Case Law Details
Sundaram Fasteners Limited Vs DCIT (ITAT Chennai)
ITAT Chennai held that the corporate guarantee to Associated Enterprise (AE) is an international transaction and it has to be assessed at 0.5% of the corporate commission. Hence, directed AO to restrict the disallowance at 0.5% of the guarantee value.
Facts- The appeals of assessee is as regards to the TPO/DRP directing the AO to make adjustment to international transactions towards guarantee commission amounting to Rs.14,52,262/- in assessment year 2009-10 and amounting to Rs.20,61,723/- in assessment year 2012-13.
Another issue in this appeal of assessee relates to the disallowance of expenses relatable to exempt income by invoking the provisions of section 14A read with rule 8D(2)(ii) & (iii) of the Income Tax Rules, 1962 by the AO and confirmed by the DRP. Notably, the assessee company has received dividend income of Rs.46,23,760/- and claimed the same as exempt u/s. 10(34) of the Income Tax Act. The assessee suo-motto has disallowed a sum of Rs.1.07 lakhs i.e., expenses relatable to exempt income u/s. 14A of the Act. The AO not convinced by the disallowance made by the assessee suo-motto, he computed disallowance under the provisions of section 14A r.w.rule 8D(2)(ii) i.e., interest expenses at Rs.2,13,77,531/- and administrative expenses under rule 8D(2)(iii) being 0.5% of average value of investment at Rs.71,24,925/- and thereby computed the total disallowance at Rs.2,85,02,456/-. The DRP confirmed the action of the AO but directed that only investment in foreign companies be excluded while computing the disallowance under Rule 8D(2)(iii). Aggrieved, the assessee has preferred the present appeal.
Conclusion- Hon’ble Madras High Court in the case of PCIT v. Redington (India) Ltd. held that the corporate guarantee is an international transaction and it has to be assessed at 0.5% of the corporate commission. Admittedly, the assessee provided corporate guarantee to its AE and the AO/DRP has confirmed the adjustment in both the years. But now, the issue being covered by the decision of Hon’ble Jurisdictional High Court in the case of Redington (India) Ltd., supra, we direct the AO to restrict the disallowance at 0.5% of the guarantee value. Accordingly, this common issue in both the appeals of assessee is partly-allowed.
Held that only plea of the assessee is that the assessee has interest free funds available with it for making investment and for this, the assessee has filed the details i.e., the balance sheet and availability of funds and also extract of details of investment in its paper-book. We direct the AO to verify the interest free funds available and the investments giving rise to exempt income. As regards to disallowance under Rule 8D(2)(iii) of the Act i.e., 0.5% of average value of investment being administrative expenses, the AO will re-compute the disallowance only on the investments giving rise to exempt income and will exclude the investments which does not give exempt income. In term of the above, this also will be verified by the AO. Hence, this issue is remitted back to the file of the AO.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These appeals by the assessee are arising out of the directions of Dispute Resolution Panel-2, Bengaluru vide directions dated 05.12.2016 & 04.05.2018. The final assessment orders were passed by the DCIT, Corporate Circle 6(2), Chennai u/s.143(3) r.w.s. 92CA(4) r.w.s.144C(13) and 143(3) r.w.s. 147 r.w.s.92C(4) of the Income Tax Act, 1961 (hereinafter the ‘Act’) for the assessment years 2012-13 & 2009-10 vide orders dated 31.01.2017 & 22.06.20 18 respectively.
IT(TP)A No.33/CHNY/2018, AY 2009-10
2. The first issue in this appeal of assessee is as regards to reopening of assessment completed by the AO u/s. 143(3) of the Act and according to assessee, the assessee’s case falls under the proviso to section 147 of the Act and hence, reassessment is bad in law.
3. We have heard rival contentions on this issue and gone through facts and circumstances of the case. We noted that the assessee has not filed the details of transactions carried out with its AE’s in Form No.3CEB as noted by the DRP in its order and now, it is not been controverted by the ld.counsel for the assessee. Hence, we confirm the order of DRP directing the AO to affirm the reopening and reopening is accordingly held valid. This ground of assessee is dismissed.
IT(TP)A No.33/CHNY/2018 & ITA No.796/CHNY/2017
4. The next common issue in both the appeals of assessee is as regards to the TPO/DRP directing the AO to make adjustment to international transactions towards guarantee commission amounting to Rs.14,52,262/- in assessment year 2009-10 and amounting to Rs.20,61,723/- in assessment year 2012-13.
5. At the outset, the ld.counsel for the assessee stated that this issue stands covered by the decision of Hon’ble Jurisdictional High Court in the case of PCIT v. Redington (India) Ltd. (2021) 430 ITR 298, wherein the Hon’ble Madras High Court has held that the corporate guarantee is an international transaction and it has to be assessed at 0.5% of the corporate commission. Similar view is taken by the Hon’ble Bombay High Court in the case of CIT vs. Everest Kento Cylinders Ltd., (2015) 378 ITR 57. Admittedly, the assessee provided corporate guarantee to its AE and the AO/DRP has confirmed the adjustment in both the years. But now, the issue being covered by the decision of Hon’ble Jurisdictional High Court in the case of Redington (India) Ltd., supra, we direct the AO to restrict the disallowance at 0.5% of the guarantee value. Accordingly, this common issue in both the appeals of assessee is partly-allowed.
ITA No.796/CHNY/2017, AY 2012-13
6. The next issue in this appeal of assessee for the assessment year 2012-13 is as regards to the disallowance of expenses relatable to exempt income by invoking the provisions of section 14A r.w.rule 8D(2)(ii) & (iii) of the Income Tax Rules, 1962 by the AO and confirmed by the DRP.
7. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee company has received dividend income of Rs.46,23,760/- and claimed the same as exempt u/s. 10(34) of the Act. The assessee suo-motto has disallowed a sum of Rs.1.07 lakhs i.e., expenses relatable to exempt income u/s.14A of the Act. The AO not convinced by the disallowance made by the assessee suo-motto, he computed disallowance under the provisions of section 14A r.w.rule 8D(2)(ii) i.e., interest expenses at Rs.2,13,77,531/- and administrative expenses under rule 8D(2)(iii) being 0.5% of average value of investment at Rs.71,24,925/- and thereby computed the total disallowance at Rs.2,85,02,456/-. Aggrieved, assessee raised objection before DRP. The DRP confirmed the action of the AO but directed that only investment in foreign companies be excluded while computing the disallowance under Rule 8D(2)(iii). The DRP observed in para 3.7 as under:-
“3.7 However as regards working of the disallowance as per Rule 8D by the AO, there is no merit in the submission of the assessee that for the purposes of Rule 8D(2)(ii), the amount “B” is the average value of investment, income from which does not or shall not form part of the total income. This value is to be taken for Rule 8D(2)(iii) also. The AO has wrongly included investment in foreign companies also while calculating this amount. Since dividend from such companies is not exempt, the assessee needs to be excluded. So AO is directed to verify this aspect and recalculate the disallowance u/s 14A read with rule 8D.
Aggrieved, now assessee is in appeal before the Tribunal.
8. We have heard rival contentions and noted that only plea of the assessee is that the assessee has interest free funds available with it for making investment and for this, the assessee has filed the details i.e., the balance sheet and availability of funds and also extract of details of investment in its paper-book. The ld.counsel for the assessee tried to show that interest free funds available are more than the investments giving rise to exempt income and the AO has nowhere proved the nexus between the interest bearing funds used for the purpose of investments giving rise to exempt income. On this, the ld.counsel stated that the issue can be re-examined by the AO viz-a-viz availability of interest free funds with that of the details of investment giving rise to exempt income. To this proposition, the ld.CIT-DR has not objected. We direct the AO to verify the interest free funds available and the investments giving rise to exempt income. The assessee will produce the books of accounts and the extract of details of investment before the AO. In term of the above, this issue is set aside to the file of the AO. As regards to disallowance under Rule 8D(2)(iii) of the Act i.e., 0.5% of average value of investment being administrative expenses, the AO will re-compute the disallowance only on the investments giving rise to exempt income and will exclude the investments which does not give exempt income. In term of the above, this also will be verified by the AO. Hence, this issue is remitted back to the file of the AO.
9. The next issue in this appeal of assessee is as regards to the disallowance of interest expenditure on interest free funds to subsidiaries u/s.36(1)(iii) of the Act amounting to Rs.22 crores.
10. We have heard rival contentions and gone through facts and circumstances of the case. The ld.counsel for the assessee drew our attention that the AO has disallowed the entire advances of Rs.22 crores given to its subsidiary Sundaram Fasteners Investments Ltd., (SFIL) i.e., outstanding loan amount. The ld.counsel stated that the AO has disallowed the entire loan amount instead of proportionate interest on the loan. According to ld.counsel, it is patent mistake and this was confirmed by DRP also without going into the fats. Now the ld.counsel for the assessee stated that the assessee has filed details of loans granted to subsidiaries and extract of balance sheet and profit & loss account for relevant assessment year 2012-13, wherein it is clear that that assessee has interest free funds available with it and once interest free funds are more than the amount advanced to subsidiary free of interest then no disallowance should be made in view of the decision of Hon’ble Supreme Court in the case of CIT vs, Reliance Industries, 307 CTR 121. The ld.counsel also stated that in similar facts, the Tribunal in assessee’s own case for assessment year 2011-12 in ITA No.813/CHNY/2016 has already set aside the issue exactly on identical facts wherein the Tribunal in para 16 held as under:-
16. We have considered the rival submissions on either side and perused the relevant material available on record. Though the assessee claims that sufficient funds by way of capital and reserves were available with the assessee, no material is filed before this Tribunal to substantiate the availability of liquid cash on the date of advance made to the subsidiary company. Moreover, the shareholding pattern of the so-called subsidiary company is also not available on record. In those circumstances, this Tribunal cannot conclude that the advance was made to subsidiary company. Moreover, the commercial expediency in investing the money was not established by filing necessary material before this Tribunal. In those factual circumstances, giving one more opportunity to the assessee to produce necessary material would not prejudice the interest of the Revenue. Accordingly, the orders of the lower authorities are set aside and the issue of disallowance of interest on the free loans and advances to subsidiary company is remitted back to the file of the Assessing Officer. The Assessing Officer shall reexamine the issue in the light of the material that may be filed by the assessee and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee.
11. When these facts were confronted to ld.CIT-DR, she fairly agreed that matter can be restored back to the file of the AO.
12. After hearing both the sides and going through the facts neither the AO nor the CIT(A) has carried out any exercise to verify availability of interest free funds used for the purpose of advancing this loan in term of the decision of Hon’ble Supreme Court in the case of Reliance Industries, supra. Since this exercise is not carried out, we restore this issue back to the file of the AO with similar direction as given in assessment year 2011-12. This issue of assessee’s appeal is allowed for statistical purposes.
13. The next issue in this appeal of assessee is as regards to the order of DRP rejecting the claim of assessee and directing the AO to disallow software expenses amounting to Rs.1,13,63,636/-.
14. Brief facts are that the assessee has made payment for SAP license fee, application software, MS Office license fee, AMC, Antivirus software and onsite support. The DRP noted that the payments like purchase of MS office and other application software is to be considered as capital in nature as the same is not going to be used for short span but it is giving enduring benefit. The DRP directed that as regards to SAP licence fee, AMC, Antivirus software and onsite support, the AO can verify from records as to whether the payments for the same is one-time payment or it is in recurring nature of expenditure. He directed that in the case of recurring nature of expenditure, the same needs to be considered as revenue expenditure and the payments related to the year under consideration needs to be allowed. The payment which is to be in the nature of enduring benefit, is to be treated as capital expenditure. Aggrieved assessee came in appeal before the Tribunal.
15. At the outset, the ld.counsel for the assessee relied on the Tribunal order in assessee’s own case for assessment year 2010-11 in ITA No.688/Mds/2015, wherein the Tribunal confirmed the findings of DRP for these two types of expenditure, one is recurring annual expenses and another is permanent expenses, by observing in para 13 as under:-
13. We have considered the rival submissions on either side and perused the relevant material available on record. As rightly submitted by the Ld. D.R., the assessee’s claim of expenditure included fee for software licenses, cost of application software, annual maintenance contract, software development and maintenance charges. The annual maintenance charges and cost of upgradation charges are held to be revenue in nature by the Dispute Resolution Panel and it has to be allowed in the year in which it was incurred. In respect of software licenses, the DRP found that there are two types of licenses – one is annual license and another one is permanent license. In respect of annual license, the Dispute Resolution Panel found it to be as revenue expenditure and to be allowed in the year in which it was incurred. As far as permanent license is concerned, the Dispute Resolution Panel found that there was enduring benefit to the assessee. When the assessee bought the software permanently, the initial purchase of software has to be on the capital field since the assessee earned the right over the software. Even though it was licensed to use, the license given to the assessee is exclusively for the assessee. Therefore, this Tribunal is of the considered opinion that the Dispute Resolution Panel has rightly found that the permanent license is in the capital field. As far as application of software is concerned, again we have to see whether it was temporary one or for long period. If the application software is only for a short period, then it has to be treated as revenue expenditure and it has to be allowed in the year in which it was incurred. If the application software is for a longer period, then it will have an enduring benefit. Therefore, as rightly found by the Dispute Resolution Panel, the expenditure has to be capitalized. The Dispute Resolution Panel directed the Assessing Officer to verify the nature of expenditure and thereafter to decide the issue. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.
15.1 The ld.counsel for the assessee as well the ld.CIT-DR agreed in term of the above, the matter can be restored back to the file of the AO for verification. Respectfully following the Co-ordinate Bench decision in assessee’s own case in earlier year, we direct the AO to verify the nature of expenditure and then allow the claim accordingly. This issue of assessee’s appeal is allowed for statistical purposes.
16. The next issue in this appeal of assessee is as regards to the disallowance of export commission for non-deduction of TDS amounting to Rs.1,93,64,267/- by invoking the provisions of section 40(a)(ia) of the Act, as the payment made to non-residents is in the nature of technical services i.e., FTS.
17. Brief facts are that the AO disallowed export commission paid to non-resident agents in the absence of any deduction of TDS u/s.195 of the Act, as according to AO, the income be chargeable to tax in term of section 9(1)(Vii)(b) of the Act. According to AO, the source of receipt is in India and hence, tax is deductible. The assessee relied on the CBDT circular No.23 dated 23.07.1969 & 786 dated 07.02.2022 in regard to taxability of Foreign Agents of Indian Exporters. The assessee also relied on the CBDT circular No.7 of 2009 dated 22.10.2009, wherein it is clarified by the Board that the earlier circulars are withdrawn and the character of export commission would not change to FTS i.e., technical services. But the DRP rejected objection of the assessee by observing in para 6.1 & 6.2 as under:-
6.1 The submissions of the assessee including that submitted vide letter dt 18.11.2016 on 22.11.2016, have duly been considered. Similar issue had arisen in the case of assessee for AY 2011-12 and the objection of the assessee were not accepted by the DRP. Findings of the DRP on the issue are reproduced as follows:
“6.1 The submissions of the assessee have duly been considered, however there are no merits in the same. The AO has discussed the issue in detail in his order and the same cannot be faulted with. His reliance on Board’s circular as well as case laws is correct interpretation of law. The circulars quoted by the assessee have already been withdrawn in 2009. So, the assessee was required to deduct tax at source u/s 195 of the Act on such payments. However, since it has failed to do so, the AO has correctly invoked the provisions of section 40(a)(i) (AO to correct the typographical error in the order as section is incorrectly mentioned as Sec 40(a)(ia)) to disallow such amount. So the objection is not accepted.”
6.2 Since the facts of the case remain the same, there is no reason to differ with the findings of DRP for AY 2011-12, so the same are reaffirmed and the objection of the assessee is not accepted.
Aggrieved, now assessee is in appeal before the Tribunal.
18. The ld.counsel for the assessee before us filed details of agency commission paid to various parties and according to him all these parties are in USA and UK and he has given details which are enclosed in assessee’s paper-book at page 22. The ld.counsel for the assessee stated that in earlier assessment year 2009-10, the Tribunal in ITA No.874/Mds/2015 has considered this issue in great detail and deleted the disallowance by observing in para 9 as under:-
9. We have heard the parties, and perused the material on record. The relevant agreements are not on record. It is, however, clear that the Agents provide a range of services, viz. logistics, warehousing, inventory management, marketing support services, as well as those related services to ascertaining and providing information on the financial standing and creditability of the buyers, i.e., apart from canvassing orders for and on behalf of the ass essee. The DTAAs between and USA & UK, the two countries where the agents are claimed to be residents, are on record. Article 7 of both deals with business profits, and which requires, for the business profits to be assessable in the other contracting state (India), the enterprise to have a permanent establishment (PE) thereat. There is no claim by the Revenue as to the nonresident payees having a PE in India. The question therefore boils down to if the services provided by them can be regarded as ‘royalty and fee for included services’ and ‘royalties and fees for technical services’, as defined under IndoUS (Article 12) and Indo-UK (Article 13) DTAAs. Article 12 of the Indo-US DTAA, in its relevant part, reads as under:
Article 12
‘3. The term “royalties” as used in this Article means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and
(b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph I of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8.
4. For purposes of this Article, “fees for included services” means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services:
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or
(b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.
5. Notwithstanding paragraph 4, “fees for included services” does not include amounts paid:
(a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked to the sale of property other than a sale described in paragraph 3(a) ;
(b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic;
(c) for teaching in or by educational institutions;
(d) for services for the personal use of the individual or individuals making the payments; or
(e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) tor professional services as defined in Article 15 (Independent Personal Services).’
The memorandum of understanding between India and US dated 15/5/1989 in respect of Article 12 of DTAA, again, in its relevant part, reads as under:
Paragraph 4 (in general)
‘This memorandum describes in some detail the category of services defined in paragraph 4 of Article 12 (Royalties and Fees for Included Services). It also provides examples of services intended to be covered within the definition of included services and those intended to be excluded, either because they do not satisfy the tests of paragraph 4, or because, notwithstanding the fact that they meet the tests of paragraph 4, they are dealt with under paragraph 5. The examples in either case are not intended as an exhaustive list but rather as illustrating a few typical cases. For case of understanding, the example in this memorandum described U.S. persons providing services to Indian persons, but the rules of Article 12 are reciprocal in application.
Article 12 includes only certain technical und consultancy services. But technical services, we mean in this context services requiring expertise in a technology. By consultancy services, we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in a technology is required to perform it.’
Example 6 and 7 of the examples thereto, explaining the application of Art. 12 in different fact situations, are relevant:
‘Example 6 Facts : An Indian vegetable oil manufacturing company wants to produce a cholesterol-free oil from a plant which produces oil normally containing cholesterol. An American company has developed a process for refining the cholesterol out of the oil. The Indian company contracts with the U.S. company to modify the formulas which it uses so as to eliminate the cholesterol, and to train the employees of the Indian company in applying the new formulas. Are the fees paid by the Indian company for included services?
Analysis : The fees are for included services. The services are technical, and the technical knowledge is made available to the Indian company.
Example 7
Facts: The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product worldwide. It hires an American marketing consulting firm to do a computer simulation of the world market for such oil and to adverse it on marketing strategies. Are the fees paid to the U.S. company for included services?
Analysis:
The fees would not be for included services. The American company is providing a consultancy service which involves the use of substantial technical skill and expertise. It is not, however, making available to the Indian company any technical experience, knowledge or skill, etc., nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is commercial information. The fact that technical skills were required by the performer of the service in order to perform the commercial information service does not make the service a technical service within the meaning of paragraph 4(b).’
Article 13 of the Indo-UK DTAA, in its relevant part, reads as under:
Article 13
3. For the purposes of this Article, the term “royalties” means:
(a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and
(b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic.
4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term “fees for technical services” means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which:
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or
(b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph (b) of this Article is received; or
(c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design.
5. The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid:
(a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in paragraph 3(a) of this Article;
(b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic;
(c) for teaching in or by educational institutions;
(d) for services for the private use of the individual or individuals making the payment; or
(e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention.’
It is patently clear from the foregoing that the warehousing, logistic, inventory management, marketing and other support services being provided by the foreign agents cannot be described as ‘fee for included services’ or, as the case may be, ‘fee for technical services’, as defined under the relevant DTAAs, but only as business profits. We have also examined the impugned payments from the stand-point of the same qualifying as ‘royalty’, to find the same as not falling within the meaning of the term as defined under the relevant Articles. The foreign agents having no PE in India, the commission (remuneration) allowed to them for the said services, is not taxable in India. There is accordingly no liability to deduct tax at source u/s. 195 of the Act thereon. Section 40(a)(i) shall, therefore, not apply in respect of the impugned payments. There is no finding with regard to the foreign agents being tax residents of USA or, as the case may be, UK; the assessee not making it’s case with reference to the relevant DTAAs before the Revenue. Accordingly, subject to finding of it being so, we direct the deletion of the impugned disallowance. We decide accordingly.
According to ld.counsel there is no change in facts, hence the decision of Tribunal be followed.
19. On the other hand, the ld.CIT-DR relied on Tribunal decision in assessee’s own case for assessment year 2011-12 in ITA No.813/Mds/2016, wherein the Tribunal has remanded the matter back to the file of the AO to re-examine the issue afresh in the light of provisions of the Act and the decision of the Hon’ble Madras High Court in the case of CIT vs. Faizan Shoes Pvt. Ltd., 367 ITR 155, by observing in para 24 as under:-
“24. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the circular issued by the CBDT was withdrawn and the issue in respect of commission paid / payable to the foreign agency. In the case before us, the provisions of Income-tax Act need to be examined irrespective of the fact whether the circular of the CBDT is withdrawn or not. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly, the orders of both the authorities below are set aside and the issue of disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue afresh in the light of the provisions of Income-tax Act after considering the withdrawal of circular issued by CBDT and the judgment of Madras High Court in Faizan shoes Pvt. Ltd. (supra) and thereafter decide the issue in accordance with law after giving a reasonable opportunity to the assessee.”
The ld.CIT(A) requested that matter be remitted back to the file of the AO for verification.
20. Going through the facts of the case, we feel that the matter should be remitted back to the file of the AO and the AO will verify the facts in term of the decision of Hon’ble Madras High Court in the case of Faizan Shoes Pvt. Ltd., supra. In term of the above, this issue is allowed for statistical purposes.
21. The next issue in this appeal of assessee is as regards to order of DRP rejecting the objections of assessee and upholding the view of AO in disallowing additional depreciation. For this, assessee has raised various grounds and the relevant ground reads as under:-
“7.1 The AO/DRP erred in confirming the disallowance of the claim of balance 50% of additional depreciation amounting to Rs.4,91,81,563/- in the current year in respect of the assets acquired in the 2nd half of preceding year.”
22. We noted that the DRP rejected relying on the order for assessment year 2011-12, wherein the DRP has rejected the claim of assessee in regard to additional depreciation. At this point, the ld.counsel for the assessee relied on the Tribunal’s decision for assessment year 2010-11 in ITA No.688/Mds/2015 wherein the Tribunal has already allowed the claim of assessee by holding that the balance 50% has to be allowed in the immediately next year by observing in para 17 as under:-
“17. We have considered the rival submissions on either side and perused the relevant material available on record. The claim of additional depreciation was considered by the Cochin Bench of this Tribunal in Apollo Tyres Ltd. (supra). After considering the relevant decisions and judgments on the subject, the Cochin Bench found that the assessee is eligible for additional depreciation in the subsequent year since the machinery was put to use for 180 days in the earlier assessment year. In view of the decision of the Cochin Bench of this Tribunal, the assessee is entitled for the balance 10% during the year under consideration. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the balance 10% additional depreciation during the year under consideration.”
We noted that the assets are exactly identical and the assessee is entitled for claim of additional depreciation. Therefore, we allow the claim of assessee.
23. In the result, the appeal filed by the assessee in IT(TP)A No.33/CHNY/2018 is partly-allowed and ITA No.796/CHNY/2017 is partly-allowed for statistical purposes.
Order pronounced in the open court on 31st August, 2023 at Chennai.
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