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TMI Blog2013 (11) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... oubted by the assessing officer, cannot be disallowed. Accordingly, the orders of lower authorities are set side and the entire disallowance is deleted - Decided in favour of assessee. Disallowance of foreign exchange fluctuation loss - Held that:- by acquisition of a company in South Africa, the manufacturing base and distribution network, in other words, the capital base of the company, expands considerably and the profit making apparatus also expanded. Though the company was acquired through a subsidiary company this Tribunal of the considered opinion that it is only an arrangement made by the assessee to acquire Dunlop Tyres International (proprietory) Ltd. In effect, the assessee is holding and controlling the subsidiary company as well as Dunlop Tyres International (proprietory) Ltd - the entire arrangements made by the assessee by establishing two intermidiary subsidy companies would come to light once the corporate veil is lifted. Therefore, the loss suffered was in the process of acquisition of Dunlop Tyres International (proprietory) Ltd in South Africa. In other words, the loss was suffered in the process of acquisition of a capital asset which expands the manufacturi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, order of CIT(A) is set aside and the issue is restored to the file of the assessing officer with a direction to consider the same on merit in respect of deduction u/s 80IA(4)(iv)(a) with regard to generation of power in the form of steam from its gas turbine boiler - Decided in favour of assessee. - ITA No.31,74/Coch/2010 - - - Dated:- 29-5-2013 - N R S Ganesan and B R Baskaran, JJ. For the Appellant : Shri Percy J Pardiwala, Sr.Counsel / Shri T P Ostwal Ms Indra Anand Mr Madhur Agarwal, Adv. For the Respondent : Shri M Anil Kumar, CIT Smt Susan George Verghese ORDER:- PER : N R S Ganesan Both the appeals of the assessee and the revenue are arising out of the very same order of the C.I.T.(A) for the assessment year 2006-07. The assessee has filed cross objection against the very same order of the C.I.T.(A). Therefore, we heard both the appeals and the cross objection together and disposing of the same by this common order. 2. Let us first take the assessee s appeal in I.T.A. No.31/Coch/2010. 3. The first ground of appeal is with regard to disallowance of Rs.68,68,556 u/s 40(a)(ia) of the Act. 4. Shri PJ Pardiwala, the ld.senior counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 201(1A) of the Act. A similar language is not found in section 40(a)(ia) of the Act. In section 40(a)(ia) of the Act, the legislature does not intend to include the words whole or any part of tax under Chapter XVII-B . The very fact that any part of the tax is omitted to be included in section 40(a)(ia) of the Act, the ld.senior counsel submitted that merely because there was a short deduction of tax, the provisions of section 40(a)(ia) of the Act would not be applicable. 6. The ld.senior counsel placed his reliance on the unreported judgment of the Calcutta High Court, in ITAT No.183 of 2012 GA No.2069 of 2012 judgment dated 03rd December, 2012, in the case of CIT, Kolkatta-XI vs M/s S.K. Tekriwal, copy of which is filed by the ld.senior counsel The ld.senior counsel submitted that in that case, on identical circumstances, the Kolkatta Bench of this Tribunal found that there is no need in section 40(a)(ia) to treat the assessee as defaulter when there was a short deduction. The Kolkatta Bench of this Tribunal further found that if there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payment falling under various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct tax under Chapter XVII-B of the Act at the rate prescribed and if for any reason such tax was not deducted as prescribed, then the assessee would face disallowance u/s 40(a)(ia) of the Act in respect of the entire such amount. The ld.DR submitted that the assessing officer has not disallowed the entire payment. According to the ld.DR, the assessing officer restricted himself only in respect of the proportionate amount which was not deducted. Therefore, according to the ld.DR, the provisions of section 40(a)(ia) is applicable even in case of short deduction or lesser deduction of tax. 8. We have considered the rival submissions on either side and also perused the material available on record. We have also carefully gone through the provisions of section 40(a)(ia) of the Act, which reads as follows: (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the provisions of subsection (3) of section 200.) Section 201(1A) enables the assessing officer to levy interest in case the tax was not deducted either wholly or partly or after deduction it was not paid as required under the Act. In fact, the provisions of section 201(1A) was amended by Finance Act, 2001 with retrospective effect from 01-04-1962 after the judgment of the Andhra Pradesh High Court in P.V. Rajagopal (supra) 10. As rightly pointed out by the ld.senior counsel for the assessee in section 201(1A) the legislature intended to levy interest even in case of short deduction of tax. In other words, if any part of the tax which required to be deducted was found to be not deducted then interest u/s 201(1A) can be levied in respect of that part of the amount which was not deducted. Whereas the language of section 40(a)(ia) does not say that even for short deduction disallowance has to be made proportionately. Therefore, the legislature has clearly envisaged in section 201(1A) for levy of interest on the amount on which tax was not deducted whereas the legislature has omitted to do so in section 40(a)(ia) of the Act. In other words, the provisions of section 40(a)(ia) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is a shortfall in the deduction. The Department assumes that where the deduction is not as required by or under this Act, there is a default. But the fact is that this expression as required by or under this Act grammatically refers only to the duty to pay the tax that is deducted and cannot refer to the duty to deduct the tax. Since this is a penal section, it has to be strictly construed and it cannot be assumed that there is a duty to deduct the tax strictly in accordance with the computation under the Act and if there is any shortfall due to any difference of opinion as to the taxability of any item the employer can be declared to be an assessee in default. 12. After considering the provisions of section 201(1A) before amendment by Finance Act, 2001, the Andhra Pradesh High Court found that as required under this Act does not refer to mean to deduct tax in accordance with computation under the Act. In fact, the Parliament amended the section 201(1A) after this judgment of Andhra Pradesh High Court by incorporating the words the whole or any part of tax by Finance Act, 2001. The Division Bench of the Mumbai Bench of this Tribunal in the case of Chandabhoy and Jassob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary of Mauritius company exposed to risk of increasing rupee liability due to exchange rate fluctuation. Therefore, the assessee entered into foreign exchange forward contract with Citi Bank N.A. in the month of January, 2006 in order to avoid increase in its liability for payment to be made to Mauritius subsidiary company by way of loan in foreign currency. According to the ld.senior counsel the purpose for which the forward contract was taken did not materialize till March, 2006. Therefore, the forward contract has to be settled on due date, i.e. 14th March, 2006. Because of this, the assessee has suffered aggregate loss of Rs.5,09,01,000. 16. The ld.senior counsel for the assessee further submitted that the object of advancing loan to Mauritius subsidiary company is only to help the subsidiary company to acquire another tyre manufacturing company in South Africa. According to the ld.senior counsel Dunlop Tyres is an unlisted South African tyre manufacturing company which owns two tyre manufacturing plants in South Africa. The Mauritius subsidiary company advanced the loan to Apollo (South Africa) Holding Pvt Ltd and accordingly the entire share capital of Dunlop Tyres was acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prietory) Ltd by South Africa subsidiary company did not enlarge the profit making apparatus of the assessee company. The advantage of distribution net work acquired by the assessee is in the revenue field. Therefore, the loss suffered by the assessee company in the forward contract has to be allowed as business expenditure. 17. On the contrary, Shri M Anil Kumar, the ld.DR submitted that admittedly the forward contract was entered into in respect of a loan advanced to Mauritius subsidiary company with an intention to acquire Dunlop Tyres International (proprietory) Ltd. Referring to the assessment order, more particularly, paragraph 10, the ld.DR pointed out that in the director s report it is clearly stated that as a part of expansion programme, the company wanted to acquire Dunlop Tyres International (proprietory) Ltd at South Africa. For acquiring this company, the assessee incorporated a wholly owned company in Mauritius by the name and style Apollo Mauritius Holding Pvt Ltd . The subsidiary company in Mauritius established another company in South Africa, viz. Apollo (South Africa) Holding Pvt Ltd for acquiring 100% controlling power in Dunlop Tyres International (propriet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng unit or by expanding the profit making apparatus it has to be treated as capital expenditure. 19. Now, in the above background, we have to see whether acquisition of tyre manufacturing company along with the distribution network at South Africa would expand the business and profit making apparatus of the assessee or not? The assessee, instead of acquiring the company directly, established a company in Mauritius as 100% subsidiary company and the said subsidiary company has established another company in South Africa. The motive and intention behind the establishment and creation of two intermediary companies is for the purpose of acquiring Dunlop Tyres International (proprietory) Ltd. The loan in foreign exchange was granted to achieve the above object of acquiring the company in South Africa. This Tribunal is of the considered opinion that by acquisition of a company in South Africa, the manufacturing base and distribution network, in other words, the capital base of the company, expands considerably and the profit making apparatus also expanded. Though the company was acquired through a subsidiary company this Tribunal of the considered opinion that it is only an arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 31-03-2006, the loss suffered by the assessee on account of fire accident was debited in the accounts. However, it was not claimed in the return of income, for the assessment year 2006-07. In the course of assessment proceedings by a letter dated 11-11- 2008 the assessee claimed this amount of Rs.18,26,47,613 as deduction u/s 28 of the Act. However, the assessing officer disallowed the claim of the assessee on the ground that it was not claimed in the return of income by following the judgement of the Apex Court in the case of Goetze (India) Ltd vs CIT 284 ITR 323 (SC). According to the ld.senior counsel the CIT(A) confirmed the order of the assessing officer on the ground that the assessing authority has no power to entertain any new claim otherwise than by way of revised return. 22. Referring to the judgement of the Apex Court in the case of Goetze (India) Ltd (supra), the ld.senior counsel submitted that the Supreme Court itself clarified that the power of the appellate authority to entertain the additional claim cannot be impinged in any way. Therefore, the CIT(A) ought to have considered the issue as an additional ground and adjudicated the same on merit. The ld.senior co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessment proceedings in view of the judgment of the Apex Court in the case of CIT vs Shelly Products (2003) 261 ITR 367 (SC). In view of the above, the CIT(A) is not justified in rejecting the claim of the assessee. However, since the assessing officer has not considered the matter on merit, this Tribunal is of the considered opinion that the matter has to be adjudicated by the assessing officer at the first instance. Accordingly, the orders of lower authorities are set aside and the issue of loss of Rs.18,26,47,613 on account of fire is remitted back to the file of the assessing officer. The assessing officer shall consider the issue on merit and thereafter decide the same in accordance with law after giving reasonable opportunity of hearing to the assessee. 26. The next ground of appeal is with regard to rejection of additional ground of appeal relating to deduction u/s 80IA(4)(iv)(a) of the Act to the extent of R.2,06,20,739. 27. Shri PJ Pardiwalla, the ld.senior counsel for the assessee submitted that the CIT(A) rejected the claim of the assessee with regard to deduction u/s 80IA to the extent of Rs.2,06,20,739 being the profit earned from generation of power in steam f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime, the assessee makes the claim with regard to generation of power in the form of steam from its gas turbine boiler. No doubt, section 80A(5) says that no deduction shall be allowed under Chapter VIA under the heading, C.-Deductions in respect of certain incomes , unless the same is claimed in the return of income. As rightly pointed out by the learned senior counsel section 80A(5) was brought in the statute book by Finance Act, 2009, of course, with retrospective effect from 01-04-2003. Therefore, on the date of filing of return of income for the assessment year under consideration, the assessee would not have anticipated the retrospective amendment that would be brought in the statute by finance Act, 2009. The assessee was expected to file the return of income as per the law as it existed on the 01st day of April of the respective assessment year. Therefore, this Tribunal is of the considered opinion that it may not be proper to apply the provisions of section 80A(5) for the year under consideration. In view of the above, the decision of this Tribunal in The Kadachira Service Co-operative Bank Ltd (supra) may not be applicable for the year under consideration. In view of the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33. On the contrary, Shri PJ Pardiwalla, the ld.senior counsel for the assessee submitted that the assessee company has paid fringe benefit tax on the expenditure incurred towards club expenditure. Therefore, there is no question of any disallowance. According to the ld.senior counsel, for the assessment year 1988-89 a similar issue arose before this Tribunal. This Tribunal by an order dated 29-07- 1992 in ITA No.301/Coch/1991 allowed a similar expenditure. For the assessment years 1996-97 and 1997-98 this Tribunal by following its earlier order for the assessment year 1998-99 allowed similar expenditure in ITA No.43/Coch/2001. Therefore, according to the ld.senior counsel, there is no question of any disallowance. 34. We have considered the rival submissions on either side and also perused the material available on record. We find that for the assessment year 2005-06 in the assessee s own case in ITA No.729/Coch/2008 order dated 08-02-2013, this Tribunal remitted the matter back to the file of the assessing officer for reconsideration. This Tribunal specifically observed that expenditure incurred towards entrance fee / subscription fee can be termed as business expenditure and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the total income as revenue loss. 38. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that the advance was made to S Kumar Tyre Manufacturing Co in the course of business activity of the assessee for manufacturing tyres and tubes. When the assessee advanced the amount in the course of its business activity for the purpose of manufacturing tyre and tubes, the irrecoverable part of the advance has to be treated as business loss. Therefore, any business loss has to be allowed while computing the taxable income. This Tribunal is of the considered opinion that though the claim of the assessee cannot be allowed u/s 37(1) as a business expenditure it has to be deducted as a business loss while computing the taxable income. In view of the above, the order of the CIT(A) on this issue is confirmed. 39. The next ground of appeal is with regard to payment of Rs.10,23,403 towards employees contribution to provident fund. 40. We heard the ld.DR and the ld.senior counsel for the assessee. The CIT(A) allowed the claim of the assessee after finding that the payments were made before filing of return of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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