TaxTMI 
TaxTMI 
2016 (4) TMI 993
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.... 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. is already over and therefore, question of availing any services by....
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....nt 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, learned CIT(A) has erred in deleting 25% of the disallowance for the vague reason that e-mail correspondence between TACO group officer and the assessee prima facie indicate....
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....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 payable by the assessee to TACO was made as a percentage of total turnover of the assessee and was of the view that how the price for the services rendered could be fixed as a percentage o....
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.... 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 Rs. 3.72 crores in assessment year 2006-07 and Rs. 4.67 crores in assessment year 2007-08. 11. The second aspect which was considered by the CIT(A) vide para 3.3.2 at pages 13 onwards was whe....
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....ein 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 and heater cores and there was an Agreement entered into between the assessee and TACO for providing administrative services, against which the assessee had paid the administrative service charges. Th....
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....er 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 been paid and allowed as expenditure in the hands of assessee from year to year. In the entirety of the above said facts and circumstances, we find no merit in the order of Assessing Officer in holding that the entire....
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....e 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 said RPGEL has its objectives, development of code of conduct and creation of goodwill which could be suitably identified to the public mind and the logo "RPG" is having a high goodwill in the market. It is further submitted, that du....
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....tion. 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 of its business. Whether any particular payment is on account of business expediency or not is to be considered for allowing the same under section 37 of the Act. 21. Another aspect to be considered here is that section 37 provides that any expenditure wholly and exclusively i....
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....st. 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 Tribunal by its order dated 3rd March, 1999 allowed the said application of the assessee arising out of the Tribunal's order dated 3rd April, 1997. Thereafter the Tribunal by its order dated 21st Oct., 1999 allowed the appeal of the assessee partly and deleted the additions which were earlier confirmed. (iv) The appell....
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....d 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 above ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Indo Saudi Services (Travel) (P.) Ltd. (supra) to the facts of the present case, where admittedly TACO had paid taxes under section 115JB of the Act, we reverse the findings of CIT(A) that there was evasion of taxes by the assessee in making such payment. 31. Another aspect of the issue raised is the observations of Revenue aut....
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....ncial 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 in the preceding years without any consideration or not is also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'. The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs i....
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.... 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 assessee and evidences filed by the assessee. That exercise is clearly not done. In the case of Vodafone Essar Ltd. v. Dispute Resolution Panel II [2011] 196 Taxman 423 / [20I0] 8 taxmann.com 297, Hon'ble Delhi High Court has observed that, "When a quasi judicial authority (like the DRP) deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the mat....
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....006 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 the assessee in all the appeals are thus, allowed and the grounds of appeal No.1 and 2 raised by the Revenue in all the appeals is thus, dismissed. 17. Now, we proceed to take up the other grounds of appeal, which are raised in different assessment years. 18. The assessee in assessment year 2006-07 has raised grounds of appeal No.3 to 7 on account of other disallowances. 19. The first issue raised vide ground of appeal....
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....n 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 not booked under the head 'Product Development Charges'. Only the value of services i.e. at Rs. 13,25,000/- x 2 has been booked by the assessee as an expenditure, which in turn, was disallowed by the Assessing Officer being capital in nature. Before the CIT(A), the assessee had explained the nature of expenses that the said expenses were incurred for testing of flow through heat exchangers manufactured by the assessee under computer aided simulate....
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....he 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 new scrap yard was constructed, the same was at the root of fixed capital asset and the same was not allowable as revenue expenditure. With regard to expenditure on interiors, the CIT(A) noted that the assessee has failed to furnish any details of the expenses nor the copies of invoices of bills for expenses incurred have been filed and in the absence of the same, the Assessing Officer was held to be justified in treating the expenditure as capital ex....
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.... 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 expenditure on rent relating to prior years, is not allowable as expenditure during the year. Accordingly, we confirm the addition of Rs. 1,51,896/-. The ground of appeal No.5 is thus, dismissed. 36. The issue in grounds of appeal No.6 and 7 is with regard to disallowance of sales tax expenses of Rs. 7,01,572/-. 37. The Assessing Officer from the details of miscellaneous expenses of Rs. 42,13,164/- debited by the assessee, noted that sum of Rs. 1 lakh on 09.10.2005 an....
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....l 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 Act, such Sales Tax payment is duly allowable as deduction in the hands of assessee. However, the assessee had furnished a challan of Sales Tax payment of only Rs. 1 lakh before the CIT(A) and no challan of payment of Rs. 6,01,572/- was filed. Even before us, the assessee has failed to furnish the said challan. Accordingly, we remit this issue back to the file of Assessing Officer to allow the claim of assessee on satisfaction that both the amounts have been paid by the assesse....
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....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. 48. The learned Departmental Representative for the Revenue placed reliance on the order of CIT(A). 49. We have heard the rival contentions and perused the record. The issue arising before us is in relation to the performance incentive paid to the employees. Admittedly, the aforesaid payment was due to be paid to the employees as on 31.03.2007 i.e. close of the assessment year. However, the assessee claims to have made the said payment before the due date of filing the return of income as....
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....e 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 raised by the assessee is dismissed. 55. The issue in ground of appeal No.4 is against the disallowance of equated rent amounting to Rs. 14,62,772/-. 56. The Assessing Officer noted from the details filed by the assessee that sum of Rs. 14,62,772/- was claimed under the head 'Equated rent as per AS19 on FEM Lease'. However, no details were furnished and the said amount was added in the hands of assessee. The CIT(A) confirmed the said disallowance. 57. The assessee is in appeal against the same an....
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....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 the assessee had failed to furnish the relevant details and supporting evidence before the Assessing Officer. However, the first disallowance made by the Assessing Officer on account of repairs to machinery was allowed by the CIT(A) since the Assessing Officer had failed to establish that the expenditure was not genuine and it was in the nature of capital expenditure. Reference was made to the details furnished by the assessee before the CIT(A) and on verification of the said details, the CIT(A) held that the expenditure incurr....