2024 (6) TMI 68 - AT - Income Tax

Royalty payment allowed, TDS deletion upheld, Section 14A disallowance rejected, income understatement addition deleted

ITAT Delhi allowed assessee's appeal on multiple grounds. Regarding royalty payment disallowance, the tribunal ruled in favor of assessee citing Delhi HC ... Disallowance of royalty payment - HELD THAT:- The issue related to royalty payment is also covered in favor of assessee by Hon’ble High Court of Delhi judgment in assessee’s own case [2015 (9) TMI 663 - DELHI HIGH COURT] there was sufficient opportunity for the AO, if he doubted the genuineness of the payment of royalty by the Assessee to MPL, to have conducted a detailed inquiry. The Assessee on its part furnished the agreement between itself and MPL under which it was inter alia permitted to use the trademark 'Macnaught' on its products. The royalty was payable per unit of the product and, therefore, was clearly linked to sales. There was also no doubt that such payment was in fact made by the Assessee to MPL. It is also not in doubt that MPL was not related to the Assessee in any manner. In the circumstances, there should have been some reasonable basis for the CIT(A) to simply conclude that this was a sham transaction and proceed to enhance the disallowance. Decided in favour of assessee. TDS u/s 195 - Disallowance u/s 40(a)(i) on account of commission paid to non- resident agent for export sales - HELD THAT:- The issue is squarely covered by the order of the co-ordinate bench in the assessee’s own case. CIT (A) has deleted the disallowance by relying upon the order passed in the assessee’s own case for preceding years. It comes up that in assessee’s own case in the preceding assessment years AY 2010-11 & AY 2013-14 [2021 (9) TMI 760 - ITAT DELHI] the issue has been decided in favour of assessee and CIT(A) has relied same. No distinguishing fact is cited by Ld. DR. In view of above order of CIT(A) deleting the addition made by AO needs no interference. Disallowance u/s 14A r.w.r.8D - HELD THAT:- As considering the fact that during the year there was no dividend income, no disallowance is warranted u/s 14A of the Act. Delayed payment of contribution of ESI - CIT(A) had deleted same on basis that the same were deposited before the due date for filing return u/s 139(1) - HELD THAT:- Now the issue stands settled in favour of revenue by the judgment of Checkmate Services (P.) Ltd. [2022 (10) TMI 617 - SUPREME COURT] As submitted that the cheque in respect for payment of ESI dues was presented to bank for clearing on 19.02.2015 i.e. before the due date which was 21.02.2015. However, the same was cleared by Bank on 24.02.2015. In this regards, reliance is placed on CBDT circular no. 261, dated 08.08.1979, to claim that payment would deemed to be made on the date on which cheque was presented for clearing and in the present case that date is 19.02.2015, which is before due date of 21.02.2015. However, we are of considered view that due date to reckon is as per the respective statute and due date of filing return under the Act is not of any consequence. Thus, this issue needs a fresh consideration at the end of CIT(A). Accordingly, restored to CIT(A). Understatement of Income - addition holding that there was difference in income declared and income as 26AS - HELD THAT:- As assessee received Rs. 10,750/- from Edge-Gro industries during AY 2015-16 and assessee received Rs. 5,571/- in AY 2014-15. However, customer deducted the TDS on entire amount of Rs. 16,321/- during AY 2015-16. Similarly, assessee received Rs. 2,162/- from Pinnacle engineers during AY 2015-16 and assessee received Rs. 1,110/- in AY 2014-15. However, customer deducted the TDS on entire amount of Rs. 3,262/- during AY 2015-16. Hence, the income of Rs. 6,671/- (5,571 + 1,110) was declared by assessee in the previous assessment year. However, Edge–gro and Pinnacle deducted the TDS on the entire interest amount of Rs. 16,321 in the AY 2015-16. We are of considered view that when income already stood declared in previous assessment year, CIT(A) was justified to accept the above mentioned submissions of assessee and delete the addition of Rs. 6,671/- Aappeal filed by the Revenue is partly allowed. Issues:1. Addition of royalty payment2. Disallowance of commission paid to non-resident agent3. Disallowance under section 14A read with rule 8D4. Addition on account of delayed payment of ESI contribution5. Alleged understatement of incomeAnalysis:1. Royalty Payment Issue:The appeal by the Revenue challenges the addition of Rs. 58,03,650 on account of disallowance of royalty payment. The Tribunal noted that the issue is similar to previous years where the addition was deleted in favor of the assessee. The Tribunal also referenced a High Court judgment supporting the genuineness of the royalty payment. Considering the consistent rulings in favor of the assessee, the Tribunal upheld the CIT(A)'s decision to delete the addition.2. Commission Payment Issue:The second issue pertains to the disallowance of Rs. 3,59,86,076 under section 40(a)(i) for commission paid to a non-resident agent. The Tribunal found that the issue had been decided in favor of the assessee in preceding years, and no distinguishing facts were presented by the Revenue. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the disallowance.3. Disallowance under Section 14A:The third issue involves disallowance under section 14A read with rule 8D. The assessee argued that no disallowance was warranted as its own funds exceeded the investments made, citing relevant case laws. The Tribunal agreed with the CIT(A) and held that no disallowance was required under section 14A, especially considering the absence of dividend income during the year.4. ESI Contribution Delay Issue:The fourth issue concerns the addition of Rs. 45,090 due to delayed payment of ESI contribution. The CIT(A) had deleted the addition based on previous judgments, but the Tribunal noted a recent Supreme Court judgment favoring the Revenue. The matter was remanded to the CIT(A) for fresh consideration.5. Understatement of Income Issue:The final issue relates to the addition of Rs. 6,671 for alleged understatement of income. The assessee clarified that the income was declared in the previous assessment year, and the TDS was deducted in the current year. The Tribunal accepted the assessee's explanation and deleted the addition.In conclusion, the Tribunal partly allowed the Revenue's appeal, addressing each issue based on the specific facts and legal precedents presented during the proceedings.