9911796707
TMI Blog2025 (4) TMI 1617X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of non-deduction of TDS even though assessee has submitted Form 26A before both the lower authorities, in terms of Section 201 of the Income tax act. The action of the Id. AO is illegal, unjustified, arbitrary and against the facts of the case. It is, therefore, prayed that the entire disallowance of Rs. 22,54,737/- made to the income of the assessee be deleted. Ground No. 2: In the facts and circumstances of the case and in law, Id. AO has erred in not following the directions issued by Id. DRP and in making disallowance of Rs. 2,09,794/- to the income of the assessee u/s 40(a) (ia) on account of non-deduction of TDS on business promotion expense. The action of the Id. AO is illegal, unjustified, arbitrary, contrary to the facts of the case. It is, therefore, prayed that the entire addition of Rs. 2,09,794/- made to the income of the assessee be deleted. Ground No. 3: In the facts and circumstances of the case and in law, Id. DRP has erred in not providing specific directions to the Id. TPO/AO, as required under Section 144C, and leaving it to the Id. AO to ascertain the disallowance based on the evidence which were already presented before Id. DRP. The action of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(ia) of the Act. 3.2 The company also paid business promotion expenditure of Rs. 6,99,314/- to promote business and rewards to employees to achieve work targets. The company was not liable to deduct TDS on such expenses. The contention of the assessee is that the expenses are the incentives provided to the best employees to achieve work targets. However, it is not so. Perusal of documentary evidence submitted by the assessee reveals that the said expenses are the hotel bills in respect of the various persons, e-voucher Amazon and of attendance at 2nd Predictive Analytics Asia summit 2020. No supporting evidence as to whether the said persons are its employees have been furnished by the assessee. Further, even if these were the incentives to employees the same would be under head "Employees Benefit Expenses". The Auditor also has shown these expenses under Business Promotion Expenses. Thus, in view of the facts stated above, the contention of the assessee was not considered. Hence, 30% of the Business Promotion Expenses amount to Rs. 6,99,314/- was disallowed u/s 40(a)(ia) of the Act. 4. Accordingly, the draft order was passed as per the provisions of section 144C read with secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head Catering Expenses in the P&L Account. Further, on perusal of ITR of deductee and computation of income, it is seen that deductee has not shown the corresponding income in his ITR u/s 139(1) of the Act. Hence, assessee was liable to deduct TDS under the provisions of section 194C of the I.T. Act, 1961 as this falls under contractual payment. Thus, the assessee was liable to deduct TDS under section 194C of the IT Act, 1961. Hence, 30% of the catering expenditure of Rs. 75,15,792/- amounting to Rs. 22,54,737/-is being disallowed u/s 40(a)(ia) of the IT Act, 1961. Penalty u/s 270A of the IT Act, 1961 for under reporting of income is also being initiated separately. AO's comments: The contention of the assessee is not acceptable as the assessee was in fact liable for TDS under the provisions of section 194C of the I.T. Act, 1961 as the expenditure is the nature of the business promotion expenses which was already mentioned at Point no. 4 (at 3rd para of conclusion drawn in draft para passed 28.12.2023). Further, on perusal of documents in connection with this expenditure submitted by the assessee during the assessment proceedings, it is found that the said expenses are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at assessee company is liable to deduct TDS under section 194C of the Act. However, assessee company did not enter into any contract/ agreement with Ganesh Lal Yadav HUF, it is only supply of food packets on order basis hence as per assessee it was not liable for TDS deduction. iii. Further, during the course of assessment proceedings and DRP proceedings the expense incurred by assessee was accepted and no question was raised regarding the same and considering the nature of activity TDS was not required to be deducted on such transaction. iv. Without prejudice to above, during the course of lower authority proceedings assessee company had furnished a certificate as required under provision of section 40(a)(ia) r.w.s. 201(1) of the Act along with ITR V and computation of deductee wherein the provision states that if the deductor proves that the deductee has included such amount in his income and paid tax on same, then the deductor will not be considered as assessee in default and no disallowance will be made to the income of deductor. Relevant extract of the provision is as under: Proviso of section 40(a)(ia)- "Where an assessee fails to deduct the whole or any part of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uest before your good self to kindly delete the disallowance made on the income assessee company otherwise it will result in double taxation and oblige. Ground no. 2: Rs. 209794 i.e. 30% of business promotion expenses of Rs. 6,99,314/- is being disallowed u/s 40(a)(ia) of the IT Act, 1961. i. During the year under consideration, assessee company incurred business promotion expense of Rs. 6,99,314/- to promote business which includes expenditure to attend conferences by employees and coupons to employees to rewards for their performance. ii. During the course of assessment proceedings, ld. AO in his draft order stated that assessee company was liable to deduct TDS on such expense under the provisions of 194C of the Act and disallowed 30% of expenditure of Rs. 6,99,314/- amounting to Rs. 2,09,794/-. However, no explanation was provided as to how such expense were covered under the provisions of section 194C of the Act. iii. Further, during the course of hon'ble DRP proceedings, Hon'ble panel had directed ld. AO to re-verify the claim of such expense and had mentioned that such expense cannot be considered as expense for employees and is a business related expense but ld. AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer." vi. Further, as per circular no. 5 of 2002 read with circular no. 715 of 1995 it has been held that such hotel expense are not liable for TDS on rent. Hence, these expenses are not covered under the provisions of section 194C, so not liable to deduct TDS. Hence, we would humbly request before your good self to kindly delete the disallowance made on the income assessee company and oblige." 7. To support the contention so raised in the written submission reliance was placed on the following evidence / records : S. No. Particulars Page No. 1 Form 26A of Supplier of Food Packets (Ganesh Lal Yadav HUF) 1-9 2 Invoices of Catering Expenses 10-21 3 Ledger and Invoices of Business Promotion Expenses 22-28 8. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee when it is clear case of the assessee that there is contract, and it is bill of supply the provision of section 194C are not attracted. As regards the other obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the provision of section 194C shall not apply on those transaction entered into by the assessee in the case of M/s. Ganesh Lal Yadav-HUF. Considering that aspect of the matter ground no. 1 raised by the assessee is allowed. 11. Vide ground no. 2 the assessee challenges disallowance of Rs. 2,09,794/- to the income of the assessee u/s 40(a) (ia) on account of non-deduction of TDS on business promotion expense for Rs. 6,99,314/- to promote business and rewards to employees to achieve work targets. Ld. AO noted that the company was liable to deduct TDS on such expenses. The contention of the assessee is that the expenses are the incentives provided to the best employees to achieve work targets. Ld. AO noted from the invoices that the said expenses are the hotel bills in respect of the various persons, e-voucher Amazon and of attendance at 2nd Predictive Analytics Asia summit 2020. The bench noted from the ledger account of Business promotion expenses that out of total expenditure claimed Rs. 6,99,314/- Rs. 6,67,740/- relates to the Hotel Room booking amount and Rs. 15,000/- and Rs. 16,574/- for conference. That conference fees being below the threshold in section 194C the same c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the barber would be covered under section 194C. Such a wider interpretation is uncalled for, especially when the revenue itself had considered since inception that section 194C is restricted to the works done by contractors/sub-contractors. Apart from the above, the CBDT by its Circular No. 715, dated 8-8-1995 has clarified that the payments made by persons other than individuals and HUF's for hotel accommodation taken on regular basis will be in the nature of 'rent' subject to TDS under section 194-I of the Act. Thus, there is inconsistency in the stand of the CBDT as to whether the services rendered by a hotel to its customers is covered under section 194C or under section 194-I of the Act. 22. In the present case, we are concerned with the question as to whether the services rendered by the petitioner hotel to its customers is covered under section 194C of the Act? 23. As noticed above, the facilities/amenities made available by the petitioner No. 1 hotel to its customers do not constitute 'work' within the meaning of section 194C of the Act. Consequently, the Circular No. 681, dated 8-3-1994 to the extent it holds that the services made available by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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