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TMI Blog2017 (3) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... e genuine and admissible expenses are to be disallowed. But it sought to remove the rigour of law by holding that the disallowance shall be restricted to the money which is yet to be paid. However, we have observed that in the case of Crescent Export Syndicate (2013 (5) TMI 510 - CALCUTTA HIGH COURT) observed that there can be no denial that the provision in question is harsh. But there is no ground which was not intended by the Legislature. The law was deliberately made harsh to secure compliance of the provisions requiring deduction of tax at source. It is not the case of an inadvertent error and accordingly the Hon’ble High Court held that the provision of section 40(a)(ia) of the Act are applicable not only to the amounts which is shown as payable on the date of balance sheet but it is applicable to such expenditure which becomes payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of the revenue and against the assessee. TDS u/s 194I and 194C - failure to deposit within 31st March, 2009 - disallowance u/s 40(a)(ia) - Held that:- The appellant has deducted the tax at source on these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were only reimbursements and not claimed as deductions. " Ground No.17 & 18: "That, on the facts and circumstances of the case, and in law, the Ld.CIT(A) has erred in deleting the disallowance made by the A.O. of ₹ 11,32,9251- u/s 40(a)(ia)(B) of the Act on account of failure to deposit within 31st March 2009 the tax deducted at source upto the month of February, 2009 by the assessee from payments u/s 194C and 194J of the Act in contravention of the provisions of section 40(a)(ia)(B) of the Act." Ground No.19 : "That the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and/or alter, modify, reframe any grounds of appeal at or before the time of hearing." 2. At the very outset, we find that the appeal is time barred by four days and there is a condonation petition filed by the revenue. The ld. AR did not have any objection for condonation of delay. That on the basis of the said condonation petition being filed and no objection of the AR we hereby condone the delay and admit the appeal for regular hearing. 3. The brief facts arising in this case are that the assessee company filed its retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y only a few; i) The Directors and the principal persons of the assessee company were only aware of the major decisions taken in the entire group. ii) Opportunity was provided. to .the assessee to come out clean with a clear picture of the exact disclosure of facts and not fictions. As all the information was within the control and specific knowledge of the assessee, therefore, it was the duty of the assessee to prove and establish the same, which they did not. This brings out a clear picture that the total group companies are engaged in colorable transactions amongst themselves. Similar view had been taken in the case of Logitronics Pvt. Ltd. ITA 4716/DEL of 2009 dated 30.04.2010, ITAT, New Delhi and in the case of Kay Cee Electricals v DCIT (2003) 87.ITD 35 (Delhi). iii) the contentions expressed in the copies of the extracts of the board resolution, as claimed by the appellant, has already been duly considered in the assessment stage and strongly refuted in .the assessment order itself with logic as well as relevant case laws. iv) It is also pertinent to mention here that it is incumbent on the Assessing Officer to explore the total gamut' of the affairs of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant from Dunlop India Ltd. and the appellant would be obliged to bear the SBLC charges to be paid to M/s Shalini Properties & Developers P Ltd. who, in turn, shall pay such charges to ICICI Bank, To this effect, Board of the appellant company passed resolution dated 12th March 2008. Board resolution dated 28th March 2008 was passed by the Board of the appellant which incorporated the agreement entered into by the appellant with Dunlop India Ltd for use of 'Dunlop' Brand and Logo. The Board's resolution also incorporated and thanked M/s Shalini Properties & Developed P Ltd for their efforts in obtaining the brand name from Dunlop India Ltd. and payment of SB Le charges as soon as Mls.Shalini Properties I & Developers P Ltd. requires the sum. Subsequently, when the loan was sanctioned by the ICICI Bank where M/s Shalini Properties & Developers P Ltd. was guarantor, another Board resolution was passed dated 28th of June 2008 for reimbursement of the SBLC charges to M/s Shalini Properties Developers P Ltd. 5.1.10 The A/R further argued that during the year, on use of the 'Dunlop' brand name and logo by way of royalty and SBLC charges the appellant had income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lourable device to eat into the profit of the appellant company. The Assessing Officer also relied upon the decision in relation to colourful device to hold that the expenses of ₹ 117412S00/- could not be said to be laid out or expended wholly and exclusively for the purposes of the business of the appellant company and that the transaction was a colourful device. While holding, the Assessing Officer has considered the agreement and the fact of the case. The Assessing Officer has also gone on to point out the utilization of such loan taken by Wealthsea Pte.Ltd. In the remand report the Assessing Officer has not mentioned anything new than what has already been I stated in the assessment order and in fact the Board's resolution which was considered as a fresh evidence has been brushed aside by the Assessing Officer by treating the same to be part of the assessment record and not fresh evidence. M/s Shalini Properties & Developers P. Ltd held 100% shares in Hiland Traders Pvt. Ltd. which, in turn, held substantial shares in Dunlop India Ltd. M/s Shalini Properties & Developers P. Ltd. also held 45% in the equity capital of Wealthsea Pte. Ltd. which held the entire share h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the group company and mainly Dunlop India Ltd. which was to be starting production, up and in running. The arrangement made between the group companies, share holder company has resulted in business in these companies and giving rise to capital generation for benefit of Dunlop India Ltd, as a whole. So, it is incorrect to say that Dunlop India Limited has not been benefited from the finances obtained by Wealthsea Pte. Ltd .. in terms of which the appellant company has paid processing fee, SBLC charges to M/s Shalini Properties & Developers P. Ltd. who in turn has paid the same to ICICI Bank Ltd. . ' 5.1.12 One of the allegations of the Assessing Officer is that it is a colourful device which .resort to eat away the profit of the appellant company or diversion of the income. On the facts of the case, it seems to be unusual that at one instance the company would be earning income from utilization of resources from its group companies and on the other hand resort to a colourful device to eat away into the income. It is unusual because it is' not the case of the appellant company that the income is being earned from third party or it is a fixed income being earned from previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his affairs as not to attract tax imposed by the crown, so far as he can do so within the law, and that he may legitimately claim the advantage of any expressed terms or of any omission that he can find in his favour in taxing Act. In so doing he neither comes under liability nor incurs blame.' In the case of Sankarlal Balabhai 69 ITR 186 (Guj) it was held "Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth his income eligible to tax but on which he avoids payment of tax by some artifice or device. Such artifice or device may apparently show the income as accruing to another person, at the same time making it available for use and enjoyment to the 'assessee as in the case falling within section 44D or mask the true character of the income by disguising it as a capital receipt as in a case falling within section 44E or assume diverse other forms. But there must be some artifice or device enabling the assessee to avoid payment of tax on which is really and in truth his income. If the assessee parts with his income producing asset, so that the right to receive income arising from the asset which therefore belonged to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btaining the rights over the brand name of "Dunlop" to the appellant company. On the other hand, the Assessing Officer has not brought any material on record to show that the transaction is a sham or that the group of companies have adopted a colourable. device to defraud the revenue. Merely because the appellant company had no guarantor or that the appellant had not taken any loan or merely because the expenditure had been debited in the profit and loss account under a different nomenclature) the transaction could not be called into question as a colourable device. In Birla Cotton Spinning & Wvg. Mills Ltd. vs. CIT (1971) 82 ITR 166(SC), it has been held that "It must be remembered that the earning of profits and the payments of taxes ,are not isolated and independent activities of a business. These activities are continuous and take place from year to year during the whole period for which the business continues. If the assessee takes steps for reducing its liability to tax: which results in more fund being left for the purpose of carrying on the business there is always a possibility of higher profits. The expenditure which was incurred by the assessee was, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer, then there is acquisition of a capital asset and not an expenditure of a revenue character as per ratio laid down in Indian Mosasses Co.(P.) Ltd. v. CIT [1959] 37 ITR 66 (SC), Hylam Ltd. v. CIT [1973.1,87 ITR 310 (AP). Though the dividing line between a capital and revenue ,expenditure is real, yet sometimes it becomes difficult to draw. Therefore, a decision is to be taken in each case in the light of the facts and surrounding circumstances. However, the following judicial pronouncements should be kept. in view while determining whether a particular expenditure is a capital or revenue in nature. In Empire Jut Co. Ltd. v. CIT [1980] 124 ITR 1 (SC), it has been held that "if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business-to be carried on more efficiently or profitably while leaving the fixed capita untouched, the expenditure would be on revenue account, even though the advantage-may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanical without regard to the particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to its being genuine and within reasonable limits. The negative tests are: If the expenditure incurred: (i) for a mere altruistic consideration; (ii) mainly in order to satisfy his philanthropic urges; (iii) mainly in order to win applause or public appreciation; (iv) for illegal, immoral or corrupt purposes or by any such means or fix any such reasons; (v) mainly in order to oblige a relative or an official; (yi).mainly to earn the goodwill of a political party or a politician; (vii) mainly to show off or impress others with his affluence or for ostentatious purposes; (viii) apparently for a factor listed as a positive factor, but in reality for one of the obnoxious purposes listed as a negative factor; (ix) on a nebulous plea or pretext by way .of an alibi in the name of winning profits in remote future but really for one or the ether tor the purpose listed as negative tests; (x) it is a bogus fictitious or sham transaction; (xi) it is unreasonable and out of proportion; .xii) it is an expenditure merely with a view to avoid tax liability without any genuine purpose or reason in good faith and (xiii) the advantage to be secured by incurring the expenditure is of the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l tyres and the assessee got the right to use the licence for a fixed period of 8 years) is deductible. 5.1.16. In view of the above discussion and after perusing the facts and circumstances of the case, analyzing the reported cases cited both by the Assessing Officer and the appellant company, after considering the ratio laid down by the Hon'ble Supreme Court in the case of Union of India Vs. Azadi Bachao Andolan cited supra and also in view of the under mentioned summerised points of reasons I am of the opinion that the expenditure incurred by the appellant company in making payment under the head SBLC charges of Rs.l1,74,12,500/- to Shalini Properties and Developers Pvt Ltd; is in consideration of commercial expediency of the business of the appellant company and is allowable as deduction under section 37(1) of the IT Act:- (i) M/s Shalini Properties &. Developers Pvt. Ltd. has arranged for lease of Dunlop Brand name, logo etc. in favor of the appellant company for the period of 10 years. As stated in the Board of Director meeting proceeding dated 12.03.2008 M'/s Shalini has agreed to arrange the brand name and logo of Dunlop in favor of the appellant provided the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber Singh Bhagwandas (1979) 119 fIR. 379 (MP) has held that voluntary donation given in Chief Minister Fund for 'obtaining permit for export of gram is an allowable expense. This decision of Hon'ble Madhya Pradesh High Court has been approved by Hon'ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. v CIT (1997) 113 ITR 101. In that case the Hon 'ble Supreme Court has held as follows : "Business expenditure - Contribution made to District Welfare Fund - The correct test of allowability of such expenditure is commercial expediency and not whether it was compulsory or; not. Contribution was not illegal or opposed to public policy but was for the benefit of the general public - Requiring payment to be made for a just cause which would entitle a businessman to obtain a license or permit cannot be regarded as being against the policy - Any contribution made by an assessee to a public welfare fund which is directly connected to related with the carrying on of the assessee's business or which results in the benefit to' the assessee's business has to be regarded as an allowable deduction under s. 37(1) - Assessee doing busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,93,404/-. 7. During the course of assessment proceedings, the appellant company furnished details of tax deducted at source from the payments made regarding Consultancy & Professional fees. From such details, the Assessing Officer noted that out of the total payment made for ₹ 9,24,547/-, tax was deducted at source on ₹ 6,31,143/- only. It was explained on behalf of the appellant that as the balance of ₹ 2,93,404/- was 'out of pocket expenses which was reimbursable, tax was not deducted on the same. However, the Assessing Officer observed that as per the clarifications issued by CBDT in· respect of Circular No.715 dt 08.08.1995, reimbursements of payments referred to under sec. 194C and 194J could not be deducted out of the bill amount for the purpose of tax deduction at source. Therefore, the Assessing Officer concluded that the appellant company ought to have deducted tax at source on the reimbursable out of pocket expenses of ₹ 2,93,404/- which it failed to do, thereby attracting the provisions of section 40(a)(ia) of the LT. Act, 1961. In this background, the amount of ₹ 2,93,404/- was disallowed and added back to the. total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,93,404/-. (ii) As per the Id AR the appellant has paid ₹ 2,93,404/- before the end of the year hence, in view of decision of special bench of ITAT in the case of Merlyn Shipping Transports v ACIT ITA No. 477/VIZ/2008 this payment cannot be disallowed by applying section 40(a)(ia). (iii) Since in the remand report the AO has not commented on correctness or otherwise of submission of ld AR hence AO has directed to verify and allow all the payment which were made during the year and to disallow only those payment which were outstanding as on last day of the accounting year. Accordingly this ground is decided in favour of the appellant as above. 10. At the time of hearing before us, the ld. DR referred to the case law of the Hon'ble High Court of Calcutta in the case of CIT vs Crescent Export Syndicate 262 CTR 525 (Cal) and he stated that the Hon'ble Calcutta High Court have over ruled the decision in the case of Merilyn Shipping & Transports vs. Addl. CIT (2012) 136 ITD 23/20 taxmann.com 244 (Vishakhapatnam). In the case of Crescent Export Syndicte the Hon'ble Jurisdictional High Court had opined that the provisions of section 40(a)(ia) of the Act are application no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 by the assessee from the payments u/s 194C and 194J of the Act in contravention of the provision of section 40(a)(ia)(b) of the Act. 13. At the very outset, we find on perusal of the case records that the grievance of the revenue should not be that the ld. CIT(A) has deleted the entire disallowance of ₹ 11,32,925/- but in fact as appearing in the order of ld. CIT(A) we find that the ld. CIT(A) has deleted ₹ 9,38,408/- and has confirmed ₹ 1,94,517/-. Therefore in all practicability the grievance of the revenue on this issue should be restricted to ₹ 9,38,408/- which is the relief granted to the assessee. 14. In these grounds, the revenue is agitated by the disallowance of Rs..l1,32,925/- u/s 40(a)(ia) of the IT Act for default of non-deduction of tax at source under sec. 194I and 194C of the Act. 15. The Assessing Officer on .perusal of the Annexure C of the form 3CD annexed to the Tax Audit Report noticed that the assessee company had defaulted in payment of tax deducted in respect of certain cases. Out of all these cases, there were cases where the default was of the provisions of section 40(a)(ia)(B), i.e. the company had deducted tax within the month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not for the TDS, which had already been made in the month of February and earlier months. TDS made up to February of the financial year had to be deposited within the month of March. The Assessing Officer had found that the company deducted tax within the month of February, 2009 and deposited the same in Central Government account after the end of the financial year, i.e. after 31.03.2009, whereas the same should have been deposited within 31.03.2009. The total amount of such deduction works out to ₹ 73,556/- u/s 194J and Rs.l20,961/- u/s 194C of the Act. The disallowances to the extent of the default found by the Assessing Officer, in my view is justified. This view is supported by the decision of die Hyderabad Bench of the Tribunal in the case of Teja Constructions v. CIT [20I0] 39 SOT 13 (Hyd.)(URO), wherein it has been held that section 40(a)(ia) is applicable only in respect of TDS defaults if amount is payable. In this back-ground, the disallowances aggregating to ₹ 1,94,517/- (73556+ 120961) is confirmed. However, the Assessing Officer did not restrict himself from disallowing the two sums, but, instead he calculated backward default under sec. 194J at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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