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TMI Blog2023 (7) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... see s business operation or enabling management to conduct business in a more efficient manner, leaving the fixed capital untouched, then such expenditure would be on revenue account, even though the advantage may endure for an indefinite time - Decided against revenue. TDS u/s 195 - disallowance made u/s 40(a)(i) - non deduction of TDS on Foreign Remittance - HELD THAT:- AO has not examined the applicability on TDS provisions based on the information available on record. He noted that the provisions of section 40(a)(i) of the Act requires to disallow the expenses on account of non-deduction of TDS on which tax is deductible at source under Chapter XVII-B. Ld. CIT (A) rightly observed that such provisions do not empower to disallow the expenses on non-availability of Form 15CA and CB. Accordingly, we find that CIT (A) has taken a correct view in the matter. Apex Court in the case of GE India Technology [ 2010 (9) TMI 7 - SUPREME COURT] which also supports the case of the assessee. Accordingly, we uphold the order of the CIT (A) on this issue. Disallowance of loss on foreign currency fluctuation - HELD THAT:- CIT (A) duly examined the issue and has found that the net impact of forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in the circumstances of the case and in law, the Ld. CIT (A) is right in deleting the addition made by the Assessing Officer on account of disallowance made u/s 40(a)(i) of the I.T Act, 1961 of the Foreign Remittances (TDS u/s 195 not made) amounting to Rs. 7,75,31,468/- . 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT (A) is right in deleting the addition made by the Assessing Officer on account of disallowance of loss on foreign currency fluctuation amounting to Rs. 6,18,30,027/-. 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in reducing the addition made on account of other expenses amounting to Rs. 21,68,000/- to Rs. 10,84,000/- particularly when the expenses are not fully verifiable. 5. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is right in deleting the addition made by the Assessing Officer on account of disallowance of legal expenses amounting to Rs. 11,56,765/- which was related to plant (capital expenditure). 3. The assessee has taken the following grounds of appeal :- "1. That Learned Commissioner of Income Tax (Appeal)-38 grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used the records. 8. The ld. DR for the Revenue relied upon the order of the Assessing Officer. 9. Ld. Counsel for the assessee submitted written submissions and his submission with respect to this ground is as under :- "(i) The facts in brief are that appellant company entered into the infrastructure development agreement with M/s Sri City (P) Limited on 27th November, 2017 (kindly see pages 77 to 86 of PB) to provide and maintenance of common facilities and amenities outside the leased property of Assessee Company used for its business/ factory. Such facilities are common and shared among other owners located in the DTZ (Domestic Tariff Zone) including the assessee company. In consideration of aforesaid common facilities and amenities, assessee company paid Rs. 13,36,15,059/- to M/s Sri City (P) Limited. Refer clause 3.1 of aforesaid agreement place at page no.79 of paper book and debited to profit and loss account. (ii) It is most respectfully submitted that in the aforesaid agreement it was clearly mentioned that the assessee company shall get "Right to Access and Use" of the said common facilities and amenities. Agreement placed at page no.78 Clause C of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance made u/s 40(a)(i) of the Income-tax Act, 1961 (for short 'the Act') of the Foreign Remittance (TDS u/s 195 not made) amounting to Rs. 7,75,31,468/- : On this issue, during the course of assessment proceedings, AO noticed that various foreign outward remittances have been made by the assessee in respect of various heads like training charges, engineering services, installation charges, reimbursement of services etc. AO also noticed that on most of the payments, the assessee company has made TDS and certain payments have been noticed on which TDS not made. Vide note sheet entry dated 27.11.2017, the assessee was asked to submit copy of 15CA, 15CB and the invoice with the justification for TDS not made. The assessee has submitted copy of some invoices but not submitted/produced the Form 15CA and form 15CB. In these circumstances, the issue of applicability of TDS under the provisions of section 195 of the Act, could not be examined. When the assessee company was making TDS on the similar payments as per the details furnished by itself, then there appeared to be no reason for not making TDS on certain payments. AO held that the company was liable to make TDS which it fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS on such foreign payments with the sufficient available information (i.e. Copy of Invoice, Nature of Transaction, Tax Residency Certificate of parties and DTAA), the AO arbitrarily disallowed the entire foreign remittance made. It is further, submitted that even the Form 15CA/CB were also filed during the course of assessment proceedings, which fact was not also not rebutted by AO during the course of appellate proceedings and also during the remand proceedings (kindly see pages 8 to 9 of CIT (A) order, heavy reliance placed). iii) All such documents in the shape of invoices and Form 15CA/CB are placed at page nos. 87, 94 to 100, 102, 104 to 109, 114 and 124, 13Sto 140, 146 to 151 and 152, 156 to 161 of the paper book iv) Heavy reliance is placed on the judgment of Hon'ble Supreme Court in the case of GE India Technology vs CIT reported in 327 ITR 456, which is directly applicable on the issue. 16. Upon careful consideration, we note that ld. CIT (A) has categorically found that the AO has not examined the applicability on TDS provisions based on the information available on record. He noted that the provisions of section 40(a)(i) of the Act requires to disallow the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;. He held that the intention of the assessee can be understood easily from the above analysis. AO held that the above bifurcation between Capex and Revenue was manipulated one and with a purpose to book increased loss in Revenue. Accordingly, AO held the Capex gain of Rs. 6,18,30,027/- as Revenue in nature and accordingly loss claimed was reduced with the equal amount. Hence, he disallowed Rs. 6,18,30,027/- made out of "loss on currency fluctuation" and added to the total income of the assessee company. 19. Against this order, assessee appealed before the ld. CIT (A). From the careful perusal of foreign currency fluctuation chart, ld. CIT (A) observed that the alleged addition of Rs. 6,18,30,027/- pertained to amount debited under the ledger account number 78707 and 78912. He further observed that from the perusal of each journal entry of ledger statement of aforesaid ledger account number, it was found that such ledger account was debited with the amount Rs. 5,38,49,611 and Rs. 79,80,416 respectively and credited with the ledger account number 80205 which account was also pertained to foreign currency fluctuation. The net impact of foreign exchange fluctuation of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred from Ledger Account No. 78707 and 78912 to Ledger Account No. 80205. That aggregate amount of INR 6,18,30,027/- has been transferred from one ledger to another ledger for the sole purpose of reporting and the same does not carry any impact on profit and loss statement. Reliance is placed on findings of ld. CIT (A) at page 11 of CIT (A) order. 23. Upon careful consideration, we note that AO has erred in appreciating the facts and figures in this case. Ld. CIT (A) duly examined the issue and has found that the net impact of foreign exchange fluctuation of Rs. 6,18,30,027/- was NIL under the profit and loss statement. This finding of ld. CIT (A) has not been disputed by the Revenue. Hence, we do not find any infirmity in the order of ld. CIT (A) and we uphold the same. 24. Apropos Revenue's Ground No.4 and assessee's Ground No.1 & 2 on the issue of reducing the addition made on account of other expenses amounting to Rs. 21,68,000/- to Rs. 10,84,000/- particularly when the expenses are not fully verifiable : On this issue, AO observed that the amounts claimed under these expenses were neither fully vouched nor fully verifiable so it could not be said that expenses were whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the mechanical rate 2% of INR 10,84,00,000/-. Even the learned CIT (A) substantially misplaced itself in law by restricting the aforesaid adhoc disallowance to 1 % (kindly see page 12 of CIT (A) order). ii) All such replies and documents are placed at S. No. 58, 73 to 76 of the paper book. iii) It is most respectfully submitted that the adhoc addition made on estimation basis always considered bad in law by court of law. Reliance is placed on the following case laws on aforesaid proposition: • CIT-IV vs. GIVO Ltd. ITA 94112010 (Delhi HC). • Divine Infracon Pvt. Ltd. vs. ACIT (ITAT Delhi in ITA No. 9013/De1/2019." 29. Upon careful consideration, we note that AO has made ad hoc disallowance of 2% of the total expenses without mentioning any specific defects. Ld. CIT (A) has appreciated that there was very little discrepancies to such expenses. However, he also sustained addition of 1% of total expenses. We note that assessee is a corporate entity and ad hoc disallowance of expenditure without pointing out any specific defect is not permissible. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee. Accordingly, ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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