DCIT, New Delhi V. M/s. Jubilant Capital Ltd., New Delhi

ITA 758/DEL/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6855 (ITAT-DELHI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 10-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Difference of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH.L.P.SAHU, ACCOUNTANT MEMBER I.T.A .NO.-758/DEL /2014 (ASSESSMENT YEAR-2010- 11) DCIT, CIRCLE-4(1), NEW DELHI (APPELLANT) VS JUBILANT CAPITAL LTD., 1517, 15 TH FLOOR, DEVIKA TOWER, NEHRU PLACE, NEW DELHI PAN-AAACG4198G (RESPONDENT) APPELLANT BY MS. RISHPAL BEDI, SR.DR RESPONDENT BY SH.K.M.GUPTA & TARUN KUMAR, ADV. ORDER PER DIVA SINGH, JM THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AS SAILING THE CORRECTNESS OF THE ORDER DATED 28.11.2013 OF CIT(A) -VIII, NEW DELHI PERTAINING TO 2010-11 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING DISALLOWANCE O F RS.32,39,609/- MADE BY THE A.O. OUT OF THE SERVICE CHARGES PAID TO GROUP COMPANY? 2. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND I S NOT TENABLE ON FACTS AND IN LAW. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR FORGO ANY GROUND(S) OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. THE LD. AR RELYING UPON THE COPY OF THE ORDER DA TED 14.10.2015 IN ITA NO.6544/DEL/2013 IN THE CASE OF THE ASSESSEE ITSELF PERTAINING TO IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2009-10 SUBMITTED TH AT THE POINT AT ISSUE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE AS THE CONSISTENT FINDING OF THE CIT(A) IN THE DATE OF HEARING 11.01.2016 DATE OF PRONOUNCEMENT 10.02.2016 I.T.A .NO.-758/DEL/2014 PAGE 2 OF 6 YEAR UNDER CONSIDERATION WHICH IS IDENTICAL TO THE FINDING ARRIVED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR STANDS APPROV ED BY THE ITAT. THE SR. DR RELIES UPON THE ASSESSMENT ORDER. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 04.01.1990 AND IS ENGAGED IN THE BUSINESS INVESTMENT, FINANCE AND BUSINESS SUPPORT SERVICES. 3.1. THE ASSESSING OFFICER IN THE COURSE OF THE SCR UTINY ASSESSMENT TOOK NOTE OF THE FACT THAT THE ASSESSEE HAS PAID SERVICE CHAR GES OF RS.96,74,243/- TO M/S JUBILANT SECURITY PVT.LTD. M/S JUBILANT ENPRO PVT. LTD. IS A GROUP COMPANY. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF TH E SERVICE CHARGES ALONGWITH THE BASIS OF APPORTIONMENT AND JUSTIFICATION FOR AL LOWABILITY VIDE ORDER SHEET ENTRY DATED 24.12.2012. 3.2. NOT ACCEPTING THE ASSESSEES JUSTIFICATION THE AO GIVING THE FOLLOWING REASONS REJECTED IT AND MADE AN ADDITION BY WAY OF A DISALLOWANCE ON ACCOUNT OF EXCESS SERVICE CHARGES OF RS.32,39,609/- HOLDING AS UNDER :- 3.1. ON AN ANALYSIS OF THE ABOVE SUBMISSIONS, THE FOLLOWING CONCLUSIONS ARE IN ORDER:- (I) THE APPORTIONMENT OF THE COMMON EXPENSES IS BAS ED ON THE NUMBER OF RIGS AND NOT ON THE BASIS OF THE REVENUE GENERATED BY THE RIG. (II) THE ASSESSEE HAS NOT CLARIFIED ON THE EXACT NA TURE OF THE SERVICES RENDERED BY M/S JUBILANT ENPRO PVT. LTD. THUS, IT IS NOT POSSIBLE TO APPORTION EXPENSES ON A ONE TO ONE BASI S WITH THE RIGS EMPLOYED BY THE ASSESSEE. 3.2. IN VIEW OF THE ABOVE OBSERVATIONS, IT IS ONLY LOGICAL TO CONCLUDE THAT THE EXPENSES BORNE BY THE ASSESSEE OR ANY OTHE R ENTITY SHOULD BE IN PROPORTION TO THE REVENUE GENERATED BY THE RI GS. THE APPORTIONMENT OF THE SERVICE CHARGES ON THE MERE NU MBER OF RIGS LEADS TO THE ANOMALOUS SITUATION WHERE EVEN A RIG W ITH A SMALLER CAPACITY IS MADE TO BEAR THE SAME EXPENSES AS A RIG WITH A GREATER CAPACITY. I.T.A .NO.-758/DEL/2014 PAGE 3 OF 6 3.3. IN ORDER TO ADDRESS THE ABOVE ANOMALOUS SITUAT ION AND TO APPORTION EXPENSES BASED ON THE MATCHING PRINCIPLE, THE SERVICE CHARGES ALLOWABLE TO THE ASSESSEE ARE CALCULATED AS BELOW:- ASSESSMENT YEAR 2010-11 PARTICULARS JUBILANT ENPRO PVT. LTD. JUBILANT SECURITIES LTD. TOTAL NUMBER OF RIG MONTHS 83 12 95 RIGS-CONSULTANCY INCOME 306608385 28122964 334731349 INCOME PER RIG MONTH 3694077 2343580 3523488 EXPENDITURE 66913583 9674253 76587836 EXPENSES PER RIG MONTH 806188 806188 806188 APPORTIONMENT OF EXPENDITURE AS PER RIG MONTHS 66913583 9674253 76587836 APPORTIONMENT OF EXPENSES IN THE RATIO OF REVENUE GENERATION 70153192 6434644 76587836 DIFFERENCE (-)32,39,609 32,39,609 THUS, THE ASSESSEE HAS ATTRIBUTED GREATER EXPENSES THAN IS ATTRIBUTABLE ON THE BASIS OF THE REVENUE GENERATED BY THE RIGS OPERATED BY THE ASSESSEE. IN VIEW OF THE ABOVE DIS CUSSION, EXCESS SERVICE CHARGES AMOUNTING TO RS.32,39,609/- ATTRIBU TED BY THE ASSESSEE ARE HEREBY DISALLOWED AND ADDED TO THE TOT AL INCOME OF THE ASSESSEE. I AM SATISFIED THAT THE ASSESSEE FILED INACCURATE PARTICULARS OF ITS INCOME AND THEREBY CONCEALED ITS INCOME TO THE TUNE OF RS.32,39,609/-. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) ARE INITIATED SEPARATELY FOR FURNISHING INACCURATE PART ICULARS OF INCOME. (DISALLOWANCE OF RS.32,39,609/-) 3.3. THE CIT(A) CONSIDERING THE SUBMISSIONS DELETED THE ADDITION ON THE FOLLOWING REASONING:- I HAVE DISCUSSED THE MATTER WITH THE AR VERY CAREF ULLY, I PERUSED THE ASSESSMENT ORDER, WRITTEN SUBMISSIONS, GROUNDS OF A PPEAL AND STATEMENT OF FACTS VERY CAREFULLY. THE APPELLANT C OMPANY IS M/S JUBILANT CAPITAL PRIVATE LIMITED AND ITS SISTER CON CERN IS JUBILANT ENPRO PRIVATE LIMITED. BOTH THE COMPANIES SUPPLY S UPPORT SERVICES TO CUSTOMER WHO PROVIDE SERVICES THROUGH RIG MACHINES TO ONGC, RELIANCE AND OTHER OIL PRODUCING COMPANY, DOING THE IR BORING WORK IN DEEP SEA. THE APPELLANT COMPANY HAD GIVEN SERVICES IN RELATION 12 MONTHS RIG SUPPLY WHEREAS, ITS SISTER CONCERN HAD GIVEN SERVICES IN RELATION TO 83 MONTHS RIG SUPPLY. THE NECESSARY TA BLE FROM THE AOS ORDER IN PARA 3.3 IS REPRODUCED AS UNDER: I.T.A .NO.-758/DEL/2014 PAGE 4 OF 6 SL.NO. PARTICULARS JUBILANT ENPRO PRIVATE LIMITED JUBILANT CAPITAL PRIVATE LIMITED TOTAL 1. NUMBER OF RIG MONTHS 83 12 95 2. RIGS CONSULTANCY INCOME 306608385 28122964 334731349 3. INCOME PER RIG MONTH 3694077 2343580 3523488 4. EXPENDITURE 66913583 9674253 76587836 5. EXPENSES PER RIG MONTH 806188 806188 806188 6. APPORTIONMENT OF EXPENDITURE AS PER RIG MONTHS 66913583 9674253 76587836 7. APPORTIONMENT OF EXPENSES IN THE RATIO OF REVENUE GENERATION 66913583 9674253 76587836 8. DIFFERENCE 70153192 6434644 76587836 - 3239609 3239609 0 BOTH THE COMPANIES ARE ASSESSED TO INCOME TAX BY SA ME AO AND THE TAX RATE IS SAME ON BOTH THE COMPANIES. BY DISALLOWING EXPENDITURE FROM ONE COMPANY AND ADDING THE SAME EX PENDITURE IN ANOTHER COMPANY, WILL NOT INCREASE ANY REVENUE INCO ME OR TAX TO THE GOVERNMENT. THE DIFFERENCE OF OPINION BETWEEN THE AR AND THE AO IS THAT THE AR HAS APPORTIONED THE COST ON PER RIG MON TH BASIS WHEREAS THE AO HAD APPORTIONED THE EXPENSES IN THE RATIO ON REVENUE GENERATION. IF ONE RIG IS USED FOR ONE MONTH IN DE EP SEA, THEN IT IS COUNTED AS ONE RIG MONTH. IF TWO RIGS ARE USED FOR FOUR MONTHS, THEN IT IS EIGHT RIG MONTHS. THIS CALCULATION IS VERY SIMP LE. THE ARS ARGUMENTS IS THAT SINCE THE RIG MONTHS ARE OBTAINED FROM THE OPERATION RECORD OF THE COMPANY VERY EASILY, THERE IS NO NEED OF DIVERTING THE INCOME FROM THE ONE COMPANY TO THE OT HER COMPANY IN SAME GROUP. THE EXPENDITURE TO COMPANY ALSO MAY DI FFER. THEREFORE, THE AR ARGUED THAT THE RETURN INCOME MAY KINDLY BE SUSTAINED. SO IN MY OPINION, THE ACTION OF THE AO IN DISTURBING THE EXPENDITURE FIGURES, ADDING ONE EXPENDITURE TO THE OTHER, WILL NOT GENER ATE EXTRA REVENUE FOR DEPARTMENT. HENCE, THE ADDITION OF RS.32,39,60 9/- IS HERE BY DELETED. 4. AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFO RE THE ITAT. WE FIND THAT RELYING ON THE ORDER DATED 09.01.2014 OF THE ITAT I N JUBILANT ENPRO PVT. LTD. IN ITA NO. 1245/DEL/2013 IN 2009-100 ASSESSMENT YEAR W HICH HAD BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IDENTICAL ISSUE IN THE CASE OF THE ASSESSEE IN 2009-10 ASSESSMENT YEAR WAS CONCLUDED ON SIMILAR FA CTS AND CIRCUMSTANCES IN THE FOLLOWING MANNER:- 2. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THA T A SIMILAR ISSUE OF APPORTIONMENT OF EXPENDITURE HAS ARISEN IN THE CASE OF AGGRIEVED COMPANY M/S JUVILANT SECURITY PVT. LTD. IN ITA NO. 1245/DEL/2013 FOR THE ASSESSMENT YEAR 2009-10 AND THE D BENCH V IDE ORDER DATED I.T.A .NO.-758/DEL/2014 PAGE 5 OF 6 09.01.2014 HAS UPHELD BY THE HONBLE DELHI HIGH COU RT IN ITA NO. 490/DEL/2014 JUDGMENT DATED 27 NOVEMBER, 2014 WHERE AS PARA 4 IT IS HELD AS FOLLOWS :- 4. THE SAID FINDING HAS BEEN REVERSED BY THE TRIBU NAL IN THE IMPUGNED ORDER. THE TRIBUNAL, ACCEPTING THE PLEA OF THE ASSESSEE, HAS OBSERVED THAT THE SERVICES RENDERED BY M/S. JUB ILANT ENPRO PVT. LTD. WERE IN THE NATURE OF ASSISTANCE AND SUPPORT S ERVICES LIKE ASSISTANCE IN RELATION TO OBTAINING WORK, SUBMISSIO NS OF BIDS AND SUBSEQUENT NEGOTIATIONS, ADVISING CURRENT DEVELOPME NTS, ADIVISNG REGARDING VISAS AND LABOUR PERMITS, ADVICE ON IMPOR TATION AND EXPORTATION OF MATERIAL VESSELS EQUIPMENTS RIGS ETC . THE AFORESAID WORK AND OBLIGATION UNDERTAKEN BY M/S. JUBILANT ENP RO PVT. LTD. WAS DEPENDANT UPON THE NUMBER OF RIGS AND THIS WOULD DE TERMINE COST APPORTIONMENT OF THE SUPPORT SERVICES WHICH WERE GI VEN AND PROVIDED TO THE RECIPIENTS. THE SERVICES WERE NOT DEPENDENT UPON THE SIZE OF THE RIGS OR THE TURNOVER. THE CONTENTION OF THE RES PONDENT ASSESSEE THAT THE APPORTIONMENT OF COST SHOULD NOT BE MADE O N THE BASIS OF THE TURNOVER, BUT, ON THE BASIS OF NUMBER RIGS WAS ACCE PTED. THE AFORESAID FINDINGS ARE FINDINGS OF FACT AND THERE I S NO REASON OR GROUND TO HOLD THAT THE SAID FINDINGS ARE PERVERSE. NOTICEABLY, M/S. JUBILANT ENPRO PVT. LTD. HAD PROVIDED SERVICES TO O THER SISTER CONCERNS OF THE RESPONDENT ASSESSEE. THE AMOUNT AND QUANTUM PAID BY THE ASSESSEE AND OTHER GROUP COMPANIES IS NOT IN DISPUT E. ANY DISALLOWANCE IN THE HANDS OF THE RESPONDENT ASSESSE E WOULD NECESSARILY MEAN INCREASE OF EXPENDITURE INCURRED B Y THE SISTER CONCERN, AS THERE IS NO DISPUTE ABOUT THE COST INCU RRED BY M/S. JUBILANT ENPRO PVT. LTD. OTHERWISE ALSO, IT WOULD R ESULT IN REDUCTION OR LOWER INCOME EARNED BY M/S. JUBILANT ENPRO PVT. LTD . THE ASSESSING OFFICER DID NOT INVOKE SECTION 40A(2) OF THE ACT, O R HOLD THAT THE PAYMENT MADE WERE DISPROPORTIONATE TO THE MARKET VA LUE OF THE SERVICES RENDERED. ENGAGING SERVICES OF M/S. JUBILA NT ENPRO PVT. LTD. HAD HELPED THE ASSESSEE AND OTHER GROUP COMPANIES T O REDUCE COSTS, AS FOR THE COMMON SERVICES THEY DID NOT ENGAGE EMPL OYEES OR CONSULTANTS SEPARATELY. THIS IS CLEAR FROM THE SUBM ISSION MADE AND FINDINGS OF THE TRIBUNAL THAT THERE4 WAS COMMONALIT Y IN THE NATURE OF SERVICES AND THEREFORE, THE RESPONDENT ASSESSEE AND TO HER SISTER CONCERNS HAD ESTABLISHED AND TAKEN SERVICES FROM ON E COST CENTRE I.E. M/S. JUBILANT ENPRO PVT. LTD. THE RESPONDENT COMPAN Y AND OTHERS HAD AGREED TO PAY FOR THE SERVICES BY WAY OF REIMBU RSEMENT OF EXPENSES. IN VIEW OF THE AFORESAID POSITION, WE DO NOT THINK, IN THE PRESENT APPEALS, THE FIRST ISSUES REQUIRES ADMISSIO N. 3. THUS, THE ISSUE AS TO WHETHER THE APPORTIONMENT OF EXPENDITURE SHOULD BE MADE BETWEEN THE TWO COMPANIES ON THE BAS IS OF PER RIG MONTH BASIS OR IN THE RATIO OF REVENUE GENERATION, IS NOT MORE RES INTEGRA. 4.1. ACCORDINGLY WHERE FACTS, CIRCUMSTANCES AND POS ITION OF LAW REMAINS THE SAME RESPECTFULLY FOLLOWING THE PRECEDENCE THE DEPA RTMENTAL GROUND IS DISMISSED. I.T.A .NO.-758/DEL/2014 PAGE 6 OF 6 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10 OF FEBRUARY, 2016. SD/- SD/- (L.P.SAHU) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10/02/2016 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTAN T REGISTRAR ITAT NEW DELHI