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Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Pavan Kumar Gadale (JM)
O R D E R Per Shamim Yahya, A. M.:
These appeals by the Revenue and the Assessee are directed against the respective orders of the learned Commissioner of Income Tax (Appeals), Mumbai (‘ld.CIT(A) for short) for the respective assessment years.
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2. Since the issues are common and connected and the appeals were heard together, these have been consolidated and disposed of by this common order.
3. For the AY 2011-12, grounds of appeal read as under:-
1. On issue of disallowance u/s. 40(a)(ia) of Rs.118,25,35,045/- 1.1 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in directing to delete the disallowance u/s.40(a)(ia) of Rs. 118,25,35,046/-on account of expenses claimed as Commission/Trade Incentives/Discount, without appreciating the facts that :- (a) the relationship between the assessee and its distributors is held to be of Principal-Agent; and (b) the discount/incentive given to distributors on sale of STBs and RCVs are in nature of commission and tax should be deducted u/s. 194H of the IT Act? 1.2 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in directing the AO to delete the said addition of Rs. 118,25,35,046/-considering that any kind of "Netting Off of gross receipts, if permitted shall not give "true and fair view "of the state of affairs" of the assessee's business? (a) While deleting the addition, the Ld.CIT(A) has failed to appreciate that any kind of "netting ofF of revenues would enable the tax payer to not reflect the true financial results, when the canons of tax suggest bringing to tax the "Real Income"? 1.3 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in directing the AO to delete the said addition of Rs.118,25,35,046/-considering that the assessee has not followed proper accounting standards of revenue recognition (Accounting Standards of the ICAI, AS-9 - is explicitly clear that revenues are to be reflected at "GROSS* figures) ? 2. On the issue of 36(l)(iii) of Rs. 6.30,13,913/- 2.1 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in directing the AO to delete the addition of Rs. 6,30,13,913/- being the amount of interest allocated to Capital WIP? 2.2 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in deleting the addition made u/s 36(l)(iii) without appreciating the fact that the assessee has failed to establish with evidences to the effect that it has used owned funds to the WIP shown? 2.3 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance made by the AO u/s 36(l)(iii) without appreciating the fact that the assessee has failed to prove that the borrowed fund was actually used for business purpose. Therefore, the disallowance made by the AO is justified? 2.4 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating that the decision as held in K. Somasundaram and Brothers vs. CIT 238 ITR 939 (MAD) is more relevant in the instant case? 2.5 Without prejudice to the contentions above, it is submitted that even if the decision of Bombay High Court in Reliance Utilities and Power Ltd 313 ITR 340 is 3 Tata Sky Limited
found applicable, the Ld. CIT(A) ought to have recommended disallowance on a proportionate basis and ought not to have allowed the entire expenditure? 2.6 Whether on the facts and in the circumstances of the case and in law, the decision relied upon by the Ld. CIT(A) to delete the disallowances made by the AO is distinguishable on facts of assessee's case.
Apropos, ground No.1. The AO has held that the assessee is in default for non deduction of tax at source on discount & incentives provided to the dealer/distributor and has made the disallowances u/s 40(a)(ia). Ld.CIT(A) has deleted the disallowances. It is the contention of the Ld. Counsel of the assessee that Ld.CIT(A) has followed the ITAT order in assessee’s own case. It is in favour of the assessee. Hence, he submitted that the issue is covered in favour of the assessee, as the facts are identical.
Per contra, Ld. DR could not dispute the proposition that issues covered in favour of the assessee by the ITAT decision in assessee’s own case.
We may gainful refer to the order of the Ld.CIT(A) on the impugned issue, where he has referred to the following ITAT order in assessee’s own case and thereafter followed it.
'34. After careful consideration we note that the assesses in this case is engaged in business of providing direct to home (DTH) services. The assessee enters into agreement with the distributor for sale of Set Top Box (STB) and recharge coupon vouchers. As per agreement products are sold to distributor at discounted price, as agreed. The distributor/dealer sells these items to customers/subscribers at a price not exceeding MRP on the product. As per the agreement payment of each order for the above items is to be made by distributor either at the time of placing the order or at the time of delivery. Apart from the above assessee also provides festival/seasonal discounts to the distributors. For these discounts assessee does not make any payment rather it issues credit notes and same is subsequently adjusted from the payment due from the distributor. The expenditure of discount is recognized in books of account. But the same is netted from sale, so in the financial statements the discount amount is not reflected.
In this factual scenario the Assessing Officer has held the assessee to be in default as per section 201(1) of the Act for non deduction of tax at source u/s. 194H in 4 Tata Sky Limited respect of the discount offered to distributor and consequently making the assessee liable for interest u/s. 201(1A) of the Act. In the above factual background the issue has been dealt with by the Assessing Officer and CIT(A). They have found the assesses to be liable for deduction of tax at source on a variety of planks as mentioned hereinabove in detailed the order of CIT(A) referred by us.
We find that various case laws have been referred by the authorities below and the Id. Counsel of the assessee. We have carefully considered the same. Some of them can be gainfully referred hereunder 1) in the case of CIT vs. Piramal Healthcare Ltd. [2015] 55 taxmann.com 534 (Bom) has referred to the decision of the Hon'ble Bombay High Court itself in the case of CIT vs. Qutar Airways [2011] 332 ITR 253 (Bom) and has held as under 8. The submission on behalf of the Revenue that this a mere device to evade the obligation to deduct tax at source is a mere conjecture as it is not supported by any evidence and/or facts on record. Once it is accepted / admitted position that there is sale of drugs by the respondent to M/s.Zivon and no amount is paid by the respondent to M/s.Zivon, there can be no occasion to apply Section 194J of the Act. There has admittedly been no credit of any sum to the account of M/s.Zivon in its books of accounts nor any payment made by the respondent either in cash or cheque or draft or any other mode. Where the sales of any goods are covered under the M.R.P. system, the M.R.P. is fixed and the seller is entitled to sell the goods to a stockist at a price lesser that the M.R.P. as mutually agreed between the parties. In such a case, what should be the sale price or what should be the margin available to the stockist is entirely at the discretion of the parties. In the present case, the assessee has received the sale price at the rate fixed under the agreement. In such a case, where the assessee has received the amount of sale price, the question of the assessee deducting tax at source under Section 194-J of the Act does not arise, because the assessee is not making any payment to the stockist. Therefore, whatever be the margin made available to the stockist, so long as the assessee is not making any payment to the stockist, the question of invoking Section 194-J against the assessee does not arise. Hence, we see no reason to entertain question (b) raised by the Revenue. 2) in the case of Qutar Airways (supra), the Hon'ble High Court was considered the question of TDS on commission on brokerage u/s. 194H and the Hon'ble Apex Court has held as under 1 The question of law as raised in this appeal is as under: "Whether on the facts and in the circumstances of the case and in law, the difference in amount between commercial price and published price is special commission in the nature of commission or brokerage within the meaning of Explanation (i) to section 194H of the Income-tax Act 1961?"
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It is not in dispute that the airlines have a discretion to reduce the published price to their tickets. In the present case, the airlines had an agreement with their agents to sell their tickets at a minimum fixed commercial price which was lower than the published price but was of a variable nature and could be increased by the agent, at his discretion, to the extent up to the published price, ft is not in dispute that under rules of ITAT, the commission payable to the agent was 9 per cent, of the published price. It is an admitted position that the TDS has been deducted while payment of this commission of 9 per cent. It is the contention of the Revenue that the difference between the published price and the minimum fixed commercial price amounts to an additional special commission and therefore TDS is deductible on this amount under section 194 H of the Income-tax Act.
On a perusal of the order of the Income-tax Appellate Tribunal, we find that it proceeded on the basis of its earlier decision in the case of Korean Air v. Dy. CIT in which, in similar circumstances, it was held that TDS was not deductible. He finds that though an appeal was preferred against the aforesaid decision the same has been rejected by this court for non- removal of the office objections under rule 986. Be that as it may. for section 194H to be attracted, the income being paid out by the assessee must be in the nature of commission or brokerage. Counsel for the Revenue contended that it was not the case of the Revenue that this difference between the principal price of the tickets and the minimum fixed commercial price amounted to payment of brokerage. We find however, that in order to deduct tax at source the income being paid out must necessarily be ascertainable in the hands of the assessee. In the facts of the present case, it is seen that the airlines would have no information about the exact rate at which the tickets were ultimately sold by their agents since the agents had been given discretion to sell the tickets at any rate between the fixed minimum commercial price and the published price and it would be impracticable and unreasonable to expect the assessee to gel a feed back from their numerous agents in respect of each ticket sold. Further, if the airlines have discretion to sell the tickets at the price lower than the published price then the permission granted to the agent to sell it at a lower price, according to us can neither amount to commission nor brokerage at the hands of the agent. We hasten to add any amount which the agent may earn over and above the fixed minimum commercial price would naturally be income in the hands of the agent and will be taxable as such in his hands, In this view of the matter, according to us. there is no error in the impugned order and the question of law as framed does not arise. The appeal is therefore, dismissed in limini. 3) We may also refer to the decision of the Hon'ble Karnataka High Court in the case of M/s. Bharti Airtel Limited vs. DIT (in of 2013 vide order dated 14.08.2014, where similar issue was considered by the Hon'ble High Court as under: 62. In the appeals before us, the assessees sell prepaid cards/vouchers to the distributors. At the time of the assessee selling these pre-paid cards for a 6 Tata Sky Limited consideration to the distributor, the distributor does not earn any income. In fact, rather than earning income, distributors incur [expenditure for the purchase of prepaid cards. Only after the resale of those prepaid cards, distributors would derive income. At the time of the assessee selling these pre-paid cards, he is not in possession of any income belonging to the distributor. Therefore, the question of any income accruing or arising to the distributor at the point of lime of sale of prepaid card by the assessee to the distributor does not arise. The condition precedent for attracting Section 194H of the Act is that there should be an income payable by the assessee to the distributor. In other words the income accrued or belonging m the distributor should be in the hands of the assessees. Then out of that income, the assessee has of deduct income tax thereon at the rate of 10% and then pay the remaining portion of the income to the distributer. In this context it is pertinent to mention that the assessee se//s SIM cards to the distributor and allows a discount of Rs,20/~, that Rs.20/- does not represent the income at the hands of the distributor because the distributor in turn may sell the SIM cards to a sub-distributor who in turn may sell the SIM cards to the retailer and it is the retailer who sells it to the customer. The profit earned by the distributor, sub- distributor and the retailer would be dependant on the agreement between them and all of them have to share Rs.20/- which is allowed as discount by the assessee of the distributor. There is no relationship between the assessee and the sub-distributor as well as the retailer. However, under the terms of the agreement, several obligations flow m so far as the I services to be rendered by the assessee to the customer is concerned and, therefore, it cannot I be said that there exists a relationship of principal and agent. In the facts of the case, we are/ satisfied that, it is a sale of right to service. The relationship between the assessee and the distributor is that of principal to principal and. therefore when the assessee sells the SIM cards to the distributor, he is not paying any commission; by such sale no income accrues in the hands of the distributor and he is riot under any obligation to pay any tax as no income is generated fn his hands. The deduction of income tax at source being a vicarious responsibility, when there is no primary responsibility, the assessee has no obligation to deduct TDS. Once it is held that the right to service can be sold then the relationship between the assessee and the distributor would be that of principal and principal and not principal and agent. The terms of the agreement set put supra in unmistakable terms demonstrate that the relationship between the aS3e"ssee~and the distributor is not that of principal and agent but it is that of principal to principal.
It was contended by the revenue that, in the event of the assessee deducting the amount and paying into the department, ultimately if the dealer is not liable to tax it is always open to him to seek for refund of the tax and, therefore, it cannot be said that Section 194H is "not attracted -to the case on hand. As stated earlier, on a proper construction of Section 194H and keeping in mind the object with which Chapter XVII is introduced, the person paying should be in possession of an income which is chargeable to tax under the Act and which belongs to the payee. A statutory obligation is cast on the payer to deduct the tax at source and remit the same to the Department. If the payee is not in possession of the net income which is changeable to tax, the question of payer deducting any tax does not arise. As held by the Apex Court in Bhavani Cotton Mills Limited case, if a person is not liable for payment of lax at all, at anytime, the colection of tax from him, with a possible contingency of refund at a later stage will not make the original levy valid.
In the case of 7 Tata Sky Limited Vodafone, it is necessary to look into the accounts before granting any relief to them as set out above. They have accounted the entire price of the prepaid card at Rs. 100/- in their books of accounts and showing the discount of Rs.20/- to the dealer. Only if they are showing Rs.80/- as the sale price and not reflecting in their accounts a credit of Rs.20/- to the distributor, men there is no liability to deduct tax under Section 194H of the Act. This exercise has to be done by the assessing authority before granting any relief. The same exercise can be done even in respect of other assessees also, 65. In the light of the aforesaid discussions, we are of the view that the order passed by the authorities holding that Section 194H of the Act is attracted- to the facts of the case is unsustainable. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue.
In the case of Jt. CIT (TDS) vs. Bharat Business Channels Ltd. [2018] 92 taxmann.com 216 (Mum-Trib), the IT AT, Mumbai on similar issue following the decision of the Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd. (supra) had decided the same issue in favour of the assessee. In a similar issue, this Tribunal in the case of CIT vs. M/s. Tata Tele Services (Mah) Ltd. (in vide order dated 08.06.2018) has held as under: 6. We have perused the order of the coordinate bench of the Tribunal, i.e. ITAT "D", Bench Mumbai, in the assessee’s own case viz. M/s Tata Tele Services (Maharashtra) Ltd, Navi Mumbai, Vs. ACIT-TDS-3(1), Mumbai (ITA No. 2043To~2046/Mum/2014; dated 27.05.2016) for A.Ys 2009-10 to 2012-13. We are of the considered view that the Tribunal had after deliberating at length on the issue as to whether the assessee remained under any statutory obligation to deduct tax at source on the discounts allowed to the distributors on the sale of starter kits/prepaid sim cards and recharge vouchers, had answered in the negative, and concluded that as the assessee remained under no obligation to deduct tax at source on the said discounts, thus it could not be held as being in default under Sec. 201(1) and 201(1A) of the Act. We find ourselves to be in agreement with the view taken by the Tribunal that as the sate of starter kits/sim cards is purely a purchase/sale transaction on principal-to- principal basis and there is no relationship of agency, hence no obligation was cast upon the assessee to have deducted tax at source under Sec. 194H in respect of the discounts given to the distributors on the sale of the same. We thus, are of the considered view that as observed by us hereinabove, in the absence of any obligation cast upon the assessee to have deducted tax at source in respect of the discounts given to the distributors on the sale of the prepaid starter kits/sim cards, no disallowance under Sec.40(a)(ia) of Rs.66,03,56,5907- was called for in the hands of the assessee. We thus finding no infirmity with the order of the CIT(A), uphold the same. In the case of CIT vs. Intervet India (P.) Ltd. [2014] 49 taxmann.com 14 (Bom) the Hon'ble Bombay High Court has held as under: 6. We have perused the concurrent orders with the assistance of the learned counsel for both the parties. The assessee had undertaken sales promotional scheme viz., product discount scheme and product campaign as discussed hereinabove under which the assessee had offered an incentive on case to case basis to its 8 Tata Sky Limited
stockiest/dealers/agents. An amount of Rs. 70,67,089 was claimed as a deduction towards expenditure Incurred under the said sales promotional scheme.
The relationship between the assessee and the distributors/stockiest was that of principal to principal and in fact the distributors customers of the assessee to whom the sales were effected either directly or through the consignment agent As the distributors/stockiest were the persons to whom the product was sold, no services were offered by the assessee and what was offered by the distributor was a discount under the product distribution scheme or product campaign scheme to buy the assessee's product. The distributors/stockiest were not acting on behalf of the assessee and that most of the credit was by way of goods on meeting of sales target, and hence, it could not be said to be commission payment within the meaning of Expln. (i) to s. 194H of the II Act, 1961. The contention of the Revenue in regard to the application of Expln. (i) below s. 194H being applicable to all categories of sales expenditure cannot be accepted. Such reading of Expln. (i) below s. 194H would amount to reading the said provision in abstract The application of the provision is required to be considered to the relevant facts of every case. We are satisfied that in the facts of the present case that as regards sales promotional expenditure in question, the provisions of Expln. (i) below s, 194H of the Act are rightly held to be not applicable as the benefit which is availed of by the dealers/stockiest of the assessee is appropriately held to be not a payment of any commission in the concurrent findings as recorded by the CIT(A) and the Tribunal.
7. Having considered the findings recorded by the CIT(A) and the Tribunal and taking into consideration the provisions of Expln. (i) to s. 194H of the Act, we do not find that the appeal gives rise to any substantial question of law. It is accordingly dismissed.
We further note that the Hon'ble Rajasthan High Court in the case of Pr. CIT vs. Shri Bhim Sain Garg and others (in D.B. Income Tax Appeal No. 101/2015 vide order dated 11.10.2017) has held as under 10. We have gone through the order and proceedings of the matter. It is not in dispute that the amount which has been received by the assesses was after deducting the commission, stock brokerage or whatever term is awarded and the same has been shown in the books of accounts and as stated by Mr. Mathur, if the details are to be given reads as under: " The advertisement are to be procured by such agencies at the rates and terms decided between them and advertiser, assesses has no involvement therein. In the case of Kerala State Stamp Vendors Association vs. Office of the Accountant General, the Hon'ble Kerala High Court held that what is liable for TDS is commission of brokerage and not the incentives given on the basis of principal to principal relations."
11. The assessee also furnished that they ought not to have been added in the income of the assessee in spite of making ground under section 194H or 40(a)(ia) of the I.T. Income Tax Act, 1961.
In our considered opinion, the Tribunal while considering the matter has rightly come to the conclusion that it is on 9 Tata Sky Limited
the basis of principal to principal and does not constitute commission. Hence, no other view than the one taken by the Tribunal is possible.
39, A cohesive reading of the above case laws particularly that of the Hon'ble Bombay High Court in the case of Piramal Healthcare Ltd. (supra), Qatar Airways (supra) and Intervet India (P.) Ltd. (supra) would show that the Id. Counsel of the assessee's plea that the assessee should not be visited with the liability to deduct TDS for non deduction of tax at source u/s. 194H on the difference between the discounted price at which it is sold to the distributors and the MRP upto which they are permitted to sell, is cogent and is sustainable view. As noted hereinabove the Hon'ble Jurisdictional High Court in the case of Piramal Healthcare Ltd. (supra) and Qatar Airways (supra) has found that the difference between MRP and the price at which item is sold to the distributor cannot be held to be commission or brokerage. Similarly in the case of Intervet India (P.) Ltd. (supra), the Hon'ble Bombay High Court has held that when the assessee had introduced sales promotion scheme for distributors to boost sale of its product when it passed on incentives to distributors/dealers/stockiest through sale credit notes and claimed it, then since the relationship between assessee and distributors/stockiest was that of principal to principal and infact distributors were customers of assessee to whom sales were effected either directly or through consignment agent, it cannot be treated as commission payment under section 194H. Thus it follows on similar facts it has been held that the distributors are customers of the assessee to whom sales are affected. The discounts and credit notes credited cannot be considered to be commission payment u/s. 194H. Similarly we note that on similar facts, the Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd. (supra) which has been duly followed by the ITAT Mumbai in Business Channels Ltd. (supra) has decided the same issue in favour of the assessee. Though we are aware that the Id. CIT(A) has referred to the decisions in favour of the Revenue on similar issue of Hon'ble Delhi High Court, but however as held by the Hon'ble Apex Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) if two views are possible, one in favour of the assessee should be adopted. Moreover, as we have already found that the ratios of decision of Hon'ble jurisdictional High Court as mentioned hereinabove are also in favour of the assessee. Hence, there is no question of taking a contrary view following the other high courts. The remarks of the Id. CIT(A) on \ the jurisdictional High Court decision are totally uncalled for, neither permissible nor sustainable.
Hence, in the background of the aforesaid discussion and precedent, we hold that the assessee was not liable to deduct the tax at source on the impugned amounts in this case.” After considering the judgement of Hon'ble ITAT, I have decided the appeal of the assessee for A.Y. 2007-08 vide order no. CIT(A)-4/IT-5/ACIT-16(1)/2017-18 dated 25.07.2018. The relevant part of the order is reproduced as under:
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"Since the Hon'ble ITAT in the proceedings u/s 201 has held that the provisions of section 201(1 A) will not be applicable. Hence, no disallowance u/s 40(a)(ia) of the Act can be made. Hence, this ground of appeal is allowed.
Since there is neither any legal change nor any factual change, I have no reason to deviate from the judgement passed by me in the appellant's own case for A.Y. 2007- 08. Hence, the disallowance made by the AO amounting to Rs. 18,25,35,046/- u/s 40(a)(ia) of Act is deleted and accordingly these grounds of appeal are allowed.
We further note that ITAT in assessee’s own case for AY 2009-10 & 2010-11 has followed the same order after due consideration and has held as under:-
8. We have heard both parties and perused materials on record. After considering the facts in entirety and hearing both the sides, we are of the view that this issue is squarely covered by Tribunal’s decision in assessee’s own case, wherein Tribunal has categorically observed that the assessee was not required to deduct TDS on the amounts of discount on sale of Set-top box and hardware, discount on sale of recharge coupon and vouchers, bonus or credit provided by assessee to subscribers, sales promotion expenses and distribution channel support expenses. Further, the transaction between the company and distributor is on principal to principal basis and all the risk, loss, damages are transferred to distributor on delivery. Further, distributors are free to sale at any price below maximum retail price. In this regard, the assesse has filed the sample copy of invoices for sale of Set Top Box (STB) and other recharge coupons to prove that it is a sale but not services to come within the ambit of the definition of commission as defined under section 194H of the Act. Therefore, we are of the considered view that the assessee is not required to deduct TDS on discount allowed on sale of Set Top Box and hardware, recharge coupons vouchers and disallowance of bonus or credit provided to subscribers including sales promotion expenses. Hence, by following the decision of ITAT in assessee’s own case in the proceeding under section 201(1) and 201(1A) in to 6926/Mum/2012 direct the Assessing Officer to delete the addition towards disallowances under section 40(a)(ia) of the Act on discount of sale of STB & hardware, recharge coupon vouchers & disallowance of bonus or credit provided to subscribers, sales promotion expenses and distribution channel support expenses for failure to deduct TDS u/s 194H of the IT Act, 1961. This issue of assessee’s appeal is allowed.
Since, the issue is covered in favour of the assessee by the decision of ITAT in assessee’s own case and it is not the case that Hon’ble Bombay High Court has 11 Tata Sky Limited reversed the decision of ITAT, we follow the precedent and uphold the order of Ld.CIT(A). Hence, this issue decided in favour of the assessee.
Apropos ground No.2. Brief facts of the case are that AO noted that the assessee had capitalized work in progress of Rs.274.16 crores as on 31.03.2011 and of Rs.55.09 crores as on 31.03.2010. The Ld. AO further noticed that the assessee company had not allocated any interest expenditure against Capital Work in Progress. In view of this, the AO asked the assessee company to explain as to why interest should not b allocated against the capital work in progress and be disallowed u/s. 36(1)(iii) of the Act. In response to the same, the assessee company made its submission. The AO was not satisfied with the submissions of the assessee company and hence disallowed Rs.6,30,13,913/- u/s 36(1)(iii) of the Act and added it to the total income of the assessee. Ld.CIT(A) has deleted the above.
In this regard, it is the contention of the Ld. Counsel of the assessee that the issue is also covered in favour of the assessee by the ITAT decision in assessee’s own case.
Per contra Ld. DR could not dispute the proposition.
12. Upon careful consideration, we find that Ld.CIT(A) has granted relief on this issue by noting that assessee’s own funds as sufficient to cover the expenditure in this regard. He has held as under:-
6.3.1 During the course of appellate proceedings, the appellant submitted that it had borrowed funds for the purpose of its business and such capital was borrowed for general business purpose of the appellant and not specifically for acquisition of any specific capital asset. Hence, the appellant claimed that total interest free funds available with assessee company in form of share capital and reserve and surplus
12 Tata Sky Limited were Rs.5,66,54,21,198/-, which were sufficient and it should be assumed that the interest free funds have been invested in acquiring capital goods. In support of its claim, appellant placed reliance on following case laws:
• A U Financiers (India) Ltd. [ (2019) 102 faxmann.com 290 (Jaipur - Trib.)1 (2019) 175 ITO 245 (Jaipur - Trib.)] wherein it is held that Expenditure incurred in relation to income not inaudible in total income (Interest) - Assessment year 2014-15 - The Hon'ble Tribunal held that the assessee-company had sufficient interest free funds to meet its investments yielding exempt dividend income; hence, disallowance made under section 14A read with rule 80 was unjustified. • The Hon'ble Supreme Court in case of Reliance Industries Ltd SLP no. 37/2019 has held that where sufficient interest free funds are available to the assessee to meet its investment, it can be presumed that investments are made from interest free funds and the interest debited to profit & loss account was allowed as deduction u/s 36(1)(iii). The above ratio also applies to disallowance of interest u/s. 14A. • Reliance Utilities & Power Ltd (313 ITR 340) where it is held that the principle would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. • CIT vs. HDFC Bank Limited [ITA no. 250 of 2012] wherein it was held that in principle, if there are funds available, both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company if the interest-free funds were sufficient to meet the investment. It may be noted that this decision is after the decision of Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs Dy. CIT [2010] 328 ITR 81 (Bom) • HDFC Bank Limited vs. DCIT (ITA No. 1763 of 2016] (Bombay High court) wherein it has been held that the Bombay HC decision in case of HDFC Bank Limited i.e. of 2012 had settled the issue by holding that the test of presumption as held by the He in case of Reliance Utilities and Power Ltd. while considering section 36(1 )(iii) would apply while considering the application of section 14A of the Act. The HC had further remarked that in case of the Doctrine of Precedent is not strictly followed there would be complete confusion and uncertainty. • Gujarat State Fertilizers & Chemicals Ltd. [ITA 82 of 2013] (Gujarat High Court) wherein it was held that when it was held that the CIT(A) and Tribunal have noted that the Appellant had sufficient funds,. available: with it, which was more than the amount it invested for earning the dividend'' income, both these authorities have correctly approached the issue by setting aside- the order of disallowance u/s 14A of the Act in respect of interest expenditure. When the,
13 Tata Sky Limited very basis for employing section 14A of the Act on factual matrix is lacking, the disallowance to the extent of 10 of dividend income was not permissible. 6.3.2 Since, the owned funds available with the appellant's were more than the investment in capital goods, therefore, respectfully following the judgement of Hon'ble Jurisdictional High Court in case of A U Financiers (India) Ltd. [ (2019) 102 taxmann.com 290 (Jaipur- Trib.)1 (2019) 175 IT0245 (Jaipur- Trib.)], Reliance Industries Ltd SLP no. 37/2019, Reliance Utilities & Power Ltd (313 ITR 340), CIT vs. HDFC Bank Limited [ITA no. 250 of 2012], HDFC Bank Limited vs. DCIT (ITA No. 1763 of 2016], Gujarat State Fertilizers & Chemicals Ltd. [ITA 82 of 2013] appeal of the assessee on this ground is allowed and disallowance made by AO is deleted.
We further note that ITAT in assessee’s own caase for assessment year 2009-10 and 2010-11 has decided an identical issue in favour of the assessee. ITAT has held as under:-
20. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below along with case laws cited by the learned counsel for the assessee. The facts borne out from record indicate that during the AY 2009-10 and AY 2010-11, the Assessee had Capital Work-in-progress ('WIP') of Rs.51.87 crores and Rs. 55.09 crores respectively. Further, assessee has paid huge interest expenditure on various loans. The AO has disallowed proportionate interest expenses debited to the profit and loss account by invoking proviso to section 36(1)(iii) of the Act and held that interest paid on loan availed for purchase of capital asset needs to be capitalized till such period the assessee put the asset to use. There is no doubt with regard to legal position, because interest paid on borrowed capital shall be capitalized to work in progress till such time the capital asset is put to use. But, what is to be seen is whether the assessee has borrowed any fund for acquisition of capital asset or not. In case, no borrowed fund is used for acquisition of asset then question of capitalization of interest does not arise. In this case, on perusal of facts available on record it is very clear that the assessee has not borrowed specific loan for acquiring capital asset. In fact, the assessment order is silent on this aspect. However, the AO has disallowed proportionate interest paid on other loans including loans borrowed for working capital purpose on the ground that the assessee has used interest bearing funds for acquisition of capital asset, without bringing on record any evidence to prove that loan funds have been used for acquisition of capital work in progress. But, fact remains that the assessee has categorically demonstrated with evidences that capital work in progress has been acquired out of its own funds being share capital raised for two assessment years. It is settled position of law that if own funds are used for acquisition of capital assets, then the question of disallowance of interest does not arise. Further, if there are funds available, both interest free and interest bearing, then a presumption can be made that the investments were made out of interest free funds available with the company, if the interest free funds are 14 Tata Sky Limited
sufficient to meet the investment as held by the Hon’ble Bombay High Court in the case of Reliance Utilities and Power (313 ITR 340). In this case, on perusal of facts we find that the assessee has filed necessary evidences to prove availability of own funds which is sufficient to cover investment in capital work in progress. Therefore, we are of considered view that the AO was erred in disallowing proportionate interest expenses u/s 36(1)(iii) of the Act. Hence, we direct the AO to delete disallowances of interest for both assessment years.
Upon careful consideration, we note that on identical issue ITAT has decided the issue in favour of the assessee. No differences in facts and circumstances has been pointed out by the revenue. It is also not the case that Hon’ble Bombay High Court has reversed the decision of ITAT. Hence, respectfully following the precedent, we uphold the order of Ld.CIT(A)
In the result, this appeal by the revenue stand dismissed.
For AY 2012-13, the grounds raised by the revenue are identical to the grounds raised by AY 2011-12. Our above adjudication applies mutatis mutandis for this year following the same. This appeal by the revenue also stands dismissed.
For AY 2013-14 & 2014-15, the revenue has raised the following grounds:-
On the issue of 36(1)(iii) of Rs. 18.09,49,021/- 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in directing the AO to delete the addition of Rs.18,09,49,021/- being the amount of interest allocated to Capital WIP? 2 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in deleting the addition made u/s 36(l)(iii) without appreciating the fact that the assessee has failed to establish with evidences to the effect that it has used owned funds to the WIP shown? 3 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance made by the AO u/s 36(l)(iii) without appreciating the fact that the assessee has failed to prove that the borrowed fund was actually used for business purpose. Therefore, the disallowance made by the AO is justified?
15 Tata Sky Limited
4 Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating that the decision as held in K. Somasundaram and Brothers vs. CIT 238 ITR 939 (MAD) is more relevant in the instant case? 5 Without prejudice to the contentions above, it is submitted that even if the decision of Bombay High Court in Reliance Utilities and Power Ltd 313 ITR 340 is found applicable, the Ld. CIT(A) ought to have recommended disallowance on a proportionate basis and ought not to have allowed the entire expenditure? 6 Whether on the facts and in the circumstances of the case and in law, the decision relied upon by the Ld. CIT(A) to delete the disallowances made by the AO is distinguishable on facts of assessee's case?
The figure for AY 2014-15 is Rs.18,31,28,166/-. This issue is identical to the one dealt with by us in ground No.2 hereinabove in AY 2011-12. Our above adjudication applies mutatis mutandis for 2013-14 & 2014-15.
In the result, these appeals by the revenue stand dismissed.
Assessee’s appeals:-
For AY 2013-14 & 2014-15, grounds are common, we are referring to grounds in appeal AY 2013-14, which read as under:-
Claim for deduction of discount on sale of Recharge Coupon Vouchers. Tafa Sky Starter Kits and E-Top up 1. On the facts and in the circumstances of the case and in law, the Hon'ble Commissioner of Income-tax (Appeals) - 4, Mumbai [CIT(A)'] erred in not allowing the claim of deduction of discount on sale of Recharge Coupon Vouchers, Tata Sky Starter Kits and E-Top up of Rs.251,56,80,166.
2. Without prejudice to the above, the disallowance under section 40(a)(ia) of the Income-tax Act 1961 ('Act') should be restricted to Rs.75,47,04,050 (i.e., 30% of the discount amount of Rs. 251,56,80,166).
3. On the facts and circumstances of the case and in law, the Hon'ble, CIT(A) erred in not allowing, in the impugned assessment year, the claim of deduction of discount expense of Rs. 29,64,78,3767-, being the amount on which tax deducted at source was paid by the Appellant in the present year, and hence, deductible in terms of the first proviso to section 40(a)(ia) of the Act.
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It is noted that there was no such issue before the AO. The assessee has raised the claim as referred in grounds for the first time before Ld.CIT(A). Ld.CIT(A) has rejected the ground raised as under:-
6.1 Ground Nos.1&2 Vide these grounds of appeal, the appellant is agitated against disallowance of discount on sale of set top box amounting to Rs.2,89,18,919/-, disallowance of discount on sale of recharge coupon vouchers amounting to Rs.66,49,58,580/- and disallowance of discount on sale of Tata Sky Starter Kits amounting to Rs.31,09,82,007/- u/s 40(a)(ia) of the Act. The claim was not made by the appellant in its return of income and the issue is not arising from the assessment order. The issue of deduction of discount on Recharge Coupon Vouchers ('RCV'), Tata Sky Starter Kits (TSKs) and E-Top up is not a purely legal issue. It also requires investigation and verification pertaining to genuineness of expenses incurred by the assessee company. Therefore, such legal issues can't be raised for the first time in front of an appellate authority. On the issue of raising of such factual matters during appellate proceedings, Hon'ble Jurisdictional High Court in the case of M/s Ultratech Cement Ltd. v/s ACIT-2(2) [ITA No. 1060 of 2014 dated 18.04.2017] has held as under:
25] In fact the issue with regard to the raising of new grounds in the absence of any evidence on record is no longer res Integra in view of decision of the Apex Court in Addl. Commissioner of Income Tax Vs. Gurjargravures Pvt. Ltd., (supra). In the above case, it has been held that an additional ground cannot be raised before the appellate Authority when no claim for a particular deduction was made before the original authority nor Uday S. Jagtap 23 of 28 IT Appeal 1060/14 was there any material on record to support such a claim. Further the Court held that merely by allowing the deduction for a subsequent assessment year, it could not be held that conditions for availing the deduction in the subject assessment were also satisfied. In the present facts also, the claim for deduction under Section 80IA of the Act was not made before the Assessing Officer or the CIT(A) but was made for the first time only before the Tribunal nor was there any evidence in support of the claim for the subject assessment year on record. Thus it stands covered by the above decision in Gurjargravures Pvt. Ltd. (supra). The aforesaid decision of the Apex Court was subject matter of consideration in Jute Corporation of India Ltd. (supra) wherein the Court while distinguishing Gurjargravures Pvt. Ltd. (supra) held that the additional ground could also be raised before the appellate Authority if such ground could not have been raised at the earlier stage i.e. when the return of income was filed. This is only when the assessee is able to satisfy the appellate Authority Uday S. Jagtap 24 of 28 IT Appeal 1060/14 that the ground now raised was bona fide and the same could not have been raised earlier for good reasons. In such cases, the raising of additional ground could be allowed. In this case, there is nothing on record to indicate as to what was the reason which prevented the appellant assessee from raising a claim for deduction under Section 80IA of the Act for subject assessment year during the proceedings before the Assessing Officer and the CIT(A). Therefore, in the above facts, the view taken by the Tribunal in not allowing the appellant to raise additional ground in appeal is in line with the decision of the Apex
17 Tata Sky Limited Court in Gurjargravures Pvt.Ltd. (supra), NTPC Ltd. (supra) and Jute Corporation of India Ltd. 26] None of the decisions cited by the appellant would render the decision of the Supreme Court in Gurjargravures Pvt. Ltd. (supra), read with Jute Corporation of India Ltd. and NTPC . (supra) inapplicable to the present facts. 27] There can be no dispute that whether or not to allow an additional ground to be raised before the appellate authority is to be decided by the appellate authority in exercise of its discretion considering the facts and circumstances of the case before it. Where only a pure question of law arises from facts which are already on record, then there is no reason why the appellate authority should not consider the question of law so as to determine the correct tax liability of an assessee in accordance with law. However, where evidence is to be examined and that is not on record, then it will be considered only if the parties seeking to raise the additional ground satisfies the authority concerned that for good and sufficient reasons, the ground could not be raised before the lower authorities. In the present facts, no such ground has been made out by the assessee before the Tribunal. In the present facts, as pointed out above and being reiterated once more, the additional ground, which is raised, is not a pure question of law, but would depend upon the satisfaction of the authority as to Uday S. Jagtap 26 of 28 IT Appeal 1060/14 the facts existing in the subject assessment year for allowing the benefit of Section 801 A of the Act. The additional ground is being raised for the first time before the Tribunal without relevant evidence being on record. 28] In the above view, the substantial question of law is answered in the negative i.e. in favour of the respondent - revenue and against the appellant - assessee."
During the course of appellate proceedings, the AR of the assessee company claimed that the grounds raised are legal in nature and no factual verification is required. The genuineness of the expenses claimed and its allow/ability needs cross verification, therefore explanation offered by the appellant is not acceptable. Hence respectfully following the judgement of Hon'ble Jurisdictional High Court in the case of M/s Ultratech Cement Ltd. v/s ACIT-2(2) (supra), grounds raised by the appellant are dismissed.
Against the above order, assesee is in appeal before us.
24. We have heard both the parties and perused the records. We are of the considered opinion that the ground raised by the assessee needed to be admitted and adjudicated by the Ld.CIT(A), inasmuch as, ITAT in assessee’s own case for earlier years has decided the issue in favour of assessee. This is in fact the distinguishing feature of this case as against the facts in the decision of CIT vs. Gurjargravures Pvt. Ltd.(supra) and 18 Tata Sky Limited Ultratech Cement Ltd.(supra) relied by Ld.CIT(A). In none of this case ITAT had decided the issue in assessee’s favour for earlier year. Moreover, in this regard, we also rely upon the later decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC). In the said case Hon’ble Supreme Court has held that their decision in the said case would not impinge upon the powers of ITAT to admit grounds other than by revised return. This is more so in this case when the same issue was decided by ITAT in earlier years in assessee’s favour. Accordingly, we hold that Ld.CIT(A) has erred in rejecting this ground.
Ld. Counsel of the assessee has further pleaded that ITAT should not ought admit this grounds, but also adjudicate the same in favour of the assessee. He submitted that queries were raised by the AO in the course of assessment. In this regard, we note that assessee has himself made impugned disallowances in the return of income. AO had no opportunity to examine the same much less on the touchstone of ITAT decision in assessee’s own case. Hence we remit this issue to the file of AO. The AO shall examine the issue on the anvil of ITAT decision and if facts are identical he shall decide accordingly as per law.
In the result, revenue’s appeals are dismissed and assessee’s appeals are allowed for statistical purpose.
Order pronounced in the open court on 24. 08.2021