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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-4, Kolkata [in short the ld CIT(A)] in Appeal No. 889/CIT(A)- 4/Ward-11(2)/Kol/15-16 dated 25.04.2016 against the order passed by the ITO, Ward- 11(2), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 30.03.2015 for the Assessment Year 2012-13.
The first issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the disallowance in the sum of Rs. 5,87,53,467/- made u/s 40(a)(ia) of the Act, in the facts and circumstances of the case.
M/s Vrishah Servics Pvt. Ltd. A.Yr. 2012-13 3. The brief facts of this issue is that the assessee is engaged in the business of rendering consultancy services and had filed its original return of income for the assessment year 2012-13 on 25.09.2012 declaring NIL income. The revised return was filed on 30.01.2013 which was duly processed by CPC Bangalore u/s 143(1) of the Act. The ld. AO observed that the assessee has furnished the documents as called for and produced the books of accounts, relevant documents and bank statements which were test checked.
3.1. The ld. AO observed that the assessee company had made payment of Rs. 5,87,53,467/- to M/s Shalini Properties and Developers Pvt. Ltd. as guarantee commission/SBLC charges without deduction of tax at source in terms of Section 194H of the Act. The assessee submitted that the payment were only in the nature of reimbursement and accordingly there is no obligation for deduction of tax at source. The ld. AO did not agree to this contention and accordingly proceeded to disallow the same u/s 40(a)(ia) of the Act. The Ld. CIT(A) by applying the second proviso to section 40(a)(ia) of the Act observed that since the guarantee commission/SBLC charges of Rs. 5,87,53,467/- has been shown as income in the hands of the recipient company i.e. M/s Shalini Properties and Developers Pvt. Ltd, respectfully following the decision of Hon’ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township Pvt. Ltd. reported in 377 ITR 635, no disallowance u/s 40(a)(ia) of the Act should be inflicted in the hands of the assessee payer. Aggrieved, the revenue is in appeal before us.
We have heard the rival submissions. It is not in dispute that the payment of guarantee commission/ SBLC charges had been duly reflected as income in the hands of the payee i.e. Shalini Properties and Developers Pvt. Ltd. Hence we hold that the Ld. CIT(A) by relying on the decision of the Hon’ble Delhi High Court supra had rightly deleted the disallowance u/s 40(a)(ia) of the Act which does not call for any interference. Accordingly, ground no. (i) raised by the revenue is dismissed. 2
M/s Vrishah Servics Pvt. Ltd. A.Yr. 2012-13 5. The next ground to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the disallowance made towards business promotion expenses in the sum of Rs. 36,07,873/-, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee has debited an amount of Rs. 36,07,873/- on account of business promotion etc. The ld. AO observed that the lion’s share of the earnings from royalty charges and service charges were received by the assessee from its group companies comprising of M/s India Tyre and Rubber Co. (India) Ltd., M/s Falcon Tyres Ltd., M/s Monotona Tyres Ltd & M/s Dunlop Polymers Pvt. Ltd. which incidentally are all associate companies of the assessee company. Accordingly the ld. AO concluded that there is no need for the assessee to incur such huge business promotion expenses for the purpose of earning the aforesaid royalty service charges income. The assessee in reply submitted the expenses have been incurred for organizing press meet, gifts to participants, executives and staffs to keep them motivated for better performances and organizing business meet for the purpose of locating lucrative, productive, profitable ventures. It was also submitted that the assessee company is a flagship company of Ruia Group. The ld. AO in the absence of supporting documentary evidences proceeded to disallow the entire amount of Rs. 36,07,873/- in the assessment. The Ld. CIT(A) by following his predecessor’s order for the assessment year 2011-12 vide order dated 05.10.2015 deleted the disallowance of business promotion expenses. Aggrieved the revenue is in appeal before us.
We have heard the rival submissions. We find that the Ld. CIT(A) had deleted the disallowance by placing reliance on the order passed by his predecessor in assessee’s own case. We find that the disallowance has been made for want of supporting documentary evidences for incurrence of the business promotion expenses. We find that the Ld. CIT(A) had categorically mentioned while disposing of the appeal in assessee’s own case for the assessment year 2011-12 in appeal no. 1204/CIT(A)-4/Cir- 3
M/s Vrishah Servics Pvt. Ltd. A.Yr. 2012-13 11(2)/Kol/15-16 dated 05.10.2015 that the assessee had lodged a complaint to Karaya Police Station on 10.01.2013 about loss of records. The bills and vouchers were lost in transit from one place to another. These facts were duly considered by the Ld. CIT(A) for assessment year 2011-12 and accordingly it was held that no adverse inference could be drawn on the assessee for non-submission of these documents. He also placed reliance on the tax audit report furnished by the tax auditor wherein no adverse remark in respect of business promotion expenses were mentioned by him. Accordingly, the Ld. CIT(A) had deleted the disallowance made on account of business promotion expenses. We find that similar facts are prevailing in this year also i.e. the supporting documents could not be submitted before the ld. AO due to same loss, which is supported by lodging complaint to Karaya Police Station on 10.01.2013. We also find from page 67 of the paper book that the assessee had duly brought this point to the notice of the ld. AO vide its letter dated 26.02.2015 during the course of assessment proceedings itself. The nature of expenses and circumstances under which the same were incurred are the same during the year under appeal when compared to that in the earlier year. The fact that these expenses are not incurred for the purpose of business has not been disputed by the ld. DR before us. Hence the genuinity of such expenses are not in dispute. The only dispute is non-production of supporting evidences, which could not be complied due to reasons beyond the control of the assessee. Hence we hold that the Ld. CIT(A) had rightly deleted the disallowance of business promotion expenses which does not call for any inference. Accordingly, ground nos. ii) and iii) raised by the revenue are dismissed.
Ground no. iv is with regard to disallowance made by the ld. AO u/s 14A of the Act read with Rule 8D of the Rules. The assessee has not derived any exempt income. The ld. AO made disallowance u/s 14A of the Act read with Rule 8D of the Rules in the sum of Rs. 3,17,734/- under third limb of Rule 8D(2) of the Rules. The Ld. CIT(A) by applying the ratio laid down by the Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT reported in 378 ITR 33 wherein it was held that where there is no exempt 4
M/s Vrishah Servics Pvt. Ltd. A.Yr. 2012-13 income, no disallowance is called for u/s 14A of the Act, and accordingly deleted the disallowance u/s 14A of the Act. Aggrieved, the revenue is in appeal before us .
We have heard the rival submissions. It is not in dispute that the assessee had not derived any exempt income during the year under appeal. Hence, there is no scope of application of provisions of section 14A of the Act as has been held by the Hon’ble Delhi High Court supra. Accordingly ground no. iv raised by the revenue is dismissed.
Ground no. v is general in nature and does not require any specific adjudication.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 25.05.2018