2014 (2) TMI 987 - AT - Income Tax

TDS u/s 194H - nature of expenditure on foreign travelling of its dealers/sub-dealers - Commission or Discount - Held that - The assessee had paid incentives/commission to its dealers, which had been debited in the Profits & Loss Account under the head of foreign travel expenses - the expenses had been claimed under the garb of foreign travel expenses - there is nothing other than incentive/commission - this fact was evident since the higher sales achieved by the dealers would result in more bonus points to the dealers - commission includes any payment received directly or indirectly by a person acting on behalf of another, for services rendered in the course of buying or selling of goods - The Assessing Officer has miserably failed to appreciate the real controversy - He has totally misconstrued the explanation given by the assessee - The dealers and sub-dealers had purchased the goods directly from the assessee - They have not acted as a commission agent for third person where upon sec. 194H would be applicable Decided in favour of Assessee. Disallowance of interest paid excessive and unreasonable expenditure - Held that - Section 40A(2)(b) is not applicable on a public limited company - The premises in question, consisting of 21000 sq. ft. of office area, was taken on rent in Assessment Year 1999-2000 - During the year, total rent amounted to Rs. 48 lacs - In addition, Rs. 11.35 crores had been paid as interest free security deposit, which was as per clause (2) of rent agreement dated 31.12.2008 - it had been agreed to keep the rent @ Rs. 4 lacs per month and to increase the security deposit by Rs. 6 crores, which facts do not stand disputed Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of travelling expenses
2. Disallowance of interest paid

Issue 1: Disallowance of Travelling Expenses:
The Assessing Officer disallowed Rs. 11,25,000 of travelling expenses, considering them as incentives/commissions to dealers, thus requiring TDS deduction. The CIT (A) upheld the disallowance, stating the expenses were incentives/commissions disguised as foreign travel expenses. The Tribunal, referencing a previous order, ruled in favor of the assessee, stating the dealers did not act as commission agents. Consequently, the disallowance was rejected due to similar circumstances in the previous year's case.

Issue 2: Disallowance of Interest Paid:
The Assessing Officer disallowed Rs. 81 lakhs of interest paid, citing an increase in interest-free security deposit to a related party without a reasonable explanation. The CIT (A) affirmed the disallowance, deeming the expenditure excessive and unreasonable. The Tribunal, again referring to the earlier order, favored the assessee, highlighting that the Assessing Officer did not consider all relevant factors and that the disallowance was unjustified. The Tribunal accepted the appeal, emphasizing the availability of sufficient interest-free funds and reasonable rent rates compared to market standards.

The Tribunal allowed the appeal, finding in favor of the assessee on both issues, citing previous orders and lack of justifiable grounds for the disallowances.