2013 (11) TMI 309 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Deduction of TDS u/s 194C instead of u/s 194I or 194J Held that - It is not a case of non-deduction of tax or no-deduction of tax as per the import of section 40(a)(ia) of the Act - When tax was deducted by the assessee, even under bonafide impression under wrong provisions of TDS, the provisions of section 40(a)(ia) can not be invoked. This principle is being followed uniformly by various co-ordinate Benches and has the approval of Calcutta High Court in the case of CIT vs. M/s. S.K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT relied on by the assessee. Decided in favor of Assessee. Disallowance of depreciation on paintings which were part of furniture and fixtures - Assessee is in the business of production and distribution of advertising films and over and above it also provides assistance like making availability of locations, equipments, models and crew to the foreign as well as domestic companies Held that - It was submitted that hiring of the paintings for original shoots was unaffordable. Therefore, they have purchased and utilized the paintings which were either hung in the office or given to the producer for the original shoots, or used in various setting. Therefore, the claim was that paintings are also part of furniture following the decision in Burnside Investments & Holdings Ltd. vs. Dy. CIT 1996 (12) TMI 117 - ITAT MADRAS-B , depreciation on paintings as part of furniture and fittings allowed - Decided in favor of Assessee. Disallowance of 25% of expenditure paid in cash on adhoc basis Held that - Assessee s business requires on site expenditure for various production shootings, wardrobe expenses etc. As seen from the claims 95% of the expenditure was by way of cheques and AO allowed the entire amount as such. Therefore, disallowance of 25% of the cash expenses is not warranted. However, since expenditure is un verifiable in nature, disallowance can be restricted to 5% of the cash expenses which should meet ends of justice Decided in favor of Assessee.

Summary

Issues Involved:
1. Disallowance under section 40(a)(ia) for short deduction of tax.
2. Disallowance of depreciation on paintings.
3. Disallowance of 25% of expenditure paid in cash.

Issue 1: Disallowance under section 40(a)(ia) for short deduction of tax:
The Appellate Tribunal ITAT Mumbai heard an appeal against the order of CIT(A)-3, Mumbai regarding disallowance under section 40(a)(ia) for short deduction of tax. The Assessing Officer (AO) disallowed TDS deductions made under section 194C instead of sections 194I or 194J for certain payments. The AO relied on case law to support the disallowance. The CIT(A) upheld the disallowance, stating that section 40(a)(ia) applied even for short deductions. The appellant argued that since tax was deducted, section 40(a)(ia) should not apply. The Tribunal agreed, citing that the provision could not be invoked for short deductions when tax was deducted, even under the wrong section. The Tribunal also noted that the revenue did not initiate proceedings under section 201. Therefore, the disallowance under section 40(a)(ia) was not applicable in this case, and the appeal was allowed.

Issue 2: Disallowance of depreciation on paintings:
The appeal also addressed the disallowance of depreciation on paintings claimed by the assessee. The AO denied depreciation, considering the presence of paintings immaterial for the business. The CIT(A) upheld this decision, stating lack of evidence for using paintings in business. However, the Tribunal sided with the assessee, recognizing that the paintings were part of the business as they were utilized in various settings related to film production. Citing a similar case, the Tribunal directed the AO to allow depreciation on the paintings as part of furniture and fixtures.

Issue 3: Disallowance of 25% of expenditure paid in cash:
Another issue raised in the appeal was the disallowance of 25% of expenditure paid in cash on an ad hoc basis. The AO and CIT(A) disallowed a portion of cash expenses due to non-verifiability. The appellant argued that certain business payments necessitated cash transactions and that the disallowance percentage was too high. The Tribunal acknowledged the nature of on-site expenditures but reduced the disallowance to 5% of the cash expenses, finding the original 25% disallowance unwarranted. Therefore, the Tribunal partly allowed this ground of appeal.

In conclusion, the Appellate Tribunal ITAT Mumbai ruled in favor of the appellant on the issues of disallowance under section 40(a)(ia) for short deduction of tax and the disallowance of depreciation on paintings. The Tribunal partially allowed the appeal concerning the disallowance of 25% of expenditure paid in cash.