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TMI Blog2015 (5) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... assed very detailed order and gave specific findings that the assessee has not maintained any separate books of account for the investment in shares, there was no separate establishment to look after the investments. Even before us, the assessee has not able to establish that no interest borrowing funds were used for investments in shares. Further, the ld. CIT(A), after considering the detailed explanation and books of accounts given by the assessee the addition made by the Assessing Officer was sustained. Accordingly, we find no infirmity in the order passed by the ld. CIT(A) - Decided against assessee Disallowance under section 80IA - CIT(A) held that the depreciation which was already set off cannot be carry forward notionally to the subsequent years for the purpose of computing the profits of the windmills on stand-alone basis and directed the Assessing Officer to allow the assessee’s claim of deduction under section 80IA - Held that:- CIT(A), by following the decision of the Tribunal in the case of GRT Firms & Others (2012 (6) TMI 802 - ITAT CHENNAI) as well as judgement of the Hon’ble Jurisdictional High Court in the case of Velayudhaswamy Spinning Mills v. ACIT (2010 (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT against the orders of the CIT(A). The Hon'ble Income Tax Appellate Tribunal of Chennai, vide its orders mentioned above, has held that the services provided by the concerned non-residents neither amounts to managerial / technical services nor the payments are assessable to tax in India and hence the provisions of sec. 195 of the Act are not applicable to the facts of the said companies. The relevant portion of the order of the ITAT (in ITA No.225/Mds/2013 dated 30.05.2013) is reproduced as under: 5. We have heard the submissions made by the representative of both sides and have perused the orders of the authorities below. The assessee has paid commission to foreign agent M/s. Met- Tech International Pte, Singapore for procuring export orders for the assessee from companies-located in Japan, Indonesia and UK. The Commissioner of Income Tax (Appeals) has given categoric finding that the foreign agent had not extended any technical services but had only procured export orders. The commission was paid by the assessee on various dates through banking channels for the services rendered outside India. The Commission has been remitted in foreign currency outside India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee is dismissed. 5. The next ground raised by the assessee in ground No.3 was not pressed at the time of hearing and accordingly the ground is dismissed as not pressed. 6. Ground Nos. 4 and 5 in the grounds of appeal is relating to disallowance under section 14 of the Act. In the assessment order, the Assessing Officer has observed that the assessee had paid an interest of ₹ 2,41,54,530/- against term loans. It is also seen that the assessee has made huge investments during the year. Accordingly, the Assessing Officer by applying section 14A of the Act read with Rule 8D, disallowed an amount of ₹ 37,23,755/-. 7. The assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) has observed that as per the profit and loss account, the assessee has several activities including investments in shares. For the purpose of making these investments, etc. the same management, manpower, machinery and infrastructural facilities of the assessee are being used. Hence, there is an element of expenditure involved in the process. This expenditure may not be direct. The ld. CIT(A) has further observed that the assessee is not maintaining any separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n interest expenses and considered in the step-2 of the formula given in Rule-8D for the purpose of attributing the indirect interest burden on the investments made, on a proportionate basis. Even Bombay High Court, in the case of Godrej Boyce Mfg Co Ltd v. CIT, decided on 12.08.2010, held that Sec. 14A(2) (3) of the Act, is constitutionally valid and is applicable from assessment year 2008-09 onwards. In this case, the High Court has clearly and categorically held that the provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09 . 4.3.4 The disallowance of expenses u/s.14A r.w. rule 8D is in relation to the earning of the exempt income and not in relation to the exempt income earned as such. The disallowance of expenses is always in relation to the efforts made for earning such exempt income and not proportionate to the exempt income earned. It is particularly so because, in some years the income so earned may be less or nil. Therefore, the disallowance to be computed should always be with reference to the investments made in such activity and the effort made therein, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is composite one, i.e., relating to taxable receipts as well as non-taxable receipts, Assessing Officer is duty-bound to disallow proportionate amount of expenditure relatable to non-taxable or exempted income by invoking provisions of section 14A. 4.3.7 In order to arrive at a reasonable amount of expenditure, which may vary from case to case and situation to situation, the legislature, after taking various factors into consideration, came to a conclusion that such expenses can be reasonably calculated @ 0.5% of the average investments made by the assessee. For this purpose, the legislature has arrived at a common formula to calculate the expenses @ 0.5% of the average investments made as per step-3 of the formula given in Rule-8D. Accordingly the legislature incorporated and introduced the Rule-8D. 4.3.8 Further, as could be seen from the assessment order, the Assessing Officer has analysed the assessee's activity of investing in shares and observed that there will be some element of expenditure, both in terms of financial burden (interest element) as well as the in terms of use of manpower and infrastructural facilities in making the investments in shares/funds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no separate establishment to look after the investments. Even before us, the assessee has not able to establish that no interest borrowing funds were used for investments in shares. Further, the ld. CIT(A), after considering the detailed explanation and books of accounts given by the assessee the addition made by the Assessing Officer was sustained. Accordingly, we find no infirmity in the order passed by the ld. CIT(A) and therefore, the ground raised by the assessee is dismissed. I.T.A. No. 64/Mds/2015 10. In the appeal of the Revenue, the only ground raised is with regard to disallowance under section 80IA of the Income Tax Act. The ld. CIT(A), by following the decision of the Hon ble Jurisdictional High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT 231 CTR 368 and also by following the decision of the Tribunal in the case of GRT Firms Others in I.T.A. Nos.528 to 530/Mds/2012 dated 04.06.2012, held that the depreciation which was already set off cannot be carry forward notionally to the subsequent years for the purpose of computing the profits of the windmills on stand-alone basis and directed the Assessing Officer to allow the assessee s cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, the issue is covered by the judgment of the Hon'ble jurisdictional High Court in the case of Velayudhaswamy Spinning Mills and Others, 231 CTR 368. In view of the matter, we hold that the Commissioner of Income-tax (Appeals) has passed proper orders, which are sustainable in law. There is no room for us to interfere in his orders. 4.4.4 Therefore, since the issue involved in the present appeals is the same and the facts are exactly identical, the above decisions of the ITAT, (M/s. GRT Firm and others) and Jurisdictional High Court in the case of Velayudhaswamy Spinning Mills other vs. ACIT (231 CTR 368)(Mad), are equally applicable to the facts of the present appeals of the assessee for A.Y. 2010-11. Respectfully following the decision of ITAT, in the case of M/s. GRT Firm and others (in ITA Nos.528 to 530/Mds/2012 dated 04.06.2012), I hold that the depreciation which was already set off, cannot be carried forward notionally to the subsequent years for the purpose of computing the profits of the windmills on stand-alone basis. The Assessing Officer is directed to allow the assessee's claim of deduction u/s. 80-IA of the Act. 11. After hearing both si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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