DCIT, CHENNAI vs. M/S. BIMETAL BEARINGS LTD., COIMBATORE

आयकर अपील�य अ�धकरण, ‘‘सी’’ �यायपीठ, चे�नई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी ए. मोहन अलंकामणी, लेखा सद�य एवं �ी धु�वु� आर.एल रे�डी, �या�यक सद�य के सम� Before Shri A. Mohan Alankamony, Accountant Member & Shri Duvvuru RL Reddy, Judicial Member आयकर अपील सं./I T.A. No. 2111/Mds/2016 �नधा�रण वष�/Assessment Year:2011-12 M/s. Bimetal Bearings Ltd., The Deputy Commissioner of 18, Race Course Road, Vs. Income Tax, Coimbatore 641 018. Large Taxpayer Unit II, [PAN:AAACB2036Q] Chennai 600 101.

(अपीलाथ� /Appellant) (��यथ�/Respondent) आयकर अपील सं./I T.A. No. 2357/Mds/2016 �नधा�रण वष�/Assessment Year:2011-12 The Deputy Commissioner of M/s. Bimetal Bearings Ltd., Income Tax, Large Taxpayer Unit 2, 18, Race Course Road, Vs. Chennai 600 101. Coimbatore 641 018. (अपीलाथ� /Appellant) (��यथ�/Respondent) Assessee by : Shri R. Vijayaraghavan, Advocate Department by : Shri A.V. Sreekanth, JCIT सुनवाई क� तार�ख/ Date of hearing : 25.04.2017 घोषणा क� तार�ख /Date of Pronouncement : 28.06.2017 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: These cross appeals filed by the assessee as well as Revenue are directed against the order of the Commissioner of Income Tax (Appeals) 17,

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Chennai dated 30.03.2016 relevant to the assessment year 2011-12. The only effective ground raised in the appeal of the assessee is that the ld. CIT(A) has erred in confirming the disallowance of a sum of ₹.4,82,481/- as provisions of contingent in nature for incentive on coupon on sales of bearings. The effective ground taken in the appeal of the Revenue is that the ld. CIT(A) has erred in directing to allow the reimbursement of London office expenses.

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Amalgamations Pvt. Ltd. for share of London office expenses, the ld. CIT(A) has directed the Assessing Officer to allow the expenses, against which the Revenue is in appeal before the Tribunal. With regard to the issue of provision for incentive on coupon on sales of bearings, the ld. CIT(A) has confirmed the disallowance, against which the assessee is in appeal before the Tribunal.

4.1 Before us, the ld. Counsel for the assessee has submitted that as per Notification No. S.O. 69(E), dated 25.01.1996 given under section 145(2) of the Act in respect of Accounting Standard to be followed by all assessees following mercantile system of accounting. Clause 4(i) of this notification states as under: “Prudence – Provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information.” Since the assessee has been followed Clause 4(i) of the above notification, the ld. Counsel for the assessee has submitted that the amount cannot be disallowed under contingent nature and prayed that the disallowance made on this account should be deleted.

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4.2 Per contra, the ld. DR has submitted that the claim of the assessee is a mere provision, which was nothing but a contingent liability as on 31.03.2011 in the books of the assessee and therefore, the same cannot be allowed as deduction. Thus, the above provision cannot be allowed as deduction being contingent in nature.

4.3 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. Admittedly, the assessee has not incurred the discount coupon expenses of ₹.4,82,418/- and merely created a provision. After considering the above notification of the CBDT and its content as reproduced hereinabove, the Assessing Officer has observed that it was nothing but a contingent liability as on 31.03.2011 and cannot be allowed as deduction. The ld. CIT(A) has also considered the provision as a contingent liability and confirmed the disallowance. The mere provision created by the assessee was actually not incurred by the assessee and the same does not constitute as an expenditure and therefore, the same cannot be subject matter of deduction, as expenditure which was deductible for Income Tax purposes towards a liability actually the assessee has not incurred even though the assessee follows mercantile system of accounting. When the assessee was following mercantile system of accounting, the liability of the assessee is crystallized and therefore, mere provision cannot be held as an ascertained liability and the same is nothing but contingent

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liability, which cannot be allowed as deduction in the relevant assessment year. Accordingly, we are of the considered opinion that the ld. CIT(A) has rightly confirmed the disallowance made on this account. Thus, the ground raised by the assessee is dismissed.

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the Assessing Officer was not justified in invoking the provisions of section 40(a)(ia) of the Act and disallowing the above expenses and directed to allow the reimbursement of London.

5.1 The ld. DR has submitted that the assessee has paid the amount to another Indian company and not to anyone in London and therefore, the TDS to the said amount is very much warranted and pleaded that the order of the ld. CIT(A) should be reversed and restored that of the Assessing Officer.

5.2 On the other hand, the ld. Counsel for the assessee has vehemently argued that if the holding company incurred expenses on behalf of the subsidiary company, the subsidiary company is required to reimburse such expenditures and submitted that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for assessment years 2005-06 & 2006-07 and prayed that the same should be followed for the assessment year under consideration.

5.3 We have heard the rival contentions and perused the decision in assessee’s own case for the assessment years 2005-06 and 2006-07 in I.T.A. Nos. 89 & 90/Mds/2015 dated 22.05.2015, wherein, the Coordinate Benches of the Tribunal has observed and held as under: “6. The next issue in both the appeals of the Revenue is that Commissioner of Income Tax (Appeals) erred in directing the

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Assessing Officer to delete disallowance made under section 40(a)(i) in respect of the amounts paid by the assessee to M/s. Amalgamation Pvt. Ltd. The Assessing Officer while completing the assessment noticed that assessee made certain payments to M/s. Amalgamation Pvt. Ltd. and no TDS was deducted on such payments and therefore proposed to disallow the said payments under section 40(a)(i) of the Act. In the course of assessment proceedings, assessee submitted that amounts paid to M/s. Amalgamation Pvt. Ltd. were reimbursement of expenses made by the assessee. The expenses were incurred on behalf of the assessee by M/s. Amalgamation Pvt. Ltd., therefore such expenses were reimbursed and the provisions of TDS have no application. 7. On appeal, Commissioner of Income Tax (Appeals) deleted the disallowance against which Revenue is in appeal before us. 8. Departmental Representative vehemently supports the orders of Assessing Officer in invoking the provisions of section 40(a)(i) of the Act on the payments made to M/s. Amalgamation Pvt. Ltd. for non- deduction of TDS and disallowing the same. 9. Counsel for the assessee submits that these expenses are only reimbursement of expenses made to M/s. Amalgamation Pvt. Ltd., which is a holding company as that company had incurred expenses. Counsel for the assessee submits that holding company incurred expenses on behalf of the subsidiary company and subsidiary company reimbursed the such expenditure. He submits that M/s. Amalgamation Pvt. Ltd. which is a holding company incurred expenses towards rent, salary office facilities, travelling & secretarial services and these expenses were borne by the subsidiary company according to the services rendered by them and their office expenses were allocated based on the turnover. Therefore since the amounts represent reimbursement of expenses TDS provisions have no application. Therefore counsel submits that order of the Commissioner of Income Tax (Appeals) may be sustained. 10. Heard both sides. Perused orders of lower authorities. The Commissioner of Income Tax (Appeals) has considered the issue as to whether TDS provisions have application to the amounts paid to M/s. Amalgamation Pvt. Ltd. or not in para 5.1 & 5.2 of his order observing as under:- “5.1 The Id.AR contested as under:

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"The Amalgamation Pvt. Ltd pays the representative who acts on behalf of the participating group company's representative office at London. The total expenditure on the expenditure including rent, office facilities etc. incurred for the purpose of export promotion of products offered by the participating companies in the group during that year. The assessee is one of the participating companies in that group. It is submitted that entire amount has been paid to Amalgamation Ltd which pays to a person outside India who is a non resident. Therefore, the provision of the Indian Income Tax Act does not apply and therefore, no TDS has to be deducted by the assessee. As per explanation 1 to section 9 (1)(b), no income shall deem to accrue or arise in India to a non resident. It is an established principle of law that the TDS has to be deducted only in cases where the tax is payable and not otherwise. Once the tax liability does not exist, the question of deducting TDS does not arise. The assessee relies upon the decision of the CIT(A) in the assessee's sister concern in the case of I.P Rings in ITA No.523/06-07 for the AY 1999-2000 against which the department has not filed any appeal to the tribunal. " 5.2 I have gone through the facts and circumstances of the case. It is understood from the facts of the case that Amalgamation Pvt Ltd is a holding company under which several other group companies are working. Whatever expenditure is incurred by the holding company in London to share the office space, advertisement expenses, travelling, telephone charges etc., are being shared by all of them as per the understanding they had with the holding company. The share of expenditure paid by the subsidiary companies are in the form of reimbursement of expenditure incurred by the holding company on behalf of subsidiary companies. Since the reimbursement of expenditure by the holding company is not leading to any accrual of income in the hands of that company, the question of making TDS on such income does not arise. Further the amounts paid outside India in the instant case are not falling under either royalty, interest or fee for technical services, therefore they are not chargeable to tax in India. The

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decision of the Hon'ble Supreme Court in the case of G.E. India Technology Centre P Ltd, 327 ITR 456 (SC) (2010) comes to the rescue of the appellant. Furthermore, my Id. predecessor has allowed such claim in his order vide ITA No. 523/06-07/A. III dated 14.7.2010 in the case of another group concern I.P. Rings Ltd for A.Y. 99-2000 for similar payments made to Amalgamations P Ltd. In view of the above discussion, the disallowance u/s 40(a)(i) is not called for. The AO is directed to withdraw the disallowance. The ground is allowed.” 11. On going through the order of the Commissioner of Income Tax (Appeals) we do not find any valid reason to interfere with the findings of the Commissioner of Income Tax (Appeals) in deleting the disallowance and therefore uphold his order on this issue.” 5.4 The ld. DR could not controvert the above findings of the Tribunal. Hence, respectively following the decision of the Coordinate Benches, we find no infirmity in the order passed by the ld. CIT(A) and the ground raised by the Revenue is dismissed.

Sd/- Sd/- (A. MOHAN ALANKAMONY) (DUVVURU RL REDDY) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 28.06.2017 Vm/- आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant, 2.��यथ�/ Respondent, 3. आयकर आयु�त (अपील)/CIT(A), 4. आयकर आयु�त/CIT, 5. �वभागीय ��त�न�ध/DR & 6. गाड� फाईल/GF.