TMI Blog2013 (12) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... SANJAY GARG, JJ. ORDER:- PER : P M Jagtap This appeal filed by the assessee is directed against the order of the ld. CIT(A) - 2, Mumbai dtd. 03-11-2011 for A.Y. 2008-09. 2. The common issue raised in ground No. 1 to 4 of this appeal relates to the disallowance of Rs. 4,59,56,000/- made by the A.O. u/s 40(a)(ia) of the ITA 537/Mum/2012 Income Tax Act, 1961 (the Act) for non deduction of tax at source which has been partly sustained by the ld. CIT(A). 3. The assessee in the present case is a company which is engaged in the business of rendering investment advisory and portfolio management services. The return of income for the year under consideration was filed by it on 29-9-2008 declaring loss of Rs. 17,33,630/-. During the course of assessment proceedings, it was noticed by the A.O. that the assessee has paid a total sum of Rs. 4,59,56,000/- to its holding company M/s IDFC Limited on account of reimbursement of various expenses. The said amount was comprising of reimbursement of rent amounting to Rs. 56,14,216/- and reimbursement of other office and administrative expenses amounting to Rs. 4,03,41,784/-. According to the A.O., the assessee was required to deduct tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of income and is therefore not liable to tax. Mahindra Mahindra Ltd Vs. DCIT (2009) Mumbai CIT Vs. Fortis Health Care Ltd (2009) ITA 8/2009 (Delhi) CIT Vs. Siemens Aktiongesellschaft (2009) 310 ITR 320 (Bona) CIT Vs. Industrial Engineering Products Pvt Ltd 202 ITR 1014 CIT Vs. Dunlop Ribber co. Ltd (1983) 142 ITR 493 (Cal) ITO Vs. Dr. Wiilmar Schwabe India Pvt Ltd, (2005) 3 SOT 71 (Delhi) Raymond Ltd Vs. DCIT (2003) 86 lTD 791 (Born) Clifford Chance, UK Vs. DCII (2002) 82 ITR 106 (Mum) Mannesmann Demag Lauchhammer Vs. CIT (1988) 26 ITR 198 (Hyd.) Considering the aforesaid judicial pronouncements and facts of the case, it is submitted that the payments made by the assessee to IDFC Ltd during the captioned A Y represents reimbursement of expenses and thus the assessee was not responsible for deducting any tax at source while making such payment. In view of the above, it is submitted that such payment cannot be disallowed". 4. The above submission made by the assessee was not found acceptable by the A.O. for the following reasons given in the assessment order:- (a) It has already discussed in para 4.2 above, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax at source from the payment of the said expenses made to its holding company IDFC Limited. 5. The disallowance made by the A.O. u/s 40(a)(ia) of the Act was challenged by the assessee in an appeal filed before the ld. CIT(A) and it was submitted on behalf of the assessee before the ld. CIT(A) that the entire amount of Rs. 4,59,56,000/- having been paid to IDFC Limited towards reimbursement of actual expenses incurred on its behalf, there was no obligation to deduct tax at source from the said payment. It was submitted that the IDFC Limited had recovered from the assessee the said expenses as actually incurred by them without there being any mark-up. It was submitted that the expenses incurred by IDFC Limited on behalf of the assessee and subsequently reimbursed by the assessee were in the nature of rent expenses, communication expenses, training expenses, professional fees, conveyance and traveling, electricity expenses, internet expenses etc. and IDFC Limited had already deducted tax on payment of these expenses, wherever required. It was contended that the assessee company was not liable to deduct tax at source from the payment made to IDFC Limited towards reimbursement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2007-08 included in the said expenses having been disallowed by the A.O. as prior period expenses and the said disallowance having been confirmed by him, the same amount could not be disallowed again u/s 40(a)(ia) of the Act which otherwise resulted in double disallowance. Accordingly, the disallowance of Rs. 4,59,56,000/- was sustained by him to the extent of Rs. 3,40,04,447/-. 7. The ld. counsel for the assessee submitted that the assessee is a company incorporated in the year 2006 with the objective of to carry on the business of providing investment and portfolio management services. He submitted that during the year under consideration, the assessee company had no staff of its own or even infrastructure to carry on the business activity and therefore the infrastructure facilities and entire staff were provided by its holding company IDFC Limited. He invited our attention to the copy of MOU between the assessee company and IDFC Limited placed at page 108 of his paper book to show that the necessary staff required by the assessee company was to be provided by IDFC Limited on deputation basis and the assessee company was to reimburse the salary cost of the said employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee having failed to deduct tax at source from the payment made to IDFC Limited, the disallowance u/s 40(a)(ia) of the Act has been rightly made by the A.O. and confirmed by the ld. CIT(A). 9. We have considered the rival submissions and also perused the relevant material available on record. The ld. counsel for the assessee has demonstrated before us from the relevant P L account of the assessee company, Schedule and note forming part of accounts of the assessee as well as the MOU between the assessee company and IDFC Limited that the amount in question disallowed by the A.O. u/s 40(a)(ia) of the Act was paid by the assessee company to IDFC Limited towards reimbursement of actual expenditure incurred by the said company on behalf of the assessee company without any mark-up or element of profit and the ld. D.R. has not disputed this position. As a matter of fact, this position has not been disputed even by the A.O. or the ld. CIT(A) in their respective orders. On the contrary, the fact that the amount in question was paid by the assessee to IDFC Limited towards reimbursement of expenses was accepted by the A.O. as well as by the ld. CIT(A) while recording the finding/o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmed by the ld. CIT(A) is not sustainable. The same is accordingly deleted allowing ground 1 to 4 of the assessee s appeal. 12. The grievance raised by the assessee in ground No. 5 is that the ld. CIT has erred in not adjudicating upon the issue relating to the disallowance of 1/3rd of amount of rent paid by the assessee to IDFC Limited. 13. Without prejudice to the disallowance made by him u/s 40(a)(ia) of the Act on account of rent paid by the assessee to IDFC Limited, the claim of the assessee on account of deduction for the said rent was also examined by the A.O. on merit. On such examination, he held that the entire rent paid by the assessee was not wholly and exclusively incurred for the purpose of assessee s business. He therefore invoked the provisions of section 38(2) of the Act and made a disallowance of Rs. 18,71,404/- out of rent being 1/3rd of the total rent paid by the assessee to IDFC Limited. Although this issue was specifically raised by the assessee in ground No. 1(e) taken before the ld. CIT(A) and submission thereon was also made, it appears that the ld. CIT(A) after having confirmed the disallowance made by the A.O. u/s 40(a)(ia) has not adjudicated upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer in disallowing the prior period expenses in AY 2008-09 is correct, however, it also held that since the prior period expense is already included in the disallowance of Rs 4,59,56,000 made under section 40(a)(ia) of the Act, the same would tantamount to double disallowance and accordingly, a direction was issued to the Assessing Officer to delete the same. Aggrieved by the Order of the CIT(A), the Appellant appealed before the Income Tax Appellate Tribunal ( ITAT ) on the reimbursement issue, however, since prior period expenses were already forming part of reimbursement issue, the Appellant inadvertently missed to take the ground of the prior period expense issue. Accordingly, the failure to raise this ground initially was neither deliberate nor contumacious and we therefore request that the present application be placed before the Bench for necessary orders. Reason for raising additional ground No 7. It is submitted that a similar issue regarding the prior period expense amounting to Rs 77,38,000 arose in AY 2009- 10 where the Appellant had claimed it as an allowable expenditure whereas the Assessing Officer disallowed the same during the course of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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