TaxTMI 
TaxTMI 
2020 (11) TMI 63
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....ces of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs. 1,67,60,563/- made on account of commission? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 30,46,678/- on account of Provision for Doubtful Debt? 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 12,45,123/- and Rs. 9,55,455/- on account of delayed payment of gratuity and leave encashment respectively? 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the TP adjustment of Rs. 12,21,683/- on account of payment of Royalty by considering the payment of Royalty by the assessee @ 4.53% of the net sales? 6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the R&D Cess as intrinsically linked to the payment of Royalty and thereby excluding the same to arrive at the payment of Royalty @ 4.53% instead of 4.74% as computed by the TPO? 7. That it is prayed to set aside ....
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....ot been disputed by the Ld. AO. The only contention of the Ld. AO was that the said expenditure is a capital expenditure which yields benefit for a longer period and hence disallowed the claim of deduction of the said expenditure made by the appellant. 4. The Appellant has brought my attention the judgment of Hon'ble jurisdictional High court in the case of Binani Cement Ltd. (supra) and Graphite India Limited (supra) wherein the Hon'ble Court has held that expenditure incurred for construction/acquisition of new facility which had to be abandoned midway will be allowable as a revenue expenditure as incurred wholly or exclusively for the purpose of assessee's business. It is to be noted that in the instant case also, the expenditure incurred by the appellant was for the purpose of installation of new ERP package which did not sail through and had to be abandoned midway. Hence, the expenditure incurred did not give rise to any enduring benefit to the appellant neither did it result in creation of a capital asset. The Hon'ble Calcutta HC, in the case of Graphite India Limited reported (221 ITR 420) has also held, that expenditure which did not result in bring....
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.... had to be abandoned midway. The expenditure incurred on said package was recognized in profit and loss account and was claimed as a revenue deduction u/s. 37(1) of the Act. That being so, we decline to interfere in the order of ld CIT(A), his order on this issue is hereby accepted and the grounds of appeal raised by the Revenue is dismissed. 10. Ground No. 2 raised by the revenue relates to disallowance of commission of Rs. 1,67,60,563/-. 11. Brief facts qua the issue are that the assessee company has claimed expenses in form of commission for Rs. 6,53,82,426/-. During the assessment proceedings, the assessee submitted evidences like names and addresses of the parties to whom commission has been paid. The details filed also shows the amount of commission, TDS, nature of service rendered and also quantification of service rendered. The AO was of the view that so far as allowability of expenses in form of commission is concerned, the main point to be satisfied is "Rendering of service". The assessee although filed details of commission, but such details is not accompanied by any evidence towards rendering of service for which commission is claimed to have been allowed. Howe....
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....tion are similar to the facts of A.Y. 03-04, the disallowance should sustain. 2. The Ld. Assessing Officer in the assessment order has also mentioned that all the parties except one to whom commission was paid confirmed that they had entered into the transaction with the appellant. The Ld. AO has not disputed this fact and made the disallowance mostly on the ground that the appellant has failed to adduce evidence that the agents have in essence rendered services to the appellant to be eligible for receipt of commission. 3. During the course of the hearing, the appellant/Ld. A.Rs, drew my attention towards the reply, dated 22nd December 2006 (Annexed at Pg - 7-74 of the submission filed before me) which was also filed before the Ld. AO at the time of assessment proceedings. The appellant had furnished copies of several communications Which took place with the agents. Some of the communications, filed are as follows: * 'Letter dated 06-05-03 issued by SPS Metal Cast & Alloys Ltd. communicating that they, have asked CESC Ltd. to carry out inspection of the meters manufactured by appellant. * Letter dated 24-03-03 issued by CESC Ltd. on the appel....
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.... M/s. Agnes Trade & Commerce Pvt. Ltd., Consolidated Construction. Co, Agency-Ltd, Cindy Engg. Pvt. Ltd., Omega Venture Pvt. Ltd., SPS Metal Cast & Alloy Ltd., The Ld. AO had directed the inspector to verify the existence of these persons, services rendered by them, and whether these parties declared such income in the tax return, etc. It is pertinent to observe that in the assessment order dated 12.12.2008 passed for A.Y. 2005-06, no disallowance has been made on account of commission payment to above parties. This would clearly suggest that the Ld. AO had satisfied himself about the genuineness of the commission payment made by the appellant and therefore did not make any adjustment on this front for the A.Y. 2005-06. 6. It is also, noted that several of the agents to whom the appellant paid commission in A.Y. 05-06 were also the agents for the appellant in A.Y. 04-05. Hence, it is difficult to locate any good reason in order to take a different view from the one taken by the Ld. AO for this the assessment year under consideration. Since, the Ld, AO admitted the same facts in subsequent years and not made any disallowance in A.Y 05-06, I do not find any justification for....
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....at "no evidence has been brought-on record to show that any services were rendered by the said agents to the assessee. Moreover, reasonableness of an expenditure has to be adjudged from the point of view of the businessman and not of the revenue. In that view of the matter, we are of the opinion that the judgment under challenge is perverse and cannot be sustained. The question, reformulated by us, is answered in the affirmative. The question originally formulated is answered in the negative and in favour of the assessee." 7. It is also a settled-principle that ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his business. The Hon'ble Apex Court in the case of Sassoon J David and Co. (P) Ltd. vs CIT Bombay (118 ITR 261)(SC) held that expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction for the same. Even the Karnataka HC in the case Commissioner of Income-tax vs Motor Industries Company Limited (1907) 223 ITR 112 was of the view that the commercial expediency of a businessman's ....
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....not make any disallowance for commission expense in the Assessment order for AY 2005-06. Hence, the Ld. AO has himself accepted that the deduction for commission expense should be allowed. The fact that there was a transaction between the parties and the assessee have not been disputed by the Ld. AO. The Ld. AO alleged that the parties did not produce any evidence to the effect that the services were actually rendered. However, this allegation is without merits as the assessee had duly submitted the relevant documents in support of the services obtained from the agent during the course of the assessment proceedings. On perusal of the documents, it appears that the appellant has furnished various information before the Ld. AO justifying the role of various parties in the process of co-ordination with the customers. It is always open for the Ld. AO to confirm from the agents whether the sum received by them has been appropriately offered to tax in their return. It is seen that the Ld. AO had issued notices to the agents who confirmed that they had entered into transactions with the agent. In the absence of any observation or recording by the Ld. AO, it cannot be said, in my con....
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....)(xv) of the Act of the 1922 Act, corresponding to section 37(1) of the 1961 Act, does not mean 'necessarily'. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure". During the course of assessment proceedings, the appellant duly furnished all the details of commission expense alongwith documentary evidence. Further, the Ld. AO also verified the transactions by issuing notice u/s. 133(6) of the Act against which he received positive confirmation from the agents regarding the transactions. Hence, the disallowance made by the Ld. AO is on mere surmise and conjecture and the order of Ld. CIT(A) in deleting the said addition is to be sustained. Accordingly, we dismiss the ground raised by the Revenue. 16. Ground No. 3 raised by the revenue reads as follows: "Whether on the facts and in the circumstances of the case and in....
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.... On appeal, the ld. CIT(A) deleted the addition observing the following: "15. DECISION 1. I have carefully considered the action of the Ld. AO and the written submission filed by the appellant. After Careful consideration of the facts, it is observed that during the previous year; under consideration, the appellant had actually written off bad debt amounting to Rs. 30,46,678 in its profit and loss account; 2. The said fact is substantiated from the details of provision for doubtful debts, and bad debt furnished by the appellant during the course of the hearing and also, the financial statements of the company. After examining the details submitted, I find myself agreeable with the appellant that no new provision for doubtful debts has been made in the accounts of the appellant during the financial year 2003-04 (relevant to assessment year 2004-05) and the charge of Rs. 30,46,678/- made to the profit and loss account for the year ended 31.03.2004 was only on. account of writing off bad debts. This would be an allowable expenditure u/s. 36(1)(vii) of the Income Tax Act, 1961. It is also to be said that the factual and legal matrix of the case of th....
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....itions. His order on these additions are, therefore, upheld and the grounds of appeal of the Revenue are dismissed. 21. Ground No. 4 raised by the revenue reads as follows: "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 12,45,123/- and Rs. 9,55,455/- on account of delayed payment of gratuity and leave encashment respectively? 22. Brief facts qua the issue are that the assessing officer made addition of provision for gratuity and provision for leave encashment amounting to Rs. 12,45,123/- and Rs. 9,55,455/- respectively in the computation of book profit u/s. 115JB of the Act. 23. On appeal, the ld. CIT(A) deleted the addition observing the following: 18. DECISION: 1. I have carefully considered the action of the AO and the written submission filed by the appellant. It is to be observed that Section 115JB of the Act deals with addition on account of provision for meeting liabilities other than ascertained liabilities. The relevant provisions is reproduced below: "Explanation I.-For the purposes of this section, "book profit" means the profit-as shown in th....
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....r under consideration, the assessee created provision for gratuity and provision for leave encashment which was not offered to tax under computation of book profit since both the sum are provision for ascertained liability. The Ld. AO added back provision for gratuity and leave encashment to the book profits of the assessee stating that provision for liability is to be added back while computing book profit. We note that Ld. CIT(A) held that in computation of book profit only provision for unascertained liability is required to be added back. Provision for gratuity and leave encashment, being ascertained liabilities are not required to be added back to book profits u/s. 115JB of the Act. We note that ld CIT(A) relied on the judgment of the Hon'ble Supreme Court in the case of Bharat Earth Movers vs CIT reported in 245 ITR 421(SC) (supra), therefore we do not find any infirmity in the order of ld CIT(A).That being so, we decline to interfere with the order of ld. C.I T.(A) in deleting the aforesaid additions. His order on these additions are, therefore, upheld and the grounds of appeal of the Revenue are dismissed. 27. Ground Nos. 5 and 6 raised by the revenue read as follows....
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....parable uncontrolled transactions was determined to be 4.34% of Sales and the said benchmarking analysis has been affirmed by Hon'ble Kolkata Tribunal in appellant's own case for A.Y. 07-08 and AY 08-09 while adjudicating the issue of payment of royalty. Considering that the rate of royalty after exclusion of R&D cess paid by the appellant is 4.53% during AY 2004-05 which falls within the +/-5% range in terms of the proviso to section 92C(2) of the IT Act, the transaction should be considered to be at arm's length. 3. In my considered view, it is a settled principle that R&D cess represents a liability due to the Government and is not to be considered as income in the hands of the non-resident. In terms of section 3 of The Research & Development Cess Act. 1986: "3. Levy and collection of cess on payments made towards import of technology. There shall be levied and collected, for the purposes of this Act, a cess at such rate not exceeding five per cent, on all payments made towards the import of technology, as the Central Government may from time to time, specify, by notification, in the official Gazette. The cess shall be payable to t....
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....). The assessee paid R&D Cess of Rs. 8,82,893/- directly to the government as it was the liability of importer of service. The Ld. AO followed the order of the Ld. TPO and made adjustment of Rs. 12,21,683/- on account of royalty. The Ld. TPO derived the percentage of royalty at 4.74% by considering the amount of royalty as Rs. 2,03,06,532/- (including income tax and R&D Cess). On appeal, the Ld. CIT(A) held that R&D cess is paid to the Government and not to the Associated Enterprise and hence, considered the percentage of royalty at 4.53% for the purpose of comparison of arm's length price and provided relief to the assessee. The ld Counsel submits before us that during the previous year under consideration, the assessee has paid Rs. 1,76,57,854/- towards payment of royalty to its Associated Enterprise (AE), Landis+Gyr AG. The assessee borne taxes of Rs. 17,65,785/- on such royalty. The assessee also paid R&D Cess of Rs. 8,82,893/- to the government in terms of the provisions of The Research and Development Cess Act, 1986. The payment of royalty was consequent to the foreign collaboration agreement entered into between the assessee and Landis+Gyr AG signed in 1992, which is ....