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2016 (8) TMI 726 - ITAT DELHI

2016 (8) TMI 726 - ITAT DELHI - TMI - Deemed dividend under section 2(22)(e)- Held that:- Bare perusal of the findings returned by the AO goes to prove that he has merely followed the assessment order of the earlier year AY 2008-09 and has not applied his mind whereas CIT (A) has examined the issue threadbare. It is proved on record inter alia that the payment made by the assessee to three group concerns is not a dividend nor the payment made by the company was by way of advance of loan rather t .....

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ayment or not - Held that:- AO has merely made the addition on account of payment of royalty to the tune of ₹ 70,18,413/- on the grounds inter alia that assessee has failed to furnish the expenses to substantiate its claim of royalty payment; that the nature of payment is that the assessee has failed to explain if payment is capital or revenue in nature; that the genuineness of the actual payment has not been proved; that it is not proved that tax at source has been deducted or not, but CI .....

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377; 70,18,413/- after due verifications of the documents relied upon by the assessee. So, the ground no.2 is determined in favour of the revenue. - Addition u/s 14A - Held that:- Assessee’s own case in its favour by restoring the matter back to the file of the AO for de novo consideration in the light of observations made therein, AO passed fresh order dated 31.01.2014 (copy available on the file) and accepted the contention of the assessee that expenditure of ₹ 1,32,520/- was made fo .....

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nt Member Assessee by : Shri Neeraj Jain, Advocate and Ms. Bhavita Kumar, Advocate Revenue by : Smt. Anima Barnwal, Senior DR ORDER Per Kuldip Singh, Judicial Member Appellant, DCIT, Circle 8 (1), New Delhi (hereinafter referred to as the revenue ), by filing the present appeal sought to set aside the impugned order dated 31.10.2012 passed by the Commissioner of Income-tax (Appeals)-XI, New Delhi qua the assessment year 2009-10 on the grounds inter alia that :- 1. The Ld.CIT(A) has erred in dele .....

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in deleting the disallowance of ₹ 8,67,240/- made by the Assessing Officer under section 14A of the Income-tax Act. 1961. 5. The appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal". 2. Briefly stated the facts of this case are : during the scrutiny proceedings, notice u/s 143 (2) and 142(1) of the Income-tax Act, 1961 (for short the Act ) along with questionnaire was issue .....

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08-09. Assessee filed reply dated 21.10.2011. AO, on the basis of findings recorded qua the claim of ₹ 6,21,95,582/- for AY 2008-09, disallowed the said amount and added back the same to the total income of the assessee. 3. Assessee also claimed a royalty of ₹ 70,18,413/- in the profit & loss account reflected under the head related party disclosures of books of account. AO noticed that royalty given for the previous year was ₹ 15,12,580/-. Assessee reported to have not fur .....

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ons contained u/s 14A of the Act read with Rule 8D of the Income-tax Rules (for short the Rules ) worked out the disallowance to the tune of ₹ 8,67,240/- and added the same back to the income of the assessee. 5. Assessee carried the matter before the ld. CIT (A) who has allowed the appeal. Feeling aggrieved, the revenue has come up before the Tribunal by way of filing the present appeal. 6. Ld. DR for the revenue challenging the impugned order contended inter alia that an identical issue h .....

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r the assessee relied upon the order passed by the ld. CIT (A) as well as order passed by AO dated 31.01.2014 qua the AY 2008-09 and further contended that the assessee duly demonstrated the services rendered for which amount of inter-company charges to the tune of ₹ 6,21,96,582/- has been claimed; that the AO has proceeded on the basis of conjectures and surmises without perusing the record put forth before him; that an amount of ₹ 70,18,413/- on account of royalty payment has been .....

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passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 9. Undisputedly, AO made an addition of ₹ 6,21,95,582/- debited by the assessee in profit & loss account on account of management consultancy expenses merely by following the assessment order of AY 2008-09 and affirmed by the ld. CIT (A). However, when the matter was challenged before the ITAT, the order of CIT (A) qua the AY 2008-09 was set aside and restored the matter to the .....

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t payments were made to the following group companies for work done by them for the appellant. 1) M/s Siegwerk Benelux N.V. for providing technical services, 2) M/s Siegwerk (Asia Pacific) Pvt Ltd for providing technical services also which differed from the services provided by MIs Siegwerk Benelux N.V., 3) M/s Siegwerk Druckfarben provided management in support services. It is apparent from the above, that the appellant has incurred expenditure in the course of his business. The AO has nowhere .....

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22)(e) "any payment by a company, not being a company in which the public are substantially interested of any sum (whether as representing a part of the assets of the company or otherwise) (made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than 10% of the voting power, or to any .....

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f the company given to its shareholders. By the definition in section 2(22), 'dividend' means dividend as normally understood - Kantilal Manilal v CIT (1961) 41 ITR 275 (SC). The word 'dividend' means dividend as ordinarily understood under the Companies Act and also the head of payment or distribution specified therein - Hari Prasad Jayantilal & Co. v V.S. Gupta, ITO (1966) 59 ITR 794 (SC) 'Dividend' in its ordinary connotation means the sum paid to or received by a .....

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true sense of the term - P.K. Badiani v CIT (1976) 105 ITR 642 (SC) From a plain reading of Section 2(22)(e) it is seen that the payments made by the appellant to the three group concerns does not fall within the definition of dividend. One of the basic conditions of Sec. 2(22)(e) is that the payment by a company should be by way of advance of loan. The payments made by the appellant to M/s Siegwerk Benelux N.V., M/s Siegwerk (Asia Pacific) Pvt Ltd & M/s Siegwerk Druckfarben is payment for w .....

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sment order of the earlier year AY 2008-09 and has not applied his mind whereas CIT (A) has examined the issue threadbare. It is proved on record inter alia that the payment made by the assessee to three group concerns is not a dividend nor the payment made by the company was by way of advance of loan rather the payment was made by the assessee to M/s. Siegwerk Benelux N.V., M/s. Siegwerk (Asia Pacific) Pvt. Ltd. & M/s. Siegwerk Druckfarben for work done. So, we find that no case is made out .....

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ined inter alia that royalty payable under the agreement was computed on the basis of quantum of sales by relying upon documents lying at pages 362-A to 362-I of the paper book and as such, the same is revenue expenditure; that after perusing the remittance certificate and TCR certificate, he has held the payment as genuine; that he has also examined the TDS deduction to the tune of ₹ 70,18,413/- and found the same to be valid and ultimately deleted the addition made by the AO. 15. We are .....

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t, but CIT (A) has not preferred to call the remand report qua the said documents nor entertained the said documents on the basis of some request for additional evidence. However, it is admitted fact that the royalty payment made by the assessee company qua the AY 2008-09 and AY 2010-11 has already been allowed as revenue expenditure by the revenue authorities. In these circumstances, we find it expedient to restore the matter to the AO to decide afresh. AO to allow the royalty payment to the tu .....

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owance to the tune of ₹ 8,67,240/-, disallowed the same and added back to the income of the assessee. However, on the other hand, the ld. CIT (A) ordered the deletion of ₹ 8,67,240/- by returning the following findings :- Thus whenever the issue of 14A arises the AO should ascertain the correctness of the claim of the appellant in respect of expenditure incurred or not incurred in relation to income which does not form part of the total income under the Act. In case the AO is satisfi .....

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dantly clear that relation has to be seen between the exempt income and expenditure incurred in relation to it. The AO has nowhere shown why the claim of the appellant was not correct. No reasons have been given as to why the claim was rejected. Reference is made to the order of the Hon. ITA T dated 09/08/12 in ITA No.4774/Del/2011 in the appellants own case wherein it is stated:- "Admittedly for AY 08-09 Rule 8D was applicable. However as per section 14A sub-section (2), the AO could apply .....

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