2019 (1) TMI 470 - AT - Income Tax

Addition u/s 40A(2)(b) - payment made to TACO, a related concern - assessee claimed that sum was paid to TACO in view of the services rendered by them under the Administrative Services Agreement (ASA) - Held that - On going through the nature of services, it becomes patent that there has to be substantial evidence in the form of e-mails and other documents for rendition of such services. In the absence of the assessee having produced any evidence to demonstrate that it availed the services provided by TACO, we cannot accept the claim of the assessee. As AR contended that though the evidence was not available at the material time during the course of proceedings before the authorities below, such evidence could be now furnished to the AO, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this score is set-aside and the matter is restored to the file of AO. We order accordingly and direct the AO to examine the assessee s claim in respect of evidence of services. In case, the assessee still fails to furnish the evidence to the satisfaction of the AO, the Assessing Authority would be fully justified in making addition - Appeal allowed for statistical purposes. Addition of reimbursements to related parties u/s. 40(a)(ia) - Held that - We find that the addition sustained by the CIT(A) is in respect of certain items mentioned on page 12 of the impugned order which were claimed as reimbursement of Jamshedpur office expenses incurred during June to September 2008 and the claimed reimbursement of expenses of M/s. Shinohar Consultant. The first sum of ₹ 1,97,406/- is the claim by the assessee to be reimbursement of Jamshedpur office expenses during the months mentioned above. Except for invoices, the assessee has placed nothing on record to demonstrate that these were in the nature of reimbursement of expenses not having any profit element therein. Similar is the position regarding expenses of Shinohar Consultant. The ld. AR requested that one more opportunity be given to the assessee for furnishing the necessary evidence to prove that these were mere reimbursement of expenses and did not involve any profit element. Thus set-aside and the matter is restored to the file of AO. - Appeal allowed for statistical purposes. Disallowance of expenditure towards interest to bank u/s.43B -Held that - no evidence could be filed to show that firstly, the interest of ₹ 25.52 lakhs pertained to its own Power train application unit and not to the demerged unit of Lighting system unit for which demerger got completed w.e.f. 01-04-2009 and secondly, such amount of interest was actually paid well within the time even by its sister concern. As AR submitted that the entire details were available with the assessee but were not handy with him. A request was made that the AO be directed to examine the assessee s claim along with the evidence afresh. In the given facts and circumstances of the case, we are of the considered opinion that it would be just and fair if the impugned order on this score is set-aside the matter is restored to the file of AO. We order accordingly and direct him to decide this issue afresh as per law - Appeal allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of payment to holding company for services rendered.
2. Disallowance of reimbursements to related parties.
3. Disallowance of interest expenditure to bank under section 43B of the Act.

Analysis:

Issue 1: Disallowance of payment to holding company for services rendered (A.Y. 2009-10)

The appellant claimed to have paid a sum to its holding company for services rendered, but failed to provide evidence of receiving those services. The Appellate Tribunal noted that a deduction for service fees can only be allowed if the recipient proves the receipt of services. As the appellant did not produce substantial evidence such as emails or documents to demonstrate the services received, the claim was rejected. The Tribunal set aside the order and directed the Assessing Officer (AO) to re-examine the claim if evidence is furnished; otherwise, the addition could be made.

Issue 2: Disallowance of reimbursements to related parties (A.Y. 2009-10)

The appellant claimed deductions for reimbursements to a related party but failed to justify the non-deduction of tax at source. The AO disallowed a portion of the claimed amount, which was upheld by the CIT(A). The Tribunal found insufficient evidence to prove that these reimbursements were devoid of any profit element. The Tribunal set aside the order and directed the AO to reevaluate the issue after providing the appellant with a reasonable opportunity to substantiate the nature of these expenses.

Issue 3: Disallowance of interest expenditure to bank under section 43B of the Act (A.Y. 2011-12)

The appellant debited interest payment to a bank but could not provide evidence of the payment, leading to disallowance under section 43B of the Act. The CIT(A) sustained the addition, emphasizing that the payment must be made by the appellant to claim a deduction. The Tribunal observed that non-payment of interest would not entitle the appellant to claim a deduction. The Tribunal ordered the AO to re-examine the issue after providing the appellant with an opportunity to present evidence supporting the payment of interest.

In conclusion, the Tribunal allowed the appeals for statistical purposes in both assessment years, emphasizing the importance of providing substantial evidence to support claims and deductions to avoid disallowances under the Income Tax Act.