2021 (12) TMI 1391 - AT - Income Tax

Disallowance of interest on belated payment of non compete fees - CIT-A deleted the addition - as per AO CIT(A) erred in deleting disallowance of interest paid on non-compete fees without appreciating the fact that said expenditure is capital in nature and not to be allowed as revenue expenditure by specific legislative mandate vide section 28(va) - HELD THAT - We find that the Ld. CIT(A) has deleted additions made by the AO towards disallowance of interest paid on belated payment of non-compete fees by following the decision of ITAT, Chennai Benches in assessee s own case for assessment year 2000-01 where it was clearly held that liability to pay interest was contractual obligation and thus, the same is allowable expenditure u/s. 37(1) of the Act. The fact remains unchanged. The Revenue fails to bring on record any contrary judgments to counter findings of the Ld. CIT(A). Hence, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the Revenue. Disallowance of sales promotion expenses - assessee has claimed deferred revenue expenditure being 1/5th of total expenditure incurred for marketing expenses for product launch - AO has disallowed deferred revenue expenditure on the ground that, except as provided for amortization of expenses u/s. 35D, 35DD etc, no deduction can be allowed to other expenses - HELD THAT - CIT(A) has allowed deduction claimed by the assessee towards expenditure incurred in the impugned assessment year by holding that once it has admitted fact that expenditure has been wholly and exclusively incurred for the purpose of business, then the same needs to be allowed as deduction as and when such expenditure has been incurred for the purpose of business. To this extent, we do not find any infirmity in the findings recorded by the Ld. CIT(A). As regard the ground taken by the Revenue in light of the decision in the case of Goetz India Ltd. 2006 (3) TMI 75 - SUPREME COURT we are of the considered view that restrictions imposed by the Hon ble Supreme Court on the powers of Assessing Officer does not extend to the powers of appellant authority. The appellant authority itself entitles to admit any new claim even though such claim was not made before the AO by filing revised return of income. Therefore, we are of the considered view that there is no error in the reasons given by the ld. CIT(A) to entertain fresh claim made by the assessee in so far as deduction of total expenditure incurred for sales promotion activities. For all these reasons, we do not find any reason to interfere with the findings recorded by the Ld. CIT(A) and hence, we reject ground taken by the Revenue. Computation of deduction u/s. 80HHC - Exclusion of excise duty/sales tax from total turnover for the purpose of computation of deduction u/s. 80HHC - HELD THAT - We find that the Hon ble Supreme Court in the case of Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT had considered an identical issue and held that excise duty/sales tax are not included in total turnover in the formula contended in section 80HHC(3) - CIT(A) after considering relevant facts and also by following the ratio laid down by the Hon ble Supreme Court has directed the AO to exclude excise duty/sales tax from total turnover for computation of deduction u/s. 80HHC. The fact remains unchanged. The Revenue fails to bring on record any contrary judgments to support its arguments. Therefore, we are inclined to uphold the findings of the Ld. CIT(A) and reject ground taken by the Revenue. Exclusion of DEPB license fees received from Government of India for computation of deduction u/s. 80HHC - HELD THAT - We find that the issue is squarely covered in favour of the assessee by the decision of the Hon ble Supreme Court in the case of Topman Exports vs CIT 2012 (2) TMI 100 - SUPREME COURT where the Hon ble Supreme Court clearly held that profit from transfer of DEPB license is entitled for deduction u/s. 80HHC - CIT(A) after considering relevant facts, and also by following the decision in the said case has directed the AO to recompute deduction u/s. 80HHC of the Act by considering profit from sale of DEPB license. We do not find any error or infirmity in the order of the Ld. CIT(A) and hence, we are inclined to uphold findings of the Ld. CIT(A) and reject grounds taken by the Revenue. Disallowance of PE/ESI contribution on the ground that same cannot be allowed as deduction u/s. 43B - HELD THAT - As assessee has paid employees contribution to PF and ESI on or before due date for filing return of income and thus, deleted addition made by the AO. We do not find any error in the reasons given by the Ld. CIT(A) to delete addition made towards disallowance of employees contribution to PF and ESI. Hence, we are inclined to uphold the finding of the Ld. CIT(A) and reject the ground taken by the Revenue. Re-computation of deduction u/s. 80HHC based on book profits - AO has computed deduction u/s. 80HHC of the Act while computing book profit u/s. 115JB by taking into account profits and gains from business computed after making certain adjustments - HELD THAT - We find that this issue is squarely covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of Ajanta Pharma Ltd 2010 (9) TMI 8 - SUPREME COURT where the Hon ble Supreme Court has clearly held that for the purpose of computing book profit, in terms of section 115JB, net profit as shown in profit and loss account have to be reduced by amount of profits eligible for deduction u/s. 80HHC and not by amount of deduction u/s. 80HHC of the Act.We find that this issue is squarely covered in favour of the assessee by the decision of Hon ble Supreme Court in the case of Ajanta Pharma Ltd vs CIT, (supra), where the Hon ble Supreme Court has clearly held that for the purpose of computing book profit, in terms of section 115JB, net profit as shown in profit and loss account have to be reduced by amount of profits eligible for deduction u/s. 80HHC and not by amount of deduction u/s. 80HHC of the Act. Include foreign exchange gain as part of the turnover for computing deduction u/s. 80HHC Additions made by the AO towards estimation of interest on loans given to sister concern. TDS u/s 195 - disallowance of foreign agency commission u/s. 40(a)(i) - export commission paid to foreign agency without deducting TDS - HELD THAT - In this case, on perusal of facts available on record, it was very clear that commission paid by the assessee to non-resident for procuring export orders is neither accrued in India nor taxable u/s. 9 of the Act as fees for technical services. Further, the business profits of a non-resident cannot be taxed in India unless such non-resident have permanent establishment in India. It was not the case of the AO that foreign agents have permanent establishment in India. Therefore, we are of the considered view that export commission paid to foreign agents cannot be disallowed u/s. 40(a)(i) of the Act, for non deduction of tax at source u/s. 195 of the Act. The Ld. CIT(A) after considering relevant facts has rightly deleted additions made by the AO. Hence, we are inclined to uphold the findings of the Ld. CIT(A) and reject ground taken by the Revenue. Disallowance of foreign exchange fluctuation loss - HELD THAT - We find that the Ld. CIT(A) has recorded categorical finding that the assessee had added back this item of expenditure as prior period expense being part of inadmissible items in the computation of total income for the assessment year 2010-11. The Ld. CIT(A) further recorded factual finding that once assessee itself has disallowed said item of expenditure by holing that it does not pertain to year under consideration, then no addition can be made towards said expenditure. Fact remains unchanged. The Revenue fails to bring on record any evidence to counter findings of fact recorded by the Ld. CIT(A). Hence, we are inclined to uphold the findings of the Ld. CIT(A) and reject ground taken by the Revenue. Disallowance u/s 14A r.w.r. 8D - CIT-A deleted the addition - HELD THAT - If no exempt income for the relevant assessment year, then no disallowance can be made by the AO towards expenditure u/s. 14A r.w.r. 8D of the Act, for assessment years 2011-12 2012-13. The CIT(A) after considering relevant facts has rightly deleted addition made by the AO u/s. 14A of the Act. Hence, we are inclined to uphold the findings of the ld. CIT(A) and reject the ground taken by the Revenue.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Disallowance of interest on belated payment of non-compete fees.
3. Disallowance of sales promotion expenses.
4. Exclusion of excise duty/sales tax from total turnover for deduction u/s. 80HHC.
5. Exclusion of DEPB license fees for deduction u/s. 80HHC.
6. Disallowance of employee’s contribution to PF and ESI.
7. Re-computation of deduction u/s. 80HHC based on book profits.
8. Exclusion of forex gain for deduction u/s. 80HHC.
9. Notional interest income on loans advanced to sister concern.
10. Disallowance of foreign agency commission u/s. 40(a)(i) for non-deduction of tax.
11. Disallowance of foreign exchange fluctuation loss.
12. Disallowance u/s. 14A for expenditure related to exempt income.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The Tribunal condoned the delay of 3 days in filing appeals for AYs 2001-02 to 2004-05, considering the reasons provided by the Revenue, including non-availability of records and the appeals being filed on the next working day.

2. Disallowance of Interest on Belated Payment of Non-Compete Fees:
The Tribunal upheld the CIT(A)’s decision to delete the disallowance of interest on belated payment of non-compete fees. It was held that the liability to pay interest was a contractual obligation and thus allowable as revenue expenditure u/s. 37(1) of the Act, following the ITAT’s decision in the assessee's own case for AY 2000-01.

3. Disallowance of Sales Promotion Expenses:
The Tribunal upheld the CIT(A)’s decision to allow the total sales promotion expenses incurred during the relevant financial year, rejecting the Revenue’s argument that the claim should have been made through a revised return. It was held that the expenditure incurred wholly and exclusively for business purposes should be allowed in the year it was incurred.

4. Exclusion of Excise Duty/Sales Tax from Total Turnover for Deduction u/s. 80HHC:
The Tribunal upheld the CIT(A)’s decision to exclude excise duty and sales tax from the total turnover for computing deduction u/s. 80HHC, following the Supreme Court’s decision in Lakshmi Machine Works.

5. Exclusion of DEPB License Fees for Deduction u/s. 80HHC:
The Tribunal upheld the CIT(A)’s decision to include DEPB license fees in the computation of deduction u/s. 80HHC, following the Supreme Court’s decision in Topman Exports.

6. Disallowance of Employee’s Contribution to PF and ESI:
The Tribunal upheld the CIT(A)’s decision to delete the disallowance of employee’s contribution to PF and ESI, holding that contributions paid before the due date for filing the return of income should not be disallowed, following the Madras High Court’s decision in Industrial Security & Intelligence India Pvt Ltd.

7. Re-computation of Deduction u/s. 80HHC Based on Book Profits:
The Tribunal upheld the CIT(A)’s decision to direct the AO to re-compute the deduction u/s. 80HHC based on book profits, following the Supreme Court’s decision in Ajanta Pharma Ltd.

8. Exclusion of Forex Gain for Deduction u/s. 80HHC:
The Tribunal upheld the CIT(A)’s decision to include forex gain as part of the turnover for computing deduction u/s. 80HHC, following the Bombay High Court’s decision in Amber Exports.

9. Notional Interest Income on Loans Advanced to Sister Concern:
The Tribunal upheld the CIT(A)’s decision to sustain the addition of notional interest on loans advanced to a sister concern, as the assessee failed to substantiate the claim of uncertainty in realization of interest.

10. Disallowance of Foreign Agency Commission u/s. 40(a)(i) for Non-Deduction of Tax:
The Tribunal upheld the CIT(A)’s decision to delete the disallowance of foreign agency commission, holding that commission paid for services rendered outside India is not taxable in India and thus not subject to TDS u/s. 195, following the CBDT Circular and the Madras High Court’s decision in Faizan Shoes Ltd.

11. Disallowance of Foreign Exchange Fluctuation Loss:
The Tribunal upheld the CIT(A)’s decision to delete the disallowance of foreign exchange fluctuation loss, as the assessee had already added back the expenditure as a prior period expense.

12. Disallowance u/s. 14A for Expenditure Related to Exempt Income:
The Tribunal upheld the CIT(A)’s decision to delete the disallowance u/s. 14A, holding that no disallowance can be made if there is no exempt income for the relevant assessment year, following the Madras High Court’s decision in Redington (India) Ltd and the Supreme Court’s decision in Chettinad Logistics.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue and the assessee, upholding the CIT(A)’s decisions on all issues.