ACIT, CIRCLE- 10(2), NEW DELHI vs. GROZ ENGINEERING TOOLS PVT. LTD., NEW DELHI

Ld. Counsel has submitted that the issue related to royalty payment is also covered in favor of assessee by Hon’ble High Court of Delhi judgment in assessee’s own case bearing ITA No. 474 to 476/2015 dated 04.09.2015, where Hon’ble High court held as under- “8. There was sufficient opportunity for the AO, if he doubted the genuineness of the payment of royalty by the Assessee to MPL, to have conducted a detailed inquiry. The Assessee on its part furnished the agreement between itself and MPL under which it was inter alia permitted to use the trademark 'Macnaught' on its products. The royalty was payable per unit of the product and, therefore, was clearly linked to sales. There was also no doubt that such payment was in fact made by the Assessee to MPL. It is also not in doubt that MPL was not related to the Assessee in any manner. In the circumstances, there should have been some reasonable basis for the CIT(A) to simply conclude that this was a sham transaction and proceed to enhance the disallowance. The interpretation of the agreement by the ITAT appears to be plausible. The Court is not persuaded to hold that the impugned order of the ITAT is perverse”

The second issue is of disallowance u/s 40(a)(i) of the Act, of Rs. 3,59,86,076/- on account of commission paid to non- resident agent for export sales. Ld. Counsel has submitted that the issue is squarely covered by the order of the co-ordinate bench in the assessee’s own case. CIT (A) has deleted the disallowance by relying upon the order passed in the assessee’s own case for preceding years. It comes up that in assessee’s own case in the preceding

Third disallowance made by was under section 14A read with rule 8D. In this regards, it is submitted by Ld. Counsel, that AO via note sheet dated 23.11.2017 had asked assessee why the disallowance under section 14A read with rule 14A should not be made. In response to above, assessee via reply dated 13.12.2017 (PB Pg 82-85) submitted that net worth of assessee is Rs, 241.08 crores and non-current investment is Rs. 24.21 crores. Hence, assessee’s own funds far exceeds the investment made. Consequently, no disallowance is warranted under section 14A of the Act. It was further submitted that assessee has not earned any dividend income during the current year. It was also submitted that assessee not incurred any expense to earn the exempt income. Before CIT(A), assessee reiterated the submissions made before the AO and CIT(A) considering the submissions made by the assessee, deleted the addition of Rs. 4,56,145/- made under section 14A r.w.r 8D(ii) holding that assessee own funds are adequate enough for making investment capable of earning tax free income. CIT(A) also restricted the disallowance under section 14A r.w.r 8D(iii) to Rs. 5,41,887/- holding that no dividend income is earned by assessee in investment made in

Now, Revenue is in appeal against the deletion made by the CIT(A). Ld. DR has supported the reasoning of AO. However, could not dispute the fact that assessee’s own funds far exceeds the investment made. Consequently, no disallowance is warranted under section 14A of the Act. Reliance can be placed on judgment in SOUTH INDIAN BANK LTD. VERSUS COMMISSIONER OF INCOME TAX,2021 (9) TMI 566 - SUPREME COURT, Dated.- September 9, 2021, where Hon’ble Supreme Court has held; “27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees.”

The fourth issue arises out of addition of Rs. 45090/- on account of delayed payment of contribution of ESI. CIT(A) had deleted same on basis that the same were deposited before the due date for filing return u/s 139(1) of the Act, by relying certain judicial pronouncement. However, now the issue stands settled in favour of revenue by the judgment of Hon’ble Supreme Court in case of Checkmate Services (P.) Ltd. vs CIT (2022) 143 taxmann.com 178 (SC).

The fifth issue is out of addition of Rs. 6,671/- on account of alleged understatement of Income. AO made addition holding that there was difference in income declared and income as 26AS. In this regards, it is submitted, by Ld. Counsel that assessee received Rs. 10,750/- from Edge-Gro industries during AY 2015-16 and assessee received Rs. 5,571/- in AY 2014-15. However, customer deducted the TDS on entire amount of Rs. 16,321/- during AY 2015-16. Similarly, assessee received Rs. 2,162/- from Pinnacle engineers during AY 2015-16 and assessee received Rs. 1,110/- in AY 2014-15. However, customer deducted the TDS on entire amount of Rs. 3,262/- during AY 2015-16. Hence, the income of Rs. 6,671/- (5,571 + 1,110) was declared by assessee in the previous assessment year. However, Edge–gro and Pinnacle deducted the TDS on the entire interest amount of Rs.16,321 in the AY 2015-16. We are of considered view that when income already stood declared in previous assessment year, CIT(A) was justified to accept the above mentioned submissions of assessee and delete the addition of Rs.6,671/-

In the result, the appeal filed by the Revenue is partly allowed. Order pronounced in the open court on 30.05.2024. Sd/- Sd/- (G.S. PANNU) (ANUBHAV SHARMA) VICE PRESIDENT JUDICIAL MEMBER Dated: 30th May, 2024. dk