2019 (1) TMI 535 - AT - Income Tax

Late payment of contribution to PF and ESI - Held that - We fairly agree that the issue is now covered against the assessee by Hon ble jurisdictional High Court s judgment in the case of CIT Vs Gujarat State Road Transport Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT . We, therefore, decline to interfere in the findings of the CIT(A), which are in consonance with the law so laid down by Their Lordships, on this aspect of the matter. TDS u/s 195 - Disallowance on account of testing expenses - non deduction of tds u/s 40(a)(i) - whether the testing fees is clearly covered by the scope of Section 9(1)(vii) of the Act, and hence the income embedded in the testing fees is taxable in India - income accrued in India - India- Swiss DTAA - Held that - The taxability under the tax treaty provisions clearly fail to bring the testing fees paid to a Swiss entity within the ambit of its income chargeable to tax in India. As for the connotations of make available clause in the treaty, this issue is no longer res integra as relying on case of DIT v. Guy Carpenter & Co Ltd. 2012 (5) TMI 31 - DELHI HIGH COURT and CIT v. De Beers India (P.) Ltd. 2012 (5) TMI 191 - KARNATAKA HIGH COURT in favour of the assessee. The assessee did not have any tax withholding obligations from payments made to the Swiss entity in respect of the testing fees. Accordingly, the very foundation of impugned disallowance under section 40(a)(i) is devoid of any legally sustainable basis. - Decided in favour of assessee Disallowance of motor car running expenses - allowable busniss expenditure - Held that - We are of the considered view that this disallowance deserves to be deleted not only for the reason that it is based purely on surmises and conjectures, but also because the assessee being a juridical person, even if there is some element of personal use of car by the directors, it continues to be for business purposes of the assessee nevertheless. We delete the impugned disallowance - Decided in favour of assessee

Summary

Issues:
1. Challenge to correctness of the order dated 30th October, 2015 passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2012-13.
2. Disallowance of ?4,11,279 on account of late payment of contribution to PF and ESI.
3. Disallowance of ?1,67,090 on account of testing expenses.
4. Disallowance of ?2,50,000 being sustained by the CIT(A) out of motor car running expenses as claimed by the assessee.

Analysis:

Issue 1:
The appellant challenged the correctness of the order passed by the CIT(A) for the assessment year 2012-13 under section 143(3) of the Income Tax Act, 1961. Ground no. 1 was considered general and did not require specific adjudication. The appeal was made to the Appellate Tribunal ITAT AHMEDABAD.

Issue 2:
The appellant was aggrieved by the disallowance of ?4,11,279 due to late payment of contribution to PF and ESI. The issue was found to be covered against the appellant by a judgment of the Hon’ble jurisdictional High Court, and hence, the Tribunal declined to interfere, leading to the dismissal of ground no. 2.

Issue 3:
The appellant contested the disallowance of ?1,67,090 on account of testing expenses. The Assessing Officer disallowed the amount as tax was not deducted at the source. However, the Tribunal found that the tax treaty provisions did not bring the testing fees paid to a Swiss entity within the ambit of income chargeable to tax in India. The disallowance under section 40(a)(i) was held to be legally unsustainable, and therefore, it was deleted, allowing ground no. 3.

Issue 4:
The appellant challenged the disallowance of ?2,50,000 out of motor car running expenses. The CIT(A) sustained the disallowance citing possible personal use by directors. The Tribunal, after considering the contentions, deleted the disallowance as it was based on conjectures and surmises. The element of personal use by directors did not negate the business purpose of the expenses, leading to the allowance of ground no. 4.

In conclusion, the appeal was partly allowed by the Appellate Tribunal ITAT AHMEDABAD, with specific disallowances being deleted based on legal analysis and interpretations of tax treaty provisions and relevant tax laws.