2017 (9) TMI 314 - AT - Income Tax

Foreign Travelling Expenses - Treatment of expenditure as revenue or capital - Held that - One of the partner of the assessee firm went abroad to purchase a machine for the purposes of business and the same was subsequently purchased and put to use in the business.In such a scenario, the foreign travelling expenses incurred by the assessee firm, since admittedly is for the purposes of business only and needs to be allowed as revenue expenditure - Decided in favor of assessee. TDS liability - addition u/s 40(a)(ia) - non-deduction of TDS on payment of interest being paid to M/s L&T Finance Ltd.- payee has included the amount paid by payer in its return of income - Held that - As payee has included the amount of interest so paid by assessee in its return of income and tax due there on has been paid then there is no need to make any disallowance for non deduction of TDS on interest u/s 40(a)(ia) . See CIT vs Ansal Land Mark Townships Pvt. Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT - Decided in favor of assessee.

Summary

Issues Involved:
1. Disallowance of Foreign Traveling Expenses as capital expenditure
2. Disallowance of interest under section 36(1)(iii) of the Act
3. Disallowance under section 40(a)(ia) of the Act for non-deduction of TDS
4. Violation of principles of natural justice

Analysis:

Issue 1: Disallowance of Foreign Traveling Expenses as capital expenditure
The Assessee challenged the disallowance of a sum on account of Foreign Traveling Expenses, arguing that the expenditure was for business purposes related to the acquisition of machinery and should be treated as revenue expenditure. The Commissioner of Income Tax (Appeals) sustained the disallowance, considering it as capital expenditure. The Tribunal found that the expenses were incurred for business purposes and allowed them as revenue expenditure, deleting the addition.

Issue 2: Disallowance of interest under section 36(1)(iii) of the Act
The Commissioner disallowed a sum of interest claimed as deduction under section 36(1)(iii) of the Act. The Assessee contended that the disallowance was unreasonable as the interest payment had no connection with the purchase of machinery. However, as the Assessee did not press these grounds during the hearing, the Tribunal dismissed them as not pressed.

Issue 3: Disallowance under section 40(a)(ia) of the Act for non-deduction of TDS
The Commissioner disallowed a sum under section 40(a)(ia) for non-deduction of TDS on payment of interest to M/s L&T Finance Ltd. The Assessee argued that the payment was included in the income of M/s L&T Finance Ltd., and taxes were paid on it, citing a certificate from the company. The Tribunal accepted the certificate and deleted the addition, stating that since the payee included the amount in its income and paid taxes, no disallowance was warranted under section 40(a)(ia).

Issue 4: Violation of principles of natural justice
The Assessee alleged a violation of natural justice as the additions were sustained without providing a fair opportunity to be heard. However, the Tribunal did not address this issue explicitly in its judgment.

In conclusion, the Tribunal partly allowed the Assessee's appeal by allowing the expenses as revenue expenditure and deleting the disallowance under section 40(a)(ia) of the Act. The Tribunal dismissed the grounds related to interest disallowance as they were not pressed during the hearing. The judgment highlighted the importance of considering the nature of expenses and the compliance with tax deduction requirements in determining the tax liability of the Assessee.