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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI V.DURGA RAO & SHRI G.MANJUNATHA
आदेश / O R D E R
PER G.MANJUNATHA, AM: This bunch of four appeals filed by the assessee as well
as Revenue are directed against separate, but identical orders
of the learned CIT(A)-1, Chennai all even dated 23.09.2020,
23.09.2020, 07.03.2019 & 29.03.2019 and pertain to
assessment years 2011-12, 2013-14, 2014-15 & 2015-16.
2 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
Since, the facts are identical and issues are common, for the
sake of convenience, these appeals are heard together and are
being disposed off, by this consolidated order.
The assessee has more or less raised common grounds
of appeal for assessment years 2011-12 and 2013-14,
therefore, for the sake of brevity, grounds of appeal filed for
assessment year 2011-12 in ITA No.939/Chny/2020 are
reproduced as under:- “1. The order of the CIT(A) dismissing the appeal and confirming the disallowance of supervisory charges paid by assessee is contrary to law, erroneous and unsustainable on the facts of the case. Reopening of Assessment 2. The CIT(A) ought to have seen that the reopening of assessment under sec.147 by notice issued u/s148 dated 28.3.2018 is without jurisdiction and untenable in law. 3. The CIT(A) ought to have appreciated that the first Proviso to sec.147 would apply as the assessment was completed u/s.l43(3) vide order dated 26.3.2014 and that there was no failure on the part of the assessee to disclose any material facts warranting the reopening of assessment beyond the period of four years and hence is unsustainable in law. 4. The CIT(A) also ought to have appreciated that there was no reason to believe that income had escaped assessment and in the absence of any fresh material pointing to failure on the part of assessee to disclose particulars of income, the reopening is not in accordance with law and needs to be annulled. 5. The CIT(A), in any event, ought to have seen from the assessment records that the reopening is only based on material already available on record and constitutes a mere change of opinion which does not clothe the officer to initiate
3 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
reassessment proceedings by issue of notice u/s.148 of the Act.” Merits :- 6. The CIT(A) failed to appreciate that the assessee had made a claim for deduction u/s.40(a)(i) of the ‘supervisory charges’ paid to the parent company of Rs.3,13,07,498 and was not justified in confirming the disallowance. 7. The CIT(A) failed to appreciate that sustaining the disallowance of the ‘supervisory charges’ to the extent of Rs.1,31,30,658/- is wholly arbitrary, unjust and unsustainable on the facts of the case. 8. The CIT(A) failed to appreciate that the claim of the assessee of the supervisory charges paid in the asst. year 2010-11 in the current year, i.e., 2011-12 on remitting the TDS amount, is in accordance with the proviso to sec.40(a)(i) and hence the disallowance of the claim under sec.37 of the Act is unjust and untenable on the facts of the case. 9. The CIT(A) further tailed to appreciate that the supervisory charges are paid to the parent company as consideration for the services rendered by Dongwoo HST Co. Ltd., by way of dispatching its employees to the factory site in rendering the technical knowhow for manufacture and maintenance of furnace machine and machine parts and is wholly and exclusively for the purpose of business, thus satisfying the parameters for allowance of the amount under sec.37 of the Act. 10. The CIT(A), in any view of the matter, ought to have seen that reopening of assessment in violation of Proviso to sec.147 was untenable in law and also ought to have deleted the entire disallowance with due regard to the contentions of the assessee and thus allowed the appeal.”
The Revenue has more or less raised common grounds
of appeal for assessment years 2014-15 and 2015-16,
therefore, for the sake of brevity, grounds of appeal filed for
4 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
assessment year 2014-15 in ITA No.1560/Chny/2019 are
reproduced as under:- “1. The order of the Ld. CIT(A) is contrary to law, facts and circumstances of the case. 2.1 The Ld. CIT(A) erred in giving relief to the assessee by deleting the supervisory fee based on fresh evidence submitted for the first time before the CIT(A) without giving opportunity to the AO under Rule 46A of the Income tax Rules, for verifying the said claim of the assessee based on evidences filed afresh during appellate proceedings. 2.2 The Ld. CIT(A) failed to appreciate that the AO had disallowed the supervisory fee u/s 37 of the Income Tax Act for lack of genuineness and commercial expediency. 2.3 The Ld. CIT(A) failed to appreciate that the assessee although disallowed the supervisory fee claimed during the previous year relevant to the A.Y.2014-15 u/s 40(a)(i) of the Act, without producing any proof for the genuineness of its claim, had claimed the same after deducting TDS for such fee incurred during the previous year relevant to the A.Y.2013-14 after deducting TDS during the subsequent previous year, thus avoiding furnishing of any detail/documentary evidence before the AO as not relevant to the year under consideration. 2.3 The Ld. CIT(A) ought to have appreciated that the assessee had not produced any proof for having received such services for the supervisory fee claimed during the previous year relevant to the A.Y.2013-14 which was actually disallowed u/s 40(a)(i) of the Act for the non-deduction of TDS and claimed the same during the previous year relevant to the A.Y. 2014- 15 after remitting the TDS in that year. 2.4 The Ld. CIT(A) ought to have appreciate the modus operandi of the assessee in as much as he had submitted the proof of having paid the TDS for the A.Y.2012-13 in the A.Y.2014-15 so as to escape disallowance of the same u/s 37 of the Act, but u/s 40(a)(i) of the Act during the relevant year which could be subsequently claimed in the year in which the TDS was deducted on the said payment. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the AO restored.”
5 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
The brief facts of the case extracted from ITA No.
1560/Chny/2019 for Asst. Year 2014-15 are that the assessee
company is engaged in the business of manufacturing, supply
and installation of industrial furnaces and related services. The
parent company of the assessee M/s. Dongwoo HST Co. Ltd.,
which is in possession of vital techniques, processes
concerning heat treatment, coating, furnace of metal, sale and
services to customers. The said technology was transferred to
the assessee company as know-how. The assessee company
carried out the process under the supervision of parent
company. The parent company M/s. Dongwoo HST Co. Ltd
renders supervisory services to the assessee by dispatching
expatriates to India for carrying out work for which the assessee
company has agreed to pay supervisory and managerial fees
vide agreement dated 25.12.2007. The scope of supervisory
services as per agreement dated 25.12.2007 has been defined
as per which parent company shall provide necessary
manpower support to enable inspection, testing of main and
associated equipments in tune with latest approved national
and international standards and code of practice. The assessee
6 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
has paid supervisory fees to its parent company in terms of
agreement entered into between the parties dated 25.12.2007.
During the course of assessment proceedings, the
Assessing Officer called upon the assessee to justify payment
of supervisory fees to its parent company with necessary
evidences. The assessee in response has filed necessary
evidences, including agreement entered into with M/s. Dongwoo
HST Co. Ltd. and claimed that it has paid supervisory fees to
its parent company for rendering various services including
dispatching its employees to factory site in rendering technical
know-how for manufacture and maintenance of furnaces
machine and machine parts. The Assessing Officer, however
was not convinced with explanation furnished by the assessee
and according to him, except copies of invoices and agreement
assessee has not able to file any other evidences to justify
payment of supervisory fees to its parent company for rendering
services. The Assessing Officer further noted that scope of work
specified in agreement between parties is general in nature
and the assessee has not furnished any evidence to prove kind
of services received from its parent company to justify payment
7 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
of supervisory fees. The Assessing Officer has discussed the
issue at length in light of transactions between two related
parties and opined that the assessee has by no means been
able to provide any evidence, whatsoever to prove that such
services as being mentioned in the agreement was received.
Therefore, the Assessing Officer opined that it is only a device
adopted by the assessee and its parent company to shift profit
from one tax territory to another tax territory without any actual
business expediency. Hence, the Assessing Officer disallowed
entire payment of supervisory fees paid to its parent company
and added back to the total income. The relevant findings of the
Assessing Officer are as under:-
“The assessee has by no means been able to provide any evidence whatsoever to prove that such services as being mentioned in the agreement was received. This is after providing numerous opportunities as requested.
In a company being a subsidiary of foreign parent company, it is routine to have a supervisory control by the parent company with regards to overall policy matters. However, that does not warrant or justify the payments being made which only serves in reducing the taxable profit of the subsidiary company in India. The companies are basically indulging in profit shifting and the same is being done under the pretext of such ghost charges with agreements put in place. It is to be reiterated the assessee was not even able to produce any evidence for routine supervisory communications as well.
8 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
In such circumstances, it is only logical to conclude that the said payment is being made without any actual business expediency and against which no particular service is received. The same is therefore liable to be disallowed under section 37 of the Act. In view of the discussions made, it was concluded that the said payment of Rs. 1,19,90,852/- was disallowed and added back to the total income of the assessee for ÀY 14-15.
5.1 The deduction of sum of Rs.3,13,07,498/- claimed in AY 2011-12 as supervisory fees paid for earlier years (on the basis of TDS deducted in the current year) is not allowable as the principal issue of supervisory fees itself has been decided as not allowable under Section 37 of the Income-tax Act,1961. Further, the assessee could not furnish any proof for the receipt of actual services for which the huge payments were being made mentioning in only balance sheet and profit & loss account of the company as being vetted by the parent company and nothing in the matter of supervisory services being rendered as mentioned. This is despite the opportunities given and even after the show cause notice given. In such circumstances, it is only logical to conclude that the said payment is being made without any actual business expediency and against which no particular service is received and also in line with the stand taken by the assessing officer in assessee’s own case for ÀY 2014-15. In view of the discussions made the deduction of sum of Rs.3,13,07,498/- claimed in AY 2011-12 as supervisory fees paid for earlier years (on the basis of TDS deducted in the current year) is disallowed and added back to the total income of the assessee.”
Being aggrieved by the assessment order, the assessee
preferred an appeal before the learned CIT (A). The assessee
has challenged additions made by the Assessing Officer
towards disallowance of supervisory fees and argued that the
assessee has paid supervisory fees to its parent company for
9 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
rendering various services including technology support for
manufacture and installation of heat treatment furnaces and
such services were provided by the parent company by
dispatching expatriates to India for carrying out work at various
sites. The assessee further submitted that it has paid
supervisory fees to its parent company in pursuant to an
agreement dated 25.12.2007 entered into which specifies
scope of work. The assessee has also filed other evidences
including bills issued by parent company and travel details of
expatriates to India on various occasions to provide services.
The learned CIT(A), after considering relevant
submissions of the assessee and also taken note of various
reasons given by the Assessing Officer to disallow supervisory
fees has opined that the assessee has provided various details
including copies of travel orders, visa and other supporting bills
in respect of Korean expatriates who had come and rendered
services in India. The assessee had also furnished extracts of
e-mail communication with respect to work instructions and
draft plans made during the relevant period. The assessee had
also furnished copy of agreement entered into with its parent
10 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
company for supervisory services to be rendered by them. The
learned CIT(A) further noted that the assessee had also tested
its transactions with Associated Enterprises by adopting
Transactional Net Margin method, as per which transactions of
the assessee with its AEs are at arm’s length price. Therefore,
the learned CIT(A) opined that the assessee being in the
business of manufacturing and sale of machines and machine
parts has carried out process concerning heat treatment,
coating furnace of metal and such process had been carried
out with assistance and technological support provided by
parent company M/s. Dong Woo HST Co. Ltd. Hence, the
learned CIT(A) opined that expenditure incurred under the
head supervisory charges and paid to its parent company is
supported by necessary evidences and accordingly, deleted
additions made by the Assessing Officer. The learned CIT(A)
has also taken note of fact that the assessee has remitted
supervisory fees after deducting necessary withholding tax as
per law. The relevant findings of the learned CIT(A) are as
under:- “ The submissions of the appellant were considered vis-a-vis the findings of the A.O. During the appellate proceedings, the appellant furnished written submissions dated 2/1/2018. It was explained that the appellant company was carrying out
11 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
processes concerning heat treatment, coating, furnace of metal and sales and services to customers. These processes had been transferred by the parent company i.e. Dong woo HST Company Ltd. The appellant carried out these processes under the supervision of the parent company. It was stated that these expenses were incurred wholly and exclusively for the purpose of business. The appellant also stated that the services had been rendered by the parent company by despatching expatriates to India for carrying out this work. A detailed note in this regard had been furnished during the assessment proceedings. Copies of travel orders, visa and other supporting bills with respect of the Korean expatriates who rendered services in India were submitted during the appellate proceedings. Extracts of e-mail communications with respect to work instructions and draft plans made during the F.Y. 2013-14 were also furnished. The appellant also furnished a copy of the agreement entered into by the appellant company for the supervisory services to be rendered by the parent company. The appellant stated that it had complied with the arms length price under Transactional Net Margin Method duly corroborated by the facts contained in Form 3CEB.
In the written submissions dated 15/2/20 18, the company stated that the said supervisory fee income of Rs.1,19,90,852/- had been offered to tax in the statement of income and taxed by the parent company in its ITR. The appellant filed a copy of the statement of income and ITR 6. The company also furnished workings with regard to Arms Length Price (ALP) for the said supervisory fee payment.
the appellant company had already disallowed Rs.1,19,90,852/- in their Income tax return of A.Y. 2014-15 u/s.40(a)(i) on account of non deduction/non payment of TDS. Hence, it was stated that disallowing the same once again results in erroneous double disallowance. The appellant had also furnished the relevant extract of ITR and statement of income computation along with annexures for the A.Y. 2014-15. Taking into account these factual submissions and the evidences furnished by the appellant, I find that there is considerable merit in the contentions of the appellant. The disallowance of supervisory fee of Rs.1,19,90,852/- pertaining
12 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
to A.Y. 2014-15 requires to be deleted. This ground of appeal is allowed.
Disallowance of Supervisory fee totaling to Rs. 1,31,30,658/- pertaining to AY 2013-14 which was disallowed u/s 40(a)(i) of the Act for non-deduction of tax, claimed during AY 2014-15: 4A(1) Assessment proceedings: During the course of assessment proceedings, the A.O. held that the assessee had claimed the supervisory fee of Rs.1,31,30,658/- paid in the previous year as a deduction in the current year as the same was disallowed in the previous year computation by the assessee for non deduction of tax. The A.O. held that the same was not an allowable expense. The deduction made in the computation of Rs.1,31,30,658/- was therefore disallowed. 4B(2) Appellate proceedings: During the course of appellate proceedings, the appellant furnished the following submissions: 1. The Learned Assessing Officer has erred in disallowing the expenses incurred in the FY 2012-13 of the relevant Assessment Year 2013-14, Disallowing of expenses pertaining to the previous financial year is unjust. ii. The expenses were incurred in the previous financial year and however no question regarding its allowability and genuinity during the relevant scrutiny assessment. Sole reason for suo moto disallowance was non deduction of tax at source as per section 40(a)(i) of the Income Tax Act, 1961. In as much as the above facts, the disallowance of expenses with respect to previous year has to be deleted. 4B(3) CIT(A)’s Inferences and decision: The submissions of the appellant were considered vis-ã-vis the findings of the A.O. In their submissions dated 2/1/2018, the appellant stated that the A.O. had erred in disallowing Rs.1,31,30,658/- stated as pertaining to A.Y. 2013-14 which was originally claimed at Rs.1,31,99,390/- u/s.40(a)(i) on remittance of TDS in the A.Y. 20 14-15 being the supervisory fees which was suo moto disallowed in the income tax return of A.Y. 2012-13 u/s.40(a)(i) on account of non deduction of TDS.
13 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
The appellant stated that the A.O. had not called for any submissions, explanations, supporting documents for verifying this expenditure. The appellant maintained that it was an admissible expenditure and these expenses had originally been fully allowed during A.Y. 20 12-13. In their written submissions dated 21/2/2018, the appellant furnished TDS chalan for Rs.13,33,870/- on the supervisory fee relating to A.Y: 2012-13 which had been remitted during the AY 2014-15.
In their written submissions dated 18/2/2019, the appellant furnished evidences such as copies of travel order, visa and other supporting bills with respect of the Korean expatriates who came to India during F.Y. 2011-12 for rendering services. The extracts of e-mail communications regarding work instructions, draft plans and basis of billing made on Dong woo India by HST Korea for Rs.1,31,99,390/- were submitted. The correctness of the pricing of the said supervisory fee was stated to be in line with the ALP as per TP Regulations. The relevant TP study extract and Form 3CEB were also furnished factual details. Taking into account the explanations and documentary evidence that were furnished during the appellate proceedings, the appellant’s contentions had been found to be tenable. This disallowance of Rs.1,31,30,658/- requires to be deleted. This ground of appeal is allowed.”
Aggrieved by the order of learned CIT(A), the Revenue is in
appeal before us.
The learned DR submitted that the learned CIT(A) has
erred in deleting supervisory fees paid by the assessee to its
parent company based on fresh evidences submitted for the
first time during appellate proceedings without giving any
opportunity to the Assessing Officer in violation of Rule 46A of
14 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
Income Tax Rules, 1962. The learned DR further submitted
that the learned CIT(A) has failed to appreciate fact that the
Assessing Officer had disallowed supervisory fees u/s.37 of the
Income Tax Act, 1961, for lack of genuineness and commercial
expediency, whereas the learned CIT(A) has deleted additions
made by the Assessing Officer on the ground that necessary
TDS has been deducted and thus, same cannot be disallowed
u/s.40(a)(i) of the Act, without appreciating fact that once a
particular expenditure is considered to be not allowable u/s.37
of the Act, then other formalities of non-deduction of TDS and
consequent disallowances is academic in nature.
The learned A.R for the assessee, on the other hand,
supporting order of the learned CIT(A) submitted that the
assessee has paid supervisory fees to its parent company
M/s. Dong Woo HST Co. Ltd. for rendering various services
including technological support and process concerning heat
treatment, coating furnaces of metal, sale and services to
customers. The parent company has provided such services in
pursuant to an agreement dated 25.12.2007 between the
parties, as per which technicians from parent company has
15 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
travelled to India on various occasions for rendering services in
connection with manufacturing and installation of heat treatment
of furnaces for which the assessee has furnished necessary
evidences including agreement between the parties, travel
documents of expatriates who visited India for rendering
services. The learned A.R further submitted that the assessee
is in the business of manufacturing, supply and installation of
industrial furnaces and said activity cannot be carried out
without assistance of its parent company, because technology
required for said activity is provided by parent company and
further supervisory and process concerning heat treatment,
coating furnaces of metals was also provided by parent
company. The learned CIT(A) after considering relevant facts
has rightly deleted additions made by the Assessing Officer and
his order should be upheld.
We have heard both the parties, perused material
available on record and gone through orders of the authorities
below. The assessee is in the business of manufacture, supply
and installation of industrial furnaces and related services. The
assessee has carried out manufacturing and installation of
16 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
industrial furnaces under supervision of its parent company M/s.
Dong Woo HST Co. Ltd. The technology required for process
concerning heat treatment, coating, furnace of metal was
provided by its parent company. The assessee has entered
into an agreement with its parent company M/s. Dong Woo
HST Co. Ltd. vide agreement dated 25.12.2007 and said
agreement was renewed from time to time. The agreement
between the parties specified scope of services to be provided
by its parent company. As per said agreement, scope of
services includes complete project management, design,
erection, testing and commissioning for plant and machinery for
heat treatment plant. The parent company shall provide
necessary supervisory services to enable the assessee to
successfully manufacture and supply industrial furnaces. The
said agreement further provides for inspection, testing and
other related services. For this purpose, parent company has
deputed 3 to 4 senior members of the management headed by
Mr.Chung Soo Jin and other persons, who frequently visits
India for providing on sight supervisory services for
manufacturing, supply and installation of industrial furnaces for
which the assessee has paid supervisory fees to its parent
17 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
company. The assessee has furnished necessary evidences,
including agreement between the parties, invoices raised by
parent company, travel documents of expatriates, who visited
India for rendering services, their visa, passport and air tickets.
The assessee had also furnished e-mail correspondence
between its parent company for exchange of information
regarding technological support required for manufacturing and
installation of industrial furnaces. The said payment has been
made after withholding necessary TDS applicable as per law.
Therefore, we are of the considered view that supervisory fees
paid by the assessee to its parent company M/s. Dong Woo
HST Co. Ltd. in pursuant to an agreement dated 25.12.2007 is
genuine expenditure incurred wholly and exclusively for the
purpose of business of the assessee and which is supported
by necessary evidences.
The Assessing Officer has disbelieved genuine
expenditure incurred by the assessee for the purpose of
business only for the reason that said transaction was entered
into between the assessee and its parent company. The
Assessing Officer had also questioned necessity of making
18 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
such payments. Therefore, he opined that payment made to its
parent company for rendering supervisory fees is nothing but
shifting of profit from one tax territory to another tax territory
without any actual business expediency and as against which
no particular service is received. We have gone through
reasons given by the Assessing Officer in light of various
evidences filed by the assessee including agreement between
parties and we do not ourselves subscribe to reasons given by
the Assessing Officer for the simple reason that it is well settled
principle of law that the Assessing Officer cannot sit in the
armchair of businessman and decide whether particular
expenditure is required to be incurred or not. It is also an
admitted legal position that the Assessing Officer cannot
question rational and necessity of incurring any particular
expenditure. What is required to be seen is whether particular
expenditure is incurred wholly and exclusively for the purpose
of business of the assessee and further such expenditure is
supported by necessary evidences. In this case, the assessee
has filed all possible evidences including agreement between
parties to prove genuineness of expenditure incurred for
supervisory services. The assessee had also furnished
19 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
necessary supporting evidences including travel documents of
expatriates, who visited India for rendering services. Therefore,
we are of the considered view that the Assessing Officer was
erred in disallowing expenditure incurred by the assessee for
payment made to its parent company for rendering supervisory
services. This legal position is supported by the decision of the
Hon'ble Supreme Court in the case of CIT Vs Chandulal
Keshavlal & Co. (1960) 38 ITR 601 (SC), where it was held
that in deciding whether a payment of money is a deductible
expenditure, one has to take into consideration questions of
commercial expediency and the principles of ordinary
commercial trading. If any payment or expenditure is incurred
for the purpose of trade of the assessee, it does not matter that
payment may inure to the benefit of a third party. Another test is
whether the transaction is properly entered into as a part of the
assessee's legitimate commercial undertaking in order to
facilitate the carrying on of its business and it is immaterial that
a third party also benefits thereby. But, in every case, it is a
question of fact whether expenditure is expended wholly and
exclusively for the purpose of trade or business of the
assessee. In the present case, there is no doubt of whatsoever
20 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
with regard to genuineness of payment made by the assessee
to its parent company, because such payment was made in
pursuant to agreement between parties and further, the
assessee has deducted applicable TDS as per law. The
assessee had also furnished other supporting evidences to
prove receipt of services from its parent company. Therefore,
we are of the considered view that expenditure incurred by the
assessee towards payment made to its parent company for
rendering supervisory services is genuine expenditure, which
was incurred wholly and exclusively for purpose of business of
the assessee. The Assessing Officer without appreciating facts
has simply disallowed supervisory fees paid to the assessee’s
parent company. The learned CIT(A), after considering relevant
facts has rightly deleted additions made by the Assessing
Officer. Hence, we are inclined to uphold findings of the learned
CIT(A) and reject grounds taken by the Revenue.
The other aspect of non-deduction tax deducted at
source and consequent disallowance of expenditure by the
assessee in certain years and claiming deduction for said
expenditure in the year of payment is not disputed by the
21 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
Assessing Officer, because the Assessing Officer has primarily
held that expenditure incurred by the assessee under the head
supervisory fees is held to be not deductible under section 37 of
the Income Tax Act, 1961. But, the ld. CIT(A) has examined suo motu disallowance made by the assessee in earlier years
for non-deduction of tax deducted at source and subsequent
deduction claimed in the year of payment and held that the
assessee has rightly claimed deduction towards expenditure
incurred in earlier years in the impugned assessment years,
because, it was disallowed in earlier years for non deduction of TDS and further, the same has been claimed as and when TDs
has been deducted and remitted to Govt. account. Further, the
ld. CIT(A) has recorded categorical findings that for the
assessment year 2014-15, the assessee claimed deduction
towards supervisory fee of Rs.1,31,30,658/- pertain to earlier
assessment year, as the same was disallowed in the previous
year in the statement of total income of the assessee for non-
deduction of tax. Similarly, for assessment year 2015-16, the
assessee claimed deduction of Rs.1,44,29,888/- towards
supervisory fees incurred in earlier financial year and
22 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
disallowed in the statement of total income for non-deduction of
TDS u/s.40(a)(i) of the Act.
In this view of the matter and considering facts and
circumstances of this case, we are of the considered view that
there is no error in the findings recorded by the ld. CIT(A) to
delete disallowances made by the AO towards supervisory fees
paid by the assessee to its parent company. Hence, we are
inclined to uphold findings of ld. CIT(A) and reject grounds
taken by the Revenue for assessment years 2014-15 and 2015-
16.
In the result, appeals filed by the Revenue for
assessment years 2014-15 and 2015-16 are dismissed.
ITA No.939 & 940/Chny/2020: (A.Y. 2011-12 & 2013-14):
The facts and issues involved in these two appeals filed
by the assessee are identical to the facts and issues which we
had considered in ITA No.1560/Chny/2019 for assessment
year 2014-15, but for reassessment u/s.147 r.w.s.143(3) of the
23 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
Income Tax Act, 1961. The issue of disallowance of supervisory
fee paid to parent company is identical to the issue which we
had considered in ITA No.1560/Chny/2019 for assessment year
2014-15. The reasons given by us in preceding paragraphs of ITA No.1560/Chny/2019 shall mutatis mutandis apply to these
appeals as well. Therefore, for similar reasons, we direct the
Assessing Officer to delete additions made towards
disallowance of supervisory fee paid by the assessee to its
parent company for Asst. Years 2011-12 and 2013-14. As
regards legal ground taken by the assessee challenging validity of reopening of assessment u/s.147 of the Act, we find that
since we have decided issue of disallowance of supervisory fee
in favor of the assessee, legal ground taken by the assessee
challenging reopening of assessment becomes academic in
nature. Hence, legal ground taken by the assessee challenging
validity of reassessment for Asst. Years 2011-12 and 2013-14
is dismissed accordingly.
In the result, appeals filed by the assessee for
assessment years 2011-12 and 2013-14 are allowed and
24 ITA Nos.1560, 1920/Chny/2019 & ITA Nos.939 & 940/Chny/2020
appeals filed by the Revenue for assessment years 2014-15 &
2015-16 are dismissed. Order pronounced in the open court on 22nd October, 2021 Sd/- Sd/- ( वी.दुगा� राव) ( जी. मंजुनाथ) (V.Durga Rao) ( G.Manjunatha ) 'या�यक सद)य /Judicial Member लेखा सद)य / Accountant Member चे'नई/Chennai, +दनांक/Dated 22nd October, 2021 DS आदेश क� ��त-ल.प अ/े.षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु0त (अपील)/CIT(A) 4. आयकर आयु0त/CIT 5. .वभागीय ��त�न4ध/DR 6. गाड� फाईल/GF.