TaxTMI 
TaxTMI 
2017 (5) TMI 776
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...., 1961 (in short 'the Act') for the purpose of computing eligible profit for deduction under Section 80HHC of the Act. 3. Shri G. Baskar, the Ld.counsel for the assessee, submitted that the Assessing Officer reduced the deduction allowed under Section 80-IB of the Act while computing eligible profit under Section 80HHC of the Act. According to the Ld. counsel, Section 80HHC of the Act is an independent provision, therefore, the deduction allowed under Section 80-IB of the Act cannot be reduced from the eligible profit computed under Section 80HHC of the Act. 4. On the contrary, Shri M. Swaminathan, Ld. Sr.Standing Counsel for the Revenue, submitted that the CIT(Appeals), by following the Special Bench decision of this Tribunal in ACIT v. Rohini Garments (2007) 294 ITR (AT) 15, found that the assessee cannot claim more than the profit computed under the provisions of the Act. If the deduction allowed under Section 80-IB of the Act was not reduced from the eligible profit computed under Section 80HHC of the Act, then the deduction claimed by the assessee would exceed the total profit. It cannot be the intention of the Parliament to allow deduction under Section 80HHC an....
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....being a multinational corporation, is not entitled to contribute to any political party. Such a donation was also prohibited under Section 2(e) of Foreign Contribution (Regulation) Act, 1976. Referring to the word "contribution" in Section 293A of the Companies Act, 1956, the Ld. Sr. Standing Counsel submitted that it refers only direct contribution and indirect contribution such as giving advertisement in any of the publication by or on behalf of any political party. Therefore, according to the Ld. Sr. Standing Counsel, the CIT(Appeals) is not justified in allowing the claim of the assessee. 11. On the contrary, Shri G. Baskar, the Ld.counsel for the assessee, submitted that Section 80GGB of the Act clearly says that in computing the total income, there shall be deducted any sum contributed to any political party or electoral trust. Explanation to Section 80GGB of the Act clarifies that the word "contribute" has the same meaning as it is assigned to it under Section 293A of the Companies Act, 1956. Referring to Section 293A of the Companies Act, the Ld.counsel submitted that a company, which is not being a Government company, may contribute not exceeding 5% of its average net p....
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....with effect from 01.04.2010 incorporating the word "or an electoral trust" may not be applicable at all. Explanation to Section 80GGB of the Act says that the word "contribute" has the meaning which was assigned to it under Section 293A of the Companies Act. However, the contribution shall be made to political party directly before 01.04.2010. In the case before us, admittedly, the contribution was made to Public and Political Awareness Trust and not to any political party. Hence, this Tribunal is of the considered opinion that the contribution made by the assessee to the extent of Rs. 5.50 Crores to Public & Political Awareness Trust for the assessment year 2004-05 cannot be claimed as deduction under Section 80GGB of the Act. In other words, the Income-tax Act, being a special enactment for computing the taxable income, it will override other enactments including the Companies Act. Therefore, the CIT(Appeals) is not justified in allowing the claim of the assessee. 14. We have carefully gone through the judgment of Madras High Court in Cheran Engineering Corporation Ltd. v. CIT (1999) 238 ITR 892. In that case, the contribution was made by the employer to the welfare of the emp....
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....ilable on record. As rightly submitted by the Ld.counsel for the assessee, a company can adopt any one of the methods permissible for computing the profit. Once the assessee changed its method of accounting and consistently followed the same in subsequent years, the Department cannot doubt the method of accounting followed by the assessee. In the initial years, there may be fluctuation in the profit of the assessee due to increase in purchase price by changing the method of accounting. However, when the assessee was consistently following the same, there will be revenue neutral, hence there cannot be loss to the Revenue. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly allowed the claim of the assessee under the provisions of Section 145A of the Act. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 19. The next ground of appeal is with regard to addition of Rs. 14,58,83,105/- consequent to the block assessment in the assessee's case. 20. Shri M. Swaminathan, Ld. Sr.Standing Counsel for the Revenue, submitted that consequent to the block assessment, the Assessin....
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.... 23. The next issue arises for consideration is with regard to addition of Rs. 4.44 Crores under Section 37 of the Act. 24. Shri M. Swaminathan, Ld. Sr.Standing Counsel for the Revenue, submitted that FCC Bond holders had the option to convert the bonds into shares. Therefore, the decision of Delhi Bench of this Tribunal in DCIT v. Ranbaxy Laboratories Ltd. (88 ITD 283) applicable to the facts of the case. Ld. Sr. Standing Counsel further submitted that the assessee has also changed its method of accounting in relation to expenses incurred for issue of FCC Bonds. The expenses spread over for seven years. Therefore, the claim of the assessee to the extent of Rs. 4.44 Crores cannot be allowed. 25. On the contrary, Shri G. Baskar, the Ld.counsel for the assessee, submitted that the assessee claimed expenses for issue of FCC Bonds under Section 37 of the Act. The expenses for issue of FCC Bonds may not fall under Section 35D of the Act. According to the Ld. counsel, Section 37 and Section 35D of the Act are enabling provisions and not mutually exclusive. Referring to the judgment of Apex Court in India Cements Ltd. v. CIT (1966) 60 ITR 52, the Ld.counsel submitted that where a ....
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....ess expediency as held by Apex Court in S.A. Builders Ltd. v. CIT (288 ITR 1). Referring to the advance made to Monte Cello BV, the Ld.counsel submitted that the advance was made for earlier assessment year and not in the current year. Therefore, the observation made by the TPO is not correct. Since no advance was made during the year under consideration, according to the Ld. counsel, the disallowance made by the Assessing Officer cannot be justified, accordingly, the CIT(Appeals) has rightly deleted the addition. 30. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee, in fact, advanced money to two companies which are outside India. The assessee claimed that two companies are engaged in excavation of copper ore and the assessee was purchasing copper concentrate from those companies. The question arises for consideration is when the assessee advanced money to the companies outside India, whether the interest on the borrowed funds can be allowed while computing the taxable income? The assessee claims that due to business expediency, the advance was made. The Revenue contends that since money was borrowed in ....
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....against Rs. 4.35 Crores received by the assessee. Accordingly, the CIT(Appeals) directed the Assessing Officer to delete the addition of Rs. 4.35 Crores. 33. On the contrary, Shri G. Baskar, the Ld.counsel for the assessee, submitted that the Transfer Pricing Officer found that the details of the services said to be provided by the assessee were not provided. However, this is not correct. The assessee has produced a copy of the agreement before the Transfer Pricing Officer as well as the Assessing Officer. It is also not correct to claim that the details of experts made available to the assessee were not provided to the Transfer Pricing Officer. The Transfer Pricing Officer himself referred the names of the persons who had been engaged by the assessee for providing expert service. Referring to the evidences for expenses, the Ld.counsel submitted that the assessee-company is a very big company having factory at multiple locations in the globe, the evidences were made available before the TPO and the Assessing Officer. The details of the evidences, which were made available before the TPO and the Assessing Officer were produced before the CIT(Appeals) and this Tribunal as well. He....
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....nsideration received by the assessee. Therefore, this Tribunal is of the considered opinion that it is obligatory on the part of the Transfer Pricing Officer to bring on record the exact nature of services rendered by the assessee and thereafter has to compare the transaction with other companies in the international transaction with uncontrolled transaction. Since such an exercise was not done, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer after referring the matter to the Transfer Pricing Officer once again. Accordingly, the orders of the lower authorities are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall refer the matter to TPO once again and determine the arm's length price in respect of services rendered by the assessee in the light of finding and conclusion that may be reached by the Transfer Pricing Officer. 36. The next issue arises for consideration is with regard to addition of Rs. 30.50 lakhs towards management consultancy fees paid to M/s Twin Star Holdings Ltd., Mauritius. 37. Shri M. Swaminathan, Ld. Sr. Standing Counsel for the R....
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....50 lakhs. It also claimed by the assessee before the CIT(Appeals) that the market capitalization of the assessee substantially raised after listing of holding company in UK Stock Exchanges. The main contention of the Revenue appears to be that M/s Twin Star Holdings Ltd. has no resource to provide management consultancy services. This claim of Revenue was not considered by the CIT(Appeals). So, what kind of management consultancy or services were provided by M/s Twin Star Holdings Ltd. has to be brought on record. Since the actual service rendered by M/s Twin Star Holdings Ltd. was not brought on record by the CIT(Appeals), this Tribunal is of the considered opinion that the matter needs to be re-examined. Accordingly, the orders of the lower authorities are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall refer the matter to the TPO once again and TPO shall examined the actual service rendered by M/s Twin Star Holdings Ltd. to the assessee and thereafter determine the arm's length price after giving a reasonable opportunity to the assessee. 40. The next ground of appeal is with regard to disallowance of Rs. 1.....
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...., Rs. 551.92 Crores was out of borrowed funds. The question arises for consideration is whether the investment made in Balco is for business purpose or not? The relationship between the assessee and Balco is not known. How the investment made in Balco benefits the assessee is also not known. The relationship between the assessee and Balco was not brought on record by the Transfer Pricing Officer as well as the CIT(Appeals). Therefore, this Tribunal is unable to uphold the order of the lower authority. However, since the nature of transaction and the relationship was not brought on record, the matter needs to be re-examined by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the entire issue with regard to disallowance made under Section 14A of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall reexamine the matter afresh and bring on record the purpose for which the investment was made in Balco and the relationship between the assessee and Balco and thereafter decide the issue afresh, in accordance with law, after giving a reasonable opportunity to the assessee. 44. The next issue arises for conside....
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....essee has not produced the bills and vouchers and the required information as provided in Rule 10D(3)(g) of Income-tax Rules, 1962. Therefore, according to the Ld. Sr. Standing Counsel, the CIT(Appeals) is not justified in deleting the penalty under Section 271G of the Act. 49. On the contrary, Shri G. Baskar, the Ld.counsel for the assessee, submitted that the Assessing Officer levied penalty of Rs. 1,43,58,919/- under Section 271G of the Act. The penalty was, in fact, levied for non-production of information regarding the expenses incurred for providing management consultancy service to CMT and TCM. Referring to the order of the CIT(Appeals), the Ld.counsel submitted that the allegation of the Revenue is that the assessee furnished only extracts of information instead of documentary evidence required by the Transfer Pricing Officer under Rule 8D(d) of Income-tax Rules, 1962. The addition made by the Assessing Officer was deleted by the CIT(Appeals). Therefore, it cannot be said that the assessee has not produced necessary details of information and documents as required for international transaction. The Ld.counsel further submitted that it is not the case of the Transfer Pric....
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....er afresh and bring on record the actual service rendered by the assessee to CMT and TCM and, thereafter decide the issue afresh after bringing on record the failure of the assessee to provide the exact information and documents which are required to be produced for international transaction and, thereafter decide the issue in accordance with law, after giving a reasonable opportunity to the assessee. 52. Now coming to Revenue's appeal in I.T.A. No. 1020/Mds/2010 for assessment year 2005-06, the first issue arises for consideration is deduction claimed by the assessee under Section 80-IA of the Act. 53. Shri M. Swaminathan, Ld. Sr. Standing Counsel for the Revenue, submitted that the CIT(Appeals) ought to have followed the decision of Chennai Bench in Chettinadu Cement Corporation Ltd. v. ACIT in I.T.A. No.1029/Mds/2005 dated 05.01.2007. According to the Ld. Sr. Standing Counsel, when the assessee used the power generator for captive consumption, deduction under Section 80-IA of the Act cannot be allowed. Therefore, according to the Ld. Sr. Standing Counsel, the CIT(Appeals) is not justified in allowing the claim of the assessee. 54. On the contrary, Shri G. Baskar, the Ld....
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....8. On the contrary, Shri G. Baskar, the Ld.counsel for the assessee, submitted that in fact, the assessee claimed deduction to the extent of Rs. 1,75,58,500/- under Section 80G of the Act. The Assessing Officer restricted the claim to the extent of Rs. 1,73,250/- since the donation made to Rajiv Gandhi Relief and National Welfare Trust was eligible for deduction only for 50% as against 100% claimed by the assessee. However, the CIT(Appeals) allowed the claim of the assessee under Section 37 of the Act. since it is not a business expenditure, according to the Ld. counsel, the CIT(Appeals) has rightly allowed the claim of the assessee. 59. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee donated Rs. 1 Crore to Rajiv Gandhi Relief and National Welfare Trust. The amount was donated towards corporate social responsibility. Therefore, the expenditure incurred by the assessee has to be allowed under Section 37 of the Act. The Madras High Court in CIT v. Velumanickam Lodge (2009) 317 ITR 338 has considered a similar issue. The assessee before the Madras High Court, a civil contractor, constructed a hockey stadium....
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....earlier assessment year. Accordingly, he restricted the same to Rs. 5 lakhs on estimate basis. The Ld. Sr. Standing Counsel submitted that this Tribunal uniformly estimated the disallowance under Section 14A of the Act before introduction of Rule 8D of Income-tax Rules, 1962 at 2%. Therefore, the CIT(Appeals) is not justified in allowing the claim of the assessee. 63. We have heard Shri G. Baskar, the Ld.counsel for the assessee, also. It is not in dispute that Rule 8D is not applicable for the year under consideration. As rightly submitted by the Ld. Sr. Standing Counsel, this Tribunal is uniformly estimating the expenditure at 2% before introduction of Rule 8D of Income-tax Rules, 1962. The CIT(Appeals) without any basis has restricted the same to Rs. 5 lakhs instead of disallowing Rs. 27.48 lakhs which comes to 2% of exempt income earned by the assessee. Therefore, this Tribunal is unable to uphold the order of the lower authority. Accordingly we set aside the order of the CIT(Appeals) and restore the order of the Assessing Officer. 64. The next ground of appeal is with regard to addition of Rs. 10.99 Crores as loss on account of change in method of accounting. 65. Shri....
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....ied on by the assessee. The business carried on by the assessee always suffered fluctuation at various levels, therefore, the method of accounting adopted by the assessee is bonafide which was subsequently followed regularly. Hence, according to the Ld.counsel, the CIT(Appeals) has rightly allowed the claim of the assessee. 67. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee has changed its method of accounting policy. Now the assessee claims before this Tribunal that the method of accounting was changed as per the Accounting Standard-I prescribed by Institute of Chartered Accountants of India. The Accounting Standard - 1 prescribed by Institute of Chartered Accountants of India was adopted by Central Board of Direct Taxes under Section 145 of the Act. The assessee claims before this Tribunal that the method of accounting, which was followed in the earlier assessment year, was changed in order to guard itself from the fluctuation in the market. It is nobody's case that the change of method of accounting was due to malafide intention of the assessee. When the assessee bonafidely ....
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....compensation was paid in respect of goods transporter for earlier assessment year. Since the liability to pay the transport charges arose for the earlier assessment year, the compensation also has to be paid in the earlier assessment year, therefore, this cannot be allowed during the year under consideration. 72. On the contrary, Shri G. Baskar, the Ld.counsel for the assessee, submitted that even though the goods were transported in the earlier assessment year, due to Tsunami and heavy flood in the State, the transporter suffered a heavy loss, therefore, they claimed compensation during the year under consideration. The liability to pay compensation arose in the assessment year under consideration, therefore, the CIT(Appeals) allowed the claim of the assessee. 73. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the transporters transported goods in the earlier assessment year. The assessee now claims that there was liability to pay compensation during the year under consideration which was unforeseen due to Tsunami and heavy flood in the State. It is not in dispute that the Tax Audit Rep....
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....ion only at 30%. As long as the assessee falls within the period of 6th to 10th year, the assessee is eligible for deduction under Section 80-IB of the Act at the rate of 30%. Therefore, according to the Ld. Sr. Standing Counsel, the issue raised by the assessee becomes infructuous. 78. We have considered the submissions on either side and perused the relevant material available on record. We have also considered the provisions of Section 80-IB of the Act. The only contention of the assessee before this Tribunal is that the Assessing Officer changed the year of claim to 9th and 10th year arbitrarily. The fact remains that the assessee is eligible for deduction from 6th year to 10th year. Therefore, whether the claim is for 7th year or 8th year, so long it falls within the period of 6th to 10th year, the assessee is eligible for deduction under Section 80-IB of the Act at 30%. Therefore, as rightly submitted by the CIT(Appeals), the issue becomes infructuous. Accordingly, the same is confirmed. 79. The next ground of appeal is with regard to management consultancy fee disallowed to the extent of Rs. 13,38,30,000/- under Section 40(a)(i) of the Act for non-deduction of tax at s....
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....eputing their employees in India. Therefore, the CIT(Appeals) found that the utilization of service was in India, hence the transaction has to be construed as technical services both in terms of Article 13 of Double Taxation Avoidance Agreement between India and UK and in terms of Section 9(1)(vii) of the Act. Accordingly, the CIT(Appeals) confirmed the order of the Assessing Officer. It is not in dispute that UK company deputed their skilled employees to India to render services to the assessee. In fact, the assessee-company availed services of UK company in India. Therefore, the payment made to the assessee towards management consultancy fees is liable to tax in India. Hence the assessee has to necessarily deduct tax as mandated under Section 9(1)(vii) of the in respect of the payment of management consultancy fees. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 89. Now coming to Revenue's appeal in I.T.A. No.1665/Mds/2010 for assessment year 2006-07, the ground of appeal is regarding deduction claimed by the assessee under Section 80-IA of the Act for the power plant set up by the asses....
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....mpt income cannot be allowed as expenditure for earning taxable income. Therefore, certain disallowance has to be made. This Tribunal consistently disallowing the claim at the rate of 2% of the exempt income earned by the assessee before the introduction of Rule 8D of Income-tax Rules, 1962. Therefore, the Assessing Officer is directed to disallow 2% of exempt income earned by the assessee for the year under consideration. 96. The next issue arises for consideration is with regard to addition on account of bogus steel purchase. 97. The issue of bogus steel purchase was examined by this Tribunal in the earlier part of this order. Referring to the order passed by the Assessing Officer for the block period, this Tribunal found that the order passed by the Assessing Officer is barred by limitation. This Tribunal had no occasion to go into the merit of the disallowance made by the Assessing Officer. Accordingly, this issue was remitted back to the file of the Assessing Officer. For the sake of consistency, the order of the CIT(Appeals) is set aside and the issue of claim of bogus steel purchase is also remitted back to the file of the Assessing Officer. The Assessing Officer shall....
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....sel, the assessee is eligible for deduction in respect of sale of scrap. Referring to the unclaimed liabilities written back, the Ld.counsel submitted that at the time of creation of liabilities, the same was not allowed as deduction and hence, written back of such unclaimed liabilities in the books of account would form art of profits derived from eligible business. Similarly, the exchange rate fluctuation on sale of finished goods would also form part of the total turnover of the assessee. Moreover, the interest received on sale of finished goods from customers would form part of sale price as held by Madras High Court in CIT v. Madras Motors Ltd. (2002) 257 ITR 60. The loan given to the employees was for business activity, therefore, the interest received on the loan from employees would go to reduce the cost of manufacturing activity, therefore, such interest is also eligible for deduction under Section 80-IB of the Act. Therefore, to the extent interest received on the loan given to the employees, the profit could be increased. 101. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee appears to have cla....
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.... industrial undertaking. In the absence of any material, this Tribunal is of the considered opinion that the books of account need to be verified and find out whether the interest was received for delayed payment of sale price or for any other reason. Moreover, the scrape sale is concerned, whether the assessee generated the scrape sales during its own manufacturing activity or the scrape sale was a separate business needs to be verified. 104. Now coming to interest on employees loan, it has to be ascertained whether the loan given to employees was to reduce the cost of manufacturing activity or not. In the absence of any details, this Tribunal is of the considered opinion that the matter needs to be verified. Accordingly, the orders of the lower authorities are set aside and the claim of deduction under Section 80-IB of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter afresh and thereafter decide the issue after considering the judgments of Apex Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT (113 ITR 84), CIT v. Sterling Foods (237 ITR 579) and Pandian Chemicals Ltd. v. CIT (262 ITR 278) and thereafter,....