2018 (4) TMI 257 - AT - Income Tax

Tribunal allows appeal, disallows expenses w/o TDS, confirms notional interest on partner's balance.

RBBR Exports Versus The Asst. Commissioner of Income Tax, Circle 12 (1)

RBBR Exports Versus The Asst. Commissioner of Income Tax, Circle 12 (1) - TMI Issues Involved:1. Disallowance of expenses related to commission payment made to non-resident agents and outward freight charges paid to foreign shipping company without TDS deduction under section 40(a)(i) of the Income Tax Act.2. Addition on account of notional interest chargeable on debit balance of a partner of the firm.Analysis:Issue 1: Disallowance of Expenses without TDS DeductionThe primary issue in this case revolves around the disallowance of expenses related to commission payments made to non-resident agents and outward freight charges paid to foreign shipping companies without TDS deduction under section 40(a)(i) of the Income Tax Act. The Assessing Officer (AO) disallowed commission payments made to foreign parties and outward freight charges without TDS deduction, leading to an appeal by the assessee before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld the AO's action, prompting the assessee to appeal before the Tribunal.The Tribunal analyzed the facts and circumstances of the case, noting that the payments were made to foreign parties without TDS deduction. Referring to a similar case, the Tribunal held that the income of foreign agents would not be taxed in India if the services were rendered outside India. The Tribunal also highlighted the responsibility to deduct tax at source only when the recipient's income is taxable in India. Additionally, the Tribunal cited a High Court case where payments to non-resident shipping companies or their agents were considered under section 172, excluding the need for TDS deduction. Based on these precedents and factual evidence provided by the assessee, the Tribunal concluded that the lower authorities erred in disallowing the expenses. Consequently, the disallowances were deleted, and the issue was decided in favor of the assessee.Issue 2: Addition on Account of Notional InterestThe second issue pertains to the addition made on account of notional interest chargeable on the debit balance of a partner of the firm. The AO disallowed a sum claimed as capital expenditure, treating it as interest chargeable on the partner's debit balance. The CIT(A) confirmed the AO's action, emphasizing that the partner's capital account in debit balance indicated the utilization of interest-bearing funds by the partner. The CIT(A) dismissed the argument regarding the supplementary partnership deed exempting interest payment to the partner, focusing on the utilization of interest-bearing funds by the partner to the detriment of the firm.During the appeal before the Tribunal, the assessee's counsel failed to provide evidence or challenge the CIT(A)'s order effectively. As a result, the Tribunal confirmed the CIT(A)'s decision, dismissing the appeal on this issue. The addition on account of notional interest chargeable on the partner's debit balance was upheld.In conclusion, the Tribunal partly allowed the assessee's appeal, deleting the disallowances related to expenses without TDS deduction but confirming the addition on account of notional interest chargeable on the partner's debit balance.Order pronounced in the open court on 04-04-2018.