TaxTMI 
TaxTMI 
2019 (2) TMI 2018
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.... is as follows: 1.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding disallowance (of Rs. 2.76 crore directed to be reduced to Rs. 2.18 crore after verification) on account of Administrative Expenditure made by the learned Assessing Officer u/s. 14A read with Rule 8D(2)(iii) @ one-half per cent, of the average value of investments, income from which did not form part of the appellant's total income, in the following terms (emphasis supplied): "3.3 I have considered the facts of the case; assessment order and appellant's written submission. Assessing Officer disallowed expenses relating to earning of exempt income under section 14A read with rule 8D since appellant did not disallow any such expense in the return of income filed. Since appellant did not disallow any expense, sub section 3 of section 14A is applicable and as per that the computation of disallowance has to be made as per rule 8D. From assessment year 2008-09, rule 8D is mandatory as held by Bombay High Court in the case of Godrej and Boyce and therefore assessing officer is justified in applying rule 8D while computing dis....
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....rned Assessing Officer not because he was not satisfied with the appellant's claim in the manner envisaged by subsection (2) of Section 14A but after assuming that there was always some kind of indirect expenditure in relation to income not forming part of total income (emphasis supplied): "4.12 regarding the administrative expenditure 0.5% of average investments is worked out as per rule 8D(iii). Assessee argued that once the expenditure of the treasury department is disallowed, administrative expenditure as per Rule 8D cannot be disallowed. In this regard it is to be noted that there 3 items under which the disallowance under Rul3 8D has to be worked out and the 50% of treasury expenditure is disallowed under clause (i). Apart from the direct expenditure, there is always some kind of indirect expenditure in the form of unquantifiable services of Finance department personnel and the managerial personnel and Directors of the company in decision making and time and energy spent there on. Therefore the formula needs to be applied under all clauses to work out the expenditure disallowable u/s. 14Ar. w. rule 8D ---" (e) that thus, the very assumption of jurisdicti....
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....ion that a reasonable disallowance in relation to exempt income must be made. That does not however dilute the principle laid down by the Special Bench in the case of Vireet Investments (supra). To this extent, we uphold the plea of the assessee and modify the orders of the authorities below by directing the Assessing Officer to compute the 0.5% of the investments yielding tax exempt income during the relevant previous year. 5. Ground no. 1 is thus partly allowed in the terms indicated above. 6. In ground no. 2, the assessee has raised the following grievance: 2. In law and in the facts and circumstances of the appellant's case, the teamed CIT(A) has grossly erred [even as he had directed the learned Assessing Officer to allow the appellant's claim for deduction of bad debts after verifying that the debts in question had been taken into account in the computation of the appellant's income in earlier year/s as required by Section 36(2)] in rejecting the appellant's alternative claim made on the ground that in any case, the debit balances aggregating to Rs. 1,64,13,841 written off to the appellant's Profit and Loss Account had arisen in the course o....
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.... the case; assessment order and appellant's written submission. Assessing Officer treated marked to market losses in foreign exchange derivatives as notional since no sale happened or transaction is not concluded. Assessing Officer derived the strength from CBDT instruction No.3/2010 in which IT authorities have been asked to treat such marked to market losses as notional and to make addition of such losses. I have gone through the said instruction and it is clear that such notional loss is not allowable. The relevant extract of the instruction is quoted below: ............. Since the assessing officer has made the disallowance on the basis of aforesaid BINDING instruction, I DO NOT SEE ANY INFIRMITY IN THE ORDER. The judicial decisions relied upon by the appellant are prior to the issue of this Instruction. Since this instruction clarifies the treatment to be given to such notional losses uniformly, the same is within the powers conferred upon CBDT under IT Act. No contingent liabilities are allowable under income tax act, though the same may be allowable in accounting standards. Marked to market losses are nothing but contingent liabilities which are to be d....
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....xpress prohibition contained in clause (b) of the Proviso to sub-section (1) of Section 119 of the Income-tax Act, 1961; that, therefore, he had grossly erred not only in upholding the impugned disallowance on the ground that he found no fault with the Assessing Officer making the impugned disallowance in conformity with the aforesaid Instruction but further, in not deciding the appellant's ground using his own discretion in the matter of considering the appellant's elaborate submissions including the decisions of the Supreme Court and other authorities relied upon by the appellant; (g) that his attempt at dismissing the authorities including the decisions of the Supreme Court on which the appellant had relied before him, by suggesting that they had been rendered before the issue of the aforesaid CBDT Instruction, was indeed curious and belied the approach which a semi-judicial authority such as the CIT(A) is enjoined upon to adopt under the Income-tax Act, 1961; (h) that it was also not open to him to dismiss the appellant's contention that the CBDT Instruction on the basis of which the learned Assessing Officer had made the impugned disallowance had ....
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....mpugned provision as per MTM certificate for the impugned assessment year followed by its reversal in the succeeding assessment year 2009-10 on account of foreign exchange rate difference as on 31.03.2008. The Assessing Officer disallowed the same by calling it as unascertained liability not allowable. 17. The CIT(A) accepts assessee's arguments as follows :- '7.1. During the course of assessment proceedings, vide order sheet entry dated 01.11.2011, the assessee was required to give the full details of the provision entry of Rs. 34,35,000/- on account of forward contract payable. The assessee vide its submission dated 16.12.2011 submitted that the account shown as payable as per MTM certificate for A.Y. 2008-09 was reversed in the A.Y. 200910. Assessing officer observed that this liability which is worked out as on 31.03.2008 has not crystallised as on that date. According to A.O the same represents unascertained liability & is therefore, not allowable as expenditure under the I. T Act. On the basis of these observations, provision of forward contract payable of Rs. 34,35,000/- has been disallowed and added to the total income of assessee. Submiss....
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....f ICAI. Now, if any disallowance is made for the year under consideration in that case, deduction should be allowed of this amount in subsequent year, as assessee has claimed only balance loss i.e. loss arising on account of difference between exchange rate as on 31/03/2008 & exchange rate prevailing as on the date of cancellation. The addition made by assessing officer has thus, resulted into double taxation as after set off of provision entry of Rs. 34,35,000/- made at the end of current year, only the balance amount is claimed as deduction in subsequent year." Decision: 7.3. I have considered the reasons given by assessing officer & also the submissions of appellant. The assessee has made provision in respect of forward contract entered into by it on the basis of difference in exchange rate prevailing as on the date on which forward contract has been booked and the exchange rate prevailing at the end of the year i.e. on 31.03.2008 as per MTM certificate issued by ABN Amro Bank. It is not in dispute that assessee is following mercantile method of accounting and as per this method, all the expenses/gains which pertains/arises during the year under consid....
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....relevant accounting standard issued by the Institute of Chartered Accountants of India. We thus find no reason to restore the impugned disallowance 14. On a similar note, but with a little more detailed analysis, another coordinate bench of the Tribunal, in the case of Suzlon Energy Ltd Vs ACIT [(2017) 81 taxmann.190 (Ahd)], has observed as follows: 6. It is one of the most fundamental principles of accounting that while all anticipated losses are taken into account in computing the profits and losses of business, even though such losses may not have crystallized, as long as these losses can be reasonably quantified. This approach can be contrasted with the anticipated profits being ignored, in the computation of profits and losses of an enterprise, unless the profits are actually realized. To that extent, there is a dichotomy in accounting approach but then this is what is the sound accounting policy and it has the sanction of law. As a matter of fact, it is this principle, as recognized by Hon'ble Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481, which explains the valuation of closing stock on market price or cost price whichever is less. ....
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....nd correct state of affairs. No gain or profit can arise until a balance is struck between the cost of acquisition and the proceeds of sale. The word "profit" implies a comparison between the state of business at two specific dates, usually separated by an interval of twelve months. Stock-in-trade is an asset. It is a trading asset. Therefore, the concept of profit and gains made by business during the year can only materialize when a comparison of the assets of the business at two different dates is taken into account. Sec. 145(1) enacts that for the purpose of s. 28 and s. 56 alone, income, profits and gains must be computed in accordance with the method of accounting regularly employed by the assessee. In this case, we are concerned with s. 28. Therefore, s. 145(1) is attracted to the facts of the present case. Under the mercantile system of accounting, what is due is brought into credit before it is actually received; it brings into debit an expenditure for which a legal liability has been incurred before it is actually disbursed. (See judgment of this Court in the case of United Commercial Bank v. CIT (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC). Therefore, the accounting....
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....ing on foreign currency transactions have to be recognized as income or as expense in the period in which they arise, except as stated in para 10 and para 11 which deals with exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which topic falls under s. 43A of the 1961 Act. At this stage, we are concerned only with para 9 which deals with revenue items. Para 9 of AS-11 recognises exchange differences as income or expense. In cases where, e.g., the rate of dollar rises visa-vis the Indian rupee, there is an expense during that period. The important point to be noted is that AS-11 stipulates effect of changes in exchange rate vis-avis monetary items denominated in a foreign currency to be taken into account for giving accounting treatment on the balance sheet date. Therefore, an enterprise has to report the outstanding liability relating to import of raw materials using closing rate of exchange. Any difference, loss or gain, arising on conversion of the said liability at the closing rate, should be recognized in the P&L account for the reporting period. 10. As stated above, on facts in the case of M/s. Woodward Governo....
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....2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the AO is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-s. (1) or accounting standards as notified under sub-s. (2), have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in s. 144." 13. As stated above, one of the main arguments advanced by the learned Addl. Solicitor General on behalf of the Department before us was that the word "expenditure" in s. 37(1) connotes "what is paid out" and that which has gone irretrievably. In this connection, heavy reliance was placed on the judgment of this Court in the case of Indian Molasses Company (supra). Relying on the said judgment, it was sought to be argued that the increase in liability at any point of time prior to the date of payment cannot be said to have gone irretrieva....
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....ised any issues with respect to the above. His case is confined to the loss being notional in nature and contrary to the CBDT guidelines. As for the CBDT instructions, it is only elementary that any instructions issued by the CBDT cannot bind the assessee even though the assessee is entitled to, and can legitimately ask for, any benefits granted to the assessee by such instructions or circulars. Nothing, therefore, turns on the CBDT instruction even if it is actually contrary to the claim of the assessee. 9. We have also noted that, as per the details filed by the assessee, the foreign exchange contracts have been entered into for genuinely restricting its bonafide risk exposure of the assessee in respect of its exports and imports transactions. These contracts cannot, therefore, be viewed on a standalone basis as speculative transactions. These transactions are integral part of the business transactions and any loss or gains arising from these transactions, for the detailed reasons set out above, are deductible in computation of profits and gains of business. 10. In view of the above discussions, we uphold the action of the CIT (A) so far as this relief in ....
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....DBI trusteeship services Ltd (These letters were stated to have been submitted to the TPO). TPO made the addition on the ground that loans were taken from ICICI bank Limited, Singapore whereas RBI's permission refusing pledge of shares was In the case of IDBI trusteeship Ltd. TPO considered these two transactions separate and held that appellant provided guarantee to AE by pledging its Investment in shares. However after considering these letters referred earlier, it is clear that IDBI trusteeship Ltd is security trustee of ICICI bank limited, Singapore and RBI's letter refusing the permission for pledge of shares is in respect of same shares which were provided for guarantee to ICICI bank Limited, Singapore. Thus, it is clear that entire addition is based on the misconception that these two entities represented separate transactions. In view of this it is clear that appellant did not provide guarantee services by pledging shares of MPSEZ for which any adjustment of guarantee commission can be made. The addition made by the assessing officer is therefore not sustainable on facts. Apart from this, appellant also relied upon the decision of ITAT Hyderabad in which it....
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....raised the following grievance: 2. That the Id. CIT(A) has erred in law and on facts in deleting the addition made u/s 14A to the extent of Rs. 1,22,15,784/- despite the fact that the company had claimed an expenditure of Rs. 2,44,31,568/- on its Treasury department which mainly dealt with investments related to earning exempt income. Such expenditure was not disallowed by the assessee in its books and as per Rule 8D(2)(i) such disallowance is not to be restricted to brokerage/stamp charges only. 24. So far as this ground of appeal is concerned, the relevant material facts are like this. The amount which has been deleted, out of disallowance under section 14A, is Rs. 1,22,15,784 bring 50% of the administrative expenses of treasury division. The Assessing Officer had disallowed these expenses by observing that "as understood from the explanations given by the assessee during the assessment proceedings, the treasury department manages the investment functions and also the foreign currency operations like entering into forward contracts, currency swap contracts and cancellation and realization of such receipts" and, for the reason of this understanding, the AO was of the v....
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....t order that the funds were diverted for non business purposes. 28. So far as this ground of appeal is concerned, the relevant material facts are like this. It was noticed by the Assessing Officer that while the assessee has borrowed Rs. 300 crores from UCO Bank, the assessee had paid Rs. 100 crores and Rs. 15 crores to Aditya Corpex Limited and Rs. 60 crores to Gagan Realty Limited, which ultimately found its way to Paras Trade Links Limited. It was explained by the assessee that the assessee had made purchases from Aditya Corpex Ltd (Rs. 123.88 crores) and Gagan Realty Ltd (Rs. 317.48 crores). That explanation did not find favour with the Assessing Officer, as, according to him, the balance in these accounts was positive and it was not a case of making payment for purchases. It was also noted that these payments were also forwarded by Paras Trade Links Limited to Brakel Kinnaur Power Ltd which, in turn, paid the money to the Government of Himachal Pradesh as fees for Hydel Power Project. It was on the basis of this analysis that the Assessing Officer came to the conclusion that the monies borrowed from UCO Bank were diverted to Brakel Kinnaur Power Limited with which the asses....
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....ssing Officer has raised the following grievance: 4. That the ld. CIT(A) has erred in law and on facts in deleting the disallowance of depreciation of Rs. 8,07,818/- claimed on shares despite the fact that shares are not depreciable assets. 33. Learned representatives fairly agree that this issue is squarely covered, in favour of the assessee, by a decision dated 1st January 2016 in assessee's own case for the assessment year 2007-08. A copy of the said decision was placed before us as well. 34. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we confirm the relief granted by the CIT(A) and decline to interfere in the matter. 35. Ground no. 4 is thus dismissed. 36. Ground no. 5 is already dealt with, in the course of dealing with the appeal filed by the assessee earlier in this order, and we need not repeat our findings thereon. Suffice to say, for the reasons set out earlier, this ground is also dismissed. 37. In ground no. 6, the Assessing Officer has raised the following grievance: 6. That the Id. CIT(A) has erred in law and on facts in deleting the disallowanc....
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....3) r.w.s. 144C of the Income Tax Act, 1961, for the assessment year 2009-10. 45. In the first ground of appeal, the assessee has raised the following grievance: 1.(A) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in partly sustaining the upward adjustment of Rs. 4,51,82,460 made by the Assessing Officer on the basis of the Transfer Pricing Officer's order dated 29.1.2013 passed u/s.92CA(3) of the IT. Act, on the assumption that the appellantcompany should have charged guarantee commission from its wholly owned foreign subsidiaries in consideration of providing corporate guarantee aggregating to Rs. 152.85 crores to the lenders providing borrowings to the said subsidiaries. (B) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in confirming the above mentioned upward adjustment of Rs. 4,51,82,460 to the extent of Rs. 3,05,70,000 by adopting an arbitrary rate of 2% of the total guarantee amount as against the rate of 2.956% adopted by the Transfer Pricing Officer. (C) Without prejudice to the above, on the facts and in the circumstances of the case, the learned C.IT. (Appeals....
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....parent. The parent, with its better rating, is able to provide benefit in the form of lower spread to its AE. Such risk spread is effectively measured by difference in risk spread by differently rated bonds being traded in the market. As discussed above, the credit spread in respect of the assessee and its AE is proposed to be adopted as above. On analysis of over 1200 corporate bond data publicly available on the internet (http://report.finance.yahoo.com), with 167 samples pertaining to FY 2008-09, it is seen that the average difference in coupon rate (yield or interest rate) in respect of AA rated bonds and B rated bonds comes to 2.706%age points. A copy of the working carried out has been handed over to the assessee alongwith the show cause letter in a CD. A currency risk of 25 basis points is found sufficient to cater to currency risk as Indian currency is more likely to fluctuate against dollar raising the risk assumed by the Indian company giving the guarantee, the guarantee fee would work out to 2.956% . The assessee has given guarantees to the extent of Rs. 152.85 crore on behalf of the Dubai company. Accordingly, the guarantee fee is computed at Rs. 4,51,82,460/-." 48. ....
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....prove that it has not incurred any cost for the guarantee provided [as was done in the case of Bharti Airtel Ltd.]. 4.6 The next issue for the consideration is regarding the quantum of upward adjustment to be made. In this connection, it is seen that the TPO adopted the rate at 2.956% [on the total amount of the guarantee provided by the appellant of Rs. 152.85 crores]. In the case of Everest Kanto Cylinder, relied on by the A.R., Mumbai Tribunal held as under: "We have already come to the conclusion in the foregoing paras that the rate of 3% by taking external comparable by the TPO, cannot be sustained in facts of the present case. We also find that in an independent transaction, the assessee has paid 0.6% guarantee commission to ICICI Bank India for its credit arrangement. This could be a very good parameter and a comparable for taking it as internal CUP and comparing the same with the transaction with the AE. The charging of 0.5% guarantee commission from the AE is quite near to 0.6%, where the assessee has paid independently to the ICICI Bank and charging of guarantee commission at the rate of 0.5% from its AE can be said to be at arms length." In the....
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....rporate guarantees amounts to international transaction within meanings of section 92B. In the case of Micro Ink (supra), the coordinate bench, speaking through one of us (i.e. the Vice President), has held, as summarized by the headnotes on the taxmann.com, as follows: i. It is only elementary that the determination of arm's length price, under the scheme of the international transfer pricing set out in the Act, can only be done in respect of an 'International transaction'. Section 92(1) provides that, "(a)ny income arising from an international transaction shall be computed having regard to the arm's length price". In order to attract the arm's length price adjustment, therefore, a transaction has to be an 'international transaction' first. The expression 'International transaction' is a defined expression. Section 92B defines the expression 'international transaction'. [Para 21] ii. The 'OECD' Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' specifically recognises that any activity in the nature of shareholder activity, which is solely because of ownership interest in one....
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....o the definition of international transaction' under the Indian transfer pricing legislation. So far as arm's length test is concerned, it presupposes that such a transaction is possible in arm's length situation. However, in a situation in which the subsidiary does not have adequate financial standing of its own and is inadequately capitalized, none will guarantee financial obligations of such a subsidiary. [Para 38] v. The issuance of financial guarantee in favour of an entity, which does not have adequate strength of its own to meet such obligations, will rarely be done. The very comparison, between the consideration for which banks issue financial guarantees on behalf of its clients with the consideration for which the corporates issue guarantees for their subsidiaries, is ill conceived because while banks seek to be compensated, even for the secured guarantees, for the financial risk of liquidating the underlying securities and meeting the financial commitments under the guarantee, the guarantees issued by the corporate for their subsidiaries are rarely, if at all, backed by any underlying security and the risk is entirely entrepreneurial in the sense that....
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....e guarantees. ix. Of course, when a client is so well placed in his credit rating that banks can issue him clean and unsecured guarantees, he gets no further economic value by a corporate guarantee either. One can now compare this kind of a guarantee with a corporate guarantee. The guarantees are issued without any security or underlying assets. When these guarantees are invoked, there is no occasion for the guarantor to seek recourse to any assets of the guaranteed entity for recovering payment of default guarantees. The guarantees are not based on the credit assessment of the entity, in respect of which the guarantees are issued, but are based on the business needs of the entity in question. Even in a situation in which the group entity is sure that the beneficiary of guarantee has no financial means to reimburse it for the defaulted guarantee amounts, when invoked, the group entity will issue the guarantee nevertheless because these are compulsions of his group synergy rather than the assurance that his future obligations will be met. x. There is no meeting ground in these two types of guarantees, so far their economic triggers and business considerations are c....
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....arantee. Such a guarantee transaction can only be, and is, motivated by the shareholder, or ownerwise considerations. xiv. No doubt, under the OECD Guidance on the issue, an explicit support, such as corporate guarantee, is to be benchmarked and, for that purpose, it is in the service category but that occasion comes only when it is covered by the scope of 'international transaction' under the transfer pricing legislation of respective jurisdiction. The expression 'provision for services' in its normal or legal connotations, as seen earlier, does not cover issuance of corporate guarantees, even though once a corporate guarantee is covered by the definition of international transaction', it is benchmarked in the service segment. In view of the above, OECD Guidelines, as a matter of fact, strengthen the claim of the assessee that the corporate guarantees issued by the assessee were in the nature of quasi capital or shareholder activity and, for this reason alone, the issuance of these guarantees should be excluded from the scope of services and thus from the scope of 'international transactions' under section 92B. xv. Of course, once a tr....
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....ed any extra cost to the assessee should not be the deciding factor to determine whether it is an international and then gives an example of brand royalty to make his point. What, in the process, he overlooks is that is that section 92B(1) specifically covers sale or lease of tangible or intangible property". The expression "bearing on the profits, income, losses or assets of such enterprises" is relevant only for residuary clause i.e. any other services not specifically covered by section 92B. xviii. There is no dispute that Explanation to section 92B states that it is merely clarificatory in nature inasmuch as it is 'for the removal of doubts', and, therefore, one has to proceed on the basis that it does not alter the basic character of definition of 'international transaction' under section 92B. Accordingly, this Explanation is to be read in conjunction with the main provisions, and in harmony with the scheme of the provisions, under section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transactions'. The first two categories of transactions, which are st....
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....on dealing with restructuring and reorganization, wherein it is acknowledged that such an impact could be immediate or in future as evident from the words "irrespective of the fact that it (i.e. restructuring or reorganization) has bearing on the profit, income, losses or assets of such enterprise at the time of transaction or on a future date". What is implicit in this statutory provision is that while impact on " profit, income, losses or assets" is sine qua non, the mere fact that impact is not immediate, but on a future date, would not take the transaction outside the ambit of 'international transaction'. It is also important to bear in mind that, as it appears on a plain reading of the provision, this exclusion clause is not for 'contingent' impact on profit, income, losses or assets but on 'future' impact on profit, income, losses or assets of the enterprise. xxii. The important distinction between these two categories is that while latter is a certainty, and only its crystallization may take place on a future date, there is no such certainty in the former case. In the instant case it is an undisputed position that corporate guarantees issued ....
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....", it did not constitute an international transaction, under section 92B, in respect of which an arm's length price adjustment could be made. In this view of the matter, and for both these independent reasons, the impugned ALP adjustment is set aside. [Para 48] 52. We are in considered agreement with the views so expressed by the coordinate bench. In the circumstances, we see no reasons to take any review of the matter then the view so taken by the coordinate benches. It cannot be open to us to revisit the conclusions arrived at by the coordinate benches, but then this issue is an open issue before the Hon'ble jurisdictional High Court and of course, whatever we say is and shall always remain subject to what Hon'ble Courts above decide on the issue. As for the observations of the authorities below that the assessee has not produced any evidence of not incurring any costs, this observation is incorrect inasmuch as none can be expected to prove a negative. The onus of demonstrating that the costs have been incurred can only be on the revenue authorities, and that onus has not been discharged. Even during the course of hearing when it was asked as to what are the costs incurred....
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....ted, copies of such accounts were provided to entire AO and appellant had opted to suo moto disallowance the entitle expenditure of that division viz Rs. 1,56,62,600 U/s. 14A while computing total income and AO has not given any cogent reasons for not satisfying with the corrections of claim of appellant as provide in section 14A(2). (B) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in not deleting proportionate disallowance of interest expenditure U/s. 14A of the act on the ground that interest free funds available with appellant company in form of share capital, reserves & surpluses and other funds are far in excess of investments yieldingly tax free income. (C) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in upholding disallowance of administrative expenditure of Rs. 5,38,47,568 made by the Assessing Officer u/s.14A of the I.T. Act by applying Rule 8D(2)(iii) of the I.T. Rules 58. Learned representatives submit that an identical issue has come up for adjudication before us in the immediately preceding assessment year, i.e., 2008-09, and whatever we decide in that assessment year....
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....e appellant-company to restrict the aforesaid disallowance by setting off the sum of Rs. 73,06,199, being the preceding year's provision for similar losses disallowed by the Assessing Officer and reversed by the appellant-company in the books of account during the previous year relevant to the present assessment year. 64. Learned representatives submit that an identical issue has come up for adjudication before us in the immediately preceding assessment year, i.e., 2008-09, and whatever we decide in that assessment year will apply mutatis mutandis to this assessment year as well. 65. We find that, while dealing with identical grievance of the assessee for the assessment year 2008-09, and for the reasons set out earlier in this order vide paragraph nos.12-15, we have upheld the plea of the assessee. We see no reasons to take any other view of the matter for this assessment year as well. Respectfully following the view so taken, we uphold the plea of the assessee and delete the impugned disallowance. The assessee gets the relief accordingly. 66. Ground no 5 is thus allowed. 67. In ground no. 6, the assessee has raised the following grievance: 6. On the facts ....
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....ndeed been made to a non-resident and no tax has been deducted at source. The payment being in the nature of interest income which is separately covered under the respective tax treaties and, beyond any dispute or controversy, these payments have an element of income taxable in India. As regards learned counsel's contention that the payment having been made to a bank which are specifically excluded from the scope of tax withholding obligations under section 194A, this argument overlooks the fact that this exclusion relates only to a resident taxpayer and the recipients in this case are non residents. In our considered view, the authorities below were right in holding that the payments were made to the foreign companies, and, therefore, section 195 came into play, and that section 194A was applicable only with respect to payment to residents and will not accordingly come to the rescue of the assessee. We uphold the reasoning of the authorities below, and decline to interfere in the matter. 72. Ground no.6 is dismissed. 73. In the result, the appeal of the assessee for the assessment year 2009-10 is partly allowed in the terms indicated above. 74. We now take up appeal of th....
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..... Ground no. 3 is thus dismissed. 82. In ground no. 4, the Assessing Officer has raised following grievance: (4) The Id. CIT(A) has erred in deleting the addition of Rs. 7,27,036/- being the depreciation claimed by the assessee on shares held by it in Ruparelia Theatres Pvt. Ltd. Shares are not assets on which depreciation can be allowed u/s 32 r.w. depreciation schedule. 83. Learned representatives fairly agree that this issue is squarely covered, in favour of the assessee, by a co-ordinate bench decision dated 1st January 2016 in assessee's own case for the assessment year 2007-08. A copy of the said decision was placed before us as well. 84. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we confirm the relief granted by the CIT(A) and decline to interfere in the matter. 85. Ground no. 4 is thus dismissed. 86. In ground no. 5, the Assessing Officer has raised following grievance: (5) The Id. CIT(A) has erred in law and on facts and circumstances of the case in deleting the disallowance of Rs. 17,33,265/- u/s 36(1)(iii) on account of interest on borrowings. ....
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....ar as this ground of appeal is concerned, the relevant material facts are like this. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed a deduction of Rs. 58,31,457 in respect of currency swap losses. When he probed the matter, it was explained by the assessee that as an export house, the assessee has to make foreign currency working capital loans, and as a part of the terms of sanction of such loans, the bankers require the assessee to enter into currency swap arrangement for these foreign currency borrowings. The Assessing Officer was, however, of the view that these transactions are in the nature of speculative transactions inasmuch as these are derivative transactions and not specifically covered by the exclusions set out in Section 43(5)(d). The loss was thus held to be of the nature which cannot be allowed as deduction in computation of business income. The deduction was, on the basis of this line of reasoning, declined. Aggrieved, assessee carried the matter in appeal before the CIT(A) who deleted the disallowance by respectfully following a decision of this Tribunal in the vase of ACIT Vs Heavy Metal & Tubes Lim....
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.... losses and not speculative one. We find that hon'ble jurisdictional high court's decision in Pankaj Oil Mills v. CIT [1978] 115 ITR 824 (Guj) (Full Bench) also holds inter alia that hedging contracts; in order to be out of speculative transactions, must be in respect of raw materials only in manufacturers' cases though they could be both with regard to sales and purchases, such hedging contracts need not succeed the contract for sale and actual delivery of goods manufactured, but the latter could be subsequently entered into within reasonable time not exceeding the relevant assessment year in normal circumstances and such transactions should not exceed the total stock of the raw material or merchandise on hand including existing stocks as well as that acquired under the firms contract of purchases in order to be genuine and valid hedging contract of sales; respectively. Learned Departmental Representative fails to indicate any distinction therein vis-à-vis those involved in the instant adjudication. We therefore direct the Assessing Officer to delete the impugned disallowance. 97. Respectfully following the binding judicial precedents, we confirm the conclusi....
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.... 0.25% should be adopted for the purpose of benchmarking in the case of the appellant-company. 102. In a related grievance, raised by the Assessing Officer as first ground of appeal in his appeal for AY 2010-11 - which we will take up at this stage, the issue raised is as follows:- (1) The ld. CIT(A) has erred in law and on facts in deleting the addition made of Rs. 4,36,97,230/- on account of upward revision made by TPO on account of free of charge corporate guarantee given to Associated enterprises. 103. So far as this grievance is concerned, we find that the issue has already been adjudicated by us for the immediately preceding year 2009-10 for the reasons set out earlier in this order vide paragraph no.52, whereby we have upheld the conclusions arrived at by the ld. CIT(A). We see no reasons to take any other view of the matter for this assessment year as well. In any case, there is no material change in the facts and circumstances of the case for this year which could change the said stand. Respectfully following the view so taken, we approve the stand of the CIT(A) and decline to interfere in the matter. 104. Ground no. 1 of the assessee is accordingly....
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....the assessee has raised the following grievance: 3. On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in upholding the disallowance of prior period expenses of Rs. 1,03,75,360 which actually crystallized during the present assessment year. 110. This issue has already been dealt with by us while adjudicating ground no. 2 of assessee's appeal for AY 2009-10. The material facts and circumstances of this year are similar and learned representatives have agreed that whatever we decide for the assessment year 2009-10 will apply mutatis mutandis for this assessment year as well. We, therefore, respectfully following the same, uphold the grievance of the assessee and delete the impugned disallowance with respect to prior period expenses. The assessee gets the relief accordingly. 111. Ground no. 3 is thus allowed. 112. In ground no. 4, the assessee has raised the following grievance: 4. On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in upholding disallowance of administrative expenditure of Rs. 7,08,00,000 made by the Assessing Officer U/S.14A of the I.T. Act by applying Rule 8D(2)(iii) of ....
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....d and duly considered facts of the case in the light of the applicable legal position. 119. We find that as long as a loss is incurred in the course of a business, and in legitimate furtherance of its bonafide interests, the loss is deductible in computation of business income. What, therefore, needs to be examined is whether or not these advances were made in the course of the business and whether these advances have actually become bad. If the answer to both these questions are in positive, there cannot normally be a good reason to reject the claim. We, therefore, deem it fit and proper to remit the matter to the file of the Assessing Officer with a direction to decide the matter afresh by way of a speaking order in accordance, in the light of the above observations and after giving yet another opportunity of hearing to the assessee. We order accordingly. 120. Ground no. 5 is thus allowed for statistical purposes in the terms indicated above. 121. In ground no. 6, the assessee has raised the following grievances: 6. (A) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in sustaining disallowance of deduction of a sum of Rs. 2,....
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....as well. 130. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. In any case, there is no dispute that the interest free funds available to the assessee were far more than the funds invested in securities yielding tax exempt income. On these facts, in the light of the binding judicial precedents, one has to proceed on the basis that such interest free funds in making these investments, and no part of interest can thus be disallowed under section 14A read with rule 8D. Respectfully following the same, we confirm the relief granted by the CIT(A) and decline to interfere in the matter. 131. In ground no. 3, the Assessing Officer has raised the following grievance: (3) The Id. CIT(A) has erred in law and on facts in deleting the disallowance of depreciation of Rs. 6,54,333/- in respect of office premises. 132. Learned representatives fairly agree that this issue is covered by a decision of this Tribunal, in assessee's own case for the assessee for the assessment year 2007-08. Respectfully following the same, we confirm the findings of the CIT(A) and decline to interfere in the matter. 133. Ground no 3 is thus dism....
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....d following the judgment of Hon'ble Bombay High Court in the case of CIT Vs Park Davis India Ltd (214 ITR 587), learned CIT(A) held the office equipment to be eligible for 15% depreciation. Accordingly, depreciation disallowance of Ts 13,84,895 was deleted. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 142. Having heard the rival contentions, and having perused the material on record, we find that this issue is also covered, in favour of the assessee, by a decision of the coordinate bench in the case of Cera Sanitaryware Ltd Vs DCIT [42 ITR (Trib) 334 (Ahd)]. Respectfully following the same, we confirm the conclusions arrived at by the CIT(A) and decline to interfere in the matter. 143. Ground no. 6 is thus dismissed. 144. In ground no. 7, the Assessing Officer has raised the following grievance: (7) The Id. CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on UPS for Rs. 8,14,103/-. 145. Learned representatives fairly agree that this issue is also covered, in favour of the assessee, by Hon'ble Delhi High Court's judgment in the case of CIT Vs BSES Yamuna Power Ltd (358 ITR ....