Appellate Tribunal Decision on Income Tax Disallowance

The Appellate Tribunal restricted the disallowance under section 14A of the Income Tax Act to the exempt dividend income earned by the assessee, rejecting the grounds related to this issue. Regarding the disallowance under section 40(a)(i) of the Act for commission expenses paid to a foreign agent, the Tribunal allowed the grounds raised by the assessee, stating that the commission payments were not taxable in India. The Tribunal directed the Assessing Officer to verify the claim of the assessee regarding the short grant of TDS credit, allowing one ground of the assessee's appeal for statistical purposes. The assessee's appeal for Assessment Year 2011-12 was partly allowed by the Tribunal on 2nd August 2019.

---

---

Issues:
1. Disallowance under section 14A of the Act
2. Disallowance under section 40(a)(i) of the Act
3. Short grant of credit in respect of TDS

Issue 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.

---