CONVERGYS INFOWAYS P.LTD, THANE V. ITO 10(1)(2), MUMBAI

ITA 2799/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9884 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 19-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AARJ U GARODIA LD
• Assessee Lawyers: D H ANESH BAFNA LD
• Section: 143(3)

Judgement Text

ITA.NO. 2799 /MUM/201 7 CONVERGYS INDIA SERVICES P RIVATE LIMITED ASSESSMENT YEAR 20 09 - 2010 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO. 2799/MUM/2017 ( / ASSESSMENT YEAR: 2009 - 10 ) CONVERGYS INDIA SERVICES PRIVATE LIMITED [ EARLY KNOWN AS CONVERGYS INFOWAVZ P.LTD & INFOWAV Z INTERNATIONAL P .LTD] 7 TH ,11 TH ,14 TH & 15 TH FLOOR G CORP TECH PARK, KASARVADAVALI GHODBU NDAR ROAD THANE(W) - 400 601 / VS. INCOME - TAX OFFICER,10(1)(2) ROOM.NO.25, AAYKAR BHAVAN M.K.ROAD MUMBAI - 400 020 ./ ./ PAN/GIR NO. A AACI - 66 87 - A ( / APPELLANT ) : ( / RESPONDENT ) A SSESSEE BY : D H ANESH BAFNA.LD.A R RE VENUE BY : AARJU GARODIA, LD. DR / DATE OF HEARING : 26/02/2018 / DATE OF PRONOUNCEMENT : 07 /03 /2018 ITA.NO.2799 /MUM/201 7 CONVERGYS INDIA SERVICES PRIVATE LIMITED ASSESSMENT YEAR 20 09 - 2010 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMEN T YEAR [AY] 20 09 - 10 CONTEST THE ORDER OF LD. COMMISSI ONER OF INCOME - TAX (APPEALS) - 17 [CIT (A)], MUMBAI, APPEAL NO. CIT(A) - 17/IT - 408/15 - 16 DATED 27/01/2017 BY RAISING THE FOLLOWING SOLE GROUND OF APPEAL: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN DISALLOWING PROPORTIONATE RENT OF RS.2,35,74,520/ - . THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. INCOME TAX OFFICER - 10(1)(2) MUMBAI [AO] U/S 143(3) READ WITH SECTION 254 OF THE INCOME TAX ACT,1961 ON 29/10 /2015. THE ASSESSEE IS IN SECOND ROUND OF APPEAL BEFORE US SINCE THE MATTER IN THE FIRST ROUND WAS REMITTED BACK TO THE FILE OF LD. AO BY THIS TRIBUNAL IN ITA NO. 6896/MUM/2012 DATED 25/11/2014 WITH THE FOLLOWING DIRECTIONS: - 9. W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE AGREEMENT TO PAY RENT FOR THE PREMISES WAS ENTERED IN TO BETWEEN PSPL AND SISPL, THAT THERE WAS BOARD RESOLUTION W ITH REGARD TO RENT IT TO ONE OF THE GROUP COMPANIES OF SISPL, THAT THE RENT WAS PAID BY THE ASSESSE E AND THE AO HAD ALLOWED ONLY 50% OF THE RENT PAID AS A DEDUCTION WHILE COMPUTING THE INCOME OF THE ASSESSE E . IT IS A FACT THAT WHILE DECIDING THE ISSUE A VE RY IMPORTANT ISSUE REMAINED TO BE INVESTIGATED. THE ASSESS E E HAD CLAIMED THAT SISPL WAS WORKING FROM ANOTHER PREMISES AND NOT WORKED EVEN FOR A SINGLE DAY FROM THE PREMISES OCCUPIED BY THE ASSESSE E . IN OUR OPINION, TO ARRIVE AT THE FINAL CONCLUSION THIS HA D TO BE INVESTIGATED. IT IS A FACT THAT THERE IS AN AGREEMENT, BUT THE AGREEMENTS ALONE CANNOT PROVE CERTAIN FACTS THAT COULD BE PROVED BY REFERRING TO OTHER EVIDENCES. IF WE TAKE INTO CONSIDERATION THE FACT THAT THE ASSESS E E IS A LOSS MAKING COMPANY AND I S ALLOWED EXEMPTION U/S.10A OF THE ACT AS AGAINST THE PARENT COMPANY THAT IS MAKING PROFIT , WE FIND SOME FORCE IN THE ARGUMENT ADVANCED BY THE AR THAT THERE WAS NO BENEFIT TO THE GROUP AS A WHOLE TO CLAIM THE RENT EXPENDITURE IN THE HANDS OF THE ASSESSE E . IT IS ALSO A FACT THAT SSIPL WAS ENTITLED TO LEASE THE PREMISES TO ONE OF ITS GROUP COMPANIES IN CERTAIN CIRCUMSTANCES. IN THES E CIRCUMSTANCES, WE ARE OF THE OPINION IN THE INTEREST OF JUSTICE THE MATTER ITA.NO.2799 /MUM/201 7 CONVERGYS INDIA SERVICES PRIVATE LIMITED ASSESSMENT YEAR 20 09 - 2010 3 SHOULD BE REMANDED BACK TO THE FILE OF THE AO TO FIN D OUT AS TO WHETHER THE PARENT COMPANY WAS WORKING FROM OTHER PREMISES DURING THE YEAR UNDER CONSIDERATION. HE WOULD AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSE E AND THE ASSESS E E WOULD PRODUCE ALL THE RELEVANT DOCUMENTS BEFORE THE AO. THE AO SHOULD ALSO VERIFY FROM THE RECORDS O F THE P ARENT COMPANY AS TO WHETHER IT HAD CLAIMED PAYMENT OF RENT TO PSPL FOR THE PREMISES IN QUESTION FOR THE YEAR UNDER CONSIDERATION. IF THE DOCUMENTARY EVIDENCE PROVES THAT THE PARENT COMPANY WAS ACTUALLY WORKING FR OM OTHER LOCATION, THE ADDITION UPHELD BY THE FAA SHOULD BE DELETED. GROUND NO.2 IS ALLOWED IN FAVOUR OF THE ASSESSEE, IN PART. 2. IT IS NOTED THAT THE ASSESSEE COMPANY HAS AMALGAMATED WITH CONVERGYS INDIA SERVICES PRIVATE LIMITED VIDE ORDER OF HONBLE DE LHI HIGH COURT CO.PET/685/2015 DATED 24/02/2016 AND THE ASSESSEE HAS ALREADY FILED REVISED FORM 36 WHICH IN ORDER. 3. AS EVIDENT FROM THE ORDER OF THE TRIBUNAL IN FIRST ROUND, THE SOLE SUBJECT MATTER OF THE APPEA L IS RENTAL EXPENDITURE OF RS.3. 87 CRORES PA ID BY THE ASSESSEE TO AN ENTITY NAMELY PANKAJ SHAWLS PRIVATE LIMITED [PSPL] PURSUANT TO LEASE & LICENSE AGREEMENT DATED 22/03/2006 WITH RESPECT TO PROPERTY SITUATED AT 3 RD & PART OF 4 TH FLOOR, EVEREST HOUSE 6, SUREN ROAD, ANDHERI (EAST), MUMBAI ADMEASURING 10828 SQUARE FEET & 6620 SQUARE FEET BUILT UP AREA INCLUDING SIX CAR PARKING SPACE. THE TERMS OF THE AGREEMENT WERE FURTHER EXTENDED VIDE LETTERS DATED 04/03/2008, 22/05/2008 & AGREEMENT DATED 30/06/2008. THE SAID AGREEMENT WAS ENTERED INTO BETWEEN PSPL & SISTER / HOLDING CONCERN OF THE ASSESSEE NAMELY STREAM INTERNATIONAL SERVICES PVT. LTD. [SISPL]. UPON PERUSAL, LD. AO FIND THAT THE ACTUAL RENT PAID BY THE ASSESSEE AS PER FORM 16 WAS RS.3.58 CRORES AS AGAINST RS.3.87 CRORES CLAIMED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT WHEREAS THE ACTUAL RENT FOR THE IMPUGNE D AY AS PER THE TE RMS OF THE AGREEMENT WORKED OUT TO RS.3.02 ITA.NO.2799 /MUM/201 7 CONVERGYS INDIA SERVICES PRIVATE LIMITED ASSESSMENT YEAR 20 09 - 2010 4 CRORES . FURTHER, LD. AO OPINED THAT SINCE THE AGREEMENT WAS BETWEEN ASSESSEES SISTER CONCERN & PSPL AND THE TERMS OF THE AGREEMENT S UGGESTED THAT THE PREMISES WAS BEING USED JOINTLY BY THE ASSESSEE AND HIS SISTER CONCERN, ONLY PROPORTIONATE RENT WAS ALLOWABLE TO THE ASSESSEE. DURING PROCEEDINGS IN THE SECOND ROUND, THE ASSESSEE DREW ATTENTION TO THE FACT THAT THE SISTER CONCERN OF THE ASSESSEE WAS BEING OPERATED FROM ANOTHER PREMISES SITUATED AT BHAYENDER WHICH WAS EVIDENT FROM RETURN OF INCOME OF SISPL AS WELL AS SEPARATE LEAVE & LICENSE AGREEMENT ENTERED INTO BY HIM WITH RESPECT TO BHAYENDER PREMISES. THE COPY OF THE BOARD RESOLUTION OF PSPL & SISPL GRANTING PERMISSION TO EXECUTE THE LEAVE & LICENSE AGREEMENT WAS ALSO FILED IN SUPPORT. THE ASSESSEE ALSO CONTENDED THAT PREMISE IN QUESTION W AS IN SOLE OCCUPATION OF THE ASSESSEE AND IT PAID THE RENT THEREOF AND HENCE, ENTITLED TO CLAIM TH E SAME IN FULL. HOWEVER, NOT CONVINCE D , LD. AO OPINED THAT SINCE THE PREMISES WAS BEING USED JOINTLY BY THE ASSESSEE AS WELL AS THE SISTER CONCERN, THE ASSESSEE WAS ENTITLED TO CLAIM ONLY 50% OF THE RENTAL PAYMENT AND THAT TOO ON RS.3.02 CRORES, BEING THE R ENT PAYABLE AS PER THE TERMS OF THE CONTRACT. THE SAME RESULTED INTO DISALLOWANCE OF RS.2.35 CRORES IN THE HANDS OF THE ASSESSEE. 4. THE ASSESSEE CONTESTED THE SAME WI T H OU T ANY SUCCESS BEFORE LD C I T(A) VIDE IMPUGNED ORDER DATED 27/01/2017 WHERE THE LD. CI T(A), WHILE OBSERVING THAT THE RENTAL EXPENDITURE WITH RESPECT TO PREMISES IN QUESTION WAS NOT CLA IMED BY SISPL BUT AT THE SAME TIME, OBSERVED THAT AS PER THE CONTRACTUAL TERMS THE LEASED PREMISES COULD BE USED BY THE ASSESSEE ALONG WITH THE PARENT COMPANY AND THEREFORE, FULL DEDUCTION THEREOF COULD NOT BE ALLOWED TO THE ASSESSEE. CONSEQUENTLY, THE STAND OF ITA.NO.2799 /MUM/201 7 CONVERGYS INDIA SERVICES PRIVATE LIMITED ASSESSMENT YEAR 20 09 - 2010 5 LD. AO WAS CONFIRMED, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US IN THE SECOND ROUND. 5. THE L D. AUTHORIZED COUNSEL FOR ASSESSEE [AR] , D RAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN THE PAPER - BOOK, REITERATE D THE CONTENTI ONS AS RAISED BEFORE LOWER AUTHORITIES WHEREAS LD. D EPARTMENTAL REPRESENTATIVE [D R ] SUBMITTED THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS OF PROVING THE USAGE OF THE SAID PREMISES WITH COGENT EVIDENCES AND THEREFORE, THE STAND OF LOWER AUTHORITIES WAS QUITE JUSTIFIED . 6. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. FROM PERUSAL OF ORDERS OF LOWER AUTHORITIES, ADMITTEDLY, THE DE DUCTION OF RENTAL EXPENDITURE HAS NOT BEEN CLAIMED BY SISPL AND REVENUE HAS ALSO NOT DISPUTED THE S TATED FACT B EFORE US. SECONDLY, UPON PERUSAL OF DOCUMENTS PLACED IN PAPER - BOOK, WE FIND THAT SISPL HAS FILED ITS RETURN OF INCOME FROM BHAYENDER ADDRESS AND IT WAS IN OCCUPATION OF VARIOUS PREMISES SITUATED AT BHAYENDER WHICH WERE TAKEN ON LEAVE & LICEN SE BASIS FROM AN ENTITY NAMELY SHREEJI ENTERPRISES AS EVIDENT FROM VARIOUS LEAVE & LICENSE AGREEMENTS AS WELL AS AGREEMENT FOR AMENITIES AS PLACED IN THE PAPER - BOOK . IT IS ALSO OBSERVED THAT THE ASSESSEE WAS AN ELIGIBLE ENTITY TO CLAIM DEDUCTION U / S 10A , BEING 100% EXPORT ORIENTED UNIT [EOU] AND THEREFORE, HAD NO PRIMARY MOTIVE / INCENTIVE TO REDUCE ITS TAXABLE INCOME PER - SE. 7. SO FAR AS THE RECONCILIATION OF F IGURES IS CONCERNED, WE FIND THAT THE AMOUNT MENTIONED IN TDS CERTIFICATES ISSUED BY THE ASSESSEE IN FAVOR OF THE PAYEE ARE INCLUSIVE OF SERVICE TAX COMPONENT AND THEREFORE, THE SAME COULD NOT BE MATCH ED WITH THE EXPENDITURE CLAIMED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT. FURTHER, UPON PERUSAL OF LEAVE & ITA.NO.2799 /MUM/201 7 CONVERGYS INDIA SERVICES PRIVATE LIMITED ASSESSMENT YEAR 20 09 - 2010 6 LICENSE AGREEMENTS ON RECORD, WE FIND THAT THE ASSESSEE WAS REQUIRED TO PAY THE FOLLOWING RENT TO PSPL: - NO. PERIOD REF ERENCE DOCUMENT RATE / BASIS AMOUNT (PER MONTH) 1. APRIL, 2008 TO JUNE , 2008 LE AVE & LICENSE AGREEMENT DATED 22/03/2006 COUPLED WITH LETTER S OF SISPL DATED 04/03/2008 & 21/05/2008 25008 SQUARE FEET @140/ - PER SQUARE FEET 35,01,120/ - 2 . JULY, 2008 LEAVE & LICENSE AGREEMENT DATED 30/06/2008 FIXED (17448 SQUARE FEET) 18,00,000/ - 3 . A UGUST, 2008 TO MARCH, 2009 LEAVE & LICENSE AGREEMENT DATED 30/06/2008 FIXED (17448 SQUARE FEET) 29,00,000/ - AGAINST THE SAME THE ASSESSEE HAS CLAIMED A RENTAL EXPENDITURE OF RS.3.87 CRORES IN THE PROFIT & LOSS ACCOUNT WHICH DO NOT MATCHES WITH THE CONTRA CTUAL RENT I.E. RS.3.55 CRORES PAYABLE BY THE ASSESSEE AS PER ABOVE TABLE AND THEREFORE, REQUIRES RECONCILIATION. 8 . IT IS ALSO NOTED THAT THE MATTER IN THE FIRST ROUND WAS REMITTED BACK BY THE COORDINA TE BENCH TO VERIFY TWO THINGS VIZ. WHETHER THE PAREN T COMPANY I.E. SISPL WAS OPERATING FROM ANY OTHER PREMISES AND SECONDLY, WHETHER THE PARENT COMPANY HAD CLAIMED ANY PART OF STATED EXPENDITURE IN HIS BOOKS OF ACCOUNTS. ON THE BASIS OF ABOVE FACTS AS ENUMERATED BY US IN PARA - 6 ABOVE, WE FIND THAT BOTH THE REQUIREMENTS HAVE SUCCESSFULLY BEEN DEMONSTRATED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AND THERE IS NOTHING CONTRARY ON RECORD AGAINST THE ASSESSEE. THEREFORE, IN PRINCIPAL, WHILE AGREEING WITH THE CLAIM OF THE ASSESSEE, WE FIND THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE REQUIRE RECONCILIATION AND EXPLANATION AS PER OBSERVATION IN PARA - 7. IT IS ALSO OBSERVED THAT THE ASSESSEE WAS IN POSSESSION OF 25008 SQUARE FEET OF SPACE DURING FIRST ITA.NO.2799 /MUM/201 7 CONVERGYS INDIA SERVICES PRIVATE LIMITED ASSESSMENT YEAR 20 09 - 2010 7 THREE MONTH OF THE IMPUGNED AY WHEREAS IT WAS OCCUPYING 17448 S QUARE FEET DURING THE BALANCE PERIOD, AGAINST WHICH NO PLAUSIBLE EXPLANATION IS AVAILABLE ON RECORD. IT IS NOTED THAT THE ASSESSEE WAS A CORPORATE ENTITY REGISTERED WITH SERVICE TAX AUTHORITIES / STPI AUTHORITY / OTHER STATUTORY BODIES AND WAS REQUIRED TO GET APPROPRIATE ENDORSEMENT AS TO CHANGE IN PREMISES / ADDRESSES UNDER THOSE LAWS. 9. T HEREFORE, ON FACTS AND CIRCUMSTANCES OF THE CASE WHILE PRIMARILY CONCURRING WITH THE STAND OF LD. AR, THE MATTER STANDS REMITTED BACK TO LD. AO WITH A DIRECTION TO THE ASSESSEE TO RECONCILE THE FIGURES AS WELL FURNISH A PLAUSIBLE EXPLANATION AS TO THE SPACE OCCUPIED BY IT DURING THE IMPUGNED AY AND SUBMIT ADEQUATE DOCUMENTARY EVIDENCES IN SUPPORT OF THE SAME. AFTER CONSIDERING THE SAME, THE LD. AO IS DIRECTED TO RE - COMP UTE THE TOTAL INCOME OF THE ASSESSEE AS PER LAW. AS A LOGICAL CONSEQUENCE, MAT COMPUTATIONS AS WELL AS ADJUSTMENT OF BROUGHT FORWARD LOSSES ETC. MAY SUITABLY BE CARRIED OUT, IF REQUIRED. 10. RESULTANTLY, THE ASSESSEES APPEAL STANDS ALLOWED FOR STATISTIC AL PURPOSES IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH MARCH, 2018 SD/ SD/ ( SAKTIJIT DEY ) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 07 . 0 3 .2018 SR.PS: - THIRUMALESH ITA.NO.2799 /MUM/201 7 CONVERGYS INDIA SERVICES PRIVATE LIMITED ASSESSMENT YEAR 20 09 - 2010 8 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI