TMI Blog2014 (7) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries in the assessee’s books. In our view, this approach is nowhere a part of the relevant statutory provision in section 14A(2) of the Act. So, both the lower authorities have wrongly made the disallowance in question u/s 14A r.w. rule 8D. The same stands deleted. - Decided in favour of assessee Disallowance to provision for insurance settlement - Held that:- Admitted factual position is that the assessee being a bulk drug manufacturer had exported its produce to a Dutch consignee. A part of this consignment has been rejected for quality reasons because the produce was kept in a ‘customs bonded house’ instead of immediate delivery resulting in deterioration of its quality. Before us, there is no cogent evidence produced to conclude th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and the Revenue for assessment year 2009-10, are directed against the Commissioner of Income-tax (Appeals)-II Chennai s order dated 21.10.2013 passed in Appeal No.546/2013-14, in proceedings under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee in its appeal I.T.A.No.2255/Mds/2013, challenges the CIT(A) s order affirming disallowances/additions of ₹ 11,92,282/- u/s 14A r.w.r 8D qua exempt income and that of ₹ 47,84,000/- towards provision for insurance settlement; made by the Assessing Officer. Whereas the Revenue s sole substantive grievance in its appeal I.T.A.No.372/Mds/2014 is that the CIT(A) ought to have upheld the disallowance u/s 40(a)(i) of ₹ 50,48,590/- on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nrecurring in nature due to short term investments made from internal accounts. In assessment order, the Assessing Officer observed that in view of Special Bench decision of Delhi ITAT in Cheminvest Ltd vs ITO in I.T.A.No.87/Del/2008 dated 5.8.2009, disallowance u/s 14A could be made even in case of no exempt income. Regarding assessee s books, he held that there existed a common basket of interest and non-interest bearing funds and there was no evidence of utilization of only the latter funds for investments in question. Proceeding on these reasons, the Assessing Officer applied rule 8D and computed the impugned disallowance of ₹ 11,92,282/-. 5. In lower appellate order, the CIT(A) has affirmed the Assessing Officer s findings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance in question of ₹ 11,92,282/- u/s 14A r.w. rule 8D. The same stands deleted. 7. Now we come to assessee s other ground challenging disallowance of ₹ 47,84,000/- pertaining to provision for insurance settlement. In Schedule-20 of the profit loss account, the assessee had made this provision stated to have arisen from part rejection of its export consignment. Being a bulk drug manufacturer, the assessee had exported its produce worth ₹ 6.65 crores to a dutch entity namely Purac Bio Chem. The export consignment comprised of 35 full loads of 40 containers. Out of them, 5 containers stood rejected for quality reasons. The assessee had realized full amount thereof. Because of part rejection, it had made the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsignee. A part of this consignment has been rejected for quality reasons because the produce was kept in a customs bonded house instead of immediate delivery resulting in deterioration of its quality. Before us, there is no cogent evidence produced to conclude that mere rejection of such a produce wholly or in part by whatsoever reasons gives rise to a compensation claim. The fact also remains that till date, the consignee entity is yet to raise its claim. The damages amount is yet to be ascertained. In these circumstances, we observe that the assessee has failed to prove the nature of liability claimed as an ascertained one. Therefore, we find no fault with the CIT(A) s order affirming the impugned disallowance of ₹ 47,84,000/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs CIT [2010] 327 ITR 456(SC) as well as M/s Farida Shoes P. Ltd I.T.A.No. 159/Mds/2013 dated 11.4.2013 of Chennai ITAT to hold that in these facts, the impugned disallowance could not have been made. 12. We have heard both parties and perused orders of the lower authorities. It is evident that the export commission payments made to overseas agents read ₹ 40,07,215/-. Per Revenue, these payments ought to have been subjected to TDS provision postulated in the Act whose non-compliance invites disallowance u/s 40(a)(i). However, no cogent material has been placed on record to prove rendering of any technical or managerial services u/s 9 of the Act or that the payments are taxable as income in India. The assessee s overseas agents hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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