2014 (5) TMI 386 - AT - Income Tax

Tribunal emphasizes factual analysis for expenditure vs. reimbursement.

The Tribunal allowed the Revenue's appeal for statistical purposes, emphasizing the need for a detailed factual examination to determine whether the ... Disallowance u/s 40(a)(ia) of the Act – TDS on Reimbursement of expenses – Held that:- Though assessee submitted before the CIT(A) that the amounts are reimbursement and also CIT(A) accepted – but, the issue was not examined in correct perspective - If the amounts are to be spent by the retail dealers, assessee has to submit separate debit notes duly supported by the individual vouchers of the retail dealers - the original expenditure being incurred by the retailers, assessee acts as an agent - as per the agreement assessee has to forward the individual vouchers signed by the retail dealers with their seal and also with APBCL invoice for reimbursement of the expenditure to the retail dealers - No evidence was placed as to what assessee got from the company was reimbursement of expenditure incurred by the retailers - AO is directed to establish whether the amount is expenditure by the assessee or reimbursement of expenditure on behalf of the retailers and in case, if it is an expenditure by the assessee, whether provisions of TDS are attracted and if so, to what extent of the payments made by the assessee to various dealers - thus, the matter is required to be remitted back to the AO for adjudication – Decided in favour of Revenue. Issues:Whether disallowance under section 40(a)(ia) is required for reimbursement of expenditure claimed by the assessee.Analysis:The Appellate Tribunal ITAT Hyderabad heard a Revenue appeal against the Order of the CIT(A)-IV, Hyderabad concerning the disallowance under section 40(a)(ia) of an amount of Rs.1,90,23,039 stated to be reimbursement of expenditure. The assessee claimed the expenditure under the head 'Display and Reimbursements' and argued that it was reimbursement of expenses incurred on behalf of its principal company. The Assessing Officer (A.O.) held that the TDS provisions were applicable as the expenditure was debited in the P & L account and TDS was deducted by the principal company. The CIT(A) analyzed the case law and concluded that disallowance under section 40(a)(ia) was not attracted, stating that the payments were in the nature of reimbursement of expenses incurred by the retailers, and the assessee acted as a conduit for the principal company. The Revenue contended that the CIT(A) erred in deleting the addition without a thorough analysis. The Tribunal examined the agreement between the parties, noting clauses related to remuneration and reimbursement of expenses. It observed discrepancies in the evidence presented and directed the A.O. to determine whether the amount constituted the assessee's expenditure or reimbursement on behalf of the retailers, emphasizing the need for a factual examination. The Tribunal set aside the orders of the A.O. and CIT(A) and allowed the Revenue's appeal for statistical purposes, emphasizing the importance of reassessing the nature of the expenditure and the applicability of TDS provisions.In conclusion, the Tribunal's judgment highlighted the necessity for a detailed factual examination to ascertain whether the amount in question constituted the assessee's expenditure or reimbursement on behalf of the retailers. The Tribunal emphasized the importance of determining the applicability of TDS provisions based on the nature of the payments made by the assessee to various dealers. The decision underscored the need for a thorough analysis of the evidence presented and directed the Assessing Officer to re-examine the issue to ensure a correct determination of the nature of the expenditure and the applicability of TDS provisions.