Appeal details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 84113 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 11 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-11-2014
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
C
Next Hearing Date
30-07-2014
Assessment Year
2008-2009
Appeal Filed On
01-12-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 ITO - 9 ( 1 ) R.NO. 223, AAYAKAR BHAVEN. M.K. ROAD, MUMBAI- 400 020 VS. M/S. C.U. INSPECTIONS INDIA PVT. LTD. 402, SUGAR FORTUNE, 184, WATERFIELD ROAD, BANDRA (W), MUMBAI- 400 050 PAN:-AAACH 6794 F (APPELLANT) (RESPONDENT) ITA NO. 4936/MUM/2012 ASSESSMENT YEAR: 2009-10 M/S. C.U. INSPECTIONS INDIA PVT. LTD. 402, SUGAR FORTUNE, 184, WATERFIELD ROAD, BANDRA (W), MUMBAI- 400 050 PAN:-AAACH 6794 F VS. ITO - 9( 1 ) R.NO. 223, AAYAKAR BHAVEN. M.K. ROAD, MUMBAI- 400 020 (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI H.N. MOTIWALA REVENUE BY : SHRI AKHILENDR P. YADAV DATE OF HEARING : 05 . 11 . 2014 DATE OF PRONOUNCEMENT : 12 . 1 1 .2014 ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 2 O R D E R PER BENCH: THE AFORESAID APPEALS HAVE BEEN FILED BY THE REVE NUE AGAINST SEPARATE IMPUGNED ORDERS PASSED BY LD.CIT(A )-19, MUMBAI, EXCEPT FOR FILING ITA NO. 4936/MUM/2012 FOR THE A.Y . 2009-10, WHICH HAS BEEN FILED BY THE ASSESSEE. SINCE COMMON ISSUES ARE PERMEATING THROUGH IN ALL THE APPEALS THEREFORE, THEY WERE HEA RD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. WE WILL FIRST TAKE UP DEPARTMENTAL APPEALS, WHER EIN ONE COMMON ISSUE IS INVOLVED IN ALL THE YEARS. FOR THE SAKE OF READY REFERENCE, APPEAL FOR A.Y. 2004-05 BEING ITA NO. 3425/MUM/2012 IS BEI NG TAKEN UP FOR APPRECIATION OF FACTS. THE SOLE GROUND RAISED BY TH E DEPARTMENT IN THIS YEAR READ AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE AMO UNT OF RS.82,60,380/- ADDED AS LICENSE FEES/SERVICE CHARGE S WHICH HAS ACCRUED TO THE ASSESSEE, IN SPITE OF THE CLEAR FIND ING BY THE ASSESSING OFFICER THAT THE ASSESSEE WAS CONSISTENTL Y FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THAT FOLLOWING THIS SYSTEM INCOME HAD ACCRUED TO THE ASSESSEE. 3. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF QUALITY CONTROL, INSPECTION, TEC HNICAL TESTINGS, SURVEY ETC. ALL RELATING TO AGRICULTURAL PRODUCTS. THE ASS ESSEE IS HAVING INCOME FROM SERVICE CHARGES AND LICENSE FEE. DURING THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE, UNDER THE HEAD CURRENT LIABILITIES HAD SHOWN AN AMOUNT OF RS.82,60,380/- AS INCOME BILLED BUT NOT DUE. THIS W AS ON ACCOUNT OF LICENSE FEE EARNED BY THE ASSESSEE. SO FAR AS SERV ICE CHARGES ARE ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 3 CONCERNED, THE SAME WERE ACCOUNTED ON THE BASIS OF COMPLETION OF SERVICES AND ON FINANCIAL YEAR BASIS. AS REGARDS L ICENSE FEES, THEY WERE ACCOUNTED ON CALENDAR YEAR BASIS. SINCE THE ASSESSE E IS MAINTAINING ITS BOOKS OF ACCOUNT ON FINANCIAL YEAR BASIS, THAT IS, FROM 1 ST APRIL TO 31 ST MARCH, THE ASSESSEE HAD TO MAKE ADJUSTMENT IN RESPE CT OF THE LICENSE FEES. FOLLOWING THIS SYSTEM THE ASSESSEE HAD ACCOUN TED LICENSE FEES OF RS.1,62,49,075/- WHICH WERE RECEIVED AND ACCRUED D URING THE YEAR. HOWEVER AMOUNT OF RS.82,60,380/- WHICH WAS SHOWN UN DER THE HEAD CURRENT LIABILITIES, IT WAS SHOWN AS INCOME BILLED BUT NOT DUE. THE ASSESSING OFFICER HELD THAT, SINCE THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THIS SUM OF L ICENSE FEES HAD ALREADY ACCRUED TO THE ASSESSEE AS INCOME, THEREFOR E, THERE WAS NO REASON FOR NOT ACCOUNTING FOR SUCH INCOME IN THIS YEAR. THE ASSESSEES CASE BEFORE THE AO WAS THAT, THE LICENSE FEES IS RE CEIVED FROM JANUARY TO DECEMBER FOR WHICH THE BILL IS RAISED IN JANUAR Y AND FOR THE PERIOD, JANUARY TO MARCH WHATEVER LICENSE FEE IS RECEIVED O R RECEIVABLE, THE SAME IS ACCOUNTED IN THE YEAR UNDER CONSIDERATION W HEREAS, THE REMAINING LICENSE FEES FOR THE BALANCE NINE MONTHS IS CARRIED FORWARD TO BE ACCOUNTED IN THE SUBSEQUENT YEAR. THIS SYSTEM OF ACCOUNTING HAD BEEN FOLLOWED REGULARLY. THE ASSESSING OFFICER HELD THAT SUCH METHOD OF ACCOUNTING IS NOT CORRECT, AS THE INCOME TAX ACT PR OVIDES THE PERIOD OF 12 MONTHS, COMMENCING FROM THE FIRST DAY OF APRIL E VERY YEAR AND ENDING ON 31 ST MARCH OF NEXT YEAR. THE ASSESSEE SHOULD HAVE OFFER ED ALL THE ACCRUED INCOME FOR THE PERIOD OF 12 MONTHS RELE VANT TO THE CONCERNED ASSESSMENT YEARS. ACCORDINGLY HE ADDED TH E AMOUNT OF RS.82,60,380/-. ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 4 4. IN THE FIRST ROUND AGAINST THE SAID ASSESSMENT O RDER, THE MATTER HAD REACHED UP TO THE STAGE OF ITAT, HOWEVER, THE SAME WAS SET ASIDE TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH. IN THE SET ASIDE PROCEEDINGS THE ASSESSING OFFICER AFTER CALLING THE BILLS HAD AGAIN MADE THE SAID ADDITION ON THE REASONING THAT THE TREATME NT GIVEN BY THE ASSESSEE TO AMOUNT OF RS.82.60 LAKHS WHICH HAS BEEN CARRIED FORWARD TO THE SUBSEQUENT YEAR IS INCORRECT AND THE SAID AMOUN T IS TAXABLE INCOME OF THE YEAR. 5. BEFORE THE LD.CIT(A), THE ASSESSEE CLARIFIED TH E ACCOUNTING OF THE LICENSE FEE AND ALSO FILED A COPY OF RECONCILIATION FINANCIAL ACCOUNT AND SUBMITTED THAT AT THIS AMOUNT OF RS.82,60,380/- HAS ALREADY BEEN OFFERED FOR TAXATION IN THE A.Y. 2005-06. LD.CIT(A) AFTER APPRECIATING THE ASSESSEES CONTENTION DELETED THE SAID ADDITION AFT ER OBSERVING AND HOLDING AS UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND ASSESSMENT ORDER A ND THE TWO ORDER OF THE LD.CIT(A) AS QUOTED BY THE APPELLANT. FROM THE FACTS ON RECORD, THE AMOUNT OF RS.82,60,380/- ARE THE LIC ENCE FEES RECEIVED IN SEPARATE DIVISION KNOWN AS M/S. SKUL IN TERNATIONAL FROM JANUARY TO DECEMBER BASIS WHILE THE APPELLANT MAINTAINS ITS BOOKS OF ACCOUNT FROM APRIL TO MARCH I.E. F.Y. THER EFORE, THE LICENCE FEES RECEIPTS ARE ACCOUNTED ON APRIL TO MAR CH BASIS AND THE BALANCE IS SHOWN UNDER THE HEAD CURRENT LIABILI TIES. THIS SYSTEM IS CONSISTENTLY FOLLOWED BY THE APPELLANT. T HE AMOUNT OF RS.82,60,380/- HAS BEEN ACCOUNTED IN THE F.Y. APRIL , 2004 TO MARCH, 2005 AND THIS METHOD OF ACCOUNTING ITS CONSI STENTLY FOLLOWED BY THE APPELLANT WHICH IS ALSO SUPPORTED B Y THE FACT THAT AS ON 31.03.2003, THE AMOUNT SHOWN AS LIABILITY WAS RS.71,26,099/- AS INCOME BILLED BUT NOT DUE AND THI S AMOUNT OF RS.71,26,099/- WAS ACCOUNTED AS INCOME IN THE F.Y. 2003-04. HENCE, THERE IS MERIT IN THE CONTENTION OF THE APPE LLANT THAT THE LICENCE FEES OF RS.82,60,380/- WHICH IS NOT DUE AND ACCRUED SHOULD NOT HAVE BEEN ADDED AS INCOME ON THE BASIS O F RULE OF ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 5 CONSISTENCY. SINCE THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THIS YEAR, IT IS HELD THAT THERE I S NO JUSTIFICATION IN BRINGING TO TAX RS.82,60,380/- TREATED AS LICENC E FEES RECEIVED AS ADVANCE TILL THE LICENCE FEES ARE DUE AND ACCRUE D. 6. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDER AND MATERIAL PLACED ON RECORD, WE FIND THAT T HE LICENSE FEE IS RECEIVED BY THE ASSESSEE IN A SEPARATE DIVISION KNO WN AS M/S. SKUL INTERNATIONAL INDIA FROM JANUARY TO DECEMBER THAT IS, ON CALENDAR YEAR BASIS, WHEREAS THE BOOKS OF ACCOUNTS WERE MAINTAIN ON FINANCIAL YEAR BASIS, THAT IS, FIRST OF APRIL OF EVERY YEAR TO 31 ST MARCH OF THE NEXT YEAR. THE ASSESSEE USED TO RAISE THE BILLS FOR THE LICENS E FEE IN THE MONTH OF JANUARY AND THE LICENSE FEE RECEIVED FROM JANUARY T O MARCH WAS ACCOUNTED AS INCOME OF THE YEAR AND LICENSE FEE FRO M APRIL TO DECEMBER WAS TAKEN UNDER THE HEAD CURRENT LIABILITIES THA T IS, IT DOES NOT RECOGNIZES THE INCOME OF THE YEAR BUT AS INCOME OF SUBSEQUENT YEAR. IN OTHER WORDS, THE LICENSE FEE FROM THE PERIOD APRIL TO DECEMBER IS NOT RECOGNIZED AS INCOME, BECAUSE BILLS ARE NOT RAISED AND THEREFORE INCOME IS NOT ACCRUED TO THE ASSESSEE. WHEN THE BILL ARE R AISED FROM THE MONTH OF JANUARY, THE ASSESSEE RECOGNIZES THE INCOME AND ACCORDINGLY ACCOUNT FOR IN THE BOOKS OF ACCOUNTS. IN THE GIVEN FINANCIAL YEAR, THUS ONLY 3 MONTHS INCOME IS ACCOUNTED AND FOR AN BALANC E NINE MONTHS INCOME IS TAKEN TO NEXT FINANCIAL YEAR. THE ACCOUNT ING OF THE LICENSE FEE IN THIS YEAR HAS BEEN DONE IN THE FOLLOWING MANNER. RS. LICENSE FEES RECEIVED 1,73,79,256 ADD: LICENSE FEES BILL BUT NOT DUE AS ON MARCH 31, 2003 71,26,099 2,45,05,355 LESS: LICENSE FEES BILLED BUT NOT DUE FROM ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 6 APRIL 01, 2004 TO DECEMBER 21, 2004 82,60,380 CREDIT IN PROFIT & LOSS ACCOUNT 1,62,44,975 SINCE ASSESSEE IS DULY ACCOUNTING THE INCOME IN THE AFORESAID MANNER CONSISTENTLY IN ALL THE YEARS AND THEREFORE, WE DO NOT FIND ANY REASON TO DEVIATE FROM SUCH SYSTEM OF ACCOUNTING, FOR RECOGNI ZING THE INCOME WHICH HAS BEEN FOLLOWED REGULARLY IN ALL THE YEARS. THUS THE FINDING AND THE CONCLUSION GIVEN BY THE LD.CIT(A) IS UPHELD. GR OUND, AS RAISED BY THE DEPARTMENT IS THUS DISMISSED. 7. IN A.Y. 2006-07 FOLLOWING GROUND HAS BEEN RAISED WHICH READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW, THE LD.CIT(A) ERRED IN DELETING THE AMOUNT OF RS.2, 31,97,948/- ADDED AS LICENSE FEES/SERVICE CHARGES WHICH HAS ACC RUED TO THE ASSESSEE, INSPITE OF THE CLEAR FINDING BY THE ASSES SING OFFICER THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE MERCANT ILE SYSTEM OF ACCOUNTING AND THAT FOLLOWING THIS SYSTEM INCOME HA D ACCRUED TO THE ASSESSEE IN A.Y. 2006-07. THIS GROUND IS SIMILAR TO GROUND NO. 1 AS RAISED B Y THE DEPARTMENT IN A.Y. 2004-05, THEREFORE, FINDING GIVEN IN THE SA ID APPEAL WILL APPLY MUTATIS MUTANDIS IN THIS ALSO AND ACCORDINGLY GROUN D NO. 1 AS RAISED BY THE DEPARTMENT IS TREATED AS DISMISSED. 8. GROUND NO. 2 RELATES TO DISALLOWANCE OF ADMINIST RATIVE EXPENSES @ 10%, AS AGAINST 20% MADE BY THE AO. BEFORE US, IT H AS BEEN SUBMITTED BY THE LEARNED COUNSEL THAT, IN A.Y. 2004-05 THE AS SESSEE HAS ACCEPTED THE DISALLOWANCE OF 20%, WHICH WAS SUSTAINED BY THE LD.CIT(A). THEREFORE IN THIS YEAR ALSO, THE SAID DISALLOWANCE OF 20% CAN BE CONFIRMED. ACCORDINGLY, IN VIEW OF THE ADMISSION OF THE LEARNED COUNSEL ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 7 FOR THE ASSESSEE, WE CONFIRM THE DISALLOWANCE OF 20 % ON ACCOUNT OF ADMINISTRATIVE EXPENSES AND IN THE RESULT GROUND NO . 2 AS RAISED BY THE DEPARTMENT IS TREATED AS ALLOWED. 9. IN A.Y. 2008-09, I.E. IN ITAT NO. 3525/MUM/2012 FOLLOWING GROUNDS HAVE BEEN RAISED BY THE DEPARTMENT WHICH RE AD AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE AMOUNT OF RS.3,92,26,267/-, ADDED AS LICENSE FEES/SERVICES CH ARGES WHICH HAS ACCRUED T THE ASSESSEE, INSPITE OF THE CLEAR FI NDING BY THE ASSESSING OFFICER THAT THE ASSESSEE WAS CONSISTENTL Y FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THAT FOLLOWING THIS SYSTEM INCOME HAD ACCRUED TO THE ASSESSEE IN A.Y. 2008-09. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN RESTRICTING THE DISALLO WANCE OUT OF ADMINISTRATIVE EXPENSES TO 10% AS AGAINST 20% MADE BY THE ASSESSING OFFICER, THOUGH THE DISALLOWANCE WAS WARR ANTED BY THE FACT THAT THE ASSESSEE HAD NOT PRODUCED ADEQUATE EV IDENCE TO PROVE THAT THE ENTIRE EXPENDITURE WAS INCURRED WHOL LY EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 10. SINCE THE AFORESAID GROUNDS ARE SIMILAR TO APPE AL OF THE DEPARTMENT FOR THE A.Y. 2006-07 THEREFORE, THE FIND ING GIVEN THEREIN, WHILE APPLY MUTATIS MUTANDIS THAT IS, GROUND NO. 1 IS TREATED AS DISMISSED, WHEREAS, GROUND NO. 2 IS TREATED AS ALLO WED. IN THE RESULT APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED. 11. NOW WE WILL TAKE UP DEPARTMENTAL APPEAL FOR A.Y . 2009-10 BEING ITAT NO. 4697/MUM/2012, WHEREIN ONLY ONE GROUND HAS BEEN RAISED WHICH READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE AMOUNT OF RS.4,77,06,241/- ADDED AS LICENSE FEES/SERVICE CHAR GES WHICH HAS ACCRUED TO THE ASSESSEE, INSPITE OF THE CLEAR F INDING BY THE ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 8 ASSESSING OFFICER THAT THE ASSESSEE WAS CONSISTENTL Y FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THAT FOLLOWING THIS SYSTEM INCOME HAD ACCRUED TO THE ASSESSEE IN A.Y. 2009-10. 12. THIS GROUND IS SIMILAR TO GROUND NO. 1 OF THE E ARLIER YEARS IN THE DEPARTMENTAL APPEAL, THEREFORE, IN VIEW OF THE FIND ING GIVEN THEREIN, THIS GROUND IS TREATED AS DISMISSED. 13. NOW WE WILL TAKE UP ASSESSEES APPEAL, BEING IT A NO. 4936/MUM/2012 FOR THE A.Y. 2009-10. THE SOLE ISSUE RAISED IN ASSESSEES APPEAL IS DISALLOWANCE OF RS.38,88,621/- MADE U/S 40(A)(IA) ON ACCOUNT OF NON DEDUCTION OF TAX. 14. THE BRIEF FACTS ARE THAT, ASSESSEE HAD PAID AN AMOUNT OF RS.38,88,621/- AS REIMBURSEMENT TO THE HOLDING COMP ANY, THAT IS, M/S. PSO BEHEER B.V. A RESIDENT OF NETHERLAND. THE ASSES SEE HAD NOT DEDUCTED TDS ON SUCH REIMBURSEMENT. THE ASSESSING O FFICER HELD THAT SUCH A PAYMENT ENTAILS DEDUCTION OF TDS U/S 195. AC CORDINGLY HE MADE THE DISALLOWANCE U/S 40(A)(IA). THE LD.CIT(A), FOLL OWING THE EARLIER YEAR ORDERS OF THE CIT(A) CONFIRMED THE SAID DISALLOWAN CE. 15. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT, THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN A.Y. 2006-07, WHEREIN THE TRIBUNAL HAS DELETED THE SAID DISALLOWANCE. THE LD. DR ALSO ADMITTED THAT THIS ISSUE HAD BEEN DECID ED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN THE EARLIER YEARS. 16. AFTER CONSIDERING THE RELEVANT FINDING GIVEN BY THE AO AS WELL AS LD.CIT(A) AND ALSO THE ORDER OF THE TRIBUNAL OF THE EARLIER YEARS WE FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE AFTER DETAIL ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 9 DISCUSSION. THE RELEVANT FINDING AND THE OBSERVATIO NS OF THE TRIBUNAL AS GIVEN IN ITA NO. 577/MUM/2011 FOR THE A.Y. 2006-07 READS AS UNDER:- AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSI NG THE RELEVANT MATERIAL ON RECORD, IT IS .OBSERVED THAT THE ASSESS EE. ENTERED INTO AN AGREEMENT WITH ITS HOLDING COMPANY TOWARDS INCUR RING OF SUCH EXPENSES. VIDE AGREEMENT DATED 5TH JUNE, 2005, A CO PY OF WHICH HAS BEEN PLACED ON RECORD;' THE HOLDING COMPANY AGR EED TO INCUR VARIOUS .COSTS FOR AND ON BEHALF OF THE ASSESSEE AN D OTHER GROUP' CONCERNS. THESE EXPENSES INCLUDE ACCOUNTING SERVICE S, LEGAL AND PROFESSIONAL SERVICES, COMMUNICATION, R&D ETC. CLAU SE 3 OF THE AGREEMENT TALKS OF CONSIDERATION. THIS CLAUSE PROVI DES THAT THE TOTAL OVERHEAD COSTS SHALL BE COLLECTED FROM VARIOU S GROUP MEMBERS AT CERTAIN PERCENTAGE OF THE TOTAL COST DET ERMINED AS PER ARM'S LENGTH PRINCIPLE BY CONSIDERING THE SIZE OF THE GROUP MEMBER, PERCENTAGE OF OWNERSHIP, TIME SPENT BY THE MANAGEMENT, NUMBER OF VISITS ETC. SECOND PART OF CL AUSE 3 .PROVIDES THAT : 'TAKING INTO ACCOUNT ALL THE ABOVE MENTIONED PARAMETERS, THE PERCENTAGE FOR THE GROUP MEMBER, CO NTROL UNION INDIA PRIVATE LIMITED, HAS, AFTER CAREFUL CONSIDERA TION, BEEN FIXED AT 4% OF THE TOTAL OVERHEAD COST'. THE AUDITORS, NA MELY MLS. GRAN THORNTON CONFIRMED THE ASSESSEE'S SHARE OF SUC H OVERHEAD EXPENSES AT 4% AMOUNTING TO RS.34.941AKH THROUGH TH EIR CERTIFICATE, A COPY OF WHICH -HAS BEEN PLACED AT PA GE 11 OF THE PAPER BOOK. THIS CERTIFICATE UNEQUIVOCALLY MENTIONS THAT THE APPORTIONMENT 'DOES NOT INCLUDE ANY PROFIT ELEMENTS '. FROM THE AGREEMENT AND THE CERTIFICATE OF THE AUDITOR, THE C ONTENTS OF WHICH HAVE NOT BEEN CONTROVERTED BY THE AUTHORITIES BELOW, IT IS AMPLY CLEAR THAT THE ASSESSEE'S SHARE AT 4% OF TOTA L OVERHEAD CHARGES, 'AS WORKED OUT AT RS.34.94 LAKH, IS WITHOU T ANY PROFIT ELEMENT. WHEN WE CONSIDER THE NATURE OF EXPENSES BO RNE BY THE HEAD OFFICE SUCH AS ACCOUNTING, LEGAL AND PROFESSIO NAL, STAFF AND MANAGEMENT ETC., IT BECOMES VIVID THAT THESE EXPENS ES ARE OTHERWISE IN THE NATURE OF REVENUE EXPENSES. IT IS NOT THE CASE OF THE AO THAT. SOME PART OF SUCH EXPENSES IS NOT -DED UCTIBLE AS BREACHING THE MANDATE OF SECTION 44C OF THE ACT . 4. SECTION 195 OF THE ACT PROVIDES THAT ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, NOT BEING A' COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST OR ANY OTHER. SUM CHARGEABLE UNDER THE' PROVISIONS OF THIS ACT, NOT BEING CERTAIN EXCLUSION S, SHALL AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 10 THE TIME OF PAYMENT THEREOF, WHICHEVER IS EARLIER, DEDUCT INCOME- TAX THEREON AT THE RATES IN FORCE. A PRE-REQUISITE FOR MAKING DISALLOWANCE UNDER SECTION' 40(A)(IA) IS THAT THE P AYMENT FOR THE EXPENDITURE SHOULD NECESSARILY BE LIABLE TO DEDUCTI ON OF TAX AT SOURCE. IN THE INSTANT CONTEXT, AN AMOUNT WILL BE L IABLE TO TAX WITHHOLDING IF IT BITER ALIA CONTAINS SOME INCOME E LEMENT. IF THE AMOUNT PAID BY THE ASSESSEE IS , NOT TAXABLE IN THE HANDS OF THE RECIPIENT, THERE CAN BE NO QUESTION OF MAKING ANY D ISALLOWANCE UNDER THIS PROVISION. A CONJOINT READING OF 'SECTIO NS 195 AND 40(A)(IA) 'BRINGS TO THE FORE THAT THE DISALLOWANCE CAN BE MADE' ONLY IF THE AMOUNT PAID IS CHARGEABLE TO TAX IN THE HANDS OF THE RECIPIENT. IN OTHER WORDS, IF THE AMOUNT IS NOT CHA RGEABLE TO TAX IN HANDS OF THE RECIPIENT, THERE CANNOT BE ANY SCO PE FOR 'DEDUCTION OF TAX AT SOURCE. THERE IS NO DEARTH OF JUDGMENTS AND TRIBUNAL ORDERS TO THE EFFECT THAT THE REIMBURSEMEN T OF EXPENSES WITHOUT ANY PROFIT ELEMENT CANNOT BE CHARGED TO TAX IN THE HANDS OF THE RECIPIENT. IF SUCH AN AMOUNT IS NOT CHARGEAB LE TO TAX THERE CANNOT BE ANY SCOPE FOR' DEDUCTION OF TAX AT SOURCE FROM SUCH PAYMENT. ONCE NO DEDUCTION OF TAX AT SOURCE IS CONT EMPLATED, THE NATURAL COROLLARY WHICH MANIFESTLY FOLLOWS IS T HAT THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE TRIGGERED . WE, THEREFORE, DO NOT SEE ANY REASON FOR SUSTAINING THE DISALLOWANCE CONFIRMED BY THE LEARNED CIT(A). 5. BEFORE PARTING WITH THIS ISSUE, WE WOULD LIKE TO RECORD THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERRED TO CER TAIN OBSERVATIONS . MADE BY THE LEARNED CIT(A) TO BRING HOME THE POINT THAT THE ASSESSEE DID NOT FURNISH ANY DETAILS OF THE ACTUAL EXPENDITURE INCURRED AND IN . THAT VIEW OF THE MATT ER HE URGED FOR SUSTAINING THE DISALLOWANCE. WE ARE UNABLE TO COUNT ENANCE SUCH A CONTENTION BECAUSE THE AUTHORITIES BELOW HAVE MAD E AND SUSTAINED DISALLOWANCE OF RS.34.94 LAKH U/S 40( A) (IA) OF THE ACT. AN AMOUNT CAN BE DISALLOWED UNDER THIS PROVISION ON LY WHEN IT IS OTHERWISE ELIGIBLE FOR DEDUCTION: IF THE AMOUNT OF EXPENDITURE DOES NOT OTHERWISE QUALIFY FOR DEDUCTION; THE QUEST ION OF CONSIDERING' THE PROVISIONS OF SECTION 40(A)(IA) CA NNOT .APPLY. AS' BOTH THE AUTHORITIES HAVE MADE AND SUSTAINED DISALL OWANCE 40(A)(IA) OF THE ACT, WE CANNOT PERMIT THE LEARNED DEPARTMENTAL REPRESENTATIVE TO IMPROVE THE CASE OF THE REVENUE A ND DOUBT THE VERY DEDUCTIBILITY OF THE EXPENDITURE ITSELF, WHICH HAS NOT BEEN DONE BY THE AO. NO DOUBT, THE LD. DR'S HAS UNBRIDLE D POWER TO ARGUE THE CASE OF THE REVENUE FROM ANY ANGLE, . BUT THERE IS AN ITA NOS. 8043 & 346/MUM/2011 3525& 4697/MUM/2012 4936/MUM/2012 M/S. C.U. INSPECTIONS INDIA PVT. LTD. ASSESSMENT YEAR: 2004-05,2006-07, 2008-09 & 2009-10 11 INHERENT LIMIT ON SUCH ARGUMENTS, HE CAN'T TRAVEL B EYOND THE ASSESSMENT ORDER TO SET UP AN ALTOGETHER NEW CASE. IF WE ACCEPT THE CONTENTION OF THE LD. DR THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION IN THE. VERY FIRST INSTANCE, IT WOULD SET ASIDE THE BEDROCK OF THE ACTION OF THE AO, BEING THE' DISALLO WANCE U/S. 40( A) (IA), IN OUR CONSIDERED OPINION, SUCH A COURSE O F ACTION IS NOT OPEN TO THE LD. DR. IN VIEW OF THE FOREGOING REASON S, WE DECIDE THIS ISSUE IN ASSESSEES FAVOUR BY OVERTURNING THE IMPUGNED ORDER ON THIS SCORE. THIS ORDER HAS BEEN FOLLOWED IN A.Y. 2008-09 ALSO, BY THE TRIBUNAL. THUS CONSISTENT WITH THE VIEW TAKEN IN THE EARLIER YEARS , WE ALSO DELETE THE SAID DISALLOWANCE U/S 40(A)(IA) ON THE GROUND THAT THERE WAS NO REQUIREMENT TO DEDUCT TDS ON THE REIMBURSEMENT MADE BY THE ASSESSEE. IN THE RESULT THE GROUND RAISED BY THE AS SESSEE IS ALLOWED. 17. IN THE RESULT DEPARTMENTAL APPEAL FOR THE A.Y. 2004-05 IS DISMISSED, DEPARTMENTAL APPEAL FOR A.Y. 2006-07 AND 2008-09 ARE PARTLY ALLOWED AND DEPARTMENTAL APPEAL OF A. Y. 2009-10 IS DISMISSED, WHEREAS, ASSESSEES APPEAL FOR A.Y. 2009-10 IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF NOVEMBER, 2014. SD/- SD/- (SANJAY ARORA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 12.11.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.
