ACIT, New Delhi V. M/s. G4S Security Services India Ltd., Gurgaon

ITA 3435/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97932 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-09-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 05-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Royalty expenses; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH:C NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A .NO. 3435 & 3436/DEL/2011 (ASSESSMENT YEARS-2004-05 & 2008-09) ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER : THESE APPEALS, AT THE INSTANCE OF THE REVENUE, HAVE BEEN FILED AGAINST THE FILE OF THE CIT(A)-IX, NEW DELHI DATED 21/02/2011 IN APPEAL NO. TR-17/10-11 FOR AY 2004-05 AND ANOTHER ORDER OF CIT(A)-XV, NEW DELHI DATED 20.04.2011 IN APPEAL NO. 229/2010-11 FO R AY 2008-09 RESPECTIVELY. 2. THE GROUNDS RAISED IN ITA NO. 3435/D/2011 FOR A Y 2004-05 READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RO YALTY EXPENSES OF RS. 1,95,57,672/- TREATED AS CAPITAL EXP ENDITURE MADE BY THE ASSESSING OFFICER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN GIVING RELIEF OF RS. 21,32,259/- (RENT PAID) OUT OF ADDITION OF RS. 25,56,093/- ON ACCOUNT OF RE NT, STAMP ACIT, CIRCLE 12(1), NEW DELHI. VS G4S SECURITY SERVICES INDIA LTD. PANCHVATI, 82A, SECTOR-18, GURGAON. AAACG1625Q APPELLANT BY SHRI A.K. SUROHA, CIT DR RESPONDENT BY SHRI ARUN BANSAL, CA DATE OF HEARING 21.09.2015 DATE OF PRONOUNCEMENT 23.11.2015 ITA NOS. 3435 & 3436/D/2011 2 DUTY AND COMMISSION RELATED TO THE LEASED HOLD BUIL DINGS MADE BY THE ASSESSING OFFICER. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN GIVING RELIEF OF RS. 20,86,104/- OUT OF ADDITION OF RS. 24,04,739/- ON ACCOUNT OF PROVISION OF INSURANCE CLAIM WRITTEN OFF MADE BY THE ASSESSING OF FICER. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 3. THE SOLE GROUND RAISED IN ITA NO. 3436/D/2011 FOR AY 2008- 09 READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F ROYALTY EXPENSES OF RS. 7,23,67,494/- TREATED AS CAPITAL EXPENDITURE MADE BY THE ASSESSING OFFICER. 4. GROUND NO. 1 IN BOTH APPEALS: APROPOS THIS SIMILAR GROUND NO. 1 WE HAVE HEARD ARG UMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE MATERIAL PLACED ON RECORD BEFORE US ON THE ISSUE OF ROYALTY PAYMENT. 4.1 AT THE OUTSET, THE LD. SENIOR COUNSEL OF THE AS SESSEE SUBMITTED A COPY OF ITAT DELHI C BENCH DATED 14.08.2014 FOR AY 2009-10 CASE AND SUBMITTED THAT IN THE SIMILAR SET OF FACTS AND CIRCUMSTANCES THE TRIBUNAL HAS DISMISSED APPEAL OF THE REVENUE AND HA S HELD THAT THE CIT(A) RIGHTLY CONCLUDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND RIGHTLY TREATED THE IMPUGNED PAYMENT OF ROYALTY AS REVENUE EXPENDITURE. THE LD. SENIOR COUNSEL ALSO SUBMITTED THAT THE CIT(A) H AS NOTED THAT IN THE ORDER FOR AY 2002-03, 2003-04 & 2005-06 DISMISSING THE APPEALS OF THE REVENUE THE HONBLE HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND UPHELD THE ORDERS OF THE TRIBUNAL. 5. THE LD. DR FAIRLY ACCEPTED THAT THE ISSUE HAS B EEN DECIDED IN FAVOUR OF THE ASSESSEE BY HONBLE HIGH COURT FOR AY 2002-03, 2003-04 & 2005-06. THE RELEVANT OPERATIVE PART OF THE TRIB UNAL ORDER FOR AY 2009-10 DATED 14.08.2014 (SUPRA) READ AS FOLLOWS: 2. THE ONLY EFFECTIVE GROUND IS AGAINST TREATING ROYALTY PAYMENT OF RS. 8,64,67,558/- AS REVENUE EXPENDITURE ITA NOS. 3435 & 3436/D/2011 3 AGAINST THE ASSESSING OFFICERS POINT OF VIEW OF SUC H AMOUNT BEING CAPITAL EXPENDITURE. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE PAID, INTER ALIA, ROYALTY OF RS. 8.6 CRORE TO ITS AS SOCIATE ENTERPRISE M/S G4S REGIONAL CONSULTANCY SERVICES AN D CLAIMED THIS AMOUNT AS REVENUE EXPENDITURE. THE ASS ESSING OFFICER, AFTER CONSIDERING CERTAIN DECISIONS, CAME TO THE CONCLUSION THAT THIS AMOUNT WAS TO BE HELD AS CAPIT AL EXPENDITURE. HE, THEREFORE, MADE ADDITION FOR THIS SUM. THE LD. CIT(A), RELYING ON CERTAIN ORDERS PASSED BY THE TRIBUNAL IN IDENTICAL CIRCUMSTANCES IN THE ASSESSEES GROUP CONCERNS, AND ALSO THE AFFIRMATION OF SOME OF SUCH ORDERS BY THE HONBLE DELHI HIGH COURT, DECIDED THE ISSUE IN ASSE SSEES FAVOUR. THE REVENUE IS AGGRIEVED AGAINST TREATING S UCH ROYALTY AS REVENUE EXPENDITURE. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THA T THE ASSESSEE PAID ROYALTY @ 7% OF THE SALES EFFECTED BY IT PURSUANT TO AN AGREEMENT WHICH WAS MADE ON 27.12.20 07. THIS AGREEMENT, A COPY OF WHICH IS AVAILABLE ON REC ORD, MAKES IT CLEAR THAT ITS DURATION IS FIVE YEARS SUBJ ECT TO FURTHER RENEWAL. CLAUSE 5.2 OF THE AGREEMENT PROVI DES THAT IT MAY BE TERMINATED AT ANY TIME BY MUTUAL CONSENT OF THE PARTIES. CLAUSE 2.1 OF THE AGREEMENT MAKES IT EXPLI CITLY CLEAR THAT IT GRANTS THE ASSESSEE A NON-EXCLUSIVE R IGHT TO USE THE TRADE MARK AND TRADE NAME IN THE LICENSED BUSIN ESS. THE ABOVE FEATURES DEDUCED FROM THE AGREEMENT AMPLY SHOW THAT THE CHARACTER OF ROYALTY PAID BY THE ASSE SSEE TO ITS ASSOCIATED ENTERPRISE IS NOTHING, BUT REVENUE. THE TRIBUNAL IN SEVERAL CASES OF THE ASSESSEES GROUP C ONCERNS HAS HELD SUCH AMOUNT TO BE REVENUE IN NATURE. COPI ES OF SUCH ORDERS HAVE BEEN PLACED ON RECORD. THE LD. CI T(A) HAS RECORDED A CATEGORICAL FINDING IN PARA 5.6 OF THE I MPUGNED ORDER THAT THE HONBLE DELHI HIGH COURT HAS ALSO DE CIDED THIS ISSUE IN ASSESSEES FAVOUR BY DISMISSING THE REVENUE S APPEALS FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2 005- 06. THE LD. DR COULD NOT POINT OUT ANY DISTINGUISHI NG FEATURE FROM THE FACTS OF THE INSTANT CASE VIS--VIS THE OT HER YEARS DECIDED BY THE TRIBUNAL DECIDING THE ISSUE IN THE A SSESSEES FAVOUR. IN VIEW OF THE AVAILABILITY OF SO MANY PRE CEDENTS ON THIS ISSUE BY THE TRIBUNAL IN IDENTICAL CIRCUMSTANC ES, WE UPHOLD THE IMPUGNED ORDER. ITA NOS. 3435 & 3436/D/2011 4 5.1 ACCORDINGLY, WE FURTHER NOTE THAT THE LD. DR CO ULD NOT POINT OUT ANY DISSIMILAR FACTS AND CIRCUMSTANCES FROM THE FAC TS OF THE PRESENT CASE VIS--VIS THE OTHER YEARS DECIDED UPTO THE HON BLE HIGH COURT OF DELHI ORDER DATED 11.7.2011, DISMISSING THE APPEAL OF THE REVENUE AND CONCLUDING THE ISSUE OF ROYALTY PAYMENT IN FAVOUR O F THE ASSESSEE. IN VIEW OF THE ABOVE NOTED PRECEDENTS ON THIS ISSUE BY THE HONBLE HIGH COURT AND COORDINATE BENCHES OF THE TRIBUNAL IN SIM ILAR SET OF FACTS AND CIRCUMSTANCES WE ARE INCLINED TO UPHOLD THE ORD ER OF THE CIT(A) FOR BOTH THE AY I.E. 2004-05 & 2008-09 AND GROUND NO. 1 OF THE REVENUE IN BOTH THE APPEALS ARE DISMISSED BEING DEVOID OF M ERITS. 6. GROUND NO. 2 FOR AY 2004-05 APROPOS GROUND NO. 2 THE LD. DR SUPPORTED THE ACT ION OF THE ASSESSING OFFICER AND SUBMITTED THAT THE CIT(A) GRA NTED RELIEF TO THE ASSESSEE WITHOUT ANY BASIS HENCE, THE IMPUGNED ORDE R MAY BE SET ASIDE BY RESTORING THAT OF THE ASSESSING OFFICER. HOWEVER, HE FAIRLY ACCEPTED THAT THE CIT(A) GRANTED RELIEF TO THE ASSE SSEE IN THE SECOND ROUND OF PROCEEDINGS BY FOLLOWING FIRST APPELLATE O RDER FOR AY 2002-03. 7. THE LD. SENIOR COUNSEL STRONGLY SUPPORTED THE I MPUGNED ORDER AND SUBMITTED THAT THE CIT(A) WAS RIGHT IN GRANTING RELIEF TO THE ASSESEE ON ACCOUNT OF RENT RELATED TO LEASED HOLD B UILDING. 8. THE LD. CIT-DR SUPPORTED THE ACTION OF THE ASSE SSING OFFICER AND SUBMITTED THAT THE CIT(A) RIGHTLY UPHELD THE DI SALLOWANCE/ADDITION ON ACCOUNT OF STAMP DUTY AND COMMISSION BUT INCORRE CTLY GRANTED RELIEF ON ACCOUNT OF RENT PAID HENCE, IMPUGNED ORDE R MAY BE SET ASIDE BY RESTORING THAT OF THE ASSESSING OFFICER. 9. ON CAREFUL CONSIDERATION OF ABOVE FROM THE OPER ATIVE PART OF THE IMPUGNED ORDER PARA 5.4 WE NOTE THAT THE CIT(A) GRA NTED PART RELIEF TO THE ASSESSEE ON THE ISSUE OF RENT PAID ON LEASE HOL D PROPERTY BY FOLLOWING THE ORDER OF HIS PREDECESSOR FOR AY 2003- 04 AND HE FURTHER ITA NOS. 3435 & 3436/D/2011 5 NOTED THAT THE FACTS AND CIRCUMSTANCES OF EARLIER Y EAR ARE THE SAME WITH THE AY 2004-05 HENCE, HE FOLLOWED THAT EARLIER FIRST APPELLATE ORDER. HOWEVER, WE OBSERVE THAT THE CIT(A) UPHELD THE DISALLOWANCE AND ADDITION MADE BY THE ASSESSING OFFICER ON ACCOU NT OF STAMP DUTY AND COMMISSION PAID AND THERE IS APPEAL BY THE ASSE SSEE THUS WE MAY PRESUME THAT THE ASSESSEE HAS ALSO ACCEPTED THIS PA RT OF ORDER OF CIT(A) WHICH WAS AGAINST HIM. WE ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WITH THE SAME AND THUS WE UPHOLD THE S AME. ACCORDINGLY, GROUND NO. 2 OF THE REVENUE IN 2004-05 FAILS. 10. GROUND NO. 3 OF THE REVENUE FOR AY 2004-05 THE LD. CIT-DR SUBMITTED THAT THE ASSESSING OFFIC ER WAS QUITE CORRECT AND JUSTIFIED IN HOLDING THAT THE PROVISION PERTAINED TO AY 2005-06 IT CANNOT BE WRITTEN OFF IN AY 2004-05. HE FURTHER CONTENDED THAT THE CIT(A) GRANTED RELIEF WITHOUT ANY BASIS. HENCE, THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE ASS ESSING OFFICER. 11. THE LD. SENIOR COUNSEL OF THE ASSESSEE SUPPORTE D THE FIRST APPELLATE ORDER AND SUBMITTED THAT THE ASSESSING OF FICER DID NOT AFFORD OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THIS ISSUE A ND THE CIT(A) AFTER PROPERLY CONSIDERING THE FACTS OF THE CASE IN A RIG HT PROSPECTIVE THEN GRANTED RELIEF TO THE ASSESSEE. 12. FROM THE VIGILANT READING OF THE RELEVANT OPERA TIVE PART OF THE IMPUGNED ORDER WE NOTE THAT THE CIT(A) GRANTED RELI EF TO THE ASSESSEE BUT ALSO ENHANCED THE ASSESSMENT BY 21,47,733/-. T HE RELEVANT OPERATIVE PART OF THE CIT(A) ORDER AT PAGES 15 & 16 PARA 6.5 TO 6.5.3 READ AS FOLLOWS: 6.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE APP ELLANT, THE FINDINGS OF THE ASSESSING OFFICER AND THE FACTS ON RECORD. AS MENTIONED EARLIER, THE APPELLANT HAD CLA IMED A DEDUCTION ON ACCOUNT OF INSURANCE CLAIMS RECEIVABLES AMOUNTING TO RS. 47,90,462/- FOR THREE F.YS. AS PER THE COMPUTATION OF FILED ALONG WITH THE RETURN OF INCOM E. OUT OF ITA NOS. 3435 & 3436/D/2011 6 THE ABOVE, AN AMOUNT OF RS. 24,04,739/- PERTAINING TO THE FINANCIAL YEAR 2003-04 WAS DISALLOWED BY THE LD. ASSESSING OFFICER AS PER THE IMPUGNED ASSESSMENT OR DER I.E. FOR A.Y. 2004-05. AS DISCUSSED IN THE PRECEDI NG PARAS, THE APPELLANT HAD NOT SUBSTANTIATED THE CLAIM BEFOR E THE LD. ASSESSING OFFICER WHEN IT WAS ASKED TO DO SO DURING THE APPELLATE PROCEEDINGS, DESPITE GRANTING REPEATED OPPORTUNITIES AND LONG ADJOURNMENTS AS PER THE REQU EST OF THE LD. AR, THE APPELLANT COULD PRODUCE THE EVIDENCE S FOR THE PAYMENT OF ONLY THE FOLLOWING AMOUNTS AS RECORD ED IN THE ORDER SHEET NOTING DATED 18.2.2011: I. RS. 2,38,000/- II. RS. 17,42,523/- III. RS. 96,000/- IV. RS. 2,47,581/- 6.5.1 IT CAN BE SEEN FROM THE RECORD THAT THE FIRST HEARING IN THE CASE TOOK PLACE ON 29.3.2010 AND VIDE ORDER SHE ET NOTING 2.11.2010, THE APPELLANT WAS REQUESTED TO JU STIFY THE INSURANCE CLAIMS WRITTEN OFF DURING THE YEAR WI TH REFERENCE TO THE BASIS AND WORKING ALONG WITH NECES SARY DOCUMENTARY EVIDENCES. HOWEVER, DESPITE REPEATED OPPORTUNITIES THE APPELLANT COULD EXPLAIN/ESTABLISH THE CLAIM TO THE EXTENT OF RS. 23,24,104/- ONLY OUT OF WHICH AN AMOUNT OF RS. 20,86,104/- PERTAINS TO THE FINANCIAL YEAR 2003-04 AND THE BALANCE AMOUNT OF RS. 2,38,000/- RE LATES TO THE FINANCIAL YEAR 2002-03. SINCE THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH THE CLAIM OF DEDUCTION TO TH E EXTENT OF RS. 24,66,358/- (RS. 47,90,462 RS. 23,24,104), T HE SAME CANNOT BE ALLOWED TO IT AND IS DIRECTED TO BE ADDED TO ITS INCOME. THE LD. ASSESSING OFFICER HAD MADE AN ADDITION OF RS. 24,04,739/- TO THE INCOME OF THE APPELLANT O N ACCOUNT OF CLAIMS PERTAINING TO THE F.Y. 2003-04, OUT OF WH ICH THE APPELLANT SUBMITTED THE EVIDENCES FOR PAYMENTS TOTA LING TO RS. 20,86,104/- WHEREAS THE BALANCE AMOUNT OF RS. 3,18,635/- HAS REMAINED UNSUBSTANTIATED. THEREFORE , THE ADDITION FOR THE SAID FINANCIAL YEAR IS RESTRICTED TO THE SAID AMOUNT OF RS. 3,18,635/-. THE APPELLANT THEREBY GE TS A RELIEF OF RS. 20,86,104/- IN RESPECT OF THE CLAIM A PPELLANT AND THE EVIDENCES FILED DURING THE APPELLATE PROCEE DINGS, THE YEAR-WISE DISALLOWANCE IS WORKED OUT AS UNDER: F.Y. AMOUNT OF AMOUNT FOR WHICH DIFFERENCE DEDUCTION EVIDENCE FILED CLAIMED (IN RS.) (IN RS.) 2001-02 10,91,478/- . 10,91,478/- ITA NOS. 3435 & 3436/D/2011 7 2002-03 12,94,245/- 2,38,000/- 10,56,245/- 2003-04 24,04,739 /- 20,86,104 /-* 3,18,635 /- TOTAL 47,90,462/- 23,24,104/- 24,66,358/- *(RS. 17,42,523 + RS. 96,000 + RS. 2,47,581) 6.5.3 THUS, AN ENHANCEMENT OF RS. 21,47,723/- (RS. 24,66,358 RS. 3,18,635) AS PER THE AFORESAID WORKI NG IS MADE TO THE INCOME OF THE APPELLANT AND RAISE THE ADDITIONAL DEMAND. THE GROUND NO. 4 IS PARTLY ALLO WED WITH THE ENHANCEMENT AS INDICATED ABOVE. 12.1 FROM THE ABOVE IT IS CLEAR THAT THE CIT(A) FIR STLY HELD THAT THE APPELLANT SUBMITTED EVIDENCE FOR PAYMENTS TOTALING TO RS. 20,86,104/- AND HE CONFIRMED AND RESTRICTED DISALLOWANCE TO RS. 3,18,635/- BEING REMAINED UNSUBSTANTIATED. FURTHERMORE, HE ALSO NOT ED AND OBSERVED YEARWISE DISALLOWANCE AND ENHANCED THE DISALLOWANCE TO RS. 21,47,723/- AS PER WORKING GIVEN THEREIN AND DIRECT ED THE ASSESSING OFFICER ACCORDINGLY. WE MAY ALSO POINT OUT THAT FR OM THE RECORD AND RIVAL SUBMISSION WE INFER THAT THE ASSESSEE HAS ACC EPTED ORDER OF THE FIRST APPELLATE AUTHORITY AS THERE IS NO CROSS OBJE CTION OR APPEAL BY THE ASSESSEE ON SAID RESTRICTED AND ENHANCED DISALLOWAN CE. WE ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WITH THE SAME AND HENCE WE CONFIRM THE SAME. ACCORDINGLY, GROUND NO. 3 OF THE REVENUE APPEAL FOR AY 2004-05 ALSO FAILS. 13. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23.11.2 015 SD/- SD/- (S.V. MEHROTRA) (C.M.GARG) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED: 23.11.2015 *KAVITA, P.S. ITA NOS. 3435 & 3436/D/2011 8 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI ITA NOS. 3435 & 3436/D/2011 9 DATE 1. DRAFT DICTATED ON 09.11.15/23.11.15 2. DRAFT PLACED BEFORE AUTHOR 23.11.15 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 23.11.15 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 23.11.15 5. APPROVED DRAFT COMES TO THE SR.PS/PS 23.11.15 6. KEPT FOR PRONOUNCEMENT ON 23.11.15 7. FILE SENT TO THE BENCH CLERK 23.11.15 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.