2012 (4) TMI 722 - AT - Income Tax

Tribunal upholds CIT(A) decision on explained income & TDS non-deduction

The Tribunal upheld the Ld. CIT(A)'s decision to delete the additions made by the AO in two issues: first, the deletion of Rs. 79,51,827/- on account of ... - Issues Involved:1. Deletion of addition of Rs. 79,51,827/- made by the AO on account of explained income.2. Deletion of addition of Rs. 1,34,68,702/- u/s 40(a)(ia) for non-deduction of TDS on Facility Management Services.Issue 1: Deletion of Addition of Rs. 79,51,827/-The Department challenged the deletion of Rs. 79,51,827/- made by the AO on account of explained income. The assessee company provided Facility Management Services to KWGL, but a dispute led to the cancellation of bills for May to September 2005. The AO observed that the assessee received Rs. 1,05,59,424/- but only offered Rs. 16,26,750/- for taxation, leading to an addition of Rs. 79,51,827/-.The Ld. CIT(A) found that both the assessee and KWGL made reversal entries in their books based on a termination agreement dated 31.3.2006. The AO's claim that the reversal entries should be treated as bad debts was rejected by the Ld. CIT(A), who held that the AO did not properly appreciate the facts and that the addition was not sustainable. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the AO had no other information to dispute the legality of the entries made by both parties.Issue 2: Deletion of Addition of Rs. 1,34,68,702/- u/s 40(a)(ia)The AO disallowed Rs. 1,34,68,702/- u/s 40(a)(ia) for non-deduction of TDS on payments made to DTL, considering it a contract for professional services. The assessee argued that the payments were reimbursements for salaries and expenses, not fees for professional services, and thus not subject to TDS.The Ld. CIT(A) agreed with the assessee, noting that the payments were reimbursements without any profit element, as per an agreement dated 15.4.2004. The Tribunal upheld this view, referencing multiple cases, including the Special Bench ITAT Mumbai in Mahindra & Mahindra Ltd. vs. DCIT, which held that reimbursement of expenses does not attract TDS. The Tribunal concluded that the AO was not justified in making the disallowance, as the payments were genuine reimbursements and not fees for professional services.ConclusionThe Tribunal dismissed the Department's appeal, upholding the Ld. CIT(A)'s deletions of the additions made by the AO on both issues.