TaxTMI 
TaxTMI 
2017 (1) TMI 262
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....ing the Performance Management system; iii. Training and Human Resource development (including Employee Benefit administration); iv. Employee relationship administration; v. Supporting marketing and sales related activities; vi. Support for various finance related activities; vii. Support for legal and taxation compliance issues; viii. Helping development of strategy plan and initiatives; ix. Setting up of IT infra-structure-designing, identification, negotiation and implementation; x. Setting up of communication infrastructure. 2.1 To accomplish the aforesaid services, TACO appointed its staff at various levels and Chief Internal Auditor and Treasury Officer for its group companies to review the internal processes. As per the agreement the assessee agreed to pay fee to TACO for providing administrative services @ 2% of net sales. The assessee claimed the payment of said administrative fee charges to TACO as revenue expenditure. The Assessing Officer disallowed the same on the ground that the assessee has failed to produce any documentary evidence and to substantiate its claim. The Assessing Officer further rejected the claim of assessee under the provisi....
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....rary to the facts of the case and in law: a) .....The appellant company was incorporated in the year 1998 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 the appellant from TA CO, during the year on account of start-up phase of the company does not arise ... b) .....except furnishing the above e-mail correspondence between the two group concerns, no other documentary evidence was filed by the appellant to show that services were actually rendered by TA CO to the appellant during the year ... c) .....It was also observed that some of the e-mails are too vague and general ... d) .....even the services supposedly received for marketing, business and analyses and customer liaison as evidenced by the emails are in the nature of general correspondence ... e) .....It is not known from the details placed on record whether all these emails culminated into rendering of any specific services to the appellant. Thus, the e-mail correspondence does not establish conclusively that services and support to the extent claimed....
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....essment years 2007-08 to 2009-10. There are no such disallowance of transportation and welfare expenditure in assessment years 2010-11 and 2011-12. 4. The Revenue in its cross appeals has raised solitary ground. The ground raised by the Revenue in its cross appeal for assessment year 2007-08 reads as under : 1. "On the facts and in the circumstances of the case, the learned CIT(A) has erred in allowing the expenses on account of administrative service charges to the extent of 25% of the total expenditure claimed by the assessee." In appeals for assessment years 2008-09 to 2011-12, identical ground has been raised by the Department. 5. Shri Percy Pardiwala appearing on behalf of the assessee submitted that the assessee had entered into Administrative Support Agreement on 01-04-2006 with TACO. The assessee had provided detailed description of services rendered by TACO along with supporting evidence to the authorities below. TACO had provided services to the assessee in various areas such as : i. Cash Management of group companies; ii. Investment decisions; iii. Human Resource and Development for all the group companies, recruitment, imparting training to personne....
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....f administration charges. In both the above mentioned cases the assessees had entered into Administrative Support Agreement with TACO on similar lines. In the case of Tata Johnson Controls Automotive Limited Vs. The Dy. Commissioner of Income Tax (supra) administrative charges paid to TACO were @ 1% of total turnover whereas in the case of Tata Toyo Radiator Pvt. Ltd. Vs. The Dy. Commissioner of Income Tax (supra) the administrative charges paid to TACO were @ 2%, as is in the case of assessee. The ld. AR submitted that the documentary evidence furnished by assessee in respect of administrative services rendered by TACO before the authorities below is complied in pages 94 to 221 of the paper book. 5.2 In respect of ground Nos. 3 and 4 relating to disallowance of transportation and staff welfare expenses the ld. AR submitted that the Assessing Officer has erred in disallowing 20% of total expenditure claimed by the assessee in assessment year 2007-08. During the assessment proceedings the assessee had furnished the details of all the expenditure along with the vouchers except two vouchers which could not be traced at that time. The books of account of the assessee are subject to ....
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....ll allowed 25% of the total administrative expenses. The ld. DR submitted that the payments made by the assessee to TACO are nothing but a mode to reduce tax liability. The ld. DR prayed for restoring the findings of Assessing Officer in disallowing administrative fee expenses. 7. Controverting the submissions made by the ld. DR, the ld. AR submitted that both the companies i.e. assessee and TACO are paying tax at the same tax rate. In assessment year 2009-10 both, the assessee as well as TACO had suffered losses. Therefore, it cannot be said that payment of administrative expenses by assessee to TACO is in any manner a device to circumvent the provisions of tax laws. TACO in its return of income for the respective assessment years had disclosed the amount and has paid tax thereon. The ld. AR further to fortify his submissions placed reliance on the decision of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. V.S. Dempo & Co. (P) Ltd. reported as 196 Taxman 193. 8. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also examined the various decisions on which the ld. AR ....
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....o Radiator Pvt. Ltd. Vs. The Dy. Commissioner of Income Tax (supra). A perusal of the order of Co-ordinate Bench of the Tribunal in the case of Tata Johnson Controls Automotive Limited Vs. The Dy. Commissioner of Income Tax (supra) for the assessment year 2006-07 reveals that the grounds raised by the assessee in present set of appeals are identical to the grounds raised in the aforesaid appeal assailing the disallowance of administrative service charges paid by assessee to TACO. In the aforementioned case, the disallowance was made by the Assessing Officer on similar grounds invoking the provisions of section 40(A)(2)(b) of the Act. The assessee in the said case had entered into Administrative Support Agreement with TACO which was on similar lines as is in the case of present assessee. The commercial exigency of agreement and the reasonableness of administrative service charges paid to TACO were under question. The Tribunal decided both these issues in favour of assessee by observing as under : "23. We have heard the rival contentions and perused the record. In the facts of the present case as referred to by us in the paras hereinabove, the assessee was a joint venture company ....
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....int 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 expenditure merits to be disallowed in the hands of the assessee, since the quantum of remuneration has been fixed at percentage of turnover. The explanation of the assessee before us was that TACO was the holding company of all joint venture companies and it was providing the said services to all the joint ventures and the assessee was one such joint venture, to which the said services were provided. The remuneration paid in this regard is allowable in ....
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....lies 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 due to the use of the logo RPGEL provides the infrastructure for developing certain code of conduct and to operate and run the organization for promoting and monitoring standard industrial, commercial and trade practices in the pursuit of attainment of excellence in quality of their products and services. The costs of rendering the group resources were shared by the licensee companies and that enables the licensee company like the present assessee to ....
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....he 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 assessee-company 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 incurred for the purpose of business but it does not mean that the said expression contemplates that the said expenditure must be incurred necessarily for the purpose of business. 22. In the case of Sasoon J. David & Co. (P.) Ltd. (supra), the Hon'ble Supreme Court has held that the expression "wholly and exclusively" used in section 10(2)(xv) of Indian Income-tax Act, 1922 does not ....
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....oncern @ 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 appellant (Revenue) being aggrieved by the Tribunal's order dated 21st Oct., 1999 filed the above appeals, inter alia contending that the Tribunal was not right in law in allowing the assessee's claim of incentive commission paid to its sister concern which was half per cent more than the other sub-agents and which has been correctly disallowed in terms of s....
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....ition 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 authorities that no services have been rendered by associate enterprises and if any services have been rendered, they are not sufficient to justify the payment. The assessee before us has filed compilation of papers including the copies of reports, e-mails and other documents evidencing the rendering of serv....
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....d 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 incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the revenue authorities in this case is that no services were rendered by the AE at all, and that since there is no evidence of services having been rendered at all, the arm's length price of these ser....
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....usion 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 matter. And further, the same also facilitates appreciation when the order is called in question by the superior forum". Yet, more often than not, the orders passed by the Dispute Resolution Panels, like one before us, are not only wanting in terms of their analysis of facts and law and lacki....
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....y difference in the facts and circumstances in the present case. No distinction has been brought to our notice with respect to the terms and conditions of the Administrative Support Agreement. The fact that both the companies have same incidence of tax has also not been rebutted. Following the decision of Co-ordinate Bench of the Tribunal in the case of Tata Johnson Controls Automotive Limited Vs. The Dy. Commissioner of Income Tax (supra), we allow ground Nos. 1 and 2 in the appeal of the assessee for assessment year 2007-08. 12. Since, identical grounds have been raised by the assessee assailing disallowance of administrative services charges paid to TACO in the appeals for assessment years 2008-09 to 2011-12, the findings given by us in appeal for assessment year 2007-08 would mutatis mutandis apply to the grounds raised by the assessee in the subsequent assessment years under appeal. Accordingly, the grounds raised by the assessee on this issue in the respective appeals are allowed. The Assessing Officer is directed to allow the claim of assessee with respect to payment of administrative service charges in full. 13. Grounds No. 3 and 4 in appeal for assessment year 2007-0....