INTERTEK INDIA P.LTD ( FORMERLY KNOWN AS INTERTEK TESTING SERVICES INDIA P. LTD),MUMBAI vs. ADDL CIT 10(2), MUMBAI

At the outset, Shri Pradeep Dinodia, Learned Authorized Representative of the assessee submitted, ground nos. 1, 2 and 3 are general grounds, hence, do not require adjudication. Accordingly, ground nos. 1, 2 and 3 are dismissed.

Proceeding further, he submitted, as per instructions of the assessee, he does not want to press ground nos. 4 and 6.

In view of the aforesaid, ground nos. 4 and 6 are dismissed as not pressed.

In ground no.5, assessee has challenged disallowance of testing and coordination expenses amounting to Rs.90,77,936.

Briefly, the facts are, assessee is a resident corporate entity and is a subsidiary of Intertake Holding UK. As stated by the assessing officer, assessee is engaged in the business of rendering testing and inspection services to its Indian and overseas clients.

In course of assessment proceedings, the assessing officer, while verifying the financial status of the assessee, noticed that assessee had debited an amount of Rs.1,79,00,563 to the profit and loss account under the head “testing and coordination charges”. After calling for and examining the necessary details, assessing officer was of the view that while making such payment, assessee was required to withhold tax at source. Alleging that assessee had not done so, assessing officer disallowed an amount of Rs.1,79,00,563 under Section 40(a)(i) of the Act. The assessee contested the aforesaid disallowance before learned Commissioner (Appeals).

After considering the submission of assessee in the context of facts and material on record, learned Commissioner (Appeals) observed that the assessee, in fact, has withheld tax on the payment made. Therefore, he accepted assessee’s contention that no disallowance under Section 40(a)(i) of the Act can be made. However, he disallowed an amount of Rs.90,77,936 on the reasoning that assessee failed to establish that such expenditure was incurred wholly and exclusively for the purpose of business. In other words, learned Commissioner (Appeals) held that the expenditure incurred does not satisfy the test of section 37(1) of the Act.

Before us, Learned Authorized Representative appearing for the assessee submitted, the assessee offered testing services which involved testing of products to ensure their quality and adherence to various regulatory requirements and industries standard as per the country of their use. He submitted, such testing is required to ensure quality control of the products under shipment. He submitted, though, assessee has its own testing facilities in various places, however, it doesn’t have all the facilities to test a particular product. In such cases, assessee outsources those tests to its overseas group entities. He submitted, the overseas entities carry out the work on behalf of assessee and forward their reports. He submitted, for the job performed by the overseas entities, assessee makes the payment. Thus, he submitted, testing charges are wholly and exclusively in connection with assessee’s business. He submitted, the coordination charges, are also wholly and exclusively in connection with the business activities of the assessee. He submitted, learned Commissioner (Appeals) has made the disallowance under Section 37(1) of the Act under a misconception that similar disallowance was made in assessment year 2004-05. He submitted, in assessment year 2004-05 the disallowance was made only for non deduction of tax at sources.

Further, he submitted, in the preceding assessment years, similar payments made by assessee were allowed by the assessing officer.

The learned Departmental Representative relied upon the observations of the assessing officer and learned Commissioner (Appeals).

We have considered rival submissions and perused the material on record.

A careful reading of the observations of the assessing officer on this particular issue would reveal that he has disallowed the expenditure primarily for the reason of non-deduction of tax at source.

In view of the aforesaid, we hold that the disallowance sustained by learned Commissioner (Appeals) is unjustified. Accordingly, we delete the disallowance of Rs.90,39,900.

In ground no.7, assessee has challenged disallowance of management fee. Briefly, the facts are, in course of assessment proceedings, the assessing officer noticing that the assessee had not deducted tax at source on payment of management fee, disallowed it under Section 40(a)(i) of the Act. The disallowance so made was upheld by the learned Commissioner (Appeals).

Before us, learned Authorized Representative of the assessee submitted that the amount of disallowance has been wrongly mentioned at Rs.29,39,990 in the ground raised. He submitted, in the return of income, assessee itself has disallowed an amount of Rs.15,77,197. Therefore, the disallowance made is of Rs.13,62,793 only. He submitted, though, the disallowance was made for alleged non deduction of tax at source, however, assessee had actually deducted tax at source and deposited to the government account during the year itself. In this context, he drew our attention to the TDS challan placed on record. Therefore, he sought a direction to the assessing officer to verify and delete the disallowance.

Learned Departmental Representative agreed with the aforesaid submission of the assessee.

Having considered rival submissions, we find, the disallowance under dispute was made on the basis that assessee had not deducted tax at source. However, it is the claim of assessee that tax, in fact, was deducted at source and deposited to the government account during the year.

Considering assessee’s contention, we direct the assessing officer to verify assessee’s claim by examining the relevant TDS challan and other material on record and delete the disallowance made if it is found that the assessee has deducted tax at source.

In ground no. 8, assessee has challenged the disallowance of depreciation on goodwill.

Before us, it is a common point between the parties that the issue has been decided in favour of the assessee in its own case in assessment year 2007-08.

Having considered the submissions of the parties, we find, identical issue arising in assessee’s own case, in assessment year 2007-08 came up for consideration before the Tribunal in ITA No.5740/Del/2011. While, deciding the issue in order dated 26.07.2017, the coordinate Bench following the ratio laid down by the Hon'ble Supreme Court in case of CIT vs. Smifs Securities Ltd. allowed assessee’s claim of depreciation on goodwill.

Considering the fact that this is a recurring issue which has been decided in favour of the assessee in earlier assessment years, we respectfully follow the decision of the coordinate Bench, referred to above, and allow assessee’s claim. Accordingly, assessing officer is directed to delete the disallowance.

In the result, the appeal is allowed. Order pronounced in the open court on 20th September, 2022.