TaxTMI 
TaxTMI 
2008 (4) TMI 356
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..... 11,07,251 paid to RTP Business Enterprises. Rs. 8,500 paid to JK Traders and Rs. 8,400 paid to Technomed Services on the ground that the appellant failed to bring any evidence on record to show that the payment was made in consideration of services rendered. 2. That the CIT(A) erred on facts and in law. in not holding expenses of Rs. 52,741 out of sales promotion expenses and Rs. 1,11,258 out of conference expenses are not being in the nature of entertainment expenses and hence not disallowable under s. 37(2) of the Act. 2.1 That the CIT(A) erred on facts and in law in not holding that expenses aggregating to Rs. 82,508 were, in any case, allowable business expenditure and were to be excluded from the purview of disallowable under s. 37(2) of the Act." 2. Ground 1 relates to sustaining the disallowance of commission of (a) Rs. 11,07,251 paid to RTP Business Enterprises, (b) Rs. 8,500 paid to JK Traders and (c) Rs. 8,400 paid to Technomed Devices for want of services rendered. (a) Disallowance of commission of Rs. 11,07,251 paid to RTP Business Enterprises: (i) Assessee paid the commission to RTP Business Enterprises in the context of sale of CT scanner and its work....
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.... Assessee paid commissions of Rs. 8,500 to JK Traders and Rs. 8,400 to Technomed Devices. CIT(A), as held in para 5.8 of his order, sustained the disallowance of these amounts Le. Rs. 8,500 and Rs. 8,400 made by the AO holding that there is no evidence on record regarding any services rendered by JK Traders and Technomed Devices. (ii) Aggrieved with the above decision of the CIT(A), the assessee is before us. The learned Authorised Representative for the assessee argued that it has made the payments of Rs. 8,500 to JK Traders in connection with the sale of Nebula to SL Augustina Hospital and relied on the copy of the invoice placed in the paper book. CIT-Departmental Representative for the Revenue argued that the point in question is whether the services are rendered or not and the payment of commission is for the business purposes or not and CIT-Departmental Representative mentioned that the assessee failed to produce the details of the services and supportive evidences. He further argued that mere production of a copy of the sale bill of the Nebula does not mean anything. Similarly, the payment of Rs. 8,400 paid to Technomed Devices for sale of Nevus equipment to Dr. Ravi S. K....
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....bsp; 50% : Rs. 5,70,354 Entertainment disallowed works out to : 5,80,354" The difference in figure of the assessee and the AO is due to the fact, that the AO did not allow the assessee's claim of 50 per cent of Rs. 11,50,709 towards the employees and proceeded to calculate the amount to be disallowed under s. 37(2). (iii) Aggrieved with the above disallowance, the assessee filed an appeal before the CIT(A). Based on the break-up given by the tax auditors for gross figure of Rs. 11,50,709, assessee mentioned that Rs. 52,741 and Rs. 1,41,256 (assessee wrongly mentioned as Rs. 1,11,258 in grounds) are spent under the heads 'Sales promotion expenses' and 'Conference expenses' respectively in the context of meeting doctors and customers for business purposes. Assessee argued that these expenses arc not entertainment expenses but they are business expenses and relied on judgment in the case of CIT vs. Indo Asian Switchgears (P) Ltd. (1997) 137 CTR (P&H) 9 : (1997) 92 Taxman 86 (P&H). Assessee further submitt....
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....re of Rs. 2,76,507 is a business expenditure. Further, regarding the allocation towards the employees, we understand that the relatable entertainment expenses are not ascertainable basing on the available facts on the files as observed from the difficulties faced by the tax auditors, assessee's submissions and the orders of CIT(A). It is pertinent to note that the AO has not given his finding in this regard as evident from the fact that he did not allow any expenditure towards to the employees. Therefore, in the interest of justice and in the absence of primary data, we are of the view that this issue must go to the files of the AO for adjudication on ascertaining the extent of expenditure relatable to employees. While deciding, the AO shall examine if amounts of Rs. 52,741, Rs. 1,41,258 and Rs. 82,508 are the business expenditure and are allowable under s. 37(1) of the IT Act instead of s. 37(2). Accordingly, these grounds of both Revenue and the assessee are set aside to the files of the AO. 4. Grounds 3 to 6 of the assessee's appeal are narrative and the issue that arises from these grounds is whether the CIT(A) would have taken a decision based on the available facts and del....
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....oms authorities, III. Inapplicability of the provisions of art. 9 of US-Indo DTAA, finally, IV. The commission was earned by the assessee for promoting their sales in India and no evidence to collaborate that commission has been offset by inflating the sale price, V. On legal issues, the assessee argued that the art. 9 of US-Indo DTAA apply to PI and not to the assessee in India, VI. Regarding applicability of s. 92, assessee argued that there is nothing on record to show that the course of business between PI and assessee has been arranged in such a manner that no profit or less than ordinary profits accrued to the assessee. CIT(A) examined the applicability of the art. 9 of the US-Indo DTAA and the provisions of s. 40A(2)(b) and held that they are inapplicable. But CIT(A) held that prima facie, the provisions of s. 92 of the IT Act apply to the assessee's case and to that extent he agreed with AO's submissions vide AO's letter dt. 27th Jan., 2000 to the CIT(A). Accordingly, he set aside the assessment with the direction to apply s. 92 and given certain directions and manner of making the investigations. (iii) To elaborate on other events during the period of appellate proceedi....
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....appeal the CIT(A) shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment or he may set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by the CIT(A) and after making such further enquiry as may be necessary, and the AO shall thereupon proceed to make such fresh assessment and determine where necessary, the amount of tax payable on the basis of such fresh assessment....." The legal interpretation in this regard is that no remand if primary or basic facts are on the records, no remand just for the sake of giving one more opportunity to the AO and finally, the remand provisions must be used only in rare and exceptional cases and circumstances. In the written submissions, the Authorised Representative of the assessee relied on various judicial pronouncements. (b) Summary of the judicial pronouncements on remand - There cannot be any remand of a case for further examination of facts, if basic facts necessary for the disposal of the matter are already on records or orders of the lower authorities-as held in the case of....
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....and not excessive'. By these two findings, the CIT(A) has in fact decided the fate of the additions in favour of the assessee, but for his another prima facie finding on the applicability of s. 92 of the IT Act. AO made additions essentially invoking the provisions of art. 9 of US-Indo DTAA as evident in his order. In this regard, the CIT(A) held that said art. 9 applies to the non-resident only i.e., PI and not the instant case. (d) We find that the it is relevant to examine the said finding of the CIT(A). As commented on the provisions of s. 92, as it existed prior to 1st April, 2002, by the apex Court in the case of Mazagaon Docks Ltd. vs. CIT (1958) 34 ITR 368 (SC), there are three limbs in s. 92 and they are: a business is carried on between a resident and non-resident person; there exists a close connection between resident and non-resident person; and the course of business is so arranged that the business produces either no profit. or less than ordinary profit to the resident. CIT(A) found that all three limbs prima facie apply in assessee's case, we have reexamined the above provisions and their applicability to the assessee's case and found that (i) and (ii) above are ....
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....islation. AO or CIT(A) ought to have data or material on what are the 'ordinary profits' in the line of assessee's business. Unless the 'ordinary profits' are known, the AO cannot compare the recorded profits with the said 'ordinary profits' in order to arrive at the profits taxable under s. 92 of the IT Act, 1961. Comparative figures involving Picker India Inc. (PI) and other like dealers in India. if there are more than one such dealers or competitors of PI and their agents/dealers in India. In the absence of any such basic data, invoking the provisions of s. 92, as happened in the instant case, is prima facie unjustified. Cloud of suspicion or doubt may not lead the lower authorities to invoke the provisions of s. 92, as happened in the instant case. Suspicion of booking the PI's expenses to the assessee's books, continuous losses of the assessee, GP differences between the GPs of direct sales and indirect sale of the CT scanner and others are the factors that led the AO or CIT(A) to the suspicion. Having found that there is travel expenses are not wholly and exclusively for the assessee's business, AO should have pointed out the extent of such travel expenses and made disallowa....
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....y the AO are without any basis and therefore, they are required to be deleted. Accordingly, the grounds 3 to 6 of the assessee are allowed. 5. In the result, the appeal of the assessee is partly allowed. ITA 4145/Del/2000 (Revenue appeal) 6. There are three grounds in this appeal of the Revenue. They are against allowing of assessee's claim of Rs. 4.43 lakhs on account of transactions in forward market in foreign exchange. which are speculative nature; allowing commission of Rs. 7 lakhs paid to M/s Meemar despite absence of any evidence in support of services rendered; and finally the issue of 50 per cent of the entertainment expenses relating to employees. The ground 3 in this appeal relating to the entertainment expenses and is raised in assessee's appeal also on slightly different issue. The same has been adjudicated as in para 3 above, setting aside to the files of the AO due to lack of primary facts on the issue and AO has not decided on this issue. Grounds 1 and 2 are left for adjudication by us in this Revenue appeal. (a) Ground 1 relates to assessee's claim of Rs. 4.43 lakhs on account of transactions in forward market in foreign exchange, which are speculative ....