 2008-09 in 1222/Mum/2009, 1777/Mum/2011, 5762/Mum/2012, the Tribunal allowed similar claims of the Assessee. He further placed reliance on the following the decisions in support of his submissions.

We have heard the rival submissions, perused the orders of the authorities below. The Assessee before the Ld. CIT (Appeals) made detailed submissions along with details of expenditure incurred by it and submitted that the expenses incurred by the Assessee during the year are similar to that of expenses incurred in earlier years. The expenses were incurred for maintenance of assets of the company already in existence and such expenditure has not resulted in bringing into existence any new asset or any permanent or enduring benefit to the Assessee. It was submitted before the Ld. CIT (Appeals) that in the Assessee’s own case, the Tribunal in the assessment year 2004-05 held that the expenses on repairs to building, plant and machinery is revenue expenditure and similar expenditure was incurred during this assessment year as was incurred in earlier years. Therefore, it was submitted that the said expenditure be allowed as revenue expenditure. Before us, it was submitted that the Assessee is into chemical business and there will be a continuous corrosion of assets which need constant repairs. The Ld. Counsel also referring to page 305 of the Paper Book, submitted that from assessment year 2004-05 to 2009-10, the Assessee is continuously incurring expenses for repairs to plant and machinery and repairs and maintenance to building.

The Ld. CIT (Appeals) after considering various submissions and following the order of the Tribunal in Assessee’s own case held that the expenditure is current repairs observing as under : “10. I have considered the facts of the case, submission of the appellant and the assessment order, the order of my Ld Predecessor and Hon'ble ITAT in appellant's own case cited supra. The A.O. has not brought out anything on record to depict that the expenditure -Incurred, endowed enduring benefit to the assesseë or that the value of capital asset has increased or any new asset has been created. Further, the assessee manufactures chemical. Therefore, its building, plant and machinery require high degree of maintenance, due to constant corrosion suffered by them. Therefore, in my considered opinion, the facts remaining the same, respectfully following the decision of Hon’ble ITAT and my Ld. Predecessor, the expenditure of Rs.96,27,579/- is held to be in the nature of current repairs. Hence, the addition of Rs.96,27,579/- stands deleted.”

Coming to ground no. 4 of the grounds of appeal, the issue is related to deletion of disallowance of Rs.1,85,465/- made u/s 40(a)(ia) of the Act.

We have heard the rival submissions, perused the orders of the authorities below. The Ld. CIT (Appeals) deleted the addition observing as under : “ I have considered the facts of the case, submission of the appellant and the assessment order, the order of my Ld. Predecessor and Hon’ble ITAT in appellant's own case cited supra. The A.O. has not brought out anything on record to depict that the expenditure incurred endowed enduring benefit to the assessee or that the value of capital asset has increased or any new asset has been created. Further, the assessee manufactures chemical. Therefore, its building, plant and machinery require high degree of maintenance, due to constant corrosion suffered by them. Therefore, in my considered opinion the facts remaining the same, respectfully following the decision of Hon’ble ITAT and my Ld. Predecessor, the expenditure of Rs.96,27,579/- is held to be in the nature of current repairs. Hence the addition of Rs.96,27,579/- stands deleted.”

As could be seen from the above, the Assessee has made only a provision which was reversed in subsequent year and therefore there is no liability to deduct TDS on such provision. It is also submitted that excess provision reversed so offered to tax in the subsequent year. Therefore, we do not find infirmity in the order passed by the Ld. CIT (Appeals). This ground is dismissed.

Coming to ground no.5, this ground is relating to deletion of addition of Rs.1,16,248/-on account of the software expenses by treating them as revenue expenditure by CIT (Appeals) instead of capital expenditure by AO. The Assessing Officer while completing the assessment treated the cost of software amounting to Rs.1,16,248/- as capital expenditure holding that the Assessee is deriving long term benefit of enduring nature by purchasing this software. On appeal, the Ld. CIT (Appeals) deleted the addition treating the cost of software as revenue expenditure.

The Ld. Counsel reiterating the submissions made before the lower authorities submits that the acquisition of software did not result in any advantage of enduring in nature and it had not acquired the absolute ownership of the software but only the right to use of the software. The expenditure constitutes recurring operational expenses and are necessary for the efficient day to day functioning of the assets of the company and hence are in the nature of revenue expenditure. It is also submitted that the application software purchased i.e excise and service tax software and e-TDS software was only to facilitate proper accounting and other functions within the organization and it did not result in any enduring benefit or profitability to the Assessee. Therefore, such software applications do not help in increasing the business of the Assessee and only helps in efficient and effective conduct of the business placing reliance on the decision of the Bombay High Court in the case of CIT Vs. Raychem RPG Ltd. [346 ITR 138] and CIT Vs. Kotak Securities Ltd. [346 ITR 349]. The Ld. Counsel submits that the software expenses should be allowed as revenue expenditure.

We have heard the rival submissions, perused the orders of the authorities below. In the case of CIT Vs. Raychem RPG Ltd (supra), Bombay High Court confirmed the order of the Tribunal and held that software expenditure incurred by the Assessee is not part of profit making apparatus of Assessee and therefore expenditure is revenue expenditure. In this case, the Tribunal followed the special bench decision in the case of Amway India Enterprises Vs. DCIT [301 ITR (AT) 1] and held that since the software does not form part of profit making apparatus of the Assessee, the same is to be allowed as revenue expenditure. In the case of CIT Vs. Kotak Securities Ltd. (supra), it was held that no substantial question of law will arise on a question raised by the revenue as to whether the software expenditure is capital expenditure or revenue expenditure. The Tribunal held that expenditure on purchase of software is revenue in nature. Respectfully following the above said decisions, we uphold the order of the Ld. CIT (Appeals). This ground of appeal is dismissed.

Briefly stated the facts are that the Assessee had two units one situated at Roha and the other at Ambernath. The operations in Ambernath unit was discontinued from July 2008. The Assessing Officer observed that on September 3, 2007, the business purchase agreement was entered into by the Assessee with Nilefo Chemicals India Pvt. Ltd for sale of Ambernath Unit including land, factory, plant and machinery. The Assessing Officer held that thought the Ambernath factory was run upto July 2008, the depreciation was claimed on the entire block of assets for the full year. The Assessing Officer was of the view that since the Assessee by virtue of entering into business purchase agreement discontinued the business permanently, Assessee is not entitled for depreciation on Ambernath Unit. On appeal, the Ld. CIT (Appeals) allowed the claim for depreciation observing that it is admitted by the Assessing Officer that the operation of the Ambernath unit was closed only from July 2008, that means, the unit was in operation from April to June 2008 and therefore, the unit was used in the previous year. Since the unit was used in the previous year relevant to the assessment year under consideration, depreciation has to be allowed. While holding so, he has considered the detailed submissions of the Assessee wherein various case laws were relied on by the Assessee.

The Ld. Counsel for the Assessee submits that the shut down unit of Ambernath was used for part of the year and it is forming part of block of assets. Therefore, Assessee is entitled for depreciation. Placing reliance on the following decisions of the Delhi and Gujarat High Courts in the cases of Capital Bus Service Pvt. Ltd Vs. CIT [123 ITR 404] and ACIT vs. Ashima Syntex [251 ITR 133], the counsel submits that in these decisions, it was held that even if asset was used for part of the year, depreciation is allowable. The Ld. Counsel for the Assessee also submits that depreciation is allowable even if unit remains closed during the entire year. For this he places reliance on the decision of the Mumbai Bench in the case of Swati Synthetics Ltd. Vs ITO [38 SOT 208] and the Delhi High Court in the case of CIT Vs. Oswal Agro Mills Ltd. [238 CTR 113].

The Ld. DR placed reliance on the assessment order.

We have heard the rival submissions, perused the orders of the authorities below. It is undisputed fact that the assets of Ambernath Unit were put to use by the Assessee during April to July 2008 during the assessment year under consideration. Therefore, when once the assets of a block are put to use during the year depreciation cannot be denied on the ground that they are subsequently sold by the Assessee. Even if the Assessee sold the Ambernath unit subsequently at least till the period of the asset put to use i.e. July 2008 depreciation is allowable.

In the case of Swati Synthetics Ltd. (supra), the Coordinate Bench of the Tribunal following the decision of the Jurisdictional High Court in the case of GR Shipping Ltd. in dated 28.07.2009 held that once the assets are entered into block of assets, the individual identity of the assets will loose and depreciation should be allowed on the entire block of assets as the existence of an individual asset in the block of assets itself amounts to use for purpose of business. Therefore depreciation is allowable on such assets even though the said asset is not actually used in course of business during the relevant assessment year. The Hon’ble Bombay High Court in the case of GR Shipping Ltd (supra) dismissed the appeal of the revenue holding that no substantial question of law would arise on the question as to whether depreciation would be allowable on the asset not used by the Assessee during the year which is part of block of assets observing as under : “1. Heard learned counsel for the parties.