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TMI Blog2017 (10) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... RMCs are free to sell foreign currency bought from tourists to assessee, RBI or any other person authorised by the RBI to deal in foreign currency. It is also to be noted that both the RMCs as well as the assessee have shown foreign currency as their stock in trade. The assessee has no relationship with the persons from whom the RMCs purchase foreign currency and the assessee is no way connected to the concerned tourists. Therefore, in our view the transaction between the assessee and the RMCs is on principal to principal basis and there is no principal agent relationship existing between them. Merely because in the financial statement assessee has debited the amount as commission it cannot be treated so without looking at the real nature of the transaction. The AO must bring on record material to establish that there is a principal agent relationship existing between the assessee and the RMCs. No enquiry has been made by the AO with the RMCs to find out the real nature of transactions between them. Further, assessee’s contention that in no other place in India such premium paid has been disallowed requires to be taken note of. It is also relevant to observe, even in respect of pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned any dividend income during the year from investment and it has not incurred any indirect expenses also. The assessee relying upon the decision of the Hon ble Jurisdictional High Court in the case of Godrej Boyce Manufacturing Co. Ltd. vs. DCIT 234 CTR 1 contended that provisions of Rule 8D is not applicable to the impugned assessment year. The AO, however, did not find merit in the submissions of the assessee. He observed, the assessee has taken loans and paid interest on them. It has also debited indirect expenses. The AO observed, the investment portfolio yielding dividend income has to be monitored and supervised. Accordingly, he held that expenditure incurred for earning dividend income has to be disallowed under section 14A. After examining the details of expenditure incurred by the assessee, the AO held that out of the total interest expenditure an amount of ₹ 27,38,719/- has to be apportioned to dividend income. He also held that certain indirect expenses out of salary and administrative expenses has to be disallowed which worked out to ₹ 8,99,106/-. Further, he disallowed an amount of ₹ 2,00,000/- out of personnel cost. Thus, the total disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra). In fact, following the aforesaid decision different Benches of the Tribunal including Mumbai Benches have held that in absence of any exempt income in a particular assessment year no disallowance under section 14A can be made. In assessee s own case for A.Y. 2009-10 and 2010-11 (supra) the Tribunal has taken identical view. In view of the aforesaid, we direct the AO to examine this fact and if upon such examination it is found that in the relevant previous year the assessee has not earned any exempt income, by way of dividend or otherwise, no disallowance under section 14A can be made. Of course, in the course of hearing the learned A.R. relying upon the decision of the ITAT Delhi Special Bench in the case of ACIT vs. Vireet Investment P. Ltd. ITA No. 502/Del/2012 dated 16.06.2017 had also contended that those investments where the assessee has not earned any income should be excluded for computing disallowance under section 14A. In any case of the matter, exclusion of investments not yielding exempt income would arise only if the provisions of Section 14A is applicable in the event of assessee earning any exempt income in the relevant previous year. In the absence of such inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under Section 194H. While holding so, he also observed that the assessee has itself originally booked such expenditure as commission. 9. The learned A.R. submitted that the assessee has been authorised by the Reserve Bank of India (RBI) to deal in foreign currency. He submitted, the RBI also appoints/authorises certain persons/entities as Restricted Money Changers (RMC) who are authorised to purchase foreign currency from non-residents visiting different places in India including Goa. These RMCs operate from their shops/hotels to encash foreign currency and travellers cheques from foreign tourists. He submitted, the assessee has foreign exchange division approved by the RBI to buy foreign exchange currency and travellers cheque from RMCs. It was submitted that the RMCs are wholesale customers of the assessee s foreign exchange division and assessee pays premium to the RMCs for bulk purchase of foreign currency and travellers cheques. He submitted, since, the RMCs hold these foreign currency/travellers cheques as their stock in trade and sell them to the assessee as goods it is a direct sale transaction between two principals and there is no principal agent relationship. He sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not agents of the assessee but are appointed by RBI. Though, it may be a fact that the assessee buys foreign currency from RMCs depending upon the needs, however, there is no principal agent relationship between the assessee and the RMCs. The RMCs are free to sell foreign currency bought from tourists to assessee, RBI or any other person authorised by the RBI to deal in foreign currency. It is also to be noted that both the RMCs as well as the assessee have shown foreign currency as their stock in trade. The assessee has no relationship with the persons from whom the RMCs purchase foreign currency and the assessee is no way connected to the concerned tourists. Therefore, in our view the transaction between the assessee and the RMCs is on principal to principal basis and there is no principal agent relationship existing between them. Merely because in the financial statement assessee has debited the amount as commission it cannot be treated so without looking at the real nature of the transaction. The AO must bring on record material to establish that there is a principal agent relationship existing between the assessee and the RMCs. No enquiry has been made by the AO with the RMCs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rao, HUF (2016) 387 ITR 196 15. The learned D.R. supported the findings of the CIT(A). He also relied upon the decision of the Hon ble Kerala High Court in the case of CIT vs. PVS Memorial Hospital Ltd. (2016) 380 ITR 284. 16. We have considered the rival submissions and perused the material on record. The short issue arising for consideration before us is, whether the provisions of Section 40(a)(ia) of the Act can be invoked to make disallowance on account of expenditure claimed on which the assessee has deducted tax at source at a rate lower than the prescribed rate. We find, there is no decision of the Hon'ble Jurisdictional High Court on this issue. However, divergent views have been expressed by different High Courts on this issue. The Hon'ble Calcutta High Court in the case of S.K. Tekriwal (supra) held that no disallowance under section 40(a)(ia) can be made for short deduction of tax. Following the said decision the Hon'ble Karnataka High Court in the case of Kishore Rao, HUF (supra) has expressed similar view. However, it needs to be mentioned, the Hon'ble Kerala High Court in the case of PVS Memorial Hospital (supra) has taken a contrary view by ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rule 46A of the I.T. Rules by the CIT(A). 21. Briefly the facts are, during the assessment proceedings the AO having found that the assessee has debited expenditure amounting to ₹ 20,04,37,496/- on account of brokerage payment to various parties for arranging inter corporate deposits (ICDs) called upon the assessee to furnish necessary details. After verifying party-wise details of brokerage payment furnished by the assessee the AO alleged certain discrepancies in such payments and ultimately held that the payments are neither genuine nor for the purpose of assessee s business. Accordingly, he disallowed an amount of ₹ 1,77,68,298/- out of the total expenditure claimed. The assessee challenged the disallowance before the CIT(A). The learned CIT(A) after considering the submissions of the assessee deleted the addition made by the AO. 22. The learned D.R. relied upon the ground raised by the Department. 23. The learned A.R. drawing our attention to para 7.4 of the of the order of the CIT(A) submitted that though the assessee had furnished additional evidence before the CIT(A), however, the CIT(A) was fair enough to direct the AO to examine such additional ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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