VIJAY ASSOCIATES WADHWA CONSTRUCTION P.LTD,MUMBAI vs. DCIT 13(3)(2), MUMBAI

ITA.No.1125/Mum/2016 Vijay Associates Wadhwa Construction Pvt.Ltd. Assessment Year-2012-13 1. (a) The Commissioner of Income Tax (Appeals)-21 erred in confirming the disallowance of recruitment fees of Rs.36,99,587/- paid to Icon Solutions FZE by holding that the same were not allowable. The Appellant submits that recruitment fees of RS.36,99,587/- paid to Icon Solutions FZE are incurred wholly and exclusively for the purpose of the business and the same shall be allowed as deductible revenue expense. (b) The CIT(A) erred in not accepting the Appellants contention that no TDS was deductible on payment of Rs.36,99,587/- made to M/s Icon Solution FZE and hence no disallowance is attracted u/s 40(a)(ia) of the I.T. Act r.w.s. 195 and section 9 of the I.T.Act. The Appellant submits that under the facts and circumstances of the case of the Appellant, payments to Icon Solutions FZE does not attract TDS under the provisions of the I.T. Act and hence no disallowance is attracted u/s 40(a)(ia) of the Act.

The documents on record reveal that the assessee has since been amalgamated with Wadhwagroup Holdings Pvt. Ltd under a scheme of amalgamation u/s. 391 to 394 of the Companies Act,1956 as per order dated 24/08/2012 passed by Hon’ble Bombay High Court. The same is noted and taken on record.

During assessment proceedings, it was noted that the assessee claimed expenditure of Rs.36.99 Lacs on account of legal & professional fees stated to be paid to an entity namely M/s Icon Solutions FZE, Sharjah as recruitment fees. No tax at source was deducted against the same which, in the opinion of Ld. AO, called for disallowance u/s 40(a)(i). The assessee defended the same by submitting that the aforesaid ITA.No.1125/Mum/2016 Vijay Associates Wadhwa Construction Pvt.Ltd. Assessment Year-2012-13 payment was taxable in UAE as per Double Taxation Avoidance Treaty [DTAA] and therefore, no TDS was required against the same in terms of the treaty. However, not convinced, Ld. AO added the same to the income of the assessee by way of disallowance u/s 40(a)(i). The same upon confirmation by Ld. CIT(A),vide impugned order dated 18/12/2015, is being agitated before us.

The Ld. Authorized Representative for Assessee [AR], Shri. Jitendra Jain, at the outset, drew our attention to the fact that similar issue arose in the case of assessee’s sister concern before this Tribunal vide & 32/Mum/2016 dated 13/06/2018 wherein the matter has been remitted back to the file of Ld. AO with certain directions. A copy of the order has been placed on record. Per Contra, Ld. Departmental Representative [DR], Rajeev K. Gabgrotra, submitted that the complete onus to substantiate the receipt of services as well as compliance of TDS provisions lie on the assessee.

We have given thoughtful consideration to the matter. Upon perusal of cited order of the Tribunal in the case of assessee’s associated concern namely Raghuleela Leasing & Real Estate Private Limited, we find that similar issue has already been dealt with by co- ordinate bench of this Tribunal and the matter has been set aside to lower authorities by observing as under:- 4. We have considered rival submissions and perused materials on record. As could be seen from the facts on record, the Assessing Officer has disallowed the payment of recruitment fees amounting to Rs.31,16,644/- paid to Icon Solutions FZE on two grounds. Firstly, because the assessee failed to establish that such expenditure was for the purpose of assessee’s business and the assessee, in fact, has received services from Icon Solutions FZE necessitating such payment. Secondly, since, the assessee has not deducted tax under section 195 of the Act while making such payment, it has to be disallowed under section 40(a)(i) of the Act.