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2018 (8) TMI 1903 - AT - Income TaxTDS u/s 195 - disallowance made u/s. 40(a)(i) - professional fees paid to KPMG LLP, United Kingdom - HELD THAT - As could be seen from the above the Tribunal considered the payment made to KPMG LLP, UK and KPMG USMCG Ltd. UK and the liability to deduct TDS on such payment and the Tribunal held that the said entities do not have permanent establishment in India and Ld.CIT(A) found that such entities are eligible for the benefit of Article-15 of the Indo-US Double Taxation Avoidance Agreement dealing with independent personal services and therefore payments are not chargeable to tax in India so as to require the assessee to deduct TDS on the professional charges paid to the above entities. Facts being identical respectfully following the said decision we allow the Ground No.1 of the assessee. Adhoc disallowance on the expenses towards staff welfare, seminars/conferences and meetings expenses and miscellaneous expenses - complete vouchers were not furnished other than this observation - HELD THAT - In the absence of any specific defects pointed out by the Assessing Officer in making adhoc disallowance other than general observation that complete vouchers were not furnished, we hold that there should not be any disallowance on adhoc basis, thus we direct the Assessing Officer to delete the adhoc disallowance made towards staff welfare, miscellaneous expenses, seminar/conference and meetings expenses Disallowance interest paid on service tax observing that the same is penal in nature and not an allowable expenditure - HELD THAT - On a perusal of the decisions relied on the assessee, we find that the Tribunal held that interest on service tax is compensatory in nature and not penal in nature and is therefore allowable expenditure. On a perusal of the Explanation to Section 37(1) of the Act which says that any expenditure incurred by an assessee for any purpose which is an offense or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or professions and no deduction or allowance shall be made in respect of such expenditure. Here the assessee made payment of interest for the delay in payment of service tax which in our considered view it is not an expenditure incurred for the purpose of any offence or prohibited by law. Thus, Assessing Officer to delete the disallowance made towards interest for delay in payment of service tax. Ground No. 3 is allowed.
Issues Involved:
1. Disallowance under Section 40(a)(i) of the Income Tax Act for professional fees paid to KPMG LLP, UK. 2. Adhoc disallowance of staff welfare expenses. 3. Disallowance of interest paid on service tax. 4. Adhoc disallowance of miscellaneous expenses. 5. Adhoc disallowance of seminar and conference expenses. 6. Deletion of additions made on account of cash calls and professional indemnity insurance. 7. Acceptance of new evidence regarding brokers' confirmation. 8. Taxability of services rendered by KPMG International Ltd. under Indo-UK DTAA. 9. Determination of income element in remittance made to KPMG International. Detailed Analysis: 1. Disallowance under Section 40(a)(i) for Professional Fees Paid to KPMG LLP, UK: The assessee contested the disallowance of ?77,22,510/- made under Section 40(a)(i) for professional fees paid to KPMG LLP, UK. The Tribunal previously ruled in favor of the assessee for similar issues in Assessment Years 2004-05, 2007-08, and 2009-10, stating that KPMG LLP, UK does not have a permanent establishment in India. Therefore, the assessee was not liable to deduct TDS on such payments. The Tribunal upheld this view, allowing the assessee's appeal on this ground. 2. Adhoc Disallowance of Staff Welfare Expenses: The assessee challenged the adhoc disallowance of ?1,00,000/- out of total staff welfare expenses of ?72,39,561/-. The Assessing Officer made this disallowance due to incomplete vouchers. However, the Tribunal found no specific defects or doubt about the genuineness of the expenses. Citing precedents, the Tribunal directed the deletion of the adhoc disallowance, allowing the assessee's appeal on this ground. 3. Disallowance of Interest Paid on Service Tax: The assessee argued that the interest paid on service tax should be considered compensatory rather than penal. The Tribunal referenced decisions from the Delhi Bench and concluded that such interest is compensatory and allowable as a deduction. Thus, the Tribunal directed the deletion of the disallowance, allowing the assessee's appeal on this ground. 4. Adhoc Disallowance of Miscellaneous Expenses: The assessee contested the adhoc disallowance of ?1,00,000/- for miscellaneous expenses due to incomplete vouchers. The Tribunal found no specific defects or doubts about the genuineness of the expenses. Following similar precedents, the Tribunal directed the deletion of the adhoc disallowance, allowing the assessee's appeal on this ground. 5. Adhoc Disallowance of Seminar and Conference Expenses: The assessee challenged the adhoc disallowance of ?2,00,000/- for seminar and conference expenses due to incomplete vouchers. The Tribunal found no specific defects or doubts about the genuineness of the expenses. Following similar precedents, the Tribunal directed the deletion of the adhoc disallowance, allowing the assessee's appeal on this ground. 6. Deletion of Additions on Account of Cash Calls and Professional Indemnity Insurance: The Revenue appealed against the deletion of additions of ?2,96,82,130/- and ?1,30,98,983/- made on account of cash calls and professional indemnity insurance, respectively. Both parties acknowledged that this issue had been decided in favor of the assessee in a previous assessment year. Consequently, the Tribunal dismissed the Revenue's appeal on this ground. 7. Acceptance of New Evidence Regarding Brokers' Confirmation: The Revenue contested the acceptance of new evidence regarding brokers' confirmation. Both parties acknowledged that this issue had been decided in favor of the assessee in a previous assessment year. Consequently, the Tribunal dismissed the Revenue's appeal on this ground. 8. Taxability of Services Rendered by KPMG International Ltd. under Indo-UK DTAA: The Revenue challenged the conclusion that services rendered by KPMG International Ltd. are not taxable under the Indo-UK DTAA. Both parties acknowledged that this issue had been decided in favor of the assessee in a previous assessment year. Consequently, the Tribunal dismissed the Revenue's appeal on this ground. 9. Determination of Income Element in Remittance Made to KPMG International: The Revenue contested the conclusion that there is no income element in the remittance made to KPMG International. Both parties acknowledged that this issue had been decided in favor of the assessee in a previous assessment year. Consequently, the Tribunal dismissed the Revenue's appeal on this ground. Conclusion: The Tribunal allowed the assessee's appeal, directing the deletion of various adhoc disallowances and disallowance of interest on service tax. The Tribunal dismissed the Revenue's appeal, upholding the deletion of additions and acceptance of new evidence regarding brokers' confirmation. The Tribunal also confirmed that services rendered by KPMG International Ltd. are not taxable under the Indo-UK DTAA and that there is no income element in the remittance made to KPMG International.
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