2011 (12) TMI 226 - AT - Income Tax

Business expenditure - CIT(A) deleted disallowance of various expenses expenses disallowed by A.O. on ground that same have been incurred by Shriram Group Companies(SGC) though paid by assessee invoices are raised in name of Shriram group of companies absence of agreement between assessee & SGC for incurrence of such expenses Held that Revenue did not brought any material on record to show that the expenses were not incurred for the purposes of the assessee s business. In our considered opinion, the maintaining or writing in the vouchers in a particular manner will not empower the A.O. to disallow genuine business expenses of the assessee. No material has been brought on record by the Revenue to controvert the findings of the CIT(A) that A.O. accepted that all the expenses are genuine and all the payments are made by cheques . Further assessee has earned income from these services also, it could not have earned the same without incurring the expenses separately. Thus, we do not find any good and justifiable reason to interfere with the order of the CIT(A) Decided against the revenue. Deletion of disallowance u/s 40(a)(ia) by CIT(A) on ground that the payments were covered u/s 194J and not by the provision of section 194H - Held that - If the assessee is able to produce evidence to show that the persons to whom the consultancy charges have been paid are registered with IRDA, then they are to be treated as payments made towards professional charges and will be governed by the provision of section 194J. In any other case, where payment is made by way of commission or otherwise for soliciting or procuring insurance business by persons who are not registered with IRDA, then the same will be governed by the provision of section 194D. If the deduction of TDS is not made in accordance with the above sections, then the amounts so paid is to be disallowed. The provision of section 194H would have no applicability as the business of the assessee is insurance broking and section 194H specifically excludes insurance commission. We, therefore, set aside the orders of lower authorities and remand the matter back to the file of the Assessing Officer for adjudicating the issue afresh in the light of the discussions as made hereinabove Decided in favor of Reveue for statistical purposes.

Summary

Issues Involved:
1. Deletion of disallowance of various business expenses.
2. Disallowance under section 40(a)(ia) related to consultancy charges.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Various Business Expenses:

The Revenue's grievance was that the CIT(A) erred in deleting the disallowance of various expenses such as advertising, business promotion, conveyance, printing and stationery, repairs and maintenance, staff welfare, telephone and postage, travelling, and books and periodicals. The Assessing Officer (AO) disallowed these expenses on the grounds that the vouchers were in the name of Shriram Group of Companies and not the assessee company, and there was no written agreement for sharing these expenses.

The CIT(A) vacated the disallowance, noting that the main point was whether the expenses were genuine and incurred for the business of the appellant company. The CIT(A) observed that all the expenses were genuine, and the payments were made by cheques, which the AO did not dispute. The CIT(A) also noted that the appellant had done business through Shriram Group companies and independently, and it could not have earned income without incurring these expenses. The CIT(A) referenced a similar case for the assessment year 2007-08 where similar additions were deleted.

The Tribunal upheld the CIT(A)'s decision, stating that the AO's disallowance was based solely on the vouchers not being in the name of the assessee company. The Tribunal found the assessee's explanation that expenses were incurred in the name of Shriram Group to attract good talent and business to be reasonable. The Tribunal emphasized that the genuineness of the expenses was not doubted, and no material was brought on record to show that the expenses were not incurred for the assessee's business. Therefore, the Tribunal confirmed the CIT(A)'s order and dismissed the Revenue's appeal on this ground.

2. Disallowance Under Section 40(a)(ia) Related to Consultancy Charges:

The AO disallowed consultancy charges of Rs. 52,21,072/- under section 40(a)(ia), arguing that the payments were in the nature of commission or brokerage and not technical or professional services, thus requiring TDS under section 194H. The AO noted that the payments were made to agents and not for technical or professional services.

The CIT(A) disagreed, stating that the payments were for technical services within the meaning of section 194J, as the services rendered included obtaining detailed information of the client's business, rendering advice on insurance cover, and maintaining knowledge of insurance markets, among others. The CIT(A) held that these services were technical and covered under section 194J, not section 194H. The CIT(A) also noted that similar disallowances were deleted for the assessment year 2007-08.

The Tribunal, agreeing with both parties, decided to remand the issue back to the AO for fresh verification. The Tribunal directed the AO to verify if the persons to whom consultancy charges were paid were registered with IRDA. If so, the payments should be treated as professional charges under section 194J. If the payments were made to unregistered persons for soliciting insurance business, they should be governed by section 194D. The Tribunal clarified that section 194H would not apply as it excludes insurance commission. Thus, the Tribunal set aside the lower authorities' orders and remanded the matter back to the AO for fresh adjudication.

Conclusion:

The appeal of the Revenue was partly allowed for statistical purposes, with the Tribunal confirming the deletion of disallowance of various business expenses and remanding the issue of consultancy charges back to the AO for fresh verification.