TMI Blog2024 (1) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ot qualify as fee for technical services under the Income Tax Act, nor as he made any observations as to why Section 195 of the Act is not applicable to the aforesaid payments and further, CIT(A) has also not given any comments on whether Form No. 15CA 15CB were furnished before him for necessary verification. Accordingly, we observe that from the contents of the order passed by Ld. CIT(A), it is not clear as to on what basis relief was afforded to the assessee on this issue. Further, in this case it is observed that the assessee had made payments to both companies as well as individuals residing outside of India in respect of the aforesaid services availed by him. CIT(A) has not made any observations with respect to the aforesaid payments and the relevant Tax Treaty provisions as may be applicable to the various countries of which the recipients were residents viz. Netherlands, France, Dubai, South Korea, Vietnam, Indonesia, Beijing PR, China etc. Accordingly, in the interest of justice the matter is restored to the file of Ld. CIT(A) to pass a detailed / speaking order giving reasons for allowing relief to the assessee on this issue.Ground No. 1 of the Department s appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO observed that the assessee had given interest free advances to various parties - CIT(A) gave relief to the assessee and the ground that the assessee was having substantial interest free funds available with it - HELD THAT:- Once it is found that the assessee is having substantial interest free funds available with it in the form of capital, reserves and surplus and non- interest bearing sundry creditors, then it has to be presumed that the interest free advances had been given by the assessee from its own interest free funds available with it. Secondly, Ld. CIT(A) also observed that majority of the advances had been given by the assessee in previous years only. Also observed by Ld. CIT(A) while granting relief to the assessee that in respect of most of the advances, it is seen that the provisions of Section 36(1)(iii) of the Act was not attracted since the advances were given for business purposes of the assessee in the course of business. Accordingly, in our considered view, looking into the facts of the instant case and observations made by Ld. CIT(A) while allowing the appeal of the assessee on this issue, we are of the considered view that Ld. CIT(A) has not erred in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for purpose of business, during course of business and in fulfillment of commercial expediency. 2. The Ld. CIT(A) has rightly held in his Detailed Speaking Order that both on Facts of the case and Provisions of Law that Interest of Rs. 19,39,350/- was rightly allowable Business Expenditure both on facts of the case and as provisions of Law specially and that no disallowance u/s. 36(1)(iii) was called for since Respondent had proved that he had Interest Free Funds available and AO had not proved any nexus between Interest Free Advance from Interest bearing Loans. It is therefore submitted that the Grounds of Appeal filed by the Department be dismissed and order of Ld. CIT(A) be upheld. It is therefore submitted that relief claimed above be allowed and the order of the Ld.CIT(A) be upheld and that Appeal filed by Income Tax Department be dismissed. Your Respondent reserves right to add, alter, amend to withdraw any or all Ground of Appeal. Ground No.1:- Disallowance under Section 40(a)(ia) of the Act. (Rs. 43,42,468/-) 4. The brief facts in relation to this ground of appeal are that during the course of assessment, the Assessing Officer observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of finalization of assessment for the year under appeal is not at all justified and deserves to be deleted suo moto. 6. Department is in appeal before us against the aforesaid order passed by Ld. CIT(A) deciding the issue in favour of the assessee. 7. On going through the contents of order passed by Ld. CIT(A), we observe that Ld. CIT(A) has not given any justification while allowing the appeal of the assessee on this issue. The Ld. CIT(A) has made no observation whatsoever regarding the applicability of Tax Treaty provisions to the aforesaid payment, neither as he made any observations as to why such payments do not qualify as fee for technical services under the Income Tax Act, nor as he made any observations as to why Section 195 of the Act is not applicable to the aforesaid payments and further, Ld. CIT(A) has also not given any comments on whether Form No. 15CA 15CB were furnished before him for necessary verification. Accordingly, we observe that from the contents of the order passed by Ld. CIT(A), it is not clear as to on what basis relief was afforded to the assessee on this issue. Further, in this case it is observed that the assessee had made payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation was paid. Further, the assessee also failed to furnish copy of termination agreement based on which the assessee stated to have made compensation of Rs. 60.50 lakhs to the aforesaid parties. Further, the Assessing Officer observed that one of the persons to whom majority of the compensation towards termination of marketing rights was paid was a Director of the assessee company and was entrusted with the responsibility of looking after marketing of the products of the assessee company. Accordingly, the Assessing Officer held that in absence of any agreement furnished by the assessee for granting the marketing rights to various parties or termination of the said marketing agreement, the genuineness of the aforesaid expenditure cannot be accepted. Accordingly, the Assessing Officer disallowed the sum of Rs. 60.50 lakhs and added the same to the income of the assessee. 10. In appeal, CIT(A) allowed the appeal of the assessee on this issue with the following observations:- 4.3. I have carefully considered the facts on records and submission of the Ld. Authorized Representative. The contention of the appellant in regard to disallowance of compensation paid for termin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompelled to maximize its 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. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Inviting reference to Sec. 37 of the IT Act it is claimed that expenditure of Rs. 60,50,000 being paid for Termination of Marketing Rights to various agents is not expenditure of capital nature or personal expenditure and that Company has benefited by making this payment and therefore expenditure is allowable in computing profit and gain of Business. It was on account of the payment for termination of Marketing rights it become possible for the appellant to give Marketing Rights to Educom Solutions Ltd. as per Agreement with them dated 28-07-2007 which has resulted into receiving a very large sum of Rs. 15,00,00,000/- which has a direct nexus and connection with getting Marketing Rights with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew has passed a non-speaking order while allowing the appeal of the assessee on this issue. 13. Accordingly, in the interest of justice the matter is being restored to the file of Ld. CIT(A) to carry out necessary verification into the genuineness of the claim of the assessee and is directed to pass a detailed speaking order while dealing with this issue. 14. In the result, Ground No. 2 of the Department s appeal is allowed for statistical purposes and since Ground No. 1 of the assessee s Cross Objection is only supporting the order passed by the Ld. CIT(A), the same is accordingly dismissed. Ground No.3:- Income received but not accrued(Rs. 1,50,00,000/-) 15. During the course of assessment, the Assessing Officer observed that on verification of Balance Sheet, it is seen that the assessee had shown an amount of Rs. 1,50,00,000/- as income received but not accrued from M/s. Educomp Solutions Pvt. Ltd. under the head current liabilities . The assessee was required to explain as to why this amount was not offered to tax since the income had already accrued and received. 16. During the course of assessment, the assessee submitted that as per the accounting policie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and loss account. The income was offered by the appellant for taxation in next financial year along with income earned on account of additional license sale. During the year under reference there was a change in the presentation of the Balance Sheet and new revised guideline with the name of Revised Schedule Six was issued and implemented with effect from 1/04/2012 and with the introduction of revised guidelines all the accounts were categorized under two heads i.e. Current and Non-Current Assets/Liabilities and for better presentation all the accounts were shown above categories and while doing so, the amount receivable in next year was treated as current liability and shown under the head Amount Income Received and Not Accrued, which clearly indicates that Income though received but not accrued as per the prevailing accounting practice to add to this the same is also shown in accounting policies of the company in view of the above the amount is not income of the company and the same is charged to income in the subsequent year and income once taxed cannot taxed twice. Considering the above facts and cited case laws it is held that the addition of Rs. 1,50,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the written submission of Ld. Authorized Representative is reproduced as under:- XVII. The fourth ground of appeal is pertaining to addition on account of disallowance of interest expense of Rs. 48,25,919/- which was reduced to a disallowance of Rs. 15,32,324/- by an order of rectification u/s 154 of the Act. The Ld. AO added 12% interest on notional basis on the following advances given:- Sr. No. PARTICULARS AMOUNT 1. Nageshwari Traders 3400000.00 2. Nipa Madhusudan 600000.00 3. Niru Mahendra Patel 400000.00 4. Iqbal Ahmed Dubai Office 4298940.00 5. Kanwalijit Singh Arora 500000.00 6. KJS Brar 807556.00 7. Kunal Impex Pvt. Ltd. 500000.00 8. Upper India Sales Agency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me tax Act, 1961, expenditure incurred for the purposes of business is allowable as deduction during the year. It is pertinent mention here that the majority of the advances are given in earlier years only. Chart showing details of year wise advance given is enclosed. From the chart your honor will observe that only to khodiar Cad and Iqbal Sidique the advance were made during the year. The amount given to Iqbal Siddique is for Dubai Office advance and the said amount will not attract interest u/s. 36(1)(iii). The advance given to khodiar CAD is against the advance for CAD designing. With regard to advance given to Mr. Kanwaljeet is concerned appellant wish to state that confirming ledger of Mr. Kanwaljeet is provided along with PAN and address. The advance given is in routine course of business. Moreover the advance was given in earlier years and out of the own funds of the company. XVIII. The Assessing Officer has erred both in Law and in fact in to resorting Sec. 36(1)(iii) of the Act and thereby making huge addition of Rs. 14234723/- out of total interest paid by your Appellant Company. As a matter of fact your Appellant submits that the advances made to follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f khodiar Cad and Iqbal Sidique the advance were made during the year. The amount given to Iqbal Siddique is for Dubai Office advance and the said amount will not attract interest u/s. 36(1)(iii). The advance given to khodiar CAD is against the advance for CAD designing. As far as the advance given to Mr. Kanwaljeet is concerned, the appellant has furnished confirming ledger of Mr. Kanwaljeet along with PAN and address. The advance given is in routine course of business, which was given in earlier years and out of the own funds of the company. As a matter of fact the Appellant submission that the advances made to various parties were from own funds of the Appellant and that it is not a case that the Appellant has taken loan from Bank or other financial institution on payment of interest and made advance of funds without charging interest. The appellant also invited attention to the chart giving; comparison of sufficient amount available with company during the A.Y. 2011-12 and 2012-13. Also the recent judgment of Ahmedabad Tribunal in the case of Belgium Ceramics P. Ltd. vs. ACIT, Cir. 1(1), ITA No 296/Ahd/2012 for A.Y.2002-03 dated 18-5-2012 Ahmedabad 'D' Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 of the assessee s Cross Objection is allowed. ITA No. 1188/Ahd/2018 (A.Y. 2013-14) C.O. No. 92/Ahd/2019 (A.Y. 2013-14):- 26. The Department has raised the following grounds of appeal:- (1) That the ld.CIT(A) erred in law and on facts in deleting the disallowance of Rs. 1,21,87,424/- made under section 40(a)(ia) of the IT Act, 1961. (2) That the ld.CIT(A) erred in law and on facts in deleting the addition made on account of compensation paid for termination of marketing rights of Rs. 62,50,000/-. (3) That the ld.CIT(A) erred in law and on facts in ignoring that the assessee had failed to prove the claim before the AO with evidences. (4) That the ld.CIT(A) erred in law and on facts in allowing the assessee to amortize the payment over a period of time ignoring the provisions of the Act. (5) That the ld.CIT(A) erred in law and on facts in deleting the disallowance of interest of Rs. 18,63,744/- made under section 36(1)(iii) of the IT Act. (6) The appellant craves, to leave, to mane and/or to alter any ground or add a new ground which may be necessary. 27. The assessee has raised the following grounds of appeal in Cross Object ..... X X X X Extracts X X X X X X X X Extracts X X X X
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