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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI ASHWANI TANEJA, AM (A.Y:2009-10) Dy. Commissioner of Income Tax M/s Emerson Process Management Room No.607, 6th Floor, India P Ltd Aayakar Bhavan, 601/602, B Wing, Delphi Bldg., Vs. 6th Floor, Powai, Mumbai-400020 Mumbai-400076 PAN No.AAACF1667M .. Appellant Respondent Revenue by .. Mr. Vishwas Mundhe, DR .. Shri. Dhanesh Bafna, AR & Assessee by Ms. Forum Mehta, AR Date of hearing .. 14-12-2016 Date of pronouncement .. 14-12-2016 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of the order of CIT (A)-06, Mumbai in appeal No. CIT (A)-6/IT.16/Rg.3(1)/13-14 dated 21-07-2014. The Assessment was framed by Dy. CIT (OSD)-3(1), Mumbai for the A.Y. 2009-10 vide order dated 04-03- 2013 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO of reimbursement expenses to Emerson Electric Company India P. Ltd. being excessive payment in respect to related parties u/s 40A(2)(b) of the Act and similarly applying the provision of Section 40(a)(ia) for non-deduction of Tax. For this Revenue has raised following two grounds: -.
“1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.99,57,3181-, being reimbursement of expenses to Emerson Electric Company India Private Limited, under a cost sharing arrangement, without appreciating the fact that payment were excessive in respect of the related parties within the provision of section 40A(2)(17) of the Income Tax Act, 1961.
2. On the facts and circumstances of the case and in law, the Ld. CITA) erred in deleting the addition of Rs.99,57,3181-, being reimbursement of expenses to Emerson Electric Company India Private Limited, under a cost sharing arrangement, without appreciating the fact that while making such payments the assessee has failed to deduct the taxes thereby, committed default within the meaning of section 40(a) (ia) of the Income Tax Act,1961.”
At the outset, the learned Counsel for the assessee stated that the AO has disallowed the expenses of Rs.99,57,318/- being reimbursement of expenses on sharing basis to Emerson Electric Company India Pvt. Ltd. i.e. the payment to related parties being excessive u/s 40A(2b) of the Act and also for non-deduction of TDS, thereby invoking the provision of Section 40(a)(ia) of the Act. The learned Counsel for the assessee stated that the CIT(A) after considering the Tribunal’s decision in A.Y. 2006-07 in had deleted the exactly identical disallowance by observing in Para 24,25 & 26 as under: - “24. In ground no. 4, the assessee is aggrieved that the Assessing Officer erred in disallowing an amount of Rs 74,33,557 under section 40(a)(ia) on account of payment made to EECIPL.
To adjudicate on this grievance, it is sufficient to take note of the fact that the amount is admittedly towards reimbursement of expenses to Emerson Electric Co India Pvt Ltd, under a cost sharing arrangement. The disallowance has been made as taxes have not been deducted at source, even though, in the draft assessment order, the Assessing Officer proposed to make a disallowance under section 40A(2)as excessive or unreasonable. As the disallowance is finally made, pursuant to DRP directions, on the ground that taxes have not been deducted at source, that aspect of the matter is no longer relevant.
Having heard the rival contentions and having perused the material on record, we find that it is admittedly a case of reimbursement of expenses and it is a settled legal position that tax deduction at source requirements do not come into play in the case of reimbursement of expenses. Undoubtedly these payments are made for the services rendered but the TDS requirements would come into play at the point of time when services are made to the person who is rendering the services or to the person with whom contract for rendering of these services is entered into. Right now we are dealing with a situation in which payment is made to a group concern under a cost sharing arrangement and the payment is thus not for services but as reimbursement of expenses. In our considered view, TDS requirements do not come into play at this stage. Accordingly, the impugned disallowance must be deleted. We direct the Assessing Officer to do so.” The learned Counsel stated that Hon’ble Bombay High Court in Tax appeal No.237 of 2012 vide order dated 11-06-2014 dismissed the Revenue’s appeal vide Para 4 as under: -
4. Upon perusal of the memo of this appeal and all its annexures, what has been set out as undisputed factual position is that the assessee company is in the business of manufacture of process control instrumentation. It paid to its subsidiary Emerson Eclectic Co. India P. Ltd., an amount of Rs.74,33,557/- on account of business service charges on cost sharing basis. The Revenue itself has stated that the business service expenses were in the nature of salary/remuneration paid to the individuals who were regular employees of the associate/subsidiary. The department took the view that expenses may be incurred for services rendered and its payment by the assessee on cost sharing basis does not make any difference as the assessee was liable to deduct the tax at source. Since that has not been deducted, the Assessing officer added the same to the income. The Income Tax Appellate Tribunal partly allowed the appeal by the impugned order. In doing so, the Tribunal noted these undisputed facts. It came to the conclusion as has been set out in para-25 and 26 that if the expenses incurred have been reimbursed, then, the requirement to deduct the tax at source does not come into play. If these expenses have been incurred in the business of the associate/subsidiary and these are payments made to the regular employees employed by the subsidiary/associate and towards their salary then, the reimbursement of such expenses by the present assessee would not require it to make any deduction. In other words, the tax would not be required to be deducted at source. In such circumstances and going by the factual position which is undisputed, we are of the view that the Tribunal was not required to answer any larger question or decide not required to go into the same a wider controversy. Even we are considering the peculiar facts and circumstances and the nature of the arrangement. The payment is thus, not for any service but as reimbursement of expenses is the conclusion reached upon noticing the undisputed factual position. In such circumstanes, the view taken is a possible view and the appeal, therefore, does not raise any substantial question of law. The appeal, is therefore, dismissed. NO costs.
Further, the learned Counsel for the assessee stated that this issue is also covered the decision of DRP in A.Y. 2006-07 and as per DRPs direction at para 10.3 page 12 no addition on this issue u/s 40A(2)(b) as well as u/s 40(a)(ia) of the Act can be made. When these were confronted to the learned Sr. DR, he fairly conceded the position.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the CIT(A) also relying on Tribunal’s decision and DRPs direction in assessee’s own case for A.Y. 2006-07 & 2007-08 deleted the disallowance by observing in para 3.3 as under: - “3.3. I have considered the above submissions of the appellant as well as the facts of the case. It is seen that on the same issue, Hon'ble ITAT, in the appellants own case has deleted the addition made of Rs.58,35,000/- under section 40A(2)(b) of the Act in similar circumstances in assessment year 2006-07. Further, in A.Y. 2007-08, the DRP has also decided this issue in favour of the appellant and has directed the AO to delete the addition of Rs.45.46 lakhs. Therefore, respectfully following the decision of Hon'ble ITAT and that of the DRP in appellants own case, I direct the AO to delete the addition of Rs.99,57,318/-.”
We find no infirmity in the order of CIT(A) and assessee’s case is fully covered in its favour and hence, Revenue’s appeal is dismissed.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 14-12-2016.