TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 2191
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....rief facts regarding the above issue are that the assessee is a company, engaged in the business of manufacturing of drugs and pharmaceuticals preparation. In the course of assessment proceedings for the AY. 2009-10 u/s. 143(3) of the Income Tax Act [Act], the Assessing Officer (AO) noticed that in the computation of income, the assessee had claimed deduction of a sum of Rs. 5,23,38,266/- under the head 'Foreign Currency Monetary Item Translation Difference Account'. The AO called upon the assessee to furnish the details in respect of the aforesaid claim of assessee and also to substantiate as to how the aforesaid claim is admissible. 3.1. In reply, assessee submitted that as per the provisions of Accounting Standard-11 (AS-11), issued by the Institute of Chartered Accountants of India (ICAI), the effect of changes in foreign exchange rates, insofar as they relate to the recognition of losses or gains arising on re-statement of long term foreign currency monetary items should be recognized. In doing so, the assessee has exercised his option of adjusting to the cost of the asset, where the long-term foreign currency monetary item relate to the acquisition of a depreciable capital....
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....for increase/decrease only for currency fluctuation at the time of payment. This will have a major implication for increase/decrease in unpaid foreign currency liability as though value of assets for the same has to be increased/decreased in the books of account. The amount of liability as stated above increased/decreased during the previous year are taken into account at the time of making payment irrespective of the method of accounting adopted by the assessee shall be added as the case may be deducted from actual cost of asset. 4.8. In view of the discussion made above the action of the AO is upheld. However, as per ruling of the Hon'ble ITAT in the case of JSW Steel Ltd.,Vs. ACIT (supra) depreciation is to be allowed on the enhanced value of the capital assets." 5.1. Aggrieved by the aforesaid order of CIT(A), assessee preferred an appeal before the Tribunal. 6. Before the Tribunal, the assessee has filed an application for admission of the following additional evidences: Sl. No. Particulars of documents 1 Loan sanction letter dated 31.12.2005, issued by ICICI Bank addressed to the appellant. 2 Loan sanction letter dated 15.12.2005, issued b....
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....were purchased indigenously or were imported from abroad, since, the application of Sec. 43 A of the Act would depend on the said fact and if the capital assets are purchased indigenously, invoking of Sec. 43 A of the Act and disallowance thereof would not arise at all. This particular angle was not gone into either during the course of assessment or the first appellate proceedings both by the Appellant as well as by the Department. Therefore, the said additional documents which are required to substantiate the said fact, could not be produced during the course of assessment or the first appellate proceedings. Likewise, in respect of the disallowance interest U/s. 36 (1) (iii) r.w. Sec. 37 of the Income Tax Act, the said issue in the Appellant's case in respect of the earlier Assessment Years were raised by the Assessing Officer, and the proposal to disallow the same was dropped based on the submissions of the Appellant and the Audited Financial Statements of the Companies to which Advances were made by the Appellant. Neither the Counsel nor the Appellant realised the necessity of relying and producing these documents either during the assessment proceedings or first appellate ....
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....substantial in nature". 8.1. The application for raising additional ground is also dismissed for the very same reasons. Ld. Counsel for the assessee submitted that Shri Harish, Advocate who was handling the matter, could not make appearance and sought for time. This request was made after hearing of the appeal commenced. Further, this appeal filed in the year 2014 and has been adjourned on several occasions at the request of the assessee. In these circumstances, we are of the view that no useful purpose will be served by granting adjournment. 8.2. We find that the claim made by the assessee was contrary to the provisions of Section 43A of the Act and in the circumstances, the Revenue authorities were justified in rejecting the claim of assessee. The argument that similar gain was offered to tax in the earlier assessment years will not be a ground to accept the claim of assessee in the present assessment year. We therefore concur with the view of the CIT(A) and dismiss the relevant ground of appeal of assessee. 9. The next grievance projected by the assessee in its appeal is with regard to disallowance of interest u/s. 36(1)(iii) of the Act. 9.1. As far as this issue is ....
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....apital raised during the year to an extent of Rs.3.45 Crores. This itself clearly proves beyond doubt that the same were out of interest free funds. C.2.5 The Appellant submits that there was no necessity for the Appellant to borrow funds for interest and advance the same without any interest. As a matter of fact, not only the Appellant, but any prudent businessman or a Corporate entity would ever opt to borrow money for interest and lend it for no gain / profit. It is also to be appreciated that the Appellant has availed Working Capital facility from its Bankers. Such being the case, the Bankers would not permit diversion of funds other than for business purposes". 10.1. The CIT(A) on a consideration of the above submissions, accepted the fact that the assessee had sufficient own funds. The following were the relevant observations of the CIT(A): "6.4 I have considered the appellant's submission and it is true that the appellant having tax free fund of Rs. 50,19,32,748/- as on 31/03/2009. It is also true that the appellant borrowed fund of Rs. 50,29,48,224/- on which interest and bank charges claimed for Rs. 3,33,99,162/- and utilization of borrowed fund under ....
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....est free funds available with assessee was sufficient at all material point of time when loans were advanced to the subsidiary company and hence disallowance of interest u/s. 36(1)(iii) of the Act cannot be sustained and the same is directed to be deleted. 12. In the result, the appeal of assessee is partly allowed. ITA No. 210/Bang/2014 (Revenue's appeal): 13. As far as the appeal of Revenue is concerned, the Ground Nos. 1, 5 & 6 raised by the Revenue are general in nature and calls for no adjudication. 14. Ground Nos. 2 & 3 raised by the Revenue are with regard to disallowance of expenses made by the Revenue authorities invoking the provisions of Section 14A of the Act. As far as this issue is concerned, the facts are that the assessee earned dividend income on its investments in the shares of M/s. Kemfin Holdings Pvt. Ltd., Cyprus no other dividend income was earned from any investment. The dividend income earned from M/s. Kemfin Holdings Pvt. Ltd., Cyprus was chargeable to tax and was not an item of income, which does not form part of total income under Chapter-III of the Act. In the given circumstances, the question of re-consideration is as to whether disallowance....
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....eported in [2015] 4 ITR-OL 246 (P&H)--which in turn referred to two earlier decisions of the same court in CIT v. Hero Cycles Ltd. [2010] 323 ITR 518(P&H) and CIT v. Winsome Textile Industries Ltd. [2009]319 ITR 204 (P&H). The second was of the Gujarat High Court in CIT v. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj) ; [2015] 372 1TR 97 (Guj) and the third of the Allahabad High Court in CIT v. Shivam Motors (P) Ltd. (decision dated 5th May, 2014, in T.A.No. 88 of ITA No.1 1071Bang12016 2014). These three decisions reiterated the position that when an assessee had not earned any taxable income in the relevant assessment year in question "corresponding expenditure could not be worked out for disallowance." 4. This was also examined by the Tribunal in the assessee's own case for assessment year 2010-11 and held that when there is no exempt income, provision of section 14 of the Act cannot be applied. 5. In the light of the aforesaid judgment, the provisions of section 14A cannot be invoked as there is no exempt income in the hands of the assessee. Accordingly, we find no infirmity in the order of the CIT(Appeals) who has rightly deleted the addition." ....
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....ax relief to the extent of tax payable in Cyprus but which was not paid because of tax incentive given by the Cyprus Government on dividend. Article 25 of the DTAA which deals with avoidance of double taxation of income, in Para 1 of Article 25 provides that the taxation of income would be governed by the laws of the respective contracting states. Para 2 of Article 25 of the Double Taxation Avoidance Agreement (DTAA) between India - Cyprus allows credit for taxes paid in Cyprus, directly or by deduction, in computing the income tax payable in India. Para 3 is not relevant in the present case. Para 4 of Article 25 allows credit on taxes deemed to have been paid in Cyprus. As per para 4, tax payable in Cyprus shall be deemed to include the tax which would have been payable but for the tax incentives granted under the laws of Cyprus and which are designed to promote economic development. Para 4 quantifies the quantum of tax that shall be deemed to have been paid in respect of certain streams of income. This is popularly termed as the "tax sparing" credit. The following table captures the said information. Sl. No. Article Particulars of income Tax deemed to have been paid ....
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....Sham and other 108 ITR 345 (SC) ii. Keshavji Raoji and Company 183 ITR 1 (SC) iii. Budharaja and Company 204 ITR 412 (SC) Wherein it has been held that when the wordings in the Statute are clear and specific, it has to be followed strictly without importing or assessing any other meaning or intention. Based on the above, the rebate u/s. 90 of Rs. 68,60,892/- claimed by the assessee is disallowed and added back to income". 15.4. On appeal by the assessee, the Ld.CIT(A) noticed that similar claim made in AY. 2008-09 was allowed by the CIT(A) and the Revenue did not prefer appeal before the ITAT on the aforesaid order. Ld.CIT(A) agreed with the conclusions of his predecessor with the following observations: "7.3 I have gone through the appellant's submission. Similar issue arose during the assessment year 2008-09 and my predecessor in the appellate order in ITA No. 39/DCIT-LTU/CIT(A)LTU/10-11 dated 29/03/2011 analysed the similar issue in details and decided in favour of the appellant, the relevant part of the decision is reproduced below :- "5.1 Based on a careful consideration of the appellant's arguments as well as th....
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....ch proof as a pre-condition for allowing tax sparing credit negates the very scheme of tax sparing. Moreover as regards the implication of the phrase 'to promote economic development' economic development in ordinary parlance refers to sustainable increase in living standards that delivers increase per capital income, better education and health as well as environmental protection. The public policy of any Stat aims at continuous and sustained economic growth and expansion of national economics so that 'developing countries' become 'developed countries'. Hence the phrase 'to promote economic development' would imply measures undertaken to further/bolster the cause of increasing the standard of living of the people by means of sustained growth. Attracting and encouraging new businesses is definitely a took to implement the cause of economic development and giving incentives in the nature of exemption from liability to tax in r/o dividends is a very elementary method by which resources could be garnered to be invested in new business etc., thereby promoting economic growth and development. In my view, no other specific evidence is mandated either by law or common sense to establi....
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....eaty and the intention and purpose behind the provisions incorporated in the Treaty should be given due weight has been taken by the Authority of Advance Ruling in the case of Cal Dive Marine construction(Mauritius) Ltd. in re [2009] 315 ITR 334 (AAR) and the Hon'ble ITAT, Delhi Bench in the case of Ensco Maritime Ltd. Vs Dy. CIT[2004] 91 ITD 459 (pages 476-477) which has enunciated the principles of interpretation of treaties. It is noteworthy that the Hon'ble ITAT, Mumbai Bench in the case of Dy. DIT (International Taxation) Vs Balaji Shipping (UK) Ltd. (2009) 315 ITR (AT) 62:(2008) 117 TTJ 865 (Mumbai) also held that the rules of interpretation for interpreting a statue were not applicable for interpreting the covenants of tax Treaties between contracting States. Further the Tribunal has observed that the words or expressions used in the Treaties, if not defined in the treaties themselves, should be understood in the sense in which the contracting States understood them at the time the Treaty was executed; i.e., contemporaneous thinking. In view of the foregoing analysis, I am inclined to uphold the appellant's claim for credit for double taxation relief amounting to....