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2024 (11) TMI 309 - AT - Income TaxTFDS u/s 195 - Non deduction of TDS on export commission paid by the assessee to NRIs - addition u/s 40(a)(ia) - CIT(A) deleted addition as remittance made to a non-resident for services rendered abroad, which services are not of the nature specified in Section 9, cannot be brought to tax in India - HELD THAT - The remittance to the agents was in foreign currency, i.e., in the currency of the respective country of the agent. The remittance, it is note worthy, was made directly to the agents and no deposit was made in their accounts. As such, there was no question of the remittance having either been received in India or being deemed to have been received in India, as correctly held by the ld. CIT(A), to which there is no rebuttal. Then, since the services were rendered outside India, it does not amount to a case of income either accruing or arising in India. So, it only remains to be seen as to whether the ld. CIT(A) has correctly held the income of the non-resident to be not accruing or arising in India as per the provisions of Section 9. The first requirement is that of a business connection in India or any property in India or any asset or source of income in India or the transfer of a capital situated in India. It is evident on record and not disputed that the matter does not concern the income in question to have accrued or arisen, whether directly or indirectly through or from any business connection in India or any property in India or any asset or source of income in India or through the transfer of a capital asset situated in India. Then, since the payments were not by way of either salary, or dividend, or interest, or royalty or technical services, other provisions of Section 9 do not get attracted. This being so, the remittance in question cannot be taxed in India. The Department, again has not been able to refute this. As a necessary corollary, then, since the income of the non- residents is not exigible to tax in India, the provisions of Section 195 do not get attracted and there was no liability on the assessee to make TDS on the payment made. Therefore, despite referring to and relying on the provisions of Sections 5 and 9 of the Act, as stated in Ground No. 2, the Department has not been able to make out a case as to how the matter at hand gets covered within the provisions of these two Sections. The findings of the ld. CIT(A) on this issue remains un-hinged and firm. These findings are, therefore, confirmed. Addition u/s 14A - CIT(A) deleted addition - HELD THAT - As no borrowings were made for making the investments and, therefore, no expenditure had been incurred to earn any income and no dividend or other exempt incomes were earned for the investment. The stress of the AO has been on the fact that the provisions of Section 14A of the Act are applicable despite no income having been earned. This, as held in Lakhani Marketing Inc 2014 (7) TMI 44 - PUNJAB AND HARYANA HIGH COURT is not sustainable. Further, since surplus funds were available with the assessee, the reliance by the assessee on the following decisions is found to be well placed, decision of Winsome Textile Inds Ltd. 2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT wherein also, it was held that the assessee had admittedly not made any claim for exemption and, therefore, Section 14 A could have no application. Moreover, as contended on behalf of the assessee and not disputed by the Department, in the assessee's own case for assessment year 2011-12 CIT(A) has itself deleted the addition made under Section 14 A under similar facts and circumstances. Thus action of the ld. CIT(A) deleting the addition made by the AO by invoking the provisions of Section 14 A of the Act found to be justified and the same is confirmed. Disallowance of interest @ 12% per month on notional basis, on the three advances given by the assessee - HELD THAT - As we find that the availability of own funds of the assessee more than the advances for the year needs to be ascertained. Thus, a presumption of the advances having been made from such own funds/ surplus, cannot be denied in case of such availability of funds executing advances. AO is, accordingly, directed to ascertain the position of availability of the funds of the assessee exceeding the advances, as alleged and to grant relief to the assessee in accordance with law. Addition made on account of VAT penalty - compensatory v/s penal nature - assessee submitted that this expenditure was compensatory in nature but AO, however, held the VAT penalty to be penal in nature, having arising due to a penalty on the part of the assessee for not making deposit within the stipulated time - CIT(A) deleted addition and held the penalty to be in the nature of a fine which is compensatory - HELD THAT - Before us, the Department has not been able to make out any case as to how the ld. CIT(A) is wrong in holding the penalty in question to be compensatory payment. No decision contrary to those relied on by the ld. CIT(A) has been cited before us. Therefore, finding no error therein, the Commissioner s action of deleting the addition is confirmed. Addition on account of application money paid by the assessee and advances made - CIT(A) deleted addition - HELD THAT - CIT(A) observed that since the funds had been invested from the assessee's Current Account, in which, the assessee's own funds were deposited, it could not be said that borrowed funds were used for making the advance; that no interest was payable by the assessee of this money; and that therefore, the disallowance of interest on this score had not been correctly made by the AO. The ld. CIT(A) deleted the addition. While doing so, the ld. CIT(A) found no difference in the facts for both the years, i.e., assessment year 2013- 14 and 2014-15.For assessment year 2013-14, the above deletion of disallowance of application money paid to HUDA was not challenged by the Department before the Tribunal - Decided in favour of assessee. Addition of advances from the Current Account - CIT(A) deleting the addition as observed that the assessee made representing the non-interest bearing funds, ignoring that the Current Account is mixed kitty account where interest bearing and interest free funds can be parked for further payment - HELD THAT - This position can well be verified and the AO is directed to ascertain the position of availability of the funds of the assessee exceeding the advances as alleged and to grant relief to the assessee in accordance with law.
Issues Involved:
1. Deletion of addition on account of commission paid to NRIs without deducting TDS. 2. Deletion of addition under Section 14A concerning investments made in shares. 3. Disallowance of interest on notional basis on advances given by the assessee. 4. Deletion of addition made on account of VAT penalty. 5. Deletion of addition under Section 36(1)(iii) concerning application money paid to HUDA and advances made to Zeal Exim Pvt. Ltd. Detailed Analysis: 1. Deletion of Addition on Account of Commission Paid to NRIs Without Deducting TDS: The Department appealed against the CIT(A)'s decision to delete the addition of Rs. 2,20,71,855/- paid as commission to NRIs without deducting TDS, arguing that the provisions of Sections 5 and 9 of the Income Tax Act mandate TDS as the income is deemed to accrue or arise in India. The AO had disallowed the expenditure under Section 40(a)(ia) due to non-deduction of TDS as per Section 195. The CIT(A) held that services rendered abroad do not attract tax in India, and thus, Section 195 was not applicable. The Tribunal upheld the CIT(A)'s decision, noting that the services were rendered outside India, and the income was not deemed to accrue or arise in India as per Sections 5 and 9. The Tribunal confirmed that since the income of non-residents was not taxable in India, TDS provisions under Section 195 were not applicable. 2. Deletion of Addition Under Section 14A Concerning Investments Made in Shares: The AO made an addition of Rs. 9,39,450/- under Section 14A, applying Rule 8D, arguing that disallowance is required even if no exempt income was earned, as per CBDT Circular No. 5 of 2014. The CIT(A) deleted the addition, relying on the Punjab & Haryana High Court's decision in "Lakhani Marketing Inc," which held that Section 14A cannot be invoked unless exempt income is received. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had sufficient interest-free funds and no exempt income was earned, thus disallowance under Section 14A was not justified. 3. Disallowance of Interest on Notional Basis on Advances Given by the Assessee: The AO disallowed interest on advances given by the assessee, citing that interest-bearing funds were used for non-business purposes. The CIT(A) confirmed the disallowance for certain advances, but the Tribunal directed the AO to ascertain the availability of interest-free funds exceeding the advances. The Tribunal noted that if sufficient own funds were available, the presumption is that advances were made from such funds, aligning with precedents like "Munjal Sales Corporation." 4. Deletion of Addition Made on Account of VAT Penalty: The AO treated the VAT penalty as penal in nature, disallowing it. The CIT(A) held the penalty to be compensatory, relying on precedents like "Lachhmandas Mathuradas." The Tribunal upheld the CIT(A)'s decision, finding no contrary evidence or decisions presented by the Department. 5. Deletion of Addition Under Section 36(1)(iii) Concerning Application Money Paid to HUDA and Advances Made to Zeal Exim Pvt. Ltd.: The AO disallowed interest on application money and advances, arguing they were not for business purposes and involved interest-bearing funds. The CIT(A) deleted the disallowance, noting that funds were from non-interest-bearing accounts. The Tribunal directed the AO to verify the availability of own funds exceeding the advances, reiterating that if such funds are available, disallowance is unwarranted. Conclusion: The Tribunal dismissed the Department's appeal for assessment year 2013-14, partly allowed the assessee's appeal for the same year, partly allowed the Department's appeal for assessment year 2014-15, and treated the assessee's appeal for 2014-15 as allowed for statistical purposes.
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