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TMI Blog2013 (5) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the AO had wrongly taken the average cost of total assets resulting in excess disallowance has also not been successfully refuted by the Department. Against revenue. Market development expenses - CIT(A) deleted the disallowance - Held that:- None of these payments was made by the assessee to CRMI as no Agreement between the assessee and CRMI was in existence. Moreover, a similar claim of Market Development expenses had been made for the assessment year 2006-07. The same had been allowed. It has not been shown that there has been any change in the facts for the year under consideration. CIT(A) has duly taken into consideration all these facts while rightly deleting the addition made. Against revenue. Consultancy charges paid to Arman Auto Group - failure to deduct TDS - CIT(A) deleted the disallowance - Held that:- AO merely rejected the explanation offered by the assessee, without recording any finding as to why it was being so done. While deleting the addition, CIT(A) has correctly observed that it had not been pointed out by the AO as to which clause of section 9 was applicable to the assessee and as to why TDS was required to be made on the payment. There has been no c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly, the payment was made in the next year. The provision cannot be said to be an unascertained liability. The same goes for the AMC charges as well as the salary provision. See Triveni Engg case [2010 (11) TMI 90 - DELHI HIGH COURT] Payment made to Palm Court Maintenance Ltd. - disallowance was made u/s 40 (a)(ia) - CIT(A) deleted the disallowance - Held that:- The amount as stated, a Balance Sheet item. It has not been debited to the Profit and Loss Account. The payment, in fact, represented charges on account of monthly electricity, generator and building maintenance and not rent of the building, as wrongly concluded by the AO. It is available from Schedule 12 to the assessee's Balance Sheet that rent of Rs. 2.54 crores had separately been paid by the assessee. The electricity expenses and repair and maintenance expenses have also been mentioned in Schedule 12 of the Balance Sheet, under administrative and other operating expenses. Hence, once the amount paid did not represent rent, the AO obviously erred in concluding that TDS had to be made thereon @ 22.2%. The assessee, on the other hand, had correctly made TDS @2% on the payment. Against revenue. - ITA No. 5179(Del)201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rospective in operation and would apply to the year under consideration, i.e., assessment year 2007-08. For this, reliance was placed on the decision of the Special Bench of the Tribunal in the case of 'Daga Capital Management Pvt. Ltd.'. Accordingly, an amount of Rs. 73,96,192/- was disallowed u/s 14A of the Act read with Rule 8D of the Rules as follows:- Clause Particulars Amount i. Expenditure directly related to exempt income ii. Disallowance of interest expenditure A.Interest expenditure incurred during the year B. Average Value of Investment C. Average of total assetsDisallowance= A*B/C 12394846 164887087 96925334 8297784 iii. Aggregate of Opening and Closing Value of Investment) Average value of investment) % of above as per Rule 8D 824435 Total disallowance (Aggregate of (i),(ii) (iii) 9122219 5. Before the learned CIT(A), the assessee company placed reliance on the decision of the Hon'ble Bombay High Court in the case of "Godrej Boyce v. DCIT" to contend that Rule 8D o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i.e. 7396192 - 1855630)." 7. Challenging the impugned order in this regard, the ld. DR has argued that the ld. CIT(A) has erred in deleting the disallowance correctly made by the AO, to the extent of Rs. 55,40,562/-, out of total disallowance of Rs. 73,96,192/-; that while doing so, the ld. CIT(A) erred in holding that one half percent of the value of the total average assets during the year was the expenses which could reasonably be attributed to the earning of the dividend income, based on the assessment order for the assessment year 2006-07; that the ld. CIT(A) failed to consider that the AO had correctly arrived at the total disallowance of Rs. 91,22,219/- as per Rule 8D of the Rules and had deducted there-from the amount of Rs. 17,26,027/- disallowed by the assessee company itself, to arrive at the net disallowance of Rs. 73,96,192/-/ 8. The learned counsel for the assessee, on the other hand, has placed strong reliance on the impugned order. It has been contended that the AO had not made the disallowance correctly, Rule 8D of the Rules not being applicable for the assessment year 2007-08, as held in "Godrej Boyce" (supra); that the average cost of total assets for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16,494/- in the Profit and Loss account on account of Market Development expenses. The AO held that this expenditure was of capital nature. He made a net addition of Rs. 5,97,87,370/- after allowing 25% expenses as depreciation. While doing so, it was observed that on query, the assessee had submitted a copy of its Agreement with CRMI; that an analysis of clause 3.1(c) and (d) of the said Agreement revealed that an Exclusivity Right had been provided to the assessee company over the customers of CRMI, which would give an edge to the assessee company over the other companies regarding the services in the USA and Canada, the territory defined in the Agreement; and that this type of Right on an exclusive basis amounted to an intangible assets to the assessee company. 12. Before the ld. CIT(A), the assessee company submitted that no reply as para 4 of the assessment order had been filed before the AO; that since during the year, no Agreement between the assessee and CRMI was inexistence and so, there was no question of filing it before the AO; and that the details of the Market Development expenses were explained before the AO through an annexure along with the assessee's letter date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase retrieval services revenue of Rs.3,25,00,000/- under the sub-head "insurance commission", head "Revenue". 14. From the above details, the ld. CIT(A) observed that in Schedule 11 of the Audited Accounts of the assessee Company, an amount of Rs. 7,97,16,494/- had been debited to the Profit and Loss Account on account of Market Development expenses, the details whereof were as follows:- F.Y. 2006-07 Total Justification of expenses Business Promotion Expenses 1,77,255 Sales Promotion Expenses Entertainment Expenses 12,64,145 Entertainment Expenses Gift Expenses 3,77,157 Gifts to customers Trade Fair Expenses 42,26,356 The company incurred the expenses for the participation of Hero Group s companies in the Hannover Fair, Germany and received income of Rs.60 lacs from various group companies for the same. Franchisee Expenses 2,69,24,903/- Share of franchisees in Mindmine retail center collections income received under the head education and training Art Works Design 93,420/- Related to advertising expenses to Mindmine busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the AO's case that the expenses were not necessary for the running of the assessee's business; that complete details were filed; that the AO, however, wrongly applies reliance on non-existent Agreement; that as such, the ld. CIT(A) correctly deleted the addition wrongly made. 17. Qua this issue, it is seen that none of the expenses is capital expenditure, as available from the Table contained in para 15 at page 16 of the ld. CIT(A)'s order. These expenses include sales promotion expenses, entertainment expenses, gifts to customers, expenses on participation of Hannover Fair in Germany of the Hero Group of Companies, Franchisee expenses, concerning the Hero Mindmine Retail Centre, Art Works and Designs, i.e., Advertising Expenses to the Mindmine business and outdoor expenses of the said advertisement expenses, inserts in news paper, etc., outdoor promotional activities including roadshows etc., News Paper advertising relating to current business of Mindmine, Co-Sponsorship charges for ACMA Summit held at New Delhi, Promotional Material related to advertising and Service Charges paid to service providers in Insurance business. As per the undisputed details filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any change in the facts for the year under consideration. The ld. CIT(A) has duly taken into consideration all these facts while rightly deleting the addition made. Accordingly, finding no merit therein, ground No.2 is rejected. 19. So far as regards ground No.3, the assessee claimed an amount of Rs. 9,78,083/- in the Profit and Loss Account towards Consultancy expenses, out of which, payment of Rs. 6,88,950/- had been stated to have been made to the Arman Auto Group of USA. This payment was disallowed by the AO, observing that no TDS had been made thereon. On query, the assessee had submitted before the AO that M/s. Arman Auto Group, USA had been appointed for undertaking Strategic Study of Projects for Auto Components Business in North America to explore the scope of developing strategy for Sales and Marketing analysis and identification of customers in North America. The assessee maintained that the services were rendered abroad and no income of the service provider either accrued or could be deemed to have accrued in India, in keeping with the provisions of section 9 of the I.T. Act, nor any such income had either been received or could be deemed to have been received in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding no error there-with, the CIT(A)'s conclusion on this issue too is upheld, rejecting ground No.3. 24. Resultantly, this appeal filed by the Department for the assessment year 2007-08 is dismissed. ITA No. 5180(Del)2011: 25. In this appeal for the assessment year 2007-08 in the case of M/s. Hero Management Services Ltd., the Department has taken the following grounds:- "1. Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs.69,65,686/- u/s 14A read with rule 8D made by the AO. 2. Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs.93,40,408/- made by the AO on account of difference in rate of interest on loan to group company. 3. Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs. 77,15,000/- on account of recruitment and training expenses by treating them as revenue expenditure. 4. Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs.2,51,96,577/- on account of provision. 5. Whether ld. CIT(A) was correct on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,408/- was an erroneous figure; that however, disallowance of 1% is called for. 30. The learned counsel for the assessee, per contra, has placed reliance on the impugned order, submitting that the loan given was given in F.Y. 2003-04, whereas the loan taken was taken in F.Y. 2006-07. 31. The facts remain undisputed . The loan given was the old loan outstanding from 2003-04. The loan taken , on the other hand, was taken during the year under consideration, F.Y. 2006-07. As such, the AO did not prove any nexus between 7% interest bearing loan received and the 6% interest bearing loan given by the assessee company. It has also not been shown that for giving the loan, any loan was taken by the assessee Company. Therefore, finding no merit therein, ground No.2 is rejected. 32. As per ground No.3, the ld. CIT(A) has erred in deleting the disallowance of Rs. 77,15,000/- on account of recruitment and training expenses. 33. The assessee had debited an amount of Rs. 1,37,79,797/- under "Recruitment and Training Expenses". Out of this, Rs. 77,15,000/- had been shown to have been incurred on training expenses of staff members. Disallowing the expenditure as a capital expenditure, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance was made on this account in that year, for the year under consideration, the AO made the disallowance. 41. Considering the above facts, we hold that the ld. CIT(A) correctly deleted the addition. Therefore, ground No. 3 is rejected. 42. Ground No. 4 has been raised against the action of the ld. CIT(A) in deleting the disallowance of Rs. 2,51,96,577/- on account of provision. The AO, holding that the provision made by the assessee was not allowable, disallowed an amount of Rs. 2,51,96,577/- on account of provision for salary. Salary for 2006-07 amounting to Rs. 1,86,651/-, provision on account of electricity for 2006-07, amounting to Rs. 2,39,80,283/- and provision on account of AMC charges amounting to Rs. 10,29,643/-. The ld. CIT(A) deleted the addition, apropos the provision on account of electricity, it was observed that the assessee was sourcing its maintenance requirements, including electricity, from M/s. Palm Court Maintenance Agency; that for this purpose, the assessee paid Rs. 15 lakhs per mensum after deduction of tax on an interim basis; that at the year end, the assessee drew a Settlement Account with the Agency, based on actual consumption of electricity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be said to be an unascertained liability. The same goes for the AMC charges as well as the salary provision. 48. In "Insilco Ltd."(supra), it has been held that provision for the liability is amenable to deduction if there is an element of certainty that it shall be incurred and it is possible to estimate the liability with reasonable certainty, even though actual quantification may not be possible. In the present case, the Department has not shown that there is no certainty attached to the incurrence of the liability, nor has it been made out that the liability has been estimated without reasonable certainty. 49. "Triveni Engg."(supra), is also squarely applicable, similarly. 50. As such, we do not find any force in ground No.4 and the same is hereby rejected. 51. Coming to ground No.5, the Department contends that the ld. CIT(A) has wrongly deleted the disallowance of Rs. 1,79,33,349/- on account of payment made to Palm Court Maintenance Ltd. 52. The assessee had made the entire Rs. 1,79,33,349/- to M/s. Palm Court Maintenance Ltd. in respect of monthly electricity/generator charges and maintenance of building. Disallowing the claim, the AO held that this amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has strongly supported the impugned order. It has been contended that the observation of the AO that the payment was in the nature of rent, was factually incorrect as rightly held by the ld. CIT(A); that the payment had been made to the Agency for rendering various services and TDS thereon had correctly been made @ 2%; that the amount of Rs. 1,79,33,349/- represented sundry creditors and had not been provided to the Profit and Loss Account; and that the said amount was appearing in the rent account of the party and it was from there that it had been picked up by the AO and disallowance made. Attention has been drawn to the copy of the Balance Sheet at pages 35 to 54 of the APB. On a query from the bench as to whether any rent had been separately paid to the Agency by the assessee over and above the maintenance charges disallowed by the AO, the learned counsel for the assessee has filed a Note, wherein , it has been contended, inter alia, that apart from the maintenance charges paid to the Agency, which charges had been accounted for in the respective heads of electricity, repairs and maintenance, etc., the assessee had paid rent of Rs. 2.54 crores to the Agency. Attention in this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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