TaxTMI 
TaxTMI 
2018 (4) TMI 1581
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.... appeal of the assessee is erroneous and bad in law. 2. Disallowance of 'School Expenses'- Rs. 2,33,07,717/- a. That on the facts and in the circumstances of the case, the order of the learned CIT (Appeals) in sustaining the disallowance of Rs. 2,33,07,717/- under 'School Expenses' is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, arbitrary, unjustified, erroneous and bad in law. b. That the aforesaid Rs. 2,33,07,717/- towards 'School Expenses' is incurred by the assessee wholly and exclusively for the purpose of its business and on the facts and in the circumstances of the case, the upholding of disallowance of the said Rs. 2,33,07,717/- is contrary to facts, arbitrary, erroneous and bad in law. c. That on the facts and in the circumstances of the case, the learned CIT (Appeals) has misconstrued/mis-appreciated the facts and has erred in holding that the assessee is running a school. 3. Disallowance under Miscellaneous Expenses - CSR Related Activities'- Rs. 22,35,912/- a. That the learned CIT (Appeals) has misconstrued/mis-appreciated the facts and his....
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.... the facts and his sustenance of the additions/disallowance of Rs. 46,86,09,535/- towards diminution of GOI Fertilizer Bonds' is contrary to facts, arbitrary, unjustified, erroneous and bad in law. b. That on the facts and in the circumstances of the case, the lower authorities have failed to appreciate that the GOI Fertilizer Bonds', being in lieu of cash subsidy, is `current asset' in the hands of the assessee and diminution of the value of the same of Rs. 46,86,09,535/- is a revenue loss fully allowable under the Income tax Act. c. That on the facts and in the circumstances of the case, the learned CIT (Appeals) has mis-appreciated the facts and has erred in holding that the GOI Fertilizer Bonds' are capital assets in the hands of the assessee. d. That case laws relied upon by the learned CIT (Appeals) are distinguishable on facts and are not applicable to the facts and circumstances of the case of the assessee. 6. Non-deduction/Disallowance of punitive charges by Railways - Rs. 1,14,09,150/- a. That on the facts and in the circumstances of the case, the upholding of the non-deduction of Rs. 1,14,09,150/- towards punit....
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....111/- a. That on the facts and in the circumstances of the case, the sustaining of the non-deduction of Rs. 129,111/- on account of Club Expenses by the learned CIT (Appeals) is unjustified, erroneous, arbitrary, contrary to facts and bad in law. b. That on the facts and in the circumstances of the case, the lower authorities have failed to appreciate that Club Expenses of 129,111/- is incurred by the assessee wholly and exclusively for the purpose of its business and is fully allowable under the Income tax Act and the denial of the same by the learned CIT (Appeals) is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, unjustified, erroneous, arbitrary and bad in law. 10. Non-deduction/Disallowance of provision for leave salary - Rs. 7,28,75,325/- a. That on the facts and in the circumstances of the case, the learned CIT (Appeals) sustaining of the non-deduction of Rs. 7,28,75,325/- on account of provision for leave salary is unjustified, erroneous, arbitrary, contrary to facts and bad in law. b. That the denial/rejection of the claim of Rs. 7,28,75,325/- in respect of Provision for Leave Salar....
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.... therefore allowable u/s.37 of the Act, whereas the AO dealt on the provisions of Section 40A(9) of the Act and was not satisfied with the submissions on the expenses incurred on school and made addition. 5. On appeal, the CIT(A) confirmed the disallowance made by the AO. 6. On further appeal before the Tribunal, ld. AR submitted that these expenses are for the purpose of benefit of welfare of the children of the employees. Ld. AR further emphasized that this issue is covered by the decision of coordinate bench of the Tribunal in assessee's own case for the assessment year 2011-2012 in ITA Nos.86/CTK/2016, order dated 09.11.2017 and prayed for allowing the appeal. 7. Contra, ld. DR relied on the orders of lower authorities. 8. We have heard rival submissions and perused the material on record. The disputed issue is that in the assessment proceedings the AO found that the assessee has claimed an amount of Rs. 2,33,07,017/- in respect of school expenses and AO was not convinced with the explanations of the assessee and disallowed the same. In appeal, the CIT(A) confirmed the disallowance made by the AO. We found the very same issue has been decided by the Tribunal in asse....
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....fficiently by having a contended labour force. it was neither a donation covered under section 40A(9) nor a capital in nature not covered by section 37(1) of the Act.. Hence, the Tribunal was justified in allowing the above expenditure towards contribution for the running of the FACT School, as an expenditure for the smooth functioning of the business of the assessee and an expenditure wholly and exclusively for the welfare of the employees of the assessee and thus, allowable under section 37(1) as well as section 40A(1O) of the Act. 5. Ld D.R. though relied on the orders of lower authorities but Id not cite any contrary decisions before us. 20. After considering the rival submissions and perusing materials available on record, we find that the issue at hand is squarely covered by the decision of Hon'ble Kerala High Court in the case of -N.Radhakrishnan quoted above. Respectfully following the same, we set aside the orders of lower authorities and delete the disallowance of Rs. 1,74,85,684/- made u/s.40A(9) of the Act and allow the ground of appeal of the assessee." 7. Facts being identical, respectfully following the precedent, we delete the disallow....
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.... referred above, the expenses under CSR expenditure incurred by the assessee company as per the details provided is admissible expenses u/s.37(1) of the Act. Accordingly we set aside the order of CIT(A) on this ground and direct the AO to delete the addition. This ground of appeal of the assessee is allowed. 15. Ground No.3 is with regard to addition made on subsidy income. The AO made addition in respect of subsidy income on referring to Schedule 19 of notes of accounts of the assessee and observed that in absence of the relevant notification by Govt. of India, Ministry of Chemical & Fertilizers, subsidy income for the month March 2009 has been accounted for on the basis of rate estimated by the management. The income on the above basis is lower by Rs. 952.21 lakhs over the base rate which is subjected to announcement of final rates by the Government of India. As per the query the assessee has filed explanation but the AO is of the opinion that the assessee has not furnished the working of subsidy income as asked for and has not proved with documentary evidence on the short recognition of Rs. 952.21 lacs as income and offered for taxation in the immediately succeeding assessmen....
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....l decision in similar case and referring to the paper book and prayed for allowing the appeal. Contra, ld. DR relied on the order of CIT(A). 21. We have heard rival submissions and perused the material on record. The assessee has claimed the loss in diminution of Government of India Fertilizer Bonds. The ld. AR submitted that these bonds were issued by the Government of India in lieu the payments to be received by the assessee and they are disclosed in the balance sheet and also the loss has been claimed. Therefore, due to diminution in valuation of Bonds the claim has been considered. The Ld. AR supported his arguments with the decision of the Tribunal DCM Shriram Consolidated Ltd., ITA No.1447 & 1836/Del/2012, order dated 20.05.2015, which has been confirmed by the Hon'ble High Court in DCM Shriram Consolidated Ltd. Vs. CIT, ITA No.939/2015, dated 14.12.2015. We find that the Tribunal in case of DCM Shriram Consolidated Ltd., in ITA No.1447 & 1836/Del/2012 for the assessment year 2008-09, order dated 20.05.2015, has held as under :- 9. On careful consideration of above submissions, at the very outset, we note that undisputedly the assessee company was forced and compe....
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....te or cost whichever is less." We are in agreement with the ratio laid down by the Tribunal as well as the Hon'ble Delhi High Court. Accordingly, we find merit in the arguments of the ld. AR of the assessee duly supported by the judicial decision and therefore, we set aside the order of lower authorities and direct the AO to delete the addition and allow this ground of appeal of the assessee. 22. Thus, the appeal of assessee is allowed for statistical purposes. 23. Now, we shall take up the appeal of Revenue in ITA No.02/CTK/2014, wherein the Revenue has raised the following grounds:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of Rs. 4491,86,39,189/- made by the AO on account of non-deduction of tax u/s.40(a)(i) of the Act. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in ignoring the fact that Section 195 was applicable in the above case and hence provisions of section 40(a)(i) were also applicable to the impugned expenditure. 3. On the facts and in the circumstances of the case, the Ld....
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....urce u/s.195(1), detailed submissions of the appellant, relevant decisions and various facts on record. The dispute has arisen when the appellant purchased raw materials, components & spares, capital goods and traded goods from non-resident concerns for a total cost of Rs. 4737,24,79,764/(including all other expenses, duty and taxes) out of which the total cost of raw materials is Rs. 4491,86,39,189/- As per provisions of sec.195(1) of the Act, any person responsible for paying (Payer) to a Non- Resident or Foreign Company (Payee) any interest or 'any other sum chargeable under the provision of the Act', is required to deduct tax at source. The provision applies to all the Payers, including individual and HUF. The only specific exclusion provided is in respect of payment of dividend which is exempt by virtue of payment of Dividend Distribution Tax. The scope of the provision is wide and therefore, the implications thereof have far-reaching effect in large numbers of cases as the number of such payments has increased manifold with the development of the economy and growth of cross border transactions in the last decade. As per provisions of sec.195(2) of th....
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....f the Payee or not, the litigation on the obligation to make TDS continues, even after the decision of the Apex Court in Transmission Corporation of A:P. Ltd and particularly in view of interpretation of this judgement by the Hon'ble KarnatakaHigh Court in the case of CIT (International Taxation) v. Samsung Electronics Co. Ltd, [2009J 185 Taxman 313 (Kar.)/ [2010] 320 ITR 209 in the case of M/s. Samsung Electronics Co. Ltd. land other cases in the context of obligation to make TDS in respect of payments made to Non-Resident Payees for supply of shrink wrapped standardised software. The Hon'ble Karnataka High Court held as under: 66. If one is allowed the liberty of giving a rough and crude comparison to the manner in which the provisions of section 195 of the Act operates on a resident payer who makes payment to a non-resident recipient and if the payment bears the character of a semblance of an income receipt in the hands of the non-resident recipient, then the obligation on the part of the resident payer who makes such a payment to the non-resident recipient is like a guided missile which gets itself attached to the target, the moment the resident assessee makes ....
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.... under the Act in respect of sums paid under the contract. Accordingly, tax was deductible in respect of income imbedded in the contract amount, In the instant case, the appellant has purchased raw materials from non-resident business entities and no income can be said to have accrued in India in respect of cost of raw materials. The income, if any, earned by the non-resident seller of the raw materials is earned in foreign soil and not taxable under the Indian Income Tax Law. Further, application u/s.195(2) was required to be made in case the appellant was having any doubt about the proportion of income embedded in the remittance and in case the income itself was not assessable in India, there was no requirement to make any. application u/s.195(2). In any case, not making an application u/s.195(2) before remittance could at best be considered as a violation and would not attract the provisions of section 40(a)(i). It was held by the Hon'ble ITAT, Hyderabad, in the case of SOL Pharmaceuticals. Ltd. v. ITO [2002] 83 ITD 72 (Hyd.) that Section 195(2) is attracted only in a case where at least a portion of the payment to non resident is chargeable as income. If no portion....
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....ity is relevant in this case. As per decision of Hon'ble Supreme Court in the case of CWT Vellis Bridge Gymkhan (1998) 229 ITR 1 (SC), if a person has not been brought in the ambit of Section by clear words, he cannot taxed at all. 2. In this case the above payments are made towards purchase of goods on principal to principal basis. Assessee has not entered into any contract with foreign parties rather assessee has procured the goods at its own cost like payment of customs duty, freight, handling charges etc. i.e. on CIF basis. 3. In case of CIT vs, R.D, Agrawal & Co. (1965) 56 ITR 20(SC), Hon'ble Apex Court has stated that 'In the case of assessee company the purchases are made by placing the purchase order and delivery are made on CIF basis, payment is remitted to foreign sellers in advance, hence, question the taxing the foreign exporters do not arise in India'. Thus, in the case of the assessee, when the sum paid to foreign companies are not chargeable to tax in India, applicability of section 195(1) & 195(2) is not sustainable. 4. Trading activities are duly covered under Article 7 of DTAAs of which all related provisions are also in ....
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....wn case for the AY 2007-08 and by the AO for AY 2006-07, it is clear that no tax is deductible ujs.195(1) in respect of remittance made by the appellant for purchase of raw' materials amounting to Rs. 4491,86,39,189/ -. 3.2.4 The case of the appellant is squarely covered by the judgment of the Hon'ble Supreme Court in the case of GE India Technology Cen. (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) which has been quoted by the appellant in its submissions. The Hon'ble Supreme Court in GE India Technology Cen. (P) Ltd. has also considered the judgment in the case of Transmission Corporation of AP Ltd. (supra), support of which was taken by the AO in holding that assessee was required to deduct tax u/s.195(1). The Hon'ble Supreme Court has observed that every remittance would not result in deduction of tax but only in respect of the amount taxable under the provisions of the Income Tax Act. The application u/s.195(2) is required only when the remitter has no doubt that tax is deductible but not sure of the amount of tax to be deducted. In case no tax is deductible on the remittance, no application u/s.195(2) or no certificate u/s.197 is necessary. The Hoh'ble ....
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.... of the Income-tax Act. " In the instant case; the amounts have been paid towards purchase of raw material on principal to principal basis and the appellant has procured the goods from the non-resident seller at its own cost after making payments of custom duty, freight, handling charges etc. on CIF, basis. The raw material is sold by the non-resident seller in foreign soil, hence, no income accrues to the non-resident seller in the Indian territory. The AO has not brought any facts on record nor it is apparent that income in respect of transactions arises in favour of the nonresident sellers in the, Indian territory or that the income of such nonresidents in respect of transactions is assessable under Indian Income tax Law. 3.2.5 In view of the judgment of the Apex Court in the case of GE India Technology Cen. (P) Ltd. v. CIT (supra), it is the clear that if the payment is made to a non-resident, which is not a taxable income in India, then no tax is required to be deducted u/s.195. Accordingly, the addition u/s 40(a)(i) made by the AO is hereby deleted, Ground No.2 is thus allowed. 26. Against the above order of CIT(A), the Revenue is in appeal before the Tri....
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....and perused the material available on record. We find the CIT(A) observed in the instant case where no new assets have come into existence and no new capacity has been added, therefore, deleted the addition made on account of repair & maintenance to the plant and machinery and directed the AO to withdraw the depreciation allowed by him. We have carefully perused order of authorities below and found that the CIT(A) has taken a plausible view to which our interference is not required. Accordingly, we upheld the same and dismiss the ground of appeal of the Revenue. 33. Next ground relates to addition made on account of miscellaneous expenses. The AO disallowed the miscellaneous expenses of Rs. 22,52,169/- as the assessee could not produce any break-up or ledger copies of the aforesaid expenses, which could not be verifiable. On appeal, the CIT(A) deleted the same. Against which the Revenue is in appeal before us. 34. Ld. DR relied on the order of AO, whereas ld. AR of the assessee relied on the order of CIT(A). 35. We have heard rival submissions and perused the material available on record. We find that the CIT(A) observed that the expenditure in question i.e miscellaneous e....
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....Minister's relief fund and Sri A. P. Singh, Regional Marketing Manager represented the appellant in handing over the cheque to the Chief Minister's relief fund. Accordingly, there is no doubt that the contribution was made by the appellant to the Chief Minister's relief fund even though the 80G certificate was wrongly issued in the name of Sri A. P. Singh. Accordingly, the AO is directed to allow deduction u/s.80G for an amount of Rs. 5,87,216/- after being satisfied that Sri A. P. Singh has not claimed the relief u/s.80G in his personal income tax return. We on perusing the finding of CIT(A), do not see any reason to interfere with the observations of CIT(A), accordingly we uphold the same and dismiss the ground of appeal of Revenue. 39. Next ground relates to addition made on account of prior period expenses. The AO observed that the assessee is maintaining its account on mercantile basis and the hybrid system of accounting is not permissible therefore, disallowed the prior period expenses. On appeal, the CIT(A) reduced the disallowance made by the AO of Rs. 92,37,510/- on prior period expenses to Rs. 44,779/- after observing as under :- " 16.1 I have g....