Income Tax Appellate Tribunal - Mumbai
Dcit Cc 7(2).Mumbai, Mumbai vs Man Industries (India) Limited, Mumbai on 24 November, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "D" MUMBAI
BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
AND
MS. KAVITHA RAJAGOPAL (JUDICIAL MEMBER)
ITA No. 619/MUM/2025
Assessment Year: 2020-2021
DCIT CC 7(2), Man Industries (India) Ltd.,
Room No. 637, Aayakar Bhavan, 101, Man House, S.V. Road, Vile
M.K. Road, Vs. Parle (West),
Mumbai-400020. Mumbai-400056.
PAN NO. AAACM 2675 G
Appellant Respondent
Assessee by : Mr. K. Gopal
Revenue by : Ms. Kavita Kaushik, Sr. DR
Date of He aring : 26/09/2025
Date of pronouncement : 24/11/2025
ORDER
PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 29.11.2024 passed by the Ld. Commissioner of Income-tax (Appeals) - 49, Mumbai [in short 'the Ld. CIT(A)'] for assessment year 2020-21, raising following grounds:
1. Whether, on the facts and circumstances of the case and in law, the Learned CTT(A) erred in permitting the deduction of interest on ECB amounting to Rs.
1,35.71,435/- under section 40(a)(ia) of the Act, without considering the payment of interest on the ECB to the Man Industries (India) Ltd 2 ITA No. 619/MUM/2025 Singapore branch of ICICT Bank Ltd as a payment made outside India, and thereby granting the exemption under section 194A(iii)(a) of the Act
2. Whether. on the facts and circumstances o off the case and in law. the L carned CTT(A) erred in allowing a sum of Rs:
1,30,70,695/ under the provisions of section 14A of the 1,30,70,695/-under Act read with Rule 8D of the Income Tax Rules, 1962, without properly appreciating the facts of the case
3. Whether, on the facts and circumstances of the case and in law, the Learned CIT(A) erred in allowing a sum of Rs. 59.64,352/ as depreciation claimed for the assessment 59.64,352/-as 2020 21 on the written down value (WDV) of the year 2020-21 capitalized withholding tax (WHT) paid on the premium for the redemption of Foreign Currency Convertible Bonds (FCCBs) during the assessment year 2013-14.
20134. The order of the Ld. CIT(A) is erroneous in law and on facts of the case and is liable to be set aside and the order of the AO be restored?
5. The appellant craves leave to add to alter, amend, modify and/or delete any or all of the above said grounds of appeal. The appellant reserves its right to file Further submission in the appeal
2. Briefly stated facts of the case are that the assessee company manufacturing and export of large is engaged in the business of manufa diameter carbon steel line pipes required for high pressure transmission application for gas, crude oil, petrochemical products and portable water. The assessee filed its return of income for the nder consideration on 31.12.2020 declaring total income of year under Rs.94,60,38,420/-.. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the tax Act, 1961 (in short 'the Act') were issued and complied Income-tax with. The assessment order u/s 143(3) of the Act was completed on 06.05.2022 after making following addition:
(a) Rs.1,35,71,435/-
Rs.1,35,71,435/ u/s 40(a)(ia) of the Act.
Man Industries (India) Ltd 3 ITA No. 619/MUM/2025
(b) Rs.1,30,70,695/-
Rs.1,30,70,695/ u/s 14A and
(c) Rs.59,64,352/-
Rs.59,64,352/ on disallowance of depreciation.
3. On furtherr appeal, the Ld. CIT(A) deleted all the three additions. Aggrieved, the Revenue is before the Income-tax Appellate Tribunal (in short the 'Tribunal') by way of raising grounds as reproduced above.
4. Before us, the Ld. Counsel for the assessee filed a Paper Pa Book containing pages 1 to 104.
1044.1 Addressing the ground No. 1 of the appeal, the Ld. Departmental Representative (DR) submitted that Ld. CIT(A) has deleted the addition u/s 40(a)(ia) of the Act merely following his finding in assessment year 2014-15. Further, he submitted that the Ld. CIT(A) has wrongly held that foreign branch of Indian Bank is subjected to Banking Regulation Act, 1949 and therefore, Banks which are covered u/s 194A(3)(iii) of the Act are exempted from liability of deduction tax at source on the interest received.
5. Before us, the Ld. DR referred to Paper Book page pages 6 to 7 which is a copy of form No. 15CB issued by the Chartered Accountant of assessee in relation interest payment to foreign entity, wherein it is reported that t interest on External Commercial Borrowings(ECB) was paid to 'non-resident' entity. Similarly, in form No. 15CA,, a copy of which is available on Paper Book page 8 to Man Industries (India) Ltd 4 ITA No. 619/MUM/2025 9, also interest payment on ECB has been reported to a 'non- resident' entity.. The Ld. DR DR also referred to the Form No. A2 10-12) filed by the assessee before (available on paper book pages 10 the Reserve Bank of India( India(RBI), which is an application for therein also the relevant code has been remittance abroad, therein S00IL' with reference to repayment of long and mentioned as 'S00IL minimum term loan with maturity more than one year received from 'non-resident'.. Accordingly to the Ld. DR as per the agreement available on Paper Book page 18 to 104 Bahrain Branch of the ICICI Bank was 'original lender' and Singapore Branch merely acted as original lender 'facility agent'.. He submitted that it was not clear whether the payment made to Singapore branch included payment against 'facility fee' which is prescribed under clause 11.1 of the agreement (paper book page -39),
39), under u der which the borrower was required to pay to the facility agent US Dollar 25,000 per annum as agency fee. The Ld. DR submitted that Assessing Officer has referred to the Banking Regulation Act provisions to point out difference that Indian banks are not strictly regulated by the foreign branch of Indian Bank Regulation Act. The Ld. DR referred to the para 4.5 of the assessment order and submitted that in the notification dated 01.12.2008 issued by the Reserve Bank of India, it i is mentioned that while complying with wi the Country Regulatory Requirements in certain jurisdiction, the branch might be required to undertake an activity which is not permitted under the RBI Regulation Act. Accordingly, the Ld. DR submitted that Banking Regulation Act Man Industries (India) Ltd 5 ITA No. 619/MUM/2025 the operations of the foreign branch of Indian cannot be extended to the Bank. Accordingly, under the provisions of section 194A(3)(iii), 194A(3)(iii) the foreign branch of Indian Bank cannot be exempted from the liability of deduction of tax at source.
6. On the contrary, the Ld. counsel for the the assessee submitted that in identical case of Bajaj Eco Tec Products Ltd. in ITA No. 4609, 4610 and 4611/Mum/2016 for assessment year years 2009-10 to 2011-12, the Co-ordinate ordinate Bench of the Tribunal held that foreign covered by the Indian branch of the Indian Banks are squarely covered Banking Regulation Act and therefore, any payment made by the resident Indian to such branch is exempted u/s 194A(3)(iii) for source. In the instant case also interest payment deduction of tax at source.
has been made to the Singapore Branch of the the ICICI Bank and therefore ratio in the said decision is squarely applicable in the case of the assessee.
7. We have heard rival submissions of the parties and perused the record. The relevant materials on record. issue in dispute is disallowance of Rs.1,35,71,435/-
Rs.1,35,71,4 in terms of section 40(a)(ia) of the deduction of tax at source on said interest payment to Act for non-deduction Singapore Branch of the ICICI Bank. According to the Ld. CIT(A) foreign branch of the Indian banks are covered under the Banking 59 and therefore, any interest payment to them is Regulation Act, 1959 not liable for deduction of tax at source u/s 194A(3)(iii) of the Act. The relevant finding of the Ld. CIT(A) is reproduced as under:
Man Industries (India) Ltd 6 ITA No. 619/MUM/2025 "7.1.1 Decision - I have considered the submission of the appellant. The disallowance of Rs 1,35,71,435 is made u/s 40a(ia) of the Act as the appellant 1,35,71,435/ paid to Singapore had failed to deduct TDS on the interest of Rs 1,35,71,435/-
appellant, the payment is covered the branch of ICICI Bank. According to the appellant, proviso to section 194A(3)(iii) of the Act and is therefore not liable to deduct TDS on the interest paid to the bank. According to the AO, the foreign branches of Regulation Act, 1949 and are Indian banks are not covered under the Banking Regulation therefore not covered under section 194A(3)(iii) of the Act. I have decided an 2014 15, wherein the identical issue in the case of the appellant for the AY 2014-15, nondeduction of TDS on interest paid demand was raised u/s 201 of the Act for nondeduction to Singapore branch of ICICI bank. The matter was decided in the favour of the appellant by holding that the foreign branch of Indian bank are covered under the Banking regulation Act ,1949 and are therefore are covered u/s 194A(3) (iii) levant extract of the appellate order for AY 2014-15 of the Act. The relevant 2014 is reproduced for reference -
"8.1 I have considered the facts of the case, discussion made in the order u/s. 201(1)/201(1A) and the submission of the appellant on the same. The sole issue 82,08,338/ and Rs. 94,18,886/ in the appeal arises out of the demand of Rs. 82,08,338/- 94,18,886/-
TDS 1(3), Mumbai. The said demand has been u/s. 201(1) raised by the ITO TDS-1(3), non deduction of TDS on raised after treating the assessee to be in default for non-deduction the remittances of Rs. 8,20,83,375 and Rs. 9,41,88,864/- made to the Singapore branch of ICICI Bank Ltd. Consequently, the interests u/s. 201(1 A) of Rs.
83,82,809/has been added to the said demand. 77,15,838 and Rs. 83,82,809/has 8.2 The appellant company had paid interest to the Singapore Branch of ICICI Bank without deducting the tax. As per the appellant, it is exempted from deduction of tax on such payment in accordance with the proviso to Section 194A(3)(iii)(a) of the I. T. Act which reads as under:-
under:
194A. 52(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof thereo in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax tax thereon at the rates in force:
...........
...........
sub section (1) shall not apply (iii) to such income credited or (3) The provisions of sub-section paid to Any banking company to which the Banking Regulation Act, 1949 applies, oa 8.3 While referring to the Banking Regulation Act, 1949, AO has observed that the Banking Regulation Act 1949 extended to whole of India and -that the
-that banking company is defined as any company which transacts the business Man Industries (India) Ltd 7 ITA No. 619/MUM/2025 Based on these two observations , it was inferred that the Banking regulation Act does not apply on the foreign branches of Indian banks and therefore the payment made to such foreign branches is not covered by the proviso to Section 194A. AO has further referred to the notification dated 01.12.2008 issued by the Reserve Bank of India which says that "In the course of operations of the Indian banks branches and subsidiaries abroad, it is possible that while complyin complying country regulatory requirements in certain jurisdictions, they might with the host-country be required to undertake an activity which is not permitted under the BR Act This notification has been interpreted as an admission by the RBI that the Banking Regulation Act cannot be extended to the operation of the foreign branch of Indian bank.
8.4 The appellant has challenged the addition made on the grounds which are reproduced in the paras above. Appellant has referred to the para 3 of the dated 01.12.2008, which was relied upon by the AO . notification of the RBI dated Same reads as under-
"3. In the course of operations of the Indian banks' branches and subsidiaries host country regulatory abroad, it is possible that while complying with the host-country jurisdictions, they might be required to undertake an requirements in certain juris activity which is not permitted under the BR Act/the respective statute of the public sector bank. In such circumstances, the banks are advised to ensure that necessary permission u/s. 6(1)(m) they obtain from the RBI/Government of India necessary or 19(1)(c) as the case may be for undertaking such activities."
While referring to the Notification dated 1/12/2008, the appellant has argued that nowhere in the RBI notification dated 01.12.2008 is it mentioned that the iness operations of the foreign branch are outside the purview of the Banking business Regulation Act. I find the observation made by the appellant to be in order. The said notification stipulates that the necessary permission of the RBI/Govt, of tained by the Indian banks branches abroad to undertake an India should be obtained activity which is not permitted under the Banking Regulation Act, which implies that these branches are under the purview of the Banking Regulation Act.
8.5 The appellant has further quoted section 35 of the Banking Regulation Act, the explanation to which reads as under:
[Explanation - For the purpose of this section, the expression "banking company"
(a) in the case of a banking company incorporated outside India, all its branches in
(b) in the case e of a banking company incorporated in India -
(a) all its subsidiahes formed for the purpose of carrying on the business of banking exclusively outside India; and
(b) all its branches whether situated in India or outside India.] Man Industries (India) Ltd 8 ITA No. 619/MUM/2025 Further ,as per the sectio sectionn 23 of the Banking Regulation Act, banks cannot open a new place of business in India or Abroad without the prior approval of the RBI.
It is evident from the above referred sections that the foreign branches of the Banking Regulation Act,1949 and thereby Indian banks are covered under the Banking covered under the proviso to section 194A(3) of the Act.
In the appellate proceedings, a certificate dated 01.03.2013 in the form 10FB Circle 3(1), Mumbai was submitted. As per the same, it is issued by DCIT, Circle-3(1), at the ICICI Bank Ltd. (PAN: AAACI1195H) is a resident of India for certified that the purpose of the Income Tax Act, 1961 and the global income including that of offshore branches i.e. Singapore, Hongkong, Bahrain, United States, Dubai, Sri India and assessed under PAN No. AAACI1195H. The Lanka, Qatar is taxable in India interest paid to the Singapore Branch of the ICICI Bank is taxable in India and assessed as income of ICICI Bank Ltd. Payment made to the Singapore branch of Bank Ltd and such payments ICICI Bank is akin to the payment made to ICICI Bank are exempt from TDS as per the provision of Section 194A(3) of the Act.
The appellant has relied upon the decision of Bajaj Ecotech Products Ltd. vs. ITO, TDS(lnternational Taxation) by Hon'ble ITAT, Mumbai, where the identical issu issue has been decided int the favour of the assessee.
Considering the overall facts and circumstances of the case and the case laws relied upon I am of the view that the payment of interest made to the Singapore branch of ICICI Bank is covered under provision of Section 194A(3)(iii)(a) of the Act and is not liable for deduction of TDS. The order of the AO in raising the 3,37,25,871/ u/s. 201(1)/201(1A) cannot be sustained. The AO demand of Rs. 3,37,25,871/-
is directed to delete the demand".
present appeal is identical to the issue for AY 201415, I find that the issue in the present 2014 discussed above. For the year under consideration, the appellant has relied upon the Tax Residency Certificate dated 14.05.2019 issued by the Dy. Commissioner of Income Tax2 (3)(2), Mumbai, certifying that ICICI Bank Ltd is a resident of India as per the provisions of section 6(3) of the I.T.Act, 1961 ("Act") and its global income including that of its offshore branches in Singapore, Hongkong, Bahrain, Sri Lanka, Dubai International Finance Centre, QatarQatar and United States is taxable in India.
Following my decision for the AY 2014,15, I hold that the payment of interest made to Singapore branch of ICICI bank is covered under proviso to section 194A(3)(iii) and is therefore not liable for deduction of TDS. The appellant has rightly not deducted TDS on the said payment. Therefore, the disallowance u/s 40a(ia) of the Act cannot be upheld. The AO is directed to delete the addition of Rs.1,35,71,435/-.
Ground No. 1 is allowed."
7.1 We find that the Tribunal in the case of Bajaj Eco Tec Products Ltd. (supra) held that interest payment to Singapore Branch of ICICI Man Industries (India) Ltd 9 ITA No. 619/MUM/2025 Bank Ltd. was not liable for deduction of tax at source in view of Singapore branch was subjected to Indian Banking Regulation Regulat Act and hence was not liable for deduction of tax at source u/s 194A(3)(iii) of the Act. The relevant finding of the Tribunal(supra) Tribunal is reproduced as under:
11. We have heard both the sides and perused the materials available on "11.
through the orders of the authorities below. The factual matrix record and gone through of the impugned dispute is that the assessee has borrowed 20 million USD external commercial borrowings by an agreement with ICICI Bank Ltd., Singapore branch. As per the said agreement dated 15.03. 2007, the ICICI Bank 15.03.2007, Ltd. acted as an arranger and agent to facilitate 20 milliion USD external commercial borrowings to the assessee. The assessee has paid interest on external commercial borrowings to ICICI Bank Ltd, Singapore branch aggregating to Rs.11,69,45,505/- for the assessment years 2009-10 10 to 2011-12.
2011 The Assessing Officer held that the assessee as an assessee in default u/s. 201(1)/201(1A) of the Act, on the ground that the assessee has paid interest to a non resident entity located outside Indi a which comes within the provision of India section 195 of the Act. The Assessing Officer further observed that since the assessee has failed to deduct tax at source u/s. 195, he held the assessee as an assessee in default and computed short deduction of tax and interest u/s. 201(1)/201(1A) of the Act.
12. basis of Form 15CA and 15CB that the assessee has made payment to a non resident entity ICICI Bank Ltd., Singapore branch. The Assessing Officer further 15.03.2017, the assessee observed that as per the clauses of agreement dated 15.03.2017, is a borrower and ICICI Bank Ltd, Singapore branch is an arranger cum facility agent which arranged external commercial borrowings from a group of financial institutions to be assembled by the arranger. The Assessing Officer has referred referr a letter dated 31.01.2007 of ICICI Bank Ltd., Singapore branch addressed to the assessee. As per which, the assessee is a borrower, ICICI Bank Ltd is an arranger cum facility agent and the lender of the loan are a group of financial institutions assembleded to by the arranger. According to the Assessing Officer, although the assessee claims to have made payment to a resident entity, he failed to file any evidences to justify its arguments other than the agreement dated 15.03.2007. The Assessing Officer fur ther observed that as per the said further agreement, the various clauses in agreement as well as the letter addressed by the ICICI Bank Ltd., categorically states that ICICI Bank Ltd., Singapore branch is only the agent for arranging external commercial borrowing borrowings.
13. It is the contention of the assessee that the ICICI Bank Ltd., Singapore branch is a main lender and also acted as an arranger cum facility agent to facilitate external commercial borrowings at USD 20 million which is evident from the agreement dated d 15.03.2007 as per which Schedule 1, clearly specifies the name of the original lender as ICICI Bank Ltd., Singapore branch. The assessee further referring to the letter addressed by the office of the Jt. CIT (OSD)-3(1), (OSD) Man Industries (India) Ltd 10 ITA No. 619/MUM/2025 Mumbai dated 27.04.2011 as per which which the ICICI Bank Ltd including its offshore branches at Singapore and Hongkong are the part of the ICICI Bank Ltd., India having its registered office at Vadodra. The letter further states that ICICI Bank section 6(3) of the Act, and the Ltd is an Indian resident company in terms of section global income of the ICICI Bank Ltd., including that of the offshore branches is chargeable to tax in India and is assessed to tax under the PAN: AAACI1145H in Mumbai, India. The assessee contended that as per the provisions of section 194A(3)(iii) of the Act, any payment made to a banking company are outside the purview of provisions of TDS, therefore, the Assessing Officer was erred in invoking the provision of section 195 to compute short deduction of tax and interest u/s. 201(1)/201(1A) 1(1)/201(1A) of the Act.
14. There is no dispute with regard to the residential status of ICICI Bank Ltd., including its offshore branches at Singapore, Hongkong. The office of Jt. CIT(OSD)- 3(1), Mumbai has clarified vide its letter dated 24.01.2011 that ICICI Bank Ltd is an Indian resident company in terms of section 6(3)(iii) of the Act, and the global income of the ICICI Bank Ltd including the offshore branch is chargeable to tax in India and is assessed to tax in India. It is also undisputed fact that any payment made to a resident banking company does not come within the purview of TDS as per the provision of section 194A(3)(iii) of the Act. The only dispute is with regard to the residential status of lender of external commercial borrowings to the ass essee and interest payment on such external assessee commercial borrowings. The assessee claims that it has borrowed external commercial borrowings from Singapore branch and which is a main lender of the loan. Therefore, any interest payment to ICICI Bank Ltd., Sin gapore branch is not Singapore coming within the provisions of section 195 of the Act. No doubt, any payment made to a resident banking company is outside the purview of provision of non resident including section 195 of the Act. Similarly, any payment made to a non-resident anking company is coming within the provision of section 195 of the Act. The a banking primary dispute is with regard to the residential status of payee in Singapore and the lender of external commercial borrowings. As per the letter of Jt. CIT(OSD)-3(1), 3(1), Mumbai, thethe residential status of the ICICI Bank Ltd., has been clarified. To that extent there is no dispute. The remaining dispute is with regard to the lender of external commercial borrowings. Although the assessee claims that the ICICI Bank Ltd. is the main lender lender for USD 20 million external commercial borrowings, the facts available on record states otherwise. The agreement between the assessee and the bank dated 15.03.2007 states that ICICI Bank Ltd is acting as an arranger cum facility agent. The said agreement agreeme further states in Schedule 1 at pg. 59 states that ICICI Bank Ltd, Singapore branch is original lender. But the letter written by the ICICI Bank Ltd., Singapore branch dated 31.01.2007 states that ICICI Bank Ltd., Singapore branch is an ility agent and the lender of the loan is a group of financial arranger and facility institutions to be assembled by the arranger. The facts are contradictory to each other as per the assessee's own record. Therefore, we are of the considered opinion that the issue needs to be reexamined by the Assessing Officer in light of the claim of the assessee that ICICI Bank Ltd., Singapore branch is the main lender. The assessee is directed to substantiate its case with further evidences. In case, the Assessing Officer found that ICICI B ank Ltd., Singapore branch is Bank lender of external commercial borrowing, than there is no default in deduction of tax at source u/s. 201(1)/201(1A) of the Act. Hence, we set aside the issue to the file of the Assessing Officer with a direction to consider th e issue afresh in light the of the evidences filed by the assessee and pass a proper order as per law."
Man Industries (India) Ltd 11 ITA No. 619/MUM/2025 7.2 Since in the instant case under consideration also the assessee has made payment to ICICI Bank Ltd. Singapore Branch and therefore, any interest payment to said branch is not liable for deduction at source u/s 194A(3)(iii) of the Act. But in view of agreement entered into by the assessee with the ICICI Bank Ltd. Bahrain and Singapore Branch of ICICI Bank Ltd. act acted as facility agent and the lender bank is Bahrain branch of ICICI Bank so whether the payment made to Singapore Branch include any payment toward facility agent and whether such payment is subjected to deduction of tax at source need to be examined. Accordingly, we restore the issue in dispute to the file of the Co Assessing Officer for adjudicating following finding of the Co- ordinate Bench of the Tribunal in the case of Bajaj Eco Tec Product Ltd. (supra). The ground No. 1 of the appeal of the Revenue is accordingly allowed for statistical purposes purposes.
8. The ground No. 2 of the appeal of the Revenue relates to disallowance u/s 14A of the Act. The relevant finding of the Ld. CIT(A) is reproduced as under:
"7.2.1 7.2.1 Before me, appellant has argued that the net worth of the company as on 01.04.2017 was Rs.701 Rs.701 Crores and it has investments worth Rs.133 0Crs, which works out to only 20% of the net-worth worth of the appellant. The appellant thus stated that it has utilized its own funds for investments in shares and hence the question of disallowance u/s 14A r.w.s rule 8D of Income Tax Act, 1961 does not arise. It is seen that in appellant's case for A.Y 14 covered by Hon'ble ITAT in ITA No. 7530/Mum/2019 2013-14 wherein the net-worth net worth of the appellant as on 31.03.20213 was Rs.412.32Crs and the closing investments considered considered for 14A was 10,55,59,000/ , the addition made u/s 14A was deleted. It is Rs. 10,55,59,000/-
Man Industries (India) Ltd 12 ITA No. 619/MUM/2025 further argued that the investment was made for having controlling stake on the subsidiary companies and therefore should not be considered for working u/s 14A.
7.2.2. I have ve considered the submission of the appellant. In the AY 14, the disallowance u/s 14A was made under Rule 8D(ii) of 2013-14, the Income Tax Rules, where proportionate interest on interest bearing funds was disallowed. In the present case, the made under new Rule 8 where 1% of average of disallowance is made total investment is disallowed. The decision of Hon'ble ITAT for AY 2013-1414 may not be applicable for the present year. Appellant has further argued that the disallowance, be restricted to the exempt income, which h is Rs Nil for this year. I have considered the case laws relied upon by the appellant, wherein it is held that the disallowance u/s 14A should not exceed the exempt income. I further refer to the decision of Hon'ble Supreme Court in the case of CIT(Central)al) 1 v. Chettinad Logistics (P.) Ltd., [2018] 95 taxmann.com 250 (SC), where in it is held as under
"Section 14A, of the Income-tax Income tax Act, 1961, read with rule BD of the Income-Tax Tax Rules, 1962 -Expenditure Expenditure incurred in relation to income not includible in total total income (General principle) - Assessment year 2011-12-High 2011 High Court by impugned order held that section 14A can only be triggered, if, assessee seeks to square off expenditure against income which does not form part of total income under Act; rule 8D only provides for a method to determine amount of expenditure incurred in relation to income, which does not form part of total income of assessee and it cannot go beyond what is provided in section 14A - It further held that where no exempt income i.e., divide nd, was earned in relevant assessment dividend, year by assessee, section 14A could not be invoked Whether SLP against said impugned order was to be dismissed - Held, yes [Para 1] [In favour of assessee) Hon'ble High Court of Bombay in the case of The PCIT PCIT-3, Civil Lines, Nagpur v. Ballarpur Industries Ltd, Bombay High Court ITA no. 51 of 2016 has held as under:
"On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no finding exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression "does not form part of the total income" in Section 14A of the Man Industries (India) Ltd 13 ITA No. 619/MUM/2025 Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not ththe e case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income."
Respectfully following the judicial pronouncements cited above and the case laws relied upon by the appellant, I hold that no disallowance u/s 14A can be be made since the appellant has not received exempt income in the year. AO is directed to delete the addition of Rs 1,30,70,695/-.
1,30,70,695/ Ground no 2 is allowed."
9. We have heard rival submissions of the parties and perused the relevant materials on record.
record We find nd that the Ld. CIT(A) has deleted the addition mainly for the reason that no exempted income was received by the assessee during the year under consideration. The Ld. CIT(A) has followed the binding precedent of the Hon'ble the case of Ballarpur Industries Jurisdictional High Court in th Ltd.(supra). Since evidently there is no exempted income in the case of the assessee, e, ttherefore, herefore, we do not find any infirmity in the order of the Ld. CIT(A) in following the binding precedent on the issue in dispute. The ground No. 2 of the appeal of the Revenue is ground accordingly dismissed.
Man Industries (India) Ltd 14 ITA No. 619/MUM/2025
10. In ground No. 3 Revenue has challenged disallowance of depreciation claimed by the assessee on written down value of the capitalized withholding tax paid on the premium for the redemption of foreign currency convertible bonds. The facts in brief qua the issue in dispute are that during the year under consideration, the Assessing Officer disallowed depreciation claimed of Rs.59,64,352/-
Rs.59,64,352/ on the portion of withholding tax capitalized capitalize on payment for premium paid on foreign currency convertible bonds (FCCB). It was submitted by the assessee that while redeeming the FCCB, the assessee Rs.124,45,40,750/-- in AY 2013-14 see paid total premium of Rs.12 by grossing up the amount of withholding tax. It was claimed that payment of withholding tax of Rs. 124,45,40,750/- was nothing but premium on redemption and had the assessee not borne the amount of TDS, it would had to pay higher premium to the bondholders and thus the TDS so deducted forms part of premium pre and allowable expenditure. In the year under consideration, the assessee redeemed FCCB and paid total premium of Rs. 1,12,05,07,097/- by grossing up the amount of withholding tax. Identical provision was claimed by the assessee in assessment year 2014-15 to 2017--18, wherein the Tribunal deleted such disallowance made by the Assessing Officer observing as under:
9. We heard the rival contentions and perused the record. The facts relevant to the issue are that the assessee has borne the TDS payable on the FCCB premium paid by the assessee. The withholding tax liability so borne by the assessee was Rs. 12.40 crores. In the normal course, the TDS amount would be reduced Man Industries (India) Ltd 15 ITA No. 619/MUM/2025 from the amount payable to the payee and the net amount alone will be paid to him. The TDS amount will be remitted to the credit of the payee, who can adjust the same against his tax liability. In the instant case, since the assessee has borne the TDS deductible on the amount of premium payable on FCCD, the same would become additional cost to the assessee. Hence it will go to increase the premium payable on FCCB. The assessee has capitalized a portion of premium amount, which included the above said amount of Rs. 12.40 crores. The amount was capitalized by the assessee in the year relevant to AY 2013-14 and it also claimed depreciation thereon, which was disallowed by the assessing officer in AY 2013-14. The Ld CIT(A), however, deleted the disallowance and hence the revenue filed appeal before the Tribunal in that year. As stated by Ld A.R, the ITAT has confirmed the order passed by Ld CIT(A), vide its order dated 25.11.2021 passed in ITA No.7530/Mum/2019, with the following observations:-
"98. The issue raised in the 6th ground of appeal is against the deletion of addition of Rs.1,68,96,638/- by CIT(A) as made by the AO on account of Depreciation of claimed on account of premium.
99. During the course of Assessment Proceeding the A.O. observed that the assessee has made excess payment to the bond holder to the extent of Rs.12,40,33,655/- and accordingly deprecation on capitalized premium amounting to Rs.1,68,96,,338/- was claimed by the assesse. The AO during the assessment proceedings noted that depreciation on the excess payment made to FCCB holders can not be allowed and added dded the same to the income of the assessee.
100. The Id CIT(A) allowed the appeal of the assesse by observing that the AO has not disputed the fact that the withholding tax is paid actually paid by the Assessee. Further it is also not a case wherein the a ssessee has recovered assessee withholding tax from the bond holder. The payment made by the assessee is its business decision and accordingly the payment in question should be allowed.
101. After hearing the parties and material placed before us, we note that the assesse has redeemed FCCB and paid total premium of 1,12,05,07,097/- by grossing up the amount by Man Industries (India) Ltd 16 ITA No. 619/MUM/2025 withholding tax. In other words the TDS deducted and deposited by the assesse on behalf bondholders was treated as part of that. Besides we note that claim was was in accordance with section 195A of the Income Tax Act, 1961 as the Company paid withholding tax of Rs. 12,40,33,655/- by the grossing up the amount of premium and paid Rs.112,05,07,097/- as premium on redemption of FCCB to bondholder. We also note that iti has been provided in the section 195A itself which is extracted below:
"In a case other than that referred to in sub-section sub section (1A) of section 192, where under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement."
101.1 We note that the case of the assesse is squarely covered by the decisions in the case of Commissioner of Income Tax Ta V. Standard Polygraph Machines (P) Ltd. (2002) 124 taxman 669 (Madras High Court) and ACIT 2(1) V. M/s. BOB Card Ltd. ITA No. 7660/Mum/2011-Tribunal, Mumbai wherein the issue has been decided in favour of the assesse. We therefore respectfully following the ratio laid down in the above decision uphold the order of Id. CIT(A) by dismissing the ground. no.6 of the Revenue's appeal."
Thus, we notice that the claim of depreciation has been allowed in the first year of claim.
10. Under these facts, it is contention contention of the assessee that the AO could not have disallowed in the subsequent years, since the depreciation has been allowed in the first year. We notice that the above said proposition of the assessee finds support from the decision rendered by Ahmedabad bench of ITAT in the case of Bodal Chemicals Ltd (supra), wherein it was held that the Man Industries (India) Ltd 17 ITA No. 619/MUM/2025 revenue, once allowed the deduction for the depreciation claimed by the assessee, then it is debarred to reject the claim of the assessee in the subsequent year on the WDVWDV carried forward from the earlier assessment year. Though the AO had disallowed the claim of depreciation made in AY 2013-14, being the first year of claim, the same was deleted by Ld CIT(A) and the ITAT. As such the claim of depreciation made in the first first year has been allowed.
Hence, there is merit in the above said contention of the assessee.
11. In our view, the issue before us can be looked at from another angle also. There should not be any dispute that the identity and character of the asset, which has entered into the block of asset, would be lost. It was so held by Hon'ble Delhi High Court in the case of Bharat Aluminium Co Ltd (ITA No.532 and others of 2006 dated 15-10-2009 2009) as under:-
"(i) The rationale and purpose for which the concept of block asset was introduced, as reflected in the CBDT's Circular dated 23.09.1988 is that once the various assets are clubbed together and become 'block asset within the meaning of s. 2(11), it becomes one asset. Every time, a new asset is acquired, it is to be thrown into the common hotchpotch, ie., block asset on meeting the requirement of depreciation being allowable at the same rate. Individual assets lose their identity and become an inseparable part of block asset insofar as calculation of depreciation is concerned;
oncerned;
(ii) The fusion of various assets into the block asset gets disturbed only when the eventuality contained in clause (iii) of s. 32 takes place, viz., when a particular asset is sold, discarded or destroyed in the previous year (other than the evious year in which first brought in use). Even in that previous event, the amount by which the moneys payable in respect of that particular building, machinery, etc. together with the amount of scrap value is to be deducted from total written down value of the 'block 'b asset';
(iii) Though as per s. 32(1) the asset is to be owned and "used" for the purpose of business or profession, the expression "used for the purpose of business when applied Man Industries (India) Ltd 18 ITA No. 619/MUM/2025 to block asset would mean use of block asset and not any specific items in the said block as individual assets have lost their identity after becoming inseparable part of the block asset; (iv) The fact that under the second proviso to s. 32 assets acquired after 30th Sept shall be entitled to 50% depreciation of amount admissible does not mean requirement of user of individual asset remains intact. In the first year when the particular asset is acquired, user of the asset is required. In subsequent years, the t user of individual assets is not required."
In the instant case also, the TDS liability borne by the assessee on the premium amount, after it is thrown into the common hotchpotch of block asset in AY 2013-14 has lost its identity and become an inseparablele part of block Asset insofar as calculation of depreciation is concerned. Hence the AO could not have disallowed the depreciation claim as made in the first year.
12. On merits, we notice that the co ordinate bench has already co-ordinate taken the view that the TDS liability (withholding tax) on the premium payable on FCCB and borne by the assessee, would go to increase the cost of asset and accordingly depreciation is co ordinate bench has allowable thereon. In this regard, the co-ordinate followed the decision rendered by Hon Hon'ble 'ble Madras High Court in the case of Standard Polygraph Machines (P) Ltd (supra). In the above said decision, the Hon'ble Madras High Court held that the TDS liability borne by the assessee shall form part of the consideration. The decision rendered by Ho n'ble Madras High Hon'ble Court is extracted below:-
below:
"2. The assessment year is 1981-82. The assessee claimed that the amount of income-tax income tax paid by the assessee in respect of the consideration paid by the assessee to the foreign collaborator should also form part of the actual cost of the plant and machinery on which depreciation and investment allowance should be allowed. That claim was accepted by the ITO, but negatived by the Commissioner in suo motu revision under section 263 of the income-tax income Act, 1961. The Tribunal Tribunal has held that the amount of tax paid by the assessee should be regarded as liability of the foreign collaborator which the assessee had undertaken to pay as per the agreement entered into with the collaborator. The Tribunal, therefore, held that it should be treated as part of the value of plant and machinery of the assessee.
Man Industries (India) Ltd 19 ITA No. 619/MUM/2025
3. This Court in the case of CIT' v. Festo Elgi (P.) Ltd. [1981] 129 ITR 499. has held that the technical know-how how supplied to the assessee constitutes tools for carrying on the business of the assessee and forms part of the capital assets and, therefore, depreciation and development rebate was allowable on the amount paid to the foreign collaborator. The revenue has not produced before us the terms of the agreement entered into between the collaborator and the assesser and we must, therefore, accept what has been stated by the Tribunal. The Tribunal has held that the amount paid income tax collaborator was income-tax only in discharge of the liability of the collaborator which the assessee had undertaken to pay as part of the agreement entered into with the foreign collaborator for receiving the know how under the agreement. The amount so technical know-how paid as tax has been held to be an amount payable by virtue of the terms of the agreement betw between the collaborator and the assessee. Had the collaborator not been assured of the assessee's undertaking the liability, the collaborator would have charged higher fee to cover the liability for taxes. It is only on the assurance of the assessee that the liability will be met by the assessee, that the collaborator had agreed to receive the sum specified in the agreement. The Tribunal was right in its view that the amount so paid by the assessee was only in discharge of a liability which it had undertaken in in terms of the agreement entered into between the assessee and the collaborator and it, therefore, forms part of the consideration for the agreement relating to knowknow-how."
Hence, we find no reason to disallow the depreciation claimed by the assessee in all these three years.
13. We notice that the tax authorities have taken the view that, as per the agreement entered by the assessee with the FCCB holders, it is liable to bear the TDS liability in excess of 10%. In the instant case, the TDS liability was only 10% and hence there was no contractual obligation for the assessee to bear the withholding tax (TDS liability). Accordingly, the tax authorities have taken the view ax borne by the assessee that the capitalized value of withholding ttax is not eligible for depreciation.
14. We are unable to agree with the rationale given by the tax authorities. It may be true that the assessee, as per the written Man Industries (India) Ltd 20 ITA No. 619/MUM/2025 agreement, was liable to bear the withholding tax liability, if it exceeds 10% of the premium amount. However, as submitted by Ld A.R, the fact would remain that the assessee has ultimately borne the liability of withholding tax of 10% also. Here, the question before us is not on the correctness or otherwise of the action of the assessee in bearing the TDS liability on its own account. We notice that the AO has not enquired on the developments subsequent to the entering of agreement, which compelled the assessee to bear the TDS liability, which in the normal course would be deducted from the amount payable to the payee. Be that as it may, once the assessee has borne the liability of withholding tax, as per the ratio laid down by the Hon'ble Madras High Court, the same would acquire the character of cost in the hands of the aassessee ssessee and the same would go to increase the cost of asset. Once the cost of asset is increased, then the depreciation is allowable thereon. Accordingly, we are of the view that the ratio laid down by Hon'ble Madras High Court in the above said case would apply to the facts of the present case and the same was also applied in the assessee's own case in AY 2013- 14 by the co-ordinate ordinate bench of Tribunal. Hence the above said view expressed by the tax authorities is liable to be rejected.
15. Before us, the Ld D.R contended that the assessee would have got back the withholding tax amount (TDS amount) as refund, since the assessee herein is the representative assessee for the payees, i.e., it is the say of Ld D.R that the assessee would get refund of withholding tax and effectively, there will not be any TDS liability upon the assessee. In that case, the assessee would not be eligible to get depreciation on the TDS liability so capitalized. Accordingly, he submitted that the AO has rightly disallowed the ion claim made on the amount of withholding tax. depreciation
16. We are of the view that the Ld D.R is advancing his arguments on probabilities and not on facts. First of all, it is not shown to us that the assessee has got refund of withholding tax. According to .R, the In case of an assessee is acting as representative of Ld D.R, the payees. representative assessee, there is no personal benefit/consequences, i.e., the consequences/benefits arising from the transactions would belong to the principal and not to the representative. It is not shown to us that the refund, if any, that will be obtained out of the impugned withholding tax would be given back to the ass essee by the payees to offset the TDS liability assessee already borne by the assessee. If the above said scenario happens, it would happen in future and in that year of receipt, the Man Industries (India) Ltd 21 ITA No. 619/MUM/2025 AO is always be free to examine the tax liability, if any/ tax treatment to be given given thereon. Hence, a future contingency, which may or may not happen, cannot be a ground to deny the depreciation claimed on the amount of withholding tax borne by the assessee and which has been capitalized.
he issue decided by the 10.1 The issue in dispute being identical to tthe Co-ordinate he case of the assessee itself, therefore, ordinate Bench in tthe respectfully espectfully following the finding of the Tribunal (supra), (supra) we uphold the order of the Ld. CIT(A) on the issue in dispute. The ground of appeal of the Revenue is accordingly accor dismissed.
11. In the result, the appeal of the Revenue is allowed partly for statistical purposes.
Order pronounced 24/11/2025.
ounced in the open Court on 24/11/2025.
Sd/- Sd/-
Sd/
(KAVITHA RAJAGOPAL)
RAJAGOPAL (OM
OM PRAKASH KANT)
KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 24/11/2025
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.
BY ORDER,
//True Copy//
(Assistant Registrar)
ITAT, Mumbai