UT WORLDWIDE (INDIA) P. LTD, MUMBAI v. ASST CIT 11(1)(2), MUMBAI

ITA 1472/MUM/2016 | 2011-2012
Pronouncement Date: 26-11-2019 | Result: Partly Allowed

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Appeal Details

RSA Number 147219914 RSA 2016
Assessee PAN AAACU5306L
Bench Mumbai
Appeal Number ITA 1472/MUM/2016
Duration Of Justice 3 year(s) 8 month(s) 10 day(s)
Appellant UT WORLDWIDE (INDIA) P. LTD, MUMBAI
Respondent ASST CIT 11(1)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 26-11-2019
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted K
Tribunal Order Date 26-11-2019
Assessment Year 2011-2012
Appeal Filed On 16-03-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH MUMBAI BEFORE SHRI PRAMOD KUMAR VICE PRESIDENT AND SHRI SAKTIJIT DEY JUDICIAL MEMBER IT (TP) A NO. 1472 / MUM ./201 6 ( ASSESSMENT YEAR : 20 11 12 ) U.T. WORLDWIDE INDIA PVT. LTD. 7 TH FLOOR UNIT NO.1171 SOLITAIRE CORPORATE PARK BUILDING NO.1 ANDHERI KURLA ROAD ANDHERI (E) MUMBAI 400 093 PAN AAACU5306L . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 11( 1 )( 2 ) MUMBAI . RESPONDENT ASSESSEE BY : MS. KARISHMA PHATARPHEKAR A/W SHRI HARSH SHAH REVENUE BY : SHRI PURUSHOTTAM TRIPURI DATE OF HEARING 05 . 11 .2019 DATE OF ORDER 26.11.2019 O R D E R PER SAKTIJIT DEY J.M. T HE CAPTIONED APPEAL BY THE ASSESSEE IS AGAINST THE FINAL ASSESSMENT ORDER DATED 28 TH JANUARY 2016 PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2011 12 IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL 2 (DRP) MUMBAI. 2 U.T. WORLDWIDE INDIA PVT. LTD. 2. IN GROUND NO.1 THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THE ASSESSMENT ORDER PASSED WITHOUT IMPLEMENTING THE DIRECTIONS OF THE DRP. 3. SIMILAR ISSUE HAS ALSO BEEN RAISED BY THE ASSESSEE IN GROUND NO.4. THEREFORE WE PROPOSE TO DEAL WITH THE AFORESAID ISSUE AT A LATER STAGE. 4. IN G ROUNDS NO.2 3 AND 5 THE ASSESSEE HAS CHALLENGED THE TRANSFER PRICING ADJUSTMENT MADE TOWARDS REIMBURSEMENT OF EXPENDITURE PAID / PAYABLE TO THE ASSESSEE. 5. THE ASSESSEE AN INDIAN COMPANY IS A PART OF U.T . WORLDWIDE GROUP U .K. AS STATED BY THE TRANSFER P RICING OFFICER THIS GROUP IS A WORLD LEADER IN INTERNATIONAL FLIGHT FORWARDING BUSINESS. WHEREAS THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LOGISTICS RELATING TO FREIGHT FORWARDING BY AIR AND OCEAN CUSTOM CLEARANCE AND CONTRACT LOGISTICS ETC. FURTHER IT HAS BEEN STATED THAT THE ASSESSEE HAS ALSO ENTERED INTO AN AGREEMENT WITH U.T.T. NETWORKS INC. U.K. FOR FORWARDING BY AIR OR SEA OF GENERAL COMMODITIES. ON A PERUSAL OF AUDIT REPORT IN FORM NO.3CEB THE TRANSFER PRICING OFFICER FOUND THAT THE ASSESSE E HAS BENCH MARKED THE PAYMENT MADE AND RECEIVED TOWARDS FREI GHT FORWARDING CONCERNING THE ASSOCIATED ENTERPRISES (A ES ) IN VARIOUS COUNTRIES APPLYING COMPARABLE UNCONTROLLED PRICE ( CUP ) METHOD. 3 U.T. WORLDWIDE INDIA PVT. LTD. HOWE VER THE ASSESSEE HAD NOT BENCH MARKED THE TRANSACTION RELATIN G TO REIMBURSEMENT OF EXPENSES (PAID OR PAYABLE). WHEN CALLED UPON TO EXPLAIN THE REASON FOR NOT DOING SO THE ASSESSEE SUBMITTED THAT THE UT GROUP HAS INCURRED CERTAIN EXPENSES FOR THE BENEFIT OF THE ASSESSEE WHICH WAS LATER REIMBURSED ON ACTUAL BASIS. TH US IT WAS SUBMITTED BY THE ASSESSEE THAT REIMBURSEMENT OF EXPENSES BY THE ASSESSEE TO OTHER GROUP COMPANIES IS AT ARM'S LENGTH BASED ON APPLICATION OF CUP. TO JUSTIFY ITS CLAIM THE ASSESSEE ALSO FURNISHED THE DETAILS OF ITEM WISE REI MBURSEMENT OF EXPENSE S TO THE A ES WHICH HAS BEEN REPRODUCED AT PAGE 3 OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE DETAILS FURNISHED THE TRANSFER PRICING OFFICER OBSERVED THAT THE ASSESSEE WAS UNABLE TO ESTABLI SH THAT IT HAS RECEIVED ANY BENEFIT DUE TO THE COST INCURRED BY THE A ES. ACCORDINGLY HE CONCLUDED THAT SINCE THE ASSESSEE HAS FAILED TO ESTABLISH THE BENEFIT DERIVED RELATIN G TO THE COST INCURRED BY THE A ES ON VARIOUS ACCOUNT THE ARM'S L ENGTH PRICE OF SU CH TRANSACTION HAS TO B E DETERMINED AS NIL. THUS HE PROPOSED A ADJUSTMENT OF ` 11 11 20 158. THE ASSESSEE CHALLENGED THE AFORESAID ADJ USTMENT IN DUE COURSE BEFORE LEARNED DRP. 6. A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD LEARNED DRP HAVING FOUND THAT THE PAYMENT MADE TOWARDS FREIGHT LIABILITY UT GENERAL LIABILITY AND OTHERS 4 U.T. WORLDWIDE INDIA PVT. LTD. V ERIZON COMMUNICATION CHARGE / INFONET COMMUNICATION COST STOCK COMPENSATION COST RSU COST ARE AT ARMS LENGTH ACCEPTED SUCH PAYMENTS. THUS THE DRP ALLOWED REIMBURSEMENT OF EXPENSES TO THE EXTENT OF ` 1 73 42 606. HOWEVER REIMBURSEMENT OF A DMINISTRATIVE EXPENSES TOWARDS U .T. GLOBAL INFRASTRUCTURE SUPPORT (ENT LED COST ) FF GL OBAL SUPPORT (ENT COST) AND APAC REGIONAL COST AGGREGATING TO ` 9 37 77 552 WHERE NOT ALLOWED BY LEARNED DRP . THE REASONING OF LEARNED DRP WHILE UPHOLDING THE DECISION OF THE TRANSFER PRICING OFFICER IN THIS REGARD IS THE ALLOCATION OF EXPENS ES IS NOT BASED ON ANY SERVICE UTILIZED AND THEIR COMMENSU RATE COST. LEARNED DRP OBSERVED AS PER THE BU SINESS MODEL FOLLOWED BY THE UT GROUP THE EXPORTING GROUP ENTITIES EARNED 67% OF THE FEES RECEIVED FROM THE CUSTOMERS WHILE IMPORTING GROUP ENTITIES EARN 33% OF THE FEES. LEARNED DRP OBSERVED THE AMOUNT BEIN G SHARED ON 67:33 BASIS IS WITH REFERENCE TO THE PROFIT EARNED FROM GROSS RECEIPT. THUS WHEN THERE IS A REVENUE SHAR ING AT GROSS RECEIPT LEVEL AND SUCH REVENUE SHARING IS HA VING REGARD TO THE FUNCTIONS THE RESPECTIVE GROUP ENTITIES WOULD UNDERTAKE THERE IS HARDLY ANY JUSTIFICATION FOR FURTHER REIMBURSEMENT OF COST TOWARDS ADMINISTRATIVE EXPENSES/ MANAGEMENT FEE ETC. 7. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE TRANSFER PRICING OFFICER HAS TO DETERMINE THE ARM'S LENGTH PRI CE OF THE INTERNA TIONAL TRANSACTION BY ADOPTING ONE OF THE PRESCRIBED METHOD 5 U.T. WORLDWIDE INDIA PVT. LTD. UNDER THE STATUTE. SHE SUBMITTED THE TRANSFER PRICING OFFICER IS NOT JUSTIFIED IN DETERMINING THE ARM'S LENGTH PRICE AT NIL A PPLYING COMMERCIAL EXPEDIENCY AND BENEFIT TEST WITHOUT FOLLOWING ANY O NE OF THE PRESCRIBED METHODS. SHE SUBMITTED WHILE CONSIDERING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 10 THE TRIBUNAL HAS DELETED THE ADJUSTMENT MADE IN RESPECT OF REIMBURSEMENT OF EXPENSES BY THEN TRAN SFER PRICING O FFICER AND THE DRP ADOPTING SIMILAR APPROACH . THUS SHE SUBMITTED THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL. FURTHER SHE SUBMITTED IN ASSESSMENT YEAR 2010 11 THE TRANSFER PRICING OFFICER HIMSELF HAS ACCEPTED SIMILAR PAYMENTS MADE TO BE AT ARM'S LENGTH . THUS SHE SUBMITTED THE REI MBURSEMENT OF EXPENSES TO THE A ES BEING AT ARM'S LENGTH HAS TO BE ALLOWED. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY R ELYING UPON THE REASONING OF LEARNED DRP SUBMITTED WHEN THE ASSESSEE AND THE GROUP ENTITIES ARE SHARING REVENUE ON FIXED RATIO BASIS THERE IS NO JUSTIFICATION FOR FURTHER REIMBURSEMENT OF COST INCURRED TOWARDS ADMINISTRATIVE EXPENSES MANAGEMENT FEE ETC. HE SUBMITTED THE REASON ON WHICH THE DRP HAS UPH ELD THE ADJUSTMENT WAS NOT THERE IN THE ASSESSMENT YEAR 2009 10. THUS HE SUBMITTED THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2009 10 MAY NOT BE APPLICABLE. 6 U.T. WORLDWIDE INDIA PVT. LTD. 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN FROM TH E FACTUAL MATRIX THAT THE ASSESSEE HAS ENTERED INTO VARIOUS AGREEMENTS WITH T HE GROUP ENTITIES FOR PROVISION OF CERTAIN SERVICE. BY VIRTUE OF SUCH AGREEMENTS THE ASSESSEE HAS THE BENEFIT OF USING THE OVERALL UT NETWORK OUTSIDE INDIA. SIMILARLY THE GROUP COM PANIES ARE ALSO BOUND TO USE ASSESSEES SERVICE S FOR THEIR OPERATIONS IN INDIA. AS PER THE TERMS OF THE AGREEMENT IF SOME FREIGHT WAS REQUIRED TO BE TRANSPORTED BY THE CUSTOMER FROM OVERSEAS TO INDIA THEN SUCH TRANSACTION WAS TO BE REFERRED TO AS AN IM PORT TRANSACTION AND IF IT WAS TO BE TRANSPORTED BY A CUSTOMER FROM INDIA TO OVERSEAS THEN THE SAME WAS TO BE REFERRED TO AS AN EXPO RT TRANSACTION. FEE EARNED FROM A CUSTOMER IS REDUCED BY COST OF TRANSPORT ATION AND THE BALANCE AMOUNT IS SHARED BY EXPORTI NG AND IMPORTING ENTITIES IN THE FOLLOWING MANNER. ORIGINATING PLACE U.T. INDIA U.T.I. GROUP ENTITY INDIA 67% 33% OVERSEES 33% 67% 10. THE AFORESAID BUSINESS AND REVENUE SHARING MODEL HAS BEEN FOLLOWED BY THE ASSESSEE AND GROUP ENTITIES FROM THE PAST YEARS. IT IS OBSERVED SIMILAR REIMBURSEMENT OF EXPENSES WAS MADE TO THE GROUP EN TITIES IN THE PAST YEARS UNDER SIMILAR REVENUE SHARING MODEL OF 67:33. THEREFORE THE CONTENTION OF THE LEARNED DEPARTMENTAL 7 U.T. WORLDWIDE INDIA PVT. LTD. REPRESENTATIVE THAT THE FACTS INVOLVED IN THIS YEA R IS DIFFERENT FROM ASSESSMENT YEAR 2009 10 DUE TO 67:33 REVENUE SHARING MODEL IN OUR VIEW IS WITHOUT BASIS AND NOT BORNE OUT FROM THE RECORD. RATHER THE FACTS ON RECORD VERY CLEARLY INDICATE THAT THE REVENUE SHARING MODEL OF 67:33 AND VICE VERSA HAS BE EN FOLLOWED BY THE ASSESSEE AS WELL AS GROUP ENTITIES FROM PAST YEARS INCLUDING ASSESSMENT YEAR 2009 10. ON A PERUSAL OF THE ORDER PASSED IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 10 AS REFERRED TO ABOVE IT IS OBSERVED THAT THE TRIBUNAL WHILE DECIDIN G THE ISSUE RELATING TO IDENTICAL ADJUSTMENT MADE BY DETERMINING THE ARM'S LENGTH PRICE OF REIMBU RSEMENT OF EXPENDITURE AT NIL HAS REVERSED THE DECISION OF THE REVENUE AUTHORITIES AND HELD THAT THE DETERMINATION OF ARM'S LENGTH PRICE OF THE TRANSACTION AT NIL CANNOT BE SUPPORTED. FURTHER THE TRIBUNAL ALSO DID NOT ACCEPT THE REASONING OF THE DEPARTMENTAL AUTHORITIES THAT THE ASSESSEE HAD FAILED TO SATISFY THE BENEFIT TEST. ON THE CONTRARY THE TRIBUNAL HAS OBSERVED THAT WHETHER THE ASSESSEE BENEFITED BY AVA ILING THE SERVICE S OF THE A ES IS NOT AN ISSUE TO BE EXAMINED BY THE TRANSFER PRICING OFFICER. ACCORDINGLY THE TRIBUNAL DELETED THE ADJUSTMENT. IT IS ALSO RELEVANT TO OBSERVE WHILE DOING SO THE TRIBUNAL ALSO TOOK NOTE OF THE FACT THAT IN ASSESSMENT YEAR 2010 11 THE TRANSFER PRICING OFFICER HIMSELF HAS ACCEPTED THE REIMBURSEMENT OF THE ADMINISTRATIVE EXPENSES / MANAGE - MENT FEE PAID TO THE AES TO BE AT ARM'S LENGTH . THUS CONSIDERING THE PAST EVEN T AND THE REVENUE SHARING MODEL CONSISTENTLY FOLLOWED BY THE 8 U.T. WORLDWIDE INDIA PVT. LTD. ASSESSEE AS WELL AS THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 10 AS REFERRED TO ABOVE WE ARE OF THE CONSIDERED OPINION THAT THE ADJUSTMENT OF ` 37 77 552 DESERVES TO BE DELETED. ACCORDINGLY WE DO SO. 11. IN GROUNDS NO.1 AND 4 THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THE ASSESSMENT ORDER PASSED DUE TO NON IMPLEMENTATION OF THE DIRECTIONS OF THE DRP. 12. AS DISCUSSED EARLIER WHILE DECIDING THE ISSUE RELATING TO THE ADJUSTMENT MADE TO THE ARM'S LENGTH PRICE OF REIMBUR SEMENT OF EXPENSES UNDER VARIOUS HEADS THE TRANSFER PRICING OFFICER HAS DETERMINED THE ARM'S LENGTH PRICE AT NIL AND SUGGESTED ADJUSTMENT OF ` 11 11 20 158 . WHILE DECIDING THE OBJECTIONS OF THE ASSESSE E ON THE ISSUE LEARNED DRP ALLOWED REIMBURSEMENT OF C ERTAIN EXPENSE S SUCH AS FREIGHT LIABILITY UT GENERAL LIABILITY AND OTHERS V ERIZON COMMUNICATION CHARGE / INF ON E T COMMUNICATION COST STOCK COMPENSATION CO ST RSU COST AGGREGATING TO A TOTAL AMOUNT OF ` 1 73 42 606. WHILE FRAMING THE FINAL ASSESSMENT ORD ER THE ASSESSING OFFICER AGAIN ADDED BACK THE ENTIRE ADJUSTMENT OF ` 11 11 20 158 SUGGESTED BY THE TRANSFER PRICING OFFICER THEREBY FAILING TO IMPLEMENT THE DIRECTIONS OF LEARNED DRP IN RESPECT OF REIMBURSEMENT OF EXPENSES DESCRIBED ABOVE. 9 U.T. WORLDWIDE INDIA PVT. LTD. 13. THE LEANED COUNSEL FOR THE ASSESSEE SUBMITTED AS PER SECTION 144C(13) OF THE ACT IT IS MANDATORY ON THE PART OF THE ASSESSING OFFICER TO IMPLEMENT THE DIRECTIONS OF THE DRP. SHE SUBMITTED SINCE THE ASSESSING OFFICE R HAS FAILED TO IMPLEMENT THE DIRECTIONS OF THE DRP THE ASSESSMENT ORDER IS VOID AB INITIO HENCE HAS TO BE QUASHED. FOR SUCH PROPOSITION SHE RELIED UPON THE DECISION OF THE TRIBUNAL BANGALORE BENCH IN DCIT V/S CORIANT COMMUNICATION INDIA PVT. LTD. IT(TP)A NO.652/BANG./2016 DATED 2 ND JUNE 2017. WITHOUT PREJUDICE SHE SUBMITTED A DIRECTION TO THE ASSESSING OFFICER MAY BE ISSUED TO IMPLEMENT THE DIRECTIONS OF THE DRP IN TERMS OF SECTION 1 44C(13) OF THE ACT. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED NECESSARY DIRECTION MAY BE ISSUE TO THE ASSESSING OFFICER TO IMPLEMENT THE DIRECTIONS OF LEARNED DRP. 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AT THE OUTSET WE MUST OBSERVE THOUGH INITIALLY LEARNED AUTHORISED REPRESENT ATIVE RELYING UPON THE DECISION OF THE TRIBUNAL IN CORIANT COMMUNICATION INDIA PVT. LTD. (SUPRA) HAD ARGUED AT SOME LENGTH FOR QUASHING THE ASSESSMENT ORDER DUE TO NON IMPLEMENTATION OF THE DIRECTIONS OF THE DRP HOWEVER FINALLY SHE HAS SUBMITTED THAT A DIRECTION FROM THE BENCH TO THE ASSESSING OFFICER TO IM PLEMENT THE DIRECTIONS OF LEARNED DRP WOULD SUFFICE. UNDISPUTEDLY WHILE 10 U.T. WORLDWIDE INDIA PVT. LTD. CONSIDERING ASSESSEES OBJECTION AGAINST THE TRANSFER PRICING ADJUSTMENT MADE OF ` 11 11 20 158 RELATING TO REI MBURSEMENT OF E XPENSES TO THE AES LEARNED DRP HAS GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING CERTA IN REIMBURSEMENT EXPENSES AGGREGATING TO ` 1 73 42 606 TO BE AT ARM'S LENGTH. HOWEVER WHILE IM PLEMENTING THE DIRECTIONS OF LEARNED DRP IN FINAL ASSESSMENT ORDER T HE ASSESSING OFFICER HAS COMPLETELY IGNORED THE SPECIFIC DIRECTION S OF LEARNED DRP IN RESPECT OF THE FOLLOWING EXPENDITURE S WHICH WERE ACCEPTED TO BE AT ARM'S LENGTH. FREIGHT LIABILITY UIT GENERAL LIABILITY & ORS. ` 70 97 155 INFONET COMMUNICATION COST ` 95 982 RSU COST ` 26 56 407 VERIZON COMMUNICATION CHARGES ` 68 58 094 TOTAL: ` 1 73 42 606 16. AS PER SECTION 144C(13) OF THE ACT THE ASSESSING OFFICER IS DUTY BOUND TO IMPLEMENT THE DIRECTIONS OF THE DRP AS HE HAS TO PASS THE FINAL ASSESSMENT ORDER IN CONFORMITY WITH SUCH DIRECTIONS. ADMITTEDLY THERE IS A LAPSE ON THE PART OF THE ASSESSING OFFICER IN COMPLYING TO THE PROVISIONS OF SECTION 144C(13) OF THE ACT. T O THAT EXTENT THE ADDITION MADE BY THE ASSESSING OFFICER IGNORING THE DIRECTIONS OF LEARN ED DRP CANNOT BE UPHELD. THEREFORE WE DIRECT THE ASSESSING OFFICER T O IMPLEMENT THE DIRECTIONS OF LEARNED DRP IN LETTER AND SPIRIT IN RESPECT 11 U.T. WORLDWIDE INDIA PVT. LTD. OF REIMBURSEMENT OF EXPENDITURE S MENTIONED ABOVE. THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED TO THE EXTENT IN DICATED ABOVE. 17. IN GROUND NO.6 THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF EXPENDITURE OF ` 13 74 073. 18. BRIEF FACTS ARE IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH PARTY WISE DETAILS OF MISC. EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT ALONG WITH NAME AND ADDRESS OF THE PARTIES NATURE AND PURPOSE OF EXPENDITURE INCURRED AND DETAILS OF TDS ON SUCH PAYMENT. AS ALLEGED BY THE ASSESSING OFFICER IN RESPONSE TO THE QUERY RAISED THE ASSESSEE F AILED TO FURNISH THE NECESSARY DETAILS. ACCORDINGLY THE ASSESSING OFFICER PROCEEDED TO DISALLOW THE EXPENDITURE OF ` 13 74 073. WHILE DECIDING ASSESSEES OBJECTION ON THE ISSUE LEARNED DRP ALSO UPHELD THE DISALLOWANCE. 19. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE ASSESSING OFFICER HAD ASKED TO SUBMIT THE DETAILS BEFORE THE ASSESSING OFFICER AT A VERY SHORT NOTICE. NEVERTHELESS SHE SUBMITTED THE ASSESSEE FURNISHED CERTAIN DETAILS BEFORE THE ASSESSING OFFICER AS WELL AS THE DRP. SHE SU BMITTED WITHOUT PROPERLY EXAMINING THE DETAILS FURNISHED THE DRP HAS SUSTAINED DISALLOWANCE OF EXPENDITURE. SHE SUBMITTED NEITHER THE ASSESSING OFFICER NOR THE DRP SOUGHT ANY SPECIFIC 12 U.T. WORLDWIDE INDIA PVT. LTD. INFORMATION FROM THE ASSESSEE. SH E SUBMITTED THE R EVENUE AUTHORITIES HAVE ALSO NEITHER DOUBTED THE GENUINENESS OF EXPENDI TURE NOR HAVE HELD THAT THEY WERE NOT INCURRED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. FINALLY SHE SUBMITTED THE DEPARTMENTAL AUTHORITIES HAVE DISALLOWED EXPENDITURE WITHOUT PROVIDING ADEQUA TE OPPORTUNITY TO THE ASSESSEE. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED DRP. 21. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS EVIDENT BOT H THE ASSE SSING OFFICER AND LEARNED DRP HAVE MADE THE DISALLOWANCE PRIMARILY ON THE REASONING THAT THE ASSESSEE FAILED TO FURNISH ANY SUPPORTING EVIDENCE RELATING TO THE EXPENDITURE CLAIMED. IT IS THE SAY OF THE ASSESSEE THAT NEITH ER THE ASSESSING OFFICER NOR LEARNE D DRP HAVE A SKED FOR SPECIFIC DETAILS IN COURSE OF PROCEEDINGS BEFORE THEM HOWEVER SOME DETAILS OF THE EXPENDITURES WERE FURNISHED WHICH HAVE NOT BEEN CONSIDERED. IN OUR VIEW ASSESSEE DESERVES AN OPPORTUNITY TO PROVE THE ALLOWABILITY OF EXPENDITURE THROUGH SUPPORTING EVIDENCE. ACCORDINGLY WE RESTORE THIS ISSUE TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER PROVIDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13 U.T. WORLDWIDE INDIA PVT. LTD. 22. IN GROUND NO.7 THE ASSES SEE HAS CHALLENGED DISALLOWANCE OF PROVISIONS OF ` 21 71 540. 23. BRIEF FACTS ARE DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH PARTY WISE DETAILS OF EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT ALONG WITH D ETAILS OF TAX DEDUCTED AT SOURCE ON SUCH PAYMENT. AFTER PERUSING THE DETAILS FURNISHED BY THE ASSESSEE HE FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX IN RESPECT OF LEGAL AND PROFESSIONAL CHARGES AMOUNTING TO ` 4 21 456 REPAIRS AND MAINTENANCE EXPENSES O F ` 15 25 084 AND OTHER EXPENSES OF ` 2 25 000 AGGREGATING TO ` 21 71 540. WHEN CALLED UPON TO EXPLAIN WHY TAX WAS NOT DEDUCTED AT SOURCE ON YEAR END PROVISION FOR EXPENDITURE THE ASSESS EE SUBMITTED THAT THE PROVISION IS GENERALLY MADE ON THE PAST ESTIM ATE AND EXPERIENCE IN RESPECT OF EXPENDITURE WHICH HAVE ACCRUED DURING THE YEAR BUT INVOICES ARE NOT RECEIVED. THE ASSESSING OFFICER OBSERVED THOUGH THE ASSESSEE HAS CLAIMED THAT PROVISION WAS MADE ON ESTIMATE BASIS HOWEVER RELEVANT EVIDENCE TO SUPPORT SUCH ESTIMATION WAS NOT FURNISHED. EVEN THE ASSESSEE FAILED TO FURNISH NECESSARY EVIDENCE TO SUPPORT SUCH ESTIMATION . FURTHER THE ASSESSEE FAILED TO FURNISH PROOF OF DEDUCTION OF TAX AT SOURCE. ACCORDINGLY HE PROCEEDED TO DISALLOW THE AMOUNT OF ` 21 71 540. THE AFORESAID DISALLOWANCE MADE BY THE ASSESSING OFFIC ER WAS ALSO UPHELD BY LEARNED DRP. 14 U.T. WORLDWIDE INDIA PVT. LTD. 24. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING HENCE IS REQUIRED TO ACCOUNT FOR ALL THE EXPENSES ACCRUE D DURING THE YEAR. THEREFORE IT IS REQUIRED TO MAKE PROV ISION OF EXPENSES ACCRUED DURING THE YEAR AT THE END OF THE YEAR ON ESTIMATION BASIS. SHE SUBMITTED S INCE WHILE MAKING THE PROVISION THE PARTIES TO WHOM PAYMENT IS GOING TO BE MADE ARE NOT IDENTIFIA BLE IT IS NOT POSSIBLE TO DEDUCT TAX AT SOURCE. SHE SUBMITTED THE PROVISION CREATED IS WRITTEN BACK IN THE SUBSEQUENT YEAR AND TAX IS DEDUCTED AT SOURCE WHEN THE ACTUAL AMOUNT OF EXPENDITURE IS CREDITED. THUS S HE SUBMITTED THE DISALLOWANCE SHOULD BE DE LETED. 25. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED DRP SUBMITTED THE EXPENDITURE CLAIMED BY THE ASSESSEE ARE IN THE NATURE OF PROVISION AND HAS NOT CRYSTALLIZED DURING THE YEAR. THER EFORE IT CANNOT BE ALLOWED AS EXPENDITURE. 26. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE DETAILS AVAILABLE ON RECORD IT IS NOTED THAT THE AMOUNT OF ` 21 71 540 DEBITED TO THE PROFIT & LOSS ACCOUNT REPRESENTS PROVISIO N MADE FOR EXPENDITURE RELATING TO LEGAL AND PROFESSIONAL CHARGES REPAIRS AND MAINTENANCE AND OTHERS. IT IS ALSO EVIDENT THE ASSESSEE HAS NOT RECEIVED ANY INVOICES RELATING TO SUCH EXPENSES 15 U.T. WORLDWIDE INDIA PVT. LTD. BEFORE THE END OF THE FINANCIAL YEAR. THOUGH THE ASSESSEE H AS S UBMITTED THAT THE PROVISION HAS BEEN MADE ON ESTIMATION BASIS RELYING UPON THE PAST EXPERIENCE HOWEVER NO SUPPORTING EVIDENCE HAS BEEN FURNISHED TO PROVE THAT THE ESTIMATION MADE BY THE ASSESSEE IS NEAR TO ACTUAL FIGURE OR THE EXPENDITURE MATCHING THE PR OVISIONS MADE HAS ACTUAL CRYSTALLIZED DURING THE YEAR. IT IS ALSO A FACT THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON SUCH EXPENDITURE ON THE PLEA THAT THE PARTIES TO WHOM SUCH PAYMENTS WERE TO BE MADE ARE NOT IDENTIFIABLE . IF THE PARTIES TO WHOM PAYMENTS ARE TO BE MADE ARE NOT IDENTIFIABLE DU E TO NON RAISING OF INVOICES WE FAIL TO UNDERSTAND HOW IT C AN BE SAID THAT THE EXPENDITURE HAS CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. THEREFORE WE ARE OF THE VIEW THAT THE PROVISI ON MADE OF ` 21 71 540 DEBITED TO THE PROFIT & LOSS ACCOUNT IS IN THE NATURE OF UN AS CERTAIN ED LIABILITY HENCE CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. HOWEVER IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT IT HAS WRITTEN BACK THE PROVISION IN THE NEXT YEAR AND HAS ALSO DEDUCTED TAX AT SOURCE WHEN THE ACTUAL AMOUNT OF EXPENDITURE WAS DEBITED IN THE SUBSEQUENT YEAR. THIS FACT NEEDS TO BE EXAMINED BY THE ASSESSING OFFICER AND CONSEQUENT IAL RELIEF CAN BE GRANTED TO THE ASSESSEE IN THE SUBSEQUENT YEAR WHEREIN THE PROVISION HAS BEEN WRITTEN BACK AFTER PROPER VERIFICATION OF RECORD. THIS GROUND IS DISMISSED. 16 U.T. WORLDWIDE INDIA PVT. LTD. 27. IN GROUND NO.8 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF BONUS OF ` 3 33 542 UNDER SECTION 43B OF THE ACT. 28. BRIEF FACTS ARE WHILE VERIFYI NG THE AUDITED REPORT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT SERVICE TAX OF ` 3 583 AND BONUS OF ` 7 70 060 HAVE NOT BEEN PAID ON/OR BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. WHEREAS IN THE COMPUTATION OF INC OME THE ASSESSEE HAS DISALLOWED ONLY AN AMOUNT OF ` 4 94 482 IN RESPECT OF BONUS. ALLE GING THAT THE ASSESSEE NEITHER FURNISHED ANY EXPLANATION NOR RECONCILIATION TOWARDS NON DISALLOWANCE OF BALANCE OUTSTANDING DUES OF ` 3 29 937 HE DISALLOWED IT BY INVO KING THE PROVISIONS OF SECTION 43B OF THE ACT. WHILE DECIDING THE OBJECTION ON THE ISSUE THE DRP DIRECTED THE ASSESSING OFFICER TO VERIFY ASSESSEES CLAIM THAT THERE IS NO OUTSTANDING BONUS DUE AND SERVICE TAX PAYABLE AND DECIDE IT ACCORDINGLY. 29. THE LEARN ED AUTHORISED REPRESENTATIVE SUBMITTED THE ASSESSEE HAS MADE APPROPRIATE DISALLOWANCE IN THE COMPUTATION OF INCOME. SHE SUBMITTED DUE TO A ARITHMETIC MISTAKE IN THE TAX AUDIT REPORT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE. SHE SUBMITTED THOUGH DETAILED SUBMISSION WAS MADE BEFORE THE ASSESSING OFFICER EXPLAINING THE ERROR COMMITTED IN THE TAX AUDIT REPORT HOWEVER THE ASSESSING OFFICER STILL REPEATED THE DISALLOWANCE ON THE GROUND THAT NO CERTIFICATE FROM THE AUDITOR WAS SUBMITTED. SHE SUBMITTE D NECESSARY DIRECTION 17 U.T. WORLDWIDE INDIA PVT. LTD. MAY BE ISSUED TO THE ASSESSING OFFICER TO DECIDE THE ISSUE ON THE BASIS OF FACTS AND MATERIAL ON RECORD AND IN ACCORDANCE WITH LAW. 30. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED NO SUCH MATHEMATICAL ERROR HAS BEEN BROUGHT TO THE NOTICE OF ASSESSING OFFICER. 31. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN IN THE DRAFT ASSESSMENT ORDER THE ASSESSING OFFICER MADE DISALLOWANCE UNDER SECTION 43B OF THE ACT IN RESPECT OF OUTSTANDING DUES OF BONUS AND SERVICE TAX. BEFOR E LEARNED DRP THE ASSESSEE SPECIFICALLY PLEADED THAT THERE IS NO OUTSTANDING BONUS REMAINING TO BE DISALLOWED UNDER SECTION 43B OF THE ACT. IT WAS SUBMITTED BY THE ASSESSEE THAT OUT OF THE BONUS AMOUNTING TO ` 79 71 705 AN AMOUNT OF ` 74 77 223 HAS ALREADY BEEN PAID BY THE ASSESSEE AND THE BALANCE OUTSTANDING BONUS AMOUNTING TO ` 4 94 482 NOT PAID TILL THE DUE DATE OF FILIN G OF RETURN OF INCOME HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE. IN OUR VIEW THE AFORESAID CLAIM OF THE ASSESSEE SHOULD BE VERIFIED BY THE ASSESSING OFFICER ON THE BASIS OF SUPPORTING EVIDENCE FILED BY THE ASSESSEE WITHOUT INSISTING UPON ANY CERTIFICATE FROM THE AUDITOR. IF THE EVIDENCES FILED BY THE ASSESSEE DEMONSTRATE THAT THERE IS NO OUTSTANDING BONUS REMAINING TO THE DISALLOWED UNDER SECTION 43B OF THE ACT NO SUCH DISALLOWANCE SHOULD BE MADE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 18 U.T. WORLDWIDE INDIA PVT. LTD. 32. IN GRO UND NO.9 THE ASSESSEE HAS RAISED THE ISSUE OF SHORT GRANT OF TDS BY THE ASSESSING OFFICER. 33. HAVING CONSIDERED RIVAL SUBMISSIONS WE DIRECT THE ASSESSING OFFICER TO ALLOW CREDIT OF TDS AS PER FORM NO.26AS AND IN ACCORDANCE WITH LAW. 34. IN G ROUND NO.10 THE A SSESSEE HAS CHALLENGED INITIATION OF PENALTY PROCEEDINGS. 35. THIS GROUND BEING PRE MATURE AT THIS STAGE NO ADJUDICATION IS REQUIRED. ACCORDINGLY THIS GROUND IS DISMISSED. 36. I N THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.11.2019 S D/ - PRAMOD KUMAR VICE PRESIDENT SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI DATED: 26.11.2019 19 U.T. WORLDWIDE INDIA PVT. LTD. COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR ITAT MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT MUMBAI