2016 (2) TMI 1339 - AT - Income Tax

TDS u/s 195 - Disallowance u/s 40(a)(ia) - services rendered and expenditure incurred is in the nature of commission - HELD THAT - It is not in dispute that the assessee firm is engaged in the business of manufacturing and export of readymade garments and in connection with the exports the assessee has incurred an amount. On perusal of the agreement with M/s Arjoo J. Ltd. the CIT(A) has given a clear finding that the services rendered and expenditure incurred is in the nature of commission. Given the fact that the commission has been paid in relation to export of garments outside India and the fact that the no services have been rendered in India we are unable to accede to the arguments of the ld. DR that the subject payments are taxable in India. Similar is the position in respect of payment to M. Ishikawa who has been paid commission in relation to export of garments as apparent from the agreement as well as working of the commission payments. Accordingly provisions of section 195 are not attracted in the instant case hence the disallowance of expenditure u/s 40(a)(i) is hereby deleted. - Decided in favour of assessee. Delayed employees contribution to PF and ESI - HELD THAT - CIT(A) has given a categorical finding that the employees contribution to ESI and PF has been paid before filing of the return of income u/s 139(1) of the Act. In view of the consistent stand taken by this Bench and respectfully following the decision of the Hon ble Rajasthan High Court in the case of State Bank of Bikaner Jaipur.and others 2014 (5) TMI 222 - RAJASTHAN HIGH COURT ground taken by the Revenue is dismissed .

Summary

Issues:
1. Disallowance of commission expenses for failure to comply with TDS provisions.
2. Disallowance of employees' contribution to PF & ESI beyond prescribed time limit.
3. Interpretation of provisions regarding employees' contribution to PF & ESI.

Issue 1 - Disallowance of Commission Expenses:
The appeal involved a dispute over the disallowance of commission expenses totaling Rs. 56,67,989/- due to non-compliance with TDS provisions. The CIT(A) held that the services rendered and expenditure incurred were in the nature of commission, not subject to TDS under section 195 of the Income Tax Act. The CIT(A) emphasized that the commission payments were related to exporting garments outside India and no services were provided within India. Consequently, the disallowance under section 40(a)(i) was deleted, and the Assessing Officer was directed to remove the disallowance of commission expenses.

Issue 2 - Disallowance of Employees' Contribution to PF & ESI:
The second issue revolved around the disallowance of Rs. 5,47,582/- for employees' contribution to PF & ESI made beyond the prescribed time limit. The CIT(A) found that the contributions were paid before filing the income tax return under section 139(1) of the Act. Citing a decision of the Hon'ble Rajasthan High Court, the CIT(A) dismissed the Revenue's challenge, emphasizing the timely payment of employees' contributions. As a result, the ground taken by the Revenue was dismissed.

Issue 3 - Interpretation of PF & ESI Contribution Provisions:
The judgment also addressed the interpretation of provisions governing employees' contribution to PF & ESI. The CIT(A) clarified that the employees' contributions were paid before the return of income was filed, aligning with the decision of the Rajasthan High Court. This interpretation led to the dismissal of the Revenue's challenge and the allowance of the assessee's cross-objection.

In conclusion, the Appellate Tribunal ITAT Jaipur ruled in favor of the assessee, dismissing the Revenue's appeal and allowing the cross-objection. The judgment provided detailed analyses for each issue, emphasizing compliance with TDS provisions and timely payment of employees' contributions to PF & ESI.