TMI Blog2016 (5) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee resulted in a taxable income in the hands of the recipient, but he has justified the disallowance on the ground that earlier the assessee was deducting tax at source from such payments and that the assessee did not obtain certificate under section 195(2). As for tax deductions at past, it is wholly irrelevant in examining legal obligations of the assessee. What is material is whether the assessee had the obligation to deduct tax at source or not, and unless the assessee had the obligations to do so, his actions as a measure of abundant caution in the past would not put him under obligation to do so in future as well. There is no estoppel against the statute. As for the question of approaching the tax authorities under section 195(2), the law is now well settled by Hon’ble Supreme Court in the case of GE India Information Technology Centre Pvt Ltd Vs CIT [2010 (9) TMI 7 - SUPREME COURT OF INDIA ] which holds that unless the recipient of income has a tax liability in respect of such payments, the person making the payment cannot be saddled with the tax deduction liability just because he did not approach the tax authorities under section 195(2). The grievances raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the assessee will reap the fruits for investment in the dubbing costs, is known at the point of time when expenses are incurred. The period for which the assessee holds the licence to use the program is known with precision. The benefit of dubbing the program will be available at least for this period. Period over which the benefits will be enjoyed by the assessee is clearly established. The dubbing costs should indeed be, therefore, amortized over this period. In this view of the matter, we see no infirmity in the stand of the authorities below. We confirm the order of the CIT(A) on this point and decline to interfere in the matter. - ITA No.3385 and 4414/Mum/2013, ITA No.4608/Mum/2013 - - - Dated:- 31-3-2016 - Pramod Kumar AM and Pawan Singh JM For The Revenue : Harshad Vengurlekar For The Assessee : M P Lohiya and Hemen Chandaniya ORDER Per Pramod Kumar AM: 1. These three appeals pertain to the same assessee, involve some common and interconnected issues, and were heard together. As a matter of convenience, therefore, all the three appeals are being disposed of by way of this common order. 2. We will first take up ITA No. 3385/Mum/2013. 3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal positon. 7. We have noted that there is categorical finding by the CIT(A) that the assessee and Walt Disney India are no covered by the definition of specified person under section 40A(2)(b). Not only these two entities, i.e. the assessee and Walt Disney India, have no shareholdings in each other, directors of none of these companies hold any shares in any of these companies. There is no question of the requirement of holding at least 20% of normal dividend earning shares in the companies in which substantial interest can be said to have been held. These two companies are owned by different shareholders- while 100 % shareholding in the assessee company is held by Walt Disney Co (Southeast Asia) Pte Ltd Singapore, 99.99% of shares in Walt Disney India are held by a USA based company by the name of Disney Enterprises Inc, USA. The requirements of Section 40A(2)(b), which is reproduced below for ready reference, is not fulfilled: (b) The persons referred to in clause (a) are the following, namely :- (i) where the assessee is an individual - any relative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put it to the learned Departmental Representative as to how the conditions under section 40A(2)(b) are satisfied in this case, he did not have much to say beyond placing his reliance on the stand of the Assessing Officer. We can understand his plight. The stand of the Assessing Officer is indeed indefensible. As learned counsel points out, the efforts of applying disallowance under section 40A(2) on the notion of group entities, without specifically fulfilling the conditions set out in Section 40A(2)(b), have been repelled by Hon ble High Court in the case of CIT Vs VRV Breweries Bottling Industries Ltd [(2012) 347 ITR 249 (Del)]. While doing so, Their Lordships have, inter alia, observed as follows: 23. This brings us to the issue as to whether the AO could have invoked the provisions of s. 40A(2)(a) of the Act in the facts and circumstances of the present case. As is noticed in the earlier part of our judgment, the AO in the asst. yr. 1997-98 after recording that the shares of the assessee were held by six (6) entities goes on to observe that the assessee became a subsidiary of Shaw Wallace Group of Companies . There is no finding recorded by the AO that SWCL had acquire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law in deleting the disallowance of ₹ 70,94,817/- made under section Delhi High Court in the case of Asia Satellite Telecommunications Ltd. vs. Director of Income Tax reported in (2011) 238 CTR (Del) 233: assessee itself had accepted the applicability of TDS and had deducted TDS on expenditure upto September 2007. Further, the assessee had not obtained any certificate from the Income Tax Department under section 195(2) of the Income Tax Act. 12. So far as this grievance of the Assessing Officer is concerned, the relevant material facts are like this. During the course of the assessment proceedings, the Assessing Officer noticed that the assessee has made a payment of ₹ 70,94,817 without any deduction of tax at source. When asked for the reasons of his doing so, the assessee submitted that in the light of decision of this Tribunal in the case of DCIT Vs Panamsat International Systems Inc [(2006) 103 TTJ 861 (Del)], there was no tax deduction at source requirement in this case. The Assessing Officer, however, rejected this plea. He noted that the assessee was deducting tax at source from such payments till September 2007 and he stopped doing so on his own. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well. 15. Ground no. iii is also dismissed. 16. In ground no.iv, the Assessing Officer has raised the following grievance: iv) The Learned CIT(A) has erred on facts and in law in deleting the disallowance of ₹ 16,83,689/- with respect to distribution costs, relying on the exhaustive submissions that the assessee has satisfactorily explained the nature of services received and the mistakes committed by its employees improperly categorising the invoices, ignoring the fact that the disallowance was made due to misstatement or improper categorisation of the invoices in the improper heads. 17. As far as this grievance of the Assessing Officer is concerned, it is sufficient to take note of the fact that the disallowance is made by the Assessing Officer on the basis of the comment in the auditor report to the effect that a few instances of misstatement of vendor invoices by certain employees to improperly characterize services provided with respect to band placement and trade marketing services were noticed and reported . The amount relating to these misstated invoices, which was ₹ 16,83,689, was disallowed. However, when the matter was carried in appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine to interfere in the matter. 21. Ground no. iv is also dismissed. 22. In the result, the appeal filed by the Assessing Officer for the assessment year 2008-09 is dismissed. 23. We now move on to the cross appeals for the assessment year 2009-10. 24. These cross appeal are directed against the order dated 4th March 2013 passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2009-10. 25. As far as appeal of the Assessing Officer is concerned, the grievances raised by the Assessing Officer are as follows: i) The learned CIT(A) has erred on facts and in law in deleting the disallowance of ₹ 96,00,000/- made under section 40A(2)(b) of the Income-tax Act, without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer. ii) The Learned CIT(A) has erred on, facts and in law in deleting the disallowance of ₹ 96,00,000/- made under section 40A(2)(b) of the Income-tax Act, ignoring the fact that under the provisions of Section 40A(2)(b) of the Act, if the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions and having perused the material on record, we are of the considered view that the matter is required to be remitted to the file of the Assessing Officer for adjudication de novo by way of a speaking order and in accordance with the law. The nature of ITS detail, which is not reflected in the books of the assessee, needs to be set out and the assessee be asked to explain the particular entries which are not so reflected in the books of accounts. The non reconciliation of ITS detail can only be a starting point of exploring the matter further with respect to making the additions in respect of the revenues which are not accounted for but just because there is some reconciliation difference, the amount of difference cannot be added to income of the assessee. In any event, these inputs are to be dealt with on merits of each input and the explanation of the assessee is to be taken into account for that purpose. Keeping in view these discussions, as also bearing in mind entirety of the case, the matter stands restored to the file of the Assessing Officer on this point. 31. Ground no. 2 is thus allowed for statistical purposes. 32. As regards the assessee s grievance against no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be revenue expenditure. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purposes of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books, over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Issuing debentures is an instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debenture, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of debentures 35. These observations will be equally applicable in the fact situation before us, particularly as the period over which the benefits will be enjoyed by the assessee is clearly established. The dubbing costs should indeed be, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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