2017 (3) TMI 477 - AT - Income Tax

Appellate Tribunal partially allows appeal on disallowances under section 40(a)(i) with remittance for further considerations.

The Appellate Tribunal partially allowed the assessee's appeal in a case involving disallowances under section 40(a)(i) of the Act. The Tribunal remitted ... Disallowance u/s.40(a)(i) - payments to various resident parties - non deduction of tds - retrospectivity - Held that:- As held in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT ) the insertion of the second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 1st April 2013 wherein the assessee failed to deduct tax in accordance with the provisions of Chapter-XVII B as long as the payee or resident has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the assessee would not be treated as a person in default. Hence, in our opinion, if the recipient of the payment has disclosed the impugned receipt as their income, then the assessee cannot be considered as the assessee in default in terms of sec.201(1) of the Act so as to invoke the provisions of the section 40(a)(i) of the Act. Accordingly, we remit this issue to the file of AO to examine the applicability of the said proviso to Sec.40(a)(i) of the Act and decide accordingly. Therefore, the issue is remitted to the file of AO for fresh consideration. This Ground is partly allowed. Payments made to agents of non-resident ship owners/charters - Disallowance u/s.40(a)(i) - Held that:- In this case Sec.172 only applies and there is no necessity of deduction on the above payments as it is not a “Royalty”. In our opinion, the applicability of Sec.172 to be examined after verifying the relevant agreement entered by the assessee with Foreign Shipping company and accordingly, we remit to the file of AO to examine the concern agreement with the Foreign Shipping company entered by the assessee and decide in the light of the Order of Tribunal cited in the case of Sical Logistics Ltd. (2017 (2) TMI 1099 - ITAT CHENNAI). Accordingly, this issue is remitted to the file of ld. Assessing Officer to consider afresh and decide accordingly. TPA - comparability - Held that:- Comparable as engaged in cargo handling, logistics and freights, segmental wise details are available for comparing with the assessee company are acceptable. Issues:1. Disallowance under section 40(a)(i) of the Act towards expenses paid to resident parties without TDS deduction.2. Disallowance under section 40(a)(i) of the Act for payments made to agents of non-resident ship owners/charterers.3. Rejection of comparables in Transfer Pricing documents.4. Selection of comparables NR International Ltd. and Natura Hue Chem Ltd.Issue 1: Disallowance under section 40(a)(i) for expenses paid to resident parties without TDS deduction:The assessee appealed against the disallowance under section 40(a)(i) of the Act for expenses paid to resident parties without TDS deduction. The Appellate Tribunal found merit in the argument that if the recipient parties included the payments as income in their returns and paid taxes, the disallowance cannot be made. Referring to a Delhi High Court case, the Tribunal remitted the issue to the AO to consider the applicability of the relevant proviso and decide accordingly. The ground was partly allowed.Issue 2: Disallowance under section 40(a)(i) for payments to agents of non-resident ship owners/charterers:The dispute involved disallowance under section 40(a)(i) for payments made to agents of non-resident ship owners/charterers. The Appellate Tribunal considered the argument that TDS was not required as the payments were for cargo handling and freight forwarding services, not for controlling the entire vessel. Relying on a Tribunal order, the Tribunal remitted the issue to the AO to examine the agreement with the foreign shipping company and decide accordingly.Issue 3: Rejection of comparables in Transfer Pricing documents:The third ground concerned the rejection of comparables by the TPO/DRP in the Transfer Pricing documents. The Tribunal upheld the rejection of certain comparables based on financial performance and accounting year differences. It directed the assessee to provide data for the relevant financial year for consideration as comparables.Issue 4: Selection of comparables NR International Ltd. and Natura Hue Chem Ltd.:Regarding the selection of comparables NR International Ltd. and Natura Hue Chem Ltd., the Tribunal rejected the plea to exclude NR International Ltd. as the segmental data considered for comparison was relevant to cargo handling and logistics. However, the Tribunal accepted Natura Hue Chem Ltd. as comparable since it was engaged in cargo handling, logistics, and freight services. The fourth ground raised by the assessee was rejected.In conclusion, the appeal of the assessee was partly allowed for statistical purposes, and the Tribunal provided detailed analyses and directions for each issue involved in the judgment.