DCIT, Circle - 8, Kolkata, Kolkata V. M/s. EIH Limited, Kolkata

ITA 348/KOL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4675 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 16-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 01-03-2011
• Court: TRIBUNAL
• Assessee Lawyers: A K GUPTA
• Keywords: Depreciation; Business expenditure; Double taxation relief; Earning of tax free income; Services rendered outside India; Retrospective amendment; Permanent establishment; Non-deduction of tax; Corroborative evidences; Notional interest; Commercial expediency; Revenue expenditure
• Section: 43B; 143(3); 14A; 37; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I.T.A NO.314/KOL/2011 ASSESSMENT YEAR: 2006-07 EIH LIMITED (PAN: AAACE6898B) VS. DEPUTY COMMISSIO NER OF INCOME-TAX, CIRCLE-8, KOLKATA. ( APPELLANT ) ( RESPONDENT ) & I.T.A NO.348/KOL/2011 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, VS. EIH LIMITED CIRCLE-8, KOLKATA. ( APPELLANT ) ( RESPONDENT ) & C.O. NO.23/KOL/2011 IN I.T.A NO.348/KOL/2011 ASSESSMENT YEAR: 2006-07 EIH LIMITED VS. DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE-8, KOLKATA. ( CROSS OBJECTOR ) ( RESPONDENT ) DATE OF HEARING: 16.05.2016 DATE OF PRONOUNCEMENT: 01.06.2016 FOR THE ASSESSEE/CROSS OBJECTOR: SHRI R.N. BAJORIA, ADVOCATE & SHRI A. K. GUPTA, FCA FOR THE REVENUE : SHRI VIJAY SHANKAR, CIT, DR ORDER PER SHRI M. BALAGANESH, AM: THESE CROSS APPEALS BY ASSESSEE AND REVENUE AND THE CROSS OBJECTION BY ASSESSEE ARE ARISING OUT OF COMMON ORDER OF CIT(A)-VIII, KOL KATA VIDE APPEAL NO. 426/CIT(A)- VIII/KOL/08-09 DATED 29.11.2010. ASSESSMENT WAS FRA MED BY DCIT, CIRCLE-8, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2006-07 VIDE HIS ORDER DATED 26.12. 2008. SINCE BOTH THESE APPEALS AND THE CROSS OBJECTIONS ARE ARISING OUT OF COMMON ORDER, WE DISPOSE THEM OFF TOGETHER FOR THE SAKE OF CONVENIENCE. 2 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 2. DISALLOWANCE OF ADVERTISEMENT , PUBLICITY AND SALE S PROMOTION EXPENSES THE ASSESSEE HAD RAISED THE FOLLOWING GROUND NO. 1 :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER U/S. 40(A)(I) OF THE ACT OF RS.4,223,522/- PAID TO FOREIGN PARTIES TOWARDS SALE S PROMOTION SERVICES RENDERED OUTSIDE INDIA FOR ALLEGED NON DEDUCTION OF TAX U/S. 195 FRO M SUCH PAYMENT WITHOUT APPRECIATING THAT NO TAX WITHHOLDING WAS CALLED FOR FROM SUCH RE MITTANCE. THE REVENUE HAD RAISED THE FOLLOWING GROUND NO. 1:- 1. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW BY HOLDING THAT PROVISIONS OF SECTION 40(A)(IA) DO NOT APPLY ON FOREIGN PAYMENTS ON ACCOUNT OF ADVERTISEMENT, PROFESSIONAL & CONSULTANCY FEES AND COMMISSION TO FOREIGN TRAVEL AGENTS. THE ASSESSEE HAD ALSO RAISED THE FOLLOWING SOLE GRO UND IN ITS CROSS OBJECTION :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN IGNORING TO CONSIDER THE PUBLICITY AND SALES PROMOTION EXPEN SES OF RS.4,242/- AND RS.7,88,126/- RESPECTIVELY INCURRED BY THE OBEROI GRAND, KOLKATA AND OBEROI HOTELS, MUMBAI, THE TWO UNITS OF THE APPELLANT WHILE ADJUDICATING GROUND NO . 1 AND THEREBY NOT CONCLUDING THAT THE AFORESAID PAYMENTS DO NOT ATTRACT THE PROVISION OF SECTION 40(A)(I) OF THE ACT. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO DIRECTED THE ASSESSEE TO GIVE DETAIL S OF EXPENDITURE INCURRED IN FOREIGN EXCHANGE UNDER THE HEAD ADVERTISEMENT, PUBLICITY A ND SALES PROMOTION TO THE EXTENT OF RS. 4,16,64,373/-. THE LEARNED AO OBSERVED THA T THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON ANY OF THE FOREIGN REMITTANCE UNDER TH IS HEAD. THE LEARNED AO OBSERVED THAT NO SPECIFIC REASONS WERE GIVEN BY THE ASSESSEE FOR NON-DEDUCTION OF TAX AT SOURCE ON PAYMENTS MADE TO DIFFERENT PARTIES. ACCORDINGLY, HE PROCEEDED TO DISALLOW 20% OF THE EXPENDITURE IN FOREIGN CURRENCY AND DISALLOWED A SU M OF RS. 83,32,875/- ( 4,16,64,373 * 20%) IN THE ASSESSMENT. 3.1. BEFORE THE LEARNED CITA, THE ASSESSEE CLAIME D THAT THE ENTIRE DETAIL PARTY WISE WAS FILED BEFORE THE LEARNED AO AND HE OUGHT NOT TO HAVE MADE ANY DISALLOWANCE ON ESTIMATED BASIS. THE LEARNED CITA MADE EXTENSIVE VERIFICATION OF THE DETAILS FILED BY THE ASSESSEE. IT WAS ARGUED THAT PAYMENTS TOWARDS FOREIGN ADVERTISEMENTS TO THE EXTENT OF RS. 2,05,46,761/- SHOULD NOT BE SUBJECTED TO TAX IN INDIA AS SERVICES WERE RENDERED OUTSIDE INDIA AND THE RESPECTIVE PAYEES DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN 3 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 INDIA. IT WAS FURTHER CONTENDED THAT THE PAYMENTS IN THE INSTANT CASE CONSTITUTED BUSINESS PROFITS IN THE HANDS OF THE PAYEES AND WOULD BE TAX ED IN THE COUNTRIES OF THEIR RESIDENCE BY VIRTUE OF TAX TREATIES WITH THE RESPECTIVE COUNT RIES. THUS THE QUESTION OF DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT DOES NOT ARISE. 3.1.1. THE LEARNED CITA HELD THAT THE PAYMENTS TO THE FOREIGN PARTIES ON ACCOUNT OF ADVERTISEMENT OUTSIDE INDIA SHOULD NOT BE TAXABLE I N INDIA AS PER THE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT SINCE EARNING INCOME T HROUGH ADVERTISEMENT ARE NOT IN THE NATURE OF MANAGERIAL, TECHNICAL OR CONSULTANCY SER VICES. HE HELD THAT AT BEST IT CAN BE CONSIDERED AS BUSINESS PROFITS IN THE HANDS OF THE PAYEES AND HOWEVER, IN THE ABSENCE OF PERMANENT ESTABLISHMENT OF THE PAYEES IN INDIA, THE AMOUNT WOULD NOT BE TAXABLE IN INDIA. ACCORDINGLY, HE HELD THAT THERE IS NO NEED TO DEDUCT TAX AT SOURCE AND HENCE THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT CANNOT BE MADE APPLICABLE. HE FURTHER HELD THAT EVEN OTHERWISE, THERE IS NO JUSTIFICATION FOR THE LEARNED AO TO DISALLOW 20% OF EXPENSES ON AN ESTIMATED BASIS FOR ALLEGED VIOLATIO N OF PROVISIONS OF SECTION 40(A)(I) OF THE ACT. ACCORDINGLY, HE DELETED THE DISALLOWANCE O F RS. 41,09,352/- (2,05,46,761*20%) MADE BY THE LEARNED AO. 3.2. BEFORE THE LEARNED CITA, THE ASSESSEE CLAIMED THAT A SUM OF RS. 2,11,17,612/- INCURRED BY THE ASSESSEE PERTAINS TO PUBLICITY AND SALES PROMOTION EXPENSES. THESE PAYMENTS WERE MADE TO NON-RESIDENTS IN CONNECTION W ITH SALES PROMOTION AND PUBLICITY MATTERS IN RESPECT OF SERVICES RENDERED ABROAD BY T HE FOREIGN PARTIES, WHO DO NOT HAVE PERMANENT ESTABLISHMENT IN INDIA. IT WAS ARGUED TH AT PAYMENTS WERE MADE FOR PUBLICITY, SALES PROMOTION AND RESERVATION SERVICES AND PAYMEN TS WERE NOT IN THE NATURE OF ROYALTY OR FEES FOR TECHNICAL SERVICES EITHER UNDER THE REL EVANT PROVISIONS OF DTAA OR UNDER THE PROVISIONS OF THE ACT AND HENCE NOT TAXABLE IN INDI A. ACCORDINGLY, IT WAS ARGUED THAT THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE THEREON. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF HO NBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS SHERATON INTERNATIONAL IN C REPORTED IN (2009) 178 TAXMAN 84 (DELHI) WHEREIN IT HAS BEEN HELD THAT INCOME BY WAY OF ADVERTISEMENT, PUBLICITY AND 4 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 SALES PROMOTION WERE NOT ASSESSABLE U/S 9 OF THE AC T AS WELL AS UNDER ARTICLE 7 OF THE DTAA. 3.2.1. THE LEARNED CITA ON VERIFICATION OF THE DE TAILS FILED BY THE ASSESSEE AND THE EXPLANATIONS OFFERED BY THE ASSESSEE THAT THE PAYME NTS MADE BY THE ASSESSEE ARE NOT TAXABLE IN INDIA AND ARE NOT IN THE NATURE OF ROYAL TY OR FEES FOR TECHNICAL SERVICES CANNOT BE OUTRIGHTLY ACCEPTED IN FULL. HE OBSERVED THAT IT DEPENDS ON THE NATURE OF SERVICES PROVIDED BY THOSE FOREIGN PARTIES IN DIFFERENT TAX JURISDICTIONS. HE FURTHER HELD THAT EVEN OTHERWISE, THERE IS NO JUSTIFICATION FOR THE L EARNED AO TO DISALLOW 20% OF EXPENSES ON AN ESTIMATED BASIS FOR ALLEGED VIOLATION OF PROV ISIONS OF SECTION 40(A)(I) OF THE ACT WITHOUT EXAMINING THE NATURE OF PAYMENTS MADE THERE ON AND GIVING SPECIFIC FINDINGS THEREON. HENCE THE ENTIRE DETAILS WERE SENT BA CK TO LEARNED AO BY THE LEARNED CITA FOR OBTAINING REMAND REPORT. HE OBSERVED THAT THE LEARNED AO DID NOT MAKE ANY ADDITIONAL REMARK IN THE REMAND REPORT. HE OBSER VED THAT SIMILAR DISALLOWANCE WAS MADE IN ASST YEAR 2005-06 AND THE SAME WAS UPHELD B Y THE LEARNED CITA. BUT HE FOUND THAT THERE IS A MARKED DIFFERENCE WITH THE CA SE OF THE ASSESSEE IN ASST YEAR 2005- 06 AND THE FACTS OF THE CASE FOR THE YEAR UNDER APP EAL. HE FOUND THAT IN ASST YEAR 2005- 06, THE LEARNED AO INFLICTED THE DISALLOWANCE IN RE SPECT OF FOREIGN CURRENCY PAYMENTS TO NON-RESIDENT ENTITIES FOR PROVIDING ADVERTISEMEN T AND SALES PROMOTION SERVICES BASED ON SOME SPECIFIC OBSERVATION. UNLIKE THE CURRENT Y EAR, NO AD HOC DISALLOWANCE WAS MADE BY THE LEARNED AO. HE FOUND THAT IN ASST YE AR 2005-06, HIS PREDECESSOR HAD CONCLUDED THAT THE PAYMENTS REPRESENT FTS AS PER TH E ACT AND AS WELL AS TREATY. 3.2.2. HE OBSERVED THAT AS FAR AS THE TAXABILITY O F PAYMENTS FROM THE PERSPECTIVE OF DTAA , THE PAYMENTS SHOULD NOT BE TAXABLE AS FEE FO R TECHNICAL SERVICES (FTS) ONLY ON THOSE CASES WHERE THE TREATY DEMANDS THAT THE SERVI CES SHOULD MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESSE S, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIG N IN ORDER TO FALL WITHIN THE PURVIEW OF FTS. ACCORDINGLY HE HELD THAT IN RESPECT OF THE TAX JURISDICTIONS SUCH AS USA, UK, ETC, WHERE THE TAX TREATY PROVIDES FOR A MAKE AVAILABLE CLAUSE FOR DECIDING THE FTS, THE PAYMENTS SHOULD NOT BE CONSIDERED AS FTS AND THUS S HOULD NOT BE TAXABLE IN INDIA AS 5 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 THERE WAS NO MAKING AVAILABLE OF A TECHNOLOGY FROM THE PERUSAL OF THE VARIOUS SERVICES PROVIDED. THE LEARNED CITA LISTED OUT THE PAYMENT S MADE TO VARIOUS PARTIES IN VARIOUS TAX JURISDICTIONS AMOUNTING TO RS. 1,43,42,248/- W HERE MAKE AVAILABLE CLAUSE IS PROVIDED IN THE TREATY. THE LEARNED CITA ALSO LI STED OUT THE PAYMENTS MADE TO VARIOUS PARTIES IN VARIOUS TAX JURISDICTIONS AMOUNTING TO R S. 59,82,996/- WHERE MAKE AVAILABLE CLAUSE WAS NOT PROVIDED IN THE TAX TREATY. HOWEV ER, HE RESTRICTED THE ADDITION TO RS. 42,23,523/- BEING THE REMAINING PORTION OF THE DISA LLOWANCE (I.E 83,32,875 41,09,352). 3.3. AGGRIEVED, THE ASSESSEE AS WELL AS THE REVEN UE BOTH ARE IN APPEALS BEFORE US. 3.4. THE LEARNED AR ARGUED THAT THE PAYMENTS MADE T O VARIOUS PARTIES IN ABROAD DOES NOT FALL UNDER THE AMBIT OF FTS. HE PLACED RELIANC E ON THE DECISION OF THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF RICH GRAVIS S PRODUCTS P LTD VS ADDL CIT REPORTED IN (2014) 166 TTJ 329 . HE ARGUED THAT T HE SERVICES WERE NOT RENDERED BY THOSE PARTIES IN INDIA. HE ALSO ARGUED THAT THE R ETROSPECTIVE AMENDMENT TO THE PROVISIONS OF SECTION 9 OF THE ACT IN EXPLANATION 2 WOULD NOT CONFER THE TDS OBLIGATION ON THE ASSESSEE WITH RETROSPECTIVE EFFECT. HE PLAC ED RELIANCE ON THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2 005-06 IN THIS REGARD. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER S OF THE LEARNED AO AND PRAYED FOR SETTING ASIDE OF THIS ISSUE TO THE FILE OF THE LEAR NED AO FOR VERIFICATION OF THE DETAILS FILED BY THE ASSESSEE BEFORE THE LEARNED CITA. IN DEFENCE, THE LEARNED AR STATED THAT THE LEARNED AO HAD BEEN GIVEN DUE OPPORTUNITY BY TH E LEARNED CITA BY OBTAINING REMAND REPORT AND THE LEARNED AO DID NOT MAKE ANY R EMARK IN THE SAID REMAND REPORT AND VEHEMENTLY OBJECTED TO SET ASIDE OF THE ISSUE T O AO. 3.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. WE ARE IN AGREEMENT WITH THE LEARNED AR TH AT SETTING ASIDE OF THIS ISSUE TO THE FILE OF THE LEARNED AO WOULD NOT SERVE ANY PURPOSE AS THE LEARNED AO HAD NOT MADE ANY REMARK IN THE REMAND PROCEEDINGS WHEREIN THE EN TIRE DETAILS OF EXPENSES WERE BEFORE HIM. WE FIND THAT THE GENUINITY OF THE EXP ENDITURE INCURRED BY THE ASSESSEE WAS NOT DISPUTED BY THE LOWER AUTHORITIES. IT IS NOT THE CASE OF THE REVENUE THAT THE SAID EXPENDITURE IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE 6 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 ASSESSEE. THE ONLY GRIEVANCE OF THE LEARNED AO IS THAT THE SUBJECT MENTIONED PAYMENTS WERE MADE WITHOUT DEDUCTION OF TAX AT SOURCE. 3.5.1. IT IS NOT IN DISPUTE THAT THE SERVICES WERE RENDERED OUTSIDE INDIA. THE RETROSPECTIVE AMENDMENT IN EXPLANATION 2 TO SECTION 9 OF THE ACT WITH REGARD TO RETROSPECTIVE TDS OBLIGATION WAS ELABORATELY DEALT WITH BY THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF ACIT VS SU BHOTOSH MAJUMDER IN ITA NOS. 1629/KOL/2012 FOR ASST YEAR 2009-10 ; ITA NO. 366/K OL/2012 FOR ASST YEAR 2008-09 AND ITA NO. 2058 /KOL/2009 FOR ASST YEAR 2006-07 DA TED 27.11.2015 WHEREIN, IT WAS HELD THAT :- FROM THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO PRECEDENTS CITED ABOVE, WE ARE OF THE VIEW THAT TILL AMENDMENT IN EXPLANATION TO SECTION (2) OF THE ACT, THE PREVAILING LEGAL POSITION WAS THAT UNLESS THE TECHNICAL SERVIE S WERE RENDERED IN INDIA, THE FEES FOR SUCH SERVICES COULD NOT BE BROUGHT TO TAX UNDER SEC TION 9(1)(VII) OF THE ACT. THE LAW AMENDED WAS UNDOUBTEDLY RETROSPECTIVE IN NATURE BUT SO FAR AS TAX WITHHOLDING LIABILITY IS CONCERNED, IT DEPENDS ON THE LAW AS IT EXISTED AT T HE POINT OF TIME WHEN PAYMENTS, FROM WHICH TAXES OUGHT TO HAVE BEEN WITHHELD, WERE MADE. THE TAX DEDUCTOR IS NOT EXPECTED TO KNOW HOW THE LAW WILL CHANGE IN FUTURE. A RETROSPE CTIVE AMENDMENT IN LAW DOES CHANGE THE TAX LIABILITY IN RESPECT OF AN INCOME, WITH RET ROSPECTIVE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY, WITH RETROSPECTIVE EFFEC T. THE TAX WITHHOLDING OBLIGATIONS FROM PAYMENTS TO NON-RESIDENTS, AS SET OUT IN SECTION 19 5 OF THE ACT, REQUIRE THAT THE PERSON MAKING THE PAYMENT AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE IS SUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME TAX THERE ON AT THE RATES IN FORCE. WHEN THESE OBLIGATIONS ARE TO BE CHARGED AT THE POINT OF TIME WHEN PAYMENT IS MADE OR CREDITED, WHICHEVER IS EARLIER, SUCH OBLIGATIONS CAN ONLY BE DISCHARGED IN THE LIGHT OF THE LAW AS IT STANDS AT THAT POINT OF TIME. 3.5.2. WHILE RENDERING THE DECISION IN ASSESSEES OWN CASE FOR THE ASST YEAR 2003-04 IN ITA NO. 57/KOL/2007 DATED 9.12.2015, WE HAD ALSO RE LIED ON THE AFORESAID DECISION TOGETHER WITH THE DECISION OF THE HONBLE APEX COUR T IN THE CASE OF CIT VS HINDUSTAN ELECTRO GRAPHITES LTD REPORTED IN (2000) 243 ITR 48 (SC) AS BELOW:- . IN THIS CASE, THE ASSESSEE COMPANY FILED A WRIT PETITION IN THE HIGH COURT CHALLENGING THE VERY CONSTITUTIONALITY OF SECTION 143(1)(A) READ WI TH SECTION 143(1A) AND SECTION 4 AND ALSO THE INTIMATION SENT BY THE AO LEVYING ADDITION AL TAX. HIGH COURT SPEAKING THROUGH ONE OF US (RUMA PAL, J.) NOTICED THAT SECTION 28 OF THE ACT WAS AMENDED WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 1967. IT SAID: AN ASSESSEE CANNOT BE IMPUTED WITH CLAIRVOYANCE. WHEN THE RETURN WAS FILED , THE ASSESSEE COULD NOT POSSIBLY HAVE KNOWN THAT THE DEC ISION ON THE BASIS OF WHICH CASH COMPENSATORY SUPPORT HAS BEEN CLAIMED AS NOT AMOUNT ING TO THE ASSESSEES INCOME CEASED TO BE OPERATIVE BY REASON OF RETROSPECTIVE L EGISLATION. 7 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 3.6. WE HOLD THAT THE ASSESSEE CANNOT BE EXPECTED T O FORESEE AN AMENDMENT IN THE STATUTE WITH REGARD TO TDS OBLIGATIONS AND ANY RETROSPECTIV E AMENDMENT IN THE LAW COULD ONLY DISTURB THE COMPUTATION MECHANISM OF DETERMINATION OF INCOME. ACCORDINGLY, WE HOLD THAT BY VIRTUE OF A RETROSPECTIVE AMENDMENT, THE IN COME OF AN ASSESSEE COULD BE DISTURBED ON A HIGHER SIDE OR LOWER SIDE. BUT THE TDS OBLIGATIONS THAT ARE CAST ON THE ASSESSEE ARE ONLY PROCEDURAL IN NATURE AND ASSESSEE COULD MAXIMUM BE EXPECTED TO FOLLOW THE LAW AS IT STOOD AT THE TIME OF MAKING PA YMENT OR CREDITING THE ACCOUNT OF PAYEE WHICHEVER IS EARLIER. HENCE WE HOLD THAT THE ASSESSEE CANNOT BE FAULTED WITH FOR VIOLATION OF TDS OBLIGATIONS DUE TO RETROSPECTIVE A MENDMENT IN PROCEDURAL LAW. 3.7. IN VIEW OF THE AFORESAID FINDINGS AND JUDICIA L PRECEDENTS RELIED UPON INCLUDING THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL, WE HOL D THAT A RETROSPECTIVE AMENDMENT IN STATUTE DOES CHANGE THE TAX LIABILITY IN RESPECT OF AN INCOME, WITH RETROSPECTIVE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY WITH RETROSPECTIVE EFFECT. ACCORDINGLY THE GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED. GROUND NO. 1 OF CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. GROU ND NO. 1 RAISED BY THE REVENUE IN RESPECT OF ADVERTISEMENT EXPENSES AND SALES PROMOTI ON EXPENSES IS DISMISSED. 4. THE ASSESSEE HAD RAISED THE FOLLOWING GROUND N O.2 :- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND WITHOUT PREJUDICE GROUND NO. 1 ABOVE, THE LD. CIT(A) FURTHER ERRED IN NOT AL LOWING RS.2,868,449/- BEING 20% OF RS.14,342,247/-, THE AGGREGATE SUM WHICH THE LD. CI T(A) ALREADY HELD AS NO TAXABLE IN INDIA IN VIEW OF FAVOURABLE TAX TREATY PROVISIONS. IN VIEW OF OUR AFORESAID DECISION, THE GROUND NO.2 RAISED BY THE ASSESSEE IS DISMISSED AS SUPERFLUOUS. 5. DISALLOWANCE OF PROFESSIONAL AND CONSULTANCY FEES THE LD. AO HAS STATED IN THE ASSESSMENT ORDER THAT THE ASSESSEE INCURRED AN AMOUNT OF RS 2,80,38,329/- IN FOREIGN CURRENCY ON ACCOUNT OF 'PROFESSIONAL AND CONSULTANCY CHARGES'. DURING THE ASSESSMENT PROCEEDINGS, THE AS SESSEE PROVIDED THE DETAILS OF THE PAYEES AND THE RESPECTIVE AMOUNT OF PAYMENTS. HOWEV ER, NO SPECIFIC REASON FOR NON 8 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 DEDUCTION OF TAX AT SOURCE WAS PROVIDED. SINCE, THE ASSESSEE DID NOT PROVIDE THE REASONS FOR NOT WITHHOLDING THE TAX AND THE APPLICABILITY O F DTAA IN RESPECT OF EACH SPECIFIC FOREIGN REMITTANCE, THE LD. AO INFLICTED AN AD HOC DISALLOWANCE OF RS 5,607,666/- U/S. 40(A)(I) OF THE ACT, BEING 20% OF THE ACTUAL EXPENS ES OF RS 2,80,38,329/-. THE ASSESSEE, BEFORE THE LEARNED CITA, SUBMITTED TH AT PARTY WISE DETAILS OF THE RELEVANT UNITS WERE FURNISHED TO THE AO DURING THE ASSESSMENT PROCEEDINGS. AS PER THE ASSESSEE, THE CONTENTION OF THE LD. AO THAT NO TAX WAS DEDUCTED ON THE ABOVE PAYMENTS IS NOT TRUE. THE ASSESSEE SUBMITTED THAT ENTIRE REM ITTANCE OF RS.8,41,027/ - BY THE BANGALORE UNIT AND A SUM OF RS. 4,348,330/ - PAID B Y THE OBEROI, NEW DELHI HAD BEEN SUBJECTED TO TDS. FURTHER TO THE ABOVE, THE ASSESSEE SUBMITTED THAT T HE PAYMENTS UNDER THIS HEAD WAS MOSTLY FOR LEGAL CHARGES FOR SERVICES RENDERED ABROAD OR TOWARDS PURCHASE OF DESIGNS PREPARED ABROAD. IN CASE THE ABOVE SERVICES WERE RENDERED ABROAD, NO TAX WAS DEDUCTED DUE TO THE FOLLOWING REASONS: I) SINCE THERE IS NO 'TECHNICAL SERVICES' INVOLVED, T HE PROVISIONS OF SECTION 9(I)(VII) (B) ARE NOT ATTRACTED. II) THE NON-RESIDENTS ARE NOT ASSESSABLE IN RESPECT OF INCOME ACCRUING AND RECEIVED ABROAD. III) THE NON-RESIDENTS UNDER CONSIDERATION ARE RESIDENT S OF COUNTRIES WITH WHICH INDIA HAVE DOUBLE TAXATION AVOIDANCE AGREEMEN TS (DTAA) AND THE FAVOURABLE TAX TREATY PROVISIONS SHOULD BE CONSIDER ED. IV) IT IS WELL SETTLED THAT IF SERVICES RENDERED A RE IN THE NATURE OF PROFESSIONAL SERVICES THEN THOSE PROVISIONS OF DTAA ARE TO BE AP PLIED WHICH SPECIFICALLY DEAL WITH' PROFESSIONAL SERVICES'. V) UNDER TAX TREATIES 'PROFESSIONAL SERVICES' RENDERE D BY NON CORPORATE INCLUDE LEGAL AND ARCHITECTURAL SERVICES AND THE SA ME COULD ONLY BE TAXED IN THE COUNTRIES OF RESIDENCE OF THE NON-RESIDENTS UNLESS THE SERVICES ARE RENDERED IN INDIA. VI) UNDER THE PROVISIONS OF MOST OF THE DTAAS, MERE RE NDERING OF TECHNICAL SERVICES WOULD NOT MAKE ANY SERVICE 'TECHNICAL'. TH E SERVICES SHOULD BE SUCH THAT 'MAKE AVAILABLE' TO THE RECIPIENT OF SERVICES TECHNICAL KNOWLEDGE, SKILLS 9 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 ETC POSSESSED OR DEPLOYED BY THE PROVIDER OF SERVIC ES. IN OTHER WORDS, IF THE RECIPIENT OF ANY TECHNICAL SERVICE CAN APPLY THE SA ME INDEPENDENTLY IN FUTURE WITHOUT DEPENDING ON THE SERVICE PROVIDER THEN ONLY THE TECHNICAL KNOWLEDGE IS SAID TO BE MADE AVAILABLE. VII) WHERE THERE IS CONFLICT BETWEEN THE PROVISION CONT AINED IN THE TREATY AND THE CORRESPONDING PROVISION IN THE DOMESTIC LAW, TH E PROVISION IN THE TREATY WILL PREVAIL, UNLESS THE DOMESTIC LAW PROVISION IS MORE BENEFICIAL TO THE ASSESSEE. VIII) THE NON-RESIDENT PAYEES DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. IN ADDITION TO THE GENERAL SUBMISSION, THE APPELLAN T PROVIDED THE REASONS FOR NON DEDUCTION OF TAXES IN RESPECT OF SOME SPECIFIC PAYE ES TO WHOM THE MAJOR PAYMENTS WERE MADE. THE ASSESSEE PAID AN AGGREGATE AMOUNT OF RS.45,99,0 14/ - TO M/ S. ATANOSKOVIC HARTNELL, THE AUSTRALIA BASED FIRM OF SOLICITORS ON ACCOUNT OF LEGAL CONSULTANCY CHARGES. THE ASSESSEE SUBMITTED THAT BY VIRTUE OF ARTICLE XI V OF DTAA WITH AUSTRALIA, THE PAYMENT WAS NOT SUBJECT TO TAX IN INDIA. THE ASSESS EE ALSO FURNISHED THE AUSTRALIAN TAX RESIDENCY CERTIFICATES OF THE ABOVE PARTY. IN VIEW OF THE ABOVE, THE ASSESSEE CONTENDED THAT SINCE THE INCOME WAS NOT TAXABLE IN INDIA, THE RE WAS NO REQUIREMENT TO WITHHOLD TAX WHILE MAKING THE REMITTANCES. THE ASSESSEE SUBMITTE D THAT THE SIMILAR PRINCIPLE SHOULD ALSO APPLY FOR THE PAYMENTS TO OTHER LEGAL CONSULTA NTS LIKE CLIFFORD CHANCE AND KURTZ AHLERS & ASSOCIATES. AS REGARDS THE PAYMENTS MADE TO M/S. DELOITTE & TOU CH, USA THE ASSESSEE SUBMITTED THAT THE PAYMENT WAS MADE TO THE ABOVE PA YEE IN RELATION TO THE REVIEW OF MARKET PROSPECTS IN DUBAI. THE ASSESSEE CONTENDED THAT SINCE THE ABOVE SERVICES WERE PROVIDED OUTSIDE INDIA AND WAS NOT UTILIZED IN ANY BUSINESS IN INDIA, THE SAME SHOULD NOT BE TAXABLE IN INDIA. IN RESPECT OF CONSULTATION AND PROFESSIONAL FEES AM OUNTING TO RS.66,35,747/- FOR TRIDENT MUMBAI PROJECT, THE ASSESSEE CONTENDED THAT THE AMOUNT WAS CAPITALIZED AND THUS NOT CLAIMED AS TAX DEDUCTIBLE. ACCORDINGLY, TH E QUESTION OF DISALLOWING SUCH EXPENDITURE DOES NOT ARISE. 10 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 5.1. THE LEARNED CITA OBSERVED THAT MOST OF THE PAY MENTS HAVE BEEN MADE TO THE PAYEES OF USA, UK, GERMANY, FRANCE AND UAE I.E THE COUNTRIES WHERE TREATY IS ENTERED INTO BY INDIA AND THUS THE PAYEES SHOULD BE ELIGIBL E TO TAX TREATY BENEFITS. HE FURTHER OBSERVED THAT ON PERUSAL OF THE DETAILS, THE PAYEES ARE EITHER CORPORATE OR NON-CORPORATE ENTIRIES AND THE SERVICES PROVIDED BY THE SAID PART IES ARE VARIED IN NATURE. HE HELD THAT THE PAYMENT SHOULD NOT BE CONSIDERED AS TAXABLE IN INDIA SINCE THE SERVICES ARE PROVIDED OUTSIDE INDIA AND ALSO UTILIZED OUTSIDE INDIA. HE DETAILED THE PAYMENTS MADE TO VARIOUS PARTIES AS UNDER:- (A) PAYMENT TO M/S DELOITTE & TOUCHE, USA COVERED BY ARTICLE 12 OF THE TREATY (B) PAYMENT TO DEUTSCHE IMMOBILIEN, GERMANY PAYME NT DOES NOT FALL WITHIN THE SCOPE OF SECTION 9(1)(VII) OF THE ACT. (C ) PAYMENT TO CLIFFORD CHANCE, LLP, UAE COVERED BY ARTICLE 14 OF THE TREATY (INDEPENDENT PERSONAL SERVICES) (D) PAYEMNT TO ATANOSKOVIC HARTNELL, AUSTRALIA CO VERED BY ARTICLE 14 OF THE TREATY . (E) PAYMENT TO KURTZ AHLERS & ASSOCIATES , USA CO VERED BY ARTICLE 12 OF THE TREATY. (F) PAYMENT TO VICTORIA KING PUBLIC RELATION INC, U SA COVERED BY ARTICLE 12 OF THE TREATY. (G) PAYMENTS TO LONDON STOCK EXCHANGE AND ROMEIKE, UK COVERED BY ARTICLE 13 OF THE TREATY. (H) PAYMENT TO P.INTERIOR & ASSOCIATES CO. LIMITED, THAILAND COVERED BY ARTICLE 14 OF THE TREATY. (I) PAYMENT TO SYNOVATE , USA COVERED BY TREATY IN RESPECT OF PAYMENTS TO VARIOUS PARTIES AMOUNTING TO RS. 66,35,747/- , HE HELD THAT THE SAID PAYMENT WAS CAPITALIZED AND NOT CHARGED TO REV ENUE AND HENCE THE PROVISIONS OF SECTION 40(A)(I) COULD NOT BE MADE APPLICABLE. BASED ON THE AFORESAID SPECIFIC FINDINGS IN RESPECT OF EACH PAYMENTS, THE LEARNED CITA HELD THAT SINCE THE INCOMES ARE NOT TAXABLE IN INDI A, THERE IS NO LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE AND ACCORDINGLY DE LETED THE DISALLOWANCE MADE U/S 11 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 40(A)(I) OF THE ACT. HE FURTHER HELD THAT IN ANY CASE, THERE IS NO CASE MADE OUT BY THE LEARNED AO IN THE ASSESSMENT ORDER TO MAKE AN ESTIM ATED DISALLOWANCE @ 20% OF TOTAL EXPENDITURE IN THE SUM OF RS. 56,07,666/-. HENCE T HE ENTIRE AD HOC DISALLOWANCE OF RS. 56,07,666/- WAS DELETED BY THE LEARNED CITA. AGGR IEVED, THE REVENUE IS IN APPEAL BEFORE US. 5.2. THE LEARNED DR PRAYED FOR SET ASIDE OF THIS I SSUE TO THE FILE OF THE LEARNED AO FOR VERIFICATION OF THE ENTIRE FACTS AS ACCORDING TO HI M THE DETAILS WERE FILED BY THE ASSESSEE ONLY BEFORE THE LEARNED CITA . IN RESPONSE TO THIS , THE LEARNED AR OBJECTED TO THE SAME AS THE LEARNED CITA HAD DULY CALLED FOR A REMA ND REPORT FROM THE LEARNED AO BEFORE DISPOSING OFF THE APPEAL. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WITH REGARD TO THE PRAYER OF THE LEARNED DR FOR SET TING ASIDE OF THIS ISSUE TO THE FILE OF THE LEARNED AO, WE FIND THAT THE LEARNED AO HAD SUB MITTED HIS REMAND REPORT VIDE LETTER DATED 12.3.2010 AND ASSESSEE HAD ALSO DULY F ILED ITS REJOINDER TO THE REMAND REPORT. THE LEARNED CITA AFTER TAKING INTO ACCOUNT THE REMA ND REPORT AND REJOINDER FILED BY THE ASSESSEE AND ON PERUSAL OF THE ENTIRE DETAILS HAD D ELETED THE ADDITION. WE ALSO FIND THAT THE LEARNED CITA HAD GIVEN CATEGORICAL FINDING IN R ESPECT OF EACH AND EVERY PAYMENT BY REFERRING TO RELEVANT PROVISIONS OF THE ACT AND WITH SPECIFIC REFERENCE TO TREATIES OF VARIOUS COUNTRIES. NONE OF THESE FINDINGS WERE CONT ROVERTED BY THE REVENUE BEFORE US. HENCE WE FIND NO INFIRMITY IN THE ORDER PASSED BY T HE LEARNED CITA ON THIS ISSUE. ACCORDINGLY, THE GROUND NO. 1 RAISED BY THE REVENUE IN RESPECT OF PROFESSIONAL AND CONSULTANCY FEES IS DISMISSED. 6. DISALLOWANCE ON ACCOUNT OF COMMISSION CHARGES THE ASSESSEE PAID RS.2,92,38,340/ - AS COMMISSION T O FOREIGN.TRAVEL AGENTS ON WHICH NO TAX WAS DEDUCTED AT SOURCE. THUS, THE LD. AO APPLIE D THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT AND INFLICTED AN AD HOC DISALLOWANCE OF RS 2,923,834 / -, BEING 10% OF THE AGGREGATE PAYMENT UNDER THIS HEAD. IN THE ASSESSMEN T ORDER, THE LD. AO HAS INDICATED THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE PROVIDED THE NAME OF THE PAYEES 12 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 AND THE AMOUNT PAID TO THEM AS COMMISSION BUT NOT T HE DETAILED REASONS FOR NON DEDUCTION OF TAX IN RESPECT OF EACH PAYMENT. AS PER THE LD. AO, THE ASSESSEE SUMMARILY STATED TO THE LD. AO THAT NO TAX WAS DEDUCTIBLE WHI LE MAKING THE SAID PAYMENTS. IN THE SUBMISSIONS MADE DURING THE COURSE OF APPELL ATE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THE AMOUNT PAID TO THE FOREIGN TRAVE L AGENTS ARE NOT TAXABLE IN INDIA SINCE THE SERVICES WERE PROVIDED FROM OUTSIDE INDIA AND T HE TRAVEL AGENTS DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THE ASSESSEE FURT HER SUBMITTED THAT THE PAYMENT OF COMMISSION TO THE FOREIGN TRAVEL AGENTS IS NOT DEEM ED TO ACCRUE OR ARISE IN INDIA SINCE SUCH PAYMENT IS NOT IN THE NATURE OF TECHNICAL OR C ONSULTANCY FEES. IN SUPPORT OF ITS ARGUMENTS THE ASSESSEE RELIED ON THE DECISION OF HO N'BLE SUPREME COURT IN THE CASE OF CIT -VS.- TOSHOKU LTD. (1980) 125 ITR 525 (SC). THE MATTER WAS SUBSEQUENTLY SENT BACK TO THE AO FOR REMAND PROCEEDINGS. THE LD. AO STATED IN HIS REMAND REPORT THAT IN VIEW OF AMENDMENT IN SECTION 9 WITH RETROSPECTIVE EFFECT FROM 1ST JUNE 1976 VIDE FINANC E ACT, 2010, IT IS LIKELY THAT WHOLE PAYMENT OF RS. 2,92,38,340/- UNDER THE HEAD 'COMMIS SION' MAY BECOME TAXABLE U/S 40(A)(I) OF THE ACT. IN REPLY TO THE REMAND REPORT THE ASSESSEE, INTER A LIA, SUBMITTED THAT THE AMENDMENT TO SECTION 9 VIDE FINANCE ACT, 2010 IS NO T APPLICABLE IN THE INSTANT CASE SINCE THE AMENDMENT IS RELATED TO THE PAYMENT OF IN TEREST, ROYALTY AND FEES FOR TECHNICAL SERVICES AND THE PAYMENT OF COMMISSION TO THE FOREI GN TRAVEL AGENTS DO NOT FALL UNDER ANY OF THE ABOVE HEADS. MOREOVER, EVEN IF THE PAYM ENT WERE COVERED AS TAXABLE IN INDIA UNDER THE DOMESTIC LAW DUE TO THE RECENT AMENDMENTS , THAT SHOULD NOT AFFECT THE CASE OF THE ASSESSEE SINCE THE ASSESSEE HAD CLAIMED THE FAV OURABLE TREATY PROVISIONS AS APPLICABLE. THE LEARNED CITA HELD THAT THE PAYMENT OF COMMISSIO N TO FOREIGN TRAVEL AGENTS OUTSIDE INDIA WOULD NOT FALL UNDER THE AMBIT OF INT EREST, ROYALTY OR FEES FOR TECHNICAL SERVICES AND ACCORDINGLY THE AMENDMENT IN EXPLANATI ON 2 TO SECTION 9 WITH RETROSPECTIVE EFFECT FROM 1.6.1976 WOULD NOT ALTER THE SITUATION. ACCORDINGLY HE HELD THAT COMMISSION PAID TO FOREIGN AGENTS FOR SALES OUTSIDE INDIA DO N OT ACCRUE OR ARISE IN INDIA AND THUS IS NOT TAXABLE IN INDIA. ACCORDINGLY THE PROVISIONS O F SECTION 40(A)(I) OF THE ACT COULD NOT 13 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 BE MADE APPLICABLE IN THE FACTS OF THE INSTANT CASE . AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 6.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WITH REGARD TO THE PRAYER OF THE LEARNED D R FOR SETTING ASIDE OF THIS ISSUE TO THE FILE OF THE LEARNED AO, WE FIND THAT THE LEARNED AO HAD SUBMITTED HIS REMAND REPORT VIDE LETTER DATED 12.3.2010 AND ASSESSEE HAD ALSO D ULY FILED ITS REJOINDER TO THE REMAND REPORT . THE LEARNED CITA AFTER TAKING INTO ACCOUN T THE REMAND REPORT AND REJOINDER FILED BY THE ASSESSEE AND ON PERUSAL OF THE ENTIRE DETAILS HAD DELETED THE ADDITION. WE ALSO FIND THAT THE LEARNED CITA HAD GIVEN CATEGORIC AL FINDING IN RESPECT OF THIS ISSUE WHICH IS STATED HEREINABOVE AND WE FIND THAT NONE O F THESE FINDINGS WERE CONTROVERTED BY THE REVENUE BEFORE US. HENCE WE FIND NO INFIRMI TY IN THE ORDER PASSED BY THE LEARNED CITA ON THIS ISSUE. ACCORDINGLY, THE GROUND NO. 1 RAISED BY THE REVENUE IN RESPECT OF COMMISSION EXPENDITURE IS DISMISSED. 7. DISALLOWANCE OF COMMISSION PAID ON ACCOUNT TOWARDS RESERVATION CHARGES THE ASSESSEE HAD RAISED THE FOLLOWING GROUNDS :- 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.1,58,005/- ON ACCO UNT OF COMMISSION PAID TOWARDS RESERVATION CHARGES ON THE WRONG NOTION THAT NO T AX WAS DEDUCTED AT SOURCE WHILE MAKING PAYMENTS OF THE SAID SUM IGNORING THE FACT T HAT NO TAX WITHHOLDING WAS NECESSARY WHILE MAKING SUCH PAYMENTS. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.797,345/- ON ACCOUNT OF COMM ISSION PAID TOWARDS RESERVATION CHARGES ON THE WRONG NOTION THAT THE AMOUNT REPRES ENTED PROVISIONS WITHOUT APPRECIATING THAT THE AMOUNT REPRESENTED ACTUAL QUANTIFIED EXPEN DITURE IN THE HANDS OF THE APPELLANT. THE LEARNED AO OBSERVED THAT THE ASSESSEE HAD DEBIT ED A SUM OF RS. 17,91,388/- ON ACCOUNT OF COMMISSION PAID AS RESERVATION CHARGES FOR ITS UNIT AT THE OBEROI UDAIVILAS. THE DETAILED BREAK UP OF THIS EXPENDITU RE FILED BY THE ASSESSEE CONTAINED PROVISIONS FOR DIFFERENT MONTH. THE LEARNED AO OBS ERVED THAT ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE IN RESPECT OF PROVISIONS MAD E FOR EXPENSES AND ALSO IN RESPECT OF PAYMENTS MADE TO FEW PARTIES LIKE TRUST INTERNATION AL, THE LEADING HOTELS OF THE WORLD ETC. ACCORDINGLY, HE PROCEEDED TO DISALLOW THE ENT IRE EXPENDITURE CLAIM OF RS. 14 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 17,91,388/- IN THE ASSESSMENT. BEFORE THE LEARNED CITA, IT WAS SUBMITTED THAT THE ASSESSEE SUBMITTED THAT THE RESERVATION CHARGES WER E MAINLY PAID TO OBEROI CONTACT CENTRE, A UNIT OF THE COMPANY, WHO HANDLES THE CENT RALIZED RESERVATION SYSTEM OF THE HOTELS UNDER THE OBEROI GROUP. AS PER THE ASSESSEE, IT WAS INFORMED TO THE AO THAT PAYMENTS TO OBEROI CONTACT CENTRE WERE NOT SUBJECT TO TDS IN VIEW OF INTER UNIT PAYMENTS. IN RESPECT OF THE OTHER PAYMENTS THE ASSE SSEE SUBMITTED THAT NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE AS THE PARTY REND ERED SERVICES FROM ABROAD AND DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. IT WAS F URTHER SUBMITTED BY THE ASSESSEE THAT SERVICES RENDERED TOWARDS SECURING GUEST RESERVATIO N CANNOT BE CONSIDERED AS TECHNICAL FEES AND AS SUCH ARE NOT DEEMED TO ACCRUE OR ARISE IN INDIA. IN RESPECT OF THE CONTENTION OF THE AO THAT THE EXPENSES REPRESENT MONTHLY PROVI SIONS, THE ASSESSEE SUBMITTED THAT THE EXPENDITURE REPRESENT ACTUAL EXPENSES FOR DIFFE RENT' MONTHS AND THE LD. AO WAS MERELY GUIDED BY THE NARRATIONS IN THE DETAILS FILE D AND DID NOT ASK FOR ANY FURTHER CLARIFICATION. THE ASSESSEE FURTHER SUBMITTED THAT THE DISALLOWANCE INFLICTED BY THE LD. AO WAS PURELY BASED ON SURMISE AND CONJECTURE AND T HUS, SHOULD BE DELETED. THE LD. CIT(A) PERUSED THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE RELEVANT DOCUMENTS FILED DURING THE APPELLATE PROCE EDINGS. ON EXAMINATION OF THE RELEVANT DOCUMENTS HE FOUND THE DETAILS OF PAYMENT UNDER THIS HEAD IS AS UNDER: OBEROI CONTACT CENTRE TRUST INTERNATIONAL THE LEADING HOTELS OF THE WORLD LEADING INTERACTIVE RESERVATION PROVISION FOR 388 NIGHTS PROVISIONS OF DIFFERENT MONTHS 8,36,037.00 68,782.13 72,817.08 16,406.00 14,379.00 7,82,966.53 -------------------- 1,79,13,387.84 -------------------- OUT OF THE ABOVE PAYMENTS, THE ASSESSEE SUBMITTED T HAT PAYMENTS TO OBEROI CONTACT CENTRE BEING INTER UNIT PAYMENTS, SHOULD NOT BE TAX ABLE IN INDIA AND CONSEQUENTLY, NOT LIABLE TO TAX DEDUCTION. THE LEARNED CITA AGREED WI TH THE CONTENTION OF THE ASESSSEE THAT PAYMENT BY ONE DIVISION TO ANOTHER DIVISION O F THE SAME ASSESSEE IS NOT LIABLE TO TAX WITHHOLDING AND ACCORDINGLY, IN HIS CONSIDERED OPIN ION HELD , THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE WHILE MAKING THE ABO VE PAYMENTS. 15 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 THE LEARNED CITA GRANTED RELIEF TO THE EXTENT OF RS . 8,36,037/- AND CONFIRMED THE DISALLOWANCE TO THE EXTENT OF REMAINING AMOUNT OF R S. 9,55,351/- AS ACCORDING TO HIM, THE ASSESSEE HAD NOT SUBSTANTIATED THE CLAIM WITH S UPPORTING EVIDENCE. AGGRIEVED, THE ASSESSEE AS WELL AS THE REVENUE BOTH ARE IN APPEALS BEFORE US. 7.1. THE LEARNED AR ARGUED THAT THE ASSESSEE HAD F ILED COMPLETE DETAILS BEFORE THE LOWER AUTHORITIES. IT IS THE CLAIM OF THE ASSESSEE THAT THE PAYMENTS MADE TO VARIOUS PARTIES OUTSIDE INDIA WHO DO NOT HAVE PERMANENT EST ABLISHMENT IN INDIA. HE ALSO AGREED FOR SET ASIDE OF THIS ISSUE TO THE FILE OF THE LEAR NED AO FOR VERIFICATION OF THIS FACT AT HIS END. THE LEARNED DR FAIRLY CONCEDED TO SETTING AS IDE OF THIS ISSUE TO LD. AO IN RESPECT OF ASSESSEES APPEAL. IN RESPECT OF REVENUE APPEAL , HE RELIED ON THE ORDER OF THE LEARNED AO. 7.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LEARNED CITA HAD GIVEN A CATEGORIC AL FINDING WITH REGARD TO PAYMENTS MADE TO OBEROI CONTACT CENTRE BEING INTER UNIT PAYM ENTS FOR WHICH TDS PROVISIONS COULD NOT BE MADE APPLICABLE. THE LEARNED DR COUL D NOT CONTROVERT THIS FINDING OF LEARNED CITA BEFORE US. ACCORDINGLY, WE FIND NO I NFIRMITY IN THE ORDER OF THE LEARNED CITA WITH REGARD TO DELETION OF DISALLOWANCE OF RS. 8,36,037/- . APROPOS THE ASSESSEES APPEAL, WE FIND THAT THE ISS UE UNDER APPEAL DESERVES TO BE SET ASIDE TO THE FILE OF THE LEARNED AO FOR VERIFIC ATION OF THE FACT AS TO WHETHER THE PARTIES TO WHOM PAYMENTS WERE MADE BY ASSESSEE TO T HREE PARTIES OUTSIDE INDIA TO THE TUNE OF RS. 1,58,005/- HAVE ANY PERMANENT ESTABLISH MENT IN INDIA. IN RESPECT OF PROVISION OF EXPENSES TO THE TUNE OF RS. 7,97,345/- , WE FEEL THAT THE SAME REQUIRES VERIFICATION BY THE LEARNED AO THAT THE LIABILITY H AD CRYSTALLIZED DURING THE YEAR UNDER APPEAL AND FOR VERIFICATION OF ACTUAL PAYMENTS THER EON. ACCORDINGLY, THE GROUND NOS. 3 & 4 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATIS TICAL PURPOSES . 8. DISALLOWANCE ON ACCOUNT OF PROVISION FOR OVERR IDING COMMISSION THE REVENUE HAS RAISED THE FOLLOWING GROUND:- 16 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 2. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW BY OVERLOOKING THE FACT THAT PROVISION FOR OVER-RIDING COMMISSION DEBITED BY THE ASSESSEE AND CLAIMED AS EXPENSES ARE NOT ALLOWABLE BECAUSE THESE ARE MERE PROVISIONS. THE LEARNED AO OBSERVED THAT THE AMOUNT OF RS. 37,0 0,563/- REPRESENTS PROVISION AND HENCE NOT ALLOWABLE AS A BUSINESS EXPENDITURE. BE FORE THE LEARNED CITA, THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT, THE OVERRIDING C OMMISSION IS PAID TO THE TRAVEL AGENTS WHO ARE ABLE TO GENERATE ADDITIONAL BUSINESS AND TH E OVERRIDING COMMISSION IS PAID OVER AND ABOVE THE NORMAL COMMISSION PAYMENTS, THE ASSES SEE SUBMITTED THAT THE OVERRIDING COMMISSIONS DO NOT REPRESENT AN UNASCERTAINED LIABI LITY SINCE THE CONCERNED PARTIES HAD FULFILLED THEIR CONTRACTUAL OBLIGATIONS AND THEY WE RE ENTITLED TO ADDITIONAL COMMISSION. SINCE THE ACTUAL PAYMENT OF THE COMMISSION WAS MADE IN A LATER DATE AND THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE AMOUNT AS DETERMINED WAS SHOWN AS 'PROVISION' IN THE BOOKS OF THE ASSESSEE. SUBSEQUE NTLY, VIDE ITS SUBMISSION DATED 15TH NOVEMBER, 2010, THE ASSESSEE FURTHER SUBMITTED THAT THE SERVICES WERE PROVIDED DURING THE RELEVANT YEAR AND THUS THE LIABILITY FOR PAYMEN T OF OVERRIDING COMMISSION DID ACCRUE DURING THE RELEVANT YEAR. IN THE BOOKS OF ACCOUNT, THE EXPENSE WAS INADVERTENTLY REPORTED AS PROVISIONS. WITH THE SUBMISSION, THE AS SESSEE FURNISHED THE SAMPLE COPIES OF THE LETTERS ISSUED BY THE TRAVEL AGENTS IN RESPECT OF THE CONDITIONS TO BE FULFILLED FOR ENTITLEMENT OF OVERRIDING COMMISSION AND A STATEMEN T OF OVERRIDING COMMISSION PAID TO TRAVEL AGENTS FOR THE FY 2005-06. IN VIEW OF THE ABOVE SUBMISSIONS THE ASSESSEE PRAYE D THAT THE DISALLOWANCE OF RS.37,00,563/- INFLICTED BY THE LD. AO IN RESPECT O F OVERRIDING COMMISSION SHOULD BE DELETED. 8.1. THE LEARNED CIT(A) DELETED THE DISALLOWANCE B Y OBSERVING AS UNDER :- I HAVE PERUSED THE DETAILS SUBMITTED BY THE APPELL ANT AND CAREFULLY GONE THROUGH THE SUBMISSIONS MADE DURING THE APPELLATE PROCEEDINGS. IN THE INSTANT CASE, THE SERVICES AGAINST WHICH THE IMPUGNED SUM WAS PAYABLE WAS PROV IDED IN THE FINANCIAL YEAR 2005- 06. MERELY SINCE THE AMOUNT WAS NOT PAID WITHIN THE RELEVANT PREVIOUS YEAR THE APPELLANT COMPANY PROVIDED THE SAME IN ITS BOOKS OF ACCOUNTS AND CLAIMED THE SAME TO BE TAX DEDUCTIBLE. THE APPELLANT HAD ALSO PROVIDED THE DETAILS OF SUBSEQUENT PAYMENTS OF THE PROVISION AMOUNTS ( PAGE 286/1). ON PERUSAL OF THE DETAILS OF SUBSEQUENT PAYMENTS IT IS OBSERVED THAT OUT OF THE AGGREGATE A MOUNT OF RS.3,700,563/ - DISALLOWED IN THE ASSESSMENT ORDER, RS 27,21,258/- WAS PAID SU BSEQUENTLY. THE REMAINING AMOUNT OF RS.9,19,303/ - WAS WRITTEN BACK IN THE BOOKS OF ACCOUNT IN MARCH 2008. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT SUBMITTED THAT THE WRITTEN BACK AMOUNT WAS OFFERED 17 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 TO TAX IN THE RELEVANT ASSESSMENT YEAR. UNDER THE C IRCUMSTANCES, I DO NOT FIND ANY REASON AS TO WHY THE AMOUNT SHOULD NOT BE ALLOWED A S DEDUCTION IN THE HANDS OF THE APPELLANT IN THE-ASSESSMENT YEAR UNDER APPEAL. IN M Y OPINION THE AMOUNT REPRESENTS A CRYSTALISED LIABILITY AND THUS THE APPELLANT SHOULD BE ELIGIBLE TO DEDUCTION OF THE SAID AMOUNT. IN VIEW OF THE ABOVE DISCUSSION, THIS GROUN D OF THE APPELLANT IS ALLOWED. 8.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. FROM TH E DETAILED OBSERVATIONS MADE BY THE LEARNED CITA AS REPRODUCED HEREINABOVE AND IN VIEW OF THE FACT THAT REVENUE WAS NOT ABLE TO PRODUCE THE CONTRARY EVIDENCE IN THIS REGAR D WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CITA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 9. DISALLOWANCE ON ACCOUNT OF AIRCRAFT RUNNING AN D MAINTENANCE EXPENDITURE THE LEARNED AO DURING THE COURSE OF ASSESSMENT PROC EEDINGS OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 3,63,25,075/- TOWARDS AIR CRAFT MAINTENANCE EXPENSES. THE LEARNED AO DISALLOWED 10% OF THE SAME ON AN AD HOC BASIS ON ACCOUNT OF ALLEGED PERSONAL ELEMENT OF EXPENDITURE INCURRED THEREON. T HE LEARNED CITA AFTER MAKING VERIFICATION OF THE DETAILED BREAK UP OF EXPENDITUR E PROVIDED BY THE ASSESSEE WHICH WERE ALSO SUBJECTED TO REMAND PROCEEDINGS, AND BASED ON THE ORDER IN THE ASSESSEES OWN CASE FOR THE ASST YEARS 2004-05 AND 2005-06 , UPHELD TH E DISALLOWANCE MADE BY THE LEARNED AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUND:- 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ESTIMATED DISALLOWANCE OF RS.3,632,5 08/-, ON ACCOUNT OF AIRCRAFT RUNNING AND MAINTENANCE EXPENSES BEING 10% OF THE AGGREGATE EXPENDITURE OF RS.36,325,075/- ON THE BASIS OF PAST ASSESSMENTS IGNORING THE FACT THA T THE AIRCRAFTS WERE EXCLUSIVELY USED FOR THE PURPOSE OF THE BUSINESS AND UNLIKE THE PAST YEA RS, THERE WAS TOTAL COMPLIANCE BEFORE THE AO AND THE CIT(A) SO FAR AS THE SUBMISSIONS OF DETAILS WERE CONCERNED, A FACT WHICH HAS BEEN ADMITTED BY THE LOWER AUTHORITIES. 9.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS COVERED IN ASSESSEES OW N CASE FOR THE ASST YEARS 2003-04 , 2004-05 & 2005-06 IN ITA NOS . 57/KOL/2007 ; 1846/ KOL/2007 AND 299/KOL/2010 DATED 9.12.2015 RESPECTIVELY, WHEREIN IT WAS HELD T HAT :- 18 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERE D BY THE DECISION OF THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN ASSESSEES OWN C ASE FOR ASST YEAR 2002-03 IN ITA NO. 316/KOL/2006 DATED 11.9.2015 IN PARA 4.4 HAD HELD A S UNDER:- IT IS SEEN THAT THE NET EXPENDITURE TOWARDS RUNNIN G AND MAINTENANCE OF AIRCRAFTS DEBITED IN PROFIT AND LOSS ACCOUNT IS ONL Y RS. 95,64,995/- AND HENCE THE PREMISE OF THE LEARNED AO THAT A SUM OF RS. 2,14,04 ,416/- IS DEBITED TO PROFIT AND LOSS ACCOUNT IS GROSSLY INCORRECT. IT IS OBSER VED THAT ULTIMATELY THE ASSESSEE HAD DERIVED SURPLUS OF RS. 1,07,87,457/- BEING THE DIFFERENCE BETWEEN THE CHARTERING INCOME OF RS. 2,02,52,452/- AND MAINTENA NCE AND RUNNING OF AIRCRAFTS EXPENDITURE TO THE TUNE OF RS. 95,64,995/-, EVEN TH OUGH DERIVING SURPLUS THEREON IS NOT A PRE-REQUISITE FOR ALLOWANCE OF EXPENDITURE INCURRED. WE ALSO FIND THAT COMPLETE DETAILS OF THE ENTIRE EXPENDITURE TOWARDS RUNNING AND MAINTENANCE OF AIRCRAFTS TOGETHER WITH THE LOG BOOK HAS BEEN FILED BEFORE THE LEARNED AO AND HENCE THERE IS ABSOLUTELY NO CASE FOR THE LEARNED A O TO REJECT THE SAME AND PROCEED TO MAKE DISALLOWANCE ON ESTIMATED BASIS TO BE IN LINE WITH THE DISALLOWANCES MADE IN EARLIER YEARS. WE ALSO FIND THAT THE EARLIER YEARS ITAT ORDER ON THIS ISSUE NEED NOT BE FOLLOWED FOR THE AS ST YEAR UNDER APPEAL AS IN THIS YEAR, THE ENTIRE DETAILS WERE VERY MUCH BEFORE THE LEARNED AO. WE ALSO FIND LOT OF FORCE IN THE ARGUMENTS OF THE LEARNED AR THAT TH E ASSESSEE COMPANY BEING A NON-NATURAL PERSON CANNOT HAVE ANY PERSONAL ELEMENT THEREON AND ALL THE EXPENDITURE INCURRED THEREON HAD TO BE CONSTRUED ON LY FOR BUSINESS PURPOSES . TO THIS EXTENT, THE RELIANCE ON THE GUJARAT HIGH CO URT DECISION IN 253 ITR 749 IS WELL PLACED AND SUPPORTS THE CASE OF THE ASSESSE E. WE ALSO FIND LOT OF FORCE IN THE ARGUMENTS OF THE LEARNED AR THAT IF AT ALL THER E IS ANY PERSONAL ELEMENT INVOLVED IN THE AFORESAID EXPENDITURE, THE SAME HAV E TO BE TAXED AS PERQUISITE IN THE HANDS OF THE DIRECTORS AND IT IS ONLY FOR THE T DS OFFICER TO LOOK INTO THE VIOLATIONS, IF ANY, ON THE SAME AND HENCE ON THAT G ROUND ALSO, NO DISALLOWANCE OF EXPENDITURE COULD BE APPRECIATED. WE FIND THAT THE LEARNED AO HAD MADE THE ENTIRE ADDITION BASED ON SURMISES AND CONJECTURES A ND MADE ON ADHOC BASIS . IT IS WELL FOUNDED PROPOSITION THAT WHAT IS APPARENT I S REAL AND THE ALLEGATION TO PROVE THE CONTRARY IS ON THE PERSON MAKING SUCH ALL EGATION. THE FOLLOWING DECISIONS SUPPORT OUR VIEW IN THIS REGARD:- CIT VS DAULAT RAM RAWATMULL (1973) 87 ITR 349 (SC) SUKHDAYAL RAMBILAS VS CIT (1982) 136 ITR 414 MADURA KNITTING CO VS CIT (1956) 30 ITR 764 (MAD) IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AN D RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS THEREON, WE HAVE NO HESITATION IN DELETING THE ADDITION MADE IN THE SUM OF RS. 42,80,883/- ON AN ESTIMATED BASIS . ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE ASSESSEE IS ALLOWED. IN VIEW OF THE AFORESAID FACTS OF THE CASE AND RESP ECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION (SUPRA), WE HOLD THAT NO ADDITION N EED TO BE MADE ON AN ESTIMATED BASIS TOWARDS RUNNING AND MAINTENANCE OF AIRCRAFTS. ACCO RDINGLY, THE GROUND NOS. 6 & 7 RAISED BY THE ASSESSEE ARE ALLOWED. 19 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 RESPECTFULLY FOLLOWING THE AFORESAID DECISION IN AS SESSEES OWN CASE, WE ALLOW THE GROUND NO. 5 RAISED BY THE ASSESSEE. 10. DISALLOWANCE ON ACCOUNT OF NOTIONAL INTEREST O N INTEREST FREE ADVANCES GIVEN TO ASSOCIATE COMPANIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LD. AO FOUND THAT AN AMOUNT OF RS.39,13,08,052/ - WAS GIVEN BY THE APPELLANT AS AD VANCES TO VARIOUS SISTER CONCERNS ASSOCIATES FREE OF INTEREST. THE DETAILS OF THE ADV ANCES AS PER THE ASSESSMENT ORDER IS AS UNDER : BALAJI HOTELS AND ENTERPRISES LIMITED 17,83,91 ,145 GREEN FIELD RESORTS PVT. LTD 8,00,00,000 OTHERS MISC ADVANCES 13,29,16,907 TOTAL 39,13,08,052 AS PER THE LD. AO, DURING THE ASSESSMENT PROCEEDING S, THE ASSESSEE STATED THAT THE LOANS / ADVANCES WERE FROM ITS OWN SURPLUS BUT THE ASSESS EE COULD NOT PROVIDE ANY EVIDENCE IN SUPPORT OF THE SAME. IN ABSENCE OF ANY EVIDENCE, TH E LD. AO DISALLOWED AN AMOUNT OF RS 4,69,56,966/- BEING 12% OF THE AMOUNT ADVANCED. THE RATE OF 12% IS COMPUTED TO BE THE AVERAGE RATE OF INTEREST FOR THE RELEVANT YEAR. THE ASSESSEE, DURING THE APPELLATE PROCEEDINGS CONT ENDED THAT THE ADVANCES WERE GIVEN TO ASSOCIATE ENTERPRISES AND OTHER PARTIES DUE TO C OMMERCIAL EXPEDIENCIES AND THE AMOUNT ADVANCED WERE NOT OUT OF THE BORROWED FUNDS. AS PER THE ASSESSEE, THE COMPANY HAD SUFFICIENT FUNDS AT ITS DISPOSAL FAR EXCEEDING THE AMOUNT ADVANCED. THE ASSESSEE FURTHER SUBMITTED THAT EVEN IN CASES WHERE INTEREST HAD BEEN CHARGED BY THE ASSESSEE, THE NOTIONAL INTEREST DISALLOWANCE OF INTEREST HAD BEEN MADE AT A FLAT RATE. MOREOVER, AS PER THE ASSESSEE THE ACTUAL AVERAGE RATE OF INTEREST IS CONSIDERABLY LOWER THAN THE RATE ADOPTED BY THE LD. AO. THE ASSESSEE FILED A DETAILED SUBMISSION ON 15TH NO VEMBER, 2010 IN RESPECT OF THE ADVANCES MADE TO BALAJI HOTELS & ENTERPRISES LTD. I N TERMS OF THE SAID SUBMISSION, THE 20 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 PARTY HAD A PIECE OF LAND IN CHENNAI WHERE IT PROPO SED TO START A HOTEL. FOR THIS PURPOSE, THE PARTY TOOK LOAN FROM IFCI AND TFCI. THE APPELLA NT ENTERED IN TO A TECHNICAL SERVICE AGREEMENT AND A PROJECT CONSULTANCY AGREEMENT WITH THE SAID PARTY IN RESPECT OF THE PROPOSED HOTEL. HOWEVER, EVENTUALLY THE PROJECT WEN T THROUGH FINANCIAL CRUNCH AND THE PARTY COULD NOT ARRANGE FOR FUNDS. AT THIS POINT, A T THE REQUEST OF THE PARTY, THE ASSESSEE PROVIDED AN ADVANCE OF RS 15.12 CRORES TO THE PARTY FOR THE COMPLETION OF THE HOTEL PROJECT. HOWEVER, ULTIMATELY THE PROJECT COULD NOT BE SUCCEEDED AND THE FINANCIAL INSTITUTIONS IDENTIFIED THE LOAN PROVIDED TO THE PA RTY AS NPA. SUBSEQUENTLY, IFCI TOOK POSSESSION OF THE HOTEL AND SOLD IT TO A THIRD PART Y. AS PER THE ASSESSEE, IT HAD BUSINESS INTEREST IN PROVIDING ADVANCES TO THE PARTY SINCE I T WANTED AN EARLY COMPLETION OF THE PROJECT SO THAT IT CAN EARN REVENUE FROM THE PROJEC T BY VIRTUE OF TECHNICAL SERVICES AGREEMENT. MOREOVER, ALL THE LOANS WERE PROVIDED FR OM ITS OWN FUND. THE ASSESSEE FURTHER SUBMITTED THAT OUT OF THE AMOU NT OF RS. 17,83,91,145/ -, ONLY RS. 15,12,00,000 REPRESENTS THE AMOUNT OF ADVANCE, THE REMAINING AMOUNT OF RS.2,71,91,145/- REPRESENTS ACCUMULATED INTEREST. T HE APPELLANT DULY OFFERED SUCH INTEREST TO INCOME TAX IN THE RESPECTIVE YEARS. THU S, WHILE COMPUTING THE NOTIONAL INTEREST FOR THE PURPOSE OF DISALLOWANCE, THE AO MI STAKENLY CONSIDERED THE ENTIRE AMOUNT AS ADVANCE. IN RESPECT OF AMOUNT ADVANCED TO GREEN FIELD RESORT S PVT. LTD, THE ASSESSEE SUBMITTED THAT THE AMOUNT WAS GIVEN TO THE PARTY AS A PROJECT ADVANCE TOWARDS 50% SHARE IN JOINT VENTURE AGREEMENT WITH THE PARTY FOR OPERATING HOTEL/ RESORT. FURTHER TO THE ABOVE SUBMISSION, THE ASSESSEE VIDE ITS SUBMISSION DATED 15TH NOVEMBER, 2010 PROVIDED IN DETAIL THE NECESSITY FOR PROVIDING THE ADVANCE TO THE PARTY. AS PER THE ASSESSEE HIRANANDANI GROUP WAS HOLDING A PIECE OF L AND IN MAHARASHTRA AND WAS PLANNING TO ACQUIRE SOME FURTHER LAND. DURING THE Y EAR 1995 THE ASSESSEE ENTERED INTO A MEMORANDUM OF UNDERSTANDING (MOU) WITH HIRANANDANI GROUP FOR THE PURPOSE OF SETTING UP HOTELS, RESORT COMPLEX, GOLF COURSE AND REAL ESTATE DEVELOPMENT THROUGH A JOINT VENTURE COMPANY (JVC). AS PER THE MOU A COMPA NY GREEN FIELD RESORTS PVT LTD FROM THE HIRANANDANI GROUP WAS TO BE RESTRUCTURED T O GIVE EFFECT TO THE JOINT VENTURE AGREEMENT WITH THE APPELLANT COMPANY. AS PER THE AR RANGEMENT RS 10 CRORES WAS ADVANCED BY THE APPELLANT TO GREEN FIELD RESORTS PV T. LTD. AS AN EQUITY INVESTMENT IN 21 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 THE POTENTIAL PROJECT. HOWEVER, THE AMOUNT WAS SHOW N AS LOAN TILL THE RESTRUCTURE OF GREEN FIELD RESORTS PVT. LTD WAS COMPLETED. AS PER THE MOU, THE ASSESSEE WAS SUPPOSED TO MANAGE AND OPERATE THE HOTEL, CLUB HOUS E AND GOLF COURSE AND OTHER RELATED ACTIVITIES OF THE JOINT VENTURE PROJECT. HOWEVER, S UBSEQUENTLY, CONSIDERING THE DEPRESSION IN THE REAL ESTATE MARKET THE MOU WAS CA NCELLED AND THE AMOUNT WAS REFUNDED TO THE ASSESSEE ON 1.6.2006. AS FAR AS THE OTHERS MISC. ADVANCES OF RS.13,29,16, 907/- IS CONCERNED, THE ASSESSEE PROVIDED THE DETAILS OF THE ADVANCES AS BE LOW:- DEBIT BALANCES IN SUNDRY CREDITORS A/ C RS.1,06, 77,718 ADVANCES TO SUPPLIERS RS.4,16,07,594 STAFF LOAN RS. 64,10,541 STAFF ADVANCE RS. 31,83,878 ADVANCE FOR IMPORTS RS. 93,27,759 GRATUITY RECEIVABLE RS. 42,39,347 SALES TAX AID IN ADVANCE RS. 6,86,396 INSURANCE CLAIM RS. 5,83,055 ADVANCE ENTERTAINMENT TAX & OTHER STATUTORY PAYMENTS MADE BY DIFFERENT UNITS RS.2,7 6,59,906 PAYMENTS MADE BY DIFFERENT UNITS DEFERRED FOREIGN EXCHANGE FLUCTUATION RS. 22,9 3,187 ADVANCE TO DPS SOCIETY RS. 10,00,000 AMOUNTS RECOVERABLE FROM GROUP COMPANIES FOR RS.1, 39,45,733 SERVICES RENDERED/CAPITAL GOODS PURCHASED ON THEIR BEHALF SUNDRIES RS.1,13,01,793 TOTAL RS.13,29,16,907 IN RESPECT OF THE ABOVE, THE ASSESSEE SUBMITTED THA T DURING THE ASSESSMENT PROCEEDINGS THE AO DID NOT ASK FOR THE DETAILS OF 'OTHER MISCEL LANEOUS ADVANCES'. FURTHER, THE ASSESSEE SUBMITTED THAT THE PERUSAL OF THE ABOVE DE TAILS WOULD REVEAL THAT IN ALMOST ALL CASES THE ADVANCES WERE GIVEN BY THE ASSESSEE DUE T O COMMERCIAL EXPEDIENCIES, IN ADDITION, THE ASSESSEE SUBMITTED THAT THE ITEMS LIK E DEBIT BALANCES IN SUNDRY CREDITORS A/ C, ADVANCE TO SUPPLIERS, GRATUITY RECEIVABLE ETC . HAVING BUSINESS ADVANCES DID NOT 22 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 REPRESENT ANY LOAN ON WHICH INTEREST CAN BE CHARGED . ON THE OTHER HAND, AS PER THE ASSESSEE, IN CASE OF STAFF LOAN, INTEREST WAS CHARG ED BY THE ASSESSEE @12%. THE ASSESSEE FURTHER SUBMITTED THAT IT HAD EARNED A PROFIT OF RS.260,74,50,176/- DURING THE RELEVANT FINANCIAL YEAR. IN ADDITION TO THAT, IT HAD A RESERVES AND SURPLUS OF RS.992,56,27,750/ -. IT WAS ALSO SUBMITTED THAT LD. AO THAT ALL RECEIPTS INCLUDING THE SALE PROCEEDS AND THE BORROWINGS WERE DEPOSITED IN CASH CREDIT ACCOUNT AND ALL PAYMENTS INCLUDING THE ADVANCES WERE EFFECTED THROU GH THIS MIXED ACCOUNT. THUS THE QUESTION OF SUBMISSION OF SEPARATE ACCOUNTS FOR UTI LIZATION OF OWN SURPLUS AND BORROWED FUNDS DOES NOT ARISE. FURTHER, THE NET INCREASE OF LOANS AND ADVANCES DURING THE YEAR MUCH LESSER THAN THE PROFIT EARNED DURING THE YEAR. THUS, TO SUMMARIZE, WITH ITS SUBMISSION, THE ASSESS EE ARGUED THAT ALL LOANS AND ADVANCES WERE GIVEN OUT OF COMMERCIAL EXPEDIENCIES AND OUT OF ITS OWN FUNDS AND NOT OUT OF ANY BORROWED FUNDS. THUS THE QUESTION OF DIS ALLOWANCE OF NOTIONAL INTEREST DOES NOT ARISE. BESIDE THE ABOVE, THE ASSESSEE SUBMITTED THAT FOR INFLICTING A DISALLOWANCE, THE ONUS IS ON THE AO TO MAKE OUT A CASE AND IN THE IMP UGNED ASSESSMENT ORDER WHICH THE AO HAS FAILED TO DO SO. IN ADDITION, THE ASSESSE E ALSO SUBMITTED THAT THE NOTIONAL RATE OF INTEREST OF 12% AS COMPUTED BY THE LD. AO IS ARBITR ARY. AS PER THE ASSESSEE, THE AVERAGE RATE OF INTEREST FOR THE RELEVANT YEAR IS 8.60%. T HUS, EVEN ASSUMING WITHOUT CONCEDING, THAT IF ANY DISALLOWANCE IS CALLED FOR, THE APPLICA BLE RATE OF INTEREST SHOULD BE 8.60%. 10.1. THE LEARNED CITA BY PLACING RELIANCE ON THE DECISION OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR THE ASST YEAR 2005-06 CONFI RMED THE DISALLOWANCE OF INTEREST IN RESPECT OF AMOUNTS ADVANCED TO BALAJI HOTELS AND EN TERPRISES LIMITED AND GREEN FIELD RESORTS PVT LTD. HOWEVER, HE DELETED THE DISALLOWA NCE OF INTEREST ON ACCOUNT OF OTHER MISCELLANEOUS ADVANCES. AGGRIEVED, BOTH THE ASSES SEE IS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF NOTIONAL INTEREST OF RS.31,006,937/- ON INTEREST FREE ADVANCES GIVEN TO THE ASSOCIATE COMPANIES SOLELY BA SED ON ASSESSMENT OF PAST YEARS EVEN AFTER ADMITTING THAT THE ADVANCES WERE GIVEN OUT OF COMMERCIAL EXPEDIENCY. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND WITHOUT PREJUDICE TO THE GROUND NO. 6 ABOVE, THE LD. CIT(A) ERRED IN SUSTAIN ING THE DISALLOWANCE OF NOTIONAL INTEREST ON INTEREST FREE ADVANCES GIVEN TO ASSOCIA TE COMPANIES WITHOUT APPRECIATING THE 23 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 FACT THAT THE ADVANCES WERE MADE WHOLLY FROM THE BA NK ACCOUNTS, WHERE THE INCOME FROM SALES ARE DEPOSITED AND THUS THE QUESTION OF DISALL OWANCE OF NOTIONAL INTEREST ON BORROWED FUNDS DOES NOT ARISE. 8. THAT WITHOUT PREJUDICE TO THE GROUND NUMBERS 6 & 7 ABOVE, EVEN ASSUMING BUT NOT ADMITTING THAT THE ADVANCES WERE MADE OUT OF THE BO RROWED FUNDS, THE LD. CIT(A) ERRED IN SUSTAINING THE ASSUMED RATE OF 12% P.A. FOR THE PUR POSE OF COMPUTING THE DISALLOWANCE OF NOTIONAL INTEREST. THE REVENUE HAS RAISED THE FOLLOWING GROUND:- 3. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW BY HOLDING THAT THE MISCELLANEOUS ADVANCES MADE ARE PU RELY TRADE ADVANCES/DEPOSITS AND NOT IN THE NATURE OF LOAN WHEN THE ASSESSEE COULD N OT FURNISH ANY EVIDENCE TO SHOW THAT THE ADVANCES GIVEN WERE TRADE ADVANCES/DEPOSITS AND WERE MADE FROM ITS OWN SURPLUS. 10.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS COVERED IN ASSE SSEES OWN CASE FOR THE ASST YEARS 2003-04 , 2004-05 & 2005-06 IN ITA NOS . 57/KOL/20 07 ; 1846/KOL/2007 AND 299/KOL/2010 DATED 9.12.2015 RESPECTIVELY, WHEREIN IT WAS HELD THAT :- 7.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND FROM THE PAPER BOOK FILED BY THE A SSESSEE THAT THE ENTIRE DETAILS AS TO FOR WHAT PURPOSE THE MONIES WERE PAID BY THE ASSESS EE COMPANY TO THE AFORESAID PARTIES WERE GIVEN BEFORE THE LEARNED AO . WE FIND THAT IN RESPECT OF AMOUNTS ADVANCED BY THE ASSESSEE TO CERTAIN GROUP COMPANIES WHERE INTEREST IS CHARGED BY IT, THERE IS ABSOLUTELY NO DISPUTE. IN RESPECT OF INTEREST FREE ADVANCES, IT HAS TO BE SEEN WHETHER THE SAME WERE ADVANCED OUT OF OWN FUNDS OR OUT OF BORROWED F UNDS BY THE ASSESSEE. THE LEARNED AO SIMPLY STATES THAT SIMILAR DISALLOWANCES WERE MA DE IN THE EARLIER YEARS AND ACCORDINGLY THE SAME IS TO BE MADE FOR THIS ASST YE AR ALSO BRUSHING ASIDE ALL THE SUBMISSIONS OF THE ASSESSEE. IN THE INSTANT CASE, T HE ASSESSEE HAD IN FACT MADE BORROWINGS AND UTILISED THE SAME FOR THE PURPOSE OF ITS BUSINESS. THE BORROWED FUNDS AND THE OWN FUNDS IN THE FORM OF SHARE CAPITAL, RES ERVES & SURPLUS, CASH PROFITS DERIVED DURING THE YEAR, ETC WERE INEXTRICABLY MIXED IN THE SAME BANK ACCOUNT AND HENCE PRESUMPTION COULD BE DRAWN THAT INTEREST FREE ADVAN CES WERE MADE OUT OF OWN FUNDS PROVIDED THE OWN FUNDS ARE MORE THAN THE AMOUNTS AD VANCED INTEREST FREE TO PARTIES. THE OWN FUNDS AVAILABLE WITH THE ASSESSEE COMPANY I S WORKED OUT AS BELOW:- 31.3.2003 31.3.2002 (RUPEES IN CRORES) SHARE CAPITAL 152.39 152.39 GENERAL RESERVE 451.21 446.21 SURPLUS IN PROFIT AND LOSS A/C 29.34 38.7 5 CAPITAL REDEMPTION RESERVE 2.42 2.42 FOREIGN EXCHANGE EARNINGS RESERVE 0.00 5.00 DEBENTURE REDEMPTION RESERVE 0.00 1.9 5 24 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 ------------- ------------ TOTAL OWN FUNDS 635.36 646.72 ------------ ------------ 7.4.1. MOREOVER, IT IS WELL SETTLED PROPOSITION TH AT IT IS NOT FOR THE INCOME TAX DEPARTMENT TO SUGGEST HOW THE BUSINESSMAN SHOULD CO NDUCT HIS BUSINESS AND HAVE HIS AFFAIRS. THE BUSINESSMAN KNOWS HIS INTEREST BEST. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS DHANRAJ GIRJI RAJA NARASINGHERJI (1973) 91 ITR 544 (SC) . FURTHER RELIANCE IS ALSO PLACED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS WAL CHAND AND CO. (1967) 65 ITR 381 (SC) WHEREIN IT WAS HELD THAT IN APPLYING THE TEST OF CO MMERCIAL EXPEDIENCY WHETHER THE EXPENDITURE WAS EXCESSIVELY LAID DOWN FOR THE PURPO SE OF BUSINESS, REASONABLENESS OF THE EXPENDITURE IS TO BE JUDGED FROM THE POINT OF V IEW OF A BUSINESSMAN AND NOT THAT OF THE REVENUE. IT IS WELL DECIDED THAT WHAT IS TO BE SEEN FOR THE PURPOSE OF ALLOWABILITY OF INTEREST U/S 36(1)(III) OF THE ACT IS AS TO WHETHER THE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF BUSINESS. 7.4.2. FROM THE ABOVE WORKINGS OF AVAILABILITY OF OWN FUNDS, IT COULD SAFELY BE CONCLUDED THAT THE BORROWED FUNDS WERE NOT UTILIZED FOR MAKING THE INTEREST FREE ADVANCES BY THE ASSESSEE. THIS FINDING IS GIVEN IR RESPECTIVE OF THE FACT THAT THE SAME WERE ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY AND FOR THE PURPOSE OF BUSINESS. WE FIND THAT ALL THE ADVANCES WERE MADE AS STRATEGI C INVESTMENTS TO PURSUE ITS FURTHER BUSINESS INTERESTS AND THOSE COMPANIES WERE ALSO US ING THE BRAND OF THE ASSESSEE, RENDERING TECHNICAL SERVICES AND ASSESSEES STAFF W ERE USED BY THE GROUP COMPANIES AND HENCE HAD TO BE CONSTRUED AS ADVANCES MADE DURING T HE COURSE OF ASSESSEES BUSINESS. 7.4.3. WE DRAW OUR SUPPORT FROM THE FOLLOWING DECI SIONS IN SUPPORT OF OUR FINDINGS :- A) CIT VS GOPALAKRISHNA MURALIDHAR REPORTED IN (196 3) 47 ITR 469 (AP) B) WOOLCOMBERS OF INDIA LTD VS CIT REPORTED IN 134 ITR 219 (CAL) C) CIT VS HOTEL SAVERA REPORTED IN 239 ITR 795 (MAD ) D) CIT VS BRITANNIA INDUSTRIES LTD REPORTED IN 280 ITR 525 (CAL) E) S A BUILDERS LTD VS CIT REPORTED IN 288 ITR 1 (S C) F) ADDL. CIT VS TULIP STAR HOTELS LTD IN CC NO. 713 8-7140 / 2012 DATED 30.4.2012 BY THE SUPREME COURT , WHEREIN IT WAS HELD AS BELOW:- IN OUR VIEW, S.A.BUILDERS LTD VS CIT REPORTED IN 28 8 ITR 1, NEEDS RECONSIDERATION. THOUGH IT IS STATED THAT THE DECISION IN S.A.BUILDE RS LTD IN 288 ITR 1 (SC) REQUIRES RECONSIDERATION, NOTICE HAS BEEN ORDERED TO BE ISSU ED TO BOTH THE PARTIES AND THE MATTER IS STILL PENDING BEFORE THE SUPREME COURT AS ON DAT E. HENCE THE DECISION IN 288 ITR 1 (SC) IS VERY MUCH APPLICABLE AS ON DATE UNTIL THE J UDGEMENT IN TULIP STAR HOTELS LTD IS PRONOUNCED BY THE SUPREME COURT. 25 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 G) MUNJAL SALES CORPORATION VS CIT AND ANOTHER REPO RTED IN 298 ITR 298 (SC) H) CIT VS RELIANCE UTILITIES AND POWER LTD REPORTED IN 313 ITR 340 (BOM) I) RECENT DECISION OF THE HONBLE APEX COURT IN THE CASE OF HERO CYCLES (P) LTD VS CIT REPORTED IN (2015) 63 TAXMANN.COM 308 (SC) DATED 5 .11.2015. THE OPERATIVE PORTION OF THE AFORESAID JUDGEMENTS A RE NOT REPRODUCED HEREIN FOR THE SAKE OF BREVITY. HOWEVER THE PRINCIPLES LAID DOWN BY THE VARIOUS COURTS INCLUDING THE APEX COURT IS CONSIDERED IN OUR FINAL DECISION REND ERED HEREIN. 7.4.4. WE ALSO FIND THAT THIS ISSUE IS SQUARELY CO VERED BY THE DECISION OF THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN ASSESSEES OWN C ASE IN FAVOUR OF THE ASSESSEE FOR ASST YEAR 2002-03 IN ITA NO. 316/KOL/2006 DATED 11.9.201 5 IN PARA 6 OF THE SAID ORDER. 7.4.5. IN VIEW OF THE AFORESAID FACTS AND CIRCUMST ANCES AND THE JUDICIAL PRECEDENTS ON THE IMPUGNED ISSUE, WE HOLD AS UNDER:- - THAT THE INTEREST FREE ADVANCES WERE MADE BY THE AS SESSEE TO VARIOUS PARTIES DURING THE COURSE OF ITS BUSINESS AND ARE STRATEGIC INVESTMENTS. - THAT THE BORROWED FUNDS WERE NOT DIVERTED FOR NON-B USINESS PURPOSES AS SUFFICIENT OWN FUNDS WERE AVAILABLE WITH THE ASSESS EE TO MAKE INTEREST FREE ADVANCES TO ITS GROUP CONCERNS. - THAT WHEN BORROWED FUNDS AND OWN FUNDS WERE INEXTRI CABLY MIXED IN THE SAME BANK ACCOUNT AND IF THE OWN FUNDS ARE MORE THAN THE AMOUNTS ADVANCED INTEREST FREE TO SISTER CONCERNS, THEN THE PRESUMPTION COULD BE DRAWN IN FAVOUR OF THE ASSESSEE THAT THOSE ADVANCES WERE MADE ONLY OUT OF OWN FUNDS OF THE ASSESSEE. - THAT FROM THE AFORESAID FACTS AVAILABLE ON RECORD, THE ASSESSEE HAD ADVANCED MONIES TO VARIOUS CONCERNS DURING THE COURSE OF ITS BUSINESS TO FURTHER STRENGTHEN ITS BUSINESS INTERESTS WITH THE SAID PAR TIES AND AS A MEASURE OF COMMERCIAL EXPEDIENCY. - THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY WHETHER THE EXPENDITURE WAS EXCESSIVELY LAID DOWN FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF THE EXPENDITURE IS TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AND NOT THAT OF THE REVENUE. ACCORDINGLY WE HOLD THAT THE ACTION OF THE LEARNED AO IN DISALLOWING A SUM OF RS. 4,67,38,966/- AND LEARNED CITA RESTRICTING THE SAID DISALLOWANCE TO RS. 3,73,32,024/- IS NOT WARRANTED AND GROUND NOS. 8 & 9 RAISED BY T HE ASSESSEE ARE ALLOWED. 10.3. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD S UFFICIENT OWN FUNDS TO MAKE THESE ADVANCES. THE ASSESSEE HAD EARNED A PROFIT OF RS. 260,74,50,176/- DURING THE YEAR AND HAD RESERVES AND SURPLUS OF RS. 992,56,27,750/-. HENCE IT COULD BE SAFELY CONCLUDED 26 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 THAT THE ASSESSEE WAS FLOODED WITH OWN FUNDS AND BO RROWED FUNDS WERE NOT UTILIZED FOR MAKING THESE INTEREST FREE BUSINESS ADVANCES. NONE OF THE FINDINGS GIVEN IN THE AFORESAID ORDER IN ASSESSEES OWN CASE WERE CONTROV ERTED BY THE REVENUE BEFORE US. RESPECTFULLY FOLLOWING THE AFORESAID DECISION IN AS SESSEES OWN CASE, WE ALLOW THE GROUND NOS. 6 TO 8 RAISED BY THE ASSESSEE AND DISMI SS THE GROUND NO. 3 RAISED BY THE REVENUE. 11. DISALLOWANCE U/S 14A OF THE ACT THE AO, IN THE ASSESSMENT ORDER HAS STATED THAT TH E ASSESSEE COMPANY EARNED EXEMPT INCOME OF RS.95,47,937/ - DURING THE RELEVAN T ASSESSMENT YEAR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMI TTED THAT NO EXPENDITURE WAS INCURRED TO EARN THE EXEMPTED INCOME. CONSIDERING T HE EXPLANATION PROVIDED BY THE ASSESSEE AS UNREALISTIC , THE LD. AO DISALLOWED A P ROPORTIONATE SUM OF RS.1,924,086/- U/S 14A OF THE ACT. ASSESSEE FURNISHED A DETAILED SUBMISSION DURING THE COURSE OF APPELLATE PROCEEDING AGAINST THE ABOVE DISALLOWANCE. IT PLEAD ED THAT THE INVESTMENTS WHICH YIELDED TAX FREE INCOME, WERE VERY OLD AND NO EXPEN DITURE HAD ACTUALLY BEEN INCURRED FOR EARNING SUCH INCOME. IT FURTHER SUBMITTED THAT FOR RECEIVING DIVIDEND WARRANTS AND DEPOSITING THE SAME INTO BANK, NO MANAGEMENT EFFORT S WERE EMPLOYED. EVEN THE TAX AUDITOR HAD ALSO CONFIRMED THAT NO DISALLOWANCE U/S 14A WOULD ARISE FOR THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. 11.1. THE LEARNED CITA BY PLACING RELIANCE ON THE D ECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS EIH ASSOCIATED HOTELS LIMITED REPORTED I N 126 TTJ 246 RESTRICTED THE DISALLOWANCE TO 1% OF DIVIDEND INCOME TO RS. 95,479 /-. AGGRIEVED, THE ASSESSEE AS WELL AS THE REVENUE BOTH ARE IN APPEAL BEFORE US. THE A SSESSEE HAS RAISED THE FOLLOWING GROUND:- 9. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE U/S. 14A OF THE ACT TO THE EXTENT OF 1% OF THE EXEMPT INCOME, WITHOUT APPRECIATING THE FACT THAT NO ACTUAL EXPEND ITURE WAS INCURRED BY THE APPELLANT IN RELATION TO EXEMPT INCOME. THE REVENUE HAS RAISED THE FOLLOWING GROUND:- 27 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 5. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW BY RESTRICTING THE DISALLOWANCE MADE BY THE AO EVEN WH EN PROVISIONS OF SECTION 14A OF THE ACT WERE CORRECTLY APPLIED IN RESPECT OF MANAGEMENT EXPENSES WHICH WERE INCURRED FOR EARNING EXEMPT INCOME. 11.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE RE LEVANT ASSESSMENT YEAR UNDER APPEAL IS 2006-07 AT WHICH POINT OF TIME , THE PROVISIONS OF RULE 8D WAS NOT IN FORCE AND THE SAME WAS MADE APPLICABLE ONLY FROM ASST YEAR 2008-0 9 AS DECIDED IN THE DECISION OF GODREJ & BOYCE MANUFACTURING REPORTED IN 328 ITR 81 (BOM) . HOWEVER, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD DERIVED TAXABLE INCOM E AS WELL AS TAX FREE INCOME AND INCURRED EXPENDITURE FOR DERIVING BOTH THE INCOMES AND HENCE DISALLOWANCE IS DEFINITELY WARRANTED IN TERMS OF SECTION 14A WHICH IS BROUGHT IN THE STATUTE BOOK WITH RETROSPECTIVE EFFECT FROM 1.4.1962. THE DISALLOWA NCE HAD TO BE MADE ONLY ON AN ESTIMATED BASIS WITH REGARD TO THE EXPENDITURE INCU RRED FOR THE PURPOSE OF EARNING TAX FREE INCOME. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S R.R.SEN & BROTHERS P LTD IN GA NO. 3019 OF 2012 IN ITAT NO . 243 OF 2012 DATED 4.1.2013 HAD HELD AS UNDER:- THE ASSESSEE DID NOT SHOW ANY EXPENDITURE INCURRE D BY HIM FOR THE PURPOSE OF EARNING THE MONEY WHICH IS EXEMPTED UNDER INCOME TA X. THE TRIBUNAL HAS COMPUTED EXPENDITURE AT 1% OF SUCH DIVIDEND INCOME, WHICH, ACCORDING TO THEM, IS THE THUMB RULE APPLIED CONSISTENTLY. WE FIND NO REASON TO INTERFERE. THE APPEAL IS DISMISSED. WE FIND THAT THE LEARNED CITA HAD ALSO DIRECTED THE LEARNED AO TO RESTRICT THE DISALLOWANCE U/S 14A OF THE ACT AT 1% OF DIVIDEND I NCOME. HENCE WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LEARNED CITA IN THIS REG ARD. ACCORDINGLY, THE GROUND NO. 9 RAISED BY THE ASSESSEE IS DISMISSED AND GROUND NO . 5 RAISED BY THE REVENUE IS DISMISSED. 12. DISALLOWANCE ON ACCOUNT OF COMMISSION PAID TO AIRPORT AUTHORITY OF INDIA FOR NON-DEDUCTION OF TAX AT SOURCE THE AO IN THE ASSESSMENT ORDER PASSED, HAS STATED T HAT OBEROI FLIGHT SERVICES, AN 28 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 UNIT OF THE ASSESSEE COMPANY, HAD PAID AN AMOUNT OF RS 59,63,025/ - AS COMMISSION TO THE AIRPORT AUTHORITY OF INDIA. FROM THE DETAILS SU BMITTED DURING THE ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT NO TAX WAS DEDUCT ED BY THE ASSESSEE COMPANY ON SUCH COMMISSION EXPENSES. IN ABSENCE OF DEDUCTION OF TAX AT SOURCE, THE LD. AO APPLIED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DISA LLOWED THE SAID SUM IN THE ASSESSMENT ORDER. THE ASSESSEE SUBMITTED THAT THE LD. AO CAME ACROSS THE DETAILS OF COMMISSION PAYMENT WHILE CHECKING THE UNIT WISE LIABILITY FOR EXPENSES FOR THE RELEVANT YEAR. THE DETAILS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS DID NOT PROVIDE FOR THE TAX WITHHOLDING FROM THE ABOVE PAYMENTS. THE ASSESSEE F URTHER SUBMITTED THAT OUT OF THE AGGREGATE PAYABLE OF RS.59,63,205/ -, RS 29,00,000/ - WAS ACTUALLY PAID AND THE BALANCE AMOUNT OF RS 30,63,205/- STOOD AS PAYABLE AT THE Y EAR END. THE ASSESSEE ARGUED THAT TAX WAS DULY DEDUCTED AND DEPOSITED ON THE ABOVE PA YMENTS. 12.1. THE LEARNED CITA BASED ON THE TDS CERTIFICATE FILED BEFORE HIM FOR THE PAYMENT OF RS. 29,00,000/- HELD THAT ASSESSEE HAD COMPLIED WITH THE TDS OBLIGATIONS FOR RS. 29,00,000/- AND CONFIRMED THE DISALLOWANCE TO THE T UNE OF RS. 30,63,205/- FOR WANT OF SUPPORTING EVIDENCES. AGGRIEVED, THE ASSESSEE IS I N APPEAL BEFORE US ON THE FOLLOWING GROUND:- 10. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF RS.3,063,205/- ON AC COUNT OF COMMISSION PAID TO AIRPORT AUTHORITY OF INDIA FOR ALLEGED NON-DEDUCTION OF TAX AT SOURCE. 12.2. THE LEARNED AR PRAYED THAT THE ASSESSEE BE GI VEN ONE MORE OPPORTUNITY TO PRODUCE THE TDS CERTIFICATES AND OTHER EVIDENCES BE FORE THE LEARNED AO WITH REGARD TO THE COMPLIANCE TO TDS OBLIGATIONS. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY RELIED ON THE ORDER OF THE LEARNED CITA. 12.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. WE FIND IN THE FACTS AND CIRCUMSTANCES, THE ASSESSE E BE GIVEN ONE MORE OPPORTUNITY TO FURNISH BEFORE THE LEARNED AO TDS CERTIFICATES OR A NY OTHER EVIDENCES IN SUPPORT OF ITS COMPLIANCE TO TDS OBLIGATIONS WITH REGARD TO COMMIS SION PAYMENTS MADE TO AIRPORTS 29 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 AUTHORITY OF INDIA. WE DIRECT THE LEARNED AO ACCORD INGLY. HENCE THE GROUND NO. 10 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 13. DISALLOWANCE ON ACCOUNT OF ADVANCE WRITTEN OFF RS. 2,01,50,000/- THE ASSESSEE, PROVIDED AN ADVANCE OF RS.90,150,000/ - TO NANDI HILLS HOTELS & RESORTS LIMITED TOWARDS EQUITY PARTICIPATION OF JOI NT VENTURE PROJECT WITH JANSONS GROUP OF BANGALORE. HOWEVER, EVENTUALLY THE PROJECT WAS A BANDONED. THE ASSESSEE RECEIVED BACK AN AMOUNT OF RS 7,00,00,000 FROM NANDI HILLS H OTELS & RESORTS LIMITED IN PURSUANT TO THE ORDER OF HON'BLE CALCUTTA HIGH COUR T. THE REMAINING SUM OF RS.2,01,50,000/ - WAS CLAIMED BY THE APPELLANT AS ADVANCE WRITTEN OFF DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER, SINCE TH E AMOUNT WAS NOT CLAIMED IN THE RETURN OF INCOME, THE AO, BY APPLYING THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD VS. CIT [20 06] (284 ITR 323), REJECTED THE CLAIM OF THE ASSESSEE. THE ASSESSEE, ON THE OTHER HAND, FURNISHED A DETAIL ED SUBMISSION CONTENDING THAT IT IS ENTITLED TO THE DEDUCTION OF THE SAID AMOUNT IN THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE CONTENDED THAT THE AO DID NOT DISPUTE THE GENUINENESS OF THE CLAIM. HOWEVER, IN VIEW OF THE DECISION OF HONBLE APEX CO URT IN THE CASE OF GOETZE INDIA LTD. (SUPRA) THE DEDUCTION WAS DENIED. IT WAS FURTHER A RGUED THAT THE DEPARTMENT COULD COLLECT ONLY LEGITIMATE TAX AS PER ARTICLE 265 OF T HE CONSTITUTION OF INDIA. IT WAS FURTHER ARGUED THAT THE POWERS OF THE APPELLATE COMMISSIONE R IS NOT RESTRICTED TO THE SUBJECT MATTER OF THE APPEAL BUT EXTENDS TO ENTIRE SUBJECT MATTER OF THE ASSESSMENT. BASED ON THE ABOVE SUBMISSION, THE ASSESSEE PLEADED THAT THE DECISION OF SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (S UPRA) IS NOT BINDING ON THE APPELLATE AUTHORITIES AND SUBMITTED THAT A DIRECTION MAY BE I SSUED TO THE AO TO RECOMPUTE THE INCOME AS PER LAW BY ALLOWING THE CLAIM OF RS.2,01, 50,000/-. 13.1. THE LEARNED CITA OBSERVED THAT THE LEARNED A O DID NOT INDICATE ANY ADVERSE REASON AS TO WHY THE AMOUNT SHOULD NOT BE ALLOWED A S DEDUCTION TO THE ASSESSEE IN THE YEAR UNDER APPEAL. HE FURTHER OBSERVED THAT THE AP PELLATE AUTHORITIES HAVE THE RIGHT TO ACCEPT A NEW CLAIM PROVIDED THE FACTS ARE ON RECORD DURING THE ASSESSMENT PROCEEDINGS. HE ACCORDINGLY HELD THAT SINCE THE RELEVANT FACTS A RE ON RECORD, HENCE THE NEW CLAIM 30 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 MADE SUBSEQUENT TO THE FILING OF THE RETURN IS ACCE PTED. HOWEVER, HE OBSERVED THAT THE ASSESSEE HAD CLAIMED THIS AMOUNT AS DEDUCTION ON AC COUNT OF WRITE OFF OUT OF AMOUNTS ADVANCED TOWARDS EQUITY PARTICIPATION IN A JOINT VE NTURE, WHICH IS CAPITAL IN NATURE. HENCE HE HELD THAT THE WRITE OFF OF THE SAID ADVANC E CANNOT BE ALLOWED AS REVENUE EXPENDITURE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND :- 11. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.20,150,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADVANCE WRITTEN OFF, HOLDING THAT THE ADVANCE WA S OF CAPITAL NATURE. 13.2. THE LEARNED AR REITERATED THE FACTUAL SUBMIS SIONS AND THE CIRCUMSTANCES WHICH LED TO THE WRITE OFF OF THE SAID AMOUNT. HE STATED THAT OUT OF THE AMOUNTS ADVANCED IN THE SUM OF RS. 9,01,50,000/- TO NANDI HILLS AND RES ORTS LTD, DUE TO FAILURE OF JOINT VENTURE, THE ASSESSEE COULD RECOVER ONLY A SUM OF R S. 7,00,00,000/- PURSUANT TO THE ORDER OF THE HONBLE CALCUTTA HIGH COURT. HENCE THE CH ANCES OF RECOVERY OF THE BALANCE SUM WERE COMPLETELY AND LOST. HENCE THE ASSESSEE HAD N O OTHER OPTION BUT TO WRITE OFF THE REMAINING SUM OF RS. 2,01,50,000/- AND CLAIM THE SA ME AS DEDUCTION. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF BINANI CEMENT LTD VS CIT REPORTED IN (2016) 380 ITR 116 (C AL) IN SUPPORT OF HIS CONTENTION. HE ARGUED THAT THE ADVANCE WAS MADE DURING THE COUR SE OF BUSINESS OF THE ASSESSEE AND HENCE THE SAME HAS TO BE CONSTRUED AS A REGULAR BUS INESS LOSS. IN RESPONSE TO THIS, THE LEARNED DR ARGUED THAT THIS IS A JOINT VENTURE INVE STMENT MADE BY THE ASSESSEE AND THE INCOME HAD IT BEEN DERIVED WOULD HAVE BEEN TAXED IN THE HANDS OF THE SAID JOINT VENTURE WHICH WOULD INVARIABLY BE A SEPARATE LEGAL ENTITY A ND ACCORDINGLY THE LOSS ARISING OUT OF THE SAID JOINT VENTURE INVESTMENT SHOULD BE INCURRE D ONLY IN THE SAID JOINT VENTURE HANDS AND NOT IN THE HANDS OF THE ASSESSEE. HE ACCORDING LY PLEADED THAT THE DECISION OF THE CALCUTTA HIGH COURT RELIED UPON BY THE LEARNED AR I S NOT APPLICABLE TO THE FACTS OF THE CASE. IN DEFENCE, THE LEARNED AR STATED NO SUCH SE PARATE ENTITY AS CLAIMED BY THE LEARNED DR WAS EVER STARTED FOR JOINT VENTURE PARTI CIPATION. THE ASSESSEE WAS TO GET ROYALTY FROM VARIOUS HOTELS FOR USING ITS TRADEMARK , LOGO AND NAME AT VARIOUS LOCATIONS ACROSS INDIA. THE ASSESSEE WAS NOT ENTITLED TO AN Y OTHER INCOME OTHER THAN ROYALTY OUT OF MAKING THIS JOINT VENTURE INVESTMENT. 31 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 13.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE FA CTS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE ARE NOT REITERATED FOR THE SAK E OF BREVITY. WE HAD ALREADY HELD IN ASSESSEES OWN CASE FOR THE ASST YEAR 2002-03 IN IT A NO. 316/KOL/2006 DATED 11.9.2015 IN THE CONTEXT OF ALLOWABILITY OF INTERES T ON BORROWED FUNDS ALLEGED TO BE USED FOR ADVANCE TO NANDI HILLS RESORTS LTD THAT THE SAI D ADVANCE WAS FOR THE PURPOSE OF BUSINESS. WE FIND LOT OF FORCE IN THE ARGUMENT OF THE LEARNED AR THAT THE ASSESSEE WOULD GET ONLY ROYALTY FROM VARIOUS HOTELS FOR USIN G ITS TRADEMARK, LOGO AND NAME FOR WHICH PURPOSE IT HAD MADE INVESTMENTS IN JOINT VENT URE EQUITY PARTICIPATION. DUE TO THE FACT THAT THE PROJECT COULD NOT TAKE OFF AND GOT AB ANDONED FOR VARIOUS REASONS BEYOND THE CONTROL OF THE ASSESSEE, THE ASSESSEE HAD TO CLAIM THE SAME AS A REGULAR BUSINESS LOSS. WE FIND THAT THE RELIANCE PLACED BY THE LEARNED AR ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF BINANI CEMENT LTD VS CIT REPORTED IN (2016) 380 ITR 116 (CAL) IS WELL FOUNDED, WHEREIN IT WAS HELD THAT : THE COMMISSIONER (APPEALS) FOUND THAT THE ASSESSE E CLAIMED DEDUCTION OF THE EXPENDITURE ON A PROJECT WHICH HAD BEEN ABANDONED W HEN IT WAS FOUND TO BE UNVIABLE, THAT THE EXPENDITURE WAS NOT CLAIMED OR ALLOWED EAR LIER AS BUSINESS EXPENDITURE BECAUSE IT WAS OF CAPITAL NATURE ENTITLED TO DEPRECIATION A FTER COMPLETION AND ON COMMENCEMENT OF ITS USE FOR BUSINESS BUT SINCE THAT STAGE WAS NO T REACHED NO ASSET HAVING COME INTO EXISTENCE THE CAPITAL-WORK-IN- PROGRESS HAD TO BE W RITTEN OFF. THE COMMISSIONER (APPEALS) HELD THAT WHEN CONSTRUCTION/ACQUISITION O F A NEW FACILITY WAS ABANDONED AT THE WORK-IN- PROGRESS STAGE, THE EXPENDITURE DID NOT RE SULT IN AN ENDURING ADVANTAGE AND SUCH EXPENDITURE, WHEN WRITTEN OFF, HAD TO BE ALLOW ED UNDER SECTION 37 OF THE INCOME-TAX ACT, 1961. THE TRIBUNAL REVERSED THE ORDER OF THE C OMMISSIONER (APPEALS) HOLDING THAT THE EXPENDITURE INCURRED IN THE EARLIER YEARS COULD NOT BE DEDUCTED IN THE YEAR 2003-04. ON APPEAL: HELD, ALLOWING THE APPEAL, THAT THERE WAS NO CHALLE NGE ON THE FINDING OF THE COMMISSIONER (APPEALS) ON THE FACTS BEFORE THE TRIB UNAL OR EVEN THE APPEAL. THERE WOULD HAVE BEEN NO OCCASION TO CLAIM THE DEDUCTION IF THE WORK- IN-PROGRESS HAD COMPLETED ITS COURSE. BECAUSE THE PROJECT WAS ABANDONED THE WORK- IN-PROGRESS DID NOT PROCEED ANY FURTHER. THE DECISION TO ABANDON THE PROJECT WAS TH E CAUSE FOR CLAIMING THE DEDUCTION. THE DECISION WAS TAKEN IN THE RELEVANT YEAR. THUS, THE EXPENDITURE AROSE IN THE RELEVANT YEAR. WE FIND SIMILAR VIEW HAS BEEN TAKEN IN THE FOLLOWIN G CASES :- (A) DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF INDO RAMA SYNTHETICS (I) LTD VS CIT REPORTED IN ( 2011) 333 ITR 18 (DEL). (B) UNREPORTED DECISION OF HONBLE CALCUTTA HIGH CO URT IN THE CASE OF CIT VS ALCOVE INDUSTRIES LTD IN ITA NO. 724 OF 2004 DATED 17.8.20 15 32 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 (C ) DECISION OF HONBLE KARNATAKA HIGH COURT IN TH E CASE OF ASIA POWER PROJECTS (P) LTD VS DCIT REPORTED IN (2015) 370 ITR 257 (KAR) RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE A FORESAID JUDGEMENTS, WE ALLOW THE CLAIM OF ASSESSEE IN RESPECT OF ADVANCES WRITTEN OF F IN THE SUM OF RS. 2,01,50,000/- AS DEDUCTION IN THE YEAR UNDER APPEAL. ACCORDINGLY, THE GROUND NO. 11 RAISED BY THE ASSESSEE IS ALLOWED. 14. DISALLOWANCE ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT RS. 12,70,751/- THE ASSESSEE HAS RAISED THE FOLLOWING GROUND:- 12. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.12,70,751/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CLAIM FOR PROVISION FOR LEAVE ENCASHMENT MADE IN ASSESSMENT ON THE BASIS OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF EXIDE INDUSTRIES LTD. & ANR. VS. UNION OF INDIA REPORTED IN (2007) 292 ITR 470 (CAL) FOR THE REASON THAT THE HONBLE APEX COURT HAS ORDERED A STAY ON THE AFORESAID JUDGMENT. 14.1. AT THE OUTSET, WE FIND THAT THE CIT(A) CONFI RMED THE DISALLOWANCE OF RS.12,70,751/- AS MADE BY THE LD. AO ON ACCOUNT OF CLAIM FOR PROVISION FOR LEAVE ENCASHMENT. LD. COUNSEL FOR THE ASSESSEE STATED THA T THE DEDUCTION ON ACCOUNT OF PROVISION OF LEAVE ENCASHMENT WAS MADE ON THE BASIS OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF EXIDE INDU STRIES LTD. VS. UNION OF INDIA (2007) 292 ITR 470 (CAL) BUT HE FAIRLY CONCEDED THAT SUBSE QUENTLY HON'BLE SUPREME COURT HAS STAYED THIS JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT VIDE ORDER 08-05-2009 BY FOLLOWING OBSERVATIONS:- PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL AP PEALS, DEPARTMENT IS RESTRAINED FROM RECOVERING PENALTY AND INTEREST WHICH HAS ACCRUED T ILL DATE. IT IS MADE CLEAR THAT AS FAR AS THE OUTSTANDING INTEREST DEMAND AS OF DATE IS CONCE RNED, IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APP EAL OF THE DEPARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD, D URING THE PENDENCY OF THIS CIVIL APPEAL, PAY TAX AS IF SECTION 43B(F) IS ON THE STATUE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. IN VIEW OF THE ABOVE, LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT LET HON'BLE SUPREME COURT DECIDE THE ISSUE AND BY THAT TIME THE MATTER CAN BE REMITTED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION IN TERM OF THE DECISION OF H ON'BLE SUPREME COURT. ON THIS, LD. 33 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 CIT DR HAS NOT OBJECTED TO THE SAME. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO AWAIT THE DECISION OF HON'BLE SUPREME COU RT AND DECIDE THE ISSUE ACCORDINGLY. THIS ISSUE OF ASSESSEES APPEAL IS REM ITTED BACK TO THE FILE OF AO AND ACCORDINGLY THE GROUND NO. 12 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 15. DISALLOWANCE OF GENERAL EXPENSES ON ESTIMATED BASIS AS PER THE LD. AO, THE TOTAL EXPENDITURE OF RS.1,8 8,75,300/- UNDER THIS HEAD INCLUDES SOME EXPENSES IN THE NATURE OF PENALTY, TD S ETC. THUS, IN THE ASSESSMENT ORDER THE LD. AO HAS DISALLOWED AN ESTIMATED AMOUNT OF 10 % OF THE TOTAL EXPENDITURE. THE ASSESSEE SUBMITTED THAT THE DETAILS OF EXPENSES UND ER THIS HEAD WAS SUBMITTED TO THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN T HE DESIRED FORMAT. HOWEVER, THE LD. AO HAS NOT INFLICTED DISALLOWANCE IN RESPECT OF ANY SPECIFIC ITEM BUT DISALLOWED AN ESTIMATED AMOUNT OF 10% ON AN AD HOC BASIS. THE ASS ESSEE FURTHER SUBMITTED, THAT CERTAIN PENALTIES ARE COMPENSATORY IN NATURE AND TH US NOT DISALLOWABLE. WITH REFERENCE TO DISALLOWANCE IN RESPECT TO TDS THE ASSESSEE SUBM ITTED THAT WRITTEN OFF TDS SHOULD NOT BE DISALLOWED SINCE IT REPRESENTS UNCOLLECTED I NCOME IN THE HANDS OF THE ASSESSEE. THE ASSESSEE CONTENDED THAT SINCE THE INCOME FROM W HICH TAX WAS DEDUCTED AT SOURCE HAD BEEN OFFERED FOR TAXATION IN EARLIER YEARS, TDS WRITTEN OFF SHOULD BE TREATED AS BUSINESS LOSS FOR THE YEAR. THE ASSESSEE ALSO PLACE D RELIANCE ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SHREYANS INDUSTRIES LTD. (2006) 157 TAXMAN 417. 15.1. THE LEARNED CITA OBSERVED THAT THE LD. AO HA D MADE THE IMPUGNED DISALLOWANCE ON AD HOC BASIS WHICH IS NOT BASED ON ANY SPECIFIC OBSERVATION ON THE DETAILS PROVIDED BY THE ASSESSEE. EVEN IN THE REMA ND REPORT, THE LEARNED AO COULD NOT JUSTIFY HIS ADDITION. THE LEARNED CITA HELD THAT T HE LEARNED AO HAD SUMMARILY MENTIONED THAT THE GENERAL CHARGES INCLUDE PAYMENTS FOR PENALTY AND TDS WRITE OFF. HE ALSO AGREED WITH THE CONTENTION OF THE ASSESSEE THA T THE TDS WRITTEN OFF SHOULD BE ALLOWED AS DEDUCTION IN VIEW OF THE DECISION OF HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS SHREYANS INDUSTRIES LTD REPOR TED IN (2006) 157 TAXMAN 417 34 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 (P&H). ACCORDINGLY, HE DELETED THE DISALLOWANCE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 4. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW BY OVERLOOKING THE FACT THAT GENERAL EXPENSES CONTAINE D CERTAIN EXPENDITURE IN THE NATURE OF PENALTY, TAX DEDUCTED AT SOURCE WRITE OFFS. 15.2. THE LEARNED DR ARGUED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF THE LEARNED AO FOR VERIFICATION OF THE DETAILS SUBMITTED BY THE ASSESSEE. IN RESPONSE TO THIS, THE LEARNED AR VEHEMENTLY SUPPORTED THE ORDER OF THE LE ARNED CITA AND STATED THAT THE LEARNED CITA HAD PASSED THE ORDER AFTER OBTAINING T HE REMAND REPORT FROM THE LEARNED AO. 15.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIN D THAT THE ADDITION HAS BEEN MADE BY THE LEARNED AO MERELY ON SURMISE AND CONJECTURE. T HE LEARNED CITA HAD RIGHTLY DELETED THE ADDITION AFTER GOING THROUGH THE COMMEN TS MADE BY THE LEARNED AO IN THE REMAND REPORT IN RESPECT OF THIS ADDITION. HENCE W E FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CITA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE REVENUE IS DISMISSED. 16. DISALLOWANCE ON ACCOUNT OF PROVISION FOR BONUS RS. 7,12,000/- THE LD. AO, IN THE ASSESSMENT ORDER HAS STATED, TH AT THE ASSESSEE, DURING THE ASSESSMENT PROCEEDINGS SUBMITTED CERTAIN DOCUMENTS ALONG WITH ITS SUBMISSION DATED 5TH NOVEMBER, 2008 .IT WAS OBSERVED FROM THE DOCUME NTS THAT THE ASSESSEE HAD CLAIMED RS 7,12,000/- AS PROVISIONS FOR BONUS IN RESPECT OF OBEROI AIRPORT SERVICES, MUMBAI. SINCE, PROVISION IS NOT ALLOWABLE AS DEDUCTION, THE LD. AO, IN THE ASSESSMENT ORDER DISALLOWED RS 7,12,000/-. ON THE OTHER HAND, THE ASSESSEE CONTENDED THAT PROV ISION FOR BONUS WAS BEING CLAIMED AND ALLOWED ON PAYMENT BASIS AS PER THE PRO VISIONS OF CLAUSE (C) OF SECTION 43B OF THE ACT IN THE COMPUTATION OF INCOME FOR THE ASS ESSMENT YEAR UNDER APPEAL , THE ASSESSEE OFFERED AN AMOUNT OF RS 29,65,542/- AS PRO VISION FOR BONUS AS PER SECTION 43B WHICH IS AS PER THE TAX AUDIT REPORT OF THE ASSESSE E COMPANY FOR THE RELEVANT ASSESSMENT YEAR. IT WAS CONTENDED BY THE ASSESSEE THAT THE AMOUNT OF RS.29,65,542/- 35 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 INCLUDES THE PROVISIONS FOR BONUS OF ALL THE UNITS OF THE ASSESSEE COMPANY WHICH INTER ALIA INCLUDES THE PROVISION IN RESPECT OF 'OBEROI A IRPORT SERVICES, MUMBAI'. THUS, AS PER THE ASSESSEE, THE SUM OF RS.29,65,542/- ALREADY INCLUDES THE AMOUNT OF RS.7,12,000/- . IN VIEW OF THE ABOVE THE ASSESSEE ARGUED THAT A F URTHER DISALLOWANCE OF RS 7,12,000/- WOULD RESULT INTO DOUBLE DISALLOWANCE AND SHOULD BE DELETED. 16.1. THE LEARNED CITA OBSERVED THAT THE TAX AUDIT OR OF THE ASSESSEE HAD DULY CERTIFIED THAT A BONUS AMOUNT OF RS. 29,65,542/- RE MAIN UNPAID AND ACCORDINGLY THE SAME WAS DISALLOWED VOLUNTARILY BY THE ASSESSEE IN THE RETURN OF INCOME. HE OBSERVED THAT THE SUM OF RS. 7,12,000/- IS INCLUDED IN THE D ISALLOWANCE MADE IN THE SUM OF RS. 29,65,542/- AND ACCORDINGLY DELETED THE DOUBLE DIS ALLOWANCE. AGGRIEVED , THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 6. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW BY ALLOWING PROVISION FOR BONUS U/S. 43B OF THE ACT EV EN WHEN SUCH PROVISION IS NOT AN ALLOWABLE EXPENDITURE. 16.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIN D THAT NO CONTRARY EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE REVENUE IN RESPECT OF THE CATEGORICAL FINDING GIVEN BY THE LEARNED CITA IN HIS APPELLATE ORDER. HENCE WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CITA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 6 RAISED BY THE REVENUE IS DISMISSED. 17. ADDITION TOWARDS UNCLAIMED SALARIES AND WAGES U/S 41(1) OF THE ACT RS. 3,42,747/- THE LD. AO HAS STATED THAT FROM THE DETAILS SUBMIT TED DURING THE ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT OBEROI FLIGHT SER VICES MUMBAI, AN UNIT OF THE ASSESSEE COMPANY HAD AN OUTSTANDING LIABILITY OF RS .1,20,851/- ON ACCOUNT OF 'UNCLAIMED SALARIES & WAGES'. THE ABOVE LIABILITY R ELATES TO 66 EMPLOYEES WHO HAD LEFT THE COMPANY. AS PER THE LD. AO, SINCE THE EMPLOYEES HAD LEFT THE COMPANY, THE LIABILITY IN THE HANDS OF THE ASSESSEE COMPANY HAD CEASED TO EXIST. HENCE, THE LD. AO APPLIED THE PROVISIONS OF SECTION 41(1) OF THE ACT AND ADDE D RS.1,20,851/ - WHILE COMPUTING THE ASSESSED INCOME OF THE ASSESSEE. 36 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 SIMILARLY, IN RESPECT OF OBEROI AIRPORT SERVICES, M UMBAI, ANOTHER UNIT OF THE ASSESSEE COMPANY, THE LD. AO OBSERVED AN AMOUNT OF RS 2,21,896/ - WAS DISCLOSED AS UNCLAIMED SALARIES AND WAGES. SINCE, IN THIS CASE A LSO, THE UNCLAIMED SALARY AND WAGES WERE RELATED TO THE EMPLOYEES WHO HAD LEFT THE ORGA NISATION, THE LD. AO APPLIED THE PROVISIONS OF SECTION 41(1) OF THE ACT AND ADDED TH E SUM WHILE COMPUTING THE ASSESSED INCOME OF THE ASSESSEE COMPANY. THE ASSESSEE SUBMITTED THAT THE ADDITION MADE BY LD . AO U/S. 41(1) ON ACCOUNT OF UNCLAIMED SALARIES AND WAGES WAS NOT BASED ON CO RRECT APPRECIATION OF FACTS OR LAW AND THUS LIABLE TO BE DELETED. AS PER THE ASSESSEE, SECTION 41(1) OF THE ACT IS APPLICABLE IN A SITUATION WHERE DEDUCTION OF ANY EXPENDITURE I S CLAIMED AND ALLOWED IN ANY PAST YEAR AND SUBSEQUENTLY THE ASSESSEE GETS ANY BENEFIT OR AMOUNT IN RESPECT OF SUCH EXPENDITURE. IN SUCH CASES, THE BENEFIT IS OFFERED TO TAX IN THE SUBSEQUENT YEAR. AS PER EXPLANATION 1 OF SECTION 4](1) REMISSION OR CESSATI ON OF ANY TRADING LIABILITY BY AN UNILATERAL ACT WOULD BE CHARGEABLE TO TAX ONLY IF S UCH LIABILITY IS WRITTEN BACK IN ACCOUNTS. IN VIEW OF THE ABOVE, THE ASSESSEE SUBMIT TED THAT IN CASES OF OBEROI FLIGHT SERVICES AND OBEROI AIRPORT SERVICES NO AMOUNT ON A CCOUNT OF UNCLAIMED SALARY AND WAGES WAS WRITTEN BACK IN THE ACCOUNTS AND THERE WA S NO CESSATION OF LIABILITY. THE ASSESSEE FURTHER SUBMITTED THAT EMPLOYEES WHO HAD L EFT THE ORGANISATION DID NOT FILE ANY DECLARATION THAT THEY HAD WAIVED THEIR DUES FROM TH E COMPANY. THUS, AS PER THE ASSESSEE THE LIABILITIES AS SHOWN IN THE BOOKS EXISTS AND HA S NOT CEASED. IN VIEW OF THE ASSESSEE, THE LEFT EMPLOYEES MAY CLAIM THEIR SALARIES AND WAG ES IN THE SUBSEQUENT YEARS. THUS, THE LIABILITY TO PAY THE ADMITTED DUES STILL EXISTS ON PART OF THE COMPANY AND MERELY IN ABSENCE OF A VALID CLAIM IT CANNOT BE CONCLUDED THA T THE LIABILITY HAS CEASED TO EXIST. 17.1. THE LEARNED CITA HELD THAT SECTION 41(1) OF THE ACT IN ORDER TO BE OPERATIVE, THERE SHOULD BE A WRITE BACK IN THE BOOKS OF ACCOUN TS OF THE ASSESSEE AND THERE SHOULD BE CESSATION OF LIABIITIES. HE AGREED WITH THE VARIOU S JUDICIAL DECISIONS RELIED UPON BY THE ASSESSEE AND DELETED THE ADDITION MADE U/S 41(1) OF THE ACT. AGGRIEVED , THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 7. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW BY HOLDING THAT SECTION 41(1) OF THE ACT IS NOT APPLIC ABLE IN THE ASSESSEES CASE REGARDING 37 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 UNCLAIMED SALARIES AND WAGES IN RESPECT OF OBEROI F LIGHT SERVICES MUMBAI AND OBEROI AIRPORT SERVICES. 17.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIN D THAT NO SPECIFIC ARGUMENTS WERE ADVANCED BY THE LEARNED DR IN RESPECT OF THIS ADDIT ION. WE AGREE WITH THE CONTENTIONS OF THE ASSESSEE THAT THE EMPLOYEES WHO HAD LEFT THE ORGANIZATION HAD NOT FILED ANY DECLARATION THAT THEY HAD WAIVED THEIR DUES FROM TH E ASSESSEE AND THE LIABILITIES TOWARDS UNCLAIMED SALARIES AND WAGES CONTINUE TO BE REFLECT ED IN THE BOOKS OF THE ASSESSEE. NO BENEFIT WAS DERIVED BY THE ASSESSEE IN THIS REGARD. WE HOLD THAT THE LIABILITY TO PAY THE AGREED DUES EXISTS ON THE PART OF THE ASSESSEE AND MERELY IN THE ABSENCE OF A VALID CLAIM FROM THE RESIGNED EMPLOYEES, IT CANNOT BE CONCLUDED THAT THE LIABILITY HAD CEASED TO EXIST. HENCE THE PROVISIONS OF SECTION 41(1) OF TH E ACT CANNOT BE INVOKED IN THE FACTS OF THE INSTANT CASE. ACCORDINGLY, THE GROUND NO. 7 RAISED BY THE REVENUE IS DISMISSED. 18. DISALLOWANCE OF DEPRECIATION ON CERTAIN ITEMS OF PLANT AND MACHINERY RS. 20,77,934/- THE LD. AO, IN THE ASSESSMENT ORDER FOR THE ASSESS MENT YEAR UNDER APPEAL HAS PROVIDED A LIST OF CERTAIN ITEMS OF ADDITIONS TO PL ANT & MACHINERY DURING THE YEAR. AS PER THE LD. AO, IN RESPECT OF THE ITEMS MENTIONED IN TH E LIST THE STORE KEEPER OF THE APPELLANT HAD SIGNED AND CERTIFIED THAT THE RESPECTIVE ITEMS WERE RECEIVED ON 30THE SEPTEMBER, 2005 OR 31ST MARCH, 2006. THE LD. AO HAS STATED IN THE ASSESSMENT ORDER THAT THE MACHINERIES IN QUESTION WERE IMPORTED AND THUS REQU IRES SOME SPECIAL EXPERTISE FOR INSTALLATION. HENCE, AS PER THE LD. AO, IF CERTAIN IMPORTED MACHINERIES ARE RECEIVED ON 30TH SEPTEMBER, 2005 OR 31ST MARCH, 2006 IT IS NOT POSSIBLE THAT ON THE VERY SAME DAY THE MACHINERIES ARE TAKEN OUT OF THE STORE, INSTALL ED AND PUT TO USE. HOWEVER, THE ASSESSEE HAD SHOWN THE DATE OF RECEIPT OF THE MACHI NERIES AS THE DATE OF AS ADDITION AND ACCORDINGLY CLAIMED DEPRECIATION. THE LD. AO CONTEN DED THAT THE DEPRECIATION HAD BEEN CLAIMED BY THE ASSESSEE ON CERTAIN MACHINERIES ON T HE BASIS OF THE DATE OF RECEIPT AND NOT ON THE BASIS OF THE DATE ON WHICH THE ITEMS WERE PU T TO USE. IN VIEW OF THE ABOVE, THE LD. AO DISALLOWED THE CL AIM OF DEPRECIATION ON THE SELECTED ITEMS OF ADDITIONS TO PLANT AND MACHINERY ON THE FOLLOWING GROUNDS: 38 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 - ON EXAMINATION OF EACH INVOICES, THE AO OBSERVED TH AT THE INVOICES WERE STAMPED SHOWING THE RECEIPT OF THE GOODS IN THE STO RE ALONG WITH THE SIGN OF THE STORE KEEPER. IN SPITE OF THIS, THE ASSESSEE STATE D THAT NO REGISTER IS MAINTAINED. THUS, IN VIEW OF THE AO THE REPLY OF THE APPELLANT IS NOT TENABLE. - IN THE METRO CITIES THERE IS A RESTRICTION OF PLYIN G OF THE GOODS VEHICLE DURING 7.00 AM TO 10 PM. THUS, IN VIEW OF THE LD. AO THE ASSESS EE MUST HAVE RECEIVED THE GOODS AFTER 10PM ON 30THE SEPTEMBER, 2005 OR 31ST M ARCH, 2006, AS THE CASE MAY BE. THUS, IT IS NOT POSSIBLE TO PUT SUCH ITEMS INTO USE ON 30TH SEPTEMBER, 2005 OR 31ST MARCH, 2006 ITSELF. THE LD. AO COULD N OT CHECK THE ACTUAL TIME OF DELIVERY IN ABSENCE OF THE CHALLANS. - SINCE, THE SPECIFIC ITEMS OF FIXED ASSETS IN QUESTI ON ARE IMPORTED, AS PER THE LD. AO, THE WORK OF INSTALLATION OF THE ITEMS WOULD REQ UIRE SOME SPECIAL EXPERTISE. THUS, THE CONTENTION OF THE ASSESSEE THAT THE ITEMS WERE READY TO USE IS NOT TENABLE SINCE, EVEN THE WORK OF UNPACKING THE GOODS , PREPARING THE PLATFORM FOR INSTALLATION ETC WOULD REQUIRE SOME TIME. IN VIEW OF THE ABOVE, THE LD. AO CONCLUDED THAT THE SELECTED ITEMS OF ADDITIONS MADE ON 30TH SEPTEMBER, 2005 SHOULD BE ALLOWED DEPRECIATION FOR THE USE OF LESS THAN 180 DAYS DURING THE YEAR. ON THE OTHER HAND, ADDITIONS OF TH E SELECTED ITEMS ON 31ST MARCH, 2006 SHOULD NOT BE ELIGIBLE FOR DEPRECIATION. THE LD. AO FURTHER OBSERVED THAT THE ASSESSEE CLAIMED 60% DEPRECIATION ON APC SL 80KH (UPS) AND S OFTWARE OF 9 SERIES MAILING SYSTEM MACHINES. HE REJECTED THE CLAIM OF 60% DEPRE CIATION ON THESE ITEMS AND ALLOWED 15% DEPRECIATION. THE ASSESSEE, FILED A DETAILED SUBMISSION ON 2ND MA RCH, 2010 CONTENDING THE DISALLOWANCE OF DEPRECIATION. IN SUMMARY, THE ASSES SEE SUBMITTED THE FOLLOWING: - DURING THE ASSESSMENT PROCEEDINGS, THE STORE REGIST ER AND COPIES OF THE DELIVERY CHALLANS COULD NOT BE PRODUCED SINCE THE CONCERNED PERSON WAS ON LEAVE. - AS MENTIONED BY AO, ALL THE SELECTED ITEMS WERE NOT IMPORTED - INSTALLATION OF THE MACHINERIES DID NOT REQUIRE ANY EXPERT KNOWLEDGE. MOREOVER, EVEN IF ANY TECHNICAL KNOWLEDGE WAS REQUIRED, THE A SSESSEE HAD COMPETENT PERSONNEL TO HANDLE THE SAME. SINCE THE IMPORTED M ACHINERIES WERE COSTLY, THE ASSESSEE ENSURED THE IMMEDIATE INSTALLATION BY KEEP ING AVAILABLE TECHNICAL PERSONNEL. - MACHINERIES WERE READY TO USE AND THUS PUT TO USE O N THE DAY OF ITS RECEIPT. 39 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 - THE ADDITIONS TO THE FIXED ASSETS WERE DULY VERIFI ED AND CERTIFIED BY THE TAX AUDITOR. THE AO HAD RELIED ON ALL OTHER MATTERS EXC EPT THE DATES OF ADDITIONS OF FIXED ASSETS IN CERTAIN CASES. - THE ASSESSEE SUBMITTED THE CERTIFICATE FROM A COMPE TENT TECHNICAL PERSON REGARDING THE PURPOSE OF THE MACHINERIES IN QUESTIO N AND THEIR RESPECTIVE DATES OF INSTALLATIONS. - IT IS POSSIBLE THAT THE GOODS HAVE BEEN RECEIVED BE FORE 7 AM OF THE RESPECTIVE DATES AND NOT AFTER 10 PM OF SUCH DATES AS CONTENDE D BY AO. MOREOVER, THE ASSESSEE MENTIONED THAT THE ENTRY RESTRICTION IN TH E METRO CITIES BETWEEN 7 AM AND 10PM DOES NOT APPLY FOR ALL GOODS VEHICLE. THE REST RICTION IS APPLICABLE ONLY FOR FULL SIZE TRUCKS/LORRIES. IN ADDITION TO THE ABOVE SUBMISSION, THE ASSESSEE F URNISHED SPECIFIC SUBMISSION IN RESPECT OF CERTAIN ITEMS AS UNDER: - IN RESPECT OF ITEM NO 1 OF THE LIST AS PROVIDED BY THE AO IN THE ASSESSMENT ORDER, THE ASSESSEE SUBMITTED THAT THE ITEM WAS PURCHASED FROM DELHI AND WAS NOT AN IMPORTED ITEM. THE SPECIFIC ITEM IS AN UPS SYSTEM W HICH COULD BE VERY EASILY INSTALLED BY THE TECHNICAL PERSONNEL OF THE ASSESSE E COMPANY AND THE LOCAL SUPPLIER. - IN RESPECT OF ITEM NO 2 OF THE LIST AS PROVIDED BY THE AO IN THE ASSESSMENT ORDER, THE ASSESSEE SUBMITTED THAT THE AO HAD HIMSELF RECO RDED THE DATE OF RECEIPT AS 27.3.2006. AS PER THE ASSESSEE, THERE IS NO VALID R EASON TO PRESUME WHY ANY ASSET ACQUIRED ON 27.3.2006 COULD NOT BE INSTALLED AND PU T TO USE BY 31.3.2006. - IN RESPECT OF THE MACHINERIES RECEIVED ON 30TH SEPT EMBER, 2005, THE ASSESSEE SUBMITTED THAT EVEN IF THE MACHINERIES WERE NOT PUT TO USE ON THE DATE OF ITS RECEIPT, IT SHOULD BE ALLOWED FULL DEPRECIATION SIN CE ONLY THE ASSETS PUT TO USE AFTER 2.10.2005 WOULD QUALIFY FOR 50% OF NORMAL DEP RECIATION, BEING USED FOR LESS THAN 180 DAYS . 18.1. THE LEARNED CITA OBSERVED THAT THE DISALLOWA NCE MADE BY THE LEARNED AO WAS NOT BASED ON ANY SPECIFIC OBSERVATION AND HAD MEREL Y ACTED MERELY ON THE BASIS OF A PRE- CONCEIVED NOTION THAT A MACHINERY CANNOT BE INSTAL LED ON THE VERY SAME DAY OF ITS RECEIPT. HE FURTHER OBSERVED THAT A CERTIFICATE FRO M THE PRODUCTION MANAGER OF THE ASSESSEE WAS PRODUCED BEFORE THE LEARNED AO CONFIRM ING THE FACT THAT THE MACHINERY UNDER CONSIDERATION WAS PUT TO USE ON A PARTICULAR DATE AND IN THE INSTANT CASE , GOING BY 40 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 THE SIZE OF THE ASSESSEE COMPANY, WHERE THERE ARE DESIGNATED PERSONS TO DEAL WITH INDIVIDUAL DEPARTMENTS , A CERTIFICATE FROM THE PER SON HEADING THE PARTICULAR DIVISION CANNOT BE LIGHTLY AND SUMMARILY IGNORED. HOWEVER, IN RESPECT OF DEPRECIATION ON A SPECIFIC MACHINERY APC SL 80KH, THE LEARNED AO REDU CED THE DEPRECIATION RATE TO 15% WHICH WAS CONFIRMED BY THE LEARNED AO. IN RESP ECT OF SOFTWARE OF 9 SERIES MAILING SYSTEMS MACHINE, THE LEARNED CITA HELD THAT THIS IS A SOFTWARE AND HENCE ASSESSEE IS ELIGIBLE FOR DEPRECIATION AT THE RATE O F 60%. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND :- 8. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW BY ALLOWING THE ASSESSEES CLAIM OF DEPRECIATION ON PL ANT & MACHINERY ITEMS ON THE BSIS OF THE DATE ON WHICH IT WAS RECEIVED IN STORES AND NOT ON THE BASIS OF THE DATE OF ITS PUT TO USE AND ALSO IGNORING THE FACT THAT SUCH ASSETS WER E EITHER USED FOR LESS THAN 180 DAYS OR NOT PUT TO USE IN FINANCIAL YEAR UNDER CONSIDERATIO N. 18.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE LEARNED CITA HAD GIVEN CATEGORICAL FINDING IN RESPECT OF THIS ADDITION MAD E BY THE LEARNED AO. NONE OF THESE FINDINGS WERE CONTROVERTED BY THE REVENUE BEFORE US . HENCE WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CITA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 8 RAISED BY THE REVENUE IS DISMISSED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO. 314/KOL/2011 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES ; APPEAL OF THE RE VENUE IN ITA NO. 348/KOL/2011 IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IN CO NO. 23/KOL/2011 IS ALLOWED. 20. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 0 1.06.2016 SD/- SD/- (N. V. VASUDEVAN) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 1ST JUNE, 2016 JD.(SR.P.S.) 41 ITA NOS.348-314/K/2011 & CO NO.23/K/2011 EIH LIMITED AY 2006-07 COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT EIH LIMITED, 4, MANGOE LANE, KOLKATA-70 0 001. 2 RESPONDENT DCIT, CIRCLE-8, KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .