2023 (8) TMI 873 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decisions, Rejects Revenue's Appeal

ACIT, Circle-17 (1), New Delhi. Versus Mitsui & Co. India Pvt. Ltd. And (Vice-Versa)

The Tribunal upheld the CIT(A)'s decisions and dismissed the Revenue's appeal. The disallowance under Section 14A was deleted as no exempt income was ... Disallowance u/s 14A - assessee submitted that there has not been any exempt income during the year - HELD THAT:- Since assessee has not earned any exempt income in the year under consideration. Therefore, the addition made u/s 14A of the Act is directed to be deleted. Disallowance of staff welfare expenses - assessee failed to prove the expenses incurred for business purposes - Grievance of the Revenue is that Ld.CIT(A) deleted part of the addition and gave substantial relief to the assessee - HELD THAT:- CIT(A) has considered the material on record that goes to prove that part of the expenditure that has been disallowance by the AO was infact incurred for the purposes of business of the assessee company. This finding on facts is not contradicted by the Revenue by placing any adverse material on record. Therefore, we do not see any reason to interfere in the findings of Ld.CIT(A). Moreover, the disallowance has been made purely on estimation basis - AO has not given any basis as to why only 20% of such expenditure is disallowed.Thus there has to be some basis for rejection of claim by the AO. The AO should have pointed out as to why out of total expenditure, 20% is not incurred for business purpose. In the absence of specific finding, action of AO for disallowance of expenditure would not be justified. Disallowance of service fee u/s 37 (1) - HELD THAT:- CIT(A) has followed the decision of the Tribunal rendered in assessee’s own case [2016 (4) TMI 1447 - ITAT DELHI] deleting addition. TDS u/s 195 - Non-deduction of TDS u/s 40(a)(i) - HELD THAT:- From the above findings of Ld.CIT(A), it is clear that the issue related to deduction of tax has been examined in earlier years wherein held appellant is not the PE of Mitsui& Co. Ltd (Japan), hence no question of attribution of any profit of Mitsui& Co. Ltd (Japan) to the appellant company. Accordingly, there is no question of deduction of tax on the same. In view of the binding precedent, we do not see any merit in the grounds of appeal. Disallowance of staff welfare expenses - HELD THAT:- From the finding of Ld.CIT(A), it is clear that he did not advert to other expenses. He merely affirmed the action of AO without pointing out as to how the remaining expenses are not for business purpose. It is well settled that the AO should not resort to adhoc disallowance. If the expenditure is not incurred for business purpose, there has to be a specific finding in this regard unless expenditure for personal use and business purpose are mixed and cannot be segregated. In the case in hand, this is not the case, we therefore, direct the AO to delete the impugned addition. The ground raised by the assessee is allowed. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Disallowance of staff welfare expenses.3. Disallowance of service fee paid to Associated Enterprises (AE).4. Non-deduction of TDS under Section 40(a)(i) of the Income Tax Act.Summary of Judgment:1. Disallowance under Section 14A:The Revenue challenged the deletion of Rs. 1,45,94,554/- disallowed under Section 14A. The assessee argued no exempt income was earned during the year, supported by the schedule of other income and relevant case laws, including the judgment of the Delhi High Court in PCIT vs. M/s. Era Infrastructure (India) Ltd. The Tribunal upheld the CIT(A)'s decision, finding no exempt income and thus no basis for disallowance under Section 14A.2. Disallowance of Staff Welfare Expenses:The Revenue contested the deletion of Rs. 63,11,221/- out of staff welfare expenses. The assessee detailed the nature of expenses, including medical insurance, company functions, healthcare, and social security. The CIT(A) partially upheld the AO's disallowance, confirming Rs. 24,02,948/- as non-business expenses. The Tribunal found the AO's disallowance lacked specific basis and upheld the CIT(A)'s partial relief to the assessee, dismissing the Revenue's appeal.3. Disallowance of Service Fee Paid to AE:The Revenue disputed the deletion of Rs. 5,12,23,226/- disallowed as service fees to M/s. Mitsui & Co. (Asia Pacific) Pte. Ltd., Singapore. The Tribunal noted the issue was previously adjudicated in favor of the assessee for AYs 2009-10 and 2010-11 by the ITAT and the DRP for AY 2011-12. Following the principle of consistency, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.4. Non-Deduction of TDS under Section 40(a)(i):The Revenue challenged the deletion of Rs. 51,27,74,699/- for non-deduction of TDS. The CIT(A) found that the ITAT had previously ruled that the assessee was not a PE of Mitsui & Co. Ltd. (Japan), negating the need for TDS on the payments. The Tribunal upheld this finding, noting the consistency with earlier decisions affirmed by the Jurisdictional High Court, and dismissed the Revenue's grounds.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, confirming the CIT(A)'s decisions on all issues. The order was pronounced in the open court on 26th July 2023.