2015 (7) TMI 1279 - AT - Income Tax

Genuineness of the expenditure claimed - Held that - We find that as per the agreement dated 04.05.2007 the assessee had to perform certain functions and for that purpose it had incurred expenditure. AO has not doubted the genuineness of the expenditure. The FAA has given a finding of fact that AO had made the disallowance merely on presumption.The DR was not able to controvert the assertion made by the FAA. The assessee had furnished the details of the expenditure. We are of the opinion that the order of the FAA does not require any interference from our side. So confirming his order we decide ground no.1 against the AO. Prior period expenditure - assessee follows mercantile system of accounting - Held that - It is found that the assessee had not produced any documentary evidence in support of its claim, that during the appellate proceedings it furnished bill/vouchers and the FAA considering those documents granted relief to the assessee.But, as per the provisions of Rule 46A of the Income-tax Rules, 1962 the FAA is required to forward the new evidences to the AO or has to admit the same under sub rule 4 of the Rules. We do find that the FAA has not followed any of the sub section of the Rule 46A and has decided the matter without calling for remand report from the AO. In the interest of justice, we are remitting back the matter to the file of the AO for limited purpose of verification of the bills/vouchers not produced before him and furnished to the FAA for the first time.- Decided partly in favour of revenue TDS u/s 194J OR 194C - Disallowance being expenses on account of mixing supervision and packing supervision - TDS liability - Held that - We find that the AO had made the disallowance as he was of the opinion that mixing supervision and packing supervision fell in the category of fees for technical services.He invoked the provisions of section 9(1)(vii)r.w.s.194J and 40(a)(ia). We find that he has not elaborated as to how the mixing and packing supervision can be termed fees for technical services-a term having its definite meaning.In our opinion, the FAA has rightly held that it was a pure and simple labour contract and was covered by the provisions of section 194C. - Decided against AO TDS u/s 194C - Disallowance of loading and unloading expenses u/s.40(a)(ia) - Held that - AO had made the disallowance as he was of the opinion that the loading and unloading charges were covered by the provisions of section 194C and that the assessee was liable to deduct tax for such payments.The assessee had made payments for loading and unloading to the unskilled daily labourers and there was no contract between the two parties.It had produced the necessary documents along with the vouchers before the AO. There was no justification in holding that the payments were covered by Section 194C of the Act and the assessee had to deduct tax at source. Therefore in our opinion, the order of the FAA does not suffer from any legal or factual infirmity

Summary

Issues Involved:
1. Disallowance of expenses claimed by the assessee.
2. Deletion of prior period expenditure.
3. Disallowance of expenses on account of mixing supervision and packing supervision.
4. Disallowance of expenses for loading and unloading due to non-deduction of TDS.

Issue-wise Detailed Analysis:

1. Disallowance of Expenses Claimed by the Assessee:
The first ground of appeal concerns the deletion of disallowance of expenses amounting to Rs. 6.87 lacs. The AO found that the assessee had debited this amount under the head of expenditure of Maida, sugar, broken C-box handling, and questioned its genuineness based on the agreement with PPPL. The AO disallowed the expense as the assessee did not furnish an explanation. The FAA, however, found that the expenditure had a direct nexus with the business and was for labor payments related to handling materials supplied by PPPL. The FAA concluded that the AO's disallowance was based on unfounded presumptions and deleted the disallowance. The Tribunal upheld the FAA's decision, confirming that the expenditure was genuine and business-related.

2. Deletion of Prior Period Expenditure:
The second ground involves the deletion of Rs. 3,31,574/- being prior period expenditure. The AO disallowed this amount, observing that the assessee, following the mercantile system of accounting, did not produce supporting bills/vouchers. The FAA, however, accepted the assessee's explanation that the liability crystallized only in the current year when PPPL deducted the amount from the processing charges. The FAA held that the expenditure was genuine and related to the business. The Tribunal noted that the FAA had not followed Rule 46A procedures by not forwarding new evidence to the AO. Consequently, the Tribunal remitted the matter back to the AO for verification of the bills/vouchers, deciding the ground in favor of the AO, in part.

3. Disallowance of Expenses on Account of Mixing Supervision and Packing Supervision:
The third ground pertains to the disallowance of Rs. 8,37,979/- for mixing supervision and packing supervision expenses. The AO considered these payments as fees for technical services and disallowed them under Section 194J, whereas the assessee had deducted TDS under Section 194C. The FAA found that the payments were for labor charges and not for technical or professional services, and thus, TDS under Section 194C was appropriate. The Tribunal agreed with the FAA, stating that the AO had not demonstrated how the services could be classified as technical. The Tribunal confirmed the FAA's decision, deciding the ground against the AO.

4. Disallowance of Expenses for Loading and Unloading:
The fourth ground deals with the disallowance of Rs. 11,76,080/- for loading and unloading expenses due to non-deduction of TDS under Section 194C. The AO disallowed the expenses, presuming a contractual obligation. The FAA, however, held that the payments were made to daily wage earners without any formal contract, thus not attracting Section 194C. The Tribunal found that the payments were genuinely made to unskilled laborers without any contractual agreement, confirming the FAA's decision and deciding the ground against the AO.

Conclusion:
The appeal filed by the AO is partly allowed. The Tribunal upheld the FAA's decisions on grounds 1, 3, and 4, confirming the genuineness of the expenses and the appropriateness of TDS deductions under Section 194C. However, for ground 2, the Tribunal remitted the matter back to the AO for verification of bills/vouchers, thus deciding it partially in favor of the AO.