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TMI Blog2023 (8) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... mation basis - AO has not given any basis as to why only 20% of such expenditure is disallowed.Thus there has to be some basis for rejection of claim by the AO. The AO should have pointed out as to why out of total expenditure, 20% is not incurred for business purpose. In the absence of specific finding, action of AO for disallowance of expenditure would not be justified. Disallowance of service fee u/s 37 (1) - HELD THAT:- CIT(A) has followed the decision of the Tribunal rendered in assessee s own case [ 2016 (4) TMI 1447 - ITAT DELHI] deleting addition. TDS u/s 195 - Non-deduction of TDS u/s 40(a)(i) - HELD THAT:- From the above findings of Ld.CIT(A), it is clear that the issue related to deduction of tax has been examined in earlier years wherein held appellant is not the PE of Mitsui Co. Ltd (Japan), hence no question of attribution of any profit of Mitsui Co. Ltd (Japan) to the appellant company. Accordingly, there is no question of deduction of tax on the same. In view of the binding precedent, we do not see any merit in the grounds of appeal. Disallowance of staff welfare expenses - HELD THAT:- From the finding of Ld.CIT(A), it is clear that he did not adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by M/s Mitsui Co (Asia Pacific) pte Ltd., Singapore, to the assessee is quite vague, Assessee has not furnished any detail regarding the actual service being provided to the assessee? 4. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting the disallowance of Rs. 51,27,74,699/- on account of non-deduction of TDS, u/s 40(a)(i) of the Income Tax Act 1961 (the Act) by ignoring finding of facts recorded by the Assessing Officer (the AO) that the AO of Mitsui Japan attributed 50% of the gross profit i.e. Rs. 31,52,12,348/-(50% of Rs. 63,04,24,697/-) as income attributable to Indian PE? 5. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting the disallowance of Rs. 51,27,74,699/- on account of non-deduction of TDS, u/s 40(a)(i) of the Income Tax Act 1961 (the Act) by ignoring findings of the fact recorded by the AO that Mitsui Japan being a non-resident, tax is payable by it in India on income attributable to Indian PE. Mitsui India should have deducted an amount of Rs. 12,60,84,939/-(40% of Rs. 31,52,12,348/-) as final tax payment of non-resident by way of TDS on its receipts, out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to deduct tax of INR 12,60,84,939/- at the payment made to Mitsui Japan of INR 51,27,74,699/-. Thus, he assessed the income of the assessee company at INR 89,14,27,020/- against the disclosed income at INR 30,65,23,320/-. 4. Aggrieved against the assessment order, the assessee carried matter in appeal before Ld.CIT(A), who partly allowed the appeal. Thereby, the Ld.CIT(A) confirmed the addition in part out of staff welfare expenses. Rest of the additions were deleted. 5. Aggrieved against this, both the assessee and the Revenue have filed separate appeals before this Tribunal. 6. Apropos to Ground No.1, Ld.Sr.DR supported the orders of the authorities below. 7. On the other hand, Ld. Counsel for the assessee submitted that there has not been any exempt income during the year as is evident from schedule of other income placed at Paper Book, Volume 1 at page 42. He drew our attention to the schedule of other income. He submitted that on this issue, no disallowance is called for since there is no exempt income and this issue is squarely covered in favour of the assessee by the judgement of Hon ble Jurisdictional High Court rendered in the case of PCIT vs M/s. Era Infrast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Ltd., 2014 (3) TMI 856 GUJARAT HIGH COURT. 5.2.2. The above judgments are squarely applicable in case of the appellant since it has not earned any exempt income in the year under consideration. Therefore, the addition made u/s 14A of the Act is directed to be deleted. Ground No. 3 and 4 are allowed. 9. The Revenue has not brought any adverse material contradicting the findings of Ld.CIT(A). We therefore, do not see any reason to disturb the finding of Ld.CIT(A), the same is hereby, affirmed. Thus, Ground No.1 raised by the Revenue is dismissed. 10. Ground No.2 raised by the Revenue is against the deletion of disallowance of INR 63,11,221/- in respect of staff welfare expenses. 11. Ld. Sr. DR supported the assessment order and submitted that the AO has rightly made the addition. He drew our attention to the assessment order where the AO has recorded the fact that the assessee failed to prove the expenses incurred for business purposes. He submitted that it is incumbent upon the assessee to prove that expenses in question were incurred wholly and exclusively for business purpose. If the assessee fails to do so, the AO would be justified for making disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further relied upon following case laws:- Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram Vs CIT 37 ITR 288 (SC); Hon'ble Delhi High Court in the case of CIT Vs Ms. Shehnaz Hussain 267 ITR 572 (Del.); ACIT Vs M/s. Modi Rubber Limited, ITA No.1952/Del/2014 (ITAT Delhi); ACIT versus Precision Pipes Profiles Co. Ltd., No.- ITA No.4257 4258/D/2012 [ITAT Delhi]; Sonic Biochem Extractions P. Ltd. v. ITO (2013) 23 ITR 447/59 SOT 4(URO)(Mum.)(Trib.); and Seasons Catering Services P. Ltd. Vs. DCIT [2010] 127 ITD 50 (Delhi)/43 DTR 397 (Del). 13. Ld. Counsel for the assessee further reiterated the submissions as made in the synopsis. He submitted that the assessee is a Private Limited Company which is a distinct assessable entity as per the definition of person u/s 2(31) of the Act. The limited company is an inanimate person and there cannot be anything personal about such an entity. Hence, Ld.CIT(A) has rightly deleted the disallowance made on account of staff welfare expenses. 14. On the other hand, Ld.Sr.DR opposed these submissions and supported the assessment order. He contended that the assessee has claimed expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... staff welfare expenses along with supporting bills. The expenses amounting to Rs. 1,20,14,739/- is related to hotel, dining charges, shifting charges etc. However, Expenses amounting to Rs. 2,20,41,369/- is related to medical insurance and social security expenditure for which no observation has been made by the DRP in its order for AY 2011-12. There cannot be any doubt regarding the commercial expediency of expenses of medical insurance and social security expenditure being incurred for business purpose. These expenses are purely for the purpose of welfare of the employees. Even the AO has not brought anything on the record to justify his claim that part of these expenses are not for the business purpose. Further it is noticed that the case of the appellant is not a case where the incurrence of the expenses are in doubt. The AO in the assessment order has not taken his observations to any logical conclusion so as to justify his action of disallowance of 20% of the expenditure related to medical insurance and social security expenditure. Regarding Expenses relating to hotel, dining charges, shifting charges etc. in Rs. 1,20,14,739/-, the facts of the case in identical to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l/2014 1795/Del/2015. The order of the Tribunal is enclosed at pages 509 to 548 of the Paper Book Volume II. 20. We have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. We find that Ld.CIT(A) has deleted the addition by observing as under:- 5.4.2. I have examined the finding of the AO, submission of the appellant. I have also perused the orders of DRP, CIT(A) and ITAT placed before me on the same issue in the case of the appellant. It is noticed that the same issue pertaining to service fees paid to Mitsui Co. (Asia Pacific) Pte Itd. Singapore, was raised by the AO the assessment-year 2010-11 and 2011- 12. The issue was first adjudicated by the DRP in the AY 2011-12 in the appellant's own case in its favour. The DRP in its directions u/s 144C(5) of the Act dated 14.12.2015 had directed as follows:- DRP Findings: The panel went through the submission filed by the A' in relation to the expenditure claimed as above. The relevant paper book 1 consisting of 361 pages gone through minutely. The paper book contained copies of agreements along with supporting doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has merely submitted copies of the agreement of the assessee with the aforesaid companies and no evidence is available on the file. The AO has rejected the submissions made by the assessee company to justify the aforesaid expenditure. Keeping in view the fact that in the succeeding year, AY 2011-12, the DRP vide order dated 14.12.2015 has decided this issue in favour of the assessee and deleted the entire addition of service fee paid to the same parties to whom this fee was paid. So in view of the matter, this issue is required to be restored to the AO to decide afresh in the light of the order dated 14.12.2015 passed by the DRP qua AY 2011-12 in assessee's own case after providing an opportunity of being heard to the assessee. Consequently, this ground is determined in favour of the assessee. 5.4.4 The issue has been adjudicated in the AY 2010-11 by CIT(A)-44 wherein the CIT(A) has relied upon the order of DRP in AY 2011-12 and held as follows: The material facts of the case at the same in the instant year also as the agreement and the arrangements between the parties and the nature of transactions is the same as in AY 2010-11. The DRP has given relief t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement of the assessee with the aforesaid companies and no evidence is available on the file. The AO has rejected the submissions made by the assessee company to justify the aforesaid expenditure. Keeping in view the fact that in the succeeding year, AY 2011-12, the DRP vide order dated 14.12.2015 has decided this issue in favour of the assessee and deleted the entire addition of service fee paid to the same parties to whom this fee was paid. So in view of the matter, this issue is required to be restored to the AO to decide afresh in the light of the order dated 14.12.2015 passed by DRP qua AY 2011-12 in assessee s own case after providing an opportunity of being heard to the assessee. Consequently, this ground is determined in favour of the assessee. 22. The Revenue has not contradicted the fact that in earlier years, identical ground was raised by the assessee for AY 2009-10 2010-11. We therefore, taking the consistent view and more particularly, the Revenue has not brought to our notice any other binding precedent, reject the ground of appeal. Ground No.3 raised by the Revenue is dismissed. 23. Ground Nos. 4 5 raised by the Revenue are inter-related and rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the same, the disallowance made by the AO under section 40(a)(i) of the Act, is directed to be deleted. These grounds of appeal are allowed. 27. From the above findings of Ld.CIT(A), it is clear that the issue related to deduction of tax has been examined in earlier years. There is no change into facts and circumstances of the case and the decision of the Tribunal in earlier years related to AYs 2009-10 2010-11 in ITA Nos. 813/Del/2014 1759/Del/2016 have been affirmed by the Jurisdictional High Court. In view of the binding precedent, we do not see any merit in the grounds of appeal. Ground Nos. 4 5 raised by the Revenue are thus, dismissed. 28. Ground No.6 raised by the Revenue is general in nature, needs no separate adjudication. 29. In the result, the appeal filed by the Revenue is dismissed. ITA No.467/Del/2020[Assessment Year : 2014-15] 30. Now, we take assessee s appeal wherein the assessee has raised following grounds of appeal:- 1. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad both in the eye of law and on facts. 2. (i) On the facts and circumstances of the case, the learned CIT(A) has err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT Delhi); Sonic Biochem Extractions P.Ltd. vs ITO (2013) 23 ITR 447/59 SOT 4 (URO)(Mum.)(Trib.); Seasons Catering Services P.Ltd. vs DCIT [2010] 127 ITD 50 (Delhi)/43 DTR 397 (Del). 35. Further, it is contended that the bills and invoices of staff welfare expenses were duly submitted to lower authorities. The AO has not pointed out any defect or discrepancy in respect of the expenditure claimed for staff welfare. The expenditure is otherwise, 1% of total Revenue which is not excessive. The expenditure is related to staff welfare measures to and instill of feeling of team work. The Ld. Counsel for the assessee relied upon the decision of the Co-ordinate Bench of the Tribunal rendered in the case of British as India (P.) Ltd. vs DCIT, 2011 (4) TM 877 dated 08.04.2011 and Chrys Capital Investment Advisors India (P.) Ltd. vs DCIT, Circle-3(1), New Delhi [2012] (8) TMI 730 dated 18.03.2011 wherein it has been held that the expenditure incurred for lunch and dinners is allowable expenditure. We find that Ld.CIT(A) partly confirmed the action of AO, treating the expenditure for non-business purpose. For the sake of clarity, relevant findings of Ld.CIT(A) is reproduced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be any doubt regarding the commercial expediency of expenses of medical insurance and social security expenditure being incurred for business purpose. These expenses are purely for the purpose of welfare of the employees. Even the AO has not brought anything on the record to justify his claim that part of these expenses are not for the business purpose. Further it is noticed that the case of the appellant is not a case where the incurrence of the expenses are in doubt. The AO in the assessment order has not taken his observations to any logical conclusion so as to justify his action of disallowance of 20% of the expenditure related to medical insurance and social security expenditure. Regarding Expenses relating to hotel, dining charges, shifting charges etc. in Rs. 1,20,14,739/-, the facts of the case in identical to the facts of the case decided by the DRP. Therefore, following the order of the DRP 2011-12, the AO is directed restrict the disallowance of 20% only in respect of expenses related to hotel, dining charges, shifting charges etc. which comes to Rs. 24,02,948 / - (20% of Rs. 1,20,14,739/-). The disallowance made by the AO to the extent of Rs. 24,02,948 is confirmed a ..... 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