ITO, New Delhi v. M/s. APCO Worldwide (India) Pvt. Ltd., New Delhi

ITA 4264/DEL/2010 | 2007-2008
Pronouncement Date: 28-07-2011 | Result: Dismissed

Appeal Details

RSA Number 426420114 RSA 2010
Assessee PAN AAFCA8835M
Bench Delhi
Appeal Number ITA 4264/DEL/2010
Duration Of Justice 10 month(s) 11 day(s)
Appellant ITO, New Delhi
Respondent M/s. APCO Worldwide (India) Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 28-07-2011
Date Of Final Hearing 28-07-2011
Next Hearing Date 28-07-2011
Assessment Year 2007-2008
Appeal Filed On 16-09-2010
Judgment Text
ITA NO. 4264/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 4264/DEL/2010 A.Y. : 2007-08 INCOME TAX OFFICER WARD 2(1) ROOM NO. 381 CR BLDG. IP ESTATE NEW DELHI VS. M/S APCO WORLDWIDE (INDIA) PVT. LTD. 255 2 ND FLOOR OKHLA INDUSTRIAL ESTATES PHASE-III NEW DELHI 110 020 (PAN/GIR NO. : AAFCA8835M) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. UMAPATI MISHRA CA DEPARTMENT BY : SMT. ANUSHA KHURANA SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 30.6.2 010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE ISSUES RAISED READ AS UNDER:- THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED ON FACTS AND IN LAW IN DELETING ADDITION OF ` 26 93 130/- ON ACCOUNT OF DISALLOWANCE OF RECRUITMENT EXPENSES IGNO RING THE FACTS BROUGHT OUT IN THE ASSESSMENT ORDER THAT THE EXPENSES WERE NOT INCURRED FOR THE CLAIMED PURPOSE OF SEARCH/ APPOINTMENT OF DIRECTOR AND COUNTRY MANAGER. ITA NO. 4264/DEL/2010 2 FURTHER THE PAYMENT OF ` 26 93 130/- WAS MADE ONLY ON 10.6.2010. 3. THE ASSESSING OFFICER IN THIS CASE NOTED DETAIL S OF RECRUITMENT AND RELOCATION EXPENSES SHOWED THAT ` 26 93 130/- HAS BEEN CLAIMED AS EXPENSES INCURRED FOR SEARCH/ APPOINTMENT OF DIRE CTOR SH. DEVASHISH GUPTA AND COUNTRY MANAGER SH. AMIT MISRA. ASSESSING OFFICER WAS NOT SATISFIED WITH THE GENUINENESS OF THE EXPENSES AND HELD AS UNDER:- THUS THERE ARE APPARENT CONTRADICTION BETWEEN ASS ESSEES CLAIM FOR EXPENSES OSTENSIBLY INCURRED FOR SEARCH / APPOINTMENT OF DIRECTOR SH. DEVASHISH GUPTA AND CO UNTRY MANAGER SH. AMIT MISRA NAMELY. (A) WHILE EMPLOYMENT CONTRACT BETWEEN MR. DEVASHISH GUPTA AND APCO ASIA LIMITED HAD ALREADY BEEN SIGNED ON 12.08.2006 SEARCH FOR HIM WAS YET TO COMMENCE IN THE MONTH OF NOVEMBER/ DECEMBER 2006. (B) THE EMPLOYEE WAS IN INDIA AND HAD ALREADY SIGNED THE CONTRACT BUT THE SEARCH FOR HIM WAS YET TO BEGIN IN HONG KONG. (C) WHILE NAME OF SH. DEVASHISH GUPTA DOES FIGURE AMONGST THE NAMES OF EMPLOYEES TO WHOM SALARY HAVE BEEN PAID BY THE ASSESSEE NAME OF SH. AMIT MISRA (COUNTRY MANAGER) NOWHERE ITA NO. 4264/DEL/2010 3 FIGURE IN THAT LIST IN SEARCHING WHOM A SUM OF $ 3 24 978/- HAS CLAIMED BY THE ASSESSEE. CONSIDERING THE AFORESAID FACTS IN TOTALITY THE E NTIRE EXPENSES OF ` 29 93 130/- CLAIMED OSTENSIBLY FOR SEARCH OF DIRECTOR/ COUNTRY MANAGER IS TREATED AS BOGUS EXPENSES AND THEREFORE BEING DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR 2007-08. I AM ALSO SATISFIED THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME THEREFORE NOTICE U/S 271 R.W.S. 274 IS BEING ISSUED SEPARATELY. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE GONE THROUGH THE COMMENTS OF ASSESSING OFFIC ER AND WRITTEN SUBMISSIONS VERBAL ARGUMENTS MADE BEFOR E ME DURING THE COURSE OF APPELLANT PROCEEDING BY A.R. O F APPELLANT COMPANY. CONSIDERING THE FACTS IN TOTALITY THE FOLLOWING POSITION EMERGE:- - THE ASSESSING OFFICER HAD NOT ENQUIRED INTO DETA ILS OF FACTS OF THE CASE OR COMPANY AS A WHOLE. HOW THE MNC COMPANY IS GOING TO ESTABLISH ITS BUSINESS IN INDIA IS NOT DESCRIBED BY THE ASSESSING OFFICER I N THE ORDER. THE ASSESSING OFFICER IS NOT AWARE OF HR PO LICY AND MANAGEMENT AND HOW KEY PERSONS ARE RECRUITED THROUGH OUTSIDE HR CONSULTANTS FOR THIS COMPANY. THE ASSESSING OFFICER SHOULD DISCUSS THE WORKING O F COMPANY TILL THE DATE OF ORDER SO THAT ALLOWABILITY OF ITA NO. 4264/DEL/2010 4 EXPENDITURE CAN BE SEEN IN OVERALL PERSPECTIVE. IF PAYMENT IS MADE BY BANKING CHANNELS AND TDS IS MADE ON THE PAYMENT WE CANNOT TREAT THE EXPENDITURE AS BOGUS EXPENDITURE. THE COMPANY WANTED TO WORK FOR GUJARAT GOVERNMENT IN F.Y. 2006- 07 FOR BRINGING ALL ROUND DEVELOPMENT IN THE STATE OF INDUSTRIALIZATION OF THE SATE. ITS IMPACT IS SEE N NOW. HOWEVER THE APPELLANT COMPANY COULD NOT SUCCEED IN ITS VENTURE DUE TO OTHER ADMINISTRATIVE DIFFICULTIES IN OUR SYSTEM. WHATEVER MAY BE THE CASE IF SALARY PAYMENT AND HR FEES ARE PAID AND TDS IS MADE WE HAVE TO ALLOW THE EXPENDITURE. - THE APPELLANT COMPANY HAD INCURRED 12 CORES AND O DD CUMULATIVE LOSS AND IT IS FUNDED BY PARENT MNC APCO WORLDWIDE (USA). THE ROLE OF THE DEPARTMENT SHOULD BE SEEN FROM THE ANGLE OF NOT MIS-UTILIZING ANY ACTIV ITY AGAINST OUR COUNTRY BUT FOR FURTHERANCE OF BUSINES S ACTIVITIES IN INDIA SO THAT IT HAD AN IMPACT ON ECONOMIC GROWTH OF OUR COUNTRY. OUR ASSESSING OFFICERS ARE NOT TRAINED TO QUERY EXPERTS OF CONSUL TING FIRMS BUT WE SHOULD KEEP A CHECK AND BALANCE ON ACTIVITIES OF SUCH MNCS BY FEW INTERACTIONS IN A YE AR. THE MNCS/ NEW COMPANIES SHOULD FULFILL ALL FORMALITIE S AS REQUIRED UNDER OUR TAX LAWS (ESPECIALLY INCOME TA X ACT 1961). IF ASSESSING OFFICER HAS ANY DOUBT H E CAN QUERY THE AUDITORS (CAS) OF THE ASSESSEE COMPANY BEFORE COMING TO A DRASTIC CONCLUSION THAT EXPENSES ARE BOGUS. ITA NO. 4264/DEL/2010 5 - WHEN I DECIDE THIS CASE IN 2010 (AFTER 4 YEARS OF FILING THE RETURN) I ENQUIRE ABOUT HEALTH OF COMPANY AND OTHER ACTIVITIES UPTO TODAY. WHETHER THE EXPENDIT URE DISALLOWED BY ASSESSING OFFICER IS PAID SUBSEQUENT LY OR NOT? SINCE IN THIS CASE THE EXPENSES OF ` 26 93 130/- IS PAID IN 10.6.2010 I ALLOW THE EXPENDITURE TREATING IT AS GENUINE EXPENDITURE. THEREFORE THE ADDITION MADE BY ASSESSING OFFICER OF ` 29 ` 29 ` 29 ` 29 93 130/ 93 130/ 93 130/ 93 130/- -- - IS HEREBY DELETED. 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. 7. WE FIND THAT THE PARENT COMPANY OF THE ASSESSEE H AD ENTRUSTED ITS ONE OF THE SUBSIDIARY COMPANY NAMELY APCO ASIA L TD. LOCATED IN HONG KONG TO SEARCH SUITABLE CANDIDATES FOR KEY MANA GERIAL POSITIONS. APCO ASIA LTD. IN TURN ASSIGNED THE JOB OF SEARCHING CANDIDATES FOR PROPOSED COMPANY IN INDIA TO HRNETONE LTD. HONG KON G A HR RECRUITMENT COMPANY. M/S APCO ASIA LTD. RAISED ITS I NVOICE ON THE ASSESSEE COMPANY ON DECEMBER 29 2006 FOR HONG KONG $ 4 74 978.76 EQUIVALENT TO ` 26 93 130.00 FOR REIMBUR SEMENT OF EXPENSES PAID BY THEM TO HRNETONE LTD. ASSESSEE COMP ANY FOLLOWING ACCRUAL SYSTEM OF ACCOUNTING BOOKED RECRUITMENT EXP ENSES DURING THE FINANCIAL YEAR 2006-07 AND SUBSEQUENTLY ON JUNE 10 2010 REMITTED THE PAYMENT TO APCO ASIA LTD. FOR RECRUITMENT EXPENSES. 7.1 ASSESSEE HAS SUBMITTED BEFORE US PARA-WISE REBU TTAL OF THE ASSESSING OFFICER S FINDINGS WHICH READ AS UNDER:- ITA NO. 4264/DEL/2010 6 IN THE POINT 3.3(A) OF THE ORDER ASSESSING OFFICER ALLEGES THAT EMPLOYMENT CONTRACT BETWEEN MR. DEVASHISH DASGUPTA AND APCO ASIA LTD. IS ALREADY SIGNED ON 12.8.2006 BUT S EARCH FOR HIM WAS YET TO BEGIN. IN THIS CONNECTION KINDLY REFER PARA 9 AND PAGE NO. 1 OF PB WHEREIN IT HAS BEEN STATED THAT SINGLE ASSIGNMENT T ERMS OF SERVICES FOR SEARCH OF COUNTRY MANAGER WAS SIGNED BETWEEN APCO ASIA LTD. AND HRNETONE LTD. HR RECRUITMENT COMP ANY ON NOVEMBER 30 2005. FROM NOVEMBER 2005 ONWARDS HRNE TONE LTD. WAS SEARCHING THE CANDIDATES FOR APPOINTMENT OF COUNTRY MANAGER. IN THE MONTH OF AUGUST 2006 I.E. AFTER A LMOST 8 MONTHS OF CONCERTED EFFORTS OF HRNETONE LTD. CANDIDA TURE OF MR. DEVASHISH DASGUPTA WAS FINALIZED. FURTHER HRNETONE LT D. RAISED ITS INVOICE ON APCO ASIA LTD. TOWARDS FULL AND FINA L FEE FOR SELECTION OF MR. DEVASHISH DASGUPTA AS COUNTRY MANAGER ON NOVEMBER 24 2006 (PB 58) ON APCO ASIA LTD. I.E. ONLY WHEN MR. DEVASHISH DASGUPTA HAD ACTUALLY JOINED APPELLANT COMPA NY IN NOVEMBER 2006 WHICH IS IN ACCORDANCE WITH TERMS OF P AYMENTS AGREED BETWEEN APCO ASIA LTD. AND HRNETONE LTD. LD. ASSESSING OFFICER WRONGLY REACHED TO CONCLUSION FROM THE DAT E OF INVOICE WHICH IS DATED NOVEMBER 24 2006 THAT SEARCH OF CAND IDATE WAS YET TO BEGIN. LD. ASSESSING OFFICER TREATED DATE OF INVOICE I.E. NOVEMBER 2006 AS DATE OF COMMENCEMENT OF SEARCH FOR CANDIDATURE WHICH IS FALLACIOUS AND TOTALLY CONTRAR Y TO FACTS. IT IS FURTHER SUBMITTED THAT IT IS PREVALENT PRACTICE IN HR CONSULTANCY BUSINESS THAT RECRUITMENT AGENCY RAISES ITS INVOICE ON ITS CLIENT ONLY WHEN SUCCESSFUL CANDIDATE HAD ACTUALLY JOINED C LIENTS. HENCE ALLEGATION OF LD. ASSESSING OFFICER IS MISCO NCEIVED ITA NO. 4264/DEL/2010 7 MISPLACED WHICH IS GROSSLY AGAINST THE FACTS OF ENU MERATED ABOVE. IN POINT 3.3(B) LD. ASSESSING OFFICER ALLEGES THA T CANDIDATE WAS IN INDIA AND SIGNED THE CONTRACT AND SEARCH FOR HIM WAS YET TO BEGIN. THE ALLEGATION OF ASSESSING OFFICER IS TOTALLY OPPOSED TO FACTS STATED ABOVE. IT IS SUBMITTED THAT ALLEGA TION OF ASSESSING OFFICER THAT EMPLOYEE WAS IN INDIA AND SE ARCH FOR HIM WAS YET TO BEGIN IN HONG KONG IS MISPLACED MISCONC EIVED AND GROSSLY AGAINST THE FACTS. IN THIS CONNECTION IT IS SUBMITTED THAT HRNETONE LTD. (HR AGENCY) WAS BASED AT HONG KO NG AND THEY WERE ENTRUSTED WITH THE JOB OF FINDING CANDID ATES FOR THE POST OF COUNTRY MANAGER AND DIRECTOR FOR STRATEGIC COMMUNICATION IN INDIA FOR THE APPELLANT COMPANY. T HOUGH BOTH THE CANDIDATES WERE BASED IN INDIA BUT HRNETONE L TD. WHICH BASED IN HONG KONG WAS CONDUCTING THE SEARCH OF CA NDIDATE IN INDIA THROUGH INTERNET WHICH IS EVIDENT FROM VARIOUS CORRESPONDENCES HRNETONE LTD. HAD WITH THE CANDIDAT ES IN INDIA. GIST OF CORRESPONDENCES BETWEEN HRNETONE LTD. AND M R. DEVASHISH DASGUPTA AND MR. AMIT MISRA HAD ALREADY BEEN FILED AT (PB 3-39). IN VIEW OF SINGLE ASSIGNMENT TERMS OF SER VICE SIGNED BETWEEN APCO ASIA LTD. AND HRNETONE LTD. AND ALSO IN VIEW OF VARIOUS EMAIL INTERACTION WHICH HRNETONE LTD. HAD W ITH SUCCESSFUL CANDIDATES GOES ON TO PROVE THAT COUNTRY MANAGER AND DIRECTOR STRATEGIC COMMUNICATION WERE RECRUITED F ROM HONG KONG. LD. ASSESSING OFFICER HAS FAILED TO APPRECI ATE THE FACTS HOW KEY MANAGERIAL PERSONNEL ARE RECRUITED THROUGH OUTSIDE HR CONSULTANT FOR THE APPELLANT COMPANY AND HASTILY RE ACHED TO DRASTIC CONCLUSION THAT ENTIRE EXPENSE IS BOGUS EX PENSES. HENCE ITA NO. 4264/DEL/2010 8 THERE IS NO CONTRADICTION IN THE CLAIM OF APPELLANT COMPANY THAT CANDIDATES WERE IN INDIA AND SEARCH FOR THEM WAS YE T TO BEGIN IN HONG KONG. IN POINT NO. 3.3(C) LD. ASSESSING OFFICER FURTHER ALLEGES THAT WHILE NAME OF MR. DEVASHISH DAS GUPTA DOES FIGURE AMON GST THE NAME OF EMPLOYEE TO WHOM SALARY HAVE BEEN PAID BY ASSE SSEE NAME OF MR. AMIT MISRA NOWHERE FIGURE IN THE LIST SEA RCHING WHOM A SUM OF HK$ 324976 HAS BEEN PURPORTEDLY INCUR RED BY THE ASSESSEE. THE ALLEGATIONS OF THE ASSESSING OFFICER IS MISPLAC ED AND GROSSLY OPPOSED TO FACTS WHICH IS EXPLAINED AS UND ER:- A) MR. DEVASHISH DASGUPTA JOINED APPELLANT COMPANY IN TH E MONTH OF NOVEMBER 2006 I.E. DURING THE YEAR UNDER CONSIDERATION THAT IS WHY HIS NAME IS APPEARING IN T HE NAME OF EMPLOYEE TO WHOM SALARY HAVE BEEN PAID BY THE APPELLA NT COMPANY. B) AMIT MISRA JOINED APPELLANT COMPANY IN THE MONTH OF MAY 2007 I.E. PREVIOUS YEAR IMMEDIATELY SUCCEEDING THE YEAR UNDER CONSIDERATION THAT IS WHY HIS NAME IS NOT APP EARING IN THE NAME OF EMPLOYEES TO WHOM SALARY HAVE BEEN PAID DURING THE YEAR UNDER CONSIDERATION. THE ABOVE FACT IS E VIDENT FROM EMPLOYMENT CONTRACT WHICH PROVIDES THAT HIS DATE OF JOINING IS MAY 01 2007 (PB 50-57). FURTHER HRNETRONE LTD. RAISED IT FINAL INVOICE IN ON MAY 25 21007 I.E. AFTER HIS JO INING (PB 62- 63). ITA NO. 4264/DEL/2010 9 7.2 FROM THE ABOVE IT IS EVIDENT THAT ASSESSING OFFIC ER HAS NOT PROPERLY UNDERSTOOD THE RECRUITMENT PROCESS ADOPTE D BY THE ASSESSEE AND ITS CONSULTANTS. IT WAS LACK OF UND ERSTANDING ON THE PART OF THE ASSESSING OFFICER WHICH HAS LED TO THIS C ONCLUSION THAT EXPENDITURE INVOLVED WAS BOGUS. FROM THE ABOVE IT IS ALSO EVIDENT THAT ASSESSING OFFICER HAS WRONGLY REACHED THE CON CLUSION THAT CONTRACT BETWEEN SH. DEVASHISH DASGUPTA AND M/S APCO ASIA LTD. WAS SIGNED ON 12.8.2006 BUT SEARCH FOR HIM WAS YET TO BE GIN. ASSESSING OFFICER HAS TREATED THE DATE OF INVOICE I.E. NOVE MBER 24 2006 AS DATE OF COMMENCEMENT OF SEARCH FOR CANDIDATURE WHICH IS WR ONG. IN THE MONTH OF AUGUST 2006 AFTER ALMOST 8 MONTHS OF EFFO RTS CANDIDATURE OF MR. DEVASHISH DASGUPTA WAS FINALIZED. FURTEHR THE HR COMPANY WAS BASED AT HONG KONG AND FROM THERE IT CONDUCTED THE SEARCH OF CANDIDATES. BOTH THE CANDIDATES WERE SELECTED W ERE BASED IN INDIA. HENCE THERE IS NO CONTRADICTION IN THE CLAIM OF THE ASSESSEE COMPANY THAT THE CANDIDATES WERE IN INDIA AND SEARCH FOR T HEM WAS YET TO BEGIN IN HONG KONG. FURTHER FROM ABOVE IT IS ALSO CLEAR THAT SH. AMIT MISRA JOINED THE COMPANY IN THE MONTH OF MAY 2007 I.E. THE P REVIOUS YEAR IMMEDIATELY SUCCEEDING YEAR UNDER CONSIDERATION AND THAT IS WHY HIS NAME WAS NOT APPEARING IN THE NAME OF THE EMPLO YEES TO WHOM THE SALARY WERE BEING PAID DURING THE YEAR UNDER CO NSIDERATION. ITA NO. 4264/DEL/2010 10 7.3 THE ABOVE DISCUSSIONS MAKES IT CLEAR THAT THE A SSESSING OFFICER HAS NOT PROPERLY UNDERSTOOD THE RECRUITMENT PROCES S AND HR POLICY OF THE ASSESSEE COMPANY WHICH LED TO THIS CONCLUSION T HAT THE EXPENDITURE INVOLVED IN THE SEARCH WAS BOGUS EXPEND ITURE. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND UPHOLD THE SAME. 8. IN THE RESULT THE APPEAL FILED BY THE REVENU E STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/7/2011 UP ON CONCLUSION OF HEARING. SD/- SD/- [R.P. TOLANI] [R.P. TOLANI] [R.P. TOLANI] [R.P. TOLANI] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 28/7/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3.CIT 4.CIT (A) 5. DR IT AT TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT DELHI BENCHES