Disallowance u/s 40(a)(ia) of the Income Tax Act in respect of the cross charges paid by the assessee.

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH “C” MUMBAI

BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND
SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)

ITA No. 2586/MUM/2019
Assessment Year: 2006-07

DCIT-14(2)(2),
Room No. 461, 4th floor,
Aayakar Bhavan, M.K. Road,
Marine Lines,
Mumbai-400 020.
PAN No. AADCP 8985 B
Appellant 

Vs.

M/s Pfizer Products (India)
Pvt. Ltd.,
The Capital, 1802/1901, Plot
No. C-70, G Block, Bandra
Kurla Complex, Bandra (E),
Mumbai-400 051.
Respondent

Revenue by : Ms. Shreekala Pardeshi, DR
Assessee by : Mr. Vishal Kalra, AR

Date of Hearing : 11/02/2021
Date of Pronouncement : 11/02/2021

ORDER

PER N.K. PRADHAN, A.M.

This is an appeal filed by the Revenue. The relevant assessment year is2006-07. The appeal is directed against the order of the Commissioner ofIncome Tax (Appeals)-22, Mumbai [in short ‘CIT(A)’] and arises out ofassessment completed u/s 143(3) r.w.s. 254 the Income Tax Act 1961, (the ‘Act’).

2. The grounds of appeal filed by the Revenue read as under :

1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in holding that the payment of Cross Charge by the assessee to Pfizer Ltd. was in the nature of reimbursement of expenses, whereas as per  the cost sharing agreement, the payment was on estimate basis which cannot be regarded as reimbursement of quantifiable expenses?

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the second proviso to section 40a(ia) inserted by Finance Act, 2012, shall be operative retrospectively and therefore the assessee shall not be treated as an assessee in default?

3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.

3. Briefly stated, the facts of the case are that the assessee-company filed its return of income for the assessment year (AY) 2006-07 on 29.11.2006 declaring total income at Rs.13,73,49,521/-. The Assessing Officer (AO) disallowed expenses aggregating to Rs.15,37,60,922/- (gross) u/s 40a(ia) of the Act on the ground that the assessee failed to prove that the said payment of cross charges is mere reimbursement and therefore, the assessee was liable to deduct tax u/s 194C of the Act. In appeal, the Ld. CIT(A) confirmed the disallowance made by the AO. Aggrieved by the orderof the Ld. CIT(A), the assessee filed an appeal before the ITAT wherein theTribunal vide its order dated 31.10.2012 restored the matter to the file of the AO for fresh adjudication. During the course of proceedings inconnection with the restored matter, the assessee was asked by the AO toshow cause as to why disallowance u/s 40(a)(ia) of the Act should not bemade as no tax has been deducted at source on the cross chargespaid/payable u/s 194C of the Act. The assessee filed a reply vide letterdated 04.07.2014 and 05.02.2015 before the AO. However, the AO was not convinced with the said reply of the assessee and passed an order u/s143(3) r.w.s 254 holding that TDS should have been deducted on the payment of cross charges made to Pfizer Ltd. and accordingly disallowed Rs.15,37,60,992/- u/s 40(a)(ia) of the Act.

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