2018 (3) TMI 798 - HC - Income Tax

Non-deduction of TDS on the payments made on reimbursement of service charges - Disalllowance u/s 40(a)(ia) - Held that - In respect of similar or identical expenses this Court in CIT v. DLF Commercial Project Corporation 2015 (7) TMI 576 - DELHI HIGH COURT wherein held it is undisputed that M/s DLF Land Ltd. had deducted TDS on the payments made by it under various heads on behalf of the assessee. Further, it is also not disputed that the assessee deducted TDS on the service charge paid by it to M/s DLF Land Ltd. on the reimbursement expenses. In such circumstances, this Court holds that the entire amount paid by the assessee to M/s DLF Land Ltd. is entitled to deduction as expenditure. Disallowance of amounts claimed to have been paid to sundry creditors - Held that - AO was of the opinion that since the books were rejected, the debits claimed were not justified. Both CIT(A) and ITAT noticed that there was sufficient material. Besides, they were impressed by the fact that even though the AO rejected the report, he accepted the credit and chose to completely ignore the debits. On account of this deficiency, which was clearly cured, the Court is of the opinion that no substantial question of law arises. Net expenditure credits under Section 68 addition - Held that - Since the AO did not make any further enquiry, the burden cast upon the Revenue clearly had not been discharged so far as to entitle it to bring the amount to tax under Section 68 of the 1961 Act. Consequently, the Court is of the opinion that the approach of the ITAT as well as CIT(A) was proper and their conclusions correct.

Summary

Issues:
1. Disallowance of service charges and reimbursement expenses for Assessment Years 2009-10 and 2010-11.
2. Disallowance of amounts claimed to have been paid to sundry creditors.
3. Taxation of net expenditure credits received from public depositors under Section 68 of the Income Tax Act for AY 2009-10.

Analysis:

Issue 1: Disallowance of service charges and reimbursement expenses
The Revenue challenged the lower authorities' findings regarding disallowance of service charges and reimbursement expenses paid to a sister concern for AY 2009-10 and 2010-11. The Assessing Officer disallowed the amounts, alleging improper accounting for reimbursement of service charges. However, the CIT(A) and ITAT granted relief based on agreements and invoices presented by the assessee. The High Court cited a previous judgment rejecting a similar claim by the Revenue, emphasizing that reimbursement of expenses is not taxable income. The Court supported its decision with legal precedents and upheld the lower authorities' findings, dismissing the Revenue's appeal.

Issue 2: Disallowance of amounts paid to sundry creditors
The second question pertained to the disallowance of amounts paid to sundry creditors, including a specific sum claimed under Section 37(1) of the Income Tax Act. The AO rejected the books but accepted the credits while ignoring the debits, leading to a deficiency. Both CIT(A) and ITAT found sufficient material to support the claim, and the High Court concluded that no substantial question of law arose, affirming the lower authorities' decision.

Issue 3: Taxation of net expenditure credits from public depositors
Regarding the taxation of net expenditure credits received from public depositors for AY 2009-10, the AO disallowed the amount due to the assessee's alleged failure to establish the genuineness and creditworthiness of the public deposits. However, both CIT(A) and ITAT set aside the disallowance, noting that the necessary details were provided for verification. As the AO did not conduct further inquiries, the burden of proof was not met to tax the amount under Section 68 of the Income Tax Act. The High Court upheld the decisions of CIT(A) and ITAT, dismissing the Revenue's appeal.

In conclusion, the High Court found no substantial question of law in the issues raised by the Revenue, affirming the lower authorities' decisions and dismissing the appeals accordingly.