2014 (5) TMI 268 - AT - Income Tax

Disallowance u/s 40(a)(ia) of the Act Reimbursement expenses paid to clearing and forwarding agent TDS not deducted Held that - Following CIT vs Gujarat Narmada Valley Fertilizers 2014 (4) TMI 235 - GUJARAT HIGH COURT no part of amount reimbursed was to be disallowed u/s. 40(a)(ia) if tax has not been deducted - expenses were incurred by agent on behalf of assessee-principal for transportation and other charges, which had been spelt out in bill itself - So far as obligation to deduct tax at source form payment of transport charges and other charges was concerned, same was complied with by agent, who had made payment on its behalf Decided in favour of Assessee. Disallowance of expenses u/s 14A r.w. Rule 8D of the Act Exempted dividend - Held that - The asssessee himself had admitted there was an expense of Rs. 98,404/- towards demat charges in respect of this exempt income - The assessee did not attribute any administrative or managerial expenses towards earning of this dividend income - Investments decisions are taken by the top management of the company, therefore some part of administrative and managerial expenses can be held as attributable to earn the exempt income from such investments - thus, the disallowance u/s. 14A is restricted to Rs. 3 lacs Decided partly in favour of Assessee. Disallowance u/s 40(a)(ia) of the Act Lower rate of TDS deducted as prescribed u/s 194J of the Act Held that - Following APOLLO TYRES LTD Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(1), ERNAKULAM 2013 (11) TMI 209 - ITAT COCHIN - if any part of the tax which required to be deducted was found to be not deducted then can be levied in respect of that part of the amount which was not deducted - the language of section 40(a)(ia) does not say that even for short deduction disallowance has to be made proportionately - section 40(a)(ia) does not enable the assessing officer to disallow any proportionate amount for short deduction or lesser deduction thus, the order of the CIT(A) deleting the addition is upheld Decided against Revenue. Disallowance u/s 40(a)(ia) of the Act Payment made for machinery hiring charges TDS not deducted Held that - CIT(A) has deleted the disallowance on the ground that machinery/plant and equipment were covered in definition of rent for the purpose of section 194I only w.e.f. 13-07-2006, therefore before this date assessee was not liable to deduct tax at source u/s.194I from machinery hire charges and disallowance made by AO u/s. 40(a)(ia) on this count was not sustainable there was no infirmity in the finding of CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for reimbursement of expenses to clearing and forwarding agents.
2. Disallowance under Section 14A read with Rule 8D for expenses related to earning exempt income.
3. Disallowance under Section 40(a)(ia) for payments made to Akassish Mechatronics Ltd. due to lower TDS deduction.
4. Disallowance under Section 40(a)(ia) for payments made to Elecon Information Technology Ltd. due to lower TDS deduction.
5. Disallowance under Section 40(a)(ia) for machine hire charges without TDS deduction.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Reimbursement of Expenses to Clearing and Forwarding Agents:
The assessee contended that TDS was not applicable on reimbursements to Express Transport Pvt. Ltd., acting as a Custom House Agent, as per Board's Circular 715. The AO disagreed, stating that reimbursements should be subjected to TDS under Section 194C, as the clearing and forwarding agent was an independent contractor. The CIT(A) upheld this view. However, the Tribunal found that the issue was covered in favor of the assessee by the jurisdictional High Court's decision in CIT vs. Gujarat Narmada Valley Fertilizers Co., which held that no disallowance under Section 40(a)(ia) was warranted if tax had not been deducted on reimbursed expenses. Thus, this ground of the assessee was allowed.

2. Disallowance under Section 14A read with Rule 8D for Expenses Related to Earning Exempt Income:
The AO made a disallowance under Section 14A by applying Rule 8D, which was confirmed by the CIT(A). The assessee argued that Rule 8D was not applicable for the assessment year in question and only demat charges of Rs. 98,404/- were incurred. The Tribunal agreed that Rule 8D was not applicable but held that some administrative and managerial expenses should be attributed to earning the exempt income. Therefore, the disallowance was restricted to Rs. 3 lacs, partly allowing the assessee's appeal.

3. Disallowance under Section 40(a)(ia) for Payments Made to Akassish Mechatronics Ltd. Due to Lower TDS Deduction:
The AO disallowed Rs. 60,60,960/- under Section 40(a)(ia) because the assessee deducted TDS under Section 194C instead of 194J for technical services. The CIT(A) deleted the disallowance. The Tribunal upheld this decision, citing precedents where short deduction of TDS did not warrant disallowance under Section 40(a)(ia), as long as some TDS was deducted.

4. Disallowance under Section 40(a)(ia) for Payments Made to Elecon Information Technology Ltd. Due to Lower TDS Deduction:
Similar to the third issue, the AO disallowed Rs. 8,86,940/- under Section 40(a)(ia) for short TDS deduction under Section 194C instead of 194J. The CIT(A) deleted the disallowance. The Tribunal upheld the CIT(A)'s decision, applying the same rationale as in the third issue.

5. Disallowance under Section 40(a)(ia) for Machine Hire Charges Without TDS Deduction:
The AO disallowed Rs. 3,60,204/- for machine hire charges, stating that TDS under Section 194I was not deducted. The CIT(A) deleted the disallowance, noting that the requirement to deduct TDS on machinery hire charges under Section 194I came into effect only from 13-07-2006. The Tribunal found no infirmity in this finding and upheld the CIT(A)'s decision.

Combined Result:
The assessee's appeal was partly allowed, and the revenue's appeal was dismissed. The Tribunal pronounced this order in open court on 29.04.2014.