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Income Tax Appellate Tribunal, DELHI BENCHES: B : NEW DELHI
Before: SHRI R.S. SYAL, AM & SHRI A.T. VARKEY, JM
ORDER PER R.S. SYAL, AM: This appeal by the Revenue and the Cross Objection by the assessee arise out of the order passed by the CIT(A) on 22.10.2012 in relation to the assessment year 2009-10.
The first ground of the Revenue’s appeal is against the deletion of addition of Rs.73,11,674/- made by the AO on account of disallowance u/s 40(a)(ia) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’).
Briefly stated, the facts of the case are that the assessee is engaged in manufacturing of heat recovery and environment control systems such as Rotors, heat recovery wheels, energy recovery ventilators, etc. During the year under consideration, the assessee made payment, inter alia, of Rs.73,11,674/- to the persons specified u/s 40A(2)(b) on account of reimbursement of expenses. The AO observed that no deduction of tax at source was made. On being called upon to explain as to why the assessee failed to deduct tax at source u/s 194C of the Act, the assessee submitted that certain composite expenses were incurred by the group companies and the assessee paid its share in such expenses. Not convinced, the AO made disallowance u/s 40(a)(ia) of the Act which came to be deleted in the first appeal.
We have heard the rival submissions and perused the relevant material on record. The assessee paid a sum of Rs.70.95 lac to M/s Bry Air (Asia) Pvt. Ltd., Rs.96,499/- to M/s Delair India Pvt. Ltd. and Rs.1.19 crore to M/s Insent Commercial P. Ltd., totaling to Rs.73.11 lac. These three are group companies of the assessee all of which are situated at 21-C, Udyog Vihar, Gurgaon. Apart from payment of lease charges to M/s Bry Air (Asia) Pvt. Ltd., on which proper deduction of tax at source was made, the assessee also reimbursed its share in commons costs like electricity, telephone, diesel for generator, etc., on actual basis without any mark-up. The ld. AR has invited our attention towards the bifurcation of total electricity and telephone expenses, etc., on the basis of actual use for which common payments were made and the assessee paid its share on the basis of actual usage of electricity, telephone, etc. What the group companies have recovered from the assessee is its share in such common expenses incurred on cost to cost basis. We are unable to comprehend as to how payment to the group concerns towards reimbursement of expenses can be characterized as ‘Work’ to fall within the ambit of section 194C requiring withholding of tax. In our considered opinion, the ld. CIT(A) correctly appreciated the facts in deleting the disallowance u/s 40(a)(ia) of the Act on this issue.
The only other ground which survives in the Revenue’s appeal is against restricting the disallowance u/s 14A to Rs.14,65,726/- as against Rs.32,06,866/- made by the AO. The assessee in its Cross Objection is against part sustenance of disallowance u/s 14A by taking incorrect figures of average total assets.
The facts apropos this issue are that the assessee earned tax free income. The AO noticed that the assessee made investment to the tune of Rs.33.72 crore and paid interest amounting to Rs.42.95 lac. Invoking the provisions of Rule 8D, the AO made disallowance of Rs.32,06,866/-. The ld.CIT(A) upheld the disallowance to the extent of Rs.17.41 lac by, inter alia, reducing `Bank charges’ amounting to Rs.34.51 lac from ‘Interest’ under Rule 8D(2)(ii). He held that only `interest’ component was required to be considered.
We have gone through the assessee’s Annual accounts from which it is discernible that the assessee also paid `Bank charges’ amounting to Rs.34.51 lac apart from `interest’ amounting to Rs.8.43 lac. The ld.CIT(A) has ignored the amount of `bank charges’ from the purview of disallowance by noticing that this amount pertained to exports undertaken by the assessee company, which has no relation whatsoever with the Investments made yielding exempt income. In our considered opinion, the ld.CIT(A) rightly appreciated the facts in excluding the amount of `bank charges’ from ‘Interest’ for the purposes of calculation of disallowance under Rule 8D(2)(ii) of the Act.
In so far as the assessee’s grievance is concerned, we find that while calculating the amount of `Average assets’ for the purposes of disallowance, the AO computed the amount of ‘Total assets’ by excluding current liabilities from the value of assets. The ld. CIT(A) echoed the action of the AO in reducing the amount of `current liabilities’ from the value of assets both at the beginning and at the close of the year in the computation of average value of assets. Though the AO has reproduced the definition of ‘total assets’ given in Rule 8D(3), but, the calculation so made by him appears to have gone in a different direction. Under such circumstances, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of AO. We order accordingly and direct him to compute average value of investments by considering the definition of ‘Total assets’ as prescribed in Rule 8D(3).
In the result, the appeal of the Revenue is dismissed and the CO of the assessee is partly allowed for statistical purposes.
Order Pronounced in the open Court on 10.03.2016.