2019 (6) TMI 470 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, rejects revenue's appeals. Ruling based on judicial precedents.

DCIT-3 (2) (2), Mumbai Versus M/s. PidilIte Industries Ltd.

The Tribunal dismissed the revenue's appeals and upheld the CIT(A)'s decisions in favor of the assessee. The Tribunal relied on consistent judicial ... Disallowance u/s 40(a)(i) & 40(a)(ia) - payment made for freight on raw material - payments of professional fees to foreign parties for services rendered abroad - HELD THAT:- Undisputed position that emerges is the fact that issue of disallowance u/s 40(a)(i) & 40(a)(ia) stood covered in assessee’s favor by the decision of this Tribunal for AY 2007-08. It has been brought to our notice that the revenue further contested the issue of disallowance on account of import / local purchases & freight payment before Hon’ble Bombay High Court [2013 (3) TMI 820 - BOMBAY HIGH COURT] wherein the question of law, as urged by the revenue, has not been admitted by Hon’ble High Court. Further, similar issue of disallowance on account of import / local purchase arose in AY 2009-10 which was agitated before this Tribunal wherein the view taken in AY 2007-08 was followed by the Tribunal. Nothing has been demonstrated before us to suggest any change in material facts or circumstances. Disallowance u/s 14A - assessee offered suo-moto disallowance - HELD THAT:- It was incumbent on the part of Ld.AO to form an opinion as to why the disallowance offered by the assessee, having regards to its accounts, was not satisfactory or correct. The aforesaid satisfaction of AO, is sine-qua-non before clothing Ld. AO the power to acquire jurisdiction u/r 8D. Therefore, finding no infirmity in the decision on this issue, we dismiss ground nos. 5 & 6. Addition of discount received on Foreign Currency Convertible Bonds [FCCB] buyback u/s 28(iv) - HELD THAT:- In the present case, it is a matter of record that the amount having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28(iv) which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount can be taxed under the provisions of Section 28(iv) - benefit to be received by the assessee has to be in some form other than in the shape of money so as to bring the same within the ambit of Section 28(iv). See M/S. XYLON HOLDINGS PVT. LTD. [2012 (9) TMI 449 - BOMBAY HIGH COURT] Grant of deduction u/s 80-IB - assessee claimed deduction being 30% of profit earned from M-seal unit situated at Daman - AO opined that since the assessee had unabsorbed depreciation in respect of said windmills, the same should have been first set-off against the profit for the years before claiming deduction u/s 80IA - HELD THAT:- we find that this issue stood covered in assessee’s favor by the aforesaid decision of Hon’ble Bombay High Court rendered for AYs 2006-07 & 2007-08, as rightly observed by Ld.CIT(A). The Hon’ble Court has followed its own decision rendered in CIT V/s Hercules Hoists Ltd. [2017 (6) TMI 1125 - BOMBAY HIGH COURT] while adjudicating the assessee’s appeal. Further, following the same reasoning, the stated issue has also been adjudicated in assessee’s favor by the Tribunal in its latest order for AYs 2008-09 & 2009-10 . Issues Involved:1. Disallowance under Section 40(a)(ia) for local purchases.2. Disallowance under Section 40(a)(ia) for import purchases.3. Disallowance under Section 40(a)(ia) for freight payment on raw materials.4. Disallowance under Section 40(a)(ia) for payment of professional fees to foreign parties.5. Disallowance under Section 14A.6. Additional disallowance under Section 14A read with Rule 8D.7. Addition under Section 28(iv) for discount received on FCCB buyback.8. Deduction under Section 80IB.9. Deduction under Section 80IA without setting off unabsorbed depreciation.10. Applicability of the decision of the Hon'ble Bombay High Court in the context of CBDT Circular No.1 of 2016.Detailed Analysis:1. Disallowance under Section 40(a)(ia) for Local Purchases:The issue pertains to the deletion of disallowance of Rs. 45,85,68,733/- made under Section 40(a)(ia) for local purchases. The Assessing Officer (AO) considered these purchases as job work liable to tax deduction under Section 194C. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting that the issue was covered by earlier Tribunal decisions in the assessee's favor for AY 2007-08 and 2009-10.2. Disallowance under Section 40(a)(ia) for Import Purchases:Similar to the local purchases, the AO disallowed Rs. 44,65,86,415/- for import purchases under Section 40(a)(ia), treating them as job work. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision based on consistent rulings in earlier years.3. Disallowance under Section 40(a)(ia) for Freight Payment on Raw Materials:The AO disallowed Rs. 2,88,52,671/- for freight payments on raw materials under Section 40(a)(ia), treating them as job work. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting that the issue was covered by earlier Tribunal decisions in the assessee's favor for AY 2007-08.4. Disallowance under Section 40(a)(ia) for Payment of Professional Fees to Foreign Parties:The AO disallowed Rs. 1,24,96,386/- for professional fees paid to foreign parties under Section 40(a)(ia), treating them as fees for services utilized in India. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting that the payments were made for services rendered abroad and were covered by DTAA provisions.5. Disallowance under Section 14A:The AO made an additional disallowance of Rs. 4,30,371/- under Section 14A, over and above the assessee's suo-moto disallowance of Rs. 22,60,000/-. The CIT(A) deleted the additional disallowance, and the Tribunal upheld this decision, noting that the AO did not specify the cause of dissatisfaction with the assessee's working.6. Additional Disallowance under Section 14A read with Rule 8D:The AO applied Rule 8D mechanically without forming an opinion on the correctness of the assessee's disallowance. The CIT(A) and the Tribunal found this approach incorrect and upheld the deletion of additional disallowance.7. Addition under Section 28(iv) for Discount Received on FCCB Buyback:The AO added Rs. 2,13,09,500/- under Section 28(iv) for discount received on FCCB buyback, treating it as income. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the proceeds of FCCBs were used for capital purposes and not for trading, thus the discount was on capital account and not taxable under Section 28(iv).8. Deduction under Section 80IB:The AO disallowed the deduction of Rs. 515.68 Lacs under Section 80IB, which was allowed by the CIT(A) based on earlier Tribunal decisions. The Tribunal upheld this decision, noting that the issue was consistently decided in the assessee's favor in earlier years.9. Deduction under Section 80IA without Setting off Unabsorbed Depreciation:The AO denied the deduction of Rs. 81.96 Lacs under Section 80IA, stating that unabsorbed depreciation should be set off first. The CIT(A) initially dismissed the assessee's ground but later rectified the order under Section 154, allowing the deduction based on the Hon'ble Bombay High Court's decision. The Tribunal upheld this rectification.10. Applicability of the Decision of the Hon'ble Bombay High Court:The AO questioned the applicability of the Hon'ble Bombay High Court's decision in the context of CBDT Circular No.1 of 2016. The CIT(A) and the Tribunal found that the issue was covered by the High Court's decision, and upheld the deletion of disallowance.Conclusion:Both the appeals by the revenue were dismissed, and the decisions of the CIT(A) were upheld by the Tribunal. The Tribunal followed consistent judicial precedents and earlier decisions in the assessee's favor for similar issues in previous assessment years.