TMI Blog2017 (11) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of assessee’s letter dated 29-23-2008 which states that the entries did not relate to assessee and also not able to reconcile with its books of account - Held that:- AIR information appeared in assessee’s PAN in the database of the income-tax department contains certain payments made to the assessee. Once there is an entry in the AIR information, it is incumbent upon the assessee to reconcile the difference in AIR with its books of account. The assessee neither reconciled the difference nor filed any explanations as to how entries appear in the AIR does not belong to the assessee. Merely stating that the entries in the AIR information is not relating to the assessee would not absolve the assessee’s responsibility of explaining the entries appeared in AIR. At the same time, the AO made additions only on the basis of AIR information without conducting any further enquiry with regard to the receipts appeared in assessee’s AIR database. Though the AO has issued notices u/s 133(6) to the parties, completed the assessment without obtaining any information from such parties. Therefore, we are of the considered view that the issue needs to be reconsidered in the light of the expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T.A No.4556/Mum/2013, I.T.A No.4862/Mum/2013, I.T.A No.4554/Mum/2013 And I.T.A No.4918/Mum/2013 - - - Dated:- 13-10-2017 - Shri C.N. Prasad(JUDICIAL MEMBER) And G Manjunatha (ACCOUNTANT MEMBER) For The Revenue : Shri M.V. Rajguru For The Assessee : Shri Anjit Chakravarty / Shri Abhishek Tilak ORDER Per G Manjunatha, AM : These cross appeals by two different assessees as well as revenue are directed against separate, but identical orders of the CIT(A|)-12, Mumbai dated 20-03-2013 and 22-03-2013 for the assessment years 2005-06 and 2006- 07. Since, common facts and identical issues are involved, these appeals were heard together and are disposed of by this common order, for the sake of convenience. 2. The assessee as well as revenue have raised more or less common grounds of appeal. For the sake of brevity, the grounds of appeal raised by the assessee in ITA No.4862/Mum/2013 and the grounds of appeal raised by the revenue in ITA No.4556/Mum/2013 are reproduced below:- ITA No.4862/Mum/2013 1. On the facts and circumstances of the case and in law, the Commissioner of Income tax (Appeals) erred iii upholding the disallowance of ₹ 68, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. 4. The brief facts of the case extracted from ITA No. 4556/Mum/2013 are that the assessee company part of global network of KPMG, engaged in the business of consultancy services in the fields of strategy, infrastructure, performance improvements and software services, etc filed its return of income for the assessment year 2006-07 on 23-11-2006 declaring total income of ₹ 334,33,838. The case was selected for scrutiny and accordingly notices u/s 143(2) and 142(1) of the Act alongwith detailed questionnaire were issued. In response to notices, the authorized representative of the assessee attended from time to time and filed the details. The assessment was completed u/s 143(3) on 24-12-2008 determining total income at ₹ 662,32,585, interalia making additions on account of support service charges payments u/s 40(a)(i) for failure to deduct tax at source u/s 194C and addition on the basis of AIR information as undisclosed income from business or profession and disallowance of professional charges paid outside India without deduction of tax at source u/s 195 of the Act. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). 5. Befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by the assessee in its books of account as undisclosed professional charges on the sole basis of letter sent to various persons u/s 133(6) of the Act. The assessee further submitted that the information in the AIR is only provisional which can be corrected later stage by the parties and hence, addition cannot be made only on the basis of nonresponse from the parties to the letters issued u/s 133(6) of the Act. 6. The CIT(A), after considering the relevant submissions of the assessee, observed that the assessee is not liable for deduction of tax at source u/s 195 of the Act, to the payments made to e-Gen Consultants Ltd, Bangladesh since, the services rendered by the foreign entity is purely professional services and not for supply of scientific, technical, industrial or commercial knowledge or information. Insofar as disallowance of support service charges, the CIT(A) observed that support service charges payments made to KPMG are purely reimbursements without any profit element and, therefore, cannot be treated as income chargeable to tax so as to attract tax deduction at source. However, the only exception to the above reimbursement is the payment of rent which is specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by KPMG with various landlords specifically provides for allowing KPMG to occupy the premises jointly with other group companies. However, does not permit KPMG to sublet the premise to any third parties. 8. The Ld. AR referring to one of the rent agreements entered into with M/s Kamala Mills Ltd submitted that clause (f) of the agreement provides for sharing of premises with other group companies. However, no subletting is allowed to any third party. The assessee has paid support service charges to M/s KPMG on the basis of agreement, as per which the cost incurred by KPMG shall be shared by other group companies on cost to cost basis without any element of profit. The Ld.AR further submitted that the assessee has reimbursed actual cost incurred by KPMG towards infrastructure and other expenses which has been directly procured by KPMG through various vendors on payment and applicable TDS provisions has been complied with by KPMG, wherever applicable. Since support service charges paid by the assessee is on cost to cost basis and reimbursement of actual expenditure incurred by a group company, it cannot come under the purview of contractual payment within the meaning of section 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are of the considered view that the provisions of section 194C or 194-I has no application to the impugned payments. This view was further supported by the decision of co-ordinate bench of ITAT, Delhi F Bench in the case of Result Services Pvt Ltd (2012) 52 SOT 598 (Del) wherein the co-ordinate bench under similar facts observed that where holding company of assessee took a premises on rent and allowed to use a part of it and there was no relationship of a lessor-lessee between them, assessee had no TDS obligation u/s 194-I of the Act while reimbursing a part of the rent to the holding company. Relevant part of the order is extracted below:- 6. We have heard both the sides. The assessee is a 100% subsidiary of holding company of Mccann Erickson India Pvt. Limited. Mccann Erickson India Pvt. Ltd. has taken on rent office premises located at Delhi and Mumbai. Copies of these two Lease and Licence deeds entered with the landlords are on record. The holding company, Mccann Erickson India Pvt. Ltd., has permitted assessee to use part of theses premises. Assessee had reimbursed the amount to holding company without deducting TDS. The rent for the whole premises was paid direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding company and assessee where the provisions of section 194-1 are attracted. Keeping these facts in view, we find merits in the order of the CIT (A) in deleting the addition made u/s 40(a)(i) of the Act. We sustain the order of the CIT (A) and dismiss revenue's appeal. 12. In this case, there is no dispute with regard to the fact that KPMG has taken premises on rent from landlords. There is no dispute with regard to the fact that KPMG has complied with TDS provisions on such rental payments. The assessee has made the payment on the basis of agreement with KPMG which clearly states that the common cost incurred by KPMG shall be shared by group companies on cost to cost basis. Therefore, considering the facts and circumstances of the case and also relying upon the ratio of co-ordinate bench of Delhi ITAT in Result Services Pvt Ltd (supra), we are of the view that there is no obligation on the part of the assessee to deduct TDS on reimbursement of support service charges to KPMG. Hence, we direct the AO to delete the disallowance made u/s 40(a)(i) towards rent payments. 13. The next issue that came up for our consideration in assessee s appeal is addition sustained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made to the assessee. Once there is an entry in the AIR information, it is incumbent upon the assessee to reconcile the difference in AIR with its books of account. The assessee neither reconciled the difference nor filed any explanations as to how entries appear in the AIR does not belong to the assessee. Merely stating that the entries in the AIR information is not relating to the assessee would not absolve the assessee s responsibility of explaining the entries appeared in AIR. At the same time, the AO made additions only on the basis of AIR information without conducting any further enquiry with regard to the receipts appeared in assessee s AIR database. Though the AO has issued notices u/s 133(6) to the parties, completed the assessment without obtaining any information from such parties. Therefore, we are of the considered view that the issue needs to be reconsidered in the light of the explanations of the assessee. Hence, we set aside the issue to the file of the AO and direct him to cause necessary enquiry. Needless to say, the assessee is directed to reconcile the difference appearing in AIR information with its books of account with necessary evidence. 15. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer as well as the CIT(A). The relevant facts are that the assessee company was engaged as a consultant by Essar Oil Limited to provide consultancy services in connection with sale of its energy business. Such a sale was expected to require application of high level office skills besides technical and industry knowledge. For rendering such consultancy a significant number of such overseas companies are based in USA The assessee engaged the services of KPMG Dallas, which is a firm of individual and resident of USA, which had the skill and technical knowledge relating to energy division based industry and technical parameters in giving such consultations and conduct negotiations with the potential parties. It was in lieu of this, that a professional fee of USD 46,248 which in terms of INR come to .20,89,906I-, was paid. The second payment was made to KPMG consulting LP Canada for rendering professional services for the Essar Oil Limited for retail oil marketing and other related services. The payment towards fee was made at USD 30,678/- which in terms of INR is .13,37,229/-, which al so i nc l uded re imbur s ement of e x pe ns e s i n the nature of transportation, lodging, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in assessee s own case for the earlier assessment year, we are of the view that there is no obligation on the part of the assessee to deduct tax at source on professional charges paid to e-Gen Consultants Ltd, Bangladesh as such payment neither falls under the definition of royalty under Article 12 of Indo-Bangladesh DTAA or under Explanation to section 9(1)(vi) of the Income-tax Act, 1961. The CIT(A), after considering relevant facts, has rightly deleted addition made by the AO. We do not find any error in the order of the CIT(A). Hence, we are inclined to uphold the order of CIT(A) and reject ground raised by the revenue. 20. The next issue that came up for our consideration is disallowance of support service charges paid to KPMG. The facts with regard to the impugned disallowances are that the assessee has made payment to KPMG towards sharing common facilities like infrastructure cost, communication expenses, technology cost and office supplies. The assessee has made the payment on the basis of agreement entered into with KPMG. As per the agreement, the assessee has agreed to use common facilities and also agreed to share expenses incurred in such facilities on cost to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only in the nature of reimbursement of actual expenditure incurred by the assessee for which provisions of section 194C has no application. The assessee is not under obligation to deduct tax at source on amount reimbursed on actual cost basis. The CIT(A), after considering relevant submissions has rightly deleted additions made by the AO. We do not find any error in the order of the CIT(A); hence, we are inclined to uphold the order of CIT(A) on this issue and reject ground raised by the revenue. 22. In the result, the appeal filed by the revenue is dismissed. ITA No.4554/Mum/2013 23. The facts and issues involved in ITA No.4554/Mum/2013 are identical to the facts and issues in appeal No.4556/Mum/2013 already discussed / decided by us but for the figures. Therefore, our decision in the preceding paragraphs applies mutatis mutandis to the present appeal also. Therefore, we are of the view that there is no merit in the appeal filed by the revenue. Hence, we dismiss the same. 26. In the result, appeals filed by the assessee are partly allowed and appeals filed by the revenue are dismissed. Order pronounced in the open court on 13th October, 2017. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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