M/s. Rohde & Schwarz India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 793/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3327 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 10-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S KRISHNAN
• Keywords: Transfer pricing; International transaction; Assessment record; Condonation of delay

Judgement Text

ITA NO. 793/DEL/2015 AY: 2009 - 10 M/S RHODE & SCHWARZ INDIA P LTD. VS. DCIT 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: F , NEW DELHI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 793 /DEL/201 5 AY: 200 9 - 10 RHODE & SCHWARZ INDIA P LTD. A 27, FIRST FLOOR MOHAN CO - OPERATIVE INDUSTRIAL ESTATE MATHURA ROAD NEW DELHI 110 044 PAN: AAACR3267P VS . DCIT, CIRCLE 21(2) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : S H. S. KRISHNAN, ADV. RESPONDENT BY : SH. ATIQ AHMED, SR.D.R. DATE OF HEARING : 0 6 .03.2018 DATE OF PRONOUNCEMENT : 0 9 . 03.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER T HE PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST ORDER DATED 26/09/14 PASSED BY LD. CIT (A) - 18, NEW DELHI FOR ASSESSMENT YEAR 2009 - 10 ON THE FOLLOWING GROUNDS OF APPEAL: GROUNDS OF APPEAL BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT RESPECTFULLY SUBMITS THAT: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED - ITA 793/DEL/2015 ASSESSMENT YEAR 2009 - 10 RHODES & SCHARZ INDIA P LTD. 2 A) IN CONFIRMING THE ADDITION OF RS. 27,04,807/ - BEING THE AMOUNT RECEIVED FROM THE HOLDING COMPANY FOR WARRANTY SERVICES TO BE RENDERED DURING THE PR E CEDING ASSESSMENT YEARS; B) IN CONCLUDING THAT THE AMOUNT OF RS. 27,04,807/ - HAS TO BE ADDED TO THE INCOME OF THE APPELLANT BECAUSE THE SAME HAS BEEN RECEIVED DURING THE ASSESSMENT UNDER CONSIDERATION; C) IN CONCLUDING THAT AN AMOUNT OF RS. 27,04,807/ - AS INCOME OF THE APPELLANT FOR THE ASSESSMENT UNDER CONSIDERATION, ESPECIALLY WHEN THE SERVICES ARE RENDERED IN THE NEXT YEARS; AND D) HAS FURTHER ERRED IN NOT GIVING DEDUCTION FOR AMOUNT OF RS. 24,75,684/ - (14,17,054 + 10,58,630) ESPECIALLY WHEN THE SAME WAS ASSESSED AND CONFIRMED IN ASSESSMENT YEAR 2007 - 08 & 2008 - 09. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN INVOKING PROVISIONS OF SECTION 40(A)(IA) AS APPLICABLE AND HAS FURTHER ERRED IN CONFIRMING DISALLOWING A SUM OF RS.72,93,983/ - TOWARDS RENT PAID FOR EQUIP MENT USED OUTSIDE INDIA, PURCHASE OF GOODS AND ALSO FOR THE INTERNET LINK ESPECIALLY WHEN THERE IS NO INCOME CHARGEABLE TO TAX UNDER SECTION 195 OF THE INCOME TAX ACT, 1961. 3. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. IT IS OBSERVED THAT ASSESSEE HAS FILED PRESENT APPEAL WITH A DELAY OF 46 DAYS. ASSESSEE FILED APPLICATION FOR CONDONATION OF DELAY ALONG WITH A FFIDAVIT OF COUNSEL BEING SON OF A UTHORISED R EPRESENTATIVE WHO APPEARED BEFORE LD.CIT (A). ON PERUSAL OF SAID A FFIDAVIT IT IS SUBMITTED BY THE DEPONENT THAT THE SCANNED COPY OF ORDER PASSED BY LD.CIT (A) WAS SENT AS AN ATTACHMENT TO ASSESSEE ITA 793/DEL/2015 ASSESSMENT YEAR 2009 - 10 RHODES & SCHARZ INDIA P LTD. 3 BY E - MAIL AND SINCE CONTENTS OF THE E - MAIL READ AS NOTICE FROM CIT ( A PPEALS) FOR F INANCIAL Y EAR 2009 - 10 , THE SAID E - MAIL WAS IGNORED WITHOUT OPENING THE ATTACHMENT THEREBY CAUSING A DELAY IN FILING THE PRESENT APPEAL BEFORE THIS TRIBUNAL. 3. LD. C OUNSEL APPEARING BEFORE US SUBMITTED THAT AS THERE ARE UMPTEEN NUMBER OF E - MAILS RECEIVED BY ASSESSEE DAILY , THE E - MAIL THAT WA S SENT WITH AN ATTACHMENT OF ORDER BY LD.CIT(A) WITH THE WRONG SUBJECT WAS ACTUAL LY THE REASON FOR DELAY IN FILING PRESENT APPEAL. CONSIDERING THE REASON ATTRIBUTED BY ASSESSEE IN CONSONANCE WITH THE A FFIDAVIT FILED BY C OUNSEL , BEING SON OF THE C HART ERED A CCOUNTANT WHO APPEARED BEFORE THE FIRST A PPELLATE A UTHORITY, DELAY IN FILING THE APPEAL IS CONDONED. 4. BRIEF FACTS OF THE CASE ARE AS UNDER: A SSESSEE FILED ITS RETURN OF INCOME ON 29/09/09 DECLARING A TOTAL INCOME OF RS.5,00,94,806/ - . AS THE COMPAN Y HAD ALSO UNDERTAKEN INTERNATIONAL TRANSACTION WITH ITS A SSOCIATED E NTERPRISE DURING THE YEAR UNDER CONSIDERATION THE CASE WAS REFERRED TO THE T RANSFER P RICING O FFICER (TPO) FOR DETERMINATION OF ARM S LENGTH PRICE. LD.TPO V IDE ORDER DATED 15/01/13 AFTER E XAMINING THE TRANSFER PRICING DOCUMENTATION AND FUNCTIONAL AN D ECONOMIC ANALYSIS CONCLUDED THE ASSESSMENT WITHOUT ANY ADVERSE INFERENCE IN RESPECT OF THE INTERNATIONAL TRANSACTION. 4.1. LD. AO WHILE COMPLETING THE ASSESSMENT MADE CERTAIN DISALLOWANCE S IN T HE HANDS OF ASSESSEE WHICH ARE AS UNDER: ITA 793/DEL/2015 ASSESSMENT YEAR 2009 - 10 RHODES & SCHARZ INDIA P LTD. 4 RETURNED INCOME ADD: ADDITION ON ACCOUNT OF COMMISSION RECEIVED BUT NOT ACCOUNTED FOR ADD: DISALLOWANCE OF REIMBURSEMENT OF EXPENSES ADD: COMMISSION INCOME NOW DECLARED RS. 5,00,94,806.00 RS.27,04,807.00 RS.72,93,983.00 RS.1,09,80,204.00 NET TAXABLE INCOME RS.7,10,73,800.00 4.2. AGGRIEVED BY THE ADDITION MADE BY LD. AO, ASSESSEE PREF ERRED APPEAL BEFORE LD. CIT (A), WHICH WAS CONFIRMED BY HIM. 4. 3 . AGGRIEVED BY THE ORDER OF LD. CIT (A), ASSESSEE IS IN APPEAL BEFORE US NOW. GROUND NO. 1 RAISED BY ASSESSEE IS IN RESPECT OF ADDITION AMOUNTING TO RS.27,0 4, 8 0 7/ - TOWARDS WARRANT Y SERVICES ON THE COMMISSION EARNED BY IT. 4.5. IT HAS BEEN SUBMITTED BY LD. C OUNSEL BEFORE US THAT ASSESSEE HAS BEEN FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING. HE SUBMITS THAT ASSESSEE SHOWS WARRANT Y SERVICES BEING RENDERED IN THE SUBSEQUENT A SSESSMENT Y EARS RELEVANT TO THE YEAR UNDER CONSIDERATION AND THE ENTIRE AMOUNT IS TAXED IN THE YEAR WHEN THE SAID AMOUNT IS RECEIVED. HE EXPLAINED THE METHOD OF ACCOUNTING IN THE MANNER THAT, FOR E.G. ASSESSEE RECEIVES RS.100/ - TOWARDS WARRANTY THEN IT DECLARES RS. 92 DURING THE YEAR OF RECEIPT WHICH IS FOLLOWED BY RS. 4 EACH IN THE SUBSE QUENT TWO ASSESSMENT YEARS. HE SUBMITTED THAT THIS IS THE CONSISTENT APPROACH ADOPTED BY ASSESSEE AND MUST BE ALLOWED EVEN FOR THE YEAR UNDER CONSIDERATION. 4.6. ON THE CONTRARY LD. DR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE RECE IVED A COMMISSION AMOUNT OF ITA 793/DEL/2015 ASSESSMENT YEAR 2009 - 10 RHODES & SCHARZ INDIA P LTD. 5 RS. 20,34,28,009.60/ - , OUT OF WHICH ASSESSEE SHOWED A SUM OF RS.1,35,24,035/ - AS DEFERRED PROVISION FOR WARRANTY. LD. DR SUBMITTED THAT ASSESSEE HAS BEEN INCURRING EXPENDITURE ON ACCOUNT OF WARRANTY SERVICES TO THE TUNE OF 6.4% ON THE C OMMISSION EARNED BY IT, AS PER THE PAST RECORDS. LD. DR THUS SUBMITTED THAT A SSESSING O FFICER HAS RIGHTLY COMPUTED THE WARRANTY AT 6.4% OF THE TOTAL COMMISSION RECEIVED BY ASSESSEE. 5. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGH T OF THE RECORDS PLACED BEFORE US. 5.1. LD. C OUNSEL HAS VEHE M ENT LY ARGUED THAT THE CONSISTENT APPROACH FOLLOWED BY ASSESSEE MUST BE ADOPTED IN ALLOWING THE CLAIM OF ASSESSEE TOWARDS WARRANTY EXPENSES. ON PERUSAL OF THE OBSERVATIONS MADE BY LD.AO IN THE ASSE SSMENT ORDER IN PARA 4.5 AND 4.6 , IT IS OBSERVED THAT ASSESSEE HAS BEEN CONSISTENTLY INCURRING EXPENDITURE TO THE TUNE OF 6.4% ON THE COMMISSION EARNED BY IT . 5.2. ON PERUSAL OF THE ORDER PASSED BY LD. CIT (A) WE OBSERVE THAT HE HAS NOT TAKEN INTO CONSID ERATION THE OBSERVATIONS OF LD.AO AS WELL AS THAT OF ASSESSEE VIS - A - VIS THE APPROACH OF ASSESSEE IN THE PRECEDING ASSESSMENT YEARS. WE THUS ARE INCLINED TO SET ASIDE THIS ISSUE BACK TO THE FILE OF LD. CIT (A) IN ORDER TO FOLLOW THE CONSISTENT APPROACH ADOP TED BY ASSESSEE TOWARDS THE CLAIM OF WARRANTY EXPENSES. THE LD. CIT (A) IS DIRECTED TO CALL FOR THE PAST ASSESSMENT RECORDS AND TO CONSIDER THE CLAIM AS PER LAW WITHOUT DISTURBING THE CONSISTENT APPROACH ADOPTED BY ASSESSEE AND ACCEPTED BY THE DEPARTMENT. ITA 793/DEL/2015 ASSESSMENT YEAR 2009 - 10 RHODES & SCHARZ INDIA P LTD. 6 5.3. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 2 RAISED BY ASSESSEE IS AGAINST THE ADDITION CONFIRMED BY INVOKING PROVISIONS OF S ECTION 40 (A) (IA) OF THE INCOME TAX ACT, 1961 (THE ACT ) . LD. C OUNSEL SUBMITTED THAT A SSESSING O FFICER HAS INVOKED PROVISIONS OF SECTION 40 (A) (IA) OF THE ACT FOR NON - DEDUCTION OF TDS IN RESPECT OF THE REIMBURSEMENT RECEIVED BY ASSESSEE AGAINST THE EXPENDITURE INCURRED. HE SUBMITTED THAT LD. CIT (A) AT PAGE 6 - 8 OF HIS ORD ER HAS REITERATED THE CHART SHOWING ENTIRE DETAILS OF REIMBURSEMENT RECEIVED BY ASSESSEE AGAINST WHICH NO TDS CAN BE DEDUCTED . HE SUBMITTED THAT THE REIMBURSEMENT ARE THE ACTUAL EXPENSES INCURRED BY ASSESSEE ON BEHALF OF ITS A SSOCIATED E NTERPRISES WHIC H ARE NOT CHARGEABLE TO TAX. 6.1. ON THE CONTRARY LD. DR SUBMITTED THAT THESE PAYMENTS HAVE BEEN MADE TO GROUP COMPANIES BEING A SSOCIATED E NTERPRISE BY ASSESSEE AGAINST SERVICES RENDERED. HE FURTHER SUBMITTED THAT THERE ARE CERTAIN ITEMS IN THE LIST WHICH DO NOT FALL UNDER THE CATEGORY OF REIMBURSEMENT BUT ARE IN THE NATURE OF INCOME ON WHICH TDS HA S TO BE DEDUCTED . 7. WE HAVE PERUSED THE SUBMISSIONS ADV ANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 7.1. THE CHART REPRODUCED BY LD. CIT (A) AT PAGE 6 - 8 OF PAPER BOOK LISTS THE DETAILS OF THE PAYMENTS MADE BY ASSESSEE. IT IS OBSERVED THAT SOME OF THE PAYMENTS ARE NOT CONSIDERED TO B E IN THE NATURE OF REIMBURSEMENT BY ASSESSEE ITSELF. IT IS ALSO OBSERVED THAT LD. CIT ITA 793/DEL/2015 ASSESSMENT YEAR 2009 - 10 RHODES & SCHARZ INDIA P LTD. 7 (A) FOLLOWED ORDER OF HIS PREDECESSOR FOR ASSESSMENT YEAR 2007 - 08, WHEREIN THE THEN LD. CIT (A) HAS IDENTIFIED THE PAYMENTS MADE BY ASSESSEE TO BE IN THE NATURE OF INCOM E ACCRUING IN THE HANDS OF PARENT COMPANY. 7.2. IN THE FACTS OF THE PRESENT CASE LD. CIT (A) HAS NOT IDENTIFIED OTHER PAYMENTS WHICH WOULD BE CONSIDERED TO BE INCOME IN THE HANDS OF THE PARENT RECIPIENT COMPANY. WE THEREFORE DIRECT LD. CIT (A) TO ANALYSE THE ACTUAL NATURE OF EACH AND EVERY PAYMENT MADE BY ASSESSEE AND THEN TO COME TO A CONCLUSION REGARDING THE APPLICABILITY OF TDS PROVISIONS IN RESPECT OF EACH PAYMENT. 7.3. WE ACCORDINGLY SET ASIDE THIS ISSUE TO LD. CIT (A) TO PASS A DETAILED ORDER ON MERI TS. 7.4. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 0 9 . 0 3 . 2 0 1 8 . S D / - S D / - (R AJENDRA ) (BEENA A PILLAI) ACCOUNTANTMEMBER JUDICIAL MEMBER DT. 0 9 T H M A R C H , 2018 M V ITA 793/DEL/2015 ASSESSMENT YEAR 2009 - 10 RHODES & SCHARZ INDIA P LTD. 8 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES