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2016 (8) TMI 745 - ITAT CHENNAI

2016 (8) TMI 745 - ITAT CHENNAI - [2016] 46 ITR (Trib) 212 - Reopening of assessment - Held that:- When the assessee has submitted all details of payment of commission, professional fees and others, before the AO at the time of original assessment, there is no failure on the part of the assessee to disclose all facts truly and fully for its assessment and the reasons recorded by the AO that there is failure on the part of the assessee to disclose all facts truly and fully for reopening the asses .....

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recipients had not made available to the assessee any new technic or skill which assessee could use in its business. 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. Even if it is considered as technical service, the fee was payable only for services utilized by the assessee i .....

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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) - TDS u/s.194A - disallowance u/s.40(a)(i) being interest payment to various banks outside India - Held that:- The interest was paid to the banks located in India and not outside India and th .....

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. Being so, we confirm the findings of the CIT(Appeals) on this issue as convinced with the explanation offered by the ld. AR and held that the expenditure incurred towards promotion, advertisement and legal fee will not attract provisions of TDS and allowed the ground of appeal. - Disallowance of additional depreciation claimed - Held that:- As decided in assessee’s own case on perusal of the provisions of section 32 as applicable for the relevant assessment year clearly shows that addition .....

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e for carry forward of the residual additional depreciation, if any. - Decided against the assessee. - Disallowance u/s.14A based on Rule 8D - Held that:- Rule 8D for this A.Y. 2008-09 is not applicable, as this came into effect from 24.3.2008.. In view of the above decision of the jurisdictional High Court, we direct the Assessing Officer to disallow 2% exempted income. - Allowing the depreciating on UPS at 60% as against the assessee’s claim of 80% - Decided against assessee. - Ded .....

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carried out by the assessee and decide the disallowance - Addition made towards power charges paid to Wescare India Ltd. - Held that:- This issue came up for consideration before the Tribunal in assessee’s own case wherein the Tribunal remitted the issue back to the file of the AO for fresh consideration. Accordingly, on similar line, we remit this issue back to the file of the AO for fresh consideration. This ground is allowed for statistical purposes. - Assessee is entitled to deprecia .....

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ting taxable income of the assessee in the normal course. There is no provision in the Act to add these kind of disallowance while computing book profit u/s.115JB and it cannot change the book profit on this count. Therefore, even if there is an addition in view of provision u/s.14A r.w. Rule 8D, that cannot be added back to compute the book profit u/s.115JB - ITA Nos. 620 to 622/Mds/2014, ITA Nos. 693 to 695/Mds/2014 - Dated:- 8-1-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN .....

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reopening of assessment beyond the period of four years. 3. The facts of the case are that the AO reopened the assessment u/s 147 by issue of notice u/s 148 dated 30.03.2012 for the reason that the assesse had not deducted tax at source on certain payments towards expenditure incurred in foreign currency. 3.1 The Id.AR of the assessee submitted that the assessment already completed under sec.143(3) was reopened by issue of notice u/s 148 on 30.3.2012 ie. after a period of 4 years from the end o .....

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2008 and 06.11.2008. The AO at the time original assessment u/s 143(3) after examining the above letters invoked the provisions of section 40a(ia) to disallow the payments made in respect of machining charges. In respect of the other payments made, the AO being satisfied with the explanation offered by the assessee had not disallowed these expenses, which is discussed in the assessment order. Subsequently in the order u/s 147, the AO had disallowed the expenditure on commission, interest and oth .....

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close fully and truly all material facts necessary for its assessment. He also relied on the decision of the Tribunal, Mumbai Bench in the case of Channel Guide India Ltd. v. ACIT (20 ITR(Trib) 438), wherein it was observed that transponder is paid to non-resident for satellite uplinking telecasting programme is not royalty u/s.9(1)(vi) of the Act and hence not taxable in India under India-Thailand DTA and there is no question of disallowance u/s.40(a)(ia) of the Act. The ld. AR also relied on t .....

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was held that the amount receivable by the assessee in respect of off shore supply of equipment and off services cannot be taxed u/s.9(1) of the Act and Article 7 of the DTA between India and Japan. 5. On the other hand, the ld. DR submitted that there is escapement of income on account of non-deduction of tax at source and the same should be confirmed and subsequent amendment could be reason for reopening of the assessment. 6. We have heard both the parties and perused the material on record. .....

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s and (iv) Others, without deduction of tax at source, requires to be disallowed and added back. Explanation below sub-section (2) of Section 9 has been inserted by the Finance Act, 2010 with retrospective effect from 1st June 1976, whereby income of a non-resident shall be deemed to accrue or arise in India under clause (v), (vi) or (vii) of sub-section (1) of Sec. 9 and shall be included in the total income of non-resident, whether or not, (i) The non-resident has a residence or place of busin .....

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the above, Explanation below sub-section (2) of Section 9 has been inserted by the Finance Act, 2010 with retrospective effect from 1st June 1976, whereby income of a non-resident shall be deemed to accrue or arise in India under clause (v), (vi) or (vii) of sub-section (1) of Sec. 9 and shall be included in the total income of non-resident, whether or not, (i) The non-resident has a residence or place of business or business connection in India or (ii) The non-resident has rendered services in .....

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aped assessment. In the present case, material is the retrospective amendment under the pre 1989 law of assessment, information as to the true state of law could form part of valid basis for reopening of the assessment, as held by the judgment of the Supreme Court in the case of Maharaj Kumar Kamal Singh v. CIT (35 ITR 1). Retrospective amendment of law can even permit action for rectification of assessment on the mistake apparent from the record and the same view was taken by the Supreme Court .....

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der-assessment has occurred by reason of either omission or failure on the part of the assessee to make its return of income or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that year. Such duty would not extend beyond true and fully disclosure of material facts. Once such primary fact is before the AO, he requires no further assistance by way of disclosure. It is for him to decide what reference of fact can be rea .....

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assessee to disclose all facts truly and fully for reopening the assessment after 4 years from the end of relevant assessment year, are not justified. Accordingly, we are inclined to allow the appeal of the assessee. 7.2 In the result, the appeal of the assessee in ITA No.620/Mds/2014 is allowed. 8. Coming to the Revenue s appeal in ITA No.693/Mds/2014, the first ground is with regard to disallowance u/s.40(a)(i) being sales commission paid to various persons outside India. 9. This issue came up .....

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e 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. Even if it is 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 non-residents outside India. Such business or profession of the non-residents, earned them in .....

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at 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). No interference is called for. In view of the above, we dismiss this ground of appeal. 10. Next issue in Revenue s appeal is with regard to disallowance u/s.40(a)(i) being interest payment to various banks outside India. 11. The facts of the issue are that the interest was paid to the banks located within India, in Chennai, for the amoun .....

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ct. Accordingly, he allowed the ground of appeal. Against this, the Revenue is in appeal before us. 12. We have heard both the sides and perused the material on record. The interest was paid to the banks located in India and not outside India and the payment was not made on foreign currency for the amount borrowed from foreign banks. Being so, this payment is exempt from the provisions of TDS u/s.194A(3)(iii)(a) and disallowance u/s.40(a)(i) is not warranted. This ground is also dismissed. 13. N .....

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India and they are not in the nature of interest, royalty or technical fee covered u/s.9(1)(v)(vi)/vii of the Act and no such income can be considered to be deemed to accrue or arise in India. Therefore, TDS provisions do not attract. It was also submitted that those parties do not have any PE in India. Even as per DTAA with respect to those countries the income is not chargeable to tax in India. The CIT(Appeals) convinced with the explanation offered by the ld. AR and held that the expenditure .....

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694/Mds/2014: The first ground in ITA No.621/Mds/14(assessee) is with regard to confirming the disallowance of additional depreciation claimed in the current year to the extent it was not allowed in the preceding year in respect of assets specified in sec.32(1)(iia) of the Act. 17. The facts of the issue are that the AO in the assessment order stated that the assesse had claimed additional depreciation u/s.32(1)(iia) amounting to ₹ 6,08,70,620 during the year at the rate of 10% (50% of 20% .....

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s no provision in the Act permitting the balance depreciation to be allowed in the succeeding year. Aggrieved, the assesse preferred an appeal before the CIT(Appeals), who following the Tribunal s order in assessee s own case, dismissed this ground of appeal. Against this, the assesse is in appeal before us. 18. We have heard both the parties and perused the material on record. In our opinion, this issue is decided against the assessee by this Tribunal in assessee s own case in ITA No.266/Mds/20 .....

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…. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. (ii) …. … …. ….. ….. ….. ….. …. …. …. …. …. …. …. …. … …. ….. ….. …. …. …. …. …. …. …. …. .....

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machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the inco .....

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, for the impugned assessment year, it is no more a new machinery or plant. Once it is not a new machinery or plant, allowance under Section 32(1)(iia) cannot be allowed to it. Additional depreciation itself is only for a new machinery or plant. Hence, carry forward of any deficit additional depreciation which, as per assessee, arose on account of use for a period less than 180 days in the preceding year, if allowed, will not be an allowance for a new machinery or plant. Further, a look at secon .....

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h depreciation. There cannot be any presumption that unless it is specifically denied, carried forward has to be allowed. What can be carried forward and set off have been specifically mentioned in the Act. This Tribunal in assessee's own case in I.T.A. No. 1069/Mds/2010 dated 6th January, 2012, at para 15, held as under:- 15. We have considered the rival submissions. A perusal of the provisions of section 32 as applicable for the relevant assessment year clearly shows that additional deprec .....

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ry forward of the residual additional depreciation, if any. In the circumstances, the finding of the learned CIT(A) on this issue is on a right footing and does not call for any interference. Consequently, ground No.1 of the assessee s appeal stands dismissed. We are therefore of the opinion that CIT(Appeals) was justified in following the view taken by co-ordinate Bench of this Tribunal. 56. Ground No.1 of the assessee stands dismissed. Respectfully following the aforesaid decision of this Trib .....

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unt for earning the above dividend. The assesse was show caused why the expenditure for the purpose of earning the dividend earned cannot be disallowed by means of applying the Rule 8D w.r.t. sec.14A of the Act. In response to which, the assessee s representative has stated that no expenditure was incurred in collecting this dividend, the same may not be disallowed as per the provisions of sec.14A. The AO rejected the reply of the assessee. The AO also relied on the CBDT s Instruction F. No.173/ .....

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d perused the material on record. In our opinion, Rule 8D for this A.Y. 2008-09 is not applicable, as this came into effect from 24.3.2008 and the same issue is decided by the jurisdictional High Court in the case of Simpson & Co. Ltd. v. DCIT in TCA No.2261 of 2006 dated 15.10.2012. In view of the above decision of the jurisdictional High Court, we direct the Assessing Officer to disallow 2% exempted income 22. The next ground in assessee s appeal is with regard to allowing the depreciating .....

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in reducing the claim u/s.10B by allocating deduction claimed u/s.35AC and exempted income despite the fact that there was absolutely no nexus between the 10B unit and these deductions. The CIT(A)- LTU further failed to appreciate that the investments from which tax free income was earned were made even before 10B unit came into existence and hence the question of apportioning the income to 10B unit does not arise. 25. The facts of the issue are that the AO observed that the assessee claimed de .....

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5.1 The assessee replied that the products manufactured and exported from the 10B unit at Apache is a time tested product for years together and the product manufactured at Rolltec Unit is based on the design and drawings provided by the buyer and hence there is no R & D effort involved and it relied on the order of the Tribunal, Chennai Bench in their own case for A.Y. 89-90 wherein it was held that in allowing deduction u/s 80HH, expenses like R &.D need not be allocated. 25.2 The AO r .....

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rved from the Annual Report for the year 2007 of the assessee that it is constantly engaged in the R&D work related to the working of the new braking products suited to meet customer requirements. He stated that the assessee is also engaged in developing clearer and more stable product to manufacture the environment friendly products, improve the product liability and it has got various technologies from various institutions located outside India for the above R&D facilities. 25.3 With r .....

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and reduced the same from ₹ 8,55,71,561 claimed by the assessee. Aggrieved, the assessee went in appeal before the CIT(Appeals). 26. On appeal, the CIT(A) observed that with regard to apportionment of' R & D expenditure has come up before his predecessor for A.Y. 2007-08 and has decided the issue in favour of the assessee holding that the assessee had not incurred any such expenditure with reference to units on which 10B deduction was claimed. The CIT(Appeals) also observed that t .....

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tangible benefit, if any, assessee had derived on account of the research work. Whether any such earlier research had helped the assessee with regard to its activities in the units on which it had claimed deduction under section 10B of the Act, is also not on record. CIT(Appeals) had given relief to the assessee accepting its claim that it had not incurred any such expenditure with reference to the units 00 'which 10B deduction was claimed. We are of the opinion that the matter requires a fr .....

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he orders of authorities below and remit this issue back to Assessing Officer for consideration afresh." 26.1 The CIT(Appeals) further observed that the assessee is manufacturing of brakes and the related items. The knowledge gained out of R & D is equally useful for all the units of the assessee unless the R & D activity is exclusively related to the components manufactured by the non-10B units alone. The argument of the assessee that the products manufactured by 10B units are time .....

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oad is due to, strong R & D base of the assessee in India. Therefore, the argument of the Id.AR is not on sound footing. Accordingly, in view of the directions given by the Tribunal, the CIT(Appeals) directed the AO to carry out similar exercise in line with directions given by the Tribunal for the A.Y. 2007-08 for this year also and find out the tangible benefits which the 10B units have derived from the R & D activities carried out by the assessee and decide the disallowance. Against t .....

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assessee and decide the disallowance. Being so, we do not find any infirmity in the order of the CIT(Appeals). Accordingly, this ground is rejected. 27.1 In the result, the appeal of the assessee in ITA No.621/Mds/14 is partly allowed. 28. The first ground in Revenue s appeal in ITA No.694/Mds/14 is with regard to deletion of addition made towards power charges paid to Wescare India Ltd. 29. We have heard both the parties. The contention of the Department is that the assessee s own case for the .....

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. The next ground in Revenue s appeal is with regard to depreciation at 80% instead of 15% on UPS. 31. We find that similar issue was considered by this Tribunal in the case of Indian Overseas Bank in ITA No.1815/Mds/2011 dated 2.4.2013 for the assessment year 2008-09, wherein the Tribunal held that the assessee is entitled to depreciation at 60% on UPS, treating it as part of computers. Therefore, we do not find any infirmity in the order of the CIT(Appeals) and the same is confirmed on this is .....

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ncy charges of ₹ 27.34 lakhs. 35. This issue was considered for the assessment year 2005-06 in paragraph 15 above. Accordingly, this ground is also rejected. 36. The next ground in Revenue s appeal is with regard to disallowance of ₹ 10,58,44,407/- made u/s.40(a)(i) being the payments for the logistics services to the non-residents. This issue also came up for consideration in ITA No.693/Mds/14, wherein this issue was decided against the Revenue. Accordingly, this ground is also reje .....

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ground is rejected. 39. The next ground in assessee s appeal is with regard to sec.14A by invoking the provisions of Rule 8D while computing book profit u/s.115JB of the Act. 40. The facts of the issue are that the AO has added back the disallowance u/s.14A to the book profit of the assessee and since the taxable income is more as per 115JB, the same was considered by the AO for working of taxes. Aggrieved, the assessee went in appeal before the CIT(Appeals). 41. Before the CIT(Appeals), the ld .....

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er, the ld. AR submitted that without prejudice, if at all any disallowance is to be made, the same cannot exceed 2% of the tax free income as has been consistently held in the case of the assessee. 41.1 We have heard both the parties and perused the material on record. This issue of disallowance made by the Assessing Officer for this assessment year by invoking the provisions of sec.14A r.w.Rule 8D, was in normal computation also. In our opinion, disallowance made u/s.14A r.w. Rule 8D cannot be .....

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allowed. 42. The next ground in ITA No.622/Mds/2014 is with regard to disallowance u/s.14A by applying the provisions of Rule 8D while computing the normal income. 42.1 We have heard both the parties. In our opinion, the same issue was considered by this Tribunal in the case of Accel Frontline Ltd. in ITA Nos. 2780 to 2782/Mds/2014 dated 27.11.2015, wherein it was held as under : 11. Coming to the assessment years 2008-09 and 2009-10, the main contention of the assessee s counsel is that the ass .....

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No.5592/Mum/2012 dated 1.1.2015 and the decision of the Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT in ITA No.117 of 2015 dated 25.2.2015 is having bearing on this issue, wherein it was observed as under: 6. Heard both the parties. On a perusal of the order of Mumbai Bench of the Tribunal in the case of M/s. Daga Global Chemicals Pvt. Ltd. (supra), we find that an identical issue has been decided by the Tribunal holding that disallowance under section 14A read with rule 8 .....

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nce u/s 14A r.w. Rule 8D is to be made. 2.1. On the other hand, Shri Akhilendra Yadav strongly defended the conclusion arrived at by the ld. Commissioner of Income tax (Appeals) by contending that a well reasoned order has been passed by the ld. First Appellate Authority as apportionment of expenditure for earning the dividend income was done as per the provisions of the Act. It was pleaded that section 14A r.w. Rule 8D of the Rules is clearly applicable to the facts of the present appeal. 2.2. .....

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e claimed various expenses which are related to exempt income in its profit & loss account and disallowed ₹ 14,58,412/-. On appeal, before the ld. Commissioner of Income tax (Appeals) broadly the stand taken in the assessment order was affirmed against which the assessee is in further appeal before this Tribunal. The totality of facts clearly indicates, as claimed by the assessee that no borrowed funds were utilized for earning the exempt income by the assessee and further the dividend .....

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rowed funds were invested by the assessee for making investment in shares or for earning dividend income . At best, if any disallowance could be made that can be restricted to ₹ 1,485/- which were claimed as demat charges. Disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of the assessee. The appeal of the assessee is therefore, allowed. Following the above decision of the Mumbai Bench of the Tribunal, we are of the opinion .....

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