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2019 (4) TMI 550 - AT - Income TaxDisallowance u/s. 40(a)(ia) in respect of commission expenses - non deduction of TDS u/s 195 - HELD THAT - After considering the decision in the case of GE India Pvt. Ltd 2010 (9) TMI 7 - SUPREME COURT OF INDIA we consider that provision of section 9(1)(i) are not applicable to the case of the assessee. Regarding applicability of section 195 we observe that once the income is not taxable, there is no liability of deduction of tax, therefore, it was not applicable for the assessee to deduct tax, therefore, there was no violation of provision of section 195. After considering the above facts, we observe that in the case of the assessee, the commission paid to non-resident agent was not liable to tax under the provisions of act when the services were rendered outside India, payments were made outside India and there was no permanent establishment or business connection in India. These undisputed facts has not been disproved by the revenue, therefore, we do not find any infirmity in the decision of the CIT(A). Accordingly, this ground of appeal of the revenue is dismissed. Disallowance u/s. 14A - HELD THAT - It is undisputed fact that assessee has not earned and claimed any exempt income during the year under consideration, therefore, we consider that CIT(A) has rightly deleted the disallowance after following the decision of Jurisdictional High Court of Gujarat in the case of Corrtech Energy Pvt. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT . Therefore, we do not find any merit in this ground of appeal of the revenue and the same is dismissed. Disallowance of interest u/s. 36(1)(iii) - assessee has given the working of interest capitalized after taking into consideration the capital expenditure incurred for capital asset and the quantum of work in progress from time to time - HELD THAT - AO has disallowed the interest on all the term loans availed after August, 2010 without considering as to what part of the term loan was applied for the new asset which was already put to use. The assessing officer has not disproved the detailed working of the calculation of capitalization of interest given by the assessee. The term loan was sanctioned in the middle of the year and by that time many purchases for machineries were made by the asssessee by utilizing its own funds. We observe that the presumption of the assessing officer that the total term loan received was applied towards CWIP was not based on relevant supportive evidences. Considering the above facts and the detailed findings of the CIT(A), we do not find any merit in the ground of the appeal of the revenue. Therefore, this ground of appeal of the Revenue is dismissed. Disallowance u/s. 80IA - operation of captive power plant - HELD THAT - Assessee is eligible to claim deduction under section 80-IA with regard to unit-6 also as a standalone power generating undertaking. See West Coast Paper Mills Pvt. Ltd. vs. CIT 2014 (7) TMI 554 - ITAT MUMBAI .
Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act in respect of commission expenses. 2. Disallowance under Section 14A of the Income Tax Act. 3. Disallowance under Section 36(1)(iii) of the Income Tax Act. 4. Disallowance under Section 80IA of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) of the Income Tax Act in respect of commission expenses: The Assessing Officer (AO) disallowed the commission payment of ?3,47,81,265/- to non-residents due to the absence of Tax Deducted at Source (TDS) under Section 195. The AO argued that the income accrued in India as per Section 9(1)(i) and was taxable, thus requiring TDS. The assessee contended that the services were rendered outside India, and no part of the commission was received in India, supported by Supreme Court decisions in GE India Technology Centre Pvt. Ltd. vs. CIT and CIT vs. Toshoku Ltd. The CIT(A) allowed the appeal, stating the commission was not taxable in India as the services and payments were outside India with no permanent establishment in India. The Tribunal upheld CIT(A)'s decision, confirming no requirement for TDS under Section 195. 2. Disallowance under Section 14A of the Income Tax Act: The AO disallowed ?5,95,111/- under Section 14A, observing that the assessee had investments in shares of a sister concern to earn tax-free dividends. The CIT(A) allowed the appeal, citing the Gujarat High Court's decision in Corrtech Energy Pvt. Ltd., which stated that if no exempt income is claimed, disallowance under Section 14A is not applicable. The Tribunal upheld CIT(A)'s decision, confirming no merit in the revenue's appeal. 3. Disallowance under Section 36(1)(iii) of the Income Tax Act: The AO disallowed ?17,85,407/- of interest expenses, noting an increase in fixed assets and CWIP, arguing that interest on borrowed funds should be capitalized. The assessee explained that interest was capitalized proportionately based on the usage of funds for capital assets. The CIT(A) accepted the assessee's detailed working and method of interest capitalization, as per ICAI guidelines. The Tribunal upheld CIT(A)'s decision, agreeing that the AO's presumption was not supported by evidence. 4. Disallowance under Section 80IA of the Income Tax Act: The AO disallowed ?32,51,080/- claimed under Section 80IA for the operation of a captive power plant, arguing that steam does not qualify as "power". The CIT(A) partially allowed the appeal, stating that the rate of sale of electricity should be taken at the rate at which the assessee buys from GEB. However, CIT(A) agreed with the AO that steam does not qualify for deduction under Section 80IA. The Tribunal upheld CIT(A)'s decision, following the ITAT Mumbai's decision in West Coast Paper Mills Pvt. Ltd. vs. CIT, which recognized steam as a form of power eligible for deduction under Section 80IA. Additional Disallowance under Section 14A: The AO disallowed ?19,09,800/- under Section 14A for investments in subsidiary shares, despite no exempt income being earned. The CIT(A) allowed the appeal, citing the Gujarat High Court's decision in Corrtech Energy Pvt. Ltd. The Tribunal upheld CIT(A)'s decision, confirming no merit in the revenue's appeal. Cross Objections: Both cross objections filed by the assessee were dismissed as not pressed. Conclusion: All appeals and cross objections were dismissed, with the Tribunal upholding the CIT(A)'s decisions on all issues.
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