Income Tax Appellate Tribunal - Mumbai
Utility Powertech Ltd, Mumbai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "F ",MUMBAI
BEFORE SHRI R.S. SYAL (AM) & SHRI VIJAY PAL RAO (JM)
I.T.A.No.2561/Mum/2009
(A.Y. 2005-06)
M/s.Utility Powertech Ltd., Asst..Commr. of Income-tax-1(3),
3rd floor, Reliance Energy Centre, R.No.529, Aaykar Bhavan,
Santacruz (E),Mumbai-400 055. M.K.Road,
AAACU3458P Vs. Mumbai-400 020.
Appellant Respondent
Appellant by Shri Jitendra Sanghavi.
Respondent by Shri Shrawan Kumar.
O R D E R
PER VIJAY PAL RAO, JM:
This appeal by the assessee is directed against the order dated 16-02- 2009 of CIT(A)-XXI, Mumbai, for the asstt. year 2005-06. The assessee has raised the following grounds in this appeal :
"1. The learned Commissioner of Income- tax (Appeals) [hereinafter referred to as CIT(A)] erred in confirming the disallowance under section 40(a)(ia) amounting to Rs.7,66,246/- on account of non-deduction of tax at sources.
Your appellant submits that the disallowance of Rs.7,66,246/- is wrongly made and ought to be deleted.
2. The learned CIT(A) erred in granting only partial relief to the extent of 50% of the total expenditure disallowed by the assessing officer and thereby confirming the disallowance of traveling expenses to Rs.74,400/- ignoring the fact that the same have been incurred for the purpose of business and constitute genuine business expenditure.
Your appellant submits that the traveling expenses disallowed should be allowed in full under the given facts and circumstances.
3. The learned CIT(A) in granting only partial relief to the extent of 50% of the total expenditure disallowed by the assessing officer and thereby confirming the disallowance of business promotion expenses to Rs.31,900/- ignoring the fact that the same have been
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incurred for the purpose of business and constitute genuine business expenditure.
Your appellant submits that the business promotion expenses disallowed should be allowed in full under the given facts and circumstances.
4. The learned CIT(A) erred in granting only partial relief to the extent of 50% of the total expenditure disallowed by the assessing officer and thereby confirming the disallowance of business promotion expenses to Rs.1,01,650/- ignoring the fact that the same have been incurred for the purpose of business and constitute genuine business expenditure.
Your appellant submits that the vehicle expenses disallowed should be allowed in full under the given facts and circumstances."
2. Ground no. 1 is regarding disallowance u/s.40(a)(ia). The assessee company is a joint venture between BSES Ltd. and NTPC Ltd., which was formed on 23-11-1995. The assessee company is engaged in the business of undertaking construction, erection, renovation, modernization and other project management activities in the power sector. During the assessment proceedings, the AO noted that the assessee has made payment of Rs.12,00,000/- being office rent and Rs.7,66,246/- being office upkeeping expenses to Reliance Energy Ltd. The assessee deducted TDS on the payment made towards office rent but has not deducted TDS applicable on the payment towards office upkeeping. The AO asked for explanation on which the assessee has submitted that TDS deductible from the payment towards office upkeeping could not be deducted since the same was adjusted directly by the Reliance Energy Ltd. against the amounts payable by them. The AO did not accept the explanation of the assessee and disallowed the amount of Rs.7,66,246/-. On appeal, the CIT(A) has also confirmed the disallowance made by the AO.
3. Before us, the ld. A.R. of the assessee has submitted that the assessee is having two separate agreements towards office rent as well as other common 3 ITA2561/Mum/09 Utility Powertech Ltd.
services regarding office upkeepment. The assessee has not paid any amount to Reliance Energy Ltd. and the amount payable was adjusted by Reliance Energy Ltd. by way of account entries towards the amount payable by Reliance Energy Ltd. to the assessee. Thus, the ld. A.R. has contended that there is no transfer of money or payment through cheque or draft and, therefore, no disallowance can be made u/s.40(a)(ai). He has relied upon the decision of Hon'ble jurisdictional High Court dated 19-11-2008 in the case of CIT vs. M/s. Siemens Aktiongesellschaft in I.T.Ref. No. 251 of 1988 and submitted that when the amount was by way of reimbursement and no payment was made, the provisions of sec. 194-I as well as sec.40(a)(ia) are not applicable.
4. On the other hand, the ld. D.R. has submitted that the payment was nothing but part and parcel of rent because it was only for use of office premises. Therefore, the assessee was liable to deduct tax even if the payment was made through account entries. He has relied upon the orders of the lower authorities.
5. We have considered the rival contentions and perused the record. The jurisdictional High Court in the case of CIT vs. Seimens Aktiongesellschaft (supra) has held that reimbursement of expenses cannot be regarded as revenue in the hands of the payee. While deciding the issue, the Hon'ble High Court has followed the decision of Hon'ble Delhi High Court in the case of CIT vs. Industrial Engg. Projects P.Ltd. (202 ITR 1014). It is a settled proposition of law from the various decisions of High Courts and particularly the decision of Hon'ble jurisdictional High Court (supra) that when there is no element of income and the payment is only as a reimbursement of expenses incurred by the payee, then no disallowance can be made u/s.40(a)(ia). In the case in hand, the AO has not given a finding that the expenses were for office upkeeping as revenue receipt in the hands of Reliance Energy Ltd. and not a pure reimbursement of expenses.
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Respectfully following the decision of the Hon'ble jurisdictional High Court (supra), we decide this issue in favour of the assessee and against the Revenue.
6. The next issue is regarding disallowance of traveling expenses. The assessee has debited an amount of Rs.14,88,000/- as traveling expenses. The AO made a disallowance @ 10% amounting to Rs.1,48,000/- and added back to the total income of the assessee for want of supporting evidence and verifiable vouchers. On appeal, the CIT(A) has reduced the disallowance from 10% to 5%.
7. Before us, the ld. A.R. of the assessee has submitted that the assessee is having 40 sites and in the course of carrying out work at various sites, some of which are located in remote areas, the assessee has incurred the traveling expenses for which no vouchers can be produced. He further contended that the amount of expenditure in proportion to the total turnover and income is not abnormal but is very small and the lower authorities are not justified in making an ad hoc disallowance. He has further contended that when the purpose of the expenditure and nexus of the same to the business of the assessee have not been denied by the lower authorities, then the ad hoc disallowance is not justified.
8. On the other hand, the ld. D.R. has submitted that the assessee has failed to discharge its onus by producing evidence in support of its claim. When the assessee has not produced any vouchers in respect of the expenses claimed, the lower authorities have rightly disallowed the expenditure partly. He has relied upon the orders of the lower authorities.
9. We have carefully considered the rival contentions and perused the record. The AO has disallowed 10% of the travelling expenses on the ground that the assessee has failed to produce verifiable vouchers and addresses. It is not the case of the Revenue that the claim of the assessee is bogus and not related 5 ITA2561/Mum/09 Utility Powertech Ltd.
to the nature of the business of the assessee. Since the traveling expenses are petty in nature and keeping in view the nature of the business of the assessee at the sites located in remote areas, it not always possible to obtain proper vouchers for the said expenditure. Even otherwise, when the expenditure has not been found as abnormal in comparison to the total turnover and income admitted by the assessee, then it is not justified on the part of the lower authorities to disallow certain percentage of the expenses which is ad hoc in nature. Having regard to the facts and circumstances and nature of the expenses as well as the business activities of the assessee, we do not find any reason to disbelieve the explanation of the assessee. Accordingly, the addition sustained by the CIT(A) is deleted.
10. Ground nos.3 & 4 relate to disallowance of business promotion expenses. We have heard the ld. A.R. as well as the ld. D.R. and perused the relevant record. The reasons for disallowance by the AO are identical as to the disallowance made for the traveling expenses. The contentions of the parties are also the same as on the issue of disllowance of traveling expenses. Since we have considered and decided the issue on traveling expenses in favour of the assessee, on the same reasoning, this issue is also decided in favour of the assessee and accordingly the disallowance made on this account is deleted.
11. In the result, the appeal of the assessee is allowed.
Order pronounced on the 19th day of April, 2010.
Sd/- Sd/-
(R.S. SYAL) (VIJAY PAL RAO)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai:19th April, 2010.
6 ITA2561/Mum/09
Utility Powertech Ltd.
Copy to :
1. Assessee.
2.Department.
3 CIT(A)-XXI,Mumbai.
4 CIT, Cit1,Mumbai.
5.DR,"F" Bench,Mumbai.
6.Guard file.
(TRUE COPY)
BY ORDER,
NG:
Asst.Registrar, ITAT, Mumbai.
7 ITA2561/Mum/09
Utility Powertech Ltd.
Details Date Initials Designation
1 Draft dictated on 13-4-10 Sr.PS/
2 Draft Placed before author 13-4-10 Sr.PS/
3 Draft proposed & placed JM/AM
before the Second Member
4 Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to Sr.PS/
the Sr.PS/PS
6. Kept for pronouncement on Sr.PS/
7. File sent to the Bench Clerk Sr.PS/
8 Date on which the file goes
to the Head clerk
9 Date of Dispatch of order