TaxTMI 
TaxTMI 
2013 (12) TMI 127
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....rious expenses. The said amount was comprising of reimbursement of rent amounting to Rs. 56,14,216/- and reimbursement of other office and administrative expenses amounting to Rs. 4,03,41,784/-. According to the A.O., the assessee was required to deduct tax at source from the said amounts paid to its holding company IDFC Limited and since the same was not done, he required the assessee to explain as to why the said amount paid by it to IDFC Limited should not be disallowed u/s 40(a)(ia) of the Act for non-deduction of tax at source. In reply, the following submission was made by the assessee vide letter dated 30-11-2010 offering its explanation in the matter:- "During the financial year 2007-08, the expenses incurred by the Company included certain expenditure paid by its 100 percent holding company ie. IDFC on its behalf. The detailed breakup of the sane is enclosed for your reference. IDFC has charged back same amount to the company without any markup. The expenses incurred by the company were in the nature of staff expenses, communication expenses, training expenses, professional fees, conveyance arid traveling, electricity expenses, Internet expenses etc and IDF....
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....epresents reimbursement of expenses and thus the assessee was not responsible for deducting any tax at source while making such payment. In view of the above, it is submitted that such payment cannot be disallowed". 4. The above submission made by the assessee was not found acceptable by the A.O. for the following reasons given in the assessment order:- "(a) It has already discussed in para 4.2 above, the assessee has reimbursed various expenses like salaries, computer software, lease rent, license fee, membership subscription, professional fee, telephone expenses, travel expenses etc totaling to Rs.4,59,56,000/- to its holding company. Excluding lease rent, the balance amounts of reimbursement works out to Rs.4,03,41,784/-. (b) The -rental expenses is already disallowed for the reasons stated in above paragraphs. (c) The assessee has not submitted any documentary evidence in support of basis of charging of the amounts paid to its holding company. (d) It is admitted fact that all the employees are on the pay roll of its holding company ie.. M/s IDFC Ltd and the reimbursement of expenses mostly includes employee cost....
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....by IDFC Limited on behalf of the assessee and subsequently reimbursed by the assessee were in the nature of rent expenses, communication expenses, training expenses, professional fees, conveyance and traveling, electricity expenses, internet expenses etc. and IDFC Limited had already deducted tax on payment of these expenses, wherever required. It was contended that the assessee company was not liable to deduct tax at source from the payment made to IDFC Limited towards reimbursement of the said expenses actually incurred on its behalf. In support of this contention, reliance was placed on behalf of the assessee on the decision of Mumbai Bench of ITAT in the case of Stratcap Securities (I) P. Ltd. vs. ACIT (ITA No. 7049/Mum/2008) wherein the disallowance made u/s 40(a)(ia) of the Act was held to be unsustainable by the Tribunal in the similar facts and circumstances holding that tax was not liable to be deducted from the payment made on account of reimbursement of expenses especially when the said expenses had already been subjected to deduction of tax at source while the payment was originally made. It was further contended on behalf of the assessee before the ld. CIT(A) that ther....
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....even infrastructure to carry on the business activity and therefore the infrastructure facilities and entire staff were provided by its holding company IDFC Limited. He invited our attention to the copy of MOU between the assessee company and IDFC Limited placed at page 108 of his paper book to show that the necessary staff required by the assessee company was to be provided by IDFC Limited on deputation basis and the assessee company was to reimburse the salary cost of the said employees on deputation to IDFC Limited based on the actual cost incurred by IDFC Limited. He submitted that the expenditure in question disallowed by the A.O. u/s 40(a)(ia) of the Act was mainly on account of staff expenses to the extent of Rs. 3.66 crores and the same was recovered by IDFC Limited from the assessee company on actual basis without any mark-up. He invited our attention to P&L account of the assessee company placed at page 7 of the assessee's paper book, Schedule -9 of the P&L account placed at page 11 of the paper book giving details of the staff cost and the note forming part of account of the assessee placed at page 15 of his paper book wherein the fact of staff expenses having been reimb....
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....aid by the assessee company to IDFC Limited towards reimbursement of actual expenditure incurred by the said company on behalf of the assessee company without any mark-up or element of profit and the ld. D.R. has not disputed this position. As a matter of fact, this position has not been disputed even by the A.O. or the ld. CIT(A) in their respective orders. On the contrary, the fact that the amount in question was paid by the assessee to IDFC Limited towards reimbursement of expenses was accepted by the A.O. as well as by the ld. CIT(A) while recording the finding/observation in their respective orders. They have also not disputed the fact that the expenses reimbursed by the assessee company to IDFC Limited were mainly included salary paid to staff members and rent paid for premises and while making these payments originally, IDFC Limited had deducted the tax at source wherever required. 10. In the case of Utility Powertech Limited (supra), a similar issue arose for consideration of the co-ordinate Bench of this Tribunal wherein the disallowance u/s 40(a)(ia) of the Act was made by the A.O. on account of payment made by the assessee towards reimbursement of expenses for nondedu....
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....at the entire rent paid by the assessee was not wholly and exclusively incurred for the purpose of assessee's business. He therefore invoked the provisions of section 38(2) of the Act and made a disallowance of Rs. 18,71,404/- out of rent being 1/3rd of the total rent paid by the assessee to IDFC Limited. Although this issue was specifically raised by the assessee in ground No. 1(e) taken before the ld. CIT(A) and submission thereon was also made, it appears that the ld. CIT(A) after having confirmed the disallowance made by the A.O. u/s 40(a)(ia) has not adjudicated upon this issue. Since the disallowance made u/s 40(a)(ia) of the Act has now been deleted by us, this issue is required to be decided on merit and since the ld. CIT(A) has not given any finding on merit of this issue, we remit this matter to the file of the ld. CIT(A) for deciding the same on merit after giving the assessee an opportunity of being heard. Ground No. 5 of assessee's appeal is accordingly treated as allowed. 14. During the course of appellate proceeding before the Tribunal, the assessee has raised the following grounds as additional grounds:- "6. Without prejudice to the existing groun....
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....) on the reimbursement issue, however, since prior period expenses were already forming part of reimbursement issue, the Appellant inadvertently missed to take the ground of the prior period expense issue. Accordingly, the failure to raise this ground initially was neither deliberate nor contumacious and we therefore request that the present application be placed before the Bench for necessary orders. Reason for raising additional ground No 7. It is submitted that a similar issue regarding the prior period expense amounting to Rs 77,38,000 arose in AY 2009- 10 where the Appellant had claimed it as an allowable expenditure whereas the Assessing Officer disallowed the same during the course of the assessment proceedings which were completed on November 30, 2011. In this regard, it is submitted that the Appellant has already filed an appeal before the ITAT with respect to the said issue. However, without prejudice to the above, in case the prior period expense amounting to Rs 77,38,000 is not allowed in AY 2009-10 then the same should be allowed in AY 2008-09. Your Honor would appreciate that the said ground could not have been raised ea....