ROAD BUILDERS (M) SDN BHD,DELHI vs. DCIT, CIRCLE- 3(1)(1), INTERNATIONAL TAXATION, NEW DELHI

Further, the Assessing Officer noted that the assessee company incurred an amount of Rs.64,12,272/- under the head legal, professional and consultancy. He noted that the assessee has explained that out of above Rs.5,15,000/- were paid to arbitrator as fee and clerical expenses and has explained that the tax is not deducted at source as per the provisions of explanation (a) to section 194J of the Act. Further, the Assessing Officer noted that in the TDS reconciliation filed, the assessee itself has deducted the tax on part of the arbitrator fee. Hence, the Assessing Officer noted that the assessee company failed to deduct the TDS of Rs.5,15,000/- and hence he disallowed the same.

Further, the Assessing Officer was not satisfied with the justification of the payment of Rs.35,05,892/- to Mr. Pramodh Engineers. the Assessing Officer disallowed the same by observing that a perusal of the same shows that the invoices are raised against the travelling, food, accommodation and other incidental charges for visiting arbitrator’s place on various dates. The invoices are not supported with any primary vouchers of the expenses incurred. It shows that the invoices of huge amount were raised without any specific services rendered on specific dates/period. All the invoices having the same narration. From the above, as opined that the expenses have been shown to be incurred without any professional or technical services received as there was no business activity during the year under consideration. Hence, the Assessing Officer disallowed the said expenditure u/s 37(1) of the Act.

Against the above order, the assessee appealed before the Ld. CIT(A). As regards the issue of disallowance of Rs.5,15,000/- as arbitrator fee for lack of deduction of TDS, the Ld. CIT(A) confirmed the same by observing as under:-

“6.3 The appellant also filed copy of the ledger account. On perusal of this ledger account it is seen that expenses of Rs. 20,000/- paid for getting legal opinion and all other expenses are either for secretarial and clerical expenses in connection with arbitration expenses, or arbitration expenses for sitting on a particular date which are paid to Sh. Kurien Methew or Sh. Roy J Vellanikkarn or Sh. Addul Kharder. As mentioned by the AO, the appellant has submitted a chart of details of IDS deducted and re-conciliation. As per the said chart the appellant has itself described payments made to S/Sh. Kurien Methew and Roy J Vellanikkarn and Addul Kharder as, “legal, professional and consultancy”. The details of TDS deducted and TDS deposited have been mentioned against these charges. Therefore, the plea of appellant does not have any legs to stand. Copy of said chart of details of TDS deducted and reconciliation is enclosed as Annexure-1 to this order. Also, copy of the ledger account submitted by the appellant is enclosed as Annexure-2.

As regards the Assessing Officer’s disallowance of Rs.35,05,892/-, the same was confirmed by the Ld. CIT(A) by observing that the Assessing Officer observed that the there was no business activity during the year. The invoices are not supported by the bills and vouchers of the parties where expenditure has been made. Before the Ld. CIT(A), copies of three invoices were submitted, however, the Ld. CIT(A) was not convinced and confirmed the same by observing as under:-

Accordingly, the Ld. CIT(A) dismissed the assessee’s appeal in this regard.

Against the above order, the assessee is in appeal before us.

We have heard both the counsel and perused the records. We find that the disallowance in these facts has been done out of legal and professional expenses booked by the assessee. The total expenditure booked were Rs.64,12,272/-. A sum of Rs.5,15,000/- was disallowed for lack of deduction of TDS. These sums were paid to arbitrator as fee and clerical expenses and no reasonable explanation was given as to why TDS was not deducted thereupon. The assessee’s plea that provisions of section 194J are not attracted has rightly been rejected by the Revenue authorities. Moreover, as noted by the Revenue authorities, the assessee itself in its ledger entry has mentioned that the payment is net of TDS to the arbitrator. Hence, assessee is aware that TDS was to be deducted failure to do so would certainly result in disallowance. Hence, we do not find any infirmity in the addition of Rs.5,15,000/-.

Another addition is regarding payment of Rs. 35,05,892/- paid as professional fee to Pramodh Engineers. As noted above, the assessee in this case is a company incorporated under the laws of Malaysia which is engaged in the business of road construction. During the year, the assessee has been following arbitration proceedings and no project work was engaged. The Revenue authorities have taken a plea that this expenditure of Rs.35,05,892/- paid to Pramodh Engineers was without any justification. As emanating from the facts narrated above the above payment made to Pramodh Engineers was booked under professional expenditure. It is not the case that there was any deficiency of deduction of any TDS. The Assessing Officer rejection was that expenditure was that not justified u/s 37(1) and the assessee has not conducted any business and no vouchers bills in this regard was produced.

As regards the plea of absence of business and justification is concerned, it is noted that as per the financial accounts submitted by the assessee, it is clearly mentioned that during the year, the assessee was following the arbitration proceedings and was engaged in upgradation of State Highways under Public Works Department, Govt. of Kerala. In the various claims before the Arbitral Tribunal PWD, the financial noted of account no.18 report as under:-

From the above, it is noted that the assessee was pursuing before the Arbitral Tribunal and in fact on 04.07.2013, a further award in favour of the assessee of Rs.15.84 Crores was awarded. It is another matter that the assessee has not taken any cognizance of the same in the accounts and no adverse inference by the authorities below is also there.

Another plea of which the Ld. CIT(A) has sustained the addition is absence of documentary evidence. In this regard, we note that the assessee has not produced any bills etc before the Assessing Officer.

The rest disallowance (Rs.35,05,892-25,78,263) is to be upheld because no bills of Pramodh Engineers have been submitted. We do not find any infirmity in this regard as the assessee cannot claim any expenditure without furnishing the necessary bills. Accordingly, we partly uphold the order of the ld. CIT(A) as above.

In the result, the appeal of the assessee is partly allowed.