2021 (10) TMI 1247 - AT - Income Tax

TDS u/s 194C - Disallowance u/s 40(a)(ia) being the amount of expenses claimed under the head testing charges on the reason that the assessee has not deducted tax on such payment - CIT(A) in his finding held that the assessee has not awarded any contract to any party for testing charges, in fact, the testing charges were deducted by the Government while making payment to the assessee on running bills raised by the assessee upon the Governmen - HELD THAT - As contract agreement with terms and conditions for project of SSS. Canal with Government department wherein as per Clause 76 stated that deduction to be made toward testing charges from the running account bill of the contractor. No infirmity in the decision of the Ld. CIT(A) holding that testing charges was made by the Government and the assessee has only reimbursed the expenses through the mode of deduction made by the Government out of running bills of contract. Therefore, we do not find any merit in the ground of appeal of the Revenue and the same stand dismissed. Addition u/s 40(b) - remuneration to partner on the ground that remuneration of partner was not allowable on the amount of interest received on Fixed Deposit/SSNL Bonds which was treated as income from other sources -CIT(A) has allowed the appeal of the assessee - HELD THAT - The assessee has claimed that interest on Fixed Deposit, interest on SSNL Fixed Deposit and interest on SSNL Bonds was made out of surplus funds available with the assessee and the interest income was part of the business income. Therefore, the same was correctly included for calculating remuneration of the partners. As in the case of CIT vs. J.J. Industries 2013 (7) TMI 577 - GUJARAT HIGH COURT wherein it is held that interest from Fixed Deposit on spare funds cannot be excluded from book profit for the purpose of determining allowable deduction of remuneration paid to partners. After taking in to consideration the decision of Hon'ble Jurisdictional High Court we do not find any error in the decision of the Ld. CIT(A), therefore, this ground of appeal of the Revenue is also dismissed.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance on account of remuneration to partners.

Issue 1: Disallowance under section 40(a)(ia) of the Income Tax Act, 1961:
The appeal filed by the Revenue for A.Y. 2010-11 challenged the order of the CIT(A)-5, Vadodara, regarding disallowance made under Section 40(a)(ia) of the Act. The AO disallowed an amount under this section as the assessee failed to produce evidence of TDS deduction on testing charges. The CIT(A) allowed the appeal, stating that the assessee was not liable to deduct tax as the actual payment was made by the Government, and the assessee only reimbursed the expenses. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Government deducted the testing charges from the running bills, and the assessee reimbursed the Government, as evidenced by the contract agreement.

Issue 2: Disallowance on account of remuneration to partners:
The AO disallowed an amount under Section 40(b) of the Act concerning remuneration to partners, citing interest income received on fixed deposits. The CIT(A) allowed the appeal, considering the interest income as part of the business income based on a decision of the Jurisdictional High Court. The Tribunal upheld the CIT(A)'s decision, stating that the interest income from fixed deposits was correctly included in calculating partner remuneration, as it was generated from surplus funds and part of the business income.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on both disallowances. The judgment highlighted the importance of proper documentation and legal compliance in tax matters, emphasizing the need for clear evidence to support deductions and allowances under the Income Tax Act, 1961.