2018 (8) TMI 441 - AT - Income Tax

TDS on payment of Salaries & Travel cost - payment made to employees of the assessee company or whether the same were made as fee for Technical services - Held that - Assessee drew our attention to copies of Form No. 16 and details of the employees placed in the paper book, which have not been examined by the authorities below. We, therefore, think it proper to send the matter back to the Assessing Officer for verification of the payments made whether they were made to employees of the assessee company or whether the same were made as fee for Technical services and also whether TDS has been correctly deducted on payment Salaries & Travel cost and decide the issue afresh in accordance with law. Disallowance u/s. 37(1) - AO/DRP have disallowed these expenditures being not relating to business purpose of assessee - Held that - As AR requested to send back this issue also to the Assessing Officer for verification because the ld. DRP did not consider the vouchers placed before them. He placed evidences before the DRP to establish that the expenditure were incurred wholly and exclusively for the purpose of business, we restore this matter to the file of the Assessing Officer on this issue also for verification and decision afresh in accordance with law. Needless to say, the assessee shall be given reasonable opportunity of being heard. The assessee is also directed to adduce all the documentary evidences in support of its claim before the Assessing Officer. Accordingly, the relevant ground is allowed for statistical purposes. Not given due credit of tax paid/deducted - Held that - Assessing Officer is directed to verify the contention of the assessee and to give due credit of tax paid/deducted to the assessee.

Summary

Issues:
1. Disallowance under section 40(a)(i) and section 37(1) of the Act.
2. Full credit of taxes paid/deducted not allowed.

Analysis:
1. Disallowance under section 40(a)(i) and section 37(1) of the Act:
The appellant challenged the disallowance of INR 8,61,72,048 under section 40(a)(i) for reimbursements paid to its Associate Enterprise (AE) on account of salaries and travel costs, alleging they were Fee for Technical Services (FTS) chargeable to tax in India. The appellant argued that taxes were duly deducted under section 192 of the Act on the entire salary paid to employees and provided evidence of such deductions. The appellant also contested the reliance on a Delhi High Court decision regarding technical services. The Dispute Resolution Panel (DRP) upheld the disallowance under section 40(a)(i) and additionally disallowed INR 3,68,01,315 under section 37(1) for consultancy charges paid to the AE. The DRP considered the consultancy charges as not wholly for business purposes and computed the Arm's Length Price (ALP) as Nil. The Assessing Officer (AO) made adjustments to the income per DRP's directions, leading to a total income of INR 1,362,597,328. The Income Tax Appellate Tribunal (ITAT) directed the matter back to the AO for verification of payments to ascertain if they were made to employees or as FTS. The ITAT also remanded the issue of disallowance under section 37(1) for verification of business purpose, directing the AO to consider documentary evidence and grant a reasonable opportunity for the assessee to be heard.

2. Full credit of taxes paid/deducted not allowed:
The appellant contended that full credit of taxes paid/deducted was not allowed by the authorities below. The ITAT directed the AO to verify the contention of the assessee and ensure due credit of tax paid/deducted. The appeal was partly allowed by the ITAT, emphasizing the need for proper verification and consideration of documentary evidence by the AO in both disputed issues. The ITAT's decision aimed to ensure a fair assessment and examination of the facts and circumstances surrounding the disallowances under section 40(a)(i) and section 37(1) of the Act, as well as the issue of full credit for taxes paid/deducted.

This detailed analysis outlines the key contentions, decisions, and directions provided by the ITAT in response to the issues raised by the appellant regarding disallowances and tax credit in the original judgment.