TaxTMI 
TaxTMI 
2013 (5) TMI 730
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....in deleting the disallowance of Rs. 6,88,950/- made by the AO on account of consultancy charges paid to Arman Auto Group for failure to deduct TDS." 2. Apropos ground No.1, as per the AO, the profit and loss account of the assessee company showed that it had made investments, whereon, dividend income was being earned; that during the year, the assessee had shown Rs. 1,96,57,658/- as the amount of dividend income earned on non- trade investments; that the assessee was queried as to why expenditure in relation to earn the said exempt income be not disallowed u/s 14A of the I.T. Act, by applying Rule 8D of the I.T. Rules. 3. The assessee contended that as per the provisions of section 14A of the Act, only expenditure incurred in relation to the income not forming part of the total income is not to be allowed; that the assessee company had not incurred any expenditure to earn the dividend income from the units; that the dividend received was automatically invested by the Mutual Fund Company and there was no expenditure or charges taken by the Mutual Fund Company for distributing such dividend; that moreover, no method as per the provisions of section 14A(2) of the Act had been pr....
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....ew of the Mumbai High Court decision in the case of Godrej & Boyce (supra), Rule 8D is applicable from A.Y. 2008-09 and not retrospectively. It has further been held in that case that the A.O. is duty bound to determine the expenditure which has been incurred in relation to such exempt income. For this purpose a reasonable basis has to be adopted for determining the apportionment of expenses. In this regard, it is seen that in A.Y. 2006-07 in the appellant's own case, ½% of the value of total average assets was held by the AO as expenses incurred for earning exempt income. This decision of the A.O. has been accepted by the appellant. The facts of the case during the year under consideration being the same, it is held that ½% of the total average assets during the year is the expenses which can be reasonably attributed to earning of the dividend income. As per the appellant's own working, the average value of total assets during the year is 71.63 crores. Therefore, ½% of the value of the average assets comes to Rs.35,81,657/-, which is held as expenses attributable to earning of the dividend income. As the appellant has itself disallowed an amount of Rs.17,26,02....
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.... & Boyce" (supra), it has also been held that the AO has to determine the expenditure incurred in relation to exempt income, for which determination, a reasonable basis needs be adopted. The ld. CIT(A), it is seen, has taken one half percent of the value of the total average assets of the assessee as the expenses attributable to earning the dividend income. This was also the basis of the determination of the apportionment of expenses for assessment year 2006-07, as arrived at by the AO. The same was not challenged by the assessee. The disallowance restricted by the ld. CIT(A) from Rs. 73,96,192/-, as made by the AO, to Rs. 55,40,562/-, as such, is found to be reasonable, calling for no interference. The assessee is also not in appeal against this disallowance. The Department has not been able to show as to how the aforesaid basis taken by the ld. CIT(A) for determining the apportionment of expenses is not reasonable. More-over, the assessee's contention that the AO had wrongly taken the average cost of total assets at Rs. 9,69,25,334/- as against that of Rs. 71,63,31,427/-, resulting in excess disallowance of Rs. 54,46,956/-, has also not been successfully refuted by the Department....
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....rding to which "Hero Mindmine", a business unit of the appellant was primarily engaged in the business of imparting education, training and consultancy. This unit had been conducting its business through its own training centers as well as through Franchisees. "Hero Mindmine" had entered into Franchise agreement with various parties to grant a license for delivering various services as per the agreement. A sample copy of the agreement with the Franchisees was also filed. Under the Franchisee agreement, the company earns income from the Technical know-how fee, License Fee and Course Fee received from the students. Out of the course fee received, the company pays 80% of the amount collected to the Franchisees for the various services rendered and expenses incurred by them as per the terms of Clause 10.3 of the Franchisee agreement. These expenses (80% of the course fee) have been booked under the head Franchisee expenses, which have been shown in the schedule under the Market Development Expenses. Accordingly, it was submitted that as these expenses are direct expenditure relating to the appellant's business and revenue in nature, therefore , this expenditure should not be disallowed....
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....lopment expenses of Rs. 4,27,85,775/-; that this claim had been allowed; that in the year under consideration, no change, either in the classification of the expenses, or in the nature thereof, had come about; and that therefore, the Market Development expenses claimed by the assessee were allowable. In this manner, the ld. CIT(A) deleted the addition of Rs. 5,97,87,370/-. 15. Before us, the ld. DR has contended that the ld. CIT(A) has erred in deleting the addition correctly made by the AO on account of Market Development expenses; that while doing so, the ld. CIT(A) has failed to meet the categoric observations made by the AO in the assessment order to the effect that an Exclusivity Right was granted to the assessee Company over the customers of CRMI and this would give an edge to the assessee company over the other Companies regarding the services in USA and Canada, amounting to an intangible assets to the assessee Company; that therefore, the expenditure was Revenue expenditure and was not capital expenditure at all, which has not been considered by the ld. CIT(A). 16. The learned counsel for the assessee, on the other hand, has placed strong reliance on the impugned orde....
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....ee Agreement with different parties for grant of licence for delivering various services under the Franchisee Agreement, a copy whereof had been filed before the AO, the assessee Company earned income from Technical Know-how fee, Licence Fee and Course Fee received from customers. 80% of the amount collected as Course Fee was disbursed to the franchisees for various services rendered and expenses incurred as per the terms of clause 10.3 of the Agreement. Such payment of 80% of the Course Fee received were booked as Franchise Expenses, depicted in the Schedule under Market Development expenses. The amount of Rs. 3,35,16,410/- represented service charges of NSure Plus. This represented payment by the assessee to service providers for Insurance Business. Rs. 7,16,86,888/- had been received by the assessee as commission income there against and online database retrieval services revenue of Rs. 3,25,00,000/- under the sub-head "Insurance Commission" under the head "Revenue". 18. These details remain undisputed. None of these payments was made by the assessee to CRMI. Moreover, a similar claim of Market Development expenses amounting to Rs. 4,27,85,775/- had been made for the assessme....
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....usiness in North America to find out the scope of developing strategy for Sales and Marketing analysis and identification of customers in North America; that the services were not rendered in India and no TDS was deductible on the payment, since according to Section 9 of the Act, in such circumstances, no income accrued or could be deemed to have accrued in India, nor was any such income received or can be deemed to have received in India; and that the ld. CIT(A) has correctly deleted the addition wrongly made. 23. On this issue, it is seen that the AO merely rejected the explanation offered by the assessee, without recording any finding as to why it was being so done. While deleting the addition, the ld. CIT(A) has correctly observed that it had not been pointed out by the AO as to which clause of section 9 of the Act was applicable to the assessee and as to why TDS was required to be made on the payment. There has been no contravention of the assessee's stand to the effect that the services were rendered outside India and that being so, no income either accrued or was received or could be deemed to have accrued or been received in India. As such, the TDS was not deductible on ....
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....aken, the assessee company had paid interest @ 7%, amounting to Rs. 11,14,726/-. The AO added the difference of 1% amounting to Rs. 93,40,408/-. 28. While deleting the addition, the ld. CIT(A) observed that it was not clear from the assessment order as to how the figure of Rs. 93,40,408/- had been arrived at, since the total amount outstanding in the account of M/s. Hero Corporate Services Ltd. was at Rs. 5.60 crores, on which, interest of Rs. 42,44,627/- had been received by the assessee, whereas the assessee had taken loan of Rs. 2.5 crores from M/s. Arrow Infrastructure Ltd., on which, interest of Rs. 11,14,726/- had been paid; that at the most, disallowance of 1/7th of Rs. 11,14,726/-, amounting to Rs. 1,59,246/- could have been made; that the assessee had maintained that the loan given was an old loan outstanding from F.Y. 2002-03, whereas the loan taken was taken only during the current year, i.e. F.Y. 2006-07, relevant to assessment year 2007-08; that there had been no nexus between 7% interest bearing loan received by the assessee and 6% interest bearing loan given by the assessee; and that the AO had not given any observation/finding on the said submission of the assess....
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....to train the staff recruited for voice in UK and US accents. This is necessary for operating Call Centre and BPO Services, it is the business of the assessee Company. As such, the expenditure was an expenditure incurred wholly and exclusively for the purpose of assessee's business. That being so, the expenditure incurred cannot be said to be a capital expenditure. 38. The Tribunal in "Shriram Piston & Rings Ltd.", in ITA No. 2771(Del)09, for assessment year 2006-07,[copy placed at pages 13 to 20 of the Assessee's Paper Book ('APB' for short)] holds that expenses incurred towards ISO-9001, safety expenses are primarily for training of the employees and that therefore, the same are of revenue nature. In the assessee's case, as discussed, the expenditure was incurred wholly and exclusively for the business purposes of the assessee. The employees of the assessee company, in order to run the Call Centre and BPO services did require the training of voice and ascent. 39. "Forties Healthcare Ltd." (copy at APB 21 to 25), rendered in ITA No. 1253(Del)2010. for assessment year 2006-07, holds a view similar to the one taken in "Shriram Piston & Rings Ltd."(supra). 40. Moreover, thoug....
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....aforesaid decision of the ld. CIT(A) on this issue, the ld. DR has sought to place reliance on the assessment order. The learned counsel for the assessee, on the other hand, relying on the impugned order, has contended that all the three provisions were actually paid in the next year; that the assessee is following the Mercantile System of Accounting; and that therefore, the provisions were necessary provisions. Reliance has been placed on "CIT v. Insilco Ltd.", 179 Taxmann 55(Del) and "CIT v. Triveni Engg", 196 Taxmann 94(Del). 47. In this regard, it is seen that the assessee is following the Mercantile System of Accounting, in which, the expenditure items, for which, the legal liability has been incurred, are immediately debited even before the amounts are actually disbursed, as also held in "Morvi Industries Ltd. v. CIT", 82 ITR 835(SC). The payment to Palam Court Maintenance Agency was a monthly payment after TDS, for the maintenance requirements of the assessee, including electricity. The provision in this regard was made in accordance with the Settlement Statement between the assessee and the Agency, the details whereof were duly filed. The payment was, in fact, for the se....
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....m Court" was building for which the assessee was paying rent, on which, TDS should have been deducted @ 22.2% and not on the rate of 2%, as done by the assessee; that there was no evidence on record to support the assessee's conclusion that the payment made by the assessee to the Agency was an interim payment in respect of maintenance services provided to the assessee by the Agency; that the Account of the Agency gets settled at the end of the year and the amount paid to the Agency is claimed by the assessee under the respective heads, like electricity expenses, AMC expenses, etc.; and that the amount paid had not been claimed by the assessee in the Profit and Loss Account and that therefore, there was no question of disallowance thereof. 55. The ld. DR has contended that though the assessee had stated that this amount was not claimed as expenses in the Profit and Loss Account, the AO has not agreed with this averment, observing that the amount spent on Palm Court is in the nature of rent as evident from the letter heads of the assessee Company, and that TDS on the said rent should have been 22.2% and not @ 2% as done by the assessee Company; and that it being a clear case of sh....