ASK WEALTH ADVISORS PVT. LTD., MUMBAI V. A.C.I.T. CIR.6(1), MUMBAI

ITA 6007/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79451 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 03-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Assessee Lawyers: J D MISTRY
• Keywords: Principle of natural justice
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & VIVEK VARMA , J M ITA NO. 600 7 / M UM/20 1 2 ( ASSESSMENT YEAR : 20 0 8 - 09 ) ASK WEALTH ADVISORS PVT. LTD., 1 ST FLOOR, BAND BOX HOUSE, 254 - D, DR. A.B.ROAD, WORLI, MUMBAI - 400 025 VS. ACIT - 6(1), MUMBAI PAN/GIR NO. : A A FCA 9386 L ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. J.D.MISTRY /REVENUE BY : MR. A.R.NINAWE DATE OF HEARING : 1 1 TH JUNE , 201 4 DATE OF PRONOUNCEMENT : 18 TH JU LY , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 27 - 7 - 2012 , FOR THE ASSESSMENT YEAR 200 8 - 09 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. THE SOLITARY ISSUE RAIS ED BY THE ASSESSEE IS AS UNDER : - A. DISALLOWANCE OF SHARED SERVICE COST UNDER THE HEAD OPERATING & ADMINISTRATIVE EXPENSES OF RS.1,34,47,668/ - . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONORABLE COMMISSIONER OF INCOME TAX (APPEALS) (T HE CIT(A)), ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX - RANGE 6(1) (THE LEARNED ACIT) IN DISALLOWING THE SHARED SERVICE COST UNDER THE HEAD OPERATING & ITA NO. 6007 /1 2 2 ADMINISTRATIVE EXPENSES OF RS. 1,34,47,668/ - AS DEDUCTIBLE EXPE NDITURE. IN VIEW OF THE ABOVE, THE LEARNED ACIT BE DIRECTED TO DELETE THE WHOLE OF THE ABOVE ADDITION MADE AND ACCEPT THE CLAIM MADE BY THE APPELLANT IN THE RETURN OF INCOME. 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE T HAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCIAL PLANNING AND WEALTH ADVISORY SERVICES. DURING THE YEAR, THE ASSESSEE HAD DEBITED RS. 1.34 CRORES IN P&L ACCOUNT ON ACCOUNT OF SHARED SERVICES COST UNDER THE HEAD OPERATING AND ADMINISTRATIVE EXPENS ES . THE AO OBSERVED THAT THERE IS A SERVICE AGREEMENT BETWEEN ASSESSEE ASK WEALTH ADVISORS PVT. LTD. AND ITS ASSOCIATE COMPANY. THE ASSESSEE HAD SHARED SERVICE COST TOWARDS ADMINISTRATIVE, FINANCIAL AND INFRASTRUCTURE SUPPORT AND MANAGEMENT FOR SHARING OF COST INCURRED THEREON. THE AO FURTHER OBSERVED THAT ASSESSEE COMPANY HAS ALREADY BEEN EXPENDING A HUGE AMOUNT OF EXPENDITURE UNDER DIFFERENT HEADS, THEN FOR WHAT AGAIN THEY ARE PAYING FOR SHARED SERVICE CHARGES. AS PER THE AO SINCE THE OFFICES OF BOTH THE COMPANIES ARE AT DIFFERENT FLOOR, THE FEASIBILITY OF S HARING OF ANY RESOURCES BECOME NOT ONLY INCONVENIENT BUT ALSO IMPRACTICAL AT EVERY LEVEL AND STAGE. AS PER THE AO THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT UNDER SECTION 194 C & 19 4J , SINCE NO TAX WAS DEDUCTED ON SUCH PAYMENT, HE DISALLOWED OPERATING AND ADMINISTRATIVE EXPENSES OF RS. 1,34,47,688/ - REIMBURSED BY ASSESSEE TO ITS A.E. BY ITA NO. 6007 /1 2 3 THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ADDITION AGAINST WHICH THE ASSESSEE IS IN FURTHER APP EAL BEFORE US. 3. IT WAS ARGUED BY LEARNED AR THAT ASSESSEE HAS JUST REIMBURSED THE ACTUAL COST INCURRED BY HOLDING COMPANY FOR IT WITHOUT ANY MARK UP . SINCE NO INCOME WAS ARISING OUT OF THE TRANSACTION BETWEEN BOTH THE COMPANIES, THEREFORE, THE QUESTION OF DEDUCTION OF TAX AT SOURCE DOES NOT ARISE. IN SUPPORT OF THE PROPOSITION, RELIANCE WAS PLACED ON THE DECISION OF MUMBAI BENCH IN THE CASE OF UTILITY POWERTECH LIMITED VS. ACIT, ITA NO. 2561/MUM/2009, ITO VS. DR. WILLIAM SCHWABE INDIA (P) LTD., 3 SOT 71, ITAT DELHI BENCH IN THE CASE OF ITO VS. ONS CREATIONS, ITA NO. 3981/DEL/2010 AND CIRCULAR NO. 715, DATED 8 - 8 - 1995 . RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SEIMENS AKTIONGESELLSCHAFT , 310 ITR 320 IN SUPPOR T OF THE PROPOSITION THAT REIMBURSEMENT OF THE EXPENSES DOES NOT CONSTITUTE INCOME IN THE HANDS OF THE RECIPIENT AND, THEREFORE, THE QUESTION OF DEDUCTION OF TAX AT SOURCE DOES NOT ARISE. LEARNED AR FURTHER SUBMITTED THAT WHATEVER THE AMOUNT HAS BEEN PAID BY HO, HAVE ALREADY BEEN SUFFERED DEDUCTION OF TAX AT SOURCE, THEREFORE, MAKING THE ASSESSEE LIABLE ONCE MOR E FOR DEDUCTION OF TAX AT SOURCE WILL AMOUNT TO DOUBLE DEDUCTION OF TAX IN RESPECT OF SAME PAYMENT. ITA NO. 6007 /1 2 4 4 . ON THE OTHER HAND, THE CONTENTION OF THE LEA RNED DR WAS THAT AGAINST TURNOVER OF RS. 1.90 CRORES , THE ASSESSEE HAS ALREADY DEBITED SIMILAR EXPENDITURE OF RS. 14.27 CRORES ON ADVERTISEMENT AND BUSINESS PROMOTION, RECRUITMENT CHARGES, SALARIES , BONUS AND RENT FOR THE LOCAL PREMISES PAID TO ANOTHER GROUP COMPANY NAMELY ASK INVESTMENT AND FINANCE CONSULTANTS LTD., THEREFORE, THE ADDITIONAL SHARE OF EXPENDITURE IN THE FORM OF REIMBURSEMENT OF RS. 1.34 CRORES WAS UNREASONABLE AND UNJUSTIFIED. FURTHERMORE, AS PER LD. DR, SINCE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE, THE LOWER AUTHORITIES WERE JUSTIFIED IN DISALLOWING THE CLAIM BY INVOKING PROVISIONS OF SECTION 40 ( A ) (IA) . 5 . WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO DELIBERATED ON THE JUDICIAL PRO NOUNCEMENTS REFERRED BY THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY THE LEARNED AR AND DR DURING THE COURSE OF HEARING BEFORE US WITH REFERENCE TO THE FACTUAL MATRIX OF THE CASE. FROM THE RECORD, WE FOUND THAT DURING THE YEAR ASSES SEE HAS TURNOVER OF RS. 1.90 CRORES AGAINST WHICH ASSESSEE HAS INCURRED VARIOUS EXPENDITURE AMOUNTING TO RS. 14.27 CRORES ON ADVERTISEMENT, BUSINESS PROMOTION, POSTAGE AND COMMUNICATION, SALARIES, BONUS AND RENT . IN ADDITION TO IT, ASSESSEE HAS ALSO DEBITED AN EXPENDITURE OF RS. 1.34 CRORES IN ITS P&L ACCOUNT TOWARDS SHARED SERVICE COST UNDER THE HEAD OPERATING AND ADMINISTRATIVE EXPENSES. THE AO FOUND THAT THE ADDITION AL EXPENDITURE OF RS. 1.34 CRORES AS UNREASONABLE, INSOFAR AS IT ITA NO. 6007 /1 2 5 WAS PAID BY ASSESSEE TO IT S HOLDING COMPANY . T HE AO ALSO OBSERVED THAT THE ASSESSEE HAS NOT DEDUCTED ANY TAX AT SOURCE ON SUCH EXPENDITURE. THE CIT(A) HAS CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT ASSESSEE HAS NOT DEMONSTRATED AS TO HOW THE BUSINESS OF THE ASSESSEE HAS GROWN ON ACCOUNT OF SHARED SERVICE COST PAID BY THE ASSESSEE. THE CIT(A) ALSO OBSERVED THAT ASSESSEE WOULD BE LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S. 40(A)(IA) SINCE SHARED SERVICE COST IS PAID ON ESTIMATE BASIS AS AGAINST THE ACTUAL BASIS , THAT CLAIMED B Y THE ASSESSEE BUT NOT VERIFIABLE FROM THE FACTS ON RECORD. SO FAR AS REASONABLENESS OF EXPENDITURE INCURRED BY THE ASSESSEE IS CONCERNED, WE FOUND THAT THE AO HAS NOT CONSIDERED THE FACT THAT ASSESSEE WAS INCORPORATED AND STARTED ITS OPERATION ONLY IN THE A.Y.2007 - 08 AND, THEREFORE, DURING THE YEAR UNDER CONSIDERATION, THE REVENUE WAS NOT VERY LARGE, WHEREAS IT HAS TO INCUR LARGE COST TO ESTABLISH ITSELF IN THE MARKET. THE ASSESSEE HAS INCURRED EXPENDITURE SO THAT PEOPLE CAN KNOW IT IN THE MARKET AND ITS S ERVICES AND GET BUSINESS WHICH COULD EARN ITS REVENUE. THE HOLDING COMPANY HAS RENDERED SERVICES TO THE ASSESSEE COMPANY FOR WHICH IT HAS INCURRED EXPENDITURE AND THE ASSESSEE HAS REIMBURSED THE EXPENDITURE ON ACTUAL BASIS. THE CONTENTION OF THE ASSESSEE B EFORE CIT(A) WAS THAT DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO HAS NEVER ASKED FOR JUSTIFICATION OF THE EXPENDITURE OF THE SAID SERVICE COST AND ASSESSEE WAS NOT GIVEN ANY OPPORTUNITY DURING THE ASSESSMENT PROCEEDINGS AND, HENCE, THE ITA NO. 6007 /1 2 6 ADDITION MAD E IS DEVOID OF ANY PRINCIPLE OF NATURAL JUSTICE. HOWEVER, THIS PLEA OF THE ASSESSEE WAS NOT APP RECIATED BY CIT(A) IN CORRECT P ERSPECTIVE. SO FAR AS LEARNED ARS ARGUMENT TO THE EFFECT THAT EXPENDITURE SO REIMBURSED HAVE ALREADY BEEN MADE SUBJECT TO DEDUCTI ON OF TAX AT SOURCE IN THE HANDS OF HOLDING COMPANY WHEN THE PAYMENT WAS ACTUALLY MADE , GOES TO THE ROOT OF THE ISSUE . EXPENDITURE INCURRED BY HOLDING COMPANY ON WHICH TAX HAS ALREADY BEEN DEDUCTED AT SOURCE, MERE REIMBURSING OF SUCH EXPENSES BY THE ASSESS EE TO THE HOLDING COMPANY CANNOT BE DISALLOWED ON THE PLEA THAT ASSESSEE HAS NOT AGAIN DEDUCTED TAX AT SOURCE , OTHERWISE IT WILL AMOUNT TO DOUBLE DEDUCTION OF TAX IN RESPECT OF VERY SAME EXPENDITURE . HOWEVER, IT APPEARS THAT THE AO HAS NOT EXAMINED TH IS ASPECT OF DEDUCTION OF TAX AT SOURCE BY HOLDING COMPAN Y IN RESPECT OF EXPENDITURE WHICH REQUIRES DEDUCTION OF TAX AT SOURCE UNDER THE PROVISIONS OF CHAPTER XVII . IN THE INTEREST OF JUSTICE AND FAIR - PLAY, WE RESTORE THE APPEAL BACK TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE DEDUCTION OF TAX AT SOURCE IN TERMS OF PROVISIONS OF CHAPTER XVII , PART B AND IF THE AO FOUND THAT TAXES HAVE ALREADY BEEN DEDUCTED AT SOURCE IN RESPECT OF EXPENDITURE WHICH REQUIRES DEDUCTION OF TAX AT SOURCE BY THE HOLDING COMPANY WHILE MAKING PAYMENT, NO DISALLOWANCE CAN BE MADE WITH REFERENCE TO SUCH EXPENDITURE IN THE HANDS OF THE ASSESSEE WHILE REIMBURSING THE SAME TO THE HOLDING COMPANY. WE DIRECT ACCORDINGLY. ITA NO. 6007 /1 2 7 6 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PAR T IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH JU LY , 201 4 . 18 TH JU LY ,2014 SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 18 /0 7 /2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//