TMI Blog2017 (1) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been made out of such interest free funds, and accordingly no disallowance under section 14A of the Act is merited out of the interest expenditure. As a consequence, the disallowance made under section 14A by applying Rule 8D(2)(ii) of the Rules is hereby deleted. - Decided in favour of assessee Disallowance on account of expenses computed the same in terms of Rule 8D(2)(iii) - Held that:- The disallowance computed by the Assessing Officer is quite excessive inasmuch as the exempt income is merely to the extent of ₹ 4,86,505/-, whereas the disallowance out of expenses has been made to the tune of ₹ 6,30,407/-. Considering the entirety of facts and circumstances, we deem it fit and proper to retain the disallowance to the extent of the exempt income and balance of the disallowance is directed to be deleted. TDS u/s 195 - disallowing remuneration paid to consultants by invoking section 40(a)(i)on non deduction of tds - DTAA - period of stay - Held that:- No reason to disagree with the stand of the assessee that the payments in question are liable to be taxed under the respective Articles of Indo-Japan & Indo-Italy DTAA governing Independent Personal services. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18,24,489/- already stands capitalized by the assessee. Therefore, the CIT(A) justifiably deleted the said addition as otherwise it would have amounted to double disallowance. So far as the balance addition of ₹ 43,17,791/- is concerned, the finding of the CIT(A) is that the same has been incurred on repairs. Even the details of the repairs to buildings reveal that the same have been incurred on repairs and maintenance of existing assets, for instance replacement of fencing, repair of tile work in the administrative block, whitewash and partition, dismantling of old damaged wall, etc. None of the items of expenses have been shown to result in acquisition of any new asset. Considered in the light of the material on record, we find that the CIT(A) made no mistake in holding that the expenses are in the nature of routine repairs and not in the nature of capital - Decided in favour of assessee Rework the adjustment u/s. 145A - Held that:- The assessee could not have foreseen at the time of filing of the return of income the impact of the adjustment under section 145A of the Act, because the same was made by the assessing authorities in the assessment for assessment years 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year without any evidence being available on record. If any evidence was brought during the appellate stage then fresh evidence was accepted for the first time without giving opportunity of examining the same to the A.O in contravention of Rule 46A of I.T Rules. 4. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in giving relief of ₹ 18,21,489/- out of disallowance of repair and maintenance expenses by holding that the amount of ₹ 18,21,489/- incurred by the assessee has already been capitalized without any evidence being available on record. If any evidence was brought by assessee at the appellate stage for the first time then it is in violation of Rule 46A of I.T.Rules as no opportunity of examining the same was given to the A.O. 5. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in giving relief of ₹ 43,17,791/- out of disallowance of repair and maintenance expenses by holding that the sum of ₹ 43,17,791/- spent by the assessee is a revenue expenditure without any evidence being available on record. If any evidence was brought by assessee at the appellate stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40a(ia) of the Income Tax Act, 1961. Your appellants submit that the said disallowance is not called for and this addition be deleted. Your appellants submit that the tax was not required to be deducted from the payments made to Mr. Tarciscio Lucchetta and Mr.Tazo Totsua based on certificate of Chartered Accountants and under bonafide belief that no tax was required to be deducted. Under the circumstances, your appellants submit that the deduction ought to be allowed from amounts paid to Mr. Tarciscio Lucchetta and Mr. Tazo Totsua. 5) The learned CIT (A) failed to appreciate that in the facts and circumstances your appellant's case and in law, interest under section 234B of the Income Tax Act, 1961 is not chargeable at all and ought to have been directed that the interest under section 234B be deleted. 6) Your appellants further reserve the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representatives. 3. First we shall take up the appeal of the assessee, wherein the first issue relates to the action of the CIT(A) in confirming the disallowance out of Sale Promotion expenses and Travelling expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance since the decision of the CIT(A) is based on some conjectures and surmises. Thus, on this ground assessee succeeds. 4. In so far as, Grounds of appeal No. 2 3 are concerned, the same relate to disallowance of ₹ 33,25,626/- made by the Assessing Officer by invoking the provisions of section 14A of the Act based on the formula contained in Rule 8D(2)of the Income Tax Rules, 1962 ( in short the Rules ). Ground of appeal No.2 relates to a disallowance of ₹ 26,95,219/ made out of interest expenditure by applying Rule 8D(2)(ii) of the Rules and Ground of appeal No.3 relate to disallowance of ₹ 6,30,407/- out of other expenses computed by applying Rule 8D(2)(iii) of the Rules. 4.1 The relevant facts are that during the year under consideration, assessee was found to have earned dividend income of ₹ 4,43,882/- and interest income of ₹ 42,623/-, which was claimed as exempt. The Assessing Officer noted that inspite of existence of exempt income, assessee had not disallowed any expenditure relatable to such income, as required under the provisions of section 14A of the Act. The Assessing Officer noted that assessee had paid interest of ₹ 4,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess activities and not to the investments in question. 4.4 Factually speaking, we find that the aforesaid assertions of the assessee are borne out of record and infact, written submissions of the assessee dated 27/12/2011, which has been reproduced by the Assessing Officer in Para-5.1 of his order brings out such details. The aforesaid fact-situation has not been repudiated by the Revenue at any stage and, therefore, following the ratio of the judgments of the Hon'ble Bombay High Court in the cases of CIT vs. HDFC Bank Ltd., 366 ITR 505(Bom) and HDFC Bank Ltd. vs. DCIT,383 ITR 529 (Bom), wherein the principle laid down in the judgment of the Hon'ble Bombay High Court in the case of Reliance Utilities Power Ltd.(supra) has been applied in the context of section 14A of the Act also, the impugned disallowance is not maintainable. Thus, noticing that the interest-free funds available with the assessee in the shape of Share capital and Free Reserves being more than investments in question, a presumption can be drawn that such investments have been made out of such interest free funds, and accordingly no disallowance under section 14A of the Act is merited out of the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, the services have been hired for assisting the manufacturing team in reducing the set-up time, reduction of cycle time, reduction of in-process rejections, to improve the cp/cpk values and enhancing the quality level of products apart from training the quality team in improving the quality systems and process optimization. Further, it is prescribed that the period of contract shall be of 17 days i.e. 21/09/2008 to 07/10/2008. Similarly, other contracts have also been entered with Mr. Tazo providing for varying periods of engagement. It is pointed out that the total period of engagement for both the consultants does not exceed 183 days. The stand of the assessee has been that the payments made to the two professionals are for the work done by them from time to time in India for a period of less than 183 days; and that they are providing Independent Personal Services, thus, not liable to be taxed in India having regard to the respective Double Taxation Avoidance Agreement between India-Italy and India-Japan. The Assessing Officer and also the CIT(A) have disagreed with the assessee that the two individuals have rendered independent personal services, as claimed by the assessee. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment made to Mr. Tazo is concerned, reliance has been placed on Article -14 of India-Japan DTAA, wherein similar provisions are existing. By referring to various individual contracts with Mr. Tazo, copies of which has been placed in the Paper Book, it has been pointed out that the said individual has not stayed in India for a period aggregating 183 days in the instant year and nor does he has any fixed base in India. It is pointed out that the two individuals are basically engineers and have provided services to the assessee in their independent capacity as professional services. 5.2 On the other hand, Ld. Departmental Representative has primarily reiterated the stand of the lower authorities, which we have already noted in the earlier paras and is not being repeated for the sake of brevity. 5.3 We have carefully considered the rival submissions. The relevant contracts with the individuals bring out that the services have rendered by them in the field of their profession. Both the recipient individuals are Engineers/Consultants and in-fact, the contracts with them specifically say that their services have been engaged as Advisors/Consultants. They have rendered services in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light, the Assessing Officer referred to the proviso to section 36(1)(iii) of the Act wherein, it is provided that interest paid to acquire asset till the date it is put to use shall not be allowed as deduction. For the said reason, the Assessing Officer show caused the assessee as to why the interest paid on the amount used in the capital work-in-progress should not be disallowed. In para 7.1 of the assessment order, the Assessing Officer has further noticed that the details of the capital work-in-progress of ₹ 2,68,26,298/- reveal that no interest has been capitalized. For the said reasons, the Assessing Officer worked out the interest proportionate to the amount of capital work-in- progress at ₹ 32,19,155/- and disallowed the same in terms of the proviso to section 36(1)(iii) of the Act. 6.2 Before the CIT(A), assessee submitted that there are no new loans availed during the year for acquiring any fixed asset and the loans referred to by the Assessing Officer were past loans. It was, therefore, contended that the Assessing Officer was wrong in attributing any notional interest to the balance of capital work-in-progress . It was also pointed out, based on the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erves to be disallowed. For that matter, the Assessing Officer has made a notional estimation of such interest @12%. Notably, in so far as the stand of the Assessing Officer in principle is concerned, there cannot be any dispute. So however, in order to invoke the proviso to section 36(1)(iii) of the Act, the Assessing Officer is required to establish interest has been paid in respect of the capital borrowed for acquisition of an asset. Further, it is also required to be established that the acquisition of such asset was for extension of existing business. Quite clearly, the aforesaid aspects of the matter are neither emerging from the assessment order and nor it is brought out before us. It is relevant to note here that before the CIT(A) it has been specifically pleaded by the assessee, and which has been reproduced by the CIT(A) in para 6.2 of her order, that there is no extension of business during the year and even if the loan is taken for acquiring the purpose of acquiring capital assets unless they are used for expansion of existing business, interest expenses should be allowed . The aforesaid stand of the assessee is supported by the phraseology of section 36(1)(iii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be incurred for renovation of building, etc. The relevant details in this regard have been tabulated by the Assessing Officer in para 11 of the assessment order, whereby it is culled out that expenses incurred on Plant and machinery repair ₹ 18,07407/-; Building repairs ₹ 1,07,759/-; Others - ₹ 1,25,087/-; and Wind mill - ₹ 96,025/-, totalling to ₹ 61,36,278/- are capital in nature. The item wise details of such expenditure has also been culled out by the Assessing Officer in para 11 of the assessment order. As per the Assessing Officer assessee has undertaken extensive repairs of the structure of the building and Plant machinery and, therefore, such amount is liable to be taken as a capital expenditure. In appeal before the CIT(A), assessee contended that out of the total expense of ₹ 61,36,278/-, disallowed by the Assessing Officer, a sum of ₹ 18,21,489/- was already considered to be of capital nature and was suo-moto capitalized and thus, such sum of ₹ 18,21,489/- could not be disallowed twice. Regarding the balance of ₹ 43,17,791/- it was claimed to be of revenue in nature. The assessee pointed out before the CIT(A) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before CIT(A), assessee pleaded that since such additions have been confirmed in the appellate proceedings, following the same method in the instant assessment year, assessee is entitled to get a relief of ₹ 3, 63,10,937/-. The CIT(A) considered the plea of the assessee and found it quite justified and, therefore, she directed the Assessing Officer to rework the adjustment prescribed under section 145A of the Act and allow appropriate relief. Against such a decision, Revenue is in appeal before us. 9.2 Before us, the only plea of the Revenue is that the instant is a fresh claim made after filing the return of income, and it could be made only by filing a revised return of income following the ratio of the judgment of the Hon ble Supreme Court in the case of Goetz (India) Ltd.(supra). 9.3 On the other hand, Ld. Representative for the assessee defended the finding of the CIT(A) as according to her the same is consequent to the stand of the Assessing Officer in other assessment years. 9.4 Having considered the rival stand, in our view the Grounds raised by the Revenue are totally misconceived. Quite clearly, the assessee could not have foreseen at the time of filing of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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