2019 (3) TMI 629 - AT - Income Tax

Reopening of assessment - buying agency commission received by the assessee - HELD THAT - As decided in assessee own case 2013 (1) TMI 106 - ITAT DELHI the services rendered by the assessee in this case were purely in the nature of procurement services and cannot be characterized as managerial technical or consultancy services. Accordingly, the consideration received by the assessee was appropriately classified as commission as against fees for technical. - Decided against revenue Addition on account of difference of cost allocation - HELD THAT - The matter is of factual verification only. The assessee in the return of income filed has offered marketing expenses reimbursement of ₹ 8,17,970/-and taxes borne by AIMPL amounting to ₹ 2,06,976/-and grossed up the amount to ₹ 10,24,946/-. Whereas the Assessing Officer considered the figure of ₹ 9,93,395/- reported as marketing expenses reimbursement in form No. 3 CEB and made addition for the difference amount (9,93,395 8,17,970) ₹ 1,75,425/-. The assessee explained the amount of marketing expenses reimbursement and tax component borne by the Indian entity and offered both the amount for tax. In view of the above factual finding, which has not been controverted by the DR, we do not find any error in the order of the CIT(A) on the issue in dispute, accordingly, we uphold the same and dismiss the ground No. 2 of the appeal of the Revenue. Form of appeal and memorandum of cross-objections to Appellate Tribunal - authorised signatory of the company - HELD THAT - Company being non-resident entity, the cross objection might have been verified by person holding a valid power of attorney from such company and said power of attorney was required to be attached with the said cross objection. But on the perusal of the cross objection, it is found that it has been filed by authorised signatory without enclosing a valid power of attorney, and thus the cross objection is not maintainable, accordingly, it is dismissed in limine. Penalty u/s 271(1)(c) - CIT(A) has deleted the penalty mainly on the ground that all information in relation to reimbursement of costs incurred on behalf of the Indian entity AIMPL was duly disclosed in the notes to computation annexed along with the original return of income and in the revised return of income, the assessee already offered the said reimbursement to tax - On the issue of marketing support service fee, also the Ld. CIT(A) observed that same was offered in the revised return of income, before an enquiry/discussion by the AO on that issue - HELD THAT - CIT(A) followed the decision of the Hon ble Supreme Court in the case of Reliance Petro Product Limited 2010 (3) TMI 80 - SUPREME COURT wherein it is held that if a claim made by the appellant is not found sustainable by the Assessing Officer during assessment proceeding, it does not automatically lead to concealment of income. We are also of the opinion that the Explanation by the assessee in respect of the additions made are bonafide and thus no penalty invoking Explanation -1 to section 271(1)(c) of the Act could have been levied in the case of the assessee. In view of the aforesaid discussion, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same. The grounds of the appeal of the Revenue are dismissed.

Issues Involved:
1. Determination of the applicable date of the Buying Agency Services Agreement.
2. Justification of the difference in cost allocation.
3. Classification of consideration received under the Buying Agency Services Agreement as Fee for Technical Services (FTS) under section 9(1)(vii) of the Income Tax Act, 1961.
4. Deletion of interest under section 234B of the Income Tax Act.
5. Validity of initiation of reassessment proceedings under section 147/148 of the Income Tax Act.
6. Deletion of penalty imposed under section 271(1)(c) of the Income Tax Act for concealment of income and furnishing inaccurate particulars of income.

Detailed Analysis:

1. Determination of the Applicable Date of the Buying Agency Services Agreement:
The Revenue contended that the CIT(A) erred in determining the applicable date of the agreement for Buying Agency Services. The Tribunal noted that the Assessing Officer followed the order of his predecessor for assessment year 2007-08. The Tribunal upheld the CIT(A)'s decision, following the precedent set by the Tribunal for the assessment year 2007-08, which held that the buying agency commission could not be considered as fee for technical services.

2. Justification of the Difference in Cost Allocation:
The Revenue argued that the CIT(A) erred in justifying the difference in cost allocation. The Tribunal found that the CIT(A) had correctly deleted the addition of ?1,75,425 after verifying the factual submissions. The assessee had grossed up the marketing expenses reimbursement and taxes borne by AIMPL, which was correctly declared in the return of income. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground.

3. Classification of Consideration Received as Fee for Technical Services:
The Revenue contended that the CIT(A) erred in holding that the consideration received by the assessee under the Buying Agency Services Agreement was not in the nature of Fee for Technical Services under section 9(1)(vii) of the Act. The Tribunal referred to its own decision for the assessment year 2007-08, which concluded that the services rendered by the assessee were purely in the nature of procurement services and could not be characterized as managerial, technical, or consultancy services. Consequently, the Tribunal dismissed the Revenue's grounds on this issue.

4. Deletion of Interest under Section 234B:
The Tribunal did not specifically address the deletion of interest under section 234B, as it was a consequential issue. The Tribunal dismissed the Revenue's appeal on this ground as well.

5. Validity of Initiation of Reassessment Proceedings:
The assessee raised a cross objection challenging the validity of the initiation of reassessment proceedings under section 147/148 of the Act. The Tribunal found that the cross objection was not maintainable because it was filed by an authorized signatory without enclosing a valid power of attorney. Consequently, the Tribunal dismissed the cross objection in limine.

6. Deletion of Penalty under Section 271(1)(c):
The Revenue appealed against the deletion of penalty imposed under section 271(1)(c) for the assessment year 2007-08. The CIT(A) had deleted the penalty, observing that the assessee had disclosed all relevant information in the notes to computation annexed with the original return of income and had a bona fide belief that reimbursements were not taxable based on judicial decisions. The Tribunal upheld the CIT(A)'s decision, noting that the explanation by the assessee was bona fide and no penalty could be levied under Explanation-1 to section 271(1)(c) of the Act.

Conclusion:
In summary, the Tribunal dismissed both appeals filed by the Revenue and did not admit the cross objection filed by the assessee. The Tribunal upheld the CIT(A)'s decisions on all issues, including the deletion of additions and penalties. The judgment was pronounced on January 29, 2019.

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