Income Tax Appellate Tribunal - Ahmedabad
The Ito, Ward-1(1)(2),, Ahmedabad vs M/S. Anunay Fab Pvt. Ltd.,, Ahmedabad on 30 September, 2021
ITA No.630/Ahd/2015 &
C.O. No.56/Ahd/2015
A.Y. 2009-10
Page 1 of 28
SIN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH, AHMEDABAD
BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER
AND MS. MADHAUMITA ROY, JUDICIAL MEMBER
(Conducted through Virtual Court)
ITA No.630/Ahd/2015
Assessment Year: 2009-10
The Income Tax Officer, vs. M/s. Anunay Fab Pvt. Ltd.,
Wad - 1(1)(2), Ahmedabad. C/o. Shiv Shankar Swami,
138, Pirana Road, Piplej,
Opp. Anjani Synthetics Limited,
Ahmedabad - 382 405.
[PAN - AABCA 6322 K]
C.O.No.56/Ahd/2015
(In ITA No.630/Ahd/2015)
Assessment Year: 2009-10
M/s. Anunay Fab Pvt. Ltd., vs. The Income Tax Officer,
C/o. Shiv Shankar Swami, Ward - 1(1)(2), Ahmedabd.
138, Pirana Road, Piplej,
Opp. Anjani Synthetics Limited,
Ahmedabad - 382 405.
[PAN - AABCA 6322K]
(Appellants) (Respondents)
Revenue by : Shri Shyam Prasad, Sr. D.R.
Assessee by : Shri Mehul Patel, A.R.
Date of hearing : 14.07.2021
Date of pronouncement : 30.09.2021
ORDER
PER WASEEM AHMED, ACCOUNTANT MEMBER:
Appeal filed by the Revenue and Cross Objection filed by the assessee are directed against the order dated 24h December, 2014 passed by the learned CIT(A)-1, Ahmedabad for the assessment year 2009-10.
2. The revenue has raised the following grounds of appeal:
ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015A.Y. 2009-10 Page 2 of 28 "1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,31,60,555/- on account of disallowance of design expenses u/s.40(a)(i) of the Act on the ground that purchases of design were purchases of goods on which provisions of Section 9(1)(vii) r.w.s. 195 are not applicable.
2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.24,18,696/- u/s. 40(a)(ia) on the ground that the payments made to the non-
residents for the expenditure related to exhibition in India and Rs.2,52,641/- for non-deduction of TDS without adducing any supporting evidence, out of total addition of Rs.30,66,571/-.
3. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,86,495/- out of total addition of Rs.3,56,268/- in lieu of late payment of employees contribution to PF despite the fact that such late payment is not allowable as deduction u/s 36(1)(va) and is required to be treated as income u/s 2(24)(x).
4. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance on account of depreciation on cars, interest and related expenses of Rs.4,83,060/- out of total disallowance of Rs.6,44,080/-.
5. The Ld. CIT(A) has erred in law and on facts in directing to delete the disallowance of interest payment u/s 36(i)(iii) of the Act despite the fact that the expenses on payment of interest on the borrowed fund which has been diverted towards interest free loan and advance and non-business purposes. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary."
3. The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 1,31,60,000/- representing the payment made to foreign parties on account of non-deduction of Tax under the provisions of section 195 read with section 40(a)(i) of the Act.
4. The necessary facts as culled out from the order of the authorities below are that the assessee in the present case is a private limited company and engaged in the business of export and trading of cloth such as made up/bed sheets, pillow cover, curtains etc. The assessee in the year under consideration has claimed design expenses for ₹ 1,31,60,555/- paid to the parties based outside India. Such expenses were incurred without deducting the Tax under the provisions of section 195 of the ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 3 of 28 Act. On question by the AO vide show cause notice dated 5th December 2011, the assessee vide letter dated 10th December 2011 submitted that the design expenses represents the purchases of the design/theme for its products such as bed sheets/ cover etc. from the foreign party. As per the assessee, the provisions of the TDS are not applicable on the purchases of such design as the same is in nature of purchases and not services. Therefore no TDS was deducted under the provisions of section 195 of the Act.
5. Alternatively, the assessee contended that even if this is considered as technical services provided under section 9(1)(vii) of the Act, then also such payment is not subject to tax in India. It is for the reason that the foreign party has done design related work in its home country and it has no permanent establishment in India. Thus, the income to the foreign party was not accrued or arose in India.
6. The assessee further contended that the payment to the foreign party towards the purchase of the design has been cleared by the bank without insisting any certificate from the chartered accountant for non-deduction of TDS.
7. However, the AO being dissatisfied with the contention of the assessee observed that the activity of design requires expertise/skill. Thus the assessee has obtained the services of the technical person for the impugned design which might have transferred to the assessee in the form of computer software or drawing on paper. Thus in effect the assessee has acquired design involving the intellectual skill and expertise. In other words the assessee has not acquired any material as claimed by the assessee.
8. Regarding the contention of the assessee that the foreign party is not having the permanent establishment, it was observed by the AO that the design services were utilized by the assessee in India. Likewise, explanation to section 9 of the Act clarifies that fees for technical services are taxable in India irrespective of the fact that the non-resident has a residence or place of business or business connection in India.
9. The AO further observed that article 12 of the DTAA between India and Germany provides that fee for technical services can be taxed in the other contracting State i.e. in India.
ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015A.Y. 2009-10 Page 4 of 28
10. In view of the above, the AO disregarded the contention of the assessee by holding that the assessee failed to deduct the tax under the provisions of section 195 read with section 40(a)(i) of the Act and therefore the same cannot be allowed as deduction. Thus the amount of design expenses was added to the total income of the assessee.
11 Aggrieved assessee preferred an appeal to the learned CIT (A).
12. The assessee before the learned CIT (A) submitted that it has not availed the services of any expert for getting the particular design developed for its own use. As such the assessee has selected a design/theme which was developed by the foreign party on its own for the purpose of sale to customer. As such the design/theme purchased by it is nothing but a commodity and therefore it is outside the purview of the provisions of TDS. Accordingly it cannot be alleged that the assessee has availed any technical services and paid the fee for technical services. The assessee in support of his contention has filed the clarification received from the foreign party stating that it has sold the design to the assessee and no design has been developed for the assessee. Furthermore, the banks have remitted the payment without insisting any certificate of the chartered accountant for the non-deduction of TDS.
13 The assessee also submitted that out of the total payments of ₹ 1,31,60,555/- a sum of ₹ 1,36,175/- represents the payments made in India. Therefore the entire amount of ₹ 1,31,60,555/- cannot be considered for the purpose of disallowance under the provisions of section 40(a)(i) read with section 195 of the Act.
14. The learned CIT (A) after considering the submission of the assessee deleted the addition made by the AO by observing as under:
(ix) I am inclined with appellant that for the nature of business as carried on by appellant of 'Made Ups' (Bed sheets, towels, curtain, bed covers etc.) particularly for export, it need certain designs for printing including theme. This work either can be assigned to some designer as consultant or if the same is already available then the same can be purchased. In case of appellant, the product of such design/theme are already available with supplier like M/s.
GRADA who independently through market research, develops such designs/themes from such individual designer. There is no passing of any services as technical knowhow or pattern, kind of things. It is simply registered theme or design which appellant has to purchase to utilize in printing of bed covers, pillow covers, bed sheets etc. The nature of transaction is similar to ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 5 of 28 development of software by various companies and such software are available on shelf for general use or any party can assign specific work to develop software to serve that party. In the former case it is outright purchase even if the software is transferred through compact disc/computer or any other magnetic media, while in other case it will be work contract. In the case of work contract, the question of deduction of TDS arises but for such thing there will be written agreement with terms and conditions and requirement of the product to be developed from the purchaser or contractor. In the case of appellant no such agreement or order has been placed to such parties. There are no evidences that appellant company assigned any such work to these outside parties. The party confirmed that they have developed their own design/theme which were sold to appellant along with other parties in such business. It is in this regard, the ratio of Hon'ble Bombay High Court in the case of Glenmark Pharmaceuticals 324 ITR 199 and Hon'ble Supreme Court in the case of CIT vs. Silver Oak Laboratories (Civil Application 18012 of 2009) has relevance where difference between contract for work and contract for sale is clarified. In view of facts so verified by A.O. on the submission of appellant, the A.O's rejection that nature of transaction are not of purchase has no basis except a presumption that such design/theme are developed by textile designer through skill and expertise and supplied through computer. But, A.O. failed to appreciate that there are numerous such product available across the shelf where skill and technical expertise is involved and the same are transferred through computer still the same is purchase and sale of commodity. There are various factors involved in the business as carried on by appellant particularly in export. The appellant earned/received substantial amount through export to Germany and the colour combination, designs, themes liked by people over there matters a lot. If such designs/themes are already available from supplier like M/S.GRADA textile GmbH who had already done research and development and acquired copy right, then purchase from them about such design, theme, combination can only be held as purchase of commodities and not of consultancy.
The appellant's alternative arrangement about even if such purchases are in the nature of consultancy but the services are not rendered in India was over emphasized by A.O. to treat it as acceptance by appellant on one hand, while reliance on the amendment with retrospective date for applicability of.IDS on other hand. I am inclined with appellant that as per settled legal proposition, it is the provision as on date of such payment which are applicable as far as compliance of TDS provisions are concerned. Hon'ble ITAT Agra in the case of Virola International (supra) as relied on by appellant directly dealt with this issue. The facts of this case were similar to the appellant's case with a difference of purchase of designs for leather apparels business. Hon'ble ITAT Agra followed the ratio of Hon'ble Supreme Court judgement in the case of Ishikawajma Harima Heavy Industries Ltd. Vs. Director of Income tax (2007) 288 ITR 408. It was held that-
"Prior to 8th May 2010 when the Finance Act, 2010 received the assent of the President of India, fees for technical services could not be brought ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 6 of 28 to tax under section 9(1)(vii) unless such services were rendered in India and there being no material whatsoever to demonstrate and establish that the design and development services for which the impugned payments were made by the assessee to non-residents were rendered in India, assessee did not have any liability under section 195 r.w.s.9(1)(vii) to deduct tax at source from these payments and consequently, same cannot be disallowed u/s.40(a)(i) of the Act."
It is therefore on both ground i.e. firstly the purchases of designs were purchases of goods on which provisions of section 9(1)(vii) r.w.s. 195 are not applicable and even if such purchase or acquisition taken as consultancy then also such provisions were not applicable for previous year, the disallowances so made by A.O. u/s.40(a)(i) of the Act are therefore neither justified nor sustainable."
15. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
16. The learned DR before us contended that the assessee has got the software developed by hiring the professionals who provided intellectual and expert services to the assessee. The fact of development of the software by the assessee can also be traced from the invoices raised by the overseas parties. Accordingly, it was contended that the assessee has made the payment as fees for technical services which is liable to be taxed in India.
17. On the other hand, the learned AR before us filed a paper book running from pages 1 to 177 and submitted that impugned amount of expenses represents the outright purchases and therefore there cannot be any disallowance on account of non- deduction of TDS. It is for the reason that the provisions of TDS are not attracted in relation to the purchase transactions.
18. Both the learned DR and the AR before us vehemently supported the order of the authorities below to the extent favourable to them.
19. We have heard both the parties and perused the materials available on record. The issue in the present case relates whether the assessee has incurred design expenses without deducting the TDS under the provisions of section 195 read with section 40(a)(i) of the Act. Admittedly, the assessee is not liable to deduct the TDS on the purchases of the materials. In the present case it was the contention of the ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 7 of 28 assessee that it has made purchases of the designs from the foreign party which is in the nature of purchase of goods. On the other hand it was contended by the AO that such design requires technical skills and expertise and therefore he concluded that same reflects fee for technical services under the provisions of section 9(1)(vii) of the Act and therefore the assessee was liable to deduct the Tax under section 195 of the Act.
20. Assuming, the contention of the AO is correct that the designing requires technical skills and expertise. But we have to see the transaction whether the assessee got developed the design after hiring the services of the technical persons having intellectual skills and expertise. There is no such allegation or finding by the AO that the assessee has hired the services of the experts. In other words we have to check the transaction from the point of the assessee whether the impugned transaction is of purchase or not. There might be Lots of expertise and intellectual skills used by the foreign party in the developing of the design but that will not change the character of the transaction in the hands of the assessee.
21. For example, somebody is importing a software on outright purchase basis such as tally or other software. Indeed, the software certainly requires lot of skill and intellectual for its development. The software is transferred either through the disc or Internet and there is no physical form of such software. Thus in the books of the assessee such transaction for purchasing of the software shall be treated as outright purchases. But the answer will be different in a situation where the assessee gets a particular/specific software developed by hiring the professionals and expert persons. Then such transaction shall be treated as availing the services of the experts and the payment to them shall be considered as fees for technical services. But, in the case on hand there is no such allegation/finding of the AO that the assessee has hired the experts technical persons for availing the professional, managerial or consultancy services.
22. Besides the above, the learned CIT (A) has given categorical finding that the foreign party has given clarification that design/theme were developed at its own and made sales to the assessee as well other customers. The learned DR at the time of hearing has not brought anything on record contrary to the finding of the learned CIT ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 8 of 28 (A). Thus in such facts and circumstances it can be inferred that the transaction between assessee and the foreign party for the design expenses was in the nature of purchase. Therefore, the provisions of TDS shall not be attracted. In holding so we draw support and guidance from judgment of Hon'ble Jurisdictional High Court in case of CIT vs. Creative Infocity Ltd. reported in 397 ITR 165 where it was held as under:
"From the material on record, it appears that there was agreement between the assessee and Naimisha to provide detailed design and drawings for the project. However, as per the requirement of the assessee Naimisha was required to supply the drawings and design prepared by Bob. Even the payment has been made by assessee to Naimisha directly for supply of drawings and design as per clause/Article 4.3 of the agreement and different amounts were required to be paid/paid with respect to different designs and drawings for different components of the project viz. Infotower-I, Infotower II etc. It is required to be noted that even Bob is not signatory to the agreement and agreement is between the assessee and Naimisha only. Under the circumstances, the payment made by the assessee towards supply of design and drawings to Naimisha and the payment made under the agreement is rightly held to be outright purchase and not as a Royalty. The view taken by the Tribunal in holding that the payment made towards supply of design and drawings to a non-resident was outright purchase and therefore, not taxable as royalty under section 9(1) was to be agreed with. [Para 8.6]"
23. Moving further, the provisions of section 195 of the Act provides that if any payment is made to non-resident which is chargeable to tax in India than the assessee is liable to deduct the TDS on such payment. The provisions of section 195 of the Act reads as under:
"195. 17[(1) 18Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest 18a[(not being interest referred to in section 194LB or section 194LC)] 19[***] or any other sum chargeable under the provisions of this Act19a (not being income chargeable under the head "Salaries" 20[***]) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force."
24. In the light of the above provision, and accepting the allegation of the revenue that the payment made by the assessee to foreign party for design/theme represent fee for technical services for the sake of understanding. We have to see whether the payment made by the assessee to the foreign party was chargeable to tax in India. Admittedly, the services were rendered by the foreign party in its country. Likewise, the foreign party did not had any permanent establishment in India. Thus, the income ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 9 of 28 was accrued and arose to such foreign party in a country outside India. Hence, the same is not taxable in India under the realm of section 9(1)(vii) of the Act being same is provided outside India. Thus, there cannot be any question of deducting the TDS under the provisions of section 195 of the Act.
25. We are also conscious to the fact that there was the explanation to section 9 brought under the statute by the Finance Act 2010 retrospectively with effect from 1976. As per this explanation the income of the foreign party shall be chargeable to tax in India if it relates to the fee for technical services irrespective of the fact whether such non-resident has/has not a place of business or business connection in India or non-resident has/has not rendered services in India. From this explanation, it seems that the amount paid by the assessee to the foreign party as fee for technical services is subject to tax in India despite the fact such foreign party does not have any permanent establishment in India. However we find that such explanation whether the services rendered in India or not was brought in the statute by the Finance Act 2010. The financial year before us is 2008-09 and at that relevant point of time such explanation was not available. Admittedly, the services were not rendered by the foreign party in India. Thus, for the purpose of TDS the provisions which are applicable for the relevant year has to be seen. In holding so we draw support and guidance from the judgment of Hon'ble Bench of ITAT in case of DCIT vs. Virola International reported in 42 taxmann.com 286 where it was held as under:
"7. The law laid down by Hon'ble Supreme Court, in the case of Ishikawajma- Harima Heavy Industries Ltd. (supra) , binds everyone under Article 141 of the Constitution of India. The legal position thus was that unless the services are rendered in India, the same cannot be brought to tax as 'fees for technical services' under Section 9. However, this legal position did undergo a change when Finance Act 2010 received assent of the President of India on 8th May 2010. Explaining the scope of this amendment, a coordinate bench of this Tribunal, in the case of Ashapura Minichem Ltd. v. Asstt. DIT [2010] 40 SOT 220 (Mum.), has explained thus:
"......(this legal position)does no longer hold good in view of retrospective amendment w.e.f. 1st June, 1976 in s. 9 brought out by the Finance Act, 2010. Under the amended Explanation to s. 9(1), as it exists on the statute now, it is specifically stated that the income of the non-resident shall be deemed to accrue or arise in India under cl. (v) or cl. (vi) or cl. (vii) of s. 9(1), and shall be included in his total income, whether or not (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015
A.Y. 2009-10 Page 10 of 28 resident has rendered services in India. It is thus no longer necessary that, in order to attract taxability in India, the services must also be rendered in India. As the law stands now, utilization of these services in India is enough to attract its taxability in India. To that effect, recent amendment in the statute has virtually negated the judicial precedents supporting the proposition that rendition of services in India is a sine qua non for its taxability in India."
8. It is thus clear that till 8th May 2010, the prevailing legal position was that unless the technical services were rendered in India, the fees for such services could not be brought to tax under Section 9(1)(vii). The law amended was undoubtedly retrospective in nature but so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax- deductor cannot be expected to have clairvoyance of knowing how the law will change in future. A retrospective amendment in law does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. The tax withholding obligations from payments to non-residents, as set out in Section 195, require that the person making the payment "at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income- tax thereon at the rates in force". When these obligations are to be discharged at the point of time when payment is made or credited, whichever is earlier, such obligations can only be discharged in the light of the law as it stands that point of time. Section 40(a)(i) provides that, inter alia, notwithstanding anything to the contrary in sections 30 to 38, any amount payable outside India, or payable in India to a non-resident, shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession' "on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted". The disallowance under section 40(a)(i) is not for the payments made to non-residents, which are taxable in India, but for the payments on which tax was deductible at source but tax has not been deducted, and such deductibility of tax at source, as we have discussed above, has to be in the light of the legal position as it stood at the point of time when payment was made or credited- whichever is earlier. Clearly, therefore, the disallowance under section 40(a)(i) can come into play only when the assessee had an obligation to deduct tax at source from payments to non-residents, and the assessee fails to comply with such an obligation. In view of these discussions, so far as payments made before 8th May 2010 are concerned, the assessee did not have any tax withholding liabilities from foreign remittances for fees for technical services unless such services were rendered in India, and a fortiori no disallowance can be made under section 40(a)(i) for assessee's failure to deduct tax at source from such payments."
26. In view of the above, we hold that the assessee was not subject to the provisions of TDS under the provisions of section 195 of the Act. Accordingly we do not find any infirmity in the order of the learned CIT (A). Thus, we decline to interfere in his order. Hence the ground of appeal of the Revenue is dismissed.
ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015A.Y. 2009-10 Page 11 of 28
27. The 2nd issue raised by the Revenue is that learned CIT (A) erred in deleting the disallowance made by the AO on account of non-deduction of TDS with respect to the exhibition expenses.
28. The assessee in the year under consideration has claimed certain expenses under the head exhibition expenses. The details of the same is stand as under:
S.No. Particulars Amount
1. M/s Messe Frankfurt Trade Fair India (P) Ltd ₹ 3,92,626/-
2. M/s First Rain Exhibition India Pvt. Ltd. ₹ 2,52,641/-
3. M/s Messe Frankfurt Exhibition GMBH(DE) ₹ 24,18,696/-
29. As per the assessee, the payment made to M/s Messe Frankfurt Trade Fair India (P) Ltd. for ₹ 3,92,626/- represents the reimbursement made to it which was incurred on account of various expenses on behalf of the assessee. Furthermore, all such expenses are below the threshold limit provided under the statute and therefore no TDS was required to be deducted.
29.1 The assessee further submitted that the payment to M/s First Rain Exhibits (India) Pvt. Ltd. for ₹ 2,52,641/- was paid after deducting the TDS and therefore the same cannot be disallowed.
30. Likewise, the assessee contended that the payment to M/s Messe Frankfurt Exhibition GMBH(DE) for ₹ 24,18,696/- was incurred in connection with the exhibition held in Germany which was not chargeable to tax in India as the services were rendered outside India. Accordingly the question of deducting the TDS under the provisions of section 195 of the Act does not arise.
31. However the AO disregarded the contention of the assessee by observing that the payment to M/s Messe Frankfurt Trade Fair India (P) Ltd for ₹ 3,92,626/- was not supported by any documentary evidence. Furthermore there was no breakup of the expenses furnished by the assessee along with any bills or vouchers in support of its claim.
ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015A.Y. 2009-10 Page 12 of 28
32. Similarly, the AO found that there was no documentary evidence furnished by the assessee suggesting that it has deducted the TDS on the payment made to M/s First Rain Exhibition (India) Pvt Ltd. for ₹ 2,52,641/- .
33. Likewise, the assessee has not furnished any supporting documents with respect to the exhibition organized in the Germany. As such it was found out from the bank advices and the invoices filed by the assessee that the exhibition was organized in Mumbai and not in Germany. This fact is also supported on the travelling expenses to Germany which were incurred in the month of January 2009 whereas the payment relates to the exhibition which was taken place in the earlier month. Accordingly the AO concluded that the claim of the assessee is factually incorrect.
34. In view of the above the AO disallowed the expenses of ₹ 30,66,571/- and added to the total income of the assessee.
35. Aggrieved assessee preferred an appeal to the learned CIT (A).
36. The assessee before the learned CIT (A) filed copy of TDS certificate with respect to the payment made to M/s First Rain Exhibition (India) Pvt. Ltd. for ₹ 2,52,641/- and contended that the finding of the AO is incorrect.
37. The assessee with respect to the payment made to M/s Messe Frankfurt Trade Fair India (P) Ltd. for ₹ 3,92,626/- filed the breakup of the expenses:
i. Out of the total amount, a sum of ₹ 34,020/- was representing the deposits which was ultimately refunded on 24th December 2008 which was credited under the promotion expenses.
ii. The balance amount of ₹ 3,58,606/- was representing the reimbursement of expenses such fee for space taken, service tax, electricity charges etc. incurred by the party on behalf of the assessee.
38. It was also contended by the assessee that, the recipient company has ensured that the income was considered while filing return of income therefore the same cannot be disallowed under the provisions of proviso to section 40(a)(ia) of the Act.
39. The assessee with respect to payment made to M/s Messe Frankfurt Exhibition GMBH(DE) for ₹ 24,18,696/- again reiterated that trade fare took place in Germany ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 13 of 28 therefore not taxable in India. Beside this the assessee also contended that there are two type of bill of exhibition i.e. HEIMTEXTIL INDIA'2008 and HEIMTEXTIL in Frankfurt/M(14/1-17/1/2009) and the payment made to the impugned party was in connection with the later one. Thus the AO wrongly presumed payment made for HEIMTEXTIL INDIA'2008.
40. The learned CIT(A) after considering the submission of the assessee was pleased to allow part relief by deleing the addition made on account of payment made to M/s Messe Frankfurt Exhibition GMBH(DE) for ₹ 24,18,696/- and M/s First Rain Exhibition (India) Pvt. Ltd. for ₹ 2,52,641/- by observing as under:
"I am partly inclined with A.O. that as far as payment to M/s Frankfurt Trade fairs India of Rs.254833/- dt. 08/04/08 and of Rs.137793/- dt. 17/06/08, No TDS was deducted on one hand and appellant failed to submit the details with evidence to support that such payments were reimbursement of expenses below the limit of applicability of TDS provision. Rather the same were lump- sum payment hence disallowances u/s40(a)(ia) of the Act for such amount of Rs.392626 (254833 + 137793) is upheld and confirmed.
In reference to payment of Rs.252641/- to M/s First Rain Exhibits India Ltd, the appellant contended that TDS of Rs.57251- was made. This is supported by fact that appellant made payment of Rs.1,26,250/- vide ch. no. 459313/- dt. 08/09/2008 and of Rs.120666/- vide ch. no. 463994 dt. 17/10/2008 to settle the account with deduction of TDS of Rs.5725/-. The details of such deduction and deposit of TDS is verifiable from appellant's TDS return and challan of Rs.552648/- for TDS u/s 194C paid on 06/11/2008. It is therefore, disallowances so made u/s 40(a)(ia) of the Act for this amount is neither justified nor sustainable. The A.O. is directed to delete the disallowance & addition so made of Rs.252641/-.
For both the payments as discussed above for Mumbai Exhibition fair, appellant's reliance on ratio of various case laws are not applicable on the facts. Invoices to M/s Frankfurt Trade fairs India, the invoice no.H1/2008/R-11 dt. 17/04/2008 reflect various types of charges but the same were not in the form of reimbursement but payment in aggregate. Hon'ble ITAT Vishakhapatnam order in the case of Marilyn shipping & transport as relied on by appellant is not applicable. The appellant failed to submit any details that M/s Frankfurt Trade Fairs India (P) Ltd. raised bills for reimbursement of expenses. As far as refund of security deposit of Rs.34,020/-, the same is already accounted dealing with total addition.
Now coming over to payment of Rs. 24,18,696/- to Mess Frankfurt Exhibition at Germany, I am inclined with appellant that various evidences submitted in the form of invoice, bank advices for payment at Germany and travelling expenditure clearly reflect that the same were for exhibition at ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 14 of 28 Germany. The payment for fees for exhibition before the expenditure of traveling does not justify the A.O's presumption that no such exhibition was held at Germany and appellant did not participated because A.O. didn't disallowed such travelling expenditure. As discussed while adjudication of ground no. 2 above, the appellant is not liable to deduct TDS out of such payment to NRI parties because services are rendered outside India. It is therefore the A.O. is not justified in disallowing such amount of Rs.2418696/- on the presumption that such expenditure is related to exhibition in India. The details in the respective invoices (Page 29 to 31 of paper book) and foreign bill transaction advices (page 27 & 28 of paper book) clearly reflect that invoices were for appellant's stand at "HEIMTEXTIL in Frankfurt/M (14/6 - 17/01/09), hall 10.0, stand no.B65 + hall 6.0, Stand no. C18" and payment made in 'Euros' outside India. The A.O. is directed to allow this expenditure and delete the addition of Rs.2418696/-.
It is therefore out of total disallowances and addition of Rs.3066571/-, the disallowances and addition of Rs.2671373/- (252641 + 2418696) is directed to be deleted while addition of Rs.392626/- is upheld and confirmed. The difference of Rs.2572 (3066577 - 2671373 - 392626) is on account of difference in amount as per claim in I.T. and invoice related to payment to Mess. Frankfurt Exhibition dt. 23/10/08 and 26/11/08. The appellant gets part relief. This ground is treated as partly allowed."
41. Being aggrieved by the order of the learned CIT (A) both the Revenue and assessee are in cross appeal before us. The Revenue is in appeal against deletion of addition for Rs. 26,71,337/- whereas the assessee is in cross objection against confirmation of addition for Rs. 3,92,626/-.
42. Both the learned DR and learned AR before us vehemently supported the order of the authorities below to the extent favourable to them.
43. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly the AO has made disallowances on account of exhibition expenses paid to 3 parties which have been detailed in previous paragraph. As far as payment of Rs. 2,52,641/- made to M/s First Rain Exhibition (India) Pvt Ltd is concerned, we find that assessee has made payment to impugned party after deducting eligible tax at source. In this respect, the assessee has furnished TDS certificate in from 16A which is placed on page 37 of paper book. Hence, we hold that the learned CIT (A) rightly deleted the addition under section 40(a)(ia) to this extent.
ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015A.Y. 2009-10 Page 15 of 28
44. Now coming to disallowance made by the AO for the amount paid to M/s Messe Frankfurt Trade Fair India (P) Ltd. for Rs. 3,92,626/-. The controversy in the present case relates to the disallowance of the expenses on account of non-deduction of TDS under the provisions of section 40(a)(ia) of the Act. However, the learned AR at the time of hearing before us has submitted that the impugned amount represent the reimbursement of the expenses. Thus the provisions of TDS will not be applicable in the case on hand. However, the assessee has not furnished any details in support of his contention. Therefore we are dismissing the contention of the assessee.
45. Likewise, it was also contended by the assessee that the Payees have already included the amount received from the assessee in their financial statements and paid the due taxes thereon. This fact can be verified by the AO from the respective parties. Accordingly, there cannot be any disallowance by virtue of the 2nd proviso to section 40(a)(ia) of the Act. For this purpose, the ld. AR requested that the matter can be referred back to the AO for the necessary verification.
46. Undoubtedly, the primary onus lies upon the assessee to deduct the TDS under chapter XVIII-B of the Act. In case, the assessee fails to deduct the TDS, then the assessee is not eligible for deduction of the corresponding expenditure. However, the lawmakers have given relief to certain assessee by inserting the 2nd proviso to section 40(a)(ia) of the Act which reads as under:
"Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub- section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso."
47. It is also important to refer the provisions of section 201 of the Act which reads as under:
"[Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident--ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015
A.Y. 2009-10 Page 16 of 28
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed68:"
48. From the preceding discussion it is transpired that Payers defaulting in deducting TDS from payments to resident payees need not to be deemed as Assessee in Default in the following conditions:
(A) Payee has included the impugned amount on which tax was not deducted/short deducted by the payer in his return of income filed under section 139 and pays the taxes due on returned income and (B) Payer produces a certificate in prescribed form from a CA to the effect that the payee has included the income in return and paid taxes thereof.
49. The CBDT has prescribed Form No. 26A for CA certificate to be obtained and furnished by payer evidencing compliance by payee.
50. From the above discussion, it is transpired that the assessee can be granted immunity from disallowances of expenses on account of non-deduction of taxes provided that the assessee (payer) furnishes the certificate in the prescribed form. Thus the onus is upon the assessee. However we find that assessee has not furnished the necessary certificate in form 26A prescribed by the CBDT. Accordingly, we do not find any infirmity in the order of the learned CIT (A).
51. Now the issue remains for the amount paid to M/s Messe Frankfurt Exhibition GMBH(DE) for Rs. 24,18,696/- only. From the preceding discussion we note the assessee has claimed amount paid to impugned party was related to exhibition held in Germany i.e. outside India. Thus such amount was not taxable in India. The claim of the assessee was not relied upon by the AO for the reason that the invoice was containing place of exhibition at Mumbai. However this finding of the AO was held factually incorrect by the learned CIT(A). The learned CIT(A) has given categorical finding that the invoice against which payment was made to the impugned party, the ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 17 of 28 place of exhibition is Germany not Mumbai India. Thus the learned CIT(A) in view of above and other documentary evidences such as travelling details deleted the addition made by the AO. From the preceding discussion, we note that the finding given by the learned CIT(A) have not been controverted by the learned DR before us based on documentary evidence. Therefore in such facts and circumstances of the case on hand we hold that the exhibition services were availed by the assessee in Germany i.e. outside India. Hence the same is not taxable in India under the preview of section of section 9(1) of the Act. Accordingly the assessee was not liable to deduct withholding tax under section 195 of the Act. Therefore we do not find any infirmity in the order of the learned CIT (A) and direct to the AO to delete the addition made to this extent.
52. Thus in view of the above, the ground of appeal of the Revenue is dismissed whereas the ground raised in the CO by the assessee is also dismissed.
53. The 3rd issue raised by the revenue is that the learned CIT(A) erred in deleting the addition made by the AO for Rs. 2,86,495/- representing the late payment of employees contribution towards PF/ESI.
54. The AO during the assessment proceedings found that the assessee has not deposited employee's contribution towards the PF/ESI within the time specified under the relevant Act i.e. Provident fund Act/ESI. Accordingly the AO disallowed the same under the provisions of section 36(1)(va) and treated the same as income of the assessee under the provisions of section 2(24)(ix) of the Act.
55. Aggrieved assessee preferred an appeal to the learned CIT (A).
56. The assessee before the learned CIT (A) submitted that the AO has made the disallowance of the entire amount of ₹ 3,56,268/- which is comprising of employers contribution, employees contribution and administrative charges for Rs. 1,73.892/-, Rs. 1,66,934/- and Rs. 15,442/- respectively. As far as payment of employers contribution and administrative expenses are concerned, the same is allowable under the provisions of section 36(1)(iv) of the Act read with section 43B of the Act.
57. The assessee regarding the employee's contribution submitted that the payment has been made within the grace period of the due date as specified under ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 18 of 28 the relevant Act. Accordingly as per the assessee the employees contribution cannot be treated as income under the provisions of section 2(24)(x) r.w.s. 36(1)(va) of the Act.
58. However the learned CIT (A) with respect to the amount of employer's contribution and administrative expenses of Rs. 1,73,892/- and Rs. 15,442/- found that the assessee has made the payment of such amount before the due date of filing the return as specified under section 139(1) of the Act. Accordingly, the assessee was eligible for deduction under the provisions of section 36(1)(iv) read with section 43B of the Act.
59. With respect to the employee's contribution towards the PF/ESI, the learned CIT (A) found that the deduction of the same cannot be allowed by virtue of the order of the Hon'ble Gujarat High Court in the case of CIT vs. GSRTC in tax appeal no. 637 of 2013 dated 26.12.2013 if the same has not been paid within the due date as specified under the provisions of the relevant Act. The learned CIT (A) further observed that under the PF and ESI Act, the period for making the payment has been specified within 15 days from the end of the month in which salary of the assessee became due. However, there has been given the grace period of 5 days under the relevant Act for making the payment of employee's contribution towards the PF/ESI. In fact the assessee was liable to pay the employees contribution on or before 20th day of the month from the close of the month in which the salary was due for payment. Accordingly, the learned CIT (A) held that the grace period of 5 days should also be allowed to the assessee. In other words any payment made beyond 20th day of the succeeding month in which the salary became due, will not be allowed as deduction under the provisions of section 36(1)(va) of the Act. In holding so learned CIT (A) draw support and guidance from the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Amoli Organics Pvt. Ltd 41 taxman.com 149.
60. In view of the above, the learned CIT (A) made the disallowance of ₹ 69,773/- representing the employee's contribution towards PF/ESI which was paid after period of grace period of 5 days.
61. Being aggrieved by the order of the learned CIT (A) both the Revenue and the assessee are in appeal before us. The revenue is against deletion of addition made ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 19 of 28 for Rs. 2,86,495/- whereas the assessee is in CO against confirmation of addition for Rs. 69,773/-. The assessee ground in CO reads as under:
"3. The Ld. CIT(A) has erred in law and on facts in not allowing a sum of Rs.69,773/- on account of late payment of employee contribution to provident fund."
62. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.
63. We have heard the rival contentions of both the parties and perused the materials available on record. There is no confusion or ambiguity to the fact that the contribution of employer's contribution and administrative charges are governed under the provisions of section 36(1)(iv) read with section 43B of the Act. Admittedly the assessee has made employer's contribution and administrative charges within the due date as specified deduction 139(1) of the Act. Accordingly we do not find any infirmity in the order of the learned CIT (A).
64. Regarding the employee's contribution, we note that there is no ambiguity that the assessee was entitled for making the payment within the grace period as per provided under the Act. In holding so we draw support and guidance from the judgment of Hon'ble Jurisdictional High Court in case of CIT vs. Amoli Organics Pvt. Ltd 41 taxman.com 149 where it was held as under:
"Under particular Act or law, in the present case under the Provident Fund Act, if the assessee was entitled to make payment within the grace period and if within that grace period, its employer contributions have been deposited by the assessee, it cannot be said that the assessee has not deposited the amount with the department within the due date as prescribed under the Provident Fund Act. Under such circumstances, as such no error and/or illegality has been committed by the Tribunal in granting deduction to the assessee with respect to the amount deposited with the provident fund department within the extended period/grace period. Under the circumstances, no other issues are required to be considered. No question of law muchless any substantial question of law arises in the present appeal. [Para 8]"
65. In view of the above we do not find any infirmity in the order of the learned CIT (A). However any payment of employee's contribution beyond the grace period is not allowed for deduction. Hence the ground of appeal of the revenue is dismissed and the CO of the assessee is also dismissed.
ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015A.Y. 2009-10 Page 20 of 28
66. The 4th issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 4,83,060/- on account of depreciation, interest and running expenses for the vehicle registered in the name of the director.
67. The AO during the assessment proceedings found that the assessee has shown many cars in its financial statements. However one of the car, purchased in the year under consideration was registered in the name of the director. Accordingly, the AO was of the view that the assessee cannot claim depreciation and other expenses qua this car for the reason it was not owned by the assessee. Thus the AO disallowed the amount of depreciation and interest on such car amounting to Rs. 3,14,805/- and Rs. 2,00,533/- respectively. Likewise, the AO found that the car running expenses pertaining to this car i.e. registered in the name of the director cannot be allowed as deduction but such expenses were mixed with the other car running expenses. Thus the AO assumed 10% of the total car running expenses pertaining to the impugned car. Thus the AO disallowed the car expenses of ₹ 1,28,742/- only and added to the total income of the assessee.
68. Aggrieved assessee preferred an appeal to the learned CIT (A), who provided part relief to the assessee by observing as under:
"I am partly inclined with appellant that on the similar facts, Hon'ble ITAT Ahmedabad after considering various case laws as relied on by A.O., allowed the claim of depreciation to company for the vehicle registered in the name of director following the ratio of Hon'ble Supreme Court in the case of Mysore Minerals. It is undisputed that said car is reflected as asset of the company. The appellant took a loan and repaid through EMI including interest i.e. source of purchase are of appellant and A.O. himself not disputed the car was used for the purpose of business though partly in the absence of log book. It is in this regard, provisions of section 38(2) of the Act are important which permit the part use of assets and allowability of such part depreciation. Considering all these facts, I treat that the said car was partly used and only 75% of such deprecation and incidental expenses are for the purpose of business, while 25% are required to be disallowed. It is therefore AO is directed to allow 75% of total disallowance i.e. Rs.483060 (75% of 644080), while balance of Rs.161020 (644080 - 483060) is upheld and confirmed. The appellant gets part relief. This ground is partly allowed."
69. Being aggrieved by the order of the learned CIT (A) both the Revenue and the assessee are in cross appeals. The Revenue is in appeal against disallowances of 75% of total addition i.e. Rs. 4,83,060/- whereas the assessee is in CO against the ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 21 of 28 confirmation of Rs.1,61,020/- being 25% of total addition made by the AO. The relevant ground of assessee in the CO reads as under:
"5. The Ld. CIT(A) has erred in law and on facts in not allowing a sum of Rs.1,61,020/- on account of Car depreciation, interest and running expenses."
70. Both the learned DR and AR before us vehemently supported the order of the authorities below to the extent favourable to them.
71. We have heard the rival contentions of both the parties and perused the material available on record. Admittedly, it is necessary for the assessee to own the assets for claiming the depreciation on the assets. But the word 'own' has not been defined under the provisions of the Act whether the ownership refers to the legal ownership or the beneficial ownership. Undoubtedly, the assessee in the present case is not the legal owner of the vehicles but it has made the payment for the acquisition of the cars. Thus it can be inferred that the assessee owns the cars in the capacity of beneficial owner. Thus, in our considered view the assessee is entitled for the depreciation and interest expenses on the car. In holding so we draw support and guidance from the order of this Tribunal in case of ITO vs. Electro Ferro Alloys Ltd. in ITA no 2773/Ahd/2009 reported in 25 taxmann.com 458 where the relevant finding of the coordinate bench reads as under:
"5. 2. On consideration of the facts of the appellant's case it is noticed that the motor car was purchased, though in the name of the appellant's director, it was purchased out of the funds of the appellant-company and it is also not in dispute that the motor car was purchased for the purpose of business of the appellant. Thus the motor car being, business asset of the appellant and purchased for the purpose of business and used as such by the appellant, in view of the decision in the case of Mysore Minerals Ltd. [1999] 239 ITR 775 (SC) referred to above and other decisions cited by the learned authorised representative, I hold that the disallowance made by the Assessing Officer on this ground is not justified and hence the same is directed to be deleted.
22. 2 In the present case it is not disputed that investment was made by the assessee in purchase of the motor car. It is shown as asset in the balance- sheet of the company. If expenditure for running the vehicle was incurred by the assessee, the assessee is de facto owner of the vehicle. It is not disputed that it was used for the purpose of business of the assessee company. The hon'ble Rajasthan High Court in the case of CIT v. Mohd. Bux Shokat Ali (No. 2) [2002] 256 ITR 357 (Raj) held that where vehicle was purchased by the firm used by it for the purpose of its business but it was registered in the name of one of the partners then the firm would be entitled to depreciation on vehicle. The hon'ble ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 22 of 28 Delhi High Court in the case of CIT v. Basti Sugar Mills Co. Ltd. [2002] 257 ITR 88 (Delhi) held that where vehicle was owned and used by the assessee but no registration was done in its name then the assessee would still be entitled to depreciation on such vehicle. Therefore, the assessee has right to claim depreciation thereon. This ground of the Revenue is accordingly rejected."
72. Regarding the other expenses of fuel and maintenance on such cars, we find that the AO has made the disallowance in adhoc manner which are not permitted under the provisions of law. As such, the AO was under the obligation to pinpoint the personal expenses incurred by the assessee but he has not done so.
73. It is also important to note that the dominion ownership of the car rest with the company. The company being a body corporate is different from the individuals. In other words in a body corporate there cannot be any element of personal expenses as alleged by the AO.
74. In view of the above and after considering the facts in totality, do not find any infirmity in the order of learned CIT (A). Hence the ground of appeal of the revenue is dismissed whereas ground raised by the assessee in the CO is allowed.
75. The last issue raised by the revenue is that the learned CIT(A) erred in deleting the addition made by the AO under section 36(1)(iii) of the Act on account of diversion of interest bearing fund.
76. The AO during assessment proceeding observed that on one hand, the assessee is paying huge interest on borrowed fund and on the other hand, it has provided loan/ advances to extent of Rs. 49,22,496/- to certain parties from where no interest was charged. The AO also observed that the assessee also failed to substantiate that these advances were given as advance for goods supply. Accordingly the assessee disallowed the proportionate interest @ 12% to the tune of Rs. 5,90,700/- and added to the total income of the assessee.
77. Aggrieved assessee preferred an appeal before the ld. CIT(A) who was pleased to delete the addition made by the AO by observing as under:
"I am inclined with appellant that in the absence of any direct nexus and with the availability of interest free fund in the form of share capital, reserve & surplus, no such disallowance of interest can be made u/s 36(1)(iii) of the Act in view of ratio of various case laws as relied on by appellant. Hon'ble ITAT ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 23 of 28 Ahmedabad in the case of Shital Kumar Shankarlal Prajapati as relied on by appellant allowed the ratio of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Limited 313 ITR 340 and held so. The A.O. though excluded the trade debtor after examination of ledger account of some of the parties but failed to establish direct nexus of advance of loan from interest bearing fund. It is therefore the disallowances so made are neither justified nor sustainable. The A.O. is directed to allow such interest and delete the addition of Rs.590700/-. The appellant gets relief accordingly. This ground is allowed."
78. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.
79. Both the learned DR and learned AR before us vehemently supported the order of the authorities below as favourable to them.
80. We heard the rival contention of both the parties and perused the material available on record. From the preceding discussions we note that the own fund of the assessee exceeds the amount of interest free loan and advances of Rs.49,22,496/- which can be verified from balance sheet reproduced as under:
"SOURCE OF FUNDS:
SHARE HOLDERS' FUND SHARE CAPITL A 69,080,000 65,080,000 SHARE APPLICATION MONEY 35,000,000 0 RSERVES & SURPLUS B 151,501,583 135,354,148"
81. There cannot be any disallowance of interest expenses in a situation where the own fund exceeds the amount of investment made by the assessee. As such, there is a presumption that the investment has been made by the assessee out of its own without involving any borrowed fund. In holding so we draw support and guidance from the judgment of Hon'ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under:
"It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7]"ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015
A.Y. 2009-10 Page 24 of 28
82. In view of the above we hold that there cannot be any disallowance of interest expenses. Hence the ground of appeal of the revenue is hereby dismissed.
83. In the result, appeal of the Revenue is dismissed.
Coming to C.O.No. 56/Ahd/2015 filed by the assessee.
The assessee has raised the following grounds in CO:
"1. The Ld. CIT Appeals 1 Ahmedabad has erred in law and on facts in passing appellate order dated 24/12/2014 for A.Y. 2009-10 in the case of appellant by confirming the additions made by the A.O.
2. The Ld. CIT(A) has erred in law and on facts in not allowing a sum of Rs.392626/- out of Exhibition expenses.
3. The Ld. CIT(A) has erred in law and on facts in not allowing a sum of Rs.69773/- on account of late payment of employee contribution to provident fund.
4. The Ld. CIT(A) has erred in law and on facts in not allowing a sum of Rs.669550/- out of Scholarship fee.
5. The Ld. CIT(A) has erred in law and on facts in not allowing a sum of Rs.161020/- out of Car depreciation, interest and running expenses.
6. The Ld. CIT(A) has erred in law and on facts in not allowing a sum of Rs.132521/- out of Commission expenses.
7. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal on or before of the final hearing of appeal."
84. The first issue raised by the assessee in CO is general in nature. Hence the same is dismissed being general ground.
85. The second issue raised by the assessee in CO is that the learned CIT(A) erred in confirming the disallowances of Exhibition expenses in part for Rs. 3,92,626/- only.
86. At the outset we note that the issue has been dealt with ground no. 2 of Revenue's appeal where the issue has been decided in the favour of the Revenue. For the detailed discussion, please refer to paragraph no. 44 to 50 of this order. Accordingly, the ground of assessee's CO is dismissed.
ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015A.Y. 2009-10 Page 25 of 28
87. The 3rd issue raised by the assessee in CO is that the learned CIT(A) erred in confirming the part disallowances of Rs. 69,773/- on account of late payment of employee's contribution towards EPF/ESI.
88. At the outset we note that the issue has been dealt with ground no. 3 of Revenue's appeal where the issue has been decided against the assessee. For the detailed discussion, please refer to paragraph no. 64 to 65 of this order. Accordingly the ground of assessee's CO is dismissed.
89. The 4th issue raised by the assessee in CO is that the learned CIT (A) erred in confirming the disallowance of Rs. 6,69,550/- on account of scholarship fee.
90. The AO during the assessment proceedings found that the assessee has claimed expenditure of Rs. 6,69,550/- towards scholarship fee. However on question, the assessee failed to submit any documentary evidence as well as failed to offer any explanation. Accordingly the AO disallowed the same in absence of any explanation and added to the total income of the assessee.
91. Aggrieved assessee preferred an appeal before the ld. CIT (A).
92. The assessee before learned CIT (A) submitted that the documentary evidences were not submitted for the reason that the same are not traceable. However, the same can be allowed in view of the fact that the books of accounts have been audited by independent auditor and no adverse remarks made by the auditor in this respect.
93. However, the learned CIT(A) rejected the assessee's contention and confirmed the disallowance made by the AO by observing as under:
"(iv) I am inclined with AO that in the absence of any supporting evidences and justification for claim of such expenses, even if there is no adverse comment from auditor, such expenses cannot be allowed. The onus is on appellant to not only substantiate the payments but also the claim of expenses that the same are incurred wholly and exclusively for the purpose of business.
The disallowances and addition so made is therefore upheld and confirmed. This ground is dismissed."
94. Being aggrieved by the order of the learned CIT(A) the assessee is in the appeal before us through the CO.
ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015A.Y. 2009-10 Page 26 of 28
95. The learned AR before us reiterated the submissions made before the authorities below.
96. On the other hand learned DR vehemently supported the order of the lower authorities.
97 We have heard the rival arguments of both the parties and perused the materials available on record. Admittedly, the assessee failed to file any supporting evidences with regard to the impugned expenditure. Thus the same was disallowed by the AO in absence of supporting evidences which were subsequently confirmed by the learned CIT(A). We find that that primary onus lies upon the assessee to prove that the claim of deduction is genuine and incurred for the purpose of business based on documentary evidence. But in the case on hand the assessee failed to discharge primary onus cast upon it. Even at the time of hearing the learned AR has not brought anything on record by submitting the supporting evidences. Thus in such facts and circumstances, we do not find any reason to interfere into the finding of the learned CIT (A). Hence of ground of assessee's CO is dismissed.
98. The issue raised in ground No. 5 by the assessee is that the learned CIT (A) erred in not allowing the deduction of ₹ 1,61,020.00 for car depreciation, interest and running expenses.
99. At the outset we note that the issue has been dealt with ground no. 4 of Revenue's appeal where the issue has been decided in favor of the assessee. For the detailed discussion, please refer to paragraph no.71 to 74 of this order. Accordingly the ground of assessee's CO is allowed.
100. The last issue raised by the assessee in CO is that the learned CIT(A) erred in confirming the disallowances of commission expenses of Rs.1,32,521/- only.
101. The assessee during the year incurred commission expenses of Rs. 65,47,564/- only. Out of total commission expenses, the assessee failed to deduct tax at source on the amount of Rs. 1,32,521/- under section 194H of the Act. On question the assessee also failed to offer any explanation except submitting the ledger account of commission expenses. Thus the AO disallowed the same by invoking the provision of section 40(a)(ia) of the Act.
ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015A.Y. 2009-10 Page 27 of 28
102. The aggrieved assessee carried the matter to the learned CIT (A) and submitted that it has deducted tax at source on commission paid. However in some cases short deduction was made. Therefore the genuine expenses incurred for the purpose of business should not be disallowed merely for technical lapse. The assessee also claimed that the entire amount of commission was paid during the year and no amount was outstanding as on the balance sheet date. Therefore in view of decision of special of bench of Vishakhapatnam ITAT in case of Merlyn Shipping & Transport vs. ACIT in ITA no. 477/Vis/2008, no disallowances can be made.
103. However the learned CIT (A) rejected the contention of the assessee by observing as under:
"(iii) I am not inclined with appellant who without any supporting evidences for the contention that it deducted TDS at lower rate. Further, the ratio of various case laws as relied on by appellant are now no longer applicable since Hon'ble Andhra Pradesh High Court reversed the ratio so enunciated by Hon'ble ITAT Visakhapatnam Special Bench. It is therefore with a view that there are payments of commission to which TDS provisions are applicable but appellant failed to deduct such TDS, the disallowance & addition so made by the A.O. u/s 40(a)(ia) of the Act are upheld. This ground is dismissed."
104. Being aggrieved by the order of the learned CIT(A), the assessee is in CO before us.
105. The learned AR before us reiterated the submissions as made before the learned CIT (A). On the other hand, the learned DR vehemently supported the order of the authorities below.
106. We have heard the rival contentions of both the parties and perused the materials available on record. At the time of hearing, the learned AR has not brought anything on record evidencing that the TDS has been deducted by the assessee on the impugned amount of commission expenses. Thus, in the absence of supporting documents, we do not find any merit in the argument of the learned AR for the assessee. It is also important to note that the principles laid down by the Tribunal in the case of Merlyn Shipping & Transport vs. ACIT in ITA no. 477/Vis/2008 have been overruled by the Hon'ble Calcutta High Court in the case of Commissioner of Income- tax, Kolkata - XI v. Crescent Export Syndicate reported in 33 taxmann.com 250 which was subsequently upheld by the Hon'ble Supreme Court in the case of Palam Gas ITA No.630/Ahd/2015 & C.O. No.56/Ahd/2015 A.Y. 2009-10 Page 28 of 28 Service V. Commissioner of Income-tax reported in 81 taxmann.com 43. In view of the above, we hold that the assessee cannot be absolved from the liability of deducting the TDS on the amount of commission merely on the reasoning that such amount was not shown as payable at the end of the financial year. Accordingly, we do not find any reason to interfere in the finding of the authorities below. Hence the ground of appeal raised by the assessee in CO is dismissed.
107. In the result the C.O. is partly allowed.
108. In the combined result, the appeal of the Revenue is dismissed whereas the CO of the assessee is partly allowed.
Order Pronounced in the Court on 30th September, 2021 at Ahmedabad.
Sd/- Sd/-
(MS. MADHUMITA ROY) (WASEEM AHMED)
Judicial Member Accountant Member
Ahmedabad, the 30 th day of September, 2021
PBN/*
Copies to: (1) The appellant
(2) The respondent
(3) CIT
(4) CIT(A)
(5) Departmental Representative
(6) Guard File
By order
UE COPY
Assistant Registrar
Income Tax Appellate Tribunal
Ahmedabad benches, Ahmedabad