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2016 (10) TMI 44 - ITAT COCHIN

2016 (10) TMI 44 - ITAT COCHIN - [2016] 52 ITR (Trib) 241 - Branding Expenses paid to a company established in the United Kingdom - existence of permanent establishment in India - Held that:- The assessee is engaged in the business of purchase and sale of foreign currencies and also inward and outward money transfer business. As a large number of Indians are living in United Kingdom, the company has engaged M/s. Muthoot global Transfers Pvt. Ltd., UK for the wide publicity for Muthoot Brand and .....

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ayment made under the head branding expenses. Following the findings in the said order in the case of that assessee and also in our considered view the same principles apply. Accordingly, we hereby delete the disallowance. Further we also hold that there is no jurisdiction in disallowing being the provisions made in the accounts especially when the assessee has been consistently adopting mercantile system of accounting. - Decided in favour of assessee. - Addition being the F.M. Radio License .....

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y approached SEBI for public issue and as per their requirement this radio business was to be demerged from the company. Up to a period of 9 months, since the license has been exploited and income thereof taken into account, we are of the considered view that once income of a particular business carried on by the assessee is taken into account the expenses attributable to earn such income should also be taken into account. The fact being so, we hereby delete the addition made - Decided in favour .....

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s, which means that the assessee should be in a position to furnish the name wise break up details of the outstanding balance. In our view, the collective name “Staff welfare scheme” is akin to the collective name “Sundry creditors”. Accordingly the “Staff welfare scheme” can only be taken as a liability (Creditors) account, i.e., the amount payable to each of the employees who have contributed to the said scheme. Instead of keeping the account in each of the employee name, the assessee has aggr .....

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ence, in our view, the “Staff welfare scheme a/c” can only be taken as a creditor account and not as welfare scheme account as defined in sec. 2(24)(x) of the Act. Accordingly, we agree with the final decision reached by the Ld CIT(A) on this issue. - Decided in favour of assessee. - Amount realized from borrowings on sale of gold in public auction - Held that:- It is common knowledge that in any auction the value which would be realized would be much less than the market value. The revenue .....

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t of loan and hence the same cannot be treated as income of the assessee. In view of this , we uphold the findings of the Ld. CIT(A) on this issue also.- Decided in favour of assessee. - I.TA No. 89/Coch/2015, I.TA No. 175/Coch/2015 - Dated:- 26-9-2016 - Shri B. P. Jain, AM And George George K., JM Assessee By Shri R. Sreenivasan, FCA Revenue By Shri A. Dhanaraj, Sr. DR ORDER Per B. P. Jain, AM These two appeals filed by the assessee and by the revenue are directed against the order of the Commi .....

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) The officers below failed to appreciate the fact that these payments have been incurred for services exclusively rendered outside India and they do not have any business partners or Non residents in India. iii) Further these expenditure has been paid during the previous year. iv) The officers below were also not justified in confirming that an amount of ₹ 36,72,000/- being the amount paid to M/s. Muthoot Global Money Transfers Pvt. Ltd. for Branding Expenses for the reason that this is o .....

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eing Banking company, money and gold pledged are stock in trade of the assessee and having written off in the books should have been allowed as expenditure. 3. The brief facts of the case are that by order dated 21/03/2013 and served on the assessee on 22/03/2013, the Additional Commissioner of Income Tax, Range-1, Kochi has completed the assessment of the assessee company for the assessment year 2010-11 determining a total income of ₹ 358,04,12,239/- as against returned income of ₹ .....

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head has been incurred. This is purely incurred for services rendered outside the taxable territory of India. The recipient company is an overseas company and they do not have any permanent or temporary establishment in India. Consequently, the provision of tax deduction at source are not applicable in view of the Board Circular in this regard. In fact, income if any earned by these companies are taxable in United Kingdom. According to the officer the recipient entity is a Non-resident one and .....

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n India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. She is of the opinion that the above description clearly states that income of the business relatable to such part of the income as reasonably attributable to the operations carried out in India. It is her case that there is business connection. She further opines that Circular quoted by the assessee i .....

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applicable. 5. She has also said that out of the Branding Expenses, an amount of ₹ 36,72,000/- payable to M/s. Muthoot Global Money Transfers P Ltd. is only a provision which has been paid subsequently. According to her the provision created in the books are not an allowable expenses since the liability has not crystallized in the F.Y. 2009-10. Being a company following the mercantile system of accounting the claim has been rightly made in tune with the Accounting Standard prescribed and .....

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business was taken over by another company M/s. Muthoot Broadcasting P. Ltd. as a going concern. According to the officer, the licence fee of the Radio business has to be claimed by the other company M/s. Muthoot Broadcasting P. Ltd. following the demerger. Accordingly the amount of ₹ 70,51,200/- has been treated as not relatable to the income earned by the assessee company and disallowed. 7. As pointed out by the officer, at page 5 para 5 of the order income from F.M. Radio for 9 months .....

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he police as property of crime during the year. The company will not get insurance cover on these loans, so also repayment/recovery from the borrowers is also not possible in these cases. There is no likelihood of recovering the gold seized by the police. Even if the ultimate owners of the gold are found, this will have to be returned as most of them would have filed criminal cases against the theft. Therefore, this loss is incidental expenditure to the business activities and do not get covered .....

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e contended that as far as the disallowance of branding expenses is concerned, it was stated that the assessee is engaged in the business of purchase and sale of foreign currencies and also inward and outward money transfer business. As a large number of Indians are living in United Kingdom, the company has engaged M/s. Muthoot global Transfers Pvt. Ltd., UK for the wide publicity for Muthoot Brand and to create awareness among them the forex and money transfer services provided by them through .....

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s. Foreign exchange services. Payment of educational expenses/fee from India to UK Targeted customers. NRIs residing in the United Kingdom Immigrant Indian workers in the UK. Foreigners and Indians travelling to India and UK Different modes of marketing done dlring the F.Y. 2010-11 Direct marketing to the customers of Muthoot Global Transfers Distributed the brochures explaining the products and services of Muthoot Exchange India. Sponsored various association programs organized by Indian Commit .....

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er in the case of that assessee and also in our considered view the same principles apply. Accordingly, we hereby delete the disallowance of ₹ 1,02,29,239/-. Further we also hold that there is no jurisdiction in disallowing ₹ 36,72,000/- being the provisions made in the accounts especially when the assessee has been consistently adopting mercantile system of accounting. 12. The next issue pertains to addition of ₹ 70.51 lakhs being the F.M. Radio License fee paid by the assesse .....

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d as per their requirement this radio business was to be demerged from the company. Up to a period of 9 months, since the license has been exploited and income thereof taken into account, we are of the considered view that once income of a particular business carried on by the assessee is taken into account the expenses attributable to earn such income should also be taken into account. The fact being so, we hereby delete the addition made of ₹ 70,51,200/-. 13. The last issue in assessee s .....

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our attention to page 10 which defines loss assets that is an asset which is an advance affected by a potential threat of non-recovery due to either erosion in the value of security or non availability of security or due to fraudulent act or omission on the part of the borrower. Again at page 14 the provision requirement is given, whereas under loss assets it is prescribed that the entire assets shall be written off. As stated by the assessee money or money s worth is stock in trade as far as t .....

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/Coch/2015. 16. The Revenue has filed the following grounds of appeal:- 1. The Order of the Commissioner of Income tax(Appeals)-II, Kochi, in appeal No. I.T.A. 18/R-1/EKM/CIT(A)-II/2013-14 dated 15/11/2014, is opposed to law, weight of evidence, facts and circumstances of the case. 2. Whether on the facts and circumstances of the case and in the light of grounds raised the assessee is entitled to claim deduction of a sum of ₹ 2,62,16,683/- under the head staff welfare expenses consisting o .....

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t on sale of gold ornaments in public auction? The learned Commissioner of Income Tax(A) should have at least sustained the interest on loan collected through the sale of gold ornaments. 5. For these and other grounds that may be urged at the time of hearing, it is requested that the order of the Commissioner of Income tax(Appeals) may be set aside and that of the Assessing Officer restored. 17. Ground Nos. 1 & 5 are general in nature and therefore do not require any adjudication. Ground Nos .....

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d for the welfare of employees as specified in sec. 2(24)(x) of the Act. The Ld CIT(A) has taken the view that the impugned expenditure is allowable under the provisions of sec.40A(9) of the Act. It is pertinent to note that one of the conditions prescribed in sec.40A(9) is that the contributions should have been made to a fund, trust, company etc., which means the contributions should not have been used by the assessee itself. In the instant case, the assessee has used the amounts so accumulate .....

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ew, the collective name Staff welfare scheme is akin to the collective name Sundry creditors . Accordingly the Staff welfare scheme can only be taken as a liability (Creditors) account, i.e., the amount payable to each of the employees who have contributed to the said scheme. Instead of keeping the account in each of the employee name, the assessee has aggregated them and shown as under a collective name. The Ld CIT(A) has noted that the assessee pays the accumulated amount outstanding in the na .....

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24)(x) of the Act. Accordingly, we agree with the final decision reached by the Ld CIT(A) on this issue. Consistent with the view taken in assessment year 2004-05, we agree with the decision reached by Ld CIT(A) on this issue. Accordingly we uphold the relief granted by Ld CIT(A) on this issue. 18. Consistent with the view taken by the Co-ordinate Bench in A.Y. 2004-05 and 2006-07, we are not inclined to interfere with the order of the Ld. CIT(A) on this issue. Thus Ground Nos. 2 & 3 of the .....

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