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2016 (10) TMI 717 - AT - Income TaxDisallowance of payment of commission on account of payment to sister concern - Held that - The nature of the services rendered by the MFPL has not been justified by the ld. AR. The AO never raised the issue that it was made to the sister concern therefore it is disallowed. The AR has not brought the specific services rendered by the MFPL. In the similar facts & circumstances the issue has been decided in favour of Revenue by the Hon ble High Court of Gujrat in the case of Gujarat Insecticides Ltd. v. Deputy Commissioner of Income-tax 2012 (10) TMI 1072 - GUJARAT HIGH COURT wherein Tibunal noted that the onus was on the assessee, claiming such deduction, to establish that such payments were made for services rendered. TDS u/s 194C - disallowance of carriage inward expenses on account of non deduction of TDS - Held that - There is amendment of proviso to Sec. 40(a)(ia) of the Act r.w.s 1st proviso to Sec. 201, wherein, if any payee has paid the taxes by offering / disclosing the said receipt in its return of income, then the payer (the assessee herein) should not be treated as assessee in default. Accordingly no disallowance u/s. 40(a)(ia) of the Act could operate in that scenario. The said proviso though inserted by the Finance Act 2012 w.e.f 1-4-2013 has been held to be retrospective in operation by recent decision of the Hon ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT . Thus we deem it fit and appropriate in the interest of natural justice and fair play to set aside this issue to the file of AO to decide the issue afresh in the light of the aforesaid judgment. Accordingly, we direct the AO to verify whether the payees have included the subject-mentioned receipts in their respective returns and paid taxes thereon or not. If that is so, then disallowance u/s. 40(a)(ia) of the Act shall not be made in the hands of assessee. Accordingly, assessee s ground is allowed for statistical purposes.
Issues Involved:
1. Disallowance of payment of commission to a sister concern. 2. Disallowance of carriage inward expenses due to non-deduction of TDS. 3. Disallowance of port expenses due to non-deduction of TDS. 4. Disallowance of legal and professional charges due to non-deduction of TDS. 5. Disallowance of interest on borrowed funds under Section 36(1)(iii). 6. Admissibility of additional evidence under Rule 46A. 7. Under-valuation of closing stock. Detailed Analysis: 1. Disallowance of Payment of Commission to Sister Concern: The assessee was disallowed a commission payment of ?8,29,500 to M/s Macleod Fuels Pvt. Ltd. (MFPL) by the AO, as there was no agreement or evidence of services rendered, and TDS was deducted at 2% instead of 10%. The CIT(A) upheld this disallowance, noting the lack of evidence and the relationship between the entities. The Tribunal found no justification for the services rendered and upheld the CIT(A)'s decision, referencing the Gujarat High Court decision in Gujarat Insecticides Ltd. v. Deputy Commissioner of Income-tax. 2. Disallowance of Carriage Inward Expenses: The AO disallowed ?6,99,508 paid to Vikas Enterprises for carriage inward expenses due to non-deduction of TDS. The CIT(A) upheld this decision, applying Section 194C. The Tribunal, referencing the Delhi High Court decision in CIT v. Ansal Land Mark Township (P) Ltd., remitted the matter back to the AO to verify if the payee included the receipts in their income tax return and paid taxes, which would negate the disallowance under Section 40(a)(ia). 3. Disallowance of Port Expenses: The AO disallowed ?45,50,580 paid to M/s Bhatia International Ltd. for port expenses due to non-deduction of TDS. The CIT(A) upheld this, noting the payments were for services beyond purchases. The Tribunal, following the same rationale as in the carriage inward expenses, remitted the matter back to the AO for verification under the guidelines of the Delhi High Court decision. 4. Disallowance of Legal and Professional Charges: The AO disallowed ?30,000 paid to Subash Mitra for legal and professional charges due to non-deduction of TDS. The CIT(A) upheld this, rejecting the reimbursement claim. The Tribunal, consistent with its approach in the previous issues, remitted the matter back to the AO for verification in light of the Delhi High Court decision. 5. Disallowance of Interest on Borrowed Funds: The AO disallowed ?20,56,654 under Section 36(1)(iii) for interest on borrowed funds used to give interest-free loans to relatives and sister concerns. The CIT(A) partially allowed relief, reducing the disallowance to ?2,63,663, noting the lack of nexus between the borrowed funds and interest-free loans. The Tribunal directed the AO to consider only the interest on unsecured loans and bank loans, amounting to ?16,93,807, for disallowance. 6. Admissibility of Additional Evidence: The Revenue contested the CIT(A)'s acceptance of additional evidence under Rule 46A. The Tribunal found that the CIT(A) considered only the material available during the assessment, dismissing the Revenue's grounds. 7. Under-valuation of Closing Stock: The AO added ?56,15,283 to the assessee's income for under-valuation of closing stock, based on discrepancies between the stock reported to the bank and in the books. The CIT(A) deleted the addition, accepting the assessee's explanation of valuation at cost for accounts and current value for bank reporting. The Tribunal upheld this decision, referencing the Gujarat High Court judgment in JCIT vs. Riddhi Steel And Tubes (P) Ltd., which supported the assessee's method of stock valuation. Conclusion: - Assessee's appeal is partly allowed for statistical purposes. - Revenue's appeal is dismissed.
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