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2018 (10) TMI 243 - AT - Income TaxDisallowance of Gate Expenses - allowable busniss expenses u/s 37 - Held that - As during assessment proceedings, it was noted that the assessee debited a sum under the head catering and gate expenses which were disallowed in earlier years as they were found to be illegal payments in the form of tips paid to certain authorities at the docks and therefore, not allowable in terms of Section 37(1). CIT(A) has confirmed the same, against which the assessee is under appeal before us. Assessee at the outset, fairly conceded that the issue stood covered against the assessee by the order of this Tribunal for several earlier AYs starting from AY 1999-2000. In view of the admitted position, this ground stand dismissed. Disallowance of delayed payment of employee contribution to PF / ESIC - Held that - We delete the impugned addition as made by Ld. AO subject to verification of the fact that all the payments have been made before due date of filing of return u/s 139(1). The suo-moto disallowance of ₹ 0.24 Lacs as made by the assessee shall remain undisturbed. The Ld. AO is directed to verify the fact that impugned payments were deposited by the assessee before due date of filing of return of income with a direction to assessee to provide requisite details in this regard. The ground stand allowed. Disallowance u/s 14A - Held that - We find that it is an undisputed fact that no exempt income has been earned by the assessee during the impugned AY and therefore, no disallowance was called for u/s 14A as per catena of judgments of Higher Judicial Authorities in assessee s favor. Addition of Deposits written-off which mainly comprised-off of forfeiture of security deposits paid by the assessee on account of termination of lease before stipulated lock-in-period - Held that - The security deposits made by the assessee have been adjusted / forfeited by the landlords on account of the fact that the premises were not used for minimum lock-in-period as stipulated in the respective agreements. It is also undisputed fact that the premises were being used for business purposes. AO, himself, in the alternative, opined that the said expenditure was capital in nature which demonstrates that the genuineness of the same was also not under doubt. Under these circumstances, we find that the expenditure was not capital in nature since the same did not bring into existence any new asset or benefit of enduring in nature. The same, being incurred during the course of business, were revenue in nature and therefore, allowable to the assessee Disallowance of professional fees paid to an individual Raju Shete which was payable in 4 quarterly installments - Held that - The payment made by the assessee should breach the threshold conditions of Section 37(1) that the expenditure was incurred wholly and exclusively for the business purposes of the assessee before becoming eligible to be claimed as deduction. The stated payments, prima facie, seems to be part of acquisition process only and therefore, it become imperative to find out the exact nature of services being rendered by Shri Raju Shete to the assessee company. Therefore, reversing the stand of Ld. CIT(A), the matter stand remitted back to the file of Ld. AO for re-adjudication in the light of acquisition agreement dated 10/03/2009 as filed before us. The complete onus to demonstrate that the impugned expenditure qualify for deduction as per law rest with the assessee. Also the terms of correspondence dated 10/03/2009 provided for rendering of services for a group of entities which are referred to as Combined Entities and the services are not restricted exclusively to assessee only. All these entities have separate legal existence. Therefore, if the said expenditure is, at all, found admissible, the deduction to the assessee could be allowed only to the extent of services being rendered by the stated individual for the benefit of the assessee only and not for other entities. AO is directed to delve into the same, if found necessary. Transfer Pricing TP Adjustment - proportionate adjustment confirmed - assessee had applied entity level TNMM to benchmark the international transactions - Held that - No infirmity in the stand of Ld. CIT(A) in granting the benefit of proportionate adjustment to the assessee by holding that entity level TNMM could not be applied to all the transactions / cost base on gross basis as a whole and the same was to be applied on proportionate basis to international transactions which were subjected to determination of ALP. Upon perusal of impugned order, we find that FAA while granting proportionate adjustment arrived at TP adjustment of ₹ 25.63 Lacs, being 2.54% of TP adjustment of ₹ 10.49 Crores as computed by Ld. AO. However, the said adjustment has been found to be within range of safe harbor of 5% as provided u/s 92C(2) as calculated with reference to aggregate international transactions of ₹ 11.28 Crores and therefore, deleted in full. No infirmity in the same since the benefit as envisaged by the statutory provisions could not be denied to the assessee. Therefore, the same being in accordance with law, require no interference on our part.
Issues Involved:
1. Disallowance of Gate Expenses 2. Disallowance for Delayed Payment of Employee Contribution to PF/ESIC 3. Disallowance under Section 14A 4. Deposits Written-off 5. Professional/Non-compete Fees 6. Transfer Pricing Adjustment Detailed Analysis: 1. Disallowance of Gate Expenses: During the assessment proceedings, the assessee's claim for gate expenses amounting to ?2,98,472 was disallowed, as these were deemed illegal payments (tips to authorities at docks) and not allowable under Section 37(1). The CIT(A) confirmed this disallowance, and the assessee conceded that this issue was covered against them by previous Tribunal orders. Consequently, this ground was dismissed. 2. Disallowance for Delayed Payment of Employee Contribution to PF/ESIC: The assessee delayed payment of employee contributions to provident fund/state insurance aggregating to ?107.48 lakhs. The CIT(A) allowed partial relief by permitting deductions for contributions made within the due date, including a grace period of 5 days, but upheld disallowance for payments made beyond this period. The Tribunal found that the issue was covered in the assessee's favor by various High Court judgments, including the jurisdictional Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd. Thus, the Tribunal deleted the disallowance subject to verification that all payments were made before the due date for filing the return under Section 139(1). 3. Disallowance under Section 14A: The revenue's appeal contested the deletion of a disallowance of ?5,41,294 under Section 14A. The assessee had argued that no exempt income was earned during the relevant AY, thus no disallowance was warranted. The CIT(A) accepted this argument, citing various High Court judgments. The Tribunal upheld the CIT(A)'s decision, noting that no exempt income was earned and thus no disallowance under Section 14A was justified. 4. Deposits Written-off: The assessee wrote off security deposits forfeited due to early termination of leases, amounting to ?19.56 lakhs. The AO disallowed this, considering it capital in nature. The CIT(A) allowed the deduction, reasoning that the forfeited deposits were revenue in nature as they did not result in any new asset or enduring benefit. The Tribunal upheld the CIT(A)'s decision, noting that the forfeited deposits were incurred during the course of business and thus allowable under Section 37(1). 5. Professional/Non-compete Fees: The assessee paid ?97.26 lakhs to an individual, Raju Shete, as professional fees and reimbursements. The AO treated this as non-compete fees related to the acquisition process and thus capital in nature. The CIT(A) disagreed, treating the payment as professional charges necessary for business continuity. The Tribunal found that the payment was part of the acquisition agreement and remitted the matter back to the AO for re-adjudication to determine the exact nature of services rendered and whether the expenditure was wholly and exclusively for business purposes. 6. Transfer Pricing Adjustment: The AO made a TP adjustment of ?10.49 crores based on entity-level TNMM, which the assessee contested, arguing for proportionate adjustment. The CIT(A) accepted the assessee's plea, restricting the adjustment to 2.54% of the total turnover, resulting in an adjustment of ?26.63 lakhs, which was within the safe harbor limit of 5% and thus deleted. The Tribunal upheld the CIT(A)'s decision, agreeing that proportionate adjustment was justified and in accordance with judicial precedents. Conclusion: The assessee's appeal was partly allowed, and the revenue's appeal was partly allowed for statistical purposes. The Tribunal directed the AO to verify certain facts and re-adjudicate specific issues, ensuring compliance with judicial precedents and statutory provisions.
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