2022 (11) TMI 614 - AT - Income Tax

TDS u/s 194C - Disallowance u/s 40(a)(ia) - disallowance of Harbor expenses - HELD THAT - Harbour expenditure is a reimbursement of expenses to M/s.Trimex Minerals (P) Ltd., in turn, the party has incurred expenditure on behalf of the assessee and paid harbour expenditure to Chennai Port Trust for export of iron ore. As further noted that the assessee has filed copies of debit notes issued by M/s.Trimex Minerals (P) Ltd., along with ledger extract, and also confirmation from the parties where the party categorically confirmed a sum is paid to Chennai Port Trust, and said payment does not come under the provisions of TDS, because, Chennai Port Trust is a Government Organization and thus, TDS has not been deducted. We find that although the assessee has filed various details including confirmation from the party and copies of debit notes to prove that it is a reimbursement but not direct expenses incurred by the assessee, the AO simply ignored all the evidences filed by the assessee and made additions. Therefore additions made towards harbour expenditure for non deduction of TDS, is not sustainable and hence, we direct the AO to delete the addition made towards harbour expenditure. Appeal filed by the assessee is allowed.

Summary

Issues:
1. Disallowance of harbour expenses under section 40(a)(ia) of the Income Tax Act.
2. Failure to produce necessary evidences to justify reimbursement of expenses.
3. Ignoring documentary evidence filed by the assessee.
4. Dispute over deduction of TDS on harbour expenditure.
5. Confirmation of addition made towards harbour expenditure by the CIT(A).
6. Assessment of the legitimacy of business expenditure.

Analysis:
1. The appeal challenged the disallowance of harbour expenses under section 40(a)(ia) of the Income Tax Act for non-deduction of TDS. The AO disallowed the expenditure, leading to multiple rounds of litigation. The ITAT directed the AO to re-examine the claim based on the evidences provided by the assessee. The AO, after verification, concluded the claimed expenditure was not genuine, resulting in an addition to the total income. The CIT(A) upheld this addition.

2. The assessee argued that the harbour expenditure was a reimbursement of expenses incurred by a third party on their behalf, thus not subject to TDS deduction. The contention was that the expenses were paid directly to Chennai Port Trust by M/s.Trimex Minerals (P) Ltd. The assessee provided ledger extracts, debit notes, and confirmation from the third party to support their claim.

3. The ITAT found that the assessee had submitted sufficient evidence to prove the nature of the expenditure as a reimbursement and not direct expenses. Despite this, the AO disregarded the evidence and made the addition. The ITAT concluded that the additions made were not sustainable, directing the AO to delete the addition towards harbour expenditure.

4. The judgment highlighted the importance of considering all evidence presented by the assessee, especially when confirming additions to the total income. The ITAT emphasized the need for a thorough examination of the nature of expenses and the supporting documentation provided by the taxpayer before making any disallowances or additions.

5. Ultimately, the ITAT allowed the appeal filed by the assessee, overturning the decision of the CIT(A) and directing the AO to delete the addition made towards harbour expenditure. This ruling underscored the significance of substantiating claims with proper documentation and the obligation of tax authorities to consider all evidence before making determinations impacting the taxpayer's liability.

This comprehensive analysis of the judgment showcases the legal intricacies involved in the dispute over harbour expenses and the meticulous review conducted by the ITAT to arrive at a just decision.