2018 (2) TMI 2035 - AT - Income Tax

TDS u/s 194J - Disallowance u/s 40(a)(ia) - secondment expenses on which tax was not deducted at source - HELD THAT - As decided in own case 2017 (1) TMI 1751 - ITAT MUMBAI the issue is covered by the decision in the case of IDS Software Solutions (India) (P) Ltd. vs. ITO (International Taxation) 2009 (1) TMI 363 - ITAT BANGALORE-A wherein the facts discussed as regards to where the assessee entered into a secondment agreement with US Company and obtained the services of an employee and the question arose whether the reimbursement bys the assessee to the US Company of the salary paid by the US company was chargeable to tax as fess for technical services . As held that though the US Co was the employer in a legal sense but since the services of the employee had been seconded to the assessee and since the assessee was to reimburse the emoluments and it controlled the services of the employee it was the assessee which for all practical purposes was not chargeable to tax. Though the person deputed by the US Co was a technical person the consideration paid under the secondment agreement was not fees for technical services because the fact that the seconded employee was responsible and subservient to the payer (assessee) and was required to be also act as officer or authorized signatory or nominee of the assessee made it consistent with an agreement for providing technical services. We dismiss this issue of revenues appeal. Estimated basis on account of compensation from customers - HELD THAT - As decided in own case 2017 (1) TMI 1751 - ITAT MUMBAI this Bench has deleted the identical addition in assessee s case. Addition of bogus purchases - CIT(A) has restricted the addition to 12.5% - HELD THAT - The Hon ble Gujrat High Court in CIT vs. Simit P. Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT has upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee. We further notice that the AO has not rejected the sale shown by the assessee during the year relevant to the assessment year under consideration. Under these circumstances there is no justification in making 100% addition of the bogus purchases made by the assessee. In our considered view the CIT(A) has rightly restricted the addition keeping in view the element of profit embedded in the transaction in question. Accordingly the finding of the Ld. CIT(A) on this issue is based on the law laid down by the Hon ble Gujarat High Court rendered in the case referred above. Hence we do not find any infirmity in the findings of the Ld. CIT(A) to interfere with the same. We therefore uphold the findings of the Ld. CIT(A) and dismiss this ground of appeal of the revenue.

Summary

Issues Involved:
1. Allowance of secondment expenses without TDS deduction.
2. Addition of Rs. 30 lakhs on estimated basis for compensation from customers.
3. Addition on account of bogus purchases.

Detailed Analysis:

1. Allowance of Secondment Expenses without TDS Deduction:
The revenue challenged the allowance of secondment expenses amounting to Rs. 2,23,52,923/- on which tax was not deducted at source. The Assessing Officer (AO) disallowed this expense under section 40(a)(ia) of the Income Tax Act, 1961, as the assessee did not obtain a certificate for non-deduction of TDS from the appropriate authority. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the expense, relying on the Bombay High Court's decision in CIT Vs. Kotak Securities Ltd. The Tribunal upheld the CIT(A)'s decision, citing the assessee's own case for the assessment year 2010-11, where a similar issue was decided in favor of the assessee. The Tribunal noted that the secondment agreement did not constitute "fees for technical services" and dismissed the revenue's appeal on this ground.

2. Addition of Rs. 30 Lakhs on Estimated Basis for Compensation from Customers:
The AO added Rs. 30 lakhs to the assessee's income on an estimated basis for compensation receivable from customers, arguing that the assessee, following the mercantile system of accounting, should account for compensation on an accrual basis. The CIT(A) deleted this addition. The Tribunal observed that this issue had been sent back to the AO for re-adjudication in the assessee's own case for the assessment year 2009-10. Following the precedent, the Tribunal remanded the issue back to the AO for fresh adjudication in accordance with the principles laid down in ITA No. 6832/Mum/2011. Thus, this ground was allowed for statistical purposes.

3. Addition on Account of Bogus Purchases:
The AO made an addition of Rs. 67,574/- to the income of the assessee on the grounds of obtaining bogus bills from M/s Viraj Enterprises without purchasing any raw material. The CIT(A) restricted the addition to 12.5% of the total amount of bogus purchases, following the Gujarat High Court's decision in CIT vs. Simit P. Seth, which held that only the profit element embedded in such purchases should be taxed. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not reject the sales shown by the assessee and that there was no justification for making a 100% addition of the bogus purchases. The Tribunal found no infirmity in the CIT(A)'s findings and dismissed the revenue's appeal on this ground.

Conclusion:
The appeal filed by the revenue for the assessment year 2011-2012 was partly allowed for statistical purposes. The Tribunal upheld the CIT(A)'s decisions on secondment expenses and bogus purchases while remanding the issue of compensation from customers back to the AO for fresh adjudication. The order was pronounced in the open court on 28th February, 2018.