TMI Blog2010 (8) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure: Rs.. 59,188/- 3. The CIT (A), while partly allowing the assessee s appeal, confirmed the above disallowances. Being aggrieved, the assessee is in appeal before us. 4. The first ground of appeal is against confirmation of disallowance of ₹ 37,23,017/- on account of share of administrative expenses by holding that the same should have been borne by the associate company. 5. Brief facts, apropos this issue, are that the Assessing Officer noticed from the details submitted by the assessee that the assessee was in the practice of sharing administrative expenditure with Avion System Inc, USA, which was a related concern. He noticed that the ratio of expense sharing had undergone a radical change, resulting in the income of the assessee being drastically reduced. He noticed that the assessee had recovered 69.05% of administrative expenses from the above concern in A.Y. 2004- 05. But the recovery had sharply fallen to 33.76% in assessment year 2005-06. He, therefore, required the assessee to explain the variation with documentary proof and breakup. He also required the assessee to produce the agreement for sharing of expenses and personnel with Avion System Inc, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1996, was an Atlanta based global technology firm, specializing in converging communication, broadband net work services, solution and innovation. It had two distinct practice areas namely, focusing on telecom and technology sector. The firm was providing value added consultancy services in the areas of net work planning, design, installation, optimization and pay-roll services. It also provided comprehensive next generation broadband communication, net work engineering services, 3G and 4G net work Wifi mesh networks, Wimax Cable networks for voice and data. It was explained that firm played a critical role in helping to implement net work infrastructure worldwide for companies such as AT T, Sprint Nextel, Earth Link, Ericssion, Alcatel-lucent, Motorala, Nokia, Siemens and Nortel. It was further explained that over a period of time, it s parent/associate company had diversified their consulting services model to include Technology Services in areas such as project management, data warehousing, IT infrastructure and software development. It was also explained that the assessee firm was formed on 4.6.2002 by Dr. V.Anantharaman and Mrs Uma Anantharaman. The parent firm in USA was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year through the assessee firm. However, no details were provided or furnished by the assessee. The assessee filed a letter dated 5.10.2008 signed by both the parties, but the same was not accepted by the CIT (A) observing that it was an after thought only. The CIT (A) confirmed the addition, inter alia, observing that the assessee failed to furnish the details regarding revenue generated by the parent/associate company vis- -vis revenue generated by the assessee company from their India related projects for ascertaining the bifurcation of administrative expenses. 7. Ld Counsel for the assessee submitted that the reimbursement to the parent company was not as a matter of right. In this regard, he referred to the submissions made before the CIT (A) vide letter dated 13.1.2009, in which, it was specifically pointed out that the entire expenditure incurred by the assessee firm in fact pertained to Indian assessee s firm. However, as per explanation given in letter dated 15.4.2003, a portion of the administrative expense was reimbursed by the U.S. Corporation. The main objective of the reimbursement was to ensure a minimum guarantee return for the assessee firm. The shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submission made on behalf of the revenue for the reason that the advertisement expenditure was, in fact, incurred by the assessee wholly and exclusively for his business. The genuineness of this expenditure has not been doubted by the revenue authorities. Further, it is not the case of the AO that the agreement with JLL was sham or bogus. Their objection to the allowability in entirely is that JLL had also obtained advantage out of this expenditure and to that extent the character of wholly and exclusively is lost. In our considered opinion so long as the expenditure is incurred wholly and exclusively for the purpose of business, nothing should come in the way of allowing deduction even if some benefit from the expenditure has flown to anybody else. Our view is fortified by the judgement of the Hon ble Supreme Court in Sassoon J. David Co (P)Ltd v CIT (19879) 10 CTR (SC) 383: (1979) 118 ITR 261 (SC). We find that no part of the advertisement expenditure incurred by the assessee can be related to the non-business purpose of the assessee. Under these circumstances, we are of the considered opinion that the entire advertisement expenditure incurred by the assessee was wholly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was further laid down that the mere fact that the assessee company was maintaining its account on the basis of mercantile system could not lead to the conclusion that the commission had accrued to it by the end of the relevant accounting year. Coming back to the facts of the instant case, we find that there is no material to suggest, even remotely, that any amount more than ₹ 55.86 lakhs was determined, which the assessee failed to account for. In the absence of determination of the alleged amount reimbursable by JLL to the assessee, no hypothetical exercise is permissible to hold that the amount of ₹ 527.85 lakhs accrued to the assessee as his income, which was not accounted for. We are of the considered opinion that the ld CIT (A) erred in sustaining the partial addition. We, therefore, order of the deletion of this addition. 8. Ld D.R. submitted that it was never the assessee s case that expenses were not to be shared. In this regard, he relied on letter filed before the CIT(A). He submitted that at best the turnover of both the firms should be the deciding factor in regard to sharing of expenses. 9. In the rejoinder, ld Counsel submitted that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd reimburse the same (subject to the overall cap mentioned above). At the end of the financial year, you will submit us your accounts on the basis of which the amount of expenses to be sharet/borne by us will be determined as per the preceding para and the differential/excess will either be paid to you/recovered from you, as the case may be. Please note that our decision on the quantum of expenses to be borne by us will be final and binding upon you. We kindly request you to confirm the above arrangement by signing on the duplicate copy of this letter and return one copy for our record purposes. The main purpose of establishing the assessee firm was to assist the global customers of parent company. The successful establishment of the assessee firm was in the business interest of parent company as it wanted to provide a one-shop stop solution for all their operations globally. Keeping in view this interest, the parent company agreed to provide to assessee a minimum guaranteed post tax return of 5% of the gross revenues. Therefore, if in the ultimate analysis, the reimbursement from the parent company resulted in earning of 5% of gross revenue or more by the assessee concern, no obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed chart in regard to due date and date of payment has been given at page 3 of the assessment order. He, accordingly, made an addition of ₹ 3,38,670/-. 13. The CIT (A) directed the AO to allow the payments made to the Government account within the due date including the grace period in regard to contribution to PF. As regards ESIC, he noted that the payments had not been made within the grace period and, therefore, he confirmed the disallowance. Accordingly, he partly allowed the assessee s appeal. Being aggrieved, the assessee is in appeal before us. 14. We have considered the rival submissions and perused the record of the case. We find that the Tribunal after considering the decision of the Hon ble Supreme Court in the case of CIT v. Alom Extrusions Ltd., 319 ITR 306 (SC) has consistently been taking the view that if the employees contribution is paid after the grace period given in the respective Act but before the due date for filing the return of income, is allowed for deduction. We find that a co-ordinate Bench in the case of P.I. Drugs Pharmaceuticals Ltd.v DCIT (ITA No.1866/M/2009 for A.Y. 2005-06) vide its order dated 20.8.2010 has taken the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 43B. The Tribunal was of the opinion that the case was covered by the judgment of the Supreme Court in the case of CIT Vs Alom Extrusions Ltd. MANU/SC/1846/2009 : (2009) 319 ITR 306 (SC) and accordingly held that the contribution of the employees ; if paid before the due date for filing the return of income as contemplated by the proviso to section 43B is to be allowed as a deduction. In the case of Radhakrishna Foodland Pvt. Ltd. vs ACIT in ITA No.4211/ Mum./20 (assessment year 2003-04), the Tribunal by order dated 11th February 2008, held following the view taken by the Supreme Court in the case of Vinay Cement Ltd. (2007) 213 CTR 268 (SC) that the employees contribution paid before the due date for filing the return of income is allowable as a deduction. There is thus a series of orders of the Mumbai Benches of the Tribunal on the issue and respectfully following them we delete the disallowance of ₹ 14,02,512/-, out of which ₹ 5,62,450/- was paid after the due date but before the grace period and ₹ 8,40,062/- was paid after the grace period but before the due date for filing the return of income. The first ground is accordingly allowed. The above observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, held that ₹ 75,000/- was not allowable. Further, he pointed out that even if it was assumed that the expenditure was made as the assessee had to provide for accommodation of Mr Kenneth, the assessee had failed to deduct TDS on the same and hence, this expenditure was inadmissible this being in the nature of professional service and hence, it was required to deduct tax under section 194J. 17. The CIT (A) dismissed the assessee s appeal observing that the payment was not a gratuitous payment but was in connection with the business requirements of the assessee for hiring professional services and was covered by the specific provisions of section 194J. 18. Having heard both the sides, we do not find any reason to interfere with the order of the ld CIT (A) because the assessee had specifically hired the accommodation for Kenneth and, therefore, it was definitely part and parcel of the professional services rendered by Mr Kenneth. Therefore, the assessee was required to deduct TDS on the entire sum of ₹ 1,25,000/- paid to him. Further, even as per assessee s own contention, it was a gratuitous payment and, therefore, could not be allowed as business expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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