ACIT, LTU CIRCLE 1 CHENNAI, CHENNAI vs. CARBORUNDUM UNIVERSAL LIMITED, CHENNAI

4. The Ld.CIT (Appeals) erred in directing the AO to delete the disallowance of export commission u/s 40(a)(ia) by following the decision of the Hon'ble ITAT without appreciating that the source of income is in India though the overseas 139 & 140/Chny/2025 commission agents are situated outside India and therefore as per the decision of the Delhi High Court in the case of Havells India Ltd(352 ITR 376), the same is taxable in India and accordingly liable for TDS.

5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing officer be restored.

Grounds for A.Y. 2014-15

1. The order of the learned Commissioner of Income Tax (Appeals) in ITA. ITBA/NFAC/S/250/24-25/1068527350(1) dated-10.09.2024 for the Assessment year 2014-15 is erroneous in law, facts and circumstances of the case.

3. The Ld. CIT(A) ought to have seen that the assets will form part of the opening written down value of the assets and are eligible for normal depreciation only and not additional depreciation.

4. The Ld. CIT(Appeals) erred in allowing the assessee's claim for depreciation on Brand value.

5. The Ld.CIT (Appeals) erred in directing the AO to delete the disallowance of export commission u/s 40(a)(ia) by following the decision of the Hon'ble ITAT without appreciating that the source of income is in India though the overseas commission agents are situated outside India and therefore as per the decision of the Delhi High Court in the case of Havells India Ltd(352 ITR 376), the same is taxable in India and accordingly liable for TDS.

139 & 140/Chny/2025 Grounds for A.Y. 2018-19

2. The Ld. CIT(Appeals) erred in allowing the assessee's claim for depreciation on Brand value.

3. The Ld.CIT (Appeals) erred in directing the AO to delete the disallowance of export commission u/s 40(a)(ia) by following the decision of the Hon'ble ITAT without appreciating that the source of income is in India though the overseas commission agents are situated outside India and therefore as per the decision of the Delhi High Court in the case of Havells India Ltd(352 ITR 376), the same is taxable in India and accordingly liable for TDS.

4. The Ld. CIT (Appeals) erred in directing the AO to restrict the disallowance of CSR expenditure without appreciating that the corporates are required to incur the CSR expenditure out of the taxable profits and therefore the same cannot be claimed as a deduction while computing the taxable profits and if this is allowed, it will defeat the very intention of the legislature of involving the corporates in sharing the burden.

5. The brief facts of the case are that the assessee is a company engaged in the business and manufacture of industrial ceramics, 139 & 140/Chny/2025 abrasives and refractories. The assessee filed its return of income for the assessment year 2013-14 on 29.11.2013 admitting total income of Rs.83,29,91,790/-. The case was selected for scrutiny under CASS and statutory notices were issued to the assessee. The assessee filed its submissions from time to time and assessment was concluded by making the following additions in the order passed u/s.143(3) r.w.s.92CA of the Income Tax Act, 1961 (hereinafter the ‘Act’) dated 13.02.2017:- Returned Income 83,29,91,790/- Add: 1) Disallowance u/s. 92CA 2,48,00,000/- 2) Disallowance u/s. 14A r.w.s rule 8D 24,98,458/- 3) Addition depreciation u/s.32(1)(iia) 2,62,21,548/- 4) Disallowance u/s. 40A(9) 4,22,216/- 5) Depreciation on know-how fees 24,652/- 6) Brand value depreciation 83,057/- 7) Disallowance of export commission u/s. 40(a)(і) 1,40,83,245/- 8) Disallowance of excess depreciation: Printer, UPS, Scanner 3,66,828/- & Router 10,32,028/- Software 6,20,000/- 9) Excess deduction u/s.35(2AB) 10) Disallowance of Principal amount 63,79,328/- 7,65,31,360/- of lease payments Assessed Income 90,95,23,150/-

6. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A)-NFAC. The assessee raised various grounds of appeal before the Ld.CIT(A) and filed detailed submission in support of the grounds of appeal before the Ld.CIT(A). On perusal 139 & 140/Chny/2025 of the submissions made by the assessee, the Ld.CIT(A) deleted the following additions vide his order dated 11.11.2014 by holding as under:- (i) Grant of 50% additional depreciation in respect of machinery installed for less than 180 days in the previous year:- 4.3 The third ground of appeal relates to disallowance of additional depreciation u/s 32(1)(iia) amounting to Rs.2,62,21,548/-. The appellant has filed the following written submissions on this issue. The same is reproduced below for the sake of clarity:

The Deputy Commissioner erred by disallowing the assessee company's claim of Rs.262.22 lakhs being the balance additional depreciation under the category 'Plant & Machinery' and 'Energy saving devices' on the assets added during the second half of the previous assessment year i.e. A.Y. 2012- 13. The additional depreciation was claimed at the rate of 10% on the carrying amount i.e., depreciated value of those additions as at the beginning of the current assessment year.

The assessee company would like to place its reliance on the memorandum explaining the insertion of Section 32(1)(iia) which reads as below:

"With a view to give a boost to the manufacturing sector, it is proposed to allow a deduction of a further sum equal to fifteen percent (presently 20%) of the actual cost of such machinery or plant acquired and installed after 31st day of March, 2002.

From the above, the memorandum clearly states that the grant of additional depreciation at 20% is for the benefit of the assessee and with the purpose of encouraging industrialization.

However, by virtue of the proviso to clause (iia) of Section 32, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year and the balance 10% additional deduction can be availed in the subsequent assessment year, otherwise the very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed. 139 & 140/Chny/2025

It is to be noted that the clause (iia) of Section 32 is a beneficial provision and has to be construed reasonably, liberally and purposively, to make the provision meaningful while granting additional allowance. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year.

The Supreme Court in PR. Commissioner of Income Tax Versus M/S IDMC Limited 2017(10) TMI 732 - SC ORDER held that since the object and purpose of granting additional depreciation is to encourage industries by permitting installation of new plant and machinery, therefore, provisions are required to be interpreted reasonably and purposively as strict and literal reading would lead to an absurd result denying additional depreciation to assessee through admittedly assessee had installed new plant and machinery.

Accordingly, based on the above, the DCIT should have appreciated that the additional depreciation benefit was given to encourage additional capital investment and should not restrict with the assets added during the first half. The very purpose of this benefit will get lost if it is restricted to the additions made during the first half alone. Hence, the one-time benefit of additional depreciation is spread across two years for the additions made during the second half should be allowed.

The assessee company's claim is supported by the decision of Honourable Madras Tribunal in the assessee company's own case in dated 19.05.2016 for the Assessment Year 2008-09 wherein the claim of additional depreciation in the subsequent year on the plant & machinery added during the second half of preceding assessment year was allowed.

Further, the contention of the assessee company is also supported by the following judgments: a) Honourable Kamataka High Court in CIT & ACIT vs. M/s Rittal India Pvt. Ltd [ITA No.590 of 2015] b) Honourable Madras Tribunal in M/s Automotive Coaches & Components Ltd. vs. DCIT, Chennai [ITA No.1789/Mds/2014] c) Tirath Singh v. Bachittar Singh, AIR 1955 SC 830; 139 & 140/Chny/2025 d) CIT v. National Taj Traders, AIR 1980 SC 485 e) KP Varghese v. ITO, AIR 1981 SC 1922 f) Grasim Industries Ltd. Versus DCIT, Mumbai And (Vice-Versa) And ITA No.5978/Mum./2004 g) Kokuyo Camlin Ltd. Versus ACIT-10 (1)(2), Aayakar Bhavan, (Mumbai Trib) h) National Aluminium Company Limited Versus ACIT, Corporate Circle-1 (2) and ORS (Cuttack Trib) [ITANos.338/CTK/2017, 39/CТК/2019,01/CTК/2020, 331/CTK/2017, 69/CTK/2019, 65/CTK/2020, Cross Objection Nos.11/CTK/2019 and 02/CTK/2020 (Arising out of ITA Nos. 69/CTК/2019 & 65/CTK/2020)]

4.3.1 The issue of the allowability of additional depreciation has been decided in favour of the appellant by the jurisdictional Tribunal in and 1525/Mds/2014 dated 19.05.2016 for A.Y. 2008-09 and 2009-10. The jurisdictional Madras High Court has also allowed the issue in the assessee's favour in the case of CIT, Chennai v Aztec Auto (P) LTd (2021) 277 Taxmann 273(Madras). Accordingly, the AO is directed to grant additional depreciation brought forward from A.Y. 2012-13. Thus ground no 3 is allowed.

(ii) Disallowance of depreciation on brand value:- 4.6 The sixth ground of appeal relates to disallowance of depreciation claimed on the Intangible assets acquired along with Jabalpur unit Rs.83,057/-. The appellant has filed the following written submissions on this issue. The same is reproduced below: During the Assessment Year 2007-08, the assessee Company acquired two units at Jabalpur on going concern basis for a consideration of Rs.320 lakhs, which includes the intangible asset towards Brand amounting to Rs.16 lakhs. The assessee company claimed depreciation at the rate of 25% on the intangible asset of Brand value.

We would like to draw your kind attention to the recent order of CIT (Appeals) for Assessment year 2015-16 vide his order in 18/CIT-17 dated 23.07.2018, wherein the disallowance was deleted in favour of the assessee. The copy of the said order is enclosed as Annexure V for your ready reference.

139 & 140/Chny/2025 4.6.1 The issue of depreciation on brand value constituting intangible asset was decided in favour of the appellant by CIT(A) for A.Y. 2008-09, 2009-10 and 2015-16. Since the facts and circumstances remain the same, the AO is directed to delete the addition of Rs. 83,057/- for the year under consideration. Hence ground no 6 is allowed.

(iii) Disallowance of commission on export u/s.40(a)(i) on account of non-deduction of TDS:- 4.7 The seventh ground of appeal relates to the disallowance under section 40. (a)(ia): Rs.1,40,83,245/-. The written submissions of the appellant are reproduced below: During the current Assessment Year, the assessee company has paid Export selling commission amounting to Rs.146.1 Lakhs. This represents the commission paid to Agents based at overseas location for the procurement of sale orders in locations outside India.

The services are rendered outside India and the agents are based in their respective home countries outside India. The income rendered by those agents falls outside the purview of the Taxable income under section 9. This income is treated as Business Income of those persons and will be assessed to tax in their respective jurisdiction.

We would like to bring to your kind attention that the provisions of Section 195 relating to TDS will apply only when the payments are chargeable to Income tax in India, as per the provisions of the law.

We also invite your attention to Circular 786 of 2000 and Circular No.23 dated 23.07.1969, wherein it is clearly stated that the Commission paid to overseas agents are not chargeable to Tax in India. GE India vs. CIT [327 ITR 456] DCIT vs. M/s. Malladi Drugs & Pharmaceuticals Limited (ITAT Chennai) [No.ITA Nos: 879, 880, 881, 882, 1254, 1255, 1256/Chny/2017, 1257, 1258 & 1259/Chny/2017], the Honourable ITAT

We also place reliance on the following judgements: a) The Principal Commissioner of Income Tax, vs. Sesa Goa Ltd (Bombay High Court) [ITA No.68 of 2016], 139 & 140/Chny/2025 b) The Principal Commissioner of Income Tax Versus Vedanta Ltd Petition(s) for Special Leave to Appeal (C) No(s). 16977 /2018. c) Hindustan EPC Company Ltd vs. ACIT (ITA No.7112/Del/2019 And (ITAT Delhi) d) Honourable Delhi HC decision in Re: Eon Technology Pvt Ltd [2011] 203 Taxman 266 (Del). e) Honourable Madras High Court in CIT vs. M/s Fluidtherm Technology Private Limited f) Honourable Madras High Court in the case of CIT vs. M/s Orient Express by placing reliance on its own judgment in CIT vs. Faizan Shoes Private Limited (48 Taxmann.com 48)

We would like to draw your kind attention to the recent order of CIT (Appeals) in assessee's own case for AY 2015-16, vide his order in dated 23.07.2018, wherein the disallowance was deleted in favour of the assessee. Further, in the assessee's own case, the Honourable Madras ITAT in and 1525/Mds/2014 dated 19.05.2016 for Assessment Year 2008-09 and 2009-10 deleted the above disallowance in favour of the assessee. Copy of the said ITAT order is enclosed as Annexure VI.

4.7.1 I have perused the assessment order and written submissions of the appellant. The AO observed that the appellant depends on overseas agents to conduct its business not only for cost effectiveness but also for the purpose of managing its affairs outside India. Thus, the AO classified the activity rendered by the overseas agents as technical services and invoked the provisions of section 9(1)(vii)(b) of the Act. The Hon'ble ITAT in and 1525/Mds/2014 dated 19.05.2016 for Assessment Year 2008-09 and 2009-10, on similar sets of facts held that as the agents rendered their service outside India, the commission received by the agents cannot be subject to taxation in India. Regarding the claim of sales commission expenses, it has been held by the Hon'ble Madras High Court in CIT v Faizan Shoes Ltd. [2014] 48 taxmann.com 48 (Madras), that the services rendered by the nonresident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of "fees for technical services". Further, the said sums cannot be taxed in India in the absence of a PE. Accordingly, the AO is directed to delete the addition of Rs. 1,40,83,245/- u/s 40(a)(i) on expenses incurred towards sales commission outside India. Accordingly, ground no 7 is allowed. 139 & 140/Chny/2025

8. Per contra, the Ld.AR submitted that the first issue raised by the Revenue with regard to the claim of 50% of additional depreciation in respect of machinery installed for less than 180 days in the previous year is in accordance with law. He further submitted that the Ld.CIT(A) has rightly relied on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Aztech Auto P Ltd., reported in 119 Taxmann.com 215 and Brakes India Ltd., vs. DCIT in TCA No.551 of 2013, dated 14.03.2017 and allowed the appeal of the assessee. Therefore, there is no reason to interfere in the order of 139 & 140/Chny/2025 the Ld.CIT(A) in this regard and prayed for confirming the order of Ld.CIT(A).

11. The next issue in respect of brand value, the Ld.AR submitted that the depreciation has been granted on brand value for earlier assessment years 2008-09, 2009-10 & 2015-16 by the Ld.CIT(A) and the Department has not preferred any appeal on the same. Further the Ld.AR submitted that the depreciation has to be given on the written down value on the block of assets and depreciation on one of the assets cannot be rejected even such asset is discarded or sold or destroyed. Further the Ld.AR submitted that since the facts and circumstances of the impugned assessment year remains the same, the Ld.CIT(A) has rightly deleted the disallowance made by the AO by allowing the appeal of the assessee. Therefore, the Ld.AR prayed to confirm the order of the Ld.CIT(A) in this regard by dismissing the appeal of the Revenue.

14. The next issue in respect of the disallowance of commission on export u/s.40(a)(1) of the Act on account for non-deduction of TDS. The Ld.AR submitted that the commission which has been paid to the 139 & 140/Chny/2025 parties / persons outside India is not taxable in India. The Ld.AR submitted that the agreement for payment of commission clearly shows that foreign agents rendered agency services in abroad and do not have any Permanent Establishment (PE) in India and hence, not taxable in India u/s.9(1)(i) of the Act. The Ld.AR submitted that this issue has already been decided in favour of the assessee by this Tribunal in assessee’s own case for the assessment year 2009-10 in and 1525/CHNY/2014, order dated 19.05.2016. Further, the Ld.AR also submitted that the issue of payment of export commission is not liable for TDS is settled in favour of assessee by the following decisions of the Hon’ble Jurisdictional High Court:- i. CIT vs. Faizan Shoes P Ltd., reported in [2014] 367 ITR 155 (Madras HC) ii. Evolv Clothing Co. vs. ACIT reported in 257 Taxman 171 (Madras HC)

In light of the above submissions, the Ld.AR prayed for dismissing the appeal of the Revenue by confirming the order of the Ld.CIT(A).

17. The next issue raised by the Revenue in assessment year 2018- 19 is with regard to the disallowance of deduction of 80G in respect to expenditure claimed under CSR.

“5. We further find that bouquet of activities that have been permitted under CSR Scheme, inter-alia, include contribution to Prime Minister’s National Relief Fund or any other fund set up by the Government for socio economic development. The impugned donation as made by the assessee is one of the prescribed modes of CSR Activities.

139 & 140/Chny/2025 6. We also find that Finance Act, 2015 has allowed tax benefits u/s.80G for donations made to Swachh Bharat Kosh and Clean Ganga Fund. The amendment and explanatory statement read as under: - Tax benefits for Swachh Bharat Kosh and Clean Ganga Fund Under the existing provisions of section 80G of the Income-tax Act, a deduction is allowed in computing the total income of a person in respect of donations made to certain funds and charitable institutions. The deduction is allowed at the rate of fifty percent of the amount of donations made except in the case of donations made to certain funds and institutions formed for a social purpose of national importance, where it is allowed at the rate of one hundred percent, such as the National Defence Fund set up by the Central Government, the Prime Minister's National Relief Fund, the Prime Minister's Armenia Earthquake Relief Fund, the Africa (Public Contributions-India) Fund, the National Children's Fund, the National Foundation for Communal Harmony etc. "Swachh Bharat Kosh" has been set up by the Central Government to mobilize resources for improving sanitation facilities in rural and urban areas and school premises through the Swachh Bharat Abhiyan. Similarly, Clean Ganga Fund has been established by the Central Government to attract voluntary contributions to rejuvenate river Ganga. With a view to encourage and enhance people's participation in the national effort to improve sanitation facilities and rejuvenation of river Ganga, it is proposed to amend section 80G of the Act so as to incentivise donations to the two funds. It is proposed to provide that donations made by any donor to the Swachh Bharat Kosh and donations made by domestic donors to Clean Ganga Fund will be eligible for a deduction of hundred per cent from the total income. However, any sum spent in pursuance of Corporate Social Responsibility under sub-section (5) of section 135 of the Companies Act, 2013, will not be eligible for deduction from the total income of the donor. The existing provisions of section 10(23C) of the Act provide for exemption from tax in respect of the income of certain charitable funds or institutions like the Prime Minister's National Relief Fund ; the Prime Minister's Fund (Promotion of Folk Art); the Prime Minister's Aid to Students Fund; the National Foundation for Communal Harmony. Considering the importance of Swachh Bharat Kosh and Clean Ganga Fund, it is also proposed to amend section 10(23C) of the Act so as to exempt the income of Swachh Bharat Kosh and Clean Ganga Fund from income-tax.

139 & 140/Chny/2025 These amendments will take effect retrospectively from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015- 16 and subsequent assessment years. It could be seen that though deduction has been granted for donation to these funds, however, it has specifically been made clear that any sum spent in pursuance of Corporate Social Responsibility under sub-section (5) of section 135 of the Companies Act, 2013 towards these funds will not be eligible for deduction from the total income of the donor. We find that there is no such restriction for donation out of CSR funds to Prime Minister’s National Relief Fund.”

Order pronounced in the open court on 23rd June, 2025 at Chennai.