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2017 (11) TMI 1139 - AT - Income TaxTDS u/s 194I - disallowance of support service charges in respect of rent payment sustained by the CIT(A) u/s 40(a)(i) for failure to deduct tax at source - Held that - In this case, there is no dispute with regard to the fact that KPMG has taken premises on rent from landlords. There is no dispute with regard to the fact that KPMG has complied with TDS provisions on such rental payments. The assessee has made the payment on the basis of agreement with KPMG which clearly states that the common cost incurred by KPMG shall be shared by group companies on cost to cost basis. Therefore, considering the facts and relying upon the ratio in Result Services Pvt Ltd (2012 (7) TMI 217 - ITAT DELHI) we are of the view that there is no obligation on the part of the assessee to deduct TDS on reimbursement of support service charges to KPMG. Hence, we direct the AO to delete the disallowance made u/s 40(a)(i) towards rent payments. - Decided in favour of assessee. Undisclosed income from professional services on the basis of AIR information - AO made addition on the basis of assessee s letter dated 29-23-2008 which states that the entries did not relate to assessee and also not able to reconcile with its books of account - Held that - AIR information appeared in assessee s PAN in the database of the income-tax department contains certain payments made to the assessee. Once there is an entry in the AIR information, it is incumbent upon the assessee to reconcile the difference in AIR with its books of account. The assessee neither reconciled the difference nor filed any explanations as to how entries appear in the AIR does not belong to the assessee. Merely stating that the entries in the AIR information is not relating to the assessee would not absolve the assessee s responsibility of explaining the entries appeared in AIR. At the same time, the AO made additions only on the basis of AIR information without conducting any further enquiry with regard to the receipts appeared in assessee s AIR database. Though the AO has issued notices u/s 133(6) to the parties, completed the assessment without obtaining any information from such parties. Therefore, we are of the considered view that the issue needs to be reconsidered in the light of the explanations of the assessee. Hence, we set aside the issue to the file of the AO and direct him to cause necessary enquiry. TDS u/s 195 - professional charges paid outside India without deduction of tax at source - According to the AO, the payment made to e-Gen Consultants Ltd, Bangladesh is in the nature of royalty within the meaning of section 9(1)(vi) and Article 13(2) of the India Bangladesh DTAA - Held that - In the view of the matter and being consistent with the earlier decision taken by the co-ordinate bench in assessee s own case for the earlier assessment year, we are of the view that there is no obligation on the part of the assessee to deduct tax at source on professional charges paid to e-Gen Consultants Ltd, Bangladesh as such payment neither falls under the definition of royalty under Article 12 of Indo-Bangladesh DTAA or under Explanation to section 9(1)(vi) of the Income-tax Act, 1961. The CIT(A), after considering relevant facts, has rightly deleted addition made by the AO. We do not find any error in the order of the CIT(A). Hence, we are inclined to uphold the order of CIT(A) and reject ground raised by the revenue. TDS u/s 194C - as per AO payment made by the assessee are in the nature of contractual payments coming under the definition of contracts as defined u/s 194C - Held that - No merit in the findings of the AO for the reason that there is no contract between the assessee and KPMG for carrying out any works. The assessee as part of the KPMG group of companies agreed to share common facilities like infrastructure cost and office supplies. Such costs are incurred by KPMG on payment and the same has been allocated to group of companies on cost to cost basis without any element of profit. The assessee being part of KPMG group has used common facilities provided by KPMG for which it has reimbursed expenditure incurred by KPMG on cost to cost basis. Therefore, we are of the view that the impugned payments are only in the nature of reimbursement of actual expenditure incurred by the assessee for which provisions of section 194C has no application. The assessee is not under obligation to deduct tax at source on amount reimbursed on actual cost basis. The CIT(A), after considering relevant submissions has rightly deleted additions made by the AO. We do not find any error in the order of the CIT(A) - Decided in favour of assessee.
Issues Involved:
1. Disallowance of support service charges under Section 40(a)(i) for failure to deduct tax at source under Section 194-I. 2. Addition towards undisclosed income from professional services based on Annual Information Report (AIR). 3. Deletion of addition made towards professional charges paid outside India without deduction of tax at source under Section 195. 4. Deletion of addition towards support service charges excluding rent paid under Section 40(a)(i). Issue-wise Detailed Analysis: 1. Disallowance of Support Service Charges Under Section 40(a)(i) for Failure to Deduct Tax at Source under Section 194-I: The assessee, part of the KPMG group, shared common facilities and reimbursed KPMG for costs incurred. The Assessing Officer (AO) disallowed these payments, arguing they were subject to tax deduction under Section 194-I. The assessee contended that these were reimbursements without profit elements, not subject to tax deduction. The CIT(A) upheld the disallowance for rent payments but allowed other reimbursements. The Tribunal found that the payments were indeed reimbursements and not subject to Section 194-I, directing the AO to delete the disallowance. 2. Addition Towards Undisclosed Income from Professional Services Based on AIR: The AO added ?1,05,97,352 as undisclosed income based on unreconciled AIR entries. The assessee argued that the AIR information was provisional and not all entries related to them. The CIT(A) deleted most additions except for four parties where reconciliation was not possible. The Tribunal noted the AO’s reliance on AIR without further inquiry and remanded the issue back to the AO for necessary verification and reconciliation by the assessee. 3. Deletion of Addition Made Towards Professional Charges Paid Outside India Without Deduction of Tax at Source Under Section 195: The AO disallowed ?1,30,890 paid to e-Gen Consultants Ltd, Bangladesh, treating it as royalty under Section 9(1)(vi) and Article 13(2) of the India-Bangladesh DTAA. The CIT(A) deleted the addition, treating the payment as professional charges not subject to tax deduction. The Tribunal upheld the CIT(A)’s decision, referencing a prior ITAT ruling in the assessee’s favor, confirming that such payments did not constitute royalty under the DTAA or Section 9(1)(vi). 4. Deletion of Addition Towards Support Service Charges Excluding Rent Paid Under Section 40(a)(i): The AO treated payments to KPMG for shared facilities as contractual payments requiring tax deduction under Section 194C. The assessee argued these were reimbursements of actual costs. The CIT(A) agreed with the assessee, finding no contractual relationship necessitating tax deduction. The Tribunal upheld this view, noting the payments were reimbursements without profit elements, thus not subject to Section 194C. Conclusion: The Tribunal allowed the assessee's appeals partly, directing the AO to delete disallowances related to reimbursements and remanded the issue of undisclosed income for further verification. The revenue's appeals were dismissed, upholding the CIT(A)’s deletions of additions related to professional charges paid outside India and support service charges. The judgment emphasized the distinction between reimbursements and contractual payments, clarifying the application of tax deduction provisions.
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