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TMI Blog2015 (8) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue v/s capital expenditure - Held that:- In view of the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. [1997 (4) TMI 5 - SUPREME Court] the allowance of this expenditure is to be staggered proportionately over the period of the lease and in proportion to the quantity of ore extracted from the said mine. In these circumstances, this issue is restored to the file of the AO for computation of the allowance of the afforestation charges as revenue expenditure in proportion to the quantum of iron ore extracted over the period of the lease. TDS u/s 195 - non deduction of tds on commission to the foreign agents outside India by applying the provisions - disallowance u/s 40(a)(ia) - Held that:- Expenditure has been incurred by the Assessee for the purpose of the business of the Assessee itself. However, in respect of the issue as to whether the Assessee was liable to deduct TDS u/s 195 and whether the disallowance was liable to be made u/s 40(a)(ia) of the Act for non-deduction of the TDS u/s 195(1) of the Act, it is noticed that the provisions of Sec. 195 has been amended by the introduction of Explanation-II to the said section b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the capacity . Additions correctly delted Disallowance of additional depreciation deleted - ITA NO. 252/PNJ/2015, ITA NO. 267/PNJ/2015 - - - Dated:- 20-8-2015 - <!--[if gte mso 9]> user 14.00 <![endif]--> <!--[if gte mso 9]> Normal 0 false false false EN-IN X-NONE <![endif]--><!--[if gte mso 9]> <![endif]--><!--[if gte mso 10]> /* Style Definitions */ table.MsoNormalTable {mso-style-nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, as provided by the decision given by the Hon ble Supreme Court in the case of R. B. Seth Moolchand Vs. CIT(1972) 86 ITR 647, afforestation charges paid forms part of the expenditure for acquiring the right over or in the land to win the mineral and has given enduring benefit to the assessee over the years. 4) Whether Ld CIT(A) was correct in deleting the additions of ₹ 10,86,92,826/- made u/s.40a(ia) r.w.s. 195(1) towards payment of commission to foreign agents outside India as these payments are deemed to accrue/arise in India and also in view of explanation 2 to section 195(1) as held in the case of Rajiv Malhotra INRE(AAR)284 1TR 564 and SKF Boilers and Driers Pvt. Ltd and also as per Board s Circular No.7 of 2009 dated 22.10.2009. 5) Whether Ld CIT(A) was correct in deleting the additions of ₹ 1,53,313/- on account of disallowance of excess claim of depreciation @ 60% as against @ 15% on UPS at par with the depreciation rate on computers when UPS are electrical equipments and installations as held in decision of Hon ble Delhi Bench of ITAT in Nestle India Ltd., Vs. DCIT (2007) 111 TTJ(Del) 0498? 6) The Ld CIT(A) has erred in deleting the addition of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs Joseph John (1968) 67 ITR 74. 12) Whether in law and on facts and circumstances the Ld CIT(A) was correct in deleting the addition on ₹ 21,19,97,295/- stating that expenses incurred on repairs and maintenance of the old vessels can only be categorized as current repairs as the same has been incurred to keep the vessels in good condition without increasing the capacity ignoring the decision of the Supreme Court in CIT Vs Ballimal Navakishore (1997) 224 ITR 414 and CIT Vs Saravana Spining Mills (P) Ltd (2007) 163 Taxman 196 wherein it is held that the object of current repairs should not be obtaining a new or fresh advantage and every expenditure does not come automatically under current repairs. 13) Whether in law and on facts and circumstances the Ld CIT(A) was correct in deleting the addition made by the AO on account of disallowance of additional depreciation amounting to ₹ 88,24,295/- ignoring the Supreme Court s decision in CIT Vs Gem India Manufacturing Co. (2001) 249 ITR 307 (S.C.) and in Lucky Minerals Pvt. Ltd., Vs. CIT (2001) 116 Taxman 1 (SC). 3. In the Assessee s appeal, the Assessee has challenged the action of the ld. CIT(A) in confirming the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the total income under the Act, is the dividend income of ₹ 1,32,638/-. Therefore, if any disallowance is to be made in respect of expenditure incurred, it should be in relation to this dividend income of ₹ 1,32,638/-. If an assessee has invested in shares, which could get dividend or there is investment which generates dividend income or exempt income as also investment which does not generate exempt income, it is only such investments in respect of which the dividend income or exempted income has been earned which can be considered when computing the disallowance under section 14A read with rule 8D. A perusal of the provisions of rule 8D also talks of satisfaction in sub-rule (1). Rule 8D(2) has three sub-parts. The first sub-part i.e. (i) deals with the amount of expenditure directly relating to the income which does not form part of the total income. That issue is not in dispute here and therefore, we do not go into it in this case. In second sub-part i.e.(ii), it is a computation provided in respect of expenditure incurred by the assessee by way of interest during the previous year which is not directly attributable to any particular income or receipt. This cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has taken into consideration the investment of ₹ 103 crores made this year, which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. This is why the question of satisfaction is provided in section 14A and rule 8D(1), that relates to the accounts of the assessee. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. A question may arise as to why the term average of the value of investment is then used. The term average of the value of investment would be to take care of cases where there is the issue of dividend striping. In any case, as we have already held that the assessee has not incurred any expenditure by way of interest during the previous year, which is not directly attributable to any particular income, the findings of the ld. CIT(A) on the issue stand confirmed and consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alidity of the order passed u/s 263. In an appeal against order passed u/s 263 when the order has been set aside by the CIT(A) and sent back to the AO for passing it afresh in accordance with law, the Tribunal does not have any jurisdiction to examine the case on merit. We have also gone through the order of the Tribunal passed u/s 263 on which the CIT(A) has relied. In our opinion, that order will not be applicable in this case. The CIT(A) was bound to give a clear-cut finding whether the expenditure incurred by the Assessee is a capital expenditure or whether it is a revenue expenditure and whether the expenditure has accrued during the year or not. The order passed by the CIT(A), in our opinion, is cryptic and has not dealt with the issue involved. We, therefore, set aside the order of CIT(A) and restore this issue to the file of CIT(A) with the direction that the CIT(A) should re-decide this issue on merit whether the expenditure incurred by the Assessee is a capital expenditure or whether it is a revenue expenditure and if it is a revenue expenditure, whether the expenditure has accrued during the year or not after giving proper and sufficient opportunity to the Assessee. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion to the quantum of iron ore extracted over the period of the lease. In the result, ground no. 3 of the Revenue s appeal is partly allowed for statistical purposes. 7. It was submitted by the ld. AR that in the Revenue s appeal in ground no. 4, the Revenue has challenged the action of the ld. CIT(A) in deleting the addition made by the AO in respect of the commission to the foreign agents outside India by applying the provisions of Sec. 195(1) r.w.s. 40(a)(ia) of the Act. It was the submission that this issue was squarely covered by the decision of the co-ordinate bench of this Tribunal in the case of Sesa Goa Ltd. in ITA No. 72/PNJ/2012 dt. 8.3.2013 wherein the co-ordinate bench of this Tribunal has held in para 27, 27.1 to 27.2 as follows : 27. If we apply the principles of the law as enunciated in the various judgments, we are of the opinion that once the A.O. finds that the assessee has bonafidely incurred the expenditure for the business, the A.O. cannot decide the quantum of the expenditure to be incurred by the assessee. In this case before us the assessing officer has disputed the fact that commission has been paid for the purpose of the business and also disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements entered into with them and for which commission had been paid to them. It is not the case of the Revenue that the impugned emails were fabricated or forged one. In fact, the CIT (A) has admitted in his appellate order that 'it is possible that there may some correspondence with the two companies with regard to sale of iron ore abroad', but without going into the merits of the emails exchanged and without controverting how the same did not exhibit that actual services had not been rendered by those agents, he merely rejected the claim of the assessee as if the assessee has not incurred these expenses genuinely for the purpose of the business. It is cardinal principle of law that a disallowance cannot be made on mere surmises and conjectures. Where the explanation of the assessee is bonafide and evidences produced by it further corroborate its explanation, there is no reason for Revenue to disregard the same on whims without bringing forth any tangible and cogent material to the contrary. 27.2 The said two non-resident agents had been engaged by the assessee in the past and they have been paid commission on sales abroad since last so many years. There is no law w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's business. Whereas in the instant case, the assessee has placed other documentary evidences on record besides the agreements, which clearly demonstrate that the requisite services under those agreements for which commission was paid to them, had actually been rendered by them. Thus, in the case of the assessee commercial expediency has clearly been proved. Therefore, the disallowance of ₹ 9,88,29,729/- for commission paid to non-resident agents is deleted by allowing this ground of appeal of the assessee. 8. We have considered the submissions. A perusal of the assessment order in the Assessee s case shows that the AO has disallowed the commission paid to the foreign agents on two grounds; one on account of non-deduction of TDS and second that the expenditure has not been paid for the purposes of the business of the Assessee. A perusal of the decision of the co-ordinate bench of this Tribunal in the case of Sesa Goa Ltd. referred to supra shows that the Tribunal has only decided the issue in respect of payment made to the agents as being for the purpose of the business and commercial expediency. The reasoning given by the AO in respect of non-deduction of TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue stands confirmed. Consequently, ground no. 5 of the Revenue s appeal stands dismissed. 11. It was the submission that in ground no. 6 of the Revenue s appeal, the Revenue has challenged the deletion of the addition towards disallowance of expenditure of interest paid on loans taken at interest and advanced to the sister concerns without charging any interest. It was the submission that the issue was squarely covered by the decision of the co-ordinate bench of this Tribunal in the case of M/s. V.S. Dempo Holding Pvt. Ltd. in ITA No. 60/PNJ/2015 dt. 27.7.2015 wherein the co-ordinate bench of this Tribunal has held as follows : 14 We find that the Commissioner of Income Tax (Appeals) has observed that the assessee had given interest free advances to its subsidiaries in its business requirements. He placed reliance on the decision of the Hon ble Bombay High Court in the case of CIT-7 Vs. Reliance Communications in Appeal No. 3155/2009 dated 28/03/2012 and has held that where interest free borrowed funds are advanced as interest free loans to its subsidiaries for business expediency, the interest cannot be disallowed. Commissioner of Income Tax (Appeals) held that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the deletion of the addition on account of notional loss on exchange variation. It was the submission that the Assessee is an iron ore exporter and its turnover during the year exceeded ₹ 1000 crores. It was the submission that there was some unrealized amount at the year end. The Assessee had claimed that the foreign exchange fluctuation resulted in a loss. It was the submission that this issue was squarely covered by the decision of the co-ordinate bench of this Tribunal in the case of M/s. Rupam Impex in ITA No. 4008/Mum/2012 dt. 21.10.2013 wherein the co-ordinate bench of this Tribunal has held as follows : 3. After hearing both the parties, we find that the ld. CIT(A) did not commit any error in deciding the issue in favour of assessee. The Hon'ble Supreme Court in case of ONGC vs. CIT (supra), following the earlier decision in the case of CIT vs. Woodward Governor India (P.) Ltd. (supra), have held that the Assessee having maintained account on mercantile system of accounting, loss claimed by the Assessee on account fluctuation in the rate of foreign exchange as on the date of balance sheet in respect of loans taken for Revenue purpose is allowable as expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was incurred to keep the vessels in good working condition and to keep them sea-worthy according to the requirements of Maritime Regulatory Authorities. It was the submission that because of this expenditure, the capacity of the vessels have not increased and consequently, no new capital asset has come into existence. 16. We have considered the submissions. As it is noticed that the nature of the expenditure is only for the purpose of maintaining the vessels sea-worthy and in accordance with the requirements of the Maritime Regulatory Authority and there is no increase in the capacity and as it is noticed that the ld. CIT(A) has followed the decision of the jurisdictional Tribunal in the case of Salgaoncar Mining Industries Pvt. Ltd. referred to supra, the finding of the ld. CIT(A) on this issue stands confirmed. In the result, ground no. 12 of the Revenue s appeal stands dismissed. 17. In regard to ground no. 13 of the Revenue s appeal, it was submitted by the ld. AR that the issue was against the action of the ld. CIT(A) in deleting the addition made by the AO on account of the disallowance of additional depreciation. It was the submission that the issue was squarely cov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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