Limklaters & Paines (Now Linklaters), V. DCIT Cir 2(6),

ITA 5730/MUM/2003

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6569 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 29-04-2014
• Assessment Year: misc
• Appeal Filed On: 20-08-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR SHRIVASTAV
• Assessee Lawyers: S E DASTUR
• Keywords: Transfer pricing; Double taxation relief; Services rendered outside India; Permanent establishment; Corroborative evidences
• Section: 5(2); 234B; 154

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND . , SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER . / ITA NO.5730/MUM/2003 / ASSESSMENT YEAR 1996-97 LINKLATERS & PAINES ( NOW LINKLATERS) C/O. C.C. CHOKSHI & CO., MAFATLAL HOUSE, BACKBAY RECLAMATION, MUMBAI 400020 / VS. THE DCIT, CIR. 2(6), 1 ST FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 20. ! ./ '# ./ PAN/GIR NO. : 9-L ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) . / ITA NO.6557/MUM/2003 / ASSESSMENT YEAR 1996-97 THE ASSTT. DIT(IT)-3(1), AAYKAR BHAVAN, MK ROAD, MUMBAI. / VS. M/S.LINKLATERS( FORMERLY KNOWN AS LINKLATERS & PAINES) C/O. C.C. CHOKSHI & CO., MAFATLAL HOUSE, BACKBAY RECLAMATION, MUMBAI 400020 ! ./ '# ./ PAN/GIR NO. : 9-L ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) ASSESSEE BY S/ SHRI S.E.DASTUR & NIRAJ SHETH REVENUE BY : SHRI AJAY KUMAR SHRIVASTAV ' ( / DATE OF HEARING : 07/05/2014 )* ' ( / DATE OF PRONOUNCEMENT : 07/05/2014 . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 2 + / O R D E R PER I.P.BANSAL, J.M: THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST ORDER PASSED BY LD. CIT(A) XXXI, MUMBAI DATED 30 TH MAY 2003 FOR ASSESSMENT YEAR 1996-97. THE GROUNDS OF APPEAL IN BOTH THE APPEALS READ AS UNDE R: GROUNDS OF ASSESSEES APPEAL IN ITA NO. 5730/MUM/22 03: THE APPELLANT OBJECTS TO THE ORDER DATED MAY 30, 2 003 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) XXXI. MUMBAI F OR THE ASSESSMENT YEAR 1996-97, ON THE FOLLOWING AMONG OTHER GROUNDS: - 1. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO DETERMINE THE TOTAL INCOME OF THE APPELL ANT AT RS.NIL AS RETURNED BY THE APPELLANT. 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN HOLD ING THAT THE APPELLANT HAD A PERMANENT ESTABLISHMENT IN INDIA UNDER ARTICLE 5(2) (K) OF THE TAX TREATY BETWEEN INDIA AND THE U.K. THE LEARNED COMMISSIONER (APPEAL S) OUGHT TO HAVE APPRECIATED THAT APPELLANT HAD NO PERMANENT ESTABLI SHMENT IN INDIA. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMM ISSIONER (APPEALS) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ACCEPT THE C OMPUTATION PROVIDED BY THE APPELLANT IN THE INCOME AND EXPENDITURE ACCOUNT AS BEING THE INCOME ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT. THE LEARNED COMMISS IONER (APPEALS) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO ADOPT THE GR OSS INCOME AT 1,56,813, DEDUCTION FOR DIRECT EXPENDITURE AT 52.445, DEDUC TION FOR OVERHEADS 2,623 AND NET PROFIT AT 1,01,745. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMM ISSIONER (APPEALS) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO COMPUTE THE TOTAL INCOME AT THE NUMBER OF HOURS CHARGED AT APPROPRIATE RATES FOR AN INDIAN LA WYER VIZ. 100 PER HOUR FOR A PARTNER AND 70 PER HOUR FOR AN ASSISTANT. 5. THE LEARNED COMMISSIONER (APPEALS) ERRED IN UPHO LDING THE ACTION OF THE ASSESSING OFFICER IN CONSIDERING REIMBURSEMENT OF E XPENDITURE OF 8,03,926.09 (REVISED IN APPELLATE PROCEEDINGS FROM 7,35,612.6 6) AS PART OF INCOME OF THE APPELLANT AND AS LIABLE TO TAX IN INDIA. 6. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING THE DISALLOWANCE OF DISBURSEMENTS TO THE EXTENT OF 25% OF THE DISBURSEM ENT CLAIM PROPORTIONATE TO THE FEE RELATING TO SERVICES RENDERED IN INDIA AS COMPA RED TO THE TOTAL FEES. THE COMMISSIONER (APPEALS) OUGHT TO HAVE DIRECTED THE A SSESSING OFFICER TO ALLOW DEDUCTION FOR THE ENTIRE AMOUNT OF THE DISBURSEMENT S. . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 3 7. THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT QUASHING THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE INCOME-T AX ACT INITIATED BY THE LEARNED ASSISTANT COMMISSIONER. 8. THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT DECIDING THE FOLLOWING GROUNDS IN THE APPEAL: 3. THE LEARNED DEPUTY COMMISSIONER ERRED IN HOLDIN G THAT THE APPELLANT WAS LIABLE TO TAX IN INDIA UNDER ARTICLE 15 OF THE TAX TREATY BETWEEN INDIA AND THE U.K. THE DEPUTY COMMISSIONER OUGHT TO HAVE APPRECIA TED THAT ARTICLE 15 WAS APPLICABLE ONLY TO INDIVIDUALS AND WAS NOT APPLICAB LE TO THE CASE OF THE APPELLANT. 9. THE DEPUTY COMMISSIONER ERRED IN STATING THE A SSESSEE HAS NOT RESTRICTED HIS ACTIVITIES MERELY AS A LEGAL ADVISER BUT ENTERED IN TO AREA OF BUSINESS ACTIVITIES SURPASSING THE THRESHOLD OF PROFESSIONAL SERVICES 9. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHO UT PREJUDICE TO ANY OF THE OTHERS. 10. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER OR AMEND ANY OF THE ABOVE GROUNDS OF APPEAL. GROUNDS OF REVENUES APPEAL IN ITA NO. 6557/MUM/220 3: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE RECEIPT FROM SERUM INSTITUTE WAS N OT TAXABLE AS THE ASSESSEE HAD RENDERED SERVICES OUTSIDE INDIA. THE LD. C.I.T(A) H AS NOT APPRECIATED THE FORCE OF ATTRACTION PRINCIPLE IN ARTICLE 7 OF THE INDO-UK D TAA. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT DISALLOWANCE IN RESPECT OF DISBURSEMEN T / REIMBURSEMENT SHOULD BE ONLY TO THE EXTENT OF 25% AS AGAINST 100% TAKEN BY THE A.O. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE INTER EST CHARGED UNDER SECTION 234B OF THE 1.T.ACT, 1961. ASSESSEES APPEAL: 2. GROUND NO.1 WAS STATED TO BE GENERAL IN NATURE AND GRIEVANCE OF THE ASSESSEE HAVE BEEN SPECIFICALLY EXPRESSED IN OTHER GROUNDS AND NO ARGUMENTS WHATSOEVER WAS ADVANCED FOR THE THIS GROUND, THERE FORE, THIS GROUND REQUIRES NO SEPARATE ADJUDICATION AND DISMISSED. . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 4 3. GROUND NO.2 WAS STATED TO BE COVERED BY THE EA RLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE WHICH IS SINCE REPO RTED AS LINKLATERS LLP VS. ITO 40 SOT 51. IT WAS THE CASE OF THE ASSESSEE THA T IT DID NOT HAVE ANY PERMANENT ESTABLISHMENT(PE) IN INDIA UNDER THE PROV ISIONS OF ARTICLE 5(2) (K) AS IT WAS RENDERING SERVICES IN INDIA, WHERE AS PER ARTICLE 5(2)(K) OF DTAA, IT WAS NECESSARY TO FURNISH SERVICES IN INDIA. THE QUE STION BEFORE TRIBUNAL WAS THAT WHERE EXPRESSIONS RENDERING AND FURNISHING ARE SOMEWHAT INTER CHANGEABLE IN THE NORMAL COURSE OF BUSINESS AND IT WILL BE TOO PEDANTIC HYPER TECHNICAL APPROACH TO NARROW DOWN THE MEANING OF E XPRESSION FURNISHING TO EXCLUDE RENDERING OF PROFESSIONAL SERVICES AND IF T HE ANSWER OF THIS QUESTION IS IN YES THEN IT WAS TO BE HELD THAT ASSESSEE DID NOT HAVE A P.E IN INDIA IN TERMS OF ARTICLE 5(2)(K) OF INDIA UK DTAA, AND, ACCORDING LY, PROFITS ATTRIBUTABLE TO P.E WERE TAXABLE UNDER ARTICLE 7 OF INDIA UK DTAA AND THIS QUESTION WAS ANSWERED IN FAVOUR OF REVENUE AND AGAINST ASSESSEE . SIMILAR GROUND IN THE SAID ORDER FOR ASSESSMENT YEAR 1995-96 WAS DECIDED AGAINST THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: 106. WE ARE IN CONSIDERED AGREEMENT WITH THIS ANAL YSIS IN THE UN MODEL CONVENTION COMMENTARY. WE ARE THUS OF THE CONSIDER ED VIEW THAT, IN A SITUATION LIKE THE ONE THAT WE ARE IN SEISIN OF, I.E. IN WHIC H SPECIFIC PROVISIONS FOR PROFESSIONAL SERVICES OR INDEPENDENT PERSONAL SER VICES OR INCLUDED SERVICES EXIST UNDER ARTICLE 15, WHEN SERVICES ARE RENDERED BY THE ENTERPRISE, ARTICLE 592)(K) WILL COME INTO PLAY, AND WHEN SERVICES ARE RENDERED BY A N INDIVIDUAL, ARTICLE 15 WILL FIND APPLICATION. THEREFORE, WHILE WE AGREE WITH T HE LEARNED COUNSEL THAT ARTICLE 15 WILL NOT BE APPLICABLE ON THE FACTS OF THE PRESE NT CASE, THIS FINDING DOES NOT REALLY COME TO THE RESCUE OF THE ASSESSEE SINCE, AS WE HAVE ALREADY HELD, THE ASSESSEE DID HAVE A PE IN INDIA UNDER ARTICLE 5(2) (K) OF THE INDIA-UK TAX TREATY, AND, ACCORDINGLY, PROFITS ATTRIBUTABLE TO THE PE AR E TAXABLE UNDER ARTICLE 7 OF THE INDIA-UK TAX TREATY. 107. IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE UNAB LE TO UPHOLD THE PLEA SO STRENUOUSLY ARGUED BY THE LEARNED COUNSEL FOR THE A SSESSEE, AND WE HOLD THAT THE AUTHORITIES BELOW HAVE RIGHTLY INVOKED THE PROVISIO NS OF ARTICLE 5(2)(K). WE APPROVE THE SAME, AND DECLINE TO INTERFERE IN THE M ATTER. 3.1 IN THIS VIEW OF THE SITUATION AFTER HEARING BOT H THE PARTIES GROUND NO.2 IS DECIDED AGAINST THE ASSESSEE AND THE SAME IS DISMIS SED. . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 5 4. APROPOS GROUND NO.3 & 4, IT WAS SUBMITTED THAT T HESE ISSUES ARE ALSO COVERED BY THE AFOREMENTIONED DECISION OF THE TRIBU NAL AGAINST THE ASSESSEE. THE ISSUE RAISED IN THESE GROUNDS HAS BEEN EXPLAIN ED IN PARA 108 OF THE AFOREMENTIONED ORDER OF THE TRIBUNAL , WHEREIN REF ERRING TO TEST OF ARTICLE 7(2) OF INDIA UK TREATY IT WAS ARGUED BEFORE THE TRIBUNA L THAT PROFITS OF THE P.E ARE DEEMED TO BE THE PROFITS WHICH THAT PERMANENT EST ABLISHMENT MIGHT BE EXPECTED TO MAKE IF IT WERE DISTINCT AND SEPARATE E NTERPRISE ENGAGED IN THE SAME OR SIMILAR ACTIVITIES UNDER THE SAME OR SIMILA R CONDITIONS AND DEALING WHOLLY AND INDEPENDENTLY WITH THE ENTERPRISE OF WHI CH IT IS A PERMANENT ESTABLISHMENT THUS, IT WAS POINTED OUT THAT THE PROFITS ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT ARE NOT THE ACTUAL PROFITS TO THE PERMANENT ESTABLISHMENT BUT HYPOTHETICAL PROFITS WHICH PERMA NENT ESTABLISHMENT WAS EXPECTED TO MAKE IF PERMANENT ESTABLISHMENT WAS WH OLLY INDEPENDENT OF THE GENERAL ENTERPRISE OF WHICH IT IS P.E. IT WAS ARGU ED THAT SUCH EXERCISE OF COMPUTING HYPOTHETICAL PROFITS ALSO WARRANTS ADJUST MENT IN THE BILLS RAISED BY THE GENERAL ENTERPRISE, IN RESPECT OF WORK CARRIED OUT BY THE P.E AS PREVALENT MARKET PRICE OF SIMILAR SERVICES AS WERE RENDERED B Y THE PERMANENT ESTABLISHMENT WERE LOWER THAN THE RATES CHARGED BY GENERAL ENTERPRISES TO ITS CLIENTS. IT WAS CONTENDED THAT FOR THE PURPOSE OF COMPUTING INCOME OF THE P.E THE VALUE OF SERVICES RENDERED BY THE PE IS TO BE T AKEN AT MARKET VALUE OF SUCH SERVICES IN INDIA AND NOT THE PRICE AT WHICH PERMAN ENT ESTABLISHMENT SHOULD BE TAKEN @ UK POUNDS 100 PER HOUR FOR THE PARTNERS AND UK POUNDS 75 FOR ASSISTANCE, WHICH AT BEST IS THE MARKET PRICE OF SU CH SERVICES RENDERED IN INDIA. IT WAS SUBMITTED THAT WHEN PROFITS ATTRIBUTABLE TO P.E IN INDIA ARE TO BE COMPUTED, ONE HAS TO TAKE INTO ACCOUNT THE REVENUE THAT THE P.E IN INDIA WOULD HAVE EARNED, FOR RENDERING THESE SERVICES AN D PREVALENT MARKET RATES IN INDIA. THESE ISSUES WERE DECIDED AGAINST THE ASSES SEE AND THUS, IT WAS SUBMITTED BY LD. AR THAT THE ISSUES RAISED IN GROUN D NO.3 & 4 ARE ALSO COVERED AGAINST THE ASSESSEE BY THE AFOREMENTIONED DECISION. FOR THE SAKE OF . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 6 COMPLETENESS THE CONCLUSION OF THE TRIBUNAL AS FOUN D IN PARA 130 IS REPRODUCED BELOW: 130. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CON SIDERED VIEW, THE VERY PLEA OF THE ASSESSEE PROCEEDS ON FALLACY THAT ARMS LENGTH PRICE ADJUSTMENT CAN BE MADE IN RESPECT OF THE TRANSACTIONS WITH THE CLIENTS OF THE ASSESSEE. THE REVENUES EARNED BY THE ASSESSEE ARE TO BE TAKEN AT ACTUAL FI GURES AND NO ADJUSTMENTS ARE PERMISSIBLE IN THE SAME. WE REJECT THIS PLEA OF TH E ASSESSEE AS WELL. THE ACTION OF THE AUTHORITIES BELOW IS CONFIRMED ON THIS COUN T AS WELL. 4.1 ACCORDINGLY, AFTER HEARING BOTH THE PARTIES, G ROUND NO. 3 & 4 ARE DECIDED AGAINST THE ASSESSEE AND ARE DISMISSED. 5. GROUND NO.5 & 6 ARE COMMON TO GROUND NO.2 RAISED BY THE REVENUE. THIS ISSUE WAS STATED TO BE COVERED IN FAVOUR OF TH E ASSESSEE BY THE AFOREMENTIONED DECISION OF TRIBUNAL AND REFERENCE W AS INVITED TO THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL DEALING WITH THIS ISSU E. 131. WE HAVE NOTED THAT WHILE ASSESSING OFFICER N OTED ASSESSEES CLAIM THAT THE REIMBURSEMENT OF EXPENSES ARE IN RESPECT OF AC TUAL EXPENDITURE INCURRED BY THE ASSESSEE, ON BEHALF OF CLIENTS, AND HAVE NO ELE MENT OF MARK UP OR INCOME, HE TREATED 50 PER CENT OF SUCH REIMBURSEMENTS OF EXPEN DITURE AS INCOME ON THE GROUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROD UCE ALL SUCH BILLS/INVOICES AND CONSIDERING THE FACTS THESE BILLS DO NOT, IN AN Y CASE, HAVE ANY SUPPORTING EVIDENCES AND THUS BROUGHT TO TAX AN AMOUNT OF RS. 2,12,23,219, THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER TO THE E XTENT OF 15 PER CENT OF THE TOTAL AMOUNT OF REIMBURSEMENT. THE CIT(A) ALSO HELD THAT THE REIMBURSEMENTS OF EXPENSES RECEIVED BY THE ASSESSEE CONSTITUTE INCOME OF THE ASSESSEE. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT THE CIT(A) CONFIRMED THE DISALLOWANCE OF 15 PER CENT OF REIMBURSEMENT OF EXPENSES ON THE GR OUND THAT (A) THE APPELLANT WAS NOT ABLE TO PRODUCE ALL SUPPORTING EVIDENCES IN RESPECT OF EXPENDITURE INCURRED; AND (B) IT MAY BE DIFFICULT TO BIFURCATE THE EXPENSES BETWEEN DISBURSEMENTS RELATED TO SERVICES RENDERED IN INDIA AND SERVICES RENDERED OUTSIDE INDIA. WHILE THE ASSESSING OFFICER IS NOT IN APPEAL AGAINST THE DISALLOWANCE SO RESTRICTED BY THE CIT(A), THE ASSE SSEE IS NOT SATISFIED BY THE PART RELIEF GIVEN BY THE CIT(A) AND IS IN SECOND APPEAL BEFORE US. 132. LEARNED COUNSEL HAS TAKEN US THROUGH METICUL OUS DOCUMENTATION IN RESPECT OF REIMBURSEMENT OF EXPENSES, AND ALSO PRODUCED BE FORE US SAMPLES OF SUPPORTING EVIDENCES IN RESPECT OF EACH CLAIM OF RE IMBURSEMENT OF EXPENSES. HE HAS ALSO EXTENSIVELY REFERRED TO THE PREVAILING RE GULATION IN THE UNITED KINGDOM WHICH ENSURE STRICT CONTROL OVER POSSIBLE INFLATION OF SUCH REIMBURSEMENT CLAIMS, AS ALSO TO THE INTERNAL CONTROL MECHANISM IN RESPEC T OF THESE CLAIMS. HE SUBMITS THAT ALL REQUISITIONS OF THE AUTHORITIES BELOW, IN RESPECT OF SUPPORTING EVIDENCES FOR SUCH CLAIMS, HAVE BEEN DULY COMPLIED WITH, AND THE CIT(A) HAS CONFIRMED THE . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 7 PARTIAL DISALLOWANCE ONLY ON SURMISES AND CONJECTUR ES. HE URGES US TO DELETE THE DISALLOWANCE CONFIRMED BY THE CIT(A) AND HOLD THAT THE REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSESSEE, PARTICULARLY ON THE FACTS OF THE CASE, CANNOT BE TREATED AS INCOME IN THE HANDS OF THE ASSESSEE. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITS THAT THE ONUS IS ON THE ASSESSEE TO PRO DUCE ALL THE EVIDENCES OF EXPENDITURE AND THAT THIS ONUS IS CLEARLY NOT DISCH ARGED BY THE ASSESSEE. 133. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVIN G PERUSED THE MATERIAL ON RECORD, WE ARE INCLINED TO UPHOLD THE GRIEVANCE OF THE ASSESSEE. THE REIMBURSEMENTS RECEIVED BY THE ASSESSEE ARE IN RESP ECT OF SPECIFIC ACTUAL EXPENSES INCURRED BY THE ASSESSEE AND DO NOT INVOLV E ANY MARK UP, THERE IS REASONABLE CONTROL MECHANISM IN PLACE TO ENSURE THA T THESE CLAIMS ARE NOT INFLATED, AND THE ASSESSEE HAS FURNISHED SUFFICIEN T EVIDENCE TO DEMONSTRATE THE INCURRING OF EXPENSES. THERE IS THUS NO GOOD REASO N TO MAKE ANY ADDITION TO INCOME IN RESPECT OF THESE REIMBURSEMENTS OF EXPENS ES. THE ACTION OF THE CIT(A), AS LEARNED COUNSEL RIGHTLY CONTENDS, ON PURE SURMIS ES AND CONJECTURES. IN VIEW OF THE ABOVE DISCUSSIONS, WE DIRECT THE ASSESSING O FFICER TO DELETE THE DISALLOWANCE OF EXPENSES AS SUSTAINED BY THE CIT(A ) AND HOLD THAT NO PART OF REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSESSEE, ON THE FACTS OF THIS CASE, BE TREATED AS INCOME OF THE ASSESSEE. THE ASSESSEE GE TS THE RELIEF ACCORDINGLY. 5.1 IT WAS SUBMITTED THAT DURING THE YEAR UNDER CON SIDERATION THE AO HAS TAXED ENTIRE RECEIPTS OF THE ASSESSEE. THEREFORE, H E DID NOT CONSIDER THE SUBMISSIONS OF THE ASSESSEE FOR EXCLUSION OF THE AM OUNT REPRESENTING REIMBURSEMENT. REFERENCE IN THIS REGARD WAS MADE TO THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE BEFORE LD. CIT(A), COPY OF WH ICH IS PLACED AT PAGES 1 TO 3 OF THE PAPER BOOK IN WHICH REFERENCE WAS MADE TO TH E SAMPLE INVOICES WHICH WERE PRODUCED BEFORE AO VIDE LETTER DATED 12/01/199 9 AND IT WAS CLAIMED THAT THESE WERE REIMBURSEMENT OF EXPENSES INCURRED ON P RINCIPAL TO PRINCIPAL BASIS WITHOUT INTERVENTION OF INTERMEDIARIES. IT WAS SUB MITTED THAT SIMILAR CORRESPONDENCE WAS PRODUCED DURING THE ASSESSMENT P ROCEEDINGS OF ASSESSMENT YEAR 1995-96 AND ON THE BASIS OF EVIDENC E FURNISHED TRIBUNAL HAS COME TO A CONCLUSION THAT NO PART OF REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSESSEE COULD BE BROUGHT TO TAX AS INCOME OF T HE ASSESSEE AND THIS CONCLUSION HAS BEEN ARRIVED AT BY THE TRIBUNAL IN P ARA 133 OF THE AFOREMENTIONED ORDER WHICH IS ALSO PRODUCED ABOVE. . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 8 5.2 HOWEVER, LD. DR SUBMITTED THAT THERE IS NO DISC USSION IN THE ASSESSMENT ORDER REGARDING REIMBURSEMENT OF EXPENSES. HE ALSO RELIED UPON THE DECISION OF TRIBUNAL IN THE CASE OF M/S. C.U. INSPECTIONS (I ) PVT. LTD. VS. DCIT(UNREPORTED DECISION DATED 6/3/2013) IN ITA NO. 577/M/2011) COPY OF THE ORDER WAS PLACED ON OUR RECORD AND WAS ALSO GIVEN TO LD.DR. IT WAS SUBMITTED THAT WHERE EXPENSES ARE INCURRED NOT BY THE LATER , BUT SOMEONE ELSE, ITS PAYMENT BY THE FORMER TO LATER TO PASS IT TO SUCH THIRD PERSON CANNOT BE CONSIDERED AS REIMBURSEMENT OF EXPENSES TO THE LATE R SO AS TO PUSH SUCH TRANSACTION OUTSIDE THE AMBIT OF PROVISIONS OF DED UCTION OF TAX AT SOURCE. RELYING UPON THIS DECISION IT WAS SUBMITTED BY LD . DR THAT THOUGH THERE IS NO DISPUTE TO THE EXTENT THAT REIMBURSEMENT OF EXPENSE S WILL NOT FALL UNDER THE CATEGORY OF RECEIPTS ON WHICH TAX WOULD BE DEDUCT IBLE AT SOURCE BUT THE FACTUM OF REIMBURSEMENT HAS TO BE ESTABLISHED BY TH E ASSESSEE AND FOR THIS PURPOSE MATTER SHOULD BE RESTORED BACK TO THE FILE OF AO. 5.3 IN REPLY, OBJECTING TO THE SUBMISSIONS OF LD. D R, IT WAS SUBMITTED BY LD. AR THAT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE ARE SIMILAR TO THE FACTS OF ASSESSMENT YEAR 1995-96. REFERRING TO THE AFOREMEN TIONED WRITTEN SUBMISSIONS FILED BEFORE LD. CIT(A), IT WAS BROUGHT TO OUR NOTICE THAT ALL THE PAPERS REGARDING REIMBURSEMENT WERE FILED BEFORE AO AS WELL AS BEFORE LD. CIT(A) AND ON THE BASIS OF SIMILAR EVIDENCE WHICH W AS FILED IN RESPECT OF ASSESSMENT YEAR 1995-96 THE TRIBUNAL HAS DECIDED TH E ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS SUBMITTED THAT THE ONLY DIFFEREN CE DURING THE YEAR WAS IN ASSESSMENT YEAR 1995-96, THE LD. CIT(A) HAD CONFIRM ED THE DISALLOWANCE TO THE EXTENT OF 15% AND IN THE YEAR UNDER CONSIDERATION I T HAS BEEN UPHELD TO THE EXTENT OF 25%. IT WAS SUBMITTED THAT CONSIDERING ALL THE EVIDENCES AND THE FACT THAT THERE WAS NO MARK UP AND THERE BEING EX ISTENCE OF A REASONABLE CONTROL MECHANISM IN PLACE TO CONTROL THAT THESE RA TE ARE NOT INFLATED, THE TRIBUNAL HAS ARRIVED AT A CONCLUSION THAT NO DISALL OWANCE WAS CALLED FOR. . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 9 5.4 WITH REGARD TO DECISION RELIED UPON BY LD. DR I T WAS SUBMITTED BY LD. AR THAT THE SAID DECISION HAS NO APPLICATION TO THE CA SE OF THE ASSESSEE AS REIMBURSEMENT HAS BEEN DIRECTLY MADE BY THE ASSESSE E AND IT IS NOT THROUGH THIRD PARTY. 5.5 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. FROM THE DETAILS REFERRED BEFORE US WHICH ARE PART OF THE PAPER BOOK, LD. AR WAS ABLE TO DEMONSTRATE THAT SIMILAR E VIDENCE WHICH WAS FURNISHED IN RESPECT OF A.Y 1995-96 WAS ALSO PLACED BEFORE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON THE BASIS O F THAT EVIDENCE THE LD. CIT(A) HAS GIVEN PART RELIEF TO THE ASSESSEE ON ACC OUNT OF REIMBURSEMENT OF EXPENSES. THE DECISION RELIED UPON BY LD. DR ALSO DOES NOT SUPPORT THE CASE OF THE REVENUE FOR RESTORATION OF THE ISSUE TO THE FIL E OF AO AS IN THE PRESENT CASE REIMBURSEMENT HAS BEEN COMPENSATED DIRECTLY AND N OT THROUGH THIRD PARTY. IN THIS VIEW OF THE SITUATION, WE ARE OF THE OPINIO N THAT THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.6 OF THIS APPEAL AND RAISED B Y THE REVENUE IN GROUND NO.2 OF ITS APPEAL ARE COVERED IN FAVOUR OF THE ASS ESSEE. THEREFORE, GROUND NO.6 RAISED BY THE ASSESSEE IS ALLOWED AND GROUND N O.2 RAISED BY THE REVENUE IS DISMISSED. 6. GROUND NO.7 OF ASSESSEES APPEAL IS REGARDING IN ITIATION OF CONCEALMENT PENALTY. THIS GROUND IS PREMATURE, HENCE, DISMISSE D. 7. APROPOS GROUND NO.8, THE SAID GROUND WAS NOT PRE SSED BY LD. AR, THEREFORE, THIS GROUND IS DISMISSED BEING NOT PRESS ED. 8. GROUND NO.9 & 10 ARE GENERAL IN NATURE AND NO AR GUMENTS WHATSOEVER WAS ADVANCED, THEREFORE, THESE GROUNDS DO NOT REQU IRE SEPARATE ADJUDICATION AND ARE DISMISSED. 9. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 10 REVENUES APPEAL: 10. APROPOS GROUND NO.1, IT WAS SUBMITTED BY LD. AR THAT THE GROUND RAISED BY THE REVENUE DOES NOT ARISE OUT OF IMPUGNED ORDER PASSED BY LD. CIT(A) AS THE SAME PERTAINS SEPARATE APPEAL WITH REGARD TO OR DER PASSED UNDER SECTION 154 OF THE ACT. LD. DR DID NOT DISPUTE SUCH SUBMIS SION OF THE ASSESSEE. ACCORDINGLY, GROUND NO.1 RAISED BY THE RAISED BY TH E REVENUE IS DISMISSED AS MISCONCEIVED. 11. APROPOS GROUND NO.2, WHILE DECIDING ASSESSEES APPEAL, THIS BEING COMMON GROUND WITH GROUND NO.6 OF THE ASSESSEE HAS ALREADY BEEN DECIDED IN EARLIER PART OF THIS OF THIS ORDER AND GROUND NO .2 OF REVENUE WAS DISMISSED. THEREFORE, GROUND NO.2 IS TREATED AS DISMISSED. 12. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. 11. TO SUM UP, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/05/201 4 + ' )* , -. 07/05/2014 * ' / 0 SD/- SD/ - ( . / D.KARUNAKARA RAO ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; - DATED 07/05/2014 . / ITA NO.5730& 6557/MUM/2003 / ASSESSMENT YEAR 1996-97 11 + + + + ' '' ' %(1 %(1 %(1 %(1 21 ( 21 ( 21 ( 21 ( / COPY OF THE ORDER FORWARDED TO : 1. !$ / THE APPELLANT 2. %&!$ / THE RESPONDENT. 3. 3 ( ) / THE CIT(A)- 4. 3 / CIT 5. 14/ %( , , / DR, ITAT, MUMBAI 6. / 5 / GUARD FILE. + + + + / BY ORDER, &1( %( //TRUE COPY// 6 66 6 / 7 7 7 7 ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS