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TMI Blog2016 (8) TMI 745X X X X Extracts X X X X X X X X Extracts X X X X ..... s business. The services rendered by the said parties related to clearing, warehousing and freight charges, outside India. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 and the CIT(Appeals) has given a finding that the AO should carry out similar exercise in line with directions given by the Tribunal for the A.Y. 2007-08 for this year also and find out the tangible benefits which the 10B units have derived from the R & D activities carried out by the assessee and decide the disallowance Addition made towards power charges paid to Wescare India Ltd. - Held that:- This issue came up for consideration before the Tribunal in assessee’s own case wherein the Tribunal remitted the issue back to the file of the AO for fresh consideration. Accordingly, on similar line, we remit this issue back to the file of the AO for fresh consideration. This ground is allowed for statistical purposes. Assessee is entitled to depreciation at 60% on UPS, treating it as part of computers. Addition back the disallowance u/s.14A to the book profit of the assessee - Held that:- This issue of disallowance made by the Assessing Officer for this assessment year by invoking the provisions of sec.14A r.w.Rule 8D, was in normal computation also. In our opinion, disallowance made u/s.14A r.w. Rule 8D cannot be added while computing book profit u/s.115JB of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n offered by the assessee had not disallowed these expenses, which is discussed in the assessment order. Subsequently in the order u/s 147, the AO had disallowed the expenditure on commission, interest and other payments by invoking section 40a(ia). The assessee submitted that the reason for reopening clearly betrays the lack of jurisdiction for reopening primarily. 4. The ld. AR relied on the judgment of the Gujarat High Court in the case of Priya Blue Industries Pvt. Ltd. v. DCIT (346 ITR 204), wherein it was held that the assessment cannot be reopened u/s.147 of the Act beyond the period of 4 years from the end of relevant assessment year, if there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. He also relied on the decision of the Tribunal, Mumbai Bench in the case of Channel Guide India Ltd. v. ACIT (20 ITR(Trib) 438), wherein it was observed that transponder is paid to non-resident for satellite uplinking telecasting programme is not royalty u/s.9(1)(vi) of the Act and hence not taxable in India under India-Thailand DTA and there is no question of disallowance u/s.40(a)(ia) of the Act. The ld. AR also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meaning of provisions of sec.147 of the I.T.Act and hence the assessment was reopened by issue of notice u/s.148 vide notice date 30.3.2012. 7. As seen from the above, Explanation below sub-section (2) of Section 9 has been inserted by the Finance Act, 2010 with retrospective effect from 1st June 1976, whereby income of a non-resident shall be deemed to accrue or arise in India under clause (v), (vi) or (vii) of sub-section (1) of Sec. 9 and shall be included in the total income of non-resident, whether or not, (i) The non-resident has a residence or place of business or business connection in India or (ii) The non-resident has rendered services in India. 7.1 To consider the effect of this provision, the AO reopened the assessment after recording the reasons as mentioned in earlier paragraph 6. So, there is no dispute that in view of the retrospective amendment, the assessment was reopened. According to the ld. AR, there is no failure on the part of the assessee to disclose all material facts truly and fully for the purpose of assessment and the AO has no material other than amendment to form a belief that income chargeable to tax has escaped assessment. In the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a)(i) being sales commission paid to various persons outside India. 9. This issue came up for consideration before the Tribunal in assessee s own case in ITA No.656/Mds/2012 dated 22.3.2013, wherein it was held as under : 47. In our opinion, nature of services mentioned above will come not within the definition of fees for technical services given under explanation 2 of Section 9(1)(vii) of the Act. By virtue of such services, the concerned recipients had not made available to the assessee any new technic or skill which assessee could use in its business. The services rendered by the said parties related to clearing, warehousing and freight charges, outside India. 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey were paid outside India and they are not in the nature of interest, royalty or technical fee covered u/s.9(1)(v)(vi)/vii of the Act and no such income can be considered to be deemed to accrue or arise in India. Therefore, TDS provisions do not attract. It was also submitted that those parties do not have any PE in India. Even as per DTAA with respect to those countries the income is not chargeable to tax in India. The CIT(Appeals) convinced with the explanation offered by the ld. AR and held that the expenditure incurred towards promotion, advertisement and legal fee will not attract provisions of TDS and allowed the ground of appeal. 15. We have heard both the sides and perused the material on record. As noted by the CIT(Appeals), this payment is not covered under the provisions of sec.9(1)(v)/(vi)/(vii) of the Act. Being so, we confirm the findings of the CIT(Appeals) on this issue. 15.1 In the result, the appeal of the Revenue in ITA No.693/Mds/2014 is partly allowed. 16. ITA Nos.621/Mds/2014 694/Mds/2014: The first ground in ITA No.621/Mds/14(assessee) is with regard to confirming the disallowance of additional depreciation claimed in the current year to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of - (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head Profits and gains of business or profession of any one previous year; First requirement for being eligible for such a claim is that it should be on a new machinery or plant. A machinery is new only when it is first put to use. Once it is used, it is no longer a new machinery. Admittedly, the machinery, on which carry forward additional depreciation has been claimed, was already used in the preceding assessment year though for a period of less than 180 days. Therefore, for the impugned assessment year, it is no more a new machinery or plant. Once it is not a new machinery or plant, allowance under Section 32(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue against the assesse. 19. The next ground in assessee s appeal is with regard to upholding the disallowance u/s.14A based on Rule 8D despite the fact that the assesse had not incurred any expenditure to earn the exempted income viz. dividend. 20. The facts of the issue are that the AO stated that the assessee has shown income by way of dividend from domestic companies to the tune of ₹ 4,23,86,750/- and the assessee has not shown any expenditure in the P L account for earning the above dividend. The assesse was show caused why the expenditure for the purpose of earning the dividend earned cannot be disallowed by means of applying the Rule 8D w.r.t. sec.14A of the Act. In response to which, the assessee s representative has stated that no expenditure was incurred in collecting this dividend, the same may not be disallowed as per the provisions of sec.14A. The AO rejected the reply of the assessee. The AO also relied on the CBDT s Instruction F. No.173/172/2008-ITA-I dated 4.2.2009 and on the decision of the Tribunal, Special Bench, Mumbai in the case of M/s. Daga Capital Management Private Ltd. for the A.Y. 2001-02 in ITA No.8057/Mumbai/03 dated 20.10.2008. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed product for years together and the product manufactured at Rolltec Unit is based on the design and drawings provided by the buyer and hence there is no R D effort involved and it relied on the order of the Tribunal, Chennai Bench in their own case for A.Y. 89-90 wherein it was held that in allowing deduction u/s 80HH, expenses like R .D need not be allocated. 25.2 The AO rejected the reply given by the assessee. He stated that the assessee itself has submitted that the Indian global markets have awarded contract for the supply of brake brake components to the assessee company considering the strong R D facilities of the assessee. But, in the course of assessment proceedings the assessee has not allocated the relevant portion of the R D expenditure to the said 100% EOU units engaged in the export of brake brake components. It is also observed from the Annual Report for the year 2007 of the assessee that it is constantly engaged in the R D work related to the working of the new braking products suited to meet customer requirements. He stated that the assessee is also engaged in developing clearer and more stable product to manufacture the environment friendly products, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed. Assessing Officer has to compute such data with regard to research expenditure incurred in earlier years and come to a conclusion in this regard. Assessee has to co-operate with the Assessing Officer and give necessary information. We, therefore, set aside the orders of authorities below and remit this issue back to Assessing Officer for consideration afresh. 26.1 The CIT(Appeals) further observed that the assessee is manufacturing of brakes and the related items. The knowledge gained out of R D is equally useful for all the units of the assessee unless the R D activity is exclusively related to the components manufactured by the non-10B units alone. The argument of the assessee that the products manufactured by 10B units are time tested products and manufactured based on the drawings of the customers; therefore no knowledge of R D was utilized in these two units is far from reality. The AR has not proved substantively that no part of the knowledge gained out of R D activity was useful to the 10B units. It is pertinent to note that the R D is an on-going process which was established much earlier than the establishment of 10B units. The knowledge gained for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on UPS, treating it as part of computers. Therefore, we do not find any infirmity in the order of the CIT(Appeals) and the same is confirmed on this issue. 32. The next ground is with regard to deleting the disallowance made u/s.40(a)(i) being the interest paid to the branches of banks located outside India. 33. This issue was considered in earlier assessment year in paragraph 12 above. Accordingly, this ground is also rejected. 34. The next issue in this appeal is that the CIT(Appeals) erred in deleting the disallowance made u/s.40(a)(i) of ₹ 1,39,35,643/- being the agency commission of ₹ 112.01 lakhs and professional and consultancy charges of ₹ 27.34 lakhs. 35. This issue was considered for the assessment year 2005-06 in paragraph 15 above. Accordingly, this ground is also rejected. 36. The next ground in Revenue s appeal is with regard to disallowance of ₹ 10,58,44,407/- made u/s.40(a)(i) being the payments for the logistics services to the non-residents. This issue also came up for consideration in ITA No.693/Mds/14, wherein this issue was decided against the Revenue. Accordingly, this ground is also rejected. 36.1 In the result, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 8D, that cannot be added back to compute the book profit u/s.115JB. This ground is allowed. 42. The next ground in ITA No.622/Mds/2014 is with regard to disallowance u/s.14A by applying the provisions of Rule 8D while computing the normal income. 42.1 We have heard both the parties. In our opinion, the same issue was considered by this Tribunal in the case of Accel Frontline Ltd. in ITA Nos. 2780 to 2782/Mds/2014 dated 27.11.2015, wherein it was held as under : 11. Coming to the assessment years 2008-09 and 2009-10, the main contention of the assessee s counsel is that the assessee has not incurred any expenditure for earning exempted income and the assessee has not used any interest bearing funds for investment. On the contrary, the ld. DR submitted that the assessee has given sufficient opportunity to explain that the expenditure was incurred for earning exempted income and the assessee has not produced necessary evidence to support its case. In our opinion, the decision of the Mumbai Bench of the Tribunal in the case of M/s. Daga Global Chemicals Pvt. Ltd. in ITA No.5592/Mum/2012 dated 1.1.2015 and the decision of the Delhi High Court in the case of Joint Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further the dividend were directly credited in the bank account of the assessee and no expenditure was claimed. What it may be, we find that the assessee only received ₹ 1,82,362/- as dividend income, therefore, there is no question of disallowance of ₹ 14,58.412/- by invoking section 14A r.w. Rule 8D under the facts available on record. It was also explained by the ld. counsel for the assessee that on identical fact in earlier years, no disallowance was made. In the present assessment year also, no borrowed funds were invested by the assessee for making investment in shares or for earning dividend income . At best, if any disallowance could be made that can be restricted to ₹ 1,485/- which were claimed as demat charges. Disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of the assessee. The appeal of the assessee is therefore, allowed. Following the above decision of the Mumbai Bench of the Tribunal, we are of the opinion that disallowance u/s.14A r.w. Rule 8D should not exceed the exempt income. The Mumbai Bench in its order sustained the disallowance on applicability of provisions of sec.14 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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