Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2021 (12) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (12) TMI 1077 - AT - Income TaxDisallowance of expenditure reimbursed - reimbursement of expenses to a non-resident placed at Dubai and South Africa - Addition u/s 40(a)(i) - addition on account of diversion of income - HELD THAT:- As reimbursement of expenses of both the entities were for carrying out market research for feasibility and expansion of market in neighboring countries particularly in Gulf and African region and day-to-day coordination in activities for the assessee, negotiation and procurement of orders, securing of materials, supply and distribution of materials to destination sites, logistic support and follow up and liaisoning for projects under execution etc. - as also undisputed fact that these firms were actually carrying out these activities as it has secured work order of more than ₹ 35 crores for the assessee. The copy of work orders were filed before the AO along with various documents and relied upon the correspondence which shows that the efforts were made for getting the new business there. Sans any adverse material, AO cannot question the wisdom and business expectancy in which wake of such evidences and record which has been duly appreciated and taken note of by the ld. CIT (A). The documents which have been referred to in the first appellate order, as incorporated above, clearly show that both the entities i.e. Dubai based and South Africa based has assisted in the business development as well as procurement of huge business orders which was in line with the assessee’s business i.e. supply, installation, commissioning and maintenance of DG sets, power equipment and its spares/accessories. There is no adverse material on record to rebut the aforesaid documents as highlighted by the ld. CIT (A) above. Therefore, we do not find any reason to uphold the addition on the ground that there are no commercial activities. Accordingly, the finding of ld. CIT (A) is confirmed. Disallowance made u/s 40(a)(i) - AO held that the said payment of reimbursement of expenses is in the nature of fee for technical services - As noted by the ld. CIT (A), there is no FTS clause in the India UAE DTAA regarding fee of technical services and, therefore, there cannot be any question of withholding of tax. Accordingly, disallowance u/s 40(a)(i) cannot be made. The aforesaid finding of ld. CIT (A) is accordingly confirmed. Addition on account of diversion of income - We are unable to subscribe to the view taken by the AO that it is a paper entity and, therefore, there was diversion of profit. First of all, Chadha Projects JLT, Dubai is an independent entity incorporated under the laws of UAE and was carrying out various activities helping, assisting and getting contracts and procurements of orders for assessee firm and has also disclosed profits in its balance sheet of AED 7,92,674 including mark-up. If the non-resident entity has shown profit, then same cannot be added in the hands of the assessee company as income in India. Firstly, there is no evidence to prove that this was some kind of sham arrangement of profits along with markup and secondly, catena of documents and evidences were filed that the said entity is working there and for which mark-up of 10% of management fees is given, therefore, it cannot be held that all those documents are bogus or sham without any material information on record. Accordingly, findings of ld. CIT (A) on this score are also confirmed. - Decided against revenue.
|