The Delhi bench of the Income Tax Appellate Tribunal (ITAT) while allowing the payment of incidental charges in relation to arbitration proceedings observing that professional fee bill cannot be rejected for want of detailed vouchers to prove the claim and the Assessing Officer cannot rely on the narration of the professional fee bill by the payee is not at all material in rejecting the professional fee bill.
The assessee, M/s Road Builders (M) SDN BHD, is a Malaysian company engaged in the business of road construction. During the proceedings, the Assessing Officer noted that the assessee company incurred an amount of Rs.64,12,272/- under the head legal, professional and consultancy. He noted that the assessee has explained that out of above Rs.5,15,000/- were paid to arbitrator as fee and clerical expenses and has explained that the tax is not deducted at source as per the provisions of explanation (a) to section 194J of the Act. Further, the Assessing Officer noted that in the TDS reconciliation filed, the assessee itself has deducted the tax on part of the arbitrator fee. Hence, the Assessing Officer noted that the assessee company failed to deduct the TDS of Rs.5,15,000/- and hence he disallowed the same.
The Tribunal bench comprising Shri Shamim Yahya (Accountant Member) and Shri N. K. Choudhry (Judicial Member) observed that the disallowance in these facts has been done out of legal and professional expenses booked by the assessee.
“The total expenditure booked were Rs.64,12,272/-. A sum of Rs.5,15,000/- was disallowed for lack of deduction of TDS. These sums were paid to arbitrator as fee and clerical expenses and no reasonable explanation was given as to why TDS was not deducted thereupon. The assessee’s plea that provisions of section 194J are not attracted has rightly been rejected by the Revenue authorities. Moreover, as noted by the Revenue authorities, the assessee itself in its ledger entry has mentioned that the payment is net of TDS to the arbitrator. Hence, the assessee is aware that TDS was to be deducted failure to do so would certainly result in a disallowance. Hence, we do not find any infirmity in the addition of Rs.5,15,000/-,” the Tribunal said.
Holding that the same is for the purpose of business wherein the said firm was pursuing arbitration proceedings which as mentioned in the note of account has resulted in Rs.15.84 crores being awarded in favor of the assessee.
The narration of the professional fee bill by the payee is not at all material in rejecting the professional fee bill. A professional fee bill is based upon understanding between the assessee and the professional service provider. It is the assessee who is to be satisfied by the professional services and not the Assessing Officer. It is not the case that the Assessing Officer is sitting into the computation of income of Pramodh Engineers. How Pramodh Engineers narrates and adjusts as professional fee receipt against what expenses is the lookout of the Assessing Officer of Prmoadh Engineers. The Assessing Officer in the present case or the Ld. CIT(A) for that matter cannot ask the assessee for further evidence of the professional fee bill raised. In this view of the matter, in our considered opinion, the rejection of the three bills of M/s Pramodh Engineers of Rs.25,78,263/- is not at all justified. Hence, we delete the same as the expenditure is for business purpose; no case is made out for lack of deduction of TDS or the expenditure being bogus,” the Tribunal concluded.
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