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2017 (7) TMI 258 - AT - Income Tax


Issues Involved:
1. Deletion of addition towards "retention money deducted from sales."
2. Disallowance under section 40(a)(ia) on payments to clearing and forwarding charges.
3. Disallowance under section 14A for exempt income.
4. Disallowance for short payment of TDS on royalty charges.
5. Disallowance under section 36(1)(va) for late payment of PF and ESI.
6. Disallowance of provision for leave encashment under section 43B(f).

Issue-wise Detailed Analysis:

1. Retention Money Deducted from Sales:
The primary issue was whether the "retention money deducted from sales" should be included in the taxable income. The Assessing Officer (AO) noted that the assessee received the retention money within the same financial year and thus included it in the taxable income. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the retention money was recognized as income in the subsequent financial year when received. The Tribunal directed the AO to verify and include only the retention money received within the financial year under consideration and not to include amounts received in subsequent years.

2. Disallowance under Section 40(a)(ia) on Payments to Clearing and Forwarding Charges:
The AO disallowed expenses for clearing and forwarding charges, car lease charges, and freight outward for failure to deduct TDS. The CIT(A) observed that the payments were reimbursements or below the qualifying amount for TDS deduction. The Tribunal upheld the CIT(A)'s decision, confirming that the payments were not liable for TDS and thus not disallowable under section 40(a)(ia).

3. Disallowance under Section 14A for Exempt Income:
The AO applied Rule 8D to disallow expenses related to earning exempt income. The CIT(A) restricted the disallowance to 5% of the exempt income, noting that Rule 8D was not applicable retrospectively for the assessment year 2007-08. The Tribunal upheld the CIT(A)'s decision, emphasizing that Rule 8D applies from the assessment year 2008-09 onwards and the AO should adopt a reasonable basis for determining the expenditure.

4. Disallowance for Short Payment of TDS on Royalty Charges:
The AO disallowed 50% of the royalty charges paid to a non-resident, claiming the TDS was deducted at 10% instead of the required 20%. The CIT(A) deleted the disallowance, noting that the correct TDS rate was 10% as per the DTAA with France. The Tribunal upheld the CIT(A)'s decision, confirming the correct TDS rate was applied.

5. Disallowance under Section 36(1)(va) for Late Payment of PF and ESI:
The AO disallowed late payments of PF and ESI contributions. The CIT(A) deleted the disallowance, citing precedents that allowed such deductions if payments were made before the due date for filing the return. The Tribunal upheld the CIT(A)'s decision, referencing the jurisdictional High Court's ruling that contributions paid before the return filing due date are deductible.

6. Disallowance of Provision for Leave Encashment under Section 43B(f):
The AO disallowed the entire provision for leave encashment. The CIT(A) limited the disallowance to the amount debited to the profit and loss account and allowed the deduction as a contractual liability. The Tribunal directed the AO to re-examine the details and confirmed that the provision for leave encashment is not deductible following the Supreme Court's stay on the Calcutta High Court's decision in Exide Industries Ltd.

Conclusion:
The Tribunal provided detailed directions for each issue, ensuring that only the appropriate amounts were included in the taxable income and that the correct legal provisions were applied. The appeals were partly allowed for statistical purposes, directing further verification and adherence to applicable legal standards.

 

 

 

 

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