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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 03/02/2012 passed by the learned Commissioner of Income-tax( Appeals)-XII, New Delhi for assessment year 2008-09 raising following grounds: “
On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs. 10,28,628/- made by the Assessing Officer u/s 40(a) for non-deduction of TDS on salaries inspite of the evidences produced for deduction of tax in applicable cases. The learned CIT(A) ought to have deleted the disallowance impugned simply on the ground that the provisions of Section 40(a) do not apply to payments made on account of salaries. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of Rs.4,20,101/- made by the Assessing Officer on account of ‘Other Expenses’ shown in a schedule of the Return Form, without even looking into the facts
85. Appellant. Both the learned CIT(A) and the Assessing Officer have erred in not co-relating the information shown in the Return Form with the audited Profit & Loss Account which shows complete break-up and nature of such expenses, and none of them being of a disallowable nature. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of Rs.2,75,628/- incurred as Repair & Maintenance Expenses on the ground that no such expenses were debited in the Profit & Loss Account. The AO made the disallowance on the ground that the assessee does not own the premises. The learned CIT(A) ought to have deleted the disallowance by looking into the facts and explanations given by the Appellant. That each ground of appeal is independent and without prejudice to one another. That the appellant reserves to itself, the right to add, alter, amend, substitute and/or withdraw any Ground(s) of Appeal on or before the date of hearing.”
The facts in brief of the case are that during the year under consideration, the assessee company was engaged in insurance business and received gross receipt amounting to Rs.29,16,196/- from two companies, namely, ‘IFFCO Tokio General Insurance Company Limited’ (Rs.28,70,985/-) and ‘Metlife India Insurance Company Limited’ (Rs.45,211/-). For the year under consideration, the assessee filed return of income on 25/09/2008, declaring an income of Rs.56,640/-. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (for short ‘the Act’) was issued and duly served. The Assessing Officer has mentioned in the order that ample opportunities were provided to the assessee, however, no compliance was made and, therefore, in view of the part compliance of the notices issued, the assessment was completed on the basis of information available on record. In the assessment completed on 14/12/2010, the Assessing Officer made following additions to the returned income:
S.No. Additions Amount 1. Disallowance of expenses claimed on Rs. 10,28,628/- salary 2. Disallowance in respect of other Rs. 4,20,101/- expenses 3. Disallowance in respect of repair and Rs. 2,75,268/- maintenance expenses of building 2.1 The assessee filed appeal before the first appellate authority and filed additional evidences before him. The first appellate authority forwarded the additional evidences and submission of the assessee to the Assessing Officer for comments. The Assessing Officer objected to the admission of the additional evidences but simultaneously also gave his comments on merit of the evidences in the remand report sent to the learned Commissioner of Income-tax (Appeals). After taking into account the remand report and the comments of the assessee on the remand report, the learned Commissioner of Income Tax (Appeals) upheld the additions/disallowances made by the Assessing Officer. 2.2 Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
In grounds No. 1 and 2, the assessee has challenged the disallowance of Rs.10,28,628/- under section 40(a) of the Act due to non-deduction of TDS. The Assessing Officer observed from profit and loss account, an amount towards compensation/salary to the employees of Rs.19,07,300/-. The Assessing Officer also observed that despite several opportunities granted, the assessee did not provide detail of address, PAN, mode of payment etc. to establish that the expenses incurred on employees were genuine and for business purpose. The Assessing Officer further observed that salary paid to the four persons amounting to Rs.10,28,628/- was not supported by any document, TDS, No. 16A etc., hence disallowed the expenses of Rs.10,28,628/-, keeping in view the provisions of section 40(a) of the Act. 3.1 Before the learned Commissioner of Income-tax(Appeals), the assessee submitted the fact of obtaining services of the employees of M/s Escort Finance Ltd., i.e., sister concern and reimbursement of salary payment to M/s. Escort Finance Ltd., who deducted tax at source on the salary payment to the respective employees. The learned Commissioner of Income Tax (Appeals) remanded the matter to the Assessing Officer. In remand proceeding before the Assessing Officer, the assessee submitted copy of the letter dated 28/04/2007 by M/s Escort Finance Ltd., in which they stated that certain common expenses to be shared with the assessee company. In remand proceeding, the Assessing Officer objected that there was no mention of a specific amount which was to be shared by the assessee and the tax was to be deducted by the assessee company for the employees worked for the assessee company. The learned Commissioner of Income Tax (Appeals) upheld the disallowance holding that tax was not deducted by the assessee on salaries paid. 3.2 Before us, the learned Authorized Representative of the assessee referred to the pages 10-32 of the assessee’s paper book and submitted that total salary of Rs.19,07,300/- in respect of employees of M/s Escorts Finance Ltd., on deputation with the assessee, company was reimbursed to M/s. Escort Finance Ltd. and the tax was duly deducted by M/s. Escort Finance Ltd. on payment of salary to those employees and, thus, there was no default on the part of the assessee in deduction of tax at source on reimbursement of the salary. Further, it was submitted that in the relevant assessment year, non-deduction of tax on salary was not subjected to disallowance under section 40(a) of the Act, accordingly it 40(a) of the Act in respect of reimbursement of salary. 3.3 On the other hand, the learned Senior Departmental Representative (Sr.DR) submitted that the assessee did not provide complete detail in the assessment proceeding in respect of reimbursement of salary. He referred to page 5 of the assessee’s paper book, which is a schedule of personal expenditure debited in profit and loss account and submitted that the expenditure of Rs.19,07,300/-was shown as salary to staff, and before the learned Commissioner of Income Tax (Appeals) only the assessee disclosed the fact of reimbursement of salary to M/s. Escort Finance Ltd. According to the learned Senior Departmental Representative, the expenses are in the nature of supply of labour for carrying out the work of the assessee and which falls in the ambit of section 194C of the Act and thus the Assessing Officer has rightly disallowed the payment under section 40(a) of the Act. The learned Sr. Departmental Representative submitted that learned Commissioner of Income Tax (Appeals) has not examined this aspect of supply of labour to carry out the work of the assessee and deductibility of tax at source thereon, and therefore, the matter might be restored back to the file of the Assessing Officer for examination of the disallowance. 3.4 We have heard the rival submissions of the parties and perused the relevant material on record. We are in agreement with the learned Authorized Representative that in relevant assessment years, salary expenses on which tax was not deducted at source, were not subjected to disallowance under section 40(a) of the Act. The section 40(a)(ia) in relevant year is reproduced as under : “Amounts not deductible.
Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",— (a) ………………….. (ia) any interest, commission or brokerage, [rent, royalty] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (1) of section 139] 3.5 We are of the considered opinion that the expenses in the nature of salary were not covered for disallowance under section 40(a)(ia) of the Act. But in the case of the assessee, we find that though in the profit and loss account, the amount reimbursed to M/s Escort Finance Ltd. was shown as salary to staff, but before the learned Commissioner of Income Tax (Appeals), the assessee disclosed the fact of reimbursement of salary to M/s Escort Finance Ltd., but the learned Commissioner of Income Tax (Appeals) without considering the arguments of the assessee decided the issue as under: “I have perused the facts stated in the assessment order as well as the facts stated by the assessee in his submissions. I am inclined to uphold the disallowance of Rs.10,28,628/- as the assessee has earned commission from only two parties and has 13 employees and salaries were paid by Escort Finance Ltd., the TDS was also deducted by them hence this amount cannot be allowed to the assessee.”
3.6 It is evident from the above that learned Commissioner of Income- tax (Appeals) did not take into account the fact that the assessee reimbursed salary in respect of employees to M/s Escort Finance Ltd. Simultaneously, we also find that the learned Commissioner of Income- tax (Appeals) has not taken into account the other observations of the Assessing Officer that the assessee could not establish that the expenses incurred on employees were genuine and for business purposes. In the remand report, the Assessing Officer has mentioned TDS was deducted by the assessee company on the expenses related to or for M/s Escort Finance Ltd. for which they were claiming as contractual payment vide letter dated 28/04/2007. The Assessing Officer also reported that no genuineness of the expenses were filed or produced and the basis of allocation of those expenses to the assessee company account and only the unsigned newly created vouchers of M/s. Escort Finance Ltd. were produced for dated 12/03/2008, 25/03/2008 and 33/03/2008. The learned Commissioner of Income-tax (Appeals) has not given any finding on these issues raised by the Assessing Officer in the remand report. We also find from the fact of the case that no agreement between the assessee and M/s. Escort Finance Ltd. was submitted either before the lower authorities or before us. A copy of letter addressed by M/s. Escort Finance Ltd. to the assessee regarding sharing of expenses has been produced, which in our opinion is only a letter of offer, and which was accepted by the assessee or not, is not clear from the evidences produced before us. 3.7 In view of above facts and circumstances, we feel it appropriate to restore the issue in dispute to the file of the Assessing Officer to decide afresh in accordance with law. Accordingly, the ground of the appeal is allowed for statistical purpose.
In ground No. 3, the assessee has challenged disallowance of Rs. 4,20,101/-in respect of other expenses. In the income tax return form ITR-6 (Part A- P& L, column 36) , the Assessing Officer observed other expenses of Rs.4,20,101/- and called for details of same from the assessee. In absence of any information provided by the assessee, the Assessing Officer disallowed the expenses. Before the learned Commissioner of Income-tax( Appeals) the assessee submitted that the schedule of the income tax return form required information concerning the profit and loss account under various heads and one of the heads at No. 36 required information on ‘other expenses’. It was explained that amount under that column was to be shown on aggregate basis in respect of such expenses for which there was no separate information required in the schedule and the Assessing Officer could have verified the breakup of other expenses with the profit and loss account contained in annual audited accounts of the assessee. The Ld. Commissioner of income tax appeals decided the issue as under: “I have perused the facts stated in the assessment order as well as the facts stated by the assessee in his submission. The assessee has claimed other expenses amounting to Rs.4,20,101/- but no details was filed by the assessee to support his claim. In my view the appeal is dismissed on this ground.”
4.1 Before us, the learned Authorized Representative of the assessee reiterated the submission made before the learned Commissioner of Income-tax (Appeals) and submitted that none of the expenses under the ‘other expenses’ were in the nature of disallowable expenses. 4.2 On the other hand, the learned Senior Departmental Representative submitted that the assessee has not provided the detail of expenses which were aggregated under the head ‘other expenses’ in the relevant column of the income tax return form, and prayed for restoring the issue to the lower authorities. 4.3 We have heard the rival submissions and perused the relevant material on record. We find that the Assessing Officer has disallowed the expenses in absence of details provided by the assessee. The learned Commissioner of Income-tax (Appeals) also could not reconcile the expenses aggregated under other expenses with the expenses debited in the profit and loss account. In our view, the disallowance has been made due to the reason that the assessee has not given any detail as which expenses of profit and loss account were aggregated under the column of ‘other expenses’ in the return of income. In the interest of Justice, we feel it appropriate to restore the matter to the file of the Assessing Officer with the direction to the assessee to furnish complete details of the expenses of the profit and loss account, aggregated under other expenses. The Assessing Officer is directed to afford sufficient opportunity to the assessee and decide the issue in accordance with law. The ground is accordingly allowed for statistical purpose. 4.4 In ground No. 4, the assessee raised disallowance of Rs.2,75,268/- on repair and maintenance of buildings. 4.5 The Assessing Officer disallowed the expenses on the ground that no bills and vouchers were produced before him and he also could not find any building included in the assets of the assessee. Before the learned Commissioner of Income-tax (Appeals), the assessee claimed that expenses were in respect of rented premises and normal repair and maintenance expenses were incurred on such rented premises and for claiming such expenses there was no bar in the law. Learned Commissioner of Income Tax (Appeals) affirmed the action of the Assessing Officer with following observations:
“I have perused the facts stated in the assessment order as well as the facts stated by the assessee in his submissions. The assessee has claimed Rs.2,75,268/- on account of repair and maintenance of building. No expenses were debited to the P&L A/c of the assessee. Hence, the appeal is disallowed on this ground.” 4.6 Before us, the learned Authorized Representative reiterated the submission made before the learned Commissioner of Income-tax (Appeals) and submitted that repair and maintenance expenses claimed by the assessee are allowable, as per law. 4.7 The learned Senior Departmental Representative, on the other hand, submitted that the assessee has neither furnished any details of the expenses not produced any bills and vouchers in support of such Assessing Officer might be upheld. 4.8 We have heard the rival submissions and perused the relevant material on record. We find that Assessing Officer has made disallowance mainly in absence of bills and vouchers of the expenses produced by the assessee. The assessee has also not produced bills and vouchers before the learned Commissioner of Income Tax (Appeals) and only argued that repair and maintenance expenses in respect of rented premises were allowable to the assessee. In view of the facts that disallowance has been upheld because of non-production of bills and vouchers in respect of expenses. In the interest of Justice, we feel it appropriate to restore the matter to the file of the Assessing Officer with direction to the assessee to produce the relevant bills and vouchers in respect of repair and maintenance expenses. The Assessing Officer is directed to afford sufficient opportunity of hearing to the assessee and decide the issue in accordance with law. The ground of the appeal is accordingly allowed for statistical purpose.
In the result, appeal is allowed for statistical purpose. The decision is pronounced in the open court on 30th Nov., 2016.