2022 (4) TMI 581 - AT - Income Tax

TDS u/s 195 - non-deduction of TDS on purchase of being designs being held as fee for technical u/s 40(a)(i) - assessee has not furnished the proof of payment made to non-resident - assessee submitted that he had purchased designs and therefore no TDS was required to be deducted. The foreign party had not carried out any activity in India and accordingly, the same receipts is not taxable in the hands of the foreign party in India - AO concluded that assessee himself stated that the services rendered by the non-resident are in the nature of included services and held that in the present case the assessee had failed to prove that the payment was made and services were received outside India - HELD THAT - As it is observed that assessee has always maintained before Ld. AO as well as Ld. CIT(A) that payments made are for purchase of designs and hence do not qualify as fee for included services , but both the Ld. AO as well as Ld. CIT(A) have reiterated that assessee has himself stated that services rendered by the non-resident are in the nature of fee for included services .However, from the submissions of assessee, no such concession has been noticed. CIT(A) in the order has noted that the order of Ld. CIT(A)-1 dated 24/12/2014 for AY 2009-10, on which reliance has been placed by the assessee in support of his contention that the relief has been granted on similar facts by Ld. CIT(A)-1, is distinguishable on facts. However, on perusal of the order, it seems that the facts are quite identical with the present facts and in our view, the Ld. CIT(A) may require a closer look at the order before distinguishing the same CIT(A) has distinguished the order by simply stating that in the case of previous CIT(A)-1 order, the payee M/s Grada Textiles GmbH of Germany is an established market leader whereas in the present case, payee is not a well know entity. In our view, the Ld. CIT(A) has not brought out clearly how the earlier order on which reliance is being placed by the assessee is distinguishable on facts. Therefore, in respect of Ground No.1, we are restoring the case to the file of CIT(A) to again analyse the facts of the case in light of the above observations and pass the order accordingly. Disallowance of provident fund expenses - AO treated the same as income of the assessee(employer) as per the provisions of section 2(24)(x) r.w.s. 36(1)(va) - HELD THAT - Issue decided against assessee as relying on GUJARAT STATE ROAD TRANSPORT CORPORATION 2014 (1) TMI 502 - GUJARAT HIGH COURT as held that tribunal has erred in deleting respective disallowances being employees' contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act. Decided against assessee. Disallowance of scholarship expenses - AO observed that assessee has made payment on account of scholarship fee of Anurag Ramavatar Agrawal, a related party and disallowed the expenditure on the ground that there is no evidence that the expenditure has nexus with the business of the assessee - HELD THAT - Assessee has not been able to establish the business expediency for incurring expenses on the education / scholarship expenses on Shri Anurag Agarwal, who is the son of Director s brother. The Ld. AO as well as Ld. CIT(A) noted that the assessee has been consistently claiming the education/ scholarship expense on Shri Anurag Agarwal, one of the related parties for this year and past years as well, but these expenses are not related to the business of the assessee. The assessee has not been able to establish how the business of the assessee has been benefitting by incurring these expenses. The assessee has submitted that Shri Anurag Agarwal has been working part time with the Company, but no other details have been furnished which would substantiate the genuineness of claim of the assessee. In our considered view, therefore, we hold that Ld. CIT(A) has not erred in facts and in law in disallowing the above expenses on scholarship of Shri Anurag Agarwal.- Decided against assessee.

Summary

Issues Involved:
1. Disallowance of expenses for non-deduction of TDS on purchase of designs
2. Disallowance of provident fund expenses
3. Disallowance of scholarship expenses

Issue 1: Disallowance of expenses for non-deduction of TDS on purchase of designs:
The assessee failed to deduct TDS on payments made for designs, leading to a disallowance under section 40(a)(i) of the Act. The Assessing Officer (AO) concluded that the payments constituted fees for technical services, which required TDS deduction. The assessee contended that the payments were for purchasing designs and not for technical services. However, the CIT(A) dismissed the appeal, stating that the payments were indeed fees for included services. The ITAT observed discrepancies in the AO's and CIT(A)'s conclusions and directed a fresh adjudication by the CIT(A) to reevaluate the facts.

Issue 2: Disallowance of provident fund expenses:
The AO disallowed provident fund contributions made after the due dates, treating them as income under section 2(24)(x) read with section 36(1)(va) of the Act. The CIT(A) upheld the disallowance based on a decision by the Gujarat High Court. The ITAT, following the High Court's decision, dismissed the appeal, stating that contributions must be credited to employees' accounts before the due date for deduction under section 36(1)(va).

Issue 3: Disallowance of scholarship expenses:
The AO disallowed scholarship expenses debited under miscellaneous expenses, as no nexus with the business was established. The CIT(A) upheld the disallowance, noting the lack of evidence to justify the expenditure under section 37 of the Act. The ITAT concurred, stating that the expenses on the director's relative did not benefit the business and lacked business expediency. As a result, the appeal on scholarship expenses was dismissed.

In conclusion, the ITAT directed a fresh adjudication for the first issue, upheld the disallowance of provident fund expenses based on the High Court's decision, and dismissed the appeal regarding scholarship expenses due to the lack of business justification. The judgment highlights the importance of proper documentation and substantiation of expenses to support claims under the Income Tax Act.