×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
11-07-2019, Yazaki India, Section 40A(2)(a), 295, Tribunal Pune
This appeal by the assessee emanates from the final assessment order dated 23-01-2014 passed by the Assessing Officer (AO) u/s.143(3) r.w.s.144C(13) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2009-10.
2. The first issue is against the disallowance of Rs.2,96,50,650/- made by the AO u/s.40A(2)(a) of the Act for payment of Administrative Support servicecharges.
3. Succinctly, the facts of the case are that the assessee is a manufacturer of integrated harness and electrical distribution system for the automotive industries. It manufactures wiring harnesses for various segments of the automobile industry including passenger cars and commercial vehicles. It also supplies wiring harnesses for applications such as air bag assemblies. The assessee filed its return declaring Nil income. During the course of assessment proceedings, the AO observed that the assessee paid a sum of Rs.2,96,50,650/- as Administrative service charges to its holding company TACO – one of the Joint Venture partners having 50% of shares. He further noticed that approximately similar amount was paid as Royalty to the other holding company – Yazaki Corporation, Japan having remaining 50% of shares.
There is no dispute in this appeal as to the payment of Royalty. The assessee was called upon to justify the payment of Administrative service charges amounting to Rs.2,96,50,650/- to TACO. The assessee submitted that it received support services in various areas, such as Marketing, Human resources, Finance, Infrastructure etc. which helped it in carrying on its business efficiently. A further elaboration of such support services was given in detail. The AO noticed that the assessee entered into an agreement with TACO in the year of its incorporation in 1998. TACO was providing services at start-up phase and also operating phase. The assessee had reimbursed all the expenses incurred by the TACO for getting professional services from outside sources. In addition, the assessee was incurring all the administrative expenses, like, Advertisement, Sales Promotion, Audit fee, Internal Audit fee, Conveyance, Staff Welfare etc. The AO further noticed that the fees payable by the assessee to TACO was fixed at a percentage of total turnover which caused serious doubt as to its genuineness. The assessee was asked to produce details of services and documentary evidence for the services availed from TACO and their reasonable market price, who submitted certain details. In this backdrop of facts, the AO held that the assessee either did not avail any services from TACO or these were in the nature of
stewardship services. He made disallowance for the full amount paid at Rs.2,96,50,650/- u/s.40A(2)(a) of the Act, against which the assessee has approached the Tribunal.
4. We have heard both the sides gone through the relevant material on record. The AO has recorded in the order that the assessee entered into a similar agreement for availing such services in the year 1998. The ld. AR submitted that the assessee is continuously availing such services from TACO and no such
disallowance has ever been made in the past. Be that as it may, we have gone through the contents of the Administrative Services Agreement (ASA) valid for the year under consideration which was entered into on 23-03-2007, whose copy is available at page 286 onwards of the paper book. Article 2 of the ASA narrates the services to be rendered by TACO to the assessee which are as under:-
“a. Support for Land Acquisition and Development.
b. Support for Payroll and benefit Administration (Provident Fund, Superannuation, Gratuity)
c. Support for Liaison with Banks and Financial Institutions.
d. Support for Legal and Taxation services
e. Support for Human Resource Development & Training facilities
f. Communication Infrastructure advisory services
g. Support for manpower recruitment
h. Support for maintaining Industrial Relations
i. Support for providing Marketing and DistributionNetwork
j. Support for liaison with Government Authorities
k. Support for Vendor development efforts”