ITO, CHENNAI V. Peirce Leslie Insurance Surveyors & Loss Assessors Ltd., CHENNAI

ITA 1112/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6171 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 03-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Assessee Lawyers: G BASKAR
• Keywords: Business income; Revenue expenditure
• Section: 37(1); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO.1112/MDS/2017 / ASSESSMENT YEAR : 2013-2014. THE INCOME TAX OFFICER, CORPORATE WARD 5(1) CHENNAI 600 034. VS. M/S.PEIRCE LESLIE INSURANCE SURVEYORS & LOSS ASSESSORS LTD, NO.37, P.V.CHERIAN CRESENT, EGMORE, CHENNAI 600 008. [ PAN AACCP 9765E ] ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : SHRI. B. SAGADEVAN, IRS, JCIT. /RESPONDENT BY : SHRI. G. BASKAR, ADVOCATE /DATE OF HEARING : 14-09-2017 !' /DATE OF PRONOUNCEMENT : 18-09-2017 % / O R D E R IN THIS APPEAL FILED BY THE REVENUE, WHICH IS DIRE CTED AGAINST AN ORDER DATED 31.01.2017 OF LD. COMMISSIONER OF IN COME TAX (APPEALS)-3, CHENNAI, IT HAS RAISED ALTOGETHER FOUR GROUNDS OF WHICH GROUNDS 1 & 4 ARE GENERAL IN NATURE NEEDING NO SPEC IFIC ADJUDICATION. 2. GROUND NO.2 IS REPRODUCED HEREUNDER:- 2.1 THE ID CIT(A) ERRED IN DELETING THE DISALLOWA NCE OF CORPORATE AND SECRETARIAL CHARGES TO THE TUNE OF RS.33, 70,800 J - PAID BY THE ASSESSEE COMPANY TO ITS ITA NO. 1112/MDS/2017 :- 2 -: HEAD OFFICE, HOLDING THAT THIS EXPENDITURE SQUARELY FALLS U/S 37, BEING INCURRED FOR THE PURPOSE OF BUSINESS AND REVENUE IN NATURE. 2.2 THE ID CIT(A) OUGHT, TO HAVE NOTED THAT THIS EXPENDITURE IS A ONE-TIME EXPENDITURE AND NOT A RECURRING ONE AND IS NOT A REVENUE EXPENDITURE U/S. 37 OF THE ACT. 2.3 THE ID CIT(A) FAILED TO NOTE THAT PAYMENT IS IN THE NATURE OF ADMINISTRATIVE SERVICES RENDERED BY M/S PIERCE LESLIE (INDIA) LIMITED (ASSESSEE'S HEAD OFFI CE) ARID FOR PURCHASE OF PAYROLL SOFTWARE AND HENCE, TH IS CANNOT BE ALLOWED AS A REVENUE EXPENDITURE. 3. FACTS APROPOS ARE THAT ASSESSEE HAD FILED ITS RETUR N FOR THE IMPUGNED ASSESSMENT YEAR ON 26.09.2013 DECLARING NIL INCOME. BUSINESS OF THE ASSESSEE COMPRISED OF PROVIDING MAR INE SURVEY AND INSURANCE AUXILLARY SERVICES FOR INSURANCE COMPANIE S IN INDIA AND ABROAD. IT WAS DOING SURVEYS FOR MARINE, MOTOR, MI SCELLANEOUS, FIRE & ENGINEERING DEPARTMENTS AS PER IRDAI LICENCE. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE LD. ASS ESSING OFFICER THAT THERE WAS AN DEBIT OF F59,93,280/- IN ITS PROFIT A ND LOSS ACCOUNT AS CORPORATE AND SECRETARIAL CHARGES. WHEN QUERIED ON THIS, REPLY OF THE ASSESSEE WAS THAT THE ABOVE SUM COMPRISED OF F26,22 ,480/- BEING RENT PAID FOR ITS KOCHI OFFICE AND F33,70,800/- A O NE TIME FEE PAID TO PEIRCE LESLIE INDIA LTD, ITS HOLDING COMPANY FOR PROVIDING STRATEGIC BUSINESS DEVELOPMENT ADVICES AND DEVELOPMENT OF PAY ROLL & E-TDS SOFTWARE. CONTENTION OF THE ASSESSEE WAS THAT BECA USE OF THE SERVICES PROVIDED BY M/S. PEIRCE LESLIE INDIA LTD, ITS INCOM E HAD GROWN BY 28% ITA NO. 1112/MDS/2017 :- 3 -: IN FINANCIAL YEAR 2013-14 AND 17% IN FINANCIAL YEAR 2014-15, APART FROM 65% INCREASE IN FOREIGN CURRENCY EARNINGS IN F INANCIAL YEAR 2013- 14 AND 35% INCREASE IN FOREIGN CURRENCY EARNINGS IN FINANCIAL YEAR 2014-15. ASSESSEE ALSO SUBMITTED A LIST OF NEW CL IENTS WHICH WERE ADDED IN FINANCIAL YEARS 2013-14 AND 2014-15, WHICH ACCORDING TO IT WAS DUE TO THE SERVICES OF ITS M/S. PEIRCE LESLIE INDIA LTD. 4. HOWEVER, LD. ASSESSING OFFICER WAS NOT IMPRESSED BY THE ABOVE ARGUMENTS. ACCORDING TO HIM, THE EXPLANATION GIVEN BY THE ASSESSEE DID NOT JUSTIFY THE PAYMENTS MADE TO M/S. PEIRCE LESLIE INDIA LTD. HE MADE A DISALLOWANCE OF F33,70,800/-. 5. IN ITS APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ARGUMENT OF THE ASSESSEE WAS THAT TAX WAS DEDUCTED AT SOURCE AS REQUIRED U/S. 194J OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WHILE EFFECTING THE ABOVE PAYMENTS TO THE HOLDING COMPANY. AS PER THE ASSESSEE, IT DID NOT HAVE SECRETARIAL S TAFF NOR QUALIFIED PERSONNEL FOR BUSINESS DEVELOPMENT AND THEREFORE H AD USED THE SERVICES OF ITS HOLDING COMPANY. ACCORDING TO IT, THERE WAS NO JUSTIFICATION FOR MAKING A DISALLOWANCE OF SUCH CL AIM. LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS APPRECIATI VE OF THE ABOVE CONTENTIONS. ACCORDING TO HIM, DISALLOWANCE WAS M ADE BY THE LD. ASSESSING OFFICER IN A WHIMSICAL MANNER. AS PER LD . COMMISSIONER OF INCOME TAX (APPEALS) PAYMENTS WERE MADE THROUGH AC COUNT PAYEE ITA NO. 1112/MDS/2017 :- 4 -: CHEQUES AFTER DEDUCTING TDS AND THE RECIPIENT HA D ADMITTED THE RECEIPTS. FURTHER, ACCORDING TO LD. COMMISSIONER OF INCOME TAX (APPEALS), THE NATURE OF SERVICES RENDERED BY THE HOLDING COMPANY AND THE BENEFITS WHICH ACCRUED TO ASSESSEE WAS NO T DOUBTED BY THE LD. ASSESSING OFFICER. ACCORDING TO HIM, IT WAS EXP ENDITURE WHICH WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS O F THE ASSESSEE. HE DELETED THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER 6. NOW BEFORE ME, LD. DEPARTMENTAL REPRESENTATIVE STR ONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT BUSINESS PURPOSE OF THE PAYMENT WAS NEVER SHOWN BY THE ASSESSEE. ACCORDING TO HIM, NO AGREEMENT WHIC H COULD SHOW THE TYPE OF SERVICES RENDERED BY THE HOLDING COMPANY W AS PLACED ON RECORD BY THE ASSESSEE. THUS, ACCORDING TO HIM, TH E BUSINESS PURPOSE OF THE PAYMENT WAS NOT DEMONSTRATED. 7. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUB MITTED THAT THE PAYMENT WERE EFFECTED TO THE PRINCIPAL COMPANY BASE D ON AN INVOICE DATED 31 ST DECEMBER, 2012 RAISED BY THEM. ACCORDING TO HIM, ONCE THE PAYMENTS WERE FOUND TO BE GENUINE IT COULD NOT HAVE DISALLOWED. 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVA L CONTENTIONS. TO A QUESTION FROM THE BENCH WITH REGARD TO ANNEXU RE I & II ITA NO. 1112/MDS/2017 :- 5 -: MENTIONED IN THE INVOICE PLACED BEFORE ME, LD. COUN SEL SUBMITTED THAT ASSESSEE WAS UNABLE TO TRACE THIS RECORD LD. AUTHOR ISED REPRESENTATIVE ALSO ADMITTED THAT THERE WAS NO AGREEMENT BETWEEN ASSESSEE AND ITS HOLDING COMPANY WITH REGARD TO THE SERVICES RENDERE D BY THE LATTER TO THE FORMER. CONTENTION OF THE ASSESSEE IS THAT PAYM ENT OF F33,70,800/- WAS MADE TO ITS HOLDING COMPANY M/S. P EIRCE LESLIE INDIA LTD FOR STRATEGIC BUSINESS DEVELOPMENT ADVICES AND DEVELOPMENT OF PAY ROLL & E-TDS SOFTWARE. NARRATION IN THE INVOI CE DATED 31.12.2012 RAISED BY M/S. PEIRCE LESLIE INDIA LTD PLACED BEFOR E ME, IS REPRODUCED HEREUNDER:- M/S. PEIRCE LESLIE SURVEYORS & ASSESSORS LTD. WILLINGDON ISLAND, KOCHI 682 003. SL.NO. PARTICULARS AMOUNT F 1 BEING CHARGES FOR PROVIDING STRATEGIC BUSINESS DEVELOPMENT ADVICES AND DEVELOPMENT OF PAYROLL & E- TDS SOFTWARES EXCLUSIVELY TO PEIRCE LESLIE SURVEY ORS &* ASSESSORS LTD (AS PER ANNEXURE I & II ATTACHED) ADD: SERVICE TAX @ 12.36% 30,00,000/- 3,70,800 TOTAL --------------- 33,70,800 --------------- (RUPEES THIRTY THREE LAKHS SEVENTY THOUSAND EIGHT HUNDRED ONLY) IT IS AN ADMITTED POSITION THAT THERE WAS NO AGREE MENT WHATSOEVER ENTERED BETWEEN THE ASSESSEE AND THE M/S. PEIRCE LE SLIE INDIA LTD, WHICH COULD HAVE THROWN LIGHT ON THE NATURE OF THE SERVICES EXPECTED ITA NO. 1112/MDS/2017 :- 6 -: FROM PEIRCE LESLIE INDIA LTD. INVOICE MENTIONS TW O ANNEXURES, BUT THESE ANNEXURES WERE NOT PRODUCED BEFORE ME OR LOWE R AUTHORITIES. FOR THE MAKING A PAYMENT OF F30,00,000/-, ASSESSEE WAS UNABLE TO SHOW WHAT WERE THE SERVICES RENDERED BY M/S. PEIRCE LESILE INDIA LTD. ASSESSEE HAS STATED THAT THERE WAS INCREASE IN ITS INCOME AND FOREIGN EXCHANGE EARNINGS BECAUSE OF THE SERVICES RENDERED BY M/S. PEIRCE LESLIE INDIA LTD. IT ALSO SAY THAT NEW CLIENTS WERE ADDED DUE TO THEIR SERVICES. HOWEVER, THERE IS NOTHING ON RECORD TO S HOW THE SERVICES RENDERED BY M/S. PEIRCE LESLIE INDIA LTD HAD ANY NE XUS WITH THE INCREASE IN BUSINESS INCOME AND INCREASE IN NUMBER OF CLIENTS. NO DOUBT AS PER SEC. 37(1) OF THE ACT, EXPENDITURE LA ID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSI NESS IS ALLOWABLE FOR COMPUTING THE INCOME UNDER THE HEAD PROFITS AND G AINS OF BUSINESS. BUT ASSESSEE HAS NOT DISCHARGED THE ONUS FOR SHOWI NG WHAT THE SERVICES RENDERED BY IT, HELPED ITS BUSINESS IN A R ATIONAL MANNER. ASSESSEE IN MY OPINION WAS UNABLE TO SHOW HOW THE S ERVICES RENDERED BY M/S. PEIRCE LESLIE INDIA LTD BENEFITED IT. IN SUCH CIRCUMSTANCES, I AM OF THE OPINION THAT LD. ASSESSING OFFICER WAS JU STIFIED IN DISALLOWING THE CLAIM. I SET ASIDE THE ORDER OF THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) AND REINSTATE THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER. GROUND 2 OF THE REVENUE STANDS ALLOWED. ITA NO. 1112/MDS/2017 :- 7 -: 9. VIDE GROUND NO.3, GRIEVANCE OF THE REVENUE IS ON T HE DIRECTIONS OF THE LD. COMMISSIONER OF INCOME TAX (A PPEALS) TO ALLOW EMPLOYEES CONTRIBUTION TO ESI /PF REMITTED LATE. IT IS NOT DISPUTED BY THE REVENUE THAT AMOUNT OF F6,317/- DISALLOWED BY T HE LD. ASSESSING OFFICER WAS REMITTED BY THE ASSESSEE BEFORE THE DUE DATE OF FILING THE RETURN, THOUGH AFTER THE DATES PRESCRIBED UNDER THE RESPECTIVE ENACTMENTS OF PF/ESI. IN MY OPINION, LD. COMMISSIO NER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN FOLLOWING THE JUDGMENT O F HONBLE APEX COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD, 3 19 ITR 306 AND ALLOWING THE CLAIM OF THE ASSESSEE. I DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). GROUND NO.3 OF THE REVENUE STANDS DISMIS SED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED. ORDER PRONOUNCED ON MONDAY, THE 18TH DAY OF SEPTEMB ER, 2017,AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 18TH SEPTEMBER, 2017 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,- / CIT(A) 5. )./ 0 / DR 2. / RESPONDENT 4. + / CIT 6. /12 / GF