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2015 (9) TMI 1115 - ITAT AHMEDABAD

2015 (9) TMI 1115 - ITAT AHMEDABAD - TMI - Disallowance u/s.14A as per Rule 8D - Held that:- With regard to disallowance of interest expenditure made by Assessing Officer u/s.14A specially to invest in Indian subsidiaries. We find that interest free own funds of the assessee is many times more than this investment because interest free funds available with assessee as on March 31, 2006. There is nothing on record to suggest that any direct nexus between interest bearing borrowed funds and invest .....

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ance only in respect of dividend income from Indian subsidiaries. We do not find any merit in the contention of assessee that no disallowance is called for out of administrative expenditure because dividend income is exempt and hence, proportionate disallowance out of administrative expenses is justified. Accordingly, we do not find any reason to interfere in the order of CIT(A) to that extent. Same is upheld.

Allowability of deduction u/s.80IB on interest on FDR and ICD - Held that:- .....

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sales commission - CIT(A) deleted the addition - Held that:- We find that CIT(A) has given clear finding on the issue that assessee has given evidence that the recipient provided information in respect of services which helped the sales to mature and realise and, therefore, payment of commission was justified and income of all units of assessee is eligible for deduction u/s. 80IB. Therefore, there is no motive to save taxes by paying commission. Thus, we are not inclined to interfere in the fin .....

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ew of the aforesaid facts, we restore the issue back to the file of Assessing Officer to decide the issue afresh in the light of the decision of Tribunal in assessee's own case for earlier years and in accordance with law. The Assessing Officer shall grant adequate opportunity of hearing to the assessee. Thus, this ground of Revenue is allowed for statistical purposes.

Levy of penalty u/s. 271(1)(c) - Held that:- Without prejudice to the quantum addition sustained by ITAT, we find tha .....

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has neither consciously concealed any income nor has evaded any tax. Hence, in such circumstances, CIT(A) was justified in deleting penalty in question. This view is fortified by the decision of Hon'ble Supreme Court in case of Reliance Petroproducts Pvt. Ltd. reported at (2010 (3) TMI 80 - SUPREME COURT) . In view of above, we are not inclined to interfere with the order of CIT(A) on this point.

Penalty on disallowance of claim u/s.80IB in respect of interest on FDR and ICD - Held t .....

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partial relief. ITAT has confirmed proportionate disallowance u/s. 14A out of administrative expenses on which penalty has been levied. In view of above, we find that assessee has furnished all the details. Assessee has neither consciously concealed any income nor has evaded any tax. In such circumstances, penalty was rightly deleted by CIT(A) on this account. Further mere disallowance u/s 14A out of administrative expenses cannot be justified penalty u/s 271(1)(c). Same has been rightly deleted .....

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eemed to accrue or arise in India as per S.9(1)(v)(b), it cannot fall within the ambit of income accrued and arisen in India, and hence, same cannot be said to be covered u/s 5(2) of the Act. Therefore, there was no occasion to deduct tax at source on such remittance. Respectfully following the decision of the coordinate bench of the Tribunal in the case of the Adani (2013 (1) TMI 518 - ITAT AHMEDABAD), which is identical both in terms of the facts and laws relied upon by the Assessing Officer, .....

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e Act. In view of this legal discussion, this ground of Revenue is dismissed - ITA No. 3773/Ahd/2008, ITA No. 113/Ahd/2009, ITA No. 2052/Ahd/2009, ITA Nos.3475 & 3476/Ahd/2010, CO Nos. 61 & 62/Ahd/2014 - Dated:- 3-9-2015 - Shailendra Kumar Yadav, JM And Anil Chaturvedi, AM, JJ. For the Petitioner : Smt Vibha Bhalla, CIT-DR & Shri D C Mishra, Sr. DR For the Respondent : Shri Tushar Hemani, AR ORDER Per Shailendra Kumar Yadav, JM. All these appeals and Cross Objections pertain to same assessee .....

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owance is highly exaggerated and excessive. In the facts and circumstances of the case, the said disallowance ought to have been estimated at some reasonable token figure. 3. The learned CIT(A) has erred in law and on facts in confirming the action of ld. AO in not granting deduction u/s.80IB of the Act on Interest on FDR and ICD amounting to ₹ 18,15,43,011/-. 4. Both the lower authorities have erred in law and on facts in not properly appreciating and considering various submissions, evid .....

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not press ground nos. 4, 5 & 6. So, they are dismissed as not pressed. 3.1 Assessee is engaged in the business of manufacturing Wind Turbine Generators (WTGs) at various units, Daman and Pondicherry Dhule. 4. First issue is assessee's appeal for A.Y. 2007-08 is with regards to disallowing an amount of ₹ 2,66,38,938/- by invoking provisions of Section 14A. Assessing Officer found that assessee has made huge investments in its subsidiary companies and prefers shares amounting to  .....

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ule 8D is not applicable. As Rule 8D was notified on 24.03.2008 and it prescribed the method of working the disallowance, Assessing Officer worked out the disallowance as per Rule 8D and disallowed ₹ 2,66,38,938/- by applying the provisions of Section 14A of the Act. 4.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) confirmed the order of Assessing Officer on the issue. 4.2 Same .....

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owance of ₹ 2,66,38,938/- comprises of two elements viz. (a) out of interest - ₹ 1,85,03,081/- and (b) out of other expenses - ₹ 81,35,856/-. With regards to disallowance out of interest expenses, stand of assessee has been that investments were made by assessee in its Indian subsidiaries for the purposes of promoting, supporting and protecting business interest of assessee out of commercial expediency and business prudence. Banks lending money to assessee monitor the use of fu .....

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.Y. 2008-09 (as in the present case), Assessing Officer has to prove the nexus that borrowed funds have been used for making investments which generate tax free income prior to making disallowance u/s.14A. Assessing Officer has not recorded any finding regarding any direct nexus between interest bearing borrowed funds and investment in subsidiaries. Further, stand of assessee has been that assessee was having substantial interest free funds for making such investments. Assessee's total inves .....

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d Authorized Representative further contended that assessee's cash profits were to the tune of ₹ 1,134.63 crores (N.P. ₹ 1061.14 crores + Depreciation ₹ 73.49 crores) during year under consideration which is more than in respect of investments in Indian subsidiaries. Hence, the presumption has to be that investments have come out of capital and reserves and not from borrowed funds. Where investments are made out of non-interest bearing funds, disallowance u/s 14A out of int .....

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ies below and contended that Assessing Officer has justified in applying provisions of Section 14A of the Act while disallowing amount of ₹ 2,66,38,938/-. 4.3 After going through rival submissions and material on record, we find that Assessing Officer made disallowance u/s.14A as per Rule 8D for reasons similar to those in A.Y. 2006-07. Disallowance of ₹ 2,66,38,938/- comprises of two elements viz. (a) out of interest - ₹ 1,85,03,081/- and (b) out of other expenses - ₹ 81 .....

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a condition that borrowed funds shall not be utilized for the purpose of subscription of shares or debentures as detailed above. Rule 8D prescribed for working out disallowance u/s 14A is not applicable for assessment years prior to A.Y. 2008- 09. Hence, for A.Ys. prior to A.Y. 2008-09 (as in the present case), Assessing Officer has to prove the nexus that borrowed funds have been used for making investments which generate tax free income prior to making disallowance u/s.14A. Assessing Officer h .....

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d decided as under: "14. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. Regarding the grounds raised by the revenue in respect of disallowance of interest expenditure made by the Assessing Officer under section 14A and deletion made by learned Commissioner of Income-tax (Appeals), we find that no interference is called for in the order of the learned Commissioner of Income-tax (Appeals). We hold so because we f .....

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date is of ₹ 929.57 crores. There is no finding given by the Assessing Officer regarding any direct nexus between interest bearing borrowed funds and investment in Indian subsidiaries. Hence, in our considered opinion, no disallowance u/s 14A can be made out of interest expenditure in the facts of the present case. Accordingly, ground No.2 & 3 of the revenue's appeal are rejected. 15. Regarding ground No.2 of the assessee's appeal as per which, the learned Commissioner of Incom .....

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ative expenditure because dividend income is exempt and hence, proportionate disallowance out of administrative expenses is justified. On this aspect, we do not find any reason to interfere in the order of learned Commissioner of Income-tax (Appeals). Accordingly ground No.2 of the assessee's appeal is also rejected." Nothing contrary was brought to our knowledge. Facts being similar, so following same reasoning we hold that: (a) With regard to disallowance of interest expenditure made .....

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re. Assessing Officer is directed accordingly. (b) Regarding direction to Assessing Officer to allocate directors' remuneration fee and traveling allowance towards earning dividend and to make proportionate disallowance under section 14A of the Income-tax Act, 1961, we are of the view that Assessing Officer should make proportionate disallowance only in respect of dividend income from Indian subsidiaries. We do not find any merit in the contention of assessee that no disallowance is called f .....

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eduction u/s.80IB for its Daman unit-II and Daman RBU unit-III @ 30%, while @ 100% for Pondicherry and Dhunetha unit at Daman. Assessing Officer has not granted the benefit of deduction u/s.80IB on interest on FDR and ICD amounting to ₹ 18,15,43,011/- relying on the decision of ITAT in its own case for A.Y. 1998-99 and relying on the decision of Hon'ble Supreme Court in case of Pandian Chemicals Ltd. vs. CIT(A) reported in 262 ITR 278 . 5.1 Matter was carried before the First Appellate .....

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st income after verifying the nexus of interest income with the interest payment from eligible profit. In this regard, stand of assessee has been that assessee had deposited certain amounts as FDs with bank to ask them to issue guarantees for securing supply of material and equipments required for the plant which was part of business undertaking. Interest earned on bank deposit placed for opening LC has direct nexus with the activity of industrial undertaking and hence, the same qualifies for cl .....

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d have gone through the orders of authorities below and the judgment cited by the learned authorised representative. We find that interest income cannot be said to be an income derived from an industrial undertaking and, therefore, section 80-IB deduction is not allowable in respect of interest income. Regarding netting of interest income, we find that this issue is now covered by the judgment of the hon'ble apex court rendered in the case of ACG Associated Capsules (P.) Ltd. (supra). In tha .....

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rest only should be considered for reducing from profits of business for computing deduction under section 80-IB and for the purpose of computing net interest, only these expenditure, which are incurred for earning interest income should be considered and reduced from interest income. Ground No. 3 of the assessee is rejected whereas ground No. 4 of the assessee is allowed for statistical purposes." Facts being similar, so following same reasoning, we hold that net interest only should be co .....

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ed as indicated above. 7. Now, we take ITA No. 113/Ahd/2009 for A.Y. 2007-08. Revenue has filed this appeal on the following grounds: "1. The Ld. CIT(A) has erred in law and on facts in deleting the addition made on account of disallowance of sales commission expenses of ₹ 18,04,87,694/- by the Assessing Officer. 2. The Ld. CIT(A) has erred in law and on facts in directing to reduce the net interest on FDR & ICD amounting to ₹ 18,15,43,011/- from the profits of the business .....

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the ld. Commissioner of Income-tax(A)-XIV, Ahmedabad may be set-aside and that of the Assessing Officer be restored." 8. First issue in Revenue's appeal for A.Y. 2007-08 is with regards to addition made on account of disallowance of sales commission expenses of ₹ 18,04,87,694/- by Assessing Officer. Assessing Officer made disallowance of sales commission expenses of ₹ 18,04,87,694/-. As stated above, assessee is in business of manufacturing Wind Turbine Generators at Daman .....

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Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) confirmed the disallowance of commission in question. CIT(A) observed that agreements have been entered into for payment of commission in respect of work done by agents and for providing information which resulted in maturity of sales. Payments were made as per terms of agreement. This issue was discussed in detail by concerned CIT(A) in A.Y. 2006-07, wherein he has discussed the scop .....

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2 Before us, learned Departmental Representative supported the order of Assessing Officer and CIT(A) was not justified in deleting the addition made on account of disallowance of sales commission expenses. Accordingly, the order of CIT(A) be set aside and that of Assessing Officer be restored. On other hand, learned Authorized Representative supported the order of CIT(A) and requested in light of ITAT, Ahmedabad decision in A.Y. 2005-06 & 06-07 to uphold the order of CIT(A) on the issue, whe .....

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ITR (Trib) 391 (Ahmedabad) has decided the issue in favour of assessee by observing as under: "7. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that this issue was decided by the learned Commissioner of Income-tax (Appeals) as per paragraph 3.2 of his order which is reproduced below : "3.2 I have considered the facts of the case and the submissions as advanced by the appellant along with the case .....

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to/have intention to buy and have the capacity to buy the WTGs. (b) The remissior on identifying the buyers would suggest, inform, indicate, introduce, recommend and/or solicit them to the company so as to facilitate the company in carrying out the sales of WTG as per the requirements of the buyer. (c) The remissior would function as a silent professional to render inbound services to the company and depending upon the circumstances, looking at his reputation, status, financial standing, the com .....

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l the payments were made by cheques and parties were genuine. The parties have confirmed the receipt of payments and rendering of services in the form of giving information about its customers ; (ii) all the agents are tax payers and the commission received by the assesseecompany is shown in their income-tax returns and the tax has been paid thereon : (iii) for the appellant, there is no motive to save taxes as units of appellant are eligible for deduction under section 80-IB : and (iv) all the .....

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s the appellant has given the evidence that the recipients provided information in respect of the services, which helped the sales to be matured and realised, the payment of commission is justified. However, at the same time, it is also observed that the entire expenditure of commission cannot be allowed, in view of the specific finding brought on record by the Assessing Officer after enquiry in certain cases, wherein he examined the six customers and brought on record that in respect of these c .....

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hri Nirbhaya Krishna Agrawal Harsha Engineers Ltd. Shree Radhika Steel -Chem Ltd. 8,81,600 Shri Pareshkumar Labsankar Vyas Arnbuja Intermediates Ltd. PKM Industries 8,00,000 Shri Nareshbhai Manchand Shah M/s. Sahastra Properties P. Ltd. Sonica Granite P. Ltd. 8,00,000 42,81,600 In respect of the above six transactions, the company has not initiated any dialogue and not approached the customers on the basis of any information received from the agents. Therefore, it is held that the statements rec .....

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any. Hence, it is held that in respect of the six parties, the payment is not made for receiving the information, which resulted into maturity of sales. Therefore, I hold that the payment is not made in accordance with the terms of contract entered into in this respect and these payments are not made for the business purposes. The Assessing Officer was justified in disallowing the payment of commission in respect of these transactions and the disallowance of ₹ 42,81.600 is confirmed. Howev .....

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that the recipient provided information in respect of services which helped the sales to mature and realise and, therefore, payment of commission is justified except for 6 parties. In respect of these 6 parties, it is noted by the learned Commissioner of Income-tax (Appeals) that the Assessing Officer after inquiry has brought on record in respect of these 6 customers, the agents had no role in achieving the sales and these customers directly approached the assessee for all transactions. The inc .....

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under section 80-IB. In respect of 6 parties, which were not introduced by the commission agent, it was the submission of the learned authorised representative that the agents had furnished other information such as report about reputation, status, financial standings, etc. Regarding these 6 parries, he also submitted that they have also helped in realisation. The learned authorised representative was asked to file letters of these agents but the same are not filed by the learned authorised rep .....

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roduced by the commission agents and evidence were tiled regarding rendering of the services by them and these findings of the learned Commissioner of Income-tax (Appeals) could not be controverted by the learned Departmental representative. Regarding the judgment of the hon'ble apex court on which reliance has been placed by the learned Departmental representative, we find that this judgment is not applicable in the present case because the facts are different. In that case, this finding wa .....

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judgment of the hon'ble apex court does not render any help to the Revenue in the present case. In view of our above discussion, we do not find any reason to interfere in the order of the learned Commissioner of Income-tax (Appeals) on this issue. Accordingly, ground No. 1 of the Revenue as well as ground No. of the assessee's appeals is rejected." In this background, we find that CIT(A) has given clear finding on the issue that assessee has given evidence that the recipient provid .....

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s appeal for A.Y. 2007-08 is with regards to deduction u/s.80IB in respect of ₹ 18,15,43,011/-. This issue has been discussed in ground no.3 vide para 5 of assessee's appeal for A.Y. 2007-08. The whole issue has been discussed, which is not being repeated for sake of brevity and same may be referred in this regard. Accordingly this ground is also dismissed. 10. Next issue in Revenue's appeal for A.Y. 2007-08 is with regards to benefit on deduction u/s.80IB on duty drawback of ͅ .....

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. Accordingly, order of CIT(A) be set aside and that of Assessing Officer be restored. On other hand, learned Authorized Representative submitted that this issue is covered in favour of assessee in A.Y. 2005-06 & 2006-07 reported at [2012] 20 ITR (Trib) 391 (Ahmedabad) , wherein Tribunal has held as under: 30. In rejoinder, it was submitted by the learned Departmental Representative that in the case of Liberty India (supra), the issue was decided not in respect of DEPB only but in respect of .....

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s that the rules do not envisage a refund of the amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. It is also staled by the hon'ble apex court in paragraph 17 of this judgment that sub-section (2) of section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each .....

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customs duty against export product. Under DEPB, an exporter may apply for credit as a percentage of the FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by the DGFT for import of raw materials, components, etc., DEPB credit under the scheme has to be calculated by taking into account the deemed import content of the export products as per basic customs duty and special additional duty payable on such deemed impo .....

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ndia to provide for repayment of customs duty and excise duty paid by an assessee. The refund is of the average amount of duly paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer- cum-manufacturer. Sub-section (2) of section 75 of the Customs Act requires the amount of drawback .....

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s Act/Scheme(s) famed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression 'profits derived from industrial undertaking' in section 80-IB." 32. Since it is held by the hon'ble apex court that section 75 of the Customs Act is relevant of the purpose of duty drawback, we reproduce clause (a) of sub-section (2) of section 75 of the Customs Act, 1962, which is as under : "(a) for the payment o .....

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ion generally or by any particular manufacturer or particular person carrying on any process or other operation, and interest if any payable thereon." 33. We also reproduce the relevant portion of the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995 as per Notification No. 37 of 1995, dated May 26, 1995. 34. In the beginning to the notification, it is stated that on exercise of powers conferred by section 75 of the Customs Act, 1962, section 37 of the Central Excise Ac .....

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-rule (3) of rule 5 apply in writing to the Commissioner of Central Excise or the Commissioner of Customs and Central excise, having jurisdiction over the manufacturing unit, of the manufacturer exporter or, of the supporting manufacturers, as the case may be, for determination of the amount or rate of drawback thereof stating all the relevant facts including the proportion in which the materials or components or inputs services are used in the production or manufacture of good and the duties pa .....

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the rule, an average amount of duty paid on the material of that class or description used in manufacturing or processing of export of goods or carrying out any operation on export goods of this case, etc. In the first category, the duty drawback is arithmetically equal to the duty paid by the assessee on import of material used in the manufacture or processing of the goods. In the second category, the average amount of duty drawback is paid without any correlation with the actual duty paid by t .....

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ufacturer, etc., to determine the amount and rate of drawback thereof stating all the relevant facts, etc. In the present case, the duty drawback is available to the assessee as per the first category and as per the details given by the assessee, an amount of ₹ 2,72,395 was paid by the assessee as customs duty, out of which ₹ 5,697 was deducted being at ₹ 3 per kg. for 1899 kg. being recoverable wastage and the balance amount was paid as duly drawback being ₹ 2,66.698. Si .....

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and Service Tax Drawback Rules, 1995 of which relevant portion is reproduced above, we find that the facts in the present case are distinguishable from the facts in the case of Liberty India (supra). In the case of Liberty India (supra), the issue was decided by the hon'ble apex court against the assessee on this basis that since the rule does not envisage refund of an amount arithmetically equal to customs duty paid by the individual exporter/manufacturer, the duty drawback and DEPB receip .....

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ved by the assessee because whatever customs duty is paid by the assessee has been received back by the assessee and it leaves no income with the assessee. 36. The assessee has also placed reliance on the Tribunal decision rendered in the case of J.K. Aluminium Co. v. ITO in I.T.A. No. 3303/Del/2010 dated April 29, 2011. In that case also, the issue involved was with regard to allowability of deduction under section 80-1B in respect of excise duty refund of ₹ 5,68,41,800 received by the as .....

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of amount arithmetically equal to excise duly paid. It was held by the Tribunal in that case that there is distinction of facts as compared to the facts in the case of Liberty India (supra) because as per the facts in the case of Liberty India (supra) the issue was not concerned with the refund of amount paid. We have seen that in the present case, the assessee is getting refund of customs duty paid by the assessee in the form of duty drawback and the duty drawback relief are of two types. The .....

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duty drawback and hence, the facts of the present case are distinct than the facts in the case of Liberty India (supra) and, therefore, this judgment of the hon'ble apex court rendered in the case of Liberty India (supra) cannot be applied in the present case because we have seen that factually, all duty drawback received by the assessee is almost arithmetically equal to the duty paid by the assessee wherein some amount for which drawback was not allowed is on this basis that the same is rel .....

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vour of the assessee and hold that in the facts of the present case, duty drawback received by the assessee is eligible for deduction under section 80-IB. This ground of the assessee is allowed. We find that for earlier years in assessee's own case wherein considering the decision of Hon'ble Supreme Court in case of Liberty India (supra), the duty drawback as applicable to assessee envisage a refund of amount arithmetically equal to customs duty or central excise duty actually paid by an .....

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ecified in rule, an average amount of duty paid on material of that class or description used in manufacturing or processing of export of goods or carrying out any operation on export goods of this case, etc. In the first category, the duty drawback is arithmetically equal to duty paid by assessee on import of material used in manufacture or processing of goods. In second category, the average amount of duty drawback is paid without any correlation with actual duty paid by assessee on import. As .....

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the amount and rate of drawback thereof stating all the relevant facts, etc. As claimed before us learned Authorized Representative that duty drawback is available to assessee as per first category and as per complete details for duty draw back furnished by assessee, duty paid by assessee is of ₹ 17,52,72,297/- and duty drawback received is ₹ 17,35,80,618/- which indicates that for the year under consideration also, there is direct and arithmetic correlation between the duty paid by .....

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t while deciding the appeal for A.Y. 2006-07, the co-ordinate Bench of Tribunal has noted that the duty paid by the assessee and the duty draw back received by it has direct and arithmetic correlation but, in the year under appeal, there is no such finding of either of the lower authorities. In view of the aforesaid facts, we restore the issue back to the file of Assessing Officer to decide the issue afresh in the light of the decision of Tribunal in assessee's own case for earlier years and .....

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s and in the circumstances of the case, the ld. Commissioner of Income-tax (A)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer." 12.1 Assessing Officer levied penalty on account of three additions: (i) Disallowance of Sales Rs.42,81,600/- (ii) Disallowance of claime u/s.80IB in respect of interest on FDR and ICD Rs.3,58,83,397/- (iii) Disallowance u/s. 14A Rs.11,98,860/- All additions were deleted by CIT(A) by observing as under: "3. I have considered the facts o .....

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ed that the A.O. did not question the recipients of commission, but he verified the customers and the A.O. has not examined the key persons involved in purchase of windmills. It is also seen that the A.O. has not verified all the customers nor he has verified any remissier. The disallowance made by the A.O. was a huge figure of ₹ 9.77 cores i.e. entire commission, but the C.I.T. (A) reduced the disallowance and confirmed the disallowance only in respect of six customers. But the claim of t .....

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come is derived from industrial undertaking or net and whether gross or nor interest is to be excluded and disallowance u/s.14A are highly disputable and debatable issues as there are various contradictory decisions of High Courts and Tribunals. When all the facts were disclosed by the appellant regarding claim u/s.80IB and when the appellant has claimed that it has not incurred any administrative expenses for earning dividend income and so no disallowance be made u/s.14A and claim of the appell .....

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ustification in holding that there is concealment of income and/or filing of inaccurate particulars of income. Further, the issue is disputable and debatable and so disallowances would not result into levy of penalty u/s. 271(1)(c), as the penalty proceedings are entirely different from the assessment proceedings and no penalty can be levied, unless it is established that there is clear cut furnishing of inaccurate particulars of income. In view of the above facts and case laws, I hold that it i .....

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r of CIT(A). 12.3 After going through rival submission and material on record, wherein as stated above assessee is engaged in the business of manufacturing wind turbine generators. Assessee paid sales commission of ₹ 9,77,76,800/- @ 0.51% of total turnover of ₹ 1917.50 crores to total 27 remissiers for inbound services provided to it, which was disallowed by Assessing Officer. CIT(A) deleted ₹ 9,34,95,200/- and confirmed the balance sum of ₹ 42,81,600/-. In quantum, the a .....

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information about persons looking forward to buy WTGs to the assessee. Hence, commission was in the nature of "Introductory Commission". Assessee submitted letters from remissiers for information for planning for purchase of WTG, copy of agreement and invoices of remissiers, their PAN, addresses, account confirmation, detail of payment by account payee cheques, deduction of tax at source by assessee from the payment of commission, reflection of commission income in tax return of respe .....

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Assessing Officer has not verified all the key persons involved in the purchase of windmill at the end of the respective customers who might be aware of such remissiers being involved in the said transactions. All remissiers were completely unconnected to the assessee. They were paying taxes and the transactions were entered into with a commercial motive and not with a motive to save taxes as units of assessee were eligible for deduction u/s.801B. All the transactions in respect of which commiss .....

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assessee as far as penalty is concerned. In view of this, we find that assessee has furnished all the details. Assessee has neither consciously concealed any income nor has evaded any tax. Hence, in such circumstances, CIT(A) was justified in deleting penalty in question. This view is fortified by the decision of Hon'ble Supreme Court in case of Reliance Petroproducts Pvt. Ltd. reported at 322 ITR 158 (SC) . In view of above, we are not inclined to interfere with the order of CIT(A) on this .....

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me qualifies for the claim of deduction u/s. 80IB. Tribunal on the issue in the year under consideration, in quantum appeal, held that only net interest should be considered for reduction from profits of business for computing deduction u/s 80IB. With such a direction, the matter has been remitted as discussed above. Since the matter has been remitted, penalty on this ground doesn't survive. In view of above, CIT(A)(A) was justified in deleting penalty. We uphold the same. 12.5 Penalty on ac .....

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orate office; audit fees; Repairs to bldg.; rent & communication exp.) in proportion of dividend earned to the turnover. Such investments have been made by the appellant in its associate concerns for the purposes of promoting, supporting and protecting business interest of the appellant out of commercial expediency and business prudence. Assessing Officer has while working out disallowance u/s. 14A, included the amount of investment in Foreign Subsidiaries also, income of dividend from which .....

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e). Assessing Officer has to prove the nexus that borrowed funds have been used for making investments which generate tax free income prior to making disallowance u/s 14A. In absence of Assessing Officer proving such a nexus, the method of adopting assessee's claim cannot be disturbed. Without prejudice to above, the stand of assessee has been that it was having substantial interest free funds for making such investments. In view of above, CIT(A) has granted partial relief. ITAT has confirme .....

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2.6 As a result, appeal filed by Revenue for A.Y. 2005-06 is dismissed. 13. Now, we take ITA No. 3475/Ahd/2010 for A.Y. 2010-11. Revenue has filed this appeal on the following grounds: "1. The Ld. CIT (A), Gandhinagar has erred in law and on facts in holding that the appellant company was not liable to deduct tax at source u/s.196C r.w.s. 115AC on the interest payable on FCCBs (i.e. consent incentive). 2. Ld. CIT (A) has erred on facts and law in not considering the issue that an Indian Com .....

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d on facts in holding that both sections 5(2) and 9(1) (v) of the Act, are applicable to determine the situs of interest income in case of non resident. 4. The Ld. CIT(A) also erred in law and on facts in holding that the interest paid by the appellant on its FCCBs is covered by exception to Section 9(1)(v)(b) of the Act and consequently it falls outside the ambit of deemed income arising and accruing in India and as a result out of Section 5 also. 5. The Ld. CIT(A) erred in law and on facts in .....

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e cancelled and that of A O restored to the above extent." 13.1 C.O. No.61/Ahd/2014 filed by assessee on following ground: "1. Both the lower authorities have failed to appreciate that no surcharge is to be added while determining withholding tax on remittance being made to the Nonresident, and therefore, surcharge ought not have been included while determining liability of TDS u/s.201(1) of the Act." 13.2 Similar issues arose In ITA No.3476/Ahd/2010 for same year and similar C.O. .....

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cy Convertible Bonds (FCCBs), issued by assessee i.e. Suzlon Energy Limited. No tax has been deducted at the time of remittance. Assessing Officer issued a show cause notice to assessee as to why proceedings u/s.201(1) & 201(1A) r.w.s. 196C be not initiated for the above fault. Assessing Officer held that consent incentive is in nature of interest in terms of definition contained in Section 2(28)A of the act. Not agreeing with the explanation given by assessee in response to this show cause .....

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n-resident bondholders in India as soon as the interest became due to the Bondholders. According to him, the interest on FCCBs is chargeable to tax u/s 5(2) itself and assessee's assertion that same is covered by section 9 was found incorrect by Assessing Officer. According to him, when income is actually received or accrued in India, the provisions contained in section 5(2) is sufficient to create a charge in respect of a non-resident's income and resort to deeming provisions of section .....

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once it is covered u/s. 5(2) section 9(1)(v)(b) is not applicable. Assessing Officer also stated that Circular of CBDT(supra) cited by the assessee is not applicable to the present case as the same has been issued with regard to section 9(1)(i) and 9(1)(v) of the Act, but in present case, the provisions of section 5(2) are applicable and one need not travel to the provisions of section 9 of the Act. 14.1 Assessing Officer, in para 7.2 of the assessment order, went further to establish that even .....

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for the purposes of making or earning any income from any source outside India. This exclusion covers, the cases where the assessee through a 'branch office' or through a 'permanent establishment' carries out its business outside India or makes or earns income outside India. But in the present case there is no such branch office or permanent establishment of the assesses through -which the business of the assesses is carried out or through which it can source income. In view of t .....

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Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme is the notified scheme for the purpose of section 115AG(1)(a) in respect of assessment year 2002-2003 and subsequent assessment years vide CBDT notification No.SO 987 (E) dated 10/09/2002 along with the notification of Department of Economic Affairs vide G.S.R. 89(E) dated February 15, 2008, to the point that irrespective of the end use of the proceeds, once the scheme is part of the section 115 .....

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est payable stands remitted without deduction of tax. 14.2 Matter was carried before the First Appellate Authority, wherein contentions were raised on behalf of assessee including synopsis of argument and having considered the same, CIT(A) granted relief to assessee. Same has been opposed on behalf of Revenue inter alia submitted that CIT(A) erred in law and facts in holding that assessee company was not liable to deduct tax at source 196C r.w.s. 115AC on the interest payable on FCCBs (i.e. cons .....

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9(1) are not applicable. CIT(A) erred in holding that both Sections 5(2) and 9(1)(v) of the Act, are applicable to determine the status of interest income in case of non resident. CIT(A) was not justified in holding that interest paid by assessee on its FCCBs is covered by exception to Section9(1)(v)(b) of the Act and consequently it falls outside the ambit of deemed income arising and accruing in India and as a result out of Section 5 also. CIT(A) erred in holding that there is ambiguity in det .....

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arned Authorized Representative supported the order of CIT(A) and stated that Assessing Officer erred in law and on facts in holding that assessee company was liable to deduct tax at source u/s.196C r.w.s. 115AC of the Income Tax Act on remittance to Deutsche Bank AG, London Branch for making payment of consent incentive on is behalf of foreign currency convertible bond holders. Assessing Officer erred in not appreciating the income of recipient nonresident is not at all chargeable to tax in Ind .....

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applying provisions of Section 5(2)(b) of the Act when the said provisions have no application whatsoever in the facts of the case. Assessing Officer erred in treating assessee company to be an assessee in default u/s.201(1) of Act in respect of tax allegedly deductible at source on subject remittance to Deutsche Bank AG, London Branch for making payment of consent incentive on its behalf to Foreign Currency Convertible Bond (FCCB) holders. Assessing Officer erred in applying the provisions of .....

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proceeds of subject FCCB were used for acquisition of shares in overseas subsidiary which is carrying on business outside India resulting in source of income outside India. The bonds have been issued under the permission of Reserve Bank of India under External Commercial Borrowing (ECB) guidelines. Assessee carried out restructuring of subject FCCB in May 2009 with permission of Reserve Bank of India and as a part of it and as a part of it assessee replaced Zero coupon FCCB amounting to US$ 9,4 .....

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sing Officer passed the order invoking provisions of Section 201(1)/ (1A) of Act after holding that assessee was liable to deduct tax at source u/s.196C r.w.s. 115AC of the Act on remittance made by assessee. Assessing Officer gave following reasoning while passing order: (a) Assessing Officer was of the view that the Bonds were issued by an Indian Company and interest has been paid by an Indian Company from India only and further the obligation to pay the interest rested with assessee only and .....

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Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1992" and the said scheme is notified scheme for the purpose of Section 115AC(i)(a) of the Act and therefore, irrespective of the end use of the proceeds, once the scheme is part of the Section 115AC, deduction of tax at source @ 10% is mandate until such time the conversion option is exercised; (e) Assessing Officer further went to establish that even if the provisions of Section 9(1)(v)(b .....

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uded from the deeming provisions as per Section 9(1)(v)(b), and therefore, such interest payment cannot be covered in the definition of income deemed to accrue or arise in India. It is further held that since income in question is falling within the ambit of this exclusion clause of income deemed to accrue or arise in India as per Section 9(1)(v)(b), it cannot fall within the ambit of income accrued and arisen in India, and hence, the same cannot be said to be covered u/s.5(2) of the Act. Theref .....

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e to tax in l:idia and in present case none of the remittances are not at all chargeable to tax in India in hands of FCCB Bondholders and hence there was no obligation on appellant to deduct tax at source and thus appellant can not be fastened with the default u/s. 201(1) and 201(1A) of the Act. 14.5 From detailed submission in this regard, we find that assessee has issued two series of Foreign Currency Convertible Bonds ('FCCB") in F.Y: 2007-08 namely; FCCB for US$ 300 Millions maturin .....

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assessee carried out restructuring of subject FCCB in May 2009 with the permission of Reserve Bank of India and pursuant to the same, assessee replaced Zero coupon FCCB amounting to US$ 9,40,04,000/- with 7.50% interest bearing FCCB amounting to US$ 5,63,88,000/-. As a part of restructuring of assessee company has made payment to non-resident bond holders on account of 'consent incentive' for changes in the financial covenants of the Foreign Currency Convertible Bonds amounting to ₹ .....

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deduct tax and consequently, the orders u/s 201(1)/(1A) has to be quashed. As stated earlier, the entire issue is squarely covered by the order of Co-ordinate bench of Ahmedabad in case of Adani Enterprise (supra). We find that the facts of present case are identical to Adani (supra) which can be summarized and compared in the following tabular chart:- Facts in the case of Adani Enterprise Ltd. Facts in the present case (a)Adani Enterprise had issued FCCB in New York and the proceeds from FCCB .....

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and further the obligation to pay the interest rested with the Assessee only and accordingly chargeable u/s 5(2) of the Act; (d)For the said contention, AO relied upon the Supreme Court decision in the case of Performing Rights Society vs. CIT 106 ITR 11 and Allahabad High Coyrt decision in the case of Hira Mills Ltd. vs. ITO 14 ITR 417 (refer pg. no. 12 of the order); (e) AO was further of the view that once the income is covered u/s 5(2), S.9(1)(v)(b) is not applicable; (f) AO was further of t .....

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if the provisions of S.9(1)(v)(b) is applicable, the assessee's case will not be covered by the exclusions stated therein. (a) The assessee has issued FCCB in London and the proceeds of such FCCBs were utilized for the purpose of investments and acquisition of foreign subsidiaries outside India through foreign subsidiaries; (b)The assessee remitted the amount due on account interest and consent incentives to Deutsche Bank AG, London Branch as its agent to distribute the interest and consent .....

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ompany and interest has been paid by an Indian Company from India only and further the obligation to pay the interest rested with the Assessee only and accordingly chargeable u/s 5(2) of the Act; (d)In this case also, for the above contention AO has relied upon the Supreme Court decision in the case of Performing Rights Society vs. CIT 106 ITR 11 and Allahabad High Court decision in the case of Hira Mills Ltd. vs. ITO 14 ITR 417 ; (Pg. Nos.6-8 vide para 6.1.3 of AO order) (e)In the present case .....

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e proceeds, once the scheme is part of the section 115AC, deduction of tax at source @ 10% is mandate until such time the conversion option is exercised.(Pg.nos.l0-14 vide paras 6.2 to 6.6) (g)In the present case also, AO further went to establish that even if the provisions of S.9(1)(v)(b) is applicable, the assessee's case will not be covered by the exclusions stated therein; (Pg. nos.14-15 vide paras 7 to 7.3) Therefore, Tribunal in Adani (supra)'s case, after considering the rival co .....

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