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2023 (10) TMI 1062 - AT - Income TaxDisallowance u/s 14A - absence of any exempt income during the year - DR before us vehemently relied on the amendment brought in Section 14A of the Act by the Finance Act 2022 and argued that the same need to be construed as retrospective in operation as according to him, it was merely clarificatory in nature - HELD THAT - This argument of the ld. DR had been specifically addressed in the case of PCIT vs Era Infrastructure (India) 2022 (7) TMI 1093 - DELHI HIGH COURT wherein it was held that the amendment made by Finance Act, 2022 to section 14A of the Act by inserting a non-obstante clause and Explanation will take effect from 1-4-2022 and cannot be presumed to have retrospective effect. It further held that no disallowance could be made under section 14A of the Act if no exempt income was earned by assessee during the year under consideration. Respectfully following the aforesaid judicial precedents, the Ground No. 1 raised by the revenue is dismissed. Deferred revenue expenditure - case of the assessee is that as per the Accounting Practice, the assessee was to recognize expenditure on deferred basis but for the purpose of income tax, the entire expenditure was allowable - AO did not agree to this contention of the assessee and proceeded to disallow the sum being the upfront fee attributable to the next year - HELD THAT - The assessee had only sought to defer the said payment over the period of the loan of two years on a proportionate basis. In our considered opinion, this treatment in the books has got nothing to do with the claim of deduction under the provisions of the Act. For the purpose of income tax, the entire payment of Rs 8 crores, being incurred and paid during the year would become allowable, as long as the loan borrowed is utilized for the purpose of the business. In the instant case, there is no dispute that the term loan availed from Yes Bank is utilized for the purpose of business of the assessee. Hence the upfront fee / facilitation charges paid for the said loan would become squarely allowable as deduction in the year of incurrence itself. No infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the Ground No. 2 raised by the revenue is dismissed. TDS u/s 195 - disallowance u/s 40(a)(i) - non deduction of TDS on brokerage and commission paid at China to foreign agent - HELD THAT - Once it is accepted that the services are rendered outside India by the commission agent, there is no chargeability to tax for them in India in terms of section 5(2) or section 9(1) of the Act as the commission does not accrue or arise in India. This issue is no longer res integra in view of the decision of Delhi Tribunal in the case of Welspring Universal 2015 (1) TMI 736 - ITAT DELHI We hold that the payment of import commission by the assessee to Shye International Ltd is not eligible for withholding tax and hence the disallowance made u/s 40(a)(i) of the Act is liable to be deleted. Accordingly, the Grounds 1 to 4 raised by the assessee are allowed.
Issues Involved
1. Deletion of disallowance made under Section 14A of the Income-tax Act, 1961. 2. Deletion of disallowance of deferred revenue expenditure. 3. Disallowance under Section 40(a)(i) for brokerage and commission paid to a foreign agent. Summary Issue 1: Deletion of Disallowance under Section 14A The first issue addressed was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance made under Section 14A of the Income-tax Act, 1961, in the absence of any exempt income during the year. The Tribunal noted that the issue was no longer res integra due to the Supreme Court's decision in Maxopp Investments and the Jurisdictional High Court's decision in Joint Investments, which held that no disallowance could be made under Section 14A if no exempt income was earned during the year. The Tribunal also referenced the Delhi High Court's decision in PCIT vs Era Infrastructure (India) Ltd, which clarified that the amendment to Section 14A by the Finance Act, 2022, is not retrospective. Consequently, the Tribunal dismissed the revenue's appeal on this ground. Issue 2: Deletion of Disallowance of Deferred Revenue Expenditure The next issue was whether the CIT(A) was justified in deleting the disallowance of Rs 5,37,34,610/- made by the Assessing Officer (AO) on account of deferred revenue expenditure. The assessee had availed a term loan of Rs 138 crores from Yes Bank and incurred facilitation/upfront fees of Rs 8 crores, which was partly debited in the profit and loss account and partly shown as deferred revenue expense. The CIT(A) noted that while the accounting standards required deferred recognition, Section 36(1)(iii) of the Income-tax Act does not mandate deferment of such expenses. Since the loan was utilized for business purposes and the entire expenditure was incurred and paid during the year, the Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal on this ground. Issue 3: Disallowance under Section 40(a)(i) for Brokerage and Commission Paid to Foreign Agent The final issue was whether the CIT(A) was justified in confirming the disallowance of Rs 2,80,85,949/- under Section 40(a)(i) for brokerage and commission paid to Shye International, a Hong Kong-based company, for services rendered in China. The Tribunal found that the commission was paid for services rendered outside India and thus was not chargeable to tax in India under Sections 5(2) and 9(1) of the Income-tax Act. The Tribunal cited various judicial precedents, including the Delhi Tribunal's decision in Welspring Universal vs JCIT and the Supreme Court's dismissal of the revenue's Special Leave Petition in PCIT vs Vedanta Ltd, to support its conclusion. Consequently, the Tribunal deleted the disallowance and allowed the assessee's appeal on this ground. Conclusion In summary, the Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal. The order was pronounced in the open court on 20/10/2023.
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