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TMI Blog2021 (10) TMI 1199X X X X Extracts X X X X X X X X Extracts X X X X ..... holding necessary TDS applicable as per law - supervisory fees paid by the assessee to its parent company M/s. Dong Woo HST Co. Ltd. in pursuant to an agreement dated 25.12.2007 is genuine expenditure incurred wholly and exclusively for the purpose of business of the assessee and which is supported by necessary evidences. AO has disbelieved genuine expenditure incurred by the assessee for the purpose of business only for the reason that said transaction was entered into between the assessee and its parent company. AO had also questioned necessity of making such payments. Therefore, he opined that payment made to its parent company for rendering supervisory fees is nothing but shifting of profit from one tax territory to another tax territory without any actual business expediency and as against which no particular service is received. As gone through reasons given by the AO in light of various evidences filed by the assessee including agreement between parties and we do not ourselves subscribe to reasons given by the Assessing Officer for the simple reason that it is well settled principle of law that the Assessing Officer cannot sit in the armchair of businessman and decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted and remitted to Govt. account. - Decided in favour of assessee. - I.T.A. Nos. 1560, 1920/Chny/2019, 939 and 940/Chny/2020 - - - Dated:- 22-10-2021 - V. Durga Rao, Member (J) And G. Manjunatha, Member (A) For the Appellant : A.R.V. Sreenivasan, Addl. CIT For the Respondents : T. Vasudevan, Advocate and K. Venkataraman, CA ORDER Per G. Manjunatha , AM This bunch of four appeals filed by the assessee as well as Revenue are directed against separate, but identical orders of the learned CIT(A)-1, Chennai all even dated 23.09.2020, 23.09.2020, 07.03.2019 29.03.2019 and pertain to assessment years 2011-12, 2013-14, 2014-15 2015-16. Since, the facts are identical and issues are common, for the sake of convenience, these appeals are heard together and are being disposed off, by this consolidated order. 2. The assessee has more or less raised common grounds of appeal for assessment years 2011-12 and 2013-14, therefore, for the sake of brevity, grounds of appeal filed for assessment year 2011-12 in ITA No. 939/Chny/2020 are reproduced as under:- 1. The order of the CIT(A) dismissing the appeal and confirming the disallowance of supervisory charges p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance of furnace machine and machine parts and is wholly and exclusively for the purpose of business, thus satisfying the parameters for allowance of the amount under sec. 37 of the Act. 10. The CIT(A), in any view of the matter, ought to have seen that reopening of assessment in violation of Proviso to sec. 147 was untenable in law and also ought to have deleted the entire disallowance with due regard to the contentions of the assessee and thus allowed the appeal. 3. The Revenue has more or less raised common grounds of appeal for assessment years 2014-15 and 2015-16, therefore, for the sake of brevity, grounds of appeal filed for assessment year 2014-15 in ITA No. 1560/Chny/2019 are reproduced as under:- 1. The order of the Ld. CIT(A) is contrary to law, facts and circumstances of the case. 2.1 The Ld. CIT(A) erred in giving relief to the assessee by deleting the supervisory fee based on fresh evidence submitted for the first time before the CIT(A) without giving opportunity to the AO under Rule 46A of the Income tax Rules, for verifying the said claim of the assessee based on evidences filed afresh during appellate proceedings. 2.2 The Ld. CIT(A) failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia for carrying out work for which the assessee company has agreed to pay supervisory and managerial fees vide agreement dated 25.12.2007. The scope of supervisory services as per agreement dated 25.12.2007 has been defined as per which parent company shall provide necessary manpower support to enable inspection, testing of main and associated equipments in tune with latest approved national and international standards and code of practice. The assessee has paid supervisory fees to its parent company in terms of agreement entered into between the parties dated 25.12.2007. 5. During the course of assessment proceedings, the Assessing Officer called upon the assessee to justify payment of supervisory fees to its parent company with necessary evidences. The assessee in response has filed necessary evidences, including agreement entered into with M/s. Dongwoo HST Co. Ltd. and claimed that it has paid supervisory fees to its parent company for rendering various services including dispatching its employees to factory site in rendering technical know-how for manufacture and maintenance of furnaces machine and machine parts. The Assessing Officer, however was not convinced with explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income of the assessee for AY 14-15. 5.1 The deduction of sum of ₹ 3,13,07,498/- claimed in AY 2011-12 as supervisory fees paid for earlier years (on the basis of TDS deducted in the current year) is not allowable as the principal issue of supervisory fees itself has been decided as not allowable under Section 37 of the Income-tax Act, 1961. Further, the assessee could not furnish any proof for the receipt of actual services for which the huge payments were being made mentioning in only balance sheet and profit loss account of the company as being vetted by the parent company and nothing in the matter of supervisory services being rendered as mentioned. This is despite the opportunities given and even after the show cause notice given. In such circumstances, it is only logical to conclude that the said payment is being made without any actual business expediency and against which no particular service is received and also in line with the stand taken by the assessing officer in assessee's own case for AY 2014-15. In view of the discussions made the deduction of sum of ₹ 3,13,07,498/- claimed in AY 2011-12 as supervisory fees paid for earlier years (on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary evidences and accordingly, deleted additions made by the Assessing Officer. The learned CIT(A) has also taken note of fact that the assessee has remitted supervisory fees after deducting necessary withholding tax as per law. The relevant findings of the learned CIT(A) are as under:- The submissions of the appellant were considered vis- -vis the findings of the A.O. During the appellate proceedings, the appellant furnished written submissions dated 2/1/2018. It was explained that the appellant company was carrying out processes concerning heat treatment, coating, furnace of metal and sales and services to customers. These processes had been transferred by the parent company i.e. Dong woo HST Company Ltd. The appellant carried out these processes under the supervision of the parent company. It was stated that these expenses were incurred wholly and exclusively for the purpose of business. The appellant also stated that the services had been rendered by the parent company by despatching expatriates to India for carrying out this work. A detailed note in this regard had been furnished during the assessment proceedings. Copies of travel orders, visa and other supporting bills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) Appellate proceedings: During the course of appellate proceedings, the appellant furnished the following submissions: 1. The Learned Assessing Officer has erred in disallowing the expenses incurred in the FY 2012-13 of the relevant Assessment Year 2013-14, Disallowing of expenses pertaining to the previous financial year is unjust. ii. The expenses were incurred in the previous financial year and however no question regarding its allowability and genuinity during the relevant scrutiny assessment. Sole reason for suo moto disallowance was non deduction of tax at source as per section 40(a)(i) of the Income Tax Act, 1961. In as much as the above facts, the disallowance of expenses with respect to previous year has to be deleted. 4B(3) CIT(A)'s Inferences and decision: The submissions of the appellant were considered vis- -vis the findings of the A.O. In their submissions dated 2/1/2018, the appellant stated that the A.O. had erred in disallowing ₹ 1,31,30,658/- stated as pertaining to A.Y. 2013-14 which was originally claimed at ₹ 1,31,99,390/- u/s. 40(a)(i) on remittance of TDS in the A.Y. 2014-15 being the supervisory fees which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered to be not allowable u/s. 37 of the Act, then other formalities of non-deduction of TDS and consequent disallowances is academic in nature. 9. The learned A.R for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that the assessee has paid supervisory fees to its parent company M/s. Dong Woo HST Co. Ltd. for rendering various services including technological support and process concerning heat treatment, coating furnaces of metal, sale and services to customers. The parent company has provided such services in pursuant to an agreement dated 25.12.2007 between the parties, as per which technicians from parent company has travelled to India on various occasions for rendering services in connection with manufacturing and installation of heat treatment of furnaces for which the assessee has furnished necessary evidences including agreement between the parties, travel documents of expatriates who visited India for rendering services. The learned A.R further submitted that the assessee is in the business of manufacturing, supply and installation of industrial furnaces and said activity cannot be carried out without assistance of its parent com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y TDS applicable as per law. Therefore, we are of the considered view that supervisory fees paid by the assessee to its parent company M/s. Dong Woo HST Co. Ltd. in pursuant to an agreement dated 25.12.2007 is genuine expenditure incurred wholly and exclusively for the purpose of business of the assessee and which is supported by necessary evidences. 11. The Assessing Officer has disbelieved genuine expenditure incurred by the assessee for the purpose of business only for the reason that said transaction was entered into between the assessee and its parent company. The Assessing Officer had also questioned necessity of making such payments. Therefore, he opined that payment made to its parent company for rendering supervisory fees is nothing but shifting of profit from one tax territory to another tax territory without any actual business expediency and as against which no particular service is received. We have gone through reasons given by the Assessing Officer in light of various evidences filed by the assessee including agreement between parties and we do not ourselves subscribe to reasons given by the Assessing Officer for the simple reason that it is well settled principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred by the assessee towards payment made to its parent company for rendering supervisory services is genuine expenditure, which was incurred wholly and exclusively for purpose of business of the assessee. The Assessing Officer without appreciating facts has simply disallowed supervisory fees paid to the assessee's parent company. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the Revenue. 12. The other aspect of non-deduction tax deducted at source and consequent disallowance of expenditure by the assessee in certain years and claiming deduction for said expenditure in the year of payment is not disputed by the Assessing Officer, because the Assessing Officer has primarily held that expenditure incurred by the assessee under the head supervisory fees is held to be not deductible under section 37 of the Income Tax Act, 1961. But, the ld. CIT(A) has examined suo motu disallowance made by the assessee in earlier years for non-deduction of tax deducted at source and subsequent deduction claimed in the year of payment and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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