2017 (2) TMI 681 - AT - Income Tax

TDS u/s 195 - non deduction of TDS u/s 195 on commission paid to two foreign parties - addition u/s 40(a)(ia) - Held that - Undisputedly, the commission has been paid to two foreign parties outside India on account of sales orders procured by them for the assessee. The orders were obtained by them from outside India and no services have been rendered by them in India. Payments have also been made outside India. Under the provisions of section 5 and section 9 of the Act, the said commission payment on export sales cannot be held chargeable to tax in India. In view of that, the provisions of section 195 are not applicable and thus the provisions of section 40(a)(ia) have wrongly been applied by the AO. The addition thus made under section 40(a)(ia) is thus deleted and ground of appeal is allowed. Addition on account of under-statement of interest income earned - Held that - In the return of income, the appellant has claimed credit of the whole of such TDS of ₹ 43,619 which in terms of section 199 of the Act, impliedly means that the corresponding income has been offered to tax and where the same is not offered to tax, it should be brought to tax in that year. There cannot be a situation where the credit for TDS is made in one year and income is offered to tax in another year. In view of that, in the instant case, where the appellant has earned interest income on FDR placed with Corporation Bank and an amount of ₹ 2,79,949 has only been offered to tax, an addition to extent of ₹ 1,37,722 (Rs 4,17,671 less ₹ 2,79,949) has rightly been made by the AO. The appellant therefore gets relief of ₹ 2,79,949 which has already been offered to tax and addition to that extent is deleted. The ground of appeal is thus partly allowed. Addition on account of disallowance of bad debts - Held that - CIT(A) has given a finding that most of these payments claimed as bad debts have been shown in the books as excess payment made for purchase of consumable stores, freight outwards, staff advance etc. It is thus not in dispute that these excess payments are towards various expenditure pertaining to the business of the appellant and thus the test of business expediency is satisfied. Further, the same have been written off in the books of accounts during the year under consideration. In our view, such written off of sundry business advances are in the course of carrying on the business of the assessee and are allowable in the hands of the assessee. The ground of appeal is thus allowed.

Summary

Issues:
1. Disallowance of commission paid to non-resident parties due to non-deduction of TDS.
2. Addition of FDR interest income leading to double taxation.
3. Disallowance of genuine bad debts.

Analysis:
1. The first issue pertains to the disallowance of commission paid to non-resident parties due to the non-deduction of TDS. The AO disallowed ?4,40,820 under section 40(a)(ia) of the IT Act for non-deduction of TDS on commission paid to two foreign parties. However, the Tribunal found that the commission was paid for sales orders procured outside India, with no services rendered in India, making it non-taxable in India under sections 5 and 9 of the Act. As a result, the provisions of section 195 were deemed inapplicable, and the disallowance under section 40(a)(ia) was deleted, allowing the appeal.

2. Moving on to the second issue, the addition of ?4,35,333 as FDR interest income was disputed. The AO made this addition based on a variance between the interest income declared by the appellant and that shown in Form 26AS. The Tribunal noted discrepancies in the interest income calculations and clarified that the appellant had already offered ?2,79,949 to tax, with the remaining amount rightly added by the AO. Consequently, the Tribunal partially allowed the appeal, deleting the addition to the extent of the income already offered to tax.

3. Lastly, the third issue concerns the disallowance of ?21,283 as bad debts. The appellant claimed these amounts as not recoverable and thus written off. The CIT(A) found most of these payments to be related to business expenditures, satisfying the test of business expediency. As these were written off in the books during the relevant year, the Tribunal deemed them allowable business expenses. Therefore, the disallowance was overturned, and the ground of appeal was allowed.

In conclusion, the Tribunal partly allowed the appellant's appeal, overturning the disallowances related to commission payment, FDR interest income, and bad debts. The judgment provided detailed reasoning for each issue, ensuring a fair and thorough analysis of the tax implications involved.