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2016 (8) TMI 745 - AT - Income TaxReopening of assessment - Held that - When the assessee has submitted all details of payment of commission, professional fees and others, before the AO at the time of original assessment, there is no failure on the part of the assessee to disclose all facts truly and fully for its assessment and the reasons recorded by the AO that there is failure on the part of the assessee to disclose all facts truly and fully for reopening the assessment after 4 years from the end of relevant assessment year, are not justified. Accordingly, we are inclined to allow the appeal of the assessee. TDS u/s 195 - disallowance u/s.40(a)(i) being sales commission paid to various persons outside India - Held that - As decided in assessee s own case nature of services mentioned will come not within the definition of fees for technical services given under explanation 2 of Section 9(1)(vii) of the Act. By virtue of such services, the concerned recipients had not made available to the assessee any new technic or skill which assessee could use in its business. The services rendered by the said parties related to clearing, warehousing and freight charges, outside India. The logistics service rendered was essentially warehousing facility. In our opinion, this cannot be equated with managerial, technical or consultancy services. Even if it is considered as technical service, the fee was payable only for services utilized by the assessee in the business or profession carried on by the said non-residents outside India. Such business or profession of the non-residents, earned them income outside India. Thus, it would fall within the exception given under sub-clause (b) of Section 9(1) of the Act. In any case, under Section 195 of the Act, assessee is liable to deduct tax only where the payment made to non-residents is chargeable to tax under the provisions of the Act. In the circumstances mentioned above, assessee was justified in having a bonafide belief that the payments did not warrant application of Section 195 of the Act. In such circumstances, we are of the opinion that it could not have been saddled with the consequences mentioned under Section 40(a)(i) of the Act. Disallowances were rightly deleted by the ld. CIT(Appeals) TDS u/s.194A - disallowance u/s.40(a)(i) being interest payment to various banks outside India - Held that - The interest was paid to the banks located in India and not outside India and the payment was not made on foreign currency for the amount borrowed from foreign banks. Being so, this payment is exempt from the provisions of TDS u/s.194A(3)(iii)(a) and disallowance u/s.40(a)(i) is not warranted. - Decided in favour of assessee Disallowance made u/s.40(a)(i) being expenditure incurred on sales promotion, advertisement, legal fees outside India - Held that - As noted by the CIT(Appeals), this payment is not covered under the provisions of sec.9(1)(v)/(vi)/(vii) of the Act. Being so, we confirm the findings of the CIT(Appeals) on this issue as convinced with the explanation offered by the ld. AR and held that the expenditure incurred towards promotion, advertisement and legal fee will not attract provisions of TDS and allowed the ground of appeal. Disallowance of additional depreciation claimed - Held that - As decided in assessee s own case on perusal of the provisions of section 32 as applicable for the relevant assessment year clearly shows that additional depreciation is allowable on the plant and machinery only for the year in which the capacity expansion has taken place which has resulted in the substantial increase in the installed capacity. In the assessee s case this took place in the assessment year 2005-06 and the assessee has also claimed the additional depreciation during that year and the same has also been allowed. Each assessment year is separate and independent assessment year. The provisions of section 32 of the Act do not provide for carry forward of the residual additional depreciation, if any. - Decided against the assessee. Disallowance u/s.14A based on Rule 8D - Held that - Rule 8D for this A.Y. 2008-09 is not applicable, as this came into effect from 24.3.2008.. In view of the above decision of the jurisdictional High Court, we direct the Assessing Officer to disallow 2% exempted income. Allowing the depreciating on UPS at 60% as against the assessee s claim of 80% - Decided against assessee. Deduction claimed u/s.35AC - CIT(A) reducing the claim u/s.10B by allocating deduction claimed u/s.35AC and exempted income - Held that - This issue came for consideration before the Tribunal in assessee s own case for the A.Y. 2007-08 and the CIT(Appeals) has given a finding that the AO should carry out similar exercise in line with directions given by the Tribunal for the A.Y. 2007-08 for this year also and find out the tangible benefits which the 10B units have derived from the R & D activities carried out by the assessee and decide the disallowance Addition made towards power charges paid to Wescare India Ltd. - Held that - This issue came up for consideration before the Tribunal in assessee s own case wherein the Tribunal remitted the issue back to the file of the AO for fresh consideration. Accordingly, on similar line, we remit this issue back to the file of the AO for fresh consideration. This ground is allowed for statistical purposes. Assessee is entitled to depreciation at 60% on UPS, treating it as part of computers. Addition back the disallowance u/s.14A to the book profit of the assessee - Held that - This issue of disallowance made by the Assessing Officer for this assessment year by invoking the provisions of sec.14A r.w.Rule 8D, was in normal computation also. In our opinion, disallowance made u/s.14A r.w. Rule 8D cannot be added while computing book profit u/s.115JB of the Act that the disallowance is only disallowance for the purpose of computing taxable income of the assessee in the normal course. There is no provision in the Act to add these kind of disallowance while computing book profit u/s.115JB and it cannot change the book profit on this count. Therefore, even if there is an addition in view of provision u/s.14A r.w. Rule 8D, that cannot be added back to compute the book profit u/s.115JB
Issues Involved:
1. Reopening of assessment beyond four years. 2. Disallowance under Section 40(a)(i) for various payments made outside India. 3. Additional depreciation claim under Section 32(1)(iia). 4. Disallowance under Section 14A and Rule 8D. 5. Depreciation rate on UPS. 6. Apportionment of R&D expenditure for Section 10B deduction. 7. Power charges paid to Wescare India Ltd. 8. Book profit computation under Section 115JB. Detailed Analysis: 1. Reopening of Assessment Beyond Four Years: The assessee challenged the reopening of assessment under Section 147, arguing it was beyond the four-year limit. The assessment was initially completed under Section 143(3), and the reopening was based on non-deduction of tax on foreign currency payments. The Tribunal held that reopening after four years requires evidence of failure to disclose material facts by the assessee. Since the assessee had disclosed all necessary details during the original assessment, the reopening was deemed unjustified and the appeal was allowed. 2. Disallowance Under Section 40(a)(i): - Sales Commission: The Tribunal upheld the CIT(A)'s decision that sales commission paid to non-residents for services rendered outside India did not attract TDS provisions under Section 195, thus disallowance under Section 40(a)(i) was not warranted. - Interest Payments: Interest paid to Indian banks in foreign currency was exempt from TDS under Section 194A(3)(iii)(a), and thus, disallowance under Section 40(a)(i) was not applicable. - Sales Promotion, Advertisement, and Legal Fees: Payments made outside India for these services were not covered under Section 9(1)(v)/(vi)/(vii) and did not attract TDS provisions. The Tribunal confirmed the CIT(A)'s findings, allowing the appeal on these grounds. 3. Additional Depreciation Claim Under Section 32(1)(iia): The assessee claimed additional depreciation for assets added in the second half of the previous year. The Tribunal, following its earlier decision, held that additional depreciation is allowable only in the year of acquisition and installation, and cannot be carried forward. Thus, the claim was disallowed. 4. Disallowance Under Section 14A and Rule 8D: - Normal Income: The Tribunal held that Rule 8D is not applicable for the assessment year 2008-09, directing the AO to disallow 2% of the exempt income. - Book Profit Under Section 115JB: Disallowance under Section 14A cannot be added back while computing book profit under Section 115JB. The Tribunal allowed the assessee's appeal on this ground. 5. Depreciation Rate on UPS: The Tribunal confirmed that UPS is eligible for depreciation at 60%, not 80%, following its earlier decision in the assessee's own case. 6. Apportionment of R&D Expenditure for Section 10B Deduction: The AO had apportioned R&D expenditure to the 10B units, reducing the deduction claimed. The Tribunal directed the AO to follow its earlier order and verify if the 10B units derived tangible benefits from the R&D activities. The CIT(A)'s order was upheld. 7. Power Charges Paid to Wescare India Ltd.: The Tribunal remitted the issue back to the AO for fresh consideration, consistent with its earlier decision in the assessee's own case. 8. Book Profit Computation Under Section 115JB: The Tribunal held that disallowance under Section 14A cannot be added back while computing book profit under Section 115JB, allowing the assessee's appeal on this ground. Conclusion: The appeals resulted in mixed outcomes, with some issues decided in favor of the assessee and others in favor of the Revenue. The Tribunal's decisions were largely based on precedents and detailed examination of the facts and applicable legal provisions.
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