HINDUJA GROUP INDIA LTD, MUMBAI V. ASST CIT 6(3), MUMBAI

ITA 9148/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8387 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 07-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 30-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S K MUTSADDI
• Keywords: Business expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI I.P.BANSAL,JUDICIAL MEMBER & SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.9148/MUM/2010(A.Y.2007-08) M/S. HINDUJA GROUP INDIA LTD., 171, DR. ANNIE BESANT ROAD, WORLI, MUMBAI - 400 018. PAN:AACH 2457B (APPELLANT) VS. THE ACIT-RANGE 6(3), AAYKAR BHAVAN,MK ROAD, MUMBAI 400 020 (RESPONDENT) ITA NO.944/MUM/2011(A.Y. 2007-08) THE ACIT-RANGE 6(3), AAYKAR BHAVAN,MK ROAD, MUMBAI 400 020 (APPELLANT) VS. M/S. HINDUJA GROUP INDIA LTD., 171, DR. ANNIE BESANT ROAD, WORLI, MUMBAI - 400 018. PAN:AACH 2457B (RESPONDENT) ASSESSEE BY : SHRI S.K.MUTSADDI REVENUE BY : SHRI RAKESH RANJAN DATE OF HEARING : 07/11/2012 DATE OF PRONOUNCEMENT : 09/ 11/2012 ORDER PER I.P.BANSAL, J.M, THESE ARE CROSS APPEALS. THEY ARE DIRECTED AGAIN ST ORDER DATED 24/11/2010 PASSED BY LD. CIT(A) IN RESPECT OF A.Y 2007-08. THE GROUNDS OF APPEAL READ AS UNDER: ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 2 GROUNDS OF ASSESSEES APPEAL: ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND THE LAW THE COMMISSIONER OF INCOME TAX (APPEALS) {CIT (A)} HAS ERRED IN: 1. UPHOLDING THE DISALLOWANCE MADE OF RS.31.50,000/ - IN RESPECT OF CONSULTANCY CHARGES PAID TO BOSTON CONSULTING GROUP (BCG). THE DISALLOWANCE AS UPHELD BY THE CIT (A) IS @ 30% OF T HE TOTAL AMOUNT OF . 1.05 CRORES PAID TO BCG. IN DOING SO THE CIT (A) HAS FUR THER ERRED IN HOLDING THAT THE DISALLOWANCE AS SUSTAINED WAS ON ACCOUNT OF CER TAIN ELEMENTS (AS REFERRED TO AT PARAGRAPH 18 &19 OF THE CIT (A)S OR DER FOR A.Y. 2006 - 07) WERE BEYOND THE SCOPE OF THE EXISTING LINE OF BUSINESS, HENCE WERE NOT EXCLUSIVELY INCURRED FOR PURPOSES OF BUSINESS ACTIVITIES AS CAR RIED OUT BY THE APPELLANT. THE BASIC PREMISE FOR SUSTENANCE OF THIS DISALLOWAN CE AT 31.50 LACS IS FACTUALLY NOT CORRECT. THE ADDITION SUSTAINED OF 3 1.50 LACS SHOULD BE DELETED. - 2.UPHOLDING THE DISALLOWANCE MADE OF RS.9,56,624/- IN RESPECT OF TRAVELLING EXPENDITURE. THE ADDITION SUSTAINED OF RS..9.56 LAC S SHOULD BE DELETED. 3. UPHOLDING THE DISALLOWANCE OF RS.4,42,775/- MADE U/S.43(B) OF THE INCOME TAX ACT IN RESPECT OF THE UNPAID SERVICE TAX , ON FEES, WHICH WERE NOT COLLECTED BY THE APPELLANT. THE ADDITION MADE SHOUL D BE DELETED. GROUNDS OF REVENUES APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN TREATING THE SUM OF RS.1,05,00,000/- PAID AS CONSULTANCY FEES TO BOSTON CONSULTANCY GROUP (BCG) AS REVENUE EXPENDITU RE IGNORING THE FACT THAT THE SAID BRAND DEVELOPMENT EXPENDITURE BEING A N EXPENDITURE OF SUCH A NATURE THAT WOULD RESULT IN A BENEFIT OF AN ENDURIN G NATURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF EXP ENDITURE PAID TO BCG TO 30% OF THE TOTAL PAYMENT MADE DURING THE YEAR IGNOR ING THE FACT THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF PROVIDING CO NTRACTED SERVICES TO OPERATING UNITS AND HENCE THE SCOPE OF THE REPORT O F THE BCG IS BEYOND THE SCOPE OF EXISTING LINE OF BUSINESS OF THE ASSESSEE COMPANY. 3. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT ( A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 2. THE ISSUE RAISED BY THE REVENUE AND GROUND NO.1 OF THE ASSESSEES APPEAL RAISE A COMMON ISSUE WITH REGARD TO DISALLOW ANCE OF RS. 1,05,00,000/- MADE IN REGARD TO PROFESSIONAL FEES PAID BY THE ASSESSEE TO M/S. BOSTON CONSULTING GROUP. THIS ISSUE IS STATED TO BE COVERED BY THE ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 3 EARLIER DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 2006-07 WHICH IS DATED 22/2/2012 IN ITA NO.3833/M/2010 AND 4206/M /22010, COPY OF THIS ORDER IS FILED AT PAGES 1 TO 8 OF THE PAPER BO OK. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IS REPRODUCED BELOW. THESE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUG NED ORDER DATED 19 TH MARCH 2010, PASSED BY THE COMMISSIONER (APPEALS)-XI I, MUMBAI, FOR ASSESSMENT YEARS 2006-07. BRIEF FACTS OF THE CASE, AS BROUGHT OUT IN PARAS-4 TO 6 IN THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS), READ AS FOLLOWS:- 4. AN AMOUNT OF ` 55 LAKHS DEBITED UNDER THE HEAD OF LEGAL PROFESSION AND CONSULTANCY CHARGES HAD BEEN PAID T O M/S. BOSTON CONSULTANCY GROUP (BCG) A RENOWNED MANAGEMEN T CONSULTANCY FIRM. THE PAYMENT WAS MADE IN 4 INSTALL MENTS FALLING IN TWO FINANCIAL YEARS. IT WAS OBSERVED BY THE A.O. THAT THE REASONS FOR HIRING THE BOSTON CONSULTANCY GROUP WAS TO ENABLE THE COMPANY TO ASSUME A NEW ROLE AS THE IND IAN CORPORATE CENTRE FOR THE HINDUJA GROUP. THIS WOULD BE A NEW LINE OF BUSINESS FOR THE COMPANY. IT WOULD GIVE END URING BENEFIT TO THE COMPANY AND THE GROUP AS A WHOLE. THE PURPOS E OF THE EXPENDITURE WAS TO CHANGE THE EXISTING SET UP OF TH E HINDUJA GROUP AND ENHANCE THE FUNCTIONING OF THE ASSESSEE C OMPANY TO MORE ACTIVELY LEAD AND SUPPORT THE ENTIRE GROUP BY PROVIDING A SINGLE COMMON MANAGEMENT STYLE. THE SUM AND SUBSTAN CE OF THE AGREEMENT SIGNED WITH BCG WAS TO BUILD BRANCH HIND UJA. 5. THE A.O. HAS RELIED ON THE DECISION IN THE CASE OF ARVIND MILLS V/S CIT, 197 ITR 422, WHERE THE SUPREME COURT HELD THAT CAPITAL EXPENDITURE DOES NOT BECOME REVENUE MERELY BECAUSE THE CAPITAL EXPENDITURE RESULTS IN EFFICIENTLY CARRYING ON THE BUSINESS. THE A.O. HAS ALSO REFERRED TO SUPREME COURT IN ALEM BIC CHEMICAL WORKS, 177 ITR 377. 6. WITHOUT PREJUDICE TO HIS CONTENTION THAT EXPENDI TURE IS IN THE NATURE OF CAPITAL EXPENDITURE, THE A.O. HAS GIV EN SOME REASONS WHY EVEN OTHERWISE THE PAYMENT WAS NOT ALLO WABLE AS A BUSINESS EXPENDITURE. THESE ARE AS UNDER:- A) THE ASSESSEE COMPANY IS MAINLY PROVIDING HUMAN RESOURCES SUPPORT AND PROFESSIONAL SERVICES AS PER THE AGREEMENT ENETERED INTO WITH THE GROUP COMPANIES. N ONE OF THE AGREEMENTS ENTERED INTO WITH THE GROUP CONCERNS MEN TION ABOUT PAYING OF PROFESSIONAL FEES FOR CREATING VALUE FOR THE GROUP AS SUCH AS ENVISAGED IN THE AGREEMENT WITH THE BCG. ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 4 B) IT IS SEEN FROM THE DETAILS FURNISHED THAT ANY A DDITIONAL EXPENDITURE INCURRED ON BEHALF OF THE SAID GROUP CO MPANIES IS SEPARATELY RECOVERED FROM THEM UNDER THE HEAD REIM BURSEMENT OF EXPENSES. C) THE PROFESSIONAL FEES PAID TO BCO IS TOWARDS THE SYNERGY OF OPERATIONS AND MANAGEMENT OF THE ENTIRE OPERATIN G COMPANIES OF THE HINDUJA GROUP IN INDIA AND CONSOLIDATING THE ASPIRATION, PERCEPTION AND BELIEF OF THE KEY STAKE HOLDERS, BEI NG FAMILY MEMBERS, BUSINESS UNITS, ETC. REALIGNMENT OF THE MA NAGEMENT PERFORMANCE LEVER OF VARIOUS OPERATING COMPANIES OF THE HINDUJA GROUP. D) THE CONSULTANCY ALSO INCLUDES REDESIGNING THE COMPENSATION SYSTEM AT HINDUJA HOSPITAL, ONE OF THE GROUP CONCERNS. E) WHETHER THE EXPENDITURE INCURRED IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE COMPANY AND WHETHER THE EXPENDITURE INCURRED BENEFITED GROU P COMPANIES. 2. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPEALS) GRANT ED PART RELIEF. HE HELD THAT THE ASSESSING OFFICER WAS WRONG IN HIS FACTUAL CONC LUSIONS THAT THE BCG REPORT IS ON AREAS WHICH ARE BEYOND THE SCOPE OF RELATIONS BETWEEN THE ASSESSEE COMPANY AND THE BUSINESS UNITS OR THE OPERATING UNI TS. WHILE HOLDING SO, HE RECORDED THAT CERTAIN ELEMENTS IN THE BCG REPORT, A RE OUTSIDE THE SCOPE OF BUSINESS OF THE ASSESSEE COMPANY AS IT INCLUDES RE- DESIGNING COMPENSATION SYSTEM AT HINDUJA HOSPITAL, FOR WHICH THE ASSESSEE DOES NOT HAVE AN AGREEMENT. HE FURTHER HELD THAT THE REPORT AIMS TO PROVIDE VALUE TO THE FAMILY BY ENHANCING ABILITY OF THE FAMILY TO MANAGE, CONTR OL AND CREATE VALUE TO THE OPERATING VALUES IN INDIA. AS IN THE OPINION OF TH E COMMISSIONER (APPEALS), THESE TWO ASPECTS ARE OUTSIDE THE SCOPE OF ASSESSEE S BUSINESS, HE RESTRICTED THE DISALLOWANCE TO 30% OF THE EXPENDITURE INCURRED AS CONSULTANCY FEES TO BOSTON CONSULTANCY GROUP. THERE ARE CERTAIN OTHER I SSUES WITH WHICH WE ARE NOT CONCERNED. 3. THE ASSESSEE HAS FILED AN APPEAL ON THE QUANTUM OF DISALLOWANCE SUSTAINED BY THE COMMISSIONER (APPEALS) AND THE REV ENUE HAS FILED AN APPEAL ON THE QUANTUM OF EXPENDITURE ALLOWED BY THE COMMIS SIONER (APPEALS) IN RESPECT OF PAYMENTS MADE TO THE BOSTON CONSULTANCY GROUP. 4. THE ASSESSEE ALSO RAISED SECOND GROUND IN RESPECT O F DISALLOWANCE OF TRAVELLING EXPENDITURE. 5. LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROU ND NO.2 AND, HENCE, THE SAME IS DISMISSED AS NOT PRESSED. ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 5 6. LEARNED COUNSEL SUBMITTED THAT THE EXPENDITURE INCU RRED BY WAY OF PAYMENTS TO BOSTON CONSULTANCY GROUP FOR ITS REPORT , IS NEITHER IN THE NATURE OF PERSONAL EXPENDITURE NOR WAS INCURRED IN THE CAPITA L FIELD AND THAT IT WAS INCURRED FOR THE SERVICES RENDERED BY THE BCG, WHIC H HAS BEEN TAKEN TO IMPROVE THE ASSESSEES CAPACITY. HE SUBMITTED THAT BOTH THE ASSESSEE COMPANY AND BCG ARE IN THE SAME LINE OF BUSINESS AN D THE PAYMENT OF PROFESSIONAL FEES WAS IN CONNECTION OF BUSINESS AND HAS TO BE ALLOWED. 7. ON THE DISALLOWANCE OF 30% SUSTAINED BY THE COMMISS IONER (APPEALS), HE SUBMITTED THAT ANY VALUE ADDITION TO THE FAMILY IS VALUE ADDITION TO THE GROUP AND THE EXPENDITURE CANNOT BE SEGREGATED ON S UCH TERMS. ON THE ISSUE OF SERVICES RENDERED TO THE HINDUJA HOSPITAL, HE SU BMITTED THAT THE EXPENDITURE IS LINKED WITH THE PROFESSION OF THE ASSESSEE AND T HOUGH THE HINDUJA HOSPITAL IS NOT A CLIENT OF THE ASSESSEE AS ON DATE, IT MAY, IN FUTURE, OBTAIN THE SERVICES OF THE ASSESSEE AND, HENCE, EXPENDITURE, IF ANY, AT TRIBUTABLE TO THE SERVICES RENDERED TO HINDUJA HOSPITAL CANNOT BE DISALLOWED. HE RELIED ON THE FOLLOWING CASE LAWS:- CIT V/S CROMPTON ENGINEERING CO. LTD., [2000] 242 I TR 0317 (MAD.); AND CIT V/S ABBOTT LABORATORIES (I.) PVT. LTD., [1993] 202 ITR 0818 (BOM.). 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE, MR. V.V. S HASTRI, REPRESENTING THE REVENUE, ON THE OTHER HAND, OPPOSE D THE CONTENTIONS OF THE LEARNED COUNSEL AND SUBMITTED THAT THE EXPENDITURE WAS FOR BRAND DEVELOPMENT WHICH WOULD RESULT IN A BENEFIT OF ENDU RING NATURE AND HAS TO BE TREATED AS CAPITAL EXPENDITURE. HE RELIED ON PARA-5 .7 OF THE ASSESSMENT ORDER PLACED AT PAGES-5 & 6, AND EMPHASIZED THE POINT THA T THE AGREEMENT WITH BCG MERELY CREATES VALUE FOR THE BRAND NAME HINDUJA AN D SYNERGY OF OPERATIONS FOR THE HINDUJA GROUP AS A WHOLE. HE REFERRED TO TH E ALTERNATIVE GROUNDS TAKEN BY THE ASSESSING OFFICER FOR DISALLOWING THE EXPEND ITURE WHICH IS AT PARA-5.9 / PAGE-7 OF THE ASSESSMENT ORDER AND RELIED ON THE SA ME. 9. INSOFAR AS THE ISSUE RAISED BY THE REVENUE IS CONCE RNED, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE FIRS T APPELLATE AUTHORITY WAS RIGHT IN CONCLUDING THAT SERVICES RENDERED TO THE F AMILY MEMBERS OF THE PROMOTERS AS WELL AS TO THE HINDUJA HOSPITAL, WAS N OT FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND, HENCE, THE SAME WAS R IGHTLY DISALLOWED. 10. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOWS:- 11. THE ASSESSING OFFICER HAS BROUGHT OUT THE SALIENT F EATURES OF THE AGREEMENT AT PARA-5.5 AND 5.6 / PAGE-4, OF HIS ORDE R, WHICH IS EXTRACTED FOR READY REFERENCE:- ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 6 5.5 FROM THE COPY OF THE AGREEMENT, IT IS SEEN THA T THE MAIN OBJECTIVES OF THE PROJECT ARE:- (1) DEVELOP THE ROLE OF HGI AS THE INDIA ACTIVIST C ENTRE WHICH PROVIDES VALUE TO THE (A) FAMILY BY ENHANCING THE ABILITY OF THE FAMILY TO MANAGE, CONTROL AND CREATE VALUE THROUGH THE OPERAT ING UNITS IN INDIA; (B) OPERATING UNITS AS AN ACTIVIST CORPORATE CEN TRE, THAT HELPS FROM CAPTURE VALUE THAT THEY MAY NOT BE ABLE TO CAPTURE ON THEIR OWN; (C) WHAT SHOULD HGI BE DOING V/S OPERATING COMPANIES V/S FAMILY DIRECTLY; (2) STREAMLINE THE INFORMATION / MIS FLOW FROM THE VARIOUS OPERATING COMPANIES TO ENHANCE EFFECTIVENESS OF CON TROL AND REVIEW. 5.6 THE AGREEMENT DEFINES THE ASSESSEES COMPANYS ROLE AS UNDER:- (A) CLEAR ARTICULATION OF THE ROLE AND FUNCTIONS O F THE HGI AND ITS DETAILS INCLUDING, GLUE, STRUCTURE, MEA SURES, PROCESSES, CAPABILITIES. (B) TRANSITION PLAN TO ACHIEVE NEW ROLE; (C) ALIGNMENT OF NEW ROLE AND TRANSITION PLAN AMON G KEY STAKEHOLDERS; (D) LAUNCHING THE TRANSITION PLAN (THE ENTIRE PLAN COULD TAKE 6 TO 12 MONTHS TO COMPLETE); STREAMLINING MIS: REALIGNMENT OF MIS TO ENHANCE USABILITY AND FOCUS ON KEY PERFORMANCE LEVERS. LAUNCHING THE REALIGNED MIS AND THE REVIEW PROCESS . 12. THE COMMISSIONER (APPEALS), AT PARAS-12 AND 13 OF H IS ORDER, SUMMARIZED THE AGREEMENT AS FOLLOWS:- 12. I HAVE CONSIDERED THE SUBMISSIONS. ACCORDING T O THE AGREEMENT OF THE APPELLANT COMPANY WITH THE OPERATI NG ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 7 COMPANIES NAMELY, ASHOK LEYLAND, ETC. THE APPELLANT COMPANY WOULD ADVICE AND GUIDES THE OPERATING COMPANIES IN THE FOLLOWING AREAS:- I) IDENTIFY BUSINESS AND OPPORTUNITIES; II) GROUP / P.R. RELATIONS / COMMUNICATION STRATEGY; III) CORPORATE GOVERNANCE; IV) INTERNAL AUDIT MATTERS; V) ASSISTING IN MARKETING STRATEGY. 13. THE BCG REPORT IS ON THE FOLLOWING MAIN ISSUES; I) DEVELOPMENT AND COMMON MANAGEMENT STYLE; II) LEAD AND SUPPORT THE BUSINESS UNIT GROWTH AND EXPANSION IN INDIA; III) DEVELOP THE ROLE OF FAMILY TO MANAGE AND CONTROL TH E UNITS IN THE GROUP. IV) ENHANCE THE VALUE OF THE OPERATING UNITS, VIS--VIS , THE APPELLANT COMPANY AND THE FAMILY. 13. A PERUSAL OF THE ABOVE CLEARLY DEMONSTRATES THAT TH E EXPENDITURE INCURRED WAS FOR THE PURPOSE OF BUSINESS. THE FIRST APPELLATE AUTHORITY WAS RIGHT IN COMING TO A CONCLUSION THAT THE ASSESSING OFFICERS OBSERVATIONS THAT THE EXPENDITURE WAS INCURRED WAS TO BUILD A BRAND HINDUJA IS INCORRECT. THE COMMISSIONER (APPEALS), VIDE PARAS-17 AND 18 OF HIS ORDER, RIGHTLY OBSERVED AS FOLLOWS:- 17. IT IS ALSO PERTINENT TO NOTE THAT THE APPELLAN T COMPANY IS IN THE BUSINESS OF PROVIDING OVERALL SUPPORT IN MANY A REAS TO THE OPERATING COMPANIES AND BUSINESS UNITS. THE AGREEME NT THAT THE APPELLANT COMPANY HAS MADE WITH THE OPERATING COMPA NIES AND BUSINESS UNITS IS WIDE RANGING AND OPEN ENDED. IT W OULD NOT BE CORRECT TO SAY THAT THE REPORT COMMISSIONED BY THE APPELLANT TO THE BCG IS NOT RELATED OR BEYOND THE SCOPE OF THE A GREEMENT BETWEEN THE APPELLANT AND THE OTHER COMPANIES. 18. THE CONCLUSION REACHED BY THE A.O. THAT THE SCO PE OF THE REPORT IS NOT FULLY RELATED TO THE APPELLANTS BUSI NESS AND THAT THE ENTIRE EXPENDITURE IN PAYMENT TO BCG IS NOT RELATAB LE TO THE APPELLANT COMPANY, IS HOWEVER, NOT ENTIRE INCORRECT . THERE ARE CERTAIN ELEMENTS IN THE REPORT WHICH ARE OUTSIDE TH E SCOPE OF BUSINESS OF THE APPELLANT COMPANY. THESE ARE HIGHLI GHTED AT PARA-5.9 (C & D) NAMELY, THE REPORT INCLUDES RE-DES IGNING COMPENSATION SYSTEM AT HINDUJA HOSPITAL WITH WHIC H THE APPELLANT COMPANY DOES NOT HAVE AN AGREEMENT. FURTH ER, THE REPORTS ALSO AIMS TO PROVIDE VALUE TO THE FAMILY B Y ENHANCING ABILITY TO THE FAMILY OF MANAGE, TO CONTROL AND CRE ATE VALUE TO THE OPERATING VALUES IN INDIA. ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 8 14. COMING TO THE DISALLOWANCE OF 30%, WE AGREE WITH TH E ARGUMENT OF THE LEARNED COUNSEL THAT THE REPORT ON ENHANCING THE AB ILITY OF THE FAMILY TO MANAGE, CONTROL AND CREATE VALUE TO THE OPERATING U NITS IN INDIA, IS VALUE ADDITION TO THE COMPANY AND IT CANNOT BE SAID THAT THIS EXPENDITURE IS NOT FOR THE PURPOSE OF BUSINESS. 15. COMING TO THE ATTRIBUTION OF CERTAIN EXPENDITURE TO SERVICE PROVIDED TO HINDUJA GROUP, WE AGREE WITH THE COMMISSIONER (APPE ALS) THAT THE ACTIVITY IS OUTSIDE THE SCOPE OF BUSINESS OF THE ASSESSEE. THE ASSESSEE DOES NOT RENDER SERVICES TO HINDUJA HOSPITAL. THE ARGUMENT THAT THE RE MIGHT BE BUSINESS IN FUTURE, WHICH ENCOURAGES THE ASSESSEE TO INCUR EXPE NDITURE, IS NOT ACCEPTABLE. THE ASSESSEE HAS NOT PRODUCED ANY RECORD TO SHOW TH AT THERE WAS SOME BUSINESS FROM HINDUJA HOSPITAL IN THE LATER YEARS. WE, THUS, SUSTAIN 10% OF THE DISALLOWANCE ON THE GROUND THAT THE EXPENDITURE WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 16. COMING TO THE DECISIONS RELIED ON BY THE LEARNED CO UNSEL IN ABBOTT LABORATORIES (I.) PVT. LTD. (SUPRA), THE ISSUE IS W HETHER THE EXPENDITURE INCURRED BY WAY OF CONSULTANCY FEES PAID TO THE FIRM FOR RE- LOCATION OF PLANT / EQUIPMENT AND UTILITY SERVICES AT EXISTING FACILITIES IS IN T HE REVENUE FIELD OR CAPITAL FIELD. THIS CASE LAW DOES NOT HELP THE ASSESSEE ON THE ISS UE OF SERVICES RENDERED BY BOSTON GROUP TO HINDUJA HOSPITAL FOR WHICH THE ASSE SSEE MADE PAYMENTS. SIMILARLY, THE HONBLE MADRAS HIGH COURTS JUDGMENT IN CIT V/S CARBORANDUM UNIVERSAL LTD., [2009] 177 TAXMAN 347 (MAD.), WAS O N THE QUESTION WHETHER THE EXPENDITURE BY WAY OF CONSULTANCY FEES WAS IN T HE CAPITAL FIELD OR IN THE REVENUE FIELD. SIMILAR IS THE CASE IN CIT V/S CROMP TION ENGINEERING CO. LTD., [2000] 242 ITR 317 (MAD.). IN VIEW OF THESE DISCUSS IONS, WE HOLD AS FOLLOWS:- GROUND NO.1 OF THE ASSESSEES APPEAL IS PARTLY ALLO WED; AND THE DISALLOWANCE IS RESTRICTED TO 10% OF THE PAYMEN T MADE TO BOSTON CONSULTANCY GROUP. THUS, THE ASSESSEE GETS RELIEF PARTLY. 3. THE TRIBUNAL HAS RESTRICTED THE DISALLOWANCE TO 10% OF THE PAYMENT MADE TO M/S. BOSTON CONSULTING GROUP. IT WAS THE C ONTENTION OF THE LD. A.R THAT AS THE ISSUE IS COVERED BY THE AFOREMENTIONED DECISION, AN ORDER MAY ACCORDINGLY BE PASSED. 4. ON THE OTHER HAND, LD. D.R RELIED UPON THE ASSES SMENT ORDER. ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 9 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THERE IS NO DIFFERENCE IN THE FA CTS RELATING TO THIS ISSUE IN RESPECT OF A.YS 2006-07 AND 2007-08. THEREFORE, RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF THE TRIBUNAL DISALLOWAN CE IS RESTRICTED TO 10% OF THE PAYMENT MADE TO M/S. BOSTON CONSULTING GROUP. GROUND NO.1 RAISED BY THE ASSESSEE IS PARTLY ALLOWED AND GROUND NO.1 & 2 RAISED BY THE REVENUE ARE DISMISSED. 6. GROUND NO.2 WAS NOT PRESSED BY THE LD. A.R, THE REFORE, THE SAME IS DISMISSED AS NOT PRESSED. 7. APROPOS GROUND NO.3 OF THE ASSESSEES APPEAL, TH E ISSUE IS DISCUSSED BY THE AO IN PARA 5 OF THE ASSESSMENT ORDER. IT WA S NOTICED BY THE AO THAT IN THE BALANCE SHEET THE ASSESSEE HAS SHOWN A SUM O F RS.20,95,009/- ON ACCOUNT OF SERVICE TAX PAYABLE. HE REQUIRED THE AS SESSEE TO FILE THE DETAILS. FROM THE DETAILS THE AO NOTICED THAT A SUM OF RS.17 ,76,864/- WAS DEPOSITED AND HE ALSO NOTICED THAT A SUM OF RS.1,24,620/- WA S DEPOSITED AFTER DUE DATE OF FILING OF RETURN. THEREFORE, HE MADE CONSO LIDATED DISALLOWANCE OF RS.4,42,755/- WHICH HAS BEEN UPHELD BY THE LD. CIT (A). THE ASSESSEE IS AGGRIEVED, HENCE IN APPEAL. 8. IT WAS SUBMITTED BY LD. AR THAT ASSESSEE HAS NO T DEBITED THE SAID SERVICE TAX TO THE P&L ACCOUNT. HE SUBMITTED THAT SERVICE TAX LIABILITY IS DEPENDENT UPON REALIZATION FOR THE PAYMENT OF SERVI CES RENDERED AND IN CASE THE PAYMENT IS NOT RECEIVED, SERVICE TAX WILL NOT B ECOME DUE. FOR THIS PURPOSE LD. AR RELIED UPON RULE-6 OF THE SERVICE TA X RULES, 1994 AND ALSO ON THE FOLLOWING DECISIONS: 1. PHARMA SEARCH V. ASSISTANT COMMISSION OF INCOM E TAX 15(3),MUMBAI. (2012) 21 TAXMANN.COM. 44 (MUM) 2. COMMISSIONER OF INCOME TAX V. NOBLE & HEWITT (I ) (P) LTD. (2008) 166 TAXMAN 48 (DEL) ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 10 3. ASSISTANT COMMISSIONER OF INCOME-TAX, MEDIA CIR CLE II, CHENNAI VS. REAL IMAGE MEDIA TECHNOLOGIES (P) LTD., (2008) 114 ITD 573 (CHENNAI) 9. ON THE OTHER HAND, LD. D.R RELIED UPON THE ORDER OF LD. CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. IT IS THE CONTENTION OF LD. AR TH AT THE DISALLOWED AMOUNT HAS NOT BEEN DEBITED TO P&L ACCOUNT AND SERVICE TAX HAS ALSO NOT BECOME PAYABLE AS THE PAYMENT FOR SERVICES RENDERED WAS N OT REALIZED. IN ORDER TO VERIFY ALL THESE CONTENTIONS, WE CONSIDER IT JUST A ND PROPER TO RESTORE THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO RE-ADJU DICATE THE SAME AS PER LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. WE DIRECT ACCORDINGLY. THIS GROUND IS ALLOWED FOR STATISTICA L PURPOSES. 11. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED AND APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORESAID . ORDER PRONOUNCED IN THE OPEN COURT ON THE 9 TH DAY OF NOV. 2012 SD/- SD/- (RAJENDRA ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 9 TH NOV. 2012. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R H BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.9148/MUM/2010(A.Y.2007-08) ITA NO.944/MUM/2011(A.Y. 2007-08) 11 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 07/11/2012 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 07/11/2012 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER