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TMI Blog2023 (6) TMI 1065X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of Rs. 12,56,27,620/- made on account of loss accrued on foreign exchange derivatives entered into by the Appellant for the purpose of hedging risk 3) That the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 2,02,44,443/- made on account of expenses claimed in respect of turnkey project. 4) That the Ld. CIT(A) has erred in law and on facts in restricting the disallowance made u/s 14A from Rs 3,60,59,592/- to Rs. 1 6,86,651/- 5) That the Ld. CIT(A) has erred in law and on facts in restricting the addition from Rs. 3,60,59,592/- to Rs. 16,86,651/- made u/s 115JB of the Act 6) That the Ld. CIT(A) has erred in law and on facts in deleting the addition Rs. 72,65,752/-made u/s 41(1) of the IT Act as deemed income of the assessee. 7) That the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 25,02,811/- u/s.40(a)(i) of the I.T. Act, 1961. 8) On the facts and circumstances of the case, Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 9) It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored." 3. The assessee has taken th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee failed to produce bills and supporting vouchers in support of the claim and disallowed sum of Rs. 37.50 crores and added the same to the income of the assessee. The Assessing Officer, however, allowed depreciation of Rs. 2,81,25,000/- and arrived at net disallowance of Rs. 34,36,75,000/-. 6. The assessee filed appeal before Ld. CIT(Appeals) and submitted sample copies of invoices as additional evidence. The CIT(Appeals) called for the remand report and on the basis of observations made therein, he allowed the assessee's claim of consumption of spares for Rs. 21.11 crores on the ground that the Assessing Officer has not brought out any evidence to prove that any item debited under the head "stores" are having enduring nature and was required to be capitalized. Accordingly, CIT(A) held that expenditure of Rs. 21.10 crores incurred by the assessee towards consumption of spares is allowable as revenue expenditure. Further, he also allowed the payment of Rs. 1.50 corres made to NUOVO PIGNONE as revenue expenditure by following the order of CIT(Appeals) for A.Y. 2011- 12 dated 26.05.2016, wherein the CIT(Appeals) in assessee's own case held that payment made to NUOVO PI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the expenditure of Rs. 21.10 crores is revenue in nature. 8. We have heard the rival contentions and perused the material on record. With respect to machinery repairs - consumption of spares (21.10 crores), we are of the view that even the Assessing Officer in the remand report has not given any specific findings as to how the said expenditure has given any enduring benefit to the assessee. In fact, the Assessing Officer has observed "further, considering the frequency, and units consumed in the entire year, it is inferred that the tools are required more often for the tally and proper financing of machines. However, few of them may have an enduring benefit but, considering the units and frequencies, the same steam to be required to restore the tally financing of the machines". Accordingly, we find no infirmity in the order of Ld. CIT(Appeals) while holding that machinery repairs / consumption of spares amounting to Rs. 21.10 crores qualifies as revenue expenditure. Further, with respect to payment to NUOVO PIGNONE, in our view, Ld. CIT(A) has correctly observed that the same does not qualify as capital expenditure and further, on perusal of the details of expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is covered in favour of the assessee in assessee's own case for A.Y. 2009-10, A.Y. 2010-11 and A.Y. 2011-12 by the decision of ITAT Ahmedabad. A copy of the aforesaid order has been placed on record before us for our perusal. 13. We observe that this issue is directly covered in favour of the assessee by order of ITAT Ahmedabad in assessee's own case for A.Y. 2009-10, 2010-11 and 2011-12 in ITA Nos. 249/Ahd/2016 & 09 others wherein the ITAT has allowed the assessee's appeal on this issue with the following observations:- "46. Heard both the sides and perused the material on record. The assessee entered into contracts for hedging its USA dollar export by taking USD-INR forward contracts and total market to market loss was debited at Rs. 89.22 crores. The dispute is pertained to market to market loss of Rs. 16.8 crores as outstanding contract as on 31st March, 2009. The Assessing Officer was of the view that such market to market losses was notional and contingent in nature and same cannot be allowed as per Instruction No. 3/2010 issued by CBDT on 23rd March, 2010. The ld. CIT(A) has deleted the addition after following the decision of Co-ordinate Bench of the Ahmedabad in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting has been regularly followed by the assessee and Thirdly, the Assessing Officer has not doubted the veracity of the expenditure. 17. The Department is in appeal before us against the aforesaid relief granted by Ld. CIT(Appeals). On going through the contents of the order passed by the Ld. CIT(Appeals) we find no infirmity in the order, so as to call for any interference with respect to this ground appeal. It is observed that the Assessing Officer has not doubted the veracity of expenses incurred. The assessee has been consistently following the percentage completion method in earlier assessment years and also in the subsequent assessment years, and no defects have been pointed out in such method of accounting. During the course of assessment proceedings, the assessee has given complete details regarding income earned from such project and which was also accepted by Assessing Officer as taxable income on current year basis upon method of accounting regularly followed by the assessee. Accordingly, considering the facts of the instant case we are of the considered view that CIT(Appeals) has not erred in facts and in law in holding that the aforesaid expenditure is allowable as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. The Hon'ble Supreme Court in the case of Chettinad Logistics (P.) Ltd.[2018] 95 taxmann.com 250 (SC)dismissed SLP against High Court ruling that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. The Gujarat High Court in the case of Dipesh Lalchand Shah [2022] 143 taxmann.com 419 (Gujarat) held that where in relevant assessment year, assessee-individual earned profits from partnership firm and made investments in shares of a company, since its income from partnership was negative and no exempt income was earned, in such case disallowance under section 14A could not be made. In the case of Corrtech Energy (P.) Ltd. [2014] 45 taxmann.com 116 (Gujarat), the Gujarat High Court held that where assessee did not make any claim for exemption of any income from payment of tax, disallowance under section 14A could not be made. The Delhi High Court in the case of Delhi International Airport (P.) Ltd. [2022] 144 taxmann.com 80 (Delhi) held that section 14A would not be applicable if no exempt income was received or receivable during re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation Ltd. [2022] 142 taxmann.com 413 (SC) dismissed the SLP of the Department against High Court ruling that disallowance made under section 14A could not be added in assessee-company's income for purpose of computation of income under section 115JB of the Act. The Karnataka High Court in the case of J.J. Glastronics (P.) Ltd. [2022] 139 taxmann.com 375 (Karnataka) held that amounts disallowed under section 14A could not be added to net profit while computing book profit under section 115JB of the Act. The ITAT Ahmedabad in the case of Vishal Export Overseas Ltd [2022] 143 taxmann.com 305 (Ahmedabad - Trib.) held that disallowances made under section 14A read with rule 8D could not be applied to provision of section 115JB of the Act. The Delhi ITAT in the case of Vireet Investment (P.) Ltd [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB) held that computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to computation as contemplated under section 14A read with rule 8D. In view of the consistent position of law on this issue, we are hereby dismissing Department's appeal with respect to Ground No. 5. 25. In the result, Ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of trading liability (Cessation of liability) - Assessment Year 2001-02 to 2003-04 and 2006-07 - in course of assessment, Assessing Officer noticed from balance sheet that various creditors were very old and no interest had been paid on those various loans - Assessing Officer gave various opportunities to assessee to furnish details of such creditors viz., confirmation as well as creditworthiness but assessee failed to produce necessary information and details in that regard of aforesaid liabilities. On further appeal, Tribunal deleted addition on ground that assessee had continued to show admitted amounts as liabilities in its balance sheet and thus it could not be treated as a case of cessation of liabilities. Whether merely because liabilities were outstanding for last many years, it could not be inferred that said liabilities had ceased to exist. Held, yes, whether even otherwise, since assessee had continued to show admitted amounts as liabilities in its balance sheet, Tribunal was justified in deleting impugned addition made by Assessing Officer - Held yes (in favour of assessee)". It is observed that similar disallowance was deleted by undersigned in appellate order for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt due to such parties has not been paid. The assessee explained that this liability is still existed and the same has not to be ceased. The Assessing Officer has not agreed with the submission of the assessee and disallowed the amount of Rs. 14,06,339/- as deemed income of the assessee as per provision of section 41(1) of the Act. 21. The assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the disallowance made by the assessee. 22. Heard both the sides and perused the material on record. It is undisputed fact that assessee has not written back the aforesaid liability and it is still shown in the books of account as payable. Therefore, considering the decision of Hon'ble Jurisdictional High Court of Gujarat in the case of CIT vs. Bogilal Kamjibhai Atara (2014) 43 taxman.com 55, we do not find any infirmity in the decision of ld. CIT(A) ld. CIT(A) since there was noting on record to indicate that there was cessation of liability during the year under consideration. Therefore, this ground of appeal of the revenue is dismissed." Accordingly, respectfully following the ITAT, Ahmedabad decision in assessee's own case we find no infirmity in the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal, the ld. CIT(A) has allowed the claim of expenses holding that same was of the nature of reimbursement of expenditure which does not require deduction of tax. The relevant part of decision of ld. CIT(A) is as under:- "10.3 I have carefully considered the Assessment Order and submission filed by the Appellant. The Appellant has made payment of Rs. 1,14,741/- as Recruitment Expenses of Perfect Connection Limited. The AO has observed that as payment is in nature of contract, Assesses need to have deducted TDS on such payment hence he made disallowance of Rs. 1,14,741/- under Section 40(a)(ia) of the Act. However, on careful consideration of ledger account submitted by Appellant which was also part of submission during Assessment Proceedings that Appellant has reimbursed travelling tickets of candidates which does not involve any contractual payment as observed by AO. This expenditure is purely reimbursement of expenditure which does not require deduction of TDS hence the addition made by the AO for Rs. 1,14,741/- is deleted. This ground of appeal is allowed. 52. Heard both the sides and perused the material on record. Without reiterating the facts as above, we do not find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the associated enterprises of the assessee are having poor financial standing and the loans have been granted without any collateral and hence the assessee has undertaken extra risk in advancing the loan to its financially weak subsidiary. The Assessing Officer held that if the assessee had advanced such amount to outside party, it would have been remunerated for the extra risk undertaken by it for advancing loan to a financially weak company and that too without any collateral. The Assessing Officer observed that assessee has calculated arms' length rate of interest of LIBOR (5.19%) Plus 2.5% i.e. 7.69%, but the assessee has not given any basis for charging of notional interest at LIBOR Plus 2.5% and hence such benchmarking cannot be accepted. Accordingly, the Assessing Officer added a sum of Rs. 23,50,843/- under Section 92CA of the Act. 38. In Appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee with the following observations: "10.4. During the course of appellate hearing, the Appellant has also argued that rate of interest should not be increased by TPO as transfer pricing adjustment considered by Appellant in return of income is quite higher than normal rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, may be accepted. Accordingly, the rate adopted by the assessee is at arms' length price and no upward adjustment is called for. The Counsel for the assessee relied on the decision of Delhi ITAT in the case of Aithent Technologies Pvt. Ltd. vs. DCIT in ITA No. 6293/Del/2017 vide order dated 05.01.2021. 40. In response, the Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A) in their respective orders. 41. Before deciding ground of appeal, it would be useful to discuss some judicial precedents which have analyzed this issue before us. In the case of IPCA Laboratories Ltd.146 taxmann.com 28 (Mumbai - Trib.), the Mumbai ITAT held that where assessee-company had given interest Free loans to its AEs, since loan was given in foreign jurisdiction, LIBOR +200 points was correct benchmarking for interest. In the case of Bhansali & Co. 54 taxmann.com 131 (Mumbai - Trib.), the Mumbai ITAT held that interest charged as LIBOR plus 200 basis points on foreign currency loan given abroad is most correct benchmark. In the case of Motherson Sumi Systems Ltd. 58 taxmann.com 38 (Delhi - Trib.), the Delhi ITAT held that where TPO made addition to assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there is a marked difference between nature and character of assessee-employer's contribution and amounts retained by assessee from out of employee's income by way of deduction wherein one is liability to be paid by employer and second is deemed income as per section 2(24)(x) which is held in trust by assessee employer, thus, said marked difference was to be borne while interpreting obligation of assessee-employer under section 43B of the Act. The Hon'ble Supreme held that the non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was not part of assessee-employer's income, thus, said clause would not absolve assessee employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. Again the Supreme Court in the case of Harrisons Malayalam Ltd. [2022] 145 taxmann.com 608 (SC), dismissed the SLP of the Department against order of High Court that where assessee-company failed to pay employees' contribution towards EPF and ESI within due date prescribed in respective Acts, deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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