Road Builders (M) SDN BHD Vs DCIT (ITAT Delhi)
The narration of the professional fee bill by the payee is not at all material in rejecting the professional fee bill.
Facts-
The assessee company is incorporated under the laws of Malaysia which is engaged in the business of road construction. However, during the year under assessment, the assessee has not engaged in any project work except the winding up activities of project work. The AO has noted that the assessee company has no business activities and only an income of Rs.1,92,514/- has been shown under the head Other Income comprised of interest on FDR Rs.1,33,963/- and revenue from sale of scrap Rs, 53,451/-. However, as per computation the assessee has further shown an amount of Rs.4,09,707/- as interest on FDR and Rs.1,41,917/- as interest earned on Income Tax Refund, After considering the above receipts, the assessee company has calculated a loss of Rs, 1,01,57,304/-. The AO asked the assessee to file the details of expenses incurred during the year and tax deducted at sources. In reply, the assessee company has admitted that out of expenses under the head hire charges of Rs.2,35,603/-, the tax could not be deducted at source inadvertently on amount of Rs.31,376/-. Hence, the Assessing Officer disallowed the same by invoking the provisions of section 40(a)(ia) of the Act.
Further, the AO noted that the assessee company incurred an amount of Rs.64,12,272/- under the head legal, professional and consultancy. He noted that the assessee has explained that out of above Rs.5,15,000/- were paid to arbitrator as fee and clerical expenses and has explained that the tax is not deducted at source as per the provisions of explanation (a) to section 194J of the Act. Further, the AO noted that in the TDS reconciliation filed, the assessee itself has deducted the tax on part of the arbitrator fee. Hence, the AO noted that the assessee company failed to deduct the TDS of Rs.5,15,000/- and hence he disallowed the same.
Conclusion-
A sum of Rs.5,15,000/- was disallowed for lack of deduction of TDS. These sums were paid to arbitrator as fee and clerical expenses and no reasonable explanation was given as to why TDS was not deducted thereupon. The assessee’s plea that provisions of section 194J are not attracted has rightly been rejected by the Revenue authorities. Moreover, as noted by the Revenue authorities, the assessee itself in its ledger entry has mentioned that the payment is net of TDS to the arbitrator. Hence, assessee is aware that TDS was to be deducted failure to do so would certainly result in disallowance. Hence, we do not find any infirmity in the addition of Rs.5,15,000/-.
The Revenue authorities have taken a plea that this expenditure of Rs.35,05,892/- paid to Pramodh Engineers was without any justification. Held that the assessee was pursuing before the Arbitral Tribunal and in fact on 04.07.2013, a further award in favour of the assessee of Rs.15.84 Crores was awarded. It is another matter that the assessee has not taken any cognizance of the same in the accounts and no adverse inference by the authorities below is also there. Hence, the plea of professional charges paid Pramodh Engineers for pursuing and following of proceedings at Arbitral Tribunal, without any justification is not at all justified.
Another plea of which the Ld. CIT(A) has sustained the addition is absence of documentary evidence. In this regard, we note that the assessee has not produced any bills etc before the Assessing Officer. However, before the Ld. CIT(A), three bills were produced, the total of which came to Rs.25,78,263/-. We note that the Ld. CIT(A) has rejected the bills on the ground that they are identically worded and they mentioned the travelling, food, accommodation and incidental charges for visiting arbitrators and that no further vouchers are there in this regard. We note that the Ld. CIT(A) examined the bills of professional charges to Pramodh Engineers. There is no dispute that the TDS on the same has been deducted. As held by us above, the same is for the purpose of business wherein the said firm was pursuing arbitration proceedings which as mentioned in the note of account has resulted in Rs.15.84 crores being awarded in favour of assessee. The narration of the professional fee bill by the payee is not at all material in rejecting the professional fee bill.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee against the order of the Assessing Officer dated 15.11.2017 pertaining to Assessment Year 2013-14.
2. Grounds of appeal reads as under:-
1 That the learned Commissioner of Income Tax (Appeals) 23, New Delhi has erred both in law and on facts in upholding disallowance of sum of Rs. 5,15,000/- on account of expenditure claimed for arbitration work u/s 40(a)(ia) of the Act on account of alleged non deduction of TDS u/s 194J of the Act.
2 That the learned Commissioner of Income Tax (Appeals) 23, New Delhi has further erred both in law and on facts in upholding disallowance of sum of Rs. 35,05,892/-representing expenditure incurred on consultancy charges and claimed by the appellant company by invoking Explanation 1 to section 37(1) of the Act.
2.1 That the learned Commissioner of Income Tax (Appeals) has overlooked relevant evidence placed on record and, drawn factually incorrect and legally unsustainable inferences based on irrelevant and extraneous consideration and thus, disallowance upheld d is wholly unwarranted and not in accordance with law.
3 That various adverse findings recorded by the learned Commissioner of Income Tax (Appeals) and learned Assessing Officer are contrary to record and law and thus unsustainable.
3. Brief facts of the case as culled out from the draft assessment order are that the assessee company is incorporated under the laws of Malaysia which is engaged in the business of road construction. Only a maiden contract was awarded to the company by Public Works Department (PWD), Kerala State Transport Project (KSTP), Govt, of Kerala towards upgrading the sections of highway, namely Palakkad – Shornur (Km 0+000 – Km 45+300) and Thirssur – Kuttipuram (Km19+600 – Km 52+680) in the state of Kerala vide Contract Agreement No. Nil dated 07.11.2002. However, during the year under assessment, the assessee has not engaged in any project work except the winding up activities of project work. The Assessing Officer has noted that the perusal of profit and loss a/c shows that the assessee company has no business activities and only an income of Rs.1,92,514/- has been shown under the head Other Income comprised of interest on FDR Rs.1,33,963/- and revenue from sale of scrap Rs, 53,451/-. However, as per computation the assessee has further shown an amount of Rs.4,09,707/- as interest on FDR and Rs.1,41,917/- as interest earned on Income Tax Refund, After considering the above receipts, the assessee company has calculated a loss of Rs, 1,01,57,304/-. The Assessing Officer asked the assessee to file the details of expenses incurred during the year and tax deducted at sources. In reply, the assessee company has admitted that out of expenses under the head hire charges of Rs.2,35,603/-, the tax could not be deducted at source inadvertently on amount of Rs.31,376/-. Hence, the Assessing Officer disallowed the same by invoking the provisions of section 40(a)(ia) of the Act.
4. Further, the Assessing Officer noted that the assessee company incurred an amount of Rs.64,12,272/- under the head legal, professional and consultancy. He noted that the assessee has explained that out of above Rs.5,15,000/- were paid to arbitrator as fee and clerical expenses and has explained that the tax is not deducted at source as per the provisions of explanation (a) to section 194J of the Act. Further, the Assessing Officer noted that in the TDS reconciliation filed, the assessee itself has deducted the tax on part of the arbitrator fee. Hence, the Assessing Officer noted that the assessee company failed to deduct the TDS of Rs.5,15,000/- and hence he disallowed the same.
5. Further, the Assessing Officer was not satisfied with the justification of the payment of Rs.35,05,892/- to Mr. Pramodh Engineers. the Assessing Officer disallowed the same by observing that a perusal of the same shows that the invoices are raised against the travelling, food, accommodation and other incidental charges for visiting arbitrator’s place on various dates. The invoices are not supported with any primary vouchers of the expenses incurred. It shows that the invoices of huge amount were raised without any specific services rendered on specific dates/period. All the invoices having the same narration. From the above, as opined that the expenses have been shown to be incurred without any professional or technical services received as there was no business activity during the year under consideration. Hence, the Assessing Officer disallowed the said expenditure u/s 37(1) of the Act.
6. Against the above order, the assessee appealed before the Ld. CIT(A). As regards the issue of disallowance of Rs.5,15,000/- as arbitrator fee for lack of deduction of TDS, the Ld. CIT(A) confirmed the same by observing as under:-
“6.3 The appellant also filed copy of the ledger account. On perusal of this ledger account it is seen that expenses of Rs. 20,000/- paid for getting legal opinion and all other expenses are either for secretarial and clerical expenses in connection with arbitration expenses, or arbitration expenses for sitting on a particular date which are paid to Sh. Kurien Methew or Sh. Roy J Vellanikkarn or Sh. Addul Kharder. As mentioned by the AO, the appellant has submitted a chart of details of IDS deducted and re-conciliation. As per the said chart the appellant has itself described payments made to S/Sh. Kurien Methew and Roy J Vellanikkarn and Addul Kharder as, “legal, professional and consultancy”. The details of TDS deducted and TDS deposited have been mentioned against these charges. Therefore, the plea of appellant does not have any legs to stand. Copy of said chart of details of TDS deducted and reconciliation is enclosed as Annexure-1 to this order. Also, copy of the ledger account submitted by the appellant is enclosed as Annexure-2.
7. As regards the Assessing Officer’s disallowance of Rs.35,05,892/-, the same was confirmed by the Ld. CIT(A) by observing that the Assessing Officer observed that the there was no business activity during the year. The invoices are not supported by the bills and vouchers of the parties where expenditure has been made. Before the Ld. CIT(A), copies of three invoices were submitted, however, the Ld. CIT(A) was not convinced and confirmed the same by observing as under:-
