2015 (10) TMI 165 - AT - Income Tax

Disallowance u/s. 14A - CIT(A) sustained the addition - Held that - It is a well settled law that application of the provisions of section 14A(2) & (3) r.w. Rule 8D is not automatic. The provisions of section 14A and Rule 8D have to be applied after examining the facts of each and every case. Unless proximate connection between the expenditure incurred and the income not forming part of total income is established, the provisions of section 14A(2)&(3) and Rule 8D will not be operative. CIT Vs. Walfort Share and Stock Brokers P. Ltd.,(2010 (7) TMI 15 - SUPREME COURT) and Godrej and Boyce Manufacturing Co. Ltd., Vs. DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT). Thus the matter needs re-visit to the Assessing Officer for fresh adjudication. The Assessing Officer shall re-compute dis-allowance u/s.14A after taking into consideration the entire facts of the case and the well settled law. - Decided in favour of assessee for statistical purposes. Disallowance u/s. 40(a)(i) - payment of overseas commission without deduction of tax at source - CIT(A) deleted the addition - Held that - The contentions of the assessees that commission is paid on the export of garments for orders procured by foreign agents; the commissions were paid outside India through normal banking channels; and that the foreign agents do not have any place of business or Permanent Establishment in India have not been rebutted by the Revenue. The Hon ble Supreme Court of India in the case of GE India Technology Centre P. Ltd., Vs. CIT reported as (2010 (9) TMI 7 - SUPREME COURT OF INDIA ) has held that if the remittances are not chargeable to tax in India, there is no question of deduction of tax at source. We do not find any error in the findings of CIT(Appeals) on the issue. Therefore, the ground raised by the Revenue in its appeals is rejected - Decided in favour of assessee. Foreign Exchange Fluctuation loss dis-allowance upheld by CIT(Appeals) - Held that - Assessing Officer has dis-allowed an amount claimed by assessee as foreign exchange fluctuation loss by relying on the decision of Bangalore bench of the Tribunal in the case of ACIT Vs. K.Mohan & Co., (Exports) (2009 (8) TMI 968 - ITAT BANGALORE). We find that the facts of the case are entirely different from the facts of the case in hand. Therefore, the ratio laid down by the Hon ble Bangalore bench of the Tribunal in the case of ACIT Vs. K.Mohan & Co., (Exports) (supra) is not applicable in the facts of the present case. The matter is remitted back to Assessing Officer for fresh decision in the light of the facts of case and the judgment of the Bombay High Court in the case of CIT Vs. Badridas Gauridu (P) Ltd., (2003 (1) TMI 61 - BOMBAY High Court ).- Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Dis-allowance u/s.14A r.w.Rule 8D confirmed by CIT(Appeals)
2. Dis-allowance u/s.40(a)(i) deleted by CIT(Appeals)
3. Foreign Exchange Fluctuation loss dis-allowance upheld by CIT(Appeals)

Dis-allowance u/s.14A r.w.Rule 8D:
The Appellate Tribunal considered the appeals filed by two entities, challenging the dis-allowance made under section 14A of the Income Tax Act, 1961. The Tribunal noted that the Assessing Officer had reasons to believe that the entities had incurred expenditure related to maintaining investments, leading to dis-allowance. The Tribunal emphasized that the provisions of section 14A and Rule 8D must be applied after examining the specific facts of each case. It was highlighted that a proximate connection between the expenditure and income not forming part of total income must be established for the provisions to be applicable. The Tribunal directed a fresh adjudication by the Assessing Officer, considering all relevant facts and legal precedents.

Dis-allowance u/s.40(a)(i):
The Tribunal addressed the issue of dis-allowance under section 40(a)(i) in relation to payment of overseas commission without deduction of tax at source. The Tribunal upheld the CIT(Appeals)' decision, emphasizing that the payments made to foreign agents were in the nature of commission, not fee for technical services. Referring to legal precedent, including a Supreme Court judgment, the Tribunal concluded that if the remittances were not taxable in India, there was no requirement for tax deduction at the source. Consequently, the Tribunal rejected the Revenue's appeal on this issue.

Foreign Exchange Fluctuation loss dis-allowance:
Regarding the dis-allowance of foreign exchange fluctuation loss, the Tribunal analyzed the case where the Assessing Officer disallowed a specific amount as speculation loss. The Tribunal differentiated this case from a previous decision cited by the Assessing Officer, emphasizing that the facts were distinct. The Tribunal remitted the matter back to the Assessing Officer for a fresh decision, considering the specific circumstances of the case and a relevant judgment of the Bombay High Court. Consequently, the Tribunal allowed the appeal of the assessee on this ground for statistical purposes.

In conclusion, the Appellate Tribunal ITAT CHENNAI addressed multiple issues related to dis-allowances under various sections of the Income Tax Act. The Tribunal emphasized the need for a case-specific analysis while applying provisions like section 14A and Rule 8D. Additionally, the Tribunal upheld the CIT(Appeals)' decisions on dis-allowance of overseas commission and directed a fresh decision on the foreign exchange fluctuation loss dis-allowance. The appeals of the assessees were allowed for statistical purposes, while the Revenue's appeals were dismissed.