The ITO, Ward-1(1)(2), Ahmedabad V. M/s. Anunay Fab Pvt. Ltd., Ahmedabad

ITA 630/AHD/2015

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4279 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 19-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL PATEL
• Keywords: Depreciation; Source of fund; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Question of law; Non-deduction of tax; Corroborative evidences; TDS; Set aside
• Section: 43B; 40(a)(ia); 194C; 195; 250; 201; 139(1); 64; 9(1); 9(1); 9(1); 13; 22; 139

Judgement Text

ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 1 OF 28 SIN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHAUMITA ROY, JUDICIAL MEMBER (CONDUCTED THROUGH VIRTUAL COURT) ITA NO.630/AHD/2015 ASSESSMENT YEAR: 2009-10 THE INCOME TAX OFFICER, VS. M/S. ANUNAY FAB PVT. LTD., WAD 1(1)(2), AHMEDABAD. C/O. SHIV SHANKAR SWAMI , 138, PIRANA ROAD, PIPLEJ, OPP. ANJANI SYNTHETICS LIMITED, AHMEDABAD 382 405. [PAN AABCA 6322 K] C.O.NO.56/AHD/2015 (IN ITA NO.630/AHD/2015) ASSESSMENT YEAR: 2009-10 M/S. ANUNAY FAB PVT. LTD., VS. THE INCOME TAX OFF ICER, C/O. SHIV SHANKAR SWAMI, WARD 1(1)(2), AHMEDABD . 138, PIRANA ROAD, PIPLEJ, OPP. ANJANI SYNTHETICS LIMITED, AHMEDABAD 382 405. [PAN AABCA 6322K] (APPELLANTS) (RESPONDENTS) REVENUE BY : SHRI SHYAM PRASAD, SR. D.R. ASSESSEE BY : SHRI MEHUL PATEL, A.R. DATE OF HEARING : 14.07.2021 DATE OF PRONOUNCEMENT : 30.09.2021 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FIL ED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 24 H DECEMBER, 2014 PASSED BY THE LEARNED CIT(A)-1, AHMEDABAD FOR THE ASSESSMENT YEAR 2009-10. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 2 OF 28 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,31,60,555/- ON ACCOUNT OF DISALLOWANCE OF DESI GN EXPENSES U/S.40(A)(I) OF THE ACT ON THE GROUND THAT PURCHASES OF DESIGN WERE PURCHASES OF GOODS ON WHICH PROVISIONS OF SECTION 9(1)(VII) R.W.S. 195 AR E NOT APPLICABLE. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.24,18,696/- U/S. 40(A)(IA) ON THE GROUND THAT TH E PAYMENTS MADE TO THE NON- RESIDENTS FOR THE EXPENDITURE RELATED TO EXHIBITION IN INDIA AND RS.2,52,641/- FOR NON-DEDUCTION OF TDS WITHOUT ADDUCING ANY SUPPORTIN G EVIDENCE, OUT OF TOTAL ADDITION OF RS.30,66,571/-. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,86,495/- OUT OF TOTAL ADDITION OF RS.3,56,268/ - IN LIEU OF LATE PAYMENT OF EMPLOYEES CONTRIBUTION TO PF DESPITE THE FACT THAT SUCH LATE PAYMENT IS NOT ALLOWABLE AS DEDUCTION U/S 36(1)(VA) AND IS REQUIRE D TO BE TREATED AS INCOME U/S 2(24)(X). 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE ON ACCOUNT OF DEPRECIATION ON CARS, INTEREST AND RELAT ED EXPENSES OF RS.4,83,060/- OUT OF TOTAL DISALLOWANCE OF RS.6,44,080/-. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE DISALLOWANCE OF INTEREST PAYMENT U/S 36(I)(III) OF THE ACT DESPITE THE FACT THAT THE EXPENSES ON PAYMENT OF INTEREST ON THE BORROWED FUN D WHICH HAS BEEN DIVERTED TOWARDS INTEREST FREE LOAN AND ADVANCE AND NON-BUSI NESS PURPOSES. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER TO T HE EXTENT MENTIONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DISCLOSE HIS TRUE INCOME/BOOK PROFIT. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO TH E ABOVE EXTENT. THE APPELLANT CRAVES, TO LEAVE, TO AMEND OR ALTER ANY G ROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE 1 ST ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CI T (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 1,31,60,000/- REPRESENTING THE PAYMENT MADE TO FOREIGN PARTIES ON ACCOUNT OF NON-DEDUCTION OF TAX UNDER THE PROVISIONS OF SECTION 195 READ WITH SECTION 40(A)(I) OF THE ACT. 4. THE NECESSARY FACTS AS CULLED OUT FROM THE ORDER OF THE AUTHORITIES BELOW ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF EXPORT AND TRADING OF CLOTH SUCH AS MAD E UP/BED SHEETS, PILLOW COVER, CURTAINS ETC. THE ASSESSEE IN THE YEAR UNDER CONSI DERATION HAS CLAIMED DESIGN EXPENSES FOR 1,31,60,555/- PAID TO THE PARTIES BASED OUTSIDE IN DIA. SUCH EXPENSES WERE INCURRED WITHOUT DEDUCTING THE TAX UNDER THE P ROVISIONS OF SECTION 195 OF THE ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 3 OF 28 ACT. ON QUESTION BY THE AO VIDE SHOW CAUSE NOTICE D ATED 5 TH DECEMBER 2011, THE ASSESSEE VIDE LETTER DATED 10 TH DECEMBER 2011 SUBMITTED THAT THE DESIGN EXPENSES REPRESENTS THE PURCHASES OF THE DESIGN/THEME FOR IT S PRODUCTS SUCH AS BED SHEETS/ COVER ETC. FROM THE FOREIGN PARTY. AS PER THE ASSES SEE, THE PROVISIONS OF THE TDS ARE NOT APPLICABLE ON THE PURCHASES OF SUCH DESIGN AS T HE SAME IS IN NATURE OF PURCHASES AND NOT SERVICES. THEREFORE NO TDS WAS DEDUCTED UND ER THE PROVISIONS OF SECTION 195 OF THE ACT. 5. ALTERNATIVELY, THE ASSESSEE CONTENDED THAT EVEN IF THIS IS CONSIDERED AS TECHNICAL SERVICES PROVIDED UNDER SECTION 9(1)(VII) OF THE ACT, THEN ALSO SUCH PAYMENT IS NOT SUBJECT TO TAX IN INDIA. IT IS FOR THE REASO N THAT THE FOREIGN PARTY HAS DONE DESIGN RELATED WORK IN ITS HOME COUNTRY AND IT HAS NO PERM ANENT ESTABLISHMENT IN INDIA. THUS, THE INCOME TO THE FOREIGN PARTY WAS NOT ACCRUED OR AROSE IN INDIA. 6. THE ASSESSEE FURTHER CONTENDED THAT THE PAYMENT TO THE FOREIGN PARTY TOWARDS THE PURCHASE OF THE DESIGN HAS BEEN CLEARED BY THE BANK WITHOUT INSISTING ANY CERTIFICATE FROM THE CHARTERED ACCOUNTANT FOR NON-D EDUCTION OF TDS. 7. HOWEVER, THE AO BEING DISSATISFIED WITH THE CONT ENTION OF THE ASSESSEE OBSERVED THAT THE ACTIVITY OF DESIGN REQUIRES EXPER TISE/SKILL. THUS THE ASSESSEE HAS OBTAINED THE SERVICES OF THE TECHNICAL PERSON FOR T HE IMPUGNED DESIGN WHICH MIGHT HAVE TRANSFERRED TO THE ASSESSEE IN THE FORM OF COM PUTER SOFTWARE OR DRAWING ON PAPER. THUS IN EFFECT THE ASSESSEE HAS ACQUIRED DES IGN INVOLVING THE INTELLECTUAL SKILL AND EXPERTISE. IN OTHER WORDS THE ASSESSEE HAS NOT ACQUIRED ANY MATERIAL AS CLAIMED BY THE ASSESSEE. 8. REGARDING THE CONTENTION OF THE ASSESSEE THAT TH E FOREIGN PARTY IS NOT HAVING THE PERMANENT ESTABLISHMENT, IT WAS OBSERVED BY THE AO THAT THE DESIGN SERVICES WERE UTILIZED BY THE ASSESSEE IN INDIA. LIKEWISE, E XPLANATION TO SECTION 9 OF THE ACT CLARIFIES THAT FEES FOR TECHNICAL SERVICES ARE TAXA BLE IN INDIA IRRESPECTIVE OF THE FACT THAT THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINE SS OR BUSINESS CONNECTION IN INDIA. 9. THE AO FURTHER OBSERVED THAT ARTICLE 12 OF THE D TAA BETWEEN INDIA AND GERMANY PROVIDES THAT FEE FOR TECHNICAL SERVICES CA N BE TAXED IN THE OTHER CONTRACTING STATE I.E. IN INDIA. ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 4 OF 28 10. IN VIEW OF THE ABOVE, THE AO DISREGARDED THE CO NTENTION OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE FAILED TO DEDUCT THE TAX UNDER THE PROVISIONS OF SECTION 195 READ WITH SECTION 40(A)(I) OF THE ACT AND THEREFORE THE SAME CANNOT BE ALLOWED AS DEDUCTION. THUS THE AMOUNT OF DESIGN EXPENSES WAS A DDED TO THE TOTAL INCOME OF THE ASSESSEE. 11 AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LE ARNED CIT (A). 12. THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITT ED THAT IT HAS NOT AVAILED THE SERVICES OF ANY EXPERT FOR GETTING THE PARTICULAR D ESIGN DEVELOPED FOR ITS OWN USE. AS SUCH THE ASSESSEE HAS SELECTED A DESIGN/THEME WHICH WAS DEVELOPED BY THE FOREIGN PARTY ON ITS OWN FOR THE PURPOSE OF SALE TO CUSTOME R. AS SUCH THE DESIGN/THEME PURCHASED BY IT IS NOTHING BUT A COMMODITY AND THER EFORE IT IS OUTSIDE THE PURVIEW OF THE PROVISIONS OF TDS. ACCORDINGLY IT CANNOT BE ALL EGED THAT THE ASSESSEE HAS AVAILED ANY TECHNICAL SERVICES AND PAID THE FEE FOR TECHNIC AL SERVICES. THE ASSESSEE IN SUPPORT OF HIS CONTENTION HAS FILED THE CLARIFICATI ON RECEIVED FROM THE FOREIGN PARTY STATING THAT IT HAS SOLD THE DESIGN TO THE ASSESSEE AND NO DESIGN HAS BEEN DEVELOPED FOR THE ASSESSEE. FURTHERMORE, THE BANKS HAVE REMIT TED THE PAYMENT WITHOUT INSISTING ANY CERTIFICATE OF THE CHARTERED ACCOUNTANT FOR THE NON-DEDUCTION OF TDS. 13 THE ASSESSEE ALSO SUBMITTED THAT OUT OF THE TOTA L PAYMENTS OF 1,31,60,555/- A SUM OF 1,36,175/- REPRESENTS THE PAYMENTS MADE IN INDIA. THEREFORE THE ENTIRE AMOUNT OF 1,31,60,555/- CANNOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40(A)(I) READ WITH SECTIO N 195 OF THE ACT. 14. THE LEARNED CIT (A) AFTER CONSIDERING THE SUBMI SSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: (IX) I AM INCLINED WITH APPELLANT THAT FOR THE NAT URE OF BUSINESS AS CARRIED ON BY APPELLANT OF 'MADE UPS' (BED SHEETS, TOWELS, CUR TAIN, BED COVERS ETC.) PARTICULARLY FOR EXPORT, IT NEED CERTAIN DESIGNS FO R PRINTING INCLUDING THEME. THIS WORK EITHER CAN BE ASSIGNED TO SOME DESIGNER AS CON SULTANT OR IF THE SAME IS ALREADY AVAILABLE THEN THE SAME CAN BE PURCHASED. IN CASE OF APPELLANT, THE PRODUCT OF SUCH DESIGN/THEME ARE ALREADY AVAILABLE WITH SUPPLIER LIKE M/S. GRADA WHO INDEPENDENTLY THROUGH MARKET RESEARCH, DE VELOPS SUCH DESIGNS/THEMES FROM SUCH INDIVIDUAL DESIGNER. THER E IS NO PASSING OF ANY SERVICES AS TECHNICAL KNOWHOW OR PATTERN, KIND OF T HINGS. IT IS SIMPLY REGISTERED THEME OR DESIGN WHICH APPELLANT HAS TO PURCHASE TO UTILIZE IN PRINTING OF BED COVERS, PILLOW COVERS, BED SHEETS ETC. THE NATURE O F TRANSACTION IS SIMILAR TO ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 5 OF 28 DEVELOPMENT OF SOFTWARE BY VARIOUS COMPANIES AND SU CH SOFTWARE ARE AVAILABLE ON SHELF FOR GENERAL USE OR ANY PARTY CAN ASSIGN SP ECIFIC WORK TO DEVELOP SOFTWARE TO SERVE THAT PARTY. IN THE FORMER CASE IT IS OUTRIGHT PURCHASE EVEN IF THE SOFTWARE IS TRANSFERRED THROUGH COMPACT DISC/CO MPUTER OR ANY OTHER MAGNETIC MEDIA, WHILE IN OTHER CASE IT WILL BE WORK CONTRACT. IN THE CASE OF WORK CONTRACT, THE QUESTION OF DEDUCTION OF TDS ARISES B UT FOR SUCH THING THERE WILL BE WRITTEN AGREEMENT WITH TERMS AND CONDITIONS AND REQ UIREMENT OF THE PRODUCT TO BE DEVELOPED FROM THE PURCHASER OR CONTRACTOR. IN T HE CASE OF APPELLANT NO SUCH AGREEMENT OR ORDER HAS BEEN PLACED TO SUCH PARTIES. THERE ARE NO EVIDENCES THAT APPELLANT COMPANY ASSIGNED ANY SUCH WORK TO TH ESE OUTSIDE PARTIES. THE PARTY CONFIRMED THAT THEY HAVE DEVELOPED THEIR OWN DESIGN/THEME WHICH WERE SOLD TO APPELLANT ALONG WITH OTHER PARTIES IN SUCH BUSINESS. IT IS IN THIS REGARD, THE RATIO OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GLENMARK PHARMACEUTICALS 324 ITR 199 AND HONBLE SUPREME COU RT IN THE CASE OF CIT VS. SILVER OAK LABORATORIES (CIVIL APPLICATION 1801 2 OF 2009) HAS RELEVANCE WHERE DIFFERENCE BETWEEN CONTRACT FOR WORK AND CONTRACT FOR SALE IS CLARIFIE D. IN VIEW OF FACTS SO VERIFIED BY A.O. ON THE SUBMISSION OF APPELLANT, THE A.O'S REJECTION THAT NATURE OF TRANSACTION ARE NOT OF PUR CHASE HAS NO BASIS EXCEPT A PRESUMPTION THAT SUCH DESIGN/THEME ARE DEVELOPED BY TEXTILE DESIGNER THROUGH SKILL AND EXPERTISE AND SUPPLIED THROUGH COMPUTER. BUT, A.O. FAILED TO APPRECIATE THAT THERE ARE NUMEROUS SUCH PRODUCT AVA ILABLE ACROSS THE SHELF WHERE SKILL AND TECHNICAL EXPERTISE IS INVOLVED AND THE SAME ARE TRANSFERRED THROUGH COMPUTER STILL THE SAME IS PURCHASE AND SAL E OF COMMODITY. THERE ARE VARIOUS FACTORS INVOLVED IN THE BUSINESS AS CARRIED ON BY APPELLANT PARTICULARLY IN EXPORT. THE APPELLANT EARNED/RECEIVED SUBSTANTIA L AMOUNT THROUGH EXPORT TO GERMANY AND THE COLOUR COMBINATION, DESIGNS, THEMES LIKED BY PEOPLE OVER THERE MATTERS A LOT. IF SUCH DESIGNS/THEMES ARE ALR EADY AVAILABLE FROM SUPPLIER LIKE M/S.GRADA TEXTILE GMBH WHO HAD ALREADY DONE RE SEARCH AND DEVELOPMENT AND ACQUIRED COPY RIGHT, THEN PURCHASE FROM THEM ABOUT SUCH DESIGN, THEME, COMBINATION CAN ONLY BE HELD AS PURC HASE OF COMMODITIES AND NOT OF CONSULTANCY. THE APPELLANT'S ALTERNATIVE ARRANGEMENT ABOUT EVEN IF SUCH PURCHASES ARE IN THE NATURE OF CONSULTANCY BUT THE SERVICES A RE NOT RENDERED IN INDIA WAS OVER EMPHASIZED BY A.O. TO TREAT IT AS ACCEPTANCE B Y APPELLANT ON ONE HAND, WHILE RELIANCE ON THE AMENDMENT WITH RETROSPECTIVE DATE FOR APPLICABILITY OF.IDS ON OTHER HAND. I AM INCLINED WITH APPELLANT THAT AS PER SETTLED LEGAL PROPOSITION, IT IS THE PROVISION AS ON DATE OF SUCH PAYMENT WHIC H ARE APPLICABLE AS FAR AS COMPLIANCE OF TDS PROVISIONS ARE CONCERNED. HON'BL E ITAT AGRA IN THE CASE OF VIROLA INTERNATIONAL (SUPRA) AS RELIED ON BY APPELL ANT DIRECTLY DEALT WITH THIS ISSUE. THE FACTS OF THIS CASE WERE SIMILAR TO THE A PPELLANT'S CASE WITH A DIFFERENCE OF PURCHASE OF D ESIGNS FOR LEATHER APPARELS BUSINESS. HON'BLE ITAT AGRA FOLLOWED THE RATIO OF HONBLE SUPREME COURT JU DGEMENT IN THE CASE OF ISHIKAWAJMA HARIMA HEAVY INDUSTRIES LTD. VS. DIRECT OR OF INCOME TAX (2007) 288 ITR 408. IT WAS HELD THAT- 'PRIOR TO 8 TH MAY 2010 WHEN THE FINANCE ACT, 2010 RECEIVED THE A SSENT OF THE PRESIDENT OF INDIA, FEES FOR TECHNICAL SERVI CES COULD NOT BE BROUGHT ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 6 OF 28 TO TAX UNDER SECTION 9(1)(VII) UNLESS SUCH SERVICES WERE RENDERED IN INDIA AND THERE BEING NO MATERIAL WHATSOEVER TO DEMONSTRA TE AND ESTABLISH THAT THE DESIGN AND DEVELOPMENT SERVICES FOR WHICH THE IMPUGNED PAYMENTS WERE MADE BY THE ASSESSEE TO NON-RESIDENTS WERE RENDERED IN INDIA, ASSESSEE DID NOT HAVE ANY LIABILITY UNDER SECTION 195 R.W.S.9(1)(VII) TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS AND CONSEQUENTLY, SAME CANNOT BE DISALLOWED U/S.40(A)(I ) OF THE ACT.' IT IS THEREFORE ON BOTH GROUND I.E. FIRSTLY THE PUR CHASES OF DESIGNS WERE PURCHASES OF GOODS ON WHICH PROVISIONS OF SECTION 9 (1)(VII) R.W.S. 195 ARE NOT APPLICABLE AND EVEN IF SUCH PURCHASE OR ACQUISITION TAKEN AS CONSULTANCY THEN ALSO SUCH PROVISIONS WERE NOT APPLICABLE FOR PREVIO US YEAR, THE DISALLOWANCES SO MADE BY A.O. U/S.40(A)(I) OF THE ACT ARE THEREFO RE NEITHER JUSTIFIED NOR SUSTAINABLE. 15. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 16. THE LEARNED DR BEFORE US CONTENDED THAT THE ASS ESSEE HAS GOT THE SOFTWARE DEVELOPED BY HIRING THE PROFESSIONALS WHO PROVIDED INTELLECTUAL AND EXPERT SERVICES TO THE ASSESSEE. THE FACT OF DEVELOPMENT OF THE SOFTWA RE BY THE ASSESSEE CAN ALSO BE TRACED FROM THE INVOICES RAISED BY THE OVERSEAS PAR TIES. ACCORDINGLY, IT WAS CONTENDED THAT THE ASSESSEE HAS MADE THE PAYMENT AS FEES FOR TECHNICAL SERVICES WHICH IS LIABLE TO BE TAXED IN INDIA. 17. ON THE OTHER HAND, THE LEARNED AR BEFORE US FIL ED A PAPER BOOK RUNNING FROM PAGES 1 TO 177 AND SUBMITTED THAT IMPUGNED AMOUNT O F EXPENSES REPRESENTS THE OUTRIGHT PURCHASES AND THEREFORE THERE CANNOT BE AN Y DISALLOWANCE ON ACCOUNT OF NON- DEDUCTION OF TDS. IT IS FOR THE REASON THAT THE PRO VISIONS OF TDS ARE NOT ATTRACTED IN RELATION TO THE PURCHASE TRANSACTIONS. 18. BOTH THE LEARNED DR AND THE AR BEFORE US VEHEME NTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW TO THE EXTENT FAVOURABLE TO T HEM. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT CASE RELATES WHETHER THE A SSESSEE HAS INCURRED DESIGN EXPENSES WITHOUT DEDUCTING THE TDS UNDER THE PROVIS IONS OF SECTION 195 READ WITH SECTION 40(A)(I) OF THE ACT. ADMITTEDLY, THE ASSESS EE IS NOT LIABLE TO DEDUCT THE TDS ON THE PURCHASES OF THE MATERIALS. IN THE PRESENT CASE IT WAS THE CONTENTION OF THE ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 7 OF 28 ASSESSEE THAT IT HAS MADE PURCHASES OF THE DESIGNS FROM THE FOREIGN PARTY WHICH IS IN THE NATURE OF PURCHASE OF GOODS. ON THE OTHER HAND IT WAS CONTENDED BY THE AO THAT SUCH DESIGN REQUIRES TECHNICAL SKILLS AND EXPERTISE AND THEREFORE HE CONCLUDED THAT SAME REFLECTS FEE FOR TECHNICAL SERVICES UNDER THE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT AND THEREFORE THE ASSESSEE WAS LIABLE TO DEDUCT THE TAX UNDER SECTION 195 OF THE ACT. 20. ASSUMING, THE CONTENTION OF THE AO IS CORRECT T HAT THE DESIGNING REQUIRES TECHNICAL SKILLS AND EXPERTISE. BUT WE HAVE TO SEE THE TRANSACTION WHETHER THE ASSESSEE GOT DEVELOPED THE DESIGN AFTER HIRING THE SERVICES OF THE TECHNICAL PERSONS HAVING INTELLECTUAL SKILLS AND EXPERTISE. THERE IS NO SUCH ALLEGATION OR FINDING BY THE AO THAT THE ASSESSEE HAS HIRED THE SERVICES OF THE EXPERTS. IN OTHER WORDS WE HAVE TO CHECK THE TRANSACTION FROM THE POINT OF THE ASSESSE E WHETHER THE IMPUGNED TRANSACTION IS OF PURCHASE OR NOT. THERE MIGHT BE L OTS OF EXPERTISE AND INTELLECTUAL SKILLS USED BY THE FOREIGN PARTY IN THE DEVELOPING OF THE DESIGN BUT THAT WILL NOT CHANGE THE CHARACTER OF THE TRANSACTION IN THE HANDS OF TH E ASSESSEE. 21. FOR EXAMPLE, SOMEBODY IS IMPORTING A SOFTWARE O N OUTRIGHT PURCHASE BASIS SUCH AS TALLY OR OTHER SOFTWARE. INDEED, THE SOFTWA RE CERTAINLY REQUIRES LOT OF SKILL AND INTELLECTUAL FOR ITS DEVELOPMENT. THE SOFTWARE IS T RANSFERRED EITHER THROUGH THE DISC OR INTERNET AND THERE IS NO PHYSICAL FORM OF SUCH SOFT WARE. THUS IN THE BOOKS OF THE ASSESSEE SUCH TRANSACTION FOR PURCHASING OF THE SOF TWARE SHALL BE TREATED AS OUTRIGHT PURCHASES. BUT THE ANSWER WILL BE DIFFERENT IN A SI TUATION WHERE THE ASSESSEE GETS A PARTICULAR/SPECIFIC SOFTWARE DEVELOPED BY HIRING TH E PROFESSIONALS AND EXPERT PERSONS. THEN SUCH TRANSACTION SHALL BE TREATED AS AVAILING THE SERVICES OF THE EXPERTS AND THE PAYMENT TO THEM SHALL BE CONSIDERED AS FEES FOR TEC HNICAL SERVICES. BUT, IN THE CASE ON HAND THERE IS NO SUCH ALLEGATION/FINDING OF THE AO THAT THE ASSESSEE HAS HIRED THE EXPERTS TECHNICAL PERSONS FOR AVAILING THE PROFESSI ONAL, MANAGERIAL OR CONSULTANCY SERVICES. 22. BESIDES THE ABOVE, THE LEARNED CIT (A) HAS GIVE N CATEGORICAL FINDING THAT THE FOREIGN PARTY HAS GIVEN CLARIFICATION THAT DESIGN/T HEME WERE DEVELOPED AT ITS OWN AND MADE SALES TO THE ASSESSEE AS WELL OTHER CUSTOMERS. THE LEARNED DR AT THE TIME OF HEARING HAS NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE FINDING OF THE LEARNED CIT ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 8 OF 28 (A). THUS IN SUCH FACTS AND CIRCUMSTANCES IT CAN BE INFERRED THAT THE TRANSACTION BETWEEN ASSESSEE AND THE FOREIGN PARTY FOR THE DESI GN EXPENSES WAS IN THE NATURE OF PURCHASE. THEREFORE, THE PROVISIONS OF TDS SHALL NO T BE ATTRACTED. IN HOLDING SO WE DRAW SUPPORT AND GUIDANCE FROM JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. CREATIVE INFOCITY LTD. REPORTED IN 397 I TR 165 WHERE IT WAS HELD AS UNDER: FROM THE MATERIAL ON RECORD, IT APPEARS THAT THERE WAS AGREEMENT BETWEEN THE ASSESSEE AND NAIMISHA TO PROVIDE DETAIL ED DESIGN AND DRAWINGS FOR THE PROJECT. HOWEVER, AS PER THE REQUIREMENT OF THE ASSESSEE NAIMISHA WAS REQUIRED TO SUPPLY THE DRAWINGS AND DESIGN PREPARED BY BOB. EVEN THE PAYMENT HAS BEEN MADE BY ASSESSEE TO NAIMISHA DIREC TLY FOR SUPPLY OF DRAWINGS AND DESIGN AS PER CLAUSE/ARTICLE 4.3 OF TH E AGREEMENT AND DIFFERENT AMOUNTS WERE REQUIRED TO BE PAID/PAID WITH RESPECT TO DIFFERENT DESIGNS AND DRAWINGS FOR DIFFERENT COMPONENTS OF THE PROJECT VI Z. INFOTOWER-I, INFOTOWER II ETC. IT IS REQUIRED TO BE NOTED THAT EVEN BOB IS NO T SIGNATORY TO THE AGREEMENT AND AGREEMENT IS BETWEEN THE ASSESSEE AND NAIMISHA ONLY. UNDER THE CIRCUMSTANCES, THE PAYMENT MADE BY THE ASSESSEE TOW ARDS SUPPLY OF DESIGN AND DRAWINGS TO NAIMISHA AND THE PAYMENT MADE UNDER THE AGREEMENT IS RIGHTLY HELD TO BE OUTRIGHT PURCHASE AND NOT AS A R OYALTY. THE VIEW TAKEN BY THE TRIBUNAL IN HOLDING THAT THE PAYMENT MADE TOWARDS S UPPLY OF DESIGN AND DRAWINGS TO A NON-RESIDENT WAS OUTRIGHT PURCHASE AN D THEREFORE, NOT TAXABLE AS ROYALTY UNDER SECTION 9(1) WAS TO BE AGREED WITH. [ PARA 8.6] 23. MOVING FURTHER, THE PROVISIONS OF SECTION 195 O F THE ACT PROVIDES THAT IF ANY PAYMENT IS MADE TO NON-RESIDENT WHICH IS CHARGEABLE TO TAX IN INDIA THAN THE ASSESSEE IS LIABLE TO DEDUCT THE TDS ON SUCH PAYMENT. THE PR OVISIONS OF SECTION 195 OF THE ACT READS AS UNDER: 195. 17 [(1) 18 ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT , NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST 18A [ (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC ) ] 19 [***] OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT 19A (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES' 20 [***]) SHALL, 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 ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, D EDUCT INCOME-TAX THEREON AT THE RATES IN FORCE. 24. IN THE LIGHT OF THE ABOVE PROVISION, AND ACCEPT ING THE ALLEGATION OF THE REVENUE THAT THE PAYMENT MADE BY THE ASSESSEE TO FOREIGN PA RTY FOR DESIGN/THEME REPRESENT FEE FOR TECHNICAL SERVICES FOR THE SAKE OF UNDERSTA NDING. WE HAVE TO SEE WHETHER THE PAYMENT MADE BY THE ASSESSEE TO THE FOREIGN PARTY W AS CHARGEABLE TO TAX IN INDIA. ADMITTEDLY, THE SERVICES WERE RENDERED BY THE FOREI GN PARTY IN ITS COUNTRY. LIKEWISE, THE FOREIGN PARTY DID NOT HAD ANY PERMANENT ESTABLI SHMENT IN INDIA. THUS, THE INCOME ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 9 OF 28 WAS ACCRUED AND AROSE TO SUCH FOREIGN PARTY IN A CO UNTRY OUTSIDE INDIA. HENCE, THE SAME IS NOT TAXABLE IN INDIA UNDER THE REALM OF SEC TION 9(1)(VII) OF THE ACT BEING SAME IS PROVIDED OUTSIDE INDIA. THUS, THERE CANNOT BE AN Y QUESTION OF DEDUCTING THE TDS UNDER THE PROVISIONS OF SECTION 195 OF THE ACT. 25. WE ARE ALSO CONSCIOUS TO THE FACT THAT THERE WA S THE EXPLANATION TO SECTION 9 BROUGHT UNDER THE STATUTE BY THE FINANCE ACT 2010 R ETROSPECTIVELY WITH EFFECT FROM 1976. AS PER THIS EXPLANATION THE INCOME OF THE FOR EIGN PARTY SHALL BE CHARGEABLE TO TAX IN INDIA IF IT RELATES TO THE FEE FOR TECHNICAL SERVICES IRRESPECTIVE OF THE FACT WHETHER SUCH NON-RESIDENT HAS/HAS NOT A PLACE OF BUSINESS O R BUSINESS CONNECTION IN INDIA OR NON-RESIDENT HAS/HAS NOT RENDERED SERVICES IN INDIA . FROM THIS EXPLANATION, IT SEEMS THAT THE AMOUNT PAID BY THE ASSESSEE TO THE FOREIGN PARTY AS FEE FOR TECHNICAL SERVICES IS SUBJECT TO TAX IN INDIA DESPITE THE FACT SUCH FO REIGN PARTY DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. HOWEVER WE FIND T HAT SUCH EXPLANATION WHETHER THE SERVICES RENDERED IN INDIA OR NOT WAS BROUGHT IN TH E STATUTE BY THE FINANCE ACT 2010. THE FINANCIAL YEAR BEFORE US IS 2008-09 AND AT THAT RELEVANT POINT OF TIME SUCH EXPLANATION WAS NOT AVAILABLE. ADMITTEDLY, THE SERV ICES WERE NOT RENDERED BY THE FOREIGN PARTY IN INDIA. THUS, FOR THE PURPOSE OF TD S THE PROVISIONS WHICH ARE APPLICABLE FOR THE RELEVANT YEAR HAS TO BE SEEN. IN HOLDING SO WE DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE BENCH OF ITAT IN CASE OF DCIT VS. VIROLA INTERNATIONAL REPORTED IN 42 TAXMANN.COM 286 WHERE IT WAS HELD AS UNDER: 7. THE LAW LAID DOWN BY HON'BLE SUPREME COURT, IN THE CASE OF ISHIKAWAJMA- HARIMA HEAVY INDUSTRIES LTD. (SUPRA) , BINDS EVERYO NE UNDER ARTICLE 141 OF THE CONSTITUTION OF INDIA. THE LEGAL POSITION THUS WAS THAT UNLESS THE SERVICES ARE RENDERED IN INDIA, THE SAME CANNOT BE BROUGHT TO TA X AS 'FEES FOR TECHNICAL SERVICES' UNDER SECTION 9. HOWEVER, THIS LEGAL POSI TION DID UNDERGO A CHANGE WHEN FINANCE ACT 2010 RECEIVED ASSENT OF THE PRESID ENT OF INDIA ON 8TH MAY 2010. EXPLAINING THE SCOPE OF THIS AMENDMENT, A COO RDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ASHAPURA MINICHEM LTD. V. ASSTT. DIT [2010] 40 SOT 220 (MUM.) , HAS EXPLAINED THUS: '(THIS LEGAL POSITION)DOES NO LONGER HOLD GOOD IN VIEW OF RETROSPECTIVE AMENDMENT W.E.F. 1ST JUNE, 1976 IN S. 9 BROUGHT OUT BY THE FINANCE ACT, 2010. UNDER THE AMENDED EXPLANATION TO S. 9(1), AS IT EXI STS ON THE STATUTE NOW, IT IS SPECIFICALLY STATED THAT THE INCOME OF THE NON-RESI DENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CL. (V) OR CL. (VI) OR CL. (VII) OF S. 9(1), AND SHALL BE INCLUDED IN HIS TOTAL INCOME, WHETHER OR NOT (A) TH E NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTI ON IN INDIA; OR (B) THE NON- ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 10 OF 28 RESIDENT HAS RENDERED SERVICES IN INDIA. IT IS THUS NO LONGER NECESSARY THAT, IN ORDER TO ATTRACT TAXABILITY IN INDIA, THE SERVICES MUST ALSO BE RENDERED IN INDIA. AS THE LAW STANDS NOW, UTILIZATION OF THESE SERVICE S IN INDIA IS ENOUGH TO ATTRACT ITS TAXABILITY IN INDIA. TO THAT EFFECT, RECENT AME NDMENT IN THE STATUTE HAS VIRTUALLY NEGATED THE JUDICIAL PRECEDENTS SUPPORTIN G THE PROPOSITION THAT RENDITION OF SERVICES IN INDIA IS A SINE QUA NON FO R ITS TAXABILITY IN INDIA.' 8. IT IS THUS CLEAR THAT TILL 8TH MAY 2010, THE PREVA ILING LEGAL POSITION WAS THAT UNLESS THE TECHNICAL SERVICES WERE RENDERED IN INDI A, THE FEES FOR SUCH SERVICES COULD NOT BE BROUGHT TO TAX UNDER SECTION 9(1)(VII) . THE LAW AMENDED WAS UNDOUBTEDLY RETROSPECTIVE IN NATURE BUT SO FAR AS T AX 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 WITHH ELD, WERE MADE. THE TAX- DEDUCTOR CANNOT BE EXPECTED TO HAVE CLAIRVOYANCE OF KNOWING HOW THE LAW WILL CHANGE IN FUTURE. A RETROSPECTIVE AMENDMENT IN LAW DOES CHANGE THE TAX LIABILITY IN RESPECT OF AN INCOME, WITH RETROSPECTI VE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY, WITH RETROSPECTIVE E FFECT. THE TAX WITHHOLDING OBLIGATIONS FROM PAYMENTS TO NON-RESIDENTS, AS SET OUT IN SECTION 195, 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 THER EOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVE R IS EARLIER, DEDUCT INCOME- TAX THEREON AT THE RATES IN FORCE'. WHEN THESE OBLI GATIONS ARE TO BE DISCHARGED AT THE POINT OF TIME WHEN PAYMENT IS MADE OR CREDIT ED, WHICHEVER IS EARLIER, SUCH OBLIGATIONS CAN ONLY BE DISCHARGED IN THE LIGH T OF THE LAW AS IT STANDS THAT POINT OF TIME. SECTION 40(A)(I) PROVIDES THAT, INTE R ALIA, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, ANY AMOUNT PA YABLE OUTSIDE INDIA, OR PAYABLE IN INDIA TO A NON-RESIDENT, SHALL NOT BE DE DUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' 'ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED'. THE DISALLOWANCE UNDER SECTION 40(A)(I) IS NOT FOR THE PAYMENTS MADE TO NON-RESIDENTS, WHICH ARE TAXABLE I N INDIA, BUT FOR THE PAYMENTS ON WHICH TAX WAS DEDUCTIBLE AT SOURCE BUT TAX HAS NOT BEEN DEDUCTED, AND SUCH DEDUCTIBILITY OF TAX AT SOURCE, AS WE HAVE DISCUSSED ABOVE, HAS TO BE IN THE LIGHT OF THE LEGAL POSITION AS IT STOOD AT THE POINT OF TIME WHEN PAYMENT WAS MADE OR CREDITED- WHICHEVER IS EARLIER. CLEARLY, THEREFORE, THE DISALLOWANCE UNDER SECTION 40(A)(I) CAN COME INTO P LAY ONLY WHEN THE ASSESSEE HAD AN OBLIGATION TO DEDUCT TAX AT SOURCE FROM PAYM ENTS TO NON-RESIDENTS, AND THE ASSESSEE FAILS TO COMPLY WITH SUCH AN OBLIGATIO N. IN VIEW OF THESE DISCUSSIONS, SO FAR AS PAYMENTS MADE BEFORE 8TH MAY 2010 ARE CONCERNED, THE ASSESSEE DID NOT HAVE ANY TAX WITHHOLDING LIABILITI ES FROM FOREIGN REMITTANCES FOR FEES FOR TECHNICAL SERVICES UNLESS SUCH SERVICE S WERE RENDERED IN INDIA, AND A FORTIORI NO DISALLOWANCE CAN BE MADE UNDER SE CTION 40(A)(I) FOR ASSESSEE'S FAILURE TO DEDUCT TAX AT SOURCE FROM SUC H PAYMENTS. 26. IN VIEW OF THE ABOVE, WE HOLD THAT THE ASSESSEE WAS NOT SUBJECT TO THE PROVISIONS OF TDS UNDER THE PROVISIONS OF SECTION 1 95 OF THE ACT. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (A). THUS, WE DECLINE TO INTERFERE IN HIS ORDER. HENCE THE GROUND OF APPEAL OF THE REV ENUE IS DISMISSED. ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 11 OF 28 27. THE 2 ND ISSUE RAISED BY THE REVENUE IS THAT LEARNED CIT (A ) ERRED IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF NON-D EDUCTION OF TDS WITH RESPECT TO THE EXHIBITION EXPENSES. 28. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S CLAIMED CERTAIN EXPENSES UNDER THE HEAD EXHIBITION EXPENSES. THE DETAILS OF THE SAME IS STAND AS UNDER: S.NO. PARTICULARS AMOUNT 1. M/S MESSE FRANKFURT TRADE FAIR INDIA (P) LTD 3,92,626/- 2. M/S FIRST RAIN EXHIBITION INDIA PVT. LTD. 2,52,641/- 3. M/S MESSE FRANKFURT EXHIBITION GMBH(DE) 24,18,696/- 29. AS PER THE ASSESSEE, THE PAYMENT MADE TO M/S ME SSE FRANKFURT TRADE FAIR INDIA (P) LTD. FOR 3,92,626/- REPRESENTS THE REIMBURSEMENT MADE TO IT WHICH WAS INCURRED ON ACCOUNT OF VARIOUS EXPENSES ON BEHALF O F THE ASSESSEE. FURTHERMORE, ALL SUCH EXPENSES ARE BELOW THE THRESHOLD LIMIT PROVIDE D UNDER THE STATUTE AND THEREFORE NO TDS WAS REQUIRED TO BE DEDUCTED. 29.1 THE ASSESSEE FURTHER SUBMITTED THAT THE PAYMEN T TO M/S FIRST RAIN EXHIBITS (INDIA) PVT. LTD. FOR 2,52,641/- WAS PAID AFTER DEDUCTING THE TDS AND TH EREFORE THE SAME CANNOT BE DISALLOWED. 30. LIKEWISE, THE ASSESSEE CONTENDED THAT THE PAYME NT TO M/S MESSE FRANKFURT EXHIBITION GMBH(DE) FOR 24,18,696/- WAS INCURRED IN CONNECTION WITH THE EX HIBITION HELD IN GERMANY WHICH WAS NOT CHARGEABLE TO TAX IN INDIA AS THE SERVICES WERE RENDERED OUTSIDE INDIA. ACCORDINGLY THE QUESTION OF DEDUCTING THE TDS UNDER THE PROVISIONS OF SECTION 195 OF THE ACT DOES NOT ARISE . 31. HOWEVER THE AO DISREGARDED THE CONTENTION OF TH E ASSESSEE BY OBSERVING THAT THE PAYMENT TO M/S MESSE FRANKFURT TRADE FAIR INDIA (P) LTD FOR 3,92,626/- WAS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. FURTHERMORE THERE WAS NO BREAKUP OF THE EXPENSES FURNISHED BY THE ASSESSEE ALONG WITH ANY B ILLS OR VOUCHERS IN SUPPORT OF ITS CLAIM. ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 12 OF 28 32. SIMILARLY, THE AO FOUND THAT THERE WAS NO DOCUM ENTARY EVIDENCE FURNISHED BY THE ASSESSEE SUGGESTING THAT IT HAS DEDUCTED THE TD S ON THE PAYMENT MADE TO M/S FIRST RAIN EXHIBITION (INDIA) PVT LTD. FOR 2,52,641/- . 33. LIKEWISE, THE ASSESSEE HAS NOT FURNISHED ANY SU PPORTING DOCUMENTS WITH RESPECT TO THE EXHIBITION ORGANIZED IN THE GERMANY. AS SUCH IT WAS FOUND OUT FROM THE BANK ADVICES AND THE INVOICES FILED BY THE ASSESSEE THAT THE EXHIBITION WAS ORGANIZED IN MUMBAI AND NOT IN GERMANY. THIS FACT IS ALSO SUP PORTED ON THE TRAVELLING EXPENSES TO GERMANY WHICH WERE INCURRED IN THE MONTH OF JANU ARY 2009 WHEREAS THE PAYMENT RELATES TO THE EXHIBITION WHICH WAS TAKEN PLACE IN THE EARLIER MONTH. ACCORDINGLY THE AO CONCLUDED THAT THE CLAIM OF THE ASSESSEE IS FACT UALLY INCORRECT. 34. IN VIEW OF THE ABOVE THE AO DISALLOWED THE EXPE NSES OF 30,66,571/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 35. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L EARNED CIT (A). 36. THE ASSESSEE BEFORE THE LEARNED CIT (A) FILED C OPY OF TDS CERTIFICATE WITH RESPECT TO THE PAYMENT MADE TO M/S FIRST RAIN EXHIB ITION (INDIA) PVT. LTD. FOR 2,52,641/- AND CONTENDED THAT THE FINDING OF THE AO IS INCORRECT. 37. THE ASSESSEE WITH RESPECT TO THE PAYMENT MADE T O M/S MESSE FRANKFURT TRADE FAIR INDIA (P) LTD. FOR 3,92,626/- FILED THE BREAKUP OF THE EXPENSES: I. OUT OF THE TOTAL AMOUNT, A SUM OF 34,020/- WAS REPRESENTING THE DEPOSITS WHICH WAS ULTIMATELY REFUNDED ON 24 TH DECEMBER 2008 WHICH WAS CREDITED UNDER THE PROMOTION EXPENSES. II. THE BALANCE AMOUNT OF 3,58,606/- WAS REPRESENTING THE REIMBURSEMENT OF EXPENSES SUCH FEE FOR SPACE TAKEN, SERVICE TAX, ELECTRICITY CHARGES ETC. INCURRED BY THE PARTY ON B EHALF OF THE ASSESSEE. 38. IT WAS ALSO CONTENDED BY THE ASSESSEE THAT, THE RECIPIENT COMPANY HAS ENSURED THAT THE INCOME WAS CONSIDERED WHILE FILING RETURN OF INCOME THEREFORE THE SAME CANNOT BE DISALLOWED UNDER THE PROVISIONS OF PROVIS O TO SECTION 40(A)(IA) OF THE ACT. 39. THE ASSESSEE WITH RESPECT TO PAYMENT MADE TO M/ S MESSE FRANKFURT EXHIBITION GMBH(DE) FOR 24,18,696/- AGAIN REITERATED THAT TRADE FARE TOOK PLACE IN GERMANY ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 13 OF 28 THEREFORE NOT TAXABLE IN INDIA. BESIDE THIS THE ASS ESSEE ALSO CONTENDED THAT THERE ARE TWO TYPE OF BILL OF EXHIBITION I.E. HEIMTEXTIL INDI A2008 AND HEIMTEXTIL IN FRANKFURT/M(14/1-17/1/2009) AND THE PAYMENT MADE TO THE IMPUGNED PARTY WAS IN CONNECTION WITH THE LATER ONE. THUS THE AO WRONGLY PRESUMED PAYMENT MADE FOR HEIMTEXTIL INDIA2008. 40. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SION OF THE ASSESSEE WAS PLEASED TO ALLOW PART RELIEF BY DELEING THE ADDITIO N MADE ON ACCOUNT OF PAYMENT MADE TO M/S MESSE FRANKFURT EXHIBITION GMBH(DE) FOR 24,18,696/- AND M/S FIRST RAIN EXHIBITION (INDIA) PVT. LTD. FOR 2,52,641/- BY OBSERVING AS UNDER: I AM PARTLY INCLINED WITH A.O. THAT AS FAR AS PAYM ENT TO M/S FRANKFURT TRADE FAIRS INDIA OF RS.254833/- DT. 08/04/08 AND O F RS.137793/- DT. 17/06/08, NO TDS WAS DEDUCTED ON ONE HAND AND APPELLANT FAILE D TO SUBMIT THE DETAILS WITH EVIDENCE TO SUPPORT THAT SUCH PAYMENTS WERE RE IMBURSEMENT OF EXPENSES BELOW THE LIMIT OF APPLICABILITY OF TDS PROVISION . RATHER THE SAME WERE LUMP- SUM PAYMENT HENCE DISALLOWANCES U/S40(A)(IA) OF THE ACT FOR SUCH AMOUNT OF RS.392626 (254833 + 137793) IS UPHELD AND CONFIRMED . IN REFERENCE TO PAYMENT OF RS.252641/- TO M/S FIRST RAIN EXHIBITS INDIA LTD, THE APPELLANT CONTENDED THAT TDS OF RS.57251- WAS MADE. THIS IS SUPPORTED BY FACT THAT APPELLANT MADE PAYMENT OF RS .1,26,250/- VIDE CH. NO. 459313/- DT. 08/09/2008 AND OF RS.120666/- VIDE CH. NO. 463994 DT. 17/10/2008 TO SETTLE THE ACCOUNT WITH DEDUCTION OF TDS OF RS.5 725/-. THE DETAILS OF SUCH DEDUCTION AND DEPOSIT OF TDS IS VERIFIABLE FROM APP ELLANT'S TDS RETURN AND CHALLAN OF RS.552648/- FOR TDS U/S 194C PAID ON 06/ 11/2008. IT IS THEREFORE, DISALLOWANCES SO MADE U/S 40(A)(IA) OF THE ACT FOR THIS AMOUNT IS NEITHER JUSTIFIED NOR SUSTAINABLE. THE A.O. IS DIRECTED TO DELETE THE DISALLOWANCE & ADDITION SO MADE OF RS.252641/-. FOR BOTH THE PAYMENTS AS DISCUSSED ABOVE FOR MUMBAI EXHIBITION FAIR, APPELLANT'S RELIANCE ON RATIO OF VARIOUS CASE LAWS ARE NOT APPLICABLE ON THE FACTS. INVOICES TO M/S FRANKFURT TRADE FAIRS INDIA, THE INVOICE NO.H1/2008/R-11 DT. 17/04/2008 REFLECT VARIOUS TYPES OF CHARGES BUT THE SAME WERE NOT IN THE FORM OF REIMBURSEMENT BUT PAYMENT IN AGGREGATE. HO N'BLE ITAT VISHAKHAPATNAM ORDER IN THE CASE OF MARILYN SHIPPIN G & TRANSPORT AS RELIED ON BY APPELLANT IS NOT APPLICABLE. THE APPELLANT FAILE D TO SUBMIT ANY DETAILS THAT M/S FRANKFURT TRADE FAIRS INDIA (P) LTD. RAISED BIL LS FOR REIMBURSEMENT OF EXPENSES. AS FAR AS REFUND OF SECURITY DEPOSIT OF R S.34,020/-, THE SAME IS ALREADY ACCOUNTED DEALING WITH TOTAL ADDITION. NOW COMING OVER TO PAYMENT OF RS. 24,18,696/- TO ME SS FRANKFURT EXHIBITION AT GERMANY, I AM INCLINED WITH APPELLANT THAT VARIOUS EVIDENCES SUBMITTED IN THE FORM OF INVOICE, BANK ADVICES FOR PAYMENT AT GERMANY AND TRAVELLING EXPENDITURE CLEARLY REFLECT THAT THE SAM E WERE FOR EXHIBITION AT ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 14 OF 28 GERMANY. THE PAYMENT FOR FEES FOR EXHIBITION BEFORE THE EXPENDITURE OF TRAVELING DOES NOT JUSTIFY THE A.O'S PRESUMPTION TH AT NO SUCH EXHIBITION WAS HELD AT GERMANY AND APPELLANT DID NOT PARTICIPATED BECAUSE A.O. DIDN'T DISALLOWED SUCH TRAVELLING EXPENDITURE. AS DISCUSSE D WHILE ADJUDICATION OF GROUND NO. 2 ABOVE, THE APPELLANT IS NOT LIABLE TO DEDUCT TDS OUT OF SUCH PAYMENT TO NRI PARTIES BECAUSE SERVICES ARE RENDERE D OUTSIDE INDIA. IT IS THEREFORE THE A.O. IS NOT JUSTIFIED IN DISALLOWING SUCH AMOUNT OF RS.2418696/- ON THE PRESUMPTION THAT SUCH EXPENDITURE IS RELATED TO EXHIBITION IN INDIA. THE DETAILS IN THE RESPECTIVE INVOICES (PAGE 29 TO 31 O F PAPER BOOK) AND FOREIGN BILL TRANSACTION ADVICES (PAGE 27 & 28 OF PAPER BOOK) CL EARLY REFLECT THAT INVOICES WERE FOR APPELLANT'S STAND AT 'HEIMTEXTIL IN FRANKF URT/M (14/6 - 17/01/09), HALL 10.0, STAND NO.B65 + HALL 6.0, STAND NO. C18' AND PAYMENT MADE IN 'EUROS' OUTSIDE INDIA. THE A.O. IS DIRECTED TO ALLOW THIS E XPENDITURE AND DELETE THE ADDITION OF RS.2418696/-. IT IS THEREFORE OUT OF TOTAL DISALLOWANCES AND ADDI TION OF RS.3066571/-, THE DISALLOWANCES AND ADDITION OF RS.2671373/- (252 641 + 2418696) IS DIRECTED TO BE DELETED WHILE ADDITION OF RS.392626/- IS UPHE LD AND CONFIRMED. THE DIFFERENCE OF RS.2572 (3066577 - 2671373 - 392626) IS ON ACCOUNT OF DIFFERENCE IN AMOUNT AS PER CLAIM IN I.T. AND INVOI CE RELATED TO PAYMENT TO MESS. FRANKFURT EXHIBITION DT. 23/10/08 AND 26/11/0 8. THE APPELLANT GETS PART RELIEF. THIS GROUND IS TREATED AS PARTLY ALLOWED. 41. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) BOTH THE REVENUE AND ASSESSEE ARE IN CROSS APPEAL BEFORE US. THE REVENUE IS IN APPEAL AGAINST DELETION OF ADDITION FOR RS. 26,71,337/- WHEREAS THE ASSESSEE I S IN CROSS OBJECTION AGAINST CONFIRMATION OF ADDITION FOR RS. 3,92,626/-. 42. BOTH THE LEARNED DR AND LEARNED AR BEFORE US VE HEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW TO THE EXTENT FAVOURABLE T O THEM. 43. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE AO HA S MADE DISALLOWANCES ON ACCOUNT OF EXHIBITION EXPENSES PAID TO 3 PARTIES WHICH HAVE BEEN DETAILED IN PREVIOUS PARAGRAPH. AS FAR AS PAYMENT OF RS. 2,52,641/- MADE TO M/S FIRST RAIN EXHIBITION (INDIA) PVT LTD IS CONCERNED, WE FIND THAT ASSESSEE HAS MADE PAYMENT TO IMPUGNED PARTY AFTER DEDUCTING ELIGIBLE TAX AT SOURCE. IN TH IS RESPECT, THE ASSESSEE HAS FURNISHED TDS CERTIFICATE IN FROM 16A WHICH IS PLACED ON PAGE 37 OF PAPER BOOK. HENCE, WE HOLD THAT THE LEARNED CIT (A) RIGHTLY DELETED THE ADDITI ON UNDER SECTION 40(A)(IA) TO THIS EXTENT. ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 15 OF 28 44. NOW COMING TO DISALLOWANCE MADE BY THE AO FOR T HE AMOUNT PAID TO M/S MESSE FRANKFURT TRADE FAIR INDIA (P) LTD. FOR RS. 3,92,62 6/-. THE CONTROVERSY IN THE PRESENT CASE RELATES TO THE DISALLOWANCE OF THE EXPENSES ON ACCOUNT OF NON-DEDUCTION OF TDS UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE AC T. HOWEVER, THE LEARNED AR AT THE TIME OF HEARING BEFORE US HAS SUBMITTED THAT THE IM PUGNED AMOUNT REPRESENT THE REIMBURSEMENT OF THE EXPENSES. THUS THE PROVISIONS OF TDS WILL NOT BE APPLICABLE IN THE CASE ON HAND. HOWEVER, THE ASSESSEE HAS NOT FUR NISHED ANY DETAILS IN SUPPORT OF HIS CONTENTION. THEREFORE WE ARE DISMISSING THE CON TENTION OF THE ASSESSEE. 45. LIKEWISE, IT WAS ALSO CONTENDED BY THE ASSESSEE THAT THE PAYEES HAVE ALREADY INCLUDED THE AMOUNT RECEIVED FROM THE ASSESSEE IN T HEIR FINANCIAL STATEMENTS AND PAID THE DUE TAXES THEREON. THIS FACT CAN BE VERIFIED BY THE AO FROM THE RESPECTIVE PARTIES. ACCORDINGLY, THERE CANNOT BE ANY DISALLOWANCE BY VI RTUE OF THE 2 ND PROVISO TO SECTION 40(A)(IA) OF THE ACT. FOR THIS PURPOSE, THE LD. AR REQUESTED THAT THE MATTER CAN BE REFERRED BACK TO THE AO FOR THE NECESSARY VERIFICAT ION. 46. UNDOUBTEDLY, THE PRIMARY ONUS LIES UPON THE ASS ESSEE TO DEDUCT THE TDS UNDER CHAPTER XVIII-B OF THE ACT. IN CASE, THE ASSESSEE F AILS TO DEDUCT THE TDS, THEN THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION OF THE CORRE SPONDING EXPENDITURE. HOWEVER, THE LAWMAKERS HAVE GIVEN RELIEF TO CERTAIN ASSESSEE BY INSERTING THE 2 ND PROVISO TO SECTION 40(A)(IA) OF THE ACT WHICH READS AS UNDER: PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE O R ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHA PTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDE R THE FIRST PROVISO TO SUB- SECTION (1) OF SECTION 201 , THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHAL L BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESID ENT PAYEE REFERRED TO IN THE SAID PROVISO. 47. IT IS ALSO IMPORTANT TO REFER THE PROVISIONS OF SECTION 201 OF THE ACT WHICH READS AS UNDER: [ PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER O F A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCOR DANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN D EFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 16 OF 28 (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139 ; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND (III) HAS PAID THE TAX DUE ON THE INCOME DECLARED B Y HIM IN SUCH RETURN OF INCOME, AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFE CT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED 68 : 48. FROM THE PRECEDING DISCUSSION IT IS TRANSPIRED THAT PAYERS DEFAULTING IN DEDUCTING TDS FROM PAYMENTS TO RESIDENT PAYEES NEED NOT TO BE DEEMED AS ASSESSEE IN DEFAULT IN THE FOLLOWING CONDITIONS: (A) PAYEE HAS INCLUDED THE IMPUGNED AMOUNT ON WHICH TAX WAS NOT DEDUCTED/SHORT DEDUCTED BY THE PAYER IN HIS RETURN OF INCOME FILED UNDER SECTION 139 AND PAYS THE TAXES DUE ON R ETURNED INCOME AND (B) PAYER PRODUCES A CERTIFICATE IN PRESCRIBED FORM FROM A CA TO THE EFFECT THAT THE PAYEE HAS INCLUDED THE INCOME IN RETURN AND PAI D TAXES THEREOF. 49. THE CBDT HAS PRESCRIBED FORM NO. 26A FOR CA CER TIFICATE TO BE OBTAINED AND FURNISHED BY PAYER EVIDENCING COMPLIANCE BY PAY EE. 50. FROM THE ABOVE DISCUSSION, IT IS TRANSPIRED THA T THE ASSESSEE CAN BE GRANTED IMMUNITY FROM DISALLOWANCES OF EXPENSES ON ACCOUNT OF NON-DEDUCTION OF TAXES PROVIDED THAT THE ASSESSEE (PAYER) FURNISHES THE CE RTIFICATE IN THE PRESCRIBED FORM. THUS THE ONUS IS UPON THE ASSESSEE. HOWEVER WE FIND THAT ASSESSEE HAS NOT FURNISHED THE NECESSARY CERTIFICATE IN FORM 26A PRE SCRIBED BY THE CBDT. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LE ARNED CIT (A). 51. NOW THE ISSUE REMAINS FOR THE AMOUNT PAID TO M/ S MESSE FRANKFURT EXHIBITION GMBH(DE) FOR RS. 24,18,696/- ONLY. FROM THE PRECEDI NG DISCUSSION WE NOTE THE ASSESSEE HAS CLAIMED AMOUNT PAID TO IMPUGNED PARTY WAS RELATED TO EXHIBITION HELD IN GERMANY I.E. OUTSIDE INDIA. THUS SUCH AMOUNT WAS NO T TAXABLE IN INDIA. THE CLAIM OF THE ASSESSEE WAS NOT RELIED UPON BY THE AO FOR THE REASON THAT THE INVOICE WAS CONTAINING PLACE OF EXHIBITION AT MUMBAI. HOWEVER T HIS FINDING OF THE AO WAS HELD FACTUALLY INCORRECT BY THE LEARNED CIT(A). THE LEAR NED CIT(A) HAS GIVEN CATEGORICAL FINDING THAT THE INVOICE AGAINST WHICH PAYMENT WAS MADE TO THE IMPUGNED PARTY, THE ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 17 OF 28 PLACE OF EXHIBITION IS GERMANY NOT MUMBAI INDIA. TH US THE LEARNED CIT(A) IN VIEW OF ABOVE AND OTHER DOCUMENTARY EVIDENCES SUCH AS TRAVE LLING DETAILS DELETED THE ADDITION MADE BY THE AO. FROM THE PRECEDING DISCUSSION, WE N OTE THAT THE FINDING GIVEN BY THE LEARNED CIT(A) HAVE NOT BEEN CONTROVERTED BY THE LE ARNED DR BEFORE US BASED ON DOCUMENTARY EVIDENCE. THEREFORE IN SUCH FACTS AND C IRCUMSTANCES OF THE CASE ON HAND WE HOLD THAT THE EXHIBITION SERVICES WERE AVAI LED BY THE ASSESSEE IN GERMANY I.E. OUTSIDE INDIA. HENCE THE SAME IS NOT TAXABLE I N INDIA UNDER THE PREVIEW OF SECTION OF SECTION 9(1) OF THE ACT. ACCORDINGLY THE ASSESSE E WAS NOT LIABLE TO DEDUCT WITHHOLDING TAX UNDER SECTION 195 OF THE ACT. THERE FORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (A) AND DIRECT TO THE AO TO DELETE THE ADDITION MADE TO THIS EXTENT. 52. THUS IN VIEW OF THE ABOVE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED WHEREAS THE GROUND RAISED IN THE CO BY THE ASSESSEE IS ALSO DISMISSED. 53. THE 3 RD ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CI T(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 2,86,495/- REPR ESENTING THE LATE PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PF/ESI. 54. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS NOT DEPOSITED EMPLOYEES CONTRIBUTION TOWARDS THE PF/ES I WITHIN THE TIME SPECIFIED UNDER THE RELEVANT ACT I.E. PROVIDENT FUND ACT/ESI. ACCOR DINGLY THE AO DISALLOWED THE SAME UNDER THE PROVISIONS OF SECTION 36(1)(VA) AND TREAT ED THE SAME AS INCOME OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 2(24)(IX) OF THE ACT. 55. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L EARNED CIT (A). 56. THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITT ED THAT THE AO HAS MADE THE DISALLOWANCE OF THE ENTIRE AMOUNT OF 3,56,268/- WHICH IS COMPRISING OF EMPLOYERS CONTRIBUTION, EMPLOYEES CONTRIBUTION AND ADMINISTRA TIVE CHARGES FOR RS. 1,73.892/-, RS. 1,66,934/- AND RS. 15,442/- RESPECTIVELY. AS FA R AS PAYMENT OF EMPLOYERS CONTRIBUTION AND ADMINISTRATIVE EXPENSES ARE CONCER NED, THE SAME IS ALLOWABLE UNDER THE PROVISIONS OF SECTION 36(1)(IV) OF THE ACT READ WITH SECTION 43B OF THE ACT. 57. THE ASSESSEE REGARDING THE EMPLOYEES CONTRIBUT ION SUBMITTED THAT THE PAYMENT HAS BEEN MADE WITHIN THE GRACE PERIOD OF TH E DUE DATE AS SPECIFIED UNDER ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 18 OF 28 THE RELEVANT ACT. ACCORDINGLY AS PER THE ASSESSEE T HE EMPLOYEES CONTRIBUTION CANNOT BE TREATED AS INCOME UNDER THE PROVISIONS OF SECTIO N 2(24)(X) R.W.S. 36(1)(VA) OF THE ACT. 58. HOWEVER THE LEARNED CIT (A) WITH RESPECT TO THE AMOUNT OF EMPLOYERS CONTRIBUTION AND ADMINISTRATIVE EXPENSES OF RS. 1, 73,892/- AND RS. 15,442/- FOUND THAT THE ASSESSEE HAS MADE THE PAYMENT OF SUCH AMOU NT BEFORE THE DUE DATE OF FILING THE RETURN AS SPECIFIED UNDER SECTION 139(1) OF THE ACT. ACCORDINGLY, THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER THE PROVISIONS OF SECT ION 36(1)(IV) READ WITH SECTION 43B OF THE ACT. 59. WITH RESPECT TO THE EMPLOYEES CONTRIBUTION TOW ARDS THE PF/ESI, THE LEARNED CIT (A) FOUND THAT THE DEDUCTION OF THE SAME CANNOT BE ALLOWED BY VIRTUE OF THE ORDER OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CI T VS. GSRTC IN TAX APPEAL NO. 637 OF 2013 DATED 26.12.2013 IF THE SAME HAS NOT BEEN P AID WITHIN THE DUE DATE AS SPECIFIED UNDER THE PROVISIONS OF THE RELEVANT ACT. THE LEARNED CIT (A) FURTHER OBSERVED THAT UNDER THE PF AND ESI ACT, THE PERIOD FOR MAKING THE PAYMENT HAS BEEN SPECIFIED WITHIN 15 DAYS FROM THE END OF THE MONTH IN WHICH SALARY OF THE ASSESSEE BECAME DUE. HOWEVER, THERE HAS BEEN GIVEN THE GRACE PERIOD OF 5 DAYS UNDER THE RELEVANT ACT FOR MAKING THE PAYMENT OF EMPLOYEES C ONTRIBUTION TOWARDS THE PF/ESI. IN FACT THE ASSESSEE WAS LIABLE TO PAY THE EMPLOYEES C ONTRIBUTION ON OR BEFORE 20 TH DAY OF THE MONTH FROM THE CLOSE OF THE MONTH IN WHICH T HE SALARY WAS DUE FOR PAYMENT. ACCORDINGLY, THE LEARNED CIT (A) HELD THAT THE GRAC E PERIOD OF 5 DAYS SHOULD ALSO BE ALLOWED TO THE ASSESSEE. IN OTHER WORDS ANY PAYMENT MADE BEYOND 20 TH DAY OF THE SUCCEEDING MONTH IN WHICH THE SALARY BECAME DUE, WI LL NOT BE ALLOWED AS DEDUCTION UNDER THE PROVISIONS OF SECTION 36(1)(VA) OF THE AC T. IN HOLDING SO LEARNED CIT (A) DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE G UJARAT HIGH COURT IN THE CASE OF CIT VS. AMOLI ORGANICS PVT. LTD 41 TAXMAN.COM 149. 60. IN VIEW OF THE ABOVE, THE LEARNED CIT (A) MADE THE DISALLOWANCE OF 69,773/- REPRESENTING THE EMPLOYEES CONTRIBUTION TOWARDS PF /ESI WHICH WAS PAID AFTER PERIOD OF GRACE PERIOD OF 5 DAYS. 61. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) BOTH THE REVENUE AND THE ASSESSEE ARE IN APPEAL BEFORE US. THE REVENUE IS AG AINST DELETION OF ADDITION MADE ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 19 OF 28 FOR RS. 2,86,495/- WHEREAS THE ASSESSEE IS IN CO A GAINST CONFIRMATION OF ADDITION FOR RS. 69,773/-. THE ASSESSEE GROUND IN CO READS AS UN DER: 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N NOT ALLOWING A SUM OF RS.69,773/- ON ACCOUNT OF LATE PAYMENT OF EMPLOYEE CONTRIBUTION TO PROVIDENT FUND. 62. BOTH THE LEARNED DR AND THE AR BEFORE US VEHEME NTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. 63. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO CONFUSIO N OR AMBIGUITY TO THE FACT THAT THE CONTRIBUTION OF EMPLOYERS CONTRIBUTION AND ADMINIS TRATIVE CHARGES ARE GOVERNED UNDER THE PROVISIONS OF SECTION 36(1)(IV) READ WITH SECTI ON 43B OF THE ACT. ADMITTEDLY THE ASSESSEE HAS MADE EMPLOYERS CONTRIBUTION AND ADMIN ISTRATIVE CHARGES WITHIN THE DUE DATE AS SPECIFIED DEDUCTION 139(1) OF THE ACT. ACCO RDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (A). 64. REGARDING THE EMPLOYEES CONTRIBUTION, WE NOTE THAT THERE IS NO AMBIGUITY THAT THE ASSESSEE WAS ENTITLED FOR MAKING THE PAYMENT WI THIN THE GRACE PERIOD AS PER PROVIDED UNDER THE ACT. IN HOLDING SO WE DRAW SUPPO RT AND GUIDANCE FROM THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN CA SE OF CIT VS. AMOLI ORGANICS PVT. LTD 41 TAXMAN.COM 149 WHERE IT WAS HELD AS UNDER: UNDER PARTICULAR ACT OR LAW, IN THE PRESENT CASE U NDER THE PROVIDENT FUND ACT, IF THE ASSESSEE WAS ENTITLED TO MAKE PAYMENT WITHIN THE GRACE PERIOD AND IF WITHIN THAT GRACE PERIOD, ITS EMPLOYER CONTRIBUTION S HAVE BEEN DEPOSITED BY THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE HAS N OT DEPOSITED THE AMOUNT WITH THE DEPARTMENT WITHIN THE DUE DATE AS PRESCRIB ED UNDER THE PROVIDENT FUND ACT. UNDER SUCH CIRCUMSTANCES, AS SUCH NO ERRO R AND/OR ILLEGALITY HAS BEEN COMMITTED BY THE TRIBUNAL IN GRANTING DEDUCTIO N TO THE ASSESSEE WITH RESPECT TO THE AMOUNT DEPOSITED WITH THE PROVIDENT FUND DEPARTMENT WITHIN THE EXTENDED PERIOD/GRACE PERIOD. UNDER THE CIRCUMSTANC ES, NO OTHER ISSUES ARE REQUIRED TO BE CONSIDERED. NO QUESTION OF LAW MUCHL ESS ANY SUBSTANTIAL QUESTION OF LAW ARISES IN THE PRESENT APPEAL. [PARA 8] 65. IN VIEW OF THE ABOVE WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE LEARNED CIT (A). HOWEVER ANY PAYMENT OF EMPLOYEES CONTRIBUTION BEYOND THE GRACE PERIOD IS NOT ALLOWED FOR DEDUCTION. HENCE THE GROUND OF APPEAL O F THE REVENUE IS DISMISSED AND THE CO OF THE ASSESSEE IS ALSO DISMISSED. ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 20 OF 28 66. THE 4 TH ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CI T (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 4,83,060/- ON ACCOUNT OF DEPRECIATION, INTEREST AND RUNNING EXPENSES FOR THE VEHICLE REGISTERED IN THE NAME OF THE DIRECTOR. 67. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS SHOWN MANY CARS IN ITS FINANCIAL STATEMENTS. HOWEVE R ONE OF THE CAR, PURCHASED IN THE YEAR UNDER CONSIDERATION WAS REGISTERED IN THE NAME OF THE DIRECTOR. ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE ASSESSEE CANNOT CLAIM D EPRECIATION AND OTHER EXPENSES QUA THIS CAR FOR THE REASON IT WAS NOT OWNED BY THE ASSESSEE. THUS THE AO DISALLOWED THE AMOUNT OF DEPRECIATION AND INTEREST ON SUCH CAR AMOUNTING TO RS. 3,14,805/- AND RS. 2,00,533/- RESPECTIVELY. LIKEWISE, THE AO FOUND THAT THE CAR RUNNING EXPENSES PERTAINING TO THIS CAR I.E. REGISTERED IN THE NAME OF THE DIRECTOR CANNOT BE ALLOWED AS DEDUCTION BUT SUCH EXPENSES WERE MIXED WITH THE OTH ER CAR RUNNING EXPENSES. THUS THE AO ASSUMED 10% OF THE TOTAL CAR RUNNING EXPENSE S PERTAINING TO THE IMPUGNED CAR. THUS THE AO DISALLOWED THE CAR EXPENSES OF 1,28,742/- ONLY AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 68. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L EARNED CIT (A), WHO PROVIDED PART RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER: I AM PARTLY INCLINED WITH APPELLANT THAT ON THE SI MILAR FACTS, HONBLE ITAT AHMEDABAD AFTER CONSIDERING VARIOUS CASE LAWS AS RE LIED ON BY A.O., ALLOWED THE CLAIM OF DEPRECIATION TO COMPANY FOR THE VEHICL E REGISTERED IN THE NAME OF DIRECTOR FOLLOWING THE RATIO OF HONBLE SUPREME COU RT IN THE CASE OF MYSORE MINERALS. IT IS UNDISPUTED THAT SAID CAR IS REFLEC TED AS ASSET OF THE COMPANY. THE APPELLANT TOOK A LOAN AND REPAID THROUGH EMI IN CLUDING INTEREST I.E. SOURCE OF PURCHASE ARE OF APPELLANT AND A.O. HIMSELF NOT D ISPUTED THE CAR WAS USED FOR THE PURPOSE OF BUSINESS THOUGH PARTLY IN THE ABSENC E OF LOG BOOK. IT IS IN THIS REGARD, PROVISIONS OF SECTION 38(2) OF THE ACT ARE IMPORTANT WHICH PERMIT THE PART USE OF ASSETS AND ALLOWABILITY OF SUCH PART DE PRECIATION. CONSIDERING ALL THESE FACTS, I TREAT THAT THE SAID CAR WAS PARTLY U SED AND ONLY 75% OF SUCH DEPRECATION AND INCIDENTAL EXPENSES ARE FOR THE PUR POSE OF BUSINESS, WHILE 25% ARE REQUIRED TO BE DISALLOWED. IT IS THEREFORE AO IS DIRECTED TO ALLOW 75% OF TOTAL DISALLOWANCE I.E. RS.483060 (75% OF 644080 ), WHILE BALANCE OF RS.161020 (644080 483060) IS UPHELD AND CONFIRMED . THE APPELLANT GETS PART RELIEF. THIS GROUND IS PARTLY ALLOWED. 69. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) BOTH THE REVENUE AND THE ASSESSEE ARE IN CROSS APPEALS. THE REVENUE IS IN AP PEAL AGAINST DISALLOWANCES OF 75% OF TOTAL ADDITION I.E. RS. 4,83,060/- WHEREAS T HE ASSESSEE IS IN CO AGAINST THE ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 21 OF 28 CONFIRMATION OF RS.1,61,020/- BEING 25% OF TOTAL AD DITION MADE BY THE AO. THE RELEVANT GROUND OF ASSESSEE IN THE CO READS AS UNDE R: 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N NOT ALLOWING A SUM OF RS.1,61,020/- ON ACCOUNT OF CAR DEPRECIATION, INTER EST AND RUNNING EXPENSES. 70. BOTH THE LEARNED DR AND AR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW TO THE EXTENT FAVOURABLE TO THEM. 71. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, IT IS NEC ESSARY FOR THE ASSESSEE TO OWN THE ASSETS FOR CLAIMING THE DEPRECIATION ON THE ASSETS. BUT THE WORD OWN HAS NOT BEEN DEFINED UNDER THE PROVISIONS OF THE ACT WHETHER THE OWNERSHIP REFERS TO THE LEGAL OWNERSHIP OR THE BENEFICIAL OWNERSHIP. UNDOUBTEDLY, THE ASSESSEE IN THE PRESENT CASE IS NOT THE LEGAL OWNER OF THE VEHICLES BUT IT HAS M ADE THE PAYMENT FOR THE ACQUISITION OF THE CARS. THUS IT CAN BE INFERRED THAT THE ASSESSEE OWNS THE CARS IN THE CAPACITY OF BENEFICIAL OWNER. THUS, IN OUR CONSIDERED VIEW THE ASSESSEE IS ENTITLED FOR THE DEPRECIATION AND INTEREST EXPENSES ON THE CAR. IN H OLDING SO WE DRAW SUPPORT AND GUIDANCE FROM THE ORDER OF THIS TRIBUNAL IN CASE OF ITO VS. ELECTRO FERRO ALLOYS LTD. IN ITA NO 2773/AHD/2009 REPORTED IN 25 TAXMANN.COM 458 WHERE THE RELEVANT FINDING OF THE COORDINATE BENCH READS AS UNDER: 5. 2. ON CONSIDERATION OF THE FACTS OF THE APPELLA NT'S CASE IT IS NOTICED THAT THE MOTOR CAR WAS PURCHASED, THOUGH IN THE NAME OF THE APPELLANT'S DIRECTOR, IT WAS PURCHASED OUT OF THE FUNDS OF THE APPELLANT-COMPANY AND IT IS ALSO NOT IN DISPUTE THAT THE MOTOR CAR WAS PURCHASED FOR THE PU RPOSE OF BUSINESS OF THE APPELLANT. THUS THE MOTOR CAR BEING, BUSINESS ASSET OF THE APPELLANT AND PURCHASED FOR THE PURPOSE OF BUSINESS AND USED AS S UCH BY THE APPELLANT, IN VIEW OF THE DECISION IN THE CASE OF MYSORE MINERALS LTD. [1999] 239 ITR 775 (SC) REFERRED TO ABOVE AND OTHER DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE, I HOLD THAT THE DISALLOWANCE MADE B Y THE ASSESSING OFFICER ON THIS GROUND IS NOT JUSTIFIED AND HENCE THE SAME IS DIRECTED TO BE DELETED. 22. 2 IN THE PRESENT CASE IT IS NOT DISPUTED THAT I NVESTMENT WAS MADE BY THE ASSESSEE IN PURCHASE OF THE MOTOR CAR. IT IS SHOWN AS ASSET IN THE BALANCE- SHEET OF THE COMPANY. IF EXPENDITURE FOR RUNNING TH E VEHICLE WAS INCURRED BY THE ASSESSEE, THE ASSESSEE IS DE FACTO OWNER OF THE VEH ICLE. IT IS NOT DISPUTED THAT IT WAS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E COMPANY. THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. MOHD. BU X SHOKAT ALI (NO. 2) [2002] 256 ITR 357 (RAJ) HELD THAT WHERE VEHICLE WAS PURCHASED BY THE FIRM USED BY IT FOR THE PURPOSE OF ITS BUSINESS BUT IT WAS REGISTER ED IN THE NAME OF ONE OF THE PARTNERS THEN THE FIRM WOULD BE ENTITLED TO DEPRECI ATION ON VEHICLE. THE HON'BLE ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 22 OF 28 DELHI HIGH COURT IN THE CASE OF CIT V. BASTI SUGAR MILLS CO. LTD. [2002] 257 ITR 88 (DELHI) HELD THAT WHERE VEHICLE WAS OWNED AND USED BY THE ASSESSEE BUT NO REGISTRATION WAS DONE IN ITS NAME THEN THE ASSESSEE WOULD STILL BE ENTITLED TO DEPRECIATION ON SUCH VEHICLE. THEREFORE, THE ASSESS EE HAS RIGHT TO CLAIM DEPRECIATION THEREON. THIS GROUND OF THE REVENUE IS ACCORDINGLY REJECTED.' 72. REGARDING THE OTHER EXPENSES OF FUEL AND MAINTE NANCE ON SUCH CARS, WE FIND THAT THE AO HAS MADE THE DISALLOWANCE IN ADHOC MANN ER WHICH ARE NOT PERMITTED UNDER THE PROVISIONS OF LAW. AS SUCH, THE AO WAS UN DER THE OBLIGATION TO PINPOINT THE PERSONAL EXPENSES INCURRED BY THE ASSESSEE BUT HE H AS NOT DONE SO. 73. IT IS ALSO IMPORTANT TO NOTE THAT THE DOMINION OWNERSHIP OF THE CAR REST WITH THE COMPANY. THE COMPANY BEING A BODY CORPORATE IS DIFF ERENT FROM THE INDIVIDUALS. IN OTHER WORDS IN A BODY CORPORATE THERE CANNOT BE ANY ELEMENT OF PERSONAL EXPENSES AS ALLEGED BY THE AO. 74. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT (A). HENCE TH E GROUND OF APPEAL OF THE REVENUE IS DISMISSED WHEREAS GROUND RAISED BY THE ASSESSEE IN THE CO IS ALLOWED. 75. THE LAST ISSUE RAISED BY THE REVENUE IS THAT TH E LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO UNDER SECTION 36(1)(III ) OF THE ACT ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUND. 76. THE AO DURING ASSESSMENT PROCEEDING OBSERVED TH AT ON ONE HAND, THE ASSESSEE IS PAYING HUGE INTEREST ON BORROWED FUND A ND ON THE OTHER HAND, IT HAS PROVIDED LOAN/ ADVANCES TO EXTENT OF RS. 49,22,496/ - TO CERTAIN PARTIES FROM WHERE NO INTEREST WAS CHARGED. THE AO ALSO OBSERVED THAT THE ASSESSEE ALSO FAILED TO SUBSTANTIATE THAT THESE ADVANCES WERE GIVEN AS ADVA NCE FOR GOODS SUPPLY. ACCORDINGLY THE ASSESSEE DISALLOWED THE PROPORTIONA TE INTEREST @ 12% TO THE TUNE OF RS. 5,90,700/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 77. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A) WHO WAS PLEASED TO DELETE THE ADDITION MADE BY THE AO BY OB SERVING AS UNDER: I AM INCLINED WITH APPELLANT THAT IN THE ABSENCE O F ANY DIRECT NEXUS AND WITH THE AVAILABILITY OF INTEREST FREE FUND IN THE FORM OF SHARE CAPITAL, RESERVE & SURPLUS, NO SUCH DISALLOWANCE OF INTEREST CAN BE MA DE U/S 36(1)(III) OF THE ACT IN VIEW OF RATIO OF VARIOUS CASE LAWS AS RELIED ON BY APPELLANT. HONBLE ITAT ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 23 OF 28 AHMEDABAD IN THE CASE OF SHITAL KUMAR SHANKARLAL PR AJAPATI AS RELIED ON BY APPELLANT ALLOWED THE RATIO OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED 313 ITR 340 AN D HELD SO. THE A.O. THOUGH EXCLUDED THE TRADE DEBTOR AFTER EXAMINATION OF LEDGER ACCOUNT OF SOME OF THE PARTIES BUT FAILED TO ESTABLISH DIRECT NEXUS OF ADVANCE OF LOAN FROM INTEREST BEARING FUND. IT IS THEREFORE THE DISALLO WANCES SO MADE ARE NEITHER JUSTIFIED NOR SUSTAINABLE. THE A.O. IS DIRECTED TO ALLOW SUCH INTEREST AND DELETE THE ADDITION OF RS.590700/-. THE APPELLANT GETS RE LIEF ACCORDINGLY. THIS GROUND IS ALLOWED. 78. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 79. BOTH THE LEARNED DR AND LEARNED AR BEFORE US VE HEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AS FAVOURABLE TO THEM. 80. WE HEARD THE RIVAL CONTENTION OF BOTH THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSIONS WE NOTE THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF INTEREST FREE LOAN A ND ADVANCES OF RS.49,22,496/- WHICH CAN BE VERIFIED FROM BALANCE SHEET REPRODUCED AS UNDER: SOURCE OF FUNDS: SHARE HOLDERS FUND SHARE CAPITL A 69,080,000 65,080,000 SHARE APPLICATION MONEY 35,000,000 0 RSERVES & SURPLUS B 151,501,583 135,354, 148 81. THERE CANNOT BE ANY DISALLOWANCE OF INTEREST EX PENSES IN A SITUATION WHERE THE OWN FUND EXCEEDS THE AMOUNT OF INVESTMENT MADE BY T HE ASSESSEE. AS SUCH, THERE IS A PRESUMPTION THAT THE INVESTMENT HAS BEEN MADE BY THE ASSESSEE OUT OF ITS OWN WITHOUT INVOLVING ANY BORROWED FUND. IN HOLDING SO WE DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS. TORRENT POWER LTD REPORTED IN 363 ITR 474 WHERE IT WAS HELD AS UNDER: IT WAS NOTED FROM RECORDS THAT THE ASSESSEE WAS HA VING SHARE HOLDING FUNDS TO THE EXTENT OF 2607.18 CRORES AND THE INVESTMENT MAD E BY IT WAS TO THE EXTENT OF`RS.195.10 CRORES. IN OTHER WORDS, THE ASSESSEE H AD SUFFICIENT FUNDS FOR MAKING THE INVESTMENTS AND IT HAD NOT USED THE BORR OWED FUNDS FOR SUCH PURPOSE. THIS ASPECT OF HUGE SURPLUS FUNDS IS NOT D ISPUTED BY THE REVENUE WHICH EARNED IT THE INTEREST ON BONDS AND DIVIDEND INCOME. [PARA 7] ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 24 OF 28 82. IN VIEW OF THE ABOVE WE HOLD THAT THERE CANNOT BE ANY DISALLOWANCE OF INTEREST EXPENSES. HENCE THE GROUND OF APPEAL OF THE REVENUE IS HEREBY DISMISSED. 83. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. COMING TO C.O.NO. 56/AHD/2015 FILED BY THE ASSESSEE . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN CO : 1. THE LD. CIT APPEALS 1 AHMEDABAD HAS ERRED IN LA W AND ON FACTS IN PASSING APPELLATE ORDER DATED 24/12/2014 FOR A.Y. 2 009-10 IN THE CASE OF APPELLANT BY CONFIRMING THE ADDITIONS MADE BY THE A .O. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN NOT ALLOWING A SUM OF RS.392626/- OUT OF EXHIBITION EXPENSES. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING A SUM OF RS.69773/- ON ACCOUNT OF LATE PAYMENT OF EMPLOYEE C ONTRIBUTION TO PROVIDENT FUND. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING A SUM OF RS.669550/- OUT OF SCHOLARSHIP FEE. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING A SUM OF RS.161020/- OUT OF CAR DEPRECIATION, INTEREST AND R UNNING EXPENSES. 6. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING A SUM OF RS.132521/- OUT OF COMMISSION EXPENSES. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AME ND OR WITHDRAW ANY OF THE GROUNDS OF APPEAL ON OR BEFORE OF THE FINAL HEARING OF APPEAL. 84. THE FIRST ISSUE RAISED BY THE ASSESSEE IN CO IS GENERAL IN NATURE. HENCE THE SAME IS DISMISSED BEING GENERAL GROUND. 85. THE SECOND ISSUE RAISED BY THE ASSESSEE IN CO I S THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCES OF EXHIBITION EXPEN SES IN PART FOR RS. 3,92,626/- ONLY. 86. AT THE OUTSET WE NOTE THAT THE ISSUE HAS BEEN D EALT WITH GROUND NO. 2 OF REVENUES APPEAL WHERE THE ISSUE HAS BEEN DECIDED I N THE FAVOUR OF THE REVENUE. FOR THE DETAILED DISCUSSION, PLEASE REFER TO PARAGR APH NO. 44 TO 50 OF THIS ORDER. ACCORDINGLY, THE GROUND OF ASSESSEES CO IS DISMISS ED. ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 25 OF 28 87. THE 3 RD ISSUE RAISED BY THE ASSESSEE IN CO IS THAT THE LEA RNED CIT(A) ERRED IN CONFIRMING THE PART DISALLOWANCES OF RS. 69,773/- O N ACCOUNT OF LATE PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS EPF/ESI. 88. AT THE OUTSET WE NOTE THAT THE ISSUE HAS BEEN D EALT WITH GROUND NO. 3 OF REVENUES APPEAL WHERE THE ISSUE HAS BEEN DECIDED A GAINST THE ASSESSEE. FOR THE DETAILED DISCUSSION, PLEASE REFER TO PARAGRAPH NO. 64 TO 65 OF THIS ORDER. ACCORDINGLY THE GROUND OF ASSESSEES CO IS DISMISSED. 89. THE 4 TH ISSUE RAISED BY THE ASSESSEE IN CO IS THAT THE LEA RNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 6,69,550/- ON AC COUNT OF SCHOLARSHIP FEE. 90. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS. 6,69,550/- TOWARDS SCHOL ARSHIP FEE. HOWEVER ON QUESTION, THE ASSESSEE FAILED TO SUBMIT ANY DOCUMENTARY EVIDE NCE AS WELL AS FAILED TO OFFER ANY EXPLANATION. ACCORDINGLY THE AO DISALLOWED THE SAME IN ABSENCE OF ANY EXPLANATION AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 91. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT (A). 92. THE ASSESSEE BEFORE LEARNED CIT (A) SUBMITTED T HAT THE DOCUMENTARY EVIDENCES WERE NOT SUBMITTED FOR THE REASON THAT TH E SAME ARE NOT TRACEABLE. HOWEVER, THE SAME CAN BE ALLOWED IN VIEW OF THE FAC T THAT THE BOOKS OF ACCOUNTS HAVE BEEN AUDITED BY INDEPENDENT AUDITOR AND NO ADVERSE REMARKS MADE BY THE AUDITOR IN THIS RESPECT. 93. HOWEVER, THE LEARNED CIT(A) REJECTED THE ASSESS EES CONTENTION AND CONFIRMED THE DISALLOWANCE MADE BY THE AO BY OBSERVING AS UND ER: (IV) I AM INCLINED WITH AO THAT IN THE ABSENCE OF ANY SUPPORTING EVIDENCES AND JUSTIFICATION FOR CLAIM OF SUCH EXPENSES, EVEN IF THERE IS NO ADVERSE COMMENT FROM AUDITOR, SUCH EXPENSES CANNOT BE ALLOW ED. THE ONUS IS ON APPELLANT TO NOT ONLY SUBSTANTIATE THE PAYMENTS BUT ALSO THE CLAIM OF EXPENSES THAT THE SAME ARE INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF BUSINESS. THE DISALLOWANCES AND ADDITION SO MADE IS THEREFORE UPHELD AND CONFIRMED. THIS GROUND IS DISMISSED. 94. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS IN THE APPEAL BEFORE US THROUGH THE CO. ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 26 OF 28 95. THE LEARNED AR BEFORE US REITERATED THE SUBMISS IONS MADE BEFORE THE AUTHORITIES BELOW. 96. ON THE OTHER HAND LEARNED DR VEHEMENTLY SUPPORT ED THE ORDER OF THE LOWER AUTHORITIES. 97 WE HAVE HEARD THE RIVAL ARGUMENTS OF BOTH THE PA RTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY, THE ASSE SSEE FAILED TO FILE ANY SUPPORTING EVIDENCES WITH REGARD TO THE IMPUGNED EXPENDITURE. THUS THE SAME WAS DISALLOWED BY THE AO IN ABSENCE OF SUPPORTING EVIDENCES WHICH WER E SUBSEQUENTLY CONFIRMED BY THE LEARNED CIT(A). WE FIND THAT THAT PRIMARY ONUS LIES UPON THE ASSESSEE TO PROVE THAT THE CLAIM OF DEDUCTION IS GENUINE AND INCURRED FOR THE PURPOSE OF BUSINESS BASED ON DOCUMENTARY EVIDENCE. BUT IN THE CASE ON HAND THE A SSESSEE FAILED TO DISCHARGE PRIMARY ONUS CAST UPON IT. EVEN AT THE TIME OF HEAR ING THE LEARNED AR HAS NOT BROUGHT ANYTHING ON RECORD BY SUBMITTING THE SUPPORTING EVI DENCES. THUS IN SUCH FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFE RE INTO THE FINDING OF THE LEARNED CIT (A). HENCE OF GROUND OF ASSESSEES CO IS DISMIS SED. 98. THE ISSUE RAISED IN GROUND NO. 5 BY THE ASSESSE E IS THAT THE LEARNED CIT (A) ERRED IN NOT ALLOWING THE DEDUCTION OF 1,61,020.00 FOR CAR DEPRECIATION, INTEREST AND RUNNING EXPENSES. 99. AT THE OUTSET WE NOTE THAT THE ISSUE HAS BEEN D EALT WITH GROUND NO. 4 OF REVENUES APPEAL WHERE THE ISSUE HAS BEEN DECIDED I N FAVOR OF THE ASSESSEE. FOR THE DETAILED DISCUSSION, PLEASE REFER TO PARAGRAPH NO.7 1 TO 74 OF THIS ORDER. ACCORDINGLY THE GROUND OF ASSESSEES CO IS ALLOWED. 100. THE LAST ISSUE RAISED BY THE ASSESSEE IN CO IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCES OF COMMISSION EXPENSES OF RS.1,32,521/- ONLY. 101. THE ASSESSEE DURING THE YEAR INCURRED COMMISSI ON EXPENSES OF RS. 65,47,564/- ONLY. OUT OF TOTAL COMMISSION EXPENSES, THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE ON THE AMOUNT OF RS. 1,32,521/- UNDER SEC TION 194H OF THE ACT. ON QUESTION THE ASSESSEE ALSO FAILED TO OFFER ANY EXPLANATION E XCEPT SUBMITTING THE LEDGER ACCOUNT OF COMMISSION EXPENSES. THUS THE AO DISALLOWED THE SAME BY INVOKING THE PROVISION OF SECTION 40(A)(IA) OF THE ACT. ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 27 OF 28 102. THE AGGRIEVED ASSESSEE CARRIED THE MATTER TO T HE LEARNED CIT (A) AND SUBMITTED THAT IT HAS DEDUCTED TAX AT SOURCE ON COM MISSION PAID. HOWEVER IN SOME CASES SHORT DEDUCTION WAS MADE. THEREFORE THE GENUI NE EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS SHOULD NOT BE DISALLOWED MERELY FOR TECHNICAL LAPSE. THE ASSESSEE ALSO CLAIMED THAT THE ENTIRE AMOUNT OF COM MISSION WAS PAID DURING THE YEAR AND NO AMOUNT WAS OUTSTANDING AS ON THE BALANCE SHE ET DATE. THEREFORE IN VIEW OF DECISION OF SPECIAL OF BENCH OF VISHAKHAPATNAM ITAT IN CASE OF MERLYN SHIPPING & TRANSPORT VS. ACIT IN ITA NO. 477/VIS/2008, NO DISA LLOWANCES CAN BE MADE. 103. HOWEVER THE LEARNED CIT (A) REJECTED THE CONTE NTION OF THE ASSESSEE BY OBSERVING AS UNDER: (III) I AM NOT INCLINED WITH APPELLANT WHO WITHOU T ANY SUPPORTING EVIDENCES FOR THE CONTENTION THAT IT DEDUCTED TDS AT LOWER RA TE. FURTHER, THE RATIO OF VARIOUS CASE LAWS AS RELIED ON BY APPELLANT ARE NOW NO LONGER APPLICABLE SINCE HONBLE ANDHRA PRADESH HIGH COURT REVERSED THE RATI O SO ENUNCIATED BY HONBLE ITAT VISAKHAPATNAM SPECIAL BENCH. IT IS TH EREFORE WITH A VIEW THAT THERE ARE PAYMENTS OF COMMISSION TO WHICH TDS PROVI SIONS ARE APPLICABLE BUT APPELLANT FAILED TO DEDUCT SUCH TDS, THE DISALLOWAN CE & ADDITION SO MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT ARE UPHELD. THIS GROUND IS DISMISSED. 104. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CI T(A), THE ASSESSEE IS IN CO BEFORE US. 105. THE LEARNED AR BEFORE US REITERATED THE SUBMIS SIONS AS MADE BEFORE THE LEARNED CIT (A). ON THE OTHER HAND, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 106. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE TIME OF HEARI NG, THE LEARNED AR HAS NOT BROUGHT ANYTHING ON RECORD EVIDENCING THAT THE TDS HAS BEEN DEDUCTED BY THE ASSESSEE ON THE IMPUGNED AMOUNT OF COMMISSION EXPENSES. THUS, I N THE ABSENCE OF SUPPORTING DOCUMENTS, WE DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE LEARNED AR FOR THE ASSESSEE. IT IS ALSO IMPORTANT TO NOTE THAT THE PRI NCIPLES LAID DOWN BY THE TRIBUNAL IN THE CASE OF MERLYN SHIPPING & TRANSPORT VS. ACIT IN ITA NO. 477/VIS/2008 HAVE BEEN OVERRULED BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME- TAX, KOLKATA XI V. CRESCENT EXPORT SYNDICATE REPORTED IN 33 TAXMANN.CO M 250 WHICH WAS SUBSEQUENTLY UPHELD BY THE HONBLE SUPREME COUR T IN THE CASE OF PALAM GAS ITA NO.630/AHD/2015 & C.O. NO.56/AHD/2015 A.Y. 2009-10 PAGE 28 OF 28 SERVICE V . COMMISSIONER OF INCOME-TAX REPORTED IN 81 TAXMANN.C OM 43. IN VIEW OF THE ABOVE, WE HOLD THAT THE ASSESSEE CANNOT BE ABSOLVED FROM THE LIABILITY OF DEDUCTING THE TDS ON THE AMOUNT OF COMMISSION MERELY ON THE R EASONING THAT SUCH AMOUNT WAS NOT SHOWN AS PAYABLE AT THE END OF THE FINANCIAL YE AR. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF THE AUTHORITI ES BELOW. HENCE THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN CO IS DISMISSED. 107. IN THE RESULT THE C.O. IS PARTLY ALLOWED. 108. IN THE COMBINED RESULT, THE APPEAL OF THE REVE NUE IS DISMISSED WHEREAS THE CO OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 30 TH SEPTEMBER, 2021 AT AHMEDABAD. SD/- SD/- (MS. MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, THE 30 TH DAY OF SEPTEMBER, 2021 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER UE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD