M/s. Wheels India Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2136/CHNY/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68844 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 26-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 2136/MDS/2010 ASSESSMENT YEAR : 2007-08 M/S. WHEELS INDIA LTD., PADI, CHENNAI-600 050 [PAN: AAACW 0315 K] VS THE ASSISTANT COMMISSIONER OF INCOME TAX (LTU-APPEALS), CHENNAI-600 101 I.T.A. NO. 91/MDS/2011 ASSESSMENT YEAR : 2007-08 DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI-600 101 VS M/S. WHEELS INDIA LTD., PADI, CHENNAI-600 050 [PAN: AAACW 0315 K] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI S. DASGUPTA, JCIT ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADV DATE OF HEARING : 26-11-2013 DATE OF PRONOUNCEMENT : 26-11-2013 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE ASSESSEE HAS FILED ITA NO. 2136/MDS/2010 RELEVA NT TO THE ASSESSMENT YEAR (AY) 2007-08, IMPUGNING THE ORD ER OF I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 2 -: CIT(APPEALS),LTU, CHENNAI DATED 29-10-2010. THE RE VENUE HAS ALSO FILED APPEAL IN ITA NO. 91/MDS/2011 ASSAILING THE SAME ORDER OF CIT(APPEALS). 2. THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOBILE COMPONENTS. THE ASS ESSEE FILED ITS RETURN OF INCOME FOR THE AY.2007-08 ON 30-10-20 07 DECLARING ITS TOTAL INCOME AS ` 25,27,34,640/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) W AS ISSUED TO THE ASSESSEE ON 18-07-2008. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 30-11-2009 MADE CERTAIN ADDI TIONS/DIS- ALLOWANCES IN THE INCOME RETURNED BY THE ASSESSEE. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSE E PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE C IT(APPEALS) VIDE IMPUGNED ORDER PARTLY ALLOWED THE APPEAL OF TH E ASSESSEE. AGAINST THE ORDER OF CIT(APPEALS), BOTH THE ASSESSE E AND THE REVENUE HAVE COME IN APPEAL BEFORE THE TRIBUNAL. I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 3 -: 3. THE ASSESSEE IN ITS GROUND OF APPEAL HAS ASSAILE D THE ORDER OF CIT(APPEALS) IN CONFIRMING THE DIS-ALLOWANCE OF ADDITIONAL DEPRECIATION AMOUNTING TO ` 3,15,48,837/- IN RESPECT OF PLANT & MACHINERY INSTALLED IN THE PRECEDING YEAR AND PUT T O USE FOR LESS THAN 180 DAYS. THE ASSESSEE HAS ALSO RAISED AN ADD ITIONAL GROUND WITH RESPECT TO WAIVER OF LOAN ARISING FROM SALES TAX LIABILITY, NOT AMOUNTING TO REMISSION U/S.41(1) OF THE ACT. ON THE OTHER HAND, REVENUE HAS ASSAILED THE ORDER OF CIT(A PPEALS) PRIMARILY ON THREE GROUNDS WHICH ARE AS FOLLOWS: I. RESTRICTING DIS-ALLOWANCE U/S.14A TO 2% ON EXEMP T INCOME; II. CIT(APPEALS) HOLDING THAT THE LOSS OF RE-VALUAT ION OF FORWARD CONTRACTS REPRESENTS LOSS INCURRED BY ASSESSEE IN THE ORDINARY COURSE OF BUSINESS; AND III. DELETING THE DIS-ALLOWANCE MADE BY THE ASSESSI NG OFFICER U/S.40(A)(IA) IN RESPECT OF LEGAL CHARGES P AID TO M/S. REED SMITH, LLP, USA. I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 4 -: 4. SHRI R. VIJAYARAGHAVAN, ADVOCATE APPEARING ON BE HALF OF THE ASSESSEE SUBMITTED DURING THE CIT(APPEALS) OUGH T TO HAVE ALLOWED ADDITIONAL DEPRECIATION CLAIM OF THE ASSESS EE ON PLANT & MACHINERY PUT TO USE FOR THE FIRST TIME IN THE PREC EDING YEAR. AS REGARDS THE ADDITIONAL GROUND RAISED, THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE OPTED FOR SALE S TAX DEFERRAL SCHEME INTRODUCED BY THE GOVERNMENT OF MAHARASHTRA FOR DEFERRED PAYMENT OF SALES TAX. UNDER THE SCHEME, T HE ASSESSEE WAS ALLOWED TO COLLECT SALES TAX FROM CUSTOMERS FOR THE SALES MADE DURING THE YEAR 1998-99 TO 2004-05 AND WAS PER MITTED TO RETAIN THE SAME AS INTEREST FREE LOAN. AS PER THE SCHEME, THE SALES TAX COLLECTED IN THE YEAR 1998-99, THE ASSESS EE WAS REQUIRED TO PAY THE SAME TO THE GOVERNMENT IN FIVE EQUAL ANNUAL INSTALLMENTS STARTING FROM 2008-09 (I.E., AFTER TEN YEARS FROM THE YEAR OF COLLECTION). FOR THE EARLY PAYMENT OF SALE TAX COLLECTED, THE GOVERNMENT GAVE OPTION TO VOLUNTARILY PAY THE S ALES TAX COLLECTED ON NET PRESENT VALUE BASIS. UNDER THE EA RLY PAYMENT OPTION ON VOLUNTARY BASIS, THE ASSESSEE PAID THE SA LE TAX AMOUNT TO THE GOVERNMENT ON NET PRESENT VALUE BASIS AND TH E DIFFERENCE OF ` 87,21,582/- ARISING THERE FROM WAS TREATED AS OTHE R I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 5 -: INCOME. THE LD. COUNSEL SUBMITTED THAT THERE WAS NO REMISSION OF LIABILITY U/S.41(1) AS THE AMOUNT WAS PAID ON NE T PRESENT VALUE BASIS AND HENCE SHOULD NOT BE INCLUDED IN THE PROFI T AND GAINS FROM BUSINESS. IN ORDER TO SUPPORT HIS SUBMISSIONS , THE LD. COUNSEL RELIED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SUZLER INDIA LTD., VS. JCIT REPORTED AS 134 TTJ (MUMBAI) (SB) 385. 5. ON THE OTHER HAND, SHRI S. DASGUPTA, APPEARING O N BEHALF OF THE REVENUE ASSAILING THE ORDER OF CIT(APPEALS) SUB MITTED THAT THE CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER U/S.14A R.W.R.8D OF THE INCOME TA X RULES. THE LD.DR SUBMITTED THAT THE CIT(APPEALS) HAS ERRED IN RESTRICTING THE DIS-ALLOWANCE U/S.14A TO 2% OF EXEMPT INCOME. ON T HE SECOND ISSUE RAISED IN THE GROUNDS OF APPEAL, THE LD.DR SU BMITTED THAT THE CIT(APPEALS) OUGHT TO HAVE FOLLOWED INSTRUCTION NO.3/2010 DATED 23-10-2010 AND SHOULD HAVE UPHOLD THE FINDING S OF THE ASSESSING OFFICER IN DIS-ALLOWING THE LOSS ON ACCOU NT OF UN- REALISED FOREIGN EXCHANGE FLUCTUATION ON DERIVATIVE S. WITH REGARD TO THIRD ISSUE RAISED IN THE GROUNDS OF APPEAL IN R ESPECT OF LEGAL I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 6 -: CHARGES PAID TO M/S. REED SMITH, LLP, USA, THE LD.D R SUBMITTED THAT THE ASSESSEE NEITHER APPROACHED THE DEPARTMENT U/S.195(2) BEFORE REMITTING THE ABOVE PAYMENTS TO NON-RESIDENT S NOR FILED THE PRESCRIBED UNDERTAKING AND THE CERTIFICATE FROM THE CHARTERED ACCOUNTANT. IN REPLY TO THE GROUNDS RAISED BY THE ASSESSEE IN APPEAL, THE LD.DR SUBMITTED THAT ASSESSEE IS NOT ENTITLED T O CARRY FORWARD ADDITIONAL DEPRECIATION. THE BENEFIT OF ADDITIONAL DEPRECIATION IS AVAILABLE ONLY IN THE YEAR IN WHICH THE NEW PLANT & MACHINERY IS FIRST PUT TO USE. 6. AU CONTRAIRE THE LD. COUNSEL FOR THE ASSESSEE CONTROVERTING THE SUBMISSIONS MADE BY THE LD.DR IN THE APPEAL OF THE REVENUE SUBMITTED THAT IN VIEW OF THE JUDGMENT OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., REPORTED AS 328 ITR 81 (BOM), THE PROVISION OF RULE 8D ARE APPLICABLE W.E.F. AY.2008-09. THE CIT(APPEALS) HAS RIGHTLY MA DE DIS- ALLOWANCE ON ESTIMATION BASIS IN ACCORDANCE WITH TH E LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE AFORES AID I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 7 -: JUDGMENT. ON THE ISSUE OF LOSS OF FORWARD CONTRACT S, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ORDER O F THE CIT(APPEALS) IS WELL REASONED AND DETAILED. IN ORD ER TO FURTHER SUPPORT THE ORDER OF THE CIT(APPEALS), THE LD. COUN SEL RELIED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS. PANCHMAHAL STEEL LTD., REPORTED AS 215 TAXMAN 140 (GUJ) AND THE DECISION OF THE MADRAS BENCH OF THE TRIBUNA L IN ITA NO. 2032/MDS/2012 IN CASE OF COTTON BLOSSOM (INDIA) P. LTD., VS. ACIT DECIDED ON 21-02-2013. AS FAR AS PAYMENT OF LEGAL FEE TO M/S. REED SMITH, LLP, USA, THE LD. COUNSEL SUBMITTE D THAT THE LEGAL CHARGES HAVE BEEN PAID FOR THE SERVICES RENDE RED OUTSIDE INDIA AND THE RECIPIENTS OF FEES DO NOT HAVE ANY PE RMANENT ESTABLISHMENT IN INDIA. THEREFORE, NO DIS-ALLOWANC E U/S.40(A)(I) IS WARRANTED. IN ORDER TO SUPPORT HIS CONTENTIONS THE LD. COUNSEL RELIED ON THE ORDER OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MAHARASHTRA STATE ELECTRICITY BOARD VS. DCIT REPORTED AS 90 ITD 793 (MUM) AND GE INDIA TECHNOLOGY P. LTD. VS. CIT REPORTED AS 327 ITR 456 (SC). I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 8 -: 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGMENTS/ORDE RS RELIED UPON BY THE REPRESENTATIVES OF BOTH THE SIDES. WE FIRST TAKE UP THE APPEAL OF THE ASSESSEE I.E., I TA NO. 2136/MDS/2010. THE ASSESSEE IS CLAIMING ADDITIONAL DEPRECIATION AMOUNTING TO ` 3,15,48,837/- IN RESPECT OF PLANT & MACHINERY CARRIED FORWARD FROM THE PRECEDING YEAR. WE FIND T HAT THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF ADDITIONAL DEPREC IATION CANNOT BE ALLOWED AS THERE IS NO PROVISION IN THE ACT TO A LLOW CARRY FORWARD OF UN-ABSORBED ADDITIONAL DEPRECIATION IN T HE NEXT YEAR. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO. 10 69/MDS/2010 IN THE CASE OF DCIT VS. BRAKES INDIA LTD., HAS HELD THAT ADDITIONAL DEPRECIATION IS ALLOWABLE ON THE PLANT & MACHINERY ONLY FOR THE YEAR IN WHICH THE CAPACITY EXPANSION HAS TAKEN PLAC E WHICH HAS RESULTED IN THE SUBSTANTIAL INCREASE IN THE INSTALL ED CAPACITY. IN THE INSTANT CASE, IT IS AN ADMITTED FACT THAT THE P LANT & MACHINERY HAS BEEN INSTALLED IN THE PRECEDING YEAR AND THE AS SESSEE INTENDS TO CARRY FORWARD UN-ABSORBED ADDITIONAL DEP RECIATION IN I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 9 -: THE AY UNDER REFERENCE, WHICH IS NOT PERMISSIBLE. HENCE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 8. THE ASSESSEE HAS RAISED ADDITIONAL GROUNDS OF AP PEAL WITH REGARD TO DEFERRED PAYMENT OF SALES TAX COLLECTED. THIS ISSUE WAS NOT RAISED BEFORE THE LOWER AUTHORITIES. THE ASSES SEE HAS RETAINED SALES TAX COLLECTED FROM CUSTOMERS DURING THE PERIOD BETWEEN1998-99 TO 2004-05 TO BE PAID TO THE GOVERN MENT IN THE YEAR 2008-09 ONWARDS IN ACCORDANCE WITH THE SCHEME INTRODUCED BY THE GOVERNMENT OF MAHARASHTRA. THE STATE GOVERN MENT FOR EARLY RECOVERY OF SALES TAX COLLECTED, GAVE LIBERTY TO THE ASSESSEES TO PAY FUTURE SALES TAX LIABILITY ON NET PRESENT VALUE BASIS. UNDER THE SCHEME, THE ASSESSEE OPTED FOR EA RLY RE- PAYMENT AT DISCOUNTED VALUE AND THUS, DIFFERENCE OF ` 87,21,582/- AROSE, WHICH WAS TREATED AS INCOME FROM OTHER SOUR CES. THE LD. COUNSEL HAS CONTENDED THAT THE SAID DIFFERENCE DOES NOT AMOUNT TO REMISSION OF LIABILITY U/S.41(1) OF THE A CT. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SUZLER INDIA LTD., VS. JCIT (SUPRA), HAS HELD THAT PAYMENT OF NET PRESENT VALUE OF THE FUTURE LIABILITY CANNOT BE CLASSIFIED AS REMISSION OR CESS ATION OF THE I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 10 - : LIABILITY, THEREFORE, PROVISIONS OF SECTION 41(1)(A ) OF THE ACT ARE NOT ATTRACTED. THE RELEVANT EXTRACT OF THE ORDER OF TH E SPECIAL BENCH IS REPRODUCED HEREIN UNDER: NOW COMING BACK TO THE CASE BEFORE US, THE ASSESS EE WAS LIABLE TO PAY SALES TAX AMOUNTS COLLECTED FROM 1-11 -1989 TO 31-10-1996, PAYMENTS OF WHICH WERE DEFERRED UNDER T HE SCHEME, AND THE AMOUNTS WERE PAYABLE AFTER TWELVE Y EARS IN SIX EQUAL ANNUAL INSTALMENTS COMMENCING FROM 1-5-20 13, WHICH MEANS THAT THE LIABILITY WAS PAYABLE IN FUTUR E. LATER ON, THE STATE GOVERNMENT CAME WITH A SCHEME BY WHICH IT WAS PROVIDED THAT IF SOME DEALER OPTS, THEN THEY COULD PAY THE FUTURE LIABILITY AT A DISCOUNTED VALUE OR WHAT WE M AY CALL NET PRESENT VALUE IMMEDIATELY. THUS, IN THIS SITUATION , IT CANNOT BE CONSTRUED AS REMISSION OF LIABILITY; BECAUSE THE ST ATE GOVERNMENT HAS NOT WAIVED ANY OF THE LIABILITY AS G IVEN IN THE ILLUSTRATIONS. HAD THE STATE GOVERNMENT ACCEPTED L ESSER AMOUNT AFTER TWELVE YEARS OR REDUCED SUCH INSTALMEN TS, THEN IT COULD HAVE BEEN A CASE OF REMISSION OR CESSATION. HOWEVER, IN THE CASE BEFORE US THE STATE GOVERNMENT HAS CHOS EN TO RECEIVE THE MONEY IMMEDIATELY WHICH WAS RECEIVABLE FROM 1- 5-2003 TO 1-5-2008. THE AMOUNT OF ` 3,37,13,393 WAS ACTUALLY PAID TO SICOM ON 30-12-2002. THUS, THE AMOUNT WHIC H WAS PAYABLE FROM 1-5-2003 TO 1-5-2008, HAS BEEN PAID ON 30-12- 2002. THUS, IT DOE NOT SATISFY THE CONDITION OF AC TUAL REMISSION IN PRAESENTI AS OPINED BY THE LEARNED AUTHORS IN TH E ABOVE COMMENTARY. IT IS A SIMPLE CASE OF COLLECTING THE AMOUNT AT NET PRESENT VALUE WHICH IS DUE LATER ON AND EVEN TH E FORMULA I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 11 - : FOR COLLECTING THE NET PRESENT VALUE WAS ALSO GIVEN BY THE SICOM AND THE AMOUNTS HAVE BEEN PAID AS PER THAT FO RMULA. THEREFORE, SUCH PAYMENT OF NET PRESENT PROVISIONS O F SECTION 41(1)(A) OF THE INCOME TAX ACT, 1961. WE ARE FULLY CONSCIOUS THAT ISSUE BEFORE US IS REGARDING STATUTORY LIABILI TY AND THE ABOVE DISCUSSION AND PROVISIONS OF THE INDIAN CONTR ACT ACT REFERRED TO BY US IN THE ABOVE PARA RELATE TO CONTR ACTUAL LIABILITY. HOWEVER, WE HAVE REFERRED TO THESE PROV ISIONS JUST TO UNDERSTAND THE MEANING OF THE EXPRESSION REMISSION FOR THE PURPOSE OF DECIDING THE CASE BEFORE US UNDER THE IN COME-TAX ACT AND OUR DECISION IS BASED ON THE PROVISIONS OF THE INCOME- TAX ACT,1961. WE FIND THAT THE ISSUE IN HAND IS SIMILAR TO THE ON E ADJUDICATED BY THE SPECIAL BENCH OF THE TRIBUNAL. THEREFORE, RESP ECTFULLY FOLLOWING THE SAME, THIS GROUND OF APPEAL OF THE AS SESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 12 - : I.T.A. NO. 91/MDS/2011: 10. THE REVENUE HAS RAISED FIVE GROUNDS IN APPEAL. GROUND NO. 1 & 5 ARE GENERAL IN NATURE, THEREFORE, REQUIRE S NO ADJUDICATION. GROUND NO.2 IN THE APPEAL RELATES TO RESTRICTING DIS- ALLOWANCE TO 2% ON EXEMPTED INCOME. THE HONBLE BO MBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., (SUPRA) HAS HELD THAT THE PROVISIONS OF RULE 8D ARE APPLICA BLE W.E.F. AY. 2008-09 THUS, THE CONTENTION OF THE REVENUE THAT TH E PROVISIONS OF RULE 8D OF THE INCOME TAX ARE APPLICABLE IN THE PRE SENT CASE IS NOT TENABLE. IN THE PERIOD PRIOR TO THE APPLICATIO N OF PROVISION OF RULE 8D I.E., PRIOR TO AY.2008-09, ESTIMATION HAS T O BE MADE FOR MAKING DIS-ALLOWANCE U/S.14A. THE CIT(APPEALS) HAS RESTRICTED DIS-ALLOWANCE TO 2% OF EXEMPT INCOME. HOWEVER, KEE PING IN VIEW THE EXTENT OF INVESTMENT MADE IN SHARES ` 3.42 CRORES EARNING DIVIDEND INCOME, WE DEEM IT APPROPRIATE TO INCREASE DIS- ALLOWANCE TO 3% OF THE EXEMPT INCOME. THIS GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 13 - : 11. IN GROUND NO.3 OF THE APPEAL, THE REVENUE HAS R AISED THE ISSUE OF LOSS ON FORWARD CONTRACTS. THE CIT(APPEAL S) AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF BOTH THE SIDE S AND THE FACTS ON RECORD HAVE REMITTED THE ISSUE BACK TO THE ASSES SING OFFICER WITH A SPECIFIC DIRECTION. THE CIT(APPEALS) HAS HE LD AS UNDER: 5.1 I HAVE CAREFULLY CONSIDERED THE FACTS PERTAINI NG TO THE CASE AND THE SUBMISSIONS OF THE LD.AR. I FIND FROM THE SUBMISSIONS MADE AND THE ANNEXURE TO THE GROUNDS OF APPEAL THAT THE AO HAD ERRONEOUSLY CONSIDERED THE LOSS ON REVALUATION OF FORWARD CONTRACTS TO BE REDUCTION IN LOSS OF DERIVATIVES. IN RESPECT OF THE LOSS ON REVALUATION OF FORWARD CONTRACTS, THESE REPRESENT LOSS INCURRED BY THE APP ELLANT IN THE ORDINARY COURSE OF BUSINESS AND HAVE TO BE ALLOWED AS DEDUCTION. THEREFORE THE AMOUNT OF ` 22,86,303/- ADDED BACK BY THE AO IS NOT CORRECT. IN RESPECT OF DERIVATE C ONTRACTS, THE LOSS CLAIMED IN THE EARLIER YEAR HAS BEEN ALLOWED A S DEDUCTION. THEREFORE, ANY REDUCTION IN THE SAID LO SS HAS TO BE ADDED BACK IN COMPUTING THE TOTAL INCOME, WHICH ACC ORDING TO THE APPELLANT WAS ` 22,00,442/-. ACCORDINGLY, THE AO IS DIRECTED TO VERIFY THE NATURE AND QUANTUM OF THE AM OUNTS THAT HAS BEEN CLAIMED BY THE APPELLANT AS DEDUCTION AFTE R PROVIDING AN OPPORTUNITY TO THE APPELLANT AND ALLOW RELIEF IN ACCORDANCE WITH LAW AS STATED EARLIER. THIS GROUND OF APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 14 - : WE DO NOT FIND ANY INFIRMITY WITH THE FINDINGS OF T HE CIT(APPEALS) ON THIS ISSUE. THEREFORE, NO INTERFERENCE IS WARRA NTED. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 12. IN THE FOURTH GROUND OF APPEAL, THE ASSESSEE HA S RAISED OBJECTION IN DELETING THE DIS-ALLOWANCE MADE BY THE ASSESSING OFFICER U/S.40(A)(IA) IN RESPECT OF LEGAL CHARGES P AID TO M/S. REED SMITH, LLP, USA WITHOUT DEDUCTION OF TAX AT SOURCE. IT IS A WELL SETTLED LAW THAT, IF THE PAYMENTS ARE MADE FOR PROF ESSIONAL SERVICES RENDERED ABROAD AND THE PARTY DOES NOT HAV E ANY PERMANENT ESTABLISHMENT IN INDIA, THE TAX IS NOT TO BE DEDUCTED AT SOURCES. MOREOVER, AS PER ARTICLE 15 OF DTA AGREEM ENT BETWEEN INDIA AND USA, THE PROFESSIONAL SERVICES RENDERED B Y THE LAWYERS IN USA ARE CHARGEABLE ONLY IN USA UNLESS THEY HAVE A FIXED BASE REGULARLY AVAILABLE IN INDIA OR HAS STAY IN INDIA E XCEEDING NINETY DAYS IN THE TAXABLE YEAR. IN THE PRESENT CASE, THE FOREIGN PARTY HAS CONFIRMED THAT THEY DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA NOR IT IS A CASE WHERE THEY STAY IN INDIA IS MORE THAN NINETY DAYS AS AFORESAID. ACCORDINGLY, F OR THE SERVICES RENDERED BY THE FOREIGN LAW FIRM OUTSIDE INDIA THER E IS NO QUESTION I.T.A. NOS. 2136/MDS/10 & 91/MDS/11 :- 15 - : OF DEDUCTION OF TAX ON THE PAYMENTS MADE. ACCORDIN GLY, THIS GROUND OF APPEAL OF THE REVENUE IS ALSO DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. THE APPEALS OF BOTH ASSESSEE AND REVENUE ARE PARTLY ALLOWED. ORDERS PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON TUESDAY, THE 26 TH NOVEMBER, 2013 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 26 TH NOVEMBER, 2013 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR