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2016 (1) TMI 221 - ITAT CHENNAI

2016 (1) TMI 221 - ITAT CHENNAI - TMI - Disallowance recoverable written off in the Profit and Loss Account - Held that:- The assessee has been following the system of Accounting methodology which is accepted. Bad Debts occurred in the normal course of business and write off can be made after considering the recovery of Debtors becoming doubtful and the assessee has not squared off the debtors account. Under amended provisions of section 36(i)(vii) of the act effective from 1st April, 1989, in o .....

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hout bring any material on record to show that amount are not recoverable. We after considering the accounting methodology of assessee company and provisions of law on bad debts in the order of the Commissioner of Income Tax (Appeals) on this ground and same is upheld.- Decided against assessee.

Contribution made towards the approved Employees Group Gratuity Fund Trust - Held that:- The Revenue has disputed this issue after post De-merger, even though there is no such change in object .....

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required. It is nevertheless to say that opportunity of being heard be granted to the assessee and decide the issue on merits.

Disallowance of foreign travel expenses - Held that:- The assessee company is having global business operations and definitely such subsidiary companies are to be managed in accordance with standard accounting principle and Indian laws. The expenditure percentage compared to turnover is very small amount. The expenditure incurred for the business wholly and e .....

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n the provisions of Sec.37(1) of the Act. Hence, we direct the Assessing Officer to delete the addition. - Decided in favour of assessee.

Non deduction of TDS on commission payment made to foreign agencies - Held that:- The services rendered by the said parties related to clearing, warehousing and freight charges, outside India. The logistics service rendered was essentially warehousing facility. In our opinion, this cannot be equated with managerial, technical or consultancy services .....

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rgeable to tax under the provisions of the Act. In the circumstances mentioned above, assessee was justified in having a bonafide belief that the payments did not warrant application of Section 195 of the Act. In such circumstances, we are of the opinion that it could not have been saddled with the consequences mentioned under Section 40(a)(i) of the Act. Disallowances were rightly deleted by the ld. CIT(Appeals) - Decided in favour of assessee

Additional deduction u/s.54EC - Held tha .....

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exemption. The ld.CIT(A) had examined the facts and dealt with Finance Act, 2014 on this issue and also relied on Jurisdictional High Court decision of C. Jaichander and Coromandel Industries Ltd (2014 (11) TMI 54 - MADRAS HIGH COURT ). We after considering the apparent facts and jurisdictional High Court decision are not inclined to interfere with the order of the Commissioner of Income Tax (Appeals) and accordingly, dismiss the Revenue ground.- Decided in favour of assessee - I.T.A. No. 2794/M .....

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nd 250 of the Income Tax Act, 1961. For the sake of convenience first we take up ITA No.2794/Mds/2014 for adjudication. 2. The Brief facts of the case are that the assessee is domestic company in which public are not substantially interested, located at Coimbatore and in the business of manufacture and sale of tread rubber, bonding gum and allied products, retreading of types, generation and distribution of power from wind mills. For the assessment year 2010-2011, the assessee has filed return o .....

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nclosures were submitted to the Assessing Officer and ld.AO has made additions on account of excess deduction u/Sec 54EC of the recoverable write off, Gratuity payments, foreign travel, expenditure, overseas Commission and other expenditure to the returned income and assessed income at ;31,62,19,530/- and raised demand. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). 3. In the appellate proceedings, the ld. Commission .....

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n the Profit and Loss Account. In the assessment proceedings, the Assessing Officer issued questionnaire and assessee Authorised Representative submitted material evidence in respect of Sundry Debtors were recovery is doubtful and same is written off. The ld. Authorised Representative has submitted Ledger Accounts, Sundry Creditors account and also Closing stock account as on 31.03.2010. The system of accounting being provision made but not credited to the Debtors account. It was explained that .....

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lied upon the decision of Supreme Court in the case of Vijaya Bank vs. CIT and Others (2010) 323 ITR 166 wherein it has been held that there is no need to debit the accounts of debtors and need not be squared off and the claim can be allowed subject to verification by Assessing Officer on the accounting treatment. The ld.CIT(A) relied on the findings of the Assessing Officer and considered that such provisions are against principles of Section 36(i)(vii) of the Act were the accounts are not squa .....

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overable amount written off which the Assessing Officer verified on the basis of information submitted in the assessment proceedings. Further, the assessee company instead of writing off the accounts and crediting the debtors account, has written off the amount which is in accordance of law and pleaded for deletion of addition. 4.2 On the other hand, the ld. Departmental Representative relied on the order of the Commissioner of Income Tax (Appeals) and contested the issue. 4.3 We heard the rival .....

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tion in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact has become irrecoverable, it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Further, the assessee has not placed on record before the lower authorities to show that it debtors were not in a position to pay the debts or have refused for payment. It is an unilateral act on the part of the assessee to write off all these amount without bring any materia .....

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ed that the financial position of the debtor was so precarious and shaky and that it would be impossible to collect any money from him. The question is really one of fact depending upon the various facts and diverse circumstances bearing on the debtors pecuniary position, his commitments and obligations. The judgment of the assessee in regarding the debt as a bad debt must be an honest judgment and not a convenient judgment. The judgment of the assessee must be established to have been taken on .....

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the debt has become a bad debt. A time-barred debt can be assumed to be bad, but is not necessarily bad because of expiry of limitation for recovery of the same. We after considering the accounting methodology of assessee company and provisions of law on bad debts and judicial decisions do not find any infirmity in the order of the Commissioner of Income Tax (Appeals) on this ground and same is upheld. Hence ground of the assessee is dismissed. 5 The second ground raised by the assessee company .....

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ged companies also. Since the assessee company is demerged company and scheme guidelines shall be applicable. The ld. Authorised Representative submitted trust deed copies pertaining to earlier company and also demerged company and argued that that there was no change in constitution or amendment to the object of the trust. This contribution is made to protect the rights of its employees. There is no dispute about the demerged scheme of arrangement but only apprehension that subsequent to de-mer .....

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unt. The Joint Commissioner of income tax disallowed payment of 40,46,754/- paid to Treadsdirect employee group gratuity trust on the contention that the same was not approved by the Commissioner. The contention of the Joint Commissioner of income tax is not correct as Hon'ble Madras High Court in its order vide paragraph 3.14 clearly mentioned that as for as Provident fund, Gratuity fund, Super annuation fund on any other fund created on existed for the benefit of staff, workmen and the emp .....

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T Kerala High Court Where it was held that contribution to even unregnized gratuity fund and unrecognized gratuity fund account is an allowable expenditure u/s.37 even if the same cannot be allowed under section 36(1)(V). Since the Joint Commissioner of Income Tax has not disputed the contribution made to the fund before filing the return of income, the contribution of 40,46,754/- will quality for deduction under section 37 if not allowable under section 36(1)(V) as it has been incurred wholly a .....

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before the Income Tax Appellate Tribunal. 5.3 Before the Tribunal, the ld. Authorised Representative submitted that the assessee company is a demerged company and all the terms and conditions apply and necessary approvals which are applicable for Treads Direct Limited shall remain with the de-merged company. The ld. Authorised Representative also relied on the letter of the office of the Commissioner of Income Tax giving approval from 20.02.1989 and prayed for deletion of addition. 5.4 On the ot .....

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second year of operations after de-merger the Revenue has considered the approval of High Court but disallowed the contribution to the gratuity fund. The ld.AR drew our attention to page No.68 of paper book were the gratuity fund was approved by letter dated 12.04.1990 which is in existence from earlier year and Revenue has accepted the contribution till the date of De-merger. The Revenue has disputed this issue after post De-merger, even though there is no such change in objects. But the ld.CIT .....

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nevertheless to say that opportunity of being heard be granted to the assessee and decide the issue on merits. 6. The last ground raised by the assessee in respect of foreign travel expenses. The Assessing Officer has disallowed an amount of ;5,14,876/- in respect of foreign travel expense not related to business. In the assessment proceedings, the assessee has filed details of travel expenditure with statements. The assessee being a global company has branches and subsidiaries in many countries .....

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he purpose of subsidiary companies. The Accounts department executives of assessee company has to travel to branches for consolidation of Accounts for preparation of Balance Sheet and incurred expenditure wholly and exclusively for the purpose of Business. But the ld. Commissioner of Income Tax (Appeals) confirmed the disallowance made by the Assessing Officer with a finding that subsidiary companies are independent companies and governed with laws in respective countries. Therefore, the expendi .....

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companies for Accounts finalization and for consolidation of accounts required under Indian Law. Further, the ld. Authorised Representative argued that percentage of Travel expenses on a turnover if considered on percentage basis is very negligible considering the global business operations and prayed for deletion of addition. 6.3 On the other hand, the ld. Departmental Representative relied on the orders of the lower authorities and vehemently argued for dismissal of the appeal. 6.4 We heard t .....

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nd income of parent and subsidiary company. If such expenditure is disallowed the subsidiary company has to claim deduction in respective countries accounts. But practically it will be a difficult task considering double taxation agreements between countries. Therefore, it is apparent from the facts of the case that the expenditure has been incurred wholly and exclusively for the purpose of business and falls within the provisions of Sec.37(1) of the Act. Hence, we direct the Assessing Officer t .....

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ia) of the Act will not apply to the foreign agencies who do not have business connection or permanent establishment in India. All the foreign commission payments are incurred for the export turnover and no part of income was received by them in India which deemed to be accrued in India. The Assessing Officer on perusal of Sections 5(2) and 9(1) Explanations firmly believed that there is a establishment of business connection in India and such payment is subject to TDS. The assessee has filed de .....

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the provisions of Section 5(2), 9(1) (i), 160 and 163 of the Act and also circulars and the assessee has established that commission was paid only for the purpose of managing sales of assessee outside India which involves technical expediency for marketing. But the ld. Assessing Officer was trying to establish that there is a business connection with subsidiary Company and disallowed foreign sales commission of ;42,87,219/-. Aggrieved by the order of the Assessing Officer, the assessee preferre .....

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der consideration is not for any technical service rendered nor could not be taken as a job which was managerial in nature. The non-residents are only procuring orders for the assessee and following up payments. No other service are rendered other than procuring the orders and collecting the amounts. The non-residents are not providing any technical services to the assessee. The commission payment made to non -residents also does not fall under the category of royalty of fees of technical servic .....

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d e) ACIT vs. Farida Shoes Pvt. Ltd f) IT vs. Trident Exports. Further, the Joint Commissioner of Income Tax erred in disallowing ;26,47,092/- twice which is not correct. The export commission payment of ;42,87,210/- includes overseas sales commission of ;26,47,092/- which was overlooked while passing the order. Ledge abstract of the Commission is enclosed for your kind perusal. 7.2 The ld. Commissioner of Income Tax (Appeals) on perusing the information and judicial precedents and factual aspec .....

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. Departmental Representative raised the grounds on technical fees and payment made to subsidiary commission attract TDS provisions and relied on the judicial decisions. At the time of argument, the ld. DR submitted that Commissioner of Income Tax (Appeals) erred in allowing the ground of the assessee without considering the relation of parent and subsidiary company and also use of technical services which attracts TDS and prayed for setting aside of the order of the Commissioner of Income Tax ( .....

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relied on the order of the Commissioner of Income Tax (Appeals). 7.5 We have heard the rival submissions of both the parties, perused the material on record and orders of the lower authorities and judicial citations referred by the parties. The ld.AR filed invoice copies at page Nos.69 to 78 of paper book raised by foreign agents of different countries on assessee company for commission on sale of tread rubber and bonding gum. The Co-ordinate Bench of Tribunal in the case of CIT vs. M.M. Forging .....

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Sec.195 has no application in such cases; and in order to invoke the provisions of Sec.195 of the Act income should be chargeable to tax in India, which is clearly not so in the instant case. In view of the above discussion and respectfully following the judgement of the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. v CIT 327 ITR 456, he directed the Assessing Officer to delete the addition made towards foreign agency commission, warehousing and other charges u/s 4 .....

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e through the case file. As already stated hereinabove, the CIT(A), whilst deleting the impugned addition u/s 40(a)(i) pertaining to overseas payments made by the assessee on account of commission, warehousing and other charges, has followed order of the 'tribunal'(supra) qua the very issue. On being granted opportunity, the Revenue has failed to prove that these expenses are liable to be taxed in India as income in the hands of concerned payees or any services had been rendered in India .....

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he case of Vilas N. Tamhankar in ITA No.4522/Mum/2013 for the assessment year 2009-2010, vide order dated 21.11.2014, and same view was also taken by the jurisdictional High Court in the case of CIT vs. Faizan Shoes Pvt. Ltd, 367 ITR 155 (Mad) and further in the case of Brakes India Ltd. vs. DCIT (LTU) (144 ITD 403) the co-ordinate Bench of the Tribunal, it was held that. 47. In our opinion, nature of services mentioned above will come not within the definition of fees for technical services giv .....

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considered as technical service, the fee was payable only for services utilized by the assessee in the business or profession carried on by the said nonresidents outside India. Such business or profession of the non-residents, earned them income outside India. Thus, it would fall within the exception given under sub-clause (b) of Section 9(1) of the Act. In any case, under Section 195 of the Act, assessee is liable to deduct tax only where the payment made to non-residents is chargeable to tax u .....

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s the ground of the Revenue and uphold the order of the Commissioner of Income Tax (Appeals). 8. The last ground raised by the Revenue of Commissioner of Income Tax (Appeals) erred in allowing the additional deduction u/s.54EC of the Act. 8.1 The assessee company has sold factory land at Ananthapur for the aggregating value of ;1,18,42,000/- and claimed exemption u/s.54EC of the Act and produced copies of investment. In assessment proceedings, it was submitted that the assessee company has sold .....

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owed and brought to tax. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 8.2 In the appellate proceedings, the assessee filed detailed written submissions establishing the investment made by the assessee is in National Highway Authority of India capital gain bonds before filing the return of income and claimed exemption u/s.54EC of the Act. The Authorised Representative relied on the provisions of Sec.54EC as unde .....

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pret the provisions by restricting to ;50,00,000/- to one financial year only and observed at page No.5, of paper book para 6 of CIT order as under:- Section 54EC(1) clearly states that if the assessee has at any point of time within a period of 6 months after the date of transfer of a long term capital asset, invested the whole or part of the capital gain in the long term capital asset, the capital gain shall be dealt with in accordance with the provisions of this Section. The provision clearly .....

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ed Asset from capital gains arising out of transfer from one or more capital asset during the Financial Year in which the relevant asset or assets are transferred and in the subsequent Financial Year does not exceed 50 lakh rupees'. The intention of the legislature is very clear by putting a restriction in total investments in the Specified Asset at ₹ 50 Lakhs only. This amendment is effective from 2015-16 onwards. As per the existing law for the Financial Year 2009-10, the limit of &# .....

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cial years, we cannot say that the restrictive proviso will limit the claim to ;50 Lakhs only. Since assessee here had placed ;50 Lakhs in two different financial years but within six months period from the date of transfer of capital asset assessee was definitely eligible exemption upto ;1 Crore. Similar view was also expressed in the case of the decision of the Hon'ble ITAT Chennai 'B' Bench, Chennai in the case of M/s. Coromandel Industries Pvt Ltd. Vs ACIT in ITA No.41/Mds/2013. .....

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