2015 (10) TMI 2662 - AT - Income Tax

TDS on commission payment - nature of payment- Held that - We find that the agreement governing the commission was changed during the year under appeal that the commission was to be paid after the receipt of the sale proceeds as per the new agreement that the assessee had filed details of foreign commission for the year under consideration as per the revised agreement that the details are available at page no.9 of the paper-book. A perusal of the details clearly show the full foreign commission expenses for the year under appeal and lead to the conclusion that the assessee had correctly made a claim about it. In our opinion the said expenditure cannot be treated as prior period expenses. In our opinion it is not necessary that agreement should be registered to be a valid agreement. We do not find any thing illegal or wrong in the method adopted by the assessee for the year under appeal So we are reversing the order of the FAA and deciding the ground no.1 in favour of the assessee. Addition on account of netting off of interest - treatment as income from other sources - Held that - We find that the assessee had netted off the interest and made necessary entries in the books of account that remaining interest was capitalised as stipulated by AS-16 that the loan taken by it was a term loan that it could not be used for any other purpose except for the object it was taken that due to delay in commissioning the plant it had parked the loan money with the bank. In our opinion interest earned by it was directly linked with the business activity of the assessee. Therefore same could not be taxed under the head income from other sources . As the interest received by the assessee is inextricably linked with the process of setting up its plant and machinery so in our opinion treatment given by the assessee in its books of accounts to the interest income is as per the provisions of Act. See Commissioner of Income-Tax Versus Bokaro Steel Limited 1998 (12) TMI 4 - SUPREME Court - Decided in favour of assessee. Deduction claimed u/s. Section 80IB disallowed as relying on the previous assessment year assessment. - Decided against assessee.

Summary

Issues:
1. Disallowance of foreign commission expenses.
2. Addition of interest income under the head "income from other sources."
3. Claim of deduction under Section 80IB of the Act.

Issue 1: Disallowance of Foreign Commission Expenses

The assessee, engaged in the manufacturing business, filed an appeal challenging the disallowance of foreign commission expenses. The Assessing Officer (AO) disallowed &8377; 13.75 lacs paid as commission to the holding company, stating it was a prior period expense. The First Appellate Authority (FAA) upheld the AO's decision, emphasizing the change in the agreement and the accrual system of accounting. However, the ITAT Mumbai found that the revised agreement allowed payment after the receipt of sale proceeds, and the expenses were correctly claimed. The ITAT reversed the FAA's order, ruling in favor of the assessee.

Issue 2: Addition of Interest Income under "Income from Other Sources"

The AO added &8377; 22.05 lacs as interest income, as the assessee netted off interest received against interest paid on term loans. The AO relied on a Supreme Court decision and disallowed the netting off. The FAA upheld the AO's decision, stating the interest earned was not business income but fell under "income from other sources." The ITAT disagreed, citing AS-16 and the direct link of interest with the business activity due to the loan's purpose. Referring to a Supreme Court case, the ITAT reversed the FAA's order, ruling in favor of the assessee.

Issue 3: Claim of Deduction under Section 80IB of the Act

The AR conceded that the deduction claim under Section 80IB stood decided against the assessee. The ITAT noted a similar issue in the previous assessment year and decided against the assessee following the earlier order. Consequently, the appeal was partly allowed for both assessment years.

In conclusion, the ITAT Mumbai reversed the FAA's decisions on both the disallowance of foreign commission expenses and the addition of interest income, ruling in favor of the assessee. However, the deduction claim under Section 80IB was decided against the assessee based on previous rulings. The ITAT's comprehensive analysis ensured a fair and detailed examination of each issue, leading to a partial allowance of the appeal for the assessed years.