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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEYAND SHRI M. BALAGANESH
Date of Hearing – 16.09.2019 Date of Order – 06.12.2019
2 Mindset Estates Pvt. Ltd. O R D E R PER SAKTIJIT DEY. J.M.
The captioned appeal has been filed by the assessee assailing the order dated 22nd February 2019, passed by the learned Commissioner of Income Tax (Appeals)–57, Mumbai, for the assessment year 2014– 15.
./2019 Assessee’s Appeal
In ground no.1, the assessee has challenged the addition of ` 4,45,93,493, received through reimbursement of expenses as fee for technical services.
Brief facts are, the assessee, a foreign company, is a tax resident of United Kingdom(UK). The assessee is engaged in the business of providing engineering services. For the assessment year under dispute, the assessee filed its return of income on 28th November 2014 declaring nil income. In the course of assessment proceedings, the Assessing Officer on verifying the material on record found that during the year under consideration, the assessee had received an amount of ` 4,45,93,498, from Jacobs Engineering India Pvt. Ltd. (JEIPL) towards reimbursement of expenses. Stating that the reimbursement of expenses was received on cost to cost basis without any mark–up, the assessee claimed it as not taxable in India. While verifying assessee’s
3 Mindset Estates Pvt. Ltd. claim, the Assessing Officer called upon the assessee to furnish the details of such expenses and also to explain why the payment should not be treated as fee for technical services (FTS)/fee for included services (FIS). In reply, it was submitted that out of the reimbursement of expenses aggregating to ` 6,68,30,679, the assessee has offered an amount of ` 2,22,37,186 to tax in India and has not offered the balance amount as it is not taxable in India. In further submissions made before the Assessing Officer, the assessee furnished more details relating to the payment received and submitted that the amount received being purely in the nature of reimbursement on cost to cost basis without any mark–up, cannot be treated as FTS/FIS. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed, the amount of ` 4,45,93,493 received from JEIPL was stated to be representing the amount of VAT paid in UK by the assessee as per UK VAT laws on towards services rendered by JEIPL to its UK clients. It was submitted, the aforesaid payment was made by the assessee on behalf of JEIPL for administrative convenience which was reimbursed by JEIPL. The Assessing Officer observed, the claim of the assessee is not acceptable as the assessee failed to substantiate the genuineness of such claim by furnishing the details and nature of service provided towards such payment. The Assessing Officer observed, as per the existing agreement between the assessee and JEPIL, all payments received are 4 Mindset Estates Pvt. Ltd. of the nature of FTS/royalty. He observed, no details/evidences were furnished by the assessee which can prove that the assessee had incurred VAT payment on behalf of JEIPL in UK. Thus, ultimately, the Assessing Officer treated the payment received from JEIPL as royalty/FTS and added to the income of the assessee. Though, the assessee challenged the aforesaid addition before learned Commissioner (Appeals), however, it was unsuccessful.
Drawing our attention to the submissions made before learned Commissioner (Appeals), the learned Authorised Representative submitted, learned Commissioner (Appeals) has completely misconceived the facts while observing that the assessee had filed additional evidence without making any application for their admission. The learned Authorised Representative submitted, the assessee has not furnished any additional evidence before the first appellate authority which were not produced before the Assessing Officer. He submitted, only those evidences which were furnished before the Assessing Officer were filed before learned Commissioner (Appeals). He submitted, without properly verifying assessee’s submissions and facts and material on record, learned Commissioner (Appeals) has sustained the addition on factual misconception. He submitted, though, the assessee has filed a application under section 154 of the Act before learned Commissioner (Appeals) pointing out the aforesaid mistake in her order, however, the said application is still pending.
5 Mindset Estates Pvt. Ltd. Thus, he submitted, the issue may be restored back to the Assessing Officer for de novo adjudication after considering the evidences filed by the assessee.
We have considered rival submissions and perused the material on record. As could be seen from the facts emanating from record, before the Assessing Officer assessee has claimed that the amount of ` 4,45,93,493, received by the assessee from JEIPL is reimbursement of expenses on cost to cost basis. The assessee has further explained that it has paid VAT on behalf of JEIPL under the UK VAT laws towards services rendered by JEIPL in UK. It is observed, the Assessing Officer has rejected the aforesaid claim of the assessee alleging non– furnishing of supporting evidence. However, it is evident, the Assessing Officer has not given a clear cut finding as to whether the amount received by the assessee is in the nature of FTS or royalty. The Assessing Officer certainly cannot treat the payment made both as FTS and royalty. In any case of the matter, the claim of the assessee that the payment received by it is in the nature of cost to cost reimbursement towards VAT paid on behalf of the JEIPL in UK requires factual verification. If the assessee through proper documentary evidences can establish this fact, then, there is no reason why its claim should not be accepted. Notably, learned Commissioner (Appeals) while sustaining the addition has observed that the assessee has filed
6 Mindset Estates Pvt. Ltd. certain additional evidences without making any application for admission of such evidences. To counter the aforesaid observation of learned Commissioner (Appeals), the learned Authorised Representative has asserted before us that no additional evidence, whatsoever, was filed. In fact, our attention has been drawn to application dated 18th March 2019, purportedly filed under section 154 of the Act before learned Commissioner (Appeals) seeking rectification of the order. It is submitted before us that the said application is still pending. Therefore, considering the submissions of the learned Authorised Representative in the context of facts and material on record, we are inclined to restore the issue to the Assessing Officer for de novo adjudication after considering the evidences filed/to be filed by the assessee to demonstrate that the payment received is not in the nature of FTS/royalty and is only reimbursement of expenditure on cost to cost basis. Needless to mention, the Assessing Officer must afford reasonable opportunity of being heard to the assessee before deciding the issue. Grounds no.1 to 6, are allowed for statistical purposes.
In grounds no.7 and 8, the assessee has challenged levy of interest under section 234A of the Act.
It is the say of the assessee that since the return of income was filed within the due date as prescribed under section 139(1) of the Act,
7 Mindset Estates Pvt. Ltd. there is no question of levy of interest under section 234A of the Act. In our view, the aforesaid issue also needs re–consideration by the Assessing Officer. Accordingly, we direct the Assessing Officer to examine assessee’s claim/contention with regard to levy of interest under section 234A of the Act.
In the result, appeal is allowed for statistical purposes.
S.A no.270/Mum./2019
In view of our decision in assessee’s appeal as aforesaid, the stay application having become infructuous is dismissed.