DCIT CIR 7(2)(2), MUMBAI V. NGA HR INDIA P.LTD, MUMBAI

ITA 1173/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0528 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Section: 10AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 1173 /MUM/20 15 (ASSESSMENT YEAR 20 10 - 11 ) DCIT, CIRCLE - 7(2)(2) ROOM NO. 623 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. V S . M/S. NGA HR INDIA PVT. LTD. [FORMERLY KNOWN AS NHR OUTSOURCING (INDIA) PVT. LTD.] GALA NO. 18, MADHU INDUSTRIAL ESTATE, PANDURANG BUDHKAR MARG, WORLI MUMBAI - 400 013 . ( APPELLANT ) ( RESPONDENT ) C.O. NO. 56 /MUM/2015 (ASSESSMENT YEAR 2010 - 11) M/S. NGA HR I NDIA PVT. LTD. [FORMERLY KNOWN AS NHR OUTSOURCING (INDIA) PVT. LTD.] GALA NO. 18, MADHU INDUSTRIAL ESTATE, PANDURANG BUDHKAR MARG, WORLI MUMBAI - 400 013. VS . DCIT, CIRCLE - 7(2)(2) ROOM NO. 623 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLAN T ) ( RESPONDENT ) PAN : AACCN5957Q A SSESSEE BY SHRI MANISH SHAH DEPARTMENT BY MS. S. PADMAJA DATE OF HEARING 30 . 0 1 . 201 8 DATE OF PRONOUNCEMENT 30 . 0 1 . 201 8 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE REVENUE AND THE CRO SS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY DPR - II, MUMBAI AND THEY RELATE TO A.Y. 2010 - 11. 2. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE REVENUE. THE GROUNDS OF APPEAL URGED BY THE REVENUE READ AS UNDER : - M/S. NGA HR INDIA PVT. LTD. 2 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN ALLOWING RELIEF OF RS. 79,13,671/ - ON ACCOUNT OF DEDUCTION U/S . 10AA BY HOLDING THAT THE DEDUCTION OF RS. 1,20,61,781/ - CLAIMED BY THE AS S ESSEE WAS ADMISSIBLE. 2. ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE, THE DRP ERRED IN HOLDING THAT THE ASSESSES HAD SUBMITTED THE ALLOCATION OF COMMON EXPENSES RELATING TO KOCHI UNIT AND MUMBAI HEAD OFFICE, WITHOUT HAVING REGARD TO THE FACT THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE CORRECTNESS AN D BASIS OF SUCH ALLOCATION.' 3. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE HON'BLE DRP ERRED IN NOT CONFIRMING THE DISALLOWANCE EVEN TO THE EXTENT OF RS. 16.68 LAKHS, IN SPITE OF THE ASSESSEE'S OWN ALTERNATIVE CONTENTION THAT IF THE COMMON APPROACH OF ALLOCATING ALL EXPENSES IN THE RATIO OF SALES IS ADOPTED, THE DISALLOWANCE WOULD WORK OUT TO RS. 16.68 LAKHS. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. FACTS RELATING TO THE ISSUES ARE DISC USSED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF OFFERING CONSULTANCY SERVICES IN BUSINESS PROCESS OUTSOURCING, HR OUTSOURCING, MANAGEMENT CONSULTING S ERVICES, PAYROLL SERVICES ETC. T HE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS RUNNING TWO U NITS. ONE UNIT IS LOCATED AT MUMBAI AND THE OTHER ONE IS LOCATED AT COCHIN. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 10AA OF THE ACT IN RESPECT OF ITS COCHIN UNIT TO THE EXTENT OF 120.61 LAKHS. SINCE BOTH THE UNITS ARE ENG AGED IN IDENTICAL BUSINESS ES , THE ASSESSING OFFICER WANTED TO EXAMINE THE QUANTUM OF EXPENDITURE CLAIMED BY THE ASSESSEE IN BOTH THE UNITS IN ORDER TO VERIFY AS TO WHETHER THERE WAS SHIFTING OF PROFIT FROM MUMBAI UNIT TO COCHIN UNIT. BEFORE T HE ASSESSING OFFICER , THE ASSESSEE PRODUCE D FINANCIAL STATEMENT S OF BOTH THE UNITS AND SUBMITTED THAT THE ACCOUNTS BOTH THE UNITS ARE MAINTAINED SEPARATELY . IT WAS ALSO SUBMITTED THAT THE EXPENDITURE INCURRED IN THE RESPECTIVE UNITS ARE DULY ACCOUNTED AND THE COMMON EX PENSES ARE APPORTIONED BETWEEN THE UNITS IN THE RATIO OF TOTAL EXPENDITURE INCURRED BY THE UNITS. THE ASSESSING OFFICER NOTICED THAT THE SHARE CAPITAL AND RESERVES ARE DISCLOSED IN MUMBAI UNIT ONLY AND HENCE OBSERVED THAT THE MUMBAI UNIT IS TO BE CONSIDER ED AS HEAD OFFICE , WHEREFROM M/S. NGA HR INDIA PVT. LTD. 3 DECISION RELATING TO THE BUSINESS ACTIVITIES ARE TAKEN. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS REPORTED TOTAL TURNOVER OF ` 1880.63 LAKHS. THE RATIO OF TURNOVER OF COCHIN UNIT AND MUMBAI UNIT WAS 48.94% AND 52.06%. THE ASSESSING OFFICER NOTICED THAT THE EXPENDITURE BOOKED UNDER THE HEAD S (A) P AYMENTS TO PROVISION FOR EMPLOYEES, (B) REPAIRS AND MAINTENANCE AND (C) R ENT RATES AND TAXES WERE FOUND TO BE HIGHER IN RESPECT OF MUMBAI UNIT I.E. DISPROPORTIONATE TO PERCENTA GE OF TURNOVER ACHIEVED BY EACH UNIT. ACCORDINGLY, THE ASSESSING OFFICER MADE ANALYSIS OF EXPENDITURE BOOKED UNDER EACH OF THESE THREE HEAD S VIS - - VIS TURNOVER RATIO AND NOTICED THAT THE EXPENDITURE HAS BEEN DEFLATED TO THE COCHIN UNIT TO THE EXTENT OF ` 7 9.13 LAKHS. RELEVANT WORKING S MADE BY THE ASSESSING OFFICER IS EXTRACTED BELOW: - NATURE OF EXPENDITURE KOCHI UNIT EXPENSES AS PER P&L ACCOUNT KOCHI UNIT EXPENSES ON PRO - RATE BASIS [47.94% OF 6] MUMBAI UNIT EXPENSE? AS PER P&L ACCOUNT MUMBAI UNIT EXPEN SES ON PRO - RATE BASIS [52.06% OF 6} IOTA! EXPENDITURE [2 + 4] DEFLATION OF EXPENDITUR E FOR KOCHI UNIT [3 - 2] 1 2 3 4 5 6 7 PAYMENTS TO AND PROVISION FOR EMPLOYEES 3,27,U370 3,80,51,546 4,66,58,901 4,13,21,725 7,93,73,271 53,37,176 REPAIRS & MAINTENANCE 1,44,453 3,17,204 5,17,217 3,44,466 6,61,670 1,72,751 RENT, RATES & TAXES 1,18,76,940 1,42,80,684 1,79,11,722 1,55,07,978 2,97,88,662 24,03,744 4,47,35,763 5,26,49,434 6,50,87,840 5,71,74,169 10,98,23,60 3. 79,13,671 4. ACCORDINGLY, THE ASSESSING OFFICER REDUCED THE PROFIT OF COCHIN UNIT BY ` 79.13 LAKHS AND ALLOWED DEDUCTION U/S. 10AA OF THE ACT. THE LEARNED DRP, HOWEVER, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND HENCE THE REVENUE HAS FIL ED THIS APPEAL BEFORE US. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NOT EXPLAINED TO THE SATISFACTION OF THE ASSESSING OFFICER AS TO HOW EXPENDITURE BOOKED IN COCHIN UNIT WAS LOWER THAN THAT INCURRED IN MUMBAI UNIT. THE L EARNED DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT LEARNED DRP HAS GIVEN RELIEF TO THE ASSESSEE BY SIMPLY ACCEPTING THE SUBMISSIONS MADE M/S. NGA HR INDIA PVT. LTD. 4 BY THE ASSESSEE AND ALSO WITHOUT CALL ING FOR ANY REPORT FROM THE ASSESSING OFFICER WITH REGARD TO VARIOUS SUBMIS SIONS MADE BY THE ASSESSEE BEFORE IT. SHE FURTHER SUBMITTED THAT E VEN THOUGH THE ASSESSEE HAS CLAIMED THAT COMMON EXPENSES HAVE BEEN ALLOCATED IN THE RATIO OF EXPENDITURE INCURRED BY EACH OF THE UNIT, THE SAME HAS NOT BEEN VERIFIED BY LEARNED DRP. ACCORDIN GLY, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS ISSUE REQUIRES PROPER EXAMINATION AT THE END OF THE ASSESSING OFFICER. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE ITSELF HAS MENTIONED BEFORE LEARNED DRP THAT ADJUSTMENT TO THE EXTENT OF ` 16.68 LAKHS MAY BE REQUIRED TO BE MADE TO THE DEDUCTION CLAIMED U/S. 10AA OF THE ACT, IF ALL THE EXPENDITURE IS ALLOCATED IN THE RATIO OF SALES. HOWEVER, LEARNED DRP HAS FAILED TO SUSTAIN THE DISALLOWANCE AT LEAST TO THE EXTENT OF ` 16.68 LAKHS. 7. ON THE CONTRARY, LEARNED AR SUBMITTED THAT THE ASSESSEE WAS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR EACH OF THE UNITS AND EXPENDITURE INCURRED IN RESPECTIVE UNITS WERE DULY ACCOUNTED FOR THERE . THE ASSESSEE HAS INCURRED CER TAIN COMMON EXPENSES IN THE FORM OF SALAR IES, GUESTHOUSE EXPENSES AND CAR EXPENSES ONLY . T HEY HAVE BEEN ALLOCATED BETWEEN THE UNITS IN THE RATIO OF TOTAL EXPENDITURE INCURRED BY THEM. THE LD A.R SUBMITTED THAT THE E XPENDITURE INCURRED IN MUMBAI UNIT IS HI GHER IN TUNE WITH THE HIGHER COST OF LIVING. THE LEARNED AR SUBMITTED THAT THE COST OF SERVICES, EMPLOYEE COST, SPACE RENT IS HIGHER IN MUMBAI WHEN COMPARED WITH COCHIN. THE LEARNED AR FU RTHER SUBMITTED THAT THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDI TION BY DRAWING INFERENCES WITHOUT BRINGING ANY SUPPORTING MATERIAL ON RECORD AND WITHOUT CRITICALLY ANAL YZING VARIOUS EXPENSES BOOKED BY THE ASSESSEE. ACCORDINGLY, LEARNED AR SUBMITTED THAT THE DRP HAS RIGHTLY DELETED THE ADDITION AND HENCE THE ORDER PASS ED BY LEARNED DRP DOES NOT CALL FOR ANY INTERFERENCE. M/S. NGA HR INDIA PVT. LTD. 5 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICED THAT THE ASSESSING OFFICER HAS PICKED UP EXPENDITURE INCURRED BY THE ASSESSEE UNDER THREE HEADS AND ALLOCATED THEM IN THE RATI O OF SALES REPORTED BY COCHIN UNIT AND MUMBAI UNIT OF THE ASSESSEE. IN THIS PROCESS, THE AO HAS NOTICED THAT THE EXPENDITURE BOOKED IN MUMBAI UNIT IS HIGHER AND ACCORDINGLY DRAWN INFERENCE THAT THE ASSESSEE HAS DEFLATED THE EXPENDITURE FOR COCHIN UNIT TO THE EXTENT OF ` 79.13 LAKHS. ACCORDINGLY, HE HAS REDUCED THE DEDUCTION CLAIMED BY THE ASSESSEE U/S. 10AA OF THE ACT TO THE EXTENT OF ` 79.13 LAKHS. 9. WE HAVE NOTICED THAT LEARNED DRP HAS DELETED THE DISALLOWANCE SO MADE BY THE ASSESSING OFFICER WITH FO LLOWING OBSERVATIONS: - 42. DIRECTIONS OF THE DRP THE ASSESSEE'S CONTENTIONS HAVE BEEN CONSIDERED. THE REASON FOR ALLOCATION OF CERTAIN EXPENSES FROM MUMBAI UNIT TO COCHIN UNIT IS BASED ON THE ASSESSING OFFICER'S ASSUMPTION THAT MUMBAI IS TH E HEAD OFFICE AND HENCE, THERE HAS TO BE SOME COMMON EXPENSES INCURRED IN MUMBAI WHICH REQUIRES TO BE REALLOCATED TO COCHIN. HOWEVER, THE ASSESSEE HAS SUB MITTED THAT ALL COMMON EXPENSES INCURRED BY THE MUMBAI UNIT IN RESPECT OF COMMON FINANCE AND HR STAFF HAVE] ALREADY BEEN ALLOCATED. IN THIS CONNECTION, THE ASSESSEE HAS FURNISHED PARTICULARS ' OF SIX EMPLOYEES WHOSE TOTAL SALARY OF RS.29.67 LACS HAS BEEN ALLOCATED BETWEEN MUMBAI AND COCHIN UNIT. THE AO HAS NEITHER BROUGHT ANY MATERIAL ON RECORD CHALLENGING THE CORRECTNESS OF THIS ALLOCATION NOR HAS THE AO BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THERE WERE MORE EMPLOYEES WHOSE COSTS WERE REQUIRED TO BE ALLOCATED TO COCHIN UNIT, AS REGARDS RENT AND OTHER EXPENSES, THE ASSESSEE HAS FURNISHED UNIT WISE DETA ILS IN RESPECT OF THE SAME TO SHOW THAT THE EX PENSE BOOKED UNDER EACH UNIT ARE ON ACTUAL BASIS. ALL THESE DOCUMENTS WERE BEFORE THE AO ALSO AND THE AO HAS NOT COUNTERED THESE FACTS AS ASSERTED BY THE ASSESSEE. FURTHER, THE ASSESSEE HAS ALSO POINTED OUT THA T ITS EXPENSES ON ACCOUNT OF LEGAL .AND PROFESSIONAL CHARGES, TRAVELLING, INSURANCE AND MISCELLANEOUS EXPENSE SHOULD HAVE ALSO BEEN REALLOCATED IN THE RATIO OF SALES AS DONE BY THE AO IN RESPECT OF EMPLOYEE COST, REPAIRS AND RENT. IF THE COMMON APPROACH OF ALLOCATING ALL EXPENSE IN THE RATIO OF SALES IS ADOPTED, THE ASSESSEE SUBMITS THAT THE ADJUSTMENT ON ACCOUNT OF 10A WILL ONLY BE RS.16.68 LACS AS COMPARED TO RS.79.13 LACS AS COMPUTED BY THE AO. AFTER EXAMINING ALL THESE ASPECTS, THE DRP IS OF THE OPINION THAT THERE IS NO BASIS FOR THE REALLOCATION OF EXPENSE M/S. NGA HR INDIA PVT. LTD. 6 AS UNDERTAKEN BY THE AO. THE AO HAS FAILED TO CONTROVERT THE SPECIFIC FACT BROUGHT ON RECORD BY THE ASSESSEE IN SUPPORT OF THE ALLOCATIONS MADE. IN VIEW OF THE SAME, THE AO IS DIRECTED NOT TO REALLOCA TE THE EXPENSE IN THE MANNER PROPOSED BY HIM. HENCE THE ADDITION MADE ON ACCOUNT OF SEC. 1 OAA IS DELETED. 10. WE NOTICE THAT THE ASSESSEE HAS FURNISHED THE DETAILS OF COMMON EXPENSES INCURRED BY IT AND HAS SUBMITTED THAT THEY HAVE BEEN APPORTIONED IN THE RATIO OF TOTAL EXPENDITURE INCURRED BY BOTH THE UNITS. WE NOTICE THAT THE ASSESSING OFFICER HAS NOT EXAMINED THIS CLAIM OF THE ASSESSEE AND ALSO DID NOT TAKE ANY STEPS TO ASCERTAIN AS TO WHETHER ANY O THER COMMON EXPENDITURE WAS INCURRED BY THE ASSE SSEE. THERE IS ALSO MERIT IN THE SUBMISSION OF THE LD A.R THAT THE COST OF SERVICES IS HIGHER IN MUMBAI WHEN COMPARED WITH COCHIN AND THAT MAY BE ONE OF THE MAIN REASONS FOR INCURRING HIGHER EXPENDITURE IN MUMBAI UNIT. HENCE WE ARE OF THE VIEW THAT THE A SSESSING OFFICER HAS MADE IMPUGNED DISALLOWANCE BY DRAWING ADVERSE INFERENCES AND HE HAS ALSO FAILED TO BRING ON RECORD ANY SUPPORT ING MATERIAL. ACCORDINGLY WE ARE OF THE VIEW THAT THE LD DRP WAS JUSTIFIED IN DELETING THE DISALLOWANCE SO MADE BY THE AO IN THE DEDUCTION CLAIMED U/S 10AA OF THE ACT. 11. THE REVENUE HAS ALSO TAKEN A GROUND THAT THE LD DRP SHOULD HAVE SUSTAINED DISALLOWANCE AT LEAST TO THE EXTENT OF RS.16.68 LAKHS. WE NOTICE THAT THE ASSESSEE HAS SIMPLY RAISED A WITHOUT PREJUDICE CONTEN TION ON THIS ISSUE AND IT DOES NOT MEAN THAT THE ASSESSEE HAS ACCEPTED THE ADDITION TO THE EXTENT OF RS.16.68 LAKHS. SINCE THE LD DRP HAS DELETED THE DISALLOWANCE ON THE BASIS OF FACTS OF THE CASE, THE ABOVE SAID PLEA OF THE REVENUE IS LIABLE TO BE REJEC TED. 12. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION RAISING CERTAIN PLEA. HOWEVER, WE NOTICE THAT THE PROVISIONS OF SEC.253(4) PERMITS FILING OF CROSS OBJECTION ONLY AGAINST THE APPEAL FILED CHALLENGING THE ORDER PASSED BY LD CIT(A), I.E., THERE IS NO PROVISION FOR FILING CROSS OBJECTION AGAINST THE APPEAL M/S. NGA HR INDIA PVT. LTD. 7 CHALLENGING THE ORDER PASSED BY LD DRP. ACCORDINGLY WE DISMISS THE CROSS OBJECTION FILED BY THE ASSESSEE IN LIMINE, AS NOT ADMISSIBLE. 13. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CR OSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 30 . 0 1 .201 8 . SD / - SD/ - (PAWAN SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 30 / 0 1 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// SENIOR P RIVATE S ECRETARY PS ITAT, MUMBAI