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2017 (1) TMI 1047 - AT - Income TaxDisallowance of Sale Promotion expenses and Travelling expenses @10% of the total expenditure - Held that - It is quite clear from the manner in which the disallowance was initially made by the Assessing Officer and, thereafter partly confirmed by the CIT(A), that the same is based on mere surmises without bringing out any specific instances of expenditure having been incurred for non-business purposes, inspite of the fact that the complete details were made available by the assessee in the course of the proceedings. In this view of the matter, we deem it fit and proper to set-aside the action of the CIT(A) and direct the Assessing Officer to delete the entire disallowance since the decision of the CIT(A) is based on some conjectures and surmises - Decided in favour of assessee Disallowance u/s 14A - Held that - As noticing that the interest-free funds available with the assessee in the shape of Share capital and Free Reserves being more than investments in question, a presumption can be drawn that such investments have been made out of such interest free funds, and accordingly no disallowance under section 14A of the Act is merited out of the interest expenditure. As a consequence, the disallowance made under section 14A by applying Rule 8D(2)(ii) of the Rules is hereby deleted. - Decided in favour of assessee Disallowance on account of expenses computed the same in terms of Rule 8D(2)(iii) - Held that - The disallowance computed by the Assessing Officer is quite excessive inasmuch as the exempt income is merely to the extent of ₹ 4,86,505/-, whereas the disallowance out of expenses has been made to the tune of ₹ 6,30,407/-. Considering the entirety of facts and circumstances, we deem it fit and proper to retain the disallowance to the extent of the exempt income and balance of the disallowance is directed to be deleted. TDS u/s 195 - disallowing remuneration paid to consultants by invoking section 40(a)(i)on non deduction of tds - DTAA - period of stay - Held that - No reason to disagree with the stand of the assessee that the payments in question are liable to be taxed under the respective Articles of Indo-Japan & Indo-Italy DTAA governing Independent Personal services. Once it is held that the payments fall under the Article governing Independent Personnel services, the same can be taxed in India only, if the two individuals have stayed in India for more than 183 days during the previous year relevant to the assessment year under consideration. In so far as the duration of stay is concerned, there is no dispute that the two individuals have stayed in India for a period of less than 183 days during the previous year relevant to the assessment year under consideration. Thus, such payments are not liable to be taxed in India and there is no fault on the part of the assessee in not deducting tax at source on such payments. Therefore, the lower authorities were not justified in invoking section 40(a)(i) of the Act to disallow the impugned expenditure - Decided in favour of assessee Disallowance of interest u/s. 36(1)(iii) - no loan was taken by the assessee during the year - Held that - It is relevant to note here that before the CIT(A) it has been specifically pleaded by the assessee that there is no extension of business during the year and even if the loan is taken for acquiring the purpose of acquiring capital assets unless they are used for expansion of existing business, interest expenses should be allowed . The aforesaid stand of the assessee is supported by the phraseology of section 36(1)(iii) of the Act, as it stood for the assessment year under consideration and in the absence of any factual repudiation to the same, we find no reason to interfere with the ultimate conclusion of the CIT(A) in deleting the addition.- Decided in favour of assessee Disallowance of prior period expenses - Held that - Such expenses were in-fact relatable to the previous year relevant to the assessment year under consideration and in the details submitted to the Assessing Officer it was erroneously typed as 21/08/2008, whereas the relevant date was 21/3/2009, corresponding to the assessment year under consideration. Also ctually no deduction was claimed, as such expenses were duly capitalized. The CIT(A) correctly noted the submissions and deleted the addition on the ground that no deduction was claimed to the P&L Account as the expenses were capitalized.- Decided in favour of assessee Addition of the repair and maintenance expenses - Held that - There is no material to controvert the finding of the CIT(A) that an amount of ₹ 18,24,489/- already stands capitalized by the assessee. Therefore, the CIT(A) justifiably deleted the said addition as otherwise it would have amounted to double disallowance. So far as the balance addition of ₹ 43,17,791/- is concerned, the finding of the CIT(A) is that the same has been incurred on repairs. Even the details of the repairs to buildings reveal that the same have been incurred on repairs and maintenance of existing assets, for instance replacement of fencing, repair of tile work in the administrative block, whitewash and partition, dismantling of old damaged wall, etc. None of the items of expenses have been shown to result in acquisition of any new asset. Considered in the light of the material on record, we find that the CIT(A) made no mistake in holding that the expenses are in the nature of routine repairs and not in the nature of capital - Decided in favour of assessee Rework the adjustment u/s. 145A - Held that - The assessee could not have foreseen at the time of filing of the return of income the impact of the adjustment under section 145A of the Act, because the same was made by the assessing authorities in the assessment for assessment years 2005-06, 2006- 07 and 2008-09. It is only after the appellate authorities upheld the stand of the Assessing Officer for the said assessment years that the consequential claim of the assessee would spring up. Therefore, under these circumstances, it was quite germane for the assessee to have raised such a plea before the CIT(A), who justifiably admitted the same. In our considered opinion, the CIT(A) has made no mistake in directing the Assessing Officer to consider the plea of the assessee and rework the adjustment under section 145A as per law.- Decided in favour of assessee
Issues Involved:
1. Disallowance of Sales Promotion and Travelling Expenses. 2. Disallowance under Section 14A read with Rule 8D. 3. Disallowance under Section 40(a)(i) for non-deduction of TDS. 4. Disallowance of Interest under Section 36(1)(iii). 5. Disallowance of Prior Period Expenses. 6. Disallowance of Repair and Maintenance Expenses. 7. Adjustment under Section 145A. Detailed Analysis: 1. Disallowance of Sales Promotion and Travelling Expenses: The assessee's appeal contested the CIT(A)'s decision to uphold a 10% disallowance on sales promotion and travelling expenses. The Assessing Officer (AO) had initially disallowed 25% of these expenses, suspecting non-business purposes. The CIT(A) reduced this to 10%, acknowledging that some expenses might not be fully verifiable. However, the Tribunal found that the disallowance was based on mere surmises without specific evidence of non-business use. Consequently, the Tribunal directed the AO to delete the entire disallowance, allowing the assessee's appeal on this ground. 2. Disallowance under Section 14A read with Rule 8D: The AO disallowed ?33,25,626 under Section 14A, comprising ?26,95,219 for interest and ?6,30,407 for other expenses. The CIT(A) reduced the interest disallowance by ?77,59,661, representing interest received by the assessee. The Tribunal noted that the assessee's interest-free funds exceeded the investments and followed the Bombay High Court's rulings in CIT v. Reliance Utilities & Power Ltd. and HDFC Bank Ltd. v. DCIT. The Tribunal deleted the interest disallowance, presuming the investments were made from interest-free funds. For other expenses, the Tribunal found the disallowance excessive compared to the exempt income and limited it to the exempt income amount, partly allowing the assessee's appeal. 3. Disallowance under Section 40(a)(i) for non-deduction of TDS: The AO disallowed ?13,55,948 paid to foreign consultants, invoking Section 40(a)(i) due to non-deduction of TDS under Section 195(1). The CIT(A) upheld this, considering the payments as fees for technical services. The Tribunal examined the contracts and found the services rendered as independent personal services under the respective DTAAs with Italy and Japan, where the consultants stayed in India for less than 183 days. Thus, the payments were not taxable in India, and no TDS was required. The Tribunal directed the deletion of the disallowance, allowing the assessee's appeal on this ground. 4. Disallowance of Interest under Section 36(1)(iii): The AO disallowed ?32,19,155, attributing it to interest on capital work-in-progress. The CIT(A) deleted the disallowance, noting no new loans were taken for acquiring fixed assets. The Tribunal affirmed the CIT(A)'s decision, emphasizing that the proviso to Section 36(1)(iii) applies only to interest on borrowings for asset acquisition for business extension. The AO failed to establish this, and the Tribunal upheld the deletion of the disallowance, dismissing the Revenue's appeal on this ground. 5. Disallowance of Prior Period Expenses: The AO disallowed ?3,66,034 as prior period expenses. The CIT(A) deleted the disallowance, noting the expenses were capitalized and no deduction was claimed. The Tribunal found no evidence to counter the CIT(A)'s finding and affirmed the deletion, dismissing the Revenue's appeal on this ground. 6. Disallowance of Repair and Maintenance Expenses: The AO disallowed ?61,36,278 for repair and maintenance, considering it capital in nature. The CIT(A) noted that ?18,21,489 was already capitalized by the assessee and deleted this amount to avoid double disallowance. For the remaining ?43,17,791, the CIT(A) found the expenses were for routine repairs. The Tribunal reviewed the details and upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground. 7. Adjustment under Section 145A: The CIT(A) directed the AO to rework the adjustment under Section 145A, considering the assessee's claim for relief based on earlier years' assessments. The Revenue contended this was a fresh claim not made in the return of income. The Tribunal found the CIT(A)'s direction justified, as the claim arose from subsequent assessment findings. The Tribunal affirmed the CIT(A)'s decision, dismissing the Revenue's appeal on this ground. Conclusion: The assessee's appeal was partly allowed, resulting in the deletion of several disallowances. The Revenue's appeal was dismissed in its entirety. The Tribunal's order was pronounced on 11/01/2017.
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