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2023 (4) TMI 188 - AT - Income TaxTDS u/s 195 - Disallowance u/s. 40(a)(i) - non-deduction of TDS on interest Paid and on legal charges paid - HELD THAT - The assessee cannot be denied the TDS Exemption on the ground that the original certificate was not produced by the assessee. D.R. could not produce before us any evidences to uphold the disallowance made by the AO. At the same time the Ld. D.R. could not produce contra findings of the Ld. CIT(A). We uphold the order passed by CIT(A) deleting the additions made u/s. 40(a)(i) for non deduction of Tax on interest paid and agency charges paid to BLB. Disallowance u/s 40(a)(i) - not deducting TDS on interest payment paid to Kreditanstat Fur Wiedraufbau (KFW) - HELD THAT - We found that the ld. CIT(A) after calling for a Remand Report that the A.O. accepted the payment made to KFW is as per certificate issued by Central Government vide letter dated 5 December, 1994. Further in the subsequent Assessment Year 2010-11 though a show cause notice was issued to make such disallowance, but no disallowance were made by the Assessing Officer while passing an assessment order for the Assessment Year 2010-11. Therefore the ld. CIT(A) was justified in deleting the disallowance made by the Assessing Officer. Disallowance u/s 40(a)(i) - non-deducting TDS for interest paid to BNP Paribas, Mumbai - contention of the Assessing Officer that BNP is a foreign bank and exemption provided u/s 194A(3) do not apply to foreign bank. Thus assessee ought to have deducted TDS on payments made to the bank - Though the Assessing officer accepted this view in the Remand Report but however submitted original certificate not produced before the A.O. HELD THAT - We are of the considered view, this cannot be a good ground to denying the exemption given by the Department to the assessee. Therefore the disallowance made by the Assessing officer is liable to be deleted since no disallowance made by the AO on similar payments. Thus the grounds raised by the Revenue is hereby devoid of merits and the same is liable to be dismissed. Non-deduction of TDS on interest payment paid to IFCL Limited - Assessee has referred to provisions of Section 194A and contended that provision of sub-section (1) requiring deduction of tax at source from payment of interest other than interest on security shall not apply, if payment is made to any financial corporation established by Central, State or Provincial Act. - HELD THAT - We found that the AO has not accepted IFCL is covered by any financial corporation established by Central, State or Provincial Act but made a disallowance u/s. 40(a)(i) for interest paid to IFCL Ltd. CIT(A) held that IFCL is a public financial institution and necessary amendment was made by Central Government in its notification and for the Assessment year 2010-11, the AO has not made any such disallowance. Therefore he deleted the disallowance made under section 40(a)(i) for the present assessment year 2009- 10. This factual things are not disputed by the Ld. CIT-DR. Therefore when the Assessing Officer in his Remand Report accepted that IFCL is a public financial institution, the question of disallowance made u/s. 40(a)(i) does not arise. Therefore the grounds raised by the Revenue is devoid of merits and the same is liable to be dismissed. Non-deduction of TDS for legal and professional charges paid to Solomon Solomon - AO in the assessment order has observed that payment made to above party is for technical services and Assessee was required to deduct TDS on such payment - HELD THAT - CIT(A) in the appellate proceedings u/s 201(1) and 201(1A) read with Section 195 held that the scope work included for remittance of Rs.19,59,688/- made to Solomon Solomon and came to conclusion that no technical knowledge, skill, experience, knowhow or process is made available to assessee Company in terms of Article 12(b) of the India-US Treaty and Assessee has not defaulted in deducting TDS u/s 195 of the Act. Therefore the disallowance is unwarranted. D.R. could not produce before us, the Revenue is on appeal before the Tribunal as against the appellate order passed by the Ld. CIT(A) in the 201(1) and 201(1A) proceedings - disallowance made by the Assessing Officer is liable to be deleted. Reimbursement of assessee s tax liability - HELD THAT - Assessing Officer was not justified in making separate addition of such amount on the ground that the assessee has not offered income on mercantile basis. It is further noticed that the A.O. in subsequent two years accepted such consistent accounting policy of the assessee and has not made any additions. Thus the grounds raised by the Revenue is devoid of merits and the same is liable to be dismissed. Disallowance of rebate given by assessee to its customer - Assessee has reiterated its contention as raised before Assessing Officer and argued that it was only cash discount which cannot be treated as payment of interest - HELD THAT - As in this case there is no deposit of principal by the recipient of discount with the appellant therefore, there is no question of allowing interest the payments under reference made by the appellant is discount only and the same cannot be termed as interest as wrongly held by the A.O. In view of this, neither the provisions of sec. 194A are applicable nor the provisions of sec. 40(a)(ia) of the Act are attracted on such payments would be invoked. Therefore, the disallowance made by the AO is hereby deleted. Disallowance u/s 14A - HELD THAT - Disallowance u/s. 14A is to be restricted to the extent of dividend income earned by the assessee and during the assessment year and the orders of the Lower Authorities is modified to the extent of disallowance of Rs. 50,000/- only u/s. 14A read with Rule 8D of the Rules.
Issues Involved:
1. Disallowance under Section 40(a)(i) for non-deduction of TDS on various payments. 2. Addition on account of reimbursement of tax liability. 3. Disallowance of rebate given to GUVNL. 4. Disallowance under Section 40(a)(ia) for non-deduction of TDS on payments to various entities. 5. Disallowance under Section 14A read with Rule 8D. Summary: 1. Disallowance under Section 40(a)(i) for Non-Deduction of TDS: - Interest and Legal Charges to BLB: The CIT(A) deleted the disallowance of Rs. 5,25,42,468/- for interest and Rs. 10,38,090/- for legal charges paid to Bayerische Landesbank (BLB). The CIT(A) accepted the exemption certificate issued by the Department of Economic Affairs, Ministry of Finance, Government of India, and held that the assessee was not required to deduct TDS under Section 195. The Tribunal upheld this decision, dismissing the Revenue's appeal. - Interest Payment to KFW: The CIT(A) deleted the disallowance of Rs. 6,90,21,681/- paid to Kreditanstalt für Wiederaufbau (KFW) based on a tax exemption certificate issued by the Central Government. The Tribunal upheld this decision, noting that the same Assessing Officer did not make such disallowance in subsequent years. - Interest Payment to BNP Paribas: The CIT(A) deleted the disallowance of Rs. 4,18,64,708/- paid to BNP Paribas, Mumbai, based on an order under Section 195(3) authorizing BNP Paribas to receive payments without TDS. The Tribunal upheld this decision, dismissing the Revenue's appeal. - Interest Payment to IFCL: The CIT(A) deleted the disallowance of Rs. 2,14,26,036/- paid to IFCL Ltd., recognizing it as a public financial institution exempt from TDS under Section 194A. The Tribunal upheld this decision, dismissing the Revenue's appeal. - Legal and Professional Charges to Solomon & Solomon: The CIT(A) deleted the disallowance of Rs. 19,59,688/- paid to Solomon & Solomon, holding that no TDS was required under Section 195 as per the India-US Treaty. The Tribunal upheld this decision, dismissing the Revenue's appeal. 2. Addition on Account of Reimbursement of Tax Liability: - The CIT(A) deleted the addition of Rs. 32,65,04,845/- made by the Assessing Officer for reimbursement of MAT by GUVNL, noting that the assessee had already accounted for Rs. 100.33 crores in its profit and loss account. The Tribunal upheld this decision, dismissing the Revenue's appeal. 3. Disallowance of Rebate Given to GUVNL: - The CIT(A) deleted the disallowance of Rs. 24,78,29,000/- given as a rebate to GUVNL, following the ITAT's earlier decision in the assessee's own case for A.Y. 2006-07. The Tribunal upheld this decision, dismissing the Revenue's appeal. 4. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Payments to Various Entities: - ERDA: The CIT(A) upheld the addition of Rs. 35,000/- under Section 40(a)(ia) paid to ERDA, as the income of the said association is exempt under Section 10(21). - Law Debenture Services Corporate Services Ltd. (LD): The CIT(A) upheld the addition of Rs. 66,936/- under Section 40(a)(i) for payment made to LD, which is not liable for deduction of tax at source under Article 7 of the DTAA between India and the UK. - Norton Rose: The CIT(A) upheld the addition of Rs. 1,08,39,146/- under Section 40(a)(i) for payment made to Norton Rose. - CLP Power India Pvt. Ltd.: The CIT(A) upheld the addition of Rs. 2,08,946/- under Section 40(a)(i) for payment made to CLP Power India Pvt. Ltd., holding it as reimbursement of expenditure. The Tribunal remitted these issues back to the CIT(A) for fresh adjudication based on additional documents submitted by the assessee. 5. Disallowance under Section 14A Read with Rule 8D: - The Tribunal restricted the disallowance under Section 14A to the extent of exempt income earned by the assessee, following the Jurisdictional High Court's judgment in CIT vs. Corrtech Energy Pvt. Ltd. and CIT-Vadodara vs. Vision Finstock Ltd. The Tribunal dismissed the Revenue's appeals and allowed the assessee's cross-objections. Conclusion: The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals and cross-objections, remitting certain issues back to the CIT(A) for fresh adjudication.
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