Applied Material India Private Limited Vs ACIT (ITAT Bangalore)
Conclusion: In present facts of the case, the Hon’ble Tribunal remanded the matter to AO to reconsider disallowance made under Section 40(a)(i) pertaining to whether the assessee has made TDS under section 192 with respect the salary paid to the seconded employees in its entirety. If assessee is able to prove that it had made TDS with regard to the salary payment of the seconded employees in its entirety, the AO shall not make any disallowance under section 40(a)(i) of the Act for non-deduction of tax under section 195 of the Act.
Facts: This appeal at the instance of the assessee was directed against the Final Assessment Order dated 27.01.2022, passed under section 143(3) r.w.s. 144(13) r.w.s. 144B of the Income Tax Act, 1961. The relevant AY is 2017-18. Assessee is a private limited company engaged in the business of providing software development and support services to its holding company. For the Assessment Year 2017-18, the return of income was filed on 30.11.2017 declaring a total income of Rs.82,01,04,400/-.
In present facts of the case, the ground relates to disallowance made by the AO under section 40(a)(i) of the Act. The brief facts in relation to the above ground are that the assessee had seconded employees from its AE viz., AMAT Material Inc., (seconder). It is claimed that seconded employee was working for the assessee and for facilitating its business operation in India. The terms and conditions as per the secondment / deputation agreement dated 10.03.2009 is placed on record submitted by assessee. The AO held that there is no employer employee relationship between the assessee and the employee seconded by AMAT Material Inc., and the seconded employees who were rendering services in India was on behalf of the assessee’s AE and the payment made by the assessee to its AE was not reimbursement of salary cost but Fees for Technical Services (FTS) as per explanation 2 to section 9(1)(vii) of the Act. Therefore, it was concluded by the AO, since the assessee had not deducted tax at source under section 195 of the Act, the payments made to the AE amounting to Rs.9,67,88,064/- is disallowable under section 40(a)(i) of the Act. The CIT(A) concurred with the view of the AO as regards the disallowance made under section 40(a)(i) of the Act.
Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR submitted that the issue in question is squarely covered by the various judgments of the Karnataka High Court as well as the orders of the Tribunal.
The Hon’ble Tribunal after taking into consideration, submissions of both sides observed that on identical facts, the Bangalore Bench of the Tribunal in the case of M/s. Scania CV AB Vs. DCIT in IT(IT)A No.3432/Bang/2018, order dated 06.07.2022, restored the matter to the files of the AO to consider the issue afresh in light of the subsequent judgment of the Hon’ble High Court in the case of Flipkart Internet Pvt. Ltd., Vs. DCIT (IT) in W.P. No.3619/2021 (T-IT), order dated 24.06.2022.
In view of the Order of the Tribunal, the matter was remanded to the files of the AO. The AO was directed to consider the issue afresh by taking into account the principles laid down by the Hon’ble jurisdictional High Court in the case of Flipkart Internet Pvt. Ltd., Vs. DCIT (supra). The AO was further directed to examine whether the assessee has deducted tax at source under section 192 of the Act with respect the salary paid to the seconded employees in its entirety. If assessee is able to prove that it had deducted tax at source with regard to the salary payment of the seconded employees in its entirety, the AO shall not make any disallowance under section 40(a)(i) of the Act for non-deduction of tax under section 195 of the Act.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the Final Assessment Order dated 27.01.2022, passed under section 143(3) r.w.s. 144(13) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.
2. The brief facts of the case are as follows:
Assessee is a private limited company engaged in the business of providing software development and support services to its holding company. For the Assessment Year 2017-18, the return of income was filed on 30.11.2017 declaring a total income of Rs.82,01,04,400/-. The assessment was selected for scrutiny and notice under section 143(2) of the Act, dated 10.08.2018, was duly served on the assessee. During the course of assessment proceedings, the matter was referred to the TPO to determine the ALP of the international transaction undertaken by the assessee with its AEs. The TPO passed an order under section 92CA(3) of the Act on 26.01.2021 proposing a TP adjustment of Rs.87,65,49,142/-. Pursuant to the TPO’s order, the draft Assessment Order was passed under section 143(3) r.w.s. 144C of the Act, on 3 1.03.2021 assessing a total income at Rs.179,34,41,606/-.
3. Assessee filed objections before the DRP on 27.04.202 1. The DRP passed an order giving its directions on 29.12.202 1. Pursuant to the DRP’s directions, the impugned Final Assessment Order was passed on 27.01.2022 after making the following additions / disallowances :
