K.S. AIYAR & CO., MUMBAI V. ASST CIT 11(2), MUMBAI

ITA 7127/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5835 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 29-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Keywords: Revised return
• Section: 80G

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI .. , ; BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIVEK VARMA, J M ./ I.T.A. NO.282 /MUM/2013 ( / ASSESSMENT YEAR : 2008-2009 ACIT 11(2), ROOM NO. 479, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 20. / VS. M/S K.S. AIYAR & CO., F-7, LAXMI MILL COMPOUND, SHAKTI MILLS LANE, OFF DR. E. MOSES ROAD, MAHALAXMI, MUMBAI 400 011. ./ PAN :AAAFK 6843 P ( # / APPELLANT ) .. ( $%# / RESPONDENT ) ./ I.T.A. NO.7127 /MUM/2012 ( / ASSESSMENT YEAR : 2008-2009 M/S K.S. AIYAR & CO., F-7, LAXMI MILL COMPOUND, SHAKTI MILLS LANE, OFF DR. E. MOSES ROAD, MAHALAXMI, MUMBAI 400 011. / VS. ACIT 11(2), ROOM NO. 479, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 20. ./ PAN :AAAFK 6843 P ( # / APPELLANT ) .. ( $%# / RESPONDENT ) ./ I.T.A. NO.283 MUM/2013 ( / ASSESSMENT YEAR : 2009-2010 ACIT 11(2), ROOM NO. 479, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 20. / VS. M/S K.S. AIYAR & CO., F-7, LAXMI MILL COMPOUND, SHAKTI MILLS LANE, OFF DR. E. MOSES ROAD, MAHALAXMI, MUMBAI 400 011. ./ PAN :AAAFK 6843 P ( # / APPELLANT ) .. ( $%# / RESPONDENT ) 4 APPEALS M/S K.S. AIYAR & CO 2 ./ I.T.A. NO.7128 MUM/2012 ( / ASSESSMENT YEAR : 2009-2010 M/S K.S. AIYAR & CO., F-7, LAXMI MILL COMPOUND, SHAKTI MILLS LANE, OFF DR. E. MOSES ROAD, MAHALAXMI, MUMBAI 400 011. / VS. ACIT 11(2), ROOM NO. 479, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 20. ./ PAN :AAAFK 6843 P ( # / APPELLANT ) .. ( $%# / RESPONDENT ) A SSESSEE BY SHRI VIJAY MEHTA REVENUE BY : SHRI M.L. PERUMAL ) * / DATE OF HEARING : 26-3-2014 ) * / DATE OF PRONOUNCEMENT : 28-3-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THESE FOUR APPEALS, TWO FILED BY THE ASSESSEE AND T WO FILED BY THE REVENUE, ARE CROSS APPEALS FOR ASSESSMENT YEARS 20 08-09 AND 2009-10 AND SINCE SOME COMMON ISSUES ARE INVOLVED THEREIN, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE SHALL TAKE UP THE CROSS APPEALS FOR A. Y. 2008-09 WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) - 3, MUMB AI DATED 22-10-2012. 3. THE FIRST ISSUE INVOLVED IN GROUND NO. 1 OF THE REVENUES APPEAL RELATES TO THE DISALLOWANCE OF RS. 1,01,463/- MADE BY THE A .O. U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF SUBSCRIPTION PAI D BY THE ASSESSEE TO M/S BAKER TILLEY INTERNATIONAL (BTI) WHICH HAS BEEN DEL ETED BY THE LD. CIT(A). 4 APPEALS M/S K.S. AIYAR & CO 3 4. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM OF CHARTERED ACCOUNTANTS IN PRACTICE. THE RETURN OF INCOME FOR T HE YEAR UNDER CONSIDERATION I.E. A.Y. 2008-09 WAS FILED BY IT ON 30-9-2008 DECLARING TOTAL INCOME OF RS. 1,98,85,990/-. IN THE P&L ACCOUNT FI LE ALONG WITH THE SAID RETURN, A SUM OF RS. 1,01,463/- WAS DEBITED BY THE ASSESSEE ON ACCOUNT OF MEMBERSHIP FEES PAID TO BTI. ACCORDING TO THE A.O., THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE SAID PAYM ENT AND SINCE THE SAME WAS NOT DONE BY THE ASSESSEE, HE DISALLOWED THE MEM BERSHIP FEES OF RS. 1,01,463/- PAID BY THE ASSESSEE TO BTI BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ON APPEAL, THE LD. CIT(A) DEL ETED THE SAID DISALLOWANCE. 5. AT THE TIME OF HEARING BEFORE US, THE LD. REPRES ENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSE ES OWN CASE FOR A.Y. 2005- 06 AND FOLLOWED IN A.Y. 2006-07 & 2007-08 BY A COMM ON ORDER DATED 19 TH JUNE, 2013 PASSED IN ITA NO. 384/MUM/2009, 1271/MUM /2010 AND 4930/MUM/2011 WHEREIN A SIMILAR ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 41 TO 4 3:- 41. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND HAVE ALSO PERUSED THE MATERIAL PLACED BEFORE US AND THE CASE LAWS CITED BY BOTH THE PARTIES. WE FIND THAT BOTH THE PARTIES, I.E. RE VENUE AUTHORITIES AND THE ASSESSEE HAVE TREADED SIMPLY ON THE PATH OF DED UCTIBILITY OF TAS AND RELIED ON THE CASE LAWS. WHEN WE READ THE RELEV ANT PROVISIONS, ALONG THE CIRCULAR, AND THE RELEVANT CLAUSES OF THE AGREEMENT, WE FIND THAT NO PART OF THE PAYMENT MADE AS SUBSCRIPTION TO BTI HAS RESULTED IN INCOME IN ITS HANDS. SINCE THE PAYMENT HAS BEEN MAD E IN A FOREIGN COUNTRY, TAS PROVISIONS HAVE TO BE APPLIED GUARDEDL Y. CLAUSE 3.5 OF THE AGREEMENT (AS REPRODUCED HEREIN ABOVE) GATHERS IMPORTANCE, WHICH READS, NOTHING IN THE ARRANGEMENTS ENVISAGED BY THESE BYE -LAWS SHALL CONSTITUTE A PARTNERSHIP, JOINT VENTURE OR AGENCY RELATIONSHIP B ETWEEN THE COMPANY AND THE MEMBERS OR ANY OF THEM OR BETWEEN ANY OF THE MEMBER S . NO MEMBER IS AN AGENT OF THE COMPANY OR OF ANY OTHER MEMBER, AND A MEMBER DOES N OT HAVE AUTHORITY TO BIND OR TO ACT ON BEHALF OF THE COMPANY OR ANY OTHER MEMBER. 4 APPEALS M/S K.S. AIYAR & CO 4 42. THE RELEVANT CLAUSE, SPECIFIES THAT THE COMPANY SHALL NOT CONSTITUTE ANY PARTNERSHIP, JOINT VENTURE OR AGENCY RELATIONSHIP WITH ITS MEMBERS. THIS CLEARS THE DECK TO COME TO THE CONCLU SION THAT THE SUBSCRIPTION PAID TO BTI DOES NOT INVOLVE ANY INCOM E ELEMENT AND THEREFORE, THE PROVISIONS OF TAS SHALL NOT BE APPLI CABLE. BESIDES THE ABOVE OBSERVATION, IT WOULD BE WORTHWHILE TO MENTIO N THAT THE CASE OF ARTHUR ANDERSON & CO. (SUPRA) , RELIED UPON BY THE DR, WAS ON DISTINCT FACTS, HENCE CANNOT BE RELIED UPON, UNDER THE PRESE NT SET OF FACTS AND CIRCUMSTANCES. SO FAR AS THE CASE OF GE TECHNOLOGY (SUPRA), THE HONBLE SUPREME COURT EXPLAINS THE APPLICABILITY OF EXPRESS ION THE EXPRESSION CHARGEABLE UNDER THE PROVISIONS OF THE ACT IN SEC TION 195(1) SHOWS THAT THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF WHICH IS LIABLE TO TAX IN INDIA. IF TAX IS NOT SO A SSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED . IN THE PRESENT CONTEXT, WE FIND THAT NONE OF THE CONDITIONS GETS FULFILLED HER EIN, IN WHICH CASE, THE CASE, AS CITED, IS IN EFFECT, IN FAVOUR OF THE ASSE SSEE. 43. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDERS OF BOTH THE REVENUE AUTHORITIES AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 2,17,594/- MADE TO BTI. 6. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2005-06, 2006-07 & 2007- 08, WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNA L IN ASSESSEES OWN CASE AND WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELE TING THE DISALLOWANCE MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT. GROUND N O. 1 IS ACCORDINGLY DISMISSED. 7. THE NEXT ISSUE INVOLVED IN GROUND NO. 2 OF THE R EVENUES APPEAL RELATES TO THE ADDITION OF RS. 29,31,618/- MADE BY THE A.O. BY WAY OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF PAYMENT MADE TO SUB CONTRACTOR AND INTERNATIONAL AFFILIATES FOR SHORT DEDUCTION OF TAX AT SOURCE WHICH HAS BEEN DELETED BY THE LD. CIT(A). 8. DURING THE COURSE OF ASSESSMENT PROCEEDING, IT W AS NOTICED BY THE A.O. THAT THE ASSESSEE HAS MADE PAYMENTS ON ACCOUNT OF S UB-CONTRACTING OF AUDIT WORK ON WHICH THERE WAS SHORT DEDUCTION OF TA X. HE, THEREFORE, INVOKED 4 APPEALS M/S K.S. AIYAR & CO 5 THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DISALLOWED THE CORRESPONDING AMOUNT PAID TO THE SUB-CONTRACTOR TO THE TUNE OF RS . 29,31,618/-. ON APPEAL, THE LD. CIT(A) DELETED THE SAID DISALLOWANC E. 9. AT THE TIME OF HEARING BEFORE US, THE LD. REPRES ENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE CALCUTTA HIGH COURT IN T HE CASE OF CIT VS. S.K. TEKRIWAL, 361 ITR 432 (CAL) WHEREIN IT WAS HELD THA T THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CAN BE MADE ONLY WHEN THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DED UCT THE TAX AT SOURCE AND NOT IN CASE WHERE THERE IS ONLY SHORT DEDUCTION OF TAX AT SOURCE. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HONBLE CALCUTTA HIGH COURT, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE DISAL LOWANCE MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT FOR SHORT DEDUCTION OF TAX AT SOURCE AND DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 10. IN GROUND NO. 1 OF ITS APPEAL, THE ISSUE RAISED BY THE ASSESSEE RELATES TO THE ADDITION OF RS. 63,255/- MADE BY THE A.O. AND C ONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF UN-RECONCILED ENTRIES OF AIR. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUN SEL FOR THE ASSESSEE HAS PLACED ON RECORD BEFORE US A REMAND REPORT DTD. 5-6 -2012 SUBMITTED BY THE A.O. BEFORE THE LD. CIT(A) TO POINT OUT THAT AFTER EXAMINING THE DOCUMENTS FILED BY THE ASSESSEE DURING THE COURSE OF APPELLAT E PROCEEDINGS BEFORE THE LD. CIT(A), IT WAS FOUND BY THE A.O. THAT OUT OF THE UN -RECONCILED DIFFERENCE OF RS. 63,255/-, A SUM OF RS. 52,425/- WAS NOT RECEIVED BY THE ASSESSEE AND THEREFORE THE AMOUNT ONLY TO THE EXTENT OF RS. 10,8 30/- STOOD UN-RECONCILED. KEEPING IN VIEW THIS FINDING GIVEN BY THE A.O. HIMS ELF IN HIS REMAND REPORT, WHICH HAS REMAINED UN-REBUTTED BY THE LD. D.R., WE AGREE WITH THE CONTENTION 4 APPEALS M/S K.S. AIYAR & CO 6 OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ADDITI ON ON ACCOUNT OF UN- RECONCILED DIFFERENCE IN AIR SHOULD BE RESTRICTED T O RS. 10,830/- AS THE ASSESSEE IS ADMITTEDLY FOLLOWING CASH SYSTEM OF ACC OUNTING. WE ACCORDINGLY RESTRICT THE ADDITION MADE BY THE A.O. AND CONFIRME D BY THE LD. CIT(A) TO THAT EXTENT AND ALLOW PARTLY GROUND NO. 1 OF THE ASSESSE ES APPEAL. 12. THE ISSUE RAISED IN GROUND NO. 2 OF THE ASSESSE ES APPEAL RELATES TO THE DISALLOWANCE OF RS. 31,29,961/- MADE BY THE A.O. AN D CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE F IRM TO THE LEGAL HEIR OF THE DECEASED PARTNER. 13. AT THE TIME OF HEARING, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR A.Y. 2005-06 AND FOLLOWED IN A.Y. 2006-07 AND 2007-08 VIDE ITS COMMO N ORDER DATED 19-06- 2013 (SUPRA) WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PAR A 53:- 53. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED T HE MATERIAL ON RECORD AND CASE CITED BEFORE US. THE ISSUE, IN SO FAR AS T HE ASSESSEE IS CONCERNED, CAN BE SAID TO IN FAVOUR AND COVERED BY AN ORDER OF THE COORDINATE BENCH IN ITS OWN CASE IN ASSESSMENT YEAR 1981-82. WE ALSO FIND T HAT THE AO HAS HIMSELF CONCEDED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MULLA & MULLA HAS HELD THAT AN OVERRIDING CHARGE TO HAVE BEEN CRE ATED OVER THE ASSESSEE, WHERE, BY THE OBLIGATION, INCOME IS DIVERTED BEFOR E IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE . SINCE THE PAYMENT HAS BEEN MADE BY THE FIRM TO TH E LEGAL HEIR OF ITS DECEASED PARTNER, AS PER THE CLAUSES OF THE PAR TNERSHIP DEED DATED 1.4.2000 HAVING UNEQUIVOCAL COVENANTS. IN OUR OPINI ON, THE AMOUNT SO PAID TO THE LEGAL HEIR OF THE DECEASED PARTNER IS AN ALLOWA BLE EXPENSE. 14. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF ASSESSMENT YEARS 2005- 06, 2006-07 AND 2007-08, WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR THE SAID YEARS AND DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PAYMENT MADE BY THE AS SESSEE TO THE LEGAL HEIR OF 4 APPEALS M/S K.S. AIYAR & CO 7 THE DECEASED PARTNER. GROUND NO. 2 OF THE ASSESSEE S APPEAL IS ACCORDINGLY ALLOWED. 15. THE ISSUE INVOLVED IN GROUND NO. 3 OF THE ASSES SEES APPEAL RELATES TO THE DISALLOWANCE OF RS. 3,25,204/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) BEING 1/5 TH OF THE TOTAL TELEPHONE AND CONVEYANCE EXPENSES CLA IMED BY THE ASSESSEE. 16. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD CLAIMED TELEPHONE, CAR AND CONVEYANCE TO PARTNERS AMOUNTING TO RS. 7,97,268/-, RS. 10,71,289/- AND RS. 51,187/- RESPECTIVELY. SINCE N O RECORD IN THE FORM OF LOG BOOK, TELEPHONE REGISTER ETC. WAS MAINTAINED BY THE ASSESSEE TO ESTABLISH THAT THESE EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS, 20% OF THE EXPENSES WERE DISALLOWED BY TH E A.O. ON ACCOUNT OF ELEMENT OF PERSONAL USE INVOLVED IN THE SAID EXPENS ES. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE FOR THE SAME REASONS GIVEN BY THE A.O. 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ALTHOUGH TH E LD. COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT A SIMILAR ISSUE HAS B EEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE EARLIER Y EARS I.E. ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08, WE FIND THAT THE FACT S INVOLVED IN THE YEAR UNDER CONSIDERATION ARE MATERIALLY DIFFERENT. IN A .Y. 2005-06, A SIMILAR DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) WAS DELETED BY THE TRIBUNAL ON THE GROUND THAT SOME DISALLOWANCE W AS OFFERED BY THE ASSESSEE SUO MOTU IN THE COMPUTATION OF TOTAL INCOM E AND THERE WAS NO SUCH DISALLOWANCE MADE IN THE CASE OF THE ASSESSEE FOR T HE IMMEDIATELY PRECEDING AND SUCCEEDING YEARS. THE FACTS INVOLVED IN THE A. Y. 2008-09, HOWEVER, ARE DIFFERENT INASMUCH AS NO DISALLOWANCE OUT OF TELEPH ONE AND CONVEYANCE 4 APPEALS M/S K.S. AIYAR & CO 8 EXPENSES IS OFFERED BY THE ASSESSEE IN THE COMPUTAT ION OF TOTAL INCOME ON ACCOUNT OF PERSONAL USE AND THE A.O. HAS NOT ONLY M ADE SUCH DISALLOWANCE IN A.Y. 2008-09 AFTER MAKING A SIMILAR DISALLOWANCE IN 2005-06 BUT ALSO REPEATED THE SAME IN A.Y. 2009-10. KEEPING IN VIEW ALL THE RELEVANT FACTS OF THE CASE, WE ARE OF THE VIEW THAT SOME DISALLOWANCE ON ACCOUNT OF PERSONAL USE OF THE TELEPHONES AND CONVEYANCE OF THE ASSESSE E FIRM BY ITS PARTNERS IS VERY MUCH CALLED FOR AND IT WOULD BE FAIR AND REASO NABLE TO MAKE SUCH DISALLOWANCE AT 1/10 TH OF THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE TOWA RDS TELEPHONE AND CONVEYANCE EXPENSES. ACCORDINGLY, WE MODIFY THE IMPUGNED ORDER OF THE LD. CIT(A) AND SUSTAIN THE DISALLOWANC E OF 1/5 TH OF THE CONVEYANCE AND TELEPHONE EXPENSES TO 1/10 TH. GROUND NO. 3 OF THE ASSESSEES APPEAL IS THUS PARTLY ALLOWED. 18. NOW, WE SHALL TAKE UP THE CROSS APPEALS FOR A.Y . 2009-10 WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)- 3, MUMBAI DATED 22-10-2012. 19. THE FIRST ISSUE INVOLVED IN GROUND NO. 1 OF TH E REVENUES APPEAL RELATES TO THE DISALLOWANCE OF RS. 3,71,625/- MADE BY THE A .O. U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF SUBSCRIPTION PAI D BY THE ASSESSEE TO M/S BAKER TILLEY INTERNATIONAL (BTI) WHICH HAS BEEN DEL ETED BY THE LD. CIT(A). 20. AT THE TIME OF HEARING BEFORE US, THE LD. REPRE SENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSE ES OWN CASE FOR A.Y. 2005- 06 AND FOLLOWED IN A.Y. 2006-07 & 2007-08 BY A COMM ON ORDER DATED 19 TH JUNE, 2013 PASSED IN ITA NO. 384/MUM/2009, 1271/MUM /2010 AND 4930/MUM/2011 WHEREIN A SIMILAR DISALLOWANCE WAS DE LETED BY THE TRIBUNAL FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 41 TO 4 3:- 4 APPEALS M/S K.S. AIYAR & CO 9 41. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND HAVE ALSO PERUSED THE MATERIAL PLACED BEFORE US AND THE CASE LAWS CIT ED BY BOTH THE PARTIES. WE FIND THAT BOTH THE PARTIES, I.E. REVENUE AUTHORITIE S AND THE ASSESSEE HAVE TREADED SIMPLY ON THE PATH OF DEDUCTIBILITY OF TAS AND RELIED ON THE CASE LAWS. WHEN WE READ THE RELEVANT PROVISIONS, ALONG THE CIR CULAR, AND THE RELEVANT CLAUSES OF THE AGREEMENT, WE FIND THAT NO PART OF T HE PAYMENT MADE AS SUBSCRIPTION TO BTI HAS RESULTED IN INCOME IN ITS H ANDS. SINCE THE PAYMENT HAS BEEN MADE IN A FOREIGN COUNTRY, TAS PROVISIONS HAVE TO BE APPLIED GUARDEDLY. CLAUSE 3.5 OF THE AGREEMENT (AS REPRODUCED HEREIN ABOVE) GATHERS IMPORTANCE, WHICH READS, NOTHING IN THE ARRANGEMENTS ENVISAGED BY THESE BYE -LAWS SHALL CONSTITUTE A PARTNERSHIP, JOINT VENTURE OR AGENCY RELATIONSHIP B ETWEEN THE COMPANY AND THE MEMBERS OR ANY OF THEM OR BETWEEN ANY OF THE MEMBER S . NO MEMBER IS AN AGENT OF THE COMPANY OR OF ANY OTHER MEMBER, AND A MEMBER DOES N OT HAVE AUTHORITY TO BIND OR TO ACT ON BEHALF OF THE COMPANY OR ANY OTHER MEMBER. 42. THE RELEVANT CLAUSE, SPECIFIES THAT THE COMPANY SHALL NOT CONSTITUTE ANY PARTNERSHIP, JOINT VENTURE OR AGENCY RELATIONSHIP W ITH ITS MEMBERS. THIS CLEARS THE DECK TO COME TO THE CONCLUSION THAT THE SUBSCRI PTION PAID TO BTI DOES NOT INVOLVE ANY INCOME ELEMENT AND THEREFORE, THE PROVI SIONS OF TAS SHALL NOT BE APPLICABLE. BESIDES THE ABOVE OBSERVATION, IT WOULD BE WORTHWHILE TO MENTION THAT THE CASE OF ARTHUR ANDERSON & CO. (SUPRA) , RELIED UPON BY THE DR, WAS ON DISTINCT FACTS, HENCE CANNOT BE RELIED UPON, UNDER THE PRESENT SET OF FACTS AND CIRCUMSTANCES. SO FAR AS THE CASE OF GE TECHNOLOGY (SUPRA), THE HONBLE SUPREME COURT EXPLAINS THE APPLICABILITY OF EXPRESS ION THE EXPRESSION CHARGEABLE UNDER THE PROVISIONS OF THE ACT IN SEC TION 195(1) SHOWS THAT THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF WHICH IS LIABLE TO TAX IN INDIA. IF TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED . IN THE PRESENT CONTEXT, WE FIND THAT NONE OF THE CONDITIONS GETS FULFILLED HEREIN, IN WHICH CASE, THE CASE, AS CITED, IS IN EFFECT, IN FAVOUR OF THE ASSESSEE. 43. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDERS OF BOTH THE REVENUE AUTHORITIES AND DIRECT THE AO TO DELETE THE DISALLO WANCE OF RS. 2,17,594/- MADE TO BTI. 21. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2005-06, 2006-07 & 2007- 08, WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNA L IN ASSESSEES OWN CASE AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETIN G THE DISALLOWANCE MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT. 22. THE NEXT ISSUE INVOLVED IN GROUND NO. 2 OF THE REVENUES APPEAL RELATES TO THE ADDITION OF RS. 7,74,253/- MADE BY THE A.O. BY WAY OF DISALLOWANCE U/S 4 APPEALS M/S K.S. AIYAR & CO 10 40(A)(IA) OF THE ACT ON ACCOUNT OF PAYMENT MADE TO SUB CONTRACTOR AND INTERNATIONAL AFFILIATES FOR SHORT DEDUCTION OF TAX AT SOURCE WHICH HAS BEEN DELETED BY THE LD. CIT(A). 23. AT THE TIME OF HEARING BEFORE US, THE LD. REPRE SENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE CALCUTTA HIGH COURT IN T HE CASE OF CIT VS. S.K. TEKRIWAL, 361 ITR 432 (CAL) WHEREIN IT WAS HELD THA T THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CAN BE MADE ONLY WHEN THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DED UCT THE TAX AT SOURCE AND NOT IN CASE WHERE THERE IS ONLY SHORT DEDUCTION OF TAX AT SOURCE. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HONBLE CALCUTTA HIGH COURT, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE DISAL LOWANCE MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT BEING SHORT DEDUCTION OF T AX AT SOURCE AND DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 24. IN GROUND NO. 1 OF ITS APPEAL, THE GRIEVANCE RA ISED BY THE ASSESSEE IS THAT THE REVISED RETURN FILED BY IT CLAIMING DEDUCT ION U/S 80G OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 1,02,596/- WAS NOT C ONSIDERED BY THE A.O. 25. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80G OF THE ACT AMOUNTING TO RS. 1,02,596/- MADE IN THE FORM OF REVISED RETURN WAS NOT CONSIDERED BY THE A.O. AND THE LD. CIT(A) DID NOT GIVE ANY DIRECTION TO THE A.O. TO CONSIDER THE SAME AS SOUGHT BY THE ASSESSEE ON THE GROUND THAT THE PROOF OF FILING OF REVISED RETURN WAS NOT FILED BY THE ASSESSEE BEFORE HIM. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED SUCH PROOF AND MADE A RE QUEST THAT THIS MATTER MAY BE RESTORED TO THE FILE OF THE A.O. FOR CONSIDERING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80G OF THE ACT ON MERIT AS MADE IN TH E REVISED RETURN. SINCE 4 APPEALS M/S K.S. AIYAR & CO 11 THE LD. D.R. HAS NOT RAISED ANY OBJECTION IN THIS R EGARD, WE RESTORE THIS MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO CONSIDE R THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80G ON MERIT AS MADE IN THE REVISED R ETURN. GROUND NO. 1 ASSESSEES APPEAL IS THUS TREATED AS ALLOWED FOR ST ATISTICAL PURPOSE. 26. THE ISSUE RAISED IN GROUND NO. 2 OF THE ASSES SEES APPEAL RELATES TO THE DISALLOWANCE OF RS. 38,69,908/- MADE BY THE A.O. AN D CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE F IRM TO THE LEGAL HEIR OF THE DECEASED PARTNER. 27. AT THE TIME OF HEARING, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR A.Y. 2005-06 AND FOLLOWED IN A.Y. 2006-07 AND 2007-08 VIDE ITS COMMO N ORDER DATED 19-10- 2013 (SUPRA) WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PAR A 53:- 53. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED T HE MATERIAL ONRECORD AND CASE CITED BEFORE US. THE ISSUE, IN SO FAR AS THE ASSESSEE IS CONCERNED, CAN BE SAID TO IN FAVOUR AND COVERED BY AN ORDER OF THE COORDINATE BENCH IN ITS OWN CASE IN ASSESSMENT YEAR 1981-82. WE ALSO FIND THAT THE AO HAS HIMSELF CONCEDED THAT THE HON BLE BOMBAY HIGH COURT IN THE CASE OF MULLA & MULLA HAS HELD THAT AN OVERRIDING CHARGE TO HAVE BEEN CREATED OVER THE ASSESSEE, WHERE, BY THE OBLIGATION, INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE . SINCE THE PAYMENT HAS BEEN MADE BY THE FIRM TO THE LEGAL HEIR OF ITS DECEASED PARTNER, AS PER THE CLAUSES OF THE PARTNERSHIP DEED DATED 1.4.2000 HAVING UNEQUIVOCAL COVENANTS. IN OUR OPINION, THE A MOUNT SO PAID TO THE LEGAL HEIR OF THE DECEASED PARTNER IS AN ALLOWA BLE EXPENSE. 28. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF ASSESSMENT YEARS 2005- 06, 2006-07 AND 2007-08, WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR THE SAID YEARS AND DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PAYMENT MADE BY THE AS SESSEE TO THE LEGAL HEIR OF 4 APPEALS M/S K.S. AIYAR & CO 12 THE DECEASED PARTNER. GROUND NO. 2 OF THE ASSESSEE S APPEAL IS ACCORDINGLY ALLOWED. 29. THE ISSUE INVOLVED IN GROUND NO. 3 OF THE ASSES SEES APPEAL RELATES TO THE DISALLOWANCE OF RS. 1,78,637/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) BEING 1/5 TH OF THE TOTAL TELEPHONE AND CONVEYANCE EXPENSES CLA IMED BY THE ASSESSEE. 30. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD CLAIMED TELEPHONE, CAR AND CONVEYANCE TO PARTNERS AMOUNTING TO RS. 8,18,176/-, RS. 12,24,142/- AND RS. 2,36,333/- RESPECTIVELY. SINCE NO RECORD IN THE FORM OF LOG BOOK, TELEPHONE REGISTER WAS MAINTAINED BY THE ASSESSEE TO ESTABLISH THAT THESE EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS, 10% OF THE EXPENSES WERE DISALLOWED BY TH E A.O. ON ACCOUNT OF ELEMENT OF PERSONAL USE INVOLVED IN THE SAID EXPENS ES. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE FOR THE SAME REASONS AS GIVEN BY THE A.O. 31. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ALTHOUGH THE LD. COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT A SIMILAR ISSUE HAS B EEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE EARLIER Y EARS I.E. ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08, WE FIND THAT THE FACT S INVOLVED IN THE YEAR UNDER CONSIDERATION ARE MATERIALLY DIFFERENT. IN A. Y. 2005-06, A SIMILAR DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) WAS DELETED BY THE TRIBUNAL ON THE GROUND THAT SOME DISALLOWANCE W AS OFFERED BY THE ASSESSEE SUO MOTU IN THE COMPUTATION OF TOTAL INCOM E AND THERE WAS NO SUCH DISALLOWANCE MADE IN THE CASE OF THE ASSESSEE FOR T HE IMMEDIATELY PRECEDING AND SUCCEEDING YEAR. THE FACTS INVOLVED IN THE A.Y. 2009-10, HOWEVER, ARE DIFFERENT INASMUCH AS NO DISALLOWANCE OUT OF TELEPH ONE AND CONVEYANCE 4 APPEALS M/S K.S. AIYAR & CO 13 EXPENSES IS OFFERED BY THE ASSESSEE IN THE COMPUTAT ION OF TOTAL INCOME ON ACCOUNT OF PERSONAL USE AND THE A.O. HAS NOT ONLY M ADE SUCH DISALLOWANCE IN A.Y. 2008-09 AFTER MAKING A SIMILAR DISALLOWANCE IN 2005-06 BUT ALSO REPEATED THE SAME IN A.Y. 2009-10. KEEPING IN VIEW ALL THE RELEVANT FACTS OF THE CASE, WE ARE OF THE VIEW THAT SOME DISALLOWANCE ON ACCOUNT OF PERSONAL USE OF THE TELEPHONES AND CONVEYANCE OF THE ASSESSE E FIRM BY ITS PARTNERS IS VERY MUCH CALLED FOR AND SINCE SUCH DISALLOWANCE MA DE TO THE EXTENT OF 1/10 IS FAIR AND REASONABLE IN THE FACTS AND CIRCUMSTANC ES OF THE CASE, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF 1/10 MADE BY THE A.O. OUT OF CONVEYANCE AND TELEPHONE EX PENSES. GROUND NO. 3 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED. 32. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED AND THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MARCH, 2014. . ) 0 1 285352014 ) SD/- SD/- (VIVEK VARMA) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 1 DATED 285352014 [ .../ RK , SR. PS 4 APPEALS M/S K.S. AIYAR & CO 14 ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $%# / THE RESPONDENT. 3. ; () / THE CIT(A)3 MUMBAI. 4. ; / CIT 11 MUMBAI 5. $? , * ? , / DR, ITAT, MUMBAI H BENCH 6. / GUARD FILE. / BY ORDER, % $ //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI