9911796707
TMI Blog2021 (7) TMI 1466X X X X Extracts X X X X X X X X Extracts X X X X ..... . Now coming to the case on hand, there is no ambiguity to the fact that the other income as discussed above belongs to the eligible undertaking which was offered as business income in the income tax return by the assessee. Accordingly we hold that all the incomes shown by the assessee under the head other income post EOU period are eligible for deduction under section 10B of the Act. We direct the AO to allow the exemption to the assessee with respect to DEPB, Duty Drawback and DEPB rate difference income in the manner as discussed above. Hence the ground of appeal of the assessee is allowed and the ground of appeal of the Revenue is dismissed. Nature of expenses - expenses paid to SBI Capital Markets Ltd for the study of the capital market - HELD THAT:- The onus lies upon the assessee to satisfy the conditions imposed under section 37(1) of the Act. However the ld. AR before us has not demonstrated based on the documentary evidence the purpose for which such expenditure has been incurred. On perusal of the order of the AO, we note that such expenditure has been incurred for study of capital market in connection with IPO. Therefore, in our considered view the same cannot be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct with respect to Duty Drawback income while computing profit on export turnover. Accordingly, the assessee has calculated separately the deduction available with respect to such Duty Drawback income. These facts have been verified from the form 56 G placed in the paper book as discussed above. Authorities below have misunderstood the detail filed by the assessee and wrongly drew an inference against the assessee by holding that the assessee has claimed double deduction with respect to duty drawback income. On this count, we allow the ground of appeal of the assessee. Allocation of the expenses of the sister concern - AR before us prayed to provide one more opportunity to the assessee to justify its stand that the expenses incurred by the sister concern are not attributable to the eligible undertaking - HELD THAT:- Accordingly in the interest of justice and fair play we are inclined to remit the issue to the file of the AO for fresh adjudication. MAT - addition to the book profit computed u/s 115JB on account of provision for diminution in the value of assets - HELD THAT:- There was no provision created on the side of liability in the balance sheet of the assessee. Accordingly, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. How to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently ? - Since there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently, therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the assessee is partly allowed. Disallowance of expenses namely advertisement, consultancy, stationary and travelling out of claim made u/s 35D - HELD THAT:- The deduction u/s 35D was not allowed to the assessee with respect to the expenditures which can be broadly categorised as under: i. lack of supporting evidence in respect of stationary and travelling expenses. ii. IPO and consultancy expenses were incurred without deducting the TDS. Statutory and travelling expenses, we find that there was no documentary ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bscription, shareholders agreement and convertible bond subscription agreement, thus such expenses were in the nature of capital - HELD THAT:- on perusal of the order of the learned CIT (A), we find that the learned CIT (A) has given very clear-cut finding that the assessee has not incurred such expenses wholly and exclusively for the purpose of its business. TDS u/s 195 - Addition u/s 40(a)(ia) on account of non-deduction of tax on export commission - HELD THAT:- In this case, the non-residents agents have rendered their services outside India in connection with procurement of sale. All the agents have overseas offices and they were not having any permanent establishment in India. At the time hearing learned DR has not brought any material on record suggesting that the non-resident agents are having any permanent establishment in India or services were provided within India. In absence of such finding it is held that the commission income earned by the foreign agent cannot be deemed to be accrue or arise in India. Regarding the applicability of section 195 of the Act, we observe that once the income is not taxable, there is no liability of deduction of tax, therefore, it was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax (Appeals) Ahmedabad, involving the respective Assessment Years. 2. First we take up the appeal preferred by the assessee bearing ITA No/1849/Ahd/2016 for A.Y. 2003-04, the assessee has raised the following grounds of appeal. 1. The learned CIT(A) has erred both in law and on the facts of the casein confirming the disallowance u/s.10B to the extent of ₹ 2,49,32,201/-. 2. The learned CIT(A) has erred both in law and on the facts of the case in holding that the authorized representative of the appellant gave concession of law which is binding on the assessee. 3. The learned CIT(A) has erred both in law and on the facts of the case in failing to appreciate that the learned ITAT had remitted the file to the AO for "fresh examination" of the claim as per law. 4. The learned CIT(A) has erred both in law and on the facts of the case in holding that the decision of Liberty India is applicable whereas the same has no application in the present case. 5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 10B of the Act for the reasons as detailed under: i. It was mandatory on the part of the assessee to file the certificate of the chartered accountant for claiming the deduction under section 10B of the Act. But the same was not filed. However, the certificate which was filed along with the revised return of income was pertaining to the assessment year 2004-05. ii. The approval for 100% EOU was granted in the middle of the year i.e. 1st November 2002. iii. If other income shown by the assessee are excluded for working out the exemption under section 10B of the Act, the income of the assessee from the eligible unit becomes negative. Thus there is no question for claiming or allowing the exemption under section 10B of the Act. 3.4 In view of the above, the AO denied the exemption claimed by the assessee under section 10B of the Act and assessed the income in the assessment framed under section 143(3) read with section 254/260B vide order dated 15th December 2008 determining the total income at ₹ 4,16,41,810/- only. 3.5 On appeal, the learned CIT (A) vide order dated 30th November 2009 held that the assessee is eligible for exemption under section 10B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er that the ld. AR for the assessee contended that the same is covered in favor of assessee. The relevant recording of the ITAT reads as under: With respect to other incomes other than those covered against the assessee, it is submitted that the same are covered in favour of Assessee by the various decision cited hereinabove. 5.2 After recording the arguments of the ld. AR, the ITAT was pleased to set aside the issue to the file of the AO for fresh examination after considering the other income between the pre and post EOU period on the basis of the case laws cited by the ld. AR. The relevant finding of the ITAT reads as under: From the table it is seen that Assessee has bifurcated the income into 2 periods up to the period of granting of EOU status and subsequent to it. We are of the view that these factual aspect needs verification at the end of A.O. We therefore remit the issue to the file of A.O for fresh examination of the claim of Assessee, the bifurcation of income into 2 period in the light of the decisions cited reasonable opportunity of hearing to the Assessee. The Assessee shall be at liberty to furnish additional evidence before A.O. Thus this ground is allowed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of ITAT in case of Maral Overseas Ltd. vs. ACIT, 136 ITD 177 every income forming part of the business income will be eligible for deduction under section 10B as per the ratio provided therein. 7. However, the learned CIT (A) with respect to the income shown by the assessee for DEPB, duty drawback and DEPB rate difference aggregating to ₹ 2,49,32,201/- held that the above income has already been decided not eligible for exemption under section 10B of the Act by the ITAT vide order dated 7th March 2014 in ITA Nos. 814 & 1035/AHD/2010. Therefore, such income cannot be considered as eligible income from the eligible unit at the level of the learned CIT (A). Thus the learned CIT (A) allowed the partly relief to the assessee. 8. Being aggrieved by the order of the learned CIT (A), both the assessee and the revenue are in appeal before us. The assessee is in appeal against the direction of the learned CIT (A) for not allowing the exemption with respect to DEPB, duty drawback and DEPB rate difference aggregating to ₹ 2,49,32,201/- whereas the Revenue is in appeal against the direction of the learned CIT (A) for allowing the exemption with respect to the other income pertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pramod Kumar Sahoo (2019) 10 SCC 674 II. Central Council for Research in Ayurveda vs. DK Santha Kumari (2001) 5 SCC 60 III. DCIT vs. KS Suresh 399 ITR 1(Mad) IV. Krishna B Aggarwal vs. ITO in ITA No 2176/Ahd/2012 10. However the learned DR submitted that the assessee has fairly conceded before the ITAT that it is not eligible for exemption with respect to DEPB, Duty Drawback and DEPB rate difference income aggregating to ₹ 2,49,32,201/-. The ITAT accordingly decided the issue against the assessee. 11. The learned AR in respect of the appeal filed by the Revenue contended that the issue for allowing the exemption under section 10B of the Act after considering income in the ratio of export turnover and total turnover has been decided in favour of the assessee in the judgments as given under: i. PCIT vs. Dishman Pharmaceuticals and Chemicals Ltd. in Tax Appeal No- 129 of 2019 (Guj) ii. Maral Overseas Ltd vs. ACIT (2012) 136 ITD 177(Indore) (SB) iii. Sonic Technology India Inc. vs. ITO in ITA No. 2665 & 2720/Ahd/2011 12. Both the learned AR and the DR before us vehemently supported the order of the authorities below to the extent favourable to them. 13. We have he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (4) of section 10B which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. [Para 77] Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100 per cent EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. [Para 78] Thus, sub-section (4) of section 10B stipulates that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, notwithstanding the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100 per cent EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for fresh adjudication after recording the concession extended by the then learned AR for the assessee. 13.5 Now the controversy arises for our adjudication whether the ITAT has given any finding qua the DEPB, Duty Drawback and DEPB rate difference income i.e. the said income is on not eligible for deduction under section 10B of the Act. In this connection, we have perused the finding of the ITAT. A close/minute reading of the ITAT order reveals that there was no finding given by the ITAT except recording the concession of the learned AR that the income namely DEPB, Duty Drawback and DEPB rate difference income are not eligible for deduction under section 10B of the Act. The relevant finding of the ITAT has already been reproduced in the previous paragraph. 13.6 A question also arises for a consideration whether the tribunal was supposed to give the independent finding with respect to the dispute where the assessee does not agitate. Under the normal circumstances, the ITAT does not give any finding based on reasons with respect to the disputes not agitated by the counsel of the assessee. However, it is also pertinent to note that the ITAT in the same order has also observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure incurred in connection with the public issue u/s 35 of the Act after holding that the Appellant shall not be eligible to claim such deduction as the public issue is brought in the succeeding year and not during the year under consideration. 3. The Id. CIT(A) has failed to appreciate that there being no such kind of condition prescribed in the provisions of S.35D of the Act and there being satisfaction of all such conditions prescribed in S.35D of the Act, the deduction with regard to expenditure incurred in relation to public issue cannot be denied to the Appellant. 4. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in disallowing an amount of ₹ 48,85,261/- being provision for diminution in value of investment. 5. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in not granting full claim of deduction u / s 10 B of the Act in totality at ₹ 11,02,89,592/- as claimed by the assessee. 6. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in excluding duty draw back income of ₹ 97,35,571/- from export profit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 2,01,76,753/- in the year under consideration which was capitalized for claiming the deduction under section 35D of the Act. The expenses fall under section 35D of the Act are in the nature of fee paid to merchant banker, registrar to the issue, lawyers and solicitors, printing and distribution of public issue application forms, holding road show, media publicity, traveling and other types of expenses incurred in connection with public issue. All the expenses as mentioned above in connection with public issue were duly capitalized in the books of accounts. 19.1 It was contended by the assessee that the fees paid to SBI Capital Market Ltd does not fall within the nature of expenses as provided under section 35D of the Act. Therefore, the assessee treated the consultancy fee as revenue in nature. Without prejudice to the above, the assessee also contended that the expenses incurred in connection with the issue of shares are revenue in nature as held by the Hon'ble Madras High Court in the case of CIT vs. Southern Petrochemicals Industries Corporation Ltd. reported in 311 ITR 202. 19.2 However, the AO found that the impugned expenses were incurred by the assessee for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 35D of the Act. 24. On the contrary, the learned DR vehemently supported the order of the authorities below. 25. We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case involved in the question have already been extracted in the preceding paragraph which are not in dispute. Therefore, for the sake of brevity, we're not inclined to repeat the same. The 1st controversy that arises for adjudication whether the expenses in dispute incurred by the assessee are revenue in nature and therefore the same are allowable under the provisions of section 37(1) of the Act. The provisions of section 37(1) of the Act states that any amount of expenditure not being capital or personal in nature incurred wholly and exclusively for the purpose of the business shall be allowed as deduction. However, the onus lies upon the assessee to satisfy the conditions imposed under section 37(1) of the Act. However the ld. AR before us has not demonstrated based on the documentary evidence the purpose for which such expenditure has been incurred. On perusal of the order of the AO, we note that such expenditure has been incurred for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure incurred by the assessee should be eligible for deduction under the provisions specified under section 35D of the Act. If, the expenditure is eligible for deduction under section 35D of the Act then it is the duty of the Revenue to allow the same despite the fact that the assessee has not claimed the same in the income tax return. Thus the question arises whether the expenditure incurred in connection with the study of the capital market are qualified for deduction under section 35D of the Act. In this connection, the attention is drawn to sub-clause (iv) to clause (c) to subsection 2 of section 35D of the Act which reads as under: (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :- (a)******* (b)******* (c) where the assessee is a company, also expenditure- (i) ***** (ii) ***** (iii) *** (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; 25.4 The above clause has been interpreted by the Hon'ble Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO found that such provision made by the assessee does not represent the ascertained liability though the same was recorded as per the accounting standard but the requirements of accounting standard cannot overturn the provisions provided under the Act. Accordingly, the AO disallowed the claim of the assessee. 29. On appeal, the learned CIT (A) was pleased to uphold the order of the AO. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 30. The learned AR before us has not made any contention on merit, rather, he conceded the order of the authorities below. However, the learned AR before us pleaded that as a result of disallowance of the claim of the assessee, the benefit provided under section 10B of the Act should be allowed on the enhanced income on account of such addition. 31. On the other hand, the learned DR vehemently supported the order of the authorities below. 32. We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 10B of the Act provides a deduction to an eligible undertaking with respect to the profit and gains derived from the export of article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, the AO concluded that the assessee has taken double benefit of deduction under section 10B of the Act with respect to such income. 34.1 The AO also found that there was a sister concern of the assessee namely Survin Laboratories which has shown an expense amounting to ₹ 2,80,05,452/- only. As per the AO such sister concern has incurred the expenses on behalf of other manufacturing undertaking of the assessee. Accordingly, the AO was of the view that such expenses need to be allocated to the undertakings of the assessee being eligible and no eligible undertaking. 34.2 On question by the AO, the assessee agrees to allocate the expenses of the sister concern in the ratio of productions carried out by eligible and non-eligible unit. The assessee further worked out an expense of ₹ 1,13,34,211/- attributable to the eligible unit in the letter dated 16th December 2010. Accordingly the AO allocated the expenses to the extent of ₹ 1,13,34,211/- to the eligible unit while working out the deduction under section 10B of the Act. 35. Aggrieved assessee preferred an appeal to the learned CIT (A). 36. The assessee with respect to the Duty Drawback income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits of EOU for computation u7s.10B, the action upheld. The Ground of appeal is dismissed. 37. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us: 38. The learned AR before us contended that the other income by way of Duty Drawback of ₹ 97,35,571/- has been derived by the eligible undertaking and therefore the same is eligible for deduction under section 10B of the Act. 38.1 The learned AR further submitted that the assessee has not claimed double deduction with respect to duty drawback income as held by the authorities. For this purpose, the learned AR drew our attention on pages 94 to 97 of the paper book where the certified form 56 G was placed. 38.2 Regarding the apportionment of the expenses of the sister concern namely Survin Laboratories, the learned AR contended that it is engaged in providing spray Roy plants services which is not required by the eligible undertaking. Furthermore, the sister concern is preparing separate income and expenditure account. Accordingly, the learned AR contended that the impugned expenditure cannot be allocated to the eligible undertaking. 39. On the other hand the learned DR vehemently supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso note that the assessee vide letter dated 16th December 2010 itself has admitted for the allocation of the expenses of the sister concern. The relevant finding of the AO reads as under: Accordingly, it has submitted vide its letter dated 16/12/2010 that out of the total expenses of the unit ₹ 1,13,34,211/- can be said to be attributable to Kiri EOU and hence needs to be factored in while computing the deduction. The assessee has made further submission dated 30/12/2010 stating the reason for apportionment of expenses relating to Survin between EOU and non-EOU. 40.3 Thus, we find that the contention of the learned AR before us is contrary to the finding of the authorities below. 40.4 That as may be, the learned AR before us prayed to provide one more opportunity to the assessee to justify its stand that the expenses incurred by the sister concern are not attributable to the eligible undertaking. The prayer of the learned AR was not objected by the learned DR appearing on behalf of the Revenue. Accordingly in the interest of justice and fair play we are inclined to remit the issue to the file of the AO for fresh adjudication de novo to this extent in accordance to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the materials available on record. The facts relating to the case have already been elaborated in the preceding paragraph which are not in dispute. Therefore, we are not inclined to repeat the same for the sake of brevity and convenience. The controversy that needs to be addressed so as to whether the assessee is eligible for deduction with respect to the provisions made against the diminution in the value of assets as discussed above while determining the book profit under section 115JB of the Act. This controversy has been resolved by the Hon'ble Gujarat High Court in the case of CIT Vs. Vodafone Essar Gujarat Ltd. reported in 397 ITR 55 wherein it was held as under: "With insertion of clause (i) to the explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB of the Act. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther sources" and thereby disallowing ₹ 2,94,000/- on account of standard deduction claimed u/s.24 of the Act. 4. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of learned AO in adding disallowances u/s.14A of the Act to book profit calculated u/s.115JB of the Act. In the facts and circumstances of the case, expenses in relation to any exempt income have not been debited in the profit and loss account and thus estimation of such expenses as per S.14A r.w.r.8D cannot be made basis for adjusting book profit u/s.115JB of the Act. 5. The learned CIT(A) has erred in law and on the facts of the case in not reducing income of ₹ 5,46,37,200/- offered for tax in AY 2009-10 under the normal provisions of the Act from the book profit while calculating MAT for the year under consideration. Ld.CIT(A) failed to appreciate that this income has already been taxed under the normal provisions of the Act in earlier year and therefore the same cannot once again be taxed under the provisions of MAT for the year under consideration. 6. The learned CIT(A) has erred in law and on the facts of the case in disallowing advertisement, consultancy, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed fund was not utilized in the investments. The ld. DR vehemently supported the order of the authorities below. 56. We heard the rival contention of the both parties and perused the materials available before us. The fact of the case have been elaborated in previous paragraph, hence for the sake of brevity, we are not inclined to repeat the same. At the outset we note that the AO has made the addition on two folds i.e. on account of interest expenses and on account of administrative expenses. 56.1 Regarding the addition made on account of interest expenses, we note that the assessee has substantial amount of interest free fund in the form of share capital and reserve which exceeds the amount of investment. This fact can be verified from the Balance Sheet of the assessee. The relevant page of the Balance Sheet, placed on page number 7/Y of paper book, is extracted below: Balance Sheet as at 31st March, 2010 Particulars Annexure As At 31.03.2010 (Rs.in Lacs) As At 31.03.2009 SOURCES OF FUNDS: Capital & Liabilities: Share capital A 1500.01 1500.01 Reserves & Surplus B 13022.59 10795.66 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance should be enhanced from ₹ 75.89 crores to ₹ 144.52 crores. Upper disallowance as held in Pr. CIT v. McDonalds India (P.) Ltd. ITA 725/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year. This decision follows the ratio and judgment of the Supreme Court in the case of Maxopp Investments Ltd. v. CI T[2018] 402 ITR 640/254 Taxman 325/91 taxmann.com 154 and the earlier judgments of the Delhi High Court in Cheminvest v. CIT [2015] 378 ITR 33/234 Taxman 761/61 taxmann.com 118 and CIT v. Holcim (P.) Ltd. [2015] 57 taxmann.com 28 (Delhi)." 56.5 In view of the above we direct the AO to limit the disallowance of the administrative and interest expenses, if any, then it should be lower of exempted income or the disallowance made under section 14A r.w.r. 8D of Rules of Income Tax Rules. Accordingly, we confirm the disallowance made by the AO which was subsequently confirmed by the learned CIT (A) towards the administrative expenses. Thus the grounds of appeal raised by the assessee is partly allowed. 57. The 2nd issue raised by the assessee in ground No. 3 is that the learned CIT (A) erred in confirming the order of the AO by treating the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d DR vehemently supported the order of authorities. 63. We have heard the rival contentions of both the parties and perused the materials available on record. The fact of case have already been elaborated in previous paragraphs, hence for the sake of brevity we are not inclined to repeat the same. The question arises before us, whether rent received from letting out of an open land on which some shades were constructed by the tenant can be classified as income from house property being land appurtenant to building under section 22 of the Act. What we find from the fact of case is that it was open land which was out let out not the building and rental income received for the letting out of land not shades or building. Thus in our humble understanding, the impugned rent cannot be treated as income from building or shades for the reason that what was let out is an open land not the building or shades. In this regard we draw support and guidance from the order of the Hon'ble Punjab and Haryana High Court in case of Govardhan Dass & Sons Vs. CIT reported in (2007) 158 Taxmann 465 (P&H) where the Hon'ble Court held as under: "It was clear from the statement of case that what was let o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard the rival contentions of both the parties and perused the materials available on record. The AO in the instant case has made the disallowance under section 14A r.w.r. 8D of the Income Tax Rules for ₹ 74,07,778/- while determining the income under normal computation of income. Further, the AO while determining the book profit under Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act, has added the disallowance made under the normal computation of income under section 14A r.w.r. 8D of Income Tax Rule for ₹ 74,07,778/- in pursuance to clause (f) of explanation 1 to section 115JB of the Act which was restricted to ₹ 35,23,174/- by the learned CIT (A) to the extent of exempted income. 71.1 However, we note that in the recent judgment of Special Bench of Hon'ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the book profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below: "In view of above discussion, the computation under clause (f) of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore in the given facts & circumstances, we feel that adhoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel necessary to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that since there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently, therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the assessee is partly allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure ₹ 10,00,000/- (ii) IPO consulting fees ₹ 2,25,000/- (iii) 1PO Stationery expenses of ₹ 8,55,688/-being 10% of the total claim of ₹ 8556884/-. The AO has not found any specific defects in respect of the claim. (iv) IPO travelling expenses of ₹ 3,12,491/-being 10% of the total claim of ₹ 31,24,910/-.The AO has not found any specific defects in respect of the claim. 7.9.8. In view of the aforesaid discussion, total disallowance of the claim of expenditures works out to ₹ 23,93,179/- which is reduced from the total claim of expenditure at ₹ 5,01,82,479/- and in result the balance claim of expenditure amounting to ₹ 4,77,89,300/- is directed to be considered for deduction u/s. 35D of the I. T. Act, 1961. Since the provisions of section 40(a)(ia) of the I.T. Act are attracted on the payments towards various expenditures amounting to ₹ 23,93,179/- and hence disallowance of these expenditures to the extent of an amount of ₹ 23,93,179/- is upheld and same is reduced from the total claim of expenditure u/s. 35D of the I. T. Act as mentioned above. It has been noticed that in the appellate proceedings, the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS, in this connection the first controversy arise whether the provision of section 40(a)(ia) can be invoked in the case of deduction claimed under section 35D of the Act. For this purpose we refer the provisions of section 40 of the Act which reads as under: 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- 79.3 The above provisions overrides the provisions contained under section 35D of the Act. Therefore, though the expenses which are eligible for deduction under section 35D of the Act but the same cannot be allowed as deduction in the event the TDS was not deducted. 79.4 Regarding the alternate contention by the learned AR, we find force in the argument advanced by the Learned AR that if the recipient of consultancy and advertisement fees has paid the taxes on the amount received from the assessee, then there will be no any disallowance warranted under section 40(a)(ia) of the Act. Indeed the said provision, though inserted by the Finance Act 2012 w.e.f. 1-4-2013, has been held to be retrospective in operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch, the alternate contention becomes infructuous. Hence the ground of appeal of the assessee is partly allowed for the statistical purposes. 80. The issue raised vide ground Nos. 7, 8 and 9 by the assessee are either general or consequential or premature to decide. Accordingly we dismiss the same being general or consequential or premature as infructuous. 81. In the result the appeal filed by the assessee is partly allowed. * Coming to ITA No. 1231/Ahd/2018 an appeal by the Assessee corresponding to A.Y. 2010-11 82. The assessee has raised the following grounds of appeal: 1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the penalty when show cause notice u/s.274 r.w.s.271(l)(c) of the Act did not specify the exact charge as to whether the penalty is levied for concealment or furnishing of inaccurate particulars of income. Such a defect renders the penalty void ab initio and is also a violation of the principles of natural justice. 2. The learned CIT(A) has erred in law and on facts in confirming the action of AO in initiating and levying penalty under section 271(l)(c) of the Act without recording mandatory satisfaction as contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377;88,200/- being 100% of the amount of tax sought to be evaded. 85. Aggrieved assessee preferred an appeal to the learned CIT (A) who has also confirmed the order of the AO. 86. Being aggrieved by the order of learner CIT (A) the assessee is in appeal before us. 87. The learned AR before us filed a paper book running from pages 1 to 110 and submitted that the assessee has not concealed any particulars of income or furnished any inaccurate particulars of income. As such, the assessee has made disclosure in the income tax return with respect to the impugned income. It was also contended that the issue involved for treating the rental income from the letting of the land under the head house property viz a viz income from other sources is a matter of the difference in opinion. Accordingly the assessee under the bona fide belief has shown rental income under the head house property and therefore the deduction under section 24 of the Act was claimed. Accordingly the ld. AR contended that there cannot be any penalty under the provisions of section 271(1)(c) of the Act. 88. On the other and the learned DR vehemently supported the order of the authorities below. 89. We have heard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and imposed penalty on the assessee. The CIT(A) deleted such penalty and the Tribunal has rightly held in the finding that it is a case of difference of opinion in allowability of certain deductions and in absence of any material to indicate any dishonest attempt on the part of the assessee to conceal the income, no penalty can be imposed. 89.1 We also draw support and guidance from the order of Coordinate bench of Mumbai ITAT in case of ITO vs. Kantilal G Kotecha reported in 108 taxmann.com 119 where it was held as under: 3.5.1 We find that the assessee's case falls under Explanation 1 of section 271(1)(c ) of the Act wherein he had offered bonafide explanation narrating the entire facts before the ld AO. Moreover, it is well settled that the discharge of consideration by way of issue of shares is a valid consideration and hence for the Goodwill Portion, the assessee was allotted shares in the public limited company should have to be treated as valid consideration for the transfer of Goodwill together with other assets and liabilities. Reliance in this regard is placed on the decision of Hon'ble Kerala High Court in the case of the Commonwealth Trust India Ltd. v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings, when the assessee had no other option but to offer the income found during survey, he came forward before the ld AO to offer such income. In that factual matrix, the Hon'ble Supreme Court held that department is not in the business of selling peace and that assessee had to be invited with the levy of penalty. This decision is factually distinguishable with that of the assessee. In the instant case, there was absolutely no malafide on the part of the assessee in making the claim of exemption u/s 47(xiv) of the Act as could be seen from the findings rendered hereinabove. We find that the decision that would be applicable to the facts of the instant case would be the decision of Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158 wherein it was held that when no information given in the return was found to be incorrect or inaccurate or the details supplied by the assessee was found to be factually incorrect, then primafacie, the assessee cannot be held guilty of furnishing inaccurate particulars. It may at best result in making incorrect claim in law. The Hon'ble Apex Court further observed that by any str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant to the transfer pricing officer. Under the facts and circumstances of the case, there was no reason to interfere with the pricing adopted by the appellant as the same is falling within the parameters laid down under the scheme of the Act. 6. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in invoking the provisions of chapter X without prima facie demonstrating that there was some tax avoidance. 7. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in making a reference to Ld.TPO u/s.92C(3) r.w.s.92CA(1) of the Act without providing an opportunity of being heard to the appellant. 8. The learned CIT(A) has erred both in law and on the facts of the case in not appreciating that the whole reference and the consequential orders are bad and illegal because the alleged approval granted by CIT u/s.92CA(1) of the Act is vitiated in law firstly because the appellant was not heard before any such approval and secondly because the same has been granted mechanically without any application of mind and without due diligence. 9. The learned CIT(A) has erred both in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er normal compuation of Income. 96. At the outset we note that the similar issue has been raised by the assessee in ITA No. 2524/Ahd/2015 for A.Y. 2010-11 in ground no. 4 which has been partly allowed in favor of the assessee. For detailed discussion please refer the relevant paragrapgh No.71 of this order. Thus we hold that the principles laid down in above paragraph will mutas mutandis apply herein also. In the result ground of appeal raised by the assessee is partly allowed. 97. The 3rd issue raised by the assessee in ground Nos. 4 to 8 is that the learned CIT (A) erred in confirming the order of the AO/TPO with respect to transfer pricing adjustment of ₹ 50 lakhs on account of corporate guarantee provided by the assessee to its AE's. 98. The TPO during the assessment proceedings found that assessee has provided corporate guarantee on loan taken by its Associated Enterprises based in Singapore for ₹ 100 crore in the immediate preceding A.Y. 2010-11 which is continuing in the year under consideration as well. The TPO also found that the assessee, in the A.Y. 2010-11, charged guarantee fee for ₹ 1,88,42,093/- whereas no guarantee fee charged in the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business strategy of the assessee should also be considered. The assessee in this regard referred the OECD guidelines 2010 where in para 1.59 it was stated that "a tax payer seeking to penetrate a market or to increase its market share might temporarily lower than the price charged for otherwise comparable products, in same market. " 99.4 However, the TPO disregarded the contention of the assessee by holding as under: (i) The assessee, without substantiating its contention based on cogent material, claimed that issuance of corporate guarantee has commercial expediency and in return assessee will get benefited in future. Further the provisions of chapter X of the Act are an anti-avoidance rule which do not differentiate transaction on account of commercial expediency. In any case transaction with the AEs needs to be tested on the parameter of ALP. Therefore the reliance placed on the judgment of SA Builder Ltd (supra) by the assessee is not acceptable. (ii) The extension of corporate guarantee to AE falls within the ambit of service as the same is also recognized by the OECD commentary and therefore needs to be benchmarked. This view was also confirmed by the US tax court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this respect the assessee placed its reliance on the following judgment: (i) Dana Corporation, In re [2010] 321 ITR 178 (AAR) (ii) Vanceburg Group B.V. , In re [2007] 289 ITR 464 (AAR) (iii) Deere and Company, In re bearing AAR No. 934 of 2010 100.2 Further there was not any method provided under the Act to benchmark the guarantee fee/commission with respect to the transaction under consideration. Therefore the charging provision of section 92B of the Act gets failed. The assessee also contended that the issue of corporate guarantee stands in its favor as it has not incurred any cost and having no bearing on profit or losses. As such the transaction of bank guarantee should not be treated as international transaction. In this respect the assessee placed its reliance on the order of the Hon'ble Delhi tribunal in case of Bharti Airtel Ltd vs. ACIT reported in 43 taxmann.com 150. 100.3 The assessee alternatively contended that in any case the corporate guarantee fee should be taken @ 0.5 % on the value of bank guarantee. 101. The ld. CIT (A) allowed the alternative appeal of the assessee by observing as under: In view of the aforesaid discussion and the decisions of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational transaction. The ld. AR in support of his contention relied on the order of this Tribunal in the case of Micro Ink Ltd vs. ACIT (63 taxmann.com 353). Accordingly, the ld. AR contended that there cannot be any adjustment in assessee's profit for such corporate guarantee furnished to the AE. 104. On the other hand the Ld. DR before us submitted that the corporate guarantee furnished by the assessee to its AE is an international transaction and therefore the same needs to be benchmarked to determine the ALP. The learned DR vehemently supported the order of the authorities below. 105. We have heard the rival contention and perused the materials on record. The first contention raised by the ld. AR that corporate guarantee is not covered by the definition of international transaction given u/s 92B of the Act. In this regard, we note that the issue whether the corporate guarantee is covered by the definition of international transaction u/s 92B has been settled by the order of this Tribunal in case of Micro Ink Ltd vs. ACIT (63 taxmann.com 353). In the said order it was decided by the Hon'ble bench that guarantees is included in the definition by way of insertion of Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the removal of doubts, it is hereby clarified that (i) the expression "international transaction" shall include…….. (c) capital financing, including any type of long -term or short -term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business." There is no dispute that this Explanation states that it is merely clarificatory in nature inasmuch as it is 'for the removal of doubts', and, therefore, one has to proceed on the basis that it does not alter the basic character of definition of 'international transaction' under Section 92B. Accordingly, this Explanation is to be read in conjunction with the main provisions, and in harmony with the scheme of the provisions, under Section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transactions'. The first two categories of transactions, which are stated to be included in the scope of expression 'international transactions' by virtue of clause (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in future as evident from the words "irrespective of the fact that it (i.e. restructuring or reorganization) has bearing on the profit, income, losses or assets of such enterprise at the time of transaction or on a future date". What is implicit in this statutory provision is that while impact on " profit, income, losses or assets" is sine qua non, the mere fact that impact is not immediate, but on a future date, would not take the transaction outside the ambit of 'international transaction'. It is also important to bear in mind that, as it appears on a plain reading of the provision, this exclusion clause is not for "contingent" impact on profit, income, losses or assets but on "future" impact on profit, income, losses or assets of the enterprise. The important distinction between these two categories is that while latter is a certainty, and only its crystallization may take place on a future date, there is no such certainty in the former case. In the case before us, it is an undisputed position that corporate guarantees issued by the assessee to the various banks and crystallization of liability under these guarantees, though a poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has charged guarantee fee of ₹ 1,88,42,093/- from its AE in the immediate previous assessment year for providing very same corporate guarantee which was written off in the current year. The TPO in show cause notice raised this issue and asked explanation from the assessee. The assessee in this regard furnished that there were no cost involved in such corporate guarantee extended to its AE. Thus they mutually decided to waive off the guarantee fee and decided not to charge fee in future also. The TPO, thereafter, dropped the issue in final finding with respect to the corporate guarantee fees written off in the year under consideration which implies that the TPO has accepted the assessee contention. Thus what inferred is this that the revenue in one previous year has accepted the claim of the assessee but making an addition in current year which is against the principles of consistency. Therefore there no effect on the income of the assessee. 105.4 Accordingly, we direct the TPO/AO to delete the addition made by him. Thus the ground of appeal of the assessee is allowed and the ground of appeal of the Revenue is dismissed. 106. The next issue raised by the assessee in g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Hon'ble Apex Court in the case of India Cement Ltd vs. CIT reported in 60 ITR 52. 110.1 The learned AR also submitted that the AO has made the disallowance by observing that the payment made to Wong Partnership LLP as capital in nature but the fact is that no new assets has come into existence out of such expenses viz a viz it has not resulted any benefit of enduring nature to the assessee. Likewise, there was no allegation of the AO whether such expenses were incurred wholly and exclusively for the purpose of the business. Accordingly it was contended that such expenses should be allowed as revenue in nature. 111. On the contrary the learned DR vehemently supported the order of the authorities below. 112. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has claimed the deduction for the impugned consultancy expenses under section 37(1) of the Act on the reasoning that such expenses were not capital in nature whereas the AO treated the same as capital in nature. 112.1 Before we look into the fact whether the impugned consultancy expenses are in the nature of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y appreciating the facts of the case and the material brought on record. 2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance made on account of export commission u/s.40(a)(i) of the Act amounting to ₹ 19,00,721/-, without properly appreciating the facts of the case and the material brought on record. 3. The Ld.CIT(A) has erred in law and on facts in rejecting the arm's length guarantee fee of 4.67% arrived at by the TPO in respect of guarantees given by the assessee, reducing the upward adjustment of ₹ 4,67,00,000/-. 4. The Ld.CIT(A) has erred in law and on facts in holding adhoc guarantee fee of ₹ 0.50% in respect of guarantees given without appreciating the fact that the above rate was without any basis and hence the rate needed to be adjusted before it could be adopted as an arm's length rate. 5. The Ld.CIT(A) has erred in law and on facts in rejecting the arm's length price of ₹ 4,67,00,000/- determined by the TPO/Assessing Officer in respect of guarantee given by the assessee company in respect of loans taken by the group company. 6. The Ld.CIT(A) has erred in law and on facts in holding that the assessee has not provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly made to them in their respective countries and none of the broker has received the payment in India. 119.2 In view of the above the assessee submitted that commission paid to the overseas brokers is not chargeable to tax in India under the provisions of section 9, 5 & 6 of the Act. For the deduction of tax under the provisions of section 195 of the Act, chargeability of income to tax in India is prerequisite. Once the income is not chargeable to tax, then the question of deducting the TDS under section 195 of the Act does not arise. 119.3 However the AO disagreed with the contention of the assessee by observing that the commission paid to the foreign brokers was from the business connection in India as well as the amount of commission to the brokers was from the source of income in India. Accordingly, the income was deemed to accrue or arise in India as provided under section 9(1)(i) of the Act. Accordingly the AO held that the amount of commission paid to the foreign brokers was chargeable to tax in India and therefore the assessee was liable to deduct the TDS under section 195 of the Act. Accordingly the AO disallowed the sum of ₹ 19,00,721/- and added to the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd squarely covered by the Apex Court decision. 4.12. Regarding the observation of the AO that the income is deemed to accrue or arise in India by applying the provisions of section 9 (l)(i), it is seen that there is no fact on record to indicate that any of the agents had any permanent establishment in India. All the agents had their offices on the foreign soil and nothing on record that they had PE in India. Further the assessing officer has also not pointed out any such fact in its order which indicate that there was any such office of the overseas agents in India which attract the deeming provisions. Further the observation that the source of income was in India is also not proper as it has clearly been discussed in fhe preceding paragraphs that none of the services have been rendered in India and source of income cannot be said to be in India as the source of income is the services rendered and not the sales. There is no business connection in India from which the income has been earned, there is no property through or from which the income has been earned. Therefore, the provisions of section 9 (l)(i) also cannot be applied. 4.13. Reliance is placed on the judgement of ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale. All the agents have overseas offices and they were not having any permanent establishment in India. At the time hearing learned DR has not brought any material on record suggesting that the non-resident agents are having any permanent establishment in India or services were provided within India. In absence of such finding it is held that the commission income earned by the foreign agent cannot be deemed to be accrue or arise in India. Regarding the applicability of section 195 of the Act, we observe that once the income is not taxable, there is no liability of deduction of tax, therefore, it was not applicable for the assessee to deduct tax. Therefore, there was no violation of provision of section 195 of the Act. Accordingly, this ground of appeal of the revenue is dismissed. 124. The next issue raised by the Revenue in ground Nos. 3 to 7 is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 4,17,00,000/- in part on account of transfer pricing adjustment with respect to corporate guarantee. 125. The issue raised by the Revenue has already been adjudicated by us along with the appeal of the assessee bearing No. 3491/AHD/2015 vide paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in confirming action of the ld.AO in levying interest u/s.234A/234B/234C/D of the Act. 8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in initiating levy of penalty u/s.271(1)(c) of the Act. 129. The first issue raised by the assessee in ground Nos. 1 to 2 is that the learned CIT (A) erred in sustaining the disallowance in part for ₹ 20,000/- made by the AO under section 14A read with rule 8D. 130. We note that the Revenue is also in appeal vide ground no. 1 of appeal in ITA No- 2696/Ahd/2016 against the part relief provided by the learned CIT (A) to the assessee. The relevant ground of appeal of the Revenue reads as under: The Ld.CIT(A) has erred in law and on facts in restricting the disallowance u/s.14A to ₹ 20,000/- as againt ₹ 2,47,78,596 worked out by the AO without properly appreciating the facts of the case and the material brought on record. 131. At the outset we note that the similar issue has been raised by the assessee in ITA No. 2524/ahd/2015 in ground no. 1 & 2 which have been partly allowed in favor of the assessee. For detailed discussion please refer the relevant paragrapgh No.56 of this o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue 137. The Revenue has raised the following grounds of appeal: 1. The Ld.CIT(A) has erred in law and on facts in restricting the disallowance u/s.14A to ₹ 20,000/- as against ₹ 2,47,78,596 worked out by the AO without properly appreciating the facts of the case and the material brought on record. 2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of interest amounting to ₹ 1,03,41,512/- u/s.36(1)(iii)of the Act without properly appreciating the facts of the case and the material brought on record. 3. The Ld.CIT(A) has erred in law and on facts in rejecting the arm's length guarantee fee of 2.16% arrived at by the TPO in respect of guarantee given by the assessee reducing upward adjustment of ₹ 1,91,48,980/- to ₹ 44,32,634/- without properly appreciating the facts of the case and the material brought on record. 4. The Ld.CIT(A) has erred in law and on facts in holding adhoc guarantee fee of 0.50% in respect of guarantee given without appreciating the fact that the above rate was without any basis and hence the rate need to be adjusted before it could be adopted as an arms length rate. 5. The Ld.CIT(A) has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that during the year it has incurred interest cost of ₹ 6,98,02,444/- on term loan utilised both for the purpose of business and expansion of existing project. Out of total interest cost it has capitalised an amount of ₹ 3,95,81,203/- being 57% of total cost against the expansion of extisting project. Therefore, no additional disallowance of interest is required. 141.2 However, the AO rejected the submission of the assessee by holding that the assessee has not provided any justification or fund flow statement establishing that the term loan was utilised for the expansion of existing project being CWIP and advace for capital goods to the extent interest amount capitalized suo moto. Hence the AO in absence of any justification worked the amount of interest which needs to be capitalized at ₹ 4,99,22,715/- being @ 12% on fund deployed in CWIP and Advance for Capital Goods. Accordingly the AO made an additon of ₹ 1,03,41,512/- after providing benefit of amount already capitalized by the assessee for ₹ 3,95,81,203/- only. 142. Aggreived assessee prefered an appeal to the learned CIT (A). 143. The assessee before the learned CIT(A) besided reiterating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 4,99,22,715/- and made the addition of ₹ 1,03,41,512/- which came to be deleted by the learned CIT (A). Admittedly the assessee was having interest free fund of ₹ 379,02,05,844/- in form of share capital and Reserve. Thus fact can be verified form the balance sheet of the assessee placed on page 15 of paper book. The extract of same is reproduced here under: KIRI INDUSTRIES LIMITED Balance Sheet as at 31st March, 2012 Particulars Notes As at 31st March, 2012 EQUITY AND LIABILITIES SHARE HOLDERS FUNDS Share Capital 2 190,000,530 Reserves and Surplus 3 3,600,205,314 3,790,205,844 148. At the outset we find that various Hon'ble Courts have held that there cannot be any disallowance of interest expenses in a situation where the own fund exceeds the amount of investment made by the assessee. As such, there is a presumption that the investment has been made by the assessee out of its own without involving any borrowed fund. In holding so we draw support and guidance from the judgment of Hon'ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: It was noted from records that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw and on the facts of the case in confirming the upward adjustment to the extent of ?₹ 7,40,796/- @ 0.5% p.a. on account of corporate guarantee given to associate enterprise while determining arm's length price under the provisions of transfer pricing. 5. The learned CIT(A) has erred both in law and on the facts of the case in confirming the upward adjustment to sale price of ₹ 1,17,906/- by applying Internal CUP Method. Both these actions of making upward adjustment and adopting a different method for determining ALP without giving reasons for rejection of method followed by the appellant are illegal and without jurisdiction. 6. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 7. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the principles laid down in above paragraph will mutas mutandis apply here in also. In the result ground of appeal raised by the assessee is allowed whereas ground of appeal raised by the Revenue is dismissed. 159. The next issue raised by the assessee vide ground no. 5 is that the learned CIT(A) erred in confirming the upward adjustment in sale price for ₹ 1,17,906/- in TP report. 160. At the outset we note that the learend AR for assessee before us submitted that he was directed by the assessee not to press this ground of appeal being smallness of amount. Accordingly we dismiss the groud of appeal of the assesse being not pressed. 161. The next issuue raised by the assessee in ground nos. 6 to 8 in its appeal are general, consequential or premature in nature. Hencce the same are dismissed being general and infructuous. 162. In the result the appeal of the assessee is partly allowed. Coming to ITA No. 1814/AHD/2017 for the assessment year 2013-14, an appeal by the Revenue 163. The following grounds of appeal have been raised by the Revenue: 1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance u/s36(1)(iii) of the IT Act amounting to ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts that I transactions like advances given to the AE in a way by share application money are nothing but loan given to AE. 11. The Ld.CIT(A) has erred in law and on fact that the arms length price of ₹ 12,52,159 determined by the TPO in respect of the ALP interest was required to be charged by the assessee from the AE in view of Share application money advanced as loan by the assessee. 164. The first issue raised by the Revenue vide ground Nos. 1 & 2 in its appeal is that the learned CIT (A) erred in deleting the addition made under section 36(1)(iii) of the Act for ₹ 7,19,78,426 on CWIP and ₹ 1,34,02,729/- on account of capital advance. 165. At the outset we note that the similar issue has been raised by the Revenue in ITA No. 2296/Ahd/2016 in ground no. 2 which has been allowed in favor of the assessee. For the detailed discussion please refer the relevant paragrapgh No.147- 148 of this order. Thus we hold that the principles laid down in above paragraph will mutas mutandis apply herein also. In the result ground of appeal raised by the Revenue is dismissed. 166. The next issue raised by the Revenue vide ground no. 3 is that the learned CIT (A) erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 174. The next issue raised by the Revenue vide ground no. 10 & 11 is that the learned CIT (A) erred in deleting the upward adjustment of ₹ 12,52,159/- made by the AO account of interest free loan given to AE. 175 The AO/TPO during the assessment proceedings found that the assessee has advanced money/share application money to its AE without charging any interest thereon. As per the AO/TPO such transaction of advancing money for the acquisition of the shares are international transaction, therefore the same needs to be benchmarked. Accordingly the AO/TPO worked out the ALP of the interest attributable on such advance/share application money and made the upward adjustment of ₹ 12,52,159/- by adding to the total income of the assessee. 176. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the upward adjustment made by the TPO/AO. 177. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal before us. 178 The learned DR before us vehemently supported the order of the AO whereas the learned AR before us submitted that money was advanced by the assessee to its AE for the acquisition of the shares. Therefore, the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apparent transaction and substitute it by re-characterizing the said transaction without any material or exceptional circumstances that the assessee has tried to conceal the real transaction. Investment made in shares or applying for the shares cannot be given different colour so as to expand the scope of transfer pricing adjustment by re-characterizing it as interest free loan. Thus, we are unable to uphold the contention of the Revenue that share application money pending allotment should be re-characterized as loan till the period it is allotted after a reasonable time. Accordingly, we do not find any reason to interfere in the finding of the learned CIT (A), thus the ground of appeal raised by the Revenue is dismissed. 180. In the result the appeal of the Revenue is partly allowed. * Coming to ITA No. 1655/AHD/2017 for the assessment year 2014-15, an appeal by the Assessee 181. The Assessee has raised following grounds of appeal: 1. The ld.CIT(A) has erred in law and on facts of the case in confirming the action of the ld.AO of disallowing Employees' contribution towards PF amounting to ₹ 17,02,382/- u/s.36(1)(va) of the Act. 2. The ld.CIT(A) has erred in law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration claimed advertisement expenses for ₹ 11,65,675/- only. The AO during the assessment proceedigs found that out of such advertisment expenses, an amount of ₹ 2,14,130/- was paid to M/s Market Bulletin without deducting tax at source under section 194C of the Act. Accrodingly the AO invoked the provison of section 40(a)(ia) of the Act, and disalllowed the advertisment expenses paid to M/s Market Bulletin for ₹ 2,14,130/- by adding the same to the total income of the assessee. 186. Aggrieved assessee carried the mater to the learned CIT (A) and contended that the addition was made without granting an opportunity of being heard which is in violation of principles of natural justice. Thus in the light various decision of Hon'ble Supreme Court, any addtion made without affording opprotunity of being heard is in voilation of principles of natural justice and thus the same is not sustainable. 187. The assessee on merit submitted that amount was paid for advertisment in news journel namely Market Bulletin which is published in Pakistan. Therefore the same is not taxable in India as the Market Bulletin has no business connection and PE in Inida. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, by the order of the learned CIT (A), the assessee is in appeal before us. 190. The learned AR before us reiterated the contentions as made before the authorities below whereas the ld. DR vehemently supported the order of the authorities below. 191. We have heard the rival contentions of both the parties and perused the material availabe on record. Admitedly the assessee has made payment of ₹ 2,14,130/- to M/s Market Bulletin which is resident of pakistan. Though the AO made the disallowance by invoking the provision of section (40)(a)(ia) of the Act on account of non dedcution of TDS under section 194C of the Act, however the learned CIT (A) in light of new fact that the amount was paid to non resident assessee confirmed the addtion by holding that assessee failed to comply with the provision of section 195 (2) of the Act. Now the question question arise whether the advertisment charges paid to a non resident is laible to be taxed in India and the assessee is liable to deduct witholding tax. 191.1 In this case, the payee M/s Media Bulletin is based in Pakistan and have rendered its services of advertisement in Pakistan/outside India. The payee was not having any permane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f disallowance u/s.14A to the Book Profit u/s.115JB of the Act. 4. The Ld.CIT(A) has erred in deleting the addition of disallowance of foreign Commission expense of ₹ 34,96,732/- even when the assessee failed to prove the genuineness of such expenditure. 4.1. The Ld.CIT(A) has erred in deleting the said addition u/s.40(a)(iv) of the IT Act as no TDS was made on such payments. 194. The fisrt issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowances made by the AO for ₹ 7,96,64,825/- made under section 36(1)(iii) of the Act. 195. At the outset we note that the similar issue has been raised by the Revenue in ITA No. 2296/Ahd/2016 in ground no. 2 which has been allowed in favor of the assessee. For the detailed discussion, please refer the relevant paragrapgh No.147- 148 of this order. Thus we hold that the principles laid down in above paragraphs will, mutatis mutandis, apply herein also. In the result ground of appeal raised by the Revenue is dismissed. 196. The next issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallwoances for ₹ 3,91,90,512/- made by the AO under section 14A r.w.r. 8D of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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