2016 (5) TMI 575 - AT - Income Tax

Revision u/s 263 - Non deduction of tds on payments made in pursuance of Cost Allocation and Recharge Agreement - disallowance u/s. 40(a)(ia) - Held that - When the Assessing Officer examined the material called for and placed before him by the assessee, which fact is admitted by the Ld. CIT, and the Assessing Officer took a correct possible view in the matter, the order of assessment cannot be termed to be erroneous and prejudicial to the interest of the Revenue. We, therefore, hold that the Ld. CIT was not justified in assuming jurisdiction u/s. 263 of the Act for assessment year 2010-11 in the case on hand and, therefore, cancel the impugned order passed u/s. 263 of the Act on 18/2/2015 for assessment year 2010-10 in the case on hand. Even on merits, we concur with averments of the assessee that where expenses incurred by GSISPL on its behalf and the same are reimbursed, it is a mere-recoupment of expenses. It would not constitute income of the recipient so as to cast a liability upon the assessee for deduction of tax at source on such payments and, therefore, disallowance u/s. 40(a)(ia) of the Act is not warranted. We find that the very same issue was considered by a Co-ordinate bench of this Tribunal in the assessee s own case for the assessment year 2009- 10 holding that payments made by the assessee in pursuance of Cost Allocation and Recharge Agreement between the assessee and GSISPL was purely on account of reimbursement of expenses which were incurred by GSISPL and hence there being no income element involved in such payments, there was no requirement to deduct TDS thereon. - Decided in favour of assessee

Issues Involved:
1. Initiation and passing of the order under section 263 of the Income Tax Act, 1961.
2. Determination of whether reimbursement under a cost-sharing agreement suggests an income element and warrants tax deduction at source (TDS).
3. Satisfaction of the twin conditions under section 263 of the Act, i.e., erroneous order and prejudicial to the interest of revenue.
4. Legality of the Assessing Officer's view and whether it constitutes a possible legal view.
5. Merger of the order with the CIT(A) adjudication in other years and its implications.

Issue-wise Detailed Analysis:

1. Initiation and Passing of the Order under Section 263 of the Income Tax Act, 1961:
The appeal was directed against the order under section 263 of the Act passed by the CIT-I, Mumbai for the assessment year 2010-11. The CIT observed that the assessee incurred reimbursement of cost recharge expenses amounting to ?3,17,37,719/- without deducting TDS. The CIT issued a show cause notice proposing to revise the assessment order, contending that similar disallowances under section 40(a)(ia) were made in the previous year. The CIT concluded that the reimbursement suggested an income element and thus, TDS should have been deducted.

2. Reimbursement under a Cost-Sharing Agreement and TDS Requirement:
The assessee contended that the reimbursement was a mere recoupment of expenses and did not constitute income, thus no TDS was required. The CIT, however, viewed that the arrangement suggested an income element and required TDS deduction. The Tribunal noted that the material related to the reimbursement was placed before the Assessing Officer, who examined and accepted it as a mere reimbursement without income element. Judicial pronouncements supported that no TDS is required on reimbursement of expenses.

3. Twin Conditions under Section 263 of the Act:
The assessee argued that the twin conditions for invoking section 263, i.e., the order being erroneous and prejudicial to the revenue, were not satisfied. The Tribunal found that the Assessing Officer had examined the details and taken a possible legal view that no TDS was required. Thus, the order was not erroneous or prejudicial to the revenue.

4. Legality of the Assessing Officer's View:
The Tribunal held that the Assessing Officer's view, which was based on examination of the details and supported by judicial precedents, was a possible legal view. The CIT's attempt to substitute his view constituted a change of opinion, which is not permissible under section 263. The Tribunal relied on several judicial pronouncements to support this position.

5. Merger of the Order with CIT(A) Adjudication:
The assessee contended that the issue was adjudicated by CIT(A) in other years, and thus, the order merged with CIT(A)'s order, making revision under section 263 impermissible. The Tribunal agreed, noting that similar issues were upheld in favor of the assessee in earlier years by CIT(A) and the Tribunal.

Conclusion:
The Tribunal concluded that the CIT was not justified in invoking section 263 as the Assessing Officer had taken a possible legal view after examining the details. The order was neither erroneous nor prejudicial to the revenue. On merits, the Tribunal also held that the reimbursement did not constitute income, thus no TDS was required. Consequently, the appeal was allowed, and the order under section 263 was canceled.

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