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2017 (8) TMI 167 - AT - Income TaxDisallowance of unrealised exchange loss - speculation loss OR business loss - Held that - The similar issue came for consideration before this Tribunal in the case of Majestic Exports v. Joint CIT 2015 (7) TMI 936 - ITAT CHENNAI wherein the issue stands covered in favour of the assessee. However we make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than the total export turnover of the assessee for the assessment year under consideration and if the derivative transaction is in excess of export turnover then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly. This ground is allowed as indicated above. Respectfully following the aforesaid order of the Tribunal we remit this issue to the file of the Assessing Officer with a direction to pass fresh order Disallowance exchange fluctuation loss - Held that - Packing credit foreign currency borrowings which is in the nature of working capital borrowings and the exchange fluctuation on this count to be considered as a revenue expenditure and to be allowed Disallowance u/s 40(a)(i) - leased telephone lines on the reason that there was no deduction of TDS - as per assessee reimbursement of expenditure towards leased telephone lines does not include any profit element being so there cannot be any TDS on this payment - Held that - The assessee has to demonstrate that this impugned payment does not include any profit element so as to deduct TDS and it is only reimbursement of actual expenses. Before us the learned authorised representative was not able to demonstrate that it does not include any profit element. Accordingly we remit this issue to the file of the Assessing Officer and the assessee is directed to show that this is only reimbursement on cost to cost and it does not include any element of profit. This ground is allowed for statistical purposes for both the assessment years. Disallowance of additional depreciation under section 32(1)(iia) - Held that - Same issue was decided against the assessee by the Tribunal in the assessee s own case for the assessment year 2007-08 as held that a 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. In the circumstances disallowance confirmed. - Decided against assessee. Disallowance u/s 14A read with rule 8D - Held that - We direct the Assessing Officer to disallow the expenditure under section 14A to the extent of exempted income only. This ground of appeal of assessee is partly allowed. Allocation of research and development expenditure between the eligible unit under section 10B and the non-eligible unit under section 10B unit - Held that - The facts and circumstances of the present case are exactly identical to those involved in the assessment year 2007-08 where the Tribunal directed the Assessing Officer to examine certain factual details and apportion the research and development expenses if the research and development results are being used by the said 100 per cent. export oriented units. Respectfully following the aforesaid decision of the Tribunal this issue is remitted to the file of the Assessing Officer on similar directions. Disallowance of weighted deduction under section 35(2AB) - Held that - In view of the decision in the case of USV Ltd. v. Deputy CIT 2012 (9) TMI 43 - ITAT MUMBAI we are inclined to hold that this section excludes from weighted deduction only cost of land and building and not any charges and expenses related to land or building. The repairs rent etc. the expenditure incurred relating to research and development premises cannot form part of cost of land or building. Accordingly the Assessing Officer is directed to pass a fresh order in the light of the above order of the Tribunal after giving opportunity to the assessee. This ground of appeal is partly allowed for statistical purposes. Non-giving of TDS credit - Held that - If the assessee is remitted the TDS the same credit should be given to the assessee in respective assessment years. Accordingly we remit this issue to the file of the Assessing Officer to give due TDS credit to these assessment years and the assessee is directed to file necessary details to the Assessing Officer. This ground of appeals of the assessee is partly allowed for statistical purposes. Addition made towards corporate guarantee - Held that - The identical issue came for consideration for the assessment year 2010-11 in the case of Redington (India) Ltd. v. Addl. CIT 2015 (8) TMI 40 - ITAT CHENNAI to hold that the corporate guarantee given by the assessee to its associated enterprises does not involve any cost to the assessee therefore it has no bearing on the profits income loss or assets of the assessee and outside the ambit of the international transaction to which the arm s length price adjustment has to be made. According the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition. Reduction of claim u/s 10B - apportionment of exempt income and accordingly reducing the business profit for the purpose of computation of deduction under section 10B of the Act - Held that - The similar issue came for consideration in the assessee s own case in Brakes India Ltd. v. Deputy CIT (LTU) 2013 (9) TMI 192 - ITAT CHENNAI wherein held that it is allowed to set off of loss in the 10B units with profits in other non-10B units by putting reliance upon the above named case Decided in favour of Assessee. TDS u/s 195 - Addition u/s 40(a)(i) - agency commission professional consultancy charges warehousing charges emballage cost tool development charges etc. - Held that - Similar issue came for consideration in the assessee s own case as held 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 utilised 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. As under section 195 the assessee is liable to deduct tax only where the payment made to the non-residents is chargeable to tax under the provisions of the Act. In the circumstances mentioned above the assessee was justified in having a bona fide belief that the payments did not warrant application of section 195 of the Act. It could not have been saddled with the consequences mentioned under section 40(a)(i) of the Act. Depreciation on printers and UPS - Held that - Similar issue came for consideration in the assessee s own case in Brakes India Ltd. v. Deputy CIT (LTU) 2013 (9) TMI 192 - ITAT CHENNAI wherein Assessing Officer is directed to grant the assessee higher rate of depreciation on the UPS which is an energy saving device.
Issues Involved:
1. Disallowance of unrealised exchange loss. 2. Disallowance of exchange fluctuation loss on PCFC borrowings. 3. Disallowance of expenses under section 40(a)(i) for leased telephone lines. 4. Disallowance of additional depreciation under section 32(1)(iia). 5. Disallowance under section 14A read with rule 8D. 6. Allocation of research and development expenditure between eligible and non-eligible units under section 10B. 7. Disallowance of weighted deduction under section 35(2AB). 8. Non-giving of TDS credit. 9. Levy of interest under sections 234C and 234D. 10. Deletion of addition towards corporate guarantee. 11. Reduction in claim under section 10B by way of apportionment of exempt income. 12. Disallowance under section 40(a)(i) for various expenses. 13. Depreciation on printers and UPS. Detailed Analysis: 1. Disallowance of Unrealised Exchange Loss: The assessee's claim of unrealised exchange loss on derivative transactions was disallowed as speculation loss by the Assessing Officer, relying on CBDT Instruction No. 3 of 2010. The Dispute Resolution Panel (DRP) upheld this view, stating that hedging/forwarding contracts are speculative in nature. The Tribunal, however, remitted the issue back to the Assessing Officer to reconsider in light of the Tribunal's previous decisions, allowing the appeal for statistical purposes. 2. Disallowance of Exchange Fluctuation Loss on PCFC Borrowings: The assessee's claim of exchange fluctuation loss on PCFC borrowings was disallowed as capital expenditure. The Tribunal, referencing the RBI Master Circular, held that such borrowings are working capital in nature and the loss should be considered revenue expenditure. The appeal was allowed. 3. Disallowance of Expenses Under Section 40(a)(i) for Leased Telephone Lines: The assessee's expenses on leased telephone lines were disallowed due to non-deduction of TDS. The Tribunal remitted the issue back to the Assessing Officer to verify if the payments were purely reimbursements without profit elements, allowing the appeal for statistical purposes. 4. Disallowance of Additional Depreciation Under Section 32(1)(iia): The assessee's claim for balance additional depreciation was disallowed by the Assessing Officer and upheld by the DRP. The Tribunal, following its earlier decisions, dismissed the appeal, holding that additional depreciation cannot be carried forward to subsequent years. 5. Disallowance Under Section 14A Read with Rule 8D: The Assessing Officer disallowed expenses under section 14A read with rule 8D. The Tribunal directed the Assessing Officer to disallow expenses only to the extent of exempt income, partly allowing the appeal. 6. Allocation of Research and Development Expenditure Between Eligible and Non-Eligible Units Under Section 10B: The Assessing Officer allocated research and development expenses to 100% export-oriented units, reducing their eligible profits. The Tribunal remitted the issue back to the Assessing Officer to verify if the research benefits were utilized by the units, following its previous decisions. 7. Disallowance of Weighted Deduction Under Section 35(2AB): The Assessing Officer restricted the weighted deduction to the amount approved by DSIR. The Tribunal remitted the issue back to the Assessing Officer to reconsider in light of the Tribunal's previous decisions, allowing the appeal for statistical purposes. 8. Non-Giving of TDS Credit: The Tribunal directed the Assessing Officer to give due TDS credit if the assessee had remitted the TDS, allowing the appeal for statistical purposes. 9. Levy of Interest Under Sections 234C and 234D: The Tribunal noted that the levy of interest under sections 234C and 234D is consequential and mandatory, to be decided accordingly. 10. Deletion of Addition Towards Corporate Guarantee: The DRP deleted the addition made by the Transfer Pricing Officer for corporate guarantee fees. The Tribunal upheld the DRP's decision, following its previous rulings that corporate guarantees do not involve any cost to the assessee and are outside the ambit of international transactions for arm's length price adjustments. 11. Reduction in Claim Under Section 10B by Way of Apportionment of Exempt Income: The DRP deleted the reduction in claim under section 10B by apportioning exempt income. The Tribunal upheld the DRP's decision, following its previous rulings that exempt income should not be proportionately reduced from business income of 100% export-oriented units. 12. Disallowance Under Section 40(a)(i) for Various Expenses: The Assessing Officer disallowed various expenses due to non-deduction of TDS. The Tribunal upheld the DRP's decision deleting the disallowances, following its previous rulings that payments to non-residents for services rendered outside India are not liable for TDS. 13. Depreciation on Printers and UPS: The Assessing Officer disallowed higher depreciation on printers and UPS, treating them as office equipment. The Tribunal upheld the DRP's decision allowing higher depreciation at 60%, following its previous rulings that these items form part of data processing equipment. Conclusion: The assessee's appeals were partly allowed for statistical purposes, and the Revenue's appeals were dismissed. The Tribunal remitted several issues back to the Assessing Officer for reconsideration in light of its previous decisions and provided specific directions for fresh assessments.
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