The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that Tax Deducted at Source ( TDS ) has been duly deducted on the entire salary payments to expats and deposited into the government, resulting in the deletion of the Rs. 1.83 crore addition.
The Assessee Ayesa Ingenieria Y Arquitectura Company was registered under the laws of Spain and operates in India through its branch office. The branch office is engaged in the business of providing engineering consultancy services to public and private bodies that are involved in the creation or renovation of all kinds of infrastructure such as transport infrastructure, water management, environment, architecture, town planning and renewable energy etc.
The services of branch offices are restricted to India only. For AY 2020-21 the assessee filed its return on 08.02.2021 and for AY 2021-22 on 15.03.2022 declaring total income at Rs. 5,08,46,350/- and Rs. 4,53,48,160/- under normal provisions of the Act and income of Rs. 3,97,93,333/- and Rs. 4,51,21,310/- under Section 115JB of the Income Tax Act, 1961 respectively.
Mr. Vivek Sarin representing the assessee submitted that these expats were working for the clients and contracts of Branch Office in India under complete supervision of Branch Office. These expats have been residing in India for many years and are resident of India by virtue of Section 6 of the Act. Branch Office has accounted for the entire salary (salary paid in India as well as in Spain) to the expats as salary expense in its P&L account. Branch Office has deducted TDS under section 192 of the Act on the entire salary paid to such expats either in India or outside India and it has filed TDS returns for the relevant AYs evidencing the same. Form 16 issued to the expats for AY 2020-21 is placed on record by way of additional evidence at pages 23-97.
Further relied on the decision of the co-ordinate Bench of Delhi Tribunal in the case of Serco India Pvt. Ltd. vs. DCIT in support of its contention that disallowance of salary reimbursement cost under section 40(a)(i) of the act is unwarranted.
The bench considered the decision of the Delhi Tribunal in the case of Serco India Pvt. Ltd. (supra) wherein the ITAT on a similar set of facts held that where the assessee has deducted the tax at source under section 192 of the Income Tax Act and deposited the same into the Govt. Account within specified time as prescribed under the Act, provisions of Section 40(a)(i) of the Income Tax Act are not applicable
Further the two member bench of the tribunal comprising G.S.Pannu (Vice President) and Astha Chandra (Judicial member) noted that the disallowance of salary cost reimbursement by Branch Office to the assessee by the AO under Section 40(a)(i) was not justified as TDS has been duly deducted on entire salary payments to the expats and deposited into the Government account within the prescribed time limit. Consequently addition of Rs. 1,83,71,951/- and Rs. 2,53,00,714/- for AY 2020-21 and 2021-22 respectively to the returned income of the assessee is hereby deleted. This ground raised by assessee was allowed .
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