PFIZER PRODUCTS INDIA, MUMBAI V. DCIT 8(2), MUMBAI

ITA 3158/MUM/2012

• Counselvise Citation: 315819914 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 20-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 08-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: KIRIT KAMDAR; MEENA KHIVASARA
• Keywords: Onus to prove
• Section: 143(3); 194C

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. . . , , BEFORE S/SH. B.R. MITTAL, JUDICIAL MEMBER & RA JENDRA, ACCOUNTANT MEMBER ./ ITA NO. 3158/MUM/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2007-08 PFIZER PRODUCTS INDIA PVT. LTD. 5,PATEL ESTATE, OFF. S.V. ROAD, JOGESHWARI (WEST), MUMBAI- 400102 VS. DCIT 8(2), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400 020. PAN: AADCP8985B ( #$ / APPELLANT ) ( %&#$ / RESPONDENT ) #$ #$ #$ #$ ' ' ' ' / APPELLANT BY: SHRI KIRIT KAMDAR & MS. MEENA KHIVAS ARA %&#$ ( ' / RESPONDENT BY : SHRI A.C. TEJPAL ! ! ! ! ( (( ( )* )* )* )* / DATE OF HEARING : 20-08-2013 +,' ( )* / DATE OF PRONOUNCEMENT : 09-10-2013 ! ! ! ! , 1961 ( (( ( 254(1) )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER DT.03-02-2012 OF THE CIT(A)-1 7,MUMBAI,ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE COMMISSIONER OF INCOME -TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER (AO ) IN DISALLOWING UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 (THE ACT) CROSS CHARGES PAID TO PFIZE R LIMITED AMOUNTING TO RS. 10,90,34,000. 1.2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE COST SHARING AGREEMENT BETWEEN THE AP PELLANT AND PFIZER LIMITED WAS IN THE NATURE OF A SERVICE AGREEMENT. 1.3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 194C ARE ATTRACTE D TO ANY SUM, WHETHER CHARGEABLE TO TAX OR NOT, UNLIKE SECTION 195 WHICH REQUIRES DEDUCTION OF TAX AT S OURCE ONLY ON SUMS CHARGEABLE TO TAX UNDER THE ACT. 1.4.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT APPRECIATING THAT PFIZER LIMITED HAS ALREADY DEDU CTED TAX AT SOURCE IN RESPECT OF THE EXPENSES INCURRED BY IT, WHEREVER APPLICABLE. 1.5.WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL AND IN TH E ALTERNATIVE, THE COMMISSIONER OF INCOME- TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE UNDER SECTION 40(A)(IA) IN RESPECT OF NON DEDUCTION OF TAX AT SOURCE ON CROSS CHARGES PAID TO PFIZER LIMITED WITHOUT APPRECI ATING THAT PFIZER LIMITED HAD ALREADY CREDITED THE RECEIPTS TO ITS PROFIT AND LOSS ACCOUNT AND OFFERED THE SAME TO TAX. 2.1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME -TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT GRANTING DEDUCTION UNDER SECTION 35DDA OF THE ACT IN RESPECT OF PAYMENTS MADE TOWARDS VOLUNTARY RETIREMENT SCHEME AMOUNTING TO RS. 1,32,05,000 BY PLACING RELIANCE ON THE DECISION OF THE SUPREME COURT IN THE CA SE OF GOETZE INDIA LIMITED. (284 ITR 323) 2.2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN REJECTING THE CLAIM FOR DEDUCTION UNDER SECTION 35 DDA WITHOUT APPRECIATING THAT THIS WAS THE 4TH YEAR OF THE CLAIM AND THAT THE SAID CLAIM HAD ALREADY BEEN ALLO WED IN THE ASSESSMENT ORDERS FOR THE EARLIER YEARS. 2 ITA NO.3158/MUM/2012,(AY-2007-08) PFIZER PRODUCTS I NDIA PVT. LTD. . THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD, TO ALTER OR AM PLIFY THE ABOVE GROUNDS OF APPEAL. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF TRADING OF PHARMACEUTICAL PRODUCTS,FILED ITS RETURN OF INCOME ON 30.10.2007 DECLARING TOTAL INCO ME OF RS. 17.78 CRORE.ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT ON 01.12.2010 U/S. 143(3) OF THE ACT, DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 29.16 CRORES. 2.1 .FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE FIRST APPELLATE AUTHORITY(FAA),U/S.40(A)(IA) OF THE ACT.D URING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE HAD PAID RS.1090.34 LACS TO PFIZE R LTD.(PL),ITS SISTER CONCERN.HE DIRECTED THE ASSESSEE TO EXPLAIN THE NATURE OF THE PAYMENT AND D ETAILS OF TAX DEDUCTED AT SOURCE (TDS).HE FURTHER ASKED THE ASSESSEE TO SUBMIT DOCUMENTARY EV IDENCE AS TO WHY THE PROVISIONS OF TDS WERE NOT APPLICABLE FOR THE PAYMENTS MADE TO THE SISTER CONCERN AND TO SUBMIT ITEM WISE EXPENSES REIMBURSED ALONG WITH THE SUPPORTING PAYMENT VOUCHE RS.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,AO HELD THAT THE BILL AMOUNT RELATED WITH THE PAYMENTS IN QUESTION WAS INCLUSIVE OF SERVICE TAX,THAT IT WAS NOT ASCERTAINABLE WHETHER T HE AMOUNT PAID BY THE ASSESSEE WAS MERELY A REIMBURSEMENT OR THERE WAS A PROFIT ELEMENT INCLUDE D IN THE SAME,THAT IT WAS UNCLEAR AS TO WHETHER THE REIMBURSEMENT WAS HIGHER THAN THE COST ACTUALLY INCURRED BY PL,THAT AS PER THE SERVICE TAX RULES SERVICES RENDERED BY PL TO THE ASSESSEE COMPA NY WERE CLASSIFIED AS BUSINESS AUXILIARY SERVICES,THAT THE ASSESSEE HAD PAID MONEY TO PL IN RESPECT OF SERVICES PROVIDED BY IT,THAT THE DEBIT NOTES WERE INCLUSIVE OF SERVICE TAX,THAT THE PAYMEN T MADE BY THE ASSESSEE COULD NOT BE CONSIDERED AS REIMBURSEMENT OF EXPENDITURE.REFERRING TO THE PR OVISIONS OF SECTION 194C OF THE ACT HE HELD THAT IF PAYMENT WAS MADE PURSUANT TO A CONTRACT TAX HAD TO BE DEDUCTED,THAT WORD ANY PAYMENT INCLUDED REIMBURSEMENT,THAT IT HAD MADE PAYMENT IN PURSUANCE OF AN AGREEMENT, THAT THERE WAS CONTRACTUAL RELATIONSHIP BETWEEN THE ASSESSEE AND P L,THAT PAYMENTS MADE BY THE ASSESSEE WERE LIABLE TO TDS AS PER THE PROVISIONS OF THE ACT, THA T THE ASSESSEE HAD FAILED TO PROVE THAT THE PAYMENTS IN QUESTION WERE MERELY REIMBURSEMENT,THAT IT HAD NOT PROVIDED DOCUMENTARY EVIDENCE TO SHOW THAT NO PROFIT ELEMENT WAS EMBEDDED IN SUCH PAYMENTS.FINALLY, HE HELD THAT ASSESSEE HAD FAILED TO DEDUCT TDS AS PER THE PROVISIONS OF SECTI ON 194C OF THE ACT, THAT THE ENTIRE AMOUNT OF 1090.34 LACS WAS DISALLOWABLE. 2.2. ASSESEE PREFERRED AN APPEAL BEFORE THE FAA.IT WAS S UBMITTED BEFORE HIM THAT AS PER THE COST SHARE IN AGREEMENT THE ASSESSEE WAS USING THE FIELD FORCE FACILITY OF PL TO PROMOTE ITS PRODUCTS, THAT THE EXPENSES INCURRED TOWARDS THE STAFF AND AD MINISTRATIVE EXPENSES WERE REIMBURSED TO PL WITHOUT ANY MARK UP.AUTHORISED REPRESENTATIVE (AR)D REW ATTENTION OF THE FAA TOWARDS PARA NO. 3.4 OF THE COST SHARING AGREEMENT.AR RELIED UPON TH E DECISION OF MUMBAI TRIBUNAL DELIVERED IN THE CASE OF EMERSONS PROCESS MANAGEMENT (I) PVT. LT D.(EPIL) AND DECISION OF HONBLE CALCUTTA HIGH COURT DELIVERED IN THE CASE OF DUNLOP RUBBER C O. LTD.(142 ITR 493). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R,FAA HELD THAT IN THE CASE OF EPMIL (SUPRA) THERE WAS NO WORK CONTRACT/ SERVICE CONTRACT, THAT PROVISIONS OF SECTION 194C WERE NOT ATTRACTED IN THAT CASE,THAT IN OTHER CASES PAYMENTS BY WAY OF RE IMBURSEMENT OF EXPENSES WERE MADE TO NON- RESIDENT ENTITIES,THAT IN SUCH CASES PROVISIONS OF SECTION 195 WERE ATTRACTED, THAT THE COURTS HAVE HELD THAT REIMBURSEMENT OF EXPENSES,WITHOUT ANY PRO FIT ELMENT,WAS NOT HIT BY THAT SECTION,THAT THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND PL WAS IN NATURE OF SERVICE AGREEMENT, THAT ALL THE EMPLOYEES AND THE SERVICES EXCLUSIVELY BELONG T O PL,THAT ASSESSEE WAS AVAILING THE SERVICES FROM PL.REFERRING TO THE PROVISIONS OF SECTION 194C OF THE ACT,HE HELD THAT ASSESSEE WAS COVERED BY THE PROVISIONS OF SAID SECTION. HE FURTHER HELD THAT EXPLANATION I TO THE SECTION CLEARLY SPECIFIED THAT A CONTRACTOR WOULD INCLUDE A CONTRACTOR WHO WA S CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT SUCH WORK. REFERRING TO EXP LANATION III,HE HELD THAT WORK MENTIONED IN THE SAID SECTION INCLUDED CARRYING OF GOODS AND PASSENG ER.HE HELD THAT IN THE CASE UNDER CONSIDERATION CONTRACT BETWEEN THE ASSESSEE AND PL WAS FOR SUPPLY OF MANPOWER AND FOR TRANSPORTATION,THAT SECTION 194C,UNLIKE SECTION 195, DID NOT MENTION TH E WORD SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT,THAT SECTION194C OF THE ACT MENTIONED WORDS ANY SUM,THAT LEGISLATURE HAD MADE A 3 ITA NO.3158/MUM/2012,(AY-2007-08) PFIZER PRODUCTS I NDIA PVT. LTD. . QUAILTATIVE DIFFERENCE BETWEEN THE SECTION 194 AND 194C OF THE ACT.FINALLY,HE CONFIRMED THE ORDER OF AO HOLDING THAT THE PROVISIONS OF SECTION 194C W ERE ATTRACTED TO THE PAYMENTS MADE TO PL. 2.3. BEFORE US,AUTHORISED REPRESENTATIVE(AR)SUBMITTED TH AT ASSESSEE WAS NOT LIABLE TO DEDUCT TAXES AT SOURCE,THAT AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND PL SPECIFICALLY MENTIONED THAT ASSESSEE WAS NOT AVAILING ANY SERVICES FROM PL ,THAT IT WAS COST A SHARING AGREEMENT, THAT CERTAIN EMPLOYEES OF PL WERE UTILISED BY THE ASSESS EE.HE REFERRED TO CLAUSE-2 OF THE AGREEMENT. HE RELIED UPON THE ORDER PASSED BY THE B BENCH OF ITAT, MUMBAI ON 16.12.2011 IN THE CASE OF BAYER MATERIAL SCIENCES PVT. LTD.(ITA.7977/MUM/2011 -2006-07).HE REFERRED TO THE PAGES NO.9, 12-14 OF THE PAPER BOOK(PB).DEPARTMENTAL REPRESENTA TIVE (DR)SUBMITTED THAT PROVISIONS OF SECTION 194C WERE APPLICABLE IN THE CASE UNDER CONS IDERATION, THAT PAYMENTS MADE BY THE ASSESSEE WERE NOT REIMBURSEMENT.REFERRING TO PROVISIONS OF S ECTION 204 OF THE ACT, HE STATED THAT THERE WAS NO DIFFERENCE BETWEEN THE SECTION 194C AND SECTION 195 OF THE ACT, THAT ASSESSEE HAD PAID SERVICE TAX ON THE PAYMENTS MADE BY IT. REFERRING TO THE CL AUSE 3 (3.1 TO 3.34) OF THE AGREEMENT.HE FURTHER SUBMITTED THAT THERE WAS NO BASIS TO HOLD THAT PAYM ENTS MADE BY THE ASSESSEE WERE NOT EMBEDDED WITH PROFIT. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.AS PER THE ESTABLISHED PRINCIPLES OF TAXATION JURISPRUDENCE REIMBURSEMENT IS NOT COVERED BY TDS PROVISIONS.IF AN ASSESSEE MAKES PAYMENT IN PURSUANCE OF ANY AGREEMEN T;WHETHER IT IS A WORK-CONTRACT OR A SERVICE- CONTRACT;IT SHOULD DEDUCT TAXES,IF CERTAIN CONDITIO NS ARE FULFILLED.LEGISLATIVE INTENT IS VERY CLEAR I N THIS REGARD-IF PROFIT ELEMENT EXISTS IN ANY PAYMENT S THEN TAX HAS TO BE DEDUCTED BEFORE MAKING SUCH PAYMENT.SO,IN THE CASE UNDER CONSIDERATION BAS IC ISSUE TO BE DECIDED IS WHETHER THE PAYMENT WAS PURE AND SIMPLE REIMBURSEMENT OR PROFIT WAS EMB EDDED IN IT. FROM THE RECORDS IT IS CLEAR THAT THE AO HAD MADE A DISALLOWANCE THAT CONSISTED OF FOUR ITEMS-STAFF COST(RS.8.65CRORES),TRAVELLING (RS.1 CRORES),ADVERT ISING AND PROMOTIONAL EXPENSES(80.75 LACS), OTHER MISC.EXPENSES (RS.44.12 LACS).AS FAR AS TRAVE LLING EXPENSES ARE CONCERNED,IT CAN SAFELY HELD THAT THERE CANNOT BE ANY ELEMENT OF PROFIT IN IT BECAUSE TRAVELLING AND EXPENDITURES RELATED TO IT ARE GENERALLY INCURRED BY THE EMPLOYEES BEFORE U NDERTAKING TOUR.EVEN IF ADVANCE IS CLAIMED BY AN EMPLOYEE,HE HAS TO SUBMIT THE EXACT BILL OF EXPE NSES ONCE TOUR IS OVER.IN SUCH CASES EMPLOYERS PAYS TRAVELLING AND INCIDENTAL EXPENSES ONLY,THEREF ORE WE AGREE WITH THE AR THAT THERE WAS NO ELEMENT OF PROFIT IN TRAVELLING EXPENSES. 2.4.A. BUT,SIMILAR FINDING CANNOT BE GIVEN FOR OTHER EXPEN SES. UNDER THE HEAD MISCELLANEOUS EXPENSES(PG.9 OF PB)A SUM OF RS.44.12 WAS INCURRED BY THE ASSESSEE-COMPANY,BUT DETAILS OF THAT EXPENDITURE WERE NOT MADE AVAILABLE TO THE AO OR T HE FAA. BEFORE US,ALSO NO DETAIL HAS BEEN FILED IN THIS REGARD.THEREFORE,IN ABSENCE OF PROOF; THAT AMOUNT IN QUESTION (RS.44.12 LACS)INCLUDED PROFIT ELEMENT OR NOT;WE ARE CONSTRAINED TO HOLD TH AT ASSESSEE HAS FAILED TO DISCHARGE BURDEN OF PROOF CAST UPON IT. 2.4.B. NOW,WE WOULD LIKE TO TAKE REMAINING TWO ITEMS I.E. STAFF COST AND ADVERTISING AND PROMOTIONAL EXPENSES.FROM THE PB FILED BY THE ASSES SEE,(PG.13-14) IT IS CLEAR THAT SAID EXPENDITURE PERTAINED TO MARKETING AND FIELD-SELLIN G ACTIVITIES CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. BUT,IT IS NOT CLEAR AS TO HOW THE AS SESSEE ARRIVED AT THE CONCLUSION THAT PAYMENTS MADE BY IT FOR SAID ACTIVITIES WERE PURE REIMBURSEM ENT.AR ALSO COULD NOT THROW LIGHT IN THIS REGARD,WHEN A SPECIFIC QUERY RAISED BY THE BENCH,DU RING THE COURSE OF HEARING BEFORE US. NOW,WE WOULD LIKE TO DISCUSS THE EXPENDITURE INCURR ED THE HEAD STAFF COST.AR AS WELL AS THE DR HAD REFERRED TO THE COST SHARING AGREEMENT DATED 21 .11.2003 TO STRENGTHEN THEIR SUBMISSIONS. AR REFERRED TO CLAUSES 2.3 AND 2.4 OF THE AGREEMENT, W HEREAS DR REFERRED TO CL.3.1.TO3.4.WE WOULD LIKE TO REPRODUCE THE RELEVANT CLAUSES: CL.2. 2.1.PFIZER AND PIPL WOULD SHARE THE IDENTIFIED PER SONNEL DEPENDING ON THEIR REQUIREMENTS.THE PARTIES SHALL TAKE ADEQUATE: CARE TO ENSURE THAT WHILE THEIR PRIORITIES ARE DEALT WITH,THE FUNCTIONING OF THE OTHER PATTIES IS NOT AFFECTED. 4 ITA NO.3158/MUM/2012,(AY-2007-08) PFIZER PRODUCTS I NDIA PVT. LTD. . 2.2.THE PARTIES SHALL SHARE THE COSTS IN RESPECT OF THE IDENTIFIED PERSONNEL UTILISED BY THEM ON THE BASIS SPECIFIED IN ARTICLE 3 OF THE AGREEMEN T. 2.3.IT IS EXPRESSLY UNDERSTOOD BY AND BETWEEN THE P ARTIES HERETO THAT PFIZER AND PIPL SHALL NOT BE CONSTRUED TO BE SERVICE PROVIDERS OF ANY NAT URE WHATSOEVER AS THE ESSENCE OF THIS AGREEMENT IS TO SHARE THE IDENTIFIED PERSONNEL AND THEIR COSTS. 2.4.THE IDENTIFIED PERSONNEL SHALL REMAIN THE EMPLO YEES OF THE COMPANY (EMPLOYER COMPANY) ON WHOSE RAILS THEY ARE EMPLOYED. THE COMP ANIES (SHARING COMPANY)REQUESTING THE AVAILABILITY OF THE IDENTIFI ED PERSONNEL SHALL NOT HAVE ANY LIABILITY,STATUTORY OR CONTRACTUAL VIS--VIS THE ID ENTIFIED PERSONNEL TOWARDS SALARY, PERQUISITES, BENEFITS, AMENITIES OR OTHER COMPENSAT ION OR ANY STATUTORY/ CONTRACTUAL COMPLIANCE. THE EMPLOYER COMPANY SHALL AT ALL TIMES BE RESPONSIBLE FOR ALL STATUTORY COMPLIANCES OR CONTRACTUAL COMMITMENTS RELATED TO I TS EMPLOYMENT OF THE IDENTIFIED PERSONNEL. CL.3. 3.1.THE PARTIES SHALL, AT THE COMMENCEMENT OF EACH FINANCIAL YEAR, ESTIMATE THE COST LIKELY TO BE INCURRED BY THORN IN RESPECT OF THE IDENTIFIE D PERSONNEL. 3.2.BASED ON SUCH COST ESTIMATES AND TAKING INTO CO NSIDERATION THE EXTENT OF THE TIME OF THE IDENTIFIED PERSONNEL LIKELY TO BE AVAILED BY THE PA RTIES, PFIZER /PIPL OR ANY OTHER EMPLOYER COMPANY SHALL BE PAID CERTAIN AD-HOC AMOUN TS PER MONTH TOWARDS THE COST OF IDENTIFIED PERSONNEL SHARED BY THE PARTIES, 3.3.PFIZETL PIPL OR ANY OTHER EMPLOYER COMPANY SHAL L WITHIN A REASONABLE TIME FROM THE END OF THE FINANCIAL YEAR AFTER CONSIDERING THE ACT UAL COST OF THE IDENTIFIED PERSONNEL AND THE ESTIMATED EXTANT OF UTILISATION BY THE PARTIES HERETO DETERMINE THE ACTUAL AMOUNT RECEIVABLE FROM/PAYABLE TO EITHER OF THE PARTIES IN RESPECT OF THE IDENTIFIED PERSONNEL SHARED DURING THE YEAR.ON DETERMINATION OF SUCH AMO UNT, PFIZER/PIPL OR ANY OTHER EMPLOYER COMPANY SHALL ISSUE CHEQUE TO/RECEIVE CHEQ UE TO/FROM ANY OF THE PARTIES AND SETTLE THE ACCOUNTS FOR SHARING OF COST OF THE IDEN TIFIED PERSONNEL. FROM THE ABOVE IT IS CLEAR THAT THE AGREEMENT TALKS OF ESTIMATION OF EXPENSE.IN OUR OPINION,WHEN THERE WAS ONLY ESTIMATION,HOW COULD ASSESSEE CLAIM THAT THE PAYMENT MADE WAS REIMBURSEMENT ONLY.IN THE PAPER BOOK FILED BY THE ASSESSEE,WE HAD NOT FOUND ANY DOCUMENT THAT COULD THROW LIGHT THE BASIS OF CALCULATING THE FIGURES OF SO CA LLED REIMBURSEMENT.IN THE DEBIT NOTES SOME PERCENTAGE IS MENTIONED,BUT HOW THAT PERCENTAGE WAS ARRIVED AT,IS NOT KNOWN NOR WAS IT EXPLAINED TO US.IN THESE CIRCUMSTANCES,WE AGREE WITH THE FAA THAT PAYMENT IN QUESTION WAS NOT PURE AND SIMPLE REIMBURSEMENT.DETAILS LIKE NATURE OF SERVICE S RENDERED BY THE EMPLOYEES ALONG WITH THE WORKING HOURS SPENT,GRADE AND SALARIES OF THE EMPLO YEES OF THE ASSESSEE AND EMPLOYEES OF PL, WHO HAD RENDERED THE SERVICES TO THE ASSESSEE;ARE S OME OF THE ELEMENTS THAT COULD PROVE EXISTENCE OR OTHERWISE OF THE PROFIT OF ELEMENT.WE TAKE AN EX AMPLE OF AN ACCOUNTANT OF THE ASSESSEE WHO IS IN WORKING WITH IT IN A PARTICULAR PAY-GRADE.IF SO ME PORTION OF HIS JOB IS CARRIED OUT BY AN ACCOUNTANT OF PL;WHO IS IN LOWER PAY-GRADE THEN PAY MENT MADE TO THAT PERSON CANNOT BE TERMED A PAYMENT WHERE NO PROFIT IS EMBEDDED.FOR CLAIMING A PAYMENT REIMBURSEMENT,ASSESSEE IS REQUIRED TO BRING SUFFICIENT MATERIAL ON RECORD, BU T IN THE CASE UNDER CONSIDERATION SUCH MATERIAL IS NOT AVAILABLE.BY TREATING THE PAYMENTS- IN-QUESTION REIMBURSEMENT,ASSESSEE HAS TAKEN OVER THE ROLE OF THE AO.IT IS THE DUTY RATHER RIGHT OF THE A O TO DECIDE THE NATURE OF PAYMENTS AS WHETHER SAME IS REIMBURSEMENT OR NOT.IF THE ASSESSEES ARE A LLOWED TO DECIDE THE TAXABILITY OR OTHERWISE OF CERTAIN PAYMENTS,THE INSTITUTION OF AO WILL BECOME REDUNDANT.IN A RECENT CASE,HONBLE ALLAHABAD HIGH COURT HAS HELD THAT AN EMPLOYER IS NOT COMPETE NT TO DETERMINE THE ALLOWANCES,WHICH ARE EXEMPT FROM TAX ( 2013-TIOL-720-HC-ALL-IT).ON THE SAME ANALOGY AN ASS ESSEE IS NOT COMPETENT TO HOLD THAT WHETHER ANY PAYMENT IS PURELY REIMBURS EMENT OR NOT ESPECIALLY WHEN IT DOES NOT PRODUCE COGENT AND RELIABLE DOCUMENTARY EVIDENCES A T THE FIRST AVAILABLE OPPORTUNITY.HONBLE APEX COURT,IN THE MATTER OF TRANSMISSION CORPORATIO N OF A.P.LTD.(239ITR587),HAS HELD THAT IF PROFIT IS EMBEDDED IN A PAYMENT,TAX HAS TO BE DEDUC TED AT SOURCE.WE ARE AWARE THAT THE SAID 5 ITA NO.3158/MUM/2012,(AY-2007-08) PFIZER PRODUCTS I NDIA PVT. LTD. . JUDGMENT WAS DELIVERED BY THE COURT WHILE DECIDING THE PROVISIONS OF SECTION 195 OF THE ACT AND THE PRESENT CASE DEALS WITH SECTION 194C.BUT,THE BA SIC CONCEPT OF DEDUCTION OF TAX AT SOURCE REMAINS SAME.IN OUR OPINION WORD EMBEDDED PROFIT IS NARROWER THAN THE WORD PROFIT.TO FIND OUT EMBEDDING OF PROFIT ONE HAS TO SCRUTINISE THE B OOKS OF ACCOUNTS AND ONLY THEN A FINAL DECISION CAN BE ARRIVED AT.THE PROCESS AND THE MATERIAL;WHIC H CAN PROVE THE EMBEDDING OF PROFIT-ELEMENT OR OTHERWISE;HAS TO BE BROUGHT ON RECORD BY THE AO OR THE ASSESSEE.AS STATED EARLIER,ASSESSEE HAD NOT PRODUCED ANY POSITIVE EVIDENCE THAT COULD PROVE THAT PAYMENT IN QUESTION WAS NOT EMBEDDED WITH PROFIT.THEREFORE,PARTLY CONFIRMING THE ORDER O F THE AO WE HOLD PAYMENT MADE BY THE ASSESSEE UNDER THE HEADS STAFF COST, ADVERTISING AN D PROMOTIONAL EXPENSES,OTHER MISC.EXPENSES WERE NOT PURE REIMBURSEMENT AND IT HAD TO DEDUCT TA X AT SOURCE AS PER THE PROVISIONS OF SECTION 194C OF THE ACT. 2.4.C. WE HAVE GONE THROUGH THE ORDER OF BAYER MATERIAL SC IENCES PVT. LTD.(SUPRA).WE WOULD LIKE TO REPRODUCE THE RELEVANT PARAGRAPHS OF THE ORDER T HAT READ AS UNDER: 33.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE ASSESSEE IS A MANUFACTURER OF H IGH PERFORMANCE MATERIAL SUCH AS POLYURETHANE ETC. APART FROM ENGAGED IN TRADING OF POLYCARBONATE. BCS IS SISTER CONCERN OF THE ASSESSEE ENGAGED IN MANUFACTURING AND DISTRI BUTION OF CROP PROTECTION PRODUCTS, FUNGICIDES AND NON-AGRICULTURAL BASED CONTROL AND R ELATED PRODUCTS. THEY ARE AFFILIATES OF BAYER AG, GERMANY. BOTH BCS AND THE ASSESSEE COMPAN Y ENTERED INTO TWO SEPARATE AGREEMENTS DATTED 18-4-2005 EFFECTIVE FROM 1-4-2005 UNDER WHICH IT WAS AGREED TO SHARE PERSONNEL AND FACILITIES OF EACH THIS REGARD, THE ASSESSEE MADE PAYMENT OF RS.2.9CORES TO BCS FOR,UTILISING THEIR EMPLOYEES AND SERVICES DURI NG THE YEAR. COPIES OF BOTH THE AGREEMENTS ARE AVAILABLE ON PAGES 874 AND 887 ONWAR DS OF THE PAPER BOOK. IN THESE AGREEMENTS, IT HAS BEEN PROVIDED THAT THE PARTIES S HALL SHARE THE COSTS IN RESPECT OF IDENTIFIED PERSONNEL UTILIZED BY THEM AND THE IDENT IFIED FACILITIES USED BY THEM ON THE BASIS SPECIFIED IN ARTICLE 3 OF THESE AGREEMENTS.IT HAS B EEN STIPULATED THAT THE IDENTIFIED PERSONNEL WHEN ACTING FOR THE OTHER COMPANY WILL AC T UNDER THE DIRECTION AND/OR WITH THE SUPPORT OF THE MANAGEMENT AND PERSONNEL OF SUCH OTH ER COMPANY, BUT WILL CONTINUE TO REMAIN EMPLOYEES OF ITS BASE COMPANY.FURTHER THE EM PLOYER COMPANY SHALL AT ALL TIMES REMAIN RESPONSIBLE FOR ALL THE STATUTORY COMPLIANCE S OR COMMITMENTS RELATING TO EMPLOYMENT OF THE IDENTIFIED PERSONNEL. IN SO FAR A S THE PAYMENT TOWARDS USING OF FACILITIES IS CONCERNED, IT HAS BEEN PROVIDED IN THE SECOND AG REEMENT THAT BOTH THE COMPANIES WOULD SHARE THE IDENTIFIED FACILITIES DEPENDING ON THEIR REQUIREMENTS. THE IDENTIFIED FACILITIES SHALL ALWAYS REMAIN THE PROPERTY OF THE FACILITATIN G COMPANY WHICH OWNS THEM. CLAUSE 3.4 OF THE EMPLOYEES SHARING AGREEMENTS PROVIDES : THE BASIS OF COST SHARING SHALL BE AN EXACT REIMBURSAL OF THE PROPORTIONAL TIME, COST OF THE IDENTIFIED PERSONNEL, WITHOUT ANY MARK UP, MARGIN OR ADDITION. SIMILARLY, CLAUSE 3.4 OF THE SECOND AGREEMENT PROVIDING FACILITIES TO EACH OTHER STATES THAT THE BASIS OF COST SHARING SHALL BE AN EXACT REIMBURSAL OF THE PROPORTIONAL COST OF THE IDENTIFIED FACILITI ES, WITHOUT ANY MARK UP, MARGIN OR ADDITION. FROM THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, I T IS SEEN UNDER SCHEDULE 18 THAT THE ASSESSEE INDEPENDENTLY INCURRED VARIOUS EXPENSES SU CH AS STORES AND SPARES CONSUMED, POWER AND FUEL, FREIGHT, RENT, REPAIRS AND TRAVELLI NG, ETC.,APART FROM PAYING COST SHARING EXPENSES OF RS.2.96 CRORES.THE P & L ACCOUN T OF BCS IS ALSO AVAILABLE ON RECORD. IT CAN BE SEEN FROM IT THAT THE AMOUNT RECOVERED BY BCS FROM THE ASSESSEE AND OTHER GROUP COMPANIES TOWARDS COST SHARING HAS BEEN EXCLU DED FROM THE EXPENDITURE INCURRED BY IT. THE NET EFFECT OF THESE TRANSACTIONS IS THAT BCS PROVIDED ITS PERSONNEL AND SERVICES TO THE ASSESSEE ON COST TO COST BASIS WHICH THE ASSESS EE INCLUDED IN ITS EXPENDITURE, WHEREAS THE BCS REDUCED THE AMOUNT RECOVERED FROM THE ASSES SEE AND OTHER GROUP CONCERNS FROM ITS EXPENSES. THE CONTENTION THAT THERE WAS NO PROF IT ELEMENT IN SUCH REIMBURSEMENT OF EXPENSES WAS ALSO RAISED BEFORE THE AO, WHICH REMAI NED UNCONTROVERTED. NOW,THE 6 ITA NO.3158/MUM/2012,(AY-2007-08) PFIZER PRODUCTS I NDIA PVT. LTD. . POSITION WHICH EMERGES IS THAT BCS INCURRED CERTAIN COSTS ON EMPLOYEES AND FACILITIES WHICH WERE UTILIZED BY THE ASSESSEE AND THE OTHER G ROUP CONCERNS FOR WHICH THERE WAS REIMBURSEMENT OF ACTUAL EXPENDITURE INCURRED TO BCS WITHOUT ANY PROFIT ELEMENT.THE LD. DR ALSO FAILED TO LEAD ANY MATERIAL TO SHOW THAT TH ERE WAS ANY PROFIT ELEMENT IN SUCH PAYMENT.THE HONBLE JURISDICTIONAL HIGH COURT IN CI T VS.SIMON AKTIONGTSELLSCHAFT (2009)310 ITR 320 (BOM) HAS HELD THAT PAYMENT BY WA Y OF REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF PAYER IS NOT AN INCOME CHARGE ABLE TO TAX IN THE HANDS OF PAYEE. SIMILAR VIEW HAS BEEN TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN MAHINDRA & MAHINDRA LTD. VS. DCIT (2009) 122 TTJ (BORN) (SB) 5 77. IN VIEW OF THE AFORE NOTED PRECEDENTS,IT BECOMES CLEAR THAT WHERE PAYMENT IS M ADE TOWARDS REIM -BURSEMENT OF EXPENSES,THERE CANNOT BE ANY ELEMENT OF INCOME IN S UCH PAYMENT IN THE HANDS OF THE PAYEE.ONCE THE ELEMENT OF INCOME IS MISSING, NATURA LLY, THERE CANNOT BE ANY QUESTION OF DEDUCTING TAX AT SOURCE FROM SUCH PAYMENT MADE, WHI CH PRE-SUPPOSES THE TAXABILITY OF SUCH SUM IN THE HANDS OF PAYEE.IT IS FURTHER RELEVA NT TO NOTE THAT BCS ENTERED INTO COST SHARING AGREEMENT NOT ONLY WITH THE ASSESSEE,BUT OT HER GROUP CONCERNS AS WELL.WHEREAS THE ASSESSEE PAID RS.2.96 CRORES TO BCS, M/S. BAYER PHARMACEUTICAL PVT. LTD. PAID RS.2.81 CRORES, M/S. BAYER BIOCIDES PVT. LTD. PAID RS.4.02 CRORES AND OTHER ASSOCIATED CONCERNS ALSO PAID TO BCS FOR SIMILAR SERVICES.THE LD. A.R. HAS PLACED ON RECORD COPIES OF THE ASSESSMENT ORDERS PASSED U/S 143(3) OF THESE CO NCERNS TO DEMONSTRATE THAT NO DISALLOWANCE HAS BEEN MADE IN ANY OF THE ABOVE REFE RRED CONCERNS U/S.40(A)(IA). IN VIEW OF THE ABOVE DISCUSSED PRINCIPLE EMANATING FROM THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT AND THE SPECIAL BENCH THAT REIMBURSEMENT OF COST DOES NOT REQUIRE DEDUCTION OF TAX AT SOURCE AND FURTHER FOLLOWING THE PRINCIPL E OF CONSISTENCY, WE HOLD THAT THE AO WAS NOT JUSTIFIED IN MAKING SAID ADDITION .. WE ARE OF THE OPINION THAT THE FACTS OF BAYER MATER IAL SCIENCES PVT. LTD.(SUPRA)WERE DIFFERENT FROM THE CASE BEFORE US.THE ONLY SIMILARITY BETWEEN BOTH THE CASES IS THE DISALLOWANCE MADE U/S. 40(A)(IA) OF THE ACT, IN THAT MATTER OF TRIBUNAL HA D OBSERVED THAT THE CONTENTION THAT THERE WAS NO PROFIT ELEMENT IN SUCH REIMBURSEMENT OF EXPENSES WA S ALSO RAISED BEFORE THE AO,WHICH REMAIN UNCONTROVERTED .IN OUR OPINION,IN THE CASE UNDER CONSIDERATION, AO AND FAA HAVE GIVEN A CLEAR FINDING OF FACT THAT PAYMENT MADE BY THE ASSESSEE W AS NOT IN THE NATURE OF REIMBURSEMENT.THEY HAVE ALSO STATED THAT SERVICE TAX WAS PAID BY THE A SSESSEE. IN THE CASE OF BAYER(SUPRA) TRIBUNAL HAS NOT MENTIONED ANYTHING ABOUT PAYMENT OF SERVICE TAX .BESIDES, IN THAT MATTER IT WAS ALSO FOUND BY THE TRIBUNAL THAT AMOUNTS RECOVERED FROM THE ASSESS EE AND OTHER GROUP COMPANIES TOWARDS COST SHARING HAD BEEN EXCLUDED FROM THE EXPENDITURE INCU RRED BY IT.FAA HAS MENTIONED THAT IN THE AGREEMENT THERE WAS A CLAUSE ABOUT NOT TREATING THE AGREEMENT AS SERVICE CONTRACT,THAT IN SPITE OF THE SAID CLAUSE THE REAL NATURE OF THE AGREEMENT WA S OF THE SERVICE-CONTRACT.WE ARE ALSO OF THE OPINION THAT RECITALS OF AN AGREEMENT OR THE WORDS USED IN IT HAVE TO BE INTERPRETED ONLY AFTER THE FULL AGREEMENT IS CONSIDERED IN RIGHT PERSPECTIVE.A S PER THE ACCEPTED PRINCIPLES OF TAX- JURISPRUDENCE ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT THE CONCLUSIVE PROOF OF ANY TRANSACTION. SIMILARLY,FOR UNDERSTANDING THE REAL MEANING AND IN TENT OF AN AGREEMENT,ONLY A WORD OR A SINGLE CLAUSE CANNOT BE A DECISIVE FACTOR.WE ARE OF THE OP INION THAT CLAUSE-3 OF THE AGREEMENT PROVES THAT THE AGREEMENT WAS IN THE NATURE OF A SERVICE CONTRA CT.PAYMENT OF SERVICE TAX IS ALSO A VITAL FACTOR TO DECIDE THE PRESENT CASE.IN SHORT,CONSIDERING THE FACTS THAT ASSESSEE HAD NOT PRODUCED EVIDENCE TO PROVE THE PROPOSITION THAT PAYMENTS MADE BY IT W ERE NOT EMBEDDED WITH PROFIT,THAT SERVICE TAX WAS PAID AND THAT REAL NATURE OF THE AGREEMENT WAS OF THE SERVICE CONTRACT,WE ARE OF THE OPINION THAT PROVISIONS OF SECTION 194C ARE APPLICABLE IN T HE CASE UNDER CONSIDERATION.THEREFORE,WE UPHOLD THE ORDER OF THE FAA AS FAR AS PAYMENTS MADE UNDER THREE HEADS;STAFF COST, ADVERTISING AND PROMOTIONAL EXPENSES,OTHER MISC.EXPENSES;ARE CO NCERNED. FIRST EFFECTIVE GROUND OF APPEAL IS PARTLY DECIDED AGAINST THE ASSESSEE. 7 ITA NO.3158/MUM/2012,(AY-2007-08) PFIZER PRODUCTS I NDIA PVT. LTD. . 3.N EXT GROUND OF APPEAL IS ABOUT DEDUCTION MADE U/S.35 DDA OF THE ACT,IN RESPECT OF PAYMENTS MADE TOWARDS THE VOLUNTARY RETIREMENT SCHEME (VRS), AMOUNTING TO RS. 1.32 CRORES.AS PER THE ASSESSEE IT HAD MADE THE SAID CLAIM BEFORE THE AO V IDE ITS LETTER DATED 03.10.2010, THAT AO DISALLOWD THE CLAIM.IN THE APPELLANT PROCEEDINGS,FA A HELD THAT IN THE RETURN OF INCOME ASSESSEE HAD OMITTED TO MAKE CLAIM OF RS. 1.32 CRORES U/S. 3 5DDA, THAT CLAIM WAS MADE FOR THE FIRST TIME AFTER THE ASSESSMENT ORDER WAS PASSED BY THE AO,THA T CLAIM MADE BY IT WAS NOT ADMISSIBLE IN VIEW THE RATIO OF DECISION OF HONBLE SUPREME COURT DELI VERED IN THE CASE OF GOETZ INDIA LTD. (284 ITR 323).HE DISMISSED THE APPEAL FILED BY THE ASSESSEE. 3.1. BEFORE US,AR SUBMITTED THAT CLAIM FOR DEDUCTION U/S . 35DDA WAS MADE IN EARLIER YEARS, THAT YEAR UNDER CONSIDERATION WAS THE 4 TH YEAR OF THE CLAIM,THAT FAA SHOULD HAVE ALLOWED THE CLAIM MADE BY THE ASSESSEE.HE RELIED UPON THE ORDER OF TH E HONBLE HIGH COURT OF MUMBAI DELIVERED IN THE CASE OF PRUTHVI BROKERS & SHAREHOLDERS (P) LTD. (349 ITR 366). DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. THERE WAS NO DOUBT THAT ASSESSEE DID NOT MAKE THE CLAIM IN THE RETURN OF INCOME FILED BY IT AND HAD WRITTEN A LETTER TO THE AO AFTER THE ASSESSMENT ORDER WAS FINALISED. AS SESSEE HAD TAKEN THIS GROUND OF APPEAL BEFORE THE FAA AND HE REJECTED THE SAME FOLLOWING THE DECI SION OF THE HONBLE SUPREME COURT. WE FIND THAT AFTER CONSIDERING THE JUDGMENT OF GOETZ INDIA LTD.(SUPRA), HONBLE BOMBAY HIGH COURT HAS HELD THAT APPELLATE AUTHORITIES HAD THE JURISDICTIO N TO CONSIDER A NEW/ADDITIONAL CLAIM/DEDUCTION SUBSEQUENTLY RAISED BEFORE THE AO WHICH THROUGH INA DVERTENCE, WAS NOT CLAIMED IN THE RETURN OF INCOME FILED BY THE ASSESSEE.IN THE CASE UNDER CONS IDERATION 1/5 TH OF THE EXPENDITURE WAS BEING ALLOWED BY THE AO IN LAST 3 ASSESSMENT YEARS. IN TH AT SENSE,TECHNICALLY,CLAIM CANNOT BE HELD AS A NEW CLAIM. IN OUR OPINION,FAA SHOULD HAVE ALLOWED T HE CLAIM MADE BY THE ASSESSEE. FOLLOWING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT DELIV ERED IN THE CASE OF PRUTHVI BROKERS & SHAREHOLDERS (P) LTD.(SUPRA),WE DECIDE GROUND NO. 2 IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED / )0 !/) 2 3 ( - . 4 5) ( ) 67 . ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH OCTOBER,2013 . . ( +,' 8 9! 9 :; < , 2013 , ( - = SD/- SD/- ( . > > > > . . B.R.MITTAL ) ( / RAJENDRA ) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9! /DATE: 09 TH OCTOBER ,2013 SK . . . . ( (( ( %)? %)? %)? %)? @?') @?') @?') @?') / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT (A) / A B , 4. THE CONCERNED CIT / A B 5. DR C BENCH, ITAT, MUMBAI / ?C- %)! , . . . 6. GUARD FILE/ - D 8 ITA NO.3158/MUM/2012,(AY-2007-08) PFIZER PRODUCTS I NDIA PVT. LTD. . &?) &?) &?) &?) %) %)%) %) //TRUE COPY// .! / BY ORDER, E / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI