9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (1) TMI 157 - AT - Income TaxTDS u/s 195 - Disallowance of commission, brokerage and discount expenses claimed by the assessee - disallowance of export commission expenses owing to non-deduction to tax at source on such remittances is in controversy - HELD THAT - Under the provisions of s. 195 of the Act, taxes are required to be deducted at source on the payments made to non resident, only if the income payable to the non resident is chargeable to tax in India. The income is chargeable to tax in India in the hands of the non resident where income received or deemed to have been received in India or the income has accrued or arisen or deemed to have accrued or arisen in India. Assessee has appointed several non-resident entities to act as agent for services such as soliciting customers, securing orders, assisting in deliver of goods outside India etc. The commission in the instant case has thus derived its genesis from sales. The property in goods have been transferred in overseas jurisdiction. We thus find force in the plea of the assessee that in the instant case where the overseas agents were paid commission for securing order etc., and such services were utilised for the purpose of making or earning income from a source outside India, the assessee is under no obligation to apply with provisions of Section 195 of the Act for the reasons that commission to such overseas agents are not taxable under the Act. The AO has not alleged or established any thing to the contrary. The AO was thus not justified to disallow such commission expenses under the Act. We thus direct the AO to reverse and cancel the additions on this score. Disallowance u/s 14A - assessee as contends that in view of suo motu disallowance which far exceeds the exempt income, no further disallowance is permissible u/s 14A r.w. Rule 8D - HELD THAT - In the light of the submissions made on behalf of the assessee, no further disallowance under Section 14A is called for in the light of the judgment rendered in the case of Joint Investments P. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT and Pr.CIT vs. Caraf Builders and Constructions P. Ltd. ( 2018 (12) TMI 410 - DELHI HIGH COURT . It is well settled law that disallowance under Section 14A can be made only in respect of those investments which have yielded tax free income during the year as held in Caraf Builders (supra) and ACB India Ltd. vs. ACIT ( 2015 (4) TMI 224 - DELHI HIGH COURT ) - AO is thus directed to delete the disallowance under Section 14A made over and above the disallowance offered by the assessee. Disallowance of ESOP expenses - Before the DRP, the assessee reiterated that the expenses are neither notional nor capital in nature. The expenses incurred are revenue in character and is incurred wholly and exclusively for the purpose of business - HELD THAT - The issue is no longer res integra and covered in favour of the assessee in Lemon Tree ( 2018 (4) TMI 1680 - DELHI HIGH COURT . The DRP however confirmed the proposal moved by the AO essentially on the ground that judgment rendered in the case of Lemon Tree Hotel Ltd. (supra) has been admitted in the Revenue Appeal by the Hon ble Supreme Court as reported 2019 (4) TMI 602 - SC ORDER . The additions based on admission of SLP by Hon ble Supreme Court is not tenable. While holding in favour of the Assessee, we also notice the assertions made on behalf of the assessee that similar claim has been allowed in the earlier years by the AO. No reason to take different stance in captioned assessment year has been brought to our notice. Thus, contrary view is not warranted. Bogus purchases - HELD THAT - AO in the final assessment order however continued to treat the purchases of fabric from STPL as bogus and refused the claim made under Section 37 of the Act We find that the additions made by the AO is not only erroneous but is also contrary to directions of DRP and settled legal position as held in Tejua Rohit Kumar Kapadia 2017 (10) TMI 729 - GUJARAT HIGH COURT ; CIT vs. JMD Computers and Communications P. Ltd. 2009 (1) TMI 855 - DELHI HIGH COURT ; Pr.CIT vs. Bansal Strips P. Ltd. 2021 (4) TMI 231 - DELHI HIGH COURT and plethora of other judgments. Thus we find prima facie merit in the plea of the assessee. While the AO has cast doubt on propriety of purchases of fabric made from Sungold Trade P. Ltd. on the basis of assessment order passed in the hands of such supplier, the AO has accepted the corresponding sale transactions. The exclusion of purchases from the trading results is not permissible without corresponding exclusion of the sales in such trading activity for arriving at a fair and balanced view. The action of the AO patently offends the rudimentary principle of accounting. We accordingly direct the AO to reverse the additions made and restore the position taken by the assessee. TP Adjustment on account of commission on standby letter of credit - HELD THAT - In the light of the undisputed fact emerging from record that no cost has been borne by the assessee company and in the absence of any rebuttal to the assertion that actual bank commission charges incurred has been fully recovered from the AEs, we hardly see any justification in the Transfer Pricing Adjustment on this score. We thus are not inclined to address the alternative plea of excessive estimation.
Issues Involved:
1. Validity of the assessment order. 2. Disallowance of commission, brokerage, and discount expenses. 3. Disallowance under Section 14A of the Income Tax Act. 4. Disallowance of ESOP expenses. 5. Disallowance of purchases as bogus. 6. Adjustment for commission on standby letter of credit. Summary: Issue 1: Validity of the assessment order Ground No.1 was dismissed as not pressed by the assessee during the hearing. Issue 2: Disallowance of commission, brokerage, and discount expenses The AO disallowed Rs. 11,64,88,755/- due to non-deduction of TDS on commission paid to foreign agents, alleging these payments were for 'fee for technical services'. The DRP directed the AO to reconsider the agreements and the doctrine of consistency. The Tribunal found no evidence supporting the AO's claims and noted that similar expenses were allowed in previous years. The Tribunal concluded that such payments are not taxable in India and directed the AO to reverse the disallowance. Issue 3: Disallowance under Section 14A of the Income Tax Act The AO disallowed Rs. 61,64,363/- under Section 14A. The assessee argued that it had already made a suo motu disallowance exceeding the exempt income earned. The Tribunal, citing relevant case law, directed the AO to delete the additional disallowance. Issue 4: Disallowance of ESOP expenses The AO disallowed Rs. 2,03,96,540/- claimed as ESOP expenses. The assessee cited the Biocon Ltd. and Lemon Tree Hotels Ltd. cases to support the claim. The Tribunal found the expenses to be allowable as business expenditure and directed the AO to reverse the disallowance. Issue 5: Disallowance of purchases as bogus The AO disallowed Rs. 15,17,87,755/- as bogus purchases from STPL. The DRP observed that sales cannot exist without corresponding purchases. The Tribunal noted that the AO accepted the sales but disallowed the purchases, which is contrary to accounting principles. The Tribunal directed the AO to reverse the disallowance. Issue 6: Adjustment for commission on standby letter of credit The TPO made an adjustment of Rs. 23,06,351/- for bank charges on standby letters of credit, claiming the assessee did not charge its AEs for the risk borne. The Tribunal found that the actual bank commission was fully recovered from the AEs and saw no justification for the adjustment. The Tribunal allowed the assessee's ground. Conclusion: The appeal of the assessee was partly allowed, with the Tribunal directing the AO to reverse the disallowances and adjustments made on various grounds.
|
