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2010 (4) TMI 1063 - AT - Income TaxDisallowance u/s.40(a)(ia) - non deduction of tds on payment towards office upkeeping - reimbursement of expenses - HELD THAT - When there is no element of income and the payment is only as a reimbursement of expenses incurred by the payee, then no disallowance can be made u/s.40(a)(ia). In the case in hand, the AO has not given a finding that the expenses were for office upkeeping as revenue receipt in the hands of Reliance Energy Ltd. and not a pure reimbursement of expenses. Respectfully following the decision of CIT vs. Seimens Aktiongesellschaft 2008 (11) TMI 74 - BOMBAY HIGH COURT , we decide this issue in favour of the assessee and against the Revenue. Disallowance of traveling expenses - assessee has failed to produce verifiable vouchers and addresses - CIT(A) has reduced the disallowance from 10% to 5% - HELD THAT - Since the traveling expenses are petty in nature and keeping in view the nature of the business of the assessee at the sites located in remote areas, it not always possible to obtain proper vouchers for the said expenditure. Even otherwise, when the expenditure has not been found as abnormal in comparison to the total turnover and income admitted by the assessee, then it is not justified on the part of the lower authorities to disallow certain percentage of the expenses which is ad hoc in nature. As per nature of the expenses as well as the business activities of the assessee, we do not find any reason to disbelieve the explanation of the assessee. Accordingly, the addition sustained by the CIT(A) is deleted. Disallowance of business promotion expenses - assessee has failed to produce verifiable vouchers - HELD THAT - Since we have considered and decided the issue on traveling expenses in favour of the assessee, on the same reasoning, this issue is also decided in favour of the assessee and accordingly the disallowance made on this account is deleted. Appeal of the assessee is allowed.
Issues involved:
1. Disallowance under section 40(a)(ia) for non-deduction of tax at source. 2. Disallowance of traveling expenses. 3. Disallowance of business promotion expenses. Analysis: Issue 1: Disallowance under section 40(a)(ia) for non-deduction of tax at source: The appeal pertains to the disallowance of expenses under section 40(a)(ia) for non-deduction of tax at source. The assessee made payments to Reliance Energy Ltd. for office rent and office upkeeping expenses without deducting TDS on the latter. The AO disallowed the amount of office upkeeping expenses for non-compliance. The CIT(A) upheld the AO's decision. The assessee argued that the expenses were adjusted by Reliance Energy Ltd. against amounts payable, thus no actual payment was made. The tribunal referred to precedents stating that reimbursement of expenses does not constitute income and, therefore, no disallowance should be made under section 40(a)(ia). As the AO did not establish the expenses as revenue receipts, the tribunal ruled in favor of the assessee. Issue 2: Disallowance of traveling expenses: The AO disallowed a portion of traveling expenses claimed by the assessee due to lack of verifiable vouchers. The CIT(A) reduced the disallowance from 10% to 5%. The assessee contended that the nature of their business, which involved work at remote sites, made it impractical to produce vouchers for all expenses. The tribunal noted that the traveling expenses were reasonable compared to the turnover and income, and the purpose of the expenditure was related to the business. Consequently, the tribunal overturned the CIT(A)'s decision and deleted the disallowance. Issue 3: Disallowance of business promotion expenses: Similar to the traveling expenses issue, the disallowance of business promotion expenses was based on the same grounds. The tribunal, applying the reasoning from the traveling expenses issue, ruled in favor of the assessee and deleted the disallowance. The tribunal found no justification for the ad hoc disallowance of expenses, considering the nature of the business activities and the proportionality of the expenses to the turnover and income. In conclusion, the tribunal allowed the appeal of the assessee, overturning the disallowances made by the lower authorities on all three issues.
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