2013 (10) TMI 523 - AT - Income Tax

Disallowance u/s 40(a)(i) - Foreign consultancy and commission charges - Held that - authorities below have covered this amount u/s 9(1)(vii) as fees of technical services in the nature of inspection services for purchase order. The Ld. AR contended that the authorities have gone by the nomenclature given in the Agreement without ascertaining correct nature of amount which was simply in the nature of commission. From the orders of the authorities below we find and there is insufficient discussion about the nature of the amount paid by the assessee. Both the sides are in agreement that the matter can be restored to the file of AO for afresh adjudication. We therefore set-aside the impugned order and remit the matter to the file of the AO for deciding this issue afresh as per law after allowing a reasonable opportunity of being heard to the assessee - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 40(a)(i) of the Income-tax Act, 1961 for foreign consultancy and commission charges.
2. Disallowance under section 14A of the Income-tax Act, 1961.

Analysis:
1. The first issue pertains to the disallowance of Rs.4,99,736 under section 40(a)(i) of the Income-tax Act, 1961 for foreign consultancy and commission charges. The Assessing Officer disallowed the amount as tax was not deducted at source for a payment made to an individual in China. The CIT(A) upheld this disallowance. However, the ITAT observed that the nature of the payment needed further examination. The ITAT found insufficient discussion on the nature of the amount paid and decided to remit the matter back to the Assessing Officer for fresh adjudication. The ITAT directed the AO to decide the issue afresh after providing a reasonable opportunity of being heard to the assessee.

2. The second issue raised was regarding the confirmation of disallowance under section 14A of the Income-tax Act, 1961. The appellant did not press this ground during the proceedings. Consequently, the ITAT did not allow this ground. As a result, the appeal of the assessee was partly allowed for statistical purposes.

In conclusion, the ITAT Mumbai, in its judgment dated July 24, 2013, addressed the issues of disallowance under sections 40(a)(i) and 14A of the Income-tax Act, 1961. The ITAT set aside the order regarding disallowance under section 40(a)(i) and remitted the matter back to the Assessing Officer for fresh adjudication. The ITAT did not allow the disallowance under section 14A as the appellant did not press this ground.