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TMI Blog2014 (11) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... nd for an balance nine months income is taken to next financial year - since assessee is duly accounting the income in the manner consistently in all the years and therefore, there is no reason to deviate from such system of accounting, for recognizing the income which has been followed regularly in all the years – the order of the CIT(A) is upheld – Decided against revenue. Disallowance u/s 40(a)(ia) – TDS not deducted – Held that:- As decided in assessee’s own case doe the earlier assessment year, the assessee entered into an agreement with its holding company towards incurring of such expenses - A conjoint reading of 'sections 195 and 40(a)(ia) 'brings to the fore that the disallowance can be made' only if the amount paid is chargeable to tax in the hands of the recipient - In other words, if the amount is not chargeable to tax in hands of the recipient, there cannot be any scope for 'deduction of tax at source - Once no deduction of tax at source is contemplated, the natural corollary which manifestly follows is that the provisions of section 40(a)(ia) cannot be triggered - Decided in favour of assessee. - ITA Nos.8043 & 346/Mum/2011, 3525 & 4697/Mum/2012, ITA No. 4936/Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - which was shown under the head current liabilities, it was shown as income billed but not due'. The assessing officer held that, since the assessee has been following mercantile system of accounting and this sum of license fees had already accrued to the assessee as income, therefore, there was no reason for not accounting for such income in this year. The assessee's case before the AO was that, the license fees is received from January to December for which the bill is raised in January and for the period, January to March whatever license fee is received or receivable, the same is accounted in the year under consideration whereas, the remaining license fees for the balance nine months is carried forward to be accounted in the subsequent year. This system of accounting had been followed regularly. The assessing officer held that such method of accounting is not correct, as the Income tax Act provides the period of 12 months, commencing from the first day of April every year and ending on 31st March of next year. The assessee should have offered all the accrued income for the period of 12 months relevant to the concerned assessment years. Accordingly he added the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and on perusal of the impugned order and material placed on record, we find that the license fee is received by the assessee in a separate division known as M/s. Skul International India from January to December that is, on calendar year basis, whereas the books of accounts were maintain on financial year basis, that is, first of April of every year to 31st March of the next year. The assessee used to raise the bills for the license fee in the month of January and the license fee received from January to March was accounted as income of the year and license fee from April to December was taken under the head current liabilities' that is, it does not recognizes the income of the year but as income of subsequent year. In other words, the license fee from the period April to December is not recognized as income, because bills are not raised and therefore income is not accrued to the assessee. When the bill are raised from the month of January, the assessee recognizes the income and accordingly account for in the books of accounts. In the given financial year, thus only 3 months income is accounted and for an balance nine months income is taken to next financial year. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the department which read as under:- On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the amount of ₹ 3,92,26,267/-, added as license fees/services charges which has accrued t the assessee, inspite of the clear finding by the Assessing Officer that the assessee was consistently following the mercantile system of accounting and that following this system income had accrued to the assessee in A.Y. 2008-09. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance out of administrative expenses to 10% as against 20% made by the Assessing Officer, though the disallowance was warranted by the fact that the assessee had not produced adequate evidence to prove that the entire expenditure was incurred wholly exclusively for the purpose of business. 10. Since the aforesaid grounds are similar to appeal of the department for the A.Y. 2006-07 therefore, the finding given therein, while apply mutatis mutandis that is, ground no. 1 is treated as dismissed, whereas, ground no. 2 is treated as allowed. In the result appeal of the department is partly allowed. 11. Now we w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has been placed on record;' the holding company agreed to incur various costs for and on behalf of the assessee and other group' concerns. These expenses include Accounting services, Legal and professional services, Communication, R D etc. Clause 3 of the Agreement talks of consideration. This clause provides that the total overhead costs shall be collected from various group members at certain percentage of the total cost determined as per arm's length principle by considering the size of the group member, percentage of ownership, time spent by the management, number of visits etc. Second part of clause 3 provides that: Taking into account all the above mentioned parameters, the percentage for the Group Member, Control Union India Private Limited, has, after careful consideration, been fixed at 4% of the Total Overhead Cost . The Auditors, namely M/s. Gran Thornton confirmed the assessee's share of such overhead expenses at 4% amounting to ₹ 34.941akh through their certificate, a copy of which has been placed at page 11 of the paper book. This certificate unequivocally mentions that the apportionment does not include any profit elements . From the Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT(A). 5. Before parting with this issue, we would like to record that the learned Departmental Representative referred to certain observations made by the learned CIT(A) to bring home the point that the assessee did not furnish any details of the actual expenditure incurred and in that view of the matter he urged for sustaining the disallowance. We are unable to countenance such a contention because the authorities below have made and sustained disallowance of ₹ 34.94 lakh u/s 40( a) (ia) of the Act. An amount can be disallowed under this provision only when it is otherwise eligible for deduction: If the amount of expenditure does not otherwise qualify for deduction; the question of considering' the provisions of section 40(a)(ia) cannot apply. As' both the authorities have made and sustained disallowance 40(a)(ia) of the Act, we cannot permit the learned Departmental Representative to improve the case of the Revenue and doubt the very deductibility of the expenditure itself, which has not been done by the AO. No doubt, the ld. DR's has unbridled power to argue the case of the Revenue from any angle, but there is an inherent limit on such arguments, He ..... X X X X Extracts X X X X X X X X Extracts X X X X
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