ACIT, New Delhi V. Sh. Hemant Sachdev, New Delhi

ITA 3235/DEL/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6443 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 15-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRIT LAL
• Keywords: Capital asset; Gift; Business expenditure; Double taxation relief; Permanent establishment; Capital expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 40A(3); 271(1)(b); 139; 143(3); 92; 13

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO. 3235/DEL/2011 A.Y. : 2007-08 ACIT, CIRCLE 19(1), NEW DELHI VS. SH. HEMANT SACHDEV, B-194, NEW SUBZI MANDI, AZADPUR, DELHI-110 033 (PAN:- ABLPS5025K) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. AMRIT LAL, SR. DR ASSESSEE BY : SH. PRATAP GUPTA, CA ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THIS APPEAL AGAINST THE IMP UGNED ORDER DATED 14.3.2011 PASSED BY THE LD. CIT(A), NEW DELHI RELEVANT TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED IN THE REVENUES APPEAL READ AS UNDER:- 1. THE CIT(A) ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 1,16,12,023/- ON ACCOUNT OF INCOME EARNED IN FOREIGN COUNTRY AS UNDISCLOSED INCOME WITHOUT APPRECIATING THE FACTS OF THE CASE THAT AN INDIAN 2 RESIDENT TAXPAYER WAS TAXABLE IN INDIA ON A GLOBAL REGARDLESS OF THE PLACE OF ACCRUAL OR RECEIPT THERE OF. 2. THE CIT(A) ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 3,50,332/- BEING 25% OUT OF TOTAL EXPENSES OF R S 14,01,331/- ON ACCOUNT OF FOREIGN TRAVELLING ALLOWANCE MADE BY THE AO WITHOUT APPRECIATING THE FACTS OF THE CASE. 3. THE CIT(A) ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCE OF THE CASE IN DELETING THE ADDITION O F RS. 74,152/- MADE ON ACCOUNT OF EXPENSES FOR PURCHASE OF MICROWAVE AND MOBILE PHONE EXPENSES BEING CAPITAL IN NATURE WITHOUT APPRECIATING THE F ACTS OF THE CASE. 4. THE CIT(A) ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 50,000/- MADE UNDER SECTION 40A(3) BEING PAYMENT MADE TO CLUB IN CASH WITHOUT APPRECIATING THE FACTS OF THE CASE. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ALL OR ANY OF THE AFORESAID GROUNDS OF APPEAL AND AMEND, ALTER OR ADD ANY OTHER GROUND OF APPEAL. 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED HIS RETURN OF INCOME OF RS.53,45,880/- ON 31.10.2007 FOR THE A.Y. 2007-08. DURING SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER FOUND THAT THE ASSESSEE HAD RECEIVED INCOME OF $205,1201- (EQUIVAL ENT TO RS.92,20,144/-) ON WHICH HE HAD PAID TAX IN THE USA AMOUNTING TO $53,212/- (RS. 23,91,879). THE ASSESSEE SUBMITTED THAT HE CARRIED ON A BUSINESS OF CONSULTANCY IN THE USA THROUGH A LIMI TED LIABILITY PARTNERSHIP FIRM, IN WHICH HE HAD 99% SHARE. AS TH E INCOME WAS EARNED AND RECEIVED BY HIM IN THE USA, HE WAS LIABL E TO TAX NOT IN INDIA, BUT IN THE USA, AS PER ARTICLE 7 AND 15 OF T HE INDIA-USA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). THE ASSESSING OFFICER HELD THAT THE PROVISIONS OF ARTICLE 15 OF THE DTAA RELATED TO INDEPENDENT PERSONAL SERVICES, WHICH ARE IN THE NATURE OF PROFE SSIONAL SERVICES LIMITED TO SPECIFIC PROFESSIONS, AND DID NOT APPLY TO THE CASE OF THE ASSESSEE. MOREOVER, ON PERUSING THE COPY OF THE TAX RETURN FILED BY THE ASSESSEE IN THE USA, THE ASSESSING OFFICER FOUND TH AT THE ASSESSEE'S STAY IN THE USA IN THE RELEVANT YEAR, WAS LESS THAN 90 DAYS, HENCE HIS GLOBAL INCOME WAS TO BE TAXED IN INDIA. THE ASSESS ING OFFICER ALSO NOTED THAT THE ASSESSEE HAD LEFT BLANK THE COLUMNS DEALING WITH 'BENEFITS OF A US INCOME TAX TREATY WITH A FOREIGN COUNTRY. HE HAD ALSO NOT PROVIDED DETAILS IN THE RETURN OF PERMAN ENT ESTABLISHMENT OR FIXED BASE IN USA. FINALLY, THE ASSESSING OFFICER HELD THAT THE ASSESSEE FAILED TO PROVIDE THE ORIGINAL OF THE RECE IPT FOR PAYMENT OF 4 TAXES, NOTARIZED AND ATTESTED BY THE CONSULAR OFFIC ER IN THE USA, AND HENCE THERE WAS NO EVIDENCE THAT THE INCOME HAD SUF FERED TAX. HENCE, THE SUM OF RS.L,16,12,023/- (92,20,144/- + 23,91,87 91-) WAS ADDED TO THE INCOME OF THE ASSESSEE. 3.1 THE ASSESSING OFFICER ALSO DISALLOWED 25% OF FO REIGN TRAVELLING EXPENSES FOR WANT OF DOCUMENTARY EVIDENCE AND DETAI LS OF PURPOSE OF VISIT, WHICH CAME TO RS.3,50,332/-. A DISALLOWANCE U/S 40A(3) OF RS.9,067/- WAS MADE ON ACCOUNT OF BUSINESS PROMOTIO N EXPENSES INCURRED IN CASH. DISALLOWANCE OF RS.74,152/- WAS M ADE ON ACCOUNT OF CAPITAL EXPENDITURE ON PURCHASE OF A MICROWAVE O VEN FOR RS.41,552/- AND A MOBILE PHONE FOR RS.32,600/-. THE ASSESSING OFFICER ALSO DISALLOWED THE PAYMENT IN CASH TO A CL UB OF RS.50,000/- U/S 40A(3). THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS.L,74,42,050/- VIDE HIS ORDER DATED 29.12.2009 PA SSED U/S. 143(3) OF THE I.T. ACT, 1961. 4. AGAINST THE SAID ORDER OF THE LD. AO, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 14.3. 2011 HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. AGGRIEVED WITH THE AFORESAID ORDER OF THE LD. CI T(A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL 5 6. LD. DR RELIED UPON THE ORDER OF THE AO AND REITE RATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL AND STA TED THAT THE LD. CIT(A) HAS WRONGLY DELETED THE ADDITIONS. 7. ON THE CONTRARY, LD. COUNSEL OF THE ASSESSEE RE LIED UPON THE ORDER OF THE LD. CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDERS OF THE REV ENUE AUTHORITIES. WE FIND THAT LD. CIT(A) HAS ELABORATELY DISCUSSED THE ISSUE NO. 1 VIDE PARA NO. 6, ISSUE NO. 2 VIDE PARA NO. 7, ISSUE NO. 3 VIDE PARA NO. 9 AND ISSUE NO. 4 VIDE PARA NO. 10 OF THE IMPUGNED O RDER WHICH READS AS UNDER:- 6. I HAVE CAREFULLY CONSIDERED THE APPELLANT'S S UBMISSIONS AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO EXAMI NED THE INCOME TAX RETURNS FILED IN THE USA BY THE APPE LLANT AND BY THE FIRM 'THALAY INTERNATIONAL' IN WHICH THE APP ELLANT HAS 99% SHARE. IT IS OBSERVED THAT THE APPELLANT HAS BE EN CARRYING ON THE BUSINESS ACTIVITY THROUGH THE LIMIT ED LIABILITY PARTNERSHIP IN THE USA SINCE SEVERAL YEARS, AND ITS WORK CONSISTS OF PROVIDING STRATEGIC ADVICE AND DEVISING BUSINESS STRATEGY FOR ITS CLIENTS. THIS WORK, AS SUBMITTED B Y THE ASSESSEE, IS CARRIED OUT THROUGH ITS REGISTERED OFF ICE IN THE U,SA, AND THE FURNISHING OF THESE SERVICES FOR A PE RIOD 6 AGGREGATING MORE THAN 90 DAYS IN THE 12 MONTH PERIO D, CONSTITUTES A 'PERMANENT ESTABLISHMENT' IN THE USA AS PER ARTICLE 5 OF THE INDIA-USA DTAA. I FIND THAT THE P ROVISIONS OF ARTICLE 5, CLAUSE (2)(I) DO NOT REQUIRE THAT THE AP PELLANT BE PRESENT IN THE USA FOR MORE THAN 90 DAYS, BUT THAT THE ACTIVITIES OF FURNISHING OF SERVICES SHOULD CONTINU E WITHIN THE CONTRACTING STATE FOR MORE THAN 90 DAYS. HENCE, AS PER THE TERMS OF THE DTAA, A RESIDENT OF EITHER CONTRACTING STATE, WAS LIABLE TO TAX IN THE OTHER STATE, IF THE INCOME FROM FEES FOR SERVICES (OTHER THAN FEES FOR INCLUDED SERVICES AS PER ARTICLE 12) WAS DERIVED FROM ACTIVITIES CARRIED OUT IN THAT STATE, WHERE IT MAINTAINED A PERMANENT ESTABLISHMEN T FOR MORE THAN 90 DAYS. IT CAN BE SEEN THAT M/S THALAY INTERNATIONAL HAD A PERMANENT ESTABLISHMENT IN THE FORM OF A REGISTERED OFFICE IN LAS VEGAS, USA, WHICH WAS IN EXISTENCE SINCE A NUMBER OF YEARS, AND IT WAS CLEAR LY LIABLE TO PAY ITS TAXES IN THE USA. IT IS ALSO OBSERVED THAT THE APPELLANT FILED HIS RE TURN OF INCOME FROM PARTNERSHIP SHARE IN 'THALAY INTERNATIO NAL, LLC' IN THE FORM NO. 1040NR, MEANT FOR 'US NONRESIDENT A LIEN', DISCLOSING THE INCOME OF $205,120/- AND CLAIMING TH E CREDIT OF TAX OF $53,512/-. THE APPELLANT HAS ALSO FILED T HE COPY OF 7 RETURN FILED BY 'THALAY INTERNATIONAL' IN FORM NO. 1065, MEANT FOR 'PARTNERSHIP INCOME', DISCLOSING INCOME O F $207,1921- AND CLAIMING CREDIT OF TAX OF $100,196/- . THE TAX CREDIT OF THE PARTNERSHIP IS FROM TAX WITHHELD OR DEDUCTED AT SOURCE ON ITS EARNINGS. THE APPELLANT, IN HIS IN DIVIDUAL RETURN, HAS DISCLOSED THE 99% SHARE OF THE PARTNERS HIP INCOME, ON WHICH TAX HAS BEEN COMPUTED AT $53,512/- , BUT CREDIT OF THE SAME AMOUNT IS CLAIMED, AS TAXES ARE ALREADY FULLY PAID BY THE PARTNERSHIP. THE APPELLANT HAS TH US NOT . PAID THE TAX OF $53,512/- AS ALLEGED BY THE ASSESSI NG OFFICER, BUT HE HAS CLAIMED THE CREDIT FOR TAX PAID BY THE FIRM TO THE EXTENT OF HIS TAX LIABILITY ON HIS INCOME AS PER TAX RATES FOR INDIVIDUALS IN THE USA. THUS, IT BECOMES CLEAR THAT THE APPELLANT HAS RECEI VED HIS SHARE OF INCOME FROM THE FIRM WHICH HAS CARRIED ON ITS ACTIVITIES IN THE USA, THROUGH A PERMANENT ESTABLIS HMENT, AND PAID ITS TAXES ON ITS INCOME IN THE USA. THE AP PELLANT IN HIS INDIVIDUAL CAPACITY, HAD NO PERMANENT ESTABLISH MENT IN THE USA, AND NO INCOME WHICH COULD BE TREATED AS LI ABLE TO TAX IN INDIA. THE REPATRIATION TO INDIA OF HIS SHAR E OF INCOME FROM THE FIRM, WHICH HAS PAID THE TAXES ON THE INCO ME, CANNOT BE TAXED IN INDIA, AS IT WOULD AMOUNT TO DOU BLE 8 TAXATION. THE RETURN FILED BY THE APPELLANT IN THE USA, WAS ONLY TO DISCLOSE HIS SHARE OF INCOME FROM THE US-BA SED FIRM, AS IS THE REQUIREMENT OF LAW. HOWEVER, HE HAS NOT C LAIMED OR BEEN ALLOWED ANY BENEFIT UNDER THE DTAA IN THE USA, HENCE THE ASSESSING OFFICER'S FINDINGS IN THIS RESPECT AR E MISPLACED. 6.1 THE APPELLANT CLAIMS THAT THE ACTIVITIES OF 'TH ALAY INTERNATIONAL' ARE IN THE NATURE OF 'INDEPENDENT PE RSONS' AS PER ARTICLE 15 OF THE DT AA. IT IS CORRECT THAT THE DEFINITION OF PROFESSIONAL SERVICES IS AN INCLUSIVE, NOT EXHAUSTI VE, ONE, AND COULD INCLUDE THE SORT OF CONSULTANCY AND ADVIS ORY SERVICES CARRIED OUT BY THE APPELLANT'S FIRM. BUT T O MY MIND, THE ACTIVITIES WOULD FALL WITHIN THE MEANING OF 'BU SINESS PROFITS' AS PER ARTICLE 7 OF THE DT AA, WHEREIN CLA USE 7 READS- 'FOR THE PURPOSES OF THE CONVENTION, THE TERM 'BUSI NESS PROFITS' MEANS INCOME DERIVED FROM ANY TRADE OR BUSINESS INCLUDING INCOME FROM THE FURNISHING OF SERVICES OTHER THAN INCLUDED SERVICES AS DEFINED IN ARTICLE 12 (ROYALTIES AND FEES FOR INCLUDED SERVICE S) ..... '. 9 ARTICLE 7 RENDERS LIABLE TO TAX THE PROFITS OF THE ENTERPRISE I.E. PROFITS DERIVED FROM THE ACTIVITIES OF THE PERMANEN T ESTABLISHMENT IN THE CONTRACTING STATE. 6.2 IT IS TO BE UNDERSTOOD THAT A RESIDENT TAXPAYER IS LIABLE TO TAXATION IN INDIA ON GLOBAL INCOME, REGARDLESS OF T HE PLACE OF ACCRUAL OR RECEIPT THEREOF. HOWEVER, THE TAX LAWS O F CERTAIN FOREIGN COUNTRIES ALSO PROVIDE FOR THE TAXATION IN THAT COUNTRY OF THE INCOME WHICH ACTUALLY ACCRUES OR ARISES OR I S RECEIVED IN THAT COUNTRY ALTHOUGH THE ASSESSEE MAY NOT BE RE SIDENT IN THAT COUNTRY. THIS WOULD RESULT IN A PART OF THE IN COME SUFFERING TAX, BOTH IN INDIA AND THE COUNTRY, WHERE THE INCOME AROSE OR ACCRUED. SIMILARLY A NON-RESIDENT I N INDIA IS TAXABLE ON THE INCOME ACCRUING IN INDIA IN ADDITION TO THIS INCOME BEING LIABLE TO TAX IN THEIR COUNTRY OF RESI DENCE, ON WORLDWIDE INCOME PRINCIPLE. TAXING JURISDICTIONS PR OVIDE RELIEF FROM DOUBLE TAXATION BY ENTERING INTO A DOUB LE - TAXATION AVOIDANCE AGREEMENT, SUCH AS THE CONVENTIO N BETWEEN THE GOVERNMENT OF THE USA AND THE GOVERNMEN T OF INDIA FOR THE AVOIDANCE OF DOUBLE TAXATION. CBDT CI RCULAR NO. 333 DATED 02.04.1982 MAKES IT CLEAR THAT THE PROVIS IONS OF THE TREATY WILL PREVAIL OVER THE PROVISIONS OF THE ACT, IN CASE OF A CONFLICT. THUS, THERE CANNOT BE ANY DOUBT THAT THE 10 APPELLANT IS ENTITLED TO THE PROTECTION FROM DOUBLE TAXATION, WHEN HE IS LIABLE TO TAX IN INDIA ON ACCOUNT OF RES IDENCE, AND LIABLE TO TAX IN THE USA WHERE THE SOURCE OF INCOME IS SITUATED. THERE IS ALSO NO DOUBT THAT THE INCOME IN QUESTION HAS SUFFERED TAXATION IN THE USA, BEING DERIVED FROM A PLACE OF BUSINESS IN THE USA AND ACTIVITIES CARRIED OUT THER EFROM, AND THAT TOO AT THE US TAX RATE OF 48.35%. HENCE, T HE APPELLANT, AS PER THE PROVISIONS OF ARTICLE 25(2)(A ) OF THE DTAA, WOULD BE ALLOWED A DEDUCTION FROM TAX ON THE INCOME WHICH HAS BEEN TAXED IN THE USA, 'AN AMOUNT EQUAL TO THE INCOME TAX PAID IN THE USA, WHETHER DIRECTLY OR BY DEDUCTION. HENCE, IF THE INCOME WAS TO BE ADDED IN THE TAXABLE INCOME OF THE APPELLANT, THERE WOULD BE NO TAX PAYABLE, AS CREDIT HAS TO BE ALLOWED FOR TAXES DEDU CTED IN THE USA. AFTER CONSIDERING ALL THE ABOVE FACTS, AND THE PROVISIONS OF LAW, IT IS HELD THAT THE ADDITION MAD E OF RS.L,16,12,023/- IS NOT JUSTIFIED, AND IS DELETED. HENCE, THE APPELLANT SUCCEEDS IN GROUNDS OF APPEAL NOS. 1 AND 2. 11 7. AT GROUND NO. 3, THE APPELLANT HAS CONTESTED T HE DISALLOWANCE OF 25% OF FOREIGN TRAVEL EXPENSES. I H AVE EXAMINED THE DETAILS OF EXPENDITURE INCURRED WHICH ARE CLAIMED TO HAVE BEEN PROVIDED TO THE ASSESSING OFFI CER VIDE SUBMISSION DATED 29.12.2009. THE APPELLANT HAS ALSO PRODUCED DETAILS OF PURCHASES MADE FROM COMPANIES I N THE COUNTRIES VISITED. CONSIDERING THE PURCHASES MADE O F RS.4,27,88,689/-, THE TRAVEL EXPENDITURE OF RS.14,0 1,331/- DOES NOT APPEAR EXCESSIVE. MOREOVER, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECTS IN THE BILLS/VOUCHE RS RELATING TO TRAVEL, OR FOUND THAT IT WAS IN THE NAT URE OF PERSONAL EXPENDITURE. IT IS HELD, THEREFORE, THAT N O COGENT MATERIAL EXISTS FOR DISALLOWANCE OF 25% OF THE EXPE NDITURE CLAIMED. THE IT DISALLOWANCE OFRS.3,50,332/- IS ACC ORDINGLY DELETED. 9. AT GROUND NO. 5, THE ISSUE IS OF DISALLOWANCE OF BUSINESS PROMOTION EXPENSES, ON ITEMS OF EXPENDITUR E HELD TO BE CAPITAL IN NATURE. THE APPELLANT HAS PRODUC ED THE PURCHASE BILLS CONCERNED, AND IT IS SEEN THAT THE B ILL OF RS. 41,552/- DATED 18.10.2006 CONSISTS OF 13 ITEMS, INC LUDING ONE MICROWAVE OVEN FOR RS. 4,400/-, ONE MUSIC SYSTE M, TEN PHONES, ETC. THE BILL OF RS. 32,600/- DATED 4.11.20 06 IS FOR 4 12 PIECES OF MOBILE PHONES, AND NOT ONE, AS ASSUMED BY THE AO. THE APPELLANT HAS SUBMITTED THAT THESE ITEMS W ERE PURCHASED FOR FESTIVAL GIFTING TO CLIENTS, WHICH WE RE NECESSARY IN THE INTEREST OF PROMOTION OF HIS BUSIN ESS, AND WERE NORMAL BUSINESS EXPENDITURE. IT IS APPARENT TH AT THE EXPENDITURE CONCERNED HAS NOT CREATED CAPITAL ASSET S, AND THE NUMBERS OF ITEMS PURCHASED INDICATE THAT THEY A RE INTENDED FOR GIFTS. CONSIDERING THE EXPLANATION OFF ERED BY THE APPELLANT, THE EXPENDITURE IS HELD TO BE REVENUE IN NATURE, AND THE ADDITION MADE OF RS. 74,152/- IS DELETED. 10. THE FINAL GROUND PERTAINS TO DISALLOWANCE U/S 4 0A(3) OF PAYMENT MADE IN CASH TO A CLUB OF RS.50,0001-. T HE APPELLANT HAS PRODUCED THE DETAILS OF PAYMENT BY CH EQUE NO. 940406 DATED 29.08.2006 DRAWN ON CITIBANK FOR T HE CLUB MEMBERSHIP. DISALLOWANCE U/S 40A(3) WAS CLEARL Y NOT CALLED FOR, AND IN ANY CASE, COULD ONLY HAVE BEEN M ADE AT 20% OF THE PAYMENT, AND NOT OF THE ENTIRE AMOUNT. T HE APPELLANT HAS EXPLAINED THAT THE CLUB MEMBERSHIP WA S A NECESSARY BUSINESS EXPENDITURE FOR PURPOSES OF MEET ING AND ENTERTAINING HIS CLIENTS AND FOREIGN SUPPLIERS. THE ADDITION OF RS.50,000/- U/S 40A(3) IS FOUND TO BE UNFOUNDED AND WITHOUT MERIT, AND IS DELETED. 13 8.1 ON PERUSING THE ABOVE FINDING OF THE LD. CIT(A) , WITH REGARD TO GROUND NO. 1, WE NOTE THAT THERE IS NO DOUBT THAT T HE INCOME IN QUESTION HAS SUFFERED TAXATION IN THE USA, BEING DE RIVED FROM A PLACE OF BUSINESS IN THE USA AND ACTIVITIES CARRIED OUT T HEREFROM, AND THAT TOO AT THE US TAX RATE OF 48.35%. HENCE, THE ASSESS EE, AS PER THE PROVISIONS OF ARTICLE 25(2)(A) OF THE DTAA, WOULD B E ALLOWED A DEDUCTION FROM TAX ON THE INCOME WHICH HAS BEEN TAX ED IN THE USA, 'AN AMOUNT EQUAL TO THE INCOME TAX PAID IN THE USA, WHETHER DIRECTLY OR BY DEDUCTION. HENCE, IF THE INCOME WAS TO BE ADD ED IN THE TAXABLE INCOME OF THE ASSESSEE, THERE WOULD BE NO TAX PAYAB LE, AS CREDIT HAS TO BE ALLOWED FOR TAXES DEDUCTED IN THE USA. AFTER CON SIDERING ALL THE ABOVE FACTS, AND THE PROVISIONS OF LAW, LD. CIT(A) HAS RIGHTLY HELD THAT THE ADDITION OF RS.1,16,12,023/- WAS NOT JUSTIFIED, THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION IN DISPUTE, WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND ACCORDINGLY, WE DISMISS THE GROUND NO. 1 RAISED BY THE REVENUE. 8.2 WITH REGARD TO GROUND NO. 2, WE FIND THAT THE A SSESSEE HAS CONTESTED THE DISALLOWANCE OF 25% OF FOREIGN TRAVEL EXPENSES. THE DETAILS OF EXPENDITURE INCURRED WHICH ARE CLAIMED T O HAVE BEEN PROVIDED TO THE ASSESSING OFFICER VIDE SUBMISSION D ATED 29.12.2009. THE ASSESSEE HAS ALSO PRODUCED DETAILS OF PURCHASES MADE FROM 14 COMPANIES IN THE COUNTRIES VISITED. CONSIDERING THE PURCHASES MADE OF RS.4,27,88,689/-, THE TRAVEL EXPENDITURE OF RS.14,0 1,331/- DOES NOT APPEAR EXCESSIVE. MOREOVER, THE ASSESSING OFFICER H AS NOT POINTED OUT ANY DEFECTS IN THE BILLS/VOUCHERS RELATING TO TRAVE L, OR FOUND THAT IT WAS IN THE NATURE OF PERSONAL EXPENDITURE. THEREFORE, T HE LD. CIT(A) HAS OBSERVED THAT NO COGENT MATERIAL EXISTS FOR DISALLO WANCE OF 25% OF THE EXPENDITURE CLAIMED. THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION IN DISPUTE, WHICH DOES NOT NEED ANY INTERF ERENCE ON OUR PART, THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND ACCORDINGLY, WE DISMISS THE GROUND NO. 2 RAISED BY THE REVENUE. 8.3 WITH REGARD TO GROUND NO. 3, WE FIND THAT ISSUE OF DISALLOWANCE OF BUSINESS PROMOTION EXPENSES, ON ITEMS OF EXPENDITUR E HELD TO BE CAPITAL IN NATURE. ON THIS ISSUE, THE ASSESSEE HA S PRODUCED THE PURCHASE BILLS CONCERNED, AND IT APPEARS THAT THE B ILL OF RS. 41,552/- DATED 18.10.2006 CONSISTS OF 13 ITEMS, INCLUDING ON E MICROWAVE OVEN FOR RS. 4,400/-, ONE MUSIC SYSTEM, TEN PHONES, ETC. THE BILL OF RS. 32,600/- DATED 4.11.2006 IS FOR 4 PIECES OF MOBILE PHONES, AND NOT ONE, AS ASSUMED BY THE AO. THE ASSESSEE HAS SUBMIT TED THAT THESE ITEMS WERE PURCHASED FOR FESTIVAL GIFTING TO CLIENT S, WHICH WERE NECESSARY IN THE INTEREST OF PROMOTION OF HIS BUSIN ESS, AND WERE NORMAL BUSINESS EXPENDITURE. HENCE, IT IS APPARENT THAT THE EXPENDITURE CONCERNED HAS NOT CREATED CAPITAL ASSET S, AND THE 15 NUMBERS OF ITEMS PURCHASED INDICATE THAT THEY ARE I NTENDED FOR GIFTS. CONSIDERING THE EXPLANATION OFFERED BY THE ASSESSEE , THE EXPENDITURE WAS RIGHTLY HELD AS REVENUE IN NATURE, AND THE ADDI TION OF RS. 74,152/- WAS RIGHTLY DELETED BY THE LD. CIT(A), WHI CH DOES NOT NEED ANY INTERFERENCE ON OUR PART, THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND ACCORDINGLY, WE DISMISS THE GROUND NO. 3 RAISED BY THE REVENUE. 8.4 WITH REGARD TO GROUND NO. 4, WE FIND THAT THIS GROUND RELATES TO DISALLOWANCE U/S 40A(3) OF PAYMENT MADE IN CASH TO A CLUB OF RS.50,000-. WE NOTE THAT THE ASSESSEE HAS PRODUCED THE DETAILS OF PAYMENT BY CHEQUE NO. 940406 DATED 29.08.2006 DRAWN ON CITIBANK FOR THE CLUB MEMBERSHIP. DISALLOWANCE U/S 40A(3) WA S CLEARLY NOT CALLED FOR, AND IN ANY CASE, COULD ONLY HAVE BEEN M ADE AT 20% OF THE PAYMENT, AND NOT OF THE ENTIRE AMOUNT. THE ASSESSEE HAS EXPLAINED THAT THE CLUB MEMBERSHIP WAS A NECESSARY BUSINESS E XPENDITURE FOR PURPOSES OF MEETING AND ENTERTAINING HIS CLIENTS AN D FOREIGN SUPPLIERS. THEREFORE, THE LD. CIT(A) HAS RIGHTLY OBSERVED THAT THE ADDITION OF RS.50,000/- U/S 40A(3) WAS FOUND UNFOUNDED AND WITH OUT MERIT, AND WAS RIGHTLY DELETED, WHICH DOES NOT NEED ANY INTE RFERENCE ON OUR PART, THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT (A) ON THE ISSUE IN DISPUTE AND ACCORDINGLY, WE DISMISS THE GROUND NO. 4 RAISED BY THE REVENUE. 16 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/03/2017. SD/- SD/- [O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICI AL MEMBER DATE 24/3/2017 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES