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2024 (4) TMI 743 - AT - Income TaxDisallowance u/s. 36(1)(iii) - interest paid alleging diversion of interest bearing borrowals to the appellant's Group Companies - AO was of the opinion that the loan was diverted for non-business purposes and accordingly, he proceeded to make interest disallowance u/s 36(1)(iii) - HELD THAT:- Assessee uses mixed funds for the purpose of its business. The Share capital and free reserves are Rs. 217.20 Crores whereas loan funds are to the extent of Rs. 135.61 Crores. It is also seen that the secured loans are for specific purposes i.e., project loans, vehicle loans etc. only and the same could not be diverted for other purposes. In such a situation, unless the nexus of borrowed funds vis-à-vis the loans advanced by the assessee is established by Ld. AO, a presumption could be drawn in assessee’s favour that the advances were funded out of own funds and not out of borrowed funds. We find that no such exercise has been carried out by Ld. AO and therefore, it was to be presumed that funds were advanced first out of interest free funds available with the assessee. This is as per the decision of Hon’ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. [2019 (1) TMI 757 - SUPREME COURT] The decision of Savera [1997 (11) TMI 37 - MADRAS HIGH COURT] also supports this view. Therefore, we delete the impugned disallowance and allow corresponding grounds raised by the assessee. This issue arises in assessee’s appeal for AY 2011-12 also. Facts being pari-materia the same, the corresponding grounds raised in AY 2011-12 also stand allowed accordingly. Nature of expenses - Relaunch expenses - deferred revenue expenditure claimed to the extent of 1/3rd in each of the year - HELD THAT:- Assessee has undertaken publicity campaign and incurred relaunch expenses, such an activity has not enlarged the profit making apparatus of the assessee. The assessee has not ventured into any new line of business rather it is seeking growth in the existing line of business. Further, the nature of the expenditure would show that it is substantially in the nature of revenue expenditure though the benefit of the same may have accrued to the assessee over several years. Nevertheless the said expenditure could not be branded as capital expenditure merely on account of the fact that the benefit would flow in more than one year. The assessee has not enlarged its profit making apparatus and it seeks improvement in the existing line of business only. It could not be said that the assessee has acquired enduring advantage in capital field. Therefore, we direct Ld. AO to accept the claim of the assessee. In other words, the expenditure claimed by the assessee to the extent of 1/3rd would be allowable to the assessee. The depreciation as allowed to the assessee shall stand reversed. The corresponding ground stand allowed accordingly. Short Credit of TDS - HELD THAT:- We direct Ld. AO to allow correct TDS credit in accordance with law. This ground stand allowed for statistical purposes. Disallowance u/s 14A - no exempt income has been earned by the assessee - HELD THAT:- We find that this issue is covered in assessee’s favor by the decision of Chettinad Logistics P. Ltd [2017 (4) TMI 298 - MADRAS HIGH COURT] holding that Section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. Respectfully following the same, we direct Ld. AO to verify the same. If no exempt income has been earned by the assessee, the impugned disallowance shall stand deleted. The Explanation to Sec.14A, as referred to by Ld. CIT(A), in our considered opinion, is prospective in nature and the same is not applicable in this year. The corresponding grounds raised by the assessee stand allowed for statistical purposes. Disallowance of prior period items - HELD THAT:- From assessee’s submissions, it emerges that various expenditure, though pertaining to earlier years, have been ascertained during this year only. The same would be claimed and allowable only upon crystallization. It is also not the case that the assessee has claimed deduction of the same in earlier years. Therefore, the impugned expenditure, in our considered opinion, is allowable to the assessee in this year only. We order so. The corresponding grounds raised by the assessee stand allowed. Disallowance of late payment of Employee’s contribution to PF / ESI - HELD THAT:- Admittedly, this issue stand covered against the assessee by the decision of Checkmate Services P. Ltd [2022 (10) TMI 617 - SUPREME COURT] Respectfully following the same, we dismiss the corresponding grounds raised by the assessee. TDS u/s 195 - Disallowance u/s 40(a)(i) on account of payment made to foreign agencies - PE in India or not? - impugned disallowance was deleted by CIT(A) as held that Fees for Technical Services means managerial, technical and consultancy services but do not include payments considered as salary by the recipient of such income. Journalism is the process of collection, analyzing and disseminating information in public interest - HELD THAT:- Admittedly, none of the payee has permanent establishment in India. As noted by Ld. CIT(A), Fees for Technical Services means managerial, technical and consultancy services. The process of gathering information is nothing but a profession and these kind of services are covered under specific Article-5, Article-7 and Article-15 of India-USA DTAA and India-UK DTAA which are applicable to the facts of the present case. These articles exempt such payment from taxation in the absence of any permanent establishment. The provisions of DTAA, being more beneficial to the assessee, would apply in preference to the provisions of the Act. Decided in favour of assessee.
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