2017 (3) TMI 22 - AT - Income Tax

Disallowance made u/s 40(a)(ia) - Annual Maintenance Charges - Held that - We find that there is no clear finding recorded by the authorities below with regard to the nature of each and every payment made by the assessee to MSL in accordance with various clauses of the Joint Venture Agreement dated 15.7.2008 which is the basis on which various payments were made. There is no finding as to whether the said agreement is a mere revenue sharing arrangement or it is merely an agreement allowing the assessee to carry on the food vending business on hire together with some common facilities. We find that such a clear finding would determine the issue of applicability of tax deduction provisions as per Chapter XVIIB of the Act. Thus we deem it fit and appropriate, in the interest of justice and fairplay, to set aside this issue to the file of the ld AO to decide the same afresh.

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income-tax Act for Annual Maintenance Charges.
2. Disallowance of commission and common area maintenance charges.
3. Disallowance of interest paid to Kotak Mahindra Bank Ltd.
4. Disallowance of donation and subscription.
5. Disallowance of salary expenses.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income-tax Act for Annual Maintenance Charges:
The assessee paid ?61,650 to HCL Infosystems Ltd for machines and printers and ?21,000 to IDS Softwares Pvt Ltd for product service contract charges without deducting tax at source under Section 194C. The Assessing Officer (AO) disallowed these payments under Section 40(a)(ia), which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that the payment to HCL Infosystems Ltd was for the purchase of machines and printers, not a contract, and thus not subject to Section 194C. The tribunal accepted this argument and directed the AO to delete the disallowance of ?61,650. However, the disallowance of ?21,000 paid to IDS Softwares Pvt Ltd was upheld. The ground raised by the assessee was partly allowed.

2. Disallowance of Commission and Common Area Maintenance Charges:
The AO disallowed ?9,77,358 paid to Mani Square Ltd for commission and common area maintenance charges without tax deduction at source, as required under Chapter XVIIB. The assessee explained that the payments were part of a revenue-sharing arrangement under a Joint Venture (JV) agreement with Mani Square Ltd, which did not require tax deduction. The tribunal found that the lower authorities did not clearly determine whether the payments were part of a revenue-sharing arrangement or a hire agreement with common facilities. The tribunal set aside the issue to the AO for a fresh examination of each payment per the JV agreement. The ground was allowed for statistical purposes.

3. Disallowance of Interest Paid to Kotak Mahindra Bank Ltd:
The AO disallowed ?1,91,816 paid as interest to Kotak Mahindra Bank Ltd without tax deduction at source. The assessee argued that interest paid to a banking company does not require tax deduction. The tribunal found merit in this argument and held that no disallowance under Section 40(a)(ia) was applicable. The ground raised by the assessee was allowed.

4. Disallowance of Donation and Subscription:
The AO disallowed ?7,400 incurred towards donation and subscription, considering it not incidental to the business. The assessee claimed these were regular pooja expenses and subscriptions to various organizations. The tribunal directed the AO to verify the receipts or other evidence provided by the assessee to justify the claim. The ground was allowed for statistical purposes.

5. Disallowance of Salary Expenses:
During a survey on 23.03.2010, the AO found discrepancies in the salary expenses reported by the assessee. The AO noted a significant increase in salary expenses from ?40,36,896 as of the survey date to ?64,71,010 in the final accounts, suspecting inflation of expenses. The assessee explained that several year-end adjustments were made after the survey. The tribunal directed the AO to re-examine the salary expenses in light of the evidence and books of accounts provided by the assessee. The ground was allowed for statistical purposes.

Conclusion:
The appeal was partly allowed for statistical purposes, with directions for fresh examination of specific issues by the AO. The tribunal provided detailed instructions to ensure a fair reassessment of the contested disallowances.

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