2018 (8) TMI 441 - AT - Income Tax

ITAT directs AO to verify payments for salaries or FTS, emphasizes proper evidence consideration

Daikin Air-Conditioning India Pvt. Ltd. Versus DCIT, Circle 7 (1), New Delhi

Daikin Air-Conditioning India Pvt. Ltd. Versus DCIT, Circle 7 (1), New Delhi - [2018] 66 ITR (Trib) 599 Issues:1. Disallowance under section 40(a)(i) and section 37(1) of the Act.2. Full credit of taxes paid/deducted not allowed.Analysis:1. Disallowance under section 40(a)(i) and section 37(1) of the Act:The appellant challenged the disallowance of INR 8,61,72,048 under section 40(a)(i) for reimbursements paid to its Associate Enterprise (AE) on account of salaries and travel costs, alleging they were Fee for Technical Services (FTS) chargeable to tax in India. The appellant argued that taxes were duly deducted under section 192 of the Act on the entire salary paid to employees and provided evidence of such deductions. The appellant also contested the reliance on a Delhi High Court decision regarding technical services. The Dispute Resolution Panel (DRP) upheld the disallowance under section 40(a)(i) and additionally disallowed INR 3,68,01,315 under section 37(1) for consultancy charges paid to the AE. The DRP considered the consultancy charges as not wholly for business purposes and computed the Arm's Length Price (ALP) as Nil. The Assessing Officer (AO) made adjustments to the income per DRP's directions, leading to a total income of INR 1,362,597,328. The Income Tax Appellate Tribunal (ITAT) directed the matter back to the AO for verification of payments to ascertain if they were made to employees or as FTS. The ITAT also remanded the issue of disallowance under section 37(1) for verification of business purpose, directing the AO to consider documentary evidence and grant a reasonable opportunity for the assessee to be heard.2. Full credit of taxes paid/deducted not allowed:The appellant contended that full credit of taxes paid/deducted was not allowed by the authorities below. The ITAT directed the AO to verify the contention of the assessee and ensure due credit of tax paid/deducted. The appeal was partly allowed by the ITAT, emphasizing the need for proper verification and consideration of documentary evidence by the AO in both disputed issues. The ITAT's decision aimed to ensure a fair assessment and examination of the facts and circumstances surrounding the disallowances under section 40(a)(i) and section 37(1) of the Act, as well as the issue of full credit for taxes paid/deducted.This detailed analysis outlines the key contentions, decisions, and directions provided by the ITAT in response to the issues raised by the appellant regarding disallowances and tax credit in the original judgment.