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2020 (6) TMI 827 - AT - Income TaxDisallowance u/s 14A - AO has made the above disallowance by holding that disallowance under section 14A is to be made mandatorily irrespective of the fact whether assessee has received any exempt income during the year or not - DRP has deleted the disallowance and held that in the absence of any exempt income during the year no disallowance can be made - DRP also has held that the interest free funds are sufficient to meet that investment made by the assessee - HELD THAT - The issue is covered in favour of the assessee by various judgments of the Jurisdictional High Court including the above judgment of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT - we uphold the Order of the DRP deleting the above said disallowance and Ground of Revenue s appeal are dismissed. Addition of expenditure incurred on Club Membership for its employees - AO disallowed it same has not been incurred wholly and exclusively for the purpose of the business - DRP has directed to delete the disallowance holding that this Club Membership expenditure incurred by the assessee for its employees has been considered as perquisite in the hands of the employees as salary income and tax has been paid thereon - HELD THAT - The finding of the Ld. DRP is correct. We are further of the view that any expenditure incurred on employees by the employer whether by way of salary or by way of perquisites is business expenditure as the employees are working for the business. What the employer provides to employees is a consideration for the services rendered by such employees. Such consideration can be in cash by way of salary or allowances or in kind by way of various perquisites. The Club Membership fee is one such perquisite which is extended by the employer to its employees. So long the fee is paid for the employees who are working with the employer for the business being carried on by such employer the fee so paid is an expenditure incurred wholly and exclusively for the purpose of business. Decided against revenue. Addition on account of the Service Fees - As per AO this expenditure has not been incurred wholly and exclusively for the purpose of business as the assessee has not furnished any details regarding the actual service being provided and the nature of services offered - HELD THAT - As regards the issue of allow ability of expenditure under section 37(1) from the facts it is evident that assessee has submitted all the details and evidences in support thereof. Thus the contention of the AO that the assessee has not furnished any details and evidences is factually incorrect. DRP has examined these details and after examination it has held that the payments are in consideration of the services rendered by the AEs by giving reference to page 37 38 of the Paper Book. Thus the issue that these expenditures have been actually incurred for availing the services cannot be doubted. As regards the value for such services the issue has been the subject matter before TPO and he has not drawn any adverse inference. Thus the AO cannot draw any adverse inference on the basis that there is no justification for payment of such amount to AE. The contention of the Ld. AR on this issue that it is not permissible for the Revenue to step in the shoes of the assessee/ businessman and take the business decisions is correct. In view of the above analysis we uphold the order of the DRP and ground of the Revenue s appeal is dismissed. Addition on account of Staff Welfare expenses - AO made an ad-hoc disallowance of 50% out of the above expenditure on the ground that the onus is on the assessee to justify the claim of the expenditure and that the assessee has failed to discharge this onus by not producing the complete details and by not producing the supporting bills/vouchers - HELD THAT - Merely not mentioning the name of the employees cannot be a ground to disallow the same considering the fact that it is a case of a company. In the case of a firm or a proprietorship concern there could have been a doubt whether such expenditures have been incurred on the employees or on the Partners/Proprietors. Ad-hoc disallowance is otherwise not sustainable. However the AO in the Assessment Order has stated that the assessee has failed to discharge its onus by producing details and complete evidences in support thereof. Though the assessee has filed the details before the Ld. DRP along with the supporting evidences apparently the same has not been examined by the Ld. DRP. Considering this fact we deem it fit to set aside this issue to the file of the AO with the direction to restrict the disallowance only to such expenditure which assessee is not able to support with evidence. TDS u/s 195 - non-deduction of tax on purchases made from Mitsui Co. Ltd. Japan - existence of the PE in India - HELD THAT - From the facts explained by the Ld. AR it is clear that a coordinate Bench of the ITAT in the case of Mitsui Co. Ltd. Japan 2016 (4) TMI 1447 - ITAT DELHI has held that Mitsui Co. Ltd. Japan does not have a PE in India. In the absence of any PE there is no obligation to deduct tax. Further it is also a fact that these purchases are off-shore supplies which cannot be subjected to tax in India and if that be so there is no requirement to deduct tax at source.DRP has also examined this issue and has held that off-shore supplies were not related to the activities by the PE of such an AE in India - Decided against revenue.
Issues Involved:
1. Transfer Pricing Adjustment 2. Disallowance under Section 14A 3. Disallowance of Club Membership Expenditure 4. Disallowance of Service Fees Expenditure 5. Disallowance of Staff Welfare Expenses 6. Non-Deduction of TDS on Payments to Mitsui & Co. Ltd., Japan Detailed Analysis: 1. Transfer Pricing Adjustment: The Revenue's grounds (1 to 7) regarding transfer pricing adjustments were withdrawn due to the assessee's Advance Pricing Agreement (APA) for Financial Years 2010-11 to 2012-13, including the Assessment Year 2011-12. The Tribunal dismissed these grounds as withdrawn. 2. Disallowance under Section 14A: The Revenue contested the deletion of a disallowance of Rs. 16,54,868/- under Section 14A by the DRP. The AO had made the disallowance mandatorily, irrespective of exempt income receipt. The DRP relied on the Delhi High Court's judgment in Cheminvest Ltd. (378 ITR 33), which held that no disallowance could be made in the absence of exempt income. The Tribunal upheld the DRP's order, dismissing the Revenue's grounds (8 to 10). 3. Disallowance of Club Membership Expenditure: The AO disallowed Rs. 13,63,487/- spent on club memberships, considering it personal expenditure. The DRP directed the deletion, noting the expenditure was considered a perquisite and taxed as salary income. The Tribunal upheld the DRP's order, affirming that such expenditures are business expenses when incurred for employees. 4. Disallowance of Service Fees Expenditure: The AO disallowed Rs. 1,28,79,450/- paid to M/s West Japan Logistics and M/s Mitsui & Co. (Asia) Pte., citing lack of evidence for services rendered. The DRP deleted the addition, noting detailed agreements and supporting documents substantiating the services. The Tribunal upheld the DRP's order, confirming the expenditure as wholly and exclusively for business purposes. 5. Disallowance of Staff Welfare Expenses: The AO made an ad-hoc disallowance of 50% of Rs. 2,79,37,539/- incurred on staff welfare, citing insufficient details. The DRP reduced this to 20%, resulting in a disallowance of Rs. 26,93,754/-. The Tribunal found the disallowance unsustainable, noting the company provided detailed invoices and evidence. The Tribunal set aside the issue to the AO to restrict disallowance only to unsupported expenditures, allowing the grounds for statistical purposes. 6. Non-Deduction of TDS on Payments to Mitsui & Co. Ltd., Japan: The AO disallowed Rs. 23,57,926/- for non-deduction of TDS on purchases from Mitsui & Co. Ltd., Japan, alleging a PE in India. The DRP deleted the disallowance, holding that offshore supplies are not taxable in India without a direct link to PE activities. The Tribunal upheld the DRP's order, noting the ITAT's prior ruling that Mitsui & Co. Ltd. Japan does not have a PE in India. General Grounds: Grounds 15 & 16 of the Revenue and Grounds 2 & 3 of the assessee were general and did not require separate adjudication. Conclusion: The appeals by both the Revenue and the assessee were partly allowed for statistical purposes. The Tribunal's order was pronounced on 22/06/2020.
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