Neel Metal Products Ltd. vs DCIT, Circle-18(1), New Delhi

We have heard the rival submissions and perused the materials available on record. Assessee had made certain additions to Electrical installations during the year and had claimed depreciation at the rate of 15% as applicable to Plant and Machinery Block. The Learned AO sought to treat the said electrical installations as electrical fittings and accordingly allowed 10% depreciation. This issue came up for adjudication before this Delhi Tribunal in assessee’s own case for assessment years 2007-08 and 2008-09, wherein it was held that depreciation on electrical installations are to be granted only at the rate of 10 percent by considering the same as electrical fittings vide order dated 24-08-2012. The assessee preferred an appeal before the Hon’ble Jurisdictional Delhi High Court against the said order. The Hon’ble Jurisdictional Delhi High Court vide its order dated 9-10-2013 reported in 42 taxmann.com 337listed out the entire items in its order and noted that certain items fall under the category of electrical fittings eligible for depreciation at the rate of 10 percent and certain items fall under the category of plant and machinery block eligible for depreciation at the rate of 15 percent. The Hon’ble High Court held that each item had to be examined separately and depreciation need to be granted and for this purpose, it had restored the issue to the Tribunal. This tribunal in second round vide its order dated 23-09-2021, restored the issue to the file of Learned AO to examine the entire list item by item and decide the rate of depreciation as per law. The Learned AO in the order giving effect proceedings dated 28-10-2022 for Assessment Year 2008-09 granted depreciation at the rate of 15%. Further, the Tribunal vide order dated 16-3-2018 for Assessment Year 2010-11 granted depreciation at the rate of 15% on electrical installations. We follow the same order and direct the learned AO to grant depreciation at the rate of 15% on electrical installations in the facts and circumstances of the instant case. Accordingly, the Ground No. 3 raised by the assessee is allowed.

We have heard the rival submissions and perused the materials available on record. The assessee claimed depreciation at the rate of 60 percent on additions made to UPS and on the opening WDV of UPS in the income tax depreciation schedule. The Learned AO observed that UPS is to be treated as part of plant and machinery and would be eligible for depreciation only at the rate of 15 percent as against the claim of 60 percent made by the assessee. This action of the Learned AO was upheld by the Learned CITA . We find that the issue in dispute is no longer res integra in view of the decision of Hon’ble Jurisdictional Delhi High Court in the case of CIT vs BSES Yamuna Power Limited in ITA 1267/2010 dated 31-08-2010 wherein it was held that computer accessories and peripherals such as printers, scanners and servers etcetera form an integral part of the computer system and that the same cannot be used without the computer. Hence, they should be construed as part of the computer system and would be entitled for higher rate of depreciation at the rate of 60 percent. Respectfully following the same, the Ground No. 4 raised by the assessee is allowed.

We have heard the rival submissions and perused the materials available on record. The assessee declared gross business income of Rs 33.26 crores and after claiming deduction under section 80IC of the Act of Rs 12.70 crores, the net income of Rs 21.71 crores was offered to tax. The learned AO sought examine the computation of deduction under section 80IC of the Act in the course of assessment proceedings. While doing so, the assessee was asked to furnish the basis of allocation of expenses claimed under the head directors’ remuneration, directors’ travelling, legal and professional expenses, financial expenses between exempt and non-exempt units. The assessee vide its reply filed on 29-11-2011 submitted that finance charges pertaining to eligible units had been claimed as deduction under the eligible units and remaining finance charges are not related to eligible unit and hence debited in the taxable unit. As regards the indirect expenses like directors’ remuneration, audit fees, travelling expense, legal and professional charges, the assessee submitted that except for director remuneration and audit fees, the remaining expenses have been incurred specifically for units other than the eligible unit or are directly relatable to units other than eligible unit. As regards directors’ remuneration and audit fees, the assessee submitted that for the purpose of deduction under section 80IC of the Act, only income derived from industrial undertaking has to be reckoned in computing as such the income and expenditure which are not directly relatable to that industrial unit cannot but be ignored.

The Learned AO in the assessment proceedings took the common expenses and proceeded to allocate the same on the basis of turnover between exempt unit and taxable unit and reduced the claim of deduction under Section 80IC of the Act to the extent of Rs 14,83,000. This action of the Learned AO was upheld by the Learned CITA. We find that the issue in dispute was subject matter of adjudication by the coordinate bench of this tribunal in assessee’s own case in ITA No. 5807 /Del / 2015 for assessment year 2010-11 dated 31-10-2018, wherein this issue was restored by the tribunal to the file of Learned AO for de novo adjudication. Respectfully following the same, the issue is restored to the file of Learned AO for the year under consideration also and accordingly Ground No. 5 raised by the assessee is allowed for statistical purposes.

We have heard the rival submissions and perused the materials on record. It is not in dispute that the assessee ) Earned dividend income of Rs. 11,35,801 and claimed the same as exempt income in the return of income. The assessee company did not make any suo-moto disallowance of expenses under section 14A of the Act for the purpose of earning such exempt income. Accordingly, the Learned AO proceeded to make disallowance under section 14A of the Act by applying the computation mechanism provided in 2nd and 3rd limb of Rule 8D(2) of the Income Tax Rules (hereinafter referred to as the ‘Rules’) and made disallowance of Rs. 4,12,17,000 in the assessment. The Learned CITA agreed in principle the computation mechanism applied by the Learned AO but restricted the total disallowance only to the extent of exempt income by placing reliance on the decision of Hon’ble Jurisdictional Delhi High Court in the case of Joint Investments reported in 372 ITR 694 (Del) wherein it has been categorically held that disallowance cannot exceed the exempt income. Aggrieved by this order of the Learned CITA, both the assessee as well as the revenue are in appeal before us.

We find that this issue has already been addressed by the Hon’ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640 (SC) wherein it was held that the disallowance cannot exceed exempt income. The application of Rule 8D(2) of the Rules in the instant case is not disputed by the assessee before us. Hence, respectfully following the said decision, we hold that the Learned CITA had rightly restricted the disallowance under section 14A of the Act to the extent of exempt income of Rs 11,35,801. Accordingly, the Ground No. 1 raised by the assessee is dismissed and Ground Nos. 1 to 4 raised by the revenue are dismissed.

We have heard the rival submissions and perused the materials available on record. The learned AO during the course of assessment proceedings sought to examine the computation of claim of deduction under section 80IC of the Act. In that regard, the assessee was directed to furnish the basis of allocation of indirect and common expenses between exempt unit and the taxable unit. Specifically, the learned AO sought for the basis of allocation of expenses for directors’ remuneration, directors’ travelling, legal and professional expenses between exempt and non-exempt units. The assessee furnished reply for the same. The learned AO proceeded to allocate the common expenses in the form of audit fees, legal and professional fees, directors’ travelling and directors’ remuneration on the basis of turnover between eligible units and non-eligible units. Based on this allocation on the basis of turnover, the learned AO sought to shift expenditure to the tune of Rs 50,57,000 from taxable unit to eligible unit. Further, with regard to directors’ commission of Rs 2,50,00,000 which was worked out at 2.5 percent of the net profit of the company, the learned AO proceeded to allocate the same between the eligible unit and non-eligible unit in the ratio of profits of the respective units and accordingly sought to shift a sum of Rs 1,04,27,000 from non-eligible unit to eligible unit. Accordingly, the total sum of Rs 1,54,84,000 (50,57,000+1,04,27,000) was disallowed by the learned AO while computing the deduction under section 80 IC of the Act. The Learned CITA appreciated in principle the allocation mechanism adopted by the learned AO for all the expenses except in respect of Directors’ commission, which was also allocated by the learned CITA on the basis of turnover instead of on profits of the respective units. Aggrieved by this order, both the assessee as well as the revenue are in appeal before us.

We find that this issue has already been dealt by us in Assessment Year 2009-10 vide Ground No. 5, wherein the entire issue has been set aside to the file of the Learned AO for denovo adjudication in accordance with law. The decision rendered thereon shall apply mutatis mutandis for this Assessment Year also qua this issue. Accordingly, the Ground No. 2 raised by the assessee and Ground No. 7 raised by the revenue are allowed for statistical purposes.

We have heard the rival submissions and perused the materials available on record. The learned AO observed that from the separate books of accounts and balance sheet furnished for the eligible unit under section 80IC of the Act in respect of Pantnagar unit, that the reserves and surplus as on 31-3-2010 was reflected at a loss of Rs 2,69,12,967 and after set off of business loss amounting to Rs 2,69,12,967, profit of the unit was shown at Rs 17,85,75,773 . However, the assessee had claimed deduction under section 80IC of the Act during the year under consideration at Rs 20,76,34,656 in the return of income . Accordingly the learned AO sought to restrict the claim of deduction under section 80 IC of the Act after the set off of brought forward loss of Rs 2,69,12,967 of the eligible unit and reduced the claim of deduction to that extent. This action of the learned AO was upheld by the learned CITA.

We have verified the return of income for the Assessment Year 2011-12 wherein under the column of “Loss to be adjusted”, we find that there is no figure of Rs 2,69,12,967 representing loss pertaining to Pant nagar unit (eligible unit). Hence it could be safely concluded that there was no income tax loss in Pant nagar unit in earlier years. Hence there is no question of set off of any brought forward loss of Rs 2,69,12,967 of Pant nagar unit while determining the claim of deduction under section 80IC of the Act. The Ground No. 3 raised by the assessee is allowed.

We have heard the rival submissions and perused the materials available on record. The assessee had made payment of Bank Commission / Guarantee Fee without deduction of tax at source. The Learned AO during the course of assessment proceedings directed the assessee to furnish its justification of allowability of the same in terms of CBDT Notification No.56 /2012 dated 31-12-2012. The Learned AO by placing reliance on the CBDT Notification dated 31-12-2012 disallowed the Bank Guarantee Commission of Rs. 22,15,736 under section 40(a)(ia) of the Act for payment made without deduction of tax at source. The learned AO also noted that the assessee had failed to furnish the details of bank guarantee commission in the assessment proceedings. It was contended that the provisions of section 194H as stated by the learned AO would not be applicable at all in the instant case in respect of bank guarantee fees paid to bank by the assessee. There is no element of agency within the meaning of section 194H of the Act in the said transaction. It was submitted that when the bank issues the bank guarantee on behalf of the assessee, all it does is to accept the commitment of making payment of a specified amount on demand to the beneficiary stated in the bank guarantee agreement and it is in consideration of this commitment, the bank charges a fee which is customarily termed as ‘bank guarantee commission’. While it is only a bank guarantee fee and the same would not constitute commission within the meaning of section 194H of the Act and the same would be totally distinct and different from the regular business commission contemplated under section 194H of the Act. Hence, it was submitted there was no obligation on the part of the assessee to deduct tax at source. There is no principal agency relationship qua this transaction.

Before the learned CITA, the assessee submitted the complete details of the payment of Rs 22,15,736 and the learned CITA noted that only a sum of Rs 1,20,210 represent bank guarantee charges paid by the assessee out of Rs 22,15,736. Hence, by placing reliance on the CBDT Notification No. 56 / 2012 dated 31-12-2012, the learned CITA restricted the disallowance under section 40(a)(ia) of the Act to Rs 1,20,210 as against Rs 22,15,736 made by the learned AO. Aggrieved by this order, both the assessee as well as the revenue are in appeal before us.

We find that the coordinate bench of Delhi Tribunal in the case of North Eastern Carrying Corporation Limited vs ACIT in ITA No. 5964/Del/2017 for assessment year 2013-14 dated 23-09-2021 had categorically held that bank guarantee fee / commission paid before 1-1-2013 is not liable for deduction of tax at source in view of no principal agent relationship between the assessee and the bank. Respectfully following the same, we hold that the bank guarantee fee is not liable for deduction of tax at source for the year under consideration. Accordingly, the disallowance made under section 40(a)(ia) of the Act is hereby deleted. The Ground No. 4 raised by the assessee is allowed and Ground No. 8 raised by the revenue is dismissed.

We have heard the rival submissions and perused the materials available on record. The Learned AO in the course of assessment proceedings noted from the reply filed by the assessee on 24-3-2014 containing the details of capital work in progress and advances to capital suppliers, that such investments were made by the assessee out of borrowed funds. Therefore the learned AO took the average of opening and closing balance of capital work in progress (CWIP) and arrived at the average of Rs 793.54 lacs thereon. The learned AO applied interest rate of 10% on an adhoc basis on the average of aforesaid CWIP and held that the interest of Rs 79,35,000 (793.54 lacs *10%) ought to have been capitalized by the assessee and consequentially disallowed the same in the assessment. The Learned CITA found that the assessee is having sufficient interest free funds of Rs 240 crores and hence the presumption would go in favour of the assessee that the investment in CWIP had been made out of own funds and not out of borrowed funds of the assessee. We find that this proposition of law laid down by the learned CITA had been fortified by the decision of South Indian Bank Ltd vs CIT reported in 130 taxmann.com 178 (SC). Hence we do not find any infirmity in the order of the learned CITA deleting the disallowance of interest of Rs 79,35,000. Accordingly, the Ground No. 9 raised by the revenue is dismissed.

We have heard the rival submissions and perused the materials available on record. At the outset, the learned AR stated that no additional evidences were filed by the assessee before the learned CITA. The learned DR before us was not able to bring on record any additional evidences filed before the learned CITA. Hence we hold that the Ground No. 10 raised by the revenue is devoid of merit and hence dismissed.