COLE PARMER INDIA PVT. LTD.,MUMBAI vs. ACIT-15(1)(2), MUMBAI

O R D E R

PER RAM LAL NEGI, JM

1. “On the facts and circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeals) – 24 [CIT (A)] has erred in confirming the disallowance of the shared service expenses amounting to Rs. 1,23,79,645/-.

2. On the facts and circumstances of the case and in law, the Hon’ble CIT (A) erred in upholding the action of the learned AO of levying interest amounting to Rs. 13,98,697/- under section 234B of the IT Act. 3. On the facts and circumstances of the case and in law, the Hon’ble CIT (A) erred in dismissing the ground of appeal

challenging the action of the learned AO to initiate the penalty proceeding under section 271 (1) (c) of the Act.

4. At the outset, the Ld. counsel for the assessee submitted before us that this issue is covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for the assessment year 2014-15. The Ld. counsel further submitted that since the findings of the authorities below are contrary to the decision of the Tribunal, the impugned order is liable to be set aside.

5. On the other hand, the Ld. D.R. fairly admitted that the Tribunal has decided the identical issue in favour of the assessee in assessee’s case for the immediate preceding assessment year, however, supported the order passed by the Ld. CIT(A).

6. We have perused the relevant material on record in the light of the rival contentions of the parties. As pointed out by the Ld. counsel for the assessee the “C” Bench of the Mumbai Tribunal has decided the identical issue in favour of the assessee in assessee’s appeal for the assessment year 2014-15 vide order dated 27.09.2019. During the said assessment year, the assessee had paid Rs. 2,91,88,975/- to its group company M/s Thermo Fisher Scientific India Pvt. Ltd. The assessee contended that since the shared service expenses are nothing but reimbursement of expenses by the assessee, the provisions of TDS do not apply, therefore, disallowance u/s 40(a)(ia) is not warranted. The AO rejecting the contention of the assessee made addition of the said amount to the income of the assessee. In the first appeal, the Ld. CIT(A) confirmed the addition. However, in further appeal, the Tribunal reversed the findings of the Ld. CIT(A) holding as under:- “ 15. Considering the rival submission and material placed on record, we notice from the records submitted before us that during this assessment year, assessee had utilized common facilities and administrative services from Thermo Fisher Scientific India Pvt. Ltd. (TFS India), which is group company. The details of such shared services are salary and wages of Rs. 95,74,485/-, depreciation on equipment of Rs. 13,78,331/-, Rent of Rs. 84,24,167/- and other expenses of Rs. 66,11,456/-, in total Rs. 259,88,439/-. It is 2% on the revenue from operation for the assessment year. These expenses were allocated by TFS India based on the agreed sharing ratio and this is as per oral agreement.

16. When the AO asked the assessee to substantiate the same, the assessee submitted that the cost were allocated based on usage of the facility and the group company TFS India has already complied with the provisions as per I.T. Act, 1961. Before Ld. CIT (A), assessee had made detailed submission including the confirmation from TFS India, which was not submitted before AO. All these information were verified by AO in remand proceedings and AO had made following adverse comments that a) TFS India has not filed confirmation u/s 133(6), assessee was given several opportunities to submit the supporting documents for expenses, not filed the basis of allocation, huge difference in allocation of percentage of total shared service expenses, service tax applicable and no details on claim of Modvat claim submitted and the claim of expenses are clear due to non-existence of agreement between the assessee and TFS India. Ld. CIT (A) also confirmed the addition merely relying on the findings of AO instead of addressing the issues raised by assessee in the legal context, which is given below:- a) Assessee has shared the revenue expenses with the group company i.e. TFS India, which is 2% of the revenue from operation and assessee has filed the details of cost of work force employed by assessee, which are basically comprised of marketing staffs. For the other administrative, space utilization and other common equipments were shared with the group concern. Assessee has not charged anything for the administrative expenses to the P & L account. In our view, every business needs administration and if the assessee decided to avail common facilities, which is legally permissible. Since both the sister concern and having similar tax rates, there will not be any tax leakage. Further the allocation is based on agreed formula. As long as it is within permissible limit, it should be considered. In this case, it is only 2% of the revenue from operation. b) AO cannot invoke section 40(a) (ia) without finding the assessee as an assessee in default, Ld. CIT (A) should have considered the second proviso to section 40(a)(ia) before dismissing the plea of the assessee. c) Next issue is, the group company TFS India, does not have taxable income, the Court in the case of IDFC Investment Advisors Ltd. (supra), no TDS is required to be deducted on shared service expenses. Ld. CIT (A) should have verified this aspect before dismissing the ground.

17. Considering the above facts and discussion, the assessee has shared the revenue expenses with the group company and the claim is within the normal limits i.e. 2%. The assessee has submitted and also confirmed by TFS India that they have not charged any profit on the shared service expenses i.e. cost to cost basis. Further, TFS India has already confirmed that they have complied with the TDS provisions as per law on the expenses shared by them with the assessee. There is absolutely no loss to the revenue. Further, it is noticed that assessee has discontinued this practice from AY 2016-17. Therefore, we are inclined to accept the grounds raised by the assessee and accordingly grounds are allowed.”