2019 (12) TMI 1537 - AT - Income Tax

Appellant's Appeal Allowed on Wages Expenditure Issue

Asst. Commissioner of Income Tax, Central Circle – 2 (3), Bengaluru Versus M/s. RNS Infrastructure Ltd. AND M/s. RNS Infrastructure Ltd. Versus Deputy Commissioner of Income Tax, Central Revenue Building, Bangalore

The Tribunal allowed the Appellant's appeal on the issue of wages expenditure lacking primary documents for statistical purposes. The appeal filed by the ... TDS u/s 194A - non deduction of TDS on interest paid to non-banking financial companies - Addition u/s 40(a) (ia) - HELD THAT:- Admittedly, assessee has not deducted TDS under section 194 A of the act against interest paid to nonbanking financial companies. It is also an admitted fact that the companies to whom assessee has made payments are repeated companies like M/s. L & T Finance Ltd., M/s. Bajaj Finance Ltd., M/s. Reliance Capital Ltd., M/s. India Bulls Ltd., M/s. Diamler Finance Ltd., M/s. Kotak Mahindra Bank Ltd., and M/s. Tata Capital Ltd., who are regular assessee’s under Income tax Act. As Ld. AR filed before us certificate issued by chartered accountant which was not filed before authorities below, it is necessary that the same is to be verified. We set aside this issue to Ld. AO for due verification of the facts and to consider the claim in accordance with law. Addition on account of wages expenditure not adequately backed up by primary documents - HELD THAT:- AO has not rejected the books of accounts - as per CIT (A) there is no finding by Ld. AO that expenditure incurred and claimed by assessee is either capital in nature or personal or wholly and exclusively not incurred for the purposes of business - CIT (A) observed that no defect has been pointed out by Ld. AO in any of specific vouchers - As observed that the disallowance made by Ld. AO is on purely ad hoc basis of 10% - AO has not doubted bona fides of such expenditure. Under such circumstances we do not find any reason to interfere with the view adopted by Ld. CIT (A) and the same is upheld. Addition u/s 14A r.w.r 8D(iii) - DR submitted that assessee earned exempt income and whenever there is an exempt income earned certain indirect/common expenditure could always be attributable to such receipts - HELD THAT:- . Admittedly assessee has earned exempt income and no new investment has been made by assessee during the year under consideration. Further Ld. CIT (A) has observed that all old investments by assessee have been carried out of internal generated funds and that no borrowed funds have been utilised for investments that have been made in the past. No infirmity in the order of Ld. CIT (A) in restricting disallowance to the extent of exempt income earned during the year. Issues:1. Disallowance of wages expenditure lacking primary documents.2. Disallowance of interest paid to Non Banking Finance Companies under Section 40(a)(ia).3. Disallowance under Section 14A read with Rule 8D(iii).Issue 1: Disallowance of wages expenditure lacking primary documents:The Appellant disputed the addition of wages expenditure not adequately supported by primary documents. The Ld. CIT (A) deleted the addition, citing the absence of rejection of the books of accounts by the Ld. AO and the lack of evidence that the expenses were capital in nature or not incurred for business purposes. The Tribunal upheld the CIT (A)'s decision, noting the absence of any specific defects in the vouchers and the ad hoc nature of the 10% disallowance without questioning the expenditure's genuineness.Issue 2: Disallowance of interest paid to Non Banking Finance Companies under Section 40(a)(ia):The Appellant challenged the disallowance of interest paid to NBFCs under Section 40(a)(ia) for non-deduction of TDS. The Ld. AR argued that the payments were made through account payee cheques, and the companies had already paid taxes on the interest. The Tribunal acknowledged the need for verification of the facts and remanded the issue to the Ld. AO for further examination, considering the submission of additional evidence by the Appellant.Issue 3: Disallowance under Section 14A read with Rule 8D(iii):The Appellant contested the disallowance under Section 14A read with Rule 8D(iii) concerning exempt income earned without new investments during the relevant year. The Ld. CIT (A) limited the disallowance to the extent of the exempt income earned, as no borrowed funds were utilized for past investments. The Tribunal upheld the CIT (A)'s decision, finding no fault in the restriction of disallowance based on the exempt income earned.In conclusion, the Tribunal allowed the Appellant's appeal on the issue of wages expenditure lacking primary documents for statistical purposes. The appeal filed by the revenue was dismissed regarding the disallowance of wages expenditure and interest paid to NBFCs, as well as the disallowance under Section 14A read with Rule 8D(iii). The judgment was pronounced on December 20, 2019, by the Appellate Tribunal ITAT Bangalore, with detailed analysis and considerations provided for each issue raised in the appeals.