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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-4, Vadodara (CIT(A)’ in short), dated 28.08.2017 arising in the assessment order dated 29.12.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2014-15.
[DCIT vs. M/s. Gujarat Co-op. Milk Marketing Federation Ltd.] A.Y. 2014-15 - 2 -
The grounds of appeal raised by the Revenue reads as under:-
“1.1 That in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of co-operative expenses, including breed development expenses, without appreciating that this expenditure is not 'wholly and exclusively for the purpose of business' in terms of section 37(1), and is not an allowable expenditure.
1.2 That alternatively and without prejudice, in the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of co-operative expenses, including breed development expenses, without appreciating that this expenditure results in enduring benefit, and is capital expenditure, and is therefore, not an allowable expenditure.
2.1 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in deleting the disallowance u/s 14A without following the decision of the Hon'ble ITAT in AY 2006-07 where a similar disallowance was upheld; and without following his own decision in AY 2006-07 confirming the disallowance; and without following his own decision in AY 2010-11 where the disallowance was upheld following the decision of the Hon'ble ITAT for AY 2006-07. The Ld. CIT(A) erred in deleting the disallowance and in not following these decisions without specifying any distinguishing facts this year.
2.2 That in the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance u/s 14A computed as per Rule 8D(2)(ii) even though the assessee had failed to demonstrate that investments were actually made out of interest free funds?
2.3 That in the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance u/s 14A, without separately considering the disallowance computed as per Rule 8D(2)(iii), and the distinction between disallowance computed as per Rule 8D(2)(ii) and Rule 8D(2)(iii), and without considering that disallowance computed as per Rule 8D(2){iii) is not dependent on interest expenditure.
3.1 That in the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance u/s 40(a)(i) in a mechanical manner without examining the facts of the case.
3.2 That in the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance u/s 40(a)(i) without considering that these payments were taxable in India as fees for technical services in terms of section 9(1)(vii) and were liable for TDS.
3.3 That in the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance u/s 40(a)(i) without considering that the assessee had tailed to furnish complete details and demonstrate that this [DCIT vs. M/s. Gujarat Co-op. Milk Marketing Federation Ltd.] A.Y. 2014-15 - 3 - income was not taxable in India under the Income Tax Act and the relevant Double Taxation Avoidance Agreements (DTAAs).”
As per Ground Nos. 1.1 & 1.2, the Revenue seeks to challenge the action of the CIT(A) for disallowance of co-operative expenses including breed development expenses etc. As pointed out on behalf of the assessee, the issue is squarely covered in favour of the assessee in its own case in AY 2011-12 by the decision of the co-ordinate bench of same combination in & Ors. dated 02.08.2018. The relevant operative para of the order of the Tribunal in ITA No.3023/Ahd/2014 concerning AY 2011-12 is reproduced hereunder:
“11. We have carefully considered the rival submissions. The controversy revolves around maintainability of breed improvement expenses as revenue expenditure. It is broadly the case of the assessee that it is an institution created by the milk producers themselves to safeguard their interest economically, socially as well as democratically. The expenses have been incurred to optimize the productivity and quality of the milk and milk products. For this purpose, the assessee has incurred expenses towards fertility improvement programme and has inter alia taken educational programme with the object of imparting education, training and information for development and strengthening the co-operative structure and thereby improving milk productivity. In the process to achieve such objects, the assessee has incurred expenditure to the tune of Rs.824.94 Lakhs which is in the nature of revenue expenditure to improve the quality and bring efficiency in production as well as to achieve unfettered supply. In this background, the CIT(A) observed that identical issue involved in preceding assessment years have been decided in favour of the assessee by the predecessor CIT(A) and the claim of such expenditure was accepted as revenue expenditure. As noticed, the view taken by the CIT(A) has been endorsed by the co-ordinate bench of ITAT in & Ors. read with M.A. No. 07/Ahd/2017 & Ors. (supra). In consonance with the order of the co-ordinate bench for earlier assessment years in own case of Assessee in own case of Assessee, we do not see any warrant to interfere with the order of the CIT(A).”
In parity with the conclusion drawn in the earlier assessment years, we do not see any infirmity in the order of the CIT(A) holding such expenditure in the nature of allowable revenue expenditure. We thus decline to interfere. [DCIT vs. M/s. Gujarat Co-op. Milk Marketing Federation Ltd.] A.Y. 2014-15 - 4 -
Ground Nos. 1.1 & 1.2 of the Revenue’s appeal are dismissed.
Ground Nos. 2.1, 2.2 & 2.3 concerning disallowance of expenditure under s.14A read with Rule 8D(2)(ii) of the IT Rules.
At the time of hearing, the learned AR for the assessee submitted that own funds (Rs.17586.73 Lakhs) of the assessee together with reserves far exceeds corresponding investments (Rs.73.47 lakhs) giving rise to a presumption that interest free funds have been utilized for the purposes of investments and thus no interference with the order of the CIT(A) is called for. From a perusal of the order of the CIT(A), we notice that the CIT(A) has examined the issue in proper perspective and granted relief to the assessee having regard to the judicial approach adopted by the Hon’ble Gujarat High Court in several cases on similar facts. The value of investment being lower than the own available funds, the provisions of Section 14A read with Rule 8D(2)(ii) is not attracted. We see no reason to interfere with the order of the CIT(A).
Ground Nos. 2.1, 2.2 & 2.3 of the Revenue’s appeal are dismissed.
Ground No.3 concerns disallowance under s.40(a)(i) of the Act on the ground that certain commission has been paid to the commission agents outside India without deduction of tax at source.
On perusal of the order of the CIT(A), we notice that the commission payments have been made to foreign agents overseas for rendering services outside India for obtaining export orders. The foreign agent is stated to be not carrying any business operation in India and therefore no income can be stated to accrue or arise in India. In the absence of any chargeability of income under s.4 read with Section 5(2) of the Act, provisions of Section 195 of the Act will not apply. Thus, obligations for deduction of withholding tax cannot be fastened on the [DCIT vs. M/s. Gujarat Co-op. Milk Marketing Federation Ltd.] A.Y. 2014-15 - 5 - assessee. The CIT(A) has rightly determined the issue in perspective and in accordance with law as interpreted by long line of judicial precedents. In view of unrebutted facts recorded by the CIT(A), we are unable to see any infirmity therein. We thus decline to interfere.
In the result, the appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 09/10/2019
Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 09/10/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।