2019 (7) TMI 1265 - AT - Income Tax

Partial appeal allowed, remittance for re-examination due to lack of evidence. Re-evaluation directed on various tax aspects.

M/s. Rane Brake Lining Ltd., [Formerly Rane Brake Linings Limited] Versus The Income Tax Officer (OSD), Company Circle V (3), (presently Corporate Circle 5 (1) ), Chennai

The appeal was partly allowed for statistical purposes. Various disallowances were remitted back to the Assessing Officer for re-examination due to lack ... Disallowance of royalty payable - adjusted against excess payment of royalty made in the earlier years for which tax was already deducted and remitted in the earlier years - HELD THAT:- The assessee claims that the royalty payable for the first and second quarter was paid in advance and the excess payment of royalty was adjusted during the year under consideration. The assessee also claims that the tax was deducted at the time of payment. Further there was no material evidence to support the claim of the assessee. Hence this Tribunal is of the considered opinion that the matter needs to be re-examined by the AO. Disallowance of reimbursement of marketing services - HELD THAT:- The assessee claims that it is reimbursement of marketing expenses outside the country. Therefore it is not fee for technical services. Even though the assessee claims that there was an agreement between the assessee and Mr. James Drutchas, USA, it was not produced before this Tribunal and there is no reference about this agreement in the orders of both the authorities below. Therefore this Tribunal is of the considered opinion that the matter needs to be re-examined. Remanded to AO with directions. Disallowance of marketing services rendered outside India - payment to Dietrich Sikler, Germany - HELD THAT:- This Tribunal is of the considered opinion that to decide the nature of payment, the agreement between the assessee and Dietrich Sikler or atleast the communication between the assessee and Dietrich Sikler has to be examined. No material is available on record with regard to nature of payment - the matter needs to be re-examined by the AO. Accordingly the orders of both the authorities below are set aside and the addition of ₹ 14,58,647/- is remitted back to the file of the AO who shall re-examine the matter afresh in the light of the agreement that may be filed by the assessee. Disallowance of payment for exhibitions held outside India - sum paid to non-residents - HELD THAT:- For the purpose of claiming the expenditure, the assessee has to necessarily produce the details of the recipient and the purpose for which it was paid. Mere vague statement that the payment was made to non-resident in connection with the exhibition held outside India cannot be a reason for allowing the claim of the assessee. If it is for exhibition, the assessee has to clarify whether it is a rent or license fee for an ear-marked place in the exhibition or it is a travelling expenditure. In the absence of such details, this Tribunal is of the considered opinion, the same cannot be allowed. Therefore the disallowance is confirmed. Disallowance of sum paid to Rane Engine Valve Limited in relation to expenses incurred for China business - HELD THAT:- In the absence of any details, with regard to expenses said to be incurred for China business, this Tribunal is of the considered opinion such a claim cannot be allowed. The assessee has taken one more ground alternatively fee for technical services rendered outside India is taxable only by virtue of amendment to Section 9 by Finance Act 2010, therefore there cannot be any disallowance U/s.40(a)(i) . The assessee could not clarify the nature of the expenditure. A mere statement that the expense was incurred for China business without furnishing any other details cannot be a reason to allow the ground of appeal. Whether it is a fee for technical services or not is irrelevant since the assessee has not submitted any details. Since the assessee has not filed any material, the nature of payment could not be determined, therefore, this Tribunal is of the considered opinion that there cannot be any claim as business expenditure. Hence disallowance is confirmed. Disallowance of payments to railway consultants - HELD THAT:- The assessee claims that a sum of ₹ 1,58,274/- was paid to railway consultant and tax was also deducted. Since the assessee claims that tax was already deducted and paid to government account, the Assessing Officer may verify whether tax was deducted and deposited by the assessee as claimed and the nature of services rendered by the railway consultant and thereafter decide the issue afresh in accordance with law. Accordingly the orders of both the authorities below are set aside and the disallowance of payment made to the railway consultant is remitted back to the file of the AO for reconsideration. Disallowance of advertisement and sales promotion expenses - HELD THAT:- No material is available on record with regard to payment of ₹ 2,09,62,270/- towards incentive scheme for mechanics, coupons for the purchasers, payment to Jullundur Motor Auto, reimbursement of salary and travel expenses of sales representatives, travel expenditure, exhibition and conference expenditure, customer promotion expense, gift and compliments, damages to railway, reimbursement said to be made to Rane Group employees and warranty expenses. Unless the assessee files the details of the expenditure, it may be difficult to decide whether such payment needs deduction of tax at source or not? Therefore the assessee has to file necessary details before the Assessing Officer with regard to the nature of the payment. Accordingly the orders of both the authorities below are set aside and the entire issue is remitted back to the file of the AO. The AO shall reexamine the matter based on the materials that may be filed by the assessee and thereafter decide the issues in accordance with law after giving reasonable opportunity to the assessee. Deduction u/s. 80IB - auditor certificate was not examined - HELD THAT:- In respect of allocation of expenditure, the auditor’s certificate is also one of the factor to be considered for the purpose of deduction u/s.80IB. Admittedly the auditor certificate was not examined either by the Assessing Officer or the CIT(A). This Tribunal is of the considered opinion that the Assessing Officer shall re-examine the matter afresh. Accordingly the orders of both the authorities below are set aside and the entire addition is remitted back to the file of the AO. The AO shall re-examine the matter afresh after considering the auditor’s certificate and thereafter decide the issue in accordance with law after giving reasonable opportunity to the assessee. Disallowance u/s.14A - HELD THAT:- As rightly submitted by the Ld.AR, during the year under consideration Rule 8D is not applicable at all. In all such cases, this Tribunal disallowed 2% of the dividend income as expenditure U/s.14A for earning exempt income. Accordingly, the orders of both the authorities below are modified. The Assessing Officer is directed to disallow 2% of the exempted income instead of 5%. - the appeal of the assessee is partly allowed for statistical purpose Issues Involved:1. Disallowance of Rs. 26,74,841/- being the royalty payable.2. Disallowance of Rs. 5,09,656/- paid to Mr. James Drutchas, USA.3. Disallowance of Rs. 14,58,647/- paid to Dietrich Sikler, Germany.4. Disallowance of Rs. 4,07,371/- paid to non-residents in connection with exhibitions held outside India.5. Disallowance of Rs. 8,32,645/- paid to Rane Engine Valve Limited for China business expenses.6. Disallowance of Rs. 1,58,274/- paid to railway consultants.7. Disallowance of Rs. 2,09,62,270/- towards advertisement and sales promotion expenses.8. Deduction under Section 80IB of the Income Tax Act.9. Disallowance under Section 14A of the Income Tax Act.Detailed Analysis:1. Disallowance of Rs. 26,74,841/- being the royalty payable:The assessee claimed that the royalty payable for the first and second quarters was debited in the P&L account and adjusted against excess payment of royalty made in earlier years for which tax was already deducted. The Tribunal found no material evidence to support the claim and remitted the issue back to the Assessing Officer for re-examination to determine when the royalty was actually paid.2. Disallowance of Rs. 5,09,656/- paid to Mr. James Drutchas, USA:The assessee argued that the payment was a reimbursement for marketing services and not a fee for technical services under Article 12 of the India-USA Double Taxation Avoidance Agreement. The Tribunal noted the absence of an agreement detailing the nature of services and remitted the issue back to the Assessing Officer for re-examination in light of the agreement.3. Disallowance of Rs. 14,58,647/- paid to Dietrich Sikler, Germany:The assessee claimed the payment was for marketing services rendered outside India. The Tribunal found no agreement or communication on record to determine the nature of the payment and remitted the issue back to the Assessing Officer for re-examination with the necessary documentation.4. Disallowance of Rs. 4,07,371/- paid to non-residents in connection with exhibitions held outside India:The assessee failed to provide details of the recipients and the purpose of the payment. The Tribunal confirmed the disallowance due to the lack of sufficient details to substantiate the claim.5. Disallowance of Rs. 8,32,645/- paid to Rane Engine Valve Limited for China business expenses:The assessee could not provide details regarding the payment or the nature of the business in China. The Tribunal confirmed the disallowance due to the absence of any supporting details or evidence.6. Disallowance of Rs. 1,58,274/- paid to railway consultants:The assessee claimed that the payment was for services rendered in collecting payments from the Indian Railways and that tax was deducted. The Tribunal remitted the issue back to the Assessing Officer to verify the tax deduction and the nature of services rendered.7. Disallowance of Rs. 2,09,62,270/- towards advertisement and sales promotion expenses:The assessee failed to provide details regarding various payments, including incentives to mechanics, coupons, and reimbursements. The Tribunal remitted the issue back to the Assessing Officer for re-examination based on the details to be filed by the assessee.8. Deduction under Section 80IB of the Income Tax Act:The assessee argued that the auditor’s certificate was not considered by the lower authorities. The Tribunal remitted the issue back to the Assessing Officer for re-examination, taking into account the auditor’s certificate.9. Disallowance under Section 14A of the Income Tax Act:The Tribunal noted that Rule 8D was not applicable for the assessment year 2005-06 and directed the Assessing Officer to disallow 2% of the exempted income instead of 5%.Conclusion:The appeal was partly allowed for statistical purposes, with several issues remitted back to the Assessing Officer for re-examination and fresh consideration based on additional evidence and details to be provided by the assessee.