2013 (8) TMI 380 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Payment to consignment agents - Non deduction of TDS - Commission versus reimbursement of expenses - Held that - The commission is said to be payment of commission if it is evident that it is being paid for service of a person provided in respect of sale of product of the assessee - The concerned parties have also furnished the sale Patti along with claim of the expenses on sale of consignment goods the claim of expenses given detail the expenses pertaining to the monthly selling expenses loading and unloading dealing with expenses. These expenses have been adjusted and accounted for in the account of respective parties - impugned payment is reimbursement of the expenses and are not the commission as the concerned party did not give any services in respect of the payment of expenditures made. Providing services is essentially requirement of the nature of transaction of a commission. Since this condition is not satisfied in the case under consideration therefore it is a case of reimbursement of the expenses incurred by the concerned party on behalf of the assessee - Decided in favour of assessee.

Summary

Issues:

1. Disallowance under section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source on payments made.
2. Interpretation of section 40(a)(ia) regarding the timing of payments and applicability on amounts payable on the last day of the previous year.
3. Adjudication of grounds raised before the CIT(A) but not addressed.

Analysis:

Issue 1: Disallowance under section 40(a)(ia) for non-deduction of tax at source
The appellant contested the disallowance of Rs. 14,93,965 made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act. The Assessing Officer found that the appellant had not deducted tax on payments made to consignees, considering it as reimbursement of expenses. However, it was concluded that these payments were fixed commissions unrelated to actual expenses. The CIT(A) upheld the disallowance, stating that the expenses reimbursed did not correlate with actual expenses incurred by consignee agents, and therefore, the appellant was liable to deduct tax at source. The appellant argued that the disallowance was unwarranted as the payments were made throughout the year and not payable on the last day of the previous year.

Issue 2: Interpretation of section 40(a)(ia) regarding timing of payments
The appellant contended that section 40(a)(ia) is applicable only when the amount is payable on the last day of the previous year. Reference was made to a decision of the ITAT Special Bench Visakhapatnam, which clarified that disallowance under section 40(a)(ia) cannot be invoked for payments made during the financial year, except for amounts remaining payable at the year-end. The Tribunal agreed with the appellant's argument, emphasizing that there was no amount payable at the end of the previous year in this case. The issue was remanded to the Assessing Officer for factual verification in line with the ITAT decision.

Issue 3: Adjudication of grounds not addressed by CIT(A)
The appellant raised multiple grounds before the CIT(A), including the non-adjudication of a specific ground. The Tribunal noted that the ground raised before the CIT(A) was identical to one raised before them. It was observed that factual verification was necessary based on the ITAT decision cited, prompting the issue to be sent back to the Assessing Officer for reconsideration in accordance with the ITAT's ruling.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a reevaluation of the disallowance under section 40(a)(ia) in light of the legal interpretations provided.