TMI Blog2021 (6) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer to delete disallowance of interest expenditure made u/s.14A of the Act. Disallowance of other expenditure @ 0.5%, average value of investments under Rule 8D(2)(iii) - We find that it is well settled principle of law that only those investments which yield exempt income for the relevant assessment year needs to be considered for computation of disallowance of other expenses under section 14A r.w.r 8D(2)(iii) of IT Rules, 1962. We further noted that the coordinate Bench has taken similar view in assessee s own case for the assessment year 2012-13 [ 2020 (4) TMI 650 - ITAT CHENNAI] where the Tribunal by following the decision of ITAT., Delhi Special Bench in the case of ACIT vs. Vireet Investments Pvt.Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] has directed the Assessing Officer to consider only those investments which yielded exempt income for the relevant previous year to compute disallowance under Rule 8D(2)(iii) of IT Rules, 1962. Therefore, consistent with view taken by coordinate Bench, we direct the Assessing Officer to recompute disallowance under Rule 8D(2)(iii) by considering only those investments which yield exempt income for the relevant assessment years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious payments made to non-residents u/s. 40(a)(i) - HELD THAT:- Since the payments are in the nature of business profits, as per Article 7 of respective DTAAs, same cannot be brought to tax in India in the absence of any permanent establishment in India of the service provider. Since payment is not liable for tax in India, the assessee is not required to deduct TDS u/s.195 of the Act and consequently, payments cannot be disallowed u/s.40(a)(i) of the Act. The Assessing Officer as well as learned CIT(A) without appreciating facts has simply made additions u/s.40(a)(i) of the Act and hence, we direct the Assessing Officer to delete additions made towards warehousing and logistic service charges for the assessment year 2013-14 and rework and subscription charges for the assessment year 2014-15. Professional fees paid to Tileke Gibbins International Ltd. - We find that Article 12 of the India-Thailand DTAA does not cover fees for technical services. Further, payment made for professional services is covered by Article 7 as business profits and hence, is not taxable in India, because service provider does not have permanent establishment in India. Since the payment is not liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA No.1376/Chny/2018 are reproduced as under:- 1).The Order of the Commissioner of Income Tax (Appeals) is contrary to the law and facts of the case. 2) The Learned A.R CIT(A) erred in directing the AO to verify the assessee submission with the respect to assessment record and to restrict the disallowance of excess deduction claimed u/s 35(2AB). 2.1) The Ld CIT(A) ought to have appreciated that the DSIR is the central agency which assessee the R D work done by the assessee and quantified the eligible amount The assessee is not eligible to claim more than that is certified by the DSIR itself. 2.2) The Ld CIT(A) failed to note that the assessee claimed the excess deduction u/s35(2AB). 3)The CIT(A) erred in restricting the disallowance u/s 14A to the amount of dividend income. 3.1)The CIT(A) ought to have appreciated that as per section 251(1)(a) of the Act, the power to set aside are examining the issue afresh has been omitted with effect from 01.06.2001 as per Finance Act 2001. 3.2) The order of the Hon ble ITAT on the similar issue in the case of M/s.EIH Associated Hotels Limited (2013-TOIL-796--ITAT-MAD, dt. 17.07.2013) has not been acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal filed for the assessment year 2013-14 in ITA No.1355/Chny/2018 are reproduced as under:- 1. The commissioner of Income Tax (Appeals) erred in upholding the disallowance of interest expenditure u/s 14A of the Income tax Act read with Rule 8D(2)(ii) amounting to ₹ 2,41,82,017/-. The learned CIT (A) ought to have appreciated that the appellant has sufficient internal accruals to cover the entire amount of the investments made and that no part of the borrowed funds were used by the appellant to make the investments. The learned CIT (A) ought to have appreciated that no part of the borrowed funds could be attributed for making the investments and consequently no part of interest expenditure could be disallowed by invoking section 14A r.w. Rule 8D(2)(ii). Ground No 2: The learned CIT (A) erred in not providing a specific direction in his order allowing our claim of deduction u/s 35(1)(iv) of the capital expenditure in respect of the R D building. The learned CIT (A) ought to have appreciated that the clause (2) of section 35(2AB) restricts that the expenditure claimed u/s 35(2AB) should not be again claimed under any other provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.35(2AB) / 35(1)(iv) of the Act, disallowance of various expenditure incurred in foreign currency u/s.40(a)(i) of the Act for nondeduction of TDS u/s.195 of the Act and disallowance of balance 50% additional depreciation claimed on new plant machinery acquired and put to use during the relevant previous year. 5. The assessee carried matter in appeal before the first appellate authority and challenged various additions made by the Assessing Officer. The learned CIT(A) vide its appellate order dated 27.12.2017 has partly allowed appeal filed by the assessee, where he has allowed partial relief in respect of additions made towards disallowance of expenditure u/s.14A of the Act, deleted additions made towards disallowance of balance 50% of additional depreciation and further deleted additions made by the Assessing Officer towards disallowance of capital expenditure incurred on R D u/s.35((1)(iv) of the Act. However, he confirmed additions made by the Assessing Officer towards disallowance of various payments made to nonresidents u/s.40(a)(i) of the Act for non-deduction of TDS u/s.195 of the Act. Aggrieved by the order of the learned CIT(A), the Revenue as well as assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, disallowances required u/s.14A should be restricted to the extent of suo motu disallowances computed by the assesse. 9. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. As regards direct expenses relatable to exempt income, as required to be computed under Rule 8D(2)(i), the assessee itself has computed total disallowance of ₹ 42.49 lakhs and hence, question of reduction of disallowance computed by the assessee in its original return of income does not arise. Therefore, disallowance computed by the assessee under Rule 8D(2)(i), is restricted to suo motu disallowance as computed by the assessee for both assessment years. 10. As regards disallowance of interest under Rule 8D(2)(ii), it was claim of the assessee that it has sufficient own funds in the form of share capital and reserve, which is over and above total investments made in dividend bearing investments. We find that co-ordinate Bench of ITAT., Chennai in assessee s own case has considered identical issue and after considering relevant facts and has also by following decision of Hon ble Bombay High Court in the case of CIT Vs. HDF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration, the assessee has incurred capital expenditure other than building a sum of ₹ 86,75,846/- and revenue expenditure of ₹ 6,09,24,237/- for research development expenditure and claimed 200% weighted deduction u/s.35(2AB) of the Act amounting to ₹ 13,92,00,166/-. In support of its claim, the assessee has produced certificate from the Department of Scientific and Industrial Research in form 3CL, in which DSIR has certified a sum of ₹ 85,81,000/- for capital expenditure other than building and a sum of ₹ 5,89,43,000/- for revenue expenditure and thus, out of total expenditure claimed by the assessee of ₹ 6,09,24,237/-, the DSIR has certified and quantified a sum of ₹ 6,75,24,000/-. The Assessing Officer has allowed weighted deduction of 200% under section 35(2AB) on the basis of certificate issued by DSIR in form 3CL and accordingly, disallowed a sum of ₹ 41,52,000/- out of total deduction claimed by the assessee u/s.35(2AB) of the Act. Further, the assessee has also claimed 100% deduction of R D expenditure incurred towards building construction amounting to ₹ 1,02,85,856/-. Since the capital expenditure is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure or under residual head of expenditure u/s.37(1) of the Act. If any expenditure is not certified by DSIR in Form 3CL, then the same is not entitled for weighted deduction u/s.35(2AB) of the Act, but there is no restriction under law to claim such expenditure u/s.35(1) / 37(1) of the Act. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards disallowance of uncertified portion of R D expenditure. Hence, we are inclined to uphold the findings of learned CIT(A) and reject ground taken by the Revenue. 16. As regards disallowance of capital expenditure incurred on R D building u/s.35(1)(iv), it was claim of the assessee that capital expenditure on R D building has not been claimed u/s.35(2AB) of the Act and hence, same is very much allowable u/s.35(1)(iv) of the Act. We find that the Hon'ble Jurisdictional High Court of Madras in the case of M/s. Tubes Investments Ltd vs. CIT(supra), has considered an identical issue and held that in order to claim deduction u/s.35(1)(iv), approval of the authority prescribed u/s.35(2AB) is not an essential pre-requisite, if it is found that a part of the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned AR for the assessee, on the other hand, strongly supporting order of the learned CIT(A) submitted that additional depreciation should be allowed based on the amount of investments made in new plant and machinery and further, if such plant and machinery was used for less than 180 days during preceding previous year, then balance 50% of additional depreciation should be allowed in subsequent years, because there is no bar under the Act to claim full additional depreciation, if other conditions prescribed for claiming additional depreciation are fulfilled. 20. We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no dispute with regard to fact that the assessee has acquired additional plant and machinery over and above prescribed limit, which is eligible for 20% additional depreciation as per section 32(1(iia) of the Act. The only dispute is with regard to period of acquisition of said asset and claiming depreciation as per proviso (iia) to section 32(1) of the Act. The Assessing Officer has disallowed balance 50% of additional depreciation on the ground that there is no provision under the Act to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees paid to Tileke Gibbins International Ltd. towards professional services on the ground that said payment is in the nature of fees for technical services . Likewise, the Assessing Officer has disallowed payments made to Mr. Yoshikazu Tsuda towards consultancy charges by holding that period of stay of the consultant in India is more than 183 days and hence, same is taxable in India, as per section 9(1)(i) of the Act, since he becomesa resident in India u/s. 6(1)(a) of the Act. Similarly, for assessment year 2014-15, the Assessing Officer has disallowed rework charges and subscription charges paid to non-residents on the ground that payment is in the nature of fees for technical services, which falls under definition as per section 9(1)(vii)(b) of the Act . The Assessing Officer has also made disallowance towards fees paid to Michigan University and Centre for creative leadership towards tuition fee for course conducted by them to the employees of the assessee on the ground that same was covered by definition of royalty in Explanation 2 to section 9(1)(vi) of the Act. It was claim of the assessee before the Assessing Officer that payments to warehousing and logistic service cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees paid to Tileke Gibbins International Ltd., we find that Article 12 of the India-Thailand DTAA does not cover fees for technical services. Further, payment made for professional services is covered by Article 7 as business profits and hence, is not taxable in India, because service provider does not have permanent establishment in India. Since the payment is not liable tax in India, the assessee is not required to deduct TDS as per section 195 of the Act and consequently, payments cannot be disallowed u/s.40(a)(i) of the Act. 24. Insofar as payment made to Mr.Yoshikazu Tsuda towards consultancy charges amounting to ₹ 87,056/-, we find that the assessee has placed on record necessary evidence to prove that Consultant stay in India is less than 183 days and hence, said payment is not taxable in India, as per Article 14 of DTAA between India and Japan. Since payment is outside scope of tax in India, the assessee is not required to deduct TDS u/s.195 of the Act and consequently, said payment cannot be disallowed u/s.40(a)(i) of the Act. 25. As regards tuition fee paid to Michigan University and Center for Creative Leadership for assessment year 2014-15 amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
