JCIT (OSD), CORPORATE CIRCLE - 1 (1),, CHENNAI vs. M/S. ABAN OFFSHORE LTD.,, CHENNAI

आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: These three appeals filed by the Revenue for the AYs 2009-10, 2010-

11 & 2012-13 and one appeal filed by the assessee for the AY 2010-11 are

directed against separate, but identical orders of the Commissioner of

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Income Tax (Appeals)-1, Chennai, of even dated 28.03.2019, 13.08.2019

& 25.11.2019 and 13.08.2019 respectively.

ITA No.1812/Chny/2019 for the AY 2009-10:

2.1. The CIT(A) failed to appreciate the fact that the disallowance of management fee was not made for following TDS provisions but for lack of genuineness and commercial expediency, as detailed by the AO in the assessment order.

2.2. The CIT(A) failed to appreciate that the assessee had failed to provide any proof related to service rendered as per agreement and other relevant information sought regarding invoices and documentary evidences.

2.3. The CIT(A) erred in not appreciating the fact that the assessee was funneling its fund in the guise of the corporate veil of management fee, through an age old agreement to M/s. India Offshore Inc, a 19.3% shareholder of the assessee, without even disclosing it under related party disclosure in its annual report.

2.4. The CIT (A) ought to have appreciated the decision of the Hon'ble High Court of Kerala in the case of CIT Vs. Premier Breweries (279 ITR 51)(Ker) which has been affirmed by the Hon'ble Supreme Court in 372 ITR 180 (SC) wherein it was held that mere fact that payment has been made under contract or agreement, is not conclusive of fact that expenditure is being paid off wholly and exclusively for purpose of business ........ there was no sufficient materials to allow payment in respect (of sale) for which no reinvoicing was done and was not made on account of any business or commercial expediency, Assessing Officer rightly disallowed the claim.

2.5. The CIT (A) erred in relying on the Hon'ble ITATs decision in the assessee's own case wherein the further reliance was placed on the decisions of Cadbury Vs. ADCIT, Air Liquid Engineering I. Pvt. Ltd. Vs. DCIT, DCIT Vs. Sana Okegawa Precision Forging Ltd., Abhishek Auto Industries Ltd. Vs. DCIT without appreciating the fact that the referred case law were with regard to deletion of TP adjustment for lack of reason whereas in the present case, the disallowance of management fee was made after investigation and for lack of genuineness and commercial expediency and distinguishable from that of the relied upon decisions.

2.6. It is submitted that the Revenue has not accepted the decision of the Hon'ble ITAT in the assessee's own case for the A.Y.2010-11 and 2011-12 and further appeal is pending decision before the Hon'ble High Court and has not reached finality.

2.7. It is also to be submitted that the instant case falls under the clause 10(e) to the Board's Circular No.3/2018, dt. 11/07/2018 as amended in Circular No.5/2019, dt.05/02/2019.

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2.1. The brief facts of the case are that the assessee is a Public Ltd. Co.

engaged in the business of providing offshore drilling and production

services to companies engaged in exploration, development and production

of oil and gas, both in domestic and international markets. The company

is also engaged in the ownership and operation of wind turbines for

generation of wind power in India. The assessee had filed the return of

income for the AY 2009-10 on 25.09.2009 admitting a total income of

Rs.460,05,54,964/-. The assessment has been completed u/s.143(3) of

the Act, on 07.05.2013 determining a total income of Rs.544,15,89,339/-.

The case has been, subsequently, re-opened u/s.147 of the Act, on the

basis of reasons recorded. As per which, income chargeable to tax has

been escaped assessment on account of payment made to M/s.India

Offshore Inc. amounting to Rs.22,48,29,847/-. In response to the notice

u/s.148 of the Act, the assessee company vide letter dated 25.04.2016,

has requested to treat the original return of income filed on 25.09.2009, as

returned filed in response to the notice u/s.148 of the Act.

2.2. The case has been taken up for scrutiny and during the course of

assessment proceedings, the AO called upon the assessee to justify the

genuineness of payment made to M/s.India Offshore Inc. towards

management fees, with necessary evidences. The AO after considering

necessary submissions and also taken note of various facts, opined that

payment made by the assessee to M/s.India Offshore Inc. is not genuine

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expenditure, which has been incurred wholly and exclusively for the

purpose of business of the assessee and thus, the total payment made to

M/s.India Offshore Inc., has been disallowed u/s.37 of the Act. The

relevant findings of the AO are as under:

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appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has

challenged the re-opening of assessment on the ground of change of

opinion. The assessee had also challenged the disallowance of

management fees paid to M/s.India Offshore Inc. in light of various

evidences and also in light of the decision of the ITAT in the assessee’s own

case for the AYs 2010-11 & 2011-12. The Ld.CIT(A) after considering the

relevant submissions of the assessee, rejected the legal ground taken by

the assessee challenging re-opening of assessment. However, deleted the

additions made by the AO towards disallowance of management fees and

directed the AO to verify the evidences filed by the assessee, including the

agreement filed by the assessee for payment of management fees.

Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before

us.

2.4 The Ld.DR, submitted that the Ld.CIT(A) failed to appreciate the fact

that the disallowance of management fees was not made by following TDS

provisions, but for lack of genuineness and commercial expediency, as

detailed by the AO in the assessment order. The Ld.DR further submitted

that the Ld.CIT(A) failed to appreciate the fact that the assessee had failed

to provide any proof related to services rendered as per the agreement and

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other relevant information sought regarding services. The Ld.DR referring

to agreement between the assessee and also relied upon the decision of

the Hon’ble Supreme Court in the case of M/s.Premier Breweries Ltd v. CIT

reported in 372 ITR 180 (SC) submitted that mere fact that payment has

been made under contract or agreement, is not conclusive of fact that

expenditure is being paid wholly and exclusively for the purpose of

business, unless there is sufficient materials to show that payment has

been made, for which, necessary services have been rendered.

2.5 The Ld.AR for the assessee, on the other hand, supporting the order

of the Ld.CIT(A) submitted that this issue is squarely covered in favour of

the assessee by the decision of the Tribunal in the assessee’s own case for

the AYs 2010-11 & 2011-12, wherein, under identical set of facts the

Tribunal has allowed the management fees paid to M/s.India Offshore Inc.

on the ground that the assessee has furnished necessary evidences

including the agreement between the party to prove genuineness of

payment.

2.6 We have heard both the parties, perused the materials available on

record and gone through orders of the authorities below. The assessee had

paid management fees to M/s.India Offshore Inc. for rendering various

services in connection with location of suitable rigs that are available in the

market, opportunities worldwide, technical specifications of available rigs,

negotiation with equipment suppliers and other services, etc., since 1986.

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The payment made to M/s.India Offshore Inc. was approved by the Ministry

of Commerce & Industry, Department of Industrial Policy & Promotion. The

assessee has paid the amount after deducting applicable TDS as per the

provisions of Sec.195 of the Act. The assessee had also filed necessary

evidences including agreement between the parties for rendering services.

Further, the ITAT had considered the very same issue for the earlier

assessment years and after considering the necessary evidences filed by

the assessee, held that expenditure was incurred in terms of agreement

entered into by the assessee and M/s.India Offshore Inc. vide agreement

dated 15.12.1986 and further, the said agreement was renewed from time

to time. The relevant findings of the Tribunal are as under:

Admittedly, this expenditure was incurred in terms of agreement entered into by the assessee and India Offshore Inc. vide agreement dated 15.12.1986, which was extended up to before the authorities and the Tribunal in earlier years and there was no addition on this count. The payment has been made originally, vide agreement dated 15.12.1986 and it was further extended up to 15.12.2014. Therefore, there is no question of raising invoices for each assessment year and the payment is made in terms of approved agreement. Further. In our opinion, the genuineness agreement cannot be questioned by the assessing authorities when it is duly approved by the Central Govt, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion and by the Reserve Bank of India as well. It is brought on record that Ministry of Commerce and Industry, Department of Industrial Policy and Promotion approved this payment vide their letter dated 25.4.2005. It is also brought on record that the payment made Indian Offshore Inc., was subjected to withholding taxes u/s 195 of the Act and TDS was duly deducted and deposited in the Govt. Bank as seen from Form 16A place on paper book at page 204. When the department has given "No Objection Certificate" for remittance made to Indian Offshore Inc., for earlier years which is placed on record at page Nos.211-212 of the paper book. Further, it is brought on record that there was no addition in earlier assessment years as evident from the copies filed before us for the! assessment years 2005-06 to 2008-09 which is kept on record at pages 1 to 146 of the paper book. Therefore, it is not possible to hold that the payment is not genuine"

2.7 In this view of the matter and consistent with view taken by the co-

ordinate Bench in the assessee’s own case for the AYs 2010-11 & 2011-12,

we are of the considered view that there is no error in the reasons given by

the Ld.CIT(A) to delete the additions made towards disallowance of

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management fees/royalty paid to M/s.India Offshore Inc. Hence, we are

inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken

by the Revenue.

2.8 In the result, the appeal filed by the Revenue in ITA

No.1812/Chny/2019 is dismissed.

ITA No.3063/Chny/2019 for the AY 2010-11 &

ITA No.3142/Chny/2019 for the AY 2010-11

No.3063/Chny/2019:

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3.1 The Revenue has raised the following grounds of appeal in ITA

No.3142/Chny/2019:

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3.2 The brief facts of the case are that the assessee is a Public Ltd. Co.

engaged in the business of providing offshore drilling and production

services to companies engaged in exploration, development and production

of oil and gas, both in domestic and international markets. The company

is also engaged in the ownership and operation of wind turbines for

generation of wind power in India. The assessee had filed return of income

for the AY 2010-11 on 28.09.2010 declaring total income of

Rs.466,55,60,940/-. The assessment has been completed u/s.143(3)

r.w.s.144C of the Act on 25.02.2015 and determined total income at

Rs.560,91,36,320/-. The assessee preferred an appeal before the ITAT.

The ITAT vide its order dated 14.09.2016 in ITA Nos.585/Mds/2015 & ITA

No.267/Mds/2016 partly allowed the appeal filed by the assessee. The AO

had passed consequential order giving effect to order passed by the

Tribunal u/s.143(3) r.w.s.254 of the Act on 23.05.2017 and determined

total income at Rs.527,66,99,067/-, but disallowed interest expenses

u/s.36(1)(iii) of the Act and disallowance u/s.14A of the Act. However, in

the meantime, the assessee had filed Miscellaneous Petition before the

Tribunal and the Tribunal vide its order in Miscellaneous Petition Nos.67 &

68/Chny/2017 dated 27.11.2017 allowed interest expenses claimed by the

assessee. The AO had, once again, passed consequential order dated

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04.01.2018 giving effect to the order of the Tribunal in Miscellaneous

Petition Nos.67 & 68/Chny/2017 dated 27.11.2017 and determined total

income at Rs.473,20,55,367/-. The assessee carried the matter in appeal

before the Ld.CIT(A) and the Ld.CIT(A) vide its order dated 31.12.2018

ruled out the order favored the issue in favour of the assessee.

3.3 The case has been, subsequently, re-opened u/s.147 of the Act, for

the reasons recorded, as per which, income chargeable to tax had been

escaped assessment on account of payments made by the assessee to

certain non-residents without deduction of Tax at source, difference in

foreign exchange currency outflow and consequential depreciation claimed

at 20% on the difference amount and further deduction allowed towards

foreign exchange fluctuation loss. In response to the notice, the assessee

filed return of income and requested the reasons for re-opening of

assessment. The assessee had also filed objection for re-opening of

assessment and the same has been disposed off vide speaking order dated

17.12.2018. Further, notice u/s.143(2) of the Act, was served on the

assessee and calling for objections, if any, for proposed re-opening of

assessment on the issue of disallowance of certain payments made to non-

residents u/s.40(a)(i) of the Act, for failure to deduct TDS u/s.195 of the

Act. The AO had also called upon the assessee to explain its case with

reference to disallowance of depreciation on difference in foreign exchange

currency outflow and also deduction claimed towards Forex loss and after

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considering the relevant submissions of the assessee, has completed the

assessment u/s.143(3) r.w.s.147 of the Act, on 26.12.2018 and

determined total income at Rs.568,29,31,662/-.

3.4 The assessee carried the matter in appeal before the First Appellate

Authority and challenged the re-opening of assessment on the ground of

change of opinion and further, questioned the jurisdiction of the AO in light

of provisions of Sec.147 of the Act. The assessee had also challenged the

additions made by the AO towards disallowance of certain payments made

to non-residents for rendering services in outside India and also payment

made to non-residents in outside India. The assessee had also challenged

additions made by the AO towards depreciation on difference in foreign

exchange currency outflow and disallowance of Forex loss. The Ld.CIT(A)

after considering the relevant submissions of the assessee, has rejected

the legal ground taken by the assessee challenging re-opening of

assessment and held that the re-opening of assessment is valid in the given

facts and circumstances of the case, because the AO has recorded reasons

for re-opening of assessment, as per which, income chargeable to tax had

escaped assessment on account of failure on the part of the assessee to

disclose fully and truly all material facts necessary for assessment.

However, deleted the additions made by the AO towards disallowance of

payment made to M/s.Haledon International Corporation, u/s.40(a)(i) of

the Act, by holding that payment made to M/s.Haledon International

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Corporation, does not come under the definition of fees for technical

services as defined u/s.9(1)(vii) of the Act and thus, the assessee does not

require to deduct TDS and consequently, payments cannot be disallowed

u/s.40(a)(i) of the Act. As regards disallowance of depreciation on

difference in foreign exchange currency outflow, the Ld.CIT(A) set aside

the issue to the file of the AO and direct the AO to re-examine the claim

with reference to various documents and bills filed by the assessee.

However, sustained additions towards disallowance of Forex loss on the

ground that the Forex loss incurred on account of fluctuation in foreign

currency loans availed for acquisition of capital assets, should be capitalized

as part of cost of assets. Hence, disallowed the loss claimed by the

assessee. Aggrieved by the order of the Ld.CIT(A), the assessee as well as

the Revenue are in appeal before us.

7 of the assessee’s appeal is validity of re-assessment order passed by the

AO. The Ld.AR for the assessee submitted that re-assessment order passed

by the AO u/s.143(3) r.w.s.147 of the Act is invalid, because, the AO had

issued notice u/s.148 of the Act, on the last day of time limit prescribed

under the Act. The Ld.AR further submitted that re-opening of assessment

beyond the period of four years is not permissible, where there is no failure

on the part of the assessee to disclose fully and truly all material facts

necessary for assessment. In this regard, relied upon certain judicial

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precedents, including the decision of the Hon’ble Supreme Court in the case

of New Delhi Television Ltd. v. DCIT reported in [2020] 116 taxmann.com

151.

4.1 The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A),

submitted that the AO has recorded reasons, which suggest escapement of

income on account of failure on the part of the assessee to disclose fully

and truly all material facts necessary for assessment and hence, there is

no merit in the arguments of the assessee and thus, the ground raised by

the assessee should be rejected.

4.2 We have heard both the parties, perused the materials available on

record and gone through orders of the authorities below. As regards the

first objection of the assessee in light of notice u/s.148 of the Act, issued

on the last day of time limit, we find that the Act prescribed for issuance of

notice within six years from the end of relevant assessment year and thus,

even if notice issued on the last day of the prescribed time limit, the said

notice should be a valid notice and thus, the assessment order passed

u/s.147 of the Act, on the basis of the said notice, cannot be held to be

invalid. The case laws relied upon by the assessee on this issue has been

considered and opined that those case laws are not applicable to the facts

of the present case. As regards, the second objection of the assessee in

light of provisions of Sec.147 of the Act, we find that the AO has recorded

reasons, as per which, income chargeable to tax, has been escaped

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assessment on account of failure on the part of the assessee to disclose

fully and truly all material facts necessary for assessment and thus, we are

of the considered view that there is no merit in the arguments of the

assessee that re-opening of assessment after a period of four years is

invalid, when there is no failure on the part of the assessee. The case laws

relied upon by the assessee in this regard are considered and opined that

facts for those cases are different from the facts of the present case and

thus, not considered. Hence, ground taken by the assessee challenging

validity of re-opening of assessment are rejected.

Nos.11-17 of the assessee’s appeal is additions towards disallowance of

loss on Foreign Currency Exchange Rate of Rs.74,36,07,565/-. During the

year under consideration, the assessee had debited an amount of

Rs.74,36,07,565/- towards foreign exchange loss. The AO had disallowed

Forex loss on the ground that Forex loss on loans/liabilities relating to fixed

assets shall be capitalized and cannot be allowed as Revenue expenditure.

The AO further opined that the assessee had also failed to furnish necessary

evidences to prove that Forex loss is on account of Revenue expenditure

and thus, disallowed total Forex loss debited into the P & L A/c u/s.37(1)

of the Act.

5.1 The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in not

deleting the additions made by the AO u/s.37(1) of the Act, towards Forex

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loss amounting to Rs.74,36,07,565/- without appreciating the fact that the

assessee had submitted the entire evidences to the AO during the scrutiny

proceedings and proved that provisions of Sec.43A of the Act, has no

application to the said loss, because the said provision is applicable only

when the assets are acquired from a country outside India, but not to assets

acquired within India. The Ld.AR further submitted that the Ld.CIT(A)

failed to appreciate the fact that the capital account transactions not

covered under the provisions of Sec.43A of the Act and of monetary items,

the exchange loss and gains due to fluctuation in Exchange Rates are to be

treated as per the applicable GAAP principles. The Ld.AR for the assessee

further referring to the Accounting Standard-11 issued by the ICAI

submitted that the transactions in the nature of monetary items and are

capital in nature are not covered under provisions of Sec.43A of the Act and

further, the transactions of Revenue in nature and corresponding effect of

exchange difference are to be accounted in the P & L A/c. The Ld.CIT(A)

without appreciating those facts simply sustained the additions made by

the AO.

5.2 The Ld.DR, on the other hand, strongly supporting the order of the

Ld.CIT(A), submitted that the assessee has failed to file necessary

evidences including the details to prove that Forex loss debited into P & L

A/c is an account of Revenue A/c and further, the same is not related to

loans/liabilities on account of acquisition of fixed assets. The Ld.CIT(A)

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after considering the relevant facts has rightly disallowed the loss on

account of foreign exchange and thus, the order of the Ld.CIT(A), should

be upheld.

5.3 We have heard both the parties, perused the materials available on

record and gone through orders of the authorities below. The AO has made

disallowance towards Forex loss on the basis of notes on accounts for the

relevant Financial Year. As per which, the assessee stated in the notes to

accounts that foreign currency transactions and derivatives on account of

difference in foreign currency loans/liabilities relating to fixed assets are

accounting in the P & L A/c. According to the AO, the assessee could not

file any evidences to justify its arguments that Forex loss does not come

under provisions of Sec.43A of the Act and further, the loans/liabilities

relating to fixed assets are acquired within India. It was the explanation of

the assessee before the AO & the Ld.CIT(A) that Forex loss incurred on

account of fluctuation in foreign currency loans/liabilities is not for acquiring

any asset from a country outside India. Further, the assessee claims that

provisions of Sec.43A of the Act, can be invoked only when the loss incurred

on loans/liabilities towards acquisition of asset from a country outside

India.

5.4 We have given our thoughtful consideration to the reasons given by

the AO in light of various arguments advanced by the assessee and we find

that the AO disallowed Forex loss on the ground that the assessee could

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not file any evidences to justify its case that Forex loss is on account of

Revenue account, whereas the assessee claims that Forex loss incurred on

account of fluctuation in foreign currency on loans/liabilities does not

pertain to acquisition of asset from a country outside India and thus,

provisions of Sec.43A of the Act, cannot be invoked. We find that as per

the provisions of Sec.43A of the Act, Forex loss related to loans/liabilities

pertains to asset acquired from outside India, should be capitalized as part

of cost of asset. However, the said provision does not apply to loss incurred

on account of fluctuation in foreign exchange loans/liabilities, if such assets

are acquired within India. Further, it is a well settled principles of law from

the decision of various courts, including the decision of the Hon’ble

Supreme Court in the case of CIT v. Woodward Governor India Pvt. Ltd.,

reported in [2009] 312 ITR 254 (SC) that Forex loss difference on account

of re-statement of laibility as on the date of balance sheet, was an item of

expenditure u/s.37(1) of the Act, even if such loss pertains to

loans/liabilities relates to acquisition of asset. The Hon’ble Supreme Court

in the case of CIT v. Tata Iron & Steel Co. Ltd., reported in [1998] 231 ITR

285 (SC) held that cost of assets and cost of raising money for purchase of

asset, are two different and independent transactions. Therefore, even

subsequent to acquisition of asset, cannot change the price paid for it. The

manner of utilization of loans, has nothing to do, if the liability on

expenditure in connection with loans re-payment. We further noted that

as per Accounting Standard-11, the ICAI has prescribed method for

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Accounting loss arising on foreign exchange fluctuation and as per which,

changes in exchange rates vis-à-vis mandatory items in foreign exchange

to be taken into account for computing profit/loss on the balance sheet

date. Therefore, an enterprise has to report the outstanding liability

relating to import of raw materials using closing rate of exchange and any

difference / loss or gain arising on conversion of the said liability at the

closing rate should be recognized in the P&L A/c for the reporting period.

Further, exchange gain or loss would be capital in nature if the foreign

currency was held as an asset. We further noted that in the present case,

foreign fluctuation loss incurred by the tax payers, has no nexus or relation

with the asset purchased. Once a particular expenditure has been wholly

and exclusively incurred for the purpose of business, the same needs to be

allowed as deduction. In the present case, although assessee claims to

have furnished various evidences to prove Forex loss incurred on account

of fluctuation in foreign exchange, is not related to acquisition of any asset

from a country outside India and hence, it cannot be added to cost of asset

in terms of Sec.43A of the Act, but the fact brought on record by the AO

shows that the assessee has not filed any evidences. Therefore, we are of

the considered view that although in principle we agree with the stand

taken by the assessee to treat Forex loss on loans/liabilities is a Revenue

in nature, but whether the facts with regard to the nature of loans/liabilities

and the purpose of such loan whether the loans have been taken for

acquisition of an asset from a country outside India or for regular business

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purpose of the assessee are not forthcoming. Therefore, we deem it

appropriate to set aside the issue to the file of the AO for further

verification. Hence, we set aside the issue to the file of the AO and direct

the AO to re-examine the claim of the assessee in light of various evidences

filed by the assessee and also by following the decision of the Hon’ble

Supreme Court in the case CIT v. Woodward Governor India Pvt. Ltd., and

also the decision of the Hon’ble Supreme Court in the case of CIT v. Tata

Iron & Steel Co. Ltd.

of the Revenue’s appeal is deletion of additions made towards disallowance

of professional and consultancy fee paid to M/s.Haledon International

Corporation u/s.40(a)(i) of the Act. The AO has disallowed the payment

made to M/s.Haledon International Corporation, towards drilling service

and management fees amounting to Rs.37,93,72,923/- u/s.40(a)(i) of the

Act, on the ground that the impugned payment comes under the definition

of fee for technical services u/s.9(1)(vii) of the Act. It was the explanation

of the assessee before the lower authorities that payment made to

M/s.Haledon International Corporation, Dubai, was towards operation

expenditure incurred in respect of operation of rigs in Iran and further, the

services were rendered outside India and the payments were also made

outside India. Therefore, unless the impugned payment made to non-

resident is taxable in India, the assessee does not require to deduct TDS

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u/s.195 of the Act and consequently, impugned payment cannot be

disallowed u/s.40(a)(i) of the Act.

6.1 We have heard both the parties, perused the materials available on

record and gone through orders of the authorities below. An identical issue

has been considered by the Tribunal, in the assessee’s own case for the AY

2015-16 in IT (TP) A No.86/Chny/2019 for the AY 2015-16, wherein, by

following its earlier decision for the AY 2012-13, held that twin conditions

of rendering services in India and utilization of such services in India are

not satisfied to bring the impugned payment within the definition of fee for

technical services as per Sec.9(1)(vii) of the Act read with explanation and

thus, the question of deduction of TDS on said payments does not arise.

The relevant findings of the Tribunal are as under:

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6.2 In this view of the matter and consistent with view taken by the co-

ordinate Bench, we set aside the issue to the file of the AO and direct the

AO to re-consider the issue in light of the directions given by the Tribunal

for the earlier years and decide the issue in accordance with law.

5 of the Revenue’s appeal and Ground Nos.8-10 of the assessee’s appeal is

additions towards disallowance of depreciation on difference in foreign

exchange outflow of Rs.62,46,40,863/-. The AO has disallowed the

depreciation on addition to fixed assets being Drill Ship amounting to

Rs.12,57,82,497/- on the ground that although the assessee claims to have

made additions to fixed asset being Drill Ship amounting to

Rs.162,13,60,953/-, but assessee could able to file evidences to the extent

of Rs.99,24,48,470/-. It was the explanation of the assessee before the

AO that there is no actual difference in the foreign currency outflow on

account of acquisition of any asset. The assessee has capitalized purchase

of new asset as per invoices, whereas, the disclosure in annual accounts is

only on the basis of actual outflow of foreign currency transactions,

therefore, on that basis additions cannot be made.

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7.1 We have heard both the parties, perused the materials available on

record and gone through orders of the authorities below. The assessee has

made additions to fixed assets amounting to Rs.162,13,60,953/- on which

depreciation @20% was claimed. The AO made additions only on the

ground that the assessee could not file necessary evidences, including the

invoices for purchase or acquisition of fixed assets. According to the AO,

although the assessee claims to have acquired assets amounting to

Rs.162.13 Crs. but in the notes to accounts, the assessee claims to have

incurred expenditure in foreign currency amounting to Rs.99,24,48,470/-.

Therefore, the difference between Rs.162.13 Crs. and Rs.99.25 Crs. has

been treated as non-genuine and disallowed depreciation claimed by the

assessee. The assessee claimed that it has filed all evidences to prove

acquisition of asset and further, amount reported in notes to accounts, is

only on the basis of actual remittances of foreign currency during the

relevant Financial Year which is nothing to do with additions made to fixed

assets. The assessee further claims that additions made to fixed assets, is

supported by necessary Invoices. The facts are contradictory. The AO

records that the assessee did not file any evidences, whereas, the assessee

claims that it has filed all evidences. The facts need to be verified. Hence,

we set aside the issue to the file of the AO and direct the AO to re-examine

the claim of the assessee in light of various evidences filed to prove

additions made to fixed assets. In case, the AO finds that the assessee has

ITA Nos.1812 & 3142/Chny/2019 ITA No.185/Chny/2020 & ITA No.3063/Chny/2019 :: 24 ::

filed necessary evidences, then the AO is directed to delete the addition

made towards disallowance of depreciation.

7.2 In the result, the appeal filed by the assessee in ITA

No.3063/Chny/2020 for the AY 2010-11 is treated as allowed for

statistical purposes and that of the appeal filed by the Revenue in

ITA No.3142/Chny/2029 for the AY 2010-11 is partly allowed for

statistical purposes.

ITA No.185/Chny/2020 for the AY 2012-13:

8.1 The only issue that came up for our consideration from Ground No.2-

3 of the Revenue’s appeal is disallowance of payment made to M/s.Haledon

International Corporation u/s.40(a)(i) of the Act. The AO has disallowed

the payment made to M/s.Haledon International Corporation, towards

drilling service and management fees amounting to Rs.13,32,01,184/-

ITA Nos.1812 & 3142/Chny/2019 ITA No.185/Chny/2020 & ITA No.3063/Chny/2019 :: 25 ::

u/s.40(a)(i) of the Act, on the ground that the impugned payment comes

under the definition of fee for technical services u/s.9(1)(vii) of the Act. It

was the explanation of the assessee before the lower authorities that

payment made to M/s.Haledon International Corporation, Dubai, was

towards operation expenditure incurred in respect of operation of rigs in

Iran and further, the services were rendered outside India and the

payments were also made in outside India. Therefore, unless the impugned

payment made to non-resident is taxable in India, the assessee does not

require to deduct TDS u/s.195 of the Act and consequently, impugned

payment cannot be disallowed u/s.40(a)(i) of the Act.

8.2 We have heard both the parties, perused the materials available on

record and gone through orders of the authorities below. An identical issue

has been considered by the Tribunal, in the assessee’s own case for the AY

2015-16 in IT (TP) A No.86/Chny/2019 for the AY 2015-16, wherein, by

following its earlier decision for the AY 2012-13, held that twin conditions

of rendering services in India and utilization of such services in India are

not satisfied to bring the impugned payment within the definition of fee for

technical services as per Sec.9(1)(vii) of the Act read with explanation and

thus, the question of deduction of TDS on said payments does not arise.

The relevant findings of the Tribunal are as under:

ITA Nos.1812 & 3142/Chny/2019 ITA No.185/Chny/2020 & ITA No.3063/Chny/2019 :: 26 ::

“12. We have heard both the parties and perused the material on record. The Explanation incorporated in Section 9 declares that “where the income is deemed to accrue or arise in India under clause (v), (vi) and (vii) and sub-sec.(1), such income shall be included in the total income of the non-resident, whether or not be resident as a residence or place of business or business connection in India”. The plain reading of the said provisions suggests that criterion of residence, place of business or business connection of a non-resident in India has been done away with for fastening the tax liability. However, the criteria of rendering service in India and the utilization of the service in India to attract tax liability u/s.9(i)(vii) remained untouched and unaffected by the Explanation to Section 9 of the Act and outside India. Therefore, the twin criterion of rendering of services in India and utilization of services in India become evidently necessary condition to deduct tax. However, in respect of the said payments, the rendering of services being purely off shore and outside India, the whatever paid towards the said services does not attract tax liability. 12.1 In view of the above, we are inclined to remit the issue to the file of the Assessing Officer to examine the issue afresh in the light of the above order along with the concerned DTAA and decide thereupon. The issue is partly allowed for statistical purposes.”

8.3 As regards Ground No.2 taken by the Revenue challenging violation

of Rule 46A we find that the Ld.CIT(A) had deleted the additions made by

the AO towards payment made to M/s.Haledon International Corporation

u/s.40(a)(i) of the Act, by following the decision of ITAT in the assessee’s

own case for the AY 2012-13 in earlier round of litigation, where the

Tribunal has categorically held that payment made to M/s.Haledon

International Corporation does not come under the definition of fees for

technical services as defined u/s.9(1)(vii) of the Act and thus, the assessee

is not required to deduct TDS u/s.195 of the Act and consequently,

payments made to said non-residents cannot be disallowed u/s.40(a)(i) of

the Act. Since, the Ld.CIT(A) has given his findings on the basis of findings

of the Tribunal for the earlier assessment years, we are of the considered

ITA Nos.1812 & 3142/Chny/2019 ITA No.185/Chny/2020 & ITA No.3063/Chny/2019 :: 27 ::

view that the question of admission of additional evidences by the

Ld.CIT(A) and violation of Rule 46A of Income Tax Rules, 1962, does not

arise and hence, we reject the ground taken by the Revenue.

8.4. In this view of the matter and consistent with view taken by the co-

ordinate Bench, we set aside the issue to the file of the AO and direct the

AO to re-consider the issue in light of the directions given by the Tribunal

for the earlier years and decide the issue in accordance with law.

8.5. In the result, appeal filed by the Revenue in ITA

No.185/Chny/2020 for the AY 2012-13 is dismissed.

Order pronounced on the 06th day of April, 2022, in Chennai.

Sd/- Sd/- (वी. दुगा� राव) (जी. मंजूनाथा) (G. MANJUNATHA) (V. DURGA RAO) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 06th April, 2022. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF