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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI AMARJIT SINGH, JM
आदेश / O R D E R Per AMARJIT SINGH (JUDICIAL Member) 1. The captioned appeal by assessee for Assessment Year [AY] 2005-06 assails the order of the Ld. Commissioner of Income-Tax (Appeals)- 57 [CIT(A)], Mumbai dated 10/12/2014 for the relevant A.Y. 2005-06. 2. The assessee has raised the following grounds: - 2 1263/M/2015 A.Y.2005-06 “1. Under the facts and circumstances of the case and in law, the Ld. CIT(A) (Ld. CIT(A)) has erred in upholding the addition made by the Ld. Assessing Officer (Ld. AO) which was in turn based on the proposed adjustment by the TPO (Transfer Pricing Officer) for Rs.7,40,53,793/- under the provisions of section 68 of the Income Tax Act, 1961.
2. Under the facts and circumstances of the case and I law, the Ld. CIT(A) has erred upholding the disallowance of the entire expenses of Rs.1,17,12,308/-.
3. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition made on account of decrease of Rs.89,342/- in the current liability and treating the same as the income of the appellant company.
4. Under the facts and circumstances of the case and in law the Ld. CIT(A) has erred in upholding the levy of interest under section 234B and 234C of the Act and initiation of penalty under section 271(1)(c) of the Act.”
3. The brief facts of the case are that the assessee filed its return of income on 27.10.2005 declaring loss to the tune of Rs.3246982/-. The return was processed u/s.143(1) on 06.12.2006. The case was selected for scrutiny, therefore, the notice u/s.143(2) was issued and served upon the assessee on 01.08.2006. Further notice u/s.142 dated 21.08.2007 was issued and served upon the assessee. The assessee is a company incorporated in Denmark and was executing a project in India for the rehabilitation of sewage lines using lining coating method at various locations in Mumbai under a contract with Municipal Corporation of Greater Mumbai (MCGM). It had set up its project office in Mumbai in August 2008 for the purpose of executing the project. The contract provides for the payment to be made partly in Indian Rupees and partly in Euros. The rupee portion was received by the Mumbai project office whereas the foreign currency portion was remitted by the MCGM directly to the head office of Per-Aarself in Denmark. The income of the project office which was disclosed in the return of income and was subject to tax consist of both the rupee portion as well as Euro portion. Any payment made by the head office on behalf of project office was made from the amount received by it directly from MCGM which was subject to tax in India. It was seen from the Form no. 3CEB with the return of income that the value of international transaction was in excess of Rs.5 crores and therefore, required to be examined by the TPO for computation of Arm Length Price. In Form 3CEB report submitted by the assessee along with return of income and 3 1263/M/2015 A.Y.2005-06 amount of Rs.7,40,53,793/- has been shown to be paid to the Head office on account of reimbursement towards payment made to the Head office to various international vendors on behalf of the project office. The TPO in his order u/s.92CA(3) has held that the assessee has not substantiated the services received for which the payment have been made to the head office. Accordingly, it has been held that the said payment was excessive and has to be adjusted on account of Arm Length Price. It was however observed that the assessee has not debited this amount to P&L Account, therefore, the criteria of receipt of service was irrelevant. However, the amount of Rs.7,40,53,793/- was added u/s 68. The assessee also claim the expenses of Rs.1,17,12,308/- but fail to produce the evidence, therefore, the same was added to the income of the assessee. In the balance sheet the assessee has shown the current liability to the tune of Rs.4,11,58,613/- as on 31.03.2004 and Rs.4,10,69,271/- as on 31.03.2005. It means the assessee has paid an amount of Rs.89342/-, therefore, the said amount was also added to the income of the assessee for want of evidences. The total income of the assessee was assessed to the tune of Rs.8,26,08,461/-. The assessee of the assessee was dismissed by CIT(A) with following observation: - “I have considered the facts of the case, submission of the appellant as against the findings/observations of the TPO/AO in their orders u/s 143(3) r.w.s. 92CA(3) of the I.T. Act. The contentions and submissions of the appellant are being discussed and decided here in under: The appellant has merely made his submissions with reference to the addition made by the AO observing that same could not be added u/s.
68. However, no evidence has been produced by the appellant in support of its contention. It would be further relevant to mention that as mentioned by assessing officer in para 8 of his order, the addition has been made also on the ground that the appellant failed to substantiate before the TPO the services received against the against the payment to its AE. The appellant has not made any submissions in this regard. Further as mentioned above, number of opportunities were allowed and even inspection of appellate folders and copies of relevant papers called for by the appellant were provided. In view of these facts I have no reason to deviate from finding given by the TPO/AO in their orders. Consequently, the adjustment of Rs.7,40,53,793/- made by TPO/AO is upheld. II. Ground no. 2 and 3 are therefore, dismissed.” Aggrieved, the assessee is in further appeal before us.
4 1263/M/2015 A.Y.2005-06 Ground No. 1:- 4. The ground no. 1 pertains to addition of Rs.7.42 crores being paid by the assessee to its AE in Denmark. The Ld. AR, by drawing our attention to the entries passed in assessee’ books, contended that impugned addition u/s 68 of the Act could not be made since there was no unexplained cash credit during the impugned AY. Our attention is drawn to the fact that the assessee has paid the outstanding amount to its Head Office against expenses incurred by the Head Office on behalf of the assessee in earlier years and therefore, Section 68 had no applicability. The Ld. AR contended that Section 68 could be applied only in the case where any unexplained cash credit was found credited during the impugned AY, which is not the case here. The relevant extract of the financial statements and entries passed in the books of the assessee has been produced before us.
Upon perusal of the same, it appears that the assessee has purchased material in AY 2003-04, the payment of which has been made by Head Office. The assessee has merely paid the same in impugned AY. The assessee has reconciled the balance of Head Office with the financial statements and placed on record relevant extract of the financial statement for various years. Therefore, finding strength in the arguments of Ld. AR, we send the issue back to the file of Ld. AO for verification of the entries and financial statements, as placed on record. This ground stands allowed for statistical purposes. Ground No. 2:- 6. The second issue pertains to expenses disallowance of Rs. 1,17,12,308/- as confirmed by Ld. CIT(A) by making following observations:- “I have considered the facts of the case, submissions of the appellant as again of the findings/observations of the AO in his order u/s 143(3) r.w.s. of the I.T. Act. The contentions and submissions of the appellant are being discussed and decided here in under: 1. The appellant claims that books of accounts were audited and hence the expenditure should have been allowed by the AO. In this regard it is mentioned that as categorically mentioned by the AO in para 10 of his order that no books of accounts bill/vouchers etc. were produced before him for 5 1263/M/2015 A.Y.2005-06 verification and hence the expenditure was disallowed for want of verification. I agree with the AO that unless the complete details were produced for verification, merely mentioning the facts that books were audited dies not serve any purpose. Further it is noted that the appellant proceedings has produced the copies of few pages from the some ledger wherein there is not during the course of appellate is no mention of even the appellant’s name nor same is authenticated by it or by the auditors. For salary expenses it has produced copy of trial balance in four pages 4 which does not serve any purpose. These documents have no evidentiary value since they are not authenticated and also since no supporting vouchers/bills are available as admitted by the appellant. As mentioned in point no 3 the appellant has expressed its inability to produce any further details and hence no cognizance of these papers can be taken. Accordingly, the disallowance of Rs.1,17,12,308/- made by the AO is upheld.
This ground of appeal
is therefore dismissed.”
7. The Ld. AR has submitted that the said expenses mainly comprised of Salary Expenses and foreign exchange loss on account of material consumed and therefore the disallowance thereof was not justified. It is also argued that the remand report speaks about the genuine expenses, therefore, these expenses are liable to be allowed in view of the law settled in CIT Vs. Ram Krishna Jewellers [2014] 52 taxmann.com 23 (Delhi) and ACIT, Cir -1 Vs. Ganpati Enterprises Ltd. [2013] 32 taxmann.com 262 (Delhi – Trib) and ITAT’s decision in & 2785/Del/2010 in case of Raj Kumar. In view of submissions made by Ld. AR which is evident from the remand report of Ld. AO in which it is specifically admitted by the AO that the entire amount was paid for salaries and the mode of payment was cheque. The tax was also deducted at source from the salary and TDS account copy forming part of ledger and audited books of accounts was produced. In view of the admission in the remand report and in view of the law relied by the AO (supra) we remit the matter back to the file of Ld. AO for verification of expenditure claimed by the assessee with a direction to the assessee to substantiate the same with documentary evidences. Resultantly, this ground of appeal stands allowed for statistical purposes. Ground No. 3:-