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Income Tax Appellate Tribunal, HYDERABAD ‘A’ BENCH, HYDERABAD.
Before: SHRI S.S. GODARA & SHRI L. P. SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD ‘A’ BENCH, HYDERABAD.
BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI L. P. SAHU, ACCOUNTANT MEMBER ITA No. & Asst. Year Appellant Respondent 624/Hyd/2015 Elem Investments P. Asst. Commissioner of 2007-08 Ltd., Hyderabad. Income Tax, Central PAN AAACE4370L Circle 8, Hyderabad. 625/Hyd/2015 -do- -do- 2008-09 629/Hyd/2015 M/s. Fincity -do- 2007-08 Investments P. Ltd., Hyderabad. PAN AAACF3011D 630/Hyd/2015 -do- -do- 2008-09 634/Hyd/2015 M/s. Highgrace 2007-08 Investments P. Ltd., Hyderabad. PAN AAACH 5018G 635/Hyd/2015 -do- -do- 2008-09
Appellants By : Shri K.C. Devdas, C.A. Respondent By : Shri T. Sunil Goutam. (D.R.) Date of Hearing : 12.04.2022. Date of Pronouncement : 13.04.2022.
O R D E R Per Shri S.S. Godara, J.M. : These three assessees’ six appeals ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 for Assessment Years 2007-08 and 2008-09 each, arise against the Commissioner of Income Tax (Appeals)-12, Hyderabad’s separate orders,
2 ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 all dt.27.02.2015 passed in case Nos.0756/CIT(A)- 12/Hyd/2014-15; 2151/ CIT(A)-12 / Hyd / 2014-15; 0754/CIT(A)-12/Hyd/2014-15; 2176/ CIT(A)-12 / Hyd / 2014-15; 0755/CIT(A)-12/Hyd/2014-15 and 2181/CIT(A)- 12/Hyd/2014-15 respectively; involving proceedings u/s. 143(3) of Income Tax Act, 1961 (‘the Act’ in short).
Heard all the assessees as well as department through their respective learned representatives. Case files perused.
Learned authorised representative submits at the outset that all the three instant assessee's only press for their identical substantive grievance challenging correctness of the lower authorities’ action disallowing professional / service charges payment of Rs.42.05 lakhs; Rs.45.30 lakhs; Rs.55.45 lakhs; Rs.88.48 lakhs; Rs.23.80 lakhs and Rs.44.80 lakhs; case wise respectively involving identical question(s) of law and facts.
3 ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 3. Both the parties next invited our attention to the CIT(A)’s identical detailed discussion affirming Assessing Officer’s action making 40A(2)(b) disallowance as under :
“ 5.0 Findings on 40A(2)(a) - Rs.42,50,000/-
The income of the assessee is basically by way of earning dividend, interest and long term capital gains. Payments towards clerical assistance at Rs.25,000/- pm to take care of deposit of dividend cheques or to attend to any registration work is adequate. Further, I also find that no specific reason or justification and the exact services rendered by M/s SRSR for claiming such high service charges, were given. The returning of the income by the receiver of service charges is not an issue while considering disallowance u/s 40A(2)(a). It is the reasonableness and justification of expenditure which is to be made out. In absence of the same, and in view of the earlier appellate orders (AY 2003-04) upholding such disallowance in the original assessment made u/s 143(3) for that year, the disallowance of Rs.42.5 lakhs and allowance of only Rs.3 lakhs as done by the AO is confirmed.” 4. Learned departmental representative vehemently contended that the assessees have not only failed to prove the corresponding services being rendered by the payee M/s. SRSR Advisory Services Pvt. Ltd. but also the Assessing Officer had clearly proved the specified relationship pin-pointing the excess payment under the foregoing statutory provision r.w.s. 2(41) of the Act.
4 ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 5. We have given our thoughtful consideration to the foregoing rival contentions and find no merit in the Revenue’s stand. This is for the reason that the very issue had arose between the parties in earlier assessment years 2002-03 to 2005-06 as well. This tribunal's identical order dt.3.8.2013 has held therein that the assessee(s) had very well availed the corresponding services from the very payee in the nature of professional charges as under :
“ 10. We have considered the rival contentions and perused the orders of the authorities. As far as the issue of claim of professional charges to SRSR is concerned, AO accepts that there were certain services rendered by SRSR to assessee-company. He has allowed an amount of Rs. 25,000/- p.m. as against the claim of assessee. Thus, there is no dispute between the parties that SRSR has rendered some services for which payment was born by assessee. The issue is about the quantum of allowance as there is no dispute about services being rendered. According to section 37(1) of the Income Tax Act, 1961, any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession”. The Apex Court in
5 ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 CIT Vs. Bharat Carbon & Ribbon Mfg. Co. (P) Ltd., 1999 XII SITC 218 has observed that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of accounts be decisive or conclusive in the matter. The expression "wholly" in section 37(1) has been used with reference to the quantum, while the expression 'exclusively' refers to the nature or the purpose of the activity in which the expenditure is incurred. In other words, the whole of the expenditure must have been solely and exclusively incurred for business purposes, in order to qualify for allowance under section 37(1) of the Act. The expression "Wholly & exclusively" used in Section 37(1) of the Income-tax Act, 1961 does not mean "necessary". Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits assessee can claim deduction even though there was no compelling necessity to incur such expenditure. (Sasson J. David & Co. (P) Ltd. Vs. CIT (1979) 118 ITR 261 (SC)). Though the main objects of business is to earn profits, business purposes are wider than profit-making purposes. Business expediency does not require that expenses should be incurred only for earning immediate profits. Expenses incurred though not directly related to earning to income, may be allowable deductions if they are related to the carrying on of the business vide Birla Cotton Spinning & Weaving
6 ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 Mills Ltd. Vs. CIT (1967) 64 ITR 568 (Cal)). It is for the assessee to decide how best to protect its own interest. It is not open to AO to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure (CIT Vs. Dhanrajgiri Raja Narasingiri (1973) 91 ITR 544 (SC)). Expression "commercial expediency" is not a term of art. It mean everything that serves to promote commerce and includes every means suitable to that end. In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purposes of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue (Jamshedpur Motor Accessories Stores Vs. CIT (1974) 95 ITR 664 (Pat); J.K. Woollen Manufacturers Vs CIT (1969) 72 ITR 612 (SC). In CIT Vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), it was held by the SC that in deciding whether a payment of money is a deductible expenditure, one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. 10.1. The Co-ordinate Bench in the case of Coca Cola India (P) Ltd., Vs. DCIT [116 TTJ 880], [ITAT (Pune)] has considered the provisions of Section 37(1) and laid down the following principles: “18.8 The position in law, in relation to s. 37(1) of the Act, as emerging from the decisions of the Supreme Court, discussed in the above paras, can be summarized as under: (i) the expenses incurred should be 'incidental' to the carrying on of the business of the assessee.
7 ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 (ii) the expression "wholly and exclusively" used in s. 37(1) of the IT Act, 1961, does not mean 'necessarily'.
(iii) an expenditure incurred 'voluntarily' without any 'necessity', would be permissible for deduction under s. 37(1) if it was incurred for promoting the assessee's business.
(iv) the fact that somebody other than the assessee was also benefited by the expenditure, should not come in the way of an expenditure being allowed for deduction under s. 37(1).
(v) the AO cannot justifiably claim to put himself in the armchair of the businessman to decide whether to incur an expenditure and how much to incur.
(vi) the requirement of 'commercial expediency' has to be determined from the point of view of a prudent businessman and not from the point of view of the AO.
(vii) the test is existence of a 'nexus' between the expenditure and the 'purpose of business'.
10.2. Keeping in mind the above provisions and the principles laid down by the Hon'ble Supreme Court on the issue, we are of the opinion that AO cannot step into the shoes of assessee to re-fix the amount that should have been paid. There is no dispute that the amount was paid for the purpose of business, as AO has allowed the amount partly. Since the provisions of Section 37(1) does not have any restriction to allow the amount partly, so long as the expenditure was incurred for the purpose of the business wholly and exclusively, the same has to be allowed. The restrictions placed in other provisions like that 36(1)(iii) for the purpose of interest, u/s. 40A (expenses or payment not deductible in certain circumstances) and also
8 ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 restrictions placed u/s. 30 and 31 does not apply to the facts of the case. In view of that, we are of the opinion that AO has wrongly considered the claim. There is no power to AO to reduce the claim, whereas he can examine whether the amount can be allowed or not in full. In view of that, since the restrictions u/s. 37(1) are not applicable, the whole of the amount claimed is to be allowed as the expenditure is not proved to be personal or capital in nature, as provided in the section itself. AO is directed to allow the claim in full. To that extent, the orders of AO and CIT(A) are modified. Thus, the grounds on this issue are allowed.”
Mr. Goutam sought to distinguish the relevant facts herein that the impugned disallowance herein has been made u/s.40A(2)(b) than u/s. 37(1) of the Act. We hardly find any merit in the Revenue’s instant argument as the payee(s) herein had been rendering the very nature of services all along without any change in the relevant facts. The Revenue’s plea(s) argument stand rejected therefore.
Mr. Goutam next raised yet another argument that the assessees’ payees herein are their relatives u/s.40A(2)(b) of the Act wherein the learned lower authorities have clearly made out a case of excessive
9 ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 payments. We find no substance in the Revenue’s last argument as well as the Assessing Officer has nowhere determined the market rate of services to disallow the alleged excessive element in the impugned light of (2014) 43 txmann.com 227 CIT Vs. Ashok J Patel (Gujarat).
Coupled with this, it emerges that the Assessing Officer has made out a chart indicating these three companies to have made payments to relatives; uncle’s son, etc. (payees) as hit under the rigor of section 40A(2)(b)(ii) of the Act; as the case may be. We find no merit in the instant last argument as well as the same goes contrary to the Revenue’s former stand of the payees having rendered no services at all. And also that the payee M/s. SRSR (supra) does not come under section the specified categories of relatives either in sectin 40A(2)(b) or u/s.2(41) of the Act.
Hon’ble supreme court’s recent landmark decision in CCE Vs. Dilip Kumar CO. (2018) 9 SCC 1 (SC) has settled the law that relevant provisions in the Act have to be strictly construed only. We accordingly delete the impugned
10 ITA Nos.624, 625, 629, 630, 634 & 635/Hyd/2015 section 40A(2)(b) disallowance in all the instant six appeals. Ordered accordingly.
No other ground has been pressed before us.
These three assessee's six appeals are allowed in above terms. A copy of this common order be placed in the respective case file.
Order pronounced in the open court on 13th April, 2022.
Sd/- Sd/-
(L.P. SAHU) (S.S. GODARA) Accountant Member Judicial Member Hyderabad, Dt. 13.04.2022. * Reddy gp Copy to : 1. i) Elem Investments Pvt. Ltd., Fortune Monarch Mall, 3rd Floor, No.306, Plot No.707-709, Jubilee Hills, Road No.36, Hyderabad- 500 033 ii) Fincity Investments Pvt. Ltd., Fortune Monarch Mall, 3rd Floor, No.306, Plot No.707-709, Jubilee Hills, Road No.36, Hyderabad- 500 033 iii) High Grace Investments Pvt. Ltd., Fortune Monarch Mall, 3rd Floor, No.306, Plot No.707-709, Jubilee Hills, Road No.36, Hyderabad- 500 033 2. ACIT, Central Circle 8, Hyderabad. 3. C I T (Central), Hyderabad. 4. CIT(Appeals)-12, Hyderabad. 5. DR, ITAT, Hyderabad. 6. Guard File. By Order Sr. Pvt. Secretary, ITAT, Hyderabad.