2016 (7) TMI 1419 - AT - Income Tax

Non deduction of tds on payment made to the shipping companies - Held that - Similar issue has already been covered by this co-ordinate Bench in assessee s own case for AY 2007-08 wherein held where payments are made to agents of non-resident ship-owners or charters for carriage of passengers etc. shipped at a port in India since the agent acts on behalf of the non-resident shipowner or charterer he steps into the shoes of the principal. Accordingly provisions of Section 172 of the Act shall apply and those of sections 194C and 195 of the Act will not apply. Payment made to non-resident in respect of advertisement of products - non deduction of tds - Held that - As decided in assessee s own case for AY 2007-08 Section 7 & 9 of the Act provides the income deemed to be received AND income deemed to accrue or arise in India. As per the section 9 of the Act the above expenses for advertisement in Russia and commission payment to foreign parties/ NRI are not the income deemed to accrue or arise in India Hence not chargeable to tax. Addition u/s 14A r.w.r. 8D - CIT-A restricting the disallowance to the extent of 1% of the exempted income - Held that - AO has invoked the provision of Sec. 14A has made the disallowance under Rule 8D of the IT Rule without recording any satisfaction. We also find that assessee has sufficient fund in making investment in Indian companies. Therefore we can infer borrowed money has not been utilized in investment in Indian companies. AO has applied the formula given under Rule 8D of the IT Rules even on those investments which were made in foreign companies of the assessee without appreciating that the dividend income from foreign companies is not exempted to tax. Disallowance cannot be made for the investment made in foreign companies. We find that L d CIT(A) has deleted the disallowance as per Rule 8D of IT Rules after taking into account the investment made in the Indian companies and for this reason we find no reason to interfere in the order of Ld. CIT(A). Addition on employees contribution of PF - delayed payment - Held that - Before us both the parties relied on the orders of Authorities Below as favourable to them. Considering the above facts and circumstances and relied on the case law of Hon ble Supreme Court in the case of Alom Extrusions Ltd. ( 2009 (11) TMI 27 - SUPREME COURT) in favour of assessee and against the Revenue. Addition on account of expense u/s 14A to ascertain book profit u/s 115JB - Held that - Provisions to Sec. 115JB are starred with a non obstante clause which has overriding effect on the other provisions of Act. Disallowance made under any other provision cannot be imported to the provision of Sec. 115JB of the Act. In this connection we rely on the judgment of Hon ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (2002 (5) TMI 5 - SUPREME Court) we find that the issue is squarely covered in favour of the assessee and against the Revenue. Even otherwise the assessee s issue is also covered by the decision of Hon ble Apex Court in the case of Apollo Tyres Ltd. (supra). We uphold the order of CIT(A) allowing the claim of the assessee Revenue appeal dismissed.

Summary

Issues Involved:
1. Deletion of addition for non-deduction of Tax Deducted at Source (TDS) on payments to shipping companies.
2. Deletion of addition for non-deduction of TDS on payments made to non-residents for advertisement and commission.
3. Restriction of disallowance under Section 14A read with Rule 8D.
4. Deletion of addition for employees' contribution to Provident Fund (PF).
5. Deletion of addition under Section 14A for calculating book profit under Section 115JB.

Detailed Analysis:

1. Deletion of Addition for Non-Deduction of TDS on Payments to Shipping Companies:
The Revenue contended that the CIT(A) erred in deleting the addition of ?1,93,07,205/- made by the AO for non-deduction of TDS on payments to Indian shipping agents of non-resident shipping companies. The AO argued that TDS was not deducted, and no certificate under section 197A was furnished. The assessee claimed that payments were governed by Section 172 of the Act, which overrides other provisions, including Sections 194C and 195. The CIT(A) deleted the addition based on a similar issue for AY 2007-08. The Tribunal upheld the CIT(A)'s order, referencing Circular No. 723 and previous decisions, confirming that Section 172 applies, and Sections 194C and 195 do not.

2. Deletion of Addition for Non-Deduction of TDS on Payments Made to Non-Residents for Advertisement and Commission:
The AO disallowed ?24,41,655/- for non-deduction of TDS on payments to non-residents for advertisement and commission. The CIT(A) deleted the addition, referencing a similar issue for AY 2007-08. The Tribunal upheld the CIT(A)'s order, noting that the payments were outside the purview of TDS under Section 195, as they were not chargeable to tax in India per Section 5(2) and Section 9 of the Act.

3. Restriction of Disallowance under Section 14A read with Rule 8D:
The AO made a disallowance of ?10,93,477/- under Section 14A read with Rule 8D for earning exempt income. The CIT(A) restricted the disallowance to ?1,03,308/-, noting that the assessee had sufficient own funds and no borrowed funds were used for investments yielding exempt income. The Tribunal upheld the CIT(A)'s order, agreeing that the AO did not record satisfaction as required under Section 14A and that investments in foreign entities should not be considered for disallowance.

4. Deletion of Addition for Employees' Contribution to Provident Fund (PF):
The AO disallowed the PF contribution for not being deposited within the due date. The CIT(A) deleted the addition, relying on the Supreme Court's decision in CIT vs. Alom Extrusions Ltd., which allowed such contributions if deposited before the due date of filing the return. The Tribunal upheld the CIT(A)'s order, following the Supreme Court's ruling.

5. Deletion of Addition under Section 14A for Calculating Book Profit under Section 115JB:
The AO added ?10,93,477/- to the book profit under Section 115JB, corresponding to the disallowance under Section 14A. The CIT(A) deleted this addition, stating that Section 115JB, which starts with a non-obstante clause, does not incorporate disallowances under Section 14A. The Tribunal upheld the CIT(A)'s order, referencing the Supreme Court's decision in Apollo Tyres Ltd. vs. CIT, which confirmed that disallowances under other provisions cannot be imported into Section 115JB calculations.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s orders on all issues. The decisions were based on established legal principles, previous judgments, and specific provisions of the Income Tax Act.