DCIT, New Delhi v. M/s. Interface Communication (P) Ltd., New Delhi

ITA 4334/DEL/2010 | 2003-2004
Pronouncement Date: 16-09-2011 | Result: Dismissed

Appeal Details

RSA Number 433420114 RSA 2010
Bench Delhi
Appeal Number ITA 4334/DEL/2010
Duration Of Justice 11 month(s) 24 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Interface Communication (P) Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 16-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 16-09-2011
Date Of Final Hearing 13-09-2011
Next Hearing Date 13-09-2011
Assessment Year 2003-2004
Appeal Filed On 22-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO.4334/DEL/2010 ASSESSMENT YEAR : 2003-04 DCIT CIRCLE 11 (1) NEW DELHI. VS. INTERFACE COMMUNICATION (P) LTD. CHANDWALA ESTATE RESTAURANT BLOCK 3 RD FLOOR MAA ANANDMAI MARG KALKAJI NEW DELHI. 110 019. PAN : AAACI47698 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJEEV CHAUDHARY CA REVENUE BY : SHRI SALIL MISHRA SR. DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIRECT ED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 28 TH JULY 2010 FOR ASSESSMENT YEAR 2003-04. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THE ORDER OF LEARNED CIT (A) IS WRONG PERVERSE ILLEGAL AND AGAINST THE PROVISIONS OF LAW LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.53 29 759/- BEING 5% OF TOTAL EXPENSES NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. ITA NO.4334/DEL/2010 2 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF ADVERTISING AGENCY. IT FILED ITS RETURN OF INCOME AT ` 6 22 21 720/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OF FICER NOTICED THAT FOR THE YEAR UNDER CONSIDERATION THE ASSE SSEE HAD CHANGED THE METHOD OF SHARING OF THE EXPENSES BETWEEN THE INTERFACE COMMUNICATION PVT. LTD. (THE ASSESSEE) AND FCB-ULKA ADV ERTISING LTD. (HOLDING COMPANY OF THE ASSESSEE) AND FOR THE SAKE OF CO NVENIENCE CALLED AS ULKA. ACCORDING TO THE MODIFIED METHOD OF SHARING THE EXPENSES BETWEEN THE PARENT COMPANY AND THE ASSESSEE COMP ANY IT WAS DECIDED THAT AN AMOUNT EQUIVALENT TO 75% OF THE COMPANYS REVENUE WILL BE PAID TO ULKA AS A COMPENSATION FOR USE OF ULKAS RESOURCES TO MANAGE THE COMPANYS BUSINESS W.E.F. 1.4.200 2. APART FROM THIS IT WAS NOTICED BY THE ASSESSING OFFICER THAT T HOUGH THE ASSESSEE COMPANY WAS USING ALL THE RESOURCES OF ULKA AND W AS OPERATING FROM THE SAME BUSINESS PREMISES THE ASSESSEE HAD T O INCUR HUGE EXPENDITURE ON ITS OWN ALSO WHICH WERE TO THE TU NE OF ` 10 66 01 974/- IN THE SHAPE OF STAFF REMUNERATION AND BENEFITS ESTABLISHMENT EXPENSES OPERATIONAL EXPENSES AND MISCELLAN EOUS EXPENSES. HE ASKED THE ASSESSEE AS TO WHY SUCH EXPENDITURE SHOULD NOT BE DISALLOWED. IN REPLY IT WAS SUBMITTED THAT UL KA AND INTERFACE COMMUNICATION PVT. LTD. HAVE BEEN OPERATING FROM TH E SAME OFFICE PREMISES AND THE INTERFACE HAS NOT MAINTAINED ITS INDEP ENDENT OFFICE OR ESTABLISHMENT AND HAS BEEN UTILIZING PREMISES AND RESO URCES SUCH AS PERSONNEL OFFICE FACILITIES HARDWARE SOFTWARE RE SEARCH MATERIALS FIXED ASSETS ETC. OF ULKA. IN ADDITION TO THE ABOVE THE COMPANY WAS ALSO USING THE SERVICES OF CERTAIN KEY PERSONNEL INCLUDI NG THE CREATIVE STAFF OF THE HOLDING COMPANY AND THE EXPENSES DIRECTLY INCURRED DOES NOT RELATE TO THE SERVICES TAKEN BY THE ASSESSEE FROM ITS PARENT COMPANY. HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT SUCH SUBMISSIONS OF THE ASSESSEE. HE DISALLOWED 5% OF THE FOLLOW ING AMOUNTS INCURRED BY THE ASSESSEE:- ITA NO.4334/DEL/2010 3 STAFF REMUNERATION AND BENEFITS 87 48 091 ESTABLISHMENT EXPENSES 11 98 339 OPERATIONAL EXPENSES 9 24 70 888 MISC. EXPENSES 41 77 865 10 65 95 183 3. IN THIS MANNER ADDITION OF ` 53 29 759/- WAS MADE . THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERAT ED BY THE ASSESSEE BEFORE CIT (A). LD. CIT (A) HAS RECORDED THE F INDING THAT THE PARENT COMPANY OF THE ASSESSEE HAS PROVIDED THE ASSESSEE WIT H DIFFERENT KIND OF EXPERTISE AND SUPPORT TO RUN THE BU SINESS AND THE ASSESSING OFFICER CANNOT ENTER INTO THE SHOES OF THE ASSESSEE AND RUN ITS BUSINESS UNLESS THERE IS A LIMITATION PUT BY LAW ON TH E AMOUNT OF EXPENDITURE TO BE INCURRED UNDER ANY HEAD. ANY OF THE EXPENDITURES INCURRED BY THE ASSESSEE HAS NOT BEEN FOUND TO BE BOGUS E XPENDITURE. IF THE EXPENDITURE ARE GENUINE THE SAME SHOULD BE AL LOWED. IN THE ABSENCE OF ANY SUCH MATERIAL LEARNED CIT (A) HAS ACCE PTED THE CLAIM OF THE ASSESSEE. HE OBSERVED THAT AUDITED BALANCE SHEET OF THE PARENT COMPANY ALSO SHOWED NET PROFIT BEFORE TAX AT ` 21 47 17 959/- AND AS BOTH THE COMPANIES ARE PROFIT MAKING COMPANIES AMOUNT S COULD NOT BE DISALLOWED BY THE ASSESSING OFFICER. THE REVENUE IS AGGR IEVED WITH SUCH DELETION AND HAS FILED THE AFOREMENTIONED APPEAL . 4. RELYING UPON THE FINDINGS RECORDED BY THE ASSESSING O FFICER IT WAS THE CASE OF THE LEARNED DR THAT THE ASSESSEE WAS PAYIN G SUBSTANTIAL AMOUNT OF ITS REVENUE TO ITS PARENT COMPANY FOR THE UTILIZATION OF INFRASTRUCTURE. THEREFORE THE EXPEN SES INCURRED BY THE ASSESSEE ON ITS OWN WERE NOT REQUIRED TO BE INCURRED AND THEREFORE THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING 5% THEREOF AND LEARNED CIT (A) HAS WRONGLY DELETED THE DISALLOWANCE. HE TH EREFORE PLEADED ITA NO.4334/DEL/2010 4 THAT THE DISALLOWANCE DELETED BY CIT (A) SHOULD BE RE STORED AND THE APPEAL FILED BY THE REVENUE SHOULD BE ALLOWED. 5. ON THE OTHER HAND THE LEARNED AR OF THE ASSESSEE HA S DRAWN OUR ATTENTION TOWARDS THE SUBMISSIONS MADE BEFORE THE CIT (A ) A COPY FO WHICH IS FILED AT PAGES 1-21 OF THE PAPER BOOK. HE SU BMITTED THAT APART FROM THE FACT THAT NONE OF THE EXPENDITURES IN CURRED BY THE ASSESSEE HAS BEEN FOUND TO BE BOGUS THE FRESH ARRANGEMENT MADE BY THE ASSESSEE WITH ITS PARENT COMPANY WAS A PRUDENT DECISIO N BY THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION AND TH E SAID DECISION IS BASED UPON THE SCIENTIFIC CALCULATIONS AND H ISTORY. HE SUBMITTED THAT ALL THESE FIGURES WERE GIVEN TO THE CIT (A) IN THE WRITTEN SUBMISSIONS. HE SUBMITTED THAT FOR ASSESSMENT YEAR 2001-02 AND 2002-03 THE ASSESSEE WAS MAKING PAYMENT TO ITS PARENT COM PANY FOR UTILIZATION OF INFRASTRUCTURE @81% AND 79% RESPECTIVE LY. HE IN THIS REGARD REFERRED TO THE FOLLOWING TABLE SUBMITTED IN THE SUBMISSIONS MADE BEFORE CIT (A). A.Y. 2002-03 A.Y.2001-02 1. FCB-ULKA GROSS BILLING A 1 016 400.000 2 281 000.000 2 INTERFACE B 276 400.000 510 200.000 3 TOTAL OF GROSS BILLINGS C=A+B 1 292 800.000 2 791 200.000 4. RATIO OF GROSS BILLINGS FCB-ULKA INTERFACE A/C B/C 79% 21% 81% 19% 6. HE SUBMITTED THAT ACCORDING TO THE FRESH ARRANGEME NT THE ASSESSEE WAS ABLE TO EARN MORE INCOME OF ` 47 90 793/- A ND THIS POSITION WAS ALSO SHOWN IN THE FOLLOWING TABLE FILED BE FORE CIT (A) IN THE WRITTEN SUBMISSIONS:- ITA NO.4334/DEL/2010 5 HEADS OF INCOME/ EXPENDITURE FINANCIAL POSITION AS PER REVENUE SHARING MODEL* FINANCIAL POSITION AS PER OLD ALLOCATION OF EXPENSES METHOD DIFFERENCE IN RS. INCOME FROM SERVICES 162 394 181 334 097 108 171 702 927 OTHER INCOME 6 388 595 6 388 595 TOTAL INCOME (A) 168 782 776 340 485 703 171 702 927 STAFF REMUNERATION AND BENEFITS 8 748 091 64 718 146 55 970 055 ESTABLISHMENT EXPENSES 1 198 339 16 232 043 15 033 704 OPERATIONAL EXPENSES 92 470 886 189 196 013 96 725 125 MISCELLANEOUS EXPENSES 4 177 865 12 942 701 87 64 836 DEPRECIATION 6 791 6 791 TOTAL EXPENDITURE (B) 106 601 974 283 095 694 176 493 720 NET PROFIT (A)-(B) 62 180 802 57 390 009 47 90 793 * AS PER PROFIT & LOSS ACCOUNT 7. THEREFORE HE SUBMITTED THAT LEARNED CIT (A) HAS R IGHTLY DELETED THE ADDITION AND HIS ORDER ON THIS ISSUE SHOULD BE CONFI RMED. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. WE FIND FORCE IN TH E ARGUMENTS SUBMITTED BY THE LEARNED AR THAT FRESH ARRANGEMENT MA DE BY THE ASSESSEE WITH ITS PARENT COMPANY DID NOT RESULT IN LOSS OF REVENUE IN THE CASE OF THE ASSESSEE AS THE ASSESSEE HAS BEEN ABLE TO DEMONSTRATE THAT EARLIER IT HAS TO BEAR MORE THAN 75% OF ITS REVENUE IN THE PRECEDING YEARS AND BY MAKING THE FRESH ARRANGEME NT THE ASSESSEE HAS PAID SOMEWHAT LESS AMOUNT TO ITS PARENT COMPANY AND THAT WAS DEMONSTRATED IN THE AFOREMENTIONED TABLE. M OREOVER THE ASSESSEE ALSO HAS BEEN ABLE TO SHOW THAT BY MAKING FRESH ARRANGEMENT IT HAS EARNED MORE INCOME. IN THIS VIEW OF THE SITUATION WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE CIT ( A) VIDE WHICH THE AFOREMENTIONED ADDITION HAS BEEN DELETED. WE DECLINE TO INTERFERE. ITA NO.4334/DEL/2010 6 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.09.20 11. SD/- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 16.09.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES