1. This appeal is preferred by the Revenue against the order dated 31.01.2019 of the Commissioner of Income Tax (Appeals)-4, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeal No.286/17-18/CIT(A)-4 arising out of the appeal before it against the order dated 30.12.2017 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), by the ACIT, Circle-10(2), New Delhi (hereinafter referred to as the Ld. AO).
2. Heard and perused the records.
3. The first issue is out of addition of Rs. 58,03,650/- on account of disallowance of royalty payment. Ld. Counsel has submitted that the issue is squarely covered by the order of the Tribunal in the assessee’s own case. It comes up from records that in the present case, the AO made the addition of Rs58,03,650/-on account of disallowance of royalty payment made by assessee. CIT (A) has deleted the said addition by relying upon the order passed in the assessee’s own case for preceding years. The similar issue has been decided by co-ordinate benches in the favour of the assesse in assessee’s own case in the preceding assessment years. The particulars cited are that for AY 2005-06, AY 2006-07 & 2007-08 vide ITA No.637/Del/2013, ITA No. 638/Del/2013 and ITA 4373/Del/2013 respectively, order dated. 14.10.2014, copy of which is made available in PB Pg. 127-142, with relevant part being PB Pg.140-141, Para 9. In AY 2008-09 vide ITA No. 4776/Del/2013, order dated 14.11.2014, copy made available in PB Pg. 143-145 and relevant part being PB Pg.144Relevant Para 4. In AY 2010-11 & AY 2013-14 bearing ITA 3894/Del/2017&ITANo. 3895/Del/2017 vide order dated 13.09.2021 copy of which is available in PB Pg. 146-161, with relevant part being in PB Pg.150-151 Relevant Para 10. In AY 2012-13 vide ITA No.5448/Del/2017, order dated 17.02.2021 copy made available in PB Pg.162-164, with relevant part being at Pg.163, Para 3-4.
4. Ld. Counsel has submitted that the issue related to royalty payment is also covered in favor of assessee by Hon’ble High Court of Delhi judgment in assessee’s own case bearing ITA No. 474 to 476/2015 dated 04.09.2015, where Hon’ble High court held as under-
“8. There was sufficient opportunity for the AO, if he doubted the genuineness of the payment of royalty by the Assessee to MPL, to have conducted a detailed inquiry. The Assessee on its part furnished the agreement between itself and MPL under which it was inter alia permitted to use the trademark 'Macnaught' on its products. The royalty was payable per unit of the product and, therefore, was clearly linked to sales. There was also no doubt that such payment was in fact made by the Assessee to MPL. It is also not in doubt that MPL was not related to the Assessee in any manner. In the circumstances, there should have been some reasonable basis for the CIT(A) to simply conclude that this was a sham transaction and proceed to enhance the disallowance. The interpretation of the agreement by the ITAT appears to be plausible. The Court is not persuaded to hold that the impugned order of the ITAT is perverse”
4.1 In view of the above narrated reasoning and undisputed fact of issue being repeatedly settled in favour of assessee the order of CIT(A) deleting the addition cannot be interfered.
5. The second issue is of disallowance u/s 40(a)(i) of the Act, of Rs. 3,59,86,076/- on account of commission paid to non- resident agent for export sales. Ld. Counsel has submitted that the issue is squarely covered by the order of the co-ordinate bench in the assessee’s own case. CIT (A) has deleted the disallowance by relying upon the order passed in the assessee’s own case for preceding years. It comes up that in assessee’s own case in the preceding assessment years AY 2010-11 & AY 2013-14 (supra), the issue has been decided in favour of assessee and CIT(A) has relied same. No distinguishing fact is cited by Ld. DR. In view of above order of CIT(A) deleting the addition made by AO needs no interference.
6. Third disallowance made by was under section 14A read with rule 8D. In this regards, it is submitted by Ld. Counsel, that AO via note sheet dated 23.11.2017 had asked assessee why the disallowance under section 14A read with rule 14A should not be made. In response to above, assessee via reply dated 13.12.2017 (PB Pg 82-85) submitted that net worth of assessee is Rs, 241.08 crores and non-current investment is Rs. 24.21 crores. Hence, assessee’s own funds far exceeds the investment made. Consequently, no disallowance is warranted under section 14A of the Act. It was further submitted that assessee has not earned any dividend income during the current year. It was also submitted that assessee not incurred any expense to earn the exempt income. Before CIT(A), assessee reiterated the submissions made before the AO and CIT(A) considering the submissions made by the assessee, deleted the addition of Rs. 4,56,145/- made under section 14A r.w.r 8D(ii) holding that assessee own funds are adequate enough for making investment capable of earning tax free income. CIT(A) also restricted the disallowance under section 14A r.w.r 8D(iii) to Rs. 5,41,887/-holding that no dividend income is earned by assessee in investment made in equity share of Reliance power and Yadu steel and power Ltd. However, exempt income of Rs. 1,61,45,211/- has been received as profit of share of M/s AP Tools.
7. Now, Revenue is in appeal against the deletion made by the CIT(A). Ld. DR has supported the reasoning of AO. However, could not dispute the fact that assessee’s own funds far exceeds the investment made. Consequently, no disallowance is warranted under section 14A of the Act. Reliance can be placed on judgment in SOUTH INDIAN BANK LTD. VERSUS COMMISSIONER OF INCOME TAX,2021 (9) TMI 566 - SUPREME COURT, Dated.- September 9, 2021, where Hon’ble Supreme Court has held;
“27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees.”
7.1 Further reliance is rightly placed on the following judicial pronouncements:-
a. THE COMMISSIONER OF INCOME TAX VERSUS RELIANCE UTILITIES & POWER LTD.,2009 (1) TMI 4 - BOMBAY HIGH COURT, Dated.- January 9, 2009
b. COMMISSIONER OF INCOME TAX-2, MUMBAI VERSUS HDFC BANK LTD.,2014 (8) TMI 119 - BOMBAY HIGH COURT,Dated.- July 23, 2014
c. KALAMKARI DESIGNS PVT. LTD. VERSUS DCIT, CIRCLE 11 (1) , KOLKATA,2022 (10) TMI 451 - ITAT DELHI, Dated.-September 19, 2022.
7.2 Ld.CIT(A) has restricted the addition under section 14A r.w.r 8D(iii) to Rs. Rs. 5,41,887/- holding that exempt income of Rs. 1,61,45,211/- has been received as profit of share of M/s AP Tools. In this regard Ld. Counsel has submitted that the partnership firm is an independent entity and requires to run its affairs separately. It is further submitted that no expenditure has been incurred by the assessee to earn the exempt income of Rs. Rs. 1,61,45,211/- i.e., share in profit of share of M/s AP Tools. In this regards, it is also submitted that it is settled position in law that investment in partnership firm would not attract disallowance under section 14A unless it is shown by the AO that certain expenses, howsoever small have been incurred for the purpose of partnership firm and claimed as expense by the assessee and this contention of assessee is supported by Ld. Counsel by placing reliance on the RAKESH K. PATEL (HUF) VERSUS DCIT, CIRCLE-1 (2) , BARODA,2019 (7) TMI 1545 - ITAT AHMEDABAD,Dated.- July 23, 2019-, where in it is held by Ahmadabad Bench;
“6. We have perused the order of the lower authorities. We find that the assessee has earned dividend income of ₹ 32,155/- on investment in mutual funds. The assessee has also claimed exempt income of ₹ 38,66,171/- from the partnership firm in which the assessee is a partner. The investment in mutual fund does not per se call for any separate administrative expenditure having regard to the fact that the mutual funds are run by professional who separately charges administrative expenses from the assessee for management of the funds. Likewise, investments in partnership firm would not attract disallowance under s. 14A unless it is shown by the AO that certain expenses howsoever small have been incurred for the purposes of partnership firm and claimed in the assessee’s accounts. No such observation is found in the order of the AO. Needless to say application of sec. 14A is not automatic and it inheres in i t the concept of reasonableness. The AO in the instant case is not found to have satisfied himself about incurring of any administrative expenses. The partnership firm is an independent entity and requires to run its affairs separately. The partners are holding the mutual agency in the partnership firm and unless the partners are shown to be drawing remuneration from the assessee concern and at the same time investing its attention in the partnership firm, there is no perceptible reason to disbelieve the assessee for not incurring in expenditure. We, thus, find no reason to thrust mechanical application of Rule 8D(2)(iii) of the Act in the given facts. The order of the CIT(A) is consequently set aside and the AO is directed to reverse the disallowance made in Rule 8D(2)(iii) r.w.s 14A of the Act.”
7.3 Further reliance is placed on the following judicial pronouncements-
VALLABHBHAI HIRALAL KOTHARI VERSUS 1-2. THE ITO WARD-6 (1) (3) AHMEDABAD,2019 (12) TMI 676 - ITAT AHMEDABAD,Dated.- December 6, 2019
M/S. VIKAS GLOBALONE LTD. VERSUS THE DCIT, CIRCLE-26 (2) , NEW DELHI.2019 (3) TMI 694 - ITAT DELHI,Dated.-March 8, 2019
M/S WADHWA RESIDENCY PVT. LTD. VERSUS ADDL CIT, RANGE 9 (3) , MUMBAI,2018 (6) TMI 1177 - ITAT MUMBAI,Dated.- June 20, 2018
7.4 In view of above, and especially considering the fact that during the year there was no dividend income, no disallowance is warranted under section 14A of the Act.
8. The fourth issue arises out of addition of Rs. 45090/- on account of delayed payment of contribution of ESI. CIT(A) had deleted same on basis that the same were deposited before the due date for filing return u/s 139(1) of the Act, by relying certain judicial pronouncement. However, now the issue stands settled in favour of revenue by the judgment of Hon’ble Supreme Court in case of Checkmate Services (P.) Ltd. vs CIT (2022) 143 taxmann.com 178 (SC).
8.1 Ld. Counsel has submitted that the cheque in respect for payment of ESI dues was presented to bank for clearing on 19.02.2015 i.e. before the due date which was 21.02.2015. However, the same was cleared by Bank on 24.02.2015. In this regards, reliance is placed on CBDT circular no. 261, dated 08.08.1979, to claim that payment would deemed to be made on the date on which cheque was presented for clearing and in the present case that date is 19.02.2015, which is before due date of 21.02.2015. However, we are of considered view that due date to reckon is as per the respective statute and due date of filing return under the Act is not of any consequence. Thus, this issue needs a fresh consideration at the end of CIT(A). Accordingly, restored to CIT(A).
9. The fifth issue is out of addition of Rs. 6,671/- on account of alleged understatement of Income. AO made addition holding that there was difference in income declared and income as 26AS. In this regards, it is submitted, by Ld. Counsel that assessee received Rs. 10,750/- from Edge-Gro industries during AY 2015-16 and assessee received Rs. 5,571/- in AY 2014-15. However, customer deducted the TDS on entire amount of Rs. 16,321/- during AY 2015-16. Similarly, assessee received Rs. 2,162/- from Pinnacle engineers during AY 2015-16 and assessee received Rs. 1,110/- in AY 2014-15. However, customer deducted the TDS on entire amount of Rs. 3,262/- during AY 2015-16. Hence, the income of Rs. 6,671/- (5,571 + 1,110) was declared by assessee in the previous assessment year. However, Edge–gro and Pinnacle deducted the TDS on the entire interest amount of Rs.16,321 in the AY 2015-16. We are of considered view that when income already stood declared in previous assessment year, CIT(A) was justified to accept the above mentioned submissions of assessee and delete the addition of Rs.6,671/-
10. In the result, the appeal filed by the Revenue is partly allowed.
