Principal Commissioner Of Incometax-3, Kolkata v. M/S. Eih Ltd

OD-21 ITAT/34/2020 IA No.GA/2/2020 (Old No.GA/1127/2020) IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOMETAX-3, KOLKATA -Versus- M/S. EIH LTD. Appearance:Mr. S. N. Dutta, Adv.Mr. Soumen Bhattacharjee, Adv....for the appellant.Mr. J. P. Khaitan, Sr. Adv.Mr. Akhilesh Kumar Gupta, Adv.Mr. Asim Choudhury, Adv.Ms. Aesa Dey, Adv....for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA Date : 16[th] December, 2021.The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ in brevity) isdirected against the composite order dated 5[th] April, 2017 passedby the Income Tax Appellate Tribunal, “A” Bench, Kolkata (the‘Tribunal’ in short) in ITA No.866/Kol/2012 and ITA No.932/2012for the assessment year 2008-09. The revenue has raised the following substantial questions of law for consideration: (i) Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting thedisallowance of Rs.1,99,56,281/- being 60% of theaggregate expenditure incurred on running and maintenanceof aircrafts without considering that the aircrafts werealso used for personal purposes of the directors? (ii) Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting thedisallowance of Rs.1,30,77,646/- under Section 40(a)(i) onaccount of professional and consultancy charges to nonresidents by ignoring the fact that such fees are subjectto tax in India under Section 9(1) read with Section 195of the act? (iii) Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting thedisallowance of Rs.9,27,20,974/- under Section 40(a)(i) onaccount of advertisement publicity and sales promotion tonon resident by ignoring the fact that such expenses aresubject to tax in India under Section 9(1) read withSection 195 of the Act? (iv) Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting thedisallowance of Rs.9,27,20,974/- under Section 40(a)(i) onaccount of advertisement publicity and sales which wasreasonable considering the fact that the documents insupport of such expenses were not produced by the assesseebefore the assessing officer? (v) Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting the disallowance of expenditure of Rs.1,79,93,426/- in respectof earning dividend income & tax free interest on US 64tax free bonds without appreciating the finding of theassessing officer who disallowed 0.5% of averageinvestment by applying rule 8D of income tax rules andmade disallowance of expenses under Section 14A ?(vi) Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting the additionon account of interest amounting to Rs.1,71,99,475/- being12% of interest free advances given to subsidiarycompanies for non business purpose based on thepresumption that those advances were made by the assesseeout of its own funds and not out of the borrowed fundsbearing interest? (vii) Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting thedisallowance under Section 40(a)(i) of Rs.18,29,94,840/-paid as commission to and sitting fees to directors of thecompany without deducting tax at source under section 194Hof Income Tax Act? (viii) (vii) Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting thedisallowance under Section 40(a)(i) of Rs.18,29,94,840/-paid as commission to and sitting fees to directors of thecompany without deducting tax at source under section 194Hof Income Tax Act? (viii) (viii)Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting thedisallowance under Section 40(a)(i) of Rs.3,37,48,429/-paid as commission to non residents by ignoring the factthat such commission are subject to tax in India underSection 9(1) read with Section 195 of the Income Tax Act?(ix) Whether on the facts and in the circumstances of the case,the Learned Tribunal erred in law in deleting thedisallowance under Section 40(a)(i) of Rs.3,37,48,429/-paid as commission to non residents without consideringthe facts pertaining to such expenses were not produced bythe assessee before the assessing officer? We have heard Mr. S. N. Dutta, learned standing counselassisted by Mr. Soumen Bhattacharjee, learned advocate for theappellant/revenue and Mr. J. P. Khaitan, learned senior counselfor the respondent/assessee. We need not labour much to decide the substantialquestions of law raised before us as in the assessee’s own casefor the earlier assessment year namely, 2006-07, except onesubstantial question of law, that is, question no.5 before us, allother questions were subject-matter of an appeal filed by therevenue in ITAT/53/2017 challenging the correctness of thedecision of the Tribunal. The Hon’ble Division Bench of thisCourt by judgment dated 23[rd] July, 2018 dismissed the appeal filedby the revenue. Thus, our task has become easier as the saidjudgment has attained finality and will bind the revenue.Substantial question of law no.1 was question no.4therein and we find from the judgment dated 23[rd] July, 2018 passedin ITAT/53/2017 that the said question was not pressed by therevenue and consequently rejected. Therefore, the substantialquestion of law no.1 raised before us stands rejected.Substantial question of law no.2 was also question no.2in ITAT/53/2017. The Division Bench in its judgement dated 23[rd]July, 2018 found that the Tribunal held the addition to beerroneous and has considered in detail the nature and expenses inrespect of which the assessee was sought to be penalized for not deducting the tax deducted at sources, holding that these expenseswere in respect of the income accrued outside the territory forservices rendered. With this finding the said question wasrejected.While on this issue, it would be beneficial to take noteof the decision of the Hon’ble Supreme Court in EngineeringAnalysis Centre of Excellence P. Ltd. vs. Commissioner of IncomeTax & Anr. reported in [2021] 432 ITR 471 (SC). The questionbefore the Hon’ble Supreme Court was whether persons liable todeduct TDS under Section 195 of the Act can be held liable todeduct such sums, at a time when Explanation 4 was factually noton the statute book, all deductions liable to be made and theassessment years in question (in the said case) being prior to2012. The Hon’ble Supreme Court took note of the decision in thecase of Arjun Panditrao Khotar vs. Kailash Kushanrao Gorantyalreported in (2020)7 SCC 1 wherein the Hon’ble Supreme Courtapplying two latin maxims namely, the law does not demand theimpossible and when there is a disability that makes it impossibleto obey the law, the alleged disobedience of law is excused.After noting the said decision which was a case arising under theprovisions of the Evidence Act, 1872, the Hon’ble Supreme Courttook note of the decision arising under the Income Tax Act, in thecase of CIT vs. NGC Network (India) Pvt. Ltd. reported in [2021]432 ITR 326 (Bombay) and CIT vs. Western Coalfields Ltd. passed in ITA/93/2008, the High Court of Bombay held that the “person”mentioned in Section 195 of the Act cannot be expected to do theimpossible, namely, to apply the expanded definition of “royalty”inserted by Explanation 4 to Section 9(1)(vi) of the Act for theassessment years in question, at a time when such Explanation wasnot actually and factually in the statute. Therefore, questionno.2 stands rejected. Question nos.3 and 4 are identical to question no.1 framed in ITAT/53/2017, which was rejected. That apart, thedecision in the case of Engineering Analysis Centre of ExcellenceP. Ltd. (supra) would come to the aid and assistance of theassessee. Therefore, question nos. 3 and 4 are rejected.So far as question no.5 is concerned, the same did notarise for the assessment year 2006-07. The issue was whether thedisallowance made by the assessing officer under Section 14A ofthe Act read with Rule 8D of the Rules was justified. On perusingparagraph 7 of the order passed by the assessing officer, we findthat the assessee offered an explanation and the said explanationwas rejected without assigning any reasons and mechanically theassessing officer proceeded to apply Rule 8D and make thecomputation and did the disallowance. The same was affirmed bythe CIT(A) with slight reworking on the disallowance. TheTribunal considered the correctness of the same and held that theassessing officer neither examined the assessee’s account nor recorded satisfaction about the correctness of the claim and thatit is incumbent upon the assessing officer to indicate reasons forrejecting the assessee’s claim. An alternate contention was also raised before theTribunal contending that investment made for acquiring controllinginterest in their Group concerns and not for income. In supportof such contention, the assessee placed reliance on DCIT vs.Selvel Advertising reported in (2015)58 taxmann.com 196 (KolkataITAT). Before we examine as to whether the alternate contentionwas required to be considered, we are satisfied that the Tribunalrightly followed the earlier decision of the Tribunal and thedisallowance was deleted. That apart, we note that identicalissue was raised before this Court in the case of Commissioner ofIncome Tax vs. REI Agro passed in ITAT/161/2013, which wasdismissed by judgment dated 23[rd] December, 2013. Thus, we findthat the question no.5 has to be decided against the revenue andin favour of the assessee.With regard to question no.6, the same is identical toquestion no.5 in ITAT/53/2017 and the said question was notpressed by the revenue and the same was rejected. Therefore,question no.6 before us stands rejected.So far as question no.7 is concerned, the Tribunalrightly held the amendment to Section 194J was with effect from 1[st]July, 2012 and the assessment year under consideration being 2008- 09, the same cannot be made applicable. Furthermore, theobservations contained in Engineering Analysis Centre ofExcellence P. Ltd. (supra) would also come in aid of the case ofthe assessee. Therefore, question no.7 stands rejected.Question nos.8 and 9 before us are identical to questionno.3 in ITAT/53/2017 and the said question was rejected by thisCourt by judgment dated 23[rd] July, 2018 and the finding of theTribunal holding that commissions paid to the foreign agentsoutside India does not accrue or arise in India had become final.Therefore, question nos.8 and 9 stand rejected. In the result, the appeal filed by the revenue isdismissed and the substantial questions of law are answeredagainst the revenue.With the dismissal of the appeal, the connectedapplication for stay (IA No.GA/2/2020) also stands dismissed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)