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Issues involved:
Reopening of assessment under section 147 of the IT Act, validity of disallowance of interest under section 40(a), interpretation of sections 40(a)(i) and 10(15)(iv)(f), applicability of Double Taxation Avoidance Agreement (DTAA) between India and Korea on deduction of TDS on royalty and fees for technical services. Reopening of assessment under section 147: The case involved the reopening of assessment under section 147 of the IT Act. The AO reopened the assessment based on the discrepancy between the original sanction order and subsequent amendments regarding the purpose of the loan. The CIT(A) upheld the reopening, stating that the change in terms and conditions was not disclosed to the AO, justifying the validity of the reassessment. The Tribunal agreed, emphasizing that the case did not fall under the proviso to section 147, as all material facts necessary for assessment were not fully and truly disclosed. Disallowance of interest under section 40(a): The AO disallowed the interest claimed by the assessee under section 40(a) as tax was not deducted under section 195 on foreign currency loans. The assessee contended that the interest was exempt under section 10(15)(iv)(f) due to necessary approvals. The Tribunal analyzed the provisions of section 40(a)(i) and section 10(15)(iv)(f) to determine the applicability of the disallowance. It was concluded that if interest is exempt under section 10(15)(iv)(f), no disallowance should be made under section 40(a). The Tribunal upheld the CIT(A)'s decision in favor of the assessee, emphasizing compliance with the requirements of section 10(15)(iv)(f) and the approval obtained from the Central Government. Interpretation of sections 40(a)(i) and 10(15)(iv)(f): Section 40(a)(i) prohibits deduction of certain amounts in computing income if tax deductible at source is not deducted. On the other hand, section 10(15)(iv)(f) exempts interest payable by an industrial undertaking on foreign currency loans approved by the Central Government for industrial development in India. The Tribunal clarified that compliance with section 10(15)(iv)(f) exempts interest from disallowance under section 40(a)(i), highlighting that the loan's purpose was amended with necessary approvals, satisfying the conditions of the exemption. Applicability of DTAA on TDS deduction for royalty and fees: The issue of deduction of TDS on royalty and fees for technical services under the DTAA between India and Korea was raised. The AO disallowed the deduction, stating that provision made for payment should be treated as paid for TDS purposes. The CIT(A) upheld the disallowance, emphasizing that under the mercantile system of accounting, provision and payment should be treated equally. The Tribunal remitted the issue to the AO for a fresh examination, considering the DTAA and relevant facts, to determine if TDS deduction was required. In conclusion, the Tribunal addressed the validity of the reassessment, the disallowance of interest under section 40(a), the interpretation of sections 40(a)(i) and 10(15)(iv)(f), and the applicability of the DTAA on TDS deduction for royalty and fees. The decisions were based on the compliance with legal provisions, approvals obtained, and the specific circumstances of the case.
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