2019 (4) TMI 276 - AT - Income Tax

Disallowance of year-end accruals - accruals created towards normal business expenditure incurred by the Appellant - assessee follows mercantile system of accounting accruals in accordance with matching principle - HELD THAT - As relying on previous AYs 2018 (11) TMI 130 - ITAT DELHI and 2018 (4) TMI 33 - ITAT DELHI in the present Assessment Year as well the Assessing Officer has not pointed out any mistake in the calculation nor there was case by the Revenue that assessee has not paid certain bills. In fact during the financial year relevant to the said assessment year, the assessee had accounted all the expenses relatable to the subject Financial Year for which bills/invoices would have been received/paid after close of the Financial Year by way of year ending accruals. Thus, the issue is identical in the present assessment year as well, hence Ground No. 1 is allowed. Addition on account of non-charging of mark up on support services charges able to AGNS - HELD THAT - The assessee as well as AGNSI are profit making entities and there was no tax incentives earned by the assessee at any point of time. Thus, charging of mark up on support service charges which were billed to AGNSI was not correct on part of the Assessing Officer. Besides that, the issue is squarely covered in assessee s own case for A.Y. 2010-11 2018 (4) TMI 33 - ITAT DELHI . Hence, Ground No. 2 is allowed. Addition on account of non deduction of TDS on reimbursement of salary - HELD THAT - The employees seconded to the assessee company are working as the employees of the assessee company, their salary is subject to TDS u/s 192 of the Act and, therefore, provisions of section 195 are not applicable on the facts of the case in hand. Thus, the issue is squarely covered by the order of the Tribunal in assessee s own case 2018 (11) TMI 130 - ITAT DELHI . Hence, Ground No. 3 is allowed.

Summary

Issues Involved:
1. Disallowance of year-end accruals
2. Addition on account of mark-up not charged on Support Service charge
3. Disallowance on account of non-deduction of tax at source on reimbursement made to AT&T World Personnel Services Inc. (AWPS)
4. Short credit for Tax Deducted at Source (TDS)
5. Levy of interest u/s 234B and 234C of the Act
6. Initiation of penalty proceedings

Detailed Analysis:

1. Disallowance of Year-End Accruals:
The assessee argued that the year-end accruals were in accordance with the matching principle and were required under the accounting standards notified under section 145(2) of the Act. The assessee had provided evidence for more than 99% of the utilization/reversal in subsequent years, and no adverse findings were made by the AO/DRP. The Tribunal found that the issue was squarely covered in favor of the assessee by its own case for AY 2010-11 and 2011-12, where the Tribunal had allowed the expenses based on historical trends and the scientific method of accounting. The Tribunal, following the Supreme Court decision in Rotork Controls India (P) Ltd., held that the expenses were to be allowed in the year of creation itself. Thus, Ground No. 1 was allowed.

2. Addition on Account of Mark-Up Not Charged on Support Service Charge:
The assessee contended that both it and AGNSI were profit-making entities, and there was no tax saving incentive. The Tribunal noted that this issue was also covered in favor of the assessee by its own case for AY 2010-11, where it was held that the non-charging of mark-up on support services did not result in any tax loss to the Revenue. The Tribunal reiterated that commercial expediency should be examined from the perspective of the business person and upheld the deletion of the addition. Hence, Ground No. 2 was allowed.

3. Disallowance on Account of Non-Deduction of Tax at Source on Reimbursement Made to AWPS:
The assessee argued that the payment to AWPS did not constitute Fees for Included Services/Fees for Technical Services under the India-US DTAA and section 9(1)(vii) of the Act, and thus, was not liable for TDS under section 195. The Tribunal, referring to its decision for AY 2012-13, held that the seconded employees were working under the control and supervision of the assessee company and their salary was subject to TDS under section 192. Therefore, the provisions of section 195 were not applicable. The Tribunal directed the deletion of the impugned addition. Hence, Ground No. 3 was allowed.

4. Short Credit for Tax Deducted at Source:
The assessee claimed that the AO had granted short TDS credit of ?21,079. The Tribunal noted that the assessee had filed a rectification application, which was pending. The Tribunal did not provide a specific ruling on this issue in the judgment text provided.

5. Levy of Interest u/s 234B and 234C of the Act:
The assessee contended that the AO had incorrectly charged interest under sections 234B and 234C. The Tribunal did not provide a specific ruling on this issue in the judgment text provided.

6. Initiation of Penalty Proceedings:
The assessee challenged the initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal did not provide a specific ruling on this issue in the judgment text provided.

Conclusion:
The Tribunal allowed the appeal of the assessee on the major grounds of disallowance of year-end accruals, addition on account of mark-up not charged on support service charge, and disallowance on account of non-deduction of tax at source on reimbursement made to AWPS. The stay application was dismissed as the appeal was decided on merit. The order was pronounced in the Open Court on 28th March 2019.