2018 (7) TMI 124 - AT - Income Tax

Expenditure incurred towards licence fee recovered by the BPCL - TDS liability u/s 194H - direct expenditure allowable u/s 28(1) or an expenditure coming under provisions of section 30 to 38 of the Act - Held that - A perusal of the invoice filed before us shows that licence fee is recovered from the assessee on each and every purchase of diesel and petrol and it necessarily forms part of the invoice which is issued by BPCL. Thus, it necessarily forms part of the purchases of the assessee which falls within the ambit of section 28 itself - CIT (A) has wrongly upheld the disallowance on the ground that licence fee was covered by section 194H of the Act but she has failed to demonstrate how this conclusion has been arrived at - It is settled law that section 194H is attracted when there is a principle and agent relationship between two parties whereas in the instant case no such relationship can be said to exist and, therefore, the provisions of section194H do not get attracted -licence fee recovered by BPCL forms part and parcel of the purchase cost of the assessee and the same does not attract deduction of tax at source - decided in favour of assessee Disallowance of traveling expenditure - assessee did not furnish copies of bills/ evidences for expenses incurred on foreign/domestic travel - Held that - assessee did not produce any bills or vouchers in support of the traveling expenses even when specifically required by the AO. However, the assessee did furnish details of traveling before the AO. We also note that the books of accounts of the assessee are audited and apart from the inference drawn by the lower authorities that the entire traveling expenses would not pertain wholly for business purposes, no other adverse inference has been drawn. Accordingly, Interest of justice would be served if this disallowance is restricted to 25% of the entire traveling expenses. Accordingly, the ground no. 2 of the assessee stands partly allowed.

Summary

Issues: Disallowance of license fee under section 40(a)(ia) and disallowance of travelling expenses.

License Fee Disallowance: The assessee, engaged in trading petroleum products, was required to deduct tax at source on license fees paid to BPCL. The AO disallowed the entire amount of license fee, but the assessee argued that it was part of purchase cost and not covered under section 40(a)(ia). The ITAT held that the license fee formed part of the purchase cost, not attracting TDS under section 194H, and directed the AO to delete the addition.

Travelling Expenses Disallowance: The AO disallowed the entire amount of travelling expenses due to lack of evidence. The assessee claimed the travel was for business purposes, but failed to provide bills. The ITAT found that while no bills were produced, the books were audited, and restricted the disallowance to 25% of the total expenses, considering the failure to provide evidence. The ITAT partially allowed the appeal on this ground.

Conclusion: The ITAT allowed the appeal partly, directing the deletion of the license fee disallowance and restricting the travelling expenses disallowance to 25% of the total amount. Grounds 3 and 4 were not adjudicated upon.