TMI Blog2018 (8) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... parties viz. M/s Imperial and M/s Habitat World in respect of payments made to them by issuing notices u/s 133(6) of the Act and it is a matter of record that these two parties had confirmed the transactions with the assessee. It is well settled by now that ad hoc disallowance cannot be made unless specific defects are brought on record by the Assessing Officer. This is not the case in the present appeal before us. There is a plethora of judicial rulings wherein it has been held that ad hoc disallowance without specific pinpointing of defect is not sustainable. Directors’ remuneration - Held that:- As to how the Assessing Officer has reached this conclusion has not been elaborated. Further, the Board resolution approving the appointing of directors passed in the extraordinary general meeting is available on record. The Ld. CIT (A) also did not undertake the exercise of examining the evidences but rather addressed the issue in a casual way by holding that remuneration of ₹ 40 lakh was fair and reasonable. CIT (A) has also not elaborated as to how he has reached the conclusion that an amount of ₹ 40 lakh was fair and reasonable towards payment of directors’ remunerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the assessee’s appeal. - ITA No. 1262/Del/2016 And ITA No. 863/Del/2016 - - - Dated:- 30-7-2018 - SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Department : Shri Atiq Ahmed, Sr. DR For The Assessee : Shri Ved Jain, Adv. Shri Ashish Goel, CA ORDER PER SUDHANSHU SRIVASTAVA, J . M . ITA No. 863/Del/2016 is preferred by the department against the order dated 23. 12. 2015 passed by the Ld. CIT (A)-20, New Delhi for assessment year 2009-10 whereas ITA No. 1262/Del/2016 is the assessee s cross appeal for the same year. 2. Brief facts of the case are that the assessee company is engaged in the business of organizing events, consulting and related services. The return of income was filed declaring loss of ₹ 4, 50, 71, 693/-. Initially, the return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) and subsequently, the case was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed legal and professional charges of ₹ 2, 48, 12, 998/- in its profit and loss acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eyes of law as well as on facts . 2 . ( i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of Rs . 68, 25, 33M- made by the AO on account of non-deduction of TDS on professional charges paid by the assessee to the nonresident invoking provisions of section 40(a)(i) of the Act . ( ii) that the above disallowance has been confirmed rejecting the contention of the assessee that assessee is not liable to deduct TDS in view of the Double Taxation Avoidance agreement between the India and the other countries US and UAE . ( iii) That the above disallowance has been confirmed rejecting the remand report of the AO in which AO himself admitted that transactions are not liable for TDS . ( iv) That the above disallowance has been confirmed in surmises and conjectures without appreciating the facts of the case . 3 . ( i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of salary paid to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law . 3. The Ld. AR submitted that ground no. 1 in assessee s appeal was general in nature. With respect to ground no. 2 of the assessee s appeal which challenged the action of the Ld. CIT (A) in sustaining the addition of ₹ 68, 25, 331/- with respect to legal and professional charges by invoking the provisions of section 40(a)(i) of the Act, it was submitted that the assessee had duly submitted before the Assessing Officer the copies of invoices raised by the three parties and also copies of the relevant Double Taxation Avoidance Agreements entered into between India and the respective countries but the same was not considered by the Assessing Officer and was also simply brushed aside by the Ld. CIT (A). It was submitted that in view of Article 15 of the Double Taxation Avoidance Agreement, independent professional services rendered by non-resident Indians were not taxable in India and, therefore, the provisions for deduction of tax at source were not applicable. He drew our attention to the documents submitted in respect of the three parties which had been filed before the Assessing Officer and which were placed in the paper book at pages 43 to 69. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent agreements with the four directors, their educational qualifications and the copy of their income tax returns from their previous employment/s and it was submitted that the directors were highly qualified and were competent enough to be paid such remuneration as had been paid to them. It was further submitted that these directors had earlier worked with companies such as Hero Corporate Services Ltd. , Coca Cola Inc. , International Market Assessment India Pvt. Ltd. and Mckinsey and Company Inc. and, therefore, the remuneration paid to them was at par with what was being paid in these industries. It was also submitted that these documents were duly submitted before both the lower authorities and neither of them had pointed out any error or discrepancy in any of these documents. The Ld. AR again drew our attention to the remand report submitted by the Assessing Officer before the Ld. CIT (A) wherein the Assessing Officer has not disputed the genuineness of the payment but has only mentioned that the assessee had not produced the employment agreements etc. at the time of assessment proceedings. It was also submitted that another objection of the Assessing Officer in the remand rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the assessee had duly submitted the details of the total expenditure of ₹ 23, 43, 490/- before the Assessing Officer and the Assessing Officer had also issued the notices u/s 133(6) of the Act to two of the parties to whom the payments had been made, viz. M/s Imperial and M/s Habitat World, who had duly confirmed the transaction with the assessee and had also furnished complete details with regard to the conferences and seminars hosted. It was also submitted that the disallowance had been made on ad hoc basis without pointing out any defect in the books of the assessee which had been duly audited prior to the submission of the return. It was also submitted that the Ld. CIT (A) had deleted the addition after duly considering the facts of the case and, therefore, the adjudication of the Ld. CIT (A) on this issue also deserved to be upheld. 5. In response, the Ld. Sr. DR placed extensive reliance on the assessment order and read out relevant portions from the same. With respect to issues being raised in the assessee s appeal, the Ld. Sr. DR also placed reliance on the concurrent findings of the Ld. CIT (A). With respect to the department s appeal, the Ld. Sr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable 6. 0. 1 It is our considered opinion that once the assessee has submitted before the Assessing Officer that no expenditure had been incurred for earning the dividend income, the Assessing Officer was under legal obligation to demonstrate as to how he was not satisfied with the contention of the assessee and only, thereafter, he could have proceeded to make a disallowance. As is evident from the assessment order, the satisfaction of the Assessing Officer before invoking provisions of section 14A r/w Rule 8D is missing. The Ld. CIT (A) has also taken a similar view while deleting the disallowance. Under the circumstances, we find no reason to interfere with the findings of the Ld. CIT (A) in this regard and accordingly, ground nos. 1 and 2 of the department s appeal are dismissed. 6. 1 Coming to ground no. 3 of the department s appeal which challenges the deletion of ad hoc disallowance @25% of the conferences and seminars expenses, it is seen that the Assessing Officer had made the ad hoc disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ched this conclusion has not been elaborated. Further, the Board resolution approving the appointing of directors passed in the extraordinary general meeting is available on record. The Ld. CIT (A) also did not undertake the exercise of examining the evidences but rather addressed the issue in a casual way by holding that remuneration of ₹ 40 lakh was fair and reasonable. The Ld. CIT (A) has also not elaborated as to how he has reached the conclusion that an amount of ₹ 40 lakh was fair and reasonable towards payment of directors remuneration. Accordingly, in view of the lack of examination with respect to this issue by both the lower authorities, we deem it appropriate to restore the issue to the file of the Assessing Officer to reexamine evidences which have been submitted in this regard after giving proper opportunity to the assessee to present its case. Accordingly, ground no. 4 of the department s appeal and ground no. 3 of the assessee s appeal are allowed for statistical purposes. 7. In the result, the appeal of the department stands partly allowed. 8. Coming to the assessee s appeal, ground no. 1 being general in nature is not being adjudicated upon. 8 ..... 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