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TMI Blog2014 (10) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee company which cannot be questioned by the AO. Explanation 2 to section 9(1)(vii) has already been taken into consideration by CIT(A) and by following the Board’s Circular No. 786 dated 07/02/2000, it was held that services rendered by LEG are not managerial services falling within “Fees for Technical Services” (FTS) - commission has been paid by the assessee to LEG for acting in foreign country as selling agent and therefore, the services rendered by LEG are not managerial services to fall in the scope of Fees for technical services (FTS). Retrospective effect of amendment u/s 195(1) w.e.f. 01/04/1962 – Held that:- As per this explanation, the amendment is this that if the payee is liable to tax in India in respect of the impugned payment than the payer cannot claim that he is not supposed to deduct TDS because the payer is neither a resident of India nor the payer has any place of business in India or business connection in India - since as per Board Instruction, the payment is not taxable in the hands of the payee, TDS is not required to be deducted by the assessee – Decided against revenue. Addition of payment of "Top UPS" made by the company – Payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected during the current year i.e. AY 2005-06 only – the order of the CIT(A) is upheld – Decided against revenue. Commission paid to Managing Director – Held that:- CIT(A) rightly was of the view that the AO has not brought anything on record to show that the salary paid to the Managing Director is excessive in comparison to other similarly placed Managing Director (CEOs) - the Managing Director gets a fixed salary and a variable pay in the form of commission which is computed @1% of the profit of the assessee company - the payment of commission to the Managing Director is much below this ceiling as per Companies Act because no commission has been paid to any other Director - Since the payment of commission is in line with the resolution passed in Annual General Meeting of the assessee company and also in the line with the provisions of Companies Act and no adverse material has been brought on record to show that the same is excessive, there is no reason to interfere in the order of CIT(A) – Decided against revenue. Withdrawal of depreciation on New Aluminum Structure and Water Proofing – Held that:- CIT(A) rightly noted that the expenditures were incurred in respect of wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved i.e. assessment year 2006-07 to 2010-11. The Revenue is in appeal for all the five years whereas the assessee is in appeal only for assessment year 2007-08 in I.T.A. No.389/Lkw/2010. These appeals are directed against five separate orders of learned CIT(A)-II, Kanpur dated 21/10/2009 for assessment year 2006-07, dated 20/05/2010 for assessment year 2007-08, dated 14/07/2011 for assessment year 2008-09 and dated 21/08/2012 for assessment years 2009-2010 and 2010-2011. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. First we take up the appeal of the Revenue for assessment year 2006-07 in I.T.A. No.32/Lkw/2010. 3. Ground No. 1 and the additional grounds being ground No. 9 to 13, raised by the Revenue are in connection with the same issue, which are as under: 1. That the Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the addition of ₹ 1,05,70,057/-, being the payment of commission to M/s Lohia Europe GmbH, Germany ignoring the fact that the payment is covered by the provisions of section 9(1)(vii)(b) read with section 40(a)(i)(A) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the share of LEG in the total commission paid on referred transaction. In effect by substituting the amount of commission @6.17% in table-5 above at serial No.1 in place of 11.17%, the arm's length price of the commission paid to LEG is reduced to zero'. The substitution shall be made accordingly and the excess will be disallowed and added back to the income u/s 92C. Clearly thus establishing that the alleged transaction with the foreign subsidiary were nothing but sham transactions to avoid incidence of tax by reducing the profits, a fact which was undisputedly affirmed by application of provisions of Chapter X, the payment of commission to Assessee's subsidiary i.e. Lohia Europe GmBH is treated as an expense not allowed under the provisions of Income Tax Act, 1961. Assessee's income shall be enhanced to extent of this payment. @@@Without prejudice to the above deliberation, it is also brought on record that the payment for the alleged services rendered by LEG also qualify for deduction of tax at source u/s 195 of the I.T.Act, 1961. Even if by any stretch of imagination, the payments made to LEG be considered remunerations for the services rendered in superv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Court rendered in the case of Workmen Vs Associated Rubber Industry Ltd. as reported in [1986] 157 ITR 77 (SC). 8. As against this, Learned A.R. of the assessee supported the order of CIT(A). He also submitted that CIT(A) has followed Board s Circular No. 786 dated 07/03/2000 which has been reproduced by him in Para No. 4.2 of his order. Reliance was also placed by him on the following judicial pronouncements submitted with his written submissions dated 24/11/2011: (i) CIT vs. Model Exims [2014] 42 Taxman.com 446 (Allahabad) date of order: December 17, 2013 (ii) I.T.A.T. Vishakhapatnam order in the case of DCIT vs. S.N.F. (India) P. Ltd. in I.T.A. No.291/Vizag/2011 for assessment year 2006-07 (iii) National Thermal Power Co. Ltd. Vs. CIT [1998] 229 ITR 383 (S.C.) (iv) IVAX Paper Chemical ltd. vs. Addl. CIT [2014] 44 Taxman.com 173 (Hyd. Trib.) 9. We have considered the rival submissions, perused the material available on record, gone through the orders of the authorities below and the judgments cited by both the sides. First of all, we reproduce Para No. 4 from the order of CIT (A), which contains his decision. This Para is as under: 4. DECISION 4.1 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being apprised of this position, the Comptroller and Auditor General have agreed to drop the objection referred to above. 4.3 Accordingly, such commission income of LEG is not liable to be taxed in India. The A.O. has also invoked the Explanation 2 to Section 9 (1) (vii) of the Income Tax Act, 1961 and has held that the services rendered by LEG are managerial services falling within Fees for Technical Services (FTS) as defined in the said Explanation. This finding of the A.O. is without any basis. It is evident from the agreement as well as various e-mails that the LEG'S services are those of sales representatives / sales coordinators for which they are being paid commission. Such Commission cannot be termed as fees for technical services. Accordingly, I hold that provisions of section 9(1)(vii) do not apply to the instant case. 4.4 The only thing that Department has to ascertain is whether the commission paid to LEG is at arms length ( since LEG and the appellant companies are associated enterprises). The commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized Sale price per machine (Selling Price-Commission paid to LEG as well as Local area Agent) to demonstrate the fact that Net Realized Sale price is higher in the cases of machines sold by Appellant with the help of Lohia Europe GmbH and the Local Area Agents both, than the machines sold by them only through the Local area agents without the help of LEG. The submission- made looks reasonable. 4.6 Under the facts and circumstances of the case, I am of the firm view that commission of ₹ 1,05,70,057/- @5% paid to LEG is at Arm s Length and the addition made by the Assessing Officer is hereby deleted. 9.1 From the contents of the assessment order reproduced by CIT(A) in his order and also by us above, we find that the first objection of the Assessing Officer is that the payment made by the assessee company to its subsidiary LEG is higher. He has also noted that the entire commission paid to LEG is not allowable. He has held that it is a sham transaction. The second objection of the Assessing Officer is that even if it is held that this payment of commission is allowable then the same is not allowable for this reason that the assessee has not deducted TDS and therefore, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty u/s 40(a)(i) of the Act. In this regard, we find that a clear finding is given by CIT(A) in Para 4.3 of his order that in view of Board s Circular No. 786 dated 07/02/2000, commission income of LEG is not liable to be taxed in India. To overcome these findings of CIT(A), the Assessing Officer has raised the additional ground and as per this additional ground and as per the submission of Learned D.R. of the Revenue, this is the main submission of Revenue that in view of retrospective amendment by way of insertion of explanation 2 in section 195(1) and explanation 2 in section 9(1)(vii), TDS is required to be deducted from this payment made by the assessee to LEG. For the sake of ready reference, these explanations are reproduced herein below: Explanation 2 to section 9(1)(vii) inserted by Finance (No. 2) Act, 1977 with effect from 01/04/1977:- Explanation 2.--For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or non-resident etc. In our considered opinion, it means that even if a person is making payment outside India to a person outside India but the income of the recipient is taxable in India then the payer has to deduct tax even if the payer is non-resident and he is not having a resident or place of business or business connection in India. In our considered opinion, this explanation has no relevance in the present case because in the present case, the payer is resident of India and therefore, there is no need to travel to explanation 2 to decide the applicability of section 195(1) in the present case. In our considered opinion, this explanation 2 to section 195(1) broadens the definition of any person responsible for paying to non-resident appearing in sub section 1 of section 195 of the Act and as per explanation 2, that any person in section 195 (1) will include even non-resident not having any place of residence or business and business connection in India. Hence, in our considered opinion, this explanation 2 to section 195(1) has no relevance and therefore, it also does not render any help to the Revenue. We would also like to observe that the stand of the revenue is this t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the judgment of Hon'ble Allahabad High Court rendered in the case of CIT vs. Model Exims (supra). This judgment is dated 17/12/2013 and hence, this judgment is after both the amendments cited by Revenue in additional ground No. 11. In this case also, the issue in dispute before the Hon'ble Allahabad High Court was regarding payment of commission to foreign agents, which was disallowed by the Assessing Officer in that case also u/s 40(a)(ia) of the Act. In that case, it was held by Hon'ble Jurisdictional High Court that explanation added to section 9(1)(vii) by Finance Act, 2010 with effect from 01/06/1976 was not applicable in view of the fact that agents had their offices situated in foreign country and they did not provide any managerial services to assessee. Hence, the first aspect regarding applicability of explanation added to section 9(1)(vii) by Finance Act 2010 is covered against the revenue by this judgment of Hon'ble Jurisdictional High Court and therefore, we do not examine the applicability of other three judgments cited by Learned A.R. of the assessee out of which two are Tribunal decisions and one is the judgment of Hon'ble Apex Court rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not qualify for deduction u/s 37(1) of the Income-tax Act. Some of the observations made by the A.O. are:- (i) That the initial Keyman insurance Policies which were issued by the Insurer on 28.02.2005 were Single Premium Policy . (ii) that the Keyman Insurance Premium for the purposes of both the policies was single premium and unit linked plans. (iii) that under the original terms of the policies, the death benefit could not be increased which was ₹ 4,00,00,000/- in each individual case. (iv) that after the issue of prohibitory circular from IRDA on 27.04.2005 the insurer in contravention of the policy clause increased the death benefits in each policy from ₹ 4,00,00,000/- to ₹ 10,00,00,000/-by accepting topups aggregating to ₹ 6,00,00,000/-. (v) the assessee company was already aware of the position regarding withdrawal of approval by IRDA.] (vi) thus, by way of collusion, this deduction was devised by the assessee and the insurer to take advantage of nomenclature of Keyman Insurance. 13. Being aggrieved, the assessee carried the matter in appeal before the CIT(A) who has decided the issue in favour of the assessee and now the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y will henceforth be issued as Kayman Insurance Cover. You are requested to ensure that your company follows this circular till fresh guidelines are issued on this regard. (C.S. RAO) Chairman 17. Now we also reproduce two new letters dated 30/01/2006 and 30/06/2006 brought on record by Learned D.R. of the Revenue by way of additional evidence. These are as under: Ref:IRDA/Life/Keyman/2006-07 30/06/2006 To CEOs of all Life Insurers Dear Sir/Madam, Re: Clarification on alterations to Keyman/Partnership insurance Policies This has reference to our earlier letters IRDA/Life/006/2005-06 dated 27th April, 2005 and 036/IRDA/Life/Jan 06 dated 30 th January, 2006 requesting the insurers to issue only term insurance plans as keyman/partnership insurance policies. It may be noted that any alteration to increase the sum assured under the keyman/partnership insurance policy where the plan of policy issued was other than the term insurance plan would not be permissible, as it tantamount to issuing of a fresh insurance policy to the extent of the increased sum assured. All the life insurers are requested to comply with these instructions. Please acknowledge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 of ₹ 6 crore is hit by these circulars of IRDA or not. In our considered opinion, the first circular dated 27/04/2005 is barring only fresh issuance of keyman insurance policy except by way of term insurance and does not affect the already issued policies. For all the keyman insurance policies issued prior to this date i.e. 27/04/2005 which are not a single premium policy, there is no bar on payment of renewal premium, for the policies which were issued prior to this date i.e. 27/04/2005. Now in the present case, the payment is not renewal but top up premium. As per the second circular, issued by IRDA on 30/01/2006 also, only the contents of earlier circular were reiterated that keyman insurance policy cover should not be wider than the term insurance and there is no mention of any bar on top up premium. As per letter dated 30/06/2006, specific bar was placed by IRDA on increasing the insurance cover of existing policy by way of top up premium and it was specified that any alteration to sum assured under the keyman insurance policy where the plan of policy issued was other than the term insurance plan would not be permissible as it tantamount to issuing of a fresh insuranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 31st march but before the due date of filing of return of income. It shows that even the A.O. did not consider all such payments as not actual payments. This is not the objection of the Revenue that this payment was not made before due date of filing of return of income and therefore, we do not find any reason to interfere in the order of CIT(A) on this issue. This ground of the Revenue is rejected. 21. Ground No. 4 is as under: 4. The Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the addition of ₹ 15,00,000/- on account of commission paid on domestic sales ignoring the fact that the assessee has not been able to bring on record any evidence to suggest that any services were rendered by the parties to whom these payments were made. 22. Learned D.R. of the Revenue supported the assessment order whereas Learned A.R. of the assessee supported the order of CIT(A). He also submitted that letter was directly sent by Shri Siyaram Gupta on 22/10/2008 in reply to the notice issued by the Assessing Officer u/s 133(6) of the Act and the copy of this letter is available on page No. 170 of the paper book. He also drawn our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rized below: Particulars Amount of Sale Invoice (Ex-Works) Commission Paid 19 Nos. Circular Weaving Machine Rs.77,90,000/- Rs.5,00,000/- The Ld. A.O. directly sent an enquiry letter u/s 133(6) of the Income Tax Act, 1961, to Shri Siyaram Gupta for confirmation of payment of commission and rendering services for procurement of sale order. Shri Siyaram Gupta sent his reply dated 22.10.2008 and confirmed not only the rendering of services but also receipt of commission, and also enclosed therewith a confirmation from M/s. Patwari Plastics Pvt Ltd. The Ld. Assessing Officer has disallowed the payment of commission alleging that there was no evidence of rendering service by Shri Siya Ram Gupta to the appellant company. From the letter of Shri Siyaram Gupta dated 22.10.2008, it is evidently clear that he categorically mentioned efforts put in by him for procuring order from M/s. Patwari Plastics Pvt. Ltd. (to quote): We have very long association with Shri Rajesh S Gupta one of the directors of the aforesaid company and we enjoy utmost trust and conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras of CIT(A), we find that out of disallowance of ₹ 15 lac, disallowance of ₹ 10 lac was made by the Assessing Officer on the basis that it relates to sales effected by the agents during financial year 2004-05 and not during the current year. In this regard, a clear finding is given by the CIT (A) that although the agent i.e. M/s Super Smelters Ltd. had booked its commission income in the F.Y. 2004-2005 for coordinating the sales to M/s Shiva Polymers Pvt. Ltd., the same norm cannot be thrust on the assessee company because the assessee company has booked the commission expenditure in the present year because the sales have been effected during the current year i.e. assessment year 2005-06 only. This clear finding of CIT (A) could not be controverted by Learned D.R. of the Revenue and hence, on this aspect of the matter, we do not find any reason to interfere in the order of CIT (A) because the expenditure is of this year because sale is effected in this year and hence, commission cannot be claimed and allowed in the preceding year. 23.2 The balance amount of commission of ₹ 5 lac paid to Shri Siyaram Gupta was disallowed by the Assessing Officer on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the copy of special resolution passed in 21st Annual General Meeting held on 30th September, 2003 wherein the Managing Director Shri Raj Kumar Lohia was reappointed with effect from 27/11/2003 for a term of five years on a remuneration of ₹ 1,50,000/- per month in the scale of ₹ 1,50,000/- - ₹ 10,000/ ₹ 1,90,000/- and in addition to that, commission of 1% of the profit of the assessee company is payable in accordance with the provisions of section 349 350 of the Companies Act, 1956. He is also entitled for other perquisites as available on page No. 179 of the paper book. Since this payment of commission is in line with the resolution passed in Annual General Meeting of the assessee company and also in the line with the provisions of Companies Act and since no adverse material has been brought on record to show that the same is excessive, we do not find any reason to interfere in the order of CIT (A) on this issue. This ground of Revenue is also rejected. 27. Ground No. 6 is as under: 6. The Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the addition of ₹ 3,96,920/- and directing the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 4,17,811/-, amount of ₹ 83,600/- and ₹ 2,31,642/- were incurred in respect of water proofing. Regarding the third expenditure of ₹ 1,02,569/- in respect of new aluminum structure, it was stated by CIT(A) that these new aluminum structure/doors were got erected for making partitions dividing walls and the water proofing was done on the existing roof of factory shed and therefore, it is not creating any new asset nor it increased the existing efficiency or capacity. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue. In our considered opinion also, putting dividing walls and doors as partition in the existing shed and water proofing of existing factory shed, does not amount to bringing a new asset in existence and hence, the same is allowable as revenue expenditure. 29.2 Now in the light of these facts, we examine the applicability of two judgments cited by Learned D.R. of the Revenue. 29.3 The first judgment cited by Learned D.R. of the Revenue is the judgment of Hon'ble Allahabad High Court rendered in the case of Ramkishan Sunderlal Vs Commissioner of Income-tax (supra). In this case, the issue in dispute was that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocomotive works Varanasi without appreciating the fact that DLW Varanasi is a Govt. organization where was absolutely no role to play for any middle man. 4. On the facts circumstances of the case the Commissioner of Income Tax (Appeals)-II, Kanpur has erred in allowing the relief of ₹ 77,82,036/- on account of deduction claimed u/s 35(2) of the I. T. Act in respect of expenditure incurred on R D division even though during the site inspection of the factory no new construction was found to be made in the past few years in the R D building. 33. Additional grounds No. 5 to 9 are as under: 5. The CIT(A) erred in law and on facts in deleting the disallowance of ₹ 98,42,825/- made by A.O0., being the sales commission paid to M/s Lohia Europe GmbH, (LEG), without appreciating the facts that the said expenditure was not admissible u/s 37 of the Income Tax Act. 6. The CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 98,42,825/- made by A. O., being the sales commission paid to M/s Lohia Europe GmbH, (LEG), without appreciating that the material brought on record indicated that commission to the aforesaid sister concern were shown to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red and therefore, the disallowance cannot be sustained, the addition made is, therefore; deleted. 37.1 From the above Para of CIT(A), we find that a clear finding is given by him that the Assessing Officer has not brought anything on record to disprove the factum of services rendered. It is also noted by CIT(A) that it was submitted before him that DLW is a public sector undertaking and not a defence or research organization where entry of any public person is prohibited or is confidential. It was also submitted before him that DLW is running as a profit centre and is purchasing material in the open market from local suppliers as well as directly from the manufacturers and therefore, in order to promote the sales, the assessee company had to maintain a continuous information feedback and take the services of Industrial Marketing Corporation i.e. the agent to whom commission was paid by the assessee company. In the light of these facts, we examine the applicability of the Tribunal decision cited by Learned D.R. of the Revenue. We find that in this case, a clear finding is given by the Tribunal that no material was shown to prove that the commission payment was for the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no construction of any new building because had that been a case, no expenditure could have been allowed by the Assessing Officer in respect of R D building. Moreover, this objection of the Assessing Officer in Para No. 15 of the assessment order that there was no construction of new building on the basis of physical inspection on 15/12/2009 is without any basis because the expenses are claimed to have been incurred in financial year 2006-07 and the inspection was carried out by the Assessing Officer on 15/12/2009 which is almost after three years of incurring expenditure. It is also true and relevant that the A.O. is not a technical person, who can certify or reject that the building seen by him was not constructed three years ago but it is older. Hence, we do not find any merit in this objection of the Assessing Officer and also in this argument of Learned D.R. of the Revenue that there is no finding given by the CIT (A). When the Assessing Officer himself has not stuck to this allegation that there was no construction of new building, no specific finding was required to be given by the CIT(A). 41. Regarding the deletion of various specific disallowances made by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not shown that the area of accounts office is bigger that R D. 44. The next disallowance is of ₹ 2,93,737/- on account of consumption of steel. This disallowance was deleted by the CIT (A) on the same basis as per which he has deleted the disallowance of cement that as per the agreement, the material has to be supplied by the assessee. We decline to interfere in the order of CIT(A) on this issue. 45. The next disallowance deleted by CIT(A) is the disallowance of ₹ 2,76,483/- for aluminum window and other fittings in the R D unit. This addition was deleted by CIT(A) on the basis that merely because the bill was drawn at registered office address, it cannot be a ground for disallowance. He has given a clear finding that the goods were received in the factory premises at Chaubeypur where R D centre is located. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue and on this aspect also, we do not find any reason to interfere in the order of CIT(A). 46. The next item deleted by CIT(A) is the disallowance of ₹ 32,83,024/- out of total cost of interior work done in the R D building. On this aspect, he has given a clear finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Ld. C.I.T.(A)-II, Kanpur to the extent indicated in the above grounds of appeal is insupportable in law and on facts and is also contrary to the principles of natural justice and equity. 5. That any other relief or reliefs as may be deemed fit on the facts and circumstances of the case, be granted. 51. It was submitted by Learned A.R. of the assessee that in the present year, Rule 8D is not applicable as per the judgment of Hon'ble Bombay High Court rendered in the case of Godrej Boyce Mfg. Co. Ltd. vs. Dy. CIT as reported in [2010] 234 CTR (Bom) 1. He submitted that hence, the matter may be restored to the file of the Assessing Officer for fresh decision in the light of this decision of Hon'ble Bombay High Court. 52. Learned D.R. of the Revenue supported the orders of the authorities below. 53. We have considered the rival submissions. We find that as per the judgment of Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. Dy. CIT [2010] 234 CTR (Bom) 1, Rule 8D is applicable from the assessment year 2008-09 and therefore, the same is not applicable in the present year. But at the same time, as per the judgment of Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 62,40,515/- made by A. O.; being the sales commission paid to M/s Lohia .Europe GmbH, (LEG), without appreciating that the material brought on record indicated that commission to the aforesaid sister concern were shown to have been paid on the services for which commissions were also paid to other foreign concerns and there were no evidence of any services actually being rendered by the sister concern. 7. Without prejudice to the original grounds of appeal, the order of CIT(A)-II, Kanpur is also erroneous, unjust and bad in law in view of amended provisions of explanation to section 9 w.r.e.f. 01.06.1976 and explanation 2 to section 195(1) w.r.e.f. 01.04.1962. 8. The order of the CIT(A), Kanpur being erroneous, unjust and bad in law be vacated and the order of the A. O. be restored. 9. That the appellant craves leave to modify any of the grounds of appeal or take additional ground during the pendency of this appeal. 58. Both the sides agreed that the issue raised by the Revenue as per ground No. 1 is identical to ground No. 5 raised by the Revenue in assessment year 2006-07 and ground 2 in A. Y. 2007 08. They also agreed that ground No. 2 raised by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - paid to M/s Industrial Marketing Corpn., Varanasi without appreciating the fact that the alleged commission was paid in respect of orders pertaining to DLW, Varanasi which is part of a government department where occasion for payment of such commission would not arise and without appreciating that as per the assessee's own submission before CIT (A) the amount of commissions paid in a year bear no relation to the value of sales, during that year as is the case in normal commercial transactions. 3. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts of the case in deleting the disallowance of ₹ 23,36,671/- under the head Exhibition expenses without appreciating the fact that the expenses were not relatable to relevant assessment year, as the bills were raised in the F.Y. 2008-09 relevant to A.Y. 2009-10, whereas the assessee company was consistently following mercantile system of accountancy. 4. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts of the case in deleting the disallowance of ₹ 3,40,287/- made by the AO u/s 14-A without appreciating the fact that there was difference in working of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same was not allowable in that year because of non deduction of TDS in that year but it is allowable in the present year u/s 40 (a) (ia) as TDS was deducted and paid in the present year. Considering these facts, we do not find any reason to interfere in the order of CIT(A) on this issue also. Ground No. 3 is rejected. 69. Regarding ground 4, it was submitted by Learned D.R. of the Revenue that Rule 8D is applicable in the present year. Therefore, the order of CIT(A) should be reversed and that of the Assessing Officer should be restored. 70. As against this, Learned A.R. of the assessee supported the order of learned CIT(A). 71. We have considered the rival submissions. We find that this is noted by CIT(A) in his decision that investment in shares of the foreign company are not to be included in the amount of investment for computing disallowance u/s 14A read with Rule 8D of the I.T. Rules, 1962. On this basis, the CIT(A) has allowed relief to the extent of ₹ 3,40,287/-. He has also noted that the assessee himself had made disallowance of ₹ 18,45,447/- u/s 14A read with Rule 8D and he has reproduced the working of the assessee for making disallowance. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the grounds of appeal or take additional ground during the pendency of this appeal. 75. Both the sides agreed that first two grounds are same as decided in earlier years and hence, the same can be decided on the similar line. The issue involved is regarding allowability of commission paid to Managing Director and commission paid to Industrial Marketing Corporation. Both these issues were decided by us in favour of the assessee in earlier appeals and accordingly these grounds are decided in favour of the assessee. These grounds of the Revenue are rejected. 76. Regarding ground No. 3, Learned D.R. of the Revenue supported the assessment order whereas Learned A.R. of the assessee supported the order of CIT(A). 77. We have considered the rival submissions. We find that ad hoc disallowance of ₹ 50,000/- out of staff welfare, ₹ 1 lac out of telephone expenses and ₹ 1 lac out of vehicle running maintenance expenses was made by the Assessing Officer. It was held by CIT(A) that it is reasonable to restrict the disallowance to ₹ 25,000/-, ₹ 50,000/- and ₹ 50,000/- respectively under these three heads. In our considered opinion, as per the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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