2012 (10) TMI 1181 - AT - Income Tax

ITAT Partially Allows Appeal, Emphasizes DTAA for Tax Withholding, and Validates Loss Incurred on Europe Tour

The Income Tax Appellate Tribunal (ITAT) partly allowed the appeal challenging the correctness of the assessment under section 143(3) for Assessment Year ... - Issues involved: Challenging correctness of assessment u/s 143(3) for AY 2008-09 - Tax withholding obligations for payment to Triginta Travels and Tours, Sweden - Disallowance of loss incurred for Europe tour organized for Vasavdutta Cement Ltd.Tax withholding obligations for payment to Triginta Travels and Tours, Sweden: The Assessing Officer disallowed the expenditure of &8377; 90,65,000 made to a Sweden based entity due to non-deduction of tax at source u/s 195. The CIT(A) upheld this disallowance, stating the income was taxable in India. However, the ITAT found that the CIT(A) did not consider the taxability under the India-Sweden DTAA. The ITAT remitted the matter back to the CIT(A) for fresh adjudication, emphasizing that tax deduction at source can only be invoked when the recipient has a primary tax liability in India.Loss incurred for Europe tour organized for Vasavdutta Cement Ltd: The Assessing Officer disallowed the loss of &8377; 8,40,261 incurred on the Europe tour for Vasavdutta Cement Ltd, stating there should have been no loss as it was a group concern. The ITAT disagreed, stating that it is normal for associated entities to incur losses on some transactions. The ITAT found no merit in the disallowance and deleted the same, emphasizing that the escalation of costs leading to the loss was a normal business phenomenon.In conclusion, the ITAT partly allowed the appeal, remitting the tax withholding issue back to the CIT(A) for fresh adjudication and deleting the disallowance of the loss incurred on the Europe tour.