M/S PREMIER BOOK CO.,NEW DELHI vs. CIT, NEW DELHI

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co.

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: ‘F’, NEW DELHI

BEFORE SMT. BEENA A PILLAI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER

ITA No. 534/Del/2011 AY: 2007-08

Premier Book Co. vs. CIT Ansari Road, Delhi-X 23, Daryaganj, D Shaped Building, New Delhi. I.P. Estate, AAEFP8468R New Delhi. (Appellant) (Respondent)

Assessee by : Sh. B.K. Anand, CA Revenue by : Smt. Sulekha Verma, CIT (DR) Date of Hearing : 06/11/2018 Date of Pronouncement: 29/11/2018

ORDER PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order passed by CIT- 10, New Delhi under section 263 of the Act, challenging proceedings initiated is by Ld. CIT on following grounds of appeal: 1. “That on the facts and in the circumstances of the case the Ld. CIT erred in holding that the assessment order dated 21.12.2009 passed by Addl. CIT, Range 30 is erroneous and prejudicial to the interest of revenue and stands cancelled and further erred in directing the said JCIT to reframe the assessment order. 1

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. 2. That the Ld. CIT erred in not holding that in view of the nature of the assessee’s business and in the absence of any error pointed out in the method of accounts uniformarly followed by the assessee for the past many decades there was no error or prejudice to the interest of the revenue in the assessment order of Addl. CIT. 3. That the Ld. CIT erred in not holding that the matter relating to accrual of interest on dormant FDR’s having been settled in appeal by CIT(Appeals) in the assessee own case in the earlier years there can be any prejudice to the interest of revenue in the Addl. CIT following such order. 4. That the Ld. Addl. CIT having examined the accounts, made inquiries and applied his mind to the facts and circumstances of the case in determining the assessable income the order of the Ld. CIT cancelling such assessment order is bad-in-law and unsustainable. 5. That the Ld. CIT erred in passing the impugned order u/s 263 as the section cannot be invoked to correct each and every mistake or error of the Assessing Officer assuming that the AO has made such mistake even after a complete enquiry and verification in the course of the assessment proceedings. 6. In the absence of any finding of the Ld. CIT that the Addl. CIT had either assumed incorrect facts or had made and incorrect application of law, the order u/s 263 to cancel a valid assessment order is bad-in-law and needs to be annulled.” 2. Brief facts of case are as under:

Present appeal was heard by this Tribunal vide order dated 07/11/2017 setting aside order passed by Ld. CIT under section 263 of the Act, by holding as under: “6. We have heard both the parties and perused the material available on record. In fact, the issues before the Assessing Officer were already allowed by the ITAT in AY 2002-03 and also the CIT(A) allowed the same issues. In 2005-06 & 2006-07 the Department has not gone into appeal in those matters. Thus, the Department already accepted the interest element at assessment proceedings 2

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. for earlier years. As regards royalty there was no error pointed out by the CIT as all the documents which were duly verified by the Assessing Officer at the time of assessment proceedings. Thus, the Ld. AR has rightly pointed out that the Department cannot take new stand from its earlier decisions. It is pertinent to note that the order u/s 263 is merely a second opinion which is not permissible under the Act.” 3. Against the said order Revenue preferred appeal before Hon’ble Delhi High Court. Hon’ble High Court after hearing rival contentions of both sides and on perusal of record, vide order dated 18/09/18 in ITA No. 764/2018 held as under: “2. Counsel for the respondent-assessee states that the issue of royalty was examined by the Assessing Officer and, therefore, the findings recorded by the Commissioner of Income Tax in his order under Section 263 of the Act are factually incorrect. However, we find that there is no discussion on the said aspect in the order passed by the Tribunal, except one line finding or conclusion that the question of royalty was examined by the Assessing Officer. We also find that the Tribunal has not discussed and gone into the question of disallowance u/s 40(a)(ia) of the Act on royalty, an aspect/question mentioned and referred to by the Commissioner of Income Tax in his order u/s 263 of the Act. 3. At this stage, Ld. Counsel for the respondent- assessee fairly states that the order of the Tribunal to this extent may be set aside and remanded for fresh consideration. 4. We accept the said statement. It is directed that the Tribunal would re-examine the issue of royalty and disallowance u/s 40(a)(ia) of the Act afresh in view of the observations and findings recorded by the Commissioner of Income Tax in his order u/s 263 of the Act and submission of the respondent-assessee. We also observe that we have not examined these aspects on merits and leave it to the Tribunal to examine the issues. 5. We are, however, not inclined to pass any order of remit on the question of inclusion of interest on the FDRs.

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. The addition made on the said account has been deleted in earlier assessment years and these decisions have been accepted by the Revenue. These FDRs were deposited in the Court in view of pending litigation. 6. Recording the aforesaid concession given by the Ld. Counsel for the respondent-assessee, the appeal is disposed of, without any order as to costs. It is clarified that we have not framed any substantial question of law in view of concession given by the respondent-assessee.” 4. Limited issue that needs to be reconsidered, as per directions of Hon’ble High Court afresh, is in respect of royalty and disallowance under section 40 (a) (ia) of the Act.

4.1 It is observed that Ld.CIT issued notice under section 263 of the Act to assessee on 19/04/10, which is reproduced as under: Notice u/s 263 of the I.T. Act – AY 2007-08 “While carrying out the inspection of the assessment order passed by the Addl. CIT, Range-30, New Delhi in your case for AY 2007-08 it transpired that the order is erroneous and prejudicial to the interest of revenue for the following reasons: In the balance sheet under the head “Fixed Deposits with banks” a sum of Rs. 17.73 crores has been disclosed. If the rate of interest per annum adopted on the above figure is 8% the interest earned would come out to around Rs. 1.39 crore whereas the interest disclosed is only around 55 lacs. Hence you have not offered Rs. 84 lacs for taxation and the AO has also over looked this fact. 2. You have paid self assessment tax of Rs. 40 lacs on 13.07.2007 u/s 140A of the Act and subsequently claimed Rs. 26.67 lacs as refund in the return filed by you. The purpose of payment of self assessment tax and then claiming the refund does not appear to be justified for the following reasons: i. All TDS on royalty was deposited during the period from 31.7.2007 to 20.8.2007 i.e. after the payment of self assessment tax but before claim of refund.

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. ii. No working of royalty payable was provided/available on record to verify and justify the expenditure of royalty. iii. A note has been appended in the Tax Audit Report – Item 17(f) – amounts in admissible u/s 40(a) wherein it has been stated by the assessee that non deposit before expiry of prescribed period (amounting to Rs. 1,41,20,561/-), Section 40(a) is not applicable in case of royalty payment. The said contention of the assessee is wrong as royalty payment is duly covered within the ambit of sub-section (ia) of Section 40(a) which was inserted by Taxation Laws Amendment Act, 2006 w.e.f. 01.4.2006. iv. From the facts stated in para (iii) above, it is clear that all provisions of royalty had not been made on 31.3.2007 and payment for royalty must have been made during the year as well on which TDS was not deposited in time so as to attract the provision of section 40(a)(ia) of the Act. No separate details had been desired by the AO with regard to amounts provided as payable on 31.3.2007 and payments made by the assessee during the year on such account. v. In the details of royalty provided amounting to Rs. 1,40,94,961/-, no PAN and addresses of the persons were mentioned. No verification was made by the AO in respect of the same. 3. Annexure E of the tax audit report does not provide complete picture to work out the disallowance u/s 40(a) of the Act. The AO did not call for any details in order to verify the same for the purpose of making disallowance u/s 40(a). 4. In the details of royalty payable a sum of Rs. 61,74,018/- is shown as provisions made for royalty. No details revealing the identity of the recipients of the royalty and the basis as to how such figures had been arrived at or been provided to the AO. It remained unascertained whether the said sum was just a provision or an ascertained liability. For the reasons mentioned above, I am of the opinion that the order passed by the Addl. CIT, Range-30, New Delhi was erroneous in so far as it was prejudicial to the 5

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. interest of the Revenue, you are, therefore, given an opportunity to represent your case before me on 27.4.2010 at 11.30 a.m. in my office in Room No. 101, Drum Shape Building, I.P. Estate, New Delhi.”

4.2 Thus, from the above, it is observed that, Ld.CIT was of opinion that Ld. AO did not call for details in respect of following issues: Issue 1 : Interest income on FDRs offered for the year under consideration amounting to Rs.54,78,568/-; Issue 2: Disallowance under section 40 (a) (ia) of the Act in respect of Rs.1,41,20,561/-, out of royalty expenses. Issue 3: Justification of expenditure/payment of royalty debited to profit and loss account, whereas figures of royalty were nowhere separately appearing in profit and loss account;

4.3 Ld. CIT after considering submissions advanced by assessee, on the above referred issues, held that assessment order passed by Ld. AO was erroneous and prejudicial to the interest of Revenue and directed Ld.AO to reframe assessment order after investigating discrepancies.

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. assessee did not give justification for late deposit of TDS. It is further objected by Ld.CIT that assessee filed return of TDS, short of interest, amounting to Rs.20,56,852/-, and observed that Ld.AO has not examined whether TDS has been fully made and deposited before allowing royalty payable under section 40 (a) (ia) of the Act.

5.1 Ld. Counsel submitted that Ld.AO during original assessment proceedings issued questionnaire, along with notice under section 142 (1) dated 14/09/09. He submitted that, in response to questionnaire assessee filed details of royalty paid/payable. Referring to page 1 of paper book, Ld.Counsel submitted that, vide reply dated 14/10/09, assessee filed all details regarding royalty paid along with TDS. He submitted that before Ld. AO assessee vide letter dated 11/12/09 submitted that TDS has been deposited within prescribed time limit as per section 40 (a) (ia) before due date of filing of return, which is 31/10/07. The said letter is placed at page 8-10 of paper book. Further referring to letter dated 14/10/09, placed at page 2-7 of paper book Ld. counsel submitted that entire details of royalty paid to authors along with name, royalty amount credited to respective account, amount of TDS deducted thereon, and date of deposit of such TDS has been filed before Ld.AO.

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. 7. We have perused the submissions advanced by both sides and the right of the records placed before us.

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. submissions, which was accepted by Ld.AO. No doubt assessing officer did not carry out any further enquiries in respect of the same. It cannot be said that there is inadequate enquiry, but is a case of lack of enquiry. Insofar observations of Ld. CIT regarding applicability of provisions of section 40 (a) (ia) is concerned, admittedly assessee has not deposited interest while depositing TDS after due date.

Issue No.2 is with respect to deduction of tax at source on royalty provisions made by assessee, which is inextricably linked with Issue No.3, which is with respect to allowability of royalty expenditure as business expenditure. If expenditure is otherwise not allowable to assessee, there is no question of disallowance of that expenditure on account of non-deduction of tax at source. There are other provisions under the Act, which will take care of such situations. To decide upon Issue No.2, we shall first consider Issue No.3 as under: Issue No. 3 It has been submitted that assessee is a publisher of books for students in higher classes, graduation and post-graduation including those preparing for professional exams. Ld. Counsel submitted that subject matter of these books are authored by professors and other experts in their respective fields. Payment of royalty for publication and sale of their books are an intricate part of business. He submitted that amount of royalty paid in each case is on the basis of royalty agreement entered into between assessee and respective authors and actual sales made can only be determined at the end of the year, after allowing for any unsold books, or books returned back by bookseller, or 9

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. books given out as sample or complimentary copies etc. Ld. Counsel submitted that royalty provision to authors on sale of their works can only be made as on 31st of March, being the last day of respective financial year. He submitted that before Ld. AO, details of royalty provision made along with the names of authors and their PAN numbers were provided vide letter dated 14/10/09. He emphasised that royalties accounted for only upon sale of books and not its publication. Ld. Counsel further submitted that any outstanding liability appearing in balance sheet includes a liability provision made for 31/03/07 net of some advance payment to certain authors which is not material amount as compared to gross royalty provided for in the accounts.

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. filed details of royalty payable to various authors, but manner in which provision has been made was not submitted. Further Ld.AO has also not enquired upon provision so made by assessee and accepted explanation given by assessee. No details as regards advance paid though meagre, to any authors has been submitted before Ld. AO. It remains unclear, whether such sum would be just as provision or an ascertained liability. It is further observed that these details were never produced before Ld. CIT, which is apparent from observations recorded in his order. Further Ld.AO has also not looked into the fact whether these provisions would have any impact on the profits declared by assessee during the year under consideration. In our considered opinion insofar as this issue is concerned assessing officer has not taken one of the possible view. In fact, basic facts regarding royalty paid/payable to authors has not been identified and quantified by assessee. Ld. AO has failed to call for necessary details regarding the same, in order to ascertain whether the provision made by assessee amounts to an ascertained liability or is a mere provision. In our opinion this is a clear case of lack of enquiry and assessment order to this extent was erroneous in so far as prejudicial to the interest of revenue.

14.1. As from above discussions, revisionary order is upheld on Issue No.3, automatically Issue No.2 needs to be upheld. Further, it would not be proper to decide disallowance of

ITA No. 534/Del/2011 A.Y. 2007-08 Premier Book Co. expenditure for non-deduction of tax, or related deposit of TDS, without first deciding about allowability of such expenditure under normal provisions of the Act.

14.2. Accordingly, we decide the issues remanded by Hon’ble Delhi High Court vide order dated 18/09/18, as discussed herein above, partly in favour of Revenue. Order pronounced in the open court on 29/11/2018

Sd/- Sd/- (PRASHANT MAHARISHI) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dt. 29th November, 2018 *Kavita Arora