M/s. RHC Holding Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 4269/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3511 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 03-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice; Rule 8D
• Section: 14A; 37(1); 92CA; 37

Judgement Text

1 ITA NO. 4269/DEL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBE R AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 4269/DEL/2016 ( A .Y 2011-12) RHC HOLDING PVT. LTD. G-16,MARINA ARCADE, CONNAUGHT CIRCUS, NEW DELHI 110 001 AAKCS688P (APPELLANT) VS ACIT CIRCLE-20(2) NEW DELHI (RESPONDENT) APPELLANT BY SH. TARANDEEP SINGH, CA RESPONDENT BY SH. GAYASUDDIN ANSARI, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 18.05.2016 PASSED BY THE CIT(A) -7 NEW DELHI, FOR ASSESSMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON FACTS AND IN LAW, THE LD.CIT(APPEALS)-7 [CIT(A)] ERRED IN UPHOLDING THE DISALLOWANCE OF EXPENDITURE OF RS.78,52,446 MAD E BY THE AO (OUT OF SUBSCRIPTION & MEMBERSHIP FEE) U/S 37(1) OF THE A CT, BEING ANNUAL PARTICIPATION FEE PAID TO THE WORLD ECONOMIC FORUM - SWITZERLAND FOR THE DIRECTOR OF THE APPELLANT DURING THE YEAR, BY HOLDI NG THAT THE SAID EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS OF THE APPELLANT. 2. THAT ON FACTS AND IN LAW, THE CIT(A) ERRED IN UP HOLDING THE ACTION OF THE AO DATE OF HEARING 29.01.2020 DATE OF PRONOUNCEMENT 05.03.2020 2 ITA NO. 4269/DEL/2016 BY NOT APPRECIATING THE SUBMISSIONS OF THE APPELLAN T THAT THE APPELLANT HAD ALREADY SUO MOTO ADDED BACK THE ENTIRE EXPENDITURE (INCLUDING THE AF ORESAID EXPENDITURE OF RS.78,52,446 INCURRED TOWARDS PARTIC IPATION FEE PAID TO THE WORLD ECONOMIC FORUM) INCURABLY IT IN TERMS OF RULE 8D(2)(III), THE DETAILS OF WHICH WERE DULY PROVIDED DURING THE COURSE OF ASSES SMENT PROCEEDINGS AS WELL AS IN THE APPELLATE PROCEEDINGS BEFORE THE CIT (A) AND HENCE, NO FURTHER DISALLOWANCE WAS SUSTAINABLE U/S 37(1) OF THE ACT O N THIS ACCOUNT. 3. THE ASSESSEE COMPANY IS A REGISTERED NON BANKING FINANCIAL COMPANY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE C OMPANY WAS PRIMARILY ENGAGED IN GRANTING LOANS AND ADVANCES. BESIDES TH IS, THE ASSESSEE COMPANY IS ALSO ENGAGED IN BUSINESS OF INVESTMENT IN SHARES AND MUTUAL FUNDS. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 29/1 1/2011 DECLARING AN INCOME OF RS. 134,21,41,396/-. REFERENCE TO THE TR ANSFER PRICING OFFICER WAS MADE U/S 92CA (3) OF THE ACT DATED 11/11/2013. THE TRANSFER PRICING OFFICER PASSED THE ORDER ON 14/11/2014 SAYING THAT THE TRAN SFER PRICING DOCUMENTATION WHICH CONTAINS THE FUNCTIONAL AND ECO NOMIC ANALYSIS OF COMPARABLES AND OF ASSESSEE HAS BEEN EXAMINED AND P LACED ON RECORD. IN VIEW OF THE FUNCTIONAL AND ECONOMIC ANALYSIS OF ASSESSEE AND OF COMPARABLES, NO ADVERSE INFERENCE WAS DRAWN IN RESPECT OF THE INTER NATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE F.Y. 2010-11. THE ASSESSEE FILED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT IN WHICH ASSESSEE CLAIMED VARIOUS EXPENSES. DURING THE YEAR, THE ASSESSEE CLAIMED EXP ENSES OF SUBSCRIPTION AND MEMBERSHIP FEE AMOUNTING TO RS. 1,09,03,464/- UNDER THE HEAD ADMINISTRATIVE AND OTHER EXPENSES. THE ASSESSING OF FICER OBSERVED THAT SINCE THE ASSESSEE SUO MOTO ADDED BACK A SUM OF RS. 21,01 ,500/- BEING AMOUNT PAID TO THE FEDERAL TRADE COMMISSION IN ITS COMPUTA TION AS DIRECT EXPENDITURE U/S 14A, THE EXPENDITURE OF RS. 78,52,446/- BEING P ARTICIPATION FEE TO THE WORLD ECONOMIC FORUM FOR MR. MALVINDER MOHAN SINGH WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. AS REGARDS THE CLAIM FOR ENTRANCE FEES TO WELLINGTON SPORTS CLUB, MUMBAI AND LIFE MEMBERSHIP FEES FOR COUNTRY CLUB, THE ASSESSING OFFICER MADE ADDITION OF RS. 9,02,493 /-. 3 ITA NO. 4269/DEL/2016 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE COMPANY I NCURRED THE SAID EXPENDITURE ON ACCOUNT OF PARTICIPATION FEE PAID TO WORLD ECONOMIC FORUM WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSIN ESS AS THE DIRECTORS OF THE ASSESSEE COMPANY ARE RESPONSIBLE FOR STRATEGIZING, ORGANIZING AND RUNNING THE BUSINESS AS PER LATEST BUSINESS STRATEGIES AND NEW BUSINESS MODELS IN THIS RAPIDLY CHANGING ENVIRONMENT. THEREFORE, IT IS OF U TMOST IMPORTANCE THAT DIRECTORS ARE UPDATED / AWARE OF SUCH BUSINESS STRA TEGIES AND MODELS, WHICH CAN BE USED / APPLIED FOR EFFICIENTLY RUNNING THE A FFAIRS OF THE ASSESSEE COMPANY. THE LD. AR SUBMITTED THAT THE ASSESSING OF FICER HAS NOT DISPUTED ABOUT THE EXPENDITURE INCURRED DURING THE YEAR BY T HE ASSESSEE COMPANY. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE EXPEN DITURE BY HOLDING THAT THE SAME DOES NOT RELATE TO THE BUSINESS OF THE ASSESSE E COMPANY. AS REGARDS TO ALLOWABILITY OF EXPENDITURE UNDER SECTION 37 OF THE ACT, THE EXPENDITURE SHOULD NOT BE SPECIFICALLY COVERED UNDER SECTION 30 TO 36 OF THE ACT AND SHOULD NOT BE OF CAPITAL OR PERSONAL NATURE. FURTHER, THE EXPENDI TURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND PROFESSION OF THE ASSESSEE COMPANY. THE LD. AR SUBMITTED THAT THE ANNUAL PARTICIPATION FEE PAID TO WORLD ECONOMIC FORUM IN QUESTION IS NOT SPE CIFICALLY COVERED UNDER SECTION 30 TO 36 OF THE ACT. THE LD. AR FURTHER SUB MITTED THAT THE EXPENDITURE IS NOT FOR THE BENEFIT OF ANY PERSON AND THEREFORE IS NOT OF PERSONAL NATURE AS PERSONAL EXPENDITURE MEANS EXPENSES SATISFYING PERS ONAL NEED. IN FACT, THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE COMPANY. THUS, THE LD. AR SUBMITTED THAT THE ASSESS ING OFFICER AS WELL AS CIT(A) WAS NOT CORRECT IN MAKING THIS ADDITION. 6. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE CIT(A). THE LD. DR FURTHER SUBMITTED THAT THE PAYMENT MADE TO THE WORLD ECONOMIC FORUM AND THE FEDERAL TRADE COMMISSION ARE NOT WHOL LY AND EXCLUSIVELY FOR 4 ITA NO. 4269/DEL/2016 THE PURPOSE OF BUSINESS OF THE ASSESSEE AS THE ASSE SSEE IS A NON-BANKING FINANCE COMPANY AND HENCE THE EXPENSES DO NOT RELAT E TO ITS BUSINESS. THE LD. DR SUBMITTED THAT SINCE THE ASSESSEE SUO MOTO A DDED BACK A SUM OF RS. 21,01,500/- BEING AMOUNT PAID TO THE FEDERAL TRADE COMMISSION IN ITS COMPUTATION AS DIRECT EXPENDITURE UNDER SECTION 14A , THE EXPENDITURE OF RS.78,52,446/- BEING PARTICIPATING FEE TO THE WORLD ECONOMIC FORUM FOR MR. MALVINDER SINGH IS RIGHTLY ADDED BY THE ASSESSING O FFICER AND PROPERLY CONFIRMED BY THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT IN THE ASSESSM ENT ORDER, THE ASSESSING OFFICER HAS NOT TAKEN INTO ACCOUNT THAT THE ASSESSE E HAS SHOWN THE SUBSCRIPTION AND MEMBERSHIP FEES IN SCHEDULE 18 ATT ACHED TO THE PROFIT AND LOSS ACCOUNT. BESIDES THAT THERE IS NO SEPARATE FI NDING GIVEN BY THE ASSESSING OFFICER AS WELL AS BY THE CIT(A) AS TO ON WHAT BASI S THIS EXPENDITURE HAS NOT BEEN INCURRED FOR BUSINESS PURPOSE. THEREFORE, IT W ILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICE R FOR FRESH ADJUDICATION. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. 8. IN RESULT, THE APPEAL IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 05TH MAR CH, 2020. SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 05/03/2020 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 5 ITA NO. 4269/DEL/2016 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 30.01.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 30.01.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 0 5 . 0 3 .2020 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 0 5 . 0 3 .2020 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 0 5 . 0 3 .2020 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER