Somatheeram Ayurvedic beach Resorts P.Ltd, Trivandrum V. ACIT, Trivandrum

CO 17/COCH/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8302 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 04-12-2012
• Court: TRIBUNAL
• Department Lawyers: SUSAN GEORGE VARGHESE
• Assessee Lawyers: K I JOHN
• Keywords: Depreciation; Principle of natural justice
• Section: 40A(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 203 & 260/COCH/2011 ASSESSMENT YEARS : 2005-06 & 06-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, TRIVANDRUM. VS. SOMATHEERAM AYURVEDIC HOSPITAL & YOGA CENTRE (P) LTD., CHOWARA P.O., BALARAMAPURAM, TRIVANDRUM. [PAN:AAECS 5973K] (REVENUE-APPELLANT) (ASSESSEE- R ESPONDENT) C.O. NOS. 17 & 18/COCH/2012 (ARSG. OUT OF I.T.A. NOS. 203 & 260/COCH/2011 ASSESSMENT YEARS : 2005-06 & 06-07 SOMATHEERAM AYURVEDIC HOSPITAL & YOGA CENTRE (P) LTD., CHOWARA P.O., BALARAMAPURAM, TRIVANDRUM. [PAN:AAECS 5973K] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE- R ESPONDENT) REVENUE BY SMT. SUSAN GEORGE VARGHESE, SR. DR ASSESSEE BY SHRI K.I. JOHN, CA DATE OF HEARING 27/02/2013 DATE OF PRONOUNCEMENT 28/02/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-I, TRIVANDRUM AND THEY RELATE TO THE ASSESSMENT YEARS 2005-06 AND 2006-07. THE CROSS OB JECTIONS FILED BY THE ASSESSEE ARE BARRED BY LIMITATION AND THE ASSESSEE HAS MOVED A P ETITION REQUESTING THE BENCH TO CONDONE THE DELAY. HAVING REGARD TO THE SUBMISSION S MADE IN THE PETITION, WE CONDONE THE DELAY AND ADMIT THE CROSS OBJECTIONS FOR HEARIN G. SINCE SOME OF THE ISSUES URGED IN I.T.A. NOS.203 & 260/COCH/2011 & C.O. NOS.17 & 18/COCH/2012 2 THESE APPEALS ARE IDENTICAL IN NATURE, THEY WERE HE ARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENC E. 2. FOLLOWING ISSUES ARE URGED BY THE REVENUE IN THE APPEALS FILED FOR ASSESSMENT YEAR 2005-06 AND ASSESSMENT YEAR 2006-07:- A. ASSESSMENT YEAR 2005-06:- DELETION OF DISALLOWANCE MADE U/S 40(A)(I ) OF THE ACT. B. ASSESSMENT YEAR 2006-07:- (A) DELETION OF DISALLOWANCE MADE U/S 40(A)(I) OF THE A CT. (B) ALLOWING DEDUCTION U/S 80IB OF THE ACT. 3. FOLLOWING ISSUES ARE URGED BY THE ASSESSEE I N THE CROSS OBJECTIONS FILED BY IT. A. ASSESSMENT YEAR 2005-06:- (A) DISALLOWANCE MADE U/S 40A(3) OF THE ACT. (B) DISALLOWANCE OF PENALTY AMOUNT OF RS.21,290/- B. ASSESSMENT YEAR 2006-07:- (A) DISALLOWANCE MADE U/S 40A(3) OF THE ACT. (B) DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. (C) DISALLOWANCE OF DEPRECIATION CLAIM. (D) DISALLOWANCE OF PART OF BUSINESS PROMOTION EXPENSES . 4. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE TOURISM BUSINESS, I.E., IT PROVIDES THE TOURISTS WITH THE TRADITIONAL AYURVEDA TREATMENT AND MASSAGES DESIGNED TO REJUVEN ATE THE MIND AND BODY. THE ASSESSMENTS OF BOTH THE YEARS UNDER CONSIDERATION W ERE COMPLETED BY THE ASSESSING OFFICER BY MAKING CERTAIN DISALLOWANCES. THE ASSES SEE PREFERRED APPEALS BEFORE LD CIT(A) AND GOT PARTIAL RELIEF. AGGRIEVED BY THE OR DERS PASSED BY LD CIT(A), BOTH THE PARTIES HAVE FILED THESE APPEALS ON THE POINTS DECI DED BY THE FIRST APPELLATE AUTHORITY AGAINST EACH OF THEM. 5. WE SHALL FIRST TAKE UP THE APPEALS FILED BY T HE REVENUE. THE COMMON ISSUE URGED IN BOTH THE YEARS RELATE TO THE DISALLOWANCE MADE U /S 40(A)(I) OF THE ACT. THE FACTS RELATING TO THE SAME ARE STATED IN BRIEF. THE ASSE SSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED A SUM OF RS.98,91,797/- AND RS.40,15,08 2/- UNDER THE HEAD BUSINESS PROMOTION EXPENSES DURING THE ASSESSMENT YEARS 2005 -06 AND 2006-07 RESPECTIVELY. I.T.A. NOS.203 & 260/COCH/2011 & C.O. NOS.17 & 18/COCH/2012 3 THE AO FURTHER NOTICED THAT, OUT OF THE ABOVE SAID CLAIMS, THE ASSESSEE HAD INCURRED A SUM OF RS.55,51,626/- AND RS.6,27,308/- IN FOREIGN CURRENCY RESPECTIVELY DURING THE ABOVE SAID TWO YEARS. THE AO TOOK THE VIEW THAT TH E AMOUNT SPENT IN FOREIGN CURRENCY IS LIABLE FOR DEDUCTION OF TAX AT SOURCE AS PER THE PROVISIONS OF SEC. 195 OF THE ACT AND ACCORDINGLY DISALLOWED THE AMOUNTS SPENT IN FOREIGN CURRENCY BY INVOKING THE PROVISIONS SEC. 40(A)(I) OF THE ACT. THE LD CIT(A), HOWEVER, DELETED THE SAID ADDITION IN BOTH THE YEARS WITH THE OBSERVATION THAT THE IMPUGNED PAYMEN TS ARE LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. AN IDENTICAL ISSUE CAME UNDER THE CONSIDERATION OF THIS BENCH IN THE C ASE OF SOMATHEERAM AYURVEDIC HOSPITAL & YOGA CENTRE (P) LTD IN ITA NO. 153/COCH/ 2012 RELATING TO THE ASSESSMENT YEAR 2005-06. THE RELEVANT DISCUSSIONS AND DECISIO N TAKEN IN THAT CASE BY THE BENCH, VIDE ITS ORDER DATED 08-02-2013 ARE EXTRACTED BELOW , FOR THE SAKE OF CONVENIENCE:- 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE U/S. 40(A)(I) OF THE ACT. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE-COM PANY HAD CLAIMED A DEDUCTION OF RS.77,28,722/- UNDER THE HEAD BUSINE SS PROMOTION EXPENSES. IT WAS NOTICED THAT A SUM OF RS. 55,56,521/- WAS SPENT IN FOREIGN COUNTRIES, ON WHICH THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE A S PER THE PROVISIONS OF SEC. 195 OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE ABOVE SUM OF RS.56,56,521/- BY INVOKING THE PROVISIONS O SEC. 40 (A)(I) OF THE ACT. THE LD. CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE. 8 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE PROVISIONS OF SEC. 195 REQUIRING DEDUCTION OF TAX AT SOURCE FOR PAYMENTS M ADE TO NON-RESIDENTS SHALL APPLY ONLY IN RESPECT OF SUMS CHARGEABLE TO INCOME TAX. HE SUBMITTED THAT THE IMPUGNED AMOUNT OF RS. 55.56 LAKHS WAS SPENT OUTSID E THE COUNTRY BY THE ASSESSEE AND THE RECIPIENTS OF THE AMOUNT DID NOT H AVE ANY BUSINESS ESTABLISHMENT IN INDIA. ACCORDINGLY BY PLACING RELI ANCE ON THE FOLLOWING DECISIONS, THE LD. AR SUBMITTED THAT THERE IS NO NECESSITY ON THE PART OF THE ASSESSEE TO DEDUCT TDS U/S. 195 OF THE ACT IN RESPECT OF THE AB OVE SAID PAYMENTS: A) GE INDIA TECHNOLOGY CENTRE P. LTD. VS. CIT (SC) (327 ITR 456) B) CIT VS. CARGILL GLOBAL TRADING (I) (P) LTD. (24 1 CTR (DEL.) 443. ON THE CONTRARY, THE LD. DR SUPPORTED THE ORDER PAS SED BY THE LD. CIT(A) ON THIS ISSUE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. WE NOTICE THAT THE SUBMISSION OF THE ASSESSEE THAT THE SE EXPENSES WERE INCURRED OUTSIDE THE COUNTRY THROUGH ITS BUSINESS PROMOTION AGENTS WAS NOT EXAMINED BY I.T.A. NOS.203 & 260/COCH/2011 & C.O. NOS.17 & 18/COCH/2012 4 THE ASSESSING OFFICER. APPARENTLY, THE IMPUGNED DI SALLOWANCE HAS BEEN MADE UNDER THE IMPRESSION THAT THE ASSESSEE HAS PAID A S UM OF RS. 55.56 LAKHS TO M/S. AYUR TOURS AND PROMOTION, GERMANY. THE LD CIT(A) HA S TAKEN THE VIEW THAT THE ASSESSEE HAS SUO MOTO DECIDED NOT TO DEDUCT TAX AT SOURCE ON THE SAID PAYMENTS WITHOUT COMPLYING WITH THE PROVISIONS OF SEC. 195(3 ) OF THE ACT. HOWEVER, THE ASSESSEE HAS PLACED RELIANCE ON TWO CASE LAWS, REFE RRED SUPRA, TO CONTEND THAT IT IS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S. 195 OF T HE ACT AS THE IMPUGNED AMOUNT IS NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF R ECIPIENTS OF THE SAME. APPARENTLY, NEITHER THE ASSESSING OFFICER NOR THE L D. CIT(A) HAS EXAMINED THE ISSUE OF TAXABILITY OF THE IMPUGNED AMOUNTS IN INDI A IN THE HANDS OF THE RECIPIENTS. UNDER THESE CIRCUMSTANCES, WE ARE OF T HE VIEW THAT THIS ISSUE REQUIRES EXAMINATION AFRESH AT THE END OF THE ASSES SING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE I SSUE AFRESH BY DULY CONSIDERING THE SUBMISSIONS MADE/THAT MAY BE MADE BY THE ASSES SEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 7. IT CAN BE SEEN THAT THE HONBLE SUPREME CO URT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P LTD, (SUPRA) HAS HELD THAT THE PROVISIONS OF SEC. 195 SHALL APPLY ONLY ON THE SUM CHARGEABLE TO TAX IN INDIA. THE CO NTENTION OF THE ASSESSEE IS THAT THE AMOUNT SPENT IN FOREIGN CURRENCY IS NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE RECIPIENTS. HOWEVER, BOTH THE PARTIES HAVE FAILED TO FURNISH BEFORE US THE DETAILS OF EXPENSES AND THE DETAILS OF RECIPIENTS. THE ASSESS ING OFFICER HAS ALSO FAILED TO EXAMINE WHETHER THE RECIPIENTS OF THE AMOUNTS ARE LIABLE TO PAY TAX ON THE SAME. THE LD CIT(A) HAS ALSO GRANTED RELIEF WITHOUT GIVING A FINDING ON THE SAID QUESTION. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THIS ISSUE R EQUIRES FRESH LOOK AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE O RDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFIC ER WITH THE DIRECTION TO EXAMINE THE DETAILS OF PAYMENTS, GIVE A FINDING ABOUT THE TAXAB ILITY OF THE SAME IN THE HANDS OF THE RECIPIENTS AND TAKE APPROPRIATE DECISION IN ACCORDA NCE WITH THE LAW. THE ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE INFORMATION THAT M AY BE CALLED FOR THE ASSESSING OFFICER IN THIS REGARD. 8. THE NEXT ISSUE IN THE APPEAL FILED BY THE RE VENUE FOR THE ASSESSMENT YEAR 2006-07 RELATES TO THE DEDUCTION U/S 80IB OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON THE GROUND THA T THE ASSESSEE HAS FAILED TO PRODUCE ANY PROOF. BEFORE LD CIT(A), THE ASSESSEE SUBMITTE D COPIES OF STATEMENT, COPIES OF THE I.T.A. NOS.203 & 260/COCH/2011 & C.O. NOS.17 & 18/COCH/2012 5 AUDIT REPORT IN FORM NO.10CCB AND ALSO COPY OF THE ORDER OF DGIT (EXEMPTIONS) AS PROOF FOR THE CLAIM FOR DEDUCTION U/S 80IB OF THE A CT. ACCORDINGLY, THE LD CIT(A) DIRECTED THE AO TO ALLOW THE SAID CLAIM. 9. IN THE GROUNDS OF APPEAL, THE REVENUE HAS STA TED THAT THE ASSESSEE HAS FAILED TO MAKE A CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN I TS RETURN OF INCOME. HOWEVER, FROM THE STATEMENT OF TOTAL INCOME FILED BY THE ASSESSEE , WE NOTICE THAT THE ASSESSEE DID MAKE A CLAIM FOR DEDUCTION U/S 80IB OF THE ACT. FR OM THE ASSESSMENT ORDER, WE NOTICE THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM ONL Y FOR WANT OF PROOF. DURING THE COURSE OF HEARING, THE LD A.R SUBMITTED THAT ALL TH E MATERIALS FURNISHED BEFORE THE LD CIT(A) WERE ALSO FURNISHED BEFORE THE AO. THUS, WE NOTICE THAT THE AO HAD DISALLOWED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT WITHOUT PROPERLY EXAMINING THE EVIDENCES, IF ANY, FILED BY THE ASSESSEE. WE NOTICE THAT THE LD CIT(A) HAS ALLOWED THE CLAIM WITHOUT ASCERTAINING WHETHER THESE DOCUMENTS WERE FURNISHED BEFORE THE ASSESSING OFFICER, I.E., WITHOUT CALLING FOR A REMAND REPORT FROM THE AO. U NDER THESE CIRCUMSTANCES, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THA T THE RELEVANT DOCUMENTS REQUIRE EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE RELEVANT DOCUMENTS AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 10. WE SHALL NOT TAKE UP THE CROSS OBJECTIONS F ILED BY THE ASSESSEE. THE COMMON ISSUE URGED IN BOTH THE YEARS RELATE TO THE DISALLO WANCE MADE U/S 40A(3) OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HAD MADE PAYMENTS IN CASH IN RESPECT OF CERTAIN EXPENSES EXCEEDING RS.20,000/- IN VIOLATION OF THE PROVISIONS OF SEC. 40A(3) OF THE ACT. THE AGGREGATE AMOUNT OF EXPENSES SO INCURRED WAS RS .6,17,178/- AND RS.1,72,127/- RESPECTIVELY DURING THE ASSESSMENT YEARS 2005-06 AN D 2006-07. THE AO DISALLOWED 20% OF THE AGGREGATE AMOUNTS BY INVOKING THE PROVIS IONS OF SEC. 40A(3) OF THE ACT AND THE SAID DISALLOWANCE WAS CONFIRMED BY LD CIT(A) IN BOTH THE YEARS UNDER CONSIDERATION. 11. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE IMPUGNED PAYMENTS ARE COVERED BY THE EXEMPTION GIVEN BY CLAUSE (G) OF RUL E 6DD OF THE INCOME TAX RULES I.T.A. NOS.203 & 260/COCH/2011 & C.O. NOS.17 & 18/COCH/2012 6 WHICH PROVIDES THAT THE PAYMENTS MADE IN A VILLAGE OR TOWN WHICH ON THE DATE OF PAYMENTS WAS NOT SERVED BY ANY BANK, TO ANY PERSON WHO ORDINARILY RESIDES OR IS CARRYING ON ANY BUSINESS OR PROFESSION OR OCCASION IN ANY SUCH VILLAGE OR TOWN. HOWEVER, WE NOTICE THAT THE LD CIT(A) HAS GIVEN A C LEAR FINDING THAT THE PLACE WHERE THE ASSESSEE IS CARRYING ON BUSINESS IS SERVED BY A BANK, WHICH FINDING COULD NOT BE CONTROVERTED BY THE ASSESSEE. 12. THE LD COUNSEL SUBMITTED THAT THE RULE 6DD SHOULD BE LIBERALLY CONSTRUED AND ACCORDINGLY, IF THE GENUINENESS OF THE TRANSACTION, PAYMENTS AND IDENTITY OF THE PAYEES ARE ESTABLISHED, THE REQUIREMENT OF RULE 6DD SHOULD BE DEEMED TO HAVE BEEN SATISFIED. IN THIS REGARD HE PLACED RELIANCE ON THE DECISION R EPORTED IN 298 ITR 349 IN THE CASE OF SMT. HARSHILA CHORDIA VS. ITO (RAJ). HE ALSO PLACE D RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL KERALA HIGH COURT IN THE CASE OF CIT VS. INTERSEAS (2010)(233 CTR (KER) 77). WE HAVE GONE THROUGH BOTH THE DECISIONS. THE DECISION RENDERED BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF HARSHILA CHORDI A (SUPRA) RELATES TO THE ASSESSMENT YEAR 1993-94 WHEN THE EXCEPTIONS PROVIDED UNDER RUL E 6DD WERE DIFFERENT FROM THE ONE APPLICABLE TO THE YEARS UNDER CONSIDERATION. T HE DECISION RENDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF INTERSEAS (SUPRA) RELATES TO CLAUSE (F) OF RULE 6DD, WHICH IS APPLICABLE TO PAYMENTS MADE FOR PURCH ASE OF FISH OR FISH PRODUCTS. HENCE, BOTH THE DECISIONS, IN OUR VIEW, ARE NOT APP LICABLE TO THE FACTS OBTAINING IN THE INSTANT CASE. 13. THE LD A.R ALSO PLACED RELIANCE ON THE DECI SION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. SOUTH INDIA CORPORATION LTD (19 99)(157 CTR (KER) 422) TO SUBMIT THAT THE PROVISO IS ADDED TO AN ENACTMENT TO QUALIF Y OR CREATE AN EXCEPTION TO WHAT IS STATED IN ENACTMENT AND HENCE THE PROVISO CANNOT PR OVIDE ANYTHING REPUGNANT TO THE MAIN PROVISION. HE FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO REPOR TED IN 191 ITR 667 TO SUBMIT THAT THE TERMS OF SEC. 40A(3) ARE NOT ABSOLUTE AND THE C ONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. HE FU RTHER INVITED OUR ATTENTION TO THE OBSERVATIONS MADE BY THE HONBLE APEX COURT IN THE ABOVE SAID CASE, WHEREIN IT HAS I.T.A. NOS.203 & 260/COCH/2011 & C.O. NOS.17 & 18/COCH/2012 7 BEEN OBSERVED THAT THE GENUINE AND BONAFIDE TRANSAC TIONS ARE NOT TAKEN OUT OF SWEEP OF THE SECTION. 14. WE NOTICE THAT THE QUESTION BEFORE THE HONB LE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH (SUPRA) WAS WHETHER THE P ROVISIONS OF SEC. 40A(3) SHALL APPLY TO THE EXPENDITURE INCURRED FOR PURCHASE OF S TOCK IN TRADE AND RAW MATERIALS AND HENCE PRIMARILY THE WORD EXPENDITURE WAS INTERPRE TED BY THE APEX COURT IN THE ABOVE CITED CASE. FURTHER THE SAID DECISION WAS RENDERED IN THE CONTEXT OF RULE 6DD(J) THAT WAS EXISTING AT THE RELEVANT POINT OF TIME, WHICH P ROVIDED EXEMPTION FROM THE PROVISIONS OF SEC. 40A(3) UNDER EXCEPTIONAL AND UNA VOIDABLE CIRCUMSTANCES. THE SAID RULE 6DD(J) CONTAINING OMNIBUS CLAUSE HAS SINCE BEE N OMITTED LONG BACK. 15. THERE SHOULD NOT BE ANY DISPUTE THAT THE PR OVISIONS OF SEC. 40A(3) SHALL APPLY ONLY TO GENUINE AND BONAFIDE TRANSACTIONS, WHICH AR E OTHERWISE ALLOWABLE AS DEDUCTION WHILE COMPUTING THE INCOME. DISALLOWANCE TO BE MAD E U/S 40A(3) OF THE ACT IS A LEGAL FICTION CREATED BY THE STATUTE AND IN ORDER TO OVER COME THE GENUINE DIFFICULTIES, THE CBDT HAS BEEN GIVEN POWER TO PROVIDE EXCEPTIONS HAV ING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATI ON OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. ACCORDINGLY, RULE 6DD OF THE INC OME TAX RULES PRESCRIBES THE EXCEPTIONS. IF ANY PAYMENT IS COVERED BY ANY OF TH E EXCEPTIONS LISTED OUT IN RULE 6DD, THE SAME IS NOT LIABLE TO BE DISALLOWED U/S 40A(3) OF THE ACT. ACCORDINGLY, IT IS THE RESPONSIBILITY OF THE ASSESSEE TO PROVE THAT THE PA YMENTS MADE IN VIOLATION OF SEC. 40A(3) OF THE ACT FALLS UNDER ANY OF THE EXCEPTIONS GIVEN IN RULE 6DD OF THE ACT AS APPLICABLE TO THE YEARS UNDER CONSIDERATION. IN TH E INSTANT CASES, THE ASSESSEE HAS FAILED TO PROVE THAT THE IMPUGNED PAYMENTS ARE COVE RED BY ANY OF THE EXCEPTIONS LISTED OUT IN RULE 6DD OF THE INCOME TAX RULES. ACCORDING LY, WE DO NOT FIND ANY INFIRMITY IN THE DECISIONS RENDERED BY LD CIT(A) ON THIS ISSUE I N BOTH THE YEARS UNDER CONSIDERATION. 16. THE NEXT ISSUE RAISED BY THE IN THE CROSS O BJECTION RELATING TO THE ASSESSMENT YEAR 2005-06 RELATES TO THE DISALLOWANCE OF PENALTY AMOUNT PAID UNDER LUXURY TAX. THE ASSESSEE HAD PAID A SUM OF RS.21,290/- AS PENALTY U NDER LUXURY TAX ACT AND THE SAME WAS DISALLOWED BY THE AO. THE SAID DISALLOWANCE WA S ALSO CONFIRMED BY LD CIT(A). I.T.A. NOS.203 & 260/COCH/2011 & C.O. NOS.17 & 18/COCH/2012 8 THOUGH IT WAS URGED BEFORE US THAT THE SAID PAYMENT WAS NOT PENAL IN NATURE, NO DOCUMENT WAS ADDUCED TO SUPPORT THE SAME AND ACCORD INGLY WE DO NOT FIND ANY NECESSITY TO INTERFERE WITH THE DECISION OF LD CIT( A) ON THIS ISSUE. 17. THE NEXT ISSUE URGED IN THE CROSS OBJECTION FILED FOR THE ASSESSMENT YEAR 2006-07 RELATES TO THE DISALLOWANCE OF RS.14,54,270/- MADE U/S 40(A)(IA) OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HAD PAID A SUM OF RS.14,5 4,270/- TO VARIOUS PERSONS ON WHICH THE TAX WAS ALSO DEDUCTED AT SOURCE AT AN AMO UNT OF RS.36,120/-. HOWEVER, THE ASSESSEE DID NOT PAY THE TAX SO DEDUCTED AT SOURCE TO THE CREDIT OF THE CENTRAL GOVERNMENT BY THE DUE DATE. HENCE, THE AO DISALLOW ED THE EXPENDITURE RELATING TO THE SAID TDS AMOUNT OF RS.36,120/-, I.E., RS.14,54,270/ - AS PER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. THE LD CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE. 18. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. WE NOTICE THAT THE ASSESSEE HAS PAID THE TDS AMOUNT BEFORE THE DUE DATE FOR FIL ING RETURN OF INCOME. THE DETAILS OF PAYMENT OF TDS AMOUNT HAVE NOT BEEN CONSIDERED BY T HE TAX AUTHORITIES. THE LAW ON THIS ISSUE HAS SINCE BEEN DEVELOPED AND HENCE IN OU R VIEW THIS ISSUE REQUIRES RECONSIDERATION AT THE END OF THE ASSESSING OFFICER . ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW AFTER HEARING THE ASSESSEE. 19. THE NEXT ISSUE CONTESTED IN THE CROSS OBJECTIO N RELATING TO THE ASSESSMENT YEAR 2006-07 RELATES TO THE DISALLOWANCE OF DEPRECIATION AMOUNT OF RS.13,735/- ON THE GROUND THAT THE BUILDING ON WHICH THE ABOVE SAID AM OUNT WAS CLAIMED WAS NOT PUT TO USE. IT WAS CONTENDED BY THE ASSESSEE THAT THE ADD ITION WAS MADE TO AN EXISTING BUILDING, WHICH WAS ALREADY IN USE. HOWEVER, WE NO TICE THAT THE ASSESSING OFFICER HAS RECORDED A FINDING THAT THE ADDITION MADE TO THE BU ILDING WAS NOT COMPLETED BY THE YEAR END. IF THE CONSTRUCTION WAS NOT COMPLETE, TH EN THE QUESTION OF USING THE SAME FOR THE PURPOSE OF BUSINESS DOES NOT ARISE AT ALL. WE ALSO NOTICE THAT THE ASSESSEE DID NOT PRODUCE ANY MATERIAL BEFORE US TO CONTROVERT TH E FINDING ON THIS ASPECT. UNDER I.T.A. NOS.203 & 260/COCH/2011 & C.O. NOS.17 & 18/COCH/2012 9 THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO I NTERFERE WITH THE DECISION OF LD CIT(A) ON THIS ISSUE. 20. THE NEXT ISSUE CONTESTED IN THE CROSS OBJE CTION RELATING TO THE ASSESSMENT YEAR 2006-07 RELATES TO THE DISALLOWANCE OF BUSINESS PRO MOTION EXPENSES OF RS.37,800/-. IT WAS NOTICED THAT THE ASSESSEE HAS MADE FOLLOWING PA YMENTS TO VARIOUS CLUBS:- TRIVANDRUM CLUB 10,000 TENNIS CLUB 2,800 PRESS CLUB 25,000 THE ASSESSING OFFICER DISALLOWED THE ABOVE SAID PAY MENTS ON THE GROUND THAT THE ASSESSEE HAS FAILED TO SHOW THAT THEY WERE MADE IN THE CAPACITY AS CORPORATE ASSESSEE. IT WAS CONTENDED THAT THE ABOVE SAID AMOUNTS WERE I NCURRED FOR SOCIALIZING AND DEVELOPING CONTACTS FOR PROMOTING BUSINESS INTEREST S. HOWEVER, THE LD CIT(A) TOOK THE VIEW THAT THERE CANNOT BE A ROUND SUM PAYMENTS FOR SOCIALIZING AND DEVELOPING CONTACTS FOR PROMOTING BUSINESS INTERESTS AND ACCOR DINGLY CONFIRMED THE SAID DISALLOWANCE. 21. ACCORDING TO THE ASSESSEE, THE IMPUGNED PAY MENTS HAVE BEEN MADE IN THE CAPACITY OF THE CORPORATE MEMBER ONLY. HOWEVER, NO DOCUMENT WAS PRODUCED BEFORE US IN SUPPORT OF THE SAID CONTENTION. THE ASSESSEE ALSO RELIED UPON THE DECISION OF DELHI BENCH OF ITAT IN THE CASE OF HERO HONDA MOTOR S LTD VS. JCIT (103 ITD 157) TO CONTEND THAT THE MEMBERSHIP FEE IS ALLOWABLE AS DED UCTION. IN OUR VIEW ALSO, THE CORPORATE MEMBERSHIP FEE PAID BY THE ASSESSEE COMPA NY IS ALLOWABLE AS DEDUCTION AS IT ENABLES THE EMPLOYEES AND DIRECTORS TO SOCIALIZE AN D DEVELOP CONTACTS WITH VARIOUS PERSONS, WHICH WOULD IN TURN HELP PROMOTE THE BUSIN ESS INTERESTS OF THE COMPANY. IF THE MEMBERSHIP FEE IS PAID IN THE INDIVIDUAL NAMES, THEN THE TERMS OF EMPLOYMENT SHOULD PROVIDE FOR THAT AND IN THAT CASE ONLY, THE MEMBERSHIP FEE WOULD BE ALLOWABLE. HOWEVER, EXPENDITURE INCURRED ON FOOD AND OTHER NAT URE, IN OUR VIEW, ARE NOT ALLOWABLE AS DEDUCTION. IN THE INSTANT CASE, THE NATURE OF E XPENSES, I.E., WHETHER IT IS TOWARDS MEMBERSHIP OR TOWARDS ENTERTAINMENT, FOOD ETC., ARE NOT AVAILABLE. WE ALSO NOTICE THAT THE TAX AUTHORITIES HAVE DISALLOWED THE CLAIM WITHO UT ASCERTAINING THE EXACT NATURE OF EXPENSES. ACCORDINGLY, IN OUR VIEW, THIS ISSUE ALS O REQUIRES VERIFICATION AT THE END OF I.T.A. NOS.203 & 260/COCH/2011 & C.O. NOS.17 & 18/COCH/2012 10 THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE T HE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFIC ER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF FOREGOING DISCUSSIONS AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. THE ASSESSEE IS ALSO DIRE CTED TO FURNISH THE RELEVANT DETAILS TO THE ASSESSING OFFICER. 22. IN THE RESULT, BOTH THE APPEALS OF THE REVE NUE ARE TREATED AS ALLOWED. THE CROSS OBJECTION FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 IS TREATED AS PARTLY ALLOWED AND THE CROSS OBJECTION FILED FOR THE ASSES SMENT YEAR 2005-06 IS DISMISSED. PRONOUNCED ACCORDINGLY ON 28-02-2 013. - SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 28TH FEBRUARY, 2013 GJ COPY TO: 1. SOMATHEERAM AYURVEDIC HOSPITAL & YOGA CENTRE (P) LTD., CHOWARA P.O., BALARAMAPURAM, TRIVANDRUM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRA L CIRCLE-1, TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, TRIVA NDRUM. 4.THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN