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TMI Blog2023 (7) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... tax (Appeals) is contrary to law, facts and in the circumstances of the case. 2 The Commissioner of Income .tax (Appeals) erred in confirming the disallowance u/s 80IC amounting to Rs. 4, 72,27,891 /- in respect of its unit engaged in the business of turbocharger assembly and core assembly at Rudrapur, Uttarakhand. 2.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the appellant's factory set up at Rudrapur is engaged in the business of manufacture or production of article or thing as the end product is commercially different and distinct from the inputs contained in section 2(29)(BA) and therefore eligible for deduction u/s 80IC. 2.2 The CIT(A) ought to have appreciated that the Central Excise Department has recognized that appellant is engaged in manufacture of article and hence entitled to exemption from Duty and also an Inspector from Income Tax Department had inspected the facility and had reported that the unit was engaged in manufacture of articles 3. The Commissioner of Income tax (Appeals) erred in confirming the weighted deduction claimed u/s 35(2AB) amounting to Rs. 5,81,972/- 3.1 The Commissioner of Income tax (Appeals) ought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing of turbo chargers and components for engine application in passenger cars, commercial vehicles, off highway vehicles and industrial engines. The appellant had filed its return of income for the assessment years 2015-16 & 2016-17 u/s. 139 of the Income- tax Act, 1961 (hereinafter referred to as "the Act"). The assessment have been completed u/s. 143(3) of the Act for both assessment years and determined total income at Rs. 131,71,35,131/- for assessment year 2015-16 and Rs. 126,56,63,825/- for assessment year 2016-17, by inter alia, making various additions including additions towards disallowance of deduction claimed u/s. 80IC of the Act, disallowance of weighted deduction claimed u/s. 35(2AB) of the Act, excess depreciation on UPS and disallowance of expenditure relatable to exempt income u/s. 14A of the Act and also additions u/s. 40(a)(i) of the Act towards logistic service payment for non-deduction of TDS u/s. 195 of the Act. The assessee carried the matter in appeal before the CIT(A), and the ld. CIT(A) vide their combined order dated 07.08.2019 has partly allowed appeal filed by the assessee, where he had deleted additions made towards disallowance u/s. 40(a)(i) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for claiming deduction u/s. 80IC of the Act. 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is a dispute between the assessee and the Assessing Officer on the eligibility of the assessee for claiming deduction u/s. 80IC of the Act, in respect of profit derived from its Rudrapur, Uttarakhand unit. The assessee claims that activities carried out at Rudrapur, Uttarakhand unit comes under the definition of manufacture as defined u/s. 2(29BA) of the Act, whereas, the AO claims that the process undertaken at Rudrapur, Uttarakhand unit does not amount to manufacture and thus, assessee is not eligible for deduction u/s. 80IC of the Act. A similar issue had been considered by the Tribunal in assessee's own case in earlier years in ITA Nos. 190 to 193/Chny/2018, and by considering relevant facts, the issue has been set aside to the file of the AO for further verification, in light of averments made by the assessee. The relevant findings of Tribunal order are as under: "3.4 We heard the rival submissions and gone through the above material. The assessee admits that more than 25 components manufactured at C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority, then irrespective of quantification of the expenditure incurred for R&D purpose, the assessee is entitled to claim deduction u/s. 35(2AB) of the Act. 11. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that, an identical issue has been considered by the Tribunal in assessee's own case for assessment year 2009-10 in ITA No. 317/Chny/2014, where the Tribunal by considering relevant provisions and also ratios of various case laws relied upon by the assessee, held that the assessee is not entitled for weighted deduction u/s. 35(2AB) of the Act for expenditure incurred over and above, what was certified by the competent authority and relevant findings of the Tribunal are as under: "14.1 We have heard both the parties and perused the materials placed on record. The act does not place any restrictions to incur the expenditure. The expenditure incurred for the purpose of scientific research required to be allowed as deduction u/s. 35(AB) subject to complying the conditions laid down in Rule 6. The expenditure was incurred by the assessee which is certified by the tax audit report. There is no dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in para 11 to 11.2 are reproduced hereunder:- "11.0 The next issue in Ground No.2 is disallowance of depreciation on UPS. Both the assessee and Revenue have filed appeal on this issue. The assessee filed appeal for the AY 2007- 08 and the Revenue has filed appeal for the AY 2008-09 and 2009- 10. This issue is involved for the AYs2007-08, 2008-09 & 2009-10. The AO disallowed a sum of Rs. 1,26,086/- for the A.Y 2007-08, Rs. 3,75,082/- for the AY 2008-09 and Rs. 6,29,235/- for the A.Y 2009-10.The assessee claimed the depreciation @80% on UPs stating the UPS being an automatic voltage controller as well as power saving equipment is a energy saving device and claimed the depreciation @80% in accordance with Appendix-I to Income-Tax Rules. Reliance is also placed on the decision of 1TAT's Order in DCIT v Surface Finishing Equipment (2003) 81 TTJ 448. The AO examined the explanation of the assessee and held that the UPS is neither a part of the computer nor a energy saving device but it is only as an uninterrupted power supply equipment for all the electrical appliances. The AO relied on the decision of Hon'ble ITAT Delhi in the case of Nestle India Limited Vs. DCIT [111 TTJ 49 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed expenditure relatable to exempt income by invoking Rule 8D(2) of IT Rules, 1962 and disallowed interest expenditure and other expenses, amounting to Rs. 75,75,295/-. Since, the assessee has already disallowed a sum of Rs. 71,98,449/-, the difference amount of Rs. 3,76,846/- has been disallowed and added back to the total income. 17. The Ld. Counsel for the assessee submitted that, the AO has erred in disallowing interest expenditure u/r. 8D(2) of IT Rules, 1962, even though the assessee has demonstrated with evidence that it has sufficient own funds which is in excess of investments made in shares and securities which yield exempt income, and thus, question of interest disallowance does not arise. The assessee, further contended that when it comes to disallowance of other expenses u/r. 8D(2)(iii) of the IT Rules, 1962 @ 0.5% on average investment, the AO can consider only those investments which yielded exempt income for the relevant assessment years. 18. The Ld. DR, on the other hand submitted that the assessee itself has computed disallowance u/s. 14A r.w.r. 8D of the IT Rules, 1962 and thus, the arguments of the Ld. Counsel for the assessee, that interest expenditure canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of Rs. 71,98,449/- computed by the assessee and disallowed in the statement of total income. 20. In the result, appeals filed by the assessee for assessment years 2015-16 & 2016-17 are treated as partly allowed for statistical purposes. 21. The only issue that came up for our consideration from revenue's appeal for both assessment years is deletion of addition made towards disallowance u/s. 40(a)(i) of the Act for non-deduction of TDS on payment made to non-resident. The AO has disallowed payment made to M/s. Sonima Logistics, a non-resident service provider u/s. 40(a)(i) of the Act for non- deduction of tax at source u/s. 195 of the Act. According to the AO, payment made by the assessee to non-resident service provider is in the nature of managerial service which comes under the provisions of section 9(1)(vii) of the Act. Since, the assessee has failed to deduct TDS on payment to non-resident u/s. 195 of the Act, the AO has disallowed said payment u/s. 40(a)(i) of the Act. The Ld. CIT(A) has deleted additions made by the AO towards disallowance of logistic services charges, by following his predecessor CIT(A) order for assessment year 2011-12 to 2014-15. Aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.CIT(A) deleted the addition finding that the services rendered by non-resident do not fall under managerial or technical services within the meaning of IT Act and the services are rendered outside India and non-resident party has no permanent establishment or business connection in India. Accordingly, relying on the decision of the Hon'ble Apex Court in G.E. Technological Centre Pvt. Ltd., the Ld.CIT(A) allowed the appeal of the assessee. During the appeal, the Ld.AR argued that the services were rendered by the non-resident are liasoning services but not the managerial and technical services. Further, argued that even if the services rendered outside India are to be taxable, it is taxable as business profits in which case, only the profits required to be brought to tax if there is a permanent establishment or business connection in India. Since the assessee has no permanent establishment, the application of Sec.9(1)(vii) and Sec.195 has no application. The assessee also relied on the following decisions: * Brakes India Ltd. V. DCIT (LTU) (266/Mds/2012) (Chennai) * Sun Micro Systems India (P) Ltd (125 ITD 196) (Bang) * G.E. Technology Centre Pvt. Ltd., Vs. CIT (327 ITR 456 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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