TMI Blog2015 (9) TMI 1437X X X X Extracts X X X X X X X X Extracts X X X X ..... o non-resident in respect of the provisions of Sec. 37, but has not decided the issue in respect of disallowance by invoking the provisions of Sec. 40(a)(ia) of the Act on account of non-deduction of TDS. A perusal of the order of the ld. CIT(A) shows that for the A.Y 2006-07 the AO has held that there was no necessity for engaging commission agents and accordingly, the commission payment was not held to be allowable as business expenditure u/s 37 of the Act. It is noticed that the ld. CIT(A) has deleted this disallowance following the decision of the co-ordinate bench of this Tribunal in the Assessee’s own case wherein the co-ordinate bench of this Tribunal [2013 (9) TMI 233 - ITAT PANAJI ] has accepted that commission is allowable u/s 37 itself. Disallowance made u/s 40(a)(ia) r.w.s. 195(1) towards payment of demurrage paid to non-resident buyers of iron ore - Held that:- The issue was now squarely covered by the decision of the co-ordinate bench of this Tribunal in the Assessee’s own case [2013 (9) TMI 233 - ITAT PANAJI ] wherein held non-resident buyer got compensation towards demurrage incurred through operation which are confined to purchase of goods, i.e. in relation to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Respondent : K.M. Mahesh Ramesh S. Mutagar, Ld. DRs O R D E R PER GEORGE MATHAN : 1. ITA No. 92/PNJ/2015 is an appeal filed by the Revenue and ITA No. 100/PNJ/2015 is an appeal filed by the Assessee against the order of the ld. CIT(A), Panaji-1 in ITA No. 118/PNJ/12-13 dt. 11.12.2014 for the A.Y 2010-11. Shri K.M. Mahesh and Shri Ramesh S. Mutagar, ld. DRs represented on behalf of the Revenue and Dr. Anita Sumanth, Advocate, Shri Benicio Menezes, AGM (Taxation) and Shri V. Santhi Kumar, CA represented on behalf of the Assessee. 2. In its appeal, the Revenue has raised the following grounds : 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 ₹ 1,48,72,062/- 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 lTD 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) erred in deleting the additions of ₹ 1,56,68,389/- u/s.40a( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ore and that the processed ore was a distinct commodity than the input of ROM ignoring the decision of the Apex Court in the case of Chowgule Co. Pvt. Ltd. Vs. Union of India 1981 AIR 1014 and Bombay High Court in the assessee‟s own case (2004) (ITR 266 ITR 126) where it has been held that mining is an integral process of various activities starting from extraction of iron ore to blending and loading to the ship and that the process of producing ore of contractual specifications cannot be said to involve the process of manufacturing since the ore produced cannot be regarded as an commercially new and distinct commodity. 9) The Ld.CIT(A) erred in interpreting the new section 2(29BA) that the processing of ROM amounts to manufacture‟ of iron ore by bringing into existence a new and distinct object or article or thing by the processing plant the EOU unit. 10) The Ld CIT(A) has erred in applying the definition of manufacture‟ given in SEZ Act 2005 which is applicable for the purpose of only section 10AA if the IT Act which imposes various conditions for the utilization of profits. 11) The Ld CIT(A) has erred in not following the decision of the ITAT P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket rate as per the assessee‟s own working for 56 grade is ₹ 465 for Amona unit and the CIT(A) directed to take this at ₹ 558 -viz the decision of the CIT(A) resulted in valuation of higher grade ore at the rate of ₹ 230 when infact the lower grade ore itself is valued at the rate of ₹ 558 per MT as per CIT(A) decision. The higher grade ore cannot be valued less than the lower grade ore which is absurd. 16) For these and other grounds that may be adduced at the time of hearing the order of the learned CIT(A) may be set aside and order of Assessing Officer restored. 17) The appellant craves, leave to add, amend or alter any of the grounds of the appeal either before or at the time of hearing. 18) Whether the CIT(A) is right is not following the ITAT, Panaji Bench decision in the case of M/s. Dempo Co. Pvt. Ltd., for the A.Y. 2005-06 in ITA No. 44/PNJ/2009 dated 13.04.2011 wherein the Hon‟ble Bench held that processing of ore without extraction does not amount to manufacture or production for the purpose of 10B by relying on the Supreme Court decision in the cases of Sesa Goa Ltd., 271 ITR 331 and Supreme Court decision in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of the business (and in fact a part of the said funds were already utilized by the Appellant in its business operations, and only a part of the said funds, which could not be immediately utilized, were temporarily parked in the fixed deposits as per the guidelines of the Reserve Bank of India applicable on FCCB, and that the interest earned there-from had been considered by the Appellant as part of the business income;) and hence that the whole of the interest cost on the said borrowings, including the aforesaid ₹ 6 crores, ought to have been considered, as business expenditure. 2.2 The Learned CIT(A) also erred in disallowing the part of interest expenditure incurred in relation to interest income fully offered to tax, while there is no legal provision to disallow the same or limiting the same to the extent of income offered to tax. 3.1 The Learned CTT(A) erred in determining the input costs of the iron-ores used in the three EOU Plants by adding purported mark-ups of ₹ 61,67,97,321/- to the total of the input costs of the said ores adopted by the Appellant, there by effectively disallowing the Appellant‟s claim for deduction u/s.10-B of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to an extent of ₹ 66,69,11,089/-. It was the submission that the ld. CIT(A) had deleted the disallowance by holding that the interest expenditure incurred by the Assessee for the specific purpose cannot be taken into consideration for making the disallowance u/s 14A of the Act. It was the submission that there is no such provision in the provisions of Sec. 14A or Rule 8D. It was the submission that the order of the ld. CIT(A) was liable to be reversed. 6. In reply, the ld. AR submitted that the ground raised by the Revenue is misconceived insofar as the Revenue has challenged the deletion by the ld. CIT(A) of the disallowance u/s 14A to an extent of ₹ 1,48,72,062/- whereas the ld. CIT(A) has confirmed an amount of ₹ 1,48,72,062/-. It was the further submission that against this confirmation of the disallowance made u/s 14A to an extent of ₹ 1,48,72,062/- the Assessee is in appeal in ground nos. 1.1 to 1.3 of its appeal. It was the submission that there was no direct expenditure relatable to the exempt income and consequently, the provisions of Sec. 14A could not be invoked in the case of the Assessee. The ld. AR drew our attention to page 2342 of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e calculation provided under Rule 8D, the issue of disallowance u/s 14A 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. Sesa Resources Ltd. in in ITA Nos. 252 267/PNJ/2015 dt. 20.8.2015 wherein it has been held as follows : 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 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. A perusal of the provision of section 14A(1) clearly shows the wordings, in relation to the income which does not form part of the total income under this Act . In the present case, this income, which does not form part of the total income under the Act, is the dividend income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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) of sub-clause (2) of rule 8D as made 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being ITA Nos. 72 85/PNJ/2012 dt. 8.3.2013 for deleting the disallowance. It was the submission that the ld. DR vehemently supported the order of the AO. 10. In reply, the ld. AR submitted that the figure mentioned in the ground of appeal of the Revenue was wrong insofar as the disallowance was to an extent of ₹ 5,07,06,761/- and the ld. CIT(A) had deleted the disallowance, whereas the Revenue has only challenged the deletion to an extent of ₹ 1,56,68,389/-. It was the further submission that the ld. CIT(A) had followed the decision of the co-ordinate bench of this Tribunal in the Assessee s own case being ITA Nos. 72 85/PNJ/2012 dt. 8.3.2013. It was the submission that the order of the ld. CIT(A) was liable to be upheld. At this point it was pointed to the ld. AR that in the decision of the co-ordinate bench of this Tribunal in the Assessee s own case being ITA Nos. 72 85/PNJ/2012 dt. 8.3.2013 the Tribunal had not considered Explanation 2 to Sec. 195 which had been introduced by the Finance Act, 2012 with retrospective effect from 1.4.1962. It was brought to the ld. Counsel s attention that in the case of one of the group concerns of the Assessee, M/s. Sesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation 2 was introduced for the purpose of addressing the question of chargeability when an entity did not have a presence in India. It was the submission that in a situation where the chargeability is not in dispute, the mere fact that the presence is not there should not make a difference. The ld. AR drew our attention to the decision of the Hon'ble Madras High Court in the case of M/s. Anand Transport Pvt. Ltd. in Writ Appeal No. 952 of 2013 dt. 5.2.2014 wherein it has been accepted by the Hon'ble Madras High Court that Explanation 2 to Sec. 195 as per the 2012 amendment cannot be pressed into service insofar as unless the amount paid to the non-resident is an amount chargeable to tax in India the provisions of Sec. 195 itself cannot be invoked. It was further submitted by the ld. AR that the AO has not disallowed the commission to the non-resident by applying the provisions of Sec. 40(a)(ia) but it was in terms of Sec. 37, as not wholly and exclusively for the purpose of the business. At this point, the statement of facts filed by the Assessee before the ld. CIT(A) was verified and it showed that the Assessee has in the statement of facts in the issue raised in 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Tribunal in the Assessee s own case in ITA No. 72 85/PNJ/2012 dt. 8.3.2013 wherein at para 46 to 46.2 at pages 167 to 170 the co-ordinate bench of this Tribunal following the decision of the Hon'ble Supreme Court in the Assessee s own case reported in 271 ITR 331 has allowed the claim of additional depreciation. In the circumstances, ground no. 5 of the Revenue s appeal stands dismissed. 14. In respect of ground nos. 6 to 12 of the Revenue s appeal which is against the action of the ld. CIT(A) in granting deduction u/s 10B of the Act and ground nos. 13 to 16 which is against the computation u/s 10B, it was submitted by the ld. DR that the ld. CIT(A) had not considered the new evidences provided by the AO when deciding the issue. The ld. DR drew our attention to para 8.3 at page 55 of the order of the ld. CIT(A) wherein the ld. CIT(A) has categorically held that he was not considering the new evidences insofar as the A.Y 2009-10 was the first year of the claim of deduction u/s 10B and the fresh evidences, if any, could be considered only in that assessment. It was the submission that the order of the ld. CIT(A) was liable to be reversed. 15. In reply, the ld. AR submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessee s case. 19. We have considered the rival submissions. As the issue of deduction u/s 10B itself has been restored to the file of the ld. CIT(A) for re-adjudication in respect of ground nos. 6 to 16 of the Revenue s appeal, the issues raised in the Revenue s appeal in ground nos. 18 and 19 must also be restored to the file of the ld. CIT(A), and we do so. In the result, ground nos. 18 and 19 of the Revenue s appeal stand partly allowed for statistical purposes. 20. In respect of the Assessee s appeal, as mentioned earlier, ground nos. 1 to 1.3 being the issue of disallowance u/s 14A, has been restored to the file of the AO for re-adjudication. 21. In respect of ground nos. 2.1 and 2.2 of the Assessee s appeal, it was submitted by the ld. AR that the issue was against the action of ld. CIT(A) in disallowing ₹ 6 crores of interest expenditure in respect of foreign currency convertible bonds as non-business expenditure. The ld. AR drew our attention to page 71 of the order of the ld. CIT(A) to show that this was an enhancement of the interest disallowed as non-business expenditure. It was the submission that no enhancement notice has been given to the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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