TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 1582
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....ct to Ground no. 1 relating to disallowance of project management expenses, the brief facts are that the respondent/assessee had made payment of Rs. 6,65,79,242/- (GBP 9,05,043) to Cyprus based company Laing O' Rourke India (Holdings) Ltd. (in short LOR Cyprus) for supply of manpower in accordance with the Manpower Supply Agreement effective from 1st April, 2008 for a period of three years. The said expenses were claimed under the head 'Project Management Expenses' and the payment was made after deducting TDS on 5% mark-up. However, on the actual cost component, which was in the nature of reimbursement of salaries, no TDS was deducted by the respondent but TDS was deducted by LOR Cyprus u/s 192 of the Act. The assessing officer made the disallowance of said expenses u/s 40(a)(i) on the ground that the respondent/assessee had failed to deduct TDS on the entire amount u/s 195 of the Act. The Ld. first appellate authority has deleted the disallowance vide finding recorded at Para 6.9 to 6.14 of the impugned order. 2.2 Ground Nos. 2 & 3 are against deletion of disallowance of interest to the extent of Rs. 49,01,176/- by the Ld. CIT (A). The assessing officer has considered the disallo....
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....uters and need to be capitalized. 5. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal." 3.0 Taking up ground no. 1, Sh. Surender Pal, the Ld. Departmental Representative filed a paper-book containing case laws running into 44 pages. It was argued that respondent/assessee was liable to deduct TDS on the entire amount of manpower supply charges paid to LOR, Cyprus. Relying on the judgment of the Hon'ble Delhi High Court in the case of Centrica India Offshore P. Ltd. vs. CIT reported in [2014] 364 ITR 336 (Delhi), it was contended that the amount reimbursed to LOR, Cyprus was in the nature of Fee for Technical Services (FTS) and as such the assessee was required to deduct TDS on entire amount. Reliance was also placed on decision of the Authority for Advance Rulings (AAR) in the case of Verizon Data Services India P. Ltd. and AT & S India P. Ltd. 3.1 In response, Sh. R.S. Singhvi, the Ld. AR appearing on behalf of the respondent/company supported the order of Ld. CIT (A) and contended that the Ld. first appellate authority has passed a well reasoned order after taking into consideration the terms ....
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....employees on secondment for execution of the project of respondent/assessee with no responsibility of services rendered by said employees and as such the pre-requisite condition of technical services being 'made available' remained unsatisfied. The Ld. AR further placed reliance of decision of the coordinate bench of ITAT Mumbai in the case of DCIT vs. Mahanagar Gas Ltd. reported in [2016] 158 ITD 1016 and the judgment of the Hon'ble Bombay High Court in the case of Marks and Spencer (Supra) for the proposition that mere secondment of employees could not be termed as fee for technical services. 4.0 On ground nos. 2 and 3, the Ld. DR, while disputing the correctness of the impugned order, contended that interest attributable to CWIP cannot be allowed as revenue expense. It was further argued that CWIP includes plant, equipments and cranes which are of enduring nature and as such the assessing officer has correctly capitalized the interest and made the disallowance. 4.1 The Ld. AR, on the other hand, supported the order of the Ld. CIT (Appeals) and reiterated the submissions made before the Ld. first appellate authority. It was further submitted that the respondent/assessee is a re....
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....e, it is observed that the payment of man power supply charges is being made to a non- resident company, LOR Cyprus, which is a resident of Cyprus. Further, India is having DTAA with Cyprus which was operative in the year under consideration. Moreover, undisputedly, the income (mark-up component) from the supply of man power is earned and derived in India. Now the main question to be considered is the satisfaction of the relevant Articles of the DTAA which would ultimately decide the nature of payment and liability of withholding tax. 6.2 When we examine the terms of the Manpower Supply agreement and the invoice raised by LOR Cyprus placed at Paper Book pages 1-5 and 6 respectively, it is evident that the nonresident has only supplied workforce/employees to the respondent/assessee on secondment basis and further that there is no responsibility of LOR Cyprus with regard to the services performed by seconded employees. Also, as rightly observed by the Ld. CIT (Appeals), the employees are under full management and supervision of the respondent/assessee. Further, the invoice raised by LOR Cyprus shows a clear bifurcation of the amount of the reimbursement of actual cost and the mark u....
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.... not required to deduct TDS on the actual cost component which is in the nature of reimbursement of salaries. The finding of the Ld. CIT (Appeals) in this regard needs no interference. 6.4 Since, LOR Cyprus does not have any Permanent Establishment (PE) in India, applicability of Article 7 is ruled out at the very threshold. When we further analyze the various Articles of Indo-Cyprus DTAA, particularly 'Article 12 - Royalties and Fee for Included Services', we find that the transaction in dispute cannot be termed as fees for included services as defined by sub-clause 4 of Article 12 as there is an express requirement that the services must be made available to recipient. However, in the present case, the non-resident LOR Cyprus has only supplied man power to the respondent/assessee and there is no case of any technical knowledge, experience, skill, know-how or process being made available to the respondent/assessee. In these circumstances, we reach the conclusion that reimbursement of salary to LOR Cyprus is not in the nature of any technical or consultancy fee and that the same falls outside the purview of Articles 12 and 13. Our view is supported from the decision of the Mumbai ....
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....ance of interest allegedly attributable to CWIP. At the outset, we find that the assessing officer has not given any basis for estimating the interest disallowance @12% on the monthly balance of CWIP. The assessment order is silent with regard to the basis of such estimation and the assessing officer has failed to even prove slightest of nexus between the borrowed funds and the amount reflected under the head 'CWIP'. It is a fundamental principle that the assessment has to be made after due application of mind and any disallowance or addition must be backed by logical reasoning and supported from facts of the case. Further, while making the disallowance of interest, it is incumbent upon the assessing officer to establish as to why such claim is disallowed or capitalized. However, we find that in the present case, the capitalization and the consequential disallowance of interest has been made on an arbitrary basis without even appreciating the fact of availability of own funds and without establishing any nexus between the interest expense, which is apparently related to business activities, and the borrowed funds. 7.1 We find that the Ld. CIT (Appeals) has comprehensively dealt wi....
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....purchased cranes, batching plants from different suppliers and in certain cases advances were given to different suppliers against the supplies to be made. Cranes, batching plant are huge in terms of size and have to be designed in accordance to the specific requirements of the project and there is always a possibility of a time lag from the date of supplies of these items to the date of actual uses of these equipments. There is also no doubt that there is no value addition made in these items and the only question is in regard to the time gap between assembling and reassembling of these items. It is also seen that in certain cases, advances were given to different suppliers for supplying equipment, however, the supplies were made subsequently and till the time of actual supply of these items have been received and put to use, such advances have been treated as CWIP. As per the dictionary, meaning of capital work in progress (CWIP) is as below:- "Capital WIP is referred to as Assets under construction and are represented by a specific asset class. IT is an asset on the balance sheet i.e. not considered to be a final product, but must still be accounted for because funds have ....
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....1-12 as well as A.Y. 2009-10 are identical. In support of its contention a copy of assessment order for A.Y. 2011-12 was also filed by the appellant. 7.5 After pursuing the facts of the case, the observation of the AO made in the assessment order and the copy of the assessment order for A.Y. 2011-12, there is no doubt that there is no material on record that the borrowed funds were actually being used for purchasing CWIP. In this case, CWIP is merely on account of the time lag from the date of purchase/advance to the date of actual use of the equipment. It is a fact that in the case of appellant, who is working as a contractor at 17 different sites all across the country, that plant and machinery has to be deployed at different locations and there is bound to be a time lag. The AO has himself accepted the explanation of the appellant in subsequent years therefore, there is no reason to make disallowance of interest expenditure of Rs. 46,01,176/-." 7.2 The Ld. DR was not able to controvert the factual and legal findings of the Ld. CIT (Appeals) wherein the disallowance has been deleted by holding that the CWIP is towards current business needs and same could not be considered as ....
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....ils of the expenditure itself show that the expenditure pertains to only one year. Similarly expenditure incurred on consumables items includes purchase of small items like training expenses, auto card software, gateway checkpoint software etc and licence fees pertains to renewal of various licences for one year only. The appellant also stated that the expenditure incurred on AMC has been accepted by the AO in the assessment proceedings for the A.Y. 2011-12. Thus the fact as evident from the various details filed by the appellant clearly reveals that the expenditure was incurred on the following three accounts. a) Annual Maintenance Cost b) Consumables c) Licence Fees. The details filed also reveals that there is no such item which is enduring in nature, rather expenses were incurred in purchase of various software items, licence fees for renewal of licences, consumables etc. with a limited shelf life. The expenditure incurred on AMC is definitely only for one year and no enduring benefit can be derived there from. Similarly licence fees are being paid only for one year and no enduring benefit is being derived there from. As far as consumable items are concerned there are v....