2012 (8) TMI 219 - AT - Income Tax

Allocation of common expenditure - shipping business and non-shipping business - assessee preferred to offer income under tonnage tax scheme under section 115VJ of the Act, under which the income is assessed on some fixed basis without referring to the book results - AO identified the common expenses and allocated it in the ratio of gross receipts between the two businesses - Commissioner (Appeals) confirmed order of Assessing Officer since assessee, apart from offering oral submissions, had failed to substantiate its claim that it had allocated common expenses in a fair and reasonable manner, order of Commissioner (Appeals) confirming Assessing Officer s order was to be upheld Disallowance under section 40(a)(ia) of the Act Held that - assessee is entitled to claim deduction of expenses if the TDS deducted there on is remitted before the due date for filing the return of income - assessee paid the entire amount of expenditure subjected to disallowance under section 40(a)(ia) of the Act before the end of the financial year and hence the provisions of sec.40(a)(ia) cannot be invoked on them - claim is not borne out of the orders of tax authorities - matter remanded to the file of the Assessing Officer

Summary

Issues:
1. Allocation of common expenditure between shipping business and non-shipping business.
2. Disallowance made under section 40(a)(ia) of the Act.

Issue 1: Allocation of Common Expenditure
The assessee, engaged in shipping and other businesses, faced a challenge regarding the proper distribution of common expenses between shipping and non-shipping activities. The Assessing Officer added Rs. 8,00,103 to the income due to improper allocation. Specifically, a salary of Rs. 4,20,000 paid to the Managing Director was considered a common expense. The assessee failed to provide substantial evidence to support the allocation, resulting in the confirmation of this addition by the Learned CIT(A). The tribunal upheld the decision, as the assessee did not present convincing material to challenge the allocation.

Issue 2: Disallowance under Section 40(a)(ia)
The Assessing Officer disallowed Rs. 47,26,577 for delayed remittance of TDS, and an additional Rs. 5,00,000 was disallowed under section 40(a)(ia) for non-deduction of TDS. The assessee argued that the TDS amount was remitted before the due date for filing the return of income, citing a retrospective amendment in the Finance Act 2010. The tribunal referred to a judgment by the Hon'ble Calcutta High Court, holding that the amendment was indeed retrospective. Following this decision, the tribunal directed the Assessing Officer to verify the TDS remittance details. Regarding the disallowance of Rs. 5,00,000, the tribunal relied on a Special Bench decision that section 40(a)(ia) applies only to payable expenses at the end of the financial year. As the assessee claimed to have paid the expenses before year-end, the tribunal instructed the Assessing Officer to verify this claim.

In conclusion, the tribunal partially allowed the appeal, directing the Assessing Officer to verify TDS remittance details and the payment status of disputed expenses. The tribunal upheld the allocation of common expenditure due to lack of substantiating evidence provided by the assessee.