COLLIERS INTERNATIONAL (I) PROPERTY SERVICES P.LTD, MUMBAI V. DCIT 5(1), MUMBAI

ITA 3317/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9592 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 04-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR M C OMI NINGSHEN
• Keywords: Additional evidence; Capital expenditure
• Section: 143(3); 142(1)

Judgement Text

1 ITA 3317/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.3317/MUM/2015 (ASSESSMENT YEAR 2010-11) COLLIERS INTERNATIONAL (I) PROPERTY SERVICES PVT LTD 1701, TOWER 3, INDIABULLS FINANCE CENTRE, SENAPATI BAPAT MARG, ELPHINSTONE WEST, MUMBAI-13 PAN : AAACC2145B VS DY.CIT-5(1), MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI SHAILESH BANDI RESPONDENT BY DR. M.C. OMI NINGSHEN DATE OF HEARING 10-08-2017 DATE OF PRONOUNCEMENT 19-09-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST ORDER OF THE CIT(A)- 10, MUMBAI DATED 12-04-2013 AND IT PERTAINS TO AY 2 010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY ENGAGED IN THE BUSINESS OF REAL ESTATE SERVICES TO OCCUPIERS, OWNE RS AND INVESTORS ON A LOCAL, REGIONAL AND INTERNATIONAL LEVELS, FILED ITS RETURN OF INCOME FOR THE AY 2010-11 ON 30-09-2010 DECLARING TOTAL INCOME AT RS.43,72,85 7. THE CASE WAS SELECTED 2 ITA 3317/MUM/2015 FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF T HE ACT WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE ATTENDED FROM TIME TO TIME AND SUBMITTED THE DETAILS CALLED FOR. THE ASSESSME NT WAS COMPLETED U/S 143(3) ON 28-02-2013 DETERMINING TOTAL INCOME AT RS .3,26,72,825, INTERALIA MAKING ADDITIONS TOWARDS DISALLOWANCE OF REIMBURSEM ENT OF CORPORATE OVERHEAD ALLOCATION AND OTHER EXPENSES, SEMINAR AND CONFERENCE EXPENSES, PROFESSIONAL FEES, SOFTWARE EXPENSES AND FOREIGN TR AVEL EXPENSES. AGGRIEVED BY THE ASSESSMENT ORDER ASSESSEE PREFERRED AN APPEA L BEFORE THE CIT(A). BEFORE CIT(A), THE ASSESSEE AGITATED ALL THE ADDITI ONS MADE BY THE AO. THE CIT(A), FOR THE DETAILED DISCUSSION IN HIS ORDER, P ARTLY ALLOWED APPEAL FILED BY THE ASSESSEE, WHEREIN HE DIRECTED THE AO TO SUSTAIN ADDITIONS OF RS.1,89,75,259 OUT OF TOTAL ADDITIONS MADE OF RS.2, 45,55,709 IN RESPECT OF REIMBURSEMENT OF EXPENSES TOWARDS CORPORATE OVERHEA D ALLOCATION AND DELETED ADDITIONS MADE BY THE AO TOWARDS FOREIGN TR AVEL EXPENSES, SEMINAR AND CONFERENCE EXPENSES, PROFESSIONAL FEE AND DIFFE RENCE IN AIR RECONCILIATION; HOWEVER, CONFIRMED ADDITIONS MADE BY THE AO TOWARDS REPAIRS AND MAINTENANCE EXPENSES. AGGRIEVED BY THE ORDER OF CI T(A), THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION IS ADDITION TOWARDS DISALLOWANCE OF REIMBURSEMENT OF EXPENSES ON CORPOR ATE OVERHEAD ALLOCATION. 3 ITA 3317/MUM/2015 THE FACTS RELATING TO THE IMPUGNED DISALLOWANCE ARE THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.2,45,55,709 TOWARDS CORPORA TE OVERHEAD ALLOCATION AND OTHER FOREIGN TRAVEL EXPENSES. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO FURNISH D ETAILS OF EXPENDITURE AND ALSO EXPLAIN THE NEXUS BETWEEN THE EXPENDITURE INCU RRED UNDER THE HEAD CORPORATE OVERHEAD ALLOCATION AND BUSINESS CONNEC TION. IN RESPONSE, THE ASSESSEE SUBMITTED THAT IT IS PART OF GLOBAL NETWOR K OF COMPANIES AND AS PER THE MANAGEMENT AND TECHNICAL SUPPORT AGREEMENT BETW EEN ITS PARENT ORGANIZATION AND OTHER COMPANIES, A COST SHARING AG REEMENT HAS BEEN ENTERED INTO TOWARDS SHARING OF COMMON EXPENSES OF PARENT C OMPANY BASED ON THE REVENUE OF OTHER GROUP COMPANIES. THE ASSESSEE FUR THER SUBMITTED THAT CORPORATE OVERHEAD EXPENSES ARE IN THE NATURE OF RE IMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THE HOLDING COMPANY FOR RENDER ING CERTAIN SERVICES TO THE ASSESSEE COMPANY INCLUDING SALARY AND OTHER EXPENSE S OF CERTAIN KEY MANAGEMENT PERSONNEL. THE MANAGEMENT PERSONNEL PRO VIDED TECHNICAL AND MANAGERIAL SUPPORT TO ALL GROUP COMPANIES AND THE H OLDING COMPANY PROVIDE SERVICES RELATING TO CORPORATE STRATEGY AND CORPORA TE SUPPORT SERVICES, ETC, TO ALL THE COMPANIES. THE ABOVE EXPENSES WERE GETTING REIMBURSED BY THE HOLDING COMPANY FROM ALL THE GROUP COMPANIES BY RAI SING BILLS ON THE GROUP COMPANIES. 4 ITA 3317/MUM/2015 4. THE AO, AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE OBSERVED THAT THOUGH ASSESSEE CLAIMS TO HAVE REIMBURSED EXPENDITU RE INCURRED BY THE HOLDING COMPANY TOWARDS COMMON EXPENDITURE ON BEHAL F OF ALL GROUP COMPANIES, FAILED TO FILE ANY DETAILS TO PROVE THE NATURE OF WORK DONE BY THE EXECUTIVES AND THE METHOD OF CHARGING EXPENSES. TH E AO FURTHER OBSERVED THAT THE ONUS IS ON THE ASSESSEE TO PROVE THAT EXPE NSES INCURRED ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, BUT AS SESSEE FAILED TO PROVE THAT EXPENSES INCURRED UNDER THE HEAD CORPORATE OVERHEA D ALLOCATION HAS BEEN INCURRED FOR THE BUSINESS PURPOSE. THE ASSESSEE CA NNOT BE MADE LIABLE TO ANY REIMBURSEMENT OF EXPENDITURE BY ITS PARENT COMPANY OF THE ASSOCIATE COMPANIES LOCATED OVERSEAS IN RESPECT OF REIMBURSEM ENT OF EXPENSES AND THE SAID REIMBURSEMENT EXPENSES INCURRED OUTSIDE INDIA DID NOT HAVE ANY DIRECT AND PROXIMATE NEXUS WITH INCOME GENERATING ACTIVITY OF THE ASSESSEE COMPANY. ACCORDINGLY, HE DISALLOWED EXPENDITURE CLAIMED UNDE R THE HEAD REIMBURSEMENT OF CORPORATE OVERHEAD ALLOCATION AN D OTHER EXPENSES AMOUNTING TO RS.2,45,55,709. AGGRIEVED BY THE ASSE SSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 5. BEFORE THE CIT(A), THE ASSESSEE REITERATED ITS SUBM ISSIONS MADE BEFORE THE AO. THE CIT(A), ON CONSIDERATION OF THE SUBMIS SIONS OF THE ASSESSEE OBSERVED THAT IT IS NOTICED THAT AT THE TIME OF ASS ESSMENT AS WELL AS DURING THE 5 ITA 3317/MUM/2015 APPELLATE PROCEEDINGS, THE ASSESSEE WAS TAKING VAGU E PLEA SUCH AS SIMILAR EXPENSES WERE ALSO CLAIMED AND ALLOWED IN EARLIER Y EARS AND SUBSEQUENT YEARS, ETC. FAILED TO FILE ANY EVIDENCE TO PROVE THE NEXUS BETWEEN REIMBURSEMENT OF EXPENDITURE OF ITS HOLDING COMPANY AND INCOME GENER ATING ACTIVITY OF THE ASSESSEE. IT IS THE DUTY OF THE ASSESSEE TO SATISF ACTORILY EXPLAIN THE NATURE AND METHOD OF QUANTIFICATION OF SUCH EXPENSES, BECAUSE THEY ARE REIMBURSED TO THE HOLDING COMPANY SITUATED OUTSIDE INDIA AND PROV E THE NEXUS BETWEEN SHARING OF COMMON EXPENDITURE AND BUSINESS ACTIVITY OF THE ASSESSEE. SINCE THE ASSESSEE FAILED TO PROVE THE EXACT DETAILS, THE AO HAS CORRECTLY DISALLOWED THESE EXPENSES. HOWEVER, THE CIT(A), FURTHER OBSER VED THAT AS REGARDS CLAIM OF THE ASSESSEE THAT THE AO HAS MADE EXCESS DISALLOWAN CE WHICH ALSO INCLUDE VARIOUS OTHER EXPENSES IN FOREIGN EXCHANGE UNDER TH E HEAD TRAVELLING EXPENSES, CONSULTANCY AND REFERRAL FEES, ETC. THE SAME APPEARS TO BE CORRECT, BECAUSE THE EXPENSES OF REIMBURSEMENT FOR CORPORATE HEAD APPEARED TO BE ONLY RS.1,89,75,259. IT IS A MATTER OF RECORD. TH EREFORE, THE AO WAS DIRECTED TO VERIFY AND DISALLOW ACTUAL AMOUNT OF REIMBURSEME NT OF EXPENDITURE, AFTER VERIFICATION OF THE CLAIM OF THE ASSESSEE. AGGRIEV ED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) HAS GROSSLY ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE ACTION OF AO IN RESPECT OF 6 ITA 3317/MUM/2015 DISALLOWANCE OF CORPORATE OVERHEAD EXPENSES, EVEN T HOUGH THE ASSESSEE HAS FILED NECESSARY EVIDENCES TO PROVE THE EXPENDITURE INCURRED BY ITS HOLDING COMPANY AND REIMBURSED BY THE ASSESSEE. THE LD.AR REFERRING TO THE PAPER BOOK FILED BY THE ASSESSEE SUBMITTED THAT THE ASSES SEE HAS MADE A CLEAR DISCLOSURE OF EXPENDITURE INCURRED TOWARDS CORPORAT E OVERHEAD ALLOCATION IN ITS FINANCIAL STATEMENTS AND ALSO NOTES TO ACCOUNTS. T HE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO A MANAGEMENT AND TECHNICAL SUPPORT AGREEMENT WITH ITS HOLDING COMPANY AS PER WHICH THE HOLDING COMPANY UNDERTOOK TO PROVIDE SEVERAL GROUP SERVICES TO THE GROUP COMPANIES AND THE COST OF PROVIDING THE SERVICES IS BILLED TO THE GRO UP COMPANIES. THE LD.AR FURTHER SUBMITTED THAT AS PER THE AGREEMENT BETWEEN HOLDING COMPANY AND THE ASSESSEE, CERTAIN COMMON SERVICES ARE PROVIDED BY ITS HOLDING COMPANY INCLUDING EXPERTISE OF ITS TOP MANAGEMENT AND ALSO STRATEGIC ADVICE ON ITS MANAGEMENT FOR WHICH A PRESCRIBED FORMULA IS PROVID ED TO SHARE CORPORATE OVERHEAD ALLOCATION WHICH HAS BEEN REIMBURSED BY TH E ASSESSEE ON ACTUAL BILLING MADE BY THE HOLDING COMPANY. THE LD.AR FUR THER SUBMITTED THAT ALL THESE DETAILS HAVE BEEN FILED BEFORE THE AO TO PROV E THE EXPENSES BUT, THE AO HAS DISCARDED ALL EVIDENCES TO MAKE ADDITIONS. 7. ON THE OTHER HAND, THE LD.DR STRONGLY SUPPORTING TH E ORDER OF THE CIT(A) SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVE PRI MARY ONUS CAST UPON IT TO 7 ITA 3317/MUM/2015 PROVE THE NEXUS BETWEEN REIMBURSEMENT OF EXPENDITUR E BETWEEN HOLDING COMPANY AND THE ASSESSEE COMPANY. THE AO HAS BROUG HT OUT CLEAR FACT THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO PROVE EXPENDITURE. MERE FILING OF AN AGREEMENT WITH GENERAL CONDITIONS AS TO RENDE RING OF CERTAIN SERVICES ON COST SHARING BASIS IS NOT SUFFICIENT COMPLIANCE TO PROVE EXPENDITURE. THE AO HAS MADE ADDITIONS IN THE ABSENCE OF ANY EVIDENCE T O SUPPORT THE EXPENDITURE AND HIS ORDER SHOULD BE UPHELD. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE AO HAS DISALLOWED CORPORATE OVERHEAD A LLOCATION AND OTHER EXPENSES ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE DIRECT NEXUS BETWEEN REIMBURSEMENT OF EXPENDITURE BETWEEN HOLDIN G COMPANY AND INCOME GENERATING ACTIVITY OF THE ASSESSEE. IT IS THE CLAIM OF THE ASSESSEE THAT CORPORATE OVERHEAD ALLOCATION HAS BEEN REIMBURSED O N THE BASIS OF AGREEMENT BETWEEN THE HOLDING COMPANY AND GROUP COMPANIES AS PER WHICH THE HOLDING COMPANY RENDERED CERTAIN SERVICES TO THE GROUP COMP ANIES FOR WHICH A COST SHARING FORMULA HAS BEEN PRESCRIBED IN THE AGREEMEN T. ACCORDINGLY, THE ASSESSEE HAS REIMBURSED CORPORATE OVERHEAD ALLOCATI ON AS PER ACTUAL BILLING RAISED BY THE HOLDING COMPANY. THE ASSESSEE REFERR ING TO THE PAPER BOOK FILED DURING THE COURSE OF APPELLATE PROCEEDINGS, SUBMITT ED THAT THE PAYMENT OF REIMBURSEMENT OF EXPENDITURE TO ITS HOLDING COMPANY HAS BEEN DISCLOSED IN 8 ITA 3317/MUM/2015 THE FINANCIAL STATEMENT AND ALSO IT IS SUPPORTED BY AN AGREEMENT. 9. WE HAVE GONE THROUGH THE PAPER BOOK FILED BY THE AS SESSEE. THE ASSESSEE HAS FILED COPY OF AGREEMENT BETWEEN ITS HO LDING COMPANY AND OTHER GROUP COMPANIES. AS PER THE AGREEMENT, THE HOLDING COMPANY UNDERTOOK TO PROVIDE SEVERAL GROUP SERVICES TO THE OTHER GROUP C OMPANIES, IN PARTICULAR, EMPLOYEES, CERTAIN TOP MANAGERIAL PERSONS, WHO DEFI NES ON THE GROUP COMPANIES IN RESPECT OF STRATEGIC BUSINESS DIVISION S FOR WHICH THE GROUP COMPANIES HAVE TO SHARE EXPENSES ON THE BASIS OF A PRESCRIBED FORMULA. WE FURTHER OBSERVE THAT THE ASSESSEE HAS LISTED CERTAI N SERVICES TO BE PROVIDED BY ITS HOLDING COMPANY. THE AGREEMENT ALSO PROVIDES F OR SHARING OF CERTAIN EXPENSES. ON PERUSAL OF COPY OF THE AGREEMENT, WE FIND THAT THE AGREEMENT BETWEEN THE HOLDING COMPANY AND SUBSIDIARY COMPANY CONTAINS SOME GENERAL CONDITIONS OF PROVIDING CERTAIN SERVICES AND SHARIN G OF COST FOR SUCH SERVICES BY THE GROUP COMPANIES. HOWEVER, ASSESSEE HAS FAILED TO FURNISH NECESSARY DIRECT AND PROXIMATE EVIDENCES OF NEXUS BETWEEN REIMBURSEM ENT OF CORPORATE ALLOCATION EXPENSES AND INCOME GENERATING ACTIVITY OF THE ASSESSEE. IT IS AN ADMITTED FACT THAT ONLY EXPENDITURE INCURRED IN REL ATION TO EARNING INCOME WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE IS ALLOWED, AS DEDUCTION. IT IS THE PRIMARY ONUS OF THE ASSESS EE TO PROVE THE NEXUS BETWEEN EXPENDITURE INCURRED AND BUSINESS CONNECTIO N OF THE ASSESSEE. IN THIS 9 ITA 3317/MUM/2015 CASE, THE ASSESSEE HAS REIMBURSED CERTAIN EXPENSES ON THE BASIS OF AN AGREEMENT BETWEEN HOLDING COMPANY AND ITS GROUP COM PANIES. THE ASSESSEE CLAIMS THAT THE HOLDING COMPANY HAS RENDERED CERTAI N SERVICES AS LISTED IN THE AGREEMENT. HOWEVER, NO SUCH EVIDENCE HAS BEEN FURN ISHED TO THE AO TO PROVE AS TO WHAT ARE THE SERVICES RENDERED BY ITS HOLDING COMPANY. WE FURTHER OBSERVE THAT THE ASSESSEE HAS FURNISHED CERTAIN ADD ITIONAL EVIDENCE TO PROVE THE NEXUS BETWEEN REIMBURSEMENT OF CORPORATE OVERHE AD ALLOCATION AND BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSEE CL AIMS THAT THOSE DETAILS ARE NOT BEFORE THE AO EXCEPT COPY OF AGREEMENT BETWEEN HOLDING COMPANY AND GROUP COMPANIES. THEREFORE, WE ARE OF THE CONSIDER ED VIEW THAT THE ISSUE NEEDS TO BE EXAMINED BY THE AO IN THE LIGHT OF THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO EXAMINE THE ISSUE IN THE LIGHT OF ADDITIONAL EVI DENCE FILED BY THE ASSESSEE AND TAKE APPROPRIATE DECISION, AS PER LAW. ACCORDI NGLY, GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED, FOR STATISTICAL PUR POSE. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF REPAIRS AND MAINTENANCE EXPENSES OF RS.5,86,004 BY TREATING THE SAME AS CAPITAL EXPENDITURE. 11. DURING THE COURSE OF HEARING, THE LD.AR FOR THE ASS ESSEE SUBMITTED THAT HE DID NOT PRESS THE GROUND AND HENCE, THE SAME IS DISMISSED, AS NOT PRESSED. 10 ITA 3317/MUM/2015 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH SEPTEMBER, 2017. SD/- SD/- (C.N. PRASAD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 13 TH SEPTEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI