2021 (12) TMI 543 - AT - Income Tax

TDS u/s 195 - disallowance of non deduction of TDS on net profit charges and administrative support charges as well as addition on account of cash discount given to related parties - HELD THAT - As in assessee own case 2021 (10) TMI 1005 - ITAT DELHI Assessee availed IT Network facility from its non-resident group companies and third party domestic companies. The services/facility consists of internet proxy services and access charges. The services are standard services/facility provided to the assessee which do not require any human intervention. In fact, the assessee has given detailed description of the flow of services thereby substantiating that no human intervention was involved before the Assessing Officer. The assessee had entered into the agreements with the foreign group companies to promote sale of its products. The discounts were offered to increase the sales of certain category of products of the assessee and were in line with the regular business practices. These facts are identical to that of A.Y. 2011-12. No new or distinguishing facts were pointed out by the Ld. DR at the time of hearing. Hence, both the appeals of the assessee are allowed.

Summary

Issues:
- Disallowance under section 40(a)(i) of the Income-tax Act
- Characterization of network and administrative support charges as Fee for Technical Services (FTS) under section 9(1)(vii) of the Act
- Allegation of inaccurate particulars of income and penalty proceedings under Section 271(1)(c) of the Act

Analysis:
1. Disallowance under section 40(a)(i) of the Income-tax Act:
The appeals were filed against the order passed by the CIT(A) confirming the disallowance of certain amounts under section 40(a)(i) of the Act. The contention was that the disallowance was erroneous and not in accordance with the law. The Tribunal observed that the services provided by non-resident group companies were standard automated services related to networking and did not involve human intervention. As per the Tribunal's previous judgment, standard services cannot be considered as FTS under the IT Act. Therefore, the disallowance made by the Assessing Officer and confirmed by the CIT(A) was deleted.

2. Characterization of network and administrative support charges as FTS:
The issue revolved around whether the network and administrative support charges paid by the assessee to non-resident group companies should be characterized as Fee for Technical Services under section 9(1)(vii) of the Act. The Tribunal, based on the nature of services provided and the absence of human intervention, held that the services were standard in nature and did not qualify as technical services. The agreements between the parties and the lack of human involvement in providing the services were crucial factors in determining that the charges were not liable for TDS deduction under section 195 of the Act.

3. Allegation of inaccurate particulars of income and penalty proceedings:
The Assessing Officer alleged that the assessee furnished inaccurate particulars of income, proposing penalty proceedings under Section 271(1)(c) of the Act. However, the Tribunal found that the services availed by the assessee were standard connectivity and networking services that did not involve human intervention. The Tribunal noted that the facts and agreements were similar to those in a previous assessment year where the disallowance was deleted. As no new or distinguishing facts were presented, the appeals of the assessee were allowed, indicating that the penalty proceedings were not warranted.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeals and overturning the disallowances made by the Assessing Officer and confirmed by the CIT(A) based on the nature of services provided, absence of human intervention, and the standard nature of the services availed by the assessee from non-resident group companies.