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TMI Blog2016 (4) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... d later filed revised return of income admitting loss of Rs. 9,10,404/-. Survey operations were conducted on 19-11-2009 and statements of MD and Mr. Phani Krishna were recorded u/s. 131 of the Income Tax Act [Act]. During the course of assessment proceedings, assessee submitted that they have purchased direct point connections for a consideration of Rs. 3 Crores from P. Mallikarjuna Kumar and in support of this contention copy of the agreement of purchase of direct point connections were produced. It was further submitted that assessee purchased certain film rights from C-star Media Pvt. Ltd., for a consideration of Rs. 1 Crore. Assessee also submitted that R. Phani Krishna and other person by name D. Srinivas have advanced share application money amounting to Rs. 3 Crores & 2.025 Crores respectively. Assessee submitted copies of Bank statement and confirmation letters from persons who have invested in share application money. Assessment was completed by making an addition of Rs. 3 Crores which was invested for acquiring direct point connections, the share application money amounting to Rs. 2,02,50,000/- advanced by Sri D. Srinivas treated as unexplained investment in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Krishna who invested the same in assessee company. Assessing Officer observed that the assessee made the payment to Sri.P.M.Kumar only to bring it back to the company in the form of share capital by Sri.R.Phani Krishna. In these circumstances, Assessing Officer held that the amount of Rs. 3 Crores given to Sri.P.M.Kumar was from unexplained sources, therefore, she made an addition of Rs. 3 Crores u/s 68 of the IT Act. In her remand report, Assessing Officer after verifying the documents produced observed that the amount of Rs. 3 Crores received by Sri.P.M.Kumar on account of sale of direct point connections to the company was not utilized by him for making payment to 16 cable operators, from whom he has purchased direct points connections, but according to the Assessing Officer he has advanced the same amount to R.Phani Krishna, in turn the Director invested this amount in the company as share application money. According to the Assessing Officer it can be construed that the funds of the assessee company, withdrawn by the Director for the purpose of investing in share application money of the assessee company. According to her, Section 68 is not attracted and further observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of Sri P. Mallikarjuna Kumar. No adverse comments have been made in respect of 1 transaction of sale of Direct Point Connections in the hands of Sri P. Mallikarjuna Kumar. However, the Assessing Officer held that the assessee made the payment to Sri P. Mallikarjuna Kumar only to bring it back to the company in the form of share capital by Sri R.V.Phani Krishna and held that the amount of Rs. 3 crores given to Shri P. Mallikarjuna Kumar is from unexplained sources. Therefore, an amount of Rs. 3 crores is added to the income returned u/s.68 of the Act. However, in her remand report, the A.O. after considering all the facts and circumstances opined that the transaction does not attract section 68 because there is no actual passing or receipt of cash and transactions are mere book entries resulting in acquisition of an asset in kind while simultaneously creating a liability. During the course of proceedings before the undersigned, the assessee produced the bank statement and ledger copies of relevant parties. In fact, as seen from the bank statement and books of accounts, the cash has been passed to Sri P. Mallikarjuna Kumar and who in turn advanced the same to Sri R.V. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinivas, the Ld. CIT(A), deleted on the basis of remand report dt. 20-06-2012, which was not placed on record for verification. However, as seen from the forwarding report of Ld. Addl. CIT(A), the objection raised with reference to identity and creditworthiness of Sri D. Srinivas was only confirmation on white sheet was filed without establishing the genuineness. So, in the interest of justice, we remit this issue to the file of AO to re-examine and decide after giving due opportunity to assessee to submit necessary evidence. Ground No.4 of Revenue on this issue is allowed for statistical purposes. Donations claimed: 7. AO disallowed donations to an extent of Rs. 11,21,000/-. Ld. CIT(A) summarised the finding of AO in the remand report at page 6 para (v) as under: "v. As regards the donation of Rs. 11,21,000/-, the A.O. has stated that the assessee has furnished supporting receipts of payments made to Political Party CPI(M), Hyderabad for total amount of Rs. 8,50,000/- and amount paid to Tirumala Charitable Trust of Rs. 50,000/-. Hence, the A.O. has stated that the donation paid of Rs. 9 lakhs may be considered and the balance of Rs. 2.21 lakhs may be sustained in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of Royalties, therefore, TDS should have been made u/s. 194J of the IT Act. As no TDS was made the amount was disallowed u/s. 40 (a)(ia) of the IT Act. During the course of proceedings before the CIT it was submitted that out of the aggregate amount of Rs. 5,78,85,998/-, amount paid to signal providers is at Rs. 4,85,67,151/- and commission paid to cable operator is Rs. 82,88,183/- and further amount of Rs. 1,84,557/- is paid to various individuals for procuring cable connections, out of this amount only an aggregate amount of Rs. 1,42,351/- is on account of payment to each individual, which is more than Rs. 2,500/- the balance amount paid to various persons is less than Rs. 2,500/- to each person. In addition to these amounts the assessee also paid an amount of Rs. 8,00,000/-towards 0 & M & Network charges, therefore, it was submitted that the amount to be considered for the purpose of 194J is at Rs. 5,77,97,685/-. It was submitted that the term Royalty was not available in the IT Act 2006, which is a guide for tax payers to deduct the TDS during the period 2006-07 relevant to the assessment year 2007-08. The term royalty was brought into the section 194J by the Taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icatory in nature, yet in view of the fact that the view entertained by the assessee gets support from the decision of Delhi High Court, referred above, we are of the view that the assessee cannot be held to be liable to deduct tax at source from the pay channel charges. Hence, we are of the view that the Assessing Officer was not justified in disallowing the claim of pay channel charges by invoking the provisions of section 40(a)(ia) of the Act. Accordingly, we set aside the order of learned CIT-(A) on this issue and direct the Assessing Officer to delete the impugned disallowance. As the term royalty was not there in section 194J of the IT Act of 2006 and also the payment made for obtaining the signals is not in the nature of royalty as held by the Hon'ble Delhi High Court and also considering the fact the amendment brought to section 9(1)(vi) by introducing an Explanation 6 in which term process was explained an also considering the rationale of the Hon'ble Cochin Bench in identical facts and circumstances, it is pleaded before the Hon'ble Bench to delete the addition made u/s. 40(a)(ia) of the IT Act, amounting to Rs. 5,78,85,998/- which is the amount paid to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer may kindly be deleted. 2. Disallowance u/s 194J of the IT Act (Program & News Expenses- Rs. 15,10,842/-):- . The expenditure is incurred mainly for the day to day expenditure in the course of business exigency, however, payments made to M/s. SK Antenna System - Rs. 2,50,000/- and M/s India Sign Pvt Ltd Rs. 4,90,000/- are in the nature of hire charges for machinery and up linking charges for live telecast of the programs is in the nature of royalty payment respectively. Like the term royalty the machinery hire charges were also inserted in section 194I by the Taxation Laws (Amendment) Act 2006 w.e.f 13-07-2006. As submitted in detail the amended provisions were not available in the IT Act 2006. Considering the pleadings of the assessee, Ld. CIT(A) - appeals deleted additions made u/s. 194J, in respect of machinery hire charges and paid towards royalty. The Department is in appeal in ground No.7 & 8 and assessee is in appeal with ground No.4. It is respectfully submitted that considering the rationale of the AP High Court decision in the case of, in ITTA No.352 of 2014 between CIT-II, Hyderabad and M/s Janapriya Engineers Syndicate, the disallowance made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Manjula Advertisers, where an amount of Rs. 2,17,864/- was paid, Mis Kinnara Ads Rs. 25,000/- was paid, M/s Eenadu an amount of Rs. 20,400/- was paid and M/s Murthy Media an amount of Rs. 24,000/- was paid, therefore, it was submitted that the aggregate amount where the provisions of section 194C attracts is Rs. 2,87,264/-* It was submitted that the entire amount was paid before 31-03-2007 and no amount is payable therefore, the rationale of the Special Bench of ITAT, Vishakhapatnam in the case of Merilyn Shipping and Transport is applicable. However, Ld. CIT(A) deleted an amount of Rs. 18,800/- and restored the addition to an extent of Rs. 2,87,264/-. The assessee is in appeal with ground No.9. It is respectfully submitted that considering the rationale of the AP High Court decision in ITTA No.352 of 2014, in the case of Mis Janapriya Engineers Syndicate, the disallowance made by the Assessing Officer may kindly be deleted. 6. Consumable and cable laying charges 194C Rs. 9,18,933/-:- In respect of this expenditure it was submitted that operating, administration and other expenses are mostly in the nature of small amounts incurred during the course of business and does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said Explanation reads as under:- "Explanation 2 - For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for - i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Asia Satellite Telecommunications Co. Ltd Vs. DIT (332 ITR 340) had taken the view that the transmission of television signals through Satellite / transponders would not fall in the category of "royalty" as defined under Explanation 2 to sec. 9(1) of the Act. He submitted that the Explanation 6, which expanded the scope of the expression "process" has been inserted by the Finance Act, 2012 with retrospective effect, was brought into the Act only to nullify the decision rendered by the Hon'ble Delhi High Court. Accordingly, the Ld AR submitted that the view entertained by the assessee that the payment of "Pay channel charges" will not fall in the category of royalty was supported by the decision of Hon'ble Delhi High Court referred above. Accordingly he submitted that the disallowance u/s 40(a)(ia) should not be made on the basis of subsequent amendment made with retrospective effect. In this regard, he placed reliance on the following case law:- (a) Sonata Information Technology Ltd Vs. DCIT (2012) (TaxCorp (INTL) 4659 (Mumbai-Trib) (b) Infotech Enterprises Limited Vs. Addl. CIT (2014) TaxCorp (INTL) 6945 (ITAT - Hyderabad) (c) Channel Guide India Limited Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iya Engineers Syndicate, the disallowance can only be restricted to the out standing amount at the end of the year. To verify the outstanding amount at the end of year the issue is restored to the file of AO for necessary examination and to quantify the disallowance if any. C. Programme & News Expenses (u/s.194I): We uphold the finding of Ld. CIT(A) on machine hire charges and up-linking charges, and confirm the deletion for the reasons stated there in. D. Legal & Professional charges (u/s. 194J): to the extent of amounts below Rs. 20,000 there is no dispute. On the amount confirmed by Ld. CIT(A) of Rs. 6.92 lakhs, it was the contention that decision of Special Bench will apply and only outstanding amount can be disallowed. We are of the view that the same cannot be disallowed u/s. 40(a)(ia) as that amount was not outstanding at the end of the year. Entire amount that was paid before 31-03- 2007 was not disallowable u/s 40a(ia) on the rationale of the Special Bench of ITAT, Vishakhapatnam in the case of Merilyn Shipping and Transport. Similar view was taken by the Hon'ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd 38 Taxmann.com 77 (All) on which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the end of the year. To verify the outstanding amount at the end of year, the issue is restored to the file of AO for necessary examination and to quantify the disallowance if any. 8.4. Even otherwise, there is no merit in revenue grounds. Ld CIT(A) has considered the remand report of AO on various issues, so contesting the same after due examination by AO is not correct. We reject the Revenue grounds and the grounds raised by assessee are allowed for statistical purposes. 9. Last issue for consideration is provision for expenses: Assessing officer made a disallowance of provision for expenses amounting to Rs. 92,06,352/-. During the course of Appellate Proceedings before Ld.CIT(A) a ledger copy of the said account was submitted, for the period 01-04-2006 to 31-03-2007. After considering the submissions Ld. CIT(A) observed that the provisions are partly amount payable towards CST, Entertainment tax, ESI payable, Professional tax and VAT etc were reflected in the provision for expenses. The Assessing Officer was directed to restrict such disallowances and balance was directed to be deleted. During the course of proceedings for modification the assessee submitted account copy o ..... 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