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Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
Before: SHRI G.S.PANNU & SHRI AMARJIT SINGH
ORDER PER G.S.PANNU,A.M:
The captioned appeal filed by the assessee pertaining to assessment year 2008-09 is directed against an order passed by CIT(A)-15, Mumbai dated 10/10/2013, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 13/02/2012.
The Grounds of appeal raised by the assessee read as under:-
1 Addition on account of reimbursement of expenses to AE as per order of Transfer Pricing Officer:
(i) The Ld. CIT (A) erred in law and facts in upholding order of Transfer Pricing Officer (TPO)/AO making adjustment of Rs. 2,26,10,000/- to income on account of reimbursement of expenses to AE by determining ALP at Rs. Nil. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law. (ii) The CIT (A) erred in law and facts in upholding order of Transfer Pricing Officer (TPO)/AO treating reimbursement of expenses as payment for services rendered by AE. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law. (iii) The CIT (A) Ld. ought to have held that there is no need to find ALP of reimbursement of expenses as there is no income content and it has not resulted into any direct or tangible benefit to the assessee. (iv) Without prejudice to the above, the Ld. CIT (A) ought to allowed deduction of 5% from arm's length price under proviso to section 92C(2) of the Act. (v) The Ld. CIT (A) erred in law and facts in upholding order of Ld. AO alternatively disallowing reimbursement of expenses u/s 40 (a)(ia) of the Act for non- deduction of TDS . The reasons given by him for doing so are wrong, contrary to the facts of the case and against provisions of law. 2 Disallowance u/s 14 A The Ld CIT (A) erred in law and facts in upholding further disallowance of Rs. 10,03,074/- out of expenses u/s 14A of the Act with reference to investment made in subsidiary companies in addition to Rs. 1,99,041/- disallowed by the assessee in the return of income. The reasons given by him for doing so are wrong and contrary to the facts of the case and against the provisions of law.
In this appeal, assessee has raised two issues, which we shall deal in seriatim. In so far as the first issue is concerned, the same relates to an addition of Rs.2,26,10,000/- made to the returned income. In this context, the brief facts are that the assessee had entered into an international transaction within the meaning of section 92B of the Act on account of reimbursement of expenses of Rs.2,26,10,000/- of its associated enterprise, M/s.Kuoni Travel Holdings Ltd., Switzerland. Before the Transfer Pricing Officer, assessee explained that the said amount was paid on account of FITA ( Future Business and IT Architecture). The Transfer Pricing Officer considered the details and submissions put-forth by the assessee and observed that the assessee had neither proved that such services were essential for its business nor that any services had indeed been rendered by the associated enterprise. Considering that assessee was not able to prove that the services have resulted into any direct or intangible benefit, the Transfer Pricing Officer concluded that there was “no need to find the arm’s length value” of such transaction. The Transfer Pricing Officer proceed to determine the arm's length price at nil vide his order dated 27/10/2011 passed under section 92CA(3) of the Act. The Assessing Officer passed the assessment order under section 143(3) of the Act by adding a sum of Rs.2,26,10,000/- to the returned income in conformity with the order passed by the Transfer Pricing Officer. Additionally, the Assessing Officer also noted that assessee had not deducted the requisite tax at source on such payment and therefore, the corresponding expenditure was also to be disallowed under section 40(a)(i) of the Act. The Assessing Officer has observed that in case the adjustment made by the Transfer Pricing Officer was not ultimately sustained, the amount would continue to be disallowed in terms of section 40(a)(i) of the Act. The CIT(A) has sustained the stand of the Assessing Officer, against which assessee is in further appeal before us.
Before us, assessee has made twin arguments. Firstly, it is canvassed that the Transfer Pricing Officer exceeded his jurisdiction in observing that the assessee was not able to prove rendering of any services by the associated enterprise, inasmuch as such a test was relevant for the purposes of section 37(1) of the Act, which could only be done by the Assessing Officer and in support of the said proposition, he has relied upon the judgment of the Hon'ble Bombay High Court in the case of CIT vs. M/s. Lever India Exports Ltd., 1306 of 2014 & Others dated 23/01/2017, copy of which has been placed on record. On this aspect, it was contended that the issue at hand may be sent back to the file of Assessing Officer to verify the allowability of expenditure under section 37(1) of the Act after providing an opportunity of being heard to the assessee.
4.1 In so far as invoking of section 40(a)(i) of the Act by the Assessing Officer is concerned, the only plea raised before us is that in the subsequent year assessee has deducted the requisite tax at source and, therefore, such sum would become allowable in the subsequent year. In this back ground, the Ld. Representative for the assessee submitted that the assessee has no objection if the invoking of section 40(a)(i) of the Act by the Assessing Officer is upheld in this year, but he contended that the Assessing Officer be directed to verify the subsequent deduction of tax at source and accordingly allow deduction in the subsequent year.
The Ld. Departmental Representative has relied upon the orders of the authorities below in support of the case of the Revenue. So however, with regard to the plea of the assessee for verification of the claim for deduction in subsequent year is concerned, the same has not been opposed.
We have carefully considered the rival submissions. In this case, section 40(a)(i) of the Act has been invoked to disallow the expenditure on the ground that the requisite tax has not been deducted. The plea of the assessee is that in the subsequent year the requisite tax has been deducted and, therefore, the expenditure may be allowed as deduction in the subsequent year. In view of the aforesaid submission, the action of the Assessing Officer in disallowing the expenditure in this year by invoking of section 40(a)(i) of the Act is hereby upheld and it is further directed that the claim of the assessee for deduction in the subsequent year be examined as per law. 6.1 In view of the aforesaid, we find no reason to adjudicate on the controversy regarding determination of the arm's length price at nil, since it would make no difference to the assessed income, inasmuch as, the said expenditure is otherwise disallowable under section 40(a)(i) of the Act even going by the stand of the assessee.
6.2 Thus, on the first issue, assessee succeeds for statistical purposes only.
The only other issue in this appeal is that the disallowance made by the Assessing Officer under section 14A of the Act at Rs.12,02,115/- as against of a sum of Rs.1,99,041/- suo-moto disallowed by the assessee. In this context, relevant facts are that the Assessing Officer computed the disallowance under section 14A of the Act by applying Rule 8D(2)(iii) of the Income Tax Rules, 1962( in short ‘the Rules’) at Rs.12,02,115/-. The said action has also been affirmed by the CIT(A).
Before us, the short point raised by the assessee is based on the decision of the Tribunal in the case of M/s. Dish TV India Ltd. vs. ACIT, A.Y 2008-09 & 2009-10 dated 20/12/2016, whereby it is canvassed that disallowance be recomputed by excluding the Strategic Investments made by the assessee in its subsidiaries. On this aspect, the Ld. Departmental Representative had no objection and accordingly, the matter is restored back to the file of Assessing Officer to re-work the amount disallowable under section 14A of the Act by excluding the value of Strategic Investments comprised in the total investments. Thus, on this aspect also assessee succeeds for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes, as above.