TMI Blog2014 (11) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... fication application - The language of section 254(2) of the Act is very clear. The foundation for exercising the jurisdiction is ‘with a view to rectify any mistake apparent on the record’ and the object is achieved by ‘amending any order passed by it’ - aseessee wants reappraisal of the entire case - It is not possible under the provisions of section 254(2) of the Act – also in Commissioner Of Income-Tax Versus Ramesh Electric And Trading Co. [1992 (11) TMI 32 - BOMBAY High Court] it has been held that the power of rectification u/s. 254(2) of the Act, cannot be exercised on failure of the Tribunal to consider an argument advanced by either party for arriving at a conclusion because it is an error of judgment and not an error apparent on the record. The Tribunal had arrived at the conclusion after considering all the facts and circumstances of the case - for reimbursement there was no need to deduct tax at all, but whether in a particular payment there was reimbursement or not was to be proved by the assessee - the assessee had not led the evidence, inspite of the specific query, to prove that the payments did not have profit element - there is no mistake in the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not clear as to how the assessee arrived at the conclusion that payments made by it for said activities were pure reimbursement. AR also could not throw light in this regard, when a specific query raised by the bench, during the course of hearing before us. Now, we would like to discuss the expenditure incurred the head Staff cost. AR as well as the DR had referred to the cost sharing agreement dated 21. 11. 2003 to strengthen their submissions. AR referred to Clauses 2. 3 and 2. 4 of the agreement, whereas DR referred to Cl. 3. 1. to 3. 4. We would like to reproduce the relevant clauses: XXXX From the above it is clear that the agreement talks of estimation of expense. In our opinion, when there was only estimation, how could assessee claim that the payment made was reimbursement only. In the paper book filed by the assessee, we had not found any document that could throw light the basis of calculating the figures of so called reimbursement. In the debit notes some percentage is mentioned, but how that percentage was arrived at, is not known nor was it explained to us. In these circumstances, we agree with the FAA that payment in question was not pure and simple rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, partly confirming the order of the AO we hold payment made by the assessee under the heads Staff Cost, Advertising and Promotional Expenses, Other Misc. Expenses were not pure reimbursement and it had to deduct tax at source as per the provisions of section 194C of the Act. 2. 4. c. We have gone through the order of Bayer Material Sciences Pvt. Ltd. (Supra). We would like to reproduce the relevant paragraphs of the order that read as under: 33. We have heard the rival submissions and perused the relevant material on record. It is noticed that the assessee is a manufacturer of high performance material such as polyurethane etc. apart from engaged in trading of polycarbonate. BCS is sister concern of the assessee engaged in manufacturing and distribution of crop protection products, fungicides and non-agricultural based control and related products. They are affiliates of Bayer AG, Germany. Both BCS and the assessee company entered into two separate agreements datted 18-4-2005 effective from 1-4-2005 under which it was agreed to share personnel and facilities of each this regard, the assessee made payment of ₹ 2. 9Cores to BCS for, utilising their employees and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in such reimbursement of expenses was also raised before the AO, which remained uncontroverted. Now, the position which emerges is that BCS incurred certain costs on employees and facilities which were utilized by the assessee and the other group concerns for which there was reimbursement of actual expenditure incurred to BCS without any profit element. The ld. DR also failed to lead any material to show that there was any profit element in such payment. The Hon ble jurisdictional High Court in CIT vs. Simon Aktiongtsellschaft (2009)310 ITR 320 (Bom) has held that payment by way of reimbursement of expenses incurred on behalf of payer is not an income chargeable to tax in the hands of payee. Similar view has been taken by the Special Bench of the Tribunal in Mahindra Mahindra Ltd. vs. DCIT (2009) 122 TTJ (Born) (SB) 577. In view of the afore noted precedents, it becomes clear that where payment is made towards reim -bursement of expenses, there cannot be any element of income in such payment in the hands of the payee. Once the element of income is missing, naturally, there cannot be any question of deducting tax at source from such payment made, which pre-supposes the taxabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly, for understanding the real meaning and intent of an agreement, only a word or a single clause cannot be a decisive factor. We are of the opinion that clause-3 of the agreement proves that the agreement was in the nature of a service contract. Payment of service tax is also a vital factor to decide the present case. In short, considering the facts that assessee had not produced evidence to prove the proposition that payments made by it were not embedded with profit, that service tax was paid and that real nature of the agreement was of the service contract, we are of the opinion that provisions of section 194C are applicable in the case under consideration. Therefore, we uphold the order of the FAA as far as payments made under three heads;Staff Cost, Advertising and Promotional Expenses, Other Misc. Expenses;are concerned. 4. From the above it is clear that on a specific query raised by the Bench the assessee did not throw any light as to whether the payments in question were pure reimbursement or not. In our opinion, the Tribunal has considered the agreement as a whole and not in piece meal. As far as arriving at the wrong conclusion in concerned, we are of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al had decided the appeal appeal of the assessee after considering the rival submissions. Later on an application was moved by the assessee u/s. 254 of the Act for rectifying the mistake. Tribunal allowing the MA filed by the assessee granted it relief. Reversing the order of the Tribunal, the Hon ble laid down following principles: Application of the principles laid down by the superior courts to the facts of the case before the Tribunal on erroneous understanding of such principles, recording of an erroneous finding by it based on the facts on record, arriving at a conclusion on erroneous application of provisions of law to the facts of the case, etc. , cannot be held to be a mistake apparent from the record warranting any rectification by the Tribunal in exercise of its power under section 254(2) of the Income-tax Act, . . Such an exercise of power under section 254(2) of the Act amounts to review of its earlier order on the merits but not rectification of mistake apparent from the record and such review would certainly be beyond the scope of section 254(2) of the Income-tax Act. The words mistake apparent from record, as appearing in the section 254(2) has a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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