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Income Tax Appellate Tribunal, “B” BENCH, PUNE
आदेश / ORDER
PER SUSHMA CHOWLA, JM
The appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-7, Pune dated 01.04.2016 relating to assessment year 2011-12 against order passed under section 143(3) of the Income Tax Act, 1961 ( in short ‘the Act’).
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The assessee has raised following grounds of appeal:
“1. Disallowance of Expenses u/s.14A. The learned CIT (A) erred on facts and in law in disallowing expenses of Rs.5,05,066/- u/s.14A on the ground that the assessee has not shown any expense towards earning of exempt income. He failed to appreciate the fact that the company had invested in the Mutual Funds and any cost incurred by the Mutual Fund agency was recovered by them directly at the time of investment or redemption as the case may be by increasing or reducing the NAV, which was directly adjusted against the purchase or sale price of Mutual Fund units by the company and the same is not debited to books of account. 2. Disallowance of Brand Development activity expenses on account of non deduction of Tax at Source.
The learned CIT(A) erred on facts and in law in disallowing reimbursement of expenses of Rs.9,47,119/- paid to consultants, on account of non deduction of Tax at Source. He failed to appreciate the fact that the payments made to consultants are reimbursement of expenses hence the sections 194C or 194J are not applicable in the instant cases.
Disallowance on account of Repair & Maintenance Expenses
The learned CIT (A) erred on facts and in law in disallowing Repair & Maintenance of Rs.26,000/- on account of the expenditure incurred is of capital nature. He failed to appreciate the fact that the expenditure incurred is for replacement of existing UPS system.
Disallowance of Payment made to Saba & Co. on account of non deduction of Tax at source.
The learned CIT (A) erred on facts and in law in disallowing the payments of Rs.2,11,621/- made to Saba & Co. on account of non deduction of Tax at Source. He failed to appreciate the fact that Saba & Co. had provided legal service for initiating anti counterfeiting proceedings before the Tribunal of Commerce of Rabat and all the services are thus rendered outside India which does not attract deduction of Tax at Source as per DTAA with Morocco. The reasons assigned are wrong and untenable.
The assessee craves leave to add, alter, delete or substitute all or any of the above grounds of appeal.”
The issue raised in the ground of appeal No.1 is against disallowance of
expenses under section 14A of the Act.
Briefly in the facts of the case, the assessee had declared exempt
income of Rs.58,35,285/- on account of dividend income and interest from
3 ITA No.1643/PUN/2016 A.Y.2011-12
current investment. The assessee had not debited any expenses against the
said exempt income. The Assessing Officer, therefore, asked the assessee to
explain the reasons for the same and as to why provisions of section 14A of the
Act r.w.Rule 8D of the IT Rule, 1962 should not be invoked. The assessee
claimed that no expenses were incurred to earn any such exempt income and
hence, no disallowance of any expenses was to be made. The claim of the
assessee in respect of indirect expenses having not being incurred to earn
exempt income was rejected by the Assessing Officer and he computed
disallowance as per Rule 8D(2)(iii) at 0.5% of average investment and
disallowed the sum of Rs.5,05,066/-. The CIT(A) upheld the order of Assessing
Officer against which the assessee is in appeal before us.
The Ld. AR for the assessee pointed out that the Assessing Officer failed to record any satisfaction. He also stated that disallowance of Rs.5 Lacs was
made in assessment year 2010-11.
The Ld. DR for the Revenue relied on the orders of Authorities below.
We have heard the rival contentions and perused the record. We find no
merit in the plea of the assessee in this regard. The Assessing Officer had
recorded satisfaction before making any disallowance and had asked the
assessee as to why no expenses were debited against the exempt income. So
far as the disallowance having being made in the year under consideration
under section 14A r.w. Rule 8D(2)(iii) of the Rule, the same has been worked
out as per prescribed formula and the same merits to be upheld. Accordingly,
we uphold the disallowance made u/s.14A of the Act at Rs.5,05,066/- and
dismiss the ground No.1 raised by the assessee.
The issue raised in grounds of appeal No. 2 is in respect of disallowance
4 ITA No.1643/PUN/2016 A.Y.2011-12
of Brand Development activity expenses on account of non deduction of Tax at
source.
The Ld. AR for the assessee in respect of the said ground pointed out
that similar issue was allowed in favour of the assessee by the Tribunal in
assessee’s own case in assessment year 2010-11.
The Ld. DR for the Revenue on the other hand placed reliance on the orders of Authorities below.
We have heard the rival contentions and perused the record. Briefly in
the facts of the case, the assessee for the year under consideration had
incurred Brand Promotion, Brand Development and Brand Protection activities.
The assessee company owned “Kirloskar” brand which it had licensed to various
concerns, against which it received royalty. The assessee had appointed
various consultants for audit and had deducted tax at source out of the
professional fees paid to the consultants. However, certain expenses were
reimbursed to the consultants on which no tax was deducted at source. The
Assessing Officer was of the view that the assessee should have deducted tax
at source out of aforesaid expenses also and because of non deduction of tax, it
disallowed the expenses totaling Rs.14,15,455/- under section 40(a)(ia) of the
Act. The details of expenses are tabulated in Para 5.2 at page 4 and 5 of the
assessment order. The CIT(A) relying on the appellate order for assessment
year 2009-10 allowed the claim of the assessee to the extent of Rs.4,68,336/-
i.e. payment made to Quadrant Communication Ltd.; however, upheld the
disallowance on reimbursement of expenses of Rs.9,47,119/-.
We find that the similar issue of deduction of tax at source out of the expenses reimbursed to the consultants arose before the Tribunal in
assessment year 2010-11. The Tribunal in ITA No.548/PN/2014 vide order
5 ITA No.1643/PUN/2016 A.Y.2011-12
dated 27.07.2016 in para 10 held as under:
“10. Disallowances of expenses on account of non-deduction of Tax at Source u/s. 40(a)(ia) of the Act : The assessee has made payments under the head “Brand Development expenses” without deduction of Tax at Source. The Assessing Officer made disallowances of Rs.10,30,460/- u/s. 40(a)(ia). In first appeal the Commissioner of Income Tax (Appeals) restricted the disallowances to Rs.7,00,926/-. The contention of the ld. AR of the assessee is that the aforesaid expenditure is towards reimbursement of expenses in the nature of petrol, diesel, travelling expenses, telephone charges etc. On reimbursement of expenditure no TDS is liable to be deducted u/s. 194J of the Act. The assessee has placed on record at pages 31 to 92 of the paper book bills/invoices of expenditure which have allegedly been reimbursed to the assessee. A perusal of the documents placed on record show that the payments made by the assessee are in the nature of reimbursement of out of pocket expenses. On reimbursement of actual expenses the assessee is not required to deduct tax at source under the provisions of section 194J of the Act. Our view is further fortified by the decision rendered by the Delhi Bench of the Tribunal in the case of Assistant Commissioner of Income Tax Vs. Dakshin Haryana Bijli Vitran Nigam Ltd. (supra) and the decision of Mumbai Bench of the Tribunal in the case of Additional Commissioner of Income Tax Vs. India Index Services & Products Ltd. (supra). We find merit in the submissions made by the ld. AR of the assessee. Accordingly, the disallowances made u/s. 40(a)(ia) of the Act is deleted. Consequently, the ground No. 2 raised in the appeal by assessee is allowed.”
The issue arising in the present appeal is similar to the issue in
assessment year 2010-11 and even the nature of expenses was also same i.e.
reimbursement of the expenses, which is clearly mentioned by the Assessing
Officer in the assessment order itself. Following the same parity of reasoning as
noted earlier, we direct the Assessing Officer to allow the said expenditure of
Rs.9,47,119/-, as no default has been made by the assessee for non deduction
of tax at source; hence, there is no requirement to deduct tax at source out of
reimbursement of expenses. The ground of appeal No. 2 raised by assessee is
allowed.
The grounds of appeal No. 3 raised by assessee is not pressed and
hence, dismissed.
The issue raised in ground No.4 is in respect of disallowance of
Rs.2,11,621/- i.e. Payment made to Saba & Co. on account of non deduction of
Tax at source out of legal charges paid.
6 ITA No.1643/PUN/2016 A.Y.2011-12
The Ld. AR for the assessee pointed out that the payment was made to
Saba & Co. for providing legal services for initiating anti counterfeiting
proceedings before the Tribunal of Commerce of Rabat and all the services
were thus rendered outside India which does not attract deduction of Tax at
source as per DTAA with Morocco. The Ld. AR for the assessee pointed out that
the same issue arose before the Tribunal in assessment year 2008-09 wherein
in ITA No.536/PN/2013 vide order dated 06.01.2015, the Tribunal allowed the
claim of the assessee after taking into consideration Article 14 of the DTAA
between India and Morocco.
The Ld. DR for the Revenue placed reliance on the orders of Authorities
below.
We have heard the rival contentions and perused the record. The assessee is in appeal against the disallowance of expenditure of Rs.2,11,621/-
i.e. payment made to Saba & Co.. The Assessing Officer and CIT(A) disallowed
the said amount for non deduction of tax at source out of the payment made to
Saba & Co. The case of the assessee on the other hand is that there was no
requirement to deduct tax at source as the services were rendered by the Saba
& Co. outside India , the same did not attract deduction of tax at source in view
of the provision of DTAA between India and Morocco. We find that the Tribunal in assessment year 2008-09 (supra) vide order dated 6th January, 2015 had
elaborated upon the issue i.e. factual matrix and also Article 14 of the DTAA
between India and Morocco in Para 7 to 14 at pages 5 to 11 of the order and
held that since Saba & Co. was not having any fixed base in India, the condition
of Article 14 was not fulfilled. It was further held that Saba & Co. was resident of
Morocco and cannot be taxed in India in respect of fees paid by the assessee
company for initiating and prosecuting the legal proceedings in the Morocco. We
refer to the findings of the Tribunal in assessment year 2008-09 and also rely
7 ITA No.1643/PUN/2016 A.Y.2011-12
upon the same; but the same are not being reproduced for the sake of brevity. Following the same parity of reasoning, we hold that the expenditure of Rs.2,11,621/- is to be allowed in the hands of the assessee. Accordingly, ground No.4 raised in appeal by assessee is thus allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced on this 28th day of August, 2018.
Sd/- Sd/- ( D. KARUNAKARA RAO) (SUSHMA CHOWLA) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER
पुणे / Pune; �दनांक / Dated : 28th August, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-7, Pune. 4. The CIT-6, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.