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2009 (10) TMI 659 - AT - Income TaxAddition u/s 40A(2)(a) - Trade discount allowed to a sister concern - assessee has allowed discount on sales to a related concern covered by s. 40A(2)(b) - as per AO only 5 per cent of the discount would be justified - HELD THAT - As Sec. 40A(2)(a) pertains to disallowance to an expenditure which is made by the assessee i.e., an amount actually spent by the assessee as an expenditure. The expression used in this provision is 'incurs any expenditure in respect of which payment has been or is to be made to any person'. This clearly shows that actual payment must be made and there has to be an expenditure incurred before the provision can be said to be applicable. A trade discount, and admittedly it is not in dispute that the subject-matter of the claim is a trade discount and not an expenditure, clearly therefore there does not arise the question of applicability of s. 40A(2)(a). Moreover, this is a case of trade discount allowed to a sister concern on sale made to it, and not a case of any business expenditure paid to sister concern, and as such, otherwise provisions of s. 40A(2)(a) are not applicable. The AO has also not been able to prove that the discount allowed by the assessee to a sister concern was excessive or unreasonable having regard to the commercial practice prevailing in the market. Addition u/s 40(a)( ia) - non deduction of TDS on account of freight and cartage and contractual civil job carried out - Payment towards agency charges - HELD THAT - As the assessee has deducted tax at source, and the said payment has not been disallowed by the AO. Two payments are towards payment of customs duty, and other expenses paid by the agent for/on behalf of the assessee - These reimbursement expenses were not made towards any services rendered by the agent, but have been made to set off of the expenses incurred by the agent while clearing the imported goods from the customs for/on behalf of the assessee. Since no element of income is embedded in reimbursement of expenses incurred by agency for/on behalf of the assessee, the assessee was not obliged to deduct tax at source, and, therefore, the CIT(A) has rightly deleted the addition. Contractual civil job carried out - It seems that the payments were made towards repairing and maintenance of the building. The nature of the work undertaken was painting, polishing, POP, punning of walls, fixing of mirrors, optic light fixing complete with tubelights, P F, and floor tiles etc. The whole work is composite, and the supply of the goods were not made independently to that of the labour works. Merely because the assessee has bifurcated the payment into two groups that by itself is not sufficient to say that there were two independent and distinct contracts entered into by the assessee with the contractor. The assessee's contention is, thus, found to be without merit, and since the assessee has not deducted the tax with regard to the payment paid to M/s Unicorn Constructions, the AO was very much justified in disallowing the deduction by invoking the provision of s. 40(a). Therefore, the order of the CIT(A) on this issue is set aside, and that of the AO is restored, meaning thereby that the disallowance made by the AO is justified, and is to be added back to the total income of the assessee. Addition on late deposit of employees contribution to PF account - payment made before the due date of filing of the return of income - HELD THAT - In the light of the decision referred by the CIT(A), and in the light of the decision in the case of CIT v. Dharmendra Sharma 2007 (11) TMI 39 - DELHI HIGH COURT and the decision in the case of CIT v. Vinay Cement Ltd. 2007 (3) TMI 346 - SC ORDER , we do not find any infirmity in the order of the CIT(A) in deleting the addition in as much as the contribution to the PF account and ESI account has been made by the assessee before the due date of filing of the return of income and hence, it is not disallowable u/s. 43B r/w s. 36(1)(va). Thus, ground raised by the Revenue is rejected. In the result, the appeal filed by the Revenue is partly allowed.
Issues Involved:
1. Deletion of addition made under Section 40A(2)(b) of the Income Tax Act, 1961. 2. Deletion of addition made under Section 40(a)(ia) for non-deduction of TDS. 3. Deletion of addition on account of late deposit of employees' contribution to PF account. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 40A(2)(b): The AO noticed that the assessee allowed a discount of Rs. 18,09,407 on sales to a related concern, M/s Bergess Manning India Ltd., and disallowed Rs. 9,04,407 under Section 40A(2)(b) of the IT Act, 1961, allowing only a 5% discount. The CIT(A) deleted the addition, following the Tribunal's decisions for previous assessment years (2000-01, 2001-02, and 2002-03), where similar disallowances were deleted as the Revenue failed to prove that the discounts were not for business exigencies. The Tribunal upheld the CIT(A)'s order, noting that Section 40A(2)(a) was not applicable as it pertained to business expenditure, not trade discounts. The AO also failed to prove that the discount was excessive or unreasonable. The Tribunal referenced the Delhi High Court's decision in United Exports v. CIT, which supported the justification of trade discounts based on commercial practices. 2. Deletion of Addition under Section 40(a)(ia) for Non-deduction of TDS: The AO disallowed Rs. 46,753 paid to M/s Sky Train Services and Rs. 1,34,900 paid to M/s Unicon Constructions for non-deduction of TDS under Section 40(a)(ia). The CIT(A) deleted these additions, accepting the assessee's explanations. For M/s Sky Train Services, the payment was for reimbursement of expenses, not income, hence no TDS was required. The Tribunal upheld this, noting that the payments were for customs duty and other expenses, not services rendered. For M/s Unicon Constructions, the CIT(A) accepted the assessee's explanation without detailed deliberation. The Tribunal, however, found the explanation unsubstantiated, noting the composite nature of the work and the lack of evidence for separate contracts for materials and services. The Tribunal restored the AO's disallowance of Rs. 1,34,900. 3. Deletion of Addition on Account of Late Deposit of Employees' Contribution to PF Account: The AO added Rs. 53,070 for late deposit of employees' contribution to the PF account. The CIT(A) deleted this addition, referencing the Delhi High Court's decision in CIT v. P.M. Electronics Ltd., where payments made before the due date of filing the return were allowed. The Tribunal upheld the CIT(A)'s order, also referencing the Supreme Court's decision in CIT v. Vinay Cement Ltd., confirming that contributions made before the due date of filing the return are not disallowable under Section 43B read with Section 36(1)(va). Conclusion: The Tribunal's judgment resulted in partly allowing the Revenue's appeal. The deletion of the addition under Section 40A(2)(b) and the late deposit of PF contributions were upheld, while the deletion of the addition under Section 40(a)(ia) for M/s Unicon Constructions was reversed, restoring the AO's disallowance.
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