M/s Workplace Options India Private Limited , Bangalore V. Income Tax Officer Ward-7(1)(4), Bangalore

ITA 2404/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1381 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-06-2019
• Assessment Year: 2015-2016
• Appeal Filed On: 20-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKAS SURYAVAMSHI
• Assessee Lawyers: RISABH SINGHVI
• Keywords: Transfer pricing; Double taxation relief; Principle of natural justice; International transaction; Wholly owned subsidiary; Non-deduction of tax; TDS; Set aside
• Section: 90; 40(a)(ia); 194C; 195; 194J

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND MS. BEENA PILLAI, JUDICIAL MEMBER ITA NO. 2404/BANG/2018 ASSESSMENT YEAR : 2015-16 M/S. WORKPLACE OPTIONS INDIA PRIVATE LIMITED, UNIT NO. 601, TOWER C-1 & 2, MURPHY ROAD, ULSOOR, BANGALORE 560 008. PAN: AABCW5081H VS. THE INCOME TAX OFFICER, WARD 7 (1) (4), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI RISABH SINGHVI, CA REVENUE BY : SHRI VIKAS SURYAVAMSHI, ADDL. CIT (DR) DATE OF HEARING : 03.06.2019 DATE OF PRONOUNCEMENT : 07 .06.2019 O R D E R PER MS. BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST ORDER DATED 20/06/18 PASSED BY LD. CIT (A)-7, BENGALURU, ON FOLLOWING GROUNDS OF APPEAL: 4. GENERAL GROUNDS: 4.1 THE LEARNED INCOME TAX OFFICER, CIRCLE 7(1)(4), BENGALURU ('LD AO'), HAS ERRED IN PASSING THE ASSESSMENT ORDER AND THE LEARNED COMMISSIONER OF INCOME TAX, BENGALURU - 7 ('LD CIT(A)') HAS ERRED IN ENHANCING THE ADDITIONS MADE BY THE LD AO. THE ORDER PASSED BY THE LD CIT(A) IS BAD IN LAW AND IS LIABLE TO BE QUASHED. PAGE 2 OF 5 ITA NO. 2404/BANG/2018 4.2 THAT ON FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW THE LD CIT(A) ERRED IN CONFIRMING AND ENHANCING THE ASSESSMENT WITHOUT PROVIDING ANY REASONABLE OPPORTUNITY TO THE APPELLANT AND PASSED THE ORDER AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 4.3 THAT ON FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW, THE LD CIT(A) ERRED IN UPHOLDING THE ASSESSMENT ORDER IRRESPECTIVE OF THE FACT THAT LD AO MADE THE ADJUSTMENT WITHOUT PROVIDING ANY SHOW CAUSE NOTICE TO THE APPELLANT. 4.4 THE LD AO ERRED IN NOT ADHERING TO THE INSTRUCTIONS PROVIDED BY THE CBDT UNDER CIRCULAR NO. 20/2015 DATED 29- 12-2015 WHICH IS AS FOLLOWS: 'IT IS ALSO DIRECTED THAT IN ALL CASES UNDER SCRUTINY, WHERE THE ASSESSING OFFICER PROPOSES TO MAKE ADDITIONS OR DISALLOWANCES, THE ASSESSEE WOULD BE GIVEN A FAIR OPPORTUNITY TO EXPLAIN HIS POSITION ON THE PROPOSED ADDITIONS/DISALLOWANCES IN ACCORDANCE WITH THE PRINCIPLE OF NATURAL JUSTICE. BEFORE PASSING THE FINAL ORDER AGAINST THE PROPOSED ADDITIONS/DISALLOWANCES, DUE CONSIDERATION SHALL BE GIVEN TO THE SUBMISSIONS MADE BY THE ASSESSEE IN RESPONSE TO THE SHOW-CAUSE NOTICE.' 4.5 THE LD CIT(A) HAS ERRED IN ADDING THE EXPENSES WITHOUT DISMISSING THE FACTUAL SUBMISSION OF THE APPELLANT. 4.6 GROUNDS OF MERIT: 4.7 THE LD AO & CIT(A) ERRED IN NOT APPRECIATING THAT THE EXPENSES INCURRED AND RECORDED UNDER THE THREE LEDGERS (RENT, RECRUITMENT AND REPAIRS & MAINTENANCE) ARE REIMBURSEMENT TO THE PARENT COMPANY WPO US AND HENCE DO NOT CONTAIN AN ELEMENT OF INCOME FOR IT TO BE SUBJECT TO TDS UNDER CHAPTER XVII OF THE ACT. 4.8 THE LD AO & CIT (A) ERRED IN NOT APPRECIATING THAT FOR PAYMENTS TO NON-RESIDENTS, TAX HAS TO BE DEDUCTED U/S 195 OF THE ACT. NONE OF THE PAYMENTS I.E. RENT, RECRUITMENT AND REPAIRS AND MAINTENANCE ARE LIABLE TO TDS U/S 195 OF THE ACT. 4.9 LD AO & CIT (A) FAILED TO APPRECIATE THAT THE REIMBURSEMENTS MADE REPRESENT INCOME IN THE HANDS OF WPO US AND SUCH INCOME IS NOT TAXABLE IN INDIA IN TERMS OF SECTION 90 READ WITH THE INDIA-US DTAA AS THESE ARE IN THE NATURE OF BUSINESS PROFITS (ARTICLE 7) AND HENCE NOT SUBJECT TO TDS U/S 195. PAGE 3 OF 5 ITA NO. 2404/BANG/2018 4.10 LD AO & CIT (A) HAS ERRED IN APPLYING SECTIONS 192-194 OF THE ACT TO THE SAID REIMBURSEMENTS MAKING IT SUBJECT TO TDS AND MADE DISALLOWANCE TO THE EXTENT OF 30 PERCENT OF THE AMOUNT OF PAYMENTS U/S 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TAX. 4.11 LD AO & LD CIT (A) FAILED TO EXAMINE THAT UNDERLYING PAYMENTS ITSELF ARE NOT SUBJECT TO TDS AND THE MERE FACT THAT THE EXPENSES ARE DEBITED INTO A LEDGER HAVING A NOMENCLATURE OF 'REPAIRS AND MAINTENANCE' AND 'RECRUITMENT EXPENSES' DOES NOT AUTOMATICALLY MAKE THEM LIABLE TO TDS U/S 194C AND 194J OF THE ACT. 4.12 LD AO & LD CIT (A) ALSO FAILED TO CONSIDER THAT THE EXPENSES INCURRED BY THE APPELLANT FALL BELOW THE THRESHOLD LIMIT PRESCRIBED TO TDS U/S 194C AND 194J OF THE ACT. 4.13 LD AO & CIT(A) HAS ERRED IN DISALLOWING THE REMUNERATION PAID TO DIRECTOR U/S 40(A)(IA) OF THE ACT WHEN THE APPELLANT HAS ALREADY SUBMITTED THE RELEVANT PROOF FOR DEDUCTION OF TAX AT SOURCE. 4.14 LD AO & LD CIT (A) ALSO FAILED TO PASS THE SPEAKING ORDER EXPLAINING WHY SUCH PAYMENTS WERE LIABLE TO TDS PRIOR TO PROCEEDING FOR DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 4.15 LD AO & LD CIT (A) ALSO ERRED IN CONSIDERING THE FACT THAT THE ASSESSEE CANNOT BE TERMED AS IN DEFAULT IF THE PAYEE IS A REGISTERED PAN HOLDER AND FILING ITS INCOME TAX RETURN REPORTING THE SAID INCOME. 2. BRIEF FACTS OF THE CASE ARE AS UNDER.: ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF WORKPLACE BENEFITS LLC, AND FILED ITS RETURN OF INCOME ON 13/11/15 DECLARING LOSS OF RS.21,13,11,614/-. CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143 (2) WAS ISSUED. IN RESPONSE TO THE SAME ASSESSEE FILED VARIOUS DETAILS AS CALLED FOR. ASSESSEE ALSO FILED DOCUMENTS RELATING TO INTERNATIONAL TRANSACTION IN T.P. REPORT. LD. AO CALLED FOR VARIOUS DETAILS. IT IS SUBMITTED THAT ON 01/12/17 LD. AO CALLED FOR CLARIFICATION PAGE 4 OF 5 ITA NO. 2404/BANG/2018 IN RELATION TO MISMATCH OF TDS AMOUNTS, ADDITION TO FIXED ASSETS AND CONFIRMATION FOR PAYABLES. ON RECEIPT OF THE SAME, LD. AO WAS OF THE OPINION THAT, ASSESSEE CLAIMED VARIOUS EXPENDITURE WITHOUT DEDUCTING TDS, AND ACCORDINGLY DISALLOWED SUM OF RS.21,80,394/- UNDER SECTION 40 (A) (IA) OF THE ACT. 3. AGGRIEVED BY ADDITION MADE BY LD.AO, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT (A). IT HAS BEEN SUBMITTED BY LD.AR THAT LD. CIT (A) WHILE PASSING, APPELLATE ORDER, ENHANCED ADDITION TO RS.72,67,982/-UNDER SECTION 40 (A) (IA) OF THE ACT, AS AGAINST SUM OF RS.21,80,394/- MADE BY LD. AO. 4. AGGRIEVED BY ADDITION MADE BY LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE US NOW. 5. LD.AR AT THE OUTSET SUBMITTED THAT LD.CIT(A) WHILE ENHANCING ADDITION FAILED TO ISSUE STATUTORY NOTICE UNDER SECTION 151 OF THE ACT, THEREBY VIOLATING PRINCIPLES OF NATURAL JUSTICE. HE FURTHER SUBMITTED THAT ASSESSING OFFICER WHILE MAKING ADDITIONS HAS NOT PROPERLY VERIFIED DETAILS FILED BY ASSESSEE AND THEREFORE ISSUE NEEDS TO BE SET-ASIDE TO LD. AO FOR PROPER VERIFICATION OF ENTIRE DETAILS OF TDS CLAIMED BY ASSESSEE. LD. SR DR DO NOT OBJECT TO THE REQUEST MADE BY LD.AR. 6. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. 7. LD.CIT(A) PASSED AN EXPARTE ORDER AND HAS NOT FOLLOWED DUE PROCESS OF LAW BEFORE ENHANCING ADDITION IN THE HANDS OF ASSESSEE. ACCORDINGLY, WE ARE NOT INCLINED TO UPHOLD THE ACTION OF LD.CIT(A). AS THERE IS VIOLATION OF PRINCIPLES OF PAGE 5 OF 5 ITA NO. 2404/BANG/2018 NATURAL JUSTICE, AND AS THERE REQUIRES VERIFICATION OF TDS AND OTHER RELATED ISSUES, WE FIND IT APPROPRIATE TO SET ASIDE TO LD.TPO. ASSESSEE IS DIRECTED TO FILE ALL NECESSARY DETAILS AS CALLED FOR BY LD.AO, IN ORDER TO ESTABLISH ASSESSEES CLAIM. LD.AO SHALL VERIFY ALL DETAILS FILED BY ASSESSEE HAVING REGARDS TO THE ACCOUNTS OF ASSESSEE. NEEDLESS TO SAY THAT, LD.AO SHALL GRANT PROPER OPPORTUNITY TO ASSESSEE AS PER LAW. 8. ACCORDINGLY WE ALLOW THE GROUNDS RAISED BY ASSESSEE FOR STATISTICAL PURPOSES. 9. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH DAY OF JUNE, 2019. SD/- SD/- (J. SUDHAKAR REDDY) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 07 TH JUNE, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.