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2017 (9) TMI 726 - AT - Income TaxAddition u/s 14A - assessee has not claimed the dividend income from investments in foreign subsidiary companies as exempt - Held that - From the computation statement as well as the Balance Sheet as submitted by the assessee we noted that the assessee had made investments in foreign subsidiary companies and from those companies it got the dividend income. The assessee has not claimed the said dividend income as exempt. The dividend income has been shown as income from other sources and due tax has been computed by the assessee in the computation statement. Therefore no question arises on making disallowance in respect of investment made in foreign subsidiary company. The assessee has also made investments in Indian companies but did not earn any dividend income. In view of the decision in the case of Cheminvest Ltd. vs. CIT 2015 (9) TMI 238 - DELHI HIGH COURT no expenses can be disallowed under section 14A as the assessee has not earned any exempt income - Decided in favour of assessee Addition made on account of inclusion of cenvat credit in valuation of closing stock - Held that -the profit computed under the inclusive and the exclusive method of accounting are the same and there would not be any change even if the profit computed by the assessee is adjusted in accordance with the provisions contained u/s 145A of the I.T. Act because to the extent the closing stock will be increased. In respect of raw materials the cost of the purchase and the opening stock will be increased by the component of the excise duty. Since the issue involved related to the valuation of the closing stock in respect of raw material, the question of any disallowance u/s 43 B will also not arise. We have already held that he profit of the assessee cannot be effected if the assessee followed the inclusive method of accounting or the exclusive method of accounting because in any case the stock is increased to that extent the debit side in the P & L account which will be increased by the increase in value of opening stock as well as the cost of the purchase due to the inclusion of the excise duty incurred by the assessee at the time of the purchase of the raw materials. In view of the aforesaid discussion the second ground is allowed. Disallowance of foreign exchange loss on forward contracts related to foreign exchange currency - Held that - As decided in case of M/s. D. Chetan & Co. 2016 (10) TMI 629 - BOMBAY HIGH COURT forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity. Tribunal was justified in deleting the addition of Mark to Market Loss made by the Assessing Officer on account of disallowance of loss on foreign exchange forward contract loss. - Decided in favour of assessee Disallowance of repairs and maintenance of plant and machinery - Held that - In the interest of justice and fair play to both parties set aside the order of the CIT(A) on this issue and restore this issue to the file of the AO with direction that the AO shall verify whether the assessee had made the payment to these parties through an account payee cheque and has duly accounted for the payment after deducting TDS on the bills. In the case the AO is not satisfied he may make and independent inquiry from the concerned parties and taken decision n accordance with law as in our opinion keeping in view the quantum of repairs and maintenance incurred by the assessee at ₹ 97,15,541/-, the sum of ₹ 4,42,822/- is very small. Non-production of bills relating to this amount should not be considered as these expenses are non-genuine. Thus, this ground is allowed for statistical purposes. Disallowance of repairs and maintenance of other assets - no vouchers were produced - Held that - A.R. has drawn out attention to the letter dated 23.12.2011 from which it is apparent that the assessee had duly produced the bills for verification. Therefore, in our opinion, the observation made by the AO that the assessee did not produce the bills does not have any leg to stand. Not only this we also noted that in the preceding assessment year 2007-08 the assessee had incurred expenditure on other repairs and maintenance to the extent of ₹ 89,41,982/- and during the impugned assessment year there is only a minor increase of ₹ 15,20,117/-. If we compare these figures as percentage to the sale we noted that there has been slight decrease in the expenses. We, therefore, delete the said disallowance. Claim of depreciation by the assessee on UPS @60% - Held that - This issue is duly covered by the decision in the case of DCIT vs. Datacraft India Ltd. 2010 (7) TMI 642 - ITAT, MUMBAI in which it was specifically held that the UPS shall be entitled for depreciation @60%. UPS was an essential ingredient in order to run computer effectively, therefore the assessee shall be entitled for depreciation @60%
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Inclusion of CENVAT credit in the valuation of closing stock. 3. Disallowance of foreign exchange loss on forward contracts. 4. Disallowance of repairs and maintenance of plant and machinery. 5. Disallowance of repairs and maintenance of other assets. 6. Depreciation rate on UPS. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The assessee contested the disallowance of ?92,68,533/- out of interest and ?38,50,802/- out of expenses under Section 14A, totaling ?1,31,19,335/-. The AO noted investments in equity shares, with substantial amounts in foreign and Indian subsidiaries. The assessee received dividends from foreign subsidiaries, shown as income from other sources, and claimed no exempt income. The AO made disallowance under Section 14A r.w. Rule 8D. The CIT(A) partly allowed the appeal. The ITAT, referencing the Delhi High Court decision in Cheminvest Ltd. vs. CIT and the Bombay High Court decision in Principal CIT vs. Ballarpur Industries Ltd., ruled that no disallowance under Section 14A can be made as no exempt income was earned. Thus, the disallowance was deleted. 2. Inclusion of CENVAT credit in the valuation of closing stock: The AO added unutilized CENVAT credit to the closing stock value, resulting in an addition of ?1,79,57,029/-. The CIT(A) upheld the AO's action under Section 145A but directed verification of calculations. ITAT noted that Section 145A ensures correct stock valuation to avoid litigation. The ITAT referenced Supreme Court and High Court decisions, concluding that the profit remains unaffected whether inclusive or exclusive method is used. Thus, the addition was deleted. 3. Disallowance of foreign exchange loss on forward contracts: The AO treated the loss on cancellation of forward contracts as speculative, disallowing ?1,40,84,283/-. The CIT(A) confirmed this. ITAT examined Section 43(5) and noted that currency is not a commodity. Citing various judicial precedents, including the Bombay High Court decision in Badridas Gauridu (P) Ltd., ITAT concluded that the transactions were business activities, not speculative. Thus, the disallowance was deleted. 4. Disallowance of repairs and maintenance of plant and machinery: The AO disallowed ?4,42,922/- due to non-production of bills, confirmed by the CIT(A). The assessee claimed the expenses were genuine and accounted for after TDS deduction. ITAT directed the AO to verify the payments and bills, restoring the issue for re-examination. Thus, this ground was allowed for statistical purposes. 5. Disallowance of repairs and maintenance of other assets: The AO disallowed 20% of expenses (?18,18,800/-) due to non-verifiable vouchers, confirmed by the CIT(A). The assessee provided bills for verification. ITAT noted a minor increase in expenses compared to the previous year and found the AO's observation unfounded. Thus, the disallowance was deleted. 6. Depreciation rate on UPS: The AO allowed depreciation on UPS at 15%, while the assessee claimed 60%, resulting in a disallowance of ?21,69,239/-. ITAT referenced the Mumbai Special Bench decision in DCIT vs. Datacraft India Ltd., which allowed 60% depreciation on UPS. Thus, ITAT directed the AO to allow 60% depreciation, deleting the disallowance. Conclusion: The ITAT partly allowed the appeal for statistical purposes, providing relief on several grounds based on judicial precedents and detailed examination of the facts and applicable laws. The order was pronounced on 11th September, 2017.
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