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2020 (3) TMI 231 - HC - Income TaxTDS u/s 195 - Disallowance u/s.40(a)(ia) - non deduction of tax on commission payable to foreign agents - HELD THAT - As decided in own case issue decided in favour of assessee 2019 (9) TMI 1332 - GUJARAT HIGH COURT Disallowance under Section 36(1)(iii) - assessee had capitalized the interest cost on the borrowings used to acquire the capital assets - HELD THAT - The concurrent finding of fact recorded by the two authorities is, that the assessee had furnished the working of interest capitalized to the tune of ₹ 32,64.147/- after taking into consideration the capital expenditure incurred for the capital assets and the quantum of work in progress from time to time. The Tribunal rightly observed that the presumption drawn by the Assessing Officer that the total term loan received was towards the CWIP could not be said to be based on any cogent material. Question, as proposed by the Revenue cannot be termed as a substantial question of law. Deduction u/s 80IA(4) - operation of the Captive Power Plant - as per revenue production of steam is only a byproduct, which is used by the assessee for its manufacturing activity - HELD THAT - This Court took notice of the fact that the assessee had installed turbine for power generation which relied on the excess steam production capacity of the plant. This Court ultimately took the view that the installation of turbine for power generation could be said to setting up of a new industrial unit and therefore, the assessee would not be entitled for deduction of sum under Section 80IA of the Act. Facts in the case of Commissioner of Income-tax Vs. Atul Ltd. 2016 (8) TMI 413 - GUJARAT HIGH COURT are quite different and the ratio, as propounded in the same, will have no applicability to the case on hand, more particularly, the question No.3 with which we are dealing with. It is difficult for us to take the view as suggested by the learned standing counsel appearing for the Revenue that steam would not amount to power. The word Power used in Section 80IA(4) has not been defined under the Income Tax Act. The word Power should be understood in common parlance as Energy . Energy can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the steam produced by the assessee can be termed as power and would qualify for the benefits available under Section 80IA(4) of the Act. Disallowance u/s 14A - HELD THAT - CIT(A) allowed the appeal following the deduction given by this Court in the case of Corrtech Energy Pvt Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT . The deduction as allowed in Corrtech Energy Pvt Ltd. (Supra) is that no disallowance can be made if no exemption from the income has been claimed. - Decided against revenue.
Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of tax on commission payable to foreign agents. 2. Disallowance under Section 36(1)(iii) for interest expenses. 3. Eligibility of deduction under Section 80IA(4) for steam as "power". 4. Disallowance under Section 14A for investments yielding no exempt income. Detailed Analysis: 1. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax on Commission Payable to Foreign Agents: The Assessing Officer disallowed the commission paid to foreign agents amounting to ?2,47,85,500/- on the grounds that the income arising from such commission could be deemed to have accrued or arisen in India, thus making it taxable under Section 5(2)(b) read with Section 9(1)(i) of the Income Tax Act. The assessee failed to comply with Section 195(2) of the Act, leading to the disallowance. However, the CIT(A) deleted this addition, referencing a similar decision for the same assessee in the previous assessment year (2010-11). The Tribunal upheld this deletion, and the High Court dismissed the Revenue's appeal, noting that the issue had already been decided in favor of the assessee in a previous judgment (Tax Appeal No.610 of 2019) dated 24th September 2019. 2. Disallowance under Section 36(1)(iii) for Interest Expenses: The Assessing Officer noted an increase in fixed assets and capital work in progress, leading to the disallowance of ?17,85,407/- after adjusting the interest cost capitalized by the assessee. The CIT(A) accepted the assessee's detailed working of interest capitalization, which was in line with ICAI guidelines and certified by a Chartered Accountant. The Tribunal upheld the CIT(A)'s decision, stating that the Assessing Officer's presumption that the total term loan was applied towards CWIP was not based on relevant supportive evidence. The High Court agreed that the concurrent findings of the CIT(A) and the Tribunal were correct and that the second question did not constitute a substantial question of law. 3. Eligibility of Deduction under Section 80IA(4) for Steam as "Power": The assessee claimed a deduction of ?32,51,080/- under Section 80IA(4) for income from the sale of steam, arguing that steam qualifies as "power". The Assessing Officer disagreed, considering steam as an intermediate raw material. The CIT(A) upheld the Assessing Officer's decision, referencing the ITAT Ahmedabad's judgment in N R Agrawal Industries Ltd Vs DCIT. However, the Tribunal, supporting the CIT(A), cited a Co-ordinate Bench decision in West Cost Paper Mills Pvt. Ltd. vs. CIT, and the High Court differentiated the case from Commissioner of Income-tax Vs. Atul Ltd., ultimately concluding that "steam" can be considered "power" as per Section 80IA(4), thus qualifying for the deduction. 4. Disallowance under Section 14A for Investments Yielding No Exempt Income: The Assessing Officer disallowed ?19,09,880/- under Section 14A read with Rule 8D, despite the assessee not earning any exempt income from investments in subsidiary shares. The CIT(A) allowed the assessee's appeal, following the High Court's precedent in Corrtech Energy Pvt Ltd., which stated that no disallowance can be made if no exempt income is claimed. The Tribunal and the High Court upheld this view, determining that the fourth question also did not constitute a substantial question of law. Conclusion: The High Court dismissed the Revenue's appeal, concluding that none of the proposed questions constituted substantial questions of law, thus upholding the decisions of the CIT(A) and the Tribunal across all issues.
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