2016 (6) TMI 1323 - AT - Income Tax

TDS u/s 195 - disallowance made u/s. 40(a)(i) paid to foreign parties towards sales promotion services rendered outside India - retrospective amendment in Explanation 2 to section 9 of the Act with regard to retrospective TDS obligation - whether no tax withholding was called for from such remittance - scope of amendment of law - Held that - We hold that the assessee cannot be expected to foresee an amendment in the statute with regard to TDS obligations and any retrospective amendment in the law could only disturb the computation mechanism of determination of income. Accordingly, we hold that by virtue of a retrospective amendment, the income of an assessee could be disturbed on a higher side or lower side. But the TDS obligations that are cast on the assessee are only procedural in nature and assessee could maximum be expected to follow the law as it stood at the time of making payment or crediting the account of payee whichever is earlier. Hence we hold that the assessee cannot be faulted with for violation of TDS obligations due to retrospective amendment in procedural law - retrospective amendment in statute does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability with retrospective effect. Accordingly the raised by the assessee is allowed. Disallowance of Professional and Consultancy Fees - Held that - CIT-A after taking into account the remand report and rejoinder filed by the assessee and on perusal of the entire details had deleted the addition. We also find that the Learned CIT-A had given categorical finding in respect of each and every payment by referring to relevant provisions of the Act and with specific reference to treaties of various countries. None of these findings were controverted by the revenue before us. Hence we find no infirmity in the order passed by the Learned CIT-A on this issue. Accordingly, the Ground No. 1 raised by the revenue in respect of Professional and Consultancy fees is dismissed. Disallowance on account of Commission charges - Held that - CIT-A after taking into account the remand report and rejoinder filed by the assessee and on perusal of the entire details had deleted the addition. We also find that the Learned CIT-A had given categorical finding in respect of this issue which is stated hereinabove and we find that none of these findings were controverted by the revenue before us. Hence we find no infirmity in the order passed by the Learned CITA on this issue. Accordingly, the Ground raised by the revenue in respect of Commission expenditure is dismissed. Disallowance of commission paid on account towards reservation charges - TDS liability - Held that - We find that the Learned CITA had given a categorical finding with regard to payments made to Oberoi Contact Centre being inter unit payments for which TDS provisions could not be made applicable. The Learned DR could not controvert this finding of Learned CITA before us. Accordingly, we find no infirmity in the order of the Learned CITA with regard to deletion of disallowance. Disallowance on account of provision for overriding commission - Held that - On perusal of the details of subsequent payments it is observed that out of the aggregate amount of ₹ 3,700,563/ - disallowed in the assessment order, ₹ 27,21,258/- was paid subsequently. The remaining amount of ₹ 9,19,303/ - was written back in the books of account in March 2008. During the appellate proceedings, the appellant submitted that the written back amount was offered to tax in the relevant assessment year. Under the circumstances, we do not find any reason as to why the amount should not be allowed as deduction in the hands of the appellant in the-assessment year under appeal. In my opinion the amount represents a crystalised liability and thus the appellant should be eligible to deduction of the said amount. Disallowance on account of aircraft running and maintenance expenditure - Held that - As decided in assessee s own case ot of force in the arguments of the Learned AR that if at all there is any personal element involved in the aforesaid expenditure, the same have to be taxed as perquisite in the hands of the directors and it is only for the TDS officer to look into the violations, if any, on the same and hence on that ground also, no disallowance of expenditure could be appreciated. We find that the Learned AO had made the entire addition based on surmises and conjectures and made on adhoc basis . It is well founded proposition that what is apparent is real and the allegation to prove the contrary is on the person making such allegation. Disallowance on account of notional interest on interest free advances given to associate companies - Held that - It is not in dispute that the assessee had sufficient own funds to make these advances. The assessee had earned a profit of ₹ 260,74,50,176/- during the year and had reserves and surplus of ₹ 992,56,27,750/-. Hence it could be safely concluded that the assessee was flooded with own funds and borrowed funds were not utilized for making these interest free business advances. None of the findings given in the aforesaid order in assessee s own case were controverted by the revenue before us. Disallowance u/s 14A - Held that - It is not in dispute that the assessee had derived taxable income as well as tax free income and incurred expenditure for deriving both the incomes and hence disallowance is definitely warranted in terms of section 14A which is brought in the statute book with retrospective effect from 1.4.1962. The disallowance had to be made only on an estimated basis with regard to the expenditure incurred for the purpose of earning tax free income.We find that the Learned CITA had also directed the Learned AO to restrict the disallowance u/s 14A of the Act at 1% of dividend income. Hence we find no infirmity in the order passed by the Learned CITA in this regard. Disallowance on account of Commission paid to Airport Authority of India for non-deduction of tax at source - Held that - We find in the facts and circumstances, the assessee be given one more opportunity to furnish before the Learned AO TDS certificates or any other evidences in support of its compliance to TDS obligations with regard to commission payments made to Airports Authority of India. We direct the Learned AO accordingly - Ground raised by the assessee is allowed for statistical purposes. Disallowance on account of advance written off - Held that - We find lot of force in the argument of the Learned AR that the assessee would get only royalty from various hotels for using its trademark, logo and name for which purpose it had made investments in joint venture equity participation. Due to the fact that the project could not take off and got abandoned for various reasons beyond the control of the assessee, the assessee had to claim the same as a regular business loss. We find that the reliance placed by the Learned AR on the decision of the Hon ble Calcutta High Court in the case of Binani Cement Ltd vs CIT 2015 (3) TMI 849 - CALCUTTA HIGH COURT is well founded. Disallowance on account of provision for leave encashment - Held that - As assessee stated that the deduction on account of provision of leave encashment was made on the basis of the judgment of Hon ble jurisdictional High Court in the case of Exide Industries Ltd. Vs. Union of India 2007 (6) TMI 175 - CALCUTTA HIGH COURT but he fairly conceded that subsequently Hon ble Supreme Court has stayed this judgment of Hon ble jurisdictional High Court. Accordingly, we set aside this issue to the file of the AO to await the decision of Hon ble Supreme Court and decide the issue accordingly. This issue of assessee s appeal is remitted back to the file of AO Disallowance of General Expenses on estimated basis - Held that - We find that the addition has been made by the Learned AO merely on surmise and conjecture. The Learned CIT-A had rightly deleted the addition after going through the comments made by the Learned AO in the remand report in respect of this addition. Hence we find no infirmity in the order of the Learned CIT-A in this regard. Disallowance on account of Provision for Bonus - double deduction - Held that - CIT-A correctly observed that the Tax Auditor of the assessee had duly certified that a bonus amount of ₹ 29,65,542/- remain unpaid and accordingly the same was disallowed voluntarily by the assessee in the return of income. He observed that the sum of ₹ 7,12,000/- is included in the disallowance made in the sum of ₹ 29,65,542/- and accordingly deleted the double disallowance. Addition towards unclaimed salaries and wages u/s 41(1) - Held that - -We find that no specific arguments were advanced by the Learned DR in respect of this addition. We agree with the contentions of the assessee that the employees who had left the organization had not filed any declaration that they had waived their dues from the assessee and the liabilities towards unclaimed salaries and wages continue to be reflected in the books of the assessee. No benefit was derived by the assessee in this regard. We hold that the liability to pay the agreed dues exists on the part of the assessee and merely in the absence of a valid claim from the resigned employees, it cannot be concluded that the liability had ceased to exist. Hence the provisions of section 41(1) of the Act cannot be invoked. Disallowance of depreciation on certain items of Plant and Machinery - Held that - CIT-A was correct by allowing the assessee s claim of depreciation on Plant & Machinery items on the basis of the date on which it was received in stores and not on the basis of the date of its put to use

Summary

Issues Involved:
1. Disallowance of Advertisement, Publicity, and Sales Promotion Expenses.
2. Disallowance of Professional and Consultancy Fees.
3. Disallowance on account of Commission charges.
4. Disallowance of commission paid on account towards reservation charges.
5. Disallowance on account of provision for overriding commission.
6. Disallowance on account of aircraft running and maintenance expenditure.
7. Disallowance of notional interest on interest-free advances given to associate companies.
8. Disallowance under section 14A of the Income-tax Act.
9. Disallowance on account of commission paid to Airport Authority of India for non-deduction of tax at source.
10. Disallowance on account of advance written off.
11. Disallowance on account of provision for leave encashment.
12. Disallowance of General Expenses on an estimated basis.
13. Disallowance on account of provision for bonus.
14. Addition towards unclaimed salaries and wages under section 41(1) of the Income-tax Act.
15. Disallowance of depreciation on certain items of Plant and Machinery.

Detailed Analysis:

1. Disallowance of Advertisement, Publicity, and Sales Promotion Expenses:
The assessee contested the disallowance of ?4,223,522/- for non-deduction of tax under section 195 for payments made to foreign parties. The CIT(A) held that these payments were not taxable in India as they were business profits in the hands of the payees without a permanent establishment in India. The Tribunal agreed, citing that retrospective amendments to section 9 do not impose TDS obligations retrospectively. The disallowance was deleted.

2. Disallowance of Professional and Consultancy Fees:
The AO disallowed 20% of ?2,80,38,329/- due to non-deduction of tax. The CIT(A) found that most payments were covered under tax treaties and not taxable in India. The Tribunal upheld this view, noting that the AO had not disputed the genuineness of the expenses and had not provided specific findings against the assessee's claims.

3. Disallowance on account of Commission charges:
The AO disallowed 10% of ?2,92,38,340/- paid to foreign travel agents. The CIT(A) held that these payments were not taxable as they did not constitute technical or consultancy fees. The Tribunal agreed, noting that the AO had not provided specific remarks in the remand report.

4. Disallowance of commission paid on account towards reservation charges:
The AO disallowed ?17,91,388/- for non-deduction of tax. The CIT(A) granted partial relief, confirming disallowance of ?9,55,351/- due to lack of supporting evidence. The Tribunal set aside the issue to the AO for verification of the parties' permanent establishment status in India.

5. Disallowance on account of provision for overriding commission:
The AO disallowed ?37,00,563/- as a provision. The CIT(A) allowed the deduction, noting that ?27,21,258/- was paid subsequently and ?9,19,303/- was written back and offered to tax. The Tribunal upheld this decision.

6. Disallowance on account of aircraft running and maintenance expenditure:
The AO disallowed 10% of ?3,63,25,075/- on an ad hoc basis. The CIT(A) upheld this, but the Tribunal deleted the disallowance, citing previous decisions where detailed records were provided and the expenditure was for business purposes.

7. Disallowance of notional interest on interest-free advances given to associate companies:
The AO disallowed ?4,69,56,966/- for advances to sister concerns. The CIT(A) confirmed disallowance for Balaji Hotels and Green Field Resorts but deleted it for others. The Tribunal noted that the assessee had sufficient own funds and allowed the assessee's appeal, dismissing the revenue's appeal.

8. Disallowance under section 14A of the Income-tax Act:
The AO disallowed ?1,924,086/- for exempt income. The CIT(A) restricted this to 1% of dividend income. The Tribunal upheld this, noting that Rule 8D was not applicable for the relevant year.

9. Disallowance on account of commission paid to Airport Authority of India for non-deduction of tax at source:
The AO disallowed ?59,63,205/-. The CIT(A) allowed ?29,00,000/- based on TDS certificates and confirmed disallowance of ?30,63,205/-. The Tribunal set aside the issue to the AO for verification of TDS compliance.

10. Disallowance on account of advance written off:
The AO disallowed ?2,01,50,000/- as it was not claimed in the return. The CIT(A) held it was a capital loss. The Tribunal allowed the claim, citing that the advance was for business purposes and the project was abandoned.

11. Disallowance on account of provision for leave encashment:
The CIT(A) confirmed the disallowance of ?12,70,751/- based on a stay by the Supreme Court on the jurisdictional High Court's decision. The Tribunal remitted the issue back to the AO for fresh adjudication post the Supreme Court's decision.

12. Disallowance of General Expenses on an estimated basis:
The AO disallowed 10% of ?1,88,75,300/- on an ad hoc basis. The CIT(A) deleted the disallowance, noting the AO did not justify it. The Tribunal upheld this decision.

13. Disallowance on account of provision for bonus:
The AO disallowed ?7,12,000/- as a provision. The CIT(A) deleted the disallowance, noting it was already included in the ?29,65,542/- disallowed by the assessee. The Tribunal upheld this decision.

14. Addition towards unclaimed salaries and wages under section 41(1) of the Income-tax Act:
The AO added ?3,42,747/- for unclaimed salaries. The CIT(A) deleted the addition, noting no cessation of liability. The Tribunal upheld this decision.

15. Disallowance of depreciation on certain items of Plant and Machinery:
The AO disallowed depreciation on certain items received on 30th September and 31st March. The CIT(A) allowed the claim, except for one item. The Tribunal upheld the CIT(A)'s decision.