Adient India Private Limited, Pune V. Assistant Commissioner of Income-tax, Circle - 14, Pune

ITA 1507/PUN/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2824 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 13-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence
• Section: 90; 143(3); 115JB; 37(1); 144C; 113; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA Nos. 1506,1507 & 512/PUN/2017/18 (Assessment Years: 2010-11 to 2012-13) M/s. Adient India Pvt. Ltd. Plot No. 1, S. No. 235 & 245 Hinjewadi Taluka - Mulshi, Pune 411057 Vs. ACIT, Circle - 7 Bodhi Towers, Salisbury Park Pune 411037 PAN – AAACT6342D Appellant Respondent Appellant by: Ms. Aarti Sathe Respondent by: Shri S.P. Walimbe Date of Hearing: 28.04.2022 Date of Pronouncement: 06.05.2022 O R D E R Per S.S. Godara, JM These assessee’s three appeals are directed against the CIT(A)-7, Pune’s separate orders dated 30.01.2017 (AYs 2010-11 &2011-12) and dated 13.12.2017 (AY 2012-13) passed in case No. PN/CIT(A)-7/Cir-7/1064/2014- 15, No. PN/CIT(A)-7/Cir-14/154/2016-17 & No. PN/CIT(A)-7/Cir-14/10549/ 2016-17; respectively. Relevant proceedings are under Section 143(3) of the Income Tax Act, 1961 (in short the Act) in the former twin and under Section 143(3) r.w.s. 144C of the Act in the last assessment year; respectively. Heard both the parties. Case files perused. 2. It transpires during the course of hearing that the assesse has raised identical substantial grounds in all its three instant appeals. Its former twin substantial grounds in both these assessment years seeks to reverse the learned lower authorities’ action invoking Section 40A(2)(a)&(b) r.w.s. 37(1) disallowance(s) of administrative service charges amounting to Rs.3,04,14,743/-, Rs. 4,68,19,249/- and Rs.5,55,82,030/-; assessment year wise, respectively paid to M/s Tata AutoComp Systems Ltd. The CIT(A)’s ITA Nos. 1506, 1507 & 512/Pun/2017/18 M/s. Adient India Pvt. Ltd. 2 identical detailed discussion affirming the Assessing Officer’s action to this effect reads as follows: - “5.2 I have carefully considered the facts of the case and law apparent from records. The assessee has e-filed original return of income on 07.10.2010 thereafter, revised return was filed by the assessee on 26.03.2012 declaring a total income of Rs.46,68,06,960/- and income of Rs.42,37,13,080/- u/s. 115JB. The appellant/assessee has claimed an amount of expenditure of Rs.3,04,14,743/- on account of Administrative Service Charges paid to TACO (Tata Autocomp systems Ltd.) a related company covered u/s. 40A(2)(b). The assessee has claiming the expenditure on basis of an administrative service agreement dated 02.02.2005 @ 1% of turnover in addition to reimbursing all the external cost incurred by TACO if any. The similar expenditure claimed in A.Y. 2006-07 were disallowed as the assessee could not prove rendering of the service of substantive the reasonableness and necessity of such payment to TACO by any cogent evidence. In A.Y. 2006-07 the CIT(A) restricted addition to 75% and allowed 35% as reasonable. The appellant and department contested the issue before the ITAT. Similar issue also arose n A.Y. 2008-09 and these expenditure has been disallowed by the Dispute Resolution Panel (DRP). In A.Y. 2008-09 the expenditure were disallowed as the assessee could not submit cogent evidences except policy documents and E-mails. During the year under consideration the AO observed that the submissions of the assessee are similar to earlier years and disallowed Rs.3,04,14,743/-. 5.4 During the appellate proceedings the assessee Johnson Controls Automotive Ltd. is 50-50 JV of TACO and Johnson Control International BV Netherland. The appellant submitted copy of agreement dated 02.02.2005, copy of mails and policy documents. The appellant relied on decision of the ITAT in case of appellant for A.Y. 2006-07 vide ITA No. 1450 & 1454/PN/2001 dated 09.12.2015. The appellant relied on judicial pronouncement for reasonableness of expenditure. The appellant submitted that there is consent of JV partners and benefit has been received by the appellant from service provided by TACO. The appellant has also relied on decision of ITAT Pune in case of IATA Toyo Radiator Pvt. Ltd. dated 18.03.2016. 5.5 The agreement with TACO dated o2.02.2005 says that: Clause 3.3 term “This agreement shall be effective from Oct. 1 st 2003 and unless earlier terminated in accordance with the provisions hereof, shall remained in full force for period of 7 years from the effective date.” 5.5.1 The ITAT in para 10 of order dated 09.12.2005 has observed that the claim of the assessee that similar expenses were also allowed in A.Y. 2002-03 was brushed aside as principle of resjudicata do not apply and also in view of circumstances of the case wherein the AO had examined the claim of the assessee in detail with reference to terms and condition of agreement and nature of service rendered by TACO. ITA Nos. 1506, 1507 & 512/Pun/2017/18 M/s. Adient India Pvt. Ltd. 3 5.5.2 This suggests that the agreement were in force even before 1 st Oct. 2003 though it was signed on 021.02.2005. It also suggest that after rendering the services the agreement is signed or no services actually rendered and documents were signed to regularize the payments. It can also be said that term of 7 years has already expired from A.Y. 2002-03 wherein similar expenditure has also been claimed. 5.6 The appellant before the ITAT for appellate proceedings for A.Y. 2006-07 contended that the service charges paid by assessee to TACO have been offered to tax as income in hand of TACO in its return of income filed. During that year TACO has offered NIL income after set off of brought forwarded losses under regular provisions and only paid taxes on the book profit u/s. 115JB @ 10%, therefore, the transactions between the TACO and assessee is not revenue neutral. The ITAT considered the commercial exigency of the agreement and quantum of remuneration to allowed in hands of assessee. The ITAT relying on decision of Cochin Bench in case of Harrison Malayalam Ltd. reported in 10 SOT 363 (Coch) considered that remuneration decided on prescribed rate of turnover is allowable and decided the issue in favour of appellant. The ITAT considered the decision of the Bombay High Court in case of CIT vs. Indo Saudi Services (Travel) (P.) Ltd. reported in 219 CTR 562 and concluded that there was no evasion of taxes by the assessee in making payment to TACO. There was observation in A.Y. 2006-07 that no services have been reported by TACO. The ITAT relying on the decision of the Dressers-Rand India (P.) td. Vs. Addl. CIT reported in 13 taxmann.com 82 (Mum) decided the issue in favour of the appellant. The ITAT also observed that there is no basis to allow expenditure @25% of the total in absence of any evidence that expenditure incurred by assessee is excessive and more than market value of the said services. 5.7 Ostensibly, in the year under consideration the facts of the case of the appellant are similar and decision of the jurisdictional ITAT Pune has to be followed. However, the appellant has not submitted copy of return filed by TACO for the year under consideration to determine whether transaction between assessee and TACO in terms of agreement dated 02.02.2005 for administrative service agreement is revenue neutral and there is no element of tax evasion. Further, para 5.5.2 suggests that actual period of 7 years has already expired though agreement exists. Therefore, onus was on the appellant to show that what are actual services rendered and payments were reasonable in comparison to services available in the market. 5.8 The appellant is paying salary to technical administrative and marketing staff debiting to profit and loss account. The appellant is also incurring direct and indirect expenditure required for running the organization. From the e-mails submitted it cannot be concluded that how much resources of TACO is utilized in terms of manpower or any other resources. Under these circumstances, quantification of services rendered is not possible. Further, the market value of the services rendered cannot be judge in absence of any data in respect of man hours utilized by the appellant. From the e-mail it can also not be said that no services is being utilized by the appellant. The appellant has ITA Nos. 1506, 1507 & 512/Pun/2017/18 M/s. Adient India Pvt. Ltd. 4 also not submitted that in the open market how much cost it would incur for receiving same services as provided by the TACO. The reasonableness of expense is required to be proved by the appellant. The High Court of Bombay in case of CIT vs. Shatrunjay Diamonds reported in 261 ITR 258 has held that: "Section 40A(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payments - Assessment year 1988-89 - Assessee had imported rough diamonds from 'P' of New York (a sister concern of assessee) - Assessing Officer compared prices of diamond imported by assessee from 'P' and from other concerns and found that assessee had paid excess price to 'P' - Accordingly, Assessing Officer disallowed said excess amount by invoking section 40A(2)(b) - Whether once imports are made by assessee from persons falling under section 40A(2)(b), then burden is upon assessee to establish that price paid by it is not excessive or unreasonable - Held, yes - Whether since no evidence was led by assessee to establish that price paid by it to 'P' was as per price prevailing in international market, and since authorities below had not gone into that aspect, impugned orders of Commissioner (Appeals) as well as Tribunal were to be set aside and matter was to be remitted back to Assessing Officer to decide question of disallowance under section 40A(2)(b) afresh - Held, yes" The appellant in this case has not brought any material on record to prove that payments made to TACO is not excessive or unreasonable. Under these circumstances, invocation of section 40A(2)(b) is correct. 5.9 The appellant has also submitted that without prejudice to above grounds the learned AO has failed to appreciate that the CIT(A) had allowed 25% of the administrative service charge paid to TACO in case of assessee for AY. 2006- 07. Combined reading of agreement dated 02.02.2005 and order of the ITAT referring to order of the A Y. 2002-03 where similar expenditure has been allowed shows that the period of 7 years mentioned in agreement dated 02.02.2005 must have been come to an end in the year under consideration. The appellant itself is providing services at Japan during the year under consideration. It cast doubt in extent of services rendered by the TACO. 5.10 In absence of copy return filed by TACO for the year under consideration the ratio of decision of the ITAT in case of appellant and the decision of the Bombay High Court in case of Indo Saudi Services (Travel)(P.) Ltd.(supra) and the decision of the Supreme Court in case of CIT vs. M/s. Glaxo Smithkline Asia Pvt. Ltd. reported in 236 CTR 113 (SC) cannot be directly applied even if it is considered that some services are rendered by the TACO. 5.11 The appellant has relied on decision of ITAT Pune in case of TAT A Toyo Radiator Pvt. Ltd. dated 18.03.2016. In this decision the decision of the ITAT in case of the appellant for AY. 2009-10 has been followed by the ITAT. Therefore, facts remains same that in absence of copy of return filed by TACO the ratio of the judgment of the ITAT cannot be applied. ITA Nos. 1506, 1507 & 512/Pun/2017/18 M/s. Adient India Pvt. Ltd. 5 5.12 From the assessment order it is apparent that assessee has been assessed at Rs. 49,72,21,710/- under normal provisions of the I. T. Act and income under section115JB at Rs.42,37,13,080/-. The AO observed that since tax liability u/s. 115JB is higher the same is considered for determining tax liability payable by the assessee seems to be incorrect statement. Ostensibly, returned income as well as assessed income is more than income u/s. 115JB. In fact, computation of tax in computerized seat shows that gross tax of Rs.14,91,66,513/- and tax credit under 115JM at Rs.2,70,31,208/-. This shows the payment made by the appellant would have 'been subject to tax @ 30%. Apparently the appellant has not filed documentary evidence in respect of return filed by the TACO and no application under rule 46A of the IT Rules, 1962 are there for admission of additional evidence. In absence of documentary evidence in respect of return filed by the TACO it cannot be said that TACO has paid tax @ 30 % specially when in earlier years the TACO was paying taxes under 115JB. Therefore, it cannot be said that service charges received by TACO from the appellant is revenue neutral. Further, if TACO is assessed under normal provisions of I.T. Act then on payment made by appellant the TACO will be paying same taxes and such transactions would be revenue neutral. In absence of documentary evidences adverse inference has to be drawn in terms of section 114 of the Evidence Act. It cannot be said that there is no intention to evade taxes when documentary evidence are not available and the period of the agreement has already expired if observation made in order of the IT AT is taken at its face value. Now with these facts the decision of the ITAT for A.Y. 2006-07 can be applied. The decision of the ITAT in case of the appellant for A.Y. 2006- 07 and decision of the Bombay High Court in case of . Indo Saudi Services (Travel)(P.) Ltd.(supra) cannot be applied to the payment made to TACO of Rs. 3,04,14,743/-. Therefore, disallowance made by the AO u/s. 40A(2)(b) is upheld Accordingly, Ground No.1 of the appeal is dismissed.” 3. Learned counsel vehemently argued during the course of hearing that both the lower authorities have erred in law and on facts in invoking the impugned disallowed for want of a valid service agreement dated 02.02.2005 which was only applicable for a period of seven years. She next highlighted the fact that not only the assessee has moved its additional evidence petition(s) under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 for placing on record the recipient entity’s income tax return(s) of assessment at the maximum marginal rate but also both these parties had entered into an addendum to the main agreement extending the service agreement’s duration covering all these assessment years. 4. The Revenue’s case before us is that the assessee had not filed the recipient’s computation as well as return(s) coupled with the alleged ITA Nos. 1506, 1507 & 512/Pun/2017/18 M/s. Adient India Pvt. Ltd. 6 addendum to the foregoing services agreement and therefore, the impugned disallowance is liable to be upheld. 5. We have given our thoughtful consideration to the foregoing rival arguments. We make it clear that the assessee had indeed filed its recipient’s tax returns in support of its argument that the impugned Section 40A(2)(a)& (b) disallowance does not survive any more once both these parties stood assessed at the maximum marginal rate in light of the CBDT’s age old circular No. 6/P dated 06.07.1968 to this effect. This is in addition to the fact that it has also sought to prove its addendum to the impugned agreement (supra) extending the period of operation thereof covering all the instant three assessment years for the first time only. Faced with this situation, we deem it appropriate to restore the assessee’s instant identical first and foremost grievance back to the Assessing Officer for his afresh adjudication as well as necessary factual verification as per law within three effective opportunities of hearing. Ordered accordingly. The assessee’s corresponding grounds are treated as allowed for statistical purposes. 6. Learned counsel next pleads that the assessee does not wish to press its identical second and third substantive grounds regarding credit of foreign tax paid under Section 90 of the Act as well as additional ground seeking secondary and higher education cess deduction, any more. Rejected accordingly. No other ground has been pressed before us. 7. These assessee’s three appeals are partly allowed for statistical purposes in above terms. A copy of this common order be placed in the respective case files. Order pronounced in the open court on 6 th May, 2022. Sd/- Sd/- (Dipak P. Ripote) (S.S. Godara) Accountant Member Judicial Member Pune, Dated: 6 th May, 2022 ITA Nos. 1506, 1507 & 512/Pun/2017/18 M/s. Adient India Pvt. Ltd. 7 Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -7, Pne 4. The Pr. CIT - 6, Pune 5. The DR, “A” Bench, ITAT, Pune By Order //True Copy// Assistant Registrar ITAT, Pune Benches, Pune n.p.