2011 (3) TMI 388 - AT - Income Tax

Disallowed - Personnel expenses - Personnel deployed with the appellant were on payroll of parent company who paid salary to those personnel on which TDS was duly deducted by them - The appellant has also argued that the details of reimbursement of expenses were produced before the AO - There was no dispute that the payment made by the appellant company to the parent company towards deputed personnel was reimbursement of expenses - Hence, the assessee and the DR thus made a contradictory statement with respect to the fact that the details have been furnished before the AO - It is deem fit to set aside the issue to the file of the AO to verify the details of expenditure and examine whether the payments were actual reimbursement of expenses pertaining to personnel deputed with the assessee company - However the AO shall restrict himself to the evidences which have been submitted before the Ld. CIT(A) while deciding the issue in accordance with law.

Summary

Issues:
1. Disallowance of expenses under section 40(a)(ia) for non-deduction of TDS on payments made to holding companies for deputed personnel cost.
2. Interpretation of whether the payments were actual reimbursement or not.
3. Contradictory statements regarding submission of details before the assessing officer.

Analysis:
1. The appeal was filed by the Revenue against the order passed by the ld. CIT(A)-21 for the Assessment Year 2006-07. The Assessing Officer disallowed the expenses claimed by the assessee under the head "Operating Administration and Other Expenses" for not deducting TDS on payments made to National Stock Exchange of India Ltd. and CRISIL, the holding companies. The AO relied on the provisions of Sec. 194C/194J and disallowed the expenses under section 40(a)(ia) of the Act due to non-deduction of TDS.

2. The assessee argued that the payments made were actual reimbursement to the parent companies for the personnel deputed to work for the assessee. The Ld. CIT(A) observed that the personnel were on the payroll of the parent company, and TDS was duly deducted by them. The CIT(A) accepted the assessee's contention that the payments were reimbursement of expenses, citing various decisions of Tribunals and Courts stating that in case of reimbursement of expenditure, TDS provisions are not applicable. Therefore, the disallowance made by the AO was deleted.

3. The Revenue appealed before the Appellate Tribunal, arguing that the payments were pure reimbursement and no profit element was involved. However, there were contradictory statements made by the Ld. Counsel for the assessee and the Departmental Representative regarding the submission of details before the AO. The Tribunal set aside the issue to the file of the AO to verify the details of expenditure and determine whether the payments were indeed reimbursement of expenses related to deputed personnel, limiting the examination to the evidence submitted before the CIT(A).

In conclusion, the appeal filed by the Revenue was allowed for statistical purposes, and the issue was remanded back to the assessing officer for further verification based on the evidence submitted during the assessment proceedings.