2021 (6) TMI 456 - AT - Income Tax

Addition u/s.40(a)(ia) in hire charges - HELD THAT - AO after considering bill submitted by the assessee has accepted claim of hire charges and out of total expenses incurred for the year has allowed deduction for an amount - However, balance amount was disallowed in absence of bills and vouchers. The assessee has filed a paper-book which contains copies of bills issued by M/s. Vardhman Diesel Generators, as per which the assessee has submitted bills and vouchers for total expenditure incurred by the assessee - Therefore, we are of the considered view that the AO was erred in disallowing part of expenses even though he has accepted claim of the assessee regarding part of expenses and has also accepted legal position that there is no requirement of deduction of tax at source on such payment. Disallowance of External service charges - HELD THAT - It is an admitted fact that one cannot make profit by himself. Therefore, any payment by a Branch office to its Head office is a payment by self, which cannot be considered as a payment to a third party nor bring said payment within the ambit of TDS provision. But, the fact remains that assessee has to file necessary evidences including bills and vouchers to prove that said payment is reimbursement of expenses to its Head office for allocation of common expenses. In this case, the AO as well as the ld.CIT(A) has brought out clear facts to the effect that the assessee has failed to file necessary evidences including agreement between parties and bills vouchers in support of its claim. The issue needs to go back to file of the AO to reconsider the issue that said payment is reimbursement of expenses to its Head office for allocation of common expenses to various Branch offices. In case, the assessee files necessary evidences to prove its claim, then the AO is permitted to cause necessary enquiries and take appropriate decision in accordance with law. Disallowance of payment made to related parties - HELD THAT - We find that although the assessee claims it has reimbursed a sum to its Head office for allocation of common expenses incurred by Head office and charged off to various Branch offices, but failed to file any evidences including agreement, bills and vouchers in support of its claim. No doubt, payment by self cannot be treated as expenditure in order to invoke TDS provisions, but it is for the assessee to place necessary evidences before the AO to support its case. In this case, the assessee has not placed any evidences before the AO to support its claim. Therefore, we are of the considered view that the issue needs to go back to file of the AO to reconsider afresh in light of claim of the assessee that said payment is reimbursement of expenses to Head office for allocation of common overhead expenses to various Branch offices.In case, assessee files necessary evidences to prove its case, then the AO is directed to cause necessary enquiries and take appropriate decision in accordance with law.

Summary

Issues:
1. Disallowance of Hire Charges ?2,92,500
2. Disallowance of External Services ?52,11,040
3. Disallowance of Payments made to Related Parties ?77,39,322
4. Double Disallowance of ?52,11,040
5. Request for leave to add, alter, amend, and/or supplement the grounds of appeal

Issue 1: Disallowance of Hire Charges ?2,92,500

The AO disallowed hire charges due to non-deduction of tax at source under section 194I of the Income Tax Act. The appellant contended that the hire charges were VAT applicable sales, not requiring TDS deduction. The AO accepted part of the expenses but disallowed ?2,92,500 for lack of bills and vouchers. The appellant provided sample invoices and a paper-book with total expenditure bills. The ITAT held that the AO erred in disallowing part of the expenses, directing deletion of the addition for hire charges.

Issue 2: Disallowance of External Services ?52,11,040

The AO disallowed external service charges for non-provision of evidence like agreements or invoices. The appellant argued that these charges were expenses allocated by the Head office without profit, not necessitating TDS deduction. The ITAT acknowledged that payments to the Head office do not involve third parties but stressed the need for evidence to support the reimbursement claim. The case was remanded to the AO for reconsideration upon submission of necessary evidence.

Issue 3: Disallowance of Payments made to Related Parties ?77,39,322

Payments to the Head office for common expenses were disallowed by the AO due to lack of supporting documents. The appellant asserted that these payments were self-reimbursements for common expenses, not subject to TDS. While acknowledging the nature of self-payments, the ITAT emphasized the necessity of providing evidence. The matter was remanded to the AO for fresh consideration upon submission of supporting documents.

Issue 4: Double Disallowance of ?52,11,040

The AO disallowed the same amount twice, first as external service charges and then under head office expenses. The ITAT directed the AO to allow the expenses of ?52,11,040, noting the error in double disallowance.

Issue 5: Request for leave to add, alter, amend, and/or supplement the grounds of appeal

The appellant sought leave to modify the grounds of appeal if necessary during the hearing. The ITAT treated the appeal as allowed for statistical purposes.

The ITAT Chennai, in the cited judgment, addressed various issues concerning disallowances of expenses and payments made by the appellant. The tribunal emphasized the importance of providing necessary evidence to support reimbursement claims and reiterated the principles governing TDS deductions under the Income Tax Act. The judgment highlighted the need for proper documentation to substantiate expenditure claims and directed the AO to reconsider the matters upon submission of required evidence.