TMI Blog2015 (8) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... 55,33,570/- aggregating to ₹ 77,15,79,467/- has flowed from the assessee’s own fund of ₹ 97.72 crores which does not bear any cost. Therefore, we hereby delete the addition made for ₹ 1,03,98,313/- made by the Ld.A.O toward the proportionate interest attributable to the interest free loan advanced by the assessee to its sister concern because the funds advanced by the assessee does not bear any cost as it is assessee’s own funds. - Decided in favour of assessee. Disallowance of expenditure by invoking the provisions of section 14A - Held that:- There is no merit for the Revenue to make addition of ₹ 3,11,34,630/- invoking the provisions of section 14A of the Act because the investment made of ₹ 71,55,33,570/-, bears no cost in the form of interest or whatsoever, since the funds by which the investment is made is assessee’s own funds. Further, these investments are made only with sister companies of the assessee and no cost can be attributed for the management of such funds. Therefore, we hereby delete the addition made by the Ld. Assessing Officer invoking the provisions of section 14A of the Act. - Decided in favour of assessee. Disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other provision with fiction. However in this case this observation will not be relevant because we have held in the following paragraph with respect to payments made to foreign agents for services rendered outside India in foreign currency provisions of Section 40(a)(ia) of the Act cannot be invoked.- Decided in favour of assessee. Disallowance u/s 40(a)(ia) - non-deduction of tax towards commission paid to foreign agents outside India in foreign currency and for services rendered outside India - CIT(A) deleted addition - Held that:- This issue is squarely covered by the decision of CIT Vs. Fazian Shoes Pvt. Ltd. reported in (2014 (8) TMI 170 - MADRAS HIGH COURT ) wherein it is held that “on a reading of Section.9(1)9vii), commission paid by the assessee to the nonresident agents would not come under the term “fees for technical services”. For procuring orders for leather business from overseas buyers, wholesalers or retailers, as the case may be, the non-resident agent was paid 2.5%, commission on free on board basis. This was a commission simpliciter. What was the nature of technical services that the non-resident agents had provided abroad to the assessee was not clear fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act since the assessee had not submitted the depreciation schedule as per the Income Tax Act. 5.(a) The Ld. CIT (A) erred in upholding the order of the Ld. Assessing Officer who had enhanced the book profit for computing the tax payable U/s.115JB of the Act, by giving effect to the disallowance of expenditure made by the Ld. Assessing Officer while computing the profit under the normal provisions of the Act. 5.(b) The Revenue had erred in not giving the benefit of exemption under Section-10B of the Act for the increase in profit arising out of the disallowance of expenditures viz., Mining and production and processing charges of ₹ 1,22,27,202/-, Disallowance of Interest attributable to interest free advance U/s.36(1)(iii) of ₹ 1,03,98,313/-, Disallowance of expenditure for earning exempt income U/s.14A of ₹ 3,11,34,630/-, Disallowance of depreciation ₹ 10,64,87,188/-. 2.2 The Revenue has raised three grounds in its appeal, however, the crux of the issues is concised as follows:- The Ld. CIT (A) had erred in deleting the addition made by the Ld. Assessing Officer being payment made towards sales commission for ₹ 15,72,434/- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,20,12,327/- as interest towards secured loans. Therefore, the Ld. Assessing Officer disallowed the proportionate interest of ₹ 1,03,98,313/- by invoking the provisions of section 36(1)(iii) of the Act. The Ld. CIT (A) confirmed the order of the Ld. Assessing Officer by agreeing to his view. At the outset we find that the addition made by the Ld. Assessing Officer is not sustainable because from the order of the Ld. CIT (A) it is clearly revealed in para 6.2.1 that the assessee had ₹ 87.72 crores of Reserves surplus and equity share capital of ₹ 10 crores aggregating to ₹ 97.72 crores as on 31.03.2010 being the assessee s own interest free funds. In this situation, it is evident that ₹ 5,60,45,897/- advanced by the assessee to its sister concern and the investments made by the assessee company for ₹ 71,55,33,570/- aggregating to ₹ 77,15,79,467/- has flowed from the assessee s own fund of ₹ 97.72 crores which does not bear any cost. Therefore, we hereby delete the addition made for ₹ 1,03,98,313/- made by the Ld.A.O toward the proportionate interest attributable to the interest free loan advanced by the assessee to its sister ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee also to furnish the schedule of depreciation computed as per the Income Tax Act before the Ld.Assessing Officer. Accordingly this ground raised by the assessee is allowed for statistical purposes as indicated herein above. 8.1. Ground No.5.(a) Computation of book profit U/s.115JB of the Act by giving effect to the disallowance of expenditure made invoking the provisions of the Section-14A of the Act for ₹ 3,11,34,630/- and also the disallowance of expenditure under the normal provisions of the Act. 8.1.1 The Ld. Assessing Officer while computing the tax as per provisions of section 115JB of the Act made additions to the book profit with respect to the disallowance made U/s.14A of the Act read with Rules-8D of the Income Tax Rules. On appeal, the Ld. CIT (A) citing the provisions of clause (f) of Explanation-1 to Section-115JB, confirmed the order of the Ld. Assessing Officer. The relevant portion of the order of the Ld. CIT (A) is reproduced herein below for reference:- 10.2 I have gone through the facts and circumstances of the case. The Assessing Officer has taxed the income U/s.115JB since the tax on book profits is more than the tax under normal computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance U/s.14A of the Act will not arise. However, in the instant case of the assessee, since we have already deleted the addition made U/s.14A, increasing the book profit will not arise. Further the decision of Hon ble Apex Court cited by the assessee in the case M/s.Apollo Tyres Ltd. Vs. CIT reported in 255 ITR 273 is also squarely applicable to the case of the assessee. The gist of the same is reproduced herein below for reference:- The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J . The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act in sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit arrived by the Ld.A.O because there are no provisions in the Act to restrict the benefit of Section-10B of the Act for such increase in profits. From the order of the Ld. CIT (A) we find that he has held the appellant to be eligible for the benefit of Section-10B of the Act, therefore as discussed herein above we hereby hold that the assessee will be entitled for the benefit of Section 10B of the Act even for the increase in profit arising out of any disallowances of expenditure made by the Revenue. However we also make it clear that while computing the profit of the 100% export orientated Undertaking for the purpose of deduction under Section 10B of the Act, any disallowance based on any fiction of the provisions of the Act like Section 40(a)(ia) of the Act etc., cannot be given effect because Section 10B is also a provision with fiction and a provision with fiction cannot be superimposed on any other provision with fiction. However in this case this observation will not be relevant because we have held in the following paragraph with respect to payments made to foreign agents for services rendered outside India in foreign currency provisions of Section 40(a)(ia) of the Act c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign exchange and for the services rendered outside India. At the outset we find that this issue is squarely covered by the decision of Hon ble Jurisdictional High Court in the case CIT Vs. Fazian Shoes Pvt. Ltd. reported in 367 ITR 155(Mad.) wherein it is held that on a reading of Section.9(1)9vii), commission paid by the assessee to the nonresident agents would not come under the term fees for technical services . For procuring orders for leather business from overseas buyers, wholesalers or retailers, as the case may be, the non-resident agent was paid 2.5%, commission on free on board basis. This was a commission simpliciter. What was the nature of technical services that the non-resident agents had provided abroad to the assessee was not clear from the order of the Assessing Officer. The opening of letters of credit for the purpose of completing the export obligation was an incident of export and, therefore, the non-resident agent was under an obligation to render such services to the assessee, for which commission was paid. The non resident agent did not provide technical services for the purpose of running of the business of the assessee in India. Therefore, the commis ..... 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