STOCK TRADERS P.LTD, MUMBAI V. ACIT (OSD) 2(3), MUMBAI

ITA 4403/MUM/2011

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1919 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 28-02-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 31-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HIMANSHU SHARMA
• Keywords: Business expenditure; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NOS. 21 0 8/MUM/2006, 4403 & 687/MUM/2011 : A.Y S : 20 02 - 03, 2005 - 06 & 2006 - 07 STOCK TRADERS PRIVATE LIMITED 63, BOMBAY SAMACHAR MARG, FORT, MUMBAI 400 001. PAN : A AACS7235A (APPELLANT) VS. IT O, WARD - 2( 3) (4) , MUMBAI. (RESPONDENT) ITA NO. 2183/MUM/2006 : A.Y : 2002 - 03 ACIT - 2(3), MUMBAI. (APPELLANT) VS. STOCK TRADERS PRIVATE LIMITED 63, BOMBAY SAMACHAR MARG, FORT, MUMBAI 400 001. PAN : AAACS7235A (RESPONDENT) ASSESSEE BY : SHRI NITESH JOSHI/ SHRI PARTH TAMBDAY REVENUE BY : SHRI HIMANSHU SHARMA DATE OF HEARING : 23 /0 8 /2018 DATE OF PRONOUNCEMENT : 19 /1 1 /2018 O R D E R PER SHAMIM YAHYA , AM : THESE ARE THREE APPEALS BY THE ASSESSEE AND ONE CROSS APPEAL BY THE REVENUE DIRECTED AGAINST RESPECTIVE ORDER OF LEARNED CIT(A) FOR CONCERNED ASSESSMENT YEAR AS ABOVE. 2 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 2. THE GROUNDS OF APPEAL READ AS UNDER : - ASSESSEES APPEAL (A. Y 2002 - 03) : 1. THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW THE ENTIRE EXPENSE OF RS 18,802,850 BEING THE PROFESSIONAL FEES PAID TO PREROY AG ('PAG') AS CLAIMED BY THE APPELLANT. 2. THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW THE ENTIRE EXPENDITURE INCURRED ON THE PAYMENT OF BUSINESS CENTRE FEES TO PREMCHAND ROYCHAND & SONS AMOUNTING TO RS 10,841,240. 3. THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW THE DISALLOWANCE OF T ELEPHONE EXPENSES AMOUNTING TO RS 371,201 INCURRED AT THE DIRECTOR'S RESIDENCE, AS ESTIMATED BY THE ASSESSING OFFICER. 4. THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW THE ENTIRE FOREIGN AIR TRAVEL EXPENSES AMOUNTING TO RS 2,115, 097 IN RESPECT OF FOREIGN TRAVEL OF THE WIVES OF TWO DIRECTORS, INCURRED BY THE APPELLANT. 5. THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW THE ENTIRE LOCAL TRAVEL EXPENSES AMOUNTING TO RS 88,365 IN RESPECT OF LOCAL TRAVEL OF THE WIFE OF THE DIRECTOR, INCURRED BY THE APPELLANT. 6. THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW THE AMOUNT OF RS 6,649,703, DISALLOWED BY THE ASSESSING OFFICER ON AN ESTIMATED BASIS TOWARDS EXPENDITURE INCURRED BY THE APPELLAN T FOR EARNING DIVIDEND INCOME, WHICH HAD BEEN CLAIMED AS EXEMPT UNDER SECTION 10(33) OF THE ACT. 7. WITHOUT PREJUDICE TO GROUND 6, THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF DONATIONS FROM ADMINISTRATIVE EXPENSE S FOR COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. 8. THE LEARNED CIT(A) ERRED IN FAILING TO PASS A CLEAR AND SPEAKING ORDER AS REQUIRED UNDER THE PROVISIONS OF THE ACT. ASSESSEES APPEAL (A.Y 2005 - 06) : 1. DISALLOWANCE OF PROFESSIONAL FEES P AID THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW THE EXPENSE OF RS.2,45,47,243 BEING THE PROFESSIONAL FEES PAID TO PREROY AG (PAG) AS CLAIMED BY THE APPELLANT. 2. DISALLOWANCE UNDER SECTION 14A THE LEARNED CIT(A) ERRED IN DIRE CTING THE ASSESSING OFFICER TO RE - COMPUTE THE DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT ON REASONABLE 3 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 BASIS, INSTEAD OF DELETING THE SAME AS NO EXPENDITURE IS INCURRED TO EARN TAX FREE INCOME. ASSESSEES APPEAL (A.Y 2006 - 07) : 1. THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW THE EXPENSE OF RS 3,83,10,783 BEING THE PROFESSIONAL FEES PAID TO PREROY AG ('PAG') AS CLAIMED BY THE APPELLANT. 2. THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW THE F OREIGN AIR TRAVEL EXPENSES AMOUNTING TO RS 15,81,141 IN RESPECT OF THE FOREIGN TRAVEL UNDERTAKEN BY THE WIFE OF THE DIRECTOR, INCURRED BY THE APPELLANT. 3. THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW ONE THIRD OF THE TOTAL TELE PHONE EXPENSES INCURRED AT THE DIRECTOR'S RESIDENCE, AMOUNTING TO RS 46,082. 4. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT IN THE CASE OF A COMPANY, NO DISALLOWANCE OF EXPENSES ON ACCOUNT OF PERSONAL USE CAN BE MADE. 5. THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT ON A REASONABLE BASIS, INSTEAD OF DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS 7,69,965. REVENUES APPEAL (A.Y 2002 - 03) : 1. THE LE ARNED CIT(A) HAS ERRED IN DIRECTING THAT THE PROFESSIONAL FEES OF RS.1,88,02,850/ - PAID TO PAG SHOULD BE CONSIDERED FOR DISALLOWANCE U/S 14A INSTEAD OF SECTION 37(1). 2. THE LEARNED CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.66,49,703/ - MADE U/S 14A. 3. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT INTEREST U/S 234D SHOULD NOT BE CHARGED WHERE REFUND HAS BEEN RECEIVED BEFORE 01.06.2003. 3. THE ASSESSEE HAS ALSO FILED A COMMON ADDITIONAL GROUND FOR ALL THE ABOVE ASSESSMENT YEARS WHICH READS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT PRAYS THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, IF HELD TO BE APPLICABLE, MAY BE MADE ONLY IN RESPECT OF THOSE INVESTMENTS WHICH HAVE YIELDED DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION AND THE DISALLOWANCE SHOULD BE RESTRICTED TO 0.5% OF THE AVERAGE VALUE OF SUCH INVESTMENTS. 4 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 4. ONE COMMON ISSUE RAISED IN THESE APPEALS RELATES TO THE DISALLOWANCE OF EXPENDITURE BEING THE PROFESSIONAL FEE PAID TO PREROY AG. ON THIS ISSUE, THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF STRAT EGIES CONSULTANCY FEE PAID FOR THE CONCERNED ASSESSMENT YEARS, WHICH WAS CONFIRMED BY THE LEARNED CIT(A). 5. AT THE OUTSET, ON THIS ISSUE THE LEARNED COUNSEL OF THE ASSESSEE FAIRLY SUBMIT TED THAT THIS GROUND IS COVERED BY THE ITAT ORDER AGAINST THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1995 - 96 TO ASSESSMENT YEAR 1997 - 98 WHICH WAS SUBSEQUENTLY FOLLOWED WHILE PASSING THE ORDER FOR ASSESSMENT YEAR 1998 - 99 AND ASSESSMENT YEAR 199 9 - 2000. HOWEVER, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT FOLLOWING POINTS NEED CONSIDERATION : 1) SINCE THE PROFESSIONAL FEES RECEIVED BY PAG FROM STPL HAVE BEEN ASSESSED IN THE HANDS OF PAG AS ITS INCOME, IT WAS NOT OPEN TO THE INCOME - TAX DEP ARTMENT TO DISALLOW THE SAID EXPENDITURE IN THE ASSESSMENT OF THE APPELLANT. IN THIS REGARD, RELIANCE IS PLACED ON THE FOLLOWING : - ITAT ORDERS PASSED IN THE CASE OF PAG FOR AY 1996 - 97, AY 1997 - 98, AY 1998 - 99, AY 1999 - 00 AND AY 2001 - 02. - THE HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF TRIBHOVANDAS BHIMJI ZAVERI VS ACIT [2001] 247 ITR 727 (BOM.) 2) THE ITAT IN ITS ORDER FOR AY 1995 - 96 TO AY 1997 - 98 HAS ARRIVED AT THE CONCLUSION THAT THE SERVICES WERE RENDERED TO STPL BUT NOT BY PAG BUT BY MR. SU SHIL PREMCHAND IN THE CAPACITY OF A DIRECTOR. WITHOUT PREJUDICE TO CONCLUSION OF THE ITAT THAT SERVICES WERE RENDERED BY MR. SUSHIL K. PREMCHAND (SKP) TO STPL, THE SAID SERVICES CANNOT BE RENDERED WITHOUT ANY CONSIDERATION. THERE NEEDS TO BE SOME CONSIDE RATION FOR WHICH THE APPELLANT SHOULD BE ALLOWED TO CLAIM A DEDUCTION. 6. UPON CAREFUL CONSIDERATION AND HEARING BOTH THE COUNSEL, WE NOTE THAT THIS ISSUE HAS BEEN CONSISTENTLY DECIDED BY THE TRIBUNAL AGAINST THE 5 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 ASSESSEE. IN THIS REGARD, WE MAY GAINFUL LY REFER TO THE ORDER OF ITAT IN ASSESSEES OWN CASE DATED 05.04.2016 IN ITA NO S . 2802 , 2803 & 2088/MUM/2003 FOR ASSESSMENT YEAR S 1995 - 96 TO 1997 - 98 WHEREIN THE TRIBUNAL HAD ADJUDICATED THE ISSUE AS UNDER : - 8. WE FIND THAT, AS EVIDENT FROM THE ASSESSMENT ORDERS OF THE PAG - WHICH WERE PLACED BEFORE US IN THE PAPER - BOOK, ONE HUNDRED PERCENT OF THE SHARE IN THE PAG WERE OWNED BY SHRI SUNIL K PREMCHAND (SKP, IN SHORT) WHO IS ALSO A DIRECTOR, AND MAJORITY SHAREHOLDER, IN THE ASSESSEE BEFORE US. WE HAVE ALSO NOT ED THAT WHATEVER EVIDENCE THE ASSESSEE HAS LEAD, SO FAR AS THE RENDITION OF SERVICE BY THE PAG IS CONCERNED, REFERS TO THE INVOLVEMENT OF SKP AND INPUTS BY HIM. THERE IS NOTHING BEFORE US TO ESTABLISH, OR EVEN INDICATE, CONSULTANCY OR ADVISORY WORK DONE BY ANY PERSON OTHER THAN SKP. IN PICTORIAL TERMS THIS FLOW OF ADVISORY WORK COULD BE EXPLAINED AS FOLLOWS: - 9. EVEN IN THE SITUATION DESCRIBED ABOVE, THERE COULD POSSIBLY BE NO OBJECTIONS TO THE SITUATION IN WHICH THE SERVICES ARE RENDERED BY PREROY AG IN ITS OWN RIGHT AND WITH INHERENT STRENGTHS OF ITS OWN. WHAT WE FIND, ON AN ANALYSIS OF EVIDENCE PRODUCED BEFORE US IN SUPPORT OF RENDITION OF SERVICE, IS THAT DE FACTO SERVICES ARE PROVIDED BY SKP WEARING THE PAG HAT. A LINE OF DEMARCATION IS THUS DRAWN UP BETWEEN WHAT SKP DOES AS DIRECTOR OF THE ASSESSEE COMPANY AND WHAT SKP DOES AS DIRECTOR OF PREROY AG EVEN AS SU BJECT MATTER OF HIS WORK IS THE INTEREST OF THE ASSESSEE ONLY. TAKE FOR EXAMPLE, INVOICE NO. 1 DATED 1ST NOVEMBER 2014 FOR US $ 10,000. THE NARRATION ON THE INVOICE AND THE SUPPORTING DOCUMENTS IN THIS REGARD ARE AS FOLLOWS: OKS INDIA - CARL BECHEM GMBH, H AGEN NEGOTIATION ON BEHALF OF STPL IN MARCH 1994, IN RESPECT OF DEVELOPMENT OF A PROPOSAL FOR THE MANUFACTURE OF SPECIALTY GREASE AT OKS PLANT IN MYSORE SUPPORTING DOCUMENTS 6 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 A) PREROYS FILE NOTE SETTING OUT A SUMMARY OF SERVICES RENDERED AND THE RECOMM ENDATIONS MADE TO STPL B) SUSHILSFIILE NOTE ON THE MEETING AT OKS MUNICH ON MARCH 7,1994 DISCUSSING SEVERAL ISSUES SUCH AS 1993 - 94 SALES OF OKS GREASE PLANT ISSUE, FINANCING SITUATION OF STPL, BECHEM PRODUCT PRICING ETC C) CORPORATE BROUCHERS OF OKS AN D CARL BECHEM 10. CLEARLY, THE WORK IS DONE BY SKP, THE MEETING IS TAKEN BY THE SKP AND IT PERTAINS TO THE INVESTMENTS OF THE ASSESSEE IS OKS. WHEN A MEETING IS TAKEN BY DIRECTOR OF THE COMPANY, ANALYSIS IS DONE BY THE DIRECTOR OF THE COMPANY AND THE RECOM MENDATIONS ARE MADE BY DIRECTOR OF THE COMPANY, IT IS DIFFICULT TO BE PERSUADED BY THE CONTENTION THAT THESE SERVICES ARE REQUIRED TO BE TREATED AS RENDERED BY THE PREROY AG BECAUSE, THE DIRECTOR WAS ALSO A ONE HUNDRED PERCENT OWNER AND A DIRECTOR OF PRERO Y AG, AND BECAUSE, AT THE POINT OF TIME WHEN HE WAS DOING ALL THIS WORK, HE HAD DISCARDED THE HAT OF DIRECTOR IN THE ASSESSEE COMPANY TO WEAR THE HAT OF DIRECTOR OF PREROY AG. THAT IS THE SITUATION WITH RESPECT OF THE ENTIRE WORK IN RESPECT OF WHICH PREROY AG IS PAID. THE EVIDENCE IN SUPPORT OF RENDITION OF SERVICES, WHETHER DURING THE ASSESSMENT YEAR 1995 - 96 OR EVE IN RESPECT OF SUBSEQUENT ASSESSMENT YEARS, INCLUDES FAX MESSAGE BY SKP, TRAVEL SCHEDULES OF SKP, BOARDING PASSES OF SKP AND FAX MESSAGE BY PRER OY AG TO A BUSINESS HOUSE INFORMING THE TIME OF SUSHILS ARRIVAL AT AMSTERDAM ON JULY 1, 1994 AND SUGGESTING A MEETING AT THE KLM LOUNGE AT AMSTERDAM. THE WORK DONE BY PREROY AG DID NOT HAVE ANY INDEPENDENT EXISTENCE BEYOND WORK DONE BY SKP OR, AS THE DO CUMENTATION FREQUENTLY REFERS TO HIM AS, SUSHIL. AS A MATTER OF FACT ALMOST ENTIRE WORK, FOR WHICH THE PREROY AG IS PAID, IS THE WORK DONE BY SKP. THERE IS NO EVIDENCE FOR ANY INDEPENDENT WORK DONE BY PREROY AG. A LOT OF EMPHASIS IS PLACED ON THE WORK DONE IN CONNECTION WITH OKS INDIA AND THE FACT THAT THE ASSESSEE HAD SUBSTANTIAL STAKES IN THIS ENTITY. LEARNED COUNSEL HAS TAKEN PAINS TO EMPHASIZE THE FACT THAT THE ASSESSEE IS IN THE BUSINESS OF INVESTMENTS AND THE WORK DONE TO PROTECT HIS INVESTMENTS IN TH ESE COMPANIES IS ALSO FOR THE PURPOSES OF HIS BUSINESS OF MAKING INVESTMENTS. THE OCCASION TO DEAL WITH THIS ASPECT OF THE MATTER WILL, HOWEVER, ARISES ONLY WHEN THERE IS A FINDING THAT BONAFIDE EXPENDITURE IS INCURRED FOR THE PURPOSES OF OKS INDIA. WHEN S KP TAKES A MEETING, AS A DIRECTOR IN THE ASSESSEE COMPANY, AND WORKS TOWARDS PROTECTING HIS INVESTMENT IN OKS INDIA, THAT IS WHAT HE IS EXPECTED TO DO IN FURTHERANCE OF HIS LEGITIMATE BUSINESS INTERESTS. THE TROUBLE, HOWEVER, ARISES WHEN A CLAIM IS MADE TH AT WHILE DOING THIS WORK, SKP WAS WEARING A DIFFERENT HAT, I..E PREROY HAT, AND, THEREFORE, PREROY AG SHOULD BE PAID FOR THE WORK SO DONE. WE ARE UNABLE TO ACCEPT THIS CLAIM, WHICH, IN OUR CONSIDERED VIEW, IS TOO FAR FETCHED. HERE IS A DIRECTOR OF THE COMP ANY RENDERING SERVICES TO THE COMPANY IN WHICH HE IS A DIRECTOR AND A RANK OUTSIDER COMMERCIAL ENTITY, OWNED BY THE DIRECTOR, IS BEING PAID FOR THE WORK DONE BY THE DIRECTOR. IT APPEARS THAT THE FOREIGN TRIPS, DURING WHICH THE WORK IS CLAIMED TO HAVE BEEN DONE, WERE TAKEN UP IN THE CAPACITY AS DIRECTOR OF THE ASSESSEE COMPANY, AND, YET BILLING FOR THE WORK DONE IN THE COURSE OF TRIPS SO UNDERTAKEN AT THE COST OF THE ASSESSEE COMPANY, HAS BEEN DONE IN THE NAME OF PREROY AG. THERE IS NOTHING ON RECORD TO SHOW THAT THESE FOREIGN TRIPS WERE UNDERTAKEN BY SKP AT THE COST OF PREROY AG OR IN THE COURSE OF HIS 7 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 WORK AS DIRECTOR OR OWNER OF PREROY AG. TAKE, FOR EXAMPLE, THE MEETING AT KLM LOUNGE AT AMSTERDAM ON 1ST JULY 1994 REFERRED TO EARLIER IN THIS PARAGRAPH. WE F IND THAT, AS EVIDENT FROM DETAILS OF TRAVELLING EXPENSES FILED AT PAGES 77 ONWARDS IN THE PAPER BOOK BEFORE US, THE VISIT TO GERMANY, NETHERLANDS AND UK, WHICH LASTED FROM 30TH JUNE TO 12TH JULY 1994, IS STATED TO HAVE BEEN UNDERTAKEN BY SKP FOR ATTENDING BUSINESS MEETINGS AND REPRESENTING STPL IN A MEETING WITH POTENTIAL BUSINESS PARTNERS. WHEN IT COMES TO CLAIMING THE TRAVELLING EXPENSES, THE ASSESSEE TRAVELS AS DIRECTOR IN STPL (I.E. THE ASSESSEE) TO ATTEND THE BUSINESS MEETINGS, YET THE ASSESSEE CLAIM S TO HAVE ACTUALLY MET THE POTENTIAL BUSINESS PARTNER IN A DIFFERENT CAPACITY, I.E. AS A REPRESENTATIVE OF PREROY AG, AND SEEKS A DEDUCTION FOR FEES PAID TO PREROY AG IN RESPECT OF THE SAME. THE SAME IS THE POSITION WITH RESPECT TO ALMOST ALL THE INVOICES. TAKE FOR EXAMPLE, INVOICE NO. 11 FOR US $ 10,000 WITH THE NARRATION AS NEGOTIATION IN RESPECT OF EXTENDING RELATIONSHIP BETWEEN OKS - MUNICH AND INCHEM, TO INCLUDE OKS - INDIA WHICH MAKE AVAILABLE TO OKS INDIA SPECIALITY GEAR OIL PRODUCTS NOT AVAILABLE FR OM EXISTING TECHNOLOGY PARTNERS. THIS BILL IS SUPPORTED BY SKPS BOARDING PASSES AT ZURICH AND MUNICH AD REPORT ON INCHEM VISIT ON 18TH AUGUST 1994. IN THE DETAILS OF TRAVELLING EXPENSES, HOWEVER, SKP HAS JUSTIFIED HIS GERMANY TRIP, PROBABLY WITH A STOPOV ER AT ZURICH, ON THE GROUND THAT HE REPRESENTED STPL AT BUSINESS MEETINGS WITH JOINT VENTURE PARTNERS IN GERMANY. WHEN SKP WAS REPRESENTING THE ASSESSEE IN THE MEETING WITH THE JOINT VENTURE PARTNERS, THERE CANNOT BE ANY QUESTION FOR THE PAYMENT OF THE S AME PRESENCE, OF THE SAME PERSON, TO PREROY AG AS WELL. THE DESCRIPTION OF SERVICES RENDERED IN THE INVOICES DOES NOT, THEREFORE, MEET OUR APPROVAL. 11. WE HAVE ALSO NOTED THAT THE DESCRIPTION OF SERVICES, IN THE AGREEMENT DATED 2ND JANUARY 1995 ENTERED IN TO BY THE ASSESSEE WITH THE PREROY AG - A COPY OF WHICH HAS BEEN PLACED BEFORE US IN THE PAPER - BOOK, IS VAGUE. CLAUSE A2 DEFINES THE SERVICES AS ANY OR ALL THE SERVICES ENVISAGED TO BE PROVIDED BY PAG UNDER THIS AGREEMENT. CAUSE C1 AND C2 FURTHER DESCRI BES DEALS WITH THE SERVICES AS FOLLOWS: C1. PAG SHALL RENDER ANY OR ALL THE SERVICES UNDER THIS AGREEMENT AT ANY PLACE OUTSIDE THE TERRITORY OF THE REPUBLIC OF INDIA, DEPENDING ON THE REQUIREMENTS OF STPL. C2. PAG SHALL MAKE ENDEAVOUR TO LOCATE NEW BUSINE SS OPPORTUNITIES AND PARTNERS OF STPL AND RECOMMEND PROPOSALS FOR NEW PROJECTS, AND NEGOTIATE, COORDINATE WITH EXISTING AND NEW JOINT VENTURE PARTNERS OR TECHNOLOGY TRANSFERS, EQUITY PARTICIPATION ETC, AND SECURE THEIR SUPPORT FOR, AND APPROVAL OF, NEW BUS INESS STRATEGIES AND POLICIES, PROVIDED HOWEVER THAT THE PAYMENT FOR FEES FOR THE SERVICES RENDERED BY PAG SHALL BE DETERMINED IN ACCORDANCE WITH THE COMPENSATION CLAUSE OF THIS AGREEMENT AND SHALL NOT, IN ANY MANNER, BE AFFECTED EITHER BY THE SUCCESS OR T HE FAILURE OF A PROJECT, STRATEGY OR BUSINESS APPROACH RECOMMENDED BY PAG. 12. AS REGARDS THE COMPENSATION FOR THESE SERVICES, WE FIND THAT THE AGREEMENT MERELY STATES, AT CLAUSE E 1, THAT FOR THE SERVICES RENDERED BY PAG UNDER THIS AGREEMENT, STPL SHALL PAY FEES TO PAG AT RATES TO BE AGREED BY THE PARTIES ON A CASE TO CASE BASIS AND THAT THE FEES IN RESPECT OF ANY ASSIGNMENT WILL BE AGREED UPON BY THE PARTIES BEFORE PAG COMMENCE WORK ON THE SAID ASSIGNMENT. THERE IS, HOWEVER, NO EVIDENCE LEAD BEFORE US WHICH SUGGESTS THAT THE FEES FOR ANY 8 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 ASSIGNMENT WAS AGREED TO BEFORE ANY ASSIGNMENT COMMENCED. THERE IS HARDLY ANY BASIS FOR THE BILLING WORK DONE. THERE SEEMS TO A CHARGE OF US $ 10,000 ON EVERY BILLING POINT. THERE IS NO EVIDENCE FOR ANY WORK DONE BY A PERSON OTHER THAN SKP AND THE SKP HAS DONE THIS WORK, DURING HIS VISITS ABROAD, IN THE CAPACITY OF DIRECTOR IN THE STPL (I.E. THE ASSESSEE) - AS IS CLEARLY DISCERNIBLE FROM THE DETAILS OF FOREIGN TRAVELLING EXPENSES ON RECORD. THE JUSTIFICATION FOR THE IMPU GNED PAYMENT DOES NOT, IN OUR CONSIDERED VIEW, DOES NOT EXISTS, AS THERE ARE NO INDEPENDENT SERVICES RENDERED BY THE ASSESSEE. LEARNED COUNSEL FOR THE ASSESSEE HAS LAID LOT OF EMPHASIS ON THE CONTENTION THAT THE ASSESSEE WAS IN THE BUSINESS OF MAKING INVES TMENTS AND, THEREFORE, EVEN EXPENSES INCURRED IN CONNECTION WITH THE BUSINESS OF HIS SUBSIDIARY, OKS INDIA, WILL ALSO BE ELIGIBLE FOR DEDUCTION AS THESE EXPENSES ARE TO PROTECT HIS INVESTMENT. THERE DOES NOT SEEM TO BE ANY ISSUE WITH THE LEGAL PRINCIPLES E MBEDDED IN THIS PROPOSITION BUT THIS PROPOSITION WILL BE RELEVANT ONLY WHEN WE COME TO A CONCLUSION THAT LEGITIMATE AND GENUINE BUSINESS EXPENSES ARE SO INCURRED FOR THE SERVICES RENDERED BY PREROY AG. WE ARE YET TO REACH THIS STAGE. AS THERE ARE NO INDEPE NDENT SERVICES RENDERED BY PREROY AG, IN OUR OPINION, IT IS WHOLLY IRRELEVANT WHETHER THE SERVICES, FOR WHICH BILLING IS DONE BY PREROY AG, ARE FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. AS REGARDS LEARNED COUNSELS CONTENTION THAT THE INCOME IN QUESTIO N, IN THE HANDS OF PREROY AG, HAS BEEN BROUGHT TO TAX IN INDIA, AND, THEREFORE, IT CANNOT BE SAID THAT NO SERVICES ARE RENDERED, WE ARE OF THE VIEW THAT MERELY BECAUSE AN INCOME HAS BEEN TAXED IN THE HANDS OF RECIPIENT OF AN INCOME, DOES NOT MEAN THAT ITS A DEDUCTIBLE EXPENDITURE IN THE HANDS OF THE PERSON MAKING THE PAYMENT. THE DEDUCTION IS REQUIRED TO BE EXAMINED AND ADJUDICATED UPON IN ACCORDANCE WITH THE LAW, AND, WHEN WE DO SO, WE DONOT FIND LEGALLY SUSTAINABLE MERITS IN THE CLAIM OF THE ASSESSEE. 13 . AS REGARDS THE OBSERVATIONS MADE BY THE CIT(A), WHICH HAVE BEEN CHALLENGED IN THIS APPEAL, WE ARE NOT INCLINED TO DEAL WITH THE SAME INDIVIDUALLY. WHAT MATTERS IS THAT THE DISALLOWANCE IN QUESTION, FOR THE DETAILED REASONS SET OUT IN THIS ORDER, IS CONFI RMED AND EVEN IF THE CIT(A) MADE SOME EXTRANEOUS OBSERVATIONS, THAT DOES NOT AFFECT THE OUTCOME OF THIS APPEAL. ALL THE SPECIFIC ISSUES HAVE BEEN DEALT WITH IN THIS ORDER ANYWAY. 14. GROUND NO. 1 IS THUS DISMISSED. 7. THE TRIBUNAL FOLLOWING THE ORDER IN ASSESSMENT YEAR 1998 - 99 HAS OBSERVED AS UNDER : - 15. WE HAVE HEARD THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT AS REGARDS THE ISSUE OF DISALLOWANCE OF EXPENDITURE OF RS. 1.52 CRORES BEING THE PROFESSIONAL FEE PAID TO PREROY AG, WE FIND THAT THIS T RIBUNAL IN ASSESSEES OWN CASE ON THE IDENTICAL FACTS IN THE EARLIER YEARS FOR ASSESSMENT YEARS 1995 - 96 TO 1997 - 98 VIDE ORDER DATED 05.04.201 REPRODUCED HEREINABOVE HAS UPHELD THE DISALLOWANCE. THE TRIBUNAL HAS FURTHER MENTIONED THAT FOR THE DETAILED REAS ON SET OUT IN THAT ORDER, THE DISALLOWANCE IS CONFIRMED AND EVEN IF THE LD. COMMISSIONER OF INCOME TAX 9 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 (APPEALS) MADE SOME OBSERVATION THAT DOES NOT AFFECT THE OUTCOME OF THIS APPEAL. ACCORDINGLY, FOLLOWING THE AFORESAID PRECEDENT IN ASSESSEES OWN CASE, WE UPHOLD THE ASSESSING OFFICERS ORDER MAKING THE DISALLOWANCE OF RS.1.52 CRORES. 8. RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, WE UPHOLD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE. AS REGARDS THE POINT SUBMITTED BY THE LEARNED CO UNSEL OF THE ASSESSEE FOR CONSIDERATION, WE FIND THAT THE ABOVE ORDER OF THE ITAT HAS ALREADY BEEN APPEALED BY THE ASSESSEE BEFORE THE HON'BLE HIGH COURT. WE NOTE THAT THE MATTER IS ALREAD Y BEFORE THE HON'BLE HIGH COURT AND WE ARE OF THE CONSIDERED OPINIO N THAT THESE POINTS REFERRED BY THE LEARNED COUNSEL OF THE ASSESSEE ARE NOT COGENT. ACCORDINGLY, WE DECLINE TO ACCEPT THESE SUBMISSIONS , AND CONSEQUENTLY WE DO NOT FIND IT PROPER TO DISTINGUISH THE CONSISTENTLY HELD VIEW OF THE TRIBUNAL. 9 . ONE COMMON IS SUE RAISED RELATES TO DISALLOWANCE U/S 14A. ON THIS ISSUE ALSO, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE ALSO IS COVERED BY THE ITAT ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998 - 99 AND ASSESSMENT YEAR 1999 - 2000 WHEREIN ITAT HAS HELD THAT DISALLOWANCE U/S 14A OF THE ACT SHOULD BE MADE ONLY IN ACCORDANCE WITH THE SPECIAL BENCH RULING IN THE CASE OF ACIT VS VIREET INVESTMENTS [2017] 82 TAXMANN.COM 415 (DELHI) . AS PER THE SAID RULING, DISALLOWANCE U/S 14A SHOULD BE MADE IN RESPE CT OF ONLY THOSE INVESTMENTS WHICH HAVE YIELDED DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION AND THE DISALLOWANCE SHOULD BE RESTRICTED TO 0.5% OF THE AVERAGE VALUE OF SUCH INVESTMENTS. 10. UPON CAREFUL CONSIDERATION, WE FIND THAT THIS TRIBUNAL IN A SSESSEES OWN CASE FOR ASSESSMENT YEAR 1998 - 99 IN ITA NO S . 4493 & 4737/MUM/2003 VIDE ORDER DATED 11.07.2018 HAS ADJUDICATED THIS ISSUE AS UNDER : - 10 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 AS REGARDS THE DISALLOWANCE U/S 14A IS CONCERNED, WE AGREE WITH THE LD. COUNSEL OF THE ASSESSEE THAT THE DIS ALLOWANCE SHOULD BE RESTRICTED TO IN RESPECT OF THOSE INVESTMENTS WHICH HAD YIELDED A DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. THIS PROPOSITION FOLLOWS THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS CIT [2015] 3 78 ITR 33 (DEL.) FOLLOWED BY THE HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF PRINCIPAL CIT VS BALLARPUR INDUSTRIES LTD. IN ITA NO. 51 OF 2016. FURTHERMORE, WITH REGARD TO THE DISALLOWANCE U/S 14A, THE ASSESSEES CONTENTION THAT THE RATIO FRO M SPECIAL BENCH DECISION IN THE CASE OF ACIT VS VIREET INVESTMENTS [2017] 82 TAXMANN.COM 415 SHOULD BE FOLLOWED AND FOR THE DISALLOWANCE, ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING THE AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR SHOULD BE CONSIDERED, WE ARE IN AGREEMENT WITH THE SAME AND DIRECT ACCORDINGLY. 11. FOLLOWING THE ABOVE PRECEDENT, WE DIRECT THAT THE DISALLOWANCE U/S 14A SHOULD BE MADE IN RESPECT OF ONLY THOSE INVESTMENTS WHICH YIELDED DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION AND DISALLOWANCE SHOULD BE RESTRICTED TO 0.5% OF THE AVERAGE VALUE OF SUCH INVESTMENTS. 12. ON THE ISSUE RELATING TO DISALLOWANCE OF TRAVELLING EXPENSE INCURRED FOR THE WIFE OF THE DIRECTOR, THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY ACCEPTED THAT THIS GROUND IS COVERED IN THE ITAT ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1995 - 96 TO 1997 - 98 WHICH WAS FOLLOWED WHILE PASSING THE ORDER FOR ASSESSMENT YEAR 1998 - 99 AND ASSESSMENT YEAR 1999 - 2000 IN WHICH THE TRIBUNAL HAD CONFIRMED THE DISALLOWANCE , F OLLOWING ITAT ORDER FOR ASSESSMENT YEAR 1995 - 96 TO ASSESSMENT YEAR 1997 - 98 IN WHICH THE ISSUE WAS ADJUDICATED AS UNDER , 15. AS REGARDS THE SECOND GROUND OF APPEAL, I.E. AGAINST DISALLOWANCE OF RS.5,99,832 IN RESPECT OF THE TRAVELLING EXPENSES, THIS DISALLOWANCE PERTAINS TO THE TRAVELLING EXPENSES IN RESPECT OF MRS. NEETA PREMCHAND, WIFE OF THE DIRECTOR, WHO ACCOMPANIED HER ON T HE OFFICIAL TOURS. THE ASSESSING OFFICER NOTED THAT THERE WAS NO EVIDENCE THAT NPS FOREIGN TRAVELLING WAS FOR THE 11 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 PURPOSE OF BUSINESS. IN APPEAL, LEARNED CIT(A) CONFIRMED THE DISALLOWANCE. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US . 16. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT AS NO EVIDENCE HAS BEEN LEAD BEFORE US TO DEMONSTRATE AND ESTABLISH THAT THE TRAVEL BY DIRECTORS WIFE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE, AND IN THE LIGHT OF HON'BLE KERALA HIGH COURTS FULL BENCH DECISION IN THE CASE OF RAM BAHADUR THAKUR LTD. VS CIT [(2003) 261 ITR 390 (KER FB)], THE ACTION OF THE AUTHORITIES BELOW DESERVES TO BE CONFIRMED. WE, THEREFORE, CONFIRM THE ST AND OF THE AUTHORITIES BELOW AND DECLINE TO INTERFERE IN THE MATTER. RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, WE UPHOLD THE DISALLOWANCE IN THIS REGARD. 13 . ON THE ISSUE RELATING TO DISALLOWANCE OF BUSINESS EXPENSES, THE LEARNED COUNSEL FOR THE AS SESSEE SUBMITTED THAT IN ASSESSMENT YEAR 1999 - 2000, THE TRIBUNAL HAD HELD THAT THE SAME SHOULD BE DONE PRO - RATA AS THAT OF SEC. 14A OF THE ACT. UPON CAREFUL CONSIDERATION, WE FOLLOW THE SAME AND ORDER ACCORDINGLY. 1 4 . ONE ISSUE REMAINING IN REVENUES APP EAL IS THAT LEARNED CIT(A) HAS ERRED IN HOLDING THAT INTEREST U/S 234D SHOULD NOT BE CHARGED WHERE REFUND HAS BEEN RECEIVED BEFORE 01. 0 6.2003 . ON THIS ISSUE, WE NOTE THAT LEARNED CIT(A) HAS HELD AS UNDER : - 6.1 THE LD. COUNSEL OF THE APPELLANT HAS SUBMIT TED THAT SEC. 234D WAS INTRODUCED IN THE ACT VIDE FINANCE ACT, 2003 W.E.F. 1 ST JUNE, 2003. SUB SECTION OF (1) OF SECTION PROVIDES THAT SUBJECT TO THE OTHER PROVISIONS OF THIS ACT, WHERE ANY REFUND IS GRANTED TO THE ASSESSEE UNDER SUB SECTION (1) OF SEC. 143 AND NO REFUND IS DUE ON REGULAR ASSESSMENT OR THE AMOUNT REFUNDED UNDER SUB SECTION (1) OF SEC. 143 EXCEEDS THE AMOUNT R E FUNDABLE ON REGULAR ASSESSMENT, THE ASSESSEE SHALL BE LIABLE TO PAY SIMPLE INTEREST @ 1 PERCENT (2/3 PERCENT UPTO SEPT. 2003) ON THE WHOLE OR EXCES S AMOUNT SO REFUNDED FOR EVERY MONTH OR PART OF THE MONTH COM PRISE IN THE PERIOD FROM THE DATE OF GRANT OF REFUND TO THE DATE OF SUCH REGULAR ASSESSMENT. IT IS SUBMITTED THAT SECTION HAS BEEN INTRODUCED W.E.F. JUNE 1, 2003 12 STOCK TRADERS PVT. LTD. ITA NOS. 21 0 8/M/2006, 4403 & 687/M/2011 THEREFORE, IT WOULD BE ATTRACTED ONLY IN CASE OF REFUNDS ISSUED AFTER JUNE, 1, 2003. ACCORDI NGLY, AS IN CASE OF APPELLANT, THE REFUND WAS GRANTED DURING FEB., 2003 NO INTEREST WOULD BE LEVIED U/S 234D. 7. I FIND MERITS IN THE APPELLANT SUBMISSION THAT SEC. 234D HAS BEEN INSERTED BY THE FINANCE ACT 2003 W.E.F. JUNE 1 ST 2003. ACCORDINGLY, ALL THE INGREDIENTS FOR ITS APPLICABILITY MUST TAKE PLACE AFTER ITS COMING INTO FORCE. THE AO IS, THEREFORE, DIRECTED NOT TO CHARGE INTEREST U/S. 234D WHERE REFUND HAS BEEN RECEIVED BY THE ASSESSEE BEFORE THE DATE OF INSERTION OF SEC. 234D. IN THE RESULT THE APP EAL IS ALLOWED. 15. UPON CAREFUL CONSIDERATION, WE DO NOT FIND ANY INFIRMITY IN THE ABOVE ORDER, HENCE WE UPHOLD THE SAME. 1 6 . IN THE RESULT, THESE APPEALS STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 9 T H NOVEM BER, 2018. S D / - S D / - ( RAM LAL NEGI ) JUDICIAL MEMBER ( SHAMIM YAHYA ) ACCOUNTANT MEMBER MUMBAI, DATE : 1 9 T H NOVEMBER , 201 8 *SSL* & ROSHANI, SR. PS COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, L BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI