2015 (11) TMI 298 - AT - Income Tax

Disallowance of rent to Warehouse contract payment to NBHC u/s 40(a)(ia) - non deduction of TDS - Held that - In the present case, it is an admitted fact that the assessee reimbursed the salary to the guards of the bank and there was no contract in between the assessee and NBHC. Guards were deputed by the bank, but the expenses were reimbursed by the assessee. The assessee reimbursed the expenses to the bank and the bank ought to have deducted the TDS when there was a contract in between the bank and the NBHC, but there was no contract between the assessee and NBHC. Therefore, provisions of section 40a(ia) were wrongly applied by the ld. AO, as the assessee was not required to deduct TDS u/s 194C of the Act on the reimbursement of the expenses. In that view of the matter, addition on account of disallowance is deleted. As regards to the other issue relating to the payment of rent paid to the warehousing Corporation, the ld. CIT(A) categorically observed that the assessee was asked to produce evidence that the Haryana Warehousing Corporation and Central Warehousing Corporation are entities which are government and statutory authorities or local authorities covered u/s 10(20) or 10(20A) of the Act, but the assessee was not in a position to produce any evidence. It is well settled that when any assessee claims any benefit or exemption under any provision of the statute, it is for the assessee to produce the relevant documents or evidence, on the basis of which it is claiming such a benefit or exemption. However, in the present case, it is noticed that the AO in the assessment order nowhere stated that he asked the assessee to produce such an evidence - set aside this issue back to the file of AO, to be decided afresh in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. - Decided partly in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of rent and contract payment under section 40(a)(ia) of the Income-tax Act.
2. Applicability of TDS on rent payments to government entities.
3. Disallowance of NBHC bank guard pay under section 40(a)(ia) of the Act.
4. Proper opportunity provided by the Assessing Officer during assessment proceedings.
5. Disallowance of expenses without TDS deduction by the assessee.

Analysis:
1. The appellant challenged the disallowance of rent and contract payment under section 40(a)(ia) of the Income-tax Act, arguing that the section is applicable only to amounts payable as of a specific date. The Assessing Officer (AO) disallowed rent payments made to government entities, citing non-deduction of TDS under section 194-I. The appellant claimed exemption based on Circular no. 699 dated 30-1-1995, but failed to provide evidence that the entities were covered under sections 10(20) or 10(20A) of the Act. The ld. CIT(A) upheld the disallowance, emphasizing the lack of supporting documentation from the appellant.

2. Regarding the disallowance of NBHC bank guard pay under section 40(a)(ia) of the Act, the appellant argued that no TDS was required as the payments were made to a banking concern and there was no contract between the appellant and NBHC. The ld. CIT(A) rejected this contention, stating that TDS was mandatory under section 194C for contractual payments. The appellant's reliance on judgments and case laws was considered, but the disallowance was upheld as the payment was contractual in nature.

3. The appellant also raised concerns about the AO's alleged hasty decision-making process. However, the ld. CIT(A) dismissed these claims, stating that the AO provided ample opportunities during assessment proceedings. The contention was deemed baseless, and the ld. CIT(A) supported the impugned order.

4. In a detailed analysis, the ITAT referred to a judgment by the Hon'ble Delhi High Court regarding reimbursement of expenses and non-deduction of TDS. Drawing parallels, the ITAT concluded that the disallowance of NBHC bank guard pay was unjustified as there was no contract between the appellant and NBHC, and TDS was the responsibility of the bank. The ITAT also directed the AO to reconsider the issue of rent payments to government entities, emphasizing the need for proper evidence to claim exemptions under the Act.

5. Ultimately, the ITAT partially allowed the appeal for statistical purposes, deleting the disallowance of NBHC bank guard pay but remanding the issue of rent payments to government entities back to the AO for a fresh decision with proper opportunity for the appellant to present evidence. The judgment highlighted the importance of substantiating claims for exemptions under the statute and ensuring compliance with TDS provisions for contractual payments.