Felguera Gruas Y Alamacenaje, S.A.- India Project Office, Hyderabad V. ADIT (International Taxation)-1, Hyderabad

ITA 199/HYD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6395 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 25-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-02-2014
• Court: TRIBUNAL
• Department Lawyers: S NARASAMMA
• Keywords: Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO. 199/HYD/2014 ASSESSMENT YEAR : 2010-11 DURO FELGUERA S.A.- INDIA PROJECT OFFICE, (EARLIER KNOWN AS FELGUERA GRUAS Y ALAMACENAJE, S.A.- INDIA PROJECT OFFICE), HYDERABAD. VS. ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-1, HYDERABAD. PAN: AAACF 9876 C APPELLANT RESPONDENT FOR ASSESSEE: SHRI VIKRAM VIJAYARAGHAVAN (AR) FOR REVENUE: SMT. S. NARASAMMA (CIT D.R.) DATE OF HEARING: 27/07/2016 DATE OF PRONOUNCEMENT: 03/08/2016 O R D E R PER: LALIET KUMAR, J.M. : THIS IS THE APPEAL FILED BY THE ASSESSEE ARIS ES AGAINST THE ORDER DATED 11/11/2013 PASSED BY THE LD. DISPUTE RES OLUTION PANEL (DRP), HYDERABAD FOR THE A.Y. 2010-11, WHEREIN THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. GENERAL. I.T.A. NO. 199/HYD/2014 DURO FELGUERA S.A.- INDIA PROJECT OFFICE VS ADIT(IN T.TAX) :- 2 -: 2. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, DURO FELGUERA S.A.- INDIA PROJECT OFFICE (EARLIER KNOWN AS FELGUERA GRUAS Y ALAMACENAJE, S.A.- INDIA PROJECT OFFICE (HEREINAFTE R REFERRED TO AS APPELLANT) RESPECTFULLY CRAVES LEA VE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE ASSISTANT DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION)-1, HYDERABAD )HEREINAFTER REFERRED AS LD . AO) DATED 12 DECEMBER 2013 IN PURSUANCE OF THE DIRECTORS OF THE DISPUTE RESOLUTION PANEL (HEREINAF TER REFERRED TO AS DRP), HYDERABAD DATED 11 NOVEMBER 2013 UNDRE SECTION 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (ACT) 2. SALARIES PAID BY VISHAL INDUSTRIAL SERVICES (VI S) TO SOME OF ITS EMPLOYEES WERE DISLOWED IN THE HANDS OF THE ASSESSEE ON THE GROUND THAT NO GAE PASES WERE ISSUED BY GANGAVARAM PORT LIMITED (GPL) TO THESE EMPLOYEES. 2.1 THE LD AO/DRP ERRED IN DISALLOWING EXPENSES ON THE GROUND THAT GATE PASSES WERE NOT ISSUED TO THREE EMPLOYEES BY GANGAVARAM PORT LIMITED (GPL). 2.2 THE LD. AO/DRP ERRED IN DISALLOWING EXPENSES IN THE HANDS OF THE ASSESSEE WHEN THE EMPLOYEES BELONG TO VISHAL INDUSTRIAL SERVICES (VIS). 2.3 THE LD A.O./DRP ERRED IN HOLDING THAT EXPENSES INCURRED BY VIS ARE TO BE DISALLOWED IN THE HANDS O F THE ASSESSEE AND THE AGREEMENT WITH THE VIS IS GENUINE AND ACCEPTED BY THE LD AO/DRP. 2.4 THE LD AO/DRP ERRED IN THE PRINCIPLES OF NATURA L JUSTICE THAT EXPENSE OF ONE ENTITY CANNOT BE DISALLOWED IN THE HANDS OF OTHER ENTITY. 2.5 THE LD AO/DRP ERRED IN HOLDING THAT EMPLOYEES O F VIS ARE THE EMPLOYEES OF THE ASSESSEE WHILE THE I.T.A. NO. 199/HYD/2014 DURO FELGUERA S.A.- INDIA PROJECT OFFICE VS ADIT(IN T.TAX) :- 3 -: FACTS OF THE CASE ARE CONTRARY TO THE ABOVE CONTENT ION OF THE LD AO/DRP. 2.6 THE LD AO/DRP OUGHT TO HAVE APPRECIATED THAT TH E ASSESSEE HAS ACTUALLY INCURRED THE EXPENDITURE ON MAN POWER SUPPLY SERVICES AND THE SAME WERE GENUINE AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 2.7 THE LD AO/DRP ERRED IN DISALLOWING THE EXPENSES WHEN THE PAN OF THREE EMPLOYEES, THEIR SALARY AND TDS DETAILS WERE AVAILABLE ON RECORDS WITH THE LD. AO/DRP. 3. THE LD AO/DRP ERRED IN LAW AND ON FACTS BY SUMMARILY REJECTING THE APPELLANTS OBJECTIONS AND DISREGARDING THE MATERIAL PLACED ON RECORD THEREBY NOT FOLLOWING THE PROCEDURE LAID DOWN U/S 144C(5), 144C(6) AND 144C(7) OF THE ACT. 2. THE ASSESSEE IS A NON-RESIDENT COMPANY, ENGAGED I N THE BUSINESS OF DESIGN AND MANUFACTURE OF HEAVY BRIDGE CRANES IN EUROPE, AMERICA, ASIA AND AFRICA, AND HAS ESTABLISHE D A PERMANENT ESTABLISHMENT AT GANGAVARAM PORT. THE ASSESSEE FILED RETURN OF INCOME FOR THE A.Y. 2010-11 ON 14/10/ 2010 DECLARING A LOSS OF RS. 3,07,07,566/- AND CLAIMED A REFUND OF RS. 1,30,21,556/-. THE CASE OF THE ASSESSEE WAS SELE CTED FOR SCRUTINY AND DURING THE SCRUTINY ASSESSMENT, THE LD A.O . HAS MADE A DISALLOWANCE OF RS. 7,27,835/- AND MADE ADDI TION OF RS.29,12,793/-. THE REASONING OF THE LD. AO GIVEN IN PARAGARAPH NO. 2.2 OF THE ASSESSMENT ORDER IS AS UNDE R:- I.T.A. NO. 199/HYD/2014 DURO FELGUERA S.A.- INDIA PROJECT OFFICE VS ADIT(IN T.TAX) :- 4 -: 2.2 IT MAY BE NOTEWORTHY TO MENTION HERE THAT THE DIRECTOR (OPERATIONS) GANGAVARAM PORT HAS STATED THAT NO GATE PASSES WERE ISSUED TO M/S VISHAL INDUSTRIAL SERVICES OR THE PERSONNEL DEPUTED BY THEM IN RESPECT OF CERTAIN WORKS STATED TO HAVE BEE N RENDERED BY THEM TO M/S FELGUERA GRUAS Y ALACENAJE, SA. SUBSEQUENTLY, THE ASSESSEE HAS BEEN REQUIRED TO FURNISH THE DETAILS OF PERSONNEL CLAIM ED TO HAVE BEEN DEPUTED BY M/S VISHAL INDUSTRIAL SERVICES TO M/S FELGUERA DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2010-11. ACCORDINGLY, THE ASSESSEE HAS PROVIDED A LIST OF 11 PERSONNEL. THE SCANNED COPY OF NAME OF 11 PERSONNEL IS REPRODUCE ON PAGE NO. 9 OF THE ASSESSMENT ORDER. 3. BEING AGGRIEVED BY THE ORDER OF THE LD A.O., THE AS SESSEE FILED OBJECTIONS BEFORE THE LD DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. THE LD DRP VIDE ITS DIRECTION DATED 11/11/2 013 HAS SUSTAINED THE DISALLOWANCE OF RS. 7,27,835/-. THE REASONING OF THE LD. DRP IS AS UNDER:- 5(D) WE HAVE DULY CONSIDERED THE ABOVE SUBMISSION. SINCE PORT AREA IS A SECURITY AREA, ISSUE OF GATE P ASS IS A MUST OF ENTERING THE AREA. THOUGH THE DIRECTOR (OPERATIONS) STATED INITIALLY THAT NO GATE PASSES WERE ISSUED, LATER ON, IT WAS FOUND BY THE A.O. THA T GATE PASSES WERE ISSUED TO SOME PERSON. HE HELD THAT THE PERSONS WHO WERE NOT ISSUED GATE PASS, I.T.A. NO. 199/HYD/2014 DURO FELGUERA S.A.- INDIA PROJECT OFFICE VS ADIT(IN T.TAX) :- 5 -: NEVER WORKED IN THE PORT AREA. NO EVIDENCE HAS BEEN FILED BEFORE US TO PROVE THAT THESE PERSONS ACTUALL Y WORKED INSIDE THE PORT AREA. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS ENTERED IN TO AN AGREEMENT WITH M/S VISHAL INDUSTRIAL SERVICES FOR THE PURPOSES OF SUPPLYING THE MANAGEMENT ASSISTANCE SERVI CES OF GANGAVARAM PORT. THE COPY OF WHICH IS ON RECORD FROM PAGE 62 TO 74 DATED 15/3/2007. IT WAS FURTHER SUBMITTED THAT IN ACCORDANCE WITH THE AGREEMENT, THE SAID M/S VISHAL INDU STRIAL SERVICES HAS SUPPLIED 11 EMPLOYEES DURING THE A.Y. 2 009-10. THE DETAILS OF WHICH IS GIVEN AT PAGE NO. 53 OF THE PA PER BOOK. IT WAS ALSO CONTENDED THAT THE ASSESSEE HAS DEDUCTED TDS WHILE MAKING THE PAYMENT TO M/S VISHAL INDUSTRIAL SERVI CES AND HAS ALSO ISSUED FORM NO. 16 TO THESE EMPLOYEES. I T WAS ALSO SUBMITTED BY THE LD AR OF THE ASSESSEE THAT THE REPRESENTATIVE OF M/S VISHAL INDUSTRIAL SERVICES WAS SUMMONED BY THE LD AO AND BEFORE WHOM THE SAID M/S VI SHAL INDUSTRIAL SERVICES HAS PROVED THE IDENTITY OF THESE 11 EMPLOYEES AND HAVE ALSO FURNISHED THEIR PAN CARDS AN D THE DETAILS OF FORM 16A AND OTHER DOCUMENTARY EVIDENCE IN SUPPORT OF THEIR EMPLOYMENT WITH THE ASSESSEE DURING TH E I.T.A. NO. 199/HYD/2014 DURO FELGUERA S.A.- INDIA PROJECT OFFICE VS ADIT(IN T.TAX) :- 6 -: PERIOD UNDER CONSIDERATION. THUS, IT WAS SUBMITTED THAT THE ASSESSEE WAS ABLE TO ESTABLISH THAT THE SAID 11 PERSONS WERE DULY EMPLOYED WITH THE ASSESSEE AND THE DISALLOWANCE MADE BY THE AUTHORITIES BELOW WAS NOT CORRECT. 5. AT THE OUTSET, THE LD CIT DR HAS RELIED UPON THE ORDE R PASSED BY THE AUTHORITIES BELOW AND SUBMITTED THAT ON ACCOUNT OF NON-FURNISHING OF GATE PASSES IN RESPECT O F THREE EMPLOYEES, THE DISALLOWANCE WAS MADE BY THE AUTHORITIE S. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AGREEMENT BETWEEN M/S VISHAL INDUSTRIAL SERVICES WITH THE ASSESSEE HAS NOT BEEN DISPUTED BY THE REVENUE. ALL THE EMPLOYEES WERE HAVING PAN CARD. IT IS ALSO NOT IN DIS PUTE THAT ALL THE EMPLOYEES WERE ISSUED FORM NO. 16A BY THE A GENCY. IT IS ALSO NOT IN DISPUTE THAT ALL THE PERSONS WERE EITHER MECHANICAL ENGINEER OR ELECTRICAL ENGINEER (PAGE NO. 61 OF THE APPEAL PAPER BOOK) AND THEREFORE, THE ASSESSEE IN OUR VIEW WAS ABLE TO ESTABLISH THAT THESE PERSONS WERE EMPLOYEE WHOL LY OR EXCLUSIVELY FOR THE PURPOSES OF RENDERING SERVICES O N BEHALF OF THE ASSESSEE IN GANGAVARAM PORT LIMITED. WE FAILED TO APPRECIATE THAT THE RATIONALE BEHIND INSISTENCE OF GATE PASSES I.T.A. NO. 199/HYD/2014 DURO FELGUERA S.A.- INDIA PROJECT OFFICE VS ADIT(IN T.TAX) :- 7 -: BY THE A.O. OR BY THE LD DRP IN THE LIGHT OF FACT THAT THE ASSESSE PROVED DURING THE ASSESSMENT PROCEEDING EMPL OYEES RELATIONSHIP, SALARIES, PAN NUMBER AND FORM NO. 16A .IN OUR VIEW THE DISALLOWANCE MADE BY THE AUTHORITIES BELOW WAS UNCALLED FOR AND THEREFORE THE APPEAL IS REQUIRED TO B E ALLOWED. IN THE LIGHT OF THE ABOVE, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE DISALLOWANCE OF RS. 7,27,835/- IS SET ASIDE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 03/08/2016 SD/- SD/- ( B. RAMAKOTAIAH ) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 03/08/2016 *RANJAN COPY FORWARDED TO: 1. DURO FELGUERA S.A.- INDIA PROJECT OFFICE, (EARLIER K NOWN AS FELGUERA GRUAS Y ALAMACENAJE, S.A.- INDIA PROJEC T OFFICE), 301, 8-3-841, AKSHAYA APARTMENTS, YELLAREDDYGUDA, AMEERPET, HYDERABAD-500073. 2. THE ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-1, HYDERABAD. 3. THE D.R.P., HYDERABAD. 4. THE DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, INCOME TAX TOWERS, 10-2-3, AC GUARDS, HYDERABAD- 500004. 5. THE D.R. ITAT, HYDERABAD. 6. GUARD FILE.