2020 (4) TMI 816 - AT - Income Tax

Higher rate of depreciation on the UPS, printers and scanners @ 60% as relying on own case 2017 (8) TMI 167 - ITAT CHENNAI TDS u/s 195 - addition u/s 40(a)(ia) - Payment to non residents for agency commission, professional consultancy charges, warehousing charges, emballage cost, tool development charges etc - HELD THAT - As decided in own case 2017 (8) TMI 167 - ITAT CHENNAI The logistics service rendered was essentially warehousing facility. In our opinion, this cannot be equated with managerial, technical or consultancy services. Even if it is considered as technical service, the fee was payable only for services utilized by the assessee in the business or profession carried on by the said non-residents outside India. Such business or profession of the non-residents, earned them income outside India. Thus, it would fall within the exception given under sub-clause (b) of Section 9(1) of the Act. In any case, under Section 195 of the Act, assessee is liable to deduct tax only where the payment made to non-residents is chargeable to tax under the provisions of the Act. In the circumstances mentioned above, assessee was justified in having a bonafide belief that the payments did not warrant application of Section 195 of the Act. In such circumstances, we are of the opinion that it could not have been saddled with the consequences mentioned under Section 40(a)(i) of the Act. Disallowances were rightly deleted by the ld. CIT(Appeals). Disallowance u/s 43B - delay in payment - Employees contribution to the ESI after 5 days from the due date specified - HELD THAT - M/S. INDUSTRIAL SECURITY INTELLIGENCE INDIA PVT. LTD 2015 (7) TMI 1063 - MADRAS HIGH COURT if the assessee had deposited employee's contribution towards Provident Fund and ESI after due date as prescribed under the relevant Act, but before the due date of filing of return under the Income Tax Act, no disallowance could be made in view of the provisions of Section 43B as amended by Finance Act, 2003. Disallowance u/s 14A - As per assessee assessee had huge interest free funds in the form of capital, reserves, surplus etc and hence no interest disallowance could be made and for the purposes of quantifying the average value of investments , only those investments which yielded exempt income alone should be considered etc - HELD THAT - We find that the assessee s plea that it had huge interest free funds in the form of capital, reserves, surplus etc and hence no interest disallowances could be made in its case remain unexamined and hence we deem it fit to remit this issue back to the AO for a fresh examination. The assessee shall lay relevant material in support of its contentions and comply with the requirements of the A O in accordance with law. AO shall after affording effective opportunity to the assessee shall decide this issue in accordance with law. The assessee s plea that for the purposes of quantifying the average value of investments, only those investments which yielded exempt income alone should be considered is in accordance with the decision of the special bench of the ITAT decision in the case of Vireet Investments P Ltd 2017 (6) TMI 1124 - ITAT DELHI and hence we direct the AO to recompute the disallowance in accordance with that decision.

Summary

Issues Involved:
1. Disallowance of additional depreciation claimed under Section 32(1)(iia).
2. Disallowance of higher rate of depreciation on UPS, printers, and scanners.
3. Disallowance of payments made to non-residents under Section 40(a)(i).
4. Disallowance of employees' contribution to ESI.
5. Additional disallowances under Section 14A read with Rule 8D.

Issue-wise Detailed Analysis:

1. Disallowance of Additional Depreciation Claimed Under Section 32(1)(iia):
The Assessing Officer (AO) disallowed additional depreciation claimed by the assessee on assets added during the second half of the preceding years. The Commissioner of Income Tax (Appeals) [CIT(A)], following the Jurisdictional High Court's decision in the assessee's own case for AY 2006-07, allowed the appeals. The Tribunal upheld the CIT(A)'s decision, stating that the issue is covered in favor of the assessee by the Jurisdictional High Court's judgment, which allowed the balance additional depreciation to be carried forward to the year following the previous year in which the asset was installed and put to use.

2. Disallowance of Higher Rate of Depreciation on UPS, Printers, and Scanners:
The AO disallowed the higher rate of depreciation claimed by the assessee at 60% on UPS, printers, and scanners, treating them as office equipment eligible for 15% depreciation. The CIT(A) allowed the appeals, relying on the ITAT's decision in the assessee's own case for AY 2011-12, where it was held that these items are part of data processing equipment and eligible for 60% depreciation. The Tribunal upheld the CIT(A)'s decision, following the earlier ITAT order.

3. Disallowance of Payments Made to Non-Residents Under Section 40(a)(i):
The AO disallowed certain payments made to non-residents, as TDS was not deducted. The CIT(A) allowed the appeals, relying on the ITAT's decision in the assessee's own case for AY 2010-11, which held that payments for services rendered outside India are not liable for tax in India, and hence, TDS was not required. The Tribunal upheld the CIT(A)'s decision, following the ITAT's earlier order, which concluded that such payments do not attract the provisions of Section 40(a)(i).

4. Disallowance of Employees' Contribution to ESI:
For AY 2012-13, the AO disallowed the employees' contribution to ESI, remitted after the due date specified in the ESI Act but before the due date for filing the return under Section 139(1). The CIT(A) allowed the appeal, relying on the Jurisdictional High Court's decision in the case of M/s Industrial Security and Intelligence India P Ltd. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

5. Additional Disallowances Under Section 14A Read with Rule 8D:
The AO made additional disallowances under Section 14A read with Rule 8D. The CIT(A) confirmed the disallowances, stating they were lower than the exempt income. The assessee argued that it had sufficient interest-free funds and only investments yielding exempt income should be considered. The Tribunal remitted the issue back to the AO for fresh examination, directing the AO to consider the assessee's plea and recompute the disallowance in accordance with the ITAT's Special Bench decision in the case of Vireet Investments P Ltd.

Conclusion:
The Tribunal dismissed the Revenue's appeals for AYs 2012-13, 2013-14, and 2014-15, upholding the CIT(A)'s decisions on disallowances related to additional depreciation, higher depreciation on UPS, printers, and scanners, payments to non-residents, and employees' contribution to ESI. The Tribunal partly allowed the assessee's appeals for the same assessment years, remitting the issue of additional disallowances under Section 14A read with Rule 8D back to the AO for fresh examination and recomputation.