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2014 (10) TMI 172

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.... total profits for the year: i) Grand Foundry Ltd. Rs. 22 lacs ii) Suleman Bharucha Rs. 7.50 lacs iii) Yasmin Bharucha Rs. 7.50 lacs It was explained that the receipt was for the project of the closure of the payee company's manufacturing unit at Sewri (also called as Reay Road Unit), Mumbai, which had 800 workmen on its rolls. The same involved convincing the workers; handling court cases; negotiating with trade unions; finalizing the settlement of VRS, etc. The project was undertaken jointly with the three payees afore-referred, and which explains the payment to them. Further, the payments were not on profit sharing basis, but toward specific services rendered by them, each contributing to the project, so that there was no question of a joint venture (JV) or of an association of persons (AOP). The payment for Rs. 37 lacs (which was thus in the nature of professional fees and/or commission) was disallowed in view of the same being not proved in terms of the services rendered by the three payees afore-referred, being unevidenced and, in any case, non-deduction of tax at source, so that section 40(a)(ia) stood attracted. On the same footing was the payment of Rs. 5 lacs to one, ....

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....009] 317 ITR 1 (SC); Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); Guljag Industries v. CTO [2007] 293 ITR 584 (SC); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam and Bros v. CIT [1999] 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC); CIT vs. K. R. Sadayappan [1990] 185 ITR 49 (SC); and CIT vs. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC), besides by the hon'ble high courts, viz., CIT vs. Mohd. Mohtram Farooqui [2003] 259 ITR 132 (Raj); CIT vs. Sree Krishna Trading Co. [2002] 253 ITR 645 (Ker); Shiv Kumar Tak vs. CIT [2001] 251 ITR 373 (Raj); CIT vs. Vidyagauri Natverlal [1999] 238 ITR 91 (Guj), to name some. The law, in our humble view, would hold even where the disallowance leading to the variation between the assessed and returned incomes is u/s. 40(a)(ia), being independent of the provision where-under the same (disallowance) is effected. That is, the question of levy or otherwise of penalty would have to be necessarily examined w.r.t. the assessee's case for the claim of expenditure in view of non-obstante clause of s.40(a)(ia), as indeed would be the case for any other provision. There is, to begin ....

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....ly detriment to its allowability is the non-deduction of tax at source. The assessee's claim, made before us, that the only reason for the disallowance, or its sustenance, is invocation or applicability of section 40(a)(ia) is without basis in facts. Qua the claim for diversion by overriding title. This claim stands made by the assessee, as far as appears to us, vide its letter dated 08.10.2010 to the ld. CIT(A) (PB pgs. 27-28); the assessee's written submissions vide letter dated 23.03.2010, mention of which we find in the penalty order, being not on record. Though an explanation, in terms of Explanation 1 to section 271(1)(c), can only be that furnished before the A.O., who decides on that basis (and after subjecting it to such verification as he in his wisdom may deem fit) the question of levy of penalty in the facts and circumstances of the case. We, still, giving the assessee the benefit of doubt, consider the same as an explanation by the assessee toward and in substantiation of its case. The basis of the assessee's claim, as we gather, is the fact that the parties had agreed to share the legal fees arising to it, as their share in the profit of the JV. The A.O. rejected the....

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....ee claim to have furnished a substantiation which in fact contradicts the material adduced by him? Continuing further, it cannot be lost sight of that the assessee has failed to exhibit the true nature of the transaction/s which, going by its version, is inextricably linked with its contracts with the payee companies, i.e., Britannia Industries Limited and Deepak Fertilizers & Petrochemicals Ltd., and which are conspicuous by their absence, a fact sought to be emphasized by the tribunal. Further, the payment, or nearly the whole of it, stands received by the assessee in the months of April and May, 2004 (from Britannia Industries Limited at Rs. 42.50 lacs and Rs. 5.585 lacs respectively) and in May and July, 2004 (from Deepak Fertilizers & Petrochemicals Ltd. at Rs. 2 lacs and Rs. 5.70 lacs respectively). The payments to its partners, however, are made only toward the end of the year, i.e., in February and March, 2005 (PB pgs. 35-36), and which is not understandable if the share (of profit) was, as stated, already fixed and, further, with reference to the gross fees received by the assessee. If their share was released after the completion of their work, it is a case of sub contrac....