DCIT, Circle- 3(1), New Delhi V. APCO Worldwide (India) Pvt. Ltd., New Delhi

ITA 4818/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2946 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 26-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS
• Section: 40(a)(ia); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘D’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.4818/Del./2019 (ASSESSMENT YEAR : 2015-16) DCIT, Circle 3 (1), vs. APCO Worldwide (India) Pvt. Ltd., New Delhi. 1 st Floor, ALPS Building, 56, Janpath, New Delhi – 110 001. (PAN : AAFCA8835M) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ajay Vohra, Sr. Advocate Shri Anshul Sachhar, Advocate REVENUE BY : Shri Sanjay Kumar, Senior DR Date of Hearing : 21.09.2022 Date of Order : 26.09.2022 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : This appeal by the Revenue is directed against the order of the ld. CIT (Appeals)-I, New Delhi dated 29.03.2019 for the Assessment Year 2015-16. 2. The grounds of appeal raised by the assessee read as under :- “1. Whether on the facts and circumstances of the case, Ld. CIT (A) has erred in deleting the addition made by the AO amounting to RS.1,34,91,235/- on account of disallwoacne of expenses u/s 40(1)(i) of Income Tax Act, 1961 on accountof overseas group charges. ITA No.4818/Del./2019 2 2. Whether on the facts and circumstances of the case, Ld. CIT (A) has erred in restricting the addition of Rs.28,63,982/- made by the AO u/s 40(1)(ia) of the Income Tax Act to Rs.1,22,708/- thereby giving a relief of Rs.27,41,274/- on account of payment to local vendors.” 3. Apropos Ground No.1 : Brief facts of the case are that the assessee company was incorporated on 07.09.2006 and is engaged in the business of providing management, public relationship consultancy and other similar services to its overseas group companies and to the Indian clients. The assessee company engaged in the business of personnel related services as well. In the assessment order, AO observed that assessee has claimed expenses of RS.1,63,55,218/- on account of ‘Group Charges’ under the head ‘other expenses’. AO enquired as to why the same should not be disallowed under section 40(a)(i) of the Income-tax Act, 1961 (for short 'the Act') as TDS has not been deducted. AO was not convinced by assessee’s reply. He held as under :- “4. The assessee has claimed expenses of Rs.1,63,55,218.00 on account of "group charges" under the head "other expenses". During the course of assessment proceedings, when asked about the nature of these expenses, the assessee submitted that group charges accrued in the books of APCO India represent charges received from various corporate towards allocation of cost incurred for provision of various corporate office services provided to APCO India such as corporate administration, finance support, information technology support, human resources, marketing and legal support functions. In addition, the said charges also include the assessee the assessee has submitted note regarding group charges such as nature of payment and purpose of transaction. Further, it was asked as to what was the reason for non-deduction of tax at source u/s 195 of the IT ACT 1961 for the payments made to non-resident. The submission of the assessee company has been considered and not found tenable.” 4. Upon assessee’s appeal, ld. CIT (A) gave the following finding :- ITA No.4818/Del./2019 3 “In the present case, total group charges of Rs 1,63,55,218/- has two components: (i) overseas group charges of Rs 1,34,91,235/- and (ii) domestic payments of Rs 28,63,982/- in respect 'of payment to local vendors on behalf of group ,entities. Ld AR has submitted that during AY 2015-16, the Appellant has made the payments in respect of the SUPR0rt services amounting to Rs1,34,91,235/- to its affiliate entities, located in United Kingdom ('UK'), Belgium,' United Arab Emirates ('UAE\ United States of America ('USA') and Singapore towards allocation of costs/ expenses incurred on ,various' corporate administration, finance support, human resources, and marketing and legal support functions and other costs incurred on behalf of the Appellant. The entity wise details of group charges incurred during the year have been tabulated by the appellant as under: Entity Name Country of tax residence of payee entity Group Charges (in Rs.) APCO Worldwide Limited (‘APCO UK’) UK 42,80,603 APCO Worldwide SA ('APCO Belgium') Belgium 12,31,656 APCO Worldwide FZ-LLC (‘APCO Dubai') UAE 47,98,738 APCO Worldwide Inc. ('APCO US') USA 31,13,984 APCO Holding Pvt. Ltd. ('APCO Singapore') Singapore 66,254 Total 1,34,91,235 8.2.2 The AO has made disallowance of group charges paid to various group entities of APCO India amounting to Rs.1,34,91,235/- u/s 40(a)(i) of the Act contending that these payments were liable to TDS. Since the TDS was not deducted the expenses were disallowed u/s 40(a)(i) of the Act. Similar disallowance was made in earlier year also and the appellant was allowed relief by the CIT(A).” ITA No.4818/Del./2019 4 Thereafter, ld. CIT (A) referred earlier CIT (A)’s order and order of ITAT in assessee’s own case for AY 2012-13 and concluded as under :- “8.2.3 In the appellant’s own case in ITA No.3353/Del/2016 for AY 2012-13, Hon’ble ITAT Delhi has held as under :- “This appeal filed by the Revenue is directed against the order passed by the CIT (A) on 10.03.2016 in relation to the assessment year 2012-13. 2. The only issue raised in this appeal is against the deletion of addition of Rs.1,09,06,277/- made by the Assessing Officer on account of disallowance of expenses u/s 40(a)(i) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act? 3. Briefly stated, the facts of the case are that the assessee claimed expenses of Rs.1,09,06,277/- on account of 'Group charges' under the head 'Other expenses.' Since no deduction of tax at source was made before making such payment, the Assessing Officer called upon the assessee to explain as to why the disallowance be not made u/s 40(a)(i) for default in making deduction of tax at source u/s 195 of the Act. The assessee submitted that 'Group charges' were the assessee's share in the overall group expenses incurred by the foreign group companies for corporate administration, finance support, IT support, human resources, marketing and legal support functions and other services. It was further submitted that the costs incurred by the group companies on behalf of the assessee were relatable to the assessee's activities which have been recouped from it on a cost to cost basis. It was, therefore, claimed that since no income element was involved in the payment, the provisions of section 195 were not attracted and, hence, no disallowance was called for u/s 40(a)(i) of the Act. Not convinced, the Assessing Officer made disallowance for the said sum, which came to be deleted in the first appeal. ITA No.4818/Del./2019 5 4. We have heard the Id. DR and perused the relevant material on record. There is no appearance from the side of the assessee despite notice. We are, therefore, proceeding to dispose of this appeal ex pane qua the assessee but on merits. It is an admitted position as emanating from the impugned order that the aforesaid payment made by the assessee represents its share in the expenses incurred by the group companies on cost to cost basis. No material has been brought on record by the ld. DR to demonstrate that it was not a reimbursement but a payment made with some mark-up having profit element. It is a settled legal position that when reimbursement of expenses is made which does not include any mark up or profit element, there can be no question of taxing such amount in the hands of the recipient. Once a particular amount is not chargeable to tax in the hands of the non- resident recipient, the question of applicability of section 195 does not arise. Recently, the Hon'ble Supreme Court in DIT(LT.) VS. A.P. Moller Maersk A/S (2017) 392 ITR 186 (SC) has held that once payment is in the nature of reimbursement of expenses, that is, it is a cost sharing arrangement, it cannot be income chargeable to tax in the hands of recipient. Similar view was earlier taken by the Hon'ble Bombay High Court in DIT VS. Wizcraft International Entertainment P. Ltd. (Bom) (2014) 364 ITR 227 (Bom) holding that payment by way of reimbursement of expenses is not taxable in India. In view of the fact that the amount paid by the assessee to non-residents is not chargeable to tax in their hands and, as such, the provisions of section 195 of the Act are not attracted, there can be no question of applying section 40(a)(i) for making disallowance in the hands of the assessee. We, therefore, uphold the impugned order and sustain the deletion of disallowance made in the assessment order. 5. In the result, the appeal filed by the Revenue is dismissed.” 8.2.4 The facts of the present case are exactly similar to the facts as in earlier years. Respectfully following the decision of Hon'ble I TAT, Delhi in the appellant's own case in ITA No 3353/Del/2016 for AY 2012-13 and CIT(Appeals)'s order for ITA No.4818/Del./2019 6 earlier year, the AO is directed to delete disallowance of overseas group charges u/s 40(a)(i) amounting to Rs1,34,91,235/- paid to overseas group entities. These grounds of appeal are decided in favour of the appellant.” 5. Against the above order, assessee is in appeal before us. We have heard both the parties and perused the record. 6. At the outset, ld. Counsel of the assessee submitted that the same issue has been consistently decided by ITAT in assessee’s own case as under :- (i) Order of the Delhi Bench of Tribunal in assessee’s own case for AY 2010-11 & 2011-12; (ii) Order of the Delhi Bench of Tribunal in assessee’s own case for AY 2012-13; (iii) Order of the Delhi Bench of Tribunal in assessee’s own case for AY 2013-14; and (iv) Order of the Delhi Bench of Tribunal in assessee’s own case for AY 2014-15. 7. Per contra ld. DR for the Revenue could not dispute the proposition. 8. Upon careful consideration, we find that the issue is covered in favour of the assessee by a series of ITAT order in assessee’s own case. Respectfully following the precedent, we uphold the order of ld. CIT (A) on this issue. 9. Apropos Ground No.2 : Ld. CIT (A)’s observation on this issue is as under :- ITA No.4818/Del./2019 7 “8.3 Ground No. 2(d): Disallowance of Domestic payments of Rs. 28,63,982/- u/s 40(a)(ia) of the Act in respect of payment to local vendors on behalf of group entities: 8.3.1 In this regard, Ld. AR has submitted as under: • The break-up of aforesaid payment of Rs. 28,63,982/- made to various resident parties and the corresponding TDS made by the Appellant is enclosed as Annexure 4. • We wish to submit that out of total expenditure of Rs.28,63,982, the Appellant has duly deducted TOS on the expenses aggregating to Rs 27,41,274. The evidence in the form of TDS certificates in Form 16A in order to substantiate that the Appellant has already deducted tax at source on the aforesaid payments are enclosed herewith as Annexure 5. By reviewing the aforesaid documents, your honour may kindly note that the Appellant had already deducted applicable TDS on the expenses aggregating to Rs. 27,41,274/-." 8.3.2 During the course of the appellate proceedings, Ld AR of the appellant has explained that the appellant company has deducted Tax Deducted at Source(TDS) on the expenditure amounting to Rs. 27,41,274/- which has been included in the total amount of group charges. Further, the details of said expenses along with the TDS deducted has been enclosed as Annexure 4 and relevant TDS certificates have been enclosed as Annexure 5 of the submission dated 8th January, 2019. The AO was directed to verify the same and give his comment thereon by 5th February, 2019. Thereafter two reminders were issued to the AO on 18.02.2019 and 05.03.2019. However, no report has been received from the AO on this issue. I have perused the details submitted by the appellant. Since the appellant has deducted TDS on the expenses aggregating to Rs.27,41,274/-, the AO is directed to delete the addition of Rs.27,41,2741- u/s 40(a)(ia). Accordingly, the remaining disallowance of Rs.1,22,708/- u/s 40(a)(ia) is sustained. This ground of appeal is partly allowed.” ITA No.4818/Del./2019 8 10. We have heard both the parties and perused the record. We find that on this issue, ld. CIT (A) has given factual finding himself. Nothing was brought before us to dispute the same. Hence, we uphold the order of ld. CIT (A) on this issue. 11. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on this 26 th day of September, 2022. Sd/- sd/- (KUL BHARAT) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 26 th day of September, 2022 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A)-I, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.