2022 (6) TMI 524 - AT - Income Tax

TDS u/s 194J - non deduction of tds on expenditure claimed for arbitration work u/s. 40(a)(ia) - HELD THAT - Sums were paid to arbitrator as fee and clerical expenses and no reasonable explanation was given as to why TDS was not deducted thereupon - The assessee's plea that provisions of section 194J are not attracted has rightly been rejected by the Revenue authorities. Moreover, as noted by the Revenue authorities, the assessee itself in its ledger entry has mentioned that the payment is net of TDS to the arbitrator. Hence, assessee is aware that TDS was to be deducted failure to do so would certainly result in disallowance. Hence, we do not find any infirmity in the addition. Payment of Sum paid as professional fee to Pramodh Engineers - AO Rejected expenditure was that not justified u/s. 37(1) and the assessee has not conducted any business and no vouchers bills in this regard was produced - HELD THAT - As the assessee was pursuing before the Arbitral Tribunal and in fact on 04.07.2013, a further award in favour of the assessee of Rs. 15.84 Crores was awarded. It is another matter that the assessee has not taken any cognizance of the same in the accounts and no adverse inference by the authorities below is also there. Hence, the plea of professional charges paid Pramodh Engineers for pursuing and following of proceedings at Arbitral Tribunal, without any justification is not at all justified. Hence the reasoning of Revenue Authorities that the same is not for the purpose of business is liable to be rejected. CIT(A) has sustained the addition is absence of documentary evidence - We note that the Ld. CIT(A) examined the bills of professional charges to Pramodh Engineers. There is no dispute that the TDS on the same has been deducted. As held by us above, the same is for the purpose of business wherein the said firm was pursuing arbitration proceedings which as mentioned in the note of account has resulted in Rs. 15.84 crores being awarded in favour of assessee. The narration of the professional fee bill by the payee is not at all material in rejecting the professional fee bill. A professional fee bill is based upon understanding between the assessee and professional service provider. It is assessee who is to be satisfied by the professional services and not the Assessing Officer. It is not the case that the Assessing Officer is sitting into the computation of income of Pramodh Engineers. How Pramodh Engineers narrates and adjusts as professional fee receipt against what expenses is the look out of the Assessing Officer of Pramodh Engineers. The Assessing Officer in the present case or the Ld. CIT(A) for that matter cannot ask the assessee for further evidence of the professional fee bill raised. In this view of the matter, in our considered opinion, the rejection of the three bills of M/s. Pramodh Engineers is not at all justified. Hence, we delete the same as the expenditure is for business purpose; no case is made out for lack of deduction of TDS or the expenditure being bogus. The rest disallowance is to be upheld because no bills of Pramodh Engineers have been submitted. We do not find any infirmity in this regard as the assessee cannot claim any expenditure without furnishing the necessary bills. Accordingly, we partly uphold the order of the ld. CIT(A) as above. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Disallowance of Rs. 5,15,000/- on account of expenditure claimed for arbitration work due to non-deduction of TDS under Section 194J of the Income Tax Act.
2. Disallowance of Rs. 35,05,892/- representing consultancy charges under Explanation 1 to Section 37(1) of the Income Tax Act due to lack of supporting evidence and business activity.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 5,15,000/- for Arbitration Work:

The assessee company, incorporated under Malaysian law and engaged in road construction, appealed against the disallowance of Rs. 5,15,000/- by the Assessing Officer (AO) for arbitration work expenses due to non-deduction of TDS under Section 194J of the Income Tax Act. The AO noted that the assessee failed to deduct TDS on payments made to arbitrators, despite the assessee's ledger entries indicating that the payments were net of TDS. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, stating that the appellant's own records described the payments as "legal, professional and consultancy" and included details of TDS deducted and deposited. The Tribunal concurred with the Revenue authorities, finding no infirmity in the addition of Rs. 5,15,000/- due to the failure to deduct TDS.

2. Disallowance of Rs. 35,05,892/- for Consultancy Charges:

The AO disallowed Rs. 35,05,892/- claimed by the assessee for consultancy charges paid to Pramodh Engineers, citing the lack of business activity during the year and insufficient supporting evidence for the expenses. The invoices provided were not backed by primary vouchers and were identically worded, raising doubts about the authenticity of the services rendered. The CIT(A) confirmed the disallowance, noting that the invoices lacked specific dates and supporting bills.

Upon appeal, the Tribunal examined the financial accounts and noted that the assessee was engaged in arbitration proceedings related to a terminated contract with the Public Works Department (PWD), Government of Kerala. The Tribunal acknowledged that the assessee was pursuing claims before the Arbitral Tribunal, which had awarded significant amounts in the assessee's favor. The Tribunal found the professional charges paid to Pramodh Engineers for pursuing arbitration proceedings justified for business purposes.

However, the Tribunal noted that the assessee failed to produce supporting bills for the entire claimed amount. The CIT(A) had rejected the three submitted bills totaling Rs. 25,78,263/- due to their identical wording and lack of further vouchers. The Tribunal disagreed with the CIT(A)'s rejection, stating that the narration of professional fee bills by the payee was not material for rejecting the expenditure. The Tribunal held that the rejection of the three bills was unjustified and deleted the disallowance of Rs. 25,78,263/-.

For the remaining disallowance (Rs. 35,05,892 - 25,78,263), the Tribunal upheld the CIT(A)'s order, as the assessee did not furnish necessary bills for this portion of the claimed expenditure.

Conclusion:

The Tribunal partly allowed the assessee's appeal, upholding the disallowance of Rs. 5,15,000/- for non-deduction of TDS and partially deleting the disallowance of consultancy charges, allowing Rs. 25,78,263/- while maintaining the disallowance for the remaining amount due to lack of supporting evidence.