Iris Worldwide Integrated Marketing Pvt. Ltd., Gurgaon V. DCIT, Circle- 2, Gurgaon

ITA 3849/DEL/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1314 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 21-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RATAN SINGH
• Section: 37; 143(3); 142(1); 37(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘C’ : NEW DELHI) (Through Video Conferencing) BEFORE SH. G.S.PANNU, HON’BLE PRESIDENT AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.3849 /Del/2018 (Assessment Year : 2014-15) Iris Worldwide Integrated Marketing Pvt. Ltd. Unit No. 303, 3 rd Floor, Veritas Business Suites Building, Sector-53, Gurgaon Haryana, PAN : AABCI6361E Vs. DCIT Circle--2 Gurgaon (APPELLANT) (RESPONDENT) Assessee by None Revenue by Sh. Ratan Singh, Sr. DR Date of hearing: 10.06.2022 Date of Pronouncement: 30 th .06.2022 ORDER PER ANUBHAV SHARMA, JM: The appeal has been preferred by the assessee against the order u/s 250(6) of the Income Tax Act, 1961 (hereinafter referred to as “the Act” of 1961) passed by Ld. Commissioner of Income Tax (Appeals)- 2, Gurugaon in appeal no. 375/16-17 for the assessment year 2014-15, which was filed by ITA No. 3849/Del/2018 IRIS Worldwide Integrated Marketing P. Ltd. 2 the assessee against the order u/s 143(3) of the Act dated 25.11.2016 passed by Dy. Commissioner of Income Tax, Circle-2 Gurugaon (hereinafter referred to as “the Ld. AO”). 2. The brief facts are the assessee filed return of income declaring loss of Rs. 1,16,25,840/- which was picked up for scrutiny and notice u/s 143(2) was served upon the assessee. Notice u/s 142(1) was also issued along with questionnaire and based upon the reply and documents, the Ld. AO had examined the genuineness of the claim of assessee with regard to a sum of Rs. 67,77,463/- which was debited by the assessee as paid to its associate concern for availing, their expert services to manage its business in India. The same was disallowed u/s 37(1) of the Act and added back to the taxable income. Thus, reducing the total loss assessed to Rs. 48,48,377/-. 3. In the appeal before the Ld. First Appellate Authority, the assessee challenged the order of ld. AO primarily on the basis that the Ld. AO has erred in not considering the relevant material on record filed before him and made the addition even when no adverse material is there. However, the explanation or justification provided by the assessee was not found convincing enough to accept the genuineness of the expenditure claimed as being related to business. Accordingly the appeal was dismissed. 4. Now, before this Tribunal the assessee has raised following grounds of appeal :- “1. That on the facts and circumstances of the case, the Commissioner of Income-tax (Appeals) - 2, Gurgaon [‘CIT(A)’] grossly erred in upholding the action of the assessing officer in making an addition of Rs.67,77,463 on account of management service fees to the returned income of the appellant under the ITA No. 3849/Del/2018 IRIS Worldwide Integrated Marketing P. Ltd. 3 provisions of section 37(1) of the Income- tax Act, 1961 (‘the Act’). 1.1 That the CIT(A) grossly erred on facts and in law in confirming the aforesaid addition made by the assessing officer on the basis that details/ evidences of services provided in consideration for management service fees has not been submitted by the appellant. 1.2 That the CIT(A) grossly erred on facts and in law in confirming the aforesaid addition made by the assessing officer without appreciating that the management service fees has been regularly and consistently charged in books of accounts by the appellant every year. 1.3 That the CIT(A) grossly erred on facts and in law in confirming the aforesaid addition made by the assessing officer without appreciating that the incurrence of management service fees was a business necessity for the appellant. 1.4 That the CIT(A) grossly erred on facts and in law in confirming the aforesaid addition made by the assessing officer without appreciating that the expenditure incurred by appellant on account of management service fees during the relevant assessment year was properly verified and audited by the statutory and tax auditors of the company and found the same to be genuine (since no adverse comments were reported by them in respect thereof). 1.5 That the CIT(A) grossly erred on facts and in law in confirming the aforesaid addition made by the assessing officer without appreciating that the expenditure on account of payment of management service fees was certified to be at arm’s length by the Chartered Accountant under the transfer pricing laws of India, after evaluating the services received by the appellant in consideration thereof. 1.6 That the CIT(A) grossly erred on facts and in law in confirming the aforesaid addition made by the assessing officer without appreciating that the expenditure on account of management service fees was properly explained by the appellant before the CIT(A)/ assessing officer and evidences of services ITA No. 3849/Del/2018 IRIS Worldwide Integrated Marketing P. Ltd. 4 provided by recipient of such fees were also duly provided. 1.7 That the CIT(A) grossly erred on facts and in law in confirming the aforesaid addition made by the assessing officer without appreciating that the management service fees was confirmed as received by the foreign recipient as well in lieu of services provided by them to the Indian entity. 1.8 That the CIT(A) grossly erred on facts and in law in confirming the aforesaid addition made by the assessing officer without appreciating that the onus lied upon the assessing officer to bring on record evidences as to same being non-genuine or un- reasonable. The appellant craves leave to added, amend or vary the above grounds of appeal on or before the date of hearing.” 5. The case was called for hearing on 23.02.2022 but none appeared for the appellant-assessee. The record shows that earlier on 25.08.2021, 25.07.2021, 20.12.2021 also none has appeared for the assessee. Thus, taking into consideration, the mandate of Rule 24 of the Income Tax (Appellate Tribunal ) Rules, 1963, the appeal is being disposed of on merits after hearing Sr. DR for revenue who supported the orders of Ld. AO and Ld. First Appellate Authority. 6. Giving thoughtful consideration to the grounds of appeal, arguments and matter on record it can be observed at outset that all the grounds of appeal are connected to each other and controversy being, if the disallowance of expenditure on account of group management fee paid to associate enterprises was illegal and same were genuine ? 7. It can be appreciated from the order of Ld. AO that in its reply dated 15.11.2016 the assessee has given a detailed note about the services availed ITA No. 3849/Del/2018 IRIS Worldwide Integrated Marketing P. Ltd. 5 from its associate enterprises on account of expert services and payment of group management fees. A lengthy list of the same under the following heads was given : (a) Advise in Creative Development (Quality & Product) (b) Advise in Media Research Assistance (c) HR support, including but not exclusively (d) Technology support, including but not exclusively (e) Finance Support, including but not exclusively (f) Provision of legal support, including but not exclusively (g) Provision of administration services (h) Provision of creative development, business development, media and research services where requested by the recipient (i) At the formal request of the recipient, company may also profice the services of highly qualified and experienced personnel for short periods as required to carry out specific tasks or research, in order to take advantage of their knowledge and expertise for the benefit of the recipient. (j) Such further similar management services as company may reasonably be able to provide. 8. The order of ld. AO mentions that the assessee tendered only the ledger copy of the services provided but failed to furnish other relevant evidences. So much so that the invoices/ bills were also not furnished by the assesse. Ld. AO also observed in its order that the assessee could not explain the mode of rendering the services in India such as the alleged consultant has actually worked at the project site in India. Thus, relying the judgment of Hon’ble Delhi High Court in Commissioner of Income Tax-I vs. Cushman and Wakefield (India) (P.) Ltd. [2014] 46 taxmann. com 317 (Delhi), the ITA No. 3849/Del/2018 IRIS Worldwide Integrated Marketing P. Ltd. 6 Ld. AO concluded that in spite of the assessee’s case being covered by transfer pricing provision Section 37 of the Act can be invoked for disallowance of the expenditure, which is not for the benefit of the business. 9. The ld. First Appellate Authority observed that during appeal also appellant was asked to submit some evidences regarding actual occurrence of the management service fees for which the foreign parent company has charged. And copies of e-mails exchanged with the persons associated with the appellant company for providing technical assistance in terms of finance and other related areas were submitted and which the Ld. First Appellate Authority found to be related to very general nature of work and not indicating any specialist kind of the advise which was made and for which these fees were paid. The Ld. First Appellate Authority observed that the copies of tax invoices given indicate name of client contract holder and the client reference number etc. but does not give details of the related project or the work done or what services were provided. Thus, finding no justification to accept the genuineness of expenditure as being related to these business, dismissed the appeal. 10. Thus, what can be concluded is that assessee has failed to produce any cogent evidence before the Ld. AO or Ld. First Appellate Authority to indicate that the expenditure incurred was for the purposes of the business. The assessee company is a advertising agency in Gurgaon and engaged in providing advertising communication and marketing solutions to its clients both domestic and international. The company is closely held company with 99.76% of the shares being held by the Holding Company . Thus, certainly the assessee must be in possession of quite relevant commercial and accounting documents which may indicate that there was valid expenditure ITA No. 3849/Del/2018 IRIS Worldwide Integrated Marketing P. Ltd. 7 on as many as ten heads, which were claimed to be the areas of expert services. However, no evidence to that effect was led. 11. The Ld. AO has rightly relied the judgment in Commissioner of Income Tax-1 vs. Cushman and Wakefield Indian (P.) Ltd. (supra) to hold that in spite of the case of assessee being covered by transfer pricing provision that does not restrict or in any way by pass the functions of the TPO when AO goes for determining u/s 37(1) of the Act, that whether the business expenditure claimed is expended wholly and exclusively for the purposes of business or not. 12. In the light of aforesaid discussion, there is no merit in the grounds and accordingly the appeal is dismissed. Order pronounced and signed in open court on this day of 30 th June, 2022. Sd/- Sd/- (G.S.PANNU) (ANUBHAV SHARMA) PRESIDENT JUDICIAL MEMBER Date:-30 .06.2022 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI