2022 (9) TMI 1363 - AT - Income Tax

Disallowance of expenses u/s 40(1)(i) - non deduction of TDS overseas group charges - HELD THAT - Upon careful consideration, we find that the issue is covered in favour of the assessee by a series of ITAT order in assessee s own cases 2019 (1) TMI 1990 - ITAT DELHI , 2020 (9) TMI 1270 - ITAT DELHI , 2022 (3) TMI 1424 - ITAT DELHI and 2018 (2) TMI 1628 - ITAT DELHI held that payment by way of reimbursement of expenses is not taxable in India. In view of the fact that the amount paid by the assessee to non-residents is not chargeable to tax in their hands and, as such, the provisions of section 195 of the Act are not attracted, there can be no question of applying section 40(a)(i) for making disallowance in the hands of the assessee. - Respectfully following the precedent, we uphold the order of ld. CIT (A) on this issue. Disallowance of Domestic payments u/s 40(a)(ia) in respect of payment to local vendors on behalf of group entities - HELD THAT - As appellant has explained that the appellant company has deducted Tax Deducted at Source(TDS) on the expenditure which has been included in the total amount of group charges. Further, the details of said expenses along with the TDS deducted has been enclosed as Annexure 4 and relevant TDS certificates Since the appellant has deducted TDS on the expenses AO is directed to delete the addition u/s 40(a)(ia). - Decided against revenue.

Summary

Issues:
1. Disallowance of expenses under section 40(a)(i) of the Income Tax Act, 1961 on account of overseas group charges.
2. Restriction of addition made by the Assessing Officer under section 40(1)(ia) of the Income Tax Act for payment to local vendors.

Analysis:

Issue 1: Disallowance of expenses under section 40(a)(i) for overseas group charges
The appellant, engaged in providing management services, claimed expenses under 'Group Charges' without deducting TDS. The AO disallowed the expenses under section 40(a)(i) as TDS was not deducted. The CIT (A) found that the expenses comprised overseas group charges and domestic payments. The appellant had made payments to affiliate entities for various services. Referring to earlier decisions, the CIT (A) directed the AO to delete the disallowance of overseas group charges under section 40(a)(i) as it was a cost-sharing arrangement without any profit element. The ITAT upheld the CIT (A)'s order based on consistent decisions in the appellant's own case for previous assessment years.

Issue 2: Restriction of addition under section 40(1)(ia) for payment to local vendors
Regarding the addition made by the AO under section 40(1)(ia) for payment to local vendors, the CIT (A) found that the appellant had deducted TDS on a portion of the expenses. Despite reminders, the AO did not provide comments. The CIT (A) directed the AO to delete the addition corresponding to the TDS deducted and sustained the remaining disallowance. The ITAT upheld the CIT (A)'s decision as factual findings were not disputed.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the CIT (A)'s orders on both issues. The judgment emphasized consistency in decisions and adherence to legal provisions regarding TDS deductions and disallowances under relevant sections of the Income Tax Act, 1961.