TaxTMI 
TaxTMI 
2022 (7) TMI 1625
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....the Ld. CIT(A) has erred in concluding that revenue share payments of INR 32,440,761 be not allowed as a deduction on account of inability of the Appellant to produce requisite documentation from the Local Cable Operators (LCOs). c) That the Ld. CIT(A) has erred in failing to appreciate the fact that the payments to LCOs were duly substantiated by the financials and documentation submitted to the Assessing Officer and Ld. CIT(A). 3.a) That the CIT(A) has erred in confirming the disallowance to the extent of INR 5,269,856 made by the AO of the amount of sundry creditors as cessation of liability under section 40) of the Act. b) That the CIT(A) has erred in failing to appreciate the fact that the liability existed in AY 2011-12 and such liabilities ceased to exist only in subsequent assessment years. c) That the CIT(A) has erred in disallowing the outstanding sundry creditors of INR 5,269,856 in AY 2011-12 vis-à-vis the year in which such creditors ceased to exit. 4.a) That the CIT(A) erred in confirming the disallowance under section 14A read with Rule 8D. b) That the Commissioner of Income Tax (Appeals) failed to apprecia....
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....see during the year under consideration has debited a sum of Rs. 3,24,40,761 under the head 'other expenses' towards 'revenue share payments'. The assessee submitted before the AO that these amounts are paid to the local cable operators (LCO) as a share in the revenue as these income pertain to the LCOs by overriding title as per the terms agreed with the LCOs. Accordingly, 60% of the gross revenue collected on account of Cable TV subscription and the remaining 40% belongs to the LCOs based on customer points agreed. The assessee therefore submitted that the 40% of the revenue is collected on behalf of the LCO to be passed on to them and hence there is no requirement to deduct tax at source. 6. The AO did not accept the contentions of the assessee and stating that the payments are chargeable in the hands of the LCOs as business income and provisions of section 194J r.w.s. 28(va) of the Income-tax Act, 1961 [the Act] clearly applies to the assessee. He therefore disallowed the amount paid by the assessee as revenue share u/s. 40(a)(i) by treating it as a non-compete fees. 7. On further appeal, the CIT(Appeals) accepted the contention of the assessee that the am....
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....nts are made through proper banking channels. If the CIT(A) had any doubt with regard to the genuineness of the payment, he could have drawn sample transactions from the list produced by the assessee and summoned the parties to verify the genuineness. Without proper scrutiny of the details submitted and without calling for any additional information from the assessee to substantiate the claim, the CIT(Appeals) rejected the claim of the assessee merely on the ground on non-submission of ITRs of the LCOs. This, in our considered view, is not legally tenable and we therefore remit the issue back to the CIT(Appeals) to verify the details submitted by the assessee to get into the root of the transactions and decide the allowability of the claim in accordance with law. Needless to say that the assessee should be afforded reasonable opportunity of being heard. Addition u/s. 41(1) of the Act for unconfirmed creditors (Ground 3) 11. During the course of assessment, the AO noticed that the assessee has shown certain amounts as sundry creditors in the balance sheet and called for further details from the assessee. On verification of the details furnished, the AO noticed that some of the....
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....tellite Network 40,000 40,000 Liability transferred to ABS in AY 2015-16 Radhamma Cable Network 46,246 46,246 Liability transferred to ABS in AY 2015-16 Rakesh Cable Video 32,000 32,000 Liability transferred to ABS in AY 2015-16 Sree Sat Vision - Doddekunts 1,804 1,804 Liability transferred to ABS in AY 2015-16 A E Logistics (P) Ltd 22,058 22,058 Written back in books in AY 2012-13 72 Avaya Global Connect 1,032,557 1,032,557 Written back in books in AY 2014-15 71 QUIQOM 283,536 283,536 Written back in books in AY 2014-15 71 Link / Feed Charges - Siti Cable 1,387,591 1,387,591 Written back in books in AY 2017-18 70 Total 5,669,856 400,000 5,269,856 16. We notice that the Hon'ble High Court of Karnataka in the case of B.T. Nagaraja Reddy (supra) has considered a similar issue and held as follows :- "5. Having heard the learned counsel for the appellants and on perusal of the appeal papers, we....
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....as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1 :- For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. ....
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.... section 14A r.w. R.8D computed the amount of disallowance as under :- (i) The amount of expenditure directly relating to income which does not form part of total income NIL (ii) Interest expenses not directly attributable to any particular income or receipt then A X B / C Rs.16,85,163 (iii) 1/2 % of the average of the value of investments, income from which does not or shall not form part of the total income Rs. 30,82,326 Disallowance as per Rule 8D Rs. 47,67,489 19. The CIT(Appeals) deleted the addition under Rule 8D(2)(ii) on the ground that the assessee is having interest free own funds sufficient to explain the investments yielding exempt income. He, however, confirmed the disallowance under Rule 8D(2)(iii) on the basis that the assessee is deemed to have incurred general administrative expenses to manage the investments. Aggrieved, the assessee is in appeal before the Tribunal. 20. Before us, the ld. AR submitted that while considering the average investment, the AO has taken the whole of the investments at the beginning and at the end of the year, whereas only those investments which yield tax free income ought to be consid....
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....7/- thereon. Out of this unsecured loan, the assessee invested a sum in purchase of shares, which was shown as investment for the purpose of long term capital gains. The AO disallowed interest proportionate to the investment in shares, though no exempt income was earned during the year. The CIT(A) affirmed this but held that the net interest debited to the P&L A/c was required to be apportioned and not the interest expenditure. The Tribunal held that interest expenditure incurred by the assessee was for borrowing used for the purposes of investment in shares, both held for trading as well as investment purposes. Irrespective of whether or not there was any yield of dividend on the shares purchased, the interest incurred was relatable to earning of dividend on the shares purchased. The dividend income being exempted from tax by virtue of section 10(34) of the Act, the interest paid on borrowed capital utilized in purchase of shares, being the expenditure incurred in relation to dividend income not forming part of the assessee's total income, was held to be not an allowable deduction. In coming to the conclusion, the Special Bench primarily relied on the ratio laid down by the Ho....
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....r. Vohra that the decision of the Supreme Court in Rajendra Prasad Moddy (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is for the purpose of making or earning such income'. Section 14A of the Act on the other hand contains the expression 'in relation to income which does not form part of the total income.' The decision in Rajendra Prasad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act. " 11.8 In the case of Holcin India (P) Ltd. (supra) the facts were that the respondent- assessee was a subsidiary of Holderind Investments Ltd., Mauritius, which was formed as a holding company for 'making downstream investments in cement manufacturing ventures in India. In the return of income filed for the Assessment Year 2007-08, the respondent-assessee declared loss of Rs. 8.56 Crores approximately. The respondent-assessee had declared revenue receipts of Rs. 18,02,274/- which included interest of Rs. 726/- from Fixed Deposit Receipts and profit on sale of fixed assets of Rs.....
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....tion 14A were applicable. 11.11 The Hon'ble High Court observed that the reasoning given by the CIT(A) was ambiguous and unclear and on clarity being sought from the Revenue it was pointed out that "the stand of the assessee contained a contradiction to the extent that on the issue of setting up of business, it was stated that the assessee had incurred expenditure on acquiring the shares, therefore, the assessee could not now take different stand than the one taken in the first issue". 11.12 The Hon'ble High Court, after considering in detail the decision of ld. CIT(A) finally observed in para 13 as under: "13. We. are confused about the stand taken by the appellant-Revenue. Thus, we had asked Sr. Standing Counsel for the-Revenue, to state in his own words, their stand before us. During the course of hearing, the submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT(A) had invoked Section 14A to disallow the entire expenditure. The aforesaid submission does not find any specific and clear narration in the reasons or the grounds given by the CIT(A) to make the said addition. Possibly,....
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....ffirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- made by the Assessing Officer was in order" 15. Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether Income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term, capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax: It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not all improbability. Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, ....
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.... cannot ignore it. " .... This position has been summed up by the Supreme Court in Mahadeolal Kanodia v. Administrator General of West Bengal AIR 1960 SC 936 (at page 941) as follows: "Judicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more necessary in law than any other thing, it is the quality of certainty. That quality would totally disappear if judges of co-ordinate jurisdiction in a High Court start overruling one another's decisions. If one Division Bench of a High Court is unable to distinguish a previous decision of another Division Bench, and holding the view that the earlier decision is wrong, itself gives effect to that view, the result would be utter confusion. The position would be equally bad where a judge sitting singly in the High Court is of opinion that the previous decision of another single judge on a question of law is wrong and gives effect to that view instead of referring the matter to a larger Bench." The above decision was followed by the Supreme Court in Baradakanta Mishra v. Bhimsen Dixit, AIR 1972 SC 2466, wherein the legal position was reiterated in the following....
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....impugned order must be set aside and the Commissioner is directed to consider the matter afresh in keeping with the decisions of this court after giving the petitioners an opportunity of being heard. At least 48 hours clear notice must be given to the petitioners. The Commissioner will communicate the final order to the petitioner within eight weeks from the date of hearing. (iv) CIT v. J.K. Jain [1998] 230 ITR 839 (P&H), observing as under: "We have carefully examined the records and have heard learned counsel representing the parties. We are in respectful agreement with the view expressed by the Allahabad High Court in Omega Sports and Radio Works' case [1982] 134 ITR 28, as also the decision of this court in Mohan Lal Kansal's case [1978] 114 ITR 583. Following the decision in the two cases referred to above, we hold that it was not a case of divergence of opinion inasmuch as the opinion expressed by this court was binding upon the Tribunal." 11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of in....