GOLDMAN SACHS INDIA FINANCE P.LTD,MUMBAI vs. CIT 1, MUMBAI

This appeal by the assessee is directed against the order under section 263 of the Income Tax Act, 1961(in short ‘the Act’) passed by the CIT -I, Mumbai vide order dated 18/2/2015 for assessment year 2010-11.

2.1 The assessee company is a non-banking finance company engaged in stock broking, investment banking, trading, insurance and securitization of loans, pass through certificates, public sector/corporate bonds, debentures, certificates of deposits and Government of India Securities. The assessee company, formerly known as Pratham Investment and Trading Pvt. Ltd. was acquired 100% by the Goldman Sachs Group and affiliates and the name was changed to its present one. For assessment year 2010-11, the assessee filed its return of income on 30/09/2010 declaring total income of Rs.7,42,23,711/-. The return was processed under section 143(1) of the Income Tax Act,1961( in short ‘the Act’) and the case was subsequently taken up for scrutiny. The assessment was completed under section143(3) r.w.s. 144C of the Act vide order dated 27/11/2013, wherein the income of the assessee was accepted as returned at Rs.7,44,23,710/- under the normal provisions of the Act and ‘Book Profits’ under section 115JB of the Act was computed at Rs.5,30,67,670/-.

2.2 The CIT –I, Mumbai, on a perusal of the records of assessment, observed that the assessee had incurred reimbursement of cost recharge expenses amounting to Rs.3,17,37,719/-, on which tax was not deducted at source while making the said payments to Goldman Sachs(India) Securities Pvt. Ltd. (hereinafter referred to as ‘GSISPL’). In this context the Ld. CIT issued a show cause notice dated 19/1/2015 to the assessee proposing to revise the order of assessment for assessment year 2010-11 on the aforesaid issue. It was contended therein that on verification of records for assessment year 2009-10, it was seen that the Assessing Officer had made disallowance under section 40(a)(ia) of the Act ofRs.1,73,07,000/- on account of cost recharges from GSISPL . Thus, similarly for assessment year 2010-11, the year under consideration, the assessee has claimed reimbursement of cost recharge expenses of Rs.3,17,37,719/- on which TDS has not been deducted and paid and, therefore, the same was to be disallowed under section 40(a)(ia) of the Act.

2.3 In response to the show cause notice, the assessee contended as summarized by the CIT that:- (i) the Assessing Officer had looked into the reimbursement of cost recharge expenses claimed and was fully satisfied. Therefore, there is no question of disallowance of the same under section 40(a)(ia) of the Act. (ii) the Assessing Officer did not feel that there was any matter to be further investigated since he was of the opinion that there was no income element involved in the reimbursement of cost re-charge expenses. (iii) when two views are possible, section 263 of the Act cannot be invoked. It was argued that for assessment years 2009-10 and 2011-12, the first appellate authority has deleted the disallowance made on account of non-deduction of tax at source on re-imbursement of expenses. Therefore, if the Assessing Officer has adopted one view, the CIT in 263 proceedings, cannot adopt a different view as this constitutes a change of opinion which is not permissible in revision proceedings.

It was accordingly urged by the assessee that the Ld. CIT, drop the revisionary proceedings.

2.4 The Ld. CIT on an analysis of the material on record observed that the assessee had made a payment of Rs.3,17,36,719/- to an associate concern ‘GSISPL’, which is claimed to be reimbursement of expenses received by the said recipient for certain services provided and common expenses incurred by them on behalf of the assessee. The Ld. CIT was of the view that the fact that these expenses are incurred under an arrangement/agreement by Goldman Sachs (India) Securities Ltd. and are subsequently reimbursed by the assessee year on year suggests that there is an income element involved and therefore, TDS on the said payment is to be made. The Ld. CIT was of the view that while the Assessing Officer has looked into the details on record, he has not examined the entire arrangement to see whether the recipient is earning any income in this transaction and failure on the part of the Assessing Officer to do so has rendered the order of assessment to be erroneous and prejudicial to the interest of Revenue. In that view of the matter, the Ld. CIT cancelled the order of assessment dated 27/11/2013 for assessment year 2010-11 and restored the matter to the Assessing Officer to look into whether in the reimbursement of expenses there is any income accrued to the recipient i.e. to M/s. Goldman Sachs (India) Securities Pvt. Ltd. and if TDS was liable to be deducted, the Assessing Officer shall make a fresh assessment invoking the provisions of section 40(a)(ia) of the Act.

General ground: 1. erred in initiating and passing the order under section 263 of the Act disallowing the reimbursements paid to Goldman Sachs (India) Securities Private Limited (GSISPL) under section 40(a)(ia) of the Act on account of non­deduction of tax at source; 2. erred in concluding that a recurring reimbursement under a cost sharing agreement automatically suggests an income element associated with the payment made by the Appellant, therefore, warranting a requirement to withhold tax at source. Twin conditions mentioned under section 263 of the Act i.e. erroneous order and prejudicial to the interest of revenue not satisfied 3. erred in passing the order under section 263 of the Act, even though the twin conditions, that the order of the learned Deputy Commission of Income­ tax­

1. (2) ('the learned AO') should be erroneous as well as prejudicial to the interest of the revenue, are not satisfied; Learned AO has taken one possible legal view 4. erred in not appreciating the fact that the learned AO had taken one legally possible view (which is affirmed by the Commissioner of Income­tax (Appeals) [CIT(A)] order in the case of the Appellant itself in AYs 2009­10 and 2011­12) and hence, the order under section 263 of the Act is liable to be quashed; and Merger of order 5. erred in not appreciating the fact that the issue under consideration was a subject matter of adjudication before the CIT(A) in other years and hence, qua this issue, the order of the learned AO got merged with CIT(A) and hence, revision under section 263 of the Act is not permissible.”

4.1.1 The Ld. Sr.Counsel for the assessee, Shri Jahangir Mistry stated that in the year under consideration, the assessee company leveraged on the employees and other infrastructure of its associate concern ‘GSISPL’ and accordingly reimbursed the cost recharge expenses of Rs.3,17,37,769/- incurred by ‘GSISPL’ on behalf of the assessee. The fact is that all the material in relation to reimbursement of expenses was placed before the Assessing Officer in assessment proceedings vide letter dated 9/1/2013, copy placed at pages 47 to 55 of the Paper Book and the Ld. CIT in the impugned order has accepted that the Assessing Officer had looked into them. The specific submissions with respect to the re-imbursement of expenses to ‘GSISPL’ were at paras 3 to 3.23/ pages 48 to 55 of the paper book, wherein inter-alia, it was submitted that the reimbursement of expenses was made in pursuance of a Cost Allocation Recharge agreement that ‘GSISPL’ shall recharge all direct costs incurred on behalf of group companies and accordingly the assessee was to reimburse ‘GSISPL’ allocated costs re-charge of Rs.3,17,37,719/-. Since it was a mere re-imbursement of expenses, no TDS was made on the payments to ‘GSISPL’ In this regard the assessee also placed reliance on the following Judicial pronouncements in support of the proposition that no tax is required to be deducted at source when the payment is in the nature of reimbursement of expenses since there is no element of income embedded therein:- (i) J.B.Boda Surveyors Pvt. Ltd. (ITA No.4252/Mum/2009) (ii)Mahyco Monsanto Biotech (India) Ltd. (ITA No.5842/Mum/2012) (iii)CIT vs. Siemens Aktiongesellschaft (310 ITR 320)(Bom) (iv) Bayer Material Science Pvt. Ltd. (ITA No.7977/Mum/2010) 4.1.2 The Ld. Sr. Counsel contended that the facts as submitted above clearly establish that the order of assessment dated 27/11/2013 is not erroneous as the Assessing Officer had applied his mind on the matter by considering the submissions and details put forth by the assessee on this issue vide letters dated 9/1/2013 and 30/10/2013. The Assessing Officer’s finding could have been regarded as erroneous only when the Assessing Officer had not considered the issue before him or not made any examination or enquiry on the issue or omitted consideration of the issue in question. This is, admittedly, not the case of the Ld. CIT. In these circumstances, it is contended, that the Ld. CIT cannot substitute his views on a particular issue in respect of which the Assessing Officer has already taken a view in the matter that is sustainable in law and therefore, the proposed revision of the order of assessment for assessment year 2010-11 amounts to nothing but a change of opinion which is not permissible under the provisions of section263 of the Act . In support of the above proposition, the Ld. Sr. Counsel placed reliance on the following judicial pronouncements:- (i) Malabar Industrial Company Ltd. (2000) 243 ITR 83(SC) (ii) Max India Ltd. vs. CIT (2008) 295 ITR 282(SC) (iii) Gabriel India Ltd. (1993) 203 ITR 108 (Bom) 4.1.3 Reliance was also placed on the following judicial pronouncements in support of the proposition that the CIT cannot substitute his views on a particular issue in relation to which a view has already been taken by the Assessing Officer:- (i) CIT vs. Sunbeam Auto Ltd. (2010) 332 ITR 167 (Del) (ii)CIT vs. Nirma Chemical Works (P) Ltd. (2009) 309 ITR 67 (Guj)

4.1.4 The Ld. Sr. Counsel, placing reliance on the decision of the Hon’ble Bombay High Court in the case of CIT vs. Reliance Communication Ltd. in of 2013 dated 28/03/2016, argued that, as discussed earlier, since all the relevant details /expenditure on the reimbursement made by the assessee to ‘GSISPL’ were submitted to the Assessing Officer during the course of assessment proceedings, it can be inferred that the Assessing Officer not only made enquiries but also satisfied himself with the assessee’s replies furnished in support of its stand. It was also brought to the notice of the bench that the Co- ordinate bench of the ITAT in its order in ITA No.2518/Mum/2013 in the assessee’s own case for assessment year 2009-10 has held a similar view as the Assessing Officer on the very same issue and hence it cannot be said that the order of assessment for assessment year 2010- 11 is erroneous in so far as it is prejudicial to the interest of Revenue. It was finally contended that in the light of the facts and circumstances of the case, the Ld. CIT was not justified in assuming justification for invoking the provisions of Section 263 of the Act.

4.2 On the merits of the case, the assessee submits that where expenses have been incurred by the recipient; in this case GSISPL on behalf of the assessee and the same were reimbursed to GSISPL, such reimbursement are mere recoupment of expenses and would not constitute income of the recipient. Hence, there is no liability cast upon the assessee to deduct tax at source on reimbursement of expenses and, therefore, disallowance under section 40(a)(ia) of the Act is not warranted. In support of the proposition that no tax is required to be deducted when payment is reimbursement of expenses, reliance was placed, inter-alia, on the decision of the Co-ordinate bench of this Tribunal in the assessee’s own case for assessment year 2009-10 (ITA No.2518/Mum/2013). It was also submitted that in the case on hand, while the Assessing Officer had made disallowance of reimbursement of expenses under section40(a)(ia) of the Act on account of non-deduction of tax in assessment years 2009-10 and 2011-12, the Ld. CIT(A) had deleted these disallowances and the order of Ld. CIT(A) for assessment year 2009-10 was upheld by the Co-ordinate in dated 4/9/2015 (supra). Therefore, the impugned order of the Ld. CIT under section 263 of the Act was also not sustainable on merits also.

4.3 Per contra, the Ld. Departmental Representative placed strong reliance on the decision of the Ld. CIT. It was submitted that the fact that the expenses to be incurred by the assessee are met out by GSISPL under an agreement/arrangement and are subsequently reimbursed by the assessee suggests that there is an income element therein and, therefore, on such payment of reimbursement, tax ought to have been deducted at source. The Assessing Officer’s failure to look into the records of the assessee to ascertain the income associated in these transactions of reimbursement, rendered the order both erroneous and prejudicial to the interest of Revenue. It was contended that there is no question of there being two views on this issue as it is clear that there is income associated with the reimbursement of expenses to GSISPL and, therefore, the assessee was liable to deduct tax at source.

4.4.1 We have head the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. The facts on record indicate that in the year under consideration, the assessee had reimbursed ‘GSISPL’ Rs.3,17,37,719/- in respect of direct expenses incurred on its behalf in pursuance of a cost recharge agreement. An appreciation of the material on record shows that the material/details , etc. in relation to the aforesaid issue of re-imbursement of expenses was placed before the Assessing Officer in the course of assessment proceedings vide letter dated 9/1/2013(copy placed at page 47 to 55 of the Paper Book) and 30/10/2013, whereby it was submitted, inter-alia, that since the said expenditure was mere reimbursement of expenditure, no TDS was made thereon by the assessee while making the payments to ‘GSISPL’ as ostensibly there was no income element embedded therein. We find from perusal of the impugned order that the Ld. CIT has himself admitted that the aforesaid details were filed by the assessee before the Assessing Officer in the course of assessment proceedings, and therefore, it is clearly not the case of the Ld. CIT that either required details were not filed before the Assessing Officer or that no enquiry was carried out in this regard by the Assessing Officer. The Ld. CIT’s grievance seems to be that the Assessing Officer has not examined the issue from the angle of whether any income was embedded in the said payment made to ‘GSISPL’ on account of reimbursement of expenses. In our view, the undisputed fact that the Assessing Officer called for and examined the details field by the assessee on the aforesaid issue of reimbursement of expenses to ‘GSISPL’, means that the Assessing Officer has already taken a view in the matter; that is possibly sustainable in law, i.e. that no tax was required to be deducted at source on aforesaid reimbursement of expenses to ‘GSISPL’. In coming to the view that no TDS is to be deducted when the payment is in the nature of re-imbursement of expenses since there is no income element is embedded therein, we draw support from the decision of the Co- ordinate bench of ITAT Mumbai in the case of J.P.Boda Surveyors (supra), Mahyco Monsanto Biotech (India) Ltd and Bayer Material Science Ltd. (supra).

4.4.2 In this factual and legal matrix of the case, as discussed above, where admittedly the details of the issue of reimbursement of expenses by way of payments by the assessee to ‘GSISPL’ were called for by the Assessing Officer, filed by the assessee and examined by the Assessing Officer in the course of assessment proceedings and a possible view, sustainable in law, is taken by him, the impugned revision order, in our view is nothing but a change of opinion by the Ld. CIT which is not permissible under the provisions of section 263 of the Act. In coming to this view, we place reliance on the following judicial pronouncements of the Hon'ble Supreme Court in Malabar Industrial Company Ltd.(supra) and Max India Ltd. v. CIT (supra) and of the Hon’ble Mumbai High Court in Gabriel India Ltd. (supra). In CIT v. Sunbeam Auto Ltd.(supra), the Hon’ble Delhi High Court has taken the view that the CIT cannot substitute his views on a particular issue in relation to which a possible view has already been taken by the Assessing Officer unless it is unsustainable in law.

4.4.3 In the light of the aforesaid discussions(supra), the factual and legal matrix of the case clearly evidences that in the course of assessment proceedings in the case on hand that all material relevant to the issue of reimbursement of expenses by the assessee to ‘GSISPL’ were filed by the assessee before the Assessing Officer. It can be inferred that the Assessing Officer examined the same and was satisfied with the details filed and took a possible view in the matter. This view of the Assessing Officer has also been upheld by the Co-ordinate bench in the assessee’s own case for AT 2009-10 in dated 4/09/2015 on the very same issue. In these circumstances, we are of the considered view that the Ld. CIT was not justified in assuming jurisdiction under section 263 of the Act. In coming to this view, we draw support from the decision of the Hon'ble Bombay High Court in CIT vs. Reliance Communication Ltd. in ITA No.1816 of 2013 dated 28/03/2016, rendered wherein at para 10 thereof their Lordships have held as under:- “10. In the case before us, the concession of the assessee’s authorized representative apart, what the Tribunal found and on all the three items highlighted by Mr. Tejveer Singh is that there were materials before the Assessing Officer. The Assessing Officer made enquiries about the above referred aspects and which have been noted by the Commissioner. The assessee made submissions by placing all relevant documents before the Assessing Officer. Thus the case does not fall within the parameters laid down in the decision of the Hon’ble Supreme Court and other High Courts. The mere fact the Assessing Officer did not make any reference to these three issues in the assessment order cannot make the order erroneous when the issues were indeed look into. The entire details were filed and the order itself indicates that it can be inferred that the Assessing Officer not only made enquiries, but satisfied himself with the assessee’s replies furnished from time to time in support of its stand. When the Tribunal concludes in this manner and finally in paragraph 16 holds that the Assessing Officer took a perfectly correct or a possible view, then, the order passed by him cannot be termed as erroneous insofar as it is prejudicial to the interest of the Revenue. The Commission of Income tax was not, therefore, justified in invoking section 263 of the Act.

Taking into account the facts and circumstances of the case, as discussed above from para4.4.1 to 4.4.3 of this order, placing reliance inter-alia, on the various judicial pronouncements referred to (supra), we also draw support from the aforesaid decision of the Hon’ble Bombay High Court in the case of Reliance Communications Ltd. (supra) to hold that when the Assessing Officer examined the material called for and placed before him by the assessee, which fact is admitted by the Ld. CIT, and the Assessing Officer took a correct possible view in the matter, the order of assessment cannot be termed to be erroneous and prejudicial to the interest of the Revenue. We, therefore, hold that the Ld. CIT was not justified in assuming jurisdiction u/s. 263 of the Act for assessment year 2010-11 in the case on hand and, therefore, cancel the impugned order passed u/s. 263 of the Act on 18/2/2015 for assessment year 2010-10 in the case on hand.

4.5.1 Even on merits, we concur with averments of the assessee that where expenses incurred by ‘GSISPL’on its behalf and the same are reimbursed, it is a mere-recoupment of expenses. It would not constitute income of the recipient so as to cast a liability upon the assessee for deduction of tax at source on such payments and, therefore, disallowance u/s. 40(a)(ia) of the Act is not warranted. We find that the very same issue was considered by a Co-ordinate bench of this Tribunal in the assessee’s own case for the assessment year 2009- 10 in dated 4/9/2015 and at para 5,thereof has dismissed Revenue’s appeal holding that payments made by the assessee in pursuance of Cost Allocation and Recharge Agreement’ between the assessee and ‘GSISPL’ was purely on account of reimbursement of expenses which were incurred by GSISPL and hence there being no income element involved in such payments, there was no requirement to deduct TDS thereon. The relevant portion of the decision at para-5 is as under:- 5. After considering the relevant finding given in the impugned order and also the submissions made by the parties, we find that assessee has reimbursed expenditure amounting to Rs. 1,73,07,000/­ to GSIPL which were incurred by it on the following heads :­

Particulars Amount(Rs.) Employee related cost 11,238,600 Rent 456,719 Corporate Recharges 577,634 Depreciation 34,385 Cost of support functions such as human 5,000,000 resource, Finance, legal etc. Total 17,307,000 in pursuance of “Cost Allocation & Recharged Agreement” between the assessee and the said company, whereby GSIPL was required to incur cost and make payments after deducting the TDS. Such cost was then recharged to the assessee. Such recharged of cost was purely on account of reimbursement of expenses which were incurred by GSIPL and hence there is no income element on such a payment. Once that is so, then there is no requirement to deduct TDS, in view of the decision of Hon’ble High Court in the case of CIT vs. Siemens (supra). Thus, the finding of the CIT(A) that there was no requirement to deduct TDS on such reimbursement of cost is factually and legally correct and is therefore, upheld. Accordingly, the ground raised by the revenue is treated as dismissed Following the aforesaid decision of the Co-ordinate bench of the Tribunal in the assessee’s own case for assessment year 2009- 10(supra), we find the impugned order of the Ld. CIT to be unsustainable on the said issue even on the merits and therefore, on this ground also we cancel the impugned order of the Ld. CIT passed under section 263 of the Act for assessment year 2010-11.