LINTAS INDIA P. LTD, MUMBAI V. ADDL CIT 3(2),

ITA 7950/MUM/2011

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0319 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 25-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADV
• Keywords: Business income; Earning of tax free income; Period of limitation; Services rendered outside India; Permanent establishment; Time period of passing order
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.950/MUM/2010 ITA NO.7950/MUM/2011 (ASSESSMENT YEARS: 2005-06 & 2007-08) M/S. LINTAS INDIA PVT. LTD. EXPRESS TOWERS NARIMAN POINT MUMBAI 400021 VS. ADDITIONAL CIT - 3(2) MUMBAI PAN AAACL0124F APPELLANT RESPONDENT APPELLANT BY: SHRI PRAKASH JOTWANI RESPONDENT BY: SHRI RAJESH KUMAR YADV DATE OF HEARING: 10.01.2018 DATE OF PRONOUNCEMENT: 12.02.2018 O R D E R PER RAJESH KUMAR, AM THIS APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE CIT(A)-7/4, MUMBAI DATED 23.12.2009 & 21.10.2011 FO R ASSESSMENT YEARS 2005-06 AND 2007-08 RESPECTIVELY. 2. IN ITA NO. 950/MUM/2010 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 3. GROUND NO. 1 IS AGAINST CONFIRMATION OF INCOME UNDE R THE HEAD INCOME FROM HOUSE PROPERTY BY THE LEARNED CIT(A) AS AGAINST DECLARED BY THE ASSESSEE AS BUSINESS INCOME. 4. AT THE OUTSET THE LEARNED A.R. SUBMITTED THAT THE I SSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN EARLIER YEAR IN ITA NO. 939/MUM/2007 VIDE O RDER DATED 27.02.2010. 5. THE LEARNED D.R. ALSO FAIRLY AGREED TO THE CONTENTI ON OF THE LEARNED A.R. ITA NO. 950 & 7950/MUM/2011 M/S. LINTAS INDIA PVT. LTD. 2 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE SAI D ORDER WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL AS RE GARDS ASSESSING THE INCOMES UNDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF UNDER THE HEAD INCOME FROM BUSINESS AS DECLARED BY THE ASSE SSEE HAS BEEN FINALLY SETTLED BY THE ORDER OF THE COORDINATE BENCH AS CIT ED ABOVE. WE THEREFORE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) AND AC CORDINGLY UPHOLD THE SAME ON THIS ISSUE . THUS, GROUND NO. 1 IS DISMISSE D. 7. THE ISSUE RAISED IN GROUND NO. 2 IS AGAINST UPHOLDI NG THE ORDER OF THE AO BY LD CIT(A) THAT UNCLAIMED LIABILITY CREDIT ED TO LIABILITY ACCOUNT OF ` 1,05,26,883/- WAS ASSESSABLE AS INCOME OF THE CURRE NT YEAR BY IGNORING THE FACT THAT THE SAID AMOUNT STANDS OFFERED TO TAX IN AY 2006-07 RESULTING INTO DOUBLE TAXATION. 8. THE BRIEF FACTS OF THE CASE ARE THAT THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE ASSESSEE HAS SHOWN INCOME OF ` 5,87,31,309/- IN THE PROFIT & LOSS ACCOUNT ON ACCOU NT OF UNCLAIMED LIABILITY WRITTEN BACK WHICH INCLUDED A SUM OF ` 1,05,26,887/- ON ACCOUNT OF DIFFERENCES IN THE IN THE CHARGES BILLED BY VARI OUS PUBLICATIONS I.E. WHICH REPRESENTED THE UNCLAIMED LIABILITY ON ACCOUNT OF C REDIT NOTES ISSUED BY THE PRESS PUBLICATION. ACCORDING TO THE AO THE ASSE SSEE DID NOT OFFER THE INCOME IN THE YEAR OF ACCRUAL. THE ASSESSEE USED TO WAIT FOR TWO YEARS TO PASS ON THE BENEFIT TO ITS CLIENTS AND IF NO SUCH B ENEFITS WERE PASSED ON TO THE CLIENTS, THE SAME USED TO BE OFFERED FOR TAXATI ON. THUS THE ASSESSEE USED TO WITHHOLD THE INCOME FOR TWO YEARS BEFORE OF FERING IT TO TAX. ACCORDING TO THE AO THE METHOD OF ACCOUNTING FOLLOW ED BY THE ASSESSEE IS NOT CORRECT AS UNDER THE MERCANTILE SYSTEM OF ACCOU NTING THE INCOME WAS ACCRUED IN THE YEAR IN WHICH THE CREDIT NOTES WERE ISSUED BY THE ASSESSEE AND CONSEQUENTLY THE ENTIRE AMOUNT SHOULD HAVE BEEN OFFERED BY THE ASSESSEE IN THE YEAR OF ACCRUAL OF INCOME. THE AO, THEREFORE, ADDED A SUM OF ` 1,05,26,883/- TO THE INCOME OF THE ASSESSEE. 9. THE ASSESSEE PREFERRED APPEAL BEFORE THE LD CIT(A) WHO , AFTER CONSIDERING THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE, DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: - ITA NO. 950 & 7950/MUM/2011 M/S. LINTAS INDIA PVT. LTD. 3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLAN T AND FINDINGS OF THE AO AND OBSERVE THAT THE SAID PROVISIONS HAVE BE EN CREATED BY THE APPELLANT FOR MEETING FUTURE CONTINGENCIES THAT SHO WS THAT LIABILITIES HAVE NOT BEEN CRYSTALLIZED DURING THE SINCE THE APP ELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTANCY, THEREFORE, Y ASCE RTAINED LIABILITIES CAN BE ALLOWED TO THE APPELLANT AGAINST THE INCOME OF THE RENT YEAR. FURTHER, SINCE THE SAID AMOUNT OF RS. 1,05,26,8837- WHICH HAS BEEN AIMED TO HAVE BEEN OFFERED FOR TAX IN THE RETURN OF THE SUBSEQUENT ASSESSMENT YEAR, HAS NOT BEEN FINALIZED BY THE DEPA RTMENT AS NO ASSESSMENT HAS BEEN FRAMED FOR THE SAID YEAR, THERE FORE, THERE IS NO QUESTION OF DOUBLE TAXATION OF THE SAID AMOUNT. HEN CE, THE AMOUNT OF RS.1,05,26,8837- WHICH HAS BEEN WRITTEN BACK BY THE APPELLANT DESERVES TO BE TAXED IN THE CURRENT YEAR AND AS SUC H HAS TO BE ADDED TO THE INCOME OF THE APPELLANT. 10. THE LEARNED A.R. SUBMITTED BEFORE THE BENCH THAT ID ENTICAL ISSUE WAS INVOLVED IN A.Y. 2002-03 IN ITA NO. 2024/MUM/2007 W HICH HAS BEEN DECIDED BY THE COORDINATE BENCH VIDE ORDER DATED 09 .11.2012 IN FAVOUR OF THE ASSESSEE. THE LEARNED AR SUBMITTED THAT FOLLOWING T HE RATIO LAID DOWN BY THE HON'BLE TRIBUNAL THE GROUND RAISED BY THE ASSESSEE SHOULD ALSO BE ALLOWED. 11. THE LEARNED D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF THE CIT(A) ON THIS ISSUE. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE FIND THAT IDENTICAL ISSUE WA S ALSO THERE IN A.Y. 2002- 03 WHICH HAS BEEN DECIDED IN ITA NO. 2024/MUM/2007 (SUPRA) IN FAVOUR OF THE ASSESSEE. THE OPERATIVE PART OF THE ORDER IS REPRODUCED BELOW: - 18. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS. AS SEEN FROM THE TABLE EXTRACTED BY THE CIT (A) IN PARA 6.2 OF THE ORDER THE OPENING BALANCE IN ASSESSEES BOOKS OF ACCOUNT OF T HE UNCLAIMED LIABILITIES WAS TO AN EXTENT OF ` 7,83,32,994/- WHICH IS IN FACT MORE THAN THE CLOSING BALANCE AFTER WRITING BACK THE AMOUNT O F ` 2,99,14,525/- AS INCOME DURING THE YEAR AND ` 26,89,487/- CREDITED TO THE CLIENTS ACCOUNTS. THEREFORE, WHAT AO HAS BROUGHT TO TAX IS THE OPENING BALANCE I.E. LAST YEARS CLOSING BALANCE WHICH CANN OT BE BROUGHT TO TAX DURING THIS YEAR AS THERE IS NO ACCRUAL OF LIABILIT Y OR CESSATION OF LIABILITY DURING THE YEAR. AS RIGHTLY POINTED OUT B Y THE CIT (A) IN PARA 6.3, IT IS A SETTLED POSITION THAT THE ACCOUNTING E NTRIES DO NOT DETERMINE THE CORRECT INCOME AND IF THE INCOME HAS ACCRUED IN THE YEAR IT HAS TO BE TAXED IN THAT YEAR ONLY. AS SEEN FROM THE TABLE ITSELF THE AMOUNT OF ` 3,24,51,841/- WAS ONLY CREDITED TO THIS YEAR OUT OF WHICH ASSESSEE HAS ALREADY OFFERED ` 2,99,14,525/- (MAY PERTAIN TO EARLIER YEAR BUT OFFERED AS INCOME OF THIS YEAR WHICH MAY HAVE BE TO BE EXCLUDED IF ITA NO. 950 & 7950/MUM/2011 M/S. LINTAS INDIA PVT. LTD. 4 AOS OPINION IS TO BE ACCEPTED) AND AMOUNT OF ` 26,89,487/- CREDITED TO THE CLIENTS ACCOUNTS. SINCE WHATEVER HAS ACCRUED DU RING THE YEAR HAS ALREADY BEEN OFFERED/ADJUSTED, ON THE SAME PRINCIPL ES AS LAID DOWN BY THE CIT (A), NO FURTHER AMOUNT CAN BE BROUGHT TO TA X. IN ADDITION ASSESSEE IS CONSISTENTLY FOLLOWING THE SAME ACCOUNT ING PRINCIPLES AND THERE IS NO ESCAPEMENT OF INCOME, NOR THERE IS ANY POSTPONEMENT OF TAX LIABILITY. IN FACT RECOGNIZING OR NOT RECOGNIZING O F A PARTICULAR AMOUNT AS INCOME DEPENDS ON THE CONTRACT AND WORK DONE. AS RI GHTLY POINTED OUT BY ASSESSEE, THESE DISPUTES ARISE BECAUSE OF THE SI ZE OF ADVERTISEMENT PLACED AND SHORT OR EXCESS CHARGING THAN WHAT WAS D UE. AS AND WHEN THE PARTIES SEEK THE AMOUNT WHICH CANNOT BE RECOGNI ZED AS INCOME, ASSESSEE IS REFUNDING THE AMOUNT AND ONCE CLIENT DO ES NOT SEEK ANY ADJUSTMENT THE SAME IS ACCEPTED AS INCOME OF THE YE AR AFTER THE END OF THREE YEARS LIMITATION PERIOD AS PER ASSESSEES OWN ACCOUNTING METHOD. IN VIEW OF THIS, WE DO NOT SEE ANY REASON F OR SUPPORTING THE ACTION OF AO IN BRINGING TO TAX THE ENTIRE CREDIT I N THE ACCOUNT AS INCOME OF THE YEAR WITHOUT EXAMINING THE PRINCIPLES GOVERN ING THE METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE AND ACCRUAL OF INCO ME. AS EXPLAINED ABOVE, THERE IS NO NEED FOR BRINGING TO TAX ANY AMO UNT. AO IS DIRECTED TO DELETE THE ABOVE AMOUNT. SINCE THE MAIN ADDITION IS DELETED, THE ALTERNATE CONTENTION FOR EXCLUDING THE AMOUNTS WHIC H WERE ALREADY OFFERED IN THIS YEAR OR IN LATER YEARS DOES NOT ARI SE. ASSESSEES GROUND IS ALLOWED. FACTS BEING IDENTICAL, IN ORDER TO MAINTAIN CONSIST ENCY WITH THE ORDER OF THE TRIBUNAL IN A.Y. 2002-03 ,WE DIRECT THE AO TO D ELETE THE ADDITION. ACCORDINGLY THE GROUND RAISED BY THE ASSESSEE IS A LLOWED. 13. THE ISSUE RAISED IN GROUND NO. 3 IS CONFIRMATION O F ADHOC DISALLOWANCE OF ` 31,18,476/- BY CIT(A) AS MADE BY THE AO UNDER SECTI ON 14A RELATING TO ESTIMATED EXPENSES INCURRED IN CONN ECTION WITH EARNING OF EXEMPT INCOME. 14. THE BRIEF FACTS OF THE CASE ARE THAT THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS RECEIVED INCOME BY WAY OF DIVIDEND WHICH WAS CLAIMED AS EXEMPT WHEREAS THE ASSESSEE HAS CLAIMED ADMINISTRATIVE AND OTHER EXPENSES OF ` 45,39,06,136/-IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE WAS CALLED UPON BY T HE AO AS TO WHY PROPORTIONATE EXPENSES ATTRIBUTABLE TO EARNING OF S UCH INCOME SHOULD NOT BE DISALLOWED. THE ASSESSEE VIDE LETTER DATED 28.09 .2007 SUBMITTED THAT ASSESSEE HAS NOT INCURRED ANY EXPENSES FOR EARNING SUCH EXEMPT INCOME. THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO AND ACCORDINGLY ITA NO. 950 & 7950/MUM/2011 M/S. LINTAS INDIA PVT. LTD. 5 HE WORKED OUT THE DISALLOWANCE ON PROPORTIONATE BAS IS TAKING THE GROSS RECEIPT AT ` 13,71,19,13,841/- AND TOTAL EXPENSES OF ` 45,39,06,136/- AND CALCULATED THE DISALLOWANCE AT ` 31,18,476/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 15. IN THE APPELLATE PROCEEDINGS THE LEARNED CIT(A) UPH ELD THE ORDER OF THE AO BY OBSERVING THAT THE DECISION OF THE AO IN DISALLOWING PROPORTIONATE ADMINISTRATIVE EXPENSES OF ` 31,18,476/- IS CORRECT AND JUSTIFIED. 16. THE LEARNED A.R. VEHEMENTLY SUBMITTED BEFORE US THA T THE AO HAS NOT POINTED OUT ANY ITEM OF EXPENSES INCURRED FOR EARN ING EXEMPT INCOME NOR RECORDED ANY SATISFACTION. THE LD AR SUBMITTED THAT THE AO PROCEEDED TO WORK OUT THE DISALLOWANCE ON PROPORTIONATE BASIS BY TAKING THE TOTAL EXPENSES, GROSS RECEIPT AND THE DIVIDEND INCOME REC EIVED AT ` 31,18,476/-. THE AO SIMPLY STATED IN THE ASSESSMENT ORDER THAT T HE TOTAL RECEIPT OF THE COMPANY INCLUDED EXEMPT INCOME ALSO AND THE CONTENT ION OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME WAS FACTUALLY INCORRECT THEREBY FAILING TO POINT OUT AS TO HOW TH E AVERMENTS MADE BY THE ASSESSEE WAS WRONG AND INCORRECT HAVING REGARDS TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE LEARNED A.R. PRAYED BEFORE THE BENCH THAT IN VIEW OF NON-RECORDING OF SATISFACTION BY THE AO, THE DISALL OWANCE MADE BY THE AO TOWARDS EARNING EXEMPT INCOME REQUIRED TO BE DELETE D IN TOTO. ALTERNATIVELY THE LEARNED A.R. SUBMITTED BEFORE THE BENCH THAT A REASONABLE LUMP SUM DISALLOWANCE MAY BE MADE TOWARDS EXPENSES INCURRED IN RELATION TO EARNING OF EXEMPT INCOME WHICH IN NO WAY SHOULD BE MORE TH AN ` 2 TO 3 LAKHS. 17. THE LEARNED D.R., ON THE OTHER HAND, RELIED HEAVILY ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESS EE HAS EARNED HUGE INCOME OF ` 94,49,927/- DURING THE YEAR AND THEREFORE THE AO AL LOCATED 33% OF THE SAID RECEIPTS TOWARDS EXPENSES ON PROPOR TIONATE BASIS WHICH WAS RATIONAL METHOD TO ATTRIBUTE THE EXPENSES. THE LEARNED A.R. REQUESTED THE BENCH TO AFFIRM THE ORDER OF THE CIT(A). ITA NO. 950 & 7950/MUM/2011 M/S. LINTAS INDIA PVT. LTD. 6 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE FIND THAT DURING THE YEAR THE ASSESSEE HAS EARNED ` 94,49,927/- AS EXEMPT INCOME ON WHICH NO EXPENSES W ERE DISALLOWED ON THE GROUND THAT NO EXPENDITURES WERE INCURRED IN RE LATION TO EARNING SUCH INCOME. A PERUSAL OF THE ASSESSMENT ORDER REVEALS T HAT NO OBJECTIVE SATISFACTION HAS BEEN RECORDED BY THE AO WITH REFE RENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE BEFORE INVOKING THE PROVIS IONS OF SECTION 14A OF THE ACT AND THUS WORKED OUT THE DISALLOWANCE OF EXP ENSES IN RELATION TO EXEMPT INCOME ON PROPORTIONATE BASIS. IN OUR CONSID ERED OPINION THE AO IS DUTY BOUND TO ARRIVE AT AN OBJECTIVE ASSESSMENT AS TO HOW THE ASSESSEES CLAIM IS WRONG AND ONLY THEN THE AO CAN WORK OUT TH E DISALLOWANCE AS PER THE PROVISION OF SECTION 14A OF THE ACT. HOWEVER, W E ARE OF THE OPINION THAT SOME EXPENSES MIGHT HAVE BEEN INCURRED IN RELATION TO EARNING OF SUCH INCOME WHICH ARE REQUIRED TO BE DISALLOWED. THE DIS ALLOWANCE OF ` 31,18,476/- AS MADE BY THE AO IS QUITE ON THE HIGHE R SIDE AND THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE CANNOT BE SUSTAINED. UNDER THE PRESENT CIRCUMSTANCES, HAVING REGARD TO THE FACTS O N RECORD AND VARIOUS JUDICIAL PRONOUNCEMENTS AND ALSO THE FACT OF NON RE CORDING OF SATISFACTION BY THE AO, WE ARE OF THE VIEW THAT A LUMP SUM DISAL LOWANCE OF ` 4 LAKHS WOULD BE REASONABLE AND ACCORDINGLY WE SET ASIDE TH E ORDER OF CIT(A) ON THIS ISSUE AND DIRECT THE AO TO MAKE DISALLOWANCE O F RS. 4.00 LACS ONLY. THUS THE GROUND IS PARTLY ALLOWED. 19. GROUND NO. 4 IS AGAINST CONFIRMATION OF DISALLOWANC E OF ` 36,37,586/- BY THE CIT(A) AS MADE BY THE AO TOWARDS OUTSTANDING BONUS UNDER SECTION 43B OF THE INCOME TAX ACT, 1961. 20. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS NO T MADE BONUS PAYMENTS OF ` 36,48,947/- BEFORE FILING THE RETURN OF INCOME AND ACCORDINGLY CALLED UPON THE ASSESSEE TO STATE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED UNDER SECTION 43B OF THE ACT. THE AO NOTED IN THE ASSESSMENT ORDER THAT THE PAYMENTS OF BONUS WERE MA DE ON THREE DATES AS UNDER: - ITA NO. 950 & 7950/MUM/2011 M/S. LINTAS INDIA PVT. LTD. 7 27.10.2005 ` 31,60,571/- 02.11.2005 ` 3,57,238/- 02.11.2005 ` 1,19,787/- TOTAL ` 36,37,586/- SINCE THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 28.10.2005, THE AO DISALLOWED THE ENTIRE AMOUNT OF ` 36,37,586/- AS PER THE DETAILS HEREINABOVE ON THE GROUND THAT PROOFS OF PAYMENT OF SUCH BONUS WERE NOT ATTACHED WITH THE RETURN OF INCOME. IT WAS ALSO ST ATED BY THE AO IN THE ASSESSMENT ORDER THAT THE BONUS WAS PAID AFTER THE DATE OF TAX AUDIT AND HENCE THE ASSESSEE FAILED TO FURNISH THE NECESSARY EVIDENCES IN THIS REGARD ALONGWITH THE RETURN OF INCOME AND FINALLY DISALLOW ED THE ADDED A SUM OF ` 31,60,561/-. 21. IN THE APPELLATE PROCEEDINGS THE CIT(A) UPHELD THE ORDER OF THE AO ON THE GROUND THAT THE AO HAS RIGHTLY DISALLOWED THE A MOUNT AS THE PAYMENT OF BONUS IS REQUIRED TO BE MADE, UNDER THE PROVISIO NS OF SECTION 43B OF THE ACT, ON OR BEFORE THE DATE OF FILING OF RETURN OF I NCOME AND THE EVIDENCE OF PAYMENT HAS TO BE ATTACHED WITH THE RETURN OF INCOM E. THUS HE SUSTAINED THE ADDITION OF ` 31,60,561/-. 22. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. WE FIND THAT THE ORDER OF THE CIT(A) IS NOT CORRECT ON THIS ISSUE BECAUSE THE PAYMENTS WERE MADE BEFORE THE DUE DATE OF FILIN G THE RETURN WHICH IS AS PER PROVISIONS OF SECTION 43B OF THE ACT AND HAS TO BE ALLOWED. IN OUR OPINION ANY PAYMENT WHICH IS MADE IN THE INTERVEN ING PERIOD BETWEEN FILING THE RETURN OF INCOME AND DUE DATE HAS ALSO T O BE ALLOWED TO THE ASSESSEE. WE FIND MERIT IN THE CONTENTION OF THE LE ARNED A.R. THAT ` 31,60,561/- WAS PAID PRIOR TO THE DUE DATE FOR FILI NG THE RETURN OF INCOME AND HAS TO BE ALLOWED. WE, THEREFORE, DIRECT THE AO TO ALLOW THE DEDUCTION OF RS. 31,60,561/-. THE GROUND RAISED BY THE ASSESS EE IS ALLOWED. 23. GROUND NO. 5 IS AGAINST THE CONFIRMATION OF DISALLO WANCE OF ` 6,69,597/- FOR PAYMENT TOWARDS SHOOTING OF FILMS, S PENT IN FOREIGN CURRENCY. ITA NO. 950 & 7950/MUM/2011 M/S. LINTAS INDIA PVT. LTD. 8 24. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE D ISCLOSED IN THE NOTES FORMING PART OF AUDITED FINAL ACCOUNTS THAT I T HAS INCURRED EXPENDITURE IN FOREIGN CURRENCY ON ACCOUNT OF SUBSC RIPTION AND OTHER ADVERTISEMENT EXPENSES AMOUNTING TO ` 64,04,343/-. THE AO CALLED FOR THE DETAILS OF THE SAID EXPENSES WHICH WERE DULY FILED BEFORE THE AO. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED T HAT THE ASSESSEE HAS INCURRED EXPENSES WITHOUT DEDUCTION OF TAX AT SOURC E AS PER THE DETAILED GIVEN BELOW: - DATE DESCRIPTION AMOUNT PAID 30.12.2004 DIGITAL ASIA CONCEPTS 5,81,980 / - 28.03.2005 PT CITRA INDONESIA 87,617 / - TOTAL 16,69,597/- IT WAS SUBMITTED BEFORE THE AO THAT SINCE THE RECI PIENTS HAVE NO PERMANENT ESTABLISHMENT IN INDIA, THEREFORE, TDS IS NOT REQUIRED TO BE DEDUCTED AND DEPOSITED AT SOURCE. HOWEVER, THE SAID PLEA OF THE ASSESSEE WAS BRUSHED ASIDE BY THE AO. AS A RESULT THE AO DIS ALLOWED ` 6,69,597/- ON ACCOUNT OF NON-DEDUCTION OF TDS UNDER THE PROVIS IONS OF SECTION 40(A)(IA) OF THE ACT. THE LEARNED CIT(A) ALSO UPHEL D THE ORDER OF THE AO BY OBSERVING THAT THE TERMS AND CONDITIONS ON WHICH TH E PAYMENTS WERE MADE TO THE FOREIGN PARTIES WERE NOT MADE AVAILABLE TO THE AO AND THEREFORE IT WAS NOT POSSIBLE TO ACCEPT THE ARGUMEN TS THAT SERVICES WERE RENDERED BY THE NON-RESIDENTS TO THE ASSESSEE HAVIN G NO PERMANENT ESTABLISHMENT IN INDIA. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER AND FIND THAT IN THIS CASE THE SERVICES WERE RENDERED OUTSIDE INDIA BY FOREIGN PARTIES WHO HAVE NO PERMANENT ESTABLISHMENT IN INDIA AND THEREFORE THER E WAS NO QUESTION OF APPLICABILITY OF PROVISIONS OF TDS AND THE DISALLOW ANCE UNDER SECTION 40(A)(IA) OF THE ACT IS NOT ATTRACTED IN THE PRESEN T CASE. HOWEVER, THE LEARNED CIT(A) HAS RECORDED A FINDING THAT THE TERM S AND CONDITIONS OF PAYMENT TO THE FOREIGN PARTIES WERE NOT MADE AVAILA BLE BEFORE THE AO AND THEREFORE IT IS NO POSSIBLE TO ASCERTAIN THE CONDIT IONS ENTERED INTO BY THE ITA NO. 950 & 7950/MUM/2011 M/S. LINTAS INDIA PVT. LTD. 9 ASSESSEE WITH THE NON-RESIDENTS. UNDER THE PRESENT CIRCUMSTANCES WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE INVOLVED IN T HE GROUND REQUIRES TO BE RE-EXAMINED AT THE LEVEL OF THE AO SO THAT TERMS AN D CONDITIONS OF THE PAYMENTS COULD BE VERIFIED AND THE FACT OF PAYMENT CAN BE DECIDED. ACCORDINGLY WE RESTORE THE ISSUE BACK TO THE FILE O F THE AO WITH THE DIRECTION TO DECIDE THE ISSUE AFTER VERIFYING THE T ERMS AND CONDITIONS OF THE PAYMENT TO FOREIGN PARTIES AND DECIDE THE MATTER AS PER THE DISCUSSION HEREINABOVE. NEEDLESS TO SAY THAT IF THE PAYMENTS T O THE NON-RESIDENTS WERE FOR THE SERVICES RENDERED OUTSIDE INDIA NO TDS IS APPLICABLE AND THE DEDUCTION HAS TO BE ALLOWED. 26. THE FOLLOWING GROUNDS WERE RAISED BY THE ASSESSEE IN ITA NO. 7950/MUM/2011 FOR A.Y. 2007-08: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. (A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADHOC DI SALLOWANCE MADE BY THE AO U/S. 14A OF RS. 29,28,247/- BEING ES TIMATED ADMINISTRATIVE EXPENSES WHICH HAVE BEEN INCURRED ON EARNING TAX FREE INCOME. (B) THE LEARNED CIT(A) ERRED IN NOT CONSIDERING T HAT NO EXPENSE CAN BE DISALLOWED, IF THE NEXUS CANNOT BE ESTABLISHED F OR INCURRING EXPENDITURE FOR EARNING TAX FREE INCOME AND SECTION 14A CANNOT BE MERELY APPLIED ON PRESUMPTION. (C) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CI T(A) ERRED IN COMPUTING THE DISALLOWANCE U/S. 14A, IN ACCORDANCE TO THE RULE 8D WHICH CAME INTO EFFECT ONLY ON 24-03-2008 AND TH EREFORE APPLICABLE ONLY FROM A.Y. 2008-09 (AS IS HELD BY TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE - 328 ITR 81 (BOM). 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE FO LLOWING DISALLOWANCES SPENT IN FOREIGN CURRENCY:- RS. 17,59,613/- - PAYMENT TO P.T. CITRA LOWE RS. 63,11,369/- - PAYMENT TOWARDS CO-ORDINATI ON SERVICES 27. THE ISSUE OF CONFIRMATION OF DISALLOWANCE UNDER SEC TION 14A OF THE INCOME TAX ACT IS IDENTICAL TO THE ISSUE DECIDED BY US IN ITA NO. 950/MUM/2020 (SUPRA) IN GROUND NO. 3 WHEREIN THE IS SUE HAS BEEN PARTLY ALLOWED BY SUSTAINING A LUMP SUM DISALLOWANCE OF ` 4 LAKHS. FOLLOWING THE ITA NO. 950 & 7950/MUM/2011 M/S. LINTAS INDIA PVT. LTD. 10 SAME PRINCIPLE WE ARE OF THE VIEW THAT A LUMP SUM D ISALLOWANCE SHOULD BE MADE IN THIS CASE ALSO AS THE FACTS ARE MATERIALLY SAME. HAVING REGARD TO THE FACTS OF THE CASE AND ARGUMENTS OF THE RIVAL PA RTIES IT WOULD BE REASONABLE IF A SUM OF ` 8 LAKHS IS DISALLOWED TOWARDS EXPENSES INCURRED ON EARNING OF EXEMPT INCOME. THE AO IS ORDERED ACCORDI NGLY. THUS THE GROUND IS PARTLY ALLOWED. 28. THE SECOND ISSUE OF CONFIRMATION OF DISALLOWANCE ON PAYMENTS IN FOREIGN CURRENCY IS IDENTICAL TO THE ISSUE WHICH HA S BEEN DECIDED BY THIS BENCH IN ITA NO. 950/MUM/2010 WHEREIN UNDER GROUND NO. 5 THE ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO FOR VERIFIC ATION OF THE PAYMENTS MADE TO THE FOREIGN PARTIES. THE SAME WILL, MUTATIS MUTANDIS, APPLY TO THIS GROUND ALSO. 29. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2018. SD/ - SD/ - (D.T. GARASIA) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 12 TH FEBRUARY, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -4, MUMBAI 4. THE CIT - 3, MUMBAI 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.