2019 (1) TMI 537 - AT - Income Tax

Disallowance on account of provision of LTA (Leave Travel Allowance) - assessee is following the mercantile system of accounting - Held that - It is preceding year as well as the succeeding year the claim of the appellant has been accepted. Considering the principle of consistency demands that the claim of the appellant should be accepted in this year also. Considering VINITEC CORPORATION PVT. LTD. and BHARAT EARTH MOVERS VERSUS COMMISSIONER OF INCOME-TAX 2000 (8) TMI 4 - SUPREME COURT as the principle of consistency the claim of the assessee is accepted and addition on account of LTA. Disallowance on account of non-deduction of TDS on the payment made to M/s Graziano Transmission North America, USA holding the same as commission - the payment is actually in the nature of fee for technical services and the assessee only named the same as commission to enjoy the tax benefit - Held that - We find that the agent is not providing any technical services to the assessee. The agent is acting only commission agent and procuring the orders for the assessee and to inform the assessee for any infringement of rights. Even if the same is considered as business income of the commission agent same is not taxable in India as the foreign entity does not have any PE or BC in India. The commission is being entertained in the foreign company in the foreign country. No part of its income accrue or arise in India. Nor it is making available any technical knowledge, experience, skill, knowhow etc. to the assessee. Hence, Ld. CIT(A) has rightly held that the case of the assessee is identical to the decision in the case of DIT vs. Guy Carpenter and Company Ltd. 2012 (5) TMI 31 - DELHI HIGH COURT . - Decided against revenue.

Summary

Issues:
1. Disallowance of provision for LTA
2. Non-deduction of TDS on payment to a foreign company

Issue 1: Disallowance of provision for LTA
The Revenue appealed against the CIT(A)'s order reducing the disallowance of ?11,87,056 made on account of provision for LTA. The AO disallowed the amount, stating that the provision was hypothetical and not an allowable expenditure under section 37 of the Income Tax Act. The CIT(A) allowed the appeal, citing the principle of consistency and judicial pronouncements. The ITAT upheld the CIT(A)'s decision, noting that the claim had been accepted in preceding and succeeding years, and there was no infirmity in the CIT(A)'s findings.

Issue 2: Non-deduction of TDS on payment to a foreign company
The Revenue also challenged the CIT(A)'s deletion of the disallowance of ?88,91,816 made for non-deduction of TDS on a payment to a foreign company. The AO observed that TDS should have been deducted on the payment made, but the CIT(A) held that the payment was not for technical services and the foreign entity did not have a Permanent Establishment in India. The ITAT agreed with the CIT(A), stating that the agent was acting as a commission agent and not providing technical services to the assessee. As the income did not accrue or arise in India, the addition was deleted based on the decision of the Delhi High Court. The ITAT upheld the CIT(A)'s decision, finding it well-reasoned and not requiring interference.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s orders on both issues.