2020 (10) TMI 788 - AT - Income Tax

Disallowance of expenditure of TDS on export commission - discharge of the liability - as the case of the assessee that it has paid export commission as a gross amount which included applicable TDS and by mistake the assessee has separated the export commission and the TDS payable - HELD THAT - No material has been brought on record to show that the assessee has to bear the TDS liability on account of the payees as per any contractual agreement. At least, no material evidence to indicate existence of such contractual terms and obligations has not been furnished either before the Departmental Authorities or even before us. In the absence of any evidence, no factual finding can be recorded to the effect that the assessee has incurred such expenditure in terms of any contractual obligation. If the assessee through proper evidence can prove that the TDS liability was incurred by it in terms of any contractual obligation, the ratio laid down in case of BOB Cards Ltd. 2012 (7) TMI 155 - ITAT, MUMBAI would be squarely applicable and the expenditure has to be allowed. However, the existence of a contractual obligation requires factual verification by the AO - we restore the issue to the Assessing Officer for factual verification and if it is found that the expenditure was incurred on account of contractual obligation, it has to be allowed. - Assessee Ground is allowed for statistical purposes.

Issues: Challenge to disallowance of expenditure on account of TDS on export commission.

Analysis:
1. The appeal was filed by the assessee challenging the order passed by the Commissioner of Income Tax (Appeals) related to the assessment year 2012-13.
2. The appeal was earlier disposed of, but a misc. application was filed by the assessee seeking recall/rectification of the order on the ground that certain submissions and decisions were not considered by the Tribunal while deciding a specific ground raised in the appeal.
3. The Tribunal recalled the appeal order to decide the specific ground raised by the assessee regarding the disallowance of expenditure on account of TDS on export commission.
4. The assessee, a resident company engaged in manufacturing, debited an amount towards TDS on export commission, which was disallowed by the Assessing Officer citing section 40(a)(ii) of the Income Tax Act, 1961.
5. The assessee contended that the TDS amount was paid as per the terms of the agreement and should be allowable under section 37 of the Act, citing a decision of a Co-ordinate Bench in a similar case.
6. The Departmental Representative relied on the observations of the Assessing Officer and the Commissioner (Appeals).
7. The Tribunal observed that the assessee did not provide any reply regarding the allowability of the claimed expenditure during the assessment proceedings. It was argued that the TDS liability was incurred as a contractual obligation, but no evidence was presented to prove such an obligation. The Tribunal referred to a previous decision where the expenditure was allowed due to contractual liability and directed the Assessing Officer to verify the existence of such an obligation and provide a reasonable opportunity for the assessee to be heard.
8. The Tribunal allowed the appeal for statistical purposes, directing a factual verification by the Assessing Officer regarding the contractual obligation for the TDS liability.

In conclusion, the Tribunal's decision focused on the lack of evidence supporting the contractual obligation for the TDS liability, emphasizing the need for factual verification by the Assessing Officer to determine the allowability of the expenditure. The appeal was allowed for statistical purposes, highlighting the importance of providing proper evidence to support claims in tax matters.

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