LOTUS ENERGY (I) LTD,MUMBAI vs. CIT RG 8, MUMBAI

आयकर अपील"य अ"धकरण “A” "यायपीठ मुंबई म"। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 4355/Mum/2011 ("नधा"रण वष" / Assessment Year : 2006-07) M/s Lotus Energy (India) Commissioner of Income बनाम/ Ltd., Tax- Range 8, v. 409, Laxmi Plaza, 2 nd floor, Aaykar Bhavan, Laxmi Industrial Estate, M.K. Road, Andheri (W), Mumbai. Mumbai -400053. "थायी लेखा सं./PAN : AABCL6119K (अपीलाथ" /Appellant) .. (""यथ" / Respondent)

Assessee by Shri Sanjay Parikh Revenue by : Shri R.P. Meena

सुनवाई क" तार"ख /Date of Hearing : 27-09-2016 घोषणा क" तार"ख /Date of Pronouncement : 14-12-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member

This appeal, filed by the assessee, being ITA No. 4355/Mum/2011, is directed against the order u/s 263 of the Income-tax Act,1961(hereinafter called “the Act”) dated 30th March, 2011 passed by learned Commissioner of Income Tax - 8, Mumbai (hereinafter called “the CIT”), for the assessment year 2006-07 .

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“1. a) The order directing fresh assessment u/s 263 is without jurisdiction and bad in law. b) The learned CIT erred in law in directing fresh assessment u/s. 263 without appreciating the fact that the assessment order passed u/s.143(3) is not erroneous and prejudicial to the interests of the revenue. c) The learned CIT erred in facts and law in appreciating that the Id. Assessing Officer had already taken a view on the issues raised in revision proceedings and therefore, the initiation of revision proceedings u/s. 263 are invalid and bad in law. 2. Your appellant prays that- (i) Order passed u/s. 263 be treated as invalid and bad in law. (ii) Any other relief, as deemed fit in the matter, may be granted.”

“Perusal of the assessment records for A.Y. 2006-07 reveals that the assessment made by the ACIT – 8(3)(OSD) u/s 143(3) dated 23.12.2008 is erroneous and prejudicial to the interest of revenue for the following reasons:-

“(a) For the relevant financial year the assessee has made following payments which were the subject matter of TDS but no TDS has been made:

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S No. Nature of payment Section Amount (Rs) under which the tax was deductible 1 Ground Rent paid to Visa Industries 194I 34,94,512/- Ltd. And Balaji Coke Industries Pvt. Ltd. 2 Wharfage charges Visa Industries 194C 5,65,974 Ltd. And Balaji Coke Industries Pvt. Ltd. 3 Stevedoring charges paid to Visa 194C 16,68,998/- industries Ltd. And Balaji Coke Industries Pvt. Ltd. 4 Freight charges paid to Antai Balaji 194C 36,00,308/- Ltd. 5 Usance interest paid to Fair Deals 194C 5,75,177/- and Supplies Ltd. 6 Handling charges to Balaji Coke 194C 26,83,992/- Industries P. Ltd. Total 1,25,88,961/-

As no tax was deducted at source in respect of the above payments, the same were liable to be disallowed u/s 40(a)(ia) of the Act. As such disallowance u/s 40(a)(ia) has not been done, the assessment order is erroneous and prejudicial to the interest of revenue to such extent.

b. It is observed that the assessee has paid interest of Rs. 8,39,272/- to the parties from whom unsecured loans were obtained. In this regard, it is observed that the assesee has paid interest of Rs. 8,39,272/- and on this interest TDS has been deducted @ 10.20% whereas the actual TDS should have been deducted @ 22.44%. Thus on the pro-rata basis the payment of interest of Rs. 4,19,636/- was allowable and balance payment of interest amounting to Rs. 4,19,636/- was disallowable u/s. 40(a)(ia) of the Act .As such disallowance u/s. 40(a)(ia) has not been done, the assessment order is erroneous and prejudicial to the interest of the revenue to such extent..

c. From the particulars of depreciation allowed u/s. 32 of the Act, it is observed that the assessee has claimed depreciation @ 10% on Labour Quarters amounting to Rs.1,54,318/-. These assets are residential buildings and the allowable rate of deprecation was 5% and thus the allowable depreciation works out to Rs. 77,069/- Thus, excess depreciation of Rs. 77,069/- has been allowed to the assessee. It is also observed that the bunker shed has been classified as "Plant and Machinery" and depreciation has been claimed @ 15% amounting to Rs.

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37,22,364/- However, the bunker shed is "Factory Building" eligible for 10% depreciation. Thus, the allowable depreciation works out to Rs. 24,81,576/-. As a result, excess depreciation of Rs. 12,40,788/- has been allowed to the assessee. Further, the Factory electrification has been classified as "Plant and Machinery" and depreciation has been claimed @ 15% amounting to Rs. 2,13,636/-. However, the factory electrification falls under the head" Furniture and Fixtures" eligible for depreciation @ 10%. Thus, the allowable depreciation works out to Rs. 1,42,424/- . As a result, excess depreciation of Rs. 71,212/- has been allowed to the assessee. To such extent, the assessment order is erroneous and prejudicial to the interest of the revenue.

For the above reasons, as the assessment completed by the ACIT- 8(3)(OSD) for A. Yr. 2006-07 on 23.12.2008 is erroneous and prejudicial to the interest of revenue, you are hereby given this notice to show cause as to why the assessment made by the A.O. should not be modified/cancelled as the same is erroneous and prejudicial as detailed above. You are, therefore, required to attend before the undersigned on 21.03.2011 at 3.30 p.m. either in person or by a representative duly authorized in writing in this behalf. If you do not wish to avail of this opportunity of being heard in person or through authorized representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 263."

In response to the above show cause notice issued by the AO, the assessee made oral and , as well written submission vide letter dated 25th March, 2011 before the learned CIT which are reproduced below:-

“A TDS not deducted on the following payments made by the assessee which were subject matter of TDS.

In your Honour’s opinion, above mentioned payments are to be disallowed u/s 40(a(ia) as the payments made are subject matter of TDS and no TDS has been deducted by the assessee under section 194C and 194I. The details of disallowance and nature of payments are as follows:-

Sr Nature of Section Amount(Rs) Nature of payment No. payment under which the tax was ITA 4355/Mum/2011 5

deductible 1 Ground rent 194I 34,94,512 Reimbursement of paid to Visa ground rent of Rs. Industries and 210,000/- to Visa Balaji Industries Ind. Ltd. and Pvt. Ltd. Rs.1,394,512/- to Balaji Coke Ind. Pvt. Ltd. The total amount is Rs. 16,04,512/- and not Rs. 34,94,512/- as alleged. 2 Wharfage 194C 5,65,974 Reimbursement of charges paid to Wharfage charges of Visa Industries Rs. 75,000/- to Visa and Balaji Ind. Ltd. And Rs. Industries Pvt. 490,974/- to Balaji Ltd. Coke Ind. Pvt. Ltd. 3 Stevedoring 194C 1,668,998/- Reimbursement of Charges paid to Stevedoring charges Visa Industries of Rs. 850,578/-to and Balaji Visa Ind. Ltd. and Industries Pvt. Rs. 818,290/- to Ltd. Balaji Coke Ind. Pvt. Ltd. 4 Freight charges 194C 3,600,308 Reimbursement of paid to Antal Freight charges of Balaji Ltd. Rs. 3,600,308/- to Antai Balaji ltd. (sister concern of Balaji Coke Ind. Pvt. Ltd.) 5 Usance Interest 194C 575,177 Reimbursement to paid to Fair Fair Deals & Deals and Suppliers Suppliers 6 Handling 194C 2,683,992 Reimbursement of charges paid to handling charges of Balaji Industries Rs. 2,683,992/- to In respect of the above facts, we wish to state as follows:

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(a) Your Honour may note that the assessee has reimbursed a sum of Rs.16,04,512/- towards Ground Rent to M/s Visa Industries Ltd and Balaji Coke Industry Pvt. Ltd and not Rs. 3,494,512/- as mentioned.

(b) The assessee had purchase raw material from Visa Industries Ltd and it was required to incur some expenses in respect of the clearance & storage of the goods. It was also agreed between the parties that the assessee company will reimburse the actual cost incurred by Visa Industries Ltd towards Ground Rent, Wharfage Charges and Stevedoring Charges. M/s Gautam Freight Pvt. Ltd has arranged the facility required for Visa Industries and Visa Industries have accordingly made the payment to Gautam Freight. Subsequently the assessee company has reimbursed the said cost to Visa industries based on the actual cost incurred by them for which they have raised a separate debit note with supporting for actual cost incurred by it. Since the assessee has only reimbursed the actual cost, no TDS is liable to be deducted on such reimbursement.

Further, Your Honour will notice that wherever the payment has been directly made to the Gautam Freight Pvt. Ltd i.e. service provider, TDS has duly been deducted on it by your assessee.

(c) The assessee had purchased the goods from Balaji Coke Industry Pvt. Ltd and it was required to incur all the expenses in respect of the clearance & storage of the goods. It was also agreed between the parties that the assessee company will reimburse the actual cost incurred by Balaji Coke Industry Pvt. Ltd towards Ground Rent, Wharfage Charges, Stevedoring Charges, Freight Charges and Handling Charges. M/s Rishi Shipping has arranged the facility required for Balaji Coke Industry Pvt. Ltd and Balaji Coke Industry Pvt. Ltd have accordingly made the payment to Rishi Shipping. Subsequently, the assessee company has reimbursed the said cost to Balaji Coke Industry Pvt. Ltd. based on the actual cost incurred by them for which they have raised a separate debit note along with the supporting for actual cost incurred by them. Since the assessee has only reimbursed the actual cost, no TDS is liable to be deducted on such reimbursement.

d) Your Honour may also note that the service provider has actually paid the expenses to the Kandla Port, which is a Government authority.

(e) Your Honour may further note that the assessee has reimbursed the actual cost incurred by the Visa Industries Ltd and Balaji Coke

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Industry Pvt. Ltd. The Visa Industries Ltd and Balaji Coke Industry Pvt. Ltd. have neither booked any profit nor taken any commission on the same. Visa Industries Ltd and Balaji Coke Industry Pvt. Ltd have debited to the assessee that same rate as is charged by the ultimate service provider to them and recovered only appropriate amount from the assesseee. The payment is purely in the nature of the reimbursement.

(f) The assessee has also relied on the Q. No. 30 of the Boards Circular No. 715 dated August 08, 1995, wherefrom it is clear that wherever the reimbursement of expenses are claimed through a separate statement or invoice there will no requirement to deduct tax at source, provided the deductor is satisfied that the expenses claimed as reimbursement are only the actual expenses incurred. If there is an element of profit, that is to say that if the reimbursement is not of actual expenses, tax will have to be deducted at source even if the expenses claimed through a separate statement.

(g) Attention is also invited to the judgment of Delhi Bench of ITAT in case of ITO vs. Dr. Willmar Schwabe India (P.) Ltd (2005) 1 SOT 71/95TTJ53 wherein it is held that reimbursement of expenses for which bill is separately raised did not attract the provisions of TDS. The same view is also taken by the Hon'ble Delhi Bench of ITAT in United Hotels Ltd vs. Income Tax Officer (2004) 93TTJ822. (h) Your Honour shall also appreciate that the assessee has submitted all the details and debit notes related to the reimbursement of the expenses during the assessment proceedings to assessing officer vide point no. 10 & 11 of our submission dated 21/11/2008. (i) In respect of the above, we are enclosing herewith the copies of Debit Notes raised by M/s Visa Industries Ltd and Balaji Coke Industry Pvt. Ltd or their sister concerns along with the relevant supporting to show that the parties have claimed only the actual amount charges to them by the ultimate service provider.

(j) Also, Your Honour would appreciate that in so far as deduction u/s.194I is concerned, the same is based on the nature of income in the hands of the recipient and in case of reimbursement of expenses, the recipient is acting only as a conduit for receiving the payment. Also, as per section 194I, the deduction is to be made by the payee of such sum which is income assessable as rent in terms of the said section. Thus, as per the provisions of section 194I, it is the final payer of the ITA 4355/Mum/2011 8

amount to the payee who is receiving the sum in form rent income is required to deduct the tax and not the person who is reimbursing the said amount. This is rightly so because, even in our case even for a moment it is assumed that tax were deducted and a certificate were to be issued to the parties to whom reimbursement is made, the questions would arise as to how they would claim credit for the same, because as per the provisions of Chapter XVII only the person who offers the income can claim the credit for the tax deducted at source and the sum reimbursed is never the income of person who is claiming reimbursement as the said receipt is never its income in nature of rent.

(k) Even in so far as section 194C is concerned, the responsibility is on the person paying any sum to the contractor and when the amount was reimbursed by your assessee it was not paid to the contractor but to the party who had to make payment to the contractor. Also, the parties to whom reimbursements were made would not be offering this amounts as income and therefore even if tax were deducted on sum paid to them, they would not be in position to claim credit for such tax deducted from amount reimbursed to them.

We would also like Your Honour to visit some of the supporting documents with the debit note. In most of the cases, the suppliers have availed services for larger quantities than the amount debited to your assessee. From the said larger amount payable by the suppliers to the service providers, they have collected the amount due from your assessee on the basis of proportion of quantity supplied to it in.

(l) Thus, in view of the above facts, viz.-

a. That ultimate payment in respect of all the items are in the nature of reimbursement and payment to the ultimate service provider/payees has been made by the supplier of raw material.

b. That the assessee does not have any contract/ agreement/ arrangements directly with the contractors/payees and wherever the assessee has directly engaged any such service provider directly it has duly deducted the tax thereon.

c. That reimbursement are on actual amounts paid by the supplier to the service providers and separate debit note, with supporting

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documents for rate charged are also supplied on which there is no profit element of the supplier included.

d. In most of the case the suppliers have made payment for a larger quantities and taken reimbursement of your assessee only to the extent of quantities actually supplied to the assessee.

e. That even as per the circular mentioned above and specific explanations in (j) and (k) above in respect of nature of deductions u/s. 194I and s. 194C there is no liability on your assessee to deduct tax.

Your assessee was not required to deduct any tax on the amounts reimbursed and therefore to this extent there is no error in the order made by the Assessing Officer and there cannot be any annulment thereof or revision on the above count.

B. The assessee has paid the Interest on unsecured loans of Rs. 839,272/- and on this interest TDS has been deducted @ 10.20% whereas the actual TDS should have been deducted @ 22.44%:

a. As per your opinion TDS should have been deducted at the rate of 22.44% on the interest paid on unsecured loans of Rs. 839,272/- and not @ 10.20% which is deducted by the assessee on the payments of interest made to the individuals of HUFs. In respect of the above, we wish to state as follows:

b. During the FY 2005-06 the assessee has paid the Interest of Rs.839,272/- on unsecured loans after deducting the TDS @ 10.20%. The Party-wise details of the Interest payment and TDS deducted are as follows:

Sr Name of the party status Amt. paid TDS TDS rate No deducted

1 Abhishek Agarwal Individual 1,56,956 16,010 10.20% 2 Asho K. Agarwal Individual 1,73,428 17,690 10.20% 3 AshokK. Agarwal HUF HUF 15,950/- 1,627 10.20% 4 Neeta Agarwal Individual 153,575 15,665 10.20% 5 Shashi A Agarwal Individual 181,281 18,491 10.20% 6 Arun Kumar Agarwal Individual 158,082 16,124 10.20% Total 839,272 85,607 10.20%

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c. From the above, it is clear that all the payees are individuals or HUF and therefore the assessee was liable to deduct the TDS @ 10.20% and the assessee has deducted the same @ 10.20% in accordance with the d. Your Honour shall also appreciate that the assessee has submitted the details and ledger account of the Interest paid on unsecured loans during the assessment proceedings to assessing officer vide point No. 5 of our submission dated 21/11/2008. The confirmations and ledger account of lenders are also submitted during the course of assessment proceedings.

In view of the above it is clear that there is no error in deducting the TDS on Interest paid on unsecured loans u/s 194A. Therefore, the order of assessing officer in this respect cannot be considered to be erroneous and prejudicial to the interests of revenue.

C. Depreciation

In respect of the claim of the depreciation, you have made an observation on classification of some of the assets, that the same are erroneous and prejudicial to the interest of the revenue. In this regards, in respect of each of the observations, we have to submit as under-

a) Your Honour has observed that Labour Quarters are classified as Factory Buildings and depreciation @ 10% has been claimed on the same instead of Residential Buildings on which depreciation @ 5% only is allowable. In this regards, we wish to state as follows:

(i) The factory of the assessee is situated at the Kutch (Gujarat) and the assessee is manufacturing the LAM Coke. The process of manufacturing of LAM Coke requires running of furnace around the clock and the factory of the assessee company runs for 24 hours. The labourers are required to continuously watch the process and hence they have to present there all the time.

(ii) Hence, to ease their presence, the labour quarters are located inside the factory premises. The assessee has provided quarters to the labours/workers for smooth running of the factory inside the factory premises itself. Hence, the labour quarters are not residential quarters

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provided to the labours but these are temporary accommodation for the working labour only and hence it is in the nature of factory premises only. It may be noted that facility of staying are available for only 6 to 8 labourers at a time and that too without family members.

(iii) Your Honour will agree that the residential quarters are generally separate from office or factory premises and are in the nature of residence for the staff/workers alongwith their family members. In the case of the assessee company, the labour quarters are temporary accommodation to ease their presence during slog hours and facilitate continuous running of plant and to continuously monitor the process.

(iv) Your Honour will also appreciate that mere nomenclature of any asset cannot be the basis of deciding its rate of depreciation. The functionality aspects should also be examined before deciding the depreciation block. Thus, as per the functionality test, the labour quarters are being used as a part of the factory premises. Therefore, the staff quarters are considered as part of the factory premises and accordingly depreciation @ 10% has been claimed.

(v) In this regards, we would like to draw your kind attention to the decision of Madras HC in case of CIT v. Standard Motor Products of India Ltd. [1983] 142 ITR 877 wherein it has been held that where the administrative block housed the chief engineer and related staff, the canteen, the new stores, and co-operative stores buildings, which were essential adjuncts to the factory premises were rightly treated as factory buildings. The same decision is also followed in the case of CIT vs. Motor Industries Co. Ltd [1986]158 ITR 734 (Kar.)/CIT vs. Engine Valves Ltd. [1980] 1261TR 347 (Mad.)/ CIT vs. Bajaj Auto Ltd. [2009]182 Taxmann 163 (Bom.) wherein it has been held that a Canteen building is, in the proper sense of the term, a factory building for the purpose of depreciation allowance.

b) Your Honour has observed that Bunker Sheds are classified as plant and Machinery and depreciation @ 15% has been claimed on the same instead of factory Buildings on which depreciation @ 10% only is allowable. In this regards, we wish to state as follows:

(i) The process involved in the manufacture of LAM coke is a continuous process and it is also power intensive process. The bunker shed is constructed over the furnace unit and is very much a part of the whole plant in which the process of manufacturing LAM coke is carried out. Since the bunker shed is part of the whole plant, same is taken as part of plant and depreciation is claimed at the rate applicable to the plant,

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which in this case is 15%. Attention of Your Honour is also invited to the Annexure of Depreciation attached to Form No. 3CD where the Bunker Shed has been included as part of the plant only.

(ii) The Bunker Shed has a very useful purpose in keeping the furnace running uninterrupted continuously without any interruption of the outside natural force. Further, it is not a building in the sense that any human being can enter it as it located exactly over the furnace. Thus, having regards to its function and its placement in overall manufacturing process, it has to be considered as part of the plant and accordingly depreciation is allowable at the same rate as Plant and Machinery.

c) Your Honour has observed that Factory Electrification are classified as plant and Machinery and depreciation @ 15% has been claimed on the same instead of Furniture and Fittings on which depreciation @ 10% only is allowable. In this regards, we wish to state as follows-

(i) We would like to draw your attention to the Annexure to Form No. 3CD in respect of working of depreciation. According to the said schedule in the plant and machinery the assessee has provided details of all the items included within plant. As pointed out above, the process involved in manufacturing is highly power intensive, requiring high voltage usage and equipments like transformers, switch gears etc. . The process also requires use of many mechanical parts for crushing and lifting of coal as all the process cannot be carried out manually, especially since furnace consumes higher level of voltage and is used for manufacturing LAM Coke.

(i) All this equipment classified under Plant & Machinery under sub- heading Factory Electrifications are part of the plant and used for manufacturing process only. Thus, inclusion of Factory Electrification is natural and according to the functions involved.

(ii) Attention of Your Honour is also invited to Annexure I prescribing rates of depreciation. If Your Honour would see the item II of Part A of the said Annexure relating to Furniture & Fittings, the classifications therein reads as “Furniture and fittings including electrical fittings”. Thus, as per the said classification, it is clear that only those electrical fittings, which form part of the Furniture and fittings are covered by the said entry. Whereas, in the case before Your Honour, the items included in the Factory Electrification are for items which can only be used in a plant as they are of the type transformers, switch gears etc.

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and form part of the whole process of manufacture and as therefore correctly classified as part of' the plant & machinery.

(iii) The above was explained during the course of hearing to the incumbent Assessing Officer on 4/12/2008. Thus, in light of the above explanations there is no error in the order and the same is neither prejudicial to the interest of the Revenue.

In light of the above facts and in view of our submissions hereinabove, it is very much evident that there is no error in the order of the Assessing Officer or even if there is error, the same is not prejudicial to the interest of the revenue. The order of Assessing Officer is also passed with the approval of the JCIT as per the new norms of scrutiny assessments.

We hope that you will find the above submissions sufficient and to your satisfaction on the points raised by your Honour in the show cause notice and that you shall drop the action initiated for revision proceedings. Should you still decide to proceed ahead with the revision proceedings by holding any view contrary to our submission, we request you to grant us further opportunity to controvert the same.

Should you require any further clarification, explanation or elaboration on the above or any matter relating to our assessment, we shall gladly furnish the same.

"Further to the our earlier submission dated 25/03/2011 and as discussed personally with Your Honour on the hearing on 25/03/2011 regarding TDS deducted by the ultimate payer, we are herewith enclosing the following documents of the few of the parties which is showing that TDS has been deducted by the ultimate payer:

1) Ledger Account of Coal Transportation in the books of Antai Balaji Ltd along with the TDS Certificate of TDS deducted on Rishi Shipping.

2) Ledger Account of Rishi Shipping in the books of Antai Balaji Limited showing the TDS deducted by Antai Balaji Ltd on the payments made to Rishi Shipping relating to the Coal Transportation Charges, Stevedoring Charges and Handling Charges.

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3) Ledger Account Rishi Shipping in the books of Balaji Coke Industry Pvt. Ltd showing the TDS deducted by Balaji Coke on the payment made to Rishi Shipping relating to the Ground Rent.

4) TDS Certificates of Rishi Shipping issued by Balaji Coke Industry Pvt. Ltd on the payments made for Ground Rent and Clearing and Forwarding Expenses.

We hope that you will find the above submissions sufficient and to your satisfaction on the points raised by your Honour in the show cause notice and that you shall drop the action initiated for revision proceedings.”

The ld. CIT considered the submissions of the assessee and came to the following conclusions:-

“4. I have perused the records and considered the submissions of the assessee. Each of the impugned issues is discussed as under: (a) As regards the issue at (a) of the show cause notice, it is seen that the assessee has claimed expenditure under the heads ground rent, wharfage charges, stevedoring charges, freight charges, handling charges, etc. . On perusal of the debit notes raised by the payee concerns named therein, it is seen that the assessee’s account has been debited by them for payments made to various other concerns by way of wharfage, handling charges, stevedoring charges, ground rent etc. . Thus, to such extent, these concerns have undertaken receipt, storage, transportation, delivery etc. of goods on behalf of the assessee and rendered such services accordingly to the assessee. Therefore, the payments made by the assessee to these persons, though termed as reimbursement, are expressly for the purpose of payment for ground rent, loading & unloading, stevedoring, wharfage etc. as distinct from the cost of bare goods. This aspect of the expenditure claimed by the assessee has not been looked into by the A.O. and the consequent applicability of the provisions of sec.40(a)(ia) has not been examined during the assessment proceedings. The assessee's contention that the payments made by it for the above charges are not liable to provisions of TDS u/s.194C/194I as the payments are merely in the nature of reimbursement, needs further probing and factual finding, since the expenses have been expressly debited by the assessee under the heads of stevedoring, wharfage charges, transport charges, etc., which are otherwise covered under the TDS provisions

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of the IT Act. The A.O. has to further examine the nature of the actual business relationship between the assessee and the parties to whom such payments have been made and the terms and conditions of such business relationship, to exactly find out if the payments are actually contractual in nature or mere reimbursements as claimed by the assessee. Since the assessment order has not dealt with the applicability of provisions of sec.40(a)(ia) in the light of the TDS liability of the assessee on the above payments, the order has become erroneous and prejudicial to the interest of revenue to that extent. Therefore, the matter is set aside with the direction to the A.O. to examine this aspect afresh by considering all the relevant facts, so as to decide the applicability of TDS provisions and consequently the provisions of sec 40(a)(ia) to the aforesaid payments made by the assessee to the parties mentioned above.

(b) It is noticed from the assessment records that the assessee has paid interest of Rs.8,39,272/- on secured loans on which TDS has been deducted @ 10.20% as against 22.44%. Before me, the assessee has submitted partywise break up of payment of interest and has stated therein that the recipients of interest are individuals and as per the provisions of the Act, the assessee was liable to deduct TDS @ 10.20%, which has been rightly deducted. The assessee's contention may be examined in terms of the rates of TDS applicable to the year under consideration and necessary action taken accordingly in terms of sec.40(a)(ia) of the Act.

(c) In respect of the issue of depreciation claimed by the assessee, in the written submission, the assessee has argued that depreciation has rightly been claimed @ 10% as the impugned assets are not residential quarters of the labourers, but a part and parcel of the factory premises which are located within the factory itself, so as to ensure that the furnace is running continuously for 24 hours and is attended to by the labourers on continuous basis. Under the circumstances, the shelter/accommodation provided within the factory premises for the labourers to attend to the furnace, cannot be treated as separate residential quarters on which depreciation is allowable at a lower rate. The assessee's contentions are taken note of. However, this issue also needs proper physical verification so that appropriate conclusion can be drawn as to whether these accommodations provided to the labourers are residential quarters or temporary accommodation for the working labourers given within the factory premises for running of the furnace, round the clock, as claimed by the assessee. Since this issue has not been examined by ITA 4355/Mum/2011 16

the A.O. during the assessment proceedings, prejudice has been caused to the interest of revenue by allowing depreciation at a higher rate, without examining the admissibility of the claim of the assessee. Therefore, the matter deserves to be set aside and restored to the A.O. for further examination and a factual finding with regard to the claim of the assessee and to allow depreciation accordingly.

Thus, in nutshell , the ld. CIT held that assessment order dated 23rd December, 2008 passed by the A.O. u/s 143(3) of the Act for the assessment year 2006-07 is erroneous and prejudicial to the interest of the Revenue and directions were issued to the A.O. to pass assessment order afresh after affording reasonable and adequate opportunity to the assessee, vide orders dated 30-03-2011 passed by learned CIT u/s 263 of the Act.

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parties for which debit notes were issued by these parties in favour of the assessee. It was submitted that these parties have deducted tax at source while making payments to the vendors from whom the services were availed. It was also submitted that where-ever the assessee made direct payment for expenses , then the assessee had deducted tax at source , while in case of mere reimbursement of expenses, no TDS was deducted . It was submitted that the copies of ledger accounts of the vendors, the details of tax deducted at source by the entities who availed the services are all placed in paper book page 97-142, which were filed before learned CIT vide letter dated 29-03- 2011. It was , thus, submitted that with respect to the following payments , these are reimbursements charges of cost to various parties for which debit notes were issued by these parties in favour of the assessee and these parties deducted tax at source while making payment to vendor rendering services to these parties for the work of the assessee.

S No. Nature of payment Section Amount (Rs) under which the tax was deductible 1 Ground Rent paid to Visa Industries 194I 34,94,512/- Ltd. And Balaji Coke Industries Pvt. Ltd. 2 Wharfage charges paid to Visa 194C 5,65,974 Industries Ltd. And Balaji Coke Industries Pvt. Ltd. 3 Stevedoring charges paid to Visa 194C 16,68,998/- industries ltd. And Balaji Coke Industries Pvt. Ltd. 4 Freight charges paid to Antai Balaji 194C 36,00,308/- Ltd. 5 Usance interest paid to Fair Deals 194C 5,75,177/- and Supplies Ltd. 6 Handling charges to Balaji Coke 194C 26,83,992/- industries P. Ltd. Total 1,25,88,961/-

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It was submitted that the AO vide notices u/s 142(1) of the Act dated 4th July, 2008 and 4th September 2008 (paper book/page 37-40) called for the detail of major expenses which were filed by the assessee vide replies on 11th November, 2008 and 21st November, 2008 which are placed in the paper book /page 42-47. It was submitted that detail examination were made by the A.O. before concluding that these are merely reimbursement of expenses hence no TDS was required to be deducted . It was submitted that all these expenses were allowed by the AO in scrutiny assessment u/s 143(3) of the Act. The assessee relied upon several case laws to contend that no TDS was required to be deducted on merely reimbursement of expenses.It was also submitted that the AO while replying to audit objections has categorically stated that no TDS is required as it is merely reimbursement of expenses and hence the AO made an informed decision that keeping in view that these expenses are merely reimbursement in nature, no TDS was required to be deducted. The letter No. ACIT/Circle-8(3)/Audit objection/2009-10 dated 19-08-2009 is placed in file. It was submitted that with respect to usance interest of Rs. 5,75,177/- , the AO sought initiation of rectification proceedings u/s 154 of Act in his reply to audit objection. Thus, it was submitted that the assessment order dated 23.12.2008 passed by the AO u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue.

With respect to payment of interest on unsecured loans , it was submitted that the interest payments were made to individuals , and TDS was deducted correctly @ 10% , hence TDS was not required to be deducted at rate of 20%.It was submitted that details were called by the AO vide notices u/s 142(1) of the Act dated 04.07.2008 and 4th September 2008, which details were duly furnished by the assessee vide letter dated 11.11.2008 (page 42- 47/paper book). The issue was examined by the AO and there-after accepted in scrutiny assessment u/s 143(3) of the Act. Thus, it was submitted that the ITA 4355/Mum/2011 19

assessment order dated 23.12.2008 passed by the AO u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue.

It was submitted that assessee is manufacturing LAM coke and furnace is installed in the factory which runs for 24 hours at high temperature and hence labour accommodation are provided within factory premises keeping in view requirement for furnace as the labourers are required to continuously watch the process . It was submitted that there are only temporary accommodation for the working of labour only whereby facility of staying is available to only 6 to 8 workers at a time and that too without family.It was submitted that it was rightly classified as ‘Factory Building’ and depreciation claimed accordingly. With respect to the depreciation, it is submitted that the assessee has made complete disclosure in the return of income filed with the Revenue and in tax-audit report. The A.O. has examined and analysed all the details submitted by the assessee vide reply dated 11/11/2008. The A.O. has disallowed the additional depreciation claimed by the assessee vide assessment orders dated 23-12-2008 passed u/s 143(3) of the Act . The factory runs for 24 hrs, hence, labour is required throughout 24 hrs. The quarters were not for family but only for temporary accommodation for workers. Since it is part of factory, the assessee correctly classified it as factory building. The ld. Counsel relied upon the decision in the case of CIT v. Motor Industries Co. Ltd. (1986) 158 ITR 734(Kar.), and in the case of CIT v. Engine Valves Ltd. (1980) 126 ITR 347 (Mad) and in the case of CIT v. Bajaj Auto Ltd. (2009) 182 Taxman 163 (Bom). Thus it is submitted that the claim of depreciation was examined by the A.O. in detail and thereafter accepted in scrutiny assessment, hence, it cannot be said that the order of the A.O. is erroneous and prejudicial to the interest of Revenue. It was submitted that section 263 of the Act was invoked by learned CIT because of audit objections. The A.O. has categorically stated that no error had taken place and the audit objections was dismissed by the AO. The reply vide letter no ITA 4355/Mum/2011 20

ACIT/Circle-8(3)/Audit Objection/2009-10 dated 19.08.2009 from the A.O. to CIT-8, Mumbai is placed in file.

With respect to the bunker, it is submitted that the assesssee is in the manufacture of LAM coke which is a continuous process and is also power intensive process. Bunker shed is constructed over the furnace and correctly classified as ‘Plant’. The A.O. has examined the claim of the depreciation on the Bunker Shed as ‘Plant and Machinery’. It was submitted that claim of the assessee for additional depreciation was disallowed by the AO. It was submitted that the assessee has in tax-audit report duly declared the same, hence, A.O. has examined the claim and allowed the depreciation which cannot be called as erroneous and prejudicial to the interest of Revenue. It was submitted that the AO dismissed the audit objection by holding that the bunker sheds were built by the assessee as part of the plant process so that the raw material does not spread out. The ld. Counsel also relied on the decision in the case of Addl. CIT v. Madras Cement Ltd. (1977) 110 ITR 281(Mad.).

With respect to the factory electrification, it was submitted that the A.O. has properly examined the claim in detail. It is submitted that details were called by the AO vide notice dated 04-07-2008 and the assessee submitted details vide letter dated 11th November, 2008. It is submitted that manufacturing process is power intensive requiring high voltage usage and equipments like transformers, switch gears etc. Electrical works carries out to run the plant efficiently. It was submitted that electrical fittings attached to the furniture and fittings are to be included under the head ‘furniture and fixture’ and hence correct classification was made. The A.O. has dismissed the audit objection by stating that the light fittings for factory electrification are to be treated as Plant and Machinery as the same are used in multiple shifts at the plant. The A.O. has dismissed the audit objection relying on the decision in ITA 4355/Mum/2011 21

the case of Geetha Hotels Pvt. Ltd.(2002) 254 ITR 649 and in the case of Mewar Oil & General Mill Ltd. (2008)216 CTR 65(Raj.). The ld. Counsel relied on the decision in the case of CIT v. Triveni Tissues Ltd. (1994) 206 ITR 92(Cal.) and in the case of CIT v. Bharat Radiators P. Ltd., (1999) 239 ITR 608(Bom.). The ld. Counsel submitted that the order of the A.O. cannot be considered as erroneous and prejudicial to the interest of Revenue. The learned counsel for the assessee relied upon large number of case laws as many as 20 case laws to support his contentions as are placed in paper book- II and III filed with the tribunal, pages 152-329. 6. The ld. D.R. relied on the order of the ld. CIT and submitted that the assessment order was rightly set aside by learned CIT as the same was erroneous and prejudicial to the interest of Revenue. The ld. D.R. relied upon the decision of the ITAT Chandigarh Bench in the case of Vodafone South Ltd. V. CIT (2015) 61 taxmann. Com 108(Chd. Trib.) and ITAT Bangalore Bench in the case of Southern Ferro Steels Ltd. v. ITO, (2016) 69 taxmann.com 196(Bang. Trib.).

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the same were plausible view after considering material on record . The A.O. has arrived at the decision after examination and enquiry hence it cannot be said that the assessment order passed by the AO was erroneous so far it is prejudicial to the interest of the Revenue to be covered under the mandate of Section 263 of the Act for revising the concluded assessment. In our considered view, the assessment order of the A.O. is neither erroneous nor prejudicial to the interest of the Revenue. The ld. CIT has invoked the provisions of section 263 of the Act based upon the audit objection raised by the internal audit party team. The A.O. has categorically replied vide letter no. ACIT/Circle-8(3)/Audit Objection / 2009-10 dated 19-08-2009 to the objections raised by the internal audit party objections and dismissed audit objections by replying on each and every issue on merit which clearly refects that the AO has gone through every issue on merits and applied his mind before passing assessment orders and the decisions was taken by the AO on merits before passing assessment order. With respect to non-deduction of TDS on usance interest , the AO while replying to audit objection has sought permission to invoke provisions of Section 154 of the Act to rectify the mistake apparent from record. The assessee in proceedings before learned CIT u/s 263 of the Act and also before us duly demonstrated that all the facts were before the AO and the AO has taken a conscious decisions on merits which is a plausible decisions which does not warrant interference u/s 263 of the Act to revise concluded assessment. We have also considered all the replies given by the assessee on merits before AO and CIT as well before us which are set out in preceding para’s and are not repeated for the sake of brevity , and we find that the assessee has convincingly replied on all issues on merits and the view taken by the AO before passing assessment order was a plausible view on merit taken after due enquiries and cannot be categorized as erroneous so far as prejudicial to the interest of the Revenue and the same does not warrant interference u/s 263 of the Act to revise concluded assessment, as the assessment order cannot be said to be erroneous so far as ITA 4355/Mum/2011 23

it is prejudicial to the interest of revenue. With respect to the usance interest, the proceedings u/s 154 of the Act was contemplated by the AO vide reply to audit objection on 19-08-2009, while ld. CIT issued show cause notice only on 11.03.2011 u/s 263 of the Act. Thus, the record of proposal to take action by the AO u/s 154 of the Act was before the CIT before issuing notice u/s 263 of the Act and hence the order of the AO cannot be termed as erroneous so far as prejudicial to the interest of Revenue as the word ‘records’ used in Section 263 of the Act shall also contemplate including the record pertaining to proceedings u/s 154 of the Act arising subsequently out of the assessment order passed by the AO u/s 143(3) of the Act , and such record was before ld CIT before he issued notice u/s 263 of the Act on 11.03.2011. Thus, in our considered view, the assessment order dated 23.12.2008 passed by the A.O. u/s 143(3) of the Act is neither erroneous nor it is prejudicial to the interest of Revenue , and the ld. CIT has not correctly invoked the provisions of section 263 of the Act, hence, the order of the CIT in our considered view is not sustainable in law and is hereby ordered to be quashed. We order accordingly.

Order pronounced in the open court on 14th December , 2016. आदेश क" घोषणा खुले "यायालय म" "दनांकः 14-12-2016 को क" गई । sd/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; "दनांक Dated 14-12-2016 [ व."न.स./ R.K. R.K. R.K., Ex. Sr. PS R.K.

ITA 4355/Mum/2011 24

आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant 2. ""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT(A)- concerned, Mumbai 4. आयकर आयु"त / CIT- Concerned, Mumbai "वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai “A” Bench 5. 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.