Project-specific drawings, managerial remuneration, and TDS clerical errors were treated as allowable business deductions on documented facts.

Payments for project-specific drawings and designs were treated as outside fees for technical services where no transfer of technology or usable know-how was shown, and the UAE payment was not chargeable to tax in India on the facts stated, so section 40(a)(ia) disallowance did not apply. Remuneration for services actually rendered was considered deductible even though approval was not formally received for the entire period. Load testing equipment used as a one-time, non-recoverable item was treated as revenue expenditure, and a wrong assessment year in the TDS challan was treated as a clerical error where tax had been deducted and paid. Advertisement expenditure was accepted as genuine when supported by invoices, payment records, and bank evidence.

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Issues: (i) whether payments made for purchase of drawings and designs from Singapore and Dubai were liable to tax deduction at source and disallowance under section 40(a)(ia); (ii) whether excess remuneration paid to the managing director was allowable as business expenditure; (iii) whether expenditure on load testing equipment was capital or revenue in nature; (iv) whether disallowance could be made merely because the TDS challan mentioned the wrong assessment year; and (v) whether advertisement expenditure was bogus merely because the payee denied the transaction.

Issue (i): whether payments made for purchase of drawings and designs from Singapore and Dubai were liable to tax deduction at source and disallowance under section 40(a)(ia).

Analysis: The payment to the Singapore concern was for project-specific drawings and designs. Under Article 12(4)(c) of the India-Singapore DTAA, a payment is covered only if the development and transfer of a technical plan or design also enables the recipient to apply the technology contained therein. The record showed no transfer of technology, know-how, or technical skill capable of being used beyond the particular housing project. As regards the Dubai payment, the recipient was an individual resident of UAE and the relevant treaty provision was Article 14 of the India-UAE DTAA governing independent personal services, under which the income was taxable in UAE and not in India on the facts found.

Conclusion: The payment to Singapore was not fees for technical services and no TDS obligation arose; the Dubai payment was not chargeable to tax in India. The disallowance under section 40(a)(ia) was not sustainable, and the assessee succeeded on this issue.

Issue (ii): whether excess remuneration paid to the managing director was allowable as business expenditure.

Analysis: The managing director had been rendering services continuously, the appointment had been approved earlier for part of the relevant term, and the company had pursued approval for continuation. The absence of an express adverse order from the Ministry for the later period did not by itself negate the actual services rendered. The expenditure was considered in the light of the principle that remuneration for services actually rendered cannot be denied merely because approval was not formally received for the entire period, where the appointment itself was acted upon and the services were in fact received.

Conclusion: The disallowance of the excess managerial remuneration was deleted, and the issue was decided in favour of the assessee.

Issue (iii): whether expenditure on load testing equipment was capital or revenue in nature.

Analysis: The equipment was a one-time-use, sacrificial item used for load testing of piles in the course of construction. It became embedded in the pile and was not recoverable or reusable. On these facts, the expenditure was incidental to land development and did not bring into existence an enduring capital asset capable of independent use. The material supported the finding that the payment was part of the project cost and not acquisition of a fixed asset for enduring use.

Conclusion: The expenditure was held to be revenue in nature, and the Revenue's challenge failed.

Issue (iv): whether disallowance could be made merely because the TDS challan mentioned the wrong assessment year.

Analysis: The tax had in fact been deducted and deposited within time. The incorrect mention of the assessment year in the challan was only a clerical error. The Form 26AS entries, Form 16A generated through the departmental system, and the systems confirmation showed that the credit related to the correct assessment year. Since the statutory condition for disallowance under section 40(a)(ia) is non-deduction or non-payment of tax, a mere wrong year entry in the challan could not justify disallowance where the tax was actually deducted and paid.

Conclusion: The disallowance was rightly deleted, and the Revenue's ground was rejected.

Issue (v): whether advertisement expenditure was bogus merely because the payee denied the transaction.

Analysis: The assessee produced the invoice, cheque payment details, and bank statement showing encashment. The payee's denial raised suspicion, but it was not conclusive by itself. Once the assessee produced documentary evidence supporting the claim, the burden shifted to the Revenue to make further enquiry. No effective rebuttal was made in assessment or remand proceedings, and the evidence supported genuineness of the expenditure.

Conclusion: The expenditure was held to be genuine and allowable, and the Revenue's ground was dismissed.

Final Conclusion: The assessee obtained relief on the principal TDS and managerial remuneration disputes, while the Revenue's challenges to the remaining allowances also failed, resulting in a partial allowance of the assessee's appeal and dismissal of the Revenue's appeal.

Ratio Decidendi: A payment for project-specific drawings or designs is not fees for technical services unless the transfer also enables the recipient to apply the underlying technology; further, actual tax deduction and payment cannot be denied effect because of a clerical error in the challan, and genuine business expenditure supported by documentary evidence cannot be disallowed solely on a third party's denial.

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