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2021 (10) TMI 1199 - ITAT CHENNAIDisallowance of supervisory charges paid - ingenuine expenditure - assessee had made a claim for deduction u/s. 40(a)(i) of the 'supervisory charges' paid to the parent company - as per DR CIT(A) has erred in deleting supervisory fees paid by the assessee to its parent company based on fresh evidences submitted for the first time during appellate proceedings without giving any opportunity to the Assessing Officer in violation of Rule 46A of Income Tax Rules, 1962 - HELD THAT:- The assessee has furnished necessary evidences, including agreement between the parties, invoices raised by parent company, travel documents of expatriates, who visited India for rendering services, their visa, passport and air tickets. The assessee had also furnished e-mail correspondence between its parent company for exchange of information regarding technological support required for manufacturing and installation of industrial furnaces. The said payment has been made after withholding necessary TDS applicable as per law - supervisory fees paid by the assessee to its parent company M/s. Dong Woo HST Co. Ltd. in pursuant to an agreement dated 25.12.2007 is genuine expenditure incurred wholly and exclusively for the purpose of business of the assessee and which is supported by necessary evidences. AO has disbelieved genuine expenditure incurred by the assessee for the purpose of business only for the reason that said transaction was entered into between the assessee and its parent company. AO had also questioned necessity of making such payments. Therefore, he opined that payment made to its parent company for rendering supervisory fees is nothing but shifting of profit from one tax territory to another tax territory without any actual business expediency and as against which no particular service is received. As gone through reasons given by the AO in light of various evidences filed by the assessee including agreement between parties and we do not ourselves subscribe to reasons given by the Assessing Officer for the simple reason that it is well settled principle of law that the Assessing Officer cannot sit in the armchair of businessman and decide whether particular expenditure is required to be incurred or not. It is also an admitted legal position that the Assessing Officer cannot question rational and necessity of incurring any particular expenditure. What is required to be seen is whether particular expenditure is incurred wholly and exclusively for the purpose of business of the assessee and further such expenditure is supported by necessary evidences. In this case, the assessee has filed all possible evidences including agreement between parties to prove genuineness of expenditure incurred for supervisory services. There is no doubt of whatsoever with regard to genuineness of payment made by the assessee to its parent company, because such payment was made in pursuant to agreement between parties and further, the assessee has deducted applicable TDS as per law. The assessee had also furnished other supporting evidences to prove receipt of services from its parent company - expenditure incurred by the assessee towards payment made to its parent company for rendering supervisory services is genuine expenditure, which was incurred wholly and exclusively for purpose of business of the assessee. AO without appreciating facts has simply disallowed supervisory fees paid to the assessee's parent company. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the Revenue. Non-deduction tax deducted at source and consequent disallowance of expenditure by the assessee in certain years and claiming deduction for said expenditure in the year of payment is not disputed by the Assessing Officer, because the Assessing Officer has primarily held that expenditure incurred by the assessee under the head supervisory fees is held to be not deductible under section 37 of the Income Tax Act, 1961. But, the ld. CIT(A) has examined suo motu disallowance made by the assessee in earlier years for non-deduction of tax deducted at source and subsequent deduction claimed in the year of payment and held that the assessee has rightly claimed deduction towards expenditure incurred in earlier years in the impugned assessment years, because, it was disallowed in earlier years for non deduction of TDS and further, the same has been claimed as and when TDs has been deducted and remitted to Govt. account. - Decided in favour of assessee.
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