TMI Blog2014 (5) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... n to withhold tax u/s 195 - no disallowance either u/s 40(a)(i) or 40(a)(iii) is called for as the assessee has duly deducted tax on the entire salary u/s 192 - the total taxable salary as per the Act is ₹ 83,19,640/- only, which has been included in from no.16 – an observation of the CIT(A) to confirm the findings and addition made by the AO is completely vitiated and cannot sustained - the disallowance made by the AO and confirmed by the CIT(A) is set aside – Decided in favour of Assessee. Disallowance of foreign travelling expenses - Revenue was of the view that the assessee was not required to incur expenses on foreign traveling as the same should have been borne by the parent company – Held that:- Once the assessee has shown that its employees have undertaken foreign travelling for the purpose of indenting business on which it has earned commission income and also on the business of import and export of goods, then same cannot be doubted until and unless it has been found that these expenses are either personal in nature or it was not for the business purpose at all- the Revenue cannot decide who should bear the expenses and why the assessee was required to incur such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) upheld – Decided against Revenue. - ITA No. 7866/Mum/2011, ITA No.8022/Mum/2011 - - - Dated:- 5-3-2014 - Shri P. M. Jagtap, AM And Shri Amit Shukla, JM,JJ. For the Petitioner : Shri Girish Dave Shri Madav Khandewal For the Respondent : Shri Neeraja Pradhan ORDER Per Amit Shukla, J.M. The aforesaid cross appeals have been preferred by the assessee as well as by the Revenue against impugned order dated 03/08/2011 passed by CIT(A)-21, Mumbai, for the quantum of assessment passed u/s 143(3), for the assessment year 2008-09. The assessee has raised following grounds of appeal. 1. Disallowance of reimbursement of salary amounting to Rs 3,653,755 a. The learned CIT(A) erred as per the facts and under the law in confirming the disallowance of Rs. 3,653,755 being reimbursement of salary expenses paid to Nagase Co Limited, Japan. b. He erred in not appreciating the submissions made by the appellant company in the correct perspective including the fact that the tax on the salary had been deducted and paid. c. He erred in observing that the learned Assessing Officer was justified in invoking provisions of section 40(a) (iii) of the Act. 2. Disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia or is deemed to be accrued in India. Accordingly, no tax was required to be withheld u/s 195 on the said payments. The Assessing Officer, however, rejected the assessee's contention and held that on the reimbursement of the expenses in the form of salary, TDS was required to be deducted as per the provisions of the Act. In this case, order u/s 195 was valid only up to March 2007 and not for the current financial year. On this basis, he made the disallowance of Rs.36,53,755/- u/s 40(a)(i). 3. It is very pertinent to note here as to how the quantum of Rs.36,53,755/- has been worked out by the Assessing Officer for the purpose of disallowance, when the total reimbursement made to the Japanese company on the salary was at Rs.69,32,708/- is not clear. From the details as are available on record, Rs.36,53,755/- pertain to Mr. A. Ishii only. This inter-alia, leads to an inference that the part of salary paid to other employees, the A.O. was correct in allowing the same as business expense. Thus, there is inherent contradiction in the finding of the Assessing Officer. 4. Before the CIT(A), it was submitted by the assessee that apart from the fact that the payments made to Nag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithhold by appellant on such payment reimbursed to the Japanese company. In view of the above discussion it is held that the provisions of section 192 r.w.s. 40(a)(iii) of the Act were applicable in respect of part of salary and remunerations of the deputed employees reimbursed by appellant to the Japanese company. This reimbursement was not actually reimbursement of expenses but payment of part of salary and emoluments to deputed persons outside India through its Japanese holding company. Since the tax was not withheld on such payments, the AO was justified in invoking the provisions of sec.40(a)(iii) of the Act though he inadvertently mentioned the section as 40(a)(ia) of the Act. The disallowance made by AO is, therefore, upheld. This ground of appeal is dismissed. 5. Before us, the ld. Counsel, Shri Girish Dave submitted that the basis on which the AO has disallowed part of the reimbursement of expenses is not clear, as to how he has worked out the disallowance. Before, the CIT(A), the assessee has filed not only form no.16 which gives the entire details of salary paid by the assessee as well as by the Japanese company, but also the working of the amount on which the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition was warranted u/s 40(a)(iii); Secondly, no circumstantial difference has been pointed out either by the AO or by the CIT(A) between the salary paid to Mr. A. Ishii (which is the actual amount in dispute) and the the salary paid to Mr. H. Ishigaki; and Lastly, the reimbursement of salary does not include any element of income either from or to Nagase company Japan. Therefore, there was no liability to deduct TDS u/s 195. 6. On the other hand, the ld. DR submitted that as per the agreement, 50% of the salary paid to the deputed employee was to be borne by the Japanese company and other 50% has to be borne by Indian company. While, reimbursing the salary expenses to the Japanese company, the assessee was required to deduct TDS u/s 195 as it amounts to rendering of services by these two employees in India. Further, she strongly relied upon the reasoning and conclusion given by the CIT(A). 7. We have heard the rival submission and also perused the relevant material placed on record. The Japanese company had deputed two of its employees one director and other General Manager to work for the Indian Company under the terms of deputation agreement which provided that they ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither u/s 40(a)(i) or 40(a)(iii) is called for as the assessee has duly deducted tax on the entire salary u/s 192. 10 9. Now coming to the CIT(A)'s observation as incorporated above that in the case of H. Ishigaki, the salary paid is Rs.1,16,12,664/- whereas in form no.16, the amount of Rs.83,19,640/- has been shown. Before us, the ld. Counsel Shri Girish Dave has filed reconciliation chart which is as under:- Mr. Harukazu Ishigaki 10. From the aforesaid reconciliation, it is apparent that the total taxable salary as per the Act is Rs.83,19,640/- only, which has been included in from no.16. Thus, such an observation of the CIT(A) to confirm the findings and addition made by the Assessing Officer is completely vitiated on facts and hence, cannot be sustained. Accordingly, we hold that the disallowance made by the AO and confirmed by the CIT(A) is set aside and the addition is deleted. Thus, ground no. 1 as raised by the assessee is allowed. 11. In ground no. 2, the assessee has challenged the disallowance of foreign travelling expenses amounting to Rs.33,40,906/-. The Assessing Officer required the assessee to give the details of travelling expenses and also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only case of the department is that the assessee was not required to incur expenses on foreign traveling as the same should have been borne by the parent company, because the assessee is only selling the products of the parent company and such an expenses has been incurred mainly on behalf of the parent company, therefore, the same is not allowable. Such a view cannot be sustained, firstly, for the reason that once, the assessee has shown that its employees have undertaken foreign travelling for the purpose of indenting business on which it has earned commission income and also on the business of import and export of goods, then same cannot be doubted until and unless it has been found that these expenses are either personal in nature or it was not for the business purpose at all; Secondly, the Revenue cannot decide who should bear the expenses and why the assessee was required to incur such expenses. The decision to incur expenses is upon the assessee, so long as it is for the purpose of business. In this case, the assessee has filed exhaustive details of the foreign traveling expenses alongwith the evidences on which no infirmity or discrepancy has been found either by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the parent company. The amount of TDS which was deducted, has been deposited in the government account on 02/05/2008 i.e. much prior to the date of filing of return of income which was on 29/09/2008 filed u/s 139(1). Thus, not only the estimated disallowance of Rs.65,000/- is unwarranted but also the same is uncalled for both on facts and in law. Accordingly, ground no.3 as raised by the assessee is allowed. 19. In the result, appeal filed by the assessee is allowed. 20. In department's appeal, following grounds have been raised. i. On the facts and the circumstances of the case as well as in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.99,393/- u/s. 40(a)(ia), being reimbursement of expenses. ii. On the facts and the circumstances of the case, the ld. CIT(A) erred in deleting the disallowance of 50% of commission and brokerage expenses of Rs.9,79,927/- paid for renewal of Leave License Agreement. iii. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored.. 21. The brief facts relating to ground no.1 is that the Assessing Officer has disallowed a sum of Rs.99,393/- whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotel expenses are not covered under any of the provisions of section 192 to 194 LA. There is no requirement of withholding the tax under any provisions of the Act including section 195. Hence, we do not find any reason to deviate from the findings recorded by the CIT(A) and accordingly the same is confirmed. In the result, the ground no.1 raised by the department is dismissed. 25. The facts regarding ground no.2 are that the Assessing Officer noted that assessee has paid a sum of Rs 18,53,934/- as commission and brokerage on the renewal of Leave License Agreement. In response to the show cause notice, the assessee submitted that these expenses were incurred in order to avail the services of broker with a view to acquire the premises on rent and it has no nexus between the aforesaid expense incurred and the period of Leave License Agreement. The Assessing Officer held that the assessee is hiring the premises on Leave License Agreement for the period of two years and, therefore, commission and brokerage should also be divided for two years. Accordingly, he disallowed 50% of the said amount which comes to Rs.9,26,967/-. Before the ld CIT(A), the same submission were reitera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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