M/s. Nine Dot Nine Mediaworx Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1262/DEL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6706 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 08-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VED JAIN ADV SHRI ASHISH GOEL
• Keywords: Earning of tax free income; Capital expenditure
• Section: 43B; 14A; 133(6); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMB ER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 1262/DEL/2016 AY: 20 09-10 M/S NINE DOT NINE MEDIAWORX PVT. LTD., VS IN COME TAX OFFICER, N-154, PANCHSHEEL PARK, WARD 13(3), NEW DELHI-110017 NEW DELHI. (PAN: AAFCM1910P) ITA NO. 863/DEL/2016 AY: 20 09-10 INCOME TAX OFFICER, VS M/S NINE DOT NINE ME DIAWORX PVT. LTD., WARD 18(3), NEW DELHI-110017 C.R. BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI ATIQ AHMED, SR. DR ASSESSEE BY : SHRI VED JAIN, ADV. SHRI ASHISH GOEL, CA DATE OF HEARING: 01.05.2018 DATE OF PRONOUNCEMENT: 30.07.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M. ITA NO. 863/DEL/2016 IS PREFERRED BY THE DEPARTMEN T AGAINST THE ORDER DATED 23.12.2015 PASSED BY THE LD . CIT (A)-20, NEW DELHI FOR ASSESSMENT YEAR 2009-10 WHEREAS ITA N O. 1262/DEL/2016 IS THE ASSESSEES CROSS APPEAL FOR TH E SAME YEAR. ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF ORGANIZING EVENTS, CONSU LTING AND RELATED SERVICES. THE RETURN OF INCOME WAS FILED D ECLARING LOSS OF RS. 4,50,71,693/-. INITIALLY, THE RETURN WAS PROCE SSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS 'THE ACT') AND SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTIN Y. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE HAD CLAIMED LEGAL AND PROFESSIONA L CHARGES OF RS. 2,48,12,998/- IN ITS PROFIT AND LOSS ACCOUNT, O UT OF WHICH RS. 68,25,331/- HAD BEEN PAID TO THREE NON-RESIDENT IND IAN PARTIES ON WHICH THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURC E. THE ASSESSING OFFICER MADE A DISALLOWANCE U/S 40(A)(I) OF THE ACT IN RESPECT OF THIS PAYMENT AND MADE AN ADDITION OF RS. 68,25,331/- TO THE INCOME OF THE ASSESSEE. FURTHER, THE ASSESS ING OFFICER ALSO MADE A DISALLOWANCE OF RS. 5,02,462/- U/S 14A R/W R ULE 8D. APART FROM THIS, THE ASSESSING OFFICER ALSO MADE AN ADDITION OF RS. 10,88,621/- IN RESPECT OF ALLEGED CAPITAL EXPEN DITURE WHICH HAD BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. T HE ASSESSING OFFICER ALSO MADE A DISALLOWANCE OF RS. 5,30,996/- U/S 43B OF THE ACT WHICH PERTAINED TO UNPAID SERVICE TAX. APART F ROM THIS, THE ASSESSING OFFICER MADE A DISALLOWANCE OF RS. 5,85,7 82/- BEING AD ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 3 HOC DISALLOWANCE @ 25% OF THE TOTAL EXPENSES ON CONFER ENCES AND SEMINARS. THE ASSESSING OFFICER ALSO MADE A DISALL OWANCE OF RS. 1,02,69,572/- U/S 40(A)(2)(B) OF THE ACT WITH RESPE CT TO SALARY PAID TO DIRECTORS. THE ASSESSMENT WAS COMPLETED AT A LOSS OF RS. 2,52,68,929/-. 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIRS T APPELLATE AUTHORITY WHO PARTLY ALLOWED THE ASSESSEES APPEAL BY DELETING THE DISALLOWANCE U/S 14A AMOUNTING TO RS. 5,02,462/ -. THE LD. CIT (A) ALSO DELETED THE DISALLOWANCE OF RS. 5,30,9 96/- WHICH WAS MADE U/S 43B OF THE ACT. FURTHER, THE LD. CIT (A) A LSO DELETED THE AD HOC DISALLOWANCE OF RS. 5,85,782/- WITH RESPECT TO CON FERENCE AND SEMINAR EXPENSES. THE LD. CIT (A) GAVE PARTIAL RELIEF WITH RESPECT TO THE DISALLOWANCE OF THE DIRECTORS SALAR IES BY HOLDING THAT A SUM OF RS. 40 LAKH WAS REASONABLE AND FAIR T O BE ALLOWED TO THE DIRECTORS. THUS, THE DISALLOWANCE WAS REDU CED TO RS. 62,69,572/-. APART FROM THIS, THE LD. CIT (A) UPHE LD THE ASSESSING OFFICERS ACTION IN DISALLOWING LEGAL AND PROFESSIONAL CHARGES PAID TO NON-RESIDENT INDIAN PARTIES WITHOUT DEDUCTION OF TAX AT SOURCE. THE LD. CIT (A) ALSO UPHELD THE ASS ESSING OFFICERS ACTION IN DISALLOWING EXPENDITURE OF RS. 10,88,621/ - BY HOLDING THE SAME AS BEING CAPITAL IN NATURE. ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 4 2.2 NOW, BOTH THE DEPARTMENT AND THE ASSESSEE ARE I N CROSS APPEALS BEFORE THE ITAT AND THE GROUNDS RAISED BY R ESPECTIVE PARTIES READ AS UNDER: - ITA NO. 1262/DEL/2016 (ASSESSEES APPEAL): 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS BAD BOTH IN THE EYES OF L AW AS WELL AS ON FACTS. 2. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE DISALLOWANCE OF RS.68,25,33M- MADE B Y THE AO ON ACCOUNT OF NON-DEDUCTION OF TDS ON PROFESSIONAL CHARGES PAID BY THE ASSESSEE TO THE NO N- RESIDENT INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE ACT. (II) THAT THE ABOVE DISALLOWANCE HAS BEEN CONFIRM ED REJECTING THE CONTENTION OF THE ASSESSEE THAT ASSES SEE IS NOT LIABLE TO DEDUCT TDS IN VIEW OF THE DOUBLE TAXA TION AVOIDANCE AGREEMENT BETWEEN THE INDIA AND THE OTHER COUNTRIES US AND UAE. (III) THAT THE ABOVE DISALLOWANCE HAS BEEN CONFIRM ED REJECTING THE REMAND REPORT OF THE AO IN WHICH AO HIMSELF ADMITTED THAT TRANSACTIONS ARE NOT LIABLE F OR TDS. (IV) THAT THE ABOVE DISALLOWANCE HAS BEEN CONFIRM ED IN SURMISES AND CONJECTURES WITHOUT APPRECIATING THE F ACTS OF THE CASE. 3. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE DISALLOWANCE OF SALARY PAID TO THE DIRECTORS TO THE EXTENT OF RS.62,69,572/- MADE BY T HE AO BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF T HE ACT. ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 5 (II) THAT THE DISALLOWANCE HAS BEEN CONFIRMED DESP ITE THE EXPENSES BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. 4. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF RS.10,88,621/- MADE BY THE AO TREATING THE SAME AS CAPITAL EXPENDITURE. (II) THAT THE SAID DISALLOWANCE HAS BEEN CONFIRMED DESPITE THE FACT THAT SUCH EXPENDITURE IS EXCLUSIVE LY INCURRED FOR THE PURPOSE OF BUSINESS AND REVENUE IN NATURE. ITA NO. 861/DEL/2016 (DEPARTMENTS APPEAL): 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A), HAS ERRED IN DELETING THE ADDI TION MADE UNDER SECTION 14A READ WITH RULE 8D AMOUNTING TO RS . 5,02,462/- IGNORING THE CBDT CIRCULAR 5/2014 IN WHI CH HAS CLARIFIED THE SCOPE OF SECTION 14A INTRODUCED BY FI NANCE ACT 2001 THAT DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D CAN BE MADE EVEN WHEN NO EXEMPT INCOME EARNED DURIN G THE YEAR UNDER CONSIDERATION? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE & IN LAW, THE CIT(A), HAS ERRED IN IGNORING THE DECISION OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. RAJEN DRA PRASAD MOODY REPORTED IN 115 ITR 519? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE & IN LAW, THE CIT(A) HAS ERRED IN DELETING THE 25% OF EX PENSES ON ACCOUNT OF CONFERENCE AND SEMINAR AMOUNTING TO RS.5,85,782/- IGNORING THE FACTS THESE EXPENSES WER E INCURRED ON WATCHING OPENING CEREMONY OF THE OLYMPI CS AND WERE NOT LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS AND THE ASSESSEE HAD NOT DISCHARGED ITS ONUS U/S 37 OF THE ACT? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE & IN LAW, THE CIT(A), HAS ERRED IN REDUCING THE DIRECTOR REMUNERATION FROM RS.1,02,69,572/- TO RS 62,69,572/ - ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 6 IGNORING THE FACT THAT THE ASSESSEE COMPANY HAS INC URRED HUGE LOSSES, DIRECTOR'S REMUNERATION WAS INCREASED WITHOUT APPROVAL FROM THE BOARD OF DIRECTORS AND THE ASSESS EE HAS NOT DISCHARGED ITS ONUS U/S 40(A) (2) (B) OF THE AC T? 5. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS A ND IS NOT TENABLE ON FACTS AND IN LAW. 3. THE LD. AR SUBMITTED THAT GROUND NO. 1 IN ASSESS EES APPEAL WAS GENERAL IN NATURE. WITH RESPECT TO GROU ND NO. 2 OF THE ASSESSEES APPEAL WHICH CHALLENGED THE ACTION OF TH E LD. CIT (A) IN SUSTAINING THE ADDITION OF RS. 68,25,331/- WITH RESPECT TO LEGAL AND PROFESSIONAL CHARGES BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT, IT WAS SUBMITTED THAT THE ASSE SSEE HAD DULY SUBMITTED BEFORE THE ASSESSING OFFICER THE COPIES O F INVOICES RAISED BY THE THREE PARTIES AND ALSO COPIES OF THE RELEVANT DOUBLE TAXATION AVOIDANCE AGREEMENTS ENTERED INTO BETWEEN INDIA AND THE RESPECTIVE COUNTRIES BUT THE SAME WAS NOT CONSI DERED BY THE ASSESSING OFFICER AND WAS ALSO SIMPLY BRUSHED ASIDE BY THE LD. CIT (A). IT WAS SUBMITTED THAT IN VIEW OF ARTICLE 15 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT, INDEPENDENT PROFESSIO NAL SERVICES RENDERED BY NON-RESIDENT INDIANS WERE NOT TAXABLE I N INDIA AND, THEREFORE, THE PROVISIONS FOR DEDUCTION OF TAX AT S OURCE WERE NOT APPLICABLE. HE DREW OUR ATTENTION TO THE DOCUMENTS SUBMITTED IN RESPECT OF THE THREE PARTIES WHICH HAD BEEN FILED B EFORE THE ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 7 ASSESSING OFFICER AND WHICH WERE PLACED IN THE PAPE R BOOK AT PAGES 43 TO 69. IT WAS SUBMITTED THAT THESE REPLIE S CONTAINED RELEVANT EXTRACTS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND US AND INDIA AND UAE. IT WAS SUB MITTED THAT ALL THESE DOCUMENTS AND EVIDENCES AS WELL AS THE RE LEVANT PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEME NT CLEARLY SHOWED THAT THE ASSESSEE WAS NOT UNDER LEGAL OBLIGA TION TO DEDUCT TAX AT SOURCE ON THESE PAYMENTS. OUR ATTENT ION WAS ALSO DRAWN TO THE REMAND REPORT SUBMITTED BY THE ASSESSI NG OFFICER ON THIS ISSUE AND PLACED AT PAGES 473 TO 476 OF THE PAPER BOOK AND IT WAS SUBMITTED THAT EVEN THE ASSESSING OFFICE R HAD ACCEPTED IN THE SAID REMAND REPORT THAT CONSIDERING THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND UAE AS WELL AS INDIA AND USA, THE ASSESSEE WAS NOT UNDER AN OBLIGA TION TO DEDUCT TAX AT SOURCE ON PAYMENT OF RS. 47,42,000/- MADE TO MR. RENEE MAUBORGNE AND RS. 17,67,150 TO MR. SHASHI THA ROOR. IT WAS SUBMITTED THAT IN VIEW OF THE ACCEPTANCE BY THE ASSESSING OFFICER, THESE DISALLOWANCES DESERVED TO BE DELETED . IN RESPECT OF THE REMAINING DISALLOWANCE, IT WAS SUBMITTED THAT T HE SAME WAS IN THE NATURE OF REIMBURSEMENT ON WHICH TAX WAS NOT REQUIRED TO BE DEDUCTED AT SOURCE. ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 8 3.1 WITH RESPECT TO GROUND NO. 3 OF THE ASSESSEE S APPEAL CHALLENGING SUSTENANCE OF DISALLOWANCE WITH RESPECT TO DIRECTORS REMUNERATION, IT WAS SUBMITTED THAT GROUND NO. 4 OF THE DEPARTMENTS APPEAL WAS RELATED TO THIS. THE LD. A R SUBMITTED THAT DURING THE YEAR, THE ASSESSEE COMPANY HAD INCU RRED AN AMOUNT OF RS. 1,02,69,572/- ON ACCOUNT OF DIRECTORS REMUNERATION TO FOUR PERSONS VIZ. S/SHRI ASHISH KUM AR GUPTA, ANURADHA DAS MATHUR, KANAK RANJAN GHOSH AND VIKAS G UPTA. IT WAS ALSO SUBMITTED THAT THE REMUNERATION HAD BEE N PAID TO THESE FOUR PEOPLE IN THE SUBSEQUENT ASSESSMENT YEAR S AS WELL AND THE DEPARTMENT HAD ACCEPTED THE SAME IN SUBSEQU ENT ASSESSMENT ORDERS. OUR ATTENTION WAS DRAWN TO THE ASSESSMENT ORDERS OF THE COMPANY IN RESPECT OF ASSESSMENT YEAR S 2010-11, 2011-12 AND 2012-13 IN THIS REGARD WHEREIN NO DISAL LOWANCE HAD BEEN MADE. IT WAS FURTHER SUBMITTED THAT AS FAR AS THE ALLEGATION OF THE ASSESSING OFFICER THAT NO PAYMENT HAD BEEN M ADE IN THE PRECEDING ASSESSMENT YEARS WAS CONCERNED, SINCE THE IMMEDIATELY PRECEDING YEAR WAS THE FIRST YEAR OF OP ERATION OF THE COMPANY AND THERE WERE NO SALES, NO REMUNERATION TO THE DIRECTORS HAD BEEN MADE. OUR ATTENTION WAS ALSO DR AWN TO THE EMPLOYMENT AGREEMENTS WITH THE FOUR DIRECTORS, THEI R EDUCATIONAL ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 9 QUALIFICATIONS AND THE COPY OF THEIR INCOME TAX RET URNS FROM THEIR PREVIOUS EMPLOYMENT/S AND IT WAS SUBMITTED THAT THE DIRECTORS WERE HIGHLY QUALIFIED AND WERE COMPETENT ENOUGH TO BE PAID SUCH REMUNERATION AS HAD BEEN PAID TO THEM. IT WAS FURT HER SUBMITTED THAT THESE DIRECTORS HAD EARLIER WORKED W ITH COMPANIES SUCH AS HERO CORPORATE SERVICES LTD., COC A COLA INC., INTERNATIONAL MARKET ASSESSMENT INDIA PVT. LTD. AND MCKINSEY AND COMPANY INC. AND, THEREFORE, THE REMUNERATION P AID TO THEM WAS AT PAR WITH WHAT WAS BEING PAID IN THESE INDUST RIES. IT WAS ALSO SUBMITTED THAT THESE DOCUMENTS WERE DULY SUBMI TTED BEFORE BOTH THE LOWER AUTHORITIES AND NEITHER OF THEM HAD POINTED OUT ANY ERROR OR DISCREPANCY IN ANY OF THESE DOCUMENTS. THE LD. AR AGAIN DREW OUR ATTENTION TO THE REMAND REPORT SUBMI TTED BY THE ASSESSING OFFICER BEFORE THE LD. CIT (A) WHEREIN TH E ASSESSING OFFICER HAS NOT DISPUTED THE GENUINENESS OF THE PAY MENT BUT HAS ONLY MENTIONED THAT THE ASSESSEE HAD NOT PRODUCED THE EMPLOYMENT AGREEMENTS ETC. AT THE TIME OF ASSESSMEN T PROCEEDINGS. IT WAS ALSO SUBMITTED THAT ANOTHER OB JECTION OF THE ASSESSING OFFICER IN THE REMAND REPORT WAS THAT THE PAYMENT WAS NOT EVIDENCED BY BOARD RESOLUTIONS. IT WAS SUBMITT ED THAT THE SAME IS AVAILABLE ON RECORD AND IS AVAILABLE ON PAP ER BOOK PAGES ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 10 184 TO 185 AND, THEREFORE, THIS ALLEGATION OF THE A SSESSING OFFICER WAS INCORRECT. LD. AR ALSO SUBMITTED THAT THE LD. CIT (A) HAD NOT GIVEN ANY COGENT REASON FOR DELETING A PORTION OF T HE DISALLOWANCE AND BY HOLDING THAT RS. 40 LAKH APPEARS TO BE A REA SONABLE AND FAIR AMOUNT OF REMUNERATION. 3.2 WITH RESPECT TO GROUND NO. 4 OF THE ASSESSEES APPEAL CHALLENGING THE SUBSTANCE OF ADDITION OF RS. 10,88, 621/- BY TREATING THE SAME AS CAPITAL EXPENDITURE, IT WAS S UBMITTED THAT THIS AMOUNT WAS PAID TO K.P.M.G. INDIA. IT WAS SUB MITTED THAT OUT OF THE TOTAL AMOUNT, RS. 3,06,181/- WAS DIRECT LY PAID BY M/S HELION VENTRES PVT. LTD. ON WHICH TDS HAD BEEN DEDU CTED AND THIS AMOUNT WAS REIMBURSED BY THE ASSESSEE TO M/S H ELION VENTRES PVT. LTD. IT WAS FURTHER SUBMITTED THAT TH E BALANCE AMOUNT WAS PAID DIRECTLY BY THE ASSESSEE TO K.P.M.G . INDIA ON WHICH AMOUNT THE TAX HAD DULY BEEN DEDUCTED. THE L D. AR FURTHER SUBMITTED THAT THIS AMOUNT HAD BEEN INCURRE D FOR CARRYING OUT DUE DILIGENCE AND VALUATION OF THE BUS INESS WHICH WAS EXPENDITURE IN THE NORMAL COURSE OF BUSINESS AN D DID NOT GIVE ANY ENDURING BENEFIT TO THE ASSESSEE. 4. COMING TO THE DEPARTMENTS APPEAL, THE LD. AR SU BMITTED THAT AS FAR AS GROUND NOS. 1 AND 2 OF THE DEPARTMEN TS APPEAL ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 11 WERE CONCERNED, THE LD. CIT (A) HAD DELETED THE DIS ALLOWANCE OF RS. 5,02,462/- MADE U/S 14A OF THE ACT BY HOLDING T HAT THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION BEFORE INVOKING RULE 8D. IT WAS SUBMITTED THAT THE HONBL E APEX COURT HAS ALSO HELD IN THE CASE OF GODREJ & BOYCE MANUFAC TURING COMPANY LTD. VS. DCIT REPORTED IN 394 ITR 449(SC) T HAT THE LAW POSTULATES THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE A SSESSEE, IT WAS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT W AS SUBMITTED THAT THEREFORE, IN VIEW OF THE JUDGMENT OF THE HON BLE APEX COURT, THE ORDER OF THE LD. CIT (A) ON THIS ISSUE DESERVED TO BE UPHELD. 4.1 WITH RESPECT TO GROUND NO. 3 OF THE DEPARTMENT S APPEAL, CHALLENGING THE DELETION OF ADDITION OF RS. 5,85,78 2/- BEING AD HOC DISALLOWANCE OF 25% OF THE CONFERENCE AND SEMINAR EXPENSES, THE LD. AR SUBMITTED THAT THE ASSESSEE HAD DULY SUB MITTED THE DETAILS OF THE TOTAL EXPENDITURE OF RS. 23,43,490/- BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAD ALS O ISSUED THE NOTICES U/S 133(6) OF THE ACT TO TWO OF THE PARTIES TO WHOM THE PAYMENTS HAD BEEN MADE, VIZ. M/S IMPERIAL AND M/S H ABITAT WORLD, WHO HAD DULY CONFIRMED THE TRANSACTION WITH THE ASSESSEE ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 12 AND HAD ALSO FURNISHED COMPLETE DETAILS WITH REGARD TO THE CONFERENCES AND SEMINARS HOSTED. IT WAS ALSO SUBMI TTED THAT THE DISALLOWANCE HAD BEEN MADE ON AD HOC BASIS WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF THE ASSESSEE WHICH H AD BEEN DULY AUDITED PRIOR TO THE SUBMISSION OF THE RETURN. IT WAS ALSO SUBMITTED THAT THE LD. CIT (A) HAD DELETED THE ADDI TION AFTER DULY CONSIDERING THE FACTS OF THE CASE AND, THEREFORE, T HE ADJUDICATION OF THE LD. CIT (A) ON THIS ISSUE ALSO DESERVED TO B E UPHELD. 5. IN RESPONSE, THE LD. SR. DR PLACED EXTENSIVE REL IANCE ON THE ASSESSMENT ORDER AND READ OUT RELEVANT PORTIONS FRO M THE SAME. WITH RESPECT TO ISSUES BEING RAISED IN THE ASSESSEE S APPEAL, THE LD. SR. DR ALSO PLACED RELIANCE ON THE CONCURRENT F INDINGS OF THE LD. CIT (A). WITH RESPECT TO THE DEPARTMENTS APPE AL, THE LD. SR. DR VEHEMENTLY ARGUED THAT THE LD. CIT (A), WHILE AL LOWING RELIEF TO THE ASSESSEE, HAD COMPLETELY IGNORED THE FACTUAL FINDINGS RECORDED BY THE ASSESSING OFFICER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE TAKE UP THE DEPAR TMENTS APPEAL FIRST. GROUND NOS. 1 AND 2 CHALLENGE THE AC T OF THE LD. CIT (A) IN DELETING THE ADDITION OF RS. 5,02,462/- MAD E BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC TION 14A OF THE ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 13 ACT READ WITH RULE 8D OF THE INCOME TAX RULES. IT IS SEEN THAT THE ASSESSING OFFICER HAD MADE THE DISALLOWANCE BY STATING THAT SINCE THE ASSESSEE HAS NOT INCURRED ANY EXPENSE ATT RIBUTABLE TO THE DIVIDEND INCOME OF RS. 17,61,574/-, THEREFORE, DISALLOWANCE U/S 14A WAS TO BE CALCULATED IN TERMS OF RULE 8D OF THE INCOME TAX RULES. IT IS SEEN THAT ON A SPECIFIC QUERY RAI SED BY THE ASSESSING OFFICER, THE ASSESSEE HAD SUBMITTED BEFOR E THE ASSESSING OFFICER THAT NO EXPENSES WERE INCURRED BY IT IN EARNING THE DIVIDEND INCOME. THE LD. CIT(A) DELETED THE I MPUGNED ADDITION BY OBSERVING THAT THE ASSESSING OFFICER HA D NOT RECORDED ANY SATISFACTION BEFORE INVOKING THE PROVISIONS OF RULE 8D. THE REQUIREMENT OF RECORDING OF SATISFACTION BY THE ASS ESSING OFFICER IN CASE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE IS NOW SETTLED BY THE JUDGMENT OF THE HON BLE APEX COURT IN THE CASE OF GODREJ & BOYCE COMPANY LTD. VS . DCIT REPORTED IN 394 ITR 449 (SC) WHEREIN THE HONBLE AP EX COURT HAS HELD AS UNDER:- 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUAT ION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESS MENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PR ESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSES SING ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 14 OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSE SSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICA TION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE B EST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSI BLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONL Y THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AN D (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE' 6.0.1 IT IS OUR CONSIDERED OPINION THAT ONCE T HE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT NO EXPE NDITURE HAD BEEN INCURRED FOR EARNING THE DIVIDEND INCOME, THE ASSESSING OFFICER WAS UNDER LEGAL OBLIGATION TO DEMONSTRATE A S TO HOW HE WAS NOT SATISFIED WITH THE CONTENTION OF THE ASSESS EE AND ONLY, THEREAFTER, HE COULD HAVE PROCEEDED TO MAKE A DISAL LOWANCE. AS IS EVIDENT FROM THE ASSESSMENT ORDER, THE SATISFACT ION OF THE ASSESSING OFFICER BEFORE INVOKING PROVISIONS OF SEC TION 14A R/W RULE 8D IS MISSING. THE LD. CIT (A) HAS ALSO TAKEN A SIMILAR VIEW WHILE DELETING THE DISALLOWANCE. UNDER THE CIRCUMS TANCES, WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF TH E LD. CIT (A) IN THIS REGARD AND ACCORDINGLY, GROUND NOS. 1 AND 2 OF THE DEPARTMENTS APPEAL ARE DISMISSED. ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 15 6.1 COMING TO GROUND NO. 3 OF THE DEPARTMENTS APPE AL WHICH CHALLENGES THE DELETION OF AD HOC DISALLOWANCE @25% OF THE CONFERENCES AND SEMINARS EXPENSES, IT IS SEEN THAT THE ASSESSING OFFICER HAD MADE THE AD HOC DISALLOWANCE BY ALLEGING THAT THESE EXPENSES WERE BOGUS, HIGHLY INFLATED AND EXCESSIVE. HOWEVER, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE DETAILS/ACCOUNTS SUBMITTED BY THE ASSESSEE. IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSING OFFICER HAD MADE INQUIRI ES FROM TWO PARTIES VIZ. M/S IMPERIAL AND M/S HABITAT WORLD IN RESPECT OF PAYMENTS MADE TO THEM BY ISSUING NOTICES U/S 133(6) OF THE ACT AND IT IS A MATTER OF RECORD THAT THESE TWO PARTIES HAD CONFIRMED THE TRANSACTIONS WITH THE ASSESSEE. IT IS WELL SET TLED BY NOW THAT AD HOC DISALLOWANCE CANNOT BE MADE UNLESS SPECIFIC DEFECT S ARE BROUGHT ON RECORD BY THE ASSESSING OFFICER. THIS I S NOT THE CASE IN THE PRESENT APPEAL BEFORE US. THERE IS A PLETHO RA OF JUDICIAL RULINGS WHEREIN IT HAS BEEN HELD THAT AD HOC DISALLOWANCE WITHOUT SPECIFIC PINPOINTING OF DEFECT IS NOT SUSTA INABLE. A FEW OF THEM ARE:- (A) ITAT DELHI IN THE CASE OF ACIT V. AMTEK AUTO LTD. [ 2006] 112 TTJ 455 (B) ITAT DELHI IN THE CASE OF SH. GAGAN GOYAL V. JCIT I N ITA NO. ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 16 1514/DEL/2015 DATED 02.08.2016 (C) ITAT DELHI IN THE CASE OF SH. DEVENDER KUMAR V. ITO IN ITA NO.3239/DEL/2014 DATED 30.08.2016 6.1.1 THEREFORE, IN VIEW OF THESE JUDICIAL PR ONOUNCEMENTS, WE AGAIN FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A) ON THIS ISSUE AND WE DISMISS GROUND NO. 3 OF DE PARTMENTS APPEAL. 6.2 COMING TO GROUND NO. 4 OF THE DEPARTMENTS APPEAL WHICH CHALLENGES THE DELETION OF RS. 40 LAKH BY THE LD. C IT (A) IN RESPECT OF DIRECTORS REMUNERATION, IT IS SEEN THAT THIS GROUND IS IDENTICAL TO GROUND NO. 3 OF THE ASSESEES APPEAL W HEREIN THE ASSESSEE IS CHALLENGING THE CORRESPONDING SUSTENANC E OF DISALLOWANCE TO THE TUNE OF RS. 62,69,572/- OUT OF TOTAL REMUNERATION OF RS. 1,02,69,572/-. THE LD. AR HAS DRAWN OUR ATTENTION TO VOLUMINOUS EVIDENCES FILED BEFORE BOTH THE LOWER AUTHORITIES IN RESPECT OF DIRECTORS REMUNERATION. HOWEVER, A PERUSAL OF THE ORDERS OF BOTH THE BOTH THE LOWER AU THORITIES MAKES IT APPARENT THAT THESE EVIDENCES WERE NOT CON SIDERED BY THE LOWER AUTHORITIES AT ALL. THE ASSESSING OFFICE R HAS MADE THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40 A(2)(B) OF THE ACT BY ALLEGING THAT NEITHER THE COMPANY HAS BE NEFITTED FROM ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 17 THE APPOINTING OF THE DIRECTORS NOR HAVE THE DIRECT ORS BEEN APPOINTED AFTER BOARD APPROVAL. HOWEVER, AS TO HOW THE ASSESSING OFFICER HAS REACHED THIS CONCLUSION HAS N OT BEEN ELABORATED. FURTHER, THE BOARD RESOLUTION APPROVIN G THE APPOINTING OF DIRECTORS PASSED IN THE EXTRAORDINARY GENERAL MEETING IS AVAILABLE ON RECORD. THE LD. CIT (A) AL SO DID NOT UNDERTAKE THE EXERCISE OF EXAMINING THE EVIDENCES B UT RATHER ADDRESSED THE ISSUE IN A CASUAL WAY BY HOLDING THAT REMUNERATION OF RS. 40 LAKH WAS FAIR AND REASONABLE . THE LD. CIT (A) HAS ALSO NOT ELABORATED AS TO HOW HE HAS RE ACHED THE CONCLUSION THAT AN AMOUNT OF RS. 40 LAKH WAS FAIR A ND REASONABLE TOWARDS PAYMENT OF DIRECTORS REMUNERATI ON. ACCORDINGLY, IN VIEW OF THE LACK OF EXAMINATION WIT H RESPECT TO THIS ISSUE BY BOTH THE LOWER AUTHORITIES, WE DEEM I T APPROPRIATE TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING O FFICER TO RE- EXAMINE EVIDENCES WHICH HAVE BEEN SUBMITTED IN THIS REGARD AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. ACCORDINGLY, GROUND NO. 4 OF THE DEPARTMENTS APPEA L AND GROUND NO. 3 OF THE ASSESSEES APPEAL ARE ALLOWED FOR STAT ISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE DEPARTMENT STAN DS PARTLY ALLOWED. ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 18 8. COMING TO THE ASSESSEES APPEAL, GROUND NO. 1 BE ING GENERAL IN NATURE IS NOT BEING ADJUDICATED UPON. 8.1 COMING TO GROUND NO. 2 WHICH CHALLENGES THE SUS TENANCE OF ADDITION OF RS. 68,25,331/- MADE BY THE ASSESSING O FFICER BY INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE ACT, IT IS SEEN THAT THE ASSESSING OFFICER IN HIS REMAND REPORT HAS HIMS ELF ACCEPTED THAT IN VIEW OF THE PROVISIONS OF DOUBLE TAXATION A VOIDANCE AGREEMENTS BETWEEN INDIA AND US AND INDIA AND INDIA AND UAE, THE PAYMENT TO MR. RENEE MAUBORGNE AMOUNTING TO RS . 47,52,000/- AND OF RS. 17,67,150 TO MR. SHASHI THAR OOR DID NOT ATTRACT THE RIGORS OF PROVISIONS FOR DEDUCTION OF T AX AT SOURCE. THE LD. CIT (A) SEEMS TO HAVE IGNORED THIS ADMISSIO N BY THE ASSESSING OFFICER IN THE REMAND REPORT. IN VIEW OF THE COMMENTS OF THE ASSESSING OFFICER IN THIS REGARD AS CONTAINE D IN THE REMAND REPORT, WE DELETE THE DISALLOWANCE OF RS.47,52,000/ - AND RS. 17,67,150/-. THE ASSESSING OFFICER IS DIRECTED TO DELETE THESE ADDITIONS. WE ALSO NOTE THAT THE REMAINING PAYMENT OF RS. 3,06,181/- WAS MADE TO M/S KPMG HELION WHICH WAS IN THE NATURE OF REIMBURSEMENT ON WHICH TDS HAD ALSO BEEN DEDUCTED BY THEM. ACCORDINGLY, NO FURTHER TAX WAS REQUIRED TO BE DEDUCTED ON THIS REIMBURSEMENT. THUS, THIS AMOUNT OF RS. 3, 06,181/- IS ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 19 ALSO DIRECTED TO BE DELETED AND THE ASSESSING OFFIC ER IS DIRECTED TO ALLOW CONSEQUENTIAL RELIEF. THUS, GROUND NO. 2 OF THE ASSESSEES APPEAL STANDS ALLOWED. 8.2 COMING TO GROUND NO. 4 OF THE ASSESSEES APPEA L WHICH CHALLENGES THE ACTION OF THE LD. CIT (A) IN SUSTAIN ING THE ADDITION OF RS. 10,88,621/- BY TREATING THE PAYMENT MADE FOR CARRYING OUT DUE DILIGENCE AND VALUATION OF BUSINESS AS CAPITAL EXPENDITURE, IT IS SEEN THAT THIS DISALLOWANCE WAS MADE RELYING UPO N THE COMMENTS OF THE TAX AUDITOR IN THE TAX AUDIT REPORT WHEREIN THE AUDITOR HAS MENTIONED AT SL. NO. 17(A) OF THE AUDIT REPORT IN FORM 3CD THAT THE ASSESSEE HAD INCURRED THIS EXPENDITURE WHICH WAS OF CAPITAL NATURE. LD. CIT (A) HAS ALSO SUSTAINED THIS ADDITION BY PLACING RELIANCE ON THE COMMENTS OF THE AUDITOR AS AFOREMENTIONED. ALTHOUGH THE LD. AR HAS ARGUED VEH EMENTLY AGAINST THE SUSTENANCE OF THIS ADDITION, HE COULD N OT SUBSTANTIATE HIS ARGUMENTS BY ANY COGENT EVIDENCE WHICH COULD DE MONSTRATE THAT THIS EXPENDITURE WAS CAPITAL IN NATURE. THE C OPIES OF INVOICES PLACED AT PAPER BOOK PAGES 55 AND 55A SHOW THAT INVOICE OF RS. 3,06,181/- WAS RAISED FOR PROFESSION AL SERVICES RENDERED IN CONNECTION WITH PROJECT QUEST AND THE O THER INVOICE FOR RS. 7,82,440/- WAS RAISED FOR PROFESSIONAL SERV ICES RENDERED ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 20 IN CONNECTION WITH PROJECT CHIP. HOWEVER, THE NATU RE OF THE SERVICES RENDERED IS NOT DISCERNIBLE FROM THESE INV OICES. IN VIEW OF THE INABILITY OF THE ASSESSEE TO DEMONSTRATE AS TO HOW THESE INVOICES PERTAINED TO CAPITAL EXPENDITURE, WE ARE U NABLE TO DIFFER WITH THE FINDINGS OF THE LOWER AUTHORITIES IN THIS REGARD AND WE DISMISS GROUND NO. 4 OF THE ASSESSEES APPEAL. 9. ACCORDINGLY, THE APPEAL OF THE ASSESSEE STANDS P ARTLY ALLOWED. 10. IN THE RESULT, BOTH THE APPEALS STAND PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2018. SD/- SD/- (N.K. BILLAIYA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH JULY, 2018 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR ITA NO. 1262/DEL/2016 & 863/DEL/2016 ASSESSMENT YEAR 2009-10 21 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER 1