2017 (9) TMI 740 - HC - Income Tax

Disallowance U/s 40(ba) - payments made by the assessee to ITD Cementation India Limited were only on account of salary and related expenses - Held that - Consistent stand should be taken and similar treatment should be given to the accounts as in the preceding assessment years. The alternate argument is made and is noted in paragraph 49 of the Tribunal s order. The departmental representative referred to the remand report and thereafter supported the finding of the Commissioner of Income Tax (Appeals). There were written submissions filed by the assessee s representative. In consideration of this issue as well, we note that the Tribunal has made identical observations and to some extent it s observations in paragraphs 15 to 21 accord with paragraphs 50 to 55. However, we are of the firm view that Section 40(ba) was referred in the passing, but not attracted as far as the disallowance of administrative expenses in the sum of ₹ 2,39,64,463/. Once the Assessing Officer has checked debit notes raised by the ITD Cementation India Limited and they were test checked and the amount of expenditure claimed by the assessee was verified and the genuineness of the same has been proved, then, we do not see any reason to interfere with the finding of fact recorded in paragraph 54 of the Tribunal s order. All the more, when Section 40(ba) was not attracted as far as this disallowance is concerned. Despite his persuasive ability, when Mr. Ahuja would submit that even the reframed question (a1) is the substantial question of law, we are unable to agree with him. We affirm the findings of fact by the Tribunal and dismiss this Appeal to that extent. We have expressed our displeasure and unhappiness at the manner in which the Tribunal approached the matter/issue insofar as the applicability of Section 40(ba) (question no. 10(a) reproduced above) of the IT Act is concerned, we allow this Appeal. We set aside the Tribunal s order to that extent. We restore the issue to the file of the Tribunal for being decided afresh on merits and in accordance with law.

Summary

Issues Involved:
1. Disallowance of reimbursement of salary and related expenses for non-deduction of TDS under Section 40(a)(ia) of the Income Tax Act.
2. Disallowance of reimbursement of administrative expenses for non-deduction of TDS under Section 40(a)(ia) of the Income Tax Act.
3. Applicability of Section 40(ba) of the Income Tax Act to the disallowances.

Issue-wise Detailed Analysis:

1. Disallowance of Reimbursement of Salary and Related Expenses:
The Tribunal's order dealt with the disallowance of ?4,99,19,593/- for non-deduction of TDS on salary and related expenses under Section 40(a)(ia) of the Income Tax Act. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, citing that the payments made to ITD Cementation India Ltd. were subject to TDS under Section 192, not Section 193C. The Tribunal, however, concluded that the payments were reimbursements without profit elements and thus did not attract Section 40(a)(ia). The High Court found the Tribunal's reasoning unsatisfactory and noted that the Tribunal failed to adequately consider the provisions and the wide wording of Section 40(a)(ia). The High Court admitted the appeal on this issue, questioning whether the Tribunal erred in deleting the addition of ?4,99,19,593/-.

2. Disallowance of Reimbursement of Administrative Expenses:
The AO disallowed ?2,39,64,463/- for non-deduction of TDS on administrative expenses, invoking Sections 40(a)(ia) and 40(ba). The CIT(A) sustained this disallowance. The Tribunal, however, found that the expenses were genuine reimbursements verified by the AO and thus did not attract Section 40(a)(ia). The High Court agreed with the Tribunal, noting that the AO had verified the expenses and found them genuine. The High Court dismissed the Revenue's appeal on this issue, affirming the Tribunal's findings.

3. Applicability of Section 40(ba):
The AO and CIT(A) also invoked Section 40(ba) for disallowing the salary and administrative expenses, arguing that payments made by an Association of Persons (AOP) to its members are not deductible. The Tribunal rejected this, stating that the payments were reimbursements to a company, not individual members, and thus did not enrich any member. The High Court found the Tribunal's order confusing and lacking in detailed consideration of Section 40(ba)'s provisions. The High Court set aside the Tribunal's order on this issue and remanded it for fresh consideration, instructing the Tribunal to decide the applicability of Section 40(ba) on merits and in accordance with the law, without being influenced by its earlier observations.

Conclusion:
The High Court admitted the appeal on the issue of disallowance of salary expenses under Section 40(a)(ia) and remanded the issue of Section 40(ba) for fresh consideration, while dismissing the appeal regarding the disallowance of administrative expenses. The Tribunal is instructed to reconsider the applicability of Section 40(ba) thoroughly and provide a clear and detailed order.