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2023 (4) TMI 1105 - AT - Income TaxDisallowance of expenses on ad-hoc basis - Ad-hoc Disallowance @ 10% - Assessee is a Project Office of a foreign company set up in India to provide engineering consultancy services and incurred expenses like rent, professional fee, travelling and conveyance etc during the course of business - HELD THAT:- We hold that no disallowance of expenses on ad-hoc basis is called for. Reliance is placed on the decision of the Coordinate Bench of ITAT in the case of M/s. Cheminova India Ltd. [2016 (9) TMI 545 - ITAT MUMBAI] wherein held that without pointing out specific defects in the documents furnished by the assessee, disallowance made on the ground that the assessee failed to furnish all the documentary evidence is not acceptable. Decided in favour of assessee. TDS u/s 195 - disallowance u/s 40(a)(i) - Professional Fee Payment/salary made by the assessee to its AEs treating the same as FTS, on which TDS u/s 195 has not been deducted by the assessee - HELD THAT:- Since, the provisions of TDS has been duly observed on the payment no addition is called for on this account. Payment to TPF Getinsa Eurostudios S.L. Spain on account of professional fee expenses - Since the aforesaid amount was only receipt from Indian service provider and further payment to head-office, whereby the entire receipts, received after deduction of tax at source, has been fully reflected as income on the receipt side, the forwarding payment to head-office deserved to be allowed as deduction. The entire receipt from Indian Service Provider, is included under the head other income / Management Fee at Note 14 of the audited financial statements - disallowance of said expenditure, which is otherwise correspondingly included in other income, deserves to be allowed as deduction. TDS, the aforesaid management fee did not involve any provision of technical knowledge / knowhow of TPF Spain to Segmental much less to assessee, who was only collecting the said fee from Segmental for further remittances to Head Office/ TPF Spain - the income in the nature of fee for technical services is not taxable in India if the same did not make available technical knowledge or knowhow of such non-resident recipient, as per the provisions of Article-13 of INDO-SPAIN DTAA read with protocol thereof - no default on part of the assessee in not deducting tax at source (TDS) on the aforesaid remittance. Salary to Expatriates of TPF Getinsa Eurostudios SL Spain - TPF Spain has incurred costs on behalf of the assessee in terms of the salary of the expatriates for assisting the Assessee in executing services to NHAI. The assessee had only reimbursed actual cost of such employees on the basis of time spent and time cost of such employees, which was incurred by head-office. No markup has been charged by TPF Spain and there is no profit element in the said costs. Also, the provision of the act seeks to levy income tax in respect of the ‘ income' of every person. The term ‘ income’ has been exhaustively defined to include various types of gains, profits, accretion, value addition, etc. It is submitted that in absence of any profit-related element, a receipt cannot be classified as income in the hands of recipient of the money. In this scenario, any reimbursement cannot be treated as income, and therefore, cannot be subject to Income tax. The Hon’ble High court of Karnataka in the case of Flipkart Internet P. Ltd [2022 (6) TMI 1251 - KARNATAKA HIGH COURT] held that the assessee would be eligible for Nil tax deduction certificate under section 195(2) of the Act with respect to payments of salaries of the deputed expatriate employees which were in the nature of “pure reimbursements”. We hold that no withholding of tax is warranted from the payments of Rs.2,18,66,000/-. The appeal of the assessee on this ground is allowed.
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