Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCHES “I-2” : DELHI
Before: SHRI BHAVNESH SAINI, J.M. & SHRI L.P. SAHU, A.M.
For Assessee : Shri Amit Arora, Advocate For Revenue : Ms. Nimita Pandey, SR. D.R. Date of Hearing : 08.01.2019 Date of Pronouncement : 14.01.2019 ORDER PER BHAVNESH SAINI, J.M. This appeal by Assessee has been directed against the assessment order dated 28.04.2014 for the A.Y. 2007-2008 under section 143(3) r.w.s.144C of the I.T. Act passed by DCIT, Circle-3(1), New Delhi.
We have heard the Learned Representatives of both the parties and perused the findings of the authorities below.
2 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon.
On Ground Nos. 1 to 10, assessee challenged the addition of Rs.42,14,599/-. The grounds are reproduced as under :
“1. The Ld. AO has grossly erred in assessing the loss of the appellant at Rs.2,10,06,811/- as against the returned loss of Rs.3,33,78,940/- and to that extent the order passed by the Ld. AO is erroneous and bad in law and on facts of the case.
2. The learned A.O./DRP erred in upholding the upward adjustment of INR 42,14,599 made by the learned Transfer Pricing Officer ("TPO") to the value of international transaction entered into by the Appellant in relation to reimbursement of expenses.
3. The learned AO/DRP erred in disallowing the reimbursement of travelling and general office expenses paid by the Appellant in relation to certain employees seconded by the AE to the Appellant.
4. The learned AO/ DRP erred in disallowing the reimbursement of salary costs paid by the 3 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon.
Appellant in relation to certain employees seconded by the AE to the Appellant.
5. The learned AO/DRP erred in not appreciating the fact that TPO erred in passing the order without following the principle of natural justice.
6. The learned AO/DRP erred in ignoring the documents and information provided by the Appellant which demonstrated that all its international transaction is at arm's length price.
7. The learned AO/DRP erred in determination of ALP, by incorrect application of Comparable Uncontrolled Price method ("CUP method") for the reimbursement of expenses.
The Learned AO/DRP erred by ignoring the evidences and documents submitted by the Appellant in regard to the reimbursement of salary costs paid by the Appellant in relation to certain employees seconded by the AE to the Appellant which demonstrated that the expenses were actually incurred by the AE and were incurred wholly and exclusively for the benefit of the business of the Appellant, and were reimbursed on cost basis by the Appellant.
4 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon.
9. The learned AO/TPO/DRP erred by ignoring the evidences and documents submitted by the Appellant in regard to the reimbursement of travelling and general office expenses paid by the Appellant which demonstrated that the expenses were actually incurred by the AE and were incurred wholly and exclusively for the benefit of the business of the Appellant, and were reimbursed on cost to cost basis.
10. The learned AO/TPO/DRP erred by concluding that the Appellant failed to demonstrate that the salary costs, travelling and general office expenses were incurred for the benefit of the Assessee and no independent party would pay for the same.”
The A.O. noted in the assessment order that as per Form No.3CEB filed along with the return, the assessee during the year had international transactions with the Associated Enterprises/concerns. Hence, in order to determine the Arms Length Price (“ALP”) in relation to international transactions the case was transferred to Transfer Pricing Officer (“TPO”) on 16.11.2009 after
5 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. obtaining the prior approval of CIT-1, New Delhi. With reference to the same, the DCIT, Transfer Pricing-1(4), New Delhi, has passed the Order dated 15.10.2010 wherein the Arm’s Length Price (“ALP”) of international transaction with the A.E. was computed at NIL as against the transaction value of Rs.55,59,824/- claimed by the assessee company, resulting in an addition of Rs.55,59,824/- in its taxable income. The assessee-company was asked to show cause as to why addition should not be made on account of ALP and determined by the TPO vide Order dated 15.10.2010. The assessee-company has filed reply on 30.11.2010 through messenger. The submission of the assessee-company was not found acceptable and addition of the aforesaid amount was made against the assessee-company. In this case, a draft proposed order of assessment was passed on 30.11.2010 and sent to the assessee-company. The assessee -company filed objections before DRP against the variation prepared to be made in the draft order. The DRP vide its Order dated 10.08.2011 issued directions and the 6 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. assessment order was passed in conformity with the directions issued by the DRP. The DRP in its Order has confirmed the Order of the TPO by observing that this issue relates to determination of ALP relating to salary expat. Before DRP evidences produced such as appointment letter is same as that produced before the TPO. The conclusions drawn by the TPO have not been effectively rebutted. No evidence to show facts are not as understood by A.O. In the circumstances, DRP finds the objections of the assessee are without merit and have already been considered by the TPO. Therefore, objection was rejected.
The assessee preferred an appeal before the ITAT and the Tribunal vide Order dated 11.12.2012 set-aside the Order of the DRP and A.O. and restored the matter back to the file of DRP for reconsideration of the issue afresh, after giving an opportunity of being heard to the assessee. In pursuance to the above directions, the DRP issued directions under section 144C(5) dated 21.03.2014, consequent to which, the TPO has revised the T.P.
7 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. adjustment to Rs.42,14,599/-. A.O. accordingly made the addition. Learned Counsel for the Assessee submitted that whatever evidence could be filed before TPO/DRP, relief to that extent have been allowed. However, some of the evidences could not be filed before DRP/TPO by the assessee-company, which are now filed before the Tribunal through a petition for admission of the additional evidences vide petition dated 06.03.2018.
5.1. The assessee in the petition for admission of the additional evidences submitted that additional evidences are in the form of Form No.16 and Form No.12BA of seconded employees with regard to reimbursement of salary costs paid by the petitioner in relation to certain employees seconded by the A.E. to the assessee and back-up documents/third party invoices with regard to reimbursement of travelling and general office expenses in relation to certain employees seconded by the A.E. to the assessee. It was, therefore, submitted that Form No.16 and Form 12BA of the seconded employees along with back-up
8 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. documents with regard to travelling and general office expenses are now filed before the Tribunal, may be admitted for disposal of the appeal. It is also stated in the application that evidences placed by the assessee-company is crucial for judicious disposal of the objections. The assessee-company also explained that these documents and analysis could not be furnished before A.O. or the DRP because assessee- company at that time was in the process of collecting the said details. Assessee-Company, therefore, prayed that additional evidences filed along with application may be admitted for hearing.
On the other hand, Ld. D.R. strongly objected to the admission of the additional evidences and submitted that none of the documents filed in the paper book have been attested and authenticated by assessee or concerned person and that no reasons have been explained why the same were not produced before the authorities below. Therefore, there is a serious doubt about the genuineness of 9 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon.
the documents filed along with application for admission of the additional evidences.
We have considered the rival submissions and perused the additional evidences. It is a fact that none of the additional evidences were filed before the A.O./TPO/ DRP vide petition for admission of the additional evidences dated 06.03.2018 filed now before the Tribunal. Earlier, the Tribunal has restored this issue to the file of DRP vide Order dated 11.12.2012. The assessee has not explained that despite the Order passed by the Tribunal in first round proceedings in December, 2012, what steps have been taken by assessee for production of the additional evidences before DRP/A.O. It is also an admitted fact that the additional evidences have not been authenticated either by the assessee or by any responsible person. No certificate of genuineness of documents have been given in paper book. These are mere photo copies of some of the documents, therefore, genuineness of the same is in doubt. Further, most of the photo copies of the alleged additional evidences
10 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. are in Chinese Language and some other details did not explain anything. When we have asked the Learned Counsel for the Assessee to read the same additional evidences in the paper book and to explain the nature of these documents, Learned Counsel for the Assessee was not able to read the Chinese Language and was also not able to explain the contents of any of the additional evidences filed in the paper book. Learned Counsel for the Assessee was not able to explain as to what is the relevance of these additional evidences to the matter in issue and what are the nature of these additional evidences and its contents thereof. No translated copies of the additional documents from Chinese Language to either in Hindi or English have been filed. Since the Learned Counsel for the Assessee have not been able to explain as to how the additional evidences are relevant to the matter in issue and what are the contents thereof, therefore, it is, difficult to believe that the documents filed along with petition for admission of additional evidences have any relevance to the matter in 11 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. issue. It is also not explained why these additional evidences were not filed before the authorities below despite earlier the matter have been remanded by the Tribunal to the DRP. The Hon‘ble jurisdictional Punjab and Haryana High Court in the case of Jawaharlal Jain (HUF) 370 ITR 712 considered the additional evidences which were filed after six years of the assessment. It was observed that since no credible evidence and no explanation of delay have been given, therefore, rejection of the additional evidences was found justified. The Hon‘ble jurisdictional Punjab and Haryana High Court in the case of Rishi Sagar 393 ITR 214 held that the additional evidences have been rightly refused as it is not explained why the same were not filed before the A.O. We may note that the DRP in their Order have noted that even in the original proceedings, the assessee did not file the documentary evidences for secondment of employees and cost-to-cost re-charge. The assessee regarding international transactions undertaken during the year has mentioned in 3CEB that A.E. is charging expenditure on 12 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. actual basis to CEC International Corporation India Pvt. Ltd., based on its actual cost incurred for expenses and the expenses relate to travelling and general expenses incurred on actual basis. It is also reported that A.E. had sent one employee to India and assigned authority to control the activity of the Company. His salary on actual is charged to CEC International Corporation India Pvt. Ltd. He was supervising the work of Company. No documentary evidences was however adduced to confirm the above facts. Therefore, initially, addition was also made because of the non-production of the documents. Even after the remand of the issue by the Tribunal to the DRP, the DRP considering the explanation of assessee in detail noted that so far as the claim of reimbursement in the names of remaining six persons are concerned, the Panel was of the view that taxpayer has not submitted enough evidence to justify the claim. Whatever evidences were filed by the assessee were accepted and part-relief in a sum of Rs.13,45,205/- was granted to the assessee and rest of the addition was 13 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. maintained on account of non-production of the documentary evidences which were claimed by assessee on account of expenses actually incurred by the A.E. under the Heads “Travelling Allowances, General Office Expenses and Salary paid to Employees on Deputation”. However, the things remain same that no documentary evidences were filed before A.O./DRP despite in set-aside proceedings. Whatever additional evidences are filed now are not relevant to the matter in issue as the genuineness of the additional evidences itself are in doubt. Learned Counsel for the Assessee was not even able to read some of the documents or to explain the nature of the additional evidences filed now before the Tribunal. In the absence of any satisfactory explanation of assessee as to why these documentary evidences were filed before the authorities below and that what is the relevance of these documents and that genuineness of the documents itself are in doubt, therefore, we are not inclined to admit the additional evidences. The 14 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. petition for admission of the additional evidences is accordingly rejected.
6.1. Learned Counsel for the Assessee was not able to point out any error in the Order of the DRP/A.O. on this issue and merely submitted that in case additional evidences are admitted, the matter in issue could be remanded to the DRP for further adjudication. It would mean that on rejection of the petition for admission of additional evidences, assessee has nothing to say on this issue. No infirmity have been pointed out in the Orders of the authorities below. Therefore, ground Nos. 1 to 10 of the appeal of Assessee are dismissed.
7. On Ground Nos. 11 to 13, assessee challenged the addition of Rs.80,99,113/- on account of disallowance of loss foreseeable on project. The grounds are reads as under :
“11. The Ld. AO/DRP, on the facts and circumstances of the case, grossly erred in making disallowance of "loss foreseeable on project" amounting to Rs. 80,99,113/-.
15 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon.
12. The Ld. AO/DRP, on the facts and circumstances of the case, erred in making disallowance of "loss foreseeable on project" amounting to Rs. 80,99,113/- made by the appellant, by ignoring treatment of such items specified in Accounting Standard - 7 issued by ICAI.
The Ld. AO/DRP erred in not appreciating the ruling of Apex court in the case of Bharat Earth Movers 245 ITR 428 (SC) wherein inter-alia it has been held that if a business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at a future date.”
[8. The A.O. noted that assessee-company has debited expenditure of Rs.80,99,113/- towards “loss foreseeable on project” under the Head “Construction Cost”. The assessee-company was asked to explain why this foreseeable loss on project be not disallowed. The assessee- company filed reply stating therein that foreseeable loss on project is allowable under the I.T. Act. The A.O. did not accept the contention of assessee-company. The assessee had debited the expenditure i.e., the amount for which it
16 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. has been quantified without any basis. The expenditure on this account may increase or decrease, as such the same amount of loss is not ascertained. The A.O. accordingly added the same. The draft order was sent to assessee. The assessee-company filed objections before DRP, however, the DRP confirmed the addition on the reasons that these expenses are calculated merely on estimate. The Tribunal however, vide Order dated 11.12.2012 restored the matter back to the file of DRP for reconsideration. The A.O. in view of the directions of the DRP dated 21.03.2014 made the addition accordingly.
8.1. It may be noted that the DRP in this matter has again examined the issue and the A.O. requested the assessee-company to furnish details/sufficient evidences. However, the claim of assessee-company remain unsubstantiated. The DRP noted that it is not known as to how the foreseeable loss have been calculated and what was the justification for making assumption of various accounts. It is noted that it is trite law that the loss has to be 17 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. specifically ascertainable. It was noted that for claiming deduction under section 37 of the I.T. Act, assessee shall have to prove that expenses have been incurred wholly and exclusively for the purpose of business. Therefore, notional loss could not be allowed unless it is crystallized. The DRP was, therefore, of the view that claim of assessee-company on this count is made merely on estimate. Moreover, if the taxpayer incurred such loss in a project, the same would be allowed to it in the assessment year when the loss is actually crystallized and such event has not taken place in the assessment year under appeal. The DRP accordingly upheld the addition.
After considering the rival submissions, we do not find any merit in this grounds of appeal of assessee. Learned Counsel for the Assessee merely submitted that assessee has given treatment in the accounts as per Accounting Standard-7 issued by ICAI. However, Learned Counsel for the Assessee was not able to rebut the findings of the DRP in this regard. It is not in dispute that the claim
18 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. was made on mere estimate. It was also not disputed that the loss have not actually been crystallized during the assessment year under appeal. It is also not explained as to how the foreseeable loss have been calculated and what was the justification. It is well settled law that if assessee would have incurred actual loss, then the same would be allowed in the year when such loss have been incurred and crystallized. The DRP has specifically noted that even the loss have not taken place in assessment year under appeal. These findings of the authorities below have not been rebutted by the assessee through any evidence or material on record. Therefore, mere making a claim on account of foreseeable loss on estimate is not an allowable deduction under the Act. We, therefore, confirm the findings of the authorities below and dismiss Ground Nos. 11 to 13 of the appeal of assessee.
On Ground No.14, assessee challenged the disallowance of Rs.58,417/-. Ground No.14 reads as under 19 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon.
“14. The learned AO/ DRP erred in making disallowance of Rs.58,417/- in relation to sundry balances written off during the year, even though the same is allowable under section 37 (l) of the Act.”
The A.O. noted that assessee-company has debited expenditure of Rs.58,417/- towards sundry balance written off under the Head “Other Expenses”. The assessee - company was asked to give the details of such expenses. No reply in this regard have been submitted by assessee. Therefore, amount were disallowed. The draft order was sent to assessee-company. The assessee-company filed its objections before the DRP, but the Order of the A.O. was confirmed on the reasons that the amount is incurred on salary advance and other payments. Therefore, same are not in the nature of trading loss and also of bad debts. However, the Tribunal restored the matter back to the file of DRP for considering the issue afresh. The DRP noted in their findings that amount have been incurred on salary advance
20 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon. and other payments which are neither in the nature of trading loss nor bad debts, therefore, Order of the A.O. was found correct.
After considering the rival submissions, we do not find any merit in this ground of appeal of assessee. The assessee at the initial stage could not file any reply on this issue. The DRP has given a specific finding that this amount have been incurred on salary advance and other payments which are neither in the nature of trading loss nor the bad debts. Learned Counsel for the Assessee have not been able to point-out any infirmity in the findings of the DRP. Therefore, ground No.14 of appeal of assessee is dismissed.
13. With respect to Ground No.15, i.e., initiation of penalty proceedings under section 271(1)(c) of the I.T. Act, is premature and is accordingly dismissed.
In the result, appeal of Assessee is dismissed.
21 ITA.No.3813/Del./2014 CEC International Corporation (India) Private Limited, Gurgaon.
Order pronounced in the open Court.