TMI Blog2013 (1) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... gear Ltd. was granted exclusive licence to manufacture, use and sell the scheduled products within India. While in assessee’s case, the assessee was granted non-transferable intangibles acquiring no ownership or proprietary right in the intangibles - in favour of assessee. Addition towards stale cheques issued to ex-employees - CIT(A) deleted the addition - Held that:- The original cheques of ₹ 31,74,343/- issued to the ex-employees and the same were pertaining to the financial year 2006-07 and 2007-08. Out of these, only cheques of ₹ 1,85,519/- were encashed. All other cheques became outdated on account of not claiming the same from the bank of the assessee. CIT (A) entertained the statement of stale cheques filed before him and observed that ₹ 4,62,883/- were encashed after the close of financial year. CIT (A) has also granted the relief relying on the audited accounts of the assessee. Such approach of CIT (A) is not as per law. The cheques issued are barred by limitation and became not payable by operation of law. CIT (A)’s observation that as soon as assessee reaches it conclusion that the liability of stale cheques have come to end the necessary right back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is aspect also requires examination to decide whether it is covered u/s 43B or not - remit the issue to the file of the AO to bring correct facts on record. - ITA No.5435/Del./2011 - - - Dated:- 31-10-2012 - U.B.S. Bedi And B.C. Meena, JJ. Appellants Rep by: Shri Himanshu S. Sinha, Amit Pahwa Respondent Rep by: Ms Y. Kakkar, DR ORDER Per: B.C. Meena: This appeal filed by the revenue emanates from the order of the CIT (Appeals)-VIII, New Delhi dated 16.09.2011. 2. The return of income was filed on 30.09.2008 declaring a loss of ₹ 1,67,49,862/-. It was subsequently revised at the loss of ₹ 6,05,32,284/-. The assessment was completed on 16.12.2010. The Assessing Officer made certain disallowances against which the assessee filed an appeal before the CIT (A). The CIT (A) granted the relief on certain issues against which the revenue is in appeal before us. 3. The appellate company is engaged in the business of providing staffing and recruitment services. The assessee company has entered into a licence agreement with Kelly Services Inc., USA effective from 1st January, 2002 for an initial period of four years. This agreement was automatical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated 25% of the expenditure towards capital in nature by following the decision of Hon'ble Supreme Court in the case of Southern Switchgear Limited, cited supra. The CIT (A) granted the relief by holding as under:- 3.2.5 I have carefully considered the submissions made on behalf of the appellant company and the findings recorded by the Ld. Assessing Officer. I have also carefully perused the license agreement between Kelly Services Inc. and the appellant company. On consideration, I find that the appellant company was granted only non-exclusive and non-transferable rights to use the intangibles ownership of which was with the licensor and continued to be so even after the agreement with the assessee company. I also find that the appellant company was not allowed to draw any benefit of enduring nature because the agreement was for a limited period. The Ld. Counsels have rightly pointed out that the assessee company is a service company and engaged in the business of providing staffing and recruitment services only, therefore, there was no issue of setting up of manufacturing facilities and/or factory etc. Further, the amount of royalty was directly linked with the turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance contemplated in the agreement covers the establishment of the factory and its operations for the manufacture of the product. While in assessee s case the purpose of the agreement was to grant right to use certain intangible in its service business operation. The licensed marks trade names, business names, common law trademarks, registered trademarks and service marks, know-how, trade services, best practices, service delivery processed, testing and training software and Kelly Quality Management System. Thus, the agreement entered into by Southern Switchgear Ltd. was to set up the factory for the purpose of manufacture of switchgear whereas the agreement entered into by the assessee company is for an efficient conduct of its business operations by the use of intangibles. Thus, the facts of the Southern Switchgear Ltd. are distinguishable from the facts of assessee s company. Further, the right of the assessee in the case of Southern Switchgear Ltd. was granted exclusive licence to manufacture, use and sell the scheduled products within India. While in assessee s case, the assessee was granted non-transferable intangibles. The assessee company did not acquire any ownership or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 3174343/-, a sum of ₹ 462883/- has already been paid after the close of the financial year relevant to the assessment year under consideration. Further, the appellant company is subject to statutory audit and audit in terms of company law. Therefore, in case the company reaches a conclusion that the liability on account of stale cheques has come to an end, the necessary right back will take place in the year of such conclusion. The Ld. AO has not brought any material on record to hold that the liability on account of payments to be made to the exemployees/ professionals has come to an end and thus, the conclusion drawn by the AO is without any basis. In view of the aforesaid and considering the amounts in individual cases and number of employees, I do not find myself in agreement with the Ld. AO that this is a fit case for treating the outstanding amount of ₹ 2988824/- as income for the assessment year under consideration. Accordingly, the Addition in question is being deleted. 10. The ld. DR relied on the order of the Assessing Officer and also pleaded that the assessee issued cheques of ₹ 31,74,343/- to the ex-employees which were not encashed. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side the issue to the file of the Assessing Officer for deciding afresh after considering all relevant aspects on this issue. 13. Ground no.4 is against the deleting of addition of ₹ 11,12,816/- shown as the business loss by the assessee which is actually the claim of TDS which has to forego by the assessee for non-availability of the TDS certificates. 14. Brief facts of the case are that while making payment of professional charges, the TDS was being made by the clients and the aggregate TDS receivable by the company at the end of the FY relevant to the AY under consideration was ₹ 11,12,816/-. However, as necessary TDS certificates were not issued by the deductors/clients nor any actual payment was made by them, the appellant company could not claim credit thereof against the tax liability. Therefore, when there was no possibility of TDS certificates being received from the clients, the appellant company decided to write off the TDS receivable of ₹ 11,12,816/- and debited the same to the P L account for the assessment year under consideration. In the course of scrutiny, the Ld. AO required the appellant company to explain as to how the TDS written off in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any made all sincere efforts to obtain the TDS certificates from the concerned parties. However, when all the efforts failed, the assessee com an decided to write off the TDS receivable and made a claim in the P L account. In the assessment, the claim of the appellant company was disallowed by the Ld. AO. However, on appeal, the claim of the appellant company was allowed by the CIT(A) and the ITAT. On further appeal by the Revenue, the Hon'ble Court decided the matter in favour of the appellant company and against the revenue with the following observations:- 23. We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. It is a fact that (he assessee had offered gross amount of interest including TDS of ₹ 2,04,259 to tax in the assessment year 1992-93. It is also a fact that the assessee was not allowed credit for the TDS of ₹ 2,04,259 for want of TDS Certificates. It is also a fact that in spite of best efforts, the assessee could not obtain TDS certificates. Thus, it was a case of loss which has arisen 10 the assessee during the course of its business. In the case of Sutlej Cotton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lid's case (supra), Hon'ble Supreme Court was in-seissn of a situation in which assessee had claimed deduction in respect of demand under section 201 r.w.s. 195 that the assessee had to pay because it failed to discharge the tax deduction obligations imposed on the assessee. Their Lordships were of the considered view that the payment made by the assessee on account of his not discharging the tax deduction obligations, and, therefore, the same could not be allowed as deduction on business income. As against the position that Hon'ble Supreme Court were dealing with, we are right now dealing with a situation in which neither the assessee got the money, lawfully due to him, as it was said to have been retained as tax deduction at source, nor did the assessee get any tax credit in computation of it's tax liability. The amounts represented by such tax deductions, which were unavailable for tax credits, clearly represented loss incurred by the assessee in the course of bonafide business activities. On these facts, as held by Hon'ble Punjab Haryana High court in the case of Shreyans Industries (supra), there is no infirmity in assessee being allowed deduction in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has also considered the decision of ITAT, G Bench, Mumbai in the case of Addl. CIT, Range 7 (3), Mumbai vs. Yahoo Web Services P. Ltd. in ITA No.20042/Mum/2010 dated 28.01.2011 wherein the ITAT has decided the issue by holding as under :- 6. We find that in National Aluminum Co. ltd's case (supra), Hon'ble Supreme Court was in-seisin of a situation in which assessee had claimed deduction in respect of demand under section 201 r.w.s. 195 that the assessee had to pay because it failed to discharge the tax deduction obligations imposed on the assessee. Their Lordships were .of the considered view that the payment made by the assessee on account of his- not discharging the tax deduction obligations, and, therefore, the same could not be allowed as deduction on business income. As against the position that Hon'ble Supreme Court were dealing with, we are right now dealing with a situation in which neither the assessee got the money, lawfully due to him, as it was said to have been retained as tax deduction at source, nor did the assessee get any tax credit in computation of it's tax liability. The amounts represented by such tax deductions, which were unavaila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 438 of the IT Act, 1961 deal with the deductions of certain sums/dues to be allowed on actual payments. However, as stated earlier, the amount of professional tax has not been claimed by the appellant company as deduction either in the profit and loss account or in the computation of total income. So, therefore, there was no basis for the ld. AO to invoke the provisions of section 438 of the IT Act, 1961. It has to be appreciated that the receipts and expenses not routed through the profit and loss account do not impact the taxability of a particular A Y as they remain part of the balance sheet only at the year end. In view of the aforesaid, the disallowance made by the ld. AO is not in accordance with the provisions of section 438 of the IT act, 1961 and is accordingly, deleted. 18. We have heard both the sides on this issue. After hearing both the sides on the issue, we find that certain facts are not clear which are necessary to decide the issue. The assessee has deducted the professional tax from the salary paid to the employees. What is the salary debited by the assessee in the profit loss account whether it was net of professional tax or it was the gross amount inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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