2021 (4) TMI 1021 - AT - Income Tax

Tribunal rules in favor of assessee on various issues, including deductions and revenue recognition.

The Tribunal ruled in favor of the assessee on various issues, including allowing deduction for losses from foreign currency fluctuation, restricting ... Disallowance of loss on foreign exchange derivatives - HELD THAT:- Reliance placed on the decision of DCIT vs. Tega Industries Ltd [2019 (11) TMI 269 - ITAT KOLKATA] wherein also the issue of MTM loss has been allowed in the favour of the taxpayer on both counts i.e. such loss is neither speculative loss within the meaning of section 43(5) of the Act nor the same being notional or contingent in the nature. Hence the said sum being loss on foreign exchange derivatives deserves to be allowed in the light of the order of Hon’ble Tribunal of the preceding assessment year i.e. AY 2008-09 [2017 (3) TMI 966 - ITAT KOLKATA] wherein the facts are identical.D/R, could not controvert the arguments of the assessee that the facts are identical for both the Assessment Years. Thus, consistent with the view taken by the co- ordinate bench of the Tribunal in the assessee’s own case we delete the disallowance on account of loss on foreign exchange derivatives and allow this ground of the assessee. Disallowance u/s 14A r.w.r. 8D- HELD THAT:- We restrict the disallowance u/s 14A of the Act to the extent of exempt income earned by the assessee company during the year.The argument that the Assessing Officer has not recorded satisfaction before the invoking Rule 8D of the Income Tax Rules, 1962 (‘Rules’), is not factually correct. On a reading of the assessment order, we find that he Assessing Officer has recorded his satisfaction. In the result, ground of the assessee is allowed in part. Disallowance of non compete fee - Allowable expenditure - HELD THAT:- Coming to the facts in the present case, it is undisputed fact that the consideration is paid to individuals who had experience in the business of consultancy for not to engage themselves in similar kind of business and activities for a period of 3 years. It is also not disputed that such consideration is independent and not part of the cost of acquisition of business paid to shareholders. It is also an admitted fact that both the Share Transfer Agreement and Non-Compete Agreement are separate agreements with different parties, though entered on the same date.The cases relied upon by the assessee above are squarely applicable on the facts of the assessee’s case, Thus, the payment in question is revenue in character and hence allowable as an expenditure. Disallowance of depreciation on leased assets and non-grant of claim of principal portion of lease rentals - HELD THAT:- As decided in assessee's own case [2016 (7) TMI 1052 - ITAT KOLKATA] wherein the coordinate Bench of the Hon’ble Kolkata Tribunal dismissed the Revenue’s appeal and upheld the order of the CIT(A) by holding that the lease rentals (net of interest element) should be allowed as deduction. Disallowance of PWC World firm charges - HELD THAT:- As decided in own case [2018 (9) TMI 1812 - ITAT KOLKATA] find no substance in Revenue’s instant stand. We make it clear that the assessee- company is engaged in multi functional consultancy services as a group entity of PWCDA organization based in Netherlands. Learned counsel has also filed before us relevant assessment records with regard to the payee entity pertaining to the impugned assessment year itself accepting the returned income without making any addition. Necessary reference regarding Firm Services Agreement is also made - no TDS is deductible in case of such firm services agreement payments not including any income component but only reimbursement of expense on cost allocation formula. Addition on account of non refundable grant - HELD THAT:- Grant received for specific purpose i.e., for procuring a capital asset is in the nature of a capital receipt, not subject to tax and this receipt being in cash cannot be taxed u/s 28(iv) of the Act. Hence this ground of the assessee is allowed. Non grant of deduction u/s 35(1)(II) - HELD THAT:- We restore this matter to the file of the Assessing Officer with a direction to verify the certificate issue u/s 35(1)(II) of the Act, which was produced by the assessee before the lower authorities. The Assessing Officer shall dispose off the issue de novo, in accordance with law. This ground of the assessee is allowed for statistical purposes. Issues Involved:1. Disallowance of loss arising from foreign currency fluctuation in respect of foreign currency hedging contracts.2. Disallowance under section 14A read with Rule 8D.3. Disallowance of non-compete fee.4. Disallowance of depreciation on leased assets and non-grant of claim of principal portion of lease rentals.5. Disallowance of PwC World Firm charges.6. Addition on account of non-refundable grant.7. Non-grant of deduction under section 35(1)(II).8. Short credit of TDS.9. Levy of interest under sections 234B, 234D, and 244A.Issue-wise Detailed Analysis:1. Disallowance of Loss from Foreign Currency Fluctuation:The Tribunal found the issue in favor of the assessee, relying on the decision of the Co-ordinate Bench of the ITAT Kolkata in the assessee's own case for the Assessment Year 2008-09, and the Supreme Court's decision in the case of Woodward Governor. The Tribunal concluded that losses due to foreign exchange fluctuation should be accounted for in the books and are eligible for deduction. The Tribunal also referenced other supportive cases, such as DCIT vs. Asian Tea & Exports Ltd., and DCIT vs. Tega Industries Ltd., to reinforce this position.2. Disallowance under Section 14A read with Rule 8D:The Tribunal restricted the disallowance under section 14A to the extent of exempt income earned by the assessee during the year, which was Rs. 99,000/-. This decision was based on the principle established by the Hon'ble Delhi High Court in the case of Joint Investments (P.) Ltd. vs. CIT, which states that disallowance cannot exceed the exempt income.3. Disallowance of Non-Compete Fee:The Tribunal allowed the assessee's claim, noting that the non-compete fee is revenue in nature. The Tribunal referenced several judgments, including the Hon'ble High Court of Madras in Hatsun Agro Products Ltd. vs. JCIT, and the Hon'ble Supreme Court's dismissal of the SLP against this judgment. The Tribunal also distinguished the present case from other cases like Pitney Bowes India Pvt. Ltd. vs. CIT, Sharp Business System vs. DCIT, and Tecumesh India (P.) Ltd. vs. Addl. CIT, where the non-compete fee was part of the business transfer agreement.4. Disallowance of Depreciation on Leased Assets and Non-Grant of Claim of Principal Portion of Lease Rentals:The Tribunal found the issue in favor of the assessee, referencing the order of the Hon'ble Tribunal in the assessee's own case for AY 2003-04. The Tribunal upheld the CIT(A)'s decision that lease rentals (net of interest element) should be allowed as a deduction.5. Disallowance of PwC World Firm Charges:The Tribunal allowed the assessee's claim, referencing the order of the Kolkata Bench of the ITAT in the assessee's own case for Assessment Year 2012-13. The Tribunal noted that the payment was for business purposes and that no TDS was required as it was a reimbursement of expenses on a cost allocation formula.6. Addition on Account of Non-Refundable Grant:The Tribunal concluded that the non-refundable grant received for procuring a capital asset is a capital receipt and not subject to tax under section 28(iv) of the Act. The Tribunal referenced the Hon'ble Supreme Court's decision in Commissioner vs. Mahindra And Mahindra Ltd., which held that section 28(iv) applies only to benefits or perquisites other than in the form of money.7. Non-Grant of Deduction under Section 35(1)(II):The Tribunal restored the matter to the file of the Assessing Officer with a direction to verify the certificate issued under section 35(1)(II) of the Act, which was produced by the assessee before the lower authorities.8. Short Credit of TDS:The ground was dismissed as not pressed by the assessee, who submitted that short credit of TDS had been granted.9. Levy of Interest under Sections 234B, 234D, and 244A:This ground was dismissed as consequential in nature.Conclusion:The appeal of the assessee was allowed partly, with specific directions and findings on each issue as detailed above.