DT Status Final 7th March21

7/31/2019 DT Status Final 7th March21

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7th March 2012

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DIRECT TAX STATUS


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Contents

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Forthcoming Assessments

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AY

2010-

11

Time limit for issue of Notice u/s

143(2) is open till September 2012.

Scrutiny and Assessment will be

completed before December 2012.

Time limit for issue of Notice u/s

143(2) is open till September 2013. Scrutiny and Assessment will be

completed before December 2013.

AY

2011-12


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Tax Appeal Forum Hierarchy

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PendingAppeals

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Forward Contract Cancellation- AY 1993-94

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Background:A foreign currency loan was taken for1.672 Mn Pounds sterling from

Common Wealth Development Corporation to fund Capital expenditure

requirement, during 1990.

To mitigate the fluctuation risk, a forward cover with HSBC Bank wastaken on entire loan amount with interest and the cover was rolled over

on a six monthly basis up to 1992.

Due to Downward slide of Pound Sterling, Forward Contract was

cancelled and the company earned a gain for Rs 21.9 Mn.

The same was treated as capital receipt not chargeable to tax in the

ROI.


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Facts:

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Loan Amount 1.672 MnContracted Amount 1.752 Mn


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Nature Of Dispute:

The AO treated the Gain as revenue income and taxed the

same.

On Appeal, ITAT allowed the issue in favour of the Company

(Ref: HC Judgement in the case of EID Parry Vs CIT, 1988)

IT Dept went to appeal to HC, Now the High court has

ordered the AO to examine the facts and circumstances of

the transaction to decide further.

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Computation of Dedn u/s 80 HHC- AY 2000-01

80HHC- Deduction in respect of profits retained for

export business.

Company filed NIL return of income under normal

provisions of IT Act after setting off of earlier years

losses and computed book profit u/s 115JA.

Deduction u/s 80 HHC has been claimed from the book

profits.

AO by passing rectification order u/s 154 has

disallowed the same.

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AO concludes that since the business income was NIL, company is

not entitled to any deduction u/s 80HHC while computing book

profit.

Appeal filed to CIT quoting the Decision of High court in case of CIT

vs Faizan shoes (P) Ltd ,

Deduction u/s 80HHC is required to be computed with reference to

book profit in terms of sec 155JA and not reference to Provisions ofnormal Income tax.

CIT contented that, it was not a mistake apparent on record, a

legally debatable issue.

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Brought forward loss of TROR- AY 04-05 Company claimed brought forward loss of the

amalgamating company, TRW Rane Occupant & Restraints

Ltd.

CIT vide his order u/s 263 directed the AO to verify the

allowability of the loss amounting to Rs.11,73,41,000/- and

allow the same.

Return of income/assessment orders of amalgamating

company, submitted to the AO and the AO allowed the loss to

the extent of Rs.8,03,05,896/-

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At time of Assessment completion, AO erronously

disallowed the b/f loss of Rs. 4,70,34,840 as excess

claimed, where as the actual amount of Returns not

submitted was only Rs. 3,70,34,840. Subsequently order

u/s 154 was passed by AO revising the amount.

Rectification petition filed to the AO to allow the balance

loss of Rs.3,70,34,840/- based on the assessment order of

TROR for AY1997-98 and1998-99.

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Disallowance under Section 14A

Dividend income from Mutual Funds earned by the

Company is exempt from tax u/s 10(34).

Section 14A Meaning: "For the purposes of computing the

total income under this chapter, no deduction shall be

allowed in respect of expenditure incurred by the assessee

in relation to income which does not form part of the total

income under this Act.

The Company claims that it has not incurred any

expenditure in earning the dividend income and does not

have any borrowed funds.

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AO asserts that, Assessee would have spent labour, time

and money towards earning the dividend income. In fact,

earning dividend income in crores requires investment

decisions at the highest management levels. Thus such

expenditure has to be disallowed.

AY 2007-08

AO has arbitrarily computed notional expenditure of 5%

and added back the same while computing taxable income.

Company claims that 5% is high and arbitrary.


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Inception of Rule 8D from 01.04.2008

Rule 8D prescribes the Computation methodology of

disallowance u/s 14A.

Applicability

(a) Where the AO is not satisfied with the correctness of the

claim of expenditure made by the assessee; or

(b) Where the assessee claims that no expenditure has been

incurred in relation to income which does not form part of

the total income.

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Computation Methodology:

Rule 8D(2), the expenditure in relation to income which does

not form part of the total income shall be the aggregate offollowing amounts

(I) The amount of expenditure directly relating to income

which does not form part of total income; (which should be

disclosed in Tax audit report)

(II) Indirect Interest expenditure;

(III) 0.5% of the average of the value of investment.

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Indirect Interest expenditure is computed in accordance

with the following formula

=A X B/C

Where A = amount of expenditure by way of

interest.

B= the average of value of investment

C = the average of total assets as appearing in the

Balance Sheet.


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Note:


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AY 08-09 and 09-10AO has applied Rule 8D and disallowed.

Company claims,

AO has applied Rule 8D without any prejudice . No reason is stated for disallowance made by company iswrong.

AO also erred in invoking the Rule8D for arriving the

expenditure, without considering the disallowance made by the

company.


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Disallowance u/s 40(a)

Sec 40(a)- Disallowance of Expenditure incurred without

deduction of TDS.AY 2007-08

AO disallowed the following two payments u/s 40(a)(i),

TRW Automotive, US- Company paid $21,236.25 to TRW

Automotive for HSE Compliance Audit Programme which is not

taxable as per DTAA between India and USA.

Tech Centre Dusseldorf- Company paid 23,800 for testingcharges of L90 PRP gears to Tech Centre, Dusseldorf after

deducting 15% withholding taxes.

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AY 2008-09

AO disallowed the following two payments u/s 40(a)(i), viz

Consultancy Services to Mr. Kazuyuki Suzuki, Japan Payment of 200,000 is made to Mr. Suzuki for

providing training on Reliability Engineering without

deducting taxes considering it as services rendered byIndividual personal services, which is exempt from tax.

(article 15 of DTAAbetween India and Japan)

Expenditure on software licenses- Company purchased

various software license (8 Instances) like VISTA, MS

Office, Engg Design Catia, etc amounting to Rs 8,08,403.

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AY 2009 10


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AY 2009-10

AO disallowed the following u/s 40(a)(i), viz

Company paid for consulting fees and reimbursement of

expenses to professionals, viz Mr. Hiroto Iwata, Mr.

Suzuki and Mr. Martin Wright to the tune of Rs. 16,11,536

considering the same as services rendered under

Individual capacity.

Expenditure on software licenses- Company purchased

various software license amounting to Rs 27,30,437.

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Disallowance u/s 35(2AB)

AO disallowed certain portion of deduction u/s 35(2AB)

stating the entire expenditure was not fully approved by

competent authority. (Dept of Scientific and Industrial

Research)

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Wealth tax

Inclusion of factory land amounting to Rs.

1,33,53,000/- used for purpose of business and cash

on hand amounting to Rs. 99,000/- computation of

Net Wealth.

Factory land and cash used for the purpose of

business and as such the same would not form part of

the taxable assets

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End Of Presentation

Thank You

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Documents

DT Status Final 7th March21