2013 (12) TMI 1728 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenditure u/s 40(a)(i) due to non-deduction of TDS by assessee's branches abroad.
2. Deletion of prior period expenses disallowed by the Assessing Officer.

Summary:

Issue 1: Disallowance of Expenditure u/s 40(a)(i)
The Department challenged the CIT(A)'s decision to allow expenditures incurred by the assessee's branches in the USA, UK, and Japan, arguing that no TDS was deducted as required u/s 195 of the Income Tax Act. The Assessing Officer had disallowed Rs. 9,44,57,453/- for A.Y. 2002-03, Rs. 2,77,71,671/- for A.Y. 2005-06, Rs. 1,90,41,453/- for A.Y. 2006-07, and Rs. 89,18,411/- for A.Y. 2007-08. The assessee contended that payments were made by foreign branches to non-residents whose income was not taxable in India, thus no TDS was required. The CIT(A) concluded that the recipients had no permanent establishment in India, and the payments fell under the exceptions provided in section 9(i)(vii)(b) of the Act and relevant DTAAs. Consequently, the CIT(A) directed the deletion of the disallowances. The Tribunal upheld the CIT(A)'s order, noting that the provisions of section 195 did not apply as the payments were not chargeable to tax in India.

Issue 2: Deletion of Prior Period Expenses
The Department disputed the deletion of Rs. 1,85,891/- out of Rs. 2,68,099/- disallowed by the Assessing Officer on the grounds that the expenses pertained to an earlier accounting year. The assessee argued that the expenses, though related to the previous year, were crystallized and paid in the current year. The CIT(A) allowed the claim, except for Rs. 64,463/- for telephone bills and Rs. 17,745/- for car rental charges, which were not claimed in the current year. The Tribunal upheld the CIT(A)'s decision, stating that the liability had accrued in the assessment year under consideration, and there was no evidence that the expenses were claimed in the preceding year.

Conclusion:
The Tribunal dismissed all appeals by the Department for A.Y. 2002-03, 2005-06, 2006-07, and 2007-08, upholding the CIT(A)'s orders on both issues. The Tribunal found no infirmity in the CIT(A)'s decisions regarding the non-applicability of TDS provisions u/s 195 and the crystallization of prior period expenses in the current year.