TMI Blog2020 (6) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee for its employees has been considered as perquisite in the hands of the employees as salary income and tax has been paid thereon - HELD THAT:- The finding of the Ld. DRP is correct. We are further of the view that any expenditure incurred on employees by the employer, whether by way of salary or by way of perquisites, is business expenditure as the employees are working for the business. What the employer provides to employees is a consideration for the services rendered by such employees. Such consideration can be in cash by way of salary or allowances or in kind by way of various perquisites. The Club Membership fee is one such perquisite which is extended by the employer to its employees. So long the fee is paid for the employees who are working with the employer for the business being carried on by such employer, the fee so paid is an expenditure incurred wholly and exclusively for the purpose of business. Decided against revenue. Addition on account of the Service Fees - As per AO this expenditure has not been incurred wholly and exclusively for the purpose of business as the assessee has not furnished any details regarding the actual service being provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only to such expenditure which assessee is not able to support with evidence. TDS u/s 195 - non-deduction of tax on purchases made from Mitsui Co. Ltd. Japan - existence of the PE in India - HELD THAT:- From the facts explained by the Ld. AR, it is clear that a coordinate Bench of the ITAT in the case of Mitsui Co. Ltd. Japan [ 2016 (4) TMI 1447 - ITAT DELHI] has held that Mitsui Co. Ltd. Japan does not have a PE in India. In the absence of any PE, there is no obligation to deduct tax. Further, it is also a fact that these purchases are off-shore supplies which cannot be subjected to tax in India and if that be so, there is no requirement to deduct tax at source.DRP has also examined this issue and has held that off-shore supplies were not related to the activities by the PE of such an AE in India - Decided against revenue. - ITA No. 1608/Del/2016 And ITA No. 1672/Del/2016 - - - Dated:- 22-6-2020 - Shri Sudhanshu Srivastava, Judicial Member And Shri O.P. Kant, Accountant Member For the Appellant : Sh. Surender Pal , CIT-DR. For the Respondent : Sh. Ved Ja in, Adv. ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: These are cross-appeals fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRP is justified in not upholding disallowance of Rs. 16,54,868/- u/s 14A of Income Tax Act 1961 without considering legislative intend of introducing section 14A by the Finance Act 2001 as clarified by the CBDT Circular No. 5/2014 dated 10.02.2014? 10. Whether on facts and circumstances of the case and in law, the DRP is justified is not upholding the disallowance of Rs. 16,54,868/- u/s 14A of the Act without consider a legal principle that allowability of expenditure under the Act is not conditional upon the earning of the income as upheld by the Hon ble Supreme Court in the case of CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519? 11. Whether on facts and circumstances of the case and in law, the DRP is justified in not upholding the disallowance of an amount of Rs. 13,63,487/- on account of expenditure on club membership? 12. Whether on facts and circumstances of the case and in law, the DRP is justified in not upholding disallowance of an amount of Rs. 1,28,79.450/- on account of service fees paid to M/s West Japan Logistics, Division of Mitsui Company Ltd., Japan and M/s Mitsui Company (Asia) Pte., Singapore? 13. Whether on facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th section 92CD of the Act. It was informed that in view of the Advance Pricing Agreement having been entered into, the grounds in the appeal on this issue of Transfer Pricing are to withdrawn as per Rule 10RA (5). 3.1 The Learned DR agreed that Ground No. 1 to 7 be treated as withdrawn. 3.2 In view of the Advance Pricing Agreement having been entered into by the assessee for the Assessment Year under consideration, Ground Nos. 1 to 7 of Revenue s Appeal are dismissed as withdrawn. 3.3 Ground Nos. 8 to 10 in Revenue s appeal are on the issue of deletion of disallowance of Rs. 16,54,868/- proposed by the AO in the Assessment Order under section 14A of the Act. The AO has made the above disallowance by holding that disallowance under section 14A is to be made mandatorily irrespective of the fact whether assessee has received any exempt income during the year or not. The Ld. DRP has deleted the disallowance relying upon the judgment of Hon ble Delhi High Court in the case of Cheminvest Ltd. (378 ITR 33) wherein it has been held that in the absence of any exempt income during the year, no disallowance can be made. Further, the Ld. DRP has held that the interest free funds are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees are working for the business. What the employer provides to employees is a consideration for the services rendered by such employees. Such consideration can be in cash by way of salary or allowances or in kind by way of various perquisites. The Club Membership fee is one such perquisite which is extended by the employer to its employees. So long the fee is paid for the employees who are working with the employer for the business being carried on by such employer, the fee so paid is an expenditure incurred wholly and exclusively for the purpose of business. 3.5.3 In view of the above, we uphold the order of the Ld. DRP and Ground No. 11 of the Revenue s appeal is dismissed. 3.6.0 Ground No. 12 in Revenue s appeal is on account of deletion of addition of Rs. 1,28,79,450/- on account of the Service Fees. The AO has disallowed the same holding that this expenditure has not been incurred wholly and exclusively for the purpose of business as the assessee has not furnished any details regarding the actual service being provided and the nature of services offered by M/s West Japan Logistics is quite vague. Further, M/s Mitsui Company (Asia) Pte., Singapore is a tradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom AE s are part of the Paper Book page 518-614, filed before us. Further, these payments by assessee to its AE was subject matter of examination by the TPO as is evident from page 3 of the TPO s order and, admittedly, the TPO has not drawn any adverse inference on this issue. The AO, however, on the premise that such expenditure has not been incurred wholly and exclusively for the purpose of the business and that it has been made only on account of close connection of the assessee with its AEs, disallowed the same u/s 37(1) of the Act. The Ld. DRP carried out a detailed examination of the agreements with the AEs and evidences in support thereof. After detailed examination, it has directed to delete the addition giving a reasoned and cogent finding as under: The Panel went through the submissions filed by the A in relation to the expenditure claimed as above .The relevant paper book 1 consisting of 361 pages gone through minutely. The paper book contained copies of agreements along with supporting documents in respect of Intra-group services received by the A from its AEs in the form of divisional operational including development and monitoring of the business plan for ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for payment of such amount to AE. The contention of the Ld. AR on this issue that it is not permissible for the Revenue to step in the shoes of the assessee/ businessman and take the business decisions is correct. In view of the above analysis, we uphold the order of the DRP and ground no. 12 of the Revenue s appeal is dismissed. 3.7.0 Ground No. 13 in Revenue s appeal is regarding deletion of addition of Rs. 1,12,75,015/- out of total expenditure of Rs. 1,39,68,770/- on account of Staff Welfare expenses. This ground is common with Ground No. 1 in assessee s appeal where the assessee is contesting the addition of Rs. 26,93,754/- sustained by the Ld. DRP. The AO, during the course of the assessment proceedings, noticed that the assessee, during the year, has incurred the following expenditure on Staff Welfare:- Medical Insurance 17,07,881 Company Function 12,24,624 Membership Fees 29,34,012 Shifting Expenses 78,89,769 Social Security Expenditure 1,17,45,417 Japanese Food ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of what has been proposed in the draft Assessment Order. Thus, the fact that expenditure has been incurred by the assessee company has not been doubted either by the AO or by the Ld. DRP. Both authorities have gone with the perception that the expenditure incurred has an element of personal nature and hence, something needs to be disallowed. This is a case of a company. The impugned expenditures have been incurred on its employees. The expenditure, so incurred, is in consideration of the services provided by such employees. Thus, it cannot be said the expenditure incurred is personal in nature. As regards the details and the evidences in support thereof, is evident from the Assessment Order that the assessee has submitted the details of these expenditure head-wise which has been quoted by the AO himself. In support thereof, the assessee has submitted more than 200 invoices before the Ld. DRP which have been taken note of by the Ld. DRP in its findings where it has been stated that copies of bills from pages 129-361 of the Paper Book were filed. These invoices are also placed in the Paper Book filed before us at pages 615-847. Though, the Ld. DRP upheld disallowance to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . During the year, the assessee made purchases of Rs 31,02,53,414/- from Mitsui Co Ltd., Japan. The AO, on the basis that Mitsui Co. Japan has a Permanent Establishment (PE) in India, was of the view that the assessee company ought to have deducted tax-at-source while making such payment. The AO computed an amount of Rs. 23,57,926/- as the profit attributable to the PE of Mitsui Co., Japan in respect of the purchases made by the assessee by applying a gross profit rate of 1.52% of the above purchases and attributing 50% of such gross profit to the PE in India. Accordingly, he disallowed an amount of Rs. 23,57,926/- under section 40(a)(i) of the Income Tax Act. The Ld. DRP has deleted the said disallowance by holding that off-shore supplies cannot be subject to tax in India despite the existence of the PE in India unless it was shown by the Revenue that the supplies were related to activities performed by the PE of such an AE in India. Aggrieved by the order of the DRP, the Revenue is in appeal before us. 3.8.1 It was submitted by the Learned AR that the AO in his assessment order has held that Mitsui Co. Ltd Japan has a PE in India by placing reliance upon the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this company has PE in India. From the facts explained by the Ld. AR, it is clear that a coordinate Bench of the ITAT in the case of Mitsui Co. Ltd. Japan in ITA No. 2335/Del/2011 has held that Mitsui Co. Ltd. Japan does not have a PE in India. In the absence of any PE, there is no obligation to deduct tax. Further, it is also a fact that these purchases are off-shore supplies which cannot be subjected to tax in India and if that be so, there is no requirement to deduct tax at source. The Ld. DRP has also examined this issue and has held that off-shore supplies were not related to the activities by the PE of such an AE in India. The relevant findings of the Ld. DRP on this issue are as under: We applied our minds to the rival contentions. We are of the considered view that the AO failed to appreciate that offshore supplies cannot be subject to tax in India despite the existence of the PE in India until it was shown by the revenue that the supplies were related to the activities performed by the PE of such an AE in India. In the instant case it was noted by the Panel that the A operated as a commission agents/service provider to its AEs as well as a trader in its own right ..... X X X X Extracts X X X X X X X X Extracts X X X X
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