DCIT, CIRCLE - 1, KOLKATA, KOLKATA vs. M/S. MCNALLY SAYAJI ENGINEERING LIMITED, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA [Before Shri M. Balaganesh, AM & Shri Partha Sarathi Chaudhury, JM]

I.T.A No.2776/A/2011 Assessment Year: 2008-09

Mc Nally Sayaji Engineering Ltd. Vs. Assistant Commissioner of Income-tax, (PAN: AACCS5491A) Circle-4, Baroda. (Appellant) (Respondent) & I.T.A No.1575/Kol/2011 Assessment Year: 2008-09

Deputy Commissioner of Income-tax, Vs. Mc Nally Sayaji Engineering Ltd Circle-1, Kolkata. (Appellant) (Respondent) & I.T.A No.927/Kol/2013 Assessment Year: 2009-10

Mc Nally Sayaji Engineering Ltd. Vs. Deputy Commissioner of Income-tax, Circle-1, Kolkata. (Appellant) (Respondent)

Date of hearing: 27.02.2017 Date of pronouncement: 10.03.2017

For the Assessee: Smt. Shreya Loyalka, CA For the Revenue: Md. Ghayas Uddin, JCIT, Sr. DR

ORDER Per Shri M. Balaganesh, AM: The captioned cross appeals being ITA Nos. 2776/A/2011 and 1575/Kol/2011 by assessee and revenue are arising out of order of CIT(A)-III, Baroda vide appeal No. CAB/III-245/10-11 dated 23.08.2011 and ITA No. 927/Kol/2013 by assessee is arising out of order of CIT(A)-XXIV, Kolkata vide appeal no.1158/CIT(A)-XXIV/C-1/12-13 dated 18.02.2013 respectively. Assessment was framed by ACIT, Circle-4, Baroda u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2008- 09 vide his order dated 30.11.2010 and assessment was framed by DCIT, Circle-1, Kolkata u/s. 143(3) of the Act for Assessment Year 2009-10 vide his order dated 29.12.2011 . Since some of the issues are common and facts are identical, we dispose of the same by this consolidated order for the sake of convenience.

2 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 2. At the outset, we find that there is a delay of 8 days in filing the appeal by the revenue before us in ITA No. 1575/Kol/2011 for Asst Year 2008-09. We have gone through the reasons given in the delay condonation petition and we are convinced with the same and hence the delay of 8 days is condoned and appeal of the revenue is hereby admitted for adjudication.

The facts in Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon would apply with equal force as the facts are identical in Asst Year 2009-10 also except with variance in figures.

The brief facts of this issue is that the ld AO observed that the assessee had claimed dividend income of Rs 3,20,894/- as exempt. The ld AO show caused the assessee as to why the disallowance u/s 14A of the Act read with Rule 8D of the Rules be not made in the instant case. In response thereto, the assessee replied that the investments were made in earlier years out of its own funds and not fresh investments were made in the years under appeal except growth oriented investment in mutual funds which did not fetch any dividend income. Hence it was pleaded that no expenditure was incurred for earning the aforesaid dividend income. Further, it was stated that investments are made in mutual funds based on pre-determined investment criteria and hence no overhead expenditure is also relatable to the said income in this year. The aggregate of the assessee’s own funds amounted to Rs. 2279.06 lacs whereas the aggregate investments amounted to Rs. 70.77 lacs only. Hence, it is apparent that the investments were made only out of own funds and no part of interest paid on loans is relatable to the investment activity. The ld AO noticed that the assessee had paid interest on its borrowed funds to the tune of Rs. 38,99,276/- . He accordingly worked out the disallowance under Rule 8D(2)(ii) of the Rules in the sum of Rs. 2,16,172/- and under Rule 8D(2)(iii) of the Rules in the sum of Rs. 57,386/-. Accordingly, total disallowance u/s 14A of the Act read with Rule 8D of the

3 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 Rules worked out to Rs. 2,73,558/-. The ld CIT(A) sustained the disallowance made by the ld AO. Aggrieved, the assessee is in appeal before us on the following grounds:- Ground Nos. 1(a) & 1(b) of assessee’s appeal for AY 2008-09: “1(a) That on the facts and circumstances of the case, the learned CIT (A) was not justified in making a disallowance of Rs. 273,588 under section 14A of the Act without appreciating the fact that the appellant did not incur any expenditure to earn exempt income. 1(b) That on the facts and in the circumstances of the case, and without prejudice to Ground No. 1(a) taken here in above, the learned CIT (A) erred in computing the disallowance under section 14A of the Act read with Rule 8D.” Ground Nos. 3(a) & 3(b) of assessee’s appeal for AY 2009-10:

“3(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified and erred in upholding the disallowance of Rs 173,862 by the Ld. DCIT under section 14A read with Rule 8D without appreciating the fact that the appellant did not incur any expenditure to earn exempt income. 3(b) That on the facts and in the circumstances of the case and without prejudice to ground no 3(a), the Ld. CIT(A) erred in upholding the disallowances made by the Ld. DCIT by invoking the provisions of Rule 8D while making disallowance under section 14A of the Act.”

3.1. The ld AR argued that the assessee had own interest free funds many times over the investment made in Indian subsidiaries and further there was no direct nexus between interest bearing borrowed funds and such investment. The ld AR placed reliance on the following decisions in support of her arguments :- CIT vs Suzlon Energy Ltd (Tax case Appeal No. 223 of 2013 ) by Hon’ble Gujarat High Court CIT vs HDFC Bank Ltd (ITA No. 330 of 2012 ) by Hon’ble Bombay High Court CIT vs Reliance Utilities & Power Ltd reported in (2009) 313 ITR 340 (Bom)

Without prejudice to the above, the ld AR argued that only investments which yielded dividend / exempt income should be taken into account for making disallowance under Rule 8D(2)(ii) and (iii) of the Rules. In support of this, she placed reliance on the following decisions :- Raniganj Co-operative Bank Ltd vs DCIT reported in (2016) 73 taxmann.com 90 (Kolkata Trib) REI Agro Ltd vs DCIT in ITA No. 1331/Kol/2011 dated 19.6.2013 (Kolkata Trib) Tata Metalics Ltd vs ACIT in ITA No. 737/Kol/2012 (Kolkata Trib)

4 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 Teenlok Advisory Servies (P) Ltd vs DCIT reported in (2016) 71 taxmann.com 269 (Kolkata Trib)

3.2. In response to this, the ld DR vehemently relied on the orders of the lower authorities and argued that the provisions of Rule 8D are to be mandatorily complied with from Asst Year 2008-09 and onwards. The ld DR placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of Dhanuka & Sons reported in 339 ITR 319 (Cal) wherein it was held that the onus is on the assessee to prove that the investments were made out of own funds even though the investments were made in the earlier years.

3.3. We have heard the rival submissions. We find that the Hon’ble Jurisdictional High Court in the case of Dhanuka & Sons reported in 339 ITR 319 (Cal) had categorically held that even though the investments were made in the earlier years, the onus is on the assessee to prove that in those respective years, the investments were made out of own funds and no borrowed funds were utilized for the same. Hence we set aside this aspect of the issue to the file of the ld AO with a direction to the ld AO to produce the earlier year records to prove that the investments in earlier years were indeed made out of own funds. If the same is found to be correct, then no disallowance under Rule 8D(2)(ii) of the Rules towards proportionate interest would operate. We direct the ld AO accordingly.

3.3.1. In respect of disallowance made towards administrative expenses under Rule 8D(2)(iii) of the Rules, we hold that the co-ordinate bench of this tribunal in the case of REI Agro Ltd supra had held that only dividend bearing investments should be taken into account for the purpose of working out the disallowance under Rule 8D(2)(iii) of the Rules. We direct the ld AO accordingly. Hence the Grounds raised by the assessee in this regard are partly allowed for statistical purposes.

The brief facts of this issue is that the assessee made provision for leave encashment to the tune of Rs. 11,17,925/- and claimed the same as deduction which was disallowed by the ld AO by invoking the provisions of section 43B(f) of the Act. The ld CIT(A) sustained the

5 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 disallowance by placing reliance on the decision of the Hon’ble Supreme Court in the case of Exide Industries Ltd. Aggrieved, the assessee is in appeal before us on the following ground:- “2 That on the facts and circumstances of the case, the learned CIT (A) was not justified and erred in disallowing the claim of the Appellant in respect of deduction of provision for leave encashment of Rs 1,117,925 under section 43B of the Act.”

4.1. The Learned AR argued that since the decision of the Calcutta High Court in the case of Exide Industries Ltd 292 ITR 470 (Cal) has struck down the provisions of section 43B(f) of the Act, the deduction may be granted towards leave encashment made on provision basis itself in line with the decision of the Supreme Court in the case of Bharat Earth Movers Ltd reported in 245 ITR 428 (SC). In response to this, the Learned DR argued that the Hon’ble Supreme Court vide its interim order dated 8.5.2009 had held in the concluding paragraph that the assessee shall pay tax as if the provisions of section 43B(f) of the Act is there in the statute and the ld AO should disallow the same till the disposal of the main appeal by the Hon’ble Apex Court.

4.2. We have heard the rival submissions and perused the materials available on record. We find that though the Hon’ble Calcutta High Court in the case of Exide Industries Ltd vs Union of India reported in 292 ITR 470 (Cal) had struck down the provisions of section 43B(f) of the Act as unconstitutional, the revenue had carried the matter further to the Hon’ble Supreme Court which initially in Special Leave to Appeal (Civil) CC 12060 / 2008 dated 8.9.2008 had held as under:-

“The petition was called on for hearing today. Upon hearing counsel the court made the following Order. Issue Notice. In the meantime, there shall be stay of the impugned judgement, until further orders.”

Later the Hon’ble Supreme Court in Special Leave to Appeal (Civil) No(s). CC 22889 / 2008 dated 8.5.2009 had held as under:-

“The petition was called on for hearing today. Upon hearing counsel the court made the following Order Delay condoned. Leave granted. Pending hearing and final disposal of the Civil appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as

6 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 the outstanding interest demand as of date is concerned, it would be open to the department to recover that amount in case Civil Appeal of the department is allowed.

We further make it clear that the assessee would, during the pendency of this Civil Appeal , pay tax as if Section 43B(f) is on the statute book but at the same time it would be entitled to make a claim in its returns.”

Hence, from the aforesaid Supreme Court judgement, it could be inferred that the Hon’ble Supreme Court had not stayed the judgement of the Calcutta High Court during Leave proceedings. But the Hon’ble Supreme Court had only passed an interim order on the impugned issue. Hence we deem it fit and appropriate , in the interest of justice and fair play, to set aside this issue to the file of the Learned AO to pass orders based on the outcome of the main appeal on merits by the Hon’ble Supreme Court as stated supra. Accordingly Ground No. 2 in ITA No. 2776/Kol/2011 for Asst Year 2008-09 raised by the assessee is allowed for statistical purposes.

The brief facts of this issue is that the ld AO observed that the assessee had debited under the head ‘repairs and maintenance’ expenditure incurred towards civil and roof repairs of factory walls, stores and office at Rs. 10,27,538/- ; repairs to floor factory and building at Rs. 5,22,914/- and change and repairs of doors amounting to Rs. 5,05,000/-. The ld AO show caused the assessee as to why the aforesaid expenditure should not be treated as capital in nature. The assessee replied vide its letter dated 11.10.2010 the complete details of repairs and maintenance together with the respective bills. The assessee vide further reply dated 30.11.2010 explained the nature of work carried out in respect of repairs and maintenance together with the names of the parties to whom the amounts were paid . It was stated that based on these submissions, the aforesaid expenditure are purely revenue in nature and allowable as deduction under the Act. The assessee referred to the provisions of section 30 of the Act which read as under:- 30. In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed – (a) where the premises are occupied by the assessee –

7 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 (i) as a tenant, the rent paid for such premises ; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs ; (ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;

Accordingly it was stated that the provisions of the Act provide for deduction in respect of repairs made to the premises used for the purpose of business by restricting it to the concept of current repairs. To decide the applicability of section 30 of the Act, the test is not whether the expenditure is revenue or capital in nature, but whether the expenditure is ‘current repairs’ or not. Section 30 of the Act does not specifically define the term ‘ current repairs’. The assessee placed reliance on the definition given in the dictionary. Reference was invited to Oxford Dictionary to define the term ‘current’ in conjunction with repairs. According to the Oxford Dictionary, the word ‘current’ is derived from the latin word ‘currere’ which means ‘to run’. The word ‘current’ therefore literally means ‘running’. As per the lexicographic meaning the term ‘current’ must be interpreted as ‘running in time; belonging to the present time’. The word ‘repair’ according to the Oxford Dictionary, would means ‘to restore to good condition by renewal or replacement of decayed or damaged parts’ or ‘ to renew or renovate something or part’. A renewal may be repair or reconstruction. Renewal is repair only if it is restoration or replacement of subsidiary parts of the old machinery. The assessee placed reliance on various decisions in support of its contentions that the aforesaid expenditures are only revenue in nature and only in the nature of repairs.

The ld AO disregarded the various contentions of the assessee and proceeded to disallow the expenditure by treating the same as capital expenditure and accordingly added back the same to the total income. The said action of the ld AO was upheld by the ld CIT(A). Aggrieved, the assessee is in appeal before us on the following grounds :- “3 (a) That, on the facts and in the circumstances of the case, the learned CIT (A) was not justified in ignoring the submissions/documents made/filed by the appellant and in disallowing the claim of the appellant in respect of claim of expenditure incurred for repairs and maintenance of office / factory roof, flooring and doors of Rs 1,600,952 by treating the same as capital in nature.

3(b) Without prejudice to Ground No. 3(a) taken here in above, the learned CIT (A) was not justified and erred in considering that the expenditure incurred on repairs and

8 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 maintenance of office / factory roof etc had been incurred on acquisition of new assets and thus do not qualify for deduction under section 37 of the Act.”

5.1. We have heard the rival submissions and perused the materials available on record. We have gone through the bills for repairs and maintenance incurred by the assessee. From the perusal of the same, we find that the expenditures were incurred only on account of current repairs which would definitely fall only under the ambit of revenue expenditure. We find that there is absolutely no enduring benefit that occurs to the assessee in the capital field. The ld DR argued that the assessee had been given depreciation on the said expenditure accepting its alternative argument before the lower authorities and hence there cannot be any grievance to the assessee in this regard. The ld AR argued that the assessee vehemently objected to treating the said expenditure as capital expenditure and depreciation claim thereon was made only as an alternative measure without prejudice to its original claim of revenue expenditure. The ld AR stated apart from placing reliance on various decisions and explaining the nature of works carried out by the assessee with specific reference to the relevant bills, finally stated that similar issue with regard to replacement of foundation base of plant and machinery had come up before this tribunal in assessee’s own case for the Asst Year 2007-08 in ITA No. 72/2011 dated 6.1.2017. We find that the expenditure incurred are such that if looked from the larger context of business necessity or expediency, it could be safely concluded that the expenditure incurred is so related to the carrying on or conduct of the business thereby regarding the same as an integral part of the profit earning process and not for acquisition of asset or any right of permanent character. We find that the Hon’ble Punjab & Haryana High Court in the case of Allied Metal Products vs CIT reported in (1981) 137 ITR 689 (P&H) had decided that expenditure incurred by the assessese for repair of the leaking roof of the office premises will be considered as expenditure incurred wholly and exclusively for the purpose of the business as the business cannot be advantageously carried out under a leaking roof. We also find that the reliance placed by the ld AR on the co-ordinate bench decision of Jaipur Tribunal in the case of ACIT vs Mewar Polytex Pvt Ltd reported in (1995) 51 TTJ 698 (Jp) is well founded wherein it was decided that where an assessee incurs expenditure on extensive repairs carried out in replacing roof sheets, flooring etc, necessitated due to heavy rain and floods which caused the extensive damage, such

9 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10

expenditure would be considered as allowable business expenditure and it was further decided that no new asset would come into existence by virtue of the said expenditure. We find that from the details of the expenditure incurred together with their bills, we hold that the assessee does not derive any enduring benefit in the capital field so as to fall within the ambit of capital expenditure. We also find that this tribunal in assessee’s own case for the Asst Year 2007-08 supra after analyzing the Hon’ble Delhi High Court and Supreme Court decisions in the case of Modi Spinning & Weaving Mills Co Ltd and Saravana Spinning Mills P Ltd respectively relied upon by the lower authorities, had held as under:- “7. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the claim of the assessee for deduction on account of replacement of flooring/foundation has been considered by the authorities below only from the angle of current repairs as provided in section 31(i) and not under section 37. As held, inter alia, by the Hon’ble Supreme Court in the cases of Badridas Daga –vs.- CIT [34 ITR 10] and Calcutta Company Limited –vs. – CIT [37 ITR 1], even if the expenditure made by the assessee cannot be described as current repairs, he is entitled to invoke the benefit of section 37. Even in the case of Modi Spinning & Weaving Mills Co. Limited (supra), Hon’ble Delhi High Court while holding that the amount spent for replacement of administrative block of the assessee, which was long overdue, could not be allowed as deduction under the head “current repairs”, further clarified that such replacement amounting to renovation or repairs may be entitled to deduction under section 37. Even in the case of Saravana Spinning Mills (P) Limited (supra) cited by the ld. D.R., it was held by the Hon’ble Supreme Court that while deciding the applicability of section 31(1), the test is not whether the expenditure is revenue or capital in nature but whether the expenditure is current repairs. It is thus clear that the issue relating to the allowability of the expenditure incurred on replacement or renovation as is involved in the present case has to be decided on the touchstone of section 37 and from this angle, the relevant test to be applied is whether such expenditure incurred on replacement is revenue or capital in nature. In this regard, the legal position is well settled that if it is a case of replacement of capital asset as a whole or substantially the whole, the expenditure incurred on such replacement is of capital nature. In the present case, the foundation/flooring undoubtedly was a part of a capital asset either of machinery as claimed by the assessee or of building as held by the authorities below and therefore, the expenditure incurred on replacement thereof, in our opinion, was revenue in nature, which is allowable as deduction under section 37. For this conclusion, we draw support from the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Mahalakshmi Textiles Mills Limited –vs.- CIT [66 ITR 710], wherein it was held that in a case, where the productive unit set up by the asessee remained the same but a part of it, which has become unsuitable for its use, is replaced by something, which makes it possible for the existing set up to function efficiently, the cost incurred on such replacement would be revenue expenditure. We also draw support from the decision of the Hon’ble Madras High Court in the case of CIT –vs.- Fenner India Limited [292 ITR 605] wherein it was held that the question whether the

10 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 expenditure on replacement of machinery is capital or revenue expenditure is not determined by treatment given in the books of account and that the claim has to be determined only by the provisions of the Act. As such, considering all the facts of the case and keeping in view the ratio of the judicial pronouncements discussed above, we are of the view that the expenditure incurred by the assessee on replacement of the existing flooring/foundation used for plant and machinery is allowable as deduction being revenue in nature and the disallowance made by the authorities below by treating the same as capital nature is not sustainable. We, therefore, delete the said disallowance and allow Ground No.1 of the assessee’s appeal.”

5.2. In view of the aforesaid facts and respectfully following the judicial precedents relied upon hereinabove, we hold that the expenditure incurred towards repairs and maintenance supra would be squarely allowable as revenue expenditure and the ld AO is hereby directed to delete the disallowance of the same. Accordingly, the Ground Nos. 3 (a) & (b) in ITA No. 2776/Kol/2011 in Asst Year 2008-09 are allowed.

The brief facts of this issue is that the ld AO observed that the assessee has paid professional fees to the following parties :- Deloitte Haskins and Sells Rs. 1,12,36,000 Patni Parmar & Co., Chartered Accountants Rs. 22,44,848 JRS Patel Management Consultants Pvt Ltd Rs. 33,70,800 ----------------------- Rs. 1,68,51,648 --------------------- The ld AO requested the assessee to give explanation and justification with regard to the payments made to the above parties. The assessee filed the details of legal and professional fees paid to various parties together with the details of tax deducted at source on the same. The assessee vide further letter dated 30.11.2010 filed the details of legal and professional fees paid to Deloitte Haskins and Sells (DHS in short) [Rs. 1,12,36,000]

11 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 and Patni Parmar & Co (PPC in short) [Rs. 22,44,848] together with the nature of services they provided to the assessee. The assessee also furnished the engagement letters issued to them by the assessee describing nature of services expected of them. The assessee also explained the details of services received from these two parties as under:- “Payment to Deloitte Haskins & Sells (‘DHS’) amounting to Rs, 11,236,000, During the assessment proceeding, the assessee has received advisory services from DHS in connection with the drawing up suitable management structure and preparing a business plan etc. During the assessment year under consideration, the assessee was exploring the possibilities to restructure its business operation for the smooth functioning of its business operations and enabling the management to conduct the assessee's business more profitably, as one of the options. The said expenditure has not resulted in acquiring any new assets and the expenditure incurred is undoubtedly not personal or capital in nature and is wholly and exclusively for the purpose of the business of assessee. The basic objective is to obtain advantage in the commercial sense. - Patni Parmar & Co ('PPC'). amounting to Rs.2,244,848 During the assessment year under consideration, the assessee has received management and financial consulting services from PPC which the following services: a) Corporate and Commercial Agreement b) Company Law Compliances; c) income Tax Related Services; d) FEMA related services; and e) Other services. The aforesaid services are received from PPC in order to facilitate the carrying on of the business more efficiently and effectively. The assessee is corporate entity and it is required to maintain its books of accounts as per the accounting standard and has to comply various regulatory provisions and, hence, appointed PPC for compliance of legal and regulatory matter. In this connection, it is submitted that the said expenditure is not capital or personal in nature and the expenses has been incurred for the purpose of business.”

7.1. The assessee pleaded that the aforesaid expenditure is squarely allowable as deduction u/s 37(1) of the Act. It placed reliance on various decisions in support of its contentions. The ld AO observed that the assessee had stated that the payment made to DHS was made for advisory services and in the case of PPC and JRS Patel Management Consultants Pvt Ltd , payments were made for management and financial consultancy services. The assessee was asked to furnish copy of the agreement between these parties and the report submitted by them proving the services rendered by them. Since no such papers were furnished by the assessee, the ld AO concluded that the aforesaid expenditure was not supported by any corroborative evidence and also the assessee was not able to prove the benefit it derived on account of professional services rendered by these parties to

12 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 the assessee. Accordingly he disallowed the entire legal and professional charges of these three parties amounting to Rs. 1,68,51,648/- as not incurred wholly and exclusively for the purpose of business.

7.2. The ld CIT(A) observed that though the engagement letter was issued prior to 31.3.2008, the services were rendered only in Asst Year 2009-10 which is evident from the invoices raised by the said parties on the assessee and accordingly the expenses did not accrue to the assessee in the year under appeal. The ld CIT(A) observed that the assessee was asked to prove the nature of services rendered by these professionals to the assessee in the form of reports, letters, correspondences etc. The ld CIT(A) by placing reliance on certain decisions observed that mere existence of an agreement between the assessee and other party, the ITO is not bound to hold that the payment made is exclusively and wholly for the purpose of assessee’s business and hence the burden of proof is on the appellant to prove with corroborative evidences that the expenditure has been incurred wholly and exclusively for the purpose of business of the assessee. He further observed that it is very strange that from the nature of services promised to be rendered by those three parties, the same requires frequent correspondences, regular reporting, meetings and deliberations between the assessee and those parties . In such a scenario, how and why the assessee is not able to produce any evidence to support its claim is not known. Accordingly he observed that non-production of any such documents clearly means that the assessee had not availed any services from these parties and the alleged payments to them are nothing but colourable device to reduce the income of the assessee.

7.3. The ld CIT(A) further with regard to the accrual of the said expenses for the Asst Year 2008-09 observed that the services were rendered only in the next financial year relevant to Asst Year 2009-10 which is evident from the engagement letter and the date of invoices raised by the parties wherein the liability to pay the sums would accrue only on completion of the work by the respective parties and hence on any count , the expenditure cannot be claimed as deduction for the Asst Year 2008-09. With these observations, he sustained the disallowance of legal and professional charges for the Asst Year 2008-09. Aggrieved, the assessee is in appeal before us on the following grounds :- “5 (a) That on the facts and circumstances of the case, the learned CIT (A) was not justified and erred in considering that the legal and professional charges have not been

13 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 incurred wholly and exclusively for the business of the Appellant and thus disallowing the claim of the Appellant in respect of legal and professional charges amounting to Rs.16,851,648. 5(b) Without prejudice to Ground No. 5(a), the Ld. CIT(A) without appreciating the various documents submitted by the Appellant, erred in considering that no services were actually rendered by the service providers to the Appellant and that the Appellant used a colourable device to reduce his taxable income. 5(c) Without prejudice to the above grounds, in case your Honour is of the view that the claim is not allowable in the year under consideration, on the ground, as alleged by the Ld. CIT(A), that the said amount has not crystallized in the year under consideration, then your Honour may give necessary direction to the AO to allow the said claim, in the year the said amount has crystallized.”

7.4. We have heard the rival submissions. We have gone through the contents of the paper book of the assessee in this regard. We find that Deloitte Haskins and Sells had specified the details of services that they are willing to render to the assessee vide engagement letter dated 1.2.2008 which are enclosed in pages 296 to 310 of the paper book together with invoice of Deloitte raised on 15.5.08 , 26.5.08, 9.6.08 enclosed in pages 311 to 313 of Paper Book. We find that JRS Patel Management Consultants Pvt Ltd had specified the details of services that they are willing to render to the assessee vide engagement letter dated 10.3.2008 which are enclosed in pages 315 to 321 of the paper book together with their invoice raised on 29.4.08 enclosed in page 322 of Paper Book. Similarly we find that Patni Parmar & Co, Chartered Accountants had specified the details of services that they are willing to render to the assessee vide engagement letter dated 11.3.2008 which are enclosed in pages 323 to 329 of the paper book together with their invoice raised on 15.4.08 enclosed in page 330 of Paper Book. We also find that the assessee had filed additional evidence in terms of Rule 29 of the ITAT Rules containing the following:- a) Certificate issued by Deloitte that it has rendered services to the assessee (enclosed in page 419 of the paper book) b) Copy of report dated 18.5.2008 issued by Patni Parmar & Co, Chartered Accountants (enclosed in pages 420 to 427 of the paper book) c) Copy of report dated 23.5.2008 issued by JRS Patel Management Consultants Pvt Ltd ( enclosed in pages 428 to 435 of the paper book) .

14 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 We find that the lower authorities had disallowed the said expenses of legal and professional charges incurred on these three parties on the basis that the assessee had not been able to produce any corroborative evidences to prove that the assessee had availed professional services from the said parties for the purpose of the business. We find that the aforesaid additional evidences would be very crucial to adjudicate the issue under dispute and accordingly we admit these additional evidences and since the same was not available before the lower authorities, we deem it fit and appropriate to set aside this issue to the file of the ld AO to decide the same afresh in the light of the additional evidences filed herein and in accordance with law. Needless to mention that, the assessee be given reasonable opportunity of being heard. Accordingly, the Ground Nos. 5(a) to 5 (c ) are allowed for statistical purposes.

The brief facts of this issue is that the ld AO observed that the assessee had debited under the head ‘miscellaneous expenditure’ , payments made to Shri S Prajapati (Rs. 2,00,984/-) and Shri K C Papachan (Rs. 1,50,445/-) for design and drawings for machines and service engineering respectively. The ld AO observed that the assessee had deducted tax at source at the rate of 2% as against 10% prescribed u/s 194J of the Act by treating the said payments as fees for professional and / or technical services. Accordingly he found that the assessee is entitled to claim the expenditure to the extent of tax deducted at source. Accordingly he disallowed a sum of Rs. 1,38,409/- in the assessment u/s 40(a)(ia) of the Act. Before the ld CIT(A), the assessee submitted that these two parties (viz Shri S Prajapati and Shri K C Papachan) were employees of the assessee and they were controlled and directed by the assessee under an express or an implied contract of hire and paid salary as per contractual terms. Since there existed an employer-employee

15 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 relationship, the same is liable for deduction of tax u/s 192 of the Act and assessee also produced copy of employment letter and Form 16 issued to those employees. The ld CIT(A) observed that these persons were employed as Service Engineer and Design Manager on a contractual basis for the period of 2 years and they have been issued Form 16 by the assessee treating them as salaried employee. Hence TDS u/s 192 of the Act alone is attracted and hence no disallowance u/s 40(a)(ia) of the Act could be attracted in the instant case. Aggrieved, the revenue is in appeal before us on the following ground:- “1. Ld. CIT(A) has erred on the facts and in law in deleting the addition of Rs.1,38,409/- made u/s. 40(a)(ia) considering additional evidences without seeking remand report from the AO.”

10.1. The ld DR argued that the ld CIT(A) simply accepted the version of the assessee that these two persons are employed by the assessee on contractual basis without remanding the matter to the ld AO for verification of the documents submitted by the assessee. Hence he argued that the findings of the ld CIT(A) in this regard is perverse. In response to this, the ld AR argued that the details of contractual payment along with TDS was called for by the ld AO during the course of assessment proceedings and the same was duly provided to him vide letter dated 30.11.2010 which are enclosed in pages 272 to 287 of the paper book. It was argued that the details of TDS, employment letter, TDS return, leave application and other relevant documents were enclosed before the ld AO . The ld AR argued that it was clearly pointed out to the ld AO that there exist an employer-employee relationship between the assessee and those two parties (contract employees), the assessee controls and directs the workers under an express or implied contract of hire and pays the workers salary or wages as per the contract entered with them. It was also stated that the tax is deducted at source u/s 192 of the Act on these employees. Hence the arguments of the ld DR is factually incorrect and deserves to be dismissed. In any case, she argued that since there is some deduction of tax at source, then it would only amount to short deduction of tax , for which the provisions of section 40(a)(ia) of the Act cannot be invoked. Reliance in this regard was placed on the co-ordinate bench decision of this tribunal in the case of DCIT vs S.K.Tekriwal reported in (2011) 15 taxmann.com 289 (Kolkata Trib).

16 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 10.2. We have heard the rival submissions. We find that the existence of employer – employee relationship has been proved by the assessee in the instant case and the ld CIT(A) had rightly deleted the disallowance u/s 40(a)(ia) of the Act in the instant case. We do not find any infirmity in the findings of the ld CIT(A). Accordingly, the Ground No. 1 raised by the revenue in ITA No. 1575/Kol/2011 is dismissed.

17 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 towards retention money. Aggrieved, the revenue is in appeal before us on the following ground :- “2.Ld. CIT(A) has erred on the facts and in law in deleting the addition of Rs.9,56,450/- for retention money, which was made on receipt basis when the assessee followed mercantile system of accounting.”

11.1. The ld CIT(A) for the Asst Year 2009-10 upheld the action of the ld AO by holding that the correctness of the claim for deduction in respect of the retention money was supported by audited accounts or any documentary evidence. The ld CIT(A) also observed that the assessee had not explained as to how the retention money had increased from Rs. 9,56,450/- in Asst Year 2008-09 to Rs. 3,09,09,437/- in Asst Year 2009-10 when the volume and nature of the business had remained same in both the years. He further observed that since the retention money has been directly claimed as reduction from the total income in the computation of total income without any corresponding entry in the audited accounts, there is no safeguard for the revenue that it would be offered for taxation in future. Based on these observations, he confirmed the addition made towards retention money in the sum of Rs. 3,09,09,437/- for Asst Year 2009-10. Aggrieved, the assessee is in appeal before us on the following grounds:- “l(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) failed to follow the decision of the Ld. CIT(A) - III, Baroda in appellant's own case for AY 2008-09 in relation to claim of retention money. I(b) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified and erred in not excluding retention money amounting to Rs. 30,909,437 in computing total income under the normal provisions of the Act on the ground that the claim of the deduction was not supported by audited accounts or any documentary evidence without giving any opportunity to the appellant. I(c) That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in stating that no explanation was furnished by the appellant during the proceedings for the increase in retention money from AY 2008-09 to AY 2009-10 without giving any opportunity to the appellant. I(d) That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in stating that without any corresponding entry in the audited accounts there is no safeguard for the revenue that it would be offered for taxation in future.”

11.2. The ld DR argued that the said receipt was in the nature of retention money was not proved by the assessee in the instant case and placed heavy reliance on the order of the ld CIT(A) for the Asst Year 2009-10. In response thereto, the ld AR placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs Simplex Concrete

18 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 Piles (India) Pvt Ltd reported in (1989) 179 ITR 8 (Cal) . She further argued that the ld CIT(A) for Asst Year 2009-10 did not dispute the principles of offering the retention money on receipt basis on satisfactory completion of the contract and as and when the same is cleared by the concerned parties to the contract. She added that the turnover had increased from Rs 59 crores in Asst Year 2008-09 to Rs 200 crores in Asst Year 2009-10. She filed additional evidences before this tribunal with regard to the fact of offering the subject mentioned retention monies belonging to Asst Years 2008-09 and 2009-10 in subsequent years. She stated that these details were never asked for by the lower authorities and the assessee came to know of this only from the order of the ld CIT(A) for the Asst Year 2009-10. Hence the details of offer towards retention money in subsequent years is filed herein as additional evidences and prayed for admission of the same as it completely reverses the findings of the ld CIT(A). She fairly stated that let this aspect be examined by the ld AO in order to arrive at the correctness of the claim made by the assessee.

11.3. We have heard the rival submissions and perused the materials available on record. We find that the additional evidences filed by the assessee deserves to be admitted in the facts and circumstances of the case as it contains the necessary details of offer of retention money from various projects in the subsequent assessment years. Admittedly the same were not filed by the assessee before the lower authorities as they were not called for by the lower authorities. Once it is proved that the said nature comprises of retention money and the same is offered to tax by the assessee in the subsequent years then the entire findings of the ld CIT(A) for the Asst Year 2009-10 gets answered. In view of these facts and circumstances, we deem it fit and appropriate, in the interest of justice and fairplay, to set aside this issue of addition towards retention money for both the Asst Years 2008-09 and 2009-10, to the file of the ld AO , to verify the correctness of the offer of retention monies in subsequent years and accordingly decide the issue in accordance with law. Accordingly, the Ground No. 2 in ITA No. 1575/Kol/2011 raised by the revenue for Asst Year 2008-09 and Ground Nos. 1(a) to 1(d ) in ITA No. 927/Kol/2013 for Asst Year 2009- 10 raised by the assessee are allowed for statistical purposes.

19 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 Ground No. 3 in ITA No. 1575/Kol/2011 for Asst Year 2008-09

The brief facts of this issue is that the ld AO observed that the assessee had claimed additional depreciation on windmill to the tune of Rs. 79,69,231/- which was sought to be disallowed by him in the assessment. The assessee vide its reply dated 30.11.2010 contended that the depreciation had been claimed u/s 32(1)(iia) of the Act and that the said section lays down that in addition to normal depreciation at prescribed rates, further depreciation shall be allowed to the assessee at the rate of 20% on new plant and machinery acquired and installed after 31.3.2005. It was further contended that the additional depreciation was rightly claimed on the actual cost of assets. The ld AO observed that there is no doubt that additional deprecation was for giving further thrust in investment in general plant and machinery used for manufacturing of its products by the assessee. The additional depreciation is not for the purpose of windmill in the instant case, which is already entitled for 80% depreciation i.e at the accelerated rate. He accordingly concluded that the additional depreciation is only to be allowed on general plant and machinery eligible for depreciation at the rate of 15% and not for those assets which were already exigible for accelerated depreciation. Accordingly he disallowed the claim of additional depreciation on windmill in the assessment.

12.1. The ld CIT(A) observed that the assessee placed reliance on the decision of the Hon’ble Madras High Court in the case of CIT vs Texmo Precision Castings reported in 321 ITR 481 (Mad) ; CIT vs Hi Tech Arai Ltd reported in 321 ITR 477 (Mad) wherein it was held that as far as application of section 32(1)(iia) of the act is concerned, what is required to be satisfied in order to claim the additional depreciation is that a new machinery or plant should have been acquired and installed after 31st March 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of new machinery or plant, which was acquired or installed after 31st March 2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Accordingly the court held that the contention that the setting up of windmills has nothing to do with industry of manufacturing of oil seed is totally not germane to the specific provisions contained in section 32(1)(iia) of the Act. The ld CIT(A) appreciated these

20 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 submissions of the assessee and respectfully following the decisions of the Hon’ble Madras High Court supra , deleted the disallowance of additional depreciation on windmill. Aggrieved, the revenue is in appeal before us on the following ground:- “3. Ld. CIT(A) has erred on the facts and in law in deleting the addition of Rs.79,69,231/- claimed by the assessee as additional depreciation on windmill, which is already allowed at a higher rate of depreciation i.e. 80%.”

12.2. The ld DR argued that whether windmills were added during the year or in earlier years were not proved by the assessee. In response to this, the ld AR stated that both the ld AO as well as the ld CIT(A) had clearly bifurcated the depreciation and additional depreciation on windmills added during the year as well as in earlier years in their respective orders and hence the version of the ld DR deserves to be dismissed.

12.3. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decisions of the Hon’ble Madras High Court supra which has been rightly relied upon by the ld CIT(A). Hence we do not find any infirmity in the order of the ld CIT(A) in this regard. Accordingly, the Ground No. 3 in ITA No. 1575/Kol/2011 for Asst Year 2008-09 raised by the revenue is dismissed.

Ground No. 4 in ITA No. 1575/Kol/2011 for Asst Year 2008-09 The brief facts of this issue is that the assessee claimed additional depreciation on machinery to the tune of Rs. 10,51,944/- which was disallowed by the ld AO on the ground that the assessee had not proved the increase in installed capacity as warranted in the provisions of section 32(1)(iia) of the Act. The ld CIT(A) deleted the said disallowance. Aggrieved, the revenue is in appeal before us on the following ground:-“ “4. Ld. CIT(A) has erred on the facts and in law in deleting the addition of Rs.10,51,944/- claimed by the assessee as additional depreciation without increasing in installed capacity.”

13.2. The ld DR relied on the order of the ld AO. In response thereto, the ld AR relied on the order of the ld CIT(A).

13.3. We have heard the rival submissions. We find that the condition for increase in installed capacity for the purpose of additional depreciation was dispensed with by

21 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 Finance Act 2005, yet the ld AO disallowed the same holding that relaxation in the conditions of increase in installed capacity by Finance Act 2005 does not change the basic purpose for which the section was inserted. We hold that the reason for granting additional depreciation is to give more further thrust in investment in general plant and machinery used for manufacturing of its products by the assessee. The ld CIT(A) had observed that no condition for increase in installed capacity is provided for allowance of additional depreciation and accordingly deleted the disallowance by the ld AO. We do not find any infirmity in the said order of the ld CIT(A) . Accordingly, Ground No. 4 in ITA No. 1575/Kol/2011 for Asst Year 2008-09 raised by the revenue is dismissed.

Ground Nos. 2(a) & 2(b) in ITA No. 927/Kol/2013 for Asst Year 2009-10 The brief facts of this issue is that the ld AO observed that the assessee had debited bad debts aggregating to Rs. 99,87,000/- in its profit and loss account on account of its numerous debtors / customers which became bad during the year under consideration on the plea that the same are not realizable. The ld AO observed that the amount had been duly written off in the books of the assessee as irrecoverable and claimed as bad debts by the assessee u/s 36(1)(vii) of the Act. The assessee placed reliance on the decision of the Hon’ble Supreme Court in the case of T.R.F. Ltd vs CIT reported in 230 CTR 14 (SC). The ld AO on scrutiny of the details of bad debts found that the amount of bad debts of Rs. 31,48,061/- was written off under the following heads :- 1) Eriez MBI India Ltd – Rs. 7,99,850/- related to the year 2007-08 towards sales commission 2) Differential Tax due to non submission of statutory forms – Rs. 51,007/- 3) Advances written off – Rs. 13,14,188/- 4) Bad Debts at Kumardhubi Branch for the year 2007-08 – Rs. 9,83,016/-

The assessee was asked to explain as to how the debt had become bad in respect of the above and how the conditions u/s 36(1)(vii) read with section 36(2) of the Act were fulfilled by the assessee. The ld AO not convinced with the reply given by the assessee proceeded to disallow a sum of Rs. 31,48,061/- towards bad debts in the assessment.

22 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10

14.1. Before the ld CIT(A), the assessee contended that the ld AO had wrongly considered the advances written off figure at Rs. 13,14,188/- in staed of correct figure of Rs 7,43,971/- thereby resulting in excess disallowance thereon. With regard to the claim of bad debts , the ld CIT(A) was convinced with the explanations given by the assessee that it had duly complied with the provisions of section 36(1)(vii) read with section 36(2) of the Act and accordingly deleted the disallowance of bad debts to the tune of Rs. 18,33,873/-. The ld CIT(A) however observed that the advances written off in respect of the sum of Rs. 5,53,934/- on account of TDS recoverable cannot be allowed as deduction u/s 28 of the Act read with section 37 of the Act. He further held that the assessee failed to explain as to how the advances written off in respect of the remaining amount of Rs.1,90,034/- could be allowed u/s 28 read with section 37 of the Act. Accordingly, he confirmed the disallowance made in respect of advances written off in the sum of Rs. 7,43,968/- . Aggrieved, the assessee is in appeal before us on the following grounds:- “2(a) That on the facts and circumstances of the case, the Ld. CIT(A) was not justified and erred in disallowing amount of Rs.553,934 written off on account of TDS recoverable under section 28 read with section 37 of the Act and/or section 36(2) of the Act. 2(b) That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified and erred in disallowing advances written off amounting to Rs.190,034 in terms of section 28 read with section 37 of the Act.”

14.2. The ld AR argued that the party wise details of advance to suppliers written off during the year under appeal are enclosed in additional evidences filed before this tribunal. She requested for the same to be admitted for better appreciation of the facts on record. She argued that the said advances were given to suppliers in the regular course of business of the assessee and the same had to be eventually written off as irrecoverable and accordingly claimed as deduction u/s 28 of the Act as a trading loss. She also referred to the reply filed before the ld AO vide letter dated 21.12.2011 enclosed in pages 38 to 40 of the paper book wherein the entire details of advances written off were furnished. She placed reliance on the following decisions in support of her contention for allowability of TDS recoverable written off as under:- (a) Hon’ble Punjab & Haryana High Court in the case of CIT vs M/s Shreyans Industries Ltd in ITA No. 277 of 2004 dated 15.11.2013 (b) Delhi Tribunal in the case of Kelly Services India Pvt Ltd vs DIT in iTA No. 5435/Del/2011 dated 16.9.2011

23 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10

In respect of regular advances written off which were given in the ordinary course of business, she argued that the same would be squarely allowable as a trading loss u/s 28 of the Act . She placed reliance on the following decisions:- (a) Hon’ble Supreme Court in the case of Badridas Daga vs CIT reported in (1958) 34 ITR 10 (SC) (b) Hon’ble Calcutta High Court in the case of CIT vs Baldeoram Beharilal reported in (1975) 99 ITR 108 (Cal) (c ) Hon’ble Kerala High Court in the case of Travancore Tea Estates Co Ltd vs CIT reported in (1992) 197 ITR 528 (Ker) (d) Hon’ble Calcutta High Court in the case of CIT vs Gillanders Arbuthnot & Co Ltd reported in (1982) 138 ITR 763 (Cal)

14.3. In response to this, the ld DR argued that the provisions of section 36(2) of the Act were not complied with by the assessee for claiming deduction in respect of TDS recoverable written off and advance to suppliers written off.

14.4. We have heard the rival submissions and perused the materials available on record. We find that the assessee had filed the list of parties to whom advances were given in the ordinary course of its business i.e. advance paid to suppliers , in the form of additional evidences which, in our considered opinion, would have to be admitted for better appreciation of the facts. However, we find that the same had not been examined by the lower authorities. Hence in the interest of justice and fair play, we deem it fit and appropriate, to set aside this aspect of the issue to the file of the ld AO to examine those additional evidences and if it is found that the said advances were given in the normal course of business of the assessee, then the same would have to be allowed as a trading loss u/s 28 of the Act as admittedly the same were written off in the books by the assessee. The assessee has to prove the fact of irrecoverability of the said advances to the ld AO. Accordingly this aspect of the ld AO i.e. Ground No. 2(b) raised by the assessee in ITA No. 927/Kol/2013 for Asst Year 2009-10 is allowed for statistical purposes.

With regard to allowability of TDS recoverable written off is concerned, we find that the assessee had filed the details of the same before the ld AO , wherein it was clearly mentioned that the assessee had decided to write off the same due to non –availability of TDS certificates. Since the recoverability arose only in the form of collection of TDS

24 ITA Nos.2776/A/2011,1575/K/2011 & 927/K/.2013 Mc Nally Sayaji Engg. Ltd.., AY 2008-09 & 2009-10 certificates, it goes beyond doubt that the assessee had offered the same as income in the earlier years as admittedly the TDS would be relatable to income only. Moreover, we hold that there is no requirement to satisfy the test of offering of income in the earlier years in terms of section 36(2) of the Act as the subject mentioned issue is not towards bad debts but only bad advances written off. Hence, the allowability of the same would be governed by the provisions of section 28 of the Act. The assessee in the instant case had written off the TDS portion due to non-availability of the same and hence it becomes a trading loss u.s 28 of the Act as to that extent, it had neither received the money nor the TDS certificate. Hence it becomes a trading loss allowable u/s 28 of the Act. Accordingly, the Ground No. 2(a) raised by the assessee in ITA No. 927/Kol/2013 for Asst Year 2009-10 is allowed.

Order is pronounced in the open court on 10.03.2017 Sd/- Sd/- (Partha Sarathi Chaudhury) (M. Balaganesh) Judicial Member Accountant Member

Dated : 10th March, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to: APPELLANT – Mc Nally Sayaji Engineering Ltd., Ecospace Campus, 1. 2B, 11F/12 (Old Plot no. AA II/Blk 3), New Town, Rajarhat, North 24 Parganas, Kolkata-700 156 2 Respondent – DCIT, Circle-1, Kolkata. 3. The CIT(A), Kolkata 4. CIT, Kolkata. 5. DR, Kolkata Benches, Kolkata

/True Copy, By order,

Asstt. Registrar.