TaxTMI 
TaxTMI 
2012 (4) TMI 722
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....pt of management fee from KWGL. The AO has in para 3.5 of assessment order at page-4 has given details of the payment and the TDS deducted by KWGL, which is as under: "Alongwith return of income, the assessee filed a TDS certificate received from M/s. Knowledge Works Global Pvt. Ltd. The contents of the certificates are reproduced below: Date Amount paid/received (Rs) TDS (Rs.) Surcharge (Rs) Education Cess(Rs) Total Tax deposited (Rs) Cheque/ DD/Cash BSR Code of the branch Date of deposit Challan No./Transfer voucher No. 30.4.05 164,634.00 62,050 6,205/- 1,365.00 69,620/- 712379 220912 10.5.05 3 30.4.05 169,410.00 63,850 6,385/- 1,405.00 71,640/- 812434 220912 7.6.05 79 30.4.05 178,165.00 67,150 6,715/- 1,477.00 75,342/- 250938 220912 9.7.05 2 30.4.05 215,577.00 81,250 8,125/- 1,788.00 91,163/- 524404 220912 23.8.05 3 30.4.05 280,126.00 105,577 10,559 2,323.00 118,459 576100 220912 14.9.05 6 30.4.05 233,088.00 87,850 8,785/- 1,933.00 98,568/- 282358 220912 11.10.....
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.... M/s. Datamatics Softworld Pvt. Ltd., which provided the said facility management services to Knowledge Works Global Ltd. and for which fees were paid by Knowledge Works Global Ltd., to Datamatics Softworld Pvt. Ltd., You may note from the other details filed alongwith the said letter dt. 5th October that the facts bring out the correct position as given above. The error is deeply regretted." 5. The AO has stated that in order to verify as to whether there was a transaction of assessee with KWGL and also to verify payments made by KWGL to assessee-company, he called for books of account including bank statement of assessee, but assessee failed to submit the same. AO has stated that from the ledger account of KWGL, it is observed that assessee received a sum of Rs. 1,05,59,424/- including service tax of Rs. 9,80,847/- on account of fee towards Facility Management Services but assessee has only offered Rs. 16,26,750/-. Thus, there is a difference of Rs. 79,51,827/- which is received or accrued during the year from KWGL and assessee has not offered it for taxation. The AO has given a tabular chart at pages 5 & 6 of assessment order. The AO after considering said transactions, has s....
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....bsp; Since M/s. Knowledge Works Global Ltd. credit the account of the appellant company in respect of Facility Management Services on monthly basis on raising of the bill by the appellant company they have credited to the account of the appellant company for the months of May 2005 to September 2005 also and accordingly TDS is deducted and paid on these bills also which is evident from TDS certificate incorporated in para 3.5 of the order that though date of bill mentioned April 2005, but TDS is deposited on different dates in the month of. May 2005 to October 2005. However as submitted above these Facility Management Services bills for the months of May 2005 to September 2005 were subsequently cancelled but since TDS already deducted and paid cannot he corrected, they have issued the TDS certificate of Rs. 524,792/- in which they have shown the amount payable of Rs. 12.41,000/- only which is towards Facility Management Services charges payable for the' month of April 2005. In other words , this TDS Certificate gives the clear picture of amount paid by them for the month of April 2005 of Rs. 12.41.000/- only. However, since they have already deducted TDS in respect of the bills f....
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.... and it cannot be claimed in the year under consideration. The AO has not disputed the ledger account of the appellant company in the books of M/s. Knowledge Works Global Ltd. nor there is any discrepancy noticed in the books of the appellant because the reversal of entries are made on the basis of termination agreement mutually agreed by both the companies. From these facts of the case, it is observed that there is no dispute regarding the reversal of entries books of account of both the companies but the objection of the AO is that the entries made are not as per the accounting standard, it should have been claimed as bad debts in the next year. In totality of facts and circumstances, it is clear that both the companies has made reverse entries in the books of accounts on 31.3.2006 as per the termination agreement mutually agreed by them. Therefore, the claim of the AO that it should have been claimed as bad debts in the next year without any basis when both the companies have confirmed that entries of Rs. 85,04,134/- have been reversed and duly reflected in the books of accounts, then there is no question of any dispute. The AO has no other information in his explanation that....
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....btained copies of ledger account of assessee from KWGL and he has annexed said ledger account as annexure-A to assessment order. Ld. AR submitted that KWGL has also shown reversal of entries evidencing that no payments were made to assessee against bills raised for the month of May, 2005 to September, 2005. He submitted that AO concluded that payment was received merely because KWGL already deducted TDS on the basis of bills raised by assessee and paid TDS to Government. The Ld. AR referred to pages 4 of assessment order which contain details of TDS certificate received by assessee from KWGL and filed by assessee alongwith return and submitted that amount received by assessee was Rs. 12,41,000/- and whereas TDS deducted was of Rs. 5,24,792/- which is about 42.289% of amount received. Therefore, TDS certificate could not be considered to conclude that assessee received payment from KWGL for bills raised of aggregate sum of Rs. 85,04,134/-. He further submitted that AO has not doubted the contention of assessee that agreement entered into between assessee and KWGL was cancelled w.e.f. 1.5.2005 but considered the income only because there was reversal of entries which he considered wa....
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....ke the addition of amount which assessee admittedly had not received and parties made contra entries in their books of account as per termination agreement. The action of AO to make addition by stating that assessee could claim the amount not received as bad debt as it is not in accordance with accounting standards is not justified.We observe that department has not disputed observation of Ld. CIT(A) that AO has no other information in his explanation that entries made by both parties i.e. assessee and KWGL are illegal or malafied. In view of above facts and the reasons as given by Ld. CIT(A) in his order, we uphold the order of Ld. CIT(A) to delete addition of Rs. 79,51,827/- made by AO. Hence ground No. 1 of the appeal taken by department is rejected. 12. Ground No. 2 of the appeal is as under: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 1,34,68,702/- u/s. 40(a)(ia) without appreciating the fact that the assessee has failed to deduct the TDS on Facility Management Services, without appreciating the facts and circumstances of the case and in law." 13. During the course of assessment proceeding, ....
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....TDS on the salary paid to these employees and these details were also given to the Ld. AO vide the letter dated 16-12-2008. In the said letter, on a separate sheet, details are also given that only part salary of these employees is reimbursed by the appellant company. On taking help of these employees, the appellant company have booked sales of Rs. 1,65,90,468/-. The Id. AO has disallowed deduction of payment made to DTL on account of salary of Rs. 1,34,68,702/-- u/s. 40(a) (ia) after giving a finding that these services so availed from DTLis passed on by the appellant company to another sister concern M/s. Knowledge Works Global Ltd which is not correct. The facts of services rendered by the appellant company to M/s. Knowledge Works Global Ltd are already explained in Ground No. 6 above. The services of employees of DTL is taken for providing the IT enabled services and BPO services to 15 companies from whom the appellant the appellant company has earned sales consideration of Rs. 1,65,90,468/- (details of which are given to the Ld. AO vide letter dated 10-11-2008. Further the Ld. AO has never asked for explanation in respect of disallowance u/s. 40A(2)(b). Therefore, disallowa....
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....ia Pvt. Ltd. 95 TTJ 53 (Del), where it is held that reimbursement of conveyance expenses to consultants for which bill was separately raised by the consultant did not attract section 194J. The reliance was also made on the decision of United Hotel Ltd Vs ITO 93 TTJ 822, where it is held that reimbursement of salary of personal of IHC to IHC who were deputed by IHC with the assessee was not fees for technical services and therefore, the assessee was not liable to deduct tax at source u/s. 194J or to pay interests u/s. 201(1A). Reliance was also placed on the decision of Mumbai Tribunal Special Bench in case of Mahindra and Mahindra Ltd. Vs. DCIT 30 SOT 374 (Mum), where it is held as under: The Assessing Officer had not disputed that the sum of Rs. 1.68 crores was in the nature of expenses reimbursed by the assessee to the lead managers. When a particular amount of expenditure is incurred and that sum is reimbursed as such that cannot be considered as having any part of it in the nature of income. Any payment, in order to be brought within the scope of income by way of fees for technical services under section 9(1)(vii) should be or have at least some element of income in it....
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....e of the appellant is only reimbursement of expenditure and provisions of Sec. 194J are not applicable. Therefore, the disallowance made by the AO u/s. 40(a)(ia) is not sustainable, hence deleted." Hence, department is in appeal before the Tribunal. 17. During the course of hearing, Ld. Departmental Representative relied on the order of AO. He submitted that assessee made payment to its sister concern DTL and not to employees of DTL. He submitted that assessee availed services of professional employees of its sister concerns and therefore assessee was required to deduct TDS as per Sec. 194J of I.T. Act. Since assessee failed to deduct TDS, AO was justified to disallow claim of assessee as per Sec. 40(a)(ia) of I.T. Act. 18. On the other hand, Ld. AR supported order of Ld. CIT(A). He submitted that assessee company is having on its payroll only two employees. That assessee company is engaged in the business of IT Enabled Services and BPO services in the domestic market. He submitted that to render these services, assessee company has taken help of some employees of DTL and against that assessee reimbursed towards part of salary which was paid by DTL to its employees aggrega....
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....etween assessee company and DTL by virtue of it assessee availed services of manpower of DTL, copy placed at pages 34 to 40 of Paper Book. 20. We observe that assessee made payment of Rs. 1,34,68,702/- to DTL and the break-up of it is as under: (i) Salary expenses - Rs. 13077210 (ii) Local Travel, Staff Welfare etc. Rs. 391492 Total Rs. 13468702 21. The AO, during the course of assessment proceedings stated that said payment was made by assessee to DTL towards fee for profession services and assessee was required to deduct TDS u/s. 194J of I.T. Act. The AO did not accept the contention of assessee that said payment aggregating to Rs. 1,34,68,702/- was towards reimbursement on account of routine transaction and not for fee for professional services. However Ld. CIT(A) has held that assessee made payment to DTL to reimburse salary for availing services of employees of DTL as per agreement dt. 15.4.2004 entered into between assessee and DTL. 22. In order to decide the issue before us, we consider it prudent to state clause 7 of the agreement which reads as under: "Clause - 7 - Payment 7.1 DSPL shall reimburse DTL the cos....