M/s. Deltronix India Ltd., Noida V. ACIT, New Delhi

ITA 5498/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4780 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 31-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Assessee Lawyers: K SAMPAT
• Keywords: Transfer pricing; Business expenditure; Opportunity of being heard; Deemed to accrue or arise in india; Deemed dividend

Judgement Text

I.T.A. NOS. 5498 & 5632/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5498 /DEL/201 2 A.Y. 2008-09 M/S DELTRONIX INDIA LIMITED, E-3, SECTOR-59, NOIDA-201301 (UP) (PAN: AAACD4681K) VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 10(1), NEW DELHI AND I.T.A. NO.5632/DEL/2012 A.Y. 2008-09 DY. COMMISSIONER OF INCOME TAX, CIRCLE 10(1), NEW DELHI (APPELLANT) VS. M/S DELTRONIX INDIA LIMITED, E-3, SECTOR-59, NOIDA-201301 (UP) (PAN: AAACD4681K) (RESPONDENT) ASSESSEE BY : SH. K. SAMPAT, ADVOCATE DEPARTMENT BY : MS. NIDHI SRIVASTAVA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THESE CROSS APPEALS BY THE REVENUE AND ASSESSEE EMANATE OUT OF ORDER OF THE LD. CIT(A) AND PERTAIN TO ASSTT. YE AR 2008-09. 2. THE GROUND RAISED IN THE ASSESSEES APPEAL IS TH AT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN REDUCING THE DISALLOWANCES OF THE RENT OF GUEST HOUSE TO THE EXTENT I.T.A. NOS. 5498 & 5632/DEL/2012 2 OF 50% ONLY OF THE TOTAL CLAIM WHICH BEING ERRONEO US MUST BE DELETED WITH DIRECTIONS FOR TOTAL RELIEF. 3. THE GROUNDS RAISED IN THE REVENUES APPEAL READ AS UNDER:- I) WHETHER THE LD. CIT(A) UNDER THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW WAS CORRECT IN RESTRICTING THE DISALLOWANCE OF RS. 18,00,000/- OUT OF TOTAL DISALL OWANCE OF RS. 36,00,000/- MADE BY THE ASSESSING OFFICER ON AC COUNT OF RENT PAID. II) WHETHER THE LD. CIT(A) UNDER THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAW WAS JUSTIFIED IN DELETING THE A DDITION OF RS. 46,90,790/- MADE BY THE AO ON ACCOUNT OF COMMIS SION PAID TO M/S KEYSER INDIA PVT. LTD. III) WHETHER THE LD. CIT(A) UNDER THE FACTS AND CI RCUMSTANCES OF THE CASE AND IN LAW WAS JUSTIFIED IN DELETING T HE ADDITION OF RS. 33,50,000/- MADE BY THE AO ON ACCOUNT OF DEEM ED INCOME U/S. 2(22)(E) OF THE I.T. ACT, 1961. IV) THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR A MEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING . 3. APROPOS DISALLOWANCE OF RS. 36 LACS ON ACCOUNT O F RENT PAID IN THIS CASE AS PER THE ASSESSMENT ORDER, THE ASSES SEE COMPANY HAS PAID RS. 36 LACS FOR THE YEAR UNDER CONSIDERA TION TO ONE M/S SONIA & CO. PVT. LTD. FOR USE OF ITS PREMISES AT M-66-67, VILLAGE JAUNAPUR, NEAR SULTANPUR, DELHI 1147 AS GUEST HOUSE. IT IS O BSERVED BY THE AO THAT THE DIRECTORS OF THE ASSESSEE COMPANY, NAMELY MR. KAPIL GUPTA AND MS. DEEPALI GUPTA ARE HOLDING 24.80% SHARES IN EA CH IN THE ABOVE I.T.A. NOS. 5498 & 5632/DEL/2012 3 MENTIONED M/S SONIA & CO PVT. LTD. HOWEVER, THIS WAS NOT MENTIONED IN THE TAX AUDIT REPORT IN FORM 3CD. FURTHER, AS PER THE LOCAL ENQUIRY REPORT OF THE ITI, THE SAID GUEST HOUSE WAS LOCATED IN A FARM HOUSE. THE PROPERTY HAD THE SIGNBOARD OF 'SONIA FARM HOUSE' AND THERE WAS NO SIGNBOARD OF THE APPELLANT COMPANY OUTSIDE THE PROPE RTY. THE GATEKEEPER DID NOT OPEN THE GATE OF THE PROPERTY FO R VERIFICATION AND ENQUIRY WITH NEARBY PEOPLE DID NOT POINT TO THE USE OF THE PREMISES FOR ANY GUEST HOUSE OR CONFERENCE PURPOSE. FURTHER, IT W AS OBSERVED BY THE AO IN THE ASSESSMENT ORDER THAT THERE WAS NO GU EST HOUSE REGISTER AND THE SALARY, ELECTRICITY AND TELEPHONE EXPENSES FOR THE PREMISES WAS MEAGER WHICH DOES NOT JUSTIFY USE OF THE PREMISE S AS A GUEST HOUSE. THE AGRICULTURAL RECEIPT FROM THE FARM HOUSE WAS ALSO SHOWN AS INCOME IN THE P&L A/C OF M/S SONIA & CO. IT WAS EXPLAINED BY THE APPELLANT DURING THE ASSESS MENT PROCEEDINGS THAT THE SAID PREMISES CONSISTED OF APPR OXIMATELY 13 BIGHAS OF LAND AND BUILDING APPURTENANT THERETO. WH ILE THE GUEST HOUSE HAD BEEN TAKEN ON RENT BY THE APPELLANT FOR USE AS GUEST HOUSE AND FOR IN-HOUSE TRAINING OF STAFF, CONFERENCES ETC., THE N ATURAL PRODUCE FROM THE ADJOINING FARM BELONGED TO THE LANDLORD, M/S SO NIA & CO. PVT. LTD., AND WAS DULY SHOWN BY MIS SONIA & CO. AS AGRICULTURA L RECEIPT. IT WAS ALSO SUBMITTED THAT THERE WAS NO REQUIREMENT FOR PUTT ING THE SIGNBOARD AND MAINTAINING GUEST REGISTER AS IT WAS FOR USE OF THE COMPANY'S GUESTS AND STAFF AND WAS NOT MEANT FOR BEING LET OU T AS A PUBLIC GUEST HOUSE. IT WAS ALSO SUBMITTED THAT THE MATTER RELATED TO A.Y. 2007-08, WHILE THE INSPECTOR VISITED THE PROPERTY ONLY ON 13 .12.2010 AND HAD GIVEN A REPORT ON THE BASIS OF HEARSAY WITHOUT ANY EVIDENTIARY VALUE. HOWEVER, THE AO HAS REJECTED THE ABOVE CONTENTION O F THE APPELLANT AND HAS DISALLOWED THE RENT DEBITED AT RS.36 LACS. I.T.A. NOS. 5498 & 5632/DEL/2012 4 4. BEFORE THE LD. CIT(A) ASSESSEE FILED WRITTEN SUB MISSIONS ALONGWITH APPLICATION UNDER RULE 46A AND PAPER BOOK . LD. CIT(A) OBTAINED REMAND REPORT FROM THE ASSESSING OFFICER AN D FURTHER REJOINDERS FROM THE ASSESSEE. LD. CIT(A) NOTED THAT ASSESSEE TOOK THE GUEST HOUSE ON RENT VIDE LEASE AGREEMENT DATED 9.3. 2006 FOR A PERIOD OF THREE YEARS AT A MONTHLY RENT OF RS. 3 LACS. THAT AT THE TIME OF ENTERING INTO THE AGREEMENT, THE PREMISES BELONGED T O M/S SONIA & CO. PVT. LTD. WHICH HAD DIFFERENT DIRECTORS AND THAT THE SHARES OF THE ABOVE COMPANY WERE ACQUIRED BY THE DIRECTORS OF THE ASSESSE E COMPANY AT A LATER STAGE; THAT THE RENT WAS FIXED AT AN ARMS L ENGTH BASIS AND HENCE SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. IT WAS POINTED OUT THAT THE RENT WAS PAID THROUGH ACCOUNT PAYEE CHEQUES AND HAS BEEN DULY SHOWN BY M/S SONIA & CO. PVT. LTD. IN ITS ACCOUNTS AND THAT THE ABOVE COMPANY IS REGULARLY ASSESSED TO INCOME TAX. THAT ID ENTICAL AMOUNT OF RENT FOR THE ABOVE GUEST HOUSE PAID IN THE EARLIER YEAR HAS BEEN ACCEPTED BY THE DEPARTMENT. THAT THE REPORT OF THE IN SPECTOR ON THE BASIS OF A PERFUNCTORY VISIT AND ANONYMOUS HEARSAY CANNOT BE THE BASIS FOR REJECTING THE APPELLANTS CLAIM. THAT THE CARETAKER OF THE GUEST HOUSE WAS PRESENTED BEFORE THE AO DURING THE ASSESSMENT PROCEEDING ON 20.12.2010, BUT THE AO DID NOT EXAMINE HIM. THAT THE ASSESSEE WAS NOT GIVEN CROSS EXAMINATION OF THE ALLE GED THIRD PARTIES FROM WHOM THE AO MIGHT HAVE MADE LOCAL ENQUIRY. 5. CONSIDERING THE ABOVE, LD. CIT(A) HELD THAT HE HAD FOUND THAT ASSESSING OFFICER HAS BASED HIS FINDING ON THE INSP ECTORS REPORT WHICH WAS QUITE INADEQUATE SINCE AS PER THE REPORT ITSE LF THE INSPECTOR WAS NOT ALLOWED ENTRY INTO THE PREMISES BY THE WATCHMA N AND HIS IMPRESSION WAS BASED ON NEARBY ENQUIRY OF WHICH NO D ETAILS ABOUT THE PERSONS CONTACTED AND THERE WHEREABOUTS ETC. ARE G IVEN IN THE REPORT, I.T.A. NOS. 5498 & 5632/DEL/2012 5 AS REPRODUCED IN THE ASSESSMENT ORDER. LD. CIT(A) OPINED THAT IN SUCH A SITUATION, ASSESSING OFFICER COULD HAVE CAUSED A PROPER ENQUIRY OR EVEN A SURVEY OR AT LEAST COULD HAVE ASKED THE ASSE SSEE TO ASSIST IN A SITE VISIT TO FIND OUT THE EXTENT OF USE OF THE GU EST HOUSE. LD. CIT(A) OBSERVED THAT ASSESSING OFFICER HAS FAILED TO DO S O. HENCE, HE HELD THAT DISALLOWANCE OF ENTIRE AMOUNT OF RENT PAID OF R S. 36 LACS FOR THE YEAR UNDER CONSIDERATION CANNOT BE LOGICALLY SUSTA INED. 6. LD. CIT(A) OBSERVED THAT HE FOUND THAT ASSESSEE BY OWN SUBMISSIONS HAD ADMITTED THAT SUCH PROPERTY WAS NOT FREQUENTLY USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. THAT IN FACT, CONSIDERING THAT THE GUEST HOUSE WAS LOCATED INSIDE A FARM HOUSE , ITS USE BY THE DIRECTORS FOR PERSONAL PURPOSE CANNOT BE DENIED. CON SIDERING THE SAME LD. CIT(A) WAS OF THE OPINION THAT ALLOWING 50% OF THE RENT CLAIMED AS PERTAINING TO THE BUSINESS OF THE ASSESSEE WOULD MEE T THE END OF JUSTICE. ACCORDINGLY, LD. CIT(A) CONFIRMED THE IMPUGNE D ADDITION TO THE EXTENT OF RS. 18 LACS AND THE BALANCE OF RS. 18 LAC S WAS DELETED. 7. AGAINST THE ORDER THE REVENUE AND ASSESSEE ARE IN CROSS APPEALS. 8. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ALL THE NECESSARY DETAILS WERE FILED BEFORE THE LD. CIT(A) AND ALSO BEFORE THE ASSESSING OFFICER IN REMAND PROCEEDINGS. HE SUBMITTED THAT TH E RENT AGREEMENT OF RENT WAS EXECUTED IN PRIOR PERIOD WHEN THE DIRECT OR HAD NO INTEREST IN M/S SONIA & CO. PVT. LTD. HENCE, THE RENT AGREEME NT WAS ENTERED AT ARMS LENGTH. FURTHER THE DEPARTMENT HAD REGULARLY ALLOWED THE SAME. HE FURTHER SUBMITTED THAT THE REPORT OF THE INSPECTO R WITHOUT PROPER VISIT AND ANONYMOUS HEARSAY CANNOT BE BASIS AFTER RE JECTING THE I.T.A. NOS. 5498 & 5632/DEL/2012 6 ASSESSEES CLAIM. HENCE, HE CLAIMED THAT THE ENTIRE E XPENDITURE OF RENT WAS GENUINE AND PROPERLY EXPLAINED AND SHOULD BE AL LOWED AS SUCH. 9. LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIED UPON THE ORDERS OF THE ASSESSING OFFICER AND ARGUED THAT THE AMOUNT OF RENT PAID WAS NOT ALLOWABLE ON THE FACTS AND CIRCUMSTANCE S OF THE CASE. 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT THE ASSESSEE HAS PAID RENT OF RS. 3 LACS PER MONTH FOR GUEST HOUSE TAKEN ON RENT BY THE ASSESSEE FOR USE AS GUEST HOUSE, IN-HOUSE TRAINING OF THE STAFF AND CONFEREN CE ETC. ASSESSING OFFICER HAS DISALLOWED THE SAME ON THE BASIS OF REPO RT OF INCOME TAX INSPECTOR. THE SAID INCOME TAX INSPECTOR COULD NOT G ET INTO THE CAMPUS OF THE GUEST HOUSE. HE OBTAINED INFORMATION FR OM NEARBY PEOPLE AND CONCLUDED THAT THE PREMISES WAS NOT BEING USED FOR THE PURPOSE CLAIMED BY THE ASSESSEE. THE ASSESSING OFFI CER HAS ALSO NOTED THAT THE PREMISES WAS OWNED BY THE COMPANY IN W HICH THE DIRECTORS ARE SUBSTANTIAL INTERESTED. ASSESSING OFF ICER HAS ALSO DRAWN INFERENCE BY HOLDING THAT NO GUEST HOUSE REGISTER W AS PRODUCED AND THE SALARY, ELECTRICITY AND TELEPHONE FOR THE GUES T HOUSE WAS MEAGER. 10.1 ON THE OTHER HAND IT IS THE CLAIM OF THE ASSE SSEE THAT ASSESSEE HAS ENTERED INTO AN AGREEMENT FOR THE SAID PREMISES , SOMETIMES AGO, WHEN THE DIRECTORS WERE NOT INTERESTED IN THE SAID P REMISES. HENCE, IT IS THE CLAIM OF THE ASSESSEE THAT THE RENT AGREEMENT IS AT ARMS LENGTH PRICE. FURTHER, IT HAS BEEN SUBMITTED THAT ADDITIO N CANNOT BE MADE ON THE BASIS OF THE REPORT OF ITI WHO DID NOT ENTER IN TO THE PREMISES. IT IS ALSO CLAIMED THAT THE INFORMATION GATHERED BY THE ITI WAS A MERE HEARSAY WITHOUT ANY EVIDENTIARY VALUE. IT HAS FURTH ER BEEN SUBMITTED THAT THE ASSESSEE HAS NOT BEEN GIVEN A CHANCE TO CO NFRONT THE PERSONS I.T.A. NOS. 5498 & 5632/DEL/2012 7 FROM WHOM THE INCOME TAX INSPECTOR OBTAINED ADVERSE REPORT FOR THE ASSESSEE. IT HAS ALSO BEEN CLAIMED BY THE ASSESSEE THAT CARE TAKER OF THE GUEST HOUSE WAS PRESENTED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS ON 20.12.2010, BUT THE AO DID NOT EXAMI NE HIM. 10.2 LD. CIT(A) ON THE OTHER HAND, HAS ACCEPTED THE ASSESSEES SUBMISSION THAT ASSESSING OFFICER HAS BASED HIS FIN DING ON THE INSPECTORS REPORT WHICH WAS INADEQUATE SINCE AS PE R THE REPORT, THE INSPECTOR, WHO WAS NOT ALLOWED TO ENTER INTO THE PR EMISES BY THE WATCHMAN AND HIS IMPRESSION WAS BASED ON NEARBY ENQUI RY FOR WHICH NO DETAILS ABOUT THE PERSONS CONTACTED AND THEIR WH EREABOUTS ETC. ARE GIVEN IN THE REPORT. LD. CIT(A) HAS OPINED THAT IN SUCH A SITUATION, ASSESSING OFFICER COULD HAVE CAUSED PROPER ENQUIRY OR EVEN A SURVEY OR ATLEAST COULD HAVE ASKED THE ASSESSEE TO ASSIST IN A SITE VISIT TO FIND OUT THE EXTENT OF USE OF THE GUEST HOUSE. HENCE, LD. CIT(A) WAS NOT FULLY CONVINCED REGARDING THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER. HOWEVER, HE HAS CONSIDERED THAT PROPERTY WAS NOT FREQUENTLY USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES AND IT WAS LOCATED INSIDE A FARM HOUSE AND ITS USE BY THE DIRECTORS FOR PERSONAL PURPOSE CANNOT BE DENIED. HENCE, LD. CIT(A) WAS OF THE OPI NION THAT 50% OF THE RENT CLAIMED SHOULD BE ALLOWED AS PERTAINING TO THE BUSINESS OF THE ASSESSEE. 10.3 NOW WE FIND THAT IT IS TRUE THAT ASSESSING OFF ICER HAS BASED HIS FINDING ON THE INSPECTORS REPORT WHICH WAS INADEQ UATE AS EXPLAINED ABOVE. LD. CIT(A) HAS ACCEPTED THIS CONTENTION. H E WAS OF THE OPINION THAT ASSESSING OFFICER COULD HAVE CAUSED PROPER ENQ UIRY IN THIS REGARD. IT IS NOT THE CASE OF THE LD. CIT(A) HAS HIMSELF CO NDUCTED THE SAID ENQUIRY. WE FIND THAT POWERS AND DUTIES OF THE LD. CIT(A) ARE CO- I.T.A. NOS. 5498 & 5632/DEL/2012 8 TERMINUS WITH THAT OF ASSESSING OFFICER. IN SUCH SI TUATION, IF THE CIT(A) WAS OF THE OPINION THAT MATTER NEEDED PROPER ENQUIRY OR EVEN A SURVEY HE SHOULD HAVE GOT THE SAME DONE. WITHOUT GETTING T HE SAME DONE, LD. CIT(A) HAS DELETED THE PART OF THE DISALLOWANCE. A SSESSING OFFICER HAS ALSO NOT EXAMINED THE WATCHMAN WHO WAS PRODUCED BY T HE ASSESSEE FOR EXAMINATION. IN OUR CONSIDERED OPINION, THE MATT ER HAS NOT BEEN PROPERLY ENQUIRED INTO. IN OUR CONSIDERED OPINION, INTEREST OF JUSTICE WILL BE SERVED, IF THE MATTER IS REMITTED TO THE FIL E OF THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH. WE HOLD AND D IRECT ACCORDINGLY. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 10.4 IN THIS REGARD, WE PLACE RELIANCE OF THE HONB LE APEX COURT DECISION IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT, 131 ITR 451 WHEREIN IT WAS THAT IT IS THE JURISDICTION AS WELL AS DUTY OF THE APPELLATE AUTHORITY TO CORRECT THE LACUNA IN THE ORDER OF THE AUTHORITIES BELOW AND ISSUE APPROPRIATE DIRECTION WHERE NEEDED. 11. APROPOS ADDITION OF RS. 46,90,790/- ON ACCOUNT OF COMMISSION PAID IN THIS CASE AS PER THE ASSESSMENT ORDER, THE ASSE SSEE HAS PAID COMMISSION OF RS. 82,56,692/- AND RS. 20,53,559/- ON SALE OF CANISTERS AND HT CORDS TO M/S KAYSER PVT. LTD. WHICH HOLDS 30. 38% SHARES IN THE ASSESSEE COMPANY. THE ASSESSEE HAS ALSO PAID RS. 14, 16,725/- TO THE ABOVE COMPANY ON ACCOUNT OF OTHER SERVICES RENDERED. THE TOTAL PAYMENTS MADE TO M/S KAYSER INDIA PVT. LTD. DURING THE YEAR UNDER CONSIDERATION THUS WORKS OUT TO RS. 1,17,26,976/-. ON BEING ASKED BY THE AO, IT WAS EXPLAINED BY THE ASSESSEE THAT M/S K AYSER INDIA PVT. LTD. WAS INCORPORATED ON 4.9.1996. THIS COMPANY HAD TECHN ICAL COLLABORATION WITH KAYSER AUTOMATIVE GROUP OF COMPA NY OF GERMANY I.T.A. NOS. 5498 & 5632/DEL/2012 9 FOR MANUFACTURE OF CANISTERS OF HT CORDS AND SUPPLY OF THE SAME TO VARIOUS AUTOMOBILE MANUFACTURES SUCH AS MARUTI SUZUK I, HUNDAI AND OTHER CAR MANUFACTURERS. SUBSEQUENTLY, THE BUSINES S OF M/S KAYSER INDIA PVT. LTD. WAS TRANSFERRED TO THE ASSESSEE COMPA NY FOR WHICH THE ASSESSEE PAYS COMMISSION ON SALES TO M/S KAYSER INDIA PVT. LTD. M/S KAYSER INDIA PVT. LTD. ALSO UNDERTAKES MARKETING AND CUSTOMER RELATIONSHIP AND MAINTENANCE ACTIVITIES. IT ALSO PRO VIDES TECHNICAL ASSISTANCE TO THE ASSESSEE COMPANY FROM TIME TO TIM E AND HENCE, THE COMMISSION PAID IS A BUSINESS EXPENDITURE. HOWE VER, IT WAS OBSERVED BY THE AO THAT OUT OF TOTAL RECEIPTS OF M/S KAYSER INDIA PVT. LTD. AT RS. 1.33 CRORES, A SUM OF RS. 1.17 CRORES WH ICH IS ALMOST 90% CAME FROM THE ASSESSEE COMPANY. THE AO ALSO OBSERVED THAT THERE WERE NOT MUCH OF EXPENSES IN THE HANDS OF THE M/S KAY SER INDIA PVT. LTD. THE AO, ACCORDINGLY, HAS DISALLOWED 40% OF TOT AL PAYMENT MADE TO M/S KAYSER INDIA PVT. LTD. WHICH WORKS OUT TO RS. 46 ,90,790/- AS BEING EXCESSIVE. 12. BEFORE THE LD. CIT(A) ASSESSEE PRODUCED COPY OF AGREEMENT ON CANISTER BUSINESS DATED 6.10.1999 BETWEEN APPELLANT COMPANY AND M/S A. KAYSER AUTOMATIVE SYSTEMS GMBH, GERMANY. THE SAME WAS ADMITTED UNDER RULE 46A BY THE LD. CIT(A). ASSESSEE FURTHER SUBMITTED THE WRITTEN SUBMISSIONS. LD. CIT(A) OBTA INED THE REMAND REPORT FROM THE ASSESSING OFFICER AS WELL AS REJOIND ERS FROM THE ASSESSEE. 13. CONSIDERING THE ABOVE, LD. CIT(A) OBSERVED TH AT IT WAS A MATTER OF RECORD THAT COMMISSION HAS BEEN PAID BY THE ASSES SEE TO M/S KAYSER INDIA P LTD. FOR MORE THAN 10 YEARS AFTER THE BUSINE SS OF THE LATER COMPANY WAS TAKEN OVER BY THE ASSESSEE. THAT THE SAME HAD BEEN I.T.A. NOS. 5498 & 5632/DEL/2012 10 ACCEPTED BY THE DEPARTMENT CONSISTENTLY FROM YEAR TO YEAR; THAT FURTHER AS PER THE TRIPARTITE ARRANGEMENT BETWEEN M /S KAYSER AUTOMATIVE SYSTEMS GMBH, GERMANY, M/S KAYSER INDIA PVT. LTD. AND THE ASSESSEE COMPANY, THE ABOVE PAYMENT HAS BEEN MAD E ON ACCOUNT OF TECHNICAL AND COMMERCIAL FACILITIES TAKEN OVER AND UTILIZED BY THE ASSESSEE FROM M/S KAYSER INDIA PVT. LTD. FROM THE YE AR OF SUCH TAKEOVER. THAT IT IS ALSO POINTED OUT THAT BOTH M/S KAYSER INDIA PVT. LTD. AND THE ASSESSEE COMPANY ARE PRIVATE LIMITED COMPANIES FALLING UNDER THE SAME TAX BRACKET AND HENCE THERE IS NO CASE O F LOSS OF REVENUE IN THE MATTER. THE DETAILS OF REQUIREMENTS UNDER SEC TION 40A(2)(B) WERE ALSO PRODUCED BY THE ASSESSEE DURING ASSESSMENT PRO CEEDING AND THE SAME HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER . 14. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, CIT(A) HELD THAT THE ESTIMATED DISALLOWANCE MADE BY THE AO CANNOT BE JUSTIFIED. ACCORDINGLY, THE IMPUGNED ADDITION OF RS. 46,90,790/- WAS DELETED. 15. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 16. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED TH E RECORDS. WE FIND THAT THERE IS A TRIPARTITE ARRANGEMENT BETWEEN M/S KAYSER AUTOMATIVE SYSTEMS GMBH, GERMANY, M/S KAYSER INDIA PVT. LTD. AND THE ASSESSEE COMPANY. THIS AGREEMENT WAS DULY PRODUC ED BEFORE THE AUTHORITIES BELOW. THE IMPUGNED PAYMENT HAS BEEN MADE ON ACCOUNT OF TECHNICAL OR COMMERCIAL FACILITIES TAKEN OVER AN D UTILIZED BY THE ASSESSEE FROM M/S KAYSER INDIA PVT. LTD. FROM THE YE AR OF SUCH TAKEOVER. THE SAID COMMISSION HAS BEEN PAID TO M/S KA YSER INDIA PVT LTD. FOR MORE THAN 10 YEARS AFTER THE BUSINESS OF T HE LATER COMPANY WAS TAKEN OVER BY THE ASSESSEE. THE INFERENCE DR AWN BY THE I.T.A. NOS. 5498 & 5632/DEL/2012 11 ASSESSING OFFICER REGARDING NON SUBMISSIONS OF DETAI LS IN THE TAX AUDIT REPORT AND THE LOW EXPENSES INCURRED BY M/S KEYSER INDIA PVT. LTD. ARE NOT COGENT. IT IS FURTHER NOTED THAT COMMISSION HAS BEEN PAID NOT ONLY FOR TECHNICAL SERVICES, BUT ALSO BECAUSE OF THE FACT TH AT THE ENTIRE BUSINESS OF THE COMPANY HAS BEEN MADE TRANSFERRED TO THE ASSE SSEE. WE ALSO NOTE THAT M/S KEYSAR INDIA P LTD. WAS ORIGINALLY IN TECHNICAL COLLABORATION WITH M/S KESAR AUTOMATIVE GROUP, GERMA NAY. M/S KEYSAR INDIA P LTD. WAS MANUFACTURING CANISTERS AND H T CORDS AND SUPPLIED TO MARUTI SUZUKI, HUNDAI LTD. AND OTHER CAR MANUFACTURES OF INDIA. SUBSEQUENTLY THE BUSINESS OF M/S KYESER IN DIA PVT. LTD. WAS TRANSFERRED TO THE ASSESSEE DALTRONIX INDIA LTD. A T THE TIME A TRIPARTITE AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND THE KEYSER INDIA P LTD. AND THE FOREIGN TECHNICAL CORROBORATOR S OF M/S KEYSER INDIA PVT. IN LIEU THEREOF, M/S DALTRONIX INDIA LTD. HAS PAID COMMISSION ON THE SALE TO KEYSAR INDIA P LTD.. BESIDES THE KESAR INDIA P LTD. ALSO UNDERTOOK ACTIVITIES AND CUSTOMERS RELATIONSHIP AND MAINTENANCE ACTIVITIES. M/S KEYSAR INDIA P LTD. HAS ALSO TRAN SFERRED ITS ENTIRE ORDERS FROM CUSTOMERS TO THE ASSESSEE. ASSESSEE HAS DULY PROVIDED ALL THE NECESSARY PARTI CULARS AND DETAILS IN THE APPELLATE PROCEEDINGS AS WELL AS IN THE REMAND PROCEEDINGS. LACK OF SUBSTANTIAL EXPENDITURE BY KE YSAR INDIA PVT. LTD. AND ABSENCE OF LARGE NUMBER OF STAFF AS TAKEN BY TH E ASSESSING OFFICER TO DRAW ADVERSE INFERENCE ARE NOT SUSTAINABLE. TH E PAYMENT HAS BEEN MADE BY THE ASSESSEE ON ACCOUNT OF TECHNICAL AND COMMERCIAL FACILITIES TAKEN OVER AND UTILISED BY THE ASSESSE E FROM M/S KEYSAR INDIA P LTD. FROM THE YEAR OF SUCH TAKENOVER. THE A SSESSING OFFICER I.T.A. NOS. 5498 & 5632/DEL/2012 12 HAS ALSO NOT BROUGHT ON RECORD ANY OTHER CASE OF SI MILAR STANDING IN AN IDENTICAL SITUATION FROM WHOSE EXAMPLE HE COULD SHOW THAT THERE WAS AN EXTRA CONSIDERATION ATTACHED IN THE SUBJECT CASE , OVER AND ABOVE THE COMMERCIAL CONSIDERATION AS PROFESSED. WE FURTH ER NOTE THAT ASSESSEES SUBMISSIONS THAT M/S KEYSAR INDIA P LTD. A ND THE ASSESSEE COMPANY ARE PRIVATE LIMITED COMPANIES FALLING UNDER TH E SAME TAX BRACKET AND HENCE THERE IS NO CASE OF LOSS OF REVEN UE IN THE MATTER. 17. WE FURTHER NOTE THAT AO HAS HELD THAT 40% OF THE COMMISSION PAYMENT IS EXCESSIVE AND NOT ALLOWABLE. WE DO NOT F IND ANY BASIS WHATSOEVER IN THIS DISALLOWANCE PERCENTAGE. IN OUR CONSIDERED OPINION, LD. CIT(A) HAS PASSED THE COGENT ORDER WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART. ACCORDINGLY, WE AFFIRM THE SAME. 18. APROPOS DELETION OF ADDITION OF RS. 33,50,000/- MADE BY THE AO ON ACCOUNT OF DEEMED INCOME U/S. 2(22)(E) OF THE I.T. ACT. IN THIS CASE AS PER THE ASSESSMENT ORDER, THE ASSES SEE COMPANY HAS RECEIVED RS. 33,50,000/- FROM M/S SONIA & CO. PVT . LTD. DURING THE YEAR UNDER CONSIDERATION. IT IS OBSERVED BY THE AO THAT SH. KAPIL GUPTA AND SMT. DEEPALI GUPTA, DIRECTORS OF THE ASSESSEE COMP ANY HOLD SUBSTANTIAL SHARES IN THE ABOVE PAYOR COMPANY. IT WA S EXPLAINED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDING THAT T HE PAYOR COMPANY DID NOT HAVE ANY ACCUMULATED PROFITS TO BE C OVERED UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE ASSESSEE ALSO FILED CALCULATION OF THE ACCUMULATED PROFITS AS PER ANNEXU RE A TO LETTER DATED 15.10.2010 FILED WITH THE AO. IT WAS ALSO SU BMITTED THAT THE AMOUNT RECEIVED WAS IN THE NATURE OF COMMERCIAL ADVAN CE MADE DURING THE COURSE OF BUSINESS TRANSACTIONS. HOWEVE R, THE AO HAS I.T.A. NOS. 5498 & 5632/DEL/2012 13 IGNORED THE ABOVE CONTENTION AND HAS ADDED THE ABO VE AMOUNT AS DEEMED DIVIDED U/S 2(22)(E) IN THE HANDS OF THE ASSE SSEE COMPANY. 19. AGAINST THE ABOVE ORDER THE ASSESSEE APPEALED B EFORE THE LD. CIT(A) AND SUBMITTED ELABORATE SUBMISSIONS AND DOCUM ENTS. LD. CIT(A) OBTAINED THE REMAND REPORT ALSO. LD. CIT(A ) ALSO NOTED THE ASSESSEES SUBMISSION IN THE ALTERNATIVE THAT ASSESS EE WAS NOT A SHAREHOLDER OF THE PAYOR COMPANY, M/S SONIA & CO. P L TD. AND HENCE, IN TERMS OF DECISION OF BHAUMIK COLOR PVT LTD. 313 ITR (AT) 146 (MUM) (SB) AND M/S MCC MARKETING PVT. LTD. (2012) 343 ITR 351 (DEL.), NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE U/S. 2(22)(E) OF THE ACT. CONSIDERING THE ABOVE, LD. CIT(A) CONCLUDED A S UNDER:- ON CAREFUL EXAMINATION OF THE MATTER, I FIND THAT AS PER SETTLED LAW, COMMERCIAL ADVANCES MADE AS PART OF BUSINESS TRANSACTIONS ARE NOT EXIGIBLE TO TAX AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE AO HAS ALSO NOT BROUGHT OUT ANY MATERIAL EVIDENCE IN THE ASSESSMENT ORDER OR IN THE REMAND REPORT TO MAKE A CASE FOR INVOKING THE ABOVE DEEMING SECTION. THE WITHOUT PREJUDICE ARGUMENT OF THE ASSESSEE AS MENTIONED ABOVE ALSO HOLDS GOOD. CONSIDERING THE ABOVE, THE IMPUGNED ADDITION OF RS. 33,50,000/- IS DELETED. 20. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 21. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT IT IS UNDISPUTED THAT ASSESSEE WAS NOT A SHARE HOLDER IN THE PAYOR COMPANY AND M/S SONIA & CO. AND HENCE, IN TERMS OF THE JUDICIAL PRECEDENTS CITED ABOVE, NO ADDITION CAN BE MADE IN T HE HANDS OF THE I.T.A. NOS. 5498 & 5632/DEL/2012 14 ASSESSEE U/S. 2(22)(E) OF THE ACT. IT HAS BEEN EXP OUNDED THAT ADDITION U/S.2(22)(E) CAN BE MADE ONLY IF THE ASSESSEE IS A R EGISTERED SHAREHOLDER OF THE PAYOR COMPANY. UNDER THE CIRCUMSTA NCES, RESPECTFULLY FOLLOWING THE PRECEDENT, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND HENCE, WE UPHOLD THE SA ME. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSE AND THE REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13/12/2013. SD/- SD/- [ [[ [I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 13/12/2013 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES