2019 (8) TMI 352 - AT - Income Tax

Appellate Tribunal Decision on Income Tax Disallowance

M/s. Buhler India Pvt. Ltd. Versus Deputy Commissioner of Income-Tax, Circle 1 (1) (2), Bangalore.

The Appellate Tribunal restricted the disallowance under section 14A of the Income Tax Act to the exempt dividend income earned by the assessee, rejecting ... Disallowance u/s 14A r.w.Rule 8D(2)(iii) - HELD THAT:- Hon’ble Delhi High Court in the case of Joint Investments (P) Ltd., Vs. CIT [2015 (3) TMI 155 - DELHI HIGH COURT] has taken the view that the disallowance u/s 14A cannot exceed the exempt income. Similar view has been expressed by the Hon’ble High Court in the case of CIT Vs. Holcim India Pvt. Ltd. [2014 (9) TMI 434 - DELHI HIGH COURT] . Respectfully following the aforesaid judicial pronouncements (supra), we hold that the disallowance u/s 14A in the case on hand should be restricted to the exempt dividend income earned by the assessee in the year under consideration. Disallowance u/s 40(a)(i) - TDS u/s 195 - payments of commission to foreign agents paid outside India for services rendered outside India - HELD THAT:- Respectfully following the aforesaid decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case [2017 (11) TMI 1844 - ITAT BANGALORE] , we also hold that the payment of commission to non-resident agent ‘AV & Sons’ in the case on hand cannot be considered as having been accrued or arisen or deemed to accrue or arise in India as the services were rendered outside India and the payment of commission was also outside India. In this view of the matter, the assessee was not obliged to effect any deduction of tax on the commission payments to the foreign agent ‘AV & Sons’ who is stationed outside India. Short grant of credit in respect of TDS - assessee contends that the AO has not granted it TDS credit as reflected in the 26AS of the assessee - HELD THAT:- As contended above, we direct the AO to examine / verify the assessee’s claim that of short grant of credit for TDS to the extent of ₹ 2,68,927/- in accordance with law. Consequently, ground No.12 of assessee’s appeal is allowed for statistical purposes. Issues:1. Disallowance under section 14A of the Act2. Disallowance under section 40(a)(i) of the Act3. Short grant of credit in respect of TDSIssue 1: Disallowance under section 14A of the Act:The Appellate Tribunal ITAT Bangalore considered the appeal by the assessee against the order of CIT(A) for Assessment Year 2011-12. The assessee raised grounds related to the disallowance of Rs. 9,28,747 under section 14A of the Income Tax Act, 1961. The assessee argued that the disallowance should be limited to the extent of exempt income earned, which was Rs. 5,46,848. The Tribunal noted that the assessee earned exempt dividend income of Rs. 5,46,848 in the relevant year. The AO had disallowed Rs. 9,28,747 under section 14A r.w.r. 8D(2)(iii). The Tribunal referred to judicial pronouncements and held that the disallowance under section 14A cannot exceed the exempt income. Therefore, the Tribunal restricted the disallowance to the exempt dividend income earned by the assessee, Rs. 5,46,848. The alternate argument of the assessee was accepted, and the grounds related to this issue were rejected.Issue 2: Disallowance under section 40(a)(i) of the Act:Regarding the disallowance under section 40(a)(i) of the Act, the assessee contested the disallowance of commission expenses paid to a foreign agent, AV & Sons, amounting to Rs. 68,68,580, for not withholding tax on such payments. The assessee argued that since the services were rendered and payments made outside India, the commission payments were not taxable in India. The Tribunal considered similar cases and held that the commission payments to the foreign agent could not be considered as accrued or arisen in India, as the services were provided and payments made outside India. Therefore, the assessee was not required to deduct tax on these commission payments. Consequently, the grounds raised by the assessee related to this issue were allowed.Issue 3: Short grant of credit in respect of TDS:The assessee contended that there was a short grant of credit for TDS to the extent of Rs. 2,68,927, as per the assessee's 26AS statement. The Tribunal directed the AO to verify the claim of the assessee regarding the short grant of TDS credit in accordance with the law. As a result, ground No.12 of the assessee's appeal was allowed for statistical purposes. In conclusion, the assessee's appeal for Assessment Year 2011-12 was partly allowed by the Tribunal on 2nd August 2019.