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2020 (6) TMI 827 - AT - Income TaxDisallowance u/s 14A - AO has made the above disallowance by holding that disallowance under section 14A is to be made mandatorily irrespective of the fact whether assessee has received any exempt income during the year or not - DRP has deleted the disallowance and held that in the absence of any exempt income during the year, no disallowance can be made - DRP also has held that the interest free funds are sufficient to meet that investment made by the assessee - HELD THAT:- The issue is covered in favour of the assessee by various judgments of the Jurisdictional High Court including the above judgment of Cheminvest Ltd. [2015 (9) TMI 238 - DELHI HIGH COURT] - we uphold the Order of the DRP deleting the above said disallowance and Ground of Revenue’s appeal are dismissed. Addition of expenditure incurred on Club Membership for its employees - AO disallowed it same has not been incurred wholly and exclusively for the purpose of the business - DRP has directed to delete the disallowance holding that this Club Membership expenditure incurred by the assessee for its employees has been considered as perquisite in the hands of the employees as salary income and tax has been paid thereon - HELD THAT:- The finding of the Ld. DRP is correct. We are further of the view that any expenditure incurred on employees by the employer, whether by way of salary or by way of perquisites, is business expenditure as the employees are working for the business. What the employer provides to employees is a consideration for the services rendered by such employees. Such consideration can be in cash by way of salary or allowances or in kind by way of various perquisites. The Club Membership fee is one such perquisite which is extended by the employer to its employees. So long the fee is paid for the employees who are working with the employer for the business being carried on by such employer, the fee so paid is an expenditure incurred wholly and exclusively for the purpose of business. Decided against revenue. Addition on account of the Service Fees - As per AO this expenditure has not been incurred wholly and exclusively for the purpose of business as the assessee has not furnished any details regarding the actual service being provided and the nature of services offered - HELD THAT:- As regards the issue of allow ability of expenditure under section 37(1), from the facts, it is evident that assessee has submitted all the details and evidences in support thereof. Thus, the contention of the AO that the assessee has not furnished any details and evidences is factually incorrect. DRP has examined these details and after examination it has held that the payments are in consideration of the services rendered by the AEs by giving reference to page 37 & 38 of the Paper Book. Thus, the issue that these expenditures have been actually incurred for availing the services cannot be doubted. As regards the value for such services, the issue has been the subject matter before TPO and he has not drawn any adverse inference. Thus, the AO cannot draw any adverse inference on the basis that there is no justification for payment of such amount to AE. The contention of the Ld. AR on this issue that it is not permissible for the Revenue to step in the shoes of the assessee/ businessman and take the business decisions is correct. In view of the above analysis, we uphold the order of the DRP and ground of the Revenue’s appeal is dismissed. Addition on account of Staff Welfare expenses - AO made an ad-hoc disallowance of 50% out of the above expenditure on the ground that the onus is on the assessee to justify the claim of the expenditure and that the assessee has failed to discharge this onus by not producing the complete details and by not producing the supporting bills/vouchers - HELD THAT:- Merely not mentioning the name of the employees cannot be a ground to disallow the same considering the fact that it is a case of a company. In the case of a firm or a proprietorship concern, there could have been a doubt whether such expenditures have been incurred on the employees or on the Partners/Proprietors. Ad-hoc disallowance is otherwise not sustainable. However, the AO, in the Assessment Order, has stated that the assessee has failed to discharge its onus by producing details and complete evidences in support thereof. Though, the assessee has filed the details before the Ld. DRP along with the supporting evidences, apparently the same has not been examined by the Ld. DRP. Considering this fact, we deem it fit to set aside this issue to the file of the AO with the direction to restrict the disallowance only to such expenditure which assessee is not able to support with evidence. TDS u/s 195 - non-deduction of tax on purchases made from Mitsui & Co. Ltd. Japan - existence of the PE in India - HELD THAT:- From the facts explained by the Ld. AR, it is clear that a coordinate Bench of the ITAT in the case of Mitsui & Co. Ltd. Japan [2016 (4) TMI 1447 - ITAT DELHI] has held that Mitsui & Co. Ltd. Japan does not have a PE in India. In the absence of any PE, there is no obligation to deduct tax. Further, it is also a fact that these purchases are off-shore supplies which cannot be subjected to tax in India and if that be so, there is no requirement to deduct tax at source.DRP has also examined this issue and has held that off-shore supplies were not related to the activities by the PE of such an AE in India - Decided against revenue.
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