ITO 13(2)(2), MUMBAI V. SOTAX INDIA PVT. LTD., MUMBAI

ITA 3783/MUM/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101122 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Department
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 18-06-2015
• Court: TRIBUNAL
• Department Lawyers: NEELIMA V NADKARNI
• Assessee Lawyers: HITESH P SHAH
• Keywords: Depreciation; Transfer pricing; Earning of tax free income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A. NO. 3783/M/2015 (AY:2011 - 2012 ) INCOME TAX OFFICER - 13(2)(2), MUMBAI. / VS. M/S. SOTAX INDIA PVT LTD., 601, 6 TH FLOOR, R.NO.147, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020. ./ PAN : AAPCS1739N ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : MS. NEELIMA V. NADKARNI, DR / RESPONDENT BY : SHRI HITESH P SHAH, AR / DATE OF HEARING : 27.8 .2015 / DATE OF PRONOUNCEMENT : 23 .9 .2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT (A) - 21, MUMBAI DATED 4.3.2015 FOR THE ASSESSMENT YEAR 2011 - 2012. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING EFFECTIVE GROUND WHICH READS AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE ADDITION OF RS. 17,65,416/ - ON ACCOUNT OF EXPENSES INCURRED FOR THE BUSINESS OF ASSOCIATED ENTERPRISES AND NOT FOR THE ASSESSEE, WITHOUT APPRECIATING THE FACT THAT THE EXPENSES WERE INCURRED FOR THE BUSINESS OF THE ASSOCIATED ENTERPRISES AND THE ASSESSEE RECEIVED ONLY A P ORTION OF THE SALE RECEIPTS AS COMMISSION. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MARKETING, SERVICE & MAINTENANCE OF THE SOTAX MACHINES. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE LOSS AT RS. 14,13,329/ - . AO COMPLETED THE SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 3,52,087/ - . DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE CLAIMED AN EXPENDITURE OF RS. 17,65,416/ - O N ACCOUNT OF A DMINISTRATIVE / SELLING EXPENSES; FINANCE EXPENSES AND DEPRECIATION ETC. ASSESSEE EARNED EXEMPT INCOME OF RS. 3,36,237/ - AGAINST THE ABOVE EXPENDITURE. AO DID NOT ACCEPT THE SAID CLAIM STATING THAT THE INCOME AND EXPENDITURE ARE NOT PREPARED AND DISALLOW ED THE SAID 2 EXPENDITURE OF RS. 17,65,416/ - . AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE MADE WRITTEN SUBMISSIONS AND MADE OUT THE CASE FOR ALLOWING THE SAID CLAIM OF EXPENDITURE. IN THIS REGARD, ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DAULAT RAM RAWAT MULL [1973] 87 ITR 349 AND ALSO THE JUDGMENT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. A SPENTECH INDIA (P) LTD 229 CTR 172. ON CONSIDERING THE ABOVE SUBMISSIONS, CIT (A) DELETED THE ADDITIONS MADE BY THE AO AS PER THE DISCUSSION GIVEN IN PARA 3.3 OF THE IMPUGNED ORDER. AGGRIEVED WITH THE SAID RELIEF GRANTED BY THE CIT (A), REVENUE IS IN APP EAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUND. 4. DURING THE PROCEEDINGS BEFORE THE TRIBUNAL, LD DR FOR THE REV ENUE RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT MOST OF THE PAYMENTS ARE MADE TO THE ASSOCIATED ENTERPRISES (AE). THEREFOR E, THE DECISION OF THE AO IS CORRECT. 5. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE ORDER OF THE CIT (A) AND SUBMITTED THAT NONE OF THE CLAIM OF EXPENDITURE WAS DOUBTED BY THE AO AND THE REASONS GIVEN BY THE AO ARE ALSO NOT SUSTAI NABLE IN LAW. 6. AFTER HEARING BOTH THE PARTIES, I HAVE PERUSED THE ORDERS OF THE AO AND THE CIT (A). ON PERUSAL OF THE ORDER OF THE CIT (A) IN GENERAL AND PARA 3.3 IN PARTICULAR, I FIND THE SAME IS RELEVANT IN THIS REGARD AND THEREFORE, THE SAID PARA 3 .3 IS EXTRACTED AS UNDER: 3.3. I HAVE CONSIDERED THE FINDING OF THE ASSESSING OFFICER AND COUNTER SUBMISSION OF THE APPELLANT, CAREFULLY, I FIND THAT LD ASSESSING OFFICER HAS SIMPLY DISALLOWED THE EXPENDITURE ON THE GROUND THAT ASSESSEE COMPANY IS THE ASSOCIATED ENTERPRISE O F SOTAX AG A ND SUCH EXPENSES COULD BE REIMBURSED BY THE AE. THE REASONING OF THE ASSESSING OFFICER IS NOT CONVINCING ONE WHEN THE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN DOUBTED, IT CANNOT BE DISALLOWED ON THE PRESUMPTION THAT THERE IS NO NEED OF INCURRING SUCH E XPENSES IN INDIA. IN FIRST YEAR OF OPERATION, OBVIOUSLY, NO COMPANY CAN EARN MUCH WHEREAS SUCH COMPANY HAS TO BEAR ALL THE ADMINISTRATIVE MARKETING AND INFRASTRUCTURAL EXPENSES IRRESPECTIVE OF QUANTUM OF BUSINESS OR PROFIT. THEREFORE, I FIND NO MERIT IN THE FINDING OF THE ASSESSING OFFICER THAT EXPENSES SHOULD HAVE BEEN REIMBURSED BY THE PRINCIPAL AND THERE WAS NO NEED OF SUCH EXPENSES. NO ONE CAN SUBSCRIBE TO SUCH ARGUMENTS OF THE ASSESSING OFFICER. THEREFORE, I FIND MERIT IN THE ARGUMENTS AND SUBMISS ION OF THE APPELLANT AS REPRODUCED HEREIN ABOVE. THUS, IN THE BACKGROUND OF THE ABOVE DISCUSSION, THE DISALLOWANCE OF EXPENDITURE OF RS. 17,65,416/ - IS DELETED. 3 7. FROM THE ABOVE, IT IS EVIDENT THAT THE AO MADE A DISALLOWANCE OF EXPENDITURE ON THE GROUND THAT ASSESSEE - COMPANY IS AN AE OF SOTEX AG AND THE SAID EXPENSES COULD HAVE BEEN REIMBURSED BY THE SAID AE. IN MY OPINION, THIS IS A BUSINESS MODEL ADOPTED BY THE ASSESSEE AND THE ASSESSING OFFICER HAS NOT MADE OUT ANY CASE ABOUT THE COLLUSIVE ARRANGEMEN T. FURTHER, AO HAS ALSO NOT BROUGHT ANY MATERIAL ON RECORD TO EXPLAIN THAT THE EXPENSES IN QUESTION WERE NOT INCURRED FOR THE BUSINESS PURPOSES OF THE ASSESSEE. ON PERUSAL OF THE CONTENTS OF THE SAID PARA 3.3 OF THE IMPUGNED ORDER, I AM OF THE OPINION TH AT THERE IS NO NEED FOR MY INTERFERENCE IN THE DECISION OF THE CIT (A). ACCORDINGLY, GROUND RAISED BY THE REVENUE IS DISMISSED . 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUN CED IN THE OPEN COURT ON 2 3 R D SEPTEMBER, 2015. S D / - (D. KARUNAKARA RAO) ACCOUNTANT MEMBER MUMBAI ; 2 3 . 9 .2015 . . ./ OKK , SR. PS / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI