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2016 (5) TMI 161 - ITAT MUMBAI

2016 (5) TMI 161 - ITAT MUMBAI - TMI - Disallowance under section 40A(2)(b) - Held 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 .....

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- incidence of tax - Held that:- Assessing Officer has not even disputed that the amounts paid 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 th .....

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ME 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 by the Assessing Officer are thus devoid of any legally sustainable merits.

Disallowance with respect to distribution costs - CIT(A) delted the disallowance - Held that:- Learned CIT(A) rightly .....

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ccount of non reconciliation of ITS details - Held that:- 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 .....

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y of the case, the matter stands restored to the file of the Assessing Officer on this point.

Disallowance of entire dubbing cost - Assessing Officer has virtually treated it as a deferred revenue expenditure by amortizing it over the period of licence of that program - ‘matching principle of income and expenditure’ - Held that:- While the argument of the learned counsel that there is no concept of deferred revenue expenditure, and, as such, once an expenditure is revenue expenditure, .....

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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 V .....

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IT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2008-09. 4. In the ground of appeal nos. (i) and (ii), the Assessing Officer has raised the following grievances: 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 .....

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wed. 5. Briefly stated, the relevant material facts are like this. The assessee before us is a company engaged in the business of running a television channel, meant specially for children, by the name of Hangama . During the course of the assessment proceedings, the Assessing Officer noted that the assessee has paid an amount of ₹ 1,92,00,000 to Walt Disney Company (India) Limited [Walt Disney India, in short] towards central support fees , and that the said company is a specified person .....

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did not apply to this case at all. It was also held that in any event the payment was neither excessive nor reasonable. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 6. We have heard the rival 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 .....

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ding 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 of the assessee; (ii) where the assessee is a company, firm, asso .....

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member of such company, firm, association or family, or any relative of such director, partner or member 58a[or any other company carrying on business or profession in which the first mentioned company has substantial interest]; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, associat .....

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r, partner or member, has a substantial interest in the business or profession of that person. Explanation For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,- (a) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in .....

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nd 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 .....

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20 per cent or more of the share capital with attending voting rights, whether directly or beneficially. If that is so, then the provisions of s. 40A(2)(a) could not have got triggered. It is noticed that the CIT(A) in the asst. yr. 1998-99 has returned a finding that there were five (5) limited companies apart from two (2) individuals who held shares in the assessee, but none of the entities adverted to, by the AO, both in the asst. yr. 1997-98 and 1998-99 is SWCL. As a matter of fact, the CIT( .....

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e assessee and nor was any payment made to Mr. Suraj P. Gupta or his relative or to a company of which he was a director. The CIT(A) went on to hold that, in the instant case, payments had not been made to persons specified under s. 40A(2)(b) and therefore, the provisions of s. 40A(2) were not applicable. Both CIT(A) as well as the Tribunal have also accepted the explanation given by the assessee with regard to difference in payment of bottling charges vis-à-vis Balbir Industries Ltd. and .....

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d. 9. In view of these discussions, as also bearing in mind entirety of the case, we approve the well reasoned findings of the learned CIT(A) and decline to interfere in the matter. 10. Ground no. (i) and (ii) are dismissed. 11. In ground no. (iii), the Assessing Officer has raised the following grievance: iii) The Learned CIT(A) has erred on facts and in law in deleting the disallowance of ₹ 70,94,817/- made under section Delhi High Court in the case of Asia Satellite Telecommunications L .....

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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 Septembe .....

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ble Delhi High Court s judgment in the case of Asia Satellite Telecommunications Ltd Vs DIT [(2011) 332 ITR 340 (Del)] which held that the payments for transponder hire did not lead to any taxability in the hands of the recipients of such income, deleted the disallowance. The Assessing Officer is aggrieved and is in appeal before us. 13. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal positon 14. We ha .....

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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) 327 I .....

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.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 o .....

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these misstated invoices, which was ₹ 16,83,689, was disallowed. However, when the matter was carried in appeal before the CIT(A), he deleted the disallowance by observing as follows: I have carefully considered the facts of the case. The AO has disallowed the distribution expenses on the basis of auditor s report. On the basis of such audit report the AO concluded that services in respect of such misstated invoices had not been provided by the respective vendors. By holding that the servi .....

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of the invoices in the improper heads. However, misstatement of invoices or not categorising the invoices in proper head does not make them liable for disallowance and does not lead to a conclusion that the expenses were not incurred wholly and exclusively for the purpose of business. In its exhaustive submissions the appellant has satisfactorily explained the nature of services received and the mistakes committed by its employees improperly categorising the invoices. Since, the expenses were in .....

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mere fact of wrong characterization does not imply that no services were rendered by the respective vendors. The error committed by the assessee s staff was of no consequences so far as deductibility of these amounts were concerned. The invoices have been wrongly characterized in the heads is more of a procedural mistake rather than a legally sustainable reason for resorting to disallowance of the expenses concerned. We, therefore, uphold the relief granted by the CIT(A) and decline to interfer .....

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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 f .....

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ax Act, by relying on the decision of Delhi High Court in the case of Asia Satellite Telecommunications Ltd. Vs. Director of Incometax reported in (2011) 238 CTR (Del) 233 : (2011) 332 ITR 340, ignoring the fact that the 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. 26. Learned representatives fairly agr .....

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smissed. 28. As regards the appeal filed by the assessee, learned representatives fairly agree that there are only two grounds of appeal, namely second and third grounds of appeal, which are required to be adjudicated by us. These grounds of appeal are as follows: 2. The learned CIT(A) has erred in upholding the addition of ₹ 4,689,670 on account of non-reconciliation of ITS details. 3. The learned CIT(A) has erred in not allowing in entirety, the dubbing cost of ₹ 13,794,885, incurr .....

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ard the rival contentions 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 .....

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ind 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 not allowing the entire dubbing cost of ₹ 1,37,94,885, we find that the Assessing Officer has virtually treated it as a deferred revenue expenditure by amortizing it over the period of licence of that program. In appeal, CIT(A) confirmed the stand of the Assessing Officer on the ba .....

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evenue expenditure, it should be allowed in the year in which the expense is incurred, does indeed seem very attractive at the first blush, it may not hold good in the present case. It is a case in which entire useful period, during which 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 w .....

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e facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on, or conduct of the business, that it may be regarded as an integral part of the profit making process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expendit .....

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