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2014 (8) TMI 1180 - AT - Income TaxAddition on account of low G.P - assessee was not maintaining stock register - CIT-A deleted the addition - HELD THAT - We find that the CIT(A) has given a finding that the sale prices are fixed for years whereas the prices of raw material are fluctuating. He has also given a finding that in such a business, small variation in gross profit is not a basis to make any addition. We also find that the gross profit rate of the assessee was 42.23% in the present year as against 46% in the preceding year. Hence, fall in gross profit is about 3.27% which is less than 10% gross profit rate declared by the assessee. Considering these facts, we do not find any reason to interfere in the order of CIT(A) on this issue. This ground of of Revenue is rejected. TDS u/s 195 - Disallowance of commission to a non-resident for the technical services rendered - whether there is no explicit provision under the Act for making a payment to non-resident without deduction of tax at source? - HELD THAT - We find that this issue regarding requirement of TDS out of payment of commission to a non-resident foreign agent for his services rendered outside India is squarely covered in favour of the assessee by a recent Tribunal decision rendered in the case of Asstt. CIT v. Lohia Starlinger Ltd. 2014 (10) TMI 700 - ITAT LUCKNOW the second amendment cited by Revenue being insertion of explanation 2 to section 195(1) of the Act, has no relevance because in the present case, payer is already resident of India and therefore, already within the purview of section 195 (1) and there is no need in the present case to extend or broaden the scope of the term any person responsible for paying to a non-resident appearing in sub section 1 to section 195 of the Act. But the requirement that the payee is liable to tax in India in respect of the impugned payment has to be there to attract the provisions of section 195 (1) but in the present case, this aspect is covered in favour of the assessee and against the revenue by the judgment of Hon'ble Allahabad High Court in M/S MODEL EXIMS 2014 (6) TMI 290 - ALLAHABAD HIGH COURT wherein held payment of commission to foreign agents did not entitle such foreign agents to pay tax in India and thus the TDS was not liable to be deducted u/s 195 of the Act - The disallowance made by AO u/s 40 (a) (i) for non-deduction of tax at source u/s 195 were not justified. Disallowance of foreign travelling expenses - assessee was making foreign trips to destinations where actually no business activities are carried out - CIT-A deleted the addition partly - HELD THAT - CIT(A) has examined the issue in detail and has given a finding that the assessee's business involves travelling outside India and visit to Europe and USA has been justified because exports were made by the assessee to these countries. He has also given a finding that the visit to UAE has not been substantiated for the purpose of business. He has confirmed the disallowance of ₹ 2 lac in respect to visit to UAE and in the facts and circumstances of the case and in view of this fact that learned DR of the revenue could not controvert these findings of CIT(A), we do not find any reason to interfere in the order of CIT(A) on this issue. This ground is rejected. Disallowance of business promotion expense - assessee failed to explain the exigency of the expenses under this head during the course of assessment proceedings - CIT-A restricted the addition - HELD THAT - finding of CIT(A) could not be controverted by Learned D.R. of the Revenue that as per the details of expenses, business promotion expenses mainly relate to booking of stalls. When the expenses on booking of stall is allowed to the extent of 80%, it cannot be said that the balance 20% for booking of stall is not for business purpose. There may be some expenses other than booking of stall also and in that respect, the CIT(A) has confirmed the disallowance of ₹ 10,000/-. Considering these facts, we do not find any reason to interfere in the order of CIT(A) on this issue. - Decided against revenue
Issues Involved:
1. Deletion of addition on account of low Gross Profit (G.P.) rate. 2. Deletion of addition on account of disallowance of commission to a non-resident for technical services. 3. Deletion of addition despite Board's Circular No. 7 of 2009. 4. Interpretation of prospective or retrospective nature of amendments in the statute. 5. Applicability of section 9(1)(vii) regarding technical or managerial services. 6. Payment to a non-resident for technical services rendered. 7. Restriction of addition on account of disallowance of foreign traveling expenses. 8. Restriction of addition on account of disallowance of business promotion expenses. Detailed Analysis: 1. Deletion of Addition on Account of Low G.P. Rate: The Revenue contested the deletion of Rs. 2,50,000/- on account of low G.P. rate, arguing that the assessee was not maintaining a stock register. The CIT(A) found that the sale prices were fixed for years while raw material prices fluctuated, and a small variation in gross profit was not a basis for addition. The gross profit rate for the current year was 42.23% compared to 46% in the previous year, a fall of about 3.27%, which was less than 10% of the gross profit rate declared by the assessee. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's ground. 2. Deletion of Addition on Account of Disallowance of Commission to a Non-Resident: The Revenue challenged the deletion of Rs. 14,69,163/- for commission paid to a non-resident for technical services without TDS deduction. The CIT(A) and the Tribunal found that the issue was covered in favor of the assessee by a recent Tribunal decision, which stated that commission paid to non-resident agents for services rendered outside India was not taxable in India, and hence, no TDS was required. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's grounds. 3. Deletion of Addition Despite Board's Circular No. 7 of 2009: The Revenue argued that the CIT(A) erred in deleting the addition without considering Board's Circular No. 7 of 2009. The Tribunal noted that the CIT(A) had considered the relevant Board's Circulars and found that the services rendered by the non-resident agent did not fall under "Fees for Technical Services" as per the Circulars. The Tribunal upheld the CIT(A)'s decision. 4. Interpretation of Prospective or Retrospective Nature of Amendments: The Revenue contended that the CIT(A) erred in interpreting the amendments' prospective or retrospective nature. The Tribunal found that the CIT(A) had duly considered the amendments and relevant case law, concluding that the amendments did not affect the non-taxability of the commission paid to non-resident agents for services rendered outside India. The Tribunal upheld the CIT(A)'s decision. 5. Applicability of Section 9(1)(vii) Regarding Technical or Managerial Services: The Revenue argued that the services rendered by the non-resident agent were technical or managerial, falling under section 9(1)(vii). The Tribunal noted that the CIT(A) found the services were not managerial and did not fall within "Fees for Technical Services" as per the relevant Circulars and case law. The Tribunal upheld the CIT(A)'s decision. 6. Payment to a Non-Resident for Technical Services Rendered: The Revenue contended that the payment to the non-resident was for technical services rendered, requiring TDS deduction. The Tribunal found that the CIT(A) had correctly concluded that the services rendered were not technical or managerial and did not require TDS deduction. The Tribunal upheld the CIT(A)'s decision. 7. Restriction of Addition on Account of Disallowance of Foreign Traveling Expenses: The Revenue challenged the restriction of the addition of Rs. 10,00,000/- to Rs. 2,00,000/- for foreign traveling expenses. The CIT(A) found that the assessee's business involved foreign travel, justifying visits to Europe and the USA but not to the UAE. The Tribunal noted that the CIT(A) had examined the issue in detail and found no reason to interfere with the CIT(A)'s decision, rejecting the Revenue's ground. 8. Restriction of Addition on Account of Disallowance of Business Promotion Expenses: The Revenue contested the restriction of the addition of Rs. 57,656/- to Rs. 10,000/- for business promotion expenses. The CIT(A) found that the Assessing Officer did not point out specific defects and that the expenses mainly related to booking stalls abroad. The Tribunal upheld the CIT(A)'s decision, noting that the disallowance of Rs. 10,000/- was reasonable and rejecting the Revenue's ground. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds.
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