TMI Blog2019 (3) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... nvertible Bonds (FCCB) as business expenditure - capital receipt OR Revenue expenditure - HELD THAT:- Tribunal in assessee's own case [2010 (3) TMI 1242 - ITAT CHANDIGARH] held that the said expenditure is to be treated as Revenue expenditure, in the year of payment Disallowance of export commission for non deduction of TDS u/s 195 - addition u/s 40(a)(ia) - HELD THAT:- The assessee had paid certain commission to foreign agents for procuring orders. The assessee has justified the payment of aforesaid commission by stating that those foreign agents had direct liaison with the parties, they not only fulfilled the procurement of orders but also are helpful in acquiring the payments of the sales made. AO disallowed the aforesaid commission holding that the assessee was liable to deduct tax at source in respect of the aforesaid payments. After going through the assessment orders, we find that the Assessing officer has not disputed that the aforesaid payments were made to foreign agents who were not taxable in India. Since income, if any, received or accrued to foreign agents was not taxable in India, hence, as per the settlement law, the expenditure cannot be disallowed for non-deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO to verify whether these are independent receipts, if found so, the Assessing officer is directed to allow the income from sundry balance written back, commission / discount received and exchange rate fluctuation as the same is related to the business activity of the assessee, however, the income from rent is not allowable to be eligible u/s 80IC / 80IB of the Act. So far as the Misc. receipts is concerned, since we do not have exact details of such Misc. receipts, hence, the assessee has submitted that he does not press the issue relating to Misc. Receipts under the head ‘Misc. Income’. So far as the ‘prior period income’ is concerned, the same is also not pressed. Ground No. 9 is accordingly partly allowed. Adjustment of head office expenses to claim deduction u/s 80IC/ 80IC - HELD THAT:- As decided in assessee's own case upheld the findings of the CIT(A) to allocate the net of head office expenses. Following the same proposition and for the sake of consistency, the Assessing officer is directed to allocate the net of head office expenditure, and not the gross net expenditure under this issue. Treating interest reimbursement under Technology Upgradation Fund Scheme (T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i). 4. Without pre-judice to ground no.3, the Ld.CIT(A) has erred in not allowing the above mentioned interest expenditure under section 57 of The Act and setting off the same against income from other sources. 5. That the Ld.CIT(A) has erred in law and on facts in upholding that the premium of ₹ 10350 Lacs paid on redemption of Foreign Currency Convertible Bonds (FCCB} is capital expenditure and not revenue expenditure as claimed by the assessee and has further erred in holding that the assessee deliberately claimed premium as revenue expenditure in its Computation of income in order to reduce its tax liability, The Ld. CIT(A) while holding this lost sight of the view taken by the AO's from AY 06-07 to AY 10-11 (5 years) wherein they have consistently held that, premium will be allowed as expenditure against taxable income of the assessee only in the year when the actual redemption of FCCB's will take place . 6. Without pre-judice to ground no. 5, the Ld. CIT(A) has erred in not allowing alternate plea of the assessee regarding allowing depreciation on the premium of ₹ 10350 lacs if the same is held to be capital expenditure. 7. That the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice to ground no.12, the Ld. CIT(A) has erred in treating sales tax subsidy of ₹ 12,31,25,525/- as 'Income from Other Sources' instead of 'Income from Business and Profession'. 14. That the Ld.CIT(A) has erred in law and on facts in treating line/bay charges amounting to ₹ 33,75,000/- as capital expenditure instead of revenue expenditure. 15. That the appellant craves leave to add/alter/amend any ground of appeal on or before the due date of hearing of appeal 4. Ground No.1: Ground No.1 is general in nature and does not require adjudication on any specific issue. 5. Ground No.2 : Vide this ground the assessee has agitated the action of the CIT(A) in upholding the disallowance of ₹ 1055.23 lacs under section 14A of the Income-tax Act, 1961 read with rule 8D of the Income Tax Rules. 6. At the outset, the Ld. Counsel has invited our attention to the chart furnished by him to show that the assessee during the year received dividend income from subsidiaries amounting to ₹ 7.91 crores and dividend income from investment in other companies of ₹ 4.68 cores totalling to ₹ 12.59 cores. Further, the assessee during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the issue in favour of the assessee. At this stage, Ld. Counsel for the assessee has submitted that now the issue is squarely covered by the latest decision of the Hon'ble Supreme Court in the case of in the case of CIT (LTU) Vs. Reliance Industries Ltd. [2010] 410 ITR 466 (SC), wherein, the Hon'ble Supreme Court has reiterated the proposition that if there are interest funds available with the assessee, which are sufficient to meet the investment, it can be presumed that the investments are made from the interest free funds available with the assessee. In view of this, this question is now settled by the decision of the Hon'ble Supreme Court and the issue accordingly is decided in favour of the assessee so far as the issue of disallowance of interest expenditure is concerned. 9. However, so far as the issue of disallowance of administrative expenditure is concerned, the Ld. Counsel for the assessee has invited our attention to the earlier order of the Tribunal to state that in the appeal for the assessment year 2006-07, the assessee has earned dividend income of ₹ 1.59 crores and the Tribunal restricted the disallowance of administrative expenditure to &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redemption of Foreign Currency Convertible Bonds (FCCB) is capital receipt as against the claim of the assessee that the same is Revenue expenditure. The facts relevant to the issue are that the assessee issued Foreign Currency Convertible Bonds in the year 2006 and these were to be matured in February 2011. As the Bonds holders did not exercise their option to convert the bonds in equity shares, so FCCB were repaid along with premium / interest @ 6% per annum. The lower authorities treated the aforesaid payment as capital payment and denied the deduction of expenditure in this respect. 14. The Ld. Counsel for the assessee has invited our attention to the decision of the Tribunal in the own case of the assessee M/s Vardhman Textiles Ltd Vs. Addl. CIT Ludhiana in ITA no. 1429/Chd/2010 for the assessment year 2006-07 and in ITA No. 270/Chd/2011 for assessment year 2007-08 order dated 18.12.2018, wherein, on identical facts, the Tribunal after considering the relevant facts has held that the said expenditure is to be treated as Revenue expenditure, in the year of payment. The relevant findings of the Tribunal on this issue are reproduced as under:- 20. Ground No. 9 : Vide g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they not only fulfilled the procurement of orders but also are helpful in acquiring the payments of the sales made. The Assessing officer disallowed the aforesaid commission holding that the assessee was liable to deduct tax at source in respect of the aforesaid payments. However, after going through the assessment orders, we find that the Assessing officer has not disputed that the aforesaid payments were made to foreign agents who were not taxable in India. Since income, if any, received or accrued to foreign agents was not taxable in India, hence, as per the settlement law, the expenditure cannot be disallowed for non-deduction of TDS on such payments. 19. In view of this, we do not find any justification on the part of the lower authorities in disallowing the expenditure under this head. This issue is accordingly decided in favour of the assessee and the disallowance made, if any, on the issue for non-deduction of TDS is ordered to be set aside/deleted. 20. Ground No.8 : Vide ground No.8, the assessee has agitated the action of the lower authorities in treating the interest received amounting to ₹ 21,21,35,487/- as Income from other sources instead of income form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). 24. We have gone through the order of the Tribunal dated 18.12.2018. The relevant part of the order of the Tribunal is reproduced as under:- 28. The third part of ground No.2 is against the action of the CIT(A) in directing the Assessing officer not to reduce foreign exchange fluctuation gain from eligible profits of units eligible for deduction u/s 80IB and 80IC and exemption u/s 10B of the Act. 29. The Ld. Counsel for the assessee has submitted that the foreign exchange fluctuation gain is in respect of export receipts / receivable of the assessee and any gain in respect of receivable on account of foreign exchange fluctuation in fact contributes to the profits of the assessee from the sale/ export of the products. We find force in the aforesaid contention. We do not find any infirmity in the order of the CIT(A) in this respect also. 25. In view of the above findings of the Tribunal, this issue is squarely covered in favour of the assessee. The assessee is held to be eligible to claim deduction u/s 80 IB / 80 IC of the Act in this respect. So far as the claim of the assessee regarding receipt of income / Misc. income and interest from employees, rental in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the gross net expenditure under this issue. This ground is treated as partly allowed. 30. Ground No.11 : Vide this ground the assessee has agitated the action of the CIT(A) in not allowing the claim of the assessee for treating interest reimbursement under Technology Upgradation Fund Scheme (TUFS) as capital receipt. 31. Both the Ld. Representatives of the parties have been fair enough to submit that in the earlier assessment years i.e. for 2006-07 and 2007-08, this issue is restored to the file of the CIT(A) for decision afresh. With the same directions in identical terms as are given for earlier assessment year, this issue is accordingly restored to the file of the CIT(A) for decision afresh in accordance with law. 32. Ground Nos.12 13: Vide ground Nos.12 13, the assessee has agitated the action of the CIT(A) in treating the sales tax subsidy as Revenue receipt instead of capital receipt as claimed by the assessee. This issue is now well settled by the decision of the Hon'ble Supreme Court in CIT-I Vs. M/s Chaphalkar Brothers, Pune and Others in Civil Appeal Nos. 6513-6514 of 2012 order dated 7.12.2017, wherein, it has been held that the sales tax subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case, was Ld. CIT(A) justified in allowing interest received from customers/ suppliers amounting to ₹ 4,98,61,335/- to be treated as business income as against A.O, treating the same as Income from other sources? 3. Whether upon the facts and circumstances of the case, was Ld. CIT(A) justified in excluding the amount of interest from customers / suppliers from the disallowance of interest netted off with expenses and holding the same for calculating deduction u/s 80IB/ 80IC of the Income tax Act, 1961? 4. Whether upon the facts and circumstances of the case, was Ld. CIT(A) lawfully justified in deleting the sum of ₹ 11,96,65,327/- on account of Interest reimbursed under TUFS (Technology Upgradation Funds Schemes) disallowed by A,O. and holding the same as eligible for calculating deduction u/s 80IB/ 80IC of the Income-tax Act, 1961? 5. That the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored. 6. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 38. Ground No.1 : The first ground is relating to the action of the CIT(A) in allowing excess expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.483/Chd/2016 (A.Y. 2012-13) assessee s appeal ITA No. 518/Chd/2016 (A.Y. 2012-13) Revenue s appeal 44. Now coming to appeals of the assessee and Revenue for assessment year 2012-13. The assessee in this appeal has raised the following grounds of appeal:- ITA No.483/Chd/2016 (A.Y. 2012-13) assessee appeal 1. That the order passed by Ld.CIT(A), Ludhiana is contrary to law and facts of the case. 2. That the Ld.CIT(A) has erred in law and on facts in upholding the disallowance of ₹ 1719.99 Lacs under section 14A of The Income Tax Act, 1961 read with Rule 8D. 3. That the Ld. CIT(A) has erred in law and on facts while upholding the disallowance of interest expenditure on notional basis amounting to ₹ 3270.47 Lacs on investments under the provisions of section 36(l)(iii). 4. Without pre-judice to ground no.3, the Ld. CIT(A) has erred in not allowing the above mentioned interest expenditure under section 57 of The Act and setting off the same against income from other sources. 5. That the Ld.CIT(A) has erred in law and on facts in upholding the disallowance of ₹ 2544.03 Lacs under section 40(a)(ia) for non-deduction of withhol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case, was Ld. CIT(A) justified in allowing interest received from customers / suppliers amounting to ₹ 5,25,23,848/-to be treated as business income as against the A.O. treating the same as Income from other sources? 2. Whether upon the facts and circumstances of the case, was Ld. CIT(A) justified in excluding the amount of interest from customers / suppliers from the disallowance of interest netted off with expenses and holding the same for calculating deduction u/s 80IA / 80IB / 80IC of the Income-tax Act, 1961? 3. Whether upon the facts and circumstances of the case, was Ld. CIT(A) justified in law in deleting the receipts on account of Foreign exchange fluctuations disallowed by A.O. and holding the same as eligible for calculating deduction u/s 80IA 8OIB / 80IC of the Income-tax Act, 1961? 4. Whether upon the facts and circumstances of the case, was Ld. CIT(A) lawfully justified in deleting the receipts on account of Interest reimbursed under TUFS (Technology Upgradation Funds Scheme) disallowed by A.O. and holding the same as eligible for calculating deduction u/s 80IA / 80IB/ 8OIC of the Income-tax Act, 1961? 5. That the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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