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2019 (8) TMI 751 - AT - Income TaxDisallowance of expenses - CIT(A) directed the AO to allow the claim of expenses after verification - but, AO disallowed the expenses - according to the assessee the learned AO in examining the claim of the allowability of the expenditure has went against the direction of the learned CIT(A) - HELD THAT - CIT Appeal has not verified the claim of the assessee but has merely sent back the claim of the assessee back to the assessing officer to properly verify the same and allow it. Meaning thereby if the claim of the assessee is falling within the four corners of the provisions of the income tax act then after proper verification the learned assessing officer should allow such claims. Therefore , if the claim of the assessee is tenable as per the income tax act then the learned assessing officer should allow it and if the claim of the assessee is not allowable according to the provisions of the income tax act, then, naturally the AO should not allow the same. According to us, this is the direction of the CIT appeal. Our view further get support from the fact that there is no finding in the order of the CIT A that these expenditure are allowable. He has merely held that the claim of the assessee is prime facie forceful. He has not held it to be allowable. As argued before us that, if by the direction of the learned CIT A, revenue is aggrieved then there should have filed an appeal before the coordinate bench. Having not filed the appeal, the revenue now cannot say that the order of the CIT A is incorrect in directing the assessing officer to allow the claim of the assessee. This argument cannot hold water for the simple reason that the learned CIT A has directed the assessing officer to allow the claim of the assessee after proper verification. This criteria also applies to the assessee for the reason that if the assessee is aggrieved, even belatedly, with the direction of the learned CIT A, it could have also filed an appeal before coordinate bench. This is also not been done by the assessee. Therefore, this argument deserves to be rejected at the threshold itself. No infirmity in the order of the learned assessing officer in examining the claim of the assessee and then allow the same is directed by the learned CIT appeal. Disallowance relating to expenditure on placement fee paid claimed as deduction u/s 35D - assessee submitted that, for subsequent years the claim of the assessee has not been disputed. - HELD THAT - Undisputedly, this is the 1st year of the examination whether the expenditure incurred by the assessee is allowable u/s 37 (1) of the income tax act as claimed by the assessee or assessee is entitled to staggered deduction under section 35D of the act. Therefore, not disallowing the above sum in the subsequent year, does not help the case of the assessee. Even otherwise it is an established judicial precedent that claim of deduction u/s 35D is required to be tested in the year in which the expenditure have been incurred fast and not in subsequent 4 years. Disallowance u/s 35 where TDS has been deducted pursuant to section 40 - Held that - Whether the tax is required to be deducted or not for the allowability of the expenditure would come into picture later on when the expenditure are found to be deductible as a business expenditure as per the normal provisions of the income tax act. The moment the expenditure is found to be allowable according to the normal provisions of the income tax then only it is required to be seen that whether the assessee has deducted tax at source on such payment or not. Therefore, the threshold of the withholding tax will only come later on when the expenditures are found otherwise allowable as per the provisions of the income tax act. The heading of section 40 says that amounts not deductible stating that notwithstanding anything to the contrary in section 30-38, the following amounts shall not be deducted in computing the income chargeable under the head profits and gains of business or profession and thereafter it list 1 of the expenditure which is paid to non-resident not eligible for deduction if no tax is deducted thereon. Therefore, any claim of expenditure 1st has to cross the threshold of provisions of section 30 38 of the income tax act. If the claim of the expenditure fails that threshold then whether taxes deducted by the assessee or not is immaterial. Disallowance made by the learned assessing officer being 1/5 of the aggregate expenditure being a fee paid to Messer s Baer capital partners International Ltd as placement fee for raising ₹ 600,00,00,000 of preference and equity capital confirmed. Expenditure on upfront fee paid to Messer s WDC venture for subscription of debentures not claimed in the original return of income as the same was capitalized by debiting to securities premium account - HELD THAT - The assessee is defined as company. The liability of the payment of upfront fee did not devolve on the assessee company but on the existing shareholders. In fact it is an agreement between these parties which specifically provides that the liability for payment of upfront fees rest on the existing shareholders. Therefore it is for them only to understand and give the reasons that why it has been agreed so that the upfront fee payment is the liability of the existing shareholders and not the company. Further in the whole of the written submission as extracted above made by assessee, there is no answer that for what reasons the liability agreed by the parties was on the existing shareholders but has been debited in the books of the assessee company. As it is an agreement by the investor, the appellant investee company and the existing shareholder of the appellant company by which all of them have agreed that upfront fee payment is required to be paid by the existing shareholders and not by the assessee company, we do not find any infirmity in the order of the learned CIT A in holding that that the assessee has not incurred any expenditure as there is no liability devolve in on the appellant and hence same is not deductible in the hands of the assessee - All the grounds of the appeal which are devolving around the disallowance of the about to expenditure of the consultation placement fees paid as well as of the upfront fee are dismissed. Penalty u/s 271 (1)(C) - Addition in the assessment order with respect to certain incriminating documents relating to transactions of Shri KL Verma group - HELD THAT - As the addition itself does not survive, the penalty u/s 271 (1) levied by the learned assessing officer and confirmed by the learned CIT A also does not survive. Therefore all the grounds of the appeal of the assessee against the levy and confirmation of the penalty u/s 271 (1)(C) of the act are allowed.
Issues Involved:
1. Whether the Assessing Officer (AO) was empowered to examine the claim of the allowability of expenses from all angles. 2. Whether the expenditure of ?2,69,66,400/- being 1/5th of ?13,48,31,985/- claimed under section 35D of the Income Tax Act is allowable. 3. Whether the revenue is correct in disallowing the claim of ?2,24,72,631/-. 4. Whether the penalty imposed under section 271(1)(c) of the Income Tax Act is justified. Issue-wise Detailed Analysis: 1. Empowerment of AO to Examine Claims: The Tribunal examined whether the AO was empowered to scrutinize the claims of the assessee. The CIT(A) had directed the AO to allow the claims after "proper verification," which implied ascertaining whether the expenditure was eligible for deduction under the Income Tax Act. The AO verified the claims and allowed some while disallowing others. The Tribunal upheld the AO's actions, stating that the AO was within his rights to examine the claims' allowability under the Income Tax Act. 2. Allowability of Expenditure under Section 35D: The assessee claimed a deduction of ?2,69,66,400/- (1/5th of ?13,48,31,985/-) paid as placement fee to M/s Baer Capital Partners International Ltd. The AO disallowed the claim due to non-deduction of tax at source under section 195. The CIT(A) upheld the disallowance, stating that the expenditure was capital in nature and not related to public issue, thus not covered under section 35D. The Tribunal agreed, noting that the assessee failed to establish the nature of services rendered by Baer Capital Partners and the payment was related to raising capital, making it a capital expenditure not eligible for deduction under section 35D or section 37(1). 3. Disallowance of ?2,24,72,631/-: The assessee claimed expenditure on upfront fee paid to M/s WDC Ventures Ltd for subscription of debentures. The AO disallowed the claim due to non-deduction of tax at source. The CIT(A) upheld the disallowance, noting that the agreement specified the liability of upfront fee payment rested with the existing shareholders, not the assessee. The Tribunal agreed, stating that the liability for payment was on the existing shareholders, and the assessee could not claim it as its expenditure. 4. Penalty under Section 271(1)(c): The AO imposed a penalty of ?95,07,003/- for concealment and furnishing inaccurate particulars of income related to an addition of ?2,79,70,000/-. The CIT(A) confirmed the penalty. However, the Tribunal noted that the coordinate bench had deleted the addition of ?2,79,70,000/- in ITA No. 2183/Del/2012 and ITA No. 2978/Del/2012. Consequently, the penalty under section 271(1)(c) was also deleted, as the addition on which it was based no longer survived. Conclusion: The Tribunal upheld the AO's examination of claims, disallowed the expenditure under section 35D and section 37(1) due to the capital nature of the expenses, confirmed the disallowance of the upfront fee, and deleted the penalty under section 271(1)(c) following the deletion of the related addition.
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