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2017 (11) TMI 247 - AT - Income TaxDisallowance made on account of foreign exchange loss - Held that - Tribunal in the appeal for the A.Y. 2003-04, has allowed the assessee s claim and upheld the order of the Learned CIT(Appeals) in deleting the disallowance of foreign exchange fluctuations after observing foreign exchange loss that has arisen is on account of revenue expenditure and not on account of capital expenditure. Hence we do not Find any infirmity in the order of the Ld CIT(A)in deleting the disallowance. Disallowance of depreciation on unutilized assets - AO disallowed the same on the ground that the asset in questions were not used by the assessee - CIT( Appeals) following the earlier years appellate order deleted the said depreciation and also held that it is a settled proposition of law that even if the asset is kept for ready for use, then same should be deemed to have been used for the purpose of business - Held that - We find that this issue had come for consideration in the earlier years before the Tribunal; wherein Tribunal has allowed the similar claim depreciation in A.Y. 2003-04, vide para no. 30. Once depreciation has been allowed on the same asset in the earlier years, then in this year depreciation cannot be disallowed on WDV and accordingly, the order of the Learned CIT (Appeals) is confirmed. Disallowance of deduction u/s 10A - assessee not filed approval/extension of approval of the 3 units and so far as the STPI unit of Bangalore is concerned, he held approval has to be provided by the Inter-Ministerial Standing Committee - Held that - As following the judicial precedent of the earlier year and also taking into account the categorical finding given by the Learned CIT (Appeals) that already Green Card has been issued by Inter Ministerial Standing Committee on Software Technology Parks of India scheme and assessee has filed letter confirming the extension of the STPI facilities, hold that the deduction u/s 10A cannot be denied to the assessee on the grounds raised by the Assessing Officer. Accordingly, the order of the Learned CIT (Appeals) is confirmed. Disallowance of payment made to approved gratuity fund - Held that - Tribunal in assessee s own case for the A.Y. 2002-03 has deleted the similar disallowance on the ground that the said gratuity trust has been duly approved. In view of the aforesaid facts and following the earlier year s precedence, we find no reason to deviate from the findings recorded by the Ld. CIT(A) that the disallowance u/s 40A(7) cannot be made because clause (a) of the section restricts the deduction in respect of any provision made in the books of accounts for payment of future gratuity liability, however clause (b) clearly provides exception where the provision was made by the assessee for the purpose of payment of a sum by way any contribution towards an approved gratuity fund which here in this case is not in dispute. Thus, the said disallowance has rightly been deleted by the Learned CIT (Appeals). Addition on account of advances written off - Held that - As in the assessment year 2003-04, this matter has been remanded back to the file of the Assessing Officer by the Tribunal observing that the details furnished did not show that whether these are debts arising out of sales and services and conditions of section 36(2) have been fulfilled by the assessee applicable bad debts written off by the assessee. Further some advances were also written off for which complete details were not available with the assessing officer and from the order of cit (A) the addition has been deleted without complete examination of the items. Therefore in the interest of justice we set aside this issue to the file of AO to verify the claim. Therefore, following the aforesaid order of the Tribunal, we also set aside this issue to the file of the Assessing Officer with similar direction. TDS u/s 195 - withholding of tax - TDS liability on payment made to Keystone Industries Ltd., USA (Keystone) - nature of payment - assessee suo-moto offering such disallowance - Held that - The services rendered by Keystone were inspection services simplicitor and cannot be reckoned as technical services by any stretch of imagination especially within the scope of Fees for included services having make available clause under Article 12(4)(b). The aforesaid activities are not made available so that the person acquiring the service is able to apply the technology. Here providing for certificate/ report on rusting of goods and re-working on goods mainly fall in the category of inspection services leave alone make available of technical knowledge. Accordingly, income of Keystone Industries Ltd. amounting to ₹ 16,348,728/- on account of the said services is not taxable in India under the DTAA and thus, no withholding of tax on the same is warranted under Chapter XVII of the Act and consequently there could not be any disallowance u/s 40(a)(i). So far as the assessee suo-moto offering such disallowance cannot be a estoppel upon the assessee for challenging this issue in the appellate proceedings, because if any payment or receipt is not taxable in India or cannot be reckoned to be income of the payee under the provisions of the DTAA, then the Assessing Officer cannot make the addition on mere acquiescence made by the assessee under misconception of law or treaty provision. The addition/disallowance has to be made strictly in accordance with law. Accordingly we hold that even though the assessee had suo-moto offered for disallowance, but once this issue has been challenged before the appellate proceedings and same has been decided in accordance with the law, then relief cannot be denied to the assessee solely on the ground that assessee had offered for disallowance.
Issues Involved:
1. Deletion of addition for loss on exchange rate fluctuation. 2. Deletion of addition for depreciation on unutilized assets. 3. Deletion of addition for disallowance of deduction claimed under Section 10A of the I.T. Act. 4. Deletion of addition for disallowance of payment made to approved gratuity fund. 5. Deletion of addition for advances written off. 6. Allowing relief for disallowance suo-moto made by the assessee. Issue-wise Detailed Analysis: 1. Loss on Exchange Rate Fluctuation: The Assessing Officer (AO) disallowed the loss on account of foreign exchange fluctuation amounting to ?1,40,59,212/- on grounds of lack of documentary evidence and questioning whether the loss was of revenue or capital nature. The CIT(A) allowed the loss, considering it as revenue in nature, relying on earlier years' orders. The Tribunal upheld this view, confirming that the foreign exchange loss was indeed revenue expenditure, deductible under Sections 37 and 28, and directed the deletion of the disallowance. 2. Depreciation on Unutilized Assets: The AO disallowed depreciation on unutilized assets amounting to ?5,58,565/- citing non-usage of the assets. The CIT(A) deleted this disallowance, stating that assets kept ready for use should be deemed used for business purposes under Section 32. The Tribunal confirmed this stance, noting that depreciation had been allowed on the same assets in previous years. 3. Disallowance of Deduction under Section 10A: The AO denied the deduction of ?2,94,25,184/- under Section 10A for the assessee’s STPI unit, citing lack of approval from the Inter-Ministerial Standing Committee. The CIT(A) deleted the disallowance, referencing a CBDT circular clarifying that approval by the Director of Software Technology Parks of India suffices. The Tribunal upheld this decision, confirming that the deduction under Section 10A was allowable based on the provided approvals and the CBDT circular. 4. Payment to Approved Gratuity Fund: The AO disallowed ?1,42,75,498/- paid to an approved gratuity fund, based on the auditor’s report. The CIT(A) deleted the disallowance, stating that the payment was to an approved fund and thus allowable under Section 40A(7). The Tribunal agreed, noting that the gratuity fund was duly approved and the disallowance was not justified. 5. Advances Written Off: The AO disallowed ?94,14,147/- for advances written off due to lack of details. The CIT(A) allowed the deduction, noting that the advances were business-related and thus allowable as business loss under Section 28. The Tribunal, however, remanded the issue back to the AO for verification, following a similar approach taken in the earlier assessment year. 6. Relief for Disallowance Suo-Moto Made by the Assessee: The AO disallowed an amount based on the assessee’s own admission of non-deduction of TDS on payments to a non-resident inspection service provider. The CIT(A) deleted the disallowance, citing that the services did not fall under "Fees for Included Services" as per the India-US DTAA and thus were not taxable in India. The Tribunal upheld this deletion, stating that the services were inspection services and did not make available any technical knowledge, hence no TDS was required. It also noted that the assessee’s admission did not preclude it from challenging the disallowance in appellate proceedings. Conclusion: The Tribunal's judgment resulted in the deletion of disallowances for loss on exchange rate fluctuation, depreciation on unutilized assets, deduction under Section 10A, and payment to an approved gratuity fund. The issue of advances written off was remanded for further verification, and the relief for disallowance suo-moto made by the assessee was upheld. The appeal was partly allowed for statistical purposes.
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