9911796707
TMI Blog2019 (3) TMI 1826X X X X Extracts X X X X X X X X Extracts X X X X ..... volved in these appeals, we proceed to dispose the same vide this common order. 3. For the sake of convenience and clarity the facts relevant for the AY 2007-08 in ITA No.688/Chny/2013 are stated herein. 4. The appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of refinery of petroleum and petroleum chemical products and the sale of the same. The return of income for the AY 2007-08 was filed on 27.10.2007 declaring income of Rs. 422,47,34,220/-. Against the said return of income, the assessment was completed by the Addl. CIT (LTU), Chennai vide order dated 16.12.2009 passed u/s. 143(3) of the Income Tax Act, 1961 (in short 'the Act') at a total income of Rs. 438,99,85,730/-. While doing so, the AO made the following disallowances: 1) Effect of change in Accounting Policy (para No.4.1.2) 2365202 2) Disallowance u/s. 35DDA (para No.5) 100291 3) Provision for Leave Encashment (para No.6) 118584791 4) Payment to Indocoserve (para No.7) 35251825 5) Bad Debts (para No.8) 700416 6) Social & Community Welfare Expenses (para No.9) 4838240 7) Under section 14A (para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs under sec 43B(f). 2.1 the Commissioner of Income tax (Appeals) LTU ought to have appreciated that the Appellant had provided the above amount towards provision for leave encashment on an actuarial basis. 2.2 The Appellant relied on the decision of Calcutta High Court in the case of Exide Industries reported in 292 ITR 479 (Cal) wherein the High Court has held that Liability of Leave encashment cannot be disallowed for non payment under Section 43B. 3. The Commissioner of Income tax (Appeals) LTU erred in confirming the disallowance of Rs. 3,52,51,8251- u/s 40(a)(ia) paid to M/s. lndocoserve for non- deduction TDS. 3.1 The Commissioner of Income tax (Appeals) LTU ought to have appreciated that it is merely reimbursement of expenses and hence no tax need to be deducted on the same. - 3.2 The Commissioner of Income tax (Appeals), LTU ought to have appreciated that the disallowance u/s 40(a)(ia) can be made only in respect of amounts outstanding and payable as on 31 March and not on the amounts which have been paid during the previous year. Appellant relies on the decision of Special bench in the case of Merilyn Shipping and Transports V. ACIT, reported in 16 ITR (Trib) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries reported in 292 ITR 470 (Cal). Without prejudice to the above, he submitted that the same should be allowed as deduction on payment basis and he further submitted that the payment made to LIC towards group leave encashment scheme should be treated as a payment to employees be allowed as deduction. Reliance in this regard was placed on the decision of Hon'ble High Court of Kerala in the case of CIT v. Hindustan Latex Ltd. 209 Taxman 42 (Ker.). This issue was dealt with by us in the case of Karur Vysya Bank Ltd. in ITA No.1343/Chny/2013 dated 28.02.2019, wherein it was held as under: "23.1 Ground No.2 & 3 challenges the addition of provision for leave encashment and medical leave. The addition was made by the Assessing Officer invoking the provision of s. 43B of the Act. The clause (f) to s. 43B of the Act enacts that no expenditure shall be allowed on account of any leave salary unless, the expenditure is actually paid. Thus, provision is intended to overcome the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC). Even, the decision of Hon'ble Madras High Court in the case of CIT v. Panasonic Home Appliances [2010] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing that during the year under consideration the assessee company made any payment towards LIC group leave encashment scheme 2) The decision of Hon'ble High Court of Kerala in the case of Hindustan Latex Ltd. (supra) cannot come to the rescue of the assessee company, as in the said decision, the Hon'ble Kerala High Court had not laid down any law that the payment made towards the group leave encashment policy is allowable as a deduction. It merely held that the issue is a debatable and therefore, it cannot be subject matter of the revision u/s. 263 of the Act. 7.6 In the result, ground of appeal No.2 of the assessee is dismissed. 8. Ground of appeal No.3 challenges the disallowance of sum of Rs. 3,52,51,825/- on the payments made to M/s. Indocoserve for non deduction of tax at source. It is submitted that M/s. Indocoserve was formed by the MRL as registered co-operative society under Tamil Nadu Co-operative Society Act, 1951 and is formed by MRL for the benefit of contract workmen with the object of providing sustainable livelihood and at the same time avoid the exploitation by the contractor. The workmen were enrolled by these members. The object of the MRL Indocoserve is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statistical purposes. 9. Ground of appeal No.4 challenges the disallowance of Rs. 5,92,750/- under the clause (iii) of Rule 8D of the Rules. It is contended before us that the resort to disallowance u/s. 14A of the Act cannot be made in the years prior to insertion of the provision of Rule 8D of the Rules and reliance in this regard placed on the decision of Hon'ble High Court of Bombay in the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT [2010] 328 ITR 81 (Bom.). 9.1 On the other hand, the ld. Departmental Representative placed reliance on the orders of lower authorities. 9.2 This issue was considered by us in the case of Karur Vysya Bank in ITA No. 1342/Chny/2013 dated 28.02.2019, wherein it is held that the disallowance u/s. 14A of the Act prior to insertion of Rule 8D of the Rules should be restricted @ 2% of the dividend income received following decision of Hon'ble Jurisdictional High Court in the case of Simpson & Co. Ltd. in T/C. No.2621 of 2006 dated 15.10.2012. Similarly, in this case also, we direct the AO to restrict the disallowance only to the extent @ 2% of the dividend income received. 9.3 In the result, ground of appeal No.4 of the assessee is partly allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O disallowed the expenditure placing reliance on the orders for the earlier years. The AO noted that the decision by the Tribunal in the assessment year 1992-93 had been restored to the Tribunal by the Hon'ble Supreme Court. It appears that these facts not taken note of by the ld. CIT(A). Even before us neither the assessee nor the Department had filed copies of the Hon'ble Supreme Court order. The assessee-company made the following submissions before ld. CIT(A) on this issue: "8.1 The appellant contested the above addition. The ld.AR submitted as under: "An appeal is preferred against the order of the Learned Assessing officer on the grounds that such expenses have been incurred with an intention of securing the support of the public near the area of operation to avoid potential losses due to any interruption to the organization. Such expenses have been incurred by the assessee to promote awareness among the public to conserve oil as per the various initiatives taken by the Ministiy of Petroleum and Natural Gas. Further, it is submitted that winning the goodwill of the people of the geographical locailty also helps boosting of business in many ways. Therefore, the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces were being contested by the assessee in separate proceedings. 11.2 Subsequently, the AO formed a belief that the income chargeable to tax had escaped the assessment on the following issues: "a. Payment made to Chennai Metro Water & Sewerage Board of Rs. 27.49 lakhs without deduction of tax at source is to be disallowed u/s 40(a)(ia). b. Payment of Rs. 50 lakhs by the assessee company as founder member of consortium of sponsors to conduct tennis tournament at Chennai, to be disallowed as the expenditure is not for business purpose. c. Deduction allowed u/s 80-IS of Rs. 448.95 crore to be withdrawn due to the reasons that the unit is not a separate unit and no separate final accounts were prepared." 11.3 Therefore, a notice was issued u/s. 148 of the Act on 28.03.2012. On receipt of the said notice, the assessee-company vide letter dated 09.04.2012 submitted that the return of income filed on 27.10.2007 be treated as return of income in response to notice u/s. 148 of the Act. The AO completed the assessment vide order dated 06.11.2012 passed u/s. 143(3) r/w s. 147 of the Act at a total income of Rs. 439,77,34,730/-. While doing so, the AO had made disallowance of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relies on the decision in the case of Hindustan Coca Cola Beverage P Ltd Vs CIT - 293 ITR 226 (SC)." 12.1 The assessee-company raised four grounds of appeal. Grounds of appeal No.1 & 4 are general in nature therefore, do not require any adjudication. 12.2 Ground of appeal No.2 challenges the validity of the reopening of the assessment u/s. 147 of the Act. This ground of appeal was not pressed during the course of hearing of appeal. Hence, dismissed the same as not pressed. 12.3 Grounds of appeal No.3 challenges the addition of disallowance of payment of Rs. 27,49,000/- made to CMWSB towards lease rent for non deduction of tax at source. The AO disallowed the lease rent payment made to CMWSB u/s. 40(a)(ia) of the Act for non deduction of tax at source on the said payment. The contention that the payee is a Government agency of Government of Tamil Nadu and therefore, no TDS was required to be made was not accepted by the AO, stating that it is a different entity. Even, on appeal before ld. CIT(A), the same came to be confirmed by the ld. CIT(A). Being aggrieved, the assessee-company is before us in the present grounds of appeal. 12.4 The ld. Counsel for the assessee submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, no material was placed before us showing that the assessee has not been declared "assessee in default" under first proviso to s. 201 of the Act. However, keeping in view the legal position that the assessee cannot be expected to prove the negative, we remit the matter back to the file of AO with a direction to verify whether the assessee is declared as default under first proviso of s. 201 of the Act and adjudicate the matter keeping in view the outcome of the pending appeal before Hon'ble Supreme Court in the case of Ansal Land Mark Township (P) Ltd. (supra). 12.7 In the result, ground of appeal No.3 of the assessee is partly allowed. 12.8. In the result, appeal of the assessee in ITA No.494/Chny/2014 for assessment year 2007-08 is partly allowed for statistical purposes. 13. Now we shall take up the Revenue's appeal in ITA No.309/Chny/2013 for AY 2007-08. 13.1. The Revenue raised the following grounds of appeal: "1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The CIT(A) erred in deleting the disallowance towards the payment of Rs. 50 lakhs as founder member of Consortium of sponsors to conduct tenni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure of Rs. 50 lakhs towards tennis tournament incurred by the assessee is allowable as a deduction. The AO had not assigned any reasons for disallowances except stating that in the earlier years similar disallowance was made. However, the ld. CIT(A) had allowed by placing reliance on the orders of his predecessor in the earlier years. The submission of the ld. Counsel that the expenditure was incurred only on the direction of the Government of Tamil Nadu cannot be accepted for the reasons that from the perusal of the letter of the Chief Secretary of Government of Tamil Nadu dated 27.01.2004 vide DO letter No.1044/Secy./2004-2, it is clear that the Government of Tamil Nadu had only extended an invitation to participate on the occasion of the sponsorship of the tennis tournament. This invitation cannot be construed as a mandatory direction of the Government of Tamil Nadu. The ratio of the decision of Hon'ble Jurisdictional High Court in the case of Cheran Transport Corporation Ltd. (supra) is not applicable to the facts of the present case. The facts of the case are that the assessee, a Govt. of Tamil Nadu undertaking made a contribution to Flag Day Fund and Chief Minister Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under sec.14A 3238398 6) Lease rent paid to Chennai Metrowater Supply & Sewerage Board 2052789 7) Expenses incurred for conducting Chennai Open Tennis Tournament 5000000 451675514 14.2. Being aggrieved by the above additions, an appeal was preferred before ld. CIT(A), who vide impugned order had directed the Assessing Officer to allow deduction u/s. 80-IB of the Act in respect of the profits derived from refinery-III projects. As regards to the disallowance of provision for service awards and gift cheques to the employees who have completed certain years of service or at the time of retirements, the ld. CIT(A) held that the same should be allowed as a deduction placing reliance on the decision of Hon'ble Supreme Court in the case of Bharat Earthmovers Ltd. 245 ITR 428 (SC). Regarding the issue of disallowance of amount paid towards the pay revision of its employees of Rs. 676.34 lakhs, the ld. CIT(A) treating as a part of advance salary directed the Assessing Officer to allow the same as deduction. The disallowance of provision for leave encashment is partly allowed by discussing the issue as under: "7.2 I have carefully considered the facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, accordingly, partly allowed." 14.3. The disallowance of payment of Rs. 392.52 lakhs made to M/s. Indocoserve is confirmed by the ld. CIT(A). The ld. CIT(A) deleted the addition of community welfare expenses of Rs. 39,63,298/- following the decision of Hon'ble Madras High Court in assessee's own case reported in 266 ITR 170 (Mad) regarding the disallowance u/s. 14A of the Act, the ld. CIT(A) directed the Assessing Officer to restrict the addition under clause (iii) of Rule 8 D of the Rules at ½ percentage average value of the investments. The ld. CIT(A) confirmed the addition of lease rent of Rs. 20,52,789/- paid to CMWSSB as no TDS was deducted at source. As regards to the disallowance of contribution of Rs. 50 lakhs towards conduct of tennis tournament, the ld. CIT(A) directed the Assessing Officer to allow deduction placing reliance on the decision of Hon'ble Madras High Court in the case of Cheran Transport Corporation (supra). Thus, the appeal filed by the assessee before ld. CIT(A) came to be partly allowed. 14.4. Being aggrieved by that part of the ld. CIT(A) order, which is against the assessee, the assessee filed an appeal bearing ITA No.1859/Chny/2011 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of earning exempt income shouLd be disaLlowed. The appellant has not incurred any expenditure for earning the dividend income. 4.2 The Commissioner of Income tax (AppeaLs) ought to have appreciated that the Hon'b(e Punjab & Haryana High Court in the case of CIT Vs M/s. Hero Cycles Limited - reported in 323 ITR 518 has held that "Disallowance u/s.14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance u/s.14A cannot stand." 5. The Commissioner of Income tax (Appeals) LTU erred in confirming the disalLowance of 20,52,789/- the lease rent paid to Chennai Metro Water SuppLy and Sewerage Board for non deduction of tax u/s 40(a(ia) 5.1 The Commissioner of Income tax (Appeals) LTU ought to have appreciated that the CMWSSB had written to the appellant that in respect of the above payment from 01.06.1994 up to the year 2010 tax need not be deducted at source because the recipient viz., CMWSSB has paid the tax for the above amount. 5.2 The appellant relies on the decision of the Apex court in the case of Hindustan Coca Cola Beverages (P) Ltd Vs CIT reported in 293 ITR 226(SC). 6. The appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Taxtool 263 CTR 257 (SC). We find that these decisions are in the context of provisions of s. 36(1)(v) of the Act. The purport and the phraseology of the provisions of s. 36(1)(v) of the Act and s. 43B(f) of the Act are totally different. The contribution made by an assessee towards approved scheme of employees group leave encashment cannot be construed as a payment to the employees. Therefore, the decisions relied upon by the ld. counsel for the assessee is not of any help. Therefore, we do not find any merit in the submission made on this behalf. Accordingly, ground of appeal No.2 filed by the assessee is dismissed. 15.7. In the result, ground of appeal No.2 of assessee is dismissed. 16. Ground of appeal No.3 challenges the disallowance of amount paid to M/s. Indocoserve invoking the provisions of s. 40(a)(ia) of the Act. This issue was elaborately dealt by us in the assessee's own appeal for the AY 2007-08 in ITA No.688/Chny/2013, wherein for the reasons mentioned therein, the issue was remitted to the file of Assessing Officer for the purpose of carrying out the verification whether the benefit of second proviso to s. 40(a)(ia) of the Act can be granted to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Counsel for the assessee submitted that the payment is in the nature of reimbursement of expenditure and therefore, the provisions of TDS are not applicable to the subject payments, without prejudice, it is contended that the recipient had filed return of income including this sum as income payee made necessary arrangement for payment of tax. The assessee also filed copy of certificate issued by M/s. MJV & Associates, Chartered Accountants stating that the payee had offered this amount to tax, which is placed at page 16 of paper book. Hence, no disallowance in the hands of the assessee-company is required to be made. Reliance in this regard was placed in the cases of Hindustan Coco Cola Beverage (P) Ltd. v. CIT [2007] 293 ITR 226 (SC), CIT v. Ansal Land Mark Township (P) Ltd. [2015] 377 ITR 635 (Del.) and Indus Projects Ltd. v. ACIT [2016] TIOL-251-ITAT-Mum. On the other hand, the ld. Departmental Representative placed reliance on the orders of lower authorities. 18.3. We heard the rival submissions and perused the material on record. Considering the submissions made on behalf of the assesseecompany, we remit the issue to the file of AO for the purpose of verification whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed liability. 5.1. The learned CIT(A) has erred in restricting the disallowance u/s.14A r.w.Rule 8D to Rs. 6,97,700/- as against Rs. 32 38,398!-. 5.2. The Ld.CIT(A) has erred in not considering the decision of the Hon'ble Supreme Court in CIT Vs. Rajendra Prasad Mody 115 ITR 519 wherein it was held that even if no dividend income is earned the provision of section 14A would still be applicable. 5.3. The CIT(A) erred in not following the decision of Kerala Hig Court in the case of Leena Ramachandran ITA No.1784 of 2009 dated 14.6.2010 wherein it was held that in respect of acquisition of shares in the form of investment, where the only benefit derived is dividend income which is not assessable under the Act, disallowance u/s.14A is squarely attracted. 5.4. The CIT(A) ought to have appreciated that Section 14A supersedes the principle of law that in the case of a composite business expenditure incurred towards tax free income, the same could not be disallowed and incorporates an implicit theory of apportionment of expenditure between taxable and non-taxable income. 5.5 The CIT(A) ought to have upheld the disallowance made by the A.O since he was not satisfied with the corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 (SC) that the expansion of an existing business amounts to a new undertaking and directed the AO to allow the deduction. 20.5 Being aggrieved by the decision of ld. CIT(A), the Revenue is in appeal before us in the present grounds of appeal. 20.6 The ld. Departmental Representative placed reliance on the orders of lower authorities. On the other hand, the ld. Counsel for the assessee Mr. R Vijayaraghavan, Advocate reiterated the same submissions made before the ld. CIT(A). 20.7 We heard the rival submissions and perused the material on record. The only issue in the present ground of appeal is whether the assessee is entitled for deduction under the provisions of sub s. (9) of s. 80-IB of the Act, which provides for 100% deduction of profits from undertakings engaged in the refinery of oil and which begins such refining on or after first day of October, 1998 but before the 31st day of March, 2012 for a period of seven years. The AO is of the opinion that the assessee is already in the business of refining and the expansion of the existing business does not amount to setting up of a new business undertaking and denied the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of DCIT v. Ace Multi Axes Systems Ltd. [2018] 400 ITR 141 (SC). The decision of the ld. CIT(A) is based on the reasoning that expansion of the existing unit also amounts to new undertaking as observed by us supra this meaning cannot be adopted in the context of provisions of s. 80IB(9) of the Act. In the interest of justice, we are of the considered opinion that the matter should be remitted to the file of AO for fresh adjudication and verification whether the assessee had set up of a new undertaking altogether different from the existing unit or not and then, examine eligibility for deduction under the provisions of sub s. (9) of s. 80-IB of the Act. 30. In the result, ground of appeal No.2 of Revenue is partly allowed for statistical purposes. 31. Ground No.3 challenges the decision of ld. CIT(A) allowing the provision for service awards and gift cheques. It is stated that it is the policy of the assessee company to grant service awards and gift cheques to their employees on account of their association with the company. The provision for these expenses is made based on the actual valuation and for the year under consideration a sum of Rs. 1,11,73,000/- was provided. The AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of proposed pay revision. The factual background of this issue is that the pay revision was due for supervision employees from 01.01.2007 for want of necessary approvals and notification of revised pay scale from the Government. The assessee-company had decided to pay adhoc towards the additional salaries payable on account of pay revision which would be adjusted against the final amount payable to the employees and the assessee treated this as advance salary and deducted tax at source thereon. The AO had disallowed this sum holding to be an unascertained liability. On appeal before the ld. CIT(A), the ld. CIT(A) allowed the claim holding that the amount paid by the assesseecompany to its employees is a salary within the meaning of the provisions of s. 17 of the Act. Being aggrieved, the Revenue is in appeal before us in the present ground of appeal. 32.1 We heard the rival submissions and perused the material on record. There is no need of reiterating principle that the expenditure, which can allowed as deduction is one in respect of which liability has accrued under mercantile system of accounting. Therefore, the expenditure shall be allowed as a deduction only if the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the appellant. The ld.AR, therefore, claimed that own fund was used for investments and that too more than 15 years ago. I find substance in the argument of the Id. AR. The Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd (221 CTR 435) has held that if there are interest-free funds available to the assessee sufficient to meet its investments and at the same time the assessee had raised a loan, it can be presumed that investments were from interest-free funds available. It is based on the principle that if no nexus could be established between interest bearing funds and funds deployed to earn exempt income, then no disallowance can be made. Further, Hon'ble Punjab & Haryana High Court in the case of CIT v. Hero Cycles Ltd, 323 ITR 518 held that "The contention of the revenue that directly or indirectly some expenditure is always incurred which must be disallowed under section 14A and the impact of expenditure so incurred cannot be allowed to be set off against business income which may nullify the mandate of section 14A, cannot be accepted". Respectfully following the above decisions, it is held that no interest expenditure is attributable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l purposes. ITA NOs.689/Chny/2013 & 854/Chny/2013 for assessment year 200910 (Cross Appeals): 37. The appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of refinery of petroleum and petroleum chemical products and the sale of the same. The return of income for the AY 2009-10 was filed on 29.09.2009 declaring a loss of Rs. 509,63,30,876/-. Against the said return of income, the assessment was completed by the Jt. CIT, LTU, Chennai vide order dated 22.10.2011 passed u/s. 143(3) of the Act at a total income of Rs. 438,05,27,258/-. While doing so, the AO made the following additions 1) Disallowances of Rs. 51,74,337/- u/s. 14A of the Act. 2) Payment made to foreign company i.e., M/s. Hardy Exploration & Production India Inc (HEPI) towards purchase of crude oil as the assessee had failed to deduct TDS of Rs. 61,23,06,054/-. 3) On account of payment made to MRL Ind. Co-op. Service Society of Rs. 4,59,59,000/- and Chennai Metro of Rs. 28,41,000/- on the ground that no tax was deducted at source. 4) The social community welfare expenses of Rs. 18,04,853/-. 5) Expenditure towards sponsorship of CMWSB of Rs. 50 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income tax (Appeals), LTU ought to have appreciated that payment made to HEPI was for the purchase of crude oil and hence payment is not subject to tax in India. 3.2 The Commissioner of Income tax (Appeals), LTU ought to have appreciated that section 195 requires that tax is to be deducted at source from payment to a non-resident only if the amount is chargeable to tax. 3.3 The Hon'ble Supreme Court in G.E. Technology Center vs. CIT (327 ITR 256) has held that that if there is no income chargeable to tax in India then there is no requirement for deducting tax at source under the Income Tax Act, 1961. 3.4 The Commissioner of Income tax (Appeals), LTU ought to have appreciated that the disallowance u/s 40(a)(ia) can be made only in respect of amounts outstanding and payable as on 3l march and not on amounts which have been paid during the previous year. Appellant relies on the decision of Special bench in the case of Merityn Shipping and Transports V. ACIT, reported in 16 ITR (Trib) I (Vis)(SB). 3.5 Without prejudice, if any disallowance u/s 40(a)(ia) is warranted, should, at best be restricted to the profit accruing to M/s. HEPI on sale of crude to the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of appeal filed by the assessee is dismissed. 38.2 In the result, ground of appeal No.2 of assessee is dismissed. 39. Ground No.3 challenges the confirmation of the disallowance of payment made to HEPI for the purchase of crude oil for non-deduction of tax at source. Admittedly, the payee is a non-resident and payments are made towards purchase of crude oil. The AO was of the opinion that the purchases made by the assessee had embedded element of income for the payee and therefore, tax is required to be tax at source. Accordingly, the AO has disallowed this sum invoking the provision of s. 40(a)(ia) of the Act for non-deduction of tax at source. On appeal before ld. CIT(A) also confirmed the addition. 39.1 Being aggrieved, the assessee is in appeal before in the present grounds of appeal. 39.2 The ld. Counsel for the assessee vehemently argued that the payments of purchase of crude oil is not subject to deduction of tax at source u/s. 195 of the Act, it merely constitutes a purchases. In the case of transaction of mere purchase, there is no necessity of deducting TDS in the light of the decision of Hon'ble Supreme Court in the case of GE Technology Center v. CIT 327 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Delhi. Accordingly, we remit this issue to the file of Assessing Officer to examine the allowability of the claim under the second proviso to s. 40(a)(ia) of the Act. Hence, this ground of appeal filed by the assessee is partly allowed for statistical purposes. 39.5 In the result, ground of appeal No.3 of assessee is partly allowed for statistical purposes. 40. Ground No.4 challenges the decision of ld. CIT(A) confirming the disallowance of payment made to MRL Industrial Co-operative Services Society u/s. 40(a)(ia) of the Act. This issue was dealt by us in the assessee's own case for AY 2007-08 in ITA No. 688/Chny/2013, wherein the matter was remitted to the file of AO to examine the applicability of second proviso to s. 40(a)(ia) of the Act for the detailed reasons mentioned therein. Hence, this ground of appeal filed by the assessee is partly allowed for statistical purposes. 40.1 In the result, ground of appeal No.4 of assessee is partly allowed for statistical purposes. 41. Ground of appeal No.5 challenges the order of ld. CIT(A) confirmation the disallowance of lease rent paid to CMBWSSB for non deduction of tax at source. This issue was again dealt by us in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the learned CIT(A) may be set aside and that of the Assessing Officer restored." 44. Grounds of appeal No.1 & 4 are general in nature and do not require any adjudication. 44.1 Ground of appeal No.2 challenges the confirmation by the ld. CIT(A), the disallowance of social community welfare expenses. This issue was dealt by us in the Revenue's appeal for AY 2007-08 in ITA No.884/Chny/2013, wherein we remitted this issue to the file of AO for fresh adjudication on the touch stone of commercial expediency. Similarly, this issue for the year under consideration also, we remit this issue to the file of AO for fresh adjudication on the similar directions. 44.2 In the result, ground of appeal No.2 of Revenue is partly allowed for statistical purposes. 45. Ground of appeal No.3 challenges the deletion of addition by ld. CIT(A) on account of expenditure towards conduct of Chennai Open Tennis Tournament. This issue was also dealt by us in the Revenue's appeal in ITA No.309/Chny/2014 for AY 2007-08, wherein we decided this issue against the assessee-company for the detailed reasons mentioned therein. Hence, this ground of appeal filed by the Revenue is allowed. 45.1 In the result, Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income no expenditure has been incurred, disallowance u/s.14A cannot stand." 2.3 It is submitted that the Delhi Tribunal in the case of ACIT Vs Sun Investments reported in 8 ITR (Tn) 33 h.ave held that unless the assessing officer established that specific expenditure has been incurred by the assessee for earning exempt income there can be no disallowance under Section 14A. 2.4 Without prejudice to the same, the 0.5% has been calculated on the total investment made both on Indian Additives Limited (IAL) and Petroleum India International (PII).Only the Dividend earned from IAL is exempt income u/s 10 whereas the share of profit from P11 is a deduction u/s 86(1)(a) and hence rule 8D is not applicable on the investment made on P11. 3. The Commissioner of Income tax (Appeals), LTU erred in confirming the disallowance of Rs. 37,32,000/- u/s 40(a)(ia) on the ground that the appellant had not deducted TDS from the payments made to Chennai Metro Water Supply & Sewerage Board(CMWSSB). 3.1 The Commissioner of Income tax (Appeal), LTU ought to have appreciated that the recipient has offered this amount as their income, and arranged for payment of tax and hence there can be no disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. 5.2 The Commissioner of Income tax (Appeals), LTU ought to have appreciated that Section 195 requires that tax is to be deducted at source from payment to a non-resident only if the amount is chargeable to tax. 5.3 The Hon'ble Supreme Court in G.E.Technology Center vs. CIT (327 ITR 256) has held that that only that portion of the payment to the non resident chargeable to tax in India tax has to be deducted at source under the Income Tax Act, 1961. 5.4 Without prejudice, only the profit accruing to M/s. Hardy Exploration and Production India Inc on production and sale of crude to the Appellant is taxable in India. Hence the entire payment cannot be disallowed u/s 40(a)(ia) 5.5 Without prejudice disallowance u/s 40(a)(ia) can be made only in respect of amounts outstanding and payable as on 3l' march and not the amounts which have been paid during the previous year. Merilyn Shipping and Transports V. ACIT, reported in 16 ITR (Trib) 1 (Vis)(SB). Vector Shipping 85 CCH 201 (All. H.C). 6. The Commissioner of Income tax (Appeals), LTU erred in confirming the disallowance of Rs. 15,83,20,443/- u/s 40(a)(i) for nondeduction of TDS from the payment made to M/s NIKO (Neco) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income tax (Appeals), LTU ought to have appreciated that In line with the above guideline, the appellant has made additional provision towards retirement benefit to the extent of 8.62% of the Basic pay as Superannuation benefit for the employees as the remaining 21 .38% has been met through contribution to provident fund (CPF), Gratuity and other retirement benefits. 7.3 The Commissioner of Income tax (Appeals), LTU ought to have appreciated that the above provisions are business Liability has arisen in the accounting year that are to be discharged at a future date. The appellant is certain of incurrence of the liability and the estimation made with reasonable certainty. Having met these requirements, the provision created by the appellant should be allowed as ascertained liability. 8. The Appellant craves leave to file additional grounds at the time of hearing." 47.3 Ground of appeal No.1 challenges the confirmation of disallowance u/s. 14A of the Act. On perusal of the order of ld. CIT(A), we find that the order is well reasoned and based on the proper appreciation of facts, therefore, we do not intend to interfere with the order of ld. CIT(A). 47.4 In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax (Appeals), Large Taxpayer Unit, Chennai (hereinafter as 'CIT(A)') dated 30.03.2016 for the Assessment Year (AY) 2007-08. 52.1 The brief facts of the case are as under: The appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of refinery of petroleum and petroleum chemical products and the sale of the same. The return of income for the AY 2007-08 was filed on 27.10.2007 declaring income of Rs. 422,47,34,220/-. Against the said return of income, the assessment was completed by the Jt. CIT, LTU, Chennai vide order dated 16.12.2009 passed u/s. 143(3) of the Act at a total income of Rs. 438,99,85,730/-. Subsequently, the reassessment was completed u/s. 143(3) r/w s. 147 of the Act on 06.11.2012 at a total income of Rs. 439,77,34,730/-. It is stated that while computing the reassessment, the Assessing Officer determined the interest payable to the assessee u/s. 244A of the Act on the amount of Rs. 104,96,64,767/- did not grant interest on self assessment tax paid of Rs. 46,03,59,000/-. 52.2 Being aggrieved, an appeal was preferred before ld. CIT(A), who vide impugned order in ITA No.10/12-13 dt. 25.12.2013 to work out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi (2002) 245 ITR 606 (SC) R.K. Jam and Sons Vs. CIT, 2006 (142) Taxman 445(Delhi) CIT Vs HEG Ltd - 324 ITR 331 (SC) 3. The Appellant craves Leave to adduce additional grounds at the time of hearing." 53. We heard the rival submissions and perused the material on record. The short issue involved in the present appeal is whether assessee is entitled to interest on the interest u/s. 244A of the Act. the Hon'ble Supreme Court in the case of Gujarat Fluoro Chemicals 43 taxmann.com 350 (SC) categorically held that the provisions of s. 244A of the Act provides for interest on refunds under various contingencies and it is only that interest provided for under the statute which may be claimed by the assessee from the Revenue. No other interest on such statutory interest. Following this decision the Hon'ble Delhi High Court in the case of CIT v. Indian Farmer Fertilizer Co-operative Ltd. 374 ITR 56 (Del.), held that the assessee is not entitled to interest on interest payable u/s. 244A of the Act. However, we must state here that a different law prevails in case of inordinate delay in grant of refunds. It is not the case of the assessee that there is inordinate delay in the grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
