Income Tax Appellate Tribunal - Mumbai
Kpmg India P. Ltd , vs Department Of Income Tax on 30 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "L", MUMBAI
BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER
AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER
ITA No. 8823 /Mum/2004
(Assessment year : 1999-2000)
KPMG India Private Limited Vs. Assistant Commissioner of
Lodha Excelus, 1st Floor, Income Tax, (OSD),
Apollo Mills Compound, Circle 6(3)
N.M. Joshi Marg, Mumbai
Mahalaxmi,
Mumbai 400 011
PAN No. AAACK 2138 A
(Appellant) (Respondent)
ITA No. 8786/Mum/2004
(Assessment year : 1999-2000)
Dy. Commissioner of KPMG India Private Limited
Income Tax, Lodha Excelus, 1st Floor,
Circle 6(3) Apollo Mills Compound,
Mumbai N.M. Joshi Marg,
Mahalaxmi,
Mumbai 400 011
(Appellant) (Respondent)
Assessee by : Mr. Sunil Lala
Revenue by : Ms. Neeraja Pradhan
Date of Hearing: 30.10.2012
Date of Pronouncement: 05.12.2012
ORDER
PER P.M. JAGTAP, AM:
This two appeals, one filed by the assessee being ITA No. 8823/Mum/2004 and the other filed by the Revenue being ITA No. 8786/Mum/2004, are cross appeals which are directed against the order of Ld.CIT(A) - 30, Mumbai dated 27.09.2004.
2ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited
2. Ground No. 1 of the Revenue's appeal as well as that of the appeal of the assessee involve common issue relating to disallowance of Rs.41,27,104 made by the AO u/s 40(1)(i) of the Act, on account of amount paid to various non-residents towards professional fees and reimbursement of expenses which has been sustained by the Ld.CIT(A) to the extent of Rs.43,546.
3. During the year under consideration, the following payments were made by the assessee to the non-residents towards professional charges for services rendered and reimbursement of expenses.
a) KPMG Fides, Zurich Rs.17,16,508
-Professional fees and reimbursement of
expenses
b) KPMG UK, Rs.11,07,171
-Professional fees and reimbursement of
expenses
c) KPMG, LLP, USA Rs.2,55,794
-Professional fees
d) KPMG Management Consulting, N.V. The Rs.3,08,417
Netherlands
-Professional fees and reimbursement of
expenses
e) Peat Marwick Suthee Ltd. Thailand Rs.72,068
-Reimbursement of expenses
f) KPMG International, The Netherlands Rs.6,23,600
-Reimbursement of expenses
g) KPMG Peat Marwick Management Rs.43,546
Consultants Pte. Ltd., Singapore
-reimbursement of expenses
4. According to the AO, the above payments made by the assessee to the non-residents, were in the nature of royalties u/s 9(1)(vi) of the Act, as well as under the relevant articles dealing with the royalties under the respective treaties taxable in India and since the assessee had failed to deduct tax from the said amounts, the same were liable to be disallowed u/s 40(a)(i). Accordingly, disallowance of Rs.41,27,104 was made by the AO u/s 40(a)(i).
3ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited
5. The disallowance made by the AO was challenged by the assessee in an appeal filed before the Ld.CIT(A) and after considering the submission made on behalf of assessee as well as the material on record, the Ld.CIT(A) recorded his findings in respect of amount paid to each non-resident parties in its impugned order as under :
"Payment made to KPMG Fides, Zurich The appellant has placed on record copy of the invoice, note on services and a declaration dated 03 September, 2004 given by KPMG fides.
The appellant has stated that the payment was made towards fees for advisory services amounting to Swiss francs 42,832.50 and reimbursement of expenses in the nature of travel expenses (airway BIL etc.) of Swiss francs 12,076.50 as per invoice in the field of worldwide funds management and in the methodology 'Prometris' for developing strategies. Two personnel from KPMG Fides were also involved for workshops with the Board of Directors of Unit Trust of India. KPMG Fides is a partnership firm.
The scope of engagement was for rendering professional services. KPMG Fides does not have a fixed base/ permanent establishment in India. Pursuant to the provisions of Article 7 of the DTAA between India and the Swiss Confederation, the income from the services is not taxable in India. Accordingly there was no requirement of tax deduction at source from the remittance. Payments made to KPMG UK The appellant has placed on record three invoices raised by KPMG UK, correspondence between the appellant and KPMG UK and a declaration dated 03 September 2004 given by KPMG UK.
The payments have been made for the services (UKP 9,500) and also towards reimbursement of expenses of UKP 6,760.40 in the nature of hotels, meals, taxis, etc. as per invoice. KPMG UK is a partnership registered in the United Kingdom.
The scope of engagement was for rendering professional services for ICICI assignment and Bharat Forge assignment. KPMG UK did not have a fixed base/ permanent establishment in India. Pursuant to the provisions of Article 7 of the Indo-U DTAA, the income from the service is not taxable in India. Accordingly there was no requirement of tax deduction at source from the remittance.4
ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited The appellant has argued that reimbursement of expenses is not chargeable to tax. The appellant has relied on the following decisions in support of its claim.
a) Rolls Royce India Ltd. vs ITO - [1988] 25 ITD 136 (TM).
b) Assistant Commissioner of Income Tax vs Hindustan Marketing and Advertising Co, Ltd. [1994] 49 TTJ96.
c) CIT West Bengal vs Dunpol Rubber Co. Ltd. [1983] 142 ITR 493 (Cal)
d) Raymond Ltd. vs Deputy Commissioner of Income tax [2003] 86 ITD 791.
Accordingly there was no requirement of tax deduction at source from the remittance.
Payments made to KPMG LLP, UAS The appellant has placed on record two invoices raised by KPMG LLP, USA, note on services rendered and two declarations dated 12 March 1999 and 14 July 1999 given by KPMG LLP, USA.
The services were rendered outside India. KPMG LLP, USA is a firm of individuals.
The scope of engagement was rendering professional services in connection with IPO of HCL Technologies Ltd. Pursuant to the provisions of Article 15 of the Indo-US DTAA, the income from the services is not taxable in India. Accordingly there was no requirement of tax deduction at source from the remittance.
Payments made to KPMG Management Consultants N.V., Netherlands The appellant has placed on record the invoice raised by KPMG Netherlands and a note on services.
The payments have been made for the services (USD 4,000) and also towards reimbursement of expenses in the nature if hotel costs and ticket costs of USD 3,294.63 as per invoice. KPMG Netherlands is a company registered in the Netherlands.
The scope of engagement was for rendering professional services in connection with MOC training. KPMG Netherlands did not have a fixed base/ permanent establishment in India. Pursuant to the provisions of Article 7 of the Indo-Netherlands DTAA, the income from the services is not taxable in India. Accordingly there was no requirement of tax deduction at source from the remittance.
The appellant has argued that reimbursement of expenses is not chargeable to tax. In support of this argument it has relied on the decisions mentioned under the head 'payments made to KPMG UK'. Accordingly there was no requirement of tax deduction at source from the remittance.
5ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited Payments made to Peat Marwick Suthee Ltd., Thailand The appellant has placed on record the invoice raised by Peat Marwick Suthee Ltd. Thailand and correspondence dated 21 May 1998 and 19 May 1998.
The appellant has agreed that the payment was towards reimbursement of cost of report on sanitary were industry in Thailand purchased by Peat Marwrick Suthee Ltd. From Industrial Management Co. Ltd., Thailand and related courier and administration cost.
The appellant has argued that reimbursement of expenses is not chargeable to tax. In support of this argument it has relied on the decisions mentioned under the head 'payments made to KPMG UK.' Accordingly there was no requirement of tax deduction at source from the remittance.
Payment made to KPMG International, The Netherlands.
The appellant has placed on record the invoiced raised by KPMG International. The Payment made by the appellant is towards reimbursement of expenses.
The appellant has argued that reimbursement of expenses in the nature of cash calls is not chargeable to tax. In support of this argument it has relied on the decisions mentioned under the head 'payments made to KPMG UK'.
The appellant has also argued that without prejudice to the above it has recovered the said amount from KPMG, a partnership firm registered in India in the same year and has credited the amount to Professional Income. The appellant has placed on record a confirmation from KPMG that it has made the said payment to the appellant.
The appellant has argued that this amount has appeared both on the debit and credit side of its Profit and Loss Account and hence, no deduction has been claimed by it. Consequently the question of deduction of tax at source and disallowance u/s 40(a)(i) of the Act does not arise.
Payment made to KPMG Peat Marwick Management Consultants Pte. Ltd., Singapore.
The appellant has argued that this payment is towards miscellaneous expenses and is not in the nature of income.
The appellant has not placed on record evidence in support of its claim. In the absence of adequate evidence, the disallowance in upheld.
To sum up, the following payments totalling to Rs.40,83,558 • Swiss francs 54,909.20 (Rs.17,16,508) made to KPMG Fides. Zurich;
6ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited • UKP 16,260.40 (Rs.11,07,171) made to KPMG UK; • USD 6,050 (Rs.2,55,794) made to KPMG LLP, USA; • USD 7,294.63 (Rs.3,08,417) made to KPMG Management Consultants N.V., The Netherlands;
• Baht 62,700 (Rs.72,068) made to Peat Marwick Suthee Ltd., Thailand and • USD 15,589 (Rs.6,23,600) made to KPMG International, The Netherlands are not in the nature of 'royalties' either under Section 9(1)(vi) of the Act or under the respective DTAAs. There was no obligation to deduct tax u/s 195 of the Act. Therefore, the subject amounts are not disallowable u/s 40(a)(i) of the Act. The balance amount of Rs.43,546 being payment to Payment made to KPMG Peat Marwick Management Consultants Pte. Ltd., Singapore is disallowable u/s 40(a)(i) of the Act"
6. On the basis of above findings, the Ld.CIT(A) held that the amounts paid by the assessee to the non-residents were not in the nature of royalties either u/s 9(1)(vi)of the Act, or even under the respective DTAAs and there was no obligation on the assessee to deduct tax from the said amount. He however, held that the claim of the assessee of having paid the sum of Rs.47,546 to KPMG Peat Marwick Management Consultants Pte. Ltd., Singapore, towards the reimbursement of expenses was not supported by any evidence. Accordingly, the disallowance of Rs.41,27,104 made by the AO u/s 40(a)(i) was sustained by him only to the extent of Rs.43,546. Aggrieved by the same, the assessee and Revenue both have raised this issue in their respective appeals.
7. We have heard argument of both the sides and also perused the relevant material on record. The Ld. Representative of both the sides have agreed that this issue is squarely covered in favor of the assessee by the decision of the Tribunal in assessee's own case for the earlier Assessment Year 2001-02 rendered vide its order dated 8th June, 2012. A copy of the said order is also placed on record before us and perusal of the same shows that a similar issue has been decided by the Tribunal in favor of the assessee for the following reasons given in Para 18 & 18.1 of its order.
7ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited "18. We have carefully considered the rival submissions and also gone through the findings given by the Assessing Officer as well as the CIT(A). The relevant facts are that the assessee company was engaged as a consultant by Essar Oil Limited to provide consultancy services in connection with sale of its energy business. Such a sale was expected to require application of high level office skills besides technical and industry knowledge. For rendering such consultancy a significant number of such overseas companies are based in USA. The assessee engaged the services of KPMG Dallas, which is a firm of individual and resident of USA, which had the skill and technical knowledge relating to energy division based industry and technical parameters in giving such consultations and conduct negotiations with the potential parties. It was in lieu of this, that a professional fee of USD 46,248 which in terms of INR come to `.20,89,906/-, was paid. The second payment was made to KPMG consulting LP Canada for rendering professional services for the Essar Oil Limited for retail oil marketing and other related services. The payment towards fee was made at USD 30,678/- which in terms of INR is `.13,37,229/-, which also included reimbursement of expenses in the nature of transportation, lodging, meals and other expenses. The Assessing Officer has given categorically finding that so far as the Article 15 of DTAA is concerned, the same does not apply to KPMG USA as it does not have any PE or business based in India and the services were not rendered for a period exceeding 90 days within the period of 12 months. His only case is that the professional fees paid to KPMG USA are in the nature of royalties within the meanings of 'explanation' to section 9(1)(vi) and is taxable under Article 12 of Indo-US DTAA. The royalties and fees for included services is taxable as per Article 12 in clause 3, reads as under :-
"3. The term "royalties" as used in this Article means :
(a) payments of any kind received as a consideration for the use of or the right to use any copyright or a literary, artistic or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information 8 ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity use or disposition thereof: and"
18.1 Looking to the nature of professional services rendered to the KPMG USA, it is evident that it does not fall in any of the terms of definition given for Royalty under Article 12 of Indo US DTAA. It was purely a professional service for consultancy which were rendered outside India and nor for supply of scientific, technical, industrial or commercial knowledge or information. Thus, nature of payment do not fall within the meaning of Article 12 and, therefore, there was no liability to deduct TDS and consequently disallowance made under section 49(ia) is uncalled for. Similarly, in the case of payment made to KPMG, Canada were also purely for professional services and reimbursement of expenses, which in any manner does not fall under Article 12. Thus, on such payment also there was no liability to deduct TDS and consequently Section 40(ia) will not be applicable. The finding of the CIT(A) is, thus, upheld. Accordingly, ground No.1 as raised by the department is dismissed."
8. As the issue involved in the year under consideration as well as the material facts relevant thereto are similar to that of assessment year 2001-02, we respectively follow the decision of Coordinate Bench of the Tribunal rendered in assessee's own case for Assessment Year 2001-02 and, uphold the impugned order of the CIT(A) deleting the disallowance made by AO u/s 40(a)(i) to the extent of Rs.40,83,558.
9. As regards the remaining disallowance of Rs.43,546 in respect of payment made to KPMG Peat Marwick Management Consultants Pte. Ltd., Singapore, it is observed that the same was confirmed by the Ld.CIT(A) on the ground that the claim of the assessee of having made the said payments towards reimbursement of expenses was not supported by any evidence. Since nothing has been brought on record on behalf of assessee to rebut or controvert this finding of the Ld.CIT(A), we find no justifiable reasons to interfere with the impugned 9 ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited order of the Ld.CIT(A) on this issue. Ground No. 1 of the assessee's appeal as well as that of the Revenue's appeal is accordingly dismissed.
10. Ground No.2 of the Revenue's appeal and Ground No.4 of the assessee's appeal involve a common issue relating to disallowances of Rs.7,48,267 made by the AO on account of repairs and maintenance expenses which has been sustained by the Ld.CIT(A) to the extent of Rs.75,000/-
11. During the year under consideration, the assessee had claimed Repairs and Maintenance Expenses of Rs.7,48,267, which were stated to be paid to the office attendants for their services utilized from time to time to clean and maintain office premises at Mumbai, Delhi, Kolkata, Bangalore and Chennai. The said expenses were disallowed by the AO citing difficulty in verification of authenticity of the said expenses. On appeal, the Ld.CIT(A) held that for the difficulty in verification, the entire expenses claimed to be incurred on Repairs and Maintenance could not be disallowed. According to him, a disallowance to the extent of Rs.75,000, being about 10% of the total expenses would be fair and reasonable considering the nature of the expenses incurred. Accordingly, he sustained disallowance made by the AO on this issue to the extent of Rs.75,000.
12. We have heard the arguments of both the sides on this issue and also perused relevant material facts on record. Keeping in view the nature of the expenses claim to be incurred on Repairs and Maintenance and explanation offered in respect of the same, we find ourselves in agreement with the Ld.CIT(A) that the entire expenses claimed by the assessee could not be disallowed on account of difficulty in verification and it would be fair and reasonable to make the disallowance at around 10% for want of verification. We, therefore, 10 ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited uphold the impugned order of the Ld.CIT(A) on this issue and dismiss Ground No. 2 of the Revenue's appeal and Ground No. 4 of the assessee's appeal.
13. Ground No. 3 of the Revenue's appeal and Ground No. 5 of the assessee's appeal involve a common issue relating to disallowance of Rs.1,02,28,800 made by the AO u/s 40A(2)(b) on account of payments made by the assessee to KPMG which has been sustained by the Ld.CIT(A) to the extent of Rs.24,02,400.
14. During the year under consideration, the assessee had made a total payment of Rs.5,11,44,000 to KPMG on account of reimbursement of costs amounting to Rs.2,71,20,000 and for rendering of services amounting to Rs.2,40,24,000. During the course of assessment proceedings, the assessee could not furnish the particulars about the exact nature of service rendered by KPMG and the amount of charges collected by it from the clients corresponding to the said services so as to enable the AO to determine the reasonableness of the amount paid to KPMG who was a related party. The AO therefore, invoked the provisions of section 40A(2)(b) and made a disallowance of Rs.1,02,28,800 being 20% of the total amount paid by the assessee to KPMG.
15. The matter was carried before the Ld.CIT(A) and documentary evidence showing basis of levying the charges of KPMG as well as confirmation from KPMG that the same rates were charged to non- related party was filed by the assessee before the Ld.CIT(A). Taking into consideration the said documents filed by the assessee as well as other submissions made on this issue, the Ld.CIT(A) held that the provisions of section 40A(2)(b) could not be applied to the amount of reimbursement of cost of Rs.2,71,20,000. As regards the amount of Rs.2,40,24,000 paid by the assessee to KPMG for services rendered, 11 ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited the Ld.CIT(A) held relying on his appellate order for Assessment Year 2001-02 that the same only to the extent of 10% could be considered as unreasonable and excessive for the purposes of disallowance u/s 40A(2)(b). Accordingly, he directed the AO to restrict disallowance of 20% u/s 40A(2)(b) of Rs.2,40,24,000 and allowed part relief to the assessee on this issue.
16. We have considered the rival issue and also perused the material on record. It is observed that a similar issue has been set aside by the Tribunal to the AO in assessee's own case for Assessment Year 2001- 02 and 2003-04 vide its order on 8th June, 2012 (supra) for the following reasons given in Para No. 11 of its order.
11. We have carefully considered the submission of the rival parties and the findings given by the CIT(A) as well the Assessing Officer. Section 40A (2)(b) provides that :-
" (2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the [Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction."
From the plain reading of above, it is amply clear that the payments which are made to persons specified in sub-clause b of sub section 2 of Section 40A, if in the opinion of Assessing Officer, is excessive and unreasonable;
firstly, having regard to the fair market value of the goods, services or facilities for which the payment is made; secondly, looking to the legitimate needs of the business or profession of the assessee;
or thirdly, the benefit derived by or accruing to him therefrom;
then such an expenditure as is considered by the Assessing Officer to be excessive or unreasonable, shall be disallowed. In a given case, the question whether the expenditure is excessive or 12 ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited unreasonable has to be examined keeping in mind the goods, services or facilities provided by the relative persons for which payment is made. In such a process, the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to the assessee from such services has also to be kept in mind. After applying this test, if it is found that the expenditure is excessive or unreasonable, then excess or unreasonable portion of the expenditure is to be disallowed. The initial onus to prove that the payment made to specified persons is excessive or unreasonable rests upon the assessee, who has to show that such payments are in consonance with the market rate or the payment made to any relative parties are for legitimate needs of the business or profession. It is then the Assessing Officer has to prove from the material placed on record that such a payment on which expenditure is incurred is excessive or unreasonable and is not for the legitimate needs of the business or profession, or any kind of benefit is derived to the assessee. Here in this case, the Assessing Officer has neither enquired nor brought anything on record to show that the payment is excessive as compared to unrelated parties or it was not for the legitimate needs of the business or profession of the assessee. The same does not seem to have been doubted. It is also not borne out from the finding of the Assessing Officer as well as the CIT(A), as to what was the basis for disallowance of 10%, whether there was any some kind of material or some comparable payments to other parties. In absence of such material on record, we are unable to sustain the view taken by the Assessing Officer as well as the CIT(A) that disallowance of 10% should be made on ad hoc basis. Under these facts and circumstances of the case, we find that it would be proper that matter is restored back to the Assessing Officer, who will examine whether the similar payments to other unrelated parties have been made in the same proportion or on similar rates or whether there was any legitimate need for its business. Thus, this matter is restored back to the file of the Assessing Officer for verification from the end of the Assessing Officer to examine similar nature of payments made to unrelated parties are in consonance or are on similar rate and then decide this matter. If it is found that payments made to related parties are in consonance with the payments made to unrelated parties or it is for legitimate needs of the business or profession, no addition or disallowance should be made. In the result, this ground is allowed for statistical purpose."
17. As the issue involved in the year under consideration as well as all the material facts relevant there to are similar to that of Assessment Years 2001-02 to 2003-04, we respectively follow the order of the 13 ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited Coordinate Bench in assessee's case for the said years and restore this issue to the file of AO for deciding the same afresh as per the same direction as given in Assessment Years 2001-02 to 2003-04.
18. Ground No. 3 of the Revenue's appeal and Ground No. 5 of the assessee's appeal are accordingly allowed for statistical purpose.
19. The issue raised in Ground No.2 of the assessee's appeal relates to the disallowance of Rs.34,84,686 made by the AO and confirmed by the Ld.CIT(A) on account of Bad-Debts.
20. In the books of account maintained for the year under consideration, the assessee had written off a sum of Rs.37,84,686 on account of Bad-Debts in respect of 48 parties, Complete list of the said parties along with invoice no. and other details was furnished by the assessee. According to the AO, the assessee however, could not establish that the said debts have actually become bad in the year under consideration which, accordingly to him, was a basic condition for claiming deduction u/s 36(1)(vii). He therefore, disallowed the claim of the assessee for Bad-Debts written off, which was confirmed by the Ld.CIT(A) on the ground that the assessee could not bring on record any supporting evidence to show that its claim for Bad-Debts was bonafide.
21. After considering the rival submissions and perusing the relevant material on record, it is observed that a similar issue has been decided by the Tribunal in assessee's own case for Assessment Years 2001-02 to 2002-03 vide its common order dated 8th June, 2012 (supra) wherein, it was held relying on the decision of Hon'ble Supreme Court in the case of TRF Ltd. 323 ITR 397 that after the amendment made in section 36(1)(vii) with effect from 1st April, 1989, it is not necessary for the assessee to establish that the concerned debts in fact 14 ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited have become irrecoverable and it is sufficient if the said debts are written off as irrecoverable in the account of assessee. Respectfully following the said judicial pronouncement, we delete the disallowance made by the AO and confirmed the Ld.CIT(A) on account of Bad-Debts and allow ground No.2 of the assessee's appeal.
22. The issue involved in Ground No. 3 of the assessee's appeal relates to the disallowance of Rs.13,750 made by the AO and confirmed by the Ld.CIT(A) on account of club membership fees.
23. During the year under consideration, a sum of Rs.13,750 paid by the assessee company to Oberoi Grand, Kolkata for the membership of Shri Naresh Malhotra, its employee was claim as expenditure. According to the AO, the said expenditure was the personal expenditure of Shri Naresh Malhotra and it was not allowable as deduction. He therefore, disallowed the same which was confirmed by the Ld.CIT(A).
24. At the time of hearing before us, the Ld. Counsel for the assessee has filed the copy of the judgment recently delivered by the Hon'ble Supreme Court on 12th September, 2012 in the case of CIT(A) Vs. United Glass Mgf. Co. Ltd (Civil Appeal No. 6447 to 2012) wherein the question raised before the Hon'ble Supreme Court was that whether club membership fees for employees incurred by the assessee is a business expenses liable to be deducted u/s 37 of the Act, and the same was answered by the Hon'ble Apex Court in favour of the assessee holding that it was pure business expenditure. Respectfully following the said decision of Hon'ble Apex Court on the similar issue, we delete the disallowance made by the AO and confirmed by the Ld.CIT(A) on account of club membership fees and allow Ground 3 of the assessee's appeal.
15ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited
25. In Ground No. 6 & 7, the assessee has challenged the action of the Ld.CIT(A) in not admitting additional ground filed to claim relief in respect of disallowance u/s 43B voluntarily made by the assessee on account of Provident Fund in respect of employer's and employees' contribution paid beyond the due date.
26. After considered rival submissions and perusing the relevant material on record, it is observed that a similar issue involved in assessee's own case for Assessment Year 2001-02 has been considered and decided by the Tribunal vide its order dated 8th June, 2012 (supra) in Para No. 12 & 13 as under :
"12. In grounds No.3 & 4, the assessee has challenged disallowance of Rs.1,12,404/- made under Section 43B in respect of the assessee's contribution to the Employees Provident Fund. The assessee has raised additional ground before the CIT(A) for allowing the payments of provident fund contribution by the employer on the ground that the same should be allowed in view of the second proviso to section 43B. The learned CIT(A) dismissed the additional ground as not admitted on the following reasons :-
(1) The appellant had suo motto made the disallowance as per the then provision of the second proviso to Section 43B and total income cannot be reduced below the returned income at this stage.
(2) The amendment omitting the second proviso to Section 43B was made by the Finance Act, 2003 w.e.f. 01-04-2004 i.e. after the appellant had filed its return of income. (3) The aforesaid decisions having been delivered recently do not apply to the concluded assessment because this does not give rise to the cause of action for raising the additional ground. The return of income filed after making payment of self assessment tax becomes a concluded assessment if the returned income is accepted u/s. 143(1) or u/s 143(3)."
13. Both the parties fairly agreed that this issue is covered by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd., reported in (2009) 319 ITR 306, wherein the Hon'ble Supreme Court concluded that the omission of second proviso to Section 43B and the amendment of first proviso by the Finance Act, 2003, bringing about uniformity in payment of tax duty, cess and fee on one hand and contribution to employees 16 ITA No. 8823 & 8786/Mum/2004 KPMG India Private Limited welfare funds on the other are curative in nature and thus, is effective retrospectively from 1st April, 1988 i.e. the date of insertion of proviso. It is also not disputed that payments have been made before the due date of filing of a return. Thus, the disallowance of Rs.1,12,404/- is deleted and the same is to be allowed as deduction under Section 43B. Thus, grounds No.3 & 4 are allowed."
27. As the issue involved in the year under consideration as well as all the material fact there to are similar to that of Assessment Year 2001-02, we respectfully follow the order of the coordinate Bench of the Tribunal in assessee's case for Assessment Year 2001-02 (supra) and allow Grounds No. 6 & 7 of the assessee's appeal.
28. In the result, the appeal of the Revenue is treated as partly allowed for statistical purpose and the appeal of the assessee is partly allowed.
Order pronounced in the open Court on this day of 05/12/2012.
Sd/- Sd/-
(VIJAY PAL RAO) (P.M. JAGTAP)
JUDICIAL MEMBER ACCOUTANT MEMBER
Mumbai, Date : 05/12/2012
Rasika*
Copy to:-
1. The Appellant.
2. The Respondent.
3. The CIT (A)- XXX, Mumbai.
4. The D.R. "L" Bench, Mumbai.
5. Copy to Guard File.
By Order
Asstt. Registrar
I.T.A.T., Mumbai