2015 (8) TMI 177 - HC - Income Tax

Non deduction of tds u/s 195 - payment of commission made to agents viz. of Turkey and of Mauritius - CIT and the Tribunal set aside AO order of disallowance - Held that - CIT and the Tribunal corectly set aside the order of the Assessing Officer in view of the circular No. 786 dated 07.02.2000 issued by the Central Board of Direct Taxes which inter alia states that no tax is deductible under Section 195 of the Act in respect of expenditure on export commission and other related charges payable to a non-resident for services rendered outside India - Decided in favour of assessee. Addition on shortage in production - ITAT deleted addition - Held that - The CIT found, as a matter of fact, that the assessee had been maintaining the complete details/particulars of opening stock, purchase, consumption, production and sales, which were in fact verified and accepted by the Assessing Officer. The finding is that the addition was made purely on imagination and assumptions without bringing any documentary material on record. The finding is neither absurd nor perverse.- Decided in favour of assessee.

Summary

Issues:
1. Whether the Tribunal was right in deleting the addition made by the Assessing Officer regarding tax deduction at source for payments to non-resident agents.
2. Whether the Tribunal was right in deleting the addition made by the Assessing Officer on account of shortage in production.

Analysis:

Issue 1:
The appeal involved a dispute over the addition made by the Assessing Officer due to the failure of the respondent/assessee to deduct tax at source for payments made to non-resident agents in Turkey and Mauritius. The Circular No. 786 dated 07.02.2000 by the Central Board of Direct Taxes was crucial in this case, stating that no tax is deductible under Section 195 of the Income Tax Act for payments to non-residents for services rendered outside India. The CIT and the Tribunal relied on this circular to set aside the Assessing Officer's order. The circular clarified that payments to non-resident agents operating outside India and receiving payments abroad are not taxable in India. As the facts were admitted and the circular was applicable, the first question did not raise a substantial legal issue, leading to the dismissal of the appeal in favor of the assessee.

Issue 2:
The second question raised by the appellant related to the addition made by the Assessing Officer for a shortage in production, which the appellant failed to justify. The CIT found that the assessee had maintained complete details of stock, purchase, consumption, production, and sales, which were verified and accepted by the Assessing Officer. The addition was made based on assumptions without any documentary evidence. The finding of the CIT was considered reasonable and not perverse. Consequently, the second question was also answered against the appellant, leading to the dismissal of the appeal in favor of the assessee.

In conclusion, the High Court upheld the Tribunal's decision to delete the additions made by the Assessing Officer, both regarding tax deduction at source for payments to non-resident agents and the shortage in production, based on the facts and applicable legal provisions. The appeal was dismissed in favor of the assessee.