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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Ms. Annapurna Gupta & Shri Siddhartha Nautiyal
आदेश/ORDER
PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal filed by the assessee against the order passed by Ld. CIT(A)–VI/DCIT, Cir-1/52/2014-15.
The assessee has raised the following grounds of appeal:- “1. The Ld. CIT Appeals 1 Ahmedabad has erred in law and on facts in passing appellate order dated 28/08/2015 for A.Y. 2011-12 in
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the case of appellant by confirming the disallowances made in the assessment order.
The Ld CIT Appeals has erred in law and on facts in confirming addition of Rs. 14,13,428/- on account of design expenses. The CIT(A) has wrongly stated that the appellant has himself stated that the services rendered by the non-resident are in the nature of included services. We had clearly denied making any such claim in our submission.
The Ld CIT Appeals has erred in law and on facts in confirming disallowance of Rs.3,94,192/- out of provident fund expenses.
The Ld CIT Appeals has erred in law and on facts in confirming disallowance of Rs.1,08,000/- out of scholarship expenses.
The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal on or before of the final hearing of appeal.”
Ground No. 1: The Ld. CIT Appeals 1 Ahmedabad has erred in law and on facts in passing appellate order dated 28/08/2015 for A.Y. 2011- 12:
Ground No. 1 is general in nature and does not require any specific adjudication.
Ground No. 2: Addition of Rs. 14,13,428/- for non-deduction of TDS on purchase of being designs being held as fee for technical u/s 40(a)(i) of the Act:
The brief facts of the case are that during assessment, the ld. A.O. found that the assessee has not deducted TDS on payment of Rs. 7,07,318/- and Rs. 7,06,110/- made to Aarna Deepak Soni. Assessee was requested
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why the same should not disallowed as the assessee has not deducted TDS. In response, the assessee submitted that he had purchased designs and therefore no TDS was required to be deducted. The foreign party had not carried out any activity in India and accordingly, the same receipts is not taxable in the hands of the foreign party in India. The ld. A.O. however concluded that assessee himself stated that the services rendered by the non- resident are in the nature of “included services”. The ld. A.O. held that in the present case the assessee had failed to prove that the payment was made and services were received outside India. The assessee has not furnished the proof of payment made to non-resident. The ld. A.O. accordingly disallowed the deduction of payments u/s. 40(a)(i) of the Act on account of non-deduction of TDS u/s. 195 of the Act.
The assessee filed appeal against the order of Ld. AO. Before the Ld. CIT(A), the assessee submitted that the payee was located in Poland and did not have any PE in India. Further, all details regarding the payment were submitted to the A.O. vide letter dated 21-02-2014 and further clarified vide letter dated 19-03-2014. Therefore, the ld. A.O. was factually incorrect in writing that the appellant has not furnished the proof of payment to non- resident. The assessee further submitted that the payments were made for the purpose of purchasing designs and A.O. is wrong in presuming that it was in the nature of technical services. The A.O. has also wrongly stated that the assessee has itself stated it is ‘fees for included services’, which is factually incorrect. In fact, the assessee specifically stated that these are payments for purchase of design and are not in the nature of technical services. The assessee submitted that designs were not specially prepared at
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the request of the assessee by the payee but it was a pre-prepared designs which the assessee purchased off the shelf i.e. it was a readymade design. The assessee also placed reliance on the order of ld. CIT(A) for A.Y. 2009- 10 where similar disallowance made by ld. A.O. was deleted by the CIT(A). Further, the assessee placed reliance on various judicial precedents in support of his contention.
The Ld. CIT(A) in appellate proceedings dismissed the assessee’s appeal by holding that firstly, assessee itself in its submission has stated that the payments made to the non-residents are in the nature of ‘fee for included services” within the meaning of Article 7 of the DTAA, and no further discussion on the matter is necessary. Secondly, the ld. CIT(A), stated that the issue dealt by CIT(A)-1 vide order dated 24-12-2014 for A.Y. 2009-10 on which reliance is being placed by the assessee is different from the present case. The ld. CIT(A)-1 in his order had discussed the case of M/s. Grada Textile GMBH of Germany which is an established market leader whereas Aarna Deepak Soni is not and therefore the two situations are entirely different. Accordingly, the ld. CIT(A) dismissed the ground of appeal of the assessee.
Before us none appeared on behalf of the assessee. We have perused the material on record and orders of lower authorities. From the various submissions filed by the assessee, it is observed that assessee has always maintained before Ld. AO as well as Ld. CIT(A) that payments made are for ‘purchase’ of designs and hence do not qualify as ‘fee for included services’, but both the Ld. AO as well as Ld. CIT(A) have reiterated that assessee has
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himself stated that services rendered by the non-resident are in the nature of ‘fee for included services’. However, from the submissions of assessee, no such concession has been noticed. Secondly, Ld. CIT(A) in the order has noted that the order of Ld. CIT(A)-1 dated 24/12/2014 for AY 2009-10, on which reliance has been placed by the assessee in support of his contention that the relief has been granted on similar facts by Ld. CIT(A)-1, is distinguishable on facts. However, on perusal of the order, it seems that the facts are quite identical with the present facts and in our view, the Ld. CIT(A) may require a closer look at the order before distinguishing the same. The Ld. CIT(A) has distinguished the order by simply stating that in the case of previous CIT(A)-1 order, the payee M/s Grada Textiles GmbH of Germany is an established market leader whereas in the present case, payee is not a well know entity. In our view, the Ld. CIT(A) has not brought out clearly how the earlier order on which reliance is being placed by the assessee is distinguishable on facts. Therefore, in respect of Ground No.1, we are restoring the case to the file of CIT(A) to again analyse the facts of the case in light of the above observations and pass the order accordingly.
In the result, Ground No. 2 of the assessee is being restored to the file of CITA(A) for fresh adjudication after re-appreciation of facts, as per our directions above.
Ground No. 3: Disallowance of Rs. 3,94,192/- out of provident fund expenses:
The brief facts in relation to this ground of appeal are that the Ld. AO noted from Annexure-2 of the Tax Audit Report that various payments
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towards the contribution of employee’s PF amounting to Rs. 3,94,192/- were not made within due dates. Accordingly, the Ld. AO treated the same as income of the assessee(employer) as per the provisions of section 2(24)(x) r.w.s. 36(1)(va) of the Act by placing reliance on the Gujarat High Court decision in the case of CIT v. Gujarat State Road Transport Corp 366 ITR 170 (Guj), where it has been held that PF/ESI contribution is not covered by S. 43B of the Act and is allowable as a deduction u/s 36(1)(va) if paid within the “due date” prescribed therein. The Ld. CITA(A) dismissed the appeal of the assessee by noting that the issue is covered against the appellant by decision of Hon’ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corp 366 ITR 170 (Guj). and upheld the disallowance made by the Ld. AO.
Before us none appeared on behalf of the assessee. We note that the issue has been squarely decided against the assessee by the jurisdictional Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corp 366 ITR 170 (Guj). wherein the it has been held as below:
In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees' account in the relevant fund or funds on
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or before the "due date" mentioned in explanation to section 36(1)(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees' contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.”
Respectfully following the decision of the Hon’ble Gujarat High Court in the above case, we dismiss the Ground No. 3 of the appeal of the assessee.
In the result, Ground No. 3 of the assessee’s appeal is dismissed.
Ground No. 4: Disallowance of Rs. 1,08,000/- out of scholarship expenses:
The brief facts in relation to the ground of appeal are that during assessment, ld. A.O. found that assessee debited scholarship expenditure of Rs. 1,08,000/- under the head “ Miscellaneous Expenses”. The ld. AO observed that assessee has made payment on account of scholarship fee of Anurag Ramavatar Agrawal, a related party. The ld. A.O. disallowed the
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expenditure on the ground that there is no evidence that the expenditure has nexus with the business of the assessee.
In appeal before CIT(A), the assessee submitted that the scholarship expenditure were incurred towards scholarship of Shri Anurag Ramavatar Agrawal, the son of one of the director’s brother, and the amount was paid as he was working part time with the company. The ld. CIT(A) disallowed this ground of appeal by holding that assessee has failed to establish with evidence that this particular expenditure is justified u/s 37 of the Act.
Before us none appeared on behalf of the assessee. We have perused the facts of the case and material on record. In our view, the assessee has not been able to establish the business expediency for incurring expenses on the education / scholarship expenses on Shri Anurag Agarwal, who is the son of Director’s brother. The Ld. AO as well as Ld. CIT(A) noted that the assessee has been consistently claiming the education/ scholarship expense on Shri Anurag Agarwal, one of the related parties for this year and past years as well, but these expenses are not related to the business of the assessee. The assessee has not been able to establish how the business of the assessee has been benefitting by incurring these expenses. The assessee has submitted that Shri Anurag Agarwal has been working part time with the Company, but no other details have been furnished which would substantiate the genuineness of claim of the assessee. In our considered view, therefore, we hold that Ld. CIT(A) has not erred in facts and in law in disallowing the above expenses on scholarship of Shri Anurag Agarwal.
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In the result, Ground No. 4 of the assessee’s appeal is dismissed.
In the result, the assessee’s appeal is partly dismissed.
Order pronounced in the open court on 30-03-2022
Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 30/03/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद