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2021 (6) TMI 539 - AT - Income TaxDisallowance of expenditure incurred relatable to exempt income u/s.14A - HELD THAT:- As regards direct expenses relatable to exempt income, as required to be computed under Rule 8D(2)(i), the assessee itself has computed total disallowance and hence, question of reduction of disallowance computed by the assessee in its original return of income does not arise. Thus disallowance computed by the assessee under Rule 8D(2)(i), is restricted to suo motu disallowance as computed by the assessee for both assessment years. Disallowance of interest under Rule 8D(2)(ii) - In this case, the assessee has filed necessary details to prove that it has own funds in excess of investments made in shares and securities which yielded exempt income. Therefore, by following the decision of ITAT, Chennai in assessee’s own case for earlier assessment year, we are of the considered view that Assessing Officer as well as learned CIT(A) were erred in disallowing interest expenditure under Rule 8D(2)(ii) of IT Rules, 1962. Hence, we direct the Assessing Officer to delete disallowance of interest expenditure made u/s.14A of the Act. Disallowance of other expenditure @ 0.5%, average value of investments under Rule 8D(2)(iii) - We find that it is well settled principle of law that only those investments which yield exempt income for the relevant assessment year needs to be considered for computation of disallowance of other expenses under section 14A r.w.r 8D(2)(iii) of IT Rules, 1962. We further noted that the coordinate Bench has taken similar view in assessee’s own case for the assessment year 2012-13 [2020 (4) TMI 650 - ITAT CHENNAI]where the Tribunal by following the decision of ITAT., Delhi Special Bench in the case of ACIT vs. Vireet Investments Pvt.Ltd. [2017 (6) TMI 1124 - ITAT DELHI] has directed the Assessing Officer to consider only those investments which yielded exempt income for the relevant previous year to compute disallowance under Rule 8D(2)(iii) of IT Rules, 1962. Therefore, consistent with view taken by coordinate Bench, we direct the Assessing Officer to recompute disallowance under Rule 8D(2)(iii) by considering only those investments which yield exempt income for the relevant assessment years. Disallowance of R&D expenditure u/s.35(2AB) and section 35(1)(iv) - Uncertified portion of expenditure incurred towards R&D - HELD THAT:- We find that although, DSIR has not certified expenditure for the purpose of section 35(2AB), but the assessee has placed on record various evidences to prove that said expenditure is incurred wholly and exclusively for purpose of business of the assessee. Once a particular expenditure was incurred wholly and exclusively for purpose of business of the assessee, then such expenditure needs to be allowed either under specific head of expenditure or under residual head of expenditure u/s.37(1) of the Act. If any expenditure is not certified by DSIR in Form 3CL, then the same is not entitled for weighted deduction u/s.35(2AB) of the Act, but there is no restriction under law to claim such expenditure u/s.35(1) / 37(1) of the Act. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards disallowance of uncertified portion of R&D expenditure. Hence, we are inclined to uphold the findings of learned CIT(A) and reject ground taken by the Revenue. Disallowance of capital expenditure incurred on R & D building u/s.35(1)(iv) - Once capital expenditure was incurred for scientific research purposes, then same is eligible for deduction u/s.35(1)(iv) of the Act. The Assessing Officer as well as learned CIT(A) without appreciating fact has simply disallowed capital expenditure on R&D building u/s.35(1)(iv) of the Act. Hence, we direct the Assessing Officer to delete additions made towards disallowance of capital expenditure on R&D building u/s.35(1)(iv). Disallowance of balance 50% of additional depreciation claimed on assets acquired and put to use for less than 180 days during the preceding previous years - HELD THAT:- We are of the considered view that assessee is entitled for balance 50% additional depreciation in subsequent years, when it was claimed only 50% of additional depreciation in the year of acquisition and put to use said plant and machinery. The learned CIT(A), after considering relevant submissions has rightly deleted additions made by the Assessing Officer towards disallowance of balance 50% additional depreciation. Hence, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the Revenue. TDS u/s 195 - disallowance of various payments made to non-residents u/s. 40(a)(i) - HELD THAT:- Since the payments are in the nature of business profits, as per Article 7 of respective DTAAs, same cannot be brought to tax in India in the absence of any permanent establishment in India of the service provider. Since payment is not liable for tax in India, the assessee is not required to deduct TDS u/s.195 of the Act and consequently, payments cannot be disallowed u/s.40(a)(i) of the Act. The Assessing Officer as well as learned CIT(A) without appreciating facts has simply made additions u/s.40(a)(i) of the Act and hence, we direct the Assessing Officer to delete additions made towards warehousing and logistic service charges for the assessment year 2013-14 and rework and subscription charges for the assessment year 2014-15. Professional fees paid to Tileke & Gibbins International Ltd. - We find that Article 12 of the India-Thailand DTAA does not cover fees for technical services. Further, payment made for professional services is covered by Article 7 as business profits and hence, is not taxable in India, because service provider does not have permanent establishment in India. Since the payment is not liable tax in India, the assessee is not required to deduct TDS as per section 195 of the Act and consequently, payments cannot be disallowed u/s.40(a)(i) of the Act. Payment made to Mr.Yoshikazu Tsuda towards consultancy charges - We find that the assessee has placed on record necessary evidence to prove that Consultant stay in India is less than 183 days and hence, said payment is not taxable in India, as per Article 14 of DTAA between India and Japan. Since payment is outside scope of tax in India, the assessee is not required to deduct TDS u/s.195 of the Act and consequently, said payment cannot be disallowed u/s.40(a)(i) of the Act. Tuition fee paid to Michigan University and Center for Creative Leadership for assessment year 2014-15 - We find that payments made for teaching in/by educational institutions are excluded from the definition of fees for technical services as per Article 12(5)(c) of respective DTAAs and hence, said payments are outside scope of taxation in India. Since the impugned payment is not liable to tax in India, the assessee is not liable to deduct TDS u/s.195 of the Act and consequently, payment cannot be disallowed u/s.40(a)(i) of the Act. The Assessing Officer as well as the learned CIT(A) without appreciating relevant facts has simply made additions towards various payments u/s.40(a)(i) of the Act. Hence, we direct the Assessing Officer to delete additions made towards payments made to non-residents u/s.40(a)(i)
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