Appeal details
Counselvise Citation
[2024] 100 COUNSELVISE.COM (IT) 4427 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 4 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
01-01-2024
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
I
Next Hearing Date
07-11-2023
Assessment Year
2017-2018
Appeal Filed On
31-08-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “I” DELHI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.2109/DEL/2022 Assessment Year 2017-18 Bhartiya International Ltd. E-52 New Mangla Puri Mehrauli, New Delhi. Vs. Dy. Commissioner of Income- Tax, Circle-4(2), New Delhi. TAN/PAN: AAACB0728M (Appellant) (Respondent) Appellant by: Shri Amit Goel, Adv. Shri Nippun Mittal, CA Mr. Pranav Yadav, Adv. Respondent by: Shri Rajesh Kumar, CIT-DR Date of hearing: 08 11 2023 Date of pronouncement: 02 01 2024 O R D E R PER PRADIP KUMAR KEDIA-A.M. : T he ca pti oned a ppeal has been file d at t he i ns tance o f the assessee agains t the final a ssess m ent o rder da ted 29. 07. 20 22 passed unde r Se ction 143 (3) r. w . Section 144B r. w. Secti on 144C (13) pass ed in pursuance of di re ct ions iss ue d by D isp ute Resolution Panel ( DRP) date d 02. 06. 2022 rea d w it h re cti ficat ion order dat ed 28. 06. 202 2 passe d b y D RP unde r Rule 13 of th e D ispu te Re solu tion Panel R ules, 2009 . 2. T he c oncis e G ro unds of Ap pea l fil ed b y the assesse e are re pro duc ed h ereunder for a dj udic at ion pur pos es: I.T.A. No.2109/Del/2022 2 “ 1 . O n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e a n d i n l a w , t h e i m p u g n e d a s s e s s m e n t o r d e r i s i n v a l i d a n d n o n - e s t i n l a w ( a s i t i s o n l y a d r a f t o r d e r a n d n o t f i n a l o r d e r ) a n d , t h e r e f o r e , t h e s a i d o r d e r a l o n g w i t h t h e d e m a n d c r e a t e d a n d n o t i c e i s s u e d u / s . 1 5 6 a r e l i a b le t o b e q u a s h e d . 2 . O n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e a n d in l a w , t h e I d . a s s e s s i n g o f f i c e r e r r e d i n m a k i n g a d d i t i o n / v a r i a t i on o f R s . 1 1 , 6 4 , 8 8 , 7 5 5 / - o n a c c o u n t o f c o m m i s s i o n , b r o k e r a g e a n d d i s c o u n t e x p e n s e s . 3 . O n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e a n d in l a w , t h e I d . a s s e s s i n g o f f i c e r / H o n ' b l e D R P e r r e d i n m a k i n g d i s al l o w a n c e o f R s . 6 1 , 6 4 , 3 6 3 / - u / s . 1 4 A o f t h e A c t . r . w . r 8 D o f t h e I nc o m e T a x R u l e s . 4 . O n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e a n d in l a w , t h e I d . a s s e s s i n g o f f i c e r / H o n ' b l e D R P e r r e d i n m a k i n g a d d i ti o n o f R s . 2 , 0 3 , 9 6 , 5 4 0 / - o n a c c o u n t o f d i s a l l o w a n c e o f E S O P e xp e n s e . 5 . O n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e a n i n l a w , t h e l d . a s s e s s i n g o f f i c e r h a s e r r e d i n m a k i n g a d d i t i o n o f Rs . 1 5 , 1 7 , 8 7 , 7 5 5 / - o n a c c o u n t o f d i s a l l o w a n c e o f p u r c h a s e s . 6 . O n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e a n d in l a w , t h e l d . a s s e s s i n g o f f i c e r / I d . T P O / H o n ' b l e D R P h a v e e r r e d i n m a k i n g a d j u s t m e n t o f R s . 2 3 , 0 6 , 3 5 1 / - o n a c c o u n t o f c o m m i s s io n o n s t a n d b y l e t t e r o f c r e d i t . ” 3. G ro unds No.1 of the c on cis e grou nd (s upra ) is dis mi ss ed as not p resse d in the w ake of ave rments made by the asse s see in the cours e of the h ea ri ng. 4. G ro und N o. 2 c oncerns addit ions of R s.11, 64, 88,755/- on account o f disa l lo wance of commiss ion, bro kerage and disc ount expens es cla i me d by t he asses see. 4. 1 In t he dr af t ass es s me nt order, the A O inter a li a obs erve d that assess ee has clai med Rs. 11,90, 44, 517/ - tow ards co mmiss ion, bro kerag e and di scount expe nses. T he pa rt y-w is e details of expens es a lo ng w it h de tail s o f TD S deducted if an y w as cal led f or. The re pl y of the as sessee was o btai ne d. I t w as a ll eged i n the dra ft I.T.A. No.2109/Del/2022 3 assess me nt orde r t hat t he assess ee ha s not pro vi ded a n y deta ils of TD S dedu ct ion ma de on these e xpens es. T he A O also al leg ed that the c ont ract agree me nts have not been provi de d to ga uge th e natu re o f expe nses. T he assessee on its part res po nded to the que ries raise d an d poi nt ed out that co mmi ssi on expenses have been i ncurred fo r proc ure ment of ex port orders, i. e, for e ar ning inco me outside Ind ia for w hi ch th e se rvices ha ve bee n rende red by the overseas com missio n ag ents outsi de Indi a and n o servic es h ave been re ndere d in I ndia. Party-w ise break u p o f pa yme nt s to ag ents sit ua ted outsi de India we re pr ovided and it w as point ed t hat simi la r pa yment s have be en made t o t hese ve ry parties in the earl ier years too fo r obt aining such se rv ic es of com mi ss i on agents. Such expe nses incurred ha ve been fou nd to be i n orde r in the previous as sess me nts ca rrie d out a ft er s c ruti ny under se ct ion 143(3) of the A ct . Besides, the ma tte r has been also exa mi ne d under T ra nsfe r Pri cin g R egul at ions a nd no adverse infere nce has been draw n. T he pa rt y-w ise res pons e of the ass essee in ta bula r for m ha ve als o been re pro duced i n para graph 7. 4 of the draft assess me nt order. It w as pointe d out that the cop y of ag reement s w ere dul y s ubmitted a t t he ti me of t rans fe r pric ing assess ment a nd sampl e copies o f agree me nts w ere plac ed be fore t he A O for pe rus al. It w as t hus con te nde d tha t commiss i on, b roke ra ge a nd expens es e tc. have be en incur re d w h ol ly a nd exclus ive l y for the pur pos es o f busi ne ss of the compa ny w hich has not bee n dis tu rbe d by the T ra nsfe r Prici ng O ff ice r. Such expe nses have also b een accept ed i n the a ssessment ca rried out under Sec tion 143(3) in res pect of earlie r assess ment years. 4. 2 T he A O how ever in the dr af t ass ess ment orde r pre pa re d under s. 144C (1) of the A ct obse rved that the se rvices re nde red b y I.T.A. No.2109/Del/2022 4 these fore ign co mmissi on agen ts a lso i nc lu de ‘q ua lit y chec ks’ w hich re qui res tec hnical expe rtise such pa yme nts thus fall w ithi n the ambit o f ‘fee for te chnical se rvic es ’ a nd s uc h s ervices are bein g utili zed for the pur pos e of bus ine ss ca rrie d out i n I ndia or for earn in g a n y i ncome from s ource i n In di a a nd consequentl y suc h services are subj ected t o wit hholding tax provisi ons unde r Sect ion 195 of the Act. T he assessee have fa il ed to dedu ct TD S on re mi t ta nces ma de on account of suc h com mi ssion / broke ra ge a nd thus suc h ex penses are li ab le to be d isallow e d. 5. In the pur sua nce of t he o bjecti ons file d by the asses see to the draft order, t he D RP t oo k n ote of t he submissi on s made on behal f o f the ass es see vi z; (i ) t he ide nt ica l p osi tion of the assess ee on such c ommiss ion expens es ha ve been dul y acc ep ted in the A .Y. 2014-15, 2015- 16 and 201 6-17 u nder Sect ion 143 (3) of the A ct (ii ) the fore ig n a ge nts c onti nue t o be the s a me and the fac tual ma tri x o f the ass essee continues t o be ident ica l (ii i) cop y of ag reement s w ith foreign age nts ha ve bee n produced before the AO and th er e is no re fere nce to an y cl aus e by wh ic h i t reve als t hat an y qua l it y chec k of a ny tec hni cal na t ure is t o be done by the fore ign agents (i v) t he clauses of ag reement, fil ed b efo re the D isp ute Resolution Pane l, do n ot underta ke or si gnif y that quali ty chec ks of the product is to be ve ri fied to th e fore i gn c ommission ag ents (v) the s ol it a ry bas is o f disall ow an ce are so called a ssertions made tow ard s qual it y c hec ks wh ic h th e assessee d enies. The asse ssee never sta ted i n th e course of hear in g throug h virt ual conferenc e (V C ) t hat qua li t y check w as done by the co mmis si on agents as w rong ly o bser ve d in the draft assess ment order. 5. 1 In the light of t he se submiss ions, t he D RP took a vie w that I.T.A. No.2109/Del/2022 5 the A ssess i ng O ff icer ought to have passe d a r eas one d orde r w hi le ma ki ng ad di tions on t he gr ounds o f f ail ure to de duct T D S on such pa yme nts. Th e D R P thus acco rdingl y iss ue d direc tions to t he AO to incor porat e a fac tual and lega l posi ti on on t he iss ue of d oc tr ine of cons ist enc y and also di rec te d t he A O to revi si t the copies of ag reement t o asc ertai n t he fa ct um of qual it y che ck pur por tedl y carr ie d ou t by the for ei gn a ge nts. 5. 2 T he A ssess in g Of fi ce r ult imate ly p assed final assess ment order and re it erate d tha t the as sesse e had a dmit ted and sta ted on reco rd t ha t pa rt ie s t o w ho m paym ents hav e bee n made have pro vi ded se rvices of q uali t y c he cks for produ ct e xpo rt ed at the time of virtual confe re nces ac co rded t o t he assessee on 21. 08.2021. Cons equentl y, the A O appl ied the rat io o n dec isio n o f the C o-or dinate B ench in H ic al Inf ra. P vt. Ltd. [TS-25 2-ITA T - 2019(B ang. )] to hol d t hat e xpo rt c om mis sion pai d b y the India n tax pa ye r w oul d co nst it ute fee for techn ica l se rvices under Sect ion 9(1 )(vii ) of t he I ndian I nc ome T ax Act. Co nsequen tly fai lu re t o deduc t T D S un de r Section 1 95 of t he A ct wil l le ad to di sallow a nce of s uch e xpe nses by o perat ion of law . The A O accor di ngl y dis al low ed an a mount of Rs. 11, 64, 88, 755/ - towa rds co mmiss i on expens es cla i me d as busines s expens es. 6. In the a ppeal be fore T ri buna l, the ld. counsel for th e assessee res tat ed va ri ous s ub mi ss ions made bef ore the low e r auth ori tie s and submit ted that in essence, the gen uinenes s of expens es, reas ona blenes s ther eo f etc. is not in disp ute. It is als o not in d is pu te th at the co mmiss ion expens es ha ve bee n incu rred w hol l y a nd exclus i vel y fo r the purpose of bus iness as c an be see n fro m the final assess me nt orde r. T he sole ground for dis all ow ance I.T.A. No.2109/Del/2022 6 is fail ure t o deduc t TD S on remi tta nces of com mis sion pa yments sti pu la ted in s. 195 of th e A ct. In this r egard, the ld. cou nsel pointed out that t he adve rs e c onclusion d rawn b y the A O is s ol el y based o n so cal le d asse rt ions ma de on behalf of the assessee i n V C meet ing that t he com mi ssio n agents a re u nde r obli gati on t o indul ge i n qual it y chec ks w hi ch tant amount to fee bei ng p ai d f or re ndering t echn ica l services t o such age nts unde r s. 9((1)( vi i) of the A ct and t hus liabl e for tax de duction a t source unde r s. 1 95 of the A ct an d s uch fa ilu re w ould t ri gge r s. 4 0(a )(i ) of the A ct t o dis al low the co mmis si on expe ns es t o such fore ign agents. A ddress ing the poi nt, the l d. counsel s ubmi t ted that whil e the assessee has demonst ra ted t otal a bse nce o f a ny s uc h clause in the ag reement tow ards qua lit y c heck, the R even ue has fai le d to pro duc e an y e vidence in s uppor t of such al legati on. N o re cor di ng of V C mee ting ha s been provided despite request. Besides, th e pa yme nts are be i ng made for obtaining ide nt ica l se rv ic es yea r af te r ye ar f rom t he sa me part ies unde r the same se t up w here suc h bus iness expe nse on accou nt of exp ort commissi on has be en dul y accept ed in tune w ith l aw. N o factual dev ia tion has bee n s how n exce pt f or a self ser vin g asser tions made b y t he A O tha t s ome ki nd of c onfessi on was made on beha lf of the asses see tow a rds qua l it y c heck. The ld. c ounsel submi tted t hat s uch com miss i on pa yme nts are made for sal e of its prod uct in ove rseas j uris di ct ion for w hi ch the se rvic es are rend ere d and ut il ized o utside India. Such s er vices neit he r r equire a n y k ind of technic al e xpe rt ise nor an y suc h ser vi ce s has bee n rendere d i n the i nst ant case. N otwi ths tand in g and w it hout prej udi ce, a pe rt i nent questi on w oul d als o ar ise w hether any a nd ev er y a cti vit y w hi ch in volve s some ski ll and expe rtis e be called a t echn ical ser vi ce? The counse l t hus I.T.A. No.2109/Del/2022 7 submit ted t hat w i thout going i nt o such as pects as not needed in the i nst ant case, the A ssess ing O ff icer has not brought an y adverse fac ts on r ecord to i mp ugn suc h ge nui ne b us iness pa yments des pi te spe ci fic d ir ections o f t he D RP. 6. 1 T he L d. C ounse l a lso poi nted o ut t ha t s uch c ommi ss io n paid to for ei gn enti tie s for procuremen t o f e xport o rde rs are not suscepti bl e to Indi an ta xat i on and co nsequen tl y in the abse nce of an y income cha rgeable to t ax in In dia, n o ob li ga tion to ded uct w ithholding ta x a rises in India. T he provis ions of s. 40(a)( i) are not t rigge re d in the ab sence of an y liabi l it y to tax i n India as att ributable to c ommissi on i nc ome in the hands of foreign e ntit ies as hel d i n plet hora of judic ial pro noun ce ments. 6. 2 T he ld. cou nsel thus submi tted t ha t the a ction of t he A O is devoid of an y le ga l or fac tual f oundati on an d c onsequent l y so ught re ve rsal of the additions so mad e. 7. T he l d. D R for t he Revenue, on the ot he r hand, re lied up on the o bservati ons made in the fi nal assess me nt ord er passe d in purs uance of D RP di rect ions a nd al so sub mi tted i n furt he rance that simil ar addi ti ons have bee n ma de i n the A . Y. 2018-19 also havi ng r egard to the factual ma tr ix de termi ned b y the A O and ther e is no res j ud icat a i n ta x pr oce edings an d one s ma ll chan ge in fact can lead to e nt ir el y di fferent res ults. 8. We have ca re ful l y c onsi de re d t he rival s ub mi ss ion s and pe rus ed the or de rs of the aut ho rities bel ow . The case laws ci te d have bee n pe ruse d carefu ll y. 9. T he d isa llow a nce of expor t c ommi ss ion e xpe nse s owi ng t o I.T.A. No.2109/Del/2022 8 non-de ducti on to ta x a t s ource on s uc h re mi t ta nces i s i n cont rove rs y. T he a ssessee-compan y i s enga ged in the busi ness of export of leather and tex ti le p rodu cts . The ass essee compan y has ente red int o ce rt ain i nter nati onal t ra nsac tio ns w ith a gents i n an ove rs eas j uris dict i on to car ry out ma rket ing a nd sales rela ted act iv it ies t he re in. Commi ssi on pa yme nts ha ve been made f or procurement of e xpor t orders to va ri ous s uc h overseas agents s uc h as U lti ma Ital ia SR L , Ita l y; W orl d Fashion Trade L td, Hong K ong; Trade W orl d L td, Hong K ong a nd seve ra l o th er parties having esta bl is hmen t abr oad. The as sess ing officer has denie d dedu ct ion of com mi ssio n expe nses f or no n deduc tion of T D S on s uc h pa yme nts plac in g reli ance on H ica l Infra (supr a). 9. 1 In defense, i t is t he cas e o f t he as sessee tha t commi ssion pa yme nts a re at t ribut ab le to p rocure me nt of export orders f or earn ing an income outside In dia and in l ieu o f s ervice s re nde red outsi de Ind ia. T he ove rse as agents a re not authorized t o co nclude an y cont ract on b ehal f of the Indian compan y and t he p ri ci ng of the prod uct is also determin ed b y the In di an Company. The ove rs eas age nts car ried out their assigned act ivit y w ho ll y o uts id e Ind ia as a support for proc ure me nt of export orders. It is f urt he r case of t he ass esse e that t he A O in the final as sess me nt orde r has dis al low ed suc h commiss ion exp enses aggregatin g t o Rs. 11, 64,88, 755/ - sol el y on the g round that assessee h as fa iled t o deduc t T DS und er section 19 5 of the A ct on c ommiss ion pa yments and c onse que ntl y invoked prov isi ons of Secti on 4 0(a)(i) of the A ct. Fo r holdi ng so, the AO ha s bra nded such com miss i on expens es as ‘fe e for technic al ser vices’ [chargeable under t he A ct under s ource ru le of S. 9 of the A ct] on the ground th at s uc h co mmiss i on agent s are engag ed i n p roviding qua l it y ch ec ks I.T.A. No.2109/Del/2022 9 ser vi ces w hi le obtaining pr oc ure ment order which o bservation is, in tur n, base d on pu rported a sserti ons made on be hal f of the assessee thr ough V ide o C onfe re ncing (VC ). In rebu ttal, the assessee ha d denie d ma king an y s uc h asserti ons be fore the D RP as w ell as in th e fi nal ass ess ment s ta ge . The A O has not re fer re d t o an y documenta ry evi de nce s i ncludin g cl aus e i n t he agreements ente red into w i t h ove rseas agent s w hi ch places such o bli gat ions of qua l it y che ck on the com miss i on a gents. It is w ell settled t hat onus lies on t he pers on w ho all eges as o bser ve d in K. P. V erghese vs. ITO (1981) 131 ITR 5 97 ( SC ). The Re ve nue cann ot put a n impossi ble burden on t he assessee to pro ve a n egat ive poi nt. The A O has mer el y re li ed upon certai n as sertio ns purportedly made b y the rep res enta ti ve of t he ass essee tow ards quali ty chec k. N o evidence has bee n pl ace d to es tab lis h t he fa ct um o f an y s uc h asse rt ions. Be that as i t ma y, s uch a lle gati ons ca nnot be i mpu te d in the absence of an y documentary e vidence. Th e whole bas is for ma ki ng such w ho ppi ng disall ow anc e is sh al low and a da mp squib. The as sessee has repea te dl y as serted that s ervi ces hav e b ee n re ndered outs i de India by t he ove rse as a gents for procuremen t of orders w it hout an y techni cal or ma na ge ri al ass ist ance. 10. U nder t he circum stances, in the abse nce of an y adverse ma teri al, t he fa ct ual matr ix di d not pr ovi de an y scope for ta xi ng suc h pa yments. T he r eas onableness and genuine nes s of ex pen ses are admi tte dl y not i n dispute. I t is als o n ot in dis pute that co mmiss i on expen se has be en i nc urr ed w holl y and excl usi ve ly for the pur poses of carr yi ng out of th e bus i ness of the assessee. Simila r expe nses incu rre d b y the ass essee co mpan y in the earlie r ye ars have been s tat ed to be all ow ed i n the asses s ment fra me d under Se ct ion 143( 3) as e me rgi ng fr om re co rds. The D R P has also I.T.A. No.2109/Del/2022 10 obs erve d t hat agree me nts w it h ove rs eas age nt do no t s igni f y that an y qua lit y checks of the pr oduc ts are ca rrie d out by fore ign co mmiss i on agen ts. Thus, the c ommissi on pa yments cannot be re ga rded as fee for tec hnic al se rvices. D espite s uch ob ser vati ons, no facts ha ve bee n broug ht on r ec ord to the c on trary in the fi nal assess me nt orde r. T hus, in the absence of an y services of tec hnic al natu re, com mi ss ion pa yments t o se l li ng ag ents o utside India is outsi de t he a mbit of pr ovis ions of Section 9(1)(vii) r. w . Secti on 5 of t he Act. 9. 2 Plet hora of j udg ment s gove rn the f ield on the iss ue. Useful re fe re nce can be made t o the decisio n rende re d b y the C o-o rdi nate Bench i n C IT vs. E ON Technol ogy P. Ltd., (2 011) 1 5 ta xm ann.com 391 (De l) an d in the case of P rit hvi I nf orm ation Solutions Ltd. Vs. ITO ( 2014 ) 47 t axm ann. com 21 4 (H YD . ); Wel l Spr ing Univers al vs. JCIT (20 15) 5 6 taxm ann. com 174. 9. 3 U nder t he provisi ons o f s. 195 o f t he Act, taxes ar e re qui re d to be dedu ct ed at sourc e o n th e pa yments made to non res iden t, onl y i f the income pa ya ble to the non res ide nt is cha rgeabl e t o ta x in In di a. T he inc ome is c ha rgea ble to tax in In di a in t he ha nds of the non re sident w here inc ome rec eived or d ee me d t o ha ve been recei ved i n Indi a or t he in come has accrue d or a risen o r deemed t o have ac crue d or arisen in India. T he ass essee has appo in te d several non- re sident e nti ti es t o ac t as agent fo r servi ces such as sol ic iti ng c ust ome rs, securing o rde rs, assis ti ng in deli ve r of goods outsi de India etc. T he co mmi ssi on in the ins ta nt cas e has t hus de ri ved its ge nes i s from sales. The pro pert y in go ods ha ve bee n trans fe rre d in over seas j ur is di ction. We thus fin d force in the plea of the ass essee t hat in t he i nst an t cas e where t he overse as agents I.T.A. No.2109/Del/2022 11 w ere paid com mis sion for s ecuring orde r etc. , and such se rvi ces w ere util ised for t he pu rpose of mak in g or ear ni ng inc ome fro m a source ou ts ide India, the as sesse e is unde r n o ob liga tion to a ppl y w ith prov is ions of Secti on 195 of t he A c t for the re asons that co mmiss i on to such oversea s agents are not ta xable unde r t he A c t. The A O has not a lleged or est ab lis he d an y t hi ng t o t he cont ra ry. The A O w as thus no t jus ti fie d t o dis allow s uch commi ss ion expens es unde r the A ct. We thus d ir ec t the A O to reve rse a nd canc el t he addit ions on this scor e. 10. H ence, G roun d No. 2 of t he app eal o f t he assess ee is all ow ed. 11. G ro und N o. 3 con cerns a di sall ow ance of Rs. 61, 64, 363/ - under Sect i on 14A of the A ct. 11. 1 In the matt er, t he l d. counse l f or the assessee sub mi ts at the outse t that t he assessee has ear ned exe mpt inc ome of Rs. 1, 01, 073/ - onl y durin g AY 2017-18 i n ques tion as ev ident fro m the s ta tement of to tal income a nd the audited fi nanci al sta tements place d in t he pa per book. A s a ga in st s uch exempt income, the assessee has made suo m ot u d isa l lo wance of R s.2, 52, 249/- on the bas is of 1% of avera ge val ue of i nvestment f rom w hic h tax f ree di vi dend i nc ome w as recei ved. T he a ssessee t hus c onte nds that in view of s uo mo tu disa llow a nce w hich far e xceeds t he e xe mpt inco me, no further disa ll ow ance is per mi ssib le under Section 14A r. w . R ule 8D of t he Inc ome T ax R ule s, 1963. 11. 2 In t he l ight of t he sub miss ions ma de on be half of the assessee, no fur ther disal low ance un der Sect io n 14A is calle d f or in the l ight of t he ju dgment re ndere d i n the ca se of Joint Inves tm ents P . Lt d. V s. C IT, (2015 ) 372 ITR 694 (D el ) and P r. C IT I.T.A. No.2109/Del/2022 12 vs. C ar af Bu il ders an d Construct io ns P . Ltd. (201 9) 414 ITR 122 (D el) (SLP dism issed by SC ). I t is w e ll s ett led law t hat dis al low ance u nde r Sect ion 14A can be made onl y in res pect of those inves t me nt s w hich have yie lde d t ax fre e income during the ye ar as he ld in C araf Bu il ders (su pra) and A C B Indi a Ltd. vs. ACIT ( 2015) 3 74 ITR 108 (Del ). The A O is thus directed t o delete the disall ow anc e un der Sec ti on 14A ma de over an d above the dis al low ance offered by the ass essee. 11. 3 G ro und N o. 3 of th e appe al of t he ass essee is allowed. 12. G ro und N o. 4 c oncer ns additi ons of R s.2, 03, 96, 540/- on account of d isa llow ance of ESO P expenses. 12. 1 A s per t he dra ft as sess men t orde r, the A O obser ved that the assessee has c la i med Rs. 2, 03,9 6, 540/ - unde r Se ct ion 3 7(1) of the A ct under the hea d ‘ emplo yees E SO P compe nsat ion e xpenses ’. It w as su bmi tte d by t he assessee that du ri ng the yea r unde r consi derati on, the compa n y granted 1, 64, 650 opt io ns comprisi ng equal numb er of equit y sha res i n o ne or mor e tranches to eli gi ble empl oye es of t he comp an y. Th e options are gra nt ed with sp eci fic exercise pe riod fro m the date of ves ting of sha res a nd the opt ions are e xe rc isa ble at a pre -de ter mi ned pric e of Rs. 50 each res ult ing in i ssue o f sha re on di scou nt to the mar ket price of t he compan y sha res o n th e da te of grant. 12. 2 A s po inte d out, it w as asse rted before t he lower aut hori ties that the e xpenses are incur red w it h a view to re tain t he talent / sta ff for the benefit of t he co mp any and c on sequ entl y such expens es ar e al low abl e a s busi ness e xpe ndi ture in the light of the judgments re ndered i n B io con Ltd. vs. D CIT (2 013) 35 I.T.A. No.2109/Del/2022 13 taxm an n. com 33 5 (SB ); C IT vs. Lem on Tree H ote ls Ltd. (s upr a ) 12. 3 Befo re the DRP, t he assesse e rei te ra ted t ha t the e xpense s are neit he r no tiona l nor ca pital i n nature. The expenses i ncurred are re ve nue i n character and is incu rred w holl y a nd excl usivel y for the purpos e of bus ine ss. The A O has w rongl y placed r eli ance on decisi on o f C o-ordinate Be nch of D elhi T ribunal in R anbaxy Labora tori es wh ic h has been ove rt urne d by the Spe cia l B ench ther ea fter in B icon Ltd.. 12. 4 T he issue is n o longe r res integra a nd cove re d i n fav our of the assess ee b y the Hon’b le J uris dicti onal H i gh Court in L emon Tree (s upra). T he D RP how e ver c onf ir me d the p roposal move d by the A O essen ti all y on t he gr ound that j udg me nt rendere d i n the case of Lem on Tr ee H ot el L t d. (s upra) ha s b een ad mi tte d in the Reven ue Ap pea l by the H on’ble S upreme C ourt as re ported i n (20 19) 104 t axm ann. com 27 (SC ). The a ddi tions bas ed on ad mis sion of SLP by H on’ble S upre me Court is not tenab le. While holdi ng in favour of t he A ssessee, w e als o notice the asse rt i ons ma de on be hal f of the assessee t hat si mi lar clai m has be en a l lowe d in t he earlier ye a rs by the A O. No reason t o take di fferent st ance in captio ned assess me nt yea r has bee n br ought to our not ice. T hus, cont rar y view is not warranted. 12. 5 We t hus find force in t he ple a of t he assesse e for revers al of suc h dis al low ance. We di rec t the AO accordingl y. 12. 6 G ro und no. 4 is all ow ed. 13. G ro und N o. 5 of the c onc ise g rounds (s upra) concerns dis al low ance of Rs . 15, 17, 87, 755 /- to wards b ogus pu rch ases. I.T.A. No.2109/Del/2022 14 13. 1 A s per the dra ft assess ment order, the A O propos ed dis al low ance on a ccount of bogus pur chas es of deni m fa bric fro m SunG old T rad e P vt. Lt d. (ST PL ) a mo unting to R s. 1 5, 17, 87, 7 55/ - w hich was, in tur n, sold to two pa rt ies namel y Sh ivo ha m T rading Pvt. Ltd. - Rs. 5, 05, 85, 780/ -; and Shakumb ri Tr ad el ink Pvt. L td. - Rs. 10, 22,38, 920/ -. T he A O hel d t he pu rc hase s ma de fr om STPL as bogus pu rchases a nd pro pose d a ddit ions under Secti on 69C of the A ct in the draft assess ment ord er. 13. 2 T he ass essee subm it ted be fore the D RP that the ass ess ee is als o engaged in the bus iness of t rading of fab ri c. The i mpugned purchase from ST PL repres en ts trad in g act i vi ty by the assessee w her e the g oods purchased ha ve been sold t o tw o pa rt i es wit hout an y modific at ion. Such t rading t ra ns act io ns have res ul ted i n prof it at Rs. 10, 36, 945 /- to the asse ssee -c ompan y. It was contende d that the s ale of g oods to t hes e tw o pa rt ies cou ld no t be car ried out w ithout cor res ponding purch ase w hich is assa iled as bo gus purchase b y the A O . 13. 3 In its dr af t asse ss men t o rde r, the D RP referred to the judgment rendered b y the H on’b le G uj arat High Cou rt in t he case of P r.C IT vs. Tej ua R ohit K um ar K apadi a (201 8) 94 t axmm an.com 324 (Guj. ); and CI T vs. Bho la nat h Po lyf ab P. Ltd. , ( 2013) 355 ITR 290 (G uj. ) t o observe t ha t si nce t he impugned purc hases have been sol d and t he sal es ha ve bee n acce pt ed, t he re is no rat ionale f or dis al low in g the purc hases. T he D RP als o referred to ju dgment in the case of B alaji Text iles Indus trie s P. Ltd. (199 4) 49 ITD 1 77 (Mum . ) pro vidin g si mi lar view. The D RP accor di ngl y e xpress ed a view that the re c annot be an y sal e w itho ut pu rc has es in an y bus iness t rans act io n as t he acc ount i ng is complete onl y by taki ng I.T.A. No.2109/Del/2022 15 into accou nt both the si des of the trans act ions. T he sale a nd purchase trans acti ons a re t hu s req uires t o be s imulta ne ousl y consi dered. T he A O was accordingl y di recte d to make ve ri fica tions in t he light of such obse rvations. 13. 4 T he A O in the f in al assess ment or de r howe ve r cont i nued t o trea t t he purchas es of fabric from ST PL as b ogus and refuse d the cla im ma de unde r Sect ion 37 of t he Act wit hout bring ing an y fres h facts on rec ord. 13. 5 Befo re t he T ri bunal, t he ld. couns el broa dl y reite ra te d the submiss ions ma de be fore t he low e r a ut hor it ies and submit ted t hat in trading activ it y, the ass essee ha s ul timate l y earne d a profit of Rs. 10, 36,945/-. T he de ta ils of purchases and sal es a re give n in the assess me nt order its el f. A ll the purc hases an d sa les are dul y reco rded in t he books of a cc ount. T he AO has dul y accepted the sales but refused to acc ept the purch ases a nd conseque nt ly fa i le d to ap precia te t hat no sales ca n be c arr ie d o ut wit hout co rrespondin g pu rchas es. T he ac tio n of t he AO has resulte d i n double taxat ion o ne b y w a y of sales rec orded a nd seco nd by dis al low ance of cor res pond ing pur ch ases of the sa me goods s old. The l d. counsel a lso con te nds th at even in terms of di re ct ions passed by the D RP , the A O w as no t j ust ified i n ma king addi tion as the D RP has he ld tha t the re cannot be sa le w itho ut purc hase. Whe n the sale f igure is ta ke n into ac co unt by t he AO for co mputi ng t he inco me of the assesse e, purc has e figure is re qui re d to be neces sa ri l y cons id ered. 13. 6 We fi nd that the addi ti ons made by the AO is not onl y er roneou s but is also co nt ra r y to di rect ions of D RP a nd s et tled legal pos it i on as held in Tejua Ro hit Kum ar K apadia (supr a); C IT I.T.A. No.2109/Del/2022 16 vs. JMD C om pu ter s and C om m unic ations P . Ltd. (D el ); P r. CIT vs. Bans al Str ips P . Ltd. (D el) and ple t hora of o ther j ud gme nts. 13. 7 In the l ig ht of obs erva ti ons mad e by the D RP and plea raise d on beha lf of the a s sessee, w e find pr i m a f ac ie me ri t in the plea of the ass essee. While t he AO has cast dou bt on propriet y of purchase s of fabric made fro m Sungol d Tr ade P. Ltd. on the basis of ass ess ment order pass ed i n the ha nds o f suc h s uppli er, the AO has a cce pt ed the c or re sponding sa le t ransac t ions. The e xclus io n of purchase s fr om the tr ad ing res ults is no t pe rmiss i ble wi thout co rrespondin g exclus ion of the sales in such t ra di ng a cti vit y for ar ri ving a t a fair a nd ba lan ce d view . The act ion of the AO patent l y offen ds th e ru di ment ary pri nc iple of accou nting. We a ccor di ngl y di re ct t he A O to revers e the additi ons ma de and r est or e the pos it ion take n b y t he assess ee. 13. 8 G ro und N o. 5 of th e appe al is thus al lowed. 14. G ro und N o. 6 concerns a dj us t me nt of Rs. 23, 06, 351/- on account of com mi s sion on stand by l et ter o f credit. 14. 1 T he T rans fe r P ri cin g O ff ic er (TP O ) o bserved t ha t the assessee has clai m ed Rs. 68, 64, 578/- inc urred b y i t t ow ar ds ba nk char ges pa id to bankers f or s tandby let ter of credit. While incu rri ng suc h e xpenses, t he assess ee has no t charged a ny amount to its A ss oc ia te E nter pris es (AE s ) f or ris k b orne by i t. The T PO held th at asses see w as re qui re d to be co mpensated @2. 5% b y its A Es on acc oun t of expos ure of SBL C issued by the banks. T he AO dete rmined the Ar ms ’ L eng th P rice o f such c ha rges at Rs. 23, 06,351/- and accor din gl y reco mme nde d a dj us t ment of s uch amount un der Section 92CA (3) of t he A ct. I.T.A. No.2109/Del/2022 17 14. 2 Befo re t he D RP, the assess ee s ubmit ted tha t i t has r ec ove re d ful l cha rges fr om t he A Es a nd t he A O / T PO w as t hus not j us tif ie d in maki ng f urt he r adj ust me nt. I n t he a lte rna tive, th e adjust ment ma de by the A O /TPO is on a ve r y hi gh s ide. It was submi t ted t hat SBLC has been iss ued by t he co mpa ny ba nkers w i th out any ma rgi n or a ny s pec ific se curi ty. N o cos t ha s been bo rne by t he assess ee co mpan y. T he act ual ba nk co mmi ss ion charged by t he bank has been d ul y recov ere d fr om t he AE s. The re fore, t he re is no outgo. In an y cas e, t he guar ante e c ha rges cha rged by t he bank are on mar ket ra te and the ass es see has a lso recovere d the sa me at the ra te at w hich t he ba nk ha s charged. T he DR P h ow ever d id n ot find an y infirmit y in the a cti on of the AO /TPO . A s per t he recti ficat ion order passed u nde r R ule 13 of D RP, 2009, the D RP has si mpl y af fi rmed t he a ct i on of the A O/T PO rega rdi ng the pr opose d adjus tment of R s.2 3, 06, 351/- wit hout any disc ern ib le reason. 14. 3 Befo re t he T ri bu nal, t he l d. coun sel conten de d t ha t the TPO /DR P/A O have com mi tted e rr or i n mak in g a dj ustment of Rs. 23, 06,351/- on account of com mi ssi on on s tandby let ter of cred it. Th e l d. c ouns el su bmi tted t hat no cos t has bee n borne b y the assess ee -c omp any as su bmi t ted repea te dl y b ef ore the low er auth ori tie s. T he a ctu al bank com mi ssion charged b y the ba nk at the mar ke t rate has bee n d uly re covered fro m t he AEs and ther ef ore t he A O/T PO /D RP w as not j ustified in maki ng furthe r addi ti ons/a dj us tments. The ld. couns el reite ra te d tha t SBL C has been iss ued b y the compa n y’s ban ker s w itho ut a n y mar gi n or a ny speci fi c sec uri t y. I n t he alt erna tive a nd w i thout prej udi ce, the l d. counse l re fe rred the jud gme nt of the Co -ordinate Bench in Havel ls Ind ia vs. A C IT (2023) 101 ITR ( Trib ) 81 (ITA T Delhi) a nd submit ted t hat the adj us t me nt in r espec t of co rporate guarantee I.T.A. No.2109/Del/2022 18 pro vi ded to A Es be dete rmi ned @0.5 % i nst ead of 2. 15% dete rmined b y t he Reve nue i n the i nst ant cas e. T o suppor t the adjus tment at 0.5 %, t he assess ee a lso r ef er red to the de cis i on deli ve re d by th e Hon’b le B omba y H igh C ourt in t he case of Everes t Ken to Cyl inde rs Ltd. 14. 4 In the l ig ht of the undis puted fa ct emergin g from record t hat no co st ha s bee n b orne b y the as sessee compan y and i n the absence of a n y rebu tt al to t he asse rt ion t ha t ac tual bank co mmiss i on ch arg es incurred has been full y recov er ed fro m th e A Es, w e hardl y see a ny just i ficat io n i n the T rans fer Prici ng A djustment on thi s score. W e thus a re no t incl ined to addr ess the alt erna tive plea of excessi ve es timati on. 14. 5 G ro und N o. 6 is al l ow ed. 15. In the res ul t, the appeal of t he asses see is part l y al low ed. Order pronounced in the open Court on 02/01/2024 Sd/- Sd/- [SAKTIJIT DEY] [PRADIP KUMAR KEDIA] VICE PRESIDENT ACCOUNTANT MEMBER DATED: /01/2024 Prabhat
