M/s. Holtec Consulting Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 276/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7412 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 15-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K SAROHA
• Keywords: Depreciation; Double taxation relief; Opportunity of being heard; Maximum Marginal Rate; Earning of tax free income; Additional evidence; Permanent establishment; Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C, NEW DELHI BEFORE SHRI S. V. MEHROTRA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NOS.276 & 1057/DEL/2014 (ASSESSMENT YEAR 2007-08 & 2010-11 RESPECTIVELY) HOLTECH CONSULTING PVT. LTD., VS. DCIT, C- BLOCK, 01-0103, IMPERIAL TOWER, CIRCLE 12(1), COMMUNITY CENTRE, NARAINA VIHAR, NEW DELHI NEW DELHI-110 028 GIR / PAN : AAACH0031H I.T.A.NO. 2280/DEL/2014 (ASSESSMENT YEAR 2010-11) DCIT, CIRCLE 12(1), VS. HOTECH CONSULTING PVT. LTD. , NEW DELHI C-BLOCK 01-0103, IMPERIAL TOWER COMMUNITY CENTRE, NARAINA VIHAR, NEW DELHI C.O.NO.16/DEL/2015 (ASSESSMENT YEAR 2010-11) HOLTECH CONSULTING PVT. LTD., VS. DCIT, C- BLOCK, 01-0103, IMPERIAL TOWER, CIRCLE 12(1), COMMUNITY CENTRE, NARAINA VIHAR, NEW DELHI NEW DELHI-110 028 (APPELLANT) (RESPONDENT) APPELLANT BY :SHRI AKHILESH GUPTA, CA RESPONDENT BY :SHRI A. K. SAROHA, CIT DR DATE OF HEARING: 13.06.2016 DATE OF PRONOUNCEMENT: 18.08.2016 ORDER 2 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 PER BEENA A. PILLAI, JM: THESE ARE BUNCH OF CASES FOR ASSESSMENT YEAR 2007- 08 AND 2010-11 FILED BY THE ASSESSEE AS WELL AS THE REVENUE, AGAINST THE IMPUGNED ORDER PASSED BY THE L D. CIT (A) FOR THE RELEVANT ASSESSMENT YEARS UNDER CONSIDERATION. WE SHALL DEAL WITH THESE APPEALS IN SEQUENCE. A.Y: 2007-08: ITA NO. 276/DEL/2014 (ASESSEES APPEAL): 2. THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSE E AGAINST THE ORDER DATED 11/11/2013 PASSED BY CIT (A ) 28 NEW DELHI FOR ASSESSMENT YEAR 2007-08 ON THE FOLLOW ING GROUNDS OF APPEAL: 1) THE ORDER OF THE LEARNED ASSESSING OFFICER IS BAD IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF RS.8,25,697/- ON ACCOUNT OF COMMISSION PAID TO DIRECTORS BY THE ASSESSEE COMPANY. 3. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF RS.3,11,30,314/- (SUBSEQUENTLY RECTIFIED TO RS.8,86,275) UNDER SECTION 14A ON ACCOUNT OF EXPENDITURE INCURRED FOR INCURRING DIVIDEND I.E. EX EMPT INCOME. 3.2 THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF RS.3,11,30,314/- UNDER SECTION 14A IGNORING THE 3 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 PROSPECTIVE OPERATION OF RULE 8D OF THE INCOME-TAX RULES, 1962 NOTIFIED ON 24 MARCH 2008. 3.3 THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DECIDE THE MATTER AFRESH IGNOR ING THE MATERIAL AND OTHER FACTS BROUGHT ON RECORD. 4) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF RS.3,19,588/- ON ACCOUNT OF DEPRECIATION ON COMPUTE R PERIPHERALS, PRINTERS, UPS. 5.1 THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF RS.31,66,650/- WRONGLY CONSIDERING PROVISION OF DIVIDEND AS INCLUDED IN FOREIGN TRAVELLING EXPENSES . 5.2 THE LEARNED CIT(A} HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DECIDE THE MATTER AFRESH IGNOR ING THE MATERIAL AND OTHER FACTS BROUGHT ON RECORD. 6) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF RS.32,17,320/- ON ACCOUNT OF EXPENDITURE IN THE NATURE OF PAYMENTS FOR EXTERNAL SERVICES AND RECRUITMENT EXPENSES ON WHICH TAX HAS NOT BEEN DEDUCTED AT SOURCE ON HIS OWN PRESUMPTIONS AND SURMISES WITHOUT LOOKING INTO/ASKING FOR THE EVIDEN CE OF THE SAME. 7) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING ADDITION OF RS.29,39,405/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF. 8) THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. THE BRIEF FACTS OF THE CASE ARE AS UNDER: 2.1 ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING ENGINEERING AND MANAGEMENT CONSULTANCY SERVICES. FOR THE YEAR UNDER CONSIDERATION THE ASSE SSEE 4 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.30,42,18,189/- ON 15/11/2007. THE RETURN WAS PROCESSED UNDER SECTION 143(1) AND THE CASE WAS SEL ECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143 (2) WAS I SSUED TO THE ASSESSEE. 2.2 DURING THE YEAR UNDER CONSIDERATION THE LD. AO OBSERVED THAT THE ASSESSEE HAD PAID COMMISSION TO I TS EMPLOYEE DIRECTORS TO TUNE OF RS.3,05,14,588/-. IT WAS OBSERVED THAT THESE TWO EMPLOYEE DIRECTORS WERE ALS O SHAREHOLDERS OF THE COMPANY HOLDING 19.8% AND 12.4% OF THE SHARES OF THE COMPANY. THE LD. AO HELD THAT THE AMOUNT DO NOT QUALIFY FOR ELEMENTS UNDER SECTION 36 (1) (III) AND WORKED OUT THE DISALLOWANCE TO AN EXTENT OF RS. 98,25,697/-. 2.3 THE LD. AO MADE THE FOLLOWING ADDITIONS DURING THE ASSESSMENT: ADDITION ON ACCOUNT OF COMMISSION PAID - RS. 98,2 5,697/- ADDITION UNDER SECTION 14 A READ WITH RULE 8D- RS. 3,11,30,314/- DISALLOWANCE OF DEPRECIATION ON COMPUTER PERIPHERAL S- RS.3,19,588/- DISALLOWANCE OF TRAVELLING EXPENSES - R S.31,66,650/- DISALLOWANCE OF EXPENDITURE THAT TDS NOT MADE- RS.32,17,320/- DISALLOWANCE OF BAD DEBTS AND ADVANCE WRITTEN OFF- RS.29,39,405/- 2.4 AGGRIEVED BY THE ADDITION MADE THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A). THE LD. CIT(A) CONFIRMED THE ADDITION SO MADE BY THE LD. AO . 5 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 2.5 AGGRIEVED BY THE ORDER OF THE LD. CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US NOW. 3. GROUND NO. 1, 8 AND 9 ARE GENERAL IN NATURE AND DO NOT CALL FOR ANY ADJUDICATION. 4. GROUND NO. 2: AT THE OUTSET, THE LD. AR SUBMITTED THAT GROUND NO. 2 STANDS COVERED BY THE ORDER OF TH IS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 AND 2006-07. HE REFERRED TO THE RELEVANT PA GES OF THE ORDER BEING 481-486 OF THE PAPER BOOK. THE FINDINGS OF THE TRIBUNAL ARE REPRODUCED HEREIN BELO W: 17.3WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PURSUED THE RECORDS. WE FIND THAT ASSESSEE HAS PAID COMMISSION TO THE DIRECTORS AS PART OF THE REMUNERATION. IN THE AGREEMENT, IT WAS CLEARLY SPECIFIED THAT COMMISSION IS PAYABLE AT 5% OF THE N ET PROFITS OF THE COMPANY. THUS, THE PAYMENT WAS DULY APPROVED BY THE BOARD OF DIRECTORS. 17.4 WE FURTHER FIND THAT HON'BLE JURISDICTIONAL HI GH COURT IN THE CASE CIT VS. DALMIA PROMOTERS DEVELOPE RS (P) LTD. 281 ITR 346 HAS HELD THAT FOR REJECTING TH E VIEW TAKEN IN EARLIER ASSESSMENT YEARS, THERE MUST BE MATERIAL CHANGE IN THE FACT, SITUATION OR IN LAW. I N THIS CASE, CLEARLY THERE IS NEITHER ANY CHANGE IN THE FA CT, SITUATION OR IN LAW. WE AGREE WITH THE CONTENTION O F THE ASSESSEE THAT THE COMPENSATION FOR BOTH THE DIRECTORS WERE STRUCTURED IN SUCH A WAY THAT APART FROM GETTING A FIXED REMUNERATION FOR THEIR SERVICE S RENDERED. THEY COULD ALSO BE ENTITLED TO RECEIVE COMMISSION BASED ON THE PROFITABILITY OF THE COMPAN Y. WE ALSO FIND THAT ASSESSEE HAS PAID TAXES AT MAXIMUM MARGINAL RATE. BOTH THE DIRECTORS HAVE ADMITTED THE PAYMENT OF COMMISSION RECEIVED AND OFFERED THE SAME IN THEIR INCOME TAX RETURNS AND HA D 6 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 PAID AT A MAXIMUM MARGINAL RATE. THIS CLEARLY ESTABLISHES THE FACT THAT THERE HAS BEEN NO TAX AVOIDANCE MOTIVE BEHIND THE PAYMENT OF COMMISSION TO THE DIRECTORS BY THE ASSESSEE COMPANY. WE FURTHE R FIND THAT THE CASE LAW REFERRED BY THE ID. COUNSEL OF THE ASSESSEE ARE ALSO GERMANE AND SUPPORT THE CASE OF THE ASSESSEE. 4.1 ON THE CONTRARY THE LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4.2 WE HAVE PERUSED THE RECORDS PLACED BEFORE US AND ORDERS REFERRED AND RELIED UPON BY THE LD. AR I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 AND 2006-07. IT IS OBSERVED THAT THE SIMILAR PAYMENT HA S BEEN MADE TO THE SAME EMPLOYEE DIRECTORS DURING THO SE PRECEDING YEARS. THE FACTS AND CIRCUMSTANCES BEING SIMILAR AND IDENTICAL TO THE YEAR UNDER CONSIDERATI ON WE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR T HE PREVIOUS ASSESSMENT YEARS HOLD THAT THE PAYMENT OF COMMISSION WAS JUSTIFIED AND IS ALLOWABLE UNDER SECTION 36 (1) (III) OF THE ACT. 4.3 ACCORDINGLY GROUND NO. 2 RAISED BY THE ASSESSEE STANDS ALLOWED. 5. GROUND NO. 3: THE ASSESSEE HAS RAISED THE GROUND AGAINST THE ADDITION MADE UNDER SECTION 14 A READ W ITH RULE 8D OF THE ACT ON ACCOUNT OF EXPENDITURE INCURR ED FOR INCURRING DIVIDEND, BEING EXEMPT INCOME. 7 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 5.1 AT THE OUTSET THE LD. AR SUBMITTED THAT THE LD. A O HAS APPLIED RULE 8D FOR THE DISALLOWANCE TO BE WORKED OUT UNDER SECTION 14 A OF THE ACT IN RESPECT OF EARNING OF THE EXEMPT INCOME. HE SUBMITTED THAT RUL E 8D STANDS APPLICABLE FROM ASSESSMENT YEAR 2008-09. HE RELIED UPON THE DECISION OF HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF M/S MAXOPP INVESTMENT LTD VS. ACIT REPORTED IN 15 TAXMANN.COM 390. 5.2 IT IS UNDISPUTED FACTS THAT RULE 8D IS NOT RETROSPECTIVE AND THEREFORE IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. WE ACCORDINGLY SET ASIDE T HIS ISSUE TO THE LD. AO FOR CALCULATING THE DISALLOWANC E UNDER SECTION 14 A OF THE ACT BY APPLYING THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF M/S MAXOPP INVESTMENT LTD (SUPRA). 5.3 ACCORDINGLY GROUND NO. 3 STANDS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 4: THE ASSESSEE COMPANY HAD CLAIMED DEPRECIATION AT THE RATE OF 60% ON ADDITION OF COMP UTER PERIPHERALS, PRINTERS, UPS ETC. THE LD. AO AND THE LD. CIT (A) ALLOWED THE DEPRECIATION @ 15% ON THE BASIS THAT THE UPS IS NOT AN INTEGRAL PART OF THE COMPUTE R AS THE COMPUTER CAN FUNCTION WITHOUT THESE PERIPHERALS . 6.1 THE LD.AR SUBMITTED THAT FOR ASSESSMENT YEAR 2008-09 THE LD. CIT(A) HAD ALLOWED THE DEPRECIATION ON COMPUTER PERIPHERALS PRINTERS AND THE UPS @ 60%, 8 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 AGAINST WHICH THE REVENUE HAD PREFERRED AN APPEAL BEFORE THIS TRIBUNAL. HE REFERRED TO PAGE 488 OF TH E PAPER BOOK WHERE THE RELEVANT ORDER FOR ASSESSMENT YEAR 2008-09 HAS BEEN PLACED IN ASSESSEES OWN CASE . THIS TRIBUNAL HAS DISMISSED THE APPEAL FILED BY THE REVENUE THEREBY UPHOLDING THE FINDINGS OF THE LD. C IT (A) WHICH IS AS UNDER: DISALLOWANCE OF RS.7,07,412/- ON ACCOUNT OF DEPRECIATION OF COMPUTER PERIPHERALS, PRINTER AND UPS: WITH REGARD TO THE ABOVE ISSUE THE APPELLANT MADE T HE FOLLOWING SUBMISSION THE GIST OF WHICH IS AS UNDER: ' .... THE APPELLANT COMPANY HAS CLAIMED DEPRECIATI ON AT THE RATE OF 60% ON ADDITION OF COMPUTER PERIPHER ALS, PRINTERS, UPS ETC. ALL THESE ITEMS AS CLAIMED FORM AN INTEGRAL PART OF THE COMPUTER, UPS/ SWITCHES/ CABLE/ PORT/ CONNECTORS ETC. CAN BE USED ONLY WITH THE COMPUTERS AND CANNOT BE USED ON STANDALONE BASIS DURING THE COURSE OF THE ASSESSMEN T PROCEEDINGS! A DETAILED LIST OF THE ADDITIONS MADE TO COMPUTERS ON WHICH 60% DEPRECIATION WAS CLAIMED BY THE ASSESSEE COMPANY WAS PROVIDED TO THE LO AO (COPY ENCLOSED AS ANNEXURE-9 ) IT IS A WELL SETTLED LAW NOW THAT THE WORD COMPUTER HAS ,TO BE READ AS COMPUTER SYSTEM COMPRISING OF THE ALL CONNECTING DEVICES WHICH ARE ESSENTIAL PARTS OF THE COMPUTERS. IN THE LIGHT OF JUDICIAL PRONOUNCEMENT OF ACIT VIS. CONTAINER CORPORATION! ITAT DELHI BENCH AND ITO VS. SAMIRAN MAJUMDAR, ITAT KOLKATA BENCH (COPY OF JUDGEMENTS ARE ATTACHED AS PER ANNEXURE 10 & 11). - - ----H 10. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE APPELLANT AND HAVE GONE THROUGH THE VARIOUS JUDICIA L 9 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 PRECEDENTS RELIED UPON BY THE APPELLANT. SINCE THE EXPENDITURE IS WITH REGARD TO THE COMPUTER PERIPHERALS, PRINTERS, UPS WHICH CANNOT BE USED STAND ALONE, THEREFORE, IN VIEW OF THE DECISION REL IED UPON BY THE APPELLANT, I AGREE THAT IN THE FACTS AN D CIRCUMSTANCES OF THE APPELLANT'S CASE, HE IS ENTITL ED FOR DEPRECIATION @ 60%. 6.2 LD. DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 6.3 RESPECTFULLY FOLLOWING THE SAME WE ARE INCLINED TO ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESS EE. 7. GROUND NO. 5: THE ASSESSEE HAD CLAIMED EXPENSES AMOUNTING TO RS.133,141,216/-, WHICH INCLUDED FOREIGN TRAVEL AND CONVEYANCE EXPENSES AMOUNTING TO RS.62,82,197/-.. ON PERUSAL OF THE SCHEDULES TO THE PROFIT AND LOSS ACCOUNT PLACED AT PAGE 89 105 OF T HE PAPER BOOK, THE LD. AO OBSERVED THAT THIS AMOUNT INCLUDED PROVISION FOR DIVIDEND AMOUNTING TO RS.31,66,650/-. THE LD. AO DISALLOWED THE SUM ON TH E BASIS THAT THE SAME INCLUDED FOREIGN TRAVEL EXPENSE S CLAIMED BY THE ASSESSEE AND NO DETAILS HAD BEEN FIL ED BY THE ASSESSEE. 7.1 AGGRIEVED BY THE ADDITION MADE BY THE LD. AO ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A) . THE LD. CIT (A) ON THE BASIS OF THE SUBMISSIONS AND EXPLANATION PROVIDED BY THE ASSESSEE HAS REMANDED T HE ISSUE BACK TO THE LD. AO TO VERIFY THE FACTS STATED BY THE ASSESSEE AND TO ALLOW THE CLAIM ACCORDINGLY. 10 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 7.2 AGGRIEVED BY THE DIRECTIONS OF THE LD. AO THE ASSESSEE IS IN APPEAL BEFORE US NOW. 7.3 THE LD. AR SUBMITS THAT THE DETAILS OF THE FOREIGN TRAVEL EXPENSES HAVE BEEN PROVIDED IN THE P APER BOOK AT PAGE 189 WHICH INCLUDE THE PROVISION FOR DIVIDEND AMOUNTING TO RS.31,66,650/-. HE SUBMITTED THAT THESE DETAILS HAS BEEN PROVIDED TO THE LD. AO AT THE TIME OF ASSESSMENT PROCEEDINGS AS IS EVIDENT FR OM THE LETTER DATED 11/11/2009 PLACED AT PAGE 171 OF T HE PAPER BOOK ADDRESSED TO THE LD. AO. THE LD. AR SUBMITTED THAT THE ACCOUNTS HAVE BEEN PREPARED AS REQUIRED BY SCHEDULES VI TO THE COMPANIES ACT, 1956 . HE SUBMITTED THAT THE PROVISION OR DIVIDEND HAS ALR EADY BEEN ADDED BACK TO THE PROFITS OF THE ASSESSEE AS P ER THE FINANCIALS FOR THE COMPUTATION OF TAXABLE INCOM E. HE REFERRED TO PAGE 98 OF THE PAPER BOOK WHERE THE ACTUAL PAYMENT HAS BEEN ADDED BACK. 7.4 ON THE CONTRARY THE LD. DR SUPPORTED THE ORDERS PASSED BY THE AUTHORITIES BELOW. 7.5 WE HAVE PERUSED THE DETAILS AND THE ORDERS PASSED BY THE AUTHORITIES IN SPECIFIC REFERENCE TO THE PAPER BOOK RELIED UPON BY THE ASSESSEE. WE AGREE WI TH THE CONTENTIONS OF THE LD. AR THAT THE PROVISION FO R DIVIDEND HAS BEEN ADDED BACK IN THE COMPUTATION. THEREFORE WE ARE INCLINED TO MODIFY THE DIRECTIONS 11 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 ISSUED BY THE LD. CIT (A) THAT THE LD. AO MAY ALLOW THE SAME AS AN EXPENSES. 7.6 ACCORDINGLY THIS GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 8. GROUND NO. 6: DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD MADE A PAYMENT OF EXTERNAL SERVICE S AND RECRUITMENT EXPENSES AMOUNTING TO RS.32,17,320/- WITHOUT DEDUCTING TDS. THE LD. AO MADE DISALLOWANCE OF RS.32,17,320/- ON THE BASIS TH AT TAXES HAVE NOT BEEN DEDUCTED AT SOURCE ON THESE EXPENSES. 8.1 AGGRIEVED BY THE ORDER OF THE LD. AO ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT (A). IT WAS SUBM ITTED BY THE ASSESSEE THAT THE PAYMENT HAVE BEEN MADE BY THE ASSESSEE TO HEPANO, AUSTRALIA, WHICH WAS IN THE NATURE OF AGENCY COMMISSION, PROCURED FOR THE PURPOSES OF BUSINESS ON WHICH NO TAX WAS DEDUCTIBLE BY THE ASSESSEE IN VIEW OF THE DTAA WITH AUSTRALIA. THE ASSESSEE SUBMITTED THAT OUT OF THE EXTERNAL SERVICE S AMOUNTING TO RS.15,62,916/-, RS.10,78,128/- HAS BEE N PAID TO DR. LOTAFI BAKSHI AND TDS HAS BEEN DEDUCTED ON THIS PAYMENT. OUT OF RECRUITMENT EXPENSES AMOUNTING TO RS.16,54,404 WHICH WERE PAID TO 3 VENDORS, ON WHICH TDS WAS DULY DEDUCTED. THE LD. CI T (A) FORWARDED THESE DETAILS UNDER RULE 46A TO THE L D. AO ON 19/11/2010. THE LD. AR SUBMITTED THAT SEVERAL 12 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 REMINDERS WERE ISSUED TO THE LD. AO ON 7/11/2011, 17/12/2012, 10/07/2013 AND 02/08/2013. HE SUBMITTED THAT IN SPITE OF NUMEROUS REMINDERS ISSUE D TO THE LD. AO FOR SENDING A REMAND REPORT, THE SAME HAS NOT BEEN COMPLIED WITH. THE LD. CIT(A) DIRECTED THE LD. AO TO VERIFY THAT THE TDS AS CLAIMED HAS BEEN DEDUCTED BY THE ASSESSEE FOR THE PURPOSES OF ALLOWI NG RELIEF ON THOSE AMOUNTS. 8.2 AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT (A ) THE ASSESSEE IS IN APPEAL BEFORE US NOW. 8.3 THE LD. AR SUBMITTED THAT THE PAYMENT HAS BEEN MADE BY THE ASSESSEE TO A NON-RESIDENT ENTITY WITH NO PERMANENT ESTABLISHMENT IN INDIA FOR SERVIC ES RENDERED OUTSIDE INDIA FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE OUTSIDE INDIA. HE PLACED HIS RELIANCE UPON THE CBDT CIRCULAR NO. 786 DATED 07/02/2000 AND CBDT CIRCULAR NO. 23 DATED 23/07/1969 WHERE IT HAS BEEN STATED THAT IF A NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY NO PART OF ITS INCOME ARISES IN INDIA. 8.4 ON THE CONTRARY THE LD. DR SUBMITTED THAT ASSESSEE HAS NOT SUBMITTED ANY DETAILS IN RESPECT O F THE PAYMENTS MADE TO THE NON-RESIDENT IN THE FORM OF AN Y AGREEMENT, MOU ETC. HE SUBMITTED THAT WHETHER THE PAYMENT HAS BEEN MADE WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF BUSINESS NEEDS TO BE VERIFIED. 13 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 8.5 WE HAVE PERUSED THE DETAILS AND THE ORDERS PASSED BY THE AUTHORITIES IN SPECIFIC REFERENCE TO THE PAPER BOOK RELIED UPON BY THE ASSESSEE. IT IS OBSER VED THAT THE LD. AO HAS NOT VERIFIED THE DETAILS IN RES PECT OF THE SUBMISSIONS MADE BY THE ASSESSEE TILL DATE. THE LD. AR HAS PLACED RELIANCE UPON THE CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANTS FOR THE ASSESSEE DATED 3 RD OF NOVEMBER 2006, WHICH WAS A PART OF THE ADDITIONAL EVIDENCE DEMANDED TO THE ASSESSING OFFICER FOR VERIFICATION BY THE LD. CIT (A). IT HAS ALSO BEEN FURTHER SUBMITTED BY THE LD. AR THAT NO PAYMENT ARISES OR ACCRUING IN INDIA AS THE SERVICES ARE RENDERED OUTS IDE INDIA AND THE PAYMENT IS ALSO MADE OUTSIDE INDIA. T HE CERTIFICATE RELIED UPON BY THE LD. AR IS PLACED AT PAGE 310 OF THE PAPER BOOK AND THAT THE SAID PAYMENT HAS BEEN MADE IN TERMS OF INVOICE NO. 64 DATED 17/09/2009 AS PER MOU DATED 10/07/2006. 8.6 THE LD. AR HAS PLACED RELIANCE UPON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VERSUS EON TECHNOLOGY (P) LTD REPORTED IN (2011) 15 TAXMANN.COM 391. THE HONBLE HIGH COURT HAS HELD AS UNDER: HEAD NOTE: ACCORDING TO THE REVENUE, COMMISSION INCOME HAD ACCRUED AND ARISEN IN INDIA AND WHEN CREDIT ENTRIES WERE MADE IN THE BOOKS OF THE ASSESSEE IN FAVOUR OF ETUK AND THE SAID INCOME TOWARDS COMMISSION WAS RECEIVED IN INDIA. THE STAND OF THE REVENUE IS CONT RARY 14 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 TO THE 2 CIRCULARS ISSUED BY THE CBDT IN WHICH IT I S CLEARLY HELD THAT WHEN A NON-RESIDENT AGENT OPERATE S OUTSIDE THE COUNTRY NO PART OF HIS INCOME ARISES IN INDIA AND SINCE PAYMENT IS REMITTED DIRECTLY ABROAD AND MERELY BECAUSE AN ENTRY IN THE BOOKS OF ACCOUNT IS MADE IT DOES NOT MEAN THAT THE NON-RESIDENT HAS RECEIVED ANY PAYMENT IN INDIA. THIS FACT ALONE DOES NOT ESTABLISH BUSINESS CONNECTION. IN CIRCULAR NO. 786 DATED 07/02/2008 HAS BEEN STATED THAT IN SUCH CASES THE INDIAN ASSESSEE IS NOT LIABLE TO DEDUCT T DS UNDER SECTION 195 FROM THE COMMISSION AND OTHER RELATED CHARGES PAYABLE TO SUCH NON-RESIDENT HAVING RENDERED SERVICES OUTSIDE INDIA. 8.7 WE FIND THAT SIMILAR IS THE SITUATION BEFORE AS IN CASE OF THE PRESENT ASSESSEE. THE SAID CERTIFICATE PLACED AT PAGE 311 OF THE PAPER BOOK ESTABLISHES A BUSINES S CONNECTION BETWEEN THE ASSESSEE AND THE NON-RESIDEN T. HONBLE SUPREME COURT HAS INTERPRETED THE TERM BUSINESS CONNECTION TO MEAN SOMETHING MORE THAN MERE BUSINESS NOT BEING EQUAL CARRYING ON BUSINESS, BUT OF A RELATIONSHIP BETWEEN THE BUSINESS CARRIED ON BY A NON-RESIDENT WHICH YIELDS PROFITS AND GAINS AN D SOME ACTIVITIES IN INDIA, WHICH CONTRIBUTES DIRECTL Y OR INDIRECTLY TO EARNING OF THOSE PROFITS OR GAINS. 8.8 IN THE INSTANT CASE THE ASSESSING OFFICER HAS N OT DISCUSSED ANY FACTUAL ASPECT IN RESPECT OF THE PAYM ENT MADE BY THE ASSESSEE TO THE NON-RESIDENT. THE LD. A R HAS SUBMITTED BEFORE US THE MOU DATED 10/07/2006 ENTERED INTO BY THE ASSESSEE WITH THE NON-RESIDENT. WE ACCORDINGLY REMAND THE ISSUE TO THE LD. AO FOR VERI FYING THE DETAILS AS SUBMITTED BY THE ASSESSEE BEFORE THE LD. 15 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 CIT (A) AND TO EXAMINE THE ISSUE IN THE LIGHT OF TH E DECISION BY HONBLE HIGH COURT IN THE CASE OF CIT VERSUS EON TECHNOLOGY PRIVATE LIMITED (SUPRA). 8.9 ACCORDINGLY THIS ISSUE RAISED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO. 7 : ASSESSEE HAD CLAIMED BAD DEBT AND ADVANCES REIMBURSED AMOUNTING TO RS.23,39,405/- AS BAD DEBTS BEING OUTSTANDING FOR MORE THAN A YEAR AN D A RECOVERY WAS REMOTE. THE ASSESSEE CLAIMED THE SAID AMOUNT AS BAD DEBT UNDER SECTION 36 (1) (VII) OF TH E ACT. THE LD. AO REJECTED ASSESSEES CONTENTIONS AS THE COMPANIES WERE WELL-KNOWN GROUP AND THERE WAS NO REASON FOR THE BAD DEBTS TO BECOME BAD. 9.1 AGGRIEVED BY THE ORDER OF THE LD. AO ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A). 9.2 THE LD. CIT (A) HELD THAT THE ASSESSEE HAD NOT GIVEN ANY EVIDENCE THAT THE AMOUNT WAS REFLECTED IN THE EARLIER IN ITS P&L ACCOUNT. RELYING UPON THE DECISI ON OF HONBLE KERALA HIGH COURT IN THE CASE OF M/S TRAVANCORE TS STATE COMPANY LTD VS. CIT REPORTED IN 197 ITR 528, HE UPHELD THE ACTIONS OF THE AO AND CONFIRMED THE ADDITION. 9.3 AGGRIEVED BY THE ORDER OF THE LD. CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US NOW. 16 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 9.4 THE LD. AR HAS SUBMITTED THAT THE AUTHORITIES BELOW HAS NOT DISPUTED REGARDING THE SAID AMOUNT BEING OFFERED TO TAX IN THE PRECEDING YEARS. HE SUBMITTED THAT THE AUTHORITIES BELOW HAS IGNORED TH E EVIDENCE AND SUBMISSION PLACED ON RECORD WIDE LETTE R DATED 11/09/2013 AND 31/10/2013 WHEREBY DETAILS/DOCUMENTS SUBSTANTIATING THE SAID AMOUNTS BEING OFFERED TO TAX IN THE PRECEDING YEARS ALONG W ITH DOCUMENTARY EVIDENCES WITH REGARD TO COMMUNICATION HELD WITH THE COMPANIES TO RECOVER THE SAME WERE PRODUCED. 9.5 ON THE CONTRARY THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT PROVED THAT THE AMOUNT CLAIMED WAS IN THE NATURE OF A TRADING DEBT OR NOT. 9.6 WE FIND THAT SIMILAR IS THE SITUATION BEFORE AS IN CASE OF THE PRESENT ASSESSEE. 9.7 THE LD. AR HAD REFERRED TO PAGE 89 OF THE PAPER BOOK WHEREIN THE BAD DEBTS WRITTEN OFF HAVE BEEN CLAIMED IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. ON PERUSAL OF THE NOTES TO THE AUDITED ACCOUNTS NO. 20 (9) REFERS TO THE RETURN OF DEBTS WHICH INCLUDES THE DEAD FROM PREVIOUS YEARS. DURING ASSESSMENT PROCEEDINGS THE LD. AO WAS WELL POSSESSE D WITH THESE DETAILS, TO PROVE THAT THE DEBTS WERE WR ITTEN OFF. A SIMILAR ISSUE AROSE BEFORE HONBLE SUPREME C OURT IN THE CASE OF M/S VIJAYA BANK VERSUS CIT AND ANR., 17 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 REPORTED IN (2010) 190 TAXMAN 257 WHEREIN THE HONB LE COURT HAS HELD THAT AN ASSESSEE DEBITS THE AMOUNT O F BAD DEBTS TO THE PROFIT AND LOSS ACCOUNT AND CREDIT S THE SAID ACCOUNT IT WOULD CONSTITUTE A WRITE-OFF OF ACT UAL BAD. IN THE LIGHT OF THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF M/S VIJAYA BANK VS.CIT (SUPRA) THE CLAIM OF BAD DEBTS STANDS ALLOWED. 9.8 ACCORDINGLY THIS GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 9.9 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 STANDS ALLOWED AS PER THE DISCUSSION ABOVE. A Y 2010-11: (ITA NO. 1057/DEL/14, ITA NO. 2280/DEL/14 AND CO NO. 16/DEL/15): 10. THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AND REVENUE AGAINST ORDER DATED 23/01/2014 PASSED BY LD. CIT (A) 15, NEW DELHI FOR ASSESSMENT YEAR 20 10- 11 ON THE FOLLOWING GROUNDS OF APPEAL. ITA NO. 1057/DEL/2014( ASSESSEES APPEAL): THE ASSESSEE PREFERRED THIS APPEAL ON THE FOLLOWING GROUNDS: 1.THE ORDER OF THE LD. A.O. IS BAD IN LAW AND ON T HE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. A.O. HAS ERRED IN LAW NEW DELHI ON THE FACTS OF THE CASE IN MAKING ADDITION OF RS.43,40,74 5/- 18 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 UNDER SECTION 14A ON ACCOUNT OF EXPENDITURE INCURRE D FOR EARNING DIVIDEND OR OTHER EXEMPT INCOME. 3. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 10.1 THE ONLY ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS IN RESPECT OF THE DISALLOWANCE MADE BY TH E LD. AO UNDER SECTION 14 A ON ACCOUNT OF EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME DURING THE YEA R UNDER CONSIDERATION. AT THE OUTSET THE LD. AR SUBMITTED THAT THE ISSUE NEEDS TO BE RESTORED BACK TO THE LD. AO BY RELYING UPON THE ORDER OF THIS TRIBUN AL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 4563/DEL/2012 PLACED AT PAGE 228 OF THE PAP ER BOOK. HE REFERRED TO PARA 12 OF THE SAID ORDER WHER EIN THIS TRIBUNAL HAS DEALT AS UNDER: 12.) AS REGARDS GROUND NO.1 IN IT.A.NO. 4563/DE1/2012, AND GROUND NO.2 IN IT.A.NO. 4706/DE1/2012 WITH REGARD TO UPHOLDING OF PARTIAL DISALLOWANCE U/S 14A, WE FIND THAT LD. CIT(A) HAS N OT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE REGARDIN G BREAK-UP OF INVESTMENT WHICH INCLUDED INVESTMENT IN GROUP COMPANIES AND ALSO HAS NOT CONSIDERED THAT A MAJOR PART OF INVESTMENT IN MUTUAL FUNDS WAS IN DEB T RELATED INVESTMENTS WHERE THE INVESTMENTS GENERALLY EARN FIXED INCOME BUT DISTRIBUTION OF INCOME IS IN THE FORM OF DIVIDENDS. WE ARE OF THE OPINION THAT FIXED MATURITY PLANS OFFERED BY MUTUAL FUNDS DEFINITELY REQUIRE MUCH LESS PROFESSIONAL EXPERTISE AS COMPARE D FOR MAKING INVESTMENTS IN EQUITY RELATED SCHEMES AN D THEREFORE, LESS EXPENDITURE IS INVOLVED IN MANAGING SUCH SCHEMES. MOREOVER BEFORE UPHOLDING PARTIAL DISALLOWANCE U/S 14A, LD. CIT(A) SHOULD HAVE CONSIDERED THE SUBMISSIONS OF ASSESSEE THAT A PART OF INVESTMENTS WERE NOT FOR EARNING DIVIDENDS BUT WERE 19 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 STRATEGIC INVESTMENTS. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT THE ISSUE OF DISALLOWANCE BE READJUDICATED BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER SHOULD DECIDE THE DISALLOWANCE ON THE BASIS OF HIS OBJECTIVE FINDINGS AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSESSEE IN LT.A.NO.4563/DE1/2012 IS ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUE'S APPEAL IN LT.A.NO. 4706/DE1L2012 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10.1 RESPECTFULLY FOLLOWING THE SAME WE SET ASIDE THIS ISSUE TO BE RE-ADJUDICATED BY THE LD. AO IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 10.2 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NO. NO. 2280/DEL/2014 (REVENUES APPEAL): 11. THE ISSUE RAISED BY THE REVENUE IN THIS APPEAL EASE IN RESPECT OF THE DEDUCTION UNDER SECTION 36 ( 1) (II) BEING GRANTED BY THE LD. CIT (A) ON THE COMMISSION PAID TO THE EMPLOYEE DIRECTORS. 11.1 WE HAVE DEALT WITH THIS ISSUE IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2007-08 BEING GROUND NO. 2 THEREIN . FACTS FOR THE YEAR UNDER CONSIDERATION BE ING IDENTICAL WITH THAT OF ASSESSMENT YEAR 2007-08, WE DISMISS THIS GROUND OF REVENUES APPEAL BY RELYING UPON THE DISCUSSIONS AND FINDINGS GIVEN THERE IN. 20 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 11.2 ACCORDINGLY THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. CO NO. 16/DEL/2015: (ASSESSEES CROSS OBJECTIONS): 12. AT THE OUTSET THE LD. DR AND HAS OBJECTED TO THE MAINTAINABILITY OF THIS CROSS OBJECTION BY THE ASSESSEE UNDER SECTION 253 (5) OF I.T.ACT, AS THE ASSESSEE HAS FILED ACROSS APPEAL FOR THE YEAR UNDER CONSIDERATION AGAINST THE IMPUGNED ORDER DATED 23/01/2014 PASSED BY THE LD. CIT (A). 12.1 IT IS ANYWAYS OBSERVED THAT THE CROSS OBJECTIO N FILED BY THE ASSESSEE IS AGAINST THE APPEAL FILED B Y THE REVENUE AND IS IN SUPPORT OF ORDER PASSED BY THE LD . CIT (A). AS WE HAVE DISMISSED THE APPEAL FILED BY T HE REVENUE, THE CROSS OBJECTION FILED BY THE ASSESSEE STANDS INFRUCTUOUS. 13. ACCORDINGLY THE CROSS OBJECTION FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH AUG., 2016. SD/- SD/- (S. V. MEHROTRA) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 18.08. 2016 SP. 21 I.T.A.NOS.276, 1057, 2280./DEL/2014 C.O.NO.16/DEL/2015 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 18/8/16 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 18/8 SR. PS/PS 7 FILE SENT TO BENCH CLERK 22/8 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER (ITAT, NEW DELHI)