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Income Tax Appellate Tribunal, “F”
Before: HON’BLE SH. G. S. PANNU, VP & HON’BLE SH. SANDEEP GOSAIN, JM
M/s Frischmann Prabhu DCIT -6(3)(1) R. No. 506, 5th floor, India Pvt. Ltd. बिधम/ 315, Balgovind Wadi, New Aayakar Bhavan, Prabhadevi Road, Vs. Mumbai-400 020 Prabhadevi, Mumbai, Pin- स्थायीलेखासं./जीआइआरसं./ PAN No. AAACF2589H (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant Shri Rajiv Gubgotra, DR : by प्रत्यथीकीओरसे/Respondentby : Shri Malav P. Sheth, AR सुनवाईकीतारीख/ : 29.01.2019 Date of Hearing घोषणाकीतारीख / : 25.04.2019 Date of Pronouncement आदेश / O R D E R Sandeep Gosain, Judicial Member: The present Appeal has been filed by the revenue against the order of Commissioner of Income Tax (Appeals)-12,
M/s Frischmann Prabhu India Pvt. Ltd Mumbai, dated 01.06.17 for AY 2013-14 on the grounds mentioned herein below:-
1. "On the facts and circumstances of case and in law, the Ld.CIT(A) erred in deleting additions of Rs, 13,05,059'/- u/s. 2(24)(x) r.w.s. 36(1 )(va) of the I T Act. ignoring that Employees contribution towards staff PF is governed by section 36(1 )(va) of the ! T Act, wherein if such contribution is credited by employer after the due date and grace period (under PF regulations), it is not an allowable deduction even if it is credited on or before due date of submission of return of income u/s. 139(1) of the I T Act."
2. "On the facts and circumstances of case and in law, the Ld.ClT(A) erred in deleting the addition ofRs. 67,19,882/- u/s. 2(22)(e ) of the I T Act ignoring the Jact that the concept of deemed dividend also applies to payments made by companies by way of loan and advances to the concerns/ companies in which shareholders have substantial interest."
3. "On the facts and circumstances of case and in law, the Ld.CIT(A) erred in ignoring that the assessee is having a substantial interest in M/s. Frischmann Prabhu Software Ltd and advance by M/s.
M/s Frischmann Prabhu India Pvt. Ltd Frischmann Prabhu Software P Ltd. is nothing but a transaction made for the individual benefit of the assessee company and transaction is deemed. dividend within the meaning of section 2(22)(e) of the I T Act."
4. "On the facts and circumstances of case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.27,00,000/- u/s 40A(2)(a) of the Act, on account of payment of Rent without appreciating the fact that the assessee had not submitted any details of expenditure on account of Rent and has not justified the same with necessary documents as onus is on the assessee."
1. "The Appellant prays that the order of the CIT (Appeals) on the above grounds be set aside and that of the AO be restored."
2. "The Appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary."
2. As per the facts of the present case, the assessee company is doing consultancy services and the return of income was filed by the assessee on 30.11.2013 declaring total income of Rs.
M/s Frischmann Prabhu India Pvt. Ltd 54,82,220/-The return was processed u/s. 143(1) of the I.T. Act, 1961.Subsequently, the case was selected for scrutiny under CASS and after serving statutory notice, assessment order u/s. 143(3) was passed by the AO, thereby making additions /disallowances u/s 2(24)(x), 2(22)(e), 40A(2)(a), etc.
3. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee.
Aggrieved by the order of Ld. CIT(A), revenue has filed the present appeal before us on the grounds mentioned herein above.
Ground No. 1 5. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting additions of Rs, 13,05,059/- u/s. 2(24)(x) r.w.s. 36(1 )(va) of the I T Act.
M/s Frischmann Prabhu India Pvt. Ltd 6. We have heard the counsels for both the parties at length and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 6 of its order and the same is reproduced below:-
Ground no. 1 It is seen that the A.O. has erred in disallowing Rs. 12,40,304/- and Rs. 64,755/-as employers and employees contribution and administrative charges since both the amounts have been paid before due date of filing of return of income. Therefore, A.O. is directed to delete the addition. Ground no. 1 is allowed.
After having gone through the facts of the present case and hearing the parties at length, we find from the records that AO had made additions on the above ground by holding that although
M/s Frischmann Prabhu India Pvt. Ltd the assessee had received employee’s contribution, but the same was not deposited to the employee’s account in the relevant fund before the due date specified in the relevant act. However, on the perusal of documents, we find that though there was delay in depositing the sum by the assessee into the government treasury as per the due date for deposit, but the same was deposited before filing of return of income. The assessee had also relied upon the decision of the Hon’ble Apex Court in the case of CIT Vrs. M/s Alom Extrusion Ltd (2009) 227 CTR 416(SC) wherein the Hon’ble Apex Court had held that the payments are governed by the provisions of section 43B of the Act and hence are allowable, if paid, into relevant account before the due date for filing of return of income u/s 139(1) of the Act. We have also gone through the copy of challan, which reflects that the payment was made on 29.06.12 i.e. before due date of filing of income. The copy of the challan has been placed on record at page no. 20 of the paper book. Considering the above settled legal provision, we are also of the vie that since the amount in question was deposited by the assessee before due date of filing of return of income. Thus, Ld.
M/s Frischmann Prabhu India Pvt. Ltd CIT(A) was well within his rights to delete the addition on this account.
8. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
Ground No. 2 & 3 9. These grounds raised by the revenue are inter related and inter connected and relates to challenging the order of Ld. CIT(A) in deleting the addition of Rs. 67,19,882/- u/s. 2(22)(e ) of the I T Act, therefore we thought it fit to dispose of the same by this common order
We have heard the counsels for both the parties at length and we have also perused the material placed on record,
M/s Frischmann Prabhu India Pvt. Ltd judgment cited by the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 7 of its order and the same is reproduced below:-
7. Ground no. 2 As per the provisions of section 2(22)(e), it is seen that the payment made by way of loan or advance shall be treated as dividend in the hands of the shareholder. Here, it is seen that the appellant company is not a shareholder of M/s. Friscnmarm Prabhu Software P. Ltd. So, it is seen that the deeming fiction, created u/s. 2(22)(e) cannot be extended to tax the dividend in the hands of a person who is not a shareholder. It is held that the provisions of deemed dividend u/s. 2(22)(e) are not applicable to the appellant and so the addition of Rs. 67,19,882/- is deleted. Reliance is placed on the following Hon'ble Jurisdictional orders in allowing this ground:
1. CIT vrs. Universal Medicare Pvt. Ltd (2010) 324 ITR 263 (Bom)
M/s Frischmann Prabhu India Pvt. Ltd 2. CIT vrs. Impact Containers Pvt. Ltd. (2014) 48 taxmann.com 294 (Bom)
3. ACIT vrs. Britto Amusement Pvt. Ltd. (2014) 49 taxmann.com 256(Bom)
After having gone through the facts of the present case and hearing the parties at length, we find from the record that according to the AO, the assessee had received an amount of Rs. 67,19,882/- as loan from M/s Frischmann Prabhu Software Pvt. Lt.d and the assessee was having substantial interest in M/s Frischmann Prabhu Software Pvt. Ltd and thus according to AO, the said amount advanced by M/s Frischmann Prabhu Software Pvt. Ltd is nothing, but a transaction made for the individual benefit of the assessee company and therefore, the same was treated as deemed dividend within the meaning of section 2(22)(e) of the Act. However, after appreciating the provision of section 2(22)(e) of the Act and considering the facts of the present case and the documents placed on record by the assessee in the shape of share holding pattern of the holding company i.e. Pell Frischmann Group Ltd, the respondent /assessee and the lender
M/s Frischmann Prabhu India Pvt. Ltd company i.e. M/s Frischmann Prabhu Software Pvt. Ltd which is at page no. 38 of the paper book, copy of audited financials of M/s Frischmann Prabhu Software Pvt. Ltd for AY 2013-14, which is at page no. 21 to 27 of the paper book, copy of ledger account of M/s Frischmann Prabhu Software Pvt. Ltd for the period April 2012 to March 2013 in the books of the assessee, which is at page no. 28 to 37, we noticed that the assessee company is not a share holder of M/s. Friscnmarm Prabhu Software P. Ltd. Hence the deeming fiction, created u/s. 2(22)(e) cannot be extended to tax the dividend in the hands of a person who is not a shareholder. In this respect, we also placed reliance on the decision in the case of CIT vrs. Universal Medicare Pvt. Ltd (2010) 324 ITR 263 (Bom), CIT vrs. Impact Containers Pvt. Ltd. (2014) 48 taxmann.com 294 (Bom) and ACIT vrs. Britto Amusement Pvt. Ltd. (2014) 49 taxmann.com 256(Bom).
Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings
M/s Frischmann Prabhu India Pvt. Ltd recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, these grounds raised by the revenue stands dismissed.
Ground No. 4 13. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting the disallowance of Rs.27,00,000/- u/s 40A(2)(a) of the Act on account of payment of Rent.
We have heard the counsels for both the parties at length and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 8 of its order and the same is reproduced below:-
Ground no. 3
M/s Frischmann Prabhu India Pvt. Ltd It is seen, that the proviso to section 40A(2)(a) does not apply to the appellant for the A.Y. 2013-14. So the primary onus is cast on the A.O. to prove that the expenditure incurred in relation to payment to specified person is excessive or unreasonable u/s. 40A(2)(a). Perusal of Form 3 CD shows that the tax audit has not reported that the rent paid is excessive or unreasonable. It is also pertinent to note that the rent expenditure incurred towards lease of premises by Ms. Meena Prabhu is a recurring expenditure. The leave and license agreement is from 1.4.2012 to 31.3.2013 which is renewed every year and was the same for the last A.Y. i.e. 2012-13. Again the disclosure in relation to rent paid to Ms. Meena Prabhu u/s. 40A(2)(b) schedule is made in Form 3CD for each of the past years. It is also seen, that the A.O. has made the addition, on mere surmises and conjectures in relation to the rent payment. Nothing has been brought out on record by the A.O. to show as to how the expenditure is excessive and unreasonable. Reliance is placed on the following Hon'ble judicial decision of Apex Court in allowing this Ground of Appeal.
1. Hon'ble Supreme Court in the case of Upper India Publishing House Pvt. Ltd. Vs CIT {1979} 117 ITR 569(SC) has held that section 40A(2)(a) cannot have M/s Frischmann Prabhu India Pvt. Ltd application, unless it is first held that the expenditure on rent was excessive or unreasonable.
2. Reliance is also placed on the following judicial precedents wherein it is held that in the absence of any opinion/cogent findings from the A.O. in relation to unreasonableness/excessive payment to related parties, no disallowance u/s. 40A(2)(a) can be made.
1. Batlivala & Karani Vs ACIT (2005) 2 SOT 379 (Mum)
2. Orchard Advertisising (P) ltd. Vs Addl.CIT(2010) 8 TAXMANN.COM 162(Mum)
3. Global Innovsource Search Solutions (P) Ltd. Vs ITO (2013) 57 SOT 139(Mum-Trib)
After having gone through the facts of the present case and hearing the parties at length, we find from the records that the AO had made disallowance u/s 40A(2)(a) of the Act by holding that assessee had debited an amount of Rs. 2,11,48,853/- in the P & L Account being the expenditure incurred by it on payment of rent. The said expenditure during FY 2011-12 stood at Rs. 1,72,08,643/- and thus in this way, there was a huge jump in rental expenditure, which could not be commensurated with the M/s Frischmann Prabhu India Pvt. Ltd growth in the business of the assessee company and the assessee could not justified the same with necessary documentary evidences.
However, after perusal of the provisions of section 40A(2)(a) of the Act, we find it was the primary onus of the AO to prove that the expenditure incurred in relation to payment to specified person was excessive or unreasonable u/s. 40A(2)(a). We have perused the details of rent expenses incurred during the year, which are at page no. 39 to 40 of the paper book, copy of leave and license agreement entered into with Dr. Meena Prabhu, which are at page no. 41 to 45, Copy of ledger of Dr. Meena Prabhu in the books of the respondent from 01.04.09 to 31.03.12 showing rent expense incurred in preceding years, which are at page no. 46 to 47, Copy of the assessment order passed u/s 143(3) for AY 2011-12, which are at page no. 48 to 50, Copy of ledger of society maintenance charges and electricity charges of the guest house premises in the books of the respondent for the period April 2012 to March 2013, which are at page no. 51 to 56, Copy of the electricity bill for the residential premises of Dr. Meena Prabhu located in Pune, which are at page no. 57 to 58 M/s Frischmann Prabhu India Pvt. Ltd and Copy of passport copy (relevant pages only) of Mr. Sudhakar Prabhu being British citizen, which are at page no. 59 to 61.
The perusal of Form 3 CD shows that the tax audit has not reported that the rent paid is excessive or unreasonable. Even otherwise, the rent expenditure incurred towards lease of premises by Ms. Meena Prabhu is a recurring expenditure. From the perusal of leave and license agreement, we find that the same was effective w.e.f. 1.4.2012 to 31.3.2013 and the same was renewed every year and was the same for the last A.Y. i.e. 2012- 13. The disclosure in relation to rent paid to Ms. Meena Prabhu u/s. 40A(2)(b) schedule is made in Form 3CD for each of the past years. On the contrary, the AOP had not brought anything on record to controvert or rebut the documents so filed by the assessee and also failed to show as to how the expenditure is excessive and unreasonable. The AO had not placed on record any comparative chart or had not carried out any exercised to compare the expenditure so incurred by the assessee to prove that the same was excessive and unreasonable. We also rely upon the decision of Hon'ble Supreme Court in the case of Upper India Publishing House Pvt. Ltd. Vs CIT {1979} 117 ITR 569(SC,
M/s Frischmann Prabhu India Pvt. Ltd wherein it was held that section 40A(2)(a) cannot have application, unless it is first held that the expenditure on rent was excessive or unreasonable. 18. Thus in the absence of any opinion/cogent findings from the A.O. in relation to unreasonableness/excessive payment to related parties, no disallowance u/s. 40A(2)(a) can be made.
Batlivala & Karani Vs ACIT (2005) 2 SOT 379 (Mum)
Orchard Advertisising (P) ltd. Vs Addl.CIT(2010) 8 TAXMANN.COM 162(Mum)
Global Innovsource Search Solutions (P) Ltd. Vs ITO (2013) 57 SOT 139(Mum-Trib)
Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are M/s Frischmann Prabhu India Pvt. Ltd judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
Ground No. 5 & 6 20. These grounds raised by the revenue are general in nature, thus requires no specific adjudication.