2013 (5) TMI 13 - AT - Income Tax

Disallowance u/s 40(a)(ia) - reimbursement of expenditure paid to Prestige Holidays Resorts - Held that - Since it is a fact that assessee has reimbursed the telephone charges, printing and stationery and business promotion expenses in terms of Clause 7 of the marketing agency agreement to the said Prestige Holidays Resorts Pvt Ltd, the reimbursement of the expenditure does not call for any deduction of tax, as held by in SIEMENS AKTIONGESELLSCHAFT case 2008 (11) TMI 74 - BOMBAY HIGH COURT relied upon by the CIT (A). Whatever commission was paid by assessee, that amount was already covered by the TDS on which there is no dispute. In favour of assessee. Tax an 50% of the money forfeited by assessee from the defaulted members - Held that - Assessee is consistently following the accounting treatment in a rationale manner as 50% of the retention money was kept aside by assessee to meet the eventuality of having to refund the amounts to prospective customers who do not pay the remaining installments because of genuine reasons of emergency, accident, hospitalization etc. This method of accounting has been followed by assessee right since its inception and has always been accepted in earlier years. Had AO excluded the amount offered during the year on the same principles in which he brought the balance 50% of the amount to tax, there could have been some justification in the action of AO. He did not do so. In favour of assessee

Summary

Issues:
1. Disallowance under section 40(a)(ia) of reimbursement of expenditure paid to a company without TDS deduction.
2. Addition of 50% of forfeited money by the assessee from defaulters as taxable income.

Issue 1 - Disallowance under section 40(a)(ia):
The Revenue appealed against the CIT (A) order deleting the disallowance made under section 40(a)(ia) of reimbursement of expenditure paid to a company without TDS deduction. The AO contended that the reimbursement was part of commission subject to TDS. The CIT (A) considered submissions, cited legal precedents, and deleted the disallowance based on the nature of the expenditure and the TDS already applied to the commission. The ITAT upheld the CIT (A) decision, noting that the reimbursement of specific expenses did not warrant tax deduction as clarified by the jurisdictional High Court.

Issue 2 - Addition of forfeited money as taxable income:
The second issue revolved around adding 50% of the forfeited money by the assessee from defaulters as taxable income. The AO brought this amount to tax despite objections from the assessee. The assessee followed a method of accounting where forfeited amounts were treated as income and liability based on specific circumstances. The CIT (A) relied on a Supreme Court decision and directed the AO to delete the addition. The ITAT supported the CIT (A) decision, emphasizing the consistent and rational accounting treatment by the assessee, which was accepted in previous years. The ITAT found no evasion of income, only a difference in timing of tax liability, and dismissed the Revenue's appeal.

In conclusion, the ITAT affirmed the CIT (A) orders in both issues, highlighting the importance of consistent accounting practices and adherence to legal precedents in determining tax liabilities. The judgments emphasized the significance of factual considerations, legal interpretations, and the rationale behind the accounting methods followed by the assessee in arriving at the decisions.