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TMI Blog2008 (4) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... o JK Traders and Rs. 8,400 paid to Technomed Services on the ground that the appellant failed to bring any evidence on record to show that the payment was made in consideration of services rendered. 2. That the CIT(A) erred on facts and in law. in not holding expenses of Rs. 52,741 out of sales promotion expenses and Rs. 1,11,258 out of conference expenses are not being in the nature of entertainment expenses and hence not disallowable under s. 37(2) of the Act. 2.1 That the CIT(A) erred on facts and in law in not holding that expenses aggregating to Rs. 82,508 were, in any case, allowable business expenditure and were to be excluded from the purview of disallowable under s. 37(2) of the Act." 2. Ground 1 relates to sustaining the disallowance of commission of (a) Rs. 11,07,251 paid to RTP Business Enterprises, (b) Rs. 8,500 paid to JK Traders and (c) Rs. 8,400 paid to Technomed Devices for want of services rendered. (a) Disallowance of commission of Rs. 11,07,251 paid to RTP Business Enterprises: (i) Assessee paid the commission to RTP Business Enterprises in the context of sale of CT scanner and its work station to Lady Hardinge Medical Hospital. Before the CIT(A), asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technomed Devices. CIT(A), as held in para 5.8 of his order, sustained the disallowance of these amounts Le. Rs. 8,500 and Rs. 8,400 made by the AO holding that there is no evidence on record regarding any services rendered by JK Traders and Technomed Devices. (ii) Aggrieved with the above decision of the CIT(A), the assessee is before us. The learned Authorised Representative for the assessee argued that it has made the payments of Rs. 8,500 to JK Traders in connection with the sale of Nebula to SL Augustina Hospital and relied on the copy of the invoice placed in the paper book. CIT-Departmental Representative for the Revenue argued that the point in question is whether the services are rendered or not and the payment of commission is for the business purposes or not and CIT-Departmental Representative mentioned that the assessee failed to produce the details of the services and supportive evidences. He further argued that mere production of a copy of the sale bill of the Nebula does not mean anything. Similarly, the payment of Rs. 8,400 paid to Technomed Devices for sale of Nevus equipment to Dr. Ravi S. Konnur. In this case of payment also, the assessee furnished a copy of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO did not allow the assessee's claim of 50 per cent of Rs. 11,50,709 towards the employees and proceeded to calculate the amount to be disallowed under s. 37(2). (iii) Aggrieved with the above disallowance, the assessee filed an appeal before the CIT(A). Based on the break-up given by the tax auditors for gross figure of Rs. 11,50,709, assessee mentioned that Rs. 52,741 and Rs. 1,41,256 (assessee wrongly mentioned as Rs. 1,11,258 in grounds) are spent under the heads 'Sales promotion expenses' and 'Conference expenses' respectively in the context of meeting doctors and customers for business purposes. Assessee argued that these expenses arc not entertainment expenses but they are business expenses and relied on judgment in the case of CIT vs. Indo Asian Switchgears (P) Ltd. (1997) 137 CTR (P H) 9 : (1997) 92 Taxman 86 (P H). Assessee further submitted that an aggregate amount of Rs. 82,508 (expenses spent on purchase of dry fruits, Diwali gifts, car hire charges, layout preparation) are also business expenditures and not as entertainment expenses. Thus the amounts i.e. Rs. 52,741, Rs. 1,41,258 and Rs. 82,508 out of total of Rs. 11,50,709 relate to business expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A). It is pertinent to note that the AO has not given his finding in this regard as evident from the fact that he did not allow any expenditure towards to the employees. Therefore, in the interest of justice and in the absence of primary data, we are of the view that this issue must go to the files of the AO for adjudication on ascertaining the extent of expenditure relatable to employees. While deciding, the AO shall examine if amounts of Rs. 52,741, Rs. 1,41,258 and Rs. 82,508 are the business expenditure and are allowable under s. 37(1) of the IT Act instead of s. 37(2). Accordingly, these grounds of both Revenue and the assessee are set aside to the files of the AO. 4. Grounds 3 to 6 of the assessee's appeal are narrative and the issue that arises from these grounds is whether the CIT(A) would have taken a decision based on the available facts and delete the addition of Rs. 1,61,86,880 instead of setting aside the issue relating to the alleged low OP to the files of the AO with certain guidelines. (i) Briefly, the facts are that the assessee's sales turnover during the year is around Rs. 17 crores. Assessee received Rs. 1.4 crores of commission from Picker International I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTAA apply to PI and not to the assessee in India, VI. Regarding applicability of s. 92, assessee argued that there is nothing on record to show that the course of business between PI and assessee has been arranged in such a manner that no profit or less than ordinary profits accrued to the assessee. CIT(A) examined the applicability of the art. 9 of the US-Indo DTAA and the provisions of s. 40A(2)(b) and held that they are inapplicable. But CIT(A) held that prima facie, the provisions of s. 92 of the IT Act apply to the assessee's case and to that extent he agreed with AO's submissions vide AO's letter dt. 27th Jan., 2000 to the CIT(A). Accordingly, he set aside the assessment with the direction to apply s. 92 and given certain directions and manner of making the investigations. (iii) To elaborate on other events during the period of appellate proceedings before the CIT(A), assessee filed volumes of paper books before him along with the assessee's submissions. CIT(A) sent all of them to the AO and called for a report. AO in his reply dt. 27th Jan., 2000 requested the CIT(A) to invoke the provisions of s. 92 and enhance the income as the assessee has also rendered 'after sales s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther enquiry as may be necessary, and the AO shall thereupon proceed to make such fresh assessment and determine where necessary, the amount of tax payable on the basis of such fresh assessment....." The legal interpretation in this regard is that no remand if primary or basic facts are on the records, no remand just for the sake of giving one more opportunity to the AO and finally, the remand provisions must be used only in rare and exceptional cases and circumstances. In the written submissions, the Authorised Representative of the assessee relied on various judicial pronouncements. (b) Summary of the judicial pronouncements on remand - There cannot be any remand of a case for further examination of facts, if basic facts necessary for the disposal of the matter are already on records or orders of the lower authorities-as held in the case of United Commercial Bank vs. CIT (1982) 27 CTR (Cal) 284 : (1982) 137 ITR 434 (Cal). - Remanding of a case may be done in rare cases and only when it is not possible for the Tribunal to make a just order-as held in the case of Surinder Pal Verma vs. Asstt. CIT (2004) 83 TTJ (Chd)(TM) 24 : (2004) 89 ITD 129 (Chd)(TM). - There cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that said art. 9 applies to the non-resident only i.e., PI and not the instant case. (d) We find that the it is relevant to examine the said finding of the CIT(A). As commented on the provisions of s. 92, as it existed prior to 1st April, 2002, by the apex Court in the case of Mazagaon Docks Ltd. vs. CIT (1958) 34 ITR 368 (SC), there are three limbs in s. 92 and they are: a business is carried on between a resident and non-resident person; there exists a close connection between resident and non-resident person; and the course of business is so arranged that the business produces either no profit. or less than ordinary profit to the resident. CIT(A) found that all three limbs prima facie apply in assessee's case, we have reexamined the above provisions and their applicability to the assessee's case and found that (i) and (ii) above are undisputedly applicable. We find that there is difficulty in respect of third limb above. In the third limb itself, there are some other conditions. They are: the course of business is so arranged; that arrangement of business produces no profits to the resident or that arrangement of business produces less than ordinary profits to the resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Picker India Inc. (PI) and other like dealers in India. if there are more than one such dealers or competitors of PI and their agents/dealers in India. In the absence of any such basic data, invoking the provisions of s. 92, as happened in the instant case, is prima facie unjustified. Cloud of suspicion or doubt may not lead the lower authorities to invoke the provisions of s. 92, as happened in the instant case. Suspicion of booking the PI's expenses to the assessee's books, continuous losses of the assessee, GP differences between the GPs of direct sales and indirect sale of the CT scanner and others are the factors that led the AO or CIT(A) to the suspicion. Having found that there is travel expenses are not wholly and exclusively for the assessee's business, AO should have pointed out the extent of such travel expenses and made disallowance. Having failed to do so and merely there is loss, it cannot be suspected that the course of business is so arranged to have not profits or less than ordinary profits to the assessee as held in the case of Dy. CIT vs. Rohm Hass India (P) Ltd. (2006) 8 SOT 803 (Mumbai). In the light of the above, we find that the prima facie opinion of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of Rs. 4.43 lakhs on account of transactions in forward market in foreign exchange. which are speculative nature; allowing commission of Rs. 7 lakhs paid to M/s Meemar despite absence of any evidence in support of services rendered; and finally the issue of 50 per cent of the entertainment expenses relating to employees. The ground 3 in this appeal relating to the entertainment expenses and is raised in assessee's appeal also on slightly different issue. The same has been adjudicated as in para 3 above, setting aside to the files of the AO due to lack of primary facts on the issue and AO has not decided on this issue. Grounds 1 and 2 are left for adjudication by us in this Revenue appeal. (a) Ground 1 relates to assessee's claim of Rs. 4.43 lakhs on account of transactions in forward market in foreign exchange, which are speculative nature. AO disallowed a sum of Rs. 18,43,621 which includes an amount of Rs. 4.43 lakhs. This amount relates to the payments made in respect of a forward foreign exchange contract undertaken by the assessee to safeguard against expected loss arising on account of foreign exchange rate fluctuation. Assessee submitted that the said liability is a de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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