2021 (8) TMI 420 - AT - Income Tax

Disallowance u/s. 40(a)(ia) - assessee paid professional fees legal fees without deduction of tax at source - addition was confirmed by Ld. CIT(A) - HELD THAT - AR seek benefit of second proviso to Sec. 40(a)(ia) by submitting that the respective payees has offered this income in their return of income and paid due taxes thereupon and therefore, the disallowance is not sustainable. We concur with these submissions of Ld. AR. Accordingly, we restore this issue to the file of Ld. AO with a direction to the assessee to adduce requisite evidences/documents to show the fulfillment of the requirement of second proviso to 40(a)(ia) read with first proviso to Section 201(1). This ground stand allowed for statistical purposes. Disallowance on account of mismatch in receipts as reflected by the assessee vis- -vis receipts as reflected in Form No. 26AS - HELD THAT - AR reiterated that difference arises due to the fact that billing was erroneously done in the name of group concern. The Ld. AR also placed on record reconciliation, Form 26AS and ledger accounts in support of the submissions. Prima-facie, the arguments of Ld. AR has strength. The dispute is a matter of reconciliation only. Therefore, we direct Ld. AO to re-verify the above claim after appreciating the relevant documents as placed on record. If the billing is done in other name and the same has already been accounted for by the assessee as business receipts, the same could not be added again. This ground as well as the assessee's appeal stand allowed for statistical purposes. Addition u/s. 40A(3) - Disallowance of capital expenditure - expenses were mostly in the nature of labour charges paid by assessee on behalf of the principal in cash - HELD THAT - Assessee has incurred expenditure on behalf of its principal and claimed the reimbursement of the same which is evidenced by the ledger account as placed on record. The net agency commission earned by the assessee has been credited to its Profit Loss Account. We find that stated expenditure is in the nature of petty labour charges which has been incurred by the assessee on behalf of its principal. Similar issue arose in assessee's case for AY 2007-08 wherein the bench, in para 6 of the order, held that the provisions of Sec. 40A(3) would not be attracted to such payment. There is no new material before us to deviate from the earlier view of the bench. Facts are pari-materia the same in this year. Since Ld. CIT(A) has merely followed the order of Tribunal, no fault could be found in deleting the impugned addition. By confirming the stand of Ld. CIT(A), we dismiss the appeal of the revenue.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for non-deduction of tax at source.
2. Disallowance due to mismatch in receipts as per Form No. 26AS.
3. Disallowance under section 40A(3) for cash expenditure.

Analysis:
1. The first issue pertains to disallowance under section 40(a)(ia) for non-deduction of tax at source on professional and legal fees. The Assessing Officer (AO) disallowed the expenses, which was upheld by the Commissioner of Income-Tax (Appeals) [CIT(A)]. However, the Appellate Tribunal found in favor of the assessee. The Tribunal directed the assessee to provide evidence showing compliance with the second proviso to section 40(a)(ia) and first proviso to section 201(1). The Tribunal allowed this ground for statistical purposes.

2. The second issue involves a discrepancy in receipts where the assessee reflected a lower amount compared to the amount in Form No. 26AS. The AO added the difference to the assessee's income, a decision upheld by the CIT(A). However, the Tribunal considered the explanation provided by the assessee regarding billing errors and directed the AO to re-verify the claim after examining the relevant documents. The Tribunal allowed this ground and the assessee's appeal for statistical purposes.

3. The third issue concerns disallowance under section 40A(3) for cash expenditure. The AO disallowed a significant amount of cash expenditure, but the CIT(A) deleted the disallowance based on the Tribunal's decision in the assessee's previous case. The Tribunal, after reviewing the facts, concluded that the expenditure was in the nature of petty labor charges incurred on behalf of the principal. As there was no new material to deviate from the earlier view, the Tribunal upheld the deletion of the disallowance. Consequently, the Tribunal dismissed the revenue's appeal while allowing the assessee's appeal for statistical purposes.

In conclusion, the Tribunal's judgment addressed the issues of disallowance under different sections of the Income Tax Act, emphasizing the importance of providing evidence for compliance and considering the nature of expenses incurred on behalf of principals. The appeals were decided in favor of the assessee and against the revenue, with detailed reasoning provided for each issue.