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Eaton Industries Manufacturing Gmbh v/s Deputy Director of Income-tax (International Taxation-I), Pune

    IT Appeal No. 2468 of 2012
    Decided On, 09 December 2014
    At, Income Tax Appellate Tribunal Pune
    For the Appellant: Vishal Kalra, Advocate. For the Respondent: A.K. Modi, Advocate.

Judgment Text
Income Tax Appellate Tribunal, Pune Bench 'B'

R.K. Panda, Accountant Member

1. This appeal filed by the assessee is directed against the order dated 27-10-2012 passed u/s. 143(3) r.w.s. 144C(13) of the I.T. Act by the Dy. Director of IT (International Taxation-I), Pune for A.Y. 2009-10.

2. A Grounds raised by the assessee are as under:

"1. That on facts and circumstances of the case and in law the Ld AO erred in assessing the income of the Appellant under the normal provisions of the Act at Rs 3,93,13,710 as against returned income of Rs 2,57,91,567 based on the directions received from Hon'ble Dispute Resolution Panel ("DRP"].

2. That on facts and circumstances of the case and in law the Ld AO/DRP erred in disallowing the corporate cost allocation expenses amounting to Rs. 1,35,22,144 alleging that the Appellant has not furnished any evidence to support allowability of the expenditure incurred and further erred in treating the arm's length price in relation to corporate cost allocation transaction as Nil."

2.1 Facts of the case, in brief, are that the assessee company was incorporated on 01-04-2005 and has a branch office in India. The Branch office is engaged in the business of identifying and evaluating raw material suppliers, providing quality assurance services to Eaton Group to ensure that quality goods are procured, to provide services in connection with collation and shipment of goods and to coordinate timely payments to Indian suppliers. It filed its return of income on 26-09-2009 declaring total income at Rs.2,57,91,567/-. During the course of assessment proceedings, the AO observed that assessee has debited Rs. 1,35,22,144/- under the head 'corporate cost allocation'. The AO asked the assessee to submit the basis of 'allocation of corporate cost' and the evidences for receipt of actual services. The assessee filed certain details justifying such claim. However, the AO noted that the assessee has neither produced the basis of allocation nor produced the documentary evidences for the receipt of actual services. He, therefore, asked the assessee to produce the above information and asked to show cause as to why the above expenditure shall not be disallowed u/s.37(l).

2.2 The assessee only explained orally before the AO the basis of allocation. However, since it did not produce any documentary evidence for the same as called for by the AO, the AO held that assessee failed to prove the actual services received for incurring the expenditure. According to him, the onus is on the assessee to prove that the expenses debited to the profit and loss account are used wholly and exclusively for the purpose of business and for the expenses incurred, it received actual services. He, therefore, proposed disallowance of Rs. 1,35,22,144/-. The assessee approached the DRP who upheld the action of the AO. The AO accordingly made addition of Rs. 1,35,22,144/- to the total income of the assessee. Aggrieved with such order of the AO, the assessee is in appeal before us.

3. The Ld. Counsel for the assessee filed an application requesting admission of the following additional evidences under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963:

a. copy of the transfer pricing report for the A.Y. 2009-10,

b. Copy of the service agreement entered into between the assessee and EIMG,. Switzerland ,

c. Working sheet containing break up of cost allocated by ETPL to different Eaton Industries.

d. Copy of the vouchers/debit notes in relation to cost allocation and emails (sample basis) to show the rendered services to the assessee.

3.1 So far as the additional Evidence No.l is concerned, he submitted that the copy of the transfer pricing report is already in the records of the AO, therefore, he is not pressing for admission of the same. Similarly, the copy of the service agreement as per Additional Evidence No.2 is also available with the Department in the preceding assessment years. Therefore, he is not pressing for admission of the same. However, he pressed for admission of the additional evidence Nos. 3 and 4 stating that the assessee has a very small set up in India and does not have separate accounts, tax, internal audit or administrative team of its own owing to which the evidence, sought to be furnished by the assessee with this application could not be furnished before the lower authorities owing to assessee's inability to obtain the necessary details in time. Relying on various decisions, he submitted that admission of these additional evidences is important for adjudication of the appeal. Further, these documents do not require fresh investigation into the facts. He accordingly requested that additional evidences filed by the assessee should be admitted. Referring to the copy of the assessment order for A.Y. 2007-08 and 2008-09, he submitted that no such disallowance was made in the preceding 2 years. Referring to the copies of the order sheet, he submitted that the assessee has filed various details as required by the AO from time to time. He accordingly submitted that the addition made by the AO should be deleted.

4. The Ld. Departmental Representative on the other hand strongly objected to the admission of the additional evidences. He submitted that despite sufficient opportunity granted by the AO as appearing from the entries in the order sheet, the assessee did not produce the details. Even during proceedings before DRP also, he did not produce those details. Therefore, the additional evidences should not be admitted. Strongly supporting the order of the AO he submitted that the addition should be sustained.

5. Alter considering the rival arguments made by both the sides, we admit t

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he additional evidences filed by the assessee. Since these evidences go to the root of the matter for adjudication of the allowability of corporate cost of allocation expenses, we deem it proper to restore the issue to the file of the AO with a direction to give one more opportunity to the assessee to explain his case. The AO shall decide the issue afresh and as per law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes. 6. In the result, the appeal filed by the assessee is allowed for statistical purposes.