ACZET PRIVATE LIMITED,MUMBAI vs. DCIT CIRCLE 4(1)(1), MUMBAI

This appeal has been filed by the assessee against order dated 23.08.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds:

2. The learned CIT(A) NFAC has erred in law and on facts in confirming the disallowance of expenses us 14A amounting to Rs. 1,65,560/- without properly considering the facts that the major portion of Aczet Pvt. Ltd. 2 ITA No. 3706/M/2023 disallowance is deemed interest expenses of Rs. 1,37,971/ disallowance is deemed interest expenses of Rs. 1,37,971/ disallowance is deemed interest expenses of Rs. 1,37,971/-without considering the facts and submissions that the appellant has its own considering the facts and submissions that the appellant has its own considering the facts and submissions that the appellant has its own interest free fund available for investment. interest free fund available for investment.

“4.2 In response to the above show cause, the assessee vide letter 4.2 In response to the above show cause, the assessee vide letter 4.2 In response to the above show cause, the assessee vide letter dated 18.12.2017, provide the reasoning to pay such commission dated 18.12.2017, provide the reasoning to pay such commission dated 18.12.2017, provide the reasoning to pay such commission was described by th was described by the assessee in the following manner, the extract e assessee in the following manner, the extract of which is reproduced as under: of which is reproduced as under: "We would like to state that SBI was already buying our competitors "We would like to state that SBI was already buying our competitors "We would like to state that SBI was already buying our competitors machines at individual branch level in various states before this machines at individual branch level in various states before this machines at individual branch level in various states before this tender. So the above persons informed us So the above persons informed us that they were able to that they were able to convince SBI to amalgamate their individual requirement of each convince SBI to amalgamate their individual requirement of each convince SBI to amalgamate their individual requirement of each branch in different states into a big single requirement. This made us branch in different states into a big single requirement. This made us branch in different states into a big single requirement. This made us give SBI a competitive offer and also made us understand that they give SBI a competitive offer and also made us understand that they give SBI a competitive offer and also made us understand that they had done really outstanding wor had done really outstanding work. With due regards to your point, k. With due regards to your point, the contract has been entered on a Principal to Principal basis in the the contract has been entered on a Principal to Principal basis in the the contract has been entered on a Principal to Principal basis in the normal course of business. However, merely because the contract normal course of business. However, merely because the contract normal course of business. However, merely because the contract has been entered on principal to principal basis does not mean that has been entered on principal to principal basis does not mean that has been entered on principal to principal basis does not mean that the commission pay the commission payment was not necessary. The above persons ment was not necessary. The above persons have done all the grass root level work and all the ground work have done all the grass root level work and all the ground work have done all the grass root level work and all the ground work because of which it was possible for us to get an order of such big because of which it was possible for us to get an order of such big because of which it was possible for us to get an order of such big magnitude. It would be appreciated that getting an praer at such big magnitude. It would be appreciated that getting an praer at such big magnitude. It would be appreciated that getting an praer at such big level and that too a Government Bank order. requires a lot of ground t too a Government Bank order. requires a lot of ground t too a Government Bank order. requires a lot of ground work which expertise was possessed by the above persons. We had work which expertise was possessed by the above persons. We had work which expertise was possessed by the above persons. We had never handled such single big orders in the past. never handled such single big orders in the past. The above persons The above persons were going to take care of generating the requirement, demonstrating were going to take care of generating the requirement, demonstrating were going to take care of generating the requirement, demonstrating our products as and when required through our engineers, make our products as and when required through our engineers, make our products as and when required through our engineers, make sure our products has all the compliance needed to the requirement sure our products has all the compliance needed to the requirement sure our products has all the compliance needed to the requirement best suited to SBI and also helped us in each stage of filling of best suited to SBI and also helped us in each stage of filling of best suited to SBI and also helped us in each stage of filling of tender till execution of order. The tender requirement was p tender till execution of order. The tender requirement was p tender till execution of order. The tender requirement was proposed

Aczet Pvt. Ltd. 4 ITA No. 3706/M/2023

per lip to 2 years of leg work and meeting with SBI persons at AGM per lip to 2 years of leg work and meeting with SBI persons at AGM per lip to 2 years of leg work and meeting with SBI persons at AGM levels in various states along with demonstrating the products. levels in various states along with demonstrating the products. levels in various states along with demonstrating the products. 1) We have been participating in various exhibitions / trade shows We have been participating in various exhibitions / trade shows We have been participating in various exhibitions / trade shows such as GUS, IUS, Indian Bank Association expo etc. T such as GUS, IUS, Indian Bank Association expo etc. These persons hese persons to whom the commission has been paid came to know through their to whom the commission has been paid came to know through their to whom the commission has been paid came to know through their sources the prospect of our Gold Testing Assaying Machine (Model: sources the prospect of our Gold Testing Assaying Machine (Model: sources the prospect of our Gold Testing Assaying Machine (Model: CUBE) in Agri business of SBI and upon sourcing through exhibitions CUBE) in Agri business of SBI and upon sourcing through exhibitions CUBE) in Agri business of SBI and upon sourcing through exhibitions 1 industrial shows / Internet found Citizen a 1 industrial shows / Internet found Citizen as one of the Vendors s one of the Vendors who had the technology and capacity to supply Gold Testing who had the technology and capacity to supply Gold Testing who had the technology and capacity to supply Gold Testing Machine 2) 2) They did leg work in the market for almost 1.5 to 2 years after 2) They did leg work in the market for almost 1.5 to 2 years after 2) They did leg work in the market for almost 1.5 to 2 years after which tender was created and guided us in each and every step which tender was created and guided us in each and every step which tender was created and guided us in each and every step from filling the tender to arranging de from filling the tender to arranging demonstration at different monstration at different managerial levels of our machines with SBI and getting the same managerial levels of our machines with SBI and getting the same managerial levels of our machines with SBI and getting the same approved technically. They also assisted the company in managing approved technically. They also assisted the company in managing approved technically. They also assisted the company in managing transportation and timely delivery of the machines to the various transportation and timely delivery of the machines to the various transportation and timely delivery of the machines to the various locations of SBI spread all over Mah locations of SBI spread all over Maharashtra, Goa & Andhra Pradesh arashtra, Goa & Andhra Pradesh in the initial stage and later on in other states also. They also in the initial stage and later on in other states also. They also in the initial stage and later on in other states also. They also assured that we could arrange timely installation & commissioning assured that we could arrange timely installation & commissioning assured that we could arrange timely installation & commissioning of the machines as well as getting our payments in their due time. of the machines as well as getting our payments in their due time. of the machines as well as getting our payments in their due time. 3) 3) We have attached the in 3) We have attached the invoices raised by them as (Annexure 5). voices raised by them as (Annexure 5). 4) 4) Generally, these type of people are graduates and have marketing 4) Generally, these type of people are graduates and have marketing 4) Generally, these type of people are graduates and have marketing skills / expertise in getting such big orders for various companies. It skills / expertise in getting such big orders for various companies. It skills / expertise in getting such big orders for various companies. It is not necessary for these people to have technical skills, since once is not necessary for these people to have technical skills, since once is not necessary for these people to have technical skills, since once these people are aware about the basic features of the product, these people are aware about the basic features of the product, these people are aware about the basic features of the product, these people who are expert in marketing use their marketing skills to people who are expert in marketing use their marketing skills to people who are expert in marketing use their marketing skills to market the product of the assessee It will be appreciated that they market the product of the assessee It will be appreciated that they market the product of the assessee It will be appreciated that they were engaged in doing ground work and for that no great tec were engaged in doing ground work and for that no great tec were engaged in doing ground work and for that no great technical skill is required and such marketing skills are acquired over a period skill is required and such marketing skills are acquired over a period skill is required and such marketing skills are acquired over a period of time by gaining experience. of time by gaining experience. 5) 5) If you still fill that you need person for further examination even 5) If you still fill that you need person for further examination even 5) If you still fill that you need person for further examination even after above clarification than you may asked us. after above clarification than you may asked us. There are no evasion of tax There are no evasion of tax from revenue point of view. And from revenue point of view. And considering the collective nature of services provided for the single considering the collective nature of services provided for the single considering the collective nature of services provided for the single largest order in life received by our company. Hence request you not largest order in life received by our company. Hence request you not largest order in life received by our company. Hence request you not to disallow the commission expenses under for business. to disallow the commission expenses under for business. We would like to state that We would like to state that all the above commission expenses are all the above commission expenses are incurred for the purpose of the business of the assessee and are incurred for the purpose of the business of the assessee and are incurred for the purpose of the business of the assessee and are therefore u/s 37(1). therefore u/s 37(1). The expenses are directly incurred for earning of income of the The expenses are directly incurred for earning of income of the The expenses are directly incurred for earning of income of the assessee and are therefore allowable. As a result of their efforts w assessee and are therefore allowable. As a result of their efforts w assessee and are therefore allowable. As a result of their efforts we were able to get this order and therefore the commission expense is were able to get this order and therefore the commission expense is were able to get this order and therefore the commission expense is allowable as deduction. allowable as deduction. Thus, we request your good self to allo Thus, we request your good self to allow the expenditure as deduction.” expenditure as deduction.”

Aczet Pvt. Ltd. 5 ITA No. 3706/M/2023 6.1 However, the Assessing Officer rejected the contention of the However, the Assessing Officer rejected the contention of the However, the Assessing Officer rejected the contention of the assessee observing as un assessee observing as under:

“4.3 On close observation of the details filed and the explanation On close observation of the details filed and the explanation On close observation of the details filed and the explanation given, the following is worth noting: given, the following is worth noting: (a) The bills of the commission parties appears to be prepared in a The bills of the commission parties appears to be prepared in a The bills of the commission parties appears to be prepared in a stereotyped fashion because the description of the work mentions stereotyped fashion because the description of the work mentions stereotyped fashion because the description of the work mentions "generating enquiry, liasoning and demonstration work for State nquiry, liasoning and demonstration work for State nquiry, liasoning and demonstration work for State Bank of India tender for gold testing assaying machine". No bills Bank of India tender for gold testing assaying machine". No bills Bank of India tender for gold testing assaying machine". No bills contain the area of the operation, the rate applied for charging the contain the area of the operation, the rate applied for charging the contain the area of the operation, the rate applied for charging the commission, the amount of sale transaction executed on which commission, the amount of sale transaction executed on which commission, the amount of sale transaction executed on which commission became payable. n became payable. (b) Admittedly, the assessee agreed that supply to SBI is on a Admittedly, the assessee agreed that supply to SBI is on a Admittedly, the assessee agreed that supply to SBI is on a principal to principal basis. principal to principal basis. Having agreed so, still the assessee so, still the assessee steps out to say that commission payment was necessitated. steps out to say that commission payment was necessitated. steps out to say that commission payment was necessitated. This fact is very difficult to be digested fact is very difficult to be digested because the assessee has not because the assessee has not brought on record any linkage between the SBI and the assessee brought on record any linkage between the SBI and the assessee brought on record any linkage between the SBI and the assessee as to how the individuals were skilled and competent. to how the individuals were skilled and competent. The assessee has not produced any evidence to show that had such commission has not produced any evidence to show that had such commission has not produced any evidence to show that had such commission not paid the business of supply to not paid the business of supply to SBI would have been hindered. SBI would have been hindered. With respect to the qualification and expertise of With respect to the qualification and expertise of the person to whom the person to whom the commission was paid, the assessce had made a general remark the commission was paid, the assessce had made a general remark the commission was paid, the assessce had made a general remark that they are graduates and have marketing skills / expertise in that they are graduates and have marketing skills / expertise in that they are graduates and have marketing skills / expertise in getting such big orders fo getting such big orders for various companies, The agreement of the The agreement of the purchase order with SBI clearly purchase order with SBI clearly shows that the rate decided with that the rate decided with SBI includes all costs of SBI includes all costs of incidental services such as transportation, incidental services such as transportation, insurance etc. upto various destination branches, insurance etc. upto various destination branches, insurance etc. upto various destination branches, which is which is which is reimbursable. In the In these circumstances, the assessee has not shown the assessee has not shown anything on record anything on record that the commission paid was also reimbursed that the commission paid was also reimbursed by the SBl as per the contract signed with the SBI. by the SBl as per the contract signed with the SBI. (c) The assessee in its submission has categorically agreed that the The assessee in its submission has categorically agreed that the The assessee in its submission has categorically agreed that the transactions are one time transactions are one time and specific order based itself shows shows that the assessee company though established in this business is not in the assessee company though established in this business is not in the assessee company though established in this business is not in need of the so- -called expert people to whom commissions were paid called expert people to whom commissions were paid for orders from SBI, This indicates that the so for orders from SBI, This indicates that the so-called commission called commission recipients have been used as a platform to inflate the expenses. e been used as a platform to inflate the expenses. e been used as a platform to inflate the expenses.” 6.2 Before us, the Ld. Before us, the Ld. Counsel for the assessee has filed only a the assessee has filed only a debit note issued by Shri Aditya R. Dhiwar debit note issued by Shri Aditya R. Dhiwar in support of services in support of services rendered by him. The Ld. he Ld. Counsel for the assessee was asked to the assessee was asked to substantiate the claim of services rendered by Shri Aditya R. ate the claim of services rendered by Shri Aditya R. ate the claim of services rendered by Shri Aditya R. Dhiwar including ground work Dhiwar including ground work, meeting with SBI persons at AGM meeting with SBI persons at AGM

Aczet Pvt. Ltd. 6 ITA No. 3706/M/2023 levels, the transportation, installation and the transportation, installation and commission of the commission of the machines etc. as stated before the AO, b machines etc. as stated before the AO, but he expressed his ut he expressed his inability in producing said evidence readily. Since, demonstration of producing said evidence readily. Since, demonstration of producing said evidence readily. Since, demonstration of the services by way of documentary evidence is the core test for the services by way of documentary evidence is the core test for the services by way of documentary evidence is the core test for verification of the claim of the assessee verification of the claim of the assessee and the assessee the assessee was not in a position to readily filed the necessary documentary evidence, a position to readily filed the necessary documentary a position to readily filed the necessary documentary therefore, we feel it appropriate to therefore, we feel it appropriate to set aside the finding of ld CIT(A) set aside the finding of ld CIT(A) and restore this issue back to the file of the Assessing Officer with restore this issue back to the file of the Assessing Officer with restore this issue back to the file of the Assessing Officer with the direction to the assessee to produce all the necessary evidence the direction to the assessee to produce all the necessary evidence the direction to the assessee to produce all the necessary evidence in support of services rendered by Shri Aditya in support of services rendered by Shri Aditya R. Dhiwar. The R. Dhiwar. The assessee may also file a certificate from the State Bank of India that file a certificate from the State Bank of India that file a certificate from the State Bank of India that Mr. Dhiwar was the nodal person the nodal person interacting with Bank on behalf of with Bank on behalf of the assessee in relation to tender of the the assessee in relation to tender of the gold testing machines old testing machines supplied by the assessee supplied by the assessee and other associated services ociated services. The ground No. 1 of the appeal of the assessee is accordingly allowed for No. 1 of the appeal of the assessee is accordingly allowed for No. 1 of the appeal of the assessee is accordingly allowed for statistical purposes.

7.1 Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the Assessing Officer has wrongly taken the amount of investment Assessing Officer has wrongly taken the amount of investment Assessing Officer has wrongly taken the amount of investment made in assets which could yielded exempted income which could yielded exempted income, for the which could yielded exempted income purpose of computation under Rule 8D(2)(iii) of the Rules a computation under Rule 8D(2)(iii) of the Rules and the computation under Rule 8D(2)(iii) of the Rules a only investment in ‘ICICI Prudential ICICI Prudential’ amounting to Rs.26,32,500/ amounting to Rs.26,32,500/-

Aczet Pvt. Ltd. 7 ITA No. 3706/M/2023 was to be considered being investment in tax free income was to be considered being investment in tax free income was to be considered being investment in tax free income investment. Whereas the amount invested in investment. Whereas the amount invested in ‘ ‘Bank of India Treasury fund’ amounting to Rs.11,79,178/ amounting to Rs.11,79,178/- and and ‘HDFC CMF Treasury Advantage Fund vantage Fund’ amounting to Rs.45,91,259/ amounting to Rs.45,91,259/- was in the nature of taxable category. Since, these details of tax free and nature of taxable category. Since, these details of tax free and nature of taxable category. Since, these details of tax free and taxable investment has been taxable investment has been filed for the first time before us for the first time before us ,therefore, we feel if appropriate to restore the issue of therefore, we feel if appropriate to restore the issue of therefore, we feel if appropriate to restore the issue of determination of the disallowance under Rule 8D(2)(iii) of the Act to the disallowance under Rule 8D(2)(iii) of the Act to the disallowance under Rule 8D(2)(iii) of the Act to the file of the Assessing Officer for deciding afresh. The the file of the Assessing Officer for deciding afresh. the file of the Assessing Officer for deciding afresh. disallowance under Rule 8D(2)(ii) in respect of proportionate disallowance under Rule 8D(2)(ii) in respect of proportionate disallowance under Rule 8D(2)(ii) in respect of proportionate interest has not been disputed before us , so same is not being interest has not been disputed before us , so same is not being interest has not been disputed before us , so same is not being disturbed. The ground No 2 of the appeal of the assessee is ound No 2 of the appeal of the assessee is ound No 2 of the appeal of the assessee is accordingly allowed for statistical purposes. accordingly allowed for statistical purposes.