2019 (11) TMI 1039 - AT - Income Tax

Additions u/s 40a(ia) - TDS on rent u/s 194I - Failure to deposit TDS before the due date for filing the return of income. - The said TDS was deducted on rental payment and paid to Government account on 05.10.2009 after the due date for filing the ITR - the assessee canvassed the argument of using infrastructure facilities, discussed in the assessment order and argued that there is no case for application of provisions of TDS and the disallowance of expenditure u/s 40(a)(ia) of the Act are uncalled for. Held that - Since the assessee is using the land and building as well as the other furniture and fixtures available to the company, the Ld.AR contended that it is using infrastructure facilities. However, fact remains that the company, VEIL has given its premises along with the furniture and machinery, fittings etc as available in the Balance Sheet to the assessee for it s use and receiving rent monthly/or yearly from the assessee. In the books of accounts of payee, the receipt was accounted for under the head rent account . - Since the assessee is making the payment of composite rent for the purpose of use of the land and buildings and other equipment, the payment made to the company is squarely covered by the definition of 194I for the purpose of rent. Having deducted the TDS, but not remitted to the Government account before the due date of filing the return of income, the provisions of section 40(a)(ia) attracts. There is no dispute that the assessee has deducted the tax and the payee did not dispute the deduction of tax. Thus, the payment made to the VEIL is nothing but the rent and having failed to remit the TDS to Government account, the provisions of section 40(a)(ia) are squarely applicable - Additions confirmed - Decided against the assessee. Disallowance u/s 40A(2) - amount paid to related / specified persons - substantial increase in payment of rent - Held that - the issue needs detailed verification at the end of the AO in the light of the above discussion. The assessee is directed to furnish the details of other payments made to VEIL with nature and purpose and the detailed inventory of items for which the items are leased to the assessee in the earlier year and the year under consideration with proper evidence. - additions set aside on the disallowance u/s 40A(2) for denovo consideration of the AO. Disallowance of 20% of the miscellaneous expenses - the expenses were mostly made out of self made vouchers - Held that - Since the assessee is a society and claimed to be non profitable organization, it is not expected to incur public relations expenses which are not verifiable with the documentary evidence. However considering the arguments made by the Ld.A.R, we consider it is reasonable to restrict the disallowance to the extent of 5%. - Decided partly in favor of assessee.

Issues Involved:
1. Disallowance of rent payable to M/s VEIL u/s 40(a)(ia)
2. Disallowance of rent paid to M/s VEIL u/s 40A(2)
3. Disallowance of Mess expenses, Misc. Expenses, Credit card expenses, municipal taxes, donation, guest house expenses, board expenses, library etc.
4. Disallowance of Municipal taxes
5. Disallowance of Guest entertainment expenditure
6. Disallowance of Library books depreciation
7. Disallowance of Recruitment expenses
8. Disallowance of Musical instrument expenses

Detailed Analysis:

1. Disallowance of rent payable to M/s VEIL u/s 40(a)(ia):
The assessee paid ?6,00,00,000 to M/s VEIL for infrastructure facilities but failed to remit TDS before the due date. The AO treated the payment as rent under section 194I, leading to disallowance u/s 40(a)(ia). The CIT(A) confirmed this, noting no written agreement and the payment being classified as rent in the payee's books. The Tribunal upheld the disallowance, emphasizing the lack of agreement and the nature of the payment fitting the definition of rent under section 194I.

2. Disallowance of rent paid to M/s VEIL u/s 40A(2):
The AO disallowed ?2,00,00,000 for A.Y. 2009-10 and ?2,01,00,000 for A.Y. 2010-11 as excess payment to a related party. The CIT(A) upheld the disallowance, citing lack of substantial increase in infrastructure. The Tribunal remitted the issue back to the AO for detailed verification, emphasizing the need for proper documentation and agreement to justify the increased rent.

3. Disallowance of Mess expenses, Misc. Expenses, Credit card expenses, municipal taxes, donation, guest house expenses, board expenses, library etc.:
The AO disallowed various expenses due to lack of detailed documentation. The CIT(A) partly upheld these disallowances, reducing them to a reasonable percentage. The Tribunal further reduced the disallowance percentages, acknowledging the necessity of such expenses but emphasizing the need for proper documentation.

4. Disallowance of Municipal taxes:
The AO disallowed the payment of municipal taxes made by the assessee for a property owned by VEIL due to the absence of an agreement. The CIT(A) upheld the disallowance. The Tribunal remitted the issue back to the AO, linking it with the rent payment issue for joint consideration.

5. Disallowance of Guest entertainment expenditure:
The AO disallowed 20% of guest house entertainment expenses due to lack of proper bills and vouchers. The CIT(A) reduced the disallowance to 10%. The Tribunal upheld the CIT(A)'s decision, noting the necessity of such expenses but the lack of detailed documentation.

6. Disallowance of Library books depreciation:
The AO allowed only 60% depreciation on library books, disallowing ?6,53,533, as the books were not for a lending library. The CIT(A) confirmed this, and the Tribunal upheld the decision, citing the Income Tax Rules which allow 100% depreciation only for lending libraries.

7. Disallowance of Recruitment expenses:
The AO disallowed recruitment expenses claimed by the assessee but pertaining to M/s People Combine Group. The CIT(A) upheld the disallowance. The Tribunal found no evidence to substantiate the claim that the expenses were for the assessee and upheld the CIT(A)'s decision.

8. Disallowance of Musical instrument expenses:
The AO treated the purchase of musical instruments as capital expenditure, allowing 15% depreciation and disallowing the balance. The CIT(A) confirmed this, noting the lack of evidence that individual items cost less than ?5000. The Tribunal upheld the decision, emphasizing the capital nature of the expenditure.

Conclusion:
The Tribunal upheld most of the CIT(A)'s decisions, emphasizing the necessity of proper documentation and agreements to substantiate claims. The issues related to rent payments were remitted back to the AO for detailed verification and fresh consideration.

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