2013 (11) TMI 1774 - AT - Income Tax

Claim of carry forward of additional depreciation can be allowed under the provision income tax act - Allow carry forward of un-absorbed additional depreciation in the next year? - HELD THAT- Claim of the assessee for carry forward of additional depreciation cannot be allowed as there is no provision in the act to allow carry forward of un-absorbed additional depreciation in the next year. The Tribunal in 2012 (3) TMI 31 - ITAT, CHENNAI held that additional depreciation is allowable on the Plant Machinery only for the year in which the capacity expansion has taken place which has resulted in the substantial increase in the installed capacity. Decision against assessee. Payment at net present value of the future liability of sales tax treated as Income from Other Sources ? - HELD THAT - The difference does not amount to remission of liability u/s.41(1) of the Act. The Tribunal in 2010 (11) TMI 728 - ITAT, MUMBAI has held that payment of net present value of the future liability cannot be classified as remission or cessation of the liability, therefore, provisions of section 41(1)(a) of the Act are not attracted. Decision in favor of assessee. Revenue submitted that the CIT(Appeals) has erred in restricting the dis-allowance u/s.14A to 2% of exempt income - The Hon ble Bombay High Court in 2010 (8) TMI 77 - BOMBAY HIGH COURT held that the provisions of rule 8D are applicable w.e.f. AY. 2008-09. In the period prior to AY.2008-09, estimation has to be made for making dis-allowance u/s.14A - HELD THAT- Keeping in view the extent of investment made in shares ₹ 3.42 Crores earning dividend income, we deem it appropriate to increase disallowance to 3% of the exempt income. This ground of appeal of the Revenue is partly allowed. Issue of loss on forward contracts - AO dis-allowed the loss on account of unrealised foreign exchange fluctuation on derivatives - AO had erroneously considered the loss on revaluation of forward contracts to be reduction in loss of derivatives - HELD THAT- In respect of the loss on revaluation of forward contracts, these represent loss incurred by the appellant in the ordinary course of business and have to be allowed as deduction. Decision in favor of assessee. Deleting Dis-allowance u/s 40(a)(ia) in respect of legal charges paid to M/s. Reed Smith, LLP, USA without deduction of tax at source - It is a well settled law that, if the payments are made for professional services rendered abroad and the party does not have any permanent establishment in India, the tax is not to be deducted at sources. HELD THAT - The foreign party do not have any permanent establishment in India nor it is a case where they stay in India is more than ninety days as aforesaid. Accordingly, for the services rendered by the foreign law firm outside India there is no question of deduction of tax on the payments made. Decision in favor of assessee.

Summary

Issues Involved:
1. Disallowance of additional depreciation on Plant & Machinery.
2. Waiver of loan arising from sales tax liability.
3. Restricting disallowance u/s.14A on exempt income.
4. Loss on revaluation of forward contracts.
5. Deletion of disallowance u/s.40(a)(ia) for legal charges paid to M/s. Reed Smith, LLP, USA.

Summary:

1. Disallowance of Additional Depreciation on Plant & Machinery:
The assessee claimed additional depreciation amounting to Rs. 3,15,48,837/- for Plant & Machinery installed in the preceding year. The Tribunal held that the claim for carry forward of additional depreciation cannot be allowed as there is no provision in the Act to allow carry forward of unabsorbed additional depreciation to the next year. The Tribunal referenced ITA No. 1069/Mds/2010 in the case of DCIT Vs. Brakes India Ltd., which held that additional depreciation is allowable only in the year of capacity expansion. This ground of appeal by the assessee was dismissed.

2. Waiver of Loan Arising from Sales Tax Liability:
The assessee raised an additional ground regarding the waiver of loan from sales tax liability, arguing it does not amount to remission u/s.41(1) of the Act. The Tribunal referred to the Special Bench decision in Suzler India Ltd., Vs. JCIT, which held that payment of net present value of future liability does not classify as remission or cessation of liability. Following this precedent, the Tribunal allowed this ground of appeal by the assessee.

3. Restricting Disallowance u/s.14A on Exempt Income:
The Revenue contested the CIT(Appeals) decision to restrict disallowance u/s.14A to 2% of exempt income. The Tribunal noted that as per the Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd., the provisions of rule 8D are applicable from AY.2008-09. For periods prior, estimation is required. Considering the investment made, the Tribunal increased the disallowance to 3% of exempt income. This ground of appeal by the Revenue was partly allowed.

4. Loss on Revaluation of Forward Contracts:
The Revenue challenged the CIT(Appeals) decision on loss from forward contracts. The CIT(Appeals) had remitted the issue back to the Assessing Officer with specific directions. The Tribunal found no infirmity in the CIT(Appeals) findings and dismissed this ground of appeal by the Revenue.

5. Deletion of Disallowance u/s.40(a)(ia) for Legal Charges Paid to M/s. Reed Smith, LLP, USA:
The Revenue objected to the deletion of disallowance for legal charges paid without TDS. The Tribunal held that if payments are made for services rendered abroad and the party has no permanent establishment in India, no TDS is required. The Tribunal referenced the DTA agreement between India and USA, confirming no TDS obligation. This ground of appeal by the Revenue was dismissed.

Conclusion:
Both the appeals of the Assessee and Revenue were partly allowed. The orders were pronounced in the open court on 26th November 2013 at Chennai.