DCIT CORPORATE CIRCLE 4(1), CHENNAI vs. LGF SERVICES LTD., CHENNAI

This appeal filed by the Revenue is directed against order of learned Commissioner of Income Tax (Appeals)-8, Chennai, dated 04.10.2017 and pertains to assessment year 2013-14.

The Revenue has raised the following grounds of appeal:

For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.

Being aggrieved by the assessment order, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee has filed written submissions which had been reproduced at Para 4 on page Nos.5 & 6 of ld.CIT(A) order. The sum and substance of argument of the assessee before the ld.CIT(A) are that the assessee is carrying out back office / clerical work for Oriental Insurance Company Ltd., which includes collection of proposal form and follow-up of renewals. The said service had been carried out through various branches of M/s. Sundaram Finance Ltd., for which the assessee has shared common cost and other service charges. The ld.CIT(A) after -5- ITA. No: 3227/Chny/2017 considering relevant submissions of the assessee and also taken note of nature of expenses claimed by the assessee, opined that when the assessee had no permanent establishment and further, functioning by outsourcing its activities to sister concerns, the AO has erred in not allowing payment made to M/s. Sundaram Finance Ltd., for reimbursement of various expenses incurred by them on behalf of the assessee. He, further noted that the AO had disallowed expenditure in the hands of the assessee even though, the assessee made it clear that it does not have any personal office or similar such permanent establishment to carry out business. Therefore, he opined that expenditure incurred by M/s. Sundaram Finance Ltd., and shared among assessee and other group concerns is incurred for business purpose of the assessee and hence, deleted additions made by the AO. Aggrieved by the CIT(A) order, the Revenue is in appeal before us.

The ld.DR submitted that the ld.CIT(A) has failed to note that the agreement for sharing of expenses is made only on the fag end of the year i.e., on 14.03.2013 and monthly debit note for use of common facilities were not raised on 12th of each -6- ITA. No: 3227/Chny/2017 month, which is a condition made in the agreement. The ld.CIT(A) further failed to note that the assessee company had incurred huge expenditure of Rs.3.22 crores as manpower outsourcing cost and other cost to M/s. Aparajitha Dynamic Synergies P Ltd., which includes salary, travel, etc., and hence, payment of service expenses of Rs.2.19 crores to M/s. Sundaram Finance Ltd., for various expenses including infrastructure, supervision, accounting, etc., is not backed by necessary evidences.

The ld.AR for the assessee on the other hand supporting order of the CIT(A) submitted that the assessee had entered into an agreement with M/s. Sundaram Finance Ltd., and M/s. Sundaram Finance Distribution Ltd., for availing various services including administrative and infrastructure facilities, for which it has reimbursed various expenses incurred by M/s. Sundaram Finance Ltd., on behalf of the assessee. The ld.AR further submitted that the assessee company uses M/s. Sundaram Finance Ltd., network of branches and manpower for its business and accordingly, the expenses incurred towards services rendered in respect of administrative, infrastructure, supervision, -7- ITA. No: 3227/Chny/2017 accounting, etc., has been shared on the basis of revenue earned by three companies. The assessee has filed all evidences to support payment of reimbursement to M/s. Sundaram Finance Ltd. Therefore, the ld.CIT(A) after considering relevant facts has rightly deleted addition made by the AO and his order should be upheld.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee is in the business of distribution and marketing of insurance, financial products, loan and other investment products, has carried its business activities through various branches of M/s. Sundaram Finance Ltd. The assessee had entered into a cost sharing agreement with M/s. Sundaram Finance Ltd., as per which, income generated from aforesaid business is directly booked in accounts of the respective parties, but expenditure incurred in relation to said business activity was agreed to be apportioned amongst the parties on the basis of revenue generated from business. M/s. Sundaram Finance Ltd., has raised debit notes to assessee for reimbursement of various expenditure incurred on behalf of the assessee, which includes -8- ITA. No: 3227/Chny/2017 services rendered in respect of administrative, infrastructure, supervision, accounting, etc. Thus, expenses are revenue in nature and are incurred for purpose of business of the assessee. Although agreement entered between assessee and M/s. Sundaram Finance Ltd., was on 14.03.2013, but the services has been availed for the entire financial year on PAN India basis, which is evident from the fact that except shared cost and service expenses, no other expenses was incurred by the assessee in its business. Therefore, we are of the considered view that when the assessee has demonstrated with evidence that it does not have any permanent establishment and other infrastructure facilities to carry out its business operations and further, it had availed services of M/s. Sundaram Finance Ltd., through network of its branches across the country, the AO was erred in disallowing expenses merely for the reason that said expense was not supported by evidences, more particularly when the assessee has filed agreement between the parties and debit note raised by M/s. Sundaram Finance Ltd. Further, it is not a case of the AO that expenditure incurred by the assessee is not genuine. In fact, the AO has not questioned genuineness of expenses, but what was doubted is necessity and rationale behind incurring expenditure.

In the result, the appeal filed by the Revenue is dismissed.