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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
The present appeal is filed by assessee against order dated 29.9.2017 passed by ld. CIT(A)-2, Bangalore for the assessment year 2013-14 on following grounds of appeal:- 1. “The order of the learned Commissioner of Income-tax (Appeals) - II, Bangalore [hereinafter referred to as "the learned CIT (A)"] is bad and unsustainable in the eyes of law as the same is- passed without proper application of mind as also being contrary to Spirit & provisions of the Statute
2. Disallowance under Rule 8D read with section 14A - Rs. 2,68,415 The CIT(A) erred in not appreciating the appellant's contention that the investments held by the appellant were made out of the internal accruals generated from the business and not out of any borrowings.
3. Without prejudice, the appellant's limited interest for making investment in subsidiary was to acquire control and not earning interest and that while invoking provisions of S.14A and Rule 8D, the AO has not recorded satisfaction and hence no addition was called for.
4. Disallowance under section 36(i)(iii) r.w.s 37 - Rs. 65,92,495
M/s. Euroamer Garuda Resorts (India) Pvt. Ltd., Bangalore Page 2 of 5 The CIT (A) erred in disallowing the interest expenditure on the advance given to subsidiary company when there was no nexus of the advance given to subsidiary company and the loan borrowings of the Appellant company.
Cessation of liability under section 41(1) of the Act - Rs. 25,00,000 The CIT(A) further erred in disallowing the cessation of liability towards an outstanding credit balance of sundry creditor without noticing that the said credit was an outstanding/ opening balance which was carried forward from FY 2011-12 and not a liability which was written off during the relevant FY 2012-13 under consideration and there was no cessation of liability to be adjusted under section 41(1).
CIT(A) erred in bringing on record any reasons/finding for application of the said amount under section 69C as unexplained expenditure by the Appellant. The finding by CIT(A) that the existence of such a liability is doubtful is not substantiated by any confirmation from the creditor or any other evidences on record'.
Disallowance of unproved sundry creditors under section 41(1) The CIT(A) has erred in disallowing the sundry creditors for advance received for Suncity villas without appreciating that there was a liability to pay the amount received as advance to the recipients and the same is not any amount written off in the books of accounts of Appellant and hence no income arises to the Appellant on such transactions.
Disallowance of consultation charges - Rs. 69,00,000/- The CIT (A) erred in disallowing the consultation charges paid to Mrs. Sumalatha Ambarish for her liaisoning work performed for the Appellant without there being any evidence to contradict the requirement & the explanation provided by the Appellant for paying the said consultation charges and disallowed the same without any reasons or evidence on record. The appellant seeks the leave of the court to alter, amend, modify, any or all grounds, before or during the course of hearing.”
The ld. A.R. submitted that this is a High Court remand matter wherein the assessee had challenged the order passed by this Tribunal dated 12.7.2019 in . The Hon’ble High Court had considered following question of law vide order dated 24.1.2023 in “Whether the finding recorded by the Tribunal that the assessee is not entitled to allowance in respect of consultancy fees paid by them, is perverse in the state of evidence on record?”
M/s. Euroamer Garuda Resorts (India) Pvt. Ltd., Bangalore Page 3 of 5 3. We have heard the rival submissions and perused the materials available o record. Before the Hon’ble High Court following facts were appreciated which are reproduced as under: 3. The assessee’s case is, he has entered into an agreement dated 27.08.2004 with one Smt. Sumalatha Ambarish for the services which she is required to render to the assessee. In terms of said agreement, assessee has been making regular payment to Smt. Sumalatha Ambarish. The assessee has been claiming deduction of the said payments as expenditures from Assessment year (for short ‘AY’) 2005-06. Said deductions have been allowed successfully from AY 2005-06 to 2012-13.
4. For the AY 2013-14 the Assessing Officer (for short ‘AO’) disallowed the payments made to Smt. Sumalata Ambarish. The Commissioner of Income Tax (Appeals) (for short ‘CIT(A)’) and Income Tax Appellate Tribunal (for short ‘ITAT’) also confirmed the said order.”
3.1 The ld. A.R. submitted that payments were made to Smt. Sumalatha Ambarish based on an agreement dated 27.8.2004 and the deductions have been allowed to the assessee from assessment year 2005-06. This particular fact was admitted by the Counsel arguing on behalf of revenue before the Hon’ble High Court. Hon’ble High Court after considering the submissions of both the sides also noted that in para 15 of the ITAT order, there is a factual observation made regarding the expenses being allowed by the AO in the past. It is the observation of the Hon’ble High Court that no evidences were placed before the Tribunal and that if the expenses were allowed in the previous years, this Tribunal was required to examine the matter on facts and come to the final conclusion. Hon’ble High Court accordingly, directed this Tribunal by observing as under: “(1) Appeal is allowed. (2) The order dated 12.7.2019 in Income Tax Appellate Tribunal, Bengaluru, is set aside. (3) Matter is remanded to the file of Income Tax Appellate Tribunal for fresh consideration in accordance with law. (4) Assessee shall be at liberty to rely upon the documents, which were already placed before the ITAT.
M/s. Euroamer Garuda Resorts (India) Pvt. Ltd., Bangalore
Page 4 of 5 (5) All contentions of both parties are kept open. (6) Since matter is remitted to the ITAT for fresh consideration, question of law is not answered. No costs.”
3.2 Before this Tribunal, the ld. A.R. relied on the agreement dated 27.8.2004 filed in the paper book at the time of hearing. She has also filed certain photographs revealing the presence of Smt. Sumalatha Ambarish and an affidavit of Smt. Sumalatha dated 21.6.2023 confirming the receipt of payment amounting to Rs.5 lakhs per month for the services rendered by her for implementation of project in various fields including liaisoning with Government of Karnataka, liaisoning with various departments of Government of Karnataka and Municipal Corporations for smooth running of Garuda Mall. She has also admitted to be the brand ambassador of Garuda Mall. In the affidavit, she has also gave details of various kinds of services rendered by her and that she is the Director of Board of Garuda Builders Pvt. Ltd., which is the holding company of Maverick Holdings and Investments Pvt. Ltd., who have been in turn associated with the Project and is also the party to the agreement dated 27.8.2004. In the paper book, we also noted that an invoice has been placed raised by Mrs. Sumalatha Ambarish in the name of assessee at pages 64 to 75. The assessee has also placed in the paper book before us the service tax return filed by Mrs. Sumalatha Ambarish for financial year 2012-13, wherein the amount received for the services rendered by her has been disclosed and the same is placed at pages 83 to 87 of the paper book. In our considered opinion the returns filed by Mrs. Sumalatha with the Central Board of Excise & Customs in ST-3 Form needs to be verified whether it includes the relevant payments received by her during the year under consideration. For this purpose alone, the matter is remitted to the ld. AO. The assessee is directed to file the details of the service tax returns filed which could reveal the payments made
M/s. Euroamer Garuda Resorts (India) Pvt. Ltd., Bangalore
Page 5 of 5 by assessee to Mrs. Sumalatha in respect of the managerial services rendered by her. The ld. AO is directed to consider the submissions of the assessee in accordance with law and in the case if it is established that the payment made by assessee is subsumed in the service tax return filed, the expenditure claimed by assessee is to be allowed. With the above directions, we remit this issue to the file of ld. AO for limited purposes of verification. Accordingly, the grounds raised by the assessee stands allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 22nd June, 2023