2017 (12) TMI 1669 - AT - Income Tax

TDS u/s 195 - Non-deduction of TDS on the payments made to foreign partiesfor the services rendered in various foreign destinations - addition u/s. 40(a)(i)/40(a)(ia) - DTAA provisions - Make available Clauses - PE in India - HELD THAT - These entities who have rendered the impugned services admittedly have no presence in India by way of permanent establishment and no business connection in as much as that the services were rendered outside India. It would suffice to hold that the basic ingredients to trigger the operation of Sec.9(1)(i) are conspicuous in their absence in the above services as explained by the assessee, supra. The payment(s) made to them would not be exigible to tax unless and until a case has been made out that they are in the nature of the services within the meaning of Sec. 9(1 )(vi) or 9(1)(vii) being royalty or technical services . The Revenue could not assail the assessee s above contentions . Since the above payments are not chargeable to tax in India u/s 9(1)(vii) r.w.s. 195, the provisions of s.40(a)(i) will not be applicable. - Decided against revenue Addition on account of Bogus Purchase - HELD THAT - As before the CIT(A , the assessee has filed details like Receipt Notes, Payment Vouchers, Retail Invoice and bank statement in which the payment of ₹ 3,17,126 was cleared. Still the Revenue has raised a ground that the assessee did not furnish any material evidence to prove that the transaction took place in the earlier A.Y.2011-12.- Decided against revenue Disallowance of PF & ESI - employees contribution & ESI as remitted to Government before the due date and filed return u/s. 139(1) - HELD THAT - As placing reliance on the Delhi High Court s decision in the case of Aimil Ltd 2009 (12) TMI 38 - DELHI HIGH COURT that if the assessee had deposited employees contribution towards PF and ESI after the due date as prescribed under the relevant Act, but before the due date of filing of the return under the Income Tax Act, no disallowance could be made in view of the provisions u/s.43B as amended by Finance Act 2003. Respectfully following the ratio laid down by the Hon ble High Court, the plea of the appellant is allowed. This ground of appeal is allowed

Summary

Issues Involved:
1. Non-deduction of TDS
2. Addition on account of bogus purchase
3. Disallowance of PF & ESI payments

Detailed Analysis:

1. Non-deduction of TDS:

The assessee did not deduct TDS on payments made to foreign parties for services rendered abroad, resulting in a disallowance of ?56,51,905 by the AO. The CIT(A) overturned this, citing that the payments were not taxable in India as the services were rendered outside India by entities with no business connection or permanent establishment in India. The CIT(A) referenced the case of CIT v. Faizan Shoes P Ltd and ITAT Chennai's decision in Leaap International P Ltd, concluding that the payments did not fall under "managerial" or "technical" services as per s.9(1)(vii) of the Act. The Revenue's appeal argued that the services were technical/managerial, but the Tribunal upheld the CIT(A)'s decision, noting that the payments were not chargeable to tax in India under s.9(1)(vii) r.w.s. 195, and thus, s.40(a)(i) was not applicable.

2. Addition on account of bogus purchase:

The AO added ?3,17,126 towards bogus purchases based on information from the CIT-I, Chennai, and a statement by Banwarilal Jain. The CIT(A) found that the assessee had no transactions with Maan Diamonds during the relevant year and that the AO did not provide evidence of purchases from Maan Diamonds during the year. The CIT(A) noted the lack of opportunity for the assessee to cross-examine Banwarilal Jain and ruled the disallowance invalid. The Revenue's appeal contended that the addition was based on Investigation Wing findings, but the Tribunal upheld the CIT(A)'s decision, emphasizing the absence of transactions in the relevant year.

3. Disallowance of PF & ESI payments:

The AO disallowed ?7,10,666 (PF) and ?73,244 (ESI) for payments made beyond the due date but before the filing of the return. The CIT(A) referenced Circular No.22/2015 and the jurisdictional High Court's decision in CIT vs. Industrial Security and Intelligence India (P) Ltd, ruling that no disallowance could be made if the payments were made before the due date of filing the return. The Revenue's appeal argued that the circular applied only to employer contributions, not employee contributions. The Tribunal upheld the CIT(A)'s decision, noting the jurisdictional High Court's ruling and confirming that the disallowance was correctly deleted.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all three issues. The order was pronounced on December 28, 2017, in Chennai.