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2022 (4) TMI 587 - AT - Income TaxDisallowing being commission paid treating the same as pre-project expenditure - HELD THAT - As the agreement dated 25.03.2002 with the said service provider M/s. Ultro Technologies (India) Pvt. Ltd. has not been filed with the paper book while agreement dated 01.01.2002 with GAIL Ltd. has been placed on record . However the same has no reference of any intermediary or agency being involved in grant of the work order. Therefore the agreement dated 25.03.2002 was relevant piece of evidence to understand what was the nature of services and for which period of those services the commission was paid to M/s. Ultro Technologies (India) Pvt. Ltd.. During hearing the Bench has sought the agreement however the Ld. Counsel for the assessee stated at Bar that as the agreement pertains to such of far of period of 2002 the same is not available and cannot be produced before the Bench. That being so the findings of Ld. AO or Ld. First Appellate Authority that the expenses were pre project expenditure cannot be interfered. Assessee has claimed that the it engaged M/s. Ultro Technologies India Private Limited to help it in procuring and executing the order but it is strange that the agreement with GAIL Ltd. was executed on 01.01.2002 while the debit note for commission has been raised by Ultro Technologies (India) Pvt. Ltd in terms of agreement dated 25.03.2002. So the onus was on the assessee to establish what were the agreed terms and conditions or services which were provided by the agent during the term of execution of the project but the same is not established. Thus the law relied is distinguishable on matter on record and there is no substance in the ground 1 to differ with the findings of Ld. Tax Authorities below. The same is determined against the appellant. Disallowance to the extent of 20% of the expenditure relating it to period prior to the setting of PO in India - addition of Tour Travelling and Conveyance expenses on ad-hoc basis and treating the same as pre-project expenditure - HELD THAT - This addition of travel and conveyance expenses there appears to be no justification to estimate 20% of the expenses being related to pre-operative period. FAA has observed that assessee has not given any substantive evidence to refute or reject the estimation made by the Ld. AO while confirming the disallowance. While the ld. AO observed in his assessment order that the complete details of Tour Travelling Conveyance expenses are not available. Therefore when it is not possible to verify if the expenditure were incurred after the establishment of project office or before the establishment of project office then there is no justification to proportionately appropriate 20% of the expenditure to prior period expenditure. The same being merely whimsical and sustaining it the Ld. FAA has also erred therefore in regard to these grounds the order of ld. Tax Authorities below cannot be sustained and the grounds are allowed. Not treating the training fee as under the definition of technical service fee as taxable under sub-clause (B of clause (b of Section 115A(1 of the Act and taxing the same as business receipts of the appellant - HELD THAT - As assessee claims this ground was raised before the Ld. AO who failed to determine while passing the assessment order and Ld. First Appellate Authority has invoked the provisions of Section 44 DA of the Act which had come into effect prospectively from 21.03.2003 only therefore for the relevant assessment year 2003-04 the same was not applicable. Consequently this ground deserves to be allowed for statistical purposes only with the direction to the Ld. AO to consider the claim of assessee with regard to exemption of training fee income and to that extent the ground is allowed and issue is restored to the file of the Ld. AO. Appeal of assessee is partly allowed.
Issues Involved:
1. Disallowance of salaries paid to employees for project work under section 40(a)(iii) of the Income Tax Act, 1961. 2. Disallowance of commission paid to a service provider as pre-project expenses. 3. Disallowance of a portion of tour, traveling, and conveyance expenses as pre-project expenses. 4. Tax treatment of training fee paid under sub-clause (B) of clause (b) of section 115A(1) of the Act. Analysis: Issue 1 - Disallowance of Salaries: The appellant claimed salaries paid to employees for project work as a deductible expense, stating that the amounts were below taxable limits in India. However, the Learned A.O. disallowed the entire expense under section 40(a)(iii) of the Income Tax Act, 1961. The Ld. First Appellate Authority partially allowed this challenge, leading to an appeal before the Tribunal. The Tribunal observed discrepancies in the evidence provided by the appellant regarding the nature and timing of the services rendered by the employees. Ultimately, the Tribunal upheld the decision of the tax authorities, ruling against the appellant. Issue 2 - Disallowance of Commission Paid: The appellant engaged a service provider and paid commission, claiming it as a legitimate expense. However, the Learned A.O. disallowed this expense as pre-project expenditure. The appellant argued against this disallowance, but the Tribunal found that crucial evidence, such as the agreement with the service provider, was missing. As a result, the Tribunal upheld the decision of the tax authorities, denying the appellant's claim. Issue 3 - Disallowance of Travel Expenses: The appellant faced disallowance of a portion of tour, traveling, and conveyance expenses as pre-project expenses by the Learned A.O. The appellant contested this disallowance, stating that there was no justification for estimating 20% of the expenses as related to the pre-operative period. The Tribunal agreed with the appellant, finding the estimation arbitrary and lacking substantive evidence. Consequently, the Tribunal allowed this challenge, overturning the decision of the tax authorities. Issue 4 - Tax Treatment of Training Fee: The appellant raised a ground regarding the tax treatment of a training fee paid, arguing that it should be considered as a technical service fee under specific provisions of the Act. The tax authorities had not addressed this issue adequately. The Tribunal acknowledged the error in invoking certain provisions and directed the Ld. AO to reconsider the claim of the appellant regarding the training fee income. As a result, this ground was allowed for statistical purposes, and the issue was restored to the Ld. AO for further consideration. In conclusion, the Tribunal partly allowed the appeal of the assessee, upholding certain disallowances while overturning others and directing a review of specific tax treatment issues.
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