Section 40(a)(ia) cannot be invoked in respect of reimbursement which are not routed through profit and loss account to be claimed as deduction

[2012] 19 taxmann.com 109 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'A'Sharma Kajaria & Co.FEBRUARY 17, 2012

Section 40(a)(ia), read with section 194J, of the Income-tax Act, 1961 - Business disallowance - Interest, etc., payable to resident without deduction of tax at source - Assessment year 2006-07 - Whether question of disallowance under section 40(a)(ia) can only arise when something is claimed as a deduction in computation of business income - Held, yes - Whether reimbursements simplicitor, being profit neutral, are not routed through profit and loss account to be claimed as deduction and, therefore, no disallowance under section 40(a)(ia) can be made in respect of reimbursements - Held, yes - Assessee was a firm of solicitors and advocates - During assessment proceedings, Assessing Officer noted that assessee had made payments to various lawyers for their professional services, but had not deducted tax at source under section 194J from same - He, therefore, disallowed such payments under section 40(a)(ia) - Assessee contended that amounts paid to lawyers were reimbursed by assessee's clients and when deduction was not claimed in respect of those amounts, there could not be any occasion to invoke section 40(a)(ia) - Commissioner (Appeals), however, upheld disallowance made by Assessing Officer - Whether without there being any categorical finding to effect that payments to outside lawyers were claimed as deductions in computation of profits, disallowance under section 40(a)(ia) in respect of such payments could be sustained - Held, no [In favour of assessee]