9911796707
TMI Blog2015 (8) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... UDICIAL MEMBER For the Assessee : Smt. Sharmila Prabhu O R D E R PER GEORGE MATHAN : 1. ITA No. 252/PNJ/2015 is an appeal filed by the Assessee and ITA No. 267/PNJ/2015 is an appeal filed by the Revenue against the order of CIT(A), Panaji-1 in ITA No. 489/PNJ/2011-12 dt. 25.3.2015 for the A.Y 2009-10. Smt. Sharmila Prabhu, FCA represented on behalf of the Assessee and none represented on behalf of the Revenue. 2. In the Assessee's appeal, the Assessee has raised the following grounds of appeal : "I. DISALLOWANCE UNDER SECTION 14A : The Learned Commissioner of Income Tax (Appeals) has erred in confirming an amount of Rs. 86,51,566/- to be disallowed under section 14A of the Income Tax Act. Your Petitioner contends that the Commissioner (Appeals) has erred in applying the provisions of Rule 8D while computing the disallowance under section 14A to all the investments made by the appellant." In the Revenue's appeal, the Revenue has raised the following grounds of appeal : "1) The order of the learned CIT(A) is opposed to law and facts of the case. 2) The Ld CIT(A) erred in deleting the additions of Rs. 2,41,01,002/- made u/s. 14A of the Income Tax Act in accordance with Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3/2010 dated 23.03.2010 which states that in cases where there is no sale or settlement has actually taken place and the loss on marked to market basis has resulted in reduction of book profits, such a notional loss would be contingent in nature and cannot be allowed to be set off against the taxable income. 9) The Ld CIT(A) has erred in treating the loss incurred by the assessee on forward contracts as hedging loss instead of treating it as speculative loss and deleting the addition of Rs. 120,01,95,278/. 10) The Ld CIT(A) has failed to appreciate the essential features of a hedging contract that the hedging transaction should be in the commodity manufactured/traded by the assessee and the hedging transactions total value should not exceed on any given date more than the actual stocks available with the assessee. The reliance was placed on the following decisions and Board's circular in F. No.23 (XXXIV-4) D of 1960 dated 12.09.1960 and instruction No.3-2010 dated 23.03.2010. i) Delhi Flour Mills Co. Ltd Vs CIT(1974) 95 ITR 151, 157-8 (Delhi) ii) Juvi Subbaramaiah & Co. Vs. CIT (1964) 51 ITR 742, 753 iii) (AP). Omkarmal Agarwal Vs. CIT (1968) 67 ITR 329, 335(AP) iv) Raghunat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance made by the AO of an amount of Rs. 2,41,01,002/- u/s 14A. It was the submission that the disallowance as deleted by the ld. CIT(A) was liable to be upheld and further, the deduction in respect of 0.5% of the investment was liable to be allowed insofar as the Assessee has not received any exempt income in respect of the investments made by the Assessee in the Assessee's subsidiaries. On a specific query from the Bench as to the calculation made by the Assessee and the AO, it was submitted by the ld. AR that the Assessee had submitted the calculation of the disallowance u/s 14A before the AO, however, the AO had not considered the said calculation and had made his own calculation in page 5 of the assessment order. It was the submission that the Assessee must be granted relief. 4. We have heard the submissions. A perusal of the calculation made by the AO at page 5 of the assessment order shows that the AO has considered all the investments. This is not permissible. Here, it was brought to the attention of the ld. AR that the computation of deduction u/s 14A was liable to be made in line with the decision of the co-ordinate bench of this Tribunal in the case of REI Agro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt. Why we say here that it is to be shown by the AO is on account of the words in Rule 8D(1) being "(1) Where the Assessing Officer, ...... is not satisfied with- (a) to (b)** ** ** in relation to income......., he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). In the assessee's case, admittedly, the assessee has substantial capital. The increase in the capital itself is to an extent of Rs. 4 crores and in respect of reserves and surplus, the increase is Rs. 112 crores. The loans taken during the year admittedly are for the letters of credit and the assessee is bound to provide the bank stock statement and other details to show the utilization of the loans. No bank would permit the loan given for one purpose to be used for making any investment in shares. The ld. CIT(A), it is noticed that after considering these facts that the assessee had not used any of its borrowings for purchasing the shares, has deleted the disallowance. On this ground itself, the deletion as made by the ld. CIT(A) is liable to be confirmed and we do so. 7.1 In any case, the working of the disallowance under sub-part (ii) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. It was submission by the ld. AR that the afforestation charges had been paid by the Assessee to an extent of Rs. 70,78,076/-. It was the submission that this issue was covered by the decision of the co-ordinate bench of this Tribunal in the case of M/s. Damodar Mangalji & Co. Ltd. in ITA No. 131/PNJ/2013 dt. 25.10.2013 wherein in para 3.3 the co-ordinate bench of this Tribunal has held as follows : "3.3 We have heard the rival submissions and carefully considered the same. We noted that the AO has disallowed the expenditure incurred by the Assessee on the plea that the expenditure is a capital expenditure and the benefit of the expenditure has to accrue over a number of years and therefore has to be treated as a capital expenditure. The AO also took the view that the whole expenditure did not accrue during the year. We noted that the CIT(A) deleted the disallowance merely relying on the order of this Tribunal which was passed in respect of an appeal filed before this Tribunal u/s 263 of the Income Tax Act. The question before the Tribunal was whether the order passed by CIT(A) is erroneous and prejudicial to the interest of the revenue. The Tribunal set aside the order of CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held the same to be a revenue expenditure by holding that the issue was covered by the decision of the jurisdictional bench of this Tribunal in the case of Dr. P.R. Hede in ITA No. 135/PNJ/2011. It is noticed that the decision in the case of M/s. Damodar Mangalji & Co. Ltd. is a subsequent decision and consequently, we are of the view that the said decision is liable to be followed. In the decision of the co-ordinate bench of this Tribunal in the case of M/s. Damodar Mangalji & Co. Ltd. wherein the issue was restored to the file of the ld. CIT(A) for re-adjudication, the ld. CIT(A) had not given a clear-cut finding as to whether the said expenditure was revenue in nature or capital. It is also noticed that the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. reported in 225 ITR 802 has not been considered by any of the authorities below. Admittedly, the afforestation charges are clearly revenue expenditure as has been held by the co-ordinate bench of this Tribunal in the case of Dr. P.R. Hede referred to by the ld. CIT(A). However, in view of the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed by the assessee. He, thus, confirmed the order of the assessing officer for the said disallowance. Now the only issue before us is whether the assessee had discharged its onus of proving the genuineness of the expenditure incurred by the assessee or not. 27.1 The documentary evidences by way of agreements with the non-resident agents and emails exchanged with them in this regard, which were placed on record of the authorities below and also furnished at page nos. 135 to 156 of the paper book before us, clearly exhibit the nature and extent of services rendered by those non-resident agents; and the genuineness of the same cannot be doubted merely on surmises without bringing anything contrary on record. CIT (A) while rejecting this vital piece of evidence has merely stated vide para 6.5 of his appellate order that "it is possible that the assessee may have some kind of business relationship with the above two companies. It is also possible that there may be some correspondence with the two companies with regard to sales of iron ore abroad. But this shall not be sufficient justification to prove that the companies abroad have rendered necessary services for effecting sales so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and LC acceptances. In other such set of emails, the assessee is found suggesting amendments to the draft LC and the agent confirming / suggesting amendments to the LC. Similarly, another set of emails show the Agent advising changes in the sale contract with the buyer and the assessee accepting the same. Yet another exchange of emails shows the agent is forwarding draft revised Final Adjustment Sheet and the assessee is suggesting corrections to Final Adjustment Sheets and requesting the agent to forward the same to the buyer. More so, in one such set of emails, the assessee is seen asking the agent to convey its message to the buyer and the agent can be seen conveying message from the buyer to the assessee. Thus, there remains no doubt in our mind that the non-resident agents were actually rendering the services as middlemen in terms of their respective agreements with the assessee and, accordingly, commission was genuinely paid by the assessee for those services only, i.e., wholly and exclusively for the purpose of the business of the assessee. The decision in Lachminarayan Madan Lal Vs CIT (1972) 86 ITR 439 (SC), relied upon by the Revenue is totally distinguishable on facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India." In view of the introduction of Explanation - II to Sec. 195 of the Act, as the Assessee has not deducted TDS u/s 195, the disallowance made by the AO by invoking the provisions of Sec. 40(a)(ia) of the Act would have to be restored and we do so. In the result, ground no. 4 of the Revenue's appeal stands allowed. 9. In regard to ground no. 5 of the Revenue's appeal, the ld. AR submitted that the issue was against the deletion of the disallowance of claim of depreciation @ 60% as against 15% on the UPS at par with the depreciation rate on computers. It was the submission that the issue was squarely covered by the decision of the co-ordinate bench of this Tribunal in the case of Sesa Goa Ltd. in ITA No. 190/PNJ/2011. It was the submission that the ld. CIT(A) had followed the decision of the co-ordinate bench of this Tribunal in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x a notional interest as due, or as collected by the assessee. There was no provision in the Income-tax Act empowering the income-tax authorities to include in the income interest which was not due or not collected. The addition of amounts as notional interest was not justified." 15 A reading of the above order of the Hon'ble Gauhati High Court shows that under the Income Tax Act, only a real income earned by the assessee can be brought to tax and not any notional income. On this count also, the addition deleted by the Commissioner of Income Tax (Appeals) finds support from the order of the Hon'ble Gauhati High Court. 16. Therefore, in view of the above, we find no infirmity in the order of the Commissioner of Income Tax (Appeals) which is hereby confirmed and the ground of appeal of the Revenue is dismissed." It was the submission that during the year the Assessee has disclosed a profit of Rs. 355 crores and the advance to sister concerns was only Rs. 54 crores. It was the submission that the non-interest bearing funds being available with the Assessee, no disallowance was called for. 12. We have considered the submissions. As it is noticed that the Assessee has suffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as speculative loss because the excess derivative transaction has no proximity with export turnover. We make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than the total export turnover of the assessee for the assessment year under consideration and if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly." As this calculation has not been done by either side, this issue is restored to the file of the AO for re-adjudication in line with the decision of the co-ordinate bench of this Tribunal in the case of M/s. Majestic Exports referred to supra. Consequently, ground nos. 7 to 11 of the Revenue's appeal stand partly allowed for statistical purposes. 15. In regard to ground no. 12 of the Revenue's appeal, it was submitted by the ld. AR that the issue was against the action of the ld. CIT(A) in deleting the addition on account of repairs an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y should be installed for the production of an article or thing. The assessee's plants at Codli, Amona and Chitradurga whether engaged for the manufacture or production independently, in our view, is not relevant. The relevant consideration is that the assessee must be engaged in the business of manufacture or production of any article or thing and the new plant and machinery must be acquired and installed. The assessee has extracted the iron ore and also processed it. The case of the assessee is duly covered by the decision of the Hon'ble Supreme Court in assessee's own case reported in 271 ITR 331 (SC) (supra). This section used the word 'business of manufacture or production' not the word 'manufacture and production'. We do not agree with the revenue that the case of the assessee is not covered by the decision of the Hon'ble Supreme Court in assessee's own case. Respectfully following the decision of the Hon'ble Supreme Court in assessee's own case, we delete the disallowance and allow the additional depreciation to the assessee amounting to Rs. 10,91,75,435/-." 18. We have considered the submissions. As it is noticed that the issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
