Appeal Details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 4230 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-06-2017
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Next Hearing Date
25-04-2017
Assessment Year
2011-2012
Appeal Filed On
16-08-2016
Judgement Text
, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I T.A. NO. 2111 /MDS/201 6 / ASSESSMENT YEAR :20 11 - 12 M/S. BIMETAL BEARINGS LTD., 18, RACE COURSE ROAD, COIMBATORE 641 018. [PAN:AAACB2036Q] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPA YER UNIT II, CHENNAI 600 101. ( / APPELLANT ) ( / RESPONDENT ) ./ I T.A. NO. 2357/MDS/2016 / ASSESSMENT YEAR :2011 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT 2, CHENNAI 600 101. VS. M/S. BIMETAL BEARINGS LTD., 18, RACE COURSE ROAD, COIMBATORE 641 018. ( / APPELLANT ) ( / RESPONDENT ) ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE DEPARTMENT BY : SHRI A.V. SREEKANTH, JCIT / DATE OF HEARING : 25 . 04 .201 7 / DATE OF P RONOUNCEMENT : 28 .06 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH E S E CROSS APPEAL S FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS ) 17 , I.T.A. NO S . 21 1 1 & 2357 /M/ 16 2 CHENNAI DATED 30 .0 3 .201 6 RELEVANT TO THE ASSESSMENT YEAR 20 11 - 12 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF A SUM OF .4,82,481/ - AS PROVISIONS OF CONTINGENT IN N ATURE FOR INCENTIVE ON COUPON ON SALES OF BEARINGS. THE EFFECTIVE GROUND TAKEN IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING TO ALLOW THE REIMBURSEMENT OF LONDON OFFICE EXPENSES. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF AUTOMOBILE COMPONENTS AND FILED THE RETURN OF INCOME ON 2 9 .0 9 .20 11 ADMITTING TOTAL INCOME OF . 10,59,54,955 / - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 14 3(2) OF THE ACT DATED 0 2 .08.201 2 WAS ON THE ASSESSEE. IN RESPONSE THERETO, THE ASSESSEE FILED ALL THE DETAILS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND VERIFICATION OF DETAILS, THE A SSESSING OFFICER HAS CONCLUDED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT ASSESSING TOTAL INCOME OF THE ASSESSEE AT . 12,37,29,170 / - BY MAKING VARIOUS DISALLOWANCES. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND MADE VARIOUS SUBMISSIONS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WITH REGARD TO THE ISSUE OF DISALLOWANCE ON REIMBURSEMEN T TO I.T.A. NO S . 21 1 1 & 2357 /M/ 16 3 AMALGAMATIONS PVT. LTD. FOR SHARE OF LONDON OFFICE EXPENSES , THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENSES, AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. WITH REGARD TO THE ISSUE OF PROVISION FOR INCENTIVE ON CO UPON ON SALES OF BEARINGS, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. FIRST, WE SHALL TAKE UP ASSESSEE S APPEAL RELATING TO CONFIRMATION OF DISALLOWANCE OF PROVISION S FOR INCENTIVE ON C OUPON ON SALES OF BEARINGS AMOUNTING TO .4,82,418/ - . 4.1 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT AS PER NOTIFICATION NO. S.O. 69(E), DATED 25.01.1996 GIVEN UNDER SECTION 145(2) OF THE ACT IN RESPECT OF ACCOUNTING STANDARD TO BE F OLLOWED BY ALL ASSESSEES FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. CLAUSE 4(I) OF THIS NOTIFICATION STATES AS UNDER: PRUDENCE PROVISIONS SHOULD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. SINCE THE ASSESSEE HAS BEEN FOLLOWED CLAUSE 4(I) OF THE ABOVE NOTIFICATION, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT CANNOT BE DISALLOWED UNDER CONTINGENT NATURE AND PRAYED THAT THE DISALLOWANCE MADE ON THIS ACCOUNT SHOULD BE DELETED. I.T.A. NO S . 21 1 1 & 2357 /M/ 16 4 4.2 PER CONTRA, THE LD. DR HAS SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS A MERE PROVISION , WHICH WAS NOTHING BUT A CONTINGENT LIABILITY AS ON 31.03.2011 IN THE BOOKS OF THE ASSESS EE AND THEREFORE, THE SAME CANNOT BE ALLOWED AS DEDUCTION. THUS, THE ABOVE PROVISION CANNOT BE ALLOWED AS DEDUCTION BEING CONTINGENT IN NATURE. 4.3 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORI TIES BELOW. ADMITTEDLY, THE ASSESSEE HAS NOT INCURRED THE DISCOUNT COUPON EXPENSES OF .4,82,418/ - AND MERELY CREATED A PROVISION . A FTER CONSIDERING THE ABOVE NOTIFICATION OF THE CBDT AND ITS CONTENT A S REPRODUCED HEREINA BOVE, THE ASSESSING OFFICER HAS OBS ERVED THAT IT WA S NOTHING BUT A CONTINGENT LIABILITY AS ON 31.03.2011 AND CANNOT BE ALLOWED AS DEDUCTION. THE LD. CIT(A) HAS ALSO CONSIDERED THE PROVISION AS A CONTINGENT LIABILITY AND CONFIRMED THE DISALLOWANCE . THE MERE PROVISION CREATED BY THE ASSESSEE WAS ACTUALLY NOT INCURRED BY THE ASSESSEE AND THE SAME DO ES NOT CONSTITUTE AS AN EXPENDITURE AND THEREFORE , THE SAME CANNOT BE SUBJECT MATTER OF DEDUCTION, AS EXPENDITURE WHICH WAS DEDUCTIBLE FOR INCOME TAX PURPOSES TOWARDS A LIABILITY ACTUALLY THE ASSESSE E HAS NOT INCURRED EVEN THOUGH THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. WHEN THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE LIABILITY OF THE ASSESSEE IS CRYSTALLIZED AND THEREFORE, MERE PROVISION CANNOT BE HELD AS AN ASCERTAIN ED LIABILITY AND THE SAME IS NOTHING BUT CONTINGENT I.T.A. NO S . 21 1 1 & 2357 /M/ 16 5 LIABILITY, WHICH CANNOT BE ALLOWED AS DEDUCTION IN THE RELEVANT ASSESSMENT YEAR. ACCORDINGLY, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE ON THIS ACCOU NT. THUS, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 5. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING TO ALLOW THE REIMBURSEMENT OF LONDON OFFICE EXPENSES. IN THE ASSESSMENT ORDER, THE A SSESSING OFFICER HAS DISALLOWED THE REIMBURSEMENT TO AMALGAMATIONS PVT. LTD. TOWARDS SHARE OF LONDON OFFICE EXPENSES AMOUNTING TO .21,00,000/ - BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ON THE GROUND THAT TDS WAS NOT DEDUCTED UNDER SECTION 195 OF THE ACT . DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS THE SUBMISSION OF THE ASSESSEE THAT THE PAYMENTS ARE IN THE NA TURE OF ONLY REIMBURSEMENT OF LONDON OFFICE EXPENSES SHARED BY THE ASSESSEE AND HENCE, THE AMOUNTS ARE NOT LIABLE FOR TAX IN INDIA. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT, AS STATED IN THE ASSESSMENT ORDER, TH E EXPENSES ARE RENTS OF THE LONDON OFFICE, SALARIES OF THE LONDON OFFICE, ETC. AND THESE PAYMENTS, WHICH ARE PAID BY THE LONDON OFFICE ARE NOT ASSESSABLE TO TAX IN INDIA IN THE HANDS OF THE ACTUAL RECIPIENTS. CONSEQUENTLY, THE PRESENT ASSESSEE IS NOT LIABL E FOR WITHHOLDING THE TAX ON THE ABOVE PAYMENTS WHICH ARE REIMBURSED TO THE LONDON OFFICE AS ASSESSEE S SHARE. THEREFORE, THE LD. CIT(A) HAS HELD THAT I.T.A. NO S . 21 1 1 & 2357 /M/ 16 6 THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DI SALLOWING THE ABOVE EXPENSES AND DIRECTED TO ALLOW THE REIMBURSEMENT OF LONDON. 5.1 T HE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS PAID THE AMOUNT TO ANOTHER INDIAN COMPANY AND NOT TO ANYONE IN LONDON AND THEREFORE, THE TDS TO THE SAID AMOUNT IS VERY MUC H WARRANTED AND PLEADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED AND RESTORED THAT OF THE ASSESSING OFFICER. 5.2 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY ARGUED THAT IF THE HOLDING COMPANY INCURRED EXPENSES ON BEHALF O F THE SUBSIDIARY COMPANY, THE SUBSIDIARY COMPANY IS REQUIRED TO REIMBURSE SUCH EXPENDITURES AND SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 2005 - 06 & 200 6 - 07 AND PRAYED THAT THE SAME SHOULD BE FOLLOWED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 5.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE DECISION IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 IN I.T.A. NOS. 89 & 90/MDS/2 015 DATED 22.05.2015, WHEREIN, THE COORDINATE BENCHES OF THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 6. THE NEXT ISSUE IN BOTH THE APPEALS OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE I.T.A. NO S . 21 1 1 & 2357 /M/ 16 7 ASSESSING OFFICER TO DELETE DIS ALLOWANCE MADE UNDER SECTION 40(A)(I) IN RESPECT OF THE AMOUNTS PAID BY THE ASSESSEE TO M/S. AMALGAMATION PVT. LTD. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THAT ASSESSEE MADE CERTAIN PAYMENTS TO M/S. AMALGAMATION PVT. LTD. AND NO TDS WAS DEDUCTED ON SUCH PAYMENTS AND THEREFORE PROPOSED TO DISALLOW THE SAID PAYMENTS UNDER SECTION 40(A)(I) OF THE ACT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE SUBMITTED THAT AMOUNTS PAID TO M/S. AMALGAMATION PVT. LTD. WERE REIMBURSEMENT OF EXPENSE S MADE BY THE ASSESSEE. THE EXPENSES WERE INCURRED ON BEHALF OF THE ASSESSEE BY M/S. AMALGAMATION PVT. LTD., THEREFORE SUCH EXPENSES WERE REIMBURSED AND THE PROVISIONS OF TDS HAVE NO APPLICATION. 7. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETE D THE DISALLOWANCE AGAINST WHICH REVENUE IS IN APPEAL BEFORE US. 8. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF ASSESSING OFFICER IN INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ON THE PAYMENTS MADE TO M/S. AMALGAMATION PVT. LTD. FOR NON - DEDUCTION OF TDS AND DISALLOWING THE SAME. 9. COUNSEL FOR THE ASSESSEE SUBMITS THAT THESE EXPENSES ARE ONLY REIMBURSEMENT OF EXPENSES MADE TO M/S. AMALGAMATION PVT. LTD., WHICH IS A HOLDING COMPANY AS THAT COMPANY HAD INCURRED EXPENSES. COU NSEL FOR THE ASSESSEE SUBMITS THAT HOLDING COMPANY INCURRED EXPENSES ON BEHALF OF THE SUBSIDIARY COMPANY AND SUBSIDIARY COMPANY REIMBURSED THE SUCH EXPENDITURE. HE SUBMITS THAT M/S. AMALGAMATION PVT. LTD. WHICH IS A HOLDING COMPANY INCURRED EXPENSES TOWARD S RENT, SALARY OFFICE FACILITIES, TRAVELLING & SECRETARIAL SERVICES AND THESE EXPENSES WERE BORNE BY THE SUBSIDIARY COMPANY ACCORDING TO THE SERVICES RENDERED BY THEM AND THEIR OFFICE EXPENSES WERE ALLOCATED BASED ON THE TURNOVER. THEREFORE SINCE THE AMOUN TS REPRESENT REIMBURSEMENT OF EXPENSES TDS PROVISIONS HAVE NO APPLICATION. THEREFORE COUNSEL SUBMITS THAT ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) MAY BE SUSTAINED. 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONSIDERED THE ISSUE AS TO WHETHER TDS PROVISIONS HAVE APPLICATION TO THE AMOUNTS PAID TO M/S. AMALGAMATION PVT. LTD. OR NOT IN PARA 5.1 & 5.2 OF HIS ORDER OBSERVING AS UNDER: - 5.1 THE ID.AR CONTESTED AS UNDER: I.T.A. NO S . 21 1 1 & 2357 /M/ 16 8 'THE AMALGAMATI ON PVT. LTD PAYS THE REPRESENTATIVE WHO ACTS ON BEHALF OF THE PARTICIPATING GROUP COMPANY'S REPRESENTATIVE OFFICE AT LONDON. THE TOTAL EXPENDITURE ON THE EXPENDITURE INCLUDING RENT, OFFICE FACILITIES ETC. INCURRED FOR THE PURPOSE OF EXPORT PROMOTION OF PRO DUCTS OFFERED BY THE PARTICIPATING COMPANIES IN THE GROUP DURING THAT YEAR. THE ASSESSEE IS ONE OF THE PARTICIPATING COMPANIES IN THAT GROUP. IT IS SUBMITTED THAT ENTIRE AMOUNT HAS BEEN PAID TO AMALGAMATION LTD WHICH PAYS TO A PERSON OUTSIDE INDIA WHO IS A NON RESIDENT. THEREFORE, THE PROVISION OF THE INDIAN INCOME TAX ACT DOES NOT APPLY AND THEREFORE, NO TDS HAS TO BE DEDUCTED BY THE ASSESSEE. AS PER EXPLANATION 1 TO SECTION 9 (1)(B), NO INCOME SHALL DEEM TO ACCRUE OR ARISE IN INDIA TO A NON RESIDENT. IT IS AN ESTABLISHED PRINCIPLE OF LAW THAT THE TDS HAS TO BE DEDUCTED ONLY IN CASES WHERE THE TAX IS PAYABLE AND NOT OTHERWISE. ONCE THE TAX LIABILITY DOES NOT EXIST, THE QUESTION OF DEDUCTING TDS DOES NOT ARISE. THE ASSESSEE RELIES UPON THE DECISION OF THE CIT(A) IN THE ASSESSEE'S SISTER CONCERN IN THE CASE OF I.P RINGS IN ITA NO.523/06 - 07 FOR THE AY 1999 - 2000 AGAINST WHICH THE DEPARTMENT HAS NOT FILED ANY APPEAL TO THE TRIBUNAL. ' 5.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS UNDERSTOOD FROM THE FACTS OF THE CASE THAT AMALGAMATION PVT LTD IS A HOLDING COMPANY UNDER WHICH SEVERAL OTHER GROUP COMPANIES ARE WORKING. WHATEVER EXPENDITURE IS INCURRED BY THE HOLDING COMPANY IN LONDON TO SHARE THE OFFICE SPACE, ADVERTISEMENT EXPENSES , TRAVELLING, TELEPHONE CHARGES ETC., ARE BEING SHARED BY ALL OF THEM AS PER THE UNDERSTANDING THEY HAD WITH THE HOLDING COMPANY. THE SHARE OF EXPENDITURE PAID BY THE SUBSIDIARY COMPANIES ARE IN THE FORM OF REIMBURSEMENT OF EXPENDITURE INCURRED BY THE HOLD ING COMPANY ON BEHALF OF SUBSIDIARY COMPANIES. SINCE THE REIMBURSEMENT OF EXPENDITURE BY THE HOLDING COMPANY IS NOT LEADING TO ANY ACCRUAL OF INCOME IN THE HANDS OF THAT COMPANY, THE QUESTION OF MAKING TDS ON SUCH INCOME DOES NOT ARISE. FURTHER THE AMOUNTS PAID OUTSIDE INDIA IN THE INSTANT CASE ARE NOT FALLING UNDER EITHER ROYALTY, INTEREST OR FEE FOR TECHNICAL SERVICES, THEREFORE THEY ARE NOT CHARGEABLE TO TAX IN INDIA. THE I.T.A. NO S . 21 1 1 & 2357 /M/ 16 9 DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE P LTD, 327 ITR 456 (SC) (2010) COMES TO THE RESCUE OF THE APPELLANT. FURTHERMORE, MY ID. PREDECESSOR HAS ALLOWED SUCH CLAIM IN HIS ORDER VIDE ITA NO. 523/06 - 07/A. III DATED 14.7.2010 IN THE CASE OF ANOTHER GROUP CONCERN I.P. RINGS LTD FOR A.Y. 99 - 2000 FOR S IMILAR PAYMENTS MADE TO AMALGAMATIONS P LTD. IN VIEW OF THE ABOVE DISCUSSION, THE DISALLOWANCE U/S 40(A)(I) IS NOT CALLED FOR. THE AO IS DIRECTED TO WITHDRAW THE DISALLOWANCE. THE GROUND IS ALLOWED. 11. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WE DO NOT FIND ANY VALID REASON TO INTERFERE WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE DISALLOWANCE AND THEREFORE UPHOLD HIS ORDER ON THIS ISSUE. 5.4 THE LD. DR COULD NOT CONTROVERT THE ABOVE FIN DINGS OF THE TRIBUNAL. HENCE, RESPECTIVELY FOLLOWING THE DECISION OF THE COORDINATE BENCHES, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 6 . IN THE RESULT, BOTH THE APPEAL S FILED BY THE AS SESSEE AS WELL AS REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 28 TH JUNE , 201 7 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 28 . 0 6 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.
