KPMG Advisory Services Private Limited Vs DCIT (ITAT Mumbai)
The Mumbai Bench of the Income Tax Appellate Tribunal allowed all appeals filed by KPMG Advisory Services Private Limited for AYs 2011-12, 2012-13, 2012-13, 2015-16 and 2018-19. The appeals involved two principal issues: estimated disallowances under Section 40A(2)(b) in respect of payments to an associate concern, and disallowance of reversal/write-off of opening unbilled revenue.
For AY 2011-12, the assessee challenged 10% disallowances made under Section 40A(2)(b) in relation to facility costs, professional indemnity insurance and professional fees paid to KPMG. The facility costs of Rs. 12,80,63,741 included occupancy costs, electricity and water, communication technology and knowledge management, consumables and other expenses. The assessee explained that KPMG incurred common costs for itself and its sub-licensees and recovered each entity’s share on predetermined bases such as area occupied and headcount. It also furnished comparative details showing costs incurred by KPMG and amounts allocated to KASPL.
The Assessing Officer nevertheless treated 10% of the facility costs as excessive and unreasonable. A similar 10% disallowance was made from professional indemnity insurance reimbursement of Rs. 91,81,397 and professional fees. The CIT(A) sustained the additions.
Before the Tribunal, the assessee contended that it had furnished complete details and supporting documents, including invoices and comparative allocation information. It also pointed out that both KPMG and the assessee were assessed to tax at the same rate of 30%. The Tribunal found that the Assessing Officer had neither identified further information required from the assessee nor brought material establishing that the allocations and reimbursements were excessive or unreasonable.
