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Income Tax Appellate Tribunal, DELHI BENCH “C” NEW DELHI
Before: SHRI S.V. MEHROTRA : & SHRI C.M. GARG :
Appellant by : Shri Manoneet Dalal Adv. & Sh. Yishu Goel Adv. & Sh. Siddharth Nautiyal CA Respondent by : Shri Anuj Arora CIT(DR) Date of hearing : 25/07/2016. Date of order : 29/07/2016. O R D E R PER S.V. MEHROTRA, A.M:
This is assessee’s appeal against the assessment order dated 01.10.2010 passed u/s 143(3) r.w.s. 144C(1) of the I.T Act, 1961. Grounds of appeal raised by the assessee are as under:
1. That the assessing officer erred on facts and in law in computing the income of the appellant for the relevant assessment year at Rs.92,15,592/- as against income of Rs.64,56,352/- returned by the appellant.
2. That the assessing officer erred on facts and in law in restricting the claim of deduction on account of fees paid to travel guides to Rs. 1,00,,65,288/- as against Rs. 1,05,95,040/- claimed by the appellant, alleging that the appellant failed to substantiate the aforesaid claim.
3. That the assessing officer erred in disallowing deduction of Rs.22,29,488/-, being salary paid to employees of the head office, alleging that the appellant failed to substantiate the aforesaid claim.
4. That the assessing officer erred on facts and in law in charging interest under section 234B of the Act.
Brief facts of the case, as obtaining from the assessment order, are as under:-
2.1. Intrepid India branch started operation in August 2006, after approval from the Reserve Bank of India, with the objective of providing travel and tourism related services in India. As part of its services, Intrepid India branch office provides coordination and support services to its Head Office, Intrepid Australia, in respect of the tours operated by it for customers of Intrepid Australia. 2.2. The support services include attending to the administration and coordination of the torus by arranging for hotel accommodation, travel, transport, tour guides, and other such travel related activities, for the itineraries organized by Intrepid ill India. 2.3. Intrepid focuses on a niche style of travelling in which travelers experience the local public transport for commuting, small-scale locally- owned establishments for lodging and eating, travelling in small groups while still maintaining high "travelling" standards. Thus, Intrepid is apposite for travelers who are gallant and want to become a part of new destinations rather than only visiting them.
2.4. Intrepid Travel PTY LTD has tie-ups with various local contractors who assist Intrepid 'in organizing the tours for its travelers. Intrepid Travel PTY Ltd is incorporated in Australia and is resident of Australia for tax purposes. Intrepid India Branch Office is not claiming any benefit under DTAA. Intrepid Travel PTY Ltd does not have liaison office in India.
Intrepid Travel PTY Ltd Australia, has 'a wholly owned subsidiary company incorporated in India "Intrepid Tours and Travel India Pvt. Ltd". The subsidiary did not do any business in AY 2007-08.
The assessee had filed return of income declaring income of Rs. 64,56,352/-. The AO noticed that assessee had claimed an expenditure of Rs. 25,47,913/- under the head “salary & wages” in the month of March 2007 out of total salary of Rs. 45,41,986/-. In response to AO’s show cause notice, the assessee replied as under:
“the salary of Rs. 2.547.913 booked in the month of March. 2007 includes a cross charge of Rs. 2.229.488/- from Intrepid Travel Australia Pty Ltd {'Head Office') an account of salary cost of employees working for the assessee. It is submitted that the subject year being the first year of Indian branch office operations. the Head Office had deputed few of its employees in India for providing assistance for starting up the operations in India. The employees of the Head Office had visited India and had provided training to new recruited employees in India, assisted in making them understand the norms/policies of the Head Office. etc. The salary cost of these employees was paid by the Head Office, which was later cross charged to the Branch Office on a cost-to-cost basis in the month of March. 2007...” 3.1. The AO noticed that the assessee furnished the names of five persons to whom the payments had been made but no details as to their visit to India and period of their stay in India was given. The AO disallowed the assessee’s claim, inter alia, observing as under:
“Even if the amount is charged by Head Office and which was later cross charged to branch office in month of March 2007, these details needed to be furnished but inspite of opportunity given this has not been done. Assessee has simply furnished that it has deducted tax at source and deposit the same but requisite details/ evidence have not been filed. As such in the absence of any cogent evidence in this regard, this expenditure cannot be allowed and this will be added to the income of the assessee”. 3.2. This order was passed in pursuance to the directions of ld. DRP vide order dated 27.9.2010, wherein in para 4, ld. DRP had observed as under:
“The details filed by the AR includes the scope of work carried on by the employees, their names, the TDS challan of Rs.
7,03,643/- dated: 30.10.2007. The AR has submitted that the head office deputed five employees to assist the BO for starting his operation as this was the first year of operation. The scope of work included training to the employees of the BO, sharing of experience, apprising them of company's objects etc. However as ~ mentioned by the AO in the draft order no details regarding the dates, period of their stay in India, the basis of allocation of salary to the BO etc. are filed. In the absence of these details the action of AO in disallowing these expenses is found to be in order and hence assessee's objection is rejected”.
Ld. counsel for the assessee submitted that assessee debits the salary in its books of a/c which is paid to employees and the same is reimbursed to assessee on cost + 5% basis. Therefore, the assessee’s revenue primarily depends upon the services rendered by it and, therefore, revenue earned by it is directly proportional to the services rendered by it. He submitted that all these aspects have not been examined by AO.
Ld. CIT(DR) submitted that assessee has not provided any details before the lower revenue authorities and, therefore, the disallowance was rightly confirmed.
We have considered the submissions of both the parties and have perused the record of the case. We have reproduced earlier the replies of assessee and the findings of AO, including that of DRP from which it is evident that the disallowance has been made primarily on the ground that details were not completely furnished by assessee. Further, the assessee’s plea of obtaining more and more revenue on account of rendering of services, as noted earlier, has not been considered by lower revenue authorities. Under such circumstances, we set aside the order of AO and restore the matter back to the file of AO for passing de novo assessment order, without being influenced by any observations made by us earlier.
In the result, assessee’s appeal stands allowed for statistical purposes only.
Order pronouncement in open court on 29/07/2016.