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2015 (9) TMI 1437 - ITAT PANAJI

2015 (9) TMI 1437 - ITAT PANAJI - TMI - Disallowance u/s 14A - Held that:- As it is noticed that the calculation made by the AO shows that the AO has considered all the investments which is not permissible whereas the Assessee has not provided a proper computation of the disallowance u/s 14A and the ld. CIT(A) has also not considered the 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- .....

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to 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) h .....

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ssessee’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 ship which it had arrange for taking delivery of goods from assessee/seller from India - Income cannot be deemed to accrue or arise in India in hands of foreign buyer and therefore it cannot be taxable in India and not liable to tax deduction at source - No disallowance can be made u/s 40(a) .....

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rocessed it - Case of assessee duly covered by decision of Hon'ble Supreme Court in assessee's own case reported in [2004 (11) TMI 14 - SUPREME Court] – Allowed additional depreciation – Decided in favor of Assessee.

Deduction u/s 10B - Held that:- As it has been admitted that the appeal for the A.Y 2009-10 is under adjudication before the ld. CIT(A) and that fresh evidences have been found in the course of the survey conducted after the order of the Tribunal which has been followed .....

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d the amount of ₹ 6 crores towards non-business expenditure. Consequently, we are of the view that the issue of disallowance of interest as non-business expenditure is liable to be restored to the file of the ld. CIT(A) for re-adjudication after granting the Assessee necessary enhancement notice and granting the Assessee adequate opportunity to substantiate its case - ITA NO. 92/PNJ/2015, ITA NO. 100/PNJ/2015 - Dated:- 10-9-2015 - SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, .....

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sented 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 .....

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it was held that Commission income paid to export agents taxable in India in view of sec.5(2)(b) r.w.s. 9(1(i)-Fact that the agent is to render service abroad and the commission is to be remitted to it abroad are wholly irrelevant for the purpose of determining the situs of income since income is from a source in India. Further CBDT withdrew circular No. dated- on this issue. 4) The Ld CIT(A) has erred in deleting the additions of ₹ 34,85,71,032/- made u/s.40a(ia) r.w.s. sec. 195(1) towar .....

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ned in section 2(29BA). 6) The CIT(A) erred in granting of deduction under section 10B by not following the binding decision of the Supreme Court in the case of Chowgule & Co. Pvt. Ltd. Vs. Union of India 1981 AIR 1014 where in it was clearly held that though the processing of iron ore undergoes changes in physical and chemical composition still it does not amount to manufacture. This decision was followed by the ITAT Panaji Bench in the case of Chowgule & Co Ltd Vs.s ACIT (ITA No.162/PN .....

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section 10B. 8) The Ld CIT(A) has erred in holding that the processing plant (EOU) in itself was manufacturing iron ore erroneously presuming that the processing plant was blending iron 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 .....

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inct 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 Panaji Bench (coordinate bench) in the case of Chowgule & Co Ltd Vs.s ACIT (ITA No.162/PNJ/2006) where it has been held t .....

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ided by the Assessing Officer after decision of the ITAT in the assessee‟s case for A.Y. 2009-10 on the issue of section 10B as the power of the CIT(A) is coterminous with the power of the Assessing Officer. 13) The CIT(A) erred and ignored provision of section 80A(6) in directing the A.O. to adopt 62 FE grade ore received by the Amona EOU Unit from Chitradurga unit 3,45,742MT at the rate of ₹ 230 per MT(Rs.192 taken by the assessee pIus 20% increase) whereas the assessee company its .....

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be valued less than the lower grade ore which is absurd. 14) The Ld CIT(A) has erred and ignored provision of section 80A(6) in directing the A.O. to value the ore transferred to Codli EOU unit of Goa by the non EOU unit of 19,13,376MT @ the rate of ₹ 300 per MT for 55 to 56 grade FE where as for the same grade FE the CIT(A) adopted ₹ 558 per MT in the case of Amona unit of Goa without giving any reasons. For the same grade of ore there cannot be two different market rates. 15) The .....

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f ₹ 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. .....

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of India (1981) AIR 1014? 19) Whether the CIT(A) is right in ignoring the detailed remand report submitted before him by the AO which contains the suppression of material facts by the assessee and also decisions of the Supreme Court which are followed by the Co-ordinate Bench viz. ITAT, Panaji Bench in the case of M/s. Chowgule & Co. Ltd., for the A.Y. 2002-03 in ITA No.184/PNJ/2006 dated 12.07.2007 and of M/s. V.S. Dempo & Co. Pvt. Ltd., for the A.Y. 2005-06 in ITA no. 44/PNJ/2009 date .....

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) as disallowable] was being towards the working capital of the business, directly attributable to the taxable receipts; and hence the said amount could not have been considered by him as expenditure attributable to the exempt income. 1.2 The Learned CIT(A) erred in presuming the interest of ₹ 3.50 Crores, paid on cash credit account may have direct nexus to the investment made, since the cash credit account is a common hotch pot from which payments of all kinds are made as per the require .....

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ation of borrowed funds could be made regarding funding of the investment with borrowed funds. 2.1 The Learned CIT(A) erred in disallowing ₹ 6 crores of interest expenditure on Foreign Currency Convertible Bonds (FCCB), as non-business expenditure. The CIT(A) ought to have appreciated that the whole of the aforesaid loan was borrowed for 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 th .....

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he 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 .....

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ng influenced with the profits of the mining business during and year and thereby arbitrarily rejecting the cost of crude ore considered by the Appellant. 3.3 The learned CIT(A) also erred in arbitrarily rejecting the contentions made by the Appellant in its demonstration & working out the effect of provisions laid out in section 10(7) r.w. 80-IA(8) and thus establishing that effectively the cost of crude ore transferred from its own mines is comparable to the test of market value. 3.4. Even .....

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ntiated its case for the delay of 4 days, the same stands condoned and the appeal disposed off on merits. 5. In regard to ground no. 2 of the Revenue s appeal which is on the issue of disallowance u/s 14A of the Act, it was submitted by the ld. DR that in the course of the assessment, the AO had in page 14 of his order disallowed an amount of ₹ 54,15,54,962/- by invoking the provisions u/s 14A r.w.r. 8D. It was the submission that the Assessee of its own had already disallowed administrati .....

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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 h .....

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sions of Sec. 14A could not be invoked in the case of the Assessee. The ld. AR drew our attention to page 2342 of the paper book, which is the copy of the order of the co-ordinate bench of this Tribunal in the case of the Assessee in ITA Nos. 72 & 85/PNJ/2012 dt. 8.3.2013, and submitted that in para 18, page 31 of the said order the Tribunal had for the immediately preceding year i.e. A.Y 2009-10 deleted the disallowance made u/s 14A r.w.r 8D. It was the submission that on identical grounds, .....

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-. It was informed to the learned counsel that in the Assessee s appeal, the Assessee has only challenged the confirmation of the disallowance of ₹ 1,48,72,062/-. It was also informed to the ld. AR that the Assessee itself has disallowed an amount of ₹ 23,55,556/- under the head Administrative expenditure in respect of the disallowance u/s 14A and now could not take a stand that the Assessee had not incurred any expenditure in respect of earning the exempt income. It was also brought .....

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of REI Agro Ltd. in ITA Nos. 1331/Kol/2011 and 1423/Kol/2011 dt. 19.6.2013. It was then agreed by both the sides that the issue of disallowance u/s 14A could be restored to the file of the AO for re-adjudication. 7. We have considered the rival submissions. As it is noticed that the calculation made by the AO shows that the AO has considered all the investments which is not permissible whereas the Assessee has not provided a proper computation of the disallowance u/s 14A and the ld. CIT(A) has .....

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nvestments. 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, .....

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dend 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) deals with the amount of expenditure directly relating to the income which .....

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re 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 attributable". Thus for bringing any interest expenditure, claimed .....

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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 utilization of the loans. No bank would permit the loan given for one purpose .....

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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 average of the value of the investment from which the income has been ea .....

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stion 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 the ld. CIT(A) on the issue stand confirmed and consequently the appeal .....

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ly, all other pages in the paper book stand unadmitted. 9. In respect of ground no. 3 of the Revenue s appeal, it was submitted by the ld. DR that the issue was against the action of the ld. CIT(A) in deleting the addition made by the AO u/s 40(a)(ia) of the Act towards payment of commission to foreign agents where TDS had not been deducted. It was the submission that the AO in pages 15 to 21 of his order had disallowed the payment of commission to various agents who were non-residents. It was t .....

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f 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 b .....

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267/PNJ/2015 dt. 20.8.2015, the co-ordinate bench of this Tribunal has held the issue against the Assessee as follows : 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-deduction of TDS and second that the expenditure has not been paid for the purposes of the business of the Assessee. A perusal of the decision of the co-ordinate ben .....

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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-deduction of the TDS u/s 195(1) of the Act, it is noticed that the provisions of Sec. 195 has been amended by the introduction of Explanation-II to the said section by .....

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w 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. It was then submitted by the ld. AR that Explanation - 2 was introduced for the purpose of addressing the question of chargeability when an entity did not have a presence in India. It wa .....

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s 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 Assess .....

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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. 11. We have considered the rival submissions. A perusal of the order of the ld. CIT(A) at page 33 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. .....

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. 4 of the Revenue s appeal, it was submitted by the ld. DR that the issue was against the action of the ld. CIT(A) in deleting the disallowance made u/s 40(a)(ia) r.w.s. 195(1) towards payment of demurrage paid to non-resident buyers of iron ore. It was fairly agreed by both the sides that the issue was now squarely covered by the decision of the co-ordinate bench of this Tribunal in the Assessee s own case in ITA No. 72 & 85/PNJ/2012 dt. 8.3.2013 wherein at para 31 to 33.1 at pages 54 to 5 .....

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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 .....

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d 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 submitted that the appeal for the A.Y 2009-10 was pending before the ld. CIT(A) and the hearing for the same was also concluded though the order has not been received. It was the submission that the said fresh evidences as produced by the AO, which was found in the course of the survey on the Assessee, were also produced before the ld. CIT(A). It was .....

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ground nos. 6 to 16 of this appeal in relation to the claim of deduction u/s 10B is liable to be restored to the file of the ld. CIT(A) for re-adjudication after granting the Assessee adequate opportunity of being heard, and we do so. In the result, ground nos. 6 to 16 of the Revenue s appeal stand partly allowed for statistical purposes. 17. Ground no. 17 is general in nature. In respect of ground nos. 18 & 19 it was submitted by the ld. DR that the issue was against the action of the ld. C .....

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he submission by the ld. DR that the ld. CIT(A) had blindly followed the decision of the co-ordinate bench of this Tribunal in the Assessee s own case when fresh facts were available and were placed before the ld. CIT(A). 18. In reply, the ld. AR submitted that there was no Remand report and what was placed before the ld. CIT(A) was only a letter alongwith certain evidences. It was further submission that the decision relied upon by the Revenue in the case of M/s. Dempo & Co. Pvt. Ltd. was i .....

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ly 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 expen .....

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g the relevant assessment year. The Assessee had utilised only ₹ 21,26,74,593/- and the balance amount had been kept in fixed deposits as per the RBI guidelines. It was the submission that this deposit had earned an interest of ₹ 39.36 crores whereas on the total loan the Assessee had paid interest of ₹ 45.36 crores. It was the submission that the different amount of ₹ 6 crores was treated by the ld. CIT(A) as non-business expenditure. It was the submission by the ld. AR .....

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he ld. CIT(A). 23. We have considered the rival submissions. A perusal of the order of the ld. CIT(A) shows that the ld. CIT(A) has not issued any enhancement notice to the Assessee in respect of the disallowance of ₹ 6 crores as mentioned in para 4.5 of his order. However, it is also noticed that the issue of deduction u/s 14A has been restored to the file of the AO for re-computation and it is in this computation that the ld. CIT(A) has disallowed the amount of ₹ 6 crores towards n .....

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