Kirloskar Proprietary Ltd., Pune V. Joint Commissioner of Income-tax,

ITA 1643/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2460 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 29-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K VERMA
• Keywords: Double taxation relief; Earning of tax free income
• Section: 143(3); 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , . ! , ' , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM . / ITA NO.1643/PUN/2016 $ % % / ASSESSMENT YEAR : 2011-12 KIRLOSKAR PROPRIETARY LTD. 13-A, KIRLOSKAR KISAN COMPOUND, KARVE ROAD, S. NO.52/1, KOTHRUD, PUNE-411 038. PAN :AAACK7506Q ....... / APPELLANT $ / V/S. THE JOINT DEPUTY COMMISSIONER OF INCOME TAX, RANGE-11, PUNE. / RESPONDENT APPELLANT BY : SHRI C.H. NANIWADEKAR RESPONDENT BY : SHRI M. K. VERMA / DATE OF HEARING : 27.08.2018 / DATE OF PRONOUNCEMENT : 28.08.2018 & / ORDER PER SUSHMA CHOWLA, JM THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-7, PUNE DATED 01.04.2016 RELATING TO ASSESSMENT YEAR 2011-12 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). 2 ITA NO.1643/PUN/2016 A.Y.2011-12 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. DISALLOWANCE OF EXPENSES U/S.14A. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN DI SALLOWING EXPENSES OF RS. 5,05,066/- U/S. 14A ON THE GROUND THAT THE ASSESSEE HAS NOT SHOWN ANY EXPENSE TOWARDS EARNING OF EXEMPT INCOME. HE FA ILED TO APPRECIATE THE FACT THAT THE COMPANY HAD INVESTED IN THE MUTUA L FUNDS AND ANY COST INCURRED BY THE MUTUAL FUND AGENCY WAS RECOVERED BY THEM DIRECTLY AT THE TIME OF INVESTMENT OR REDEMPTION AS THE CASE MA Y BE BY INCREASING OR REDUCING THE NAV, WHICH WAS DIRECTLY ADJUSTED AG AINST THE PURCHASE OR SALE PRICE OF MUTUAL FUND UNITS BY THE COMPANY A ND THE SAME IS NOT DEBITED TO BOOKS OF ACCOUNT. 2. DISALLOWANCE OF BRAND DEVELOPMENT ACTIVITY EXPEN SES ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN DIS ALLOWING REIMBURSEMENT OF EXPENSES OF RS.9,47,119/- PAID TO CONSULTANTS, ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE. HE FAILE D TO APPRECIATE THE FACT THAT THE PAYMENTS MADE TO CONSULTANTS ARE REIM BURSEMENT OF EXPENSES HENCE THE SECTIONS 194C OR 194J ARE NOT APPLICABLE IN THE INSTANT CASES. 3. DISALLOWANCE ON ACCOUNT OF REPAIR & MAINTENANCE EXPENSES THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN DI SALLOWING REPAIR & MAINTENANCE OF RS. 26,000/- ON ACCOUNT OF THE EXPENDITURE INCURRED IS OF CAPITAL NATURE. HE FAILED TO APPRECIATE THE FACT TH AT THE EXPENDITURE INCURRED IS FOR REPLACEMENT OF EXISTING UPS SYSTEM. 4. DISALLOWANCE OF PAYMENT MADE TO SABA & CO. ON AC COUNT OF NON DEDUCTION OF TAX AT SOURCE. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN DI SALLOWING THE PAYMENTS OF RS.2,11,621/- MADE TO SABA & CO. ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE. HE FAILED TO APPRECIATE THE FACT THAT SABA & CO. HAD PROVIDED LEGAL SERVICE FOR INITIATING ANTI COUNTERFEITING PROCEEDINGS BEFORE THE TRIBUNAL OF COMMERCE OF RABA T AND ALL THE SERVICES ARE THUS RENDERED OUTSIDE INDIA WHICH DOES NOT ATTRACT DEDUCTION OF TAX AT SOURCE AS PER DTAA WITH MOROCCO . THE REASONS ASSIGNED ARE WRONG AND UNTENABLE. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER, DELETE OR SUBSTITUTE ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE ISSUE RAISED IN THE GROUND OF APPEAL NO.1 IS AGAINST DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT. 4. BRIEFLY IN THE FACTS OF THE CASE, THE ASSESSEE H AD DECLARED EXEMPT INCOME OF RS.58,35,285/- ON ACCOUNT OF DIVIDEND INC OME AND INTEREST FROM 3 ITA NO.1643/PUN/2016 A.Y.2011-12 CURRENT INVESTMENT. THE ASSESSEE HAD NOT DEBITED AN Y EXPENSES AGAINST THE SAID EXEMPT INCOME. THE ASSESSING OFFICER, THEREFOR E, ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR THE SAME AND AS TO WHY PROV ISIONS OF SECTION 14A OF THE ACT R.W.RULE 8D OF THE IT RULE, 1962 SHOULD NOT BE INVOKED. THE ASSESSEE CLAIMED THAT NO EXPENSES WERE INCURRED TO EARN ANY SUCH EXEMPT INCOME AND HENCE, NO DISALLOWANCE OF ANY EXPENSES WAS TO BE MA DE. THE CLAIM OF THE ASSESSEE IN RESPECT OF INDIRECT EXPENSES HAVING NOT BEING INCURRED TO EARN EXEMPT INCOME WAS REJECTED BY THE ASSESSING OFFICER AND HE COMPUTED DISALLOWANCE AS PER RULE 8D(2)(III) AT 0.5% OF AVER AGE INVESTMENT AND DISALLOWED THE SUM OF RS.5,05,066/-. THE CIT(A) UPH ELD THE ORDER OF ASSESSING OFFICER AGAINST WHICH THE ASSESSEE IS IN APPEAL BEF ORE US. 5. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER FAILED TO RECORD ANY SATISFACTION. HE ALSO STATED THAT DIS ALLOWANCE OF RS.5 LACS WAS MADE IN ASSESSMENT YEAR 2010-11. 6. THE LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE IN THIS REGARD. T HE ASSESSING OFFICER HAD RECORDED SATISFACTION BEFORE MAKING ANY DISALLOWANC E AND HAD ASKED THE ASSESSEE AS TO WHY NO EXPENSES WERE DEBITED AGAINST THE EXEMPT INCOME. SO FAR AS THE DISALLOWANCE HAVING BEING MADE IN THE YE AR UNDER CONSIDERATION UNDER SECTION 14A R.W. RULE 8D(2)(III) OF THE RULE, THE SAME HAS BEEN WORKED OUT AS PER PRESCRIBED FORMULA AND THE SAME MERITS T O BE UPHELD. ACCORDINGLY, WE UPHOLD THE DISALLOWANCE MADE U/S.14A OF THE ACT AT RS.5,05,066/- AND DISMISS THE GROUND NO.1 RAISED BY THE ASSESSEE. 8. THE ISSUE RAISED IN GROUNDS OF APPEAL NO. 2 IS I N RESPECT OF DISALLOWANCE 4 ITA NO.1643/PUN/2016 A.Y.2011-12 OF BRAND DEVELOPMENT ACTIVITY EXPENSES ON ACCOUNT O F NON DEDUCTION OF TAX AT SOURCE. 9. THE LD. AR FOR THE ASSESSEE IN RESPECT OF THE SA ID GROUND POINTED OUT THAT SIMILAR ISSUE WAS ALLOWED IN FAVOUR OF THE ASS ESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010-11. 10. THE LD. DR FOR THE REVENUE ON THE OTHER HAND PL ACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UN DER CONSIDERATION HAD INCURRED BRAND PROMOTION, BRAND DEVELOPMENT AND BRA ND PROTECTION ACTIVITIES. THE ASSESSEE COMPANY OWNED KIRLOSKAR BRAND WHICH IT HAD LICENSED TO VARIOUS CONCERNS, AGAINST WHICH IT RECEIVED ROYALTY. THE A SSESSEE HAD APPOINTED VARIOUS CONSULTANTS FOR AUDIT AND HAD DEDUCTED TAX AT SOURCE OUT OF THE PROFESSIONAL FEES PAID TO THE CONSULTANTS. HOWEVER, CERTAIN EXPENSES WERE REIMBURSED TO THE CONSULTANTS ON WHICH NO TAX WAS D EDUCTED AT SOURCE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE OUT OF AFORESAID EXPENSES ALSO AND BECAUS E OF NON DEDUCTION OF TAX, IT DISALLOWED THE EXPENSES TOTALING RS.14,15,455/- UND ER SECTION 40(A)(IA) OF THE ACT. THE DETAILS OF EXPENSES ARE TABULATED IN PARA 5.2 AT PAGE 4 AND 5 OF THE ASSESSMENT ORDER. THE CIT(A) RELYING ON THE APPELLA TE ORDER FOR ASSESSMENT YEAR 2009-10 ALLOWED THE CLAIM OF THE ASSESSEE TO T HE EXTENT OF RS.4,68,336/- I.E. PAYMENT MADE TO QUADRANT COMMUNICATION LTD.; H OWEVER, UPHELD THE DISALLOWANCE ON REIMBURSEMENT OF EXPENSES OF RS.9,4 7,119/-. 12. WE FIND THAT THE SIMILAR ISSUE OF DEDUCTION OF TAX AT SOURCE OUT OF THE EXPENSES REIMBURSED TO THE CONSULTANTS AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2010-11. THE TRIBUNAL IN ITA NO.548 /PN/2014 VIDE ORDER 5 ITA NO.1643/PUN/2016 A.Y.2011-12 DATED 27.07.2016 IN PARA 10 HELD AS UNDER: 10. DISALLOWANCES OF EXPENSES ON ACCOUNT OF NON-DE DUCTION OF TAX AT SOURCE U/S. 40(A)(IA) OF THE ACT : THE ASSESSEE HAS MADE PAYMENTS UNDER THE HEAD BRAND DEVELOPMENT EXPENSES WITHOUT DEDUCTION OF TAX AT SOURCE. THE ASSESSING OFFICER MADE DISALLOWANCES OF RS.10,30,46 0/- U/S. 40(A)(IA). IN FIRST APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) RES TRICTED THE DISALLOWANCES TO RS.7,00,926/-. THE CONTENTION OF THE LD. AR OF THE ASSESSEE IS THAT THE AFORESAID EXPENDITURE IS TOWARDS REIMBURSEMENT OF E XPENSES IN THE NATURE OF PETROL, DIESEL, TRAVELLING EXPENSES, TELEPHONE CHAR GES ETC. ON REIMBURSEMENT OF EXPENDITURE NO TDS IS LIABLE TO BE DEDUCTED U/S. 19 4J OF THE ACT. THE ASSESSEE HAS PLACED ON RECORD AT PAGES 31 TO 92 OF THE PAPER BOOK BILLS/INVOICES OF EXPENDITURE WHICH HAVE ALLEGEDLY BEEN REIMBURSED TO THE ASSESSEE. A PERUSAL OF THE DOCUMENTS PLACED ON RECORD SHOW THAT THE PAY MENTS MADE BY THE ASSESSEE ARE IN THE NATURE OF REIMBURSEMENT OF OUT OF POCKET EXPENSES. ON REIMBURSEMENT OF ACTUAL EXPENSES THE ASSESSEE IS NO T REQUIRED TO DEDUCT TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194J OF THE ACT. OUR VIEW IS FURTHER FORTIFIED BY THE DECISION RENDERED BY THE DELHI BEN CH OF THE TRIBUNAL IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX VS. DAKSHIN HARYANA BIJLI VITRAN NIGAM LTD. (SUPRA) AND THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ADDITIONAL COMMISSIONER OF INCOME TAX VS. I NDIA INDEX SERVICES & PRODUCTS LTD. (SUPRA). WE FIND MERIT IN THE SUBMIS SIONS MADE BY THE LD. AR OF THE ASSESSEE. ACCORDINGLY, THE DISALLOWANCES MADE U/S. 40(A)(IA) OF THE ACT IS DELETED. CONSEQUENTLY, THE GROUND NO. 2 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED. 13. THE ISSUE ARISING IN THE PRESENT APPEAL IS SIMI LAR TO THE ISSUE IN ASSESSMENT YEAR 2010-11 AND EVEN THE NATURE OF EXPE NSES WAS ALSO SAME I.E. REIMBURSEMENT OF THE EXPENSES, WHICH IS CLEARLY MEN TIONED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ITSELF. FOLLOWING THE SAME PARITY OF REASONING AS NOTED EARLIER, WE DIRECT THE ASSESSING OFFICER TO A LLOW THE SAID EXPENDITURE OF RS.9,47,119/-, AS NO DEFAULT HAS BEEN MADE BY THE A SSESSEE FOR NON DEDUCTION OF TAX AT SOURCE; HENCE, THERE IS NO REQUIREMENT TO DEDUCT TAX AT SOURCE OUT OF REIMBURSEMENT OF EXPENSES. THE GROUND OF APPEAL NO . 2 RAISED BY ASSESSEE IS ALLOWED. 14. THE GROUNDS OF APPEAL NO. 3 RAISED BY ASSESSEE IS NOT PRESSED AND HENCE, DISMISSED. 15. THE ISSUE RAISED IN GROUND NO.4 IS IN RESPECT O F DISALLOWANCE OF RS.2,11,621/- I.E. PAYMENT MADE TO SABA & CO. ON AC COUNT OF NON DEDUCTION OF TAX AT SOURCE OUT OF LEGAL CHARGES PAID. 6 ITA NO.1643/PUN/2016 A.Y.2011-12 16. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT T HE PAYMENT WAS MADE TO SABA & CO. FOR PROVIDING LEGAL SERVICES FOR INITIAT ING ANTI COUNTERFEITING PROCEEDINGS BEFORE THE TRIBUNAL OF COMMERCE OF RABA T AND ALL THE SERVICES WERE THUS RENDERED OUTSIDE INDIA WHICH DOES NOT ATT RACT DEDUCTION OF TAX AT SOURCE AS PER DTAA WITH MOROCCO. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE SAME ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSM ENT YEAR 2008-09 WHEREIN IN ITA NO.536/PN/2013 VIDE ORDER DATED 06.01.2015, THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE AFTER TAKING INTO CONSIDERATI ON ARTICLE 14 OF THE DTAA BETWEEN INDIA AND MOROCCO. 17. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDERS OF AUTHORITIES BELOW. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWANCE OF E XPENDITURE OF RS.2,11,621/- I.E. PAYMENT MADE TO SABA & CO.. THE ASSESSING OFFI CER AND CIT(A) DISALLOWED THE SAID AMOUNT FOR NON DEDUCTION OF TAX AT SOURCE OUT OF THE PAYMENT MADE TO SABA & CO. THE CASE OF THE ASSESSEE ON THE OTHER HA ND IS THAT THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE AS THE SERVICES WERE RENDERED BY THE SABA & CO. OUTSIDE INDIA , THE SAME DID NOT ATTRACT DEDU CTION OF TAX AT SOURCE IN VIEW OF THE PROVISION OF DTAA BETWEEN INDIA AND MOROCCO. WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEAR 2008-09 (SUPRA) VIDE ORDER DATED 6 TH JANUARY, 2015 HAD ELABORATED UPON THE ISSUE I.E. FACTUAL MATRIX AND A LSO ARTICLE 14 OF THE DTAA BETWEEN INDIA AND MOROCCO IN PARA 7 TO 14 AT PAGES 5 TO 11 OF THE ORDER AND HELD THAT SINCE SABA & CO. WAS NOT HAVING ANY FIXED BASE IN INDIA, THE CONDITION OF ARTICLE 14 WAS NOT FULFILLED. IT WAS FURTHER HEL D THAT SABA & CO. WAS RESIDENT OF MOROCCO AND CANNOT BE TAXED IN INDIA IN RESPECT OF FEES PAID BY THE ASSESSEE COMPANY FOR INITIATING AND PROSECUTING THE LEGAL PR OCEEDINGS IN THE MOROCCO. WE REFER TO THE FINDINGS OF THE TRIBUNAL IN ASSESSMENT YEAR 2008-09 AND ALSO RELY 7 ITA NO.1643/PUN/2016 A.Y.2011-12 UPON THE SAME; BUT THE SAME ARE NOT BEING REPRODUCE D FOR THE SAKE OF BREVITY. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THA T THE EXPENDITURE OF RS.2,11,621/- IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, GROUND NO.4 RAISED IN APPEAL BY ASSESSEE IS THUS ALLOWED. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 28TH DAY OF AUGUST, 2018. SD/- SD/- ( D. KARUNAKARA RAO) (SUSHMA CHOWLA) /ACCOUNTANT MEMBER /JUDICIAL MEMBER / PUNE; ! / DATED : 28 TH AUGUST, 2018 SB & ' ()*+ ,+) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-7, PUNE. 4. THE CIT-6, PUNE. 5. '#$ %& , ' %& , ()* , / DR, ITAT, B BENCH, PUNE. 6. $+, -. / GUARD FILE. // TRUE COPY // '/ / BY ORDER, 0 %* /PRIVATE SECRETARY ' %& , / ITAT, PUNE.