TaxTMI 
TaxTMI 
2025 (2) TMI 1415
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....me Tax (Appeals) ['CIT(A)'] erred in upholding the disallowance under Section 40A(2)(b) of the Income Tax Act, 1961 ['the Act'] of Rs. 1,28,06,374, being 10% of facility costs aggregating Rs. 12,80,63,741 paid to KPMG Assurance and Consulting Services LLP ['KACSL']. 2. On the facts and circumstances of the case and in law the NFAC/ CIT(A) erred in upholding the disallowance under Section 40A(2)(b) of the Act of Rs. 9,18,140 being 10% of professional indemnity insurance of Rs. 91,81,397 reimbursed to KACSL. 3. On the facts and circumstances of the case and in law the NFAC/ CIT(A) erred in upholding the disallowance under Section 40A(2)(b) of the Act of Rs. 94,57,392 being 10% of professional fees aggregating Rs. 9,45,73,924 paid to KACSL. 4. On the facts and circumstances of the case and in law the NFAC/CIT(A) erred in upholding the disallowance under Section 40A(2)(b) of the Act of Rs. 1,50,00,000 being 10% of professional fees aggregating to Rs. 15,00,00,000 paid to KACSL. 5. The NFAC/CIT(A) erred in upholding the disallowances without considering all the submissions of the Appellant and without giving an opportunity of b....
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.... of recovery from BSR & CO (a sub-licensee) whose relationship with KPMG did not fall within the ambit of section 40A(2)(b) of the Act. Before the assessing officer, the assessee has also provided copies of invoices raised by KPMG on the company and BSR & CO an unrelated party. Since the KPMG made arrangement for various facilities from the outside vendor, therefore, the cost regarding use of those facilities were also recovered from each sub-licensees as its share of cost. The assessee has also provided the comparative cost incurred by the KPMG and the allocation made to the assessee company as under: Nature of items Cost incurred by KPMG (in Lakhs) Cost allocated to KASPL (in Lakhs) Rent 5,985.73 627.70 Municipal Taxes 3.52 0.37 Office Maintenance 910.73 89.22 Security Charges 125.20 13.02 Lease finance charges 848.48 88.20 Depreciation 2,286.36 237.68 Insurance-General 25.57 2.66 Total 10,185.59 1058.85 4. The assessee also submitted that the amount has been recovered on cost to cost basis and on the same basis as has been charged to other sub-licensees whose relationship with KPMG was not covere....
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....p submitted by the assessee has been reproduced at page no. 8, 9, 10 & 11 of the order of assessing officer. However, for the same reason as discussed (supra) in this order, the AO had not agreed with the submission of the assessee and stated that it is not ascertainable whether the payment made by the assessee company to KMG was excessive or not within the meaning of provisions of section 40A(2)(b) of the Act. Therefore, for the reason as referred above, the AO has disallowed 10% of the professional fees of Rs. 18,48,51,932/- (Rs. 33,48,51,932/- + 15,00,00,000/-) which comes to Rs. 18,48,51,932/-. 8. The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee reiterating the fact stated by the assessing officer. 9. During the course of appellate proceedings before us, the ld. Counsel submitted that during the course of assessment proceedings, the assessee has provided the complete details cost of support services availed by the assessee company from the KPMG along with basis of recovery as per area occupied and headcount and also submitted the relevant detail of common expenses incurred under the different heads along with allocat....
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....ate Limited, ("the assessee"/"the Company"/"KASPL") is a sub-licensee of KPMG. Mumbai, Gurgaon, Delhi, Bangalore, Chennai, Hyderabad, Pune, Kolkata, Kochi and Chandigarh. KASPL staffs operate from offices located at Mumbai, Gurgaon, Bangalore, Hyderabad, Pune and Kolkata only. The sub-licensees of KPMG International in order to take advantage of economies of scale, operate from the same premises and use the entire infrastructure i.e. technology, communications, supplies, support personnel, etc. This also becomes convenient as all the entities as members/sub-licensees are required to follow certain methodologies in the conduct of their profession/business. KPMG incurs the costs on its behalf and on behalf of sub licensees and recover from sub licensees their share or cost. The reimbursements of costs are termed as support service charges in the books of sub licensees. The facilities broadly consist of the following items Particulars Amount in crs. (Rs. ) Refer note Basis of recovery Occupancy costs and use of assets 10.59 1 Area occupied Electricity & Water 0.59 2 Area occupied Communication Technology and Knowledge m....
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....thin the meaning of 40A(2)(b). Note-2 Justification of incurrence of Electricity and water expenses of Rs. 0.59 Crores/- Nature of items Cost incurred by KPMG Cost allocated to KASPL Electricity and water 570.68 Lakhs 59.33 Lakhs As explained above, KPMG incurs the cost on electricity charges and recover the appropriate proportion of the same from all other co-occupants based on the area occupied by them. Rs. 59.33 Lakhs paid by KASPL represent the assessee share on the total cost incurred by KPMG. The amount have been recovered on cost to cost basis and on the same basis as has been charged to other sub-licences whose relationship with KPMG is not covered within the meaning of 40A(2)(b) Note-3 Justification of incurrence of Communication & Technology expenses of Rs. 1.11 Crores/- The amount paid by KASPL towards the reimbursement of communication expense is on account of the following services received by the company: Nature of items Cost incurred by KPMG (in Lakhs) Cost allocated to KASPL (in Lakhs) Annual Maintenance Contracts 113.70 11.82 Facilities Management 118.85 12.35 Comp....
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....ng a professional firm, the deliverable are in the form of email followed by the printing material duly signed and verified by the authorized signatory. In the whole process there is a substantial consumption of the printing materials. As per the agreement the printing material and other stationeries are provided by KPMG and an appropriate share, computed on the pre-determined basis as per the agreement is allocated to all the sub licensees and consequently to the assessee also. Similarly KPMG host the canteen facilities wherein the concessional food is offered to the staffs of the assessee. The appropriate percentage of these expenses are allocated among all the sublicenses based on their respective headcounts. From the facts as aforesaid, it can be concluded that the amount paid by KASPL to KPMG is driven by the prudent business sense and after careful consideration of the cost and benefit associated therewith. By no stretch of imagination, it can be said that the expenses are excessive or unreasonable having regard to the fair market value of the goods, services or facilities availed by the assessee company. 12. We find that assessing officer has ne....
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....easonable having regard to the market value of services for which the payment was made and instead of different companies incurring such expenditure the same would be commonly undertaken by the company and different sister concern would undertake a portion of such expenditure. The Hon'ble High Court of Bombay in the case of the CIT vs Indo Saudi Services (Travel) Pvt. Ltd. (2008) 219 CTR 562 (Bombay) that regarding excessive of unreasonable payment u/s 40A(2) of the Act held that Revenue was not in a position to point out how assessee evaded payment of tax by alleged payment of higher commission to its sister concern since sister concern was also paying tax at higher rate disallowance of alleged commission paid to sister concern was not justified. 15. Looking to the above facts and findings and material on record, the assessing officer has not pointed out any specific defect in the submission of the assessee and also both the assessee and its associate enterprises are assessed at same rate of tax at 30%, therefore, we consider that decision of ld. CIT(A) in sustaining the addition made on estimated basis of 10% of expenses u/s 40A(2)(b) are not justified. Accordingly, all the....
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....lled revenue as on 31.03.2012. The assessee was asked to furnish project wise, client wise mile stones achieved and how the revenue was offered and also asked rational for unbilled revenue. The assessee explained that it followed a rational method of accounting by computing number of working hours and apportioning the sales according to the total value of contract. The billing was done on milestone basis and as and when the milestone was achieved the bill was raised. The assessee has also explained that it has reversed the unbilled revenue to the amount of Rs. 1,88,00,034/- without raising any invoices on client. However, the AO has not agreed with the submission of the assessee and stated that assessee has failed to substantiate the basis of reversing the unbilled Revenue. The AO further stated that assessee has not produced any communication or correspondence with its clients to indicate that they will not pay the amounts. The assessing officer was of the view that assessee had no basis to reduce the income for the year by reversing sales without any documentary evidence, therefore, the aforesaid unbilled reversed amount of Rs. 1,88,00,034/- was added to the total income of the a....
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....case where revenue can be written off without it being accounted and offered to tax in earlier year and it is similar to write off of bad debt written off. We have also perused the Schedule 19 of the Audited Financial Statement for the year ended 31.03.2012 with opening unbilled revenue as on 01.04.2011 and closing unbilled revenue as on 31.03.2012 as reproduced below: 23. We have also perused the copies of various documents filed before the AO by the assessee on 19.12.2019 under the following categories: Sr. No. Category Description 1 Party Wise List List of Clients with following financial year wise: 1) Opening WIP 2) Billing during the year 3) Revenue during the year 4) Closing WIP 2 Category A List of clients whose income accrued and billed within the same year - 3 Category B (i) Advance received from clients in one year accrued and offered for tax in subsequent years 4 Category B (ii) Advance billed to client in one year reversed in subsequent years 6 Category C (i) Amount billed and offered for tax in previous year got reversed in subsequent years due to cancellation of invoices as same was accepted by clien....