TaxTMI 
TaxTMI 
2020 (1) TMI 821
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....or the assessment year 2011-12 it had filed its return of income on 23/11/2011 declaring nil income after setting off the brought forward losses to the tune of Rs. 85,25,735/-and book profit of Rs. 56,65,560/-, which it had revised on 17/5/2012 at the same income. Assessee had, however, paid the taxes on the book profits. 3. During the course of assessment proceedings, learned Assessing Officer noticed that the assessee company entered into international transaction with its Associated Enterprises ("AEs") to the tune of Rs. 7,05,54,285/-as submitted in report under section 92E of the Income Tax Act, 1961 (for short "the Act") in form No. 3CEB. Learned Assessing Officer sought information from the assessee on as many as 10 points and the assessment order reveals that the assessee had furnished all such information as required by the learned Assessing Officer. Learned Assessing Officer did not think it fit to accept the explanation offered by the assessee for the following reasons:- i) "There is no evidence that the services have actually been provided. The assessee company has failed miserably to demonstrate the need for these services as also the receipt of the same. ....
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....the entire material before him recorded that initially the assessee was having 60 ports and was providing services to the customers with the help of local equipments resulting in incurring losses; that, therefore, it came into contact with the French company called Arkadin SA which had presence world over and had established itself as foremost communication service provider and subsequently, assessee had become a subsidiary of Arkadin SA; that once the assessee had become subsidiary of Arkadin SA, the assessee got business from all the subsidiaries of Arkadin spread world over and also came into contact with the telecommunication service provider like Orange, Tata Communications, Verizon Business Service, Reliance Communications etc; that the assessee also received bridge equipment from the parent company and software and hardware for providing world-class services to the customers; that by virtue of said collaboration the assessee has gotten more than 3000 ports and has got customer list all over the world; that with the help of holding company assessee company's Revenue has increased manifold and the company has become profitable; that the payments made to the holding company for....
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.... is, therefore, before us in this appeal. 8. Ld. DR placed heavy reliance on the assessment order and submitted that it is unlikely that the assessee should have entered into an agreement without carrying out any cost benefit analysis; that the services mentioned by the assessee are more in the nature of shareholder services as they were meant to ensure that the overall policies/procedure of the taxpayer were in consonance with the global UAE policies/procedure; that no documentary evidence was produced before the Assessing Officer to satisfy the benefitand rendition test; and that the Ld. CIT(A) is not justified in looking into the papers submitted by the assessee behind the back of the learned Assessing Officer. Ld. DR further submitted that absolutely there is no material to show that the assessee company was in fact invaded the impugned services from the Associated Enterprises ("AEs") or that in fact such services were rendered resulting in the direct benefit to the assessee. For these reasons, he submitted that the order of the Ld. CIT(A) suffers perversity and deserves to be reversed. 9. Per contra, Ld. AR drew our attention to paragraph No. 5.2 of the assessment order ....
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.... controvert these facts. 11. During the year the assessee made certain payments to its Associated Enterprises ("AEs"), and the learned Assessing Officer estimated the same to be to the tune of Rs. 7,05,54,285/-. On verification of the record, Ld. CIT(A) found that this amount includes a sum of Rs. 1,17,38,993/-which is not an expense but in fact an income. Ld. CIT(A) further found that an amount of Rs. 3,34,75,286/-is not claimed by the assessee in its P&L account and is only the amount of reimbursement which the assessee incurred towards payments to reliance for the ITFS services, but utilised by the Associated Enterprises ("AEs") and therefore such sum was reimbursed by the AE's. As a matter of fact, these two amounts were not to be included in the disallowed expenses. This conclusion of the Ld. CIT(A) also could not be controverted by the Ld. DR. 12. It is, therefore, clear that it is the balance amount that was available after deducting the above two amounts representing the income and the reimbursement, that alone reflects the service charges paid by the assessee to its Associated Enterprises ("AEs"). According to the assessee, all these amounts were paid pursuant to the....
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....w availed of for operating the same; and that the entire business has been undertaken and carried out in the name of Arkadin SA, France by utilising invariably the trademark in all the bills. Our specific attention is brought to the explanation offered by the assessee before the Ld. CIT(A) and forming part of the impugned order wherein the need for availing the services and the consequent payment for such services was enumerated. 14. Ld. CIT(A) considered all these contentions in detail. Insofar as the payment is concerned, it was done through banking channels and insofar as the purpose of payment is concerned it is well supported by the agreements between the assessee and the holding company, which proves that such purpose was wholly and exclusively for the business of the assessee company. On a consideration of the submissions made on behalf of the assessee, we are of the considered opinion that the payments were made for business purpose and the Revenues earned and declared by the assessee show the proportion of benefit, because the assessee travelled from losses to profit after their collaboration with the Arkadin SA, France. 15. Proof of putting is in the eating. The tra....