TMI Blog2014 (11) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... pportioned towards services rendered by the staff to Margadarsi Financiers - the entire expenditure claimed towards staff cost cannot be allowed. When there is nothing on record to show that entire staff in all branches are rendering services to Margadarsi Financiers adhoc disallowance of 15% out of total salary cost is not justified - the treatment given in the accounts of Margadarsi Financiers coupled with the statements recorded from Shri PVSR Das and Shri S. Adinarayana Rao makes it clear that the amount paid by Margadarsi Financiers to the accountants and branch managers of assessee are in the nature of reimbursement of actual cost incurred - as the employees cannot be said to be exclusively doing the work of assessee company but also rendering services to Margadarsi Financiers, 15% out of the salary paid to such staff or the amount equivalent to the expenditure reimbursed by Margadarsi Financiers towards cost of branch managers and branch accountants, whichever is higher, can be considered for disallowance towards services rendered by the staff of assessee company to Margadarsi Financiers - The AO must examine the facts and details relating to the staff engaged in providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or earning of exempt dividend income at 5% of the exempt dividend income – thus, the AO is directed to restrict the disallowance u/s 14A to 5% of the dividend earned – Decided partly in favour of Revenue. Invocation of section 40(a)(ia) – Non-deduction of tax u/s 194C – Held that:- The expenditures were incurred towards greeting cards, stationery, visiting cards, calendars, registers, etc. - it cannot be said that assessee has made the payment towards execution of any contract work - these transactions are in the nature of purchase and sale transactions - Though it may be a fact that the calendars, registers may be containing the name and logo of assessee but that by itself will not be a criteria to conclude that the transaction is in the nature of contract work - it is very much evident that the assessee in fact has purchased calendars, registers, etc. from the concerned parties on payment of sales tax/VAT which clearly demonstrate that it is purely a transaction of purchase and sale of commodities and not works contract - CIT(A) rightly held that there is no liability on assessee to deduct tax at source u/s 194C – Decided against revenue. - ITA Nos. 1537 & 1538/Hyd/2010, IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is a sister concern of the group. Assessee, however, requested not to disallow part of the salary paid to staff as services are done only to a sister concern and the time spared by the staff in doing this job is negligible. AO upon considering the submissions of assessee and verifying the details available on record found that during the year under consideration the total deposits collected by Margardshi Financiers is ₹ 804,76,80,000 whereas the total repayments made by it was ₹ 455,22,14,087. All these collections and repayments were done through the staff of assessee company. AO was of the view that the magnitude of collections and repayments clearly show that there is no merit in assessee s contention that the time spared in collection and repayment of above deposits by the staff of Margadarsi Chit funds is negligible. Therefore, AO keeping in view the role of staff of assessee company in collection/repayment of deposits of Margadarsi Financiers decided to disallow a portion of expenditure incurred towards staff cost. Accordingly, he quantified the disallowance at 15% amounting to ₹ 4,16,06,586 out of the total expenditure incurred towards staff cost. Being a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have any branches/offices. Hence, adhoc disallowance of 15% out of total staff cost is without any basis. The learned AR submitted that there is no conflict of interest so far as the working of employees are concerned. Assessee pays to the staff for work done for its business. The learned AR submitted that many of the depositors in Margadarsi Financiers are also chit subscribers in assessee company. Hence, for business expediency the staff of the assessee act as facilitators for making investment in Margadrashi Financiers. He further submitted that the employees are doing such facilitating activities on behalf of Margadarsi Financiers on their own without any instructions from assessee. In this context, he referred to the statement recorded from Shri Ch. Ramoji Rao on 31/03/08, a copy of which is placed at page 1 of the paper book and specifically drew our attention to the statement made by Shri Ch. Ramoji Rao that Margadarsi Chit Fund Ltd. has no role either in collection and repayments made by Margadarsi Financiers. He also drew our attention to the statement made by Shri Ramoji Rao to the effect that only executives of Margadarsi Financiers are authorized to examine applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the revenue authorities as well as other materials on record. Undisputedly, Margadarsi Financiers has no other office except its office located in Hyderabad. Therefore, for collection of deposits and repayments from all over the undivided state of AP, it had to depend upon the branches of the assessee company and some of the staff working therein. Though the assessee has contended that the role of assessee s staff is only limited to guiding the investors/depositors and forwarding their applications along with cheques drafts to Margadarsi Financiers but on a perusal of facts and materials on record, it becomes clear that the entire deposits and repayments of Margadarsi Financiers is mobilized through staff of assessee company working in the branches of all over the state of AP. Though, the assessee has placed strong reliance on the statement of Shri Ramoji Rao stating that the staff of assessee company has no role to play in mobilizing the deposits on behalf of Margadarsi Financiers except guiding the depositors but the facts on record speak otherwise. As can be seen, from the statement recorded on 20/08/2008, Shri PVSR Das working as senior executive of Margadarsi Financier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similarly, the branch managers must also be providing services to Margadarsi Financiers as reimbursement of cost in respect of branch managers has also been claimed by Margadarsi Financiers. Therefore, when there is nothing on record to show that entire staff in all branches are rendering services to Margadarsi Financiers adhoc disallowance of 15% out of total salary cost, in our view is not justified. Another relevant fact which needs to be noted that though in the aforesaid statement the amount paid by the Margadarsi Financiers to these employees has been shown as incentives but in the accounts of Margadarsi Financiers the amount paid to the branch accountants and branch managers of assessee company have been shown as reimbursement of expenditure under the head business promotion expenses . Therefore, the treatment given in the accounts of Margadarsi Financiers coupled with the statements recorded from Shri PVSR Das and Shri S. Adinarayana Rao makes it clear that the amount paid by Margadarsi Financiers to the accountants and branch managers of assessee are in the nature of reimbursement of actual cost incurred. Therefore, in our considered view, as the concerned employees canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he date of sale is scrap assessee cannot claim the loss on sale of plant and machinery as short term capital loss. Accordingly, he disallowed assessee s claim of short term capital loss. The CIT(A) also sustained the disallowance on the following finding: 4.2.2 I have examined the issue carefully and perused all the facts. I find force in the argument of the AO that there was actually no plant and machinery on the premises. Whatever had been installed there had decayed and turned into scrap. This is the reason that even in the open auction it was only a scrap dealer, who purchased the items. Even the appellant issued an auction notice in the newspaper for sale of scrap. Further, the so called plant and machinery was never a part of block of assets of the appellant. Accordingly, I agree with the AO that there was no loss on sale of plant and machinery. Rather, the price of scrap sold is to be reduced from the overall cost of land and building. Accordingly, this ground is decided in favour of revenue and against the appellant. 13. The learned AR submitted before us that assessee has paid a total consideration of ₹ 6,79,20,930 towards sale price of the land and building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore proposed to disallow the expenditure claimed as per section 40(a)(ia) of the Act. Though the assessee in its reply submitted that the dividend paid to chit subscribers is not covered within the meaning of interest as defined u/s 2(28A) but the AO rejecting explanation of assessee disallowed the amount of ₹ 212,37,04,662 by applying the provisions of section 40(a)(ia). Assessee challenged the disallowance before the CIT(A). The CIT(A) by following the order passed by him earlier in case of the assessee for AY 2005-06, deleted the addition made by observing that the dividend paid to the subscribers are not in the nature of interest so as to attract the provisions of section 40(a)(ia). 19. We have heard the parties and perused the relevant material on record. As agreed by the learned representatives of both the sides, the issue involved in the appeal of the Revenue is squarely covered in favour of the assessee by the decision of the coordinate bench of this Tribunal in assessee s own case for assessment year 2008-09 rendered vide order dated 24.2.2012 in ITA No.973/Hyd/2011, wherein a similar disallowance made by the Assessing Officer was held to be unsustainable, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and perused the orders of the revenue authorities as well as other materials on record. Though it is a fact that AO was not correct in working out the disallowance by applying the provisions of Rule 8D, which is applicable from AY 2008-09, but, it cannot be denied that assessee must have incurred some amount of expenditure for earning the exempt income. We find from record that this issue arose in case of assessee in AY 2005-06 also. When the matter came up before the Tribunal in an appeal preferred by assessee in ITA No. 1536/Hyd/10, the Tribunal held as under: 14. We have heard the arguments of both the sides and also perused the relevant material on record. Although the learned counsel for the assessee has contended that the disallowance made by the Assessing Officer and confirmed by the learned CIT(A) under S.14A to the extent of 10% of the exempt dividend income is excessive and unreasonable and the same should be restricted to 1-2% of the exempt dividend income, we are unable to agree with this contention fully. It is observed that investment in the range of ₹ 25 to 30 crores was made by the assessee company in the shares during the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Cards 1,66,000 ii) Sai Sri Printers Printed stationery 26,27,449 iii) United Commercial Products Cloth covers 4,41,878 iv) Radha Art Printers Printed Stat ionery 2,83,930 v) S.V. Printers Visiting Cards 2,74,815 vi) Sri Srinivasa Offset Printers Binding 4,81,885 vii) Sri Tirumala Tirupati Publicat ions Telugu Panchangam Calendars 1,95,990 viii) Sri Strust i Ads. Communicat ions System Mixing Progressive Machine proof ing 33,415 ix) Standard Press India Pvt. Ltd. VIP Diaries 43,00,866 x) S.S. Enterprises Pocket telephone index 2,49,480 xi) Sai Teja Enterprises Pocket diaries 16,03,170 xii) Nandu Offset Printers Calendars 49,97,772 xiii) Seasons Collect ions Diaries 68,48,803 xiv) Millennium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of printing stationery. Item No. 9 is the purchase of VIP Diaries. Item No. 15 is the repair and replacement of printer head. Similarly, all other items are straight forward purchases and do not involve any works contract, whatsoever. The purchase of pocket diaries, calendars, desk top calendars, visiting cards, cloth covers, cannot be classified as works contract. Therefore, I agree with the submissions of the appellant and hold that no TDS was to be deducted on these purchases. Accordingly, there was no applicability of section 40(a)(ia) of the Act. The addition on this account is ordered to be deleted. 30. The learned DR submitted before us that the nature of expenditure incurred clearly shows that assessee has entrusted certain works to various persons which come within the meaning of works contract as provided u/s 194C of the Act. The learned DR submitted that the work entrusted is specific to assessee as the parties have to provide the assessee with calendars, registers, etc. with assessee s logo and name. Therefore, it is a service rendered by those parties to assessee. Hence, as the payments made by assessee to the concerned parties is towards services rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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