DCIT, CHENNAI V. Wheels India Limited, CHENNAI

ITA 479/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77284 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMOD NANGIA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Speculation loss
• Section: 43B; 14A; 43(5); 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , !' # , $ % BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ ITA NO. ASSESSMENT YEAR ( /APPELLANT /RESPONDENT 364/MDS/2013 2008-09 M/S. WHEELS INDIA LTD., PADI, CHENNAI-600 050. PAN:AAACW0315K DEPUTY COMMISSIONER OF INCOME TAX, LTU, CHENNAI-101. 479/MDS/2013 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, LTU, CHENNAI-101. M/S. WHEELS INDIA LTD., PADI, CHENNAI-600 050. PAN:AAACW0315K ASSESSEE BY : MR. R.VIJAYARAGHAVAN, ADVOCATE REVENUE BY : MR. PRAMOD NANGIA, CIT / DATE OF HEARING : 9 TH APRIL, 2014 / DATE OF PRONOUNCEMENT : 30 TH APRIL, 2014 & / O R D E R PER CHALLA NAGENDRA PRASAD, JM: BOTH THESE APPEALS ARE FILED BY ASSESSEE AND REVENU E FOR THE ASSESSMENT YEAR 2008-09 AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-IX, CHENNAI DATED 27.12.2012. 2. THE FIRST ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ITA NOS.364 & 479/MDS/2013 2 CONFIRMING DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIMED BEING 50% OF THE SPECIFIED RATE APPLIED ON THE COST OF PLANT & MACHINERY NOT ALLOWED IN THE PRECEDING YEAR ON ASSE T PUT INTO USE FOR LESS THAN 180 DAYS. 3. AT THE TIME OF HEARING, COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL AGA INST THE ASSESSEE IN ITS OWN CASE FOR THE ASSESSMENT YEAR 20 07-08 IN ITA NO.2136/MDS/2010 BY ORDER DATED 26.11.2013. COP Y OF THE ORDER IS PLACED ON RECORD. WE FIND THAT THE CO -ORDINATE BENCH OF THIS TRIBUNAL HAS CONSIDERED THIS ISSUE AT PARA 7 OF THE ORDER AGAINST THE ASSESSEE OBSERVING AS UNDER: - 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/ORDERS RELIED UPONBY THE REPRESENTATIVES OF BOTH THE SIDES. WE FIRST TAKE UP THE APPEAL OF THE ASSESSEE I.E., ITA NO.2136/MDS/2010. THE ASSESSEE IS CLAIMING ADDITIONAL DEPRECIATION AMOUNTING TO ` 3,15,48,837/- IN RESPECT OF PLANT & MACHINERY CARRI ED FORWARD FROM THE PRECEDING YEAR. WE FIND THAT THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF ADDITION AL DEPRECIATION CANNOT BE ALLOWED AS THERE IS NO PROVISION IN THE ACT TO ALLOW CARRY FORWARD OF UN- ABSORBED ADDITIONAL DEPRECIATION IN THE NEXT YEAR. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO. 1069/MDS/2010 IN THE CASE OF DCIT VS. BRAKES INDIA LTD., HAS HELD THAT ADDITIONAL DEPRECIATION IS ITA NOS.364 & 479/MDS/2013 3 ALLOWABLE ON THE PLANT & MACHINERY ONLY FOR THE YEA R IN WHICH THE CAPACITY EXPANSION HAS TAKEN PLACE WHICH HAS RESULTED IN THE SUBSTANTIAL INCREASE IN T HE INSTALLED CAPACITY. IN THE INSTANT CASE, IT IS AN ADMITTED FACT THAT THE PLANT & MACHINERY HAS BEEN INSTALLED IN THE PRECEDING YEAR AND THE ASSESSEE INTENDS TO CARRY FORWARD UN-ABSORBED ADDITIONAL DEPRECIATION IN THE AY UNDER REFERENCE, WHICH IS NO T PERMISSIBLE. HENCE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 4. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THIS TRIBUNAL, WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE ASSE SSEE ON THE ISSUE OF ADDITIONAL DEPRECIATION. 5. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE A SSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE UNDER SECTION 14A OF THE AC T AT 0.5% OF AVERAGE INVESTMENTS. THE ASSESSING OFFICER WHIL E COMPLETING THE ASSESSMENT DISALLOWED ` 35,26,570/- UNDER SECTION 14A READ WITH RULE 8D AS THE EXPENSES ATTRI BUTABLE FOR EARNING EXEMPT INCOME. THE SAID AMOUNT COMPRI SING OF DISALLOWANCE OF ` 31,55,390/- UNDER RULE 8D(2)(II) AND ` 3,71,180/- UNDER RULE 8D (2)(III). ON APPEAL, COMMI SSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE MADE UNDER ITA NOS.364 & 479/MDS/2013 4 RULE 8D(2)(II) AND SUSTAINED THE DISALLOWANCE MADE UNDER RULE 8D(2)(III). BOTH THE ASSESSEE AS WELL AS REVE NUE CAME UP IN APPEAL BEFORE US AGAINST THE SAID DISALLOWANC E SUSTAINED/DELETED BY THE COMMISSIONER OF INCOME TAX (APPEALS). 6. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE H AS NOT INCURRED ANY EXPENSES FOR EARNING DIVIDEND INCO ME AND THEREFORE THERE IS NO JUSTIFICATION IN DISALLOWING EXPENSES TO THE EXTENT OF ` 3,71,180/- UNDER RULE 8D(2)(III). AS FAR AS DISALLOWANCE DELETED BY THE COMMISSIONER OF INCOME TAX (APPEALS) UNDER RULE 8D(2)(II) IS CONCERNED, DEPAR TMENTAL REPRESENTATIVE VEHEMENTLY SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN DELETING D ISALLOWANCE WHICH IS MANDATORY UNDER SECTION 14A READ WITH RULE 8D, THEREFORE DISALLOWANCE MADE BY THE ASSESSING OFFICE R IS JUSTIFIED. COUNSEL FOR THE ASSESSEE RELIED ON THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). ITA NOS.364 & 479/MDS/2013 5 7. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE ISSUE IN DETAIL AT PARA 5.3 OF THE IMPUGNED ORDER AND DEL ETED DISALLOWANCE MADE UNDER RULE 8D(2)(II) AND SUSTAINE D THE DISALLOWANCE INSOFAR AS PROVISIONS UNDER RULE 8D(2) (III) OBSERVING AS UNDER:- 5.3 I HAVE CONSIDERED THE FACTS PERTAINING TO THI S CASE AND THE DETAILED SUBMISSIONS MADE BY THE A.R. AFTER CONSIDERATION OF ALL THE FACTS AND SUBMISSIONS I AGREE WITH THE CONTENTION OF THE AR THAT THE PROVISIONS OF CLA USE (II) OF RULE 80(2) CANNOT BE APPLIED IN THE APPELL ANTS CASE. AS SUBMITTED BY THE APPELLANT THE INTEREST FR EE FUNDS AVAILABLE ARE FAR IN EXCESS OF THE INVESTMENT S EARNING TAX FREE INCOME. FURTHER EVEN THE PROFITS F OR THE YEAR ARE FAR HIGHER THAN THE I NVESTMENTS IN SHARES. IN ALL THE DECISIONS CITED SUPRA, THE COURTS HAVE H ELD THAT WHEN INTEREST FREE FUNDS AVAILABLE TO THE APPE LLANT EXCEEDS THE INVESTMENTS IN ASSETS EARNING TAX FREE INCOME, THE PRESUMPTION IS THAT THE INVESTMENTS HAV E COME OUT OF INTEREST FREE FUNDS ONLY . HENCE, RESPECTFULLY FOLLOWING THE ABOVE DEC I SIONS I HOLD THAT THE PROVISIONS OF RULE 80(2)(II) CANNOT BE MADE APPLICABLE. HOWEVER WITH REGARD TO RULE 80 (2)(III) LAM NOT ABLE TO ACCEPT THE CONTENTION OF THE AR. AS STA TED BY THE AO THE APPELLANT HAD MADE SUBSTANTIAL TRANSACTIONS IN SHARES AND THESE WILL INVOLVE ADMINISTRATIVE EXPENSES. THEREFORE, IN THE ABSENCE OF THE EXACT QUANTUM OF EXPENDITURE RULE 80(2)(III) HAS TO BE NECESSARILY INVOKED. IN MY CONSIDERED OPINION , THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF RULE 80 (2)(III). THE APPELLANT HAD SUBMITTED THAT IN COMPUTING THE AVERAGE INVESTMENTS, THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCO ME, THE AO HAD CONSIDERED THE INVESTMENTS THE INCOME FROM WHICH IS TAXABLE ALSO. THE AO IS DIRECTED TO VERIFY THE CORRECT AMOUNT OF AVERAGE INVESTMENTS T HE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F TOTAL INCOME AND COMPUTE THE DISALLOWANCE AT 0.5% O F THE SAID AVERAGE INVESTMENTS THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME . THIS GROUND IS PARTLY ALLOWED. ITA NOS.364 & 479/MDS/2013 6 8. ON READING OF THE ABOVE ORDER, WE FIND THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS COME TO A CONCLUSION THAT PROVISIONS OF RULE 8D(2)(II) HAVE N O APPLICATION IN THE CASE OF THE ASSESSEE ESPECIALLY IN VIEW OF THE FACT THAT INTEREST FREE FUNDS AVAILABLE WITH TH E ASSESSEE ARE FAR IN EXCESS OF INVESTMENTS EARNING TAX FREE INCOME AND THEREFORE COMMISSIONER OF INCOME TAX (APPEALS) ALSO HELD THAT DISALLOWANCE MADE UNDER RULE 8D(2)(III) IS JUS TIFIED. WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE D ECISION OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE GROUN DS OF APPEAL RAISED BY THE ASSESSEE AS WELL AS THE REVENU E ON THIS ISSUE ARE REJECTED. 9. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE A SSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF EXPENDITURE UNDER SECTIO N 43B ON LEAVE ENCASHMENT FOR DEDUCTION TOWARDS SCIENTIFIC R ESEARCH EXPENDITURE UNDER SECTION 35(2AB). THE ASSESSING OF FICER WHILE COMPLETING THE ASSESSMENT DISALLOWED WEIGHTED DEDUCTION OF ` 4,52,277/- CLAIMED UNDER SECTION 35(2AB) ON ITA NOS.364 & 479/MDS/2013 7 THE LEAVE ENCASHMENT EXPENDITURE INCURRED FOR RESEA RCH & DEVELOPMENT INVOKING PROVISIONS OF SECTION 43B(F) OF THE ACT. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) SUS TAINED DISALLOWANCE ON THE GROUND THAT PROVISION TOWARDS L EAVE ENCASHMENT FOR R & D UNIT IS COVERED UNDER SUB-SECT ION (F) OF SECTION 43B OF THE ACT AND SUCH EXPENDITURE IS ALLO WABLE ONLY IN THE YEAR IN WHICH PAYMENT IS ACTUALLY MADE BY TH E ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO ALLOW IF THE ASSE SSEE PAID SUCH LEAVE ENCASHMENT BEFORE THE DUE DATE FOR FILIN G OF RETURN AS PER PROVISIONS OF SECTION 43B OF THE ACT. 10. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE CLAIMED PROVISION FOR LEAVE ENCASHMENT AS EXPENDITU RE FOR R & D UNIT UNDER SECTION 35(2AB) OF THE ACT AND THE SAME WAS APPROVED BY THE PRESCRIBED AUTHORITY. HOWEVER, THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) REDUCED THE WEIGHTED DEDUCTION IN RESPECT OF LEAVE ENCASHMENT FROM THE AMOUNTS APPROVED BY THE PRESCRI BED AUTHORITY WHILE COMPLETING THE ASSESSMENT. COUNSEL SUBMITS ITA NOS.364 & 479/MDS/2013 8 THAT AMOUNTS NOTIFIED BY THE PRESCRIBED AUTHORITY S HOULD BE ALLOWED WEIGHTED DEDUCTION AS PER SUB-SECTION(3) OF SECTION 35 OF THE ACT AND THE DECISION OF THE PRESCRIBED AU THORITY IN RESPECT OF THE EXTENT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 35(2AB) WILL BE FINAL AND THE ASSESSING OFFICER OR COMMISSIONER OF INCOME TAX (APPEALS) CANNOT MAKE AN Y DISALLOWANCE. FOR THIS PROPOSITION, COUNSEL PLACES RELIANCE ON THE DECISIONS IN THE CASE OF CIT VS. FCS INTERNATIO NAL MARKETING PVT. LTD. 283 ITR 32 (P & H) AND IN THE CASE OF CIT VS. DELTRON LTD. (297 ITR 426 [DEL]). COUNSEL F OR THE ASSESSEE FURTHER REFERRING TO THE DECISION OF THE H ONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UOI (292 ITR 407) SUBMITS THAT SECTION 43B IS NOT APPLICABLE TO LEAVE ENCASHMENT AS THE HONBLE COURT STRUCK DOW N THE PROVISIONS OF SUB-SECTION (F) TO SECTION 43B OF THE ACT. 11. DEPARTMENTAL REPRESENTATIVE SUPPORTING THE ORDE RS OF LOWER AUTHORITIES SUBMITS THAT IN VIEW OF NON-OBSTA NTE CLAUSE IN THE PROVISIONS OF SECTION 43B OF THE ACT THE EXP ENDITURE INCURRED TOWARDS PROVISION FOR LEAVE ENCASHMENT IN THE R & D ITA NOS.364 & 479/MDS/2013 9 UNIT OF THE ASSESSEE HAS TO BE DISALLOWED, AS THE A SSESSEE HAS NOT MADE ANY PAYMENT TO LEAVE ENCASHMENT TO THE EMPLOYEES. THE EXPENDITURE SHALL BE ALLOWABLE ONLY ON PAYMENT OF SUCH EXPENSES AND NOT MERELY INCURRING O F SUCH EXPENSES. 12. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE CASE LAWS RELIED ON. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED WEIGHTED DEDUC TION CLAIMED BY THE ASSESSEE UNDER SECTION 35(2AB) OF TH E ACT IN RESPECT OF THE EXPENDITURE INCURRED TOWARDS SCIENTI FIC RESEARCH IN ITS R & D UNIT ON THE GROUND THAT PART OF SUCH E XPENSES BEING PROVISION FOR LEAVE ENCASHMENT IS NOT ALLOWAB LE IN VIEW OF SPECIFIC PROVISIONS OF SECTION 43B(F) OF THE ACT AS THE SAID EXPENSES WERE NOT PAID TO EMPLOYEES AND IT IS ONLY A PROVISION. THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE ACCEPTING THE VIEW OF TH E ASSESSING OFFICER. IT IS NOT IN DISPUTE THAT THESE EXPENSES FALL UNDER SECTION 35(2AB) OF THE ACT AS SCIENTIFIC RESE ARCH EXPENSES ALLOWABLE UNDER THAT SECTION AS THE PRESCR IBED ITA NOS.364 & 479/MDS/2013 10 AUTHORITY WAS ALSO APPROVED SUCH EXPENSES. THE QUE STION NOW IS WHETHER IN VIEW OF THE PROVISIONS OF SECTION 43B(F) SUCH EXPENSES EVEN THOUGH NOT PAID CAN BE ALLOWABLE AS DEDUCTION? 13. THE AHMEDABAD BENCH OF THIS TRIBUNAL IN THE CAS E OF EMICO ELECON INDIA PVT. LTD. VS. ADDL.CIT (22 ITR T RIB 380) CONSIDERED A SITUATION WHETHER PROVISION FOR LEAVE ENCASHMENT CAN BE DISALLOWED UNDER SECTION 43B(F) O F THE ACT AND THE TRIBUNAL OBSERVED THAT HONBLE CALCUTTA HI GH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. (SUPRA) HELD T HAT SECTION 43B(F) IS INVALID THEREFORE DISALLOWANCE ON THE BAS IS OF SECTION 43B(F) IN RESPECT OF PROVISION FOR LEAVE ENCASHMENT COULD NOT BE SUSTAINED AND IN HOLDING SO, THE TRIBUNAL FOLLOW ED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F BHARAT EARTH MOVERS LTD. VS. CIT (245 ITR 428). RESPECTFUL LY FOLLOWING THE SAID DECISION, WE HOLD THAT PROVISION FOR LEAVE ENCASHMENT WHICH WAS CLAIMED AS WEIGHTED DEDUCTION UNDER SECTION 35(2AB) CANNOT BE DISALLOWED INVOKING PROVI SIONS OF ITA NOS.364 & 479/MDS/2013 11 SECTION 43B(F) OF THE ACT. WE THEREFORE ALLOW THE G ROUNDS OF APPEAL RAISED BY THE ASSESSEE ON THIS ISSUE. 14. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT THE LOSS ON ACCOUNT OF EXCHANGE FLUCTUATION ON FOR WARD CONTRACTS SHOULD BE ALLOWED AS DEDUCTION. 15. AT THE TIME OF HEARING, COUNSEL FOR THE ASSESSE E SUBMITS THAT THIS ISSUE HAS BEEN DECIDED BY THIS TR IBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO. 91/MDS/2011 DATED 26.11.2013, WHEREIN THE TRIBU NAL UPHELD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THAT LOSS ON FORWARD EXCHANGE CONTRACT WAS NOT SPECULATIVE LOSS AND SHOULD BE ALLOWED AS B USINESS LOSS. 16. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON THE ORDER OF THE ASSESSING OFFICER IN TREATING THE LOSS ON FORWARD ITA NOS.364 & 479/MDS/2013 12 EXCHANGE CONTRACTS WHICH WAS TAKEN AS HEDGE AS SPECULATIVE LOSS AND NOT ALLOWABLE. 17. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES. THE COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THIS ISSUE ELABORATELY IN PARAS 7.1 AND 7.2 AND FOLLOWIN G THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. WOODWARD GOVERNOR INDIA P.LTD. (312 ITR 254) ALLOWED THE CLAIM OF THE ASSESSEE DELETING THE DISA LLOWANCE OBSERVING AS UNDER:- 7.1 THE AR SUBMITTED THAT THE SAID CONTRACTS WERE TAKEN FOR HEDGING PURPOSES AGAINST THE UNDERLYING RECEIVA BLES AND PAYABLES AND HENCE SAME CANNOT BE ASCRIBED TO SPECULATING. IT WAS SUBMITTED THAT THE OUTSTANDING FORWARD CONTRACTS W E RE TO BE RESTATED AS ON THE LAST DATE OF THE FINANCIAL YEAR AND THE NET LOSS AFTER ADJUSTIN G THE GA I N AR I SING THEREOF HAS TO BE RECOGNIZED BY DEBITING TO PROFIT AND LOSS ACCOUNT AS REQU I RED UNDER THE ACCOUNTING STANDARD PRESCRIBED BY THE GOVERNMENT. ACCORDINGLY, IT WAS CONTENDED THAT SUCH RECOGNITION OF NET LOSS AS PE R STATUTORY REQUIREMENT CANNOT BE ASCRIBED TO NOTIONAL LOSS. FURTHER IT WAS CONTENDED THAT THE FOREX CONTRACTS ARE NOT TRADED I N SECURITY MARKET AND THEREFORE THE QUESTION OF APPLYING PROVISIONS OF SEC 43(5) OR THE CBDT INS TR UCTION DOES NOT ARISE IT WAS ALSO SUBMITTED THAT THE MARK TO MA RKET LOSS HAS A RI S E N ON SUBSISTING CONTRACTS WITH THE BANK , WHICH THE APPELLANT ENTERED INTO I N O RD E R TO COVER FOREIGN CURRENCY RECEIVABLES/PAYABLES. THE CONTRACT S W E RE ENTE RED I NTO IN THE NORMAL COURSE OF BUSINESS. THE NET POSITION AT THE YE A R-END WAS ON L Y LIABILITY TO ITA NOS.364 & 479/MDS/2013 13 THE BANK WHICH WAS DULY ACCOUNTED IN BOOKS BY DEBITING F O RE IGN CURRENCY EXCHANGE LOSS. THESE FORWARD EXCHANGE CONTRACTS ARE TAKEN TO A VOID/MITIGATE LOSSES ARISING ON ACCOUNT OF FOREIGN CURRENCY RATE FLUCTUAT I ONS . THE SAID CONTRACTS WERE COVERED BY UNDERLYING ASSETS AND LIABILITIES IN THE FORM O F I MPORT PAYABLES, FOREIGN CURRENCY LOANS INCLUDING INTEREST ON SUCH LOANS AND EX PORTS RECEIVABLES . THESE CONTRACTS WERE NOT SPECULATIVE OR TAKEN WITH A VIEW TO TRADE. IT WAS SUBMITTED THAT THE SAID LOSS BEING INCURRED IN THE ORDINARY COU R SE OF BUSINESS IS ALLOWABLE AS DEDUCTION . RELIANCE WAS PLACED ON THE DECISION I N CIT V. V. S. DEMPO AND CO . P . LTD. [1994] 206 ITR 291 (MUM) AND THE D E C I SION OF SUPREME COURT IN CIT V WOODWARD GOVERNOR IND I A P. LIMITED (312 I TR 254). RELIANCE WAS PLACED ON THE DECISION OF CIT(A) IN ITA NO 32/08-09/LTU(A) DATED 30/11/2009 FOR THE ASSESSMENT YEAR 2006-07 IN THE APP EL LANTS OWN CASE WHERE THE LOSS ON REVALUATION WAS A L LOWED. THE AR ALSO RE L I ED ON THE DECISION OF ITAT MUMBAI IN THE CASE OF DCIT V BANQUE INDOSUEZ (MUMBAI) IN 19 ITR (TRIB) 463 IN SUPPORT OF ITS CLAIM. 7 . 2 I HAVE CAREFULLY CONSIDERED THE FACTS PERTAINING TO THE CASE AND THE V A RI OUS SUBMISSIONS OF THE AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED U PON BY THE APPELLANT. I FIND THAT MY ID. PREDECESSOR FOR T HE AY 2006-07 AFTER DI SCUSSING THE ISSUE ELABORATELY AND BASED ON THE DECISIONS IN THE CASE OF CIT V C ANARA BANK (63 ITR 328), BANK OF INDIA (218 ITR 371) AND WOODWARD GOVERNOR P.LTD ALLOWED THE CLAIM OF THE APPELLANT. THE FACTS BE I NG IDENTICAL, R ESPECTFULLY FOLLOWING THE ABOVE DECISIONS , THE CLAIM OF THE APPELLANT HAS TO BE A L L OWED. THIS GROUND OF APPEAL IS ALLOWED. ITA NOS.364 & 479/MDS/2013 14 18. WE ALSO FIND THAT CO-ORDINATE BENCH OF THIS TRI BUNAL CONSIDERED THIS ISSUE IN ASSESSEES OWN CASE FOR TH E ASSESSMENT YEAR 2007-08 IN ITA NO.91/MDS/2011BY ORD ER DATED 26.11.2013 IN PARA 11 OBSERVING AS UNDER:- 11. IN GROUND NO.3 OF THE APPEAL , THE REVENUE HAS RAISED THE I SSUE OF LOSS ON FORWARD CONTRACTS : THE CIT(APPEALS) AFTER TAKING INTO CONSIDERATION THE SUBMISS I ONS OF BOTH THE SIDES AND THE FACTS ON RECORD HAVE REMITTED THE ISS UE BACK TO THE ASSESSING OFFICER WITH A SPECIF I C D IR ECTION . THE C I T(APPEA L S) HAS HELD AS UNDE R: 5.1 I HAVE CAREFULLY CONSIDERED THE FACTS PERTAIN ING TO THE CASE AND THE SUBMISSIONS OF THE AR. I FIND FROM THE SUBMISSIONS MADE AND THE ANNEXURE TO THE GROUNDS OF APPEAL THAT THE ASSESSING OFFICER HAD ERRONEOUSLY CONSIDERED THE LOSS ON REVALUATION OF FORWARD CONTRACTS TO BE REDUCTION IN LOSS OF DERIVA TIVES. IN RESPECT OF THE LOSS ON REVALUATION OF FORWARD CONTACTS, THESE REPRESENT LOSS INCURRED BY THE APPELLANT IN THE ORDINARY COURSE OF BUSINESS AND HA VE TO BE ALLOWED AS DEDUCTION. THEREFORE THE AMOUNT OF ` 22,86,303/- ADDED BACK BY THE ASSESSING OFFICER IS NOT CORRECT. IN RESPECT OF DERIVATE CONTRACTS THE L OSS CLAIMED IN THE EARLIER YEAR HAS BEEN ALLOWED AS DEDUCTION. THEREFORE, ANY REDUCTION IN THE SAID LOS S HAS TO BE ADDED BACK IN COMPUTING THE TOTAL INCOME, WHICH ACCORDING TO THE APPELLANT WAS ` 22,00,442/-. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO V ERIFY THE NATURE AND QUANTUM OF AMOUNTS THAT HAS BEEN CLAIMED BY THE APPELLANT AS DEDUCTION AFTER PROVIDI NG 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 PURPOS ES. WE DO NOT FIND ANY INFIRMITY WITH THE FINDI NGS OF THE CIT(APPEALS) ON THIS ISSUE. THEREFORE, NO INTERFERE NCE IS WARRANTED. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NOS.364 & 479/MDS/2013 15 19. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRM ITY IN THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APP EALS) ON THIS ISSUE. THEREFORE, GROUNDS OF APPEAL RAISED BY THE REVENUE ON THIS ISSUE ARE DISMISSED. 20. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT IN R ESPECT OF SALES COMMISSION PAID TO NON-RESIDENT AGENTS M/S. I SU TRADING CORPORATION AND V.C.EDWARD, SINGAPORE WIT HOUT DEDUCTION OF TAX AT SOURCE. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED SALES COMMISSI ON PAID BY THE ASSESSEE TO NON-RESIDENT AGENTS STATING THAT ASSESSEE FAILED TO DEDUCT TDS UNDER SECTION 195 OF THE ACT, THEREFORE, THE SAME ARE DISALLOWABLE UNDER SECTION 40(A)(I) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, THESE AMOUNTS W ERE PAID FOR RENDERING MANAGERIAL SERVICES AND SUCH SERVICES WOULD FALL UNDER FEES FOR TECHNICAL SERVICES AS PER PROVI SIONS OF SECTION 9(1)(VII) OF THE ACT. ON APPEAL, COMMISSION ER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE HOLDI NG THAT ITA NOS.364 & 479/MDS/2013 16 SERVICES RENDERED BY THE NON-RESIDENT AGENTS MAY NO T FALL UNDER MANAGERIAL SERVICES. 21. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING THE SALES COMMISSI ON PAID TO NON-RESIDENT AGENTS UNDER SECTION 40(A)(I) OF THE ACT FOR NON- DEDUCTION OF TDS UNDER SECTION 195 OF THE ACT. 22. COUNSEL FOR THE ASSESSEE PLACES RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND FUR THER SUBMITS THAT SIMILAR ISSUE HAS BEEN DECIDED IN FAVO UR OF THE ASSESSEE IN ITS OWN CASE FOR THE ASSESSMENT YEAR 20 05-06 IN ITA NO.2560/MDS/ DATED 16.12.2010 AND FOR THE ASSE SSMENT YEAR 2003-04 IN ITA NO.163/MDS/2012 DATED 27.7.2012 . 23. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES. THE ASSESSING OFFICER DISALLOWED SALES COMMISSION P AID TO NON-RESIDENT AGENTS ON THE GROUND THAT NO TDS WAS D EDUCTED BY THE ASSESSEE UNDER SECTION 195 OF THE ACT. THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ITA NOS.364 & 479/MDS/2013 17 DISALLOWANCE HOLDING THAT SERVICES RENDERED BY THE NON- RESIDENTS NOT FALL UNDER MANAGERIAL SERVICES SO AS TO ATTRACT PROVISIONS OF SECTION 9(1)(VII) OF THE ACT AND NO T DS IS REQUIRED TO BE DEDUCTED UNDER SECTION 195 OF THE AC T AND SERVICES RENDERED BY THE NON-RESIDENTS SHALL NOT FA LL UNDER FEES FOR TECHNICAL SERVICES. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ENTIRE SERVICES ARE REN DERED OUTSIDE INDIA AND THE NON-RESIDENTS DO NOT HAVE PER MANENT ESTABLISHMENT IN INDIA AND IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECH NOLOGY CENTRE P.LTD. VS. CIT (327 ITR 456) WHEREIN IT WAS HELD IF THE AMOUNT IS NOT DEDUCTIBLE UNDER THE ACT, THE QUESTIO N OF DEDUCTION OF TAX DOES NOT ARISE AND CONSEQUENTLY NO DISALLOWANCE OF EXPENDITURE IS WARRANTED. IT WAS T HE OBSERVATION OF THE COMMISSIONER OF INCOME TAX (APPE ALS) THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY GOOD REASON T O INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INC OME TAX ITA NOS.364 & 479/MDS/2013 18 (APPEALS) IN DELETING DISALLOWANCE. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REJECTED. 24. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDAY , THE 30 TH DAY OF APRIL, 2014 AT CHENNAI. SD/- SD/- ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) . !' ! ( #$ %&'( ) ) ACCOUNTANT MEMBER / & )* JUDICIAL MEMBER/ ' )* #&' /CHENNAI, +) /DATED, 30 TH APRIL, 2014 SOMU )&, -. /&. /COPY TO: 1. ASSESSEE 2. ASSESSING OFFIC ER 3. 0 () /CIT(A) 4. 0 /CIT 5. .3% 4 /DR 6. %5 6 /GF .