2019 (9) TMI 1193 - AT - Income Tax

TDS on expenditure incurred towards reimbursement - addition u/s 40(a)(ia) - HELD THAT - Reimbursements of expenses do not require tax deduction at source. The tax deduction liability arises only at the point of time when payment is for carrying out any work in pursuance of a contract for the specified purposes. The payment, in the present case, is not for carrying out any work of the specified nature but only a partial reimbursement of such a payment of specified nature. The distinction is subtle and significant. The lower authorities clearly lost sight of the above aspect of the matter, and proceeded to treat reimbursement of expenses as incurring of expenses. CIT(A) has also stated that there is no evidence of the fact that the tax deduction at source was made by the person actually making payment of expenditure. In our considered view, this is wholly irrelevant. All that we are concerned at this stage is whether the assessee has failed to discharge his tax withholding obligation, and when the assessee has not committed any such failure, there is no question of his being visited with the consequences of such a non-existent failure. We uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance - Decided in favour of assessee

Summary

Issues: Disallowance of advertisement expense due to non-deduction of TDS

Analysis:
The appellant contested the disallowance of advertisement expenses totaling ?14,15,038 by the Assessing Officer under Section 40(a)(ia) of the Income-tax Act for non-deduction of TDS. The Assessing Officer observed that the appellant failed to deduct TDS on total payments of ?19,32,177, leading to the disallowance. The CIT(A) upheld the disallowance, stating that the expenses were in the nature of reimbursement and thus subject to TDS. The appellant argued that these expenses were reimbursement and cited a previous tribunal order in their favor for Assessment Year 2010-11. The Tribunal in the previous year's case allowed the claim of the appellant, emphasizing that the payments were reimbursement of expenses and not income. The Tribunal noted that reimbursements do not require TDS deduction unless the payment is for work under a contract. The CIT(A) in the current year's case relied on the previous year's order, which was reversed by the ITAT. Consequently, the Tribunal upheld the appellant's appeal, deleting the disallowance of ?14,15,038.

Significant Points:
- Disallowance based on non-deduction of TDS on advertisement expenses.
- CIT(A) upheld disallowance, considering expenses as reimbursement.
- Appellant argued expenses were reimbursement, citing a previous favorable tribunal order.
- Tribunal emphasized that reimbursements do not require TDS unless payment is for work under a contract.
- Relying on the previous year's reversed order by ITAT, the Tribunal allowed the appeal, deleting the disallowance.

This detailed analysis highlights the core issue of disallowance of advertisement expenses due to non-deduction of TDS, the arguments presented by the appellant, and the Tribunal's decision based on legal principles and precedents.