DCIT 1(1)(2), MUMBAI V. M/S GOLDMAN SACHS INDIA FINANCE P.LTD, MUMBAI

ITA 3695/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8907 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Appeal Filed On: 27-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Cost of acquisition; TDS; Set aside
• Section: 271(1)(c); 143(3); 40(a)(ia); 250; 192; 40a(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM ITA Nos. 3674/Mum/2019 (Assessment Year 2015-16) Goldman Sachs (India) Finance P. Ltd. 951A Rational House, Appasaheb Marathe Marg Prabhadevi, Mumbai-400 025 Vs. The Asst. Commissioner of Income Tax, Circle 1(1)(2) Aayakar Bhavan, M.K. Road, Mumbai-400 020 (Appellant) (Respondent) PAN No. AAACP2448J ITA Nos. 3695/Mum/2019 (Assessment Year 2015-16) The Asst. Commissioner of Income Tax, Circle 1(1)(2) Aayakar Bhavan, M.K. Road, Mumbai-400 020 Vs. Goldman Sachs (India) Finance P. Ltd. 951A Rational House, Appasaheb Marathe Marg Prabhadevi, Mumbai-400 025 (Appellant) (Respondent) Assessee by : Shri Madhur Agrawal, AR Revenue by : Shri Hoshang B. Irani, DR Date of hearing: 23.03.2022 Date of pronouncement : 09.06.2022 O R D E R PER PRASHANT MAHARISHI, AM: 01. These are the cross appeals filed by the parties against the order passed by the Commissioner of Income-tax (Appeals)-2, Mumbai [CIT (A)] for A.Y. 2015-16 on 29 th March, 2019. 02. ITA No. 3395/Mum/2019 is filed by the Dy. Commissioner of Income-tax, Circle 1(2), Mumbai (the learned Assessing Officer) and ITA No.3674/Mum/2019 filed by the assessee. Page | 2 Goldman Sachs (I) Finance Ltd. ITA No. 3674&3695/Mum/2019; AY 15-16 03. In ITA No. 3674/Mum/2019, assessee has raised following grounds of appeal:- “Aggrieved by the order passed by the Commissioner of Income Tax (Appeals)-2 [CIT(A)] dated 29 March 2019, under section 250 of the Act. GSIFPL (the Appellant) respectfully submits that the learned CIT(A) has: 1. Erred in disallowing an amount of Rs 1,700,000 under section 40(a)(1) of the Act, being amounts paid to non-resident group entities which are in the nature of reimbursement of certain expenses. 2. Erred in not appreciating that, out of Rs 1,700,000 taxes have already been withheld on an amount of Rs. 925,546 and hence, cannot be disallowed under section 40(a)(i) of the Act. 3. Erred in not admitting additional evidences in the nature of withholding tax-certificates issued by the Appellant for an amount of Rs 925,546, basis of allocation demonstrating the fact that the payments were in the nature of reimbursement and sample invoices of third party in relation to the same. 4. In dismissing the Appellant's petition for non-levy of penalty under section 271(1)(c) of the Act. Each of the grounds of appeal referred above is separate, and may kindly be considered independent of each other. The Appellant craves leave to add, alter, vary, omit, substitute or amend any or all of the above grounds Page | 3 Goldman Sachs (I) Finance Ltd. ITA No. 3674&3695/Mum/2019; AY 15-16 of appeal, at any time before or at the time of the appeal, so as to enable the Hon'ble Income-tax Appellate Tribunal to decide this appeal according to law.” 04. In ITA No.3695/Mum/2019, the learned Assessing Officer raised following grounds of appeal:- “On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance, of Rs. 3,06,00,000/-, made on a/c of non- withholding of taxes to non-residents." 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating the fact that the assessee had failed to furnish any evidence to show that the payments are for such transactions on which tax is not required to be withheld at source.” 05. Brief fact of the case shows that assessee is a Private Company and is a non deposit taking non banking finance company. For AY 2015-16, assessee filed its return of income on 24 th November, 2015 at a total income of ₹24,20,74,290/-. The return of income of the assessee was picked up for limited scrutiny. During the course of assessment proceedings, the learned Assessing Officer examined the issue of payment of ₹17,24,877/- paid to M/s Goldman Sachs (India) Capital Markets Pvt. Ltd. (in short GSICMPL). This expenditure was stated to be recharge of employee cost, technology cost and other administrative charges. Assessee stated that this Page | 4 Goldman Sachs (I) Finance Ltd. ITA No. 3674&3695/Mum/2019; AY 15-16 expenditure was incurred on behalf of group entities including the assessee by the parent company and same is reimbursed by the assessee. The assessee also stated that as it is merely reimbursement of expenses and therefore, no tax deduction at source was required to be made. It further explained that the reimbursement was made as per cost allocation and recharge agreement entered into by assessee with M/s Goldman Sachs (India) Securities Private Limited (in short GSISPL). As per agreement that company shall recharge all direct cost incurred on behalf of group companies. Therefore, assessee reimbursed the expenditure incurred and allocated to the assessee. Assessee also submitted that co-ordinate Bench for A.Y. 2009-10 and A.Y. 2011-12 has held that assessee is not required to withhold tax on payments made to group entities towards allocation of common expense. The learned Assessing Officer rejected the contention of the assessee and held that assessee has not established that the payments made are actual reimbursement without any element of profit and further, the agreement dated 27.05.2013 in Para 4.3 provides for withholding taxes including service tax. Therefore, the learned Assessing Officer held that assessee was required to deduct tax at source at the rate of 30% of ₹17,24,877/- and therefore, the above expenditure is disallowable under Section 40(a)(ia) of the Act. The learned Assessing Officer further stated that order of the co-ordinate Bench is challenged before the Hon'ble High Court and therefore, disallowance is made. However, in the assessment order the learned Page | 5 Goldman Sachs (I) Finance Ltd. ITA No. 3674&3695/Mum/2019; AY 15-16 Assessing Officer disallowed only ₹5,17,463/- being 30% of ₹17,24,877/-. 06. Further, the learned Assessing Officer noted that assessee has also incurred certain employee related expenses to its various related parties. As per the detailed contained in note no. 3.26 of financial statements assessee noted that out of total amount assessee has deducted tax at source on amount of ₹5,53,82,350/- paid to GSISPL but on the balance sum of ₹2,74,17,650/- no tax is deducted at source. Assessee once again stated that this expenditure are in the nature of reimbursement of expenses paid by group entities on behalf of the assessee comprising of employee related cost and corporate recharges such as telecommunication and administrative expenses. As there is no element of income in the reimbursement of expenses, taxes were not required to be withheld. Assessee submitted various copies of invoices. The learned Assessing Officer rejected the contention of the assessee holding that assessee has failed to prove that these are actual reimbursement. The learned Assessing Officer further found that assessee has paid ₹3,23,00,000-/ as recharge without tax deducted at source to nonresident related parties on which the disallowance is 100% of such expenses. He also found that assessee has paid ₹2,74,17,650/- as recharge without TDS to resident related parties and disallowance for non-deduction would be to the extent of 30% amounting to ₹82,25,295/-. Therefore, the learned Assessing Officer passed an assessment order under Section 143(3) of the Act on Page | 6 Goldman Sachs (I) Finance Ltd. ITA No. 3674&3695/Mum/2019; AY 15-16 18.12.2017 making the disallowance of ₹4,10,42,758/- and determining the total income of the assessee at ₹28,31,17,044/- against the return of income of the assessee of ₹14,20,74,286/-. Assessee aggrieved with the order of the learned Assessing Officer preferred the appeal before the learned CIT (A). 07. With respect to the payment to the domestic group entities, he held that the issue has already been decided in favour of the assessee by the co-ordinate bench for A.Ys. 09-10 & 11-12 and further, appeal of the Revenue before the Hon'ble High Court is also dismissed vide order dated 26 th February, 2019 in ITA No.742 of 2016. Therefore, he deleted the disallowance under Section 40(a)(ia) amounting to ₹5,17,463/- and ₹82,25,295/-. With respect to the disallowance of ₹3.23 lacs, he categorically noted that a sum of ₹3.06 crores is merely in the nature of reimbursement without any element of profit and therefore, no tax is required to be withheld. He further held that as the appellant is already making TDS on the sum under Section 192 of the Act, if tax is deducted on this sum, it would be result into double deduction of tax at source. Therefore, he deleted the disallowance of ₹3,06,00,000/- under Section 40a(ia) of the Act. 08. With respect to the balance sum of ₹17 lacs, assessee submitted before him that it has already deducted tax in respect of payment of ₹9,25,546/- but same could not be brought to the notice of the learned Assessing Officer. Page | 7 Goldman Sachs (I) Finance Ltd. ITA No. 3674&3695/Mum/2019; AY 15-16 09. Further, with respect to ₹8,71,077/-, it was submitted these payments are also in the nature of reimbursement of expenses such as relocation expenses. He held that as the assessee has come up with new plea and evidences with regard to the payment of ₹17,00,000/- without giving any reason, why such evidences were not submitted before the learned Assessing Officer, he confirmed the disallowance. In view of this, assessee is aggrieved with the disallowance of ₹17 lacs confirmed by the learned CIT (A) and learned Assessing Officer is aggrieved by the deletion of the disallowance of ₹87,42,758/- under Section 40(a)(ia) of the Act and ₹3.06 crores under Section 40(a)(i) of the Act. 010. Coming to the appeal of the learned Assessing Officer, the learned Departmental Representative vehemently supported the order of the learned CIT (A) and submitted that assessee has failed to proof the reimbursement of expenditure. The addition has been deleted by the learned CIT (A) incorrectly. The learned Authorized Representative supported the order of the learned CIT (A). 011. We have carefully considered the rival contentions and find that the learned CIT (A) has correctly deleted the addition of ₹3,06,00,000/- by giving the reason that these are the expenses that employees related to Goldman Sachs Group Inc. USA (GSGI). The above group has stock award plan which are also extended to the employees of its group company. The assessee has granted these stocks to its employees on fulfilling of certain conditions. After Page | 8 Goldman Sachs (I) Finance Ltd. ITA No. 3674&3695/Mum/2019; AY 15-16 the expiry of the vesting shares of Goldman Sachs group would be given to these employees for which assessee would be required to make a payment to GSGI. Therefore, the amount of stock paid by assessee to GSGI is merely reimbursement and does not include any profit element. Further, on debiting the cost of acquisition in the books of the assessee, assessee would be liable to deduct tax under Section 192 of the Act. He also verified various from no. 16 issued by assessee to the employees. On this fact, the learned CIT (A) held that tax is required to be deducted on reimbursement of such stock price to the GSGI as it is mere reimbursement of expenditure. No infirmities were pointed out in the order of the learned CIT (A). It was also not shown that any profit element is contained in the above remittances made by the assessee. In view of this, we do not find any infirmity in the order of the learned CIT (A) in holding that payment of ₹3.06 crores made by the assessee to GSGI is merely reimbursement of expenditure and no tax is required to be withheld thereon. Accordingly the appeal of the learned Assessing Officer containing this solitary ground is dismissed. 012. Coming to the appeal of the assessee, both the parties heard. 013. We find that on the balance payment of ₹17 lacs, the assessee has raised two arguments. The first argument is that on some of the payment, assessee has already deducted tax at source and secondly, part of the expenditure is merely reimbursement of expenditure on Page | 9 Goldman Sachs (I) Finance Ltd. ITA No. 3674&3695/Mum/2019; AY 15-16 which no tax is required to be deducted at source. Despite assessee producing the evidence before the learned CIT (A), he rejected the arguments of the assessee without examining the same. As assessee has produced necessary evidence before him, the addition is confirmed only for the reason that same were not produced before the learned Assessing Officer. We find no justification has been given in rejecting the claim of the assessee. In view of this with respect to the disallowance of ₹17 lacs, we set aside the grounds of the assessee to the file of the learned Assessing Officer to examine whether assessee has already deducted tax at source on payment of ₹9,25,546/- and further, the expenditure of ₹8,71,077/- is merely reimbursement of the expenditure. The assessee is directed to produce the relevant details before the learned Assessing Officer. The learned Assessing Officer is directed to examine the same and decide the issue in accordance with law. In the result, appeal of the assessee is allowed for statistical purposes. 014. In the result, appeal filed by the learned Assessing Officer is dismissed and appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 09.06.2022. Sd/- Sd/- (PAVAN KUMAR GADALE) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 09.06.2022 Sudip Sarkar, Sr.PS Page | 10 Goldman Sachs (I) Finance Ltd. ITA No. 3674&3695/Mum/2019; AY 15-16 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai