The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) ruled that the disallowance of ₹1.07 Crore for non-deduction of Tax Deducted at Source (TDS) on reimbursements under Section 40(a)(ia) of Income Tax Act,1961 was unjustified due to tax compliance.
Crisil Limited,appellant-assessee, had been assessed under section 143(3) with an addition of Rs. 1,07,51,004/- under section 40(a)(ia) for non-deduction of tax on reimbursements. In the first appeal, the Commissioner of Income Tax (Appeals)[CIT(A)] had deleted the disallowance, but the Revenue appealed to the Tribunal, which restored the matter for verification in its 12/02/2019 order.
In response to the notice, the assessee argued that the reimbursements were for common expenses without markup, so no tax was required. Since the assessee had included these receipts in its income and paid the tax, it was not in default under section 201, making the disallowance invalid.
The Assessing Officer (AO) had confirmed the disallowance of Rs. 74,57,621/- without considering the assessee’s submissions or providing a hearing. However, the AO had deleted the disallowance of Rs. 32,93,383/-, which was for reimbursement of expenses where no TDS applied, as directed by the tribunal.
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The CIT (A) upheld the AO’s addition and increased it by disallowing Rs. 32,93,383/- without giving the assessee a chance to be heard. The CIT (A) stated that TDS should be deducted on reimbursements to a parent company but ignored the appellant’s Form 26A showing that the assessee had already reported the income. Therefore, no disallowance under section 40(a)(ia) was justified. The CIT (A) also did not explain why certain business expenses were treated as payments in the nature of income.
The two member bench comprising Amit Shukla (Judicial Member) and Renu Jauhri(Accountant Member) after reviewing the facts and evidence, found that the disallowance of Rs. 1,07,51,004/- was made in three parts: Rs. 32,93,383/- for reimbursements where TDS did not apply, Rs. 10,03,947/- for the service tax component, and Rs. 64,53,674/- for other reimbursements. It concluded that the expenses of Rs. 32,93,383/-, such as bank charges and electricity, were for business purposes and did not require TDS.
The service tax component was also not subject to TDS, as per Central Board of Direct Taxes (CBDT) Circular No. 1 of 2014. Regarding the balance reimbursement of Rs. 64,53,674/-, the tribunal noted that the assessee had already reported the income, paid the tax, and filed the return, as confirmed by Form 26A.
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Therefore, the tribunal ruled that no disallowance under section 40(a)(ia) was required and deleted all disallowances upheld by the CIT (A).
In short, the appeal filed by the assessee was allowed.
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