TMI Blog2017 (3) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... by holding that the disallowance shall be restricted to the money which is yet to be paid. However, we have observed that in the case of Crescent Export Syndicate (2013 (5) TMI 510 - CALCUTTA HIGH COURT) observed that there can be no denial that the provision in question is harsh. But there is no ground which was not intended by the Legislature. The law was deliberately made harsh to secure compliance of the provisions requiring deduction of tax at source. It is not the case of an inadvertent error and accordingly the Hon’ble High Court held that the provision of section 40(a)(ia) of the Act are applicable not only to the amounts which is shown as payable on the date of balance sheet but it is applicable to such expenditure which becomes payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of the revenue and against the assessee. TDS u/s 194I and 194C - failure to deposit within 31st March, 2009 - disallowance u/s 40(a)(ia) - Held that:- The appellant has deducted the tax at source on these payments in the month of Feb. 2009 but has deposited the tax after the end of the accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were only reimbursements and not claimed as deductions. Ground No.17 18: That, on the facts and circumstances of the case, and in law, the Ld.CIT(A) has erred in deleting the disallowance made by the A.O. of ₹ 11,32,9251- u/s 40(a)(ia)(B) of the Act on account of failure to deposit within 31st March 2009 the tax deducted at source upto the month of February, 2009 by the assessee from payments u/s 194C and 194J of the Act in contravention of the provisions of section 40(a)(ia)(B) of the Act. Ground No.19 : That the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and/or alter, modify, reframe any grounds of appeal at or before the time of hearing. 2. At the very outset, we find that the appeal is time barred by four days and there is a condonation petition filed by the revenue. The ld. AR did not have any objection for condonation of delay. That on the basis of the said condonation petition being filed and no objection of the AR we hereby condone the delay and admit the appeal for regular hearing. 3. The brief facts arising in this case are that the assessee company filed its return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) The Directors and the principal persons of the assessee company were only aware of the major decisions taken in the entire group. ii) Opportunity was provided. to .the assessee to come out clean with a clear picture of the exact disclosure of facts and not fictions. As all the information was within the control and specific knowledge of the assessee, therefore, it was the duty of the assessee to prove and establish the same, which they did not. This brings out a clear picture that the total group companies are engaged in colorable transactions amongst themselves. Similar view had been taken in the case of Logitronics Pvt. Ltd. ITA 4716/DEL of 2009 dated 30.04.2010, ITAT, New Delhi and in the case of Kay Cee Electricals v DCIT (2003) 87.ITD 35 (Delhi). iii) the contentions expressed in the copies of the extracts of the board resolution, as claimed by the appellant, has already been duly considered in the assessment stage and strongly refuted in .the assessment order itself with logic as well as relevant case laws. iv) It is also pertinent to mention here that it is incumbent on the Assessing Officer to explore the total gamut' of the affairs of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the appellant from Dunlop India Ltd. and the appellant would be obliged to bear the SBLC charges to be paid to M/s Shalini Properties Developers P Ltd. who, in turn, shall pay such charges to ICICI Bank, To this effect, Board of the appellant company passed resolution dated 12th March 2008. Board resolution dated 28th March 2008 was passed by the Board of the appellant which incorporated the agreement entered into by the appellant with Dunlop India Ltd for use of Dunlop' Brand and Logo. The Board's resolution also incorporated and thanked M/s Shalini Properties Developed P Ltd for their efforts in obtaining the brand name from Dunlop India Ltd. and payment of SB Le charges as soon as Mls.Shalini Properties I Developers P Ltd. requires the sum. Subsequently, when the loan was sanctioned by the ICICI Bank where M/s Shalini Properties Developers P Ltd. was guarantor, another Board resolution was passed dated 28th of June 2008 for reimbursement of the SBLC charges to M/s Shalini Properties Developers P Ltd. 5.1.10 The A/R further argued that during the year, on use of the 'Dunlop' brand name and logo by way of royalty and SBLC charges the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares in DIL Rim and Wheel Corporation Limited which was holding the shares of Dunlop India Limited. Thus Shalini was controlling the shares of Dunlop India Limited. In this connection, reference was made to the proceedings of the Board of Directors and the various Resolutions passed by the Directors during the period 20th February 2008 to 28th June 2008 as stated above. The appellant's submissions are that the corporate veil is a mere facade and that the expenditure had been incurred for commercial expediency. 5.1.11. It is noted that the Assessing Officer while disallowing the. claim of the appellant of ₹ 1l7412500/- as SBLC charges paid to M/s Shalini Properties Developers P Ltd. has held the transaction to be a colourable device to eat into the profit of the appellant company. The Assessing Officer also relied upon the decision in relation to colourful device to hold that the expenses of ₹ 117412S00/- could not be said to be laid out or expended wholly and exclusively for the purposes of the business of the appellant company and that the transaction was a colourful device. While holding, the Assessing Officer has considered the agreement and the fact of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparison to reimbursement of SBLC charges in three years, the income has outshown the expenses substantially putting the appellant company in a guided seat and showing the actual picture of the understanding with M/s Shalini Properties Developers P Ltd. Dunlop India Ltd. is doing business of manufacturing of tyres and tubes and has been constantly in the news and for steps taken for revival of the same. Prior to the acquisition of Dunlop India Ltd. By the Ruia Group the same was a sick unit and subsequently it revived and came out from being a sick unit. The transaction of payments made by the appellant company of the SBLC charges, processing fees/finance charges by whatever name it may be called are a larger picture to the revival of the group company and mainly Dunlop India Ltd. which was to be starting production, up and in running. The arrangement made between the group companies, share holder company has resulted in business in these companies and giving rise to capital generation for benefit of Dunlop India Ltd, as a whole. So, it is incorrect to say that Dunlop India Limited has not been benefited from the finances obtained by Wealthsea Pte. Ltd .. in terms of which the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the respondent that there has been fl very drastic change in the final jurisprudence in India, as would entail a departure. In our judgment from Westminister's case to Bank of Chettinands case to Mathurams case despite the hiccups of Maclrowell's case, the law has remained the same. We are unable to agree with the submission that an Act which is otherwise, valid on law can be treated non- est merely on the base of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest as perceived by the respondents. In the case of IRC vs Fisher Excecutor 1926 AC 395 it was held My Lords the highest authorities have always recognized that the subject is entitles to arrange his affairs as not to attract tax imposed by the crown, so far as he can do so within the law, and that he may legitimately claim the advantage of any expressed terms or of any omission that he can find in his favour in taxing Act. In so doing he neither comes under liability nor incurs blame.' In the case of Sankarlal Balabhai 69 ITR 186 (Guj) it was held Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exclusively for the purposes of the trade . 5.1.14 Moreover, the facts and material brought on record show that the group of the appellant company are engaged in the manufacture of tyres and It had obtained the benefit of use brand name of Dun lop India Ltd. and it had increased its revenue by way service charges received from such companies. Information and material evidence brought on record also show that the company, M/s Shalini Properties and Developers Ltd., had been controlling the shares of Dunlop India Ltd. The appellant company had furnished copies of resolutions to show that the said company, M/s Shalini Properties Developers had been instrumental in arranging the transaction of obtaining the rights over the brand name of Dunlop to the appellant company. On the other hand, the Assessing Officer has not brought any material on record to show that the transaction is a sham or that the group of companies have adopted a colourable. device to defraud the revenue. Merely because the appellant company had no guarantor or that the appellant had not taken any loan or merely because the expenditure had been debited in the profit and loss account under a different n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture cannot be attributed to revenue and vice versa. Secondly, it is equally clear that a payment in lump sum does not necessarily make the payment a capital one. It may still possess revenue character in the same way as a series of payments. Thirdly, if there is a lump sum payment but there is no possibility of a recurrence, it is probably of a capital nature though this is by no means a decisive test. Further, if the payment of a lump sum closes the liability to make repeated and periodic payments in the future, it may generally be regarded as a payment of a revenue character. Lastly, if the ownership of the money whether in point of fact or by a resulting trust is still with the taxpayer, then there is acquisition of a capital asset and not an expenditure of a revenue character as per ratio laid down in Indian Mosasses Co.(P.) Ltd. v. CIT [1959] 37 ITR 66 (SC), Hylam Ltd. v. CIT [1973.1,87 ITR 310 (AP). Though the dividing line between a capital and revenue ,expenditure is real, yet sometimes it becomes difficult to draw. Therefore, a decision is to be taken in each case in the light of the facts and surrounding circumstances. However, the following judicial pronouncement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inefficiency in the working; (vii) where the expenditure incurred is such as a wise, prudent, pragmatic and ethical man of the world of business would conscientiously incur with an eye on promoting his business prospects, subject to the expenditure being genuine and within reasonable limits; (viii) where it is incurred solely by way of a civil duty owed by the assessee to the society having regard to the nature of his business which brings him profits. but results in some detriment to the public at large either by way of health hazard or ecological pollution or serious inconvenience to the citizens with a view to mitigate the aforesaid evil consequences and consequences of a like nature, subject to its being genuine and within reasonable limits. The negative tests are: If the expenditure incurred: (i) for a mere altruistic consideration; (ii) mainly in order to satisfy his philanthropic urges; (iii) mainly in order to win applause or public appreciation; (iv) for illegal, immoral or corrupt purposes or by any such means or fix any such reasons; (v) mainly in order to oblige a relative or an official; (yi).mainly to earn the goodwill of a political party or a politician; (vii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure has to be adjudged from the point of view-of businessman and not of the revenue as held in Clef v, Walchand Co. (P) Ltd.,,[1967] 65 ITR 381(SC). In Sassoon J. David , Co.(P.) Ltd. v. CIT' [1979]118' ITR 261 (SC). It has been held that the assessee can claim deduction under section 37(1), even though there is no compelling necessity to incur such expenditure. In Goodyear India Ltd. v. ITO[2000] 73 ITD 189/68TTJ(Delhi) 3309 it has been held that expenditure incurred to get right to use licence for limited period (where the assessee-company, manufacturing tyres, entered into an agreement with a foreign company for technical know-how for manufacture of radial tyres and the assessee got the right to use the licence for a fixed period of 8 years) is deductible. 5.1.16. In view of the above discussion and after perusing the facts and circumstances of the case, analyzing the reported cases cited both by the Assessing Officer and the appellant company, after considering the ratio laid down by the Hon'ble Supreme Court in the case of Union of India Vs. Azadi Bachao Andolan cited supra and also in view of the under mentioned summerised points of reasons I am of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessarily be the business of the assessee itself.) the Revenue cannot justifiably claim to put itself in the arm chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No Businessman can be compelled to maximize his profit. The Income Tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman-would act. The authorities must not look at the matter from their own view point but that of a prudent businessman would act. (emphasis supplied) (iv) The Hon'ble Madhya Madhya Pradesh High Court in the case of Addl. CIT v Kuber Singh Bhagwandas (1979) 119 fIR. 379 (MP) has held that voluntary donation given in Chief Minister Fund for 'obtaining permit for export of gram is an allowable expense. This decision of Hon'ble Madhya Pradesh High Court has been approved by Hon'ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. v CIT (1997) 113 ITR 101. In that case the Hon 'ble Supreme Court has held as follows : Business expenditure - Contribution made to District Welfar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g order in itself. There is a commercial expediency in payment of SLBC charges by the assessee to M/s. Shalini P.Ltd and hence payment of ₹ 11,74,12,500/- is an allowable expenditure. Therefore the deletion of disallowance made by the ld. CIT(A) is sustained. This ground appearing in ground nos. 1 to 15 is decided in favour of the assessee. 5. The next ground of appeal as appearing in the grounds of appeal is against the deletion of disallowance made u/s 40(a)(ia) of the Act on account of sustenance of professional charges of ₹ 2,93,404/-. 6. This ground of appeal is directed against the disallowance made under sec. 40(a)(ia) on account of consultancy and professional charges of ₹ 2,93,404/-. 7. During the course of assessment proceedings, the appellant company furnished details of tax deducted at source from the payments made regarding Consultancy Professional fees. From such details, the Assessing Officer noted that out of the total payment made for ₹ 9,24,547/-, tax was deducted at source on ₹ 6,31,143/- only. It was explained on behalf of the appellant that as the balance of ₹ 2,93,404/- was 'out of pocket expenses which was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) relied upon by the appellant and also in view of the ratio laid down by the Hyderabad Tribunal in the case of Teja Constructions v. CIT [2010] 39 SOT 13 (Hyd.)(URO), it is noted that going by the rule of strict interpretation, the default with reference to actual 'payment' of expenditure would not entail disallowance. 9. In the light of the above discussion and observation and perusing the facts of the case and keeping in view the emerging legal position as above and also for the following summerised reasons, this ground of appeal is decided accordingly :- (i) The appellant has paid professional charges of ₹ 9,24,547/- which includes payment of out of pocket expense of ₹ 2,93,404/-. (ii) As per the Id AR the appellant has paid ₹ 2,93,404/- before the end of the year hence, in view of decision of special bench of ITAT in the case of Merlyn Shipping Transports v ACIT ITA No. 477/VIZ/2008 this payment cannot be disallowed by applying section 40(a)(ia). (iii) Since in the remand report the AO has not commented on correctness or otherwise of submission of ld AR hence AO has directed to verify and allow all the payment which were made during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of the revenue and against the assessee. Respectfully following the decision of the Jurisdictional High Court of Calcutta we decide this issue in favour of the revenue and reverse the findings of the order of the ld. CIT(A). Therefore this ground is decided in favour of the revenue. 12. The next ground nos. 17 and 18 as appearing in the grounds of appeal relate to the deletion of disallowance made by the AO of ₹ 11,32,925/- u/s 40(a)(ia) of the Act on account of failure to deposit within 31st March, 2009. The tax deducted at source of the month of March, 2009 by the assessee from the payments u/s 194C and 194J of the Act in contravention of the provision of section 40(a)(ia)(b) of the Act. 13. At the very outset, we find on perusal of the case records that the grievance of the revenue should not be that the ld. CIT(A) has deleted the entire disallowance of ₹ 11,32,925/- but in fact as appearing in the order of ld. CIT(A) we find that the ld. CIT(A) has deleted ₹ 9,38,408/- and has confirmed ₹ 1,94,517/-. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act 2010 as retrospective in nature. Thus, it is contended that even if the payments are made before the due date of filing of return there cannot be any addition u/s 40(a)(ia) of the IT Act.. It is thus submitted that the addition made by the Assessing Officer be deleted. The CIT(A) has carefully considered the facts of the case and the submissions put forth on behalf of the appellant company. The CIT(A) is not fully convinced with the arguments of the appellant that in view of the amendment made in section 40(a)(ia) of the Act, the payments made' prior to due date for filing of return of income cannot be disallowed. The amended provisions cover the TDS made in the month of March and payable in April and not for the TDS, which had already been made in the month of February and earlier months. TDS made up to February of the financial year had to be deposited within the month of March. The Assessing Officer had found that the company deducted tax within the month of February, 2009 and deposited the same in Central Government account after the end of the financial year, i.e. after 31.03.2009, whereas the same should have been deposited within 31.03.2009. The total amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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