2022 (6) TMI 1267 - AT - Income Tax

TDS u/s 194I - Disallowance of expenditure representing reimbursement thereon u/s.40(a)(ia) - renting of equipments - assessee Company is in the business of providing Marine Seismic Services used for Research and Development to explore the utilisation of recourses available in sea and also provide complete Survey Solution including Bathmetry, Fishing Managements, Chase Boats and other related logistic services for data processing services required - As pleaded that the said mobilization charges are nothing, but reimbursement of expenses incurred by the owner of a vessel such as Fuel, Survey, arrangement of Expat Seismic Crew, Port charges, and various clearing charges from Naval custom authorities to upgrade the Vessel so as to qualify as per Seismic norms prescribed under the contract - HELD THAT - AO submitted before the lower authorities that the payment made by the assessee was duly shown as receipt by the ship owner company as its income and offered the same to tax. The ld. AR placed on record the profit and loss account and balance sheet of the ship owner company wherein this sum was included as income under the head sale of services as on 31/03/2014 in the audited financial statements and a Chartered Accountant Certificate dated 27/12/2017 was also furnished in the prescribed format stating that recipient had duly offered to tax the said sum of Rs.2,57,55,269/- together with the PAN of the recipient company CIT(A) had merely reiterated the ultimate conclusions reached by the ld. AO without appreciating evidences filed by the assessee on record. But, the evidences filed by the assessee which are enclosed in the paper book filed before us together with the submissions thereon are staring on us which goes to prove clearly that the payments made by the assessee are nothing but reimbursements on which deduction of tax at source is not warranted. Hence, there cannot be any disallowance u/s.40(a)(ia) - we also find that the payee had duly reflected the said receipt as its income in its profit and loss account. This is also supported by the certificate from Chartered Accountant. Hence, on this count also there cannot be any disallowance u/s.40(a)(ia) of the Act in terms of second proviso thereon. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues:
1. Disallowance of expenditure representing reimbursement under section 40(a)(ia) of the Income Tax Act, 1961.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai concerned the disallowance of expenditure representing reimbursement under section 40(a)(ia) of the Income Tax Act, 1961 for the assessment year 2014-15. The dispute arose from a Geophysical services contract entered into by the assessee Company with "Distinct Energy - OMAN" for providing Marine Seismic Services. The company took a vessel on hire from M/s Hind Offshore Pvt Ltd and paid mobilization charges and standby charges for the services provided. The contention was that these charges were reimbursement of expenses incurred by the vessel owner for upgrading the vessel to meet the contractual requirements. The Assessing Officer treated the expenditure as rent liable for TDS under section 194I, resulting in disallowance under section 40(a)(ia). However, the assessee argued that the payments were reimbursements and not subject to TDS. The ship owner had also declared the received amount as income and paid tax on it. The Appellate Tribunal found that the payments were indeed reimbursements, supported by evidence including financial statements and a Chartered Accountant Certificate. The Tribunal held that since the payments were reimbursements and the recipient had declared them as income, there was no basis for disallowance under section 40(a)(ia). Therefore, the appeal of the assessee was allowed, overturning the decision of the lower authorities.

In conclusion, the Tribunal's decision revolved around the interpretation of the nature of the payments made by the assessee for mobilization and standby charges in the context of a Geophysical services contract. The Tribunal emphasized the distinction between reimbursements and rent, ultimately ruling in favor of the assessee based on the evidence provided. The judgment highlighted the importance of proper documentation and accounting practices in demonstrating the nature of transactions to avoid disallowances under the Income Tax Act.