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TMI Blog2010 (3) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenses paid to ROC; and (iii) ₹ 3,98,36,108/- being amount received from Birla, AT T. 4. During the assessment proceedings, it was observed by the A.O. that the assessee company had credited an amount of ₹ 1,31,58,290/- on 31.03.2001 in the account of AT T Worldwide Communication Singapore Pvt. Ltd. and the same was claimed as expenses debited to the profit and loss account. It was noticed by the A.O. that the concern bill raised by the said AT T, Singapore was dated 27.11.2001, and the tax deducted at source from that amount was deposited in the Government account on 23.11.2001 as would be evident from Form No. 16A itself. Thus, according to the A.O., the assessee had wrongly made claim in respect of the aforesaid payment. The A.O. disallowed the assessee s claim and added the same to the assessee s total income. 5. Similarly, it was noticed by the A.O. that the assessee had claimed sum of ₹ 33,333/- as revenue expenses being 1/3rd of ₹ 1 lakh incurred for fees paid to increase authorized capital of the assessee company. The assessee claimed the same as revenue expenses. The A.O. treated the same to be of capital in nature and, thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion was disallowed for the reason that the assessee has not deducted tax at source within the time allowed u/s 139(1) by invoking the provisions of section 40(a)(i) by the A.O. Whereas, on the other hand, the ld. CIT(A) confirmed the addition by giving the reason that the amount in question did not accrue during the year under consideration. The assessee further contended before the ld. CIT(A) that as per section 40(a)(i) (as it stood at the relevant time) where the payment is made outside in India which is chargeable to tax in India, and neither the tax is paid nor deducted thereon, no deduction can be claimed in respect of such payment. Thus, according to the assessee when in case, the tax has been deducted or though the same has been paid in subsequent year, no disallowance could be made. It was further stated by the assessee that in the assessee s case, tax was deducted in the year under consideration and, the same was paid in the subsequent year, no disallowance could be made. In this respect, the reliance was placed upon the decision of Tribunal in the case of Minda (HUF) vs. ACIT 82 TTJ 305 (Delhi). The assessee also submitted before the ld. CIT(A) that an amendment in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed in the return of income and this claim was made under the bonafide belief that the amount spend is an allowable deduction. 13. The ld. CIT(A) considered the assessee s submission as well as the A.O. s order. 14. With regard to the disallowance of assessee s claim on account of payment payable to AT T, Singapore, the ld. CIT(A) has observed that in respect of this amount, the assessee has failed to deduct the tax at source and to pay the same in the Government account during the current financial year rendering the same not admissible as per provisions contained in section 40(a)(i) of the Act. The ld. CIT(A) further observed that the assessee had made the payment as as in November, 2001 and that too after receiving the invoice dated 23.11.2001 from the AT T, Singapore, which goes to show that the assessee had neither deducted nor paid the tax in the relevant financial year, and mere passing entry in the books would not justify the assessee s claim that tax was actually deducted on the same date i.e. on 31.03.2001. The ld. CIT(A) considered the provisions of section 40(a)(i) and then hold that this amount was prima facie not admissible. The ld. CIT(A), therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was disallowed merely because of technical provisions contained in section 40(a)(i) for non-payment of tax deducted at source during that relevant financial year. 19. The ld. counsel for the assessee further pointed out that it is not in dispute that the tax so deducted was ultimately paid to the Government account on 23.11.1991 and was allowed as deduction in subsequent assessment year in the light of the proviso to section 40(a)(i) of the Act. He, therefore, submitted that the assessee s claim was not false and bogus but was made on a bonafide belief and impression after disclosing all the relevant particulars relating to that claim. He, therefore, contended that the burden that lay upon the assessee vide Explanation-1 to section 271(1)(c) has been discharged and, therefore, no penalty u/s 271(1)(c) is attracted. 20. The ld. D.R., on the other hand, supported the orders of the authorities below and reiterated from observations and reasons in levying the penalty u/s 271(1)(c) on the aforesaid amount of ₹ 3,98,06,026/- disallowed by invoking provisions of section 40(a)(i) of the Act. 21. We have heard both the parties and have carefully gone through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) of section 200 and in accordance with other provisions of Chapter XVII-B: Provided that where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 24. Sub clause (i) of clause (a) of section 40 again substituted with effect from 01.04.2005 as under:- (a) in the case of any assessee- [(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200: Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the assessee that if the payment was made late, the Revenue may take recourse of charging interest under section 201(A) of the Act but the deduction of royalty under section 40(a)(i) could not be disallowed. We have also carefully examined the judgement of the Rajasthan High Court and the Tribunal s order which supports the aforesaid view. We, therefore, do not find ourselves in agreement with the findings of the CIT(A). We, accordingly, set aside the order of the CIT(A) and direct the AO to allow the claim of the assessee. 28. In sub-clause (i) of clause (a) of section 40, the expression has been used on which tax has not been paid or deducted under Chapter XVII-B and in the proviso thereto the expression has been used previous year in which such tax has been paid or deducted which has led the Tribunal to take a view that if the tax is deducted at source during the year and is deposited in the succeeding year, the assessee is entitled to claim deduction of the payment of royalty in that previous year in which the tax at source was deducted. The Tribunal has taken this view after relying upon the decision of Hon ble Rajasthan High Court in the case of CIT vs. Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o doubt true that the relevant bill was raised by AT T, Singapore on the assessee company only in the month of November, 2001. However, it is also true that the said bill was raised for the services which had been rendered by AT T, Singapore to the assessee company in terms of an agreement already entered into which was in force throughout th year under consideration. A perusal of the copy of the bill raised by AT T, Singapore on the assessee company placed at page No. 93 of the assessee s paper book also shows that the narration/ description given therein was charges towards remote and support and network charges for period April, 2000 to 31st March, 2001 as per clause (1) of agreement effective 1st April, 2000 . This description given in the relevant bill clearly shows that not only the services charged for in the said bill were rendered by AT T, Singapore to the assessee company is terms of an agreement which was effective from 01.04.2000 but even the charges for the said services were quantified as per the terms and conditions of the said agreement. The liability for the said services thus had not only arisen during the year under consideration in terms of the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal but rather the Tribunal has given a categorical finding that liability had crystallized in the year under consideration irrespective of the fact that the relevant bill might have been raised by the AT T services in the year 2001. Therefore, this basis for disallowance adopted by the CIT(A) does not survive, and on this count, the claim of the assessee cannot be said to be false and malafide. 31. Now, the fact remains that disallowance has been made by invoking the provisions of section 40(a)(i). However, the proposition whether the entry passed in the account books about the deduction tax at source is sufficient to comply the provisions of section 40(a)(i) of the Act as it stood prior to 01.04.2003 is a matter of interpretation of the provisions of the Act, and that mere because the certain claim has been disallowed by invoking the deeming provisions contained in section 40(a)(i), it cannot be said that the assessee s claim of deduction was false when a categorical finding has been given by the Tribunal that the liability had crystallized during the year under consideration itself. It is also not in dispute that this deduction has been allowed to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture towards the brand is to be incurred. The future expenses to be incurred by the company for the above mentioned activities would be done utilizing the funds received. 34. It was further noted by the A.O. that the aforesaid sum received or receivable from Birla AT T Communications Ltd. was not included in the income shown in the profit and loss account. An explanation was called for from the assessee on this aspect of the matter and assessee has accordingly submitted the details on this point. The A.O. then examined the service marked licence agreement dated 30.07.1996 between AT T Corporation, USA Corporation and Birla AT T Communications Ltd. from which the A.O. noted that M/s Birla AT T Communication was entitled to use the service marked AT T and in consideration mentioned in the agreement, the said sum was receivable by the assessee company as an independent Contractor. From the details of account, it was revealed that the assessee had credited advance amount towards brand expanses from Birla AT T for the year 2000-01 at ₹ 3,98,36,108/- out of which expenses on account of brand fee to the extent of ₹ 3,30,082/- was deducted and a net amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the authorities below. 41. The A.O. has levied penalty u/s 271(1)(c) vide his order dated 29.03.2006, which has been upheld by the ld. CIT(A) vide his order dated 31.07.2006, and the assessee has filed this appeal before us on 06.08.2006. At the time, when the order of penalty was passed by the A.O. and further upheld by the ld. CIT(A) vide his order dated 31.07.2006, the order of the Tribunal dated 03.10.2008 against the assessment was not available. However, in the light of the Tribunal s order dated 03.10.2008 restoring the matter back to the file of the A.O. to decide the issue afresh, it is clear that the basis on which the penalty has been levied by the A.O. in respect of the aforesaid amount of addition does not survive any more. Therefore, the penalty levied u/s 271(1)(c) in so far as the addition of ₹ 3,98,36,108/- of being the amount received or receivable from Birla AT T Communications Ltd. is set aside. It will now be the subject matter to be decided in the course of the fresh assessment proceedings to be made by the A.O. in relation to this addition as to whether any addition is called for or not and if called for whether any penalty u/s 271(1)(c) woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having regard to the fact that an identical claim, though not admissible in the eyes of law, has actually been not allowed by the A.O. whether due to over sight or for any other reason, we are of the considered view that the claim so made by the assessee cannot be a basis to hold that the assessee has made a false claim by concealing the particulars of the matter. We, therefore, delete the penalty in respect of the aforesaid addition of ₹ 33,333/- disallowed by the A.O. 46. Before parting with this appeal, it is imperative on our part to deal with the contention advanced by the l.d D.R. to support the order of ld. CIT(A) in confirming the penalty levied by the A.O. in so far as the addition of ₹ 1,31,58,290/- and an addition of ₹ 33,333/- is concerned that the penalty levied by the AO is justified in the light of the decision of Hon ble High Court of Delhi in the case of CIT vs. Escorts Finance Ltd. dated 24.08.2009 in ITA NO. 1005/2008. He submitted that in the aforesaid case of Escorts Finance Ltd. (supra) the penalty levied u/s 271(1)(c) with regard to the assessee s claim of deduction u/s 35D of the Act to the extent of 1/10th of the total expenses incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the claim made under section 35D of the Act was bogus or it was a bonafide claim. The assessee pleaded bonafide, as according to it, it was based on the opinion of the Chartered Accountant. Learned counsel for the revenue, however, submitted that a bare reading of section 35D would reveal even to a layman that there was no scope of getting benefit of those provisions in respect of expenses incurred in connection with the public issue of shares such as underwriting commission, brokerage and other charges etc. inasmuch as certain expenses are allowable when they are incurred with the expansion of assessee s industrial undertakings or in connection with his setting up of a new industrial undertaking or industrial unit whereas the assessee is a finance company. 15. We are in agreement with the aforesaid submission of ld. counsel for the revenue. We fail to understand as to how the Chartered Accountants who are supposed to be expert in tax laws, could give such an opinion having regard tohte plain language of section 35D of the Act on the basis of the said opinion. What was stated was that in the prospectus is was mentioned that as per the opinion given by the Chartered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o AT T, Singapore and the liability was crystallized during the year under consideration and in the quantum appeal, the Tribunal has also accepted this position. The disallowance has been made u/s 40(a)(i) for the reason that assessee has failed to deduct tax at source. We have also deliberated upon the provisions of section 40(a)(i) prior to its amendment made by the Finance Act, 2002 with effect from 01.04.2003 to bring out the distinction between the position existing before or after the amendment. Therefore, it is not the case of false claim made by the assessee but is the case where provision of section 40(a)(i) has been applied by rejecting the interpretation given by the assessee. In the light of the discussions made above by us, it is clear that the interpretation given by assessee to section 40(a)(i) as it stood in the relevant assessment year 2001-02 was a possible view supported by the decision of Rajasthan High Court in the case of CIT vs. Farasol Ltd. (supra) and the decision of Tribunal in the case of Nestle India Ltd. (supra) as well as the decision of Tribunal in the case of Minda (HUF) vs. CIT (supra). Therefore, the decision of Hon ble Delhi High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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