TMI Blog2018 (9) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... d conveyance expenditure, we are of the opinion that many a times details are asked by the revenue in such a manner, which is very difficult to compile. Further, such extensive compilation of the details is also not required by the income tax act or the corresponding rules. Further as per the detailed submitted by the assessee before the learned assessing officer, the learned AO could not point out any instances where the expenditure incurred by the assessee are not incurred for the purposes of the business. Without pointing out such instances, it is not possible for us to uphold any percentage disallowance out of expenditure incurred by the assessee claimed by it is allowable under section 37 (1) of the act. Addition on account of deemed dividend u/s 2(22)(e) - Held that:- Payment in this case is to be treated as payment to the shareholder, holding company, i. e. Verizon Asia Pacific Holdings Pvt Ltd, Singapore, if at all. When payment has been made to any concern as loan or advance, such payment shall be deemed to have been made to the shareholder and the payment shall take the character of "deemed dividend”. The person liable in such situations would be the shareholder and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AO erred in not complying with the directions of the Panel by not reducing ₹ 5, 30, 352/- (interest for the late deposit of taxes) from the Administrative, and Other Expenses of ₹ 56, 61, 188/-, before applying the margin, since this has already been offered for tax. 3. That on the facts and in the circumstances of the case and in law, the Panel erred in confirming the action of the Ld. AO by disallowing a part of the travel and conveyance expenses on an adhoc basis, despite the relevant facts and evidence and material on record. This is without prejudice to the rectification application filed by the appellant before the Panel to rectify its mistake in not considering the additional evidence filed before it. 3. 1 That on the facts and in the circumstances of the case and in law, the Panel erred in not appreciating the fact that the applicant has incurred the aforesaid amount exclusively for the purpose of its business and is an allowable expenditure under Section 37(1) of the Act. 3. 2 That on the facts and in the circumstances of the case and in law, the Panel erred in not appreciating the fact that the travel and conveyance expenses have been inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine the arms length price (ALP) of those transactions. The learned TPO passed order under section 92CA (3) of the act on 30/8/2011 and proposed an adjustment of ₹ 22174704/ . Further, the learned AO made an addition of ₹ 1380011/- as estimated margin of 15% on services provided by the assessee as income of the assessee on services shown as other income. Further, the learned AO disallowed 10% of the travelling expenditure amounting to ₹ 1 6108546/ as assessee provided only descriptive explanation about the expenditure without mentioning details of domestic and foreign travelling expenses, support, purpose of the travel and expenditure on boarding and lodging et cetera. The learned AO further noted that travelling and conveyance expenditure are unverifiable as to whether the expenditure pertains to the business operations of the assessee. The learned AO further noted that assessee has received advance of ₹ 167367867/ from M/s Verizon communications India private limited as loan. The lender is a subsidiary of Verizon Holdings PVT Ltd, Singapore and similarly the assessee is a subsidiary of that company. Therefore, according to the learned AO provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved are that vide letter dated 19/12/2011, assessee submitted that other income shown of ₹ 5130355/ includes an amount of ₹ 39 lakhs received from Verizone communications India private limited for providing administrative services and remaining amount is received from other group companies for services provided to them. The assessee submitted that entire amount has been included in the total income of assessee and accordingly offered to tax. During the year under consideration, on appreciation of this submission, the learned AO noted that assessee is in the business of providing support services to the group companies in India and overseas. The entire services provided in India are to its group companies and significant portion of which is to Verizon communications India private limited. It was noted by him that TP order of the learned Additional Director of Income Tax (TPO) dated 30/8/2011 margin on services is considered at 15 % of the cost. In these services provided assessee has not shown any mark up so the ld AO took the cost of local overheads amounting to ₹ 5 661188 other than exchange fluctuation. The income against these expenses from the group compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not given any opportunity to the assessee. 9. The learned DR vehemently supported the order of the learned AO and the learned DRP. He submitted that when there is an agreement, assessee is charging margin of 12. 82% (ALP) on services provided by it to the AEs the identical amount of margin should have also been charged by the assessee from the sister concern, even though services are provided to any Indian company. He therefore submitted that correct amount of revenue has not been recorded by the assessee and hence the addition has rightly been made. 10. We have carefully considered the rival contentions as well as perused the order of the lower authorities. The assessee has credited ₹ 51, 30, 355/- in the profit and loss account as other income. On enquiry, it was found that the above sum is received for service fee from associated enterprises situated in India. The learned assessing officer noted that assessee has provided services in terms of agreement dated 25/2/2005. The company, which is receiving the above services, is also running its operation with no employees. Therefore, the learned AO held that the total cost incurred by the assessee is ₹ 5 661188 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. Accordingly, if the assessee is entitled to charge markup over the total cost incurred then the learned assessing officer is correct in making such adjustment. If the agreement between two resident companies do not provide for any such markup on the total cost then such addition cannot be made. Further, in the paper book filed before us details of other income is also not provided. It was also not shown to us that how the other income is computed and what it comprises of and what are the relevant documents by which the assessee has shown such income and estimation thereof, Therefore, in the interest of justice and for the reason that relevant documents are not available before us, we set aside 2nd ground of appeal back to the file of the learned assessing officer to decide it afresh after affording reasonable opportunity of hearing to the assessee. Accordingly, ground number 2 of the appeal is allowed with above direction. 11. Ground number 3 of the appeal is with respect to the disallowance of travel and conveyance expenses, at the rate of 10%. The brief facts shows that assessee has incurred such expenditure of ₹ 1 6108546/ . During assessment proceedings, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the learned assessing officer. 14. We have carefully considered the rival contentions as well as per used the orders of the lower authorities and the details of the expenditure submitted by the assessee at page number 135 176 of the paper book. The assessee has submitted the complete details of the expenditure of ₹ 1 6103640 in those pages. The assessee has given the legend listing of that expenditure stating the date of the expenditure incurred as well as the nature of expenses. In most of the cases, the expenditure incurred by the assessee is taxi charges, conveyance charges, and petrol and car maintenance charges. At certain places there are air travel expenditure also incurred by the assessee. The assessee has also given the name of the person in most of the cases as well as the month for which the expenditure has been incurred along with the amount of expenditure incurred. Most of the expenditure incurred by the assessee is of small amount ranging from ₹ 70 onwards. Many of the expenditure also payment made to a travel agent for booking the Air tickets as well as taxi expenditure. It is not necessary that such expenditure is always incurred in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Singapore. The learned assessing officer has further noted that that the lender company has accumulated profits of ₹ 6 4037615 and therefore, the learned assessing officer treated the amount to the extent of accumulated profits as income of the assessee under section 56 (2) (i) read with section 2 (22) (e) of the income tax act. The assessee contended before the dispute resolution panel that assessing officer has not given proper opportunity of hearing. It was further submitted that the dividend is taxable only in the hands of the shareholder and the assessee is neither a shareholder of the lender company and hence the provisions of deemed dividend are not attracted. It was further stated that on the date of payment of the loan they were not related profits as per the balance sheet of the lender and therefore there cannot be any deemed dividend in the hands of the assessee. It was further stated that that the cumulative profit stated to be of ₹ 6 4037615 as on 31/3/2008 in the balance sheet of the lender consisted of capital redemption reserve and the same should have been excluded while computing the deemed dividend even otherwise. It was further stated that the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing company. One of them is a lender of a sum of ₹ 1 67367867 and having accumulated profits of ₹ 6 4037615. The above transaction has been tested by revenue as taxable in the hands of the assessee company i. e. borrowing subsidiary as deemed dividend. On careful examination of the provisions of section 2 (22) (e) of the act it is apparent that it envisages three situations for taxation in case a loan is given by a company having accumulated profits higher than the amount of loan to be taxed as the income under that section. When a loan is given directly to the shareholder as loan or advance by the company only condition is that shareholder must be having shares not less than 10 % of that company. If the loan is not given to the shareholder but to a specified concern, in which a shareholder is a member and any payment made by the company on behalf of or for the benefit of such shareholder. In the case before us, the amount is given as a loan to a company in which the shareholder of the company is holding more than 10 % of the shareholding as well the shareholder is also the holding company of the borrower, therefore the above transaction falls in to the second situation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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