2021 (1) TMI 1244 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - expenditure incurred on exempt income - HELD THAT - CIT(A) has mentioned in his order that issue is covered by the decision given by his office in appellant own case for A.Y. 2012-13 2019 (10) TMI 1504 - ITAT AHMEDABAD wherein he has restricted the confirmed exempt income of the assessee. In our considered opinion we do not find any infirmity in the order passed by the Ld. CIT(A). Hence we confirm the order of the ld. CIT(A) and same does not require any kind of interference at our end. Late delivery charges disallowance - allowable business expenditure - HELD THAT - As decided in own case 2018 (12) TMI 182 - ITAT AHMEDABAD there is no dispute that apportion of the sale consideration was retained by the payees on account of /ate delivery of the machineries and as per the terms of contract the assessee had to compensate the customers if it fails to deliver the goods on time. There is no dispute that such expenditures were incurred during the ordinary course of the business of the assessee and therefore are directly related to the business activity of the assessee. It is also true that these expenditures are not penalty levied for any infraction of any legislated law of the land but has been incurred out of a contractual obligation. In our considered opinion such expenditures are definitely of revenue in nature and are allowable u/s. 37 of the Act. Appeal of assessee allowed. Disallowance of foreign commission u/s 40(a)(ia) - Commission paid to non-resident whose income is not taxable in India and all services rendered outside India and it has not permanent establishment or office of agent in India - HELD THAT - As decided in own case 2018 (12) TMI 182 - ITAT AHMEDABAD Section 9 of the act provides for the income deemed to accrue or arise in India. It is noticed that no income is deemed to accrue or arise in India by applying the provisions of section 9 (l)(i) as the assessing officer has failed to establish accruing or arising of any income from business connection in India or through or from any property or through the transfer of a capital asset situated in India. We observe that there was no material which can demonstrate that any of the agents had any Permanent Establishment in India as all the agents had their establishments situated in the overseas places. In the lights of the above facts and detailed findings of the Ld.CIT(A) it is clear that the Provisions of section 9 (1)(i) cannot be applied therefore we consider that the CIT(A) has rightly deleted the impugned disallowance of commission payment made to the foreign agents. In the result the appeal of the revenue is dismissed.

Summary

Issues:
1. Disallowance under Section 14A of the Income Tax Act
2. Disallowance of late delivery charges
3. Disallowance of foreign commission under Section 40(a)(ia)

Issue 1: Disallowance under Section 14A of the Income Tax Act:
The appellant Revenue challenged the order of the Commissioner of Income Tax (CIT(A)) regarding the disallowance under Section 14A. The appellant contended that the CIT(A) erred in restricting the disallowance to a lower amount without properly appreciating the case facts. The Tribunal noted that the assessee received dividend income from mutual funds but failed to justify the source of investment. The Tribunal upheld the CIT(A)'s decision, emphasizing that the provisions of Section 14A and Rule 8D were correctly applied. The disallowance amount was calculated based on the average investment and assets, resulting in the confirmed disallowance being added to the total income of the assessee.

Issue 2: Disallowance of late delivery charges:
The second issue involved the disallowance of late delivery charges incurred by the assessee. The Assessing Officer disallowed the charges, but the CIT(A) granted relief to the assessee based on past decisions and the nature of the expenses. The Tribunal, in line with previous rulings, upheld the CIT(A)'s decision, stating that such expenses were revenue in nature and allowable under Section 37 of the Act. The Tribunal found no reason to interfere with the CIT(A)'s order regarding the deletion of the late delivery charges disallowance.

Issue 3: Disallowance of foreign commission under Section 40(a)(ia):
The final issue concerned the disallowance of foreign commission under Section 40(a)(ia). The Tribunal observed that similar additions were deleted in previous years by the CIT(A) and the ITAT. The payments to non-residents for services rendered outside India were found not chargeable to tax in India, leading to the dismissal of the revenue's appeal. The Tribunal, in line with previous decisions, declined to interfere with the CIT(A)'s order regarding the deletion of the disallowance of foreign commission. The appeal filed by the Revenue was ultimately dismissed by the Tribunal.

In conclusion, the Tribunal dismissed the Revenue's appeal on all grounds, affirming the CIT(A)'s orders regarding the disallowances under Section 14A, late delivery charges, and foreign commission. The Tribunal found no infirmity in the CIT(A)'s decisions and declined to interfere based on past rulings and the nature of the expenses involved.