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Income Tax Appellate Tribunal, DELHI BENCHES : “G” NEW DELHI
Before: SHRI J.SUDHAKAR REDDY & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER is assessee’s appeal against order dated 22.11.2012 passed by the Ld. Commissioner of Income Tax (Appeals) XXV, New Delhi whereas ,671/Del/2013 M/s. Syncrolift Inc. Vs. ADIT & DDIT vs. M/s. Syncrolift Inc. Department’s appeal against the same order. We are disposing of both by this common order.
We take up assessee’s appeal first. The grounds of appeal read as under :-
1. “The Learned Commissioner of Income Tax (Appeals) - XXV, New Delhi (/Ld. CIT(A)') has passed the order dated November 22,2012 without appreciating the facts and circumstances of the case, and confirmed some of the disallowances made by the Learned Assessing Office ,’Ld. AO') vide order dated March 24, 2006 passed under section 143(3) of the Income Tax Act, 1961 ('the Act').
2. The Ld. CIT(A) / Ld. AO have erred in law and on facts and circumstances of the case in disallowing an amount of USD 2,31,036 (i.e. Rs. 1,12,32,970), as general and administrative cost under section 44C of the Act. 3. The Ld. CIT(A) / Ld. AO have erred in law and on facts and circumstances of the case by disallowing an amount of USD 94,208 (approx. Rs. 45,60,609) as part of the general and administrative cost of USD 2,31,036 (i.e. Rs. 1,12,32,970) even though the same was disallowed by the appellant in its return of income, leading to a double disallowance of USD 94,208 (approx. Rs. 45,60,609). 4. The Ld. CIT(A) / Ld. AO have erred in law and on facts and circumstances of the case by disallowing an amount of Rs. 1,97,561 as pre-project expenditure, on the ground that the appellant could not submit the details and reconcile the same. 5. The above grounds of appeals are independent and without prejudice to one another.”
The facts in brief are that for the relevant assessment year the assessee had declared an income of Rs. 2,98,83,407/-. Assessment u/s 143(3) was completed vide order dated 24.3.3006 in which the AO made disallowances as under:-
i) On account of technical associates fees Rs. 1,27,15,131/- ii) On account of specific administrative cost Rs. 1,12,32,970/- ,671/Del/2013 M/s. Syncrolift Inc. Vs. ADIT & DDIT vs. M/s. Syncrolift Inc. iii) On account of design project and field expenditure Rs. 57,25,871/- iv) Interest on late payment of TDS Rs. 44,212/- v) On account of pre project expenditure Rs. 1,97,561/-
A total addition of Rs. 2,99,15,745/- was made and the assessment was completed at Rs. 5,97,99,152/-.
Ld. CIT (A) in his order deleted an addition of Rs. 60,82,961/- after giving a finding that out of this amount Rs. 51,15,974/- had already been disallowed by the assessee in its computation of income as pre project expenses and as such there was no justification for a further disallowance under this nomenclature. Ld. CIT(A) also deleted an addition of Rs. 66,32,170/- added u/s 40(a)(i) for non deduction of Tax At Source on the ground that as there was no chargeable income u/s 195 of the Income Tax Act, 1961 in India and the payment was made by the Head office outside India for services rendered outside India to the Head office and hence there was no justification for this disallowance. Ld. CIT(A), further in his order, upheld the addition of Rs. 1,12,32,970/- under the head specific administrative cost on the ground that the assesee had failed to submit any specific details of services rendered by the Head office for which the assessee had made payment to the Head office. The addition of Rs. 57,25,871/- under the head design, project and field expenditure was deleted by the Ld. CTI(A) on the ground that AO had made an adhoc disallowance of 20% in the name of prior period expenses and that there was no proper justification for disallowance of the expenses as the expenses were incurred for the purpose of the business. Ld. CIT(A) further confirmed the disallowance of Rs. 1,97,561/- under the head pre project expenditure on the ,671/Del/2013 M/s. Syncrolift Inc. Vs. ADIT & DDIT vs. M/s. Syncrolift Inc. ground that the assessee had failed to submit any details or reconcile the discrepancy as pointed out by the AO in his assessment order.
In the appeal before us, the Ld. AR for the assessee submitted that as far as the disallowance of Rs. 1,12,32,970/- (Ground Nos 2 & 3 ) on account of specific administrative cost is concerned, the Ld. AO and the CIT(A) had failed to appreciate the difference between general administrative expenditure and cost incurred specifically in relation to a project. He submitted that the company has operated on an electronic time recording system from his office which is located at Miami. All the employees were required to fill in a timesheet each week, detailing time spent to the projects on which they were working. He submitted that the hours reported on the timesheet were extracted to form the input for the salary of the employees. He further submitted that copies of the timesheets were provided to the AO during the assessment proceedings but the same were not considered by the AO while making the disallowance. He also submitted that section 44C of the Act only referred to the expenditure which is of general administrative nature and not to specific expenditure incurred in relation to a project. He further submitted that the expenditure disallowed was a specific project related cost debited under the head “design, project and field expenditure” and not general administrative cost and hence out of the purview of section 44C of the Act. Ld. DR on the other hand strongly supported the AO’s order.
We have considered the facts of the case and also perused the documents on record. This issue has been dealt in para 4 of the AO’s order. The AO has not considered the evidence in form of timesheets nor has the Ld. CIT (Appeals) ,671/Del/2013 M/s. Syncrolift Inc. Vs. ADIT & DDIT vs. M/s. Syncrolift Inc. discussed the same although the issue was raised before him as well. Therefore, on a careful consideration of overall facts and circumstances of the case, we deem it fit to remit the matter back to the file of the AO for a denovo adjudication on the issue as to whether the expenditure of Rs. 1,12,32,970/- relates to general administrative cost or a specific project related cost after duly considering all the evidences which have been submitted by the assessee in this regard. Needless to say that the assessee shall be given due opportunity of being heard before the order is passed.
In the result ground No. 2 of the assessee’s appeal is allowed. Ground No. 3 relates to disallowance of Rs. 1, 12,32,970/- on account of general administrative expenses being disallowed by the department twice. Since Ground Nos 2 and 3 essentially relate to the same issue, ground no. 3 of the assessee’s appeal is also allowed and the matter is remitted to the file of the AO for fresh adjudication. Ground No. 4 of the assessee’s appeal pertains to disallowance of Rs. 1,97,561/- on account of pre project expenditure. Ld. AR submitted that he did not wish to press this ground of appeal. In the result ground No. 4 is dismissed as being not pressed. Ground No. 1,5 and 6 are general in nature and do not need any adjudication.
In the result the appeal of the assessee is partly allowed for statistical purposes.
Department’s appeal and the grounds of appeal read as under:-
1. “Whether on the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of 60,82,961, on account of technical associate fees paid for services rendered prior to PE existence from 1st of June 1997 to June 2002 on an incorrect appreciation of facts, holding that the assessee had suo moto ,671/Del/2013 M/s. Syncrolift Inc. Vs. ADIT & DDIT vs. M/s. Syncrolift Inc. made a disallowance regarding prior period expenditure expense when the said disallowance was under different head not including this amount.
2. Whether on the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of 66,32,170/- on account of technical associate fees holding them to be paid for services rendered abroad by way of debit note raised by HO to PE and there is thus no chargeable income u/s 195, when royalty/FTS attracts taxation u/s 9(1 )(vi)/(vii) on gross basis and credit entry amounts to receipt by non-resident as per 201 ITR 391.
3. Whether on the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of 66,32,170, holding them to be paid for services rendered abroad to the HO when the assessee had failed to provide details of either agreement of nature of services and the very fact that PE had claimed it as an expense and made payment as per debit note of HO corroborated the finding of AO that the payment was for services provided to Indian PE for its business in India.
4. Whether on the facts and circumstances of the case, the CIT(A) has erred in holding that the technical fees disallowed by the AO is not chargeable income u/s 195 of the Act when assessee had failed to obtain a withholding tax order u/s 195/197 in terms of Supreme Court decision in GE India Technology Centre Vs. CIT.
5. Whether on the facts and circumstances of the case, the CIT(A) has erred in ignoring the specific findings of AO in respect of disallowance under design project and field expenditure paid for hours spent during 4th January 2002 to 30th April 2002 as Project Office was established wef 1st May 2002 i.e. services rendered prior to PE existence on an incorrect appreciation of facts, holding that the assessee had suo moto made a disallowance regarding prior- period expenditure expense when the said disallowance was under different heads not including this amount and the CIT(A) had given credit for this when deleting the addition of 60,82,961/- also on account of technical associate fees also.”
9. Ground Nos. 1 and 5 of the department’s appeal pertain to the deletion of addition of Rs. 60,82,961/- on account of technical associates fees paid for services rendered prior to PE expenses from 1st January, 1997 to June, 2002. Ld. DR submitted that as per the terms of agreement the payment materialised only in ,671/Del/2013 M/s. Syncrolift Inc. Vs. ADIT & DDIT vs. M/s. Syncrolift Inc. financial year 2002-03 whereas the technical associates fees were paid for the period 1st June, 1997 to June 2002 and hence the fees were paid for services rendered by the assesee prior to the assessment of PE. Ld. AR submitted that the assessee has itself disallowed Rs. 51,15,974/- as prior period expenses in its computation of income. He also drew our attention to page 69 of the paper book which contained the list of expenses disallowed in the computation of income for financial year 2002-03 relevant to assessment year 2003-04. The Ld. AR also submitted that by disallowing a further sum of Rs. 60,82,961/-, the AO has in fact made a double disallowance. We have considered the facts of the case and have also gone through the material available on record. It is seen that this ground of Department’s appeal is connected with ground no. 3 of the assessee’s appeal which we have already restored to the file of the AO for fresh adjudication. In the result Ground No. 1 of the Department’s appeal is also allowed for statistical purposes and restored to the file of the AO for fresh adjudication.
10. Ground Nos. 2,3 and 4 pertain to deletion of addition of Rs. 66,32,170/- on account of technical associates fee paid for services rendered abroad by way of debit note raised by the HO to PE. Ld. DR submitted that although the payments were made by the Head Office to other non-resident, it is undisputed that the said expenditure was exclusively for the purpose of PE in India and the sum was also deductible in the profit and loss account of the PE. Therefore the payment made to the non-resident for the services utilised in India were chargeable to tax in India and hence the provisions of section 195 of the Act would be attracted. He further submitted that since the assessee had not deducted tax u/s 195 (1) nor taking any order u/s 195(2) for NIL deduction of tax at source, the provision of section 40 (a)(i) ,671/Del/2013 M/s. Syncrolift Inc. Vs. ADIT & DDIT vs. M/s. Syncrolift Inc. were clearly attracted and the disallowance was rightly made. The Ld. AR on the other hand submitted that the amount of Rs. 66,32,170/- were paid to Mr. T.D.
Langbridge who did not have any office, establishment in India during the financial year 2002-03 and who was tax resident of Singapore entitled to the Double Taxation Avoidance Agreement between India and Singapore . He drew our attention to page 67 of the paper book which is the copy of a certificate from Mr. T.D. Langbridge to this effect. The Ld. AR, however, could not specifically answer our query as to whether the assessee had obtained a certificate u/s 195(2) for non deduction of tax at source. The Ld. AR also could not point out to any other evidence which could establish the status of Mr. Langbridge vis-à-vis the provisions of Indian Income Tax Act. We have duly considered the facts and circumstances of the case and it is our considered opinion that the certificate submitted by Mr. T.D. Langbridge is at best self serving document. The claim is not supported by any other independent evidence. The Ld. CIT(A) has also not dealt with this issue in a proper manner and has deleted the addition without recording any finding of fact. Therefore, on a careful consideration of the overall facts and circumstances of the case and in the interest of justice, we deem it fit to remit the matter back to the file of the AO for a denovo adjudication on the issue as to whether the amount of Rs. 66,32,170/- paid as technical associates fee is allowable as a deduction or not, in terms of the provisions of the Income Tax Act, 1961 after duly considering all the evidences which have been submitted or may be submitted by the assessee in this regard.
Needless to say that the assesee shall be given due opportunity of being heard before the order is passed. In the result Ground Nos. 2, 3 and 4 of the Department’s appeal are allowed for statistical purposes. ,671/Del/2013 M/s. Syncrolift Inc. Vs. ADIT & DDIT vs. M/s. Syncrolift Inc. 11. Ground No. 6 is general in nature and does not need adjudication.
In the result, Department’s appeal is allowed for statistical purposes.