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Income Tax Appellate Tribunal, “L” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
PER SAKTIJIT DEY, J.M.
Aforesaid appeals by the assessee are directed against two separate orders passed by the learned Commissioner (Appeals)–21, Mumbai, pertaining to assessment years 2011–12 and 2012–13. 2. Grounds raised in both the appeals are identical except the figures. The common issue in dispute in both the appeals relates to disallowance made under section 40(a)(i) of the Income Tax Act, 1961 (for short “the Act”) in respect of recruitment fees paid to Icon Solutions FZE. Since, the issues in both the appeals are common and facts relating to the said issue are also common in both the years, for the sake of convenience, we will discuss the facts as involved in ITA no. 5202/Mum./2015, for the assessment year 2011–12.
3. Brief facts are, the assessee a company is engaged in the business of real estate development. In the course of assessment proceedings, the Assessing Officer noticed that the assessee has debited expenditure of ` 31,16,644, towards payment of recruitment fees to Icon Solutions FZE a tax resident of UAE. The Assessing Officer after calling for the necessary details relating to the expenditure claimed also required the assessee to show cause why the expenditure
3 M/s. Raghleela Leasing And Real Estate Pvt. Ltd. (Now merged with Wadhwa Group Holdings Pvt. Ltd.) should not be disallowed as the assessee has failed to deduct tax at source while making such payment. In response, it was submitted by the assessee that the payee was engaged for recruitment of a few high cadre executives required by the group for strategic posting in its growing reality business. It was submitted the payee recruited the personnel who were given appointment in the group companies and their salary was paid by the concerned group companies. In this respect the assessee furnished details of some of the employees recruited by them through the payee. It was submitted, as per mutual agreement between the assessee and the other group companies who recruited some of the employees, it was decided that the recruitment fees payable to the payee shall be borne by the assessee in lieu of services rendered by those employees. Thus, the payee raised the bill on the assessee and assessee paid it. It was submitted that the payment made to Icon Solutions FZE is in the nature of reimbursement to the Group companies for the services by their employees to the assessee. Further, it was submitted that the payee i.e., Icon Solutions FZE is a tax resident of UAE and as per Article–7 r/w Article–5 of India–UAE Double Taxation Avoidance Agreement (DTAA) business income of UAE resident can only be taxed in UAE if it has no Permanent Establishment (P.E) in India. Thus, it was submitted that the payment made is not subject to TDS under section 195 of the 4 M/s. Raghleela Leasing And Real Estate Pvt. Ltd. (Now merged with Wadhwa Group Holdings Pvt. Ltd.) Act, hence, no disallowance under section 40(a)(i) of the Act can be made. The Assessing Officer did not find merit in the submissions of the assessee and proceeded to disallow the payment made. While doing so, the Assessing Officer observed that the assessee failed to establish that it has received any services from Icon Solutions FZE and the payments made was for the purpose of business. Thus, he held that irrespective of the fact that the payment has to be disallowed under section 40(a)(i) of the Act for non deduction of tax, it has to be disallowed as it is not for the purpose of assessee’s business. Being aggrieved of such disallowance assessee preferred appeal before the first appellate authority. The learned Commissioner (Appeals) after considering the submissions of the assessee vis–a–vis facts and material on record observed that the evidences produced by the assessee in no way establish that services were provided to the assessee by Icon Solution FZE. He observed that the bills furnished by the assessee do not indicate who was recruited and whether any specific service was received by the assessee from any specific person recruited through Icon Solutions FZE. He observed, Forms no.15CA and 15CB only indicate that the remittances were made to Icon Solutions FZE but they do not reveal whether any services were received by the assessee. Thus, the learned Commissioner (Appeals) ultimately held that in the absence of any evidence furnished by the 5 M/s. Raghleela Leasing And Real Estate Pvt. Ltd. (Now merged with Wadhwa Group Holdings Pvt. Ltd.) assessee to prove that the payments made were in respect of services received by the assessee, the expenditure claimed cannot be allowed. Accordingly, he upheld the decision of the Assessing Officer. In view of the aforesaid finding, the learned Commissioner (Appeals) did not go into the issue of applicability of the TDS provision and disallowance made under section 40(a)(i) of the Act.
The learned Authorised Representative submitted that the claim of the assessee regarding receipt of recruitment services from Icon Solutions FZE was not properly appreciated either by the Assessing Officer or by the learned Commissioner (Appeals). The learned Authorised Representative submitted, before the Departmental Authorities documentary evidences were furnished to prove the fact that the payments made were for receipt of services. He submitted, if the Departmental Authorities still had doubt and wanted more evidence they should have called upon the assessee to furnish them. Without disclosing their doubts to the assessee the Departmental Authorities were not justified in disallowing the payment on the reasoning that the assessee failed to establish the expediency of such payment. Therefore, the learned Authorised Representative submitted that the issue may be restored back to the Assessing Officer for 6 M/s. Raghleela Leasing And Real Estate Pvt. Ltd. (Now merged with Wadhwa Group Holdings Pvt. Ltd.) enabling the assessee to remove the doubts by furnishing adequate evidences in support of its claim.
The learned Departmental Representative, though, relied upon the observations of the Assessing Officer and learned Commissioner (Appeals), however, he has no objection if one more opportunity is given to the assessee to prove his claim through proper documentary evidences.
We have considered rival submissions and perused materials on record. As could be seen from the facts on record, the Assessing Officer has disallowed the payment of recruitment fees amounting to ` 31,16,644 paid to Icon Solutions FZE on two grounds. Firstly, because the assessee failed to establish that such expenditure was for the purpose of assessee’s business and the assessee, in fact, has received services from Icon Solutions FZE necessitating such payment. Secondly, since, the assessee has not deducted tax under section 195 of the Act while making such payment, it has to be disallowed under section 40(a)(i) of the Act. The learned Commissioner (Appeals) has upheld the addition by accepting the reasoning of the Assessing Officer that the assessee has failed to prove that the payment made was for the purpose of assessee’s business. It is evident, the primary and fundamental reasoning on which the Departmental Authorities
7 M/s. Raghleela Leasing And Real Estate Pvt. Ltd. (Now merged with Wadhwa Group Holdings Pvt. Ltd.) disallowed the payment is, the assessee failed to prove through proper documentary evidence the fact that it has received any services from Icon Solutions FZE and such payment is for the purpose of assessee’s business. Thus, the disallowance made was due to lack of adequate documentary evidences furnished by the assessee to prove the business expediency of the expenditure. It has been submitted by the learned Authorised Representative that, given an opportunity, the assessee can prove the business expediency of the expenditure by furnishing proper documentary evidences. Considering the aforesaid submissions of the learned Authorised Representative we are inclined to remit the issue to the Assessing Officer for de novo adjudication after considering the evidences submitted by the assessee. The Assessing Officer must allow proper and reasonable opportunity to the assessee to support its claim by furnishing proper documentary evidences and shall decide the issue only after due opportunity of being heard to the assessee. It is also made clear, since, learned Commissioner (Appeals) has not decided the issue relating to applicability of section 40(a)(i) of the Act to the disputed payment, the said issue is also restored back to the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. Grounds raised are allowed for statistical purposes.
8 M/s. Raghleela Leasing And Real Estate Pvt. Ltd. (Now merged with Wadhwa Group Holdings Pvt. Ltd.) 5. Aforesaid decision of ours will apply mutatis mutandis to ITA no.32/Mum./2016.
In the result, both the appeals are allowed for statistical purposes. Order pronounced in the open Court on 13.06.2018