Tribunal Upheld CIT(A)'s Decision on Disallowances

The Tribunal upheld the CIT(A)'s decisions to delete disallowances on account of foreign commission, product registration fees, and electric installations. The AO's appeal was dismissed, and the cross-objection by the assessee was deemed infructuous. The judgment was delivered on 16th August 2016.

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Issues Involved:
1. Deletion of disallowance on account of foreign commission.
2. Deletion of disallowance on account of product registration fees.
3. Deletion of disallowance on account of electric installations.

Detailed Analysis:

1. Deletion of Disallowance on Account of Foreign Commission:
The Assessing Officer (AO) challenged the deletion of disallowance of Rs. 37,67,237 made on account of foreign commission. The AO contended that the commission paid to non-resident agents without tax deduction at source under Section 195 should be disallowed under Section 40(a)(i). The Tribunal referred to a coordinate bench decision in the case of ITO Vs Excel Chemicals India Pvt Ltd, where it was held that commission paid to non-resident agents for services rendered outside India is not taxable in India. The Tribunal emphasized that the AO overlooked Explanation 1 to Section 9(1)(i), which states that only income attributable to operations carried out in India can be taxed. Since the non-resident agents did not carry out any operations in India, their commission income was not taxable in India. The Tribunal also referred to the Supreme Court's decision in G E India Technology Centre Pvt Ltd Vs CIT, which clarified that tax deduction at source is required only when the payment has an element of income chargeable to tax in India. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the disallowance.

2. Deletion of Disallowance on Account of Product Registration Fees:
The AO disallowed Rs. 30,86,537 out of the total Rs. 38,78,253 incurred by the assessee for product registration fees, treating it as capital expenditure. The assessee argued that the expenditure was a routine marketing expense necessary for selling products in foreign markets, and the registration fees were recurring in nature. The Tribunal referred to the jurisdictional High Court's judgments in CIT Vs Torrent Pharmaceuticals Ltd and CIT vs Cadila Healthcare Ltd, which held that product registration expenses are deductible as revenue expenditure. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the disallowance.

3. Deletion of Disallowance on Account of Electric Installations:
The AO disallowed Rs. 10,66,974 on account of electric installations, treating it as capital expenditure. The Tribunal noted that this issue was already decided in favor of the assessee in the assessment year 2005-06 by a coordinate bench. The CIT(A) followed this precedent, and the Tribunal saw no reason to interfere with the CIT(A)'s decision.

Conclusion:
The Tribunal dismissed the appeal filed by the AO, upholding the CIT(A)'s decisions on all three issues. The cross-objection filed by the assessee was also dismissed as infructuous. The judgment was pronounced in the open court on 16th August 2016.

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