2022 (1) TMI 1365 - AT - Income Tax

Tribunal allows appeal, permits rent expenses, sets aside TDS disallowance, refers general charges for reexamination.

M/s. Kamla Retail Ltd. Now known as Ethos Limited, Versus Additional CIT, Range-1, Chandigarh.

The Tribunal partially allowed the appeal, directing the deletion of the disallowance of Rs. 30,45,000/- as prior period expenses related to rent payment ... Disallowance as prior period expenses - as argued expense was paid at a later date due to pending negotiation with the landlord - HELD THAT:- The factum of negotiation between the assessee and the landlord and an agreement towards the revised licence fee as happened in the month of Aug 2009 is clearly borne out of records and the liability towards the rent/licence fee though pertaining to the earlier period has crystallized during the year and is allowable in the hands of the assessee. We therefore find that these expenses are duly allowable in the hands of the assessee as settled during the year and in any case, there are no changes in the tax rates and thus, no prejudice is caused to the Revenue and as held by the Courts, such an exercise of disallowing otherwise allowable expenses treating as mere prior period expenses will only result in an academic discussion without any tangible results. Also aforesaid expenses in nature of rental payments are subject to TDS u/s 194I and the provisions of section 40(a) (ia) are equally attracted which provides for the allowability of expenses in the year in which the TDS has been deducted and paid. In the instant case, it is a matter of record that the assessee has paid and accounted for these expenses in the books of accounts in the financial year relevant to the impugned assessment year and has deducted and deposited TDS in the financial year relevant to the impugned assessment year and not in the earlier assessment year. Therefore, even from the perspective of harmonious construction of all relevant provisions, the assessee deserves an allowance towards these expenses in the year under consideration. Decided in favour of assessee. TDS u/s 194C - assessee has not deducted TDS under the head “Advertisement and publicity” on certain transactions - Disallowance u/s 40(a)(ia) - HELD THAT:- Assessee has filed relevant invoices/documentation in support of its contentions before the ld CIT(A) and therefore,CIT(A) findings that the assessee has not filed any evidence in support of his contention that the said payment does not require any TDS, is not borne out from the records. Given that the material available on record has not been examined and no findings on merits of the additions have been recorded by the ld CIT(A) , we deem it appropriate that the matter be set-aside to the file of the ld CIT(A) to examine the same on merits after providing reasonable opportunity to the assessee. The contentions advanced on the merits have been left open and the assessee is free to advance the same before the ld CIT(A) as so advised. In the result, the ground no. 3 is allowed for statistical purposes. Expenses debited under the head “general charges” - HELD THAT:- Going by the nature of expenses such as assets written off , provisions for expenses and old balances written off , it is prima facie not very clear whether these expenses can be claimed as revenues expenses and allowable under section 30 to 37 of the Act. Since these contentions have been raised for the first time and in absence of any findings of the lower authorities, we deem it appropriate to set-aside the same to the file of the ld CIT(A) who shall examine the aforesaid contentions so raised - ground no. 4 is allowed for statistical purposes. Issues Involved:1. Contravention of Section 250(6) of the Income Tax Act, 1961.2. Disallowance of Rs. 30,45,000/- as prior period expenses.3. Disallowance of Rs. 6,86,317/- under Section 40(a)(ia) for non-deduction of TDS.4. Disallowance of Rs. 2,82,317/- out of general charges as prior period expenses.Issue-wise Detailed Analysis:1. Contravention of Section 250(6) of the Income Tax Act, 1961:- The first ground of appeal was general and did not require specific adjudication.2. Disallowance of Rs. 30,45,000/- as prior period expenses:- The assessee challenged the disallowance of Rs. 30,45,000/- as prior period expenses, arguing that the expense was related to rent payment for stores at JW Marriot Hotel, Mumbai. The delay in payment was due to pending negotiations for rent remission, and the final settlement was reached in August 2009.- The AO disallowed the expense, stating it pertained to a prior period. The Ld. CIT(A) upheld this disallowance, emphasizing that the assessee followed the mercantile system of accounting and should not account for expenses from previous years unless specifically allowed under the Act.- The Tribunal found that the liability for the rent crystallized during the year in question due to the final settlement reached in August 2009. The Tribunal noted that the AO had acknowledged the ongoing negotiations and the revised rent agreement. It was held that the expenses were allowable as they crystallized during the relevant financial year, and there was no prejudice to the Revenue due to unchanged tax rates. The disallowance of Rs. 30,45,000/- was directed to be deleted.3. Disallowance of Rs. 6,86,317/- under Section 40(a)(ia) for non-deduction of TDS:- The AO observed that the assessee did not deduct TDS on certain transactions under the head 'Advertisement and publicity' as required under Section 194C. Consequently, a disallowance of Rs. 8,90,551/- was made under Section 40(a)(ia).- The Ld. CIT(A) partially accepted the assessee's explanation for some payments but confirmed the disallowance of Rs. 6,86,317/- due to lack of evidence.- The Tribunal found that the assessee had provided relevant invoices and documentation to support its claim that no TDS was required for certain payments. The Tribunal set aside the matter to the Ld. CIT(A) for examination on merits, allowing the assessee to present its contentions. The ground was allowed for statistical purposes.4. Disallowance of Rs. 2,82,317/- out of general charges as prior period expenses:- The AO disallowed Rs. 2,82,317/- debited under 'general charges,' stating these expenses did not belong to the period under consideration.- The Ld. CIT(A) upheld the disallowance, emphasizing the mercantile system of accounting and referencing a prior ITAT decision.- The Tribunal noted that the nature of expenses (assets written off, provisions for expenses, old balances written off) was unclear regarding their allowability as revenue expenses under Sections 30 to 37. The matter was set aside to the Ld. CIT(A) for examination, considering the Tribunal's discussions on prior period expenses. The ground was allowed for statistical purposes.Conclusion:- The appeal was partly allowed for statistical purposes, with specific directions for re-examination of certain issues by the Ld. CIT(A). The Tribunal emphasized the principle of crystallization of liability and the need for harmonious construction of relevant provisions.