TMI Blog2018 (4) TMI 1581X X X X Extracts X X X X X X X X Extracts X X X X ..... ision for Diminution of GOI Fertilizer Bonds - allowable busniss expenditure - Held that:- As decided in DCM Shriram Consolidated Ltd.[2015 (12) TMI 1769 - DELHI HIGH COURT] when the assessee had no option but to subscribe the securities if it wanted to continue to do business with the Government Departments, then the investments were thus, necessarily by way of commercial expediency for the purpose of carrying on the business. We set aside the order of lower authorities and direct the AO to delete the addition and allow this ground of appeal of the assessee. TDS u/s 195 - assessee failed to discharge its obligations to deduct tax at source u/s.195(1) of the Act for which the provisions of section 40(a)(ia) of the Act is attracted - Held that:- CIT(A) while dealing with the disputed issue has made an elaborate discussion relying upon various judicial decisions and deleted the addition. The CIT(A) further found that the AO has not brought any facts on record nor it is apparent that income in respect of transactions arises in favour of the nonresident sellers in the Indian territory or that the income of such nonresidents in respect of transactions is assessable under Indian Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not claimed the relief u/s.80G of the Act in his personal income tax return - The contribution was made by the appellant to the Chief Minister's relief fund even though the 80G certificate was wrongly issued in the name of Sri A. P. Singh. Accordingly, the AO is directed to allow deduction u/s.80G for an amount of ₹ 5,87,216/- after being satisfied that Sri A. P. Singh has not claimed the relief u/s.80G in his personal income tax return. Addition made on account of prior period expenses - Held that:- We find that the CIT(A) on the disputed issue was satisfied with the computation of income disclosed by the assessee and partly allowed the claim of the assessee, whereas we do not see any reason to interfere with the order of CIT(A) on this ground, accordingly, we uphold the same and dismiss this ground of appeal of Revenue. Claim of bad debt written back - Held that:- The appellant claimed bad debt for an amount of ₹ 76,79,492/- whereas the correct claim comes to ₹ 1,05,73,637/- as per above calculation. During the assessment proceedings, the appellant recalculated the correct claim and accordingly made a further claim of ₹ 28,94,145/-of bad debt. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies'- ₹ 22,35,912/- a. That the learned CIT (Appeals) has misconstrued/mis-appreciated the facts and his sustenance of the additions/disallowance of ₹ 22,35,912/- under 'Miscellaneous Expenses - CSR Related activities' is contrary to facts, arbitrary, unjustified, erroneous and bad in law. b. That the aforesaid of ₹ 22,35,912/- under 'Miscellaneous Expenses - CSR Related activities' is incurred by the assessee wholly and exclusively for the purpose of itsbusiness and on the facts and in the circumstances of the case, the upholding of disallowance of the said of ₹ 22,35,912/- is on mis-appreciation of /contrary to facts, arbitrary, erroneous and bad in law. c. That on the facts and in the circumstances of the case, the learned CIT (Appeals) has misconstrued/mis-appreciated the facts and has erred in holding that the details of the aforesaid ₹ 22,35,912/- towards 'CSR Related activities' are not known and the assessee has not established that aforesaid ₹ 22,35,912/- is incurred for the purpose of its business. 4. Addition under 'Subsidy Income'- ₹ 9,52,2I,000/- a. That the learned CIT (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the upholding of the non-deduction of ₹ 1,14,09,150/- towards punitive charges by Railways by the learned CIT (Appeals) is unjustified, erroneous, arbitrary, contrary to facts and bad in law. b. That on the facts and in the circumstances of the case, the lower authorities have failed to appreciate that the aforesaid ₹ 1,14,09,150/- towards punitive charges by Railways for violation of contractual terms regarding loading of Wagons is not penalty and is fully allowable under the Income tax Act and the non non-deduction of the same is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, unjustified, erroneous, arbitrary and bad in law. 7. Non-deduction/ Disallowance of loss in respect of valuation of stores and spares - ₹ 404,494/- a. That on the facts and in the circumstances of the case, the sustaining of the non-deduction of ₹ 400,494/- relating to valuation loss of stores and spares by the learned CIT (Appeals) is unjustified, erroneous, arbitrary, contrary to facts and bad in law. b. That That on the facts and in the circumstances of the case, the lower authorities has failed to apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 7,28,75,325/- in respect of Provision for Leave Salary (Encashment) by the lower authorities is arbitrary, erroneous and bad in law in view of the 'validity of the amendments made by Finance Act, 2001 by insertion of subsection (f) to section 43B of the Act' having been struck down by the Hon'ble Calcutta High Court in the case of Exide Industries Ltd. Vs. Union of India in APO No. 301/2005 [reported in (2007) 292 ITR 470] by holding the same being arbitrary, unconscionable and de hors the Apex Court decision in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428. c. That on the facts and in the circumstances of the case, the denial of deletion of ₹ 7,28,75,325/- in respect of Provision for Leave Salary (Encashment) by the learned CIT (Appeals) is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, unjustified, erroneous, arbitrary and bad in law. 11. That in the facts and circumstances of the case, the learned CIT (Appeals) ought to have allowed the claim of carry forward of business loss and depreciation of ₹ 45,20,05,128/- instead of giving the direction to the learned AO vide his order dated 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found the very same issue has been decided by the Tribunal in assessee s own case for the assessment year 2011-2012 in ITA Nos.86/CTK/2016, order dated 09.11.2017, wherein the Tribunal observed as under :- 6. Both the parties agreed that the issue is covered in favour of the assessee and against the revenue by the order of this Bench of the Tribunal in the case of the assessee itself in ITA No.289/CTK/2014 and No.264/CTK/2015 for the assessment year 2010-2011 order dated 4.8.2017, wherein, it has been held as under 6. Ld A.R. relied on the decision of Delhi Benches of the Tribunal in the case of DCIT vs. Gujarat Guardian Ltd., (2006) 152 Taxman 37 (Del) (Mag), wherein, the assessee had incurred an expenditure ₹ 10 lakhs towards contribution to a school and the Assessing Officer disallowed the same u/s.40A(9) of the Act, which bars deduction of contribution made by an employer to any fund, trust, etc for the benefit of employees. On appeal, the CIT(A) allowed the deduction by following the decision of the Delhi Benches of the Tribunal in the case of Modi Rubber Ltd vs IAC(IT Appeal Nos.6227 (Delhi) of 1986 and 142 (Del) of 1987 dated 29.1.1993. On further appeal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the precedent, we delete the disallowance of ₹ 2,06,38,226/- made u/sA0A(9) of the Act and allow the ground of appeal of the assessee. On perusal of above order of the Tribunal, we find the issue raised by the assessee in ground No.1 is squarely covered in favour of the assessee, and in our opinion the addition made by the AO cannot be sustained. Accordingly, we set aside the order of both the authorities on this ground and direct the AO to delete the addition made on account of school expenses and accordingly, we allow this ground of appeal of the assessee. 9. In ground No.2, the assessee is aggrieved by the order of CIT(A) in confirming the disallowance made on account of CSR activities of ₹ 22,35,912/-. 10. Ld. AR s contention that the expenses has been incurred wholly and exclusively for the purpose of business, whereas the AO disallowed the same observing that the said expenses were not verifiable and was disallowed. 11. On appeal, the CIT(A) confirmed the addition made by the AO on CSR activities. 12. Before us, ld. AR submitted that the expenses have been incurred wholly and exclusively for the business purpose and referred to page No.23 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immediately succeeding assessment year 2010-2011. Since the balance of subsidy income is crystallized and the assessee is following mercantile system of accounting. Therefore, the short accounted subsidy income of ₹ 952.21 lacs has to be recognized as income in the current assessment year and made addition. On appeal, the CIT(A) confirmed the addition. 16. Before us Ld. AR has referred to the annual report and these facts are brought on record and also referred at page 32 33 of the annual report and profit and loss account at page 33 of the paper book. The contention of the ld. AR that the subsidy has been offered in the subsequent assessment year but no proof was filed before the lower authorities. 17. On the other hand, ld. DR submitted that the AO has rightly made observation and added the subsidy as income and the CIT(A) has affirmed the same. 18. We have heard rival submissions and perused the material on record. The contention of ld. AR that this subsidy as referred earlier in the AO s order has been offered in the assessment year 2009-2010, therefore, it has to be excluded in the current year but on perusal of the assessment order we found that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company was forced and compelled by the Government of India to receive fertilizer's bonds in lieu of fertilizer subsidy by the Government of India. It is also pertinent to note that the assessee was entitled to receive fertilizer subsidy in cash but due to shortage of funds with the Government of India an alternative way was created and the assessee company was compelled to receive fertilizer's bonds in lieu of cash fertilizers subsidy. In this situation, we hold that the assessee company rightly showed these bonds as other current assets (prayed) under the head current assets, loans and advances . In the case of Patnaik Company (supra) the Apex Court explicitly held that where the investments were made under commercial expediency for the purpose of carrying on the assessee's business, then, the losses suffered by the assessee on the sale of such investments must be regarded as Revenue loss because the investment did not bringing an asset of capital nature and in these circumstances of the case, the losses suffered by the assessee should be treated as Revenue loss and not a capital loss. We, further respectfully take cognizance of the judgment of the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) is not justified in law as well as on facts in relying upon the case laws in deleting the above addition which were clearly distinguishable. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of ₹ 73,89,532/- made by the AO on account of repair and maintenance expenditure which was purely capital in nature. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) Is not justified in taw as well as on facts in deleting the addition. of ₹ 22,52,169/- made by the AO on account of miscellaneous expenses which could not be substantiated by the assessee. 6. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in allowing the expenditure of ₹ 5,87,216/- claimed u/s.80G without giving the AO an opportunity to verify the claim. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of ₹ 91,92,731/- made by the AO on account of prior period expenses. 8. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the whole of such a sum would not be chargeable to tax in the hands of the payee, he may make an application to the Assessing Officer(AO) to determine the appropriate portion of such taxable income by passing a general or special order and upon such determination, the Payer is obliged to deduct tax only on the portion so determined. As per provisions of sec.195(3)/(5) read with Rule 29B of the Act the specified recipient of such a sum can also make an application to the AO in the prescribed form for grant of a certificate authorising him to receive such sum without TDS and upon grant of such a certificate, the Payer is required to make payment without TDS. These provisions are largely used by foreign banks operating in India for receiving payments from their customers without TDS. Section 195(6) was introduced by the Finance Act, 2008 (with effect from 1-4-2008) providing that the Payer shall furnish the information relating to payments of such sums in the prescribed form and manner. For this Rule 37BB was introduced and the procedure for making remittances is provided for which the certificate of Chartered Accountant in the prescribed Form 15CB is required to be obtained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the resident payer avoiding the guided missile zeroing on the resident payer whether by way of contending that the amount does not necessarily result in the receipt of an amount taxable as income in the hands of the non-resident recipient under the Act or even by contending that the non-resident recipient could have possibly avoided any liability for payment of tax under the Act by the overall operation of different provisions of the Act or even by the combined operation of the provisions of a double taxation avoidance agreement and the Act as is sought to be contended by the respondents in the present appeals. 67. The only limited way of either avoiding or warding off the guided missile is by the resident payer invoking the provisions of section 195(2) of the Act and even here to the very limited extent of correcting an incorrect identification, an incorrect, computation or to call in aid the actual determination of the tax liability of the non-resident which in fact had been determined as part of the process of assessing the income of the non-resident and by using that as the basis for claiming a proportionate reduction in the rate at which the deduction is required to be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble ITAT, Madras, in the case of Indopel Garments (P.) Ltd. v. DCIT, 86 ITD 102 (Mad), that no tax was deductible from the commission paid to the non-residents. Where there is no chargeable income, it is not necessary for assessee to get concurrence of AO u/s. 195(2). In the case of Graphite Vicarb Ind. Ltd. v. ITO [1986] 18 ITD 58 (Ca!.), it was held that section 195(2) envisages application for determining appropriate proportion of the sum which would be chargeable to tax; but does not envisage a case where the assessee claims that no profits of the sum to be remitted is liable to tax at all. 3.2.2 Under similar circumstances for the AY 2006-07, the AO has given a finding that no tax is deductible u/s.195(1) in respect of payment made by the assessee for import of goods. The AO's observations and conclusions in the assessment order u/s.143(3)/263 dt.28.12.2011 is as under: Non deduction of TDS: Assessee PPL has made payment of ₹ 14,479.93 lakhs to non-resident for import of goods. Assessee was asked whether TDS provision is applicable to them or not. A. R. of the assessee stated stat: Since no income is chargeable in India under the provision of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l other sections of the Act. 5. In Circular No. 17 (XXXVIJ-l) of 1953, No.26 (26)-IT/53 dated 17.07.1953, CBDT has clarified that if transaction is on principal to principle basis no tax liability will be arise in the foreign companies. . 6. In case of Vijay Ship Breaking Co. Vs. CIT (Ahmedabad) 314 ITR 309 (SC), Hon 'ble Apex Court has stated that provision of Sec.195 is not applicable in case where income is not chargeable to tax in India (Also see Veneburg Group B, V. 289 ITR 466 AAR New Delhi), 7. In a recent judgment, in case of Van Oord ACZ (India) Vs. CIT (Delhi) dtd.24.03.2010, Hon'ble High Court has stated that the obligation to deduct tax at source u/s.195(1) arises only when the payment to chargeable to tax in 'India. 8. In case of Transmission Corporation of AP Ltd. Vs. CIT (1999)- 239 ITR 587 (SC) (cited by RAP), Hon'ble Supreme Court has given its findings as below:- in this view of the matter, the answer given by the High Court that (i) the assessee who made payments to the three non-residents was under obligation to deduct tax at source u/s.195 of the I.T.Act in respect of the sums paid to them under the contracts entered into and (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deducted by the payer on the gross amount if such payment included in it an amount which was exigible to tax in India. It was held that if the payer wanted to deduct TAS not on the gross amount but on the lesser amount, on the footing that only a portion of the payment made represented income chargeable to tax in Indie , then it was necessary for him to make an application under section 195(2) of the Act to the ITO(TDS) and obtain his permission for deducting TAS at lesser amount. Thus, it was held by this Court that if the payer had a doubt as to the amount to be deducted as TAS he could approach the ITO(TDS) to compute the amount which was liable to be deducted at source. In our view, section 195(2) is based on the principle of proportionality . The said subsection gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of income chargeable to tax in India. It is in this context that the Supreme Court stated, If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax thereon befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find the CIT(A) while dealing with the disputed issue has made an elaborate discussion relying upon various judicial decisions and deleted the addition. The CIT(A) further found that the AO has not brought any facts on record nor it is apparent that income in respect of transactions arises in favour of the nonresident sellers in the Indian territory or that the income of such nonresidents in respect of transactions is assessable under Indian Income tax Law. The CIT(A) also relied upon the decision of Hon ble Supreme Court in the case of GE India Technology Cen. (P) Ltd. v. CIT (supra) 327 ITR 456 (SC), wherein it is held that if the payment is made to a non-resident, which is not a taxable income in India, then no tax is required to be deducted u/s.195 of the Act. Accordingly, we do not find any mistake in the order of CIT(A) and the same is upheld and ground Nos. 1 to 3 of Revenue are dismissed. 29. Next ground relates to addition made on account of repair and maintenance expenditure. The AO after allowing depreciation @15% on the total amount i.e. ₹ 86,93,567/-, disallowed the balance amount of ₹ 73,89,532/- and added to the total income. On appeal, the CIT(A) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 8.2 I have given careful consideration to the matter. As pointed out by AO, the amounts spent under the head CSR welfare activities to the extent of ₹ 22,35,912/- has not been established to have been spent for the purpose of the business and details of such expenditure are not known. Merely because the appellant terms the expenditure as for CSR activities would not entitle it to claim deduction unless it is established that the same is for the business purposes. As far as miscellaneous expenditure to the extent of ₹ 22,52,169/- is concerned, the same has been incurred during the course of running of business and for business purposes. Accordingly, the addition of ₹ 44,88,081/- made by the AO is reduced and addition sustained to the extent of ₹ 22,35,912/- on account of CSR activities considered as not for the business purposes. From the above observation of the CIT(A), we find that the action of CIT(A) is just and proper. Accordingly, we uphold the findings of the CIT(A) and dismiss the ground of Revenue. 36. In the next ground the grievance of the Revenue is that the CIT(A) is erred in allowing the claim of expenditure made u/s.80G of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under :- Provision for custom duty on demurrage - Rs.29,62,596/- Punitive charges - Rs.62,30,135/- Payment of FBT - ₹ 44,779/- Total :- Rs.92,37,510/- As per the appellant s computation of total income, an amount of ₹ 70,13,537/- has been added as provision for custom duty and interest on demurrage. The said ₹ 70,13,537/- is outstanding amount out of ₹ 79,56,462/- whereas the latter includes ₹ 29,62,596/-. Accordingly, the amount of ₹ 29,62,596/- has already been offered to tax being part of the amount of ₹ 70,13,537/-. As per the appellant's computation of total income! an amount of ₹ 1,14,09,150/- has been .added as punitive charges. The said amount includes the amount of ₹ 62,30,135/- as punitive charges for DAP. Accordingly, the amount of ₹ 62,30,135/- has already been offered to tax being part of the amount of ₹ 1,14,09, 150/-. No details have been submitted regarding payment of FBT. In view of the same, the addition of ₹ 92,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
