WACHOVIA MANAGEMET SERVICES P. LTD, HYDERABAD V. ASST CIT 10(1), MUMBAI

ITA 4426/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4061 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 09-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-06-2014
• Court: TRIBUNAL
• Department Lawyers: SAMBIT MISHRA
• Assessee Lawyers: DHAVAL SHETH
• Keywords: Depreciation; Transfer pricing
• Section: 143(3); 234B

Judgement Text

, , K, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4426/MUM/2014 ASSESSMENT YEAR: 2008-09 WE LLS FARGO REAL ESTATE ADVISORS PRIVATE LIMITED,( EARLIER KNOWN AS WACHOVIA MANAGEMENT SERVICES PRIVATE LTD.), PLOT NO.1263A/1, RD. NO.63A, JUBILEE HILLS, HYDERABAD-500033 TELANGANA, INDIA / VS. ACI T 10(1) MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AA ACW7131M / ASSESSEE BY SHRI M.P. LOHIA & S HRI DHAVAL SHETH (AR) / REVENUE BY SHRI SA MBIT MISHRA (DR) / DATE OF HEARING : 04/04/2016 / DATE OF ORDER: 22/04/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI- 15 {(IN SHORT CIT(A)}, DATED 11.04.2014 PASSED AG AINST WELLS FARGO REAL ESTATE ADVISORS P.L. 2 ASSESSMENT ORDER U/S 143(3) R.W.S. 144C DATED 20.0 2.2012 FOR THE ASSESSMENT YEAR 2008-09 ON THE FOLLOWING GR OUNDS: AGGRIEVED BY THE ORDER PASSED BY THE CIT (A) UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 (ACT'), THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED CIT (A) ERRED IN DISPOSING THE APPEAL AND IN PASSING THE ORDER ON THE FOLLOWING GROUNDS: 1. THE CIT(A) ERRED IN DISALLOWING AN AMOUNT OF RS 5,761,629 BEING EXPENDITURE INCURRED BY THE APPELLANT IN CONNECTION WITH FURNITURE AND FIXTURE AND LEASEHOLD IMPROVEMENTS AND DETERMINING THE ARM'S LENGTH PRICE (ALP) AS NIL. 2.WITHOUT PREJUDICE TO THE ABOVE, IN NOT CONSIDERING THE FACT THAT THIS WAS THE AMOUNT THAT WAS CAPITALIZED BY THE APPELLANT AND ONLY THE DEPRECIATION IN RESPECT OF THE FURNITURE AND FIXTUR E AND LEASEHOLD IMPROVEMENTS WAS CLAIMED AS A DEDUCTIBLE EXPENDITURE. 3. THE CIT(A) ERRED IN DISALLOWING AN AMOUNT OF RS 51,833,404 BEING AN EXPENDITURE INCURRED BY THE APPELLANT ON SALARY AND BONUS PAID TO ITS EMPLOYEES AND DETERMINING THE ALP AS NIL. 4. THE CIT(A) ERRED IN LEVYING CONSEQUENTIAL INTEREST UNDER SECTION 234A AND 234B 5. THE CIT(A) HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT FOR CONCEALING PARTICULARS/ FURNISHING INACCURATE PARTICULARS OF INCOME. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI M.P. LOHIA & SHRI DHAVAL SHETH, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND B Y SHRI SAMBIT MISHRA, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. WELLS FARGO REAL ESTATE ADVISORS P.L. 3 3. GROUND NO.1: IN THIS GROUND, THE ASSESSEE IS AGGRIEVED IN DISALLOWING AN AMOUNT OF RS 5,761,629 BEING EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IN CONNECTION WITH FURNITURE AND FIXTURE AND LEASEHOLD IMPROVEMENTS AND DETERMINING THE ARM'S LENGTH PRICE (ALP) AS NIL. 3.1. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR U NDER CONSIDERATION THE ASSESSEE COMPANY WAS ENGAGED IN T HE BUSINESS OF PROVIDING INVESTMENT ADVISORY AND SUPPO RT SERVICES TO ITS OVERSEAS ASSOCIATED ENTERPRISES (AE ). DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS, THE TRA NSFER PRICING OFFICER (TPO) NOTED THAT DURING THE IMPUGNED FINANC IAL YEAR, THE ASSESSEE COMPANY HAD INCURRED EXPENSES AMOUNTIN G TO RS.34,63,833/- TOWARDS PURCHASE OF FURNITURE AND EL ECTRIC FITTINGS AND RS.22,97,796/- TOWARDS LEASE HOLD IMPR OVEMENTS. THE SAID FURNITURE AND ELECTRIC FITTINGS AND LEASE HOLD IMPROVEMENTS WERE PURCHASED BY THE AE FROM THE COUN TRIES ABROAD AND THESE WERE SHIPPED AND DELIVERED BY THE 3 RD PARTY VENDOR TO THE ASSESSEE COMPANY IN INDIA. IT WAS EXP LAINED BY THE ASSESSEE THAT BEING FIRST YEAR OF ITS OPERATION , ALL MAJORITY EXPENSES WERE INCURRED BY THE AO ON BEHALF OF THE A SSESSEE WHICH WERE SUBSEQUENTLY REIMBURSED BY THE ASSESSEE TO THE AE WITHOUT ANY MARK UP. IT WAS FURTHER SUBMITTED TH AT THE ASSESSEE HAD CAPITALIZED THESE EXPENSES IN THE FIXE D ASSET SCHEDULE AND CLAIMED DEPRECIATION ON THE SAME AS PE R ACT. THE ASSESSEE ALSO SUBMITTED SAMPLE COPIES OF THE IN VOICES TO THE TPO. IT WAS POINTED OUT BY THE ASSESSEE THAT TH E ASSESSEE WELLS FARGO REAL ESTATE ADVISORS P.L. 4 HAS RECOVERED TOTAL EXPENDITURE (INCLUDING AMOUNT O F DEPRECIATION) FROM ITS AE ALONG WITH MARKUP OF 18%, AND OFFERED THE SAME TO TAX IN ITS RETURN OF INCOME FIL ED IN INDIA. BUT, THE TPO REJECTED THE SUBMISSIONS OF THE ASSESS EE AND DETERMINED THE ALP OF THESE TWO TRANSACTIONS AT NIL . ON THE GROUND THAT ASSESSEE HAS NOT BEEN ABLE TO SUBMIT AP PROPRIATE DOCUMENTATION TO SHOW THAT THESE ASSETS WERE ACTUAL LY DELIVERED TO THE ASSESSEE AND USED BY IT FOR ITS BU SINESS IN INDIA. 3.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) WHEREIN DETAILED SUBMISSIONS WERE MADE A LONG WITH REQUISITE DOCUMENTATION BUT LD. CIT(A) WITHOUT GOIN G FURTHER INTO THE FACTS OF THE CASE ENDORSED THE FINDINGS OF THE TPO AND UPHELD THE ORDER OF THE AO/TPO. 3.3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE TRIBUNAL. 3.4. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L OF THE ASSESSEE SUBMITTED THAT THESE ITEMS WERE CAPITALIZE D. IT HAS BEEN FURTHER SUBMITTED THAT VARIOUS DOCUMENTS HAVE BEEN SUBMITTED SHOWING THE DELIVERY OF THE ASSET TO THE ASSESSEE. OUR ATTENTION WAS DRAWN ON THE COPIES OF INVOICES A ND OTHER DOCUMENTS ENCLOSED IN THE PAPER BOOK. IT HAS BEEN S UBMITTED THAT THE INVOICES ARE IN THE NAME OF ITS AE, BUT TH E ADDRESS HAS BEEN MENTIONED OF THE ASSESSEE COMPANY ONLY. IT WAS FURTHER SUBMITTED THAT AE HAS NO PRESENCE IN INDIA. OUR WELLS FARGO REAL ESTATE ADVISORS P.L. 5 ATTENTION WAS ALSO ON THE PROFIT AND LOSS ACCOUNT O F THE ASSESSEE TO SHOW THAT THESE EXPENSES HAVE NO IMPACT ON THE PROFIT AND LOSS ACCOUNT. RELIANCE HAS BEEN PLACED O N THE JUDGMENT OF TOPSGRUP ELECTRONIC SYSTEMS LTD. (ITA NO.2115/MUM/2015 DATED 19 TH FEBRUARY 2016, ITAT MUMBAI) FOR THE PROPOSITION THAT IN ABSENCE OF ANY IMPACT O N INCOME OR PROFIT, THE TRANSACTION IS NOT REQUIRED TO BE BENCH MARKED AND THE SAME IS BEYOND THE SCOPE OF TP PROVISIONS IN IN DIA. WHILE CONCLUDING THE ARGUMENTS, LD. COUNSEL SUBMITTED THA T THIS CASE MAY BE SENT BACK TO THE FILE OF THE AO FOR PRO PER EXAMINATION OF THE EVIDENCES SUBMITTED BY THE ASSES SEE. 3.5. PER CONTRA, LD. DR SUBMITTED THAT HE WOULD HAVE NO OBJECTION IF THIS GROUND IS SENT BACK TO THE FILE O F THE AO. THE ASSESSEE SHOULD BE ASKED TO BRING ALL THE EVIDENCES ON RECORD IN SUPPORT OF ITS CLAIM. 3.6. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND SUBMISSIONS MADE BY BOTH THE SIDES BEFORE US. I T IS NOTED THAT IT APPEARS THAT NEITHER THE TPO NOR LD. CIT(A) HAVE PROPERLY EXAMINED THE EVIDENCES SUBMITTED BY THE AS SESSEE SHOWING THAT IMPUGNED ASSETS WERE DELIVERED TO THE ASSESSEE AT ITS BUSINESS PREMISES IN INDIA. THE CLAIM OF THE ASSESSEE HAS BEEN REJECTED ON THE BASIS OF DOUBTS. WE ARE IN CLINED TO ACCEPT THE REQUEST OF THE LD. COUNSEL AND FIND IT A PPROPRIATE TO SEND THIS GROUND BACK TO THE FILE OF THE AO FOR ITS ADJUDICATION AFRESH. THE AO SHALL GIVE ADEQUATE OPPORTUNITY OF H EARING TO THE ASSESSEE AND SHALL TAKE INTO ACCOUNT ALL THE DO CUMENTARY WELLS FARGO REAL ESTATE ADVISORS P.L. 6 EVIDENCES AS MAY BE PLACED ON RECORD BY THE ASSESSE E. THE ASSESSEE IS FREE TO TAKE ALL LEGAL AND FACTUAL ISSU ES BEFORE THE AO. THE AO SHALL ALSO TAKE INTO ACCOUNT ALL THE JUD GMENTS ON THE LEGAL POSITION AS MAY BE RELIED UPON THE LD. CO UNSEL IN SUPPORT OF HIS PROPOSITION THAT THE IMPUGNED TRANSA CTION WAS NOT LIABLE TO BE BENCHMARKED FOR DETERMINATION OF I TS ALP. THUS, WITH THESE DIRECTIONS THIS GROUND IS SENT BAC K TO THE FILE OF THE AO AND IT MAY BE TREATED AS ALLOWED FOR STAT ISTICAL PURPOSES. 4. GROUND NO.2: IN THIS GROUND THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF LOWER AUTHORITIES IN DISALLOWING AN A MOUNT OF RS.5,18,33,404/-, BEING AN EXPENDITURE INCURRED BY THE ASSESSEE ON SALARY AND BONUS PAID TO ITS EMPLOYEES AND DETERMINING THE ALP AS NIL. 4.1. THE BRIEF FACTS RELATED TO THIS GROUND ARE THAT DU RING THE YEAR THE ASSESSEE INCURRED AN AGGREGATE AMOUNT OF RS.5,18,33,404/- TOWARDS SALARIES AND BONUS TO ITS EMPLOYEES. IT WAS SUBMITTED BY THE ASSESSEE THAT SINCE THE ASS ESSEE DID NOT HAVE SUFFICIENT FUNDS TO MEET THIS EXPENDITURE, THE AE OF THE ASSESSEE PROVIDED TEMPORARY ADVANCE TO DISPERSE THIS EXPENDITURE, WHICH WAS REFUNDED BY THE ASSESSEE IN SUBSEQUENT YEARS. DURING THE COURSE OF TRANSFER PRI CING PROCEEDINGS, THE TPO MISUNDERSTOOD THE FACT AND HEL D THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCES TO PROVE THA T THE SERVICES WERE RENDERED BY THE AE TO THE ASSESSEE AN D THAT NO EVIDENCES HAVE BEEN FURNISHED REGARDING THE EXPENSE S FOR WELLS FARGO REAL ESTATE ADVISORS P.L. 7 WHICH REIMBURSEMENT HAS BEEN MADE, AND TPO DETERMIN ED ALP OF THESE EXPENSES AT NIL. 4.2. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L HAS DRAWN OUR ATTENTION ON VARIOUS PAGES OF THE PAPER B OOK SHOWING THAT IMPUGNED AMOUNT WAS TEMPORARY LOAN GIV EN BY THE AE WHICH WAS SUBSEQUENTLY REFUNDED. 4.3. PER CONTRA LD. DR REQUESTED THAT THESE GROUNDS ALS O MAY BE SENT BACK TO THE FILE OF THE AO/TPO FOR PROPER E XAMINATION OF FACTS. 4.4. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND SUBMISSIONS MADE BEFORE US. IT IS NOTED BY US T HAT IT APPEARS THAT THE TPO HAVE MISUNDERSTOOD THE FACTS O F THIS CASE. WITH THE ASSISTANCES OF LD. COUNSEL, WE HAD G ONE THROUGH FEW PAGES OF THE PAPER BOOK SHOWING THAT TH E IMPUGNED AMOUNT WAS RECEIVED BY THE ASSESSEE AS TEM PORARY ADVANCE WHICH IS CLAIMED TO HAVE BEEN SUBSEQUENTLY RETURNED TO THE AE. WE HAVE ALSO NOTED THAT THIS FACT WAS CL EARLY MENTIONED IN ITS REPLY BY THE ASSESSEE BEFORE BOTH OF THE LOWER AUTHORITIES. BUT, IT APPEARS TO HAVE BEEN MISSED BY THEM. THUS, IN THESE CIRCUMSTANCES, WE FIND IT APPROPRIAT E TO SEND THIS GROUND ALSO BACK TO THE FILE OF AO FOR PROPER EXAMINATION ON FACTS, FOR WHICH THE AO SHALL GIVE FULL OPPORTUN ITY OF HEARING TO THE ASSESSEE. THE ASSESSEE SHALL PLACE ON RECORD REQUISITE DETAILS AND DOCUMENTS AS MAY BE REQUIRED BY THE AO OR AS MAY BE CONSIDERED APPROPRIATE BY THE ASSESSEE AS PE R LAW. THE WELLS FARGO REAL ESTATE ADVISORS P.L. 8 ASSESSEE IS FREE TO MAKE ALL LEGAL AND FACTUAL ISSU ES BEFORE THE AO. THUS, WITH THESE OBSERVATIONS THIS GROUND IS SE NT BACK TO THE FILE OF AO FOR ITS ADJUDICATION AFRESH, AND ACC ORDINGLY, IT MAYBE BE TREATED AS ALLOWED FOR STATISTICAL PURPOSE S. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL, 2016. SD/- (MAHAVIR SINGH) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED 22/04/2016 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI