The ACIT,GNR Circle, Gandhinagar V. M/s. Sheladia Associates Inc., Gandhinagar

ITA 418/AHD/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9698 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 14-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS VIBHA BHALLA
• Assessee Lawyers: MRS RITIKA AGRAWAL
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI S.S. GODA RA, J.M.) I.T. A. NOS. 726/AHD/2 011& 418/AHD/2012 (ASSESSMENT YEARS: 2 007-08 & 2008-09) DEPUTY COMMISSIONER OF INCOME TAX, GANDHINAGAR V/S SHELADIA ASSOCIATES INC. AMSRI SHAMIRA, 2 ND FLOOR, FLAT NO. 206 & 207, DOOR NO. 9-1-113 TO 118, S.D. ROAD, OLD LANCER LANES, SECUNDARABAD-500003, TELANGANA (APPELLANT) (RESPONDENT) ASSTT. COMMISSIONER OF INCOME TAX, GANDHINAGAR V/S SHELADIA ASSOCIATES INC. AMSRI SHAMIRA, 2 ND FLOOR, FLAT NO. 206 & 207, DOOR NO. 9-1-113 TO 118, S.D. ROAD, OLD LANCER LANES, SECUNDARABAD-500003, TELANGANA (APPELLANT) (RESPONDENT) PAN: AAFCS 7792F APPELLANT BY : MRS. VIBHA BHALLA, CIT/DR RESPONDENT BY : MRS. RITIKA AGRAWAL, ( )/ ORDER DATE OF HEARING : 07-07-201 5 DATE OF PRONOUNCEMENT : 17 -07-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER ITA NOS 726/ A/11 & 418/A/2012 . A.YS. 2007-0 8 & 2008-09 2 1. THESE 2 APPEALS FILED BY THE REVENUE ARE AGAINST TH E ORDER OF CIT(A), GANDHINAGAR, AHMEDABAD DATED 01.12.2010 & 11.11.201 1FOR A.YS. 2007-08 & 2008-09 RESPECTIVELY. 2. AT THE OUTSET, BEFORE US, BOTH THE PARTIES SUBMITTE D THAT THOUGH THE APPEAL OF THE ASSESSEE RELATES TO 2 DIFFERENT ASSESSMENT YEAR S BUT THE FACTS AND CIRCUMSTANCES OF BOTH THE YEARS ARE SIMILAR EXCEPT FOR THE ASSESSMENT YEARS AND AMOUNTS AND THE SUBMISSIONS ARE ALSO COMMON FOR BOTH THE APPEALS AND THEREFORE BOTH THE APPEALS CAN BE HEARD TOGETHER. W E THEREFORE PROCEED TO DISPOSE OF BOTH THE APPEALS TOGETHER FOR THE SAKE O F CONVENIENCE AND PROCEED WITH THE FACTS IN ITA NO. 726/AHD/2011 FOR A.Y. 2007-08. 3. ASSESSEE IS STATED TO BE A COMPANY INCORPORATED IN USA HAVING A PERMANENT ESTABLISHMENT IN INDIA AND STATED TO BE ENGAGED IN PROVIDING CONSULTING ENGINEERING SERVICES FOR VARIOUS INFRASTRUCTURE PRO JECTS IN INDIA. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 29.0 3.2008 DECLARING TOTAL INCOME OF RS. 7,23,59,010/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 29.12.2009 AND TOTAL INCOME WAS DETERMINED AT RS. 8 ,99,54,322/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER B EFORE LD. CIT(A) WHO VIDE ORDER DATED 01.12.2010 GRANTED SUBSTANTIAL RELIEF T O THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REVENUE IS NO W IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING EFFECTIVE GROUND:- 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT TREATING REIMBURSEMENT OF EXPENSES AS PART OF FEES FOR TECHNICAL SERVICES U/S. 44D. ITA NOS 726/ A/11 & 418/A/2012 . A.YS. 2007-0 8 & 2008-09 3 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD UNDERTAKEN VARIOUS PROJECTS IN PURSUANCE OF AGREEM ENTS WITH GOVERNMENTS ENTERED INTO AFTER 31.03.1996 BUT BEFORE 01.04.2003 . HE ALSO NOTICED THAT ASSESSEE HAD RECEIVED INCOME BY WAY OF ROYALTY OR F EES FOR TECHNICAL SERVICES WHICH WERE ASSESSABLE U/S. 44D(B) OF THE A CT. A.O ALSO NOTICED THAT ASSESSEE HAS CONSIDERED THE AMOUNT OF RS. 5,40,05,8 78/- AS FEES FOR TECHNICAL SERVICES COVERED U/S. 44D(B) AS INCOME LI ABLE TO TAX @ 20% U/S. 115A OF THE ACT AS AGAINST RS. 6,98,39,579/- RECEIV ED BY ASSESSEE FROM GOVERNMENT UNDER PROJECTS. HE ALSO NOTICED THAT THE REIMBURSEMENT OF EXPENSES WHICH WERE RECEIVED BY THE ASSESSEE WERE N OT CONSIDERED BY THE ASSESSEE TO BE IN THE NATURE OF FEES FOR TECHNICAL SERVICES FOR THE PURPOSE OF SECTION 44D. A.O WAS OF THE VIEW THAT SECTION 44D I S AN OVERRIDING PROVISION AND AS PER THE PROVISIONS, NO DEDUCTION I N RESPECT OF ANY EXPENDITURE U/S. 28 TO 44C SHALL BE ALLOWED THEREFO RE THE EXPENDITURE OF RS. 6,98,39,579/- WHICH WAS SHOWN BY ASSESSEE UNDER THE HEAD CONSULTING FEE, MANAGEMENT FEE, EXCHANGE PROFIT/LOSS AND REIMBURSEM ENT OF EXPENSES RECEIVED WAS LIABLE TO BE HELD AS FEES FOR TECHNIC AL SERVICES FOR THE PURPOSE OF SECTION 44D OF THE ACT. HE ACCORDINGLY HELD THE SAME AS PART OF INCOME. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE BY HOLDING AS UNDER:- 3.2 I HAVE GONE THROUGH THE ASSESSMENT ORDER; SUBM ISSIONS OF THE ASSESSEE, THE CASE LAWS RELIED ON BY THE DEPARTMENT AS WELL AS ASSESSEE AND THE FACTS AND CIRCUMSTANCES OF THE CASE. AS SUBMITTED BY THE ASSESSEE DURING THE ASSES SMENT PROCEEDINGS, THE REIMBURSEMENT OF EXPENSES IN ITS CASE IS NOT ONLY AS PER THE AGRE EMENT BUT ALSO IS ON ACTUAL BASIS. THE HONBLE ITAT, CUTTACK BENCH HAS DECIDED IN FAVOUR O F THE ASSESSEE IN AY 2002-03 ON THIS ISSUE WHEN IT CONFIRMED THE ORDER OF THE CIT(A) ON SIMILAR FACTS WHERE REIMBURSEMENT EXPENSES WAS HELD TO BE NOT PART OF TEE FOR TECHNIC AL SERVICES'. THE FACTS OF THE CASE IN ITA NOS 726/ A/11 & 418/A/2012 . A.YS. 2007-0 8 & 2008-09 4 COCHIN REFINERIES LTD VS CIT 222 ITR 354 RELIED ON BY THE AO ARE DISTINGUISHABLE BECAUSE IN THAT CASE REIMBURSEMENT OF EXPENSES WAS GIVEN WHERE THE SERVICES PROVIDED BY THE THIRD PARTIES WERE IN THE NATURE OF' FEES FO R TECHNICAL SERVICES' ONLY WHICH ARE REIMBURSED IN THAT CASE. THIS IS NOT THE CASE IN TH E PRESENT CASE. IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT REIMBURSEMENT OF EXPENSES IS NEIT HER (A) FEES FOR TECHNICAL SERVICES NOR (B) LUMPSUM CONSIDERATION NOR (C) PROVISION FOR SERVICES OF TECHNICAL OR OTHER PERSONNEL. THE ASSERTIONS OF ASSESSEE HAVE NOT BEEN REBUTTED B Y THE AO. IN THE LIGHT OF THE ABOVE, FOLLOWING THE DECISION OF THE HON'BLE ITAT, CUTTACK BENCH IN ASSESSEE'S CASE I HOLD THAT REIMBURSEMENT OF EXPENSES IS NOT PART OF 'FEES FOR TECHNICAL SERVICES' U/S. 44D OF THE IT ACT. THEREFO RE, THE AO IS DIRECTED TO RE-COMPUTE .THE 'FEES FOR TECHNICAL SERVICES'. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 6. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, LD. D.R SUBMITTED THAT SECTION 44D IS AN OVERRIDING PROVISION WHICH LAYS DOWN THAT NO DEDUCTION IN RESPECT OF ANY EXPENDITURE OR ALLOWANCE U/S. 28 TO 44C SHALL BE ALLOWED IN COMPUT ING THE INCOME BY WAY OF ROYALTY OR FEES FOR TECHNICAL SERVICES RECEIVED BY FOREIGN COMPANY AND THEREFORE THE EXPENDITURE/ALLOWANCE CLAIMED BY THE ASSESSEE ON THE PROJECT WAS RIGHTLY DISALLOWED BY THE A.O. SHE THUS SUPPORT ED THE ORDER OF A.O. LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS M ADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF THE CASE FOR A.Y. 2002-03 AND THE I SSUE IN THE PRESENT CASE IS DIRECTLY COVERED IN ASSESSEES FAVOUR BY THE DECISI ON OF HONBLE ITAT CUTTACK BENCH IN ASSESSEES OWN CASE FOR A.Y. 2002- 03. SHE THUS SUPPORTED THE ORDER OF LD. CIT(A). ITA NOS 726/ A/11 & 418/A/2012 . A.YS. 2007-0 8 & 2008-09 5 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO COMPUT ATION OF INCOME U/S. 44D OF THE ACT. THE ASSESSEES CONTENTION IS THAT THE A MOUNT OF REIMBURSEMENT IS NOT TO BE CONSIDERED AS PART OF THE INCOME WHEREAS REVENUES CONTENTION IS THAT WHILE COMPUTING THE INCOME U/S. 44D, NO DEDUCT ION OF EXPENDITURE IS TO BE ALLOWED. WE FIND THAT LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS RELIED ON THE DECISION OF HONBLE CUTT ACK BENCH IN ASSESSEES OWN CASE FOR A.Y. 02-03. WE FIND THAT LD. CIT(A) VI DE ORDER DATED 12.12.2005 FOR A.Y. 2002-03 HAD DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER:- 6.1 THE LD. A.RS. ARGUMENT THAT, IF THE RECEIPTS O F THE APPELLANT ARE TREATED AS FEES FOR TECHNICAL SERVICES, THEN, THE TOTAL RECEIPTS OF RS. 7,47,37,250/- CREDITED TO P & L ACCOUNT, WHICH IS INCLUSIVE OF RS. 75,36,398/- RECEIVED BY T HE APPELLANT TOWARDS REIMBURSEMENT OF EXPENSES, MAY BE EXCLUDED, FOUND TO BE LOGICAL AND CORRECT. IT IS SPECIFICALLY MENTIONED IN THE CONTRACT, AS TO WHICH EXPENSES WOULD BE REIMBUR SED AND AT WHAT RATE. CONSIDERING THIS CLAUSE OF THE AGREEMENT WITH NHAI AND THE DEFI NITION OF FEES FOR TECHNICAL SERVICES, UNDER THE I.T. ACT, AS WELL AS, THE DEFI NITION OF FEES FOR TECHNICAL SERVICES, UNDER DTAA, THE RECEIPTS IN THE NATURE OF REIMBURSE MENT OF EXPENSES, CANNOT BE TREATED AS, FEE FOR TECHNICAL SERVICES. HENCE, I HEREBY DIR ECT THE A.O TO EXCLUDE RS. 75,56,398/- BEING REIMBURSABLE EXPENSES, FROM THE GROSS RECEIPT OF RS. 7,47,34,250/-, WHILE TAXING THE FEES FOR TECHNICAL SERVICES, BUT HE SHOULD INCLUD E RS. 2,77,779/- BEING FLUCTUATION OF EXCHANGE RATE, WHICH IS APPURTENANT TO THE FEES FO R TECHNICAL SERVICES. 9. THE AFORESAID DECISION OF CIT(A) WAS UPHELD BY THE CO-ORDINATE BENCH OF CUTTACK TRIBUNAL VIDE ORDER DATED 18.01.2008 IN ITA NO. 140/CTK/2006 (THE COPY OF WHICH IS PLACED AT PAGE 17 TO 24 OF THE PAP ER BOOK). DURING THE COURSE OF HEARING, THE BENCH INQUIRED FROM BOTH THE PARTIES AS TO WHETHER THE AFORESAID ORDER OF CUTTACK BENCH IN ASSESSEES OWN CASE IN A.Y. 2002-03 HAS ATTAINED FINALITY OR HAS BEEN REVERSED BY HIGHE R AUTHORITIES TO WHICH LD. ITA NOS 726/ A/11 & 418/A/2012 . A.YS. 2007-0 8 & 2008-09 6 A.R. SUBMITTED THAT ON THE CASE BEING TRANSFERRED F ROM DCIT, BHUBANESWAR TO AHMEDABAD, ASSESSEE VIDE LETTER DATED 6 TH JUNE, 2013 ADDRESSED TO THE CONCERNED OFFICER AT AHMEDABAD, HAD REQUESTED THE D EPARTMENT TO INFORM AS TO WHETHER ANY APPEAL HAS BEEN PREFERRED BY THE DEP ARTMENT AGAINST THE ITAT ORDER OF CUTTACK BENCH FOR A.Y. 2002-03 (THE C OPY OF THE AFORESAID LETTER IS PLACED AT PAGE 378 OF THE PAPER BOOK). SH E SUBMITTED THAT THE AFORESAID LETTER HAS REMAINED UN- REPLIED TILL DATE WHICH LEADS TO THE CONCLUSION THAT NO APPEAL HAS BEEN PREFERRED BY REV ENUE AGAINST THE ORDER OF ITAT FOR A.Y. 02-03 AND THEREFORE THE ORDER IN THE CASE OF ASSESSEE IN A.Y. 02-03 HAS ATTAINED FINALITY. BEFORE US, REVENUE HA S NOT PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE AS TO WHETHER THE DECISION OF ITAT FOR A.Y. 2002- 03 IN ASSESSEES OWN CASE HAS BEEN OVERTURNED BY TH E HIGH COURT NOR COULD POINT OUT ANY SIGNIFICANT DISTINGUISHING FEATURE OF THE CASE WHEN COMPARED TO THE FACTS OF A.Y. 02-03. IN VIEW OF THE AFORESAID FACTS AND IN THE ABSENCE OF ANY DISTINGUISHING FEATURE, WE FIND NO REASON TO IN TERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMIS SED. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. NOW WE TAKE UP ITA NO. 418/AHD/2012 FOR A.Y. 2008-0 9. 11. IN THE PRESENT CASES, SINCE BOTH THE PARTIES HAVE A DMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL TO THAT IN A.Y. 2007-08, WE THEREFORE FOR THE REASONS STATED HEREINABOVE WHILE DECIDING T HE APPEAL FOR A.Y. 2007- 08 IN ITA NO. 726/AHD/2011 (SUPRA) AND FOR SIMILAR REASONS DISMISS THE GROUNDS OF REVENUE IN THE PRESENT APPEAL. ITA NOS 726/ A/11 & 418/A/2012 . A.YS. 2007-0 8 & 2008-09 7 12. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON 17 - 07 - 201 5. SD/- SD/- (S.S. GODARA) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD