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Air Liquide India Holding P. Ltd. Versus Income Tax Officer, Ward 1 (3) , New Delhi

2015 (6) TMI 128 - ITAT DELHI

Disallowance u/s 40A(2) - 25 per cent of the total increase in the salary of the managing director - Held that:- A plain reading of the provisions of sec. 40A(2) of the Act, suggest that for making the disallowance under the provisions, the Assessing Officer is required to form an opinion that the claimed expenditure is excessive or unreasonable having regard to (a) fair market value of the goods, services or facilities for which the payment is made; or (b) the legitimate need of the business of .....

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e to cooperate the Assessing Officer to arrive at a just conclusion by furnishing the required explanation to the Assessing Officer. Even before the Learned CIT(Appeals), it does not appear that the assessee had furnished the required explanation to justify the payment. In such a situation, the only option left with Assessing Officer was to estimate the disallowance taking note of some comparable instances. No such effort has been made by the Assessing Officer. Thus set aside the matter to the f .....

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urt has been pleased to approve the order of the Tribunal to allow such documents to be produced for substantial cause. In the present case before us, it has not been seriously disputed that the additional evidence for which the assessee seeking permission for consideration are relevant to decide the issue raised in Grounds No. 2 and 3 to ascertain the nature of the services rendered for which payment was made and there is no reason to disbelieve the explanation of the assessee that these docume .....

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available on record - Decided in favour of assesse for statistical purposes.

Computing the book profit under section 115JB - whether the claim of additional depreciation arisen as a result of change in the method of depreciation from Straight Line method to Written Down Value, is not justified - Held that:- As relying on case CIT vs. Hindustan Pipe Udyog Ltd. (2013 (12) TMI 866 - ALLAHABAD HIGH COURT) answered the issue as to whether it is opened to the Assessing Officer to make adj .....

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olding that while computing the income under sec. 115J of the Act, the Assessing Officer has only power to examine whether the books of account were certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. Assessing Officer thereafter has limited powers of making increases and reductions as provided for in the Explanation to the said section and does not have the jurisdiction to go beyond the net profits shown in the profit and .....

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h - Decided in favour of assesse for statistical purposes - ITA No.4614/Del /2009 - Dated:- 29-5-2015 - SHRI I.C. SUDHIR AND SHRI T.S. KAPOOR, JJ. For the Appellant : Shri Ajay Vohra, Sr. Advocate and Ms. Bhavita, Advocate For the Respondent: Smt. A. Mishra, CIT, DR. ORDER PER SHRI I.C. SUDHIR, JM: 1. The assessee has questioned first appellate order on the following grounds:- 1. That on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) [ .....

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on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in sustaining the disallowance of management support expenses of ₹ 43,32,025/- on the alternative ground that such expenses have not been justified to have been made wholly and exclusively for business purposes. 4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that in computing the book profit under section 115JB of the Act, the claim of additional .....

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e, which demonstrate the nature of service. He submitted that these documents could not be furnished before the authorities below on account of technical problem in retrieving the same. 3. The Ld. AR submitted that vide impugned order the Ld. CIT(A) has upheld the action of the Assessing Officer in disallowing payments amounting to ₹ 43,32,025/- made by the assessee to Air Liquide Asia Pvt. Ltd., Singapore (ALAP) u/s 40(a)(i) of the I.T. Act on the ground that the same constituted fee for .....

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s rendered by ALAP to the assessee did not constitute fee for technical services the assessee seeks to place on record the above said certain emails which demonstrate the nature of services received. 4. The Ld. AR further submitted that the payment in question had been made in consideration of services rendered by ALAP to the assessee pursuant to Management Support Agreement dated 01.10.2004 ( the agreement ) entered into between the said companies. He submitted that the said agreement was made .....

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ld the order of the Tribunal in admitting additional evidence in the form of emails which could not be produced earlier on account of technical difficulties. The Ld. AR also placed reliance on the following decisions: i) CIT Vs. Virgin Securities and Credits (P) 332 ITR 396 (Del) ii) CIT Vs. Hewlett Packard India: 314 ITR 55 (Del). iii) CIT Vs. Chittosoh Motors:11 Taxmann.com 81 (P&H) 6. The Ld. DR on the other hand, opposed the application with the submission that before the authorities bel .....

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support the Ld. DR referred Page no.149 of the paper book i.e. copy of the submission filed by the assessee before the Assessing Officer vide letter dated 27.12.2007 wherein under the heading details of services along with documentary evidence, the assessee is talking about few officials of ALAP visits to assessee to support the Management Support Services and the assessee has not talked about any email which was non retrieval. In this regard, he also referred contents of Page No.3 of the asses .....

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d 301 of the paper book to support his submission that the documents, which are copies of certain emails admission of which has been sought as additional evidence, demonstrate the nature of service received. These documents are thus relevant to decide the issue raised in Grounds No. 2 and 3 of the appeal and for making the just assessment. The Ld. AR drew our attention to the relevant observations and finding of the Hon ble Delhi High Court in the case of CIT Vs. Tax Hundred India Pvt. Ltd. (Sup .....

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In the present case the reason which was given by the assessee in support of its plea for admission of additional evidence was that the assessee could not produce these records before the lower authorities due to non retrievability of e-mail on the date because of technological difficulties. This reason was specifically mentioned in the application filed. No reply to this application was filed refuting this averment, though the departmental representative had opposed the admission of the additio .....

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ents to be produced for any substantial cause. Once the Tribunal has predicated its decision on that basis, we do not find any reason to interfere with the same. As a result, the questions of law are answered in favour of the assessee and against the Revenue resulting into dismissal of these appeals. No costs. 9. In para no. 5 the Hon ble High Court has observed further that as per Rule 29 parties are not entitled to produce additional evidence. It is only when the Tribunal requires such additio .....

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additional evidence for which the assessee seeking permission for consideration are relevant to decide the issue raised in Grounds No. 2 and 3 to ascertain the nature of the services rendered for which payment was made and there is no reason to disbelieve the explanation of the assessee that these documents could not be filed before the authorities below due to technical problem i.e. non retrieval of these additional evidence in the shape of emails in the form of correspondences in furtherance t .....

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the shape of additional evidence. 11. The Ground Nos. 2 and 3 are thus allowed for statistical purposes. 12. The relevant facts are that the assessee company is engaged in the business of manufacturing and trading of various industrial gases. The Assessing Officer noted that during the year salary of the Managing Director was increased by ₹ 9,39,323 and additional amount of ₹ 10,41,172 had been paid for school fees of his children. In absence of explanation of the assessee in this re .....

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essee could not succeed. 13. In support of the ground, the Learned AR submitted that the Assessing Officer had not given any comparable instances before coming to the conclusion that the salary and perks of the Managing Director paid during the year was excessive and unreasonable. The Learned CIT(Appeals) has also failed to appreciate this material aspect of the issue. He submitted further that the employee had paid tax on entire salary. In this regard, he referred page Nos. 1 to 91 of the paper .....

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265 ITR 77 (All.); 4. DCIT vs. Spark Hotels (P) Ltd. - 52 SOT 395 (Del.); 5. Jagdamba Roller Floor Mills Ltd. vs. ACIT - 121 TTJ 761 (Nagpur); 14. The learned CIT(DR) on the other hand tried to justify the orders of the authorities below on the issue. She submitted that the onus is not upon the Assessing Officer to justify to enhancement of payment of salary and perks to the Managing Director during the year. Despite opportunities afforded by the Assessing Officer, the assessee did not furnish a .....

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plain reading of the provisions of sec. 40A(2) of the Act, suggest that for making the disallowance under the provisions, the Assessing Officer is required to form an opinion that the claimed expenditure is excessive or unreasonable having regard to (a) fair market value of the goods, services or facilities for which the payment is made; or (b) the legitimate need of the business of the assessee; or (c) the benefits derived by or accruing to the assessee on receipt of such goods, services or fac .....

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ssessing Officer. Even before the Learned CIT(Appeals), it does not appear that the assessee had furnished the required explanation to justify the payment. In such a situation, the only option left with Assessing Officer was to estimate the disallowance taking note of some comparable instances. No such effort has been made by the Assessing Officer. The Learned CIT(Appeals) while estimating the disallowance by 25% of the total increase has noted that it was also not clear as to whether the total .....

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Assessing Officer was of the view that the assessee had claimed excess depreciation of ₹ 12,84,985. The assessee tried to justify the claim on the basis that there was change in the method of computation of depreciation in order to follow uniform method of providing depreciation keeping in view the accounting standard issued by the Institute of Chartered Accountants of India. The Learned CIT(Appeals) did not agree and has upheld the addition with this finding that the Assessing Officer ha .....

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Ltd. - 334 ITR 126 (Mad.)- (SLP filed by the Revenue dismissed by the Hon'ble Supreme Court in CC 2936/2010 vide order dated 8.3.2010. iii) Garden Silk Mills Ltd. vs. ACIT - ITA No. 220/Ahd/2008 & 651/Ahd/2009. Iv ) CIT vs. Hindustan Pipe Udyog Ltd. (2014) - 360 ITR 437 (All.). v ) DCIT vs. Farmson Pharmaceuticals Guj.Ltd. - 347 ITR 394 (Gujarat) 18. The Learned CIT(DR) on the other hand tried to justify the orders of the authorities below. She placed reliance on the decision of Hon' .....

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e later dated than the decision of Hon'ble Madhya Pradesh High Court in the case of Guilt Pack Ltd. vs. CIT (supra), hence, the later decisions will prevail. He submitted further that it is also a trite law that in absence of the decision of jurisdictional High Court on an issue, the favourable decision to the assessee of other Hon'ble High Courts will be followed. In this regard, he cited the decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd.- 88 ITR 19 .....

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operations of the enterprise from period to period. A change from one method of providing depreciation to another is made only if the adoption of the new method is required by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements of the enterprise. When such a change in the method of depreciation is made, depreciation is recalculated in accordance with the new method .....

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ment of profit and loss. Such a change is treated as a change in accounting policy and its effect is quantified and disclosed. 21. The Learned CIT(DR) has cited the decision of Hon'ble Madhya Pradesh High Court on the issue in the case of Gilt Pack Ltd. vs. CIT (supra). The Hon'ble High Court has recorded its deviation from the ratios laid down by the Hon'ble Bombay High Court in the case of Kinetic Motors Co. Ltd. vs. DCIT - (2003) 262 ITR 330 (Bom.) , only to the extent that, the c .....

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authorized by the definition and to recast the profit and loss account?, both the Hon'ble High Courts are in agreement that under the Companies Act, 1956, both straight line method and WDV method were recognized. 22. On the issue as to whether, on the facts and in the circumstances of the case, the departmental authorities and the ITAT were justified in rejecting the amount of depreciation actually debited to the profit and loss account admittedly prepared in accordance with Parts-II and II .....

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abad High Court in its recent decision in the case CIT vs. Hindustan Pipe Udyog Ltd. (supra) has answered the issue as to whether it is opened to the Assessing Officer to make adjustment to the book profits beyond what is authorized by the definition given in Explanation to section 115J of the Income-tax Act, 1961, if the accounts are prepared and certified to be in accordance with Parts-II and III of Schedule-VI to the Companies Act, 1956?, in favour of the assessee. In this regard, the Hon' .....

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