TaxTMI 
TaxTMI 
2021 (10) TMI 1199
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....ty, grounds of appeal filed for assessment year 2011-12 in ITA No. 939/Chny/2020 are reproduced as under:- "1. The order of the CIT(A) dismissing the appeal and confirming the disallowance of supervisory charges paid by assessee is contrary to law, erroneous and unsustainable on the facts of the case. Reopening of Assessment 2. The CIT(A) ought to have seen that the reopening of assessment under sec. 147 by notice issued u/s. 148 dated 28.3.2018 is without jurisdiction and untenable in law. 3. The CIT(A) ought to have appreciated that the first Proviso to sec. 147 would apply as the assessment was completed u/s. 143(3) vide order dated 26.3.2014 and that there was no failure on the part of the assessee to disclose any material facts warranting the reopening of assessment beyond the period of four years and hence is unsustainable in law. 4. The CIT(A) also ought to have appreciated that there was no reason to believe that income had escaped assessment and in the absence of any fresh material pointing to failure on the part of assessee to disclose particulars of income, the reopening is not in accordance with law and needs to be annulled. ....
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....nce submitted for the first time before the CIT(A) without giving opportunity to the AO under Rule 46A of the Income tax Rules, for verifying the said claim of the assessee based on evidences filed afresh during appellate proceedings. 2.2 The Ld. CIT(A) failed to appreciate that the AO had disallowed the supervisory fee u/s. 37 of the Income Tax Act for lack of genuineness and commercial expediency. 2.3 The Ld. CIT(A) failed to appreciate that the assessee although disallowed the supervisory fee claimed during the previous year relevant to the A.Y. 2014-15 u/s. 40(a)(i) of the Act, without producing any proof for the genuineness of its claim, had claimed the same after deducting TDS for such fee incurred during the previous year relevant to the A.Y. 2013-14 after deducting TDS during the subsequent previous year, thus avoiding furnishing of any detail/documentary evidence before the AO as not relevant to the year under consideration. 2.3 The Ld. CIT(A) ought to have appreciated that the assessee had not produced any proof for having received such services for the supervisory fee claimed during the previous year relevant to the A.Y. 2013-14 which was actua....
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....pervisory fees to its parent company for rendering various services including dispatching its employees to factory site in rendering technical know-how for manufacture and maintenance of furnaces machine and machine parts. The Assessing Officer, however was not convinced with explanation furnished by the assessee and according to him, except copies of invoices and agreement assessee has not able to file any other evidences to justify payment of supervisory fees to its parent company for rendering services. The Assessing Officer further noted that scope of work specified in agreement between parties is general in nature and the assessee has not furnished any evidence to prove kind of services received from its parent company to justify payment of supervisory fees. The Assessing Officer has discussed the issue at length in light of transactions between two related parties and opined that the assessee has by no means been able to provide any evidence, whatsoever to prove that such services as being mentioned in the agreement was received. Therefore, the Assessing Officer opined that it is only a device adopted by the assessee and its parent company to shift profit from one tax territo....
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....ich no particular service is received and also in line with the stand taken by the assessing officer in assessee's own case for AY 2014-15. In view of the discussions made the deduction of sum of Rs. 3,13,07,498/- claimed in AY 2011-12 as supervisory fees paid for earlier years (on the basis of TDS deducted in the current year) is disallowed and added back to the total income of the assessee." 6. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). The assessee has challenged additions made by the Assessing Officer towards disallowance of supervisory fees and argued that the assessee has paid supervisory fees to its parent company for rendering various services including technology support for manufacture and installation of heat treatment furnaces and such services were provided by the parent company by dispatching expatriates to India for carrying out work at various sites. The assessee further submitted that it has paid supervisory fees to its parent company in pursuant to an agreement dated 25.12.2007 entered into which specifies scope of work. The assessee has also filed other evidences including bills issued by parent com....
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.... business. The appellant also stated that the services had been rendered by the parent company by despatching expatriates to India for carrying out this work. A detailed note in this regard had been furnished during the assessment proceedings. Copies of travel orders, visa and other supporting bills with respect of the Korean expatriates who rendered services in India were submitted during the appellate proceedings. Extracts of e-mail communications with respect to work instructions and draft plans made during the F.Y. 2013-14 were also furnished. The appellant also furnished a copy of the agreement entered into by the appellant company for the supervisory services to be rendered by the parent company. The appellant stated that it had complied with the arms length price under Transactional Net Margin Method duly corroborated by the facts contained in Form 3CEB. In the written submissions dated 15/2/2018, the company stated that the said supervisory fee income of Rs. 1,19,90,852/- had been offered to tax in the statement of income and taxed by the parent company in its ITR. The appellant filed a copy of the statement of income and ITR 6. The company also furnished workings ....
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....ave;-vis the findings of the A.O. In their submissions dated 2/1/2018, the appellant stated that the A.O. had erred in disallowing Rs. 1,31,30,658/- stated as pertaining to A.Y. 2013-14 which was originally claimed at Rs. 1,31,99,390/- u/s. 40(a)(i) on remittance of TDS in the A.Y. 2014-15 being the supervisory fees which was suo moto disallowed in the income tax return of A.Y. 2012-13 u/s. 40(a)(i) on account of non deduction of TDS. The appellant stated that the A.O. had not called for any submissions, explanations, supporting documents for verifying this expenditure. The appellant maintained that it was an admissible expenditure and these expenses had originally been fully allowed during A.Y. 2012-13. In their written submissions dated 21/2/2018, the appellant furnished TDS chalan for Rs. 13,33,870/- on the supervisory fee relating to A.Y: 2012-13 which had been remitted during the AY 2014-15. In their written submissions dated 18/2/2019, the appellant furnished evidences such as copies of travel order, visa and other supporting bills with respect of the Korean expatriates who came to India during F.Y. 2011-12 for rendering services. The extracts of e-mail communication....
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....uding agreement between the parties, travel documents of expatriates who visited India for rendering services. The learned A.R further submitted that the assessee is in the business of manufacturing, supply and installation of industrial furnaces and said activity cannot be carried out without assistance of its parent company, because technology required for said activity is provided by parent company and further supervisory and process concerning heat treatment, coating furnaces of metals was also provided by parent company. The learned CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and his order should be upheld. 10. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee is in the business of manufacture, supply and installation of industrial furnaces and related services. The assessee has carried out manufacturing and installation of industrial furnaces under supervision of its parent company M/s. Dong Woo HST Co. Ltd. The technology required for process concerning heat treatment, coating, furnace of metal was provided by its parent company. The as....
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....st which no particular service is received. We have gone through reasons given by the Assessing Officer in light of various evidences filed by the assessee including agreement between parties and we do not ourselves subscribe to reasons given by the Assessing Officer for the simple reason that it is well settled principle of law that the Assessing Officer cannot sit in the armchair of businessman and decide whether particular expenditure is required to be incurred or not. It is also an admitted legal position that the Assessing Officer cannot question rational and necessity of incurring any particular expenditure. What is required to be seen is whether particular expenditure is incurred wholly and exclusively for the purpose of business of the assessee and further such expenditure is supported by necessary evidences. In this case, the assessee has filed all possible evidences including agreement between parties to prove genuineness of expenditure incurred for supervisory services. The assessee had also furnished necessary supporting evidences including travel documents of expatriates, who visited India for rendering services. Therefore, we are of the considered view that the Assess....
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....red by the assessee under the head supervisory fees is held to be not deductible under section 37 of the Income Tax Act, 1961. But, the ld. CIT(A) has examined suo motu disallowance made by the assessee in earlier years for non-deduction of tax deducted at source and subsequent deduction claimed in the year of payment and held that the assessee has rightly claimed deduction towards expenditure incurred in earlier years in the impugned assessment years, because, it was disallowed in earlier years for non deduction of TDS and further, the same has been claimed as and when TDs has been deducted and remitted to Govt. account. Further, the ld. CIT(A) has recorded categorical findings that for the assessment year 2014-15, the assessee claimed deduction towards supervisory fee of Rs. 1,31,30,658/- pertain to earlier assessment year, as the same was disallowed in the previous year in the statement of total income of the assessee for non-deduction of tax. Similarly, for assessment year 2015-16, the assessee claimed deduction of Rs. 1,44,29,888/- towards supervisory fees incurred in earlier financial year and disallowed in the statement of total income for non-deduction of TDS u/s. 40(i) of ....