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Mahyco Monsanto Biotech (India) Ltd. Versus Additional Commissioner of Income Tax, Range 1 (20) , Mumbai

2012 (11) TMI 1155 - ITAT MUMBAI

TDS u/s 194C - non deduction of tds on payment made to parent company - Held that:- Disallowance cannot be made as it has not been shown or established that aforementioned payments were made by the assessee to the aforementioned group concerns against any contract work carried out by them for the assessee. In the case of reimbursement of expenses, the expenditure incurred is related to the person who has not made the original payment. The payment of expenditure is made by "X" party on behalf of .....

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in accordance with law. - ITA NO. 5842/MUM/2012 - Dated:- 30-11-2012 - SHRI I.P.BANSAL, JUDICIAL MEMBER & SHRI SANJAY ARORA, ACCOUNTANT MEMBER For the Appellant: Shri Kirit Kamdar For the Respondent: Shri Pravin Varma ORDER PER I.P.BANSAL, J.M This is an appeal filed by the assessee. It is directed against order passed by Ld. CIT(A)-2, Mumbai dated 18/07/2012 for the assessment year 2008-09. The grounds of appeal raised by the assessee read as under: "Based on the facts and circumstance .....

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sement of expenses ₹ 8,37,22,826/- On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing expenses reimbursed to group companies under section 40(a)(ia) of the Act on account of non deduction of tax at source. Without Prejudice to Ground-1, the Commissioner of Income-tax (Appeals) erred in holding that the benefit of second proviso inserted to section 40(a)(ia) of the Act b .....

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layed payment of VAT. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 2. In Ground No.1, the assessee is agitating an addition of ₹ 8,37,22,826/-. It is the case of the AO that the payments detailed below being reimbursement to the group companies are laiable for deduction to tax under section 194C of the Income Tax Act, 1961 (the Act). a) .....

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annot be made under section 40(a)(ia) of the Act, the assessee has relied upon the following decisions which mentioned in the assessment order: (a) The decision of Hon'ble ITAT in the case of ACIT Vs. J.B.Boda Surveyors Pvt. Ltd., ITA No.4252/Mum/2009 dated 21/5/2010. (b) CIT vs. Siemens Aktiongesellchaft , 310 ITR 320 (Bom) 2.3 However, Ld. AO has distinguished the aforementioned decisions on the ground that Hon'ble Bombay High Court did not consider the issue regarding disallowance und .....

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ducted on the said amount and the balance amount of ₹ 8,37,22,826/- was disallowed out of aforementioned amount of ₹ 9,23,44,716/-. 4. After narrating the facts it was submitted by Ld. A.R that AO himself has accepted that these payments are in the nature of reimbursement and if it is so, disallowance under section 40(a)(ia) not to be made relying upon aforementioned two decision. He submitted that AO has wrongly distinguished the decision of Hon'ble Jurisdictional High Court in .....

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ferred to the following observations from the said decision: " 2. For the sake of brevity the brief facts of the case extracted from ITA No.4252/Mum/2009 in M/s. J.B. Boda Surveyors Pvt. Ltd. for the Assessment Year 2006-07 are that the assessee company is engaged in the business of Marine Cargo Surveyors, Samplers, Analysts and Loss Assessors. The return was filed declaring total income at ₹ 2,78,71,388/-. During the course of assessment it was observed by the Assessing Officer that .....

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B. Boda & Co. is incurring all the expenses and then recovers it from the respective companies and it is a case of reimbursement of expenses hence, not liable to deduction of TDS. The Assessing Officer after considering assessee's explanation was of the view that the expenses claimed as reimbursement (other than the salary, PF and professional fees on which the TDS has been deducted by the parent company) of ₹ 3,35,73,125/- on account of staff welfare expenses, rent, general expens .....

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s not liable to deduct any TDS on such reimbursement of expenses due to the fact that as per the arrangement with M/s. J.B. Boda & Co. Pvt. Ltd., the parent company of J.B. Boda group of companies, incurs all management, administrative expenses on behalf of all group companies who share the common facilities and then recovers it from the respective participants on actual basis as far as possible. It was further submitted that M/s. J.B. Boda & Co. Pvt. Ltd. which is actually making the pa .....

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ed by the group company to the flagship company does not constitute income in the hands of the later and does not partake the nature of commission, held that there is no liability to deduct tax on part of the appellant company and accordingly deleted the disallowance made by the Assessing Officer . 3. Being aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us taking following effective grounds of appeal:- "a. On the facts and in the circumstances of the case and in la .....

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ns as discussed in the assessment order, the ld. CIT(A) was not justified in deleting the disallowance made by the Assessing Officer. He therefore, submits that the disallowance made by the Assessing Officer be restored. 5. On the other hand the ld. Counsel for the assessee while relying on the order of the ld. CIT(A) submits that this issue stands covered in favour of the assessee by the order of the Tribunal in ACIT vs. M/s. Crowe Boda & Co. Pvt. Ltd. in ITA No.4251/M/2009 for Assessment Y .....

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This arrangement was entered into for more effective cost management. The common expenses are incurred for and on behalf of everyone in the group. All the group companies reimbursed the expenses to M/s. J.B. Boda & Co. Pvt. Ltd. on an equitable basis determined in earlier years by the management consultant. There is no material on record to show that the assessee has made payments to the contractor or sub-contractor or actual service provider. Therefore, the payments made to M/s. J.B. Boda .....

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k including supply of labour for carrying out any work on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or after deduction has not been paid within stipulated period. In the case under consideration, the Assessing Officer did not specifically point out as to under which clause or under which sub-section of section 40 the claim of the assessee was disallowed. The contention of the assessee is that the payment made to parent company, M/s. J.B. Boda & .....

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Boda & Co. Pvt. Ltd. is a payment of reimbursement of expenses. In case of reimbursement of expenses, the expenditure incurred is related to the person who was not made the original payment. In other words, the payment of expenditure is made by X-party on behalf of the Y-party and later on the same is reimbursed to the X-party, by Y-party, the expenditure is pertaining to Y-party and not pertaining to X- party. Thus, the payment to M/s. J.B. Boda & Co. made by the assessee is a simple r .....

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e assessee failed to make TDS or after making deduction of TDS does not pay within the stipulated period. As stated above, the payment made to M/s. J.B. Boda & Co. Pvt. Ltd. is on account of personal account in the terms of accounting principle paying and then receiving amount which is not an expenditure in the hands of the assessee, therefore, the Assessing Officer is not correct in invoking section 40(a)(ia) or other provision of section 40 of the Act. It is also to be noted here that ther .....

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2007-08 even after raising query in this regards. In the light of the above discussion, we do not find any infirmity in the order of CIT(A) in deleting the disallowance of ₹ 29,58,608/- on account of reimbursement made to parent company M/s. J.B. Boda & Co. Pvt. Ltd." In the absence of any distinguishing feature brought on record by the revenue, we for the reasons as discussed above and respectfully following the order of the Tribunal hold that the assessee is not liable to deduc .....

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ould be deleted. 5. On the other hand, Ld. D.R relied upon the order passed by the AO as well as Ld. CIT(A). 6. We have carefully considered the rival submissions in the light of material placed before us. We have carefully gone through the assessment order. The AO did not dispute the fact that the impugned amount was in the nature of reimbursement expenses on cost to cost basis. If it is so, according to the ratio of the decision rendered by Co-ordinate Bench in the case of ACIT Vs. J.B.Boda Su .....

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and later on the same is reimbursed to "X" party by "Y" party, the expenditure is pertaining to "Y" party and not pertaining to "X" party. Therefore, applying the ratio laid down in the case of ACIT vs. Crowe Boda & Co. Pvt. Ltd. in ITA No.4251/M/2009 vide order dated 30/3/2010, relied upon in the case of ACIT Vs. J.B.Boda Surveyors Pvt. Ltd., the issue is decided in favour of assessee. The relevant observations have already been reproduced above. In v .....

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