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Sesa Resources Ltd. (Earlier known as V.S. Dempo & Co. Pvt. Ltd.) Versus Asst. Commissioner of Income Tax, Circle-1 (1) , Panaji, Goa and Dy. Commissioner of Income Tax, Circle-1 (1) , Panaji, Goa Versus Sesa Resources Ltd. (Earlier known as V.S. Dempo & Co. Pvt. Ltd.)

2015 (8) TMI 1287 - ITAT PANAJI

Disallowance u/s 14A - Held that:- The issue of calculation of disallowance u/s 14A is restored to the file of the AO to re-compute the disallowance u/s 14A by taking into consideration the principles laid down by the co-ordinate bench of this Tribunal in the case of REI Agro Ltd. [2013 (9) TMI 156 - ITAT KOLKATA] wherein held that if there is any interest expenditure, which is directly relatable to any particular income or receipt, such interest expenditure is not to be considered under rule 8D .....

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case of Madras Industrial Investment Corporation Ltd. [1997 (4) TMI 5 - SUPREME Court] the allowance of this expenditure is to be staggered proportionately over the period of the lease and in proportion to the quantity of ore extracted from the said mine. In these circumstances, this issue is restored to the file of the AO for computation of the allowance of the afforestation charges as revenue expenditure in proportion to the quantum of iron ore extracted over the period of the lease.

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the provisions of Sec. 195 has been amended by the introduction of Explanation-II to the said section by the Finance Act, 2012 with retrospective effect from 1.4.1962 whereby it is clarified that “the obligation to comply with sub-section (1) 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 busi .....

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case [2013 (4) TMI 814 - ITAT PANAJI]

Disallowance of expenditure of interest paid on loans taken at interest and advanced to the sister concerns without charging any interest - Held that:- As it is noticed that the Assessee has sufficient non-interest bearing funds available with it, the disallowance as made by the AO, and as deleted by the ld. CIT(A) stands confirmed.

Addition on account of notional loss on exchange variation - Held that:- This issue is restored to the .....

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r, the loss in respect of that portion of excess transactions has to be considered as speculative loss because the excess derivative transaction has no proximity with export turnover.

Addition on account of repairs and maintenance of old vessels which were in the nature of current repairs - CIT(A) deleted the addition - Held that:- Nature of the expenditure is only for the purpose of maintaining the vessels sea-worthy and in accordance with the requirements of the Maritime Regulatory .....

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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 am .....

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8377; 2,41,01,002/- made u/s. 14A of the Income Tax Act in accordance with Rule 8D of Income Tax Rules as provided by the decision given by the Mumbai Special Bench of ITAT in the case of ITO vs Daga Capital Management Pvt. Ltd. (2009) 117 ITD 169 and in the case of Lakshmi Ring Travellers Vs. ACIT ITA 2083/Mds/2011 order dated 02/03/2012 A.Y. 2008-09. 3) The Ld CIT(A) has erred in deleting the additions of ₹ 70,78,076/- on account of disallowance of expenditure towards renewal of mining l .....

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(1) towards payment of commission to foreign agents outside India as these payments are deemed to accrue/arise in India and also in view of explanation 2 to section 195(1) as held in the case of Rajiv Malhotra INRE(AAR)284 1TR 564 and SKF Boilers and Driers Pvt. Ltd and also as per Board s Circular No.7 of 2009 dated 22.10.2009. 5) Whether Ld CIT(A) was correct in deleting the additions of ₹ 1,53,313/- on account of disallowance of excess claim of depreciation @ 60% as against @ 15% on UPS .....

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nces were used for business purpose as held in the case of CIT Vs. Mir Mohd. Ali in 38 ITR 413. 7) The Ld CIT(A) has erred in deleting the addition on account of notional loss on exchange variation amounting to ₹ 14,39,60,911/- made by AO as per CBDT instruction No. 3/2010 dated 23.03.2010. 8) The Ld CIT(A) has erred in deleting the addition on account of loss on options/forwards - marked to market amounting to ₹ 24,64,78,790/- made by AO without considering the CBDT instruction No.3 .....

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20,01,95,278/. 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) Del .....

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tions carried on by the assessee are not speculative but hedging transactions is on the assessee as per the Supreme Court Decision in CIT Vs Joseph John (1968) 67 ITR 74. 12) Whether in law and on facts and circumstances the Ld CIT(A) was correct in deleting the addition on ₹ 21,19,97,295/- stating that expenses incurred on repairs and maintenance of the old vessels can only be categorized as current repairs as the same has been incurred to keep the vessels in good condition without increa .....

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itional depreciation amounting to ₹ 88,24,295/- ignoring the Supreme Court s decision in CIT Vs Gem India Manufacturing Co. (2001) 249 ITR 307 (S.C.) and in Lucky Minerals Pvt. Ltd., Vs. CIT (2001) 116 Taxman 1 (SC). 3. In the Assessee s appeal, the Assessee has challenged the action of the ld. CIT(A) in confirming the disallowance made u/s 14A representing 5% of the investments. It was the submission by the ld. AR that the Assessee had in its return of income made disallowance u/s 14A to .....

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Revenue s appeal also, being ground no. 2, the Revenue has challenged the action of the ld. CIT(A) in deleting the disallowance made by the AO of an amount of ₹ 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 Assesse .....

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age 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 Ltd., Kolkata in ITA Nos. 1331/Kol/2011 and 1423/Kol/2011 dt. 19.6.2013 wherein the co-ordinate bench of this Tribunal has held as follows : 7. Now coming to the merits of the issue. .....

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es, which could get dividend or there is investment which generates dividend income or exempt income as also investment which does not generate exempt income, it is only such investments in respect of which the dividend income or exempted income has been earned which can be considered when computing the disallowance under section 14A read with rule 8D. A perusal of the provisions of rule 8D also talks of satisfaction in sub-rule (1). Rule 8D(2) has three sub-parts. The first sub-part i.e. (i) de .....

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y relatable to any particular income or receipt, such interest expenditure is not to be considered under rule 8D(2)(ii). In the assessee's case here the interest has been paid by the assessee on the loans taken from the banks for its business purpose. There is no allegation from the banks nor the AO that the loan funds have been diverted for making the investment in shares or for non-business purposes. Further rule 8D(2)(ii) clearly is worded in the negative with the words "not directly .....

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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 ₹ 4 crores and in respect of reserves and surplus, the increase is ₹ 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 utili .....

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ade by the AO also suffers from a substantial error in so far as in the said rule in regard to the numerator B, the words used are the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year. Here the AO has taken into consideration the investment of ₹ 103 crores made this year, which has not earned any dividend or exempt income. It is only the .....

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does not form part of the total income which is to be considered. A question may arise as to why the term "average of the value of investment" is then used. The term average of the value of investment would be to take care of cases where there is the issue of dividend striping. In any case, as we have already held that the assessee has not incurred any expenditure by way of interest during the previous year, which is not directly attributable to any particular income, the findings of .....

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of the Revenue s appeal is also partly allowed for statistical purposes. 5. In regard to ground no. 3 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 disallowance made by the AO in respect of the expenditure towards renewal of a mining lease/afforestation charges made by the AO as capital expenditure. It was submission by the ld. AR that the afforestation charges had been paid by the Assessee to an extent of ₹ .....

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re 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 .....

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eal against order passed u/s 263 when the order has been set aside by the CIT(A) and sent back to the AO for passing it afresh in accordance with law, the Tribunal does not have any jurisdiction to examine the case on merit. We have also gone through the order of the Tribunal passed u/s 263 on which the CIT(A) has relied. In our opinion, that order will not be applicable in this case. The CIT(A) was bound to give a clear-cut finding whether the expenditure incurred by the Assessee is a capital e .....

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is a revenue expenditure, whether the expenditure has accrued during the year or not after giving proper and sufficient opportunity to the Assessee. Thus, this ground is allowed for statistical purpose. 6. We have heard the submissions. A perusal of the decision of the co-ordinate bench of this Tribunal in the case of M/s. Damodar Mangalji & Co. Ltd. referred to supra shows that the co-ordinate bench of this Tribunal has restored this issue to the file of the ld. CIT(A) for re-deciding the .....

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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 i .....

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nate 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 Investment Corporation Ltd. referred to supra the allowance of this expenditure is to be staggered proportionately over the period of the lease and in proportion to the quantity of ore extracted from the said mine. In these circumstances, this issue is restored to the file of the AO for computation of the allowa .....

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of Sec. 195(1) r.w.s. 40(a)(ia) of the Act. It was the submission that this 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. 72/PNJ/2012 dt. 8.3.2013 wherein the co-ordinate bench of this Tribunal has held in para 27, 27.1 to 27.2 as follows : 27. If we apply the principles of the law as enunciated in the various judgments, we are of the opinion that once the A.O. finds that the assessee has bonafidely incurred the expe .....

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payment made to the non-resident agents took the view that the assessing officer was not justified in disallowing the commission payment by invoking the provision of sec. 40(a)(i). The CIT(A), however, disallowed the commission paid by the assessee to the foreign non-resident agents by applying the provisions of sec. 37 as according to him the assessee had not able to substantiate the claim for payment of commission to non-resident agents by adducing specific and tangible evidence to demonstrate .....

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n 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 relatio .....

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ng exchanged with the said two non-resident agents in actual performance of their services for which they had been engaged by the assessee as per the respective agreements entered into with them and for which commission had been paid to them. It is not the case of the Revenue that the impugned emails were fabricated or forged one. In fact, the CIT (A) has admitted in his appellate order that 'it is possible that there may some correspondence with the two companies with regard to sale of iron .....

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ced by it further corroborate its explanation, there is no reason for Revenue to disregard the same on whims without bringing forth any tangible and cogent material to the contrary. 27.2 The said two non-resident agents had been engaged by the assessee in the past and they have been paid commission on sales abroad since last so many years. There is no law which mandates that a middleman is entitled to his commission only for the first time when he introduces both the parties to each other. We ag .....

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omination from the buyer, which was later accepted by the assessee. Other emails show the assessee's request to the agent for opening of LC and subsequently requesting the agent for LC amendments 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 .....

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ly 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. In that case the assessee had only produced the agreements and the Hon'ble apex court decided tha .....

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paid to them, had actually been rendered by them. Thus, in the case of the assessee commercial expediency has clearly been proved. Therefore, the disallowance of ₹ 9,88,29,729/- for commission paid to non-resident agents is deleted by allowing this ground of appeal of the assessee. 8. We have considered the submissions. A perusal of the assessment order in the Assessee s case shows that the AO has disallowed the commission paid to the foreign agents on two grounds; one on account of non-d .....

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40(a)(ia) of the Act has not been adjudicated. In these circumstances, respectfully following the decision of the co-ordinate bench of this Tribunal in the case of Sesa Goa Ltd. referred to supra, it is held that the expenditure has been incurred by the Assessee for the purpose of the business of the Assessee itself. However, in respect of the issue as to whether the Assessee was liable to deduct TDS u/s 195 and whether the disallowance was liable to be made u/s 40(a)(ia) of the Act for non-dedu .....

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e 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 .....

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ase of Sesa Goa Ltd. referred to supra. 10. We have considered the submissions. As it is noticed that the ld. CIT(A) has followed the decision of the co-ordinate bench of this Tribunal in the case of Sesa Goa Ltd. referred to supra, we find no reason to interfere with the order of the ld. CIT(A). Consequently, the finding of the ld. CIT(A) on this issue stands confirmed. Consequently, ground no. 5 of the Revenue s appeal stands dismissed. 11. It was the submission that in ground no. 6 of the Rev .....

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that the Commissioner of Income Tax (Appeals) has observed that the assessee had given interest free advances to its subsidiaries in its business requirements. He placed reliance on the decision of the Hon ble Bombay High Court in the case of CIT-7 Vs. Reliance Communications in Appeal No. 3155/2009 dated 28/03/2012 and has held that where interest free borrowed funds are advanced as interest free loans to its subsidiaries for business expediency, the interest cannot be disallowed. Commissioner .....

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n granted to the managing director or any other person on interest, or that interest had actually been collected but the collection of the interest was not reflected in the accounts. The finding of the Income-tax Officer was that the assessee ought to have collected interest. If the assessee had not bargained for interest, or had not collected interest, the income-tax authorities could not fix a notional interest as due, or as collected by the assessee. There was no provision in the Income-tax A .....

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#39;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 ₹ 355 crores and the advance to sister concerns was only ₹ 54 crores. It was the submission that the non-interest bearing funds being available with the Assessee, no disallowance was .....

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ion. It was the submission that the Assessee is an iron ore exporter and its turnover during the year exceeded ₹ 1000 crores. It was the submission that there was some unrealized amount at the year end. The Assessee had claimed that the foreign exchange fluctuation resulted in a loss. It was the submission that this issue was squarely covered by the decision of the co-ordinate bench of this Tribunal in the case of M/s. Rupam Impex in ITA No. 4008/Mum/2012 dt. 21.10.2013 wherein the co-ordi .....

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foreign exchange as on the date of balance sheet in respect of loans taken for Revenue purpose is allowable as expenditure u/s. 37(1) notwithstanding the fact that liability has not been actually discharged in the year in which the fluctuation rate of foreign exchange is accrued. Therefore, we find no infirmity in the order passed by the id. CIT(A) and we decline to interfere. 14. It was put to the ld. AR that subsequent to this decision in the case of M/s. Rupam Impex, the co-ordinate bench of .....

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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 specu .....

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s. 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 and maintenance of old vessels which were in the nature of current repairs. 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 Salgaocar Mining Industries Pvt. Ltd. in ITA No. 361/PNJ/2013. It was the submission that the expend .....

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th the requirements of the Maritime Regulatory Authority and there is no increase in the capacity and as it is noticed that the ld. CIT(A) has followed the decision of the jurisdictional Tribunal in the case of Salgaoncar Mining Industries Pvt. Ltd. referred to supra, the finding of the ld. CIT(A) on this issue stands confirmed. In the result, ground no. 12 of the Revenue s appeal stands dismissed. 17. In regard to ground no. 13 of the Revenue s appeal, it was submitted by the ld. AR that the is .....

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which has been acquired or installed by him after 31.03.2005 for the additional depreciation if the assessee is engaged in the business of manufacture or production of any article or thing. Proviso to section denies the deduction to an assessee of the additional depreciation in certain cases. From the balance sheet and all other evidences filed before us it is apparently clear that the assessee is engaged primarily in the business of extraction of ore and its processing. The authorities below i .....

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