DCIT, CHENNAI V. Brakes India Ltd., CHENNAI

ITA 693/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8320 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Department
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 20-03-2014
• Court: TRIBUNAL
• Department Lawyers: M M BUSARI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reopening of assessment; Depreciation; Double taxation relief; Additional depreciation; Bonafide belief; Earning of tax free income; Deemed to accrue or arise in india; Retrospective amendment; Non-deduction of tax; Reason to believe; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 115JB; 10B; 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! ' , # '$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ITA NOS. 620 TO 622/MDS/2014 /ASSESSMENT YEARS : 2005-06, 2008-09 & 2009-10 BRAKES INDIA LTD., PADI, CHENNAI 600 050. PAN AAACB2533Q V. THE DEPUTY COMMISSIONER OF INCOME-TAX, LTU, CHENNAI. ( /APPELLANT) ( / RESPONDENT) ./ITA NOS. 693 TO 695/MDS/2014 /ASSESSMENT YEARS : 2005-06, 2008-09 & 2009-10 THE DEPUTY COMMISSIONER OF V. BRAKES INDIA LTD., INCOME-TAX, CHENNAI. CHENNAI. ( /APPELLANT) ( / RESPONDENT) ASSEESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE DEPARTMENT BY : SHRI M. M. BUSARI, CIT !' /DATE OF HEARING : 18.11.2015 #$ !' /DATE OF PRONOUNCEMENT: 08.01.2016 - - ITA 620, 621/14 ETC . 2 %& /O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE CROSS APPEALS BY THE ASSESSEE(ITA NOS.620 TO 622/MDS/2014) AND BY THE REVENUE(693 TO 695/MDS/14) ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSION ER OF INCOME- TAX(APPEALS) DATED 19.12.2013 FOR THE ASSESSMENT YE ARS 2005- 06, 2008-09 AND 2009-10. 2. IN ITA NO.620/MDS/2014, THE GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO REOPENING OF ASSESSMENT BEYOND THE PERIOD OF FOUR YEARS. 3. THE FACTS OF THE CASE ARE THAT THE AO REOPENED THE ASSESSMENT U/S 147 BY ISSUE OF NOTICE U/S 148 DATED 30.03.2012 FOR THE REASON THAT THE ASSESSE HAD NOT DEDUCTED TA X AT SOURCE ON CERTAIN PAYMENTS TOWARDS EXPENDITURE INCURRED IN FOREIGN CURRENCY. 3.1 THE ID.AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSMENT ALREADY COMPLETED UNDER SEC.143(3) WAS REOPENED BY ISSUE OF NOTICE U/S 148 ON 30.3.2012 IE. AFTER A PERIOD OF 4 YEARS FROM THE END OF THE ASSESSMENT YEAR. REASON S - - ITA 620, 621/14 ETC . 3 FOR WHICH THE ASSESSMENT HAS BEEN REOPENED WAS FURN ISHED TO THE ASSESSEE. FROM THE REASONS RECORDED FOR REOPENI NG, IT IS EVIDENT THAT THE REOPENING WAS DONE TO DISALLOW EXP ENDITURE INCURRED IN FOREIGN CURRENCY TOWARDS INTEREST, PROF ESSIONAL FEES AND OTHERS PAID TO NON-RESIDENTS. HE FURTHER SUBMIT TED THAT DURING THE COURSE OF REGULAR ASSESSMENT U/S 143(3), THE AO REQUIRED THE DETAILS OF PAYMENTS MADE IN FOREIGN CU RRENCY WHICH WERE FURNISHED VIDE LETTERS DATED 08.09.2008 AND 06 .11.2008. THE AO AT THE TIME ORIGINAL ASSESSMENT U/S 143(3) A FTER EXAMINING THE ABOVE LETTERS INVOKED THE PROVISIONS OF SECTION 40A(IA) TO DISALLOW THE PAYMENTS MADE IN RESPECT OF MACHINING CHARGES. IN RESPECT OF THE OTHER PAYMENTS MADE, THE AO BEING SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSES SEE HAD NOT DISALLOWED THESE EXPENSES, WHICH IS DISCUSSED IN TH E ASSESSMENT ORDER. SUBSEQUENTLY IN THE ORDER U/S 14 7, THE AO HAD DISALLOWED THE EXPENDITURE ON COMMISSION, INTER EST AND OTHER PAYMENTS BY INVOKING SECTION 40A(IA). THE ASS ESSEE SUBMITTED THAT THE REASON FOR REOPENING CLEARLY BET RAYS THE LACK OF JURISDICTION FOR REOPENING PRIMARILY. - - ITA 620, 621/14 ETC . 4 4. THE LD. AR RELIED ON THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF PRIYA BLUE INDUSTRIES PVT. LTD . V. DCIT (346 ITR 204), WHEREIN IT WAS HELD THAT THE ASSESSMENT C ANNOT BE REOPENED U/S.147 OF THE ACT BEYOND THE PERIOD OF 4 YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR, IF THERE IS AN Y FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. HE ALSO RELIED ON TH E DECISION OF THE TRIBUNAL, MUMBAI BENCH IN THE CASE OF CHANNEL GUIDE INDIA LTD. V. ACIT (20 ITR(TRIB) 438), WHEREIN IT WAS OBS ERVED THAT TRANSPONDER IS PAID TO NON-RESIDENT FOR SATELLITE U PLINKING TELECASTING PROGRAMME IS NOT ROYALTY U/S.9(1)(VI) O F THE ACT AND HENCE NOT TAXABLE IN INDIA UNDER INDIA-THAILAND DTA AND THERE IS NO QUESTION OF DISALLOWANCE U/S.40(A)(IA) OF THE AC T. THE LD. AR ALSO RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF STERLING ABRAIVE LTD. VS. ACIT (40 TTJ 68), WHERE ASSESSEE A CTED BONA FIDE IN CONFORMITY WITH THE PROVISIONS OF THE ACT A ND LEGAL POSITION IN NOT DEDUCTING TAX AT SOURCE, RETROSPECTIVE AMEND MENT COULD NOT BE MADE LIABLE AND THEREFORE, NO DEDUCTION U/S. 40(A)(IA) OF THE ACT IS CALLED FOR. FURTHER, HE RELIED ON THE D ECISION OF THE TRIBUNAL IN THE CASE OF DIRECTOR OF INCOME-TAX V. I SHIKAWJIMA - - ITA 620, 621/14 ETC . 5 HARIMA HEAVY INDUSTRIES COMPANY LTD. (212 TAXMAN 27 3), WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVABLE BY T HE ASSESSEE IN RESPECT OF OFF SHORE SUPPLY OF EQUIPMENT AND OFF SERVICES CANNOT BE TAXED U/S.9(1) OF THE ACT AND ARTICLE 7 O F THE DTA BETWEEN INDIA AND JAPAN. 5. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE RE IS ESCAPEMENT OF INCOME ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE AND THE SAME SHOULD BE CONFIRMED AND SUBSEQU ENT AMENDMENT COULD BE REASON FOR REOPENING OF THE ASSE SSMENT. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSMENT W AS COMPLETED U/S.143(3) OF THE ACT ON 11.11.2008 AND N OTICE FOR REOPENING WAS ISSUED TO THE ASSESSE ON 30.3.201 2 FOR THE A.2005-06, ADMITTEDLY AFTER FOUR YEARS. THE AS SESSMENT WAS REOPENED ON THE FOLLOWING REASONS: SUBSEQUENTLY, IT WAS FOUND THAT THE INCOME CH ARGEABLE TO TAX HAD ESCAPED ASSESSMENT ON ACCOUNT OF THE FOL LOWING: IT WAS OBSERVED THAT THE ASSESSE COMPANY HAD IN CURRED EXPENDITURE IN FOREIGN CURRENCY TOWARDS (I) COMMISS ION (II) PROFESSIONAL/CONSULTANCY FEES AND (IV) OTHERS, WITH OUT DEDUCTION OF TAX AT SOURCE, REQUIRES TO BE DISALLOW ED AND ADDED BACK. - - ITA 620, 621/14 ETC . 6 EXPLANATION BELOW SUB-SECTION (2) OF SECTIO N 9 HAS BEEN INSERTED BY THE FINANCE ACT, 2010 WITH RETROSP ECTIVE EFFECT FROM 1 ST JUNE 1976, WHEREBY INCOME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER C LAUSE (V), (VI) OR (VII) OF SUB-SECTION (1) OF SEC. 9 AND SHAL L BE INCLUDED IN THE TOTAL INCOME OF NON-RESIDENT, WHETHER OR NOT , (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN INDI A. MOREOVER, THE CBDT VIDE ITS CIRCULAR NO.7 DATED 22.10.2009, HAS WITHDRAWN ITS EARLIER CIRCULAR ON T HE ISSUE OF TAXATION OF NON-RESIDENTS, INCLUDING CIRCULAR NO.78 6 DATED 7.2.2000. THUS, INCOME TO THE ABOVE EXTENT HAD ESCAPED THE ASSESSMENT WITHIN THE MEANING OF PROVISIONS OF SEC. 147 OF THE I.T.ACT AND HENCE THE ASSESSMENT WAS REOPENED B Y ISSUE OF NOTICE U/S.148 VIDE NOTICE DATE 30.3.2012. 7. AS SEEN FROM THE ABOVE, EXPLANATION BELOW SUB-SECTION (2) OF SECTION 9 HAS BEEN INSERTED BY THE FINANCE A CT, 2010 WITH RETROSPECTIVE EFFECT FROM 1 ST JUNE 1976, WHEREBY INCOME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V), (VI) OR (VII) OF SUB-SECTION (1) OF SEC . 9 AND SHALL BE INCLUDED IN THE TOTAL INCOME OF NON-RESIDENT, WHETH ER OR NOT, (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BU SINESS OR BUSINESS CONNECTION IN INDIA OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN INDI A. - - ITA 620, 621/14 ETC . 7 7.1 TO CONSIDER THE EFFECT OF THIS PROVISION, THE A O REOPENED THE ASSESSMENT AFTER RECORDING THE REASONS AS MENTI ONED IN EARLIER PARAGRAPH 6. SO, THERE IS NO DISPUTE THAT IN VIEW OF THE RETROSPECTIVE AMENDMENT, THE ASSESSMENT WAS REOPENE D. ACCORDING TO THE LD. AR, THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS TRULY AND F ULLY FOR THE PURPOSE OF ASSESSMENT AND THE AO HAS NO MATERIAL OT HER THAN AMENDMENT TO FORM A BELIEF THAT INCOME CHARGEABLE T O TAX HAS ESCAPED ASSESSMENT. IN THE PRESENT CASE, MATERIAL IS THE RETROSPECTIVE AMENDMENT UNDER THE PRE 1989 LAW OF A SSESSMENT, INFORMATION AS TO THE TRUE STATE OF LAW COULD FORM PART OF VALID BASIS FOR REOPENING OF THE ASSESSMENT, AS HELD BY T HE JUDGMENT OF THE SUPREME COURT IN THE CASE OF MAHARAJ KUMAR K AMAL SINGH V. CIT (35 ITR 1). RETROSPECTIVE AMENDMENT O F LAW CAN EVEN PERMIT ACTION FOR RECTIFICATION OF ASSESSMENT ON THE MISTAKE APPARENT FROM THE RECORD AND THE SAME VIEW WAS TAKE N BY THE SUPREME COURT IN THE CASE OF VENKATACHALAM V. BOMBA Y DYEING MANUFACTURING CO. LTD. (34 ITR 143). HENCE, THE PO WER U/S.147 COULD BE INVOKED SO AS TO GIVE EFFECT TO THE AMENDE D PROVISIONS OF LAW. HOWEVER, FOR REOPENING THE ASSESSMENT AFTE R 4 YEARS - - ITA 620, 621/14 ETC . 8 FROM THE END OF THE RELEVANT ASSESSMENT YEAR, TO CO NFER JURISDICTION U/S.147 TWO CONDITIONS ARE REQUIRED TO BE SIMULTANEOUSLY SATISFIED. (I) AO MUST HAVE REASON TO BELIEVE THAT INCOME CHAR GEABLE TO TAX HAS BEEN UNDER ASSESSED, AND (II) AO MUST HAVE REASON THAT SUCH UNDER-ASSESSMENT HAS OCCURRED BY REASON OF EITHER OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO MAKE ITS RETURN OF INCOME OR OMI SSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR THAT YEAR. SUCH DUTY WOULD NOT EXTEND BEYOND TRUE AND FULLY DI SCLOSURE OF MATERIAL FACTS. ONCE SUCH PRIMARY FACT IS BEFORE T HE AO, HE REQUIRES NO FURTHER ASSISTANCE BY WAY OF DISCLOSURE . IT IS FOR HIM TO DECIDE WHAT REFERENCE OF FACT CAN BE REASONABLY DRAWN AND WHAT LEGAL INFERENCES HAVE ULTIMATELY TO BE DRAWN. IT IS NOT FOR THE ASSESSEE TO TELL THE AO WHAT INFERENCES, WHETHE R OF FACTS OR LAW SHOULD BE DRAWN. WHEN THE ASSESSEE HAS SUBMITT ED ALL DETAILS OF PAYMENT OF COMMISSION, PROFESSIONAL FEES AND OTHERS, BEFORE THE AO AT THE TIME OF ORIGINAL ASSESSMENT, T HERE IS NO - - ITA 620, 621/14 ETC . 9 FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL FACTS TRULY AND FULLY FOR ITS ASSESSMENT AND THE REASONS RECORDED B Y THE AO THAT THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DIS CLOSE ALL FACTS TRULY AND FULLY FOR REOPENING THE ASSESSMENT AFTER 4 YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR, ARE NOT JUSTIF IED. ACCORDINGLY, WE ARE INCLINED TO ALLOW THE APPEAL OF THE ASSESSEE. 7.2 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.620/MDS/2014 IS ALLOWED. 8. COMING TO THE REVENUES APPEAL IN ITA NO.693/MDS/2014, THE FIRST GROUND IS WITH REGARD TO DISALLOWANCE U/S.40(A)(I) BEING SALES COMMISSION PA ID TO VARIOUS PERSONS OUTSIDE INDIA. 9. THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.656/MDS/2 012 DATED 22.3.2013, WHEREIN IT WAS HELD AS UNDER : 47. IN OUR OPINION, NATURE OF SERVICES MENTIONED ABOVE WILL COME NOT WITHIN THE DEFINITION OF FEES FOR TE CHNICAL SERVICES GIVEN UNDER EXPLANATION 2 OF SECTION 9(1) (VII) OF THE ACT. BY VIRTUE OF SUCH SERVICES, THE CONCER NED RECIPIENTS HAD NOT MADE AVAILABLE TO THE ASSESSEE A NY NEW TECHNIC OR SKILL WHICH ASSESSEE COULD USE IN IT S BUSINESS. THE SERVICES RENDERED BY THE SAID PARTIE S RELATED TO CLEARING, WAREHOUSING AND FREIGHT CHARGE S, OUTSIDE INDIA. THE LOGISTICS SERVICE RENDERED WAS ESSENTIALLY WAREHOUSING FACILITY. IN OUR OPINION, THIS - - ITA 620, 621/14 ETC . 10 CANNOT BE EQUATED WITH MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. EVEN IF IT IS CONSIDERED AS TECHNICAL SERVICE, THE FEE WAS PAYABLE ONLY FOR SER VICES UTILIZED BY THE ASSESSEE IN THE BUSINESS OR PROFESS ION CARRIED ON BY THE SAID NON-RESIDENTS OUTSIDE INDIA. SUCH BUSINESS OR PROFESSION OF THE NON-RESIDENTS, EARNED THEM INCOME OUTSIDE INDIA. THUS, IT WOULD F ALL WITHIN THE EXCEPTION GIVEN UNDER SUB-CLAUSE (B) OF SECTION 9(1) OF THE ACT. IN ANY CASE, UNDER SECTIO N 195 OF THE ACT, ASSESSEE IS LIABLE TO DEDUCT TAX ONLY W HERE THE PAYMENT MADE TO NON-RESIDENTS IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IN THE CIRCUMSTAN CES 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 CIRCUMSTANCES, WE ARE OF THE OPINION THAT IT COULD NOT HAVE BEEN SADDLED WITH THE CONSEQUENCES MENTIONED UNDER SECTION 40(A)(I) OF THE ACT. DISALLOWANCES W ERE RIGHTLY DELETED BY THE LD. CIT(APPEALS). NO INTERF ERENCE IS CALLED FOR. IN VIEW OF THE ABOVE, WE DISMISS THIS GROUND OF APP EAL. 10. NEXT ISSUE IN REVENUES APPEAL IS WITH REGARD T O DISALLOWANCE U/S.40(A)(I) BEING INTEREST PAYMENT TO VARIOUS BANKS OUTSIDE INDIA. 11. THE FACTS OF THE ISSUE ARE THAT THE INTEREST WA S PAID TO THE BANKS LOCATED WITHIN INDIA, IN CHENNAI, FOR THE AMOUNT BORROWED FROM THESE BANKS IN FOREIGN CURRENCY AND I T IS NOT THE PAYMENT MADE IN FOREIGN CURRENCY FOR THE AMOUNT BORROWED FROM ANY FOREIGN BANK. THE LD. AR SUBMITT ED BEFORE THE CIT(APPEALS) THAT THE INTEREST PAYMENT T O ANY - - ITA 620, 621/14 ETC . 11 BANKING COMPANY IS EXEMPT FROM THE PROVISIONS OF TD S U/S.194A(3)(III)(A) OF THE ACT. THE CIT(APPEALS) C ONVINCED WITH THE EXPLANATION GIVEN BY THE LD. AR AND HELD T HAT THE INTEREST PAID TO INDIAN BANKS IN INDIA ARE EXEMPT F ROM TDS PROVISIONS AS PER SEC.194A(3)(III)(A) OF THE ACT. ACCORDINGLY, HE ALLOWED THE GROUND OF APPEAL. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE INTEREST WAS PAID TO THE B ANKS LOCATED IN INDIA AND NOT OUTSIDE INDIA AND THE PAYM ENT WAS NOT MADE ON FOREIGN CURRENCY FOR THE AMOUNT BORROWE D FROM FOREIGN BANKS. BEING SO, THIS PAYMENT IS EXEMPT F ROM THE PROVISIONS OF TDS U/S.194A(3)(III)(A) AND DISALLOWA NCE U/S.40(A)(I) IS NOT WARRANTED. THIS GROUND IS ALSO DISMISSED. 13. NEXT GROUND IN REVENUES APPEAL IS WITH REGARD TO DISALLOWANCE MADE U/S.40(A)(I) BEING EXPENDITURE IN CURRED ON SALES PROMOTION, ADVERTISEMENT, LEGAL FEES OUTSI DE INDIA. 14. THE LD. AR SUBMITTED BEFORE THE CIT(APPEALS) TH AT THE COMMISSION WAS PAID FOR SALES PROMOTION OUTSIDE INDIA, - - ITA 620, 621/14 ETC . 12 THAT TOO AS A REIMBURSEMENT OF THE EXPENDITURE INCU RRED BY THE REPRESENTATIVE OUTSIDE INDIA, THEREFORE THAT WI LL NOT ATTRACT ANY TDS PROVISIONS. AS FAR AS ADVERTISEMEN T AND LEGAL FEE IS CONCERNED, THEY WERE PAID OUTSIDE INDI A AND THEY ARE NOT IN THE NATURE OF INTEREST, ROYALTY OR TECHNICAL FEE COVERED U/S.9(1)(V)(VI)/VII OF THE ACT AND NO SUCH INCOME CAN BE CONSIDERED TO BE DEEMED TO ACCRUE OR ARISE IN IN DIA. THEREFORE, TDS PROVISIONS DO NOT ATTRACT. IT WAS A LSO SUBMITTED THAT THOSE PARTIES DO NOT HAVE ANY PE IN INDIA. EVEN AS PER DTAA WITH RESPECT TO THOSE COUNTRIES TH E INCOME IS NOT CHARGEABLE TO TAX IN INDIA. THE CIT( APPEALS) CONVINCED WITH THE EXPLANATION OFFERED BY THE LD. A R AND HELD THAT THE EXPENDITURE INCURRED TOWARDS PROMOTIO N, ADVERTISEMENT AND LEGAL FEE WILL NOT ATTRACT PROVIS IONS OF TDS AND ALLOWED THE GROUND OF APPEAL. 15. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. AS NOTED BY THE CIT(APPEALS), THIS PAYMENT IS NOT COVERED UNDER THE PROVISIONS OF SEC.9(1)(V)/(VI)/(VII) OF THE ACT. BEING SO, WE C ONFIRM THE FINDINGS OF THE CIT(APPEALS) ON THIS ISSUE. - - ITA 620, 621/14 ETC . 13 15.1 IN THE RESULT, THE APPEAL OF THE REVENUE IN IT A NO.693/MDS/2014 IS PARTLY ALLOWED. 16. ITA NOS.621/MDS/2014 & 694/MDS/2014: THE FIRST GROUND IN ITA NO.621/MDS/14(ASSESSEE) IS WITH REGARD TO CONFIRMING THE DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIMED IN THE CURRENT YEAR TO THE EXT ENT IT WAS NOT ALLOWED IN THE PRECEDING YEAR IN RESPECT OF ASS ETS SPECIFIED IN SEC.32(1)(IIA) OF THE ACT. 17. THE FACTS OF THE ISSUE ARE THAT THE AO IN THE ASSESSMENT ORDER STATED THAT THE ASSESSE HAD CLAIME D ADDITIONAL DEPRECIATION U/S.32(1)(IIA) AMOUNTING TO ` 6,08,70,620 DURING THE YEAR AT THE RATE OF 10% (50% OF 20% IN RESPECT OF SECOND HALF ADDITIONS MADE TO PLA NT AND MACHINERY DURING THE PRECEDING ASSESSMENT YEAR, VIZ ., A.Y. 2007-08. SINCE THE ADDITIONS TO FIXED ASSETS WERE MADE IN THE SECOND HALF DURING THAT YEAR (A.Y.2007-08) BALA NCE 50% OF THE ADDITIONAL DEPRECIATION HAS BEEN CLAIMED DUR ING THE ASSESSMENT YEAR. HE FURTHER OBSERVED THAT AS PER T HE PROVISIONS OF SEC.32(1)(IIA), THE ADDITIONAL DEPREC IATION SHALL - - ITA 620, 621/14 ETC . 14 BE AVAILABLE ONLY FOR THE NEW ASSETS ADDED DURING T HE YEAR. THE AO ALSO OBSERVED THAT THERE IS NO PROVISION IN THE ACT PERMITTING THE BALANCE DEPRECIATION TO BE ALLOWED I N THE SUCCEEDING YEAR. AGGRIEVED, THE ASSESSE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS), WHO FOLLOWING THE TRIBUNALS ORDER IN ASSESSEES OWN CASE, DISMISSED THIS GROUND OF APPEAL. AGAINST THIS, THE ASSESSE IS IN APPEAL BEFORE US. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.266/MDS/2012 DATED 22.3.2013 FOR THE AY. 2007-08, WHEREIN IT WAS OBSERVED AS UNDER: 55. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. CLAIM OF THE ASSESSEE IS UNDER SECTIO N 32(1)(IIA), WHICH ALLOW ADDITIONAL DEPRECIATION FOR NEW MACHINERY OR PLANT ACQUIRED AND INSTALLED AFTER 31 ST MARCH, 2005. THE SAID SUB-CLAUSE (IIA) OF SECTION 32(1) R EADS AS UNDER:- 32 (1) IN RESPECT OF DEPRECIATION OF (I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (II) . . .. .. .. .. . . . . . . . . . .. .. . . . . . . . . . . . . . - - ITA 620, 621/14 ETC . 15 (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (O THER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED A ND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE AND PRODUCTION OF ANY A RTICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT OF TH E ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II): PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF - (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLAT ION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDIN G ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; O R (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COS T OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION OF ANY ONE PREVIOUS YEAR; FIRST REQUIREMENT FOR BEING ELIGIBLE FOR SUCH A CLA IM IS THAT IT SHOULD BE ON A NEW MACHINERY OR PLANT. A MACHINERY IS NEW ONLY WHEN IT IS FIRST PUT TO USE. ONCE IT IS USED, IT IS NO LONGER A NEW MACHINERY. ADMITTEDLY, THE MACHINERY, ON WHI CH CARRY FORWARD ADDITIONAL DEPRECIATION HAS BEEN CLAIMED, W AS ALREADY USED IN THE PRECEDING ASSESSMENT YEAR THOUG H FOR A PERIOD OF LESS THAN 180 DAYS. THEREFORE, FOR THE I MPUGNED ASSESSMENT YEAR, IT IS NO MORE A NEW MACHINERY OR P LANT. ONCE IT IS NOT A NEW MACHINERY OR PLANT, ALLOWANCE UNDER SECTION 32(1)(IIA) CANNOT BE ALLOWED TO IT. ADDITI ONAL - - ITA 620, 621/14 ETC . 16 DEPRECIATION ITSELF IS ONLY FOR A NEW MACHINERY OR PLANT. HENCE, CARRY FORWARD OF ANY DEFICIT ADDITIONAL DEPR ECIATION WHICH, AS PER ASSESSEE, AROSE ON ACCOUNT OF USE FOR A PERIOD LESS THAN 180 DAYS IN THE PRECEDING YEAR, IF ALLOWE D, WILL NOT BE AN ALLOWANCE FOR A NEW MACHINERY OR PLANT. FURT HER, A LOOK AT SECOND PROVISO TO SECTION 32(1)(IIA) CLEARL Y SHOWS THAT IT RESTRICTS A CLAIM OF DEPRECIATION TO 50% OF THE AMOUNT OTHERWISE ALLOWABLE, WHEN ASSETS ARE PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS IRRESPECTIVE OF WHETHER SUCH CLAIM IS FOR NORMAL DEPRECIATION OR ADDITIONAL DEPRECIATION. TH US INTENTION OF THE LEGISLATURE WAS TO GIVE SUCH ADDIT IONAL DEPRECIATION FOR THE YEAR IN WHICH ASSETS WERE PUT TO USE AND NOT FOR ANY SUCCEEDING YEAR. THERE IS NOTHING IN T HE STATUTE WHICH ALLOWS CARRY FORWARD OF SUCH DEPRECIATION. T HERE CANNOT BE ANY PRESUMPTION THAT UNLESS IT IS SPECIFI CALLY DENIED, CARRIED FORWARD HAS TO BE ALLOWED. WHAT CA N BE CARRIED FORWARD AND SET OFF HAVE BEEN SPECIFICALLY MENTIONED IN THE ACT. THIS TRIBUNAL IN ASSESSEE'S OWN CASE I N I.T.A. NO. 1069/MDS/2010 DATED 6 TH JANUARY, 2012, AT PARA 15, HELD AS UNDER:- 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE PROVISIONS OF SECTION 32 AS APPLICABLE FOR T HE RELEVANT ASSESSMENT YEAR CLEARLY SHOWS THAT ADDITIO NAL DEPRECIATION IS ALLOWABLE ON THE PLANT AND MACHINER Y ONLY FOR THE YEAR IN WHICH THE CAPACITY EXPANSION HAS TA KEN PLACE WHICH HAS RESULTED IN THE SUBSTANTIAL INCREAS E IN THE INSTALLED CAPACITY. IN THE ASSESSEES CASE THIS TOO K PLACE IN THE ASSESSMENT YEAR 2005-06 AND THE ASSESSEE HAS - - ITA 620, 621/14 ETC . 17 ALSO CLAIMED THE ADDITIONAL DEPRECIATION DURING THA T YEAR AND THE SAME HAS ALSO BEEN ALLOWED. EACH ASSESSMEN T YEAR IS SEPARATE AND INDEPENDENT ASSESSMENT YEAR. THE PROVISIONS OF SECTION 32 OF THE ACT DO NOT PROVIDE FOR CARRY FORWARD OF THE RESIDUAL ADDITIONAL DEPRECIATI ON, IF ANY. IN THE CIRCUMSTANCES, THE FINDING OF THE LEAR NED CIT(A) ON THIS ISSUE IS ON A RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUENTLY, GROUND NO.1 OF THE ASSESSEES APPEAL STANDS DISMISSED. WE ARE THEREFORE OF THE OPINION THAT CIT(APPEALS) W AS JUSTIFIED IN FOLLOWING THE VIEW TAKEN BY CO-ORDINAT E BENCH OF THIS TRIBUNAL. 56. GROUND NO.1 OF THE ASSESSEE STANDS DISMISSED. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH IS TRIBUNAL, WE DECIDE THIS ISSUE AGAINST THE ASSESSE. 19. THE NEXT GROUND IN ASSESSEES APPEAL IS WITH RE GARD TO UPHOLDING THE DISALLOWANCE U/S.14A BASED ON RULE 8D DESPITE THE FACT THAT THE ASSESSE HAD NOT INCURRED ANY EXPENDITURE TO EARN THE EXEMPTED INCOME VIZ. DIVIDE ND. 20. THE FACTS OF THE ISSUE ARE THAT THE AO STATED T HAT THE ASSESSEE HAS SHOWN INCOME BY WAY OF DIVIDEND FROM DOMESTIC COMPANIES TO THE TUNE OF ` 4,23,86,750/- AND THE ASSESSEE HAS NOT SHOWN ANY EXPENDITURE IN THE P&L ACCOUNT FOR EARNING THE ABOVE DIVIDEND. THE ASSESS E WAS SHOW CAUSED WHY THE EXPENDITURE FOR THE PURPOSE OF - - ITA 620, 621/14 ETC . 18 EARNING THE DIVIDEND EARNED CANNOT BE DISALLOWED BY MEANS OF APPLYING THE RULE 8D W.R.T. SEC.14A OF THE ACT. IN RESPONSE TO WHICH, THE ASSESSEES REPRESENTATIVE HA S STATED THAT NO EXPENDITURE WAS INCURRED IN COLLECTI NG THIS DIVIDEND, THE SAME MAY NOT BE DISALLOWED AS PER THE PROVISIONS OF SEC.14A. THE AO REJECTED THE REPLY O F THE ASSESSEE. THE AO ALSO RELIED ON THE CBDTS INSTRUC TION F. NO.173/172/2008-ITA-I DATED 4.2.2009 AND ON THE DEC ISION OF THE TRIBUNAL, SPECIAL BENCH, MUMBAI IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT PRIVATE LTD. FOR THE A.Y. 2 001-02 IN ITA NO.8057/MUMBAI/03 DATED 20.10.2008. ACCORDI NGLY, HE INVOKED THE PROVISIONS OF SEC.14A AND WORKED OUT THE DISALLOWANCE OF EXPENDITURE AS PER RULE 8D AND ARRI VED AT ` 17,60,211/-. AGAINST THIS, THE ASSESSEE WENT IN AP PEAL BEFORE THE CIT(APPEALS), WHO CONFIRMED THE FINDING OF THE A.O. 21. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, RULE 8D FOR THI S A.Y. 2008-09 IS NOT APPLICABLE, AS THIS CAME INTO EFFECT FROM 24.3.2008 AND THE SAME ISSUE IS DECIDED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF SIMPSON & CO. LTD. V. - - ITA 620, 621/14 ETC . 19 DCIT IN TCA NO.2261 OF 2006 DATED 15.10.2012. IN V IEW OF THE ABOVE DECISION OF THE JURISDICTIONAL HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 2% EXEMPTED INCOME 22. THE NEXT GROUND IN ASSESSEES APPEAL IS WITH RE GARD TO ALLOWING THE DEPRECIATING ON UPS AT 60% AS AGAIN ST THE ASSESSEES CLAIM OF 80%. 23. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE CAME UP FOR CONSIDE RATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.266/MDS/2012 DATED 22.3.2013 FOR THE AY. 2007-08 , WHEREIN THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE . RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH IS TRIBUNAL, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE . 24. THE NEXT ISSUE IN ASSESSEES APPEAL IS THAT THE CI(APPEALS)-LTU ERRED IN REDUCING THE CLAIM U/S.10B BY ALLOCATING DEDUCTION CLAIMED U/S.35AC AND EXEMPTED INCOME DESPITE THE FACT THAT THERE WAS ABSOLUTELY N O NEXUS BETWEEN THE 10B UNIT AND THESE DEDUCTIONS. THE CIT (A)- LTU FURTHER FAILED TO APPRECIATE THAT THE INVESTMEN TS FROM WHICH TAX FREE INCOME WAS EARNED WERE MADE EVEN BEF ORE - - ITA 620, 621/14 ETC . 20 10B UNIT CAME INTO EXISTENCE AND HENCE THE QUESTION OF APPORTIONING THE INCOME TO 10B UNIT DOES NOT ARISE. 25. THE FACTS OF THE ISSUE ARE THAT T HE AO OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION U/S 10B ON TWO 100% EOU (I) APACHE UNIT LOCATED AT SHOLINGAR OF ` 1 ,69,42,751 AND (II) ROLL TEE UNIT OF ` 6,86,28,810/- AND THAT IT HAD CLAIMED WEIGHTED DEDUCTION U/S 35(2AB), 35AC AND 35(1 )(II) OF THE A CT. IT HAS BEEN STATED BY THE AO THAT SINCE THE ASSESSEE H AS NOT APPORTIONED THE TOTAL R&D EXPENDITURE INCURRED BY I T ON THE SAID EOU UNITS, IT WAS ASKED TO EXPLAIN WHY THE ABOVE EX PENDITURE SHOULD NOT BE APPORTIONED PROPORTIONATELY ON THE BA SIS OF THE TURNOVER FIGURE. 25.1 THE ASSESSEE REPLIED THAT THE PRODUCTS MANUFAC TURED AND EXPORTED FROM THE 10B UNIT AT APACHE IS A TIME TESTED PRODUCT FOR YEARS TOGETHER AND THE PRODUCT MANUFACTURED AT ROLLTEC UNIT IS BASED ON THE DESIGN AND DRAWINGS PROVIDED BY THE BUYER AND HENCE THERE IS N O R & D EFFORT INVOLVED AND IT RELIED ON THE ORDER OF THE T RIBUNAL, CHENNAI BENCH IN THEIR OWN CASE FOR A.Y. 89-90 WHEREIN IT W AS HELD THAT IN ALLOWING DEDUCTION U/S 80HH, EXPENSES LIKE R &.D NEED NOT - - ITA 620, 621/14 ETC . 21 BE ALLOCATED. 25.2 THE AO REJECTED THE REPLY GIVEN BY THE ASSESSE E. HE STATED THAT THE ASSESSEE ITSELF HAS SUBMITTED THAT THE INDIAN & GLOBAL MARKETS HAVE AWARDED CONTRACT FOR THE SUPPLY OF BRAKE & BRAKE COMPONENTS TO THE ASSESSEE COMPANY CONSIDERIN G THE STRONG R&D FACILITIES OF THE ASSESSEE. BUT, IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS NOT ALLOCAT ED THE RELEVANT PORTION OF THE R&D EXPENDITURE TO THE SAID 100% EOU UNITS ENGAGED IN THE EXPORT OF BRAKE & BRAKE COMPON ENTS. IT IS ALSO OBSERVED FROM THE ANNUAL REPORT FOR THE YEAR 2 007 OF THE ASSESSEE THAT IT IS CONSTANTLY ENGAGED IN THE R &D WORK RELATED TO THE WORKING OF THE NEW BRAKING PRODUCTS SUITED TO MEET CUSTOMER REQUIREMENTS. HE STATED THAT THE ASSE SSEE IS ALSO ENGAGED IN DEVELOPING CLEARER AND MORE STABLE PRODUCT TO MANUFACTURE THE ENVIRONMENT FRIENDLY PRODUCTS, IMPR OVE THE PRODUCT LIABILITY AND IT HAS GOT VARIOUS TECHNOLOGI ES FROM VARIOUS INSTITUTIONS LOCATED OUTSIDE INDIA FOR THE ABOVE R& D FACILITIES. 25.3 WITH REGARD TO THE APPORTIONMENT OF CLAIM U/S 35AC AND 35(1)(II) IN RESPECT OF DONATIONS PAID, SINCE THE A SSESSEE HAS NOT ALLOTTED THE RELEVANT EXPENDITURE TO THE 100% EOU, THE SAME - - ITA 620, 621/14 ETC . 22 WAS ALLOTTED PROPORTIONATELY ON THE BASIS OF THE TU RNOVER OF THE SAID UNDERTAKING. SIMILAR APPORTIONING WAS ALSO DON E WITH REGARD TO DIVIDEND INCOME RECEIVED BY THE ASSESSEE. THE DETAILS OF APPORTIONING WORKED OUT BY THE AO IS AS UNDER: PROPORTION OF EXPENDITURE TO BE ALLOCATED TO 10 B UNITS .APACHE UNIT ROLLTEC UNIT TURNOVER 16,76,58,638/- 102,28,64,236/ - % OF EOU TURNOVER TO TOTAL TURNOVER 1.02 6.24 EXPENDITURE TO BE APPORTIONED 150% OF R & D CAPITAL EXPENDITURE 38,06,14,897 / - 50% OF R&D REVENUE EXPENDITURE 7,84,04,402/ - 100% OF DONATION U/S 35AC 10,20,0001- 125% OF DONATION U/S 35(I)(II) 63,75,000/- 46,64,14,299 1 - EXPENDITURE APPORTIONED BASED ON TURNOVER % TO 47,57,426/- 2,91,04,252/- EOUUNITS EXEMPTED INCOME - - - EXEMPTED INCOME APPORTIONED BASED 4,23,86,750/ - 4,32,345/- 26,44,933/- ON TURNOVER % TO EOU UNITS , - - PROFIT OF THE UNITS I 1,69,42,751/ - 6,86,28,8101 - LESS: PROPORTIONATE AMOUNT OF EXEMPT INCOME AS ABOVE 4,32,345/- 26,44,933/- PROPORTIONATE AMOUNT OF EXPENDITURE ALLOCATED AS ABOVE 47,57,426/- 2,91,04,252/- REVISED PROFITS OF EOU UNITS 1,17,52,980/- 3,68,79,625/- ACCORDINGLY, THE AO REWORKED THE DEDUCTION TO BE AL LOWED U/S 10B AT ` 4,86,32,605 AND REDUCED THE SAME FROM ` 8,55,71,561 CLAIMED BY THE ASSESSEE. AGGRIEVED, THE ASSESSEE W ENT IN APPEAL BEFORE THE CIT(APPEALS). 26. ON APPEAL, THE CIT(A) OBSERVED THAT WITH REGARD TO - - ITA 620, 621/14 ETC . 23 APPORTIONMENT OF' R & D EXPENDITURE HAS COME UP BEFORE HIS PREDECESSOR FOR A.Y. 2007-08 AND HAS DECIDED THE IS SUE IN FAVOUR OF THE ASSESSEE HOLDING THAT THE ASSESSEE HA D NOT INCURRED ANY SUCH EXPENDITURE WITH REFERENCE TO UNI TS ON WHICH 10B DEDUCTION WAS CLAIMED. THE CIT(APPEALS) ALSO OB SERVED THAT THE ISSUE WAS EXAMINED BY THE TRIBUNAL , CHENNAI BENCH FOR THE ASSESSMENT YEAR 2007-08 IN ASSESSEES OWN C ASE AND SET ASIDE THE ISSUE TO THE AO AND ALLOWED THE APPEA L IN FAVOUR OF REVENUE FOR STATISTICAL PURPOSES VIDE ITA NO.656/MD S/2012 DATED 22.3.2013. THE RELEVANT PART OF THE DECISION AS MEN TIONED BY THE CIT(APPEALS) IS REPRODUCED AS UNDER : '31 AS PER AO THE NEW PRODUCTS DEVELOPED COULD BE USED EXTENSIVELY FOR EXPORT PURPOSES. HOWEVER, WE FIND NOTHING IS AVAILABLE ON RECORD TO SHOW WHAT TANGIBLE BENEFIT, IF ANY, ASSESSEE HAD DERIVED ON ACCOUNT OF THE RESEARCH WORK. WHETHER ANY SUCH EARLIER RESEARCH HAD HELPED THE ASSESSEE WITH REGARD TO ITS ACTIVITIES IN THE UNITS ON WHICH IT HAD CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT, IS ALSO NOT ON RECORD. CIT(APPEALS) HAD GIVEN RELIEF TO THE ASSESSEE ACCEPTING ITS CLAIM THAT IT HAD NOT INCURRED ANY SU CH EXPENDITURE WITH REFERENCE TO THE UNITS 00 'WHICH 10B DEDUCTION WAS CLAIMED. WE ARE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY THE ASSESSING OFFICER. ASSESSING OFFICER HAS TO VERIFY WHETHER THE RESEARCH DONE BY THE ASSESSEE HAD ANY TANGIBLE BENEFIT VIS-A- VIS THE ACTIVITIES CARRIED ON BY IT FROM THE UNITS ON WHICH DEDUCTION UNDER SECTION 10B WAS CLAIMED. ASSESSING OFFICER HAS TO COMPUTE SUCH DATA WITH REG ARD TO RESEARCH EXPENDITURE INCURRED IN EARLIER YEARS AND COME TO A CONCLUSION IN THIS REGARD. ASSESSEE HAS TO CO-OPERATE WITH THE ASSESSING OFFICER AND GIVE NECESSARY INFORMATION. WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THIS ISSUE BACK TO ASSESSING OFFICER FOR CONSIDERATION - - ITA 620, 621/14 ETC . 24 AFRESH.' 26.1 THE CIT(APPEALS) FURTHER OBSERVED THAT THE ASS ESSEE IS MANUFACTURING OF BRAKES AND THE RELATED ITEMS. THE KNOWLEDGE GAINED OUT OF R & D IS EQUALLY USEFUL FOR ALL THE UNITS OF THE ASSESSEE UNLESS THE R & D ACTIVITY IS EXCLUSIVELY RELATED TO THE COMPONENTS MANUFACTURED BY THE NON-10B UNITS ALONE. THE ARGUMENT OF THE ASSESSEE THAT THE PRODUCTS MANUFACTURED BY 10B UNITS ARE TIME TESTED PRODUCTS AND MANUFACTURED BASED ON THE DRAWINGS OF THE CUSTOMERS ; THEREFORE NO KNOWLEDGE OF R & D WAS UTILIZED IN THESE TWO UNITS IS FAR FROM REALITY. THE AR HAS NOT PROVED SUBSTANTIVELY THAT N O PART OF THE KNOWLEDGE GAINED OUT OF R & D ACTIVITY WAS USEFUL TO THE 10B UNITS. IT IS PERTINENT TO NOTE THAT THE R & D IS AN ON-GOING PROCESS WHICH WAS ESTABLISHED MUCH EARLIER THAN THE ESTABLISHMENT OF 10B UNITS. THE KNOWLEDGE GAINE D FOR ATTAINING PERFECTION TO GET CUSTOMERS FROM ABROAD I S DUE TO, STRONG R & D BASE OF THE ASSESSEE IN INDIA. THEREFORE, THE ARGUMENT OF THE ID.AR IS NOT ON SOUND FOOTING. ACC ORDINGLY, IN VIEW OF THE DIRECTIONS GIVEN BY THE TRIBUNAL, T HE CIT(APPEALS) DIRECTED THE AO TO CARRY OUT SIMILAR EXERCISE IN LI NE WITH - - ITA 620, 621/14 ETC . 25 DIRECTIONS GIVEN BY THE TRIBUNAL FOR THE A.Y. 2007- 08 FOR THIS YEAR ALSO AND FIND OUT THE TANGIBLE BENEFITS WHICH THE 1 0B UNITS HAVE DERIVED FROM THE R & D ACTIVITIES CARRIED OUT BY TH E ASSESSEE AND DECIDE THE DISALLOWANCE. AGAINST THIS, THE ASSESSE IS IN APPEAL BEFORE US. 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE CAME FOR CONSIDERAT ION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 AND THE CIT(APPEALS) HAS GIVEN A FINDING TH AT THE AO SHOULD CARRY OUT SIMILAR EXERCISE IN LINE WITH DIRECTIONS GIVEN BY THE TRIBUNAL FOR THE A.Y. 2007-08 FOR THIS YEAR ALSO AND FIND OUT THE TANGIBLE BENEFITS WHICH THE 10B UNITS HAVE DERIVED FROM THE R & D ACTIVITIES CARRIED OUT BY THE ASSESSEE AN D DECIDE THE DISALLOWANCE. BEING SO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(APPEALS). ACCORDINGLY, THIS GROUN D IS REJECTED. 27.1 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.621/MDS/14 IS PARTLY ALLOWED. 28. THE FIRST GROUND IN REVENUES APPEAL IN ITA NO.694/MDS/14 IS WITH REGARD TO DELETION OF ADDITIO N MADE - - ITA 620, 621/14 ETC . 26 TOWARDS POWER CHARGES PAID TO WESCARE INDIA LTD. 29. WE HAVE HEARD BOTH THE PARTIES. THE CONTENTION OF THE DEPARTMENT IS THAT THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS HAVE NOT BECOME FINAL AND THEREFORE, THE DEPARTMENT PREFERRED THE APPEAL BEFO RE THE TRIBUNAL. IN OUR OPINION, THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.656/MDS/2012 DATED 22.3.2013, WHEREIN THE TRIBUNAL REMITTED THE ISSUE BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION. ACCORDINGLY, ON SIMILAR LINE, WE REMIT THIS ISSUE BACK TO THE FILE OF THE AO FOR FRESH CON SIDERATION. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 30. THE NEXT GROUND IN REVENUES APPEAL IS WITH REG ARD TO DEPRECIATION AT 80% INSTEAD OF 15% ON UPS. 31. WE FIND THAT SIMILAR ISSUE WAS CONSIDERED BY TH IS TRIBUNAL IN THE CASE OF INDIAN OVERSEAS BANK IN ITA NO.1815/MDS/2011 DATED 2.4.2013 FOR THE ASSESSMENT YEAR 2008-09, WHEREIN THE TRIBUNAL HELD THAT THE ASSESSE E IS ENTITLED TO DEPRECIATION AT 60% ON UPS, TREATING IT AS PART OF COMPUTERS. THEREFORE, WE DO NOT FIND ANY INFIRMIT Y IN THE - - ITA 620, 621/14 ETC . 27 ORDER OF THE CIT(APPEALS) AND THE SAME IS CONFIRMED ON THIS ISSUE. 32. THE NEXT GROUND IS WITH REGARD TO DELETING THE DISALLOWANCE MADE U/S.40(A)(I) BEING THE INTEREST P AID TO THE BRANCHES OF BANKS LOCATED OUTSIDE INDIA. 33. THIS ISSUE WAS CONSIDERED IN EARLIER ASSESSMENT YEAR IN PARAGRAPH 12 ABOVE. ACCORDINGLY, THIS GROUND IS ALSO REJECTED. 34. THE NEXT ISSUE IN THIS APPEAL IS THAT THE CIT(A PPEALS) ERRED IN DELETING THE DISALLOWANCE MADE U/S.40(A)(I ) OF `1 ,39,35,643/- BEING THE AGENCY COMMISSION OF ` 112.01 LAKHS AND PROFESSIONAL AND CONSULTANCY CHARGES OF ` 27.34 LAKHS. 35. THIS ISSUE WAS CONSIDERED FOR THE ASSESSMENT YE AR 2005-06 IN PARAGRAPH 15 ABOVE. ACCORDINGLY, THIS G ROUND IS ALSO REJECTED. 36. THE NEXT GROUND IN REVENUES APPEAL IS WITH REG ARD TO DISALLOWANCE OF ` 10,58,44,407/- MADE U/S.40(A)(I) BEING THE PAYMENTS FOR THE LOGISTICS SERVICES TO THE NON- RESIDENTS. THIS ISSUE ALSO CAME UP FOR CONSIDERATION IN ITA - - ITA 620, 621/14 ETC . 28 NO.693/MDS/14, WHEREIN THIS ISSUE WAS DECIDED AGAIN ST THE REVENUE. ACCORDINGLY, THIS GROUND IS ALSO REJECTED . 36.1 IN THE RESULT, THIS APPEAL OF THE REVENUE IN I TA NO.694/MDS/2014 IS ALLOWED FOR STATISTICAL PURPOSES . 37. ITANOS.622/MDS/14 AND 695/MDS/2014: THE FIRST GROUND IN ITA NO.622/MDS/2014(ASSESSEE) I S WITH REGARD TO DISALLOWANCE OF ADDITIONAL DEPRECIATION C LAIMED IN THE CURRENT YEAR TO THE EXTENT IT WAS NOT ALLOWED I N THE PRECEDING YEAR IN RESPECT OF ASSETS SPECIFIED IN SEC.32(1)(IIA) OF THE ACT. 38. WE HAVE DEALT WITH THIS ISSUE IN PARAGRAPH 18 A BOVE IN ITA NO.621/MDS/14. ACCORDINGLY, THIS GROUND IS REJECTED. 39. THE NEXT GROUND IN ASSESSEES APPEAL IS WITH RE GARD TO SEC.14A BY INVOKING THE PROVISIONS OF RULE 8D WH ILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT. 40. THE FACTS OF THE ISSUE ARE THAT THE AO HAS ADDE D BACK THE DISALLOWANCE U/S.14A TO THE BOOK PROFIT OF THE ASSESSEE AND SINCE THE TAXABLE INCOME IS MORE AS PE R 115JB, THE SAME WAS CONSIDERED BY THE AO FOR WORKIN G OF - - ITA 620, 621/14 ETC . 29 TAXES. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFO RE THE CIT(APPEALS). 41. BEFORE THE CIT(APPEALS), THE LD. AR SUBMITTED T HAT FOR THE DETAILED REASONS GIVEN, NO DISALLOWANCE U/S.14A IS WARRANTED IN COMPUTING THE BOOK PROFITS. THE ASSES SEE ALSO SUBMITTED THAT THE AO IS NOT CORRECT IN INVOKI NG THE PROVISIONS OF RULE 8D WHILE COMPUTING THE DISALLOWA NCE OF EXPENSES INCURRED TO EARN TAX FREE INCOME. ACCORDI NG TO THE LD. AR, THE AO OUGHT TO HAVE NOTED THAT IN THE ABSENCE OF SUB-SECTION (2) AND (3) OF SEC.14A IN SEC. 115JB , THE AO CANNOT INVOKE THE PROVISIONS OF RULE 8D IN COMPUTIN G THE BOOK PROFITS. FURTHER, THE LD. AR SUBMITTED THAT W ITHOUT PREJUDICE, IF AT ALL ANY DISALLOWANCE IS TO BE MADE , THE SAME CANNOT EXCEED 2% OF THE TAX FREE INCOME AS HAS BEEN CONSISTENTLY HELD IN THE CASE OF THE ASSESSEE. 41.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE OF DISALLOWANCE MAD E BY THE ASSESSING OFFICER FOR THIS ASSESSMENT YEAR BY INVOK ING THE PROVISIONS OF SEC.14A R.W.RULE 8D, WAS IN NORMAL - - ITA 620, 621/14 ETC . 30 COMPUTATION ALSO. IN OUR OPINION, DISALLOWANCE MAD E U/S.14A R.W. RULE 8D CANNOT BE ADDED WHILE COMPUTIN G BOOK PROFIT U/S.115JB OF THE ACT THAT THE DISALLOWA NCE IS ONLY DISALLOWANCE FOR THE PURPOSE OF COMPUTING TAXABLE I NCOME OF THE ASSESSEE IN THE NORMAL COURSE. THERE IS NO PROVISION IN THE ACT TO ADD THESE KIND OF DISALLOWANCE WHILE COMPUTING BOOK PROFIT U/S.115JB AND IT CANNOT CHANGE THE BOOK PROFIT ON THIS COUNT. THEREFORE, EVEN IF THERE IS AN ADDI TION IN VIEW OF PROVISION U/S.14A R.W. RULE 8D, THAT CANNOT BE A DDED BACK TO COMPUTE THE BOOK PROFIT U/S.115JB. THIS GRO UND IS ALLOWED. 42. THE NEXT GROUND IN ITA NO.622/MDS/2014 IS WITH REGARD TO DISALLOWANCE U/S.14A BY APPLYING THE PROV ISIONS OF RULE 8D WHILE COMPUTING THE NORMAL INCOME. 42.1 WE HAVE HEARD BOTH THE PARTIES. IN OUR OPINIO N, THE SAME ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN THE C ASE OF ACCEL FRONTLINE LTD. IN ITA NOS. 2780 TO 2782/MDS/2 014 DATED 27.11.2015, WHEREIN IT WAS HELD AS UNDER : 11. COMING TO THE ASSESSMENT YEARS 2008-09 AND 2009-10, THE MAIN CONTENTION OF THE ASSESSEES COUN SEL - - ITA 620, 621/14 ETC . 31 IS THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITU RE FOR EARNING EXEMPTED INCOME AND THE ASSESSEE HAS NOT USED ANY INTEREST BEARING FUNDS FOR INVESTMENT. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE ASSESSEE HA S GIVEN SUFFICIENT OPPORTUNITY TO EXPLAIN THAT THE EXPENDITURE WAS INCURRED FOR EARNING EXEMPTED INCOM E AND THE ASSESSEE HAS NOT PRODUCED NECESSARY EVIDENC E TO SUPPORT ITS CASE. IN OUR OPINION, THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DA GA GLOBAL CHEMICALS PVT. LTD. IN ITA NO.5592/MUM/2012 DATED 1.1.2015 AND THE DECISION OF THE DELHI HIGH C OURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT IN ITA NO.117 OF 2015 DATED 25.2.2015 IS HAVING BEARING ON THIS ISSUE, WHEREIN IT WAS OBSERVED AS UNDER: 6. HEARD BOTH THE PARTIES. ON A PERUSAL OF THE ORD ER OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DAGA GLOBAL CHEMICALS PVT. LTD. (SUPRA), WE FIND TH AT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL HOLDING THAT DISALLOWANCE UNDER SECTION 14A READ WI TH RULE 8D CANNOT EXCEED THE EXEMPT INCOME. WHILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER:- 2. AT THE TIME OF HEARING, DR. K.SHIVARAM ALONG WI TH SHRI RAHUL HAKANI, LD. COUNSELS FOR THE ASSESSEE ADVANCED THEIR ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED BY SUBMITTING THAT NO EXPENDITURE DIRECTLY OR INDIRECTLY WAS INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME AND FURTHER THE INVESTMENT IN SHARES WAS MADE IN EARLIER YEARS OUT OF OWN FUNDS A ND NOT OUT OF BORROWED FUNDS, THEREFORE, NO DISALLOWAN CE U/S 14A R.W. RULE 8D IS TO BE MADE. 2.1. ON THE OTHER HAND, SHRI AKHILENDRA YADAV STRON GLY DEFENDED THE CONCLUSION ARRIVED AT BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BY CONTENDING THAT A WELL REASONED ORDER HAS BEEN PASSED BY THE L D. FIRST APPELLATE AUTHORITY AS APPORTIONMENT OF EXPENDITURE FOR EARNING THE DIVIDEND INCOME WAS DON E AS PER THE PROVISIONS OF THE ACT. IT WAS PLEADED TH AT - - ITA 620, 621/14 ETC . 32 SECTION 14A R.W. RULE 8D OF THE RULES IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT APPEAL. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A LIMITED COMPANY, ENGAGED IN TRADING OF BULK AND FINE, CHEMICALS, SOL VENT AND PHARMACEUTICAL RAW MATERIALS DECLARED ITS INCOM E AT RS.74,40,000/- ON 26/09/2009. THE ASSESSEE CREDITED DIVIDEND INCOME OF RS.1,82,262/- IN ITS PR OFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WHILE FRAMI NG THE ASSESSMENT INVOKE SECTION 14A R.W. RULE 8D BY CONTENDING THAT ASSESSEE CLAIMED VARIOUS EXPENSES WHICH ARE RELATED TO EXEMPT INCOME IN ITS PROFIT & LOSS ACCOUNT AND DISALLOWED RS.14,58,412/-. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BROADLY THE STAND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. THE TOTALITY OF FACTS CLEARLY INDICATES, AS CLAIMED BY THE ASSESSEE THAT NO BORROWED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME BY THE ASSESSEE AND FURTHER THE DIVIDEND WER E DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESS EE AND NO EXPENDITURE WAS CLAIMED. WHAT IT MAY BE, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS.1,82,362/- AS DIVIDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE OF RS.14,58.412/- BY INVOKING SECTION 14A R.W. RULE 8D UNDER THE FACTS AVAILABLE ON RECOR D. IT WAS ALSO EXPLAINED BY THE LD. COUNSEL FOR THE ASSES SEE THAT ON IDENTICAL FACT IN EARLIER YEARS, NO DISALLO WANCE WAS MADE. IN THE PRESENT ASSESSMENT YEAR ALSO, NO BORROWED FUNDS WERE INVESTED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES OR FOR EARNING DIVIDEND INCOME . AT BEST, IF ANY DISALLOWANCE COULD BE MADE THAT CAN BE RESTRICTED TO RS. 1,485/- WHICH WERE CLAIMED AS DEMAT CHARGES. DISALLOWANCE U/S 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF THE ASSESS EE. THE APPEAL OF THE ASSESSEE IS THEREFORE, ALLOWED. - - ITA 620, 621/14 ETC . 33 FOLLOWING THE ABOVE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL, WE ARE OF THE OPINION THAT DISALLOWAN CE U/S.14A R.W. RULE 8D SHOULD NOT EXCEED THE EXEMPT INCOME. THE MUMBAI BENCH IN ITS ORDER SUSTAINED TH E DISALLOWANCE ON APPLICABILITY OF PROVISIONS OF SEC. 14A R.W. RULE 8D. HOWEVER, THE ALTERNATIVE CLAIM OF TH E ASSESSEE WAS THAT DISALLOWANCE IF AT ALL SHOULD BE MADE, IT SHOULD BE RESTRICTED TO EXEMPT INCOME EARNED AND NOT BEYOND THAT. ACCORDINGLY, THE AO IS DIRECTED TO LO OK AT THIS ISSUE ON THIS ANGLE AND DECIDE IT AFRESH IN TH E LIGHT OF THE ABOVE DECISION OF THE MUMBAI BENCH OF THE TRIBU NAL. ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWE D FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10. IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 42.2 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.622/MDS/2014 IS PARTLY ALLOWED. 43. THE FIRST GROUND IN ITA NO.695/MDS/2014 IS WITH REGARD TO DELETING THE DISALLOWANCE MADE U/S.40(A)( I) BEING THE INTEREST PAID TO THE STATE BANK OF INDIA, HONGK ONG BRANCH OF ` 66,77,735/-. 44. THIS ISSUE WAS CONSIDERED IN EARLIER ASSESSMENT YEAR IN PARAGRAPH 12 ABOVE. ACCORDINGLY, THIS GROUND IS ALSO REJECTED. - - ITA 620, 621/14 ETC . 34 45. THE NEXT ISSUE IN THIS APPEAL IS THAT THE CIT(A PPEALS) ERRED IN DELETING THE DISALLOWANCE MADE U/S.40(A)(I ) OF ` 1,20,23,493/- BEING THE AGENCY COMMISSION OF ` 1,05,91,968/- LAKHS AND PROFESSIONAL AND CONSULTANC Y CHARGES OF ` 14,31,525/-. 46. THIS ISSUE WAS CONSIDERED FOR THE ASSESSMENT YE AR 2005-06 IN PARAGRAPH 15 ABOVE. ACCORDINGLY, THIS G ROUND IS ALSO REJECTED. 47. THE NEXT GROUND IN REVENUES APPEAL IS WITH REG ARD TO DISALLOWANCE OF ` 5,59,61,120/-- MADE U/S.40(A)(I) BEING THE PAYMENTS FOR THE LOGISTICS SERVICES TO THE NON- RESIDENTS. THIS ISSUE ALSO CAME UP FOR CONSIDERATION IN ITA NO.693/MDS/14, WHEREIN THIS ISSUE WAS DECIDED AGAIN ST THE REVENUE. ACCORDINGLY, THIS GROUND IS ALSO REJECTED . 47.1 IN THE RESULT, THIS APPEAL OF THE REVENUE IN I TA NO.695/MDS/2014 IS DISMISSED. 48. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN I TA NO.620/MDS/2014 IS ALLOWED AND ITA NOS.621 & - - ITA 620, 621/14 ETC . 35 622/MDS/2014 ARE PARTLY ALLOWED. THE APPEALS OF TH E REVENUE IN ITA NO. 693/MDS/14 IS PARTLY ALLOWED, IT A NO.694/MDS/2014 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES AND ITA NO.695/MDS/2014 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 8 TH OF JAN., 2015 AT CHENNAI. SD/- SD/- ( %. ' ) ( ( ) * %! ) (G. PAVAN KUMAR) (CHANDRA POOJARI) ; <= /JUDICIAL MEMBER >' <=/ACCOUNTANT MEMBER (>; /CHENNAI, C< /DATED, THE 8 TH JAN., 2015. MPO* <>D EF G>F /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H ( )/CIT(A) 4. H /CIT 5. FIJ K /DR 6. JL M /GF.