TaxTMI 
TaxTMI 
2016 (4) TMI 993
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....2012 relating to assessment years 2008-09 and 2009-10 against respective orders passed under section 143(3) of the Income Tax Act, 19 61 (in short 'the Act'). 2. This bunch of four cross appeals relating to assessment years 2006-07 to 2009-10 were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. First, we shall take up cross appeals relating to assessment year 2006-07. 4. The assessee in ITA No. 1034/PN/2013 has raised the following grounds of appeal:- 1. The learned CIT(A) erred in confirming the disallowance of administrative service charges paid to Tata Autocomp Systems Ltd. ("TACO" ) to the extent of Rs. 2,79,24,130 out of Rs. 3,72,32,173 under section 40(A)(2)(b) of the Income-tax Act, 1961 ("the Act") on the grounds that the same is excessive and unreasonable having regard to services rendered by TACO and the legitimate business needs of the appellant. 2. The learned CIT(A) erred in making the following observations: a) ... The appellant company was incorporated in the year 1997 and the initial start-up phase of the company including land acquisition, construction of factory premises etc. i....
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.... the liability is only a contingent liability and such contingent liability cannot be allowed as deduction u/s. 43B or otherwise ... The appellant objects to the above observations which are contrary to the facts of the case and in law. 8. Each one of the above grounds of appeal is without prejudice to the other. 9. The appellant craves leave to add, to amend, to alter, to substitute, and to withdraw any or all of the above grounds of appeal. 5. The Revenue in ITA No. 1029/PN/2013 has raised the following concise grounds of appeal:- 1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the disallowance of Rs. 93,08,043/- i.e. erred in deleting 25% of the disallowance of Administrative service charges made by the Assessing Officer when learned CIT(A) had himself held in his order. That no documentary evidence was filed by the assessee to show that services were actually rendered by TACO to the assessee and that the assessee had developed its own establishment, employees and other basic infrastructure, logistics and resources to take care of such services. 2 On the facts and circumstances of the case, lea....
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....ting & Implementation dated 17.11.2008 and Project Charter entered into between the assessee and TACO. During the course of assessment proceedings, the assessee had submitted copies of few e-mail correspondences between the employees of the assessee company and the employees of TACO. The Assessing Officer on perusal of the Agreement and e-mail correspondence noted that the Agreement was for the implementation of SAP in TACO group companies, which was executed on 02.05.2009. E-mail communication copies produced by the learned Authorized Representative for the assessee also showed the communication from 2008 onwards, which was irrelevant for the year under consideration i.e. assessment year 2006-07. The Assessing Officer further noted that the assessee was incurring administrative and technical expenses including paying salary to technical, administrative and marketing staff. Further, the assessee was incurring administrative expenses including advertisement, marketing staff training, sales promotion, audit fees, etc. Further, the assessee was incurring expenditure both on direct and indirect overheads required for running of the organization. The Assessing Officer observed that fees....
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.... any services by the assessee from TACO on account of start-up phase of the company. Further, there was no expansion in the company during the year and certain services were availed from TACO during start-up phase of the company. The CIT(A) thus, concluded that if at all any support services were rendered by TACO, the same could only be in respect of activities carried on by the assessee during the operating phase of the company. In support thereof, the assessee had produced e-mail correspondence between TACO Group Office and the assessee, which as per the assessee, prima facie indicate rendering of some services and support to the assessee in various fields of activities. In the absence of any documentary evidence filed by the assessee to show as to how the services were actually rendered by TACO to the assessee during the year and also to provide break-up of expenses incurred for each of the support services, if any, the CIT(A) after perusing the contents of e-mail filed by the assessee was of the view that the same does not conclusively establish that the services and support to the extent claimed by the assessee were received from TACO justifying the payments to the extent of R....
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....d that the expenditure claimed was restricted to 25% of the total expenditure claimed. The learned Authorized Representative for the assessee took us to the various paras of order of Tribunal, wherein all the aspects relating to allowability of expenditure were considered and adjudicated by the Tribunal and it was stressed by him that the issue was covered by the order of Tribunal. 14. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer and fairly conceded that the issue has been considered in Tata Johnson Controls Automotive Ltd. 15. We find that identical issue of allowability of claim arose before the Tribunal in Tata Johnson Controls Automotive Ltd. Vs. DCIT (supra), where the JV was formed between TACO and Johnson Control Inc. ('JCI') and the concerned JV entered into an Agreement with TACO for providing administrative services both at start-up and operating phases. Even in the facts of the present case, the assessee was a JV company with 51:49 share between TACO and Tata Toyo Radiator Pvt. Ltd. The assessee before us was engaged in the business of manufacturing and selling of aluminum radiators, aluminum intercoolers....
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....xpenditure has to be allowed in the hands of assessee. Both the assessee and the Revenue are in appeal against the said order of CIT(A). 24. The first issue to be addressed in this regard is whether in order to judge commercial exigency of the agreement and the quantum of remuneration paid in view of the terms of agreement entered into between two parties, can the reasonableness of expenditure be viewed by the authorities or reasonableness has to be established from the view point of businessman. The first aspect in this regard is that where there is a joint venture between two concerns to the extent of 50:50 and additional remuneration is being paid by joint venture company formulated by them to one of the concerns, then the issue has to be seen from the view point of other concern who is part of joint venture and is incurring 50% cost of the said remuneration paid. There is a commercial agreement between the assessee and TACO, under which certain services had to be provided by TACO, for which remuneration was due to them. The list of services are enlisted in the agreement and undoubtedly, the said agreement has been in force for more than 7 years and the amounts have bee....
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....find similar issue of allowability of expenditure pursuant to agreement between the assessee and the third party, arose before Cochin Bench of Tribunal in Harrisons Malayalam Ltd. Vs. ACIT (supra) and the factual aspects of the case were as under:- "16. The next issue is in respect of the disallowance of fees paid to M/s. R.P.G. Enterprises Ltd. ('RPGEL' for short) and this issue arises in all the appeals before us. The Id. CA submitted that the assessee is engaged in multiple business activities like tea and rubber cultivation by technology, structural, civil, mechanical and electrical engineering, trading in tea, coffee, spices and export of the same estate supplies and trading, clearing and shipping, air travel and air cargo. The assessee-company has entered into an agreement dated 8-8-1994 with M/s. RPGEL to acquire the non-exclusive licence to use "RPG" Logo owned by RPGEL for the purpose of assessee's business including in relation to or upon its products, label, letter-head, brochure, pamphlets and advertisement materials, etc., the Id. CA referred to the copy of agreement which is placed at pages 162 to 167 of the paper book. It is further argued that the s....
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.... 17....... 18....... 19....... 20. The authorities below have not disputed the terms of the agreement but it appears from the reasons given by the CIT(A) that the said payment was not required at all. The concept of business is changing due to globalization. The market strategies of the corporate organizations are also changing fast. If any business house is required to stand in the market, then it has to improve the quality of the products and improvement of the quality of the products as well as the market strategies will depend on lot of supporting infrastructure. The contention of the assessee is that RPGEL is one of the logo having goodwill in the market and use of goodwill gives an indication to the buyers and consumers that the assessee company is having the back up of excellence with code of conduct and quality. In the changing scenario of globalization, one cannot go with the conservative concept of the early fifties. As far as HRD is concerned, it has gained importance in the industrial and business world. We find force in the argument of the Id. CA that RPGEL is having the infrastructure which is used by the assesseecompany for the development ....
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....irlines. The assessee earned commission @ 12 per cent from Saudi Arabian Airlines on the tickets booked/sold by them. The assessee appointed several agents including their sister concern, viz., M/s Middle East International and paid incentive commission to such agents, by way of handling charges. (ii) For the asst. yrs. 1991-92 and 1992-93 the AO by his orders dated 25th March, 1994 and 31st Jan., 1995 respectively held that the incentive commission paid to M/s Middle East International (sister concern of the assessee) was half per cent more than other sub-agents. The AO invoked section 40A(2) of the IT Act and disallowed the excess commission paid to the assessee's sister concern @ 1/2 per cent. The CIT(A) by orders dated 5th Jan., 1995 and 14th Nov., 1995 confirmed the disallowance for asst. Yrs 1991-92 and 1992-93 respectively. (iii) The assessee carried the matter further by filing an appeal before the Tribunal. Initially the Tribunal by its common order dated 3rd April, 1997 dismissed the assessee's appeals for the asst. yrs. 1991-92 and 1992-93. Thereafter the assessee filed an application under section 254 of the IT Act, 1961 before the Tribunal and....
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....38,510 and for asst.yr. 1992-93 is Rs. 14,65,880 and the said assessment orders have been placed on record. (v) Under the CBDT Circular No. 6-P, dated 6th July, 1968 it is stated that no disallowance is to be made under section 40A(2) in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax. 5. In view of the aforesaid admitted facts we are of the view that the Tribunal was correct in coming to the conclusion that the CIT(A) was wrong in disallowing half per cent commission paid to the sister concern of the assessee during the asst. yrs.1991-92 and 1992-93. The learned advocate appearing for the appellant was also not in a position to point out how the assessee evaded payment of tax by alleged payment of higher commission to its sister concern since the sister concern was also paying tax at higher rate and copies of the assessment orders of the sister concern were taken on record by the Tribunal. 6. We, therefore, answer the above question of law raised in these appeals in affirmative and dismiss the above appeals filed by the appellant. There will, however, be no order as to costs." 30. Applying the abov....
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....s not only going much beyond his powers in questioning commercial wisdom of assessee's decision to take benefit of expertise of Dresser Rand US, but also beyond the powers of the Assessing Officer. We do not approve this approach of the revenue authorities. We have further noticed that the Transfer Pricing Officer has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrelevant, because whether a particular expense on services received actually benefits an assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have determining arm's length price of that service. When evaluating the arm's length price of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. Similarly, whether the AE gave the same services to the assessee i....
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....tute requires recording of reasons, then it is the statutory requirement and, therefore, there is no scope for further inquiry. But even when the statute does not impose such an obligation it is necessary for the quasi-judicial authorities to record reason as it is only visible safeguard against possible injustice and arbitrariness and affords protection to the person adversely affected. Reasons are the links between the material on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject-matter for a decision, whether it is purely administrative or quasi judicial. They should reveal rational nexus between the facts considered and the conclusion reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable. " 9. In our considered view, it is not open to Dispute Resolution Panel to reject the objections of the assessee in a summary manner without properly analyzing the objections of the assessee and dealing with evidences filed by the assessee. Under section 144 C (6), the Dispute Resolution Panel can issue directions after, inter alia, considering objections of the asse....
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.... hands of assessee being paid in accordance with the terms of the Agreement agreed upon between the parties and for the purpose of carrying on the business of assessee more efficiently. It may be pointed out herein that the assessee had initially entered into an Agreement with TACO in 1997 and the said expenditure had been allowed in the hands of assessee from year to year. However, the assessee renewed the Agreement in 2006 and the expenditure for the first time was not allowed in the hands of assessee in assessment year 2006-07. We find no merit in the orders of authorities below in this regard and accordingly, we modify the order of CIT(A) and direct the Assessing Officer to allow the expenditure in entirety in the hands of assessee. It may be pointed out herein only that the issue vide grounds of appeal No.1 and 2 raised by the assessee in assessment year 2006-07 and grounds of appeal No.1 and 2 raised by the Revenue are similarly raised by both the parties in assessment years 2007-08 to 2009-10. Accordingly, we allow the claim of assessee vis-à-vis the said expenditure in all the years i.e. assessment years 2006-07 to 2009-10. The grounds of appeal No.1 and 2 raised by ....
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.... copies of invoices placed at pages 197 and 198 of the Paper Book and pointed out that the assessee had not acquired any tools. However, the said concern while providing services to the assessee, had used tools and hence, expenditure was not capital expenditure. Reliance in this regard was placed upon the decision of Hon'ble Bombay High Court in CIT Vs. Raychem RPG Ltd. (2012) 346 ITR 138 (Bom), wherein the expenditure incurred on acquisition of SAP software was held to be revenue in nature. 24. The learned Departmental Representative for the Revenue placed reliance on the order of CIT(A). 25. We have heard the rival contentions and perused the record. The assessee for the year under consideration had debited an expenditure of Rs. 26,50,000/- on account of engineering service charges provided for CFD Analysis of hood components. The said services were provided by CSM Software Pvt. Ltd. and had raised two invoices dated 29.07.2005 and 12.08.2005 for sum of Rs. 13,25,000/- x 2. The assessee under the head 'Product Development Charges' had booked the expenses of invoice value of Rs. 13,25,000/- x 2, whereas the service tax and the education cess charged by the said concern is no....
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..... 26. The issue in ground of appeal No.4 raised by the assessee is against the disallowance of expenses on repairs to building amounting to Rs. 11,85,657/-. 27. The perusal of the assessment order reflects the break-up of sum of Rs. 11,85,657/-, out of total debit to repairs to building account of Rs. 29,51,934/-. The Assessing Officer noted that the said amount was of capital nature and merits to be disallowed in the hands of assessee. 28. The CIT(A) noted the plea of the assessee that it had incurred expenses on internal alterations like temporary wooden partition, paneling, etc. exclusively for the purpose of business to make the office and existing scrap yard fit for regular use and to carry on the business more effectively. However, fr om the perusal of invoices, the CIT(A) noted that scrap yard was constructed at a new location by incurring expenditure totaling Rs. 4,59,804/-. Since the expenditure was incurred for the construction of scrap yard at new location and not for repairs to the existing scrap yard, the CIT(A) in turn, relying on the ratio laid down by the Hon'ble Supreme Court in Balimal Naval Kishore Vs. CIT reported in 224 ITR 414 (SC), held that where a ....
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.... learned Authorized Representative for the assessee was asked to explain in this regard. Where expenditure is being disallowed in the hands of assessee, then even the said levies i.e. including VAT, Education Cess, etc. is to be disall owed in the hands of assessee. Accordingly, we find no merit in the claim of the assessee in this regard and the same is dismissed. The ground of appeal No.4 raised by the assessee is dismissed. 34. The issue in ground of appeal No.5 raised by the assessee is with regard to disallowance of rent expenses totaling Rs. 1,51,896/-. 35. The case of the assessee before the authorities below was that the said expenditure was crystallized during the year though relates to prior year, hence was booked as expenditure during the year. Both the authorities below have disallowed the claim of assessee since the expenditure did not relate to the year under consideration. The assessee before us has failed to furnish any evidence to establish that the said expenditure did crystallize during the year, which in turn, relates to prior year. Since the assessee is following mercantile system of accounting, we find no merit in the claim of assessee and the said expen....
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.... order of CIT(A). 42. We have heard the rival contentions and perused the record. The issue arising before us is in relation to the amount paid by the assessee to the Sales Tax Department against disputed demand relating to the year 2001-02. The year in appeal before us is assessment year 2006-07 and the question is whether the aforesaid amount relating to the demand raised for the year under consideration 2001-02 is allowable in the hands of assessee, in the year under appeal or not. We find under the provisions of section 43B of the Act, notwithstanding any other provision of the Act, it is provided under the Statute that certain amounts shall be allowed as deduction only on payment. One such clause under section 43B of the Act deals with the Sales Tax payment. Admittedly, the demand was raised against the assessee for the year 2001-02 and the said demand was disputed. However, under protest, the assessee deposited sum of Rs. 7,01,572/- during the year under consideration. Once the amount has been deposited by the assessee during the year and no deduction on this account has been taken by the assessee in any of the earlier years, then under the provisions of section 43B of the....
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....es further verification with reference to relevant bank account extract of the assessee. Since these details were not furnished before the Assessing Officer, the CIT(A) directed the Assessing Officer to verify the claim of assessee vis-à-vis payment of incentive to the employees on or before due date of filing the return of income and if the said incentive was so paid and the same was directed to be allowed as deduction by the CIT(A). 46. The assessee is in appeal against the finding of CIT(A). 47. The learned Authorized Representative for the assessee pointed out that the first objection was that the provisions of section 43B of the Act were not applicable and hence, there is no merit in the said exercise. However, in the alternate, in case the said stand of the assessee is not accepted, the learned Authorized Representative for the assessee pointed out that the audit report is dated 30.10.2010, the return of income was due to be filed on 15.11.2007 and our attention was drawn to the details of payment placed at page 49 of the Paper Book. It was the case of learned Authorized Representative for the assessee that no disallowance is warranted in the hands of assessee. 4....
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....sessee before due date of filing the return of income. The CIT(A) has directed the Assessing Officer to verify the said claim by seeing bank entries in the hands of assessee. We find no error in the said directions given by the CIT(A) and confirm the same. We dismiss the grounds of appeal No.3 and 4 raised by the assessee. 51. The assessee in ITA No.1595/PN/2013 relating to assessment year 2008- 09 has raised no other grounds of appeal except against the disallowance of administrative service charges. We have already adjudicated the same in paras hereinabove, and hence the same are allowed. 52. In ITA No.1596/PN/2013 relating to assessment year 2009-10, the issue vide ground of appeal No.3 raised by the assessee is against the disallowance of expenses on rent totaling Rs. 3,36,393/-. 53. The Assessing Officer had disallowed the said claim of the assessee since the assessee failed to furnish the basic details and the same has been confirmed by the CIT(A). 54. The learned Authorized Representative for the assessee fairly admitted that the aforesaid details are not available with the assessee, hence, disallowance of Rs. 3,36,393/- is confirmed and the ground of appeal No.3....
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.... raised ground of appeal No.3, which reads as under:- "3. On the facts and in the circumstances of the case learned CIT(A) has erred in deleting the disallowance of Rs. 3,61,000/- and Rs. 6,14,768/- by admitting additional evidence without following the mandatory procedure for admission of the same prescribed in Rule 46A of the Income Tax Rules, 1962." 63. The grievance of the Revenue is that the said relief has been allowed by the CIT(A) by admitting fresh evidence in violation to the provisions of Rule 46A of the Income Tax Rules, 1962 (in short 'the Rules') . On the other hand, the claim of the assessee is that the aforesaid details were filed before the Assessing Officer as is evident from the Paper Book filed with special reference to pages 81 to 100. 64. On perusal of record and after hearing the rival contentions, we find that the issue raised vide ground of appeal No.3 by the Revenue is against the disallowance made by the Assessing Officer being 10% out of repairs to machinery at Rs. 3,61,000/-. Another disallowance made by the Assessing Officer was on account of selling and distribution expenses of Rs. 6,14,768/-. Both these disallowances were made since th....