IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.236 OF 2015 COMMISSIONER OF INCOME TAX 6 )...APPELLANT V/s. M/S.ASK WEALTH ADVISORS PVT. LTD. )...RESPONDENT Mr.N.C.Mohanty, Advocate for Appellant. Mr.J.D.Mistri, Senior Counsel, a/w. Mr.A.K.Jasani, Advocate for Respondent. CORAM : S.V.GANGAPURWALA & A. M. BADAR, JJ. DATE : 31st JULY 2017 P.C. : 1 appeal pertains to Assessment Year 2008 09. 2 present appeal is filed on following questions : a) Whether, on facts and in circumstances of case and in law, Hon'ble ITAT is justified in holding that Shared Services Cost of Rs.1.34 Crores was genuinely incurred by assessee wholly and exclusively for purpose of its business and hence allowable as business expenditure ? avk 1/9 ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 09:59:09 ::: 43-ITXA-236-2015.doc b) Whether, on facts and in circumstances of case and in law, Hon'ble ITAT is justified in holding without any evidence, that Shared Service Costs of Rs.1.34 Crores paid by Assessee to its Holding Company was reimbursement of actual expenses, when such expenses were actually estimated and allocated to assessee company as has been held by CIT (A) ? c) Whether, on facts and in circumstances of case and in law, Hon'ble ITAT is justified in restoring matter to Assessing Officer with direction to allow Shared Service Costs of Rs.1.34 Crores in hands of assessee, if there is deduction of tax at source by Holding Company in respect of expenditure which were reimbursed by Assessee to its Holding Company? 3 Mr.Mohanty, learned counsel for appellant, submits that assessee claimed Rs.1.34 Crore as allowable business expenditure. There is no evidence to show that this expenditure of payment of Rs.1.34 Crores to Holding Company was towards reimbursement of actual expenses. There avk 2/9 ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 09:59:09 ::: 43-ITXA-236-2015.doc is absolutely no evidence that Holding Company actually incurred said expenses on behalf of assessee Company. learned counsel further submits that Commissioner of Income Tax (Appeals) had given finding that expenditure were allocated by Holding Company on estimate basis and not on actual basis. Even agreement between assessee and Holding Company was considered by Commissioner of Income Tax (Appeals). As such, Tribunal has committed error in negativing finding of Commissioner (Appeals). Section 40(a)(i) of would not be attracted. Clauses 4.1 and 4.2 of agreement is rightly considered. When there is no evidence of whatsoever nature to substantiate that amount paid by assessee to Holding Company is for reimbursement of expenses, Tribunal could not have directed Assessing Officer to consider same as expenditure. Even Tax Deducted at Source (TDS) is not deducted by assessee while making payment to Holding Company. Section 194(1) of Act is attracted. avk 3/9 ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 09:59:09 ::: 43-ITXA-236-2015.doc 4 Mr.Mistri, learned senior advocate for respondent submits that even Assessing Officer has not disputed about entries with regard to reimbursement of expenses made by assessee to Holding Company. However, Assessing Officer went on premise that said expenses are much higher than revenue income. learned senior advocate submits that Tribunal has rightly considered that present year was first year of its operation and naturally expenses would be high and revenue less. learned senior advocate further submits that return shows negative income of Rs.16,12,68,490/ . Normally, question of high expenditure with regard to allowance in deduction would arise if it is case of positive income being showed. No error has been committed by Tribunal. Commissioner (Appeals) himself read provisions of agreement. agreement specifically states that actual cost incurred only be reimbursed. 5 We have considered submissions canvassed by respective parties. agreement dated 17th May 2007 between avk 4/9 ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 09:59:09 ::: 43-ITXA-236-2015.doc assessee of Holding Company, more particularly, Clauses 4.1 to 4.4 reads thus : 4.1 It has been agreed that ASKIM would estimate, record and capture all costs incurred, and keep complete accounts of actual costs incurred by it in creating, setting up, maintaining and managing Human and other Resources, Infrastructure and Facilities, and in taking care of requirements of Finance and Investment Advisory Services related work, Corporate Communication Services, Managerial Services, Administrative Services, and for providing Support Services; 4.2 ASK Wealth Advisors hereby agree with ASKIM that it would from time to time, take account from ASKIM of reimbursable costs, at agreed basis of allocation, of different costs, for periodical reimbursements to ASKIM. 4.3 ASK Wealth Advisors agree with ASKIM that it would pay without delay all agreed allocated costs periodically as per Debit Notes or Advices, raised on it by ASKIM. avk 5/9 ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 09:59:09 ::: 43-ITXA-236-2015.doc 4.4 It is hereby clarified that apart from Reimbursements of Actual Costs no other consideration would be required to be paid by ASK Wealth Advisors to ASKIM for availing of these Financial and Investment Advisory Services, and Support services. 6 Reading said clauses, it is manifest that it has been agreed by assessee that assessee reimburses actual cost incurred to Holding Company. said clauses do not lead to any inference that amount would be paid on estimation. 7 Assessing Officer in its order has observed thus : submission of assessee has been considered but found not to be acceptable. On perusal of details filed it is observed that it is specially service agreement between ASK Wealth Advisors Ltd. and its associate company. ASK Investment Holdings P Ltd. for shared service . costs towards administrative, financial and infrastructural support and arrangement for sharing of costs incurred thereon. In support of its avk 6/9 ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 09:59:09 ::: 43-ITXA-236-2015.doc claim, assessee company has submitted agreement dated 17.5.2007 made between these two company. On perusal of agreement it is found that ASK Investment Managers P Ltd. (ASKIM) has . agreed and accepted to provide financial investment advisory and support services on basis of sharing of actual costs and periodical reimbursement thereof on actuals, and on certain other terms and conditions. Here it is pertinent to mention that (i) turnover of assessee company is Rs.1,90,13,083/ which also includes rental income of R.21,60,000/ . Looking into business turnover of assessee company, amount of service charges paid to associate company i.e. ASKIM of Rs.1,34,47,688/ cannot be said to be reasonable, justifiable and correct. It is clearly exaggerated payments to company for so called shared service charges. It is pertinent to mention here that for what purpose assessee company claims payment have been made, assessee company has also incurred such nature of expenditure directly and debited in P & L A/c. some of expenses for example are reported as under : avk 7/9 ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 09:59:09 ::: 43-ITXA-236-2015.doc 8 Assessing Officer has disallowed same on ground that expenses made do not appear to be reasonable and are on higher side. Tribunal has considered that present year was first year of its operation, and therefore, during year under consideration, revenue was not very large, whereas it had to incur large cost to establish itself in market. assessee has incurred expenditure so that people can know it in market and its services and get business which could earn its revenue. said finding of fact appears to be plausible one. Even on reimbursement to Holding Company of estimated cost of expenses, it could not have been subjected to tax as income as considered by this court of in Income Tax Appeal No.1914 of 2013 dated 4 th August 2015. Tribunal has given opportunity to assessee as well as Assessing Officer to verify deduction of tax at source and if Assessing Officer finds that tax has already been deducted at source in respect of expenditure which requires deduction of tax at source by Holding Company, then no disallowance can be made with reference to such expenditure in hands of assessee for avk 8/9 ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 09:59:09 ::: 43-ITXA-236-2015.doc reimbursement to Holding Company. It is for Assessing Officer to verify same. 9 In light of above, no substantial question of law arises. appeal is dismissed. No costs. (A. M. BADAR, J.) (S.V.GANGAPURWALA), J.) avk 9/9 ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 09:59:09 ::: Commissioner of Income-tax-6 v. Ask Wealth Advisors Pvt. Ltd