TaxTMI 
TaxTMI 
2020 (11) TMI 63
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.... 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 the order passed by the Ld. CIT(A)-22 and restore the assessment order passed by the Assessing....
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....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 bringing into existence if any capital asset of enduring nature would be admissible as revenue expenditure, 5. Respectfully following the judgment of ju....
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....t. 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. However, in order to verify the transaction regarding payment/allowing of commission, notice u/s. 133(6) were sent to following parties: i) Gayatri Trading Corpn. : Rs. 5,28,685/....
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.... 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 appellant communicating about collection of PO from their office. In the said letter, a copy is also marked to SPS Metal Cast & Alloys Ltd. which establishes that the agent was communicating with CESC Ltd. on behalf of the appellant. * Letter dated 30-11-03, 18-....
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....ncome 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 not granting claim for similar expense in A.Y. 04-05. The Ld. AO has also recorded that the disallowance of commission paid to Consolidated Construction Co and M/s. SPS Metal Cast & Alloys Ltd. were also made in A.Y. 03-04 and the facts being similar, accordingly, disallowance of commission paid to these parties ....
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....s 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 decision to incur, an expenditure cannot be tested on the touchstone of strict legal liability to incur such an expenditure. Such decisions in the very nature of things have to be taken from a business point of view and have to be respected by the authorities no matter that it may appear to the latter that the expenditure incurred was unnecessary or avoid....
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.... 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 considered view that the Ld. AO has not rebutted the contentions of the appellant as made out before him during the scrutiny. It is also observed that the Ld. AO has not made any finding so as to suggest that the appellant has not made any payment to the various third parties referred above, or that any of the payments were bogus or not genuine. He went on to make the disall....
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....fits, 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 law, the Ld. CIT(A) was justified in deleting the addition of Rs. 30,46,678/- on account of Provision for Doubtful Debt? 17. Brief facts qua the issue are that on perusal of computation sheet of book profit u/s. 115JB, the AO noticed that following amount although debited to P & L a/c was not added back to book profit: Provision for gratuity : Rs. 12,45,123/- Provision for leav....
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....ails 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 the appellant-company is well covered by the decision of the Hon'ble Supreme Court in the case-of T.R.F Ltd. vs CIT reported in 323 ITR 397 where in it was held that after 1st April 1989, bad debt claimed by the assessee company will be allowed if such bad debt is written off as irrecoverable in the books of accounts of the company and it is not necessary for the assessee to establish that the debt in fact has become irrecoverably. As has been submitted by, the appellant, a similar v....
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....ty 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 the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by- (a)................. (b)....................... (c) the amount or amounts set aside to provisions made for meeting liabilities, other-than ascertained liabilities; or 2. Now the issue in hand, is whether provision for leave encashment and provision for gratuity can be termed as provision for ascertained liability so as to fall outside the ambit of clause (c) of Explanation 1 to Section 115JB of the Act. The issue on whether li....
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....nt, 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: 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? 28. Brief facts qua the issue....
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....o 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 the Central Government by an industrial concern which imports technology on or before making any payments towards such import and shall be paid by the industrial concern to any specified agency." 4. It is clear that the liability to pay such cess is that of the importer i.e. the Indian company and accordingly the question of inclusion such cess in the amount of royalty paid by the appellant to Landis+Gyr AG would not arise. Thus, while arriving at the effective rate of royalty, amount of R&D cess, which is a liability of the importer of technology should not be taken into consideration. On exclusion of R&D cess from royalty paid by the appellant to L....
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....e 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 approved by the Ministry of Commerce & Industry, Department of Industrial Policy & Promotion. Pursuant to the agreement, Landis+Gyr AG provides technology, know-how etc. in relation to designing and manufacturing of electric meters. Hence, for receiving the aforesaid support, the assessee had paid Landis+Gyr AG, technology royalty fee ranging from 4% to 5% of the net sales of manufactured goods effected in the territory of India. The Ld. Counsel would further like to submit that the Ld. TPO had erroneously computed the effective rate of royalty as 4.74% ignoring the fact that the R&D Cess paid by the assessee is not towards royalty and the same is required to be excluded. The sai....