ACIT, CHENNAI v. M/s. Richard Strauss Insurance Broking Pvt. Ltd., CHENNAI

ITA 1258/CHNY/2011 | 2008-2009
Pronouncement Date: 23-12-2011 | Result: Partly Allowed

Appeal Details

RSA Number 125821714 RSA 2011
Assessee PAN AABCR3251Q
Bench Chennai
Appeal Number ITA 1258/CHNY/2011
Duration Of Justice 5 month(s) 16 day(s)
Appellant ACIT, CHENNAI
Respondent M/s. Richard Strauss Insurance Broking Pvt. Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 23-12-2011
Date Of Final Hearing 21-12-2011
Next Hearing Date 21-12-2011
Assessment Year 2008-2009
Appeal Filed On 07-07-2011
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH CHENNAI. BEFORE SHRI N.S. SAINI ACCOUNTANT MEMBER & SHRI GEORGE MATHAN JUDICIAL MEMBER I.T.A. NO. 1258MDS/2011 ASSESSMENT YEAR: 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE V(4) ROOM NO.409 FOURTH FLOOR MAIN BUILDING 121 MAHATMA GANDHI ROAD CHENNAI 600 034. VS. M/S. RICHARD STRAUSS INSURANCE BROKING PVT. LTD. 157 G.N. CHETTY ROAD T. NAGAR CHENNAI 600 017. [PAN: AABCR3251Q] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB SR-DR ASSESSEE BY : SHRI R. SIVARAMAN ADVOCATE DATE OF HEARING : 2 1 . 1 2 .2011 DATE OF PRONOUNCEMENT 23.12.2011 ORDER PER N.S. SAINI ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 28.04.2011 PASSED BY THE LD. CIT(A) V CHENNAI AND RELATES TO THE ASSESSMENT YEAR 2008-09. 2. GROUND NO. 1 AND 4 OF THE APPEAL OF THE REVENUE ARE GENERAL IN NATURE AND HENCE REQUIRES NO ADJUDICATION BY US. 3. IN GROUND NO.2 OF THE APPEAL OF THE REVENUE TH E GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETIN G THE DISALLOWANCE ADVERTISING EXPENSES BUSINESS PROMOTION EXPENSES CONVEYANCE EXPENSES I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 2 PRINTING AND STATIONERY EXPENSES REPAIRS AND MAINT ENANCE STAFF WELFARE EXPENSES TELEPHONE AND POSTAGE TRAVELLING EXPENSE S AND BOOKS AND PERIODICALS WHICH WERE NOT AS PER THE AGREEMENT OF THE ASSESSEE COMPANY WITH SHRIRAM GROUP COMPANIES. 4. THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF EXPENSES BY OBSERVING AS UNDER: 5. ON A PERUSAL OF THE RECORDS VOUCHERS/DOCUMENTS IMPOUNDED U/S 133A AND THE VOUCHERS FURNISHED BY THE ASSESSEE'S D EPUTY MANAGER (ACCTS.) IT IS SEEN THAT THE EXPENSES AS P ER THE VOUCHERS HAVE ACTUALLY BEEN INCURRED BY THE EMPLOYEES OF SHRIR AM GROUP OF COMPANIES WHICH IS CLAIMED BY THE ASSESSEE COMPANY. 6. A LETTER DT.20.12.2010 WAS ISSUED TO THE ASSESSEE REQUIRING TO SHOW CAUSE AS TO WHY THE CLAIM OF THE ASSESSEE UNDER VARIOUS HEADS SHOULD NOT BE DISALLOWED AS THE SAME WERE INCURRED BY SHRIRAM GROUP OF COMPANIES BUT WERE PAID BY THE ASSESSEE CO MPANY VIZ. RSIB. THE ASSESSEE VIDE LETTER DT.29.12.2010 FURNISH ED THE REPLY AS FOLLOWS: 1. OUR COMPANY IS ENGAGED IN THE BUSINESS OF GENERA L INSURANCE BROKING HAVING BEEN GRANTED A LICENCE FOR THE SAME BY IRDA IN APRI L 2004. THE COMPANY STARTED DOING THE BUSINESS IN A SMALL WAY IN THE FIRST TWO YEARS. IT EXPANDED THE BUSINESS CONSIDERABLY IN THE SUBSEQUENT YEARS. THE COMPANY H AD THEREFORE TO INCUR LOT OF EXPENDITURE TO INCREASE THE VOLUME AND TAKE THE BUS INESS TO A HIGHER LEVEL AND TO CONSOLIDATE. 2. THE COMPANY IS A DIRECT BROKER. REGULATIONS OF IRDA (INSURANCE BRO KING REGULATIONS) LAYS DOWN THE FUNCTIONS OF A DIRECT BR OKER. A. OBTAINING DETAILED INFORMATION OF THE CLIENT'S BUSINESS AND RISK MANAGEMENT PHILOSOPHY; B. FAMILIARISING HIMSELF WITH THE CLIENT'S BUSINES S AND UNDERWRITING INFORMATION SO THAT THIS CAN BE EXPLAINED TO AN INSURER AND OTHERS ; C. RENDERING ADVICE ON APPROPRIATE INSURANCE COVER AND TERMS; D. MAINTAINING DETAILED KNOWLEDGE OF AVAILABLE INS URANCE MARKETS AS MAY BE APPLICABLE; E. SUBMITTING QUOTATION RECEIVED FROM INSURER / S FOR CONSIDERATION OF A CLIENT F. PROVIDING REQUISITE UNDERWRITING INFORMATION AS REQUIRED BY AN INSURER IN ASSESSING THE RISK TO DECIDE PRICING TERMS AND COND ITIONS FOR COVER; I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 3 G. ACTING PROMPTLY ON INSTRUCTIONS FROM A CLIENT AND PROVIDING HIM WRITTEN ACKNOWLEDGEMENTS AND PROGRESS REPORTS; H. ASSISTING CLIENTS IN PAYING PREMIUM UNDER SECTI ON 64 VB OF INSURANCE ACT 1938 ( 4 OF 1938). I. PROVIDING SERVICES RELATED TO INSURANCE CONSULT ANCY AND RISK MANAGEMENT; J. ASSISTING IN THE NEGOTIATION OF THE CLAIMS; AND K. MAINTAINING PROPER RECORDS OF CLAIMS. FURTHER WHERE THE BROKER HIMSELF IS UNABLE TO GIVE ADVICE HE CAN SEEK OR RECOMMEND OTHER SPECIALIST FOR ADVICE WHEN NECESSAR Y. 3. WHEN THE VOLUME OF BUSINESS SUDDENLY EXPANDS AN D THE BROKER HAS TO PERFORM LOT OF FUNCTIONS AS REQUIRED BY THE REGULAT IONS HE HAS TO INCUR LOT OF EXPENDITURE IN THE INITIAL YEARS. THE INSURANCE BRO KING BUSINESS IS HIGHLY COMPETITIVE. GENERAL INSURANCE COMPANIES CAN DO BUS INESS WITH THE CLIENTS DIRECTLY ALSO. THERE IS NO COMPULSION THAT THERE SHOULD BE A BROKER. IN SUCH A SITUATION THE LICENCED BROKERS HAVE TO COMPETE TO SECURE CLIENTS FOR THEIR BUSINESS. ALL THIS INVOLVES INCURRING OF HIGH LEVEL OF EXPENDITURE. 4. WE DO BUSINESS AT VARIOUS LOCATIONS AND DERIVE BROKERAGE INCOME EVEN THOUGH WE HAD OFFICE AT FEW PLACES' ONLY AND ALSO W E HAD LESS INFRASTRUCTURE OF OUR OWN. HENCE WE HAD TO DEPEND UPON OTHERS AT DIFFEREN T LOCATIONS FOR MOST OF OUR FUNCTIONS. IN THESE CIRCUMSTANCES IT IS NOT CORRECT TO SAY THA T EXPENSES ARE NOT SUPPORTED BY BILLS. THERE ARE VOUCHERS AND ALL OF THEM ARE WITH YOU INCLUDING THE SUPPORTING BANK STATEMENTS. WE THEREFORE URGE THAT NO PART OF THE E XPENSES FROM THE JAIPUR BRANCH/BRANCHES OF WESTERN REGION MAY BE DISALLOWED AS PROPOSED BY YOU. 5. THERE MAY BE CASES WHERE EXPENSES HAVE TO BE IN CURRED AT A LOCATION WHERE WE DO NOT HAVE OFFICE AND STAFF BUT GET HELP FOR A SHRIRAM GROUP COMPANY OFFICE AT THAT LOCATION WHOSE STAFF DO THE CHORES. IN THE PRO CESS OFTEN THEY GET THE BILLS OR INVOICES IN THE NAME 9F THEIR COMPANY. SOMETIMES IT HELPS TO DO THINGS IN THE NAME OF A SHRIRAM GROUP COMPANY AS THEY ARE REGULAR CUST OMERS. BUT PAYMENTS ARE ULTIMATELY BORNE BY US EVEN THOUGH THE INVOICES MA Y BE IN ANOTHER NAME. 6. WE HAVE ENCLOSED DETAILS OF BROKERAGE INCOME & EXPENDITURE DETAILS FOR THE FINANCIAL YEARS 20072008 20082009 & 20092010. IT MAY BE SEEN FROM THE ENCLOSED STATEMENT THAT EVEN THOUGH THE BROKERAGE I NCOME HAS INCREASED THERE IS NO CORRESPONDING INCREASE IN THE EXPENDITURE. WITHOUT PREJUDICE TO THE GENERALITY OF OUR SUBMISSI ONS AS AFORESAID WE FURNISH THE SPECIFIC DETAILS CALLED FOR: A) ENTERTAINMENT EXPENSES THE SUM OF ` . 1 89 983/- HAS BEEN DEBITED UNDER THE HEAD OF ACCOUNT I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 4 'BUSINESS PROMOTION EXPENSES' IN THE LEDGER AND NOT 'ENTERTAINMENT EXPENSES' AS EXPLAINED ABOVE THE EXPENSES WHERE INCURRED ONLY FO R THE PURPOSE OF BUSINESS OF THE COMPANY. B) ADVERTISEMENT EXPENSES ADVERTISEMENTS WERE GIVEN FOR RECRUITMENT OF STAFF TO OUR COMPANY. AFTER THE INTERVIEW PERSONS WERE APPOINTED. AS EXPENDITURE W AS PAID FOR ADVERTISEMENT FOR RECRUITMENT OF STAFF FOR OUR COMPANY THE EXPENDITUR E IS ALLOWABLE. C) BUSINESS PROMOTION EXPENSES AS EXPLAINED ABOVE THE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. D) CONVEYANCE EXPENSES: AS EXPLAINED ABOVE THE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. E) CONSULTANCY EXPENSES: EXPENSES CLASSIFIED BY US UNDER THE HEAD 'CONSULTANCY CHARGES' WERE REALLY INCURRED TOWARDS CONSULTANCY SERVICES PROVIDED BY T HE PAYEES. INSURANCE IS A SPECIALIZED FIELD. FUNCTIONS OF A DIRECT BROKER INTER-ALIA INCLUDE RENDERING ADVICE ON APPROPRIATE INSURANCE COVER AND TERMS AND MAINTA INING DETAILED KNOWLEDGE OF AVAILABLE INSURANCE MARKETS PROVIDING SERVICES REL ATED TO INSURANCE CONSULTANCY AND RISK MANAGEMENT ETC. . WHERE THE BROKER HIMSELF IS UNABLE TO GIVE ADVICE HE HAS TO SEEK ADVICE FROM OTHERS FOR PROPER CLIENT SE RVICE. WE SOUGHT CONSULTANCY SERVICE FROM THOSE WHO WERE WELL VERSED IN THE FIEL D OF INSURANCE. ALL THE EXPENSES INCURRED WERE TOWARDS. FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF CLAUSE (B) OF THE EXPLANATION BELOW SECTION 194J READ WITH EXP LANATION TO CLAUSE (VII) OF THE SUB SECTION (1) OF SECTION 9 . THERE IS NO SCOPE FOR TREATING THESE EXPENSES AS IN THE NATURE OF COMMISSION OR BROKERAGE AS PROPOSED BY YOU JUST FOR THE SAKE OF I NVOKING SECTION 40(A) (IA). F) PRINTING AND STATIONERY EXPENSES: AS EXPLAINED ABOVE THE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. (G) REPAIRS AND MAINTENANCE EXPENSES: AS EXPLAINED ABOVE THE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 5 H ) STAFF WELFARE EXPENSES: AS EXPLAINED ABOVE THE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. I) TELEPHONE POSTAGE & TELEGRAPH EXPENSES: AS EXPLAINED ABOVE THE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. J) TRAINING EXPENSES : AS EXPLAINED ABOVE THE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. H) TRAVELLING EXPENSES: AS EXPLAINED ABOVE THE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. I) RENT RATE AND TAXES: THIS SUM OF ` .L 85 606/- DOES NOT PERTAIN TO US. IT MAY BE ALSO SEEN FROM THE GENERAL LEDGER AVAILABLE WITH YOU THAT THIS SUM HAS NOT BEE N DEBITED UNDER THE HEAD OF ACCOUNT RENT IN OUR BOOKS. J) BOOKS AND PERIODICALS: AS EXPLAINED ABOVE THE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. 7. THE ARGUMENT PUT FORTH BY THE AR IS NOT ACCEPTAB LE IN AS MUCH AS MOST OF THE VOUCHERS BEAR THE NAME OF ONLY SHRIRAM G ROUP OF COMPANIES AND EXPENSES SHOWN ARE NOT RELATED TO THE ASSESSEE COMPANY. AS ALSO THERE IS NO WRITTEN AGREEMENT ENTER ED INTO BETWEEN THE ASSESSEE 'COMPANY AND SHRIRAM GROUP OF COMPANIES FOR SHARING OF EXPENSES OTHER THAN BUSINESS PROCESSING OUTSOURCING EXPENSES. MOREOVER ALL THE VOUCHERS/BILLS ARE RAISED O NLY IN THE NAME OF SHRIRAM GROUP OF COMPANIES SHRIRAM TRANSPO RT FINANCE CORPORATION LTD. SHRIRAM CITY UNION FINANCE LTD. SHRIRAM FORTUNE SOLUTIONS WHO ARE THE SISTER CONCERNS. CONSOLIDATED E XTRACTS OF EXPENSES HAVE BEEN PREPARED ON THE BASIS OF VOUCHER S IMPOUNDED AND VOUCHERS FURNISHED BY THE ASSEESSEE'S DEPUTY MA NAGER DURING THE COURSE OF ASSESSMENT.(COPY OF CONSOLIDATED EXTR ACT ENCLOSED ANNEXURE I COMPRISING OF 17 PAGES). THE VOUCHERS PO SITIVELY INDICATE THAT THE ASSESSEE IS CLAIMING EXPENSES OF SHRIRAM GR OUP OF COMPANIES UNDER DIFFERENT HEADS AS REIMBURSEMENT OF EXPENSES I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 6 EVEN THOUGH THERE EXISTS NO AGREEMENT FOR EXPENSES BETWEEN THE ASSESSEE COMPANY AND SHRIRAM GROUP OF COMPANIES. TH E CLAIM OF EXPENSES MADE BY THE ASSESSEE UNDER EACH HEAD WITH REFERENCE TO THE CONSOLIDATED EXTRACTS OF VOUCHERS ENCLOSED HEREWI TH AND ITS ADMISSIBILITY IS DISCUSSED AS UNDER: (I) ADVERTISING: THE ASSESSEE COMPANY HAS CLAIMED AN AMOUNT OF ` .L 81 040/- UNDER THE HEAD ADVERTISING. ON A PERUSAL OF RECORDS IT IS SEEN THAT THE ADVERTISEMENTS WERE ACTUALLY FOR RECRUITMENT FOR SHRIRAM GROUP OF COMPANIES AND NOT FOR RSIB WHICH GO TO PRO VE THAT THE RECRUITMENTS WERE MADE FOR SHRIRAM GROUP FOR COMPAN IES AT VARIOUS PLACES. THE BILLS WERE ALSO RAISED ONLY IN THE NAME OF SHRIRAM GROUP OF COMPANIES. I THEREFORE DISALLOW THE CLAIM MADE AS NOT RELATED TO THE ASSESSEE COMPANY. DISALLOWANCE UNDER THIS HEAD - RS.L 81 040/-. (II) ENTERTAINMENT CHARGES & BUSINESS PROMOTION: THE ASSESSEE HAS CLAIMED AN AMOUNT OF ` .5 758/- AS ENTERTAINMENT EXPENSES IN ITS PROFIT AND LOSS ACCOUN T WHEREAS AS PER THE VOUCHERS AVAILABLE IN THE IMPOUNDED DOCUMENTS IT IS SEEN THAT THE ASSESSEE COMPANY HAS INCURRED AN AMOUNT OF ` .L 89 893/- UNDER THIS HEAD FOR THE BILLS THAT WHICH ARE NOT IN T HE NAME OF THE ASSESSEE COMPANY. THE ARGUMENT OF THE ASSESSEE THAT THE SAME WERE INCURRED FOR THE PURPOSE OF BUSINESS PROMOTION AND HENCE BOOKED UNDER THIS HEAD. THOUGH THE ARGUMENT OF THE ASSESSEE IS ACCEPTED I DISALLOW THIS EXPENSES UNDER THE HEAD BUS INESS PROMOTION AS THEY WERE NOT LIABLE FOR THE OF THE ASS ESSEE. THE ASSESSEE COMPANY HAS CLAIMED AN AMOUNT OF ` .6 28 678/- UNDER THE HEAD BUSINESS PROMOTION EXPENSES. IT IS S EEN FROM THE RECORDS THAT THE EXPENDITURE CLAIMED HAS ACTUALLY BEEN INCURRED BY THE EMPLOYEES OF' SHRIRAM GROUP OF COMPANIES WHICH H AS BEEN REIMBURSED BY THE ASSESSEE COMPANY. THE SUPPORTING VOUCHERS ARE ALSO RAISED IN THE NAME OF SHRIRAM GROUP OF COMPANI ES AND RSIB HAS NO ROLE TO PLAY. I THEREFORE DISALLOW THE CLAIM OF ` .69 643/- FOR WHICH THE VOUCHERS ARE IN THE NAME OF SHRIRAM GROUP OF COMPAN IES. DISALLOWANCE UNDER THIS HEAD : ` .2 59 536/- ( ` .69 643/-+ ` .1.89 893/-) (III) CONVEYANCE: I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 7 THE ASSESSEE HAS CLAIMED A TOTAL AMOUNT OF ` .26 29 558/-. AN AMOUNT OF ` .9 99 134/- HAVE BEEN INCURRED IN WESTERN REGION FO R WHICH NO SUPPORTING VOUCHERS ARE IN THE NAME OF THE ASSES SEE COMPANY. HENCE I DISALLOW THE CLAIM OF EXPENDITURE ` .9 99 134/ PERTAINING TO WESTERN REGION UNDER THIS HEAD. DISALLOWANCE UNDER THIS HEAD : ` .9 99 134/- IV) PRINTING AND STATIONERY: TOTAL AMOUNT DEBITED IN PROFIT AND LOSS ACCOUNT UND ER THIS HEAD IS ` .12 17 649/- THE EXPENSES INCURRED FOR SHRIRAM GROU P OF COMPANIES TO THE TUNE OF ` .3 26 416/- IS DISALLOWED. DISALLOWANCE UNDER THIS HEAD: ` .3 26 416/- V) REPAIRS AND MAINTENANCE: TOTAL AMOUNT DEBITED IN P&L IS ` .26 18 166/- IN WHICH ` .6 45 225/- HAVE BEEN INCURRED IN THE WESTERN REGIO N AND ALL THE BILLS AND VOUCHERS ARE RAISED IN THE NAME OF SHRIRAM GROU P OF COMPANIES AND ITS SISTER CONCERNS. I THEREFORE DISALLOW THE ABOVE CLAIM. DISALLOWANCE UNDER THIS HEAD: ` .6 45 225/- VI) STAFF WELFARE: THE ASSESSEE'S CLAIM OF ` .L0 86 667/- UNDER THIS HEAD. OUT OF THE ABOVE TOTAL CLAIM ` .2 87 855/- HAS BEEN INCURRED FOR THE EMPLOYEES OF SHRIRAM GROUP OF COMPANIES IN JAIPUR. I THEREFORE D ISALLOW THAT EXPENSES INCURRED FOR THE EMPLOYEES OF SHRIRAM GROU P OF COMPANIES. DISALLOWANCE UNDER THIS HEAD: ` .2 87 855/- VII) TELEPHONE POSTAGE & TELEGRAPH CHARGES: TOTAL AMOUNT DEBITED UNDER THIS HEAD IN P&L IS ` .40 05 059/-. THOSE VOUCHERS THAT ARE IN THE NAME OF SHRIRAM GROU P OF COMPANIES AND ITS SISTER COMPANIES TO THE EXTENT OF ` . 11 30 904/- IS DISALLOWED. DISALLOWANCE UNDER THIS HEAD: ` .11 30 9041- VIII) TRAINING EXPENSES: THE ASSESSEE HAS CLAIMED A TOTAL EXPENSES OF RS.8 O O 549/- ON A PERUSAL OF THE VOUCHERS IT IS ASCERTAINED THAT AN A MOUNT OF ` .2 81 953/HAS BEEN EXPENDED FOR THE PERSONS WHO ARE NOT THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 8 EMPLOYEES OF RSIB. THE ARGUMENT OF THE ASSESSEE IS NOT ACCEPTABLE AND I THEREFORE DISALLOW THIS AMOUNT. DISALLOWANCE UNDER THIS HEAD: ` .2 81 953/- IX) TRAVELLING EXPENSES: THE ASSESSEE HAS MADE A CLAIM OF ` .40 07 966/- IN P&L A/C UNDER THIS HEAD. THE VOUCHERS AND BILLS CLAIMED TO THE EX TENT OF ` .12 23 860/- ARE NOT RAISED IN THE NAME OF RSIB AS THE SAME WERE INCURRED FOR THE EMPLOYEES OF SHRIRAM GROUP OF COMP ANIES WHICH HAVE BEEN PAID BY RSIB. AS THE ASSESSEE RSIB CAN CLAIM O NLY THE EXPENDITURE THAT HAVE BEEN INCURRED FOR ITS EMPLOYEES I DISALL OW THIS AMOUNT OF ` . 12 23 860/- THAT HAS BEEN INCURRED FOR ANOTHER COMP ANY. DISALLOWANCE UNDER THIS HEAD: ` . 12 23 860/- X) BOOKS AND PERIODICALS: THE ASSESSEE HAS CLAIMED AN AMOUNT OF ` .72 277/- UNDER THIS HEAD FOR WHICH THE VOUCHERS FOR ` .30 379/- ARE NOT IN THE NAME OF THE ASSESSEE COMPANY. I THEREFORE DISALLOW THIS CLAIM A S NOT PERTAINED TO THE ASSESSEE COMPANY. DISALLOWANCE UNDER THIS HEAD: ` .30 379/- 5. BEING AGGRIEVED AGAINST THE ORDER OF THE ASSESS ING OFFICER THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) AND REI TERATED THE SUBMISSION AS MADE BEFORE THE ASSESSING OFFICER. 6. THE LD. CIT(A) VACATED THE DISALLOWANCE OF THE EXPENDITURE CLAIMED BY THE ASSESSEE BY OBSERVING AS UNDER: 8. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND TH E DETAILED SUBMISSIONS MADE BY THE APPELLANT COMPANY. THE REAS ONS ADVOCATED BY THE LEARNED AO FOR THE MOST OF THE ADDITIONS MADE IN TH E ASSESSMENT ARE: 1) VOUCHERS/BILLS ARE IN THE NAME OF SHRIRAM GROUP COMPANIES AND ITS SISTER CONCERNS AND NOT IN THE NAME OF THE APPELLAN T COMPANY. 2) AMOUNTS WERE INCURRED BY THE EMPLOYEES OF SHRIR AM GROUP COMPANIES AND CLAIMED IN THE HANDS OF THE APPELLANT COMPANY. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 9 IN REPLY TO THE ABOVE OBSERVATIONS THE APPELLANT CO MPANY HAD MADE DETAILED SUBMISSIONS WHICH HAVE BEEN FURNISHED IN T HE EARLIER PART OF THIS ORDER. 9. THE MAIN POINT TO BE CONSIDERED IS WHETHER THE EXPENSES ARE GENUINE AND INCURRED FOR THE BUSINESS OF THE APPELLANT COMP ANY. FROM THE DETAILS FURNISHED AND ACCEPTED BY THE ASSESSING OFFICER IT IS SEEN THAT ALL THE EXPENSES ARE GENUINE. IT IS SEEN FROM THE EVIDENCE ADDUCED T HAT THE APPELLANT HAS DONE BUSINESS THRO' SHRIRAM GROUP COMPANIES AND AGENCIES AND INDEPENDENTLY BY ITSELF ALSO. AS THE APPELLANT HAS EARNED INCOME FRO M BUSINESS THRO' THESE SOURCES ALSO IT COULD NOT HAVE EARNED THE SAME WITH OUT INCURRING EXPENSES SEPARATELY. FURTHER ALL THESE PAYMENTS ARE BY CHEQU ES AND THE ASSESSING OFFICER HAS NOWHERE DOUBTED THE GENUINENESS OF THE PAYMENTS. FROM THE ASSESSMENT ORDER IT IS SEEN THAT THE ASSESSING OFFI CER HAS NOT MADE INDEPENDENT ENQUIRES TO BRING OUT THE ANY EVIDENCE THAT THE EXPENSES CLAIMED BY THE APPELLANT COMPANY ARE RELATING TO ANY OTHER COMPANY. IN THESE CIRCUMSTANCES THERE IS NO MATERIAL TO CONCLUDE THAT THE PAYMENTS HAVE NOT BEEN INCURRED FOR THE APPELLANT'S BUSINESS OR THAT THEY ARE NOT GENUINE. ON SIMILAR SET OF FACTS THE ADDITIONS MADE IN THE APPE LLANT'S CASE FOR THE ASSESSMENT YEAR 2007-08 HAVE BEEN DELETED BY THE UN DERSIGNED IN ITA NO.402/09-10 DATED 13.08.2010. I THEREFORE ACCEPT THE EXPLANATION OF THE APPELLANT 'S REPRESENTATIVE AND DELETE THE ADDITIONS MADE UNDER THE FOLLOWING HEADS : ADVERTISING EXPENSES-(SI.NO.7(I) OF THE ASSESSMENT ORDER) 1 81 040 BUSINESS PROMOTION EXPENSES-(SI.NO.7(II)OF THE ASSE SSMENT ORDER) 2 59 536 CONVEYANCE-LTEM (SL.NO. 7 (III) OF THE ASSESSMENT O RDER) 9 99 134 PRINTING & STATIONERY-(SL. NO.7(V) OF THE ASSESSMEN T ORDER) 3 26 416 REPAIRS & MAINTENANCE-(SI.NO.7(VI) OF THE ASSESSMEN T ORDER) 6 45 225 STAFF WELFARE EXPENSES (SL. NO.7(VII) OF THE ASSESS MENT ORDER) 2 87 855 TELEPHONE & POSTAGE (SL. NO.7(VIII) OF THE ASSESSME NT ORDER) 11 30 904 TRAVELING EXPENSES-(SL. NO.7(X) OF THE ASSESSMENT O RDER) 12 23 860 BOOKS AND PERIODICALS(SL. NO.7(XI) OF ASSESSMENT OR DER) 30 379 I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 10 7. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE LD. AR SUPPORTED THE ORDER OF THE LD. CIT(A). 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD WE FIND THAT THE ONLY REASON FOR MAKING THE DISALLOWANCE BY THE ASSESSING OFFICER IS THAT THE EXPENSE VOUCHERS ARE NOT IN THE NAME OF THE ASSESSE E COMPANY AND THEREFORE THEY ARE NOT INCURRED FOR THE BUSINESS O F THE ASSESSEE COMPANY. THE ASSESSEE HAS EXPLAINED THAT THE SHRIRAM GROUP O F COMPANIES ARE A WELL KNOWN COMPANY IN THE MARKET AND THEREFORE THE ADVE RTISEMENT AND OTHER EXPENSES WERE INCURRED IN THE NAME OF THE SAID COMP ANY SO AS TO ATTRACT GOOD TALENTS AND ALSO TO GET GOOD BUSINESS. THIS EX PLANATION OF THE ASSESSEE WAS NOT CONTROVERTED BY THE REVENUE BY BRI NGING ANY MATERIAL ON RECORD TO SHOW THAT THE EXPENSES WERE NOT INCURRED FOR THE PURPOSES OF THE ASSESSEES BUSINESS. IN OUR CONSIDERED OPINION THE MAINTAINING OR WRITING IN THE VOUCHERS IN A PARTICULAR MANNER WILL NOT EMP OWER THE ASSESSING OFFICER TO DISALLOW GENUINE BUSINESS EXPENSES OF TH E ASSESSEE. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTRO VERT THE FINDINGS OF THE LD. CIT(A) THAT (I) FROM THE DETAILS FURNISHED AND ACCEPTED BY THE ASSESSING OFFICER IT IS SEEN THAT ALL THE EXPENSES ARE GENUINE AND WITH THE EVIDENCES ADDUCED BY THE ASSESSEE SHOWS THAT THE BU SINESS WAS DONE THROUGH SHRIRAM GROUP OF COMPANIES JOINTLY AND INDE PENDENTLY BY IT ALSO; I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 11 (II) AS THE ASSESSEE HAS EARNED INCOME FROM THESE S ERVICES ALSO IT COULD NOT HAVE EARNED THE SAME WITHOUT INCURRING THE EXPE NSES SEPARATELY AND (III) FURTHER ALL THE PAYMENTS ARE MADE BY CHEQUES AND THE GENUINENESS OF THE EXPENDITURE IS NOWHERE DOUBTED BY THE ASSESSING OFFICER. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF T HE LD. CIT(A) WHICH IS CONFIRMED AND THE GROUNDS OF THE APPEAL OF THE REVE NUE ARE DISMISSED. 9. THE THIRD GROUND OF APPEAL OF THE REVENUE IS DI RECTED AGAINST THE ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE U NDER SECTION 40(A)(IA) HOLDING THAT THE PAYMENTS DO NOT WARRANT DEDUCTION OF TAX SINCE THEY WERE COVERED ONLY BY THE PROVISION OF SECTION 194J AND N OT BY THE PROVISION OF SECTION 194H OF THE ACT. 10. THE ASSESSING OFFICER HAS DISALLOWED THE EXPEN SES UNDER THE HEAD CONSULTANCY CHARGES AS UNDER: IV) CONSULTANCY CHARGES: THE ASSESSEE COMPANY HAS CLAIMED AN AMOUNT OF ` .L 83 46 222/- AS CONSULTANCY CHARGES VIZ. BROKERAGE/ COMMISSION PAI D TO VARIOUS PEOPLE MOST OF THEM BELONGING TO THE WESTERN REGION IE. JAIPUR. ON A VERIFICATION OF THE LEDGER UNDER THE HEAD CONS ULTANCY IT IS NOTICED THAT THE ASSESSEE HAS PAID AMOUNTS EXCEEDIN G ` . 2500/- TO VARIOUS PARTIES TO THE TUNE OF ` . 47 40 632/- WITHOUT DEDUCTING TAX U/S 194H AND CALLS FOR DISALLOWANCE U/S 40 (A)(IA). THE PAYMENTS ARE ONLY IN THE NATURE OF COMMISSION OR BROKERAGE AS THE NOMENCLATU RE IN THE VOUCHERS IS 'AGENT' . THERE IS NO PAYMENT WHICH IS TECHNICAL OR PROFESSIONAL IN NATURE IN THE SAID PAYMENTS FALLING WITHIN THE PROVISIONS OF S.194J. WHEN THIS WAS PUT TO THE ASSE SSEE'S I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 12 REPRESENTATIVE HE HAS OBJECTED TO THE DISALLOWANCE STATING THAT THE PAYMENTS ARE COVERED U/S 194J READ WITH EXPLANATION TO CLAUSE (VII) OF SUB SECTION (1) OF SECTION 9. THE SAID EXPLANATION DOES NOT COVER THE CASE OF THE ASSESSEE AS THERE IS NO RENDERING OF ANY MANAGERIAL TECHNICAL OR CONSULTANCY SERVICES. THE ARGUMENT ALS O DOES NOT HOLD GOOD FOR THE REASON THAT THE SAID PAYMENTS ARE PAID TO AGENTS AND PAYMENTS TO AGENTS ARE NOTHING BUT COMMISSION AND C ANNOT BE TERMED AS PROFESSIONAL FEES OR CONSULTANCY CHARGES. THE NOMENCLATURE OF EXPENSES DEBITED IN THE P&L ACCOUNT DOES NOT DETERMINE THE NATURE OF THE EXPENSE. HENCE THE ASS ESSEE HAVING DEBITED COMMISSION HAS CLAIMED THE SAME AS CONSULTA NCY CHARGES. IT IS EVIDENT THAT THE PAYMENTS ARE TO 'AGENTS' FROM T HE VOUCHERS AND PRINT OUTS FOR THE CLAIM OF EXPENSES. IT IS ALSO NO TED THAT ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE FROM SOME PAYMENTS ABOVE RS.20000/- AMOUNTING TO ` .4 80 440/- THOUGH THE ASSESSEE'S ARGUMENT DOES NO T HOLD GOOD FOR PAYMENTS ABOVE ` .2500/- THE ASSESSEE HAS NO JUSTIFICATION FOR PAYMENTS ABOVE ` .20000/- WITHOUT DEDUCTING TAX AT SOURCE U/S 194J. HENCE I AM JUSTIFIED IN MAKING THE DISALLOWANCE U/S 40(A) ( IA). (ANNEXURE FOR THE LIST OF PERSONS ABOVE ` .2500/- IS ENCLOSED). DISALLOWANCE UNDER THIS HEAD: ` .52 21 072/- ( ` . 47 40 632/- + ` .4 80 440/-) 11. THE ASSESSEE IN APPEAL BEFORE THE LD. CIT(A) R EITERATED THE SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER. T HE LD. CIT(A) HELD AS UNDER: 10.1 DISALLOWANCE OF CONSULTANCY CHARGES ` ` ` ` .47 40 632 (SL.NO. 7(IV) OF THE ASSESSMENT ORDER: INSURANCE IS A SPECIALIZED FIELD AND NOT ONLY INSUR ANCE BUSINESS BUT THE BUSINESS OF INSURANCE BROKER IS ALSO REGULATED BY A SEPARATE AUTHORITY CALLED INSURANCE REGULATORY AND DEVELOPME NT AUTHORITY (IRDA). THE FUNCTIONS OF THE APPELLANT COMPANY AND ITS ADVISORS AS LAID DOWN IN THE RELEVANT REGULATIONS ARE I. OBTAINING DETAILED INFORMATION OF THE CLIENTS BUSINESS AND RISK MANAGEMENT PHILOSOPHY; I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 13 II. FAMILIARISING HIMSELF WITH THE CLIENT'S BUSINE SS AND UNDERWRITING INFORMATION SO THAT THIS CAN BE EXPLAI NED TO AN INSURER AND OTHERS; III RENDERING ADVICE ON APPROPRIATE INSURANCE COVE R AND TERMS; IV. MAINTAINING DETAILED KNOWLEDGE OF AVAILABLE IN SURANCE MARKETS AS MAY BE APPLICABLE; V. SUBMITTING QUOTATION RECEIVED FROM INSURER IS F OR CONSIDERATION OF A CLIENT; VI. PROVIDING REQUISITE UNDERWRITING INFORMATION A S REQUIRED BY AN INSURER IN ASSESSING THE RISK TO DECIDE PRICING TERMS AND CONDITIONS FOR COVER; VII. ACTING PROMPTLY ON INSTRUCTIONS FROM A CLIENT AND PROVIDING HIM WRITTEN ACKNOWLEDGEMENTS AND PROGRESS REPORTS; VIII. ASSISTING CLIENTS IN PAYING PREMIUM UNDER SE CTION 64 VB OF INSURANCE ACT 1938 (4 OF 1938). IX. PROVIDING SERVICES- RELATED TO INSURANCE CONS ULTANCY AND RISK MANAGEMENT; X. ASSISTING IN THE NEGOTIATION OF THE CLAIMS; AND XI. MAINTAINING PROPER RECORDS OF CLAIMS. WHEN SO MANY SERVICES HAVE TO BE RENDERED ESPECIAL LY ITEMS III V VI AND IX CAN BE CONSTRUED AS TECHNICAL SE RVICES ONLY AND I AGREE WITH THE CONTENTIONS OF THE AR THAT THESE PAY MENTS WOULD COME WITHIN THE PURVIEW OF TECHNICAL SERVICES ONLY WITHIN THE MEANING OF CLAUSE (B) OF THE EXPLANATION BELOW SEC. 194J R.W. EXPLANATION 2 TO CLAUSE (VII) OF SUB SECTION 1 OF S ECTION 9 AND ACCORDINGLY COVERED BY THE PROVISIONS OF SEC.194J O F THE I T ACT AND NOT UNDER THE PROVISIONS OF SEC.194H OF THE IT ACT AS- HELD BY THE LEARNED AO. ON SIMILAR SET OF FACTS IN THE APPELLA NT'S CASE FOR THE ASSESSMENT YEAR 2007-08 THE UNDERSIGNED HAS HELD TH AT PROVISIONS OF SEC.194J ARE ONLY ATTRACTED VIDE ORDER IN ITA NO.40 2/09-10 DATED 13.08.2010. AS ALL THE PAYMENTS ARE LESS THAN ` .20 000/- THERE IS NO NECESSITY TO DEDUCT TAX U/S.194J OF THE I T ACT. HE NCE THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 14 DISALLOWANCE MADE U/S 40(A)(IA) OF RS.47 40 632 IS DELETED. 12. BOTH THE PARTIES BEFORE US AT THE TIME OF HEA RING AGREED THAT THE ISSUE SHOULD BE RESTORED BACK TO THE FILE OF THE AS SESSING OFFICER FOR VERIFICATION OF THE ISSUE AFRESH FOR FURTHER VERIFI CATION AS UNDER. IF THE ASSESSEE IS ABLE TO PRODUCE EVIDENCE TO SHOW THAT T HE PERSONS TO WHOM THE CONSULTANCY CHARGES HAVE BEEN PAID ARE REGISTERED W ITH IRDA THEN THEY ARE TO BE TREATED AS PAYMENTS MADE TOWARDS PROFESSI ONAL CHARGES AS THOSE PERSONS ARE DOING PROFESSION AND WILL BE GOVERNED B Y THE PROVISION OF SECTION 194J OF THE ACT AND TDS HAS TO BE DEDUCTED AS PER THE PROVISIONS OF THAT SECTION. THIS IS ALSO BECAUSE UNDER THE INSURA NCE REGULATORY AUTHORITY DIRECTIONS ONLY PERSONS REGISTERED WITH IRDA AND WH O HAVE COMPLIED WITH THEIR TESTS CAN CANVAS INSURANCE BUSINESS. THIS IS A PROFESSIONAL SERVICE. IN ANY OTHER CASE WHERE PAYMENT IS MADE BY WAY OF COM MISSION OR OTHERWISE FOR SOLICITING OR PROCURING INSURANCE BUSINESS BY P ERSONS WHO ARE NO REGISTERED WITH IRDA THEN THE SAME WILL BE GOVERNE D BY THE PROVISION OF SECTION 194D OF THE ACT. THIS IS BECAUSE THE PROVIS IONS OF SECTION 194D ARE DIRECTLY CONNECTED WITH THE PAYMENT OF COMMISSION F OR PROCURING INSURANCE BUSINESS. IF THE DEDUCTION OF TDS IS NOT MADE IN ACCORDANCE WITH THE ABOVE SECTIONS THEN THE AMOUNTS SO PAID IS TO BE DISALLOWED WHILE COMPUTING THE INCOME OF THE ASSESSEE. THE PROVISION OF SECTION 194H WOULD HAVE NO APPLICABILITY AS THE BUSINESS OF THE ASSESSEE IS INSURANCE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1258 258258 258/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 15 BROKING AND SECTION 194H SPECIFICALLY EXCLUDES INSU RANCE COMMISSION. WE THEREFORE SET ASIDE THE ORDERS OF LOWER AUTHORITIE S AND REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUD ICATING THE ISSUE AFRESH IN THE LIGHT OF THE DISCUSSIONS AS MADE HEREINABOVE AF TER ALLOWING SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 13. IN THE RESULT THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 23.12.2011. SD/ - SD/ - ( GEORGE MATHAN) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER CHENNAI DATED THE 23.12.2011 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.