2022 (8) TMI 380 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Addition on account of subscription fee paid - payment made to Deloitte Touche Tohmatsu India Pvt. Ltd. paid under different heads for the reason that these were reimbursement of expenses, hence no TDS was required - CIT (A) was of the opinion that tax is deductible at source in respect of payment of income or other sum comprising an element of income and that reimbursement of expenses cannot partake the nature of income in the hands of the payee of such expenses - HELD THAT - We find that ld. CIT (A) has passed a reasoned order. His finding of fact that these are reimbursement of expenses which have not been disputed by the Revenue. Hence, in light of case laws referred above, we do not find any need to interfere in the order of ld. CIT (A). Accordingly, we uphold the same. Disallowance of remuneration paid to partners - As submitted that remuneration paid to partners in terms of the partnership deed; that the aggregate of remuneration paid within the limit provided in section 40(b) as concerned partner has confirmed the receipt of remuneration and payment of tax on such remuneration - HELD THAT - We find that we are in agreement with ld. CIT(A). He has factually examined the issue and given a finding of fact. This finding could not be rebutted by the Revenue. Hence, we uphold the order of ld. CIT (A).

Issues Involved:
1. Disallowance of subscription fees paid.
2. Disallowance under Section 40(a)(ia) for payment made to Deloitte Touche Tohmatsu India Pvt. Ltd.
3. Disallowance of remuneration paid to partners under Section 40(b).
4. Disallowance of payment to retired partners.
5. Disallowance of expenses not paid in the relevant financial year.
6. Foreign tax credit.

Issue-wise Detailed Analysis:

1. Disallowance of Subscription Fees Paid:
The Revenue appealed against the deletion of disallowance of Rs.4,28,16,257/- on account of subscription fees paid for membership of Deloitte Global Network. The CIT(A) deleted the disallowance, referencing ITAT Delhi Bench decisions in the assessee's favor for AYs 2009-10 to 2012-13. The ITAT upheld the CIT(A)'s decision, noting consistent rulings in the assessee's favor and no contrary jurisdictional High Court decision.

2. Disallowance under Section 40(a)(ia) for Payment Made to Deloitte Touche Tohmatsu India Pvt. Ltd.:
The AO disallowed Rs.4,39,28,027/- under Section 40(a)(ia), contending that the payments were not reimbursements but expenses for services rendered. The CIT(A) found the payments to be reimbursements without profit elements, thus not subject to TDS. The ITAT upheld this view, citing that reimbursements do not constitute income and referencing supporting case laws, including KPMG Advisory Services and CIT vs. Expeditors International.

3. Disallowance of Remuneration Paid to Partners under Section 40(b):
The AO disallowed Rs.16,66,667/- due to discrepancies in the partnership deed regarding remuneration. The CIT(A) clarified that the deed's annual remuneration referred to the financial year, not the period of working, and deleted the disallowance. The ITAT upheld this, agreeing with the CIT(A)'s factual findings and noting the partner's confirmation of remuneration received.

4. Disallowance of Payment to Retired Partners:
The AO disallowed Rs.1,75,81,653/-, not accepting the assessee's claim of diversion by overriding title. The CIT(A) upheld the disallowance, referencing AY 2011-12. The ITAT reversed this, citing consistent favorable rulings for the assessee, including ITAT Chennai and Hon'ble Bombay High Court decisions, establishing that payments to retired partners are diversions by overriding title.

5. Disallowance of Expenses Not Paid in the Relevant Financial Year:
The AO disallowed Rs.11,34,979/-, which the CIT(A) upheld. The ITAT reversed this, noting that under the cash system of accounting, TDS amounts are considered paid when deducted. The ITAT referenced its decision in the assessee's case for AY 2011-12, confirming that TDS payments are deductible expenses.

6. Foreign Tax Credit:
The assessee did not press this ground, and it was dismissed as not pressed.

Additional Issues for AY 2014-15:
The ITAT applied its decisions for AY 2013-14 to similar issues in AY 2014-15, including disallowance of subscription fees, payment to retired partners, and expenses not paid in the relevant financial year, deciding all in favor of the assessee.

Conclusion:
The ITAT dismissed the Revenue's appeal for AY 2013-14, partly allowed the assessee's appeal for AY 2013-14, and allowed the assessee's appeal for AY 2014-15.

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