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Income Tax Appellate Tribunal, DELHI “D” BENCH: NEW DELHI
Before: SHRI KUL BHARAT & DR.B.R.R.KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “D” BENCH: NEW DELHI
(THROUGH VIDEO CONFERENCING)
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & DR.B.R.R.KUMAR, ACCOUNTANT MEMBER
ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12 M/s. Mira Exim Ltd., vs Addl. CIT, 523-524, World Trade Centre, Range-6, C. R. Building, Connaught Place, New Delhi New Delhi. PAN-AAACM2066M APPELLANT RESPONDENT Appellant by Sh. Anil Kumar Chopra, CA & Sh. Praveen Kumar, CA Respondent by Sh.Umesh Takyar, Sr. DR Date of Hearing 20.09.2021 Date of Pronouncement 30.09.2021
ORDER PER KUL BHARAT, JM : Both appeals filed by the assessee pertaining to assessment years 2010-
11 & 2011-12 are directed against the orders of Ld. CIT(A)-6, Delhi dated
30.03.2015 & 31.03.2015. For the sake of convenience, both appeals were
taken up together being disposed off by way of a consolidated order.
First we take up ITA No.3713/Del/2015 [Assessment Year 2010-11]
wherein the assessee has raised following grounds of appeal:-
“That the Ld. Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has erred in confirming the disallowance of Rs.1,30,609/- towards alleged personal use out of expenditure on festival and gifts incurred wholly and exclusively for the purposes of business of the appellant. The disallowance is arbitrary, adhoc without pointing out any specific items. The disallowance as made by the Assessing Officer and confirmed by the Ld. CIT(A) being based on erroneous views and / or non-appreciation of the facts and law deserves to be deleted.
ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12
That the Ld. CIT(A) has erred in confirming the disallowance of Rs.55,14,741/- out of legal and professional expenses made by the Assessing Officer by invoking the provisions of section 40(a)(i). The Ld. CIT(A) has wrongly treated the said payments as Fee for Technical Services. As per the respective DTAA, the payments involved are either business income of payee or are independent personal services. In absence of any PE or fixed place of business in India of the payee, as per the respective DTAA, the said payments are not chargeable to tax in India and as such no TDS is applicable thereon. The disallowance as made by the Assessing Officer and confirmed by the Ld. CIT(A) is based on erroneous views and / or non-appreciation of the facts and law. 3. No TDS was deductible out of legal and professional expenses either under the Act or under certain relevant provisions of the DTAA. As such, section 40(a)(i) is not applicable and the disallowance of Rs.55,14,741/- is liable to be deleted.
That Ld CIT(A) has erred in confirming the disallowance of Rs.87,18,393/- out of interest paid on account of notional interest on interest free advances given to related party against purchase of guest house property. The advance was given in the course of business for commercial expediency and as such no disallowance is called for. The disallowance as sustained by the Ld. CIT(A) is based on erroneous views and non-appreciation of facts and law involved and is also against the consistency principle. Similar interest disallowance was deleted last year by Ld. CIT(A). 3.1 That the Ld. CIT(A) has erred on facts and in law in not appreciating that the appellant had large amount of own noninterest bearing funds in the form of capital, reserves and other interest free funds. As such too the disallowance as made by the Assessing Officer and confirmed by the Ld. CIT(A) is based on erroneous views and / or non-appreciation of the facts and law. The said disallowance out of interest paid deserves to be deleted intoto.
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3.2 That the Ld. CIT(A) has erred on facts and in law in confirming the computation of deemed interest @14.5% as against the actual interest rate being paid by the appellant on borrowings from the bank which is much less. 3.3 That the Ld. CIT(A) has erred in computing notional interest of Rs. 87,18,393/- and in disallowing the same. No deemed hypothetical or fictional income is capable of being taxed as per settled case law of the Hon'ble Apex Court and as such too the said disallowance of Rs. 87,18,393/- is liable to be deleted. 5. That the disallowances have been made and certain adverse comments made without proper lawful opportunity and without compliance of principles of natural justice. As such too, the disallowances as appealed against in grounds above are liable to be deleted intoto. 6. That the interest u/s 2348, 234C, 234D and 244A is incorrect and excessive.
That the grounds of appeal as herein are without prejudice to each other. 8. That the appellant respectfully craves leave to add, amend, alter and/or forego any ground(s) at or before the time of hearing.”
Ground No.1 raised by the assessee is against the confirming the
disallowance of Rs.1,30,609/- towards alleged personal use out of expenditure
on festival and gifts incurred wholly and exclusively.
At the outset, Ld. Counsel for the assessee submitted that the additions
have been made purely on adhoc basis.
On the contrary, Ld. Sr. DR supported the orders of the authorities
below.
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ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12
We have heard the rival contentions and perused the material available
on record. We find merit in the contentions of the Ld. Counsel for the assessee
that the addition has been made purely on adhoc basis. The Assessing Officer
has not pointed out any specific item related to the personal uses. Therefore,
the addition made by the Assessing Officer and sustained by Ld.CIT(A) is not
justified hence, deleted.
Ground Nos.2 & 3 raised by the assessee are against the disallowance of
Rs.55,14,741/- out of legal and professional expenses by invoking section
40(a)(i) of the Act.
Ld. Counsel for the assessee submitted that under the identical facts, the
disallowance made by the Assessing Officer for Assessment Year 2009-10
deleted by the Tribunal and confirmed by the Hon’ble Delhi High Court.
On the contrary, Ld. Sr. DR supported the orders of the authorities
below. However, he conceded the fact that the issue has been decided in
favour of the assessee by the Tribunal and the same has been confirmed by
the Hon’ble Delhi High Court.
Therefore, we do not see any justification to sustain the addition as
made by the Assessing Officer. Ld.CIT(A) has categorically stated that the
retrospective amendment has been clarified that even if non-resident has no
business communication to India and not rendered any services in India then
also the payment received deem to accrue or arise in India. The Assessing
Officer has relied upon the Article 12 of DTAA between India and Germany in
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ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12
this regard. Further, the Hon’ble High Court in ITA No.1084/2017 has held as
under:-
“So far as the first question, i.e. deletion of Rs.7,27,532/- is concerned, this Court is of the opinion that since the ITAT has rendered findings that the amounts paid were not Fee for Technical Services (FTS) under Explanation 7 to section 9(2), similar treatment would arise. As far as this is concerned, the Court notices that the ITAT relied upon the interpretation given to similar provisions of various DTAAs in Cushman & Wakefield Pte. Ltd. in Re.305 ITR 208; Dieter Eberhard Gustav v CIT 235 ITR 698 etc. and held that since these were not in the nature of FTS., the deduction under section 40(a)(ia) was not warranted. Reliance by the Revenue upon the retrospective amendment, in the opinions of this Court, is not justified, given the ruling in Director of Income tax vs New Skies Satellite BVV (2016) 382 ITR 114 (Del.). No question of law, therefore, arises.”
Respectfully following the judgement of the Hon’ble Delhi High Court, we
hereby direct the Assessing Officer to delete the addition.
Ground No.4 and its sub-grounds which are numbered wrongly i.e. 3.1,
3.2 & 3.3 are against the confirming the disallowance of Rs.87,18,393/- out of
interest paid on account of notional interest on interest free advances given to
the related party against the purchase of guest house property.
Ld. Counsel for the assessee submitted that similar addition was made in
Assessment Year 2009-10 and the matter travelled to the Hon’ble High Court.
He submitted that the Tribunal deleted the addition and deletion was upheld
by the Hon’ble High Court. Therefore, he requested that in this year also, the
addition may be deleted.
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ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12
On the contrary, Ld. Sr. DR supported the orders of the authorities
below. He fairly conceded the fact that similar addition was made in the earlier
year which has been deleted by the Tribunal.
We have heard the rival contentions and perused the material available
on record. The issue is identical to the issue involved in the earlier year. The
matter travelled to Hon’ble High Court. Hon’ble High Court has confirmed the
deletion made by the Tribunal by observing as under:-
“So far as the second issue, i.e. the disallowance under section 36(1)(iii) is concerned, the addition was made purely on the basis that the funds were borrowed by a Director and that interest needed to be charged. This was wholly erroneous premise because the amounts were given to the Director for purely business purpose of the entity, i.e. to acquire guest house. The proposal did not materialize and eventually the money was returned. It is not Revenue’s case that the amounts were utilized by the Director for her own purpose. In these circumstances, the ITAT appropriately relied under CIT vs Bharti Televentures Ltd. (2011) 331 ITR 502 (Del.). The finding with respect to commercial expediency, in the circumstances, does not call for interference.” 16. Respectfully following the binding precedents, we hereby direct the
Assessing Officer to delete the addition.
Ground No.5 is not providing the sufficient opportunity.
At the time of hearing, Ld. Counsel for the assessee did not point out as
to how the sufficient opportunity was given.
Ld. Sr. DR supported the orders of the authorities below.
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ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12
We have heard the rival contentions and perused the material available
on record. We find that the assessee has given sufficient opportunity by the
authorities below. Therefore, this Ground of the assessee’s appeal is rejected.
Ground No.6 raised by the assessee is against the charging of interest
u/s 234B, 234C, 234D and 244A of the Act.
The assessee has not raised any arguments as to how this interest is not
chargeable. In the absence of the same, this Ground No.6 raised by the
assessee is rejected.
Ground No.7 raised by the assessee is general in nature, needs no
separate adjudication.
Ground No.8 raised by the assessee is in the form of prayer, no such
prayed has been made hence, dismissed as rejected.
In the result, the appeal of the assessee is partly allowed.
Now, we take up ITA No.3714/Del/2015 [Assessment Year 2011-12]
wherein the assessee has raised following grounds of appeal:-
“That the Ld. Commissioner of Income Tax (Appeals) [Ld. CIT(A)] has erred in confirming the disallowance of Rs.1,10,593/- towards alleged personal use out of expenditure on festival and gifts incurred wholly and exclusively for the purposes of business of the appellant. The disallowance is arbitrary, adhoc without pointing out any specific items. The disallowance as made by the Assessing Officer and confirmed by the Ld. CIT(A) being based on erroneous views and / or non-appreciation of the facts and law deserves to be deleted.
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ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12
That on the facts and law involved the Ld. CIT(A) has erred in directing the Assessing Officer to disallow an amount of Rs.1,14,612/- u/s 40A(3) after verification as per Rule 6DD. 3. That the said direction of the Ld. CIT(A) to disallow the above amount of Rs.1,14,612/- u/s 40A(3) has resulted in enhancement of assessment which is in violation of the provisions of section 251 (2) of the Act. This enhancement of the appellant's income is without specific requisite opportunity to the appellant. As such too the disallowance as directed is unlawful. 4. That the Ld. CIT(A) has erred in confirming the disallowance of Rs.25,88,314/- out of the total disallowance of Rs 34,99,078/- in respect of legal and professional expenses by invoking the provisions of section 40(a)(i). The Ld. CIT(A) has wrongly treated the said payments as Fee for Technical Services. Either under the Act or under the respective DTAA, the payments involved are either business income of payee or are independent personal services. In absence of any business connection/PE or fixed place of business in India of the payee, the said payments are not chargeable to tax in India and as such no TDS is applicable thereon. The disallowance as made by the Assessing Officer and confirmed by the Ld. CIT(A) being based on erroneous views and /or non-appreciation of the facts and law deserves to be deleted. 5. No TDS was deductible out of legal and professional expenses either under the Act or under certain relevant provisions of the DTAA. As such, section 40(a)(i) is not applicable and the disallowance of Rs.25,88,314/- out of Rs 34,99,078/- is liable to be deleted. 6. That the disallowances have been made and certain adverse comments made without proper lawful opportunity and without compliance of principles of natural justice. As such too, the disallowances as appealed against in grounds above are liable to be deleted in toto. 7. That the interest u/s 2348 and 234C is incorrect and excessive. 8. That the grounds of appeal as herein are without prejudice to each
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ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12
other.
That the appellant respectfully craves leave to add, amend, alter and /or forego any ground(s) at or before the time of hearing.”
Ground No.1 raised by the assessee in this appeal is against the
disallowance of Rs.1,10,593/- towards alleged personal use.
At the outset, Ld. Counsel for the assessee submitted that the issue is
covered in favour of the assessee by the decision of the Tribunal in earlier
years.
Ld. Sr. DR could not controvert these facts.
We have heard the rival contentions and perused the material available
on record. Similar issue was decided in ITA No.3713/Del/2015 pertaining to
Assessment Year 2011-12 wherein the addition made by the Assessing Officer
and sustained by Ld.CIT(A) was not found justified hence, deleted. For the
same reasoning, Ground No.1 raised by the assessee is allowed.
Ground Nos. 2 & 3 in respect of addition of Rs.1,14,612/- directed by
Ld.CIT(A) by invoking the provision of section 40A(3) of the Act.
Ld. Counsel for the assessee submitted that Ld.CIT(A) was not justified in
directing the Assessing Officer to invoke the provisions of Rule 6DD of the
Income Tax Rules, 1962. He submitted that such direction, enhancement of
assessment since Ld.CIT(A) has not complied with the provision of section
251(2) of the Act. Hence, the enhancement as made by Ld.CIT(A) is contrary to
the provision of law.
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However, Ld. Sr. DR supported the orders of the Ld.CIT(A).
We have heard the rival contentions and perused the material available
on record and gone through the orders of the authorities below. It is the
grievance of the assessee that Ld.CIT(A) gave direction for enhancement
without complying the provision of section 251(2) of the Act. For the sake of
clarity, provision 251(2) of the Act is reproduced hereunder:-
251(2). “The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction.”
34.1. We find that Ld.CIT(A) had issued direction by observing as under:-
4.1.2. “From the Ledger Account it is evident that large number of above payments are cash payment. Total cash payment is Rs 1,39,963/ which include several payments that have been made to a person in a day exceeding Rs.20,000/- which is not allowable u/s 40A(3) of the I.T.Act, as under:-
Date Amount (Rs.) Remark 01.11.2010 23,860/- Being cash paid to Mr. Naveen Garg. 12.11.2010 27,775/- Being cash paid for staff. 24.11.2010 39,477/- Being cash paid to Mr. S N Pandey. 26.11.2010 23,500/- Being cash paid to Mr.S N Pandey. Total 1,14,612/-
In view of cash payments without any detail the disallowance made by the AO is fully justified. Further, considering the provisions of Sec. 40A(3) if the circumstances as prescribed in Rule 6DD are not fulfilled in the case of the assessee, the disallowance is to be enhanced to Rs 1,14,612/-. AO is directed to verify whether the circumstances as prescribed in Rule 6DD are
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fulfilled by the assessee, before enhancing the disallowance. Therefore, appeal fails in this ground with direction to the Assessing Officer.”
34.2. We find that Ld.CIT(A) did not comply with the provision of section 251(2)
of the Act. Therefore, the direction of Ld.CIT(A) is hereby, quashed being
illegal. Ground Nos.2 & 3 raised by the assessee are allowed.
Ground Nos.4 & 5 raised by the assessee are in respect of sustaining the
disallowance of Rs.25,88,314/- by invoking the provisions of section 40(a)(i) of
the Act.
Ld. Counsel for the assessee submitted that these grounds related to
disallowance of Rs.25,88,314/- out of legal and professional charges by
invoking the provision of section 40(a)(i) of the Act on account of alleged non-
deduction of tax on payment to foreign parties. All the parties were non-
residents of India and tax residents of other countries having respective DTAA
with India. It is further submitted that the issue has already been decided by
Tribunal in assessee’s own case for Assessment Year 2009-10 and the
judgement of Hon’ble Delhi High Court as such it is a covered matter.
Ld. Sr. DR opposed these submissions and supported the orders of the
authorities below. The same issue was raised before this Tribunal and the
Tribunal by following earlier orders as decided in paras 10 & 11 of this order
by observing as under:-
“Therefore, we do not see any justification to sustain the addition as made by the Assessing Officer. Ld.CIT(A) has categorically stated that the retrospective amendment has been clarified that even if non-resident has no business communication to India and not rendered any services in 11 | P a g e
ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12
India then also the payment received deem to accrue or arise in India. The Assessing Officer has relied upon the Article 12 of DTAA between India and Germany in this regard. Further, the Hon’ble High Court in ITA No.1084/2017 has held as under:- “So far as the first question, i.e. deletion of Rs.7,27,532/- is concerned, this Court is of the opinion that since the ITAT has rendered findings that the amounts paid were not Fee for Technical Services (FTS) under Explanation 7 to section 9(2), similar treatment would arise. As far as this is concerned, the Court notices that the ITAT relied upon the interpretation given to similar provisions of various DTAAs in Cushman & Wakefield Pte. Ltd. in Re.305 ITR 208; Dieter Eberhard Gustav v CIT 235 ITR 698 etc. and held that since these were not in the nature of FTS., the deduction under section 40(a)(ia) was not warranted. Reliance by the Revenue upon the retrospective amendment, in the opinions of this Court, is not justified, given the ruling in Director of Income tax vs New Skies Satellite BVV (2016) 382 ITR 114 (Del.). No question of law, therefore, arises.”
Respectfully following the judgement of the Hon’ble Delhi High Court, we hereby direct the Assessing Officer to delete the addition.”
Therefore, taking the consistent view, Ground Nos. 4 & 5 are allowed
with a direction to the Assessing Officer to delete the addition.
Ground No.6 raised by the assessee is not providing the sufficient
opportunity.
At the time of hearing, Ld. Counsel for the assessee did not point out as
to how the sufficient opportunity was given.
Ld. Sr. DR supported the orders of the authorities below.
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We have heard the rival contentions and perused the material available
on record. We find that the assessee has given sufficient opportunity by the
authorities below. Therefore, this Ground of the assessee’s appeal is rejected.
Ground No.7 raised by the assessee is against the charging of interest
u/s 234B & 234C of the Act.
The assessee has not raised any arguments as to how this interest is not
chargeable. In the absence of the same, this Ground No.7 raised by the
assessee is rejected.
Ground No.8 raised by the assessee is general in nature, needs no
separate adjudication.
Ground No.9 raised by the assessee is in the form of prayer, no such
prayed has been made hence, dismissed as rejected.
In the result, the appeal of the assessee is partly allowed.
In the final result, both appeals of the assessee are partly allowed.
Above decision was pronounced on conclusion of Virtual Hearing in the
presence of both the parties on 30th September, 2021.
Sd/- Sd/-
(DR. B.R.R.KUMAR) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER
*Amit Kumar*
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ITA Nos.3713 & 3714/Del/2015 Assessment Years : 2010-11 & 2011-12