2015 (8) TMI 1287 - AT - Income Tax

Disallowance u/s 14A - Held that - The issue of calculation of disallowance u/s 14A is restored to the file of the AO to re-compute the disallowance u/s 14A by taking into consideration the principles laid down by the co-ordinate bench of this Tribunal in the case of REI Agro Ltd. 2013 (9) TMI 156 - ITAT KOLKATA wherein held that if there is any interest expenditure, which is directly relatable to any particular income or receipt, such interest expenditure is not to be considered under rule 8D(2)(ii). Also for bringing any interest expenditure, claimed by the assessee, under the ambit of rule 8D(2)(ii) it will have to be shown by the AO that the said interest is not directly attributable to any particular income or receipt - Decided in favour of assessee for statistical purposes. Disallowance of the expenditure towards renewal of a mining lease/afforestation charges - revenue v/s capital expenditure - Held that - In view of the decision of the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. 1997 (4) TMI 5 - SUPREME Court the allowance of this expenditure is to be staggered proportionately over the period of the lease and in proportion to the quantity of ore extracted from the said mine. In these circumstances, this issue is restored to the file of the AO for computation of the allowance of the afforestation charges as revenue expenditure in proportion to the quantum of iron ore extracted over the period of the lease. TDS u/s 195 - non deduction of tds on commission to the foreign agents outside India by applying the provisions - disallowance u/s 40(a)(ia) - Held that - Expenditure has been incurred by the Assessee for the purpose of the business of the Assessee itself. However, in respect of the issue as to whether the Assessee was liable to deduct TDS u/s 195 and whether the disallowance was liable to be made u/s 40(a)(ia) of the Act for non-deduction of the TDS u/s 195(1) of the Act, it is noticed that the provisions of Sec. 195 has been amended by the introduction of Explanation-II to the said section by the Finance Act, 2012 with retrospective effect from 1.4.1962 whereby it is clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. In view of the introduction of Explanation - II to Sec. 195 of the Act, as the Assessee has not deducted TDS u/s 195, the disallowance made by the AO by invoking the provisions of Sec. 40(a)(ia) of the Act would have to be restored and we do so. - Decided in favour of revenue Claim of depreciation @ 60% allowed on the UPS at par with the depreciation rate on computers. See assessee swn case 2013 (4) TMI 814 - ITAT PANAJI Disallowance of expenditure of interest paid on loans taken at interest and advanced to the sister concerns without charging any interest - Held that - As it is noticed that the Assessee has sufficient non-interest bearing funds available with it, the disallowance as made by the AO, and as deleted by the ld. CIT(A) stands confirmed. Addition on account of notional loss on exchange variation - Held that - This issue is restored to the file of the AO for re-adjudication in line with the decision of the co-ordinate bench of this Tribunal in the case of M/s. Majestic Exports 2015 (7) TMI 936 - ITAT CHENNAI wherein held held that Loss suffered on account of forex derivative contracts (Exotic Cross Currency Option Contracts) cannot be treated as speculative loss to the extent that the derivative transactions are not more than the total export turnover of the assessee. If the derivative transaction is in excess of export turnover, the loss in respect of that portion of excess transactions has to be considered as speculative loss because the excess derivative transaction has no proximity with export turnover. Addition on account of repairs and maintenance of old vessels which were in the nature of current repairs - CIT(A) deleted the addition - Held that - Nature of the expenditure is only for the purpose of maintaining the vessels sea-worthy and in accordance with the requirements of the Maritime Regulatory Authority and there is no increase in the capacity . Additions correctly delted Disallowance of additional depreciation deleted

Summary

Issues Involved:
1. Disallowance under Section 14A
2. Deletion of additions under Section 14A
3. Deletion of additions for expenditure towards renewal of mining lease/afforestation charges
4. Deletion of additions towards payment of commission to foreign agents
5. Deletion of disallowance of excess depreciation on UPS
6. Deletion of disallowance of interest on loans to sister concerns
7. Deletion of addition on account of notional loss on exchange variation
8. Deletion of addition on account of loss on options/forwards
9. Treatment of loss on forward contracts as hedging loss
10. Deletion of addition on account of repairs and maintenance of old vessels
11. Deletion of disallowance of additional depreciation

Detailed Analysis:

1. Disallowance under Section 14A:
The Assessee challenged the confirmation of disallowance under Section 14A amounting to Rs. 86,51,566/-. The Assessee contended that the Commissioner (Appeals) erred in applying Rule 8D to all investments. The Tribunal noted that the AO had not considered the Assessee's calculation and made his own, which included all investments. This was deemed impermissible. The Tribunal referenced the REI Agro Ltd. case, stating disallowance should only consider investments generating exempt income. The issue was remanded to the AO for recalculation in line with REI Agro Ltd.

2. Deletion of Additions under Section 14A:
The Revenue's appeal challenged the deletion of Rs. 2,41,01,002/- under Section 14A. The Tribunal upheld the CIT(A)'s deletion of disallowance related to interest but remanded the issue of 0.5% of investments back to the AO for recalculation, following the principles laid down in REI Agro Ltd.

3. Deletion of Additions for Expenditure towards Renewal of Mining Lease/Afforestation Charges:
The Revenue appealed against the deletion of Rs. 70,78,076/- for afforestation charges, arguing it was capital expenditure. The Tribunal referenced the M/s. Damodar Mangalji & Co. Ltd. case, remanding the issue to the AO to determine if the expenditure was capital or revenue and to allow it proportionately over the lease period based on ore extraction.

4. Deletion of Additions towards Payment of Commission to Foreign Agents:
The Revenue challenged the deletion of Rs. 10,86,92,826/- for commission to foreign agents, citing non-deduction of TDS under Section 195. The Tribunal referenced the Sesa Goa Ltd. case, confirming the expenditure was for business purposes. However, due to the retrospective amendment to Section 195, the Tribunal restored the disallowance by the AO for non-deduction of TDS.

5. Deletion of Disallowance of Excess Depreciation on UPS:
The Revenue's appeal against the deletion of disallowance of excess depreciation on UPS was dismissed. The Tribunal upheld the CIT(A)'s decision, which followed the Sesa Goa Ltd. case, allowing depreciation at 60% instead of 15%.

6. Deletion of Disallowance of Interest on Loans to Sister Concerns:
The Revenue's appeal against the deletion of disallowance of interest on loans to sister concerns was dismissed. The Tribunal noted the Assessee had sufficient non-interest bearing funds and referenced the M/s. V.S. Dempo Holding Pvt. Ltd. case, confirming the CIT(A)'s deletion of the notional interest.

7. Deletion of Addition on Account of Notional Loss on Exchange Variation:
The Revenue's appeal against the deletion of addition for notional loss on exchange variation was remanded to the AO. The Tribunal referenced the M/s. Majestic Exports case, instructing the AO to re-adjudicate the issue, ensuring the derivative transactions did not exceed the Assessee's export turnover.

8. Deletion of Addition on Account of Loss on Options/Forwards:
Similar to the notional loss on exchange variation, the Tribunal remanded this issue to the AO for re-adjudication in line with the M/s. Majestic Exports case.

9. Treatment of Loss on Forward Contracts as Hedging Loss:
The Tribunal remanded the issue to the AO to determine if the forward contracts were hedging transactions within the Assessee's export turnover, following the M/s. Majestic Exports case.

10. Deletion of Addition on Account of Repairs and Maintenance of Old Vessels:
The Revenue's appeal against the deletion of addition for repairs and maintenance was dismissed. The Tribunal upheld the CIT(A)'s decision, referencing the Salgaocar Mining Industries Pvt. Ltd. case, confirming the expenditure was for maintaining sea-worthiness without increasing vessel capacity.

11. Deletion of Disallowance of Additional Depreciation:
The Revenue's appeal against the deletion of disallowance of additional depreciation was dismissed. The Tribunal upheld the CIT(A)'s decision, referencing the Sesa Goa Ltd. case, confirming the Assessee's entitlement to additional depreciation for new machinery or plant.

Conclusion:
The appeals by both the Assessee and the Revenue were partly allowed for statistical purposes, with several issues remanded to the AO for re-adjudication based on specific Tribunal decisions and legal principles.