TaxTMI 
TaxTMI 
2016 (6) TMI 531
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....earned CIT(A) has: 1. erred in confirming action of the Assessing Officer in disallowing the professional fees paid to BMR Advisors Pvt. Ltd ('BMR'), an independent third party consulting firm on the ground that the expenses have not been incurred for the purpose of business of the Appellant; 2. erred in not appreciating the fact that the services provided by BMR in the process of bid with Rites Limited were in nature of advice from tax and regulatory perspective such as indirect taxes; 3. erred in confirming levy of interest under section 234B and 234C of the Act, which is not computed as per the law." 3. The brief facts of the case are that the assessee company is engaged in the business of providing sourcing services to GE Global Sourcing LLC, USA who is a 100% shareholder in the assessee company .The assessee company has said to have received an income of Rs. 9,13,79,857/- on account of service charges from the holding company for providing vendor and supply related information to its holding company. 4. It was observed by the AO from the perusal of the P&L account for the year ended on 31st March, 2009 shows an amount of Rs. 1,65,31,483/- had been debited as 'l....
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....t of service charges from the holding company M/s GE Global Sourcing LLC, USA, and similarly for the preceding year the assessee company received its entire service income from the holding company M/s GE Global Sourcing LLC, USA. During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the assessee company had furnished copy of service agreement dated 16th January, 2001 between the assessee company and the holding company M/s GE Global Sourcing LLC, USA which was for providing services to the holding company. It was observed that in consideration for payment of services contemplated in the agreement, the holding company GE Global shall pay to the assessee company i.e. GE India a fee which shall be equivalent to the cost of GE India providing the services plus 5% thereof. From the profit and loss account for the year ended 31st March, 2009 , the A.O. observed that the total expenses of the assessee company was Rs. 9,90,14,100/- , while the income was Rs. 9,13,79,857/- and hence the expenditure was more than the income leading to a loss to the assessee company and hence there was some expenses claimed by the assessee company which does not pertain t....
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....MR are not at all descriptive about the services rendered in relation to Indian Railways project hence it was not clear whether BMR is rendering service to the assessee company or any of the other subsidiaries or associate enterprise of the GE group. Thus it was held by the A.O. that the expenditure of Rs. 1,35,74,240/- is not assessee company's business expense neither it is a revenue expenditure, hence, the same is disallowed and added back to the total income of the assessee company vide assessment orders dated 28.12.2011 passed by the AO u/s 143(3) of the Act. 5. Aggrieved by the assessment orders dated 28.12.2011 passed by the A.O. u/s 143(3) of the Act, the assessee company has filed its first appeal before the learned CIT(A). 6. Before the learned CIT(A) , the assessee company reiterated its submissions as were made before the A.O.. It was submitted that the assessee company is engaged in the business of providing sourcing services to GE Global Sourcing LLC, USA in relation to the requirements of transportation, oil and gas and energy business projects. The assessee company expanded its present business operations to engage in the business of infrastructure projects as app....
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....als , though the assessee company claimed that it is one of the object of the assessee company. The assessee company submitted that the professional charges paid to BMR are wholly and exclusively incurred for the purposes of business of the assessee company . Since it was for the infrastructure projects, which is separate from the sourcing business , the expenses were not included in the costs covered while invoicing to GE Global Sourcing LLC USA. It was also submitted that the expenses are incurred during the course of business carried out by the assessee company. The learned CIT(A) asked for the remand report from A.O. with respect to the admissibility of the additional evidence. The A.O. requested not to admit the additional evidence filed by the assessee company in its remand report submitted to the learned CIT(A). It was observed by the A.O. that the additional evidence document No. 1 to 4 did not pertain to the assessee company hence cannot be considered as having any bearing on the issue under consideration. The A.O. reported that the BMR is not rendering service to the assessee company, hence, the expenses cannot be attributed specifically to the business income of the as....
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.... contains the relevant information which are very confidential and sensitive which shows that the bids are still open and not awarded yet. The assessee company also submitted that the BMR is providing services to assessee company in relation to the infrastructure business and agreement is also between BMR and the assessee company with reference to Indian Railway project of the assessee company and not any other GE group company. The learned CIT(A) rejected the contentions of the assessee company after admission of the additional evidence submitted by the assessee company. The learned CIT(A) held that the payment made by the assessee company is nowhere for the purpose of business of the assessee company. The BMR has rendered services to GE group and not to the assessee company. It was also held by the learned CIT(A) that based on facts on records , the said BMR is a firm of chartered accountants which has no such expertise in the bidding process of Rites Limited.There was no business exigency for such payment, hence, A.O. is justified in his action and accordingly the learned CIT(A) confirmed the disallowance made by the A.O. vide appellate orders dated 07/02/2013. 7. Aggrieved by....
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....ee company and its consortium partners by Rites Limited, Ministry of Railways by the end of the previous year. Marhowra Diesel Locomotive Company Limited was proposed to be incorporated as a Special Purpose Vehicle(SPV) by the proposed bidder/consortium partners to implement and set up this new manufacturing facility at Marhowra, Bihar for manufacturing and supplying of locomotives to Indian Railways. We find that a sum of Rs. 1,35,74,240/- was paid to M/s BMR for consultancy/advisory on upcoming business project for setting up manufacturing facility at Marhowra, Bihar for manufacturing and supplying of locomotives to Indian Railways. Since , these are pre operative and preparatory expenses which are incurred prior to setting up of business and prior to coming into an existence altogether new source of income as set out above , these expenses cannot be allowed as revenue expenditure as per provisions of Section 3 and 4 of the Act. Moreover as per facts emerges from records, these expenses are also relatable to the Special Purpose Vehicle(SPV) to be incorporated by the proposed bidder/consortium partners which included assessee company for setting up of a new manufacturing facilitie....
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.... previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.' Section 4 of the Act is a charging section which stipulates that the income shall be charged to tax in respect of the assessment year on prescribed rates in accordance with and subject to provisions of the Act in respect of the total income of the previous year of every person. While previous year is defined to be financial year immediately preceding assessment year and in case of a business or profession newly set up or a source of income newly coming into existence , in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession , or as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year. Reference is also drawn to the judgment of Hon'ble Bombay High Court in the case of Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 whereby the Hon'ble Bombay High Court has drawn ....
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....th of June, 1913, and between that date and the 6th of October, 1913, the directors arranged for the erection of works and the purchase of plant and machinery, and entered into agreements relating to the purchase of products to be used in the business and to the sale of finished products. On the 6th of October, 1913, the installation of plant and machinery being completed, the company commenced to receive raw materials for the purpose of manufacture into finished products. For the purposes of excess profits tax a question arose as to the computation of average amount of capital employed by the company during the accounting period and the company contended that it commenced business on the date of its incorporation, viz., on the 20th of June, 1913, and that the pre-war standard should be based on the profits shown by revised accounts for the period 20th June, 1913, to 30th June, 1914, and Mr. Justice Rowlatt held, upholding the view of the Commissioners, that the business of the company had commenced on the 6th of October, 1913. Now, this is indeed a very strong case on facts in support of the Commissioner, because the view taken by Mr. Justice Rowlatt is that everything that had be....
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....ommence business, and in the view of the Tribunal one of the main factors was the purchase of raw materials from which an inference could be drawn that the company had set up its business; but that is not the only factor that the Tribunal taken into consideration. The Tribunal has as pointed out in the statement of the case, scrutinised the various details of the expenses given in the order of the Appellate Assistant Commissioner and having scrutinised those expenses the Tribunal has come to the conclusion even on an interpretation more favourable to the assessee than the one we are giving to the expression "setting up" that these expenses do not show that the business was set up prior to the 1st of September, 1946. In our opinion, it would be difficult to say that the decision of the Tribunal is based upon a total absence of any evidence. As we have often said we are not concerned with the sufficiency of evidence on a reference. It is only if there is no evidence which would justify the decision of the Tribunal that a question of law would arise which would invoke our advisory jurisdiction which after all is a very limited jurisdiction. We will, therefore redraft the question sub....