WACHOVIA MANAGEMET SERVICES P. LTD,HYDERABAD vs. ASST CIT 10(1), MUMBAI

The CIT(A) erred in disallowing an amount of Rs 5,761,629 being expenditure incurred by the Appellant in connection with furniture and fixture and leasehold improvements and determining the arm's length price (ALP) as NIL. 2.Without prejudice to the above, in not considering the fact that this was the amount that was capitalized by the Appellant and only the depreciation in respect of the furniture and fixture and leasehold improvements was claimed as a deductible expenditure.

The CIT(A) erred in disallowing an amount of Rs 51,833,404 being an expenditure incurred by the Appellant on salary and bonus paid to its employees and determining the ALP as NIL.

The CIT(A) erred in levying consequential interest under section 234A and 234B

The CIT(A) has erred in initiating penalty proceedings under section 271(1)(c) of the Act for concealing particulars/ furnishing inaccurate particulars of income.”

During the course of hearing, arguments were made by Shri M.P. Lohia & Shri Dhaval Sheth, Authorised Representative (AR) on behalf of the Assessee and by Shri Sambit Mishra, Departmental Representative (DR) on behalf of the Revenue.

Ground No.1: In this ground, the assessee is aggrieved in disallowing an amount of Rs 5,761,629 being expenditure incurred by the assessee company in connection with furniture and fixture and leasehold improvements and determining the arm's length price (ALP) as NIL.

Brief facts of the case are that during the year under consideration the assessee company was engaged in the business of providing Investment Advisory and Support Services to its overseas Associated Enterprises (AE). During the course of transfer pricing proceedings, the transfer pricing Officer (TPO) noted that during the impugned financial year, the assessee company had incurred expenses amounting to Rs.34,63,833/- towards purchase of furniture and Electric Fittings and Rs.22,97,796/- towards lease hold improvements. The said furniture and electric fittings and lease hold improvements were purchased by the AE from the countries abroad and these were shipped and delivered by the 3rd party vendor to the assessee company in India. It was explained by the assessee that being first year of its operation, all majority expenses were incurred by the AO on behalf of the assessee which were subsequently reimbursed by the assessee to the AE without any mark up. It was further submitted that the assessee had capitalized these expenses in the fixed asset schedule and claimed depreciation on the same as per Act. The assessee also submitted sample copies of the invoices to the TPO. It was pointed out by the assessee that the assessee

Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) wherein detailed submissions were made along with requisite documentation but Ld. CIT(A) without going further into the facts of the case endorsed the findings of the TPO and upheld the order of the AO/TPO.

Being aggrieved, the assessee filed an appeal before the Tribunal.

During the course of hearing before us, Ld. Counsel of the assessee submitted that these items were capitalized. It has been further submitted that various documents have been submitted showing the delivery of the asset to the assessee. Our attention was drawn on the copies of invoices and other documents enclosed in the paper book. It has been submitted that the invoices are in the name of its AE, but the address has been mentioned of the assessee company only. It was further submitted that AE has no presence in India. Our

Per contra, Ld. DR submitted that he would have no objection if this ground is sent back to the file of the AO. The assessee should be asked to bring all the evidences on record in support of its claim.

We have gone through the orders of the lower authorities and submissions made by both the sides before us. It is noted that it appears that neither the TPO nor Ld. CIT(A) have properly examined the evidences submitted by the assessee showing that impugned assets were delivered to the assessee at its business premises in India. The claim of the assessee has been rejected on the basis of doubts. We are inclined to accept the request of the Ld. Counsel and find it appropriate to send this ground back to the file of the AO for its adjudication afresh. The AO shall give adequate opportunity of hearing to the assessee and shall take into account all the documentary

Ground No.2: In this ground the assessee is aggrieved with the action of lower authorities in disallowing an amount of Rs.5,18,33,404/-, being an expenditure incurred by the assessee on salary and bonus paid to its employees and determining the ALP as Nil.

The brief facts related to this ground are that during the year the assessee incurred an aggregate amount of Rs.5,18,33,404/- towards salaries and bonus to its employees. It was submitted by the assessee that since the assessee did not have sufficient funds to meet this expenditure, the AE of the assessee provided temporary advance to disperse this expenditure, which was refunded by the assessee in subsequent years. During the course of transfer pricing proceedings, the TPO misunderstood the fact and held that the assessee did not furnish any evidences to prove that the services were rendered by the AE to the assessee and that no evidences have been furnished regarding the expenses for 7 Wells Fargo Real Estate Advisors P.L.

During the course of hearing before us, Ld. Counsel has drawn our attention on various pages of the paper book showing that impugned amount was temporary loan given by the AE which was subsequently refunded.

Per contra Ld. DR requested that these grounds also may be sent back to the file of the AO/TPO for proper examination of facts.

We have gone through the orders of the lower authorities and submissions made before us. It is noted by us that it appears that the TPO have misunderstood the facts of this case. With the assistances of Ld. Counsel, we had gone through few pages of the paper book showing that the impugned amount was received by the assessee as temporary advance which is claimed to have been subsequently returned to the AE. We have also noted that this fact was clearly mentioned in its reply by the assessee before both of the lower authorities. But, it appears to have been missed by them. Thus, in these circumstances, we find it appropriate to send this ground also back to the file of AO for proper examination on facts, for which the AO shall give full opportunity of hearing to the assessee. The assessee shall place on record requisite details and documents as may be required by the AO or as may be considered appropriate by the assessee as per law. The 8 Wells Fargo Real Estate Advisors P.L.

In the result, the appeal filed by the assessee is allowed for statistical purposes.

""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT, Mumbai. 4. आयकर आयु"त / CIT(A)- , Mumbai

"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.