2023 (1) TMI 866 - AT - Income Tax

Addition u/s 28 - difference between receipts as per 26 AS and as per books of accounts - CIT-A deleted the addition - HELD THAT - The assessee has explained to the A.O. that some of the differences are overlapping due to different years in which the assessee and the deductor have considered the respective income/expenses and corresponding income tax deducted at source and also clarified the difference in income could be due to amount in correctly reported by the deductor while filing the quarterly TDS statements/returns or due to adhoc on account statement made by the customer from time to time. From the said reconciliation it can be seen that cumulative during the four years commencing from Financial Year 2010-11, the assessee disclosed income and applicable service tax thereon aggregating in the audited financials as against the income and service tax thereon reported in Form No. 26AS i.e. the assessee has cumulatively offered to tax income and disclosed service tax thereon in its books of accounts in excess of income and service tax reported in Form No. 26AS for the Financial Year 2007-08 through Financial Year 2010-11. The assessee is maintaining regular books of accounts audited by independent chartered accountant which normally to be taken as correct unless there are adequate reason to indicate that the same is incorrect or unreliable. It is not the case of the A.O. that there are a specific defect or discrepancies in the books of accounts of the assessee. Therefore, in our opinion, the Ld.CIT(A) has committed no error in deleting the disallowance - Ergo, we find no merit in the Ground No. 1 of the Revenue. Accordingly, Ground No. 1 is dismissed. Disallowance u/s 40(a)(ia) of the Act on account of non deduction of tax at source on the amount paid for its expat employees - HELD THAT - The social security contribution do not constitute income from salary in the hands of expatriate employees and the employees do not have any right over such contributions. The same will not take care the character of salary in the year of contribution. Therefore in our opinion, the deletion of the disallowance made by the CIT(A) made by the A.O. u/s 40(ia) of the Act on account of non deduction of tax at source on amounts paid for the expat employees and we do not find merit in the Ground No. 2 of the Revenue. Accordingly, Ground No. 2 of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 2,72,66,619/- made by the Assessing Officer under section 28 of the Income Tax Act, 1961, on account of difference between receipts as per Form 26AS and as per books of accounts.
2. Deletion of disallowance of Rs. 63,57,485/- made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961, on account of non-deduction of tax at source on amounts paid for expatriate employees.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 28 of the Income Tax Act, 1961:

The Revenue challenged the deletion of Rs. 2,72,66,619/- by the CIT(A), which was added by the Assessing Officer (A.O.) due to a discrepancy between the receipts as per Form 26AS and the books of accounts. The A.O. observed that the assessee failed to provide documentary evidence to reconcile this difference, despite several opportunities. The assessee contended that the discrepancy was due to amounts incorrectly reported by the deductor or ad-hoc settlements by customers. The CIT(A) accepted the assessee's reconciliation, which showed that over a span of five years, the income reported in the audited financials was cumulatively higher than that reported in Form 26AS, except for a residual difference of Rs. 61,09,616/-. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's books of accounts were regularly audited and there were no specific defects or discrepancies identified by the A.O. Therefore, the deletion of the disallowance was justified, and Ground No. 1 of the Revenue was dismissed.

2. Deletion of Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:

The Revenue also contested the deletion of Rs. 63,57,485/- by the CIT(A), which was disallowed by the A.O. due to non-deduction of tax at source on amounts paid for expatriate employees. The CIT(A) relied on the decision in the assessee's own case for Assessment Year 2014-15, where it was held that social security contributions paid outside India did not constitute income from salary in the hands of expatriate employees, as they did not have any vested right over such contributions. The Tribunal agreed with this reasoning, citing the Delhi High Court judgment in Yoshio Kubo vs. CIT, which held that such contributions are not taxable as salary since they do not result in a direct present benefit to the employee. Consequently, the deletion of the disallowance by the CIT(A) was upheld, and Ground No. 2 of the Revenue was dismissed.

Conclusion:

The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s deletions of the disallowances under sections 28 and 40(a)(ia) of the Income Tax Act, 1961. The order was pronounced in the Open Court on 20th January 2023.