DCIT 10(3)(2), MUMBAI V. PALL INDIA P. LTD, MUMBAI

ITA 7254/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8776 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARIKIYEN
• Keywords: Transfer pricing; Services rendered outside India; Deemed to accrue or arise in india
• Section: 271(1)(c); 143(3); 40(a)(ia); 195; 27

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE HONBLE SH. R. C. SHARMA, A M & HONBLE SH. SANDEEP GOSAIN , JM ./ I.T.A. NO . 7254 /MUM/2016 ( / ASSESSMENT YEAR: 20 08 - 09 ) DCIT - 1 0(3 ) (2 ), R. NO. 509 , AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 / VS. M/S PALL INDIA PVT. LTD. 6 TH FLOOR, SUMER PLAZA, CTS 419, MAROL MAROSHI ROAD, ANDHERI (EAST), MUMBAI - 400 059 ./ ./ PAN NO. AA ACC8295Q ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI ABI RAMA KARIKIYEN , DR / RESPONDENTBY : SHR I SAMIR MAHAJAN , AR / DATE OF HEARING : 04.10 .2018 / DATE OF PRONOUNCEMENT : 26/12/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMIS S IONER OF INCOME TAX (APPEALS) - 2 2, MUMBAI, DATED 19.09.16 FOR AY 2008 - 09 ON THE GROUNDS MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 7254/ MUM/201 6 M/S PALL INDIA PVT. LTD. 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, T HE LD. CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE COMPANY BY DIRECTING THE AO TO ALLOW THE ASSESSEE NOT TO DEDUCT TDS OUT OF PAYMENT MADE TO ITS NON RESIDENT ASSOCIATED ENTERPRISES (AE) EVEN THOUGH THE INCOME GENERATED FROM THE BASE OF INDIA, AS PROPOSE D BY THE ASSESSING OFFICER (AO) U/S 40(A)(IA) OF THE INCOME TAX ACT.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED, WITHOUT GIVING ANY JUSTIFICATION, IN CONCLUDING/ ACCEPTING THE CONTENTION OF THE ASSESSEE THAT THE SAID PAYMENT WAS TOWARDS - REIMBURSEMENT OF SERVICES ON COST - TO - COST BASIS TO ITS NON - RESIDENT AE.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN REJECTING THE CONTENTION OF THE AO THAT THERE IS DEFINITE ELEMENT OF INCOME INVOLVED IN SUCH PAYMENT MADE BY ASSESSEE TO ITS AE.' 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE AFORESAID GROUNDS OR ADD A NEW GROUND OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3 I.T.A. NO. 7254/ MUM/201 6 M/S PALL INDIA PVT. LTD. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A), MUMBAI ON THE ABOVE DIRECTIONS BE SET - ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2 . AS PER THE FACTS OF THE PRESENT CASE, THE ASSESSEE COMPANY IS A SUBSIDIARY OF PALL CORPORATION USA, AND IS ENGAGED IN THE BUSINESS OF FILTRATION AND SEPARATION TECHNOLOGY. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 30.12.08 DECLARING TOTAL INCOME OF RS 24,68,31,782. SUBSEQUENTLY THE CASE W AS SELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY NOTICES AND PROVIDING OPPORTUNITY OF HEARING, ASSESSMENT ORDER U/S 143(3) OF THE I.T. ACT WAS PASSED ON 07.11.12, THEREBY MAKING ADDITION/DISALLOWANCE U/S 40(A)(IA) OF I.T. ACT. PENALTY PROCEEDING U/S 27 4 R.W.S 271(1)(C) OF THE ACT FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 3 . AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES PARTLY ALLOWED THE APPEAL OF THE A SSESSEE. 4 I.T.A. NO. 7254/ MUM/201 6 M/S PALL INDIA PVT. LTD. 4 . AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE HAS FILED APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. GROUND NO. 1 TO 3. 5 . THESE GROUNDS RAISED BY THE REVENUE ARE INTER CONNECTED AND INTER RELATED AND RELATES TO CHAL LENGING THE ORDER OF LD. CIT(A) IN GIVING RELIEF TO THE ASSESSEE COMPANY BY DIRECTING THE AO TO ALLOW THE ASSESSEE NOT TO DEDUCT TDS OUT OF PAYMENT MADE TO ITS NON - RESIDENT ASSOCIATED ENTERPRISES (AE) EVEN THOUGH THE INCOME GENERATED FROM THE BASE OF INDI A, AS PROPOSED BY THE ASSESSING OFFICER (AO) U/S 40(A)(IA) OF THE INCOME TAX ACT , THEREFORE WE THOUGHT IT FIT TO DISPOSE OF THE SAME BY THIS COMMON ORDER. 6 . WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD, JUDGMENT CITED BY THE PARTIES AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE OR DERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS 5 I.T.A. NO. 7254/ MUM/201 6 M/S PALL INDIA PVT. LTD. DEALT WITH THE ABOVE GROUNDS RAISED BY THE REVENUE IN PARA NO. 8.1 TO 8.3 OF ITS ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAI NED IN PARA NO. 8 .3 OF ITS ORDER AND THE SAME IS REPRODUCED BELO W: - 8.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE APPELLANT'S SUBMISSIONS. ON THE ISSUE NON - DEDUCTION OF TAX ON REIMBURSEMENT OF EXPENSES, I FIND THAT THE LD. CIT(A) - 11 IN THE APPELLAN T'S OWN CASE FOR A.Y. 2008 - 09 (T DS APPEAL) HAD HELD THAT THERE WAS NO ELEMENT OF INCOME IN THE HANDS OF THE RECIPIENTS BEING REIMBURSEMENT OF EXPENSES WITH NO MARK UPS AND NO INCOME COULD BE SAID TO HAVE ACCRUED IN THE HANDS OF THE FOREIGN ENTERPRISES FROM THE PAYMENTS MADE BY THE APPELLANT COMPANY. I ALSO FIND THAT THAT THE DRP - III, MUMBAI IN ITS DIRECTION DATED 16.12.2013 IN THE APPELLANT'S CASE FOR A.Y. 2009 - 10 HAD HELD THAT IF THERE WAS NO ELEMENT OF PROFIT AND REIMBURSEMENT WAS PURELY OF THE COST INCURRED, THERE COULD BE NO APPLICATION OF SECTION 195 OF THE ACT, AND THERE COULD NOT BE ANY ENCUMBRANCE ON THE ASSESSEE TO DEDUCT THE TAX. ACCORDINGLY, THE AO WAS DIRECTED NOT TO DISALLOW THE AMOUNTS U/S 40(A)(IA) OF THE ACT SO REIMBURSED BY THE ASSESSEE TO ITS AES ON COST TO COST BASIS. FOLLOWING THESE DECISIONS, THE DISAL LOWANCES MADE U/S40(A)(IA) OF 6 I.T.A. NO. 7254/ MUM/201 6 M/S PALL INDIA PVT. LTD. THE ACT OF RS. 12,45,384, RS. 20,42,168/ - AND RS. 73,51,590/ - ARE DELETED. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AND HEARING THE PARTIES AT LENGTH, WE FIND THAT THE DISALLOWANCE WAS MADE BY THE AO U/S 40(A )(IA) OF THE ACT WITH HIS OBSERVATIONS IN PARA NO. 5A TO 5D OF THE ASSESSMENT ORDER AND THE AO HELD THAT SINCE THE PAYMENTS MADE BY THE ASSESSEE TO THE AES WERE IN RESPECT OF PROFESSIONAL SERVICES RENDERED OUTSIDE INDIA IN CONNECTION WITH THE ASSESSEES BU SINESS IN INDIA, THEREFORE INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA AND ONCE THE INCOME DEEMS TO ACCRUE IN INDIA, THEN IN THAN EVENTUALITY, THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE NOTWITHSTANDING THE FACT, WHETHER THE RECIPIENT HAS A PERMA NENT ESTABLISHMENT IN INDIA OR NOT. LD. CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO BY MAKING SPECIFIC OBSERVATION IN PARA 8.3 AS MENTIONED ABOVE. LD. AR RELIED UPON THE SUBMISSIONS MADE BY THE ASSESSEE AND ALSO THE ORDERS PASSED BY LD. CIT(A) - 11 IN AS SESSEES OWN CASE FOR AY 2008 - 09 (TDS APPEAL). IT WAS ALSO SUBMITTED THAT IN THE SAID 7 I.T.A. NO. 7254/ MUM/201 6 M/S PALL INDIA PVT. LTD. TDS APPEAL, THE LD. CIT(A) - 11 AFTER APPRECIATING THE FACTS HAD CATEGORICALLY HELD WITH REGARD TO THE PAYMENTS MADE BY THE ASSESSEE TO PALL CORPORATION, USA, THAT THERE WA S NO ELEMENT OF PROFIT IN THE HANDS OF AES AND SINCE THE REIMBURSEMENT WAS MADE ON COST TO COST BASIS AND ALSO THE PAYMENT MADE BY THE ASSESSEE TO PALL CORPORATION, USA, DO NOT FALL WITHIN THE PURVIEW OF FEES FOR INCLUDED SERVICES UNDER ARTICLE 12 OF DTT A BETWEEN INDIAN AND USA. THE SERVICES PROVIDED DO NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW, PROCESS OR CONSIST OF DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR DESIGN. HENCE IN SUCH CIRCUMSTANCES, THE LD. CIT(A) HAD RIGHT LY DELETED THE DISALLOWANCE. SINCE LD. CIT(A) WHILE FOLLOWING THE ORDER OF CIT(A) - 11 IN ASSESSEES OWN CASE FOR AY 2008 - 09 (TDS APPEAL), HAD DELETED THE DISALLOWANCE AND M OREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD. CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY TH E LD. CIT 8 I.T.A. NO. 7254/ MUM/201 6 M/S PALL INDIA PVT. LTD. (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THESE GROUND S RAISED BY THE REVENUE STANDS DISMISSED . GROUND NO. 4 & 5 7. THESE GROUNDS RAISED BY THE REVENUE ARE GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 8 . IN THE NET RES ULT, THE APPEAL FILED BY THE REVENUE STA NDS DISMISSED WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH DEC , 2018 . SD/ - SD/ - ( R. C. SHARMA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 26 . 12 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI