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TMI Blog2020 (6) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the business - DRP has directed to delete the disallowance holding that this Club Membership expenditure incurred by the assessee for its employees has been considered as perquisite in the hands of the employees as salary income and tax has been paid thereon - HELD THAT:- The finding of the Ld. DRP is correct. We are further of the view that any expenditure incurred on employees by the employer, whether by way of salary or by way of perquisites, is business expenditure as the employees are working for the business. What the employer provides to employees is a consideration for the services rendered by such employees. Such consideration can be in cash by way of salary or allowances or in kind by way of various perquisites. The Club Membership fee is one such perquisite which is extended by the employer to its employees. So long the fee is paid for the employees who are working with the employer for the business being carried on by such employer, the fee so paid is an expenditure incurred wholly and exclusively for the purpose of business. Decided against revenue. Addition on account of the Service Fees - As per AO this expenditure has not been incurred wholly and exclusively fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m it fit to set aside this issue to the file of the AO with the direction to restrict the disallowance only to such expenditure which assessee is not able to support with evidence. TDS u/s 195 - non-deduction of tax on purchases made from Mitsui Co. Ltd. Japan - existence of the PE in India - HELD THAT:- From the facts explained by the Ld. AR, it is clear that a coordinate Bench of the ITAT in the case of Mitsui Co. Ltd. Japan [ 2016 (4) TMI 1447 - ITAT DELHI] has held that Mitsui Co. Ltd. Japan does not have a PE in India. In the absence of any PE, there is no obligation to deduct tax. Further, it is also a fact that these purchases are off-shore supplies which cannot be subjected to tax in India and if that be so, there is no requirement to deduct tax at source.DRP has also examined this issue and has held that off-shore supplies were not related to the activities by the PE of such an AE in India - Decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... ng disallowance of Rs. 16,54,868/- u/s 14A of Income Tax Act 1961 without considering legislative intend of introducing section 14A by the Finance Act 2001 as clarified by the CBDT Circular No. 5/2014 dated 10.02.2014? 10. Whether on facts and circumstances of the case and in law, the DRP is justified is not upholding the disallowance of Rs. 16,54,868/- u/s 14A of the Act without consider a legal principle that allowability of expenditure under the Act is not conditional upon the earning of the income as upheld by the Hon'ble Supreme Court in the case of CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519? 11. Whether on facts and circumstances of the case and in law, the DRP is justified in not upholding the disallowance of an amount of Rs. 13,63,487/- on account of expenditure on club membership? 12. Whether on facts and circumstances of the case and in law, the DRP is justified in not upholding disallowance of an amount of Rs. 1,28,79.450/- on account of service fees paid to M/s West Japan Logistics, Division of Mitsui & Company Ltd., Japan and M/s Mitsui & Company (Asia) Pte., Singapore? 13. Whether on facts and circumstances of the case and in law, the DRP is justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icing Agreement having been entered into, the grounds in the appeal on this issue of Transfer Pricing are to withdrawn as per Rule 10RA (5). 3.1 The Learned DR agreed that Ground No. 1 to 7 be treated as withdrawn. 3.2 In view of the Advance Pricing Agreement having been entered into by the assessee for the Assessment Year under consideration, Ground Nos. 1 to 7 of Revenue's Appeal are dismissed as withdrawn. 3.3 Ground Nos. 8 to 10 in Revenue's appeal are on the issue of deletion of disallowance of Rs. 16,54,868/- proposed by the AO in the Assessment Order under section 14A of the Act. The AO has made the above disallowance by holding that disallowance under section 14A is to be made mandatorily irrespective of the fact whether assessee has received any exempt income during the year or not. The Ld. DRP has deleted the disallowance relying upon the judgment of Hon'ble Delhi High Court in the case of Cheminvest Ltd. (378 ITR 33) wherein it has been held that in the absence of any exempt income during the year, no disallowance can be made. Further, the Ld. DRP has held that the interest free funds are sufficient to meet that investment made by the assessee. The Learned DR was fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a consideration for the services rendered by such employees. Such consideration can be in cash by way of salary or allowances or in kind by way of various perquisites. The Club Membership fee is one such perquisite which is extended by the employer to its employees. So long the fee is paid for the employees who are working with the employer for the business being carried on by such employer, the fee so paid is an expenditure incurred wholly and exclusively for the purpose of business. 3.5.3 In view of the above, we uphold the order of the Ld. DRP and Ground No. 11 of the Revenue's appeal is dismissed. 3.6.0 Ground No. 12 in Revenue's appeal is on account of deletion of addition of Rs. 1,28,79,450/- on account of the Service Fees. The AO has disallowed the same holding that this expenditure has not been incurred wholly and exclusively for the purpose of business as the assessee has not furnished any details regarding the actual service being provided and the nature of services offered by M/s West Japan Logistics is quite vague. Further, M/s Mitsui & Company (Asia) Pte., Singapore is a trading company and is not a consulting company and is not competent to offer such kind of specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AE was subject matter of examination by the TPO as is evident from page 3 of the TPO's order and, admittedly, the TPO has not drawn any adverse inference on this issue. The AO, however, on the premise that such expenditure has not been incurred wholly and exclusively for the purpose of the business and that it has been made only on account of close connection of the assessee with its AEs, disallowed the same u/s 37(1) of the Act. The Ld. DRP carried out a detailed examination of the agreements with the AEs and evidences in support thereof. After detailed examination, it has directed to delete the addition giving a reasoned and cogent finding as under: "The Panel went through the submissions filed by the 'A' in relation to the expenditure claimed as above .The relevant paper book 1 consisting of 361 pages gone through minutely. The paper book contained copies of agreements along with supporting documents in respect of Intra-group services received by the A' from its AEs in the form of divisional operational including development and monitoring of the business plan for each department and allocation and appraisal of staff in each such department of the A', making decisions for bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ep in the shoes of the assessee/ businessman and take the business decisions is correct. In view of the above analysis, we uphold the order of the DRP and ground no. 12 of the Revenue's appeal is dismissed. 3.7.0 Ground No. 13 in Revenue's appeal is regarding deletion of addition of Rs. 1,12,75,015/- out of total expenditure of Rs. 1,39,68,770/- on account of Staff Welfare expenses. This ground is common with Ground No. 1 in assessee's appeal where the assessee is contesting the addition of Rs. 26,93,754/- sustained by the Ld. DRP. The AO, during the course of the assessment proceedings, noticed that the assessee, during the year, has incurred the following expenditure on Staff Welfare:- Medical Insurance 17,07,881 Company Function 12,24,624 Membership Fees 29,34,012 Shifting Expenses 78,89,769 Social Security Expenditure 1,17,45,417 Japanese Food 24,35,836 Total 2,79,37,539 3.7.1 The AO made an ad-hoc disallowance of 50% out of the above expenditure on the ground that the onus is on the assessee to justify the claim of the expenditure and that the assessee has failed to discharge this onus by not producing the complete details and by not producing the supporting bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es have been incurred on its employees. The expenditure, so incurred, is in consideration of the services provided by such employees. Thus, it cannot be said the expenditure incurred is personal in nature. As regards the details and the evidences in support thereof, is evident from the Assessment Order that the assessee has submitted the details of these expenditure head-wise which has been quoted by the AO himself. In support thereof, the assessee has submitted more than 200 invoices before the Ld. DRP which have been taken note of by the Ld. DRP in its findings where it has been stated that copies of bills from pages 129-361 of the Paper Book were filed. These invoices are also placed in the Paper Book filed before us at pages 615-847. Though, the Ld. DRP upheld disallowance to the extent of 20% of the disallowance made by AO, it is not on the reasoning that the assessee has not submitted the details or evidences in support thereof. The Ld. DRP has sustained the disallowance on the ground that most of the bills were issued in the name of Mitsui India without mentioning the names of the recipients. This reasoning of the Ld. DRP cannot be sustained. Mitsui India is the name of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the purchases made by the assessee by applying a gross profit rate of 1.52% of the above purchases and attributing 50% of such gross profit to the PE in India. Accordingly, he disallowed an amount of Rs. 23,57,926/- under section 40(a)(i) of the Income Tax Act. The Ld. DRP has deleted the said disallowance by holding that off-shore supplies cannot be subject to tax in India despite the existence of the PE in India unless it was shown by the Revenue that the supplies were related to activities performed by the PE of such an AE in India. Aggrieved by the order of the DRP, the Revenue is in appeal before us. 3.8.1 It was submitted by the Learned AR that the AO in his assessment order has held that Mitsui & Co. Ltd Japan has a PE in India by placing reliance upon the assessment order passed in the case of Mitsui & Co. Ltd. Japan for Assessment Year 2010-11. The AO, while passing the assessment order in the case of Mitsui & Co. Ltd. Japan for AY 2010-11, has placed reliance on the assessment order of AY 2005-06 passed in the case of Mitsui & Co. Ltd. Japan. Thus, the reference by AO in the present Assessment Order is ultimately to the order passed by the AO in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to tax in India and if that be so, there is no requirement to deduct tax at source. The Ld. DRP has also examined this issue and has held that off-shore supplies were not related to the activities by the PE of such an AE in India. The relevant findings of the Ld. DRP on this issue are as under: "We applied our minds to the rival contentions. We are of the considered view that the AO failed to appreciate that offshore supplies cannot be subject to tax in India despite the existence of the PE in India until it was shown by the revenue that the supplies were related to the activities performed by the PE of such an AE in India. In the instant case it was noted by the Panel that the A' operated as a commission agents/service provider to its AEs as well as a trader in its own right. The TPO also did not allege in its order that the A' was in receipt of any stewardship services from its AEs in any manner whatsoever which could go to suggest the existence of the MCJ's PE in India. Since, it has been held that the A' subsidiary functioned in India on principal to principal basis supra and no part of its activities were on behalf of the PE of MCJ, the allegation of the A' appears to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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