ACIT 6(3), MUMBAI V. M F GLOBAL INDIA P. LTD, MUMBAI

ITA 4918/MUM/2010

• Counselvise Citation: 491819914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Commercial expediency
• Section: 143(3)

Judgement Text

ITA NO. 4918 /MUM/20 10 ASSESSMENT YEAR: 2006- 07 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH, MUMBAI BEFORE SHRI D MANMOHAN (VICE PRESIDENT), AND PRAMOD KUMAR ( ACCOUNTANT MEMBER) ITA NO. 4918/MUM/2010 ASSESSMENT YEAR: 2006-07 ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 6(3), MUMBAI ...APPELLANT VS. M F GLOBAL INDIA PVT. LTD. RESPONDENT NO. 1, 2 ND FLOOR, C BLOCK MODERN CENTER, 101, KHADYE MARG JACOB CIRCLE, MAHALAXMI, MUMBAI 400 011 PAN : AAECM4736E APPEARANCES: PRAVIN VERMA, FOR THE APPELLANT ANISH THACKER, FOR THE RESPONDENT DATE OF RESERVING THE ORDER : 28.09.2011 DATE OF PRONOUNCING THE ORDER: 2.11. 2011 O R D E R PER PRAMOD KUMAR : 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CALLED INTO QUESTION CORRECTNESS OF ORDER DATED 21 ST JANUARY 2009, PASSED BY THE LEARNED COMMISSIONER (APPEALS) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2 006-07. 2. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE COMMISSIONER (APPEALS) WAS JUSTI FIED IN DELETING THE ADDITION OF RS 7,35,73,500 IN RESPECT OF ONE TIME S IGN OFF BONUS AMOUNT ITA NO. 4918 /MUM/20 10 ASSESSMENT YEAR: 2006- 07 PAGE 2 OF 6 REIMBURSED TO THE ASSESSEE FROM ITS ASSOCIATED ENTE RPRISES IN LONDON, NAMELY MAN FINANCIAL. LEARNED REPRESENTATIVES FAIRLY AGREE WITH THIS PROPOSITION. HOWEVER, WE DEEM IT APPROPRIATE TO PLACE ON RECORD RATHER ELABORATE ARGUMENTS, AS RAISED BY THE ASSESSING OFFICER IN TH E MEMORANDUM OF APPEAL, AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN ACCEPTING THE ADDITIONAL EV IDENCE IN THE FORM OF COMMUNICATION BETWEEN THE ASSESSEE COMPANY AND MAN FINANCIAL (UK) VIDE LETTERS DATED 21.02.2006, 24.02.2006 AND 27.02 .2006, WITHOUT AFFORDING AN OPPORTUNITY TO THE ASSESSING OFFICER, AS REQUIRED BY RULE 46A OF THE INCOME TAX RULES 1962, BEFORE ADMITTING SUCH LEADING AND FRESH EVIDENCE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESS EE COMPANY COULD (NOT) EXPLAIN AS TO WHY THE AMOUNT OF RS 7,35,73,500 HAS PASSED THROUGH ITS BOOKS OF ACCOUNTS ESPECIALLY GIVEN THE FACT THAT PERTAINS TO THE PERSONS TO WHOM PAYMENTS WERE MADE ARE NOT EMPL OYEES OF THE ASSESSEE COMPANY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT BY STATING IN FORM 3CEB THAT THE TRANSACTION BETWEEN THE ASSESSEE COMPANY AND MAN FI NANCIAL (UK) HAS BEEN CONDUCTED AT ARMS LENGTH, THE AUDITOR HIMSELF HAS ACKNOWLEDGED THAT THE SUM OF RS 7,35,73,500 IS THE AMOUNT RECEI VED BY THE ASSESSEE COMPANY IN LIEU OF SERVICES RENDERED TO MAN FINANC IAL UK. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS 7,35,73,500 IGNORING THE FACT THAT THE ASSESSEE COMPANY HAS FAILED TO JU STIFY WHY ONE TIME BONUS WAS WARRANTED TO BE PAID TO SUCH EMPLOYEES, W ITHOUT REGARD TO ITA NO. 4918 /MUM/20 10 ASSESSMENT YEAR: 2006- 07 PAGE 3 OF 6 THEIR QUALIFICATIONS AND TERMS OF EMPLOYMENT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) IN NOT CALLING FOR CONFIRMATION FROM THEIR EMPLOYEES AND ON THEIR RETURNS OF INCOME TO VERIFY WHETHER SUCH B ONUS HAS ALREADY BEEN RECEIVED BY THEM AND OFFERED TO TAXATION DURIN G THE RELEVANT YEAR. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ALSO FAILED TO APPRECIATE THAT TIMIN G OF PAYMENTS DOES NOT REFLECT NORMAL PRACTICE SINCE PAYMENTS WERE MADE TO EMPLOYEES MUCH AFTER THE RECEIPT OF AMOUNT. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS, AS CULLED OUT FROM MATERIAL BEFORE US, ARE AS FOLLOWS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RISK MANAGEMENT AND ADVISORY SERVICES AND IS A PART OF WORLD-WIDE OPERATIONS OF MAN FINANCIAL GROUP. WHEN THE INCOME TAX RETURN FIL ED BY THE ASSESSEE WAS TAKEN UP FOR SCRUTINY ASSESSMENT PROCEEDINGS, IT WA S APPARENTLY NOTICED THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS 7,37,73,5 00 FROM ONE OF ITS ASSOCIATED ENTERPRISES BUT THE SAME HAS NOT BEEN IN CLUDED IN THE INCOME. IT WAS EXPLAINED BY THE ASSESSEE THAT FOUR COMPANIES I N INDIA, NAMELY REFCO SIFY SECURITIES INDIA PVT LTD, REFCO COMMODITIES IN DIA PVT LTD, REFCO CAPITAL INDIA PVT LTD AND REFCO INDIA PVT LTD, WHICH WERE P ROMOTED BY A US BASED COMPANY BY THE NAME OF REFCO INC, WERE ACQUIRED BY ASSESSEES ASSOCIATED ENTERPRISES MAN GROUP PLC, UK, THROUGH AN AUCTION P ROCESS, AND THE SAID AMOUNT OF RS 7,37,73,500 WAS ROUTED THROUGH THE ASS ESSEE FOR PAYMENT OF ONE TIME SIGN OFF BONUS TO BE PAID TO KEY EMPLOYEES OF THESE COMPANIES. THESE COMPANIES WERE LATER RENAMED AFTER TAKEOVER B Y MAN FINANCIAL GROUP. IT WAS FURTHER EXPLAINED BY THE ASSESSEE THAT THE R ECEIPT WAS THUS NOT OF AN INCOME NATURE, AND THAT THE AMOUNTS, IN RESPECT OF THIS ONE TIME SIGN OFF BONUS, WAS PAID OVER TO THE ELIGIBLE EMPLOYEES AFTE R DUE DEDUCTION OF TAX AT SOURCE IN ACCORDANCE WITH THE LAW. THE ASSESSING OF FICER WAS NOT SATISFIED WITH THIS EXPLANATION. HE OBSERVED THAT IT IS VERY UNIMAGINABLE THAT THE ITA NO. 4918 /MUM/20 10 ASSESSMENT YEAR: 2006- 07 PAGE 4 OF 6 EMPLOYEES WHO RECEIVE TOTAL SALARY AND REIMBURSEMEN T OF RS 30,52,770 AND ARE EMPLOYED FROM DECEMBER 2005 WHEN COMPANY WAS I NCORPORATED, WOULD BE PAID A SIGN OFF BONUS OF RS 7,35,73,500 AND THA T IT IS PERTINENT TO NOTE THAT THE EMPLOYEES WHO DONOT SERVE EVEN FOR A MINIM UM PERIOD OF FIVE YEARS WOULD NOT BE ENTITLED TO GRATUITY, HOWEVER, THE ASS ESSEE COMPANY HAS PAID A SIGN OFF BONUS OF RS 7,35,73,500 TO ITS EMPLOYEES W HO WERE EMPLOYED FOR FOUR MONTHS. THE ASSESSING OFFICER FURTHER NOTED THAT W HILE THE SAID AMOUNT WAS RECEIVED BY THE ASSESSEE COMPANY ON 31 ST MARCH 2006, THE RELATED PAYMENTS WERE MADE IN APRIL 2006 AND MAY 2006. HE ALSO OBSER VED THAT THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS OF THE PERSONS W HO WERE PAID THE SIGN OFF BONUS, (WHETHER THEY) WERE ITS EMPLOYEES AND WHAT WAS THEIR QUALIFICATIO N AND WHETHER THEIR TERMS OF PAYMENTS WARRANTED SUCH HUGE SIGN OFF PAYMENTS. THE ASSESSING OFFICE FURTHER HIGHLIGHTED THAT THE ONE TIME SIGN OFF PAYMENT WAS NOT JUSTIFIED AND OBSERVED THAT THE AS SESSEE COMPANY HAD ALREADY EMPLOYED THESE PERSONS SINCE INCEPTION OF T HE COMPANY AND HENCE THEY WOULD HAVE DRAWN UP EMPLOYMENT CONTRACT WITH T HE PERSON WHOM THEY CLASSIFY AS KEY PERSONNEL AND HENCE THERE IS NO JUS TIFICATION OF THIS ONE TIME SIGN OFF BONUS. IT WAS THEN CONCLUDED THAT SUMMAR IZING THE ABOVE, IT IS ABUNDANTLY CLEAR AND CONCLUSIVELY PROVED THAT THE P AYMENT OF ONE TIME SIGN OFF BONUS IS NOT GENUINE AND NOT AN ALLOWABLE EXPEN SES AND HENCE THE RECEIPT OF RS 7,35,73,500 NOT REFLECTED AS INCOME I S TAXED AS BUSINESS INCOME. AGGRIEVED BY THE STAND SO TAKEN BY THE AS SESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). THE CIT(A) WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS ONLY ACTED AS A CONDUIT BETWEEN THE FOREIGN ASSOCIATED ENTERPRISES AND THE EMPLOYEES EL IGIBLE TO RECEIVE THE ONE TIME SIGN OFF BONUS, AND THAT THE MONEY RECEIVED I S EXACTLY THE SAME AS MONEY DISBURSED, THE IMPUGNED ADDITION OF RS 7,35,7 3,500 WAS INDEED UNCALLED FOR. THE ACTION OF THE ASSESSING OFFICER W AS THUS REVERSED. NOW THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEF ORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND ITA NO. 4918 /MUM/20 10 ASSESSMENT YEAR: 2006- 07 PAGE 5 OF 6 DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 5. WE FIND THAT, AS STATED IN THE PARTICULARS OF IN TERNATIONAL TRANSACTIONS FILED BY THE ASSESSEE, THE AMOUNT OF RS 7,35,73,500 WAS IN THE NATURE OF AMOUNT RECEIVED ON BEHALF OF EMPLOYEES OF MAN FINA NCIAL- SIFY SECURITIES INDIA PVT LTD, MAN FINANCIAL COMMODITIES INDIA PVT LTD AND MAN FINANCIAL INDIA PVT LTD, FROM MAN GROUP PLC, LONDON, TOWARDS ONE TIME SIGN OFF BONUS PURSUANT TO TAKEOVER BY MAN GROUP FROM REFCO AND T HAT THE DETERMINATION OF ARMS LENGTH PRICE IS NOT APPLICABLE SINCE NO SERV ICE HAS BEEN RENDERED IN THE ABOVE TRANSACTION. THE ASSESSEE DID NOT, THEREFOR E, RECEIVE THE MONEY AS OF INCOME NATURE. THE AMOUNT WAS RECEIVED WITH AN OBLI GATION TO PAY OVER THE SAME TO SPECIFIED PERSONS, AND THERE IS NO DISPUTE THAT THE ASSESSEE APPROPRIATED ANY PART OF THESE RECEIPTS AS ITS OWN INCOME. THE AMOUNTS WERE PAID OVER, ON BEHALF OF THE ASSOCIATED ENTERPRISE, AND NO PART OF THE AMOUNT WAS RETAINED BY THE ASSESSEE. THE ROUTING OF THIS M ONEY THROUGH THE ASSESSEE WAS A MATTER OF CONVENIENCE, AND THE MONEY WAS NOT RECEIVED BY THE ASSESSEE, IN ITS OWN RIGHT OR FOR ITS UNFETTERED US E. UNDER THESE CIRCUMSTANCES, AS THE LEARNED CIT(A) RIGHTLY CONCLUDED, THE AMOUNT S RECEIVED BY THE ASSESSEE FROM ITS ASSOCIATED ENTERPRISE COULD NOT BE TREATED AS INCOME AT ALL. AS REGARDS THE ASSESSING OFFICERS ANALYSIS ABOUT HOW THESE PAYMENTS WERE NOT JUSTIFIED ON THE GROUNDS OF COMMERCIAL EXPEDIENCY O R OTHER FACTORS, EVEN IF THAT BE A RELEVANT ASPECT OF THE MATTER, THESE OBS ERVATIONS WOULD, AT THE MOST, BE RELEVANT IN THE ASSESSMENT OF THE PERSON WHO CLA IMS A DEDUCTION IN RESPECT OF THE SAID EXPENDITURE. SINCE THE ASSESSEE BEFORE US IS NOT THE PERSON TO HAVE CLAIMED ANY DEDUCTION IN RESPECT OF THIS EXPEN DITURE, OBVIOUSLY NO DISALLOWANCE CAN BE MADE IN THE HANDS OF THIS ASSES SEE. WHETHER THE EXPENDITURE IS WARRANTED ON THE GROUNDS OF COMMERCI AL EXPEDIENCY OR NOT IS THUS WHOLLY IRRELEVANT IN THE PRESENT CONTEXT AND T HE ASSESSING OFFICER WAS CLEARLY IN ERROR IN ADDRESSING HIMSELF TO THIS ASPE CT OF THE MATTER. THE GRIEVANCES RAISED BY THE ASSESSING OFFICER ARE THUS DEVOID OF ANY LEGALLY SUSTAINABLE MERITS, AND THE CIT(A) WAS QUITE JUSTIF IED IN DELETING THE IMPUGNED ADDITION. ITA NO. 4918 /MUM/20 10 ASSESSMENT YEAR: 2006- 07 PAGE 6 OF 6 6. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLUSION ARRIVED AT BY THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 7. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUN CED IN THE OPEN COURT TODAY ON 2 ND DAY OF NOVEMBER, 2011. SD/- SD/- (D MANMOHAN ) (PRAMOD KUMAR ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI; 2 ND DAY OF NOVEMBER , 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A)-12,MUMBAI 4. COMMISSIONER,CITY-6, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, B BENCH, MUMB AI 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI