ACIT, Coimbatore V. Shiva Texyarn Ltd., Coimbatore

ITA 2231/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81296 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 05-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Keywords: Depreciation; Services rendered outside India; Permanent establishment; Revised return; Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI . , ! '! ! #, $ % BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 2231/MDS/2014 / ASSESSMENT YEAR : 2010-11 ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(2), 63-A, RACE COURSE ROAD, COIMBATORE ( #& / APPELLANT ) VS M/S. SHIVA TEXYARN LTD., 252, METTUPALAYAM ROAD, COIMBATORE-641 043 [PAN: AABCA 6617 M] ( '(#& / RESPONDENT ) REVENUE BY : SHRI P. RADHAKRISHNAN, JCIT ASSESSEE BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE / DATE OF HEARING : 03-12-2014 / DATE OF PRONOUNCEMENT : 11-12-2014 ) / O R D E R PER VIKAS AWASTHY, J.M: THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-I, COIMBATO RE DATED 19-06-2014 FOR THE ASSESSMENT YEAR (AY) 2010-11. IN APPEAL, THE REVENUE HAS IMPUGNED THE ORDER OF FIRST APPELLATE A UTHORITY ON FOLLOWING GROUNDS: ITA NO. 2231/MDS/2014 -: 2 :- I. DELETING OF DIS-ALLOWANCE U/S.40(A)(IA) OF THE INCO ME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) IN RES PECT OF COMMISSION PAID TO OVERSEAS AGENTS WITHOUT DEDUCTIO N OF TAX; II. ALLOWING OF EXPENDITURE ON OVERHAULING OF WINDMILLS AS CURRENT REPAIRS U/S.37(1) OF THE ACT; 2. THE FACTS OF THE CASE AS EMANATING FROM THE RECO RDS ARE: THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE YARN. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY. 2010-11 ON 27-09-2010 DECLARING LOSS OF ` 13,48,48,975/- UNDER NORMAL COMPUTATION AND PROFIT OF ` 8,24,21,606/- U/S.115JB OF THE ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE O N 05-09-2011. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSES SING OFFICER DIS- ALLOWED THE PAYMENT OF ` 19,44,100/- MADE TO FOREIGN AGENTS WITHOUT DEDUCTION OF TAX. THE STAND OF THE ASSESSEE IS THA T THE PAYMENTS WERE MADE TO THE FOREIGN AGENTS FOR THE SERVICES RENDERE D BY THEM IN FACILITATING EXPORT OF YARN/FABRICS TO OVERSEAS CUS TOMERS. THE SERVICES WERE RENDERED OUTSIDE INDIA AND THE FOREIGN AGENTS DO NOT HAVE ANY PERMANENT ESTABLISHMENT [PE] IN INDIA. REMITTANCES WERE MADE IN FOREIGN EXCHANGE THROUGH PROPER CHANNEL. DURING THE PERIOD RELEVANT TO THE AY UNDER CONSIDER ATION, THE ASSESSEE HAD INCURRED AN EXPENDITURE OF ` 1,22,36,063/- ON OVERHAULING OF NINE WIND MILL GENERATORS. WITH THI S OVERHAULING THERE WAS NO CHANGE IN THE PRODUCTION CAPACITY OR EFFICIE NCY OF THE WIND ITA NO. 2231/MDS/2014 -: 3 :- MILL. THE EXPENDITURE WAS INCURRED TO SUSTAIN THE PRODUCTION EFFICIENCY OF THE WIND MILL GENERATORS. THE ASSESS EE CLAIMED DEPRECIATION @40% ON THE AMOUNT UTILIZED TOWARDS OV ERHAULING OF THE WINDMILLS. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSEE SUBMITTED THAT THE EXPENDITURE BE TREATED AS REVENU E EXPENDITURE UNDER THE HEAD CURRENT REPAIRS. THE ASSESSING OF FICER REJECTED BOTH THE CLAIMS OF THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 27-02-2013 , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS ). THE CIT(APPEALS) ON THE ISSUE OF DIS-ALLOWANCE U/S.40(A)(IA), FOLLOW ED THE DECISIONS OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF GE INDIA TECHNOLOGY CEN. (P) LTD., VS. CIT REPORTED AS 327 ITR 456 (SC) AND THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. FARIDA SHOES (P) LTD., REPORTED AS 34 TAXMANN.COM 28 (CHENNAI-TRIB) AND DELETED THE DIS-ALLOWANCE. ON THE SECOND ISSUE OF DIS-ALLOWANCE OF DEPRECIATI ON, THE CIT(APPEALS) ACCEPTED THE SUBMISSIONS OF THE ASSESS EE TO TREAT THE ONE TIME EXPENDITURE INCURRED ON OVERHAULING OF THE WIN D MILL GENERATORS AS CURRENT REPAIRS, ALLOWABLE U/S.37(1) OF THE AC T. AGAINST THE ORDER OF CIT(APPEALS), THE REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI P.RADHAKRISHNAN, APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT CIT(APPEALS) HAS ERRED IN DELETING T HE DIS-ALLOWANCE MADE U/S.40(A)(IA) ON PAYMENT OF COMMISSIONS MADE T O FOREIGN AGENTS ITA NO. 2231/MDS/2014 -: 4 :- WITHOUT DEDUCTION OF TAX AT SOURCE. THE LD.DR SUPP ORTED THE ASSESSMENT ORDER ON THE ISSUE. ON THE NEXT GROUND RAISED IN THE APPEAL WITH REGARD TO ALLOWING THE CLAIM OF ASSESSEE TOWARDS EXPENDITURE ON OVERHA ULING OF WIND MILL GENERATORS U/S.37 OF THE ACT, THE LD.DR SUBMITTED T HAT THE ASSESSEE CLAIMED DEPRECIATION ON THE PAYMENT OF AMOUNT TOWAR DS OVERHAULING OF WIND MILL MACHINERY. SINCE NO NEW ASSET HAD COM E INTO EXISTENCE, THE CLAIM OF THE ASSESSEE WAS RIGHTLY REJECTED BY T HE ASSESSING OFFICER. AS FAR AS TREATING THE AMOUNT AS REVENUE EXPENDITUR E IS CONCERNED, THE ASSESSEE SHOULD HAVE FILED REVISED RETURN OF IN COME FOR CLAIMING EXPENDITURE UNDER ANY OTHER HEAD. NO REVISED RETUR N HAS BEEN FILED BY THE ASSESSEE FOR TREATING THE EXPENDITURE AS REV ENUE EXPENDITURE U/S.37(1) OF THE ACT. 4. AU CONTRAIRE SHRI SAROJ KUMAR PARIDA, APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE FIRST ISSUE IN APPE AL RELATING TO DISALLOWANCE U/S.40(A)(IA) IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. FAIZAN SHOES (P) LTD., REPORTED AS 48 TAXMANN.COM 48 (MAD) . THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE FACT THAT THE COMMISSIONS WERE PAID TO OVERSEAS AGENTS FOR THE SE RVICES RENDERED ABROAD AND THE PAYMENT OF THE COMMISSIONS WERE NOT IN THE NATURE OF FEE FOR TECHNICAL SERVICES HAS NOT BEEN REBUTTED BY THE DEPARTMENT. ITA NO. 2231/MDS/2014 -: 5 :- ON THE NEXT ISSUE OF ALLOWING WINDMILL OVERHAULING EXPENDITURE U/S.37 OF THE ACT, THE LD.COUNSEL FOR THE ASSESSEE VEHEMENTLY SUPPORTING THE FINDINGS OF CIT(APPEALS) SUBMITTED T HAT THE ASSESSEE HAD MODIFIED ITS CLAIM DURING THE COURSE OF ASSESSM ENT PROCEEDINGS. THE ASSESSEE REALIZED ITS MISTAKE OF CLAIMING DEPRE CIATION ON THE AMOUNT SPENT ON OVERHAULING OF GENERATORS WHEREAS THE AMOUNT SHOULD HAVE BEEN CLAIMED AS REVENUE EXPENDITURE. T HE ASSESSEE IMMEDIATELY RECTIFIED ITS MISTAKE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS NOT RAISED ANY FRESH CLAIM FOR WHICH REVISED RETURN OF INCOME WAS REQUIRED TO BE FILED. 5. BOTH SIDES HEARD. RECORDS IN THE CASE PERUSED. IN APPEAL, THE REVENUE HAS RAISED TWO ISSUES. THE FIRST ISSUE RELATES TO DIS-ALLOWANCE U/S.40(A)( IA) IN RESPECT OF COMMISSION PAID TO FOREIGN AGENTS WITHOUT DEDUCTION OF TAX. THE FIRST APPELLATE AUTHORITY ACCEPTING THE CONTENTIONS OF TH E ASSESSEE HAS GIVEN A CATEGORIC FINDING THAT THE PAYMENTS WERE MA DE TO OVERSEAS AGENTS FOR THE SERVICES RENDERED OUTSIDE INDIA IN M ARKETING OF ITS PRODUCTS. THE FOREIGN AGENTS HAVE NO PE IN INDIA A ND THE REMITTANCES WERE MADE TO THEM IN FOREIGN EXCHANGE THROUGH BROKE RS. THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT THE AFORESA ID FINDINGS. SINCE, THE COMMISSIONS PAID TO THE OVERSEAS AGENTS WERE NO T TAXABLE IN INDIA, THERE WAS NO QUESTION OF DEDUCTION OF TAX AT SOURCE U/S.195 ON SUCH PAYMENTS. THE HON'BLE APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CEN. (P) LTD., VS. CIT (SUPRA) HAS HELD THAT IF THE ITA NO. 2231/MDS/2014 -: 6 :- REMITTANCES IS NOT TAXABLE IN INDIA, THE QUESTION O F DEDUCTING TAX ON THE SAID AMOUNT DOES NOT ARISE. SIMILAR VIEW HAS B EEN TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FAIZAN SHOES (P) LTD., (SUPRA). IN VIEW OF THE WELL SETTLED POSITION, WE DO NOT FIND ANY ERROR IN THE FINDINGS OF CIT(APPEALS) ON THE ISSUE. ACCORDI NGLY, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 6. THE NEXT ISSUE IN APPEAL IS WITH REGARD TO ALLOW ING EXPENDITURE ON OVERHAULING OF WIND MILLS AS CURRENT REPAIRS U /S.37(1) OF THE ACT. THE ASSESSEE HAD INCURRED EXPENDITURE OF ` 1,22,36,063/- TOWARDS ONE TIME OVERHAULING OF WIND MILL MACHINERY / GENERATOR S. INITIALLY, THE ASSESSEE HAD CLAIMED DEPRECIATION OF ` 48,94,425/- ON AFORESAID AMOUNT @40% AS THE WINDMILLS WERE USED FOR LESS THA N 180 DAYS. THE ASSESSING OFFICER REJECTED DEPRECIATION CLAIM OF TH E ASSESSEE ON THE GROUND THAT NO NEW ASSET HAD COME INTO EXISTENCE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE MODI FIED ITS CLAIM AND TREATED THE SAID AMOUNT TOWARDS THE CURRENT REPAIRS AND CLAIMED IT AS REVENUE EXPENDITURE. SINCE, NO REVISED RETURN WAS F ILED BY THE ASSESSEE TO CLAIM THE AMOUNT AS REVENUE EXPENDITURE , INSTEAD OF DEPRECIATION CLAIM, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE. THE HON'BLE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD., VS. CIT REPORTED AS 284 ITR 323 (SC) HAS HELD THAT THE ASSESSING OFFICER CANNOT ENTERTAIN THE CLAIM OF DEDUCTION OTHERWISE T HEN BY FILING A REVISED RETURN. HOWEVER, THE POWERS OF INCOME TAX APPELLATE TRIBUNAL ITA NO. 2231/MDS/2014 -: 7 :- U/S.254 OF THE ACT ARE NOT IMPINGED TO ENTERTAIN CL AIMS, OTHERWISE THEN BY WAY OF RETURN. 7. THE FACT THAT THE EXPENDITURE HAS BEEN INCURRED ON OVERHAULING OF WIND MILL MACHINERY HAS NOT BEEN DISPUTED BY REV ENUE. IT IS EQUALLY UN-DISPUTED THAT WITH THE OVERHAULING OF WI ND MILL MACHINERY, THERE IS NO CHANGE IN THE CAPACITY OR STRUCTURE OF THE WIND MILL. THE OVERHAULING OF WIND MILLS WAS CARRIED OUT TO SUSTAI N THEIR PRODUCTION EFFICIENCY. WE ARE OF THE CONSIDERED OPINION THAT THE EXPENDITURE ON OVERHAULING OF WINDMILLS IS ALLOWABLE AS REVENUE EX PENDITURE U/S.37(1) OF THE ACT. THEREFORE, THIS GROUND OF AP PEAL OF THE REVENUE IS ALSO DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED BEING DEVOID OF MERIT. ORDER PRONOUNCED ON THURSDAY, THE 11TH DECEMBER, 2 014 AT CHENNAI. SD/- SD/- ( . ) ('! ! #) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER (VIKAS AWASTHY) $ / JUDICIAL MEMBER / CHENNAI, !' / DATED: 11 TH DECEMBER, 2014 TNMM '# $% & '& / COPY TO: 1. () / APPELLANT 2. $*() / RESPONDENT 3. + ( ) / CIT(A) 4. + / CIT 5. &./ $0 / DR 6. /1 2 / GF