2016 (6) TMI 210 - AT - Income Tax

Tribunal Decision on Tax Appeals: Capital Loss Set-Off, TDS Verification, Exempt Income Expenses Disallowed

The Assistant Commissioner of Income-tax/The Deputy Commissioner of Income-tax, Company Circle – II (2), Chennai Versus M/s. Gimpex Limited And Vice-Versa

The Assistant Commissioner of Income-tax/The Deputy Commissioner of Income-tax, Company Circle – II (2), Chennai Versus M/s. Gimpex Limited And Vice-Versa ... Issues Involved:1. Set-off of capital loss against other capital gains.2. Disallowance under Section 40(a)(i) for non-deduction of TDS on foreign commission payments.3. Disallowance under Section 40(a)(i) for non-deduction of TDS on foreign service charges.4. Disallowance under Section 14A read with Rule 8D for expenses related to exempt income.5. Reconciliation of sales turnover discrepancies.Issue-wise Detailed Analysis:1. Set-off of Capital Loss Against Other Capital Gains:The Revenue contended that the Commissioner of Income-tax (Appeals) erred in directing the Assessing Officer to allow the loss of Rs. 10,53,12,695/- to be set off against other capital gains. The assessee had purchased units of ING Vysya Income Fund and sold them immediately after receiving bonus units, resulting in a claimed short-term capital loss. The Assessing Officer disallowed the loss, considering the transaction as intended solely for booking losses. However, the CIT(A) allowed the set-off, noting that Section 94(8) of the Income Tax Act, which disallows losses from bonus stripping, was applicable only from the assessment year 2005-06. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court judgment in CIT v. Walfort Share and Stock Brokers P. Ltd., which confirmed that pre-planned transactions are not inherently invalid if genuine. Thus, the Revenue's appeal was dismissed.2. Disallowance Under Section 40(a)(i) for Non-Deduction of TDS on Foreign Commission Payments:The Assessing Officer disallowed foreign commission payments for the assessment years 2009-10 and 2010-11 due to non-deduction of TDS. The CIT(A) deleted the disallowance, but the Tribunal found that the nature of services rendered by the non-resident agents was not adequately detailed in the records. Referring to the Tribunal's decision in ACIT v. Euro Leder Fashions Ltd., it was noted that the burden of proof lies on the assessee to show that the services were rendered abroad by non-residents without a business connection in India. The Tribunal remitted the matter back to the Assessing Officer for further verification, allowing the Revenue's appeal for statistical purposes.3. Disallowance Under Section 40(a)(i) for Non-Deduction of TDS on Foreign Service Charges:Similar to the issue of foreign commission payments, the Assessing Officer disallowed foreign service charges for the assessment years 2008-09, 2009-10, and 2010-11 due to non-deduction of TDS. The CIT(A) deleted the disallowance, but the Tribunal remitted the issue back to the Assessing Officer for verification, as the nature of services rendered by non-residents was not clear. The Tribunal directed the assessee to prove that the payments were for services rendered abroad, allowing the Revenue's appeal for statistical purposes.4. Disallowance Under Section 14A Read with Rule 8D for Expenses Related to Exempt Income:The Assessing Officer invoked Section 14A read with Rule 8D to disallow expenses related to exempt income for the assessment years 2008-09, 2009-10, and 2010-11. The CIT(A) partially confirmed and partially deleted the disallowances. The Tribunal upheld the application of Rule 8D, referencing its earlier decisions and the judgments of the Karnataka High Court in Pradeep Kar v. ACIT and the Kerala High Court in CIT v. Smt. Leena Ramachandran. The Tribunal allowed the Revenue's appeal on this issue, confirming the disallowance under Section 14A.5. Reconciliation of Sales Turnover Discrepancies:For the assessment year 2008-09, the Revenue raised an issue regarding the difference in sales turnover shown in the tax returns and the return of income. The Tribunal remitted the issue back to the Assessing Officer to reconcile the turnover declared in the sales tax return with the turnover declared in the profit and loss account. This ground of appeal was allowed for statistical purposes.Conclusion:The Tribunal dismissed the Revenue's appeal in ITA No.2023/Mds/2014, partly allowed ITA Nos. 2024 to 2026/Mds/2014 for statistical purposes, and dismissed the cross objections of the assessee in CO Nos.100 to 103/Mds/2014. The appeal in ITA No.1530/Mds/2014 was partly allowed, and ITA Nos. 1531 & 1532/Mds/2014 were dismissed. The order was pronounced on May 4, 2016, in Chennai.