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2016 (8) TMI 906 - AT - Income TaxReduction in Quantum of MAT Credit U/sec 115JAA - reduction on account of exclusion of Educational cess and surcharge - Held that - The income tax includes surcharge and educational cess for giving the credit u/s.115JAA of the Act. No law contrary to the above said finding has been produced before us. Accordingly, we set aside the order passed by the CIT(A) on this issue and decide this issue in favour of the assessee and against the revenue and direct the Assessing Officer to allow the MAT credit against the tax liability of the assessee including of surcharge and educational cess. Accordingly, this issue is decided in favour of the assessee against the revenue. Disallowance of commission U/s.9 r.w.s.195 and section 40(a)(i) of the Act - Held that - On perusal of the order passed by the Assessing Officer, it came into notice that the assessee has paid a sum of ₹ 50,90,141/- to various parties in foreign countries under the head professional services in addition to commission paid for export. The provision relating about the payment on professional fees is dealt by different section i.e. under the provision of section 9 r.w.s. and 195 of the Act but so far as the commission paid for export is concerned the same is required to be dealt with by the provision of the explanation 2 to clause (VII) of section 9 of the Act. In this regard we also support law settled in CEAT International S.A. Vs. CIT (1998 (11) TMI 111 - BOMBAY High Court ) and CIT Vs. Sara International Ltd. 2008 (3) TMI 686 - DELHI HIGH COURT and CLSA Ltd. Vs. ITO (International Taxation) 2013 (1) TMI 796 - ITAT MUMBAI . Since the expenditure has not been differentiated in professional services and commission paid for exports, therefore, we are of the view that the matter is required to be examined afresh at the end of Assessing Officer to decide the expenditure incurred for professional services and commission paid for exports in the light of the judgment mentioned above by giving an opportunity of being heard to the assessee accordingly this issue is decide in favour of the assessee against the revenue. Disallowance u/s 14A - Held that - There should be a proximate relationship between the expenditure and the income which does not form part of the total income. In the case in hand the assessee has claimed that no expenditure has been incurred for earning the exempt income, therefore, it was incumbent on the AO to find out as to whether the assessee has incurred any expenditure in relation to income which does not form part of the total income and if so to quantify the expenditure of disallowance. The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non taxable income. Therefore, in our view when the assessee has prima facie brought out a case that no expenditure has been incurred for earning the exempt income the provisions of section 14A cannot be applied. Accordingly, we delete the addition disallowance made by AO u/.s14 A r.w. Rule 8D - Decided in favour of the assessee. Disallowance u/s.35 in respect of the capital expenditure on research and development - claim of the assessee was declined on the ground of that the assessee received the approval late and the assessee should claim the exemption by filing the revised return which the assessee had not done - Held that - CIT(A) is of the view that no doubt the assessee received the approval late but the assessee can raise the claim by filing the revised return before the competent authority even at the stage of appeal which can be accepted therefore, allowed the claim of the assessee. Undoubtedly, the approval u/s.35(2AB) of the Act was not received well in time and after receipt of approval the assessee claimed the capital expenditure by filing the revised return. The CIT(A) has considered the claim of the assessee in accordance with law. Therefore, we are of the view that the CIT(A) has decided this issue judiciously and correctly which does not require to interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue.
Issues Involved:
1. Reduction in Quantum of MAT Credit U/sec 115JAA. 2. Disallowance of Commission U/sec.9 r.w.s. 195 and Sec 40(a)(i). 3. Allowance of Depreciation. 4. Deletion of Disallowance u/s.14A r.w. Rule 8D. 5. Deletion of Disallowance u/s.35 in respect of Capital Expenditure on Research and Development. Detailed Analysis of the Judgment: Issue No. 1: Reduction in Quantum of MAT Credit U/sec 115JAA The assessee argued that the CIT(A) erred in computing MAT credit available for set-off U/sec 115JAA by excluding "Education Cess" and "Surcharge" from the tax credit. The assessee cited the Supreme Court case of CIT Vs. K. Srinivasan and other judgments to support that education cess and surcharge are part of "tax" under Sec 2(43) r.w.Sec 4 of the Income Tax Act. The Tribunal found that income tax includes surcharge and educational cess for giving credit u/s.115JAA of the Act, as supported by the law in CIT Vs. Vacment India. The Tribunal directed the Assessing Officer to allow the MAT credit against the tax liability of the assessee, including surcharge and educational cess, thus deciding the issue in favor of the assessee. Issue No. 2: Disallowance of Commission U/sec.9 r.w.s. 195 and Sec 40(a)(i) The assessee challenged the disallowance of commission paid to foreign agents, arguing that the payments were for services rendered outside India and were not liable to TDS provisions of Sec.9 or Sec. 195. The Tribunal noted that the Assessing Officer did not differentiate between professional services and commission paid for exports. The Tribunal cited relevant case laws, including CEAT International S.A. Vs. CIT, and concluded that the matter requires fresh examination by the Assessing Officer to differentiate the expenses towards professional services and commission paid for exports. The issue was remanded back to the Assessing Officer for re-examination. Issue No. 3: Allowance of Depreciation The revenue challenged the CIT(A)'s decision to allow depreciation of ?10,86,873/-. The Tribunal noted that this issue had been consistently decided in favor of the assessee in previous years by both the CIT(A) and the ITAT, and upheld by the Bombay High Court. The Tribunal found no reason to deviate from the established precedent and upheld the CIT(A)'s decision, thus deciding the issue in favor of the assessee. Issue No. 4: Deletion of Disallowance u/s.14A r.w. Rule 8D The revenue challenged the deletion of disallowance of ?10,19,830/- made u/s.14A r.w. Rule 8D. The CIT(A) had followed the ITAT's decision in the assessee's case for the previous year, which held that no administrative expenses were incurred for holding investments in group concerns. The Tribunal found that the CIT(A) had correctly followed the ITAT's order and the facts were identical to the previous year. The Tribunal upheld the CIT(A)'s decision, thus deciding the issue in favor of the assessee. Issue No. 5: Deletion of Disallowance u/s.35 in respect of Capital Expenditure on Research and Development The revenue challenged the deletion of disallowance of ?1,82,02,000/- made by the A.O. u/s.35. The CIT(A) had allowed the claim, noting that the assessee received approval for weighted deduction u/s.35(2AB) after the due date for filing a revised return. The Tribunal agreed with the CIT(A) that the appellate authorities can entertain such claims even if made after the time limit for filing a revised return, provided the claim is genuine and approved by the competent authority. The Tribunal upheld the CIT(A)'s decision, thus deciding the issue in favor of the assessee. Conclusion: The Tribunal allowed the appeal filed by the assessee and dismissed the appeal filed by the revenue, thereby deciding all issues in favor of the assessee. The order was pronounced in the open court on 13th July, 2016.
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