2019 (5) TMI 1257 - AT - Income Tax

TDS u/s 194C - amount reimbursed towards advertisement expenditure incurred by the distributors - disallowance made u/s 40(a)(ia) - HELD THAT - We are of the considered opinion that the payments made by the appellants to its regional distributors are nothing but reimbursement of expenses. However in the interest of justice and fair play we deem it fit to restore this issue to the file of the Assessing Officer. The assessee is directed to furnish all the invoices raised by its regional distributor on the basis of which it has made payment of 15.93 crores as reimbursement. AO is directed to verify the invoice and decide the issue whether the impugned payments are reimbursements or not. We would like to make it clear that after verification the Assessing Officer is free to make any enquiry he deems it fit to be made in the hands of the regional distributor as per the provisions of law. - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Whether the assessee was required to withhold tax u/s 194C for reimbursement towards advertisement expenditure.
2. Whether the disallowance made u/s 40(a)(ia) of the Income-tax Act, 1961 was sustainable.

Issue 1:
The assessee contended that the CIT(A) erred in holding that tax should have been withheld u/s 194C for reimbursement towards advertisement expenditure by distributors. The Assessing Officer disallowed the payment of &8377; 15,93,23,093/- under section 40(a)(ia) as tax was not deducted at source. The CIT(A) directed the appellant to provide proof that the distributors had deducted TDS while making payments. The Tribunal considered sample invoices and concluded that the payments were reimbursements. However, to ensure fairness, the issue was remanded back to the Assessing Officer for verification of invoices to determine if the payments were indeed reimbursements.

Issue 2:
The assessee argued that no TDS was required on reimbursements, citing precedents like Jagran Prakashan Ltd Vs. DCIT and decisions of the Delhi High Court. The agreement with the distributor also indicated that no agency or partnership existed. The Revenue contended that TDS provisions prevent revenue leakage and verification of tax payment by the payee is necessary if the payer claims reimbursement. The Tribunal, after examining the documentary evidence, agreed that the payments were reimbursements but remanded the issue for further verification by the Assessing Officer to ensure compliance with the law.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for verification of invoices to ascertain the nature of payments. The decision highlighted the importance of ensuring compliance with TDS provisions while acknowledging the nature of the payments as reimbursements. This case underscores the significance of proper documentation and verification in tax matters to prevent revenue leakage and ensure fair treatment for taxpayers.