2013 (3) TMI 820 - HC - Income Tax

Revenue's Appeal Denied on Expense Disallowance: Tribunal Upheld Decision on Composite Contract

The Commissioner of Income Tax – 3 Versus M/s. Pidilite Industries Limited

The appeal by Revenue against the Tribunal's order for the assessment year 2007-08 regarding the disallowance of expenses under Section 40(a)(i) and ... - Issues involved: Appeal by Revenue against Tribunal's order for assessment year 2007-08 regarding disallowance of expenses under Section 40(a)(i) and 40(a)(ia) of the Income Tax Act, treatment of freight expenses, applicability of TDS provisions, and treatment of purchases made by the assessee.Disallowed Expenses under Section 40(a)(i) and 40(a)(ia):The Revenue appealed the Tribunal's decision to delete the disallowance of expenses amounting to Rs. 56,47,12,860 under Section 40(a)(i) and 40(a)(ia) of the Act for non-deduction of TDS. The Tribunal found that there was no independent contract for freight between any transporter and the assessee, as it was part of a composite contract for the supply of raw material. The Tribunal concluded that since the assessee was not obligated to pay freight separately, there was no requirement to deduct TDS. Therefore, the Tribunal's decision was upheld based on factual findings, and the appeal on this issue was not entertained.Applicability of TDS Provisions:The Tribunal's decision on the applicability of TDS provisions to freight expenses was upheld, as there was no separate contract for freight and it was part of a composite contract for the supply of goods. Since the assessee was not directly responsible for paying freight, the Tribunal found no basis for disallowance under Section 40(a)(ia) of the Income Tax Act. This decision was based on factual findings, and the appeal on this issue was not entertained.Treatment of Purchases Made by the Assessee:Regarding the purchases made by the assessee, the Tribunal upheld the order of the Commissioner of Income Tax (A) by distinguishing between purchases and works contracts. It was found that statutory levies on the purchases were paid by the assessee to its seller, and the transactions were on a principal-to-principal basis. As there was no need to deduct TDS on these purchases, the Tribunal's decision was based on factual findings, and the appeal on this issue was not entertained.Admitted Questions:The High Court admitted the appeal on questions related to the order of the CIT (A) regarding the treatment of fees paid for services utilized by the Indian company, and the oversight of provisions under Section 40(a)(ia) applicable to payments made outside India. These questions will be further examined by the Court.