TMI Blog2016 (4) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... ssional charges, Rent,Consumables & Cable Laying Charges and Advertisement - TDS liability - Held that:- The disallowance can only be restricted to the out standing amount at the end of the year. To verify the outstanding amount at the end of year the issue is restored to the file of AO for necessary examination and to quantify the disallowance if any. Disallowance of provision of expenses - Held that:- AO’s remand report as extracted by Ld. CIT(A) in para (iv) in page 6 of the order indicate that assessee has not furnished any objections or information regarding the said addition even during the remand proceedings. On what basis, Ld. CIT(A) has restricted the amount only to statutory disallowance u/s. 43B is not known. Unless one examine the nature of expenses, the crystallisation of liability and payment at a later point of time, the same cannot be allowed. Since no details are on record, we have no option than to set aside the order of Ld. CIT(A) on this and restore the same to AO for fresh examination. Needless to say that assessee should be given due opportunity. - I.T.A. No. 602/HYD/2013, I.T.A. No. 712/HYD/2013 - - - Dated:- 4-3-2016 - SMT. P. MADHAVI DEVI, JUDICIAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income was determined at ₹ 12,95,61,779/-. The AO alleged that assessee failed to furnish the details sought during the course of assessment proceedings. 3. Aggrieved by the order of AO, an appeal was filed before the CIT(Appeals)-III, Hyderabad with a petition under Rule 46A to accord an opportunity to submit the information in support of the grounds of appeal. Considering the pleadings and circumstances of the case, the Ld. CIT(A) sought a remand report from the AO. The information sought by the AO was submitted during the course of remand proceedings. The Ld. CIT(A) after considering the observations of the AO in remand report and also written submissions of assessee, allowed relief partly. 4. Assessee is aggrieved on the findings of Ld. CIT(A) that Direct Point Connections were not purchased and consequent disallowance of depreciation on that and other assets which are not evidenced. In the course of present proceedings, the Ld. AR withdrew the grounds 2, 3 10 pertaining to these issues. The main contentions are on disallowance of various amounts u/s. 40(a)(ia) and non-consideration of donations which CIT(A) did not adjudicate. 5. Revenue is aggrieved on d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 69 of the IT Act. Ld. CIT(A) after considering the facts and circumstances and also the observations of the Assessing Officer in Page 6 of the assessment order and in remand report held that the transaction of purchase of direct point connections as not genuine and further held that this is a loan to share holder in the nature referred in section 2(22e) of the IT Act. 6.2. Investment in share capital:- Sri.Dasari Srinivas resident of USA has subscribed share application money amounting to ₹ 2,02,50,5001/- during the period. During the course of assessment proceedings the confirmation letter and other particular of the share applicant were submitted but AO made an addition u/s 68 of the IT Act of ₹ 2,02,50,500/-. During the course of remand proceedings Assessing Officer after considering form No.2 submitted to the ROC and also other particulars held the transaction as genuine. However, the learned Addl. Commissioner while forwarding the remand report has not agreed with the contention of Assessing Officer and observed that the confirmation produced was only on a piece of paper and not on a letter head, with no telephone number etc. 6.3. Ld. CIT(A) dealt with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan to Sri R.V. Phani Krishna to make an investment in the form of shares. Therefore, this is a transaction in the nature explained in section 2(22)(e) of the Act i.e. deemed dividend. However, in the absence of accumulated profits, the transaction is to be considered only as a loan. Therefore, in my opinion, there is no purchase of direct point connections from Sri Mallikarjuna Kumar and depreciation @ 10% claimed on direct point connections should not be allowed and the addition made u/s.68 of the Act and suggested in the remand report as addition u/s.69 of the Act is deleted. 5.2. Investment in Share Capital of ₹ 2,02,50,000/- by Shri D. Srinivas Shri D. Srinivas, 16 Brooke Lane, South Barrington IL 60010, U.S.A. has made an investment of ₹ 2,02,50,000/- towards acquiring the shares of assessee company. In her remand report, the A.O. after considering the confirmation submitted and also considering the transactions routed through the banking channels, accepted the identity, creditworthiness and genuineness of the transaction. Hence, the addition made on this account stands deleted . Revenue is in appeal in ground no.3 for deleting the addition u/s 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined by AO. Even though, the payment of ₹ 8,50,000/- to a political party is evidenced by a receipt, eligibility of the amount u/s 80GGB, particularly eligibility of amount with reference to profits of last three years require examination. Therefore, the claim of donations (including the balance amount) is restored to the file of AO, who should examine the claim of each amount after giving due opportunity to assessee. The ground No. 11 raised by assessee is allowed for statistical purposes. Disallowance u/s. 40(a)(ia) : 8. The AO, on verification of the expenditure debited to P L Account, found that various items of expenditure attract TDS provisions under chapter XVIIB. Assessee has not furnished any details of taxes deducted and remitted and also no ledger extracts were furnished to examine the applicability of TDS provisions. Since details of payments to which TDS relate to are not available, the TDS has been considered as having been not deducted/paid in respect of that item of expenditure to which the said section (194I or 194J) would prima facie apply. Accordingly, the AO has disallowed expenditure amounting to ₹ 6,29,00,731/- u/s. 40(a)(ia) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in the IT Act 2006, which is a guide for tax payers to deduct the TDS during the period 2006-07 relevant to the assessment year 2007-08. The term royalty was brought into the section 194J by the Taxation Laws (Amendment) Act, 2006 w.e.f 13-07-2006, as seen from the IT Act 2007. It is further submitted that the CBDT has issued a circular explaining the amendments made to section 194J by Taxation Laws (Amendment) Act 2006, on 27-04-2007 in circular No.1/2007. Therefore, it was submitted that there was no guidance during the period 2006-07 to deduct the tax, considering the amounts paid to pay channels as royalty, therefore, the assessee was having no knowledge or information as seen from the IT Act, that the payments considered as royalty are introduced under the provisions of section 194J of the IT Act. In view of this as there is no term royalty in the IT Act 2006, pleadings of the assessee for non deduction was accepted by the CIT and amount of ₹ 4,85,67,151/- disallowed u/s. 194J was deleted. As submitted the term royalty appeared for the first time in section 194J of the IT Act, in 2007 Act which is published much beyond 31-03-2007, therefore, there is no scope for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Cochin Bench in identical facts and circumstances, it is pleaded before the Hon'ble Bench to delete the addition made u/s. 40(a)(ia) of the IT Act, amounting to ₹ 5,78,85,998/- which is the amount paid to pay channels. Without prejudice to the above submissions alternately, it is submitted that the amount disallowed u/s 194J is at ₹ 5,78,85,998/-, the assessee paid an amount of ₹ 5,06,99,133/- before 31-03-2007, the balance payable is only ₹ 34,18,246/-. Considering the rationale of the Hon'ble ITAT, Special Bench, Vishakhapatnam in the case of Merilyn Shipping Transports 136 ITD 23, wherein, it was held that section 40(a)(ia) comes into play only in the case of amount payable and not with reference to the amount paid. Similar view was taken by the Hon'ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd 38 Taxmann.com 77 (All) on which the SLP, filed by the revenue has been rejected. The rationale of the Merilyn Shipping Transports is also followed by the Hon'ble ITAT, 'A' Bench Mumbai in the case of M/s Arcadia Share Stock Brokers Pvt Ltd Vs DCIT, Range-4(l) in ITA No.1871/Mum/2013 dt. 22-12- 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No.7 8 and assessee is in appeal with ground No.4. It is respectfully submitted that considering the rationale of the AP High Court decision in the case of, in ITTA No.352 of 2014 between CIT-II, Hyderabad and M/s Janapriya Engineers Syndicate, the disallowance made by the Assessing Officer may kindly be deleted. 3. Legal Professional Charges u/s 194J (Rs.7,79,857/ -):- It was submitted that the total amount paid by the assessee under the head legal and professional charges is ₹ 12,10,695/- out of this the learned Assessing Officer allowed an amount of ₹ 4,30,838/- as TDS was deducted on this part of amount. In respect of the balance amount it was submitted that the payments are mostly below ₹ 20,000/-therefore, the provisions of section 194J are not applicable, alternately it was also submitted that as the entire amount of ₹ 7,79,857/- is already paid as on 31-03-2007 and no amount is payable therefore, the rationale of the Special Bench of ITAT, Vishakhapatnam in the case of Merilyn Shipping and Transport is applicable. However, Ld. CIT(A) appeals allowed only an amount of ₹ 87,852/- and restored the addition to the extent of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14, in the case of Mis Janapriya Engineers Syndicate, the disallowance made by the Assessing Officer may kindly be deleted. 6. Consumable and cable laying charges 194C ₹ 9,18,933 /-:- In respect of this expenditure it was submitted that operating, administration and other expenses are mostly in the nature of small amounts incurred during the course of business and does not attract the provisions of section 194C of the IT Act. However, it was further submitted that cable maintenance charges paid to M/s Sri Balaji Communications, Sri VenkateshwaraRaokukatpally Ravi Kumar of Malkajgiri were paid an amount of ₹ 96,000/- each, aggregating to ₹ 2,98,000/- are only the payments which attracts the provisions of Section 194C. It was submitted that the entire amount was paid before 31-03-2007 and no amount is payable therefore, the rationale of the Special Bench of ITAT, Vishakhapatnam in the case of Merilyn Shipping and Transport is applicable. However, Ld. CIT(A) deleted an amount of ₹ 6,30,933/- and restored the addition to an extent of ₹ 2,88,000/-. The Department is in appeal with ground no.11 and assessee is in appeal with ground No.8. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting but not including consideration for the sale, distribution or exhibition of cinematographic films; (vi) the rendering of any services in connection with the activities referred to in su-clauses (i) to (iv), (iva) and (v). We notice that clause (i) of Explanation 2 includes the expression Process . We further notice that the Finance Act, 2012 has inserted Explanation 6 below clause (vi) of sub-section (1) of sec. 9 defining the word process . The said Explanation 6 reads as under:- Explanation 6 - For the removal of doubts, it is hereby clarified that the expression process includes and shall be deemed to have always ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred above. Accordingly he submitted that the disallowance u/s 40(a)(ia) should not be made on the basis of subsequent amendment made with retrospective effect. In this regard, he placed reliance on the following case law:- (a) Sonata Information Technology Ltd Vs. DCIT (2012) (TaxCorp (INTL) 4659 (Mumbai-Trib) (b) Infotech Enterprises Limited Vs. Addl. CIT (2014) TaxCorp (INTL) 6945 (ITAT - Hyderabad) (c) Channel Guide India Limited Vs. ACIT (2013) TAxCorp (INTL) 6702 (ITAT-Mum) We have gone through the above said decisions rendered by different benches of the Tribunal. We notice that they have held that the assessee cannot be held to be liable to deduct tax at source relying on the subsequent amendments made in the Act with retrospective effect. 7. In the instant case, the view entertained by the assessee that the pay channel charges cannot be considered as royalty is in fact gets support from the decision rendered by Hon'ble Delhi High Court in the' case of Asia Satellite Telecommunication Co. Ltd (supra). Though the Explanation 6 to sec. 9(1)(vi) inserted by Finance Act, 2012 is clarificatory in nature, yet in view of the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding amount can be disallowed. We are of the view that the same cannot be disallowed u/s. 40(a)(ia) as that amount was not outstanding at the end of the year. Entire amount that was paid before 31-03- 2007 was not disallowable u/s 40a(ia) on the rationale of the Special Bench of ITAT, Vishakhapatnam in the case of Merilyn Shipping and Transport. Similar view was taken by the Hon'ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd 38 Taxmann.com 77 (All) on which the SLP, filed by the revenue has been rejected. The rationale of the Merilyn Shipping Transports is also followed by the Hon'ble ITAT, 'A' Bench Mumbai in the case of M/s Arcadia Share Stock Brokers Pvt Ltd Vs DCIT, Range-4(l) in ITA No.1871/Mum/2013 dt. 22-12-2014. Further considering the rationale of the AP High Court decision in ITTA No.352 of 2014, in the case of M/s Janapriya Engineers Syndicate, the disallowance can only be restricted to the out standing amount at the end of the year. To verify the outstanding amount at the end of year the issue is restored to the file of AO for necessary examination and to quantify the disallowance if any. E. Rent (u/s. 194-I): Here in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings before Ld.CIT(A) a ledger copy of the said account was submitted, for the period 01-04-2006 to 31-03-2007. After considering the submissions Ld. CIT(A) observed that the provisions are partly amount payable towards CST, Entertainment tax, ESI payable, Professional tax and VAT etc were reflected in the provision for expenses. The Assessing Officer was directed to restrict such disallowances and balance was directed to be deleted. During the course of proceedings for modification the assessee submitted account copy of the same. After considering the explanation AO allowed an amount of ₹ 88,63,901/-. The Department is in appeal with Ground No.13. 9.1. After considering the rival contentions, we are of the opinion that this claim requires re-examination by AO. As seen from the schedules of Balance Sheet, the provision for expenses including Income Tax was shown at ₹ 1,38,91,165/-. The details are not placed on record. The AO s remand report as extracted by Ld. CIT(A) in para (iv) in page 6 of the order indicate that assessee has not furnished any objections or information regarding the said addition even during the remand proceedings. On what basis, Ld. CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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