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Facts
The assessee, a world leader in co-working space, filed its return declaring an income of Rs.387.72 crores for Assessment Year 2021-22. The case was selected for scrutiny due to international transactions, leading to a reference to the TPO. The TPO made an assessment of Rs.23.85 crores, which was affirmed by the DRP.
Held
The Tribunal held that the principle of res judicata does not apply to income tax proceedings and that each assessment year must be examined separately. For issues related to management fees, the matter was restored to the DRP for fresh adjudication in light of a previous order and a specific letter. For expenses incurred for purchases, the issue was remanded to the AO for re-examination with additional evidence, with a note that vendors not filing returns cannot be a ground for disallowing legitimate expenses.
Key Issues
Whether adjustments made by the TPO for management fees were justified, and whether expenses incurred for purchases can be disallowed solely because vendors did not file income tax returns.
Sections Cited
133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI PRAKASH CHAND YADAV
PER PRAKASH CHAND YADAV, JUDICIAL MEMBER:
Present appeal of the assessee is arising from the order of the ld. AO dated 30.10.2024 vide DIN & Notice No.ITBA/AST/S/156/2024-25/1070058109(1) and relates to assessment year 2021-22.
Brief facts of the case as coming out from the order of authorities below are that the assessee is a world leader in the business of co-working space. For the impugned assessment year, it has filed its return of income declaring an income of Rs.387.72 crores on 25.2.2022. Thereafter, the case of the assessee was selected for scrutiny as there were international transactions. Return in form
IT(TP)A No.2484/Bang/2024 Wework India Management Ltd., Bangalore Page 2 of 6 3CEB, a reference was made to the TPO. The ld. TPO vide its order dated 27.10.2023 made an assessment of Rs.23.85 crores to the income of the assessee. Thereafter, the AO passed the draft assessment order on 22.12.2023. Against this the assessee filed objection before ld. DRP and the ld. DRP disposed of the objections of the assessee vide order dated 19.1.2024, affirming the assessment made by the ld. TPO. In this backdrop, the AO passed the impugned order.
Aggrieved with the order of AO, the assessee has come up in appeal and has raised 13 grounds of appeal out of which ground Nos.1 & 2 are general in nature, therefore, they do not require any specific adjudication.
4. Ground No.3 is related to the validity of assessment proceedings being barred by limitation. At the time of hearing, counsel for the assessee did not press this ground. Hence, this ground is dismissed as not pressed.
5. In ground Nos.4 to 9, the assessee has challenged the adjustments made by the ld. TPO in respect of management fee charges, incurred by the assessee. It is the case of the ld. TPO that the assessee could not be able to establish the rendition of services and hence the ALP of these charges would be nil.
6. Aggrieved with the order of ld. TPO, assessee filed objections before the ld. DRP. The ld. DRP affirmed the order of TPO by holding that no documentary evidence was submitted by the assessee, in order to prove that the services received from the AE are under the intra-group services. It is further been observed by the ld. DRP that the assessee has failed to prove the rendition of services. Ld. DRP
IT(TP)A No.2484/Bang/2024 Wework India Management Ltd., Bangalore Page 3 of 6 also discussed the agreements entered into between the assessee and its AE.
Counsel for the assessee appearing on behalf of the assessee submitted that the similar issue has been decided by the ITAT in assessee’s own case for the AY 2018-19 in IT (TP)A No.819/Bang/2022 dated 24.2.2023. However, the assessee failed to respond with respect to the query of the bench as to why this order was not put before the ld. DRP when the same is available with the assessee. The order of the ld. DRP is dated 26.9.2024. The submission of the counsel for the assessee is that similar nature of services were there in dispute before the coordinate bench in IT(TP)A No.819/Bang/2022 cited (supra).
Ld. D.R. relied upon the orders of authorities below and argued that each year, under the provisions of Income tax act is a separate assessment yar and hence the order of ITAT is relevant for that year only and the present year is to be decided in the light of the inputs involved herein.
After considering the rival submissions and perusing the materials available on record, we are of the view that for the purpose of computing the ALP, the facts and figures of each year are to be examined separately. Principle of res judicata are not applicable to the income tax proceedings. Ld. AR has also filed summary of contentions raised in ground Nos.4 to 9. We further observe that in assessment year 2018-19, the coordinate bench has categorically observed that there was increase in the number of desks sold by the assessee as a result of these expenses. No such fact has been brought before us. We further observe that the assessee has drawn the attention of bench towards operation and management agreement dated 17.11.2016, subsequently amended on 15.5.2020
IT(TP)A No.2484/Bang/2024 Wework India Management Ltd., Bangalore Page 4 of 6 and contended that similar agreement was there before the coordinate bench in assessment year 2018-19. Perusal of the order of ld. TPO would show that there is absolutely no discussion with respect to the submissions made by the assessee on 7.9.2023 for that order of ld. TPO in para 3.3 has made a mention of letter of assessee dated 7.9.2023. However, there is no discussion by the ld. TPO with respect to the averments made in this letter. Further, in this letter, a reference has been made to the list of software provided by the AE to the assessee or its day-to-day operations. Perusal of the ld. DRP’s order would also show that ld. DRP has also not paid any attention towards this letter of the assessee dated 7.9.2023. Therefore, considering the facts and circumstances of the case, we hereby restore this issue to the file of ld. DRP to adjudicate afresh in the light of the order of coordinate bench in cited (supra) as well as the letter of the assessee dated 7.9.2023. Ld. DRP would reconcile the facts of the impugned order with the facts of assessment year 2018-19 and then follow the directions as given by the ITAT in cited (supra). With these observations, ground Nos.4 to 9 of the assessee’s appeal are allowed for statistical purposes.
In ground Nos.10 to 13, assessee has also challenged the addition of Rs.20 lakhs made by the AO on the ground that the assessee failed to substantiate the expenses incurred towards purchases made by the assessee.
The AO was of the view that assessee has made purchases from such assessees, who are not filing the income tax returns. The AO has also issued notices u/s 133(6) of the Act to the parties, however, no party responded to the notices. Aggrieved with the order of AO, the assessee raised objections before ld. DRP. The ld. DRP affirmed the view of the AO.
IT(TP)A No.2484/Bang/2024 Wework India Management Ltd., Bangalore Page 5 of 6 12. Now before us counsel for the assessee reiterated the submissions made before the lower authorities particularly legal aspect of non-filing of the return of income by the vendors would not entitle the assessee for claiming the expenses incurred for the purpose of its business.
After considering the rival submissions, we are of the view that merely because the vendors have not filed the return of income that cannot be a ground for disallowing the expenses incurred by assessee towards the commercial expediency or allowing the expenses. The revenue has to examine whether the expenses are genuine and has been incurred for the purpose of business. We further observe that the AO in its order has categorically mentioned that the assessee failed to submit documentary evidences like e-way bills, delivery challans, bank statement, ledger of purchase, etc. in support its claim. Before ld. DRP, the assessee filed certain additional evidences to refute the observations of the AO. However, the ld. DRP did not admit the additional evidences filed by the assessee.
13.1 Considering the facts and circumstances of the case, we are of the view that this issue would go back to the file of AO for examining afresh in the light of the additional evidences filed by the assessee before ld. DRP. Before parting, we would like to make an observation that non-filing of return of income by the vendors cannot be a ground for disallowing legitimate expenses incurred for the purpose of business.
IT(TP)A No.2484/Bang/2024 Wework India Management Ltd., Bangalore Page 6 of 6 14. In the result, appeal of the assessee is allowed for statistical purposes with some directions as indicated above.
Order pronounced in the open court on 16th June, 2025