2015 (12) TMI 1243 - AT - Income Tax

TDS u/s 194H - Disallowance of sales promotion expenses - non-deduction of TDS by invoking the provisions of sec.40(a)(ia) - Held that - The issue is to be decided by the Assessing Officer in the light of the Special Bench decision of the Tribunal in the case of Merilyn Shipping and Transports vs. Addl. CIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ) wherein it was held that provisions of section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS. In view of the above, we remit this issue to the file of the AO for fresh consideration. At this stage, we refrain from deciding the issue of sec. 194-H of the Act, to these payments. TDS u/s 194A - Disallowance u/s.40(a)(ia) - non-deduction of TDS on discount/factoring charges paid to M/s. Canbank Factors Ltd. - Held that - Special Bench of the Tribunal in the case of Merilyn Shipping and Transports vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ) and judgment of CIT vs. M/s. Vector Shipping Services (P) Ltd 2013 (7) TMI 622 - ALLAHABAD HIGH COURT held that sec 40(a)(ia) is not applicable when there is no outstanding balance at the end of the close of the year relevant to the assessment year in respect of these payment. However, the assessee has not brought on record, the details of outstanding expenses or schedule of sundry creditors showing whether the impugned amount is outstanding at the end of the close of the previous year relevant to the assessment year either in the name of the party or outstanding expenses. Hence, in the interest of justice, we are remitting the issue back to the file of the Assessing Officer with direction to verify the claim of the assessee and the assessee shall place necessary evidence in support of his claim. Depreciation on aluminium cans and crates at 50% - Held that - As per Index 1 to item (4), containers made of glass, plastic as refills entitled for depreciation at 50%, where the assessee claimed depreciation at 50% on aluminium cans. Being so, it is not fit under that category as mentioned in Index I to item No.4 of I.T.Rules. As such, the lower authorities are justified in restricting depreciation at 15% on w.d.v. Accordingly, this ground is dismissed.

Summary

Issues Involved:
1. Disallowance of sales promotion expenses for non-deduction of TDS under sec.40(a)(ia) of the Act.
2. Disallowance u/s.40(a)(ia) for non-deduction of TDS on discount/factoring charges paid.
3. Applicability of provisions of sec.40(a)(ia) of the Act in cross objection.
4. Claim of depreciation at 50% on aluminium cans and crates.

Issue 1: Disallowance of Sales Promotion Expenses for Non-Deduction of TDS:
The Revenue appealed against the disallowance of sales promotion expenses due to non-deduction of TDS under sec.40(a)(ia) of the Act. The Commissioner of Income-tax(Appeals) held that the relationship between the assessee and its distributors was "principal-to-principal" and not "principal-to-agent," thus not attracting sec.194H. The Commissioner concluded that sales promotion expenses were allowable under sec.37(1) as business promotion expenses. The Tribunal referred to a Special Bench decision and remitted the issue back to the Assessing Officer for fresh consideration.

Issue 2: Disallowance of TDS on Discount/Factoring Charges Paid:
The next issue concerned the disallowance u/s.40(a)(ia) for non-deduction of TDS on discount/factoring charges paid to M/s. Canbank Factors Ltd. The Commissioner observed that Canbank Factors Ltd. was exempt from sec.194A as a subsidiary of a nationalized bank. The Tribunal referenced a previous case and remitted the issue for further verification by the Assessing Officer.

Issue 3: Applicability of Provisions of Sec.40(a)(ia) in Cross Objection:
The cross objection raised by the assessee regarding the applicability of sec.40(a)(ia) was not adjudicated separately as the Tribunal's finding in the Revenue's appeal covered this issue.

Issue 4: Claim of Depreciation at 50% on Aluminium Cans and Crates:
The assessee claimed depreciation at 50% on aluminium cans and crates, but the Assessing Officer noted that only glass and plastic containers were eligible for 50% depreciation as per the relevant rules. The Tribunal upheld the lower authorities' decision to restrict depreciation to 15% on w.d.v. for aluminium cans, dismissing the claim for 50% depreciation.

In conclusion, the Tribunal allowed the Revenue's appeals for statistical purposes and partly allowed the assessee's cross objection for statistical purposes. The issues related to TDS disallowance and depreciation were remitted back to the Assessing Officer for fresh consideration based on the Tribunal's observations and relevant legal precedents.