JCIT LARGE TAXPAYER UNIT-2, CHENNAI V. M/s. Brakes India Ltd., CHENNAI

ITA 1544/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3272 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 16-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S BHARATH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Additional depreciation; Bonafide belief; Earning of tax free income; Services rendered outside India; Retrospective amendment; TDS; Set aside
• Section: 14A; 32(1)(iia); 195; 139(1); 9(1); 9(1); 9(1); 32; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNALA BENCH, CHEN NAI . . . , , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. ITA NOS. 1543, 1544 & 1545/CHNY/2019 ' #' / ASSESSMENT YEARS : 2012-13, 2013-14 & 2014-15 THE JOINT COMMISSIONER OF INCOME TAX (OSD), LARGE TAXPAYER UNIT -2, ROOM NO. 711, 7 TH FLOOR, WANAPARTHY BLOCK, NO. 121, M.G. ROAD, CHENNAI 600 034. V. M/S. BRAKES INDIA PRIVATE LIMITED, 21, PATULLOS ROAD, CHENNAI 600 002. PAN : [AAACB 2533Q] ( $% /APPELLANT) ( &'$% /RESPONDENT) /. ITA NOS. 1463, 1464 & 1465/CHNY/2019 ' #' / ASSESSMENT YEARS : 2012-13, 2013-14 & 2014-15 M/S. BRAKES INDIA PRIVATE LIMITED, 21, PATULLOS ROAD, CHENNAI 600 002. PAN : [AAACB 2533Q] V. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT 2, 121, NUNGAMBAKKAM HIGH ROAD, CHENNAI 600 034. ( $% /APPELLANT) ( &'$% /RESPONDENT) ( * / REVENUE BY : SHRI S. BHARATH, CIT '+, ( * / ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE (, /DATE OF HEARING : 27.11.2019 -.# (, /DATE OF PRONOUNCEMENT : 24.02.2020 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: :-2-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 THE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-5, CHENNAI IN ITA NOS. 36, 34 & 35/CIT(A) -5/2016-17 DATED 20.02.2019 FOR THE ASSESSMENT YEARS 2012-13, 2013-1 4 & 2014-15, RESPECTIVELY. 2. M/S. BRAKES INDIA LTD., THE ASSESSEE, IS A MANUF ACTURE OF COMPLETE BRAKE SYSTEMS & COMPONENTS. WHILE MAKING T HE ASSESSMENTS FOR THE ASSESSMENT YEARS 2012-13, 2013-14 & 2014-15 , THE A O , INTER ALIA, DISALLOWED ADDITIONAL DEPRECIATION CLAIMED U/ S. 32(1)(IIA) ON THE ASSETS ADDED DURING THE II HALF OF THE PRECEDING RE SPECTIVE PREVIOUS YEARS, DISALLOWED HIGHER RATE OF DEPRECIATION CLAIM ED ON UPS, PRINTERS AND SCANNERS @ 60% BY THE ASSESSEE , DISALLOWED CERTAIN PAYMENTS MADE TO NON-RESIDENTS U/S. 40(A) (I) FOR THE REASON THAT THE TDS WAS NOT DEDUCTED IN THOSE ASSESSMENT YEARS AND MADE ADD ITIONAL DISALLOWANCES U/S 14A RWR 8D IN THOSE ASSESSMENT YE ARS. FURTHER, WHILE MAKING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2012 -13, THE AO FOUND THE ASSESSEE REMITTED THE EMPLOYEES CONTRIBUTION TO THE ESI AFTER 5 DAYS FROM THE DUE DATE SPECIFIED IN THAT ACT BUT F ULLY REMITTED BEFORE THE DUE DATE SPECIFIED IN THE INCOME-TAX ACT FOR F ILING THE RETURN U/S 139(1) OF THE ACT AND HENCE DISALLOWED THE SUM CLAI MED BY THE ASSESSEE. AGGRIEVED, THE ASSESSEE FILED APPEALS BEF ORE THE CIT(A) AND :-3-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 THE LD CIT(A) PARTLY ALLOWED THE APPEALS . AGGRIEVE D AGAINST THE ORDERS OF THE REVENUE AS WELL AS THE ASSESSEE FILES THESE CROSS APPEALS . 3. THE LD D R PRESENTED THE CASES ON THE LINES OF G ROUNDS APPEALS AND PLEADED TO RESTORE THE RESPECTIVE ORDERS OF THE A O. HOWEVER, THE LD. AR SUBMITTED THAT THE LD CIT(A) FOLLOWING THE J URISDICTIONAL HIGH COURTS DECISION IN THE ASSESSEES OWN CASE/ OTHER CASE AND THE JURISDICTIONAL ITAT DECISIONS IN THE ASSESSEES OWN CASE ALLOWED THESE APPEALS AND HENCE PLEADED TO DISMISS THE REVENUES APPEALS, ISSUE WISE AS UNDER. 4. THE LD. AR SUBMITTED THAT WHILE MAKING THE ASSES SMENTS FOR THE ASSESSMENT YEARS 2012-13, 2013-14 & 2014-15, THE AO DISALLOWED ADDITIONAL DEPRECIATION CLAIMED U/S. 32(1)(IIA) ON THE ASSETS ADDED DURING THE II HALF OF THE PRECEDING RESPECTIVE PREV IOUS YEAR. IN THIS REGARD, THE LD. AR SUBMITTED THAT THIS ISSUE IS ALR EADY DECIDED IN ITS FAVOUR BY THE JURISDICTIONAL HIGH COURT IN THE ORDE R IN TCA NO. 551/2013 DT 14.03.2017 FOR THE ASSESSMENT YEAR 2006-07 AND HENCE RELYING ON IT , THE LD CIT(A) ALLOWED THE CORRESPONDING APPEAL S OF THE ASSESSEE . THEREFORE, THE LD AR PLEADED TO DISMISS THE CORRE SPONDING GROUNDS OF THE REVENUE. :-4-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 5. WE HEARD THE RIVAL SUBMISSIONS. THE RELEVANT PO RTION OF THE ORDER OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE IS E XTRACTED AS UNDER: 5.IN ORDER TO APPRECIATE THE AFORESAID SUBMISSIONS , THE FOLLOWING FACTS ARE REQUIRED TO BE NOTICED: 5.1.THE ASSESSEE HAD CLAIMED ADDITIONAL DEPRECIATIO N UNDER SECTION 32(1)(IIA) AMOUNTING TO RS.1,89,67,159/- DURING THE RELEVANT ASSESSMENT YEAR, I.E., AY 2006-07. 5.2.THE ADDITIONAL DEPRECIATION WAS CLAIMED AT THE RATE OF 7.5% BEING 50% OF THE PRESCRIBED RATE, WHICH WAS 15%. 5.3.THE DEPRECIATION WAS CLAIMED AT THE SAID RATE A S THE SUBJECT ASSET WAS USED FOR LESS THAN 180 DAYS. 5.4.THE SAID DEPRECIATION WAS CLAIMED IN THE PRECED ING ASSESSMENT YEAR, I.E., AY 2005-06, WHICH IS, WHEN THE ASSET WAS INST ALLED AND PUT TO USE. 5.5.IN THE RELEVANT ASSESSMENT YEAR I.E., AY 2006-0 7, THE ASSESSEE SOUGHT TO CLAIM THE BALANCE DEPRECIATION EQUIVALENT TO 7.5 %. THE ASSESSING OFFICER, HOWEVER, REJECTED THE CLAIM MADE BY THE AS SESSEE QUA THE BALANCE ADDITIONAL DEPRECIATION. 5.6.BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL TO THE COMMISSIONER OF INCOME TAX (APPEALS) [IN SHORT, CIT (A)]. THE CIT(A) SUSTAINED THE ORDER OF THE ASSESSING OFFICER. THE T RIBUNAL, DID LIKEWISE AND THEREFORE, THE ASSESSEE, IS IN APPEAL, BEFORE US. 6.AS INDICATED RIGHT AT THE OUTSET, THE ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE, BY VIRTUE OF OUR JUDGMENT IN THE MATTER O F COMMISSIONER OF INCOME TAX, MADURAI VS. M/S.SHRI T.P.TEXTILES PRIVA TE LIMITED. AS NOTICED ABOVE, THE KARNATAKA HIGH COURT IN CIT V. RITTAL INDIA (P .) LTD., [2016] 66 TAXMANN.COM 4 (KARNATAKA), HAS ALSO TAKEN THE SAME VIEW. 6.1.WE ARE INFORMED THAT THE REVENUE HAS NOT ASSAIL ED THE JUDGMENT OF THE KARNATAKA HIGH COURT. 6.2.IN OUR JUDGMENT IN THE MATTER OF COMMISSIONER O F INCOME TAX, MADURAI VS. M/S.SHRI T.P.TEXTILES PRIVATE LIMITED, WE HAVE NOTICED THE AFOREMENTIONED JUDGMENT OF THE KARNATAKA HIGH COURT . 7.IN SO FAR AS THE FIRST SUBMISSION ADVANCED BY MR. RAVI IS CONCERNED, ACCORDING TO US, THE SAME IS COMPLETELY UNTENABLE. :-5-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 7.1.THE JUDGMENT OF THE DIVISION BENCH OF THIS COUR T IN M.M.FORGINGS LIMITED VS. ADDITIONAL COMMISSIONER OF INCOME TAX, DID NOT DEAL THE ISSUE, WHICH IS AT HAND. 7.2.THE ISSUE, IN HAND, IS AS TO WHETHER BALANCE AD DITIONAL DEPRECIATION COULD BE CARRIED FORWARD TO THE YEAR, FOLLOWING THE PREVIOUS YEAR, IN WHICH, ADDITIONAL DEPRECIATION WAS CLAIMED. 7.3.THE DIVISION BENCH IN M.M.FORGINGS CASE THE SAI D CASE WAS NOT CONCERNED WITH THE ISSUE, WITH WHICH, WE ARE FACED, THAT IS, THE RIGHT TO CARRY FORWARD THE BALANCE ADDITIONAL DEPRECIATION. THEREFORE, THE JUDGMENT IS COMPLETELY DISTINGUISHABLE. 8.THE SECOND SUBMISSION OF MR.RAVI, THAT CIRCULAR N O.8 OF 2002 DATED 27.08.2002 AND CIRCULAR NO.281 DATED 29.11.1979, HA VE NOT BEEN TAKEN NOTE OF, IN OUR JUDGMENT RENDERED IN COMMISSIONER O F INCOME TAX, MADURAI VS. M/S.SHRI T.P.TEXTILES PRIVATE LIMITED, ACCORDING TO US, WILL NOT IMPACT, EITHER THE REASONING OR THE CONCLUSION REAC HED BY US, IN THE SAID MATTER. 8.1.IT IS PERTINENT TO NOTE THAT THE CIRCULAR NO.28 1 DATED 29.11.1979, PRE- DATES THE INSERTION OF THE RELEVANT PROVISION, I.E. , SECOND CLAUSE TO SECTION 32 (1) (IIA). THE SAID CLAUSE (IIA), ADMITTEDLY, WAS INSERTED BY VIRTUE OF THE FINANCE (NO.2) ACT , 2002, WITH EFFECT FROM 01.04.2003. 8.2.IN SO FAR AS THE SECOND CIRCULAR IS CONCERNED, I.E, CIRCULAR NO.8 OF 2002 DATED 27.08.2002, IN OUR VIEW, IN NO WAY, HELPS THE CASE OF THE REVENUE. THE CIRCULAR DOES NOT DWELL ON THE POINT WHICH WE A RE CONFRONTED WITH. 8.3.IN ANY CASE, ACCORDING TO US, THE CIRCULARS ARE NOT BINDING ON THE COURT, THOUGH, THEY MAY BE BINDING ON THE REVENUE. [ SEE CIT V. HERO CYCLES PVT. LTD ., (1997) 228 ITR 463 (SC)]. 9.THE LAST SUBMISSION THAT MR.RAVI ADVANCED, WAS, I N FACT, PREDICATED ON THE REASONING GIVEN BY THE ASSESSING OFFICER, WHICH , ACCORDING TO US, IS MISCONCEIVED, AS THE MANNER OF CALCULATION OF DEPRE CIATION, CANNOT, TO OUR MINDS, IMPEDE THE CLAIM OF THE ASSESSEE FOR BALANCE ADDITIONAL DEPRECIATION, IN THE YEAR FOLLOWING THE PREVIOUS YE AR, IN WHICH, THE SAID ASSET IS INSTALLED AND PUT TO USE. 10.THEREFORE, FOR THE AFORESAID REASONS, WE FIND NO MERIT IN THE SUBMISSIONS ADVANCED BY THE REVENUE. 11.THE APPEAL IS ACCORDINGLY, ALLOWED AND THE IMPUG NED JUDGMENT OF THE TRIBUNAL IS SET ASIDE. HOWEVER, THERE SHALL BE NO O RDER AS TO COSTS. FOLLOWING THE ABOVE JURISDICTIONAL HIGH COURTS DE CISION, THE LD CIT(A) ALLOWED THE CORRESPONDING GROUNDS OF THE ASSESSEE F OR THE RESPECTIVE :-6-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 ASSESSMENT YEAR. THEREFORE, WE DO NOT FIND ANY REAS ON TO INTERFERE WITH THE ORDERS OF THE LD CIT(A) AND HENCE DISMISS THE CORRESPONDING GROUNDS OF THE REVENUE FOR THE ASSESSMENT YEARS 20 12-13, 2013-14 & 2014-15 , RESPECTIVELY. 6. THE LD. AR SUBMITTED THAT WHILE MAKING THE ASSES SMENTS FOR THE ASSESSMENT YEARS 2012-13, 2013-14 & 2014-15, THE AO DISALLOWED HIGHER RATE OF DEPRECIATION CLAIMED ON UPS, PRINTER S AND SCANNERS @ 60% BY THE ASSESSEE. ON THIS ISSUE, THE LD. AR SUB MITTED THAT THE HONBLE ITAT D BENCH OF CHENNAI HAS DECIDED IN ITS FAVOUR IN ITA NO. 760/MDS/2016 DATED 06.03.2017 FOR THE ASSESSMENT YE AR 2011-12. RELYING ON IT , THE LD CIT(A) ALLOWED THE CORRESPO NDING APPEALS OF THE ASSESSEE . THEREFORE, THE LD AR PLEADED TO DISMIS S THE CORRESPONDING GROUNDS OF THE REVENUE. 7. WE HEARD THE RIVAL SUBMISSIONS. THE RELEVANT PO RTION OF THE ORDER RELIED ON BY THE ASSESSEE IS EXTRACTED AS UNDER: 36. THE NEXT ISSUE IN ITA NO.760/MDS/16 FOR THE AS SESSMENT YEAR 2011- 12 IS WITH REGARD TO DEPRECIATION ON PRINTERS AND U PS. THE FACTS OF THE CASE ARE THAT THE AO HAS DISALLOWED DEPRECIATION CL AIMED BY THE ASSESSEE AT 60% ON PRINTERS, SCANNERS AND UPS TREATING THE S AME AS OFFICE EQUIPMENT ELIGIBLE FOR DEPRECIATION AT 15%. THE ASS ESSEE SUBMITTED THAT THE AO SHOULD HAVE ALLOWED A HIGHER RATE OF DEPRECI ATION AT 60% ON UPS, SINCE IT IS NOW FAIRLY SETTLED THAT UPS IS AN ENERG Y SAVING DEVICE. SIMILARLY, :-7-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 PRINTERS WHICH FORM PART OF DATA PROCESSING EQUIPME NT SHOULD HAVE BEEN ALLOWED DEPRECIATION AT 60% AS PER THE RATE SPECIFI ED UNDER THE INCOME- TAX ACT AND NOT AT 60%. THE ASSESSEE HAS SUBMITTED THAT IT HAS GROUPED UPS, PRINTERS AND SCANNERS UNDER THE BLOCK OF ASSET S COMPUTERS AND CLAIMED DEPRECIATION AT 60%. ACCORDING TO THE AO, T HESE ITEMS ARE ELIGIBLE FOR DEPRECIATION AT 15% BEING OFFICE EQUIP MENT. HOWEVER, THE DRP OBSERVED, BY CONSIDERING THE CASE LAWS CITED BY THE ASSESSEE THAT IN RESPECT OF PRINTERS, SCANNERS, UPS, ETC. NETWORKING EQUIPMENT, THE JUDICIAL DECISIONS ARE STRONGLY WEIGHED IN FAVOUR OF THE TAX PAYER ON THE GROUND THAT THESE HARDWARE ITEMS BECOME OPERATIONAL ONLY T HROUGH COMPUTER FUNCTIONS AND THESE COMPUTER HARDWARE WHEN USED AS COMPONENT OF THE COMPUTER BECOME PART AND PARCEL OF THE COMPUTER. AC CORDINGLY, THE CLAIM OF HIGHER DEPRECIATION AT 60% ON THESE ITEMS IS ALL OWED BY THE DRP. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. - - 37. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASS ESSEES OWN CASE IN ITA NOS.266/MDS/12 AND 656/MDS/12 FOR THE AY 2007-0 8 WHEREIN HELD THAT:- 58. WE FIND THAT THIS ISSUE HAD COME UP IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006-07. THIS TRIBUNAL AT PARA 16 O F ITS ORDER DATED 6.1.2012 (SUPRA), HAD HELD AS UNDER:- 16. IN REGAR D TO GROUND NO.2 IT WAS SUBMITTED BY THE LEARNED AUTHORIZED REPRESENTAT IVE THAT THE ISSUE WAS AGAINST THE ACTION OF THE LEARNED CIT(A) IN CON FIRMING THE DISALLOWANCE OF HIGHER DEPRECIATION ON THE UPS WHIC H WAS ENERGY SAVING DEVICE. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE WAS NOW COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT V. SURFACE FINISHING AND EQUIPMENT REP ORTED IN 81 TTJ 448 (JODH). AS IT IS NOTICED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, REFERRED TO SUPRA, THE ASSESSING OFFICER IS DIRECTED TO GRANT THE ASSESSEE HIGHER RA TE OF DEPRECIATION ON THE UPS, WHICH IS AN ENERGY SAVING DEVICE. IN THE CIRCU MSTANCES GROUND NO.2 IN THE ASSESSEES APPEAL STANDS ALLOWED. 17. IN THE RESULT APPEALS OF THE REVENUE IN ITA NOS. 249 AND 1166/MDS/2010 ARE PARTL Y ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IN ITA NO.1069/MDS/2010 IS PARTLY ALLOWED. 59. RESPECTFUL LY FOLLOWING THE CO- :-8-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 ORDINATE BENCH ORDER, WE HOLD THAT ASSESSEE WAS ELI GIBLE FOR HIGHER RATE OF DEPRECIATION ON UPS TREATING IT AN ENERGY SAVING DEVICE. 37.1 RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, WE ARE INCLINED TO DISMISS THE GROUND TAKEN BY THE REVENUE . FOLLOWING THE ABOVE ORDER IN THE ASSESSEES OWN CAS E , THE LD CIT(A) ALLOWED THE CORRESPONDING GROUNDS OF THE ASSESSEE FOR THE RESPECTIVE ASSESSMENT YEAR. THEREFORE , WE DO NOT FIND ANY REA SON TO INTERFERE WITH THE ORDERS OF THE LD CIT(A) AND HENCE DISMIS S THE CORRESPONDING GROUNDS OF THE REVENUE FOR THE ASSESSMENT YEARS 20 12-13, 2013-14 & 2014-15 , RESPECTIVELY. 8. THE LD. AR SUBMITTED THAT WHILE MAKING THE ASSES SMENTS FOR THE ASSESSMENT YEARS 2012-13, 2013-14 & 2014-15, THE AO MADE DISALLOWANCE ON CERTAIN PAYMENTS MADE TO NON-RESIDE NTS U/S. 40(A)(I) FOR THE REASON THAT THE TDS WAS NOT DEDUCTED IN THE RESPECTIVE ASSESSMENT YEAR. IN THIS REGARD, THE LD. AR SUBMIT TED THAT THIS HONBLE TRIBUNAL D BENCH HAS DECIDED THIS ISSUE IN ASSESSEE S FAVOUR IN ITA NO. 416/MDS/2016 FOR ASSESSMENT YEAR 2010-11 DATED 06.0 3.2017. RELYING ON IT , THE LD CIT(A) ALLOWED THE CORRESPONDING APP EALS OF THE ASSESSSEE. THEREFORE, THE LD AR PLEADED TO DISMIS S THE CORRESPONDING GROUNDS OF THE REVENUE. :-9-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 9. WE HEARD THE RIVAL SUBMISSIONS. THE RELEVANT PO RTION OF THE ORDER RELIED ON BY THE ASSESSEE IS EXTRACTED AS UNDER: 33. THE NEXT ISSUE IN REVENUES APPEAL IN ITA NO.4 16/MDS/15 IS WITH REGARD TO DELETION OF ADDITION MADE BY AO U/S.40(A)(I) BEING AGENCY COMMISSION, PROFESSIONAL CONSULTANCY CHARGES, WAREHOUSING CHARG ES, EMBALLAGE COST, TOOL DEVELOPMENT CHARGES ETC . 34. THE FACTS OF THE CASE ARE THAT AS THE ASSESSEE COMPANY HAS NOT DEDUCTED/REMITTED ANY TDS WHILE MAK ING THE ABOVE PAYMENTS TO NON-RESIDENTS, THE AO INVOKED THE PROVISIONS OF SEC.40(A)(I) OF THE ACT AND DISALLOWED THE SAME IN HIS DRAFT ASSESSMENT ORDER. THE ASSESSEE SUBMITTED BEFORE THE PANEL THAT THE AGENCY COMMISSION, WAREHO USING CHARGES, FREIGHT/LOGISTIC/ EMBALLAGE CHARGES ETC. PAID FOR N ON-RESIDENTS FOR THE SERVICES AVAILED OUTSIDE INDIA ARE NOT LIABLE TAX IN INDIA I N THE HANDS OF THE RECIPIENTS. THEREFORE, THE ASSESSEE (THE REMITTER OF THE SUMS) IS NOT UNDER OBLIGATION TO DEDUCT ANY TDS ON SUCH PAYMENTS. CONSEQUENTLY, THE PROVISIONS OF SEC.40(A)(I) HAVE NO APPLICATION. FURTHER, THE ASSESSEE SUBMITTE D THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR THE AY 2007-08 IN ITA NOS.266 & 656/MDS/2012 DATED 22.3.2013. REGARDING THE INTEREST PAYMENT, THE ASSESSEE SUBMITTED THAT THOUG H THE INTEREST WAS PAID TO A HONG KONG BRANCH OF SBI, THE LEGAL ENTITY, I.E. STA TE BANK OF INDIA IS AN INDIAN PUBLIC SECTOR SCHEDULED BANK AND HENCE THERE WAS NO NEED TO DEDUCT ANY TDS ON THE INTEREST PAYMENTS. REGARDING THE LEASED TELE PHONE LINE CHARGES, THE ASSESSEE SUBMITTED THAT THEY ARE ONLY REIMBURSEMENT OF EXPENSES AND HENCE, THE PROVISIONS OF SEC.40(A)(I) OF THE ACT ARE NOT A PPLICABLE. REGARDING THE TOOL DEVELOPMENT CHARGES, THE ASSESSEE CLAIMED THAT THES E EXPENSES REPRESENT THE DEVELOPMENT CHARGES OF CERTAIN TOOLS INCLUDING THE PROCUREMENT OF RAW MATERIAL FOR DEVELOPMENT OF THE SAID TOOLS. THE NON-RESIDENT S PROCURE THE MATERIAL, DEVELOP THEM INTO TOOLS AND USE THE TOOLS IN THE MA NUFACTURING ACTIVITY OUTSIDE THE COUNTRY. SINCE THE PROCUREMENT OF THE MATERIAL, DEVELOPMENT OF THE TOOLS AND THEIR USE WAS TOTALLY OUTSIDE INDIA AND ALSO THE PE RSONS PROCURING THE MATERIAL AND DEVELOPING THE TOOLS ARE NON-RESIDENTS AND THE SERVICES ARE RENDERED OUTSIDE INDIA, THE PAYMENTS ARE LIABLE FOR TAX IN INDIA. HE NCE, THE ASSESSEE CLAIMED THAT THESE EXPENSES ARE OUTSIDE THE PURVIEW OF PROVISION S OF SEC.40(A)(I) OF THE ACT. 34.1 THE ASSESSEE CLAIMED IN ITS RETURN OF INCOME A GENCY COMMISSION OF N 55,19,350/- AND PROFESSIONAL AND CONSULTANCY CHARGE S OF N 41,71,575/ -. AS CLAIMED BY THE ASSESSEE, THESE SERVICES ARE RENDERE D BY THE NON-RESIDENTS AND OUTSIDE INDIA AND HENCE, ITS PAYMENTS ARE NOT LIABL E TO TAX IN INDIA. THE :-10-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 WAREHOUSING CHARGES OF N 3,44,98,431/ - ARE PAID TO NON-RESIDENTS FOR THE WAREHOUSING SERVICES RENDERED OUTSIDE INDIA. SIMILA RLY, THE EMBALLAGE COST OF N 1,17,59,919/- WERE ALSO PAID TO THE NON-RESIDENTS F OR HIRING OF CONTAINERS OUTSIDE INDIA9FOR TRANSPORTING THE EXPORTS OUTSIDE INDIA). THESE EMBALLAGE COSTS ARE AKIN TO LOGISTICS COST. NONE OF THE PERSONS WHO ARE REND ERING THE AGENCY COMMISSION, CONSULTANCY, WAREHOUSING, EMBALLAGE COSTS HAVE PE I N INDIA. THESE PERSONS ARE RENDERING THE SERVICES OUTSIDE THE COUNTRY AND THE SERVICES WERE ALSO AVAILED/UTILIZED OUTSIDE INDIA ONLY. CONSEQUENTLY, THE PAYMENTS ARE NOT LIABLE FOR TAX IN INDIA IN THE HANDS OF THE RESPECTIVE RECIPI ENTS. THEREFORE, THE ASSESSEE IS NOT UNDER THE OBLIGATION TO DEDUCT ANY TDS ON THESE PAYMENTS. SIMILAR ISSUES WERE CONSIDERED BY THE TRIBUNAL IN ASSESSEESS OWN CASE AS STATED ABOVE, WHEREIN IT WAS HELD THAT THE ABOVE PAYMENTS RENDERE D BY THE NON-RESIDENTS ARE NOT LIABLE FOR TDS U/S.195 OF THE ACT AND CONSEQUEN TLY, OUTSIDE THE PURVIEW OF SEC.40(A)(I) OF THE ACT. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 35. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. SIMILAR ISSUE CAME FOR CONSIDERATION IN ASSESSEE'S OWN CASE IN IT A NO.266 & 656/MDS./2012 (SUPRA) WHEREIN HELD THAT:- 46. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVA L SUBMISSIONS. PURPOSES FOR WHICH ASSESSEE HAD MADE PAYMENTS TO NON-RESIDENTS H AVE ALREADY BEEN GIVEN BY US IN THE TABLE AT PARA 42 ABOVE. ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE WHILE EFFECTING SUCH PAYMENTS. AS PER THE A.O., THESE EXP ENDITURE WERE NOTHING BUT FOR MANAGERIAL SERVICES RENDERED BY THE NON-RESIDENTS O UTSIDE INDIA. FURTHER, AS PER THE REVENUE, EXPLANATION INSERTED BY FINANCE ACT, 2 010 UNDER SECTION 9(2) OF THE ACT WITH RETROSPECTIVE EFFECT FROM 1.6.1976,HAD DISPENSED WITH THE CONDITION REGARDING RESIDENCE OR PLACE OF BUSINESS OR BUSINES S CONNECTION IN INDIA, FOR ATTRACTING RIGOURS OF SECTION 9(1)(VII). THEREFORE, ACCORDING TO THEM, CIT(APPEALS) FELL IN ERROR IN HOLDING THAT ASSESSEE WAS NOT LIAB LE TO DEDUCT TAX AT SOURCE. IN THIS REGARD IT IS IMPORTANT TO HAVE A LOOK AT THE E XPLANATIONS GIVEN BY THE ASSESSEE ON THE PAYMENTS EFFECTED BY IT TO THE NON- RESIDENTS. WITH REGARD TO COMMISSION, ASSESSEE HAD BEFORE ASSESSING OFFICER, GIVEN A COPY OF THE LETTER ISSUED TO THE NON-RESIDENT PARTY WHICH READ AS FOLL OWS:- ASSISTANCE YOU WILL RENDER FULL ASSISTANCE AND CO-OPERATION WITH REGARD TO THE FOLLOW UP OF SCHEDULES AND OTHER CORRESPONDENCE THAT EMANATE FROM CUSTOMER S FROM TIME TO TIME REGARDING THE AGREED PRODUCTS. YOU WILL ALSO BE REQ UIRED TO ENSURE THE CONSIGNMENTS ARE CLEARED, WAREHOUSED AND DISTRIBUTE D BY NOMINATED AGENTS FOR ONWARD DELIVERY TO CUSTOMERS. EXPENSES INCURRED ON ACCOUNT OF THE ABOVE WILL BE REIMBURSED BY BRAKES INDIA AND SHALL BE SUPPORTED B Y RELEVANT BASIC DOCUMENTS. ALL OTHER EXPENSES RELATED TO THE SPECIFIC PRODUCTS INCLUDING ASN (ADVANCE :-11-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 SHIPMENT NOTE) SUBMISSION, SAMPLE CERTIFICATION, TR AINING AND OTHER DIRECT EXPENSES RELATED TO SUBJECT MERCHANDISE WILL BE REI MBURSED. SUPPORTING DOCUMENTS WILL HAVE TO BE PROVIDED WITH THE INVOICE S. A COPY OF THE AGREEMENT ENTERED WITH NOMINATED AGENT IS TO BE FORWARDED TO US FOR OUR APPROVAL/RECORDS. YOU WILL HAVE TO ARRANGE FOR MONTHLY STOCK STATEMEN T PART NUMBER WISE FOR US TO COVER INSURANCE AND FOR MONITORING THE STOCK LEV ELS. WITH REGARD TO WAREHOUSING CHARGES INCLUDING LOGISTICS CHARGES, EX PLANATION GIVEN BY THE ASSESSEE TO THE A.O. WAS AS UNDER:- FREIGHT AND WA REHOUSING CHARGES THE ENTIRE EXPENDITURE WERE WHOLLY INCURRED OUTSIDE IND IA IN TERMS OF TRANSPORTATION, DELIVERY AND LOGISTICS COSTS. THOSE EXPENDITURE BEI NG INCURRED OUTSIDE INDIA ARE NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE AND THOSE INCOME ARE NOT LIABLE FOR TAX IN INDIA. FURTHER ALL THOSE AGENTS DO NOT HAVE ANY PE S IN INDIA. SEPARATE SHEET DETAILING THE BREAK-UP ALONG WITH REMARKS IS ATTACH ED FOR YOUR PERUSAL. WE ENCLOSE SAMPLE COPIES FOR DISTRIBUTION AND LOGISTIC S COSTS TO SUBSTANTIATE THAT THE EXPENDITURE WERE WHOLLY INCURRED OUTSIDE INDIA. AS SESSING OFFICER HAD ALSO EXTRACTED THE PERTINENT PARTS OF THE AGREEMENT ASSE SSEE ENTERED WITH M/S VOLVO, WHICH READ AS UNDER:- SERVICES MEANS SEA FREIGH T OF THE CONTAINER FROM THE PORT OF DEPARTURE, INDIA TO THE PORT OF GOTHENBURG, SWEDEN CUSTOM CLEARANCE, HAULAGE OF THE CONTAINER TO VLCS WAREHOUSE AT AREND AL, GOTHENBURG, STORAGE OF THE PRODUCTS FOR AN AVERAGE PERIOD OF FIVE WEEKS AN D ON TIME DELIVERY ACCORDING TO VCTS CALL OFFS TO VLCS FACTORIES IN GOTHENBURG, SWEDEN AND GHENT, BELGIUM. CONSOLIDATION OF INCOMING DELINSES FROM VTC AND MAT ERIAL CONTROL. SCOPE DURING THE TERMS OF THIS AGREEMENT VLC UNDERTAKES TO CARRY OUT SERVICES IN ACCORDANCE WITH THE WORKING INSTRUCTIONS, SPECIFICATIONS, QUAL ITY REQUIREMENTS AND PROCEDURES GIVEN TO VLC BY OR ON BEHALF OF BRAKES INDIA AND IN SUCH WAY THAT THE WORK SATISFIES VTCS SPECIFICATIONS AND REQUIREMENTS AS S TATED IN THE CUSTOMER CONTRACTS OR THE APPENDICES HERETO INCLUDING THE WE EKLY INVENTORY TO BE SENT TO BRAKES INDIA AND THE ON TIME DELIVERY OF THE PRODUC TS TO VTC IN THE QUANTITIES AGREED UPON. VLC AND BRAKES INDIA WILL, UNTIL THE T ERMINATION OF THIS AGREEMENT MEET TOGETHER AT AGREED INTERVALS BUT IN ANY EVENT NO LESS THAN ONCE EVERY HALF YEAR AT AN AGREED LOCATION TO REVIEW THE PROGRESS OF THE SERVICES. 47. IN OUR OPINION, NATURE OF SERVICES MENTIONED ABOVE WILL COME NOT WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES GIVEN U NDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. BY VIRTUE OF SUCH SERVICES, T HE CONCERNED RECIPIENTS HAD NOT MADE AVAILABLE TO THE ASSESSEE ANY NEW TECHNICAL OR SKILL WHICH ASSESSEE COULD USE IN ITS BUSINESS. THE SERVICES RENDERED BY THE S AID PARTIES RELATED TO CLEARING, WAREHOUSING AND FREIGHT CHARGES, OUTSIDE INDIA. THE LOGISTICS SERVICE RENDERED WAS ESSENTIALLY WAREHOUSING FACILITY. IN OUR OPINIO N, THIS CANNOT BE EQUATED WITH :-12-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. EVEN IF IT IS CONSIDERED AS TECHNICAL SERVICE, THE FEE WAS PAYABLE ONLY FOR SERVICES UTIL IZED BY THE ASSESSEE IN THE BUSINESS OR PROFESSION CARRIED ON BY THE SAID NON-R ESIDENTS OUTSIDE INDIA. SUCH BUSINESS OR PROFESSION OF THE NON-RESIDENTS, EARNED THEM INCOME OUTSIDE INDIA. THUS, IT WOULD FALL WITHIN THE EXCEPTION GIVEN UNDE R SUB-CLAUSE (B) OF SECTION 9(1) OF THE ACT. IN ANY CASE, UNDER SECTION 195 OF THE ACT, ASSESSEE IS LIABLE TO DEDUCT TAX ONLY WHERE THE PAYMENT MADE TO NON-RESID ENTS IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IN THE CIRCUMSTANC ES MENTIONED ABOVE, ASSESSEE WAS JUSTIFIED IN HAVING A BONAFIDE BELIEF THAT THE PAYMENTS DID NOT WARRANT APPLICATION OF SECTION 195 OF THE ACT. IN SUCH CIRC UMSTANCES, WE ARE OF THE OPINION THAT IT COULD NOT HAVE BEEN SADDLED WITH TH E CONSEQUENCES MENTIONED UNDER SECTION 40(A)(I) OF THE ACT. DISALLOWANCES WE RE RIGHTLY DELETED BY THE LD. CIT(APPEALS). NO INTERFERENCE IS CALLED FOR. 35.1 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, TH IS GROUND OF APPEAL BY THE REVENUE IS DISMISSED. FOLLOWING THE ABOVE ORDER IN THE ASSESSEES OWN C ASE , THE LD CIT(A) ALLOWED THE CORRESPONDING GROUNDS OF THE ASSESSE E FOR THE RESPECTIVE ASSESSMENT YEAR. THEREFORE , WE DO NOT FIND ANY REA SON TO INTERFERE WITH THE ORDERS OF THE LD CIT(A) AND HENCE DISMIS S THE CORRESPONDING GROUNDS OF THE REVENUE FOR THE ASSESSMENT YEARS 20 12-13, 2013-14 & 2014-15 , RESPECTIVELY. 10. WHILE MAKING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2012-13, THE AO FOUND THAT THE ASSESSEE HAS REMITTED THE EM PLOYEES CONTRIBUTION TO THE ESI AFTER 5 DAYS FROM THE DUE D ATE SPECIFIED IN THAT ACT BUT IT FULLY REMITTED BEFORE THE DUE DATE SPEC IFIED IN THE INCOME-TAC ACT FOR FILING THE RETURN U/S 139(1) AND HENCE DISA LLOWED THE SUM :-13-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 CLAIMED BY THE ASSESSEE. AGGRIEVED, THE ASSESSEE FI LED AN APPEAL BEFORE THE CIT(A) AND THE LD CIT(A) RELYING ON THE JURISDI CTIONAL HIGH COURT DECISION IN THE CASE OF M/S INDUSTRIAL SECURITY AND INTELLIGENCE INDIA P LTD IN TCA 585 & 586 OF 2015 & M P NO 1 OF 2015. A GGRIEVED AGAINST THAT ORDER, THE REVENUE FILED THIS APPEAL AND PLEA DED TO RESTORE THE ORDER OF THE AO ON THE LINES OF GROUNDS OF APPEAL . 11. WE HEARD THE RIVAL SUBMISSIONS. SINCE, THE LD C IT(A) FOLLOWING THE ABOVE JURISDICTIONAL HIGH COURTS DECISION ALLO WED THE APPEAL , WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD CIT(A) AND HENCE DISMISS THE CORRESPONDING GROUNDS OF THE REV ENUE FOR THE ASSESSMENT YEARS 2012-13. 12. THUS, THE REVENUES APPEALS FOR THE ASSESSM ENT YEARS 2012- 13, 2013-14 & 2014-15 ARE DISMISSED . ITA NOS. 1463, 1464 & 1465/CHNY/2019 FOR THE AYS 20 12-13, 2013-14 & 2014-15 13. NOW, LET US TAKE THE ASSESSEES ABOVE APPEALS. THE LD. AR SUBMITTED THAT WHILE MAKING THE ASSESSMENTS FOR THE ASSESSMENT YEARS 2012-13, 2013-14 & 2014-15, THE A O MADE ADDITION AL DISALLOWANCES U/S. 14A RWR 8D OVER AND ABOVE THE QUANTUM OF DISAL LOWANCES MADE BY THE ASSESSEE IN THE RESPECTIVE ASSESSMENT YEAR. IN THIS REGARD, THE LD. :-14-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 AR SUBMITTED THAT THOUGH THE ASSESSEE PLEADED BEFOR E THE LD CIT(A) THAT THE ASSESSEE HAD HUGE INTEREST FREE FUNDS IN T HE FORM OF CAPITAL, RESERVES, SURPLUS ETC AND HENCE NO INTEREST DISALL OWANCE COULD BE MADE AND FOR THE PURPOSES OF QUANTIFYING THE AVERAGE VAL UE OF INVESTMENTS , ONLY THOSE INVESTMENTS WHICH YIELDED EXEMPT INCOME ALONE SHOULD BE CONSIDERED ETC, THE LD CIT(A) WITHOUT CONSIDERING T HEM SIMPLY HELD THAT THE DISALLOWANCES MADE BY THE AO IN THE RESPECTIVE ASSESSMENT YEAR IS LOWER THAN THE EXEMPT INCOME AND ACCORDINGLY CONFIR MED THE DISALLOWANCES MADE BY THE A O. THEREFORE, THE LD AR PLEADED TO ALLOW THE ASSESSEES APPEALS. IN THIS REGARD , HE RELIED ON THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF VIREET IN VESTMENTS P LTD 165 ITD 27 AND THE HONBLE MADRAS HIGH COURT IN THE CAS E OF CHETTINAD LOGISTICS P LTD IN TCA NO. 24 OF 2017. PER CONTRA, THE LD DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 14. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. WE FIND THAT THE ASSESSEES PLEA THAT IT HAD HUGE INTEREST FREE FUNDS IN THE FORM OF CAPITAL, RESERVES, SURPLUS ET C AND HENCE NO INTEREST DISALLOWANCES COULD BE MADE IN ITS CASE REMAIN UNEX AMINED AND HENCE WE DEEM IT FIT TO REMIT THIS ISSUE BACK TO THE AO F OR A FRESH EXAMINATION. THE ASSESSEE SHALL LAY RELEVANT MATERIAL IN SUPPORT OF ITS CONTENTIONS AND COMPLY WITH THE REQUIREMENTS OF THE A O IN ACCO RDANCE WITH LAW. :-15-: ITA NOS. 1543 TO 1545/CHNY/2019 & 1463 TO 1465/CHNY/2019 THE AO SHALL AFTER AFFORDING EFFECTIVE OPPORTUNITY TO THE ASSESSEE SHALL DECIDE THIS ISSUE IN ACCORDANCE WITH LAW. THE ASSES SEES PLEA THAT FOR THE PURPOSES OF QUANTIFYING THE AVERAGE VALUE OF IN VESTMENTS, ONLY THOSE INVESTMENTS WHICH YIELDED EXEMPT INCOME ALONE SHOULD BE CONSIDERED IS IN ACCORDANCE WITH THE DECISION OF THE SPECIAL BENCH OF THE ITAT DECISION IN THE CASE OF VIREET INVESTMENTS P LTD 165 ITD 27 AND HENCE WE DIRECT THE AO TO RECOMPUTE THE DISALL OWANCE IN ACCORDANCE WITH THAT DECISION. THEREFORE, THE ASSES SEES APPEALS FOR THE ASSESSMENT YEARS 2012-13, 2013-14 & 2014-15 ARE TRE ATED AS PARTLY ALLOWED . 15. THUS, THE ASSESSEES APPEALS FOR THE ASSESSM ENT YEARS 2012-13, 2013-14 & 2014-15 ARE TREATED AS PARTLY ALLOWED . ORDER PRONOUNCED ON 24 TH FEBRUARY, 2020 AT CHENNAI. SD/ - ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/ - ( . ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, / /DATED: 24 TH FEBRUARY, 2020 JPV (&,0121#, /COPY TO: 1. $%/ APPELLANT 2. &'$% /RESPONDENT 3. 4 5, ) (/CIT(A) 4. 4 5, /CIT 5. 16&, /DR 6. 7'8 /GF