9911796707
TMI Blog2014 (2) TMI 1112X X X X Extracts X X X X X X X X Extracts X X X X ..... (ia) on the payments made to M/s. Apollo Consulting Services Corporation USA (ACSC) on the reason that the amounts were remitted without deducting tax under section 195 of the I.T. Act. The amount disallowed in A.Y. 2005-2006 was to the tune of Rs.14,05,09,382/- and in A.Y. 2006-07 was to the tune of Rs.14,22,41,612/-. In addition to the above, the A.O. disallowed certain expenditure stating that assessee has inflated expenses which was quantified at Rs.1,33,46,705/- for A.Y. 2005-06 and Rs.1,45,06,710/- for A.Y. 2006-07. 4. In the appeals before the CIT(A), the assessee relied on the Orders of the ITAT wherein it was held that payments paid to Apollo Consulting Services Corporation USA do not come under the purview of 'TDS' provisions and therefore, provisions of section 195 are not attracted. Following the decision of the ITAT for the same assessment years given under section 195 read with section 201(1), the learned CIT(A) deleted the additions so made. On the issue of alleged expenditure, the learned CIT(A) partially sustained the additions to the extent of Rs.1 crore in A.Y. 2005-2006 and Rs.1.10 crores for A.Y. 2006-07. 5. The Assessee is aggrieved on the sustenance of disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contested before CIT(A), making various explanations and also stating that assessee furnished all the statement of accounts, copies of bank statements, proof of pay- rolls, TDS made, professional tax paid to evidence the salaries which have been paid. Therefore, it was submitted that A.O. was not justified in concluding that salaries are inflated without pinpointing any instance of bogus expenses or employees etc., It was further submitted that the Call Centre Income has increased by 400% and compared to Call Centre Income in A.Y. 2004-05. As against Rs.76,84,085/- turnover in A.Y. 2004-05, the turnover was to the tune of Rs.4.01 crores during this year. Therefore, adopting the so-called percentage by backward calculations does not indicate the actual expenditure incurred. It was further submitted that merely percentage of loss or profit in a particular year does not necessarily lead to the inference that there has been suppression of income or inflation of expenditure. Assessee relied on various decisions. Learned CIT(A) did not agree and upheld the addition on account of inflation of expenditure. However, considering the inflation which has to be taken into account, general tren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the learned A.O. and CIT(A). 8. We have considered the issue and examined the details as placed on record with the relevant case law. There is no dispute with reference to the fact that A.O. issued show cause notice with reference to the so called inflation in salary expenditure, which the assessee has justified by furnishing various details. Without any further notice, the A.O. calculated the percentage of expenditure on domestic turnover in earlier year and arrived at the so called expenditure which assessee could have spent for earning the income during the year. Accordingly, out of the total claim of expenditure, he determined the domestic expenditure at 80% of the turnover and disallowed the expenditure. This sort of backward calculation, in the absence of any allegation about non- maintenance of books, non-furnishing of vouchers, non- compliance of the notices, cannot be accepted as the provisions of the Act are very specific and clear. A.O. can only resort to estimate of income under section 145, if conditions specified there in are satisfied. Expenditure can be verified under section 37(1) and only AO finds out that expenditure is not wholly and exclusively for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transactions between IBM Bangalore and assessee company and between the assessee company and Apollo Consulting Services Corporation USA. This remand report was placed before the learned CIT(A), however, in the final order, learned CIT(A) did not discuss anything about the contentions in remand report and accepted the assessee's contention about the disallowance made under section 40(a)(ia). It was the Revenue's contention that learned CIT(A) did not adjudicate that the expenditure is not genuine as reported by the A.O. Accordingly, Revenue has raised the following grounds : "2. The CIT(A) erred in law and on facts in ignoring the enquiries directed to his predecessor and also in ignoring remand submit in pursuance of such directions. 3. The CIT(A) erred on fact and in law in granting relief to the assessee though the payment made by the assessee to M/s. Apollo Consulting Services Corporation is not genuine. 4. The CIT(A) erred in law and on facts in granting relief on payments made to M/s. Apollo Consulting Services Corporation, USA despite the fact that the assessee could not produce any evidence in support of genuineness of the payment." 10. The Cross Objections are ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT in ACIT vs. M/s. IIC Systems Pvt. Ltd. 33 DTR 422. In that case, it was held that payments made to M/s. Apollo Consulting Services Corporation USA cannot be treated as fees for included services within the meaning of Article 12(4)(b) of DTAA and provisions of section 90(2) are applicable even if the payments constitute fees for technical services under section 9(1)(vii). Since they are not chargeable under the IT Act, provisions of section 195 are not attracted and assessee has no liability to deduct tax at source. This order was issued on 9th October, 2009. At the same time, vide letter dated 11.06.2009 on the appeals in quantum before him, Ld.CIT(A) has asked the A.O. to examine various agreements to know the genuineness of the transactions between IBM Bangalore and assessee company and between assessee company and M/s. Apollo Consulting Services Corporation USA. In response, the A.O. has sent remand report dated 14.02.2011, followed by another report dated 11.09.2012. On perusal of these reports, except fleeting remark that the information furnished by the assessee is not sufficient to verify genuineness of the transactions, there is nothing on record to indicate that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the service in the form of Software programme etc., is neither known to the acquirer i.e., the appellant at the first instance; nor does it remain available with him subsequently. Accordingly, in my view, the services rendered by Appollo for which the payment has been made by the Appellant is more of a placement or recruitment in nature and will not come within the purview of "fees for included services" within the meaning of Article 12(4)(b) of the DTAA between India & USA since the payment made by the appellant is only against purchase by IBM of certain quantity of man- hours and not for making available by Appollo any specific technology or any technical plan, technical design etc.," 12. The findings of the learned CIT(A) were the basis for the order of the ITAT wherein it was held that the payments made to M/s. Apollo Consulting Services Corporation USA does not come within the purview of provisions of section 195. May be considering the orders of the CIT(A) in parallel proceedings under section 195/201, the present CIT(A) did not consider fit enough to consider the issue of genuineness of the expenditure, when there are already findings on the issue which was examined in de ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
