IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, I MUMBAI Before Shri Joginder Singh, Judicial Member, and Shri Manoj Kumar Aggarwal, Accountant Member ITA Nos.1244 & 1245/Mum/2015 Assessment Years: 2010-11 & 2011-12 ACIT-22(1), M/s ITD ITD CEM JV, R. No.322, Piramal Chambers, National Plastic Building, 3rd Floor, Parel, A, Subhash Road, Paranjpe, Mumbai-400012 Vs. B-Scheme, Vile Parle (E), Mumbai-400057 ( Revenue) ( Assessee) PAN. No. AAAJIO262Q ITA No.1246/Mum/2015 Assessment Years: 2011-12 ACIT-22(1), M/s ITD CEM INDIA JV, R. No.322, Piramal Chambers, National Plastic Building, 3rd Floor, Parel, A, Subhash Road, Paranjpe, Mumbai-400012 Vs. B-Scheme, Vile Parle (E), Mumbai-400057 ( Revenue) (Assessee) PAN. No. AAAAI1305D 2 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV Assessee by Shri Anuj Kishnadwala Revenue by Shri K. Mohandas-DR Date of Hearing : 19/10/2016 /Date of Order: 19/10/2016 O R D E R Per Joginder Singh(Judicial Member) This bunch of three appeals is filed by Revenue against impugned orders all dated 31/12/2014 of Ld. First Appellate Authority, Mumbai. first common grounds raised by Revenue pertains to deleting disallowance on account of administrative expenses (Rs.1,68,21,983/-) and Rs.13,50,072/- on account of salary u/s 40(a)(ia) of Income Tax Act, 1961 (hereinafter Act) even though disallowed amount represent contractual payments covered u/s 194C and assessee did not deduct tax before claim of deduction thereof. 2. During hearing, ld. counsel for assessee, Shri Anuj Kishnadwala, at outset, claimed that impugned issue is covered by decision of Tribunal dated 30/07/2014 (ITA No.2874 & 2990/Mum/2013). This factual matrix was not controverted by ld. DR, Shri K. Mohandas. 3 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV 2.1. We have considered rival submissions and perused material available on record. In view of above, we are reproducing hereunder relevant portion from aforesaid order dated 30/07/2014 for ready reference and analysis:- 6. revenue has raised following grounds;- (1) On facts and in circumstances of case and in law, learned CIT(A) erred in deleting disallowance of Rs.1 ,44,77,018/- - u/s. 40(a)(ia) of I. T. Act by holding that there is no contract at all between assessee &. JV Partners, therefore, there is no requirement of deduction of tax at source on reimbursement of expenditure incurred by JV Partners; unless tax was required to be deducted at source by virtue of nature of receipt in hands of ultimate recipient, and such tax has not been deducted by assessee without appreciating facts: (a) payment made to joint venture partner on account of reimbursement of administrative expense a/ready incurred can very well be construed as contractual payment even in absence of fonnal written contract and TDS provision of IT Act is applicable on same. (b) Only on base of absence of written agreement between said parties said payments cannot be termed as non contractual payment and escape provisions of section 40(a)(ia) of I. T. Act. (2) On facts and in circumstances of case and in law Learned CIT(A) erred in deleting addition on account of Rs.7,18,035/- being difference in opening work-in- progress solely relying on submission of assessee made during appellate proceedings that figure of work-in progress shown in P&L A/c for F. Y. 2006-07 has been broken up into two parts in Balance Sheet as on 31st March, 2007 without appreciating fact that there was no necessity for assessee to segregate amount as such and it is basic and established fact that closing WIP of any previous year would become opening of WIP for next year. 4 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV 7. Ground no. 1 is regarding disallowance of reimbursement of expenditure u/s 40(a)(ia). 8. We have heard Ld. AR as well as Ld. OR and considered relevant material on record. We note that identical issue was considered and decided by co-ordinate bench of this Tribunal in case of joint venture partner (supra) of assessee vide order dated 9.4.2014 in para 18 to 23 as under:- "18. We have heard detailed arguments, perused evidences placed in APB and written submissions, placed before us. 19.In so far as provision of section 40(a)(ia) is concerned, it is virtually accepted by AO in remand proceedings, wherein, AO submitted, "the debit notes raised by ITO Cementation India Ltd were test checked and amount of expenditure claimed by assessee was verified and genuineness of same has been proved by assessee". In such circumstance, we do not find any reason to sustain disallowance u/s 40(a)(ia) for non deduction of TAS, as payments made by assessee to ITD Cementation was' 'only on account of salaries and related expenses incurred by company. 20.Now we divert our attention to provision of section 40(ba). 21.The provision is very specific, because it calls for disallowance of payment of any kind by AOP to its member. We would have accepted arguments of DR/Assessing Officer/CIT(A), had member of assessee were individual, because, provision has enrichment of members through back door. But here is case of company, which is separate juridical person, distinct from its shareholders/directors. In instant case, payment has been made on account of reimbursement of expense made by Company. Here question of enrichment of member does not arise, as has been held earlier that there is no profit element. 22.In such circumstance, provision of section 40(ba) does not gel attracted. 5 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV 23.We, therefore, set aside order of CIT(A) and direct AO to allow claim of assessee and delete disallowance of Rs. 4,99, 19,593/-, as raised in ground no. 2." 9. CIT(A) deleted disallowance made by Assessing Officer on ground that there is no requirement of deduction of tax at source on reimbursement of expenditure incurred by joint venture partner. There is no dispute that amount involved is reimbursement of expenses incurred by joint venture partner, therefore, following order of this Tribunal in case of Joint Venture partner, we do not find any error or illegality in order of CIT(A) in deleting disallowance made u/s 40(a)(ia). 2.2. It is also noted that in case of M/s ITD CEM India JV vs Addl. CIT (ITA No.4255/Mum/2012), appeal of assessee was adjudicated vide order dated 09/04/2014. While disposing of ground no. 2, 3 & 4 with respect to disallowance u/s 40(a)(ia) of Act, Tribunal deliberated upon disallowance made on account of salary, bank guarantee and administrative expenses. relevant portion of same is reproduced hereunder for ready reference and analysis:- 3. Ground no. 2, 3 & 4 pertain to disallowance u/s 40(a)(ia). 4. In course of assessment proceedings, AO noticed that assessee had not deducted TAS for payments made by it on account of salary and related expenses, bank guarantee and administrative expenses, paid by JV to ITD Cementation India Ltd. (ITDCIL). According to AO, therefore, payments were hit by provisions of section 40(a)(ia) and thus disallowable. AO further held that even u/s 40(ba) salary and related expenses and commission expense shall not be allowed, because if in case of AOP, any payment of 6 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV salary or remuneration or whatever named called shall not be allowable. specific disallowances are Amount (in Rs.) Disallowance u/s 40(a)(ia) Salary 4,99,19,593 Bank Guarantee 45,80,658 Administrative expenses 2,39,64,463 5. facts are that assessee is Joint Venture AOP between ITD Cementation Italian Company, formed for rehabilitation and upgrading of 35 KM highway in state of Madhya Pradesh on NH25 and construction of bypass ak Kota in Rajasthan on NH76, being part of east-west-corridor. 6. business and construction activity is being carried on and coming from preceding year, as mentioned in assessment order. 7. assessee contended addition before CIT(A) and also placed certain fresh evidence to support its contentions. CIT(A) sought further comments from AO, who submitted his remand report vide letter dated 31.01.2012. 8. In remand proceedings, assessee submitted that it reimbursed expenses pertaining to salaries to ITD Cementation India Pvt Ltd, who had paid employees of assessee and later on claimed same by raising debit notes. These facts were checked and verified by AO and found same to be correct. AO, however, left decision to be taken by CIT(A) as AO had failed to deduct TAS. 9. assessee also submitted that section 40(ba) could not invoked because there was no employer- employee relationship. Both entities of part of JV and therefore payments on account of salary cannot come within parameters of section 40(ba). 10. CIT(A), after considering remand report and detailed arguments by assessee, sustained disallowance, both on account of non deduction of TAS u/s 40(a)(ia) and also u/s 40(ba). According to 7 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV CIT(A), in case of AOP any payment of interest, salary, bonus, commission or remuneration by whatsoever name called, made by such association to member of such association shall not be allowed as deductible expenditure . 11. Similar observations were made to take decision to sustain disallowance made on expense booked on account of payment of commission. 12. Aggrieved, assessee is before ITAT. 13. Before us, AR contended that no disallowance has been made in assessment years 2006-07 and 2007- 08, which were framed u/s 143(3). Therefore, according to AR to carry on consistent stand, no disallowance is called for, as same work and similar treatment to accounts and assessment were carried on in two immediate preceding years. 14. In any case, AO in remand proceedings has accepted fact that ITD Cementation India Ltd. paid salaries to employees on behalf of assessee, which were recovered by company from assessee by raising debit notes and were purely in form of reimbursement and no profit element involved in such payments. 15. On issue of disallowance u/s 40(ba), DR referred to remand report sent by AO that in case of any payment is made by AO to its member, in such case, amount shall be disallowed. 16. AR also submitted written submission, which was duly forwarded to DR, wherein AR, further clarified stand taken by assessee. 17. On other hand, DR placed reliance on decision of revenue authorities and justified disallowance of Rs. 4,99,19,593/- on account of salary and related expenses. 8 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV 18. We have heard detailed arguments, perused evidences placed in APB and written submissions, placed before us. 19. In so far as provision of section 40(a)(ia) is concerned, it is virtually accepted by AO in remand proceedings, wherein, AO submitted, debit notes raised by ITD Cementation India Ltd were test checked and amount of expenditure claimed by assessee was verified and genuineness of same has been proved by assessee . In such circumstance, we do not find any reason to sustain disallowance u/s 40(a)(ia) for non deduction of TAS, as payments made by assessee to ITD Cementation was only on account of salaries and related expenses incurred by company. 20. Now we divert our attention to provision of section 40(ba) 21. provision is very specific, because it calls for disallowance of payment of any kind by AOP to its member. We would have accepted arguments of DR/AO/CIT(A), had member of assessee were individual, because, provision has enrichment of members through back door. But here is case of company, which is separate juridical person, distinct from its shareholders/directors. In instant case, payment has been made on account of reimbursement of expense made by company. Here question of enrichment of member does not arise, as has been held earlier that there is no profit element. 22. In such circumstance, provision of section 40(ba) does not get attracted. 23. We, therefore, set aside order of CIT(A) and direct AO to allow claim of assessee and delete disallowance of Rs. 4,99,19,593/-, as raised in ground no. 2. 24. Ground 3 relates to disallowance of reimbursement of bank guarantee commission at Rs. 45,80,658/-. 9 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV 25. In course of assessment proceedings, AO noticed that assessee had not deducted TAS for payments made by it on account bank guarantee taken by ITDCIL on behalf of assessee JV. payment of commission related to bank guarantee commission, paid by JV to ITD Cementation India Ltd. According to AO, therefore, payments were hit by provisions of section 40(a)(ia) and thus disallowable. AO further held that even u/s 40(ba) salary and related expenses and commission expense shall not be allowed, because if in case of AOP, any payment of salary or remuneration or whatever named called (herein commission) shall not be allowable. 26. assessee contended disallowance made on addition before CIT(A) and also placed certain fresh evidence to support its contentions. CIT(A) sought further comments from AO, who submitted his remand report vide letter dated 31.01.2012. 27. In remand proceedings, assessee submitted that it reimbursed expenses pertaining to bank guarantee commission, paid by ITD Cementation India Ltd., on behalf of assessee JV and later on claimed same by raising debit notes. These facts were checked and verified by AO and found same to be correct. AO, however, left decision to be taken by CIT(A) as AO had failed to deduct TAS. 28. assessee also submitted that section 40(ba) could not be invoked because there was no employer- employee relationship. Both entities of part of JV and therefore payments on account of salary cannot come within parameters of section 40(ba). 29. CIT(A), after considering remand report and detailed arguments by assessee, sustained disallowance, both on account of non deduction of TAS u/s 40(a)(ia) and also u/s 40(ba). According to CIT(A), in case of AOP any payment of interest, salary, bonus, commission or remuneration by whatsoever name 10 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV called, made by such association to member of such association shall not be allowed as deductible expenditure . 30. CIT(A), therefore, sustained disallowance made on expense booked on account of payment of commission. 31. Aggrieved, assessee is before ITAT. 32. Before us, AR contended that no disallowance has been made in assessment years 2006-07 and 2007- 08, which were framed u/s 143(3). Therefore, according to AR to carry on consistent stand, no disallowance is called for, as similar treatment to accounts and assessment were accorded on in two immediate preceding years. 33. In any case, AO in remand proceedings has accepted fact that payments made to ITD Cementation India Ltd. were on account of commission and moreover, this amount is also not expense as per provision of sec. 40(ba) wherein it is stipulated that in case of association of person, any payment of interest, salary, bonus, commission or remuneration by whatever name called, made by such association to member of such association shall not be allowed as deductible expenditure to oppose aforesaid observations of AO, assessee submits, that commission was paid to bank by ITD Cementation India Ltd. (co-venture) on behalf of assessee, and assessee later reimbursed same to ITD Cementation India Ltd. It is not commission payment by assessee to ITD Cementation India Ltd. warranting any tax deduction at source. Therefore, neither provision of section 40(a)(ia) nor provision of 40(ba) of Income Tax Act is attracted in this case. addition of Rs. 45,80,658/- made by AO and as such Counsel for assessee prayed for deletion of said payment of commission/addition. 11 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV 34. On issue of disallowance u/s 40(ba), DR referred to remand report sent by AO that in case of any payment is made by AO to its member, in such case, amount shall be disallowed. 35. AR also submitted written submission, which was duly forwarded to DR, wherein AR, further clarified stand taken by assessee. 36. On other hand, DR placed reliance on decision of revenue authorities and justified disallowance of commission of Rs. 45,80,658/- on account of commission as bank guarantee expenses. 37. We have heard detailed arguments, perused evidences placed in APB and written submissions, placed before us. 38. In so far as provision of section 40(a)(ia) is concerned, it is virtually accepted by AO in remand proceedings, wherein, AO submitted, debit notes raised by ITD Cementation India Ltd were test checked and amount of expenditure claimed by assessee was verified and genuineness of same has been proved by assessee . In such circumstance, we do not find any reason to sustain disallowance u/s 40(a)(ia) for non deduction of TAS, as payments made by assessee to ITD Cementation was only on account of reimbursement of commission for purpose of taking bank guarantee, incurred by ITDCIL. 39. We, therefore, set aside order of CIT(A) and direct AO to allow claim of assessee and delete disallowance of commission expenses incurred by assessee at Rs. 45,80,658/-, as raised in ground no. 3. 40. Ground 4 relates to reimbursement of administrative expenses of Rs. 2,39,64,463/- for none deduction of TDS u/s 40(a)(ia). 41. In course of assessment proceedings, AO noticed that assessee had not deducted TAS for 12 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV payments made by it on account of administrative expenses, paid by JV to ITD Cementation India Ltd. According to AO, therefore, payments were hit by provisions of section 40(a)(ia) and thus disallowable. AO further held that even u/s 40(ba) expense shall not be allowed, because if in case of AOP, any payment of salary or remuneration or whatever named called (in present context, administration expenses) shall not be allowable. 42. assessee contended addition before CIT(A) and also placed certain fresh evidence to support its contentions. CIT(A) sought further comments from AO, who submitted his remand report vide letter dated 31.01.2012. 43. In remand proceedings, assessee submitted that it reimbursed expenses pertaining to administrative expenses to ITD Cementation India Ltd., incurred on behalf of assessee, and later on claimed same by raising debit notes. These facts were checked and verified by AO and found same to be correct. AO, however, left decision to be taken by CIT(A) as AO had failed to deduct TAS. 44. assessee also submitted that section 40(ba) could not invoked because there was no employer- employee relationship. Both entities of part of JV and therefore payments on account of salary cannot come within parameters of section 40(ba). 45. CIT(A), after considering remand report and detailed arguments by assessee, sustained disallowance, on account of non deduction of TAS u/s 40(a)(ia). According to CIT(A), in case of AOP any payment of interest, salary, bonus, commission or remuneration by whatsoever name called, made by such association to member of such association shall not be allowed as deductible expenditure . 13 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV 46. CIT(A), therefore, sustained disallowance made on expense booked on account of payment towards administrative expenses. 47. Aggrieved, assessee is before ITAT. 48. Before us, AR contended that no disallowance has been made in assessment years 2006-07 and 2007- 08, which were framed u/s 143(3). Therefore, according to AR to carry on consistent stand, no disallowance is called for, similar treatment to accounts and assessment were accorded on in two immediate preceding years. 49. In any case, AO in remand proceedings has accepted fact that payments made to ITD Cementation India Ltd. were on account of administrative expenses incurred by assessee for which debit notes were raised by ITD Cementation India Ltd were test checked and amount of expenditure claimed on account of administrative expenses by assessee was verified and genuineness of same has been proved by assessee. It is pertinent to note here that this detail was not given by auditors in related party transactions in Audit report submitted during scrutiny proceedings. Moreover, these payments are nothing but payment made to co-ventures for doing certain job on behalf of assessee, which clearly attracts provisions of TDS u/s 193C of Income- tax Act as same is nothing but contractual payments. 50. DR referred to remand report sent by AO that in case of any payment is made by AO to its member, in such case, amount shall be disallowed. 51. AR also submitted written submission, which was duly forwarded to DR, wherein AR, further clarified stand taken by assessee. 52. On other hand, DR placed reliance on decision of revenue authorities and justified 14 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV disallowance of Rs. 2,39,64,463/- on account of administrative and related expenses. 53. We have heard detailed arguments, perused evidences placed in APB and written submissions, placed before us. 54. In so far as provision of section 40(a)(ia) is concerned, it is virtually accepted by AO in remand proceedings, wherein, AO submitted, debit notes raised by ITD Cementation India Ltd were test checked and amount of expenditure claimed by assessee was verified and genuineness of same has been proved by assessee . In such circumstance, we do not find any reason to sustain disallowance u/s 40(a)(ia) for non deduction of TAS, as payments made by assessee to ITD Cementation was only on account of administrative and related expenses incurred by company. 55. We, therefore, set aside order of CIT(A) and direct AO to allow claim of assessee and delete disallowance of administrative expenses at Rs. 2,39,64,463/-. 2.3. If conclusion drawn by Tribunal in foregoing paras/orders is kept in juxtaposition with facts of present appeals, we find that in ITA No.1246/Mum/2015, issue relates to deleting disallowance on account of administrative expenses and salary. So far as, ITA No.1245/Mum/2015 is concerned, identical issue is involved. Likewise in ITA No.1244/Mum/2015, issues are identical i.e. u/s 40(a)(ia) of Act read with section 194C of Act. Tribunal has categorically held that provision, as contained in assessment order is not attracted. Ld. 15 ITA No.1244, 1245 & 1246/Mum/2015 M/s ITD ITD CEM JV & M/s ITD CEM JV Commissioner of Income Tax (Appeal) has committed no error in impugned errors, therefore, we find no infirmity in same. orders of Ld. First Appellate Authority are affirmed, resulting into dismissal of appeals of Revenue. Finally, appeals of Revenue are dismissed. This order was pronounced in open court in presence of ld. representatives from both sides at conclusion of hearing on 19/10/2016. Sd/- Sd/- (Manoj Kumar Aggarwal) (Joginder Singh) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated : 19/10/2016 Copy of Order forwarded to : 1. Appellant (Respective assessee) 2. Respondent. 3. CIT, Mumbai. 4. CIT(A)- Mumbai, 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai ACIT-22(1), Mumbai v. M/s ITD ITD CEM JV