By TIOL News Service

CHENNAI, FEB 10, 2016: THE issue is - Whether when interest is paid to banks located in India, the payment thus made on foreign currency for the amount borrowed from foreign banks, is exempt from the provisions of TDS u/s.194A(3)(iii)(a). YES is the verdict.

Facts of the case

The assessee is a company. AO reopened the assessment u/s 147 by issue of notice u/s 148 for the reason that the assessee had not deducted TDS on certain payments towards expenditure incurred in foreign currency. Assessee submitted that the assessment already completed u/s 143(3) was reopened by issue of notice u/s 148 on 30.3.2012 ie. after a period of 4 years from the end of the assessment year. Reasons for which the assessment has been reopened was furnished to the assessee. From the reasons recorded for reopening, it is evident that the reopening was done to disallow expenditure incurred in foreign currency towards interest, professional fees and others paid to non-residents. He further submitted that during the course of regular assessment u/s 143(3), the AO required the details of payments made in foreign currency which were furnished vide letters dated 08.09.2008 and 06.11.2008. The AO at the time original assessment u/s 143(3) after examining the above letters invoked the provisions of section 40a(ia) to disallow the payments made in respect of machining charges. In respect of the other payments made, the AO being satisfied with the explanation offered by the assessee had not disallowed these expenses, which is discussed in the assessment order. Subsequently in the order u/s 147, the AO had disallowed the expenditure on commission, interest and other payments by invoking section 40a(ia). The assessee submitted that the reason for reopening clearly betrays the lack of jurisdiction for reopening primarily.

Disallowance u/s.40(a)(i) being interest payment to various banks outside India

Interest was paid to the banks located within India, in Chennai, for the amount borrowed from these banks in foreign currency and it is not the payment made in foreign currency for the amount borrowed from any foreign bank. The AR submitted before the CIT(A) that the interest payment to any banking company is exempt from the provisions of TDS u/s.194A(3)(iii)(a) of the Act. The CIT(Appeals) convinced with the explanation given by the AR and held that the interest paid to Indian Banks in India are exempt from TDS provisions as per sec.194A(3)(iii)(a) of the Act. Accordingly, he allowed the ground of appeal. Against this, the Revenue is in appeal before us.

Sec.14A benefit by invoking the provisions of Rule 8D while computing book profit u/s.115JB

AO has added back the disallowance u/s.14A to the book profit of the assessee and since the taxable income is more as per 115JB, the same was considered by the AO for working of taxes. Aggrieved, the assessee went in appeal before the CIT(Appeals).

Having heard the matter, the Tribunal held that,

++ the AO reopened the assessment after recording the reasons as mentioned in earlier paragraph 6. So, there is no dispute that in view of the retrospective amendment, the assessment was reopened. According to the AR, there is no failure on the part of the assessee to disclose all material facts truly and fully for the purpose of assessment and the AO has no material other than amendment to form a belief that income chargeable to tax has escaped assessment. In the present case, material is the retrospective amendment under the pre 1989 law of assessment, information as to the true state of law could form part of valid basis for reopening of the assessment, as held by the judgment of SC in the case of Maharaj Kumar Kamal Singh v. CIT 2002-TIOL-1180-SC-IT-LB. Retrospective amendment of law can even permit action for rectification of assessment on the mistake apparent from the record and the same view was taken by the Supreme Court in the case of Venkatachalam v. Bombay Dyeing Manufacturing Co. Ltd. 2002-TIOL-1247-SC-IT-LB. Hence, the power u/s.147 could be invoked so as to give effect to the amended provisions of law. However, for reopening the assessment after 4 years from the end of the relevant assessment year, to confer jurisdiction u/s.147 two conditions are required to be simultaneously satisfied. AO must have reason to believe that income chargeable to tax has been under assessed, and AO must have reason that such under-assessment has occurred by reason of either omission or failure on the part of the assessee to make its return of income or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that year. Such duty would not extend beyond true and fully disclosure of material facts. Once such primary fact is before the AO, he requires no further assistance by way of disclosure. It is for him to decide what reference of fact can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for the assessee to tell the AO what inferences, whether of facts or law should be drawn. When the assessee has submitted all details of payment of commission, professional fees and others, before the AO at the time of original assessment, there is no failure on the part of the assessee to disclose all facts truly and fully for its assessment and the reasons recorded by the AO that there is failure on the part of the assessee to disclose all facts truly and fully for reopening the assessment after 4 years from the end of relevant assessment year, are not justified. Accordingly, we are inclined to allow the appeal of the assessee. In the result, the appeal of the assessee in ITA No.620/Mds/2014 is allowed;

Disallowance u/s.40(a)(i) being interest payment to various banks outside India

++ the interest was paid to the banks located in India and not outside India and the payment was not made on foreign currency for the amount borrowed from foreign banks. Being so, this payment is exempt from the provisions of TDS u/s.194A(3)(iii)(a) and disallowance u/s.40(a)(i) is not warranted. This ground is also dismissed;

Sec.14A benefit by invoking the provisions of Rule 8D while computing book profit u/s.115JB

++ this issue of disallowance made by AO for this assessment year by invoking the provisions of sec.14A r.w.Rule 8D, was in normal computation also. In our opinion, disallowance made u/s.14A r.w. Rule 8D cannot be added while computing book profit u/s.115JB that the disallowance is only disallowance for the purpose of computing taxable income of the assessee in the normal course. There is no provision in the Act to add these kind of disallowance while computing book profit u/s.115JB and it cannot change the book profit on this count. Therefore, even if there is an addition in view of provision u/s.14A r.w. Rule 8D, that cannot be added back to compute the book profit u/s.115JB. This ground is allowed. In the result, the appeals of the assessee in ITA No.620/Mds/2014 is allowed and ITA Nos.621 & 622/Mds/2014 are partly allowed. The appeals of the Revenue in ITA No. 693/Mds/14 is partly allowed, ITA No.694/Mds/2014 is partly allowed for statistical purposes and ITA No.695/Mds/2014 is dismissed.

(See 2016-TIOL-242-ITAT-MAD)