2023 (6) TMI 1167 - AT - Income Tax

Disallowance of interest expenses - AO observed that the loans/advances were given without charging interest whereas the assessee had paid interest on funds borrowed from Syndicate Bank and Allahabad Bank - CIT-A deleted the addition - HELD THAT - If there are funds available both interest-free and over draft and / or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. Thus respectfully following the decision of Reliance Utilities 2009 (1) TMI 4 - BOMBAY HIGH COURT and assessee s own case 2014 (11) TMI 1272 - ITAT DELHI we uphold the order of CIT (Appeals) in deleting the disallowance of interest expenses and reject ground No. 1 of appeal of the Revenue. Addition towards unexplained stock - HELD THAT - Contentions made during search, seizure and survey operations do not serve any useful purpose if such contentions are not based upon credible evidence collected in the course of search and survey operations. See S. Khader Khan Son 2007 (7) TMI 182 - MADRAS HIGH COURT We hold that addition on account of undisclosed difference in stock discrepancy cannot be made merely on the basis of the statement given by the partner at the time of survey without any corroborative evidences found in the course of survey. In this case the assessee explained that there is no discrepancy in stock along with various evidences and explanations and, therefore, the ld. CIT (Appeals) has rightly deleted the addition of Rs. 4,00,84,677/- (4,29,63,309 - 28,78,632). Thus, the order of the ld. CIT (Appeals) is sustained to this extent. Ground No. 2 of grounds of appeal of Revenue is rejected. Bogus fabrication expenses - Merely because the summons could not be served, in our opinion, the addition cannot be sustained. The assessee in respect of these fabrication expenses furnished copies of bills, copies of ledger account, copy of Form 16A issued to the fabricators wherein the assessee has deducted TDS and remitted to the Govt. account. All these evidences cannot be brushed aside simply because the summons issued to the parties could not be served. There may be various reasons for non-service of summons on the parties. Thus simply because the summons could not be served the fabrication expenses incurred by the assessee cannot be treated as not proved. Thus, allowing ground No. 2 of grounds of appeal of the assessee, we direct the Assessing Officer to delete the addition. TDS u/s 195 - Disallowance being the commission paid to foreign agents - We hold that the commission paid to non-resident for procuring sales cannot be said to be fee paid for any technical services within the meaning of Explanation (2) to section 9(1)(vii) - Thus, we reverse the order of the ld. CIT (Appeals) on this issue and direct AO to delete the disallowance made u/s 195 for non-deduction of TDS. Ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Disallowance of Commission Paid to Foreign Agents
2. Addition in Respect of Unexplained Stock
3. Deletion of Disallowance of Interest Expenses

Summary:

1. Disallowance of Commission Paid to Foreign Agents:
The assessee contested the disallowance of Rs. 30,76,482/- paid as commission to foreign agents on the grounds that the amount was not chargeable to tax in India under respective DTAAs. The CIT(A) upheld the disallowance, treating the commission as fees for technical services subject to TDS under section 195 of the Income Tax Act. However, the Tribunal found that the services rendered by the foreign agents were not technical services but were for procuring orders, and thus, the payments did not fall under fees for technical services. The Tribunal relied on the agreements and judicial precedents, including the Supreme Court's decision in CIT vs. Toshoku Ltd. [125 ITR 525], and held that the commission paid was not taxable in India. Therefore, the Tribunal directed the deletion of the disallowance.

2. Addition in Respect of Unexplained Stock:
The Revenue appealed against the deletion of Rs. 4,00,84,677/- out of the total addition of Rs. 4,29,63,309/- made towards unexplained stock. The assessee also contested the sustained addition of Rs. 28,78,632/-. The Tribunal noted that the discrepancy in stock was due to unrecorded transactions and pending bills at the time of the survey, which were later accounted for in the audited books. The Tribunal found that the CIT(A) had rightly deleted the addition based on the remand reports and evidence provided by the assessee. The Tribunal also held that the statement recorded during the survey had no evidentiary value without corroborative evidence, following the decision in CIT vs. S. Khader Khan Son [352 ITR 480 (SC)]. Consequently, the Tribunal upheld the deletion of Rs. 4,00,84,677/- and directed the deletion of the sustained addition of Rs. 28,78,632/- as well.

3. Deletion of Disallowance of Interest Expenses:
The Revenue's appeal against the deletion of Rs. 63,70,992/- disallowed as interest expenses was dismissed. The Tribunal observed that the assessee had sufficient interest-free funds to cover the advances made to sister concerns, following the principle laid down in CIT vs. Reliance Utilities [313 ITR 340 (Bom)]. The Tribunal upheld the CIT(A)'s order, which relied on the Tribunal's decision in the assessee's own case for the earlier assessment year, confirming that no disallowance was warranted.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, directing the deletion of the disallowance of commission paid to foreign agents and the sustained addition towards unexplained stock.