2020 (1) TMI 984 - AT - Income Tax

Disallowance of advances to employees towards travelling expenses - addition as expenditure has not crystallized during the year and the provision made is of contingent nature - CIT-A deleted the addition - HELD THAT - Amount in dispute was actually paid to the employees during the year, though, the claims of the employees in respect of such expenditure were not received. However, that by itself does not make the provision for expenditure contingent in nature. The factual aspect of the issue was verified by ld. Commissioner (Appeals) and he has concluded that the expenditure has crystallized during the year. The Revenue has also not brought any material on record to show that any part of the aforesaid expenditure was claimed by the assessee in the succeeding assessment year. In view of the aforesaid, we do not find any infirmity in the decision of ld. Commissioner (Appeals) on the issue. - Decided against revenue Disallowances u/s 40(a)(ia) - short deduction of tax or non deduction of tax - HELD THAT - As per Assessing Officer s own admission, the assessee had deducted tax at source on payment of rent, interest, contract labour charges, freight and forwarding charges at a lower rate and not at the rate prescribed under the relevant provision. Thus from the aforesaid facts it becomes clear that it is a case of short deduction of tax and not a case of non deduction of tax. Therefore, as held in the case of CIT vs. S.K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT , no disallowance under section 40(a)(ia) can be made for short deduction of tax at source. Applying the ratio of the aforesaid decision also, the disallowance made by the Assessing Officer under section 40(a)(ia) is unsustainable. As regards payment of sales commission, it appears from record that the payment made is towards incentive / turnover discount to authorized channel partners by way of credit note subject to achievement of certain targets. Thus, the payment made does not come strictly within the meaning of brokerage / commission. The decision of Hon ble Jurisdictional High Court in case of CIT vs. Intervet India P. Ltd. 2014 (4) TMI 353 - BOMBAY HIGH COURT clearly supports this view. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of advances to employees towards travelling expenses.
2. Deletion of disallowances under section 40(a)(ia) for various expenditures.

Issue 1 - Disallowance of Advances to Employees Towards Travelling Expenses:
The Assessing Officer disallowed an amount of ?27,50,000 representing advances to employees for travelling expenses as contingent in nature. The assessee argued that the provision made had crystallized during the year, even though the claims were not received from employees. The Commissioner (Appeals) allowed the claim, stating that the expenditure had indeed crystallized during the year. The Tribunal upheld the decision, noting that the provision for expenditure was not contingent and that the amount was actually paid to employees during the year. The Revenue failed to provide any evidence that the expenditure was claimed in the succeeding assessment year. Thus, the Tribunal dismissed the ground raised by the Revenue.

Issue 2 - Deletion of Disallowances under Section 40(a)(ia) for Various Expenditures:
The Assessing Officer disallowed various payments made by the assessee under section 40(a)(ia) for short deduction or non-deduction of tax. The Commissioner (Appeals) upheld the disallowance partially after considering evidence provided by the assessee. The Tribunal found that the assessee had deducted tax at a lower rate based on certificates issued by the department for rent, interest, and contract labour charges. The Commissioner (Appeals) restricted disallowances based on factual verification and certificates provided by the department. The Tribunal held that the Commissioner (Appeals) had the power to consider such certificates and grant relief to the assessee. Additionally, the Tribunal noted that the disallowance for short deduction of tax, not non-deduction, was unsustainable as per legal precedent. Regarding payment of sales commission, the Tribunal agreed with the Commissioner (Appeals) that the payment did not qualify as brokerage or commission, as supported by relevant case law. Thus, the Tribunal upheld the decision of the Commissioner (Appeals) on the issue. The Tribunal dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the decisions of the Commissioner (Appeals) on both issues, dismissing the Revenue's appeal in its entirety.