Appeal Details
Counselvise Citation
[2023] 100 COUNSELVISE.COM (IT) 5787 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 5 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-10-2023
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
G
Next Hearing Date
26-10-2023
Assessment Year
2011-2012
Appeal Filed On
09-05-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE ABY T VARKEY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No. 2760/Mum/2019 (A.Y. 2011-12) CO No. 137/Mum/2021 (A.Y. 2011-12) Group M Media (India) Pvt. Ltd. 8 th Floor, Commerz International Business Park, Oberoi Garden City, Off Western Express Highway, Goregaon (E), Mumbai-400063 Vs. DCIT-12(2)(2) Room No. 145, 1 st Floor, Aayakar Bhavan, M.K. Road, Mumbai-400020 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AACCM7365H Appellant .. Respondent ITA No. 3087/Mum/2019 (A.Y. 2011-12) DCIT-12(2)(2) Room No. 145, 1 st Floor, Aayakar Bhavan, M.K. Road, Mumbai-400020 Vs. Group M Media (India) Pvt. Ltd. 8 th Floor, Commerz International Business Park, Oberoi Garden City, Off Western Express Highway, Goregaon (E), Mumbai-400063 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AACCM7365H Appellant .. Respondent Appellant by : Shri. Nikhil Tiwari Respondent by : Shri. Ganesh Rakh Date of Hearing 27.10.2023 Date of Pronouncement 31.10 .2023 P a g e | 2 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. आदेश / O R D E R PER AMARJIT SINGH :- 1. All the appeals comprising appeal filed by the revenue and another appeal and cross objection filed by the assessee are pertained to assessment year 2011-12 directed against the order of Learned Commissioner of Income Tax-20, Mumbai [hereinafter the Ld. CIT(A)]. Since, common issues on identical facts are involved in these three appeals, therefore, for the sake of convenience all those appeals are adjudicated together by this common order. ITA No. 2760/Mum/2019 appeal filed by the assessee and ITA No. 3087/Mum/2019 appeal filed by the revenue. 2. The fact in brief is that the return of income declaring total income of ₹ 78,89,09,920/- was filed on 30.11.2011. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 07.09.2012. The assessee company was engaged in the business of Media Planning, buying and implementing activities. The assessment u/s 143(3) of the Act was finalized on 18.03.2014 and total income was assessed at ₹ 84,44,95,940/-. Further facts of the case are discussed while adjudicating the grounds of appeal filed by the revenue and the assessee as follows. P a g e | 3 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. The Revenue’s appeal ITA No. 3087/Mum/2023 Grounds of appeal of the revenue are as under: 1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance if interest claim of Rs.49557893/- u/s 36(1)(iii) of the Act merely on the ground that the assessee had more funds than that advanced without charging any interest ignoring the fact that the assessee had debited the interest on loans taken and not charged any interest on loans given and the assessee could not substantiate that the interest free loans/advances given were out of non interest bearing funds?." 2. "The appellant prays that the order of the Ld. CIT(A) on the grounds be set aside and that of the Assessing officer be restored." 3. "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 3. During the course of assessment the AO observed that the assessee has made interest free loans & advances to its subsidiary and group companies (Amounting to ₹ 23.92 Crore), Advances to suppliers (Amounting to ₹ 74,18,84,627/-) and loans to employees benefit trust (Amounting to ₹ 40 Crore). On query the assessee explained that it has given advances to the suppliers on which no interest is charged as these advances are adjusted against the bill from the suppliers upon the completion of jobs or activities. The assessee also submitted that it was having sufficient interest free funds for giving interest free P a g e | 4 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. loans/advances to the suppliers and submitted that no notional interest should be charged. However, the AO has not agreed with the submission of the assessee and charged notional interest at the rate of 6.68% on ₹ 74,18,84,627/- as advances given to the suppliers and disallowed the notional amount of interest ₹ 4,95,57,893/- being expenditure not incurred for the purpose of business of the assessee. 4. The assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) has allowed the appeal of the assessee. 5. During the course of appellate proceedings before us. The Ld. Counsel supported the order of Ld. CIT(A) and submitted that the assessee had made advances to the suppliers in the normal course of its business which were adjusted against supplier’s goods and services. He further submitted that the assessee had also received advances from its client without paying any interest. He also submitted that the assessee was having sufficient interest free funds, therefore, no notional interest is required to be charged in the case of the assessee. He also submitted that similar issue on identical fact has been adjudicated by the ITAT in the case of the assessee itself vide ITA No. 3088/Mum/2019 for A.Y. 2014-15. Ld. Counsel has also placed reliance on the decision of Hon’ble Jurisdictional Bombay P a g e | 5 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. High Court in the case of CIT v/s Reliance Utilities and Power Ltd. 313 ITR 340. 6. On the other hand, Ld. DR supported the order of AO. 7. Heard both the sides and perused the material on record. During the year under consideration the assessee had given interest free loans/advances of ₹ 74,18,84,627/- to the suppliers and during the year, the assessee itself had received interest free advances from its suppliers to the amount of ₹ 99.19 Crore as against the advances of ₹ 74.80 Crore made by it to its suppliers which had been adjusted against the supply of goods. Further, we have noticed that the assessee was having sufficient interest free fund in the form of share capital and free reserves to the amount of ₹ 116,75,74,590/- as against amount of advances made by the assessee. In view of the above facts decision of the Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd. referred supra in this order that if there are funds available both interest free and over draft and/or loan taken then a presumption would arise that investment would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments. The ITAT, Mumbai in the case of the assessee itself for A.Y. 2014-15 as referred supra vide ITA No. 3088/Mum/2019, after following the decision of Hon’ble Bombay High Court in the case of P a g e | 6 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. Reliance Utilities and Power Ltd. held that such disallowance is not sustainable when the interest free advances given by the assessee to its suppliers were for less than interest free fund available with the assessee. Considering the above facts and findings we do not find any merit in this grounds of appeal, therefore, this ground of appeal of the revenue is dismissed. Assessee’s appeal ITA No. 2760/Mum/2019 Grounds of Appeal of the assessee are as under: Disallowance of lease rentals in respect of the unexpired period of lease amounting to Rs 42,70,000: 1. erred in confirming the action of the learned AO for disallowing the lease rental expenditure and maintenance and upkeep of premises for the unexpired period of lease due to early vacation of the lease premises amounting to Rs 42.70,000. 2. erred in disallowing the aforesaid expenditure on the ground that aforesaid expenditure were discharged by adjusting against refundable deposits given to the landlord, without appreciating that the mode of discharge of liability would not change the character of otherwise allowable expenditure Disallowance of expenditure under section 40(a)(in) of the Act: 3. erred in confirming the action of the learned AO with regards to disallowing the lease rental expenditure and maintenance and upkeep of premises for the unexpired period of lease due to early vacation of lease premises, on the ground that no Tax Deducted at Source (TDS) was deducted under Section 1941 of the Act. 4. erred in disallowing the lease rental expenditure and maintenance and upkeep of premises of the unexpired period of lease due to early vacation of lease under Section 40(a)(ia) of the P a g e | 7 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. Act for non-deduction of TDS, without appreciating that Section 1941 of the Act contemplates TDS on rent paid for use of any land or building wherein in the present case, the amount was paid for not using of land or building for the unexpired period of lease but due to early vacation of lease premises. Software expenses disallowed Rs.17,58,125: 5. erred in confirming the action of the learned AO for disallowing software expenses amounting to Rs.17,58,125 incurred towards its day to day business requirement, considered as capital expenditure. Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Income tax Appellate Tribunal to decide this appeal according to the law. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the Appellant requests that the appeal be allowed as prayed. Ground No. 1 Disallowance of Lease rental in respect of the unexpired period of lease amounting to ₹ 42,70,000/-. 8. During the course of assessment, the AO found that the assessee had debited deposits written off amounting to ₹ 42,70,000/-. On query, the assessee explained that the said deposits were written off as irrecoverable for the reason that assessee had vacated the lease premises prior to the expiry of lease and had to bear lease rentals in respect of the unexpired period of lease. However, the AO had not agreed with the submission of the assessee, he was of the view that all the deposits which were written off by the assessee were on account P a g e | 8 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. of security deposit of premises which was taken on rent by the assessee and assessee claimed to have vacated the premises before the completion of leas period, however, the claim of the assessee was not supported with any evidences to prove that the premises were vacated on short notice. The AO further stated that the assessee had also not submitted any copy of agreement and term and conditions to establish that it had vacated the said premises before completion of lease. Therefore, the AO has disallowed the claim of written off deposit and added the amount of 42,70,000/- to the total income of the assessee. 9. The assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee. 10. During the course of appellate proceedings before us, the ld. Counsel submitted that the amount of deposits were written off as irrecoverable since the assessee company had vacated the premises before expire of lease period. The ld. Counsel also submitted since amount was given in advance as a deposit therefore no TDS was deducted. The Ld. Counsel further submitted that the assessee could not furnished copy of the agreement and other documents before the lower authorities and the same have been submitted before the Tribunal as additional evidences. The Ld. Counsel further submitted that they could not trace the relevant lease agreement, and others documents P a g e | 9 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. because of cyber attack which had also affected the relevant record maintained by the assessee company on the system. He also referred the news report of occurring of cyber attack which also affected the assessee company. In the paper book the assessee submitted copies of lease agreements and security deposit ledgers pertaining to the following parties :- 1. Mr. Ruch Shailesh and Mr. Chintan Shailesh Shah 2. Mr. Ghanshyan N Jaisingh 3. Mr. Nirmiti Realities Pvt. Ltd. The Ld. Counsel has also placed reliance on the following judicial pronouncement to admit the additional evidence. Prabhavati S. Shah (231 ITR 1) (Bom HC). CIT Vs. Ganibhai Wahabbhai (1998) 232 ITR 900(MP) Dwarka Prasad 63 ITD 1 (Pat) (TM) Abhay Kumar Shroff 63 ITD 144 (Pat) (TM) K. Venkataramiah Vs. A. Seetharama Reddy AIR 1963 (SC) 1526 Rajmoti Industries (1995) 52 ITD 286 11. On the other hand, the Ld. DR supported the order of lower authorities. P a g e | 10 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. 12. Heard both the sides and perused the material on record. During the course of assessment the AO found that the assessee had debited deposits written off amounting to ₹ 42,70,000/-. The assessee explained that the impugned deposit was given in advance at the time of taking different premises on lease and rent by the assessee, however, the assessee had vacated those lease premises on short notice before expiry of the lease period, therefore, property owners have forfeited the lease deposits. The lower authorities have not accepted explanation of the assessee for the reason that assessee has not furnished the relevant supporting copies of agreement containing terms and condition of taking the premises on lease. 13. During the course of appellate proceedings before us as discussed above, the assessee has filed additional evidences comprising copies of lease agreements and copies of security deposits ledger from the books of the assessee. After considering the submission of the assessee that relevant documents as referred above were not easily available because of cyber attack which affected the relevant record maintained on the computer system, we admit the additional evidences filed by the assessee vide its submission dated 28.09.2022 to decide the issue on merit. In view of the additional evidences filed by the assessee, we observe that this issue is required to be decided denovo after P a g e | 11 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. examination and verification of the additional evidences filed by the assessee, therefore, we restore this issue to the file of the AO for deciding fresh after examination of the documents filed by assessee as referred supra in this order Therefore, ground no. 1 to 4 of the assessee are allowed for statistical purpose. Ground No. 5 – Disallowance of Software expenses of ₹ 17,58,125/- 14. During the course of assessment the AO noticed that the assessee has debited software expenses of ₹ 17,58,125/- in the profit and loss account. On query the assessee explained that the entire software expenses incurred were in respect of the annual maintenance and annual license fees, therefore, the same were of revenue nature. However, the AO has not agreed with the submission of the assessee and treated the software expenses of ₹ 17,58,125/- of capital in nature and added to the total income of the assessee. 15. The assessee has filed appeal before the CIT(A). The CIT(A) has dismissed the appeal of the assessee. 16. The Ld. Counsel submitted that the similar issues on identical facts in the assessment year 2014-15 vide ITA No. 3088/Mum/2019 has been adjudicated in favour of the assessee. P a g e | 12 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. On the other hand, the Ld. DR supported the order of lower authorities. 17. Heard both the sides and perused the material on record. The assessee has claimed that the software expenses incurred during the year under consideration were in respect of annual maintenance cost and licensing fees and in support of its contention referred the copies of submission filed before the AO and CIT(A) as placed in the paper book at page Nos. 27-51. With the assistance of the Ld. Representatives, we have perused the decision of ITAT in the case of assessee for A.Y. 2014-15 vide ITA No. 3088/Mum/2019 wherein the similar issue on identical fact has been decided in the favour of the assessee holding that expenses incurred as annual license fees and annual maintence of software were of revenue in nature. Following the decision of the ITAT, we direct the AO to treat software expenses as revenue expenses. Therefore this ground of appeal is allowed. Additional Ground of Appeals of the assessee Additional Grounds of appeal of the assessee are as under: In this respect, in connection with the grounds taken before your Honours, the Appellant wishes to modify ground no. 8 which are already part of the additional grounds of appeal filed before your Honours. P a g e | 13 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. The ground no. 8 of the original additional grounds of appeal deals with the dividend distribution tax (DDT) paid by the Appellant to its Dutch shareholder, Berkeley Square Holdings BV, which is liable to tax as per India - Netherlands Treaty read with the most favored nation ('MFN') clause in the protocol of the treaty. In this regard, the Appellant wishes to raise the modified additional grounds of appeal in line with the following: The Hon'ble Special Bench in case of Total Oil India Pvt. Ltd. (ITA No. 6997/Mum/2019) dated 20 April 2023 has specifically stated that dividend shall be deemed to be taxed in the hands of shareholders for the assessees covered under India-Hungary DTAA. Since there is a MFN clause in the protocol of India-Netherlands tax treaty, the Appellant wishes to seek benefit of India-Hungary tax treaty for the scope. Further, for the purpose of beneficial rate of 5%, the Appellant would like to apply Article 10(2) of India-Slovenia Treaty (as per MFN clause in the protocol of the India- Netherlands treaty). Thus, the Appellant would like to modify the original ground of appeal to the extent as mentioned above. In respect of the above, the Appellant would like to rely on the following judicial precedents: National Thermal Power Co. Ltd. Vs. CIT 229 ITR 383 (SC); Jute Corporation of India Ltd. 187 ITR 688 (SC); and P a g e | 14 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. Ahmedabad Electricity Co. Ltd. 199 ITR 351 (Bom-FB). Pruthvi Brokers & Shareholders Pvt Ltd (349 ITR 336) (Bom) Ramco Cements Ltd (373 ITR 146) (Mad) Mahindra & Mahindra Ltd (30 SOT 374) (Mum SB) 18. Since, additional Ground of appeal filed by the assessee is based on the fact and material available on record, therefore, the additional ground filed on legal issues are admitted after following the decision of National Thermal Company Ltd. V/s CIT 229 ITR 383 [SC] and their judicial pronouncement referred by the assessee in its submission dated 13.09.2023. 19. Additional ground no. 6 and 7 before in respect of education cess and Secondary and High Secondary education cess u/s 37(1) of the Act. The Ld. Counsel has not pressed these grounds of appeals therefore the same stand dismissed. 20. Additional Ground No. 8 Dividend distribution tax [DDT]. Paid to Dutch Shareholders :- The assessee had paid dividend to its Dutch shareholder Berkely Square holding BV. The assessee submitted that since there is MFN clause in the protocol of India Netherlands tax treaty therefore beneficial rate of 5% be considered in the case of the assessee as per Article 10(2) of India- Slovenia Treaty. P a g e | 15 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. Heard both the sides and perused the material on this issue. We find that the Hon’ble Supreme Court in the case of ACIT (International Taxation) Vs M/s Nestle SA Civil Appeal 1420 of 2023 Supreme Court held that the specific notification u/s 90/1 is necessary for effecting benefit under MFN clause. The relevant conclusion part of the findings of the Hon’ble Supreme Court in the above referred decision is reproduced as under: “88. the light of the above discussion, it is held and declared that: (a) A notification under Section 90(1) is necessary and a mandatory condition for a court, authority, or tribunal to give effect to a DTAA, or any protocol changing its terms or conditions, which has the effect of altering the existing provisions of law. (b) The fact that a stipulation in a DTAA a Protocol with one nation, requires same treatment in respect to a matter covered by its terms, subsequent to its being entered into when another nation (which is member of a multilateral organization such as OECD), is given better treatment, does not automatically lead to integration of such term extending the same benefit in regard to a matter covered in the DTAA of the first nation, which entered into DTAA with India. In such event, the terms of the earlier DTAA require to be amended through a separate notification under Section 90. (c) The interpretation of the expression "is" has present signification. Therefore, for a party to claim benefit of a "same treatment" clause, based on entry DTAA between India and P a g e | 16 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. another state which is member of OECD, the relevant date is entering into treaty with India, and not a later date, when, after entering into DTAA with India, such country becomes an OECD member, in terms of India's practice. 89. In view of the foregoing analysis and conclusions, it is held that the reasoning and findings in the impugned orders cannot survive; they are set aside. The revenue's appeals, therefore, succeed and are allowed. There shall be no on cost. Pending applications, including those seeking intervention for impendent, are disposed of. 21. Following the decision of Hon’ble Supreme court, we do not find any merit in this ground of appeal of the assessee. Hence, this additional ground of the assessee stand dismissed. 22. In the result the appeal of the assessee is partly allowed. CO 137/Mum/2021 1. erred in objecting the order of Ld. CIT(A) and computing disallowance of notional interest of Rs. 4,95,57,893 on interest free advances given to suppliers by respondent without appreciating the fact that such advances were given in the ordinary course of business as per business/commercial expediency; 2. erred in objecting the order of Ld. CIT(A) and computing disallowance of notional interest of Rs 4,95,57,893 under Section 36(1)(iii) of the Act without appreciating the fact that the Respondent has sufficient own funds and such trade advances were made out of own non- interest bearing funds; P a g e | 17 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. 3. without prejudice to the above, disallowance if any, has to be computed by reducing the advances received from the customers amounting to Rs 99,16,27,456 from the amount of advances made to suppliers of Rs. 74,18,84,627 while computing the disallowance of notional interest of Rs 4,95,57,893 (on the advances given to the suppliers). 23. Since, we have dismissed the appeal of the revenue on the issue of disallowance of notional interest of ₹4,95,57,893/- vide order ITA No. 3087/Mum/2019 as supra in this order, therefore, this cross objection filed by the assessee has become infructuous and the same stand dismissed. 24. In the result the appeal filed by the revenue and cross objection filed by the assessee are stand dismissed. The appeal filed by the assessee is partly allowed. Order Pronounced in Open Court on 31.10.2023 Sd/- Sd/- (ABY T VARKEY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Mumbai Date 31.10.2023 ANIKET SINGH RAJPUT/STENO आदेश की प्रतितलति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. P a g e | 18 ITA No. 2760, 3087/Mum/2019 & CO 137/Mum/2021 M/s Group Media M (India) Pvt. Ltd. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीलीय अतधकरण/ ITAT, Bench, Mumbai.
