COX & KINGS LTD, MUMBAI V. DCIT 1(1)(1), MUMBAI

CO 117/MUM/2017

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3261 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 23-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CHETAN NOVAL
• Assessee Lawyers: RAJAT MITTAL
• Keywords: Earning of tax free income; Additional evidence; Non-deduction of tax
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI MANJUNATHA, ACCOUNTANT MEMBER ITA NO.5583/MUM/2015 (ASSESSMENT YEAR: 2007-08) D C I T 1 (1) (1) VS. M/S. COX & KING S (I) LTD. ROOM NO. 579 , 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 TUNER MORRISON BLDG. 16, BANK STREET MUMBAI 400001 PAN AAACC 1921B APPELLANT RESPONDENT ITA NO.5440/MUM/2015 CO NO. 117/MUM/2017 (IN ITA NO. 5583/MUM/2015) (ASSESSMENT YEAR: 2007-08) M/S. COX & KINGS (I) LTD. VS. D C I T 1(1)(1) TUNER MORRISON BLDG. 16, BANK STREET MUMBAI 400001 ROOM NO. 579, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AAACC1921B APPELLANT RESPONDENT REVENUE BY: SHRI RAJAT MITTAL RESPONDENT BY: SHRI RAJAN R. VORA & SHRI CHETAN NOVAL DATE OF HEARING: 21.09.2017 DATE OF PRONOUNCEMENT: 06.10.2017 O R D E R PER SAKTIJIT DEY, JM THESE CROSS APPEALS BY THE ASSESSEE AND THE DEPARTM ENT AND THE CROSS OBJECTION BY THE ASSESSEE ARISE OUT OF A COMM ON ORDER DATED 03.08.2015 OF CIT(A)-2 MUMBAI FOR A.Y. 2007-08. ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 2 ITA NO. 5440/MUM/2015 2. ASSESSEE HAS RAISED NINE GROUNDS. GROUND NOS. 1 & 2 ARE AGAINST CONFIRMATION OF DISALLOWANCE OF ` 4,33,921/- UNDER SECTION 14A OF THE ACT. THE BRIEF FACTS ARE THAT THE ASSESSEE, A DOMESTIC C OMPANY, IS ENGAGED IN THE BUSINESS OF ARRANGING TOURS AND TRAVELS. FOR TH E ASSESSMENT YEAR UNDER DISPUTE THE ASSESSEE FILED ITS RETURN OF INCO ME ON 01.03.2008 DECLARING TOTAL INCOME OF ` 36,99,51,002/-. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT, THOUGH, THE ASSESS EE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND, HOWEVER, IT DID NOT DISA LLOW EXPENSES ATTRIBUTABLE TO SUCH EXEMPT INCOME. HE FOUND THAT T HE ASSESSEE HAS DEBITED INTEREST EXPENSES OF ` 7,10,78,955/- TO THE PROFIT & LOSS ACCOUNT. HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME SHOULD NOT BE DISALLOWED UNDER SECTION 14A. IN REPLY IT WAS SUBMITTED BY THE ASSES SEE THAT IT HAS NOT EARNED ANY DIVIDEND INCOME DURING THE YEAR FROM INV ESTMENT AND IT HAS NOT INCURRED ANY INDIRECT EXPENSES ALSO. THE ASSESS EE RELYING UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT 234 CTR 1 CON TENDED THAT PROVISIONS OF RULE 8D IS NOT APPLICABLE TO THE IMPU GNED ASSESSMENT YEAR. THE AO, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSI ONS OF THE ASSESSEE. HE OBSERVED, THE ASSESSEE HAS TAKEN LOANS AND PAID INT EREST ON THEM. IT HAS ALSO DEBITED INDIRECT EXPENSES. THE AO OBSERVED, TH E INVESTMENT PORTFOLIO YIELDING DIVIDEND INCOME HAS TO BE MONITORED AND SU PERVISED. ACCORDINGLY, HE HELD THAT EXPENDITURE INCURRED FOR EARNING DIVID END INCOME HAS TO BE DISALLOWED UNDER SECTION 14A. AFTER EXAMINING THE D ETAILS OF EXPENDITURE INCURRED BY THE ASSESSEE, THE AO HELD THAT OUT OF T HE 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 MADE U NDER SECTION 14A AMOUNTED TO ` 38,37,824/-. THE ASSESSEE CHALLENGED THE DISALLOWAN CE ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 3 BEFORE THE CIT(A). LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RE CORD FOUND THAT EXCEPT THE INVESTMENT OF ` 1,44,25,000/- IN TULIP STARS HOTELS LTD., THE BALAN CE INVESTMENTS WERE MADE FROM ASSESSEES OWN FUNDS AND NO BORROWED FUNDS WERE UTILISED. HE, THEREFORE, DIRECTED THE AO TO RE COMPUTE THE DISALLOWANCE BY CONSIDERING THE INTEREST COST ONLY TO THE EXTENT OF INVESTMENT MADE IN TULIP STARS HOTELS. AS FAR AS THE BALANCE DISALLOWA NCE TOWARDS SALARY AND ADMINISTRATIVE COST IS CONCERNED, HE FOUND THAT THE AO HAS MADE THE SAID DISALLOWANCE ON ADHOC BASIS WITHOUT GIVING ANY SPEC IFIC FINDING WHETHER THE ASSESSEE HAD INCURRED ANY SUCH EXPENDITURE. ACC ORDINGLY HE DIRECTED THE AO NOT TO MAKE ANY DISALLOWANCE ON ADHOC BASIS. THUS, IN SUM AND SUBSTANCE, LEARNED CIT(A) RESTRICTED THE DISALLOWAN CE UNDER SECTION 14A ONLY TO THE EXTENT OF EXPENDITURE ON INVESTMENT MAD E IN TULIP STAR HOTELS LTD. 3. SHRI RAJAN VORA, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT DURING THE RELEVANT PREVIOUS YEAR TH E ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, THEREFORE, NO DISALLOWANC E UNDER SECTION 14A CAN BE MADE. HE SUBMITTED, THE INVESTMENTS FROM WHI CH ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME SHOULD BE EXCLUDED FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER SECTION 14A. IN THIS R EGARD THE LEARNED A.R. RELIED UPON THE FOLLOWING DECISIONS: - (I) CHEMINVEST LTD. VS. CIT (2015) 387 ITR 33 (DEL) (II) CIT VS. LAKHANI MARKETING (2014) 272 ITR 265 (P&H) (III) COX & KINGS LTD. VS. DCIT ITA NOS. 1354 & 7770/MUM/ 2014 DATED 4.11.2015 4. THE LEARNED D.R. RELIED UPON THE OBSERVATIONS OF TH E ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE SPECIFIC CONTENTION OF THE LEARNED A .R. IS, IN THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS NOT EARNED ANY EXEMP T INCOME. FROM THE ASSESSMENT ORDER OR EVEN THE ORDER OF THE CIT(A) IT IS NOT FORTHCOMING ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 4 WHETHER THIS PARTICULAR FACTUAL ASPECT WAS AT ALL E XAMINED. IN CASE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING TH E RELEVANT PREVIOUS YEAR NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT. THE AFORESAID VIEW HAS BEEN EXPRESSED BY THE HON'BLE DE LHI HIGH COURT IN THE CASD OF CHEMINVEST LTD. VS. CIT (SUPRA). IN FACT, F OLLOWING THE AFORESAID DECISION DIFFERENT BENCHES OF THE TRIBUNAL INCLUDIN G MUMBAI BENCHES HAVE HELD THAT IN ABSENCE OF ANY EXEMPT INCOME IN A PART ICULAR ASSESSMENT YEAR NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. IN A SSESSEES OWN CASE FOR A.Y. 2009-10 AND 2010-11 (SUPRA) THE TRIBUNAL H AS 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 RELEV ANT PREVIOUS YEAR THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, BY WAY O F 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 CONTENDE D THAT THOSE INVESTMENTS WHERE THE ASSESSEE HAS NOT EARNED ANY I NCOME SHOULD BE EXCLUDED FOR COMPUTING DISALLOWANCE UNDER SECTION 1 4A. IN ANY CASE OF THE MATTER, EXCLUSION OF INVESTMENTS NOT YIELDING EXEMP T 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 INCOME SECTION 14A ITSELF IS INAPPLICABLE. ACC ORDINGLY, GROUND RAISED IS ALLOWED. 6. IN GROUND NOS. 3 & 4 ASSESSEE HAS CHALLENGED DISALL OWANCE OF ` 19,09,775/- UNDER SECTION 40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX UNDER SECTION 194H ON THE PAYMENTS MADE TO RESTRICT ED MONEY CHANGERS (RMCS). 7. BRIEF FACTS ARE, AS DISCUSSED EARLIER THE ASSESSEE IS IN THE BUSINESS OF TOURS AND TRAVELS AND IN THE COURSE OF SUCH BUSINES S IT ALSO ENGAGES ITSELF IN TRADING IN FOREIGN CURRENCY. DURING THE ASSESSME NT PROCEEDINGS THE AO NOTICING THAT THE ASSESSEE WAS ALSO ENGAGED IN THE BUSINESS OF TRADING IN FOREIGN EXCHANGE CALLED FOR THE DETAILS OF SUCH TRA NSACTIONS. IN RESPONSE, ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 5 THE ASSESSEE FURNISHED FOREIGN EXCHANGE TRADING ACC OUNT WHEREIN AN AMOUNT OF ` 51,13,680/- WAS DEBITED TOWARDS COMMISSION PAYMENT. THE AO CALLED UPON THE ASSESSEE TO FURNISH DETAILS OF T AX DEDUCTED AT SOURCE ON SUCH PAYMENTS. FROM THE DETAILS SUBMITTED BY THE AS SESSEE HE FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON AN A MOUNT OF ` 19,09,775/-. WHEN CALLED UPON TO EXPLAIN THE REASON FOR NON DEDU CTION OF TAX AT SOURCE ON SUCH AMOUNT, IT WAS SUBMITTED BY THE ASSESSEE TH AT THE PAYMENT WAS NOT IN THE NATURE OF COMMISSION BUT PREMIUM PAID SE PARATELY TO RMCS AT GOA FOR PURCHASE OF FOREIGN CURRENCY BY THE ASSESSE E FROM THEM AND WHICH THEY, IN TURN HAVE PURCHASED FROM FOREIGN TOURISTS. IT WAS SUBMITTED, RMCS REQUESTED FOR REIMBURSEMENT AT CARD RATE, I.E. THE RATE AT WHICH THEY PAID TO THE TOURISTS IN ORDER TO KEEP TRACK OF PROF ITS EARNED BY THEM ON STOCK SOLD TO THE ASSESSEE. THE AO WAS NOT CONVINCE D WITH THE EXPLANATION OF THE ASSESSEE. HE OPINED, THOUGH, THE ASSESSEE HA S CLAIMED TO HAVE ENTERED INTO SUCH TRANSACTIONS WITH RMCS ON PRINCIP AL TO PRINCIPAL BASIS HOWEVER THE FACTS INDICATE A PRINCIPAL AND AGENT RE LATIONSHIP AS THE SO CALLED PREMIUM IS DEBITED UNDER THE HEAD COMMISSION WHICH IS OVER AND ABOVE THE PURCHASE PRICE. SINCE, THE ASSESSEE HAD N OT DEDUCTED TAX AT SOURCE ON SUCH PAYMENT, THE AO DISALLOWED THE AMOUN T OF ` 19,09,775/- UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE CH ALLENGED THE DISALLOWANCE BEFORE THE CIT(A). 8. BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESSEE R EITERATED THE STAND TAKEN BEFORE THE AO. THE LEARNED CIT(A) AFTER CONSI DERING THE SUBMISSIONS OF THE ASSESSEE SUSTAINED THE ADDITION BY HOLDING T HAT PAYMENT MADE BY THE ASSESSEE IS COVERED UNDER SECTION 194H. WHILE H OLDING SO, HE ALSO OBSERVED THAT THE ASSESSEE HAS ITSELF ORIGINALLY BO OKED SUCH EXPENDITURE AS COMMISSION. 9. THE LEARNED A.R. SUBMITTED THAT THE ASSESSEE HAS BE EN AUTHORISED BY THE RESERVE BANK OF INDIA (RBI) TO DEAL IN FOREI GN 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 PLAC ES IN INDIA INCLUDING ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 6 GOA. THESE RMCS OPERATE FROM THEIR SHOPS/HOTELS TO ENCASH FOREIGN CURRENCY AND TRAVELLERS CHEQUES FROM FOREIGN TOURIS TS. 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 ASSESS EES FOREIGN EXCHANGE DIVISION AND ASSESSEE PAYS PREMIUM TO THE RMCS FOR BULK PURCHASE OF FOREIGN CURRENCY AND TRAVELLERS CHEQUES. HE SUBMITT ED, SINCE, THE RMCS HOLD THESE FOREIGN CURRENCY/TRAVELLERS CHEQUES AS T HEIR STOCK IN TRADE AND SELL THEM TO THE ASSESSEE AS GOODS IT IS A DIRECT S ALE TRANSACTION BETWEEN TWO PRINCIPALS AND THERE IS NO PRINCIPAL AGENT RELA TIONSHIP. HE SUBMITTED, THE ASSESSEE HAS NOT APPOINTED RMCS AS ITS AGENTS T O PROCURE/COLLECT FOREIGN EXCHANGE AND TRAVELLERS CHEQUES FROM TOURIS TS. THEREFORE, PROVISIONS OF SECTION 194H ARE NOT ATTRACTED. EXPLA INING FURTHER THE REASONS FOR NOT DEDUCTING TAX ON PREMIUM THE LEARNE D A.R. SUBMITTED, THE ASSESSEE ALSO SELLS FOREIGN EXCHANGE TO PERSONS IN NEED OF SUCH CURRENCIES. GENERALLY, PERSONS IN NEED OF FOREIGN CURRENCY ARE BROUGHT BY VARIOUS TRAVEL AGENTS TO THE ASSESSEE FOR SALE OF FOREIGN C URRENCY. HE SUBMITTED, COMMISSION IS PAID TO THE TRAVEL AGENTS WHO BRING C USTOMERS TO THE ASSESSEE FOR PURCHASE OF FOREIGN CURRENCY. HE, THER EFORE, SUBMITTED BOTH THESE TRANSACTIONS CANNOT BE EQUATED. HENCE, THE AS SESSEE HAS DEDUCTED TAX AT SOURCE UNDER SECTION 194H OF THE ACT IN RESP ECT OF SALES OF FOREIGN CURRENCIES TO DIFFERENT PERSONS WHO ARE REFERRED TO BY VARIOUS TRAVEL AGENTS. AS FAR AS PURCHASE OF FOREIGN CURRENCY IN BLOCK FRO M RMCS, IT IS NOT A CASE OF PAYMENT OF COMMISSION BUT A PREMIUM WAS PAID ON THE BASIS OF DIFFERENCE BETWEEN THE RBI RATE AND THE PURCHASE PR ICE AT WHICH THE RMCS HAVE PURCHASED THE CURRENCY FROM TOURISTS. THE LEAR NED A.R. SUBMITTED, THOUGH, THE ASSESSEE HAS PAID PREMIUM AT OTHER PLAC ES ALSO, DISALLOWANCE HAS ONLY BEEN MADE IN GOA, AND THAT TOO, ONLY IN TH E IMPUGNED ASSESSMENT YEAR. TO DEMONSTRATE THE DIFFERENCE BETW EEN THE PREMIUM AND COMMISSION PAYMENT THE LEARNED A.R. DREW OUR ATTENT ION TO THE DETAILS OF COMMISSION PAID AND PREMIUM PAID AS PLACED IN THE P APER BOOK. THE LEARNED A.R. DRAWING OUR ATTENTION TO SCHEDULE 6 OF THE BALANCE SHEET SUBMITTED, THE ASSESSEE HAS SHOWN THE FOREIGN CURRE NCY AS ITS STOCK AND ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 7 THE RMCS HAVE ALSO SHOWN IT AS STOCK IN THEIR BOOKS OF ACCOUNT. THEREFORE, IT IS NOTHING BUT A PURCHASE AND SALE TRANSACTION B ETWEEN TWO PRINCIPALS. THEREFORE, IT WILL NOT ATTRACT THE PROVISIONS OF SE CTION 194H AND CONSEQUENTLY SECTION 40(A)(IA). 10. THE LEARNED D.R. RELIED UPON THE OBSERVATIONS OF TH E CIT(A). 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. AS DISCUSSED EARLIER, THE ASSESSEE HAS A FO REIGN EXCHANGE DIVISION APPROVED BY THE RBI AND IS AUTHORISED TO BUY FOREIG N EXCHANGE AND TRAVELLERS CHEQUES FROM RMCS AND OTHERS AND SELL TH EM TO PERSONS IN NEED OF THEM. RMCS ARE ALSO AUTHORISED BY RBI TO BUY FOR EIGN CURRENCY FROM NON RESIDENTS VISITING VARIOUS PLACES IN INDIA. THE SE FACTS WOULD SHOW THAT THE RMCS ARE NOT AGENTS OF THE ASSESSEE BUT ARE APP OINTED BY RBI. THOUGH, IT MAY BE A FACT THAT THE ASSESSEE BUYS FOR EIGN 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 FO REIGN CURRENCY AS THEIR STOCK IN TRADE. THE ASSESSEE HAS NO RELATIONS HIP WITH THE PERSONS FROM WHOM THE RMCS PURCHASE FOREIGN CURRENCY AND TH E 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 WITHOU T LOOKING AT THE REAL NATURE OF THE TRANSACTION. THE AO MUST BRING ON REC ORD MATERIAL TO ESTABLISH THAT THERE IS A PRINCIPAL AGENT RELATIONS HIP 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 BE TWEEN THEM. FURTHER, ASSESSEES CONTENTION THAT IN NO OTHER PLACE IN IND IA SUCH PREMIUM PAID HAS BEEN DISALLOWED REQUIRES TO BE TAKEN NOTE OF. I T IS ALSO RELEVANT TO OBSERVE, EVEN IN RESPECT OF PREMIUM PAYMENT IN GOA, EXCEPT, THE ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 8 IMPUGNED ASSESSMENT YEAR IN NO OTHER ASSESSMENT YEA R SUCH DISALLOWANCE UNDER SECTION 40(A)(IA) HAS BEEN MADE. THAT BEING T HE CASE, WE ARE INCLINED TO DELETE THE ADDITION MADE BY THE AO. 12. IN GROUND NOS. 5 TO 9 THE ASSESSEE HAS CHALLENGED T HE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT FOR AN AMOU NT OF ` 16,29,488/- ON ACCOUNT OF SHORT DEDUCTION OF TAX AT SOURCE. 13. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PROCEE DINGS THE AO WHILE VERIFYING THE DEDUCTION CLAIMED BY THE ASSESS EE ON ACCOUNT OF EXPENSES INCURRED TOWARDS LEGAL AND PROFESSIONAL FE ES CALLED FOR NECESSARY DETAILS FROM THE ASSESSEE. ON EXAMINING THE DETAILS THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD DEDUCTED TAX AT A RATE LOWER THAN WHAT IS PRESCRIBED UNDER SECTION 194J OF THE ACT. FURTHER, IN SO FAR A S PAYMENT MADE TOWARDS ADVERTISING EXPENSES TO VARIOUS PARTIES, THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD DEDUCTED TAX AT A RATE LOWER THAN WHAT IS PRESCRIBED UNDER THE PROVISIONS OF THE ACT. ACCORDINGLY, HE DISALLOW ED AN AMOUNT OF ` 16,29,488/- UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE CIT(A). 14. BEFORE THE CIT(A) THE ASSESSEE TOOK A SPECIFIC PLEA THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CANNOT BE ATTRACTED TOWARDS SHORT DEDUCTION OF TAX AND IN SUPPORT OF SUCH CONTENTION HE RELIED UPON DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. S.K. TEKRIWAL (2012) 361 ITR 43 AND THE DECISION OF THE ITAT MUMBAI BENC HES IN THE CASE OF DCIT VS. BLC INDIA P. LTD. ITA NO. 5793/MUM/2010. T HE LEARNED CIT(A) HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE. RELYING UPON A DECISION OF THE HONBLE KERALA HIGH COURT THE LEARN ED CIT(A) UPHELD THE DISALLOWANCE MADE BY THE AO. THE LEARNED A.R. REITE RATING THE STAND TAKEN BEFORE THE CIT(A) SUBMITTED THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY IN CASE OF NON-DEDUCTION OF TAX AT SOURCE AND NOT FOR SHORT DEDUCTION OF TAX AT SOURCE. IN SUPPORT OF SUCH CONT ENTION HE RELIED UPON THE FOLLOWING DECISIONS: - (I) CIT VS. S.K. TEKRIWAL (2014) 361ITR 432 ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 9 (II) CIT VS. KISHORE RAO, HUF (2016) 387 ITR 196 15. THE LEARNED D.R. SUPPORTED THE FINDINGS OF THE CI T(A). HE ALSO RELIED UPON THE DECISION OF THE HONBLE 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 PERUSE D THE MATERIAL ON RECORD. THE SHORT ISSUE ARISING FOR CONSIDERATIO N 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 W HICH THE ASSESSEE HAS DEDUCTED TAX AT SOURCE AT A RATE LOWER THAN THE PRE SCRIBED RATE. WE FIND, THERE IS NO DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT ON THIS ISSUE. HOWEVER, DIVERGENT VIEWS HAVE BEEN EXPRESSED BY DIF FERENT 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'BL E KERALA HIGH COURT IN THE CASE OF PVS MEMORIAL HOSPITAL (SUPRA) HAS TAKEN A CONTRARY VIEW BY HOLDING THAT THE PROVISIONS OF SECTION 40(A)(IA) GE TS ATTRACTED EVEN TO A CASE OF SHORT DEDUCTION OF TAX. WE MAY ALSO NOTE THAT DI FFERENT BENCHES OF THE TRIBUNAL HAVE FOLLOWED THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT AND HELD THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) C AN BE MADE FOR SHORT DEDUCTION OF TAX AT SOURCE. SINCE, THERE IS NO DECI SION OF THE HON'BLE JURISDICTIONAL HIGH COURT ON THIS ISSUE, WE ARE INC LINED TO FOLLOW THE DECISIONS OF THE HON'BLE CALCUTTA HIGH COURT AND TH E HON'BLE KARNATA HIGH COURT AS REFERRED TO ABOVE WHICH ARE FAVOURABLE TO THE ASSESSEE AND HOLD THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) CAN BE MADE IN A CASE WHERE THE ASSESSEE HAS DEDUCTED TAX AT SOURCE AT A LOWER RATE. A PLAIN READING OF SECTION 40(A)(IA) WOULD ALSO MAKE IT CLEAR THAT DIS ALLOWANCE UNDER SUCH PROVISION CAN BE MADE ONLY IF THERE IS NO DEDUCTION OF TAX AT SOURCE OR THE ASSESSEE HAS FAILED TO PAY TO THE GOVERNMENT ACCOUN T THE TDS AMOUNT AFTER DEDUCTING THE SAME. IN ANY CASE OF THE MATTER , AS BROUGHT TO OUR NOTICE BY THE LEARNED A.R. THE PAYEE HAS OFFERED TH E AMOUNT PAID BY THE ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 10 ASSESSEE AS INCOME IN THE RELEVANT ASSESSMENT YEAR. THEREFORE, IN TERMS OF THE SECOND PROVISO TO SECTION 40(A)(IA) NO DISALLOW ANCE CAN BE MADE. IN VIEW OF THE AFORESAID, WE DELETE THE ADDITION MADE BY THE AO AND AFFIRMED BY THE CIT(A). GROUNDS ARE ALLOWED. 17. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ITA NO. 5583/MUM/2015 18. THIS APPEAL HAS BEEN PREFERRED BY THE DEPARTMENT. T HERE IS A DELAY OF 5 DAYS IN FILING THE APPEAL. THE LEARNED D.R. SU BMITTED BEFORE US THAT THE DELAY OF 5 DAYS WAS DUE TO INTERVENING HOLIDAYS AND DUE TO UNAVOIDABLE ADMINISTRATIVE PROCEDURES. THE LEARNED A.R. HAS NO OBJECTION IN CONCONDING THE DELAY. HAVING CONSIDERED THE SUBMISS IONS OF THE PARTIES WE ARE INCLINED TO CONDONE THE DELAY OF 5 DAYS IN FILI NG THE APPEAL AS SUCH DELAY IS FOR BONAFIDE REASONS. HENCE WE ADMIT THE A PPEAL FOR DECIDING ON MERITS. 19. THE DEPARTMENT HAS RAISED TWO GROUNDS. GROUND NO. 1 IS AGAINST THE DIRECTION OF THE CIT(A) FOR RECOMPUTATION OF DI SALLOWANCE MADE UNDER SECTION 14A. SINCE, WE HAVE ALREADY DECIDED THIS IS SUE WHILE DISPOSING OFF GROUND NOS. 1 & 2 OF ASSESSEES APPEAL IN ITA NO. 5 440/MUM/2015 IN THE EARLIER PART OF THE ORDER, THIS GROUND HAS BECOME I NFRUCTUOUS, HENCE, DISMISSED. 20. IN GROUND NO. 2 THE DEPARTMENT HAS RAISED THE ISSUE OF VIOLATION OF RULE 46A OF THE I.T. RULES BY THE CIT(A). 21. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PROCEE DINGS THE AO HAVING FOUND THAT THE ASSESSEE HAS DEBITED EXPENDIT URE AMOUNTING TO ` 20,04,37,496/- ON ACCOUNT OF BROKERAGE PAYMENT TO V ARIOUS PARTIES FOR ARRANGING INTER CORPORATE DEPOSITS (ICDS) CALLED U PON THE ASSESSEE TO FURNISH NECESSARY DETAILS. AFTER VERIFYING PARTY-WI SE DETAILS OF BROKERAGE PAYMENT FURNISHED BY THE ASSESSEE THE AO ALLEGED CE RTAIN DISCREPANCIES IN SUCH PAYMENTS AND ULTIMATELY HELD THAT THE PAYMENTS ARE NEITHER GENUINE ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 11 NOR FOR THE PURPOSE OF ASSESSEES BUSINESS. ACCORDI NGLY, 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 D ELETED THE ADDITION MADE BY THE AO. 22. THE LEARNED D.R. RELIED UPON THE GROUND RAISED BY T HE 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 HA D FURNISHED ADDITIONAL EVIDENCE BEFORE THE CIT(A), HOWEVER, THE CIT(A) WAS FAIR ENOUGH TO DIRECT THE AO TO EXAMINE SUCH ADDITIONAL EVIDENCE AND SUBM IT HIS REPORT. HE SUBMITTED, ONLY AFTER CONSIDERING THE REMAND REPORT SUBMITTED BY THE AO THE LEARNED CIT(A) HAS DECIDED THE ISSUE. HE SUBMIT TED, IDENTICAL ISSUE WAS RAISED BY THE DEPARTMENT IN ASSESSMENT YEAR 2008-09 AND THE TRIBUNAL, HAVING FOUND THAT ADEQUATE OPPORTUNITY WAS GIVEN TO THE AO TO CONSIDER THE ADDITIONAL EVIDENCE, DISMISSED THE GROUND RAISE D BY THE DEPARTMENT. 24. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. THE GRIEVANCE OF THE DEPARTMENT IN THIS GRO UND IS THAT THE LEARNED CIT(A) HAS DELETED THE ADDITION RELYING UPON ADDITI ONAL EVIDENCE PRODUCED BY THE ASSESSEE WITHOUT COMPLYING TO THE PROVISIONS OF RULE 46A. HOWEVER, THE OBSERVATIONS MADE IN PARA 7.4 OF THE IMPUGNED O RDER OF THE LEARNED CIT(A) REVEALS THAT THE AO WAS GIVEN OPPORTUNITY TO EXAMINE THE ADDITIONAL EVIDENCE AND OFFER HIS COMMENTS. IT IS ALSO EVIDENT THAT THE AO AFTER EXAMINING THE ADDITIONAL EVIDENCE HAS SUBMITTED HIS REPORT, WHEREIN, HE HAD ACCEPTED THAT THE PAYMENTS WERE MADE TO THE PAR TIES FOR SERVICES RENDERED BY THEM TO THE ASSESSEE. ONLY AFTER CONSID ERING THE REMAND REPORT THE CIT(A) HAS ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE. THUS, AS CAN BE SEEN, FULL OPPORTUNITY WAS GIVEN TO THE A O TO EXAMINE THE ADDITIONAL EVIDENCE. THEREFORE, THE ALLEGATION THAT THE CIT(A) HAS NOT COMPLIED WITH RULE 46A IS WITHOUT ANY BASIS. WE MAY ALSO NOTE THAT IDENTICAL GROUND WAS RAISED BY THE DEPARTMENT IN AN APPEAL BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008 AND T HE TRIBUNAL HAVING ITA 5583&5440/M/2003&CO117/M/2017 M/S. COX & KINGS (I) LTD. 12 FOUND THAT OPPORTUNITY WAS GIVEN TO THE AO TO EXAMI NE THE EVIDENCE DISMISSED THE GROUND RAISED BY THE DEPARTMENT. IN V IEW OF THE AFORESAID, THE GROUND RAISED BY THE DEPARTMENT BEING DEVOID OF ANY MERIT IS HEREBY DISMISSED. 25. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT I S DISMISSED. CO NO. 117/MUM/2017 26. THE GROUNDS RAISED IN THE CROSS OBJECTION ARE MEREL Y IN SUPPORT OF THE ORDER OF THE CIT(A). IN VIEW OF OUR DECISION IN THE CROSS APPEALS THESE GROUNDS HAVE BECOME INFRUCTUOUS, HENCE DISMISSED. 27. IN THE RESULT THE CROSS OBJECTION IS DISMISSED. 28. TO SUM UP, ASSESSEES APPEAL IS ALLOWED AND THE APP EAL OF THE DEPARTMENT AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH OCTOBER, 2017. SD/ - SD/ - (G. MANJUNATHA) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 6 TH OCTOBER, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -2, MUMBAI 4. THE CIT - 1, MUMBAI 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.