TaxTMI 
TaxTMI 
2020 (11) TMI 478
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....default in not deducting tax at source. 1.2 Without prejudice, that the Commissioner of Income-tax (Appeals) further failed to appreciate that disallowance under section 40(a)(ia) of the Act was, in any case, not warranted, since: (a) no amount was payable as on the last date of the previous year; and (b) non-deduction of tax was on account of bona fide view taken by the appellant. 2. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not only confirming but also enhancing the disallowance of provision made for sales incentive in respect of "Shahenshah Sales Incentive Scheme". 2.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the provision made by the appellant under the aforesaid scheme was not being made on a scientific or logical basis and therefore, the entire provision, is not allowable as deduction. 2.2 That the Commissioner of Income-tax (Appeals) erred on facts and in law in restricting the amount of provision allowable as deduction to the extent of 15% on an "ad-hoc" basis and in consequently, enhancing the amount of disallowance by Rs. 29,56,344. 2.3 That the Com....
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....laim of allowance of deduction of Rs. 54,21,514 on the ground that the claim was not made by filing a revised return, without appreciating that the embargo/ prohibition contained in the case of Goetze India Limited: 284 ITR 323 (SC) do not apply to the powers of the appellate authority to entertain any fresh/ new claim. 6. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not directing the assessing officer to allow deduction of excess provision of bad debts written back of Rs. 2,58,164. 6.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not adjudicating the aforesaid claim on the ground that the claim was not made by filing a revised return, without appreciating that: (a) the decision in the case of Goetze India Limited: 284 ITR 323 (SC) had no application in case of mere enhancement of a claim of deduction; and (b) the embargo/ prohibition contained in the aforesaid case do not apply to the powers of the appellate authority to entertain any fresh/ new claim. " 3. The assessee company is engaged in the business of manufacturing of switchgears, energy meters, cables & wires, Electrical fans,....
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....ote that in A.Y. 2007-08, the assessee paid levy and certificate charges aggregating to Rs. 5,68,856/- to M/s KEMA Quality BV, Netherland for the purpose of certification of electrical products manufactured by the assessee. The aforesaid foreign entity was authorized for certification of products for export which is a mandatory requirement for selling products in Europe, Middle East Countries, and South African Countries. The explanation given by the assessee before the Assessing Officer for not withhold tax at source on the aforesaid payment of Rs. 5,68,856/- made to the overseas entity, since the assessee bonafidely believed that such certification fee was not liable to tax in India, as the same was not covered within the meaning of " Fee for Technical Services" as provided u/s 9(1) (vii) of the Act and/or the overriding provisions of the Double Taxation Avoidance Agreements. The aforesaid issue stands covered in favour of the assessee by the order of the Tribunal passed in the assessee's own case for Assessment Year 2006-07 (ITA No. 4813/Del/2010 & Assessment Year 2007-08 being ITA No. 6073/Del/2010). The Tribunal vide order dated 30/09/2019 passed in Assessment Year 2006-07 hel....
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....ng ITA No. 5530/Del/2010 and ITA No. 466/Del/2011 order dated 30/09/2019). The Tribunal held that the provision made by the assessee in respect of Shahenshah Scheme was on a scientific basis and, therefore, allowable deduction. 7. The Ld. DR relied upon the assessment order and the order of the CIT(A). 8. We have heard both the parties and perused the material available on record. It is pertinent to note that during the previous year Assessment Year 2007-08, the assessee made a provisions of Rs. 5,01,73,763/- in respect of Shahenshah Scheme towards Sales Incentives payable to its dealers and distributors. The said scheme was introduced to promote sales and ensure timely collection of payments from its customers. Out of the provisions made till date payment of Rs. 1,04,82,408/- was made by the assessee during the Assessment Year under consideration. The Tribunal in A.Y. 2007-08 held that the provision made by the assessee in respect of Shahenshah Scheme was on a scientific basis and, therefore, allowable deduction. The facts in the present assessment year is identical, thus the issue is squarely covered in assessee's own case for Assessment Year 2007-08. Besides this, the CIT(....
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....aridwar Unit : Rs. 14,76,48,913 Deduction claimed Rs. 101,50,11,121 The deduction so claimed under Section 80-IC of the Act was duly supported by audit report in prescribed Form No.10CCB filed along with the return of income. The Ld. AR submitted that the Assessing Officer, merely relied on the decision of ACIT vs. Goldmine Shares & Finance (P) Limited 302 ITR 208 (Ahemdabad) (SB) and without appreciating the facts of the case and correct position in law, held that in terms of section 80-IA(5) of the Act, losses of eligible undertakings viz., Baddi Unit-2 and Haridwar Unit, relating to earlier assessment years 2006-07 and 2007-08 was required to be set off on a notional basis, against profits of the said unit(s) in assessment year 2008-09 in order to determine the amount of deduction that the assessee is eligible to claim under Section 80IC of the Act. On this account, the Assessing Officer educed the claim of deduction made by the assessee under Section 80IC of the Act by Rs. 4,67,99,123 by making the following adjustments: Particulars Amount (in Rs.) Loss at Haridwaar Unit pertaining to Assessment Year 2006-07 (Notional) Rs. 3,75,70,429 Loss at Haridwar Unit ....
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....on 80-IC(7) states that provisions contained in sub-section (5) and subsections (7) to (12) of section 80-IA of the Act shall apply to the eligible undertaking or enterprise claiming deduction under section 80IC of the Act. The Ld. AR submitted that sub-section (5) to Section 80IC, provides that the eligible unit claiming deduction under section 80-IA of the Act would be treated as a separate source of income and deduction has to be allowed only vis-à-vis profits derived from the eligible unit unaffected by the profits/losses of other units owned by the assessee. The Ld. AR submitted that the Assessing Officer/CIT(A), in the present case, has grossly misconstrued the application of the aforesaid provisions of sub-section (5) of section 80IA of the Act. The aforesaid provisions do not provide that the losses/ depreciation of the eligible unit relating to any earlier assessment year(s) which are already absorbed against profits of other units/ other incomes in the respective year(s) should once again be notionally brought forward and adjusted against the profits of the current assessment year for computing deduction allowable u/s 80IC of the Act. The Ld. AR submitted that t....
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....e of Synco Industries Limited V.AO: 254 ITR 608 observed that the said sub-section only requires that for computing allowable deduction losses of one division be ignored. In that case, the assessee claimed deductions under Section 80HH and Section 80-I of the Act in respect of two divisions. The assessee earned profits from the chemical division and losses in the oil division during the year. The Assessing Officer, rejected the claim of the assessee on the ground that the gross total income of the assessee, before deductions under Chapter VI-A, was "nil" and, therefore the assessee was not entitled to the benefit of deductions under Sections 80HH and 80-I of the Act. The assessee, however, contended that since for the purposes of Section 80-I each unit has got to be treated separately, in view of the deeming fiction in sub-section (6) thereof, the loss suffered by the oil division could not be adjusted against the profits of the chemical division. The assessee relied upon Section 80I(6) of the Act to contend that since the profits of an industrial undertaking were required to be computed as if such industrial undertaking was the only source of income, the profits of the chemical....
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....termining the quantum of deduction under that section. Sub-section (5) of Section 80-IA does not override the provisions relating to set off and carry forward losses as contained in Chapter VI (including Sections 70,71 and 72) and also Section 32(2) relating to set off of unabsorbed depreciation. The aforesaid view is fortified by the following observations of the Hon'ble Bombay High Court in the case of Synco Industries (supra). On perusal of the aforesaid, the Ld. AR pointed out that the Hon'ble High Court observed that the non-obstante clause in sub-section (6) of Section 80I has limited application and does not override Section 80A of the Act. Similarly, the Ld. AR submitted that the non-obstante clause in sub-section (5) of Section 80IA has limited application and does not override the provisions relating to intra head/ inter head set off as also set off of unabsorbed losses/ deprecation to bring an altogether new concept of notional carrying forward of absorbed losses/ depreciation. The Ld. AR vehemently reiterated that set off of unabsorbed losses are governed by Chapter VI of the Act. Once in accordance with the said provisions unabsorbed losses are set off against any inco....
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...., there was no need for notionally carrying forward and setting off the said depreciation and loss in computing the quantum of deduction under Section 80-IA in the relevant assessment year. On further appeal, the Hon'ble High Court upheld the order of the Tribunal and held that, for the purpose of determining quantum of deduction under Section 80-IA of the Act in the assessment year in which assessee put forth the claim, revenue authorities cannot take into consideration loss and depreciation from eligible business of earlier assessment years which were already set-off against income of assessee from other business activities in such assessment years. The Hon'ble Rajasthan High Court in case of CIT vs. Mewar Oil & General Mills Ltd. 271 ITR 311, while considering identical issue, observed that losses of earlier years already set off against income of previous year should not be reopened again for computing deduction under Section 80I of the Act. Thus, the Ld. AR submitted that the action of the Assessing Officer/CIT(A) in reducing the amount of deduction claimed by assessee under Section 80-IC of the Act in respect of Baddi Unit-II and Haridwar Unit, by notionally bringing forwa....
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....as capital receipt not liable to tax. The Ld. AR submitted that the assessee had, during the relevant assessment year 2008-09, invested in 3,55,22,067 shares of one of its subsidiary company 'M/s. Havells Holdings Ltd', out of which 1,54,23,053 shares were redeemed at par value in the same year. The Ld. AR submitted that since the gain was not on account of increase in value of the shares, as shares were redeemed at par value, but merely on account of repatriation of proceeds received on exchange fluctuation, such gain was treated as capital receipt, not eligible to tax in the return of income filed for the relevant Assessment Year 2008-09. The Assessing Officer held that assessee had purchased shares in a foreign company for which purchase consideration was remitted from India and further on redemption, the sale/ redemption proceeds so received in foreign currency were remitted back to India which resulted in gain. Since the gain arose on sale or redemption of shares, the same was taxable as capital gains in terms of Section 45 of the Act. On appeal, the CIT(A) confirmed the addition made by the Assessing Officer and held that investment was made by the assessee out of commercial ....
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....pee is determined as = Capital gain in $/ GBP X applicable rate of exchange as per Rule 115 = NIL (in present case) X Rate = NIL In the present case, since capital gains in GBP/ Euro was NIL, the resultant gain in Indian Rupees is NIL. The Ld. AR submitted that gain arose to the assessee on account of repatriation of foreign currency to India, which is an event separate and distinct from the event of transfer of shares of the subsidiary company. The exchange gain of Rs. 2,55,82,186/- was only a consequence of repatriation of the consideration received in Euro to INR and cannot be construed to be part of consideration received on redemption of shares. The Ld. AR submitted that it is trite law that every receipt is not income. The Ld. AR relied upon the following decisions: i) CIT vs. Shaw Wallace and Company: 2 Comp Cases 276 (SC) ii) Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT 227 ITR 172 (SC) iii) Cadell Weaving Mills Company Ltd vs. CIT 249 ITR 266 (Bom) [affirmed by SC in 273 ITR 1] The Ld. AR further submitted that the nature of the foreign exchange gain shall depend upon the nature of the transaction - if the transaction of remittance ....
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....ndia, repatriated $ 49,500 to India. The repatriation of this amount at the altered rate of exchange gave rise to surplus of Rs. 70,147. The surplus of Rs. 70,147, which was attributable to $ 36,123 received as commission from Baldwin Locomotive Works, was taxed as trading profit by the Revenue. The Hon'ble Apex Court observed that the surplus arising to be on capital account not chargeable to tax. In the aforesaid decision, the Hon'ble Supreme Court held that the act of retaining $36,123 in the United States for capital purposes after obtaining sanction of the Reserve Bank of India was not a trading transaction in the business of manufacture of locomotive boilers and locomotives, but was clearly a transaction of accumulating dollars to pay for capital goods. It was, therefore, held that surplus attributable to $ 36,123 was capital accretion and not profit taxable in the hands of the assessee. Further reliance is also placed on the decision of Hon'ble Supreme Court in case of CIT v. Canara Bank Ltd. 63 ITR 328 (SC) wherein the assessee, a public limited company carrying on banking business in India, had opened a branch in Karachi. The Karachi branch of the assessee had with it a su....
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....see claimed that the "profit on exchange" was not liable to tax. However, the said claim was not accepted by the assessing officer and addition was made. On appeals, the Tribunal held that profits on exchange was an appreciation in the value received by the assessee for the export sales on account of a favourable fluctuation in the foreign exchange rates at the relevant time and therefore, liable to be taxed as the assessee's income. In the aforesaid decision, the Court held that in case of profit resulting from fluctuation or escalation of exchange price is independent of the primary transaction and such profit can be taxed only if the assessee is a dealer in foreign exchange. The Ld. AR relied upon the decision of the Hon'ble Bombay High Court in case of Homi Mehta & Sons P. Ltd. v. CIT 222 ITR 528. In this case, the assessee company was holding certain shares in limited companies in the UK by way of investment. Dividend income earned by the assessee on these shares was kept in a current account in UK. The accumulation in the current account was utilized by the assessee for the purchase of right shares after obtaining the approval of the RBI. The balance of the accumulated....
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....al cause due to devaluation after the profits had already accrued and taxed in the relevant year and hence had become part of the assessee's capital, therefore, the gain received by the assessee was a capital receipt. The Hon'ble Madras High Court affirmed the decision of the Tribunal. The Ld. AR relied upon the following decisions: i) CIT v. Jagatjit Industries Ltd. 191 Taxman 54 (Del. HC) 24 ITA No. 4695/Del/2012 ii) Indo-Burma Petroleum Co. Ltd. v. CIT 136 ITR 25 (Calcutta HC) iii) V.S. Dempo and Co. (P) Ltd. 206 ITR 291 (Bom. HC) iv) E.I.D. Parry Ltd. v. CIT 174 ITR 11 (Mad. HC) v) CIT v. PVP Ventures Ltd. 211 Taxman 554 (Mad. HC) The Ld. AR further submitted that fluctuation arising in foreign currency resulting in increase/decrease in liabilities pertaining to purchase of capital assets was on capital account, not liable to be considered for computing taxable income. For the said contention/prepositions, the Ld. AR relied upon the following decisions: i) Union Carbide India Ltd. vs. CIT 130 ITR 351 (Cal.). ii) Periyar Chemicals Limited vs. CIT 162 ITR 163 (Ker.) iii) Ashok Textiles Ltd. vs. CIT 178 ....
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....s were redeemed at par value. Thus, there was no gain which accrued to the assessee as a result of redemption of such shares, since the shares were redeemed at par value. The said contention is supported by Rule 115 of the Income Tax Rules, which provides the rate of exchange for conversion of income expressed in foreign currency. Clause (f) of Explanation (2) to Rule 115(1) clearly provides that "in respect of the income chargeable under the head "capital gains....." rate of exchanges is to be applied. To put it simply, capital gain in rupee is determined as = Capital gain in $/ GBP X applicable rate of exchange as per Rule 115 = NIL (in present case) X Rate = NIL. In the present case, since capital gains in GBP/ Euro was NIL, the resultant gain in Indian Rupees is NIL. The Ld. AR submitted that gain arose to the assessee on account of repatriation of foreign currency to India, which is an event separate and distinct from the event of transfer of shares of the subsidiary company. The exchange gain of Rs. 2,55,82,186/- was only a consequence of repatriation of the consideration received in Euro to INR and cannot be construed to be part of consideration received on redemption of sha....
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.... so, the said claim could not have been made through revised return since the limitation for filing such revised return in terms of Section 139(5) of the Act had expired. The Ld. AR submitted that the decision of the Hon'ble Apex Court is distinguishable as it is a trite law that belief duty of the taxing authority to correctly assessed the tax liability of an assessee and assessed the assessee in every reasonable way particularly in the matter of claim and securing release. The Ld. AR submitted that the assessee is entitled to claim deduction of education and higher secondary cess as per Section 4 of the Act which provides that income tax is charge at the rate as an enacted in any Central Act. Every year the Finance Act provides for the rate of tax applicable for the relevant Assessment Year. The levy of education cess on Income tax is distinct from that of an income tax or surcharge since the letter to form part of part one of the first schedule which defines income tax and provides rate of levy thereof. Unlike income tax and surcharge which are levied for general purpose, Government has explained an education cess and is admittedly levied for specific purpose that is....