M/S RED PEPPERS LTD., ALLEPPEY vs. THE COMMR.OF INCOMTAX,KOTTAYAM-686001

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ITA/59/2011HC KeralaKLHC01026407201130 November 2011Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR5 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal upheld the disallowance of Rs. 3 lakhs from traveling expenses, finding that the appellant failed to furnish essential details such as the names and addresses of the employees who traveled, their destinations, and the purpose of their visits. The authorities found the appellant's claim unsubstantiated. Regarding the disallowance of laboratory fees and freight charges, the Tribunal confirmed that these payments were for technical services and freight, respectively, on which the appellant was obligated to deduct tax at source under Section 194J. The failure to deduct tax at source attracted disallowance under Section 40(a)(ia) of the Income Tax Act. The Tribunal found no reason to interfere with the concurrent findings of the lower authorities on all three issues. The appeal was dismissed.

What were the facts?

The appellant, M/s. Red Peppers Ltd., a subsidiary of Vallabhadas Kanji Ltd., is in appeal against disallowances made by the Assessing Officer, confirmed by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (Tribunal). The disallowances pertain to three items of expenditure. The first is Rs. 3 lakhs from Rs. 16 lakhs claimed as traveling expenses. The appellant claimed these expenses for travel undertaken by employees of the parent company abroad to canvas business for the appellant. However, the appellant failed to provide names, addresses, destinations, or purposes of these visits. The second disallowance relates to laboratory fees paid to the parent company, where tax was not deducted at source. The third disallowance concerns freight charges paid to the parent company, also without deducting tax at source.

What were the issues?

1. Whether the disallowance of Rs. 3 lakhs from traveling expenses is justified, considering the appellant's claim that the travel was by parent company employees to canvas business for the appellant, and the appellant's failure to provide specific details of the travel. (Question of mixed law and fact). 2. Whether the disallowance of expenditure towards laboratory fees paid to the parent company is justified under Section 40(a)(ia) of the Income Tax Act, 1961, due to the failure to deduct tax at source on technical services. (Question of law). 3. Whether the disallowance of expenditure incurred by way of freight paid to the parent company is justified under Section 40(a)(ia) of the Income Tax Act, 1961, due to the failure to deduct tax at source. (Question of law). Assessee's Contention: The appellant argued that the travel expenses were incurred for canvassing business for them. For the laboratory fees and freight charges, the implicit contention was that tax deduction at source was not applicable or that the disallowance was not warranted. Revenue's Contention: The revenue, through the Assessing Officer and appellate authorities, contended that the appellant failed to provide necessary evidence for the traveling expenses and that tax was not deducted at source on laboratory fees and freight charges, attracting disallowance under Section 40(a)(ia).

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194J

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN WEDNESDAY, THE 30TH DAY OF NOVEMBER 2011/9TH AGRAHAYANA 1933 ITA.No. 59 of 2011 ( ) ====================== ITA.345/COCH/2010 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT ============ 1 M/S. RED PEPPERS LTD., ALLEPPEY. BY ADV.SRI.P.BALAKRISHNAN (E) SRI.K.S.MENON (K) RESPONDENT ============= 1 THE COMMISSIONER OF INCOME TAX, KOTTAYAM-686 001. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX

THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 30-11-2011 , THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

APPENDIX ANNEXURE A: TRUE COPY OF ASSESSMENT ORDER DT.30.10.2009 OF THE ASSESSING OFFICER. ANNEXURE B: TRUE COPY OF APPEAL ORDER DT.5.4.2010 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV, KOCHI. ANNEXURE C: CERTIFIED COPY OF THE APPELLATE ORDER DT.23.11.2010 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. TRUE COPY P.S. TO JUDGE

C.N.RAMACHANDRAN NAIR, & K.VINOD CHANDRAN, JJ. .................................................................... I.T. Appeal No.59 of 2011 .................................................................... Dated this the 30th day of November, 2011. JUDGMENT Ramachandran Nair, J. Heard counsel for the appellant. The questions raised pertain to disallowances made of three items of expenditure in the assessment which are confirmed by the first appellate authority as well as by the Tribunal. 2. The appellant is a subsidiary of another company by name Vallabhadas Kanji Ltd. In fact the appellant's company shares the office with the parent company. The first item of disallowance is Rs.3 lakhs from out of traveling expense of Rs.16 lakhs claimed by the assessee. On facts it is revealed that the travel was by the employees of the parent company and appellant claimed expenses for the reason that the employees of the parent company went abroad to canvas business for the appellant. However, it is the finding of the officer and the two appellate authorities that the appellant did not furnish even the names and addresses of the officers who went and even their destination and

ITA 59/2011 2 purpose of visit. Inspite of want of any details the Assessing Officer was very generous in as much as he allowed Rs.13 lakhs out of Rs.16 lakhs and disallowance is limited to an estimated amount of Rs.3 lakhs. Both the appellate authorities confirmed the disallowance as the appellant could not establish with evidence the nature and purpose of visit in respect of which expenditure was claimed. We do not find any substantial question of law arising from the order of the Tribunal on this issue decided against the appellant. 3. The next question pertains to disallowance of expenditure towards laboratory fees paid by the appellant to the parent company for the reason that the appellant has not deducted tax at source on the payments made. It is the clear finding of the three authorities that the service rendered by the parent company under the head “Lab service” is a technical service falling under Section 194J on which tax ought to have been deducted at source by the appellant. The appellant having failed to deduct tax at source attract disallowance under Section 40(a) (ia) of the Income Tax Act. We do not find any ground to interfere with the concurrent findings by the three lower authorities sustaining

ITA 59/2011 3 the disallowance. Consequently appeal on this issue is also turned down. 4. The next question raised is also disallowance of expenditure incurred by way of freight paid to the parent company which also attracts provision for recovery of tax at source. Appellant having failed to recover the tax at source suffered disallowance under Section 40(a) (ia) of the Act. The principle stated above squarely applies to the item of this disallowance also. We do not find any ground to interfere with the concurrent findings of all the three authorities including the Tribunal. Consequently I.T. Appeal is dismissed. C.N.RAMACHANDRAN NAIR Judge K.VINOD CHANDRAN Judge pms

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