Income Tax Appellate Tribunal - Delhi
Sojitz India Pvt. Ltd., New Delhi vs Department Of Income Tax on 10 June, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'I(1)' NEW DELHI
BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER
AND
SHRI KULDIP SINGH, JUDICIAL MEMBER
I.T.A. No. 6298/Del/2015
AY: 2011-12
ACIT, vs Sojitz India Pvt. Ltd.,
Circle 24(1), 7th Floor, EROS Corporate Tower,
Room No. 163, Nehru Place,
C.R. Building, New Delhi.
New Delhi. (PAN: AAICS8883N)
(Appellant) (Respondent)
Appellant by: Shri Piyush Jain, CIT DR
Respondent by: S/Shri Ved Jain, Adv., Ashish Goyal,CA
Date of hearing: 08.06.2016
Date of pronouncement: 10.06.2016
ORDER
PER N.K. SAINI, ACCOUNTANT MEMBER
This is an appeal by the department against the order dated 30.9.2015 of the Assessing Officer passed u/s 143(3) r/w section 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act).
2. The following grounds have been raised in this appeal:-
"1. On the facts and circumstances of the case, the DRP has erred in law on deleting the addition of Rs.61,20,15,101/- made by TPO on account of Transfer Pricing adjustments being the difference between the Arm's Length Price (commission) and the commission received by the assessee from AEs. I.T.A. 6298/D/2015 Assessment Year 2011-12
2. The DRP has erred in law and on facts in deleting the disallowance of Rs.19,76,655/- made by the AO being golf membership fee unrelated to the business."
3. The first issue in ground no. 1 relates to the deletion of addition of Rs. 61,20,15,101/- made by the TPO on account of Arm's Length Price adjustment.
3.1 The facts related to this issue in brief are that the assessee filed a return of income on 30.11.2011 declaring an income of Rs.
3,43,39,183/-. Later on, the case was selected for scrutiny.
During the course of assessment proceedings, the Assessing Officer noticed that the assessee had undertaken international transaction with its Associated Enterprises (AE). He, therefore, referred the matter to the Transfer Pricing Officer (TPO) u/s 92CA of the Act for determining the Arms's Length Price. The TPO proposed an adjustment of Rs. 61,20,15,101/- in the commission segment transaction with the AE by applying an operative gross profit margin of 18.80%. Thereafter, the Assessing Officer passed a draft assessment order by making an addition of Rs. 61,20,15,101/-. The assessee filed the objections before the ld. Dispute Resolution Panel (DRP) who deleted the addition by observing that for the assessment years 2007-08 and 2008-09, the TPO made adjustment on similar lines. However, the order of Page 2 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 the TPO was set aside by the ITAT and the international transactions undertaken by the assessee were concluded to be on arm's length. The ld. DRP also observed as under:-
"Finally the Panel feels obliged to follow the precedent set by the jurisdictional bench of the Income Tax Tribunal in the a's own case for the sake of judicial discipline and the rule of law. The doctrine of consistency is also attracted in the instant case as the revenue consistently either took a non-adversarial approach or had to ultimately endorse the a's approach upon directions from a higher judicial forum in regard to this transaction in the past.
Therefore it is concluded by the Panel that the TPO was misplaced in his approach while holding that the intangibles and the tangibles brought into existence by him in India made him a trader and not a commission agent as is clear from a reading of Section 182 of the Indian contract Act 1872. The case laws relied by him were misunderstood by him. In the face of the foregoing facts grounds 3 to 6 are allowed."
4. Now, the department is in appeal.
5. Learned counsel for the assessee, at the very outset, stated that this issue is squarely covered in favour of the assessee by the decision of the ITAT in the preceding years 2007-08 and 2008-09 in I.T.A. No. 5168/D/11 and 5433/D/12 order dated 15.5.2013. It was also stated that the facts for the present year are identical to the facts involved in the preceding years. A copy Page 3 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 of the said order was furnished which is placed on record. In his rival submissions, ld. CIT DR, although supported the order of the TPO, but could not controvert the aforesaid contention of the assessee.
6. We have heard the rival submissions and carefully perused the material placed on record. In the present case, it is noticed that an identical issue has already been decided by the ITAT vide order dated 15.5.2013 in assessee's own case for assessment year 2007-08 and 2008-09. In I.T.A. No. 5168/D/11 and I.T.A. 5433/D/2012, a copy of which is placed at pages no. 489 to 532 of the assessee's paper book, and the recent findings have been given in para 12.31 to 14 at pages no. 517 to 531 which read as under:-
"12.31 In the facts of the present case which have been discussed at length while considering the action of the TPO in re- characterizing the transactions, we are of the view that on the basis of the detailed FAR analysis of the assesses, the "costs" referred to in Rule 10 B (1)(e)(i) does not suggest that in the facts of a case like the present case the 'costs' would mean the FOB value of goods. The assessee demonstrably is a low risk entity as a service provider functioning as a facilitator who is not exposed to price risk, warranty risk, inventory risk, etc., whose funds are not locked in the cost of goods, title in goods never vests with the assessee contracts are entered in the name of SCJ and its affiliates at one end and the customers in India also in their own names. In these Page 4 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 unrebutted facts on record, the TPO was not correct in holding that the 'costs' as per the Rule were FOB value of goods. As such (c) is also decided accordingly.
12.32. Arguments on the creation of and contributing to the human intangibles and supply chain intangibles have been addressed as such we propose to addresses these also at this stage. Since we are of the view that issues in transfer pricing are very fact specific and conclusion necessarily are fact driven as such it may be pertinent to add that while deliberating on facts we have also taken into consideration the orders relied upon by the parties, specifically the department, while deciding the issue in assessee's favour. However in order to maintain coherence and lucidity in our findings which are fact driven, we propose to discuss the judgements subsequently. For the present purposes on consideration of the functions performed by the assessee, the assets deployed using the intangibles of SCJ networks, the risks to which the assessee is consequently exposed we are unable to concur with the conclusion of the TPO that the assessee has created human assets and supply chain intangibles. The unrebutted fact on record is that the assessee has been able to render services utilizing the network of the AE and all intangibles and patents etc. utilized internally belong to the AE and the level and degree of the qualification required of the personnel of the assessee is low and skill requirement is so low that no specific skills are required by the personnel who replace the existing personnel who may choose to move on for better options. The assessee does not need to and cannot restrain the leaving personnel from utilising any skills which they may have acquired during employment as no specific skills for indenting are required for indenting and acting as a facilitator. It is not the case of the department that the assessee is performing critical functions which admittedly are performed by the AE or that the assessee is contributing by way of analysis, reports and opinions, being provided as such value added services are being performed wherein the analysis/opinions may turn out to the correct or grossly wrong as such due to the high risks of both eventualities occuring the personnel are Page 5 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 necessarily highly qualified sought after experts, commanding high salaries. The simple performance of a low risk activity of facilitator does not lead to the conclusion that a human intangible is being created. It is seen that there is no material on record as to how supply chain intangibles are being created as the assessee is using the network and intangibles of its AE.
12.33 Coming to the final question (d), which we have posed to ourselves since the answer to question (a) is in the negative the question regarding justification on facts in applying margins earned in trading activity to the profits of indenting activity for working out the Arms Length Price requires to be considered. For the said purpose we are of the view that elaborate discussions are not necessary as it would necessitate re-iterating the distinctions in the two separate sets of activities and the conclusions on the detailed FAR analysis already done in the earlier paras especially while considering queries (a) and (b). Accordingly relying on the same we hold that there is no justification to apply the margins of trading activity to indenting activity in the facts of the present case.
12.34. We further support the view taken, by referring to 2006-07 assessment year wherein the Revenue has accepted the method applied and only on comparables there have been a dispute. Similarly in 2008-09 assessment year, that is the immediately subsequent assessment after the two years under consideration, same method has been followed by the assessee. According to the Ld. CIT DR the method has not been accepted though adjustments have not been made as the margins in the trading activity vis-à-vis the indenting activity, declined. The Ld. CIT D.R has been at pains to emphasize that no doubt no adjustment was made in the TP proceedings for 2009-10 assessment year but no deviation has been made from the stand taken by the department in the TP proceedings.
12.35. Accordingly on facts for the detailed reasoning given hereinabove on the issues addressed before us we Page 6 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 are of the view that the TPO's action upheld by the DRP cannot be upheld by us.
13. We now propose to discuss the orders/judgements which have been referred to by the parties, for our consideration which we have considered before arriving at the conclusion. The principles laid down in the judgements/orders in the facts of the cases have been kept in mind before arriving at the conclusion. However for the sake of convenience and lucidity they are being discussed separately hereunder:-
13.1. The first order which we propose to discuss is the order dated 16.12.2011 in 13.1.2 ITA No.07977/Mum/2010 in the case of Bayer Material Science Pvt. Ltd.
13.1.1 It is seen that therein the stand of the assessee, was that the trading activity and the indenting activity was similar as such segmental profits were not required to be considered. This stand of the assessee was neither approved by the TPO nor by the ITAT as the FAR analysis demonstrated that the function and risks of the two activities were very different.
13.1.2 The assessee's claim was that assets utilized were same for both the activities and certain expenses on being asked, were allocated on a turnover basis. The approach of the assessee in allocating the common assets utilized at 1:1 ration was not approved.
13.1.3 The material fact prevalent in the said case was that the turnover was achieved through the efforts of the assessee which is a relevant point/ fact to be taken into consideration and it is not a fact in the present proceedings. In the facts of the present case the assessee is only a service provider and acts as a facilitator and the FAR analysis available on record has not been rebutted.
The stand of the TPO which has been approved by the ITAT in fact supports, the view taken in the present proceedings that the indenting activity cannot be treated at par with the trading activity.
Page 7 of 20I.T.A. 6298/D/2015 Assessment Year 2011-12 13.2. Order dated 31.12.2010 in ITA No.02469/Mum/2006 and others in the case of Serdia Pharmaceuticals (India) Pvt. Ltd. Vs ACIT, Mumbai has also been referred to by the Ld. CIT DR in support of the proposition that transactions can be re-characterized by the T.P.O. 13.2.1 At the outset there can be no quarrel with the said proposition as powers to do so have been vested on the TPO. However, there is a caveat which operates while exercising the power which necessarily is to be balanced with the duty to do so only on consideration of the facts available on record which necessitate such an action and it is not an arbitrary unfettered power.
13.2.2. A perusal of the said order would show that the findings therein were on a peculiar and specific, set of facts in which the assessee was operating and those facts are not in operation in the present proceedings. For ready- reference, we reproduce para 92 from the said order :-
"92. We, however, see no substance in this plea. When an excessive payment for goods or services is made to an associated enterprises, it has two implications- first, that domestic tax liability is reduced in respect of income of the enterprises situated in that tax jurisdiction, and - second, a payment for dividend, royalty or other income is made to the foreign AE in the garb of payment made to the foreign AE is wrongly characterized as payment of goods or services, it is only a natural corollary of this finding that the payment so made in excess of arm's length price must have some other character. While a lower deduction, on account of ALP adjustment, neutralizes the erosion of domestic tax base caused by reporting artificially lower profits, a simplictor ALP adjustment does not neutralize the non-taxability, in source country, of the payment of dividend, royalty or other incomes to the foreign AEs, in the garb of payment for goods or services. Many countries, including Canada- by way of Section 247(2) of Canadian Income Tax Act, neutralize this ill effect of a payment in excess of arm's length price by providing for re-characterizing the amount paid in excess of ALP. In India, re characterization Page 8 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 provisions in respect of payments made in excess of ALP have not yet been legislated, but that does not mean that judicial precedents from the countries where recharacterization of payment in excess of ALP payment is permissible, cease to be relevant in India. These decisions, though they go a step further than the present legal position in India, continue to be as relevant and as useful as they would have been in the absence of such re characterization provisions in the respective countries. The rationale and logic of these decisions continues to remain unaffected by these provisions. The objection raised by the learned counsel is devoid of legally sustainable merits."
13.2.3 However for the justification of re-characterizing the indenting activities as a trading activity in the present case some necessary exercise has to be done by the TPO. It has to be demonstrated from facts to show as to how the assessee though calling itself a "service provider" was actually acting as a "trader". No such discussion, reasoning or fact is on record. On the contrary, the consistent stand of the assessee is that neither the goods have been purchased in its name nor are the contracts entered into are in the name of the assessee as such neither there is a price risk, inventory risk nor, credit risk etc. As such in the absence of facts justifying the re- characterization of the transaction the powers of the TPO which have been upheld for re-characterizing in the facts of Serdia Pharmaceuticals case does not help the Revenue, in the present proceedings. The TPO in Serdia Pharmaceutical case had discussed the FAR analysis of the assessee and found it to be contrary to the stated stand. On the facts of the present case, we are unable to concur with the stand of the Revenue namely that the TPO was justified in re-characterizing the transaction, as the order of the TPO and the DRP are devoid of discussion on facts and proceed on general assumptions. The order of the Mumbai Bench of the Co-ordinate Bench in the case of Serdia Pharmaceuticals India vs ACIT proceeds on facts available on record and which are peculiar to itself and it does not lay down any general proposition.
Page 9 of 20I.T.A. 6298/D/2015 Assessment Year 2011-12 13.3. Attention has also been invited by the Revenue to the order dated 20.01.2011 in ITA No.-3839/Del/2010 and others in Birla Soft (India) Ltd. vs DCIT in support of the proposition that internal comparables are preferable to other comparables.
13.3.1 The said proposition is an accepted proposition. The rationality for preferring them is based on the fact that for internal compatables no adjustments, need be made as FAR analysis remains the same. However for doing so the nature of service/product in respect of which transactions, have been undertaken with related parties and unrelated parties are necessarily have to be the same and identical.
13.3.2 In the facts of the present case, looking at the diverse nature of trading activities entered into by the associated enterprise with its Indian customers ranging from machinery and aerospace, energy and mineral resources, chemical and plastics, real estate development and forest products, consumer lifestyle related business and new business development including IT solutions wherein the assessee is a service provider and the trading activity which the assessee has done at its own level is limited to some sales to local entities. No comparison has been made and the material distinction in the two activities namely that of a facilitator and those of a trader are separate and distinct which makes the conclusion arrived at in the said order/inapplicable.
13.3.3. There is no similarity between the internal comparables applied and the international transactions of support services entered into with the AE. Not only the two activities are entirely distinct which is the material distinction but even otherwise, no similarity has been established in the nature of goods in which the AE's have transacted with the buyer Indian supplier and the assessee has traded at its own level.
13.4. Attention has also been invited on behalf of the revenue to the order dated 31.10.2012 in ITA No.5568/Del/2010 in the case of Interra Information Page 10 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 Technologies (India) Pvt. Ltd for the proposition that profit of the AE cannot be a consideration while bench-marking the international transactions in order to arrive at Arms Length Price.
13.4.1 A perusal of the said order shows that Ld. AR in the facts of the said case requested the Bench to lay down the proposition that transfer pricing adjustment at best cannot exceed the amount of margins retained by the assessee, as well as the AE. A perusal of para 67,68 & 69 would show that the said request was turned down on the reasoning that in the absence of any provision in the Act and the Rules and also practical difficulties as the profile of the entire group was not subjected to scrutiny of the Indian authorities, the request was turned down.
13.4.2 In the facts of the present case, neither the TPO has directly proceeded on that footing nor has that been the rational canvassed by the assessee for assailing the departmental stand. The said order has no relevance in the facts of the present case. The TPO has proceeded on the footing that the two activities are similar and on consideration of the business profile, a FAR analysis of the assessee, we have come to the conclusion that the two activities are not similar as such the proposition that profit of the AE cannot be a consideration while bench- marking the international transactions in the facts of the present case has no relevance. Consequently the finding therein has no bearing on the present proceedings.
13.5. Reliance on behalf of the Revenue has also been placed upon the order dated 30.09.2011 of the Tribunal in ITA No-5156/Del/2010 in the case of Li & Fung (India) Pvt. Ltd. copy filed by the Ld. CIT DR.
13.5.1 A perusal of the said order rendered by one of us (Ld. AM) would show that the assessee company therein provided buying/sourcing services for supplying the consumer goods from India for its AE Li Fung India Pvt. Ltd, Hong Kong who was sourcing the goods on behalf of its international customers. The assessee was paid service Page 11 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 charges for the services computed on the basis of cost plus mark up method.
13.5.2 The crucial fact for holding that FOB value of goods should be the basis for commission of the assessee was the fact that the assessee admittedly utilizing its human intangibles and supply chain intangibles which had created by it at its own cost had performed all, the critical functions and in the facts of that case and the AE demonstrably and admittedly had no competence to execute the contracts on its own and thus being completely dependent on assessee for rendering the services, was earning commission on FOB value of goods and the assessee, on the other hand was being meagerly compensated by cost plus mark up.
13.5.3 Thus in those facts where all the critical functions were being performed by the assessee utilizing its unique intangibles, who had the professional and technical capabilities which was further demonstrated from the fact as the assessee in the facts of that case in the earlier years was claiming and had been allowed Sec 80.0 deductions. Thus the existence of expert knowledge and the demonstrated core competence of the assessee was on record. There is no such evidence/material available on record to suggest that the assessee which came into existence in March 2005 had the expert knowledge available for taking critical decision. The critical decisions admittedly were taken by the AEs i.e. SCJ and its affiliates who have been global players for over 50 years. The contracts were entered into in their names, negotiations were done by them and the critical decisions of timing, extent, exposed were all taken by them wherein the assessee was merely a facilitator.
13.5.4 As such the finding arrived in the order of Li & Fung India Pvt. Ltd. proceeds on peculiar facts and circumstances of that case where the AE was held to be not capable of executing the contracts and was receiving commission on FOB value and all the critical functions were being performed by the assessee who was paid only on cost plus basis. Thus on these facts, it was held that Page 12 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 such a transaction in the face of it could not be said to be at arm's length. The earning of the AE received as a percentage of FOB was completely dependent on the assessee who had used its tangible and unique intangibles developed over the years at its own cost utilised the supply chain management and delivery, location & advantage qua manufactures and labour costs and its pricing cost advantages to make available to the AE who was unable to execute the contracts on its own, thus when the AE could earn commission on FOB value of goods why should the assessee be deprived of it since critical functions were being performed by the assessee. As a result the overall earnings of the AE were reduced to 20:80 ratio. The facts and FAR analysis, in the present proceedings are entirely different. It was also held therein that the amount of adjustment computed by the TPO can not exceed the amount which could have been received by the AE. The compensation was allocated in the ratio of 80:20 between the assessee and its AE.
13.6 Attention on behalf of the Revenue has also been invited to order dated 31.01.2013 in ITA No- 5095/Del/2011 in the case of Sumitomo Corporation India Pvt. Limited vs. DCIT case.
13.6.1. A perusal of the said order shows that trading transactions were held to be different from indenting transactions as such it supports the view taken. The assessee there in agreed that the margins earned with non-AEs, be applied to margins earned from the AE as it was the same service. Thus when there were internal comparables in the same nature of transactions they were the preferable, comparables. Relevant findings are reproduced hereunder from the said order:-
"23. We agree with the assessee's proposition that the nature of indenting transaction is different from the trading transactions. The trading transaction involves risks and finances. Whereas in the indenting transaction the assessee has not to incur any such financial obligation or carry any significant risk. Moreover, we note that in respect of indenting transaction with non-AEs, the Page 13 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 average mean margin of profit of 2.26% has been accepted by the TPO. We further find that the indent business of the assessee was nothing but trade facilitation and is purely of indent nature both in form and substance. No material has been brought on record to regard the indent transaction as trading transactions."
Accordingly it is seen that no strength can be derived by the Revenue from the said order as in the facts of the present case it supports the case of the view taken.
13.7 Reliance has also been placed on order dated 18.09.2012 in ITA No-5147/Del/2011 in the case of Gap International Sourcing (India) Pvt. Ltd. vs ACIT (2012) 25 Taxmann.com 414 for the proposition that Li & Fung case was considered and distinguished by the assessee. The Revenue has relied upon the same for the proposition that make up of 32% was upheld in the TP adjustment.
13.7.1 For the said purpose it is necessary to refer to the facts considered by the co-ordinate Bench. In the said case, the assessee was a wholly owned subsidiary of GAP International, USA, and was engaged in facilitating sourcing of apparel merchandise from India for the parent group. It filed its TP report claiming TNMM with cost plus 15 per cent remuneration to be the most appropriate method for determination of 'ALP'. The TPO, however, looking at the function assets and risks analysis (FAR) and other factors, rejected the assessee's cost plus 15 per cent ALP and held that commission at the rate of 5 per cent on the FOB value of goods sourced by the foreign enterprise through Indian vendors was the most appropriate profit level indicator (PLI) for determining ALP. This was so because the functions performed, assets owned and risks assumed by the assessee were substantially more than limited risk and assessee's functions were not only that of a service provider but of a higher responsibility. Further it was inferred that the assessee created substantial intangible assets through its operations. The TPO also alleged that on account of operating in a low cost economy, the assessee had generated location savings in India which had not been Page 14 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 factored into in its remuneration model. The TPO thus rejected the assessee's cost plus remuneration based model. TPO's report was accepted by DRP. The issue was agitated by the assesses before the Tribunal.
13.7.2 Considering the FAR analysis it was held by the co- ordinate Bench that the assessee was a low risk procurement service provider. The co-ordinate bench concluded that the assessee proposed the use of TNMM as the most appropriate method with net profit/total cost as PLI. The department accepted the TNMM with a percentage of FOB value of goods procured by parent as PLI. The dispute in regard to use of the same considering the FAR analysis and order of Li & Fung the issue was decided in the following manner:
"vi. Considering above we conclude that non risk bearing procurement facilitating functions which are preordained by contract and hand book, the appropriate PLI will be net profit/total cost and not the % of FOB value of goods sourced by AE. Accordingly, we uphold the net profit/total cost remuneration model adopted by the assessee. Having held so now we proceed to decide the percentage of markup to be applied to assessee's cost."
13.7.3. Since in the facts of GAP International Sourcing the assessee had applied cost plus 15 % ALP and the entire commission of Li & Fung Group to Li & Fung India was worked out as per the calculations provided by the assessee's counsel, his suggestion that the OP/TC of Li & Fung India worked out of 32.43 % be applied. The said proposal of the assessee was accepted and 32% cost plus mark up was accepted in GAP International. In the facts of the present case the said findings has no role to play as it was a concession given by the assessee in the said case.
14. Accordingly for the reasons discussed hereinabove on facts and law in the light of the arguments advanced before the Bench and the material available on record the ground no 2-5 in ITA No. 5186/Del/2011 and ground No. Page 15 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 3 to 8 in ITA No. 5433/Del/2012 are decided in assessee's favour."
7. Since the facts in the present case are similar to the facts involved in the preceding assessment years 2007-08 and 2008- 09, respectfully following the earlier order of the Tribunal in assessee's own case, we see no merit in this ground of appeal.
8. The next issue vide ground no. 2 relates to disallowance of Rs.19,76,655/- made by the AO being golf membership fee unrelated to the business.
8.1 The facts relating to this issue are that the Assessing Officer, during the course of assessment proceedings, noticed that the assessee had debited Golf Membership fee amounting to Rs. 19,76,655/- in the Profit & Loss account. He asked the assessee as to how the said amount may not be disallowed being personal in nature. In response, the assessee submitted as under:-
"the expenditure incurred towards Membership fees paid to Golf clubs for the purpose of conducting business by the Employees & Directors. Thus, the expenditure is incurred for the purpose of business and the same is allowable u/s 37(1) of the income-tax Act, 1961. The company is engaged in trading business. As such its employees & directors incur expenses on subscription to various clubs & forums to facilitate meetings with prospective clients so that they can help Page 16 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 the business grow. The expenditure is for the purpose of providing forum to its personnel for meeting with clients and also for felicitation of clients and is thus incurred wholly and exclusively for the purposes of business and as such is allowable revenue expense."
9. The Assessing Officer, after considering the submissions of the assessee, proposed the addition in the draft assessment order by observing as under:-
"After considering the reply of the assessee it was held in the draft assessment order that as per section 37(1) of the Income-tax Act, 1961 only those expenditure which have been incurred wholly & exclusively for the purpose of business is to be allowed. Further, not a single evidence has been filed to prove that the membership was taken for benefit of the company or was actually utilized for the business purpose of the assessee company. Merely claiming of expense does not amount to its being incurred for business purpose. There has to be a nexus in the expenditure incurred and the business purpose which has not been established by the assessee in this case. Accordingly, an amount of Rs. 19,76,655/- was proposed to be disallowed and added back to the total income of the assessee in the draft assessment order."
10. Being aggrieved, the assessee filed objections before the DRP who, vide order dated 9.9.2015, directed the Assessing Officer not to make the disallowance by observing as under:-
"The panel considered the facts of the matter in totality. It was noticed that the AO disregarded the direction issued by Hon'ble Dispute Resolution Panel in assessee's own case for the A.Y 2008-09 and also orders of Hon'ble CIT(A) for the A.Y 2009-10 and AY Page 17 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 2010-11 in assessee's own case and treating the payments amounting to Rs. 19,76,655/- made for Golf Management fees as the expenses not incurred for business purpose without appreciating the fact that these expenses were revenue in nature and incurred wholly and exclusively for business purpose. Having regard to the aforesaid facts the panel does not deem it fit to depart from the stand taken by different levels of authorities in the past on the basis of the same set of facts as prevailing during the impugned A. Y. Even otherwise the panel is of the considered view that Golf Club Membership certainly acted as a platform for the assessee to expand its network of business relationship. Accordingly the said expenditure is held as exclusively for the purposes of business. Therefore objection 7 is allowed"
11. Now, the Department is in appeal.
11.1 The ld. CIT DR strongly supported the order of the Assessing Officer and further submitted that these expenses were personal in nature and nothing was brought on record to prove that the expenditure was incurred for business purpose.
Therefore, the DRP was not justified in directing the Assessing Officer to allow the claim of the assessee. In his rival submissions, the learned counsel for the assessee strongly supported the order of the DRP and submitted that a similar disallowance was proposed by the Assessing Officer for the assessment year 2008-09 which was directed to be deleted by the DRP and the department has not preferred any appeal against the said order of the DRP. Similarly, for assessment year 2009-10 Page 18 of 20 I.T.A. 6298/D/2015 Assessment Year 2011-12 and 2010-11, the Assessing Officer made the disallowances which were deleted by the ld. CIT(A) and the department had not preferred any appeal against the said orders. Reference was made to pages no. 637 and 649 of the assessee's paper book which are the copies of the relevant pages of the aforesaid orders of the ld. CIT(A).
12. We have considered the submissions of both the parties and carefully perused the material placed on record. In the present case, it is an admitted fact that similar disallowances were made by the Assessing Officer in the preceding assessment years.
However, those disallowances were deleted by the DRP for the assessment year 2008-09 and by the ld. CIT(A) for the assessment years 2009-10 and 2010-11. It is, therefore, clear that in the preceding years, the department had accepted the claim of the assessee since no appeal was filed against the aforesaid referred to orders vide which the disallowances made by the Assessing Officer were deleted. We, therefore, keeping in view the principle of consistency, hold that the ld. DRP was justified in directing the Assessing Officer to delete the disallowances proposed by him. In this view of the matter, we do not see any merit in this ground of the departmental appeal.
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13. In the result, the appeal of the department is dismissed.
Order pronounced in the open court on 10.06.2016.
Sd/- Sd/-
(KULDIP SINGH) (N.K. SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 10th June 2016
'GS'
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT 4. CIT(A)
4. DR, ITAT
By Order
ASSTT. REGISTRAR
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