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ACIT, Circle 12(1), New Delhi Vs. Holtec Consulting Pvt. Ltd., C Block, 01-0103, Imperial Tower, Community Centre, Naraina Vihar, New Delhi
July, 10th 2014
          IN THE INCOME TAX APPELLATE TRIBUNAL
               (DELHI BENCH `C ', NEW DELHI)

       BEFORE SHRI U.B.S.BEDI, JUDICIAL MEMBER AND
            SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
                    I.T.A. No. 2584, 4706/Del/2012
            Assessment year : 2008-09 & 2009-10 respectively
ACIT, Circle 12(1),           Vs. Holtec Consulting Pvt. Ltd.,
New Delhi                           C Block, 01-0103, Imperial Tower,
                                    Community Centre, Naraina Vihar,
                                    New Delhi
                                    GIR / PAN:AAACH0031H

                    I.T.A.No. 1672 & 4563/Del/2012
            (assessment year 2008-09 & 2009-10 respectively)

Holtec Consulting Pvt. Ltd.,  Vs.          ACIT, Circle 12(1),
C Block, 01-0103, Imperial Tower,          New Delhi
Community Centre, Naraina Vihar,
New Delhi
          (Appellant)                      (Respondent)

                  Appellant by :     Ms. Sangeeta Garg, CA
                  Respondent by :    Shri Satpal Singh, Sr. DR

                                     ORDER

PER T.S. KAPOOR, AM:

      These are cross appeals filed by the assessee as well as by the
Revenue for the assessment years 2008-09 and 2009-10 against order of Ld.
CIT(A) dated 01.03.2012 & 27.06.2012 respectively. These appeals were
head together, therefore, common consolidated order is being passed
2.    In assessment year 2008-09 in I.T.A.No. 1672/Del/2012, the assessee
is aggrieved with the action of Ld. CIT(A) by which he had upheld the
                                       2
                                     ITA No2584,1672,4563 & 4706./Del/2012

disallowance of Rs.1,05,02,874/- paid to Directors as commission. In the
same year, in I.T.A.No. 2584/Del/2012, the Revenue is aggrieved with the
action of Ld. CIT(A) by which he had deleted addition on account of
depreciation on computer peripherals and further deletion of addition made
by the Assessing Officer on account of writing off of advances and
reimbursable amounts.
3.    In assessment year 2009-10, vide I.T.A.No. 4563/Del/2012, the
assessee is aggrieved with upholding of disallowance u/s 14A amounting to
Rs.31,23,402/-. In the same year i.e. 2009-10 the revenue is aggrieved with
the action of Ld. CIT(A) by which he had deleted the addition on account of
commission paid to Director amounting to Rs.1,07,50,748/-. The Revenue is
further aggrieved in this year by the action of Ld. CIT(A) by which he had
deleted a disallowance of Rs.75,450/- made by the Assessing Officer
invoking clause (ii) of Rule 8D (2) of I.T. Rules.
4.    We first take up the appeal of the assessee in I.T.A.No.
1672/Del/2012. Ld. A.R. at the time of hearing submitted that the issue of
payment of commission to Director was decided by the Tribunal order in the
case of the assessee itself for the assessment year 2005-06 and 2006-07. In
this respect, our attention was invited to paper book at page 60-71. Our
specific attention was invited to para 17.3 ­ 17.5 at pages 69-70. It was
further submitted that in the succeeding year 2009-10, Ld. CIT(A) has also
already deleted a similar addition on account of commission paid to
Directors and in this respect, our attention was invited to CIT(A)'s order
dated 27.06.2012 and it was further submitted that against this deletion, the
Revenue is in appeal in I.T.A.No. 4706/Del/2012.
                                      3
                                    ITA No2584,1672,4563 & 4706./Del/2012

5.    Ld. A.R. further invited our attention to paper book page 8 where
copy of letter written to CIT(A) was placed . Our specific attention was
invited to ground No.2 relating to disallowance of commission on which
submissions were made as per page 9-13. Ld. A.R. heavily relied upon the
submissions made before Ld. CIT(A).         In view of the above, it was
submitted that appeal of the assessee in assessment year 2008-09 be allowed
and appeal of the Revenue in assessment year 2009-10 on similar facts be
dismissed.
6. Making arguments in assessee's appeal in I.T.A. No. 4563/Del/2012 in assessment year 2009-10 regarding upholding of disallowance u/s 14A, Ld. A.R. invited our attention to paper book page 5 wherein brief synopsis regarding disallowance u/s 14A was placed. The Ld. A.R. submitted that the action of Ld. CIT(A) in confirming the disallowance was not justified, as part of the amount of investments was in group companies and Ld. CIT(A), without considering the arguments had upheld the addition. It was further submitted that investment in mutual funds amounting to Rs.65.54 crores included investments earning interest income which however were received in the form of dividends. In this respect, our attention was invited to paper book dated 21.02.2014 and we were taken to pages 37-40 to highlight the break-up of investment in various schemes of mutual funds. It was submitted that most of the investments in mutual fund were fixed income funds wherein, the income was distributed by mutual funds in the form of dividend the nature of which in fact remains as interest as these were fixed maturity plans and did not require any expertise in making investments and therefore, assessee had not incurred any specific expenditure to earn the income. In view of the above submissions, it was submitted that Ld. 4 ITA No2584,1672,4563 & 4706./Del/2012 CIT(A) had not considered the submissions of the assessee in arriving at the correct amount of disallowance. The assessee submitted that out of the total disallowance of Rs.31,23,401/- the Ld. CIT(A) had given relief of Rs.75,415/- only which was on account of interest as per Rule 8D(2) of the Act. Assessee invited our attention to I.T.A.No. 4705/Del/2012 filed by the Revenue wherein Revenue had challenged action of Ld. CIT(A) as one of the grounds of appeal. Ld. A.R. submitted this that Ld. CIT(A) on the basis of facts and circumstances, had arrived at the conclusion that no interest bearing funds were utilized by the assessee in making investments, therefore, he had rightly given the relief. 7. Replying to the above arguments of Ld. A.R. in respect of assessee's appeal in I.T.A.No. 1672/Del/2012 Ld. D.R. submitted that commission paid to directors was quite excessive the Ld. D.R. therefore, Assessing Officer had rightly made the additions. As regards the assessee's appeal in assessment year 2009-10 in I.T.A.No. 4563/Del/2012, the Ld. D.R. submitted that Ld. CIT(A) had already allowed appropriate relief against which Revenue is already in appeal in I.T.A.No. 4706/Del/2012. 8. Arguing revenue's appeal in assessment year 2009-10 in I.T.A.No. 4706/Del/2012, Ld. D.R. submitted that payment of commission was quite high and therefore was rightly disallowed by the Assessing Officer and Ld. CIT(A) without considering the facts of the present case, followed the earlier order of the Tribunal in the case of assessee itself in assessment year 2005- 06 & 2006-07. Regarding 2nd ground, Ld. D.R. submitted that Ld. CIT(A) wrongly allowed relief of Rs.75,415/- as there was interest bearing funds also which were used for making investments. 5 ITA No2584,1672,4563 & 4706./Del/2012 9. We have heard rival parties and have gone through the material placed on record. We first take up assessment year 2008-09. We find that the assessee's appeal in I.T.A.No. 1672/Del/2012 regarding commission paid to Directors is covered in favour of the assessee by the Tribunal order in the case of the assessee itself as placed in paper book page 60-71. Though in the year 2005-06 & 2006-07, the payment of commission related to two directors only as compared to the present cases wherein the payment of commission relates to four directors. The first two directors namely Shri Umesh Srivastava and Ms. Suman Srivastava are holding shares to the extent of 19.8% and 122.4% respectively. These directors are engineers and Management graduates and are having experience of 50 years and 15 years respectively. In respect of these two directors, the Tribunal in assessment years 2005-06 and 2006-07, had held in favour of the assessee. Besides the above Tribunal order in the earlier years, a number of judgements has been relied upon by the Ld. A.R. before Ld. CIT(A) which hold that payment to directors in the form of commission is covered by the definition of remuneration. The Hon'ble Supreme Court in the case of Gestetner Duplicators Ltd. Vs CIT in w.p. No.117/01 has held that commission paid at a fixed percentage on the turnover is nothing but payment as salary. The Hon'ble Apex Court while delivering this judgement, opined that the commission paid by the assessee would clearly fall within the expression `salary'. Similarly, Hon'ble Gujarat High Court in the case of CIT Vs Rohit Mills Ltd. 219 ITR 228 held that the commission paid to directors is distinctly remuneration paid for the services rendered by him. Even if it is not covered by the definition of remuneration, it would be covered by any benefit resulting directly or indirectly to such director at the cost of the 6 ITA No2584,1672,4563 & 4706./Del/2012 company. In view of the above judicial precedents, we hold that the disallowance of commission was not warranted. Therefore, ground No.1 in assessment year 2008-09 in I.T.A.No. 1672/Del/2012 is allowed whereas ground No.1 of Revenue's appeal in assessment year 2009-10 in I.T.A.No. 4706/Del/2012 is dismissed. 10. As regards I.T.A.No. 2584/Del/2012, ld. CIT(A) has deleted the addition by holding as under: ""Disallowance of Rs.7,07,412/- on account of depreciation of Computer Peripherals, printer and UPS: With regard to the above issue the appellant made the following submission the gist of which is as under: "....The appellant company has claimed depreciation at the rate of 60% on addition of computer peripherals, printers, UPS etc. All these items as claimed form an integral part of the computer,........." "----- Ups/ switches/ cable/ port/ connectors etc. can be used only with the computers and cannot be used on standalone basis during the course of the Assessment proceedings/ a detailed list of the additions made to computers on which 60% depreciation was claimed by the assessee company was provided to the LO AO (copy enclosed as annexure-9 ) it is a well settled law now that the word computer has ,to be read as computer system comprising of the all connecting devices which are essential parts of the computers. In the light of judicial pronouncement of ACIT Vis. Container Corporation/ ITAT Delhi Bench and ITO Vs. Samiran Majumdar/ ITAT Kolkata bench (Copy of judgements are attached as per Annexure 10 & 11).------H 10. I have carefully considered the contentions of the appellant and have gone through the various judicial precedents relied upon by the appellant. Since the expenditure is with regard to the computer peripherals, printers, UPS which can not be used stand alone, therefore, in view of the decision relied upon by the appellant, I agree that in the facts and circumstances of the appellant's case, he is entitled for depreciation @ 60% . 11. Disallowance of Rs. 16,60,818 on account of advances & reimbursables written off. 7 ITA No2584,1672,4563 & 4706./Del/2012 With regard to the above issue the appellant made the submissions, the gist of which is as under: "-----During the assessment year 2008-09/ assessee has debited its profit and loss account with bad debts amounting to Rs. 2,03,56,466 out of Rs.16,60,818 has been disallowed by the AO. The Assessee company is basically engaged in the business of providing engineering and management services in India and abroad. The invoices in the name of clients are raised and credited to profit and loss account in the year in which such invoices are raised. In some cases entire claims are not approved by the client citing various reasons and despite many efforts made by the company. "-----During Assessment proceedings the Ld. AO was provided with details of advances, as explained to AO the advances written off consist of two parts, fees and reimbursable. (As per annexure 12) Fees are consideration for services provided and reimbursable are out of pocket expenses. Whenever invoices are raised they are raised either separately or jointly. The Ld. AO has considered our submission in case of fees part but has made addition on part of reimbursable. Whereas, the nature of both the components are exactly similar. The assessee has been consistently been carrying of the same business since 1967 and the amount so written off has been considered in earlier years as income of the assessee after lot of follow ups and persuasion when the assess company felt that the amount is not likely to be recovered the company has decided to write the same off in its books of accounts. The AO has completely misunderstood the case and disallowed the bad debts so written off for the reimbursable expenses incurred by the assessee company which has been taken into income in previous years. IN order to differentiate the amount of fee and the expense the company records the 2 separately though the same is considered to be the income of the assessee in the year of raising of invoices. The AO on one hand has allowed fees written off while on the other he has disallowed the amount recoverable from the clients on account of expenses incurred. In the light of Judgement of TRF Limited Vs. CIT, as decided by Hon'ble Supreme court, in which the apex court has held that 8 ITA No2584,1672,4563 & 4706./Del/2012 "This position in law is well-settled. After 1stApril, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee" (as per Annexure 13).--- 12. I have carefully considered the contentions of the appellant and have gone through the judicial precedents relied upon by the appellant. It is seen that the appellant has credited both the fees as well as out of pocket expenses to the Profit and loss account, hence Assessing Officer's observation is not correct that debt has not been taken into account while computing the income. Further in view of the accounting treatment regularly followed by the appellant and by relying on the judgement of Apex Court in the case of TRF Limited Vs CIT (230 CTR 14) (S.C.), the claims of bad debt is allowed." 11. We are in agreement with the findings of Ld. CIT(A) in respect of depreciation on computer peripherals & write off of debts, therefore, revenue's appeal in I.T.A.No. 2584/Del/2012 is dismissed. 12. As regards ground No.1 in I.T.A.No. 4563/Del/2012, and ground No.2 in I.T.A.No. 4706/Del/2012 with regard to upholding of partial disallowance u/s 14A, we find that Ld. CIT(A) has not considered the submissions of the assessee regarding break-up of investment which included investment in group companies and also has not considered that a major part of investment in mutual funds was in debt related investments where the investments generally earn fixed income but distribution of income is in the form of dividends. We are of the opinion that fixed maturity plans offered by mutual funds definitely require much less professional expertise as compared for making investments in equity related schemes and therefore, less expenditure is involved in managing such schemes. Moreover before upholding partial disallowance u/s 14A, Ld. CIT(A) should have considered the submissions of assessee that a part of investments were not for earning dividends but were strategic investments. In view of the above, we are of 9 ITA No2584,1672,4563 & 4706./Del/2012 the opinion that the issue of disallowance be readjudicated by the Assessing Officer and the Assessing Officer should decide the disallowance on the basis of his objective findings after giving a reasonable opportunity to the assessee of being heard. In view of the above, the appeal of the assessee in I.T.A.No.4563/Del/2012 is allowed for statistical purposes and the Revenue's appeal in I.T.A.No. 4706/Del/2012 is partly allowed for statistical purposes. 12. In nutshell Department's appeal in I.T.A.No. 2584/Del/2012 is dismissed while I.T.A.No. 4706/Del/2012 is partly allowed for statistical purpose. Appeals of the assessee in I.T.A.No. 1672/Del/2012 is allowed whereas I.T.A.No. 4563/Del/2012 is allowed for statistical purposes. 13. Order pronounced in the open court on 07th July, 2014. Sd./- Sd./- (U.B.S.BEDI) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER Date: 07th July, 2014 Sp Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi. 5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy. By Order (ITAT, New Delhi). 10 ITA No2584,1672,4563 & 4706./Del/2012 Date of hearing Date of Dictation Date of Typing Date of order signed by both the Members & pronouncement. Date of order uploaded on net & sent to the Bench concerned.
 
 
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