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TMI Blog2022 (4) TMI 1580X X X X Extracts X X X X X X X X Extracts X X X X ..... ry same issue for the earlier assessment years and after considering the necessary evidences filed by the assessee, held that expenditure was incurred in terms of agreement entered into by the assessee and M/s.India Offshore Inc. vide agreemen and further, the said agreement was renewed from time to time. In this view of the matter and consistent with view taken by the coordinate Bench in the assessee s own case for the AYs 2010-11 2011-12, [ 2017 (11) TMI 1946 - ITAT CHENNAI] we are of the considered view that there is no error in the reasons given by the Ld.CIT(A) to delete the additions made towards disallowance of management fees/royalty paid to M/s.India Offshore Inc. Validity of re-assessment order passed - Assessee argued that AO had issued notice u/s.148 on the last day of time limit prescribed under the Act - HELD THAT:- We find that the Act prescribed for issuance of notice within six years from the end of relevant assessment year and thus, even if notice issued on the last day of the prescribed time limit, the said notice should be a valid notice and thus, the assessment order passed u/s.147 on the basis of the said notice, cannot be held to be invalid. The case laws rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the nature of loans/liabilities and the purpose of such loan whether the loans have been taken for acquisition of an asset from a country outside India or for regular business purpose of the assessee are not forthcoming. Therefore, we deem it appropriate to set aside the issue to the file of the AO for further verification. Hence, we set aside the issue to the file of the AO and direct the AO to re-examine the claim of the assessee in light of various evidences filed by the assessee and also by following the decision of the Hon ble Supreme Court in the case CIT v. Woodward Governor India Pvt. Ltd [ 2009 (4) TMI 4 - SUPREME COURT] . and also the decision of the Hon ble Supreme Court in the case of CIT v. Tata Iron Steel Co. Ltd [ 1997 (12) TMI 5 - SUPREME COURT] . TDS u/s 195 - non deduction of tds on professional and consultancy fee paid - disallowance u/s.40(a)(i) - HELD THAT:- An identical issue has been considered by the Tribunal, in the assessee s own case for the AY 2015-16 for the AY 2015-16, wherein, by following its earlier decision for the AY 2012-13, held that twin conditions of rendering services in India and utilization of such services in India are not satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration does not come under the definition of fees for technical services as defined u/s.9(1)(vii) of the Act and thus, the assessee is not required to deduct TDS u/s.195 of the Act and consequently, payments made to said non-residents cannot be disallowed u/s.40(a)(i) of the Act. Since, the Ld.CIT(A) has given his findings on the basis of findings of the Tribunal for the earlier assessment years, we are of the considered view that the question of admission of additional evidences by the Ld.CIT(A) and violation of Rule 46A of Income Tax Rules, 1962, does not arise and hence, we reject the ground taken by the Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... 11-12 and further appeal is pending decision before the Hon'ble High Court and has not reached finality. 2.7. It is also to be submitted that the instant case falls under the clause 10(e) to the Board's Circular No.3/2018, dt. 11/07/2018 as amended in Circular No.5/2019, dt.05/02/2019. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the AO restored. 2.1. The brief facts of the case are that the assessee is a Public Ltd. Co. engaged in the business of providing offshore drilling and production services to companies engaged in exploration, development and production of oil and gas, both in domestic and international markets. The company is also engaged in the ownership and operation of wind turbines for generation of wind power in India. The assessee had filed the return of income for the AY 2009-10 on 25.09.2009 admitting a total income of Rs.460,05,54,964/-. The assessment has been completed u/s.143(3) of the Act, on 07.05.2013 determining a total income of Rs.544,15,89,339/-. The case has been, subsequently, re-opened u/s.147 of the Act, on the basis of reasons recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of invoices raised by M/s. India Offshore Inc. was submitted. 13. As per the discussion above, the assessee has not proved the genuinity and the business expediency for making management fees to India Offshore Inc. It is not out of place to record the fact that Offshore Management Inc., another US based company for which assessee pays management fees, the assessee company has submitted with tax residence certificate and the invoices raised by the said company. But the same could not be provided for India Offshore Inc. 14. Further, based on the same enquiry report in F.No.DDIT (lnv)/Unit I(1)/Enquiry report/2012-13 dated 18/01/2013, the assessing officer has raised detailed queries for AY 2010-11 and after thorough examination had disallowed the payments made to M/s India Offshore Inc., since the genuineness and commercial expediency was not proved. The same was confirmed by Honourable DRP vide its order F.No DRP/CHE/70/2014-15 dated 26.12.2014. 15. Also, during the course of assessment proceedings for AY 2011-12, the assessee company was asked to produce copies of invoice for the payments made to M/s India Offshore Inc. However, the same was not produced by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that payment has been made under contract or agreement, is not conclusive of fact that expenditure is being paid wholly and exclusively for the purpose of business, unless there is sufficient materials to show that payment has been made, for which, necessary services have been rendered. 2.5 The Ld.AR for the assessee, on the other hand, supporting the order of the Ld.CIT(A) submitted that this issue is squarely covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for the AYs 2010-11 & 2011-12, wherein, under identical set of facts the Tribunal has allowed the management fees paid to M/s.India Offshore Inc. on the ground that the assessee has furnished necessary evidences including the agreement between the party to prove genuineness of payment. 2.6 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The assessee had paid management fees to M/s.India Offshore Inc. for rendering various services in connection with location of suitable rigs that are available in the market, opportunities worldwide, technical specifications of available rigs, negotiation with equipment s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is kept on record at pages 1 to 146 of the paper book. Therefore, it is not possible to hold that the payment is not genuine" 2.7 In this view of the matter and consistent with view taken by the coordinate Bench in the assessee's own case for the AYs 2010-11 & 2011-12, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A) to delete the additions made towards disallowance of management fees/royalty paid to M/s.India Offshore Inc. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the Revenue. 2.8 In the result, the appeal filed by the Revenue in ITA No.1812/Chny/2019 is dismissed. ITA No.3063/Chny/2019 for the AY 2010-11 & ITA No.3142/Chny/2019 for the AY 2010-11 3. The assessee has raised the following grounds of appeal in ITA No.3063/Chny/2019: 1. The order u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') elated 26.12.2018 passed by the Ld. Commissioner of Income Tax (A)-l, Chennai (hereinafter referred to as 'the Ld. CIT (A)) is erroneous both on facts and in law. 2. The Ld. CIT (A) erred in not quashing the reassessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings and a copy of break-up of the dry docking expenses on 24.01.2014. 13. The Ld. CIT (A) erred in invoking the provisions of section 43A of the Income Tax act without the transaction being satisfying the provisions laid down in the section. 14. The Ld CIT (A) ought to have appreciated the fact that the asset must be acquired from outside India and the asset must be acquired for the purpose of business and profession for Section 43A to be applicable. 15. The Ld CIT (A) ought to have appreciated the fact that in case of Capital account transactions not covered under the provisions of Section 43A of the Act and of monetary items, the exchange loss and gains due to fluctuation in exchange rates are to be treated as per the applicable GAAP principles. 16. The Ld. CIT (A) ought to have appreciated the fact that as per the GAAP principles read along with Revised AS-11 the transactions in the nature of monetary items and are of capita] nature not covered under the provisions of sections 43A are of revenue in nature and corresponding effect of exchange differences are to be accorded in the Profit and Loss Account. 17. The Ld. CIT (A) failed to appreciate that the method fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .254 of the Act on 23.05.2017 and determined total income at Rs.527,66,99,067/-, but disallowed interest expenses u/s.36(1)(iii) of the Act and disallowance u/s.14A of the Act. However, in the meantime, the assessee had filed Miscellaneous Petition before the Tribunal and the Tribunal vide its order in Miscellaneous Petition Nos.67 & 68/Chny/2017 dated 27.11.2017 allowed interest expenses claimed by the assessee. The AO had, once again, passed consequential order dated 04.01.2018 giving effect to the order of the Tribunal in Miscellaneous Petition Nos.67 & 68/Chny/2017 dated 27.11.2017 and determined total income at Rs.473,20,55,367/-. The assessee carried the matter in appeal before the Ld.CIT(A) and the Ld.CIT(A) vide its order dated 31.12.2018 ruled out the order favored the issue in favour of the assessee. 3.3 The case has been, subsequently, re-opened u/s.147 of the Act, for the reasons recorded, as per which, income chargeable to tax had been escaped assessment on account of payments made by the assessee to certain non-residents without deduction of Tax at source, difference in foreign exchange currency outflow and consequential depreciation claimed at 20% on the difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not come under the definition of fees for technical services as defined u/s.9(1)(vii) of the Act and thus, the assessee does not require to deduct TDS and consequently, payments cannot be disallowed u/s.40(a)(i) of the Act. As regards disallowance of depreciation on difference in foreign exchange currency outflow, the Ld.CIT(A) set aside the issue to the file of the AO and direct the AO to re-examine the claim with reference to various documents and bills filed by the assessee. However, sustained additions towards disallowance of Forex loss on the ground that the Forex loss incurred on account of fluctuation in foreign currency loans availed for acquisition of capital assets, should be capitalized as part of cost of assets. Hence, disallowed the loss claimed by the assessee. Aggrieved by the order of the Ld.CIT(A), the assessee as well as the Revenue are in appeal before us. 4. The first issue that came up for our consideration from Ground Nos.1- 7 of the assessee's appeal is validity of re-assessment order passed by the AO. The Ld.AR for the assessee submitted that re-assessment order passed by the AO u/s.143(3) r.w.s.147 of the Act is invalid, because, the AO had issued notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered. Hence, ground taken by the assessee challenging validity of re-opening of assessment are rejected. 5. The next issue that came up for our consideration from Ground Nos.11-17 of the assessee's appeal is additions towards disallowance of loss on Foreign Currency Exchange Rate of Rs.74,36,07,565/-. During the year under consideration, the assessee had debited an amount of Rs.74,36,07,565/- towards foreign exchange loss. The AO had disallowed Forex loss on the ground that Forex loss on loans/liabilities relating to fixed assets shall be capitalized and cannot be allowed as Revenue expenditure. The AO further opined that the assessee had also failed to furnish necessary evidences to prove that Forex loss is on account of Revenue expenditure and thus, disallowed total Forex loss debited into the P & L A/c u/s.37(1) of the Act. 5.1 The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in not deleting the additions made by the AO u/s.37(1) of the Act, towards Forex loss amounting to Rs.74,36,07,565/- without appreciating the fact that the assessee had submitted the entire evidences to the AO during the scrutiny proceedings and proved that provisions of Sec.43A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from a country outside India. Further, the assessee claims that provisions of Sec.43A of the Act, can be invoked only when the loss incurred on loans/liabilities towards acquisition of asset from a country outside India. 5.4 We have given our thoughtful consideration to the reasons given by the AO in light of various arguments advanced by the assessee and we find that the AO disallowed Forex loss on the ground that the assessee could not file any evidences to justify its case that Forex loss is on account of Revenue account, whereas the assessee claims that Forex loss incurred on account of fluctuation in foreign currency on loans/liabilities does not pertain to acquisition of asset from a country outside India and thus, provisions of Sec.43A of the Act, cannot be invoked. We find that as per the provisions of Sec.43A of the Act, Forex loss related to loans/liabilities pertains to asset acquired from outside India, should be capitalized as part of cost of asset. However, the said provision does not apply to loss incurred on account of fluctuation in foreign exchange loans/liabilities, if such assets are acquired within India. Further, it is a well settled principles of law from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans/liabilities is a Revenue in nature, but whether the facts with regard to the nature of loans/liabilities and the purpose of such loan whether the loans have been taken for acquisition of an asset from a country outside India or for regular business purpose of the assessee are not forthcoming. Therefore, we deem it appropriate to set aside the issue to the file of the AO for further verification. Hence, we set aside the issue to the file of the AO and direct the AO to re-examine the claim of the assessee in light of various evidences filed by the assessee and also by following the decision of the Hon'ble Supreme Court in the case CIT v. Woodward Governor India Pvt. Ltd., and also the decision of the Hon'ble Supreme Court in the case of CIT v. Tata Iron & Steel Co. Ltd. 6. The next issue that came up for our consideration from Ground No.2 of the Revenue's appeal is deletion of additions made towards disallowance of professional and consultancy fee paid to M/s.Haledon International Corporation u/s.40(a)(i) of the Act. The AO has disallowed the payment made to M/s.Haledon International Corporation, towards drilling service and management fees amounting to Rs.37,93,72,923/- u/s.40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y u/s.9(i)(vii) remained untouched and unaffected by the Explanation to Section 9 of the Act and outside India. Therefore, the twin criterion of rendering of services in India and utilization of services in India become evidently necessary condition to deduct tax. However, in respect of the said payments, the rendering of services being purely off shore and outside India, the whatever paid towards the said services does not attract tax liability. 12.1 In view of the above, we are inclined to remit the issue to the file of the Assessing Officer to examine the issue afresh in the light of the above order along with the concerned DTAA and decide thereupon. The issue is partly allowed for statistical purposes." 32. In view of the above, we respectfully following the order of Co-ordinate Bench of the Tribunal, we set aside the order passed by the AO and remit the matter back to the AO and direct the AO to follow the above decision of the Co-ordinate Bench of the Tribunal in assessee's own case and pass assessment order thereupon. 6.2 In this view of the matter and consistent with view taken by the coordinate Bench, we set aside the issue to the file of the AO and direct the AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas, the assessee claims that it has filed all evidences. The facts need to be verified. Hence, we set aside the issue to the file of the AO and direct the AO to re-examine the claim of the assessee in light of various evidences filed to prove additions made to fixed assets. In case, the AO finds that the assessee has filed necessary evidences, then the AO is directed to delete the addition made towards disallowance of depreciation. 7.2 In the result, the appeal filed by the assessee in ITA No.3063/Chny/2020 for the AY 2010-11 is treated as allowed for statistical purposes and that of the appeal filed by the Revenue in ITA No.3142/Chny/2029 for the AY 2010-11 is partly allowed for statistical purposes. ITA No.185/Chny/2020 for the AY 2012-13: 8. The Revenue has raised the following grounds of appeal: 1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case. 2. Whether on the facts and in the circumstances of the case and on a proper interpretation of Rule 46A of the Income Tax Rules, 1962, the Id. CIT(A) was right in taking a decision on the merits of an issue by accepting additional evidences - agency agreement, ledger-copies etc., w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with explanation and thus, the question of deduction of TDS on said payments does not arise. The relevant findings of the Tribunal are as under: 31. The similar issue has been considered by the Co-ordinate Bench of the Tribunal in assessee's own case for AY 2012-13 in ITA No.450/Mds/2017 dated 19.06.2017, wherein the Hon'ble Tribunal has remitted the matter back to the file of AO by observing as under: "12. We have heard both the parties and perused the material on record. The Explanation incorporated in Section 9 declares that "where the income is deemed to accrue or arise in India under clause (v), (vi) and (vii) and sub-sec.(1), such income shall be included in the total income of the non-resident, whether or not be resident as a residence or place of business or business connection in India". The plain reading of the said provisions suggests that criterion of residence, place of business or business connection of a non-resident in India has been done away with for fastening the tax liability. However, the criteria of rendering service in India and the utilization of the service in India to attract tax liability u/s.9(i)(vii) remained untouched and unaffected by the Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X
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