2019 (1) TMI 1257 - AT - Income Tax

TDS liability on Expenditure incurred on the commission - reimbursement of expenses - payment exceeding permissible limit - Held that - Except for handling charges, all other payments are nothing but reimbursement of expenses. On reimbursement of expenses, there is no liability for deducting tax at source. In so far as handling charges are considered, same totals to ₹ 41,950/- and as per the provisions of the Act, if total payment during the year does not exceed ₹ 75,000/, there is no liability to deduct tax at source, therefore, agree with the contention of the the assessee. On the given facts, the assessee is not liable for deducting tax at source. Therefore, disallowance made u/s 40(a)(ia) of the Act is uncalled for - Decided in favour of assessee Addition of sales commission - genuineness of the transaction and the purpose of paying sales commission to the two ladies - Held that - There is no dispute that both the persons are assessed to tax and they have shown the sales commission in their respective return of income. There is also no dispute that the assessee has deducted tax at source as per the applicable rates. Assessing Officer is not the right person to decide which expenditure the assessee should incur in furtherance of his business. Secondly, the statements on oath, recorded by the Assessing Officer, which are placed in the paper book, thus find that both the ladies have specifically and directly explained the nature of transaction on which they have received sales commission form the assessee. When examination of both the ladies clearly established the service they have provided to the assessee, there remains no doubt that the payment is genuine - Decided in favour of assessee Adhoc disallowance made on account of expenses under the heard vehicle maintenance, interest on car loan, telephone expenses, travelling expenses and depreciation on car - AO disallowed 1/8th of the expenses so claimed - CIT(A) who restricted the disallowance to the extent of 1/10th of the expenses - Held that - As personal element cannot be ruled out as observed by the CIT(A) and the first appellate authority has already given relief to assessee on this count. No interference is called for. - Decided against assessee.

Summary

Issues:
1. Addition made under section 40(a)(ia) for non-deduction of TDS on payments to M/s Velji Dosabhai & Sons Pvt. Ltd.
2. Disallowance of commission paid to Smt. Vibha Arora and Smt. Uma Rani.
3. Adhoc disallowance on expenses under various heads like vehicle maintenance, interest on car loan, etc.

Analysis:
1. The first issue revolves around the addition made under section 40(a)(ia) for not deducting TDS on payments to M/s Velji Dosabhai & Sons Pvt. Ltd. The Assessing Officer contended that the provisions of section 194C applied, leading to the disallowance of ?9,73,167. However, the ITAT held that most payments were reimbursements, exempt from TDS. Only handling charges were taxable, but since they were below ?75,000, no TDS was required. The ITAT directed the deletion of the addition.

2. The second issue pertains to the disallowance of ?6 lakhs as commission paid to Smt. Vibha Arora and Smt. Uma Rani. The Assessing Officer disallowed the commission based on past findings. However, the ITAT found that the payments were genuine, as both recipients were assessed to tax, and the payments were made through account payee cheques with TDS deductions. The ITAT directed the Assessing Officer to allow the commission, stating that the genuineness of the transactions was established.

3. The final issue involves adhoc disallowance of expenses totaling ?29.36 lakhs under various heads. The Assessing Officer disallowed a portion, which was further reduced by the CIT(A). The ITAT upheld the CIT(A)'s decision, noting the presence of a personal element in the expenses. The ITAT confirmed the addition of ?2,06,727. Overall, the ITAT partly allowed the appeal filed by the assessee.

In conclusion, the ITAT's judgment addressed each issue meticulously, emphasizing the genuineness of transactions, applicability of TDS provisions, and the reasonableness of expenses. The detailed analysis provided clarity on the legal aspects and resulted in a partially favorable outcome for the assessee.