2021 (10) TMI 78 - AT - Income Tax

Disallowance of electricity and water expenses - CIT(A) following the decision of the Tribunal in the case of the assessee in earlier year sustained 50% of the disallowance and allowed relief for the balance amount - Whether expenses incurred wholly and exclusively for the purpose of profession? - HELD THAT - CIT(A) has followed binding precedent in the case of the assessee itself and, therefore, we do not find any error in the order of the CIT(A) on the issue in dispute - we find that assessee has failed to justify that entire electricity expenses of the residence were related to the profession work. In the facts and circumstances of the case, we uphold the finding of the Learned CIT(A) on the issue in dispute. The ground No. (i) of the appeal of the assessee is accordingly dismissed. Disallowance out of foreign travelling expenses - lack of vouchers for these expenses - HELD THAT - First, the assessee failed to submit legible copies of bills/vouchers for amount of expenses disallowed by the AO. Secondly, according to her, period of stay of 21 days in foreign country was not justified for the purpose of profession as the IBA Annual Conference and Exhibition was only from 30th September to 5th October, 2012 (only for 6 days). The Learned Counsel of the assessee could not justify before us also the period of 21 days in foreign country for the purpose of professional work. In our opinion, the finding of the Learned CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same. Accordingly, we uphold the same and dismiss the ground no. (ii) of the appeal of the assessee. TDS u/s 195 - Disallowance u/s 40(a)(ia) - non-deduction of the tax at source on payment made to International Bar Association (IBA) - HELD THAT - Neither the Assessing Officer, nor the Ld. CIT(A) has specified which kind of PE exist in the case of non-resident entity or how the business connection of non-resident is established. Even if, we assume that lower authorities have thought of fixed place PE, then the authorities are required to establish that place of Indian Bar Association was under 'control' and at the 'disposal' of International Tax Bar Association and 'core activity' of International Tax Bar Association has been carried out from said place. No such finding of fact has been recorded by the lower authorities - no evidence of any agency PE or service PE has been brought on record by the lower authorities. CIT(A) has also confirmed the disallowance in terms of Section 37(1) of the Act on the ground that expenses were not incurred wholly and exclusively for the purpose of the profession of the assessee. The assessee has also not submitted any credible evidence before us to demonstrate that those expenses were incurred wholly and exclusively for the purpose of profession - restore this issue back to the file of the Assessing Officer for deciding afresh.

Summary

Issues Involved:
1. Disallowance of electricity and water expenses.
2. Disallowance of foreign travelling expenses.
3. Disallowance under Section 40(a)(ia) of the Act for non-deduction of tax at source on payment to International Bar Association (IBA).

Detailed Analysis:

1. Disallowance of Electricity and Water Expenses:
The first issue pertains to the disallowance of ?26,303 on account of electricity and water expenses. The assessee, an advocate by profession, claimed the entire electricity expenses of his residence as professional expenses. The Assessing Officer (AO) allowed only 10% of these expenses as professional expenses and disallowed the remaining 90%, treating them as personal expenses. The Commissioner of Income-tax (Appeals) [CIT(A)] followed a previous Tribunal decision in the assessee's own case and restricted the disallowance to 50% of the expenses. The Tribunal upheld the CIT(A)'s decision, noting that the assessee failed to justify that the entire electricity expenses were related to professional work. Thus, the Tribunal dismissed this ground of appeal.

2. Disallowance of Foreign Travelling Expenses:
The second issue involves the disallowance of ?69,000 out of total foreign travelling expenses of ?2,37,711. The AO disallowed this amount due to the absence of vouchers for these expenses. The CIT(A) upheld the disallowance, noting that the supporting bills provided were not legible and the period of stay (21 days) was not justified for the professional work as the IBA Annual Conference lasted only six days. The Tribunal agreed with the CIT(A), stating that the assessee could not justify the extended stay for professional purposes. Consequently, this ground of appeal was also dismissed.

3. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source:
The third issue concerns the disallowance of ?10,01,698 under Section 40(a)(ia) for non-deduction of tax at source on payments made to the International Bar Association (IBA). The AO treated the IBA as having a Permanent Establishment (PE) in India through the Bar Association of India, deeming the income taxable in India. The CIT(A) upheld this view, stating that the IBA operates through organizations like the Bar Association of India, which can be treated as its PE in India. The CIT(A) also noted that the assessee failed to demonstrate that the expenses were incurred wholly and exclusively for professional purposes.

The Tribunal examined the relevant provisions, including Sections 195(1) and 195(2), and Article 5 of the India-UK DTAA. It noted that the AO and CIT(A) did not specify the type of PE or establish the business connection of the non-resident entity. The Tribunal found that the lower authorities failed to demonstrate how the Indian Bar Association was under the control or at the disposal of the IBA. Given the lack of evidence and findings, the Tribunal restored this issue to the AO for fresh consideration, directing that adequate opportunity be provided to the assessee.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal upheld the disallowances related to electricity and water expenses and foreign travelling expenses. However, it remanded the issue of disallowance under Section 40(a)(ia) back to the AO for fresh adjudication.