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The ACIT, Circle-2, Jaipur Versus M/s. Gehlot Enterprises P. Ltd. and Vica-Versa

2016 (9) TMI 639 - ITAT JAIPUR

TDS u/s 194H - Addition made on account of disallowance of Financial Services Charges - non deduction of TDS on the amount paid to the employees of the company - Held that:- Both the authorities below have misdirected themselves for not appreciating the fact that the nature of payment as made by the assessee is neither a payment in the nature of salary nor related to employer-employee relationship. The payment is made in respect of the expenditure claimed to have been incurred for facilitating t .....

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penses were reimbursements to the salesmen. The AO treated such payment as the payment of commission or brokerage to the employee. In support of such finding, the AO has not placed any material on record suggesting that these payments were in the nature of brokerage or commission. In the absence of such material, in our considered view, merely on the basis of conjectures, the payments made to the employees would not partake the character of payment of brokerage or commission. Another aspect of t .....

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bursement to the employees and such expenditure is allowable deduction. After considering the totality of the facts and circumstances of the present case, it would be in the interest of justice if the issue is restored to the file of the AO for decision afresh. Hence we set aside the impugned order and restore the matter to the file of the AO with the direction to verify from the bank whether any loan transaction was carried out as claimed by the assessee and also to verify whether the expenditu .....

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imed by the assessee while computing its income, then the AO is empowered to make disallowance in the manner prescribed in rule 8D. In the instant case, the AO has not given any finding in respect of the disallowance of expenses. On the contrary, the assessee has pointed out that it had sufficient own funds and investment has been made out of its own funds. Therefore, the disallowance related to the interest was not justified. Thus we do not find any reason to interfere in the orders of the ld. .....

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7; 5,81,868/-, the disallowance to the extent of ₹ 30,000/- qua the administrative expenses is sustained. - Decided in favour of revenue partly - Disallowance of staff & labour welfare expenses - Held that:- The ld. CIT (A) held that the expenses under the head salary and labour welfare are necessary for carrying on the business. He observed that there is no evidence to suggest that the expenses incurred by the assessee were either inflated or bogus. At the time of hearing of the appe .....

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eals filed by the revenue and assessee pertaining to assessment years 2009-10, 10-11 and 11-12 against the different orders of ld. CIT(A)-I, Jaipur dated 27.12.2013 and 19.08.2014. Since identical grounds have been raised in all these years both by the assessee and revenue, these appeals are taken up together and are being disposed off by way of consolidated order for the sake of convenience. 2. The ld. Counsel for the assessee has submitted that the facts are identical in all these years which .....

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er on the facts and in the circumstances of the case and in law the ld. CIT (A) has erred in deleting the disallowance of ₹ 5,81,868/- made by the AO under the provisions of section 14A r.w. rule 8D of the I.T. Rules. 3. Whether on the facts and in the circumstances of the case and in law the ld. CIT (A) has erred in deleting the disallowance of ₹ 50,000/- out of staff & labour welfare expenses which were not found verifiable by AO. 3. The first ground relates to the deletion of .....

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prove the payments as being claimed to be reimbursement of expenses made on account of availing loans by the farmers to whom the assessee has sold tractors. He submitted that the AO was justified in invoking provisions of section 40(a)(ia) of the Act as the assessee has also not deducted tax at source. 3.2. On the contrary, the ld. Counsel for the assessee submitted that both the authorities below have erred in not appreciating the facts in right perspective. He reiterated the submissions as ar .....

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re on their regular pay rolls for doing the entire paper work and complete other requirements of bank for each individual village farmer willing to take bank loan for purchase of tractors which are dealt by company. The paper work involves examination of land title of farmer, report of Patwari, farm land inspection by Bank staff, legal and advocate fees, stamping of loan document and its typing stationery charges and refreshments - entertainment expenses while on inspection by staff and connecte .....

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ns of section 194H of the Act since the nature of payment is neither commission nor brokerage within the meaning of said section. He further contended that the ld. CIT (A) also erred in holding that the payments are liable to be taxed under section 17(1) and 17(2) of the Act. He submitted that these payment would not come within the sweep of section 17. Therefore, he submitted that the AO was not justified in making disallowance and the ld. CIT (A) was not justified in holding that such payments .....

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armers who avail bank loan facility for buying the tractor. For availing bank loan facility, certain paper work are required to be carried out, which as per assessee is undertaken by itself and in the process of the same, the assessee has incurred expenses in the nature of fee to Advocate, typing charges, revenue officials fee etc. It is contended that these expenses are borne by the assessee and is necessarily related to the business of the assessee, hence the same is allowable deduction. The A .....

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7 of the Act. 3.4. Now the issue to be adjudicated is whether the expenditure claimed by the assessee in the form of payments made to the employees in the nature of Financial Service charges is amenable to the provisions of tax deduction at source or not. The AO has relied on the provisions of section 194H. As per the AO, these payments were brokerage and commission to the employees. Before the AO, the assessee has not furnished any independent evidence except the vouchers made by itself stating .....

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n transaction, in fact it is carried out by the banker itself. But it is also a fact that bankers have tie-up with the vehicle/tractor agency who carried out this kind of service to the prospective customers. Therefore, in our considered view, both the authorities below have misdirected themselves for not appreciating the fact that the nature of payment as made by the assessee is neither a payment in the nature of salary nor related to employer-employee relationship. The payment is made in respe .....

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er documentary evidence which could prove assessee s claim that the said expenses were reimbursements to the salesmen. The AO treated such payment as the payment of commission or brokerage to the employee. In support of such finding, the AO has not placed any material on record suggesting that these payments were in the nature of brokerage or commission. In the absence of such material, in our considered view, merely on the basis of conjectures, the payments made to the employees would not parta .....

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te details in support of its claim that such payments were nothing but reimbursement to the employees and such expenditure is allowable deduction. After considering the totality of the facts and circumstances of the present case, it would be in the interest of justice if the issue is restored to the file of the AO for decision afresh. Hence we set aside the impugned order and restore the matter to the file of the AO with the direction to verify from the bank whether any loan transaction was carr .....

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of the bank and bank has not debited such expenditure to the account of the concerned beneficiary and borne by the assessee company, in that event, he would grant deduction of expenditure to the assessee, incurred during the course of business of the assessee. This ground of the revenue s appeal is allowed for statistical purposes. 4. Ground no. 2 of revenue s appeal is against deletion of addition of ₹ 5,81,868/- made by the AO by invoking provisions of section 14A read with Rule 8D. 4.1. .....

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he submissions as made in the written submissions and submitted that there is no illegality in the order of ld. CIT (A). He drew our attention to the fact that the AO without examining the factual position straight away applied provisions of section 14A read with rule 8D. He further submitted that the assessee received meager dividend of ₹ 30,000/- which was directly credited in its bank account. The ld. Counsel submitted that before making disallowance, the AO has to satisfy himself that .....

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r section 14A of the Act, the AO has to satisfy himself in respect of the claim of expenditure. In the event the AO finds that the expenditure related to the exempt income have also been claimed by the assessee while computing its income, then the AO is empowered to make disallowance in the manner prescribed in rule 8D. In the instant case, the AO has not given any finding in respect of the disallowance of expenses. On the contrary, the assessee has pointed out that it had sufficient own funds a .....

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allowance, we set aside the order of ld. CIT (Appeals) and restrict the disallowance to the extent of earning of exempted income of ₹ 30,000/-. Thus out of total disallowance of ₹ 5,81,868/-, the disallowance to the extent of ₹ 30,000/- qua the administrative expenses is sustained. This ground of the revenue s appeal is partly allowed. 5. Ground no. 3 related to deletion of disallowance of ₹ 50,000/- out of staff & labour welfare expenses. 5.1. The ld. D/R supported t .....

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