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2017 (5) TMI 1749
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....the AO found that the assessee has incurred a loss of Rs. 2,33,61,500/- from 100% Export Oriented Units (EOU) Astra Tel, which was set off against the income of non-10B Units( i.e. from normal taxable income of other units). The AO was of the view that the unit eligible for deduction u/s 10B is a separate entity for the purpose of Income Tax and to be assessed as an independent unit as if it is only the source of income. The unabsorbed losses of eligible units of 10B undertaking should be carried forwarded separately and allowed to be set off against the future incomes of 10B units alone. Further, the AO opined that in case, the assessee wishes to avail the normal provisions of the Income Tax Act, it should opt out from claiming the deduction u/s 10B and submit a declaration as per Sec.10B(8) of IT Act before the due date of filing the return of income treating the eligible unit as a non-eligible unit u/s.10B of IT Act. In the instant case the assesse has not furnished any such undertaking hence the AO was of the view that the provisions of Sec.80IA and 10B are parimeteria and accordingly, disallowed the set off of losses relating to 10B unit against the profits of non-eligible uni....
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...." Respectfully following the above decision, it is held that the AO has wrongly concluded that it was incorrect to set off loss of Rs. 2,33,61,500/- incurred by 100% EOU against the income of the non-10B units in A.Y.2006-07. Therefore, the AO is directed to allow set off of loss of 10B unit from the profits of non-10B units for A.Y. 2006-07. Accordingly, the ground is allowed. 2.2 Aggrieved by the order of the Ld.CIT(A), the Department is on appeal before us. Appearing for the Revenue, the Ld.DR argued that the assessee is eligible for deduction u/s 10B for ten consecutive assessment years which is recognized as tax holiday period and during the tax holiday period units eligible to claim exemption u/s.10B are being treated as separate and independent unit as if it is only the source of income. The profits and gains of the eligible unit has to be computed separately and the deduction has to be allowed to the extent of profits and in case of loss incurred during the tax holiday period the same should be considered separately and to be carried forwarded to the next year and set off against the income of the eligible unit in the subsequent year. In case ,the assessee wants....
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....oss total income. The Ld.AR argued that the profits and gains of the business required to be computed as per provisions of Sec.28 to 43 inclusive of 10B units and allow the deduction u/s.10B from the business income itself. There is no provision in the IT Act not to allow the set off of losses of 10B eligible units from the total income of the assessee and carry forward it separately. The Ld.AR further argued that the provisions of Sec.80IA cannot be equated with that of the provisions of Sec.10B. As per Sub Sec.5 of 80IA, the profits and losses of eligible units required to be computed separately as a separate unit for the purpose of carry forward and set off of losses and computation of income during the tax holiday period. Such provisions are not placed in Sec.10B. Therefore, the Ld.AR contended that the losses of 10B units need not separately be carry forward and the assessee is eligible for set off of loss of 10B units from the normal taxable units. The Ld.AR also relied on the following decisions: 1. Lason India (Vetri Software) Vs. ITO (301 ITR 306) 2. Scientific Atlanta India Technology vs. CIT (129 TTJ 273) (Chennai) 3. CIT vs. Yokogawa India Ltd....
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....uction at source before computing the total income under Chapter-VI. Therefore, we do not find any infirmity in the order the Ld.CIT(A) and the same is upheld. The revenue's appeal is dismissed. AYs 2007-08, 2008-09 and 2009-10: 3.0 During the Assessment Year 2007-08, the eligible unit derived profit of Rs. 3,15,19,439/- and claimed the entire income as deduction u/s.10B of IT Act. In the course of assessment proceedings, for the A.Y 2006-07 the assessee had incurred a loss of Rs. 2,33,61,500/- relating 10B unit which was claimed set off against the income of non-eligible units. The AO in the assessment proceedings u/s 143(3) for the A.Y.2006-07 disallowed the loss of eligible unit claimed from the taxable income and re-computed the total income of the assessee. During the AY under consideration, the AO has set off the brought forward unabsorbed loss of Rs. 2,33,61,500/- relating to AY 2006-07 of the eligible unit from the profit of 10B units Rs. 3,15,19,439/- and re-computed the deduction u/s.10B at Rs. 18,49,480/- which was allowed as deduction from the total income. 3.1 Aggrieved by the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) ....
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....the Hon'ble Jurisdictional High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd V ACIT (340 ITR 477) supports this view Further, I find that as submitted by AR, the Hon'ble Jurisdictional ITAT Chennai in the case of ACIT V Charon Tec P. Ltd (supra) had held that the exemption u/s. 10B was to be allowed without setting off brought forward unabsorbed loss and depreciation from the earlier assessment year. Respectfully following the above decisions, I hold that the deduction u/s. 10B has to be allowed before set off of the brought forward losses. 3.2 We heard both the parties and perused the material placed on record. The assessee's appeal for the AY 2006-07 is allowed by us in this appeal in earlier paragraphs holding that the loss of 10B unit is allowed to set off at the source point under Chapter-IV of the IT Act before computing the gross total income. Therefore, there was no unabsorbed loss remained relating to the eligible unit u/s.10B for the AY 2006-07 to adjust against the profits of the eligible units in the year under consideration. The issue regarding the stage of deduction u/s.10B was decided by the Hon'ble Supreme Court in the case of CIT & Anr. v. Yokogawa....
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.... perused the material placed on record. The issue is squarely covered in favour of the assessee in the following cases relied upon by the assessee: 1. ITO vs. Sak Soft Ltd. [2009] 313 ITR (AT) 35 2. Tata Elexi Ltd Vs. ACIT 115 TTJ 423 As per the judicial precedents the expenditure of freight incurred in foreign currency outside India for delivery of goods has to be reduced both from the export turnover as well as the total turnover i.e. numerator and denominator. The Ld.CIT(A) followed the same principle decided by the Hon'ble special Bench ,Chennai in the case of Sak Soft Ltd., and allowed the assesse's appeal. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and this ground of appeal of the Revenue is dismissed. 5.0 The next issue for the A.Y 2007-08 is the apportionment of R&D expenditure to 10B units. The assessing officer found that the assessee claimed weighted deduction in respect of capital expenditure incurred towards in-house R&D facility as per Sec.35(2AB) of Income Tax Act. The expenditure incurred was Rs. 4,95,26,696/- and the weighted deduction claimed was Rs. 6,72,67,539/-. No expenditure was all....
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....deleted the addition and allowed the assesse's appeal stating that the R&D activity is not related to the 10B unit and the 10B unit is a separate and distinct unit. The Ld.CIT(A) given a finding that the expenditure related to R&D is for a full assembly unit which cannot be allocated to the units which are manufacturing and exporting only components. The Ld.CIT(A) also stated that the assessee's case is squarely covered by the decision of jurisdictional High Court in the case of Brakes India Ltd., in Tax Appeal Nos.737 to 739 of 2005 dated 17.10.2012 and also Punjab Con Cast Steel Vs. CIT & ors. 49 ITD 430 Chandigarh. During the appeal, the Ld.DR vehemently argued stating that nonallocation of expenditure to 10B Units was only a device to reduce the taxable income but no evidence has been brought on record to controvert the submissions of the assessee or to establish that the in-house R&D facility belong to the eligible 10B units also. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the order of the Ld.CIT(A) is confirmed. The appeal of the Revenue is dismissed. 6.0 Ground No.5 in Revenue's appeal for the AY 2007-08 is addition of Rs. 77.99 lakhs relati....
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....is also supported by the decision of Bombay High Court in the case of CIT Vs Bank of India (218 ITR 371). Further the decision of Apex Court in CIT v Woodward Governor India P. Limited (312 ITR 254) also fortifies the case of the appellant. The Honorable Court in that case had observed as under: "Loss1' suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the Balance sheet date is an item of expenditure under section 37(1) of the Income tax Act, 1961". As clearly laid down by the Supreme Court, the loss incurred by the appellant on account of exchange fluctuations has to be allowed as deduction. Respectfully following the decision of the Supreme Court, the claim of the appellant is allowed. Against the Orders of the Ld.CIT(A), the Revenue has filed appeal before us. 6.3 We heard the rival submissions and perused the material placed on record. The Ld.DR argued that the forward contracts loss is a notional loss which is contingent in nature and not allowable to be set off against taxable income. The loss was only due to restatement of foreign exchange which should be allowed only on actual happening of the event. Fu....
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....ise has to report outstanding liability relating to import of raw material using closing rate of foreign exchange and any difference, loss or gain, arising on conversion of said liability at closing rate should be recognized in profit and loss account for reporting period - Held, yes. The Ld.CIT(A) allowed the assessee's appeal following the decision of the Hon'ble Apex Court cited supra. Therefore, we do not find any error in the order of the Ld.CIT(A) and the same is upheld. The Revenue's appeals on this issue for the A.Y.2007-08 and for the A.Y 2008-09 are dismissed. 7.0 Ground No.6 of Revenue for the AY 2007-08 is the disallowance u/s.40(a)(i) in respect of payment made to non-resident Export agent M/s.Biggleswade Ltd., Hongkong without deduction of tax at source. This isuue is involved for the A.Y 2007-08, 2008-09 and A.Y 2009-10. 7.1 The AO found that the assessee has paid a commission of Rs. 2,21,80,564/- to M/s.Biggleswade Ltd., Hongkong for the services rendered by the foreign agent to the assessee as per the details given below: A.Y 2007-08 Rs. 2,21,80,564/- A.Y 2008-09 Rs. 2,30,44,518/- A.Y 2009-10 Rs. 2,00,00,000/- 7.2 ....
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....ld. 7.6 Even otherwise, Explanation to Sec.9(2) of IT Act is amended by Finance Act, 2010 w.e.f. 01.04.1976. The assessment year involved is 2007-08 to 2009-10 and there is no provision to tax the payments made to the services rendered outside India to the foreign agents in the Income Tax u/s.9(1)(vii) prior to the amendment. This view is upheld by the decision of the Hon'ble Supreme Court relied upon by the Ld.AR in the case of Ishikawajima-Harima Heavy Industries Ltd vs. DIT (2007) (288 ITR 408) which clarified that despite the deeming fiction in section 9, for any such income to be taxable in India, there must be sufficient territorial nexus between such income and the territory of India. It further held that for establishing such territorial nexus, the services have to be rendered in India as well as utilized in India. The explanation to section 9(2) was introduced by Finance Act 2010 w.e.f.1976 and as on the date of assessment there was no such provision to tax the FTS rendered outside India and hence we agree with the Ld.A.R that no tax is deductible u/s 195 and consequent disallowance is not called for. 7.7 Therefore, we hold that the payment made by the assessee for t....
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....on-resident are liasoning services but not the managerial and technical services. Further, argued that even if the services rendered outside India are to be taxable, it is taxable as business profits in which case, only the profits required to be brought to tax if there is a permanent establishment or business connection in India. Since the assessee has no permanent establishment, the application of Sec.9(1)(vii) and Sec.195 has no application. The assessee also relied on the following decisions: * Brakes India Ltd. V. DCIT (LTU) (266/Mds/2012) (Chennai) * Sun Micro Systems India (P) Ltd (125 ITD 196) (Bang) * G.E. Technology Centre Pvt. Ltd., Vs. CIT (327 ITR 456) 8.2 We heard the rival submissions and perused the material placed on record. The assessee has produced the copy of the agreement before the Ld.CIT(A). The Ld.CIT(A) examined the Explanation of the assessee and the document placed before the CIT and concluded that the services rendered by the non-resident do not fall under the category of technical or managerial services. Ld.CIT(A) further stated that the services are rendered outside India and there is no permanent establishment or....
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....Rs. 55,04,308/- * AY 2008-09 - Rs. 43,47,901/- * AY 2009-10 - Rs. 1,60,96,965/- The AO made the disallowance stating that the additional depreciation is allowed only for purchase of new plant and machinery added during the year. The AO further held that consequent upon inclusion of the asset in the block of assets the residual unavailed additional depreciation cannot be allowed to be carried forward to the subsequent assessment year and accordingly disallowed the same. The contention of the AO is (i) The plant and machinery having purchased in the previous Financial year cannot be held as new plant and machinery in the subsequent Financial year and not eligible for additional Depreciation. (ii) Depreciation is allowed on the Plant and machinery and included in the block of assets. There is no provision in the block of assets to carry forward and allow the residual additional Depreciation. 10.1 The Ld.CIT(A) confirmed the addition made by the AO holding that additional Depreciation is only one time measure in the year of purchase and it is not possible to carry forward the unavailed/unabsorbed additional depreciation to the subsequent assessment year. F....
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.... The Hon'ble jurisdictional High Court in TCA No.551/2013 in the case of M/s.Brakes India Ltd., held that the balance additional depreciation which was not allowed in the year in which it was put to use, should be allowed in the subsequent year. 10.4 Respectfully following the decision of the Hon'ble jurisdictional High Court we set aside the orders of the lower authorities and direct the AO to allow the additional depreciation. Accordingly, the assessee's appeal on this ground for the AYs 2007-08, 2008-09 & 2009-10 are allowed. 11.0 The next issue in Ground No.2 is disallowance of depreciation on UPS. Both the assessee and Revenue have filed appeal on this issue. The assessee filed appeal for the AY 2007-08 and the Revenue has filed appeal for the AY 2008-09 and 2009-10. This issue is involved for the AYs200708, 2008-09 & 2009-10. The AO disallowed a sum of Rs. 1,26,086/- for the A.Y 2007-08, Rs. 3,75,082/- for the AY 2008-09 and Rs. 6,29,235/- for the A.Y 2009-10.The assessee claimed the depreciation @80% on UPs stating the UPS being an automatic voltage controller as well as power saving equipment is a energy saving device and claimed the depreciation @80% in acco....
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....tion of tax at source u/s 194J of Income Tax Act. The Revenue has filed appeal on this issue. The AO relied on the decisions of the Hon'ble Delhi ITAT in the case of Microsoft Corporation v. ADIT & Gracemac Corporation v. ADIT in lTA Nos. 1331 to 1336 (Del) of 2008 for AYs 99-2000 to 2004-05 dated 26.10.2010 wherein it was held that the income from supply of 'shrinkwrapped' software is assessable as 'Royalty'. The Ld.CIT(A) allowed the assessee's appeal following it's own order for the earlier year. The Ld.A.R submitted that software purchases were shelf software which were merely copy of the copy right and not copy right as such. The assessee also placed reliance on M/s.Samsung Electronics Ltd v. ITO (TDS)-1 (94 ITD 91 and Hon'ble Special Bench, ITAT in the case of Motorolo Inx. vs. DCIT reported in 95 ITD 269. 12.1 We heard the rival parties and perused the material placed before us. There is no dispute in fact that the assessee has purchased the software and the assessing officer has admitted this fact in the assessment order. The payment made towards the purchase of software is squarely covered by the decision of the Hon'ble jurisdictional High court in CIT Vs M/s.Vinzas Sol....
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....ld transaction beyond the realm of the provision. The Tribunal has relied on the decision of the Division Bench of the Delhi High Court in the case of The Principal Commissioner of Income Tax-6 V. M.Tech India Pvt Ltd, which supports our view as above. It is brought to our notice that the decision of the Delhi High Court has not been accepted by the Department and an SLP is pending. Be that as it may, in view of the facts and circumstances as observed above, we have no hesitation in dismissing the Departmental Appeal answering the questions of law in favour of the assessee and against the Revenue. No costs. 12.2 Respectfully following the decision of Hon'ble jurisdictional High court we hold that the payment towards software purchase is not royalty within the meaning of non-taxable u/s.9(1)(vi) of Income Tax Act and not liable for deduction of tax at source, accordingly, we uphold the orders of the Ld.CIT(A)dismiss the revenue's appeal on this issue. 13.1 The Next issue for the A.Y.2008-09 and 2009-10 in assessee's appeal is the disallowance u/s.14A r.w.Rule 8D of Income Tax Rules. The AO disallowed the expenditure relating to the dividend income for the AYs 2008-09 and 2009-....
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.... has offered a 'zero amount of deduction. Not only that the AO has given his satisfaction for invoking the provisions as seen from the assessment order wherein an explanation was also called for from the appellant. The appellant has debited certain expenditure towards establishment and administration and a portion of which can be attributed towards the activity of earning dividend income. The assessee also incurred managerial remuneration. The managerial staff and the Directors are involved in making decisions on investments. Such being the case, a portion of this managerial remuneration and Directors remuneration should also be attributed towards the dividend earned by the assessee, the A.O reasons. The argument of the appellant that administrative expenses were incurred only for manufacturing activity but not for earning exempt income was also rejected by the AO since no bifurcation of such expenses were forthcoming from the accounts. Therefore, the contention of the appellant that no expenditure was incurred for earning exempt income is not acceptable. Further, the section 14A(3) itself states that the provisions of sub-sec (2) of 14A shall also apply in relation to a case where....
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.... never laid down any formula or rule. They simply said that it can be "presumed" that the 'investments were made from interest free funds'. As laid down the accounts should be clear not only with regard to expenditure relatable to exempt income and taxable income but also with regard to investments which have gone into earning dividend income and those which have gone to other investments since the s.14A emphasizes on the words "with due regard to the accounts". Since the actual amount of expenditure incurred relatable to exempt income could not be quantified by the appellant on its own, the AO has rightly invoked the provisions of rule 8D. The Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd (supra) has also held that the provisions of rule 8D are "fair and reasonable" and are applicable from A.Y.2008-09 onwards. Therefore, Rule 8D is exigible in the appellant's case and the AO has invoked the provisions correctly. It is to be noted here that "presumptions" have no role to play in claiming any exemptions. 10.2.2 With regard to the argument that while taking averages of investment, the entire investments as per balance-sheet were taken instead of....
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....e 8Dhas mandatory application. The assessee also submitted that the loans for specific business purposes cannot be included u/s.14A. No such details were furnished by the assessee. What were the loan availed for specific purposes and whether the financial institutions have directly paid to the supplier or accounted through common account, etc., were not furnished by the assessee. Therefore, the reliance placed by the assessee in ITA No.1331/Kolkata/2011 is not applicable in this case. The assessee also argued that investment which yielded exempt income alone should be considered. This argument of the assessee also is not acceptable since the assessee has borrowed funds and invested on shares and the shares earned the income which is exempt. No details regarding shares which earned dividend income was placed by the Ld.AR. This Tribunal has consistently followed that investments made from the common account attracts the disallowance u/s.14A. Once, the assessee earns the dividend income, the application of Sec.14A is attracted and consequently the disallowance has to be made applying the Rule 8D. Therefore, we do not find any infirmity in the Orders of the lower authorities and the sa....