2016 (7) TMI 100 - AT - Income Tax

Disallowance of 30% of Common expenses reimbursed by the assessee to its group concern - Held that - A careful perusal of the orders passed by the tax authorities would show that they have made the adhoc disallowance mainly for want of particulars i.e. the details furnished by the assessee were not considered to be sufficient by them. There should not be any dispute that the initial onus to prove the claim rests upon the assessee. It is noticed that the assessee did not furnish the basis of allocation of expenses before the AO and hence he has made the adhoc disallowance. The basis of allocation was furnished by the assessee before the Ld DRP. However the DRP has taken the view that the assessee has not substantiated the reimbursement when the assessee itself has incurred a sum of 30.21 crores towards employee cost. These observations show that the claim made by the assessee has not been properly explained by the assessee to the satisfaction of the tax authorities. Under these set of facts in the interest of natural justice we are of the view that the assessee should be provided with one more opportunity to explain the claim made by it. Accordingly we restore this issue to the file of the DRP/AO for considering the same afresh. Assessment of Rental and circuit charges incurred by the assessee on behalf of its group concern - Held that Orders passed by tax authorities do not bring out exact nature of services provided by the assessee and hence we are unable to appreciate the above said contentions of the assessee. However we are of the view that the said contentions of the Ld A.R may require proper examination as it may bring out the factual aspects relating to this issue. We notice that the factual aspects have not been brought on record by the tax authorities. Accordingly we are of the view that this issue also requires fresh examination. Accordingly we set aside the order of Ld CIT(A) and restore the issue to the file of AO/DRP for fresh examination. The assessee is also directed to furnish all the information and explanations that may be called for by the AO/DRP. Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of 30% of "Common expenses" reimbursed by the assessee to its group concern.
2. Assessment of Rental and circuit charges incurred by the assessee on behalf of its group concern.

Analysis:

Issue 1: Disallowance of 30% of "Common expenses" reimbursed by the assessee to its group concern:
The appeal pertains to the disallowance of expenses claimed by the assessee, involving reimbursement to a sister concern. The Assessing Officer (AO) disallowed 30% of the claimed amount due to lack of rational basis for allocation. The Dispute Resolution Panel (DRP) upheld the disallowance, emphasizing the absence of financial statements from the group company and inadequate explanation by the assessee. The Tribunal observed that the initial onus to prove the claim rests with the assessee. While the basis of allocation was later furnished, the authorities found the explanation unsatisfactory. In the interest of natural justice, the Tribunal directed a fresh examination of the issue by the DRP/AO.

Issue 2: Assessment of Rental and circuit charges incurred by the assessee on behalf of its group concern:
The AO assessed reimbursements received by the assessee for rental and circuit charges as Royalty/Fee for technical services. The DRP endorsed this view, citing invoices from telecom companies and legal precedents. The Tribunal noted the absence of written documentation supporting the assessee's claims regarding the billing arrangement with the telecom companies. It highlighted the need for a detailed examination of the nature of services provided by the assessee and the factual aspects of the transactions. Consequently, the Tribunal set aside the CIT(A)'s order and directed a fresh examination by the AO/DRP, requiring the assessee to provide all necessary information.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a thorough reevaluation of both issues to ensure a fair and comprehensive assessment based on the legal and factual aspects presented during the proceedings.