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TMI Blog2018 (8) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had claimed legal and professional charges of Rs. 2, 48, 12, 998/- in its profit and loss account, out of which Rs. 68, 25, 331/- had been paid to three non-resident Indian parties on which the assessee had not deducted tax at source. The Assessing Officer made a disallowance u/s 40(a)(i) of the Act in respect of this payment and made an addition of Rs. 68, 25, 331/- to the income of the assessee. Further, the Assessing Officer also made a disallowance of Rs. 5, 02, 462/- u/s 14A r/w Rule 8D. Apart from this, the Assessing Officer also made an addition of Rs. 10, 88, 621/- in respect of alleged capital expenditure which had been debited to the profit and loss account. The Assessing Officer also made a disallowance of Rs. 5, 30, 996/- u/s 43B of the Act which pertained to unpaid service tax. Apart from this, the Assessing Officer made a disallowance of Rs. 5, 85, 782/- being ad hoc disallowance @ 25% of the total expenses on conferences and seminars. The Assessing Officer also made a disallowance of Rs. 1, 02, 69, 572/- u/s 40(A)(2)(b) of the Act with respect to salary paid to Directors. The assessment was completed at a loss of Rs. 2, 52, 68, 929/-. 2. 1 Aggrieved, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Rs. 62, 69, 572/- made by the AO by invoking provisions of section 40A(2)(b) of the Act. (ii) That the disallowance has been confirmed despite the expenses being incurred wholly and exclusively for the purposes of business. 4. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of expenditure of Rs. 10, 88, 621/- made by the AO treating the same as capital expenditure. (ii) That the said disallowance has been confirmed despite the fact that such expenditure is exclusively incurred for the purpose of business and revenue in nature. " ITA No. 861/Del/2016 (Department's Appeal): "1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A), has erred in deleting the addition made under section 14A read with Rule 8D amounting to Rs. 5, 02, 462/- ignoring the CBDT Circular 5/2014 in which has clarified the scope of section 14A introduced by Finance Act 2001 that disallowance under section 14A read with rule 8D can be made even when no exempt income earned during the year under consideration? 2. Whether on the facts and circumstances of the case & in law, the CIT(A), h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that all these documents and evidences as well as the relevant provisions of the Double Taxation Avoidance Agreement clearly showed that the assessee was not under legal obligation to deduct tax at source on these payments. Our attention was also drawn to the remand report submitted by the Assessing Officer on this issue and placed at pages 473 to 476 of the paper book and it was submitted that even the Assessing Officer had accepted in the said remand report that considering the Double Taxation Avoidance Agreement between India and UAE as well as India and USA, the assessee was not under an obligation to deduct tax at source on payment of Rs. 47, 42, 000/- made to Mr. Renee Mauborgne and Rs. 17, 67, 150 to Mr. Shashi Tharoor. It was submitted that in view of the acceptance by the Assessing Officer, these disallowances deserved to be deleted. In respect of the remaining disallowance, it was submitted that the same was in the nature of reimbursement on which tax was not required to be deducted at source. 3. 1 With respect to ground no. 3 of the assessee's appeal challenging sustenance of disallowance with respect to directors' remuneration, it was submitted that ground no. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 and, therefore, this allegation of the Assessing Officer was incorrect. Ld. AR also submitted that the Ld. CIT (A) had not given any cogent reason for deleting a portion of the disallowance and by holding that Rs. 40 lakh appears to be a reasonable and fair amount of remuneration. 3. 2 With respect to ground no. 4 of the assessee's appeal challenging the substance of addition of Rs. 10, 88, 621/- by treating the same as capital expenditure, it was submitted that this amount was paid to K. P. M. G. India. It was submitted that out of the total amount, Rs. 3, 06, 181/- was directly paid by M/s Helion Ventres Pvt. Ltd. on which TDS had been deducted and this amount was reimbursed by the assessee to M/s Helion Ventres Pvt. Ltd. It was further submitted that the balance amount was paid directly by the assessee to K. P. M. G. India on which amount the tax had duly been deducted. The Ld. AR further submitted that this amount had been incurred for carrying out due diligence and valuation of the business which was expenditure in the normal course of business and did not give any enduring benefit to the assessee. 4. Coming to the department's appeal, the Ld. AR submitted that as far as g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and perused the material available on record. We take up the department's appeal first. Ground nos. 1 and 2 challenge the act of the Ld. CIT (A) in deleting the addition of Rs. 5, 02, 462/- made by the Assessing Officer by invoking the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules. It is seen that the Assessing Officer had made the disallowance by stating that since the assessee has not incurred any expense attributable to the dividend income of Rs. 17, 61, 574/-, therefore, disallowance u/s 14A was to be calculated in terms of Rule 8D of the Income Tax rules. It is seen that on a specific query raised by the Assessing Officer, the assessee had submitted before the Assessing Officer that no expenses were incurred by it in earning the dividend income. The Ld. CIT(A) deleted the impugned addition by observing that the Assessing Officer had not recorded any satisfaction before invoking the provisions of Rule 8D. The requirement of recording of satisfaction by the Assessing Officer in case the Assessing Officer is not satisfied with the claim of the assessee is now settled by the judgment of the Hon'ble Apex Court in the case of Godrej & Boyce Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the Assessing Officer had made inquiries from two parties viz. M/s Imperial and M/s Habitat World in respect of payments made to them by issuing notices u/s 133(6) of the Act and it is a matter of record that these two parties had confirmed the transactions with the assessee. It is well settled by now that ad hoc disallowance cannot be made unless specific defects are brought on record by the Assessing Officer. This is not the case in the present appeal before us. There is a plethora of judicial rulings wherein it has been held that ad hoc disallowance without specific pinpointing of defect is not sustainable. A few of them are:- (a) ITAT Delhi in the case of ACIT v. Amtek Auto Ltd. [2006] 112 TTJ 455 (b) ITAT Delhi in the case of Sh. Gagan Goyal v. JCIT in ITA No. 1514/Del/2015 dated 02. 08. 2016 (c) ITAT Delhi in the case of Sh. Devender Kumar v. ITO in ITA No. 3239/Del/2014 dated 30. 08. 2016 6. 1. 1 Therefore, in view of these judicial pronouncements, we again find no reason to interfere with the findings of the Ld. CIT (A) on this issue and we dismiss ground no. 3 of department's appeal. 6. 2 Coming to ground no. 4 of the department's appeal which challenges th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Double Taxation Avoidance Agreements between India and US and India and India and UAE, the payment to Mr. Renee Mauborgne amounting to Rs. 47, 52, 000/- and of Rs. 17, 67, 150 to Mr. Shashi Tharoor did not attract the rigors of provisions for deduction of tax at source. The Ld. CIT (A) seems to have ignored this admission by the Assessing Officer in the remand report. In view of the comments of the Assessing Officer in this regard as contained in the remand report, we delete the disallowance of Rs. 47, 52, 000/- and Rs. 17, 67, 150/-. The Assessing Officer is directed to delete these additions. We also note that the remaining payment of Rs. 3, 06, 181/- was made to M/s KPMG Helion which was in the nature of reimbursement on which TDS had also been deducted by them. Accordingly, no further tax was required to be deducted on this reimbursement. Thus, this amount of Rs. 3, 06, 181/- is also directed to be deleted and the Assessing Officer is directed to allow consequential relief. Thus, ground no. 2 of the assessee's appeal stands allowed. 8. 2 Coming to ground no. 4 of the assessee's appeal which challenges the action of the Ld. CIT (A) in sustaining the addition of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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