Ms. STEAG Energy Services (I) Pvt. Ltd. Vs ACIT (ITAT Delhi)
Conclusion: Assessee was not entitled to claim gifts and presents given to the customers by way of cash as business expenditure as the same was against the provisions contained u/s 40A(3).
Held: AO made addition by disallowing the misc. expenses like Diwali gifts and presents given by the assessee on the ground that from the ledger account of gifts and presents for the respective period, it was found that gifts and presents for the respective period had been done in cash which was against the provisions of section 40A(3). However, it was the case of assessee that these expenses were incurred exclusively for business purposes which was to maintain high morale of the employees which resulted into cost reduction and more profit of the company in the overall operation. It was held undisputedly assessee had incurred these expenses allegedly on gifts and presents by way of cash, the same could not be attributed to Diwali gifts and presents etc. which was also against the provisions contained u/s 40A(3). So, the addition made by AO was confirmed.
FULL TEXT OF THE ITAT JUDGEMENT
The Appellant, M/s. STEAG Energy Services (I) Pvt. Ltd. (hereinafter referred to as ‘the taxpayer’) by filing the present appeal sought to set aside the impugned order dated 31.12.2015 passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short ‘the Act’) qua the assessment year 2011-12 on the grounds inter alia that :-
“1. On the facts and circumstances of the case, the order passed by the Ld. Assessing Officer under Section 143(3)/144C of the Income Tax Act, 1961 (“Act”) is bad, both in the eyes of law and on the facts.
2. On the facts and circumstances of the case, the final assessment order passed by the Ld. A.O. is barred by limitation having been passed beyond the time prescribed under Section 144C(13) of the Act.
3. On the facts and circumstances of the case, the Ld. A.O. has erred, both on facts and in law, in assessing the income of the assessee at Rs.9,07,33,200/- as against returned loss of Rs.6,95,65,715/- declared by the assessee.
4. On the facts and circumstances of the case, the Ld. DRP has erred, both on facts and in law, in confirming addition to the extent of Rs.2,09,91,628/-on account of difference in arm’s length price.
5 (i) On the facts and circumstances of the case, the Ld. DRP has erred both on facts and in law, in confirming the inclusion of the following comparables taken by the Ld. TPO:
(i) Mitcon Consultancy & Engineering Services Ltd.
(ii) IBI Chematur (Engineering & Consultancy Ltd)
(iii) Mahindra Consulting Engineers Ltd.
(ii) That the above action of Ld. TPO has been confirmed despite the fact that the assessee brought significant material & evidences on record to demonstrate that the line of activities of these comparables is totally different from that of the activities of the assessee company.
6(i) On the facts and circumstances of the case, the Ld. DRP has erred in not excluding Mitcon Consultancy & Engineering Services Ltd. as a comparable ignoring the contention of the appellant that it has earned income mainly from the services rendered in the nature of vocational training, IT training, laboratory income and is engaged in power generation as is evident from the profit and loss account.
(ii) On the facts and circumstances of the case, the Ld. DRP has erred in ignoring the contention that this Mitcon Consultancy & Engineering Services Ltd. is a government sponsored company as is evident from the Balance Sheet that it has received substantial grants from the government and is carrying out energy audit on behalf of the government.
7. On the facts and circumstances of the case, the Ld. DRP has erred in not excluding IBI Chematur (Engineering and Consultancy) Ltd. as a comparable as this company is engaged in the business of purchase and sale of engineering equipment and the main profit has been earned out of such activity as is evident from its financial statements.
8. On the facts and circumstances of the case, the Ld. DRP has erred in not excluding Mahindra Consulting Engineers Ltd. as a comparable ignoring the contention of the appellant company that this company operates mainly in the infrastructure sector and it recognizes its revenue following Accounting Standards 7 in respect of the construction contracts.
9. On the facts and circumstances of the case, the Ld. DRP has erred on both facts and in law, in ignoring the contention of the assessee that comparability criteria / filters have not been applied by the TPO uniformly.
10. On the facts and circumstances of the case, the Ld. DRP has erred on both facts and in law, in rejecting the contention of the assessee that TPO has not carried out proper FAR analysis while determining the arm’s length price.
11. On the facts and circumstances of the case, the Ld. DRP has erred on both facts and in law, in rejecting the contention of the assessee that TPO has erred in computing PLI of the comparable as well as PLI of the assessee.
12(i) On the facts and circumstances of the case, the Ld. DRP has erred in not excluding the transaction of purchase of fixed assets amounting to Rs.2,11,67,863/- and the reimbursement amounting to Rs.18,17,639/-, which are not part of the revenue, while computing the total value of the international transactions and determining the adjustment to be made consequent to the arm’s length price.
(ii) On the facts and circumstances of the case, the Ld. DRP has erred in not directing the Ld. AO to consider value of the international transaction at Rs.19,88,18,571/- as against Rs.22,18,04,073/- taken by the Ld. TPO.
13. On the facts and circumstances of the case, the Ld. DRP has erred on both facts and in law in confirming the action of TPO in rejecting the calculation of the assessee for making appropriate adjustment to account for varying risk profiles and difference in working capital of the assessee vis-a-vis comparables.
14. On the facts and circumstances of the case, the Id. AO has erred on both facts and in law, in not following the direction of the DRP that the benefit of arm’s length range of +/- 5% be given in view of the proviso to Section 92C(2) of the Act.
15. On the facts and circumstances of the case, the Id. AO has erred in not complying with the directions given by the Id. DRP and making addition beyond the amount determined by the DRP.
16(i) On the facts and circumstances of the case, the Id. AO has erred on both facts and in law, in making the disallowance of Rs.1,75,852 on account of expenses incurred on account of gifts and reward distributed to the employees.
(ii) That the said disallowance has been made despite the fact that the said expenditure has been incurred wholly and exclusively for the purpose of business and allowable under section 37(1) of the Act.”
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Steag Energy Services (India) Pvt. Ltd., the taxpayer was incorporated in India on January 29, 2001 to provide services in respect of engineering and technical solutions to power generating companies, which is wholly owned subsidiary of Steag Energy Services, Gmbh, Germany. During the year under assessment, the taxpayer entered into international transactions with its Associated Enterprises (AEs) as under :
