TaxTMI 
TaxTMI 
2022 (4) TMI 1580
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....ppreciate the fact that the disallowance of management fee was not made for following TDS provisions but for lack of genuineness and commercial expediency, as detailed by the AO in the assessment order. 2.2. The CIT(A) failed to appreciate that the assessee had failed to provide any proof related to service rendered as per agreement and other relevant information sought regarding invoices and documentary evidences. 2.3. The CIT(A) erred in not appreciating the fact that the assessee was funneling its fund in the guise of the corporate veil of management fee, through an age old agreement to M/s. India Offshore Inc, a 19.3% shareholder of the assessee, without even disclosing it under related party disclosure in its annual report. 2.4. The CIT (A) ought to have appreciated the decision of the Hon'ble High Court of Kerala in the case of CIT Vs. Premier Breweries (279 ITR 51)(Ker) which has been affirmed by the Hon'ble Supreme Court in 372 ITR 180 (SC) wherein it was held that mere fact that payment has been made under contract or agreement, is not conclusive of fact that expenditure is being paid off wholly and exclusively for purpose of business ........ th....
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....esponse to the notice u/s.148 of the Act, the assessee company vide letter dated 25.04.2016, has requested to treat the original return of income filed on 25.09.2009, as returned filed in response to the notice u/s.148 of the Act. 2.2. The case has been taken up for scrutiny and during the course of assessment proceedings, the AO called upon the assessee to justify the genuineness of payment made to M/s.India Offshore Inc. towards management fees, with necessary evidences. The AO after considering necessary submissions and also taken note of various facts, opined that payment made by the assessee to M/s.India Offshore Inc. is not genuine expenditure, which has been incurred wholly and exclusively for the purpose of business of the assessee and thus, the total payment made to M/s.India Offshore Inc., has been disallowed u/s.37 of the Act. The relevant findings of the AO are as under: 9. The assessee company has not produced any materials to the DDIT (lnv) as committed by Shri C.P. Gopalakrishnan except the collaboration agreement dated 15.12.1986 and the note of service rendered by M/s. India Offshore Inc. The reason for non-availability and nonfurnishing of the remainin....
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.... 16. From the foregoing it is seen that the assessee company has not been able to furnish invoice copies for even AY 2010-11 and AY 2011-12 when specific pointed queries were asked. Based on the above fresh materials, it is concluded that the payments made to M/s India Offshore Inc., is also not genuine and commercially expedient. 17. As a result of the above discussions, the genuineness and commercial expediency of the payment made to India Offshore Inc. is not proved by the assessee. Hence, the entire expenses of Rs.22,48,29,847/- has to be disallowed u/s.37 of the Income-tax Act and added back to the total income of the assessee. 2.3 Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has challenged the re-opening of assessment on the ground of change of opinion. The assessee had also challenged the disallowance of management fees paid to M/s.India Offshore Inc. in light of various evidences and also in light of the decision of the ITAT in the assessee's own case for the AYs 2010-11 & 2011-12. The Ld.CIT(A) after considering the relevant submissions of the assessee, rejected the lega....
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.... the Ministry of Commerce & Industry, Department of Industrial Policy & Promotion. The assessee has paid the amount after deducting applicable TDS as per the provisions of Sec.195 of the Act. The assessee had also filed necessary evidences including agreement between the parties for rendering services. Further, the ITAT had considered the very same issue for the earlier assessment years and after considering the necessary evidences filed by the assessee, held that expenditure was incurred in terms of agreement entered into by the assessee and M/s.India Offshore Inc. vide agreement dated 15.12.1986 and further, the said agreement was renewed from time to time. The relevant findings of the Tribunal are as under: Admittedly, this expenditure was incurred in terms of agreement entered into by the assessee and India Offshore Inc. vide agreement dated 15.12.1986, which was extended up to before the authorities and the Tribunal in earlier years and there was no addition on this count. The payment has been made originally, vide agreement dated 15.12.1986 and it was further extended up to 15.12.2014. Therefore, there is no question of raising invoices for each assessment year and t....
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....usion that there is escapement of income. 3. The Ld. CIT (A) ought to have appreciated the fact that the issues under consideration were reopened by A.O. merely on change of opinion and further were already verified during original scrutiny proceedings. 4. The Ld. CIT (A) ought to have appreciated the fact that the issues raised and examined during the reassessment proceedings have been examined and answered through the queries raised in the notice u/s 143(2) dated 24-01-2014. 5. The Ld. CIT(A) ought to have appreciated the fact that reopening assessment beyond a period of 4 years from the end of the relevant assessment year is invalid as there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 6. The Ld. CIT(A) ought to have appreciated the fact that issuance of notice by A.O. u/s 148 of the Act after an expiry of four years without recording the satisfaction as required under first proviso of section 147 of the Act, is bad in law. 7. The Ld. CIT(A) ought to have appreciated the fact that the re-assessment proceedings cannot be initiated merely....
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....d by the assessee being based on the guidance of the Institute of Chartered Accountants of India, is very scientific and considered every aspect of the transaction and is being followed on consistent basis. 18. The appellant may add, alter or modify any other points to the grounds of appeal at any time before or at the time of hearing of the appeal. 3.1 The Revenue has raised the following grounds of appeal in ITA No.3142/Chny/2019: 1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case. 2. The learned CIT(A) erred in giving relief on the issue of disallowance made u/s 40(a)(i) in connection with the amount paid to M/s. Haledon International Corporation by placing reliance on order of Hon'ble ITAT in assessee's own case for A Y 2012-13 without appreciating the fact that in AY 2012-13 Hon'ble ITAT only remitted the issue to AO to verify afresh and after due verification by AO the addition on similar issue was sustained? 3. The Ld. CIT(A), has erred in not calling for a remand report on the issue of disallowance u/s 32? 4. The Ld. CIT(A), has erred in directing the AO to verify the documen....
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....ion claimed at 20% on the difference amount and further deduction allowed towards foreign exchange fluctuation loss. In response to the notice, the assessee filed return of income and requested the reasons for re-opening of assessment. The assessee had also filed objection for re-opening of assessment and the same has been disposed off vide speaking order dated 17.12.2018. Further, notice u/s.143(2) of the Act, was served on the assessee and calling for objections, if any, for proposed re-opening of assessment on the issue of disallowance of certain payments made to nonresidents u/s.40(a)(i) of the Act, for failure to deduct TDS u/s.195 of the Act. The AO had also called upon the assessee to explain its case with reference to disallowance of depreciation on difference in foreign exchange currency outflow and also deduction claimed towards Forex loss and after considering the relevant submissions of the assessee, has completed the assessment u/s.143(3) r.w.s.147 of the Act, on 26.12.2018 and determined total income at Rs.568,29,31,662/-. 3.4 The assessee carried the matter in appeal before the First Appellate Authority and challenged the re-opening of assessment on the ground of ....
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....nvalid, because, the AO had issued notice u/s.148 of the Act, on the last day of time limit prescribed under the Act. The Ld.AR further submitted that re-opening of assessment beyond the period of four years is not permissible, where there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In this regard, relied upon certain judicial precedents, including the decision of the Hon'ble Supreme Court in the case of New Delhi Television Ltd. v. DCIT reported in [2020] 116 taxmann.com 151. 4.1 The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submitted that the AO has recorded reasons, which suggest escapement of income on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and hence, there is no merit in the arguments of the assessee and thus, the ground raised by the assessee should be rejected. 4.2 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. As regards the first objection of the assessee in light of notice u/s.148 of the Act, issued on the last day of t....
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....ings and proved that provisions of Sec.43A of the Act, has no application to the said loss, because the said provision is applicable only when the assets are acquired from a country outside India, but not to assets acquired within India. The Ld.AR further submitted that the Ld.CIT(A) failed to appreciate the fact that the capital account transactions not covered under the provisions of Sec.43A of the Act and of monetary items, the exchange loss and gains due to fluctuation in Exchange Rates are to be treated as per the applicable GAAP principles. The Ld.AR for the assessee further referring to the Accounting Standard-11 issued by the ICAI submitted that the transactions in the nature of monetary items and are capital in nature are not covered under provisions of Sec.43A of the Act and further, the transactions of Revenue in nature and corresponding effect of exchange difference are to be accounted in the P & L A/c. The Ld.CIT(A) without appreciating those facts simply sustained the additions made by the AO. 5.2 The Ld.DR, on the other hand, strongly supporting the order of the Ld.CIT(A), submitted that the assessee has failed to file necessary evidences including the details to ....
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..... Further, it is a well settled principles of law from the decision of various courts, including the decision of the Hon'ble Supreme Court in the case of CIT v. Woodward Governor India Pvt. Ltd., reported in [2009] 312 ITR 254 (SC) that Forex loss difference on account of re-statement of laibility as on the date of balance sheet, was an item of expenditure u/s.37(1) of the Act, even if such loss pertains to loans/liabilities relates to acquisition of asset. The Hon'ble Supreme Court in the case of CIT v. Tata Iron & Steel Co. Ltd., reported in [1998] 231 ITR 285 (SC) held that cost of assets and cost of raising money for purchase of asset, are two different and independent transactions. Therefore, even subsequent to acquisition of asset, cannot change the price paid for it. The manner of utilization of loans, has nothing to do, if the liability on expenditure in connection with loans re-payment. We further noted that as per Accounting Standard-11, the ICAI has prescribed method for Accounting loss arising on foreign exchange fluctuation and as per which, changes in exchange rates vis-à-vis mandatory items in foreign exchange to be taken into account for computing profit/loss....
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....and management fees amounting to Rs.37,93,72,923/- u/s.40(a)(i) of the Act, on the ground that the impugned payment comes under the definition of fee for technical services u/s.9(1)(vii) of the Act. It was the explanation of the assessee before the lower authorities that payment made to M/s.Haledon International Corporation, Dubai, was towards operation expenditure incurred in respect of operation of rigs in Iran and further, the services were rendered outside India and the payments were also made outside India. Therefore, unless the impugned payment made to nonresident is taxable in India, the assessee does not require to deduct TDS u/s.195 of the Act and consequently, impugned payment cannot be disallowed u/s.40(a)(i) of the Act. 6.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. An identical issue has been considered by the Tribunal, in the assessee's own case for the AY 2015-16 in IT (TP) A No.86/Chny/2019 for the AY 2015-16, wherein, by following its earlier decision for the AY 2012-13, held that twin conditions of rendering services in India and utilization of such services in India are not satisf....
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....he coordinate Bench, we set aside the issue to the file of the AO and direct the AO to re-consider the issue in light of the directions given by the Tribunal for the earlier years and decide the issue in accordance with law. 7. The next issue that came up for our consideration from Ground No.3- 5 of the Revenue's appeal and Ground Nos.8-10 of the assessee's appeal is additions towards disallowance of depreciation on difference in foreign exchange outflow of Rs.62,46,40,863/-. The AO has disallowed the depreciation on addition to fixed assets being Drill Ship amounting to Rs.12,57,82,497/- on the ground that although the assessee claims to have made additions to fixed asset being Drill Ship amounting to Rs.162,13,60,953/-, but assessee could able to file evidences to the extent of Rs.99,24,48,470/-. It was the explanation of the assessee before the AO that there is no actual difference in the foreign currency outflow on account of acquisition of any asset. The assessee has capitalized purchase of new asset as per invoices, whereas, the disclosure in annual accounts is only on the basis of actual outflow of foreign currency transactions, therefore, on that basis additions cannot b....
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....ision on the merits of an issue by accepting additional evidences - agency agreement, ledger-copies etc., without referring these additional evidences to AO for verification and comments as envisaged in sub-Rule (3) of Rule 46A? 3. The learned CIT(A) erred in giving relief on the issue of disallowance made u/s 40(a)(i) in connection with the amount paid to M/s. Haledon International Corporation by placing reliance on order of Hon'ble ITAT in assessee's own case for A Y 2012-13 without appreciating the fact that in AY 2012-13 Hon'ble ITAT has remitted the issue to AO to verify afresh and after due verification by AO the addition on similar issue was sustained by AO? 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 8.1 The only issue that came up for our consideration from Ground No.2- 3 of the Revenue's appeal is disallowance of payment made to M/s.Haledon International Corporation u/s.40(a)(i) of the Act. The AO has disallowed the payment made to M/s.Haledon International Corporation, towards drilling service and m....
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....dia and the utilization of the service in India to attract tax liability u/s.9(i)(vii) remained untouched and unaffected by the Explanation to Section 9 of the Act and outside India. Therefore, the twin criterion of rendering of services in India and utilization of services in India become evidently necessary condition to deduct tax. However, in respect of the said payments, the rendering of services being purely off shore and outside India, the whatever paid towards the said services does not attract tax liability. 12.1 In view of the above, we are inclined to remit the issue to the file of the Assessing Officer to examine the issue afresh in the light of the above order along with the concerned DTAA and decide thereupon. The issue is partly allowed for statistical purposes." 32. In view of the above, we respectfully following the order of Co-ordinate Bench of the Tribunal, we set aside the order passed by the AO and remit the matter back to the AO and direct the AO to follow the above decision of the Co-ordinate Bench of the Tribunal in assessee's own case and pass assessment order thereupon. 8.3 As regards Ground No.2 taken by the Revenue challenging violati....