2013 (10) TMI 605 - AT - Income Tax

Deduction u/s 40a(ia) - Works contract - Payment made to printers - TDS not deducted - Held that - As far as the payment to printer is concerned it is found that M/s. Jayant Printary had printed labels for chutney and other materials that were sold/exported by the assessee. Material for the labels was procured by the printer though the specification of the printing material was given by the assessee-company - it cannot be held that it was a work contract - Following decision of The Commissioner of Income Tax Versus M/s. Glenmark Pharmaceuticals Ltd. 2010 (3) TMI 289 - BOMBAY HIGH COURT - Decided against Revenue. Supply of mango slices - Non-deduction of tax - Held that - assessee had not paid nay amount to procurement agencies.In the present case it appears that assessee had paid commission to HAKAMC as per the bills issued by the HAKAMC.It is not clear from the order of the AO/FAA as what was the nature of commission paid to HAKAMC.We feel that this aspect needs further verification. Whether the commission was paid only for carrying out certain processing activities or it was paid for procuring the mangoes on behalf of the assessee .This vital fact is not clear from the bills or the order of the lower authorities - Matter is restored back - Decided in favour of Revenue. Disallowance expenses incurred through Credit Cards - Expenditure made on name of Directors - Held that - AO had dis-allowed the said expenditure because he was of the opinion that expenditure was not incurred for wholly and exclusively for the business purpose. He has not alleged that expenditure incurred by the Directors was of personal nature. He has not brought on record anything to prove that said expenditure was not incurred for business purpose of the company. Mere making an allegation is not sufficient for fastening tax liability to an assessee. FAA had given a categorical finding that expenditure incurred on Credit Cards issued by the company was allowable expenditure.In our opinion, his order does not suffer from any legal or factual infirmity - Decided against Revenue.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS.
2. Disallowance of expenses incurred through credit cards.
3. Disallowance of foreign travel expenses.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:
The Assessing Officer (AO) disallowed Rs. 8,57,631/- under Section 40(a)(ia) for non-deduction of TDS on payments made for the purchase of labels, mango slices in brine, and forwarding and shipping expenses. The AO categorized these payments as 'works contract' and 'commission', necessitating TDS deduction.

The First Appellate Authority (FAA) concluded that the transactions were not 'works contracts' and thus not subject to TDS under Section 194H. The FAA directed the AO to delete the additions. The Departmental Representative (DR) argued that TDS should have been deducted, while the Authorized Representative (AR) contended that the transactions were sales, not works contracts, citing relevant case laws.

The Tribunal held that the purchase of labels did not constitute a work contract, following the precedent set by the Bombay High Court in Glenmark Pharmaceuticals Ltd. Consequently, the first part of Ground No.1 was decided against the AO. Regarding the supply of mango slices, the Tribunal found that the nature of the commission paid to HAKAMC required further verification and remitted the matter back to the AO for fresh adjudication. For clearing and forwarding expenses, the Tribunal upheld the FAA's decision, stating these payments were not works contracts and thus not subject to TDS. Ground No.1 was partly decided against the AO.

2. Disallowance of Expenses Incurred Through Credit Cards:
The AO disallowed Rs. 1,31,115/- for expenses incurred through credit cards issued in the personal names of directors, citing a lack of evidence that these expenses were for business purposes.

The FAA allowed the expenses, noting they were incurred through corporate credit cards issued by the company. The Tribunal upheld the FAA's decision, stating the AO had not provided evidence that the expenses were personal. The Tribunal found no legal or factual infirmity in the FAA's order and decided Ground No.2 against the AO.

3. Disallowance of Foreign Travel Expenses:
The AO disallowed Rs. 1,53,786/- out of Rs. 4.83 Lakhs claimed for foreign travel expenses, due to a lack of supporting evidence that the expenses were wholly and exclusively for business purposes.

The FAA allowed the expenses, stating the foreign travel was for business purposes. However, the Tribunal noted the FAA's order lacked detailed findings and remitted the issue back to the AO for fresh adjudication. The AO was directed to afford a reasonable opportunity of hearing to the assessee. Ground No.3 was partly allowed in favor of the AO.

Conclusion:
The appeal filed by the AO was partly allowed, with specific issues remitted back for further verification and adjudication. The Tribunal's decision emphasized the need for clear evidence and proper categorization of expenses to determine their eligibility for tax deductions.