2013 (9) TMI 233 - ITAT PANAJI

Disallowance u/s 14A of I.T.Act read with Rule 8D of IT Rules - Assessee invested in debts mutual funds. Assessee computed disallowance u/s 14A(2) at ₹ 25,78,156/- and disallowed same, while computing its total income - Held that:- AO merely observed that the administrative expenses disallowed by the assessee is very less but how they are less and how the other expenses incurred by the assessee related to dividend income has not been brought on record. AO has not pointed out expenses excluded by assessee for disallowance has proximate connection with dividend income - Assessing officer before rejecting disallowance computed by assessee must give a clear cut finding having regard to accounts of assessee how other expenditure claimed by assessee out of non exempt income related with exempt income. No discrepancy in claim of assessee was pointed out – Onus of proof lies on Assessing officer – Reliance has been placed upon various judgments s.a. DCIT Vs. Jindal Photo Ltd [2010 (12) TMI 521 - ITAT, New Delhi]; CIT Vs. Hero Cycles [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT], wherein it has been held that disallowance u/s 14A of Act requires a clear finding of incurring of expenditure and that no disallowance can be made on basis of presumptions – Decided in favor of Assessee.

Payment of sales commission - payment to third parties - Genuineness - Disallowance u/s 37 - Requirement of TDS u/s 195 – Held that:- Reliance has been placed upon judgment in case of CIT Vs Chandulal Keshavlal and Co. [1960 (2) TMI 1 - SUPREME Court], wherein held that if expense incurred for fostering business of another only or for some improper or oblique purpose outside course of business then expense not deductible. In deciding whether a payment of money a deductible expenditure one has to take into consideration questions of commercial expediency and principles of ordinary commercial trading. If payment or expenditure incurred for purpose of trade of assessee it does not matter that payment may incur to benefit of a third party. Another test whether transaction properly entered into as a part of assessee's legitimate commercial undertaking in order to facilitate carrying on of its business; and it immaterial that a third party also benefits thereby. But in every case it a question of fact whether expenditure was expended wholly and exclusively for purpose of trade or business of assessee.

In instant case, buyers had been introduced by said agents in past. Emails exhibit that agents were deeply involved with buyers vis-a-vis assessee in actual transportation of goods and securing payments to assessee, confirming vessel nomination, request to agents for opening of LC, amendment to the LC, advising changes in sale contract etc.– Thus, easily inferred that non-resident agents were actually rendering services as middlemen in terms of their respective agreements with assessee and, accordingly, commission was genuinely paid by assessee for those services only, i.e., wholly and exclusively for purpose of business of assessee – Decided in favor of Assessee.

TDS on demurrage reimbursed by the assessee to the foreign buyer to compensate the foreign buyer for paying demurrage to the ship owner - Held that:- In case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to purchase of goods in India for purpose of export. Non-resident buyer got compensation towards demurrage incurred through operation which are confined to purchase of goods, i.e. in relation to ship which it had arrange for taking delivery of goods from assessee/seller from India - Income cannot be deemed to accrue or arise in India in hands of foreign buyer and therefore it cannot be taxable in India and not liable to tax deduction at source - No disallowance can be made u/s 40(a)(ia) – Decided in favor of Assessee.

TDS on demurrage paid to ship owner - Held that:- In view of the circular the assessee was not obliged to deduct tax at source on the demurrage paid to the shipping owners during the year. Since the provision of TDS were not applicable, therefore no disallowance can be sustained u/s 40(a)(ia). - Decided in favor of assessee.

Allowance of education and higher education cess as business expenditure – Held that:- Education cess and secondary higher education cess levied by assessee has been collected as part of income-tax and provisions of section 40(a)(ic) & (ii) are clearly applicable and assessee not entitled for deduction. Said payment not a fee but a tax – Decided against Assessee.

Eligibility of deduction u/s 10B for 100% EOU - By Finance Act, 2000, definition of 'manufacture' which included 'processing' contained in section 10B of Act was deleted w.e.f. 01.04.2001 – Held that:- Reliance has been place upon judgment in case of Commissioner of Income-Tax Versus Tara Agencies[2007 (7) TMI 4 - SUPREME COURT OF INDIA], wherein it has been held that blending of tea does not amount to 'manufacture' or 'production' of an article, but only processing – In present case, assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognised as a 100% EOU division - Assessee's unit engaged in export of tea bags and tea packets was a 100% EOU – Reliance has also been placed upon judgment in case of Madhu Jayanti case[2012 (7) TMI 531 - ITAT KOLKATA ] – Exemption u/s 10B allowed.

Whether assessee has set new units or has merely reconstructed business which was already in existence – Held that:- CIT(A) had referred to only a few correspondence exchanged with Panchayat to make a case that it was only some repairs or at best a renovation work undertaken at Amona, whereas several other pieces of correspondence were ignored by him which prove that appellant had factually undertaken a major dismantling and demolition of existing plant as well as erection and installation of new plant in its place there – Newspaper clipping clearly bring out fact that a complete destruction of old unit was done and altogether new plant was set-up at Amona, albeit, with aid of some old machinery and parts thereof – Further, for determination of eligibility of a particular unit u/s 10B, value of old plant and machinery installed in that very unit will be considered for determining threshold limit of 20% - Decided in favor of Assessee.

Additional depreciation u/s 32(1)(iia) of Income Tax Act – Held that:- Assessee must be engaged in business of manufacture or production of any article or thing and new plant and machinery must be acquired and installed - Assessee has extracted iron ore and also processed it - Case of assessee duly covered by decision of Hon'ble Supreme Court in assessee's own case reported in [2004 (11) TMI 14 - SUPREME Court] – Allowed additional depreciation – Decided in favor of Assessee.