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TMI Blog2013 (9) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... payment had to be treated as expenditure in the line of business and deductible u/s. 37(1) - It was not the AO’s contention that relevant services were not rendered or that there was any other motive for making such payment - In the circumstances and facts, we find no infirmity in the order of Ld. CIT(A). Disallowance of Professional fees - The expenditure either falls u/s 14A or was incurred for earning income taxable under the head capital gain - assessee claimed exemption u/s Section 28(va)(ii)- Held that:- Disallowance of professional fees paid as consultancy fees for investment advisory services - the assessee company has invested in fixed assets, debentures, advances, ICD and bank deposits, immovable property and shares and mutual funds etc and therefore, it cannot be said that the services rendered by these two persons is in respect of investment in shares - no income is reported by the assessee under the head ‘income from other sources’ being on account of investment other than investment in shares for which this payment of professional fee was said to have been paid by the assessee - Following the decision of Assesse's own case [2012 (8) TMI 37 - ITAT, AHMEDABAD] the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion that such disallowance of 1% on the dividend earned will suffice. Accordingly, this ground raised by the assessee was partly allowed. - ITA No.4/Ahd/2007, ITA No.33/Ahd/2007 - - - Dated:- 14-12-2012 - Shri D. K. Tyagi, JM And Shri A. Mohan Alankamony, AM,JJ. For the Petitioner : Shri Shelley Jindal, CIT DR For the Respondent : Shri S. N. Soparkar with Ms. Urvshi Shodhan, AR ORDER Per A. Mohan Alankamony: These two cross appeals one by the revenue and the other by the assessee are filed aggrieved by the common order of the learned CIT(A)-I, Baroda dated 06-10- 2006 in appeal No.CAB/I-43/06-07, for assessment year 2003-04 passed u/s 250 read with section 143(3) of the IT Act. Both the appeals were heard together and are being disposed off by this consolidated order. ITA No.4/Ahd/2007 (Revenue s appeal for AY: 2003-04) 2. The assessee is a Company engaged in the business of manufacturing refrigerant gases filed its return of income on 10th October, 2003 for the assessment year 2003-04 declaring net taxable income of Rs.32,14,22,050/- along with report u/s 44AB of the Act and auditors report for claiming deduction u/s 80 HHC of the Act. Initially, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... social and environmental responsibility. We have to undertake various welfare measures. We have claimed in Profit Los Account, the village development expense amounting to Rs.7,41,386/-. We submit that these expenses were incurred for the welfare measures in surrounding village and other type of works of similar nature. Such expenses, although disallowed in assessment order in earlier years, were allowed latter in appeal stage and as well as at the Appellate Tribunal. The learned AO did not find the explanation of the assessee to be tenable since the assessee was not under compulsion to incur such expenditure in the nature of donation or gratuitous payments and disallowed the claim of the assessee and added the same to the income of the assessee. 5. On appeal by the assessee, the learned CIT(A) deleted the addition by observing in Para 12 and 13 of his order as under: 12. The third ground of appeal is regarding the expenditure incurred under the head village development expenses of Rs.7,41,376/-. This issue is covered, on the basis of identical facts, by the order of the ITAT in the appellant s own case for the assessment year 1993-94 which has been followed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. 26. Learned Counsel for the assessee relied upon the decision of ITAT D Bench Ahmedabad dated 30-11-11 in the case of Gujarat Environ Protection and Infrastructure Ltd. v. ITO in ITA No.151/Ahd/2007 where the ITAT allowed the claim of the assessee. The learned Counsel for the assessee also relied upon the decision of Hon ble Madras High Court in the case of CIT v. Madras Refineries Ltd. (2004) as reported in 266 ITR 170 (Mad). 27. Ld. CIT DR on the other hand, relied upon the order of the Assessing Officer. 28. On perusal of the facts and arguments by both the parties, we are of the view that repair of the village roads, assistance to schools, contributions to local festivals and other village activities surrounding the factory of the assessee is meant to include within its fold to crate expression of care and concern for the society at large and the people of the locality in which the business of the assessee is located in particular, thereof creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. Therefore, the said expenditure in view of the decision of Hon ble Madras High Court in the case of Madras Refiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation collects contribution from its members including the assessee to meet its expenses. The assessee contributed Rs.20,96,137/- to the association. (iv) This is recurring contribution and it has resulted in creation of any asset neither for the association nor for the assessee. (v) Earlier though this expenses were disallowed at assessment stage, but the same were allowed at the appellate stage. Hence, the same may be allowed in the present year also. The learned AO however, did not accept the explanation of the assessee and added Rs.20,96,137/- to the income of the assessee by disallowing its claim for expenses incurred on account of contribution to REGMA. When the matter was carried before the learned CIT(A), he considering the submission of the assessee and the decision of his predecessor in the earlier years and deleted the addition made by the AO. Now, the revenue is in appeal before us against the order of the learned CIT(A). 9. The learned DR relied on the order of the learned AO. On the other hand the learned AR supported the order of the learned CIT(A). Reiterating the submissions made before the authorities below, the learned AR further stated that in assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akes up the issues relating to their activities. They call for contributions the basis of projected expense. For this, also correspondence was filed before the Ld. CIT(A) to show that these amounts are requested by circular letters after taking a decision during REGMA meetings. The amounts are duly paid by cheques to the association which is based in New Delhi. The details in these correspondences show that the association which is a new one has put away Rs.5 lakhs which is in a corpus fund and the balance has been kept for meeting earlier expenses backlog and current and projected expenses. In short, the association keeps making a collection and calling it a corpus from which it incurs the expenditure. In our view, whatever name called the amount is collected for the purpose of defraying expense of the association. The assessee has no right to any of the sums. No capital asset is being build up in the association from which the assessee can derive any benefit. Therefore, such payment has to be treated as expenditure in the line of business and deductible u/s. 37(1). It is not the AO s contention that relevant services were not rendered or that there was any other motive for making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the learned AR with any cogent material evidences. 12.1 On perusal of the materials on record, it is apparent that as contended by the learned AR, ITAT Ahmedabad B Bench in the assessee s own case in departmental appeal in ITA No.1694/Ahd/2001 for AY 1998-99 relying on the decision of the Hon ble Apex Court in the case of CIT Vs. Laxami Machine Works, 290 ITR 667 (SC) cited supra has decided this issue in favour of the assessee by dismissing the revenue s appeal by holding in Para 11 of the said order (paper book page 8 dated 02-11-2009) as under: 11. The second issue relates to the exclusion of the excise duty and sales tax collected from the customers as a part of total turnover for the purpose of computing deduction u/s. 80 HHC of the Act. At the time of hearing, it was agreed hat the matter sands settled by the decision by the Apex Court in the case of CIT vs. Laxami Machine Works, 290 ITR 667 (SC), so that the same admits of no argument, or discussion at our end. The Revenue s ground, therefore, stands dismissed. 12.2 Further, ITAT Ahmedabad B Bench in assessee s own case in ITA No.3039/Ahd/2002 for AY 1999-2000 has decided this issue in its favour by following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not form part of the total turnover under section 80 HHC(3): otherwise the formula becomes unworkable. 5. Accordingly, this ground of the assessee is allowed. 12.3 Considering the above discussions and in view of the above decisions of the Hon ble Supreme Court cited supra and the orders of the Tribunal (supra), we do not find any reason to interfere with the findings of the learned CIT(A). We hereby confirm his order and dismiss this ground of appeal of the revenue. 13. Ground No.4:- Negating the reduction of Rs.20,85,582/- from the export turnover as well a total turnover in the computation of deduction u/s 80 HHC. The assessee did not reduce the export shortage claim of Rs.20,85,582/- from export turnover and total turnover. Since the assessee had refunded this amount towards shortage claims by way of credit notes to its foreign buyers, the learned AO reduced the said amount from the total turnover as well as export turnover of the assessee considering it to be reduction of export turnover. The learned CIT(A) following the order of his predecessor for AY 2001-02 on this issue, directed the learned AO not to reduce the amount of Rs.20,85,582/- for the purpose of computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ground No.4 of the appeal of the revenue. 16. In the result, revenue s appeal in ITA No.4/Ahd/2007 for AY 2003-04 is dismissed. ITA No.33/Ahd/2007 (Assessee s appeal for AY 2003-04) 17. The assessee in its appeal has raised the following grounds: In facts and circumstance of the case and in Law, the learned CIT(A) erred in confirming various disallowances and observations relating thereto as under: 1. In confirming the disallowance of Rs.60,00,000/- out of expenditure on professional fees and confirming that the same is not allowable under any head of income. Your appellant submits that the disallowance is not justified and prays that the same be deleted. 2. In confirming the disallowance of Rs.81,653/- being professional fee paid for portfolio management services for securities on the ground that such expenses are not allowable. Your appellant submits that the disallowance is not justified and prays that the same be deleted. 3. In confirming the disallowance of Rs.9,60,000/- being charges for extension of time for construction of building at Noida by confirming that the payment was made to protect the title of the land and hence clearly capital expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had failed to show as to how and in what way the expenditure has been incurred wholly and exclusively for the purpose of earning income under the head income from other source in order to claim deduction u/s 57 (3) of the Act. 20. The learned CIT(A) further distinguished the order of the learned CIT(A) for the assessment year 2001-02 and based on the above reasoning confirmed the order of the learned AO by disallowing Rs.60 lacs as deductible expenditure. 21. Before us, the learned AR reiterated his submissions made before the authorities below and prayed that the disallowance may be allowed. On the other hand, the learned DR supported the orders of the authorities below and submitted that the issue has been decided by the ITAT Ahmedabad A Bench in the case of the assessee for AY 2001-02 in revenue s appeal in ITA No.2460/Ahd/2004 order dated 06-07-2012 against the assessee and in favour of the revenue and further submitted that the same may be followed in this year also. 22. We have heard the rival submission and carefully gone through the materials available on record. We find that as submitted by the learned DR, ITAT Ahmedabad A Bench has decided this issue in AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.1 Considering the facts and issue of the present case before us, we find that they are identical to the facts and issues in the case for the AY 2001-02, cited supra. We, therefore, are bound by the decision of our Co-ordinate Bench cited supra, and, therefore, find no reason to interfere in the order of the learned CIT(A) and the learned AO. Accordingly, this ground raised by the assessee is dismissed. 23. Ground No.2:- Disallowance of Rs.81,653/- being professional fees paid for portfolio management services for securities:- The learned AO noticed from the details of legal and professional charges filed by the assessee that the assessee paid Rs.81,653/- to PN Vijay on account of management portfolio services for purchase and sale of securities. The assessee offered the income from purchase and sale of securities under the head capital gain. The learned AO did not accept this expenditure as incurred for the purpose of assessee s business and disallowed the claim of the assessee. The learned CIT(A), for the same reasoning given in respect of the payment of professional fees for Rs.60 lacs made to M/s. Krishnadeep Housing Development Society Pvt. Ltd., cited supra, confirmed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Assessing Officer. The addition made of Rs.9,60,000/- is confirmed. 26. The learned DR reiterated the submissions made before the authorities below. On the other hand, the learned AR submitted that the expenditure was incurred is in the nature of maintenance expenses on its assets and hence the same may be treated as revenue expenditure. 27. We have heard the rival submissions and carefully perused the materials on record. It is apparent from the above that the payment of Rs.9,60,000/- is made by the assessee for seeking extension of time for construction of building at Noida. The deferment of the construction plan was for various commercial reasons. It is also evident that if this requisite fee is not paid the allotment of the land may stand cancelled. This clearly establishes that this amount is paid for retaining the title of the land or either to protect the title of the land. In these circumstances, the amount of Rs.9,60,000/- paid to the authorities is capital expenditure and accordingly, it has to be capitalized with the cost of the asset. Thus, we are in conformity with the orders of the revenue authorities and dismiss this ground raised by the assessee. 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, the learned DR supported the order of the learned CIT(A) and pleaded that his order may be sustained. 30. We have heard the rival submissions and perused the orders of the authorities below and considered the materials on record along with the paper book filed by the assessee. It was submitted by the learned AR that this issue has been decided in favour of the assessee by ITAT Ahmedabad C Bench in the case of Sagar Drugs Pharmaceuticals (P) Ltd. in ITA No.3179/Ahd/2009 in AY 2006-07 vide order dated 03-06-2011. The relevant portion of the findings of the Tribunal in Para 6 of the order are reproduced herein below: 6. We have heard the rival parties. In our considered view the position of law in relation to disallowance of administrative expenses is now clear. Such disallowance cannot be made prior to Asst. Year 2007-08 unless there is a direct nexus established by the AO. It has held that rule 8D is not retrospective and would be applicable for and from Asst. Year 2007-08 and, therefore, it cannot be applied in Asst. Year 2006- 07which is before us and, therefore, calculation as per rule 8 D cannot be done for disallowance of administrative expenses, unless ..... X X X X Extracts X X X X X X X X Extracts X X X X
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