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2016 (7) TMI 165 - AT - Income TaxTDS u/s 195 - Disallowance of claim of interest paid on Foreign Currency Convertible Bonds (FCCB) for non deduction of TDS - Held that - Not only the bonds were raised outside India, but the interest payments were also made to non-resident Indians outside India from a bank account held by the assessee outside India. Therefore, since no part of the transaction relating to payment of interest has taken place in India, it cannot be said that interest payment made to non-residents has accrued or arisen in India in terms of section 9. In our view, therefore, the provisions of section 195 would not apply to such payments, thereby requiring the assessee to deduct tax at source. - Decided in favour of assessee Restriction of claim of Bank interest and financial charges - Held that - As investment in equity shares were made from out of surplus interest free funds available with the assessee, disallowance of interest expenditure is not sustainable.- Decided in favour of assessee Restriction on claim of depreciation u/s 32 - Held that - In the present case, the subsidy was issued in reference to the machinery. Assessee submitted letter of approval of subsidy but from that letter it could not be established whether the subsidy was issued for the benefit of business or for the expansion of business. Moreover, the letter of approval was addressed to VVS Pharmaceuticals & Chemicals Pvt. Ltd., which is the previous name of the assessee, as claimed by the AR. We, therefore, remit the matter back to the file of the AO to check the above deficiencies. AO may check the type of subsidy from the policy of the Central Government on investment subsidy scheme and how the subsidy was received by the assessee when the same was addressed to old name of the assessee. Assessee may be given proper opportunity of being heard. Addition on account of delay in payment of PF & ESI - Held that - It is a fact that the remittance of PF & ESI were made before filing of return of income. The Hon ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT held that the amendments to section 43B brought out by the Finance Act, 2003 with effect from 01/04/2004 are retrospective in nature and would operate from 01/04/1988. Various benches of ITAT and coordinate benches of this Tribunal have followed the above decision and held that the amendment to section 43B brought out by the Finance Act, 2003 is retrospective in nature and justified in deleting the additions made on account of delayed payment of Provident Fund of employees contribution. Since, PF & ESI are same, respectfully following the decisions of coordinate benches of this Tribunal we direct the AO to delete the addition made on account of PF & ESI Payments. Disallowance of claim of deduction u/s 35(2AB) - Held that - Assessee had submitted the letter of approval from DSIR, but, the AO had disallowed the expenditure mainly due to no order of approval of DSIR containing the quantification of the expenditure entitled for deduction u/s 35(2AB) of the Act, has been submitted by the assessee. Even before us, assessee had not submitted any records, which is required as per section 35(2AB)(3) but contested that all the relevant approvals were submitted. We remit the issue back to the file of the AO to verify the approval of quantification by the DSIR along with the audited financial records. Assessee may be given proper opportunity of being heard. Disallowance u/s 40(a)(ia) - assessee has not deducted tax at source on the remuneration paid to auditors - Held that - AO had made addition due to non-submission of proof for payment made on gratuity and leave encashment. Ld. AR submits that the payments were made. Ld. AR relied on the case of Sri Krishna Pharmaceuticals. On perusal of order, we find that the facts of this case are different. The disallowance was made due to creation of unrecognized gratuity fund, which was allowed u/s 37 as deduction. But, in the present case, disallowance was made due to non filing of proof of payment. We remit this issue back to the file of the AO to verify the proof of payment as claimed by the assessee on payment of gratuity and leave encashment. If found proper, he may allow this expenditure, otherwise, the disallowance may be sustained. Assessee may be given proper opportunity of being heard Disallowance of the claim of Foreign exchange fluctuation - Held that - The issue is squarely covered by the judgment of the Hon ble Supreme Court in the case of CIT Vs. Woodward Governer India Pvt. Ltd, 2009 (4) TMI 4 - SUPREME COURT wherein held that loss suffered by the assessee in respect of revenue liability on account of exchange difference as on the date of the Balance Sheet is an item of expenditure allowable under section 37(1). As per AS 11, exchange difference arising on foreign currency transactions have to be recognized as income or expense in the period in which they arise. An enterprise has to report the outstanding liability relating to import of raw-material using closing rate or exchange and the same has to be recognized in the prof it & loss account for the reporting period. Hence, the same may be allowed. Revision u/s 263 - Held that - CIT re-examined the issues which are already considered by AO during the assessment proceedings. Since AO already considered and taken a stand and formed an opinion, may be a possible view at that point of time, passed the assessment order based on the above opinion. The CIT cannot exercise the revisional jurisdictional power on the same issue again and take different view. The co-ordinate bench of this tribunal has taken a stand that the re-examination of assessment orders on the same set of facts is against the law and even the honorable jurisdictional high court and honorable apex court has opined that this is against law and as per accepted principle of assessments. Thus we are of the opinion that CIT cannot review the order of AO, who has applied his mind on the issues which are subject matter of dispute now. Hence we quash this order of CIT passed u/s 263 of the Act.
Issues Involved:
1. Disallowance of claim of interest on Foreign Currency Convertible Bonds (FCCB). 2. Restriction of claim of Bank interest and finance charges. 3. Disallowance of depreciation u/s 32 on the amount received as Central Investment Subsidy. 4. Addition for delayed remittance of ESI. 5. Disallowance of scientific research expenditure claimed u/s 35(2AB). 6. Disallowance u/s 40(a)(ia). 7. Disallowance of provisions towards gratuity and leave encashment. 8. Disallowance of claim of "Fluctuation in Foreign Exchange". 9. Revision of assessment order u/s 263 by CIT-III. Comprehensive, Issue-wise Detailed Analysis: A) Disallowance of Claim of Interest on FCCB: i) The Assessing Officer (AO) disallowed the interest paid on FCCB as the assessee did not deduct TDS as required u/s 195 of the Act. ii) The assessee argued that similar disallowance in AY 2009-10 was deleted by the Tribunal. iii) The Tribunal found that the facts are similar to AY 2009-10 and followed the previous decision, directing the AO to delete the disallowance. B) Restriction of Claim of Bank Interest and Finance Charges: i) AO restricted the claim by ?30,18,000/- u/s 36(1)(iii) due to investments in equity share capital. ii) The assessee argued that similar disallowance in AY 2009-10 was deleted by the Tribunal. iii) The Tribunal found that the investments were made from internal accruals and deleted the disallowance. C) Restriction on Claim of Depreciation u/s 32: i) AO reduced the depreciation claim by ?4,46,501/- due to a subsidy received under the "15 percent central investment subsidy scheme". ii) The assessee argued that the subsidy is a capital receipt and should not reduce the cost of assets. iii) The Tribunal remitted the matter back to the AO to verify the type of subsidy and its application. D) Addition on Account of Delay in Payment of PF & ESI: i) AO disallowed the PF & ESI remittances made after the due date. ii) The assessee argued that remittances were made before filing the return of income. iii) The Tribunal directed the AO to delete the addition, following the Supreme Court decision in CIT Vs. Alom Extrusions Ltd. E) Disallowance of Scientific Research Expenditure u/s 35(2AB): i) AO disallowed the claim as the assessee did not furnish the quantum of expenditure approved by DSIR. ii) The assessee argued that it had necessary approval from DSIR. iii) The Tribunal remitted the issue back to the AO to verify the approval of quantification by DSIR. F) Disallowance u/s 40(a)(ia): i) AO disallowed ?1,00,000/- paid to auditors as TDS was not deducted. ii) The assessee argued that no disallowance can be made if there is no default u/s 201(1). iii) The Tribunal remitted the matter back to the AO to verify if the assessee is treated as in default u/s 201(1). G) Disallowance of Provision of Gratuity: i) AO disallowed ?7,47,000/- for gratuity and ?9,15,000/- for leave encashment due to lack of evidence of payment. ii) The assessee argued that actual payment was made during the year. iii) The Tribunal remitted the issue back to the AO to verify the proof of payment. H) Disallowance of the Claim of Foreign Exchange Fluctuation: i) AO disallowed ?21,48,000/- claimed for foreign exchange fluctuation as the assessee did not specify if it was on revenue or capital account. ii) The assessee argued that it was on creditors and is revenue in nature. iii) The Tribunal directed the AO to delete the addition, following the Supreme Court decision in CIT Vs. Woodword Governor India Pvt. Ltd. Revision of Assessment Order u/s 263 by CIT-III: i) CIT-III revised the assessment order, identifying issues not examined by the AO. ii) The assessee argued that the issues were already dealt with by the AO. iii) The Tribunal found that the AO had considered the issues and formed an opinion. The CIT-III cannot re-examine the same issues, and the Tribunal quashed the order of CIT-III. Conclusion: The appeal in ITA No. 508/H/12 is partly allowed for statistical purposes, and the appeal in ITA No. 1041/H/13 is allowed.
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