2017 (6) TMI 1345 - AT - Income Tax

Appeal partly allowed for statistical purposes, issues remitted for fresh consideration. Verification & application of legal provisions emphasized.

Aban Offshore Limited. Versus The Deputy Commissioner of Income-tax, Corporate Circle-1 (1), Chennai.

Aban Offshore Limited. Versus The Deputy Commissioner of Income-tax, Corporate Circle-1 (1), Chennai. - TMI Issues Involved:1. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act.2. Disallowance under Section 14A of the Income Tax Act.3. Disallowance under Section 40(a)(i) of the Income Tax Act.4. Disallowance of depreciation under Section 32 of the Income Tax Act.5. Disallowance of FCCB expenditure.6. Claim of withholding tax credit under Section 90 of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance of Interest under Section 36(1)(iii):The first issue pertains to the disallowance of interest amounting to Rs. 366,25,30,000 under Section 36(1)(iii). The Assessing Officer (AO) disallowed the interest on the grounds that the loans were utilized for investment in a wholly-owned foreign subsidiary, treating the expenditure as capital in nature. The Tribunal referred to its earlier decision in the assessee's case for assessment years 2010-11 and 2011-12, where it was held that interest incurred on borrowings for investment in a subsidiary, once the shares are acquired, should be treated as revenue expenditure. The Tribunal directed the AO to verify whether the investment was made to maintain a controlling interest and to decide accordingly. The issue was remitted to the AO for fresh consideration.2. Disallowance under Section 14A:The second issue concerns the disallowance under Section 14A, where the assessee accounted for Rs. 11,53,320 as dividend income and claimed it as exempt. The AO disallowed Rs. 71,26,655 under Section 14A read with Rule 8D, which was later restricted to Rs. 4,91,750. The Tribunal referred to its earlier decision, emphasizing that the AO should consider the availability of share capital, reserves, and surplus while invoking Section 14A. The Tribunal also noted that interest on borrowings used for specific business purposes should not be considered for disallowance under Rule 8D. The issue was remitted to the AO for fresh consideration.3. Disallowance under Section 40(a)(i):The third issue involves the disallowance of Rs. 13,32,01,184 under Section 40(a)(i) for non-deduction of TDS on management fees and consultancy charges paid outside India. The Tribunal referred to the decision in the case of Ford India Ltd., where it was held that consultancy fees paid to a non-resident without a permanent establishment in India are not taxable in India under the applicable tax treaty. The Tribunal remitted the issue to the AO to examine it afresh in light of the relevant DTAA provisions.4. Disallowance of Depreciation under Section 32:The fourth issue pertains to the disallowance of depreciation of Rs. 7,33,13,900 under Section 32 for non-deduction of TDS on dry docking expenses. The Tribunal held that depreciation cannot be disallowed as it is granted on the cost of capital assets, and there is no question of TDS on such expenses. The Tribunal relied on the decision in the case of M/s. Crescent Chemsol Pvt. Ltd., where it was held that Section 40(a)(i) does not apply to depreciation claims. The ground was allowed.5. Disallowance of FCCB Expenditure:The fifth issue involves the disallowance of premium on FCCB of Rs. 69,14,60,000, which was not claimed in the return or revised return. The Dispute Resolution Panel (DRP) did not adjudicate the objection, stating it was beyond its scope. The Tribunal, referring to the decision in the case of Mahindra & Mahindra Limited, held that the issue goes to the root of the matter and should be remitted to the AO for consideration. The Tribunal emphasized that legal grounds can be raised at any stage of appeal.6. Claim of Withholding Tax Credit under Section 90:The sixth issue concerns the claim of withholding tax credit of Rs. 3,05,66,352 under Section 90. The AO did not allow the credit while assessing the positive income. The Tribunal referred to its earlier decision in the assessee's case, where it was held that once the interest income is subject to tax in any manner, the corresponding tax credit should be given. The issue was remitted to the AO to examine it in light of the Tribunal's findings.Conclusion:The appeal was partly allowed for statistical purposes, with multiple issues being remitted to the AO for fresh consideration based on the Tribunal's directions and previous decisions. The Tribunal emphasized the need for proper verification and application of relevant legal provisions and precedents.