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M/s. Cox & Kings (I) Ltd. Versus DCIT – 1 (1) (1) , Mumbai

2017 (10) TMI 532 - ITAT MUMBAI

Disallowance u/s 14A - whether assessee has not earned any exempt income? - Held that:- From the assessment order or even the order of the CIT(A) it is not forthcoming whether this particular factual aspect was at all examined. In case the assessee has not earned any exempt income during the relevant previous year no disallowance can be made under section 14A of the Act. We direct the AO to examine this fact and if upon such examination it is found that in the relevant previous year the assessee .....

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ion of tax under section 194H on the payments made to Restricted Money Changers (RMCs) - Held that:- RMCs are free to sell foreign currency bought from tourists to assessee, RBI or any other person authorised by the RBI to deal in foreign currency. It is also to be noted that both the RMCs as well as the assessee have shown foreign currency as their stock in trade. The assessee has no relationship with the persons from whom the RMCs purchase foreign currency and the assessee is no way connected .....

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he RMCs. No enquiry has been made by the AO with the RMCs to find out the real nature of transactions between them. Further, assessee’s contention that in no other place in India such premium paid has been disallowed requires to be taken note of. It is also relevant to observe, even in respect of premium payment in Goa, except, the impugned assessment year in no other assessment year such disallowance under section 40(a)(ia) has been made. That being the case, we are inclined to delete the addit .....

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n the relevant assessment year. Therefore, in terms of the second proviso to section 40(a)(ia) no disallowance can be made. In view of the aforesaid, we delete the addition made by the AO and affirmed by the CIT(A). Grounds are allowed - ITA No.5583/Mum/2015, ITA No.5440/Mum/2015 And CO No. 117/Mum/2017 - Dated:- 6-10-2017 - Shri Saktijit Dey, Judicial Member And Shri Manjunatha, Accountant Member For The Revenue : Shri Rajat Mittal For The Respondent : Shri Rajan R. Vora & Shri Chetan Noval .....

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the assessment year under dispute the assessee filed its return of income on 01.03.2008 declaring total income of ₹ 36,99,51,002/-. During the assessment proceedings the AO noticed that, though, the assessee has earned exempt income by way of dividend, however, it did not disallow expenses attributable to such exempt income. He found that the assessee has debited interest expenses of ₹ 7,10,78,955/- to the Profit & Loss Account. He, therefore, called upon the assessee to explain .....

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d assessment year. The AO, however, did not find merit in the submissions of the assessee. He observed, the assessee has taken loans and paid interest on them. It has also debited indirect expenses. The AO observed, the investment portfolio yielding dividend income has to be monitored and supervised. Accordingly, he held that expenditure incurred for earning dividend income has to be disallowed under section 14A. After examining the details of expenditure incurred by the assessee, the AO held th .....

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after considering the submissions of the assessee in the context of facts and material on record found that except the investment of ₹ 1,44,25,000/- in Tulip Stars Hotels Ltd., the balance investments were made from assessee s own funds and no borrowed funds were utilised. He, therefore, directed the AO to recompute the disallowance by considering the interest cost only to the extent of investment made in Tulip Stars Hotels. As far as the balance disallowance towards salary and administra .....

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ted that during the relevant previous year the assessee has not earned any exempt income, therefore, no disallowance under section 14A can be made. He submitted, the investments from which assessee has not earned any exempt income should be excluded for the purpose of computing disallowance under section 14A. In this regard the learned A.R. relied upon the following decisions: - (i) Cheminvest Ltd. vs. CIT (2015) 387 ITR 33 (Del) (ii) CIT vs. Lakhani Marketing (2014) 272 ITR 265 (P&H) (iii) .....

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In case the assessee has not earned any exempt income during the relevant previous year no disallowance can be made under section 14A of the Act. The aforesaid view has been expressed by the Hon'ble Delhi High Court in the casd of Cheminvest Ltd. vs. CIT (supra). In fact, following the aforesaid decision different Benches of the Tribunal including Mumbai Benches have held that in absence of any exempt income in a particular assessment year no disallowance under section 14A can be made. In as .....

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et Investment P. Ltd. ITA No. 502/Del/2012 dated 16.06.2017 had also contended that those investments where the assessee has not earned any income should be excluded for computing disallowance under section 14A. In any case of the matter, exclusion of investments not yielding exempt income would arise only if the provisions of Section 14A is applicable in the event of assessee earning any exempt income in the relevant previous year. In the absence of such income section 14A itself is inapplicabl .....

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that the assessee was also engaged in the business of trading in foreign exchange called for the details of such transactions. In response, the assessee furnished foreign exchange trading account wherein an amount of ₹ 51,13,680/- was debited towards commission payment. The AO called upon the assessee to furnish details of tax deducted at source on such payments. From the details submitted by the assessee he found that the assessee has not deducted tax at source on an amount of ₹ 19 .....

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arned by them on stock sold to the assessee. The AO was not convinced with the explanation of the assessee. He opined, though, the assessee has claimed to have entered into such transactions with RMCs on principal to principal basis however the facts indicate a principal and agent relationship as the so called premium is debited under the head commission which is over and above the purchase price. Since, the assessee had not deducted tax at source on such payment, the AO disallowed the amount of .....

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learned A.R. submitted that the assessee has been authorised by the Reserve Bank of India (RBI) to deal in foreign currency. He submitted, the RBI also appoints/authorises certain persons/entities as Restricted Money Changers (RMC) who are authorised to purchase foreign currency from non-residents visiting different places in India including Goa. These RMCs operate from their shops/hotels to encash foreign currency and travellers cheques from foreign tourists. He submitted, the assessee has for .....

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ls and there is no principal agent relationship. He submitted, the assessee has not appointed RMCs as its agents to procure/collect foreign exchange and travellers cheques from tourists. Therefore, provisions of Section 194H are not attracted. Explaining further the reasons for not deducting tax on premium the learned A.R. submitted, the assessee also sells foreign exchange to persons in need of such currencies. Generally, persons in need of foreign currency are brought by various travel agents .....

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of payment of commission but a premium was paid on the basis of difference between the RBI rate and the purchase price at which the RMCs have purchased the currency from tourists. The learned A.R. submitted, though, the assessee has paid premium at other places also, disallowance has only been made in Goa, and that too, only in the impugned assessment year. To demonstrate the difference between the premium and commission payment the learned A.R. drew our attention to the details of commission pa .....

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IT(A). 11. We have considered rival submissions and perused the material on record. As discussed earlier, the assessee has a foreign exchange division approved by the RBI and is authorised to buy foreign exchange and travellers cheques from RMCs and others and sell them to persons in need of them. RMCs are also authorised by RBI to buy foreign currency from non residents visiting various places in India. These facts would show that the RMCs are not agents of the assessee but are appointed by RBI .....

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persons from whom the RMCs purchase foreign currency and the assessee is no way connected to the concerned tourists. Therefore, in our view the transaction between the assessee and the RMCs is on principal to principal basis and there is no principal agent relationship existing between them. Merely because in the financial statement assessee has debited the amount as commission it cannot be treated so without looking at the real nature of the transaction. The AO must bring on record material to .....

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r section 40(a)(ia) has been made. That being the case, we are inclined to delete the addition made by the AO. 12. In ground Nos. 5 to 9 the assessee has challenged the disallowance made under section 40(a)(ia) of the Act for an amount of ₹ 16,29,488/- on account of short deduction of tax at source. 13. Briefly the facts are, during the assessment proceedings the AO while verifying the deduction claimed by the assessee on account of expenses incurred towards legal and professional fees cal .....

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the Act. The assessee challenged the disallowance before the CIT(A). 14. Before the CIT(A) the assessee took a specific plea that the provisions of Section 40(a)(ia) of the Act cannot be attracted towards short deduction of tax and in support of such contention he relied upon decision of the Hon ble Calcutta High Court in the case of CIT vs. S.K. Tekriwal (2012) 361 ITR 43 and the decision of the ITAT Mumbai Benches in the case of DCIT vs. BLC India P. Ltd. ITA No. 5793/Mum/2010. The learned CI .....

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14) 361ITR 432 (ii) CIT vs. Kishore Rao, HUF (2016) 387 ITR 196 15. The learned D.R. supported the findings of the CIT(A). He also relied upon the decision of the Hon ble Kerala High Court in the case of CIT vs. PVS Memorial Hospital Ltd. (2016) 380 ITR 284. 16. We have considered the rival submissions and perused the material on record. The short issue arising for consideration before us is, whether the provisions of Section 40(a)(ia) of the Act can be invoked to make disallowance on account of .....

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aka High Court in the case of Kishore Rao, HUF (supra) has expressed similar view. However, it needs to be mentioned, the Hon'ble Kerala High Court in the case of PVS Memorial Hospital (supra) has taken a contrary view by holding that the provisions of Section 40(a)(ia) gets attracted even to a case of short deduction of tax. We may also note that different Benches of the Tribunal have followed the decision of the Hon'ble Calcutta High Court and held that no disallowance under section 40 .....

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uld also make it clear that disallowance under such provision can be made only if there is no deduction of tax at source or the assessee has failed to pay to the government account the TDS amount after deducting the same. In any case of the matter, as brought to our notice by the learned A.R. the payee has offered the amount paid by the assessee as income in the relevant assessment year. Therefore, in terms of the second proviso to section 40(a)(ia) no disallowance can be made. In view of the af .....

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ssions of the parties we are inclined to condone the delay of 5 days in filing the appeal as such delay is for bonafide reasons. Hence we admit the appeal for deciding on merits. 19. The Department has raised two grounds. Ground No. 1 is against the direction of the CIT(A) for recomputation of disallowance made under section 14A. Since, we have already decided this issue while disposing off ground Nos. 1 & 2 of assessee s appeal in ITA No. 5440/Mum/2015 in the earlier part of the order, this .....

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e details of brokerage payment furnished by the assessee the AO alleged certain discrepancies in such payments and ultimately held that the payments are neither genuine nor for the purpose of assessee s business. Accordingly, he disallowed an amount of ₹ 1,77,68,298/- out of the total expenditure claimed. The assessee challenged the disallowance before the CIT(A). The learned CIT(A) after considering the submissions of the assessee deleted the addition made by the AO. 22. The learned D.R. .....

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he Department in assessment year 2008-09 and the Tribunal, having found that adequate opportunity was given to the AO to consider the additional evidence, dismissed the ground raised by the Department. 24. We have considered rival submissions and perused the material on record. The grievance of the Department in this ground is that the learned CIT(A) has deleted the addition relying upon additional evidence produced by the assessee without complying to the provisions of Rule 46A. However, the ob .....

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