ACIT 16(1), MUMBAI V. ENTERTAINMENT NETWORK (INDIA) LTD, MUMBAI

ITA 812/MUM/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2299 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 17-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R MANJUNATHA SWAMY; D G
• Assessee Lawyers: V MOHAN
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Source of fund; Deemed to accrue or arise in india; Proportionate interest; Question of law; Corroborative evidences; Relationship of principal and agent; Revenue expenditure; Capital expenditure; TDS; Rule 8D; Set aside
• Section: 143(3); 244A; 234B; 14A; 115JB; 40(a)(ia); 37(1); 194C; 201(1)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.852/ MUM/2016 ( / ASSESSMENT YEAR: 2010 - 11) ENTERTAINMENT NETWORK (INDIA) LTD., 4 TH FLOOR, A WING, MATULYA CENTRE, SENAPATI BAPAT MARG, LOWER PAREL ( WEST ) , MUMBAI - 400013 / V. ACIT 16(1), ROOM NO. 439, 4 TH FLOOR, AAYAKAR BHAVAN, M.K ROAD, MUMBAI - 400020 ./ PAN :AAACE7796G ./ I.T.A. NO.812/ MUM/2016 ( / ASSESSMENT YEAR: 2010 - 11) ACIT 16(1), ROOM NO. 439, 4 TH FLOOR, AAYAKAR BHAVAN, M.K ROAD, MUMBAI 400020 / V. ENTERTAINMENT NETWORK (INDIA) LTD., 4 TH FLOOR, A WING, MATULYA CENTRE, S ENAPATI BAPAT MARG, LOWER PAREL( WEST ), MUMBAI - 400013 ./ PAN : AAACE7796G ( / APPELLANT ) .. ( / RESPONDENT ) ASSESEE BY: SHRI V. MOHAN REVENUE BY : SHRI. R. MANJUNATHA SWAMY & SHRI. D.G PANSARI (DR) / DATE OF HEARING : 28.03.2019 / DATE OF PRONOUNCEMENT : 26 - 06 - 2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY BOTH ASSESSEE AND REVENUE BOTH FOR ASSESSMENT YEAR(AY 2010 - 11) , BEING ITA NO. 852/ MUM/2016 & ITA NO. 812/MUM/2016 RESPECTIVELY AND THESE APPEALS ARE DIRECTED AGAINST I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 2 | P A G E THE APPELLATE ORDER DATED 16.11.2015 PASSED IN APPEAL NO. CIT(A) - 4/TR.50/A - (3)/AC - 11(1)/14 - 15 BY LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 4, MUMBAI (HEREINAFTER CALLED THE CIT(A)), THE APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM ASSESSMENT ORDER DATED 28.03.2013 PASSED BY LEAR NED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). B OTH THE SE APPEALS WERE HEARD TOGETHER AND ADJU DICATED BY THIS COMMON ORDER. 2. THE GROUNDS OF APPEAL RAISED BY A SSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) IN ITA NO. 852/MUM/2016 FOR AY 2010 - 11 , READ AS UNDER: - 1. BUSINESS PROMOTION EXPENSES : RS. 3,35,1 98/ - 1.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO WHO DISALLOWED 20% OF THE EXPENDITURE INCURRED ON BUSINESS PROMOTION FOR WANT OF SUPPORTING EVIDENCE ON AN ADHOC BASIS WITHOUT ANY COGENT REASON. 1. 2. WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT THE DIS ALLOWANCE MADE BY THE LEARNED CI T(A) UPHOLDING THE ACTION OF THE LEARNED AO IS EXCESSIVE AND WITHOUT BASIS. 2. DISALLOW ANCE UNDER SECTION 14A : RS. 62, 16,426/ - 2.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE LEARNED AO'S ACTION OF APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 ('THE RULES') WHILE MAKING A DISALLOWANCE UNDER SECTION 14A OF THE ACT TO ARRIVE AT THE ASSESSED INCOME FOR THE RELEVANT FINANCIAL YEAR. 2.2. IT IS SUBMITTED THAT THE INTEREST EXPENSES INCURRED BY THE APPELLANTS IS PURELY ATTRIBUTABLE TO THE BUSINESS OF THE APPELLANTS AND DO NOT IN ANY WAY RELATE TO THE INVESTMENT ACTIVITIES OF THE APPELLANTS. 2.3. IT IS ALSO SUBMITTED THAT THE INVESTMENTS MADE BY THE APPELLANT CONSISTS OF THE FOLLOWING : A) INVESTMENTS IN EQUITY SHARES OF SUBSIDIARY COMPANIES WHERE MORE THAN 50% OF THE SHARES OF ARE HELD BY THE APPELLANT AS UNDER : NAME OF THE SUBSIDIARY COMPANY NO OF SHARES HELD % OF SHAREHOLDING TIMES INNOVATIVE MEDIA LIMITED 320,00,000 83.44% ALTERNATE BRAND SOLUTIONS (INDIA) LIMITED 16,00,000 100.00% B) INVESTMENTS IN UNITS OF MUTUAL FUNDS (GROWTH OPTION) IT IS FURTHER SUBMITTED THAT THE APPELLANT DID NOT RECEIVE ANY DIVIDEND FROM THE EQUITY SHARES INVESTED IN SUBSIDIARY COMPANIES. IT IS SUBMITTED THAT THE INVESTMENTS MADE HI SUBSIDIARY COMPANIES ARE FOR STRATEGIC PURPOSES AND WITH THE OBJE CTIVE TO GET STRONG FOOTHOLD IN THE RADIO BROADCASTING INDUSTRY AND ACHIEVE BUSINESS SYNERGY WHICH I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 3 | P A G E WOULD BE MUTUALLY BENEFICIAL. IT IS RESPECTFULLY SUBMITTED THAT DISALLOWANCE COULD ONLY BE COMPUTED UNTIL AND UNLESS THE ASSESSEE EARNS EXEMPT INCOME. IT IS ALSO SUBMITTED THAT THAT THE APPELLANT'S OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS ARE MORE THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. IN THE APPELLANT'S FACTUAL MATRIX, CAPITAL, PROFIT, RESERVES AND SURPLUS ARE HIGHER THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITION, IT IS RESPECTFULLY SUBMITTED THAT IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE APPELLANT WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH THE APPELLANT AND THEREFORE THE PROVISIO NS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE. WITHOUT PREJUDICE, THE DISALLOWANCE UPHELD BY THE LEARNED CTT(A) IS EXCESSIVE AND WITHOUT BASIS. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT NO EXPENSES ARE RELATABLE TO EXEMPT INCOME AND ACCORDINGLY NO DI SALLOWANCE IS WARRANTED IN THE INSTANT CASE UNDER SECTION 14A OF THE ACT. 3. ADDITION TO BOOK PROFITS U/S. 115JB BEING DISALLOWANCE U/S, 14A 3.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE STAND OF THE LEARNED AO IN ADDING DISALLOWANCE U/S. 14A AMOUNTING TO RS. 62,16,426/ - TO THE BOOK PROFIT U/S. 115JB AMOUNTING TO RS. 33,73,01,797 / - COMPUTED BY THE APPELLANT FOR MAT LIABILITY. IT IS RESPECTFULLY SUBMITTED THAT SECTION 14A CANNOT BE IMP ORTED INTO WH ILE COMPUTING THE BOOK PROFIT U/S . 115JB BECAUSE CLAUSE (F) OF EXPLANATION TO SECTION 115JB OF THE ACT REFERS TO THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH CAN BE ADDED BACK TO THE BOOK PROFIT WHILE COMPUTING BOOK PROFIT U/S. 115J B OF THE ACT. 4. DEPRECIATION ON SOFTWARE EXPENSES DISALLOWED IN ASSESSMENT YEAR 2007 - 08 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE LEARNED AO TO GRANT DEPRECIATION ON SOFTWARE E X PENSES AMOUNTING TO RS. 15,720/ - BEING EXPENSES CAPITALIZED IN A.Y. 2007 - 08. 5. CREDIT FOR TAX DEDUCTED AT SOURCE 5.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE LEARNED AO TO GRANT CR EDIT FOR TAXES DEDUCTED AT SOURCE OF RS. 1,75,228 / - . 6. GRANT OF INTEREST U/S, 244A 6.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE LEARNED AO TO GRANT INTEREST U/S. 244A OF THE ACT AS PER LAW TILL THE DATE OF RECEIPT OF REFUND ORDER. 7. CHARGE OF INTEREST U/ S. 234C M 7.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CTT(A) ERRED IN NOT DIRECTING THE LEARNED AO TO LEVY INTEREST U/S. 234C OF THE ACT AS PER LAW O N THE BASIS OF THE RETURN OF INCOME SUBMITTED AND NOT AS PER THE ASSESSED INCOME. 8. CHARGE OF INTEREST U/ S. 234D 8.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE LEARNED AO TO LEVY INTEREST U/S. 234D OF THE ACT AS PER LAW ONLY ON THE REFUND WITHDRAWN. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE & WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUND OF APPEAL AND THE FACTS AND CIRCUMSTANCES OF THE CASE. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 4 | P A G E 3. THE GROUNDS OF APPEAL RAISED BY REVENUE IN MEMO OF APPEAL FILED WITH THE TRIBUNAL IN ITA NO. 812/MUM/2016 FOR AY 2010 - 11 , READ AS UNDER: - 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE U/S. 40(A)(IA) OF RS.27,43,52,361/ - CLAIMED AS 'AGENCY DISCOUNT' AND TREATED AS 'COMMISSION' UNDER THE PROVISIONS OF SECTION 19 4H? 2} ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) WAS JUSTIFIE D IN DELETING THE A DDITION MADE U/S. 40(A)(IA) OF RS.27,43,52,361/ - CLAIMED AS 'AGENCY DISCOUNT' AND TREATED AS 'COMMISSION' UNDER THE PROVISIONS OF SECTIO N 194H, BY HOLDING THAT THERE IS NO EVIDENCE ON RECORD THAT THE AGENCY HAS RECEIVED ANY REMUNERATION FROM THE ASSESSEE FOR SALE OF ITS AIRTIME, WHEREAS THE ASSESSEE HAS FAILED TO PROVE THAT SUCH INCOME HAS 'NOT' BEEN ACCOUNTED BY THE AGENCY IN ASSESSMENT A S WELL AS APPELLATE PROCEEDINGS? 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE U/S. 40(A)(IA) OF RS.27,43,52,361/ - CLAIMED AS 'AGENCY DISCOUNT' BY PLACING RELIANCE ON THE DEC ISION OF LIVING MEDIA INDIA LTD. (ITA NO, 3807(DEL)/2005 FOR AY 2003 - 04 PASSED IN MAY, 2007),THE FACTS OF WHICH ARE NOT PARI MATERIA WITH THAT OF THE INSTANT CASE. 4) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD.CIT(A) WAS JUSTI FIED IN DELETING THE DISALLOWANCE OF WEBSITE DEVELOPMENT EXPEN SES, DESPITE THE FACT THAT THE CREATION OF WEBSITE, RESULTS IN BRINGING IN AN ASSET OF ENDURING NATURE. 5) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) WAS JU STIFIED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF EXCESS COMMISSION PAID TO M/S. BENNET COLEMAN AND COMPANY LTD. (BCCL), IGNORING THE FACT THAT THE SAID CONCERN IS A PARENT COMPANY OF THE ASSESSEE AND THE TRANSACTION IS NOT AT ARM'S LENGTH. 6) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHERE THE DISALLOWANCE U/S. 36(1 )(III) WAS MADE ON THE BASIS OF RATIO LAID DOWN BY THE CIT(A) IN ASSESSEE'S OWN CASE FOR AY 2009 - 10, WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE SAME BY RELYING O N THE ITAT'S DECISION IN ASSESSEE'S OWN CASE FOR EARLIER AY 2006 - 07 & AY 2007 - 08 WITHOUT APPRECIATING THAT THE HONB LE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD, VS. CIT(APPEALS) (2007) 288 ITR 1 (SC), HAD SPECIFICALLY HELD THAT THERE CAN BE NO CONTIN UING PRESUMPTION AS TO UTILIZATION FOR A NON - BUSINESS PURPOSE, AND THE FACTS OF EACH YEAR HAVE TO BE CONSIDERED SEPARATELY. 7) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHERE THE DISALLOWANCE U/S. 36(1) (III) WAS MADE ON THE BASIS OF RAT IO LAID DOWN BY THE CIT(A) IN ASSESSEE'S OWN CASE FOR AY 2009 - 10, WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE SAME WITHOUT APPRECIATING THE PROPORTION OF NEXUS BETWEEN THE INTEREST EXPENDITURE AND ITS EXTENT OF USE FOR THE PURPOSE OF BUSINESS. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 5 | P A G E 8) THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 9) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW G ROUND WHICH MAY BE NECESSARY. 4. THE ASSESSEE IS OPERATING FM RADIO BROADCASTING SERVICE. 4.2 THE ASSESSEE HAS RECEIVED NET REVENUE OF RS. 23 0 .04 CRORE S FROM THE ADVERTISING AGENCY TOWARDS ADVERTISEMENT S . THE ASSESSEE HAS BOOKED REVENUE IN ITS BOOKS OF ACCOUNTS AFTER NETTING OFF THE AGENCY COMMISSION. THE ASSESSEE HAS USED THE TERM AGENCY DISCOUNT INSTEAD OF AGENCY COMMISSION . THE AO OBSERVED THAT IT IS NORMAL PRACTICE IN THE INDUSTRY FOR ADVERTISING AGENCIES TO CHARGE COMMISSION TO THE MEDIA COMPANY. THE AO OBSERVED THAT GROSS REVENUE EARNED BY THE ASSESSEE WAS RS. 257.95 CRORES WHILE AGENCY COMMISSION EXPENSES WERE TO THE TUNE OF RS. 27.43 CRORES WHICH WAS NOT SEPARATELY REFLECTED IN THE BOOKS OF ACCOUNTS AND NET REVENUE VIZ. GROSS ADVERTISIN G REVENUE LESS ADVERTISING COMMISSION PAID TO ADVERTISING AGENCY, IS REFLECTED IN ITS BOOKS OF ACCOUNTS AND IN P&L ACCOUNT . THE AO OBSERVED THAT THE ASSESSEE HAS ALSO NOT DEDUCTED INCOME - TAX AT SOURCE U/S 194H OF THE 1961 ACT ON SUCH AGENCY COMMISSION PAID BY ASSESSEE TO ADVERTISING AGENCY . IT WAS OBSERVED BY AO THAT THERE ARE THREE ENTITIES TO THE TRANSACTIONS INVOLVING AGENCY C OMMISSION , AS UNDER: - BROADCAST (ASSESSEE) ADVERTISING AGENT ADVERTISER BROADCASTER IS AN ENTITY WHICH BROADCASTS THE ADVERTISEMENTS. ADVERTISING AGENCY IS AN ENTITY WHICH SOURCES ADVERTISEMENTS FOR ADVERTISER. ADVERTISER IS AN ENTITY WHICH ADVERTISED ITS PRODUCT/SERVICE. 4.3 THE AO ELABORATELY DISCUSS ED THIS ISSUE IN ITS ASS ESSMENT ORDER AND CAME TO CONCLUSION THAT THERE IS A PRINCIPAL AGENCY RELATION SHIP BETWEEN THE I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 6 | P A G E ASSESSEE AND ADVERTISING AGENCY TO WHOM COMMISSION IS PAID AND THE ASSESSEE OUGHT TO HAVE DEDUCTED INCOME - TAX AT SOURCE U/S. 194H OF THE 1961 ACT ON SUCH ADVERTISING AGENCY COMMISSION . THE AO OBSERVED THAT THE GROSS OF ADVERTISING REVENUE IS PAYABLE BY THE ADVERTISING AGENCY TO THE ASSESSEE. THE COMMISSION IS PAYABLE BY ASSESSEE TO THE ADVERTISING AGENCY. THE AO OBSERVED THAT THE COMMISSION PAYABL E TO THE ADVERTISING AGENCY IS APPROPRIATED FROM THE GROSS ADVERTISING REVENUE. THE AO OBSERVED THAT AFTER DEDUCTING COMMISSION DUE TO THEM THE ADVERTISEMENT AGENCY REMITS NET ADVERTISING REVENUE TO THE ASSESSEE. THE AO OBSERVED THAT PROVISIONS OF SECTION 194H OF THE 1961 ACT IS CLEARLY APPLICABLE ON THE SAID PAYMENTS EVEN IF COMMISSION IS RETAINED BY AGENT/CONSIGNEE WITHOUT ACTUAL PAYMENT FROM THE CONSIGNOR/PRINCIPAL , AND IT WOULD BE DEEMED TO BE CONSTRUCTIVE PAYMENT WHICH IS SUBJECT TO DEDUCTION OF INC OME - TAX AT SOURCE U/S 194H OF THE 1961 ACT. THE AO REFERRED TO CIRCULAR NO. 619 ISSUED BY CBDT ON 04.12.1991 . THE ASSESSEE WAS ASKED BY AO DURING ASSESSMENT PROCEEDINGS TO EXPLAIN WHY THE SAID AMOUNT OF ADVERTISEMENT COMMISSION BE NOT DISALLOWED BY INVOKI NG PROVISIONS OF SECTION 40(A)(IA) READ WITH SECTION 194H OF THE 1961 ACT, FOR NOT DEDUCTING OF INCOME - TAX AT SOURCE ON THESE ADVERTISING COMMISSION PAID BY ASSESSEE TO ADVERTISING AGENCIES . 4.4 THE ASSESSEE ON ITS PART SUBMITTED THAT THE DEDUCTION OF 15% IN INVOICE BY ADVERTISEMENT AGENCY IS NOT COMMISSION PAID TO THE ADVERTIS ING AGENCIES AND THE BILLING DONE TO THE ADVERTISING AGENCY BY ASSESSEE IS IN THE FORM OF PRINCIPAL TO PRINCIPAL RELATIONSHIP. THE ASSESSEE EXPLAINED THAT AMOUNT DEDUCTED IN THE INVO ICE IS A TRADE DISCOUNT ON THE RATE CHARGEABLE TO ADVERTISING AGENCY AND NOT A COMMISSION . 4.5 T HE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WAS OF THE VIEW THAT SECTION 194H OF THE 1961 ACT IS APPLICABLE AND SUCH PAYMENT MADE BY THE ASSESSEE IS NOT DISCOUNT BUT COMMISSION WHICH IS SUBJECT TO PROVISIONS OF SECTION 194H OF THE 1961 ACT, WHEREIN THE AO HELD AS UNDER: - 1. THE NATURE AND CHARACTERISTIC OF PAYMENT IS IN THE NATURE OF COMMISSION AND NOT DISCOUNT. 2. THE RELATION BETWEEN MEDIA AND AGENCY IS PRINCIPAL TO AGENT AN D NOT PRINCIPAL TO PRINCIPAL. 3. THE ADVERTISING AGENCIES ASSOCIATION OF INDIA (AAAI) HAS WRITTEN A LETTER TO THE CBDT FOR SEEKING CLARIFICATIONS REGARDING I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 7 | P A G E TDS ON COMMISSION WHEREIN AA AI HAS ADMITTED THAT THEY RECEIVE COMMISSION FROM MEDIA COMPANIES. 4. IT IS THE INDUSTRY PRACTICE THAT MEDIA GIVES AGENCY COMMISSION TO THE ADVERTISING AGENCIES AND NOT TRADE DISCOUNT IN LIEU OF THEIR SERVICES. 5. THE ASSESSEE HAS CONVENIENTLY USED THE TERMINOLOGY 'AGENCY DISCOUNT' IN PLACE OF 'AGENCY COMMISSION'. THIS IS A DELIBERATE ATTEMPT OF / BY THE ASSESSEE TO CIRCUMVENT THE OTHERWISE NORMALLY APPLICABLE TDS PROVISION. MERELY BECAUSE THE ASSESSEE HAS CHOSEN A NOMENCLATURE THAT SUITS IT THE BES T, THE TRUE CHARACTER AND NATURE OF PAYMENT CANNOT BE DEFEATED BY A COLORING ACT. THE SUBSTANCE OF THE TRANSACTION IS AS SUCH THAT THE ADVERTISING AGENCY CHARGES THE COMMISSION FOR THE SERVICES RENDERED BY IT AND THIS IS A TIME TESTED TRADE PRACTICE. 4.6 . THE AO WAS OF THE VIEW THAT THE ADVERTISING AGENCY ARE PERFORMING SERVICES FOR TH E ASSESSEE AS MIDDLEMAN AND THESE ADVERTISING AGENCIES ARE ENTITLED FOR COMMISSION FOR SERVICES PROVIDED BY THEM TO THE ASSESSEE. FURTHER, THE AO WAS OF THE VIEW THAT DISCOUN TS ARE ALLOWANCES OF CONCESSION IN PRICE WHICH IS GIVEN TO INDUCE BUYER TO PLACE ORDER AND MAKE PAYMENT IN TIME. THE AO ALSO LOOKED INTO RELATION BETWEEN THE ASSESSEE AND THE ADVERTISING AGENCY AND CAME TO CONCLUSION THAT RELATIONSHIP IS THAT OF PRINCIPAL TO AGENT AND NOT PRINCIPAL TO PRINCIPAL, ON FOLLOWING REASONING : - 1. THE BROADCASTING OF THE ADVERTISEMENT IS UNDER THE COMPLETE OPERATION, CONTROL, MANAGEMENT AND EXECUTION OF THE ASSESSEE. THE AGENCY CANNOT INDEPENDENTLY PERFORM RELEASE OF ADVERTISEME NT WITHOUT THE FULL FLEDGED INVOLVEMENT AND INTERVENTION OF THE BROADCASTER. THIS NECESSARILY MEANS THAT IT IS A PRINCIPAL TO AGENT RELATIONSHIP. THE PRICING FACTOR OF BROADCASTING THE ADVERTISEMENTS IS PREDOMINANTLY DICTATED BY THE BROADCASTER. IT IS IN T HIS SENSE OF THE MATTER THAT THE ADVERTISING AGENCY CANNOT INDEPENDENTLY NEGOTIATE THE PRICE WITH THE INTENDING ADVERTISERS. ALL THE DECISIONS RELATING TO BROADCASTING OF ADVERTISEMENTS ARE TAKEN BY THE BROADCASTER INCLUDING REFUSAL TO BROADCAST. THE ADVER TISING AGENCY HAS NO CONTROL IN REGARD HERETO. 2. THE ADVERTISEMENT HAS TO COMPLY WITH GUIDELINES, NORMS AND PROCEDURES SET BY MIB, TRAI, AND PCI WHICH ARE DICTATED ONLY ON THE BROADCASTER. IT IS THE DUTY OF THE BROADCASTER TO ADVERTISE ADULT ADS IN THE LATE NIGHT SLOT AND NOT IN THE PRIME TIME SLOT. THEREFORE, THE BROADCASTER IS NOT MECHANICALLY TELECASTING THE ADVERTISEMENT BUT ONLY AFTER VETTING BY IT. 3. THE AGENCY CANNOT SELL THE FREE COMMERCIAL TIME (FCT) TO ANY PERSON WHATSOEVER, WHICH IS ALSO DI CTATED BY THE I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 8 | P A G E BROADCASTER. THIS IS EVIDENT FROM THE INVOICE WHICH NAMES THE AGENCY AS WELL AS THE NAME OF THE ADVERTISER. 4. THERE IS NO PRINCIPAL TO PRINCIPAL RELATIONSHIP ALSO ON THE FACT THAT IT IS PREROGATIVE OF THE BROADCASTER WHETHER TO AIR THE ADVE RTISEMENTS OR NOT. 5. IT IS NOT SALE OF GOODS AS THERE IS NO APPLICATION OF VAT BUT SERVICE TAX HAS BEEN APPLIED IN VIEW OF SERVICES. THE ADVERTISING AGENCY IS MERELY A MIDDLEMAN BETWEEN THE ADVERTISER AND THE BROADCASTER. 6. THE SERVICES ARE PROVIDED BY THE MEDIA ONLY. THERE IS NO VALUE ADDITION IN THE SERVICES BY THE ADVERTISING AGENCY. THE END USER OF THE SERVICES IS THE ADVERTISER AND THE SERVICE PROVIDER IS THE BROADCASTER. THE ADVERTISING AGENCY IS THE MIDDLEMAN AND FACILITATOR RENDERING SERVICES TO BOTH THE PARTIES FOR WHICH THEY EARN COMMISSION. 4.7 . THE AO RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. IDEA CELLULAR LIMITED (2010) 189 TAXMAN 118(DELHI). THE AO ALSO REFERRED TO CBDT CIRCULAR NUMBER 715 DATED 08.08.1995 WHEREIN VIDE ANSWER TO QUESTION NUMBER 27 THE CBDT SPECIFIED THAT SECTION 194J OF THE 1961 ACT IS APPLICABLE ON COMMISSION RECEIVED BY ADVERTISING AGENCY FROM THE MEDIA FOR DEDUCTION OF INCOME - TAX AT SOURCE , BY ANSWERING QUESTION NUMBER 27 AS UN DER: QUESTION 27 : WHETHER COMMISSION RECEIVED BY THE ADVERTISING AGENCY FROM THE MEDIA WOULD REQUIRE DEDUCTION OF TAX AT SOURCE UNDER SECTION 194J OF THE ACT ? ANSWER : YES. 4.8. THE AO REFERRED TO DECISION OF HONBLE KERALA HIGH COURT IN THE CAS E OF CIT V . DI RECTOR, PRASAR B HAR A TI , DOORD ARSHAN KENDRA (2010) 189 TAXMAN 315 (KER.) WHICH HAD HELD THIS ISSUE IN FAVOUR OF REVENUE AND ADDITIONS WERE MADE TO THE INCOME OF THE ASSESSEE BY THE AO TO THE TUNE OF RS.27,43,52,361/ - U/S. 40(A)(IA) OF THE ACT FOR N ON DEDUCTION OF INCOME - TAX AT SOURCE UNDER CHAPTER XVIIB OF THE 1961 ACT , VIDE ASSESSMENT ORDER DATED 28.03.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. 5. THE SECOND ISSUE CONCERN S ITSELF WITH DISALLOWANCE OF BUSINESS PROMOTION E XPENSES TO THE TUN E OF 20% OF THE EXPENSE AMOUNTING TO RS. 16,75,990/ - WHICH LED TO DISALLOWANCE OF RS. 3,35,198/ - ON THE GROUNDS THAT THESE I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 9 | P A G E EXPENSES WERE INCURRED BY M ANAGING D IRECTOR AND OTHER EMPLOYEES FOR ENTERTAINING CLIENTS WHICH INCLUDE FOOD EXPENSES, BOUQUETS, SWEET BOXES PURCHASED FOR CELEBRITIES, CLIENTS, ENTRY FEES FOR AD CLUB AWARDS, MOVIE TICKETS, TICKETS FOR CRICKET MATCHES ETC. AND THE BUSINESS NEXUS OF THESE EXPENSES COULD NOT BE PROVED BY THE ASSESSEE, WHICH LED THE AO TO MAKE ADDITION S TO THE INCOME OF THE ASSESSEE TO THE TUNE OF RS. 3,35,198/ - , VIDE ASSESSMENT ORDER DATED 28.03.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT . 6 . THE NEXT ADDITION TO THE INCOME AS WAS MADE BY THE AO IN AN ASSESSMENT ORDER PERTAINED TO WEBSITE CREATION EXPENSES INCURRED BY THE ASSESSEE TO THE TUNE OF RS. 3,87,047/ - WHICH WAS HELD BY THE AO TO BE CAPITAL EXPENDITURE WHICH THE ASSESSEE OUGHT TO HAVE CAPITALISED IN ITS BOOKS OF ACCOUNTS . THE AO AFTER HOLDING THAT THESE WEBSITE CREATION EXPENSES ARE CAPITAL IN NATU RE HOWEVER ALLOWED DEPRECIATION ON THESE WEBSITE EXPENDITURE @ 60% WHILE THE BALANCE AMOUNT OF RS. 1,54,819/ - WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE BY THE AO , VIDE ASSESSMENT ORDER DATED 28.03.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 A CT . 7 . THE NEXT ADDITION AS WAS MADE BY THE AO TO THE INCOME OF THE ASSESSEE IN ITS ASSESSMENT ORDER PERTAINS TO COMMISSION @ 5% OF THE BUSINESS GENERATED BY AND THROUGH BEN N E T T COLEMAN & COMPANY LIMITED( HEREINAFTER CALLED THE BCCL ) IN FAVOUR OF THE ASSESSEE. IT WAS OBSERVED BY THE AO THAT THE SAID BCCL HAS FINANCIAL STAKE IN ASSESSEE AND BUSINESS W AS ALSO PROCURED BY SAID BCCL IN FAVOUR OF TH E ASSESSEE ON WHICH COMMISSION WA S PAID @ 5% WHICH IS ON HIGHER SIDE AS COMPARED TO INDUSTRY STANDARDS. THE ASSESSEE WAS ASKED BY THE AO TO EXPLAIN THE SAME. 7.2 THE ASSESSEE SUBMITTED THAT THE COMMISSION IS PAID TO BCCL @ 5% OF THE BUSINESS PROCURED THROUGH THEM. IT WAS EXPLAINED THAT THE ASSESSEE HAS TO PAY IN ADVANCE HEAVY FIXED LICENSE FEE FOR THE STATION C OMMISSION ED WHETHER THE SAME IS FULLY OPERATIONAL OR NOT. THE ASSESSEE SUBMITTED THAT DUE TO T HESE FIXED OVERHEAD , THE BREAK EVEN POINT OF THE ASSESSEE IS SUBSTANTIALLY HIGH FOR WHICH HIGHER TURNOVER IS REQUIRED TO ACHIEVE PROFITABILITY. THE ASSESSEE SUBMI TTED THAT BCCL TIE UP CLIENTS FOR 1 - 3 YEARS WITH SPEND COMMITMENT GIVEN BY THE CLIENTS. THE SAID BCCL HAS TAKEN A FINANCIAL STAKE IN THE ASSESSEE COMPANY. THE ASSESSEE EXPLAINED THAT I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 10 | P A G E THROUGH THIS ARRANGEMENT, THE ASSESSEE GETS A COMMITTED BUSINESS WITHOUT MUCH MARKETING EF F ORTS. THE ASSESSEE EXPLAINED THAT MANAGEMENT OF DEAL AND REALISATION OF UNDERLYING OUTSTANDING DUES IS RESPONSIBILITY OF BCCL AND THE ASSESSEE S COSTS ARE NEGLIGIBLE. IT WAS EXPLAINED BY ASSESSEE B EFORE THE AO THAT THE ADVERTISERS PROCU RED BY BCCL ARE FIRST TIME ADVERTISERS , WHO MAY NOT OTHERWISE ADVERTISE ON RADIO. THE ASSESSEE SUBMITTED THAT IT LEADS TO HIGHER INVENTORY FOR THE ASSESSEE AND THE TURNOVER IS IN ADDITION TO THE EXISTING TURNOVER MARKED BY OPERATION STAFF OF THE ASSESSEE AND HENCE GIVES A BETTER LEVERAGE TO THE CONTRIBUTION. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE ASSESSEE IS PAYING COMMISSION TO BCCL@5% ON BUSINESS PROCURED BY AND THROUGH THEM AS AGAINST NORMAL COMMISSION IN THE MEDIA INDUSTRY WHICH IS BETWEEN 15 - 20 %. THE ASSESSEE SUBMITTED THAT IT PAID COMMISSION OF RS. 7,59,558/ - TO BCCL, WHICH IS DISCLOSED IN P & L ACCOUNT UNDER THE HEAD MISCELLANEOUS E XPENDITURE. THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE AROSE IN AY 2009 - 10, WHEREIN THE AO WHILE FRAMING ASSESSMENT FOR AY 2009 - 10 HAS DISALLOWED 50% OF COMMISSION PAID BY THE ASSESSEE TO BCCL BY HOLDING AS UNDER: AT THE OUTSET , IT APPEARS TO BE AN UNHEALTHY BUSINESS PRACTICE WHEREIN, THE EQUITY HOLDER WOULD DEMAND BUSINESS AS A QUID - PRO - QUO. IT IS A RESTRICTIVE TRADE PRACTICE IN AS MUCH AS THE CLIENT COMPANY CANNOT APPROACH THE COMPETITORS AS THEY RECEIVE EQUITY OR FUNDING FROM BCCL. THE ASSESSEE EXPLAINED THAT WITH THE ABOVE REMARKS , THE AO RESTRICTED COMMISSION TO 50% IN AY 2009 - 10 WHICH IS UNJUSTIFIED. 7.3 THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WAS OF THE VIEW THAT THERE IS AN INTENSE COMPETITION IN THE ADVERTISEMENT INDUSTRY WHEREIN COMPETITORS ARE CHARGING MARGIN OF 1.5% TO 2% AND HENCE MARGIN OF 5% PAID BY THE ASSESSEE TO BCCL IS EXCESSIVE . THE AO WAS OF THE VIEW THAT GIVEN THE FACT THAT BCCL IS INVESTING IN THE CLIENTS FOR OBTAINING BUSINESS, A COMMISSION OF 2.5% OF THE BUSINESS PROCURED THROUGH BCCL WOULD BE SUFFICIENT COMPENSATION TO BCCL FOR ITS SER VICES. THE AO ALSO NOTED THAT BCCL IS A PARENT COMPANY AND PROVISIONS OF SECTION 40A(2)(B) OF THE 1961 ACT ARE ALSO ATTRACTIVE AND HENCE DISALLOWANCE OF RS. 3,79,779 / - BEING 50% OF THE COMMISSION PAID TO BCCL WAS AFFIRMED BY THE AO , VIDE ASSESSMENT ORDER DATED 28.03.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 11 | P A G E 8 . THE NEXT ADDITIONS AS WAS MADE BY THE AO TO THE INCOME OF THE ASSESSEE RELATED TO DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME , TO THE TUNE OF RS. 62,16,426 / - BY INVOCATION OF PROVISIONS OF SECTION 14A OF THE 1961 ACT READ WITH RULE 8D OF THE INCOME - TAX RULES, 1962 , WHEREIN ADDITIONS WERE MADE BY INVOKING RULE 8D2(II) AND 8D2(III) OF THE 1962 RULES BY THE AO, BY HOLDING AS UNDER: - I) THE AMOUNT OF EXPE NDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME NIL II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY: A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; 3. FOR THE PURPOSE OF THIS RULE, THE 'TOTAL ASSETS' SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCLUDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDIN G THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. 39,02,50,000/ 4,28,15,14,251 X 4, 67,94,141 42,65,176/ - III) AN AMOUNT EQUAL TO ONE - HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR . 39,02,50,000 X 0.5% (420,250,000 - 30,000,000) 30,000,000 CONSISTS OF 19,51,250/ - I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 12 | P A G E GROWTH FUNDS TOTAL 62,16,426/ - THEREFORE DISALLOWANCE U/S 14A R.W. RULE 8D WORKS OUT TO RS.62,16,426/ - . 8.2 WHILE MAKING AFORESAID ADDITIONS TO THE INCOME OF THE ASSESSEE BY DISALLOWING EXPENSES INCURRED IN RELATION TO EARNING OF AN INCOME WHICH IS NOT CHARGEABLE TO TAX U/S 14A READ WITH RULE 8D( 2)(II) AND 8D(2)(III) OF THE 196 2 RULES, THE AO NOTED THE SUBMISSIONS OF THE ASSESSEE THAT NO INTEREST BEARING FUNDS WERE UTILISED FOR EARNING EXEMPT IN COME. THE AO ALSO NOTED THAT IT WAS MIXED USE FUNDS WHICH WERE UTILISED BY ASSESSEE FOR MAKING INVESTMENTS IN SHARES/MUTUAL FUNDS, WHEREIN BOTH INTEREST BEARING BORROWED FUNDS AS WELL OWNED FUND S WERE UTILISED BY THE ASSESSEE. THE AO NOTED THAT THE INVESTMENT PROFILE OF THE ASSESSEE HAS UNDERGONE CHANGE DURING THE YEAR AND ADMINISTRATIVE EXPENSES AND MANAGEMENT TIME COST WAS INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME. THE AO PASSED AN ASS ESSMENT ORDER DATED 28.03.2013 U/S 143(3) OF THE 1961 ACT TO MAKE ADDITIONS TO THE INCOME OF THE ASSESSEE BY DISALLOWING EXPENSES OF RS. 62,16,426/ - U/S 14A READ WITH RULE 8D(2)(II) AND (III) OF THE 1962 RULES PURPORTED TO BE INCURRED FOR EARNING OF AN EXE MPT INCOME. 9 . THE NEXT GROUND ON WHICH ADDITIONS TO THE INCOME OF THE ASSESSEE WAS MADE BY THE AO VIDE ASSESSMENT ORDER DATED 28.03.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT , PERTAINED TO INTEREST EXPENSE OF RS. 4,67,94,141/ - , WHICH WAS DEBITED B Y THE ASSESSEE IN ITS P&L ACCOUNT. THE ASSESSEE WAS ASKED BY THE AO TO EXPLAIN UTILISATION OF THE FUND FOR WHICH INTEREST EXPENSES WERE INCURRED. THE ASSESSEE SUBMITTED THAT IT IS OPERATING FM RADIO BR OADCASTING STATION THROUGH THE B RAND RADIO MIRCHI IN 32 INDIAN CITIES AND HAS SETUP FM RADIO BROADCASTING STATION IN 25 INDIAN CITIES. THE ASSESSEE EXPLAINED BEFORE THE AO DURING ASSESSMENT PROCEEDINGS THAT IN ORDER TO MAKE ITS REQUIREMENTS TOWAR D EXPANSION AND WORKING CAPITAL , THE ASSESSEE CAME OUT WITH AN IPO AND ALSO OBTAINED LOAN FROM BENNET T COLEMAN & CO. LTD.. IT WAS SUBMITTED BY ASSESSEE THAT WORKING I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 13 | P A G E CAPITAL FUNDS WERE USED EXCLUSIVELY BY THE ASSESSEE FOR THE PURPOSE OF ITS WORKING CAPITAL REQUIREMENT S FOR ITS BUSINESS. THE ASSESSEE CLAIMED THAT IT HAD MADE INVESTMENTS IN EQUITY SHARES OF ITS SUBSIDIARIES AND MUTUAL FUND. IT WAS SUBMITTED BY ASSESSEE THAT NO INCOME WAS EARNED ON SALE OF SHARES BUT INCOME WAS EARNED ON REDEMPTION OF MUTUAL FUND WHICH IS OFFERED BY THE ASSESSEE TO TAX AS SHORT TERM CAPIT AL G AIN (STCG) . THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTI LITIES & POWER LTD., (2009) 313 ITR 340 (BOM) AND ALSO RELIED UPON DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A . BUILDERS LIMITED V . CIT (2007) 288 ITR 1 (SC) FOR ITS CLAIM OF DEDUCTION OF INTEREST EXPENSES . 9.2 THE AO AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE WAS OF THE VIE W THAT FOR AY 2006 - 07, 2008 - 09 AND 2009 - 10 , THIS ISSUE WAS DECIDED BY AO AGAINST THE ASSESSEE . THE AO WAS OF THE VIEW THAT EVEN IN THIS YEAR UNDER CONSIDERATION, THE ASSESSEE HAS USED LOANS FOR NON BUSINESS PURPOSES AND THE ASSESSEE HAS FAILED TO PROVE BUSINESS EXPEDIENCY OF THE INTEREST PAID. THE AO OBSERVED THAT FOR PRECEDING YEARS, THE LEARNED CIT(A) VIDE ITS APPELLATE ORDER NO. CIT(A) - 3/ADDL.CIT/11(1)/I T - 274/11 - 12 DATED 31.12.2012 HAD APPORTIONED THE DISALLOWABLE INTEREST EXPENSES AND THE APPELLATE ORDER OF LEARNED CIT(A) IS ACCEPTABLE TO REVENUE. B ASED UPON THE SAME , THE AO DISALLOWED AN A MOUNT OF RS. 8 0 LAC S @ 8% OF THE INVESTMENT IN ITS SUBSIDIARY TO THE TUNE OF RS. 10 CRORES, VIDE ASSESSMENT ORDER DATED 28.03.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. 10 . AGGRIEVED BY AN ASSESSMENT FRAMED BY THE AO U/S 143(3) OF THE 1961 ACT WHEREIN AFORESAID AD DITION(S) WERE MADE BY THE AO TO THE INCOME OF THE ASSESSEE , THE ASSESSEE FILED FIRST APPEAL BEFORE LEARNED CIT(A). 10.2 WITH RESPECT TO THE FIRST ISSUE WHEREIN ADDITIONS WERE MADE BY THE AO TO THE INCOME OF THE ASSESSEE CONCERNING DISALLOWANCE OF EXPENSE S TOWARDS ADVERTISING AGEN CY COMMISSION BY INVOCATION OF S ECTION 40(A)(IA) READ WITH CHAPTER XVII - B OF THE 1961 ACT FOR NON DEDUCTION OF INCOME - TAX AT SOURCE U/S 194H OF THE 1961 ACT, THE ASSESSEE MADE ELABORATE SUBMISSIONS BEFORE LEARNED CIT(A). THE LD. CIT(A) AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE WAS PLEASED TO DELETE THE ADDITION S AS WERE MADE BY THE AO , VIDE APPELLATE ORDER DATED 16.11.2015 PASSED BY LEARNED CIT(A) , BY HOLDING AS UNDER: - I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 14 | P A G E 2.3 I HAVE CONSIDERED THE FINDINGS OF THE AO AS WELL AS RIVAL SUBMISSION OF THE AR. I HAVE ALSO CONSIDERED THE FACTS AND MATERIAL ON RECORD. T HE DISPUTE BEFORE ME IS WHETHER THE AMOUNT SHOWN AS 15% TRADE DISCOUNT IS DISCOUNT OR COMMISSION AND WHETHER TAX IS REQUIRED TO BE DEDUCTED U/S 194H OF THE I.T. ACT. THE DISTINCTION BETWEEN COMMISSION AND DISCOUNT IS SUBTLE AND SOMETIMES THE WORDS ARE INTERCHANGED. THEREFORE, BEFORE DECIDING THE ISSUE IT IS VERY IMPORTANT TO UNDERSTAND THE MEANING OF TWO WORDS : - CO MMISSION HAS BEEN DEFINED IN DICTIONARY AS UNDER: - I. COMMISSION' IS PERCENTAGE OR ALLOWANCE TO FACTOR OR AGENT FOR TRANSACTING BUSINESS FOR ANOTHER II. 'COMMISSION' IS COMPENSATION PAID TO ANOTHER FOR SERVICE RENDERED IN THE HANDLING OF ANO THER'S BUSI NESS OR PROPERTY AND BASED PROPORTIONATELY UPON THE AMOUNT OR VALUE THEREOF' III. 'COMPENSATION IS PAID FOR WORK MEASURED BY RESULTS ACHIEVED. IV. 'COMMISSION' GENERALLY D ENOTES THE COMPENSATION WHICH A PERSON CAN RECEIVE ON SALES' A PRODUCER OR MANUFA CTURER OF GOODS, GENERALLY DOES NOT SELL HIS GOODS DIRE CTLY TO THE ULTIMATE CONSUMER. THERE ARE AGENTS WHO PURCHASE THE GOODS FROM THE MANUFACTURER AND SELL THEM TO T HE CONSUMER. IN A SENSE, SUCH AGENTS BRING THE MANUFACTURERS AND THE CONSUMERS TOGETHER FO R TRANSACTION. THE REMUNERATION WHICH AN AGENT GETS FOR HIS SERV ICES IN THE TRANSACTION IS CALLED COMMISSION. MOST OF THE BUSINESS TRANSACTIONS ARE MADE THROUGH INTERMEDIATE PERSONS. TRADE DISCOUNT IS AN ALLOWANCE OR REBATE FROM THE LISTED PRICE GRANTED BY THE SELLER TO BUYER. IN OTHER WORDS, TRADE DISCOUNT IS AN ALLOWANCE MADE FROM THE FULL INVOICE PRICE TO A CUSTOMER WHO BUYS GOODS IN THE ORDINARY COURSE OF TRADE. FOR EXAMPLE, A WHOLE SELLER MAY INVOICE GOODS TO A RETAILER AT THE RETAIL SELLING PRICE LESS A DISCOUNT OF 25%; WHICH REPRESENTS THE RETAILER'S GROSS PROFIT. FROM ABOVE IT IS OBSERVED THAT THE DISCOUNT IS FOR THE CUSTOMER OR THE BUYER AND COMMISSION IS TO THE AGENT/MIDDLEMAN. WHETHER THE APPELLANT HAS APPOINTED THE ADVERTISING AGENCY AS I TS AGENT IS 'A QUESTION OF FACT AND HAS TO BE DETERMINED BASED ON THE PREVAILING EVIDENCE. THE NATURE OF WORK OF THE APPELL ANT AND ADVERTISER IS COMPLETELY DIFFERENT. APPELLANT IS IN THE BUSINESS OF OPERATING RADIO CHANNEL AND SELLS ITS AIRTIME TO GENERATE REVENU E WHEREAS THE ADVERTISING AGENCY IS IN THE BUSINESS OF CREATING ADVERTISEME NT AND BOOKS AIRTIME ON RADIO/ TV AND SPACE IN PRINT MEDIA ON BEHALF OF THE ADVERTISERS. WITH REGARD TO AIRTIME SOLD TO ADVERTISERS THROUGH ADVERTISING AGENCY THE APPELLANT HAS GIV EN 15% DISCOUNT ON THE TARIFF AMOUNT AS PER INDUSTRY PRACTICE. THE APPELLANT HAS NOWHERE IN ITS ACCOUNT SHOWN A S RECEIVABLE THIS 15% DISCOUNT. THE TERMS AND CONDITIONS BETWEEN THE ADVERTISEMENT AGENCY AND THE APPELLANT WAS PERUSED. NONE OF THE CLAUSE OF TE RMS AND CONDITIONS CONNOTES THAT TH E APPELLANT HAS APPOINTED THE ADVERTISING AGENCY AS THEIR AGENT TO BRING THE ADVERTISEMENT FOR SALE OF THEIR AIR - TIME. THERE IS NOTHING ON RECORD TO PROVE THAT THE ADVERTISING AGENCY ACTED AS AN AGENT OF THE APPELLANT. THE SAMPLE INVOICE RAISED BY THE APPELLANT AS FILED WAS PERUSED AND IS SUMMARISED AS UNDER: I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 15 | P A G E INVOICE RAISED BY ENIL ON LINTAS INDIA PVT. LTD. INVOICE NO.183010 DATED 15.03.2010 ADVERTISER BAJAJ ELECTRICALS LTD. GROSS. AMOUNT 466, 956 AGENCY DISCOUNT CREDIT 70,043 SUBTOTAL 3,96,913 SERVICE TAX 40.882 NET DUE 437,795 INVOICE RAISED BY LINTAS INDIA PVT. LTD. TO BAJAJ EL ECTRICALS LTD. INVOICE NO.1016004942 DATED 12.05.2010 REIMBURSEMENT OF BROADCASTING CHARGES 396.913 SERVICE TAX 40,8 82 TOTAL BROADCASTING CHARGES - REIMBURSEMENT 4,37, 795 MEDIA AGENCY COMMISSION @ 3% 14,009 SERVICE TAX 1, 443 GRAND TOTAL 453,247 THUS FROM ABOVE IT IS CLEAR THAT THE ADVERTISING AGENCY IS RAISING THE BILL TO THE ADVERTISER ON NET AMOUNT CHARGED BY THE APPELLANT I.E. RS.3,96,91 3/ - AND CHARGING SEPARATE COMMISSION FROM THE ADVERTISER. NO COMMISSION IS CHARGED FROM THE APPELLANT BY THE ADVERTISING AGENCY NOR THE APPELLANT HAS GIVEN THE ADVERTISING AGENCY, ANY COMMISSION ON PURCHASE/SALE OF AIRTIME. THEREFORE, NO AMOUNT IS TRANSACTED BETWEEN THE APPELLANT AND ADVERTISING AGENCY WHICH PARTAKES THE CHARACTER OF COMMISSION. HENCE THE STIPULA TION OF SECTION 194H IS NOT SATISFIED. SECTION 194H TALKS ABOUT THE PAYMENT TO A RECIPIENT WHICH IS THE INCOME BY WAY OF COMMISSION OR BROKERAGE. THE COMMISSION UNDER THE. EXPLANATION (I) TO SECTION 194H IS DEFINED IN AN INCLUSIVE MANNER. 'COMMISSION' UNDE R THE DEFINITION INCLUDES PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHE R PERSON FOR SERVICES RENDERED ( NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICE IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN RE LATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE; OR THING (NOT BEING SECURITIES). IT TAKES INTO ACCOUNT A SITUATION WHERE A PERSON RENDER'S SERVICE TO ANOTHER PERSON FOR WHICH THE PERSON RENDERING SERVICE EITHER RECEIVES OR IS ENTITLED TO RECEIVE, DIRECTLY OR INDIRECTLY PAYMENT FROM THAT ANOTHER PERSON TO WHOM THE SERVICE IS RENDERED. 2.4 THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF AHMADABAD STUMP VENDORS ASSOCIATION VS UNION OF INDIA HAS MADE A REFERENCE TO THE DIST INCTION BETWEEN TH E 'COMMISSION AND 'DISCOUNT' AS EXPLAINED IN LAW DICTIONARIES AND IN JUDICIAL PRONOUNCEMENT. THE DEFINITION OF COMMISSION AS GIVEN IN THE BLACK'S LAW DICTIONARY IS THAT; 'THE RECOMPENSE, COMPENSATION OR REWARD OF AN AGENT, SALESMAN, EXECUTOR, TRUSTEE , RECEIVER, FACTOR; BROKER OR BAILEE, WHEN THE SAME IS CALCULATED AS A PERCENTAGE ON THE A MOUNT OF HIS TRANSACTIONS OR ON THE PROFIT TO THE PRINCIPAL. THIS WAS FURTHER ELABORATED IN THE DECISION OF THE WEINER VS SWALES REPORTED IN 217 MD 123; AS A FEE PAID TO AN AGENT EMPLOYEE FOR TRANSACTING A PIECE OF BUSINESS OR PERFORMING A SERVICE. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 16 | P A G E 2.5 THE DISCOUNT, IN A GENERAL SENSE IS, ALL ALLOWANCE OF DEDUCTION MADE FROM A GROSS SUM ON ANY ACCOUNT WHATEVER; IN A MORE LIMITED AND TECHNICAL SENSE, THE TAKING OF INTER EST IN ADVANCE. FURTHER THE HON'BLE SUPREME COURT IN THE ABOVE REFERRED GUJARAT HIGH COURT CASE CITED IN 348 ITR 378 (SC) DISMISSED THE APPEAL OF THE DEPARTMENT UPHOLDING THAT DISCOUNT GIVEN TO THE STAMP VENDORS FOR PURCHASING STAMPS IN BULK QUANTITY IS IN THE NATURE OF CASH DISCOUNT. THE HON'BLE GUJARAT HIGH COURT HAS ALSO CONSIDERED THE DISTINCTION BETWEEN THE COMMISSION AND DISCOUNT AS EXPLAINED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S.HARIHAR COTTON PRESSING FACTORY VS. CIT REPORTED IN 39 ITR 594 WHEREIN IT HAS BEEN EXPLAINED THE EXPRESSION; 'COMMISSION' HAS NO TECHNICAL MEANING BUT BOTH IN LEGAL AND COMMERCIAL ACCEPTATION OF THE TERM IT HAS DEFINITE SIGNIFICATION AND IS UNDERSTOOD AS AN ALLOWANCE FOR SERVICE OR LABOUR IN DISCHARGING CERTAIN D UTIES SUCH FOR INSTANCE OF AN AGE NT, FACTOR, BROKER OR ANY OTHER PERSON WHO MANAGES THE AFFAIRS OR UNDERTAKES TO DO SOME WORK OR RENDERS SOME SERVICE TO ANOTHER. REBATE, ON THE OTHER HAND, IS A REMISSION OR A PAYMENT BACK AND OF THE NATURE OF A DEDUCTION F ROM THE GROSS AMOUNT. ' THE HON'BLE HIGH COURT HAS ALSO CONSIDERED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF M/S .COROMANDEL FERTILIZERS LTD VS. UNION OF INDIA REPORTED IN 17 ELT 607 WHEREIN THE HON'BLE APEX COURT HAS APPLIED THE AFORESAID PRIN CIPLES AND OBSERVED THAT; 'THE TRADER DISCOUNTS GIVEN TO THE DEALERS BY THE MANUFACTURER WERE HELD TO BE LIABLE TO BE DEDUCTED FROM THE PRICE CHARGED TO THE DEALERS FOR THE PURPOSE OF ARRIVING AT THE EXCISABLE VALUE OF THE GOODS; BUT THE COMMISSIONS GIVEN TO THE AGENTS WERE HELD TO BE NOT DEDUCTIBLE FROM THE PRICE FOR THE PURPOSE OF ARRIVING AT THE EXCISABLE VALUE OF THE GOODS. ' IT IS CLEAR FROM THE VARIOUS DECISIONS AS CONSIDERED, BY THE HONBLE GUJARAT HIGH COURT THAT A DISCOUNT IS GIVEN FROM THE GROSS P RICE AND IT OCCURS AT THE INSTANCE OF SALE AND PURCHASE BETWEEN THE OWNER AND THE BUYER, WHEREAS THE COMMISSION IS IN THE NATURE OF REFUND OR COMPENSATION FOR PERFORMING SOME TASK OR BUSINESS BY ONE PERSON ON BEHALF OF THE OTHER. IN THE CASE IN HAND, THE UNDISPUTED FACT IS THAT THE AMOUNT OF DISCOUNT HAS BEEN REDUCED FROM THE VALUE OF PRICE CHARGED BY THE ASSESSEE FROM THE ADVERTISING AGENCY ON SALE OF AIRTIME. 2.6 THE AO HAD RELIED ON THE THE HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX VS. M/S.IDEA CELLULAR LTD. REPORTED IN 325 ITR 148 WHICH HAS ALSO DISCUSSED THE DEFINITION OF COMMISSION AS WELL AS DISCOUNT AND ALSO THE DIFFERENCE BETWEEN TWO TERMS/EXPRESSION. THERE IS NO DISPUTE THAT THERE IS NO NECESSITY FOR A FORMAL CONTRACT OF A GENCY IT MAY BE IMPLIED WHICH COULD ARISE FROM THE ACT AND CONDUCT OF THE PARTIES OR SITUATION IN WHICH THE PARTIES ARE PUT AS OBSERVED BY THE HON'BLE SUPREME COURT IN THE EASE OF LAKSHMINARAYAN RAM GOPAL AND SONS LTD. V. GOVERNMENT OF HYDERABAD REPORTED I N 25 ITR 449. IN THE CASE IN HAND, IT IS MANIFESTED FROM THE RECORDS AS WELL AS FROM THE FACTS AND CIRCUMSTANCES OF THE CASE THAT THE BENEFIT/INCENTIVE I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 17 | P A G E GIVEN BY THE ASSESSEE IS THE NATURE OF DISCOUNT BECAUSE THE DISCOUNT IS ALWAYS GIVEN AT THE 'TIME OF TRA NSACTION OF SALE AND PURCHASE BETWEEN THE OWNER AND THE ADVERTISING AGENCY AND THE SAID AMOUNT IS REQUIRED TO BE REDUCED FROM THE GROSS PRICE AND THEREFORE, THE SALE PRICE IS ALWAYS EX - DISCOUNT AND THEREFORE THE IDEA CELLULAR JUDGEMENT RELIED UPON BY THE A O IS NOT APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE. ON THE OTHER HAND, THE COMMISSION IS GIVEN ONLY AFTER THE COMPLETION OF THE TASK OR SERVICES OR THE SALE, IF IT IS ON SALE OF PRODUCTS BY THE DISTRIBUTOR OR DEALER TO THE RETAILER OR CONSUMERS. WHEN THE DISTRIBUTOR RECORDS THE PURCHASE PRICE WITHOUT REDUCING THE AMOUNT OF SO CALLED DISCOUNT THEN THE SAID BENEFIT ALLOWED BY THE ASSES SEE TO THE DISTRIBUTOR, WOULD NO T PARTAKE THE CHARACTER OF DISCOUNT. 2.7 THE AO HAS ALSO RELIED ON THE KERALA HIGH COURT S DECISION IN THE CASE OF COMMISSIONER OF INCOME - TAX, THIRUVANANTHAPURAM V. DIRECTOR, PRASARBHARTI, DOORDARSHAN KENDRA [2010] 189 TAXMAN 315 (KER.) WHEREIN ADVERTISEMENT CHARGES WERE COLLECTED BY AGENTS ON BEHALF OF THE ASSESSEE AND THE AGENTS ARE ALLOWED TO RETAIN THEIR 15% OF THE COMMISSION. THE FACTS OF THE KERALA HIGH COURT'S DECISION HAS BEEN CLEARLY DISTINGUISHED BY THE APPELLANTS VIDE THEIR SUBMISSIONS WHICH IS SUMMARISED BELOW: SNO NATURE OF ARRANGEMENT PRASAR BHARTI & ADVERTISING AGENCIES ENIL & ADVERTISEMENT AGENCIES I APPOINTMENT OF ADVERTISEMENT AGENCIES AGENTS ARE APPOINTED BY PRASAR BHARTI AGENCIES ARE APPOINTED BY ADVERTISER . ENIL HAS NO ROLE IN THE APPOINTMENT OF AGENCIES 2 CANVASSING OF ADVERTISEMENTS CANVASSED THROUGH AGENTS CANVASSED BY SALE TEAM OF ENIL 3 TDS CLAUSE SPECIFIC CLAUSE THAT TAX SHALL BE DEDUCTIBLE AT SOURCE ON PAYMENT OF TRADE DISCOUNT NO SUCH CLAUSE IN THE TERMS AND CONDITIONS ISSUED BY ENIL TO THE AGENCY 4 RENDERING OF SERVICE AGENTS RENDER SERVICE TO PRASAR BHARATI AGENCY RENDER SERVICE TO ADVERTISER 5 CONTROL AGENTS ARE CONTROLLED BY PRASAR BHARTI AGENTS ARE CONTROLLED BY ADVERTISERS. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 18 | P A G E 6 ENTRY PASSED FOR THE TRANSACTION PRASAR BHARTI PASSES ENTRY FOR RS. 100 RECEIVED FROM THE ADVERTISER AND THEN ACCOUNTS FOR RS. 15 AS COMMISSION PAID TO ADVERTISING AGENCY ENIL ACCOUNTS FOR RS. 85/ - AS INCOME RECEIVED FROM THE AGENCY. RS. 15 IS NOT ACCOUNTED AS EXPENDITURE BY EN IL AS THIS IS IN THE NATURE OF T RADE DISCOUNT. 2.8. FURTHER, THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF JAGRAN PRAKASHAN HAS HELD THAT 'IT IS CLEAR THAT NO FOUNDATIONAL FACTS EXISTS ON THE BASIS OF WHICH ANY INFERENCE CAN BE DRAWN THAT ADVERTISING AGENCIES ARE AGENT OF THE PETITIONER AND FURTHER ADVERTISING AGENCIES RENDER ANY. SERVICE TO 'THE NEWSPAPER'. 2.9 THE HON'BLE DELHI TRIBUNAL IN THE CASE OF ACIT VS. LIVING MEDIA INDIA LIMITED (ITA NO 1264 OF 2007) VINDICATES THE APPELLANT'S POSITION IN THE MATTER, IN THE ABOVE CASE TOO, THE ISSUE WAS THE AGENCY DISCOUNT OF 15% WAS REDUCED BY THE COMPANY IN ITS INVOICE WHEN IT HAD CHARGED THE BALANCE 85% FROM THE ADVERTISING AGENCY. THE HON'BLE TRIBUNAL HAD THEN HELD THAT THE PROVISIONS OF SECTION 194H OF THE ACT CANNOT BE INVOKED IN THE CASE OF THE SAID AGENCY DISCOUNT OF 15%. THOUGH RENDERED IN THE CONTEXT OF MAGAZINE ADVERTISEMENT, THE ISSUE BEFORE THE HON'BLE TRIBUNAL IS SIMILAR TO THE ONE AT HAND. THE HON'BLE DEL HI HIGH COURT HAD APPROVED THE DECISION IN THE CASE OF ACIT VS. LIVING MEDIA INDIA LIMITED (ITA NO 1264 OF 2007). THE HON'BLE SUPREME COURT HAD DISMISSED THE SLP FILED BY THE REVENUE IN THAT CASE VIDE ITS ORDER DATED 11 DECEMBER 2009 (3433 OF 2009). THE AS SESSEE RECOGNIZES THE REVENUE FROM SALE OF AIR TIME AS PER INVOICE/BILLS AT WHICH THE AIRTIME WERE SOLD TO THE ADVERTISING AGENCY AND THE AMOUNT OF DISCOUNT IS NOT SEPARATELY TREATED AS EXPENDITURE ON ACCOUNT OF SALE OF AIRTIME AND ACCORDINGLY, NOT DEBITE D TO THE P&L ACCOUNT. THIS CLEARLY BRINGS OUT THE CASE OF THE ASSESSES TO FALL WITHIN THE AMBIT OF DISCOUNT. THE ASSESSEE HAS NOT APPOINTED THE ADVERTISING AGENCY AS ITS AGENT DIRECTLY OR INDIRECTLY. NO EVIDENCE ON RECORD IS PRODUCED BY AO TO SHOW THAT THE ADVERTISING AGENCY WAS APPOINTED BY THE APPELLANT FOR SALE OF ITS AIRTIME. THE DISCOUNTS HAVE BEEN OFFERED BY THE APPELLANT AS PER PREVALENT TRADE PRACTICE. THE INVENTORY OF THE AIRTIME IS ALWAYS WITH THE APPELLANT. THE ADVERTISING AGENCY BUYS THE AIRTIME SLOTS AS PER THEIR DESIRE AND REQUIREMENTS OF THE ADVERTISER. THE APPELLANT HAS NO SAY IN THIS REGARD. IF A PARTICULAR TIME SLOT R EMAINS VACANT 'THE LOSS IS, OF T HE APPELLANT . T HEREFORE THE DISCOUNT OFFERED BY THE APPELLANT ON SALE OF AIRTIME DOES NOT PA RTAKE THE CHARACTER OF COMMISSION. IN THE INSTANT CASE ALSO, THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE ADVERTISING AGENCIES WERE AGENT O F THE APPELLANT DIRECTLY OR INDIRECTLY AND THEY HAVE RECEIVED ANY REMUNERATION FROM THE APPELLANT TO SELL THEIR AI RTIME. THE DISCOUNT GIVEN BY THE APPELLANT WAS AS PER PREVAILING INDUSTRY PRACTICE WHICH THE APPELLANT WAS GIVING TO ANY PERSON WHO WAS BUYING AIRTIME FROM THEM I.E. DIRECT ADVERTISERS OR THE ADVERTIS ING AGENCY IT IS ALSO A FACT THAT THE REVENUE AUTHORITIE S HAVE ACCEPTED THE PRACTICE OF BROADCASTER S FOR SEVERAL YEARS AND HAVE NOT DISPUTED THE SAME. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 19 | P A G E 2.9 THE ABOVE ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF THE APPELLANT BY THE CIT (APPEALS) - 14 WHILE DISPOSING OFF THE COMPANY'S APPEAL FOR THE ASSESSMENT YEA RS 2011 - 12 & 2012 - 13 AGAINST THE ORDER OF THE ITO(OSD)(TDS) - 1(2), MUMBAI. IN VIEW OF THE AFORESAID DISCUSSION AND CONSIDERING THE LEGAL AND FACTUAL MATRIX OF THE CASE. I AM OF THE CONSIDERED OPINION THAT THE APPELLANT IS NOT REQUIRED TO MAKE TDS THUS FOLLO WING THE ABOVE REFERRED TO DECISIONS. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DI SALLOWANCE OF RS.27,43,52,361 / - . 10 . 3 WITH RESPECT TO SECOND ISSUE OF DISALLOWANCE OF 20% OF THE BUSINESS PRO MOTION EXPENSES WHICH STOOD ADDED TO INCOME OF THE ASSESSEE BY THE AO IN AN ASSESSMENT FRAMED U/S 143(3) OF THE 1961 ACT, T HE LEARNED CIT(A) WAS PLEASED TO DISMIS S THE APPEAL OF THE ASSESSEE , AS IN THE OPINION OF LEARNED CIT(A) THE ASSESSEE COULD NOT PRO VE BUSINESS NEXUS OF THESE EXPENSES , VIDE APPELLATE ORDER DATED 16.11.2015 PASSED BY LEARNED CIT(A) BY HOLDING AS UNDER : - 3.3 I HAVE CONSIDERED THE ISSUE UNDER APPEAL, CAREFULLY. I FIND THAT LD. AO HAS RIGHTLY DISALLOWED 20% OF THE TOTAL EXPENSES OF RS. 16,25,990/ - CLAIMED TO BE BUSINESS PROMOTION EXPENSES. THE REASON IS VERY OBVIOUS THAT MOST OF THE EXPENSES ARE PERSONAL IN NATU RE, NOT RELATED TO ANY BUSINESS NEED NOR IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. FOR EXAMPLE: EXPENSES RELATED TO FOOD, CANNOT BE PRESUMED TO BE FOR BUSINESS PURPOSES UNLESS, DEMONSTRATED WITH ANY VERIFIABLE EVIDENCES. SIMILARLY, THE EXPENSES OF BOUQUETS, CANNOT BE PRESUMED TO BE FOR AND BUSINESS PURPOSES UNLESS ESTABLISHED WITH EVIDENCES THAT SUCH BOUQUET HAS BEEN PRESENTED FOR ANY SUCH BUSINESS PURPOSES. SIMILARLY, SWEETS BOXES PURCHASED FOR CELEBRITIES IS THE APPLICATION OF INCOME A ND NOT AT ALL RELATED TO REQUIREMENT OF ANY BUSINESS. THE EXPENDITURE RELATED TO PURCHASE OF MOVIE TICKETS AND CRICKET TICKETS FOR IPL MATCHES OR EXPENDITURE RELATED TO TAJ HOTEL AND OTHER LUNCH BILLS DOES NOT SHOW ANY BUSINESS NEED OR BUSINESS REQUIREMENT . ALL THE SAME, IT REVEALS THE FACT THAT SUCH EXPENSES ARE MORE OR LESS PERSONAL IN NATURE OR APPLICATION OF PROFIT, HENCE IT CANNOT BE PRESUMED TO BE INCURRED EXCLUSIVELY FOR BUSINESS PURPOSES THEREFORE, I FIND NO MERIT IN THE COUNTER ARGUMENT OF THE LD. A.R. THAT SUCH EXPENSES HAVE BEEN INCURRED FOR BUSINESS PROMOTION. AS SUCH, THE DISALLOWANCE OF RS.3,35,198/ - BEING 20% OF CLAIMED BUSINESS PROMOTION EXPENSES IS FOUND TO BE CORRECTLY MADE BY THE AO. THEREFORE. DISALLOWANCE OF SUCH EXPENDITURE IS SUSTAINED . 10.4 ON THE NEXT ISSUE OF DISALLOWANCE OF RS. 1,54,819/ - BEING WEBSITE CREATION EXPENSES WHICH WERE HELD TO BE CAPITAL IN NATURE BY THE AO ON WHICH DEPRECIATION @60% WAS ALLOWED BY THE AO , WHILE REST OF THE EXPENSES TO THE TUNE OF RS. 1,54,819/ - STOOD DISALLOWED BY THE AO IN AN ASSESSMENT FRAMED U/S 143(3) OF THE 1961 ACT , THE LD. CIT(A) WAS PLEASED TO ALLOW THE SAID EXPENSES VIDE APPELLATE ORDER DATED 16.11.2015 , BY HOLDING AS UNDER: - I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 20 | P A G E 4.3 I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RECORD. I FIND THAT WEBSITE IS NEEDED FOR RUNNING DAY TO DAY BUSINESS AND REQUIRES CONSTANT UPDATING. THEREFORE, THE BENEFIT OBTAINED BY THE APPELLANT CANNOT BE SAID THAT IT HAS ACCRUAL IN THE CAPITAL FIELD. THE AR HAS RIGHTLY RELIED ON THE CASE OF LNDIANV ISIT.COM (P) LIMITED (176 TAXMAN 164) IN WHICH IT WAS HELD THAT EXPENDITURE INCURRED ON WEBSITE HAS TO BE REGARDED AS REVENUE EXPENDITURE. SIMILAR VIEWS WERE ALSO HELD IN THE CASE OF POLYPLEX CORPORATION LTD [176 TAXMAN 56] WHEREIN IT WAS HELD THAT BUSINES S EXPENSES INCURRED FOR DEVELOPMENT OF WEBSITE TO PROMOTE BUSINESS ACTIVITIES, AND DISPLAY INFORMATION AND PRODUCT IS ALLOWABLE AS REVENUE EXPENDITURE. THE AR FURTHER RELIED IN THE CASE OF EDELWEISS CAPITAL LIMITED, WHEREIN THE TRIBUNAL HELD THAT THE EXPEN DITURE INCURRED ON WEBSITE COULD NOT HAVE BEEN VIEWED AS CAPITAL EXPENDITURE BECAUSE THE WEBSITE IS PUT UP FOR PURPOSE OF DAY TO DAY RUNNING OF THE BUSINESS. SIMILAR VIEW WAS ALSO IN THE CASE OF M/S. R.R. KABEL LTDS. THE ADDL. CIT WHEREIN THE EXPENDITURE RELATING TO WEBHOSTING CHARGES IS REGARDED OF REVENUE IN NATURE. IT IS, FURTHER SEEN THAT THIS GROUND HAS BEEN DECIDED IN FAVOUR BY MY PREDECESSOR WHITE DISPOSING OFF THE APPELLANT'S APPEAL FOR THE ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 31 DECEMBER 2012 . RESPECTFULLY FOLLOWING THE ABOVE REFERRED TO DECISIONS, THE AO IS DIRECTED TO DELETE THE DISALLOWANCE OF RS. 1,54,819/ - . 10.5 . WITH RESPECT TO THE NEXT DISALLOWANCE OF COMMISSION PAID TO BCCL TO THE TUNE OF 2.5% OF THE BUSINESS PROCURED FOR THE ASSESSEE AS AGAINST COMMISSION @5% PAID TO BCCL FOR PROCUREMENT OF BUSINESS FOR T HE ASSESSEE BY OR THROUGH BCCL, T HE LEARNED CIT(A) WAS PL EASED TO ALLOW THE GROUND RAISED BY THE ASSESSEE AND DELETED THE ADDITION S TO THE INCOME AS WERE MADE BY THE AO VIDE APPELLAT E ORDER DATED 16.11.2015, BY HOLDING AS UNDER: - 5.3 I HAVE CONSIDERED THE FACTS AND FIND THAT THE APPELLANT COULD BE ABLE TO OBTAIN BUSINESS FROM BCCL AS BCCL IS IN THE FIELD OF PRINT MEDIA WHO HAS WELL ESTABLISHED SETUP TO FOR MARKETING AND GOVERNMENT OF BUSINESS. THEREFORE IT IS EASY FOR BCCL TO PROCU RE ORDERS FROM THEIR EXISTING CLIENTS FOR ADVERTISEMENT IN RADIO MIRCHI. THIS HELPED THE APPELLANT IN COLLECTING THE BEST FOR WHICH IT SECURES THE ORDERS WHICH ALSO HELP IN REDUCING THE DEBT OF THE APPELLANT. THE APPELLANT HAS INCURRED @ 5% FEES TO BCCL FO R PROCURING THE BUSINESS. THEREFORE THERE APPEARS NO UNREASONABLE PAYMENT OR EXCESSIVE PAYMENT AS COMMENTED BY THE AO. THEREFORE, PROVISION OF SECTION 40A(2)(B) OF THE ACT ARE NOT APPLICABLE IN THE CASE OF APPELLANT AS THE SHAREHOLDING IS BELOW THE THRESHO LD LIMIT MENTIONED IN THE SECTION. IT IS ALSO SEEN FROM THE ASSESSMENT ORDER THAT THE AO HAS NOT DEMONSTRATED THAT THE PAYMENT IS EXCESSIVE. IT IS ALSO NOTICED THAT THE AO HAS NOT POINTED OUT AN CONTEMPORARY CASES OF SIMILAR CASES O R COMPARABLE CASES TO HOLD THAT THE COMMISSION PAYMENT AT THE RATE OF 5% TO BCCL IS HIGHER IN 'COMPARISON TO OTHER SUCH MEDIA AGENCIES. FURTHER, IT IS SEEN THAT THIS GROUND HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY MY PREDECESSOR WHILE DISPOSING OFF THE APPELLANT'S APPEAL FOR THE ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 31 DECEMBER 2012. RESPECTFULLY FOLLOWING THE ABOVE REFERRED TO CASES, ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF RS. 3,79,779/ - . I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 21 | P A G E 10.6 . WITH RESPECT TO THE NEXT GROUND OF DISALLOWANCE OF EXPENDI TURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME BEING MADE BY THE AO U/S. 14A OF THE 1961 ACT READ WITH RULE 8D(2)(II) AND 8D(2)(III) OF THE 1962 RULES TO THE TUNE OF RS. 62,16,426/ - , T HE LEARNED CIT(A) WAS PLEASED TO DISMISS THE GROUND S RAISE D BY THE ASSESSEE AND CONFIRMED THE ADDITION S AS WERE MADE BY THE AO U/S. 14A OF THE 1961 ACT R.W.R 8D (2)(II) AND (III) OF THE 1962 RULES, BY HOLDING AS UNDER VIDE APPELLATE ORDER DATED 16.11.2015 PASSED BY LEARNED CIT(A) : - 6.3 I HAVE CONSIDERED THE ISSU E. IT IS SEEN THAT THIS GROUND HAS BEEN DECIDED AGAINST THE APPELLANT BY MY PREDECESSOR WHILE DISPOSING OFF THE APPELLANT'S APPEAL FOR THE ASSESSMENT YEAR 2009 - 10 VIDE ORDER NO.CIT(A) - 3/ADDL.CIT 11(1)/IT - 274/1 1 - 12 DATED 31 DECEMBER 2012 IS AS UNDER : - 'I HA VE CONSIDERED THE FACT. IT IS SEEN THAT THE APPELLANT HAS MADE INVESTMENT IN EXEMPT INCOME BEING EQUITY SHARES IN THE SUBSIDIARY COMPANIES AND INVESTMENT IN THE MUTUAL FUNDS. THEREFORE, THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING DIVIDEND IN COME CANNOT BE ACCEPTED AS IT IS IMPOSSIBLE TO EARN SUBSTANTIAL EXEMPT INCOME WIT HOUT INCURRING ANY EXPENSES. THI S VIEW IS ALSO FORTIFIED BY DECISION IN THE CASE OF CITICORP FINANCE (INDIA) LTD. [2007] 108 ITD 471 (MUM) WHE REIN IT WAS HELD THAT IT IS DIFFICULT TO ACCEPT THE HYPOTHESIS THAT ONE CAN EARN SUBSTANTIAL DIVIDEND INCOME WITHOUT INCURRING ANY EXPENSES, WHATSOEVER , INCLUDING MANAGEMENT OR ADMINISTRATIVE EXPENSES AND GUJARAT GAS FINANCIAL SERVICES LTD. VS. ACIT [2008 ] 14 DTR (AHD) (SB) 481] W HEREIN IT WAS HELD THAT THERE IS NO DISPUTE AND THERE CANNOT BE ANY DOUBT, THAT SOME EXPENDITURE IS INCURRED FOR MAKING OR EARNING THE INCOME FROM DIVIDEND. I FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUF A CTURING CO. LTD. VS. DC IT [2010] 328 ITR 81 (BOM). THE HON'BLE HIGH COURT FURTHER LAY DOWN THAT THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPOINTMENT ' THEREFORE, FOLLOWING THE ABOVE DECISION, IT WOULD BE REASONABLE TO MAKE THE DISALLOWANCE AS PER SECTION 14A OF THE ACT AND READ WITH RULE 8D OF INCOME TAX RULE, 1962 IT MAY ALSO BE NOTED THAT RULE 8D IS MADE APP LICABLE FOR THE A. Y. 2008 - 09 WHICH HAS ALSO BEEN UPHELD BY THE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING & TRADING CO . FURTHE R, IN THE CASE OF CHEMIVEST LTD. (121 ITD 318 ) (SB) (DL) WHEREIN IT WAS HELD THAT WHAT ONE HAS TO SEE IS WHETHER ANY EXPENDITURE WERE INCURRED BY AN ASSESSEE IN RELATION TO AN INCOME THAT DOES NOT FORM PART OF TOTAL INCOME OF THE ASSE SSES UNDER THIS ACT AND IF THE ANSWER IS IN AFFIRMATIVE THEN THAT EXPENDITURE CANNOT BE ALLOWED IRRESPECTIVE OF THE FACT THAT IT WAS ALLOWABLE UNDER DIFFERENT PROVISIONS OF THE ACT WHERE A DIFFERENT PHRASEOLOGY IS USED IN ALLOWING THAT EXPENDITURE AS THE F OCUS IS TO BE ON THE DISALLOWANCE WITHIN I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 22 | P A G E PARAMETERS OF SECTION 14 A, AN OVERRIDING PROVISION OVER ALLOWANCE PROVISIONS. IT WOULD RESULT IN DISALLOWANCE EVEN OF NO INCOME HAS RESULTED OR MADE OR EARNED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THEREFO RE, IN VIEW OF THE PROVISION SECTIONS 14A OF THE ACT NO DEDUCTION SHALL HE ALLOWED TO THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. WHEREVER SUCH EXPENSES ARE NOT READILY AVAILA BLE, THE SAME IS TO BE ASCERTAINED. THEREFORE , THE DISALLOWANCE MADE U/S. 14A READ WITH RULE 8D ARE ACCORDINGLY CONFIRMED. RESPECTFULLY FOLLOWING THE EARLIER DECISION, THE DISALLOWANCE MADE OF RS.62,16.426/ - IS SUSTAINED. AS COULD BE SEEN ABOVE, THE LD. C IT(A ) WHILE PASSING THE APPELLATE ORDER FOR IMPUGNED ASSESSMENT YEAR, WAS PLEASED TO FOLLOW THE APPELLATE ORDER PASSED BY LD. CIT(A) FOR AY 2009 - 10 IN ASSESSEES OWN CASE VIDE ORDER NO. CIT(A) - 3/ADDL.CIT - 11(1 )/IT - 274/11 - 12 DATED 31.12.2012 AND ADJUDICA TED THE ISSUE AGAINST THE ASSESSEE BY DISMISSING APPEAL OF THE ASSESSEE. 10.7 . THE NEXT GROUND RAISED BY ASSESSEE BEFORE LEARNED CIT(A) WAS WITH RESPECT TO DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSES TO THE TUNE OF RS. 80 LAC S DISALLOWED BY THE AO AND ADDED TO THE INCOME OF THE ASSESSEE, BY FOLLOWING THE DECISION OF LD. CIT(A) FOR THE AY 2009 - 10. THE LEARNED CIT(A) WHILE ADJUDICATING APPEAL FOR THE IMPUGNED AY 2010 - 11 UNDER CONSIDERATION OBSERVED THAT THIS ISSUE ALSO CAME UP IN AY 2006 - 07 AND 2007 - 08 IN ASSESSEES OWN CASE WHICH WAS ADJUDICATED BY MUMBAI - TRIBUNAL VIDE ITA NO. 3114/MUM/2011 AND ITA NO. 1063/MUM/2011 VIDE ORDER S DATED 26.12.2012 IN FAVOUR OF THE ASSESSEE, WHEREIN ADDITIONS AS WERE MADE BY THE AO WHICH WERE PARTLY CONFIRMED BY LEARNED CIT(A) WERE DELETED BY MUMBAI - TRIBUNAL. THE LEARNED CIT(A) BY RESPECTFULLY FOLLOWING THE APPELLATE ORDERS PASSED BY MUMBAI - TRIBUNAL FOR AY 2006 - 07 AND 2007 - 08 IN ASSESSEES OWN CASE , ALLOWED THE APPEAL OF THE ASSESSEE VIDE APPELLATE ORDER DATED 16.11.2015 PASSED BY LEARNED CIT(A) , BY HOLDING AS UNDER: - 7.3 I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLANT. IT IS ALSO SEEN FROM THE SUBMISSIONS THAT THE ITAT, MUMBAI HAS ACCEPTED THE CONTENTIONS OF THE APPELLANT AND DECIDED THE ISSUE IN ITS FAVOUR FOR TH E ASSESSMENT YEARS 2006 - 07 AND 2007 - 08. VIDE ITA NO.3114/MUM/2011 AND ITA NO. 1063/MUMBAI/2011 DATED 26.12.2012. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE ITAT. THE AO IS DIRECTED TO DELETE THE DISALLOWANCE OF EXPENDITURE OF RS.80,00,000/ - . I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 23 | P A G E 1 0 . 8 WITH RESPECT TO DISALLOWANCE U/S. 14A R.W.S . 115JB OF THE 1961 ACT FOR COMPUTING BOOK P ROFIT ON WHICH MAT IS PAYABLE , THE LD. CIT(A) DISMISSED THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN ITS FIRST APPEAL CHALLENGING THE ADDITIONS AS MADE BY THE AO, WHEREI N LEARNED CIT(A) VIDE APPELLATE ORDER DATED 16.11.2015 , HELD AS UNDER: - 8.2 I HAVE CONSIDERED THE ISSUE UNDER APPEAL CAREFULLY. UNDER SECTION 115JB , E XPLANATION 1 PROVIDES FOR INCREASE OF BOOK PROFIT BY ADJUSTING AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY. THUS, THE EXPENDITURE DISALLOWED U/S. 14A HAS TO BE ADJUSTED. AS FAR AS SECTION 115JB IS CONCERNED, AT THE OUTSET IT IS NECESSARY TO CLA RIFY THAT THE CASE OF THE PRESENT APPEAL FALLS UNDER THIS SECTION AND NOT UNDER SECTION 115J OF THE ACT WHICH HAS BEEN RELIED UPON BY THE LD. AR FOR NON DISALLOWANCE UNDER SECTION 14A OF THE ACT. HOWEVER, IN BOTH SECTIONS 115J AS WELL AS IN SECTION I15JB O F THE ACT A SAVING CLAUSE HAS BEEN INCORPORATED WHICH IS EXTRACTED AS UNDER: - 'SAVE AS OTHERWISE PROVIDED IN THIS SECTION, ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY IN EVERY ASSESSEE, BEING A COMPANY, MENTIONED IN THIS SECTION. IT IS RELEVANT TO NOTE T HAT DECISIONS RELIED UPON BY THE LD. A.R . WERE RENDERED UNDER SECTION 1 15J WHEREIN SUCH A SAVING CLAUSE WAS NOT INCORPORATED. THE SAID REASONING WAS BASED ON THE FACT THAT IT IS ONLY IN RESPECT OF THE DEEMED INCOME FOR WH ICH THE PROVISION OF SECTION 11 5J HAD BEEN INCORPORATED AND WHEN A DEEMED FICTION IS BROUGHT UNDER THE STATUTE, IT SHOULD BE CARRIED TO THE LOGICAL CONCLUSION BUT WITHOUT CREATING FURTHER DEEMING FICTION SO AS TO INCLUDE OTHER PROVISIONS OF THE ACT WHICH ARE NOT SPECIFICALLY MADE APPLICABL E. THE CASE LAWS CITED BY THE LD. A.R. ARE DISTINGUISHABLE ON FACTS OF THE CASE. UNDER SECTION 115JB OF THE ACT, SUB - SECTION (5) CLEARLY STATES THAT OTHER PROVISIONS OF THE ACT SHALL APPLY TO EVERY ASSESSEE BEING A COMPANY, SAVE AS OTHERWISE PROVIDED IN TH E SAID SECTION. IN THIS CONTEXT , CIRCULAR NO. 14 OF 2001 HAS ALSO BEEN ISSUED BY THE CBDT AS PER WHICH COMPANIES COVERED BY THE PROVISIONS OF SECTION 115J B ARE LIABLE TO PAY ADVANCE TAX AND CONSEQUENTLY, SECTION 234B AND 234C OF THE ACT ARE APPLICABLE. TH E HON'BLE SUPREME COURT IN THE CASE OF JCIT VS. ROLTA INDIA LTD. (2011) 330 ITR 470(SC) HAS RULED THAT SECTION 1 15J IS A SPECIAL PROVISION. IT IS CLEAR FROM READING SECTION 115J AND 115JB THAT THE QUESTION WHETHER A COMPANY WHICH IS LIABLE TO PAY TAX UNDER EITHER PROVISIONS DOES NOT RECEIVE IMPORTANCE BECAUSE SPECIFIC PROVISIONS ARE MADE IN THE SECTION SAYING THAT ALL OTHER PROVISIONS OF THE ACT SO APPLY TO MAT COPY UNDER SECTION 115(A) AND 115JB(5). RESPECTFULLY FOLLOWING THE PROPOSITION DECLARED BY THE HO N'BLE SUPREME COURT IN THE CASE OF JCIT VS. ROLTA INDIA LIMITED AND IN VIEW OF THE FACT THAT THERE IS NO EXCLUSION OF SECTION 115JB IN THE STATUTORY DISALLOWANCE OF EXPENSES TO EARN I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 24 | P A G E EXEMPT INCOME UNDE R SECTION 14A OF THE ACT R.W.R. 8 D OF I.T. RULES. 1962, IT IS HELD THAT STAT UT ORY DISALL OWANCE UNDER SECTION 14A R.W.R.8 D OF I.T. RULES, 1962 IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN VIEW OF THE SPECIFIC PROVISIONS IN SECTION 115JB(5) TO THE EFFECT THAT ALL OTHER PROVISIONS OF THE ACT SHALL APPLY TO THE MAT COMPANY, THE STATUTORY DISALL OWANCE UNDER SECTION 14A R.W.R.8 D IS APPLICABLE IN RESPECT OF WORKING OUT THE BOOK PR OFIT UNDER SECTION 1 I5JB OF THE ACT. THEREFORE, THE APPELLANT IS RESPONSIBLE FOR MAT AND SUCH ENHANCEMENT OF BOOK PROFIT MADE BY THE A .O. IS WITHIN THE AMBIT OF LAW PRESCRIBED U/S. 1 15JB. AS SUCH, THE ADDITION SO MADE OF RS.62,16,426/ - IN BOOK PROFIT IS SUSTAINED. 8.3. IN THE RESULT, GROUND NO.7 IS DISMISSED. 11 . AGGRIEVED BY AN APPELLATE ORDER DATED 16.11.2015 PASSED BY LEARNED CIT(A), BOTH ASSESSEE AND REVENUE HAVE COME IN APPEAL BEFORE THE TRIBUNAL AS CROSS APPEALS ARE FILED BY BOTH THE RIVAL PARTIES. 1 1. 2. THE LEARNED COUNSEL FOR THE ASSESSEE OPENED ARGUMENTS BEFORE THE BENCH. THE FIRST ISSUE CONCERNS ITSELF WITH DISALLOWAN CE BY THE AO OF ADVERTISING COMMISSION PAID TO ADVERTISING AGENCY BY THE ASSESSEE AND ITS ADDITION TO INCOME OF THE ASSESSEE BY THE AO ON THE GROUNDS THAT NO INCOME - TAX WAS DEDUCTED AT SOURCE BY ASSESSEE ON THESE PAYMENTS BY INVOKING PROVISIONS OF SECTION 40(A)(IA) READ WITH SECTION 194H OF THE 1961 ACT , WHEREIN LATER SAID ADDITIONS STOOD DELETED BY LEARNED CIT(A). THE REVENUE IS AGGRIEVED BY SAID DELETION OF ADDITIONS BY LEARNED CIT(A) AND HAS COME IN APPEAL BEFORE THE TRIBUNAL VIDE GROUND NUMBER 1 TO 3 R AISED IN ITS MEMO OF APPEAL FILED WITH TRIBUNAL. IT IS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTSET THAT THIS ISSUE IS COVERED BY THE DECISION OF MUMBAI - TRIBUNAL IN ASSESSE ES OWN CASE FOR AY 2011 - 12 AND 2012 - 13 . THE ASSESSEE HAS FILED COPI ES OF APPELLATE ORDERS PASSED BY MUMBAI - TRIBUNAL IN ASSESSES OWN CASE IN ITA NO. 1352/MUM/2014 AND ITA NO. 5227/MUM/2014 , VIDE COMMON ORDERS DATED 11.01.2017 , FOR AY 2011 - 12 AND 2012 - 13 RESPECTIVELY . I T WAS ALSO FAIRLY BROUGHT TO OUR NOTICE BY LEARNED COUNSEL FOR THE ASSESSEE THAT HONBLE SU PREME COURT HAS NOW DECIDED THIS ISSUE IN THE CASE OF DIRECTOR, PRASAR BHARATI V. CIT REPORTED IN (2018) 92 TAXMANN.COM 11(SC) ; (2018) 403 ITR 161(SC), WHICH APPEAL BEFORE HONBLE SUPREME COURT AROSE FRO M JUDGMENT OF HONBLE KERALA HIGH COURT DECISION IN THE CASE OF DIRECTOR PRASAR BHARATI(SUPRA) , WHICH DECISION OF HONBLE KERALA HIGH I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 25 | P A G E COURT WAS REFERRED TO IN BY THE AUTHORITIES BELOW WHILE ADJUDICATING THIS ISSUE . THE LEARNED COUNSEL FOR THE ASSESSEE HA S EXPLAINED BEFORE THE BENCH THAT ALL OTHER ISSUES WHICH AROSE IN THESE CROSS APPEALS ARE COVERED BY THE DECISION OF THE MUMBAI - TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS EXCEPT DISALLOWANCE OF WEBSITE CREATION CHARGES WHICH IS A NEW ISSUE WHICH IS SO FAR NOT ADJUDICATED BY TRIBUNAL IN ASSESSEES OWN CASE . THE ASSESSEE HAS ALSO PREPARED AND FILED A CHART OF VARIOUS ISSUES WHICH ARE EMANATING IN THESE CROSS APPEALS AND DETAILS AS TO THE HOW THE SE ISSUE S ARE COVERED BY TRIBUNAL DECISION IN ASSESSEE S OWN CASE . THE SAID CHART IS PLACED IN FILE. THE ASSESSEE HAS MADE STATEMENT BEFORE US THAT NO EXEMPT INCOME WAS RECEIVED BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. THE ASSESSEE HAS ALSO FILED EARLIER YEARS APPELL ATE ORDER S PASSED BY MUMBAI - TRIBUNAL IN CROSS APPEALS IN ASSESSEES OWN CASE IN ITA NO. 181 & 238/MUM/2012 FOR AY 2008 - 09 AND MUMBAI - TRIBUNAL DECISION IN ITA NO. 1864 & 1910/MUM/2013 FOR AY 2009 - 10 RESPECTIVELY , VIDE COMMON ORDERS DATED 04.10.2017. THE A SSESSEE HAS ALSO FILED BEFORE THE BENCH , DECISION OF MUMBAI - TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 3114 & 1863/MUM/2011 FOR AY 2006 - 07 AND ITA NO. 3115/MUM/2011 FOR AY 2007 - 08, VIDE COMMON ORDER DATED 26.12.2012. THE ASSESSEE HAS ALSO RELIED ON JUDG MENT OF HONBLE DELHI HIGH COURT DECISI ON IN THE CASE OF CIT V. INDIAN VISIT.COM PRIVATE LIMITED (2009) 1 76 TAXMAN 0 164 (DEL. HC) TO CONTEND THAT WEBSITE CREATION CHARGES BE ALLOWED AS REVENUE EXPENSES U/S 37(1) OF THE 1961 ACT . ALL THESE ORDERS/JUDGMENTS A RE PLACED IN FILE. 11.3 . THE LD. DR WOULD RELY UPON THE ORDER S OF THE AUTHORITIES BELOW VIZ. APPELLATE ORDER PASSED BY LEARNED CIT(A) FOR THE ISSUES ADJUDICATED AGAINST THE ASSESSEE WHILE RELIANCE IS PLACED BY LEARNED DR ON ASSESSMENT ORDER PASSED BY AO WITH RESPECTS TO ISSUES WHEREIN PART RELIE F WAS GRANTED BY LEARNED CIT(A) TO THE ASSESSEE. 1 2. FIRST WE WILL DISPOSE OF REVENUES APPEAL IN ITA NO. 812/MUM/2016 FILED WITH TRIBUNAL FOR AY 2010 - 11. WE HAVE CONSIDERED RIVAL CONTENTION S AND HAVE PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS . W E HAVE OBSERVED THAT THE ASSESSEE IS OPERA TING FM RADIO BROADCASTING SERVICE. THE GROSS REVENUE EARNED BY THE ASSESSEE FROM ADVERTISEMENT WAS RS. 257.95 CRORES WHILE AGENCY COMMISSION EXPENSES WERE TO THE TUNE OF RS. 27.43 CRORES WHICH WAS NOT SEPARATELY REFLECTED IN THE BOOKS OF ACCOUNTS AND NET I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 26 | P A G E REVENUE FROM ADVERTISEMENT VIZ. GROSS ADVERTISING REVENUE LESS ADVERTISING COMMISSION PAID TO ADVERTISING AGENCY, IS REFLECTED IN ITS BOOKS OF ACCOUNTS AND IN AUDITED P&L ACCOUNT. WE HAVE OBSERVED THAT THE ASSESSEE HAS NOT DEDUCTED INCOME - TAX AT SOURCE U/ S 194H OF THE 1961 ACT ON SUCH AGENCY COMMISSION PAID BY ASSESSEE TO ADVERTISING AGENCY . IT IS OBSERVED THAT THERE ARE THREE ENTITIES TO THE TRANSACTIONS INVOLVING AGENCY COMMISSION , AS UNDER: - BROADCAST (ASSESSEE) ADVERTISING AGENT ADVERTISER BROADCASTER IS AN ENTITY WHICH BROADCASTS THE ADVERTISEMENTS. ADVERTISING AGENCY IS AN ENTITY WHICH SOURCES ADVERTISEMENTS FOR ADVERTISER. ADVERTISER IS AN ENTITY WHICH ADVERTISED ITS PRODUCT/SERVICE. 12.2 THE ASSESSEE IS USING THE TERMINOLOGY AGENCY DISCOUNTS AS AGAINST AGENCY COMMISSION FOR COMMISSIONS PAID TO ADVERTISING AGENCIES. WE HAVE OBSERVED THAT THE ADVERTISER S PAYS FOR ADVERTISEMENTS PLACED IN FM RADIO CHANNEL BROADCASTED BY ASSESSEE. THE SAID PAYMENT IS FIRSTLY MADE BY ADVERTISER TO THE ADVERTISING AGENCY ON WHICH INCOME - TAX IS DEDUCTED AT SOURCE U/S 194C BY ADVERTISER WHILE MAKING PAYMENT TO ADVERTISING AGENCY. THE ADVERTISING AGENCY IN TURN MAKE PAYMENTS TO ASSESSEE AFTER RETAINING THEIR COM MISSION @15% AND NET REVENUE IS RECEIVED BY ASSESSEE AFTER RETENTION OF AGENCY COMMISSION BY THE ADVERTISING AGENCY ON ADVERTISEMENTS PROCURED BY THEM FROM ADVERTISERS. THE ASSESSEE DID NOT DEDUCTED INCOME - TAX AT SOURCE ON THESE ADVERTISING AGENCY COMMISSI ON RETAINED BY ADVERTISING AGENCY. THE SAID NET REVENUE FROM ADVERTISEMENT AFTER ADJUSTING OF ADVERTISING AGENCY COMMISSION IS ACCOUNTED FOR BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS AND PROFIT AND LOSS ACCOUNT. THUS, THE ASSESSEE HAS NOT CLAIMED ADVERTISIN G AGENCY COMMISSION EXPENSES AS SEPARATE EXPENSES IN ITS BOOKS OF ACCOUNTS AND IN P&L ACCOUNT PREPARED BY IT. THIS ISSUE CAME UP I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 27 | P A G E BEFORE TRIBUNAL FOR AY 2011 - 12 AND 2012 - 13 IN ASSESSEES OWN CASE AND W E HAVE OBSERVED THAT THE TRIBUNAL IN ASSESSEE S OWN CASE VIDE COMMON ORDER DATED 11.01.2017 IN ITA NO. 1352/MUM/2014 AND 5227/MUM/2014 FOR AY 2011 - 12 AND 2012 - 13 RESPECTIVELY HAS ADJUDICATED THIS ISSUE IN FAVOUR OF THE ASSESSEE WHEREIN THE TRIBUNAL CAME TO THE CONCLUSION THAT NO INCOME - TAX WAS REQUIR ED TO BE DEDUCTED AT SOURCE BY ASSESSEE UNDER CHAPTER XVII - B ON THESE ADVERTISING AGENCY COMMISSION PAID TO ADVERTISING AGENCIES , BY HOLDING AS UNDER: - 4.8. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND FACTS OF THIS CASE AND ALSO THE JUDGMENT RELIED UPON BEFORE US. IT IS NOTED BY US THAT NOW THE ISSUE OF OBLIGATION OF DEDUCTION OF TAX AT SOURCE BY THE TELEVISION CHANNELS OR MEDIA COMPANIES UPON THE PAYMENTS MADE TO ADVERTISING AGENCIES HAS BEEN SETTLED BY THE BOARD IN ITS CIRCULAR NO.5/2016 DATED 29TH FEBRUARY 2016. WE FIND IT APPROPRIATE TO REPRODUCE THE RELEVANT PART OF THIS CIRCULAR AS UNDER: SUB: TAX DEDUCTION AT SOURCE (TDS) ON PAYMENTS BY TELEVISION CHANNELS AND PUBLISHING HOUSES TO ADVERTISEMENT COMPANIES FOR PROCURING OR CANVASSING FOR ADVERTISEMENTS. THE ISSUE OF APPLICABILITY OF TDS PROVISIONS ON PAYMENTS MADE BY TELEVISION CHANNELS OR MEDIA HOUSES PUBLISHING NEWSPAPERS OR MAGAZINES TO ADVERTISING AGENCIES FOR PROCURING AND CANVASSING FOR ADVERTISEMENTS HAS BEEN EXAMINED BY THE BOARD IN VIEW OF REPRESENTATIONS RECEIVED IN THIS REGARD. 2. IT IS NOTED THAT THERE ARE TWO TYPES OF PAYMENTS INVOLVED IN THE ADVERTISING BUSINESS: (I) PAYMENT BY CLIENT TO THE ADVERTISING AGENCY, AND (II) PAYMENT BY ADVERTISING AGENCY TO THE TE LEVISION CHANNEL/ NEWSPAPER COMPANY THE APPLICABILITY OF TDS ON THESE PAYMENTS HAS ALREADY BEEN DEALT WITH IN CIRCULAR NO. 715 DATED 8.8.1995, WHERE IT HAS BEEN CLARIFIED IN QUESTIONS NO. 1 & 2 THAT WHILE TDS UNDER SECTION 194C (AS WORK CONTRACT) WILL BE APPLICABLE ON THE FIRST TYPE OF PAYMENT, THERE WILL BE NO TDS UNDER SECTION 194C ON THE SECOND TYPE OF PAYMENT E.G. PAYMENT BY ADVERTISING AGENCY TO THE MEDIA COMPANY. 3. HOWEVER, ANOTHER ISSUE HAS BEEN RAISED IN VARIOUS CASES AS TO WHETHER THE FEES/ CHAR GES TAKEN OR RETAINED BY ADVERTISING COMPANIES FROM MEDIA COMPANIES FOR CANVASING/ BOOKING ADVERTISEMENTS I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 28 | P A G E (TYPICALLY 15% OF THE BILLING) IS 'COMMISSION' OR 'DISCOUNT'. IT HAS BEEN ARGUED BY THE ASSESSEES THAT SINCE THE RELATIONSHIP BETWEEN THE MEDIA COMPAN Y AND THE ADVERTISING COMPANY IS ON A PRINCIPAL - TO PRINCIPAL BASIS, SUCH PAYMENTS ARE IN THE NATURE OF TRADE DISCOUNT AND NOT COMMISSION AND, THEREFORE, OUTSIDE THE PURVIEW OF TDS UNDER SECTION 194H. THE DEPARTMENT, ON THE OTHER HAND, HAS TAKEN THE STAND I N SOME CASES THAT SINCE THE ADVERTISING AGENCIES ACT ON BEHALF OF THE MEDIA COMPANIES FOR PROCURING ADVERTISEMENTS, THE MARGIN RETAINED BY THE FORMER AMOUNTS TO CONSTRUCTIVE PAYMENT OF COMMISSION AND, A CCORDINGLY, TDS UNDER SECTION 1 94H IS ATTRACTED. 4. T HE ISSUE HAS BEEN EXAMINED BY THE ALLAHABAD HIGH COURT IN THE CASE OF JAGRAN PRAKASHAN LTD AND DELHI HIGH COURT IN THE MATTER OF LIVING MEDIA LIMITED AND IT WAS HELD IN BOTH THE CASES THAT THE RELATIONSHIP BETWEEN THE MEDIA COMPANY AND THE ADVERTISING AGEN CY IS THAT OF A 'PRINCIPAL TO PRINCIPAL' AND, THEREFORE, NOT LIABLE FOR TDS UNDER SECTION 194H. THE SLPS FILED BY THE DEPARTMENT IN THE MATTER OF LIVING MEDIA LTD. AND JAGRAN PRAKASHAN LTD HAVE BEEN DISMISSED BY THE SU PREME COURT VIDE ORDER DATED 11 .12.200 9 AND ORDER DATED 05.05.2014, RESPECTIVELY. THOUGH THESE DECISIONS ARE IN RESPECT OF PRINT MEDIA, THE RATIO IS ALSO APPLICABLE TO ELECTRONIC MEDIA/ TELEVISION ADVERTISING AS THE BROAD NATURE OF THE ACTIVITIES INVOLVED IS SIMILAR. 5. IN VIEW OF THE ABOVE, IT IS HEREBY CLARIFIED THAT NO TDS IS ATTRACTED ON PAYMENTS MADE BY TELEVISION CHANNELS/ NEWSPAPER COMPANIES TO THE ADVERTISING AGENCY FOR BOOKING OR PROCURING OF OR CANVASSING FOR ADVERTISEMENTS. IT IS ALSO FURTHER CLARIFIED THAT 'COMMISSION' REFERRED TO IN QUESTION NO.27 OF THE BOARD'S CIRCULAR NO. 715 DATED 8.8.95 DOES NOT REFER TO PAYMENTS BY MEDIA COMPANIES TO ADVERTISING COMPANIES FOR BOOKING OF ADVERTISEMENTS BUT TO PAYMENTS FOR ENGAGEMENT OF MODELS, ARTISTS, PHOTOGRAPHERS, SPORTSPERSONS, ETC. AND, T HEREFORE, IS NOT RELEVANT TO THE ISSUE OF TDS REFERRED TO IN THIS CIRCULAR. 4.8. THUS, FROM THE ABOVE CIRCULAR IT IS CLEAR THAT THIS ISSUE IS NOW SETTLED IN FAVOUR OF THE ASSESSEE ON THE BASIS OF JUDGMENTS OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JA GRAN PRAKASHAN LTD. AND DELHI HIGH COURT IN THE MATTER OF T.V. TODAY NETWORK LTD. BOTH THESE JUDGMENTS HAVE BEEN ACCEPTED BY HONBLE SUPREME COURT BY DISMISSING SLPS FILED BY THE DEPARTMENT AGAINST THESE JUDGMENTS. FURTHER, RELYING UPON THESE JUDGMENTS, N OW BOARD HAS ALSO TAKEN A CLEAR STAND THAT NO TDS IS REQUIRED TO BE DEDUCTED ON THE IMPUGNED PAYMENTS MADE BY THE ASSESSEE TO THE ADVERTISING AGENCY. THUS, WE FIND I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 2 9 | P A G E THAT THE ORDER PASSED BY THE LD. CIT(A) IS IN CONSONANCE WITH THE AFORESAID JUDGMENTS AND BO ARDS CIRCULAR. THEREFORE, NO INTERFERENCE IS CALLED FOR IN THE ORDER PASSED BY LD. CIT(A). THUS, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 12. 3 WE HAVE ALSO OBSERVED THAT NOW THIS ISSUE IS NO MORE RES INTEGRA AS HONBLE SUPREME COU RT HAS DECIDED THIS ISSUE BY ANALYSING THE WHOLE GAMUT OF DEDUCTIBILITY OF INCOME - TAX AT SOURCE UNDER SECTION 194H OF THE 1961 ACT ON PAYMENTS MADE BY MEDIA HOUSES/BROADCASTERS TO ADVERTISING AGENCIES IN A RECENT JUDGMENT PRONOUNCED ON 03.04.2018 IN DIRECTOR, PRASAR BHAR ATI V. CIT REPORTED IN (2018) 403 ITR 161 (SC) WHEREIN SEVERAL TESTS WERE LAID DOWN BY HONBLE SUPREME COURT AS TO APPLICABILITY OF SECTION 194H ON THESE ADVERTISING AGENCY COMMISSIONS, BY HOLDING AS UNDER: - 3. THESE APPEALS ARE DIRECTED AGAINST THE FIN AL JUDGMENT AND ORDER DATED 20.11.2009 PASSED BY THE HIGH COURT OF KERALA AT ERNAKULAM IN INCOME TAX APPEAL NO.27 OF 2009 AND INCOME TAX APPEAL NO.62 OF 2009 WHEREBY THE HIGH COURT ALLOWED THE APPEALS PREFERRED BY THE RESPONDENT HEREIN AND REVERSED THE ORD ER DATED 28.03.2007 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN INCOME TAX APPEAL NOS. 926 & 927/COCH/2005 FOR THE ASSESSMENT YEARS 2002 - 2003 AND 2003 - 2004 AND RESTORED THE ORDER DATED 04.03.2005 PASSED BY THE COMMISSIONER OF INCOME TAX(AP PEALS) - II, THIRUVANANTHAPURAM AND THE ORDER DATED 22.09.2003 PASSED BY THE ASSESSING OFFICER. 4. IN ORDER TO APPRECIATE THE ISSUE INVOLVED IN THESE APPEALS, IT IS NECESSARY TO SET OUT THE FACTS HEREINBELOW. 5. THE APPELLANT IS KNOWN AS 'PRASAR BHARATI DOORDARSHAN KENDRA'. IT FUNCTIONS UNDER THE MINISTRY OF INFORMATION AND BROADCASTING, GOVERNMENT OF INDIA. THE DISPUTE IN THIS CASE RELATES TO THE APPELLANT'S REGIONAL BRANCH AT TRIVANDRUM. 6. THE APPELLANT, IN THE COURSE OF THEIR BUSINESS ACTIVITIES, WHIC H INCLUDE THE RUNNING OF THE TV CHANNEL CALLED 'DOORDARSHAN', HAS BEEN REGULARLY TELECASTING ADVERTISEMENTS OF SEVERAL CONSUMER COMPANIES. 7. WITH A VIEW TO HAVE A BETTER REGULATION OF THE PRACTICE OF ADVERTISING AND TO SECURE THE BEST ADVERTISING SERVICES FOR THE ADVERTISERS, THE APPELLANT ENTERED INTO AN AGREEMENT WITH SEVERAL ADVERTISING AGENCIES (ANNEXURE - P - 12). 8. IN TERMS OF THE AGREEMENT, THE ADVERTISING AGENCY (HEREINAFTER REFERRED TO AS 'THE AGENCY') WAS REQUIRED TO MAKE AN APPLICATION TO THE APPEL LANT TO GET THE 'ACCREDITED STATUS' FOR THEIR AGENCY SO AS TO ENABLE THEM TO DO BUSINESS WITH THE APPELLANT OF TELECASTING THE I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 30 | P A G E ADVERTISEMENTS OF SEVERAL CONSUMER PRODUCTS MANUFACTURED BY SEVERAL COMPANIES ON THE APPELLANT'S DOORDARSHAN TV CHANNEL. 9. THE A GREEMENT, INTER ALIA, PROVIDED THAT THE APPELLANT WOULD PAY 15% BY WAY OF COMMISSION TO THE AGENCY. THE AGENCY WAS TO RETAIN THE COMMISSION/REMUNERATION EARNED AND NOT TO PART THE SAME EITHER DIRECTLY OR INDIRECTLY WITH ANY OTHER PERSON, ADVERTISER OR REPR ESENTATIVE OF ANY ADVERTISER FOR WHOM IT MAY BE ACTING OR HAS ACTED AS AN ADVERTISING AGENCY. THE AGREEMENT ALSO PROVIDED THE MANNER, MODE AND THE TIME WITHIN WHICH THE PAYMENT WAS TO BE MADE BY THE AGENCY TO THE APPELLANT. THE FAILURE TO MAKE THE PAYMENT WAS TO RESULT IN LOSING THE ACCREDITED STATUS BY THE AGENCY. THE AGENCY WAS TO GIVE MINIMUM ANNUAL BUSINESS OF RS.6 LAKHS TO THE APPELLANT IN A FINANCIAL YEAR FAILING WHICH THEIR ACCREDITED STATUS WAS LIABLE TO BE WITHDRAWN. THE AGENCY WAS TO FURNISH A BAN K GUARANTEE FOR A SUM OF RS.3 LAKHS. THERE ARE OTHER CLAUSES ALSO IN THE AGREEMENT BUT THEY ARE NOT RELEVANT FOR THE PURPOSE OF DISPOSAL OF THESE APPEALS. 10. THE APPELLANT IS AN ASSESSEE UNDER THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS 'THE ACT'). IN THE ASSESSMENT YEAR 2002 - 2003(01.06.2001 TO 31.03.2002) AND 2003 - 2004 (01.04.2002 TO 31.03.2003), THE APPELLANT PAID A SUM OF RS.2,56,75,165/ - AND RS.2,29,65,922/ - TO VARIOUS ACCREDITED AGENCIES, WITH WHOM THEY HAD ENTERED INTO THE AFOREMENTIONED AGREEMENT FOR TELECASTING THE ADVERTISEMENTS GIVEN BY THESE AGENCIES RELATING TO PRODUCTS MANUFACTURED BY SEVERAL CONSUMER COMPANIES. THE AMOUNT WAS PAID BY THE APPELLANT TO THE AGENCIES TOWARDS THE COMMISSION IN TERMS OF THE AGREEMENT. 11 . THE QUESTION AROSE BEFOR E THE ASSESSING OFFICER (AO) IN THE ASSESSMENT PROCEEDINGS AS TO WHETHER THE PROVISIONS OF SECTION 194H OF THE ACT, WHICH CAME INTO FORCE WITH EFFECT FROM 01.06.2001, ARE APPLICABLE TO THE PAYMENTS IN QUESTION MADE BY THE APPELLANT TO THE AGENCIES AND, IF SO, WHETHER THE APPELLANT DEDUCTED 'TAX AT SOURCE' AS PROVIDED UNDER SECTION 194H OF THE ACT FROM THE AMOUNT PAID BY THE APPELLANT TO THE AGENCIES. 12. THE AO MADE THE ASSESSMENT VIDE ITS ORDER DATED 22.09.2003. INSOFAR AS THE AFOREMENTIONED QUESTION WAS C ONCERNED, THE AO WAS OF THE VIEW THAT THE PROVISIONS OF SECTION 194H OF THE ACT ARE APPLICABLE TO THE PAYMENTS MADE BY THE APPELLANT TO THE AGENCIES BECAUSE THE PAYMENTS WERE MADE IN THE NATURE OF 'COMMISSION' AS DEFINED IN EXPLANATION APPENDED TO SECTION 194H OF THE ACT. THE AO HELD THAT THE APPELLANT, THEREFORE, COMMITTED DEFAULT THEREBY ATTRACTING THE RIGOR OF SECTION 201(1) OF THE ACT BECAUSE THEY FAILED TO DEDUCT THE 'TAX AT SOURCE' FROM THE AMOUNT PAID TO VARIOUS ADVERTISING AGENCIES DURING THE ASSESS MENT YEARS IN QUESTION AS PROVIDED UNDER SECTION 194A OF THE ACT. 13. ON QUANTIFICATION, THE AO FOUND THAT DURING THE ASSESSMENT YEAR 2002 - 2003, THE APPELLANT HAD PAID A SUM OF RS.2,56,75,165/ - TOWARDS THE COMMISSION TO THE AGENCIES AND ON THIS SUM, THEY W ERE REQUIRED TO I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 31 | P A G E DEDUCT TAX AMOUNT TO RS.16,34,283/ - AND A SUM OF RS.3,80,611/ - TOWARDS INTEREST FOR DELAYED PAYMENT UNDER SECTION 201(1 - A) OF THE ACT AND DURING THE ASSESSMENT YEAR 2003 - 2004, THE APPELLANT HAD PAID A SUM OF RS.2,29,65,922/ - TOWARDS THE COM MISSION TO THE AGENCIES AND ON THIS SUM, THEY WERE REQUIRED TO DEDUCT TAX AMOUNTING TO RS.11,15,944/ - AND A SUM OF RS.1,54,050/ - TOWARDS INTEREST FOR DELAYED PAYMENT UNDER SECTION 201(1 - A) OF THE ACT. 14. THE APPELLANT FELT AGGRIEVED AND FILED APPEALS BEFO RE THE COMMISSIONER OF INCOME TAX (APPEALS) - II, THIRUVANATHAPURAM. BY ORDER DATED 04.03.2005, THE COMMISSIONER CONCURRED WITH THE REASONING AND CONCLUSION ARRIVED AT BY AO AND ACCORDINGLY DISMISSED THE APPEALS. 15. THE APPELLANT FELT AGGRIEVED AND FILED AP PEALS BEFORE THE TRIBUNAL. BY ORDER DATED 28.03.2007, THE TRIBUNAL FOLLOWING ITS EARLIER ORDER ALLOWED THE APPEALS AND SET ASIDE THE ORDERS PASSED BY AO AND CIT (APPEALS). 16. THE REVENUE (INCOME TAX DEPARTMENT), FELT AGGRIEVED BY THE ORDER PASSED BY THE T RIBUNAL, FILED APPEALS UNDER SECTION 260 - A OF THE ACT IN THE HIGH COURT. BY IMPUGNED JUDGMENT, THE HIGH COURT ALLOWED THE APPEALS AND WHILE SETTING ASIDE THE TRIBUNAL'S ORDER RESTORED THE ORDER OF CIT (APPEALS) AND AO. 17. THE HIGH COURT WAS OF THE OPINION THAT THE PROVISIONS OF SECTION 194H ARE APPLICABLE TO THE PAYMENTS MADE BY THE APPELLANT TO THE AGENCIES DURING THE PERIOD IN QUESTION BECAUSE THE PAYMENTS MADE WERE IN THE NATURE OF 'COMMISSION' PAID TO THE AGENCIES AS DEFINED IN EXPLANATION APPENDED TO SECTION 194H OF THE ACT AND SINCE THE APPELLANT FAILED TO DEDUCT THE 'TAX AT SOURCE' WHILE MAKING THESE PAYMENTS TO THE AGENCIES IN TERMS OF THE AGREEMENT IN QUESTION, THEY COMMITTED DEFAULT OF NON - COMPLIANCE OF SECTION 194H RESULTING IN ATTRACTING THE PRO VISIONS OF SECTION 201 OF THE ACT. 18. THE APPELLANT (ASSESSEE) FELT AGGRIEVED AND FILED THESE APPEALS BY WAY OF SPECIAL LEAVE IN THIS COURT. 19. HEARD MR. RAJEEV SHARMA, LEARNED COUNSEL FOR THE APPELLANT AND MR. RUPESH KUMAR, LEARNED COUNSEL FOR THE RESPO NDENT. 20. SUBMISSIONS OF LEARNED COUNSEL FOR THE APPELLANT (ASSESSE) WERE TWO - FOLD. IN THE FIRST PLACE, HE ARGUED THAT THE PAYMENTS MADE BY THE APPELLANT TO THE ACCREDITED AGENCIES DURING THE ASSESSMENT YEARS IN QUESTION WERE NOT IN THE NATURE OF COMMISSI ON. ACCORDING TO LEARNED COUNSEL, THE RELATIONSHIP BETWEEN THE APPELLANT AND THE ACCREDITED AGENCIES WAS NOT THAT OF PRINCIPAL AND THE AGENT BUT IT WAS IN THE NATURE OF PRINCIPAL - TO - PRINCIPAL. IN OTHER WORDS, THE SUBMISSION WAS THAT THE ACCREDITED AGENCIES WERE NOT WORKING AS AGENT OF THE APPELLANT AND NOR THE APPELLANT WAS PAYING THEM ANY AMOUNT BY WAY OF COMMISSION. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 32 | P A G E 21. REFERRING TO THE TERMS OF THE AGREEMENT, LEARNED COUNSEL TRIED TO POINT OUT THAT THE AGENCIES, IN TERMS OF THE AGREEMENT, PURCHASED THE A IR TIME FROM THE APPELLANT AND THEN SOLD IT IN THE MARKET FOR ADVERTISEMENT TO THEIR CUSTOMER AFTER RETAINING 15% COMMISSION GIVEN TO THEM BY THE APPELLANT. IT WAS, THEREFORE, HIS SUBMISSION THAT SUCH TRANSACTION CANNOT BE REGARDED AS BEING BETWEEN THE PRI NCIPAL AND AGENT AND NOR THE PAYMENT CAN BE REGARDED AS HAVING BEEN MADE BY WAY OF COMMISSION SO AS TO ATTRACT THE RIGOR OF SECTION 194H AND SECTION 201 OF THE ACT. 22. LEARNED COUNSEL ALSO SUBMITTED THAT BY MISTAKE SOME OTHER FORMAT OF THE AGREEMENT WAS P LACED BY THE APPELLANT BEFORE THE HIGH COURT AND, THEREFORE, THE APPELLANT SUFFERED ADVERSE ORDER IN QUESTION (SEE AVERMENTS MADE IN PARAS 4 AND 5 OF THE APPLICATION SEEKING PERMISSION TO FILE ADDITIONAL DOCUMENTS AT PAGE 134/135). LEARNED COUNSEL THEN TOO K US TO THE RELEVANT PROVISIONS OF THE PROPER AGREEMENT FILED IN THIS COURT AS ANNEXURE P - 12 AND CONTENDED THAT HAVING REGARD TO THE NATURE OF THE AGREEMENT AND ITS TERMS, THE SUBMISSION URGED DESERVES ACCEPTANCE. 23. IN REPLY, LEARNED COUNSEL FOR THE RESP ONDENT (REVENUE) SUPPORTED THE IMPUGNED JUDGMENT AND CONTENDED THAT THE ORDER PASSED BY THE AO, CIT (APPEALS) AND THE IMPUGNED JUDGMENT DESERVE TO BE UPHELD AS ALL THE THREE ORDERS ARE BASED ON PROPER REASONING CALLING NO INTERFERENCE. 24. HAVING HEARD THE LEARNED COUNSEL FOR THE PARTIES AND ON PERUSAL OF THE RECORD OF THE CASE, WE FIND NO MERIT IN THESE APPEALS. 25. SECTION 194H, WHICH IS RELEVANT FOR THE DISPOSAL OF THESE APPEALS READS AS UNDER: '194H. COMMISSION OR BROKERAGE - ANY PERSON NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING, ON OR AFTER THE 1 ST DAY OF JUNE, 2001, TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION (NOT BEING INSURANCE COMMISSION REFERRED TO IN SECTION 194D) OR BROKERAGE, SHALL, AT THE TIME OF CR EDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME - TAX THEREON AT THE RATE OF FIVE PER CENT. PROVIDED THAT NO DEDUC TION SHALL BE MADE UNDER THIS SECTION IN A CASE WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR TO THE ACCOUNT OF, OR TO, THE PA YEE, DOES NOT EXCEED FIFTEEN THOUSAND RUPEES. PROVIDED FURTHER THAT AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 33 | P A G E COMMISSION OR BROKERAGE IS CREDITED OR PAID, SHALL BE LIABLE TO DEDUCT INCOME - TAX UNDER THIS SECTION. PROVIDED ALSO THAT NO DEDUCTION SHALL BE MADE UNDER THIS SECTION ON ANY COMMISSION OR BROKERAGE PAYABLE BY BHARAT SANCHAR NIGAM LIMITED OR MAHANAGAR TELEPHONE NIGAM LIMITED TO THEIR PUBLIC ALL OFFICE FRANCHISEES. EXPLANATION - FOR THE PURPOSES OF THIS SECTION, (I) 'COMMISSION OR BROKERAGE' INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO AN Y TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES; (II) THE EXPRESSION 'PROFESSIONAL SERVICES' MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON A LEGAL, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD FOR THE PURPOSES OF SECTION 44AA; (III) THE EXPRESSION 'SECURITIES' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956); (IV) WHERE ANY INCOME IS CREDITED TO ANY ACCOUNT, WHETHER CALLED 'SUSPENSE ACCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY.' 26. THE AFOREMENTIONED SECTION WAS INSERTED IN THE ACT WITH EFFECT FROM 01.06.2001 BY REPLACING THE EARLIER SECTION 194H. THIS SECTION DEALS WITH THE PAYMENT OF 'COMMISSION OR BROKERAGE'. 27. IT PROVIDES THAT ANY PERSON OTHER THAN INDIVIDUAL OR HUF, RESPONSIBLE FOR PAYING ANY INCOME BY WAY OF 'COMMISSION' (NOT BEING INSURANCE COMMISSION AS SPECIFIED IN S ECTION 194D) OR 'BROKERAGE' TO ANY PERSON SHALL AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME IN CASH OR BY CHEQUE OR DRAFT OR ANY OTHER MODE WILL DEDUCT INCOME TAX THEREON AT THE RATE OF FIVE PERCENT . THE FIRST PROVISO SPECIFIES THE LIMIT. THE SECOND PROVISO MAKES THE INDIVIDUAL OR HUF LIABLE TO DEDUCT THE INCOME TAX, IF THEY EXCEED THE LIMIT SPECIFIED THEREIN. THE THIRD PROVISO EXEMPTS PAYMENT OF COMMISSION OR BROKERAGE WHEN MADE TO BSNL AND MTNL TO THEIR PUBLIC CALL OFFICE FRANCHISEES. 28. THE EXPLANATION APPENDED TO SECTION 194H DEFINES THE EXPRESSION 'COMMISSION OR BROKERAGE'. IT IS AN INCLUSIVE DEFINITION AND INCLUDES THEREIN ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY BY A I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 34 | P A G E PERSON A CTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ASSETS, VALUABLE ARTICLE OR THING NOT BEING SECURITIES. CLAUSE (II) DEFINES PROFESSIONAL SERVICES; CLAUSE (III) DEFINES SECURITIES; AND CLAUSE (IV) PROVIDES A DEEMING FICTION FOR TREATING ANY INCOME SO AS TO ATTRACT THE RIGOR OF THE SECTION FOR ENSURING ITS COMPLIANCE. 29. KEEPING IN MIND THE REQUIREMENTS OF SECTION 194H WHEN WE EXAMINE THE TRANSACTION IN QUESTION, WE ARE OF THE CONSIDERED VIEW THAT THE REASONING AND THE CONCLUSION ARRIVED AT BY THE AO, CIT (APPEALS) AND THE HIGH COURT APPEARS TO BE JUST AND PROPER AND DOES NOT CALL FOR ANY INTERFERENCE. 30. I N OTHER WORDS, IN OUR CONSIDERED VIEW, THE HIGH COURT WAS RIGHT IN HOLDING THAT THE PROVISIONS OF SECTION 194H ARE APPLICABLE TO THE APPELLANT BECAUSE THE PAYMENTS MADE BY THE APPELLANT PURSUANT TO THE AGREEMENT IN QUESTION WERE IN THE NATURE OF PAYMENT MA DE BY WAY OF 'COMMISSION' AND, THEREFORE, THE APPELLANT WAS UNDER STATUTORY OBLIGATION TO DEDUCT THE INCOME TAX AT THE TIME OF CREDIT OR/AND PAYMENT TO THE PAYEE. 31. THE AFOREMENTIONED CONCLUSION OF THE HIGH COURT IS CLEAR FROM THE UNDISPUTED FACTS EMERGI NG FROM THE RECORD OF THE CASE BECAUSE WE NOTICE THAT THE AGREEMENT ITSELF HAS USED THE EXPRESSION 'COMMISSION' IN ALL RELEVANT CLAUSES; SECOND, THERE IS NO AMBIGUITY IN ANY CLAUSE AND NO COMPLAINT WAS MADE TO THIS EFFECT BY THE APPELLANT; THIRD, THE TERMS OF THE AGREEMENT INDICATE THAT BOTH THE PARTIES INTENDED THAT THE AMOUNT PAID BY THE APPELLANT TO THE AGENCIES SHOULD BE PAID BY WAY OF 'COMMISSION' AND IT WAS FOR THIS REASON, THE PARTIES USED THE EXPRESSION 'COMMISSION' IN THE AGREEMENT; FOURTH, KEEPING IN VIEW THE TENURE AND THE NATURE OF TRANSACTION, IT IS CLEAR THAT THE APPELLANT WAS PAYING 15% TO THE AGENCIES BY WAY OF 'COMMISSION' BUT NOT UNDER ANY OTHER HEAD; FIFTH, THE TRANSACTION IN QUESTION DID NOT SHOW THAT THE RELATIONSHIP BETWEEN THE APPELLAN T AND THE ACCREDITED AGENCIES WAS PRINCIPAL TO PRINCIPAL RATHER IT WAS PRINCIPAL AND AGENT; SIXTH, IT WAS ALSO CLEAR THAT PAYMENT OF 15% WAS BEING MADE BY THE APPELLANT TO THE AGENCIES AFTER COLLECTING MONEY FROM THEM AND IT WAS FOR SECURING MORE ADVERTISE MENTS FOR THEM AND TO EARN MORE BUSINESS FROM THE ADVERTISEMENT AGENCIES; SEVENTH, THERE WAS A CLAUSE IN THE AGREEMENT THAT THE TAX SHALL BE DEDUCTED AT SOURCE ON PAYMENT OF TRADE DISCOUNT; AND LASTLY, THE DEFINITION OF EXPRESSION 'COMMISSION' IN THE EXPLA NATION APPENDED TO SECTION 194H BEING AN INCLUSIVE DEFINITION GIVING WIDE MEANING TO THE EXPRESSION 'COMMISSION', THE TRANSACTION IN QUESTION DID FALL UNDER THE DEFINITION OF EXPRESSION 'COMMISSION' FOR THE PURPOSE OF ATTRACTING RIGOR OF SECTION 194H OF TH E ACT. 32. FOR ALL THESE REASONS, WE FIND NO DIFFICULTY IN HOLDING THAT THE PAYMENT IN QUESTION WAS IN THE NATURE OF 'COMMISSION' PAID BY THE APPELLANT TO THE ADVERTISEMENT AGENCIES TO SECURE MORE BUSINESS FOR THE APPELLANT. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 35 | P A G E 33. ONCE IT IS HELD THAT THE PR OVISIONS OF SECTION 194H APPLY TO THE TRANSACTIONS IN QUESTION, IT IS OBLIGATORY UPON THE APPELLANT TO HAVE DEDUCTED THE INCOME TAX WHILE MAKING PAYMENT TO THE ADVERTISEMENT AGENCIES. THE NON - COMPLIANCE OF SECTION 194H BY THE ASSESSEE ATTRACTS THE RIGOR OF SECTION 201 WHICH PROVIDES FOR CONSEQUENCES OF FAILURE TO DEDUCT OR PAY THE TAX AS PROVIDED UNDER SECTION 194H OF THE ACT. 34. IN OUR VIEW, THE PROVISIONS OF SECTION 201 WERE, THEREFORE, RIGHTLY INVOKED IN THIS CASE AGAINST THE APPELLANT BY THE ASSESSING AUTHORITY ONCE HAVING HELD THAT THE APPELLANT FAILED TO COMPLY WITH THE PROVISIONS OF SECTION 194H OF THE ACT. 35. LEARNED COUNSEL FOR THE APPELLANT (ASSESSEE) PLACED RELIANCE ON THE DECISION OF THE ALLAHABAD HIGH COURT IN JAGRAN PRAKASHAN LTD V. DY. CIT ( TDS) [2012] 345 ITR 288/209 TAXMAN 92/21 TAXMANN.COM 489 IN SUPPORT OF HIS SUBMISSION. 36. ON PERUSAL OF THE SAID JUDGMENT, WE FIND THAT THE LAW LAID DOWN BY THE ALLAHABA D HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE CASE AT HAND AND THE LEARNED JUDGES RIGHTLY DISTINGUISHED THE CASE AT HAND WITH THE FACTS INVOLVED IN THE ALLAHABAD CASE. THE LEARNED JUDGES OF THE ALLAHABAD HIGH COURT IN PARAS 61 AND 62 OF THE JUDGMENT D EALT WITH THE IMPUGNED JUDGMENT WITH WHICH WE ARE CONCERNED IN THESE APPEALS AND DISTINGUISHED IT IN THE FOLLOWING WORDS: ' 61. NOW WE COME TO THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CIT V. DIRECTOR, PRASAR BHARTI REPORTED IN [2010] 325 ITR 205(KER.) ON WHICH MUCH RELIANCE HAS BEEN PLACED BY THE ASSESSING AUTHORITY. THE PRASAR BHARATI IS FULLY OWNED GOVERNMENT OF INDIA UNDERTAKING ENGAGED IN TELECAST OF NEWS, V ARIOUS SPORTS, ENTERTAINMENTS, CINEMAS AND OTHER PROGRAMMES. THE ADVERTISEMENTS WERE CANVASSED THROUGH AGENTS UNDER THE AGREEMENT WITH THEM. THE ADVERTISING AGENCIES AND THE DIRECTOR, PRASAR BHARATI WERE PRINCIPAL AND AGENT AS PER THE AGREEMENT AND THE DOO RDARSHAN PROVIDED 15% DISCOUNT ON THE BASIS OF WHICH IT WAS CONTENDED THAT NO DEDUCTION AT SOURCE WAS REQUIRED. THE TRIBUNAL HELD THAT THERE WAS NO LIABILITY FOR DEDUCTION OF TAX AT SOURCE UNDER SECTION 194H WHICH JUDGMENT WAS REVERSED BY THE KERALA HIGH C OURT. FROM THE FACTS OF THE AFORESAID CASE, IT IS CLEAR THAT DOORDARSHAN HAD APPOINTED AGENTS I.E. ADVERTISING AGENCIES AND THERE WAS AGREEMENT ENTERED BETWEEN THEM. IN THE AFORESAID CIRCUMSTANCES, 15% ADVERTISEMENT CHARGES COLLECTED AND REMITTED WAS HELD TO BE IN THE FORM OF COMMISSION PAYABLE TO THE AGENT BY DOORDARSHAN. THERE WAS EXPLICIT AGREEMENT BETWEEN THE AGENCY AND THE DOORDARSHAN WHERE BOTH UNDERSTOOD THAT PAYMENT MADE TO THE AGENCY WAS LIABLE TO TAX DEDUCTION. IT IS USEFUL TO QUOTE THE FOLLOWING OBSERVATIONS OF THE JUDGMENT OF KERALA HIGH COURT: * * * * * * I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 36 | P A G E FROM THE ABOVE, IT IS VERY CLEAR THAT PARTIES HAVE UNDERSTOOD THEIR RELATIONSHIP AS PRINCIPAL AND AGENT AND WHAT IS PAID TO THE AGENT BY DOORDARSHAN IS 15% OF ADVERTISEMENT CHARGES COLLECTED AND REMITTED TO IT BY THE AGENT WHICH IS IN THE FORM OF COMMISSION PAYABLE TO THE AGENT BY DOORDARSHAN. COUNSEL FOR THE RESPONDENT REFERRED TO ONE OF THE AGREEMENTS WHERE THE COMMISSION IS REFERRED TO AS STANDARD DISCOUNT AND CONTENDED THAT THE ARRANGEMENT BETWEEN RESPONDENT AND ADVERTISING AGENCY IS NOT AGENCY BUT IS A PRINCIPAL TO PRINCIPAL ARRANGEMENT OF SHARING ADVERTISEMENT CHARGES. WE ARE UNABLE TO ACCEPT THIS CONTENTION BECAUSE ADVERTISEMENT CONTRACT ENTERED INTO BETWEEN THE CUSTOMER AND THE AGENCY I S FOR TELECASTING ADVERTISEMENT IN DOORDARSHAN CHANNELS. THE AGENT CANVASSES ADVERTISEMENT ON BEHALF OF DOORDARSHAN UNDER AGREEMENT BETWEEN THEM AND THE ADVERTISEMENT CHARGES RECOVERED FROM THE CUSTOMERS ARE ALSO IN ACCORDANCE WITH TARIFF PRESCRIBED BY DOO RDARSHAN WHICH IS INCORPORATED IN THE AGREEMENT. FURTHER IT IS SPECIFICALLY STATED IN THE AGREEMENT THAT ADVERTISEMENT MATERIAL SHOULD ALSO CONFORM TO THE DISCIPLINE INTRODUCED BY DOORDARSHAN WHICH IS NOTHING BUT A GOVERNMENT AGENCY WHICH CANNOT TELECAST A LL WHAT IS DESIRED TO BE TELECAST BY ADVERTISING AGENCIES. IN FACT, DOORDARSHAN IS BOUND BY ADVERTISEMENT CONTRACT CANVASSED BY ADVERTISING AGENCIES AND IT IS THEIR DUTY UNDER THE AGREEMENT BETWEEN THEM AND THE ADVERTISING AGENCIES TO TELECAST ADVERTISEMEN T MATERIAL IN TERMS OF THE CONTRACT WHICH THE AGENCY SIGNS WITH THE CUSTOMER. IN OUR VIEW, THE TRANSACTION IS A PURE AGENCY ARRANGEMENT BETWEEN THE RESPONDENT AND THE ADVERTISING AGENCIES BECAUSE ONE ACTS FOR THE OTHER AND THE ACT OF THE AGENT BINDS THE RE SPONDENT IN THEIR CAPACITY AS PRINCIPAL OF THE AGENT. IT IS PERTINENT TO NOTE THAT COMMISSION OR BROKERAGE DEFINED UNDER EXPLANATION (I) TO SECTION 194H HAS A WIDE MEANING AND IT COVERS ANY PAYMENT RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED. IN THIS CASE, NO ONE CAN DOUBT THAT 15% COMMISSION PAID TO ADVERTISING AGENCIES BY THE DOORDARSHAN IS FOR CANVASSING ADVERTISEMENTS ON BEHALF OF THE RESPONDENT. SO MUCH SO, THE PAYMENT OF 15%, BY WH ATEVER NAME CALLED, WHETHER DISCOUNT OR COMMISSION, FALLS WITHIN THE DEFINITION OF 'COMMISSION' AS DEFINED UNDER EXPLANATION (I) TO SECTION 194H OF THE ACT. * * * * * * IT IS VERY CLEAR FROM THE ABOVE PROVISION THAT THE ADVERTISING AGENCY CLEARLY UNDERSTOOD THE AGREEMENT AS AN AGENCY ARRANGEMENT AND THE COMMISSION PAYABLE BY THE RESPONDENT TO SUCH AGENCY IS SUBJECT TO TAX DEDUCTION AT SOURCE UNDER THE INCOME TAX ACT AND SO MUCH SO THE PROVISION IN THE AGREEMENT WAS FOR THE AGENT AFTER RETAINING 15% TO GIVE CHEQUE OR DEMAND DRAFT FOR TDS AMOUNT WHICH WAS ORIGINALLY 5% UNTIL IT WAS ENHANCED TO 10% BY FINANCE ACT 2007 WITH EFFECT FROM 1.6.2007. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 37 | P A G E 62. IN THE AFORESAID CASE, THE RELATIONSHIP OF PRINCIPAL AND AGENT WAS FULLY ESTABLISHED SINCE THE ADVERTISIN G AGENCY WAS APPOINTED AS AGENT BY WRITTEN AGREEMENT AND THERE WAS SPECIFIC CLAUSE THAT TAX SHALL BE DEDUCTIBLE AT SOURCE ON PAYMENT OF TRADE DISCOUNT. IN THE SAID CIRCUMSTANCES, THE KERALA HIGH COURT HELD THAT SECTION 194H OF THE INCOME TAX ACT WAS APPLIC ABLE. IN THE PRESENT CASE, THERE IS NO AGREEMENT BETWEEN THE PETITIONER AND THE ADVERTISING AGENCY AND THE ADVERTISING AGENCY HAS NEVER BEEN APPOINTED AS AGENT OF THE PETITIONER. THUS THE ABOVE CASE OF THE KERALA HIGH COURT IS CLEARLY INAPPLICABLE AND THE RELIANCE ON THE SAID JUDGMENT FOR FASTENING THE LIABILITY OF TAX AND INTEREST ON THE PETITIONER IS WHOLLY UNTENABLE. THE JUDGMENT OF THE KERALA HIGH COURT THUS DOES NOT HELP THE RESPONDENTS IN THE PRESENT CASE.' 37. IN OUR OPINION, THE ALLAHABAD HIGH COURT VERY RIGHTLY NOTICED THE DISTINCTION BETWEEN THE FACTS IN THE CASE OF JAGARAN PRAKASHAN LTD. (SUPRA) AND THE CASE WITH WHICH WE ARE CONCERNED IN THESE APPEALS AND HELD THAT IT DEPENDS UPON THE FACTS OF EACH CASE TO DECIDE AS TO WHAT IS THE NATURE OF PAYME NT MADE BY THE PARTY CONCERNED. THEIR LORDSHIPS RIGHTLY NOTICED THAT THE CASE BEFORE THEM ( JAGARAN PRAKASHAN LTD .) DID NOT HAVE ANY AGREEMENT LIKE THE ONE IN THIS CASE WHEREIN IN TERMS OF THE AGREEMENT, IT IS UNMISTAKABLY PROVED THAT THE PAYMENT WAS BEING MADE BY THE APPELLANT (ASSESSEE) TO THE AGENCIES BY WAY OF 'COMMISSION'. IN OUR VIEW, THEREFORE, THE DECISION OF THE ALLAHABAD HIGH COURT IS OF NO HELP TO THE CASE OF THE APPELLANT FOR TAKING A DIFFERENT VIEW. 38. IN THE LIGHT OF THE FOREGOING DISCUSSION, WE CONCUR WITH THE REASONING AND THE CONCLUSION ARRIVED AT BY THE HIGH COURT AND FIND NO MERIT IN THESE APPEALS. THE APPEALS THUS FAIL AND ARE ACCORDINGLY DISMISSED. 12.4 THIS DECISION OF HONBLE SUPREME COURT IN THE CASE OF DIRECTOR, PRASAR BHARATI(SUPRA) WAS RENDERED 3 RD APRIL, 2018 AND HONBLE SUPREME COURT HAS HELD THAT APPLICABILITY OF PROVISIONS OF SECTION 194H OF THE 1961 ACT WILL DEPEND UPON FACTS AND CIRCUMSTANCES OF EACH CASE AND HENCE IT WAS HELD TH AT THERE IS A NEED TO EVALUATE THE FACTUAL MATRIX OF EACH CASE BEFORE APPLYING PROVISIONS OF SECTION 194H OF THE 1961 ACT TO ADVERTISING AGENCY COMMISSIONS PAID BY MEDIA/BROADCASTING COMPANIES INCLUDING EVALUATING COMMERCIAL TERMS AND CONDITIONS OF THE CON TRACT EXISTING BETWEEN AND INTER - SE ALL THE RELEVANT PARTIES TO THIS PROCESS OF ADVERTISEMENT IN MEDIA/BROADCASTING COMPANIES . THE HONBLE SUPREME COURT HAS LAID DOWN TESTS TO DETERMINE AS TO APPLICABILITY OF SECTION 194H TO ADVERTISING COMMISSION PAID BY MEDIA /BROADCASTING COMPANIES TO ADVERTISING AGENCIES. I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 38 | P A G E THE AFORESAID DECISION OF HONBLE SUPREME COURT WAS RENDERED ON 03.04.2018 , WHILE MUMBAI - TRIBUNAL PASSED AN ORDERS IN ASSESSEES CASE FOR AY 2011 - 12 AND 2012 - 13 VIDE COMMON ORDER DATED 11.01.2017, WHI CH WAS PRONOUNCED PRIOR TO THE AFORESAID JUDGMENT OF HONBLE SUPREME COURT. THUS, TRIBUNAL DID NOT HAD THE BENEFIT OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF DIRECTOR, PRASAR BHARATI(SUPRA). IN FITNESS OF THINGS AND IN THE INTEREST OF JUSTICE AND FAIRNESS , WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS TO BE RESTORED TO THE FILE OF THE AO TO DETERMINE APPLICABILITY OF SECTION 194H TO ADVERTISING COMMISSION PAID BY ASSESSEE TO ADVERTISING AGENCIES KEEPING IN VIEW PREVAILING FACTUAL MATRIX OF T HE CASE IN ACCORDANCE WITH RATIO OF RECENT D ECISION OF HONBLE SUPREME COURT IN THE CASE OF DIRECTOR , PRASAR BHARATI(SUPRA) AS THE ISSUE IS NO MORE RES INTEGRA AND IS NOW SETTLED BY H ONBLE SUPREME COURT IN THE AFORESAID JUDGMENT IN THE CASE OF DIRECTOR, PRASAR BHARATI (SUPRA) . THUS, WE SET ASIDE AND RESTORE THE MATTER BACK TO THE FILE OF THE AO TO DECIDE THIS ISSUE DENOVO AFRESH ON MERIT IN ACCORDANCE WITH RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF DIRECTOR, PRASAR BHARATI(SUPRA) APPLIE D TO PREVAILING FACTUAL MATRIX OF THE ASSESSEES CASE. NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. THE ASSESSEE IS DIRECTED TO PRODUCE ALL RELEVANT MATERIAL BEFORE THE AO FOR VERIFICATION AND TO ADJUDICATE THIS ISSUE DENOVO IN SET ASIDE PROCEEDINGS . THE REVENUE SUCCEEDS ON GROUND NUMBER 1 TO 3 RAISED BY IT IN ITS APPEAL FILED WITH TRIBUNAL FOR STATISTICAL PURPOSES. WE ORDER ACCORDINGLY. 13. THE REVENUE IS AGGRIEVED VIDE GROUND NUMBER 4 RAISED BY IT IN MEMO OF APPEAL FILED WITH TRIBUNAL WITH THE DECISION OF LEARNED CIT(A) IN ALLOWING OF WEBSITE DEVELOPMENT EXPENSES. WE HAVE OBSERVED THAT THE ASSESSEE HAD INCURRED WEBS ITES DEVELOPMENT EXPENSES ON CREATION OF WEBSITE TO THE TUNE OF RS. 3,87,047/ - WHICH WERE DIRECTED TO BE CAPITALISED BY THE AO ON WHICH DEPRECIATION @ 60% WAS ALLOWED BY THE AO . THE LD. CIT(A) BY FOLLOWING THE JUDICIAL PRECEDENTS AS CITED IN ITS APPELLATE ORDER ALLOWED THE SAID EXPENSES AS REVENUE EXPENSES IN ITS ENTIRETY . WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HAS RELIED UPON DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. INDIAN VISIT.COM PRIVATE LIMITED (2009) 176 TAXMAN 0164(DEL. HC) . WE DO NOT FIND ANY FAULT WITH THE DECISION OF LD. CIT(A) AS IN CATENA OF I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 39 | P A G E JUDGMENTS , A CONSISTENT VIEW HAVE BEEN TAKEN BY HONBLE COURTS/TRIBUNAL WHEREIN WEBSITE DEVELOPMENT EXPENSES WERE HELD TO BE REVENUE EXPENDITURE. THE HONBLE DELLHI HIGH COURT IN T HE CASE OF INDIAN VISIT.COM PRIVATE LIMITED(SUPRA) HAD HELD WEBSITE DEVELOPMENT CHARGES TO BE REVENUE EXPENSES U/S 37(1) OF THE 1961 ACT, BY HOLDING AS UNDER: 7. CONSIDERED IN THE LIGHT OF THESE PRINCIPLES ENUNCIATED BY THE SUPREME COURT, IT IS CLEAR THAT JUST BECAUSE A PARTICULAR EXPENDITURE MAY RESULT IN AN ENDURING BENEFIT WOULD NOT MAKE SUCH AN EXPENDITURE OF A CAPITAL NATURE. WHAT IS TO BE SEEN IS WHAT IS THE REAL INTENT AND PURPOSE OF THE EXPENDITURE AND AS TO WHETHER THERE IS ANY ACCRETION TO TH E FIXED CAPITAL OF THE ASSESSEE. IN THE CASE OF EXPENDITURE ON A WEBSITE, THERE IS NO CHANGE IN THE FIXED CAPITAL OF THE ASSESSEE. ALTHOUGH THE WEBSITE MAY PROVIDE AN ENDURING BENEFIT TO AN ASSESSEE, THE INTENT AND PURPOSE BEHIND THE PURPOSE FOR A WEBSITE IS NOT TO CREATE AN ASSET BUT ONLY TO PROVIDE A MEANS FOR DISSEMINATING THE INFORMATION ABOUT THE ASSESSEE. THE SAME COULD VERY WELL HAVE BEEN ACHIEVED AND, INDEED, IN THE PAST, IT WAS ACHIEVED BY PRINTING TRAVEL BROCHURES AND OTHER PUBLISHED MATERIALS AND PAMPHLETS. THE ADVANCE OF TECHNOLOGY AND THE WIDE SPREAD USE OF THE INTERNET HAS PROVIDED A VERY POWERFUL MEDIUM TO COMPANIES TO PUBLICIZE THEIR ACTIVITIES TO A LARGER SPECTRUM OF PEOPLE AT A MUCH LOWER COST. WEBSITES ENABLE COMPANIES TO DO WHAT THE PRINT ED BROCHURES DID BUT, IN A MUCH MORE EFFICIENT MANNER AS WELL AS IN A MUCH SHORTER PERIOD OF TIME AND COVERING A MUCH LARGER SET OF PEOPLE WORLDWIDE. 8. THE TRIBUNAL HAS CORRECTLY APPRECIATED THE FACTS AS WELL AS THE LAW ON THE SUBJECT AND HAS COME TO THE CONCLUSION THAT THE EXPENDITURE ON THE WEBSITE WAS OF A REVENUE NATURE AND NOT OF A CAPITAL NATURE. WE SEE NO REASON TO INTERFERE WITH THE IMPUGNED ORDER. NO SUCH SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION. THE APPEAL IS DISMISSED. REFERENC E IS ALSO DRAWN TO DECISION OF DELHI - TRIBUNAL IN THE CASE OF POLYPLEX CORPORATION LIMITED V. ITO, REPORTED IN (2009) 122 TTJ 0949(DELHI - TRIB.) AND DECISION OF MUMBAI - TRIBUNAL IN THE CASE OF R.R.KABEL LIMITED V. ADDL.CIT REPORTED IN (2012) 54 SOT 0374(MUM - T RIB.) , WHEREIN WEBSITE DEVELOPMENT EXPENSES WERE HELD TO BE REVENUE EXPENSES. RESPECTFULLY FOLLOWING THE FORESAID DECISIONS , WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSE BY HOLDING THESE WEBSITE CREATION CHARGES AS REVENUE EXPENSES AND ARE ALLOWED U/S 37(1) OF THE 1961 ACT. WE UPHOLD THE APPELLATE ORDERS OF LEARNED CIT(A) . THE GROUND NUMBER 4 RAISED BY REVENUE STAND DISMISSED. WE ORDER ACCORDINGLY. 14. THE NEXT ISSUE RAISED BY REVENUE IN ITS APPEAL FILED WITH TRIBUNAL VIDE GROUND OF APPEAL NUMBER 5 CO NCERNS ITSELF WITH EXCESS COMMISSION PAID TO BCCL WHICH WAS DISALLOWED BY THE AO TO THE TUNE OF 50% BEING 2.5% OF THE COMMISSION EXPENSES PAID TO BCCL ON BUSINESS PROCURED BY BCCL FOR THE ASSESSEE. THE LEARNED CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 40 | P A G E EARLIER YEARS ORDERS PASSED BY LEARNED CIT(A) FOR AY 2009 - 10 IN ASSESSEES OWN CASE. WE HAVE OBSERVED THAT THIS ISSUE WAS DECIDED BY TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 181 & 238/MUM/2012 AND ITA NO. 1864 & 1910/MUM/2013 FOR AY 2008 - 09 AN D 2009 - 10 RESPECTIVELY VIDE COMMON ORDER DATED 04.10.2017, WHEREIN TRIBUNAL DECIDED THIS ISSUE FOR AY 2008 - 09 AND 2009 - 10 IN ASSESSES OWN CASE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: - 35. ON APPRAISAL OF THE ABOVE SAID FINDING, WE NOTICED THAT T HE CIT(A) HAS EXAMINED THE PAYMENT FROM EVERY ANGLE AND FOUND THAT THE COMMISSION WAS NOT PAID IN HIGHER SIDE. NO DISTINGUISHABLE MATERIAL WAS PRODUCED. THE COMMISSION @ 5% WAS PAID TO BCCL . THE RANGE OF COMMISSION IN SUCH TYPE OF BUSINESS VARIES FROM 5% TO 20%. IT DOES NOT SEEMS JUSTIFIABLE IN VIEW OF THE LAW SETTLED IN UPPER INDIA PUBLISHING HOUSE P. LTD. VS. CIT (1979) 117 ITR 569(SC), CIT VS. V.S. DEMPO & CO. (P.) LTD. (2011) 336 ITR 209 (BOM), CIT VS. RAMAN BOARDS LTD. (2013) 355 ITR 305 (KARNATAKA), CIT VS. MODI REVLON (P.) LTD. (2012) 210 TAXMAN 161 (DELHI) (MAG) & CIT(A) IN OWN CASE FOR A.Y. 2010 - 11 DATED 16.11.2015. IN VIEW OF THE FACTS AND CI RCUMSTANCES OF THE CASE AND REL YING UPON THE LAW RELIED BY THE ASSESSEE WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS REQUIRED TO BE INTERFERED WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE MUMBAI - TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008 - 09 AND 2009 - 10 VIDE COMMON ORDER DATED 04.10.2017 WITH A VIEW TO MAINTAIN CONSISTENCY , WE DECIDE THIS ISSUE IN FAVOUR OF THE AS SESSEE. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT (1992) 193 ITR 321(SC) IS RELEVANT. THE REVENUE FAILS ON THIS GROUND NUMBER 5 RAISED BY IT IN ITS APPEAL FILED WITH TRIBUNAL .WE ORDER ACCORDINGLY. 15. THE NEXT ISSUE RAISED BY REVENUE IN ITS APPEAL VIDE GROUND NUMBER 6 AND 7 CONCERNS ITSELF WITH DISALLOWANCE OF INTEREST OF RS. 80 LACS U/S. 36(1)(III) OF THE 1961 ACT. THE AO MADE ADDITIONS AS IT COULD NOT BE PROVED THAT BORROWED FUNDS WERE USED FOR BUSINESS PURPOSES. SIMI LAR DISALLOWANCE WAS MADE BY THE AO FOR EARLIER YEARS ALSO VIZ. AY 2006 - 07, 2008 - 09 AND 2009 - 10. THE LEARNED CIT(A) GRANTED PART RELIEF FOR EARLIER YEAR BY DISALLOWING PROPORTIONATE INTEREST EXPENSES BASED ON WHICH AO MADE DISALLOWANCE. THE LEARNED CIT (A) FOR THE IMPUGNED YEAR UNDER CONSIDERATION DELETED I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 41 | P A G E DISALLOWANCE BY FOLLOWING ITAT, MUMBAI DECISION IN THE CASE OF ASSESSEE ITSELF FOR AY 2006 - 07 AND 2007 - 08 IN ITA NO. 3114/MUM/2011 AND ITA NO. 1063/MUM/2011 VIDE ORDERS DATED 26.12.2012. THIS ISSUE IS ALSO DECIDED BY TRIBUNAL IN ITA NO. 181 & 238/MUM/2012 AND ITA NO. 1864 & 1910/MUM/2013 FOR AY 2008 - 09 & 2009 - 10 RESPECTIVELY VIDE COMMON ORDER DATED 04.10.2017 IN ASSESSEES OWN CASE , WHEREIN TRIBUNAL HELD IN FAVOUR OF THE ASSESSEE , BY HOLDING AS UNDE R: - 5. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INTEREST TO THE TUNE OF RS.17,37,88,101/ - PAID TO THE DIFFERENT BANKS ETC. THE CIT(A) REDUCED THE DISALLOWANCE U/S 36(1)(III) OF THE ACT OF RS.17,37,88,101/ - BEING PROPORTIONATE AMOU NT OF INTEREST ON ACCOUNT OF INVESTMENT IN THE EQUITY - SHARES OF SUBSIDIARY COMPANIES IN VIEW OF THE ORDER FOR THE A.Y. 2006 - 07. THE CONTENTION OF THE ASSESSEE IS THAT THE INVESTMENT WAS MADE IN BUSINESS ASSETS BEING EQUITY - SHARES IN TIME INNOVATIVE MEDIA L TD. AND ALTERNATE BRAND SOLUTION INDIA LTD. (SUBSIDIARY COMPANY) FOR STRATEGIC BUSINESS PURPOSE OUT OF FUNDS FROM INITIAL PUBLIC OFFER OF RS.194.4 CRORES RECEIVED BY THE APPELLANT IN THE A.Y. 2006 - 07. THEREFORE, NO DISALLOWANCE IS REQUIRED IN VIEW OF THE P ROVISION U/S 36(1)(III) OF THE ACT. IT IS ALSO ARGUED THAT THE CASE OF THE ASSESSEE IS FULLY COVERED BY THE ORDER DATED 26.12.2012 PASSED BY THE HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2006 - 07 & 2007 - 08. THE INVESTMENT WAS MADE ON ACCOUNT OF C OMMERCIAL EXPEDIENCY AND SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE. THE LD. REPRESENTATIVE OF THE ASSESSEE ALSO PLACED RELIANCE UPON THE LAW SETTLED IN S.A. BUILDERS LTD. VS. CIT (2007) 288 ITR 1 (SC). IT IS ALSO ARGUED THAT THE CAPITAL AND RESERVES WE RE SUBSTANTIALLY HIGHER THAN INVESTMENTS WHICH WAS TO THE TUNE OF RS.47.66 CRORES WHERE AS CAPITAL & RESERVES WERE RS. 262.92 CRORES. THE INVESTMENT IN THE SUBSIDIARY COMPANY WAS 35.03 CRORES WHICH HAS BEEN SHOWN AT PAGE 7 OF THE PAPER BOOK. THE LD. REPRES ENTATIVE OF THE ASSESSEE ALSO PLACED RELIANCE UPON THE CASE IN CIT VS. RELIANCE UTILITIES & POWER LTD (2009) 313 ITR 340 (BOM). IT IS ALSO ARGUED THAT THE CASH FLOW STATEMENT WAS HAVING CLOSING BALANCE TO THE TUNE OF RS.12,08,89,847/ - AND IF THE SUBSIDIARY COMPANY BE CONSIDERED TO THE TUNE OF RS.35,02,50,000/ - THEN THE CLOSING BALANCE WOULD BE RS.47,11,39,847/ - AND NO LOAN WAS GIVEN TO THE SUBSIDIARY COMPANY. HOWEVER, ON THE OTHER HAND THE LD. REPRESENTATIVE OF THE REVENUE HAS STRONGLY RELIED UPON THE ORDER PASSED IN THE CIT(A) IN QUESTION. WITH DUE REGARDS TO THE CONTENTION RAISED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSING THE RECORD. WE NOTICED THAT THE MATTER OF CONTROVERSY HAS ALREADY BEEN ADJUDICATED BY THE HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2006 - 07 & 2007 - 08 IN ITA. NO. 3114/M/2011, 3115/M/2011 &1863/M/2011.THE RELEVANT PARA IS HEREBY REPRODUCED AS UNDER.: - 3. BEFORE US, WHILE THE REVENUE DISPUTES THE RELIEF IN RESPECT OF INTEREST PAID TO MIB (RS. 191.39 LAKHS), THE ASSESSEE CHALLENGES THE PROPORTIONATE DISALLOWANCE OF INTEREST ON BORROWING (RS. 67.86 LAKHS). THE ASSESSEE, APART FROM ON ITS FINANCIAL STATEMEN TS, CLAIMING OF THEM TO BE IN SUPPORT OF ITS CASE THE RESERVES & SURPLUS AS AT THE YEAR - END BEING AT RS. 216.18 LAKHS, ALSO RELIED ON THE DECISION IN THE CASE OF S.A. BUILDERS LTD. VS. CIT(APPEALS) (2007) 288 ITR 1 (SC) AND CIT VS. RELIANCE UTILITIES & P OWER LTD. (2009) 313 ITR 340 (BOM). ON BEING QUERIED BY THE BENCH AS TO THE PURPOSE OF THE LOANS AND ADVANCES TO SISTER CONCERN/S, THE LD. AR EXPLAINED THAT THE I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 42 | P A G E SAME WAS TO A SUBSIDIARY COMPANY AND, IN FACT, CARRIED INTEREST @ 8% P.A., I.E., THE RATE AT WH ICH INTEREST WAS PAID ON THE BORROWINGS. FURTHER, AS REGARD INVESTMENTS, THESE COULD NOT BE TERMED AS TAX - EXEMPT IN AS MUCH AS THE INVESTMENTS WERE IN MUTUAL FUNDS WITH GROWTH OPTION, YIELDING CAPITAL GAINS. THESE COULD NOT, ACCORDINGLY, BE TERMED AS TA X - EXEMPT. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD, AS ALSO THE CASE LAW CITED. 4.1 OUR FIRST OBSERVATION IS THAT THE SUM UNDER DISPUTE HAS BEEN WRONGLY MENTIONED IN BOTH THE APPEALS. WHILE REVENUES APPEAL STATES THE FIGURE AT RS. 191,30,764/ - , THE INTEREST PAID TO MIB IS ACTUALLY RS. 1,91,40,760/ - (REFER PG. 7 AND PARA 2.1.6 OF THE ASSESSMENT ORDER AND THE APPELLATE ORDER RESPECTIVELY). THE DISALLOWANCE IN ITS RESPECT HAS BEEN ACTUALLY MADE AT RS. 191,39,268/ - , I.E., AT NET OF INT EREST RECEIVED ON SECURITY WITH MPSEB. THE ASSESSEE, ON THE OTHER HAND, MENTIONS THE ENTIRE INTEREST DISALLOWED IN ITS APPEAL MEMO (RS. 259,25,610/ - ), EVEN AS IT HAS BEEN ALLOWED RELIEF TO A SUBSTANTIAL EXTENT THEREOF BY THE FIRST APPELLATE AUTHORITY. 4.2 ON MERITS, WE MAY, TO BEGIN WITH, EXAMINE THE ASSESSEES CASH FLOW STATEMENT FOR THE YEAR. THE TOTAL CASH INFLOW IS AT RS. 49,666.15 LAKHS. EXCLUDING THE SHORT TERM BORROWINGS AND ITS REPAYMENT (RS. 177 LAKHS) FROM BOTH THE SIDES; THE SAME HAVING BEEN RE - P AID DURING THE YEAR ITSELF IN FULL, AS WELL AS NETTING THE MOVEMENT OF FUNDS IN INVESTMENTS (ON THEIR PURCHASE AND SALE DURING THE YEAR), AS WELL AS THE FINANCING COST, THE SAME WOULD BE AS UNDER: - A. SOURCE OF FUNDS: RS. IN LAKHS REMARKS A CASH IN F LOW FROM OPERATING ACTIVITIES 2,283.55 B PROCEEDS FROM FRESH ISSUE OF SHARES 20,025.87/ - C PROCEEDS FROM LONG TERM BORROWINGS 3,500.00 25,809.42 B UTILIZATION OF FUNDS: RS. IN LAKHS REMARKS A PURCHASE OF FIXED ASSETS 21,672.22 B INCREASE IN INVESTMENT 2326.80 C LOANS AND INVESTMENT IN SUBSIDIARY 760.00 D PREOPERATIVE EXPENSES 811.04 25,570.06 C SURPLUS 239.36 (A - B) D FINANCING COST (NET OF INTEREST 2.05L) 259.20 (259.25 - 2.05) E SHORTFALL @ 17.84 (D - C) [@ IMPLYING A REDUCTION IN CASH/CASH EQUIVALENTS, I.E., AT THE END OF THE CURRENT YEAR VIS - A - VIS THE BEGINNING OF THE YEAR.] 4.3 HOW COULD, WE WONDER, THE BORROWED FUNDS, FORMING PART OF THE LONG TERM FUNDS, GENERATED AT RS. 258.09 CRORES DURING THE RELEVANT YEAR, BE SAID TO HAVE BEEN UTILIZED FOR NON - BUSINESS PURPOSES? THAT IS, I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 43 | P A G E ASSUMING TH E INVESTMENTS AND THE LOANS AND ADVANCES TO SUBSIDIARY TO REPRESENT A NON - BUSINESS PURPOSE. IN OTHER WORDS, THE REVENUE COULD AT BEST CLAIM A PROPORTIONATE DISALLOWANCE U/S. 36(1)(III) IN RESPECT OF INTEREST ON LONG TERM BORROWINGS (RS.67.86 LAKHS), WHICH THOUGH WOULD BE ON THE FUNDS AVAILABLE, ON AN AVERAGE, DURING THE YEAR. WE MAY NOT ATTEMPT TO REFLECT THE WORKING HERE (FOR WHICH THE FIGURES AFORE - MENTIONED WOULD HAVE BE SUBSTITUTED BY AVERAGE FIGURES FOR THE YEAR RS.30 CRORES, ENTAILING AN INTEREST PA YMENT OF RS.28.23 LACS, HAVING BEEN REPAID DURING THE YEAR), IT WOULD SUFFICE TO SAY THAT THE SAME SHALL SCALE DOWN THE EXTENT OF DISALLOWANCE, I.E., ASSUMING SO, TO AROUND 10% OF THE INTEREST THEREON (RS. 67.86 LAKHS). WE STATE SO ONLY TO EMPHASIZE THE UN - TENABILITY OF THE REVENUES CASE ON THE VERY FACE OF THE CASH FLOW STATEMENT, EVEN AS THERE IS NO CASE FOR DISALLOWANCE IN AS MUCH AS THERE CAN BE NO PRESUMPTION THAT THE BORROWED INTEREST BEARING FUNDS ARE UTILIZED FOR WHICH PURPOSE. THE ONLY EXCEPTION W OULD BE IN CASE OF DEDICATED FUNDS OR BORROWINGS, WHICH HAVE TO BE OR ARE REQUIRED TO BE EXPENDED TOWARD THE STATED PURPOSE, SO THAT WHERE NOT FOR THE PURPOSE OF BUSINESS, DISALLOWANCE TO THE PROPORTIONATE EXTENT WOULD FOLLOW. FURTHER, THE INVESTMENT, AS I T APPEARS TO US, IS ONLY IN BUSINESS ASSETS, PERHAPS HELD TO PROVIDE A LIQUIDITY RESERVE. WHERE SOME INCOME THEREFROM IS TAX - EXEMPT, A DISALLOWANCE U/S. 14A, RATHER U/S. 36(1)(III), WOULD ARISE, FOR WHICH THERE IS NO CASE BY THE REVENUE. THE LOAN TO SUBSID IARY, AS AFORE - STATED, IS INTEREST BEARING, YIELDING AN INTEREST OF RS. 2.05 LACS FOR THE YEAR. NO CASE FOR DISALLOWANCE, EVEN WHERE FINANCED OR CONSIDERED AS FINANCED OUT OF BORROWED FUNDS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THUS, ARISES. 4.4 WI TH REGARD TO DEDUCTION IN RESPECT OF INTEREST PAID TO MIB, OUR FIRST OBSERVATION IS THAT THE SAME STANDS CLAIMED NOT U/S. 36(1)(III), BUT ONLY U/S. 37(1), GIVEN THE ASSESSEES CLAIM THAT THE BORROWED FUNDS WERE UTILIZED FOR WORKING CAPITAL REQUIREMENTS AND FOR SETTING UP RADIO STATIONS. THE CONTRACT WITH GOVT. OF INDIA IS ONLY A BUSINESS CONTRACT AS FAR AS ASSESSEE - COMPANY IS CONCERNED. EVEN ASSUMING A DEFAULT ON ITS PART, WHICH THOUGH IT CONTESTS IN A COURT OF LAW, THE INTEREST OBLIGATION, EVEN AS STATED B Y THE FIRST APPELLATE AUTHORITY, IS ONLY A CONTRACTUAL DEFAULT OR LIABILITY. THERE IS NO QUESTION OR CASE OF ANY INFRACTION OR BREACH OF ANY LAW. IN FACT, IT IS NOT EVEN CLEAR IF THE SAME ARISES UNDER THE TERMS OF THE CONTRACT OR IS AS PER THE DIRECTIONS O F THE HONBLE COURT. IT WOULD THUS BE A LITTLE CONSEQUENCE EVEN IF SOME BORROWED CAPITAL WAS UTILIZED (FOR A GIVEN PERIOD) TO PAY THE SAME, BEING ONLY A BUSINESS PURPOSE, AS IS A PAYMENT OF LICENSE FEE ITSELF. THE PAYMENT, IN ANY CASE, IS COMPENSATORY IN C HARACTER. THE REVENUES ONLY CASE, RATHER, COULD BE THAT INTEREST, CORRESPONDING TO THE PERIOD FOR WHICH THE RADIO STATIONS WERE NOT OPERATIVE AND UNDER INSTALLATION, BE CAPITALIZED, AS ITSELF DONE BY THE ASSESSEE FOR A PART OF INTEREST PAID DURING THE YEA R. NO CASE FOR A DISALLOWANCE WOULD ARISE UNLESS THE REVENUE SHOWS THE PAYMENT TO BE NOT FOR BUSINESS PURPOSE OR FOR ANY INFRACTION OF LAW, IN WHICH CASE THE ENTIRE OF IT, AND NOT THE INTEREST INCURRED ON THE CORRESPONDING BORROWINGS (WHERE SO), WOULD STAN D TO BE DISALLOWED, AND AS IN FACT STANDS DONE BY THE REVENUE. THE IMPUGNED ORDER THUS MERITS CONFIRMATION IN RESPECT OF THIS DISALLOWANCE ALSO. WE DECIDE ACCORDINGLY. 5. WE NEXT CONSIDER THE ASSESSEES APPEAL FOR THE SECOND YEAR UNDER REFERENCE, I.E., AY 2007 - 08. THE AOS ORDER, WHO HAS PROCEEDED TO DISALLOW THE ENTIRE INTEREST EXPENDITURE AS DEBITED BY THE ASSESSEE IN ITS ACCOUNTS (OPERATING STATEMENT) IS BEREFT OF ANY DETAILS, APART FROM THE NAMES OF THE PAYEES TO WHOM IT STANDS PAID. THAT IS, NO CASE F OR I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 44 | P A G E DISALLOWANCE IS MADE OUT, WHILE THE ASSESSEES CASE, AS WE UNDERSTAND, CONTINUES TO BE THE SAME. THE LD. CIT(A), IN APPEAL, FOLLOWED HIS EARLIER ORDER, I.E., FOR AY 2006 - 07, OBSERVING THE FACTS OF THE CASE AND, THUS, THE RESPECTIVE CASES OF THE PARTIES, TO BE SIMILAR. AGGRIEVED, THE ASSESSEE IN APPEAL. 6. THE INTEREST, IN THE MAIN, IS TO BCCL, FROM WHICH RS. 35 CRORES, CARRYING INTEREST @ 8% P.A., WAS OUTSTANDING AS AT THE END OF THE IMMEDIATELY PRECEDING YEAR. WE HAVE ALREADY FOUND THE SAME TO HAVE BEE N UTILIZED FOR BUSINESS PURPOSES. FURTHER, EVEN IF THERE WERE TO BE A FINDING AS TO SOME PART THEREOF HAVING BEEN EXPENDED FOR NON - BUSINESS PURPOSES, THE FUNDS BEING FUNGIBLE, AS SOON AS FRESH FUNDS ARE PLOUGHED BACK OR INFUSED BY THE ASSESSEE IN ITS BUSIN ESS, THE SAME (UNLESS DEDICATED FOR A PARTICULAR PURPOSE UNDER THE TERMS OF THEIR RAISING) OR THE FUNDS GENERATED BY THE BUSINESS OPERATIONS, WOULD TO THAT EXTENT SUBSTITUTE THE BORROWED FUNDS QUA THE NON - BUSINESS PURPOSE. IN OTHER WORDS, THERE CAN BE NO C ONTINUING PRESUMPTION AS TO UTILIZATION FOR A NON - BUSINESS PURPOSE, AND THE FACTS OF EACH YEAR HAVE TO BE CONSIDERED SEPARATELY. THE ASSESSEE RETURNING INCOME, PRIOR TO FINANCIAL EXPENSES AND DEPRECIATION, AT RS. 13.42 CRORES, THE REVENUES CASE IS WHOLLY WITHOUT MERIT. WE DECIDE ACCORDINGLY. 6. THE FACTS OF THE PRESENT CASE ARE THAT QUITE SIMILAR. HOWEVER, THE FIGURE IS DIFFERENT. THE CAPITAL AND RESERVE FUNDS ARE SUBSTANTIALLY HIGHER THEN THE INVESTMENT. THE CAPITAL IS TO THE TUNE OF RS.47.66 CRORES AND THE RESERVE IS 262.92 CRORES WHEREAS THE INVESTMENT IS ONLY TO THE TUNE OF RS.35.03 CRORES. SINCE, THE MATTER OF CONTROVERSY HAS SQUARELY COVERED BY THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y.2006 - 07& 2007 - 08 IN ITA. NO.3114/M /2011, 3115/M/2011 & 1863/M/2011 DATED 26.12.2012. THEREFORE, WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE AND ALLOWED THE CLAIM OF THE ASSESSEE ON THIS ISSUE. 15.2 WE HAVE OBSERVED FROM AUDITED FINANCIAL STATEMENTS FILED BY THE ASSESSEE THAT ASSESSEE HAS ITS OWN INTEREST FREE FUNDS AVAILABLE WITH IT COMPRISING OF SHARE CAPITAL OF RS. 47.67 CRORES (RS. 47.67 CRORES AS AT 31.03.2009) AND RESERVES & SURPLUS TO THE TUNE OF RS. 283.82 CRORES(RS. 265.95 CRORES AS AT 31.03.2009) AS AT 31.03. 2010 , AGGREGATING TO RS. 331.49 CRORES AS AT 31.03.2010(RS. 313.62 CRORES AS AT 31.03.2009) , WHILE THE INVESTMENTS ARE TO THE TUNE OF RS. 40.02 CRORE AS AT 31 ST MARCH 2010 AND RS. 39.03 CRORES AS AT 31.03.2009. THE INVESTMENTS/LOANS TO SUBSIDIARY NAM ELY TIMES INNOVATIVE MEDIA LIMITED AND ALTERNATE BRAND SOLUTIONS LIMITED TO THE TUNE OF RS. 10 CRORES WERE CONSIDERED FOR DISALLOWANCE OF INTEREST EXPENSES U/S 36(1)(III) OF THE 1961 ACT . THUS, AS CAN BE SEEN FROM ABOVE THE INTEREST FREE OWN FUND S AVAILABLE WITH THE ASSESSEE WERE HIGHER THAN I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 45 | P A G E INVESTMENTS/LOANS MADE BY THE ASSESSEE AND IN THE ABSENCE OF ANY SPECIFIC FINDINGS THAT INTEREST BEARING BORROWED FUNDS WERE USED FOR MAKING INVESTMENTS /LOANS , THE PRESUMPTION SHALL APPLY THAT THE ASSESSE E INVESTED ITS OWN INTEREST FREE FUNDS FOR MAKING INVESTMENTS IN SECURITIES. THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LIMITED (2009) 313 ITR 340(BOM) AND ALSO DECISION OF HONBLE BOMBAY HIGH COURT IN T HE CASE OF CIT V. HDFC BANK LIMITED (2014) 366 ITR 505(BOM. HC) ARE RELEVANT. HOWEVER, THIS CLAIM OF THE ASSESSEE THAT INTEREST FREE FUNDS AVAILABLE WITH IT ARE MORE THAN INVESTMENTS/LOANS MADE BY IT REQUIRES VERIFICATION OF FACTS FROM RECORDS AND FOR THIS VERY LIMITED PURPOSES , WE ARE REMITTING THE ISSUE BACK TO FILE OF THE AO FOR VERIFICATION FROM RECORDS THAT ITS OWN INTEREST FREE FUNDS WERE HIGHER THAN INVESTMENTS/LOANS MADE BY IT AS THERE AR E NO CATEGORICAL FINDING OF FACT RECORDED BY AUTHORITIES BELOW ON THESE FACTS WHICH ARE CONTENDED BY ASSESSEE BEFORE THE BENCH .WE ALSO NOTED THAT MUMBAI - TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 181 & 238/MUM/2012 AND ITA NO. 1864 & 1910/MUM/2013 FO R AY 2008 - 09 AND 2010 - 10 RESPECTIVELY VIDE COMMON ORDER DATED 04.10.2017 HAS GRANTED RELIEF TO THE ASSESSEE ON SIMILAR ISSUE. IN ORDER TO MAINTAIN CONSISTENCY AND JUDICIAL DISCIPLINE , WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE SUBJECT TO LIMITED VE RIFICATION AS ORDERED BY US AS ABOVE . THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT (1992) 193 ITR 321(SC) IS RELEVANT . IT IS SETTLED PROPOSITION IN TAX - LAWS THAT EVERY ASSESSMENT YEAR IS A SEPARATE UNIT AND FACTS MAY VARY FROM YEAR TO YEAR AND HENCE LIMITED VERIFICATIONS AS ABOVE IS ORDERED BY US. THIS DISPOSES OF GROUND NUMBER 6 AND 7 RAISED BY REVENUE IN ITS APPEAL FILED WITH TRIBUNAL. WE ORDER ACCORDINGLY. 16. THE REVENUE HAS ALSO RAISED GROUND NUMBER 8 AND 9 WHICH ARE GENERAL IN NATURE AND DOES NOT REQUIRES SEPARATE ADJUDICATION. THE GROUND NUMBER 8 I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 46 | P A G E AND 9 RAISED BY REVENUE IN ITS APPEAL STAND DISMISSED. WE ORDER ACCORDINGLY. ITA NO.852/MUM/2016 - ASSESSEES APPEAL AY 2010 - 11 17 . THE FIRST ISSUE RAISED BY ASSESSEE IN ITS APPEAL VIDE GROUND NUMBER 1 CONCERN S ITSELF WITH DISALLOWANCE OF BUSINESS PROMOTION EXPENSES U/S. 37(1) OF THE 1961 ACT TO THE TUNE OF 20% OF THE EXPENSES INCURRED ON THE GROUND THAT THE ASSESSEE COULD NOT PROVE BU SINESS NEXUS OF THESE EXPENSES. THE LEARNED CIT(A) WAS PLEASED TO DISMISS APPEAL OF THE ASSESSEE AND ADDITIONS WERE SUSTAINED BY LEARNED CIT(A). W E HAVE OBSERVED THAT MUMBAI - TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 181 & 238/MUM/2012 AND 1864 & 1910/MUM/ 2013 FOR AY 2008 - 09 AND 2009 - 10 RESPECTIVELY , VIDE COMMON ORDER DATED 04.10.2017 HAS HELD THAT AN ADHOC DISALLOWANCE S OF BUSINESS P ROMOTION EXPENSES ARE NOT WARRANTED , BY HOLDING AS UNDER: - 8. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE AD HOC DISALLOWANCE TO THE EXTENT OF 10% OF THE BUSINESS PROMOTION EXPEN SES TO THE TUNE OF RS.3,14,292/ . THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE HAS GIVEN THE DETAIL OF THE BUSINESS PROMOTION EXPENSES WHICH L IES AT PAGE NO. 62 OF THE PAPER BOOK AND ALSO SUBMITTED THE COPY OF TAX AUDIT REPORT WHICH LIES AT PAGE NO. 37 TO 59 OF THE PAPER BOOK. THE AO DISALLOWED THE 20% OF THE BUSINESS PROMOTION EXPENSES WITHOUT ANY BASIS AND THE CIT(A) HAS RESTRICTED THE DISALLO WANCE TO THE EXTENT OF 10% OF THE BUSINESS PROMOTION EXPENSES JUST ON ESTIMATION BASIS WHICH IS WRONG AGAINST LAW AND FACT, THEREFORE, THE SAID EXPENSES ARE LIABLE TO BE ALLOWED IN THE INTEREST OF JUSTICE. IT IS ALSO ARGUED THAT THE APPELLANT HAS PAID THE FRINGE BENEFITS TAX ON THESE EXPENDITURES INCURRED FOR THE PURPOSE OF BUSINESS AND THE CASE OF THE ASSESSEE HAS DULY BEEN COVERED BY THE ORDER OF CIT(A) DATED 01.12.2010 FOR THE A.Y. 2006 - 07 AND THE DEPARTMENT APPEAL BEFORE THE ITAT. IN SUPPORT OF THIS CON TENTIONS, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE UPON THE LAW SETTLED IN ACIT VS. ARTHUR ANDERSON & CO. (2005) 94 TTJ 736 (MUMBAI), S.B. BILLIMORIA & CO VS. ACIT (2010) 125 ITD 122 (MUM), RAJ ENTERPRISES VS. ITO (1995) 51 TTJ (JP.) 408& M/S. GILLETTE INDIA LIMITED VS. ACIT (2014) 162 TTJ 137 (JAIPUR TRIB.). ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE REVENUE HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION.WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD REPRESENTATI VE OF THE PARTIES AND PERUSED THE RECORD. WE NOTICED THAT THE ASSESSEE HAS FILED THE DETAIL OF BUSINESS PROMOTION EXPENSES WHICH LIES AT PAGE NO. 62 OF THE PAPER BOOK. COPY OF THE TAX AUDIT REPORT HAS ALREADY BEEN FILED WHICH LIES AT PAGE NO.37 TO 59 OF TH E PAPER BOOK. THE APPELLANT HAS PAID THE FRINGE BENEFIT TAX AND SUCH TYPE OF EXPENSES HAS ALREADY BEEN ALLOWED FOR THE CIT(A) IN THE ASSESSEES OWN CASE FOR THE A.Y. 2006 - 07 VIDE ORDER DATED 01.12.2010. ASSESSING OFFICER DISALLOWED THE 20% OF THE BUSINESS PROMOTION EXPENSES ON ADHOC BASIS. ON APPEAL THE CIT(A) HAS RESTRICTED THE SAID EXPENSES TO THE EXTENT OF 10%. DISALLOWANCE ON THE BASIS OF THE ESTIMATION IS NOT JUSTIFIABLE WITHOUT REJECTING THE BOOK OF ACCOUNT IF ANY.IN THIS REGARD WE FIND SUPPORT OF L AW SETTLED IN : - ACIT VS. ARTHUR ANDERSON & CO. (2005) 94 TTJ 736 (MUMBAI), S.B. BILLIMORIA & CO VS. ACIT (2010) 125 ITD 122 (MUM), RAJ ENTERPRISES VS. ITO (1995) 51 TTJ (JP.) 408 & M/S. GILLETTE INDIA LIMITED VS. ACIT (2014) 162 TTJ 137 (JAIPUR TRIB) MOREO VER, THE CIT(A) HAS ALSO ALLOWED SUCH EXPENSES IN THE ASSESSEES OWN CASE FOR THE A.Y. 2006 - 07 BY VIRTUE OF ORDER DATED 01.12.2010. TAKEN INTO ACCOUNT OF ALL THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE AD HOC DISALLOWANCE ON THE BASIS OF EST IMATION IS NOT JUSTIFIABLE, THEREFORE, WE ALLOWED THE CLAIM OF THE ASSESSEE AND SET ASIDE THE FINDING I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 47 | P A G E OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. THE LEARNED DR COULD NOT DISTINGUISH THE A FORESAID DECISION OF THE TRIBUNAL AS IN THE IMPUGNED YEAR UNDER CONSIDERATION, DISALLOWANCE OF 20% OF BUSINESS PROMOTION EXPENSES HAD BEEN MADE ON ADHOC BASIS . THUS, WE DONOT FIND ANY REASON TO DEVIATE FROM THE AFORESAID DECI SION OF ITAT, MUMBAI IN ASSESS EES OWN CASE FOR AY 2008 - 09 AND 2009 - 10 ,, WHICH WE RESPECTFULLY FOLLOW. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG(SUPRA) IS RELEVANT. THUS, GROUND NUMBER 1 OF THE ASSESSEES APPEAL IS ALLOWED. WE ORDER DELETION OF THE SAID DI SALLOWANCE OF 20% OF BUSINESS PROMOTION EXPENSES. THE ASSESSEE SUCCEEDS ON THIS GROUND. WE ORDER ACCORDINGLY. 18 . THE NEXT ISSUE RAISED BY ASSESSEE IN ITS APPEAL FILED WITH TRIBUNAL VIDE GROUND NUMBER 2 CONCERN S ITSELF WITH DISALLOWANCE OF EXPENDITURE OF R S. 62,16,426/ - BY AUTHORITIES BELOW PURPORTED TO BE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME BY INVOKING PROVISIONS OF SECTION . 14A OF THE 1961 ACT READ WITH RULE 8D(2)(II) AND 8D(2)(III) OF THE 1962 RULES. BOTH THE AUTHORITIES BELOW HAD CONFIRM ED AND SUSTAINED THE AFORESAID DISALLOWANCES. STATEMENT HAS BEEN MADE BY LD. COUNSEL FOR THE ASSESSEE BEFORE THE BENCH THAT THERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR . IT IS ALSO CLAIMED BEFORE THE BENCH THAT INVESTMENTS IN SECURITIES HAD BEEN MADE OUT OF OWN INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE BY WAY OF SHARE CAPITAL AND FREE RESERVES AND NO BORROWED FUNDS WERE UTILISED FOR MAKING INVESTMENTS . OUR ATTENTIO N WAS DRAWN TO THE CONTENTIONS MADE BEFORE LEARNED CIT(A) DURING FIRST APPELLATE PROCEEDINGS. S ECONDLY IT IS ALSO CLAIMED BY THE ASSESSEE THAT OWN INTEREST FREE FUND S AVAILABLE WITH IT ARE MORE THAN THE INVESTMENTS MADE IN SECURITIES AND IN THE ABSENCE OF ANY CONTRARY FINDING BY REVENUE PRESUMPTION WILL APPLY THAT THE ASSESSEE HA D INVESTED ITS OWN INTEREST FREE F UNDS AVAILABLE WITH IT FOR MAKING INVESTMENTS. THUS, IT IS CLAIMED THAT NO DISALLOWANCE OF EXPENSES IS WARRANTED U/S. 14A R.W.R 8D ( 2 )(II) OF THE 1 962 RULES IN THE ABSENCE OF ANY FINDING BY THE AUTHORITIES BELOW THAT ASSESSEE HA D INVESTED INTEREST BEARING BORROWED FUNDS IN MAKING INVESTME NTS. WE HAVE OBSERVED FROM THE BALANCE S HEET FILED BY THE ASSESSEE WITH THE TRIBUNAL W HICH IS PLACED IN PAPER BOOK AT PAGE NO. 1 TO 35 THAT ASSESSEE HAS ITS OWN INTEREST FREE FUNDS AVAILABLE WITH IT COMPRISING OF SHARE CAPITA L OF RS. 47.67 I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 48 | P A G E CRORES (RS. 47.67 CRORES AS AT 31.03.2009) AND R ESERVE S & S URPLUS TO THE TUNE OF RS. 283.82 CRORES(RS. 265.95 CRORES AS AT 31.03. 2009) AS AT 31.03.2010 , AGGREGATING TO RS. 331.49 CRORE S AS AT 31.03.2010(RS. 313.62 CRORES AS AT 31.03.2009) , WHILE THE INVESTMENTS ARE TO THE TUNE OF RS. 40.02 CRORE AS AT 31 ST MARCH 2010 AND RS. 39.03 CRORES AS AT 31.03.2009. THUS, AS CAN BE SEEN FROM ABOVE THE INTEREST FREE OWN FUNDS AVAILABLE WITH THE ASSESSEE WERE HIGHER THAN INVESTMENTS MADE BY THE ASSESSEE AND IN THE ABSENCE OF ANY SPECIFIC INCRIMINATING FINDINGS THAT INTEREST BEARING BORROWED FUNDS WERE USED FOR MAKING INVESTMENTS, THE PRESUMPTI ON SHALL APPLY THAT THE ASSESSEE INVESTED ITS OWN INTEREST FREE FUNDS FOR MAKING INVESTMENTS IN SECURITIES AND NO DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(II) IS WARRANTED. THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LIMITED (2009) 313 ITR 340(BOM) AND ALSO DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. HDFC BANK LIMITED (2014) 366 ITR 505(BOM. HC) ARE RELEVANT. HO WEVER, THE CONTENTIONS OF THE ASSESSEE AS WAS RAISED BEFORE AUTHORITIES BELOW THAT INVESTMENTS MADE BY IT IN SUBSIDIARIES/ASSOCIATED COMPANIES WHICH ARE STRATEGIC INVESTMENTS SHOULD NOT BE TAKEN INTO ACCOUNT WHILE COMPUTING DISALLOWANCE OF EXPENDITURE INCU RRED IN RELATION TO EARNING OF AN EXEMPT INCOME BY INVOKING PROVISIONS OF SECTION 14A , DOES NOT HOLD MERIT AS THE ISSUE IS NO MORE RES - INTEGRA KEEPING IN VIEW DECISION OF HONBLE SUPREME COURT I N THE CASE OF MAXOPP INVESTMENT LIMITED V. CIT REPORTED IN (2 018) 402 ITR 640(SC) AND HENCE THIS CONTENTION OF THE ASSESSEE STOOD REJECTED. WE HAVE OBSERVED THAT THE ASSESSEE HAS CLAIMED THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR AND HENCE IN VIEW OF DECISION (S) OF HONBLE D ELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. V. CIT REPORTED IN (2015) 378 ITR 33(DELHI) AND IN THE CASE JOINT INVESTMENT S PRIVATE LTD. V. CIT REPORTED IN (2015) 372 ITR 694(DELHI) AS WELL AS DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF THE PC IT V. BALLARPUR INDUSTRIES LTD. IN ITA NO. 51 OF 2016 VIDE JUDGMENT DATED 13.10.2016 , WE ARE OF THE VIEW THAT NO DISALLOWANCE OF EXPENDITURE PURPORTED TO BE INCURRED FOR EARNING OF AN EXEMPT INCOME BE MADE U/S 14A OF THE 1961 ACT IN VIEW OF THE CLAIM THAT NO EXEMPT INCOME BEING EARNED BY THE ASSESSEE. H OWEVER , THIS CLAIM OF THE ASSESSEE THAT IT DID NOT EARN ANY EXEMPT INCOME AND ALSO THAT INTEREST FREE FUNDS AVAILABLE WITH IT ARE MORE THAN INVESTMENTS MADE BY IT REQUIRE S VERIFICATION OF FACT S FROM RECORDS AND FOR THIS VERY LIMITED PURPOSES , WE ARE REMITTING THE ISSUE BACK I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 49 | P A G E TO FILE OF THE AO FOR VERIFICATION FROM RECORDS THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE AND SECONDLY THAT ITS OWN INTEREST FREE FUNDS WERE HIGHER THAN INVESTMENTS MADE BY IT AS THERE ARE NO CATEGORICAL FINDING OF FACT RECORDED BY AUTHORITIES BELOW ON THESE TWO FACTS WHICH ARE NOW CONTENDED BY ASSESSEE BEFORE THE BENCH . WE HAVE , HOWEVER NOTED THAT MUMBAI - TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 181 & 238/MUM/2012 AND ITA NO. 1 864 & 1910/MUM/2013 FOR AY 2008 - 09 AND 2010 - 10 RESPECTIVELY VIDE COMMON ORDER DATED 04.10.2017 HAS GRANTED RELIEF TO THE ASSESSEE ON SIMILAR ISSUE CONCERNING DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME BY INVOCATION OF P ROVISIONS OF SECTION 14A OF THE 1961 ACT . IT IS SETTLED PROPOSITION IN TAX - LAWS THAT EVERY ASSESSMENT YEAR IS A SEPARATE UNIT AND FACTS MAY VARY FROM YEAR TO YEAR AND HENCE LIMITED VERIFICATION S AS ABOVE IS ORDERED BY US. WE ORDER ACCORDINGLY. 1 9 . THE NEXT ISSUE RAISED BY ASSESSEE IN ITS APPEAL VIDE GROUND NUMBER 3 IN MEMO OF APPEAL FILED WITH TRIBUNAL CONCERNS ITSELF WITH DISALLOWANCE MADE BY THE AO U/S. 14A R.W.S. 115JB TO COMPUTE BOOK PROFIT ON WHICH MAT CAN BE LEVIED . WE ARE OF THE VIEW THAT THIS I SSUE IS REQUIRE D TO BE RESTORED TO THE FILE OF AO TO BE DECIDE D AFRESH IN ACCORDANCE WITH RATIO OF LAW LAID DOWN BY HONBLE SPECIAL B ENCH OF DELHI TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENT PRIVATE LIMITED REPORTED IN (2017) 165 ITD 27(DELHI - TRIB. )( SB) . THIS GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. WE ORDER ACCORDINGLY. 20 . THE ASSESSEE HAS ALSO RAISED AN ISSUE VIDE GROUND NUMBER 4 IN MEMO OF APPEAL FILED WITH TRIBUNAL AS TO NOT ALLOWING DEPRECIATION OF RS. 15,72 0/ - ON SOFTWARE EXPENSES WHICH WERE CAPITALISED IN AY 2007 - 08. PRAYERS ARE MADE BY LEARNED COUNSEL FOR THE ASSESSEE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO FOR NECESSARY VERIFICATIONS AND GRANT OF APPROPRIATE DEPRECIATION ON MERITS IN ACCORDANCE W ITH LAW AFTER DUE VERIFICATIONS . THE LEARNED DR DID NOT OBJECT IF THE ISSUE IS RESTORED BACK TO THE FILE OF THE AO FOR NECESSARY VERIFICATIONS AND FRESH ADJUDICATION ON MERITS IN ACCORDANCE WITH LAW . AFTER HEARING BOTH THE PARTIES, W E DIRECT AO TO VERIFY T HE FACTS FROM RECORDS AS CONTENDED BY ASSESSEE AND ALLOW APPROPRIATE DEPRECIATION ON SOFTWARE ON MERITS IN ACCORDANCE WITH LAW AFTER CONDUCTING DUE VERIFICATIONS . THUS, THIS ISSUE IS RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION ON MERITS IN I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 50 | P A G E A CCORDANCE WITH LAW AFTER VERIFICATION OF FACTUAL MATRIX OF THE CASE. WE ORDER ACCORDINGLY. 21 . THE NEXT ISSUE CONCERNS ITSELF VIDE GROUND NO 5 WITH REGARD TO NON GRANT OF CREDIT BY THE AO FOR INCOME - TAX DEDUCTED AT SOURCE(TDS) OF RS. 1,7 5 ,228/ - FROM THE I NCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. P RAYER ARE MADE BY LEARNED COUNSEL FOR THE ASSESSEE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO FOR VERIFICATION AND GRANT OF APPROPRIATE CREDIT FOR TDS AFTER DUE VERIFICATION. THE LEARNED DR DI D NOT OBJECT IF THE ISSUE IS RESTORED BACK TO THE FILE OF THE AO FOR NECESSARY VERIFICATIONS AND GRANT OF APPROPRIATE CREDIT FOR TDS ON MERITS IN ACCORDANCE WITH LAW . AFTER HEARING BOTH THE PARTIES WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO FOR NECE SSARY VERIFICATION AND GRANT OF TDS CREDIT ON MERITS IN ACCORDANCE WITH LAW . WE ORDER ACCORDINGLY. 22 . THE OTHER GROUND S RAISED BY THE ASSESSEE IN MEMO OF APPEAL FILED WITH TRIBUNAL VIDE GROUND NUMBER 6 TO 8 ARE CONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE SEPARATE ADJUDICATION. ACCORDINGLY, WE DISMISS GROUND NUMBER 6 TO 8 RAISED BY ASSESSEE IN MEMO OF APPEAL FILED WITH TR IBUNAL. WE ORDER ACCORDINGLY. 23 . IN THE RESULT, T HE APPEALS OF THE ASSESSEE IN ITA NO. 852/MUM/2016 FOR AY 2010 - 11 AND REVENUE S APPEAL IN ITA NO. 812/MUM/2016 FOR AY 2010 - 11 ARE PARTLY ALLOWED A S INDICATED ABOVE. WE ORDER ACCORDINGLY. ORDER PRONOUNC ED IN THE OPEN COURT ON 2 6 .06.2019 2 6 .06.2019 S D / - S D / - ( SANDEEP GOSAIN ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 2 6 .06.2019 NISHANT VERMA SR. PRIVATE SECRETARY I.T.A. NO.812/MUM/2016 I.T.A. NO.852/MUM/2016 51 | P A G E COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI